Edgar Filing: TELEPHONE & DATA SYSTEMS INC /DE/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013



TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-14157

TELEPHONE AND DATA SYSTEMS, INC.

(Exact name of Registrant as specified in its charter)

Delaware

36-2669023

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

30 North LaSalle Street, Chicago, Illinois 60602

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (312) 630-1900

Indicate by check mark

Yes

• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



• whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer



Non-accelerated filer



Smaller reporting company



• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at March 31, 2013

Common Shares, $0.01 par value

100,917,126 Shares

Series A Common Shares, $0.01 par value

7,160,055 Shares

Telephone and Data Systems, Inc.

Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2013

Index

				Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)		1

		Consolidated Statement of Operations		1
			Three Months Ended March 31, 2013 and 2012

		Consolidated Statement of Comprehensive Income		2
			Three Months Ended March 31, 2013 and 2012

		Consolidated Statement of Cash Flows		3
			Three Months Ended March 31, 2013 and 2012

		Consolidated Balance Sheet March 31, 2013 and December 31, 2012		4

		Consolidated Statement of Changes in Equity		6
			Three Months Ended March 31, 2013 and 2012

		Notes to Consolidated Financial Statements		8

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		21

		Overview		21
		Divestiture Transaction		24
		2013 Estimates		25
		Three Months Ended March 31, 2013 and 2012
			Results of Operations — Consolidated	28
			Results of Operations — U.S. Cellular	30
			Results of Operations — TDS Telecom	35
		Recent Accounting Pronouncements		39
		Financial Resources		39
		Liquidity and Capital Resources		40
		Application of Critical Accounting Policies and Estimates		43
		Safe Harbor Cautionary Statement		44

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47

	Item 4.	Controls and Procedures		48

Part II.	Other Information

	Item 1.	Legal Proceedings		49

	Item 1A.	Risk Factors		49

	Item 5.	Other Information		50

	Item 6.	Exhibits		51

Signatures

Part I. Financial Information
Item 1. Financial Statements
Telephone and Data Systems, Inc. Consolidated Statement of Operations (Unaudited)

			Three Months Ended
			March 31,
(Dollars and shares in thousands, except per share amounts)			2013		2012
Operating revenues			$	1,308,573	$	1,305,791

Operating expenses
	Cost of services and products (excluding Depreciation, amortization and accretion expense reported below)			559,892		509,211
	Selling, general and administrative			486,903		507,599
	Depreciation, amortization and accretion			242,077		197,434
	Loss on asset disposals, net			5,616		2,079
	(Gain) loss on sale of business and other exit costs, net			6,931		(4,174)
		Total operating expenses		1,301,419		1,212,149

Operating income				7,154		93,642

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			27,089		23,389
	Interest and dividend income			1,578		2,183
	Interest expense			(24,498)		(24,464)
	Other, net			(154)		228
		Total investment and other income (expense)		4,015		1,336

Income before income taxes				11,169		94,978
	Income tax expense			4,180		27,412
Net income				6,989		67,566
Less: Net income attributable to noncontrolling interests, net of tax				(5,570)		(15,312)
Net income attributable to TDS shareholders				1,419		52,254
Preferred dividend requirement				(12)		(12)
Net income available to common shareholders			$	1,407	$	52,242

Basic weighted average shares outstanding				108,255		108,653
Basic earnings per share attributable to TDS shareholders			$	0.01	$	0.48

Diluted weighted average shares outstanding				108,693		109,098
Diluted earnings per share attributable to TDS shareholders			$	0.01	$	0.48

Dividends per share			$	0.1275	$	0.1225

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc. Consolidated Statement of Comprehensive Income (Unaudited)

