20110218Application.pdf

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Bingham McCutchen LLP
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ORIGINAL
i:: f:.i
in\ \ fEB \ 8 AM to: 21
Jean L. Kiddoo
Brett P. Ferenchak
Kimberly A. Lacey
jean.kiddoo (g bingham. com
brett.ferenchak (g bingham. com
kimberly .lacey (g bingham. com
Februar 17, 2011
AlV-T_ll-$\~ 1'1
Via Overnight Courier
Ms. Jean D. Jewell, Secretar
Idaho Public Utilities Commssion
472 West Washington Street
Boise, Idaho 83702
Re: Application ofWindstream NuVox, Inc. for a Certificate of Public
Convenience and Necessity to Provide Local Exchange
Telecommunications Servces
Dear Ms. Jewell:
On behalf of Wind stream NuVox, Inc. ("WIN-NuVox"), enclosed for filing are an
original and seven (7) copies of the above-referenced Application. A copy of WIN-
Nu Vox's local exchange taiff is attached as Exhibit 5 and is also provided on the
enclosed diskette in MS Word format.
Please date-stamp the enclosed extra copy of this filing and return it in the envelope
provided. Should yòu have any questions, please do not hesitate to contact Brett
Ferenchak at 202-373-6697.
Al73672313.l
ORIGINAL
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
ç ~k_""ï:
iOU FEB 18 AKIO: 27
Windstream NuVox, Inc.
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Application of
Docket No. tUN v-T -iL -õl
For a Certificate of Public Convenience and
Necessity to Provide Local Exchange
Telecommunications Services
APPLICATION
Wind stream NuVox, Inc. ("WIN-NuVox" or "Applicant"), by its undersigned counsel
and pursuant to Idaho Code §§ 61-526-528, IDAPA 31.01.01.111, and Procedural Order No.
26665, hereby applies to the Idaho Public Utilities Commission ("Commission") for a Certificate
of Public Convenience and Necessity to provide resold and facilities-based local exchange
telecommunications service in the State of Idaho.
In support of this Application, WIN-NuVox hereby provides the following information:
I. Proposed Services
Applicant seeks authority to provide resold and facilities-based local exchange services in
Idaho.
WIN-NuVox proposes to provide wireline local telecommunications service -
specifically, local exchange service (including, among other things, access to emergency
services, access to operator services, access to interexchange service, access to directory
assistance, toll limitation for qualifying low-income consumers, and any other ancilar
functionalities that WIN-NuVox must provide pursuant to applicable statutes and regulations)
and exchange access service. While Applicant wil primarily provide local exchange service
Al73537I 17.3
through the resale of the services of other carriers, Applicant may also provide facilities-based
services. Such facilities-based local exchange service may be provided via (1) facilties-based
leased from other carriers, (2) WIN-NuVox's own facilities, or (3) a combination thereof.
WIN-NuVox is currently in the process of developing its marketing strategy for the State
of Idaho. WIN-NuVox wil utilize a professionally trained sales force to market its services and
wil comply with all Commission rules and regulations in marketing its services in the State of
Idaho.
WIN-NuVox is a competitive provider of telecommunications services. Applicant is in the
process of requesting authority to provide telecommunications services in Arizona, California,
Connecticut, Colorado, Idaho, Maine, Montana, Nevada, New Hampshire, New Jersey, New
Mexico, Oregon, Rhode Island, Utah, Vermont and Wyoming. Curently, Applicant is
authorized to provided telecommunications services in: Alabama, Florida, Georgia, Kentucky,
Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.
II. Form of Business
WIN-NuVox is a corporation organized under the laws of the State of Delaware.
Applicant's legal name is Windstream Nu Vox, Inc. Applicant may be reached at its
principal place of business:
Windstream Regulatory Legal Department
4001 Rodney Parham Road
Little Rock, AR 72212
Tel: [phone]
ww.windstream.com
Applicant does not have a principal place of business in Idaho.
Copies of Applicant's Articles of Incorporation and authority to transact business as a
foreign corporation in Idaho are attached hereto as Exhibits 1 and~, respectively.
2
A/73537 1 17.3
WIN-NuVox's registered agent in Idaho is:
CT Corporation Systems
1111 West Jefferson, Suite 530
Boise, ID 83702
The principal offcers and directors of Applicant are as follows:
Offcers:
Jeffery Gardner
Brent Whittington
Anthony W. Thomas
John Fletcher
Kristi Moody
Michael D. Rhoda
President and CEO
COO
CFO
EVP, Secretar and General Counsel
Assistant Secretar
SVP, Governent Affairs
Directors:
Jeffery Gardner
Dennis E. Foster
Francis X. Frantz
All Officers and Directors may be contacted through the Applicant's offices at:
4001 Rodney Parham Road
Little Rock, AR 72212
Tel: [phone]
Windstream NuVox, Inc. is ultimately wholly owned by Windstream Corporation, a
publicly traded corporation (NASDAQ: WIN). A chart of the corporate ownership structure of
WIN-NuVox, including Applicant's subsidiaries, is provided as Exhibit 3.
3
A/735371 17.3
All correspondence and communications regarding this Application should be addressed
to:
Jean L. Kiddoo
Brett P. Ferenchak
Kimberly A. Lacey
Bingham McCutchen LLP
2020 K Street, N.W.
Washington, DC 20006
Tel: [phone]
Fax: [phone]
Email: jean.kiddoo~bingham.com
brett.ferenchak~bingham.com
kimberly .iacey~bingham.com
with a copy to:
Brian Rabchuk
Senior Analyst - Government Affairs
Windstream Nu Vox, Inc.
4001 Rodney Parham Road
Mailstop: 1170-BIF02-12A
Little Rock, AR 72212
Tel: [phone]
Fax: [phone]
Email: brian.rabchuk~windstream.com
III. Telecommunications Services
WIN-Nu Vox proposes to provide resold and facilities-based local exchange
telecommunications services in Idaho upon grant of authority by the Commission. Applicant
wil begin offering resold local exchange service shortly after being authorized to do so by the
Commission. Applicant does not currently plan to construct facilities, but seeks facilties-based
authority so that it can provide services over its own facilities, facilities leased from other carrier
or a combination thereof in the future as market condition permit. WIN-NuVox proposes to
provide local exchange telecommunications services to business customers in the State of Idaho.
4
A/735371 17.3
iv. Service Territory
WIN-NuVox seeks to provide local exchange services II all areas curently or that
become open to competition, including but not limit to those areas currently served by Qwest and
Verizon. Applicant does not seek to remove any exemption granted to a small or rural carrier
pursuant to § 251 (f) of the Federal Act, and therefore, Applicant does not seek to provide
telecommunications services to customers in those areas at this time. Initially, WIN-NuVox wil
complete directly with Qwest and Verizon for the provision of local exchange services.
Applicant does not currently own any facilities or property in Idaho.
V. Financial Information
WIN-NuVox is also well-qualified financially to operate within the State of Idaho. As
outlined in more detail below, Applicant possesses the requisite financial resources to provide
resold local exchange telecommunications service including the abilty and wilingness to cover
any customer advances and deposits; and to pay intrastate access charges and interconnection
charges on all intrastate telecommunications services. In demonstration of its financial
qualifications, Applicant attaches hereto, a copy of the most recent SEC Form 10-K of
Windstream Corporation, Applicant's ultimate parent company, as Exhibit 4.
vi. "Illustrative" Tariff Filng
Applicant's proposed local exchange tariff, containing proposed rates, terms, and
conditions of services, in attached hereto as Exhibit 5. Please note that, with respect to the
proposed local exchange tariff, many details of Applicant's provision of the proposed services,
including the rates to be charged to Applicant's customers, wil be dependent upon the
negotiation of interconnection agreements with the incumbent LECs. Upon certification of
Applicant, and prior to commencing service, Applicant wil fie a local exchange tariff that
5
A/73537 1 17.3
complies with all Commission rules and regulations and lists the rates, terms and conditions of
service.
VII. Customer Contacts
WIN-NuVox's general email address and toll-free number for all Commission informal
customer complaints is:
custserv~nuvox.com
800-600-5050
The individual responsible for responding to complaints is:
Molle Chewning
Supervisor - Customer Support
1720 Galleria Blvd.
Charlotte, NC 28270
Tel: [phone]
Fax: [phone]
Email: mollie.chewning~windstream.com
The individual responsible for responding to Commission inquires concerning rates and
price lists or tariffs is:
Abby Sydlow
Staff Manager - Local Tariffs
12400 Olive Blvd., Suite 430
St. Louis, MO 63141
Tel: [phone]
Fax: [phone]
Email: abby.sydlow~windstream.com
6
A/73537 117.3
Upon certification, general questions from the Commission regarding Applicant should
be directed to:
Mike Anderson
Vice President - Government Affairs
403 W. 4th Street, N
P.O. Box 1046
Newton, IA 50208-1046
Tel: [phone]
Fax: [phone]
Email: d.michael.anderson~windstream.com
VIII. Interconnection Agreements
WIN-NuVox has not yet initiated interconnection negotiations but intends to do so as
applicable and upon being granted authority by the Commission. Once WIN-NuVox has
conducted negotiations and reached agreements by negotiation or arbitration, WIN-NuVox wil
fie copies of them with the Commission for its approval if necessary.
IX. Compliance with Commission Rules
Attached hereto is a sworn verification executed by Applicant stating that the Applicant
agrees to comply with all Idaho laws and Commission rules and regulations.
X. Escrow Account or Security Bond
Should WIN-NuVox decide to require advance deposits from its customers, it will enter
into an escrow agreement with a bonded escrow agent prior to offering telecommunications
services in Idaho and wil file such agreement with the Commission upon request. WIN-NuVox
will comply with all applicable Idaho laws and Commission rules and regulations regarding
advance customer deposits.
7
A/73537117.3
XI. CONCLUSION
As demonstrated by this application and pursuant to Idaho Code §§61-526-528, IDAPA
31.01.01.111, and Procedural Order No. 26665, WIN-NuVox's expertise in the
telecommunications sector wil permit it to select the most economic and efficient services,
thereby providing customers with an excellent combination of price, quality, and customer
service. Accordingly, WIN-NuVox anticipates its proposed service wil increase consumer
choice of innovative, diversified, and reliable service offerings. The provision of more
affordable and available local telecommunications services wil promote the health, welfare and
economic well-being of the citizens ofIdaho. WIN-NuVox respectfully submits that the public
interest, convenience, and necessity would be furthered by a grant of this Application for the
authority to provide resold local telecommunications services.
8
A17537117.3
WHEREFORE, Windstream NuVox, Inc., respectfully requests that the Idaho Public
Utilities Commission issue a Certificate of Public Convenience and Necessity authorizing WIN-
Nu Vox to provide resold and facilities-based local exchange telecommunications services within
the State of Idaho.
Respectfully submitted,
By:
Jean L. Kid
Brett P. Fer chak
Kimberly A. Lacey
Bingham McCutchen LLP
2020 K Street, N.W.
Washington, DC 20006
Tel: [phone]
Fax: [phone]
Email: jean.kiddoo~bingham.com
brett.ferenchak~bingham.com
kimberly .iacey~bingham.com
Counsel for Windstream Nu Vox, Inc.
Dated: February 17,2011
9
A/735371 17.3
LIST OF ATTACHMENTS AND EXHIBITS
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Articles of Incorporation
Authority to Transact Business
Corporate Ownership Structure Chart
Financial Statements of Windstream Corporation
Proposed Local Exchange Tariff
Verification
A/735371 173
EXHIBIT 1
Articles of Incorporation
A/735371 17.3
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Ðefaware PAGE 1
rr :First State
I, JEFFRY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF
DELAWAR i DO HEREBr CERTIFr "WINDSTRE NUVOX, INC." is DULr
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWAR AND is IN
GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE
RECORDS OF THIS OFFICE SHOW, AS OF THE THIRTIETH DAY OF AUGUST,.
A.D. 2010.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANAL REPORTS HAVE
BEEN FILED TO DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRACHISE TAXS
HAVE BEEN PAID TO DATE.
2909316 8300100867895 DATE: 08-30-10
You may vei:ify thi:s c:ert:ificate onlineat corp. delawa..... gov/..ut:v..... shtm
EXHIBIT 2
Authority to Transact Business
A/73537 1 17.3
,.
State of daho
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CERTIFICATE OF AU HORITY
OF
WINDSTREAM NUV , INC..
File Number C 18
I, BEN YSURSA, Secretary of State of the S: te of Idaho, hereby certify that an
Application for Certificate of Authority, duly execute pursuant to the provisions of the
Idaho Business Corporation Act, has been receive . in this office and is found to
conform to law.
;1 . I
ACCORDINGLY and by virtue öf the authorit vested in me by.law, I issue this
Certificate of Authority to transact business in this até and attach hereto a duplicate of
the application for such certificate.
Dated: August 31,2010
~~
By
~
APPLlCATlON FOR CERTIFICATE
OF AUTHORITY (For Profit)
(Instructions on Back of Application)
lOA
St.Cf(flA II: 2
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OF IDA~&A f
202
The undersigned Corpration applies for a Certificate of Authority and states as follows:
1. The name of the corporation is:
Windstream NuVox, Inc.
2. The name which it shall use in Idaho is:
3. It Is incorprated under the laws of; Delaware
4. Its date of incorporation is: 0611611998
5. The address of its principal offce is:
4001 Rodney Parham Road, Little Rock, AR 72212
6. The address to which correspondence should be addressed, if different from Item 5, is:
7. The street address of its registered offce in Idaho Is: I1I1 West Jefferson, Suite 530, Boise. Idaho 83702
and its registered agent in Idaho at that address is: C T Corporation System
8. The names and respective business addresses of its directors and offcers are: SEE A IT ACHMENT
Name Title Business Address
Jeffery Gardner Director 400 I Rodney Parham Road, Litlle Rock, AR 72212
Francis X. Frantz Diretor 4001 ROdney Parham Road, Little Rock, AR 72212
Brent Whittington COO
4001 Rodney Parham Road, Little Rock. AR 72212
400 I Rodney Parham Road, Litlle Rock. AR 72212
Jeffery Gardner President and CEO
Anthony W. Thomas CFO 4001 Rodney Parham Road, Little Rock, AR 72212
EVP, Secretary and General OMDlelodney Parham Road, Little Rock, AR 72212John Fletcher
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Ðefaware PAGE 1
fJ !First State ¡
I, JEFFRY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF
DELAWAR, DO HEREBY CERTIFY "WINDSTREAM NUOX, INC." IS DULY
INCORPORATED UNDER THE LAWS OF THE STAT' OF DELAWAR AND IS IN
i
GOD STANDING AND HAS A LEGA CORPORATE: EXISTENCE SO FAR AS THE
RECORDS OF THIS OFFICE SHOW, AS OF THE THIRTIETH DAY OF AUGUST,
A.D. 2010.
AND I DO HEREBY FUTHER CERTIFY THAr THE ANNUAL REORTS HAVE
BEEN FILED TO DATE.
AND I DO HEREBY FUTHER CERTIFY THAT THE FRCHISE TAXS
HAVE BEEN PAID TO DATE.
2909316 8300100867895 DATE: 08-30-10
450 N 4th Street
PO Box 83720
Boise 10 837200080
Phone: [phone]
Fax: [phone]BenYsursa
Secretary of Stte
sosinfo(§sos. idaho.gov
www.sos.idaho.gov
STATE OF IDAHO:
SECRETARY OF STATE
ANNUAL REPORTING REQUIREMENTS
Each corporation, limited liability company, limited partnership and limited liabilty partnership authorized to
transact business in this state must file an annual report with the secretary of state.
If an annual report is not received on or before the due date, the following will occur:
1 ) Domestic corporations and limited liability companies wil be subject to administrative dissolution;
2) Foreign corporations wil be subject to revocation of its authority to do business in Idaho;
3) Foreign limited liabilty companies will be subject to administrative cancellation;
4) Limited partnerships wil be subject to administrative Gancellation / termination.
5) Limited liability partnerships will lose their limited liability status and revert to general partnerships:
The form must be executed by a person authorized by the company, indicating such capacity, setting forth the
name of the company, the state or country under whose law it is incorporated/organized, along with the names
and addresses of its current registered agent and offcers.
The first, and all subsequent annual reports shall be fied with the secretary of state each year before the end of the
month during which a corporation or limited liabilty company or partnership was initially authorized to transact
business. (Please note: the first annual report is not due until 1 year after the initial filing date.)
A post card wil be sent to notify you that your annual report is due. There is no filing fee jf the annual report is
received in this offce by the date it is due. A post mark date is not suffcient.
A sample of the post card and a generated annual report is included on the back of this letter.
You can file your annual report electronically via our website: ww.sos.idaho.gov or request a mail in report form.
Please follow the instructions carefully when entering the data. The annual report will only be available for filing 60
days prior to the due date. .
If you have any questions or need further assistance, please do not hesitate to contact this offce at (208) 334-
2301.
Very truly yours,
COMMERCIAL DIVISION
IDAHO SECRETARY OF STATE'S OFFICE
Go online to file your Your Annual Report for the businessreport electronically. listed below Is due.
When you reach the:: You can file onlinê or by mail.
business entity page ~he numbers below to file online
on the website, you'll at: wwwsos.ldaho.go
find a link to file your COMPANY NA!\lI
annual report. Your VNTm' FII.1NI; It PIN It
entity fiing number and. Email or call the Secretary of State's
PIN are your logon /' offce to request a mall-in report.. . (2081334-2301 orYour PIN number will soslnfo(ësos.ldaho.gov
change each year. lll~£ iwm
Strike out and correct
your company addres
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Enter the names and
business addresses
president, secretary
directors (corporation
managers/members
(llCs), general part
(lPs) or at least 2
partners (llPs) in th
area.
Post Card Notice
BENYSURSA
SECRETARY OF STATE
PO BOX 83720
BOISE to 83720-0080
PRESORTED
FIRST.CLASS
US POSTAGE PAID
BOISE 10
PERMIT NO 1
COMPANY NAME
OWNIK NAME
MAII.NG AIlllK
CITY STATE Zit Cum;
Don't be lotel
Generated Mail In Form
Str'No. C 160015 Due no later than Ap 30. 200 2. Re__onOß (NO":-Annual Report For BO)yo
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BCoc 2: To i;ng 1h reg ag or ot, $1ke th inlf in il wrte In th co lnn. Not: Th of of th
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8lo 4: Ent na an buin ad of prt, æa, anc dlec.No: D! pu "Ame a. la yer" or "Am..5
ibc". Thes WIL not be Re. Chan he wi no lIec tte iddre in 8I 1. Ie"l to inude off heW tar ea
name li.
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Blo 6: Th .""wll ~it mUf be si by . pe au to repres th col'. Prnt or ty th na or th sigr beow ths1gniure
.. The lm of this fo will be ivallable OI th Int on it ha ben file DO ft enr SO.I 5e numbe
If th Qioo Is no loner do bune In Ida, you IT tile Ø1 apat ro iJ ree. Fo are mtlle on th we ltVM.so.ldilho.go. Ho,if no timdv anræ re" fi, admlnlse Dt YlI be take, lt no co lo th Corpilon to tein th
iei exPa. If yo hi any QUstons i: th Come DiSiI\ at (208) 33+2301.
PC7HK l.Tf WLU NOT BE AC
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re, if necessary. RA
st be at a physical
dress in Idaho.
newly appointed RA
ust sign here.
nual Report must be
ned by a persn
thorized to represent
e corporation/llC/lP
LlP.
EXHIBIT 3
Corporate Structure Chart
A/73537 117.3
Corporate Ownership* Structure of Wind stream Nu Vox, Inc.
Windstream Corporation
NuVox, Inc.
Gabriel Communications
Finance Company
Windstream NuVox, Inc.
(Applicant)
* All ownership percentages are 100%
EXHIBIT 4
Financial Statements of Wind stream Corporation
A/73537I 17.3
WIN 10-K 12/31/2009
Section 1: 10-K (FORM 10-K)
Table of Contents
UNITED STATES
SECURTIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM IO-K
(X) ANNAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 3 i, 2009
or
( ) TRSITON REPORT PURSUANT TO SECTION 13 OR 15( d) OF THE SECURTIES EXCHAGE ACT OF 1934For the transition period from to
Commission fie number 1-32422
WINDSTREAM CORPORATION
(Exact name of registrnt as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
20.0792300
(I.R.S. Employer
Identification No.)
400 I Rodney Parham Road, Little Rock, Arkansas
(Address of principal executive offces)
72212
(Zip Code)
Registrant's telephone number, including area code
Securities registered pursuant to Section i 2(b) of the Act:
[phone]
Title of each class
Common Stock ($0.000 i par per share)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on which registered
NASDAQ Global Select Market
NONE
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
i: YES 0 NO
Indicate by check mark if the registrant is not required to fie reports pursuant to Section 13 or Section i 5( d) of the Act.
DYES i: NO
Indicate by check mark whether the registrant (i) has fied all reports required to be fied by Section 13 or 15( d) of the Securities Exchange Act of i 934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
i: YES 0 NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation SoT (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such fies).
i: YES 0 NO
Indicate by check mark if disclosure of delinquent fiers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrants
knowledge, in definitive proxy or information statements incorporated by reference in Part II of this Form IO-K or any amendment to this Form 10-K. i:
Indicate by check mark whether the registrant is a large accelerated fier. an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large
accelerated fier", "accelerated fier" and "smaller reportng company" in Rule i 2b-2 of the Exchange Act. (Check one):
Large accelerated fier i: Accelerated fier 0 Non-accelerated fier 0 Smaller reporting company 0
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b.2 of the Exchange Act).
DYES i: NO
Aggregate market value of voting stock held by non-affliates as of June 30, 2009 -
Common shares outstanding, February 16,2010 - 456,909,066
$3,650,897,247
DOCUMENTS INCORPORATED BY REFERENCE
Document
Proxy statement for the 20 i 0 Annual Meeting of Stockholders
The Exhibit Index is located on pages 36 to 40.
Incorporated Into
Part II
Table of Contents
Item i.
Item IA.
Item lB.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item II.
Item 12.
Item 13.
Item 14.
Item 15.
Windstream Corporation
Form iÐ-K, PartI
Table of Contents
Page No.
Part I
Business 2
Risk Factors 15
Unresolved Staff Comments 21
Properties 21
Legal Proceedings 22
Submission of Matters to a Vote of Security Holders 22
Part II
Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities 23
Selected Financial Data 27
Management's Discussion and Analysis of Financial Condition and Results of Operations 27
Quantitative and Qualitative Disclosures About Market Risk 27
Financial Statements and Supplementary Data 27
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27
Controls and Procedures 28
Other Information 28
Part II
Directors, Executive Offcers, and Comorate Governance 29
Executive Compensation 30
Security Ownership of Certin Beneficial Owners and Management and Related Stockholder Matters 30
Certain Relationships and Related Transactions, and Director Independence 30
Principal Accountant Fees and Services 30
Part iv
Exhibits, Financial Statement Schedules 31
Table of Contents
Windstream Corporation
Form lOoK, Part I
Item 1. Business
THE COMPANY
GENERAL
In this report, Windstream Corporation and its wholly owned subsidiaries are referred to as "Windstream", "we", or the "Company". On July 17.2006. Alltel Corporation, which has
subsequently merged with Verizon Communications Inc. ("Alltel"). completed the spin off of its wireline telecommunications division and immediately merged with and into Valor
Communications Group. Inc. ("Valor"), with Valor continuing as the surviving corporation. The resulting company was renamed Windstream Corporation. Windstream is a corporation
organized under the laws of the state of Delaware, and it was organized under the name Valor Communications Group, Inc. in 2004. For all periods prior to the merger with Valor
described herein, references to the Company include Alltel Holding Corp. or the wireline telecommunications division and related businesses of Allte!.
Windstream is a customer-focused telecommunications company that provides phone, high-speed Internet and digital television services. The Company also offers a wide range oflP-
based voice and data services and advanced phone systems and equipment to businesses and government agencies. As of December 3 1.2009, the Company provided service to
approximately 3.0 milion access lines and I. i million high-speed Internet customers primarily located in rural areas in i 6 states.
The shaded areas in the following map reflect Windstream's service terrtories as of December 3 1,2009.
The Company's web site address is www.windstream.com. Windstream fies with, or furnishes to, the Securities and Exchange Commission (the "SEC") annual reports on Form 100K,
quarterly reports on Form IO-Q, and current reports on Form 8-K, as well as various other information. This information can be found on the SEC website at ww.sec.gov. In addition,
Windstream makes available free of charge through the Investor Relations page of its web site its annual reports, quarterly reports. and current reports, and all amendments to any of
those reports, as soon as reasonably practicable after providing such reports to the SEC. In addition, on the corporate governance section of the Investor Relations page of its web site.
Windstream makes available its Code of Ethics, the Board of Directors' Amended and Restated Corporate Governance Board Guidelines, and the charters for its Audit, Compensation.
and Governance Committees. Windstream will provide to any stockholder a copy ofthe Governance Board Guidelines and the Committee charters. without charge, upon written request
to Investor Relations, Windstream Corporation, 400 i Rodney Parham Road, Little Rock, Arkansas 72212.
2
Table of Contents
Windstream Corporation
Form 10-K, Part I
Item 1. Business
FORMATION OF WINDSTREAM
On July 17, 2006, Alltel completed the spin off of its wireline telecommunications division. Alltel Holding Corp. Puuat to the spin off, Alltel contributed all of its wireline assets to the
Company in exchange for: (i) newly issued Company common stock, (ii) the payment ofa special dividend to Alltel in the amount of $2.3 bilion and (iii) the distribution by the Company
to Alltel of certain debt securities (the "Contrbution"). In connection with the Contrbution, the Company assumed approximately $261.0 milion of long.term debt that had been issued
by the Company's wireline subsidiaries. Following the Contribution, Alltel distributed 100 percent of the common shares ofthe Company to its shareholders as a tax-free dividend.
Immediately after the consummation of the spin off, Alltel Holding Corp. merged with and into Valor, with Valor continuing as the surviving corporation. The merger was accounted for
using the purchase method of accounting for business combinations, in accordance with authoritative guidance, with Alltel Holding Corp. serving as the accounting acquirer. The
accompanying consolidated financial statements reflect the combined operations of Alltel Holding Corp. and Valor following the spin off and merger transactions on July 17, 2006.
Results of operations prior to the merger and for all historical periods presented are for Alltel Holding Corp. The resulting company was renamed Windstream Corporation. As a result of
the merger, all ofthe issued and outstanding shares of the Company's common stock were converted into the right to receive an aggregate number of shares of common stock of Valor.
Valor issued in the aggregate approximately 403 million shares of its common stock to Alltel shareholders pursuant to the merger, or 1.0339267 shares of Valor common stock for each
share of the Company's common stock outstanding as of the effective date of the merger. Upon completion of the merger, Alltel's stockholders owned approximately 85 percent of the
outstanding equity interests of the surviving corporation, Windstream, and the stockholders of Valor owned the remaining approximately 15 percent of such equity interests. In
addition, Windstream assumed Valor debt valued at $1,195.6 million.
MATERI ACQUISITIONS COMPLETED DURING THE LAST FIVE YEARS
On February 8, 2010, we completed our previously announced acquisition ofNu Vox, Inc. ("Nu Vox"), a competitive local exchange carrer based in Greenville, South Carolina. Consistent
with the Company's focus on growing revenues from business customers, the completion ofthe NuVox acquisition added approximately 90,000 business customer locations in 16
contiguous Southwestern and Midwest states and provides opportnities for significant operating effciencies with contiguous Windstream markets. NuVox's services include voice
over internet protocol, local and long-distance voice, broadband internet access, email, voicemail, web hosting, secure electronic data storage and backup, internet security and virtal
private networks. Many ofthese services are delivered over a secure, privately-managed IP network, using a multiprotocollabel switch backbone and distributed IP voice switching
architecture.
In accordance with the Nu Vox merger agreement, Windstream acquired all of the issued and outstanding shares of common stock ofNu Vox for $199.0 million in cash, net of cash
acquired, and issued approximately 18.7 million shares of Windstream common stock valued at $187.0 milion on the date of issuance. Windstream also repaid outstanding indebtedness
and related liabilties on existing swap agreements ofNuVox approximating $281.0 million.
On December 1,2009, we closed our previously announced acquisition of Lex com, Inc. ("Lexcom"), which resulted in the addition of approximately 22.000 access lines. 9.000 high-speed
Internet customers and 12,000 cable television customers in North Carolina. This acquisition increased Windstream's presence in North Carolina and provides the opportnity for
operating synergies with contiguous Windstream markets. In accordance with the Lexcom merger agreement. Windstream acquired all of the issued and outstanding shares of Lexcom
common stock for approximately $138.7 milion in cash, net of cash acquired.
On November 10, 2009. we closed our previously announced merger with D&E Communications, Inc. ("D&E"), which resulted in the addition of approximately i I 0,000 incumbent loc
exchange carer ("ILEC") access lines, 35.000 competitive local exchange carrer ("CLEC") access lines. 45,000 high.speed Internet customers and 9,000 cable television customers. This
acquisition increased Windstream's presence in Pennsylvania and provides the opportunity for operating synergies with contiguous Windstream markets. Pursuant to the merger
agreement, Windstream acquired all of the issued and outstanding shares of common stock of D&E. and D&E merged with and into a wholly-owned subsidiary of Wind stream.
Table of Contents
Windstream Corporation
Form io-K, Part I
Item 1. Business
In accordance with the D&E merger agreement, D&E shareholders received 0.650 shares of Wind stream common stock and $5.00 in cash per each share ofD&E Common Stock.
Windstram issued approximately 9.4 milion shares ofits common stock valued at approximately $94.6 million, based on Windstream's closing stock price of$10.06 on November 9,
2009, and paid approximately $56.6 milion, net of cash acquired, as par of the transaction. Windstream also repaid outstanding debt ofD&E Communications totaling $182.4 millon.
On August 3 i, 2007, Windstream completed the acquisition of CT Communications, Inc. ("CTC") in a transaction valued at $584.3 milion. Under the terms of the agreement the
shareholders ofCTC received $3 i .50 in cash for each of their shares with a total cash payout of$652.2 milion. The trnsaction value also includes a payment of$37.5 milion made by
Windstream to satisfy CTC's debt obligations, offset by $105.4 million in cash and short-term investments held by CTC. Including $25.3 milion in severance and other trsaction-
related expenses, the total cost ofthe acquisition was $609.6 million. Windstram financed the trnsaction using the cash acquired from CTC, $250.0 millon in borrowings available
under its revolving line of credit, and additional cash on hand. The premium paid by Windstream in this transaction is attributable to the strategic importance of the CTC acquisition.
The acquisition ofCTC significantly increased Windstream's operating presence in North Carolina through the addition of approximately 132,000 access lines and 3 1,000 high-speed
Internet customers and provided the opportnity to generate significant operating efficiencies with contiguous Windstream markets.
As previously discussed, on July 17, 2006, Alltel Holding Corp. merged with and into Valor, with Alltel Holding Corp. serving as the accounting acquirer. Through this trnsaction,
Windstream added approximately 500,000 customers in complementary markets with favorable rural charcteristics making the Company one of the largest local telecommunications
carriers in the United States.
PENDING ACQUISITIONS
On November 23. 2009, we entered into an agreement and plan of merger pursuant to which we will acquire all of the issued and outstanding shares of common stock oflowa
Telecommunications Services, Inc. ("Iowa Telecom"). Under the terms of the merger agreement, Iowa Telecom shareholders wil receive 0.804 shares of common stock of Wind stream
and $7.90 in cash per each share oflowa Telecom common stock. We expect to issue approximately 26.5 million shares of Wind stream common stock and pay approximately $261.0
million in cash as part of the transaction. We also will repay estimated net debt of approximately $598.0 million. This acquisition is expected to close in mid-20 I 0 and is subject to certain
conditions, including receipt of necessary approvals from federal and state regulators and Iowa Telecom shareholders. As of September 30, 2009, Iowa Telecom provided services to
approximately 256,000 access lines, 95.000 high-speed Internet customers and 26,000 digital television customers in Iowa and Minnesota.
MATERI DISPOSITIONS COMPLETED DURING THE LAST FIVE YEARS
On November 2 i, 2008, Windstream completed the sale of its wireless business to AT&T Mobility II, LLC for approximately $56.7 million. The completion of this trsaction resulted in
the divestiture of approximately 52,000 wireless customers, spectrum licenses and cell sites covering a four-county area of Nort Carolina with a population of approximately 450,000 and
six retail locations. The operating results of the wireless business have been separately presented as discontinued operations in the accompanying consolidated statements of income.
On November 30, 2007, Windstream completed the split off of its directory publishing business (the "publishing business") in a tax-free transaction with entities affliated with Welsh,
Carson, Anderson & Stowe ("WCAS"), a private equity investment firm and Windstream shareholder.
To facilitate the split off transaction, Windstream contributed the publishing business to a newly formed subsidiary ("Holdings"). Holdings paid a special cash dividend to Windstream
in an amount of $40.0 milion, issued additional shares of Holdings common stock to Windstream, and distributed to Windstream certain debt securities of Holdings having an
aggregate principal amount of $2 I 0.5 milion. Windstream exchanged the Holdings debt securities for outstanding Windstream debt securities with an equivalent fair market value, and
then retired those securities. Windstream used the proceeds of the special dividend to repurchase approximately three million shares of Wind stream common stock during the fourth
quarter of2007. Windstream exchanged all of the outstanding equity of Holdings (the
4
Table of Contents
Windstream Corporation
Form lOoK, Part I
Item i. Business
"Holdings Shares") for an aggregate of 19,574,422 shares ofWindstream common stock (the "Exchanged WI Shares") owned by WCAS, which were then retired. :Based on the price of
Windstream common stock of$12.95 at November 30, 2007, the Exchanged WIN Shares had a value of$253.5 millon. The total value of the trnsaction was $506.7 milion, includìng an
adjustment for net working capital of approximately $2.7 million. As a result of completing this transaction, Windstream recorded a gain on the sale of its publishing business of$451.3
milion in the fourh quarer of 2007 after substantially all performance obligations had been fulfilled.
In connection with the consummation of the trnsactions, the parties and their affliates entered into a publishing agreement whereby Windstream granted Local Insight Yellow Pages,
Inc. ("Local Insight Yellow Pages"), the successor to the Windstream subsidiary that operated the publishing business. an exclusive license to publish Windstream directories in each
of its markets other than the acquired CTC markets. Local Insight Yellow Pages wil, at no charge to Windstream or its affliates or subscribers, publish directories with respect to each
Windstream service area covered under the agreement in which Windstream or its affliates are required to publish such directories by applicable law, tariff or contract. Subject to the
termination provisions in the agreement, the publishing agreement wil remain in effect for a term of fift years. As part of this agreement, Windstream agreed to forego future royalty
payments from Local Insight Yellow Pages on advertising revenues generated from covered directories for the duration of the publishing agreement.
MANAGEMENT
The Company's staff at its headquarers and regional offces supervise, coordinate and assist subsidiares in management activities including investor relations, acquisitions and
dispositions, corporate planning, tax planning, cash and debt management, insurance, sales and marketing support, government affairs. legal matters, human resources and engineering
services.
EMPLOYEES
At December 31,2009, Windstream had 7,385 employees. Within Windstream's work force, approximately 1.693 employees are part of collective bargaining units. During 2009,
Windstream had no material work stoppages due to labor disputes with its unionized employees (see "Risk Factors").
ORGANIZATIONAL STRUCTURE AND OPERATING SEGMENTS
Windstream has focused its communications business strategy on enhancing the value of its customer relationships by offering additional products and services and providing
superior customer servce. As of December 31,2009, Windstream served more than 3.0 million access lines and l. milion high-speed Internet customers in 16 states. Windstream's
service offerings include phone, high-speed Internet and digital television. The Company also offers a wide range ofIP.based voice and data services to businesses and government
agencies.
Windstream is organized based on the products and services that it offers. Under this organizational strcture, Windstream currently operates as a single wireline reporting segment
focused on providing communications products and services. Previously, the Company reported a product distribution segment, but in the first quarer of2009, the Company
reorganized its operations to integrate the sales and administrative functions of the product distribution segment into its wire line operations. As a result of this change. the chief
operating decision maker no longer reviews the financial statements of the product distribution operations on a stand alone basis, and the Company operates its wireline and product
distribution operations as a single reporting segment (the "wireline segment"). As required by the authoritative guidance for segment presentation, segment results of operations have
been retrospectively adjusted to reflect this change for all periods presented.
In November 2007, the Company sold its dìrectory publishing business, as further discussed in "Item i - Material Dispositions Completed During the Last Five Years". Prior to this sale,
the Company reported the results ofthese operations as its directory publishing segment.
CONSOLIDATED WIRELINE SEGMENT
The Company's wireline segment consists of Wind stream's retail and wholesale telecommunications services, whose primar revenue streams include voice and related features, high.
speed Internet service, long distance, data and special access. switched access and interconnection, and video services.
Table of Contents
Windstream Corporation
Form lO.K, Part I
Item 1. Bnsiness
The following table is a summary of wire line segment results for the years ended December 3 I:
Wireline S ent 2009 2008 2007
Service revenues 2.872.8 2,988.9 $ 2.954.3
Total assets $ 9,145.4 $ 8,009.3 $ 8,155.5
Windstream's subsidiaries provide facilties-based services in primarly rural areas in 16 states. As of December 3 1,2009, Windstream provided communication services to customers
located in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Missouri, Nebraska. New Mexico, New York, Nort Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina and
Texas.
In addition, certain ofWindstream's subsidiaries serve as a competitive service provider in four states on both a facilities-based and resale basis, and, where necessary. have negotiated
interconnection agreements with the appropriate incumbent local exchange carrers. Windstream's strategy is to provide voice and data service in combination with other services
provided by subsidiaries of Wind stream, including long distance and high-speed Internet services. Windstream's primary focus for marketing and sellng these competitive services is
directed toward business customers through the offering of competitively priced and reliable services.
PRODUCTS AND OFFERINGS
Voice services consist of traditional telephone services provided from telephone exchange offces to customer premises of both residential and business customers. Voice revenues
include monthly recurring charges for basic services such as local dial-tone, and enhanced services that include call waiting. call forwarding, caller identification, three-way calling. no-
answer transfer, voicemail, and other enhanced services.
Long distance services are offered through wholesale arrangements with various interexchange carriers and include switched interstate, intrastate, and international long distance as
well as operator services. These services are primarily marketed as f1at"rate calling plans or part of product bundles, which may include voice, high-speed Internet. long distance and
video. Long distance plans that bill on a per minute basis are also offered.
Data and special access services primarily consist of retail high-speed Internet services and the provision of special access dedicated circuits. We provide high.speed Internet access
using digital subscriber line technology for a monthly fee. Windstream's Greenstreak product offers high-speed Internet along with measured local phone service that allows unlimited
incoming calls, 911 access, and outgoing local calls for 10 cents a minute. Windstream's Internet Security Suite offers a comprehensive service package that stops viruses, blocks
spyware, prevents hacking, improves PC health, secures user identity and protects children from objectionable web sites. We also provide Internet access services to dial up Internet
subscribers and data transmission services over special circuits, Ethernet based access and private lines. The Company's Internet access services also enable customers to establish an
e-mail account and to send and receive e-maiL. In addition, we offer enhanced Internet services to our business customers, which include obtaining Internet protocol addresses, web site
design and hosting.
Special access services provide business and wholesale customers dedicated point-to-point switching arangements for voice and data traffc, and allows constant use at maximum
capacity.
Switched access and interconnection services are provided by Windstream by connecting the equipment and facilities of its customers to the communications networks oflong
distance carrers, other competitive local service providers and wireless carriers. These companies pay access and network usage charges to Windstream's local exchange subsidiaries
for the use of their local networks to originate and terminate their voice and data transmissions.
Miscellaneous service revenues primarily consist of charges for service fees. rentals and biling and collections services. Miscellaneous revenues also include commissions from
activating digital satellte television service through our relationship with DISH Network LLC. These services are offered to virtally all households in our service areas
6
Table of Contents
Windstream Corporation
Form lOoK, Part I
Item 1. Business
through a co-branded DISH Network satellite television agreement. In addition, Windstream provides cable television service to approximately 49,000 customers in Georgia, Missouri,
North Carolina and Pennsylvania. The cable television properties are not significant to Windstream's wireline operating results.
Product sales represent equipment sales to customers, including computer sales to residential high-speed Internet customers. Internet modems and customer premise equipment.
MARKETING
At Windstream, our marketing approach is simple. Our mission, vision and values are what guide us as we remain focused on serving the communities of rural America. We offer fresh,
innovative thinking and embrace new technology. As a brand, we are neighborly, dynamic and provide simplicity in our products and services. What's more. we strve to deliver it all
through teamwork that is responsive, enthusiastic, accountable and motivated to serve our customers. We market our products through multiple channels, including customer service
representatives and technicians. local retail stores, e-commerce, and telemarketing, supported by direct mail, mass media advertising (newspaper. television. and radio), bil inserts.
community events and click through advertising on targeted websites. We continue to exercise door-to-door sales techniques and partnerships with agents to reach customers on a
local and one-on-one basis.
Windstream operates 55 local retail stores and two call centers focused on selling and servicing our customers. Both sales channels offer an excellent opportnity to connect with our
customers by providing superior customer service in person or over the phone. Direct calls are made to business customers in order to accommodate their specific needs and to improve
their way of conducting business in the most effcient way possible. Our customer service and sales representatives earn incentives to promote sales of services that meet the
distinctive needs of our customers, while our technicians survey customer premises to assess building requirements and coordinate delivery. installation and testing of equipment.
Our marketing goal for residential and small business customers is to win new customers while sellng additional communication services to existing customers. Our message
consistently emphasizes our competitively priced product bundles that integrate voice. data and entertainment services onto one easy to understand bilL.
Our large business and enterprise customer marketing approach focuses on end-to-end customer communications solutions. Our direct sales force calls on prospective and existing
business customers to provide a reliable and complete communications solution that best fits the needs of our customers based on our communications knowledge and the information
we gain about the customers' needs. In addition, we operate a separate call center focused on servicing and selling additional products and services that meet the unique needs of our
business customers.
TECHNOLOGY
Our netork consists of host and remote central offce digital switches and loop carrers interconnected with copper. microwaved and fiber facilities. The outside plant infrastrcture
connecting the customer with the core network consists of a mix of fiber optic and copper facilities. At the end of2009, we maintained over 24 1,600 route miles of copper plant and
approximately 26,000 route miles oflocal and long-haul fiber optic plant. In addition, our fully integrated communications network consists ofIP routers, Ethernet switches,
Asynchronous Transport Mode (ATM) switches and frame relay switches capable of handling voice, data and dedicated circuits.
COMPETITION
Windstream experiences competition in many of its local service areas. Sources of competition to Windstream's local exchange business include, but are not limited to, wireless
communications providers, cable television companies, resellers oflocal exchange services, interexchange carrers. incumbent local exchange carriers in markets where we provide
competitive local exchange services, satellite transmission service provider. electric utilities, competitive access service providers, including, without limitation, those utilizing an
Unbundled Network Elements-Platform or UNE-P, voice-over-Internet protocol ("VoIP") providers, and providers using other emerging technologies resellers. In addition. we are
subject to increased competition from new and existing competitors receiving financial incentives through the federal broadband stimulus program (See Federal Regulation).
Table of Contents
Windstream Corporation
Form 16-K, Partl
Item 1. Bnsiness
During 2009, this competition adversely affected Windstream's access line losses and revenue growth rates. Excluding the lines acquired from D&E and Lexcom, Windstream lost
approximately 143,000 access lines in its wireline business during 2009, primarly as a result ofthe effects of fixed line competition and wireless substitution for Windstream's wireline
services. Windstream expects the number of access lines served by its wireline operations to continue to be adversely affected by fixed line competition and wireless substitution in
2010.
To address competition, Windstream remains focused on providing improved customer service, increasing operating effciencies and improving the quality of its network. In an effort to
further develop enhanced services and bundled product offerings, the Company wil continue to invest in its network to offer faster speeds in its high-speed Internet offerings. As of
December 31, 2009, the Company could deliver speeds of 3Mb to 96 percent of its addressable lines. Additionally, speeds of 6Mb and 12Mb are available to 65 percent and 34 percent of
its high-speed Internet addressable lines, respectively.
During 2009, excluding acquisitions ofD&E and Lexcom. the Company added approximately 99,000 high-speed Internet customers. As of December 31. 2009 the company had over
1,132,000 total high-speed Internet customers, which represents a penetration rate of37 percent of total access lines in service, and 55 percent of residential access lines in service.
Although high-speed Internet services have been a source of revenue and customer growth for Windstream, that service offering experiences competition primarily from cable
competitors. In addition, we could experience some increased competition from high-speed Internet offerings of wireless competitors.
