Edgar Filing: UNITED STATES CELLULAR CORP

The following table, which is based on information provided in part by third parties, summarizes the combined results of operations of U.S. Cellular’s equity method investments.

Three Months Ended March 31,

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, 2014

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 1-9712

UNITED STATES CELLULAR CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware

62-1147325

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

8410 West Bryn Mawr, Chicago, Illinois 60631

(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code: (773) 399-8900

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, 2014

Common Shares, $1 par value

51,178,608 Shares

Series A Common Shares, $1 par value

33,005,877 Shares

United States Cellular Corporation

Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2014

Index

				Page No.

Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)		1

		Consolidated Statement of Operations		1
			Three Months Ended March 31, 2014 and 2013

		Consolidated Statement of Cash Flows		2
			Three Months Ended March 31, 2014 and 2013

		Consolidated Balance Sheet		3
			March 31, 2014 and December 31, 2013

		Consolidated Statement of Changes in Equity		5
			Three Months Ended March 31, 2014 and 2013

		Notes to Consolidated Financial Statements		7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

		Overview		15

		Results of Operations		17

		Recent Accounting Pronouncements		23

		Financial Resources		23

		Liquidity and Capital Resources		24

		Application of Critical Accounting Policies and Estimates		26

		Safe Harbor Cautionary Statement		27

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30

	Item 4.	Controls and Procedures		30

Part II.	Other Information

	Item 1.	Legal Proceedings		30

	Item1A.	Risk Factors		30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31

	Item 5.	Other Information		31

	Item 6.	Exhibits		32

Signatures

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Part I. Financial Information
Item 1. Financial Statements

United States Cellular Corporation Consolidated Statement of Operations (Unaudited)

			Three Months Ended
			March 31,
(Dollars and shares in thousands, except per share amounts)			2014		2013
Operating revenues
	Service		$	853,613	$	996,349
	Equipment sales			72,198		85,397
		Total operating revenues		925,811		1,081,746

Operating expenses
	System operations (excluding Depreciation, amortization and accretion reported below)			180,607		216,299
	Cost of equipment sold			270,474		241,691
	Selling, general and administrative (including charges from affiliates of $21.2 million and $23.5 million, respectively)			395,564		420,080
	Depreciation, amortization and accretion			167,753		189,845
	(Gain) loss on asset disposals, net			1,934		5,434
	(Gain) loss on sale of business and other exit costs, net			(6,900)		6,931
	(Gain) loss on license sales and exchanges			(91,446)		-
		Total operating expenses		917,986		1,080,280

Operating income				7,825		1,466

Investment and other income (expense)
	Equity in earnings of unconsolidated entities			37,075		26,835
	Interest and dividend income			884		903
	Interest expense			(14,862)		(10,910)
	Other, net			86		(215)
		Total investment and other income		23,183		16,613

Income before income taxes				31,008		18,079
	Income tax expense			12,604		7,369

Net income				18,404		10,710
	Less: Net income (loss) attributable to noncontrolling interests, net of tax			(1,078)		5,796
Net income attributable to U.S. Cellular shareholders			$	19,482	$	4,914

Basic weighted average shares outstanding				84,213		83,838
Basic earnings per share attributable to U.S. Cellular shareholders			$	0.23	$	0.06

Diluted weighted average shares outstanding				85,065		84,588
Diluted earnings per share attributable to U.S. Cellular shareholders			$	0.23	$	0.06

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

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United States Cellular Corporation

Consolidated Statement of Cash Flows (Unaudited)
			Three Months Ended
			March 31,
(Dollars in thousands)			2014		2013
Cash flows from operating activities
	Net income		$	18,404	$	10,710
	Add (deduct) adjustments to reconcile net income to net cash flows from operating activities
		Depreciation, amortization and accretion		167,753		189,845
		Bad debts expense		20,492		16,910
		Stock-based compensation expense		4,955		5,036
		Deferred income taxes, net		(4,817)		7,048
		Equity in earnings of unconsolidated entities		(37,075)		(26,835)
		Distributions from unconsolidated entities		12,818		5,836
		(Gain) loss on asset disposals, net		1,934		5,434
		(Gain) loss on sale of business and other exit costs, net		(6,900)		6,931
		(Gain) loss on license sales and exchanges		(91,446)		-
		Noncash interest expense		269		262
		Other operating activities		47		250
	Changes in assets and liabilities from operations
		Accounts receivable		81,980		33,611
		Inventory		19,306		16,750
		Accounts payable - trade		(38,245)		4,644
		Accounts payable - affiliate		(2,312)		(1,933)
		Customer deposits and deferred revenues		(1,510)		8,862
		Accrued taxes		(15,403)		6,175
		Accrued interest		9,182		9,201
		Other assets and liabilities		(75,896)		(75,122)
				63,536		223,615

