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Acquisitions, Divestitures and Exchanges | 12 Months Ended
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Dec. 31, 2012
Disclosure Text Block |
Acquisitions, Divestitures and Exchanges | NOTE 7 ACQUISITIONS, DIVESTITURES AND EXCHANGES U.S. Cellular assesses its existing wireless interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on capital. As part of this strategy, U.S. Cellular reviews attractive opportunities to acquire additional wireless operating markets and wireless spectrum. In addition, U.S. Cellular may seek to divest outright or include in exchanges for other wireless interests those interests that are not strategic to its long-term success. Divestiture Transaction On November 6, 2012, U.S. Cellular entered into a Purchase and Sale Agreement with subsidiaries of Sprint Nextel Corporation (“Sprint”). The Purchase and Sale Agreement provides that U.S. Cellular will transfer customers and certain PCS license spectrum to Sprint in U.S. Cellular's Chicago, central Illinois, St. Louis and certain Indiana/Michigan/Ohio markets (“Divestiture Markets”) in consideration for $480 million in cash at closing, subject to pro-rations of c ertain assets and liabilities. The Purchase and Sale Agreement also contemplates certain other agreements, collectively referred to as the “Divestiture Transaction.” U.S. Cellular will retain other assets and liabilities related to the Divestiture M arkets, including network assets, retail stores and related equipment, and other buildings and facilities. The transaction does not affect spectrum licenses held by U.S. Cellular or VIEs that are not currently used in the operations of the Divestiture M arkets. The Purchase and Sale Agreement also contemplates certain other agreements, including customer and network transition services agreements, which will require that U.S. Cellular provide customer, billing and network services to Sprint for a period of up to 24 months after the closing date. Sprint will reimburse U.S. Cellular for providing such services at an amount equal to U.S. Cellular's cost, including applicable overhead allocations. In addition, these agreements will require Sprint to reimburse U.S. Cellular up to $200 million for certain network decommissioning costs, network site lease rent and termination costs, network access termination costs, and employee termination benefits for specified engineering employees. Financial impacts of the Divestiture Transaction are classified in the Consolidated Statement of Operations within Operating income. The table below describes the amounts U.S. Cellular expects to recognize in the Consolidated Statement of Operations between the date the Purchase and Sale Agreement was signed and the end of the transition services period, and the actual amounts incurred during the year ended December 31, 2012, as a result of the transaction.
(Dollars in thousands) | Expected Period of Realization / Incurrence (1) |  | Projected Range |  | Actual Amount Incurred Year Ended December 31, 2012
(Gain) loss on sale of business and other exit costs, net |  |  |  |  |  |  |  |  |  |
| Proceeds from Sprint |  |  |  |  |  |  |  |  |  |
|  | Purchase price | 2013 |  | $ | (480,000) |  | $ | (480,000) |  | $ | -
|  | Reimbursement of transition and exit costs | 2013-2014 |  |  | (150,000) |  |  | (200,000) |  |  | -
| Net assets transferred | 2013 |  |  | 210,000 |  |  | 230,000 |  |  | -
| Non-cash charges for the write-off and write-down of property under construction and related assets | 2012-2013 |  |  | 5,000 |  |  | 15,000 |  |  | 10,672
| Employee related costs including severance, retention and outplacement | 2012-2014 |  |  | 15,000 |  |  | 25,000 |  |  | 12,609
| Contract termination costs | 2012-2014 |  |  | 125,000 |  |  | 175,000 |  |  | 59
| Transaction costs | 2012-2013 |  |  | 3,000 |  |  | 5,000 |  |  | 1,137
|  | Total (Gain) loss on sale of business and other exit costs, net |  |  | $ | (272,000) |  | $ | (230,000) |  | $ | 24,477
Depreciation, amortization and accretion expense |  |  |  |  |  |  |  |  |  |
| Incremental depreciation, amortization and accretion, net of salvage values (2) | 2012-2014 |  |  | 150,000 |  |  | 210,000 |  |  | 20,058
Other Operating expenses |  |  |  |  |  |  |  |  |  |
| Non-cash charges for the write-off and write-down of various operating assets and liabilities | 2013 |  |  | - |  |  | 10,000 |  |  | -
(Increase) decrease in Operating income |  |  | $ | (122,000) |  | $ | (10,000) |  | $ | 44,535
(1) | Represents the estimated period in which a substantial majority of such amounts will be realized or incurred.
(2) | Represents incremental depreciation, amortization and accretion anticipated to be recorded in the specified time periods as a result of revising the useful life of certain assets and revising the settlement dates of certain asset retirement obligations in conjunction with the Divestiture Transaction. Specifically, for the years indicated, this is estimated depreciation, amortization and accretion recorded on assets and liabilities of the Divestiture Markets after the November 6, 2012 transaction date less depreciation, amortization and accretion that would have been recorded on such assets and liabilities in the normal course, absent the Divestiture Transaction.