SEASONALITY
Our business is not subject to significant seasonal fluctuations.
REGULATION
Our incumbent local exchange carrer subsidiaries (collectively the "ILECs") are regulated by both federal and state agencies. Our interstate products and services and the related
earnings are subject to federal regulation by the Federal Communications Commission ("FCC") and our local and intrastate products and services and the related earnings are subject to
regulation by state Public Service Commissions ("PSCs"). The FCC has principal jurisdiction over matters including, but not limited to, interstate switched and special access rates, as
well as high-speed Internet service offerings. It also regulates the rates that ILECs may charge for the use of their local networks in originating or terminating interstate and international
transmissions. The PSCs have jurisdiction over matters including local service rates, intrastate access rates, quality of service, the disposition of public utility property and the issuance
of securities or debt by the local operating companies. As a regulated entity, the Company is required to comply with various federal and state regulations.
Communications services providers are regulated differently depending primarily upon the network technology used to deliver the service. This patchwork regulatory approach
advantages certain companies and disadvantages others. It impedes market-based competition where service providers using different technologies exchange telecommunications
traffc and compete for customers.
From time to time federal legislation is introduced dealing with various matters that could affect our business. Most proposed legislation ofthis tye never becomes law. It is diffcult to
predict what kind of reform efforts, if any, may be introduced in Congress and ultimately become law. Windstream strongly support the modernization of the nation's
telecommunications laws, but at this time, cannot predict the timing and the resulting financial impact of any possible federal legislative efforts.
FEDERAL REGULATION
On Februar 17.200, the American Recovery and Reinvestment Bill of2009 was signed into law that includes various financial incentives to qualifYing entities for the expansion of
broadband services in both unserved and underserved communities throughout the nation. The legislation allocates approximately $7.0 billion for the expansion
Table of Contents
Windstream Corporation
Form lOoK, Part I
Item l. Business
of both wired and wireless broadband services. The Company elected not to participate in the application process for the first round of stimulus funding, which was released during
2009. After a careful review of the program rules, the Company determined that the rules applicable to the first round of funding did not allow for a sound and sustainable business cas.
The Company is currently reviewing the rules applicable to the second round of fuding and evaluating whether it should participate in the application process.
Price.Cap Petition Granted by FCC
Effective July I, 2008, the Company converted the majority of its remaining interstate rate-of.retur regulated operations to price-cap regulation. Price-cap regulation better aligns the
Company's continued efforts to improve its cost structure, because rates for interstate wholesale services are not required to be periodically adjusted based on the Company's cost
structure, and under price-cap regulation, high-speed Internet services can be deregulated. Prior to the conversion, with the exception of our Nebraska and New Mexico operations, and
a portion of our Kentucky, Oklahoma and Texas operations. our interstate ILEC operations were subject to rate-of-return regulation by the FCC.
Inter-carrier Compensation
The Company's local exchange subsidiaries currently receive compensation from other telecommunications provider, including long distance companies, for origination and
termination of interexchange traffc through network access charges that are established in accordance with state and federal laws.
In April 200 i, the FCC released a notice of proposed rulemaking addressing inter-carrer compensation. Under this rulemaking, the FCC proposed a "bill and keep" compensation
methodology under which each telecommunications carrer would be required to recover all of its costs to originate and terminate telecommunications traffc from its end-user customers
rather than charging other carriers. The proposed "bil and keep" method would significantly overhaul the existing rules governing inter-carrer compensation. On March 3, 2005, the
FCC released a further notice of proposed rulemaking addressing inter-carrer compensation. Under this proposed rulemaking, the FCC requested comment on several alternative inter-
carrer compensation proposals, including "bil and keep."
On November 5, 2008, the FCC issued a furter notice of proposed rulemaking ("FNPRM") that sought comment on proposals that would change the rules governing inter-carrer
compensation. Proposals considered by the FNPRM would significantly reduce inter-carrier compensation revenues over a ten-year period. classify VolP/public switch telephone
network ("PSTN") traffc as an "information service," and adopt measures to ensure proper biling of "phantom trffc". Windstream strongly supports regulatory reform, but with the
exception of the phantom traffc reforms, Windstream is opposed to the inter-carrier compensation proposals under consideration by the FNPRM. We have submitted an alternative
proposal that includes a measured reduction in access rates, increases in subscriber line charges, and additional federal universal service support.
The FCC has received other proposals to refonn inter-carier compensation mechanisms. If the Commission acts, the outcome is likely to change the way the Company receives
compensation from, and remits compensation to, other carriers and its end-user customers, as well as the federal universal service fund. Until these proceedings conclude and any
changes to the existing rules are established, the Company cannot estimate the impact of any changes on its ILEC revenues or expenses or when such changes would occur.
Universal Service
Durng 2009. Windstream received $124.3 milion in federal universal service support. The federal universal servce program is designed to provide affordable telecommunications
services to customers that live in high-cost rural areas. low-income consumers. rural health care providers, and schools and libraries. This program is currently under legislative,
regulatory and industry scrutiny as a result of the growth in the fud and strctural changes within the telecommunications industry. The primar structural change is the increase in
the number of Eligible Telecommunications Carers ("ETCs") receiving money from the Universal Servce Fund ("USF"). There are several FCC proceedings underway that are likely to
change the way the universal service programs are funded and the way universal service funds are disbursed to program recipients. The specific proceedings are discussed below.
9
Table of Contents
Windstream Corporation
Form io-K, Part I
Item 1. Business
On May I, 2008, the FCC released an order adopting an interim, emergency cap on the amount of high-cost support that competitive ETCs may receive. Competitive ETC support wil be
capped in each state at the amount competitive ETCs were eligible to receive in such state during March 2008 on an annualized basis. The Company's high-cost support was not
affected by the FCC's order.
On November 5. 2008, the FCC issued a FNPRM seeking comment on proposals that would cap high-cost receipts based on the support each carrier is eligible to receive at December
2008 levels on an annualized basis. To continue receiving this support, high-cost recipients would have to certify that they would deploy specified high-speed Internet services
throughout their supported areas over a five-year period. Areas for which high-cost recipients decline to make such certification would be subject to a reverse auction. The reserve price
for the auction would be the amount the ILEC would be entitled to receive if it would have agreed to deploy high-speed Internet services throughout its service area. Bidders would
need to be certified as an ETC by the respective state commission. The winning bidder would accept all carrer oflast resort obligations. If the auction produced no winner, the area
subject to the auction would be deemed a truly high-cost area and the FCC would determine what further actions would need to be taken to ensure the study area is served by a
company willing to meet the broadband commitment and carier of last resort requirements.
Proposals under consideration by the FNPRM also would eliminate the identical support rule. which allows competitive ETCs to receive the same per line support as the ILEC.
Competitive ETCs, instead. would be required to fie cost information to qualify for high-cost support.
In addition, the proposals under consideration would base the federal universal service contribution methodology on residential telephone numbers and business revenues. The FCC
then would seek comment on whether it should begin using business connections, rather than revenues, to determine contributions from providers of business services. Without more
specificity regarding the likely outcome of the proceeding, we cannot provide a meaningful estimate of the impact a change in carrier contribution obligations would have on our
operations.
The FCC mandated that. effective October I, 2004, the Universal Service Administrative Company ("USAC") would begin accounting for the USF program in accordance with generally
accepted accounting principles for federal agencies, rather than the accounting rules that USAC formerly used. This accounting method change subjected USAC to the Anti-Deficiency
Act ("ADA"), the effect of which could have caused delays in payments to USF program recipients and significantly increased the amount ofUSF regulatory fees charged to
consumers. In April 2005, the FCC tentatively concluded that the high-cost and low-income universal service programs of the universal service fund were compliant with ADA
requirements, and asked the Offce of Management and Budget ("OMB") to make a final determination on this issue, which has not yet occurred. In September 2008, Congress passed
legislation to exempt the USF from ADA requirements until March 6, 2009.
High-Speed Internet Services
On March 15,2002. the FCC issued a declartory ruling concluding that cable modem seice was an interstate "information service." rather than a cable service or a telecommunications
service. This ruling was upheld by the United States Supreme Court. In addition, on September 23, 2005, the FCC released an order declaring Digital Subscriber Line ("DSL") offerings,
as well as other high-speed Internet access services offered over wireline technologies, "information services" functionally integrated with a telecommunications component and no
longer subject to a higher level of regulation as compared to cable modem service. The order further provides price cap companies the option to deregulate high-speed Internet and rate-
of-return companies the option to de-taff high-speed Internet. The Company elected to deregulate its high-speed Internet services in its price cap properties effective October 2006 for
companes subject to price cap regulation at that time, and effective July 2008 for companies affected by the price cap conversion in 2008. Consequently the Company now benefits from
the decreased regulation of its high-speed Internet services, providing the Company with additional retail pricing flexibilty and relief from federal universal service fud contrbutions.
On November 20. 2007, the FCC released a Notice of Proposed Rule Making ("NPRM"), which tentatively concluded that all high-speed Internet providers should pay the same pole
attachment rate for all attachments used for high-speed Internet services. Windstream pays approximately $28.0 million annually to rent space on utility poles it does not own. The
NPRM suggests that this rate should be higher than the current cable rate but no greater than the current rate paid
10
Table of Contents
Windstream Corporation
Form iø-K, Partl
Item 1. Business
by competitive local exchange carers. Ifthe NPRM's tentative conclusion is adopted, Windstream would likely see a reduction in the amounts that it pays to rent space on utilty poles
it does not own and would be able to better compete with other companies offering high-speed Internet services.
As par of the American Recovery and Reinvestment Act ("AR"), Congress directed the FCC to report to Congress by mid-February 2010 with a National Broadband Plan. As part of
the Plan, it is expected that the FCC will consider a myriad of issues related to high-speed Internet access deployment and adoption and, among other things, may consider universal
service and intercarer compensation reform. On December 7, 2009, Windstream, CenturyTel, Inc. ("CentuLin"), Frontier Communications Corporation, Consolidated
Communications Holding, Inc. and Iowa Telecom fied a plan with the FCC to reform the intercarrer compensation and universal service mechanisms and further deploy broadband in
unserved areas. If adopted, the proposal would stabilize intercarrier compensation and universal support and provide additional funds to Windstream to assist with the deployment of
broadband services to rural areas.
Communications Assistance for Law Enforcement Act
In 1994, Congress enacted the Communications Assistance for Law Enforcement Act ("CALEA") to preserve the ability of law enforcement offcials to conduct electronic surveillance
effectively and effciently in the face of rapid advances in telecommunications technology. The FCC has adopted rules that implement the requirements set forth in CALEA. Under
CALEA, the Company is required to provide law enforcement offcials with call content and call identifying information upon receipt of a valid electronic surveilance warrant. The
Company is compliant in all material respects with all CALEA requirements.
Customer Proprietary Network Information
Customer Proprietary Network Information ("CPNI") includes information such as the phone numbers dialed, frequency of calls, duration of calls and retail services purchased by a
customer. The Telecommunications Act of 1996 requires service providers to ensure the confidentiality of CPNI and provides that CPNI may be used, disclosed or shared only if
required by law, the customer has given consent, or CPNI is necessary for the provision of services from which CPNI was derived. The FCC has implemented rules that require service
providers to establish safeguards to prevent the unauthorized disclosure ofCPNI.
On April 2, 2007, the FCC released an order and further notice of proposed rulemaking to alter the requirements to safeguard customers' CPNI. The order prohibits carrers from
disclosing call detail information based on customer-initiated telephone contact except when the customer provides a password or, ifthe customer does not provide a password, the
carrier may only disclose the requested call detail records by sending them to the customer's address of record. The order further requires carrers to obtain explicit consent from
customers when releasing CPNI to third parties for the purposes of marketing retail services to that customer. The order also establishes a notification process for law enforcement and
customers in the event of a CPNI breach, requires that carers provide notice to customers immediately following certain account changes and requires carrers to fie annual
certifications of CPNI compliance with the FCC. Some parties have fied petitions for reconsideration with the FCC asserting that, in enforcement proceedings, the order improperly
shifts the burden of proof from the FCC to the carriers. These rules became effective during the fourth quarter of2007.
Other Federal Regulations
On September 6, 2008, the FCC released an NPRM tentatively concluding that the agency should require all facilities-based providers of broadband and/or telecommunications to collect
and produce infrstrcture. service quality, and customer satisfaction data that previously were required only from a subset ofiLECs. Expanding the data collection as proposed could
require Windstream to devote new resources to gathering data and producing reports. But without more specificity regarding the likely outcome of the proceeding, we cannot provide
an estimate of the financial impact of a change in our data collection and reporting obligations.
On July 26, 2007, the Company received an inquiry from the FCC's Enforcement Bureau questioning certain details surrounding the Company's compliance with FCC reporting
requirements related to network outages. On May 12,2009, the Company entered into a consent decree with the FCC that resolved all outstanding issues on this matter.
11
Table of Contents
Windstream Corporation
Form 18-K, Part I
Item I. Business
STATE REGULATION
Local and Intrastate Rate Regulation
Most states in which our ILEC subsidiaries operate provide alternatives to rate-of-return regulation for local and intrastate services. either by law or PSC rules. We have elected
alternative regulation for our ILEC subsidiares in all states except New York. We continue to evaluate alternative regulation options in New York where our ILEC subsidiar remains
subject to rate-of-retu regulation.
Inter-carrier Compensation
On October 5, 2007, Verizon fied a complaint with the Ohio Public Utility Commssion ("PUC") alleging that the Company's intrastate access rates are excessive and should be reduced
to the same levels charged by the largest ILECs in Ohio, or in the alternative, to the Company's interstate access rate levels. If the Ohio PUC were to grant Verizon's request and require
the Company to implement the large ILEC rate strcture, the Company would incur a reduction in annual revenues of up to $7.6 milion. This estimate assumes the Company would be
allowed to implement retail rate increases simultaneously with the access rate reductions similar to the plan adopted by the PUC for the larger Ohio ILEC access rate reductions. The
Ohio PUc.has not acted upon requests by other parties for the Company and other similar sized ILECs in Ohio to reduce their intrastate access rates.
On December 5, 2007 and Februar 22, 2008, Verizon fied complaints with the Kentucky PSC and the Georgia PSC very similar to the complaint fied in Ohio. In these cases. Verion also
alleges that the Company's intrastate access rates are excessive and should be reduced to the level currently charged by AT&T (formerly BellSouth).
The Company requested that the Ohio PUC, the Kentucky PSC and the Georgia PSC deny Verizon's requested relief based in part on the fact that the Company's intrastate access rates
are just and reasonable and on the current efforts to reform inter-carrer compensation comprehensively at the federal level, as previously explained.
On March 19, 2009, AT&T fied a complaint with the Pennsylvania PUC alleging that the Company's intrastate access rates are not just and reasonable and should be reduced to the
Company's interstate access rate levels.
On November 23, 2009, Sprint requested that the North Carolina Utilities Commission reduce the Company's access rates to a cost-basis or, in the alternative, to the Company's
interstate access rate levels.
The Company wil request that the Pennsylvania PUC and the North Carolina Utilties Commission deny AT&T's and Sprints requested relief based in part on the fact that the
Company's intrastate access rates are just and reasonable and on the current efforts to reform inter-carier compensation comprehensively at the federal level. as previously explained.
At this time, the Company cannot estimate the financial impact of any PSC decision due to the various options the PSC could consider if it ruled in Complainants favor.
Universal Service
We recognize revenue from state universal service funds in a limited number of states in which we operate. In 2009, Windstream recognized $ i 31. I millon in state universal service
revenue. These payments ar intended to provide additional support, beyond the federal universal service receipts. for the high cost of operating in rural markets. For the year ended
Decembe 3 1,2009, Windstram received approximately $97.8 milion from the Texas USF. There are two high-cost programs of the Texas USF, one for large companies and another for
small companies. In 2009, Windstream received $85.5 milion from the large company progra and $12.3 million from the small company program. The purose of the Texas USF is to
assist telecommunications providers in providing basic local telecommunications services at reasonable rates to customers in high cost rural areas and to qualifying low-income and
disabled customers. By order of the Texas PUC, the Texas USF distributes support to eligible carriers serving areas identified as high cost, on a per-line basis. Texas USF support
payments are based on the number of actual lines in service and therefore are subject to reductions when customers discontinue service or migrate to a competitive carrer. All
customers of telecommunications services in Texas contribute to the Texas USF through the payment of a monthly surcharge by their customers.
12
Table of Contents
Windstream Corporation
Form lOoK, Part 1
Item 1. Business
The Pennsylvania PUC is currently conducting a review of its universal service fund. The review is focused on various aspects of the fund as they pertain to the basic rates of eligible
USF recipient companies and the impact of their alternative regulation plans. The Company receives $13.3 milion anually from the fud. The Company cannot estimate at this time the
financial impact that would result from the changes, if any, to the Pennsylvania universal service fund.
In June 2006, the D&E subsidiaries made a fiing to increase their local rates in accordance with their alternative regulation plans. Under the plans, local rates would have exceeded a
prescribed local rate cap of$ i 8.00. The D&E subsidiaries sought to recover the revenues that exceeded the rate cap by increasing intrastate switched access rates. On July II, 2007, the
Pennsylvania PUC allowed the local rate increases to go into effect, but denied the proposed increases in switched access rates. The D&E subsidiaries fied a petition for
reconsideration, asking in the alternative, to be permitted to recover revenues in excess of the local rate cap from the Pennsylvania universal service fund. On November 29.2007, the
Pennsylvania PUC approved the local rate increases and allowed the D&E subsidiaries to exceed the rate cap, but denied the request for increases in state universal service support. On
May 9, 2008, the D&E subsidiaries fied an appeal in the Commonwealth Court seeking to reverse the above decisions. On December 15,2009. the Commonwealth Court issued an order
affirming the Pennsylvania PUC's decision. The Court's decision did not have a material impact on the Company's operations and we do not plan to appeaL.
Other Regulations
Under applicable state regulations, some of our subsidiaries are required to obtain the applicable state commission approval for, or are subject to limitations on. any issuance of stock,
incurrence oflong-term debt, payment of dividends, acquisition or sale of material utilty asset or any change in control of these subsidiaries or their parent companies. None of these
limitations have had any material impact on the Company.
Additionally, if we seek to acquire control of other local exchange carrers, Windstream could be required to obtain the approval ofPSCs in the states where the target companies have
operations, and such approvals could be conditioned on Windstream agreeing to restrictions on its operations to which it would not otherwise be subject. Examples of conditions of
approval include restrictions on the amount of Wind stream's indebtedness, its dividend practice, or requirements to meet specific service levels or technology deployments.
DIRECTORY PUBLISHING SEGMENT
On November 30, 2007. Windstream completed the split off of its directory publishing business. Effective with the completion of the split off of its directory publishing business as
discussed above in "Material Dispositions Completed During the Last Five Years". the Company's publishing services have ceased.
The following table is a summary of directory publishing operations for the years ended December 31 :
Segment income
2009 2008 2007Directo
$$5.3
FORWARD-LOOKING STATEMENTS
Windstream claims the protection of the safe-harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for this annual report on Form i Q-K.
Forward-looking statements are subject to uncertainties that could cause actual futue events and results to differ materially from those expressed in the forward-looking statements.
Forward looking statements include, but are not limited to, statements about expected levels of support from universal service funds or other government programs, expected rates of
loss of access lines or intercarrer compensation, our expected ability to fund operations from cash flows from operations, our expectation of no pension contribution in 20 i 0, expected
synergies and other benefits from completed and pending acquisitions, expected effective federal income tax rates and forecasted capital expenditure amounts. These and other 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 Wind stream may differ materially from those expressed in these forward-looking statements as a result of a number of important factors.
13
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Windstream Corporation
Form lO-K, Part I
Item l. Business
Factors that could cause actual results to differ materially from those contemplated in our forward looking statements include, among others:
further 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 adoption of inter-carer compensation and/or universal service reform proposals by the Federal Communications Commission or Congress that results in a significant loss of
revenue to Windstream;
the risks associated with the integration of acquired businesses or the ability to realize anticipated synergies, cost savings and growth opportnities;
unexpected adverse results related to our data center migration;
for our competitive local exchange carrer ("CLEC") operations, adverse effects on the availability, quality of service and price of facilities and services provided by other
incumbent local exchange carriers on which our CLEC services depend;
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, and rules and regulations governing the communications industr;
material changes in the communications industr that could adversely affect vendor relationships with equipment and network suppliers and customer relationships with
wholesale customers;
unexpected results oflitigation;
unexpected rulings by state public service commissions in proceedings regarding universal service funds, inter-carrier compensation or other mallers that could reduce revenues
or increase expenses;
the effects of work stoppages;
the impact of equipment failure. natural disasters or terrorist acts;
earnings on pension plan investments significantly below our expected long term rate of return for plan assets;
and those additional factors under the caption "Risk Factors" in Item IA of this annual report.
In addition to these factors, actual future pedormance, 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 under the caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in this annual report and in other fiings by Windstream with the Securities and Exchange Commission at www.sec.gov.
14
Table of Contents
Windstream Corporation
Form 16-K, Partl
~ Risk Factors
Risks Relating to Windstream's Business
We face intense competition in our businesses from many sources that could reduce our market share or adversely affect our financial performance.
Substantial and increasing competition exists in the wireline communications industr. Our ILEC operations have experienced, and will continue to experience, competition in their local
service areas. Sources of competition to our local service business include. but are not limited to, wireless communications providers, cable television companies, resellers of local
exchange services. interexchange carers, satellte transmission service providers, electric utilties, competitive access service providers, including, without limitation, those utilizing an
Unbundled Network Elements-Platfonn or UNE-P, VoIP providers, and providers using other emerging technologies.
Many of Wind stream's current and potential competitors (a) have substantially larger operational and financial resources, (b) own larger and more diverse networks, (c) are subject to
less regulation and (d) have superior brand recognition.
Competition could adversely affect us in several ways, including (I) the loss of customers and resulting revenue and market share. (2) the possibilty of customers reducing their usage
of our services or shifting to less profitable services, (3) our need to lower prices or increase marketing expenses to remain competitive and (4) our inability to diversify by successfully
offering new products or services.
We may not be able to compete successfully with cable operators that are subject to less stringent industr regulations.
We face competition from cable television companies providing voice servce offerings. Voice offerings of cable operators are offered mainly under Competitive Local Exchange Carrer
certificates obtained in states where they offer services and therefore are subject to fewer service quality or service reporting requirements than our ILEC operations. In addition, the
rates or prices of the voice service offerings of cable companies are not subject to regulation. In contrast. our voice service rates or prices, in our capacity as an ILEC, are subject to
regulation by various state public service commissions. Unlike cable operators, our ILEC operations are also subject to "carrer of last resort" obligations, which generally obligates us
to provide basic voice services to any person regardless of the profitability of such customer. As a result of these disadvantages, we may not be able to compete successfully with
cable companies in the offering of voice services.
Fundingfrom the federal broadband stimulus program could result in increased competition, which could adversely affect our operating results and financial performance.
The federal broadband stimulus program is providing approximately $7.0 billion in financial incentives to companies for the purpose of expanding broadband service in unserved or
underserved markets. Financial incentives paid to new or existing competitors could incentthem to enter markets where Windstream is already providing broadband service. This could
result in increased competition and the loss of customers, negatively impacting our operating results and financial perfonnance.
Competition from wireless carriers is likely to continue to cause access line losses, which could adversely affect our operating results and financial performance.
Wireless competition has contributed to a reduction in our access lines, and generally has caused pricing pressure in the industry. As wireless carriers continue to expand and improve
their network coverage while lowering their prices. some customers choose to stop using traditional wireline phone service and instead rely solely on wireless servce. We anticipate
that this trend toward solely using wireless services will continue, particularly if wireless prices continue to decline and the quality of wireless services improves. In the future, it is
expected that the number of access lines served by us will continue to be adversely affected by wireless substitution and that industry-wide pricing pressure will continue. We may not
be able to compete successfully with these wireless carriers.
We could be harmed by rapid changes in technology.
The communications industry is experiencing significant technological changes. particularly in the areas ofVoIP, data transmission and wireless communications. Rapid technological
developments in wireless, personal communications
15
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Windstream Corporatin
Form lOoK, Part I
Item IA. Risk Factors
services, digital microwave, satellite, high.speed Internet radio services, local multipoint distrbution services, meshed wireless fidelity, or WiFi, and other technologies could result in
the development of products or services that compete with or displace those offered by traditional local exchange carriers ("LECs"). For example, there is a risk that cable operators may
be able to deploy broadband service at higher speeds using data-over-cable-service-interface specification, or DOCSIS, more rapidly than Windstream. In addition. wireless companies
are developing networks using long-term evolution (or L TE) and Worldwide Interoperabilty for Microwave Access (or WIMAX), that purport to support greater data trnsmission
speeds over wireless networks.
These new and evolving technologies could result in greater competition and product substitution for Windstream's high-speed Internet services. Furthermore, the proliferation of
replacement technologies impacting our wireline business could require us to make significant additional capital investment in order to compete with other service providers that may
enjoy network advantages that wil enable them to provide services more effciently or at a lower cost. Alteratively, we may not be able to obtain timely access to new technology on
satisfactory terms or incorporate new technology into our systems in a cost effective manner. or at all. Ifwe cannot develop new services and products to keep pace with technological
advances, or if such services and products are not widely embraced by our customers, our results of operations could be adversely impacted.
We provide services to our customers over access lines, and if we continue to lose access lines like we have historically, our revenues, earnings and cash flows from operations
could be adversely affected.
Our business genertes revenue by delivering voice and data services over access lines. We have experienced net access line loss over the past few years. During 2009, excluding the
impact of the D&E and Lexcom acquisitions, the number of access lines we served declined by approximately 4.8 percent due to a number of factors, including increased competition
and wireless and high-speed Internet substitution. We expect to continue to experience net access line loss in our markets. Our inabilty to retain access lines could adversely affect our
revenues. earnings and cash flow from operations.
We are subject to various forms of regulation from the Federal Communications Commission ("FCC") and state regulatory commissions in the 16 states in which we operate,
which limits our pricing flexibilty for regulated voice and high.speed Internet products, subjects us to service quality, service reporting and other obligations, and exposes us to
the reduction of revenue from changes to the universal service fund or the inter-carrier compensation system.
As a provider of wire line communication services, we have operating authority from each of the 16 states in which we conduct local service operations, and we are subject to various
forms of regulation from the regulatory commissions in each of these 16 states as well as from the FCC. State regulatory commissions have jurisdiction over local and intrastate services
including, to some extent. the rates that we charge customers and other telecommunications companies, and service quality standards. The FCC has primary jurisdiction over interstate
services including the rates that we charge other telecommunications companies that use our network and other issues related to interstate service. These regulations restrict our abilty
to adjust rates to reflect market conditions and affect our ability to compete and respond to changing industr conditions.
Future revenues, costs, and capital investment in our wire line business could be adversely affected by material changes to these regulations, including, but not limited to, changes in
rules governing inter-carrer compensation, state and federl USF support. UNE and UNE-P pricing and requirements. and VoIP regulation. Federal and state communications laws. may
be amended in the future. and other laws may affect our business. In addition, certain laws and regulations applicable to us and our competitors may be, and have been, challenged in
the courts and could be changed at any time. We cannot predict future developments or changes to the regulatory environment or the impact such developments or changes would
have.
In addition, these regulations could create significant compliance costs for us. Delays in obtaining certifications and regulatory approvals could cause us to incur substantial legal and
administrative expenses, and conditions imposed in connection with such approvals could adversely affect the rates that we are able to charge our customers. Our business also may be
affected by legislation and regulation imposing new or greater obligations related to assisting law enforcement, bolstering homeland security, minimizing environmental impacts, or
addressing other issues that impact our business. For example, existing provisions of the Communications Assistance for Law Enforcement Act require
16
Table of Contents
Windstream Corporation
Form io-K, Part I
Item lA. Risk Factors
communications carrers to ensure that their equipment, facilities, and services are able to faciltate authorized electronic surveilance. Our compliance costs could increase if future
legislation, regulations or orders continue to increase our obligations.
Changes to regulations could materially reduce the Company's revenues from inter.carrier compensation.
The Company's local exchange subsidiaries currently receive compensation from other telecommunications providers, including long distance companies, for origination and
termination of interexchange traffc through network access charges that are established in accordance with state and federal laws. In 2009 the Company recognized $274.4 milion in
inter-carrer compensation, a 12.1 percent reduction from 2008 levels. This reduction in inter-carrer compensation revenue is primarily due to decreases in minutes of use associated with
access line losses resulting from wireless and cable voice competition, efforts by carers to mask traffc to avail their traffc of lower inter-carer compensation rates and carers alleging
that their traffc is not subject to existing intercarrer compensation rules as a result ofthe technology being used to deliver the traffc. Absent any changes to existing inter-carrer
compensation regulations, the Company expects inter-carrier revenues to continue to be unfavorably impacted by these trends in 2010.
On November 5, 2008, the FCC issued a further notice of proposed rulemakng ("FNPRM") that sought comment on proposals that would change the rules governing inter-carrer
compensation (see "Item i, Business, Regulation ~ Inter-carrer Compensation"). Proposals considered by the FNPRM would significantly reduce inter-carrier compensation revenues
over a ten-year period, classify VoIPIPSTN traffc as an "information service," and adopt measures to ensure proper biling of "phantom trffc". Adoption of the FCC's proposed plan
could materially reduce the Company's inter-carer compensation revenue. We do not know whether the FCC's proposed plan, or a substantially similar plan. wil be adopted.
In 2009, we received approximately 7 percent of our revenues from state and federal Universal Service Funds, and any adverse regulatory developments with respect to these funds
could adversely affect our profitabilty.
We receive state and federal USF revenues to support the high cost of providing affordable telecommunications services in rural markets. Such support payments constituted
approximately 7 percent of our revenues for the year ended December 3 i, 2009. A portion of such fees are based on relative cost and access line counts, and we expect receipt of such
fees to decline as we continue to reduce costs and lose access lines. Pending regulatory proceedings could, depending on the outcome, materially reduce our USF revenues.
In addition, the FCC is currently conducting a rulemaking proceeding to consider changes to the rules governing inter-carrier compensation. Windstream strongly supports regulatory
reform. At this time, Windstream cannot predict the ultimate outcome ofthese proceedings or the impact on its revenues and expenses.
We are required to make contributions to state and federal USF programs each year. Current state and federal regulations allow us to recover these contrbutions by including a
surcharge on our customers' bills. If state and/or federal regulations change, and we become ineligible to receive support. such support is reduced, or we become unable to recover the
amounts we contribute to the state and federal USF programs from our customers. our earnings and cash flows from operations would be directly and adversely affected.
Windstream's substantial debt could adversely affect our cash flow and impair our abilty to raise additional capital on favorable terms.
As of December 3 i, 2009, we had approximately $6.3 billion in long-term debt outstanding. We may also obtain additional long-term debt to meet future financing needs or to fund
potential acquisitions, subject to certain restrictions under our existing indebtedness, which would increase our total debt. Our substantial amount of debt could have negative
consequences to our business. For example, it could:
Increase our vulnerability to general adverse economic and industry conditions;
Require us to dedicate a substantial portion of cash flows from operations to interest and principal payments on outstanding debt, thereby limiting the availabilty of cash flow to
fund future capital expenditures, working capital and other general corporate requirements;
17
Table of Contents
Windstream Corporation
Form 10.K, Partl
Item lA. Risk Factors
Limit our flexibility in planning for, or reacting to. changes in our business and the telecommunications industry;
Place us at a competitive disadvantage compared with competitors that have less debt; and
Limit our ability to borrow additional fuds, even when necessary to maintain adequate liquidity.
In addition, our abilty to borrow funds in the future wil depend in part on the satisfaction of the covenants in our credit facilities and its other debt agreements. Ifwe are unable to
satisfy the financial covenants contained in those agreements, or are unable to generate cash suffcient to make required debt payments, the lenders and other parties to those
arrangements could accelerate the maturity of some or all of our outstandin? indebtedness.
We may not generate suffcient cash flows from operations, or have future borrowings available under our credit facilities or from other sources suffcient to enable us to make our debt
payments or to fud dividends and other liquidity needs. We may not be able to refinance any of our debt, including our credit facilities, on commercially reasonable terms or at all. If we
are unable to make payments or refinance our debt, or obtain new financing under these circumstances, we would have to consider other options, such as sellng assets, issuing
additional equity or debt, or negotiating with our lenders to restructure the applicable debt. Our credit agreement and the indentures governing our senior notes may restrict, or market
or business conditions may limit, our ability to do some of these things on favorable terms or at all.
As of February 23, 2010, Mooy's Investors Service ("Moody's"), Standard & Poor's Corporation ("S&P") and Fitch Ratings ("Fitch") had granted Windstream the following senior
secured, senior unsecured and corporate credit ratings:
Moody's S&P Fitch
Ba3 B+BB+
Stable Sta e Negative
Factors that could affect Windstream's short and long-term credit ratings would include, but are not limited to, a material decline in the Company's operating results. increased debt
levels relative to operating cash flows resulting from future acquisitions, increased capital expenditure requirements, or changes to our dividend policy. IfWindstream's credit ratings
were to be downgraded from current levels. the Company may incur higher interest costs on future borrowings. and the Company's access to the public capital markets could be
adversely affected.
Windstrtam may be unable to fully realize expected synergies in connection with various recent transactions.
In addition to the recently completed acquisitions ofD&E, Lexcom and Nu Vox, the Company has entered into a definitive agreement to acquire Iowa Telecom. For more information on
these transactions, see "Item I - Pending Acquisitions and Material Acquisitions Completed During The Last Five Years".
Windstream expects to achieve substantial synergies, cost savings and growth opportunities as a result of such acquisitions. However, Windstream's abilty to realize the anticipated
synergies, cost savings and growth opportnities wil depend upon the successful consummation of pending acquisitions and the integration of the respective businesses ofthese
companies with that of Wind stream. Even if Wind stream successfully consummates all of these acquisitions and integrates these businesses, there can be no assurance that this
integration will result in the realization of the full benefit of the anticipated synergies, cost savings or growth opportnities or that these benefits will be realized within the expected time
frames. Despite Windstream's efforts to retain quality employees, Windstream might lose some employees in connection with these acquisitions. Windstream cannot assure you that
the combined companies will be able to attract. retain and integrate employees following these acquisitions. It is possible that the integration process ofthe respective acquisitions
could result in the diversion of Wind stream's management's attention, the disruption or interrption of. or the loss of momentum in, Windstream's ongoing business or inconsistencies
in standards. controls. procedures and policies, any of which could adversely affect Windstream's ability to maintain relationships with its customers and employees or Windstream's
ability to achieve the anticipated benefits of these acquisitions, or could
18
Table of Contents
Windstream Corporation
Form io-K, Part I
Item IA. Risk Factors
reduce the earnings or otherwise adversely affect Windstream's business and financial results. The market price of Wind stream common stock may decline as a result of these
acquisitions if the consummation of these acquisitions or the integration of these businesses is unsuccessful or takes longer than expected, the perceived benefits of these acquisitions
are not achieved as rapidly or to the extent anticipated by financial analysts or investors. or the effect of these acquisitions on Windstream's financial results is not consistent with the
expectations of financial analysts or investors.
Windstream is dependent upon other /LEes for facilities and service in operating territories in which it is not the incumbent.
Following the merger with NuVox, Windstream will have significant operating presences in terrtories where it wil depend upon the ILEC to install and maintairt the vast majority of the
facilities used to serve its customers ("CLEC terrtories"). These facilities include certain digital transmission lines, unbundled network elements ("UNEs") and other network
components. The prices for these network components are negotiated with the ILEC or purchased pursuant to the ILEC's special access tariffterms and conditions. The terms,
conditions and prices included in these tariffs may be changed but must be approved by the appropriate regulatory agency before they go into effect. In addition, interconnection
agreements with the ILEC must be negotiated whenever Windstream enters a new CLEC market or an existing agreement expires. If interconnection agreements with the ILECs cannot be
negotiated on favorable terms. or at all, Windstream may invoke binding arbitration by state regulatory agencies. The arbitration process is expensive and time consuming, and the
results of arbitration may be unfavorable to Windstream. The inability to obtain interconnection on favorable terms would be detrimental to operations in the CLEC terrtories.
Access to the ILEC-provisioned facilities and services is essential for providing communication services in the CLEC terrtories. Because of this dependence, communications services
in these territories are susceptible to changes in the availability and pricing ofILEC facilities and services. If the ILECs become legally entitled to deny or limit access to network
elements such as UNEs, or if state commissions allow ILECs to increase their rates for these elements or services, Windstream may not be able to effectively compete in these CLEC
terrtories. In addition, if the ILECs do not adequately maintain or timely install these facilities, which they are legally obligated to do. Windstream's service to customers may be
adversely affected. As a result, Windstream's business. results of operations and financial condition could be materially impacted as Windstream may have diffculty retaining existing
customers and attracting new ones.
Our operations require substantial capital expenditures.
We require substantial capital to maintain, upgrade and enhance our network facilities and operations. During 2009, we incurred $298.1 million in capital expenditures. In addition. our
curent dividend practice utilizes a significant portion of our cash generated from operations and therefore limits our operating and financial flexibility and our ability to significantly
increase capital expenditures. While we have historically been able to fund capital expenditures from cash generated from operations, the other risk factors described in this section
could materially reduce cash available from operations or significantly increase our capital expenditure requirements, and these outcomes could cause capital to not be available when
needed. This could adversely affect our business.
Unfavorable changes in financial markets could adversely affect our pension plan investments resulting in material funding requirements to meet pension obligations.
The Company's pension plan invests in marketable equity securities, including marketable debt and equity securities denominated in foreign currencies, which are exposed to changes
in the financial markets. During 2009, the fair market value of these investments increased i 9.9 percent to $784.0 million primarly due to increases in the market value of assets held of
$152.0 millon. transfers from the D&E pension plan of$61.4 millon and contrbutions of$3.3 milion. Parally offsetting these increases were routine and lump sum benefit payments of
$51.1 milion and $35.6 milion, respectively. Returns generated on plan assets have historically funded a large porron of the benefits paid under the Company's pension plan. The
Company estimates that the long term rate of return on plan assets wil be 8.0 percent, but returns below this estimate could significantly increase our contribution requirements, which
could adversely affect our cash flows from operations.
19
Table of Contents
Windstream Corporation
Form l8-K, Part I
Item lA. Rik Factors
Windstream's relationships with other communications companies are material to its operations and their financial difculties may adversely affect Windstream.
Windstream originates and terminates calls for long distance carrers and other interexchange carriers over Windstream's network in exchange for access charges that represent a
significant portion of Wind stream's revenues. Should these carrers go bankrpt or experience substantial financial diffculties, Windstream's inability to timely collect access charges
from them could have a negative effect on Windstream's business and results of operation.
Disruption in our networks and infrastructure may cause us to lose customers and incur additional expenses.
To be successful, we wil need to continue to provide our customers with reliable service over our networks. Some of the risks to our networks and infrastrcture include: physical
damage to access lines, breaches of security, capacity limitations, power surges or outages, softare defects and disruptions beyond our control, such as natual disasters and acts of
terrorism. From time to time in the ordinary course of business, we wil experience short disruptions in our service due to factors such as cable damage. inclement weather and service
failures of our third part service providers. We could experience more significant disruptions in the future. We could also face disruptions due to capacity limitations if changes in our
customers' usage patterns for our high-speed Internet services result in a significant increase in capacity utilization, such as through increased usage of video or peer-to-peer file
sharing applications. Disruptions may cause interrptions in service or reduced capacity for customers. either of which could cause us to lose customers and incur expenses. and
thereby adversely affect our business, revenue and cash flows.
Weak economic conditions may decrease demand for our se",ices.
We could be sensitive to economic conditions and downturns in the economy. Downturns in the economy and vendor concentration in the markets we serve could cause our existing
customers to reduce their purchases of our basic and enhanced services and make it diffcult for us to obtain new customers.
Key suppliers may experience financial difculties that may impact Windstream's operations.
Windstream purchases a significant amount of equipment from key suppliers to maintain, upgrade and enhance our network facilities and operations. Should these suppliers experience
financial diffculties, it could adversely affect our business through increased prices to source purchases through alternative vendors or unanticipated delays in the delivery of
equipment and services purchased.
Adverse developments in our relationship with our employees could adversely affect our business, financial condition or results of operations.
As of December 3 I. 2009, approximately i ,693 of our employees, or 23 percent of all of our employees, at varous sites were covered by collective bargaining agreements. Our
relationship with these unions generally has been satisfactory, but occasional work stoppages have occurred. Any work stoppages in the future could have a material adverse effect on
our business, financial condition or results of operations
We are currently part to 21 collective bargaining agreements and one National Pension Agreement with several unions, which expire at various times. In addition. the proposed
Employee Free Choice Act ("EFCA"), if enacted. could increase organizational activity at locations where employees are currently not represented by a labor organization. Of our
existing collective bargaining agreements, 14 agreements (including the national pension agreement) are due to expire in 2010. Of the 14 agreements expiring in 2010, the 13 local
agreements cover 776 employees and the national pension agreement covers 71 i employees. Historically, we have succeeded in negotiating new collective bargaining agreements
without work stoppages; however, no assurances can be given that we will succeed in negotiating new collective bargaining agreements to replace the expiring ones without work
stoppages. Increases in organizational activity or any future work stoppages could have a material adverse effect on our business, financial condition or results of operations.
Windstream cannot assure you that it wil continue paying dividends at the current rate.
Windstream'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
20
Table of Contents
Windstream Corporation
Form lOoK, Part I
Item IA. Risk Factors
the board of directors, and Windstream's common stockholders should be aware that they have no contractual or other legal right to dividends. In addition, the other risk factors
described in this section could materially reduce the cash available from operations or significantly increase our capital expenditure requirements. and these outcomes could cause
capital to not be available when needed in an amount suffcient to support our current dividend practice. The amount of dividends that Windstream may distribute is also limited by
restricted payment and leverage covenants in Windstream's credit facilities and indentures, and, potentially, the terms of any future indebtedness that Windstream may incur. The
amount of dividends that Windstream may distribute is also subject to restrictions under Delaware law. IfWindstream's board of directors were to adopt a change in its current
dividend practice that resulted in a reduction in the amount of dividends, such change could have a material and adverse effect on the market price of Wind stream's common stock.
In addition. the American Jobs and Growth Tax Relief Reconciliation Act of2003 designated qualifYing dividend payments on capital stock as long term capital gains, which capped the
federal tax rate on these payments at 15 percent. The provisions of this act are set to expire Januar 1,201 i, and ifnot renewed, dividends wil become taxable as ordinar income to the
shareholder at their current federal tax rate. This could adversely effect the market price of Wind stream's common stock by decreasing the after tax yield of holding the stock.
Windstream's data center migration could result in a material disruption to our operations.
Windstream currently outsources the data center for its information technology ("IT") systems and internet service provider systems to a third party under a contract ending June 30,
2010. During 2009. our third party service provider provided notice that this contrct wil not be renewed, and Windstream wil be required to relocate each of these data centers to a new
location and service provider. The data center services to be migrated include managed mainframe services, output processing. IT support services, and data storage, which support
most of Wind stream's IT systems including billing, financial reporting. customer service. and assignment and provisioning. While this data center migration is a complex process,
Windstream believes that it has suffcient time and resources to complete a successful migration. However, our inability to complete this migration successfully could result in a material
disruption in our abilty to service customers, process bills and perform other support services and could thereby adversely affect our business, revenue and cash flows.
~ Unresolved Staff Comments
No reportable information under this item.
~ Properties
The Company's properties do not provide a basis for description by character or location of principal units. Certain Windstream properties are pledged as collateral as discussed further
in Note 15 to the consolidated financial statements. The obligations under our senior secured credit facilities are secured by liens on substantially all of the personal propert assets of
Windstream and its subsidiaries who are guarntors of our senior secured credit facilties. A summar of the Company's investment in propert, plant and equipment is presented
below.
The Company owns property, which consists primarily of land and buildings, offce and warehouse facilities, central offce equipment, softare. outside plant and related equipment.
Outside communications plant includes aerial and underground cable, conduit, poles and wires. Central offce equipment includes digital switches and peripheral equipment. The
Company's gross investment in propert, by category, as of December 3 1,2009, was as follows:
Total 9.887.2
21
Table of Contents
Windstream Corporation
Form 10.K, Part I
~ Legal Proceedings
The Company is party to various legal proceedings, the ultimate resolution of which cannot be determined at this time. Management does not believe that such proceedings,
individually or in the aggregate, will have a material adverse effect on the future consolidated results ofincome. cash flows or financial condition of the Company.