Cash flows from investing activities
	Cash used for additions to property, plant and equipment			(109,498)		(151,024)
	Cash paid for acquisitions and licenses			(9,135)		(14,150)
	Cash received from divestitures			103,042		-
	Cash received for investments			10,000		-
	Other investing activities			584		3,654
				(5,007)		(161,520)

Cash flows from financing activities
	Repayment of long-term debt			(23)		(61)
	Common shares reissued for benefit plans, net of tax payments			316		123
	Common shares repurchased			(2,000)		(18,425)
	Distributions to noncontrolling interests			(346)		(2,396)
	Other financing activities			-		2
				(2,053)		(20,757)

Net increase in cash and cash equivalents				56,476		41,338

Cash and cash equivalents
	Beginning of period			342,065		378,358
	End of period		$	398,541	$	419,696

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

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United States Cellular Corporation

Consolidated Balance Sheet — Assets (Unaudited)
(Dollars in thousands)			March 31, 2014		December 31, 2013
Current assets
	Cash and cash equivalents		$	398,541	$	342,065
	Short-term investments			40,056		50,104
	Accounts receivable
		Customers and agents, less allowances of $52,431 and $59,206, respectively		352,366		467,255
		Roaming		26,833		30,136
		Affiliated		667		980
		Other, less allowances of $713 and $1,032, respectively		104,605		88,224
	Inventory, net			218,882		238,188
	Prepaid expenses			65,510		65,596
	Net deferred income tax asset			99,105		99,105
	Other current assets			19,702		19,538
				1,326,267		1,401,191

Assets held for sale				-		16,027

Investments
	Licenses			1,425,945		1,401,126
	Goodwill			387,524		387,524
	Investments in unconsolidated entities			289,842		265,585
				2,103,311		2,054,235
Property, plant and equipment
	In service and under construction			7,715,292		7,717,512
	Less: Accumulated depreciation			4,939,072		4,860,992
				2,776,220		2,856,520

Other assets and deferred charges				132,536		117,735

Total assets			$	6,338,334	$	6,445,708

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

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United States Cellular Corporation

Consolidated Balance Sheet — Liabilities and Equity (Unaudited)
(Dollars and shares in thousands)					March 31, 2014		December 31, 2013
Current liabilities
	Current portion of long-term debt				$	166	$	166
	Accounts payable
		Affiliated				9,266		11,243
		Trade				347,459		405,583
	Customer deposits and deferred revenues					255,230		256,740
	Accrued taxes					58,574		73,820
	Accrued compensation					35,930		66,566
	Other current liabilities					161,446		192,055
						868,071		1,006,173

Deferred liabilities and credits
	Net deferred income tax liability					830,960		836,297
	Other deferred liabilities and credits					330,467		315,073

Long-term debt						878,127		878,032

Commitments and contingencies						-		-

Noncontrolling interests with redemption features						543		536

Equity
	U.S. Cellular shareholders' equity
		Series A Common and Common Shares
			Authorized 190,000 shares (50,000 Series A Common and 140,000 Common Shares)
			Issued 88,074 shares (33,006 Series A Common and 55,068 Common Shares)
			Outstanding 84,185 shares (33,006 Series A Common and 51,179 Common Shares) and 84,205 shares (33,006 Series A Common and 51,199 Common Shares), respectively
			Par Value ($1 per share) ($33,006 Series A Common and $55,068 Common Shares)			88,074		88,074
		Additional paid-in capital				1,429,148		1,424,729
		Treasury shares, at cost, 3,889 and 3,869 Common Shares, respectively				(165,577)		(164,692)
		Retained earnings				2,061,561		2,043,095
			Total U.S. Cellular shareholders' equity			3,413,206		3,391,206

	Noncontrolling interests					16,960		18,391

				Total equity		3,430,166		3,409,597

Total liabilities and equity					$	6,338,334	$	6,445,708

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

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United States Cellular Corporation

Consolidated Statement of Changes in Equity (Unaudited)

