Windstream 2006 Annual Report Download - page 120

unless funded from proceeds of certain equity offerings or other sources that are not operating cash flow; (ii) certain
permitted investments; (iii) payments to repay, redeem, retire or refinance any indebtedness, other than repayments of
the revolving loans under the senior secured credit facilities and certain other indebtedness, unless such payments are
funded from proceeds of certain equity offerings or other sources that are not operating cash flow; and (iv) capital
expenditures, unless funded from proceeds of certain equity offerings or other sources that are not operating cash flow.
As previously discussed, prior to the spin-off from Alltel, the Company participated in the centralized cash
management practices of Alltel. Under these practices, cash balances were transferred daily to Alltel bank accounts,
and the Company obtained interim financing from Alltel to fund its daily cash requirements and invested short-term
excess funds with Alltel. At December 31, 2005 the Company had a net payable to Alltel, which was included in Parent
Company Investment of Alltel in the accompanying consolidated balance sheet. During 2006, the Company reduced its
overall net borrowings from Alltel by $290.3 million, compared to reductions of $346.7 million in 2005 and $365.9
million 2004.
Liquidity and Capital Resources
The Company believes that it has adequate operating cash flows to finance our ongoing operating requirements,
including capital expenditures, payments of interest and scheduled amortization of long-term debt and payment of
dividends. As previously discussed, on July 17, 2006, Alltel completed the spin-off of its wireline telecommunications
business to its stockholders and the merger of that wireline business with Valor. Pursuant to the plan of Distribution
and immediately prior to the effective time of the Merger with Valor described below, Alltel contributed all of the
wireline assets in exchange for: (i) newly issued Company common stock (ii) the payment of a special dividend to
Alltel in an amount of $2,275.1 million 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 operating 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 repay $80.8 million (plus $7.9 million in related make-whole premiums and
$1.9 million in accrued interest) of the 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”). The Company 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 following the Merger, the Company issued 8.125 percent senior notes due in 2013 in the aggregate
principal amount of $800.0 million which was used in part to repay the Valor credit facility in the amount of $781.0
million. As part of the foregoing, Windstream assumed $400.0 million principal in outstanding notes issued by
subsidiaries of Valor. As a result, Windstream assumed or incurred approximately $5.5 billion of long-term debt in
connection with the Contribution and the Merger.
As discussed above, on December 12, 2006, Windstream announced that it would split off its directory publishing
business in what Winstream expects to be a tax-free transaction with entities affiliated with WCAS, a private equity
investment firm and Windstream shareholder. The Company will receive $250.0 million in consideration in the form of
a special dividend in an amount equal to its tax basis in the publishing business (currently estimated to be $30.0
million), and debt securities with an aggregate principle amount of $250.0 million less the amount of the special
dividend. Windstream expects to exchange those debt securities for Windstream debt securities with an equivalent fair
market value and then retire that Windstream debt. The transaction is expected to result in the retirement of at least
$220.0 million of outstanding Windstream debt. The transaction will also result in the repurchase of at least 19,574,422
shares of Windstream common stock, representing a value, at the time of signing, of approximately $275.0 million
based on a trailing average of Windstream’s stock price of $14.02 at that time. Given the value of the stock at the time
of signing, the total value of the transaction was approximately $525.0 million. Based on the trailing average of
Windstream common stock at February 23, 2007 of $15.05, the Exchanged WIN shares have a value of approximately
$295.0 million, increasing the expected total value of the transaction to approximately $545.0 million.
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