Windstream 2009 Annual Report Download - page 135

ratio of 2.75 to 1.0. In addition, the covenants include restrictions on dividend and certain other types of payments, as
previously described, as well as restrictions on capital expenditures. For 2010, the Company’s capital expenditure
capacity, as calculated under these covenants, is approximately $662.1 million, which includes $170.1 million of
unused capacity from 2009 and approximately $42.0 million in additional capacity attributable to the adjusted earnings
before interest, taxes, depreciation and amortization of D&E, Lexcom and NuVox.
The financial ratios required by the Company’s senior secured credit facility and indentures include certain financial
measures that are not calculated in accordance with accounting principles generally accepted in the United States
(“non-GAAP financial measures”). These non-GAAP financial measures are presented below for the sole purpose of
demonstrating the Company’s compliance with its debt covenants and were calculated as follows:
(Millions, except ratios)
December 31,
2009
Gross leverage ratio:
Total debt $ 6,295.2
Operating income, last twelve months $ 956.9
Depreciation and amortization, last twelve months 537.8
Other non-cash and non-recurring expense adjustments required
by the credit facilities and indentures (a) 229.6
Adjusted earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”) $ 1,724.3
Leverage ratio (b) (c) 3.65
Maximum gross leverage ratio allowed 4.50
Interest coverage ratio:
Adjusted EBITDA $ 1,724.3
Interest expense, last twelve months $ 410.2
Adjustments required by the credit facilities and indentures (d) 103.6
Adjusted interest expense $ 513.8
Interest coverage ratio (c) (e) 3.36
Minimum interest coverage ratio allowed 2.75
(a) Adjustments required by the credit facility and indentures primarily consist of the inclusion of D&E and Lexcom
preacquisition operating income before depreciation and amortization, pension and stock-based compensation
expense and non-recurring merger, integration and restructuring charges.
(b) The gross leverage ratio is computed by dividing total debt by adjusted EBITDA.
(c) These ratios are expected to be favorably impacted by the completion of the NuVox and Iowa Telecom
acquisitions. During 2009, the Company incurred approximately $1,100.0 million in new debt to finance these
transactions, which are expected to close in 2010. In accordance with the Company’s debt covenants, the
preacquisition operating results of the acquired business will be added to adjusted EBITDA upon completion of
the related acquisitions.
(d) Adjustments required by the credit facility and indentures primarily consist of the inclusion of interest expense
related to the 2017 Notes as if they were issued January 1, 2009, capitalized interest and amortization of the
discount on long-term debt, net of premiums.
(e) The interest coverage ratio is computed by dividing adjusted EBITDA by adjusted interest expense.
In addition, certain of the Company’s debt agreements contain various covenants and restrictions specific to the
subsidiary that is the legal counterparty to the agreement. Under the Company’s long-term debt agreements,
acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30
days, a change in control including a person or group obtaining 50 percent or more of Windstream’s outstanding voting
stock, or breach of certain other conditions set forth in the borrowing agreements. At December 31, 2009, the Company
was in compliance with all such covenants and restrictions.
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