Windstream 2008 Annual Report Download - page 136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
the allocated liabilities assigned to the Company are not necessarily indicative of the costs and liabilities that
would have been incurred if the Company had performed these functions as a stand-alone entity. However,
management believes that methods used to make such allocations were reasonable, and that the costs of these
services charged to the Company were reasonable representations of the costs that would have been incurred if the
Company had performed these functions as a stand-alone company.
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. Interest rates earned on receivables from Alltel were 5.0 percent in
the period ended July 17, 2006.
Transactions with Certain Affiliates – Prior to the discontinuance of the provisions of SFAS No. 71, “Accounting
for the Effects of Certain Types of Regulation”, 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, in the third quarter of 2006.
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. 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 in non-eliminated sales in 2006. Wireline revenues and sales during those periods
included non-eliminated directory royalties received from Windstream Yellow Pages of $19.1 million in 2006.
Non-eliminated amounts billed by the wireline subsidiaries to other affiliates of the Company were $21.7 million
in 2006 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 Georgia, Kentucky, Mississippi, Nebraska, New York, Ohio and
Oklahoma, and 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
depreciable lives were lengthened to reflect the estimated remaining useful lives of the wireline plant based on the
Company’s expected future network utilization and capital expenditure levels required to provide service to its
customers. The impact of the change in depreciation rates on the operations discussed above resulted in a decrease
in depreciation expense of $38.9 million and $17.8 million and an increase in net income of $24.2 million and
$11.4 million in 2008 and 2007, respectively.
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