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Windstream Reports Higher Revenue, Cash Flow in First Quarter
LITTLE ROCK, Ark. --(Business Wire)-- Windstream Corporation (NYSE: WIN) delivered a strong financial performance in the first quarter, posting higher revenue and operating cash flow. The company also repurchased approximately 8.4 million shares for $100 million during the quarter as part of a $400 million share repurchase plan authorized by the board of directors in February.
"Windstream continues to deliver strong operating and financial results in a challenging economic environment that, to date, does not appear to be having much effect on our business," said Jeff Gardner, president and CEO. "We are successfully replacing residential voice revenue streams with growth in data, special access and long-distance. Our business channel is showing growth year-over-year, and our team continues to manage expenses and capital expenditures efficiently."
Windstream achieved diluted earnings per share for the quarter under Generally Accepted Accounting Principles (GAAP) of 27 cents, which included $1.6 million in merger and integration expenses for a billing system conversion related to the acquisition of CT Communications.
Financial highlights:
Among the highlights for the first quarter on a GAAP basis:
-- Revenues were $812 million, a 4 percent increase from a year ago.
-- Operating income was $299 million, an 11 percent increase year-over-year.
-- Net income was $124 million, a 24 percent increase from a year ago.
Among the pro forma highlights for the first quarter from current businesses:
-- Revenues were $812 million, a 1 percent increase from a year ago.
-- Operating income before depreciation and amortization was $423 million, a 4 percent increase year-over-year.
-- Operating income was $300 million, an 11 percent increase from a year ago.
-- Average revenue per customer was $82.52, an increase of 6 percent from a year ago.
-- Capital expenditures were $56 million, a 38 percent decrease year-over-year.
Operating highlights:
Windstream added almost 40,000 broadband customers during the quarter, bringing its total broadband customer base to approximately 911,000 - an increase of 22 percent year-over-year and a 29 percent penetration rate of total access lines.
Windstream added approximately 15,000 digital TV customers, bringing its total customer base to more than 210,000, or 11 percent penetration of primary residential lines.
Total access lines declined by approximately 42,000. Total lines at the end of the quarter were 3.16 million, a decline of 4.9 percent year-over-year.
"We recently doubled broadband download speeds to offer 3-Mbps service to virtually all of our broadband customers and up to 12-Mbps service in certain areas. This upgrade increases our competitiveness and provides a platform to sell faster speeds and additional products and services, which is an important part of our strategy to transform this business to a broadband-centric model," Gardner said.
Lower dividend payout ratio expected
With the recent passage of the Economic Stimulus Act of 2008, Windstream now expects its cash tax rate to be in the mid-20 percent range down from the low-30 percent range, which will significantly lower the expected dividend payout ratio for 2008.
Conference call
Windstream will hold a conference call at 7:30 a.m. CDT today to review the company's first-quarter earnings results.
To access the call:
Interested parties can access the call by dialing 1-866-873-7782, conference ID 42427797, 10 minutes prior to the start time.
The international dial-in number is 1-660-422-4943, conference ID 42427797.
To access the call replay:
A replay of the call will be available beginning at 10:30 a.m. CDT today and ending at midnight CDT on May 23. The replay can be accessed by dialing 1-800-642-1687, conference ID 42427797.
The international dial-in number for the replay is 1-706-645-9291, conference ID 42427797.
Web cast information:
The conference call also will be streamed live over the company's Web site at www.windstream.com/investors. Financial, statistical and other information related to the call will be posted on the site. A replay of the Web cast will be available on the Web site beginning at 10:30 a.m. CDT today.
About Windstream
Windstream Corporation is an S&P 500 company that provides voice, broadband and entertainment services to customers in 16 states. The company has approximately 3.2 million access lines and about $3.3 billion in annual revenues. For more information, visit www.windstream.com.
Windstream was formed July 17, 2006, through the spinoff of Alltel's wireline business and its merger with VALOR Communications Group, Inc. The company acquired CT Communications (CTC) on Aug. 31, 2007.
