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Acquisitions, Divestitures and Exchanges | 12 Months Ended
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Dec. 31, 2014
Disclosure Text Block |
Acquisitions, Divestitures and Exchanges | NOTE 6 ACQUISITIONS, DIVESTITURES AND EXCHANGES Divestiture Transaction On November 6, 2012, U.S. Cellular entered into a Purchase and Sale Agreement with subsidiaries of Sprint Corp., fka Sprint Nextel Corporation (“Sprint”). Pursuant to t he Purchase and Sale Agreement, on May 16, 2013, U.S. Cellular transfer red 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. The Purchase and Sale Agreement also contemplate d certain other agreements, together with the Purchase and Sale Agreement collectively referred to as the “Divestiture Transaction.” These other agreements included customer and network transition services agreements, which require d U.S. Cellular to provide customer, billing and network services to Sprint for a period of up to 24 months after the May 16, 2013 closing date. Sprint reimburse d U.S. Cellular for providing such services at an amount equal to U.S. Cellular's estimated cost s, including applicable overhead allocations. These services were substantially complete as of March 31, 2014. In addition, these agreements require Sprint to reimburse U.S. Cellular up to $200 million (the “Sprint Cost Reimbursement”) for certain network decommissioning costs, network site lease rent and termination costs, network access termination costs, and employee termination benefits for specified engineering employees. It is estimated that up to $175 million of the Sprint Cost Reimbursement will be recorded in (Gain) loss on sale of business and other exit costs, net and up to $25 million of the Sprint Cost Reimbursement will be recorded in System operations in the Consolidated Statement of Operations. In 2014 and 2013, $71.1 million and $10.6 million, respectively, of the Sprint Cost Reimbursement had been received and recorded in Cash received from divestitures in the Consolidated Statement of Cash Flows. 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 has recognized and 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.
(Dollars in thousands) |  | Expected Period of Recognition |  | Projected Range |  | Cumulative Amount Recognized as of December 31, 2014 |  | Actual Amount Recognized Year Ended December 31, 2014 |  | Actual Amount Recognized Year Ended December 31, 2013 |  | Actual Amount Recognized 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) |  | $ | (480,000) |  | $ | - |  | $ | (480,000) |  | $ | -
|  | Sprint Cost Reimbursement |  | 2013-2015 |  |  | (120,000) |  |  | (175,000) |  |  | (111,970) |  |  | (64,329) |  |  | (47,641) |  |  | -
| Net assets transferred |  | 2013 |  |  | 213,593 |  |  | 213,593 |  |  | 213,593 |  |  | - |  |  | 213,593 |  |  | -
| Non-cash charges for the write-off and write-down of property under construction and related assets |  | 2012-2015 |  |  | 20,000 |  |  | 22,000 |  |  | 20,410 |  |  | 9,735 |  |  | 3 |  |  | 10,672
| Employee related costs including severance, retention and outplacement |  | 2012-2015 |  |  | 13,000 |  |  | 16,000 |  |  | 14,147 |  |  | (115) |  |  | 1,653 |  |  | 12,609
| Contract termination costs |  | 2012-2015 |  |  | 70,000 |  |  | 100,000 |  |  | 84,320 |  |  | 24,736 |  |  | 59,525 |  |  | 59
| Transaction costs |  | 2012-2015 |  |  | 5,000 |  |  | 7,000 |  |  | 6,284 |  |  | 719 |  |  | 4,428 |  |  | 1,137
|  | Total (Gain) loss on sale of business and other exit costs, net |  |  |  | $ | (278,407) |  | $ | (296,407) |  | $ | (253,216) |  | $ | (29,254) |  | $ | (248,439) |  | $ | 24,477
Depreciation, amortization and accretion expense |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Incremental depreciation, amortization and accretion, net of salvage values |  | 2012-2014 |  |  | 215,049 |  |  | 215,049 |  |  | 215,049 |  |  | 16,478 |  |  | 178,513 |  |  | 20,058
(Increase) decrease in Operating income |  |  |  | $ | (63,358) |  | $ | (81,358) |  | $ | (38,167) |  | $ | (12,776) |  | $ | (69,926) |  | $ | 44,535
Incremental depreciation, amortization and accretion, net of salvage values represents amounts recorded in the specified time periods as a result of a change in estimate for the remaining useful life and salvage value of certain assets and a change in estimate which accelerated the settlement dates of certain asset retirement obligations in conjunction with the Divestiture Transaction. Specifically, for the periods indicated, this is estimated depreciation, amortization and accretion recorded on assets and liabilities of the Divestiture Markets after the execution of the Purchase and Sale Agreement on November 6, 2012 less depreciation, amortization and accretion that would have been recorded on such assets and liabilities in the normal course, absent the Divestiture Transaction. In 2014, U.S. Cellular recorded $3.4 million of additional Depreciation, amortization and accretion expense for the Divestiture Markets due to higher asset retirement obligation remediation estimates.
