Slide 1

Report
Goldman Sachs TMT Leveraged Finance Conference
Tony Thomas, CFO
March 29, 2011
“Safe Harbor” Statement
Safe Harbor Statement
Windstream claims the protection of the safe-harbor contained in the Private Securities Litigation Reform Act of 1995 for forward-looking statements set forth in this
press release. Forward-looking statements, including Windstream’s updated financial outlook for 2010 and expected pension contribution in 2011, are subject to
uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking
statements are based on estimates, projections, beliefs, and assumptions that Windstream believes are reasonable but are not guarantees of future events and results.
Actual future events and results of Windstream may differ materially from those expressed in these forward-looking statements as a result of a number of important
factors. Factors that could cause actual results to differ materially from those contemplated in Windstream's forward-looking statements include, among others: further
adverse changes in economic conditions in the markets served by Windstream; the extent, timing and overall effects of competition in the communications business;
continued voice line loss; the impact of new, emerging or competing technologies; the adoption of intercarrier compensation and/or universal service reform proposals
by the Federal Communications Commission or Congress that results in a significant loss of revenue to Windstream; the risks associated with the integration of
acquired businesses or the ability to realize anticipated synergies, cost savings and growth opportunities; for Windstream's competitive local exchange carrier
operations, adverse effects on the availability, quality of service and price of facilities and services provided by other incumbent local exchange carriers on which
Windstream's competitive local exchange carrier services depend; the availability and cost of financing in the corporate debt markets; the potential for adverse changes
in the ratings given to Windstream’s debt securities by nationally accredited ratings organizations; the effects of federal and state legislation, and rules and regulations
governing the communications industry; material changes in the communications industry that could adversely affect vendor relationships with equipment and network
suppliers and customer relationships with wholesale customers; unfavorable results of litigation; unfavorable rulings by state public service commissions in
proceedings regarding universal service funds, intercarrier compensation or other matters that could reduce revenues or increase expenses; the effects of work
stoppages; the impact of equipment failure, natural disasters or terrorist acts; earnings on pension plan investments significantly below Windstream's expected long
term rate of return for plan assets; changes in federal, state and local tax laws and rates; and those additional factors under the caption “Risk Factors” in Windstream’s
Form 10-K for the year ended Dec. 31, 2009, and in subsequent filings with the Securities and Exchange Commission. In addition to these factors, actual future
performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth
rates, economic conditions, and governmental and public policy changes. Windstream undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstream’s actual results to differ materially from
those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect
Windstream’s future results included in filings by Windstream with the Securities and Exchange Commission at www.sec.gov.
Regulation G Disclaimer
This presentation includes certain non-GAAP financial measures, which have been adjusted to include or exclude items that are related to strategic activities or other
events, specific to the time and opportunity available. For the periods presented, Windstream‘s strategic activities included the acquisitions of D&E Communications Inc.
("D&E") on November 10, 2009, Lexcom, Inc. ("Lexcom") on December 1, 2009, NuVox, Inc. ("NuVox") on February 8, 2010, and Iowa Telecommunication Services, Inc.
("Iowa Telecom") on June 2, 2010. In addition, Windstream sold its out-of-territory product distribution operations on August 21, 2009. Windstream believes the
presentation of supplemental measures of operating performance provides a more meaningful comparison of our operating performance for the periods presented. A
reconciliation of the non-GAAP financial measures used in this presentation to the most directly comparable GAAP measure has been included in the appendix of this
presentation. The non-GAAP financial measures used by Windstream may not be comparable to similarly titled measures used by other companies and should not be
considered in isolation or as a substitute for measures of performance or liquidity prepared in accordance with GAAP.
2
Windstream Overview
The Industry
►
The ILEC industry is undergoing significant consolidation driven by
companies seeking to stabilize cash flow as residential voice and regulatory
revenues continue to decline
The Company
►
Windstream – a consolidator and telecom leader with attractive markets in
29 states, revenues of $4.2B and adjusted OIBDA of $2.1B
The Opportunity
►
Windstream is executing a strategy focused on improving the top line
— expanding services in growing areas (business and broadband)
— stabilizing consumer revenues
3
THESIS
Building a Next Generation Communications Company
Windstream
Today…
…Executing
a successful
strategy…
…Delivering
best-in-class
results…
…with key
initiatives to
improve the
business
#1
4
The Transformation of Windstream
2006
2007-2010
2011+
Traditional Rural ILEC
Transformation
Path to Growth
► Spin off
► Traditional RLEC
business model
► Focused on growth in
business & broadband
► Improved financial
trends
► Focus on execution
and integration
► Investing for growth
5
Windstream Today . . . . .
