Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company, Lumos Networks Operating Company, a wholly-owned subsidiary of the Company, and all of Lumos Networks Operating Company’s wholly-owned subsidiaries and those limited liability corporations where Lumos Networks Operating Company or certain of its subsidiaries, as managing member, exercised control. All significant intercompany accounts and transactions have been eliminated in consolidation. Accounting Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the allowance for doubtful accounts; the valuation of deferred tax assets and/or liabilities, asset retirement obligations and equity-based compensation; goodwill impairment assessments; actuarial determination of employee benefi t obligations; stock warrants; and reserve for u ncertain income tax positions. Changes in Accounting Principle The Company historically presented unamortized debt issuance costs, or fees directly related to issuing debt, as long-term assets on the consolidated balance sheets in accordance with existing GAAP. In the third quarter of 2015, the Company elected early adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) and applied it retrospectively to all prior periods presented in the consolidated financial statements. The guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected. Therefore, these costs will continue to be amortized as interest expense over the life of the associated debt instrument. The adoption of ASU 2015-03 resulted in the presentation of $10.5 million of debt issuance costs as a reduction to long-term debt in the consolidated balance sheet as of December 31, 2015. The Company also reclassified $5.2 million of debt issuance costs from deferred charges and other assets to a reduction to long-term debt on the consolidated balance sheet as of December 31, 2014. The adoption of ASU 2015-03 did not impact net income or any other amounts previously reported on the consolidated statements of income or comprehensive income or cash flows. The Company historicall y classified its deferred tax asset and/or deferred tax liability as either current or noncurrent on the consolidated balance sheets in accordance with existing GAAP. In the fourth quarter of 2015, the Company elected early adoption of FASB ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”) and applied it retrospectively to all prior periods presented in the financial statements. ASU 2015-17 simplifies the presentation of deferred income taxes by requiring that deferred tax assets and deferred tax liabilities be offset by tax jurisdiction and the resulting net deferred tax asset and/or net deferred tax liability amount be classified as noncurrent in the consolidated balance sheet. The adoption of ASU 2015-17 resulted in the presentation of $2.4 million of deferred tax assets as a reduction to the noncurrent deferred liability in the consolidated balance sheet as of December 31, 2015. The Company also reclassified $5.6 million of deferred tax assets from current assets to a reduction to the noncurrent net deferred tax liability as of December 31, 2014. The adoption of ASU 2015-07 did not impact net income or any other amounts previously reported on the consolidated statements of income or comprehensive income or cash flows. Revenue Recognition The Company recognizes revenue when persuasive evidence of an arrangement exists, services are rendered or products are delivered, installed and functional, as applicable, the price to the buyer is fixed and determinable and collectability is reasonably assured. Certain services of the Company require payment in advance of service performance. In such cases, the Company records a service liability at the time of billing and subsequently recognizes revenue ratably over the service period. The Company bills customers certain transactional taxes on service revenues. These transactional taxes are not included in reported revenues as they are recognized as liabilities at the time customers are billed. The Company earns revenue by providing services through access to and usage of its networks. Local service revenues are recognized as services are provided. Carrier data revenues are earned by providing switched access and other switched and dedicated services to other carriers. Revenues for equipment sales are re cognized at the point of sale. Cash Equivalents and Marketable Securities The Company considers its investments in all highly liquid debt instruments with an original maturity of three months or less, when purchased, to be cash equivalents. The Company’s marketable securities at December 31, 2015 and 2014 consist of debt securities not classified as cash equivalents. The Company classifies such debt securities as either held-to-maturity, when the Company has the positive intent and ability to hold the securities to maturity, or available-for-sale. Held-to-maturity debt securities are carried at amortized cost, adjusted for the amortization of premiums or accretion of discounts. