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Intangible Assets

9 Months Ended

Sep. 30, 2014

6. Intangible Assets

Changes in Licenses, Franchise rights and Goodwill for the nine months ended September 30, 2014 are presented below.

Licenses

		U.S. Cellular		Wireline		Cable		Non-Reportable Segment		Total
(Dollars in thousands)
Balance December 31, 2013		$	1,405,759	$	2,800	$	-	$	15,220	$	1,423,779
	Acquisitions		41,707		-		2,703		-		44,410
	Transferred to Assets held for sale		(68,288)		-		-		-		(68,288)
	Exchanges, net		15,719		-		-		-		15,719
	Divestitures		-		-		-		(15,220)		(15,220)
	Other		408		-		-		-		408
Balance September 30, 2014		$	1,395,305	$	2,800	$	2,703	$	-	$	1,400,808

Franchise Rights

		Cable
(Dollars in thousands)
Balance December 31, 2013		$	123,668
	Acquisitions		115,629
	Divestitures		(347)
Balance September 30, 2014		$	238,950

Goodwill
					TDS Telecom
			U.S. Cellular		Wireline ⁽¹⁾		Cable		HMS		Non-Reportable Segment		Total
(Dollars in thousands)

Assigned value at time of acquisition			$	622,681	$	449,898	$	61,712	$	118,830	$	4,317	$	1,257,438
	Accumulated impairment losses in prior periods			(333,900)		(29,440)		-		-		(515)		(363,855)
	Other			(56,740)		-		-		-		-		(56,740)
Balance December 31, 2013				232,041		420,458		61,712		118,830		3,802		836,843
	Acquisitions			-				33,002		-		-		33,002
	Loss on impairment			-		-		-		(84,000)		-		(84,000)
	Divestitures			-		(2,565)		-		-		-		(2,565)
Balance September 30, 2014			$	232,041	$	417,893	$	94,714	$	34,830	$	3,802	$	783,280

(1)		On July 31, 2014, TDS Telecom sold certain Wireline markets.

Goodwill Impairment Assessment

During the third quarter of 2014, due to a decline in projected revenue and earnings of TDS Telecom's HMS reporting unit compared with previously projected results, TDS determined that an interim impairment test of HMS Goodwill was required. TDS performed the Step 1 Goodwill impairment tests, as defined by GAAP, as of August 1, 2014.

The discounted cash flow approach and publicly-traded guideline company method were used to value the HMS reporting unit. The discounted cash flow approach uses value drivers and risks specific to the industry and current economic factors. The cash flow estimates incorporated assumptions that market participants would use in their estimates of fair value and may not be indicative of TDS Telecom specific assumptions. The most significant assumptions made in this process were the revenue growth rate (shown as a compound annual growth rate in the table below), the terminal revenue growth rate, the discount rate and capital expenditures as a percentage of revenue (shown as a simple average in the table below).

The publicly-traded guideline company method develops an indication of fair value by calculating average market pricing multiples for selected publicly-traded companies. The developed multiples were applied to applicable financial measures of the HMS reporting unit to determine fair value. The discounted cash flow approach and publicly-traded guideline company method were weighted to arrive at the total fair value used for impairment testing.

The following table represents key assumptions used in estimating the fair value of the HMS reporting unit as of August 1, 2014 using the discounted cash flow approach. The HMS averages below are based on a ten year projection period. As more fully described in TDS' Application of Critical Accounting Policies and Estimates in Form 10-K for the year ended December 31, 2013, there are uncertainties associated with these key assumptions, and potential events and/or circumstances that could have a negative effect on the key assumptions.

Key assumptions	HMS
Revenue growth rate	6.1	%
Terminal revenue growth rate	2.5	%
Discount rate	11.5	%
Capital expenditures as a percentage of revenue	8.6	%

Results

As of August 1, 2014, the carrying value of the HMS reporting unit exceeded its fair value; therefore, a Step 2 Goodwill impairment test was performed. The second step compared 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, TDS allocated 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 was the implied fair value of Goodwill. Since the carrying amount of Goodwill exceeded the implied fair value of Goodwill, an impairment loss was recognized for that difference. As a result of the Step 2 Goodwill impairment test, TDS recognized a loss on impairment of $84.0 million during the three months ended September 30, 2014.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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