Windstream 2011 Annual Report Download - page 150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____
F-42
Changes in value of these instruments were as follows for the years ended December 31:
(Millions)
Changes in fair value of effective portion, net of tax (a)
Changes in fair value of de-designated portion, net of tax (a)
Changes in fair value of undesignated portion (b)
2011
$(20.1)
$ 30.3
$—
2010
$ 1.9
$ 3.0
$(0.3)
2009
$ 20.4
$—
$ 3.0
(a) Included as a component of other comprehensive income (loss) and will be reclassified into earnings as the hedged
transaction affects earnings.
(b) Represents non-cash income recorded in other expense, net in the accompanying consolidated statements of income.
Revenue Recognition – Service revenues are primarily derived from providing access to or usage of our networks and facilities.
Service revenues are recognized over the period that the corresponding services are rendered to customers. Revenues derived
from other telecommunications services, including interconnection, long distance and enhanced service revenues are
recognized monthly as services are provided. Revenue from sales of indefeasible rights to use fiber optic network facilities
("IRUs") and the related telecommunications network maintenance arrangements is generally recognized over the term of the
related lease or contract. Sales of communications products including customer premise equipment and modems are recognized
when products are delivered to and accepted by customers. Fees assessed to customers for service activation are deferred upon
service activation and recognized as service revenue on a straight-line basis over the expected life of the customer relationship
in accordance with authoritative guidance on multiple element arrangements. Certain costs associated with activating such
services are deferred and recognized as an operating expense over the same period.
Advertising – Advertising costs are expensed as incurred. Advertising expense totaled $67.8 million in 2011, $70.9 million in
2010 and $46.6 million in 2009.
Share-Based Compensation – In accordance with authoritative guidance on share-based compensation, we value all share-based
awards to employees at fair value on the date of the grant, and recognize that value as compensation expense over the period
that each award vests. This expense is included in selling, general and administrative expenses in the accompanying
consolidated statements of income.
Capital Leases – We lease facilities and equipment for use on our operations. These facilities and equipment are included in
outside communications plant in property, plant and equipment in the accompanying consolidated balance sheets. Leases with a
bargain purchase option, transfer of ownership, contractual life equal to or greater than 75 percent of the remaining estimated
economic life of the leased facilities or equipment or minimum lease payments equal to or greater than 90 percent of the fair
value of the leased facilities or equipment are accounted for as capital leases in accordance with authoritative guidance for
capital leases. The future minimum lease payments for all non-cancellable capital leases for each of the twelve month periods
ended December 31, 2012, 2013, 2014, 2015 and 2016 were $18.1 million, $15.4 million, $11.4 million, $2.9 million and $0.8
million, respectively.
Operating Leases – Certain of our operating lease agreements include scheduled rent escalations during the initial lease term
and/or during succeeding optional renewal periods. We account for these operating leases in accordance with authoritative
guidance for operating leases with non-level rent payments. Accordingly, the scheduled increases in rent expense are
recognized on a straight-line basis over the initial lease term and those renewal periods that are reasonably assured. The
difference between rent expense and rent paid is recorded as deferred rent and is included in other liabilities in the
accompanying consolidated balance sheets. Leasehold improvements are amortized over the shorter of the estimated useful life
of the asset or the lease term, including renewal option periods that are reasonably assured.
Income Taxes – We account for income taxes in accordance with guidance on accounting for income taxes, under the asset and
liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in
which the temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the results of operations in the period of the enactment date. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. The income tax
receivable of $124.1 million at December 31, 2011 represents overpayments of federal and state income taxes and are expected
to be refunded in 2012.
Earnings Per Share – We compute basic earnings per share by dividing net income applicable to common shares by the
weighted average number of common shares outstanding during each period. Our non-vested restricted shares containing a
non-forfeitable right to receive dividends on a one-to-one per share ratio to common shares are considered participating
securities, and the impact is included in the computation of basic earnings per share pursuant to the two-class method. The