US Cellular 2015 Annual Report Download - page 82

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TDS has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments
for disclosure purposes as displayed below.
Level within
the Fair
Value December 31, 2015 December 31, 2014
Hierarchy Book Value Fair Value Book Value Fair Value
(Dollars in thousands)
Cash and cash equivalents ................ 1 $ 984,643 $ 984,643 $ 471,901 $ 471,901
Long-term debt
Retail ............................ 2 1,753,250 1,766,308 1,453,250 1,414,105
Institutional ......................... 2 533,015 501,461 532,722 513,647
Other ............................ 2 215,538 215,456 4,749 4,675
The fair value of Cash and cash equivalents approximates the book value due to the short-term nature of these financial
instruments. Long-term debt excludes capital lease obligations and the current portion of Long-term debt. The fair value
of ‘‘Retail’’ Long-term debt was estimated using market prices for TDS’ 7.0% Senior Notes, 6.875% Senior Notes,
6.625% Senior Notes and 5.875% Senior Notes, and U.S. Cellular’s 6.95% Senior Notes, 7.25% 2063 Senior Notes and
7.25% 2064 Senior Notes. TDS’ ‘‘Institutional’’ debt consists of U.S. Cellular’s 6.7% Senior Notes which are traded over
the counter. TDS’ ‘‘Other’’ debt consists of a senior term loan credit facility and other borrowings with financial
institutions. TDS estimated the fair value of its Institutional and Other debt through a discounted cash flow analysis using
the interest rates or estimated yield to maturity for each borrowing, which ranged from 0.00% to 7.51% and 0.00% to
7.25% at December 31, 2015 and 2014, respectively.
NOTE 3 EQUIPMENT INSTALLMENT PLANS
TDS offers customers through its owned and agent distribution channels the option to purchase certain devices under
equipment installment contracts over a specified time period. For certain equipment installment plans (‘‘EIP’’), after a
specified period of time or amount of payments, the customer may have the right to upgrade to a new device and have
the remaining unpaid equipment installment contract balance waived, subject to certain conditions, including trading in
the original device in good working condition and signing a new equipment installment contract. TDS values this trade-in
right as a guarantee liability. The guarantee liability is initially measured at fair value and is determined based on
assumptions including the probability and timing of the customer upgrading to a new device and the fair value of the
device being traded-in at the time of trade-in. As of December 31, 2015 and 2014, the guarantee liability related to these
plans was $92.7 million and $57.5 million, respectively, and is reflected in Customer deposits and deferred revenues in
the Consolidated Balance Sheet.
TDS equipment installment plans do not provide for explicit interest charges. For equipment installment plans with
duration of greater than twelve months, TDS imputes interest. Equipment installment plan receivables had a weighted
average effective imputed interest rate of 9.7% and 10.2% as of December 31, 2015 and 2014, respectively.
The following table summarizes the unbilled equipment installment plan receivables as of December 31, 2015 and 2014.
Such amounts are presented in the Consolidated Balance Sheet as Accounts receivable – customers and agents and
Other assets and deferred charges, where applicable.
December 31, 2015 2014
(Dollars in thousands)
Short-term portion of unbilled equipment installment plan receivables, gross ................... $ 278,709 $ 127,400
Short-term portion of unbilled deferred interest ..................................... (20,810) (16,365)
Short-term portion of unbilled allowance for credit losses ............................... (13,827) (3,686)
Short-term portion of unbilled equipment installment plan receivables, net ................... $ 244,072 $ 107,349
Long-term portion of unbilled equipment installment plan receivables, gross ................... $ 75,738 $ 89,435
Long-term portion of unbilled deferred interest ..................................... (2,283) (2,791)
Long-term portion of unbilled allowance for credit losses ............................... (5,537) (6,065)
Long-term portion of unbilled equipment installment plan receivables, net ................... $ 67,918 $ 80,579
74
TELEPHONE AND DATA SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS