FairPoint Communications 2005 Annual Report Download - page 50

Our ability to service our indebtedness depends on our ability to generate cash in the future. We are not required to make any scheduled principal
payments under our credit facility’s term loan facility prior to maturity in February 2012. We will need to refinance all or a portion of our indebtedness on or
before maturity. We may not be able to refinance our indebtedness on commercially reasonable terms or at all. If we were unable to renew or refinance our credit
facility, our failure to repay all amounts due on the maturity date would cause a default under our credit facility. In addition, borrowings under our credit
facility bear interest at variable interest rates. On February 8, 2005, we entered into three interest rate swap agreements, with notional amounts of
$130.0 million each, to effectively convert a portion of our variable rate interest exposure to fixed rates ranging from 3.76% to 4.11%, plus a 2.0% margin.
These swap agreements expire beginning December 31, 2007 through December 31, 2009. On April 7, 2005, we entered into two additional interest rate swap
agreements, one with the notional amount of $50.0 million to effectively convert a portion of our variable rate interest exposure to a fixed rate of 4.69%, plus a
2.0% margin, beginning on April 29, 2005 and ending on March 31, 2011, and one with the notional amount of $50.0 million to effectively convert a portion
of our variable rate interest exposure to a fixed rate of 4.72%, plus a 2.0% margin, beginning on June 30, 2005 and ending on March 31, 2012.
Effective on September 30, 2005, we amended our credit facility to reduce the effective interest rate margins on the $588.5 million term facility by 0.25%
to 1.75% on Eurodollar loans and to 0.75% for Base rate loans. This amendment also effectively reduced the fixed interest rates on our interest rate swap
agreements by 0.25%.
As a result of these swap agreements, as of December 31, 2005, approximately 82% of our indebtedness bore interest at fixed rates rather than variable
rates. After these interest rate swap agreements expire, our annual debt service obligations on such portion of the term loans will vary from year to year unless
we enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge. To the extent interest rates increase in the future, we may not
be able to enter into new interest rate swaps or to purchase interest rate caps or other interest rate hedges on acceptable terms. An increase of 10% in the annual
interest rates on our variable rate indebtedness (excluding variable rate indebtedness which has its interest rate effectively fixed under interest rate swap
agreements) would result in an increase of approximately $0.7 million in our annual cash interest expense. To the extent interest rates increase in the future, we
may not be able to enter into a new interest rate swap or to purchase an interest rate cap or other interest rate hedge on acceptable terms.
Based on the dividend policy with respect to our common stock, we may not have any significant cash available to meet any unanticipated liquidity
requirements, other than available borrowings, if any, under the revolving facility of our credit facility. As a result, we may not retain a sufficient amount of
cash to finance growth opportunities, including acquisitions, or unanticipated capital expenditures or to fund our operations. If we do not have sufficient cash
for these purposes, our financial condition and our business will suffer. However, our board of directors may, in its discretion, amend or repeal the dividend
policy to decrease the level of dividends provided for or discontinue entirely the payment of dividends.
We used net proceeds received from the offering, together with approximately $566.0 million of borrowings under the term loan facility of our credit
facility, to, among other things, repay all outstanding loans under our old credit facility, repurchase all of our series A preferred stock and consummate tender
offers and consent solicitations in respect of our outstanding 9 2% notes, floating rate notes, 12 2% notes and 11 8% notes. On March 10, 2005, we redeemed
the remaining outstanding 9 2% notes and floating rate notes. We redeemed the remaining outstanding 12 2% notes on May 1, 2005 with borrowings under the
delayed draw facility of our credit facility.
Net cash used in investing activities of continuing operations was $42.8 million, $21.0 million and $54.0 million for the years ended December 31,
2005, 2004 and 2003, respectively. These cash flows primarily reflect capital expenditures of $28.1 million, $36.5 million and $33.6 million for the years
ended December 31, 2005, 2004 and 2003, respectively, and acquisitions of telephone properties, net of cash
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