Discontinued Operations

12 Months Ended

Dec. 31, 2020

Discontinued Operations and Disposal Groups [Abstract]

On August 26, 2020, Sprint Corporation ("Sprint"), an indirect subsidiary of T-Mobile US, Inc., ("T-Mobile"), on behalf of and as the direct or indirect owner of Sprint PCS, delivered notice to the Company exercising its option to purchase the assets and operations of our Wireless operations for 90% of the “Entire Business Value” (as defined under our affiliate agreement and determined pursuant to the appraisal process set forth therein). Shortly thereafter, the Company committed to a plan to sell the discontinued Wireless operations.

The final and binding appraisal process was completed on February 1, 2021. Expected sale proceeds are $1.95 billion based upon the appraisal process and other agreements between the parties.

We expect to enter into a definitive asset purchase agreement with T-Mobile during the first quarter 2021 and expect that the transaction will close during the second quarter 2021, subject to customary closing conditions and required regulatory approvals.

The assets and liabilities that are expected to transfer in the sale are presented as held for sale within our Consolidated Balance Sheets. This disposal group excludes the accounts receivable and certain current liabilities generated by our Wireless operations because they are expected to be settled separately from the sale. Such accounts receivable totaled $51.7 million and $51.0 million at December 31, 2020 and December 31, 2019, respectively, and such current liabilities totaled $6.1 million and $27.7 million at December 31, 2020 and December 31, 2019, respectively. During the fourth quarter of 2020 and subsequent thereto, the parties agreed that our pension and postretirement plan liabilities due to certain current and former Wireless employees would not transfer in the sale. Our identification of assets and liabilities held for sale as of December 31, 2020 and 2019 has been updated accordingly, and could change again based on the terms of the final asset purchase agreement.

The transaction is structured as an asset sale for income tax purposes. As a result, no current or deferred tax assets or liabilities are included within the disposal group. While our long-term debt does not transfer in the sale, its provisions require us to repay all of the debt upon consummation of the sale. Our debt is therefore presented outside of the disposal group as a current liability at December 31, 2020. Our related interest rate swap liabilities are also presented outside of the disposal group as a current liability at December 31, 2020 because management intends to settle it at consummation.

The expected divestiture of our Wireless operations represents a strategic shift in the Company’s business and qualifies as a discontinued operation. Accordingly, the operating results and cash flows from our Wireless operations have been reflected as discontinued operations in our Consolidated Statements of Comprehensive Income and the Consolidated Statements of Cash Flows. Similarly, the results of our Wireless operations are no longer presented as a reporting segment. Because repayment of the debt is contractually triggered by the sale, the related interest expense is presented within discontinued operations under the relevant authoritative guidance. Consistent with the internal reporting provided to our chief operating decision maker, we previously allocated certain corporate management overhead costs to the former Wireless segment which may no longer be allocated to discontinued operations under the relevant authoritative guidance. Accordingly, we elected to recast our segment reporting note, to reflect the reattribution of these expenses in all presented periods in a manner that is also consistent with our updated internal reporting.

The carrying amounts of the major classes of assets and liabilities, which are classified as held for sale in the consolidated balance sheets, are as follows:


(in thousands)	December 31, 2020		December 31, 2019
ASSETS
Inventory	$	5,746	$	5,728
Prepaid expenses and other	47,003		49,349
Property, plant and equipment, net	299,647		—
Intangible assets, net	176,459		—
Goodwill	146,383		—
Operating lease right-of-use assets	421,586		—
Deferred charges and other assets	36,470		—
Current assets held for sale	$	1,133,294	$	55,077

Property, plant and equipment, net	$	—	$	338,427
Intangible assets, net	—		228,593
Goodwill	—		146,383
Operating lease right-of-use assets	—		384,010
Deferred charges and other assets	—		44,085
Non-current assets held for sale	$	—	$	1,141,498

Total assets held for sale	$	1,133,294	$	1,196,575

LIABILITIES
Current operating lease liabilities	$	409,887	$	47,077
Accrued liabilities and other	8,770		6,835
Asset retirement obligations	33,545		—
Current liabilities held for sale	$	452,202	$	53,912

Non-current operating lease liabilities	$	—	$	337,661
Asset retirement obligations	—		30,762
Non-current liabilities held for sale	$	—	$	368,423

Total liabilities held for sale	$	452,202	$	422,335

Income from discontinued operations, net of tax in the consolidated statements of comprehensive income consist of the following for the years ended December 31, 2020, 2019 and 2018:


(in thousands)
Revenue:	2020		2019		2018
Service revenue and other	$	401,035	$	375,730	$	382,948
Equipment revenue	41,338		67,659		67,510
Total revenue	442,373		443,389		450,458
Operating expenses:
Cost of services	116,394		128,482		125,082
Cost of goods sold	40,642		65,148		63,583
Selling, general and administrative	34,011		39,128		43,563
Depreciation and amortization	62,930		111,467		122,014
Total operating expenses	253,977		344,225		354,242
Operating income	188,396		99,164		96,216
Other (expense) income:
Interest expense	(20,455)		(29,286)		(34,838)
Income before income taxes	167,941		69,878		61,378
Income tax expense	43,844		16,310		16,860
Income from discontinued operations, net of tax	$	124,097	$	53,568	$	44,518

Our Broadband and Tower segments recognize revenue for their respective provision of cell site backhaul service and leased colocation space to the discontinued Wireless operations. That revenue is earned under contracts executed at our estimate of fair market value, which will transfer upon consummation of the sale. Accordingly, we expect to have a level of continuing involvement with the discontinued operations via these pre-existing contractual arrangements. Revenue recognized within continuing operations pursuant to these agreements is disclosed in Note 15, Segment Reporting. Because the right to use space on our owned cell towers and the related lease liability will be transferred in the sale, they have been included in our disposal group under the relevant authoritative guidance. These right of use assets and lease liabilities were previously eliminated within our consolidated financial statements. Total assets and total liabilities as of December 31, 2019 therefore increased by $34 million as a result.

Under the relevant authoritative guidance, consummation of the sale will trigger or accelerate the recognition of certain expense related to contingent deal advisory fees, severance costs, recognition of our interest rate swap losses in net income, and loss on debt extinguishment. Our estimate of the related range of reasonably possible expense extends from $0 if the sale is not consummated to $35.9 million.