US Cellular 2012 Annual Report Download - page 49

United States Cellular Corporation
Notes to the Consolidated Financial Statements (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
U.S. Cellular has determined that wireless licenses are indefinite-lived intangible assets and, therefore,
not subject to amortization based on the following factors:
• Radio spectrum is not a depleting asset.
• The ability to use radio spectrum is not limited to any one technology.
• U.S. Cellular and its consolidated subsidiaries are licensed to use radio spectrum through the FCC
licensing process, which enables licensees to utilize specified portions of the spectrum for the
provision of wireless service.
• U.S. Cellular and its consolidated subsidiaries are required to renew their FCC licenses every ten years
or, in some cases, every fifteen years. To date, all of U.S. Cellular’s license renewal applications have
been granted by the FCC. Generally, license renewal applications filed by licensees otherwise in
compliance with FCC regulations are routinely granted. If, however, a license renewal application is
challenged either by a competing applicant for the license or by a petition to deny the renewal
application, the license will be renewed if the licensee can demonstrate its entitlement to a ‘‘renewal
expectancy.’’ Licensees are entitled to such an expectancy if they can demonstrate to the FCC that
they have provided ‘‘substantial service’’ during their license term and have ‘‘substantially complied’’
with FCC rules and policies. U.S. Cellular believes that it is probable that its future license renewal
applications will be granted.
Goodwill
U.S. Cellular has Goodwill as a result of its acquisitions of wireless businesses. Such Goodwill represents
the excess of the total purchase price over the fair value of net assets acquired in these transactions.
Goodwill and Licenses Impairment Assessment
Goodwill and Licenses must be assessed for impairment annually or more frequently if events or
changes in circumstances indicate that such assets might be impaired. U.S. Cellular performs its annual
impairment assessment of Goodwill and Licenses as of November 1 of each year.
The impairment test for Goodwill is a two-step process. The first step compares the fair value of the
reporting unit to its carrying value. If the carrying amount exceeds the fair value, the second step of the
test is performed to measure the amount of impairment loss, if any. The second step compares the
implied fair value of reporting unit Goodwill with the carrying amount of that Goodwill. To calculate the
implied fair value of Goodwill in this second step, an enterprise allocates the fair value of the reporting
unit to all of the assets and liabilities of that reporting unit (including any unrecognized intangible assets)
as if the reporting unit had been acquired in a business combination and the fair value was the price
paid to acquire the reporting unit. The excess of the fair value of the reporting unit over the amount
assigned to the assets and liabilities of the reporting unit is the implied fair value of Goodwill. If the
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
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