Windstream 2006 Annual Report Download - page 107

valued its share-based payment transactions using a Black-Scholes valuation model. Under the modified prospective
transition method, the Company recognizes compensation cost in its consolidated financial statements for all awards
granted after January 1, 2006 and for all existing awards for which the requisite service has not been rendered as of the
date of adoption. The adoption of SFAS No. 123(R) did not have a material impact on net income in 2006.
During the fourth quarter of 2005, the Company adopted FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations” (“FIN 47”). The Company evaluated the effects of FIN 47 on its operations and
determined that, for certain buildings containing asbestos, the Company is legally obligated to remediate the asbestos if
the Company were to abandon, sell or otherwise dispose of the buildings. In addition, the Company is legally obligated
to properly dispose of its chemically-treated telephone poles at the time they are removed from service. In accordance
with federal and state regulations, depreciation expense for the Company’s wireline operations that followed the
accounting prescribed by SFAS No. 71 historically included an additional provision for cost of removal, and
accordingly, the adoption of FIN 47 had no impact to these operations until the Company discontinued the application
of SFAS No. 71 in the third quarter of 2006. The cumulative effect of this accounting change in 2005 resulted in a
non-cash charge of $7.4 million, net of income tax benefit of $4.6 million, and was included in net income for the year
ended December 31, 2005.
CONSOLIDATED RESULTS OF OPERATIONS
(In millions, except per share amounts) 2006 2005 2004
Revenues and sales:
Service revenues $2,633.6 $2,463.6 $2,533.5
Product sales 399.7 459.9 400.0
Total revenues and sales 3,033.3 2,923.5 2,933.5
Costs and expenses:
Cost of services 858.4 796.1 813.7
Cost of products sold 281.8 374.8 333.8
Selling, general, administrative and other 365.7 340.1 327.9
Depreciation and amortization 449.6 474.2 508.5
Royalty expense to Alltel 129.6 268.8 270.2
Restructuring and other charges 49.4 35.7 11.8
Total costs and expenses 2,134.5 2,289.7 2,265.9
Operating income 898.8 633.8 667.6
Other income, net 8.7 11.6 13.7
Loss on extinguishment of debt (7.9) - -
Intercompany interest income (expense) 31.9 23.3 (15.2)
Interest expense (209.6) (19.1) (20.4)
Income before income taxes, extraordinary item and cumulative effect of
accounting change 721.9 649.6 645.7
Income taxes 276.3 267.9 259.4
Income before extraordinary item and cumulative effect of accounting
change 445.6 381.7 386.3
Extraordinary item, net of income taxes 99.7 - -
Cumulative effect of accounting change, net of taxes - (7.4) -
Net income $ 545.3 $ 374.3 $ 386.3
Earnings per share:
Basic:
Income before extraordinary item and cumulative effect of
accounting change $ 1.02 $ .95 $ .96
Extraordinary item .23 - -
Cumulative effect of accounting change - (.02) -
Net income $ 1.25 $ .93 $ .96
Diluted:
Income before extraordinary item and cumulative effect of
accounting change $ 1.02 $ .95 $ .96
Extraordinary item .23 - -
Cumulative effect of accounting change - (.02) -
Net income $ 1.25 $ .93 $ .96
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