US Cellular 2013 Annual Report Download - page 59

United States Cellular Corporation
Notes to Consolidated Financial Statements (Continued)
NOTE 5 ACQUISITIONS, DIVESTITURES AND EXCHANGES (Continued)
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 the Purchase and Sale Agreement, on
May 16, 2013, U.S. Cellular transferred 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
contemplated certain other agreements, together with the Purchase and Sale Agreement collectively
referred to as the ‘‘Divestiture Transaction.’’
U.S. Cellular retained other assets and liabilities related to the Divestiture Markets, including network
assets, retail stores and related equipment, and other buildings and facilities. The transaction did not
affect spectrum licenses held by U.S. Cellular or variable interest entities (‘‘VIEs’’) that were not used in
the operations of the Divestiture Markets. Pursuant to the Purchase and Sale Agreement, U.S. Cellular
and Sprint also entered into certain other agreements, including customer and network transition
services agreements, which require 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 will reimburse U.S.
Cellular for providing such services at an amount equal to U.S. Cellular’s estimated costs, including
applicable overhead allocations. 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. For the year ended December 31, 2013, $10.6 million 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.
Actual
Actual Amount
Actual Amount Recognized
Cumulative Amount Recognized Three Months
Amount Recognized Three Months and Year
Expected Recognized as Year Ended Ended Ended
Period of of December 31, December 31, December 31, December 31,
Recognition Projected Range 2013 2013 2013 2012
(Dollars in thousands)
(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 ............... 2013-2014 (120,000) (175,000) (47,641) (47,641) (43,420) —
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 .... 2012-2014 10,000 14,000 10,675 3 (51) 10,672
Employee related costs including severance, retention
and outplacement .................... 2012-2014 12,000 18,000 14,262 1,653 (809) 12,609
Contract termination costs ................ 2012-2014 110,000 160,000 59,584 59,525 40,744 59
Transaction costs ..................... 2012-2014 5,000 6,000 5,565 4,428 347 1,137
Total (Gain) loss on sale of business and other exit
costs, net ....................... $(249,407) $(243,407) $(223,962) $(248,439) $ (3,189) $24,477
Depreciation, amortization and accretion expense
Incremental depreciation, amortization and accretion, net
of salvage values .................... 2012-2014 200,000 225,000 198,571 178,513 44,513 20,058
(Increase) decrease in Operating income ........ $(49,407) $ (18,407) $ (25,391) $ (69,926) $ 41,324 $44,535
Incremental depreciation, amortization and accretion, net of salvage values represents anticipated
amounts to be 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
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