US Cellular 2011 Annual Report Download - page 62

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8 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 markets and wireless interests that are not strategic to its long-term success.
On May 9, 2011, U.S. Cellular paid $24.6 million in cash to purchase the remaining ownership interest in
a wireless business in which it previously held a 49% noncontrolling interest, pursuant to certain required
terms of the partnership agreement. Prior to this acquisition, the partnership had been accounted for
under the equity method of accounting. In connection with the acquisition, 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 on investment in the Consolidated
Statement of Operations. On November 11, 2011, U.S. Cellular entered into an agreement to sell
substantially all of the assets of this wireless business for $50.0 million in cash net of working capital
adjustments. The closing of this agreement is pending FCC approval which is expected to occur in the
first half of 2012. As a result, $49.6 million of assets and $1.1 million of liabilities have been classified in
the Consolidated Balance Sheet as ‘‘held for sale’’. Included in Assets held for sale are $4.2 million of
Current assets, $36.5 million of Investments (primarily licenses) and $8.9 million of Property, plant and
equipment. Liabilities held for sale primarily includes Current liabilities. For the period since acquisition,
this business generated revenues of $20.7 million and operating income of $14.8 million.
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 exchange was originally awarded to Carroll Wireless in FCC Auction 58 and
was purchased by U.S. Cellular prior to the exchange. Carroll Wireless is a variable interest entity which
U.S. Cellular consolidates; see Note 6—Variable Interest Entities for additional information.
Acquisitions and exchanges 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.
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