Windstream 2008 Annual Report Download - page 91

• The split off of the Company’s directory publishing business in the fourth quarter of 2007 resulted 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 directory publishing business also resulted in the loss of directory publishing revenues, as
discussed below in “Other Operations”.
• On November 21, 2008, Windstream completed the sale of its wireless business to AT&T Mobility II, LLC for
approximately $56.7 million and have reported the related results as discontinued operations (see Note 16).
• Wireline revenues and sales are expected to continue to be adversely impacted by future declines in access lines
due to increasing competition in the telecommunications industry from cable television providers, wireless
communications providers, and providers using other emerging technologies.
• The Company is also exposed to regulatory uncertainty in state and federal Universal Service Fund (“USF”)
programs and inter-carrier compensation. Pending regulatory proceedings and other legislative actions could
materially reduce the Company’s inter-carrier compensation and/or USF revenues.
• The fair market value of the Company’s pension investments declined 34.7 percent in 2008 from approximately
$1,001.0 million to $654.0 million, due to benefit payments as well as declines in the market value of assets held.
As a result, we expect the Company will recognize non-cash pension expense of $90.4 million in 2009 as
compared to a benefit of $1.6 million in 2008. No contributions to the plan are expected in 2009, but in 2010 we
will be required to contribute approximately $24.0 million, net of tax benefit.
• 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 has incurred significant non-recurring transaction-related expenses in 2008, 2007 and 2006 as
discussed further below in “Merger and Integration Costs”.
• Economic trends in the markets served by the Company could generate increases in bad debt expense, accelerated
access line losses and slower high-speed Internet customer growth.
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, product distribution and other
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 were 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
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