Frontier Communications 2006 Annual Report Download - page 24

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
CASH FLOW FROM INVESTING ACTIVITIES
Commonwealth Acquisition
On September 17, 2006, we entered into a definitive agreement to acquire Commonwealth for $41.72 per
share, in a cash-and-stock taxable transaction, for a total consideration of $1.16 billion, based on the closing price
of Citizens’ common stock on September 15, 2006. Each Commonwealth share will receive $31.31 in cash and
0.768 shares of Citizens’ common stock.
The acquisition has been approved by the Boards of Directors of both Citizens and Commonwealth and by
Commonwealth’s shareholders. The transaction has received the requisite Hart-Scott Rodino and FCC approvals,
but is still subject to Pennsylvania PUC regulatory approval. We expect the transaction to be consummated in the
first half of 2007.
We intend to finance the cash portion of the transaction with a combination of cash on hand and debt. We
obtained a commitment letter for a $990.0 million senior unsecured term loan, the proceeds of which may be
used to pay the cash portion of the acquisition consideration (including cash payable upon the assumed
conversion of $300.0 million of the Commonwealth convertible notes in connection with the acquisition), to cash
out restricted shares, options and other equity awards of Commonwealth, to repay all of Commonwealth’s
outstanding indebtedness (which was $35.0 million as of December 31, 2006) and to pay fees and expenses
related to the acquisition. We expect to refinance this term loan, which matures within one year, with long-term
debt prior to the maturity thereof. On December 22, 2006 this commitment was reduced by $400.0 million as the
result of our issuance of 7.875% senior notes due 2027 in the amount of $400.0 million (see “Cash Flow from
Financing Activities – Issuance of Debt Securities” below). In December 2006, we also borrowed $150.0 million
from CoBank under a 6-year unsecured term loan. These proceeds can be used to repurchase existing
indebtedness or to essentially reduce the amount of additional borrowings needed in connection with the
Commonwealth transaction. We expect the need to borrow $200.0 million—$300.0 million under the remaining
commitment to close the Commonwealth transaction, pay all closing transaction costs and implementation costs.
Rural Telephone Bank Proceeds
In August 2005, the Board of Directors of the RTB voted to dissolve the bank. In November 2005, the
liquidation and dissolution of the RTB was initiated with the signing of the 2006 Agricultural Appropriation bill
by President Bush. We received approximately $64.6 million in cash from the dissolution of the RTB in April
2006, which resulted in the recognition of a pre-tax gain of approximately $61.4 million during the second
quarter of 2006. Our cash liability for taxes as a result of the cash distribution is expected to be approximately
$2.0 million due to the utilization of existing tax net operating losses on both the federal and state level.
Sale of Non-Core Operations and Investments
During 2006, we sold ELI, our CLEC business (including its associated real estate), for $255.3 million in
cash plus the assumption of approximately $4.0 million in capital lease obligations.
During 2005, we executed a strategy of divesting non-core assets, which resulted in the following
transactions:
On February 1, 2005, we sold 20,672 shares of Prudential Financial, Inc. for approximately $1.1 million in cash.
On March 15, 2005, we completed the sale of Conference Call USA, LLC for $43.6 million.
In June 2005, we sold for cash our interests in certain key man life insurance policies on the lives of
Leonard Tow, our former Chairman and Chief Executive Officer, and his wife, a former director. The cash
surrender value of the policies purchased by Dr. Tow totaled approximately $24.2 million, and we recognized a
gain of approximately $457,000 that is included in investment and other income.
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