				Three Months Ended
				March 31,
(Dollars in thousands)				2013		2012
Net income				$	6,989	$	67,566
Net change in accumulated other comprehensive income (loss)
	Change in foreign currency translation adjustment				15		-
	Change related to retirement plan
		Amounts included in net periodic benefit cost for the period
			Amortization of prior service cost		(902)		(934)
			Amortization of unrecognized net loss		602		623
					(300)		(311)
			Change in deferred income taxes		114		470
		Change related to retirement plan, net of tax			(186)		159
	Net change in accumulated other comprehensive income (loss)				(171)		159
Comprehensive income					6,818		67,725
	Less: Comprehensive income attributable to noncontrolling interest				(5,570)		(15,312)
Comprehensive income attributable to TDS Shareholders				$	1,248	$	52,413

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc. Consolidated Statement of Cash Flows (Unaudited)
			Three Months Ended
			March 31,
(Dollars in thousands)			2013		2012
Cash flows from operating activities
	Net income		$	6,989	$	67,566
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
		Depreciation, amortization and accretion		242,077		197,434
		Bad debts expense		17,874		15,105
		Stock-based compensation expense		7,585		10,330
		Deferred income taxes, net		3,009		6,187
		Equity in earnings of unconsolidated entities		(27,089)		(23,389)
		Distributions from unconsolidated entities		8,089		2,938
		Loss on asset disposals, net		5,616		2,079
		(Gain) loss on sale of business and other exit costs, net		6,931		(4,174)
		Noncash interest expense		497		862
		Other operating activities		256		852
	Changes in assets and liabilities from operations
		Accounts receivable		34,038		38,941
		Inventory		16,860		(4,842)
		Accounts payable		(3,203)		(25,372)
		Customer deposits and deferred revenues		7,904		10,745
		Accrued taxes		5,309		82,014
		Accrued interest		9,279		9,117
		Other assets and liabilities		(95,669)		(104,148)
				246,352		282,245

Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(176,318)		(242,611)
	Cash paid for acquisitions and licenses			(14,150)		(11,096)
	Cash received from divestitures			-		50,036
	Cash paid for investments			-		(10,000)
	Cash received for investments			-		20,249
	Other investing activities			6,364		(436)
				(184,104)		(193,858)

Cash flows from financing activities
	Repayment of long-term debt			(328)		(493)
	Issuance of long-term debt			-		358
	TDS Common Shares and Special Common Shares reissued for benefit plans, net of tax payments			140		(33)
	U.S. Cellular Common Shares reissued for benefit plans, net of tax payments			123		357
	Repurchase of U.S. Cellular Common Shares			(18,425)		-
	Dividends paid			(13,792)		(13,301)
	Distributions to noncontrolling interests			(2,396)		(218)
	Other financing activities			(1,351)		798
				(36,029)		(12,532)

Net increase in cash and cash equivalents				26,219		75,855

Cash and cash equivalents
	Beginning of period			740,481		563,275
	End of period		$	766,700	$	639,130

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc. Consolidated Balance Sheet — Assets (Unaudited)
(Dollars in thousands)			March 31, 2013		December 31, 2012
Current assets
	Cash and cash equivalents		$	766,700	$	740,481
	Short-term investments			125,595		115,700
	Accounts receivable
		Due from customers and agents, less allowances of $27,413 and $28,152, respectively		374,715		409,720
		Other, less allowances of $3,670 and $5,263, respectively		131,995		164,608
	Inventory			143,832		160,692
	Net deferred income tax asset			44,288		43,411
	Prepaid expenses			86,879		86,385
	Income taxes receivable			11,301		9,625
	Other current assets			30,498		32,815
				1,715,803		1,763,437

Assets held for sale				160,073		163,242

Investments
	Licenses			1,494,189		1,480,039
	Goodwill			797,194		797,194
	Other intangible assets, net of accumulated amortization of $146,578 and $143,613, respectively			55,557		58,522
	Investments in unconsolidated entities			201,171		179,921
	Long-term investments			40,142		50,305
	Other investments			778		824
				2,589,031		2,566,805
Property, plant and equipment
	In service and under construction			10,917,301		10,808,499
	Less: Accumulated depreciation			7,010,706		6,811,233
				3,906,595		3,997,266

