EX-99.2 2 Ex992.htm EX-99.2  

 

Exhibit 99.2

 

UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

On November 6, 2012, United States Cellular Corporation (“U.S. Cellular”), a subsidiary of Telephone and Data Systems, Inc. (“TDS”), entered into a Purchase and Sale Agreement with subsidiaries of Sprint Nextel Corporation (“Sprint”). The Purchase and Sale Agreement also contemplates certain other agreements, collectively with the Purchase and Sale Agreement referred to as the “Divestiture Transaction.”

 

The Purchase and Sale Agreement provides that U.S. Cellular will transfer to Sprint certain rights and assets (collectively, the “Subject Assets”), and Sprint will assume certain liabilities (“Subject Liabilities”), related to U.S. Cellular’s Chicago, central Illinois, St. Louis and certain Indiana/Michigan/Ohio markets (the “Divestiture Markets”), in consideration for $480 million in cash at closing (“Purchase Price”), subject to pro-rations of certain assets and liabilities.  U.S. Cellular will retain all other assets (“Retained Assets”) and liabilities (“Retained Liabilities”) related to the Divestiture Markets.  U.S. Cellular is not transferring and will continue to operate and provide services in Peoria, Rockford and certain other areas in Illinois, and in Columbia, Joplin, Jefferson City and certain other areas in Missouri.

 

On April 3, 2013, U.S. Cellular entered into an agreement relating to the Partnerships (as defined below) with Cellco Partnership d/b/a Verizon Wireless (“Verizon Wireless”).  U.S. Cellular holds a 60.00% interest in St. Lawrence Seaway RSA Cellular Partnership (“NY1”) and a 57.14% interest in New York RSA 2 Cellular Partnership (“NY2” and, together with NY1, the “Partnerships”).  The remaining interests are held by Verizon Wireless.  The Partnerships are operated by Verizon Wireless under the Verizon Wireless brand.  Because U.S. Cellular owns a greater than 50% interest in each of these markets and based on U.S. Cellular’s rights under the Partnership Agreements, prior to April 3, 2013, TDS consolidated the financial results of these markets in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  The agreement amends the Partnership Agreements in several ways, which provide Verizon Wireless with substantive participating rights that allow Verizon Wireless to make decisions that are in the ordinary course of business of the Partnerships and which are significant to directing and executing the activities of the business.   Accordingly, as required by GAAP, effective April 3, 2013, TDS will deconsolidate the Partnerships and thereafter will report them as equity method investments in its consolidated financial statements (the “Deconsolidation”).

 

The unaudited pro forma financial information is based on financial statements prepared in accordance with GAAP.  In addition, the unaudited pro forma financial information is based upon available information and assumptions that TDS considers to be reasonable, and have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission (“SEC”).

 

The unaudited pro forma financial information is based on various assumptions. The actual results reported by TDS in periods following the Divestiture Transaction and the Deconsolidation may differ significantly from those reflected in this unaudited pro forma financial information.  As a result, the unaudited pro forma financial information does not purport to project the future financial condition and results of operations of the consolidated company. The pro forma assumptions and adjustments are described in the accompanying schedules.  Pro forma adjustments are shown in the “Divestiture Markets” and “NY1 & NY2” columns and are those that are directly attributable to the transaction, are factually supportable and, with respect to the unaudited pro forma Statement of Operations, are expected to have a continuing impact on the consolidated results. Pro forma adjustments do not include allocations of corporate costs, as those costs are not directly attributable to these transactions.

 

The unaudited pro forma financial information should be read together with TDS’ audited consolidated financial statements and accompanying notes, as of and for the fiscal year ended December 31, 2012, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in TDS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the SEC on February 26, 2013, and TDS’ Quarterly report on Form 10-Q for the period ended March 31, 2013, which was filed with the SEC on May 3, 2013.

