LITTLE ROCK, Ark.--(BUSINESS WIRE)--
Windstream Corporation (NYSE: WIN) today reported second-quarter
earnings results highlighted by continued solid cash generation.
Windstream also announced the Federal Communications Commission has
approved the company's acquisition of D&E Communications announced on
May 11. Windstream anticipates the proxy statement/prospectus it
previously filed with the Securities and Exchange Commission in
connection with the acquisition will become effective and be mailed to
D&E shareholders in approximately two weeks, after it is updated to
reflect D&E and Windstream's financial results for the second quarter of
2009. D&E shareholders are expected to vote on the transaction in late
September. Windstream anticipates closing the transaction in the fourth
quarter of 2009 subject to approvals from D&E shareholders and the
Pennsylvania Public Utilities Commission.
"Our team continues to do an outstanding job managing expenses, and I am
pleased that we sustained cash flows in a challenging economic
environment," said Jeff Gardner, president and CEO. "We also are making
progress on integration planning with D&E while the approval process for
the transaction moves forward. D&E is a solid company and a good
strategic and geographic fit with our Pennsylvania operations."
Windstream's second-quarter results under Generally Accepted Accounting
Principles (GAAP) include the following items, which lowered earnings
per share by roughly 5 cents:
- $5 million in after-tax non-cash amortization expense of wireline
franchise rights;
- $1 million in after-tax merger and integration costs associated with
the pending acquisition of D&E Communications; and
- $14 million, net of tax, in incremental pension expense, which is a
non-cash charge and does not affect free cash flow.
Second-quarter financial results:
Under GAAP:
-
Revenues were $753 million, a 5.9 percent decrease from a year ago.
-
Operating income was $244 million, a decrease of 15 percent
year-over-year.
-
Net income was $91 million, an 11 percent decrease from a year ago, or
21 cents of diluted earnings per share.
-
Net cash provided from operations was $284 million, a 3 percent
decline year-over-year.
-
Average service revenue per customer was $80.14, essentially the same
as a year ago.
-
Capital expenditures were $77 million, essentially the same
year-over-year.
Under pro forma results from current businesses:
-- Operating income before depreciation and amortization (OIBDA) was $379
million, a 9 percent decline year-over-year. Excluding the incremental
non-cash pension expense, OIBDA was approximately $402 million, a 3.5
percent decline from a year ago, resulting in an OIBDA margin of
approximately 53 percent.
The company generated approximately $208 million in free cash flow,
which is defined as net cash from operations less capital expenditures,
during the quarter and $360 million through the first six months of
2009. Windstream paid off the $150 million balance in its $500 million
revolving credit agreement during the quarter and ended the period with
$245 million in cash and cash equivalents.
Second-quarter operating results:
Windstream added approximately 15,000 new high-speed Internet customers
during the second quarter, bringing its total broadband customer base to
1,025,000 customers, an increase of 10 percent year-over-year. Overall
broadband penetration is now 35 percent of total access lines and
residential broadband penetration is approximately 51 percent of primary
residential lines.
Windstream added more than 16,000 new digital TV customers in the
quarter, bringing its total customer base to approximately 312,000, or
18 percent penetration of primary residential lines.
Total access lines declined by approximately 41,000. Total lines at the
end of the quarter were 2.95 million, a decline of approximately 5.5
percent year-over-year.
Conference call
Windstream will hold a conference call at 7:30 a.m. CDT today to review
the company's second-quarter earnings results.
To access the call:
Interested parties can access the call by dialing 1-877-835-5650,
conference ID 17202018, 10 minutes prior to the start time.
To access the call replay:
A replay of the call will be available beginning at 8:30 a.m. CDT today
and ending at midnight CDT on Sept. 6. The replay can be accessed by
dialing 1-800-642-1687, conference ID 17202018.
Webcast information:
The conference call also will be streamed live over the company's Web
site at www.windstream.com/investors.
Financial, statistical and other information related to the call will be
posted on the site. A replay of the webcast will be available on the Web
site beginning at 10:30 a.m. CDT today.
Additional Information and Where to Find It
This press release may be deemed to be solicitation material in respect
of the proposed merger of D&E Communications and Windstream. In
connection with the proposed transaction, Windstream has filed with the
SEC a registration statement on Form S-4 that includes a preliminary
proxy statement of D&E and also constitutes a prospectus of Windstream.