In addition, management is currently not aware of any environmental matters that, individually or in the aggregate, would have a material adverse effect on the consolidated financial
condition or results of operations of the Company.
~ Submission of Matters to a Vote of Security Holders
No matters were submitted to the security holders for a vote during the fourth quarter of 2009.
22
Table of Contents
Windstream Corporation
Form 10-K, Part U
~ Market for the Registrnt's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) On December 10,2009, Windstream voluntarily moved its stock exchange listing from the New York Stock Exchange ("NYSE") to the NASDAQ Global Select Market.
Windstream cornon stock is traded on the NASDAQ Global Select Market under the symbol "WI". The following table reflects the range of high, low and closing prices of
Windstream's cornon stock as reported by Dow Jones & Company, Inc. for each quarer in 2009 and 2008.
As of February 16,2010, the approximate number of holders ofcornon stock, including an estimate for those holding shares in street name, was 177,000.
For a discussion of certain restrictions on the ability of Wind stream to pay dividends under its debt instruments, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations. Financial Condition, Liquidity and Capital Resources" in the Financial Supplement to this annual report on Form IO-K.
(b) Not applicable.
(c) Information pertaining to the repurchase of Wind stream shares is included below.
(i) In February 2008, the Windstream Board of Directors approved a stock repurchase program for up to $400.0 milion of the Company's common stock continuing until
December 3 i, 2009. During the fourth quarter of 2009, the Company repurchased 7.8 million of its common shares at a cost of$77.8 milion. The Company repurchased
13.0 milion shares totaling $ I 2 1.3 milion during 2009 bringing total repurchases under the stock repurchase program to 29.0 milion shares for approximately $32 1.6
million. The stock reurchase program expired on December 3 i, 2009.
23
Table of Contents
Windstream Corporation
Form LO.K, Part II
Item 5. Market for tbe Registrant's Common Eqnity and Related Stockbolder Matters and Issuer Purcbases of Equity Securities
Set fortb below is a line grph sbowing a quarterly comparison since February 9, 2005, tbe initial day of public trading of Valor sbares, of total cumulative stockholder returns on
Windstream common stock, along with the returns on the Standards & Poor's ("S&P") 500 Stock Index and the S&P Telecom Index. The S&P Telecom Index consists of the followiug
companies: American Tower Corporation, AT&T Inc., CenturyLink, Frontier Communications Corp.. Qwest Commuuications International Inc., Sprint Nextel Corp., Verizon
Communications Inc. and Windstream Corporation.
Comparative Shareholder Return
(219/05 - 12131/(9)
$160,1)0
$140.00
f $120.00
.! $100.00
;g $80,00
-- Wîndstream
._.S&P50
S&
if¿yIl
d~,#'V
r;'ò~#'rt
200 2007 2008 2
$123,27 $130.04 $81.92 $103.61
The graph and table above provides the cumulative change of$lOO.OO invested on February 9, 2005, including reinvestment of dividends, for the periods indicated.
24
Table of Contents
Windstream Corporation
Form 10-K, Part II
Item 5. Market for the Registrant's Coninion Eqnity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Set forth below is a line grph showing quarerly comparisons of stockholder returns since July 18, 2006, the initial day of trading following the spin off from AlItel and merger with
Valor. The graph includes the total cumulative stockholder returns on Windstream common stock, and comparative returns on the S&P 500 Stock Index and the S&P Telecom Index.
Comparative Shareholder Return
(7/18/06 . 1211/09)
$150;00
$140.00
$130.00
$120.00
$110.00
$100.00
$90.00
$80.00
$70.00
S&P500
e&d-\~'1##ii ~q,ii
';Q,
'lÇj
Total Cumulative Shareholder Returns
(1) S&P Telecom Index includes: AMT, T, CTL, FTR, PCS, a, S, VZ, WIN
The graph and table above provides the cumulative change of $ I 00.00 invested on July 18, 2006, including reinvestment of dividends, for the periods indicated.
The foregoing performance graphs contained in Item 5 shall not be deemed to be soliciting material or be fied with the Securities and Exchange Commission or subject to the liabilities of
Section i 8 of the Securities Exchange Act of 1934. as amended.
25
Table of Contents
Windstream Corporation
Form io-K, Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Under the Company's stocked-based compensation plans. Windstream may issue restricted stock and other equity securities to directors. offcers and other key employees. The
maximum number of shares available for issuance under the Windstream 2006 Equity Incentive Plan is 10.0 milion shares.
The following table sets forth information about Windstream's equity compensation plans as of February 16,2010:
Equity Compensation Plan Information
Number of securities
remaiing available for
future issuance under
equity compensation
Number of securities to be issued upon Weighted-average exercise price of plans (c) (excluding
Plan Category exercise of outstanding options,outstanding options, warrants and securities reflected in
warrants and rights (a)rights (b)colum (a))
Equity compensation plans not approved by
security holders
Equity compensation plans approved by
security holders
Total
1,960,557 (I)
1.960,557
(I) The Windstream Corporation 2006 Equity Incentive Plan.
26
Table of Contents
Windstream Corporation
Form lOoK, Part II
Item 6. Selected Financia Data
For information pertaining to Selected Financial Data of Wind stream, refer to page F-30 of the Financial Supplement, which is incorporated by reference herein.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
For information pertaining to Management's Discussion and Analysis of Financial Condition and Results of Operations of Wind stream, refer to pages F-2 to F-29 of the Financial
Supplement. which is incorporated by reference herein.
Item 7 A. Quantitative and Qualtative Disclosures About Market Risk
For information pertaining to the Company's market risk disclosures, refer to pages F-24 through F-25 of the Financial Supplement, which is incorporated by reference herein.
!! Financial Statements and Supplementary Data
For information pertining to Financial Statements and Supplementary Data of Wind stream, refer to pages F-3 i to F-78 ofthe Financial Supplement, which is incorporated by reference
herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
27
Table of Contents
Windstream Corporation
Form 10-1( Part II
~ Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
The term "disclosure controls and procedures" (defined in Exchange Act Rule i 3a. i 5( e)) refers to the controls and other procedures of a company that are designed to ensure
that information required to be disclosed by a company in the reports that it fies or submits under the Securities Exchange Act of i 934 (the "Exchange Act") is recorded,
processed, summarized and reported within required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by the company in the reports that it fies or submits under the Exchange Act is accumulated and communicated to the company's
management, including the company's principal executive and financial offcers, as appropriate to allow timely decisions regarding required disclosure. Windstream's
management, with the paricipation of the Chief Executive Offcer and Chief Financial Offcer, have evaluated the effectiveness of the Company's disclosure controls and
procedures as of the end of the period covered by this annual report (the "Evaluation Date"), Based on that evaluation, Windstream's Chief Executive Offcer and Chief Financial
Offcer have concluded that, as of the Evaluation Date, such disclosure controls and procedures were effective.
(b) Management's report on internal control over financial reporting.
Management has excluded the operations ofD&E Communications. Inc. and Lexcom, Inc.. wholly.owned subsidiaries ofthe Company, from its assessment of internal control
over financial reporting as of December 3 1.2009, because they were acquired by the Company in recently completed 2009 purchase business combinations. The operations of
D&E Communications, Inc. and Lexcom, Inc. represent approximately 5.0 percent and 2.0 percent, respectively, of the Company's consolidated total assets and 0.7 percent and
O. i percent, respectively, of the Company's consolidated revenues and sales, as of December 3 1,2009.
Management's Report on Internal Control Over Financial Reporting, which appears on page F-34 of the Financial Supplement, is incorporated by reference herein.
(c) Changes in internal control over financial reporting.
The term "internal control over financial reporting" (defined in SEC Rule I 3a. i 5(t)) refers to the process of a company that is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Windstream's
management, with the participation of the Chief Executive Offcer and Chief Financial Offcer, have evaluated any changes in the Company's internal control over financial
reporting that occurred during the period covered by this annual report, and they have concluded that there were no changes to Windstream's internal control over financial
reporting that have materially affected, or are reasonably likely to materially affect. Windstream's internal control over financial reporting.
Item 9B. Other Information
No reportable information under this item.
28
Table of Contents
Windstream Corporation
Form 16-K, Part II
Item 10. Directors, Executive Offcers, and Coæorate Governance
For information pertaining to Directors of Wind stream Corporation refer to "Proposal No. I - Election of Directors" in Windstream's Proxy Statement for its 2010 Annual Meeting of
Stockholders. which is incorporated herein by reference. For information pertaining to the audit committee financial expert and corporate governance refer to "Board and Board
Commttee Matters" in Windstream's Proxy Statement for its 2010 Annual Meeting of Stockholders. which is incorporated herein by reference. For information pertaining to the Audit
Commttee, refer to "Audit Committee Report" in Windstream's Proxy Statement for its 2010 Annual Meeting of Stockholders, which is incorporated herein by reference.
Executive offcers of the Company as of December 31, 2009, were as follows:
Name Business Experience Age
Jeffery R. Gardner President and Chief Executive Offcer of Wind stream since July 17,2006 and of Alltel Holding Corp. from December 2005 to July 2006;49
Executive Vice President and Chief Financial Offcer of Alltel Corpration from i 998 to 2005.
Brent K. Whittington Chief Operating Offcer of Wind stream since August 10.2009; Executive Vice President and Chief Financial Offcer of Wind stram from 38
July 2006 to August 2009 and of Alltel Holding Corp. from December 2005 to July 2006; Vice President of Finance and Accounting of
Alltel Corpration from 2002 to 2005.
Anthony W. Thomas Chief Financial Offcer of Wind stream since August 10,2009; Controller of Wind stream from July 2006 to August 2009 and of Alltel 38
Holding Corp. from June 2006 to July 2006; Varous positions with Alltel Corporation from i 998 to 2006 including Vice President of
Investor Relations and Vice President of Southeast Regional Finance.
John P. Fletcher Executive Vice President, General Counsel and Secretary of Wind stream since July 17,2006 and of Alltel Holding Corp. from February 44
2006 to July 2006; Partner at Kutak Rock LLP from 2000 to 2006.
Michael D. Rhoda Senior Vice President - Government Affairs of Wind stream since July 17,2006 and of Alltel Holding Corp. from December 2005 to July 49
2006; Various positions with Alltel Corporation from 2002 to 2005 including Vice President of Business Development, and Vice President
- Wireline Regulatory & Wholesale Services.
Robert G. Clancy, Jr.Senior Vice President and Treasurer of Wind stream since July 17,2006 and of Alltel Holding Corp. from December 2005 to July 2006;45
Various positions with Alltel Corporaíion from 1998 to 2005 including Vice President of Sales and Distribution, Vice President ofInternal
Audit, and Vice President ofInvestor Relations.
Susan Bradley Senior Vice President - Human Resources of Wind stream since July 17, 2006 and of Alltel Holding Corp. from December 2005 to July 58
2006; Various positions with Alltel Corpration from 1990 to 2005 including Vice President - Human Resources, Compensation and
Staffng.
Grant Raney Executive Vice President - Network Operations of Wind stream since October 2007; Region Vice President - Southwest Region,49
Windstream Communications July 200 to October 2007; SVP and COO of V a10r Telecommunications Feb. 2005 to July 2006; SVP of
Engineering and Operations, Valor Telecommunications August 2000-Feb. 2005; VP-Opertions, Valor Telecommunications Feb. 2000-
August 2000; VP of Spectra Communications. a subsidiary of CentuTel prior to that time.
Cindy Nash ChiefInformation Offcer ofWindstream since August 10,2009; Senior Vice President ofInformation Technology ofWindstram from 45
November 2007 to August 2009; Senior Vice President of Customer Service of Wind stream from July 2006 to November 2007; Chef
Information Offcer of Valor from 2004 to July 2006.
Richard J. Crae Executive Vice President and Chief Marketing Offcer of Wind stream since May 2007, and Senior Vice President - Marketing of 54
Windstream from July 2006 to May 2007. Senior Vice President - Marketing of Alltel Holding Corp. from December 2005 to July 2006.
Various positions with Alltel Corporation from 2000 to 2005 including Vice President Southeast Region and Vice President Strtegic
Marketing.
John C. Eichler Vice President and Controller of Wind stream since August 10,2009; Vice President ofInternal Audit from July 2006 to August 2009 and 38
of Alltel Corporation's Wireline Operations from December 2005 to July 2006. Consultant from 2002 to 2005.
29
Table of Contents
Windstream Corporation
Form 10-K, Part ii
Item 10. Directors, Execntive Offcers, and Corporate Governance
Windstream has a code of ethics that applies to all employees and members of the Board of Directors. Windstream's code of ethics, referred to as the "Working with Integrity"
guidelines, is posted on the Investor Relations page of the Company's web site (ww.windstream.com)under..corporate governance". Windstream wil disclose in the corporate
governance section of the Investor Relations page on its web site amendments and waivers with respect to the code of ethics that would otherwise be required to be disclosed under
Item 5.05 of Form 8-K. Windstream will provide to any stockholder a copy of the foregoing information, without charge, upon written request to Investor Relations, Windstream
Corporation, 400 I Rodney Parham Road, Little Rock, Arkansas 722 i 2.
For information regarding compliance with Section I 6( a) ofthe Exchange Act, refer to "Section 16 (a) Beneficial Ownership Reporting Compliance" in Windstream' s Proxy Statement for
its 2010 Annual Meeting of Stockholders, which is incorporated herein by reference.
Item n. Executive Compensation
For information pertaining to Executive Compensation. refer to "Compensation Committee Report on Executive Compensation" and "Management Compensation" in Windstream's
Proxy Statement for its 20 i 0 Annual Meeting of Stockholders, which are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
For information pertaining to beneficial ownership of Wind stream securities and director independence. refer to "Security Ownership of Directors and Executive Offcer", "Security
Ownership of Certin Beneficial Owners" and "Board and Board Committee Matters" in Windstream's Proxy Statement for its 2010 Annual Meeting of Stockholders, which are
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
For information pertaining to Certain Relationships and Related Transactions, refer to "Certain Transactions" in Windstream's Proxy Statement for its 2010 Annual Meeting of
Stockholders. which is incorporated herein by reference.
.! Principal Accountant Fees and Services
For information pertaining to fees paid to the Company's principal accountant and the Audit Committee's pre-approval policy and procedures with respect to such fees, refer to "Audit
and Non-Audit Fees" in Windstream's Proxy Statement for its 2010 Meeting of Stockholders, which is incorporated herein by reference.
30
Table of Contents
Windstream Corporation
Form iU-K, Part IV
~ Exhibits, Financial Statement Scbedules
(a) The following documents are fied as a par of this report:
1. Financial Statements:
The following Consolidated Financial Statements of Wind stream Corporation are
included in the Financial Supplement, which is incorporated by reference herein:
Financial
Supplement
Page Number
Report ofIndependent Registered Public Accounting Firm
Consolidated Statements ofIncome -
for the years ended December 31, 2009. 2008 and 2007
Consolidated Balance Sheets -as of December 3 i, 2009 and 2008
Consolidated Statements of Cash Flows -
for the year ended December 31, 2009, 2008 and 2007
Consolidated Statements of Shareholders' Equity -
for the yea ended December 3 i , 2009, 2008 and 2007
Notes to Consolidated Financial Statements
F-33
F-34
F-35
F-36
F"37
F-38 - F-78
2. Financial Statement Schedules:
Report ofIndependent Registered Public Accounting Firm
Schedule II. Valuation and Qualifying Accounts
Fonn IO-K
Page Number
33
34-35
3. Exhibits:
Exhibit Index 36-40
Separate condensed financial statements of Wind stream Corporation have been omitted since the Company meets the tests set forth in Regulation S.X Rule 4-08(e)(3). All other
schedules are omitted since the required information is not present or is not present in amounts suffcient to require submission of the schedule, or because the information required is
included in the consolidated financial statements and notes thereto.
31
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15( d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Windstream Coæoration
Registrant
By lsI Jeffery R. Gardner
Jeffery R. Gardner, President and Chief Executive Offcer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf ofthe registrant and in the capacities
and on the dates indicated.
Date: February 24, 2010
By lsI Anthony W. Thomas
Anthony W. Thomas,
Chief Financial Offcer
(Principal Financial Offcer)
Date: February 24. 2010
By lsI Jeffery R. Gardner
Jeffery R. Gardner, President and Chief Executive Offcer
By lsI John C. Eichler
John C. Eichler, Controller
(Principal Accounting Offcer)
*Dennis E. Foster. Chairman and Director
*Carol B. Armitage, Director
* Samuel E. Beall, II, Director
*Francis X. Frantz, Director
*Jeffrey T. Hinson. Director
* Judy K. Jones, Director
*WiIiam A. Montgomery, Director
*Frank E. Reed, Director
By Is/John P. Fletcher
* (John P. Fletcher,
Attorney.in.fact)
Date: February 24, 2010
32
Table of Contents
Report oflndependent Registered Public Accounting Firm on
Financial Statement Scbedule
To the Board of Directors and Shareholders of Wind stream Corporation:
Our audits of the consolidated financial statements and of the effectiveness ofintcrnal control over financial reporting referred to in our report dated February 24, 2010 appearing in this
2009 Annual Report on Form 10-K ofthe Company also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form IO-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
lsi PrcewaterhouseCoopers LLP
Little Rock, Arkansas
February 24, 2010
33
Table of Contents
WINDSTREAM CORPORATION
SCHEDULE ii . VALDA TION AND QUALIFYING ACCOUNTS
(Dollar in Millons)
ColumA ColumnD Column EColumnC
Additions
ColumnB
December 3 I, 2008 $$$16.335.5 (A)$13.1 38.7
Valuation allowance for deferred tax assets:
December 3 i, 2009 21.8 (B)$$24.42.6
December 3 I. 2007 3.5 (D)$2.8 (E)11.3$10.6
Notes:(A
(B)
(C)
Accounts charged off net of recoveries of amounts previously written off.
Valuation allowance for deferred taxes was established through goodwill related to expected realization of net operating losses assumed from the acquisitions ofD&E and
Lexcom.
Net valuation allowance adjustment through goodwil in 2008 primarily due to a purchase accounting adjustment for a revision in the limitation associated with the federl
net operating loss carr forward acquired from the merger with Valor.
Valuation allowance for deferred taxes was established through goodwil related to expected realization of net operating losses assumed from the acquisition ofCTC.
Adjustment through goodwill to the net operating loss carr forwards acquired from Valor.
Costs primarly include charges for accounting, legal, broker fees and other miscellaneous costs associated with the completed acquisitions ofD&E, Lexcom and NuVox,
as well as the pending acquisition ofIowa Telecom. In addition, the Company incurred a restructuring charge associated with a workforce reduction to realign cerin
information technology, network operations and business sales functions.
Includes cash outlays of $ i 5.1 million for restructuring charges and $ i 8.2 million for merger, integration and restrcturing costs charged to expense, including employee
related transition costs related to the acquisitions ofD&E, Lexcom and NuVox, as well as the pending acquisition ofIowa Telecom.
The Company incurred merger and integration costs of $6.2 milion related to the acquisition of CTC wireline operations during the twelve months ended December 3 i.
2008, primarily related to system conversion costs. During the second quarter of 2008, the Company determined not to use certain software acquired in the CTC
acquisition; therefore, we recognized a $5.4 million non-cash charge to abandon this asset, of which $0.8 million was related to the wireless business. Additionally in 2008,
the Company incurred $8.5 million in restructuring costs primarily related to the announced workforce reduction in the fourth quarter of2008 to control expenses in a
challenging economy and to realign certain information technology, network operations and business sales functions.
Includes cash outlays of$5.0 million for merger, integration and restructuring costs charged to expense, and $ i 1.5 million in cash outlays for CTC and Valor transaction
costs charged to goodwilL.
(D)
(E)
(F)
(G)
(H)
(i)
34
Table of Contents
(1) During 2007, the Company incurred total merger and integration costs of$5.6 milion to complete the acquisition ofCTC. and incurrd $3.7 millon in trsaction costs to
complete the split off of its directory publishing business. Additionally in 2007, the Company incurred $4.6 milion in restructuring costs from a workforce reduction plan
and the announced realignment of its business operations and customer service functions intended to improve overall support to its customers.
(K) CTC transaction charges included in goodwil in the amount of$25.3 milion consisted primarily of capitalized transaction and employee-related costs.
(L) Includes cash outlays of$32.4 millon for merger, integration and restructung costs chared to expense, and $21.0 milion in cash outlays for CTC and Valor transaction
costs charged to goodwill.
See Note 10, "Merger, Integration and Restrcturing Charges", to the consolidated financial statements on pages F-62 to F-64 in the Financial Supplement, which is incorporated herein
by reference, for additional information regarding the merger, integration and restrctung charges recorded by the Company in 2009, 2008, and 2007.
35
Table of Contents
Number and Name
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
EXHIBIT INDEX
Amended and Restated Certificate ofIncorporation of Wind stream Corporation (incorprated herein by reference to Exhibit 3. I to Amendment NO.3
to the Corporation's Registration Statement on Form S-4 fied May 23, 2006).
*
Amended and Restated Bylaws of Wind stream Corporation (incorporated herein by reference to Exhibit 3. I to the Corporation's Current Report on
Form 8-K dated February 19,2010).
Indenture dated July 17,2006 among Windstram Corporation (as successor to Alltel Holding Corp.), cerin subsidiaries of Wind stream as
guarantors thereto and SunTrust Bank, as trstee (incorporated herein by reference to Exhibit 4. i to the Corporation's Current Report on Form 8-K
dated July 17, 2006).
First Supplemental Indenture dated as of July 17,2006 among Windstram Corporation, certain subsidiaries of Wind stream as guarantors thereto and
SunTrust Bank, as trstee (incorporated herein by reference to Exhibit 4.4 to the Corporation's Current Report on Form 8-K dated July 17,2006).
Second Supplemental Indenture dated August 3 i, 2007 to the Indenture dated as of July 17. 2006 between the Company, certain of its subsidiaries
named therein, as guarantors. and U.S. Bank National Association (as successor to SunTrust Bank). as trustee (incorprated herein by reference to
Exhibit 4.2 to the Corporation's Current Report on Form 8-K dated August 31. 2007).
*
Third Supplemental Indenture dated December 12.2007 to the Indenture dated as of July 17,2006 between the Company, certin of its subsidiaries
named therein, as guarantors, and U.S. Bank National Association (as successor to SunTrust Bank). as trustee (incorporated herein by reference to
Exhibit 4.4 to the Corporation's Current Report on Form IO-K dated Februar 29, 2008).
Fourth Supplemental Indenture dated as of June 22, 2009 to the Indenture dated July 17,2006 between the Company, certin of its subsidiaries named
therein. as guarantors, and U.S. Bank National Association, as trustee.
(a)
Fifth Supplemental Indenture dated as of November 20,2009 to the Indenture dated July 17,2006 between the Company, certain of its subsidiares
named therein. as guarantors, and U.S. Bank National Association, as trustee.
(a)
Sixth Supplemental Indenture dated as of December 14,2009 to the Indenture dated July 17,2006 between the Company, certin ofits subsidiaries
named therein, as guarantors, and U.S. Bank National Association, as trustee.(a)
Indenture dated February 27, 2007 among Windstream Corporation, certain subsidiaries of Wind stream as guarantors thereto and U.S. Bank, National
Association, as trustee (incorporated herein by reference to Exhibit 4. I to the Corporation's Current Report on Form 8-K dated March 1,2007).
*
4.9 First Supplemental Indenture dated as of August 3 1,2007 to the Indenture dated as of February 27. 2007 between the Company, certain of its
subsidiaries named therein. as guarantors, and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.3 to the
Corpration's Currnt Report on Form 8-K dated August 3 1,2007).
4.10 Second Supplemental Indenture dated as of December 12,2007 to the Indenture dated as of February 27, 2007 between the Company, cerain of its
subsidiaries named therein, as guarantors. and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.7 to the
Corporation's Curent Report on Form 10-K dated February 29, 2008).
Incorporated herein by reference as indicated.
(a) Filed herewith.
36
Table of Contents
EXHIBIT INDEX, Continued
Number and Name
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
Third Supplemental Indenture dated as of June 22. 2009 to the Indenture dated as of February 27, 2007 between the Company, certain of its
subsidiaries named therein, as guarantors, and U.S. Bank National Association, as trustee.
Fourth Supplemental Indenture dated as of November 20. 2009 to the Indenture dated as of February 27, 2007 between the Company, certain of its
subsidiaries named therein, as guarantors, and U.S. Bank National Association. as trustee.
Fifth Supplemental Indentue dated as of December 14, 2009 to the Indentue dated as of February 27, 2007 between the Company, certin of its
subsidiaries named therein, as guarantors. and U.S. Bank National Association, as trstee.
Indentue, dated February 14,2005, among Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp., as
Issuers, Valor Communications Group, Inc. and the other guarators thereto, and The Bank of New York. as Trustee (incorporated herein by reference
to Exhibit 4. i to Quarterly Report of Valor Communications Group. Inc. on Form 10-Q for the quarter ended March 3 1,2005).
First Supplemental Indenture dated as of July 17.2006 to the Indenture dated as of February 14,2005, among Valor Telecommunications Enterprises,
LLC and Valor Telecommunications Enterprises Finance Corp., as Issuers, certain subsidiaries of Windstream as guarntors thereto and The Bank of
New York, as trstee (incorporated herein by reference to Exhibit 4.6 to the Corporation's Current Report on Form 8-K dated July 17,2006).
Second Supplemental Indenture dated August 3 1,2007 to the Indenture dated as of February 14,2005 among Valor Telecommunications Enterprises,
LLC and Valor Telecommunications Enterprises Finance Corp., as Issuers, certain subsidiaries of Wind stream, as guarantors, and The Bank of New
York, as trustee (incorporated herein by reference to Exhibit 4. i to the Corporation's Current Report on Form 8-K dated August 3 1.2007).
Third Supplemental Indenture dated December 12,2007 to the Indenture dated as of Februar 14,2005 among Valor Telecommunications Enterprises,
LLC and Valor Telecommunications Enterprises Finance Corp., as Issuers, certain subsidiaries of Wind stream, as guarantors, and The Bank of New
York, as trustee (incorporated herein by reference to Exhibit 4. i i to the Corporation's Curent Report on Form IO-K dated Februar 29, 2008).
Fourth Supplemental Indenture dated as of June 22, 2009 to the Indenture dated as of February 14,2005, among Valor Telecommunications
Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp.. as Issuers, certain subsidiaries of Wind stream, as guarantors, and The
Bank of New York Mellon, as trustee.
Fifth Supplemental Indenture dated as of November 20. 2009 to the Indenture dated as of February 14,2005. among Valor Telecommunications
Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp., as Issuers, certain subsidiaries of Wind stream. as guarntors, and The
Bank of New York Mellon, as trustee.
Sixth Supplemental Indenture dated as of December 14, 2009 to the Indenture dated as of February 14, 2005. among Valor Telecommunications
Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp., as Issuers, certain subsidiaries of Wind stram, as guarntors, and The
Bank of New York Mellon, as trustee.
Incorporated herein by reference as indicated.
(a) Filed herewith.
37
(a)
(a)
(a)
*
*
*
(a)
(a)
(a)
Table of Contents
EXHIBIT INDEX, Continued
Number and Name
4.21
4.22
4.23
4.24
4.25
4.26
4.27
4.28
10.1
10.2
Indenture dated as of October 8, 2009 among Windstream Corporation, as Issuer, and U.S. Bank National Association, as Trustee (incorporated
herein by reference to Exhibit 4.1 to the Corporation's Form 8-K date October 8, 2009).
First Supplemental Indenture dated as of November 20, 2009 to the Indenture dated as of October 8, 2009 among Windstream Corporation, certin of
its subsidiaries, as guarantors, and U.S. Bank National Association, as trstee.
(a)
Second Supplemental Indenture dated December 14, 2009 to the Indenture dated as of October 8, 2009 among Windstream Corporation, certain of its
subsidiaries, as guarantors, and U.S. Bank National Association, as trustee.
(a)
Form of8 I/S% Senior Note due 2013 of Wind stream Corporation (as successor to Alltel Holding Corp.) (incorporated herein by reference to Note
included in Exhibit 4.1 to the Corporation's Current Report on Form 8-K dated July 17,2006).
*
Form of8 5/8% Senior Note due 2016 of Wind stream Corporation (as successor to Alltel Holding Corp.) (incorporated herein by reference to Note
included in Exhibit 4.1 to the Corporation's Current Report on Form 8-K dated July 17,2006).
Form of7.0% Senior Note due 2019 of Wind stream Corporation (incorporated herein by reference to Note included in Exhbit 4.1 to the Corporation's
Current Report on Form 8-K dated March 1,2007).
Form of7 '/4% Senior Note due 2015 of Valor Telecommunications Enterprises, LLC and Valor Telecommunications Enterprises Finance Corp.
(incorporated herein by reference to Exhibit 4.1 to Quarterly Report on Form i O-Q of Valor Communications Group, Inc for the quarer ended March
31,2005).
Form of7.875% Senior Note due 2017 of Wind stream Corporation (incorporated herein by reference to Exhibit 4.1 to the Corporation's Form 8-K date
October 8, 2009).
Amended and Restated Credit Agreement dated as of October 19, 2009 among Windstream Corporation, certain lenders part thereto, JPMorgan
Chase Bank, N.A.. as Administrative Agent and Collateral Agent, Citibank N.A. and Wachovia Bank National Association, as Co-Documentation
Agents, and J.P. Morgan Securities. Inc., and Banc of America Securities, LLC. as Joint Bookrunners and Lead Arrngers (incorporated by reference
to Exhibit 10.1 to the Corporation's Form 8-K dated October 8. 2009).
Director Compensation Program dated Februar 17, 20 i O.(a)
10.3 Form of Restricted Shares Agreement (Non-Employee Directors) entered into between Windstream Corporation and non-employee directors
(incorporated herein by reference to Exhibit 10.3 to the Corporation's Current Report on Form 8-K dated Februar 6, 2007).
10.4 Windstream Corporation Performance Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.8 to the Corporation's Current
Report on Form 8-K dated July 17, 2006).
Incorporated herein by reference as indicated.
(a) Filed herewith.
38
Table of Contents
EXHIBIT INEX, Continued
Number and Name
10.7
Amendment No. I to Windstream Corpration Performance Incentive Compensation Plan (incorporated by reference to Exhibit lOA to the
Corporation's Current Report on Form 8-K dated January 4, 2008).
Windstream Corporation Benefit Restoration Plan, amended and restated as of January 1,2008 (incorprated herein by reference to Exhibit 10.2 to the
Corporation's Current Report on Form 8-K dated Januar 4, 2008).
Windstream Corporation 2007 Deferrd Compensation Plan, amended and restated as of January I. 2008 (incorporated herein by reference to Exhibit
10. I to the Corporation's Current Report on Form 8-K dated January 4, 2008).
*10.5
10.6 *
*
10.8 Form ofIndemnification Agreement entered into between Windstream Corporation and its directors and executive offcers (incorporated herein by
reference to Exhibit 10.13 to the Corporation's Current Report on Form 8-K dated July 17,2006).
*
10.9 Form of Restricted Shares Agreement (Offcers: Restrcted Stock) entered into between Windstream Corporation and its executive offcers
(incorporated herein by reference to Exhibit 10.1 to the Corporation's Current Report on Form 8-K dated Februar 6. 2009).
10.11
Form of Restricted Shares Agreement (Offcers: Performance-Based Restricted Stock) entered into between Windstream Corporation and its executive
offcers (incorporated herein by reference to Exhibit 10.2 to the Corporation's Current Report on Form 8.K dated Februar 6, 2009).
Form of Restrcted Shares Agreement (Offcer: Performance-Based Restricted Stock-Clawback-Policy/Accrued Dividends) entered into between
Windstream Corporation and its executive offcers (incorporated herein by reference to Exhibit 10.2 to the Corporation's Current Report dated
February 19.2010).
*10.10
10.12 Form of Restricted Shares Agreement (Offcers: Restricted Stock-Clawback Policy) entered into between Windstream Corporation and its executive
offcers (incorporated herein by reference to Exhibit 10. I to the Corporation's Current Report on Form 8-K dated Februar 19.2010).
10.13 Amended and Restated Employment Agreement, dated as of January I, 2008, between Windstream Corporation and Jeffery R. Gardner (incorporated
herein by reference to Exhibit 10.6 to the Corporation's Current Report on Form 8-K dated January 4,2008).
10.14 Amendment to Employment Agreement, dated as of December 2 1,2009, between Windstream Corporation and Jeffery R. Gardner (incorporated herein
by reference to Exhibit 10. I to Corpration's Currnt Report on Form 8-K dated Deeember 2 1,2009).
10.15 Form of Amended and Restated Change-In-Control Agreement, dated as ofJanuary 1,2008, entered into between the Windstream Corporation and
certain executive offcers (incorporated herein by reference to Exhibit 10.5 to the Corporation's Current Report on Form 8-K dated Januar 4,2008).
10.16 Form of Change- In-Control Agreement entered into between Windstream Corporation and certain executive offcers on August 10, 2010
(incorporated herein by reference to Exhibit 10.1 to the Corporation's Currnt Report on Form 8-K dated August 10,2009).
10.17 Letter Agreement, dated as of November 7, 2006, between the Windstream Corporation and Francis X. Frantz (incorporated herein by reference to
Exhibit i 0.3 to the Corporation's Current Report on Form 8-K dated November 13,2006).
*
10.18 Windstream 2006 Equity Incentive Plan (incorporated by reference to Annex G to the Corporation's Proxy StatementIrospectus-lnformation
Statement dated May 26, 2006).
Incorporated herein by reference as indicated.
(a) Filed herewith.
39
Table of Contents
EXHIBIT INDEX, Continued
Number and Name
10.19
10.20
10.21
10.22
10.23
14.1
21
23
24
3 I (a)
31(b)
32(a)
32(b)
10l.INS
IOI.SCH
10l.CAL
10l.DEF
10LLAH
10l.PRE
Amendment No. I to Windstream 2006 Equity Incentive plan. dated January 1,2008 (incorporated by reference to Exhibit 10.3 to the Corporation's
Current Report on Form 8-K dated Janua 4, 2008).
1999 Long-Term Incentive Plan ofD&E Communications, Inc. (incorporated herein by reference to Exhbit 4.1 to D&E Communcation, Inc.'s
Registration Statement on Form S-8) (File No. 333-79445).
Conestoga Enterprises 1999 Stock Option Plan (incorporated herein by reference to Exhibit 99.1 to D&E Communication, Inc.'s Registrtion Statement
on Form S-8) (File No. 333- 76488).
Registration Rights Agreement dated October 8, 2009 among Windstream Corporation, certain subsidiares of Wind stream, as guarantors, and J.P.
Morgan Securities, Inc.. as representative (incorporated herein by reference to Exhibit 4.3 to the Corporation's Curent Report on Form 8 K dated
October 8, 2009).
Registrtion Rights Agreement dated December 30, 2009 among Windstream Corporation, certin subsidiaries of Wind stream, as guarantors, and J.P.
Morgan Securities, Inc., as representative (incorporated herein by reference to Exhibit 4. I to the Corporation's Current Report on Form 8 K dated
December 30, 2009).
Code of Ethics (Working with Integrity) of Wind stream Corporation (incorporated herein by reference to Exhibit 14.1 to the Corporation's Annual
Reprt on Form io-K for the year ended December 31,2008).
Listing of Subsidiaries.
Consent of Price waterhouse Coopers LLP. Independent Registered Public Accounting Firm.
Power of Attorney.
Certification of Chief Executive Offcer pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Offcer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certfication of Chief Executive Offcer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of2oo2.
Certification of Chief Financial Offcer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2oo2.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Incorporated herein by reference as indicated.
(a) Filed herewith.
40
*
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
Table of Contents
WINDSTREAM CORPORATION
FINANCIAL SUPPLEMENT
TO ANNUAL REPORT ON FORM io-K
FOR THE YEAR ENDED DECEMBER 31,2009
Table of Contents
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selected Financial Data
Management's Responsibilty for Financial Statements
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Annual Financial Statements:
Consolidated Statements ofIncome
for the years ended December 3 i, 2009, 2008 and 2007
Consolidated Balance Sheets
as of December 31, 2009 and 2008
Consolidated Statements of Cash Flows
for the years ended December 3 i , 2009, 2008 and 2007
Consolidated Statements of Shareholders' Equity
for the year ended December 3 i, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
WINDSTREAM CORPORATION
INDEX TO FINANCIA SUPPLEMENT
TO ANNUAL REPORT ON FORM lØ-K
FOR THE YEAR ENDED DECEMBER 31, 2009
F-2
F-30
F-31
F-32
F-33
F-34
F-35
F-36
F-37
F-38 - F-78
F-I
Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Windstream Corporation ("Windstream", "we". or the "Company") is a customer-focused telecommunications company that provides phone, high-speed Internet and digital television
services. The Company also offers a wide range ofIP-based voice and data services and advanced phone systems and equipment to businesses and government agencies. As of
December 3 1,2009, the Company provided service to approximately 3.0 millon access lines and i. milion high-speed Internet customers primarly located in rural areas in i 6 states.
The sections that follow provide an overview of our results of operations and highlight key trends and uncertainties in our business to the extent practicable. Certain statements set
fort below constitute forward-looking statements. See "Forward-Looking Statements" at the end of this discussion for additional factors relating to such statements, and see "Risk
Factors" in Item IA of Part I of this annual report for a discussion of certain risk factors applicable to our business, financial condition and results of operations.
Executive Summary
Among the highlights in 2009:
Windstream completed the acquisitions ofD&E Communications, Inc. ("D&E") and Lexcom, Inc. ("Lexcom") on November 10.2009 and December 1.2009, respectively. The
Company expects to achieve significant synergies through the combination of these companies with existing Windstream operations.
Access lines, excluding the access lines acquired from D&E and Lexcom of i 45,000 and 22,000, respectively, declined i 43,000 or 4.8 percent, compared to a decline of i 65,000 or
5.2 percent for the same period in 2008. (See "Business Trends").
High-speed Internet customers, excluding the customer acquired from D&E and Lexcom of 45,000 and 9,000, respectively, increased 98,900 or 10.1 percent, compared to an
increase of 107,400 or 12.3 percent for the same period in 2008. (See "Business Trends").
Revenues and sales, excluding post acquisition D&E and Lexcom revenues of$20.1 million and $3.3 million, respectively, decreased $198.3 million. or 6 percent, for the year
ended December 3 i, 2009 as compared to the same period in 2008. This decline was primarily due to the decline in access lines, declines in product sales associated with the
disposition of the out of territory product distribution operations during the third quarter of2009, and general declines in product sales to business customers. Partially
offsetting these decreases were increases attributable to growth in high-speed Internet customers as discussed above.
Operating income, excluding post acquisition D&E and Lexcom operating income of $4.5 million and $ I. I million, respectively, decreased $ i 8 i. i million. or i 6.0 percent, during
2009 as compared to 2008. The decline in operating income during 2009 is attributable to the impacts of pension expense. revenue declines associated with continued access line
losses and the amortization of franchise rights.
During 2009, the Company generated cash flows from operations of$I,120.8 million, an increase of3.7 percent compared to 2008. This increase was primarly due to expense
management initiatives and lower cash taxes. Cash flows from operations were used to repurchase $ i 2 1.3 million of the Company's common stock and to pay $437.4 millon in
dividends in 2009.
As further discussed in strategic transactions, the acquisition ofNu Vox. Inc. ("Nu Vox") was completed on February 8, 2010, and we expect to complete the acquisition oflowa
Telecommunications Services, Inc. ("Iowa Telecom") in mid 20 i O.
Also during 20 i 0, we expect that competition in the telecommunications industry wil continue to present significant challenges. In addressing competition, the Compay wil continue
to focus its efforts on increasing sales of next generation data products, increasing high-speed Internet penetration and expanding its service offerings and distrbution channels.
F-2
Table of Contents
Business Trends
The following is a discussion of trends affecting Windstream's operations.
Access line losses: Wire line 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 industr from cable television providers, wireless communications providers, and providers using other emerging technologies. As of December 3 1.2009, all
ofthe Company's access lines had wireless competition and approximately 64 percent ofthe Company's access lines had fixed line voice competition, which represented an
increase in fixed line competition of approximately 4 percent from December 3 i, 2008. After removing the impact of residential lines acquired from D&E and Lexcom of 82,000 and
i 5,000, respectively, residential lines decreased 87.000, or 4.5 percent during 2009, primarily due to the effects of competition. After removing the impact of business lines
acquired from D&E and Lexcom of63,OOO and 7,000, respectively, business lines decreased 48,000, or 5.3 percent during 2009, primarily due to weakess 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 ofline losses.
Product bundles: To combat competitive pressures, the Company continues to emphasize its bundled products and services. Our residential customers 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 billng solution and bundle discounts. Operating trends for access lines and high-speed Internet customers were favorably impacted during the second half
ofthe year by the Company's latest bundle promotion, which offers a price for life guarantee and package discount on its local phone, unlimited national callng and high-speed
Internet bundle. In addition, during the second quarter of2009, we began offering 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 wil continue to
invest in its network to offer faster speeds in its high-speed Internet offerings. As of December 3 1.2009, the Company could deliver speeds of 3Mb to approximately 96 percent
of its addressable lines. Additionally, speeds of 6Mb and 12Mb are available to approximately 65 percent and 34 percent of its high-speed Internet addressable lines,
respectively.
High-speed Internet: Growth in high-speed Internet sales, 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 removing the impact of high-speed Internet customers acquired from D&E and Lexcom of 45,000 and
9.000, respectively, the Company added approximately 98,900 high-speed Internet customers during 2009, representing an approximate increase in high-speed Internet customers
of 10. i percent. As of December 3 1,2009, Windstream provided high-speed Internet service to approximately 37.4 percent of total access lines in service, and 55. i percent of
primary residential access lines in service. As of December 3 1,2009, approximately 75 percent of total access lines had high-speed Internet competition. primarily from cable
service providers, which is relatively unchanged from December 3 1,2008. 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 20 i 0, but we could
experience some increased competition from high-speed Interet offerings from wireless competitors.
Business data and special access: Wireline revenues and sales are expected to be favorably impacted by growth in next generation data services provided to business
customers. During 2009, revenues from next generation services such as VPN and VLS grew 2 1.9 percent to approximately $45.9 milion. excluding the impact ofD&E and Lexcom.
Likewise. due to continued trends toward increasing data traffc, we expect growth in special access revenues from the provisioning of circuits to wireless and other carrers.
However. weakness in the general economic environment may have the effect of suppressing near term growth in these revenues.
Operational effciencies: We continue to evaluate our operating structure to identifY opportnities for increased operational effciency and effectiveness. Among other things,
this involves evaluating opportnities for task automation, network effciency and the balancing of our workforce based on the current needs of our customers. As a result of
these efforts, the Company successfully reduced its cost of services by approximately $80.0 million in 2009, excluding the impact ofD&E and Lexcom and pension expense (see
"Cost of Services"). As part of this continuing effort, the Company announced a work force reduction in the third quarter of 2009. In conjunction therewith, we recognized
restructuring charges of approximately $9.3 million. The Company expects to realize annual savings approximating $20.0 million from this workforce reduction.
F-3
Table of Contents
Pension expenses andfunding: Duing 2009, the fair maret value ofWindstrea's pension plan assets have increased 19.9 percent from approximately $654.0 milion to $784.0
milion. This increase is priarily due to a return on plan assets of$152.0 milion, or 23.2 percent, transfer from the D&E pension plan (see Note 8) of$61.4 millon and
contrbutions of$3.3 milion. Parially offsetting these increases were $51. milion in routine benefit payments. $35.6 millon oflump sum distrbutions and administrtive
expenses. The Company does not expect to make any contrbutions to the plan in 2010. The amount and timing of future contributions will depend on various factors including
future investment performance, the finalization of funding regulations, changes in future discount rates and changes in demographics of the population participating in the
Company's qualified pension plan.
STRATEGIC TRSACTIONS
Pending Transactions
On November 23,2009, we entered into an agreement and plan of merger, pursuant to which we wil acquire all of the issued and outstanding shares of common stock ofIowa Telecom
based in Newton, Iowa. Under the ters ofthe Iowa Telecom merger agreement, Iowa Telecom shareholders will receive 0.804 shares of common stock of Wind stream and $7.90 in cash
per each share ofIowa Telecom common stock. We expect to issue approximately 26.5 milion shares ofWindstream common stock and pay approximately $261.0 milion in cash as par
of the transaction. We also expect to repay estimated net debt of approximately $598.0 millon. This acquisition is expected to close in mid-201 0, subject to certin conditions including
receipt of necessary approvals from federal and state regulators and Iowa Telecom shareholders. As of September 30, 2009, Iowa Telecom provided services to approximately 256,000
access lines, 95.000 high-speed Internet customers and 26,000 digital TV customers in Iowa and Minnesota. The completion of this acquisition wil provide the Company with increased
scale and opportnities for approximately $35.0 milion in operating synergies with existing Windstream operations.