 

1

 

 

 

 

The unaudited pro forma Statement of Operations for the year ended December 31, 2012 and the three months ended March 31, 2013 give effect to the Divesture Transaction and the Deconsolidation as if those transactions had occurred effective January 1, 2012, the beginning of TDS' 2012 fiscal year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Telephone and Data Systems, Inc.

Pro Forma Statement of Operations

(Unaudited)

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

Divestiture Markets (1)

 

NY1 & NY2 (2)

 

Pro Forma

Year Ended December 31, 2012

 

 

 

(Dollars and shares in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

 5,345,277  

 

$

 456,139  

 

$

 168,971  

 

$

 4,720,167  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and products (excluding Depreciation, amortization

  and accretion expense reported below)

 

 2,272,570  

 

 

 182,603  

 

 

 64,115  

 

 

 2,025,852  

 

Selling, general and administrative expense

 

 2,033,901  

 

 

 143,706  

 

 

 46,317  

 

 

 1,843,878  

 

Depreciation, amortization and accretion expense

 

 813,626  

 

 

 104,060  

 

 

 10,262  

 

 

 699,304  

 

Loss on impairment of assets

 

 515  

 

 

 -  

 

 

 -  

 

 

 515  

 

(Gain) loss on asset disposals and exchanges, net

 

 19,741  

 

 

 9,210  

 

 

 -  

 

 

 10,531  

 

(Gain) loss on sale of business and other exit costs, net

 

 21,061  

 

 

 24,445  

 

 

 -  

 

 

 (3,384) 

 

 

 

Total operating expenses

 

 5,161,414  

 

 

 464,024  

 

 

 120,694  

 

 

 4,576,696  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 183,863  

 

 

 (7,885) 

 

 

 48,277  

 

 

 143,471  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

 92,867  

 

 

 -  

 

 

 (28,407) 

 

 

 121,274  

 

Interest and dividend income

 

 9,248  

 

 

 -  

 

 

 -  

 

 

 9,248  

 

Gain (loss) on investment

 

 (3,718) 

 

 

 -  

 

 

 -  

 

 

 (3,718) 

 

Interest expense

 

 (86,745) 

 

 

 (279) 

 

 

 -  

 

 

 (86,466) 

 

Other, net

 

 720  

 

 

 -  

 

 

 90  

 

 

 630  

 

 

Total investment and other income (expense)

 

 12,372  

 

 

 (279) 

 

 

 (28,317) 

 

 

 40,968  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 196,235  

 

 

 (8,164) 

 

 

 19,960  

 

 

 184,439  

 

Income tax expense (benefit) (3)

 

 73,582  

 

 

 (3,090) 

 

 

 -  

 

 

 76,672  

Net income

 

 122,653  

 

 

 (5,074) 

 

 

 19,960  

 

 

 107,767  

 

Less: Net income attributable to noncontrolling interests, net of tax

 

 (40,792) 

 

 

 -  

 

 

 (19,960) 

 

 

 (20,832) 

Net income attributable to TDS shareholders

 

 81,861  

 

 

 (5,074) 

 

 

 -  

 

 

 86,935  

 

Preferred dividend requirement

 

 (50) 

 

 

 -  

 

 

 -  

 

 

 (50) 

Net income available to common shareholders

$

 81,811  

 

$

 (5,074) 

 

$

 -  

 

$

 86,885  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding (4)

 

 108,671  

 

 

 -  

 

 

 -  

 

 

 108,671  

Basic earnings per share attributable to TDS shareholders

$

 0.75  

 

$

 -  

 

$

 -  

 

$

 0.80  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding (4)

 

 108,937  

 

 

 -  

 

 

 -  

 

 

 108,937  

Diluted earnings per share attributable to TDS shareholders

$

 0.75  

 

$

 -  

 

$

 -  

 

$

 0.80  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

$

 0.49  

 

$

 -    

 

$

 -  

 

$

 0.49  

 

2

 

 

 

 

Telephone and Data Systems, Inc.

