Windstream 2007 Annual Report Download - page 101

Valor and CTC markets. Sales to external customers decreased $23.0 million in 2007 and increased $10.1 million in
2006. The decrease in 2007 reflects decreases in sales to small telecommunications providers and contractors.
Conversely, the increase in 2006 reflects an increase in sales to contractors and solid demand among smaller
telecommunications providers.
Cost of products sold increased $6.0 million, or 2 percent, and $23.6 million, or 8 percent, in 2007 and 2006,
respectively. The increase in both periods was consistent with the growth in revenues and sales discussed above.
SG&A expenses increased $5.7 million, or 36 percent, and $3.5 million, or 28 percent, in 2007 and 2006, respectively.
These increases were primarily due to overhead costs that were shared with Alltel prior to the spin off, and are now
fully absorbed by the Company.
During 2007 and 2006, restructuring charges in both periods amounted to $0.1 million. These charges related to
severance and employee benefit costs and were included in segment income for the product distribution operations.
Declines in sales to higher margin external customers along with an increase in overhead costs contributed to a
decrease in segment income of $6.1 million or 130 percent in 2007. Segment income was relatively unchanged in 2006.
Other Operations
(Millions) 2007 2006 2005
Revenues and sales:
Wireless $ 14.9 $ - $ -
Directory publishing 123.0 153.5 154.7
Telecommunications information services - 8.8 17.2
Total revenues and sales 137.9 162.3 171.9
Costs and expenses:
Cost of services 6.8 9.0 17.9
Cost of products sold 91.7 111.0 114.9
Selling, general, administrative and other 30.3 27.5 25.6
Depreciation and amortization 1.5 2.2 2.1
Total costs and expenses 130.3 149.7 160.5
Segment income $ 7.6 $ 12.6 $ 11.4
Revenues and sales from the Company’s other operations are derived from the sale of wireless services and equipment,
revenues associated with publishing directories for affiliated and non-affiliated local exchange carriers, and charges to
non-affiliated telecommunications companies for information services (primarily customer billing). Revenues and sales
attributable to the Company’s other operations decreased $24.4 million, or 15 percent, and $9.6 million, or 6 percent, in
2007 and 2006, respectively.
The acquisition of CTC and its wireless operations in 2007 resulted in additional revenues of $14.9 million. Directory
publishing revenues decreased in 2007 due primarily to the sale of the business on November 30, 2007 (See Note 3).
Revenues derived from the Company’s directory publishing operations were relatively unchanged in 2006.
Telecommunications information services revenues decreased $8.4 million, or 49 percent, in 2006 due to the loss of
billings earned from Valor, which represented the Company’s only remaining unaffiliated customer prior to the
Company’s merger with Valor on July 17th. Following the merger, the Company no longer incurs revenues or
recognizes expenses for these activities.
Segment income for Windstream’s other operations decreased $5.0 million, or 40 percent, in 2007 and increased
$1.2 million, or 11 percent, in 2006. The decrease in other operations segment income was due to the decline in
margins associated with the loss of directory and information services revenues partially offset by the acquisition of
CTC and the effects of its wireless operations. The increase in 2006 was primarily due to an improvement in the profit
margins in the directory publishing operations as a result of a reduction in bad debt expense caused by improved
collection rates.
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