Windstream 2008 Annual Report Download - page 90

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, product distribution and other 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. This discussion should be read in conjunction with the Company’s consolidated financial
statements, including the related notes thereto, on pages F-38 to F-87 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 2008 Results
Windstream is a customer-focused telecommunications company that provides local telephone, high-speed Internet,
long distance, network access, and video services to approximately 3.0 million customers primarily located in rural
areas in 16 states. Among the highlights in 2008:
• In the twelve month period ended December 31, 2008, the Company added approximately 107,000 net high-speed
Internet customers in its wireline business, increasing its high-speed Internet customer base to over 978,000.
During the same period, the Company lost approximately 165,000 access lines in its wireline business, or
approximately 5.2 percent of its total access lines.
• Revenues and sales decreased $74.4 million, as compared to 2007, primarily due to the split off of the Company’s
directory publishing business in the fourth quarter of 2007. Offsetting these decreases was a $98.6 million
increase in revenues due to the acquisition of CT Communications, Inc. (“CTC”).
• Operating income decreased $17.5 million primarily due to the gain recognized in 2007 on the split off of the
directory publishing business, partially offset by the acquisition of CTC, which accounted for an increase of
$21.2 million, as well as the favorable effects of reduced depreciation rates discussed below.
• The Company generated cash flows from operations of $1,080.4 million for the twelve months ended
December 31, 2008, which was used in part to fund capital expenditures of $317.5 million, pay $445.2 million in
dividends to shareholders in 2008 and repurchase 16.0 million shares of common stock at a price of $200.3
million.
• Effective July 1, 2008 the Company converted the majority of its remaining interstate rate-of-return regulated
operations to price-cap regulation. Price-cap regulation better aligns the Company’s continued efforts to improve
its cost structure for interstate wholesale services and allows high-speed Internet services to be deregulated.
During 2009, the Company will continue to face significant challenges resulting from competition in the
telecommunications industry. In addressing competition, the Company will continue to focus its efforts on improving
customer service, increasing high-speed Internet penetration and aggressively marketing and bundling 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 Communications Group Inc. (“Valor”) in the third quarter of 2006, and
approximately 132,000 access lines through the acquisition of CTC in the third quarter of 2007.
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