Other assets and deferred charges				130,321		133,150

Total assets			$	8,501,823	$	8,623,900

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc. Consolidated Balance Sheet — Liabilities and Equity (Unaudited)
(Dollars and shares in thousands)				March 31, 2013		December 31, 2012
Current liabilities
	Current portion of long-term debt			$	1,318	$	1,233
	Accounts payable				335,065		377,291
	Customer deposits and deferred revenues				231,478		222,345
	Accrued interest				15,774		6,565
	Accrued taxes				55,944		48,237
	Accrued compensation				75,324		134,932
	Other current liabilities				102,208		134,005
					817,111		924,608

Liabilities held for sale					18,360		19,594

Deferred liabilities and credits
	Net deferred income tax liability				867,954		862,580
	Other deferred liabilities and credits				445,614		438,727

Long-term debt					1,721,338		1,721,571

Commitments and contingencies

Noncontrolling interests with redemption features					466		493

Equity
	TDS shareholders’ equity
		Series A Common and Common Shares
			Authorized 290,000 shares (25,000 Series A Common and 265,000 Common Shares)
			Issued 132,672 shares (7,160 Series A Common and 125,512 Common Shares)
			Outstanding 108,077 shares (7,160 Series A Common and 100,917 Common Shares) and 108,031 shares (7,160 Series A Common and 100,871 Common Shares), respectively
			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		2,304,122
		Treasury shares at cost:
			24,595 and 24,641 Common Shares, respectively		(747,831)		(750,099)
		Accumulated other comprehensive loss			(8,303)		(8,132)
		Retained earnings			2,449,720		2,464,318
			Total TDS shareholders' equity		3,997,698		4,011,536

	Preferred shares				825		825
	Noncontrolling interests				632,457		643,966

		Total equity			4,630,980		4,656,327

Total liabilities and equity				$	8,501,823	$	8,623,900

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc. Consolidated Statement of Changes in Equity (Unaudited)

	TDS Shareholders
(Dollars in thousands)	Series A Common and Common Shares		Capital in Excess of Par Value		Treasury Common Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total TDS Shareholders' Equity		Preferred Shares		Non controlling Interests		Total Equity
December 31, 2012	$	1,327	$	2,304,122	$	(750,099)	$	(8,132)	$	2,464,318	$	4,011,536	$	825	$	643,966	$	4,656,327
Add (Deduct)
Net income attributable to TDS shareholders		-		-		-		-		1,419		1,419		-		-		1,419
Net income attributable to noncontrolling interests classified as equity		-		-		-		-		-		-		-		5,597		5,597
Change in foreign currency translation adjustment		-		-		-		15		-		15		-		-		15
Change related to retirement plan		-		-		-		(186)		-		(186)		-		-		(186)
Common and Series A Common Shares dividends		-		-		-		-		(13,780)		(13,780)		-		-		(13,780)
Preferred dividend requirement		-		-		-		-		(12)		(12)		-		-		(12)
Dividend reinvestment plan		-		-		3		-		(2)		1		-		-		1
Incentive and compensation plans		-		534		2,265		-		(2,223)		576		-		-		576
Adjust investment in subsidiaries for repurchases, issuances, other compensation plans and noncontrolling interest purchases		-		(3,734)		-		-		-		(3,734)		-		(14,710)		(18,444)
Stock-based compensation awards		-		2,395		-		-		-		2,395		-		-		2,395
Tax windfall (shortfall) from stock awards		-		(532)		-		-		-		(532)		-		-		(532)
Distributions to noncontrolling interests		-		-		-		-		-		-		-		(2,396)		(2,396)
March 31, 2013	$	1,327	$	2,302,785	$	(747,831)	$	(8,303)	$	2,449,720	$	3,997,698	$	825	$	632,457	$	4,630,980

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc. Consolidated Statement of Changes in Equity (Unaudited)