At the appropriate time, D&E will mail the definitive proxy
statement/prospectus to its shareholders. Before making any voting or
investment decision, investors are urged to read the definitive proxy
statement/prospectus when it becomes available because it will contain
important information about the proposed transaction. You may obtain
copies of all documents filed with the SEC regarding this transaction,
free of charge, at the SEC's website at www.sec.gov.
Free copies of these documents may also be obtained from Windstream upon
written request to Windstream Investor Relations, 4001 Rodney Parham
Road, Little Rock, Arkansas 72212 or by calling (866) 320-7922, or from
D&E Communications upon written request to D&E Communications, P.O. Box
458, Ephrata, Pennsylvania 17522, Attention: Corporate Secretary or by
calling (877) 433-8632.
Windstream, D&E Communications, and their respective officers and
directors may be deemed to be soliciting proxies from D&E
Communications' shareholders in favor of the proposed merger.
Information regarding Windstream and D&E Communications' respective
directors and executive officers can be found in their respective Annual
Reports on Form 10-K filed with the SEC. Additional information
regarding the interests of such potential participants will be included
in the definitive proxy statement/prospectus and the other relevant
documents filed with the SEC when they become available.
About Windstream
Windstream Corporation is an S&P 500 company that provides phone,
high-speed Internet and high-definition digital TV services to customers
in 16 states. The company also offers a wide range of IP-based voice and
data services and advanced phone systems and equipment to businesses and
government agencies. The company has approximately 3 million access
lines and about $3.1 billion in annual revenues. Windstream is ranked
4th in the 2009 BusinessWeek 50 ranking of the best performing U.S.
companies. For more information about windstream, visit www.windstream.com.
Pro forma results from current businesses adjusts results of operations
under GAAP for the effects of merger and integration costs related to
the pending acquisition of D&E Communications and the acquisition of CT
Communications, Inc. A reconciliation of pro forma results from current
businesses to the comparable GAAP measures is available on the company's
Web site at www.windstream.com/investors.
Windstream claims the protection of the safe-harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995. Forward-looking statements 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
above 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
access line loss; the impact of new, emerging or competing technologies;
the adoption of intercarrier compensation and/or universal service
reforms by the Federal Communications Commission or Congress that
results in a significant loss of revenue to Windstream; the failure of
D&E Communications shareholders to approve the merger; and the
possibility that the merger does not close, including, but not limited
to, due to the failure to satisfy other closing conditions; the risks
associated with the integration of acquired businesses or the ability to
realize anticipated synergies, cost savings and growth opportunities;
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, rules and regulations
governing the communications industry; material changes in the
communications industry generally that could adversely affect vendor
relationships with equipment and network suppliers and customer
relationships with wholesale customers; unexpected results of
litigation; unexpected 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 our expected long term rate of return for plan
assets; and those additional factors under the caption "Risk Factors" in
Windstream's Form 10-K for the year ended Dec. 31, 2008. 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 Windstream's filings with
the Securities and Exchange Commission at www.sec.gov.
WINDSTREAM CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME-Page 1
(In millions, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, (D) Increase June 30, (D) Increase
