Windstream 2015 Annual Report Download - page 151

F-21
In 2013, the Texas Legislature passed a law that requires set reductions to providers’ state USF support over a period of years
beginning in 2017 unless providers can demonstrate a “financial need” for continued support. On December 1, 2014, the Texas
PUC adopted a financial needs test that allows providers to petition for continued support under a two-step process that takes into
consideration the level of competition and the provider’s expenses. On December 28, 2015, we filed a petition for our Texas
affiliate’s large company support; this petition will be considered by the Texas PUC in a contested proceeding. We also may file
petitions next year for continuation of small company support. The ultimate impact of these reforms cannot be determined at this
time.
In New Mexico, where we have historically received $8.4 million in annual support, the Public Regulation Commission (“PRC”)
adopted modified USF rules in November 2014 that resulted in a reduction in annual support to $6.9 million in 2015. We filed an
appeal of those rules with the New Mexico Supreme Court in 2015 and that appeal is pending. The PRC adopted additional rule
modifications in January 2016 that will result in continued, albeit more moderate, reductions.
In Nebraska, where we received $5.3 million from the state high cost fund in 2015, the Public Service Commission (“PSC”)
announced reforms during the third quarter of 2015, for price-cap carriers. In 2016, our support will be frozen at its 2015 levels
with 50 percent allocated to ongoing operations and 50 percent allocated to broadband projects that must be approved by the PSC
in advance.
Universal service reform is also possible in several other states including Oklahoma, Pennsylvania, and South Carolina. Annually,
we receive $3.4 million annually from the Oklahoma fund, $13.3 million from the Pennsylvania fund, and $2.0 million from the
South Carolina fund. We cannot estimate at this time the financial impact that would result from changes, if any, to these other
state funds.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
We rely largely on operating cash flows and long-term debt to provide for our liquidity requirements. We expect cash flows from
operations will be sufficient to fund our ongoing working capital requirements, planned capital expenditures, scheduled debt
principal and interest payments, lease payments due under the master lease agreement with CS&L, dividend payments, and
repurchases of our common stock under the stock repurchase program authorized by our board of directors on August 5, 2015.
We also have access to capital markets and available borrowing capacity under our revolving credit agreement. As previously
discussed, we are positioned to retire additional long-term debt through the monetization of our retained 19.6 percent ownership
interest in CS&L, which we expect to complete within 18 to 24 months from the date of the spin-off, subject to market conditions.
Based on CS&L’s announced dividend practice to pay a quarterly dividend of $.60 per share, we expect to earn dividend income
of approximately $17.6 million in each quarter that we continue to hold the CS&L common stock.
From time to time, we may seek transactions to optimize our capital structure, including entering into transactions to exchange
debt for shares of CS&L common stock, repurchase or redeem our outstanding indebtedness (including by means of open market
purchases, privately negotiated repurchases, tender offers and/or redemptions pursuant to the debt's terms), or seek to refinance
our outstanding debt or may otherwise seek transactions to reduce interest expense. Our ability to consummate any such transaction
will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. Any of these
transactions could impact our financial results. We cannot assure you if or when we will consummate any such transactions or the
terms of any such transaction.
From time to time, we have evaluated and we continue to evaluate possible acquisition and disposition transactions on an on-
going basis. At any time we may be engaged in discussions or negotiations with respect to possible acquisitions and/or dispositions.
We cannot assure you if or when we will consummate any such transaction or the terms of any such transaction
The actual amount and timing of our future capital requirements may differ materially from our estimates depending on the demand
for our services and new market developments and opportunities, and on other factors, including those described in Part I, “Item
1A. Risk Factors” in this annual report. If our plans or assumptions change or prove to be inaccurate, the foregoing sources of
funds may prove to be insufficient. In addition, if we seek to acquire other businesses or to accelerate the expansion of our business,
we may be required to seek material amounts of additional capital. Additional sources may include equity and debt financing.
Further, if we believe we can obtain additional debt financing on advantageous terms, we may seek such financing at any time,
to the extent that market conditions and other factors permit us to do so. The debt financing we may seek could be in the form of
additional term loans under Windstream Services’ senior secured credit facility or additional debt securities having substantially
the same terms as, or different terms from, Windstream Services’ outstanding senior notes.