	TDS Shareholders
(Dollars in thousands)	Series A Common and Common Shares		Capital in Excess of Par Value		Treasury Common Shares		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total TDS Shareholders' Equity		Preferred Shares		Non controlling Interests		Total Equity
December 31, 2011	$	1,326	$	2,268,711	$	(750,921)	$	(8,854)	$	2,451,899	$	3,962,161	$	830	$	639,688	$	4,602,679
Add (Deduct)
Net income attributable to TDS shareholders		-		-		-		-		52,254		52,254		-		-		52,254
Net income attributable to noncontrolling interests classified as equity		-		-		-		-		-		-		-		15,252		15,252
Change related to retirement plan		-		-		-		159		-		159		-		-		159
Common and Series A Common Shares dividends		-		-		-		-		(13,289)		(13,289)		-		-		(13,289)
Preferred dividend requirement		-		-		-		-		(12)		(12)		-		-		(12)
Dividend reinvestment plan		-		296		2,703		-		(1,585)		1,414		-		-		1,414
Incentive and compensation plans		-		444		1,230		-		(1,331)		343		-		-		343
Adjust investment in subsidiaries for repurchases, issuances and other compensation plans		-		4,157		-		-		-		4,157		-		1,678		5,835
Stock-based compensation awards		-		4,845		-		-		-		4,845		-		-		4,845
Tax windfall (shortfall) from stock awards		-		(69)		-		-		-		(69)		-		-		(69)
Distributions to noncontrolling interests		-		-		-		-		-		-		-		(218)		(218)
Other		-		-		-		-		-		-		-		84		84
March 31, 2012	$	1,326	$	2,278,384	$	(746,988)	$	(8,695)	$	2,487,936	$	4,011,963	$	830	$	656,484	$	4,669,277

The accompanying notes are an integral part of these consolidated financial statements.

Telephone and Data Systems, Inc.

Notes to Consolidated Financial Statements

1. Basis of Presentation

The accounting policies of Telephone and Data Systems, Inc. (“TDS”) conform to accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The consolidated financial statements include the accounts of TDS and its majority-owned subsidiaries, including TDS’ 85%-owned wireless telephone subsidiary, United States Cellular Corporation (“U.S. Cellular”) and TDS’ wholly-owned wireline telephone subsidiary, TDS Telecommunications Corporation (“TDS Telecom”). In addition, the consolidated financial statements include certain entities in which TDS has a variable interest that require consolidation under GAAP. All material intercompany accounts and transactions have been eliminated.

The consolidated financial statements included herein have been prepared by TDS, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, TDS believes that the disclosures included herein are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in TDS’ Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2012.

TDS’ business segments reflected in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, are U.S. Cellular, TDS Telecom’s incumbent local exchange carriers, (“ILEC”), its competitive local exchange carrier (“CLEC”), its Hosted and Managed Services (“HMS”) operations, and the Non-Reportable Segment which includes TDS’ majority-owned printing and distribution company, Suttle-Straus, Inc. (“Suttle-Straus”) and TDS’ wholly-owned wireless telephone subsidiary, Airadigm Communications, Inc. (“Airadigm”). All of TDS’ segments operate only in the United States, except for HMS, which includes an insignificant foreign operation.

The accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring items, unless otherwise disclosed) necessary for a fair statement of the financial position as of March 31, 2013 and December 31, 2012, and the results of operations, cash flows, changes in comprehensive income and equity for the three months ended March 31, 2013 and 2012. These results are not necessarily indicative of the results to be expected for the full year.

Recent Accounting Pronouncements

As of March 31, 2013, there are no recent accounting pronouncements that are expected to have a material impact on TDS’ financial position or results of operations.

Agent Liabilities

U.S. Cellular has relationships with agents, which are independent businesses that obtain customers for U.S. Cellular. At March 31, 2013 and December 31, 2012, U.S. Cellular had accrued $63.9 million and $88.2 million, respectively, for amounts due to agents, including rebates and commissions. These amounts are included in Other current liabilities in the Consolidated Balance Sheet.

