Windstream 2013 Annual Report Download - page 183

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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F-47
2. Summary of Significant Accounting Policies and Changes, Continued:
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 Grants – 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 accompanying consolidated cash flows
statement. Grant funds received from the RUS are shown as inflows in the investing activities section of the accompanying
consolidated statement of cash flows.
Connect America Fund Support – In conjunction with reforming USF, the Federal Communications Commission ("FCC")
established the Connect America Fund ("CAF") which provides incremental support to broadband service providers. We have
been authorized to receive $75.2 million in CAF support for upgrades and new deployments of broadband service to unserved
and underserved locations. Pursuant to commitments we made with the FCC, we will match, on at least a dollar-for-dollar
basis, the total amount of CAF support we receive. As of December 31, 2013, we have received $60.7 million of our current
authorized allotment of CAF support of which $20.7 million and $40.0 million has been recorded in other current liabilities and
other liabilities, respectively in the accompanying consolidated balance sheet. As construction projects which will utilize CAF
support are initiated, a portion of the CAF support, received will be reclassified from other liabilities as an offset to
construction in progress to effectively reduce the capitalized cost of the constructed asset. For each construction dollar we
spend, an equal amount will be transferred from other liabilities to construction in progress to reflect our dollar-for-dollar
matching requirement. CAF support received has been presented as cash inflows in the investing activities section of the
consolidated statement of cash flows.
Assets Held For Sale – On December 5, 2013, we completed the sale of Pinnacle Software Company ("Pinnacle"), a software
company acquired in conjunction with the acquisition of PAETEC. As a result, $15.7 million of assets and $4.5 million of
liabilities of the software business were reclassified 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 as of December 31, 2012. The results of our software business are reported as discontinued
operations for all periods presented. See Note 15 for further discussion of discontinued operations.
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. In connection with these sales, 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. 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 has
been 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. As of
January 1, 2013, we determined that we had one reporting unit to test for impairment, which included all of our operations. We
assessed impairment of our goodwill based upon step one of the authoritative guidance by evaluating the carrying value of our
shareholders’ equity against the current fair market value of our outstanding equity, which was estimated to be equal to our
current market capitalization plus a control premium of 20.0 percent. This premium was estimated through a review of recent
market observable transactions involving telecommunications companies. As of January 1, 2013, the fair market value of our
equity, both including and excluding the control premium, exceed its carrying value, and accordingly, goodwill was considered
not impaired and step two of the impairment test was unnecessary.