Windstream 2015 Annual Report Download - page 143

F-13
Income Taxes
We recognized income tax expense of $16.0 million in 2015, as compared to an income tax benefit of $25.1 million in 2014. The
income tax expense recorded in 2015 reflected income before taxes and additional discrete tax expense of $8.1 million for non-
deductible transaction costs associated with the REIT spin-off. This expense was partially offset by discrete income tax benefits
of $12.1 million to adjust our deferred taxes for the effects of the reorganization of certain of our subsidiaries, including Windstream
Services, to limited liability companies completed during the first quarter of 2015. Our effective tax rate in 2015 was 36.9 percent,
compared to 38.9 percent in 2014 and 30.9 percent in 2013. The effective tax rate in 2015 was impacted by the effects of the
discrete items discussed above.
For 2016, our annualized effective income tax rate is expected to range between 38 percent and 39 percent, excluding one-time
discrete items. Changes in our relative profitability of our business, as well as recent and proposed changes to federal and state
tax laws may cause the rate to change from historical rates. See Note 13 to the consolidated financial statements for further
discussion of income tax expense and deferred taxes.
Discontinued Operations, net of tax
On December 5, 2013, we completed the sale of Pinnacle Software Company, a software business acquired as part of the PAETEC
acquisition, which provided comprehensive solutions for supporting the full lifecycle of information technology and
telecommunications services. The operating results of the software business has been separately presented as discontinued
operations in the accompanying consolidated statements of operations. See Note 17 to the consolidated financial statements for
additional information.
SEGMENT OPERATING RESULTS
During the fourth quarter of 2015, we implemented a new organizational structure focused on our core customer relationships to
strengthen our ability to achieve our operational, strategic and financial goals. Prior to this reorganization, we operated as one
reportable segment. Following this reorganization, we now operate and report the following four customer-based segments:
Consumer and Small Business - ILEC - We manage as one business our residential and small business customers who reside in
markets in which we are the ILEC due to the similarities with respect to service offerings, marketing strategies and customer
service delivery. Products and services offered to these customers include traditional local and long-distance voice services and
high-speed Internet services, which are delivered primarily over network facilities operated by us. We offer consumer video services
primarily through a relationship with Dish Network LLC and we also own and operate cable television franchises in some of our
service areas. During 2015, we launched Kinetic, a complete video entertainment offering in our Lincoln, Nebraska and Lexington,
Kentucky markets, with plans to launch in Sugar Land, Texas in the second quarter of 2016. We expect to roll out this new service
to additional markets during the next few years. Residential customers can bundle voice, high-speed Internet and video services,
to provide one convenient billing solution and receive bundle discounts. Small Business - ILEC services offer a wide range of
advanced Internet, voice, and web conferencing products. These services are equipped to deliver high-speed Internet with
competitive speeds, value added services to enhance business productivity and options to bundle services for a global business
solution to meet our small business customer needs.
Carrier - Our carrier operations consist of providing products and services to other communications services providers, including
special access services, which provide network access and transport services to end users, and fiber-to-tower connections to support
backhaul services to wireless carriers. We also offer on a wholesale basis voice and data transport services to other communications
providers, including the resale of our services and the sale of unbundled network elements, which allow wholesale customers to
provide voice and data services to their customers through the use of our network or in combination with their own networks.
Enterprise - Our enterprise operations consist of our business customer relationships that generate $1,500 or more in revenue per
month. Products and services offered to these customers include integrated voice and data services, which deliver voice and
broadband services over a single Internet connection, multi-site networking services which provide a fast and private connection
between business locations, as well as a variety of other data services, including cloud computing and collocation and managed
services as an alternative to traditional information technology infrastructure.
Small Business - CLEC - These operations consist of our business customer relationships that generate less than $1,500 in revenue
per month and are located in service areas in which we are a CLEC and provide services over network facilities primarily leased
from other carriers. Products and services provided to our small business - CLEC customers include integrated voice and data
services, advanced data and traditional voice and long distance services as well as value added services including online backup,
managed web design and web hosting, and various e-mail services.