Acquisitions
On February 8, 20 I 0, we completed our previously announced acquisition ofNu Vox, a competitive local exchange carrier based in Greenvile, South Carolina. Consistent with the
Company's focus on growing revenues from business customers, the completion of the NuVox acquisition added approximately 90,000 business customer locations in 16 contiguous
Southwestern and Midwest states and provides opportnities for approximately $30.0 milion in operating synergies with contiguous Windstream markets. NuVox's services include
voice over internet protocol, local and long-distance voice, broadband internet access, email. voicemail, web hosting, secure electronic data storage and backup, internet security and
virtal private networks. Many of these services are delivered over a secure, privately-managed IP network, using a multiprotocollabel switch backbone and distrbuted IP voice
switching architecture.
In accordance with the Nu Vox merger agreement, Windstream acquired all of the issued and outstanding shares of common stock ofNu Vox for $ I 99.0 million in cash. net of cash
acquired. and issued approximately 18.7 million shares of Wind stream common stock valued at $187.0 million on the date of issuance. Windstream also repaid outstanding indebtedness
and related liabilities on existing swap agreements ofNu Vox approximating $28 1.0 milion.
On November 10, 2009, we completed our previously announced merger with D&E, which as of the date of acquisition served approximately I 10,000 incumbent local exchange carer
access lines, 35,000 competitive local exchange carrer access lines, 45.000 high-speed Internet customers and 9,000 cable television customers. This acquisition increased Windstream's
presence in Pennsylvania and provides the opportnity for approximately $25.0 milion in operating synergies with contiguous Windstream markets. Pursuant to the merger agreement,
Windstream acquired all of the issued and outstanding shares of common stock ofD&E, and D&E merged with and into a wholly-owned subsidiary of Wind stream.
In accordance with the D&E Merger Agreement, D&E shareholders received 0.650 shares ofWindstream common stock and $5.00 in cash per each share ofD&E Common Stock.
Windstream issued approximately 9.4 milion shares of its common stock valued at approximately $94.6 million. based on Windstream's closing stock price of $ 10.06 on November 9,
2009, and paid $56.6 milion, net of cash acquired. as part of the transaction. Subsequently, Windstream repaid outstanding debt ofD&E totaling $ I 82.4 millon.
On December 1,2009, we completed our previously announced acquisition of Lex com, which as of the date of acquisition served approximately 22,000 access lines, 9.000 high.speed
Internet customers and 12,000 cable television customers in North Carolina. This acquisition increased Windstream's presence in North Carolina and provides the opportity for
approximately $5.0 milion in operating synergies with contiguous Windstream markets. In accordance with the Lexcom merger agreement, Windstream acquired all ofthe issued and
outstanding shares of Lex com for approximately $138.7 million in cash, net of cash acquired.
On August 3 1,2007, Windstream completed the acquisition ofCT Communications, Inc. (''eTC'') in a transaction valued at $584.3 milion. Under the terms of the agreement, the
shareholders ofCTC received $31.50 in cash for each
F-4
Table of Contents
of their shares with a total cash payout of$652.2 millon. The trsaction value also includes a payment of$37.5 million made by Windstream to satisfy CTC's debt obligations, offset by
$ i 05.4 million in cash and short-term investments held by CTC. Including $25.3 milion in severnce and other trnsaction-related expeses, the total cost of the acquisition was $609.6
milion. Windstream financed the trsaction using the cash acquired from CTC, $250.0 milion in borrowings available under its revolving line of credit, and additional cash on hand.
The premium paid by Windstream in this transaction is attrbutable to the strategic importance ofthe CTC acquisition. The acquisition ofCTC significantly increased Windstream's
operating presence in Nort Carolina through the addition of approximately 132,000 access lines and 31,000 high-speed Internet customers and provided the opportunity to generate
significant operating effciencies with contiguous Windstream markets.
Dispositions
On August 2 I, 2009, Windstream completed the sale of its out of terrtory product distribution operations to Walker and Associates of Nort Carolina, Inc. ("Walker") for appromately
$5.3 milion in total consideration. The out ofterrtory product distrbution operations primarily consisted of product inventory with a carring value of $4.9 milion and customer
relationships outside of Wind stream's telecommunications operating territories. These operations were not centrl to the Company's strtegic goals in its core communications
business. Product revenues from these operations totaled $38.5 milion and $76.2 milion durig 2009 and 2008. respectively, with related cost of products sold of$34.3 milion and $68.3
milion for the same periods in 2009 and 2008, respectively. In conjunction with this trnsaction. Windstream recognized a gain of$O.4 milion in other income, net in its consolidated
statements ofincome in 2009.
On November 2 i, 2008. Windstream completed the sale of its wireless business to AT&T Mobilty II, LLC for approximately $56.7 milion. The completion of this trnsaction resulted in
the divestiture of approximately 52.000 wireless customers, spectrm licenses and cell sites covering a four-county area of Nort Carolina with a population of approximately 450,000 and
six retail locations. The operating results of the wireless business have been separately presented as discontinued operations in the accompanying consolidated statements of income
(see Note 3).
On November 30, 2007. Windstream completed the split off of its directory publishing business (the "publishing business") in a tax-free trnsaction with entities affliated with Welsh,
Carson. Anderson & Stowe ("WCAS"). a private equity investment firm and Windstream shareholder.
To faciltate the split off transaction. Windstream contributed the publishing business to a newly formed subsidiary ("Holdings"). Holdings paid a special cash dividend to Windstream
in an amount of $40.0 milion, issued additional shares of Holdings common stock to Windstream, and distributed to Windstream certin debt securities of Holdings having an
aggregate principal amount of $21 0.5 milion. Windstream exchanged the Holdings debt securities for outstanding Windstream debt securities with an equivalent fair market value, and
then retired those securities. Windstream used the proceeds of the special dividend to repurchase approximately three milion shares of Wind stream common stock during the fourth
quarter of2007. Windstream exchanged all of the outstanding equity of Holdings (the "Holdings Shares") for an aggregate of i 9,574,422 shares of Wind stream common stock (the
"Exchanged WIN Shares") owned by WCAS, which were then retired. Based on the price of Wind stream common stock of$12.95 at November 30, 2007, the Exchanged WIN Shares had
a value of$253.5 million. The total value of the transaction was $506.7 million, including an adjustment for net working capital of approximately $2.7 milion. As a result of completing this
transaction, Windstream recorded a gain on the sale of its publishing business of $45 1.3 million in the fourth quarter of2007, after substantially all performance obligations had been
fulfilled.
In connection with the consummation of the trnsaction, the parties and their affliates entered into a publishing agreement whereby Windstream grated Local Insight Yellow Pages,
Inc. ("Local Insight Yellow Pages"), the successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish Windstream directories in
each of its markets other than the newly acquired CTC markets. Local Insight Yellow Pages will, at no charge to Windstream or its affliates or subscribers. publish directories with
respect to each Windstream service area covered under the agreement in which Windstream or its affliates are required to publish such directories by applicable law, tarff or contract.
Subject to the termination provisions in the agreement. the publishing agreement wil remain in effect for a term of fift years. As par of this agreement. Windstream agreed to forego
future royalty payments from Local Insight Yellow Pages on advertising revenues generated from covered directories for the duration ofthe publishing agreement. The wireline segment
recognized approximately $56.0 million in royalty revenues during the eleven months ended November 30,2007.
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ORGANIZA nON AND RESULTS OF OPERA nONS
The Company is organized based on the products and services that it offers. Under this organizational structure, its operations consisted of its wireline and directory publishing
operations. The Company's wireline segment offers. on a retail basis, its IP-based voice and data services and advanced phone systems for businesses and government agencies, high.
speed Internet, phone, long distance, network access and video services and related product offerings.
The Company has historically reported a product distribution segment, but in the first quarter of 2009 the Company reorganized its operations to integrate the sales and administrative
functions of the product distribution segment into its wireline operations. As a result of this change, the chief operating decision maker no longer reviews the financial statements of the
product distribution operations on a stand alone basis, and the Company operates its wireline and product distribution operations as a single reporting segment ("the wireline
segment"). As required by the authoritative guidance for segment presentation, segment results of operations have been retrospectively adjusted to reflect this change for all periods
presented.
(Millions)2009 2008 2007
Wireline 2,996.6 3,171.5 $3,179.6
Total business se ment revenues and sales 2.996.6 3,171.5 3,302.6
Consolidated revenue and sales 2.996.6 3,171.5 3.245.9
979.2 1,138.6 1.152.8
979.2 1138.6 1,158.1
956.9 1.132.4 1,149.9
451.
Consolidated revenues and sales decreased $174.9 milion. or 5.5 percent in 2009 and decreased $74.4 millon, or 2.3 percent in 2008. The decrease in 2009 is primarily due to continued
access line losses and the associated impact on revenues. The decrease in 2008 is primarily due to the sale of the Company's directory publishing business in the fourth quarter of2007,
as discussed above, and declines associated with continued access line losses, partially offset by increases in high-speed Internet customers and the acquisition ofCTC.
See below a detailed discussion and analysis of segment revenues and sales in our discussion of segment operating results.
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The following discussion and analysis details results for each of Windstream's operating segments
Wireline Segment
The following table reflects the Company's wireline operating results as of December 3 I:
Wireline Operations (a,b)
(Millons, access lines and customers in thousands 2009 2008 2007
$1,116.2 $ 1,195.1 $ 1,246.8
534.1 599.7 613.7
13.9 159.3 214.0
2,996.6 3.171.5 3,179.6
1,006.8 1,005.4 1.007.
356.356.5 354.7
9.3 8.5 4.6
Voice service
Switched access and USF
Miscellaneous
Total revenues and sales
Restructuring charges
Average service revenue per customer per month (e)High.spe¡l iìiterret customers "
Digital television customers (c)
Total access lines in service 3,030.5
$81.27
..J,132il
369.4
$80.52
978$"
297.0
$77.%
" .&7ui
227.4
(a) Results from wireline operations include results from the former CTC operations following their acquisition on August 3 1.2007. results from the former D&E operations followingtheir acquisition on November 10, 2009 and results from the former Lexcom operations following their acquisition on December I, 2009. In the discussion and analysis provided
below regarding changes in wire line revenues and expenses in 2009 and 2008, the impact of the acquisitions on these changes is considered to be the revenues and expenses
recognized during the period of each year for which results from the acquired operations are not included in the comparative period of the prior year.
(b) Certain prior year revenues and expenses were reclassified to reflect the current presentation and these changes had no impact on segment income.
(c) As part of the integration of D&E and Lexcom, the Company reviewed and updated its methodology for counting and reporting certain key customer metrics. As a result, theCompany began reporting digital television customers as a key metric. which combines the Company's total digital satellite television customer counts with its cable television
customer counts. Commensurate with this change, cable television customers were removed from the Company's access line counts where they have been historically reported.
These changes have been retrospectively applied to all periods presented.
(d) Wholesale units include unbundled network elements and pay stations.
(e) Average service revenue per customer per month is calculated by dividing service revenues by average access lines in service for the period.
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Voice Service Revenues
Voice service revenues consist of trditional telephone services provided to both residential and business customers. These revenues primarily represent monthly recurrng charges for
basic services such as local dial.tone and enhanced servces such as caller identification. voicemail and call waiting. The following table reflects the primary drivers of year -over-year
changes in voice service revenues:
0.7
%
Twelve months ended
December 31, 2009
Increase
(Decrease) %(Milions)
(20.3)
(66.0)
(a) Decreases in ala carte features, which includes caller identification, call waiting, call forwarding, voice mail and other similar services. were attributable to the decline in access
lines, customers electing to discontinue these enhanced services and the impact of discounts on these services when included in product bundles.
(b) Decreases in voice service revenues during 2008 were due, in part, to the expiration in 2007 of a five-year period during which the Company was allowed to bill customers a
surcharge to recover costs associated with local number portability.
(c) Decreases in access line losses and other during both years are attributable to declines in access lines, as previously discussed. and the migration of certain customers to
Windstream's Greenstreak voice service. Greenstreak is a metered voice service, which is priced at a discount as compared to traditional voice services.
Data and Special Access Revenues
Data and special access revenues primarily consist of retail high-speed Internet services, the provision of virtal private network, virtal LAN and other next generation data services to
business customers, and the provision of special access services to wholesale customers. The following table reflects the primary drivers of year-over-year changes in data and special
access revenues:
0.7
%(Millons)
Twelve months ended
December 31, 2009
Increase
(Decrease) %
41.6 46.7
Other
6.5 19.9
0.5 (5.9)
(a) Increases in next generation data services were attributable to customer demand for these services and geographic expansion.
(b) Increases in special access revenues, which primarily represent monthly flat-rate charges for dedicated circuits and virtal networking services, were primarily attibutable to
demand from wireless and other carriers.
(c) Decreases in mature data services, which primarily include private line and integrated services digital network, or ISDN, were primarily attributable to customer migration to next
generation data services.
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Switched Access and USF Revenues
Switched access and Universal Service Fund ("USF") revenues include usage sensitive charges to long distance companies for access to the Company's network in connection with
the completion of interstate and intrastate long distance calls, as well as receipts from federal and state universal service funds that subsidize the cost of providing wireline servces.
The following table reflects the primary drivers of year-over-year changes in switched access and USF revenues:
Twelve months ended
December 31, 2009
Increase
(Decrease) %
Twelve months ended
December 31, 2008
IncreaseDecreae) %(Milions)
1.0Due to Lexcom acquisition
(44.4)(19.8)
11.6 13.1
6.6 (7.6)
(a) Decreases in switched access revenues are predominately due to the decline in minutes of use. which can be attributed to a decline in access lines and reduced long distance
usage. In addition, reductions in switched access rates implemented July 1,2008 and July 1.2009. discussed further below, contributed $4.9 milion and $2.6 milion to the year.
over-year decline in these revenues during 2009 and 2008, respectively.
(b) Decreases in switched access revenues in 2008 were attributable to a favorable settlement in 2007 of an inter-carer traffc dispute with another carier.
(c) Decreases in state USF revenues in 2009 were attributable to declines in access lines and eligible recoverable costs. Future declines in access lines wil result in proportionate
declines in state USF support. The increase in USF support in 2008 is primarily due to unfavorable state USF assessment made against the Company in 2007.
(d) Decreases in federal USF support were due to the conversion to price-cap regulation as further discussed below.
(e) Decreases in federal USF surcharge revenue were primarily due to the elimination of contrbution requirements for high-speed Internet services effective with the conversion to
price-cap regulations on July I, 2008.
The conversion to price-cap regulation on July I, 2008 resulted in the trnsition of support received under the interstate common line support ("ICLS") progr to a fixed monthly dollar
amount of support per access line. Historically, that support was based largely on recoverable costs and network investments. As a result ofthis change, future receipts from the
program are expected to decline in proportion to future access line losses.
Also as a result of converting to price-cap regulation, the Company initiated a phased reduction of interstate access rates to achieve an ultimate rate of$0.0065 per minute by 2012. On
July 1, 2009, the Company implemented another phase of rate reductions, bringing its curent composite interstate access rate to approximately $0.0090. As a reult of this change,
access revenues are expected to decline by approximately $3.5 milion over the next twelve months, with smaller reductions required in subsequent years.
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Long Distance Revenues
Long distance revenues are generated from switched interstate and intrastate long distance, long distance callng cards, international calls and operator services. The following table
reflects the primar drvers of year-over-year changes in long distance revenues:
(Millions)
Twelve months ended
Decembe 3 I. 2009
Increase
(Decrease) %
Twelve months ended
December 3 i, 2008
Increase
(Decrease %
(a) Decreases in one plus callng were primarily due to the decline in access lines and declines in usage-based long distance billings as customers have migrated to packaged plans.
(b) Increases in packaged plans resulted from migrtions to plans that offer a defined number of minutes or unlimited toll callng for a fixed monthly fee instead of usage-based one
plus callng. As of December 3 1,2009,54 percent of our long distance customers subscribed to packaged plan options, which represents an increase in packaged plans of
approximately 9 percent from December 3 I. 2008.
(c) Decreases in other long distance revenues were primarily due to the decline in access lines.
Miscellaneous Revenues
Miscellaneous revenues primarily consist of charges for service fees, rentals and billing and collections services. Also included in miscellaneous revenues are retail bilings for cable
television service and commissions earned from activations of digital satellite television service. The following table reflects the primary drivers of year-over-year changes in
miscellaneous revenues:
Millions)
Twelve months ended
December 31, 2008
Increase
Decrease) %
Due to Lexcom acquisition 0.8
%
Due to decreases in network management services
pedormed for Allel (a (12.5)(3.4)
1.4 2.8
(21.4)(13)%(54.7)(26)%
(a) Decreases in network management services pedormed for Alltel were due to Alltel's trnsition of these services to their own network. We billed Alltel approximately $2.1 million
and $14.7 million for these services during 2009 and 2008, respectively.
(b) Decreases in publishing right revenues in 2008 are due to the split.offofthe Company's directory publishing business completed on November 30, 2007 as previouslydiscussed.
(c) Decreases in service fees were attributable to the reduction in access lines.
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Product Sales
Product sales represent equipment sales to customers, including high.speed Internet modems and customer premise equipment. as well as sales of computers to residential high.speed
Internet customers. The following table reflects the primar drivers of year- over-year changes in product sales revenues:
(a) Decreases in business product sales during both periods were primarily due to lower demand for these products, which we believe was attributable to the postponement of
purchasing decisions by some businesses as a result of weakness in the overall economic environment.
(b) Increases in residential product sales during both periods were primarily attributable to sales of equipment that accompany Windstream's broadband service offerings.
Average Service Revenue per Customer
Average service revenue per customer per month increased I percent and 3 percent in 2009 and 2008. respectively. primarily due to high-speed Internet customer growth and pricing
increases on long distance services, as discussed above. Future growth in average service revenue per customer per month wil depend on the Company's success in sustaining growth
in sales of high-speed Internet and other enhanced services to new and existing customers.
Cost of Services
Cost of services primarily consist of network operations costs. including salaries and wages, employee benefits, materials, contract services and information technology costs to
support the network. Cost of services also include interconnection expense, bad debt expense and business taxes. The following table reflects the primar drivers of year- over-year
changes in cost of services:
i.
%
Twelve months ended
December 3 I, 2009
Increase
Decrease) %
74.0 11.8)
Due to decreases in other employee benefits
(5.7)14.7)
Due to changes in interconnection expense (g)
(15.9)(6.6)
Total cost of services
(32.0)10.6
1.4 0%(2.3)0%
(a) The increase in pension expense during 2009 is attributable to the amortization oflosses sustained on pension plan assets during the 2008 plan year.
(b) Increases in bad debt expense in both periods were primarily due to non-pay disconnects and other account write-offs.
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(c) Decreases in business taxes for both periods were attrbutable to a lower assessment for property and sales iid use taxes.
(d) Decreases in federal USF contrbutions were primarly due to the eliminations of contrbutions required for high-speed Internet services effective with the conversion to price.
cap regulation on July I, 2008, as previously discussed.
(e) The decrease in other employee benefits was primarily due to the reduction in postretirement benefits announced in the third quarter of 2008, with additional reductions
attributable to the impact of the workforce reduction announced in the fourth quarer of2008. as well as changes in other benefit programs.
(I) Decreases in network operations during 2009 were primarily attbutable to the workforce reductions announced in the fourth quarter of2008 and third quarer 2009, iid
reductions in fuel costs. Decreases in 2008 were primarly due to lower contract labor costs.
(g) Changes in interconnection expenses, or costs incurred by the Company to access the public switched network and to trsport traffc to the Internet, in 2009 were due to the
favorable impact of network effciency projects, the impact of access line losses and rate reductions. Parially offsetting these decreases were increases associated with
purchases of higher capacity circuits to service the growth in high-speed Internet customers. Increases in 2008 were primarily attrbutable to increases in Internet customers and
increases in the volume of long distance traffc resulting from the increases in customers on packaged and unlimited usage rate plans. as previously discussed.
Cost of Products Sold
Cost of products sold represent the cost of equipment sales to customers, including sales of high-speed Internet modems and customer premise equipment, as well as sales of
computers to residential high-speed Internet customers. The following table reflects the primar drivers of year-over-year changes in cost of products sold:
(a) Changes in residential cost of products sold were primarily due to the mix of products sold.
(b) Changes in business costs of product sold were consistent with the declines in business product sales in 2009.
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Table of Contents
Sellng, General, Admnistrtive and Other Expenses ("SG&A'1
SG&A expenses result from sales and marketing efforts, advertising, information technology support systems, costs associated with corprate and other support functions and
professional fees. These expenses also include salaries and wages and employee benefits not directly associated with the provision of services. The following table reflects the primary
drivers of year- over-year changes in SG&A expenses:
Twelve months ended
December 31, 2009
Increase
(Decrease) %
Twelve months ended
Decembe 31. 2008
Increase
(Decrease) %
0.4
(d)
(3.0)
(5.9)
(4.4
(a) The increase in pension expense during 2009 is attributable to the amortization of losses sustained on pension plan assets during the 2008 plan year.
(b) Dung 2008, Windstream recognized a $6.5 milion non-cash impairment charge to adjust the carring value ofthe Company's Wireless Communications Services and 39 GHz
fixed wireless spectrum license to their estimated fair value. The fair market value ofthese assets was been reduced to a nominal amount due to the impairment, which resulted
from general market conditions as well as limited interest on this bandwidth of spectrum.
(c) Decreases in employee benefits expense during 2009 were primarily attributable to a reduction in postretirement benefits announced in the third quarter of2008, with additional
reductions attributable to the impact of the workforce reduction announced in the fourth quarer of 2008 and changes in other benefit programs.
(d) Decreases in general and administrative fees during 2009 and 2008 were attributable to declines in regulatory fees that are based on access lines. improved insurance claims
experience and the Company's continued efforts to contain costs.
Depreciation and Amortization Expense
Depreciation and amortization expense primarily includes the depreciation ofthe Company's plant assets and the amortization of its definite-lived intangible assets. The following table
reflects the primary drivers of year- over-year changes in depreciation and amortization expense:
Twelve months ended
December 31. 2009
Increase
(Decrease) %
Twelve months ended
December 31, 2008
Increase
(Decrease) %(Milions)
Due to Lexcom ac 0.7
(a) Effective January i, 2009. the Company began amortizing its franchise rights on a straight-line basis over an estimated useful life of30 years. Previously. the Company had
assigned an indefinite useful life to these assets but the effects of increasing competition resulted in a prospective change in their estimated useful life (see Note 2).
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Table of Contents
(b) Depreciation expense decreased in 2008 primarily due to the completion of studies of the Company's depreciable lives during 2007. Depreciable lives were revised to reflect the
estimated remaining useful lives of wire line plant based on the Company's expected future network utilzation and capital expenditure levels required to provide service to its
customers (see Note 2).
Restructuring Charges
Restructuring charges, consisting primarily of severace and employee benefit costs, are triggered by the Company's continued evaluation of its operating strcture and identification
of opportnities for increased operational effciency and effectiveness. These costs should not necessarily be viewed as non-recurrng. They are reviewed regularly by the Company's
decision makers and are included as a component of compensation targets.
During the year ended December 31, 2009, Windstream recognized $9.3 milion in severance and employee benefit costs primarly related to the workforce reduction initiated during the
third quarer of2009 to better align the Company's focus on high-speed Internet and enterprise opportnities. The Company expects to realize annual savings of approximately $20.0
milion as a result ofthis initiative. Durng the first quarer of2009, the Company recorded a $0.1 milion reduction in liabilties to reflect differences between estimated and actual costs
paid associated with a work force reduction initiated during the fourth quarer of2008. Durng the second quarter of 2009, the Company incurred $0. I milion in severance and employee
benefit costs associated with the closure of an out of territory sales and product distribution facility.
During the year ended December 31. 2008, the Company incurred $8.5 milion in severance and employee benefit costs primarily related to the announced workforce reduction in the
fourth quarter of 2008 to control expenses in a challenging economy and the realignment of certain information technology. network operations and business sales functions.
Merger and Integration Costs
Merger and integration costs are unpredictable by nature, and include costs incurred related to strategic transactions such as transaction costs, rebranding costs, system conversion
costs and employee related transaction costs (see Note i 0). Set forth below is a summary of merger and integration costs for the years ended December 3 I:
2009 2008 2007
8.6
costs
Regulatory Matters
Our incumbent local exchange carrier subsidiaries (collectively the "ILECs") are regulated by both federal and state agencies. Our interstate products and services and the related
earings are subject to federl regulation by the Federal Communications Commission ("FCC") and our local and intrastate products and services and the related earnings are suhject to
regulation by state Public Service Commissions ("PSCs"). The FCC has principal jurisdiction over matters including, but not limited to, interstate switched and special access rates, as
well as high-speed Internet service offerings. It also regulates the rates that ILECs may charge for the use of their local networks in originating or terminating interstate and international
transmissions. The PSCs have jurisdiction over matters including local service rates, intrastate access rates, quality of service. the disposition of public utility propert and the issuance
of securities or debt by the local operating companies.
Federal Regulation and Legislation
Communications services providers are regulated differently depending primarily upon the network technology used to deliver the service. This patchwork regulatory approach
advantages certain companies and disadvantages others. It impedes market-based competition where service providers using different technologies exchange telecommunications
traffc and compete for customers.
From time to time federal legislation is introduced dealing with various matters that could affect our business. Most proposed legislation of this type never becomes law. It is diffcult to
predict what kind of reform efforts, if any, may be introduced in Congress and ultimately become law. Windstream strongly supports the modernization of the nation's
telecommunications laws, but at this time, cannot predict the timing and the resulting financial impact of any possible federal legislative efforts.
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On Februar 17,2009, the Amercan Recovery and Reinvestment Bill of2009 was signed into law that includes varous financial incentives to qualifying entities for the expansion of
broadband services in both unserved and underserved communities throughout the nation. The legislation allocates approximately $7.0 bilion for the expansion of both wired and
wireless broadband services. The Company elected not to participate in the application process for the first round of stimulus funding, which was releasd during 2009. After a careful
review of the program rules, the Company determined that the rules applicable to the first round of funding did not allow for a sound and sustainable business case. The Company is
currently reviewing the rules applicable to the second round of funding and evaluating whether it should participate in the application process.
As part ofthe American Recovery and Reinvestment Act ("ARR"), Congress directed the FCC to report to Congress by mid-Februar with a National Broadband Plan. In conjunction
with this report, it is expected that the FCC will consider a myrad of issues related to high-speed Internet access deployment and adoption and, among other things, may consider
universal service and intercarrier compensation reform. On December 7, 2009, Windstream, CenturyTel, Inc. Frontier Communications Corporation, Consolidated Communications
Holding, Inc and Iowa Telecom filed a plan with the FCC to refonn the intercarer compensation and universal service mechanisms and further deploy broadband in unserved areas. If
adopted, the proposal would stabilze intercarrer compensation and universal support and provide additional funds to Windstream to assist with the deployment of broadband services
to rural areas.
Price-Cap Petition Granted by FCC
Effective July I, 2008, the Company converted the majority of its remaining interstate rate-of-return regulated operations to price-cap regulation. Price-cap regulation better aligns the
Company's continued efforts to improve its cost structure, because rates for interstate wholesale services are not required to be periodically adjusted based on the Company's cost
structure, and under price-cap regulation. high-speed Internet services can be deregulated. As previously discussed, high-speed Internet services were deregulated effective July I,
2008. Prior to the conversion, with the exception of our Nebraska and New Mexico operations, and a portion of our Kentucky, Oklahoma and Texas operations, our interstate ILEC
operations were subject to rate-of-return regulation by the FCC.
Inter-carrer Compensation
The Company's local exchange subsidiaries currently receive compensation from other telecommunications providers, including long distance companies, for origination and
tennination of interexchange traffc through network access charges that are established in accordance with state and federal laws.
On November 5, 2008. the FCC issued a furter notice of proposed rulemaking ("FNPRM") that sought comment on proposals that would change the rules governing inter-carrer
compensation. Proposals considered by the FNPRM would significantly reduce inter-carrier compensation revenues over a ten-year period, classify VolP/public switch telephone
network ("PSTN") traffc as an "infonnation service," and adopt measures to ensure proper billing of "phantom traffc". Windstream strongly supports regulatory refonn, but with the
exception of the phantom traffc reforms, Windstream is opposed to the inter-carrier compensation proposals under consideration by the FNPRM. We have submitted an alternative
proposal that includes a measured reduction in access rates, increases in subscriber line charges, and additional federal universal service support.
The FCC has received other proposals to refonn inter-carrier compensation mechanisms. If the Commission acts, the outcome is likely to change the way the Company receives
compensation from. and remits compensation to, other carriers and its end-user customers, as well as the federal universal service fund. Until these proceedings conclude and any
changes to the existing rules are established, the Company cannot estimate the impact of any changes on its ILEC revenues or expenses or when such changes would occur.
Universal Service
The federal universal service program is under legislative, regulatory and industry scrutiny as a result of the growth in the fund and structural changes within the telecommunications
industry. The primary structual change is the increase in the number of Eligible Telecommunications Carrers ("ETCs") receiving money from the USF. There are several FCC
proceedings underway that are likely to change the way the universal service programs are funded and the way universal service funds are disbursed to progrm recipients. The specific
proceedings are discussed below.
On May 1,2008, the FCC released an order adopting an interim, emergency cap on the amount of high-cost support that competitive ETCs may receive. Competitive ETC supprt wil be
capped in each state at the amount competitive ETCs were eligible to receive in such state during March 2008 on an annualized basis. The Company's high-cost support was not
affected by the FCC's order.
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Table of Contents
On November 5, 2008, the FCC issued a FNRM seeking comment on proposals that would cap high-cost receipts based on the support each carrer is eligible to receive at Decembe
2008 levels on an annualized basis. To continue receiving this support, high-cost recipients would have to certify that they would deploy specified high-speed Internet services
throughout their supported areas over a five-year period. Areas for which high-cost recipients decline to make such certification would be subject to a reverse auction. The reserve price
for the auction would be the amount the ILEC would be entitled to receive if it would have agreed to deploy high-speed Internet services throughout its service area. Bidders would
need to be certified as an ETC by the respective state commission. The winning bidder would accept all carrer of last resort obligations. If the auction produced no winner, the area
subject to the auction would be deemed a truly high-cost area and the FCC would determine what further actions would need to be taken to ensure the study area is served by a
company willng to meet the broadband commitment and carer of last resort requirements.
Proposals under consideration by the FNPRM also would eliminate the identical support rule, which allows competitive ETCs to receive the same per line support as the ILEe.
Competitive ETCs. instead, would be required to fie cost information to qualify for high-cost support.
In addition, the proposals under consideration would base the federal universal service contribution methodology on residential telephone numbers and business revenues. The FCC
then would seek comment on whether it should begin using business connections, rather than revenues, to determine contributions from providers of business services. Without more
specificity regarding the likely outcome of the proceeding, we cannot provide a meaningful estimate of the impact a change in carrer contribution obligations would have on our
operations.
State Regulation
Local and Intrastate Rate Regulation
Most states in which our ILEC subsidiaries operate provide alternatives to rate-of-return regulation for local and intrstate services, either by law or PSC rules. We have elected
alternative regulation for our ILEC subsidiaries in all states except New York. We continue to evaluate alternative regulation options in New York where our ILEC subsidiar remains
subject to rate-of-return regulation.
State Universal Service
We recognize revenue from state universal service fuds in a limited number of states in which we operate. In 2009. Windstream recognized $13 i. i million in state universal service
revenue. These payments are intended to provide additional support, beyond the federal universal service receipts, for the high cost of operating in rural markets. For the year ended
December 3 1,2009, Windstream received approximately $97.8 milion from the Texas USF. There are two high-cost programs of the Texas USF, one for large companies and another for
small companies. In 2009, Windstream received $85.5 million from the large company program and $12.3 milion from the small company program. The purpose ofthe Texas USF is to
assist telecommunications providers in providing basic local telecommunications services at reasonable rates to customers in high cost rural areas and to qualifying low-income and
disabled customers. By order ofthe Texas PUC, the Texas USF distributes support to eligible carriers serving areas identified as high cost, on a per-line basis. Texas USF support
payments are based on the number of actual lines in service and therefore are subject to reductions when customers discontinue service or migrate to a competitive carrier. All
customers of telecommunications services in Texas contribute to the Texas USF through the payment of a monthly surcharge by their customers.
The Pennsylvania PUC is currently conducting a review of its universal service fud. The review is focused on various aspects of the fund as they pertain to the basic rates of eligible
USF recipient companies and the impact of their alternative regulation plans. The Company receives $13.3 milion annually from the fud. The Company cannot estimate at this time the
financial impact, if any. that may result from changes to the Pennsylvania universal service fund.
In June 2006, the D&E subsidiaries made a fiing to increase their local rates in accordance with their alternative regulation plans. Under the plans, local rates would have exceeded a
prescribed local rate cap of $ i 8.00. The D&E subsidiaries sought to recover the revenues that exceeded the rate cap by increasing intrstate switched access rates. On July i i, 2007, the
Pennsylvania PUC allowed the local rate increases to go into effect, but denied the proposed increases in switched access rates. The D&E subsidiaries fied a petition for
reconsideration, asking in the alternative, to be permitted to recover revenues in excess of the local rate cap from the Pennsylvania universal serice fund. On November 29, 2007, the
Pennsylvania PUC approved the local rate increases and allowed the D&E subsidiaries to exceed the rate cap, but denied the request for increases in state universal service support. On
May 9, 2008, the D&E subsidiaries fied an appeal in the Commonwealth Court seeking to reverse the above decisions. On December i 5,2009. the Commonwealth Court issued an order
affrming the Pennsylvania PUC's decision. The Court's decision wil not have a material impact on the Company's operations.
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Inter-carrer Compensation
On October 5, 2007, Verzon filed a complaint with the Ohio PUC alleging that the Company's intrastate access rates are excessive and should be reduced to the same levels charged by
the largest ILECs in Ohio, or in the alternative, to the Company's interstate access rate levels. If the Ohio PUC were to grant Verizon's request and require the Company to implement the
large ILEC rate structure, the Company would incur a reduction in annual revenues of up to $7.6 milion. This estimate assumes the Company would be allowed to implement retail rate
increases simultaneously wilh the access rate reductions similar to the plan adopted by the PUC for the larger Ohio ILEC access rate reductions. The Ohio PUC has not acted upon
requests by other parties for the Company and other similar sized ILECs in Ohio to reduce their intrastate access rates.
On December 5. 2007 and Februar 22, 2008, Verion fied complaints with the Kentucky PSC and the Georgia PSC very similar to the complaint filed in Ohio. In these cases, Verizon also
alleges that the Company's intrastate access rates are excessive and should be reduced to the level curently charged by AT&T (formerly BellSouth).
The Company requested that the Ohio PUC, the Kentucky PSC and the Georgia PSC deny Verizon's requested relief based in part on the fact that the Company's intrastate access rates
are just and reasonable and on the current efforts to reform inter-carer compensation comprehenively at the federal level, as previously explained.
On March 19,2009, AT&T fied a complaint with the Pennsylvania PUC alleging that the Company's intrastate access rates are not just and reasonable and should be reduced to the
Company's interstate access rate levels.
On November 23, 2009, Sprint requested that the North Carolina Utilities Commssion reduce the Company's access rates to a cost-basis or, in the alternative, to the Company's
interstate access rate levels.
The Company wil request that the Pennsylvania PUC and the North Carolina Utilties Commission deny AT&T's and Sprint's requested relief based in part on the fact that the
Company's intrastate access rates are just and reasonable and on the current effort to reform inter-carrer compensation comprehensively at the federal level, as previously explained.
At this time, the Company cannot estimate the financial impact of any PSC decision due to the various options the PSC could cönsider if it ruled in Complainant's favor that would affect
the financial impact ofthe rate reductions, if any.
Directory Publishing Segment
The following table reflects the Company's directory publishing segment results as of December 3 i:
Costs and expenses:
Selling, general, administrtive and other 27.5
Segment income $5.3
In the fourh quarter of 2007 , the Company completed the split off of its directory publishing business, as previously discussed. Results in 2007 were derived from the publication of
directories for affliated and non-affliated local exchange carers.
Merger and integration costs related to the directory publishing were $3.7 million for 2007 and were the result of transaction costs associated with the split off of the directory
publishing business. These costs are not included in the determination of segment income.
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Thefollowing discussion and analysis details Windstream's consolidated merger and integration and restructuring costs.
Merger, Integration and Restrcturing Costs
Costs triggered by strategic transactions, including transaction costs, rebranding costs and system conversion costs are unpredictable by nature and are not included in the
determination of segment income. Restructuring charges, consisting primarily of severance and employee benefit costs, are trggered by the Company's continued evaluation of its
operating structue and identification of opportnities for increased operational effciency and effectiveness. These costs should not necessarily be viewed as non-recurng.
Set forth below is a summar of merger and integration and restrcturing costs recorded for the years ended December 31:
2009 2008 2007
3.7
Total merger, integration and restructuring costs $31.6 $14.7 $12.8
Summary of Liability Activity Related to Both Merger and Integration Costs and Restrctung Charges
The following table is a summary of liabilty activity related to both merger and integration costs and restructung charges as of December 31 :
2009 2008 2007
22.3 1.6 8.2
25.3
Accrued merger. integration and restructuring charges at end of period $6.6 $8.3 $14.7
As of December 31,2009, the remaining liability of$6.6 millon for accrued merger, integration and restrcturing charges consisted of$O.4 million of Valor lease termination costs and
$6.2 million of accrued severance costs primarily associated with the integration of D&E and Lexcom. Valor lease payments will be made over the remaining term of the lease. The
severance and related employee costs will be paid in 20 i O. Each of these payments will be funded through operating cash flows.
Merger, integration and restrcturing costs decreased net income $19.4 milion, $9.0 million and $8.8 milion for the year ended December 31, 2009, 2008 and 2007. respectively, giving
consideration to tax benefits on deductible items. See Note 10 for additional information regarding these charges.
The following discussion and analysis details results for Windstream's consolidated operating income and all other consolidated results presented below operating income.
Operating income decreased $175.5 million, or 15.5 percent, in 2009 and $17.5 milion, or 1.5 percent, in 2008. The declines in 2009 were primarily due to the unfavorable impact of pension
and amortization expense. In addition. operating income during both years was unfavorably impacted by revenue declines associated with continued access line losses. These declines
were offset by the favorable impacts of high-speed Internet customer growth and expense management initiatives.
Other Income, Net
Set fort below is a summar of other income, net for the years ended December 31 :
1.4 $2.7 $
3.0 (5.8)
Other expense, net (0.8)(0.2)1.9
Other income, net decreased $3.2 million in 2009 and decreased $9.0 million in 2008.
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The decline in 2009 was primarly due to the recognition of a $7.7 milion gain from the sale of Company investments in 2008 and $2.4 millon additional interest expense on undesignated
swaps, partially offset by the change in fair value of the undesignated portion of an interest rate swap agreement as discussed furter in Note 2. Pursuant to the authoritative guidace
on accounting for derivative financial instrments and hedging activities, as amended, changes in the market value of the undesignated portion of this interest rate swap are included in
net income. The market value calculation of this interest rate swap is based on estimates of forward variable interest rates, and changes in estimated forward rates could result in
significant non-cash increases or decreases in other income, net in future periods.
Gain on Sale of Publishing Business
On November 30, 2007 Windstream completed the split off of its directory publishing business in a tax-free transaction with entities affliated with WCAS. As a result of completing this
trnsaction, Windstream recorded a gain of$45\.3 million in the fourth quarer of2007 (see Note 3).
Interest Expense
Set fort below is a summary of interest expense for the year ended December 3 i;
$6.8 $14.6 .9
3.8 8.9 7.0
39.2 39.8 40.4
Other interest expense 0.1 0.1 0.2
Total interest expense 410.2 $416.4 444.4
Interest expense decreased $6.2 milion, or i percent. in 2009 and decreased $28.0 million, or 6 percent, in 2008. The decrease in 2009 was primarly 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 decrease in 2008 was primarily due to the Novembe 2007 retirement of
$210.5 million of Tranche A senior secured debt under its credit facility in a debt-for-debt exchange related to the sale of its publishing business, as well as the decline in the LIBOR rate
impacting the Tranche A notes. In addition, the Company incurred $5.3 million in non-cash interest expense in the first quarter of2007 on Tranche B of its senior secured credit facility
due to the write-off of previously capitalized debt issuance costs. These debt issue costs were associated with $500.0 million of the Tranche B loan that was paid down pursuant to the
refinancing transaction during the first quarter of2007 (see Note 5). The weighted-average interest rate paid on the long-tenn debt was 7.7 percent in both 2009 and 2008.
Income Taxes
Income tax expense decreased $72.1 milion, or 25 percent in 2009, and increased $3\. 7 milion, or 13 percent, in 2008. The decrease in income ta expense in 2009 was generlly consistet
with the Company's decrease in income before taxes. The increase in income tax expense in 2008 was primarily drven by adjustments to defered income taxes for the impact of
completing an internal reorganization of our legal entity structure. The Company's effective ta rate in 2009 was 38.7 percent, compared to 39.4 percent in 2008 and 2 \.6 pecent in 2007.
The increase in the effective rate between 2007 and 2008 was primarily due to the non-taxable gain recognized in 2007 on the sale of the directory publishing segment. For 20 i 0, the
Company's annualized effective income tax rate is expected to range between 37.5 and 38.5 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 Opertions, 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 $2 1.3 million to reduce the carring value of the net assets sold to the transaction price less costs to sell. Wireless
business income before taxes was $9.7 million and $ \.2 million in 2008 and 2007, respectively. Additionally, the Company made tax payments of$14.8 milion related to the excess of
consideration received over tax basis in the assets sold.
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capita Resources
Duing 2009, the Company generated $1,120.8 milion in cash flows from opertions and increased its cash position by $766.3 millon to $1,062.9 million at December 31, 2009, primary
due to the proceeds ofa $1,100.0 milion debt offering in 2009 (see "Cash Flows - Financing Activities"). We expect that cash on hand, along with cash generated from operations over
the next year, wil be adequate to finance our ongoing operating requirements, capital expenditures, scheduled principle payments of long-ter debt. the payment of dividends in 2010
and the NuVox acquisition. In addition, we expect these same sources, together with available capacity under our $500.0 millon revolving credit facility (see Note 5). wil be suffcient to
finance the acquisition oflowa Telecom.
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 durng 2009, totaling $437.4 milion. Windstream also paid $109.2 milion to shareholders in January 2010 pursuant
to a $0.25 quarterly dividend declared during the fourth quarter of2009.
In February 2008, the Windstram Board of Directors approved a stock repurchase program for up to $400 milion of the Company's common stock continuing until December 3 i, 2009.
During 2009, the Company repurchased 13.0 milion shares totaling $121.3 million bringing total repurchases under the stock repurchase progra to 29.0 milion shars for approximately
$321.6 milion. The stock repurchase program expired on December 3 I, 2009.
As of December 3 1,2009, the Company had approximately $783.0 millon of restricted payment capacity as governed by its credit facility. The Company builds additional capacity
through cash generated from operations while dividend payments, share repurchases and other certain restricted investments reduce the available restricted payments capacity. The
Company wil continue to opportnistically consider free cash flow accretive initiatives. including strategic opportnities and debt repurchases.
Additionally, during October of2009, Windstream received consent from its lenders to an amendment and restatement of its $2,148.4 milion senior secured credit facility (the
"Amendment"). Windstream amended and restated its senior secured credit facility to, among other things, extend the maturities of the facilty and amend certain covenants to afford
Windstream additional flexibility. resulting in increased interest rates on the extended maturities. The extended maturities and related interest rate increases associated with the
Amendment as of December 3 i, 2009 were as follows:
Tranche A - variable rates
Non-extended Extended Total
Amount
(Milions)
Interest
Rate Increase
(Basis Points)
(a) As of December 3 1,2009, the Company had repaid the full amount outstanding under the revolving line of credit.
As of December 31, 2009, the Company had $6,295.2 million in long-term debt outstanding, including current maturities (see Note 5). This outstanding debt is principally comprised of
approximately $2,148.4 millon secured primarily under the Company's senior secured credit facilty and approximately $4. I 46.8 milion in unsecured senior notes. Scheduled principal
payments for debt outstanding as of December 31, 2009 for each ofthe twelve month periods ended December 31, 2010, 201 i. 2012, 2013 and 2014 were $23.8 millon, $139.4 millon, $50.4
million, $ i ,242.6 millon and $~ 0.8 millon, respectively. Scheduled principle payments remaining after 20 i 4 approximate $4,867.4 milion.