2009 June 30, (Decrease) % 2009 June 30, (Decrease) %
2008 Amount 2008 Amount
UNDER GAAP:
Revenues and
sales:
Service $ 714.5 $ 752.7 $ (38.2 ) (5 ) $ 1,435.3 $ 1,512.8 $ (77.5 ) (5 )
revenues
Product sales 38.4 47.2 (8.8 ) (19 ) 72.6 87.1 (14.5 ) (17 )
Total revenues 752.9 799.9 (47.0 ) (6 ) 1,507.9 1,599.9 (92.0 ) (6 )
and sales
Costs and
expenses:
Cost of 249.7 250.8 (1.1 ) - 500.9 504.3 (3.4 ) (1 )
services
Cost of 33.6 43.5 (9.9 ) (23 ) 63.9 78.5 (14.6 ) (19 )
products sold
Selling,
general, 90.4 88.3 2.1 2 179.4 179.7 (0.3 ) -
administrative
and other
Depreciation
and 133.3 123.3 10.0 8 265.3 244.9 20.4 8
amortization
Restructuring 0.1 0.5 (0.4 ) (80 ) - 1.1 (1.1 ) (100 )
charges
Merger and
integration 1.4 4.6 (3.2 ) (70 ) 1.4 6.2 (4.8 ) (77 )
costs
Total costs 508.5 511.0 (2.5 ) - 1,010.9 1,014.7 (3.8 ) -
and expenses
Operating 244.4 288.9 (44.5 ) (15 ) 497.0 585.2 (88.2 ) (15 )
income
Other income, 0.6 3.0 (2.4 ) (80 ) 1.4 8.6 (7.2 ) (84 )
net
Interest (97.8 ) (103.6 ) (5.8 ) (6 ) (197.5 ) (208.6 ) (11.1 ) (5 )
expense
Income from
continuing
operations 147.2 188.3 (41.1 ) (22 ) 300.9 385.2 (84.3 ) (22 )
before income
taxes
Income taxes 56.4 70.4 (14.0 ) (20 ) 121.9 145.4 (23.5 ) (16 )
Income from
continuing 90.8 117.9 (27.1 ) (23 ) 179.0 239.8 (60.8 ) (25 )
operations
Discontinued
operations, - (15.9 ) 15.9 100 - (14.1 ) 14.1 100
including tax
benefit (A)
Net Income $ 90.8 $ 102.0 $ (11.2 ) (11 ) $ 179.0 $ 225.7 $ (46.7 ) (21 )
Weighted
average common 432.4 441.3 (8.9 ) (2 ) 434.2 445.4 (11.2 ) (3 )
shares:
Earnings per
share:
Basic and
diluted
earnings per
share: (B)
Income from
continuing $.21 $.27 $(.06 ) (22 ) $.41 $.53 $(.12 ) (23 )
operations
Loss from
discontinued - (.04 ) .04 100 - (.03 ) .03 100
operations
Net Income $.21 $.23 $(.02 ) (9 ) $.41 $.50 $(.09 ) (18 )
PRO FORMA
RESULTS OF
OPERATIONS
FROM CURRENT
BUSINESSES
(C):
Operating
income before
depreciation $ 379.1 $ 416.8 $ (37.7 ) (9 ) $ 763.7 $ 836.3 $ (72.6 ) (9 )
and
amortization
(OIBDA)
In the fourth quarter of 2008, Windstream sold its wireless business to AT&T Mobility II, LLC.
(A) Accordingly, we have presented the operating results of the wireless business as discontinued
operations.
In accordance with FSP EITF 03-6-1, Windstream's non-vested restricted shares that contain a
non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares are
(B) considered participating securities, and the impact is included in the computation of basic earnings
per share pursuant to the two-class method prescribed under SFAS No. 128, "Earnings per Share". Upon
adoption of this standard on January 1, 2009, the Company retrospectively adjusted prior period
earnings per share data, the impact of which was immaterial.
Pro forma results from current businesses adjusts results of operations under Generally Accepted
Accounting Principles in the United States ("GAAP") for the effects of merger & integration costs
(C) related to the pending acquisition of D&E Communications, Inc. ("D&E") and the acquisition of CT
Communications, Inc. ("CTC"). For further details of this adjustment, see the Notes to Unaudited
Reconciliations of Results of Operations Under GAAP to Pro Forma Results from Current Businesses.
In the first quarter of 2009, the Company reorganized its operations to integrate the sales and
administrative functions of the product distribution segment into its wireline operations. As a result
of this change, the chief operating decision maker no longer reviews the financial statements of the
product distribution operations on a stand alone basis, and the Company operates as a single reporting
segment. As required by Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures
(D) about Segments of an Enterprise and Related Information", segment results of operations have been
retrospectively adjusted to reflect a single segment presentation for all periods presented. As such,
separate segment reporting is no longer required, and thus not included. Additionally, certain amounts
previously reported have been reclassified to conform to the current year presentation of the
consolidated financial statements. These changes and reclassifications did not impact operating or net
income.
