US Cellular 2011 Annual Report Download - page 47

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized
for that difference.
The impairment test for an indefinite-lived intangible asset other than goodwill consists of comparing the
fair value of the intangible asset to its carrying amount. If the carrying amount exceeds the fair value, an
impairment loss is recognized for the difference.
Quoted market prices in active markets are the best evidence of fair value of an intangible asset or
reporting unit and are used when available. If quoted market prices are not available, the estimate of fair
value is based on the best information available, including prices for similar assets and the use of other
valuation techniques. Other valuation techniques include present value analysis, multiples of earnings or
revenues, or similar performance measures. The use of these techniques involve assumptions by
management about factors that are uncertain including future cash flows, the appropriate discount rate,
and other inputs. Different assumptions for these inputs could create materially different results.
U.S. Cellular tests goodwill for impairment at the level of reporting referred to as a reporting unit. For
purposes of its impairment testing of goodwill in 2011 and 2010, U.S. Cellular identified five reporting
units. The five reporting units represent five geographic groupings of FCC licenses, representing five
geographic service areas.
A discounted cash flow approach was used to value each reporting unit for purposes of the goodwill
impairment review by using value drivers and risks specific to the current industry and economic
markets. The cash flow estimates incorporated assumptions that market participants would use in their
estimates of fair value. Key assumptions made in this process were the discount rate, estimated
expected revenue growth rate, projected capital expenditures and the terminal growth rate.
U.S. Cellular tests licenses for impairment at the level of reporting referred to as a unit of accounting. For
purposes of its 2011 impairment testing of licenses, U.S. Cellular separated its FCC licenses into twelve
units of accounting based on geographic service areas. Seven of these twelve units of accounting
represented geographic groupings of licenses which, because they were not being utilized and,
therefore, were not expected to generate cash flows from operating activities in the foreseeable future,
were considered separate units of accounting for purposes of impairment testing. For purposes of its
2010 impairment testing of licenses, U.S. Cellular separated its FCC licenses into eighteen units of
accounting based on geographic service areas. Thirteen of these eighteen units of accounting
represented geographic groupings of licenses which, because they were not being utilized and,
therefore, were not expected to generate cash flows from operating activities in the foreseeable future,
were considered separate units of accounting for purposes of impairment testing. The change in units of
accounting between 2011 and 2010 reflects additional network build-out.
U.S. Cellular estimates the fair value of built licenses for purposes of impairment testing using the
build-out method. The build-out method estimates the fair value of licenses by calculating future cash
flows from a hypothetical start-up wireless company and assuming that the only assets available upon
formation are the underlying licenses. To apply this method, a hypothetical build-out of the company’s
wireless network, infrastructure, and related costs are projected based on market participant information.
Calculated cash flows, along with a terminal value, are discounted to the present and summed to
determine the estimated fair value.
For units of accounting which consist of unbuilt licenses, U.S. Cellular prepares estimates of fair value by
reference to prices paid in recent auctions and market transactions where available. If such information is
not available, the fair value of the unbuilt licenses is assumed to change by the same percentage, and in
the same direction, that the fair value of built licenses measured using the build-out method changed
during the period.
39