Windstream 2007 Annual Report Download - page 169

INFORMATION REGARDING NON-GAAP FINANCIAL MEASURES
Windstream has presented in this Annual Report unaudited pro forma results from current businesses, which
include results from Valor and CTC for periods prior to their acquisitions and excludes (1) results from the directory
publishing business, (2) the impact of discontinuing SFAS No. 71, “Accounting for the Effects of Certain Types of
Regulation,” and (3) 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 and the results of
the directory publishing business, is to improve the comparability of results of operations for the twelve months ended
December 31, 2007 to the results of operations for the same period of 2006. Windstream’s purpose for these
adjustments is to focus on the true earnings capacity associated with providing telecommunication services.
Management believes the items either included or excluded from pro forma results from current businesses are related
to strategic activities or other events, specific to the time and opportunity available, and, accordingly, should be
excluded when evaluating the Company’s operations. In the second quarter of 2007, the Company revised its
presentation of historical pro forma results to include severance expenses. These expenses had been excluded in prior
quarters, but should not necessarily be viewed as non-recurring. 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.
Windstream uses pro forma results from current businesses, including pro forma revenues and sales and pro forma
operating income before depreciation and amortization (“OIBDA”) from current businesses, as key measures of
operational performance of its business segments. Windstream management, including the chief operating decision-
maker, use these measures consistently for all purposes, including internal reporting purposes, the evaluation of
business objectives, opportunities and performance, and the determination of management compensation.
OIBDA can be calculated directly from the Company’s financial statements by taking operating income and
adding back depreciation and amortization expense. The Company will also at times make reference to pro forma
OIBDA from current businesses, which is also a non-GAAP measure. Pro forma OIBDA from current businesses
adjusts OIBDA for the items that are either included or excluded from pro forma results from current businesses.
Management considers OIBDA to be useful to investors because OIBDA provides information specific to the
Company’s operating performance.
Free cash flow is defined as net cash provided from operations less net cash used in the procurement of property,
plant and equipment. The Company believes free cash flow provides the investor useful information about cash
available to pay dividends. Dividend payout ratio is defined as dividends paid on common shares divided by free cash
flow. The Company believes the dividend payout ratio provides the investor useful information about its remaining
investable funds after the payment of dividends to shareholders.
The following table provides a reconciliation of these “non-GAAP financial measures” to measures calculated in
accordance with Generally Accepted Accounting Principles (“GAAP”). The non-GAAP financial measures used by
Windstream may not be comparable to similarly titled measures of other companies and should not be considered in
isolation or as a substitute for measures prepared in accordance with GAAP.