As a result of the transaction, U.S. Cellular recognized the following amounts in the Consolidated Balance Sheet between the date the Purchase and Sale Agreement was signed and December 31, 2012:
(Dollars in thousands) | Balance November 6, 2012 |  | Costs Incurred |  | CashSettlements |  | Non-cash Settlements |  | Adjustments |  | Balance December 31, 2012
Accrued compensation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Employee related costs including severance, retention, outplacement | $ | - |  | $ | 12,609 |  | $ | (304) |  | $ | - |  | $ | - |  | $ | 12,305
Other current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Contract termination costs | $ | - |  | $ | 59 |  | $ | (29) |  | $ | - |  | $ | - |  | $ | 30
The transaction is subject to FCC approval, compliance with the Hart-Scott-Rodino Act and other conditions. Subject to the satisfaction or (if permitted) waiver of all conditions, the transact ion is expected to close in mid-2013. Other Acquisitions, Divestitures and Exchanges On November 20, 2012, U.S. Cellular acquired seven 700 MHz licenses covering portions of Illinois, Michigan, Minnesota, Missouri, Nebraska, Oregon, Washington and Wisconsin for $57.7 million. On August 15, 2012, U.S. Cellular acquired four 700 MHz licenses covering portions of Iowa, Kansas, Missouri, Nebraska and Oklahoma for $34.0 million. O n March 14, 2012, U.S. Cellular sold the majority of the assets and liabilities of a wireless market for $49.8 million in cash, net of working capital adjustments. At the time of the sale, a $4.2 mill ion gain was recorded in (Gain) loss on sale of business and other exit costs, net in the Consolidated Statement of Operations. On May 9, 2011, pursuant to certain required terms of the partnership agreement, U.S. Cellular paid $24.6 million in cash to purchase the remaining ownership interest in this wireless market in which it previously held a 49% noncontrolling interest. In connection with the acquisition of the remaining interest, a $13.4 million gain was recorded to adjust the carrying value of this 49% investment to its fair value of $25.7 million based on an income approach valuation method. The gain was recorded in Gain (loss) on investment in the Consolidated Statement of Operations in 2011. On September 30, 2011, U.S. Cellular completed an exchange whereby U.S. Cellular received eighteen 700 MHz spectrum licenses covering portions of Idaho, Illinois, Indiana, Kansas, Nebraska, Oregon and Washington in exchange for two PCS spectrum licenses covering portions of Illinois and Indiana. The exchange of licenses will provide U.S. Cellular with additional spectrum to meet anticipated future capacity and coverage requirements in several of its markets. No cash, customers, network assets, other assets or liabilities were included in the exchange. As a result of this transaction, U.S. Cellular recognized a gain of $11.8 million, representing the difference between the fair value of the licenses received, calculated using a market approach valuation method, and the carrying value of the licenses surrendered. This gain was recorded in (Gain) loss on asset disposals and exchanges, net in the Consolidated Statement of Operations for the year ended December 31, 2011. The Indiana PCS spectrum included in the exc hange was originally awarded to Carroll Wireless in FCC Auction 58 and was purchased by U.S. Cellular prior to the exchange. Carroll Wireless wa s a VIE which U.S. Cellular consolidated at the time of the exchange; see Note 5 — Variable Interest Entities for additional information. Acquisitions and exchanges completed as of December 31, 2012 did not have a material impact on U.S. Cellular's consolidated financial statements for the periods presented and pro forma results, assuming acquisitions and exchanges had occurred at the beginning of each period presented, would not be materially different from the results reported.
U.S. Cellular acquisitions in 2012 and 2011 and the allocation of the purchase price for these acquisitions were as follows:
|  |  |  |  |  | Allocation of Purchase Price
(Dollars in thousands) | PurchasePrice (1) |  | Goodwill |  | Licenses |  | Intangible Assets Subject to Amortization (2) |  | Net Tangible Assets (Liabilities)
2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Licenses | $ | 122,690 |  | $ | - |  | $ | 122,690 |  | $ | - |  | $ | -
2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Licenses | $ | 4,406 |  | $ | - |  | $ | 4,406 |  | $ | - |  | $ | -
Business (3)(4) |  | 24,572 |  |  | - |  |  | 15,592 |  |  | 2,252 |  |  | 6,728
| Total | $ | 28,978 |  | $ | - |  | $ | 19,998 |  | $ | 2,252 |  | $ | 6,728
(1) | Cash amounts paid for acquisitions may differ from the purchase price due to cash acquired in the transactions and the timing of cash payments related to the respective transactions.
(2) | Intangible assets subject to amortization acquired in 2011 are classified as Assets held for sale and as a result are not amortized.
(3) | Includes only the acquired interest and does not include amounts attributable to U.S. Cellular’s pre-existing noncontrolling interest described above in this Note 7.
(4) | Licenses, Intangible assets subject to amortization and a portion of Net tangible assets (liabilities) are included in amounts reported as Assets held for sale in the Consolidated Balance Sheet as of December 31, 2011.
At December 31, 2012 and 2011, the following assets and liabilities were classified in the Consolidated Balance Sheet as “Assets held for s ale” and “Liabilities held for sale”:
|  |  | Current Assets |  | Licenses |  | Goodwill |  | Other Intangible Assets |  | Property, Plant and Equipment |  | Total Assets Held for Sale |  | Liabilities Held for Sale (1)
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Divestiture Transaction | $ | - |  | $ | 140,599 |  | $ | 72,994 |  | $ | - |  | $ | - |  | $ | 213,593 |  | $ | 19,594
Bolingbrook Customer Care Center (2) |  | - |  |  | - |  |  | - |  |  | - |  |  | 3,170 |  |  | 3,170 |  |  | -
|  | Total | $ | - |  | $ | 140,599 |  | $ | 72,994 |  | $ | - |  | $ | 3,170 |  | $ | 216,763 |  | $ | 19,594
2011 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Cellular wireless market | $ | 4,179 |  | $ | 31,920 |  | $ | - |  | $ | 4,611 |  | $ | 8,937 |  | $ | 49,647 |  | $ | 1,051
(1) | Liabilities held for sale primarily consisted of Current liabilities in 2011 and Customer deposits and deferred revenues in 2012.
(2) | Effective January 1, 2013, U.S. Cellular transferred its Bolingbrook Customer Care Center operations to an existing third party vendor.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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