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in other comprehensive income or loss, net of tax. All of the Company’s debt securities not classified as cash equivalents were classified as available-for-sale securities as of December 31, 2015 and 2014. The Company previously utilized a swingline credit facility that it had with its primary commercial bank. This swingline facility was terminated in April 2013, concurrent with the closing of the Company’s debt refinancing (see Note 5). The Company had a book overdraft related to this master cash account of $ 1.8 million as of December 31, 2012. The Company classified the changes in the book overdraft amount in cash flows from operating activities on the consolidated statement of cash flows for the year ended December 31, 2 013. Restricted Cash During 2010, the Company received a federal broadband stimulus award to bring broadband services and infrastructure to Alleghany County, Virginia. The total project was $ 16.1 million, of which 50 % (approximately $ 8 million) was funded by a grant from the federal government. The project was completed as of December 31, 2015. The Company was required to deposit 100 % of its portion for the grant (approximately $ 8 million) into a pledged account in advance of any reimbursements, which was to be drawn down ratably following the grant reimbursement approvals which were contingent on adherence to the program requirements. The Company received $3.8 million, $ 0.1 million and $ 1.0 million in the years ended December 31, 2015 , 2014 and 2013 , respectively, for the reimbursable portion of the qualified recoverable expenditures. T he Company has no remaining receivable for the reimbursable portion of the qualified recoverable expenditures as of December 31, 2015 and all amounts from the pledged account were released as of December 31, 2015. Trade Accounts Receivable The Company sells its services to other communication carriers and to business and residential customers primarily in Virginia and West Virginia and portions of Maryland, Pennsylvania, Ohio and Kentucky. The Company has credit and collection policies to maximize collection of trade receivables and requires deposits on certain sales. The Company estimates an allowance for doubtful accounts based on a review of specific customers with large receivable balances and for the remaining customer receivables the Company uses historical results, current and expected trends and changes in credit policies. Management believes the allowance adequately covers all anticipated losses with respect to trade receivables. Actual credit losses could differ from such estimates. The Company includes bad debt expense in selling, general and administrative expense in the consolidated statements of income. The following table shows the activity in the allowance for doubtful accounts and customer credits for the years ended December 31, 2015 , 2014 and 2013 : (In thousands) 2015 2014 2013 Allowance for doubtful accounts and customer credits, beginning $ 1,217 $ 1,485 $ 1,822 Additions: Charged to expense 461 604 249 Charged to other accounts 96 (19) 346 Deductions (539) (853) (932) Allowance for doubtful accounts and customer credits, ending $ 1,235 $ 1,217 $ 1,485 Property, Plant and Equipment and Other Long-Lived Assets (Excluding Goodwill and Indefinite-Lived Intangible Assets) Property, plant and equipment, finite-lived intangible assets and long-term deferred charges are recorded at cost and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be evaluated pursuant to the subsequent measurement guidance described in FASB Accounting Standards Codification (“ASC”) 360-10-35. Impairment is determined by comparing the carrying value of these long-lived assets to management’s best estimate of future undiscounted cash flows expected to result from the use of the assets. If the carrying value exceeds the estimated undiscounted cash flows, the excess of the asset’s carrying value over the estimated fair value is recorded as an impairment charge. The Company believes that no impairment indicators exist as of December 31, 2015 that would require it to perform impairment testing for long-lived assets, including property, plant and equipment, long-term deferred charges and finite-lived intangible assets to be held and used. Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated useful lives of the assets, which the Company reviews and updates based on historical experience and future expectations. As of December 31, 2015 the estimated lives for each category of property, plant and equipment are as follows: Estimated Life Buildings 50 years Network plant and equipment 3 to 25 years Furniture, fixtures and other equipment 2 to 24 years Leasehold improvements, which are categorized in land and buildings, are depreciated over the shorter of the estimated useful lives or the remaining lease terms. Plant and equipment held under capital leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Amortization of assets held under capital leases, including certain software licenses, is included with depreciation expense. Intangibles with a finite life are classified as other intangibles on the consolidated balance sheets. At December 31, 2015 and 2014 , other intangibles were comprised of the following: 2015 2014 (Dollars in thousands) Estimated Life Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Customer relationships 6 to 15 yrs $ 103,108 $ (93,051) $ 103,108 $ (88,406) Trademarks and franchise rights 10 to 15 yrs 2,862 (1,841) 2,862 (1,680) Total $ 105,970 $ (94,892) $ 105,970 $ (90,086) The Company