Windstream's GAAP results reflect CTC's business starting Sept. 1, 2007. Pro forma results from current businesses are non-GAAP financial measures that include results from CTC for periods prior to the merger and exclude results from the split-off of the company's directory publishing business completed on Nov. 30, 2007, and merger and integration costs related to the CTC and directory publishing transactions. A reconciliation of pro forma results from current businesses to the comparable GAAP measures is included in the following financial schedules.
Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including the statements regarding Windstream's expected cash tax rate and dividend payout ratio for 2008, are subject to uncertainties that could cause actual future events and results to differ materially from those expressed in the forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs and assumptions that Windstream believes are reasonable but are not guarantees of future events and results. Actual future events and results of Windstream may differ materially from those expressed in these forward-looking statements as a result of a number of important factors. Factors that could cause actual results to differ materially from those contemplated above include, among others: adverse changes in economic conditions in the markets served by Windstream; the extent, timing and overall effects of competition in the communications business; continued access line loss; the impact of new, emerging or competing technologies; the risks associated with the integration of acquired businesses or the ability to realize anticipated synergies, cost savings and growth opportunities; the availability and cost of financing in the corporate debt markets; the potential for adverse changes in the ratings given to Windstream's debt securities by nationally accredited ratings organizations; the effects of federal and state legislation, rules and regulations governing the communications industry; the adoption of inter-carrier compensation and/or universal service reforms by the Federal Communications Commission or Congress that results in a significant loss of revenue to Windstream; an adverse development regarding the tax treatment of the spinoff from Alltel on July 17, 2006, and the restrictions on certain financing and other activities imposed by the tax sharing agreement with Alltel; material changes in the communications industry generally that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with wholesale customers; unexpected results of litigation; the effects of work stoppages; the impact of equipment failure, natural disasters or terrorist acts; the ability to execute the company's share repurchase program or the ability to achieve the desired accretive effect from such repurchases; and those additional factors under the caption "Risk Factors" in Windstream's Form 10-K for the year ended Dec. 31, 2007. In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industry and market conditions and growth rates, economic conditions, and governmental and public policy changes. Windstream undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause Windstream's actual results to differ materially from those contemplated in the forward-looking statements should be considered in connection with information regarding risks and uncertainties that may affect Windstream's future results included in Windstream's filings with the Securities and Exchange Commission at www.sec.gov.
WINDSTREAM CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME-Page 1
(In millions, except per share amounts)
THREE MONTHS ENDED
--------------------------------------
(B) Increase
March 31, March 31, (Decrease)
2008 2007 Amount %
--------- --------- ---------- ----
UNDER GAAP:
Revenues and sales:
Service revenues $ 771.5 $ 717.3 $ 54.2 8
Product sales 40.2 66.4 (26.2) (39)
--------- --------- ----------
Total revenues and sales 811.7 783.7 28.0 4
--------- --------- ----------
Costs and expenses:
Cost of services 253.6 235.3 18.3 8
Cost of products sold 35.1 44.5 (9.4) (21)
Selling, general,
administrative and other 99.3 104.4 (5.1) (5)
Depreciation and
amortization 122.8 125.1 (2.3) (2)
Restructuring charges 0.6 3.2 (2.6) (81)
Merger and integration costs 1.6 1.6 - -
--------- --------- ----------
Total costs and expenses 513.0 514.1 (1.1) -
--------- --------- ----------
Operating income 298.7 269.6 29.1 11
Other income, net 5.6 5.2 0.4 8
Interest expense (105.0) (114.7) 9.7 8
--------- --------- ----------
Income before income taxes 199.3 160.1 39.2 24
Income taxes 75.6 60.2 15.4 26
--------- --------- ----------
Net income $ 123.7 $ 99.9 $ 23.8 24
========= ========= ==========
Weighted average common
shares:
Basic 449.4 473.5 (24.1) (5)
Diluted 450.5 474.6 (24.1) (5)
Earnings per share:
Basic $.28 $.21 $.07 33
Diluted $.27 $.21 $.06 30
PRO FORMA RESULTS OF
OPERATIONS FROM CURRENT
BUSINESSES (A):
Revenues and sales $ 811.7 $ 806.0 $ 5.7 1
Operating income before
depreciation and
amortization (OIBDA) $ 423.1 $ 404.9 $ 18.2 4
(A) Pro forma results from current businesses adjusts results of
operations under Generally Accepted Accounting Principles
("GAAP") for the effects of the Company's split off of the
directory publishing business and the acquisition of CT
Communications, Inc. ("CTC"). For further details of these
adjustments, see the Notes to Unaudited Reconciliations of
Results of Operations Under GAAP to Pro Forma Results from
Current Businesses.