	U.S. Cellular Shareholders
(Dollars in thousands)	Series A Common and Common Shares		Additional Paid-In Capital		Treasury Shares		Retained Earnings		Total U.S. Cellular Shareholders' Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2013	$	88,074	$	1,424,729	$	(164,692)	$	2,043,095	$	3,391,206	$	18,391	$	3,409,597
Add (Deduct)
Net income attributable to U.S. Cellular shareholders		-		-		-		19,482		19,482		-		19,482
Net income (loss) attributable to noncontrolling interests classified as equity		-		-		-		-		-		(1,107)		(1,107)
Repurchase of Common Shares		-		-		(2,300)		-		(2,300)		-		(2,300)
Incentive and compensation plans		-		-		1,415		(1,016)		399		-		399
Stock-based compensation awards		-		4,576		-		-		4,576		-		4,576
Tax windfall (shortfall) from stock awards		-		(157)		-		-		(157)		-		(157)
Distributions to noncontrolling interests		-		-		-		-		-		(324)		(324)
Balance, March 31, 2014	$	88,074	$	1,429,148	$	(165,577)	$	2,061,561	$	3,413,206	$	16,960	$	3,430,166

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

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United States Cellular Corporation

Consolidated Statement of Changes in Equity (Unaudited)

	U.S. Cellular Shareholders
(Dollars in thousands)	Series A Common and Common Shares		Additional Paid-In Capital		Treasury Shares		Retained Earnings		Total U.S. Cellular Shareholders' Equity		Noncontrolling Interests		Total Equity
Balance, December 31, 2012	$	88,074	$	1,412,453	$	(165,724)	$	2,399,052	$	3,733,855	$	61,392	$	3,795,247
Add (Deduct)
Net income attributable to U.S. Cellular shareholders		-		-		-		4,914		4,914		-		4,914
Net income attributable to noncontrolling interests classified as equity		-		-		-		-		-		5,822		5,822
Repurchase of Common Shares		-		-		(18,425)		-		(18,425)		-		(18,425)
Incentive and compensation plans		-		-		764		(641)		123		-		123
Stock-based compensation awards		-		5,036		-		-		5,036		-		5,036
Tax windfall (shortfall) from stock awards		-		(181)		-		-		(181)		-		(181)
Distributions to noncontrolling interests		-		-		-		-		-		(2,396)		(2,396)
Balance, March 31, 2013	$	88,074	$	1,417,308	$	(183,385)	$	2,403,325	$	3,725,322	$	64,818	$	3,790,140

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

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United States Cellular Corporation

Notes to Consolidated Financial Statements

1. Basis of Presentation

United States Cellular Corporation (“U.S. Cellular”), a Delaware Corporation, is an 84%-owned subsidiary of Telephone and Data Systems, Inc. (“TDS”).

The accounting policies of U.S. Cellular 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 U.S. Cellular, its majority-owned subsidiaries, general partnerships in which U.S. Cellular has a majority partnership interest and certain entities in which U.S. Cellular 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 U.S. Cellular, 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, U.S. Cellular 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 U.S. Cellular’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2013.

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, 2014 and December 31, 2013, and the results of operations, cash flows and changes in equity for the three months ended March 31, 2014 and 2013. The Consolidated Statement of Comprehensive Income was not included because comprehensive income for the three months ended March 31, 2014 and 2013 equaled net income. These results are not necessarily indicative of the results to be expected for the full year.

Recently Issued Accounting Pronouncements

On April 10, 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”). ASU 2014-08 changes the requirements and disclosures for reporting discontinued operations. U.S. Cellular is required to adopt the provisions of ASU 2014-08 effective January 1, 2015, although early adoption is permitted. The adoption of ASU 2014-08 is not expected to have a significant impact on U.S. Cellular’s financial position or results of operations.

Amounts Collected from Customers and Remitted to Governmental Authorities

If a tax is assessed upon the customer and U.S. Cellular 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 U.S. Cellular, then amounts collected from customers as recovery of the tax are recorded in Service 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 $26.4 million and $32.1 million for the three months ended March 31, 2014, and 2013, respectively.

2. Fair Value Measurements

As of March 31, 2014 and December 31, 2013, U.S. Cellular did not have any financial or nonfinancial assets or liabilities that were required to be recorded at fair value in its Consolidated Balance Sheet in accordance with GAAP. However, U.S. Cellular has applied the provisions of fair value accounting for purposes of computing the fair value of financial instruments for disclosure purposes as displayed below.