WINDSTREAM CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS UNDER GAAP-Page 3
(In millions)
LIABILITIES
ASSETS AND
SHAREHOLDERS'
EQUITY
June 30, December June 30, December 31,
2009 31, 2009 2008
2008
CURRENT CURRENT
ASSETS: LIABILITIES:
Current
Cash and cash $ 245.4 $ 296.6 maturities of $ 24.2 $ 24.3
equivalents long-term
debt
Current
portion of 45.2 40.5
interest rate
swaps
Accounts
receivable Accounts 119.8 134.0
(less payable
allowance for
doubtful Advance
accounts of payments and 92.2 94.0
$16.2 and customer
deposits
$16.3, 296.2 316.6 Accrued 109.2 109.9
respectively) dividends
Inventories 31.0 30.8 Accrued taxes 54.4 48.0
Deferred 19.0 30.8 Accrued 132.1 138.4
income taxes interest
Prepaid Other current
expenses and 37.1 33.9 liabilities 49.9 76.2
other
Total current 628.7 708.7 Total current 627.0 665.3
assets liabilities
Goodwill 2,198.2 2,198.2 Long-term 5,202.0 5,358.2
debt
Other 1,091.9 1,132.2 Deferred 1,111.4 1,070.6
intangibles income taxes
Net property, Other
plant and 3,798.8 3,897.1 liabilities 622.7 662.9
equipment
Other assets 71.9 73.1
SHAREHOLDERS'
EQUITY:
Common stock - -
Additional
paid-in 77.4 101.5
capital
Accumulated
other (298.7 ) (336.6 )
comprehensive
loss
Retained 447.7 487.4
earnings
Total
shareholders' 226.4 252.3
equity
TOTAL
LIABILITIES
AND
TOTAL ASSETS $ 7,789.5 $ 8,009.3 SHAREHOLDERS' $ 7,789.5 $ 8,009.3
EQUITY
WINDSTREAM CORPORATION
UNAUDITED RECONCILIATION OF OPERATING INCOME UNDER GAAP TO PRO FORMA
OIBDA FROM CURRENT BUSINESSES (NON-GAAP)-Page 5
(In millions)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
Operating income from continuing $ 244.4 $ 288.9 $ 497.0 $ 585.2
operations under GAAP
Pro forma adjustments:
Merger and integration costs (A) 1.4 4.6 1.4 6.2
Adjusted operating income 245.8 293.5 498.4 591.4
Depreciation and amortization (B) 133.3 123.3 265.3 244.9
Pro forma OIBDA from current $ 379.1 $ 416.8 $ 763.7 $ 836.3
businesses
NOTES TO UNAUDITED RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP TO PRO
FORMA RESULTS FROM CURRENT BUSINESSES
Windstream Corporation has entered into various transactions that may cause
results reported under Generally Accepted Accounting Principles in the
United States ("GAAP") to be not necessarily indicative of future results.
On May 10, 2009 the Company entered into a definitive agreement to acquire
all of the outstanding shares of common stock of D&E. Under the terms of the
agreement, D&E shareholders will receive 0.650 shares of Windstream common
stock and $5.00 in cash per each share of D&E common stock. The acquisition
has received federal approval and is expected to close in the fourth quarter
of 2009 subject to certain conditions, including necessary approvals from
state regulators and D&E shareholders. On August 31, 2007, Windstream
completed the acquisition of CT Communications, Inc. ("CTC"). Subsequently,
on November 21, 2008, the Company completed the sale of the wireless
business acquired from CTC. The completion of this transaction resulted in
the divestiture of approximately 52,000 wireless customers, spectrum
licenses and cell sites covering a four-county area in North Carolina with a
population of 450,000, and six retail locations. Accordingly, we reported
the operating results of the wireless business as discontinued operations.
These changes and reclassifications did not impact operating or net income.
As disclosed in the Windstream Form 8-K filed on August 6, 2009, the Company
has presented in this earnings release unaudited pro forma results from
current businesses, which excludes all merger and integration costs
resulting from the transactions discussed above.
Windstream's purpose for excluding non-recurring items is to improve the
comparability of results of operations for the three and six month periods
ended June 30, 2009, to the results of operations for the same period of
2008. Windstream's purpose for these adjustments is to focus on the true
earnings capacity associated with providing telecommunication services.
Management believes the items excluded from pro forma results from current
businesses are related to strategic activities or other events, specific to
the time and opportunity available, and should be treated accordingly when
evaluating the Company's operations. Management believes that presenting
current business measures assists investors by providing more meaningful
comparisons of results from current and prior periods, and by providing
information that is a better reflection of the core earnings capacity of the
businesses. The Company uses pro forma results from current businesses,
including pro forma revenues and sales and pro forma OIBDA from current
businesses, as a key measure of its operational performance. Windstream
management, including the chief operating decision-maker, uses these
measures consistently for all purposes including: internal reporting, the
evaluation of business objectives, opportunities and performance, and the
determination of management compensation.
During the second quarter of 2009, the Company incurred $1.4 million in
consulting fees associated with the pending acquisition of D&E. During the
(A) six months ended June 30, 2008, the Company incurred $6.2 million relative
to the acquisition of CTC, primarily related to system conversion costs, of
which $4.6 million was recorded in the second quarter.
(B) Represents depreciation and amortization expense under GAAP.