Windstream 2010 Annual Report Download - page 117

Interest Expense
Set forth below is a summary of interest expense for the years ended December 31:
(Millions) 2010 2009 2008
Senior secured credit facility, Tranche A $ 6.9 $ 6.8 $ 14.6
Senior secured credit facility, Tranche B, net of interest rate swaps 98.1 91.8 99.8
Senior secured credit facility, revolving line of credit 6.6 3.8 8.9
Senior unsecured notes 371.3 263.8 255.1
Notes issued by subsidiaries 38.6 39.2 39.8
Credit facility extension fees 1.8 6.4 -
Other interest expense 0.5 0.1 0.1
Less capitalized interest expense (2.1) (1.7) (1.9)
Total interest expense $ 521.7 $ 410.2 $ 416.4
Interest expense increased $111.5 million, or 27.2 percent, in 2010 and decreased $6.2 million, or 1.5 percent, in 2009.
The increase in 2010 was primarily due to interest incurred on the $1,100.0 million additional debt issued during the
fourth quarter of 2009, $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. The decrease in 2009 was primarily due to declines in the
LIBOR (London-Interbank Offered Rate) rate impacting the Tranche A notes and the unhedged portion of Tranche B
notes. The weighted-average interest rate paid on the long-term debt was 7.8 percent in 2010 and 7.7 percent in 2009.
Income Taxes
Income tax expense decreased $16.7 million, or 7.9 percent in 2010, and decreased $72.1 million, or 25.5 percent in
2009. The decreases in income tax expense in 2010 is due to the Company’s decrease in income before taxes and a
discrete item recognized in the first quarter of 2009 that increased 2009 tax expense, but had no impact to 2010. The
decrease in income tax expense in 2009 was generally consistent with the Company’s decrease in income before taxes.
The Company’s effective tax rate in 2010 was 38.5 percent, compared to 38.7 percent in 2009 and 39.4 percent in
2008.
Provisions associated with the enactment of the Patient Protection and Affordability Care Act on March 23, 2010 and
the Health Care and Education Affordability Reconciliation Act of 2010 on March 30, 2010 eliminated the tax
deduction related to Medicare Part D subsidies projected to be received in connection with post-employment benefits.
The impact of these changes did not have a material impact on Windstream’s tax expense or effective tax rate.
For 2011, the Company’s annualized effective income tax rate is expected to range between 38.0 percent and 39.0
percent, excluding one-time discrete items. Changes in the relative profitability of our business, as well as recent and
proposed changes to federal and state tax laws may cause the rate to change from historical rates. See Note 12,
“Income Taxes”, to the accompanying consolidated financial statements for further discussion of income tax expense
and deferred taxes.
Discontinued Operations, Net of Tax
On November 21, 2008 Windstream completed the sale of its wireless business to AT&T Mobility II, LLC (see Note
3). In connection with this transaction, we have reported the related results as discontinued operations and recognized a
pre-tax loss of $21.3 million to reduce the carrying value of the net assets sold to the transaction price less costs to sell.
Wireless business income before taxes was $9.7 million in 2008. Additionally, the Company made tax payments of
$14.8 million related to the excess of consideration received over tax basis in the assets sold.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
During 2010, the Company generated cash flows from operations of $1,094.5 million and decreased its cash position
by $1,020.6 million to $42.3 million at December 31, 2010, primarily due to the acquisitions of the Acquired
Companies in 2010 as previously discussed (see “Strategic Transitions”). We expect that cash on hand, along with cash
generated from operations over the next year, will be adequate to finance our ongoing operating requirements, capital
expenditures, scheduled principal payments of long-term debt and the payment of dividends in 2011.
The Company’s board of directors has adopted a current dividend practice for the payment of quarterly cash dividends
at a rate of $0.25 per share of the Company’s common stock. This practice can be changed at any time at the discretion
of the board of directors, and is subject to the Company’s restricted payment capacity under its debt covenants as
further discussed below. Dividends paid to shareholders were $1.00 per share during 2010, totaling $464.6 million.
Windstream also paid $125.9 million to shareholders in January 2011 pursuant to a $0.25 quarterly dividend declared
during the fourth quarter of 2010.
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