Windstream 2010 Annual Report Download - page 140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
Net property, plant and equipment consisted of the following as of December 31:
(Millions) Depreciable Lives 2010 2009
Land $ 34.8 $ 28.0
Building and improvements 3-40 years 561.5 478.9
Central office equipment 3-40 years 4,470.3 4,040.1
Outside communications plant 7-47 years 5,332.1 4,843.9
Furniture, vehicles and other equipment 3-23 years 671.1 496.3
Construction in progress 184.7 98.5
11,254.5 9,985.7
Less accumulated depreciation (6,481.8) (5,993.1)
Net property, plant and equipment $ 4,772.7 $ 3,992.6
The Company’s regulated operations use a group composite depreciation method. Under this method, when plant
is retired, the original cost, net of salvage value, is charged against accumulated depreciation and no immediate
gain or loss is recognized on the disposition of the plant. For the Company’s non-regulated operations, when
depreciable plant is retired or otherwise disposed of, the related cost and accumulated depreciation are deducted
from the plant accounts, with the corresponding gain or loss reflected in operating results.
The Company capitalizes interest in connection with the acquisition or construction of plant assets. Capitalized
interest is included in the cost of the asset with a corresponding reduction in interest expense. Capitalized interest
amounted to $2.1 million in 2010, $1.7 million in 2009 and $1.9 million in 2008.
Asset Retirement Obligations – Windstream recognizes asset retirement obligations in accordance with
authoritative guidance on accounting for asset retirement obligations and on accounting for conditional asset
retirement obligations, which requires recognition of a liability for the fair value of an asset retirement obligation
if the amount can be reasonably estimated. Windstream’s asset retirement obligations include legal obligations to
remediate the asbestos in certain buildings if the Company were to abandon, sell or otherwise dispose of the
buildings and to dispose of its chemically-treated telephone poles at the time they are removed from service.
These asset retirement obligations, totaled $41.7 million and $34.8 million as of December 31, 2010 and 2009,
respectively, and are included in other long term liabilities in the accompanying consolidated balance sheets.
Derivative Instruments – Windstream accounts for its derivative instruments using authoritative guidance for
disclosures about derivative instruments and hedging activities, including when a derivative or other financial
instrument can be designated as a hedge, and requires recognition of all derivative instruments at fair value.
Accounting for the changes in fair value depends on whether the derivative has been designated as, qualifies as
and is effective as a hedge. Changes in fair value of the effective portions of cash flow hedges should be recorded
as a component of other comprehensive income in the current period. Changes in fair values of the derivative
instruments not qualifying as hedges, or of any ineffective portion of hedges, should be recognized in earnings in
the current period.
In 2006, due to the interest rate risk inherent in the variable rate senior secured credit facilities, the Company
entered into four pay fixed, receive variable interest rate swap agreements, designated as a cash flow hedge, with a
maturity on July 17, 2013. The counterparty for each of the swap agreements is a bank with a current credit rating
at or above A+. The variable rate received by Windstream on the swaps was the three-month LIBOR (London-
Interbank Offered Rate), which was 0.29 percent at December 31, 2010. The weighted-average fixed rate paid by
Windstream was 5.604 percent. On October 19, 2009, Windstream completed an amendment and restatement of
its credit facility and as part of this amendment the maturity date associated with a portion of term loan B was
extended.
In December of 2010, Windstream renegotiated the four interest rate swap agreements. The modified swaps,
commonly referred to as “blend and extends”, will amortize quarterly to a notional value of $900.0 million in
2013, where it will remain until maturity on October 17, 2015 ($1,093.8 million as of December 31, 2010) and the
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