(B) Certain amounts previously reported have been reclassified to
conform to the current year presentation of the consolidated
financial statements. These reclassifications did not impact net
income.
WINDSTREAM CORPORATION
UNAUDITED SUPPLEMENTAL OPERATING INFORMATION-Page 2
(Dollars in millions, except per customer amounts)
THREE MONTHS ENDED
--------------------------------------
Increase
March 31, March 31, (Decrease)
2008 2007 Amount %
--------- --------- ---------- ----
UNDER GAAP:
Wireline:
Revenues and sales $ 787.9 $ 750.4 $ 37.5 5
Access lines 3,161.2 3,189.4 (28.2) (1)
Net access line losses:
Internal (41.9) (29.9) (12.0) (40)
Acquired - - - -
--------- --------- ----------
Net access line losses (41.9) (29.9) (12.0) (40)
--------- --------- ----------
Average access lines 3,182.5 3,201.3 (18.8) (1)
High-speed Internet
customers 911.0 715.4 195.6 27
Net high-speed Internet
additions:
Internal 39.6 59.3 (19.7) (33)
Acquired - - - -
--------- --------- ----------
Net high-speed Internet
additions 39.6 59.3 (19.7) (33)
--------- --------- ----------
Average revenue per customer
per month (A) $82.52 $78.13 $4.39 6
Digital satellite television
customers 210.4 122.3 88.1 72
Net digital satellite
television additions:
Internal 14.8 34.5 (19.7) (57)
Acquired - - - -
--------- --------- ----------
Net digital satellite
television additions 14.8 34.5 (19.7) (57)
--------- --------- ----------
Long distance customers 2,069.3 1,947.6 121.7 6
Net long distance customer
additions (losses):
Internal 2.7 (9.4) 12.1
Acquired - - -
--------- --------- ----------
Net long distance customer
additions (losses) 2.7 (9.4) 12.1
--------- --------- ----------
Wireless:
Wireless customers 51.8 - 51.8 -
Net wireless customer
additions:
Internal 0.3 - 0.3 -
Acquired - - - -
--------- --------- ----------
Net wireless customer
additions 0.3 - 0.3 -
--------- --------- ----------
Consolidated:
Capital expenditures $ 55.8 $ 80.0 $ (24.2) (30)
FROM PRO FORMA RESULTS (B)
Wireline:
Revenues and sales $ 787.9 $ 779.4 $ 8.5 1
Access lines 3,161.2 3,325.3 (164.1) (5)
Net access line losses (41.9) (32.2) (9.7) (30)
Average access lines 3,182.5 3,339.2 (156.7) (5)
High-speed Internet
customers 911.0 744.1 166.9 22
Net high-speed Internet
additions 39.6 61.5 (21.9) (36)
Average revenue per customer
per month (A) $82.52 $77.80 $4.72 6
Digital satellite television
customers 210.4 122.3 88.1 72
Long distance customers 2,069.3 2,068.6 0.7 -
Wireless:
Wireless customers 51.8 49.8 2.0 4
Consolidated:
Capital expenditures $ 55.8 $ 90.5 $ (34.7) (38)
(A) Average revenue per customer per month is calculated by dividing
total wireline revenues by average customers for the period.
(B) Pro forma results from current businesses adjusts results of
operations under GAAP for the effects of the Company's split off
of the directory publishing business and the acquisition of CTC.
For further details of these adjustments, see the Notes to
Unaudited Reconciliations of Results of Operations Under GAAP to
Pro Forma Results from Current Businesses.
