Exhibit 99.2
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On November 6, 2012, United States Cellular Corporation (“U.S. Cellular”) 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, U.S. Cellular 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, U.S. Cellular 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 U.S. Cellular 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 U.S. Cellular 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 U.S. Cellular’s 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 U.S. Cellular’s 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 U.S. Cellular’s 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 U.S. Cellular’s 2012 fiscal year. | |||||||||||||
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United States Cellular Corporation Pro Forma Statement of Operations (Unaudited) | |||||||||||||
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| Less: |
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Year Ended December 31, 2012 | As Reported |
| Divestiture Markets (1) |
| NY1 & NY2 (2) |
| Pro Forma | ||||||
(Dollars and shares in thousands, except per share amounts) |
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Operating revenues |
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| Service | $ | 4,098,856 |
| $ | 420,342 |
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| 157,807 |
| $ | 3,520,707 | |
| Equipment sales |
| 353,228 |
|
| 35,797 |
|
| 11,164 |
|
| 306,267 | |
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| Total operating revenues |
| 4,452,084 |
|
| 456,139 |
|
| 168,971 |
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| 3,826,974 |
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Operating expenses |
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| System operations (excluding Depreciation, amortization and accretion reported below) |
| 946,805 |
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| 89,648 |
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| 40,432 |
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| 816,725 | |
| Cost of equipment sold |
| 935,947 |
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| 92,955 |
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| 23,683 |
|
| 819,309 | |
| Selling, general and administrative (including charges from affiliates of $104.3 million) |
| 1,764,933 |
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| 143,706 |
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| 46,317 |
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| 1,574,910 | |
| Depreciation, amortization and accretion |
| 608,633 |
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| 104,060 |
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| 10,262 |
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| 494,311 | |
| (Gain) loss on asset disposals and exchanges, net |
| 18,088 |
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| 9,210 |
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| - |
|
| 8,878 | |
| (Gain) loss on sale of business and other exit costs, net |
| 21,022 |
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| 24,445 |
|
| - |
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| (3,423) | |
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| Total operating expenses |
| 4,295,428 |
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| 464,024 |
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| 120,694 |
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| 3,710,710 |
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Operating income |
| 156,656 |
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| (7,885) |
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| 48,277 |
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| 116,264 | ||
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Investment and other income (expense) |
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| Equity in earnings of unconsolidated entities |
| 90,364 |
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| - |
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| (28,407) |
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| 118,771 | |
| Interest and dividend income |
| 3,644 |
|
| - |
|
| - |
|
| 3,644 | |
| Gain (loss) on investment |
| (3,718) |
|
| - |
|
| - |
|
| (3,718) | |
| Interest expense |
| (42,393) |
|
| (279) |
|
| - |
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| (42,114) | |
| Other, net |
| 500 |
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| - |
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| 90 |
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| 410 | |
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| Total investment and other income (expense) |
| 48,397 |
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| (279) |
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| (28,317) |
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| 76,993 |
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Income (loss) before income taxes |
| 205,053 |
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| (8,164) |
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| 19,960 |
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| 193,257 | ||
| Income tax expense (benefit) (3) |
| 63,977 |
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| (3,088) |
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| - |
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| 67,065 | |
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Net income |
| 141,076 |
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| (5,076) |
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| 19,960 |
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| 126,192 | ||
| Less: Net income attributable to noncontrolling interests, net of tax |
| (30,070) |
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| - |
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| (19,960) |
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| (10,110) | |
Net income attributable to U.S. Cellular shareholders | $ | 111,006 |
| $ | (5,076) |
| $ | - |
| $ | 116,082 | ||
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Basic weighted average shares outstanding (4) |
| 84,645 |
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| - |
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| - |
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| 84,645 | ||
Basic earnings per share attributable to U.S. Cellular shareholders | $ | 1.31 |
| $ | - |
| $ | - |
| $ | 1.37 | ||
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Diluted weighted average shares outstanding (4) |
| 85,067 |
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| - |
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| - |
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| 85,067 | ||
Diluted earnings per share attributable to U.S. Cellular shareholders | $ | 1.30 |
| $ | - |
| $ | - |
| $ | 1.36 |
2
United States Cellular Corporation Pro Forma Statement of Operations (Unaudited) | |||||||||||||
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| Less: |
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Three Months Ended March 31, 2013 | As Reported |
| Divestiture Markets (1) |
| NY1 & NY2 (2) |
| Pro Forma | ||||||
(Dollars and shares in thousands, except per share amounts) |
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Operating revenues |
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| Service | $ | 996,349 |
| $ | 95,244 |
| $ | 40,816 |
| $ | 860,289 | |
| Equipment sales |
| 85,397 |
|
| 4,643 |
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| 2,486 |
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| 78,268 | |
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| Total operating revenues |
| 1,081,746 |
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| 99,887 |
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| 43,302 |
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| 938,557 |
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Operating expenses |
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| System operations (excluding Depreciation, amortization and accretion reported below) |
| 216,299 |
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| 20,355 |
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| 11,701 |
