US Cellular 2013 Annual Report Download - page 64

United States Cellular Corporation
Notes to Consolidated Financial Statements (Continued)
NOTE 7 INVESTMENTS IN UNCONSOLIDATED ENTITIES (Continued)
In accordance with GAAP, as a result of the NY1 & NY2 Deconsolidation, U.S. Cellular’s interest in the
Partnerships was reflected in Investments in unconsolidated entities at a fair value of $114.8 million as of
April 3, 2013. Recording U.S. Cellular’s interest in the Partnerships required allocation of the excess of
fair value over book value to customer lists, licenses, a favorable contract and goodwill of the
Partnerships. Amortization expense related to customer lists and the favorable contract will be recognized
over their respective useful lives and is included in Equity in earnings of unconsolidated entities in the
Consolidated Statement of Operations. In addition, U.S. Cellular recognized a non-cash pre-tax gain of
$18.5 million in the second quarter of 2013. The gain was recorded in Gain (loss) on investments in the
Consolidated Statement of Operations.
The Partnerships were valued using a discounted cash flow approach and a publicly-traded guideline
company method. The discounted cash flow approach uses value drivers and risks specific to the
industry and current economic factors and incorporates assumptions that market participants would use
in their estimates of fair value and may not be indicative of U.S. Cellular specific assumptions. The most
significant assumptions made in this process were the revenue growth rate (shown as a simple average
in the table below), the terminal revenue growth rate, discount rate and capital expenditures. The
assumptions were as follows:
Key assumptions
Average expected revenue growth rate (next ten years) .............. 2.0%
Terminal revenue growth rate (after year ten) ...................... 2.0%
Discount rate ............................................. 10.5%
Capital expenditures as a percentage of revenue ................... 14.9 - 18.8%
The publicly-traded guideline company method develops an indication of fair value by calculating
average market pricing multiples for selected publicly-traded companies using multiples of: Revenue and
Earnings before Interest, Taxes, and Depreciation and Amortization (EBITDA). The developed multiples
were applied to applicable financial measures of the Partnerships to determine fair value. The discounted
cash flow approach and publicly-traded guideline company method were weighted to arrive at the total
fair value of the Partnerships.
NOTE 8 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment in service and under construction, and related accumulated depreciation
and amortization, as of December 31, 2013 and 2012 were as follows:
Useful Lives
December 31, (Years) 2013 2012
(Dollars in thousands)
Land .............................. N/A $ 36,266 $ 33,947
Buildings ........................... 20 304,272 341,852
Leasehold and land improvements ......... 1-30 1,197,520 1,188,720
Cell site equipment .................... 6-25 3,306,575 3,100,916
Switching equipment .................. 1-8 1,161,976 1,155,114
Office furniture and equipment ............ 3-5 539,248 535,656
Other operating assets and equipment ...... 5-25 92,456 128,290
System development .................. 3-7 962,698 631,184
Work in process ...................... N/A 116,501 362,749
7,717,512 7,478,428
Accumulated depreciation and amortization . . (4,860,992) (4,455,840)
$ 2,856,520 $ 3,022,588
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