Windstream 2011 Annual Report Download - page 177

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-69
Deferred income tax expense for all three years primarily resulted from temporary differences between depreciation and
amortization expense for income tax purposes and depreciation and amortization expense recorded in the consolidated financial
statements. Goodwill is not amortized for financial statement purposes in accordance with authoritative guidance on goodwill
and other intangible assets.
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:
Statutory federal income tax rate
Increase (decrease)
State income taxes, net of federal benefit
Adjust deferred taxes for state net operating loss carryforward
Acquisition costs
Tax refund interest
Other items, net
Effective income tax rate
2011
35.0%
2.0
1.9
(0.5)
(0.5)
(0.9)
37.0%
2010
35.0%
2.5
—
1.2
—
(0.2)
38.5%
2009
35.0%
2.6
1.3
0.3
—
(0.6)
38.6%
The significant components of the net deferred income tax liability (asset) were as follows at December 31:
(Millions)
Property, plant and equipment
Goodwill and other intangible assets
Operating loss carryforward
Postretirement and other employee benefits
Unrealized holding loss and interest swaps
Deferred compensation
Bad debt
Deferred debt costs
Restricted stock
Other, net
Valuation allowance
Deferred income taxes, net
Deferred tax assets
Deferred tax liabilities
Deferred income taxes, net
2011
$ 1,260.2
1,395.8
(805.5)
(144.3)
(37.0)
(5.6)
(57.4)
(67.9)
(16.0)
(68.8)
1,453.5
165.9
$ 1,619.4
$ 1,101.6
2,721.0
$ 1,619.4
2010
$ 945.4
1,083.4
(194.7)
(128.3)
(43.0)
(5.6)
(8.8)
(7.2)
(5.2)
(13.4)
1,622.6
28.8
$ 1,651.4
$ 389.4
2,040.8
$ 1,651.4
At December 31, 2011 and 2010, we had federal net operating loss carryforwards of approximately $1,925.1 million and
$356.4 million, respectively, which expire in varying amounts from 2015 through 2031. The loss carryforwards at December
31, 2010 were initially acquired in conjunction with our mergers with Valor, NuVox and Iowa Telecom. The 2011 increase is
primarily associated with loss carryforwards acquired in conjunction with our merger with PAETEC. At December 31, 2011
and 2010, we had state net operating loss carryforwards of approximately $2,670.1 million and $1,053.4 million, respectively,
which expire annually in varying amounts from 2012 through 2030. The loss carryforwards at December 31, 2010 were
initially acquired in conjunction with our mergers with Valor, CTC, D&E, Lexcom, NuVox , Iowa Telecom and Q-Comm. The
2011 increase is primarily associated with loss carryforwards acquired in conjunction with our merger with PAETEC. Federal
and state tax rules limit the deductibility of loss carryforwards in years following an ownership change. As a result of these
limitations or the expected lack of future taxable income of certain entities, we believe that it is more likely than not that the
benefit from certain federal and state loss carryforwards will not be realized prior to expiration. We establish valuation
allowances when necessary to reduce deferred tax assets to amounts expected to be realized. Consequently, as of December 31,
2011 and 2010, we recorded valuation allowances of $165.9 million and $28.8 million, respectively, related to federal and state
loss carryforwards which are expected to expire and not be utilized. The 2011 increase in the valuation allowance is primarily
associated with the acquisition of federal and state net operating losses from PAETEC and was recorded with an offset through
goodwill. The amount of state tax credit carryforward remains the same at December 31, 2011 and 2010, approximately $20.7
million, which expire in varying amounts from 2014 through 2027.