Windstream 2008 Annual Report Download - page 142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Dispositions:
Disposition of Directory Publishing Business - 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
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.
In connection with the consummation of the transaction, the parties and their affiliates entered into a publishing
agreement whereby Windstream granted Local Insight Yellow Pages, Inc. (“Local Insight Yellow Pages”), the
successor to the Windstream subsidiary that once operated the publishing business, an exclusive license to publish
Windstream directories in each of its markets other than the newly acquired CTC markets. Local Insight Yellow
Pages will, at no charge to Windstream or its affiliates or subscribers, publish directories with respect to each
Windstream service area covered under the agreement in which Windstream or its affiliates are required to publish
such directories by applicable law, tariff or contract. Subject to the termination provisions in the agreement, the
publishing agreement will remain in effect for a term of fifty years. As part of this agreement, Windstream agreed
to forego future royalty payments from Local Insight Yellow Pages on advertising revenues generated from
covered directories for the duration of the publishing agreement. The wireline segment recognized approximately
$56.0 million in royalty revenues during the eleven months ended November 30, 2007.
Pro forma financial results related to the disposition of the publishing business have not been included because the
Company does not consider the results of the publishing business, prior to the gain on sale, to be significant.
Acquisition of CTC - On August 31, 2007 Windstream completed the acquisition of 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
net consideration paid in 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 provided the opportunity to generate significant operating
efficiencies with contiguous Windstream markets.
The transaction was accounted for as the acquisition of a business in accordance with SFAS No. 141, “Business
Combinations”, with Windstream serving as the accounting acquirer. The accompanying consolidated financial
statements reflect the combined operations of Windstream and CTC following the acquisition on August 31, 2007.
In accordance with SFAS No. 141, the cost of the acquisition was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of the acquisition date, with amounts exceeding fair value being
recorded as goodwill. None of the goodwill or other intangible assets recorded in this acquisition are deductible
for income tax purposes.
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