Windstream 2007 Annual Report Download - page 89

• The Company is also exposed to regulatory uncertainty in state and federal Universal Service Fund (“USF”)
programs. Pending regulatory proceedings and increased receipts of USF monies by wireless carriers could
materially reduce the Company’s USF revenues, although near-term expectations are that the Company will
maintain its current level of funding absent significant changes in the programs.
• The split off of the Company’s directory publishing business, which was completed in the fourth quarter of 2007,
will result in a reduction in wireline segment revenues due to the elimination of royalties received on sales of
advertising in Windstream telephone directories. The Company agreed to forego these royalty payments for a
period of 50 years as part of the split off agreement, and received $506.7 million in up-front consideration for the
publishing business (See Note 3). The split off of the publishing business also resulted in the loss of directory
publishing revenues, as discussed below in “Other Operations”.
• The Company expects to realize significant cost savings from the integration of the CTC operations in future
periods, although there are no assurances these cost savings will be fully achieved.
• The Company has incurred significant non-recurring transaction-related expenses in both 2006 and 2007, as
discussed further below in “Merger and Integration Costs”.
• The Company recognized significant increases in interest expense following the spin off from Alltel and merger
with Valor in the third quarter of 2006 pursuant to the issuance of debt used to finance the transactions.
• The Company is exposed to changes in economic trends in the markets it serves, which may increase bad debt
expense as a result of increased customer accounts written off.
The foregoing risk factors and material transactions, as well as other risks and events that could cause Windstream’s
reported financial information to be not necessarily indicative of future operating results or financial condition, are
discussed in more detail under “Risk Factors” in Item 1A and in the notes to the consolidated financial statements.
STRATEGIC TRANSACTIONS
Spin off from Alltel – On July 17, 2006, Alltel completed the spin off of Alltel Holding Corp., its wireline
telecommunications division and related businesses, and the subsequent merger of that business with Valor (as further
discussed below under “Acquisitions”). Pursuant to the spin off, Alltel contributed all of its wireline assets to the newly
formed company in exchange for: (i) newly issued Company common stock, (ii) the payment of a special dividend to
Alltel in the amount of $2.3 billion 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 its wireline subsidiaries. Following the Contribution, Alltel distributed 100 percent of
the common shares of the Company to its shareholders as a tax-free dividend. Alltel also exchanged the Company’s
securities for certain Alltel debt held by certain investment banking firms. The investment banking firms subsequently
sold the Company’s securities in the private placement market. On November 28, 2006, the Company replaced these
securities with registered senior notes in the same amount with the same maturity.
For periods prior to the spin off from Alltel, the Company’s consolidated financial statements were derived from the
accounting records of Alltel, principally representing Alltel’s historical wireline and communications support
segments. The Company has used the historical results of operations, and the historical basis of assets and liabilities of
the subsidiaries it owns after completion of the spin off, to prepare the consolidated financial statements for periods
prior to the spin off. For the periods through July 17, 2006, certain services such as information technology,
accounting, legal, tax, marketing, engineering, and risk and treasury management were provided to the Company by
Alltel. These expenses have been allocated based on actual direct costs incurred. Where specific identification of
expenses was not practicable, the cost of such services was allocated based on the most relevant allocation method to
the service provided: either net sales of the Company as a percentage of net sales of Alltel, total assets of the Company
as a percentage of total assets of Alltel, or headcount of the Company as a percentage of headcount of Alltel.
Management of both the Company and Alltel considered these allocations to be a reasonable reflection of the
utilization of services provided.
Acquisitions – Immediately after the consummation of the spin off, the Company merged with and into Valor, with
Valor continuing as the surviving corporation and Alltel Holding Corp. serving as the accounting acquirer. 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
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