-- Generates $242 million in net cash from operations and $175 million in
free cash flow
-- Produces $535 million in free cash flow year-to-date in 2009, a 5
percent increase year-over-year
-- Achieves lowest absolute access line loss since company's formation in
2006
-- Adds approximately 26,000 new high-speed Internet customers and more
than 11,000 new digital TV customers
-- Repurchases 8.9 million shares and returns $560 million to shareholders
through share repurchases and dividends this year
LITTLE ROCK, Ark.--(BUSINESS WIRE)--
Windstream Corporation (NYSE: WIN) today reported third-quarter earnings
results highlighted by the lowest absolute access line loss since the
company's formation in 2006.
Windstream also announced the Pennsylvania Public Utilities Commission
has approved the company's acquisition of D&E Communications announced
on May 11. Windstream expects to close the transaction this week.
"Our marketing efforts and promotions resonated very well in the
quarter, resulting in solid broadband customer growth and our lowest
line loss since we formed the company in 2006," said Jeff Gardner,
president and CEO. "We remain focused on improving the trends in our
business and continue to demonstrate that we can sustain our cash flows."
Windstream's third-quarter results under Generally Accepted Accounting
Principles (GAAP) include the following items, which lowered earnings
per share by roughly 6 cents:
-- $15 million in after-tax non-cash pension expense;
-- $5 million in after-tax restructuring charges related to a workforce
reduction announced on Sept. 30;
-- $5 million in after-tax non-cash amortization of wireline franchise
rights; and
-- $1 million in after-tax merger and integration costs.
Third-quarter financial results:
Under GAAP:
-- Revenues were $734 million, an 8 percent decrease from a year ago.
-- Operating income was $225 million, a decrease of 17 percent
year-over-year.
-- Net income was $80 million, a 24 percent decrease from a year ago, or 18
cents of diluted earnings per share.
-- Net cash provided from operations was $242 million, a 9 percent increase
year-over-year.
-- Average service revenue per customer per month was $79.99, essentially
the same as a year ago.
-- Capital expenditures were $67 million, a 22 percent decrease
year-over-year.
Under pro forma results from current businesses:
-- Operating income before depreciation and amortization (OIBDA) was $360
million, a 10 percent decline year-over-year. Excluding the incremental
non-cash pension expense and restructuring expense, OIBDA was
approximately $391 million, a 2.5 percent decline from a year ago,
resulting in an OIBDA margin of approximately 54 percent.
The company generated approximately $175 million in free cash flow,
which is defined as net cash from operations less capital expenditures,
during the quarter and $535 million year-to-date in 2009, a 5 percent
increase year-over-year. Windstream ended the third quarter with $290
million in cash and cash equivalents.
Third-quarter operating results:
Windstream added approximately 26,000 new high-speed Internet customers
during the third quarter, bringing its total broadband customer base to
approximately 1,050,000 customers, an increase of 9 percent
year-over-year. Overall broadband penetration is now 36 percent of total
access lines and residential broadband penetration is approximately 53
percent of primary residential lines.
Windstream added more than 11,000 new digital TV customers in the
quarter, bringing its total customer base to approximately 323,000, or
18 percent penetration of primary residential lines.
Total access lines declined by approximately 27,000. Total lines at the
end of the quarter were 2.93 million, a decline of approximately 5.2
percent year-over-year.
Share repurchase plan:
Windstream repurchased 1.1 million shares for $11 million in the third
quarter, and an additional 7.8 million shares for $78 million that
settled in early October. Collectively, the company repurchased 8.9
million shares, at an average price of $9.95. The company has roughly
$80 million remaining under the current $400 million share repurchase
plan authorized by the board of directors in February 2008. The share
repurchase authorization expires at the end of 2009. With dividends and
share repurchases, Windstream has returned approximately $560 million to
shareholders this year.
Conference call
Windstream will hold a conference call at 7:30 a.m. CST today to review
the company's third-quarter earnings results.
To access the call:
Interested parties can access the call by dialing 1-866-900-4729,
conference ID 36173270, ten 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. CST today
and ending at midnight CST on Dec. 9. The replay can be accessed by
dialing 1-800-642-1687, conference ID 36173270.
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. CST today.
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 2.9 million access
lines and about $3 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 to exclude the results of the disposed out-of-territory
product distribution operations as well as merger and integration costs
related to the pending acquisitions of D&E Communications, Lexcom, Inc.
