Windstream 2006 Annual Report Download - page 130

Notes to Selected Financial Information:
A. During 2006, Windstream incurred $27.6 million of incremental costs, principally consisting of rebranding costs,
audit and legal fees, system conversion costs and employee related costs, related to the spin-off from Alltel and
merger with Valor. Windstream also incurred $10.6 million in restructuring charges, which consisted of severance
and employee benefit costs related to a planned workforce reduction. In addition, the Company incurred $11.2
million in investment banker, audit and legal fees associated with the announced split-off of its directory publishing
business. These restructuring charges decreased net income by $36.0 million, giving effect to items not deductible
for tax purposes. Effective January 1, 2006, Windstream prospectively reduced depreciation rates for its operations
in Pennsylvania. In the second quarter of 2006 the Company prospectively reduced depreciation rates for its
operations in Alabama and North Carolina, and in the fourth quarter 2006 it prospectively reduced depreciation
rates for its operations in Arkansas and in one of its operating subsidiaries in Texas. The depreciable lives were
lengthened to reflect the estimated remaining useful lives of the wireline plant based on Windstream’s expected
future network utilization and capital expenditure levels required to provide service to its customers. The effects of
this change during the year ended December 31, 2006 resulted in a decrease in depreciation expense of $30.1
million and an increase in net income of $18.6 million.
B. During 2005, Windstream incurred $4.5 million of severance and employee benefit costs related to a workforce
reduction in its wireline operations. Windstream also incurred $31.2 million of incremental costs, principally
consisting of investment banker, audit and legal fees, related to the then pending spin-off from Alltel. These
transactions decreased net income $34.1 million. Effective July 1, 2005, Windstream prospectively reduced
depreciation rates for its regulated operations in Florida, Georgia, North Carolina and South Carolina to reflect the
results of studies of depreciable lives completed by the Company in the second quarter of 2005. The depreciable lives
were lengthened to reflect the estimated remaining useful lives of wireline plant based on expected future network
utilization and capital expenditure levels required to provide service to its customers. The effects of this change during
the year ended December 31, 2005 resulted in a decrease in depreciation expense of $21.8 million and increase in net
income of $12.8 million. Effective December 31, 2005, Windstream adopted Financial Accounting Standards Board
Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”. The cumulative effect of this
accounting change resulted in a one-time non-cash charge of $7.4 million, net of income tax benefit of $4.6 million.
C. During 2004, Windstream reorganized its operations and support teams and also announced its plans to exit its
competitive service operations in the Jacksonville, Florida market due to the continued unprofitability of these
operations. In connection with these activities, Windstream recorded a restructuring charge of $13.6 million
consisting of $11.6 million in severance and employee benefit costs related to a planned workforce reduction, $1.3
million of employee relocation expenses and $0.7 million of other exit costs. During 2004, the Company also
recorded a $1.8 million reduction in the liabilities associated with various restructuring activities initiated prior to
2003, consisting of lease and contract termination costs. The reduction primarily reflected differences between
estimated and actual costs paid in completing the previous planned lease and contract terminations. These
transactions decreased net income by $7.3 million. Effective April 1, 2004, Windstream prospectively reduced
depreciation rates for its regulated operations in Nebraska, reflecting the results of a triennial study of depreciable
lives completed by Windstream in the second quarter of 2004, as required by the Nebraska Public Service
Commission. The effects of this change during the year ended December 31, 2004 resulted in a decrease in
depreciation expense of $19.1 million and increase in net income of $11.4 million.
D. During 2003, Windstream recorded a restructuring charge of $7.0 million consisting of severance and employee
benefit costs related to a planned workforce reduction, primarily resulting from the closing of certain call center
locations. Windstream also recorded a $0.4 million reduction in the liabilities associated with various restructuring
activities initiated prior to 2003, consisting of lease termination costs. The reduction primarily reflected differences
between estimated and actual costs paid in completing previously planned lease terminations. During 2003,
Windstream also wrote off certain capitalized software development costs that had no alternative future use or
functionality. These transactions decreased net income $7.4 million. In 2003, Windstream sold to Convergys
Information Management Group, Inc. certain assets and related liabilities, including selected customer contracts
and capitalized software development costs, associated with Windstream’s telecommunications information
services operations. In connection with this sale, Windstream recorded a pretax gain of $31.0 million. In addition,
during 2003, Windstream retired, prior to stated maturity dates, $249.1 million of long-term debt, representing all
of the long-term debt outstanding under the Rural Utilities Services, Rural Telephone Bank and Federal Financing
Bank programs. In connection with the early retirement of the debt, Windstream incurred pretax termination fees of
$7.1 million. These transactions increased net income $10.7 million. Effective January 1, 2003, Windstream
adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations”.
The cumulative effect of this accounting change resulted in a one-time non-cash credit of $15.6 million, net of
income tax expense of $10.3 million.
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