Improving revenue mix – percent
from broadband and business (1)
Key operating and financial metrics vs. peers
(1)
(2)
60%
in growth segments
#1
Well positioned competitively
Attractive
Markets
Solid free cash flow generation
$818M
Pro forma for the 4Q10
Free cash flow for 2010. Presented on a GAAP basis and defined as Adjusted OIBDA less cash interest, cash taxes, cash pension
contributions and capital expenditures
6
Strong Rural Footprint with Robust Network in 29 States
7
A Next Generation Telecom Company
Business Services
► Dedicated Internet services
Consumer Services
► High-speed Internet
► Integrated VoIP & data solutions
— 90% of footprint addressable
► Cloud computing & cloud
— Speeds up to 10-12 Mb, depending
on market
storage
► Managed services and data
center co-location
► Voice & long-distance solutions
► Fiber transport /wireless
► Broadband features (TechHelp,
security, data back-up)
► Digital TV via DISH offering
► Voice and long-distance
backhaul
8
Delivering Industry-Leading Returns to Shareholders
WIN has generated a 65% total return since inception
July 17, 2006 – March 25, 2011
67%
65%
46%
37%
26%
18%
11%
3%
VZ
WIN
CTL
T
S&P
Telecom
S&P
Q
FTR
Source: Bloomberg
9
THESIS
Building a Next Generation Communications Company
The new
Windstream…
…Executing
a successful
strategy…
…Delivering
best-in-class
results…
…with key
initiatives to
improve the
business
#1
10
Executing Successful Strategy
Strategy
3. Pursue selective
acquisition
strategy
Goal
Protect
and sustain
free cash
flow
2. Ensure disciplined
expense
management
1. Improve
revenue
trends
11
STRATEGY #1: IMPROVE REVENUE TRENDS
60% of Revenues from Growth Services
Key Growth Drivers
Business & Broadband
Revenues Grew 3.2% in 4Q10
► Business revenues grew 2% in 4Q
— Advanced data and integrated
solutions up 8%
 Integrated VoIP and data services
 Ethernet Internet access
 Managed services
— Special access (fiber transport /
wireless backhaul) up 3%
► Consumer broadband revenue
grew 10% in 4Q
— Broadband customers growing 6%
— Selling faster broadband speeds
— Growth in broadband features
YOY Revenue Trends
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
3.2%
-2.2%
1Q10
2Q10
3Q10
4Q10
Total Revenue
Business and Broadband Revenue
Note: Pro forma results from 4Q10
12
STRATEGY #1: IMPROVE REVENUE TRENDS
Stabilizing Consumer Revenues
Improving Consumer
13
Revenue Trends
Key Consumer Initiatives Resulting in. . .
Action
Improve
Improve
Retention Competitiveness
YOY Change in Consumer Revenue
0%
Increase distribution channels
-1%
-2%
Offer video service
-3%
-4%
Improve service levels
-5%
-6%
Expand bundling penetration
Create product sets
► Price for Life
► Greenstreak
1Q10
2Q10
3Q10
4Q10
STRATEGY #1: IMPROVE REVENUE TRENDS
Stronger Revenue Mix and Improving Consumer Channel =
Improving Revenue Trends
Stronger Revenue Mix1
Broadband
and Business
Residential
Switched
Access/USF
2007
2010
38%
58%
34%
Improving Revenue Trends
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10
-1.2%
25%
-2.6% -2.7%
-2.2%
-3.7%
28%
17%
-5.1%
-5.6%
-5.9%
Excludes NuVox, Iowa, Hosted
Solutions and Q-Comm
Pro forma for all
acquisitions
1. 2007 data presented on an actual basis; 2010 pro forma
14
STRATEGY #2: DISCIPLINED EXPENSE MANAGEMENT
Disciplined Expense Management Resulting in
Strong, Stable OIBDA Margin
52%
Adjusted OIBDA
margin
(ex pension)
50%
48%
Expense Initiatives
►
►
►
►
►
►
46%
44%
42%
40%
50.8%
Q1
Q2
Q3
2009
Q4
Q1
Deal Synergies
Network grooming
Procurement
Improved processes
Technological efficiencies
Organizational discipline
Q2
Q3
Q4
2010
Notes: Adjusted OIBDA excludes the impact of restructuring charges, pension expense and restricted stock expense
15
STRATEGY #3: SELECTIVE ACQUISITIONS
Pursuing a Selective Acquisition Strategy
Advance strategy to improve revenue trends
Free cash flow accretive
Opportunity to generate meaningful synergies
Criteria
Located in attractive markets
Favorable competitive environment
Well-positioned network
Maintain leverage in same range
16
STRATEGY #3: SELECTIVE ACQUISITIONS
Completed Eight Targeted Acquisitions in Four Years
2006-2007
2010
► Valor
► NuVox
► CT Communications
► Iowa Telecommunications
► Q-Comm
► Hosted Solutions
► D&E Communications
► Lexcom
2008-2009
17
STRATEGY #3: SELECTIVE ACQUISITIONS
Powerful Impact of Acquisitions on Windstream
Expanded free cash flow
Advanced strategy to expand services to
broadband and business customers
Added over $2B in revenues
Created $200M in opex and capex synergies
Slight increase in leverage but positions WIN
to improve financial trends
18
Goal: PROTECT AND SUSTAIN FREE CASH FLOW
A Powerful Cash Flow Business
Adjusted OIBDA(1)
2010
Free cash flow(2)
2010
Payout Ratio
2010
$2.06B
$818M
57%
Flat YOY
(1) Pro forma for all acquisitions. Adjusted OIBDA excludes pension expense, restructuring, and restricted stock expense
(2) Free cash flow presented on a GAAP basis and defined as Adjusted OIBDA less cash interest, cash taxes, cash pension contributions and capital expenditures
19
THESIS
Building a Next Generation Communications Company
The new
Windstream…
…Executing
a successful
strategy…
…Delivering
best-in-class
