Windstream 2006 Annual Report Download - page 142

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued:
In accordance with SFAS No. 133, all derivatives are recorded as either assets or liabilities in the consolidated
balance sheets at fair value. The fair value of the unrealized holding loss on the Company’s interest rate hedges of
$39.0 million is included in other liabilities in the accompanying consolidated balance sheets at December 31,
2006. Changes in the fair values of the derivative instruments not qualifying as hedges or any ineffective portion of
hedges are recognized in earnings in the current period. As Windstream’s interest rate hedges are effective,
changes in fair value have been recognized in other comprehensive income (loss) in the current period. Net
amounts due related to interest rate swap agreements are recorded as adjustments to interest expense in the
consolidated statements of income when earned or payable.
Foreign Currency Translation Adjustment – During 2004 the Company provided data processing and outsourcing
services to international telecommunications companies. For these foreign operations, assets and liabilities were
translated from the applicable local currency to U.S. dollars using the current exchange rate as of the balance sheet
date. Revenue and expense accounts were translated using the weighted average exchange rate in effect during the
period. Foreign currency transaction gains and losses were recognized in income as incurred. The Company
accounted for unrealized gains or losses on its foreign currency translation adjustments in accordance with SFAS
No. 130, “Reporting Comprehensive Income”, which required the adjustments to be recorded as a separate
component of equity. Cumulative translation adjustments were included in accumulated other comprehensive
income (loss) in the Company’s December 31, 2005 consolidated balance sheet. At the time of the spin-off from
Alltel, the Company transferred the foreign currency translation adjustment related to its historical international
operations to Alltel.
Revenue Recognition – Service revenues are primarily derived from providing access to or usage of the
Company’s networks and facilities. Wireline local access revenues are recognized over the period that the
corresponding services are rendered to customers. Revenues derived from other telecommunications services,
including interconnection, long distance and custom calling feature revenues are recognized monthly as services
are provided. Due to varying customer billing cycle cut-off times, the Company must estimate service revenues
earned but not yet billed at the end of each reporting period. Included in accounts receivable are unbilled
receivables related to communications revenues of $30.3 million and $21.1 million at December 31, 2006 and
2005, respectively. Sales of communications products including customer premise equipment and accessories are
recognized when products are delivered to and accepted by customers. The Company accounts for transactions
involving the activation of service in accordance with Securities and Exchange Commissions Staff Accounting
Bulletin (“SAB”) No. 104, “Revenue Recognition.” Fees assessed to communications customers to activate service
are not a separate unit of accounting and are deferred upon activation and recognized as service revenue on a
straight-line basis over the expected life of the customer relationship. The costs associated with activating such
services, up to the related amount of deferred revenue, are deferred and recognized as an operating expense over
the same period.
Windstream Yellow Pages recognizes directory publishing and advertising revenues and related directory costs
when the directories are published and delivered. For directory contracts with a secondary delivery obligation,
Windstream Yellow Pages defers a portion of its revenues and related directory costs until secondary delivery
occurs. Included in accounts receivable are unbilled receivables related to directory advertising revenues earned
but not yet billed of $58.8 million and $60.7 million at December 31, 2006 and 2005, respectively.
Prior to the merger with Valor and the resulting cessation of that line of business, telecommunications information
services revenues were recognized in accordance with the American Institute of Certified Public Accountants’
Statement of Position (“SOP”) 97-2 “Software Revenue Recognition” and SOP 98-9 “Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions”. Data processing revenues were recognized
as services were performed. When the arrangement with the customer included significant production,
modification or customization of the software, the Company used contract accounting, specifically the
percentage-of-completion method under SOP 81-1 “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts”.
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