Windstream 2007 Annual Report Download - page 49

Windstream Corporation
Form 10-K, Part I
Item 1. Business
Immediately after the consummation of the spin off, Alltel Holding Corp. merged with and into Valor, with Valor
continuing as the surviving corporation. The merger was accounted for using the purchase method of accounting for
business combinations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business
Combinations”, with Alltel Holding Corp. serving as the accounting acquirer. The accompanying consolidated
financial statements reflect the combined operations of Alltel Holding Corp. and Valor following the spin off and
merger transactions on July 17, 2006. Results of operations prior to the merger and for all historical periods presented
are for Alltel Holding Corp. 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.
MATERIAL ACQUISITIONS COMPLETED DURING THE LAST FIVE YEARS
On August 31, 2007, Windstream completed the acquisition of CT Communications, Inc. (“CTC”) in a transaction
valued at $584.3 million. Under the terms of the agreement the shareholders of CTC received $31.50 in cash for each
of their shares with a total cash payout of $652.2 million. The transaction value also includes a payment of $37.5
million made by Windstream to satisfy CTC’s debt obligations, offset by $105.4 million in cash and short-term
investments held by CTC. Including $25.3 million in severance and other transaction-related expenses, the total cost of
the acquisition was $609.6 million. Windstream financed the transaction using the cash acquired from CTC, $250.0
million in borrowings available under its revolving line of credit, and additional cash on hand.
The premium paid by Windstream in this transaction is attributable to the strategic importance of the CTC acquisition.
The access lines and high-speed Internet customers added through the acquisition significantly increased Windstream’s
presence in North Carolina and provides the opportunity to generate significant operating efficiencies with contiguous
Windstream markets. The transaction has increased Windstream’s position in these markets where it can leverage its
brand and bring significant value to customers by offering competitive bundled services. The former CTC markets
have high-speed Internet availability to 95 percent of its access lines, 75 percent of which can offer speeds up to 10Mb.
Through the acquisition of Valor previously discussed, Windstream added approximately 500,000 customers in
complementary markets with favorable rural characteristics making the Company one of largest local
telecommunications carriers in the United States and the largest local telecommunications carrier primarily focused on
rural markets.
MATERIAL DISPOSITIONS COMPLETED DURING THE LAST FIVE YEARS
On November 30, 2007, Windstream completed the split off of its directory publishing business (the “publishing
business”) in a tax-free transaction with entities affiliated with Welsh, Carson, Anderson & Stowe (“WCAS”), a private
equity investment firm and Windstream shareholder.
To facilitate the split off transaction, Windstream contributed the publishing business to a newly formed subsidiary
(“Holdings”). Holdings paid a special cash dividend to Windstream in an amount of $40.0 million, issued additional
shares of Holdings common stock to Windstream, and distributed to Windstream certain debt securities of Holdings
having an aggregate principal amount of $210.5 million. Windstream exchanged the Holdings debt securities for
outstanding Windstream debt securities with an equivalent fair market value, and then retired those securities.
Windstream used the proceeds of the special dividend to repurchase approximately three million shares of Windstream
common stock during the fourth quarter. Windstream exchanged all of the outstanding equity of Holdings (the
“Holdings Shares”) for an aggregate of 19,574,422 shares of Windstream common stock (the “Exchanged WIN
Shares”) owned by WCAS, which were then retired. Based on the price of Windstream common stock of $12.95 at
November 30, 2007, the Exchanged WIN Shares had a value of $253.5 million. The total value of the transaction was
$506.7 million, including an adjustment for net working capital of approximately $2.7 million. As a result of
completing this transaction, Windstream recorded a gain on the sale of its publishing business of $451.3 million in the
fourth quarter of 2007 after substantially all performance obligations had been fulfilled.
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