results…
…with key
initiatives to
improve the
business
#1
20
The Strategy is Delivering Best-In-Class
Operating Results…
HSI Penetration of
Total Access Lines
39%
38%
37%
33%
33%
Internet Customer Change
Year-Over-Year
32%
7.1%
30%
6.5%
4.4%
3.6% 3.4%
2.8%
0.1%
WIN
13%
CBB
CTL
T
Q
VZ
CTL
FTR
Leading
results
Video Penetration of
Total Access Lines
13%
11%
11%
WIN
CBB
Q
T
CBB
VZ
FTR
CTL
VZ
FTR
Q
T
9%
-3.6%
-6.8%
VZ
Q
Year-over-Year Change
in Access Lines
WIN
4%
WIN
T
FTR
CBB
Notes:
• Results as of 12/31/10
• Windstream results are pro forma for NuVox, Inc., Iowa Telecom, Q-Comm, and Hosted Solutions
• Verizon and Frontier results are pro forma for the sale of Verizon lines
-7.6% -8.2%
-9.0%
-10.8%
-11.6%
21
…And Driving Strong Financial Results
Year-over-Year
Change in Revenue
WIN
-2.2%
VZ
-2.8%
T
Q
CTL
Year-over-Year
Change in OIBDA
FTR
VZ
1.2%
WIN
T
Q
CTL
FTR
0.2%
-1.7% -2.1%
-3.2% -3.2%
-5.5%
-9.5%
-6.4% -6.5%
Notes:
• Results as of 12/31/10
• Windstream results are pro forma for D&E Communications, Lexcom, Inc. , NuVox, Inc., and Iowa Telecom
• AT&T and Verizon results are for the wireline segment only
• Verizon and Frontier results are pro forma for the sale of Verizon lines
• OIBDA excludes one-time charges for WIN, Q, and CTL
22
2011 Guidance
2010
2011 Guidance
Change
Total Revenues
$4,139
$4,015 – $4,140
-3% to 0%
OIBDA
$1,975
$1,985 – $2,045
1% to 4%
Adjusted OIBDA
$2,064
$2,045 – $2,105
-1% to 2%
$ in millions
Capex
Dividend payout
$490
$520 - $580
57%
52% to 59%
Notes:
• For 2010, revenue, OIBDA, adjusted OIBDA and Capex are presented on a pro forma basis
• The 2010 dividend payout ratio is presented on an actual basis, reflecting the acquisitions from the time that they were acquired
• Adjusted OIBDA excludes pension, restricted stock, restructuring expense
• As provided on February 18, 2011
23
Attractive Growth Opportunities in 2011
$M
A Closer
Look
2011 Capex
Guidance
2010
Pro at
Forma
2011 Guidance
Change
► Pro forma capex was $490M in 2010
► The midpoint of our 2011 capex guidance is $550M
► WIN will spend ~$40M related to the broadband stimulus grants in 2011:
— Awarded a total of $180M in grants to invest in our broadband network
— WIN will contribute a total of $60M, resulting in $240M in investments
in our broadband network over the next few years
► The remaining incremental capex will be invested in success-based growth
opportunities related to fiber to the cell projects and data center services
& expansion which should contribute to improved financial performance
► Absent the stimulus capex, the midpoint of 2011 guidance is only 4% higher
than the baseline 2010 capex
24
THESIS
Building a Next Generation Communications Company
The new
Windstream…
…Executing
a successful
strategy…
…Delivering
best-in-class
results…
…with key
initiatives to
improve the
business
#1
25
Key Initiatives for 2011
1
2
Complete
integration of
acquisitions
Invest for
growth
3
Deleverage
the balance
sheet
Our focus is execution
26
PRIORITY #1
Integration of Acquisitions On Track
Company
Close Date
Synergies
Integration Status
November 2009
$25M
Completed
December 2009
$5M
Completed
February 2010
$25M
Completed
June 2010
$30M
Completed
December 2010
$2M
Completed by 1H11
December 2010
$21M
Completed by 1H11
► Synergies achieved 2010: $55M
► Incremental synergies 2011: $45M
27
PRIORITY #2
Invest for Growth
Success Based Fiber Initiatives
► Increasing bandwidth demand is driving network
transport from wireless providers and businesses
► Investments are success-based with attractive returns
Data Center Services
► Cloud computing, managed services and data center
colocation are natural complements to our business
portfolio
Grow Broadband
► Enhance speeds with VDSL & ADSL2+ bonded
— Enable 20 Mb speeds to certain markets
► Expand availability from 90% to 93% (stimulus projects)
28
PRIORITY #3
Deleveraging the Balance Sheet
3.55X
3.2X
To 3.4X
Reasons this is achievable
► Expect excess FCF of ~$350M to
$460M in 2011
► WIN plans to pay down ~$135M
related to 2011 debt maturities
► Revolver borrowings will provide
further flexibility to reduce debt
► Will improve net leverage by
making pension contribution
using WIN stock
Current
leverage
Target
(In line with
historic range)
Note: Leverage is defined as Total Debt to Adjusted OIBDA. Proforma for all acquisitions
29
Improving Maturity Profile and Liquidity Position
1Q11 Activities
• Increased revolver availability from $750M to $1.25 billion
• Completed tender for all of the $400M Valor 2015 notes using proceeds from the
$200M 2020 notes and ~$200M in revolver borrowings
• Tendered for a portion of the 2016 notes using proceeds from the new 2021 and
2023 notes (currently estimate the paydown to be ~$1.030 billion)
Sr. Notes
$1604
$350
$200M add-on
notes due 2020
(Valor refi)
Increased
revolver
availability
to $1.25B
New notes
due 2021
(2016 refi)
New notes
due 2023
(2016 refi)
Bank Debt
$1,100
$810
$139
2011
$1,021
$44
$444
2012
2013
$710
$700
$400
$11
2014
2015
Note: Maturity profile excludes discount on long-term debt
2016
2017
2018
$500
2019
$450
2020
2021
$600
$100
2023 Thereafter
30
Why Invest in Windstream?
