Windstream 2009 Annual Report Download - page 164

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Dispositions, Continued:
The following table summarizes the results of the wireless business for the years ended December 31:
(Millions) 2008 2007
Revenues and sales $ 42.0 $ 14.9
Operating income from discontinued operations 9.7 1.2
Loss on sale of wireless business (21.3) -
Income tax expense (10.6) (0.5)
Net income (loss) from discontinued operations $ (22.2) $ 0.7
The pre-tax loss of $21.3 million was comprised of $1.0 million in transaction related fees and a $20.3 million
reduction in goodwill to reduce the carrying value of the wireless business net assets to the transaction price.
Additionally, in the second quarter of 2008, the Company updated its purchase price allocation through goodwill
for certain tax contingencies, which resulted in a $3.2 million reduction of deferred tax liabilities. Upon
completion of the sale, the Company recorded additional tax expense of $9.7 million related to goodwill that was
not deductible for tax purposes.
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.
4. Goodwill and Other Intangible Assets:
Goodwill represents the excess of cost over the fair value of net identifiable tangible and intangible assets
acquired through various business combinations. The cost of acquired entities at the date of the acquisition is
allocated to identifiable assets, and the excess of the total purchase price over the amounts assigned to identifiable
assets has been recorded as goodwill.
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