Windstream 2006 Annual Report Download - page 145

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued:
benefits and clarifies the financial statement classification of tax-related interest and penalties. Consistent with
Windstream’s past practices, interest charges on potential assessments and any penalties assessed by taxing
authorities will be classified as income tax expense within the Company’s consolidated statements of income. FIN
48 is effective for fiscal years beginning after December 15, 2006, and we will be required to adopt this
interpretation in the first quarter of 2007. We do not expect that the adoption of FIN 48 will have a material impact
on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 clarifies the
definition of fair value, establishes a framework for measuring fair value and expands the disclosures related to fair
value measurements that are included in a company’s financial statements. SFAS No. 157 does not expand the use
of fair value measurements in financial statements, but emphasizes that fair value is a market-based measurement
and not an entity-specific measurement that should be based on an exchange transaction in which a company sells
an asset or transfers a liability (exit price). SFAS No. 157 also establishes 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. For calendar year companies like Windstream, SFAS
No. 157 is effective beginning January 1, 2008. The Company is currently evaluating the effects, if any, that SFAS
No. 157 will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 allows measurement at
fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value
option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings
at each subsequent reporting date. SFAS 159 also establishes presentation and disclosure requirements designed to
draw comparison between the different measurement attributes the company elects for similar types of assets and
liabilities. This statement is effective for fiscal years beginning after November 15, 2007. The company is in the
process of evaluating the application of the fair value option and its effect on its consolidated financial statements.
2. Spin-off of Company from Alltel Corporation and Merger with Valor Communications Group, Inc.:
On November 2, 2005, Alltel Holding Corp. was incorporated as a wholly-owned subsidiary of Alltel to hold
Alltel’s wireline telecommunications business in connection with a contemplated spin-off of these assets. This
wireline business was operated by certain other Alltel subsidiaries, which provided customers with local, long
distance, network access, and Internet services. These subsidiaries also sold and warehoused telecommunications
products, published telephone directories for affiliates and other independent telephone companies, and provided
billing and other information technology services to other carriers.
On July 17, 2006, Alltel completed the spin-off of its wireline telecommunications business to its stockholders (the
“Distribution”) and the merger of that business with and into Valor (the “Merger”). 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 to Alltel Holding Corp. in exchange for: (i) newly issued common stock of the
Company (ii) the payment of a special dividend to Alltel in the 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 pay down a portion of the wireline subsidiary 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).
As part of the Contribution, the Company to issued Alltel approximately 403 million shares of its common stock,
or 1.0339267 shares of common stock for each share of Alltel common stock outstanding as of July 17, 2006.
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