Windstream 2007 Annual Report Download - page 66

Windstream Corporation
Form 10-K, Part I
Item 1A. Risk Factors
Our operations require substantial capital expenditures.
We require substantial capital to maintain, upgrade and enhance our network facilities and operations. During 2007, we
incurred $365.7 million in capital expenditures. In addition, our current dividend practice utilizes a significant portion
of our cash generated from operations and therefore limits our operating and financial flexibility and our ability to
significantly increase capital expenditures. While we have historically been able to fund capital expenditures from cash
generated from operations, the other risk factors described in this section could materially reduce cash available from
operations or significantly increase our capital expenditure requirements, and these outcomes could cause capital to not
be available when needed. This could adversely affect our business.
We may be affected by significant restrictions with respect to certain actions that could jeopardize the tax-free status
of our July 17, 2006 spin off and merger.
The July 17, 2006 merger agreement restricts us from taking certain actions that could cause the spin off to be taxable
to Alltel under Section 355(e) of the Internal Revenue code or otherwise jeopardize the tax-free status of the spin off or
the merger (which the merger agreement refers to as “disqualifying actions”), including:
• Generally, for two years after the spin off, taking, or permitting any of our subsidiaries to take, an action that
might be a disqualifying action;
• For two years after the spin off, entering into any agreement, understanding or arrangement or engaging in any
substantial negotiations with respect to any transaction involving the acquisition of our stock or the issuance of
shares of our stock, or options to acquire or other rights in respect of such stock, in excess of a permitted basket of
48,547,018 shares as of December 31, 2007 (as adjusted for stock splits, stock dividends, recapitalizations,
reclassifications and similar transactions), unless, generally, the shares are issued to qualifying employees or
retirement plans, each in accordance with “safe harbors” under regulations issued by the IRS;
• For two years after the spin off, repurchasing our shares, except to the extent consistent with guidance issued by
the IRS;
• For two years after the spin off, permitting certain wholly-owned subsidiaries that were wholly-owned
subsidiaries of Alltel Holding Corp. at the time of the spin off to cease the active conduct of the Windstream
business to the extent so conducted by those subsidiaries immediately prior to the spin off; and
• For two years after the spin off, voluntarily dissolving, liquidating, merging or consolidating with any other
person, unless (1) we are the survivor of the merger or consolidation or (2) prior to undertaking such action, we
receive the prior consent of Alltel.
Nevertheless, we will be permitted to take any of the actions described above in the event that we receive the prior
written consent of Alltel or the Internal Revenue Service has granted a favorable ruling to Alltel or us as to the effect of
such action on the tax-free status of the spin off and merger transactions. To the extent that the tax-free status of the
transactions is lost because of a disqualifying action taken by us or any of our subsidiaries after the distribution date
(except to the extent that Alltel has delivered a previous consent to us permitting such action), we generally will be
required to indemnify, defend and hold harmless Alltel and its subsidiaries (or any successor to any of them) from and
against any and all resulting tax-related losses incurred by Alltel.
Because of these restrictions, we may be limited in the amount of stock that we can issue to make acquisitions in the
two years subsequent to the spin off and merger. Also, our indemnity obligation to Alltel might discourage, delay or
prevent a change of control during this two-year period that our stockholders may consider favorable. The foregoing
restrictions will expire on July 17, 2008.
Disruption in our networks and infrastructure may cause us to lose customers and incur additional expenses.
To be successful, we will need to continue to provide our customers with reliable service over our networks. Some of
the risks to our networks and infrastructure include: physical damage to access lines, breaches of security, capacity
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