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		Level within the Fair Value Hierarchy	March 31, 2014				December 31, 2013
		Level within the Fair Value Hierarchy	Book Value			Fair Value	Book Value		Fair Value
(Dollars in thousands)
Cash and cash equivalents		1	$	398,541	$	398,541	$	342,065	$	342,065
Short-term investments
	U.S. Treasury Notes	1		40,056		40,056		50,104		50,104
Long-term debt
	6.95% Senior Notes	1		342,000		347,062		342,000		309,852
	6.7% Senior Notes	2		532,515		531,869		532,449		507,697

Short-term investments are designated as held-to-maturity investments and recorded at amortized cost in the Consolidated Balance Sheet. Long-term debt excludes capital lease obligations and the 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 value of Long-term debt was estimated using market prices for the 6.95% Senior Notes, and discounted cash flow analysis using an estimated yield to maturity of 6.91% for the 6.7% Senior Notes at March 31, 2014.

3. Income Taxes

U.S. Cellular is included in a consolidated federal income tax return and in certain state income tax returns with other members of the TDS consolidated group. For financial statement purposes, U.S. Cellular and its subsidiaries compute their income tax expense as if they comprised a separate affiliated group and were not included in the TDS consolidated group.

U.S. Cellular’s overall effective tax rate on Income before income taxes for the three months ended March 31, 2014 and 2013 was 40.6% and 40.8%, respectively.

4. Earnings Per Share

Basic earnings per share attributable to U.S. Cellular shareholders is computed by dividing Net income attributable to U.S. Cellular shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share attributable to U.S. Cellular shareholders is computed by dividing Net income attributable to U.S. Cellular shareholders 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 common share and the effects of potentially dilutive securities on the weighted average number of common shares were as follows:

		Three Months Ended
		March 31,
		2014		2013
(Dollars and shares in thousands, except per share amounts)
Net income attributable to U.S. Cellular shareholders		$	19,482	$	4,914

Weighted average number of shares used in basic earnings per share			84,213		83,838
Effects of dilutive securities:
	Stock options		203		151
	Restricted stock units		649		599
Weighted average number of shares used in diluted earnings per share			85,065		84,588

Basic earnings per share attributable to U.S. Cellular shareholders		$	0.23	$	0.06

Diluted earnings per share attributable to U.S. Cellular shareholders		$	0.23	$	0.06

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

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	Three Months Ended
	March 31,
	2014	2013
(Shares in thousands)
Stock options	1,276	2,226

Restricted stock units	-	1

On June 25, 2013, U.S. Cellular paid a special cash dividend of $5.75 per share, for an aggregate amount of $482.3 million, to all holders of U.S. Cellular Common Shares and Series A Common Shares as of June 11, 2013. Outstanding U.S. Cellular stock options and restricted stock unit awards were equitably adjusted for the special cash dividend. The impact of such adjustments on the earnings per share calculation was reflected for all periods presented.

5. Acquisitions, Divestitures and Exchanges

Divestiture Transaction

On November 6, 2012, U.S. Cellular entered into a Purchase and Sale Agreement with subsidiaries of Sprint Corp., fka Sprint Nextel Corporation (“Sprint”). Pursuant to the Purchase and Sale Agreement, on May 16, 2013, U.S. Cellular transferred customers and certain PCS license 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. The Purchase and Sale Agreement also contemplated certain other agreements, together with the Purchase and Sale Agreement collectively referred to as the “Divestiture Transaction.”

Pursuant to the Purchase and Sale Agreement, U.S. Cellular and Sprint also entered into certain other agreements, including customer and network transition services agreements, which require U.S. Cellular to provide customer, billing and network services to Sprint for a period of up to 24 months after the May 16, 2013 closing date. Sprint will reimburse U.S. Cellular for providing such services at an amount equal to U.S. Cellular’s estimated costs, including applicable overhead allocations. These services were substantially complete as of March 31, 2014. In addition, these agreements 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. It is estimated that up to $175 million of the Sprint Cost Reimbursement will be recorded in (Gain) loss on sale of business and other exit costs, net and up to $25 million of the Sprint Cost Reimbursement will be recorded in System operations in the Consolidated Statement of Operations. For the three months ended March 31, 2014, $11.3 million of the Sprint Cost Reimbursement had been received and recorded in Cash received from divestitures in the Consolidated Statement of Cash Flows.

Financial impacts of the Divestiture Transaction are classified in the Consolidated Statement of Operations within Operating income. The table below describes the amounts U.S. Cellular 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.

