News Details

View all news

Windstream Reports Third-Quarter Earnings Results

November 09, 2009

-- 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.
Categories: Press Releases
View all news