Windstream 2008 Annual Report Download - page 109

facility and through the issuance of senior notes, and assumed $400.0 million in principal value of additional senior
notes from Valor. Interest expense incurred on these new borrowings was the primary driver of the increase in interest
expense in 2007. The weighted-average interest rate paid on the long-term debt in 2008 was 7.7 percent, as compared
to 8.0 percent in 2007.
Income Taxes
Income tax expense increased $31.7 million, or 13 percent, in 2008 and decreased $24.8 million, or 9 percent, in 2007.
The increase in income tax expense in 2008 is primarily driven by adjustments to deferred income taxes for the impact
of completing an internal reorganization of our legal entity structure. The decrease in income tax expense in 2007 is
driven by adjustments to deferred income taxes for the impact of commencing an internal reorganization of our legal
entity structure and a reduction in the Kentucky state income tax rate. The Company’s effective tax rate in 2008 was
39.4 percent, compared to 21.6 percent in 2007 and 38.3 percent in 2006. The increase in the effective tax rate between
2008 and 2007 is due to upward adjustments to deferred income taxes upon completing an internal reorganization of
our legal entity structure, while 2007 includes the nontaxable gain from the split off of the publishing business and
downward adjustments to deferred income taxes upon commencing the reorganization of our legal entity structure. For
2009, the Company’s effective income tax rate is expected to range between 37.5 and 38.5 percent excluding any
possible one-time discrete items. Changes in the relative profitability of our operating segments, as well as recent and
proposed changes to federal and state tax laws may cause the rate to change from historical rates. See Note 12,
“Income Taxes”, to the accompanying consolidated financial statements for further discussion of income tax expense
and deferred taxes.
Discontinued Operations, Net of Tax
On November 21, 2008 Windstream completed the sale of its wireless business to AT&T Mobility II, LLC (see
Note 16). In connection with this transaction, we have reported the related results as discontinued operations and
recognized a pre-tax loss of $21.3 million to reduce the carrying value of the net assets sold to the transaction price less
costs to sell. Wireless business income before taxes was $9.7 million and $1.2 million in 2008 and 2007, respectively.
Additionally, the Company made additional tax payments of $14.8 million related to the excess of consideration
received over tax basis in the assets sold.
Extraordinary Item
As previously discussed, during the third quarter of 2006, Windstream discontinued the application of SFAS No. 71.
Pursuant to the guidance in SFAS No. 101, “Discontinuation of the Application of FASB Statement No. 71,” the
impact of discontinuing the application of SFAS No. 71 was recognized as an extraordinary gain, net of taxes. See
Note 2 for further discussion of the components of this gain.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
During 2008, the Company generated approximately $1.1 billion in cash flows from operations and ended the year with
$296.6 million in cash and cash equivalents. At December 31, 2008, 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 2009. At
December 31, 2008, the Company also had $343.2 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 2009. Any temporary cash needs will be funded through
borrowings available under the revolving line of credit.
F-21