Windstream 2006 Annual Report Download - page 119

Cash Flows – Investing Activities
Capital expenditures are the Company’s primary use of capital resources. Capital expenditures were $373.8 million in
2006, $356.9 million in 2005 and $337.8 million in 2004. Capital expenditures in each of the past three years were
incurred to construct additional network facilities and to upgrade our telecommunications network in order to offer
other communications services, including broadband communications services. During each of the past three years, we
funded our capital expenditures through cash flows from operations. As indicated in the table above under “Segment
Capital Requirements”, we expect capital expenditures to be approximately $350.0 million to $380.0 million for 2007,
which will be funded from cash flows from operations. Investing activities in 2006 included $69.0 million of cash
obtained in the acquisition of Valor.
Cash Flows – Financing Activities
As previously discussed, during 2006, the Company completed the spin-off from Alltel and merger with Valor. As
further discussed under “Liquidity and Capital Resources,” in connection with the spin-off, on July 17, 2006, the
Company paid a special dividend to Alltel of $2,275.1 million. In addition, the Company repaid $80.8 million of debt,
including $11.9 million in current maturities, previously issued by the Company’s wireline operating subsidiaries. The
Company funded the special dividend payment and the repayment of operating company debt from $2.4 billion of
borrowings under a new senior secured credit agreement. In addition, the Company issued $1,746.0 million of
exchange notes to Alltel, net of original issue discount of $42.8 million. In conjunction with the merger with Valor, the
Company issued $800.0 million of senior notes, the proceeds of which were used to repay Valor’s existing credit
facility of $780.6 million. The Company also maintains a $500.0 million revolving line of credit, which was undrawn
as of December 31, 2006.
In addition to the activities discussed above, retirements of long-term debt amounted to $10.0 million in 2006 and
$22.1 million in both 2005 and 2004, respectively. Retirements of long-term debt in each period reflects the required
scheduled principal payments under the Company’s existing long-term debt obligations.
In periods prior to the spin-off, dividend payments to Alltel were a significant use of capital resources for the
Company. Dividend payments to Alltel amounted to $99.0 million in 2006 compared to $233.6 million and $239.1
million for the same periods in 2005 and 2004. Subsequent to the merger, the Company paid $4.9 million of dividends
on common shares that had been declared and accrued by Valor prior to the transaction for the period from July 1,
2006 through the date of the merger on July 17, 2006.
The Company’s Board of Directors has adopted a current dividend policy for the payment of cash quarterly dividends
at a rate of $0.25 per share on the Company’s common stock. The Company’s Board of Directors can change this
policy at any time at its discretion. On August 3, 2006, the Company’s Board of Directors declared a dividend in the
amount of $0.204 per share of the Company’s common stock, which was paid in the amount of $97.3 million on
October 16, 2006 to shareholders of record as of September 30, 2006. The dividend was prorated from July 17, 2006,
the effective date of the Merger with Valor, and the indicated quarterly dividend rate implied by the prorated dividend
was $0.25 per share. On November 7, 2006, the Company’s Board of Directors declared a dividend in the amount of
$0.25 per share of the Company’s common stock. This dividend, totaling $119.2 million, was paid on January 16, 2007
to shareholders of record as of December 29, 2006.
The Company’s ability to pay dividends is subject to compliance with the Company’s financial covenants (including
the leverage and interest coverage ratios discussed below), a restricted payments covenant and the absence of a default
under the Company’s senior secured credit facilities. Under the restricted payments covenant, the Company may use all
available distributable cash for each quarterly period commencing on October 1, 2006 to the end of the most recently
ended fiscal quarter for which the Company has delivered a quarterly financial compliance certificate to the
administrative agent to declare and pay dividends. However, without regard to the foregoing restriction on available
distributable cash, the Company was allowed to pay dividends not exceeding $237.5 million for its quarterly dividends
declared for the third and fourth quarters of 2006. As discussed above, the Company declared combined dividends of
$216.5 million for these two quarters.
Available distributable cash for any period means, without duplication (a) adjusted EBITDA (discussed in the liquidity
and capital resources section below); plus (b) any extraordinary or non-recurring cash gain, other than any such gain
resulting from any sale, transfer or other disposition of assets; minus (c) to the extent included in determining such
adjusted EBITDA, the sum of (i) cash interest expense; (ii) all taxes paid in cash; and (iii) any extraordinary or
nonrecurring loss, expense or charge paid in cash; minus (d) the sum of (i) dividends and other restricted payments,
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