WINDSTREAM CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEETS UNDER GAAP-Page 3
(In millions)
ASSETS
March 31, December 31,
2008 2007
--------- ------------
CURRENT ASSETS:
Cash and short-term investments $ 53.5 $ 72.0
Accounts receivable (less allowance for
doubtful accounts of $13.7 and $13.3,
respectively) 329.4 327.1
Inventories 30.8 30.1
Deferred income taxes 32.0 32.0
Prepaid expenses and other 43.0 40.5
Acquired assets held for sale 10.0 26.6
--------- ------------
Total current assets 498.7 528.3
--------- ------------
Goodwill 2,276.4 2,276.4
Other intangibles 1,184.6 1,198.5
Net property, plant and equipment 3,986.5 4,042.3
Other assets 196.7 195.7
TOTAL ASSETS $8,142.9 $8,241.2
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2008 2007
--------- ------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 24.3 $ 24.3
Accounts payable 163.1 161.9
Advance payments and customer deposits 97.0 91.4
Accrued dividends 111.8 113.6
Accrued taxes 84.6 52.6
Accrued interest 70.7 139.6
Other current liabilities 63.6 75.4
--------- ------------
Total current liabilities 615.1 658.8
--------- ------------
Long-term debt 5,342.9 5,331.2
Deferred income taxes 1,131.0 1,136.6
Other liabilities 458.9 414.8
SHAREHOLDERS' EQUITY:
Common stock - -
Additional paid-in capital 190.2 286.8
Accumulated other comprehensive loss (123.1) (103.0)
Retained earnings 527.9 516.0
--------- ------------
Total shareholders' equity 595.0 699.8
--------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $8,142.9 $8,241.2
========= ============
WINDSTREAM CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS UNDER GAAP-Page 4
(In millions)
THREE MONTHS ENDED
--------------------
March 31, March 31,
2008 2007
--------- ---------
Cash Provided from Operations:
Net income $ 123.7 $ 99.9
Adjustments to reconcile net income to net
cash provided from operations:
Depreciation and amortization 122.8 125.1
Provision for doubtful accounts 8.9 3.7
Stock-based compensation expense 4.6 3.8
Pension and post retirement benefits expense 3.7 8.9
Deferred taxes 15.6 (5.7)
Other, net (2.4) 7.2
Changes in operating assets and liabilities,
net:
Accounts receivable (3.3) 16.8
Accrued interest (68.9) (83.9)
Accrued taxes 32.0 38.6
Other liabilities (15.4) (15.0)
Other, net (6.2) 15.9
--------- ---------
Net cash provided from operations 215.1 215.3
--------- ---------
Cash Flows from Investing Activities:
Additions to property, plant and equipment (55.8) (80.0)
Disposition of acquired assets held for sale 16.4 -
Other, net 9.2 (4.4)
--------- ---------
Net cash used in investing activities (30.2) (84.4)
--------- ---------
Cash Flows from Financing Activities:
Dividends paid on common shares (113.6) (119.1)
Stock repurchase (100.2) -
Repayment of debt (88.6) (500.1)
Debt issued, net of issuance costs 100.0 499.1
Other, net (1.0) -
--------- ---------
Net cash used in financing activities (203.4) (120.1)
--------- ---------
Increase (decrease) in cash and short-term
investments (18.5) 10.8
Cash and Short-Term Investments:
Beginning of the period 72.0 386.8
--------- ---------
End of the period $ 53.5 $ 397.6
========= =========
WINDSTREAM CORPORATION
UNAUDITED RECONCILIATION OF REVENUES AND SALES AND OPERATING INCOME
UNDER GAAP TO PRO FORMA REVENUES AND SALES AND PRO FORMA OIBDA FROM
CURRENT BUSINESSES (NON-GAAP)-Page 5
(In millions)
THREE MONTHS ENDED
--------------------
March 31, March 31,
2008 2007
--------- ---------
Consolidated revenues and sales under GAAP $811.7 $783.7
--------- ---------
Pro forma adjustments:
CTC revenues and sales prior to (A)
acquisition - 45.2
Directory publishing revenues (B) - (22.9)
--------- ---------
Consolidated pro forma revenues and sales
from current businesses $811.7 $806.0
========= =========
Wireline revenues and sales under GAAP $787.9 $750.4
--------- ---------
Pro forma adjustments:
CTC revenues and sales prior to (A)
acquisition - 38.0
Directory publishing revenues (B) - (9.0)
--------- ---------
Wireline pro forma revenues and sales from
current businesses $787.9 $779.4
========= =========
Operating income under GAAP $298.7 $269.6
--------- ---------
Pro forma adjustments:
CTC operating income prior to the (A)
acquisition - 6.1
CTC customer list amortization (C) - (2.3)
Merger and integration costs (D) 1.6 1.6
Operating income adjustment for split off
of directory publishing