As a result of the transaction, U.S. Cellular recognized the following amounts in the Consolidated Balance Sheet:
|  |  |  |  |  | Year Ended December 31, 2014 |  |  |
(Dollars in thousands) | Balance December 31, 2013 |  | Costs Incurred |  | Cash Settlements (1) |  | Adjustments (2) |  | Balance December 31, 2014
Accrued compensation |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Employee related costs including severance, retention, outplacement | $ | 2,053 |  | $ | 127 |  | $ | (1,223) |  | $ | (242) |  | $ | 715
Accounts payable - trade |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Contract termination costs | $ | - |  | $ | 4,018 |  | $ | - |  | $ | (1,190) |  | $ | 2,828
Other current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Contract termination costs | $ | 13,992 |  | $ | 12,703 |  | $ | (22,210) |  | $ | 3,747 |  | $ | 8,232
Other deferred liabilities and credits |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Contract termination costs | $ | 30,849 |  | $ | 24,171 |  | $ | (3,569) |  | $ | (30,411) |  | $ | 21,040
|  |  |  |  |  | Year Ended December 31, 2013 |  |  |
(Dollars in thousands) | Balance December 31, 2012 |  | Costs Incurred |  | Cash Settlements (1) |  | Adjustments (2) |  | Balance December 31, 2013
Accrued compensation |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Employee related costs including severance, retention, outplacement | $ | 12,305 |  | $ | 6,853 |  | $ | (11,905) |  | $ | (5,200) |  | $ | 2,053
Other current liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Contract termination costs | $ | 30 |  | $ | 22,675 |  | $ | (8,713) |  | $ | - |  | $ | 13,992
Other deferred liabilities and credits |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Contract termination costs | $ | - |  | $ | 34,283 |  | $ | (3,434) |  | $ | - |  | $ | 30,849
(1) | Cash settlement amounts are included in either the Net income or changes in Other assets and liabilities line items as part of Cash flows from operating activities in the Consolidated Statement of Cash Flows.
(2) | Adjustment to liability represents changes to previously accrued amounts.
Other Acquisitions, Divestitures and Exchanges In December 2014, U.S. Cellular entered into an agreement with a third party to sell 595 towers and certain related contracts, assets, and liabilities for approximately $159 million. This transaction w as accomplished in two closings. The first closi ng occurred i n December 2014 and included the sale of 236 towers, without tenants, for $10.0 million. On this same date, U.S. Cellular received $7.5 million in earnest money. At the time of the first closing, a $3.8 million gain was recorded in (Gain) loss on sale of business and other exit costs, net. The second closing for the remaining 359 towers, primarily with tenants, took place i n January 2015, at which time U.S. Cellular received $141.5 million in additional cash proceeds and recorded a gain of approximately $107 million. T he assets and liabilities subject to the second closing have been classified as “held for sale” in the Consolidated Balance Sheet as of December 31, 2014. In September 2014, U.S. Cellular entered into a n agreement with a third party to exchange certain PCS and AWS licenses for certain other PCS and AWS licenses and $28.0 million of cash. This license exchange will be accomplished in two closing transaction s. The first closing occurred i n December 2014 at which time U.S. Cellular receive d licenses with an estimated fair value, per a market approach, of $51.5 million, recorded a $21.7 million gain in (Gain) loss on license sales and exchanges in the Consolidated Statement of Operations and recorded a n $18.3 million deferred credit in Other current liabilities. The second closing is expected t o occur in 2015. The license that will be transfer red has been classified as “Assets held for sale” in the Consolidated Balance Sheet as of December 31, 2014. At the time of the second closing, U.S. Cellular will recognize the deferred credit from the first closing and expects to record a gain on the license exchange. In September 2014, U.S. Cellular entered into a n agreement with a third party to exchange certain of its PCS unbuilt licenses for PCS licenses located in U.S. Cellular's operating markets plus $117.0 million of cash. This transaction is subject to regulatory approvals and is expected to close in 2015. The book value of the licenses to be exchanged