Windstream 2015 Annual Report Download - page 212

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____
F-82
10. Merger, Integration and Restructuring Charges:
We incur costs to complete a merger or acquisition and integrate its operations into our business, which are presented as merger
and integration expense in our consolidated results of operations. These costs include transaction costs, such as accounting, legal
and broker fees; severance and related costs; IT and network conversion; rebranding; and consulting fees. We also incurred
investment banking fees, legal, accounting and other consulting fees related to the REIT spin-off and the sale of a portion of our
data center business. During the fourth quarter of 2015, we began a network optimization project designed to consolidate traffic
onto network facilities operated by us and reduce the usage of other carriers’ networks, including service areas acquired in the
PAETEC acquisition. In undertaking this initiative, which we expect to complete during 2016, we incurred costs to migrate traffic
to lower cost circuits and to terminate existing contracts prior to their expiration. The PAETEC acquisition and costs related to
the spin-off and sale of our data center business account for the merger and integration costs incurred for the periods presented.
Restructuring charges are primarily incurred as a result of evaluations of our operating structure. Among other things, these
evaluations explore opportunities to provide greater flexibility in managing and financing existing and future strategic operations,
for task automation and the balancing of our workforce based on the current needs of our customers. Severance, lease exit costs
and other related charges are included in restructuring charges.
During 2015, we incurred restructuring charges of $15.6 million related to the completion of several small workforce reductions.
Additionally, we incurred charges of $3.1 million related to the special shareholder meeting held on February 20, 2015 to approve
the one-for-six reverse stock split and the conversion of Windstream Corporation to Windstream Services.
During 2014, we completed two workforce reductions to increase operational efficiency by eliminating a total of approximately
750 positions, including 295 resulting from voluntary separation initiatives. We also completed several smaller workforce
reductions throughout the year. In connection with these workforce reductions, we incurred pre-tax restructuring charges of $24.1
million during 2014, primarily consisting of severance and other employee benefit costs. As a result of certain changes in our
executive management team, we also incurred severance-related costs of $6.3 million in 2014.
The following is a summary of the merger, integration and restructuring charges recorded for the years ended December 31:
(Millions) 2015 2014 2013
Merger and integration costs
Information technology conversion costs $ 7.5 $ 20.8 $ 17.3
Costs related to REIT spin-off (See Note 3) 65.1 15.5 —
Costs related to sale of data center business 10.3 — —
Network optimization and conversion costs 5.9 — —
Consulting and other costs 6.2 4.1 12.9
Total merger and integration costs 95.0 40.4 30.2
Restructuring charges 20.7 35.9 8.6
Total merger, integration and restructuring charges $ 115.7 $ 76.3 $ 38.8
After giving consideration to tax benefits on deductible items, the effect of merger, integration and restructuring charges decreased
net income $71.2 million, $46.6 million and $24.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The following is a summary of the activity related to the liabilities associated with our merger, integration and restructuring charges
at December 31:
(Millions) 2015 2014
Balance, beginning of period $ 11.2 $ 14.0
Merger, integration and restructuring charges 115.7 76.3
Cash outlays during the period (121.8)(79.1)
Balance, end of period $ 5.1 $ 11.2
As of December 31, 2015, unpaid merger, integration and restructuring liabilities consisted of $2.6 million associated with the
restructuring initiatives and $2.5 million related to merger and integration activities. Payments of these liabilities will be funded
through operating cash flows. During 2015, cash outlays were $99.4 million related to merger and integration activities and $22.4
million for restructuring initiatives.