Windstream 2007 Annual Report Download - page 134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
For fixed stock options granted under Alltel’s stock-based compensation plans, the exercise price of the option
equaled the market value of Alltel’s common stock on the date of grant. Accordingly, no compensation expense
was recognized by the Company in the accompanying consolidated statements of income in periods prior to 2006
for any of the fixed options granted. Had compensation costs for the fixed options granted been determined based
on the fair value of the awards at the date of grant, consistent with the methodology prescribed by SFAS No. 123,
“Accounting for Stock-Based Compensation”, the Company’s net income would have been reduced to the
following pro forma amounts for the year ended December 31, 2005:
(Millions)
Net income as reported $ 374.3
Deduct stock-based employee compensation expense determined under fair value method
for all awards, net of related tax effects (4.1)
Pro forma net income $ 370.2
Basic earnings per share: As reported $.93
Pro forma $.92
Diluted earnings per share: As reported $.93
Pro forma $.92
Adoption of FIN 47 - 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.
During 2007, Windstream negotiated new contract terms with several underlying service providers. Changes in
estimated retirement obligations associated with these contract changes are reflected in “Revisions in expected
cash flows” in the table below.
The following is a summary of activity related to the liabilities associated with the Company’s asset retirement
obligations through December 31:
(Millions) 2007 2006
Beginning balance $ 47.9 $ 14.0
Assumed from acquisition 1.4 7.2
Establish asset retirement obligation associated with the discontinuance of SFAS
No. 71 - 16.7
Revisions in expected cash flows (8.9) -
Accretion expense 3.2 1.2
Liabilities settled (1.0) (0.5)
Liabilities incurred 2.6 9.3
Ending balance $ 45.2 $ 47.9
Recently Issued Accounting Pronouncements
SFAS No. 157 - In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157
clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures
related to fair value measurements that are included in a company’s financial statements. SFAS No. 157 does not
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