Frontier Communications 2005 Annual Report Download - page 26

24
CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
(a) LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2005, we used cash flows from continuing operations, the proceeds from the
sale of non-strategic assets, stock option exercises and cash and cash equivalents to fund capital expenditures,
dividends, interest payments, debt repayments and stock repurchases. As of December 31, 2005, we had cash and
cash equivalents aggregating $265.8 million.
For the year ended December 31, 2005, our capital expenditures were $268.5 million, including $252.2 million
for the Frontier segment, $16.1 million for the ELI segment and $0.2 million of general capital expenditures. We
continue to closely scrutinize all of our capital projects, emphasize return on investment and focus our capital
expenditures on areas and services that have the greatest opportunities with respect to revenue growth and cost
reduction. For example, we will allocate significant capital to services such as high-speed internet in areas that are
growing or demonstrate meaningful demand as well as the launch of new products such as wireless and VOIP
services.
Increasing competition, offering new services such as wireless and VOIP, and improving the capabilities or
reducing the maintenance costs of our plant may cause our capital expenditures to increase in the future. For 2006,
we expect our capital expenditures to increase in order to build wireless data networks and expand the capabilities of
our data networks.
As of December 31, 2005, we have available lines of credit with financial institutions in the aggregate amount
of $250.0 million. Associated facility fees vary, depending on our debt leverage ratio, and are 0.375% per annum as
of December 31, 2005. The expiration date for the facility is October 29, 2009. During the term of the facility we
may borrow, repay and reborrow funds. The credit facility is available for general corporate purposes but may not
be used to fund dividend payments. We have never borrowed any money under the facility.
Our ongoing annual dividends of $1.00 per share under our current policy utilize a significant portion of our
cash generated by operations and therefore limits our operating and financial flexibility. While we believe that the
amount of our dividends will allow for adequate amounts of cash flow for other purposes, any 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
access revenues and the other factors described above are expected to reduce our cash generated by operations and
may require us to increase capital expenditures. The downgrades in our credit ratings in July 2004 to below
investment grade may make it more difficult and expensive to refinance our maturing debt. We have in recent years
paid relatively low amounts of cash taxes. We expect that over the next several years our cash taxes will increase
substantially.
We believe our operating cash flows, existing cash balances, and credit facilities will be adequate to finance
our working capital requirements, fund capital expenditures, make required debt payments through 2007, pay taxes,
pay dividends to our shareholders in accordance with our dividend policy, and support our short-term and long-term
operating strategies. We have approximately $227.8 million, $37.9 million and $701.1 million of debt maturing in
2006, 2007 and 2008, respectively.
Share Repurchase Programs
On May 25, 2005, our Board of Directors authorized us to repurchase up to $250.0 million of our common
stock. This share repurchase program commenced on June 13, 2005. As of December 31, 2005, we completed the
repurchase program and had repurchased a total of 18,775,156 common shares at an aggregate cost of $250.0 million.
In February 2006, our Board of Directors authorized us to repurchase up to $300.0 million of our common stock in
public or private transactions over the following twelve-month period. We may in the future purchase additional
shares of our common stock.
Issuance of Common Stock
On August 17, 2004 we issued 32,073,633 shares of common stock, including 3,591,000 treasury shares, to our
equity unit holders in settlement of the equity purchase contract component of the equity units. With respect to the
$460.0 million senior note component of the equity units, we repurchased $300.0 million principal amount of these
notes in July 2004. The remaining $160.0 million of the senior notes were repriced and a portion was remarketed on
August 12, 2004 as our 6.75% notes due August 17, 2006.