have been classified as “Assets held for sale” in the Consolidated Balance Sheet at December 31, 2014. U.S. Cellular expects to record a gain when this transaction closes. In May 2014, U.S. Cellular entered into a License Purchase and Customer Recommendation Agreement with Airadigm Communications, Inc. (“Airadigm”). TDS owns 100% of the common stock of Airadigm. Pursuant to the License Purchase and Customer Recommendation Agreement, on September 10, 2014, Airadigm transferred to U.S. Cellular Federal Communications Commission (“FCC”) spectrum licenses and certain tower assets in certain markets in Wisconsin, Iowa, Minnesota and Michigan, in consideration for $91.5 million in cash. Since both parties to this transaction are controlled by TDS, upon closing, U.S. Cellular recorded the transferred assets at Airadigm's net book value of $15.2 million. The difference between the consideration paid and the net book value of the transferred assets was recorded as a reduction of U.S. Cellular's Retained earnings. In addition, a deferred tax asset was recorded for the difference between the consideration paid and the net book value of the transferred assets, which increased U.S. Cellular's Additional paid-in capital. In March 2014, U.S. Cellular sold the majority of its St. Louis area non-operating mark et spectrum license for $92.3 million. A gain of $75.8 million was recorded in (Gain) loss on license sales and exchanges in the Consolidated Statement of Operations in the first quarter of 2014. In February 2014, U.S. Cellular completed an exchange whereby U.S. Cellular received one E block PCS spectrum license covering Milwaukee, WI in exchange for one D block PCS spectrum license covering Milwaukee, WI. The exchange of licenses provided U.S. Cellular with spectrum to meet anticipated future capacity and coverage requirements. No cash, customers, network assets, other assets or liabilities were included in the exchange. As a result of this transaction, U.S. Cellul ar recognized a gain of $15.7 million, represent ing the difference between the $15.9 million fair value of the license surrendered, calculated using a market approach va luation method, and the $0.2 million carrying value of the license surrendered. This gain was recorded in (Gain) loss on license sales and exchanges in the Consolidated Statement of Operations in the first quarter of 2014. In October 2013, U.S. Cellular sold the majority of its Mississippi Valley non-operating market license (“unbuilt license”) for $308.0 million. At the time of the sale, a $250.6 mi llion gain was recorded in (Gain) loss on license sales and exchanges in the Consolidated Statement of Operations. In November 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. In August 2012, U.S. Cellular acquired four 700 MHz licenses covering portions of Iowa, Kansas, Missouri, Nebraska and Oklahoma for $34.0 million. In March 2012, U.S. Cellular sold the majority of the assets and liabilities of a wireless market for $49.8 million in cash. 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.
At December 31, 2014 and 2013, the following assets were classified in the Consolidated Balance Sheet as "Assets held for sale" and "Liabilities held for sale":
|  |  | Current Assets |  | Other Assets and Deferred Charges |  | Licenses |  | Goodwill |  | Property, Plant and Equipment |  | Total Assets Held for Sale
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2014 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Divestiture of Spectrum Licenses | $ | - |  | $ | - |  | $ | 56,809 |  | $ | - |  | $ | - |  | $ | 56,809
Sale of Business - Towers |  | 1,466 |  |  | 773 |  |  | - |  |  | 16,281 |  |  | 31,726 |  |  | 50,246
| Total | $ | 1,466 |  | $ | 773 |  | $ | 56,809 |  | $ | 16,281 |  | $ | 31,726 |  | $ | 107,055
2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Divestiture of Spectrum Licenses | $ | - |  | $ | - |  | $ | 16,027 |  | $ | - |  | $ | - |  | $ | 16,027
|  |  | Customer Deposits and Deferred Revenues |  | Other Current Liabilities |  | Other Deferred Liabilities and Credits |  | Total Liabilities Held for Sale
(Dollars in thousands) |  |  |  |  |  |  |  |  |  |  |
2014 |  |  |  |  |  |  |  |  |  |  |
Sale of Business - Towers | $ | 2,704 |  | $ | 896 |  | $ | 17,334 |  | $ | 20,934

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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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