A different path
Positioning
► Successful repositioning in faster growth
segments driving improving revenue trends
Solid track record
Performance
► Industry leading performance,
successful integration of acquisitions
Strong, sustainable FCF
Cash Flow
► Making success-based capital investments in
growth opportunities while improving the
balance sheet and returning cash to
shareholders
31
Q&A
32
Appendix
33
Reconciliations of Non-Gaap Financial Measures
Windstream Corporation
Reconciliations of Non-GAAP Financial Measures
GAAP Adjusted Free Cash Flow and Dividend Payout Ratio:
Twelve
Twelve
(Millions, except per share amounts)
Months Ended
Months Ended
Amounts are as reported under GAAP
December 31, 2010
December 31, 2009
Operating income from continuing operations
$
Depreciation and amortization
1,030.3
$
956.9
693.6
537.8
1,723.9
1,494.7
Merger and integration expense
77.3
22.3
Pension expense
61.9
91.8
As reported OIBDA
Restructuring expense
Stock-based compensation
As reported adjusted OIBDA
7.7
9.1
17.0
17.4
1,887.8
1,635.3
Pension contribtion
(41.0)
-
Capital expenditures
(415.2)
(298.1)
Cash paid for interest expense
(493.3)
(395.5)
Cash paid for taxes
(120.6)
(118.7)
Adjusted free cash flow
(A) $
817.7
Dividends paid on common shares
(B) $
464.6
Dividend Payout Ratio
(B)/(A)
$
823.0
57%
34
2011 Financial Guidance
Windstream financial guidance for 2011:
(Dollars in millions)
2010
Results
2011
Guidance Range
Percent
Change
Pro forma revenues and sales
$
4,139
$
4,015
-
$
4,140
-3%
0%
Pro forma OIBDA ( 1 )
$
1,975
$
1,985
-
$
2,045
1%
4%
Pension expense
Restructuring expense
Stock-based compensation expense
Pro forma adjusted OIBDA
$
62
8
19
2,064
$
41
19
2,045
-
$
41
19
2,105
-1%
2%
Capital expenditures
$
490
$
520
-
$
580
6%
18%
2011
Guidance Range
2,045
$
2,105
Expected Dividend Payout Ratio
(Dollars in millions)
Pro forma adjusted OIBDA
Subtract:
Expected capital expenditures
Expected cash paid for interest expense
Expected cash taxes
Expected adjusted free cash flow
Expected dividends paid on common shares
Expected dividend payout ratio
$
$
$
580
552
50
863
509
-
59%
-
$
$
520
552
60
973
509
52%
Notes:
(1) OIBDA is operating income before depreciation and amortization.
35
Pro Forma Supplemental Information
WINDSTREAM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED RESULTS (NON-GAAP) (A)
QUARTERLY SUPPLEMENTAL INFORMATION
for the quarterly periods in the years 2010 and 2009
(In millions)
FINANCIAL RESULTS:
Service revenues:
Business
Consumer
Wholesale
Total service revenues
Product sales
Total revenues and sales
Costs and expenses:
Cost of services
Cost of products sold
Selling, general, administrative and other
Restructuring charges
Total costs and expenses excluding depreciation and amortization
OIBDA (B)
Depreciation and amortization
Operating income
Total
$
$
$
$
Operating Income Margin (C)
OIBDA margin (D)
SUPPLEMENTAL INFORMATION:
OIBDA
Pension expense
Restructuring charges
Stock-based compensation
Adjusted OIBDA (E)
Adjusted OIBDA margin (F)
Revenues by type:
Voice and long distance
Data and integrated solutions
Special access
Switched access and USF
Miscellaneous
Product sales
Total revenues and sales
Revenues from business and broadband:
Consumer broadband
Business service revenue
Business product sales
Business and broadband revenues
Business and broadband as a percent of total revenues
Capital expenditures
4th Qtr.
$
$
$
$
$
$
2nd Qtr.
1,945.8
1,439.4
660.9
4,046.1
92.8
4,138.9
$
492.8
354.9
159.1
1,006.8
23.4
$ 1,030.2
$
487.8
359.9
163.5
1,011.2
26.8
$ 1,038.0
$
1,505.6
78.9
571.5
7.7
2,163.7
1,975.2
839.4
1,135.8
$
$
$
$
27.4%
47.7%
$
2010
3rd Qtr.
1,975.2
62.3
7.7
18.9
2,064.1
49.9%
374.3
18.0
135.1
7.0
534.4
495.8
207.5
288.3
$
28.0%
48.1%
$
$
495.8
15.6
7.0
4.6
523.0
50.8%
381.2
22.7
140.2
0.2
544.3
493.7
206.3
287.4
$
$
27.7%
47.6%
$
$
493.7
15.5
0.2
4.7
514.1
49.5%
$
1,502.9
1,232.5
505.6
617.0
188.1
92.8
4,138.9
$
362.9
318.4
129.6
149.2
46.7
23.4
$ 1,030.2
$
372.3
310.5
127.3
152.8
48.3
26.8
$ 1,038.0
$
429.2
1,945.8
40.9
2,415.9
58.4%
$
$
$
490.0
$
$
111.0
492.8
10.8
614.6
59.7%
159.1
$
$
109.4
487.8
12.0
609.2
58.7%
127.2
$
$
$
Total
2009
3rd Qtr.
4th Qtr.
2nd Qtr.
1st Qtr.