Pro Forma Statement of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Reported

 

Divestiture Markets (1)

 

NY1 & NY2 (2)

 

Pro Forma

Three Months Ended March 31, 2013

 

 

 

(Dollars and shares in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Operating revenues

$

 1,308,573  

 

$

 99,887  

 

$

 43,302  

 

$

 1,165,384  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services and products (excluding Depreciation, amortization

  and accretion expense reported below)

 

 559,892  

 

 

 29,585  

 

 

 17,147  

 

 

 513,160  

 

Selling, general and administrative expense

 

 486,903  

 

 

 24,844  

 

 

 11,808  

 

 

 450,251  

 

Depreciation, amortization and accretion expense

 

 242,077  

 

 

 55,969  

 

 

 2,735  

 

 

 183,373  

 

Loss on asset disposals, net

 

 5,616  

 

 

 780  

 

 

 -  

 

 

 4,836  

 

(Gain) loss on sale of business and other exit costs, net

 

 6,931  

 

 

 7,118  

 

 

 -  

 

 

 (187) 

 

 

 

Total operating expenses

 

 1,301,419  

 

 

 118,296  

 

 

 31,690  

 

 

 1,151,433  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 7,154  

 

 

 (18,409) 

 

 

 11,612  

 

 

 13,951  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment and other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated entities

 

 27,089  

 

 

 -  

 

 

 (6,824) 

 

 

 33,913  

 

Interest and dividend income

 

 1,578  

 

 

 -  

 

 

 -  

 

 

 1,578  

 

Interest expense

 

 (24,498) 

 

 

 (80) 

 

 

 -  

 

 

 (24,418) 

 

Other, net

 

 (154) 

 

 

 -  

 

 

 7  

 

 

 (161) 

 

 

Total investment and other income (expense)

 

 4,015  

 

 

 (80) 

 

 

 (6,817) 

 

 

 10,912  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 11,169  

 

 

 (18,489) 

 

 

 4,795  

 

 

 24,863  

 

Income tax expense (benefit) (3)

 

 4,180  

 

 

 (6,998) 

 

 

 -  

 

 

 11,178  

Net income

 

 6,989  

 

 

 (11,491) 

 

 

 4,795  

 

 

 13,685  

 

Less: Net income attributable to noncontrolling interests, net of tax

 

 (5,570) 

 

 

 -  

 

 

 (4,795) 

 

 

 (775) 

Net income attributable to TDS shareholders

 

 1,419  

 

 

 (11,491) 

 

 

 -  

 

 

 12,910  

 

Preferred dividend requirement

 

 (12) 

 

 

 -  

 

 

 -  

 

 

 (12) 

Net income available to common shareholders

$

 1,407  

 

$

 (11,491) 

 

$

 -  

 

$

 12,898  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding (4)

 

 108,255  

 

 

 -  

 

 

 -  

 

 

 108,255  

Basic earnings per share attributable to TDS shareholders

$

 0.01  

 

$

 -  

 

$

 -  

 

$

 0.12  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding (4)

 

 108,693  

 

 

 -  

 

 

 -  

 

 

 108,693  

Diluted earnings per share attributable to TDS shareholders

$

 0.01  

 

$

 -  

 

$

 -  

 

$

 0.12  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per share

$

 0.1275  

 

$

 -    

 

$

 -  

 

$

 0.1275  

 

3

 

 

 

 

The unaudited pro forma balance sheet gives effect to the Divestiture Transaction and Deconsolidation as if those transactions had occurred effective March 31, 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Telephone and Data Systems, Inc.

