Windstream 2008 Annual Report Download - page 102

SG&A expenses in 2007 also increased due to the Company’s advertising focus on brand establishment and through
the build out of its distribution network. Expenditures on these items remained consistent in 2008 as we continue to
aggressively market our products and services. Partially offsetting this increase in 2007 was a decline in general and
administrative expenses, which was primarily the result of synergies realized in the former Valor operations from the
elimination of duplicate corporate costs.
Depreciation and Amortization Expense
Depreciation and amortization expense primarily includes the depreciation of the Company’s plant assets and the
amortization of its definite-lived intangible assets. The following table reflects the primary drivers of year-over-year
changes in depreciation and amortization expense:
Depreciation and amortization expense
Twelve months ended
December 31, 2008
Twelve months ended
December 31, 2007
(Millions)
Increase
(Decrease) %
Increase
(Decrease) %
Due to Valor acquisition $ - $ 66.5
Due to CTC acquisition 22.4 11.0
Due to depreciation rate studies and other (35.4) (18.3)
Total depreciation and amortization expense $ (13.0) (3)% $ 59.2 13%
Depreciation expense decreased in 2008 primarily due to the completion of studies of the Company’s depreciable lives
during the second and fourth quarters of 2007, which lowered its depreciation rates. Depreciable lives were revised to
reflect the estimated remaining useful lives of wireline plant based on the Company’s expected future network
utilization and capital expenditure levels required to provide service to its customers (see Note 2). Partially offsetting
this decrease was an increase due to the acquisition of CTC, including the amortization of acquired intangible assets
(see Note 4).
The increase in depreciation expense in 2007 was due primarily to the acquisitions of Valor and CTC, including the
amortization of acquired intangible assets, partially offset by the studies of depreciable lives completed during the
second and fourth quarters of 2007, as discussed above, as well as additional studies completed during 2006 that
resulted in a reduction in depreciation expense.
Royalty Expense
Royalty expense decreased $129.6 million, or 100 percent, in 2007. Prior to the separation, Windstream’s regulated
subsidiaries incurred a royalty expense from Alltel for the use of the Alltel brand name in marketing and distributing
telecommunications products and services pursuant to a licensing agreement with an Alltel affiliate. Following the spin
off from Alltel and merger with Valor, Windstream no longer incurs this charge as it discontinued the use of the Alltel
brand name following a brief transitional rebranding period.
Restructuring Charges
The Company incurred $8.3 million in severance and employee-related costs in 2008, primarily related to the
announced workforce reduction in the fourth quarter of 2008 to control expenses in a challenging economy and the
realignment of certain information technology, network operations and business sales functions.
During 2007 the Company incurred $4.5 million in restructuring costs from a workforce reduction plan and the
announced realignment of its business operations and customer service functions intended to improve overall support
to its customers. In the fourth quarter of 2006, the Company recorded a restructuring charge of $10.5 million to realign
its operational functions to better serve customers and operate more efficiently.
Restructuring charges, consisting primarily of severance and employee benefit costs, are triggered by the Company’s
continued evaluation of its operating structure and identification of opportunities for increased operational efficiency
and effectiveness. These costs should not necessarily be viewed as non-recurring, and are included in the determination
of segment income. They are reviewed regularly by the Company’s decision makers and are included as a component
of compensation targets.
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