The terms of the senior secured credit facility and indentures include customar covenants that. among other things, require Windstream to maintain certain financial ratios. restrict its
ability to incur additional indebtedness and limit its cash payments. These financial ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage
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ratio of2.75 to 1.0. In addition, the covenants include restrictions on dividend and certin other tyes of payments, as previously described, as well as restrctions on capital
expenditus. For 2010, the Company's capital expenditure capacity, as calculated under these covenants, is approximately $662. I millon, which includes $170.1 milion of unused
capacity from 2009 and approximately $42.0 milion in additional capacity attbutable to the adjusted earings before interest, taes, depreciation and amortzation ofD&E, Lexcom and
NuVox.
The financial ratios required by the Company's senior secured credit facility and indentures include certain financial measures that are not calculated in accordance with accounting
principles generally accepted in the United States ("non-GAAP financial measures"). These non-GAAP financial measures are presented below for the sole purose of demonstrating
the Company's compliance with its debt covenants and were calculated as follows:
(Milions. exce t ratios)
December 31,
2009
Total debt 6,295.2
Adjusted earnings before interest. taxes, depreciation and amortization
("Adjusted EBITDA")1,724.3
Maximum gross leverage ratio allowed 4.50
Adjusted EIlITDA 1.724.3
ratio (c) (e)
Adjustments required by the credit facilities and indentures (d)
(a) Adjustments required by the credit facility and indentures primarily consist of the inclusion ofD&E and Lexcom preacquisition operating income before depreciation and
amortization, pension and stock-based compensation expense and non-recurrng merger. integration and restrcturing charges.
(b) The gross leverage ratio is computed by dividing total debt by adjusted EIlITDA.
(c) These ratios are expected to be favorably impacted by the completion ofthe NuVox and Iowa Telecom acquisitions. Durng 2009, the Company incurrd approximately $1,100.0
million in new debt to finance these transactions, which are expected to close in 2010. In accordance with the Company's debt covenants, the preacquisition operating results of
the acquired business wil be added to adjusted EIlITDA upon completion of the related acquisitions.
(d) Adjustments required by the credit facility and indentures primarily consist of the inclusion of interest expense related to the 20 i 7 Notes as ifthey were issued January I. 2009,
capitalized interest and amortization of the discount on long-tenn debt. net of premiums.
(e) The interest coverage ratio is computed by dividing adjusted EBITDA by adjusted interest expense.
In addition, certain ofthe Company's debt agreements contain various covenants and restrictions specific to the subsidiary that is the legal counterparty to the agreement. Under the
Company's long-tenn debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, a change in control
including a person or group obtaining 50 percent or more of Windstream 's outstanding voting stock, or breach of certain other conditions set forth in the borrowing agreements. At
December 3 1,2009, the Company was in compliance with all such covenants and restrictions.
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As of February 23, 2010, Mooy's Investors Service, Standard & Poor's Corporation and Fitch Ratings had granted Windstream the following senior secured, senior unsecured and
corporate credit ratings:
Mood's S&P Fitch
Ba3 B+BB+
Stable Stable Negative
Factors that could affect Windstream's short and long-term credit ratings would include, but are not limited to, a material decline in the Company's operating results, increased debt
levels relative to operating cash flows resulting from future acquisitions, increased capital expenditure requirements, or changes to our dividend policy. IfWindstream's credit ratings
were to be downgraded, the Company may incur higher interest costs on future borrowings. and the Company's access to the public capital markets could be adversely affected. The
Company's exposure to interest risk is further discussed in the Market Risk section below. A downgrade in Windstream's current short or long-term credit ratings would not accelerate
scheduled principal payments of Wind stream's existing long-term debt, as discussed furter in Note 5. Windstream's next significant scheduled debt maturity is in 2013.
Historical Cash Flows
2009 2008 2007
$1,120.8 $1,080.4 1.033.7
Financing activities 138.3 (622.7)(481.4)
Cash Flows - Operating Activities
Cash provided from operations is the Company's primary source of funds. Cash flows from operating activities increased by $40.4 million in 2009 as compared to 2008. and $46.7 million
in 2008 as compared to 2007, primarily from the deferral of cash tax payments resulting from accelerated depreciation on qualifying asset purchases in 2009 as provided in the Economic
Stimulus Act. In both periods, increases were partially offset by changes in working capital requirements, including timing differences in the billing and collections of accounts
receivable. payment of trade payables and purchases of inventory. During 2009, the Company generated suffcient cash flows from operations to fund its capital expenditures,
scheduled principle payments oflong-term debt and payment of dividends as further discussed below.
Cash Flows - Investing Activities
Cash used in investing activities increased by $259.7 milion in 2009 as compared to 2008, primarily due to net cash used to acquire D&E and Lexcom, as previously discussed. Proceeds
from the 2008 sale of the wireless business and acquired assets held for sale, totaling $56.7 milion and $ i 7.8 milion, respectively. also contributed to the increase (see Notes 2 and 3).
Cash used in investing activities decreased by $634.0 milion in 2008 as compared to 2007, primarly due to net cash used to acquire CTC. This 2007 cash outlay, totaling $546.8 millon,
was funded primarly with cash on hand at the time of the acquisition, with the remainder funded through borrowings from the Company's revolving line of credit. It was parially offset
by $40.0 milion in proceeds received on the sale ofthe publishing business.
A reduction in capital expenditures in 2009 as compared to 2008 offset the increase in cash used in investing activities. Capital expenditues were $298. i million, $3 i 7.5 millon and $365.7
milion for 2009,2008 and 2007, respectively. Capital expenditures in each of the three years were incurred to construct additional network facilities and to upgrade the Company's
telecommunications network in order to expand our offering of other communications services, including high-speed Internet communication services. During each of the three years,
the Company funded its capital expenditures through internally generated funds.
The primary uses of cash for future capital expenditures are for propert, plant and equipment necessary to support the Company's wireline operations. Capital expenditures are
forecasted to be between $360.0 milion and $390.0 million for 2010, which includes the forecasted capital to support the acquired D&E. Lexcom and NuVox networks. Capital
expenditures for 2010 wil be primarily incurred to construct additional network facilities and to upgrade the
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Company's telecommunications network. Windstream wil continue to focus capital expenditures on the expansion of its next generation network services, including Ethernet internet
access, Virtal LAN services ("VLS") and Virtal Prvate Network ("VPN") services. Additionally, Windstram wil continue to focus on infrstrcte upgrades, including placing fiber
in the network, to support our suite of enterprise and residential high-speed Internet services and expand our 6 Mb and 12 Mb high-speed Internet footprint. The forecasted spending
levels in 2010 are subject to revision depending on changes in future capital requirements. The Company generated positive cash flows in 2009 suffcient to fund its day-to-day
operations and to fund its capital requirements. As mentioned previously, we expect that cash on hand. along with cash generated from operations over the next year, wil be adequate
to finance our ongoing operating requirements and capital expenditures.
Cash Flows - Financing Activities
During 2009, Windstream issued $1,100.0 milion in aggregate principle amount of7.875 percent senior unsecured notes. Net proceeds from this offering totaled $1,083.6 milion with a
yield of8.l29 percent. Repayments of borrowings totaled $356.6 milion and included the repayment of$182.4 milion in debt assumed from D&E. Dividends paid to shareholders totaled
$437.4 million in 2009, which declined by $7.8 million and $3 1.6 million in 2009 and 2008, respectively, due to fewer shares issued and outstanding during 2009 and 2008. respectively, as a
result of the stock repurchase program and the split off of the directory publishing business. As previously discussed, in 2009 and 2008 the Company repurchased 13.0 milion and
16.0 milion shares, respectively, of its common stock at a cost of $12 1.3 milion and $200.3 million. respectively. The Company also repurchased approximately 3.0 millon shaes of its
common stock during 2007 using $40.0 milion in proceeds from a special cash dividend received pursuant to the sale of its publishing business.
Repayments of borrowings were $354.3 million during 2008. Gross debt issued, net of issuance costs, during the twelve months ended December 3 1.2008 totaled $380.0 milion. In 2008,
the Company borrowed $380.0 milion from its $500.0 milion revolving credit agreement. Gross payments on the revolving credit agreements totaled $330.0 milion during 2008, resulting
in a $50.0 million net increase in amounts due under the revolving credit agreement. Other retirements of long-term debt in 2008 reflected the required scheduled principal payments
under the Company's existing long-term debt obligations.
Proceeds received from borrowings in 2007, net of issuance costs, totaled $848.9 milion, while repayments of borrowings were $8 i 1.0 million. Duing 2007, the Compay issued $500.0
milion in senior unsecured notes due 2019. These proceeds were used to retire $500.0 milion in principal borrowings under Tranche B of the senior secured credit facilty, which was
refinanced through this transaction to lower the interest rate on the remainder of Tranche B and modify the pre.payment provisions. The remaining borrowings totaling $350.0 milion in
2007 were from the Company's revolving line of credit, which was used in par to fund the acquisition ofCTC. The remaining repayments during 2007 included the payoff of$37.5 milion
of debt obligations assumed from CTC, payments to reduce amounts outstanding under the revolving line of credit of$250.0 million and scheduled principal payments on the
Company's outstanding borrowings. As a result, net amounts due under the revolving credit agreement increased $100.0 million during 2007.
Off-Balance Sheet Arrangements
We do not use securitization of trade receivables. affliation with special purpose entities, variable interest entities or synthetic leases to finance our operations. Additionally, we have
not entered into any arrangement requiring us to guarantee payment of third party debt or to fund losses of an unconsolidated special purpose entity.
Contrctual Obligations and Commitments
Set fort below is a summary of our material contractual obligations and commitments as of December 3 I, 2009:
Less than
i Year
1-3
Year
Payments due by Period
3 - 5 More thanYear 5 ears Total
427.6 838.5 755.9 861.6 2,883.6
(a) Excludes $39.2 million of unamortized discounts (net of premiums) included in long-term debt at December 3 1,2009.
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(b) Variable rates on traches A and B of the senior secured credit facility are calculated in relation to LIBOR, which was 0.28 percent at December 31, 2009.
(c) Purchase obligations include open purchase orders not yet receipted and amounts payable under noncancellable contracts. The portion attributable to noncancellable contracts
primarily represents agreements for network capacity and softare licensing.
(d) Other long-term liabilities and commitments primarily consist of deferrd tax liabilties, pension and other postretirement benefit obligations and interest rate swaps.
(e) Excludes $5.2 millon of reserves for uncertin tax positions, including interest and penalties, that were included in other liabilities at December 31, 2009 for which the Company is
unable to make a reasonably reliable estimate as to when cash settlements with taxing authorities will occur.
(f) Includes $45.8 milion and $10.7 milion in current portion of interest rate swaps and pension and postretirement benefit obligations, respectively that were included in curent
portion of interest rate swaps and other curent liabilities at December 3 I, 2009.
Under our long-term debt agreements, acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30 days, a change in control
including a person or group obtaining 50 percent or more of Wind stream's outstanding voting stock, or breach of certin other conditions set forth in the borrowing agreements. At
December 31, 2009, we were in compliance with all of our debt covenants. There are no provisions within any of our leasing agreements that would trgger acceleration of future lease
payments. See Notes 2, 5, 6, 8, 12, 13 and 15 for additional information regarding cerain of the obligations and commitments listed above.
MAT RISK
Market risk is comprised ofthree elements: foreign currency risk, interest rate risk and equity risk. As further discussed below. the Company is exposed to market risk from changes in
interest rates. The Company does not directly own significant marketable equity securities other than highly liquid cash equivalents, nor does it operate in foreign countries. However,
the Company's pension plan invests in marketable equity securities, including marketable debt and equity securities denominated in foreign currencies.
Interest Rate Risk
The Company is exposed to market risk through changes in interest rates. primarily as it relates to the variable interest rates it is charged under its senior secured credit facility. Under its
current policy, the Company enters into interest rate swap agreements to obtain a targeted mixture of variable and fixed interest rate debt such that the portion of debt subject to variable
rates does not exceed 25 percent ofWindstream's total debt outstanding. The Company has established policies and procedures for risk assessment and the approval, reporting, and
monitoring of interest rate swap activity. Windstream does not enter into interest rate swap agreements, or other derivative financial instruments, for trading or speculative purposes.
Management periodically reviews Windstream's exposure to interest rate fluctuations and implements strategies to manage the exposure.
Due to the interest rate risk inherent in its variable rate senior secured credit facility, the Company entered into four pay fixed, receive variable interest rate swap agreements on notional
amounts totaling $ 1,600.0 milion at July 17, 2006 to convert variable interest rate payments to fixed. The counterpart for each of the swap agreements is a bank with a current credit
rating at or above A+. The four interest rate swap agreements amortze quarerly to a notional value of$906.3 milion at maturity on July 17,2013. and have an unamortzed notional value
of $ 1.175.0 million as of December 31, 2009. The variable rate received by Windstream on these swaps is the three-month LIBOR (London-Interbank Offered Rate), which was 0.28
percent at December 31, 2009. The fixed rate paid by Windstream is 5.60 percent. The interest rate swap agreements are designated as cash flow hedges of the interest rate risk created
by the variable interest rate paid on the senior secured credit facilty. As discussed in Liquidity and Capital Resources, during the fourth quarter of 2009, the Company amended certain
terms of$I,075.3 milion in debt outstanding under Tranche B of its senior secued credit facility. which among other things, extended the maturity date from July 17.2013 to
December 17,2015. At this time the Company has not entered into any agreements to hedge the interest rate risk associated with the variable interest that will remain outstading under
the senior secured credit facility after July 17,2013.
After the completion of a refinancing transaction in February 2007, a portion of one of the four interest rate swap agreements with a notional value of $ I 25.0 milion was de-designated
and is no longer considered an effective hedge as the portion of the Company's senior secured credit facility that it was designated to hedge against was repaid.
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Changes in the market value of this porton ofthe swap, which has an unamortized notional value of$96.3 milion as of December 31,2009, are recognized in net income, including a $3.0
million gain in the consolidated statement of income in 2009. Changes in the market value of the designated portion of the swaps ar recognized in other comprehensive income.
As of December 31,2009, the unhedged portion of the Company's vanable rate senior secured credit facility was $569.7 million, or approximately 9.1 percent of its total outstanding
long-term debt. Windstream has estimated its interest rate nsk using a sensitivity analysis. For variable rate debt instruments. market risk is defined as the potential change in earnings
resulting from a hypothetical adverse change in interest rates. A hypothetical increase of 100 basis points in vanable interest rates would reduce annual pre-tax earnings by
approximately $5.7 milion. Actual results may differ from this estimate.
EguityRisk
The Company utilizes various financial institutions to invest its cash on hand in short-term secunties. These financial institutions are generally a part to the existing Windstream credit
facility. Windstream has maintained an average cash balance of approximately $351.2 milion durng the twelve months ended December 31, 2009. These monies have been invested in
both taxable funds as well as tax-exempt municipal funds, and monies wil often be moved between these two tyes of securities depending on their respective yields. These monies are
all invested in AAA rated funds with same day access, and thus are highly liquid.
In addition. the Company has exposure to market risk through the Company's pension plan investments. Dunng 2009, Windstream's pension plan assets increased from approximately
$654.0 millon to $784.0 milion. This increase is pnmarily due to a retu on plan assets of$152.0 milion, or 23.2 percent, transfer from the D&E pension plan (see Note 8) of$61A million
and contnbutions of$3.3 milion. Partially offsetting these increases were $51.1 million in routine benefit payments, $35.6 million oflump sum distnbutions and administrtive expenses.
Pnmanly as a result ofthe increase in the market value of pension assets, pension expense is expected to decline from $91.8 milion reognized in 2009. to $62.9 milion in 20 i o. The
Company does not expect to make any contnbutions to the plan in 2010. The amount and timing of future contnbutions wil depend on vanous factors including future investment
peñormance, the finalization of funding regulations, changes in future discount rates and changes in demographics of the population participating in the Company's qualified pension
plan.
Foreign Currency Risk
Although the Company does not operate in foreign countnes. the Windstream pension plan invests in international secunties. As of December 3 1,2009 approximately $61.5 million or
7.8 percent of total pension assets are invested in debt or equity securities denominated in foreign currencies. The investments are diversified in terms of countr, industr and
company risk, limiting the overall foreign currency exposure.
Cntical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are discussed in
detail in Note 2. Certain of these accounting policies as discussed below require management to make estimates and assumptions about future events that could matenally affect the
reported amounts of assets, liabilties, revenues and expenses and disclosure of contingent assets and liabilties. We believe that the estimates, judgments and assumptions made when
accounting for the items descnbed below are reasonable, based on information available at the time they are made. However. there can be no assurance that actual results wil not differ
from those estimates.
Revenue Recognition - We recognize revenues and sales as services are rendered or as products are sold in accordance with authontative guidance on revenue recognition. Wireline
local access revenues are recognized over the period that the corresponding services are rendered to customers. Revenues denved from other telecommunications services, including
interconnection, long distance and custom callng feature revenues are recognized monthly as services are provided. Service revenues are primanly denved from providing access to or
usage of the Company's networks and facilities. Due to varying customer biling cycle cut-off, the Company must estimate service revenues earned but not yet biled at the end of each
reportng penod. Sales of communications products including customer premise equipment and modems are recognized when products are delivered to and accepted by customers.
Fees assessed to communications customers for service activation are deferred upon service activation and recognized as service revenue on a straight-line basis over the expeted life
of the customer relationship in accordance with authoritative guidance on multiple element arrngements. Costs associated with activating such services, up to the related amount of
deferred revenue, are deferred and recognized as an operating expense over the same penod.
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The Company recognizes certain revenues pursuant to varous cost recovery programs from state and federal Universal Service Funds, and from revenue sharing arrngements with
other local exchange cariers administered by the National Exchange Carer Association. Revenues are calculated based on the Company's investment in its network and other network
operations and support costs. The Company has historically collected the revenues recognized through this program; however, adjustments to estimated revenues in future periods are
possible. These adjustments could be necessitated by adverse regulatory developments with respect to these subsidies and revenue sharing arangements, changes in the allowable
rates of return, the determination of recoverable costs, or decreases in the availabilty of funds in the programs due to increased participation by other carriers.
Allowance for Doubtful Accounts - In evaluating the collectabilty of our trade receivables, we assess a number of factors, including a specific customer's ability to meet its financial
obligations to us, as well as general factors, such as the length of time the receivables are past due and historical collection experience. Based on these assumptions, we record an
allowance for doubtful accounts to reduce the related receivables to the amount that we ultimately expect to collect from customers. If circumstances related to specific customers
change or economic conditions worsen such that our past collection experience is no longer relevant. our estimate of the recoverability of our trade receivables could be further reduced
from the levels provided for in the consolidated financial statements.
Pension and Other Postretirement Benefits - The annual costs of providing pension and other postretirement benefits are based on certain key actuarial assumptions, including the
expected return on plan assets, discount rate and healthcare cost trend rate. Windstream's pension expense for 2010, estimated to be approximately $62.9 milion, was calculated based
upon a number of actuarial assumptions, including an expected long-term rate of return on qualified pension plan assets of 8.0 percent and a discount rate of 5.89 percent. In developing
the expected long-term rate of return assumption, Windstream considered its historical rate of return, as well as input from its investment advisors. Historical returns of the plan were
9.89 percent since 1975, including periods in which it was sponsored by Alltel. Projected returns on qualified pension plan assets were based on broad equity and bond indices and
include a targeted asset allocation of 52.5 percent to equities, 37.5 percent to fixed income assets and i 0.0 percent to alternative investments, with an aggregate expected long-tei rate
of return of approximately 8.0 percent. Lowering the expected long-term rate of return on the qualified pension plan assets by 50 basis points (from 8.0 percent to 7.5 percent) would
result in an increase in our pension expense of approximately $3.8 milion in 2010.
The discount rate selected is based on a hypothetical yield curve and associated spot rate curve adjusted to reflect the expected cash outflows for pension benefit payments. The yield
curve incorporates actual high-quality corporate bonds across the full maturity spectrm and is developed from yields on Aa-graded, non-callable/putable bonds. The discount rate
determined on this basis was 5.89 percent at December 31,2009. Lowering the discount rate by 25 basis points (from 5.89 percent to 5.64 percent) would result in an increase in our
pension expense of approximately $4.6 million in 2010.
As a component of determining its annual pension cost, Windstream amortizes unrecognized gains or losses that exceed 17.5 percent of the greater ofthe projected benefit obligation or
market-related value of plan assets on a straight-line basis over five years. Unrecognized actuarial gains and losses below the 17.5 percent corridor are amortized over the averge
remaining service life of active employees. which is approximately i 0 years for the pension plan during 2010.
On August 17, 2006. the Pension Protection Act of 2006 (the "2006 Act") was signed into law by Congress. In general, the 2006 Act changed the rules governing the minimum
contribution requirements for funding a qualified pension plan on an annual basis without paying excise tax penalties. Among other requirements, the 2006 Act changed the
assumptions used to calculate the minimum lump-sum benefit payments, applied benefit restrictions to plans below certain funding levels, and eliminated certin sunset provisions
contained in the Economic Growt and Tax Relief Reconciliation Act of2001 ("EGTRR"). EGTRR increased the maximum amount of benefits that a qualified defined benefit pension
plan could pay and increased the maximum compensation amount allowed for determining benefits for qualified pension plans. Windstream is complying with the provisions of the 2006
Act. The qualified pension plan is expected to be at least 80.0 percent funded for the 2009 plan year and therefore is not expected to be subject to benefit restrctions in 2010. The
assumptions selected as of December 31, 2009 for financial reporting purposes for the qualified pension plan reflected the impact of the 2006 Act. Future contrbutions to the plan are
dependent on various factors, including future investment performance, changes in future discount rates and changes in the demographics of the population participating in the
qualified pension plan.
We calculated our annual postretirement expense for 201 0 based upon a number of actuaral assumptions, including a healthcare cost trend rate of9.0 percent and a discount rate of5.79
percent. Consistent with the methodology used to determine the appropriate discount rate for the Company's pension obligations, the discount rate selected for
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postretirement benefits is based on a hypothetical yield curve that incorporates high-quality corporate bonds with vanous maturities adjusted to reflect expected postrtirement benefit
payments. The discount rate determined on this basis was 5.79 percent at December 31, 2009. Lowerng the discount rate by 25 basis points (from 5.79 percent to 5.54 percent) would
result in an increase in postretirement income of approximately $0.1 millon in 2010.
The healthcare cost trend rate is based on our actual medical claims experiences adjusted for future projections of medical costs. For the year ended December 31, 20 i 0, a one percent
increase in the assumed healthcare cost trend rate would increase our postretirement benefit cost by approximately $0.2 milion, while a one percent decrease in the rate would reduce
our allocation of postretirement benefit cost by approximately $0.2 millon.
See Notes 2 and 8 for additional information on Windstream's pension and other postretirement plans.
Useful Lives of Assets - The calculation of depreciation and amortization expense is based on the estimated economic useful lives of the underlying propert. plant and equipment and
finite-lived intangible assets. As discussed in Note 2, the Company reduced the depreciation rates on propert, plant and equipment used in its operating markets based on studies
completed between 2006 and 2007 of the related lives of those assets. Although we believe it is unlikely that any further significant changes to the useful lives of our finite-lived
intangible assets wil occur in the near term, rapid changes in technology or changes in market conditions could result in revisions to such estimates that could materially affect the
carring value ofthese assets and our future consolidated operating results. The Company realized reductions in its depreciation expense in 2008. which is the first full year following
the completion of certain rate studies.
Goodwil and Other Indefinite-lived Intangibles - In accordance with authoritative guidance on goodwill and intangibles other than goodwil, we test our goodwil for impairment at least
annually, or whenever indicators of impairment arise. This guidace requires write-downs of goodwill only in periods in which the recorded amount of goodwil exceeds the fair value.
The Company assesses the impairment of its goodwill by evaluating the carring value of its shareholders' equity against the current fair market value of its outstanding equity, where
the fair market value of the Company's equity is equal to its current market capitalization plus a control premium estimated to be 20 percent through the review of recent market
observable trsactions involving wireline telecommunication companies. If the fair value is less than its carring value. a second calculation is required in which the implied fair value
of goodwill is compard to its caring value. If the implied fair value of goodwill is less than its carring value, goodwil must be written down to its implied fair value.
We evaluate the remaining useful lives of our other indefinite-lived intangible assets and test them for impairment at least annually, or more frequently if events or changes in
circumstances indicate that the asset may be impaired. If the carring value of an indefinite-lived intangible asset exceeds its fair value. an impairment loss is recognized in an amount
equal to the excess. Windstream determines the fair value of its indefinite-lived intangible assets using a combination of cost-based and income-based approaches.
The Company performs its impairment analysis on January i" of each year. During 2009, 2008 and 2007, no write-downs in the carring values of either goodwil or indefinite-lived
intangible assets were required based on their calculated fair values. Reducing the January 1,2009 calculated fair values of goodwill by 90 percent would not have resulted in an
impairment of the caring value of goodwil. Changes in the key assumptions used in the impairment analysis due to changes in market conditions could adversely affect the calculated
fair values of goodwill and other indefinite-lived intangible assets. materially affecting the carring value of these assets and our future consolidated operating results.
See Notes 2 and 4 for additional information on Windstream's goodwill and other indefinite-lived intangibles.
Derivative Instruments - Windstream accounts for its derivative instruments using authoritative guidance for disclosures about derivative instruments and hedging activities, including
when a derivative or other financial instrument can be designated as a hedge, and requires recognition of all derivative instruments at fair value. Accounting for the changes in fair value
depends on whether the derivative has been designated as, qualifies as and is effective as a hedge. Changes in fair value of the effective portions of hedges should be recorded as a
component of other comprehensive income in the current period. Changes in fair values of the derivative instruments not qualifying as hedges, or of any ineffective portion of hedges,
should be recognized in earnings in the current period.
The effectiveness of the Company's cash flow hedges is assessed each quarter using the "Change in Vanable Cash Flow Method" by assessing our counterparties nonperformance
risk and by matching critical terms between the swaps and the hedged items. During 2007, however, the Company repaid a portion of its hedged variable rate debt, and subsequently de-
designated the portion of its swaps that had hedged this repaid principle value. As a result, the de-designated portion of its swaps were deemed ineffective.
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Changes in the fair value of the designated portion of the Company's derivative instrments are reported as a component of other comprehensive income (loss) in the curent perod
and will be reclassified into earnings as the hedged transaction affects earnings. Changes in the fair value of the undesignated portions are recognized in other income, net. The
Company settles interest payments on its swaps based on the LIBOR rate. The Company does not expect any changes in the effectiveness of its swaps due to counterpar risk or
further prepayment of hedged items, but any such changes could result in a loss of critical terms matching and subsequently an increase in the ineffective portion ofthe swaps. An
increase in the value of the ineffective portion of its swaps either through fuer de-designation of existing swaps or through further decreases in the LIBOR rate could have an adverse
impact on the Company's future earnings.
See Notes 2, 5 and 6 for additional information on Windstream's derivative instruments.
Income Taxes - Our estimates of income taxes and the significant items resulting in the reognition of deferred tax assets and liabilties are disclosed in Note 12 and reflect our
assessment of future tax consequences of transactions that have been reflected in our financial statements or tax returns for each taing jurisdiction in which we operate. Actual income
taxes to be paid could vary from these estimates due to future changes in income tax law or the outcome of audits completed by federal and state taxing authorities. Included in the
calculation of our annual income tax expense are the effects of changes, if any, to our income tax reserves for uncertain ta positions. We maintain income tax reserves for potential
assessments from the IRS or other taxing authorities. The reserves are determined in accordance with authoritative guidance and are adjusted, from time to time, based upon changing
facts and circumstances. Changes to the income tax reserves could materially affect our future consolidated operating results in the period of change. In addition, a valuation allowance
is recorded to reduce the caring amount of deferred tax assets unless it is more likely than not that such assets wil be realized.
Recently Issued Authontative Guidance
The following authoritative guidance wil be adopted by the Company in the reporting period indicated. This authoritative guidance, together with the Company's evaluation of the
related impact to the consolidated financial statements, is more fully described in Note 2.
Revenue Arangements with Multiple Element Deliverables (first quarer of20 11)
Determining the Primary Beneficiary ofa Varable Interest Entity (first quarter of201 0)
Accounting for Transfers of Financial Assets (first quarer of201 0)
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of Operations includes, and future fiings on Form IO-K, Form IO-Q and Form 8-K and future oral andwritten statements by Windstream and our management may include, certain forward-looking statements. Windstream claims the protection of the safe-harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995 for this Annual Report on Form i O-K. Forward looking statements include, but are not limited to, statements
about expected levels of support from universal service funds or other government programs, expected rates of loss of access lines or intercarrier compensation, our expected ability to
fund operations from cash flows from operations, our expectation of no pension contribution in 2010, expected synergies and other benefits from completed and pending acquisitions,
expected effective federal income tax rates and forecasted capital expenditue amounts. These and other 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 Wind stream 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 in our forward looking statements include, among others:
further 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 adoption of inter-carrier compensation and/or universal service reform proposals by the Federal Communications Commission or Congress that results in a significant loss of
revenue to Windstream;
the risks associated with the integration of acquired businesses or the ability to realize anticipated synergies. cost savings and growth opportunities;
unexpected adverse results related to our data center migration;
for our competitive local exchange carrer ("CLEC") operations, adverse effects on the availability, quality of service and price of facilities and services provided by other
incumbent local exchange carrers on which our CLEC services depend;
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the availabilty 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 offederal and state legislation, and rules and regulations governing the communications industry;
material changes in the communications industr that could adversely affect vendor relationships with equipment and network supplier and customer relationships with
wholesale customers;
unexpected results oflitigation;
unexpected rulings by state public service commissions in proceedings regarding universal service funds, inter-carier compensation or other matters that could reduce revenues
or increase expenses;
the effects of work stoppages;
the impact of equipment failure, natural disasters or terrorist acts;
earings on pension plan investments significantly below our expected long term rate of return for plan assets;
and those additional factors under the caption "Risk Factors" in Item lA of this annual report.
In addition to these factors, actual future performance, outcomes and results may differ materially because of more general factors including, among others, general industr 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 this Management's Discussion and Analysis of Financial Condition and Results of Operations
and in other filings by Windstream with the Securities and Exchange Commission at ww.sec.gov.
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SELECTED FINANCIA DATA
2009 2008 2007
956.9 1,1 2.4 1.149.9
451.
31.9 23.3
545.6 718.1 1,167.9 721.9 649.6
334.5 434.9 916.4 445.6 381.7
334.5 412.7 917.1 445.6 381.7
(7.4)
(.05)
Milions, except per share amounts in thousands)
Cumulative effect of accounting change, net of income taxes
Basic and diluted earnin s er share:
assets
Cumulative effect of accounting change
Dividends
Notes to Selected Financial Information:
Explanations for significant events affecting Windstream's historical operating trends during the periods 2007 through 2009 are provided in Management's Discussion and
Analysis of Results of Operations and Financial Condition.
Effective January i, 2009, the Company adopted revised authoritative guidance for calculating earnings per share. The two-class method of computing earings per share is an
earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends declared (whether paid or unpaid) and
participation rights in undistributed earnings. Commensurate therewith, the Company has retrospectively adjusted prior period earnings per share data. the impact of which was
immateriaL.
During 2005, Windstream incurred $4.5 milion of severance and employee benefit costs related to a workforce reduction in its wire line operations. Windstream also incurred $3 1.2
milion of incremental costs, principally consisting of investment banker, audit and legal fees, related to the then pending spin off from Alltel. These transactions decreased net
income $34. i million. Effective July 1,2005, Windstream prospectively reduced depreciation rates for its regulated operations in Florida, Georgia. Nort Carolina and South Carolina
to reflect the results of studies of depreciable lives completed by the Company in the second quarter of2005. The depreciable lives were lengthened to reflect the estimated
remaining useful lives of wireline plant based on expected future network utilization and capital expenditure levels required to provide service to its customers. The effects of this
change during the year ended December 31, 2005 resulted in a decrease in depreciation expense of$21.8 million and increase in net income of$12.8 million. Effective December 31,
2005. Windstream adopted authoritative guidance on accounting for conditional asset retirement obligations. The cumulative effect of this accounting change resulted in a one.
time non-cash charge of $7.4 milion, net of income ta benefit of$4.6 milion.
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MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Windstream Corporation's management is responsible for the integrty and objectivity of all financial informtion included in this Financial Supplement. The consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The financial statements include amounts that are based
on the best estimates and judgments of management. All financial information in this Financial Supplement is consistent with that in the consolidated financial statements.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited these consolidated financial statements in accordance with the standars of the Public
Company Accounting Oversight Board (United States) and have expressed herein their unqualified opinion on those financial statements.
The Audit Committee ofthe Board of Directors, which oversees Windstream Corporation's financial reporting process on behalf of the Board of Directors, is composed entirely of
independent directors (as defined by the NASDAQ Global Select Market). The Audit Committee meets periodically with management. the independent registered public accounting firm
and the internal auditors to review matters relating to the Company's financial statements and financial reporting process, annual financial statement audit, engagement of independent
registered public accounting firm, internal audit function. system of interal controls, and legal compliance and ethics programs as established by Windstream Corporation's
management and the Board of Directors. The internal auditors and the independent registered public accounting firm periodically meet alone with the Audit Committee and have access
to the Audit Committee at any time.
Dated Februar 24, 2010
Jeffery R. Gardner
President and
Chief Executive Offcer
Anthony W. Thomas
Chief Financial Offcer
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MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reportng. and for performing an assessment of the effectiveness of internal contrl
over financial reporting as of December 31. 2009. Interal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilty of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's system of internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that. in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets ofthe company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Management performed an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31,2009 based upon criteria in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission ("COSO"). Based on our assessment, management determined that the
Company's interal control over financial reporting was effective as of December 31,2009.
Management has excluded the operations ofD&E Communications, Inc. and Lexcom, Inc., wholly-owned subsidiaries ofthe Company. from its assessment of internal control over
financial reporting as of December 31,2009, because they were acquired by the Company in recently completed 2009 purchase business combinations. The operations ofD&E
Communications, Inc. and Lexcom, Inc. represent approximately 5.0 percent and 2.0 percent, respectively, of the Company's consolidated total assets and 0.7 percent and 0.1 percent,
respectively, of the Company's consolidated revenues and sales, as of December 31, 2009.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2009, has been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm. as stated in their report which appears herein.
Dated Februar 24, 2010
Jeffery R. Gardner
President and
Chief Executive Officer
Anthony W. Thomas
Chief Financial Offcer
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Report oflndependent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Wind stream Corporation:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all materal
respects, the financial position of Wind stream Corporation and its subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the
three year in the period ended December 31,2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 3 1,2009, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supportng the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for business combinations in 2009.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilty of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets ofthe company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control over Financial Reporting, management has excluded D&E Communications, Inc. and Lexcom, Inc. from its assessment of
internal control over financial reporting as of December 3 1,2009 as they were acquired by the Company in purchase business combinations during 2009. We have also excluded D&E
Communications. Inc. and Lexcom, Inc. from our audit of internal control over financial reprtng. D&E Communications, Inc. and Lexcom, Inc. are wholly-owned subsidiaries whose
total assets and total revenues represents 7.0 percent and 0.8 percent, respectively, ofthe related consolidated financial statement amounts as of and for the year ended December 31,
2009.
lsI PricewaterhouseCoopers LLP
Little Rock, Arkansas
Februar 24, 2010
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CONSOLIDATED STATEMENTS OF INCOME
For the year ended December 3 I,
Milions, except per share amounts)
Other income, net
2009 2008 2007
$2,872.8 $2.988.9 $2,942.6
2,996.6 3,171.5 3245.9
1,006.8 1,005.4 1.008.6
356.0 356.5 381.2
9.3 8.5 4.6
2,039.7 2,039.1 2,096.0
(1.)2.1 11.
(416.4)
283.2
(22.2)0.7
(.05)
Service revenues
Total revenues and sales
Interest expense
Income taxes
Discontinued operations. including tax expense of $~ 0.6 and $0.5, respectively
Loss from discontinued operations
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS
December 31,
(Millons, except pa value)
Assets 2009 2008
Prepaid expenses and other 53.6 33.9
Goodwil 2.344.4 2,19.2
ment 3,992.6 3,897.1
Total Assets $9,145.4 8,009.3
Current Liabilties:
45.8 40.5
95.2 94.0
Accrued taxes 60.6 48.0
532.0 662.9
Commitments and
436.8 and 439.4 shares
Total
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
(Milions)2009 2008 2007
Net income 334.5 412.7 $917.1
Gain on sale of publishing business (451.)
Depreciation and amortization 537.8 494.5 507.5
Stock-based compensation expense 17.4
%.8
(17.9)3.1 8.1
Accrued interest 4.4 (1.)(9.1)
Other curent liabilties (12.4)(1.3)(48.7)
Other, net 9.3 12.7 1.4
(56.6)
(546.8)
40.0
Other, net 0.6 9.9
Stock repurchase (121.)(200.3)(40.1)
Proceeds of debt issuance. net of discount 1,083.6 380.0 848.9
Other. net 3.8 (2.9)(2.4)
Increase (decrease) in cash and cash equivalents 766.3 224.6 (314.8)
CasÍlaìid CasbEquialents:
Beginning of period
$'441.2 .$395.5 412.5 $
$118.7 $175.6 $205.8
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Paid-InC ita
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Eari
73.473.4
Comprehensive income 47.8 917.1 96.9
Stoe ased compensation expense 15.9 15.9
Stock repurchase
(471.2
(40.1(40.1)
412.7
Comprehensive income (loss)
107.9 107.9
Comprehensive income 128.3 334.5 462.8
17.4 17.4
Stock issued to D&E shareholders (See Note 3)94.6 94.6
Ba ance at December 31, 2009 83.6 (208.3)$3 .7
The accompanying notes are an integral part ofthese consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Background and Basis for Presentation:
Formation of Wind stream - On July 17,2006, Allte! Corporation, which has subsequently merged with Verizon Communications, Inc. ("AlItel"), completed the spin off of its
wireline telecommuncations division and immediately merged with and into Valor Communications Group Inc. ("Valor"), with Valor continuing as the surviving corporation. The
resulting company was renamed Windstream Corporation ("Windstream", "we", or the "Company"). which is a customer-focused telecommunications company that provides
phone, high-speed Internet and digital television services. The Company also offers a wide range ofIP-based voice and data services and advanced phone systems and
equipment to businesses and government agencies. The Company serves approximately 3.0 million customers primarily located in rural areas in 16 states.
Basis of Presentation - The preparation of financial statements, in accordance with accounting principles generally accepted in the United States. requires management to make
estimates and assumptions that affect the reported amounts of assets. liabilities, revenues and expenses and disclosure of contingent assets and liabilties. The estimates and
assumptions used in the accompanying consolidated financial statements are based upon management's evaluation ofthe relevant facts and circumstances as of the date of the
consolidated financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated financial statements, and
such differences could be materiaL.
Certain prior year amounts have been reclassified to conform to the 2009 financial statement presentation. These changes and reclassifications did not impact net or
comprehensive income.
2. Summary of Significant Accounting Policies and Changes:
Signifcant Acconnting Policies
Consolidation of Financial Statements - Our consolidated financial statements include the accounts of Wind stream and its subsidiaries. All significant affliated trnsactions
have been eliminated.
Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less.
Accounts Receivable - Accounts receivable consist principally of trade receivables from customers and are generally unsecured and due within 30 days. Expected credit losses
related to trade accounts receivable are recorded as an allowance for doubtful accounts in the consolidated balance sheets. In establishing the allowance for doubtful accounts.
the Company considers a number of factors, including historical collection experience, aging of the accounts receivable balances, current economic conditions and a specific
customer's ability to meet its financial obligations to the Company. When internal collection efforts on accounts have been exhausted, the accounts are written offby reducing
the allowance for doubtfl accounts. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customer make
up the Company's customer base, thus spreading the credit risk. Due to varying customer billing cycle cut-off, the Company must estimate service revenues earned but not yet
biled at the end of each reporting period. Included in accounts receivable are unbilled receivables related to communications revenues of $29.2 million and $31.6 milion at
December 31, 2009 and 2008, respectively.
Inventories - Inventories consist of finished goods and are stated at the lower of cost or market value. Cost is determined using either an average original cost or specific
identification method of valuation.
Assets Held For Sale - During 2008, Windstream received net proceeds of$17.3 million for assets acquired from CT Communications ("CTC"), which approximated the fai value
at the date of acquisition, on the sale of the corporate headquarters building, a license for wireless spectrm and various investments designated as held for sale. During the
third quarter of 2008, Windstream recognized a non-cash impairment charge of $6.5 million included in sellng, general, administrative and other in the accompanying
consolidated statements of income to reduce the carrying value of certain wireless spectrum licenses designated as held for sale, and not used in operations, to their fair market
value in accordance with authoritative guidance. The fair market value of these holdings was reduced to a nominal amount due to an impairment resulting from general market
conditions and limited interest on this bandwidth of spectrum. In addition, during the third quarter of2008, certin long term investments totaling $2.3 millon, primarily
consisting of a minority ownership in a private equity investment
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
holding company, were no longer being marketed by Windstream and were no longer considered saleable within one year. Therefore, the Company reclassified these
investments from acquired assets held for sale to other assets in the accompanying consolidated balance sheets at their current fair market value, which required no valuation
adjustment. As of December 31, 2009 and 2008, the Company did not have any assets held for sale.
Goodwil and Other Intangible Assets - Goodwil represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired through various
business combinations. The Company has acquired identifiable intangible assets through its acquisitions of interests in various wireline propertes. The cost of acquired entities
at the date of the acquisition is allocated to identifiable assets, and the excess of the total purchase price over the amounts assigned to identifiable assets is recorded as
goodwill. In accordance with authoritative guidance, goodwill is to be assigned to a company's reporting units and tested for impairment at least annually using a consistent
measurment date, which for the Company is January i" of each year. Commensurate with its change from multiple segments to a single reporting segment during 2009,
discussed further in "Accounting Changes - Change in Segment Presentation", the Company determined that it has only one reporting unit and therefore no longer uses a
combination of the discounted cash flows and the calculated market values of comparable companies to determine the fair value of a reporting unit. Rather, the Company
assesses impairment of its goodwil by evaluating the carring value of its shareholders' equity against the current fair market value of its outstanding equity, where the fair
market value of the Company's equity is equal to its current market capitalization plus a control premium estimated to be 20 percent through the review of recent market
observable transactions involving wire line telecommunication companies.
Effective Januar 1,2009, the Company prospectively changed its estimate of useful life for its frchise rights from indefinite-lived to 30 years primarily due to the effects of
increasing competition. Commensurate with this change, the Company reviewed its franchise rights for impairment by comparing the fair value of the franchise rights based on
the discounted cash flows of the acquired operations to their caring amount, and noted that no impairment existed as of January 1.2009. As a result ofthis change,
amortization expense increased by $32.3 million, calculated on a straight-line basis, and net income decreased $19.8 millon or $0.05 per share in 2009.
Net Propert, Plant and Equipment - Property, plant and equipment are stated at original cost. Wireline plant consists of central offce equipment, outside communications plant
and furniture, fixtures, vehicles, machinery and equipment. Other plant consists of offce and warehouse facilities and softare to support the business units in the distribution
of telecommunications products. The costs of additions, replacements and substantial improvements. including related labor costs, are capitalized. while the costs of
maintenance and repairs are expensed as incurred. Depreciation expense amounted to $456.9 million in 2009, $440.8 million in 2008 and $454.7 million in 2007.
Net property, plant and equipment consisted of the following as of December 31:
progress
The Company's regulated operations use a group composite depreciation method. Under this method. when plant is retired, the original cost, net of salvage value. is charged
against accumulated depreciation and no gain or loss is recognized on the disposition ofthe plant. For the Company's non-regulated operations, when depreciable plant is
retired or otherwise disposed of, the related cost and accumulated depreciation are deducted from the plant accounts, with the corresponding gain or loss reflected in operating
results.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Snmmary of Significant Acconnting Policies and Changes, Continued:
The Company capitalizes interest in connection with the acquisition or construction of plant assets. Capitalized interest is included in the cost of the asset with a corresponding
reduction in interest expense. Capitalized interest amounted to $1.7 million in 2009, $1.9 milion in 2008 and $3.7 million in 2007.