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| 184,243 | |
| Cost of equipment sold |
| 241,691 |
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| 9,230 |
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| 5,446 |
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| 227,015 | |
| Selling, general and administrative (including charges from affiliates of $23.5 million) |
| 420,080 |
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| 24,844 |
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| 11,808 |
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| 383,428 | |
| Depreciation, amortization and accretion |
| 189,845 |
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| 55,969 |
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| 2,735 |
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| 131,141 | |
| Loss on asset disposals, net |
| 5,434 |
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| 780 |
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| - |
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| 4,654 | |
| (Gain) loss on sale of business and other exit costs, net |
| 6,931 |
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| 7,118 |
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| - |
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| (187) | |
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| Total operating expenses |
| 1,080,280 |
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| 118,296 |
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| 31,690 |
|
| 930,294 |
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Operating income |
| 1,466 |
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| (18,409) |
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| 11,612 |
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| 8,263 | ||
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Investment and other income (expense) |
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| Equity in earnings of unconsolidated entities |
| 26,835 |
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| - |
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| (6,824) |
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| 33,659 | |
| Interest and dividend income |
| 903 |
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| - |
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| - |
|
| 903 | |
| Interest expense |
| (10,910) |
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| (80) |
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| - |
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| (10,830) | |
| Other, net |
| (215) |
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| - |
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| 7 |
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| (222) | |
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| Total investment and other income (expense) |
| 16,613 |
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| (80) |
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| (6,817) |
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| 23,510 |
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Income (loss) before income taxes |
| 18,079 |
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| (18,489) |
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| 4,795 |
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| 31,773 | ||
| Income tax expense (benefit) (3) |
| 7,369 |
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| (6,994) |
|
| - |
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| 14,363 | |
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Net income |
| 10,710 |
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| (11,495) |
|
| 4,795 |
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| 17,410 | ||
| Less: Net income attributable to noncontrolling interests, net of tax |
| (5,796) |
|
| - |
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| (4,795) |
|
| (1,001) | |
Net income attributable to U.S. Cellular shareholders | $ | 4,914 |
| $ | (11,495) |
| $ | - |
| $ | 16,409 | ||
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Basic weighted average shares outstanding (4) |
| 83,838 |
|
| - |
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| - |
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| 83,838 | ||
Basic earnings per share attributable to U.S. Cellular shareholders | $ | 0.06 |
| $ | - |
| $ | - |
| $ | 0.20 | ||
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Diluted weighted average shares outstanding (4) |
| 84,403 |
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| - |
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| - |
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| 84,403 | ||
Diluted earnings per share attributable to U.S. Cellular shareholders | $ | 0.06 |
| $ | - |
| $ | - |
| $ | 0.19 |
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. | |||||||||||||
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United States Cellular Corporation Pro Forma Balance Sheet — Assets (Unaudited) | |||||||||||||
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| Less: |
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March 31, 2013 | As Reported |
| Divestiture Markets (5) |
| NY1 & NY2 (6) |
| Pro Forma | ||||||
(Dollars in thousands) |
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Current assets |
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| Cash and cash equivalents | $ | 419,696 |
| $ | (480,000) |
| $ | - |
| $ | 899,696 | |
| Short-term investments |
| 110,585 |
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| - |
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| - |
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| 110,585 | |
| Accounts receivable |
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| |
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| Customers and agents |
| 314,463 |
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| - |
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| 11,723 |
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| 302,740 |
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| Roaming |
| 29,132 |
|
| - |
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| - |
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| 29,132 |
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| Affiliated |
| 44 |
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| - |
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| - |
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| 44 |
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| Other |
| 51,062 |
|
| - |
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| 23,910 |
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| 27,152 |
| Inventory |
| 139,136 |
|
| - |
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| - |
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| 139,136 | |
| Income taxes receivable |
| 2,776 |
|
| - |
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| - |
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| 2,776 | |
| Prepaid expenses |
| 64,365 |
|
| - |
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| 25 |
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| 64,340 | |
| Net deferred income tax asset |
| 36,302 |
|
| - |
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| - |
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| 36,302 | |
| Other current assets |
| 17,111 |
|
| - |
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| - |
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| 17,111 | |
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| 1,184,672 |
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| (480,000) |
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| 35,658 |
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| 1,629,014 |
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Assets held for sale (7) |
| 213,593 |
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| 213,593 |
|
| - |
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| - | ||
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Investments |
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| Licenses |
| 1,470,944 |
|
| - |
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| - |
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| 1,470,944 | |
| Goodwill |
| 421,743 |
|
| - |
