Windstream 2010 Annual Report Download - page 103

• Interest expense increased by $111.5 million, or 27.2 percent, during the year ended December 31, 2010, as
compared to the same period of 2009, primarily due to interest incurred on the $1,100.0 million additional debt
issued during the fourth quarter of 2009, the $400.0 million of additional debt issued during the third quarter of
2010 and the $500.0 million of additional debt issued during the fourth quarter of 2010.
• During 2010, the Company generated cash flows from operations of $1,094.5 million, a decrease of $26.3 million,
or 2.5 percent, as compared to the same period in 2009. This decrease was primarily attributable to the $55.0
million increase in merger and integration costs incurred during 2010 in conjunction with the integration of
acquired businesses and the $41.0 million voluntary pension contribution. It was partially offset by revenue
generated from acquired businesses. Cash flows from operations were used to fund capital expenditures of $415.2
million and to pay $464.6 million in dividends to shareholders in 2010.
• Operating income before depreciation and amortization (“OIBDA”) increased $229.2 million, or 15.3 percent,
during the year ended December 31, 2010, as compared to the same period in 2009 (see “Reconciliation of non-
GAAP Financial Measures”). Excluding OIBDA in markets acquired of $194.7 million, OIBDA increased $34.5
million, or 2.2 percent. This increase is due to expense management initiatives and decreases in pension expense,
as previously discussed.
• During 2010, the Company filed numerous applications with the Rural Utilities Service (“RUS”) for
approximately $264.0 million in grants on projects with a total estimated cost of $352.0 million to expand
broadband availability and offer faster high-speed Internet service to more than half a million homes and
businesses in its service area. The RUS approved eighteen applications in thirteen states totaling $181.3 million in
grants on projects with a total estimated cost of $241.7 million, including a $60.4 million matching share provided
by the Company. The Company will begin these projects in the first quarter 2011 and the RUS financed projects
must be substantially complete within two years of signing the grant contracts.
We expect to face significant challenges resulting from competition in the telecommunications industry. To address
these challenges, we are focused on growing our consumer high-speed Internet and business revenues, which
represented approximately 55.5 percent of total revenues and sales for the year ended December 31, 2010, as compared
to 45.8 percent for the same period in 2009. We expect continued growth in demand for these services across our
customer base. In addition, we believe that our strategy of bundling consumer voice services with our high-speed
Internet service offering will allow us to add new customers and help mitigate churn.
Business Trends
The following is a discussion of trends affecting Windstream’s operations.
•Access line losses: Voice and switched access revenues are expected to continue to be adversely impacted by
future declines in access lines due to competition in the telecommunications industry from cable television
providers, wireless communications providers, and providers using other emerging technologies. As of
December 31, 2010, all of the Company’s access lines had wireless competition and approximately 68 percent of
the Company’s access lines had fixed line voice competition, which represented an increase in fixed line
competition from 64 percent at December 31, 2009. After removing the impact of consumer lines in markets
acquired from NuVox, Iowa Telecom and Q-Comm of 160,000, consumer lines decreased 82,000, or 4.2 percent
during 2010, primarily due to the effects of competition. After removing the impact of business lines in markets
acquired from NuVox, Iowa Telecom and Q-Comm of 75,000, business lines decreased 37,000, or 3.9 percent
during 2010, primarily due to weakness in the general economic environment, competitive pressures, and the
migration of services to larger circuits with enhanced functionality representing lost access lines but not a lost
customer relationship. We believe weakness in the economic environment has caused some businesses to close or
reduce staff, which has had a corresponding impact on the demand for business access lines. Continued weakness
in the general economic environment may contribute to further acceleration of line losses.
•Advanced data and integrated solutions: Business revenues and sales are expected to be favorably impacted by
growth in advanced data and integrated solution services provided to business customers. During 2010, revenues
from advanced data and integrated solutions, which consists of voice and data services provided to business
customers through an IP connection, grew from $454.1 million to $591.7 million. Excluding the impact of
revenues from markets acquired from the Acquired Companies, and post acquisition D&E and Lexcom revenues
of $447.0 million, revenues increased $7.1 million, or 5.1 percent for the year ended December 31, 2010.
•High-speed Internet: Growth in high-speed Internet sales, including other value added Internet services such as
Security Suite and Online Data Backup, together with the continued migration to higher speeds, are expected to
continue to offset some of the revenue declines from the unfavorable access line trends discussed above. After
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