US Cellular 2013 Annual Report Download - page 20

United States Cellular Corporation
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Components of Other Income (Expense)
Increase / Percentage Increase / Percentage
Year Ended December 31, 2013 (Decrease) Change 2012 (Decrease) Change 2011
(Dollars in thousands)
Operating income ......... $146,865 $ (9,791) (6)% $156,656 $(124,124) (44)% $280,780
Equity in earnings of
unconsolidated entities .... 131,949 41,585 46% 90,364 6,798 8% 83,566
Interest and dividend income . 3,961 317 9% 3,644 249 7% 3,395
Gain (loss) on investments . . . 18,556 22,274 >100% (3,718) (15,091) >(100)% 11,373
Interest expense .......... (43,963) 1,570 4% (42,393) (23,221) (35)% (65,614)
Other, net ............... 288 (212) (42)% 500 1,178 >100% (678)
Total investment and other
income ............... 110,791 62,394 >100% 48,397 16,355 51% 32,042
Income before income taxes . . 257,656 52,603 26% 205,053 (107,769) (34)% 312,822
Income tax expense ........ 113,134 49,157 77% 63,977 (50,101) (44)% 114,078
Net income .............. 144,522 3,446 2% 141,076 (57,668) (29)% 198,744
Less: Net income attributable
to noncontrolling interests,
net of tax .............. (4,484) 25,586 85% (30,070) (6,367) (27)% (23,703)
Net income attributable to U.S.
Cellular shareholders ..... $140,038 $29,032 26% $111,006 $ (64,035) (37)% $175,041
Equity in earnings of unconsolidated entities
Equity in earnings of unconsolidated entities represents U.S. Cellular’s share of net income from entities
in which it has a noncontrolling interest and that are accounted for by the equity method. U.S. Cellular
generally follows the equity method of accounting for unconsolidated entities in which its ownership
interest is less than or equal to 50% but equals or exceeds 20% for corporations and 3% for partnerships
and limited liability companies, or for unconsolidated entities in which its ownership is greater than 50%
but U.S. Cellular does not have a controlling financial interest.
U.S. Cellular’s investment in the Los Angeles SMSA Limited Partnership (‘‘LA Partnership’’) contributed
$78.4 million, $67.2 million and $55.3 million to Equity in earnings of unconsolidated entities in 2013,
2012 and 2011, respectively. U.S. Cellular received cash distributions from the LA Partnership of
$71.5 million in 2013 and $66.0 million in 2012 and 2011.
On April 3, 2013, U.S. Cellular deconsolidated the NY1 & NY2 Partnerships and began reporting them as
equity method investments in its consolidated financial statements as of that date. In 2013, U.S. Cellular’s
investments in the NY1 & NY2 Partnerships contributed $24.7 million to Equity in earnings of
unconsolidated entities subsequent to their deconsolidation. No amounts were included in 2012 or 2011
because the NY1 & NY2 Partnerships were consolidated in those years. Distributions from the NY1 &
NY2 Partnerships of $29.4 million in 2013, after the deconsolidation on April 1, 2013, are included in
Distributions from unconsolidated entities on the Consolidated Statement of Cash Flows.
Gain (loss) on investments
In connection with the deconsolidation of the NY1 & NY2 Partnerships, U.S. Cellular recognized a
non-cash pre-tax gain of $18.5 million which was recorded in Gain (loss) on investments in 2013. See
Note 7—Investments in Unconsolidated Entities for additional information.
Interest expense
Interest expense in 2013 as compared to 2012 was relatively flat. In 2012, interest expense decreased by
$23.2 million from 2011 due to lower effective interest rates on long-term debt and an increase in
12