Frontier Communications 2005 Annual Report Download - page 14

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12
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
We may complete a significant business combination or other transaction that could increase our shares
outstanding, affect our debt, result in a change in control, or both.
From time to time we evaluate potential acquisitions and other arrangements that would extend our geographic
markets, expand our services, enlarge the capacity of our networks or increase the types of services provided through
our networks. If we complete any acquisition or other arrangement, we may require additional financing that could
result in an increase in our shares outstanding and/or debt, result in a change in control, or both. There can be no
assurance that we will enter into any transaction.
Our business is sensitive to the creditworthiness of our wholesale customers.
We have substantial business relationships with other telecommunications carriers for whom we provide
service. During the past few years, several of our customers have filed for bankruptcy. While these bankruptcies
have not had a material adverse effect on our business to date, future bankruptcies in our industry could result in our
loss of significant customers, more price competition and uncollectible accounts receivable. As a result, our revenues
and results of operations could be materially and adversely affected.
RISKS RELATED TO LIQUIDITY, FINANCIAL RESOURCES, AND CAPITALIZATION
Substantial debt and debt service obligations may adversely affect us.
We have a significant amount of indebtedness. We may also obtain additional long-term debt and working
capital lines of credit to meet future financing needs, subject to certain restrictions under our existing indebtedness,
which would increase our total debt.
The significant negative consequences on our financial condition and results of operations that could result
from our substantial debt include:
• limitations on our ability to obtain additional debt or equity financing;
• instances in which we are unable to meet the financial covenants contained in our debt agreements or
to generate cash sufficient to make required debt payments, which circumstances have the potential of
accelerating the maturity of some or all of our outstanding indebtedness;
• the allocation of a substantial portion of our cash flow from operations to service our debt, thus reducing
the amount of our cash flow available for other purposes, including operating costs, dividends and capital
expenditures that could improve our competitive position or results of operations;
• requiring us to sell debt or equity securities or to sell some of our core assets, possibly on unfavorable
terms, to meet payment obligations;
• compromising our flexibility to plan for, or react to, competitive challenges in our business and the
communications industry; and
• the possibility of our being put at a competitive disadvantage with competitors who do not have as
much debt as us, and competitors who may be in a more favorable position to access additional capital
resources.
We will require substantial capital to upgrade and enhance our operations.
Replacing or upgrading our infrastructure will result in significant capital expenditures. If this capital is not
available when needed, our business will be adversely affected. Increasing competition, offering new services,
improving the capabilities or reducing the maintenance costs of our plant may cause our capital expenditures to
increase in the future. In addition, our ongoing annual dividend of $1.00 per share under our current policy utilizes
a significant portion of our cash generated by operations and therefore limits our operating and financial flexibility
and our ability to significantly increase capital expenditures. While we believe that the amount of our dividend will
allow for adequate amounts of cash flow for capital spending and other purposes, any material reduction in cash
generated by operations and any increases in capital expenditures, interest expense or cash taxes would reduce the
amount of cash generated in excess of dividends. Losses of access lines, increases in competition, lower subsidy and