amortizes its finite-lived intangible assets using the straight-line method unless it determines that another systematic method is more appropriate. The amortization for certain customer relationship intangibles is being recognized using an accelerated amortization method based on the pattern of estimated earnings from these assets. The estimated life of amortizable intangible assets is determined from the unique factors specific to each asset and the Company reviews and updates estimated lives based on current events and future expectations. The Company capitalizes costs incurred to renew or extend the term of a recognized intangible asset and amortizes such costs over the remaining life of the asset. No such costs were incurred during the years ended December 31, 2015 or 2014 . Amortization expense for the years ended December 31, 2015 , 2014 and 2013 was $ 4.8 million, $ 9.2 million and $ 9.8 million, respectively. Amortization expense for the next five years is expected to be as follows: (In thousands) Customer Relationships Trademarks and Franchise Rights Total 2016 $ 2,412 $ 163 $ 2,575 2017 2,093 163 2,256 2018 1,781 163 1,944 2019 1,513 152 1,665 2020 1,146 48 1,194 Goodwill and Indefinite-Lived Intangible Assets Goodwill and franchise rights are considered to be indefinite-lived intangible assets. Indefinite-lived intangible assets are not subject to amortization but are instead tested for impairment annually or more frequently if an event indicates that the asset might be impaired. The Company’s policy is to assess the recoverability of indefinite-lived assets annually on October 1 and whenever adverse events or changes in circumstances indicate that impairment may have occurred. The Company first considers whether to take a qualitative approach in determining whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step quantitative goodwill impairment test promulgated by FASB ASC Topic 350. If the Company determines that it is more likely than not that a reporting unit’s fair value is less than its carrying amount or if the Company elects to bypass the qualitative test for a specific period, the two-step process is used to test for goodwill impairment. Step one requires a determination of the fair value of each of the reporting units and, to the extent that the fair value of the reporting unit exceeds its carrying value (including goodwill), the step two calculation of implied fair value of goodwill is not required and no impairment loss is recognized. In testing for goodwill impairment, the Company utilizes a market approach that includes the use of comparable multiples of publicly traded companies whose services are comparable to ours and recent M&A activity. As of December 31, 2015 , goodwill was attributed to the Company’s segments as follows: (In thousands) December 31, 2015 Data $ 90,561 R&SB 9,736 RLEC Access - Total goodwill $ 100,297 As of October 1, 2015, the Company performed its annual goodwill impairment test for each of its reporting units with goodwill, which are two of our three operating segments (data and R&SB). After a preliminary assessment, the Company elected to bypass the qualitative assessment and applied step one of the quantitative test as described above. Based on the results of this annual impairment testing, the Company determined that the fair values of each of the data and R&SB reporting units substantially exceed their respective carrying amounts and that no impairment exists. The gross amount of goodwill was $133.7 million and the accumulated impairment loss was $33.4 million for a net carrying amount of $100.3 million as of December 31, 2015 and 2014 . There was no activity in the consolidated goodwill accounts for the years ended December 31, 2015 , 2014 and 201 3 . Accounting for Asset Retirement Obligations An asset retirement obligation is evaluated and recorded as appropriate on assets for which the Company has a legal obligation to retire. The Company records a liability for an asset retirement obligation and the associated asset retirement cost capitalized at the time the underlying asset is acquired. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company enters into various facility collocation agreements and is subject to locality franchise ordinances. The Company constructs assets at these locations and, in accordance with the terms of many of these agreements, the Company is obligated to restore the premises to their original condition at the conclusion of the agreements, generally at the demand of the other party to these agreements. The Company recognizes the fair value of a liability for an asset retirement obligation and capitalizes that cost as part of the cost basis of the related asset, depreciating it over the useful life of the related asset. Included in certain of the franchise ordinances under which the Company’s RLECs and CLECs operate are clauses that require the removal of the RLEC’s and CLEC’s equipment at the termination of the franchise agreement. The Company has not recognized an asset retirement obligation for these liabilities as the removal of the equipment is not estimable due to an indeterminable end date and the fact that the equipment is part of the public switched telephone network and it is not reasonable to assume the jurisdictions would