Windstream 2006 Annual Report Download - page 124

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), beginning in 2006,
the Act provides a prescription drug benefit under Medicare Part D, as well as a federal subsidy to plan sponsors of
retiree healthcare plans that provide a prescription drug benefit to their participants that is at least actuarially equivalent
to the benefit that will be available under Medicare. The amount of the federal subsidy is based on 28 percent of an
individual beneficiary’s annual eligible prescription drug costs ranging between $250 and $5,000. Based on its
understanding of the Act, Windstream determined that a substantial portion of the prescription drug benefits provided
under our postretirement benefit plan would be deemed actuarially equivalent to the benefits provided under Medicare
Part D. On January 21, 2005, the Department of Health and Human Services issued final federal regulations related to
the federal subsidy. These final rules did not have a material effect on our benefit costs or accumulated postretirement
benefit obligation due to the prospective adoption of FSP No. 106-2, “Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” on July 1, 2004.
Off-Balance Sheet Arrangements
We do not use securitization of trade receivables, affiliation with special purpose entities, variable interest entities or
synthetic leases to finance our operations. Additionally, we have not entered into any arrangement requiring us to
guarantee payment of third party debt or to fund losses of an unconsolidated special purpose entity. During December
2006, the Company sold certain customer receivables of approximately $3.8 million that had previously been deemed
uncollectible to a third party collection agency without recourse. The Company may enter into similar transactions in
the future in the normal course of business.
Contractual Obligations and Commitments
Set forth below is a summary of our material contractual obligations and commitments as of December 31, 2006:
(Millions)
Payments Due by Period
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years Total
Long-term debt, including current maturities (a) $ 32.2 $ 158.6 $ 445.5 $ 4,880.5 $ 5,516.8
Interest payments on long-term debt obligations (b) 436.4 844.5 814.8 332.5 2,428.2
Operating leases 22.4 36.0 20.7 2.8 81.9
Purchase obligations (c) 62.7 55.1 8.2 - 126.0
Other long-term liabilities (d) 25.8 72.5 111.0 1,216.7 1,426.0
Total contractual obligations and commitments $ 579.5 $ 1,166.7 $ 1,400.2 $ 6,432.5 $ 9,578.9
Notes:
(a) Excludes $(28.4) million of unamortized discounts included in long-term debt at December 31, 2006.
(b) Variable rates are calculated in relation to LIBOR, which was 5.36 percent at December 31, 2006.
(c) Purchase obligations represent amounts payable under noncancellable contracts and primarily represent agreements for network
capacity and software licensing.
(d) Other long-term liabilities primarily consist of deferred tax liabilities and other postretirement benefit obligations.
Commitments due in less than 1 year include a $5.9 million required contribution to the Windstream Pension Plan, which is
included in other assets in the consolidated balance sheet.
Under our long-term debt agreements, acceleration of principal payments would occur upon payment default, violation
of debt covenants not cured within 30 days or breach of certain other conditions set forth in the borrowing agreements.
At December 31, 2006, we were in compliance with all of our debt covenants. There are no provisions within any of
our leasing agreements that would trigger acceleration of future lease payments. See Notes 2, 3, 5, 6, 8, 10, 12, 13 and
15 to the consolidated financial statements for additional information regarding certain of the obligations and
commitments listed above.
Market Risk
The Company is exposed to market risk through changes in interest rates, primarily as it relates to the variable interest
rates it is charged under its credit facilities. The Company does not own marketable equity securities nor does it operate
in foreign countries, and therefore Windstream is not exposed to market risk from changes in equity prices or foreign
currency rates. Windstream has estimated its interest rate risk using a sensitivity analysis. For Windstream’s variable
rate debt instruments, market risk is defined as the potential change in earnings resulting from a hypothetical adverse
change in interest rates. The results of the sensitivity analysis used to estimate market risk is presented below in the
Interest Rate Risk analysis. Actual results may differ from this estimate.
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