484.1
360.5
164.7
1,009.3
19.8
1,029.1
$
481.1
364.1
173.6
1,018.8
22.8
$ 1,041.6
$ 1,935.4
1,497.0
703.7
4,136.1
95.3
$ 4,231.4
$
483.6
365.8
180.9
1,030.3
23.1
$ 1,053.4
$
482.4
370.6
173.5
1,026.5
24.3
$ 1,050.8
$
485.7
377.7
170.6
1,034.0
23.6
$ 1,057.6
$
374.4
18.8
146.5
0.5
540.2
488.9
209.9
279.0
$
375.7
19.4
149.7
544.8
496.8
215.7
281.1
$ 1,580.1
83.9
617.5
9.1
2,290.6
1,940.8
867.2
$ 1,073.6
$
$
$
$
27.0%
47.7%
25.4%
45.9%
496.8
15.8
4.8
517.4
49.7%
$ 1,940.8
92.5
9.1
26.2
$ 2,068.6
48.9%
$
27.1%
47.5%
$
1st Qtr.
488.9
15.4
0.5
4.8
509.6
49.5%
$
$
$
387.3
19.6
150.1
1.8
558.8
494.6
216.1
278.5
$
26.4%
47.0%
$
$
494.6
23.9
1.8
5.7
526.0
49.9%
397.7
21.6
154.5
7.5
581.3
469.5
216.2
253.3
$
24.1%
44.7%
$
$
469.5
23.0
7.5
5.6
505.6
48.1%
399.8
20.8
156.5
(0.1)
577.0
480.6
218.0
262.6
483.7
382.9
178.7
1,045.3
24.3
$ 1,069.6
$
24.8%
45.4%
$
$
480.6
22.8
(0.1)
8.0
511.3
48.3%
26.1%
46.4%
$
$
380.6
304.4
124.5
153.4
46.4
19.8
1,029.1
$
387.1
299.2
124.2
161.6
46.7
22.8
$ 1,041.6
$ 1,638.3
1,162.3
491.3
652.3
191.9
95.3
$ 4,231.4
$
394.8
294.7
125.5
168.6
46.7
23.1
$ 1,053.4
$
404.4
291.3
122.6
161.1
47.1
24.3
$ 1,050.8
$
415.8
289.0
123.1
157.1
49.0
23.6
$ 1,057.6
$
104.6
484.1
7.8
596.5
58.0%
$
$
$
$
$
$
122.5
$
$
104.2
481.1
10.3
595.6
57.2%
81.2
392.6
1,935.4
46.3
$ 2,374.3
56.1%
$
487.4
$
$
100.8
483.6
11.3
595.7
56.6%
133.1
$
$
97.8
482.4
12.4
592.6
56.4%
120.6
$
$
97.2
485.7
11.0
593.9
56.2%
116.7
395.3
21.9
156.4
(0.1)
573.5
496.1
216.9
279.2
496.1
22.8
(0.1)
6.9
525.7
49.1%
423.3
287.3
120.1
165.5
49.1
24.3
$ 1,069.6
$
$
96.8
483.7
11.6
592.1
55.4%
117.0
(A) Pro forma results adjusts results of operations under GAAP to include the acquisitions of D&E Communications, Inc. ("D&E"), Lexcom Inc. ("Lexcom"), NuVox, Inc. ("NuVox"), Iowa Telecommunications Services, Inc. ("Iowa
Telecom"), Hosted Solutions Acquisition, LLC ("Hosted Solutions) and Q-Comm Corporation ("Q-Comm"), and to exclude the results of the disposed out-of-territory product distribution operations and all merger and integration costs
related to strategic transactions. Q-Comm results of operations only include those entities acquired from Q-Comm.
(B)
(C)
(D)
(E)
(F)
OIBDA is operating income before depreciation and amortization.
Operating income margin is calculated by dividing operating income by total revenues and sales.
OIBDA margin is calculated by dividing OIBDA by total revenues and sales.
Adjusted OIBDA adjusts OIBDA for the impact of restructuring charges, pension expense and stock-based compensation.
Adjusted OIBDA margin is calculated by dividing adjusted OIBDA by total revenues and sales.
36
Pro Forma Supplemental Information
WINDSTREAM CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED RESULTS (NON-GAAP) (A)
QUARTERLY SUPPLEMENTAL INFORMATION
for the quarterly periods in the years 2010 and 2009
(In thousands)
Total
ACCESS LINES:
Total access lines
YOY change in total access lines
Net total access line losses
KEY OPERATING METRICS:
Voice lines
YOY change in voice lines
Net voice line losses
High-speed Internet
Advanced data and integrated solutions
Total data and integrated solutions
YOY change in high-speed Internet
YOY change in advanced data and integrated solutions
Net high-speed Internet additions
Net advanced data and integrated solution additions (losses)
Special access circuits
YOY change in special access circuits
Net special access circuit additions
Digital television customers
4th Qtr.
2010
3rd Qtr.
2nd Qtr.
1st Qtr.
Total
4th Qtr.
2009
3rd Qtr.
2nd Qtr.
