US Cellular 2009 Annual Report Download - page 60

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UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 GAIN ON DISPOSITION OF INVESTMENTS
Prior to August 7, 2008, U.S. Cellular held 370,882 common shares of Rural Cellular Corporation
(‘‘RCC’’). On August 7, 2008, RCC was acquired by Verizon Wireless, with shareholders of RCC receiving
cash of $45 per share in exchange for each RCC share owned. As a result of this exchange,
U.S. Cellular received total cash proceeds of $16.7 million and recognized a pre-tax gain of $16.4 million
in August 2008.
Prior to and during May 2007, U.S. Cellular held Vodafone ADRs, which were obtained in connection with
the sale of non-strategic investments. U.S. Cellular entered into a number of variable prepaid forward
contracts (‘‘forward contracts’’) related to its investments in Vodafone ADRs. The forward contracts
matured in May 2007. U.S. Cellular settled the forward contracts by delivery of Vodafone ADRs pursuant
to the formula in such forward contracts and then disposed of all remaining Vodafone ADRs.
U.S. Cellular recognized a pre-tax gain of $131.7 million at the time of delivery and sale of the shares in
May 2007. As a result of this settlement in May 2007, U.S. Cellular no longer owns any Vodafone ADRs
and no longer has any liability or other obligations under the related forward contracts.
NOTE 5 INCOME TAXES
Income tax expense is summarized as follows:
Year Ended December 31, 2009 2008 2007
(Dollars in thousands)
Current
Federal ................................ $ 67,952 $ 80,558 $223,952
State ................................. 712 10,618 19,262
Deferred
Federal ................................ 40,317 (54,814) (31,775)
State ................................. 5,122 (28,307) 5,272
$114,103 $ 8,055 $216,711
A reconciliation of U.S. Cellular’s income tax expense computed at the statutory rate to the reported
income tax expense, and the statutory federal income tax expense rate to U.S. Cellular’s effective income
tax expense rate is as follows:
Year Ended December 31, 2009 2008 2007
Amount Rate Amount Rate Amount Rate
(Dollars in millions)
Statutory federal income tax expense and rate ....... $123.2 35.0% $ 23.2 35.0% $191.3 35.0%
State income taxes, net of federal benefit .......... — — (10.5) (15.9) 18.4 3.4
Effect of noncontrolling interests(1) ............... (4.8) (1.4) (4.5) (6.8) 2.1 0.4
Effect of gains (losses) on investments, sales of assets
and impairment of assets .................... — — 1.3 2.0 — —
Effect of federal unrecognized tax benefits .......... (0.6) (0.2) (2.1) (3.1) 0.7 0.1
Other .................................... (3.7) (1.0) 0.7 1.0 4.2 0.8
Effective income tax expense and rate ............ $114.1 32.4% $ 8.1 12.2% $216.7 39.7%
(1) Includes a $4.6 million charge in 2007 related to the write-off of deferred tax assets established in prior
years for certain partnerships.
U.S. Cellular’s current net deferred tax asset totaled $21.6 million and $19.5 million at December 31,
2009 and 2008, respectively. The 2009 and 2008 current net deferred tax asset primarily represents the
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