US Cellular 2012 Annual Report Download - page 50

United States Cellular Corporation
Notes to the Consolidated Financial Statements (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
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 2012 and 2011, 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 2012 impairment testing of Licenses, U.S. Cellular separated its FCC licenses into
thirteen units of accounting based on geographic service areas. One unit of accounting includes the
licenses to be transferred as a result of the Divestiture Transaction more fully described in Note 7—
Acquisitions, Divestitures and Exchanges. 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. In
both 2012 and 2011 testing, seven of the 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.
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.
Investments in Unconsolidated Entities
Investments in unconsolidated entities consist of amounts invested in wireless entities in which U.S.
Cellular holds a noncontrolling interest. U.S. Cellular follows the equity method of accounting for such
investments in which its ownership interest equals or exceeds 20% for corporations and equals or
exceeds 3% for partnerships and limited liability companies. The cost method of accounting is followed
for such investments in which U.S. Cellular’s ownership interest is less than 20% for corporations and is
less than 3% for partnerships and limited liability companies and for investments for which U.S. Cellular
does not have the ability to exercise significant influence.
For its equity method investments for which financial information is readily available, U.S. Cellular records
its equity in the earnings of the entity in the current period. For its equity method investments for which
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