Windstream 2006 Annual Report Download - page 140

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies, Continued:
Inventories – Inventories are stated at the lower of cost or market value. Cost is determined using either an average
original cost or specific identification method of valuation.
Investments – As a result of the merger with Valor, the Company received investments in cellular partnerships
based in Texas, which represents a 32 percent ownership in both CGKC&H Rural Cellular Limited Partnership and
CGKC&H #2 Rural Cellular Limited Partnership. The Company accounts for these investments using the equity
method of accounting.
In addition, upon assuming Rural Telephone Finance Cooperative (“RTFC”) loans from Valor in the merger, the
Company obtained patronage capital certificates in the RTFC with a present value of $2.3 million. These non-cash
patronage capital certificates are not marketable and are carried at cost plus interest accrued on a monthly basis,
and will be redeemed for approximately $6.0 million by the year 2020.
During December 2005, the Company transferred its investment in RTB Class C stock to Alltel. The Company
received dividend income of $11.4 million in 2005 and $11.8 million in 2004 related to its investment in the RTB
Class C stock, which is included in other income, net in the accompanying consolidated statements of income.
All other investments are accounted for using the cost method. Investments are periodically reviewed for
impairment. If the carrying value of the investment exceeds its fair value and the decline in value is determined to
be other-than-temporary, an impairment loss would be recognized for the difference. Investments were as follows
at December 31:
(Millions) 2006 2005
Investments in cellular partnerships $ 3.3 $ -
RTFC equity certificates 2.3 -
Other cost investments 2.1 2.0
$ 7.7 $ 2.0
Goodwill and Other Intangible Assets – Goodwill represents the excess of cost over the fair value of net
identifiable tangible and intangible assets acquired through various business combinations. The Company has
acquired identifiable intangible assets through its acquisitions of interests in various wireline properties. The cost
of acquired entities at the date of the acquisition is allocated to identifiable assets, and the excess of the total
purchase price over the amounts assigned to identifiable assets is recorded as goodwill. In accordance with SFAS
No. 142, “Goodwill and Other Intangible Assets”, goodwill is to be assigned to a company’s reporting units and
tested for impairment annually using a consistent measurement date, which for the Company is January 1st of each
year. The impairment test for goodwill requires a two-step approach, which is performed at a reporting unit level.
Step one of the test identifies potential impairments by comparing the fair value of a reporting unit to its carrying
amount. Step two, which is only performed if the fair value of a reporting unit is less than its carrying value,
calculates the impairment loss as the difference between the carrying amount of the reporting unit’s goodwill and
the implied fair value of that goodwill. The Company completed step one of the annual impairment reviews of
goodwill for 2006, 2005 and 2004 and determined that no write-down in the carrying value of goodwill for any of
its reporting units was required. For purposes of completing the annual impairment reviews, fair value of the
reporting units was determined utilizing a combination of the discounted cash flows of the reporting units and
calculated market values of comparable public companies.
The Company’s indefinite-lived intangible assets consist of wireline franchise rights acquired from Valor and
those in the state of Kentucky acquired in August 2002. The Company determined that the wireline franchise rights
met the indefinite life criteria outlined in SFAS No. 142, because the Company expects both the renewal by the
granting authorities and the cash flows generated from these intangible assets to continue for the foreseeable
F-39