Windstream 2007 Annual Report Download - page 105

Retirement Obligations” (See Note 2). SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The cumulative
effect of this change resulted in a non-cash charge of $7.4 million, net of income tax benefit of $4.6 million, and was
included in net income for the year ended December 31, 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
During 2007, the Company generated approximately $1.0 billion in cash flows from operations and ended the year with
$72.0 million in cash and short-term investments. At December 31, 2007, current maturities of long-term debt were
$24.3 million. The Company expects to fund the payment of these obligations through operating cash flows in 2008. At
December 31, 2007, the Company also had $394.1 million available to it under its $500.0 million revolving line of
credit, which expires in 2011. We expect that cash on hand, along with cash generated from operations over the next
year, will be adequate to finance our ongoing operating requirements, capital expenditures, scheduled principal
payments of long-term debt and payments of dividends in 2008. Any temporary cash needs will be funded through
borrowings available under the revolving line of credit.
The Company’s board of directors has adopted a current dividend practice for the payment of quarterly cash dividends
at a rate of $0.25 per share of the Company’s common stock. This practice can be changed at any time at the discretion
of the board of directors. Dividends paid to shareholders were $1.00 per share during 2007, totaling $476.8 million.
Windstream also paid $113.6 million to shareholders in January 2008 pursuant to a $0.25 quarterly dividend declared
during the fourth quarter of 2007.
In February 2008, the Windstream Board of Directors approved a stock repurchase program for up to $400.0 million of
the Company’s common stock continuing until December 31, 2009. While it is our intention to fully achieve this plan
over this period, we will also review other opportunities to enhance shareholder returns as they become available. At
the time the Board approved this plan, the Company had approximately $255.0 million of restricted payments capacity
under its indentures to complete the share repurchase program. Restricted payments include dividend payments, share
repurchases and other strategic investments of cash on hand. The Company builds additional capacity through cash
generated from operations, and we expect to have capacity sufficient to support this program in the third quarter of
2008.
Because of restrictions contained in the merger agreement with Alltel, Windstream may be limited in the amount of
stock that it can issue to make acquisitions or to raise additional capital in the two-year period ending July 17, 2008
(“the restricted activity period”). These restrictions are intended to prevent Windstream from taking any actions that
could cause the spin off from Alltel to be taxable to Alltel under Section 355(e) of the Internal Revenue Code. In
particular, during the restricted activity period, Windstream is prohibited from entering into any transaction involving
the acquisition of Windstream stock, or the issuance of shares of Windstream stock, in excess of an initial permitted
basket of 71.1 million of its shares. This basket has since been reduced by approximately 22.6 million shares retired
pursuant to the split off of its publishing business. The tax restrictions contained in the merger agreement do not limit
Windstream’s ability to fund future strategic opportunities using cash or debt.
As discussed further in Note 5, the Company currently has approximately $5.4 billion in long-term debt outstanding,
including current maturities. This outstanding debt is comprised primarily of approximately $1.8 billion under the
Company’s senior secured credit facilities, approximately $3.0 billion in unsecured senior notes, and approximately
$0.6 billion in debt issued by the Company’s subsidiaries. With respect to scheduled principal payments on these
borrowings over the next five years, the Company retired $210.5 million of Tranche A debt under its senior secured
credit facilities pursuant to the split off of the publishing business. As a result, scheduled principal payments under the
credit facility have been reduced to $14.0 million per year through 2011. In addition, the Company will make sinking
fund payments of approximately $10.0 million per year on its subsidiary debt. The remaining principal balance of
Tranche A of the senior secured credit facilities, totaling approximately $280.0 million, will be due in 2011.
The indentures governing our senior secured credit facilities and senior notes include customary covenants that, among
other things, require the Company to maintain certain financial ratios and restrict our ability to incur additional
indebtedness. In particular, the Company must maintain the following financial ratios:
(a) total leverage ratio must be no greater than 4.5 to 1.0 on the last day of any fiscal quarter;
(b) interest coverage ratio must be greater than 2.75 to 1.0 on the last day of any fiscal quarter; and
F-19