Windstream 2010 Annual Report Download - page 139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies and Changes, Continued:
During 2008, Windstream received net proceeds of $17.3 million for assets acquired from CT Communications
(“CTC”), which approximated the fair value at the date of acquisition, on the sale of the corporate headquarters
building, a license for wireless spectrum and various investments designated as held for sale. During the third
quarter of 2008, Windstream recognized a non-cash impairment charge of $6.5 million included in selling,
general, administrative and other in the accompanying consolidated statements of income to reduce the carrying
value of certain wireless spectrum licenses designated as held for sale, and not used in operations, to their fair
market value in accordance with authoritative guidance. The fair market value of these holdings was reduced to a
nominal amount due to an impairment resulting from general market conditions and limited interest on this
bandwidth of spectrum. In addition, during the third quarter of 2008, certain long term investments totaling $2.3
million, primarily consisting of a minority ownership in a private equity investment holding company, were no
longer being marketed by Windstream and were no longer considered saleable within one year. Therefore, the
Company reclassified these investments from acquired assets held for sale to other assets in the accompanying
consolidated balance sheets at their current fair market value, which required no valuation adjustment.
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
authoritative guidance, goodwill is to be assigned to a company’s reporting units and tested for impairment at least
annually using a consistent measurement date, which for the Company is January 1st of each year. Commensurate
with its change from multiple segments to a single reporting segment during 2009, the Company determined that
it has only one reporting unit and therefore no longer uses a combination of the discounted cash flows and the
calculated market values of comparable companies to determine the fair value of a reporting unit. Rather, the
Company assesses impairment of its goodwill by evaluating the carrying value of its shareholders’ equity against
the current fair market value of its outstanding equity, where the fair market value of the Company’s equity is
equal to its current market capitalization plus a control premium estimated to be 20 percent through the review of
recent market observable transactions involving wireline telecommunication companies.
Effective January 1, 2009, the Company prospectively changed its estimate of useful life for its wireline franchise
rights from indefinite-lived to 30 years primarily due to the effects of increasing competition. Commensurate with
this change, the Company reviewed its franchise rights for impairment by comparing the fair value of the
franchise rights based on the discounted cash flows of the acquired operations to their carrying amount, and noted
that no impairment existed as of January 1, 2009. As a result of this change, amortization expense increased by
$32.3 million in 2009 calculated on a straight-line basis, and net income decreased $19.8 million or $0.05 per
share in 2009.
Net Property, Plant and Equipment – Property, plant and equipment are stated at original cost, less accumulated
depreciation. Wireline plant consists of central office equipment, outside communications plant, customer premise
equipment, furniture, fixtures, vehicles, machinery and other equipment. Other plant consists of office and
warehouse facilities and software to support the business units in the distribution of telecommunications products.
The costs of additions, replacements and substantial improvements, including related labor costs, are capitalized,
while the costs of maintenance and repairs are expensed as incurred. Depreciation expense amounted to $539.5
million in 2010, $456.9 million in 2009 and $440.8 million in 2008.
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