Windstream 2006 Annual Report Download - page 104

intercompany eliminations due to the discontinuance of the application of Statement of Financial Accounting
Standard (“SFAS”) No. 71, “Accounting for the Effects of Certain Types of Regulation,” as further discussed
below, and the loss of access lines discussed below. Average revenue per wireline customer, however, increased
four percent from a year ago to $75.29 due primarily to growth in broadband revenues.
• Operating income increased 42 percent from a year ago, primarily reflecting the acquisition of Valor, the
termination of a licensing agreement with Alltel as of June 30, 2006, and a decline in depreciation and
amortization resulting from reductions in depreciable lives for certain assets associated with studies performed
during 2005 and 2006.
During 2007, the Company will continue to face significant challenges resulting from competition in the
telecommunications industry and changes in the regulatory environment, including the effects of potential changes to
the rules governing universal service funding and inter-carrier compensation. In addressing competition, the Company
will continue to focus its efforts on improving customer service and expanding its service offerings.
Acquisition
On July 17, 2006, Alltel completed the spin-off of its wireline telecommunications business to its stockholders (the
“Distribution”) and the merger of that wireline business with Valor (the “Merger”). For all periods prior to the effective
time of the Merger, references to the Company include Alltel Holding Corp. or the wireline telecommunications
division and related businesses of Alltel. Pursuant to the plan of Distribution and immediately prior to the effective
time of the Merger with Valor described below, Alltel contributed all of its wireline assets in exchange for: (i) newly
issued Company common stock, (ii) the payment of a special dividend to Alltel in the amount of $2.3 billion and
(iii) the distribution by the Company to Alltel of certain debt securities (the “Contribution”).
In connection with the Contribution, the Company assumed approximately $261.0 million of long-term debt that had
been issued by the Company’s wireline subsidiaries. Also in connection with the Contribution the Company borrowed
approximately $2.4 billion through a new senior secured credit agreement that was used to fund the special dividend
and pay down a portion of the $261.0 million in long-term debt assumed by the Company in the Contribution. The debt
securities issued by the Company to Alltel as part of the Contribution consisted of 8.625 percent senior notes due 2016
with an aggregate principal amount of $1,746.0 million (the “Company Securities”). These securities were issued at a
discount, and accordingly, at the date of their distribution to Alltel, the Company Securities had a carrying value of
$1,703.2 million (par value of $1,746.0 million less discount of $42.8 million). Following the Contribution, Alltel
distributed 100 percent of the common shares of the Company to its shareholders as a tax-free dividend. Alltel also
exchanged the Company Securities for certain Alltel debt held by certain investment banking firms. The investment
banking firms subsequently sold the Company Securities in the private placement market. On November 28, 2006, the
Company replaced the Company Securities with registered senior notes in the same amount with the same maturity.
Immediately after the consummation of the spin-off, the Company merged with and into Valor, with Valor continuing
as the surviving corporation. The resulting company was renamed Windstream Corporation. As a result of the merger,
all of the 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.
Immediately following the Merger, the Company issued 8.125 percent senior notes due 2013 in the aggregate principal
amount of $800.0 million, which was used in part to pay down the Valor credit facility in the amount of $780.6 million.
As a result of the aforementioned financing transactions, Windstream assumed or incurred approximately $5.5 billion
of long-term debt in connection with the Contribution and the Merger.
Pending Transaction
On December 12, 2006, Windstream announced that it would split off its directory publishing business (the
“Publishing Business”) in what Windstream expects to be a tax-free transaction with entities affiliated with Welsh,
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