2010 Annual Report Windstream
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windstream 2010 annual report proxy statement and form 10-k TO OUR STOCKHOLDERS: 2010 was a pivotal year for Financial Highlights Windstream. We took key steps to Prior to the transactions we completed in 2010, our revenue and OIBDA continue the transformation of declines were in the mid to low single digits. The acquisitions, combined with what has been a traditional rural our strategic focus and solid execution, are transforming the underlying telephone company into a next- growth characteristics of our business as evidenced by our 2010 pro-forma generation communications and performance. technology solutions provider focused on growth. For the year, Windstream generated revenue of $4.1 billion, a 2.2 percent decrease year over year, compared to a 5 percent decline in our 2009 heritage No one outside Windstream would results. Adjusted OIBDA was $2.1 billion, which was fl at year over year as a have predicted that we could result of the improving revenue trends, the realization of roughly $55 million in achieve this position when the deal synergies, and solid cost management efforts throughout the entire company was formed back in 2006. organization. Nonetheless, management and the board have aggressively pursued a Importantly, while the team was busy completing several integrations, we also vision to achieve this position, and achieved our revenue, Adjusted OIBDA and free cash fl ow goals in 2010. Under the entire Windstream team has Generally Accepted Accounting Principles, Windstream generated $818 million done a phenomenal job over the in adjusted free cash fl ow (OIBDA excluding merger and integration expense, past four years of preparing the company for long-term success. cash interest, cash taxes, capital expenditures and cash pension contributions) for the year, a decrease of less than 1 percent year-over-year even with a $41 We enter 2011 with great excitement about the future and a strong million cash contribution to the pension plan, and our dividend payout ratio commitment to executing a strategy that will further set Windstream apart was 57 percent for the year. from its historical peers in the marketplace. Improving the company’s revenue trajectory, optimizing its cost structure and pursuing a selective acquisition strategy are the pillars of that strategy. Together, they will Operating Highlights enhance the long-term sustainability of both our cash fl ows and our dividend. Operationally, our team did a fantastic job executing our organic business plan, resulting in industry leading performance. In the business channel, we focused on revenue and profi tability, and, importantly, business revenues Strategic Highlights grew 2 percent during the fourth quarter. We added high-speed Internet In 2010, we completed four targeted acquisitions that added well-running customers and saw growth in sales of advanced data and integrated solutions, businesses to our portfolio and strengthened our focus on consumer which was driven by strong results in our expanded business markets as well broadband and business customers, which now represent approximately 60 as growth in Ethernet Internet access sales. percent of our revenue. With the acquisitions, Windstream now operates in 29 states and the District of Columbia with annual revenue and Adjusted In the consumer channel, we continue to see growth in broadband units and OIBDA (operating income before depreciation and amortization excluding complementary broadband features. This growth combined with our non-cash pension expense, stock compensation expense and restructuring innovative Price for Life offering and expanded distribution is stabilizing the charges) of $4.1 billion and $2.1 billion, respectively. consumer channel, which is an important component of our strategy to improve our top-line trends. NuVox, Inc., a privately held competitive local exchange carrier, delivered approximately 104,000 data and integrated solutions connections in 2011 Outlook complementary markets in 16 states across the Southeast and Midwest, providing Windstream with expanded reach to focus on growing As we approach our fi fth anniversary, Windstream is a very different opportunities in the small and medium business markets. company than we were when we spun off from Alltel Corp. While size alone has never been our goal, we have grown through a disciplined Iowa Telecom added approximately 247,000 access lines, 96,000 high-speed acquisition strategy and are a stronger company with much brighter Internet customers and 25,000 digital TV customers in Iowa and Minnesota. prospects. Our business channel is broader and deeper than it has ever been, and we believe the company is positioned to capitalize on growth The acquisition provided Windstream with increased scale and annual as customer needs increase. synergies of approximately $35 million in operating expenses and capital expenditure savings, as well as tax assets with an estimated net present value On the regulatory front, the Federal Communications Commission is of approximately $130 million. In addition, we were pleased to welcome Iowa moving to modernize and streamline its intercarrier compensation and Telecom Chairman and CEO Alan Wells to the Windstream board of directors. universal service policies. Windstream has long supported reform, and we are pleased the FCC recognizes the importance of adopting forward- The acquisition of Q-Comm Corporation’s wholly owned subsidiaries looking reforms with sensible transitions and reasonable opportunities Kentucky Data Link, Inc., (KDL), a fi ber services provider in 22 states, and to recover revenues. Further, we are pleased by the FCC’s intent to better Norlight, Inc., a competitive local exchange services company added target universal service funds so that existing networks continue to attractive businesses in highly complementary markets. KDL’s contiguous receive necessary support while new broadband facilities can be fi ber network spans nearly 30,000 fi ber route miles, more than doubling our deployed in rural areas that otherwise would be uneconomic to serve. existing fi ber and providing both network effi ciencies and additional growth opportunities, particularly with wireless backhaul services. In 2011, we will focus on completing the integrations of Q-Comm and Hosted Solutions. We plan to invest capital for growth through success- based initiatives such as wireless backhaul service and data center Our fourth acquisition, Hosted Solutions, further broadened our business expansions. With the stimulus grants, we will expand and enhance our portfolio with fi ve best-in-class data centers offering managed services, cloud broadband capabilities. These investments, along with our recent computing and co-location. Hosted’s highly skilled management team has acquisitions and improving legacy performance, will create a path to been given charge of Windstream’s existing data centers and tasked with realize revenue growth in the future. leveraging its expertise in delivering complex offerings to customers of various sizes. This acquisition meets an increasing demand for data center We will be mindful of strategic opportunities with a continued bias and managed hosting services from our current business clients, and Hosted’s toward well-run companies that advance our strategy to grow revenue resources, combined with our expansive network, enable Windstream to act and free cash fl ow. Any strategic opportunities also will be assessed as an end-to-end communications and technology solutions provider. against our plan to reduce total leverage to historical levels. Also on the strategic front, Windstream was awarded more than $181 million In conclusion, I want to thank the Windstream team for all its hard work in federal stimulus grants to extend our broadband network into unserved in what truly was a transformative year. I also want to thank our stockholders for your confi dence in this enterprise. We understand that areas of rural America. Windstream will match these grants with $60 million we work for you, and we take great pride in building a company that of its own capital over the next two years. This investment will enable us to creates value for our investors. expand broadband availability to approximately 93 percent of our customers while enhancing broadband speeds in underserved areas, which should result in attractive growth opportunities given the pent-up demand in these areas. It’s important to note that we will invest for growth in new projects for our business clients, including expanding data center services and success-based fi ber initiatives that are tied to long-term contracts. All of these capital Jeffery R. Gardner projects create growth opportunities and, in 2011, will qualify for 100 percent depreciation under federal tax law. President and Chief Executive Offi cer March 24, 2011 WINDSTREAM CORPORATION Table of Contents Proxy Statement Annual Report Form 10-K Information Regarding Non-GAAP Financial Measures Corporate Information WINDSTREAM CORPORATION 4001 Rodney Parham Road Little Rock, Arkansas 72212 Telephone: (501) 748-7000 www.windstream.com NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS To be Held May 4, 2011 To the Stockholders of Windstream Corporation: Notice Is Hereby Given That the 2011 Annual Meeting of Stockholders of Windstream Corporation (“Windstream”) will be held at the Capital Hotel, 111 West Markham, Little Rock, Arkansas 72201, on Wednesday, May 4, 2011 at 11:00 a.m. (local time), for the following purposes: 1. To elect nine directors to serve until the 2012 Annual Meeting