require its removal. The following table indicates the changes to the Company’s asset retirement obligation liability, which is included in other long-term liabilities, for the years ended December 31, 2015 and 2014 : (In thousands) 2015 2014 Asset retirement obligations, beginning $ 1,500 $ 1,401 Additional asset retirement obligations recorded, net of adjustments in estimates 81 (19) Accretion of asset retirement obligations 139 118 Asset retirement obligations, ending $ 1,720 $ 1,500 Advertising Costs The Company expenses advertising costs and marketing production costs as incurred (included within selling, general and administrative expenses in the consolidated statements of income). Advertising expense for the years ended December 31, 2015 , 2014 and 2013 was $0.7 million, $ 1.4 million and $ 0.8 million, respectively. Pension Benefits and Retirement Benefits Other Than Pensions The Company sponsors a non-contributory defined benefit pension plan (“Pension Plan”) covering all employees who meet eligibility requirements and were employed prior to October 1, 2003. Pension benefits vest after five years of plan service and are based on years of service and an average of the five highest consecutive years of compensation subject to certain reductions if the employee retires before reaching age 65 and elects to receive the benefit prior to age 65. The Company froze the Pension Plan effective December 31, 2012. As such, no further benefits are being accrued by participants for services rendered beyond that date. The Company has a nonqualified pension plan that was also frozen as of December 31, 2012. Sections 412 and 430 of the Internal Revenue Code and ERISA Sections 302 and 303 establish minimum funding requirements for defined benefit pension plans. The minimum required contribution is generally equal to the target normal cost plus the shortfall amortization installments for the current plan year and each of the six preceding plan years less any calculated credit balance. The Company’s policy is to make contributions to stay at or above the threshold required in order to prevent benefit restrictions and related additional notice requirements and is intended to provide for benefits to be paid in the future. The Company is required to rec ognize the overfunded or underfunded status of a defined benefit pension plan as an asset or liability in its c onsolidated b alance s heets and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income (loss). The Company is required to measure plan assets and benefit obligations as of the date of the Company’s fiscal year-end balance sheet and provide the required disclosures as of the end of each fiscal year. The Company also provides certain life insurance benefits for retired employees that meet eligibility requirements through the postretirement welfare benefit plan (the “Other Postretirement Benefit Plan”), which is contributory. These obligations, along with all of the pension plans and other postretirement benefit plans, are assumed by the Company. Eligibility for the life insurance plan is restricted to active pension participants age 50-64 as of January 5, 1994 and is not eligible to employees hired after April 1993. The Company previously provided health care benefits for retired employees, however, the Company terminated those benefits effective December 31, 2014. Eligible retirees received partial compensation for settlement of accrued benefits through a series of supplemental pension payments in 2014. As a result, the Company recognized a curtailment gain of $10.8 million in the year ended December 31, 2014 (see Note 11) . The Company accounts for the pension and retirement benefits other than pensions by accruing the cost of such benefits over the service lives of employees. Unrecognized actuarial gains and losses are amortized over the estimated average remaining service period for active employees and over the estimated average remaining life for retirees. The Company recognizes in its consolidated balance sheets the amount of the Company’s unfunded Accumulated Postretirement Benefit Obligation (“APBO”) at the end of the year. Amounts recognized in accumulated other comprehensive income (loss) are adjusted out of accumulated other comprehensive income (loss) when they are subsequently recognized as components of net periodic benefit cost. The Company sponsors a contributory defined contribution plan under Internal Revenue Code Section 401(k) for substantially all employees. The Company’s policy is to match 100 % of each participant’s annual contributions for contributions up to 1 % of each participant’s annual compensation and 50 % of each participant’s annual contributions up to an additional 5 % of each participant’s annual compensation. Company contributions vest after two years of service. Operating Leases The Company has operating leases for administrative office space and equipment, certain of which have renewal options. These leases, with few exceptions, provide for automatic renewal options and escalations that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are included in the computation of rent expense calculated on a straight-line basis over the lease term. The Company’s minimum lease term for most leases includes the initial non-cancelable term and at