Asset Retirement Obligations - Windstream recognizes asset retirement obligations in accordance with authoritative guidance on accounting for asset retirement obligations
and on accounting for conditional asset retirement obligations, which requires recognition of a liabilty for the fair value of an asset retirement obligation if the amount can be
reasonably estimated. Windstream's asset retirement obligations include legal obligations to remediate the asbestos in certain buildings if the Company were to abandon, sell or
otherwise dispose of the buildings and to dispose of its chemically-treated telephone poles at the time they are removed from service. These asset retirement obligations, totaled
$34.8 milion and $44.6 milion as of December 31,2009 and 2008. respectively, and are included in other long tenn liabilties in the accompanying consolidated balance sheets.
Derivative Instruments - Windstream accounts for its derivative instruments using authoritative guidance for disclosures about derivative instrents and hedging activities.
including when a derivative or other financial instrment can be designated as a hedge, and requires recognition of all derivative instruments at fair value. Accounting for the
changes in fair value depends on whether the derivative has been designated as, qualifies as and is effective as a hedge. Changes in fair value of the effective portions of hedges
should be recorded as a component of other comprehensive income in the current period. Changes in fair values of the derivative instruments not qualifying as hedges, or of any
ineffective portion of hedges, should be recognized in earnings in the current period.
Windstream has entered into four identical pay fixed, receive variable interest rate swap agreements totaling $ i ,600.0 milion in notional value in order to mitigate the interest rate
risk inherent in its varable rate senior secured credit facility. The four interest rate swap agreements amortize quarterly to a notional value of$906.3 million at maturity on July 17,
2013. The variable rate received resets on the seventeenth c)y of each quarter to the three-month LIBOR (London-Interbank Offered Rate). The Company's interest rate swap
agreements are designated as cash flow hedges of the interest rate risk created by the variable interest rate paid on Tranche B of the senior secured credit facilty, which has
varying maturities dates from July 17,2013 to December 17,2015 as a result ofan amendment to the credit facility (see Note 5). The variable interest rate paid on Tranche B is
based on the three-month LIBOR, which resets on the seventeenth day of each quarter, plus a fixed basis point spread.
After the completion of a refinancing transaction in February 2007, a portion of one ofthe four interest rate swap agreements with a notional value of $ 125.0 milion ($96.3 milion
as of December 31, 2009) was de-designated as the corresponding hedged item was repaid. Therefore, the undesignated portion of the swap agreement was no longer an
effective hedge of the variable interest rate paid on Tranche B.
Set forth below is infonnation related to the Company's interest rate swap agreements as of December 31:
Undesignated portion
The effectiveness of the Company's cash flow hedges is assessed each quarter using the "Change in Variable Cash Flow Method". This method utilizes the matched terms
principle of measuring effectiveness, and requires the floating-rate leg ofthe swap and the hedged variable cash flows of the asset or liability to be based on the same interest
rate index. It also requires the variable interest rates of both instruments to reset on the same dates. Furthennore, there should be no other differences in the terms ofthe hedge
and the hedged item. and the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continned:
likelihood of default by the interest rate swap counterparties must be assessed as being unlikely in order to conclude that there is no ineffectiveness in the hedging relationship.
The Company performs and documents this assessment each quarter, and has concluded at December 31,2009 that there was no ineffectiveness to be recognized in earnings in
any of its four interest rate swap agreements that are designated as hedges.
The Company recognizes all derivative instruments at fair value in the accompanying consolidated balance sheets as either assets or liabilties depending on the rights or
obligations under the related contracts. Changes in fair value of these derivative instrments were as follows for the years ended December 31:
(a) Included as a component of other comprehensive income (loss) and will be reclassified into earnings as the hedged transaction affects earnings.
(b) Represents non-cash income recorded in other income, net in the accompanying consolidated statements of income.
Net amounts due related to designated interest rate swap agreements are recorded as adjustments to interest expense in the accompanying consolidated statements of income
when earned or payable.
Revenue Recognition - Service revenues are primarily derived from providing access to or usage of the Company's networks and facilities. Wireline local access revenues are
recognized over the period that the corresponding services are rendered to customers. Revenues derived from other telecommunications services, including interconnection,
long distance and custom calling feature revenues are recognized monthly as services are provided. Sales of communications products including customer premise equipment
and modems are recognized when products are delivered to and accepted by customers. Fees assessed to customers for service activation are deferred upon service activation
and recognized as service revenue on a straight-line basis over the expected life of the customer relationship in accordance with authoritative guidance on multiple element
arrangements. Costs associated with activating such services, up to the related amount of deferred revenue, are deferred and recognized as an operating expense over the same
period. Prior to the sale of Windstream Yellow Pages, advertising revenues associated with directory publishing and the related directory costs were recognized when the
directories were published and delivered. For directory contracts with a secondary delivery obligation, Windstream Yellow Pages deferred a portion of its revenues and related
directory costs until second delivery occurred.
Advertising - Advertsing costs are expensed as incurrd. Advertising expense totaled $46.6 milion in 2009, $50.0 million in 2008 and $51.7 milion in 2007.
Share.Based Compensation - In accordance with authoritative guidance on share-based compensation, the Company values all share-based awards to employees at fair value
on the date of the grant, and recognizes that value as compensation expense over the period that each award vests. This expense is included in cost of services and selling,
general, administrative and other expenses in the accompanying consolidated statements of income.
Operating Leases - Certain of the Company's operating lease agreements include scheduled rent escalations during the initial lease term and/or during succeeding optional
renewal periods. Windstream accounts for these operating leases in accordance with authoritative guidance for operating leases with nonlevel rents. Accordingly, the scheduled
increases in rent expense are recognized on a straight-line basis over the initial lease term and those renewal periods that are reasonably assured. The difference between rent
expense and rent paid is recorded as deferred rent and is included in other liabilities in the accompanying consolidated balance sheets. Leasehold improvements are amortized
over the shorter of the estimated useful life of the asset or the lease term, including renewal option periods that are reasonably assured.
Income Taxes - The Company accounts for income taxes in accordance with guidace on accounting for income taxes, under the asset and liability method. Deferred tax assets
and liabilities are recognized for the estimated
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Snmmary of Signifcant Accounting Policies and Changes Continned:
future tax consequences attributable to differences between the financial statement carring amounts of existing assets and liabilities and their respective tax bases. Deferred tax
balances are adjusted to reflect tax rates based on currently enacted tax laws, which wil be in effect in the years in which the temporary differences are expected to reverse. The
effect on deferred tax assets and liabilties of a change in tax rates is recognized in the results of operations in the period of the enactment date. A valuation allowance is recorded
to reduce the carring amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
Windstream adopted authoritative guidance for accounting for uncertainty in income taxes, on January i, 2007. The adoption of this guidance resulted in no impact to either the
Company's reserves for uncertain tax positions or to retained earnings. A reconcilation of the unrecognized tax benefits is as follows:
(Milions 2009 2008 2007
A Oluons 0.3 --
A ditions base( on --
J~a.,-
,I..e
(1.4)(0.8)(0.2)-. --'.
$ 4.3 $ 6.1 $ 7.4
The Company does not expect or anticipate a significant increase or decrease over the next twelve months in the unrecognized tax benefits reported above. The total amount of
unrecognized tax benefits. if recognized, that would affect the effective tax rate is $2.3 milion and $1.9 million (net of indirect benefits) for years ended December 3 i, 2009 and
2008, respectively.
Included in the balance at December 3 1,2009 and 2008, are $1.3 million and $3.4 million, respectively, of gross tax positions for which the ultimate deductibilty is highly certain
but for which there is uncertainty about the timing of such deductibility. Because of the impact of the deferred tax accounting, other than interest and penalties. the disallowance
of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. These
unrecognized tax benefits are included in other long-term liabilities in the accompanying consolidated balance sheets for the years ended December 3 i, 2009 and 2008.
The Company or one of its subsidiaries fies income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S.
federal, state and local income tax examinations by tax authorities for years prior to 2005. The Company has identified Arkansas, Florida, Georgia, Kentucky. Nebraska, North
Carolina and Texas as "major" state taxing jurisdictions.
The Company recognizes accrued interest and penalties related to unrecognzed tax benefits in its income tax expense. During the years ended December 3 i, 2009 and 2008, the
Company recognized approximately $0.5 milion in interest and penalties for each perod. Furthermore, the Company had approximately $0.9 million and $ 1.3 millon for the
payment of interest and penalties accrued as of Dec ember 3 i, 2009 and 2008, respectively.
Earnings Per Share - Basic earnings per share was computed by dividing net income applicable to common shares by the weighted average number of common shares
outstanding during each period. Windstream's non-vested restricted shares that contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to common
shares are considered participating securities, and the impact is included in the computation of basic earnings per share pursuant to the two-class method. The two-class method
of computing earnings per share is an earnings allocation formula that determines earnings attributable to common shares and participating securities according to dividends
declared (whether paid or unpaid) and participation rights in undistributed earnings. Earnings per common share was computed by dividing the sum of distributed earnings and
undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
In applying the two-class method, undistributed earnings are allocated to both common shares and non.vested restricted shares based on the pro-rata weighted average shares
outstanding during the period. The Company also computed dilutive earnings per share using the two-class method as this method is more dilutive than the treasury stock
method.
Under this method. Windstream's diluted earnings per share is equal to the Company's calculated basic earings per share. Effective January 1,2009, the Company adopted this
revised authoritative guidance for calculating earnings per share, and commensurate therewith, has retrospectively adjusted prior period earnings per share data, the impact of
which was immateriaL.
A reconciliation of net income and number of shares used in computing basic and diluted earnings per share was as follows for the years ended December 3 I:
IncoJl from coÌlìiíìüiig operations ". . .:..'
Income from continuing operations allocable to non-vested
Adjusted income from discontinued operations available to common shares
Denominator:
Weiglìted average common shares outstanding for the period
Basic and diluted earnings per share:
Fmm contiuing operations
From discontinued operations
Related Party Transactions - On November 30, 2007 Windstream completed the split off of its directory publishing business in a tax-free transaction with entities affliated with
Welsh, Carson, Anderson and Stowe ("WCAS"), a private equity investment firm and a Windstream shareholder. The Company received $506.7 milion in consideration in
exchange for its publishing business (see Note 3). In connection with the announcement of the transaction, Anthony J. deNicola, a general partner ofWCAS, resigned from the
Windstream Board of Directors on December 14,2006.
Accounting Changes
Change in Accounting Estimate - Effective January 1.2009, the Company prospectively changed its estimate of useful life for its franchise rights from indefinite-lived to 30 years,
primarily due to the effects of increasing competition. Commensurate with this change, the Company reviewed its franchise rights for impairment and noted that no impairment
existed as of Januar I, 2009. See "Significant Accounting Policies - Goodwill and Other Intangible Assets" for further discussion.
Effective October 1,2007, the Company prospectively reduced the depreciable rates of assets held and used in its operations in Georgia, Kentucky, Mississippi, Nebraska, New
York, Ohio and Oklahoma, and to reflect the results of studies completed in the fourth quarter of 2007. In addition, during April 2007, the Company completed studies of the
depreciable lives of assets held and used in its Missouri operations and in an operating subsidiary in Texas.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes Continued:
The related depreciation rates were changed effective April 1.2007. The depreciable lives were lengthened to reflect the estimated remaining useful lives of the wireline plant
based on the Company's expected future network utilization and capital expenditue levels required to provide service to its customers. The impact of the change in depreciation
rates on the operations discussed above resulted in a decreas in depreciation expense of$38.9 milion and $17.8 million and an increase in net income of$24.2 milion and $11.4
million in 2008 and 2007, respectively.
Change in Segment Presentation -In the first quarter of 2009, the Company reorganized its operations to integrate the sales and administrative functions of the product
distrbution segment into its wire line operations. As a result of this change, the chief operating decision maker no longer reviews the financial statements of the product
distrbution operations on a stand alone basis and the Company operates its wireline and product distribution operations as a single reporting segment ("the wire line segment").
As required by the authoritative guidance for segment presentation, segment results of operations have been retrospectively adjusted to reflect this change for all periods
presented.
Recently Adopted Accounting Standards
Accounting Standards Codification ~ In the third quarter of2009, Windstream adopted the Financial Accounting Standards Board ("FASB") Accounting Standards Codification
(the "Codification") as the single authoritative source for U.S. GAAP. The Codification superseded all existing accounting standard documents and other accounting literature
became nonauthoritative and simplified user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. As a
result, Windstream has removed all references to superseded accounting standards in its consolidated financial statements and accompanying notes.
Subsequent Events - In the second quarter of2009, Windstream adopted the authoritative guidance for subsequent events, which establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This guidance sets forth the
period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial
statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that occurred after the balance sheet date. Subsequent events have been evaluated through February 24,
2010. the date the financial statements were issued.
Fair Value Measurements - On January 1.2008, Windstream adopted authoritative guidance for fair value measurements of financial assets and liabilities and non-financial
assets and liabilities recognized or disclosed at fair value on a recurring basis. This authoritative guidance clarified the definition of fair value. established a framework for
measuring fair value and expanded the disclosures related to fair value measurements that are included in a company's financial statements. It emphasized that fair value is a
market-based measurement and not an entity-specific measurement, and that it should be based on an exchange transaction in which a company sells an asset or transfers a
liabilty. The guidance also established a fair value hierarchy in which observable market data would be considered the highest level, while fair value measurements based on an
entity's own assumptions would be considered the lowest leveL. The Company adopted the provisions of this guidance for non-financial assets and liabilties recognized or
disclosed at fair value on a non-recurring basis, except items recognized or disclosed at fair value on an annual or more frequently recurring basis, on Januar 1, 2009. The
adoption of this guidance did not have a material impact on our consolidated financial statements.
Effective April 1, 2009, Windstream adopted authoritative guidance for determining fair value when the volume and level of activity for an asset or liability has significantly
decreased and identifYing transactions that are not orderly. This guidance provided additional direction for estimating fair value, in accordance with other authoritative guidance
related to fair value measurements, when the volume and level of activity for a financial asset or liability has significantly decreased. This guidance also offers directives on
identifying circumstances that indicate when a transaction is not orderly. There was no impact to Windstream's consolidated financial statements upon adoption.
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NOttS TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
On August 28, 2009, the FASB updated the authoritative guidance for fair value measurements to clarify that in circumstances in which a quoted price in an active market for the
identical liabilty is not available, a reporting entity is required to measure fair value using one or more of the following methods: I) a valuation technique that uses a) the quoted
price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilties when trded as assets and/or 2) a valuation technique that is
consistent with fair value measurement principles (e.g. an income approach or market approach). The amendment also clarfies that when estimating the fair value of a liability, a
reporting entity is not required to adjust to include inputs relating to the existence of trnsfer restrctions on that liabilty. The adoption of this guidance did not impact
Windstream's consolidated financial statements.
On September 30, 2009, the F ASB updated the authoritative guidance to allow a reporting entity to measure the fair value of certain alternative investments on the basis of net
asset value per share of the investment if the net asset value of the investment is calculated in a manner consistent with the measurement principles of investment companies.
The adoption of this guidance did not have a material impact on our consolidated financial statements.
Business Combinations - Effective January 1,2009, Windstream adopted the revised authoritative guidance for business combinations which establishes principles and
requirements for how the acquirer in a business combination recognizes all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. The revised guidance changed the accounting treatment for certin specific items, including acquisition costs, acquired contingent liabilities. restrcturing
costs, deferred tax asset valuation allowances and income tax uncertainties after the acquisition date. In addition, a substantial number of new disclosures are also required.
In April 2009, the FASB amended the authoritative guidance for subsequent business combinations to require contingent assets acquired or liabilties assumed be initially
recognized at fair value at the acquisition date if fair value can be determined during the measurement period. If the acquisition date fair value cannot be deterined, the asset
acquired or liability assumed arising from a contingency is recognized only if certain criteria are met. This guidance also requires that a systematic and rational basis for
subsequently measuring and accounting for the assets or liabilities be developed depending on their nature. See Note 3 for a discussion ofthe Company's application of this
guidance to its acquisitions ofD&E Communications, Inc. ("D&E") and Lexcom, Inc. ("Lexcom").
Noncontrollng Interests in Consolidated Financial Statements - On January 1,2009. Windstream adopted authoritative guidance for noncontrollng interests in consolidated
financial statements. Windstream does not have any non-controllng interests, and thus the adoption of this guidance did not impact the Company's consolidated financial
statements.
Disclosures about Derivative Instruments and Hedging Activities - On January 1.2009, Windstream adopted authoritative guidance for disclosures about derivative instruments
and hedging activities, which requires companies with derivative instrments to disclose information to enable financial statement users to understand how and why a company
uses derivative instruments, how authoritative accounting guidance is applied to derivative instrments and related hedged items, and how derivative instrments and related
hedged items affect a company's financial position, financial performance and cash flows. See "Significant Accounting Policies - Derivative Instruments" for disclosures
required under this authoritative guidance.
Determination of the Useful Life oflntangible Assets - Effective January 1,2009, Windstream adopted authoritative guidance amending the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset and requiring disclosures to enable users of financial statements
to assess the extent to which the expected future cash flows associated with the asset are affected by the entity's intent and/or ability to renew or extend the arangement
Windstream considered its historical experience in renewing the Company's franchise rights and determined that it is consistent with previous renewal assumptions used in the
determination of useful lives. Thus, the adoption of this guidance did not impact Windstream's consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Cbanges, Con tinned:
Determining Whether Instruments Granted in Sbare-Based Payment Transactions are Participating Securities - On January 1,2009, the Company adopted autboritative guidance
for determining whether instruments granted in sbare-based payment transactions are participating securities. Under tbis guidance, Windstream's non-vested share-based
payment awards that contain a nonforfeitable rigbt to receive dividends, wbether paid or unpaid, are considered participating securities and bave been included in the
computation of basic earnings per sbare pursuant to the two-class method, and are no longer considered potentially dilutive. Basic and diluted earnings per share have been
retrospectively adjusted as a result of the adoption of this guidance. See "Significant Accounting Policies - Earings Per Share" for calculation.
Employer' Disclosures about Postretirement Benefit Plan Assets - Effective January 1,2009, Windstream adopted authoritative guidance for employers' disclosures about
postretirement benefit plan assets, which requires employer's to disclose:
the fair value of each major category of plan assets as of each annual reporting date for which a statement of financial position is presented.
the inputs and valuation techniques used to develop fair value measurements of plan assets at the annual reporting date. including the level within the fair value
hierarchy in which the fair value measurements fall as defined by authoritative guidance for fair value measurements,
investment policies and strtegies. including target allocation percentages, and
significant concentrations of risk in plan assets.
See Note 8 for disclosures required under this authoritative guidance.
Recently Issued Authoritative Gnidance
Revenue Arrngements with Multiple Element Deliverables - On September 23. 2009, the FASB reached a consensus on accounting for revenue arrangements with multiple
deliverables. The consensus addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the
arrangement consideration should be allocated among the separate units of accounting. This guidance is effective for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15,2010. Early adoption is permitted. The Company is currently evaluating the impact tbis guidance wil have on its consolidated
financial statements.
Deterining the Primary Beneficiary of a Varable Interest Entity - On June 12,2009, the FASB revised the authoritative guidance for determining the primary beneficiary of a
variable interest entity to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a variable interest entity. This
guidance wil be effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15. 2009. The Company does not expect this guidace to
have any impact on its consolidated financial statements.
Accounting for Transfers of Financial Assets - In June 2009, the FASB issued authoritative guidance related to accounting for trnsfers of financial assets. which includes:
eliminating the qualifYing special-purpose entity concept,
a new unit of account definition that must be met for transfers of portions of financial assets to be eligible for sale accounting,
clarifications and changes to the derecognition criteria for a transfer to be accounted for as a sale,
a change to the amount of recognized gain or loss on a transfer of financial assets accounted for as a sale when beneficial interests are received by the trsferor, and
extensive new disclosures.
The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15,2009. The Company is currently evaluating the impact,
if any, that this guidance wil have on its consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Dispositions:
Acquisition of Lex com - On December 1.2009, we completed our previously announced acquisition of Lex com, which as of the date of acquisition served approximately 22,000
access lines, 9,000 high-speed Internet customers and 12,000 cable television customers in North Carolina. This acquisition increased Windstream's presence in North Carolina
and provides the opportnity for operating synergies with contiguous Windstream markets. In accordance with the Lexcom merger agreement, Windstream acquired all of the
issued and outstanding shares of Lex com for approximately $138.7 milion in cash, net of cash acquired.
Acquisition ofD&E - On November 10, 2009, we completed our previously announced merger with D&E, which as of the date of acquisition served approximately Ii 0,000
incumbent local exchange carrer access lines, 35,000 competitive local exchange carer access lines, 45,000 high-speed Internet customers and 9.000 cable television customers.
This acquisition increased Windstream's presence in Pennsylvania and provides the opportnity for operating synergies with contiguous Windstream markets in Pennsylvania.
Pursuant to the merger agreement, Windstream acquired all of the issued and outstanding shares of common stock ofD&E, and D&E merged with and into a wholly-owned
subsidiary of Wind stream.
In accordance with the D&E Merger Agreement, D&E shareholders received 0.650 shares of Wind stream common stock and $5.00 in cash per each share ofD&E Common Stock.
Windstream issued approximately 9.4 million shares of its common stock valued at approximately $94.6 milion, based on Windstream's closing stock price of$1O.06 on
November 9,2009, and paid $56.6 million. net of cash acquired, as part of the transaction. Subsequently, Windstream repaid outstanding debt ofD&E totaling $182.4 milion
including current maturities.
These transactions have been accounted for as business acquisitions with Windstream serving as the accounting acquirer. We have conducted appraisals necessary to assess
the fair values of the assets acquired and liabilities assumed and the amount of goodwil recognized as of the respective acquisition dates. Since the value of certin assets and
liabilities are preliminary, primarily deferred income taxes, they are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of
the respective acquisition dates. Upon finalization, any changes to the preliminary valuation of assets acquired and liabilities assumed may result in significant adjustments to
the fair value of goodwil. The accompanying consolidated financial statements reflect the combined operations of Wind stream with D&E and Lexcom for the periods following
the respective acquisition dates. Employee severance and transaction costs incurred by the Company in conjunction with these acquisitions have been expensed to merger and
integration expense in the accompanying consolidated statements of income in accordance with the revised authoritative guidance for business combinations (see Notes 2 and
10).
The costs of the acquisitions were allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition dates, with amounts
exceeding fair value recognized as goodwill. The fair values of the assets acquired and liabilities assumed were determined using income, cost, and market approaches. Wireless
licenses were valued using a market based approach, while other intangibles primarily consisting of franchise rights and customer lists were valued primarly on the basis of the
present value of future cash flows, which is an income based approach. Significant assumptions utilized in the income approach were based on Company specific information
and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by authoritative guidance. Tbe cost approach, which estimates
value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for propert, plant and equipment. The cost to
replace a given asset reflects the estimated reproduction or replacement cost for the asset, less an allowance for loss in value due to depreciation. The fair value of the long-tenn
debt and associated interest rate swap agreements assumed from D&E were determined primarily based on quoted prices.
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Dispositions, Continued:
The following table sumarzes the preliminary allocation to the assets acquired and liabilities assumed:
Total assets acquired
Total liabilties assumed (41.4)
:;"::jt~iL'
Cash paid, net of cash acquired $ 138.7
(310.8)
,(94.6)
56.6
(a) Goodwill associated with the acquired companies is attributable to the workforce of the acquired businesses and synergies expected to arise with contiguous Windstream
markets after the acquisitions. None of the goodwill recognized in these transactions is expected to be deductible for income tax purposes.
Pro forma financial results related to the acquisitions of D&E and Lexcom have not been included because the Company does not consider these acquisitions to be significant
individually or in the aggregate.
Acquisition of CTC - On August 31, 2007. Windstream completed the acquisition of CTC in a trnsaction valued at $584.3 milion. Under the terms of the agreement the
shareholdersofCTC received $31.50 in cash for each oftheir shares with a total cash payout of$652.2 milion. The transaction value also includes a payment of$37.5 milion
made by Windstream to satisfY CTC's debt obligations, offset by $105.4 million in cash and short-term investments held by CTC. Including $25.3 millon in severce and other
transaction-related expenses, the total net consideration paid in the acquisition was $609.6 million. Windstream financed the transaction using the cash acquired from CTC,
$250.0 millon in borrowings available under its revolving line of credit, and additional cash on hand. The premium paid by Windstream in this transaction is attbutable to the
strategic importance of the CTC acquisition. The access lines and high-speed Internet customers added through the acquisition significantly increased Windstream's presence
in North Carolina and provided the opportnity to generate significant operating effciencies with contiguous Windstream markets.
The transaction was accounted for as the acquisition of a business in accordance with authoritative guidance on business combinations, with Windstream serving as the
accounting acquirer. The accompanying consolidated financial statements reflect the combined operations of Wind stream and CTC following the acquisition on August 31,
2007.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acqnisitions and Dispositions, Continned:
The cost of the acquisition has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the acquisition date with amounts exceeding
fair value being recorded in goodwil and is presented as follows:
Total assets acquired
Total liabilities assumed
(a) None ofthe goodwill recognized in this transaction is deductible for income tax purposes.
Included in the valuation of current liabilities were $25.3 milion in capitalized transaction and employee-related costs. which are included in the total cost of the acquisition of
$609.6 milion. Of these costs, $ I 0.5 milion was paid in 2008 and is included in net cash flows from operations in the accompanying statement of cash flows.
Pro forma financial results related to the acquisition of CTC have not been included because the Company does not consider the CTC acquisition to be significant.
Disposition of Out of Territory Product Distribution - On August 21,2009, Windstream completed the sale of its out of terrtory product distribution operations to Walker and
Associates of North Carolina, Inc. ("Walker") for approximately $5.3 millon in total consideration. The out ofterrtory product distribution operations primarily consisted of
product inventory with a carring value of$4.9 millon and customer relationships outside ofWindstream's telecommunications operating territories. These operations were not
central to the Company's strategic goals in its core communications business. Product revenues from these operations totaled $38.5 million and $76.2 millon during 2009 and
2008, respectively, with related cost of products sold of$34.3 millon and $68.3 milion for the same periods in 2009 and 2008, respectively. In conjunction with this transaction,
Windstream recognized a gain of$O.4 milion in other income. net in its consolidated statements ofincome in 2009.
Disposition of Wireless Business - On November 2 I, 2008, Windstream completed the sale of its wireless business to AT&T Mobility II. LLC for approximately $56.7 milion. The
completion of this transaction resulted in the divestiture of approximately 52,000 wireless customers, spectrum licenses and cell sites covering a four-county area of North
Carolina with a population of approximately 450,000 and six retail locations. As a result of completing this transaction, we have no significant continuing involvement in the
operations or cash flows of the wireless business.
The operating results of the wireless business have been separately presented as discontinued operations in the accompanying consolidated statements of income. Certain
shared costs previously allocated to the wireless business totaling $2.3 milion during 2008 have been reallocated to the wireline segment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Dispositions, Continued:
The following table summarizes the results of the wireless business for the year ended December 31:
income
The pre-ta loss of$21.3 milion was comprised,of$I.O million in transaction related fees and a $20.3 million reduction in goodwill to reduce the caring value of the wireless
business net assets to the transaction price. Additionally, in the second quarter of2008, the Company updated its purchase price allocation through goodwill for certain tax
contingencies, which resulted in a $3.2 milion reduction of defered tax liabilities. Upon completion of the sale, the Company recorded additional tax expense of$9.7 millon
related to goodwil that was not deductible for tax purposes.
Disposition of Directory Publishing Business - On November 30, 2007, Windstream completed the split off of its directory publishing business (the "publishing business") in a
tax-free trnsaction with entities affliated with WCAS. a private equity investment firm and Windstream shareholder.
To facilitate the split off transaction, Windstream contributed the publishing business to a newly formed subsidiary ("Holdings"). Holdings paid a special cash dividend to
Windstream in an amount of $40.0 millon, issued additional shares of Holdings common stock to Windstream, and distributed to Windstream certain debt securities of Holdings
having an aggregate principal amount of$21 0.5 million. Windstream exchanged the Holdings debt securities for outstanding Windstream debt securities with an equivalent fair
market value. and then retired those securities. Windstream used the proceeds ofthe special dividend to repurchase approximately three million shares of Wind stream common
stock during the fourth quarter. Windstream exchanged all of the outstanding equity of Holdings (the "Holdings Shares") for an aggregate of i 9,574,422 shares of Wind stream
common stock (the "Exchanged WIN Shares") owned by WCAS, which were then retired. Based on the price of Wind stream common stock of$12.95 at November 30, 2007, the
Exchanged WIN Shares had a value of $253.5 milion. The total value of the transaction was $506.7 million, including an adjustment for net working capital of approximately $2.7
milion. As a result of completing this transaction, Windstream recorded a gain on the sale of its publishing business of $451.3 million in the fourth quarter of 2007, after
substantially all performance obligations had been fulfilled.
In connection with the consummation of the transaction, the paries and their affliates entered into a publishing agreement whereby Windstream grated Local Insight Yellow
Pages, Inc. ("Local Insight Yellow Pages"), the successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish Windstream
directories in each of its markets other than the newly acquired CTC markets. Local Insight Yellow Pages will, at no charge to Windstream or its affliates or subscribers, publish
directories with respect to each Windstream service area covered under the agreement in which Windstream or its affliates are required to publish such directories by applicable
law, tariff or contrct. Subject to the termination provisions in the agreement, the publishing agreement wil remain in effect for a term of fift years. As part of ths agreement,
Windstream agreed to forego future royalty payments from Local Insight Yellow Pages on advertising revenues generated from covered directories for the duration of the
publishing agreement. The wireline segment recognized approximately $56.0 million in royalty revenues during the eleven months ended November 30. 2007.
Pro forma financial results related to the disposition ofthe publishing business have not been included because the Company does not consider the results of the publishing
business, prior to the gain on sale. to be significant.
4. Goodwil and Other Intangible Assets:
Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets acquired through various business combinations. The cost of acquired
entities at the date of the acquisition is allocated to identifiable assets, and the excess of the total purchase price over the amounts assigned to identifiable assets has been
recorded as goodwill.
F-50
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Goodwill and Other Intangible Assets, Continned:
Changes in the carring amount of goodwill were as follows:
Balance
taxes
As of January I, 2009, the Company completed the annual impairment review of its goodwill according to authoritative guidance and determined that no wrte-down in the
carring value ofthis asset was required. See Note 2 for a discussion of the Company's goodwil valuation approach.
On November 21, 2008, Windstream completed the sale of its wireless business. During the second quarer of2008 the Company reclassified the associated assets as held for
sale, including $52.2 milion of goodwil and $13.4 million of other intangible assets. Commensurate with the classification of the wireless assets as held for sale, the Company
performed an event driven impairment analysis and recognized a corresponding impairment loss through goodwil of$20.3 milion to reduce the caring value ofthe assets to
the contemplated trnsaction price less cost to sell (see Note 2).
Intangible assets were as follows at December 31:
(a) Increases in the gross cost of intangible assets during 2009 were associated with the acquisitions ofD&E and Lexcom as previously discussed in Note 3.
(b) As discussed in Note 2, effective January 1,2009, the Company prospectively changed its assessment of useful life for its frnchise rights from indefinite-lived to 30
years. Effective with this change. these rights are now amortized on a straight-line basis in accordance with the way in which these operations are expected to contribute
to the undiscounted cash flows ofthe Company.
(c) The Company considers its wireless licenses to have an indefinite useful life.
Intangible asset amortization methodology and useful lives were as follows as of December 31, 2009:
Intangible Assets
F raèhise rights
Customer lists
Cable franchise rights
Other
Estimated Useful Life
30 years
9 - io years
iS years .
1- 2 years
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Goodwil and Other Intangible Assets, Continued:
Amortzation expense for intagible assets subject to amortzation was $80.9 milion in 2009, $51.9 million in 2008 and $51. million in 2007. Amortzation expense for intagible
assets subject to amortzation is estimated to be $91. milion, $81.8 milion, $74.2 millon, $60.3 millon and $53.0 milion in 2010. 2011, 2012, 2013 and 2014, respetively.
5. Debt:
Long-term debt was as follows at December 31:
July 17, 2011 (a)114.4 283.3
Senior secured credit facility, Tranche B - variable rates, due
July 17,2013 (a)289.8 1.379.0
(a) In the fourth quarter of 2009, Windstream received the consent oflenders to an amendment and restatement of its $2.1 bilion senior secured credit facilty, Among other
things, the amendment extended the maturity profie of the indebtedness. required a i 00 to 125 basis point increase in the interest rate on the extended portion of the debt
and modified certain covenants to increase flexibility for acquisitions. The revolving credit agreement was also extended, as discussed further below.
(b) Windstream has a $500.0 million unsecured line of credit under a revolving credit agreement. Of the available credit, $152.4 million expires July 17,201 i and $347.6 million
expires July 17,2013. Letters of credit are deducted in determining the total amount available for borrowing under the revolving credit agreement. Accordingly, the total
amount outstanding under the letters of credit and the indebtedness incurred under the revolving credit agreement may not exceed $500.0 million. At December 3 1,2009,
the amount available for borrowing under the revolving credit agreement was $491.8 million.
F-52
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt, Continued:
During 2009, the Company repaid all amounts outstanding under the revolving line of credit in its senior secured credit facilty. The revolving line of credit's varable
interest rates are based on LIBOR plus 125 to 225 basis points and ranged from 1.59 percent to 2.45 percent, with a weighted average rate on amounts outstanding during
2009 of i. 77 percent, as compared to variable interest rates during 2008 which ranged from 1.73 percent to 6. I 0 percent with a weighted average rate on amounts
outstanding of 4.09 percent.
(c) In the fourth quarter of2009, Windstream issued $ 1,100.0 milion aggregate principal amount of senior unsecured notes due 2017, with an interest rate of7.875 percent.
Proceeds from the offering were used to finance the cash portion of the D&E and Lexcom acquisitions in 2009, to finance the cash portion of the NuVox, Inc. ("NuVox")
acquisition completed February 8, 2010 (see Note 17) and to repay certain debt ofthe acquired companies. The Company plans to use the remaining proceeds from the
offering to finance the pending acquisition oflowa Telecommunication Services, Inc ("Iowa Telecom") (see Note i 6) and for general corporate purposes.
(d) Certain of the Company's debentures and notes are callable by the Company at various premiums on early redemption.
(e) The Company's collateralized Valor debt is equally and ratably secured with debt under the senior secured credit facility. Debt held by Windstream Holdings of the
Midwest, Inc., a subsidiary of the Company, is secured solely by the assets of the subsidiary.
The terms of the credit facility and indentures include customary covenants that, among other things, require Windstream to maintain certain financial ratios and restrict its
ability to incu additional indebtedness. These financial ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage ratio of2.75 to i .0. In addition, the
covenants include restrictions on dividend and certain other tyes of payments, as well as restrictions on capital expenditures. which must not exceed a specified amount for any
fiscal year. As of December 31, 2009, the Company was in compliance with all of its covenants.
Maturities for debt outstanding as of December 3 1,2009 for each of the twelve month periods ended December 3 1,2010,2011,2012,2013 and 2014 were, $23.8 million,
$139.4 million, $50.4 millon, $1.242.6 million and $10.8 milion, respectively.
Interest expense was as follows for the years ended December 3 I:
rate
(a) The Company recognized as interest expense in the accompanying consolidated income statements $6.4 million in arrngement and other fees related to the amendment
and restatement of its senior secured credit facilty in the fourh quarter of 2009.
(b) The Company recorded additional non-cash interest expense of$5.3 milion during 2007, due to a write-off of the unamortized debt issuance costs associated with $500.0
million of the Tranche B loan that was repaid in connection with a refinancing transaction.
In order to mitigate the interest rate risk inherent in its variable rate senior secured credit facility, the Company entered into four identical pay fixed. receive variable interest rate
swap agreements whose notional value totaled $1,175.0 million at December 31,2009 (see Note 2).
F-53
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Fair Value Measurements:
Windstream utilzes market data or assumptions that market participants would use in valuing its assets and liabilties, including assumptions about risk and the risks inherent in
the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. Valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs are used, and the fair value balances are classified based on the observabilty of those inputs. The highest
priority is given to unadjusted quoted prices in active markets for identical assets or liabilties (level i measurement) and the lowest priority is given to unobservable inputs (level
3 measurement). Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's
assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilties and their
placement within the fair value hierachy levels.
The Company's non-financial assets and liabilties, including goodwil, intangible assets and asset retirement obligations. are measured at fair value on a non.recurrng basis. No
event occurred during the year ended December 3 i, 2009 requiring these non.financial assets and liabilities to be subsequently recognized at fair value.
The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt and interest rate swaps. The
carrying amount of accounts receivable and accounts payable was estimated by management to approximate fair value due to the relatively short period of time to maturity for
those instrments. Cash equivalents, long-term debt and interest rate swaps are measured at fair value on a recurrng basis.
The fair values of the Company's cash equivalents and interest rate swaps were determined using the following inputs at December 3 i:
Quoted Price
inActive
Markets for
Identical Assets
2009
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Quoted Price
in Active
Markets for
Identical Assets
2008
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
(a) Included in current portion of interest rate swaps and other liabilities on the consolidated balance sheets as of December 3 1,2009 and 2008, respectively.
The Company's cash equivalents are primarily highly liquid, actively traded money market funds with next day access. The fair values ofthe interest rate swaps were determined
based on the present value of expected future cash flows using L1BOR swap rates which are observable at commonly quoted intervals for the full term of the swaps. adjusted for
the Company's non-performance risk. As of December 3 1,2009 and 2008, the fair value of the Company's interest rate swaps were reduced by $5.3 millon and $1 7.4 milion,
respectively, to reflect the Company's non-performance risk. The Company's non-performance risk is assessed based on the current trading
F-54
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Fair Value Measurements, Continued:
discount of its Tranche B senior secured credit facilty as the swap agreements are secured by the same collateraL. In addition, the Company routinely monitors and updates its
evaluation of counterpart risk, and based on such evaluation has determined that the swap agreements continue to meet the requirements of an effective cash flow hedge. The
counterpart to each of the four swap agreements is a bank with a current credit rating at or above A+.
The fair value and carring value of the Company's long-term debt, including current maturities, was as follows at December 31:
The fair value of the corporate bonds was calculated based on quoted market prices of the specific issuances in an active market when available. When an active market is not
available for certain bonds and bank notes, the fair market value was determined based on bid prices and broker quotes. In calculating the fair market value of the revolving line
of credit and Windstream Holdings of the Midwest Inc. bonds. an appropriate market price for similar instruments in an active market was used with consideration given to credit
quality, nonperformance risk and maturity of the instrent.
7. Supplemental Cash Flow Information:
The Company declared and accrued cash dividends of$109.2 milion. $ 109.9 million and $1 13.6 million during the fourth quarter of2009, 2008 and 2007, respectvely, which were
subsequently paid in January of the following year.
On November 10,2009, the Company issued 9.4 millon shares of its common stock with a fair market value of approximately $94.6 million as par of consideration paid to acquire
D&E (see Note 3). Also as part of this transaction, Windstream assumed $182.4 million in long term debt, which was subsequently repaid as required under the change of control
provisions of the D&E debt agreement.
Pursuant to the split off of the publishing business (see Note 3), Windstream and Holdings executed a non-cash debt-for-debt exchange whereby Windstream received
securities from Holdings valued at $210.5 million. Windstream exchanged these Holdings debt securities for outstanding Windstream debt securities, which were then retired
(see Note 5). In addition to receiving a special cash dividend and debt securities, Windstream received approximately i 9.6 million outstanding shares of its common stock. which
were valued at $253.5 milion, in exchange for its contribution of the publishing business to Holdings. These shares were subsequently retired.
During the first quarter of2007, $4.7 million of additional net plant assets, $ 1.2 million of related deferred ta liabilities, and $0.4 millon of additional pension assets were identified
by and received from Alltel in conjunction with the spin off during 2006. The Company recorded this non-cash transfer from Alltel as an adjustment to additional paid-in capitaL.
8. Employee Benefi Plans and Postretirement Benefits:
Windstream maintains a non-contributory qualified defined benefit pension plan, which covers most employees. Prior to establishing the pension plan pursuant to the spin off in
2006, the Company's employees participated in a substantially equivalent plan maintained by Alltel. Future benefit accruals for all eligible nonbargaining employees covered by
the pension plan ceased as of December 31, 2005 (December 3 1,2010 for employees who had attined age 40 with two years of servce as of December 31, 2005). The Company
also maintains supplemental executive retirement plans that provide unfunded. non-qualified supplemental retirement benefits to a select group of management employees.
Additionally, the Company provides postretirement health care and life insurance benefits for eligible employees. Employees share in. and the Company funds. the costs of these
plans as benefits are paid.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretiement Benefits, Continued:
The following table reflects the components of pension expense for the years ended December 31, 2009. 200S and 2007. including provision for executive retirement agreements,
and postretirement expense for the years ended December 31 :
Amortzatin of prior service (credit) cost
Loss from plan curtilment
on
(50.6)
$ 91.S
(76.3)
(0.9)
(79J)).""
14.9
:.:: ;:E)~¡h;~èr'+J\ .,: L':;:-:~
Net periodic benefit expense (income)5.3 $ 14.S $ 24.4
As a component of determining its annual pension cost, Windstream amortizes unrecognized gains or losses that exceed 17.5 percent of the greater of the projected benefit
obligation or market-related value of plan assets on a straight-line basis over five years. Unrecognized actuarial gains and losses below the 17.5 percent corridor are amortized
over the average remaining service life of active employees, which was approximately i 0 years for its pension plan during 2009.
As a component of determining its annual postretirement cost, the Company amortizes unrecognized actuarial gains and losses exceeding the i 0.0 percent corridor over the
lesser of i 0 years or the average remaining service life of active employees. which was approximately i 0 years for its postretirement benefit plan during 2009. Windstream does
not amortize unrecognized actuarial gains and losses below the i 0.0 percent corrdor.
Actuarial assumptions used to calculate pension and postretirement expense were as follows for the years ended December 31 :
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretiement Benefits, Continued:
A summar of plan assets, projected benefit obligation and funded status of the plans. including executive retirement agreements, were as follows at December 31:
Postretirement Benefits2009 2008
: $;\ '\it;iJ:~i;;: ;;, "
~, ;;~T'.,~k~: 'j;'; ~ '.:, '
$ (318.9)1.
$ (317.8)
$(7.8)89.
81.8 $$
(a) In conjunction with the acquisition ofD&E on November 10,2009, the Company assumed certain obligations related to a non.contnbutory qualified pension plan and
postretirement benefit plan formerly sponsored by D&E. As a result Windstream recognized additional net pension and postretirement benefit obligations of$ 1 2.4 milion
and approximately $1.8 million. respectively, as of November 10,2009, which are included in other liabilities in the accompanying consolidated balance sheet. The D&E
plans were merged into the Windstream pension and postretirement employee benefit plans effective December 31,2009.
(b) Dunng 2009 and 2008, pension benefits paid from Company assets totaled $0.7 milion. All postretirement benefits in both years were paid from Company assets.
(c) Dunng 2009, Windstream amended certain of its postretirement medical and life insurnce plans to replace post-65 Medicare supplement plans with a portfolio of
individual post-65 products including vanous Medigap, Part D Prescription Drug Plan and a Medicare Advantage plan effective July I. 20 i O. In addition, these
amendments capped the maximum amount of medical subsidy provided by Windstream to retirees and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretirement Benefits, Continued:
eliminated dental subsidies and Medicare Par B reimbursment effective Januar I, 20 i O. These amendments were accounted for as plan amendments and reduced
Windstream's benefit obligation at December 3 1,2009 by $54.8 million, with a corresponding decrease in accumulated other comprehensive loss, net of tax. The reduction
in the obligation wil be amortized to postrtirement benefits expense in accordance with Company policy.
(d) The gain of $52. I milion during 2008 is primarly attbutable to an amendment of certain postretirement medical and life insurance plans to replace post-65 Medicare
supplement plans with a federally funded Medicare Advantage Private Fee for Service plan effective Januar 1,2009. In addition, these amendments capped the maximum
amount of medical subsidy provided by Windstream to retirees and replaced death benefits provided to certain surviving spouses of retirees with basic life insurance
benefits effective Januar 1.2009. These amendments decreased accumulated other comprehensive loss, net of tax, resulting in a revised benefit obligation of$157.0
milion at December 3 1,2008. The reduction in the obligation wil be amortized to postretirement benefits expense in accordance with Company policy.
Estimated amounts to be amortized from accumulated other comprehensive income (loss) into net periodic benefit expense (income) in 2010. including executive retirement
agreements, are as follows:
The accumulated benefit obligation of the Company's pension plan was $1,01 1.3 millon, $91 1.0 milion and 8868.6 milion at December 31, 2009, 2008 and 2007, respectively.
