Windstream 2010 Annual Report Download - page 143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
Windstream adopted authoritative guidance for accounting for uncertainty in income taxes, on January 1, 2007.
The adoption of this guidance resulted in no impact to either the Company’s reserves for uncertain tax positions or
to retained earnings. A reconciliation of the unrecognized tax benefits is as follows:
(Millions) 2010 2009 2008
Beginning balance $ 4.3 $ 6.1 $ 7.4
Additions based on D&E acquisition 0.4 0.3 -
Additions based on Lexcom acquisition 0.2 0.1 -
Additions based on NuVox acquisition 1.8 - -
Changes based on tax positions related to current year - - 0.7
Additions based on tax positions of prior years 15.7 - -
Reductions for tax positions of prior years (0.6) (0.8) (1.2)
Reduction as a result of a lapse of the applicable statute of limitations (3.2) (1.4) (0.8)
Ending balance $ 18.6 $ 4.3 $ 6.1
The Company does not expect or anticipate a significant increase or decrease over the next twelve months in the
unrecognized tax benefits reported above. The total amount of unrecognized tax benefits, if recognized, that
would affect the effective tax rate is $16.6 million and $2.3 million (net of indirect benefits) for years ended
December 31, 2010 and 2009, respectively.
Included in the balance at December 31, 2010 and 2009, are $0.8 million and $1.3 million, respectively, of gross
tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the
timing of such deductibility. Because of the impact of the deferred tax accounting, other than interest and
penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but
would accelerate the payment of cash to the taxing authority to an earlier period. These unrecognized tax benefits
are included in other long-term liabilities in the accompanying consolidated balance sheets for the years ended
December 31, 2010 and 2009.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states.
With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations
by tax authorities for years prior to 2007. The Company has identified Arkansas, Florida, Georgia, Iowa,
Kentucky, Nebraska, North Carolina, Pennsylvania and Texas as “major” state taxing jurisdictions.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax
expense. During the years ended December 31, 2010 and 2009, the Company recognized approximately $2.6
million and $0.5 million in interest and penalties, respectively. Furthermore, the Company had approximately $2.2
million and $0.9 million for the payment of interest and penalties accrued as of December 31, 2010 and 2009,
respectively.
Earnings Per Share – Basic earnings per share was computed by dividing net income applicable to common shares
by the weighted average number of common shares outstanding during each period. Windstream’s non-vested
restricted shares that contain a non-forfeitable right to receive dividends on a one-to-one per share ratio to
common shares are considered participating securities, and the impact is included in the computation of basic
earnings per share pursuant to the two-class method. The two-class method of computing earnings per share is an
earnings allocation formula that determines earnings attributable to common shares and participating securities
according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings.
Earnings per common share was computed by dividing the sum of distributed earnings and undistributed earnings
allocated to common shareholders by the weighted average number of common shares outstanding for the period.
In applying the two-class method, undistributed earnings are allocated to both common shares and non-vested
restricted shares based on the pro-rata weighted average shares outstanding during the period. The Company also
computed dilutive earnings per share using the two-class method as this method is more dilutive than the treasury
stock method.
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