least one renewal period to the extent that the exercise of the related renewal option or options is reasonably assured. A renewal option or options is determined to be reasonably assured if failure to renew the leases imposes an in-substance economic penalty on the Company. Leasehold improvements are capitalized and depreciated over the shorter of the assets’ useful life or the lease term, including renewal option periods that are reasonably assured. Income Taxes Deferred income taxes are provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. The Company accrues interest and penalties related to unrecognized tax benefits in interest expense and income tax expense, respectively. For balance sheet presentation purposes, the Company nets its deferred tax asset and deferred tax liability positions by tax jurisdiction and classifies the resulting net deferred tax asset and/or net deferred tax liability as noncurrent in accordance with ASU 2015-17. Equity-based Compensation The Company accounts for share-based employee compensation plans under FASB ASC 718, Stock Compensation . Equity-based compensation expense from share-based equity awards is recorded with an offsetting increase to additional paid-in capital on the consolidated balance sheet. For equity awards with only service conditions, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award. The fair value of common stock options granted with service-only conditions is estimated at the respective measurement date using the Black-Scholes option-pricing model with assumptions related to risk-free interest rate, expected volatility, dividend yield and expected term. The fair value of restricted stock awards granted with service-only conditions is estimated based on the market value of the common stock on the date of grant reduced by the present value of expected dividends as applicable. Certain stock options and restricted shares granted by the Company contain vesting provisions that are conditional on achievement of a target market price for the Company’s common stock. The grant date fair value of these options and restricted shares was adjusted to reflect the probability of the achievement of the market condition based on management’s best estimate using a Monte Carlo model (see Note 9). The Company initially recognizes the related compensation cost for these awards that contain a market condition on a straight-line basis over the requisite service period as derived from the valuation model. The Company accelerates expense recognition if the market conditions are achieved prior to the end of the derived requisite service period. Total equity-based compensation expense related to all of the share-based awards (Note 9), including the Company’s 401(k) matching contributions, was $5.9 million, $4.3 million and $6.8 million for the years ended December 31, 2015 , 2014 and 2013 , respectively, which amounts are included in selling, general and administrative expenses in the consolidated statements of income. Future charges for equity-based compensation related to instruments outstanding at December 31, 2015 for the years 2016 through 2018 are estimated to be $ 4.0 million, $ 3.3 million, $ 1.0 million and less than $0.1 million for each of 2019 and 2020, respectively. Fair Value Measurements Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value or for certain financial instruments for which disclosure of fair value is required, the Company uses fair value techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs. GAAP establishes a fair value hierarchy with three levels of inputs that may be used to measure fair value: • Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. • Level 2 – Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs other than quoted prices that are observable for the asset or liability. • Level 3 – Unobservable inputs for the asset or liability. Recent Accounting Pronouncements In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) , which defers the effective date of ASU 2014-09 for public business entities from annual reporting periods beginning after December 15, 2016, to annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is still evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and disclosures. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 820 ): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 provides a revised consolidation model for all reporting entities to use in evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning after September 1, 2016. The Company does not expect the future adoption of ASU 2015-02 to have a material impact on the Company’s consolidated financial statements and disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ( “ASU 2016-02”), which will replace most existing lease guidance in U.S. GAAP when it becomes effective. ASU 2016-02 requires an entity to recognize most leases, including operating leases, on the consolidated balance sheet of the lessee. ASU 2016-02 is effective for public business entities for annual reporting periods beginning after December 15, 2018, with early adoption permitted. ASU 2016-02 requires the use of a modified retrospective transition method with elective reliefs. The Company is still evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and disclosures. |