1st Qtr.
sum of (1)
3,317.3
-3.6%
(122.3)
3,317.3
-3.6%
(35.8)
3,353.1
-3.5%
(31.2)
3,384.3
-3.5%
(30.4)
3,414.7
-3.8%
(24.9)
3,439.6
-4.4%
(158.1)
3,439.6
-4.4%
(35.9)
3,475.5
-4.7%
(30.0)
3,505.5
-4.8%
(45.4)
3,550.9
-4.6%
(46.8)
(1)
3,045.8
-4.3%
(136.1)
3,045.8
-4.3%
(41.2)
3,087.0
-4.1%
(33.1)
3,120.1
-4.0%
(34.7)
3,154.8
-4.3%
(27.1)
3,181.9
-4.9%
(163.7)
3,181.9
-4.9%
(37.6)
3,219.5
-5.3%
(31.1)
3,250.6
-5.6%
(45.4)
3,296.0
-5.5%
(49.6)
1,302.9
173.6
1,476.5
6.5%
5.7%
79.0
9.3
1,302.9
173.6
1,476.5
6.5%
5.7%
12.2
4.2
1,290.7
169.4
1,460.1
7.9%
3.9%
15.6
0.5
1,275.1
168.9
1,444.0
9.2%
4.2%
14.8
3.0
1,260.3
165.9
1,426.2
9.4%
2.1%
36.4
1.6
1,223.9
164.3
1,388.2
9.6%
2.6%
107.0
4.1
1,223.9
164.3
1,388.2
9.6%
2.6%
28.2
1.3
1,195.7
163.0
1,358.7
8.9%
6.0%
27.7
0.9
1,168.0
162.1
1,330.1
9.7%
9.6%
16.5
(0.4)
1,151.5
162.5
1,314.0
10.9%
12.1%
34.6
2.3
97.9
4.8%
4.5
97.9
4.8%
1.2
96.7
4.0%
1.4
95.3
2.7%
1.3
94.0
1.7%
0.6
93.4
1.6%
1.5
93.4
1.6%
0.4
93.0
1.5%
0.2
92.8
2.2%
0.4
92.4
1.8%
0.5
(1)
(1)
433.5
433.5
433.3
422.9
414.8
402.0
402.0
391.6
380.4
366.3
5,053.7
5,053.7
5,077.1
5,082.3
5,089.8
5,065.5
5,065.5
5,062.8
5,053.9
5,068.7
OPERATING METRICS BY CUSTOMER TYPE:
Consumer:
Voice lines
High-speed Internet
Digital television customers
Total consumer connections
YOY change in consumer connections
2,038.8
1,168.5
433.5
3,640.8
0.2%
2,038.8
1,168.5
433.5
3,640.8
0.2%
2,070.0
1,157.3
433.3
3,660.6
1.2%
2,094.2
1,143.2
422.9
3,660.3
1.8%
2,118.6
1,129.9
414.8
3,663.3
1.6%
2,134.8
1,095.0
402.0
3,631.8
1.2%
2,134.8
1,095.0
402.0
3,631.8
1.2%
2,156.5
1,067.6
391.6
3,615.7
0.7%
2,175.1
1,041.4
380.4
3,596.9
0.4%
2,211.4
1,026.7
366.3
3,604.4
0.8%
Business:
Voice lines
High-speed Internet
Advanced data and integrated solutions
Special access circuits
Total business connections
YOY change in business connections
976.2
134.4
173.6
97.9
1,382.1
-1.3%
976.2
134.4
173.6
97.9
1,382.1
-1.3%
985.8
133.4
169.4
96.7
1,385.3
-2.0%
993.9
131.9
168.9
95.3
1,390.0
-2.3%
1,003.0
130.4
165.9
94.0
1,393.3
-2.7%
1,013.9
128.9
164.3
93.4
1,400.5
-2.7%
1,013.9
128.9
164.3
93.4
1,400.5
-2.7%
1,029.7
128.1
163.0
93.0
1,413.8
-2.0%
1,041.9
126.6
162.1
92.8
1,423.4
-0.8%
1,051.6
124.8
162.5
92.4
1,431.3
0.2%
30.8
-7.2%
30.8
-7.2%
31.2
-6.3%
32.0
-4.8%
33.2
0.6%
33.2
-1.2%
33.2
-1.2%
33.3
-2.9%
33.6
-3.4%
33.0
-18.9%
Total connections
Wholesale voice lines
YOY change in wholesale connections
(A) Pro forma results adjusts results of operations under GAAP to include the acquisitions of D&E Communications, Inc. ("D&E"), Lexcom Inc. ("Lexcom"), NuVox, Inc. ("NuVox"), Iowa Telecommunications Services, Inc. ("Iowa
Telecom"), Hosted Solutions Acquisition, LLC ("Hosted Solutions") and Q-Comm Corporation ("Q-Comm") . Q-Comm results of operations only include those entities acquired from Q-Comm.
37
Pro Forma Supplemental Information
WINDSTREAM CORPORATION
UNAUDITED CONSOLIDATED RESULTS (NON-GAAP)
QUARTERLY SUPPLEMENTAL INFORMATION
for the quarterly periods in 2010
(In millions)
Total
ADJUSTED FREE CASH FLOW (A):
Operating income
Depreciation and amortization
As reported OIBDA
Merger and integration expense
Pension expense
Restructuring expense
Stock-based compensation
As reported adjusted OIBDA
Adjustments:
Pension contribution
Capital expenditures
Cash paid for interest expense
Cash paid for taxes
Adjusted free cash flow
Dividends paid
Dividend payout ratio
Weighted average common shares
Common stock outstanding
DEBT LEVERAGE RATIO:
Long-term debt, including current maturities
Cash and cash equivalents
Net debt
$
$
$
4th Qtr.
1,030.3
693.6
1,723.9
77.3
61.9
7.7
17.0
1,887.8
(41.0)
(415.2)
(493.3)
(120.6)
817.7
464.6
56.8%
$
2010
3rd Qtr.
