Windstream 2010 Annual Report Download - page 102

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Windstream Corporation (“Windstream”, “we”, or the “Company”) is a leading communications and technology
solutions provider, specializing in complex data, high-speed Internet access, voice and transport services to customers
in 29 states. We provide a variety of solutions, including IP-based voice and data services, multiprotocol label
switching (“MPLS”) networking, data center and managed services, hosting services and communications systems to
businesses and government agencies. We operate an extensive local and long-haul network, including 60,000 route
miles of fiber, used to deliver voice and data traffic of Windstream, as well as other carriers on a wholesale basis. We
also provide high-speed Internet, voice, and digital television services to residential customers primarily located in
rural areas. As of December 31, 2010, the Company provided service to approximately 3.3 million access lines and 1.3
million high-speed Internet customers.
The sections that follow provide an overview of our results of operations and highlight key trends and uncertainties in
our business to the extent practicable. Certain statements set forth below 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
Among the highlights in 2010:
• Windstream completed the acquisitions of NuVox, Inc. (“NuVox”), Iowa Telecommunications Services, Inc.
(“Iowa Telecom”), Hosted Solutions Acquisition, LLC (“Hosted Solutions”) and Q-Comm Corporation
(“Q-Comm”) on February 8, 2010, June 1, 2010, December 1, 2010 and December 2, 2010, respectively,
collectively known as the Acquired Companies. These acquisitions provide the Company increased scale to focus
on growing its revenues from business customers and consumer high-speed Internet. The Company expects to
achieve significant synergies through the combination of these companies with existing Windstream operations.
• Total access lines increased by approximately 280,000, or 9.2 percent, during the year ended December 31, 2010.
Excluding the access lines in the acquired markets of NuVox, Iowa Telecom and Q-Comm totaling 396,000,
access lines declined by 116,000, or 3.8 percent, during 2010. Excluding the access lines in the acquired markets
of D&E Communications, Inc. (“D&E”) and Lexcom, Inc. (“Lexcom”) of 169,000 at December 31, 2009, access
lines declined by 138,000, or 4.6 percent, during 2009.
• Data and integrated solutions connections, which is comprised of high-speed Internet and advanced data, as well
as integrated voice and data connections, increased by approximately 308,000, or 26.3 percent, for the year ended
December 31, 2010. Excluding connections in the acquired markets of NuVox, Iowa Telecom and Q-Comm,
totaling 227,000, data and integrated solution connections increased by 81,000, or 6.9 percent, over the same
period.
• Voice lines increased by approximately 130,000, or 4.5 percent, during the year ended December 31, 2010.
Excluding the voice lines in the acquired markets of NuVox, Iowa Telecom and Q-Comm totaling 252,000, voice
lines declined by 122,000, or 4.2 percent, during 2010. Excluding the voice lines in the acquired markets of D&E
and Lexcom of 165,000 at December 31, 2009, voice lines declined by 140,000, or 4.9 percent, during 2009.
• Revenues and sales increased $715.4 million, or 23.9 percent, during the year ended December 31, 2010, as
compared to the same period in 2009, primarily due to revenues generated from acquired business. Excluding
revenues in markets acquired from the Acquired Companies of $682.0 million and post acquisition D&E and
Lexcom revenues of $157.1 million, revenues decreased $123.7 million, or 4.1 percent, for the year ended
December 31, 2010 as compared to the same period in 2009. This decline was primarily due to the decline in
access lines, declines in product sales associated with the disposition of the out of territory product distribution
operations during the third quarter of 2009, and general declines in product sales to business customers. Partially
offsetting these decreases were increases attributable to growth in data and integrated solutions connections, as
discussed above.
• Operating income increased $73.4 million, or 7.7 percent, during the year ended December 31, 2010, as compared
to the same period in 2009, primarily due to operating income from acquired business. Excluding operating
income in markets acquired of $25.3 million, operating income increased $48.1 million, or 5.0 percent, during
2010 as compared to 2009. The increase in operating income during 2010 is attributable to expense management
initiatives and decreases in pension expense, partially offset by revenue declines associated with continued access
line losses and increases in merger and integration costs.
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