Earthlink 2014 Annual Report Download - page 30

Table of Contents
or current five percent stockholders increase their interest. Due to this risk, we monitor our purchases of additional shares of our common stock.
Since an “ownership change”
also could result from a change in control of our company, with subsequent annual limitations on the use of our net
operating losses, this could discourage a change in control.
Risks Related to Our Liquidity and Financial Resources
Our indebtedness could adversely affect our financial health and limit our ability to react to changes in our business and industry.
As of December 31, 2014, we had $600.0 million outstanding principal amount of debt, which consisted of $300.0 million outstanding principal
amount of 7.375% senior secured notes due 2020 (the “Senior Secured Notes”)
and $300.0 million outstanding principal amount of 8.875%
senior notes due 2019 (the “Senior Notes”).
We also have $135.0 million of unutilized capacity under our senior secured revolving credit facility
and we may incur significant additional indebtedness in the future. Our substantial indebtedness will require us to use a substantial portion of our
cash flows from operations to make debt service payments and may:
Our ability to make payments on our indebtedness will depend on our ability in the future to generate cash flows from operations, which is
subject to all the risks of our business. We may not be able to generate sufficient cash flows from operations for us to repay our indebtedness
when such indebtedness becomes due and to meet our other cash needs.
We may require substantial capital to support business growth, and this capital may not be available to us on acceptable terms, or at all.
We incurred capital expenditures of $102.9 million in 2014, and we expect to incur capital expenditures of approximately $90.0 million
to
$100.0 million
in 2015. We may require additional capital to support our business growth, including the need to develop new services and
products, enhance our operating infrastructure or acquire complementary businesses and technologies. We may also require substantial capital to
maintain, upgrade and enhance our network facilities and operations. Accordingly, we may need to engage in equity or debt financings to secure
additional funds.
We may not be able to secure additional debt or equity financing on favorable terms, or at all, at the time we desire to obtain such funding. If we
are unable to obtain additional capital when needed, we may not be able to pursue our growth strategy, and our business could suffer. If we raise
additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in
their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those
of holders of our common stock. In addition, any debt financing that we may obtain in the future could have restrictive covenants relating to our
capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to
pursue business opportunities, including potential acquisitions.
Our debt agreements include restrictive covenants, and failure to comply with these covenants could trigger acceleration of payment of
outstanding indebtedness.
The agreements that govern our Senior Secured Notes, Senior Notes and senior secured revolving credit facility impose significant operating and
financial restrictions on us. If we breach any of these covenants, a default could result under one or more of these agreements, which may require
us to repay some or all of our indebtedness. These restrictions limit or restrict, among other things, our ability and the ability of our restricted
subsidiaries to:
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•
limit our ability to use our cash flows from operations for working capital, capital expenditures, acquisitions or other general
business purposes;
•
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business
purposes;
•
limit our flexibility to plan for, or react to, changes in our business and industry;
• limit our ability to engage in strategic transactions or to make divestitures of non-
strategic businesses;
•
place us at a competitive disadvantage compared to our less leveraged competitors; and
•
increase our vulnerability to the impact of adverse economic and industry conditions.