Windstream 2007 Annual Report Download - page 130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
For periods through June 30, 2006, the Company maintained a licensing agreement with The ALLTEL Kansas
Limited Partnership, an Alltel affiliate, under which the Company’s regulated subsidiaries were charged a royalty
fee for the use of the Alltel brand name in marketing and distributing telecommunications products and services.
The amount of the royalty fee charged was computed by multiplying the regulated subsidiaries’ annual revenues
and sales by 12.5 percent.
For periods through July 17, 2006, the Company participated in the centralized cash management practices of
Alltel. Under those practices, cash balances were transferred daily to Alltel bank accounts. The Company obtained
interim financing from Alltel to fund its daily cash requirements and invested short-term excess funds with Alltel.
The Company earned interest income on receivables due from Alltel and was charged interest expense for
payables due to Alltel. Subsequent to the spin off, Windstream no longer participates in this program as the
Company has its own established cash management program. The interest rates charged on payables to Alltel were
6.0 percent in the period ended July 17, 2006 and 6.1 percent in 2005. Interest rates earned on receivables from
Alltel were 5.0 percent in the period ended July 17, 2006 and 3.5 percent in 2005.
Subsequent to the spin off, Windstream and Alltel continue to provide each other certain of the services discussed
above, at negotiated rates pursuant to a transition services agreement. In addition to the transition services
agreement, Windstream and Alltel entered into certain other agreements, which extend through 2009. Under those
agreements, Alltel will continue to provide Windstream with network transport for its long distance operations
and other services, while Windstream will continue to provide local phone service, long distance and high-speed
Internet service as well as certain network management services to Alltel, all at negotiated rates. In addition,
Windstream and Alltel entered into a tax-sharing agreement that generally requires Alltel to indemnify
Windstream for any taxes attributable to Windstream’s operations for periods prior to the spin off, while
Windstream must indemnify Alltel for any taxes resulting from the spin off in certain circumstances.
Transactions with Certain Affiliates – Prior to the discontinuance of the provisions of SFAS No. 71, “Accounting
for the Effects of Certain Types of Regulation”, during the third quarter of 2006, affiliated transactions involving
the regulated operations (excluding operations in Kentucky and Nebraska) were not eliminated because the
revenues received from the affiliates and the prices charged by the communications products and directory
publishing operations were priced in accordance with Federal Communications Commission (“FCC”) guidelines
and were recovered through the regulatory process. As discussed further below, the Company began eliminating
these revenues and the related expenses for all the regulated operations after the discontinuance of SFAS No. 71.
Transactions with affiliates that were not eliminated under the provisions of SFAS No. 71 primarily included
product sales, royalties earned from directory publishing, and sales of other telecommunications services.
Non-eliminated equipment sales from the Company’s product distribution subsidiary to its regulated wireline
subsidiaries totaled $61.9 million in 2006, and $134.4 million in 2005. The cost of equipment sold to the wireline
subsidiaries is included, principally, in wireline plant in the consolidated financial statements. Prior to its split off
in 2007, the Company’s directory publishing subsidiary, Windstream Yellow Pages, contracted with the regulated
wireline subsidiaries to provide directory publishing services, which included the publication of a standard
directory at no charge. Windstream Yellow Pages then billed the wireline subsidiaries for services not covered by
the standard contract, which resulted in $3.8 million and $7.6 million in non-eliminated sales in 2006 and 2005,
respectively. Wireline revenues and sales during those periods included non-eliminated directory royalties
received from Windstream Yellow Pages of $19.1 million and $35.8 million in 2006 and 2005, respectively.
Non-eliminated amounts billed by the wireline subsidiaries to other affiliates of the Company were $21.7 million
in 2006 and $45.0 million in 2005 for interconnection and toll services.
Accounting Changes
Change in Accounting Estimate – Effective October 1, 2007, the Company prospectively reduced the depreciable
rates of assets held and used in its operations in New York, Mississippi, Georgia, Ohio, Nebraska, Oklahoma, and
Kentucky to reflect the results of studies completed in the fourth quarter of 2007. In addition, during April 2007,
the Company completed studies of the depreciable lives of assets held and used in its Missouri operations and in
an operating subsidiary in Texas. The related depreciation rates were changed effective April 1, 2007. The
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