Pro Forma Balance Sheet — Assets

(Unaudited)

 

 

 

 

 

 

 

Less:

 

 

 

March 31, 2013

As Reported

 

Divestiture Markets (5)

 

NY1 & NY2 (6)

 

Pro Forma

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

 766,700  

 

$

 (480,000) 

 

$

 -  

 

$

 1,246,700  

 

Short-term investments

 

 125,595  

 

 

 -  

 

 

 -  

 

 

 125,595  

 

Accounts receivable

 

 

 

 

 -  

 

 

 

 

 

 

 

 

Due from customers and agents

 

 374,715  

 

 

 -  

 

 

 11,723  

 

 

 362,992  

 

 

Other

 

 131,995  

 

 

 -  

 

 

 23,910  

 

 

 108,085  

 

Inventory

 

 143,832  

 

 

 -  

 

 

 -  

 

 

 143,832  

 

Net deferred income tax asset

 

 44,288  

 

 

 -  

 

 

 -  

 

 

 44,288  

 

Prepaid expenses

 

 86,879  

 

 

 -  

 

 

 25  

 

 

 86,854  

 

Income taxes receivable

 

 11,301  

 

 

 -  

 

 

 -  

 

 

 11,301  

 

Other current assets

 

 30,498  

 

 

 -  

 

 

 -  

 

 

 30,498  

 

 

 

 

 

 1,715,803  

 

 

 (480,000) 

 

 

 35,658  

 

 

 2,160,145  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale (7)

 

 160,073  

 

 

 160,073  

 

 

 -  

 

 

 -  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

Licenses

 

 1,494,189  

 

 

 -  

 

 

 592  

 

 

 1,493,597  

 

Goodwill

 

 797,194  

 

 

 -  

 

 

 37,131  

 

 

 760,063  

 

Other intangible assets, net of accumulated amortization of $146,578

 

 55,557  

 

 

 -  

 

 

 -  

 

 

 55,557  

 

Investments in unconsolidated entities

 

 201,171  

 

 

 -  

 

 

 (120,000) 

 

 

 321,171  

 

Long-term investments

 

 40,142  

 

 

 -  

 

 

 -  

 

 

 40,142  

 

Other investments

 

 778  

 

 

 -  

 

 

 -  

 

 

 778  

 

 

 

 

 

 2,589,031  

 

 

 -  

 

 

 (82,277) 

 

 

 2,671,308  

Property, plant and equipment

 

 

 

 

 

 

 

 

 

 

 

 

In service and under construction

 

 10,917,301  

 

 

 -  

 

 

 139,112  

 

 

 10,778,189  

 

Less: Accumulated depreciation

 

 7,010,706  

 

 

 -  

 

 

 57,697  

 

 

 6,953,009  

 

 

 

 

 

 3,906,595  

 

 

 -  

 

 

 81,415  

 

 

 3,825,180  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets and deferred charges

 

 130,321  

 

 

 -  

 

 

 69  

 

 

 130,252  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

 8,501,823  

 

$

 (319,927) 

 

$

 34,865  

 

$

 8,786,885  

 

4

 

 

 

 

Telephone and Data Systems, Inc.

Pro Forma Balance Sheet — Liabilities and Equity

(Unaudited)

 

 

 

 

 

 

 

 

Less:

 

 

 

March 31, 2013

As Reported

 

Divestiture Markets (5)

 

NY1 & NY2 (6)

 

Pro Forma

(Dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

$

 1,318  

 

$

 -  

 

$

 -  

 

$

 1,318  

 

Accounts payable

 

 335,065  

 

 

 -  

 

 

 5,048  

 

 

 330,017  

 

Customer deposits and deferred revenues

 

 231,478  

 

 

 -  

 

 

 5,073  

 

 

 226,405  

 

Accrued interest

 

 15,774  

 

 

 -  

 

 

 -  

 

 

 15,774  

 

Accrued taxes

 

 55,944  

 

 

 (138,541) 

 

 

 -  

 

 

 194,485  

 

Accrued compensation

 

 75,324  

 

 

 -  

 

 

 -  

 

 

 75,324  

 

Other current liabilities (7)

 

 102,208  

 

 

 (18,360) 

 