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| 33,714 |
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| 388,029 | |
| Customer lists, net of accumulated amortization of $96,843 |
| 68 |
|
| - |
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| - |
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| 68 | |
| Investments in unconsolidated entities |
| 165,529 |
|
| - |
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| (120,000) |
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| 285,529 | |
| Long-term investments |
| 40,142 |
|
| - |
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| - |
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| 40,142 | |
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| 2,098,426 |
|
| - |
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| (86,286) |
|
| 2,184,712 |
Property, plant and equipment |
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| In service and under construction |
| 7,562,931 |
|
| - |
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| 139,112 |
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| 7,423,819 | |
| Less: Accumulated depreciation |
| 4,614,423 |
|
| - |
|
| 57,697 |
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| 4,556,726 | |
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| 2,948,508 |
|
| - |
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| 81,415 |
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| 2,867,093 |
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Other assets and deferred charges |
| 78,436 |
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| - |
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| 69 |
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| 78,367 | ||
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Total assets | $ | 6,523,635 |
| $ | (266,407) |
| $ | 30,856 |
| $ | 6,759,186 |
4
United States Cellular Corporation Pro Forma Balance Sheet — Liabilities and Equity (Unaudited) | ||||||||||||||||
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| Less: |
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March 31, 2013 | As Reported |
| Divestiture Markets (5) |
| NY1 & NY2 (6) |
| Pro Forma | |||||||||
(Dollars and shares in thousands) |
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Current liabilities |
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| Current portion of long-term debt | $ | 93 |
| $ | - |
| $ | - |
| $ | 93 | ||||
| Accounts payable |
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| - |
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| Affiliated |
| 8,792 |
|
| - |
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| 5,048 |
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| 3,744 | |||
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| Trade |
| 281,762 |
|
| - |
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| 5,073 |
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| 276,689 | |||
| Customer deposits and deferred revenues |
| 202,209 |
|
| - |
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| - |
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| 202,209 | ||||
| Accrued taxes |
| 43,357 |
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| (138,458) |
|
| - |
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| 181,815 | ||||
| Accrued compensation |
| 50,698 |
|
| - |
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| - |
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| 50,698 | ||||
| Other current liabilities (7) |
| 98,657 |
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| (18,360) |
|
| - |
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| 117,017 | ||||
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| 685,568 |
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| (156,818) |
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| 10,121 |
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| 832,265 |
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Liabilities held for sale (7) |
| 18,360 |
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| 18,360 |
|
| - |
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| - | |||||
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Deferred liabilities and credits |
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| Net deferred income tax liability |
| 857,439 |
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| 26,301 |
|
| - |
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| 831,138 | ||||
| Other deferred liabilities and credits |
| 292,687 |
|
| - |
|
| 726 |
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| 291,961 | ||||
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Long-term debt |
| 878,975 |
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| - |
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| - |
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| 878,975 | |||||
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Commitments and contingencies |
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Noncontrolling interests with redemption features |
| 466 |
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| - |
|
| - |
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| 466 | |||||
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Equity |
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| U.S. Cellular shareholders' equity |
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| Series A Common and Common Shares |
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| Par Value ($1 per share) ($33,006 Series A Common and $55,068 Common Shares) |
| 88,074 |
|
| - |
|
| - |
|
| 88,074 | ||
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| Additional paid-in capital |
| 1,417,308 |
|
| - |
|
| - |
|
| 1,417,308 | |||
|
| Treasury shares, at cost, 4,383 Common Shares |
| (183,385) |
|
| - |
|
| - |
|
| (183,385) | |||
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| Retained earnings |
| 2,403,325 |
|
| (154,250) |
|
| (23,762) |
|
| 2,581,337 | |||
|
|
| Total U.S. Cellular shareholders' equity |
| 3,725,322 |
|
| (154,250) |
|
| (23,762) |
|
| 3,903,334 | ||
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| Noncontrolling interests (8) |
| 64,818 |
|
| - |
|
| 43,771 |
|
| 21,047 | ||||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total equity |
| 3,790,140 |
|
| (154,250) |
|
| 20,009 |
|
| 3,924,381 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity | $ | 6,523,635 |
| $ | (266,407) |
| $ | 30,856 |
| $ | 6,759,186 |
(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 U.S. Cellular’s share of NY1 & NY2 net income for the period based on U.S. Cellular's interests in the Partnerships.
(3) The income tax expense (benefit) is based on U.S. Cellular’s statutory tax rate applied to the cumulative effect of changes within the Divestiture Markets.
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(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, U.S. Cellular will recognize a gain of approximately $154 million, net of income tax expense of approximately $112 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) |
| (213,593) | |
|
| Current and deferred tax effect |
| (112,157) | |
|
|
| Gain, net of tax | $ | 154,250 |
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, U.S. Cellular’s interest in the Partnerships is reflected in Investments in unconsolidated entities at fair value as of April 3, 2013. The fair value of U.S. Cellular’s interest in the Partnerships is estimated to be in the range of $112 million to $128 million. U.S. Cellular therefore expects to recognize a non-cash pre-tax gain in the range of $16 million to $32 million. For purposes of the unaudited pro forma financial information contained herein, U.S. Cellular assumed a fair value of approximately $120 million, which generated a non-cash pre-tax gain of approximately $24 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 U.S. Cellular’s 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 U.S. Cellular 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 |
| (33,714) | |
|
|
| Gain | $ | 23,762 |
(7) At March 31, 2013, the following assets and liabilities were classified in U.S. Cellular’s 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 |
| 72,994 | |
|
|
| Total | $ | 213,593 |
|
|
|
|
|
|
| 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, U.S. Cellular’s 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