Windstream 2013 Annual Report Download - page 149

F-13
Summary of Liability Activity Related to Both Merger and Integration Costs and Restructuring Charges
As of December 31, 2013, we had unpaid merger, integration and restructuring liabilities totaling $14.0 million, which
consisted of $0.6 million associated with the restructuring initiatives and $13.4 million related to merger and integration
activities. Payments of these liabilities will be funded through operating cash flows.
Giving consideration to tax benefits for deductible expenses, merger, integration and restructuring costs decreased net income
$24.3 million, $58.1 million and $44.1 million for the years ended December 31, 2013, 2012 and 2011, respectively. See Note
10 to the consolidated financial statements for additional information regarding these charges.
Operating Income
Operating income increased $125.1 million, or 14.2 percent, in 2013. This increase was primarily due to pension income of
$115.3 million attributable to an actuarial gain recognized in the fourth quarter of 2013, as previously discussed. The favorable
effects of the pension actuarial gain were partially offset by increased depreciation expense driven by additions of property,
plant and equipment as well as reductions of interconnect expense of $53.9 million. Operating income decreased $79.0 million,
or 8.2 percent in 2012. This decrease was primarily due to an increase in depreciation and amortization expense in our heritage
properties, which exclude properties acquired from PAETEC, partially offset by a decrease in pension expense compared to
2011, both discussed previously. Operating income for both 2013 and 2012 was also unfavorably impacted by revenue declines
associated with continued voice line losses and decreases in switched access revenues primarily due to the impact of
intercarrier compensation reform.
Other (Expense) Income, Net
Set forth below is a summary of other (expense) income, net for the years ended December 31:
(Millions) 2013 2012 2011
Interest income $ 1.0 $ 1.0 $ 1.5
(Loss) gain on sale of non-strategic assets (a) (6.4) 6.9 1.1
Ineffectiveness of interest rate swaps 1.6 (7.5)(5.2)
Other (expense) income, net (b) (8.7) 4.2 2.5
Other (expense) income, net $ (12.5) $ 4.6 $ (0.1)
(a) The loss realized in 2013 was primarily due to the disposal of various non-operating real estate assets. The gain
recognized in 2012 was primarily related to the sale of wireless assets associated with Iowa Telecom and D&E
Communications, Inc. ("D&E").
(b) Other expense, net during 2013, primarily consisted of costs incurred in connection with the Holding Company
Formation.
(Loss) Gain on Extinguishment of Debt
During the third quarter of 2013, Windstream Corp. retired all $500.0 million of the outstanding 2019 Notes using proceeds
from the private placement of the 2021 Notes. During the first quarter of 2013, Windstream Corp. also retired all $650.0 million
of the outstanding PAETEC 2017 Notes. The PAETEC 2017 Notes were repurchased using proceeds from the issuance of the
2023 Notes. Windstream Corp. also amended its senior secured credit facility including issuance of Tranche B4, the proceeds of
which were used to repay Tranche A2, Tranche B and Tranche B2 during the first quarter. The retirements and a portion of the
credit facility amendment were accounted for under the extinguishment method of accounting, and, as a result, Windstream
Corp. recognized losses on extinguishment of debt of $28.5 million during 2013.
During the first quarter of 2012, Windstream Corp. retired all $300.0 million of the outstanding 9.500 percent notes due July
15, 2015 ("PAETEC 2015 Notes"). The PAETEC 2015 Notes were purchased using borrowings under the revolving line of
credit. The retirement was accounted for under the extinguishment method, and, as a result, Windstream Corp. recognized a
gain on extinguishment of debt of $1.9 million during 2012.