Windstream 2006 Annual Report Download - page 146

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Spin-off of Company from Alltel Corporation and Merger with Valor Communications Group, Inc.,
Continued:
Alltel then distributed 100 percent of these 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.
Pursuant to the Contribution, Alltel transferred cash of $36.2 million to the Company, as required by the
Distribution Agreement between Alltel and the Company. Additionally, Windstream received reimbursement from
Alltel in the fourth quarter for $30.6 million in transaction fees primarily related to the Company’s financing of the
spin-off, which is included in other net financing activities in the consolidated statement of cash flows for the year
ending December 31, 2006. The Company’s balance sheet also includes other transferred assets and liabilities at
Alltel’s historical cost basis. Assets included net property, plant, and equipment of $101.5 million. Transfers also
included a prepaid pension asset of $191.6 million and related post-retirement benefit obligations of $24.2 million
valued at the date of spin. Deferred taxes of $62.8 million were established related to the assets and liabilities
transferred. In connection with the spin-off, the Company and Alltel entered into a tax sharing agreement that
allocates responsibility for (i) filing tax returns and preparing other tax-related information and (ii) the liability for
payment and benefit of refund or other recovery of taxes. As a result, the Company transferred liabilities to Alltel
related to current income taxes payable of $99.8 million and income tax contingency reserves of $10.8 million.
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. Under the
terms of the merger agreement, Valor shareholders retained each of their Valor shares, totaling approximately
70.9 million shares, which are now shares of Windstream Corporation common stock. Upon completion of the
Merger, Alltel’s stockholders owned approximately 85 percent of the outstanding equity interests of the Company,
and the stockholders of Valor owned the remaining approximately 15 percent of such equity interests.
The merger was accounted for using the purchase method of accounting for business combinations in accordance
with SFAS No. 141, “Business Combinations,” with Alltel Holding Corp. serving as the accounting acquirer. The
accompanying consolidated financial statements reflect the operations of Alltel Holding Corp. and Valor following
the spin-off and merger on July 17, 2006. Results of operations prior to the merger and for all historical periods
presented are for Alltel Holding Corp.
Based on the closing price of our common stock of $11.50 on the New York Stock Exchange (“NYSE”) on
July 17, 2006, the aggregate transaction value of the Merger was $2,050.5 million, consisting of the consideration
for the acquired Valor shares ($815.9 million), the assumption of Valor debt ($1,195.6 million), and closing and
other direct merger-related costs, including financial advisory, legal and accounting services. 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 approximately $5.5 billion of long-
term debt in connection with the Contribution and the Merger. For the period subsequent to the spin-off, the
consolidated statement of income reflects interest expense associated with this new debt.
In accordance with SFAS No. 141, the cost of the merger was allocated to the assets acquired and liabilities
assumed based on their fair values as of the close of the merger, with amounts exceeding the fair value being
recorded as goodwill. Valuations of intangible assets, debt and certain other assets and liabilities were obtained, the
majority of goodwill acquired in connection with the acquisition was deductible for income tax purposes.
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