Actuarial assumptions used to calculate the projected benefit obligations were as follows for the years ended December 3 I :
assets
In developing the expected long-term rate of return assumption, the Company considered the historical rate of return on plan assets of 9.89 percent since i 975 including periods
in which it was sponsored by Alltel, as well as input from its investment advisors. Projected returns by such advisors were based on broad equity and bond indices. The
expected long-term rate of return on qualified pension plan assets includes a targeted asset allocation of 52.5 percent to equities, 37.5 percent to fixed income securities, and 10.0
percent to alternative investments, with an aggregate expected long-term rate of return of approximately 8.0 percent.
The Company's pension plan assets are allocated to asset categories based on the specific strategy employed by the asset's investment manager. The asset allocation at
December 31,2009 and 2008 for the Company's pension plan by asset category were as follows:
Asset Category
. E'Cù¡tl_lities
Fixed income securities
Alterative investments . . .
Money market and other short-term interest bearing securities
Target Allocation
2010
45.0% - 60.0%
31.0% 44.0%
0.0%
0.0%
Percentage of Plan Assets2009 200853.0% 47.8%38.2% 50.4%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretirement Benefits, Continued:
The Company's investment strategy is to maintain a diversified asset portfolio expected to provide long-term asset growth. Asset allocation decisions reflect the return
objectives of the pension plan as well as tolerance for risk, liquidity needs and future funding obligations. The long-term return objective is to satisfy any current funding
obligations when and as prescribed by law and to keep pace with the growth of the pension plan liabilties. Given the long time horizon for paying out benefits, and the strong
financial condition of the Company, the pension plan can accept an average level of risk relative to other similar plans. The liquidity needs of the plan are manageable given that
lump sum payments are not available to most participants. At December 31, 2009 money market and other short-term interest bearing securities exceeded its allocation range due
to the integration of assets from the D&E pension plans, which occurred December 30. 2009.
Equity securities include stocks of both large and small capitalization domestic and international companies. Equity securities are expected to provide both diversification and
long-term real asset growth. Domestic equities may include modest holdings of non-U.S. equities. purchased by domestic equity managers as long as they are traded in the U.S
and denominated in U.S. dollars and both active and passive (index) investment strategies. International equities provide a broad exposure to return opportunities and
investment characteristics associated with the world equity markets outside the U.S. The plan's equity holding are diversified by investment style, market capitalization, market
or region, and economic sector.
Fixed income securities include securities issued by the U.S. Government and other governmental agencies, asset-backed securities and debt securities issued by domestic and
international companies. These securities are expected to provide significant diversification benefits, in terms of asset volatility and pension funding volatilty, and a stable
source of income.
Alternative investments include both private and public real estate and private equity investments. In addition to attractive diversification benefits, the real estate investments
are expected to provide both income and capital appreciation, while the private equity investments are expected to provide return enhancements.
Investments in money market and other short-term interest bearng securities are maintained to provide liquidity for benefit payments with protection of principal being the
primar objective.
The plan prohibits investment in Windstream common stock.
The fair values of the Company's pension plan assets were determined using the following inputs as of December 3 i:
2009
Quoted Price
inActive
Markets for
Identical Assets
Significant
Other
Observable
Inputs
(a)
Significant
Unobservable
Inputs
171.9
9.8
34.8
25.0
contract (d)
28.1
43.1
87.5
43.1
88.5 .
3.9
788.4
4.3~)
$ 784.0
$204.7 $579.3Total investments
Dividends and interest receivable
Pending trades
Total plan assets
F-59
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postetiement Benefis, Continued:
( a) Changes in the level 3 investments were inconsequential for the year ended December 31, 2009.
(b) Valued at their quoted market price on the last day of the year. Securities traded in markets that are not considered active are valued based on quoted market prices,
broker or dealer quotes or alternative pricing sources with reasonable levels of price trasparency.
(c) Valued by reference to the funds' underlying assets and are based on the unit values as reported by the fund manager on the last business day of the year. The
underlying assets are mostly comprised of publicly traded equity securities and fixed income securities. These securities are valued at the offcial closing price of, or the
last reported sale prices as of the close of business or, in the absence of any sales, at the latest available bid price.
(d) Based on the value of the underlying contracts adjusted to market value, which recognizes that either long-term assets would have to be sold before contract maturity or
new contributions by other contract holders would have to be exchanged for funds being transferred, precluding these contributions from being invested at the current
rate of return.
There have been no significant changes in the methodology used to value investments from prior year. The valuation methods used may produce a fair value calculation that
may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the valuation methods are consistent with other market participants, the use
of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Information regarding the healthcare cost trend rate was as follows for the years ended December 31 :
to
For the year ended December 31,2009, a one percent increase in the assumed healthcare cost trend rate would increase the postretirement benefit cost by approximately $0.2
milion, while a one percent decrease in the rate would reduce the postretirement benefit cost by approximately $0.2 million. As of December 31, 2009, a one percent increase in
the assumed healthcare cost trend rate would increase the postretirement benefit obligation by approximately $3.6 million, while a one percent decrease in the rate would reduce
the postretirement benefit obligation by approximately $2.9 million.
Estimated future employer contributions, benefit payments, including executive retirement agreements, and Medicare prescription drg subsidies expected to offset future
postretirement benefit payments were as follows as of December 31, 2009:
2011
2012
2013
2014
Pension
Benefits
$ 0.7
Postretirement
Benefits
$ 10.0
(Milions)
Expecd èìnployer contnbutions ii 20 i 0
Expected benefit payments:
2010
20ll
2012
2013
F-60
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Employee Benefit Plans and Postretirement Benefits, Continued:
The expected employer contribution for pension benefits consists of$0.7 millon necessary to fund the expected benefit payments related to the unfunded supplemental
retirement pension plans. Future contributions to the plan wil depend on various factors including future investment performance, the finalization of funding requirements,
changes in future discount rates and changes in the demographics of the population participating in the Company's pension plan. Expected benefit payments include amounts
to be paid from the plans or directly from the Company's assets, and exclude amounts that wil be funded by participant contributions to the plans.
The Company also sponsors an employee savings plan under section 401(k) of the Internal Revenue Code, which covers substantially all salaried employees and certin
bargaining unit employees. Employees may elect to contribute to the plans a portion of their eligible pretax compensation up to certain limits as specified by the plans and by the
Internal Revenue Service. Effective Januar 2009, the Company decreased its matching contribution to employee savings accounts from a maximum of 6 percent to a maximum of
4 percent of employee pretax contrbutions for employees contrbuting at least 5 percent. The Company's matching contrbution is funded annually. During 2007 and 2008, the
Company made matching contributions of 6 percent of employee preta contrbutions. The Company recorded $8.9 milion, $ I 3.2 milion and $13.3 millon in 2009, 2008 and 2007,
respectively, related to the employee savings plan, which was included in cost of services and selling, general, administrative and other expenses in the consolidated statements
of income.
9. Share-Based Compensation Plans:
Under the Company's share-based compensation plans, Windstream may award restricted shares and other equity securities to directors. offcers and other key employees. The
maximum number of shares available for issuance under the Windstream 2006 Equity Incentive Plan is 10.0 millon. As of December 3 1,2009, the balance available for grt was
approximately 3.5 million shares. The cost of each award is determined based on the fair value of the shares on the date of grant. and is fully expensed over the vesting period.
During 2009. 2008 and 2007, the Windstream Board of Directors approved grants of restricted shares to offcers, executives, and non-employee directors and certain management
employees. These grants include the standard annual grants to this employee and director group as a key component oftheir annual incentive compensation plan. The vesting
periods and grant date fair value for shares issued was as follows for the years ended December 3 I :
2009
Common
2008
Common
2007
Common
one year
Grant date fair value (Milions)16.5 14.3 $12.8
(a) Represents shares granted to non-employee directors.
For the performance based shares granted in 2009, the operating targets for the first vesting period were approved by the Board of Directors in February 2009. For performance
based shares granted in 2008, the operating targets for the first and second vesting period were approved by the Board of Directors in February 2008 and 2009, respectively. The
targets for the first, second and third vesting periods for the performance based shares issued in 2007 were established by the compensation committee in February 2007, 2008
and 2009, respectively. For 2009 and measurement periods prior, each of these operating targets was met by the end of their respective measurement periods. Targets for the last
measurement period for the shares granted in 2008 and for the second vesting period for the shares granted in 2009 were established in Februar 20 I O. While achievement of
F-61
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Share-Based Compensation Plans, Continued:
performance targets for 2010 remains uncertain, management has determined that it is probable that such targets will be met for fiscal year 2010.
Restrcted share activity for the year ended December 3 1,2009 was as follows:
At December 3 i, 2009, unrecognized compensation expense totaled $ i 0.6 milion and is expected to be recognized over the weighted average vesting perod of 1.3 year.
Unrecognized compensation expense is included in additional paid-in capital in the accompanying consolidated balance sheets and statements of shareholders' equity. The total
fair value of shares vested during 2009, 2008 and 2007 was $27.5 million, $12.3 millon and $7.8 milion. respectively. Share-baed compensation expense was $17.4 milion, $18. i
milion and $15.9 millon for 2009,2008 and 2007. respectively.
10. Merger, Integration and Restructuring Charges:
Costs triggered by strategic transactions, including transaction, rebranding and system conversion costs are unpredictable by nature and are not included in the determination
of segment income. Transaction costs primarily include charges for accounting, legal, broker fees and other miscellaneous costs associated with the completed acquisitions of
D&E. Lexcom and Nu Vox, and the pending acquisition ofIowa Telecom expected to be completed in 20 i O. These costs are considered indirect or general and are expensed when
incurred in accordance with authoritative guidance on business combinations. Restructuring charges, consisting primarily of severance and employee benefit costs, are triggered
by the Company's continued evaluation of its operating structure and identification of opportunities for increased operational effciency and effectiveness. These costs should
not necessarily be viewed as non-recurrng. and are included in the determination of segment income. They are reviewed regularly by the Company's decision makers and are
included as a component of compensation targets.
F-62
Table of Contents
NOTES TO CONSOLIDATED FINANCIA STATEMENTS
10. Merger, Integration and Restructuring Charges, Continued:
A summary of the merger, integration and restrctung charges recorded was as follows for the years ended December 3 i:
1.3
Directory Publishing Segment
Merger and integration costs c
Transacti~n costs associated ~ith
(a) During 2009, the Company incurred acquisition related costs for accounting, legal, broker fees and other miscellaneous costs associated with the acquisitions ofD&E,
Lexcom and NuVox, as well as the pending acquisition oflowa Telecom. These costs are considered indirect or general and are expensed when incurred in accordance
with authoritative guidance on business combinations.
(b) During 2009, the Company incured $8.2 million and $0.4 million in employee trnsition costs. primarily severace related, for D&E and Lexcom, respectively.
(c) During 2008, the Company incurred $6. i million in system conversion costs related to the acquisition ofCTC. Of these charges, $5.4 milion represented a non-cash
charge to abandon certain softare acquired from CTC.
(d) During 2007, the Company incurred approximately $1.3 milion in rebranding costs associated with the acquisition ofCTC.
(e) During 2009. the Company incurred $9.3 milion in restructuring costs from an announced workforce reduction in the third quarer of 2009 to realign certin information
technology, network operations and business sales functions. Ofthese charges, $8.9 milion was paid in cash during the year. The remaining liability of $0.4 milion will be
funded through operating cash flows and paid in 2010. In 2008, the Company incurred $8.5 million in restructuring costs from an announced workforce reduction in the
fourth quarter of2008 to realign certain information technology, network operations and business sales functions. Of these charges, $3.7 millon was paid in cash during
the year. In 2007, the Company incurred $4.6 milion in restructuring costs from a workforce reduction plan and the announced realignment of its business operations and
customer service functions intended to improve overall support to its customers. Of these charges, $4.1 milion was paid in cash during the year.
(I) During 2007, the Company incurred $3.7 million in transaction costs to complete the split off of its directory publishing business (see Note 3).
F-63
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Merger, Integration and Restructuring Charges Continued:
(g) Merger and integration costs for 2007 were revised to reflect that $1.1 milion in costs incurred were associated with the wireless business, which is presented as
discontinued operations in the accompanying consolidated statements of income. An additional $0.8 milion in non-cash merger and integrtions costs incurred in 2008
associated with the wireless business are included in discontinued operations.
Merger, integrtion and restrctung charges decreased net income $19.4 milion, $9.0 millon and $8.8 milion for the years ended December 31, 2009, 2008 and 2007, respectively,
giving consideration to tax benefits on deductible items.
The following is a summary of the activity related to the liabilities associated with the Company's merger. integration and restrcturing charges at December 31:
$ 6.6 $ 8.3Balance end of period
As of December 31, 2009, the remaining liabilty of$6.6 milion for accrued merger, integration and restrctung charges consisted of $0.4 milion of Valor lease termnation costs
and $6.2 milion of accrued severance costs primarly associated with the integration ofD&E and Lexcom. Valor lease payments will be made over the remaining tenn of the lease.
The severance and related employee costs will be paid in 2010. Each ofthese payments wil be funded through operating cash flows.
F-64
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Comprehensive Income:
Comprehensive income was as follows for the year ended December 3 i:
(Millions)Netinctl 2007
. ...$"9~ir;'i
(0.2)
(394.9)... .
Accumulated other comprehensive loss balances, net of tax, were as follows for the years ended December 3 i:
2009
$ (14Q.) $--$ . (208.3) $
12. Income Taxes:
Income tax expense was as follows for the years ended December 3 i :
2009 2008 2007
Defered:
Federal
State and other
120.2
10.8
131.0
Income tax expense
F-65
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes, Continued:
Deferred income tax expense for all three year primarily resulted from temporary differences between depreciation and amortization expense for income tax puroses and
depreciation and amortization expense recorded in the consolidated financial statements. Goodwil is not amortized for financial statement purposes in accordance with
authoritative guidance on goodwil and other intangible assets.
Differences between the federal income tax statutory rates and effective income tax rates, which include both federal and state income taxes, were as follows for the years ended
December 3 i :
The significant components of the net deferred income tax liabilty (asset) were as follows at December 3 i:
(Milions)
Propert, plant and equipment
Goodwill and other intangible assets
Operating loss carryforward
Postretirement and other employee benefits
Unrealized holdingJossilnd interestswaps
Deferred compensation
Deferred deb cots
Other. net
$
2009
890;4' .
747.2
$
2008 (a)
773.3
652.0
Deferr taliabilites
(a) On November 2 1.2008, Windstream completed the sale of its wireless business. In conjunction with the sale, the Company classified corresponding assets and liabilities
as held for sale, including deferred taxes (see Note 2).
At December 3 I, 2009 and 2008, the Company had federal net operating loss carrforwards of approximately $ i 37.7 million and $2 14.3 million, respectively, which expire in
varying amounts through 202 I. These loss carrforwards were acquired in conjunction with the Company's merger with Valor. The decrease in 2009 represents the amount
utilized for the year, and an additional net operating loss claimed on the amended 2007 federal consolidated return fied during the current period. At December 3 1,2009 and 2008,
the Company had state net operating loss carrforwards of approximately $714.5 million and $693.7 million, respectively, which expire annually in varying amounts through 2027.
These loss carrforwards were initially acquired in conjunction with the Company's mergers with Valor and CTC. The 2009 increase is primarily associated with loss
carrforwards acquired in conjunction with the Company's mergers with D&E and Lexcom offset by amounts utilized for the year and adjustments to the loss carforward in
Kentucky. The Company is limited in its ability to use the state loss carrforwards for CTC. D&E and Lexcom due to expected future taxable income. As a result, a portion of
these loss carrforwards will not be utilized before they expire. The Company establishes valuation
F-66
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes, Continued:
allowances when necessar to reduce deferred tax assets to amounts expected to be realized. As of December 3 i, 2009 and 2008, the Company recorded a valuation allowance of
$24.4 million and $2.6 milion, respectively, related to state loss carrforwards, which are expected to expire and not be utilized. The 2009 increase in the valuation allowance is
primarly associated with the acquisition of certain state net operating losses from D&E and Lexcom and was recorded with an offset through goodwilL. At December 31, 2009 and
2008, the Company had state ta credit carforwards of approximately $15. i milion and $ i 5.4 million, respectively.
13. Commitments and Contingencies:
Lease Commitments - Minimum rental commitments for all non-cancelable operating leases, consisting principally of leases for network facilities, real estate, offce space and
offce equipment were as follows as of December 31, 2009:
2012
2013
Rental expense totaled $29.6 milion, $25.3 millon and $19.0 million in 2009, 2008 and 2007, respectively.
Litigation - The Company is party to various legal proceedings. Although the ultimate resolution of these various proceedings cannot be determined at this time, management of
the Company does not believe that such proceedings, individually or in the aggregate, will have a material adverse effect on the future consolidated results of income, cash flows
or financial condition of the Company.
In addition, management of the Company is currently not aware of any environmental matters that, individually or in the aggregate. would have a material adverse effect on the
consolidated financial condition or results of operations of the Company.
14. Business Segments:
Windstream is organized based on the products and services that it offers. Under this organizational strcture, its operations consist of its wireline and directory publishing
segments. Previously, the Company reported a product distrbution segment. but in the first quarter of2009. the Company reorganized its operations to integrate the sales and
administrative functions of the product distribution segment into its wireline operations. As a result of this change, the chief operating decision maker no longer reviews the
financial statements of the product distribution operations on a stand alone basis, and the Company operates its wireline and product distribution operations as a single
reporting segment ("the wire line segment"). As required by the authoritative guidance for segment presentation, segment results for these operations have been retrospectively
adjusted to reflect this change for all periods presented.
On November 30, 2007. Windstream completed the split off of its directory publishing business (see Note 3). Prior to the split off, the Company's publishing subsidiary
coordinated advertising, sales, printing and distribution for 356 telephone directory contracts in 34 states.
The Company accounts for affiliated sales at current market prices, tariff rates, or negotiated prices. The evaluation of segment performance is based on segment income, which
is computed as revenues and sales less operating expenses, excluding the effects of strategic transaction costs as discussed in Note i O. In addition, non-operating items such as
other income, net, gain on sale of assets, loss on extinguishment of debt, intercompany interest income, interest expense and income taxes have not been allocated to the
segments.
F-67
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Business Segments, Continued:
The following is a sumary of segment performance:
Operating expenses
Deprecim;on an amoiÌ2;trÔ;\L" '.
Restructuring charges ..""" ~
Total costs and êip~i!ses.
Segment incomeAssets iii ¡i¡):, '.'
Capital expenditures
For the year ended December 31. 2009
Directory Totals
Publishing Segments$ .;.: ':$::':' 2,96;(Milions)
Revenues andsaiesJ~ '(nfliad cuomers
Affliated revenues and sales
2,996.6
1,470.3
537.8
9.3
2,017.4
$ 979.2
; :$: 9,145,4
$ 298.1
~: :~"
For the year ended December 3 i, 2008
Directory Totals
Publishing Segments$ $ 3,171.5
, ,~,
3,171.5
1,531.7
.492.7
8.5
2,032.9
$ 1.138.6
$ 8,009.3
$ 317.5
".,' J,:';~c, ~':':"
$
$
$
Wireline
$ 3.134.6
45.0
3,179.6
1,516.2
506,0
4.6
2,026.8
$ 1.152.8
$ 8,1555
$ 365.5
F-68
Table of Contents
NOTES TO CONSOLIDATED FINANCIA STATEMENTS
14. Bnsiness Segments, Continued:
A reconciliation ofthe total business segments to the applicable amounts in the Company's consolidated financial statements was as follows for the years ended December 31:
Supplemental information pertaining to the directory publishing segment was as follows as of and for the years ended December 3 i:
(Milions)
Revenues and sales from external customers:
Directory publisbing
Total
Affliated revenues and sales:
Directory publishing
Total
2009 2008 2007
, g,~:~:~:~ ~l ~-'
$
15. Supplemental Guarantor Information:
In connection with the issuance of the 2013 Notes. the 2016 Notes, the 2017 Notes and the 2019 Notes ("the guaranteed notes"), certain ofthe Company's wholly-owned
subsidiaries (the "Guarantors"). including all former subsidiares of Valor, provide guaratees of those debentures. These guarantees are full and unconditional as well as joint
and severaL. Certin Guarators may be subject to restrictions on their abilty to distrbute earings to the Company. The remaining subsidiaries (the "Non-Guarators") of
Windstream are not guarators of the guaranteed notes. In conjunction with the merger with Valor. Windstream assumed $400.0 million principal value of unsecured notes (the
"Valor Notes") guaranteed by all ofValor's operating subsidiaries. The terms ofthose notes were amended to reflect the non-Valor Guarantors as guarntors of the Valor Notes.
On March I, 2007, the Company de-registered the Valor Notes. Following the acquisitions of D&E, Lexcom and CTC, the guaranteed notes were amended to include certain
subsidiaries of D&E, Lexcom and CTC as guarantors.
The following information presents condensed consolidated and combined statements of income for the years ended December 3 I, 2009, 2008 and 2007, condensed consolidated
balance sheets as of December 3 i, 2009 and 2008, and condensed consolidated and combined statements of cash flows for the years ended December 31,2009,2008 and 2007 of
the parent company, the Guarantors and the Non-Guarantors. Investments consist of investments in net assets of subsidiaries held by the parent company and other
subsidiaries, and have been presented using the equity method of accounting.
F-69
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Supplemental Guarantor Information, Continued:
(Milions)
Condensed Consolidated Statement of Income
For the Yea Ended Deeember 3i~ 200
Non-
Parent Guarators Guarantors Eliminations
$746.2 2,I31.$(4.5)
820.6 2,180.5 4.5
237.9 772.3 (3.4)
84.7 272.4 (1.)
1.4 30.2
28.9 718.0
1.0 11 1.(113.2)
(401.8)(6.2)(2.2)
Service revenues
Consolidated
$ 2,872.8
Total revenues and sales 2,996.6
Merger, integrtion and restructuring 31.6
perating income
Other income (expense), net
Interest expense
1.006.
356.0
(1.)
(410.2)
Income taxes (benefit)
(Millons)
Condensed Consolidated Statement of Income
For the Year Ended Deember 31? 200
Non-
Guarantors Guarantors Eliminations
$759.3 $2,234.6 $
883.4 2.293.1
231.8 777.2 (3.6)
97.3 260.6 (1.4)
1.9 12.8
266.9 65.5
Parent
Service revenues $
Total revenues and sales
Merger. integration and restrcturing
Consolidate
$2.988.9
3171.5
1,005.4
356.5
14.7
1.132.4
2.1
(416.4)
718.1
283.2
434.9
(22.2)
$412.7
Operating income
Earnings (losses) from consolidated subsidiaries
Other income (ex ense), net
$(770.6)
(770.6) .:.'
Interest expense
Income from contiuing operations before income taxes
Income taxes (benefit)
Net income $ 222.2 $$ 412.7
F-70
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Supplemental Guarantor Information, Continued:
Other income (expense), net 9.
Condensed Consolidate Statement of Income
For the Year Ended December 31,2007
NOD~
Guarators Guarantors Eliminations Consolidated
$764.0 $2,237.8 $(59.2)$2,942.6
1013.7 2,291.4 59.2)3,245.9
226.8 783.6 (1.8)1.008.6
106.9 274.9 (0.6)381.2
5.0 7.8 12.8
299.7 85 .2 1,149.9
(0.2)1.4 11.
(34.5)90.6 -
1,306.3 (1,330.2)1,167.9
(Millons)Parent
Service revenues $
Total revenues and sales
Merger, integration and restructuring
Operating income
(56.1)
735.7
Net
F-71
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Snpplemental Guarantor Information, Continned:
Milions)Parent
Condensed Consolidated Balance Sheet
As of December 31, 200
Non-Guarators Guarantors Eliminations Consolidated
Current Assets:
Accounts receivable (less allowance for doubtful accounts of $18.5 0.2 97.3 199.0 (4.8)291.7
Deferred income taes 15.6 0.7 504 21.7
Total current assets 1,082.1 121.257.6 (4.8)1456.0
0.1 2,109.0
350.5
1,488.6
23.9 (335.7)
3,597.7
99.16004
Liabilties and
Other current liabilities 11.6.0 42.9 60.2
6,140.7 99.6 366.8 (335.7)6,271.4
11504 15.2 401.4 532.0
13)
41.4 8204 (123.8)
(208.3)(2.8)(140.3)143.1 (208.3)
260.7 3,727.2 5,991.9 (9,719.1)260.7
$:9,535.~. ;$4,6í6:3 .$5,003.2 .$ (10,59.6)$9,145.
F-72
Total shareholders' equity
Tiitsl Liabilties and Shareholders' Equity
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Snpplemental Guarantor Information, Continued:
(Milions)Parent
Condensed ConSCidated Balance Sbeet
As of December 31, 2008
Non-Guarantors Guarantors Eliminations Consolidated
Current Assets:
Accounts receivable (less allowance for doubtful accounts of$16.3)0.3 10S.S 210.8 316.
Deferred income taes 22.4 8.4 30.8
307.8 132.0 268.9 708.7
0.1 1,826.2 I,S04.1 3,330.4
31.4 11.4 30.3 73.1
10.2 83.0 40.8 134.0
8.7 8S.3 94.0
Accrued taxes (30.7)23.3 SS.4 48.0
Other curnt liabilties IS.7 13.2 47.3
S,218..6 39.8
ISS.4 IS.S 492.0
13)
4S.8 (4S.8
(336.6)(248.2)248.2 (336.)
Total
F-73
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IS. Snpplemental Guarantor Information, Continued:
(Milions)Parent
Condensed Consoldated Statement of Cash Flows
For the Year Ended December 31, 200
Non-Guarantors Guarantors Eliminations Consolidated
Net income
om operations:
$ 334.5 279.4 $ 353.0 (632.4)334.5
Provision for doubtful accounts 10.4 33.6 44.0
Stock-based compensation expense 2.0 15.4 17.4
Defered taxes 40.4 36.9 19.5 96.8
Changes in operating assets and liabilties. net 598.8 146.(757.6)(12.8)
(56.6)(56.6)
Other, net
Net cash froii(iid in) investing activities
Cash Flows from Finaneing Activities:
Dividends paid on common shares
Dividends received from (paid to) subsidiaries
Stock rèpurchase
Repayment of debt
ProceQsof debt issuance, net of disèoliìit
Debt issuance
Net cash used in financing activities
(195.3)
0.6
. (70S)(227.0)
0.6
(492.8)
555.7 149.3 138.3(566.7)
Cash and Cash E uivalents:
End of period $ 1,046.5 1.2 15.2 $$ 1,062.9
F-74
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Snpplemental Guarantor Information, Continued:
Other, net 12.3
Condense Consolidated Statement of Casb Flows
For the Year Ended December 31, 2008
Non.
Guarantors Guarantors Eliminations
$2222 548.4 (770.6)
169.5 325.0
(69.4)0.1 770.6
1.4 12.5
(1.2)7.0
113.7 4%.8
(79.3)(238.2)
17.8
Consolidated
$412.7
494.5
13.9
18.1
1,080.4
(317.5)
17.8
(Milions)Parent
Net income $ 412.7
rovided from operations:
(701.)
Net cash provided from 0 erations 469.9
Stock repurchase (200.3)(200.3)
Proceeds of debt issuance, net of discount 380.0 380.0
Net cash used in fiuancing activities (291.0)(55.8)(275.9)(622.7)
Cash and Cash E nivalents:
End of period $ 282.8 1.0 $12.8 $2%.6
F-75
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Snpplemental Guarantor Information, Continned:
(Milions)Parent
Condensed Consoldated Statement of Cash Flows
For the Year Ende December 31,2007
No..Guarantors Guarantors Eliminations Conslidated
917.1
14.7
$368.7
169.6 337.9
(1.0)1,330.2
7.1 32.2
0.1 0.8
131.6 547.4
(84.0)(281.7)
$ 917.1
507.5
39.3
Other. net 15.6
Net cash provided from 0 erations 354.7 1,033.7
(365.7)
40.0 40.0
Proceeds of debt issuance, net of discount 849.1 (0.2)848.9
Net cash used in financing activities (163.0)(55.5)(262.9)(481.4)
Cash and Cash E uivalents:
End of period $47.2 1.2 $23.6 $$720
F-76
T~ble of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Pending Transaction:
On November 23. 2009. we entered into an agreement and plan of merger, pursuant to which we wil acquire all ofthe issued and outstanding shares of common stock oflowa
Telecom. Under the terms ofthe merger agreement, Iowa Telecom shareholders wil receive 0.804 shares of common stock of Wind stream and $7.90 in cash per each share of
Iowa Telecom common stock. We expect to issue approximately 26.5 milion shares of Wind stream common stock and pay approximately $261.0 milion in cash as par ofthe
transaction. We also wil repay estimated net debt of approximately $598.0 millon. This acquisition is expected to close in mid-20IO and is subject to certain conditions, including
receipt of necessary approvals from federal and state regulators and Iowa Telecom shareholders. As of September 30, 2009, Iowa Telecom provided services to approximately
256,000 access lines, 95,000 high-speed Internet customers and 26,000 digital TV customers in Iowa and Minnesota.
i 7. Subsequent Event:
On Februry 8, 20 I 0, we completed our previously announced acquisition ofNu Vox, a competitive local exchange carrer based in Greenvile, South Carolina. Consistent with the
Company's focus on growing revenues from business customers. the completion ofthe Nu Vox acquisition added approximately 90,000 business customer locations in i 6
contiguous Southwestern and Midwest states and provides opportnities for significant operating effciencies with contiguous Windstream markets. NuVox's services include
voice over internet protocol, local and long-distance voice, broadband internet access, email, voicemail. web hosting, secure electronic data storage and backup, internet security
and virtual private networks. Many of these services are delivered over a secure, privately-managed IP network, using a multiprotocol label switch backbone and distributed IP
voice switching architecture.
In accordance with the NuVox merger agreement, Windstream acquired all of the issued and outstanding shares of common stock ofNu Vox for $ 1 99.0 milion in cash, net of cash
acquired, and issued approximately i 8.7 millon shares of Wind stream common stock valued at $ i 87.0 million on the date of issuance. Windstream also repaid outstanding
indebtedness ofNu Vox approximating $28 i.o million. The Company is in the process of evaluating the net assets acquired and expects to finalize the purchase price allocation
during 20 i O. Pro forma financial results related to the acquisition ofNu Vox have not been included because the Company does not consider the Nu Vox acquisition to be
significant.
F-77
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Quarterly Financial Information - (Unaudited):
For the year ended December 31, 2009Total 4th 3rd 2nd 1st
For the year ended December 31, 2008Total 4th 3rd 2nd 1st
$1,13.4 $276.6 $270.6 $288.9 $296.3
$ (22.2)$ (9.8)$ 1.6 $ (15.9)$ 1.9
From discontinued operations
Notes to Quarterly Financial 1nformation:
Significant events affecting Windstreanls historical operating trends in the quarterly periods were as follows:
Windstream completed the acquisitions ofD&E and Lexcom on November 10. 2009 and December 1,2009, respectively. The operating results from these businesses are included
in the Company's results for periods subsequent to their acquisitions (see Note 3).
Windstream completed the sale of its out ofterrtoiy product distribution operations, on August 21, 2009. These operations were not central to the Company's strategic goals in
its core communications business (See Note 3).
Effective Januaiy 1,2009, the Company adopted revised authoritative guidance for calculating earnings per share, and commensurate therewith, has retrospectively adjusted prior
period earings per share data, the impact of which was immaterial (see Note 2).
On August 7, 2008, Windstream reached a definitive purchase agreement to sell its wireless business to AT&T Mobility II, LLC for approximately $56.7 million (see Note 3). This
transaction allowed management to divest of a non-core asset to focus on other strategic initiatives. The operating results ofthe wireless business have been separately presented
as discontinued operations.
F-78
(Back To Top)
Section 2: EX-4.5 (FOURTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.5
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of June 22, 2009, among Windstream Corporation. a Delaware corporation (the "Company"),
Windstream Intellectual Propert Services, Inc., (the "Guaranteeing Subsidiary"), and U.S. Bank National Association, a national banking association organized under the laws of the
United States of America (or its permitted successor), as trustee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as ofJuly 17,2006.
providing for the issuance of the Company's 8.125% Senior Notes due 2013 (the "8.125% Notes") and 8.625% Senior Notes due 2016 (the "8.625% Notes" and collectively with the
8.125% Notes, the "Notes");
WHEREAS. the Indenture provides that under certain circumstances a Guaranteeing Subsidiaiy shall execute and deliver to the Trustee a supplemental indenture pursuant to
which the Guaranteeing Subsidiaiy shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guaratee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, the
Guaranteeing Subsidiaiy and the Trustee agree as follows for the equal and ratable benefit ofthe Holders of the Notes:
I. Capitalized Term. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, the Guaranteeing Subsidiaiy fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of, premium, if any, and interest and Additional Interest, if any, on the Notes wil be promptly paid in full when due, whether at maturity, by
acceleration. redemption or otherwise, and interest on the overdue
principal of, premium, if any, and interest and Additional Interest, if any, on the Notes, iflawful (subject in all cases to any applicable grace period provided herein), and
all other obligations of the Company to the Holders or the Trustee hereunder or thereunder wil be promptly paid in full, all in accordance with the terms hereof and
thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guarnteed
for whatever reason, the Guarntors shall be jointly and severally obligated to pay the same immediately. The Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) The Guaranteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrspective
of the validity, regularity or enforceabilty of the Notes or the Indenture. the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) The Guaranteeing Subsidiary, subject to Section 6.06 of the Indentue, hereby waives diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankrptcy of the Company, any right to require a proceeding first against the Company, protest. notice and all demands whatsoever and covenants that
this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indentue.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trustee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarantors, any amount paid by any ofthem to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) The Guarateeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
until payment in full of all obligations guaranteed hereby.
(f) The Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six ofthe Indenture for the purposes ofthe Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby. and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purose of the
Note Guarantee.
(g) The Guaranteeing Subsidiary shall have the right to seek contrbution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guartee.
(h) The Guaranteeing Subsidiary confirms, pursuant to Section i 0.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee not
constitute (i) a frudulent trsfer or conveyance for purposes of Bankptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any simila
federal or state law to the extent applicable to the Note Guaratee or (ii) an unlawful distrbution under any applicable state law prohibiting shareholder distrbutions by an
insolvent subsidiar to the extent applicable to the Note Guarntee. To effectate the foregoing intention, the Guaranteeing Subsidiary and the Trustee hereby irrevocably agree
that the obligations of the Guaranteeing Subsidiary wil be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such
Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Aricle Ten of the Indenture, result in the obligations of the Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. The Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation ofthe Note Guarantee.
4. Guaranteeing Subsidiar May Consolidate, Etc., on Cerain Terms. The Guarateeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section 10.04 of the Indenture.
5. Release. The Guaranteeing Subsidiary's Note Guarantee shall be released as set forth in Section 10.05 ofthe Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director. offcer, employee, incorporator or stockholder of the Guaranteeing Subsidiary shall have
any liabilty for any obligations ofthe Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture. the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. THE LAWS OF TH STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE TIlS SUPPLEMENTAL INDENTU.
8. Counteæarts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all ofthem together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the constrction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency ofthis Supplemental Indenture or for or in respect of
the recitals contained herein. all of which recitals are made solely by the Guarateeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
IN WITNSS WHEREOF. the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
WIDSTR INTELLECTUAL PROPERTY
SERVICES, INC.
By:
Name:
Title:
/s/ John Fletcher
John Fletcher
Executive V ice President. General Counsel and Secretary
WINDSTREAM CORPORATION
By:
Name:
Title:
/s/ John Fletcher
John Fletcher
Executive Vice President, General Counsel
and Secretary
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
/s/ Muriel Shaw
Murel Shaw
Assistant Vice President
(Back To Top)
Section 3: EX-4.6 (FIFTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.6
FIFTH SUPPLEMENTAL INDENTURE
FIFTI SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of November 20, 2009, among Windstream Corporation, a Delaware corporation (the
"Company"), certain subsidiaries of the Company. as set forth on Exhibit I (each, a "Guaranteeing Subsidiary"), and U.S. Bank National Association, a national banking association
organized under the laws ofthe United States of America (or its permitted successor), as trustee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as ofJuly 17,2006,
providing for the issuance of the Company's 8.125% Senior Notes due 2013 (the "8.125% Notes") and 8.625% Senior Notes due 2016 (the "8.625% Notes" and collectively with the
8.125% Notes, the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes:
i. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture. each Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability ofthe Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of, premium, if any, and interest and Additional Interest, ifany, on the Notes will be promptly paid in full when due. whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any, on the
Notes, iflawful (subject in all cases to any applicable grace period provided herein), and all other obligations of the Company to the Holders or the Trustee hereunder or
thereunder wil be promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity. by acceleration or otherwise. Failing payment when due of any amount so guranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarateeing Subsidiary agrees that this is a gutee of
payment and not a guarantee of collection.
(b) Each Guarteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same. any waiver or consent by any Holder ofthe Notes with
respect to any provisions hereof or thereof. the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture. hereby waives dilgence, presentment, demand of payment. filing of claims with a court in the
event of insolvency or bankruptcy ofthe Company, any right to require a proceeding first against the Company, protest. notice and all demands whatsoever and covenants that
this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trstee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarantors, any amount paid by any ofthem to the Trustee or such Holder, this Note Guarantee. to the extent theretofore
discharged. shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
unti payment in full of all obligations guarnteed hereby.
(t) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand. (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect ofthe obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture. such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
(g) Each Guaranteeing Subsidiary shall have the right to seek contnbution from any non-paying Guarantor so long as the exercise of such nght does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guaranteeing Subsidiar confirms, pursuant to Section i 0.02 of the Indentue, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to the Note Guarantee or (ii) an unlawful dismbution under any applicable state law prohibiting shareholder distnbutions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectuate the foregoing intention, each Guaranteeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiar wil be limited to the maximum amount as wil. after giving effect to all other contingent and fixed liabilities of such
Guarnteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive conmbution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten of the Indenture, result in the obligations ofthe Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. Each Guaranteeing Subsidiar agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guarateeing Subsidiar May Consolidate, Etc., on Certain Terms. Each Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to. or
consolidate with or merge with or into, any Person other than as set fort in Section i 0.04 of the Indenture.
5. Release. Each Guarateeing Subsidiary's Note Guarantee shall be released as set forth in Section 10.05 ofthe Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, offcer. employee. incorporator or stockholder of a Guarnteeing Subsidiar shall have
any liability for any obligations ofthe Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture, the Note Guarantees or for any claim based on, in respect
of. or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. THE LAWS OF TH STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTU.
8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original. but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the constrction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency ofthis Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary and the Company.
(SIGNATIRE PAGE FOLLOWS)
IN WITNSS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
D&E COMMUICATIONS, INC.
D&E MAAGEMENT SERVICES, INC.
D&E NETWORKS, INC.
D&E INSTMENS, INC.
CONESTOGA ENTERPRISES, INC.
CONESTOGA MANAGEMENT SERVICES, INC.
BUFFALO VALLEY MANAGEMENT SERVICES, INC.
PCS LICENSES. INC.
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President. General Counsel and Secre
WIN STREAM CORPORATION
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretary
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
lsI Muriel Shaw
Muriel Shaw
Assistant Vice President
Exhibit I
D&E Communications, Inc., a Delaware corporation
D&E Management Services. Inc., a Nevada corporation
D&E Networks, Inc., a Pennsylvania corporation
D&E Investments, Inc., a Nevada corporation
Conestoga Enterprises, Inc., a Pennsylvania corporation
Conestoga Management Services. Inc., a Delaware corporation
Buffalo Valley Management Services, Inc., a Delaware corporation
PCS Licenses, Inc., a Nevada corporation
(Back To Top)
Section 4: EX-4.7 (SIXTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.7
SIXTH SUPPLEMENTAL INDENTURE
SIXTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"). dated as of December 14,2009, among Windstream Corpration, a Delaware corporation (the
"Company"), certain subsidiaries of the Company, as set fort on Exhibit I (each, a "Guaranteeing Subsidiary"), and U.S. Bank National Association. a national banking association
organized under the laws of the United States of America (or its permitted successor). as trustee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as ofJuly 17,2006,
providing for the issuance of the Company's 8.125% Senior Notes due 2013 (the "8.125% Notes") and 8.625% Senior Notes due 2016 (the "8.625% Notes" and collectively with the
8.125% Notes, the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten ofthe Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 ofthe Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE. in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes:
I. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten ofthe Indenture, each Guaranteeing Subsidiary fully and unconditionally guartees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceabilty of the Indenture, the Notes or the obligations ofthe Company
hereunder or thereunder, that:
(i) the principal of, premium. if any, and interest and Additional Interest, if any, on the Notes wil be promptly paid in full when due, whether at maturity, by
acceleration. redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any, on the
Notes, iflawful (subject iu all cases to any applicable grace period provided herein), and all other obligations of the Company to the Holders or the Trustee hereunder or
thereunder wil be promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guarnteed
for whatever reason, the Guarantors shall be jointly and severaly obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a gurantee of
payment and not a guaratee of collection.
(b) Each Guaranteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrespective
ofthe validity, regularty or enforceabilty ofthe Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankrptcy of the Company, any right to require a proceeding first against the Company, protest. notice and all demands whatsoever and covenants that
this Note Guarantee shall not be discharged except by complete performance ofthe obligations contained in the Notes and the Indentue.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trstee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarantors, any amount paid by any ofthem to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
until payment in full of all obligations guaranteed hereby.
(t) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six ofthe Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
2
(g) Each Guaranteeing Subsidiary shalI have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guarateeing Subsidiary confirms, pursuant to Section 10.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiar that the Note Guaratee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to the Note úuarantee or (ii) an unlawful distrbution under any applicable state law prohibiting sharolder distrbutions by an
insolvent subsidiar to the extent applicable to the Note Guarntee. To effectuate the foregoing intention, each Guaranteeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary will be limited to the maximum amount as wilI, afer giving effect to alI other contingent and fixed liabilities of such
Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any colIections from. rights to receive contrbution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten of the Indenture, result in the obligations of the Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distrbution.
3. Exection and Delivery. Each Guaranteeing Subsidiary agrees that the Note Guarantee shalI remain in fulI force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guaranteeing Subsidiar May Consolidate, Etc., on Certain Term. Eah Guaranteeing Subsidiary may not selI or otherwise dispose of alI or substantialIy alI of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section 10.04 of the Indenture.
5. Release. Each Guarateeing Subsidiary's Note Guarantee shalI be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, officer, employee, incorporator or stockholder of a Guanteeing Subsidiary shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture, the Note úuarantees or for any claim based on, in respect
of. or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guaratee.
7. NEW YORK LAW TO GOVERN. THE LAWS OF TH STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INDEN.
8. Countemarts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
LEXCOM, INC.
WIDSTRAM LEXCOM ENTERTAINMENT. LLC
WID STRAM LEXCOM LONG DISTANCE, LLC
WISTR LEXCOM WILESS. LLC
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretary
WINDSTREAM CORPORATION
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President. Genera Counsel and Secretary
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
/s/ Muriel Shaw
Murel Shaw
Assistant Vice President
Exhibit I
Lexcom, Inc.. a North Carolina corporation
Windstream Lexcom Entertinment, LLC, a Nort Carolina limited liability company
Windstram Lexcom Log Distace, LLC, a North Carolina limited liability company
Windstream Lexcom Wireless. LLC, a Norh Carolina limited liability company
6
(Back To Top)
Section 5: EX-4.11 (THIRD SUPPLEMENTAL INDENTURE)
EXHIBIT 4.11
THUR SUPPLEMENTAL INDENTUR
THRD SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of June 22, 2009, among Windstream Corporation, a Delaware corporation (the "Company"),
Windstream Intellectual Propert Services, Inc., a Delaware corporation (the "Guaranteeing Subsidiary"), and U.S. Bank National Association, a national baning association organized
under the laws of the United States of America (or its permitted successor). as trstee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors party thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of February 27,
2007 providing for the issuance of the Company's 7% Senior Notes due 2019 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances a Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which the Guaranteeing Subsidiary shall. subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration. the receipt of which is hereby acknowledged, the Company, the
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes:
i. Capitalized Term. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten ofthe Indenture, the Guaranteeing Subsidiar fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of, premium, if any, and interest and Additional Interest, if any, on the Notes wil be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest. ifany, on the Notes, iflawful
(subject in all cases to any applicable grace period provided herein), and all other obligations ofthe Company to the Holders or the Trustee hereunder or thereunder wil
be promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity. by acceleration or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. The Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) The Guarnteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrespetive
of the validity, regularity or enforceabilty of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder ofthe Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) The Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence, presentment, demand of payment, fiing of claims with a court in the
event of insolvency or bankrptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that
this Note Guaratee shall not be discharged except by complete performance ofthe obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trustee, liquidator or other similaroffcial acting in relation to any of the Company or the Guarantors. any amount paid by any ofthem to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) The Guarnteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
until payment in full of all obligations guarnteed hereby.