259.1
190.6
449.7
25.8
15.4
7.0
5.0
502.9
$
(142.5)
(72.7)
1.0
288.7
$
120.8
$
270.2
179.9
450.1
11.5
15.5
0.2
4.5
481.8
$
(41.0)
(113.3)
(171.0)
(34.0)
122.5
$
120.6
2nd Qtr.
$
254.2
167.7
421.9
16.8
15.3
0.5
4.0
458.5
1st Qtr.
$
246.8
155.4
402.2
23.2
15.7
3.5
444.6
$
(98.9)
(81.0)
(80.5)
198.1
$
(60.5)
(168.6)
(7.1)
208.4
$
114.0
$
109.2
468.0
504.3
As of
December 31, 2010
$
7,325.8
42.3
$
7,283.5
Pro forma adjusted OIBDA
Twelve
Months Ended
December 31, 2010
$
2,064.1
Pro forma leverage ratio
Pro forma net leverage ratio
3.55
3.53
(A) The adjusted free cash flow reflects the combined operations of Windstream with D&E Communications, Inc. ("D&E"), Lexcom Inc. ("Lexcom"), NuVox, Inc. ("NuVox"), Iowa Telecommunications
Services, Inc. ("Iowa Telecom"), Hosted Solutions Acquisition, LLC ("Hosted Solutions") and Q-Comm Corporation ("Q-Comm") for the periods following their respective acquisition dates, as reported
under GAAP.
38
Reconciliations of Non Gaap Financial Measures
Total
Reconciliation of Revenues under GAAP to Pro forma Revenues:
Revenues and sales under GAAP
Pro forma adjustments:
D&E revenues and sales prior to acquisition
Lexcom revenues and sales prior to acquisition
Out-of-territory product distribution operations revenues and sales
NuVox revenues and sales prior to acquisition
Iowa Telecom revenues and sales prior to acquisition
Hosted Solutions revenues and sales prior to acquisition
Q-Comm revenues and sales prior to acquisition
Elimination of Windstream revenues from Q-Comm prior to acquisition
Pro forma revenues and sales
Reconciliation of Operating Income under GAAP to Pro forma adjusted OIBDA
Operating income from continuing operations under GAAP
Pro forma adjustments:
D&E pre-acquisition operating income, excluding M&I costs
D&E intangible asset impairment
D&E intangible asset amortization adjustment
Lexcom pre-acquisition operating income, excluding M&I costs
Lexcom intangible asset amortization adjustment
Operating income from disposed out-of-territory product distribution operations
NuVox pre-acquisition operating income, excluding M&I costs
NuVox intangible asset amortization adjustment
Iowa Telecom pre-acquisition operating income, excluding M&I costs
Iowa Telecom intangible asset amortization adjustment
Hosted Solutions pre-acquisition operating income, excluding M&I costs
Hosted Solutions intangible asset amortization adjustment
Q-Comm pre-acquisition operating income, excluding M&I costs
Q-Comm intangible asset amortization adjustment
M&I costs
Pro forma operating income
Depreciation and amortization expense
D&E pre-acquisition depreciation and amortization expense
Lexcom pre-acquisition depreciation and amortization expense
NuVox pre-acquisition depreciation and amortization expense
Iowa Telecom pre-acquisition depreciation and amortization expense
Hosted Solutions pre-acquisition depreciation and amortization expense
Q-Comm pre-acquisition depreciation and amortization expense
Pro forma OIBDA (B)
Other adjustments:
Pension expense
Pension expense of D&E prior to acquisition
Pension expense of Iowa Telecom prior to acquisition
Restructuring charges
Stock-based compensation
D&E stock-based compensation prior to acquisition
NuVox stock-based compensation prior to acquisition
Iowa Telecom stock-based compensation prior to acquisition
Hosted Solutions stock-based compensation prior to acquisition
Pro forma adjusted OIBDA (C)
2010
3rd Qtr.
4th Qtr.
$ 2,996.6
$
42.3
12.9
57.0
(0.4)
$ 1,029.1
57.3
66.9
12.9
57.0
(0.4)
$ 1,041.6
123.3
39.8
(38.5)
564.8
270.7
49.0
227.7
(2.0)
$ 4,231.4
16.1
7.3
140.7
65.9
12.6
56.8
(0.4)
$ 1,053.4
35.5
10.5
(8.2)
140.5
68.3
12.2
58.1
(0.4)
$ 1,050.8
35.8
11.1
(17.6)
141.0
66.2
12.0
56.8
(0.6)
$ 1,057.6
35.9
10.9
(12.7)
142.6
70.3
12.2
56.0
(0.6)
$ 1,069.6
$ 1,030.3
$
$
$
$
$
$
$
$
$
254.2
$
847.9
246.8
2.2
(1.3)
8.8
(6.3)
25.8
288.3
190.6
3.4
13.5
495.8
3.1
(2.5)
15.7
(10.6)
11.5
287.4
179.9
5.7
20.7
493.7
9.8
(4.7)
2.9
(2.6)
13.6
(11.0)
16.8
279.0
167.7
15.5
5.9
20.8
488.9
4.1
(1.5)
14.1
(6.5)
2.7
(2.6)
12.0
(11.2)
23.2
281.1
155.4
9.5
23.6
6.1
21.1
496.8
15.4
7.0
5.0
(0.2)
523.0
15.5
0.2
4.5
0.2
514.1
15.3
0.1
0.5
4.0
0.7
0.1
509.6
15.7
0.1
3.5
0.1
1.1
0.1
517.4
$
$
$
956.9
23.2
5.5
(3.5)
13.7
(1.5)
(0.9)
35.8
(14.7)
59.0
(28.4)
10.1
(10.0)
49.5
(43.4)
22.3
1,073.6
537.8
28.4
9.4
92.6
94.8
22.7
81.5
1,940.8
91.8
0.1
0.6
9.1
17.4
1.0
2.3
4.8
0.7
$ 2,068.6
$
754.4
234.5
$
734.3
225.4
$
752.9
1st Qtr.
