Windstream 2007 Annual Report Download - page 156

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Commitments and Contingencies:
Lease Commitments – Minimum rental commitments for all non-cancelable operating leases, consisting
principally of leases for network facilities, real estate, office space, and office equipment were as follows as of
December 31, 2007:
Year (Millions)
2008 $ 19.5
2009 16.2
2010 12.7
2011 8.6
2012 3.0
Thereafter 1.0
Total $ 61.0
Rental expense totaled $19.0 million in 2007, $18.7 million in 2006 and $7.3 million in 2005.
Litigation – During 2007, the staff of a state Public Utility Commission (“PUC Staff”) notified the Company that
the PUC Staff believed the Company had been over-compensated from its state universal service fund dating back
to 2000 by the amount of $6.1 million plus interest in the amount of $1.2 million (for a total $7.3 million). On
October 18, 2007, the PUC Staff issued a Notice of Violation and recommended that the Company be assessed a
fine in the amount of $5.2 million in addition to the initial refund request for failure to refund the requested
amount. Based on existing regulations that govern the universal service support amounts for acquired properties
and the PUC order approving the Valor acquisition of the Verizon (GTE) properties, the Company believes its
universal service receipts in question are in compliance with all applicable regulatory requirements, that it has not
been over-compensated and that no refund or penalty is owed. The Company plans to defend its position in hopes
of eliminating or reducing the assessment but at this time cannot predict the outcome of the proceeding or the
timing of the potential amount to be paid. A liability of $7.3 million was established during the third quarter of
2007 through a reduction of service revenues to reserve for this matter.
The Company is party to various other legal proceedings. Although the ultimate resolution of these various
proceedings cannot be determined at this time, management of the Company does not believe that such
proceedings, individually or in the aggregate, will have a material adverse effect on the future consolidated results
of income, cash flows or financial condition of the Company.
In addition, management of the Company is currently not aware of any environmental matters that, individually or
in the aggregate, would have a material adverse effect on the consolidated financial condition or results of
operations of the Company.
14. Business Segments:
The Company disaggregates its business operations based upon differences in products and services. The
Company’s wireline segment consists of Windstream’s retail and wholesale telecommunications services,
including local telephone, high-speed Internet, long distance, and other services in 16 states. The Company does
not have separate segment managers overseeing its retail and wholesale telecommunications services. Therefore,
in assessing operating performance and allocating resources, the chief operating decision maker’s focus is at a
level that consolidates the results of all services. In addition, incentive-based compensation for the wireline
segment managers is directly tied to the combined operating results of the Company’s total wireline operations.
Accordingly, the Company manages its wireline-based services as a single operating segment. The product
distribution segment consists of warehouse and logistics operations, and it procures and sells telecommunications
infrastructure and equipment to both affiliated and non-affiliated businesses.
Other operations consists of the Company’s wireless, directory publishing, and telecommunications information
services businesses. Following the acquisition of CTC in the third quarter of 2007, the Company began selling
wireless services and products, including service packages, long distance, features, and handsets and accessories
through six company-owned retail outlets and 10 indirect retail outlets in North Carolina. In 2001, CTC entered
F-70