Windstream 2008 Annual Report Download - page 2

I am pleased to report that
Windstream delivered
another solid fi nancial
performance in 2008 amid
a very diffi cult economic
environment. We generated
double-digit growth in free
cash fl ow, most of which we
returned to shareholders
while signifi cantly
lowering our dividend
payout ratio. We also
completed the integration
of CT Communications,
which paved the way to
realize more than $55
million in annual expense and capital synergies in 2008. These
accomplishments are a real tribute to our team’s focus and
ability to manage this business to sustain free cash fl ow.
Financial Highlights
Windstream produced $763 million in free cash fl ow, defi ned as
net cash provided from operations minus capital expenditures,
in 2008 – an increase of 14 percent or almost $100 million
year-over-year, largely due to lower capital expenditures and
reduced cash taxes. The company returned $645 million, or 85
percent of its free cash fl ow, to shareholders in the form of
dividends and share repurchases in 2008. We also lowered our
dividend payout ratio of free cash fl ow from 71 percent in 2007
to 58 percent in 2008. We had approximately $300 million in
cash on hand at year-end.
Under Generally Accepted Accounting Principles, Windstream
achieved diluted earnings per share of 93 cents, revenues
of $3.17 billion and operating income of $1.13 billion in
2008. Among pro forma highlights for the year from current
businesses, revenues were $3.17 billion, a 1.5 percent decrease
from a year ago, and operating income before depreciation
and amortization was $1.64 billion, essentially fl at year-over-
year, an impressive accomplishment during one of the worst
economies in decades.
Operating Highlights
Windstream continued to lead the rural local exchange
industry in many key operating areas in 2008. We also
continued to make improvements in the quality of our
broadband offerings by deploying ADSL2+ broadband
technology in early 2008, which essentially doubled our
broadband speeds across our footprint and allowed us to
introduce a 10-12 Mbps service. We also enhanced our core
IP network, which interconnects our major markets with the
Internet, thereby increasing overall capacity and providing a
platform to offer advanced data services.
We grew our total high-speed Internet customer base for the
year to nearly 979,000, an increase of almost 12 percent year-
over-year. Our overall broadband penetration is now 32 percent
of total access lines and 49 percent of primary residential lines.
While broadband growth is slowing, in part due to our higher
penetration, we are pleased to see increasing numbers of new
customers subscribing to 3 Mbps speeds and higher, as these
speeds represented almost 70 percent of gross adds in the
fourth quarter.
We expanded our digital TV customer base in 2008 to
approximately 274,000, or 15 percent of primary residential
lines last year. Bundling the DISH TV product with Windstream
phone and Internet services meaningfully improves overall
customer retention, and we are pleased with our progress.
We ended the year with approximately 3.04 million access lines,
representing a decline in total access lines of 5.2 percent year-
over-year. Approximately 60 percent of our total access lines
had voice competition at the end of the year, an increase of
approximately 5 percent from the year before. We expect voice
competition to continue to increase at a modest pace similar to
2008 and believe the proactive steps we have taken to expand
our distribution channels, improve service levels and increase
our retention efforts will fortify our competitive position.
Our business markets, which represent about a third of our
overall revenues, continue to perform well with revenue
growth driven by expansion of broadband, next-generation
network data services and special access.
The Year Ahead
We continue to believe that consolidation makes sense for this
industry and will stay focused on delivering solid operating
metrics and fi nancial results so that we will be well positioned
for any strategic opportunities that benefi t shareholders. Given
the current economic and credit environment, the company
plans to continue preserving liquidity and may opportunistically
consider free cash fl ow accretive initiatives with a bias toward
debt repurchases. Achievement of our outstanding share
repurchase plan will depend on such factors as the overall
credit environment and liquidity needs of the business.
In summary, Windstream continues to perform well,
demonstrating the defensiveness of our business, as
well as the hard work and dedication of our employees.
Expanding our sales and distribution channels to improve
our competitiveness remains a top priority this year. While
we expect broadband unit growth to slow, we also will focus
on achieving incremental revenue by selling faster speeds
and other complementary broadband services. Additionally,
we have aggressively taken steps to improve our overall cost
structure. While we may not be completely immune to the
broader economic challenges, we believe our business is well
positioned, and we remain confi dent in our ability to sustain
cash fl ows over time.
Jeffery R. Gardner
President and Chief Executive Offi cer
March 23, 2009
TO OUR SHAREHOLDERS