Amounts Collected from Customers and Remitted to Governmental Authorities

If a tax is assessed upon the customer and TDS merely acts as an agent in collecting the tax on behalf of the imposing governmental authority, then amounts collected from customers and remitted to governmental authorities are recorded on a net basis within a tax liability account in the Consolidated Balance Sheet. If the tax is assessed upon TDS, then amounts collected from customers as recovery of the tax are recorded in Operating revenues and amounts remitted to governmental authorities are recorded in Selling, general and administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in revenues that are billed to customers and remitted to governmental authorities totaled $36.1 million for the three months ended March 31, 2013 and $39.6 million for the three months ended March 31, 2012.

2. Fair Value Measurements

As of March 31, 2013 and December 31, 2012, TDS did not have any financial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP. However, 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 Hierarchy	March 31, 2013				December 31, 2012
		Level within the Fair Value Hierarchy	Book Value		Fair Value		Book Value		Fair Value
(Dollars in thousands)
Cash and cash equivalents		1	$	766,700	$	766,700	$	740,481	$	740,481
Short-term investments
	Government-backed securities	1		125,595		125,595		115,700		115,700
Long-term investments
	Government-backed securities	1		40,142		40,175		50,305		50,339
Long-term debt
	Retail	1		1,178,250		1,230,244		1,178,250		1,238,204
	Institutional and other	2		538,369		591,696		538,657		589,435

Short-term investments and Long-term investments are both designated as held-to-maturity investments and recorded at amortized cost in the Consolidated Balance Sheet. Long-term investment maturities are 20 months at March 31, 2013. Government-backed securities include U.S. treasuries and corporate notes guaranteed under the Federal Deposit Insurance Corporation’s Temporary Liquidity Guarantee Program. Long-term debt excludes capital lease obligations and current portion of Long-term debt.

The fair values of Cash and cash equivalents and Short-term investments approximate their book values due to the short-term nature of these financial instruments. The fair values of Long-term investments were estimated using quoted market prices for the individual issuances. The fair value of “Retail” Long-term debt, excluding capital lease obligations and the current portion of such 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. TDS’ institutional debt includes U.S. Cellular’s 6.7% Senior Notes which are traded over the counter. 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 0.0% to 6.05% at March 31, 2013.

As of March 31, 2013 and December 31, 2012, TDS did not have nonfinancial assets or liabilities that required the application of fair value accounting for purposes of reporting such amounts in the Consolidated Balance Sheet.

3. Income Taxes

TDS’ overall effective tax rate on Income before income taxes for the three months ended March 31, 2013 and March 31, 2012 was 37.4% and 28.9%, respectively. The effective tax rate for the three months ended March 31, 2013 was higher than the rate for the three months ended March 31, 2012 primarily as a result of tax benefits related to the expiration of the statute of limitations for certain tax years and the adjustment of deferred tax balances related to certain partnership investments in 2012.

TDS incurred a federal net operating loss in 2011 largely attributable to 100% bonus depreciation applicable to qualified capital expenditures. TDS carried back this federal net operating loss to prior tax years, and received a $71.4 million federal income tax refund in 2012 for carrybacks to 2009 and 2010 tax years. Of this amount, $59.9 million of the refund was received in the three months ended March 31, 2012.

4. Earnings Per Share

Basic earnings per share attributable to TDS shareholders is computed by dividing Net income available to common shareholders of TDS by the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to TDS shareholders is computed by dividing Net income available to common shareholders of TDS by the weighted average number of common shares outstanding during the period adjusted to include the effects of potentially dilutive securities. Potentially dilutive securities primarily include incremental shares issuable upon exercise of outstanding stock options and the vesting of restricted stock units.