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 possibility
that the D&E Communications merger does not close, including, but not
limited to, due to the failure to satisfy 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; unexpected results of relocation of Windstream's data center;
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 NINE MONTHS ENDED
(E) Increase (E) Increase
September September (Decrease) September September (Decrease)
30, 30, 30, 30,
2009 2008 Amount % 2009 2008 Amount %
UNDER GAAP:
Revenues and
sales:
Service $ 704.9 $ 741.9 $ (37.0 ) (5 ) $ 2,140.2 $ 2,254.7 $ (114.5 ) (5 )
revenues
Product sales 29.4 52.2 (22.8 ) (44 ) 102.0 139.3 (37.3 ) (27 )
Total revenues 734.3 794.1 (59.8 ) (8 ) 2,242.2 2,394.0 (151.8 ) (6 )
and sales
Costs and
expenses:
Cost of 253.0 255.9 (2.9 ) (1 ) 753.9 760.2 (6.3 ) (1 )
services
Cost of 26.0 49.5 (23.5 ) (47 ) 89.9 128.0 (38.1 ) (30 )
products sold
Selling,
general, 87.6 86.8 0.8 1 267.0 266.5 0.5 -
administrative
and other
Depreciation
and 133.8 123.8 10.0 8 399.1 368.7 30.4 8
amortization
Restructuring 7.5 1.0 6.5 650 7.5 2.1 5.4 257
charges
Merger and
integration 1.0 - 1.0 100 2.4 6.2 (3.8 ) (61 )
costs
Impairment
loss on assets - 6.5 (6.5 ) (100 ) - 6.5 (6.5 ) (100 )
held for sale
(A)
Total costs 508.9 523.5 (14.6 ) (3 ) 1,519.8 1,538.2 (18.4 ) (1 )
and expenses
Operating 225.4 270.6 (45.2 ) (17 ) 722.4 855.8 (133.4 ) (16 )
income
Other income, (2.2 ) 0.5 (2.7 ) (540 ) (0.8 ) 9.1 (9.9 ) (109 )
net
Interest (97.5 ) (103.3 ) (5.8 ) (6 ) (295.0 ) (311.9 ) (16.9 ) (5 )
expense
Income from
continuing
operations 125.7 167.8 (42.1 ) (25 ) 426.6 553.0 (126.4 ) (23 )
before income
taxes
Income taxes 45.7 63.5 (17.8 ) (28 ) 167.6 208.9 (41.3 ) (20 )
Income from
continuing 80.0 104.3 (24.3 ) (23 ) 259.0 344.1 (85.1 ) (25 )
operations
Discontinued
operations, - 1.6 (1.6 ) (100 ) - (12.5 ) 12.5 100
net of tax
expense (B)
Net Income $ 80.0 $ 105.9 $ (25.9 ) (24 ) $ 259.0 $ 331.6 $ (72.6 ) (22 )
Weighted
average common 433.0 435.9 (2.9 ) (1 ) 433.8 442.3 (8.5 ) (2 )
shares:
Earnings per
share:
Basic and
diluted
earnings per
share: (C)
Income from
continuing $.18 $.24 $(.06 ) (25 ) $.59 $.77 $(.18 ) (23 )
operations
Loss from
discontinued - - - - - (.03 ) .03 100
operations
Net Income $.18 $.24 $(.06 ) (25 ) $.59 $.74 $(.15 ) (20 )
PRO FORMA
RESULTS OF
OPERATIONS
FROM CURRENT
BUSINESSES
(D):
Revenues and $ 726.1 $ 772.3 $ (46.2 ) (6 ) $ 2,203.7 $ 2,335.7 $ (132.0 ) (6 )
sales
Operating
income before
depreciation $ 360.3 $ 399.7 $ (39.4 ) (10 ) $ 1,123.0 $ 1,234.4 $ (111.4 ) (9 )
and
amortization
(OIBDA)
(A) In the third quarter of 2008, the Company recognized a non-cash impairment charge to adjust the carrying value
of its wireless spectrum holdings classified as acquired assets held for sale to its fair market value.
(B) In the fourth quarter of 2008, Windstream sold its wireless business to AT&T Mobility II, LLC. Accordingly, we
have presented the operating results of the wireless business as discontinued operations.
