Windstream 2010 Annual Report Download - page 104

removing the impact of high-speed Internet customers in markets acquired from NuVox, Iowa Telecom and
Q-Comm of 96,000, the Company added approximately 79,000 high-speed Internet customers during 2010,
representing an approximate increase in high-speed Internet customers of 7.0 percent. As of December 31, 2010,
Windstream provided high-speed Internet service to approximately 39 percent of total access lines in service, and
61 percent of primary consumer access lines in service. As of December 31, 2010, approximately 75 percent of
total access lines had high-speed Internet competition, primarily from cable service providers, which is relatively
unchanged from December 31, 2009. We expect the pace of high-speed Internet customer growth to slow as the
number of households without high-speed Internet service continues to shrink. Competitive expansions, primarily
from cable facilities, into our service areas are expected to slow in 2011, but we could experience some increased
competition from high-speed Internet offerings from wireless competitors.
•Product bundles: To combat competitive pressures, the Company continues to emphasize its bundled products and
services. Our consumers can bundle local phone, high-speed Internet, long distance and video services. These
bundles provide customers with one convenient location to obtain all their communications and entertainment
needs, a convenient billing solution and bundle discounts. Operating trends for access lines and high-speed
Internet customers have been favorably impacted by the Company’s “Price For Life” promotion, which offers a
price for life guarantee and package discount on its voice, high-speed Internet, and digital television bundle. In
addition, the Company offers bundle discounts to businesses that choose to bundle their phone, high-speed
Internet and long distance services with Windstream. We believe that product bundles positively impact our
customer retention, and the associated discounts provide our customers the best value for their communications
and entertainment needs. In an effort to further develop enhanced services and bundled product offerings, the
Company will continue to invest in its network to offer faster speeds in its high-speed Internet offerings. As of
December 31, 2010, the Company could deliver speeds of 3Mb to approximately 97 percent of its addressable
lines. Additionally, speeds of 6Mb and 12Mb are available to approximately 67 percent and 37 percent of its
addressable lines, respectively.
•Operational efficiencies: We continue to evaluate our operating structure to identify opportunities for increased
operational efficiency and effectiveness. Among other things, this involves evaluating opportunities for task
automation, network efficiency and the balancing of our workforce based on the current needs of our customers.
During 2010, Windstream recognized $7.7 million in severance and employee benefit costs primarily related to
identified opportunities for increased operational efficiency and effectiveness as a result of a voluntary workforce
reduction program during the fourth quarter of 2010. The Company expects to realize annual pretax savings of
approximately $11.4 million as a result of this initiative. During the third quarter of 2009, the Company
announced a work force reduction with expected annual pretax savings approximating $20.0 million. As a result
of these efforts, and expense management initiatives throughout the current year, the Company successfully
reduced its cost of services by approximately $69.1 million in 2010, excluding the impact of the Acquired
Companies and D&E and Lexcom prior to November 10, 2010 and December 1, 2010, respectively (see “Cost of
Services”).
•Pension expenses and funding: During 2010, the fair market value of Windstream’s pension plan assets increased
from approximately $784.0 million to $870.2 million. This increase is primarily due to a return on plan assets of
$95.9 million, or 12.2 percent, transfers from Iowa’s qualified pension plan of $12.0 million and contributions of
$41.7 million, including a $41.0 million voluntary cash contribution. Partially offsetting these increases were
$57.8 million in routine benefit payments and $5.6 million in lump sum distributions and administrative expenses.
The Company expects to make a contribution of approximately $60.0 million in the first quarter of 2011 to avoid
certain benefit restrictions. This contribution is expected to be made in the form of Windstream common stock,
which will allow the Company to preserve cash and manage overall net debt leverage. The amount and timing of
future contributions are dependent upon various factors including future investment performance, changes in
future discount rates and changes in demographics of the population participating in the Company’s qualified
pension plan.
STRATEGIC TRANSACTIONS
Acquisitions
On December 2, 2010, Windstream completed the acquisition of Q-Comm, a privately held regional fiber transport
provider and competitive local exchange carrier (“CLEC”). This acquisition significantly enhanced the Company’s
fiber network with increased scale and business revenues, as well as the opportunity for approximately $25.0 million in
operating expense and capital expenditure synergies across the Windstream markets. Under the terms of the merger
agreement, the Company paid approximately $279.1 million in cash, net of cash acquired, and issued 20.6 million
shares of Windstream common stock valued at $271.6 million to acquire all of the issued and outstanding shares of
Q-Comm
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