Windstream 2015 Annual Report Download - page 184

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-54
2. Summary of Significant Accounting Policies and Changes, Continued:
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 $10.4 million, $3.7 million and
$7.9 million in 2015, 2014 and 2013, 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 $53.1 million and $53.4 million as of December 31, 2015 and 2014, respectively,
and are included in other liabilities in the accompanying consolidated balance sheets.
Impairment of Long-Lived Assets – We review long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset group may not be recoverable from future, undiscounted net cash flows expected to
be generated by the asset group. If the asset group is not fully recoverable, an impairment loss would be recognized for the difference
between the carrying value of the asset group and its estimated fair value based on discounted net future cash flows.
Investment in CS&L Common Stock – Shares of CS&L retained by Windstream Services following the spin-off of certain network
and real estate assets (see Note 3) are classified as available-for-sale and recorded at fair value with unrealized gains and losses
reported in accumulated other comprehensive (loss) income. No deferred income taxes are recorded with respect to the unrealized
gains and losses due to the tax-free qualification of the spin-off. Information pertaining to this investment at December 31, 2015
was as follows:
(Millions) Cost
Fair
Value
Carrying
Value
Unrealized
Loss
CS&L common stock $835.7 $549.2 $549.2 $(286.5)
As of December 31, 2015, Windstream Services has held the shares of CS&L common stock for less than 12 months. In assessing
whether the unrealized loss was an other-than-temporary impairment, we considered that as of December 31, 2015: (i) CS&L had
only been in operation for slightly more than 8 months and had not had sufficient time to execute on its strategy to expand and
diversify its leasing business in any substantive way; (ii) the positive impact, prior to the recent macroeconomic environment, of
CS&L’s announcement on January 6, 2016 that it had executed an agreement to acquire PEG Bandwidth, LLC, which owns an
extensive fiber network; (iii) the stability of CS&L’s cash flows and leasing income streams under the master lease agreement due
to the 15-year initial lease term and Windstream Services’ improved leverage following the repayment of $3.2 billion of long-
term debt in connection with the spin-off; and (iv) Windstream Services’ ability to hold the CS&L common stock for up to 15
more months, a time period that is sufficient to allow for the recovery of the unrealized losses. Based on these factors, we did not
consider our investment in CS&L common stock to be other-than-temporarily impaired as of December 31, 2015.
Derivative Instruments – Windstream Services 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 (loss) income in the current period. Any ineffective portion of the hedges is recognized in earnings in the current
period.
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 that are
billed in advance include monthly recurring network access and data services, special access and monthly recurring voice, Internet
and other related charges. The unearned portion of these revenues is included in advance payments and customer deposits in the
accompanying consolidated balance sheets. 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.