Windstream 2012 Annual Report Download - page 139

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-41
2. Summary of Significant Accounting Policies and Changes, Continued:
Inventories – Inventories consist primarily of finished goods and 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.
Prepaid Expenses and Other Current Assets – Prepaid expenses and other current assets consist of prepaid services, rent,
insurance, maintenance contracts and refundable deposits. Prepayments are expensed on a straight-line basis over the
corresponding life of the underlying agreements.
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 June 15, 2012, we completed the sale of the energy business acquired in conjunction with the
acquisition of PAETEC. During 2011, $10.7 million of assets and $3.5 million of liabilities of the energy business were
reclassified to assets held for sale and liabilities held for sale, respectively, and are presented in assets held for sale and other
current liabilities, respectively, in the accompanying consolidated balance sheet. The results of our energy business are reported
as discontinued operations for all periods presented. See Note 16 for further discussion.
On February 22, 2012 and March 30, 2012, we completed the sales of wireless assets acquired from D&E Communications,
Inc. ("D&E") and Iowa Telecommunications Services, Inc. ("Iowa Telecom"), respectively. During 2010, $16.6 million of
wireless assets acquired from D&E Communications, Inc. and $34.0 million of wireless licenses acquired from Iowa
Telecommunications Services, Inc. were reclassified to assets held for sale. As a result of these transactions, we received gross
proceeds of approximately $57.0 million and recognized a gain of $5.2 million, net of transaction fees.
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 acquisitions. 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. Goodwill is tested at the reporting unit level. A
reporting unit is an operating segment or one level below an operating segment, referred to as a component. A component of an
operating segment is a reporting unit for which discrete financial information is available and our executive management team
regularly reviews the operating results of that component. Additionally, components of an operating segment can be combined
as a single reporting unit if the components have similar economic characteristics. Effective January 1, 2012, we have
determined that we have one reporting unit to test for impairment that includes all Windstream operations. We assessed
impairment of our 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 our current market capitalization plus a control
premium estimated to be 20.0 percent. The fair market value of our equity, both including and excluding the control premium,
exceed our goodwill carrying value as of January 1, 2012.