LITTLE ROCK, Ark.--(BUSINESS WIRE)--
Windstream Corporation (NYSE: WIN) today reported first-quarter earnings
results driven by increased high-speed Internet sales and disciplined
management of overall cash expenses.
"I am pleased with our results for the first quarter, particularly our
operating metrics and cash flow. While our revenue decline
year-over-year was affected somewhat by the challenging economic
environment, our operating metrics continue to lead the industry.
Further, our team has done a great job managing overall expenses,
despite higher expenses this quarter repairing damage from a severe ice
storm," said Jeff Gardner, president and CEO.
Windstream's first-quarter results under Generally Accepted Accounting
Principles (GAAP) include the following items, which lowered earnings
per share by roughly 4 cents:
-- $5 million in after-tax non-cash amortization expense of wireline
franchise rights;
-- $7 million for a non-cash adjustment of a deferred tax asset related to
a state net operating loss; and
-- Approximately $4 million in after-tax expense related to ice storm
damage in late January.
In addition, results this quarter include incremental non-cash pension
expense of approximately $14 million, net of tax, or 3 cents per share,
which affects year-over-year comparisons.
The company announced in February that it expects to incur roughly $90
million in increased pension expense during 2009. This pension expense
is a non-cash charge and does not affect free cash flow. The increase
reflects negative plan returns in 2008 and the company's accounting
policy to accelerate recognition of the effects of large changes in plan
asset valuations. Based on preliminary estimates, the company does not
expect to make any cash contribution to the pension plan in 2009.
First-quarter financial results:
Under GAAP:
-- Revenues were $755 million, a 5.6 percent decrease from a year ago.
-- Operating income was $253 million, a decrease of 15 percent
year-over-year.
-- Net income was $88 million, a 29 percent decrease from a year ago, or 20
cents of diluted earnings per share.
-- Net cash provided from operations was $215 million, essentially the same
as a year ago.
-- Average service revenue per customer was $79.68, essentially the same as
a year ago.
-- Capital expenditures were $63 million, a 13 percent increase
year-over-year.
Under pro forma results from current businesses:
-- Operating income before depreciation and amortization (OIBDA) was $385
million, an 8 percent decline year-over-year. Excluding the incremental
pension expense and ice storm related expenses, OIBDA declined by
approximately one percent year-over-year, resulting in an OIBDA margin
of nearly 55 percent, the highest since the company was formed.
Windstream ended the quarter with $312 million in cash and cash
equivalents. The company generated $152 million in free cash flow, which
is defined as net cash from operations less capital expenditures, during
the quarter.
First-quarter operating results:
Windstream added approximately 31,000 new high-speed Internet customers
during the first quarter, nearly double the number of new customers
added in the fourth quarter, bringing its total broadband customer base
to more than 1 million customers, an increase of almost 11 percent
year-over-year. Overall broadband penetration is now 34 percent of total
access lines and residential broadband penetration is approximately 52
percent of primary residential lines.
Windstream added more than 21,000 digital TV customers in the quarter,
bringing its total customer base to approximately 295,000, or 17 percent
penetration of primary residential lines.
Total access lines declined by approximately 44,000, or 5.3 percent
year-over-year. Total lines at the end of the quarter were 2.99 million.
Share repurchase plan:
Windstream has repurchased approximately 4.1 million shares for $33
million, at an average price of $7.94 per share, this year to date as
part of a $400 million share repurchase plan authorized by the board of
directors in February 2008. The company repurchased approximately $200
million in shares in 2008. The share repurchase authorization expires at
the end of 2009.
2009 projected free cash flow:
With the tax benefits associated with the federal stimulus package,
Windstream now expects to generate between $705 million and $775 million
in free cash flow during 2009, an increase of $20 million from previous
guidance, resulting in an expected dividend payout ratio between 57
percent and 63 percent.
Conference call
Windstream will hold a conference call at 7:30 a.m. CDT today to review
the company's first-quarter earnings results.
To access the call:
Interested parties can access the call by dialing 1-877-356-2910,
conference ID 94485395, 10 minutes prior to the start time.
The international dial-in number is 1-660-422-4943, conference ID
94485395.
To access the call replay:
A replay of the call will be available beginning at 10:30 a.m. CDT today
and ending at midnight CDT on June 8. The replay can be accessed by
dialing 1-800-642-1687, conference ID 94485395.
The international dial-in number for the replay is 1-706-645-9291,
conference ID 94485395.
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.
About Windstream
Windstream Corporation is an S&P 500 company that provides digital
phone, high-speed Internet and high-definition video and entertainment
services to residential and business customers in 16 states. The company
has approximately 3 million access lines and about $3.2 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 acquisition of CT Communications, Inc. in 2007. A reconciliation of
pro forma results from current businesses to the comparable GAAP
measures is included in the following financial schedules.