The amounts used in computing earnings per share and the effects of potentially dilutive securities on the weighted average number of Common and Series A Common Shares were as follows:

				Three Months Ended
				March 31,
				2013		2012
(Dollars and shares in thousands, except per share amounts)
Basic earnings per share attributable to TDS shareholders:
	Net income available to common shareholders of TDS used in basic earnings per share			$	1,407	$	52,242
Adjustments to compute diluted earnings:
	Noncontrolling interest adjustment				(28)		(345)
	Preferred dividend adjustment				-		12
	Net income attributable to common shareholders of TDS used in diluted earnings per share			$	1,379	$	51,909

Weighted average number of shares used in basic earnings per share:
		Common Shares			101,095		101,534
		Series A Common Shares			7,160		7,119
			Total		108,255		108,653

Effects of dilutive securities:
	Stock options				112		202
	Restricted stock units				326		180
	Preferred shares				-		63
Weighted average number of shares used in diluted earnings per share					108,693		109,098

Basic earnings per share attributable to TDS shareholders				$	0.01	$	0.48

Diluted earnings per share attributable to TDS shareholders				$	0.01	$	0.48

Certain Common Shares issuable upon the exercise of stock options, vesting of restricted stock units or conversion of preferred shares were not included in average diluted shares outstanding for the calculation of Diluted earnings per share attributable to TDS shareholders because their effects were antidilutive. The number of such Common Shares excluded, if any, is shown in the table below.

	Three Months Ended
	March 31,
	2013	2012
(Shares in thousands)
Stock options	6,672	4,301

Preferred shares	61	-

5. Acquisitions, Divestitures and Exchanges

TDS assesses its business interests on an ongoing basis with a goal of improving the competitiveness of its operations and maximizing its long-term return on investment. As part of this strategy, TDS reviews attractive opportunities to acquire additional wireless operating markets and wireless spectrum; and telecommunications companies, cable, HMS or other possible businesses. In addition, TDS may seek to divest outright or include in exchanges for other interests those interests that are not strategic to its long-term success.

Divestiture Transaction

On November 6, 2012, U.S. Cellular entered into a Purchase and Sale Agreement with subsidiaries of Sprint Nextel Corporation (“Sprint”). The Purchase and Sale Agreement provides that U.S. Cellular will transfer customers and certain PCS licensed 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 at closing, subject to pro-rations of certain assets and liabilities. The Purchase and Sale Agreement also contemplates certain other agreements, together with the Purchase and Sale Agreement collectively referred to as the “Divestiture Transaction.” The transaction was approved by the FCC in March 2013 and the closing is expected to occur in the second quarter of 2013.

U.S. Cellular will retain other assets and liabilities related to the Divestiture Markets, including network assets, retail stores and related equipment, and other buildings and facilities. The transaction does not affect spectrum licenses held by U.S. Cellular or variable interest entities (“VIEs”) that are not currently used in the operations of the Divestiture Markets. The Purchase and Sale Agreement also contemplates certain other agreements, including customer and network transition services agreements, which will require that U.S. Cellular provide customer, billing and network services to Sprint for a period of up to 24 months after the closing date. Sprint will reimburse U.S. Cellular for providing such services at an amount equal to U.S. Cellular's cost, including applicable overhead allocations. In addition, these agreements will 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.

Financial impacts of the Divestiture Transaction are classified in the Consolidated Statement of Operations within Operating income. The table below describes the amounts TDS 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, as a result of the transaction.


(Dollars in thousands)			Expected Period of Realization/ Incurrence		Projected Range				Cumulative Amount Incurred as of March 31, 2013		Actual Amount Incurred Three Months Ended March 31, 2013
(Gain) loss on sale of business and other exit costs, net
	Proceeds from Sprint
		Purchase price		2013	$	(480,000)	$	(480,000)	$	-	$	-
		Sprint Cost Reimbursement		2013-2014		(150,000)		(200,000)		-		-
	Net assets transferred			2013		150,000		170,000		-		-
	Non-cash charges for the write-off and write-down of property under construction and related assets			2012-2013		1