Windstream 2014 Annual Report Download - page 127

F-11
Cost of Products Sold
Cost of products sold represents the cost of equipment sales to customers. The changes in cost of products sold were consistent
with the change in product sales.
The following table reflects the primary drivers of year-over-year changes in cost of products sold:
Year Ended
December 31, 2014
Year Ended
December 31, 2013
(Millions)
Increase
(Decrease) %
Increase
(Decrease) %
Due to changes in product sales to consumers $(0.6)$ 0.8
Due to decreases in sales to contractors (12.9)(13.8)
Due to decreases in product sales to business customers (13.8)(9.7)
Net decreases in cost of products sold $(27.3) (15)% $ (22.7)(11)%
Selling, General and Administrative (“SG&A”)
SG&A expenses result from sales and marketing efforts, advertising, IT support, costs associated with corporate and other support
functions, and professional fees. These expenses include salaries, wages and employee benefits not directly associated with the
provisioning of services.
The following table reflects the primary drivers of year-over-year changes in SG&A expenses:
Year Ended
December 31, 2014
Year Ended
December 31, 2013
(Millions)
Increase
(Decrease) %
Increase
(Decrease) %
Due to changes in pension and postretirement expense (a) $ 62.0 $ (47.9)
Due to increases in sales and marketing expenses (b) 16.2 22.5
Due to decreases in employee medical expenses (c) (3.9)(13.9)
Due to decreases in other costs (13.9)(4.6)
Net changes in SG&A $ 60.4 7% $ (43.9)(5)%
(a) The increase in pension and postretirement expense in 2014 was primarily attributable to a net actuarial loss of $128.6
million, of which $27.6 million was included in SG&A. The net actuarial loss resulted from a decrease in the discount
rate used to measure our pension obligations from 5.01 percent in 2013 to 4.14 percent in 2014 and changes to our
mortality assumptions reflecting longer life expectancies of plan participants. Conversely, the decrease in 2013 reflected
the effects of an actuarial gain of $110.4 million primarily attributable to an increase in the discount rate to 5.01 percent
in 2013 from 3.85 percent in 2012, of which $26.7 million was recorded to SG&A. Year-over-year comparisons also
reflected the effects of curtailment and settlement gains recognized from the elimination of medical and prescription
subsidies for certain active and retired participants. These gains reduced SG&A by $4.4 million in 2014 compared to $8.1
million in 2013. See Note 7 to the consolidated financial statements for additional information regarding our pension and
postretirement benefit plans.
(b) The increase in sales and marketing in 2014 was primarily due to the expansion of enterprise marketing campaigns
designed to generate sales leads and promote brand awareness. The increase in 2013 was due to additional compensation
costs resulting from the expansion of our business sales force, partially offset by lower advertising costs for the consumer
channel and decreased consumer sales expenses.
(c) The decrease in employee medical expenses during 2013 was a result of cost management strategies implemented through
changes to our medical plans.