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, including statements regarding
Windstream's financial guidance for 2009, 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 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
(D) Increase
March 31, March 31, (Decrease)
2009 2008 Amount %
UNDER GAAP:
Revenues and sales:
Service revenues $ 720.8 $ 760.1 $ (39.3 ) (5 )
Product sales 34.2 39.9 (5.7 ) (14 )
Total revenues and sales 755.0 800.0 (45.0 ) (6 )
Costs and expenses:
Cost of services 251.2 253.5 (2.3 ) (1 )
Cost of products sold 30.3 35.0 (4.7 ) (13 )
Selling, general, 89.0 91.4 (2.4 ) (3 )
administrative and other
Depreciation and 132.0 121.6 10.4 9
amortization
Restructuring charges (0.1 ) 0.6 (0.7 ) (117 )
Merger and integration - 1.6 (1.6 ) (100 )
costs
Total costs and expenses 502.4 503.7 (1.3 ) -
Operating income 252.6 296.3 (43.7 ) (15 )
Other income, net 0.8 5.6 (4.8 ) (86 )
Interest expense (99.7 ) (105.0 ) 5.3 (5 )
Income from continuing
operations before income 153.7 196.9 (43.2 ) (22 )
taxes
Income taxes 65.5 75.1 (9.6 ) (13 )
Income from continuing 88.2 121.8 (33.6 ) (28 )
operations
Discontinued operations, - 1.9 (1.9 ) (100 )
including tax expense (A)
Net Income $ 88.2 $ 123.7 $ (35.5 ) (29 )
Weighted average common 436.0 449.4 (13.4 ) (3 )
shares: (B)
Earnings per share:
Basic and diluted
earnings per share: (B)
Income from continuing $.20 $.27 $(.07 ) (26 )
operations
Income from discontinued - - - -
operations
Net Income $.20 $.27 $(.07 ) (26 )
PRO FORMA RESULTS OF
OPERATIONS FROM CURRENT
BUSINESSES (C):
Operating income before
depreciation and $ 384.6 $ 419.5 $ (34.9 ) (8 )
amortization (OIBDA)
In the fourth quarter of 2008, Windstream sold its wireless business to
(A) AT&T Mobility II, LLC. 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 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". The two-class method of computing earnings per share
is an earnings allocation formula that determines earnings attributable to
common shares and participating securities according to dividends declared
(whether paid or unpaid) and participation rights in undistributed
earnings. Earnings per common share was computed by dividing the sum of
(B) distributed earnings and undistributed earnings allocated to common
shareholders by the weighted average number of common shares outstanding
for the period. In applying the two-class method, undistributed earnings
are allocated to both common shares and non-vested restricted shares based
on the pro-rata weighted average shares outstanding during the period. The
Company also computed dilutive earnings per share using the two-class
method as this method is more dilutive than the treasury stock method.
Windstream's diluted earnings per share is equal to the Company's
calculated basic 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
(C) ("GAAP") for the effects of merger & integration costs related to 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
(D) Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures
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 SUPPLEMENTAL OPERATING INFORMATION-Page 2
(Dollars in millions, except per customer amounts)
THREE MONTHS ENDED
(B) Increase
March 31, March 31, (Decrease)
2009 2008 Amount %
UNDER GAAP:
Service revenues $ 720.8 $ 760.1 $ (39.3 ) (5 )
Access lines 2,993.4 3,161.2 (167.8 ) (5 )
Net access line losses (44.4 ) (41.9 ) (2.5 ) (6 )
Average access lines 3,015.3 3,182.5 (167.2 ) (5 )
Average service revenue
per customer per month $79.68 $79.61 $.07 -
(A)
High-speed Internet 1,009.7 911.0 98.7 11
customers
Net high-speed Internet 30.9 39.6 (8.7 ) (22 )
additions
Digital satellite 295.4 210.4 85.0 40
television customers
Net digital satellite 21.2 14.8 6.4 43
television additions
Long distance customers 1,972.0 2,069.3 (97.3 ) (5 )
Net long distance (34.7 ) 2.7 (37.4 ) -
customer additions
Capital expenditures $ 62.8 $ 55.8 $ 7.0 13
(A) Average service revenue per customer per month is calculated by dividing
service revenues by average customers for the period.
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
(B) Statement of Financial Accounting Standards ("SFAS") No. 131 "Disclosures
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 STATEMENTS OF CASH FLOWS UNDER GAAP-Page 4
(In millions)
THREE MONTHS ENDED
March 31, March 31,
2009 2008
Cash Provided from Operations:
Net income $ 88.2 $ 123.7
Adjustments to reconcile net income to net cash provided
from operations:
Depreciation and amortization 132.0 122.8
Provision for doubtful accounts 9.3 8.9
Stock-based compensation expense 5.2 4.6
Pension and post retirement benefits expense 24.5 3.7
Deferred taxes 36.4 15.6
Other, net 1.5 (2.4 )
Changes in operating assets and liabilities, net:
Accounts receivable 19.4 (3.3 )
Accounts payable (17.1 ) 1.2
Accrued interest (72.7 ) (68.9 )
Accrued taxes 23.9 32.0
Other current liabilities (29.5 ) (15.4 )
Other, net (6.1 ) (7.4 )
Net cash provided from operations 215.0 215.1
Cash Flows from Investing Activities:
Additions to property, plant and equipment (62.8 ) (55.8 )
Disposition of acquired assets held for sale - 16.4
Other, net - 9.2
Net cash used in investing activities (62.8 ) (30.2 )
Cash Flows from Financing Activities:
Dividends paid on common shares (109.9 ) (113.6 )
Stock repurchase (20.7 ) (100.2 )
Repayment of debt (3.6 ) (88.6 )
Debt issued, net of issuance costs - 100.0
Other, net (2.4 ) (1.0 )
Net cash used in financing activities (136.6 ) (203.4 )
Increase (decrease) in cash and cash equivalents 15.6 (18.5 )
Cash and Cash Equivalents:
Beginning of the period 296.6 72.0
End of the period $ 312.2 $ 53.5
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 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 May 8, 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 including the results of the acquired businesses
and for excluding non-recurring items is to improve the comparability of
results of operations for the three months ended March 31, 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) The Company incurred $1.6 million relative to the acquisition of CTC during
the first quarter of 2008, primarily related to system conversion costs.
(B) Represents depreciation and amortization expense under GAAP.