13.4
59.2
(0.4)
$ 1,038.0
$
917.3
2nd Qtr.
9.1
40.5
(0.4)
$ 1,030.2
270.2
$
2009
3rd Qtr.
4th Qtr.
$
61.9
0.2
7.7
17.0
0.1
1.8
0.2
$ 2,064.1
965.8
Total
57.3
109.2
48.3
213.7
(1.6)
$ 4,138.9
259.1
$
1st Qtr.
$ 3,712.0
4.1
(1.5)
23.9
(11.2)
10.9
(9.0)
50.1
(39.1)
77.3
1,135.8
693.6
9.5
39.1
21.1
76.1
1,975.2
981.0
2nd Qtr.
244.4
$
755.0
252.6
4.0
(0.6)
2.6
(0.3)
13.3
(3.9)
14.0
(6.8)
2.8
(2.3)
11.7
(10.4)
19.9
278.5
138.7
3.4
1.9
22.3
23.8
5.9
20.1
494.6
7.8
(0.9)
3.3
(0.4)
0.1
8.6
(3.3)
15.1
(6.9)
2.3
(2.5)
14.3
(10.6)
1.0
253.3
133.8
8.6
2.5
22.5
24.1
6.2
18.5
469.5
2.6
5.5
(1.0)
4.1
(0.4)
(0.8)
3.5
(3.6)
12.8
(7.3)
2.4
(2.6)
12.7
(11.1)
1.4
262.6
133.3
8.4
2.4
23.6
23.6
5.4
21.3
480.6
8.8
(1.0)
3.7
(0.4)
(0.2)
10.4
(3.9)
17.1
(7.4)
2.6
(2.6)
10.8
(11.3)
279.2
132.0
8.0
2.6
24.2
23.3
5.2
21.6
496.1
23.7
0.1
0.1
1.8
3.1
0.5
1.0
0.9
0.2
526.0
22.8
0.2
7.5
3.7
0.1
0.5
1.1
0.2
505.6
22.7
0.1
(0.1)
5.4
0.3
0.4
1.7
0.2
511.3
22.6
0.2
(0.1)
5.2
0.1
0.4
1.1
0.1
525.7
$
$
$
(A) Pro forma results adjusts results of operations under GAAP to include the acquisitions of D&E Communications, Inc. ("D&E"), Lexcom Inc. ("Lexcom"), NuVox, Inc. ("NuVox"), Iowa Telecommunications Services, Inc. ("Iowa
Telecom"), Hosted Solutions Acquisition, LLC ("Hosted Solutions") and Q-Comm Corporation ("Q-Comm"), and to exclude the results of the disposed out-of-territory product distribution operations and all merger and integration
costs related to strategic transactions. Q-Comm results of operations only include those entities acquired from Q-Comm.
(B) OIBDA is operating income before depreciation and amortization.
(C) Pro forma adjusted OIBDA adjusts pro forma OIBDA for the impact of restructuring charges, pension expense and stock-based compensation.
39
Reconciliations of Non Gaap Financial Measures
Total
Reconciliation of Capital Expenditures under GAAP to Pro forma Capital
Expenditures:
Capital expenditures under GAAP
Pro forma adjustments:
D&E capital expenditures prior to acquisition
Lexcom capital expenditures prior to acquisition
NuVox capital expenditures prior to acquisition
Iowa Telecom capital expenditures prior to acquisition
Hosted Solutions capital expenditures prior to acquisition
Q-Comm capital expenditures prior to acquisition
Pro forma capital expenditures
$
415.2
$
3.8
8.4
9.4
53.2
490.0
2010
3rd Qtr.
4th Qtr.
$
142.5
$
5.1
11.5
159.1
$
113.3
$
0.8
13.1
127.2
2nd Qtr.
$
98.9
$
5.4
2.6
15.6
122.5
1st Qtr.
$
60.5
$
3.8
3.0
0.9
13.0
81.2
Total
$
298.1
$
17.1
3.0
67.9
25.7
17.5
58.1
487.4
2009
3rd Qtr.
4th Qtr.
$
91.3
$
1.0
0.4
13.3
8.0
5.6
13.5
133.1
$
67.3
$
5.2
0.9
14.6
6.1
5.7
20.8
120.6
2nd Qtr.
$
76.7
$
5.2
0.8
12.9
7.6
1.6
11.9
116.7
1st Qtr.
$
62.8
$
5.7
0.9
27.1
4.0
4.6
11.9
117.0
(A) Pro forma results adjusts results of operations under GAAP to include the acquisitions of D&E Communications, Inc. ("D&E"), Lexcom Inc. ("Lexcom"), NuVox, Inc. ("NuVox"), Iowa Telecommunications Services, Inc. ("Iowa
Telecom"), Hosted Solutions Acquisition, LLC ("Hosted Solutions") and Q-Comm Corporation ("Q-Comm"), and to exclude the results of the disposed out-of-territory product distribution operations and all merger and integration
costs related to strategic transactions. Q-Comm results of operations only include those entities acquired from Q-Comm.
40

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