Windstream 2006 Annual Report Download - page 122

As previously discussed, the transaction to split off the Company’s publishing business with WCAS will result in the
repurchase of at least 19,574,422 shares of Windstream common stock, which will accordingly reduce the permitted
basket of shares for use in future transactions until the restricted payment period expires.
On February 27, 2007, Windstream completed the private placement of $500.0 million aggregate principal amount of
senior notes due 2019. The new senior notes were priced with an interest rate of 7.0 percent. Windstream used the net
proceeds of the offering to repay $500.0 million of amounts outstanding under its term loan portion of its senior
secured credit facilities. Additionally, Windstream received consent of lenders to an amendment and restatement of its
$2.9 billion secured credit facilities. Windstream amended and restated its senior secured credit facilities to, among
other things, reduce the interest payable under tranche B of the term loan portion of the facilities; modify the
pre-payment provision; modify certain covenants to permit the consummation of the previously announced split-off of
its directory publishing business; and make other specified changes. These changes are expected to result in an annual
reduction in interest expense of approximately $4.0 million. The notional amount of $125.0 million under the interest
rate swap will no longer be designated as a hedge, and the portion of any changes in fair value related to the ineffective
portion will be recognized through net income. Also, as a result of these financing transactions, Moody’s has
updgraded the debt rating on the Company’s senior secured credit facilities to Baa3.
At December 31, 2006, current maturities of long-term debt were $32.2 million. The Company expects to fund the
payment of these obligations through operating cash flows.
Pension Plans
Prior to the spin-off from Alltel, substantially all of the Company’s employees participated in a non-contributory,
qualified defined benefit pension plan maintained by Alltel. Prior to January 1, 2005, employees of our directory
publishing subsidiary did not participate in the plan. In December 2005, the qualified defined benefit pension plan was
amended such that future benefit accruals for all eligible non-bargaining employees ceased as of December 31, 2005
(December 31, 2010 for employees who had attained age 40 with two years of service as of December 31, 2005). In
addition, Alltel had entered into individual retirement agreements with certain retired executives providing for
unfunded supplemental pension benefits. Allocations of pension expense related to these plans from Alltel total $9.2
million in the period ended July 17, 2006, and $15.1 million and $11.3 million in the years ended December 31, 2005
and 2004, respectively. As of December 31, 2005, no allocation of Windstream’s share of the pension plans’ assets or
liabilities had been included in its financial statements.
Following the spin-off, Windstream established a qualified defined benefit pension plan whose provisions are
substantially equivalent to the provisions of the plan maintained by Alltel. In conjunction with establishing the new
plan and prior to adopting SFAS No. 158, the Company received from Alltel net prepaid pension assets totaling $191.6
million. The Company also assumed certain obligations in conjunction with the merger totaling $33.5 million at the
date of merger from a non-contributory qualified pension plan formerly sponsored by Valor. In total, approximately
$850.0 million in assets were transferred into a master trust, which the Company created specifically to hold the assets
of its employee benefit plans. The Valor plan was merged into the Windstream plan effective December 31, 2006. In
addition, Windstream has entered into individual retirement agreements with certain retired executives providing for
unfunded supplemental pension benefits. For the period of 2006 following inception of the Windstream benefit plans,
pension expense totaled $11.1 million. These expenses are included in cost of services and selling, general,
administrative and other expenses in the accompanying consolidated statements of income.
After adopting the provisions of SFAS No. 158, as further discussed in Note 3, “Accounting Changes”, and Note 8,
“Employee Benefit Plans and Postretirement Benefits”, Windstream recognized prepaid pension assets totaling $47.1
million as of December 31, 2006, which is included in other assets in the accompanying consolidated balance sheet.
Additionally as of December 31, 2006, Windstream recognized a pension obligation of $13.1 million, which is
included in other liabilities in the accompanying consolidated balance sheet, related to executive retirement
agreements.
Windstream’s pension expense for 2007, estimated to be approximately $11.6 million, was calculated based upon a
number of actuarial assumptions, including an expected long-term rate of return on qualified pension plan assets of
8.50 percent and a discount rate of 5.92 percent. In developing the expected long-term rate of return assumption,
Windstream evaluated historical investment performance, as well as input from its investment advisors. Projected
returns by such advisors were based on broad equity and bond indices. The Company also considered the historical
returns of the Alltel-sponsored plan since 1975 of 11.0 percent. The expected long-term rate of return on qualified
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