 

 -  

 

 

 120,568  

 

 

 

 

 

 

 817,111  

 

 

 (156,901) 

 

 

 10,121  

 

 

 963,891  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities held for sale (7)

 

 18,360  

 

 

 18,360  

 

 

 -  

 

 

 -  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred liabilities and credits

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred income tax liability

 

 867,954  

 

 

 13,314  

 

 

 238  

 

 

 854,402  

 

Other deferred liabilities and credits

 

 445,614  

 

 

 -  

 

 

 726  

 

 

 444,888  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 1,721,338  

 

 

 -  

 

 

 -  

 

 

 1,721,338  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interests with redemption features

 

 466  

 

 

 -  

 

 

 -  

 

 

 466  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

TDS shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Common and Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Par Value ($.01 per share)  ($72 Series A Common and $1,255 Common Shares)

 

 1,327  

 

 

 -  

 

 

 -  

 

 

 1,327  

 

 

Capital in excess of par value

 

 2,302,785  

 

 

 -  

 

 

 -  

 

 

 2,302,785  

 

 

Treasury shares at cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,595 Common Shares

 

 (747,831) 

 

 

 -  

 

 

 -  

 

 

 (747,831) 

 

 

Accumulated other comprehensive loss

 

 (8,303) 

 

 

 -  

 

 

 -  

 

 

 (8,303) 

 

 

Retained earnings

 

 2,449,720  

 

 

 (194,700) 

 

 

 (19,991) 

 

 

 2,664,411  

 

 

 

Total TDS shareholders' equity

 

 3,997,698  

 

 

 (194,700) 

 

 

 (19,991) 

 

 

 4,212,389  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares

 

 825  

 

 

 -  

 

 

 -  

 

 

 825  

 

Noncontrolling interests (8)

 

 632,457  

 

 

 -  

 

 

 43,771  

 

 

 588,686  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

 4,630,980  

 

 

 (194,700) 

 

 

 23,780  

 

 

 4,801,900  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and equity

$

 8,501,823  

 

$

 (319,927) 

 

$

 34,865  

 

$

 8,786,885  

 

(1)     The “Divestiture Markets” column reflects amounts included in the “As Reported” column that are directly attributable to the transaction, are factually supportable and are expected to have a continuing impact on the consolidated results.

 

(2)     The “NY1 & NY2” column reflects amounts included in the “As Reported” column that are directly attributable to the Deconsolidation, are factually supportable and are expected to have a continuing impact on the consolidated results as a result of the Deconsolidation.  NY1 & NY2 Equity in earnings of unconsolidated entities represents TDS' share of NY1 & NY2 net income for the period based on TDS’ interests in the Partnerships.

 

(3)     The income tax expense (benefit) is based on TDS’ statutory tax rate applied to the cumulative effect of changes within the Divestiture Markets.

 

 

5

 

 

 

(4)     The number of basic and diluted shares outstanding did not change as a result of the Divestiture Transaction or the Deconsolidation.

 

(5)     Reflects the receipt of cash of approximately $480 million from Sprint.  As a result of the sale of assets and liabilities to Sprint, TDS will recognize a gain of approximately $195 million, net of income tax expense of approximately $125 million.  This has not been included as a pro forma adjustment to the unaudited pro forma Statements of Operations due to its non-recurring nature but has been recorded in the unaudited pro forma Balance Sheet as of March 31, 2013.  The following table provides a reconciliation of the Retained Earnings impact resulting from the Divestiture Transaction:   

 

 

(Dollars in thousands)

 

 

 

Divestiture Markets Retained Earnings Reconciliation

 

 

Cash proceeds

$

 480,000  

 

 

Change in assets and liabilities, net (7)

 

 (160,073) 

 

 

Current and deferred tax effect

 

 (125,227) 

 

 

 

Gain, net of tax

$

 194,700  
           

 

 

