Windstream 2007 Annual Report Download - page 108

Contractual Obligations and Commitments
Set forth below is a summary of our material contractual obligations and commitments as of December 31, 2007:
Payments Due by Period
(Millions)
Less than
1 Year
1-3
Years
3-5
Years
More than
5 Years Total
Long-term debt, including current maturities (a) $ 24.3 $ 48.3 $ 431.3 $ 4,879.0 $ 5,382.9
Interest payments on long-term debt obligations (b) 409.3 811.6 777.3 1,144.7 3,142.9
Operating leases 19.5 28.9 11.6 1.0 61.0
Purchase obligations (c) 38.9 54.2 - - 93.1
Other long-term liabilities (d) (e) 44.3 83.7 56.4 1,345.3 1,529.7
Total contractual obligations and commitments $ 536.3 $ 1,026.7 $ 1,276.6 $ 7,370.0 $ 10,209.6
Notes:
(a) Excludes $27.4 million of unamortized discounts (net of premiums) included in long-term debt at December 31, 2007.
(b) Variable rates are calculated in relation to LIBOR, which was 5.21 percent at December 31, 2007.
(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 net deferred tax liabilities and other postretirement benefit obligations.
(e) Excludes $8.9 million of reserves for uncertain tax positions, including interest and penalties, that were included in other
liabilities at December 31, 2007 for which the Company is unable to make a reasonably reliable estimate as to when cash
settlements with taxing authorities will occur.
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, 2007, 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 for additional information regarding certain of the obligations and commitments listed above.
MARKET RISK
Market risk is comprised of three elements: equity risk, foreign currency risk and interest rate risk. The Company is
primarily exposed to market risk from changes in interest rates. The Company does not own significant marketable
equity securities other than highly liquid short-term investments, nor does it operate in foreign countries. Therefore,
Windstream is not materially exposed to market risk from changes in equity prices or foreign currency rates. However,
the Company’s pension plan invests in marketable equity securities, including marketable debt and equity securities
denominated in foreign currencies.
Equity Risk
The Company utilizes various financial institutions to invest its cash on hand in short-term securities. These financial
institutions are generally a party to the existing Windstream credit facility. Since the closing of the acquisition of CTC
on August 31, 2007, Windstream has maintained an average cash balance of approximately $110.0 million. These
monies have been invested in both taxable funds as well as tax-exempt municipal funds, and monies will often be
moved between these two types of securities depending on their respective yields. These monies are all invested in
AAA rated funds with same day access, and thus are highly liquid.
Windstream’s pension plan utilizes various investment managers, three of whom invest in fixed income securities. As
of December 31, 2007, these three managers collectively manage approximately 40 percent of Windstream’s pension
assets, totaling approximately $405.0 million. Of this amount, approximately $76.0 million, is invested in collateralized
mortgage obligations (“CMO’s”) and approximately $20.0 million is invested in sub-prime asset based securities.
These investments, totaling 9.6 percent of pension assets, are all in funds that currently hold a AAA rating.
Windstream’s pension assets have no exposure to either collateralized loan obligations or collateralized debt
obligations. Of the CMO exposure, the investment managers have focused on prime mortgage holdings and securities
with relatively short terms. These investments are securitized by mortgages that originated before 2006. Furthermore,
the vast majority of these investments relate to the most senior secured tranches, which are the highest rated and the
highest priority for retirement. Furthermore, the Company’s pension plan is currently overfunded by approximately
$107.5 million, and the plan is expected to be adequately funded for the near term irrespective of the performance of
the plan’s investments in asset-backed securities. Future contributions to the plan, however, may be required if market
F-22