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(Dollars in thousands)			Expected Period of Recognition		Projected Range				Cumulative Amount Recognized as of March 31, 2014		Actual Amount Recognized Three Months Ended March 31, 2014		Actual Amount Recognized 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)	$	(480,000)	$	-	$	-
		Sprint Cost Reimbursement		2013-2015		(120,000)		(175,000)		(92,272)		(44,631)		-
	Net assets transferred			2013		213,593		213,593		213,593		-		-
	Non-cash charges for the write-off and write-down of property under construction and related assets			2012-2014		10,000		15,000		11,018		343		222
	Employee related costs including severance, retention and outplacement			2012-2014		12,000		18,000		14,200		(62)		3,050
	Contract termination costs			2012-2015		100,000		130,000		96,671		37,087		2,900
	Transaction costs			2012-2014		5,000		7,000		5,774		209		918
		Total (Gain) loss on sale of business and other exit costs, net			$	(259,407)	$	(271,407)	$	(231,016)	$	(7,054)	$	7,090

Depreciation, amortization and accretion expense
	Incremental depreciation, amortization and accretion, net of salvage values			2012-2014		210,000		220,000		211,656		13,085		38,046
(Increase) decrease in Operating income					$	(49,407)	$	(51,407)	$	(19,360)	$	6,031	$	45,136

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Incremental depreciation, amortization and accretion, net of salvage values represents amounts recorded in the specified time periods as a result of a change in estimate for the remaining useful life and salvage value of certain assets and a change in estimate which accelerated the settlement dates of certain asset retirement obligations in conjunction with the Divestiture Transaction. Specifically, for the periods indicated, this is estimated depreciation, amortization and accretion recorded on assets and liabilities of the Divestiture Markets after the execution of the Purchase and Sale Agreement on November 6, 2012 less depreciation, amortization and accretion that would have been recorded on such assets and liabilities in the normal course, absent the Divestiture Transaction.

		As a result of the transaction, U.S. Cellular recognized the following amounts in the Consolidated Balance Sheet:

					Three Months Ended March 31, 2014
(Dollars in thousands)			Balance December 31, 2013		Costs Incurred		Cash Settlements (1)		Adjustments (2)		Balance March 31, 2014
Accrued compensation
	Employee related costs including severance, retention, outplacement		$	2,053	$	169	$	(701)	$	(231)	$	1,290
Other current liabilities
	Contract termination costs		$	13,992	$	12,673	$	(5,950)	$	792	$	21,507
Other deferred liabilities and credits
	Contract termination costs		$	30,849	$	24,073	$	(1,924)	$	(8,614)	$	44,384

(1)		Cash settlement amounts are included in either the Net income or changes in Other assets and liabilities line items as part of Cash flows from operating activities on the Consolidated Statement of Cash Flows.
(2)		Adjustment to liability represents changes to previously accrued amounts.

Other Acquisitions, Divestitures and Exchanges

On March 5, 2014, U.S. Cellular sold the majority of its St. Louis area non-operating market license for $92.3 million. A gain of $75.8 million was recorded in (Gain) loss on license sales and exchanges in the Consolidated Statement of Operations for the three months ended March 31, 2014.

On February 14, 2014, U.S. Cellular completed an exchange whereby U.S. Cellular received one E block PCS spectrum license covering Milwaukee, WI in exchange for one D block PCS spectrum license covering Milwaukee, WI. The exchange of licenses provided U.S. Cellular with spectrum to meet anticipated future capacity and coverage requirements. No cash, customers, network assets, other assets or liabilities were included in the exchange. As a result of this transaction, U.S. Cellular recognized a gain of $15.7 million, representing the difference between the $15.9 million fair value of the license surrendered, calculated using a market approach valuation method, and the $0.2 million carrying value of the license surrendered. This gain was recorded in (Gain) loss on license sales and exchanges in the Consolidated Statement of Operations for the three months ended March 31, 2014.

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6. Intangible Assets

Changes in U.S. Cellular’s Licenses for the three months ended March 31, 2014 and 2013 are presented below. There were no significant changes to Goodwill during the periods presented.

Licenses
		March 31, 2014		March 31, 2013
(Dollars in thousands)
Balance, beginning of period		$	1,401,126	$	1,456,794
	Acquisitions		9,100		14,150
	Exchanges, net		15,719		-
Balance, end of period		$	1,425,945	$	1,470,944

7. Investments in Unconsolidated Entities

Investments in unconsolidated entities consist of amounts invested in wireless entities in which U.S. Cellular holds a noncontrolling interest. These investments are accounted for using either the equity or cost method.