Windstream 2011 Annual Report Download - page 147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-39
Broadband Stimulus Spend – Capital expenditures related to the broadband stimulus grants are initially recorded to
construction in progress. A receivable totaling 75 percent of the gross spend, representing the expected reimbursement from
the RUS, is recorded during the same period, offsetting the amounts recorded in construction in progress. The resulting balance
sheet presentation reflects our 25 percent investment in these assets in property, plant and equipment. Once an asset is placed
into service, depreciation is calculated and recorded based on our 25 percent investment in the equipment. Initial outflows to
purchase stimulus-related assets are reflected in the investing activities section of the cash flows statement. Grant funds
received from the RUS are shown as inflows in the investing activities section of the statement of cash flows.
Assets Held For Sale – On November 30, 2011, we reclassified $10.7 million of assets and $3.5 million of liabilities of the
energy business acquired in conjunction with the acquisition PAETEC to assets held for sale and liabilities related to assets held
for sale, respectively, and are presented in assets held for sale and other current liabilities, respectively, in the accompanying
consolidated balance sheet. During 2010, we reclassified $16.6 million of wireless assets acquired from D&E Communications,
Inc. (“D&E”) and $34.0 million of wireless licenses acquired from Iowa Telecommunications Services, Inc. (“Iowa Telecom”)
to assets held for sale. On October 26, 2010, we entered into a definitive agreement to sell the wireless assets acquired from
D&E for approximately $22.0 million. As a result of this transaction, we will recognize a gain of $5.4 million upon
completion. We have received necessary regulatory approvals, and the transaction is expected to close in the first quarter of
2012. On March 17, 2011, we entered into a definitive agreement to sell the Iowa Telecom assets for approximately $34.5
million, which will result in a gain of $0.5 million upon completion. The transaction is expected to close in the first quarter of
2012.
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. We have acquired identifiable intangible assets through
our acquisition 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 us is January 1st of each year. Effective January 1,
2011, we determined that we have two reporting units to test for impairment: (1) the data center reporting unit representing the
Hosted Solutions Acquisitions, LLC (“Hosted Solutions”) business acquired on December 1, 2010 and (2) the
telecommunications reporting unit including our remaining operations. We assessed impairment of goodwill by evaluating the
carrying value of our shareholders’ equity against the current fair market value of our outstanding equity, where the fair market
value of our equity is equal to current market capitalization plus a control premium estimated to be 20.0 percent, less the fair
value attributable to Hosted Solutions as discussed below. The fair market value of our equity, both including and excluding the
control premium, exceeded our goodwill carrying value as of January 1, 2011, even after taking into consideration the data
center reporting unit. Due to the close proximity of the Hosted Solutions business combination to our annual impairment
assessment date, we determined that the fair value of goodwill for the data center reporting unit equaled the carrying value as of
January 1, 2011 in that there were no changes in facts or circumstances between the acquisition date of December 1, 2010 and
January 1, 2011 which would indicate a change in value.
Effective January 1, 2009, we prospectively changed our estimate of useful life for our wireline franchise rights from
indefinite-lived to 30 years primarily due to the effects of increasing competition. Commensurate with this change, we
reviewed our 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.
Property, plant and equipment consists of central office equipment, office and warehouse facilities, outside communications
plant, customer premise equipment, furniture, fixtures, vehicles, machinery, other equipment and software to support the
business units in the distribution of telecommunications products. The costs of additions, replacements, substantial
improvements and extension of the network to the customer premise, including related labor costs, are capitalized, while the
costs of maintenance and repairs are expensed as incurred. Depreciation expense amounted to $626.9 million in 2011, $539.6
million in 2010 and $457.4 million in 2009.