Frontier Communications 2007 Annual Report Download - page 25

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
On October 24, 2007, the Federal Communications Commission (FCC) released an order granting us relief
from certain tariff and pricing regulations on our existing packet-switched and optical transmission services.
While this is a positive regulatory step by the FCC, these services are a small, but growing, portion of our current
total revenues. The impact of this ruling will not have an immediate material impact on our revenues.
(a) LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES
As of December 31, 2007, we had cash and cash equivalents aggregating $226.5 million. Our primary
source of funds continued to be cash generated from operations. For the year ended December 31, 2007, we used
cash flow from continuing operations, incremental borrowings, and cash and cash equivalents to fund a
significant portion of the acquisition of Commonwealth, the entire acquisition of GVN, capital expenditures,
dividends, interest payments, debt repayments and stock repurchases.
We believe our operating cash flows, existing cash balances, and credit facility will be adequate to finance
our working capital requirements, fund capital expenditures, make required debt payments through 2008, pay
taxes, pay dividends to our stockholders in accordance with our dividend policy and support our short-term and
long-term operating strategies. However, a number of factors, including but not limited to, increased cash taxes,
losses of access lines, increases in competition and lower subsidy and access revenues are expected to reduce our
cash generated by operations. Our below investment grade credit ratings may make it more difficult and
expensive to refinance our maturing debt, although we do not have any significant maturities until 2011. We have
approximately $2.4 million and $2.5 million of debt maturing in 2008 and 2009, respectively.
We have in recent years paid relatively low amounts of cash taxes. We expect that in 2008 and beyond our
cash taxes will increase substantially, as our federal net operating loss carryforwards and AMT tax credit
carryforwards are estimated to be fully utilized during 2007 and 2008. We paid $54.4 million in cash taxes
during 2007, and expect to pay approximately $130.0 million to $140.0 million in 2008. Our 2008 cash tax
estimate does not reflect the impact of the “Economic Stimulus Act of 2008,” which we are currently evaluating.
CASH FLOW USED BY INVESTING ACTIVITIES
Acquisitions
On March 8, 2007, we acquired Commonwealth in a cash-and-stock taxable transaction, for a total
consideration of approximately $1.1 billion. We paid $804.1 million in cash ($663.7 million net, after cash
acquired) and issued common stock with a value of approximately $247.4 million.
In connection with the acquisition of Commonwealth, we assumed $35.0 million of debt under a revolving
credit facility and $191.8 million face amount of Commonwealth convertible notes (fair value of $209.6 million).
During March 2007, we paid down the $35.0 million credit facility. We have retired all but $8.5 million of the
$191.8 million face amount of Commonwealth notes as of December 31, 2007. The notes were retired by the
payment of $165.4 million in cash and the issuance of our common stock valued at approximately $36.7 million.
The premium paid of $18.9 million was recorded as $17.8 million to goodwill and $1.1 million to other income
(loss), net.
On October 31, 2007, we completed the acquisition of Global Valley Networks, Inc. and GVN Services for
a total cash consideration of $62.0 million.
Rural Telephone Bank
We received approximately $64.6 million in cash from the dissolution of the Rural Telephone Bank (RTB)
in April 2006, which resulted in the recognition of a pre-tax gain of approximately $61.4 million during the
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