(f) The Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand. and the Holders and the Trustee. on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
(g) The Guaranteeing Subsidiary shall have the right to seek contrbution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) The Guaranteeing Subsidiar confirms, pursuant to Section 10.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee not
constitute (i) a fraudulent transfer or conveyance for purposes of Bankptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
federal or state law to the extent applicable to the Note Guartee or (ii) an unlawfl distribution under any applicable state law prohibiting shareholder distrbutions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectuate the foregoing intention, the Guaranteeing Subsidiary and the Trustee hereby irrvocably agre
that the obligations of the Guaranteeing Subsidiar will be limited to the maximum amount as will. after giving effect to all other contingent and fixed liabilties of such
Guaranteeing Subsidiary that are relevant under such laws. and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf
of any other Guarator in respect of the obligations of such other Guarantor under Article Ten of the Indentue, result in the obligations of the Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Deliver. The Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guaranteeing Subsidiar May Consolidate, Etc., on Certain Terms. The Guaranteeing Subsidiar may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into. any Person other than as set fort in Section 10.04 of the Indenture.
5. Release. The Guaranteeing Subsidiar's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 ofthe Indenture, no director, offcer, employee, incorporator or stockholder of the Guaranteeing Subsidiary shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture, the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. TH LAWS OF TH STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTU.
8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original. but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect ofthe validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested all as ofthe date first above written.
WINDSTRAM INTELLECTUAL PROPERTY
SERVICES. INC.
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Exective Vice President,
General Counsel and Secretary
WIND STRAM CORPORATION
By:
Name:
Title:
is! John Fletcher
John P. Fletcher
Executive Vice President,
General Counsel and Secretar
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE
By:
Name:
Title:
is! Muriel Shaw
Murel Shaw
Assistant Vice President
(Back To Top)
Section 6: EX-4.12 (FOURTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.12
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of November 20, 2009, among Windstream Corporation, a Delaware corporation (the
"Company"), certain subsidiaries ofthe Company. as set forth on Exhibit I (each, a "Guarnteeing Subsidiary"), and U.S. Bank National Association, a national banking association
organized under the laws of the United States of America (or its permitted successor). as trstee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS. the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of February 27,
2007, providing for the issuance of the Company's 7% Senior Notes due 2019 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture puruant to
which each Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration ofthe foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit ofthe Holders of the Notes:
i. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, each Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective ofthe validity and enforceability of the Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of, premium, if any, and interest and Additional Interest, if any, on the Notes will be promptly paid in full when due, whether at maturity. byacceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any, on the Notes, iflawful
(subject in all cases to any applicable grace period provided herein). and all other obligations ofthe Company to the Holders or the Trustee hereunder or thereunder wil
be promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension oftime of payment or renewal of any Notes or any of such other obligations. the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a guaratee of
payment and not a guarantee of collection.
(b) Each Guarteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrespetive
of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Company. any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence, presentment, demand of payment, fiing of claims with a court in the
event of insolvency or bankruptcy ofthe Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that
this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company. the Guarantors, or any custodian, trstee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarantors. any amount paid by any of them to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guarnteed hereby
until payment in full of all obligations guaranteed hereby.
(I) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
(g) Each Guarnteeing Subsidiary shall have the right to seek contribution from any non.paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guaranteeing Subsidiary confirms. pursuant to Section i 0.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiary tht the Note Guarntee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Trasfer Act or any
similar federal or state law to the extent applicable to the Note Guartee or (ii) an unlawful distrbution under any applicable state law prohibiting sharholder distrbutions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectute the foregoing intention, each Guaranteeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary will be limited to the maximum amount as wil, after giving effect to all other contingent and fixed liabilities of such
Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten of the Indenture, result in the obligations of the Guaranteeing Subsidiar under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. Each Guarnteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guarteeing Subsidiar May Consolidate, Etc., on Certain Ters. Each Guaranteeing Subsidiar may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section i 0.04 of the Indenture.
5. Release. Each Guaranteeing Subsidiar's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, offcer, employee, incorporator or stockholder of a Guaranteeing Subsidiar shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indentu, the Note Guarntees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. THE LAWS OF TH STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE 11IS SUPPLEMENTAL INDENTU.
8. Countemars. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency of this Supplemental Indentue or for or in respect of
the recitals contained herein, all of which recitals are made solely by each Guarnteeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
D&E COMMUICATIONS, INC.
D&E MAAGEMENT SERVICES, INC.
D&E NETWORKS, INC.
D&E INSTMENTS, INC.
CONESTOGA ENTERPRISES, INC.
CONESTOGA MAAGEMENT SERVICES, INC.
BUFFALO VALLEY MANAGEMENT SERVICES, INC.
PCS LICENSES. INC.
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretry
WINDSTREAM CORPORATION
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive V ice President, Genera Counsel and Secrery
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE
By:
Name:
Title:
/s/ Muriel Shaw
Muriel Shaw
Assistant Vice President
Exhibit I
D&E Communications, Inc., a Delaware corporation
D&E Management Services, Inc., a Nevada corporation
D&E Networks. Inc.. a Pennsylvania corporation
D&E Investments, Inc., a Nevada corporation
Conestoga Enterprises, Inc., a Pennsylvania corporation
Conestoga Management Services, Inc., a Delaware corporation
Buffalo Valley Management Services, Inc., a Delaware corporation
PCS Licenses, Inc., a Nevada corporation
(Back To Top)
Section 7: EX-4.13 (FIFTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.13
FIFTH SUPPLEMENTAL INDENTURE
FIFTH SUPPLEMENTAL INENTRE (this "Supplemental Indenture"), dated as of December 14,2009, among Windstream Corporation. a Delaware corporation (the
"Company"), cerain subsidiares of the Company, as set forth on Exhibit I (each, a "Guarnteeing Subsidiary"). and U.S. Bank National Association. a national banking association
organized under the laws of the United States of America (or its permitted successor), as trustee under the Indenture referrd to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of Februar 27,
2007, providing for the issuance of the Company's 7% Senior Notes due 2019 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indentue pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other' good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders ofthe Notes:
I. Capitalized Term. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, each Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability ofthe Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of, premium. ifany, and interest and Additional Interest, ifany, on the Notes wil be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any. on the Notes, iflawful
(subject in all cases to any applicable grace period provided herein), and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will
be promptly paid in full. all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same will be promptly paid in full when due in
accordance with the terms of the extension or renewal. whether at stated matunty, by acceleration or otherwise. Failing payment when due of any amount so guarateed
for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a guartee of
payment and not a guarantee of collection.
(b) Each Guaranteeing Subsidiary hereby agrees that, to the maximum extent permtted under applicable law, its obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence. presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy ofthe Company, any right to require a proceeding first against the Company, protest. notice and all demands whatsoever and covenants that
this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherise to return to the Company, the Guarantors, or any custodian, trstee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarantors. any amount paid by any ofthem to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiar agrees that it shall not be entitled to any nght of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
until payment in full of all obligations guaranteed hereby.
(f) Each Guaranteeing Subsidiary agrees that, as between the Guarantors. on the one hand. and the Holders and the Trustee, on the other hand, (x) the matunty ofthe
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
2
(g) Each Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guaranteeing Subsidiary confirms, pursuant to Section 10.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiary that the Note Guaratee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to the Note Guarantee or (ii) an unlawful distribution under any applicable state law prohibiting shareholder distrbutions by an
insolvent subsidiar to the extent applicable to the Note Guartee. To effectuate the foregoing intention, each Guaranteeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary will be limited to the maximum amount as wil. after giving effect to all other contingent and fixed liabilties of such
Guaranteeing Subsidiary that are relevant under such laws. and after giving effect to any collections from, rights to receive contrbution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten ofthe Indenture, result in the obligations ofthe Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guarateeing Subsidiary May Consolidate, Etc., on Certain Terms. Each Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to. or
consolidate with or merge with or into, any Person other than as set fort in Section 10.04 of the Indenture.
5. Release. Each Guaranteeing Subsidiary's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section i 2.07 of the Indenture, no director, offcer, employee, incorporator or stockholder of a Guaranteeing Subsidiary shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes. the Indenture. this Supplemental Indenture. the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. TH LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
8. Counteæarts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original. but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein. all of which recitals are made solely by each Guarateeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
4
IN WITNESS WHEREOF. the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.
LEXCOM. INC.
WIDSTREAM LEXCOM ENERTAINMENT, LLC
WISTRAM LEXCOM LONG DISTANCE, LLC
WISTR LEXCOM WIESS, LLC
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretaiy
WIND STREAM CORPORATION
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretaiy
u.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE
By:
Name:
Title:
is! Muriel Shaw
Muriel Shaw
Assistant Vice President
Exhibit I
Lexcom, Inc., a North Carolina corporation
Windstream Lexcom Entertinment, LLC, a Nort Carolina limited liabilty company
Windstream Lexcom Long Distace, LLC, a Nort Carolina limited liability company
Windstram Lexcom Wireless, LLC, a Nort Carlina limited liabilty company
6
(Back To Top)
Section 8: EX-4.18 (FOURTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.18
FOURTH SUPPLEMNTAL INDENTUR
FOURTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of June 22, 2009, among Valor Telecommunications Enterprises, LLC. a Delaware limited
liability company, Valor Telecommunications Enterrises Finance Corp., a Delaware corporation (together, the "Issuers"), Windstream Intellectual Propert Services, Inc., a subsidiar
of Wind stream Corporation and a Delaware corporation, (the "Guarnteeing Subsidiary"), and The Bank of New York Mellon, a New York bankng corporation (or its permtted
successor), as trustee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Issuers and the Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of Februar 14,2005,
providing for the issuance of the Issuers' 7.75% Senior Notes due 2015 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances a Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which the Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture. unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee");
WHEREAS, pursuant to Section 9.0 i of the Indenture, each of the Issuers and the Trustee is authorized to execute and deliver this Supplemental Indenture;
WHEREAS, each of the Issuers, the other Guarantors and the Guaranteeing Subsidiary has duly authorized the execution and delivery of this Supplemental Indenture, subject to
the terms and conditions described herein; and
WHEREAS, each of the Issuers, the other Guarantors and the Guaranteeing Subsidiary has requested that the Trustee execute and delivery this Supplemental Indenture, and all
requirements necessary to make this Supplemental Indenture a valid and legally binding instrument in accordance with its terms and the terms of the Indenture have been duly satisfied
and authorized in all respects.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged. the Issuers, the Guaranteeing
Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes:
i. Capitalized Tenu. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, the Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns. irrespective of the validity and enforceability of the Indenture, the Notes or the obligations ofthe Issuers hereunder
or thereunder, that:
(i) the principal of, premium, if any, and interst and Additional Interest, ifany, on the Notes wil be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any, on the Notes, iflawful
(subject in all cases to any applicable grace period provided herein), and all other obligations of the Issuers to the Holders or the Trustee hereunder or thereunder wil be
promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failng payment when due of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. The Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) The Guaranteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrespective
of the validity, regularty or enforceability of the Notes or the Indenture, the absence of any action to enforce the same. any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guantor.
(c) The Guaranteeing Subsidiary. subject to Section 6.06 of the Indentue, hereby waives diligence, presentment, demand of payment, fiing of claims with a court in the
event of insolvency or bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenants that this
Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Issuers, the Guarantors, or any custodian, trstee. liquidator or other similar offcial
acting in relation to any of the Issuers or the Guarantors, any amount paid by any of them to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
2
(e) The Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guarnteed hereby
until payment in full of all obligations guaranteed hereby.
(f) The Guarateeing Subsidiar agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indentu for the purposes of the Note Guarntee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declartion of acceleration of such obligations as
provided in Article Six of the Indentue, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
(g) The Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) The Guaranteeing Subsidiar confirms, pursuant to Section 10.02 of the Indentue, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee not
constitute (i) a fraudulent transfer or conveyance for purpses of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Trasfer Act or any similar
federal or state law to the extent applicable to the Note Guaratee or (ii) an unlawful distribution under any applicable state law prohibiting shareholder distrbutions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectuate the foregoing intention, the Guaranteeing Subsidiar and the Trustee hereby irrevocably agree
that the obligations of the Guaranteeing Subsidiar will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilties of the Guarteeing
Subsidiary that are relevant under such laws, and after giving effect to any collections from. rights to receive contribution from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under Article Ten of the Indenture, result in the obligations of the Guaranteeing Subsidiar under the Note
Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Deliver. The Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc., on Certain Terms. The Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section 10.04 of the Indenture.
5. Release. The Guaranteeing Subsidiar's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indentue, no director, offcer. employee, incorporator or stockholder of the Guarnteeing Subsidiary shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture, the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. TH LAWS OF TH STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INENTU.
8. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect ofthe validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.
(SIGNATURE PAGE FOLLOWS)
4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
WISTRAM INTELLECTUAL PROPERTY
SERVICES, INC.
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel
and Secretary
VALOR TELECOMMUCATIONS ENTERPRISES. LLC
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice Prsident, General Counsel and Secretary
VALOR TELECOMMUCA nONS ENTERPRISES FINANCE CORP.
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel
and Secretary
THE BANK OF NEW YORK MELLON
By:
Name:
Title:
lsI Beata Harin
Beata Harin
Assistant Vice President
(Back To Top)
Section 9: EX-4.19 (FIFTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.19
FIFTH SUPPLEMENTAL INDENTURE
FIFTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of No v em her 20. 2009, among Valor Telecommunications Enterprises, LLC, a Delaware limited
liabilty company, Valor Telecommunications Enterprises Finance Corp., a Delaware corporation (together. the "Issuers"). certin subsidiaries of Wind stream Corporation, a Delaware
corporation, as set forth on Exhibit I (each, a "Guarnteeing Subsidiar"), and The Bank of New York Mellon. a New York banking corporation (or its permitted successor), as trstee
under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Issuers and the Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of Februar 14,2005,
providing for the issuance ofthe Issuers' 7.75% Senior Notes due 2015 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set fort therein (the "Note
Guarantee");
WHEREAS, pursuant to Section 9.01 of the Indenture. each of the Issuers and the Trustee is authorized to execute and deliver this Supplemental Indenture;
WHEREAS, each of the Issuers, the other Guarantors and each Guaranteeing Subsidiary has duly authorized the execution and delivery of this Supplemental Indenture. subject
to the terms and conditions described herein; and
WHEREAS, each of the Issuers, the other Guarantors and each Guaranteeing Subsidiary has requested that the Trustee execute and delivery this Supplemental Indenture, and all
requirements necessary to make this Supplemental Indenture a valid and legally binding instrment in accordance with its terms and the terms of the Indenture have been duly satisfied
and authorized in all respects.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration. the receipt of which is hereby acknowledged, the Issuers. each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit ofthe Holders of the Notes:
I. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, each Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns. irrespective of the validity and enforceabilty of the Indenture. the Notes or the obligations of the Issuers
hereunder or thereunder, that:
(i) the principal of, premium, if any. and interest and Additional Interest, if any, on the Notes will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any, on the Notes, iflawful
(subject in all cases to any applicable grce period provided herein), and all other obligations ofthe Issuers to the Holders or the Trustee hereunder or thereunder wil be
promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension oftime of payment orrenewal of any Notes or any of such other obligations. the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failng payment when due of any amount so guaranteed
for whatever reason. the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) Each Guaranteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional. irrespective
of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence. presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenants that this
Note Guarantee shall not be discharged except by complete perormance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Issuers, the Guarantors. or any custodian, trstee, liquidator or other similar offcial
acting in relation to any of the Issuers or the Guarntors. any amount paid by any of them to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
2
(e) Each Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guarteed hereby
until payment in full of all obligations guaranteed hereby.
(t) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand. and the Holders and the Trustee. on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay. injunction or
other prohibition preventing such acceleration in respect of the obligations guranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Aricle Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarators for the purose of the
Note Guarantee.
(g) Each Guaranteeing Subsidiary shall have the right to seek contrbution from any non.paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guaranteeing Subsidiary confirms, pursuant to Section 10.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to the Note Guarantee or (ii) an unlawful distribution under any applicable state law prohibiting shareholder distributions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectuate the foregoing intention, each Guaranteeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary wil be limited to the maximum amount as wil, after giving effect to all other contingent and fixed liabilities of such
Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf
of any other Guarator in respect of the obligations of such other Guarantor under Aricle Ten ofthe Indenture, result in the obligations of the Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distrbution.
3. Execution and Delivery. Each Guarnteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc., on Certain Terms. Each Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section i 0.04 of the Indenture.
5. Release. Each Guaranteeing Subsidiar's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, offcer, employee, incorporator or stockholder of a Guarnteeing Subsidiar shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture, the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. THE LAWS OF TH STATE OF NEW YORK SHAL GOVERN AN BE USED TO CONSTRUE THS SUPPLEMENTAL INDEN.
8. Counterparts. The parties may sign any number of copies ofthis Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the constrction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by each Guarateeing Subsidiar and the Issuers.
(SIGNATURE PAGE FOLLOWS)
4
IN WITNESS WHEREOF, the paries hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
D&E COMMUCATIONS, INC.
D&E MAAGEMENT SERVICES, INC.
D&E NETWORKS, INC.
D&E INSTMENTS, INC.
CONESTOGA ENTERPRISES. INC.
CONESTOGA MAAGEMENT SERVICES, INC.
BUFFALO VALLEY MANAGEMENT SERVICES. INC.
PCS LICENSES, INC.
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secreta
VALOR TELECOMMUICATIONS ENRPRISES, LLC
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, Genera Counsel and Secretary
VALOR TELECOMMUCATIONS ENRPRISES FIANCE CORP.
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretary
THE BANK OF NEW YORK MELLON
By:
Name:
Title:
/s/ Beata Harvin
Beata Harvin
Vice President
Exhibit I
D&E Communications, Inc., a Delaware corporation
D&E Management Services, Inc., a Nevada corporation
D&E Networks, Inc., a Pennsylvania corporation
D&E Investments, Inc., a Nevada corporation
Conestoga Enterprises, Inc., a Pennsylvania corporation
Conestoga Management Services, Inc., a Delaware corpration
Buffalo Valley Management Services, Inc., a Delaware corporation
PCS Licenses, Inc., a Nevada corporation
(Back To Top)
Section 10: EX-4.20 (SIXTH SUPPLEMENTAL INDENTURE)
EXHIBIT 4.20
SIXTH SUPPLEMENTAL INDENTURE
SIXTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of December 14,2009, among Valor Telecommunications Enterprises, LLC, a Delawar limited
liabilty company. Valor Telecommunications Enterprises Finance Corp., a Delaware corporation (together, the "Issuers"), certain subsidiaries of Wind stream Corporation, a Delaware
corporation, as set forth on Exhibit I (each, a "Guaranteeing Subsidiary"), and The Bank of New York Mellon, a New York banking corporation (or its permitted successor), as trustee
under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Issuers and the Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of February 14,2005,
providing for the issuance ofthe Issuers' 7.75% Senior Notes due 2015 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee");
WHEREAS, pursuant to Section 9.01 of the Indenture, each of the Issuers and the Trustee is authorized to execute and deliver this Supplemental Indenture;
WHEREAS, each of the Issuers, the other Guarantors and each Guaranteeing Subsidiary has duly authorized the execution and delivery of this Supplemental Indenture, subject
to the terms and conditions described herein; and
WHEREAS, each of the Issuers, the other Guarantors and each Guaranteeing Subsidiary has requested that the Trustee execute and delivery this Supplemental Indenture, and all
requirements necessary to make this Supplemental Indenture a valid and legally binding instrment in accordance with its terms and the terms of the Indenture have been duly satisfied
and authorized in all respects.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Issuers, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit ofthe Holders of the Notes:
i. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, each Guarnteeing Subsidiary fully and unconditionally guarantees to each Holder ofa Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective ofthe validity and enforceabilty ofthe Indenture, the Notes or the obligations of the Issuers
hereunder or thereunder, that:
(i) the principal of, premium. if any, and interest and Additional Interest, ifany, on the Notes will be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of. premium, if any. and interest and Additional Interest, if any, on the Notes, iflawful
(subject in all cases to any applicable grace period provided herein). and all other obligations of the Issuers to the Holders or the Trustee hereunder or thereunder wil be
promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordace with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failng payment when due of any amount so guarnteed
for whatever reason. the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) Each Guarnteeing Subsidiary hereby agrees that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceabilty of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance which might otherwise
constitue a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenants that this
Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Issuers, the Guarantors, or any custodian, trustee. liquidator or other similar offcial
acting in relation to any of the Issuers or the Guarantors, any amount paid by any of them to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiary agrees that it shall not be entitled to any nght of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
until payment in full of all obligations guarteed hereby.
(f) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
(g) Each Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the nghts
of the Holders under the Note Guarantee.
(h) Each Guarateeing Subsidiar confirms, pursuant to Section 10.02 of the Indenture, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Trasfer Act or any
similar federal or state law to the extent applicable to the Note Guarantee or (ii) an unlawful distribution under any applicable state law prohibiting shareholder distrbutions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectuate the foregoing intention, each Guarateeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary wil be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such
Guaranteeing Subsidiary that are relevant under such laws. and after giving effect to any collections from, rights to receive contrbution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten of the Indenture, result in the obligations of the Guaranteeing Subsidiar under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc., on Certain Terms. Each Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section i 0.04 of the Indenture.
5. Release. Each Guaranteeing Subsidiary's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, offcer. employee, incorporator or stockholder of a Guaranteeing Subsidiar shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture. this Supplemental Indenture, the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. TH LAWS OF TH STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INEN.
8. Counteæarts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by each Guarateeing Subsidiar and the Issuers.
(SIGNATURE PAGE FOLLOWS)
4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
LEXCOM. INC.
WIDSTREAM LEXCOM ENTERTAIMENT, LLC
WINDSTR LEXCOM LONG DISTANCE, LLC
WISTRAM LEXCOM WIRELESS, LLC
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President. General Counsel and Secretary
VALOR TELECOMMUCATIONS ENTRPRISES, LLC
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, Genera Counsel and Secretar
VALOR TELECOMMUCATIONS ENTERPRISES FINANCE CORP.
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, Genera Counsel and Secreta
TIE BANK OF NEW YORK MELLON
By:
Name:
Title:
lsI Beata Harvin
Beata Harvin
Vice President
Exhibit I
Lexcom, Inc., a North Carolina corporation
Windstram Lexcom Entertinment, LLC, a Nort Carolina limited liability company
Windstram Lexcom Long Distace, LLC, a Nort Carolina limited liabilty company
Windstram Lexcom Wireless, LLC, a Nort Carolina limited liabilty company
(Back To Top)
Section 11: EX-4.22 (FIRST SUPPLEMENTAL INDENTURE)
EXHIBIT 4.22
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTRE (this "Supplemental Indenture"), dated as of November 20, 2009, among Windstream Corporation, a Delaware corporation (the
"Company"), certain subsidiares of the Company. as set forth on Exhibit I (each, a "Guaranteeing Subsidiary"). and U.S. Bank National Association. a national baning association
organized under the laws of the United States of America (or its permitted successor), as trstee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of October 8,
2009, providing for the issuance of the Company's 7.875% Senior Notes due 2017 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten ofthe Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture. the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration ofthe foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes:
i. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten of the Indenture, each Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the Company
hereunder or thereunder, that:
(i) the principal of, premium, if any, and interest and Additional Interest, if any. on the Notes wil be promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the overdue principal of. premium. if any. and interest and Additional Interest, if any, on the Notes, iflawful
(subject in all cases to any applicable grce period provided herein), and all other obligations ofthe Company to the Holders or the Trustee hereunder or thereunder wil
be promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the same wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failng payment when due of any amount so guaranteed
for whatever reason. the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) Each Guarnteeing Subsidiary hereby agres that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrspective
of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof. the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture. hereby waives diligence, presentment, demand of payment, filing of claims with a court in the
event of insolvency or bankrptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that
this Note Guaratee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trstee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarntors, any amount paid by any of them to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiary agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby
until payment in full of all obligations guaranteed hereby.
(I) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity ofthe
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes ofthe Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Artcle Six of the Indenture, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guarantee.
(g) Each Guaranteeing Subsidiary shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guaranteeing Subsidiar confirms, pursuant to Section 10.02 ofthe Indenture, that it is the intention of such Guarteeing Subsidiar that the Note Guaratee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Trasfer Act or any
similar federal or state law to the extent applicable to the Note Guaratee or (ii) an unlawful distrbution under any applicable state law prohibiting shareholder distrbutions by an
insolvent subsidiary to the extent applicable to the Note Guarntee. To effectuate the foregoing intention, each Guarnteeing Subsidiar and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary wil be limited to the maximum amount as wil, after giving effect to all other contingent and fixed liabilties of such
Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten ofthe Indenture, result in the obligations of the Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. Each Guarnteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation of the Note Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc., on Certain Terms. Each Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section 10.04 ofthe Indenture.
5. Release. Each Guaranteeing Subsidiar's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, offcer, employee, incorporator or stockholder of a Guaranteeing Subsidiar shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indenture, this Supplemental Indenture. the Note Guarantees or for any claim based on, in respect
of, or by reason of. such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. TI LAWS OF THE STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTU.
8. Counteæarts. The paries may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the constrction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufciency of this Supplementa Indenture or for or in respect of
the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested. all as of the date first above written.
D&E COMMUNICATIONS, INC.
D&E MANAGEMEN SERVICES, INC.
D&E NETWORKS, INC.
D&E INSTMENTS, INC.
CONESTOGA ENTERPRISES. INC.
CONESTOGA MANAGEMENT SERVICES, INC.
BUFFALO VALLEY MANAGEMENT SERVICES, INC.
PCS LICENSES. INC.
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretary
WINDSTREAM CORPORATION
By:
Name:
Title:
/s/ John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secreta
U.S. BANK NATIONAL ASSOCIATION
By:
Name:
Title:
/s/ Muriel Shaw
Murel Shaw
Assistant Vice President
Exhibit I
D&E Communications, Inc., a Delaware corporation
D&E Management Services. Inc., a Nevada corporation
D&E Networks, Inc.. a Pennsylvania corporation
D&E Investments, Inc., a Nevada corporation
Conestoga Enterprises, Inc., a Pennsylvania corporation
Conestoga Management Services. Inc., a Delaware corporation
Buffalo Valley Management Servces, Inc., a Delaware corporation
PCS Licenses. Inc., a Nevada corporation
(Back To Top)
Section 12: EX-4.23 (SECOND SUPPLEMENTAL INDENTUR)
EXHIBIT 4.23
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTRE (this "Supplemental Indenture"), dated as of December 14,2009, among Windstream Corporation, a Delaware corporation (the
"Company"). certain subsidiaries of the Company, as set fort on Exhibit I (each, a "Guaranteeing Subsidiary"), and U.S. Bank National Association, a national banking association
organized under the laws of the United States of America (or its permitted successor), as trustee under the Indenture referred to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the other Guarantors part thereto have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of October 8,
2009, providing for the issuance of the Company's 7.875% Senior Notes due 2017 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to
which each Guaranteeing Subsidiary shall, subject to Article Ten of the Indenture, unconditionally guarantee the Notes on the terms and conditions set forth therein (the "Note
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE. in consideration of the foregoing and for other good and valuable consideration. the receipt of which is hereby acknowledged. the Company, each
Guaranteeing Subsidiary and the Trustee agree as follows for the equal and ratable benefit of the Holders of the Notes:
1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee.
(a) Subject to Article Ten ofthe Indenture, each Guaranteeing Subsidiary fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective ofthe validity and enforceability ofthe Indenture, the Notes or the obligations ofthe Company
hereunder or thereunder. that:
(i) the principal of, premium, if any. and interest and Additional Interest, if any, on the Notes will be promptly paid in full when due, whether at maturity. by
acceleration, redemption or otherwise, and interest on the overdue principal of, premium, if any, and interest and Additional Interest, if any, on the Notes, if lawful
(subject in all cases to any applicable grace period provided herein), and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder wil
be promptly paid in full, all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, the sae wil be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failng payment when due of any amount so guaranteed
for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guaranteeing Subsidiary agrees that this is a guarantee of
payment and not a guarantee of collection.
(b) Each Guaranteeing Subsidiary hereby agres that, to the maximum extent permitted under applicable law, its obligations hereunder shall be unconditional, irrpectve
ofthe validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with
respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor.
(c) Each Guaranteeing Subsidiary, subject to Section 6.06 of the Indenture, hereby waives diligence, presentment, demand of payment. fiing of claims with a court in the
event of insolvency or bankrptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that
this Note Guarantee shall not be discharged except by complete performance of the obligations contained in the Notes and the Indenture.
(d) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, trstee, liquidator or other similar
offcial acting in relation to any of the Company or the Guarantors, any amount paid by any ofthem to the Trustee or such Holder, this Note Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect.
(e) Each Guaranteeing Subsidiar agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guarteed hereby
until payment in full of all obligations guaranteed hereby.
(I) Each Guaranteeing Subsidiary agrees that, as between the Guarantors, on the one hand. and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article Six of the Indenture for the purposes of the Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as
provided in Article Six of the Indenture. such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of the
Note Guaratee.
2
(g) Each Guaranteeing Subsidiary shall have the right to seek contrbution from any non-paying Guarantor so long as the exercise of such right does not impair the rights
of the Holders under the Note Guarantee.
(h) Each Guaranteeing Subsidiary confirms, pursuant to Section 10.02 ofthe Indenture, that it is the intention of such Guaranteeing Subsidiary that the Note Guarantee
not constitute (i) a fraudulent transfer or conveyance for purposes of Bankrptcy Law, the Uniform Fraudulent Conveyance Act. the Uniform Fraudulent Transfer Act or any
similar federal or state law to the extent applicable to the Note Guarantee or (ii) an unlawful distrbution under any applicable state law prohibiting shareholder distributions by an
insolvent subsidiary to the extent applicable to the Note Guarantee. To effectuate the foregoing intention. each Guaranteeing Subsidiary and the Trustee hereby irrevocably
agree that the obligations of such Guaranteeing Subsidiary wil be limited to the maximum amount as wil, afer giving effect to all other contingent and fixed liabilties of such
Guaranteeing Subsidiary that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor under Article Ten of the Indenture, result in the obligations of the Guaranteeing Subsidiary under
the Note Guarantee not constituting a fraudulent transfer or conveyance or such an unlawful shareholder distribution.
3. Execution and Delivery. Each Guarnteeing Subsidiary agrees that the Note Guarantee shall remain in full force and effect notwithstanding any failure to endorse on each Note
a notation ofthe Note Guarantee.
4. Guaranteeing Subsidiar May Consolidate, Etc.. on Certain Terms. Each Guaranteeing Subsidiary may not sell or otherwise dispose of all or substantially all of its assets to, or
consolidate with or merge with or into, any Person other than as set forth in Section i 0.04 of the Indenture.
5. Release. Each Guarateeing Subsidiary's Note Guarantee shall be released as set forth in Section 10.05 of the Indenture.
6. No Recourse Against Others. Pursuant to Section 12.07 of the Indenture, no director, offcer, employee, incorporator or stockholder of a Guaranteeing Subsidiar shall have
any liability for any obligations of the Guaranteeing Subsidiary under the Notes, the Indentue, this Supplemental Indenture. the Note Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. This waiver and release are part of the consideration for the Note Guarantee.
7. NEW YORK LAW TO GOVERN. THE LAWS OF TI STATE OF NEW YORK SHALL GOVERN AN BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTU.
8. Counteæarts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same
agreement.
9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the constrction hereof.
10. Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect ofthe validity or suffciency of this Supplemental Indenture or for or in respect of
the recitals contained herein. all of which recitals are made solely by each Guaranteeing Subsidiary and the Company.
(SIGNATURE PAGE FOLLOWS)
4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above wrtten.
LEXCOM. INC.
WISTREAM LEXCOM ENTERTAINMENT, LLC
WISTR LEXCOM LONG DISTANCE, LLC
WISTRM LEXCOM WIRELESS, LLC
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secrtary
WINDSTREAM CORPORA nON
By:
Name:
Title:
lsI John Fletcher
John P. Fletcher
Executive Vice President, General Counsel and Secretary
U.S. BANK NATIONAL ASSOCIA nON
By:
Name:
Title:
lsi Muriel Shaw
Murel Shaw
Assistant Vice President
Exhibit I
Lexcom, Inc., a North Carolina corporation
Windstream Lexcom Entertnment, LLC, a Nort Carolina limited liability company
Windstram Lexcom Long Distace. LLC, a Nort Carolina limited liability company
Windstram Lexcom Wireless, LLC, a Nort Carolina limited liability company
6
(Back To Top)
Section 13: EX-10.2 (DIRECTOR COMPENSATION PROGRAM)
WINDSTREAM CORPORATION
Director Compensation Program
Approved February 17,2010
Exhibit 10.2
Compensation for directors who are not offcers ofthe Corporation wil consist of the following components:
I. Initial Retainer. Each new member wil receive a grant of $60.000 in restrcted stock under the 2006 Equity Incentive Plan, as amended, in connection with his or her
appointment or election to the Board.
2. Annual Retainer. Each member wil receive an annual cash retainer of $60,000. Commencing with 2010, the Chairman wil receive a supplementa annual cash retainer of
$100,000.
3. Meeting Fees. Each member wil receive a cash fee of$2,OOO for each Board and Committee meeting attended, except that no meeting fee will be paid for meetings (i) of the
Governance Committee or (ii) at which the Board receives periodic updates from management and no actions are taken by the Board.
4. Committee Chair Fees. Each member who serves as Chair of a Board Committee wil receive the following indicated annual cash fee:
Audit
Compensation
Governance
$20,000
$15,000
$ -0-
5. Annual Restricted Stock. Each member will receive an annual grant of $80,000 in restricted stock under the 2006 Equity Incentive Plan, as amended.
All other terms and conditions of the grants of restrcted stock shall be determined and approved by the Compensation Committee.
Members will receive a prorated amount ofthe Annual Retainer, Committee Chair Fees and Annual Restrcted Stock Grant for the
portion of the first year for which they are appointed or elected to serve as a Board member or Committee Chair. For future years. directors wil receive the Annual Retainer. Committee
Chair Fees and Restricted Stock grants at the first regularly scheduled board meeting of the year.
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Section 14: EX-21 (LISTING OF SUBSIDIARES)
Windstream Corporation
List of Subsidiaries
as of 12/31/2009
Name of Subsidiary
Buffalo Merger Sub, Inc.
Buffalo Valley Management Services, Inc.
Carolina Personal Communications. Inc.
Conestoga Enterprises, Inc.
Conestoga Management Services. Inc.
Conestoga Wireless Company
CT Cellular, Inc.
CT Communications. Inc.
CT Wireless Cable. Inc.
CTC Video Services, LLC
D&E Communications, Inc.
D&E Investments, Inc.
D&E Management Services, Inc.
D&E Networks, Inc.
D&E Wireless, Inc.
Georgia Windstream, LLC
Infocore, Inc.
Kerrille Cellular, LLC
Kerrille Communications Corporation
Kerrile Mobile Holdings, LLC
Kerrille Wireless Holdings, LLC
State of
Organization~
DE
NC
PA
DE
PA
NC
NC
NC
NC
DE
NY
NV
PA
PA
DE
PA
TX
DE
TX
TX
Exhibit 21
Name under Which it Does Business
Windstream Communications
Lexcom, Inc.
Night Merger Sub, Inc.
Oklahoma Windstream, LLC
NC
DE
OK Windstream Communications
Name of Subsidiary
PCS Licenses. Inc.
Progress Place Realty Holding Company, LLC
Southwest Enhanced Network Services, LP
Teleview, LLC
Texas Windstream, Inc.
TriNet,LLC
Valor Telecommunications Enterprises Finance, Corp.
Valor Telecommuncations Enterprises II, LLC
Valor Telecommunications Enterprises. LLC
Valor Telecommunications Investments, LLC
Valor Telecommunications of Texas, LP
WaveTei NC License Corporation
Wavetel TN, LLC
Wavetel, LLC
Webserve, Inc.
Windstream Accucomm Networks, LLC
Windstream Accucomm Telecommunications, LLC
Windstream Alabama, LLC
Windstream Arkansas, LLC
Windstream Buffalo Valley, Inc.
Windstream Communications Kerrile, LLC
Windstream Communications Telecom, LLC
Windstream Communications, Inc.
Windstream Concord Telephone, Inc.
Windstream Conestoga, Inc.
State of
Organiztion--
NC
DE
GA
TX
GA
DE
DE
DE
DE
DE
DE
DE
DE
NC
GA
GA
AL
DE
PA
TX
TX
DE
NC
PA
2
Name under Which it Does Business
Windstream Communications
Windstream Communications Southwest
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Name of Subsidiary
Windstream CTC Internet Services, Inc.
Windstream D&E Systems, Inc.
Windstram D&E, Inc.
Windstream Florida, Inc.
Windstream Georgia Communcations, LLC
Windstream Georgia Telephone, LLC
Windstram Georgia, LLC
Windstream Holding of the Midwest, Inc.
Windstream Intellectual Propert Services, Inc.
Windstream Kentucky East, LLC
Windstream Kentucky West, LLC
Windstream Kerille Long Distance, LLC
Windstream Lexcom Communications, Inc.
Windstram Lexcom Enterinment, LLC
Windstream Lexcom Long Distance, LLC
Windstream Lexcom Wireless, LLC
Windstream Mississippi, LLC
Windstream Missouri, Inc.
Windstream Nebraska, Inc.
Windstream Network Services of the Midwest, Inc.
Windstream New York, Inc.
Windstream Nort Carolina, LLC
Windstream ofthe Midwest, Inc.
Windstream Ohio, Inc.
Windstrea Oklahoma. LLC
Windstream Pennsylvania, LLC
State of
Organization~
DE
PA
FL
GA
GA
GA
NE
DE
DE
KY
TX
NC
NC
NC
NC
DE
MO
DE
NE
NY
NC
NE
OH
DE
DE
Name UDder Which it Does Busines
Windstream Communications
Windstream Communications
Windstream Communications
Windstram Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Name of Subsidiary
Windstream South Carolìna, LLC
Windstream Southwest Long Distace, LP
Windstrea Standard, LLC
Windstream Sugar Land, Inc.
Windstream Supply, LLC
Windstream Systems ofthe Midwest, Inc.
Windstream Western Reserve. Inc.
Wireless One of North Carolina. LLC
State of
Orgniztion--
DE
GA
TX
OH
NE
OH
DE
Name under Whieh it Does Business
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
Windstream Communications
4
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Section 15: EX-23 (CONSENT OF PRICEWATERHOUSECOOPERS LLP)
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (Nos. 333-135849, 333- 135850, 333- i 4001 I and 333- i 63452) and on Form S-4 (No. 333-
164649) of Wind stream Corporation of our reports dated February 24, 20 i 0 relating to the financial statements. financial statement schedule and the effectiveness of internal control over
financial reporting. which appear in this Form I O.K.
lsi PricewaterhouseCoopers LLP
Little Rock. Arkansas
February 24, 2010
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Section 16: EX-24 (pOWER OF ATTORNEY)
Exhibit 24
EX-24 5 POWER OF ATTORNEY
Securties and Exchange Commission
450 Fifth Street N.W.
Washington. DC 20549
Re: Windstream Corporation Commission File No. 001.32422
1934 Act Filìngs on Form IO.K
Authorized Representatives
Ladies and Gentlemen:
Windstream Corporation is the issuer of securities registered under Section i 2 of the Securities Exchange Act of i 934 (The "Act"). Each of the persons signing his or her name
below confirms, as of the date appearing below the signature. that each of Jeffery R. Gardner, Anthony W. Thomas, and John P. Fletcher, acting individually or jointly (the "Authorized
Representatives") is authorized on his or her behalf to sign and submit to the Securities and Exchange Commission such fiings on Form IO-K as are required by the Act. Each person so
signing also confirms the authority of each of the Authorized Representatives to do and perform on his behalf, any and all acts and things requisite or necessary to assure compliance
by the signing person with the Form i O-K requirements. The authority confirmed herein shall remain in effect as to each person signing his or her name below until such time as the
Commission shall receive from such person a written communication terminating or modifying the authority. Each person signing his or her name below expressly revokes all authority
heretofore given or executed by such person with respect to such filìngs of Wind stream Corporation under the Act.
Sincerely,
lsi Carol B. Armitage
Carol B. Armiiage Dale: February 17, 20 i 0
is! Samuel E. Beall, II
Samuel E. Beall. II Date: February 17,2010
lsi Dennis E. Foster
Dennis E. Foster Date: Febru 17,2010
lsi Francis X. Frantz
Fracis X. Frantz Date: Febru 17, 201 0
lsi Jeffey T. Hinson
Jeffey T. Hinson Date: Februar 17,2010
lsi Judy K. Jones
Judy K. Jones Date: Febru 17,2010
lsi William A. Montgomery
Wiliam A. Montgomer Date: Febr 17,2010
lsi Frak E. Reed
Frak E. Reed Date: Febru 17, 2010
(Back To Top)
Section 17: EX-31.A (CERTIFICATION OF CEO PURSUANT TO SECTION 302)
Exhibit 31(a)
CERTIFICATION
I, Jeffery R. Gardner, certify that:
i. I have reviewed this annual report on Form 10-K of Wind stream Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materal respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying offcer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures. or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness ofthe registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrat's interal control
over financial reporting; and
5. The registrant's other certifying offcer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial information; and
(b) Any frud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 24. 2010
/s/ Jeffery R. Gardner
Jeffery R. Gardner
Chief Executive Offcer and President
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Section 18: EX-31.B (CERTIFICATION OF CFO PURSUANT TO SECTION 302)
Exhibit 3 i (b)
CERTIFICATION
I, Anthony W. Thomas, certify that:
i. 1 have reviewed this annual report on Form IO-K of Wind stream Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report. fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying offcer(s) and 1 are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules l3a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrnt and have:
(a) Designed such disclosure controls and procedures. or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries. is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as ofthe end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5. The registrant's other certifying offcer(s) and i have disclosed, based on our most recent evaluation of internal control over financial reporting. to the registrant's auditors and
the audit committee of the registrant's board of directors (or persons pedorming the equivalent functions):
(a) All significant deficiencies and material weakesses in the design or operation of internal control over financial reporting which are reasonably likely to adversly affect
the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 24, 2010
/s/ Anthony W. Thomas
Anthony W. Thomas
Chief Financial Offcer
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Section 19: EX-32.A (CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350)
Exhibit 32(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-ûXLEY ACT OF 2002
In connection with the accompanying Annual Report of Wind stream Corporation (the Company) on Form IO-K for the penod ending December 3 1,2009 as fied with the Secuties and
Exchange Commission on the date hereof (the Report), I, Jeffery R. Gardner, Chief Executive Offcer and President of the Company, certifY, pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of2002, to the best of my knowledge, that:
(I) The Report fully complies with the requirements of section 13(a) or IS(d) of the Secunties Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all matenal respects. the financial condition and results of operations of the Company.
/s/ Jeffery R. Garder
Jeffery R. Gardner
Chief Executive Offcer and President
February 24, 2010
A signed onginal ofthis written statement required by Section 906 has been provided to Windstram Corporation and wil be retained by Windstream Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
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Section 20: EX-32.B (CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350)
Exhibit 32(b)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of Wind stream Corporation (the Company) on Form IO-K for the penod ending December 3 1,2009 as fied with the Secunties and
Exchange Commission on the date hereof(the Report). I, Anthony W. Thomas, Chief Financial Officer of the Company. certifY, pursuant to 18 V.S.c. 1350. as adopted pursuat to
Section 906 of the Sarbanes.Oxley Act of2002, to the best of my knowledge, that:
(i) The Report fully complies with the requirements of section 13(a) or IS(d) ofthe Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Anthony W. Thomas
Anthony W. Thomas
Chief Financial Offcer
February 24, 2010
A signed original of this written statement required by Section 906 has been provided to Windstream Corporation and will be retained by Windstream Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.
(Back To Top)
VERIFICATION
STATE OF ARKANSAS )
)
)
:SS
COUNTY OF PULASKI
I, Michael D. Rhoda, declare under penalty of perjury that I am of Senior Vice President -
Government Affairs for Windstream NuVox, Inc., the Applicant in this proceeding; that I have
read the foregoing Application, attachments and exhibits; and that the same are true and correct
to the best of my knowledge, information, and belief.
~øØ¥
By: Michael D. Rhoda
Title: Senior Vice President - Government Affairs
Windstream Nu Vox, Inc.
~
Subscribed and sworn to before me
this 23rd day of November, 2010.
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