Windstream 2006 Annual Report Download - page 144

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued:
Income Taxes – Income taxes are calculated on a separate return basis and are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax balances are adjusted to reflect tax rates, based on currently enacted tax
laws, which will be in effect in the years in which the temporary differences are expected to reverse. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that
includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax
assets unless it is more likely than not that such assets will be realized.
Earnings Per Share – Basic earnings per share of common stock was computed by dividing net income applicable
to common shares by the weighted average number of common shares outstanding during each year. Diluted
earnings per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive
outstanding stock instruments.
Common shares in historical periods totaled 402.9 million, representing the shares issued to Alltel shareholders
pursuant to the spin-off of the Alltel wireline division and were used to reflect earnings per share amounts for those
periods. A reconciliation of the net income and numbers of shares used in computing basic and diluted earnings per
share was as follows for the years ended December 31:
(Millions, except per share amounts) 2006 2005 2004
Basic earnings per share:
Income before extraordinary item and cumulative effect of accounting change $445.6 $381.7 $386.3
Extraordinary item 99.7 - -
Cumulative effect of accounting change - (7.4) -
Net income applicable to common shares $545.3 $374.3 $386.3
Weighted average common shares outstanding for the year 435.2 402.9 402.9
Basic earnings per share:
Income before extraordinary item and cumulative effect of accounting change $ 1.02 $ .95 $ .96
Extraordinary item .23 - -
Cumulative effect of accounting change - (0.2) -
Net income $ 1.25 $ .93 $ .96
Diluted earnings per share:
Weighted average common shares outstanding for the year 435.2 402.9 402.9
Increase in shares resulting from:
Non-vested restricted stock awards 0.2 - -
Weighted average common shares, assuming conversion of the above securities 435.4 402.9 402.9
Diluted earnings per share:
Income before extraordinary item and cumulative effect of accounting change $ 1.02 $ .95 $ .96
Extraordinary item .23 - -
Cumulative effect of accounting change - (0.2) -
Net income $ 1.25 $ .93 $ .96
Recently Issued Accounting Pronouncements – In July 2006, the Financial Accounting Standards Board (“FASB”)
issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for how companies should recognize,
measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken on
a tax return. FIN 48 requires that realization of an uncertain income tax position must be “more likely than not”
(i.e., greater than 50 percent likelihood of receiving a benefit) before it can be recognized in the financial
statements. Further, FIN 48 prescribes the benefit to be recorded in the consolidated financial statements as the
amount most likely to be realized assuming a review by tax authorities having all relevant information and
applying current conventions. FIN 48 also sets forth new disclosure requirements regarding unrecognized tax
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