Windstream 2012 Annual Report Download - page 140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-42
2. Summary of Significant Accounting Policies and Changes, Continued:
Net Property, Plant and Equipment – Property, plant and equipment are stated at original cost, less accumulated depreciation.
Property, plant and equipment consists of central office equipment, office and warehouse facilities, outside communications
plant, customer premise equipment, furniture, fixtures, vehicles, machinery, other equipment and software to support the
business units in the distribution of telecommunications products. The costs of additions, replacements, substantial
improvements and extension of the network to the customer premise, including related labor costs, are capitalized, while the
costs of maintenance and repairs are expensed as incurred. Depreciation expense amounted to $955.6 million, $626.9 million,
and $539.6 million in 2012, 2011 and 2010, respectively.
Net property, plant and equipment consisted of the following as of December 31:
(Millions) Depreciable Lives 2012 2011
Land $ 46.3 $ 45.5
Building and improvements 3-40 years 649.4 621.2
Central office equipment 3-40 years 5,276.0 4,945.5
Outside communications plant 7-47 years 6,256.2 5,822.5
Furniture, vehicles and other equipment 3-23 years 1,270.8 1,032.5
Construction in progress 329.2 297.4
13,827.9 12,764.6
Less accumulated depreciation (7,965.2)(7,055.4)
Net property, plant and equipment $ 5,862.7 $ 5,709.2
Our 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 our 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 RUS will have a retained security interest in the assets funded by the broadband stimulus grants over their economic life,
which varies by grant but is up to 23 years. In the event of default of terms of the agreement, the government could exercise the
rights under its retained security interest to gain control and ownership of these assets. In addition, in the event of a proposed
change in control of Windstream, the acquiring party would need to receive approval from the RUS prior to effectuating the
proposed transaction, for which pre-approval will not be reasonably withheld.
We capitalize 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 $10.9 million, $6.8
million and $2.1 million in 2012, 2011 and 2010.
Asset Retirement Obligations – We recognize 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. Our asset
retirement obligations include legal obligations to remediate the asbestos in certain buildings if we exit them and to properly
dispose of our chemically-treated telephone poles at the time they are removed from service and to restore certain leased
properties to their previous condition upon exit. These asset retirement obligations totaled $51.4 million and $50.2 million as of
December 31, 2012 and 2011, respectively, and are included in other long term liabilities in the accompanying consolidated
balance sheets.
Derivative Instruments – We enter into interest rate swap agreements to mitigate the interest rate risk inherent in our variable
rate senior secured credit facilities. We account for our derivative instruments using authoritative guidance for recognition,
measurement and disclosures about derivative instruments and hedging activities, including when a derivative or other financial
instrument can be designated as a hedge. This guidance requires recognition of all derivative instruments at fair value, and
accounting for the changes in fair value depends on whether the derivative has been designated as, qualifies as and is effective
as a hedge. We record changes in fair value of the effective portions of cash flow hedges as a component of other
comprehensive income (loss) in the current period. Any ineffective portion of our hedges is recognized in earnings in the
current period.