Windstream 2013 Annual Report Download - page 185

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-49
2. Summary of Significant Accounting Policies and Changes, Continued:
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 for periods up to 23 years. In the event of default of terms of the agreement, the RUS 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 consummating 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 $7.9 million, $10.9
million and $6.8 million in 2013, 2012 and 2011, respectively.
Asset Retirement Obligations – We recognize asset retirement obligations in accordance with authoritative guidance on
accounting for asset retirement obligations and 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, 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 from the lease. These asset retirement obligations totaled $52.3 million and $51.4 million as of
December 31, 2013 and 2012, respectively, and are included in other liabilities in the accompanying consolidated balance
sheets.
Derivative Instruments – Windstream Corp. enters into interest rate swap agreements to mitigate the interest rate risk inherent
in its variable rate senior secured credit facility. Derivative instruments are accounted for in accordance with 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. Changes in fair value of the effective portions of cash flow hedges are recorded as a
component of other comprehensive income in the current period. Any ineffective portion of the hedges is recognized in
earnings in the current period. Cash flows from hedging activities are included in the same category as the items being hedged,
which is primarily financing activities.
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 $79.3 million, $99.5 million, and $67.8
million in 2013, 2012 and 2011.
Share-Based Compensation – In accordance with authoritative guidance on share-based compensation, we value all time-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. Performance-based awards are valued at fair value at the end of each reporting period until final
performance targets are set. Share-based compensation expense for performance-based awards is recognized when it is
probable and estimable as measured against performance metrics. Share-based compensation expense is included in selling,
general and administrative expenses in the accompanying consolidated statements of income.
Pension Benefits – We recognize changes in the fair value of plan assets and actuarial gains and losses due to actual experience
differing from actuarial assumptions, as a component of net periodic benefit (income) expense in the fourth quarter in the year
in which the gains and losses occur, and if applicable in any quarter in which an interim remeasurement is required. The
remaining components of pension expense, primarily service and interest costs and assumed return on plan assets, are
recognized ratably on a quarterly basis.