Windstream 2013 Annual Report Download - page 184

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____
F-48
2. Summary of Significant Accounting Policies and Changes, Continued:
During the fourth quarter of 2013, in connection with the disposal of our software business and changes in certain management
responsibilities, we reassessed our reporting unit structure and determined that, as of the date of reassessment of November 30,
2013, we had five reporting units, including the software business sold on December 5, 2013. The reporting units are not
separate legal entities with discrete financial statements. Certain assets and liabilities utilized in or relating to multiple reporting
units have been allocated to the reporting units using reasonable and consistent allocation methodologies. Certain corporate-
level assets and liabilities were not allocated and are included in a separate corporate reporting unit. Goodwill has been
assigned to the non-corporate reporting units using a relative fair value allocation approach. Immediately prior to this change in
our reporting unit structure and assignment of goodwill to the reporting units, we determined that no impairment of goodwill
existed as of November 30, 2013. For purposes of our annual goodwill impairment test, we will continue to use January 1st of
each year as the measurement date.
We estimated the fair value of our reporting units using an income approach or discounted cash flow model supplemented with
a market approach. The income approach is based on the present value of projected cash flows and a terminal value, which
represents the expected normalized cash flows of the reporting unit beyond the cash flows from the discrete projection period
of five years. We discounted the estimated cash flows for each of the reporting units using a rate that represents a market
participant’s weighted average cost of capital commensurate with the reporting unit’s underlying business operations. Results
of the income approach were corroborated with estimated fair values derived from a market approach, which primarily
included the use of comparable multiples of publicly traded companies operating in businesses similar to ours. We also
reconciled the estimated fair value of our reporting units to our total market capitalization.
Other intangible assets arising from business combinations such as franchise rights, customer lists, and cable franchise rights
are initially recorded at estimated fair value. We amortize customer lists using the sum-of-the-digits method over an estimated
life or 9 to 15 years. All other intangible assets are amortized using a straight-line method over the estimated useful lives.
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 $1,049.7 million, $955.6 million,
and $626.9 million in 2013, 2012 and 2011, respectively.
Net property, plant and equipment consisted of the following as of December 31:
(Millions) Depreciable Lives 2013 2012
Land $ 44.7 $ 46.3
Building and improvements 3-40 years 644.5 649.4
Central office equipment 3-40 years 5,563.7 5,276.0
Outside communications plant 7-47 years 6,630.7 6,256.2
Furniture, vehicles and other equipment 3-23 years 1,431.2 1,269.7
Construction in progress 312.6 329.2
14,627.4 13,826.8
Less accumulated depreciation (8,924.8)(7,965.0)
Net property, plant and equipment $ 5,702.6 $ 5,861.8
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.