Windstream 2007 Annual Report Download - page 88

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Basis of Presentation
The following is a discussion and analysis of the historical results of operations and financial condition of Windstream
Corporation (“Windstream”, “we”, or the “Company”). Windstream was formed on July 17, 2006 through the spin off
of Alltel Holding Corp., the holding company for the wireline and communications support operating subsidiaries of
Alltel Corporation (“Alltel”), in a pro rata distribution to Alltel shareholders. Results of operations prior to the spin off
are for Alltel Holding Corp. (the “legacy business”). This discussion should be read in conjunction with the Company’s
consolidated financial statements, including the related notes thereto, on pages F-34 to F-82 of this Financial
Supplement.
Management believes that the assumptions underlying the Company’s financial statements are reasonable. These
financial statements, however, may not be necessarily indicative of future results of operations, financial position or
cash flows, and may not reflect what the Company’s results of operations, financial position and cash flows would
have been had it been a separate, stand-alone company during the periods prior to the spin off from Alltel. Certain
statements set forth below under this caption constitute forward-looking statements. See “Forward-Looking
Statements” at the end of this discussion for additional factors relating to such statements, and see “Risk Factors” in
Item 1A of Part I of this annual report for a discussion of certain risk factors applicable to our business, financial
condition and results of operations.
Executive Summary of 2007 Results
Windstream is a customer-focused telecommunications company that provides local telephone, high-speed Internet,
long distance, network access, video and wireless services to approximately 3.2 million customers primarily located in
rural areas in 16 states. Among the highlights in 2007:
• Through the acquisition of CT Communications, Inc. (“CTC”) on August 31, 2007, the Company added
approximately 132,000 access lines, 31,000 high-speed Internet customers and 51,000 wireless customers in North
Carolina in areas adjacent to its existing operations.
• In addition to customers acquired from CTC, the Company added approximately 184,000 net high-speed Internet
customers in its wireline business, increasing its high-speed Internet customer base to over 871,000. In the twelve
month period ended December 31, 2007, the Company lost approximately 147,000 access lines in its wireline
business, or approximately 4.6 percent of its total access lines in 2007.
• Revenues and sales increased $227.5 million, and operating income increased $252.3 million, as compared with
2006, due in part to the acquisitions of Valor Communications Group Inc. (“Valor”) and CTC, and to increases in
the high-speed Internet customer base.
• The Company generated cash flows from operations of $1,033.7 million for the twelve months ended
December 31, 2007, which was used in part to finance the acquisition of CTC, to fund capital expenditures of
$365.7 million and to pay $476.8 million in dividends to shareholders in 2007.
During 2008, the Company will continue to face significant challenges resulting from competition in the
telecommunications industry and changes in the regulatory environment, including the effects of potential changes to
the rules governing universal service and inter-carrier compensation. In addressing competition, the Company will
continue to focus its efforts on improving customer service, increasing high-speed Internet penetration and expanding
its service offerings.
Business Trends
The following risk factors and material non-recurring events and transactions could cause the Company’s reported
financial information to be not necessarily indicative of future operating results or future financial conditions.
• As discussed in detail below, the Company’s revenues and sales and operating income in future periods will
continue to be positively impacted by two recent acquisitions. The Company added approximately 501,000 access
lines through the acquisition of Valor in the third quarter of 2006, and approximately 132,000 access lines through
the acquisition of CTC in the third quarter of 2007.
• Wireline revenues and sales are expected to continue to be adversely impacted by future declines in access lines
due to increasing competition in the telecommunications industry from cable television providers, wireless
communications providers, and providers using other emerging technologies.
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