Wireline (B) - (6.9)
Other (B) - 2.0
--------- ---------
Adjusted operating income 300.3 270.1
--------- ---------
Depreciation and amortization (E) 122.8 134.8
--------- ---------
Pro forma OIBDA from current businesses $423.1 $404.9
========= =========
WINDSTREAM CORPORATION
NOTES TO UNAUDITED RECONCILIATIONS OF RESULTS OF OPERATIONS UNDER GAAP
TO PRO FORMA RESULTS FROM CURRENT BUSINESSES-Page 6
Windstream Corporation has entered into various transactions over
the past two years that may cause results reported under GAAP to
be not necessarily indicative of future results. On August 31,
2007, Windstream completed the acquisition of CT Communications,
Inc. ("CTC"). Under the terms of the transaction CTC
shareholders received $31.50 in cash for each of their shares of
CTC common stock. On November 30, 2007, Windstream completed the
split off its directory publishing business to Welsh, Carson,
Anderson, and Stowe ("WCAS"), a private equity investment group
and Windstream shareholder. In exchange for Windstream's
publishing business, Windstream received a special cash dividend
of $40.0 million, received $210.5 million in debt relief through
a debt-for-debt exchange, and retired approximately 19.6 million
shares in Windstream common stock held by WCAS. As a result of
completing this transaction, Windstream recorded a gain of $451.3
million in the fourth quarter of 2007. As disclosed in the
Windstream Form 8-K filed on May 9, 2008, the Company has
presented in this earnings release unaudited pro forma results
from current businesses, which include results from CTC for
periods prior to the acquisition and excludes (1) results from
the directory publishing business, and (2) all merger and
integration costs resulting from the transactions discussed
above.
Windstream's purpose for including the results of the acquired
businesses and for excluding non-recurring items and the results
of the directory publishing business, is to improve the
comparability of results of operations for the three months ended
March 31, 2008, to the results of operations for the same period
of 2007. Windstream's purpose for these adjustments is to focus
on the true earnings capacity associated with providing
telecommunication services. Management believes the items either
included or excluded from pro forma results from current
businesses are related to strategic activities or other events,
specific to the time and opportunity available, and, accordingly,
should be excluded when evaluating the Company's operations. In
the second quarter of 2007, the Company revised its presentation
of historical pro forma results to include severance expenses.
These expenses had been excluded in prior quarters, but should
not necessarily be viewed as non-recurring. Management believes
that presenting current business measures assists investors by
providing more meaningful comparisons of results from current and
prior periods, and by providing information that is a better
reflection of the core earnings capacity of the businesses. The
Company uses pro forma results from current businesses, including
pro forma revenues and sales and pro forma OIBDA from current
businesses, as a key measure of the operational performance of
its business segments. Windstream management, including the chief
operating decision-maker, uses these measures consistently for
all purposes including: internal reporting purposes, the
evaluation of business objectives, opportunities and performance,
and the determination of management compensation.
(A) To reflect operating results recognized by CTC prior to
acquisition.
(B) To reflect the split off of the Company's directory publishing
business.
(C) To recognize amortization for the acquired CTC customer list prior
to the acquisition.
(D) The Company incurred $1.6 million relative to the acquisition of
CTC during the first quarter of 2008, primarily related to system
conversion costs. The Company incurred $1.6 million in accounting
and legal fees and other expenses during the first quarter of
2007 related to the anticipated sale of its directory publishing
business.
(E) Includes depreciation and amortization expense under GAAP, CTC
depreciation and amortization expense incurred prior to the
acquisition and other pro forma adjustments to depreciation and
amortization expense.
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