Sprint will be required 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 (the “Sprint Cost Reimbursement”).  The receipt of the Sprint Cost Reimbursement amounts will be recorded in (Gain) loss on sale of business and other exit costs, net. Such gains recorded as a result of the Sprint Cost Reimbursement will be partially offset by related decommissioning costs that are incurred, as costs that are not already accrued as a component of the liability for asset retirement obligations will also be recorded in (Gain) loss on sale of business and other exit costs, net.  The Sprint Cost Reimbursement has not been reflected in the unaudited pro forma Statements of Operations or Balance Sheet because these amounts will not be received until U.S. Cellular incurs the related costs after the closing of the Divestiture Transaction. 

 

(6)     As a result of the Deconsolidation, NY1 & NY2 assets and liabilities previously reflected in “As Reported” amounts are removed.  In addition, in accordance with GAAP, as a result of the Deconsolidation, TDS' interest in the Partnerships is reflected in Investments in unconsolidated entities at fair value as of April 3, 2013.  The fair value of TDS’ interest in the Partnerships is estimated to be in the range of $112 million to $128 million. TDS therefore expects to recognize a non-cash pre-tax gain in the range of $12 million to $28 million.  For purposes of the unaudited pro forma financial information contained herein, TDS assumed a fair value of approximately $120 million, which generated a non-cash pre-tax gain of approximately $20 million. This gain has not been included as a pro forma adjustment to the unaudited pro forma Statements of Operations due to its non-recurring nature but has been recorded in the unaudited pro forma Balance Sheet as of March 31, 2013.  Recording TDS’ interest in the Partnerships requires various assumptions, including allocation of the excess of fair value over book value to the assets and liabilities of the Partnerships.  Due to the incomplete fair value allocation primarily related to FCC licenses, customer lists and goodwill and the related useful lives, Equity in earnings of unconsolidated entities does not reflect adjustments related to depreciation or amortization of definite-lived tangible or intangible assets.  The actual results reported by TDS in periods following the Deconsolidation may differ significantly from those reflected in the pro forma financial information contained herein.  The following table provides a reconciliation of the Retained Earnings impact resulting from the Deconsolidation:   

 

 

(Dollars in thousands)

 

 

 

NY1 & NY2 Retained Earnings Reconciliation

 

 

Estimated Fair Value of NY1 & NY2

$

 120,000  

 

 

Existing investment balance

 

 (62,524) 

 

 

Existing goodwill related to NY1 & NY2

 

 (37,131) 

 

 

Existing licenses attributable to NY1 & NY2

 

 (592) 

 

 

Deferred tax liability related to existing licenses

 

 238  

 

 

 

Gain

$

 19,991  
           

 

(7)     At March 31, 2013, the following assets and liabilities were classified in TDS’ Consolidated Balance Sheet as “Assets held for sale” and “Liabilities held for sale” as a result of the Divestiture Transaction:

 

 

(Dollars in thousands)

 

 

 

Assets held for sale

 

 

Licenses

$

 140,599  

 

 

Goodwill

 

 19,474  

 

 

 

Total

$

 160,073  

 

 

 

 

 

 

 

Liabilities held for sale

 

 

Customer deposits and deferred revenues

$

 18,360  

 

6

 

 

 

 

Amounts recorded as Liabilities held for sale will transfer to Sprint upon the closing of the transaction.  Per the Purchase and Sale Agreement with Sprint, the amount of the liabilities transferred to Sprint will be offset against future amounts owed to U.S. Cellular by Sprint under certain other agreements in connection with the Divestiture Transaction.  Therefore, Other current liabilities of $18,360 were recorded in the Consolidated Balance Sheet to reflect this obligation.

 

(8)     As a result of the Deconsolidation, TDS’ investment balances in NY1 and NY2 will be recorded as Investments in unconsolidated entities, thereby eliminating the noncontrolling interest portion previously recorded when NY1 and NY2 were consolidated. 

 

 

7