Windstream 2013 Annual Report Download - page 162

F-26
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United
States. Our significant accounting policies are discussed in detail in Note 2 to the consolidated financial statements. Certain of
these accounting policies, as discussed below, require management to make estimates and assumptions about future events that
could materially affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and
liabilities. We believe that the estimates, judgments and assumptions made when accounting for the items described below are
reasonable, based on information available at the time they are made. However, there can be no assurance that actual results
will not differ from those estimates.
Revenue Recognition
We recognize revenues and sales as services are rendered or as products are sold in accordance with authoritative guidance on
revenue recognition. 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 communications 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.
We recognize certain revenues pursuant to various cost recovery programs from state and federal USF. Revenues are calculated
based on our investment in our network and other network operations and support costs. We have historically collected the
revenues recognized through this program; however, adjustments to estimated revenues in future periods are possible. These
adjustments could be necessitated by adverse regulatory developments with respect to these subsidies and revenue sharing
arrangements, the determination of recoverable costs, or decreases in the availability of funds in the programs due to increased
participation by other carriers.
Allowance for Doubtful Accounts
In evaluating the collectability of our trade receivables, we assess a number of factors, including a specific customer’s ability to
meet its financial obligations to us, as well as general factors, such as the length of time the receivables are past due and
historical collection experience. Based on these assumptions, we record an allowance for doubtful accounts to reduce the
related receivables to the amount that we ultimately expect to collect from customers. If circumstances related to specific
customers change or economic conditions worsen such that our past collection experience is no longer relevant, our estimate of
the recoverability of our trade receivables could be further reduced from the levels provided for in the consolidated financial
statements. A 10 percent change in the amounts estimated to be uncollectible would result in a change in the provision for
doubtful accounts of approximately $4.0 million for the year ended December 31, 2013.
Useful Lives of Assets
The calculation of depreciation and amortization expense is based on the estimated economic useful lives of the underlying
property, plant and equipment and finite-lived intangible assets. 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. During 2012, with the assistance of
outside expertise, we completed analyses for certain subsidiaries of the depreciable lives of assets in service. Based on those
results, we implemented new depreciation rates resulting in a net increase to depreciation expense of $59.1 million and a net
decrease in net income of $36.5 million or $0.06 per share for the year ended December 31, 2012.
Rapid changes in technology or changes in market conditions could result in significant changes to the estimated useful lives of
our tangible or finite-lived intangible assets that could materially affect the carrying value of these assets and our future
consolidated operating results. An extension of the average useful life of our property, plant and equipment of one year would
decrease depreciation expense by approximately $60.0 million per year, while a reduction in the average useful life of one year
would increase depreciation expense by approximately $69.6 million per year.