Effective January 1, 2009, the Company adopted the revised authoritative guidance for calculating earnings per
(C) share, and commensurate therewith, has 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") to exclude the results of the disposed out of territory product
distribution operations as well as merger and integration costs related to the pending acquisitions of D&E
(D) Communications, Inc. ("D&E") and Lexcom, Inc. ("Lexcom"), the acquisition of CT Communications, Inc. ("CTC")
and the non-cash impairment charge for acquired assets held for sale. For further details on these adjustments,
see the Notes to Unaudited Reconciliation of Operating Income Under GAAP to Pro Forma OIBDA 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
(E) operations on a stand alone basis, and the Company operates as a single reporting segment. 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)
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
September December September December
30, 31, 30, 31,
2009 2008 2009 2008
CURRENT CURRENT
ASSETS: LIABILITIES:
Current
Cash and cash $ 290.0 $ 296.6 maturities of $ 24.1 $ 24.3
equivalents long-term
debt
Current
portion of 47.3 40.5
interest rate
swaps
Accounts
receivable Accounts 131.9 134.0
(less payable
allowance for
doubtful Advance
accounts of payments and 92.0 94.0
$16.5 and customer
deposits
$16.3, 294.7 316.6 Accrued 108.8 109.9
respectively) dividends
Inventories 23.5 30.8 Accrued taxes 43.1 48.0
Deferred 16.5 30.8 Accrued 64.1 138.4
income taxes interest
Prepaid Other current
expenses and 53.9 33.9 liabilities 60.8 76.2
other
Total current 678.6 708.7 Total current 572.1 665.3
assets liabilities
Goodwill 2,198.2 2,198.2 Long-term 5,199.0 5,358.2
debt
Other 1,072.8 1,132.2 Deferred 1,177.7 1,070.6
intangibles income taxes
Net property, Other
plant and 3,751.8 3,897.1 liabilities 629.5 662.9
equipment
Other assets 66.7 73.1
Total 7,578.3 7,757.0
liabilities
SHAREHOLDERS'
EQUITY:
Common stock - -
Additional
paid-in 63.6 101.5
capital
Accumulated
other (292.8 ) (336.6 )
comprehensive
loss
Retained 419.0 487.4
earnings
Total
shareholders' 189.8 252.3
equity
TOTAL
LIABILITIES
AND
TOTAL ASSETS $ 7,768.1 $ 8,009.3 SHAREHOLDERS' $ 7,768.1 $ 8,009.3
EQUITY
WINDSTREAM CORPORATION
UNAUDITED RECONCILIATION OF REVENUES AND SALES AND OPERATING INCOME UNDER GAAP
TO
PRO FORMA REVENUES AND SALES AND PRO FORMA
OIBDA FROM CURRENT BUSINESSES (NON-GAAP)-Page 5
(In millions)
THREE MONTHS ENDED NINE MONTHS ENDED
September September September 30, September 30,
30, 30,
2009 2008 2009 2008
Revenues and
sales under $ 734.3 $ 794.1 $ 2,242.2 $ 2,394.0
GAAP
Pro forma
adjustments:
Windstream
Supply LLC (A) (8.2 ) (21.8 ) (38.5 ) (58.3 )
revenue and
sales
Pro forma
revenues and
sales from $ 726.1 $ 772.3 $ 2,203.7 $ 2,335.7
current
businesses
Operating
income from
continuing $ 225.4 $ 270.6 $ 722.4 $ 855.8
operations
under GAAP
Pro forma
adjustments:
Operating
income
adjustment
for the (A) 0.1 (1.2 ) (0.9 ) (2.8 )
disposition
of
Windstream
Supply LLC
Merger and
integration (B) 1.0 - 2.4 6.2
costs
Impairment
loss on (C) - 6.5 - 6.5
assets held
for sale
Adjusted
operating 226.5 275.9 723.9 865.7
income
Depreciation
and (D) 133.8 123.8 399.1 368.7
amortization
Pro forma
OIBDA from $ 360.3 $ 399.7 $ 1,123.0 $ 1,234.4
current
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 August 21, 2009, Windstream completed the sale of its out of
territory product distribution operations to Walker and Associates of
North Carolina, Inc. ("Walker") for approximately $5.3 million in total
consideration. These operations were not central to the Company's
strategic goals in its core communications business. On September 8,
2009, the Company entered into a definitive agreement to acquire Lexcom,
Inc. ("Lexcom") based in Lexington, North Carolina, for approximately
$141.0 million in cash, net of working capital to be acquired. The
acquisition is expected to close in the fourth quarter of 2009, subject
to certain conditions including the necessary approvals from federal
regulators. On May 10, 2009 the Company entered into a definitive
agreement to acquire all of the outstanding shares of common stock of D&E
Communications, Inc ("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 is
expected to close on November 10, 2009. In the third quarter of 2008, the
Company recognized a non-cash impairment charge of $6.5 million to reduce
the carrying value of certain wireless spectrum licenses designated as
held for sale, and not used in operations, to their fair market value.
The fair market value of these holdings has been reduced to a nominal
amount due to an impairment resulting from general market conditions and
limited interest on this bandwidth of spectrum. 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. As disclosed in the Windstream Form 8-K filed
on November 9, 2009, the Company has presented in this earnings release
unaudited pro forma results from current businesses, which excludes (1)
results from the out of territory product distribution operations prior
to the disposition, (2) all merger and integration costs resulting from
the transactions discussed above, and (3) the $6.5 million non-cash
impairment charge for acquired assets held for sale.
Windstream's purpose for excluding non-recurring items is to improve the
comparability of results of operations for the three and nine month
periods ended September 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.
(A) To reflect the Company's disposition of the out of territory product
distribution operations.
In 2009, the Company incurred consulting fees associated with the pending
(B) acquisitions of D&E and Lexcom. In 2008, the Company incurred system
conversion costs relative to the acquisition of CTC.
(C) To reflect the non-cash impairment loss of assets held for sale.
(D) Represents depreciation and amortization expense under GAAP.