FairPoint Communications 2006 Annual Report Download - page 20

our cash flows, cash requirements, financial condition, contractual restrictions, provisions of applicable law and other factors that our board of directors may
deem relevant. Our board of directors may decrease the level of dividends provided for in the dividend policy or entirely discontinue the payment of dividends.
Our credit facility contains significant restrictions on our ability to make dividend payments. There can be no assurance that we will generate sufficient cash
from continuing operations in the future, or have sufficient surplus or net profits, as the case may be, under Delaware law, to pay dividends on our common
stock in accordance with the dividend policy. If we were to use borrowings under our credit facility’s revolving facility to fund dividends, we would have less
cash available for future dividends. The reduction or elimination of dividends may negatively affect the market price of our common stock.
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We may not retain a sufficient amount of cash to finance a material expansion of our business, or to fund our operations consistent with past levels of
funding in the event of a significant business downturn. In addition, because a substantial portion of cash available to pay dividends will be distributed to
holders of our common stock under our dividend policy, our ability to pursue any material expansion of our business, including through acquisitions or
increased capital spending, will depend more than it otherwise would on our ability to obtain third party financing. There can be no assurance that such
financing will be available to us at all, or at an acceptable cost.
Our ability to consummate acquisitions and to make payments on our indebtedness will depend on our ability to generate cash flow from operations in
the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control. There can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an
amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.
A significant amount of our cash flow from operations will be dedicated to capital expenditures and debt service. In addition, we currently expect to
distribute a significant portion of our cash flow to our stockholders in the form of quarterly dividends. 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. In addition, if we reduce capital
expenditures, the regulatory settlement payments we receive may decline.
Borrowings under our credit facility bear interest at variable interest rates. Accordingly, if any of the base reference interest rates for the borrowings under
our credit facility increase, our interest expense will increase, which could negatively impact our ability to pay dividends on our common stock. We have
entered into interest rate swap agreements which effectively convert a significant portion of our variable rate interest exposure to fixed rates. As a result of these
swap agreements, a significant portion of our indebtedness bears interest at fixed rates rather than variable rates. After these interest rate swap agreements
expire, our annual debt service obligations with respect to borrowings under our credit facility 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. If we choose to enter into a new interest rate swap or purchase an interest rate cap or other
interest rate hedge in the future, the amount of cash available to pay dividends on our common stock may decrease. However, to the extent interest rates
increase in the future, we may not be able to enter into a new interest rate swap or purchase an interest rate cap or other interest rate hedge on acceptable terms.
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