Windstream 2007 Annual Report Download - page 155

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Income Taxes, Continued:
Differences between the federal income tax statutory rates and effective income tax rates, which include both
federal and state income taxes, were as follows for the years ended December 31:
2007 2006 2005
Statutory federal income tax rates 35.0% 35.0% 35.0%
Increase (decrease):
State income taxes, net of federal benefit 1.5 3.7 4.1
Adjustment of deferred taxes for legal entity restructuring (1.1) - -
Reversal of income tax contingency reserves - (0.5) -
Nontaxable gain on sale of publishing business (13.5) - -
Costs associated with spin off of Company - 0.7 1.7
Other items, net (0.3) (0.6) 0.5
Effective income tax rates 21.6% 38.3% 41.3%
The significant components of the net deferred income tax liability (asset) were as follows at December 31:
(Millions) 2007 2006
Property, plant and equipment $ 710.4 $ 728.9
Goodwill and other intangible assets 544.0 500.5
Operating loss carryforward (107.9) (107.1)
Postretirement and other employee benefits 30.3 (80.8)
Unrealized holding loss on interest swaps (30.3) (15.1)
Deferred compensation (11.5) (11.8)
Deferred debt costs (9.9) (9.0)
Other, net (31.6) (25.4)
$ 1,093.5 $ 980.2
Valuation allowance 12.6 10.6
Deferred income taxes, net $ 1,106.1 $ 990.8
Deferred tax assets $ 279.0 $ 294.4
Deferred tax liabilities 1,385.1 1,285.2
Deferred income taxes, net $ 1,106.1 $ 990.8
At December 31, 2007 and 2006, the Company had federal net operating loss carryforwards of approximately
$248.1 million and $288.0 million, respectively, which expire annually in varying amounts through 2025. These
loss carryforwards were acquired in conjunction with the Company’s merger with Valor. The decrease in 2007
represents the amount utilized for the year. At December 31 2007 and 2006, the Company had state net operating
loss carryforwards of approximately $347.0 million and $91.0 million, respectively, which expire annually in
varying amounts through 2026. These loss carryforwards were initially acquired in conjunction with the
Company’s merger with Valor. The 2007 increase is primarily driven by loss carryforwards acquired in
conjunction with the Company’s acquisition of CTC and losses generated by the Company in the state of
Arkansas. The Company is limited in its ability to use these federal and state loss carryforwards on an annual
basis due to the ownership change caused by the merger with Valor and expected future taxable income. As a
result, a portion of these loss carryforwards will not be utilized before they expire. The Company establishes
valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. As of
December 31, 2007 and 2006, the Company recorded a valuation allowance of $12.6 million and $10.6 million,
respectively, related to federal and state loss carryforwards, which are expected to expire and not be utilized. The
2007 increase is primarily driven by the valuation allowance acquired in conjunction with the Company’s
acquisition of CTC.
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