US Cellular 2013 Annual Report Download - page 32

United States Cellular Corporation
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Carrying Value of Licenses
The carrying value of licenses at November 1, 2013 was as follows:
Unit of Accounting(1) Carrying Value
(Dollars in millions)
Developed Operating markets
Central Region .......................................... $ 749
Mid-Atlantic Region ....................................... 235
New England Region ...................................... 102
Northwest Region ........................................ 68
Non-operating markets
New England ........................................... 1
North Northwest ......................................... 3
South Northwest ......................................... 2
North Central ........................................... 59
South Central ........................................... 22
East Central ............................................ 107
Mid-Atlantic ............................................. 50
Total(2) ............................................... $1,398
(1) U.S. Cellular participated in spectrum auctions indirectly through its interests in Aquinas
Wireless L.P. (‘‘Aquinas Wireless’’) and King Street Wireless L.P. (‘‘King Street Wireless’’),
collectively, the ‘‘limited partnerships.’’ Interests in other limited partnerships that
participated in spectrum auctions have since been acquired. Each limited partnership
participated in and was awarded spectrum licenses in one of two separate spectrum
auctions (FCC Auctions 78 and 73). All of the units of accounting above, except New
England, include licenses awarded to the limited partnerships.
(2) Between November 1, 2013 and December 31, 2013, U.S. Cellular capitalized interest on
certain licenses pursuant to current network build-outs in the amount of $3 million.
Income Taxes
U.S. Cellular is included in a consolidated federal income tax return with other members of the TDS
consolidated group. TDS and U.S. Cellular are parties to a Tax Allocation Agreement which provides that
U.S. Cellular and its subsidiaries be included with the TDS affiliated group in a consolidated federal
income tax return and in state income or franchise tax returns in certain situations. For financial
statement purposes, U.S. Cellular and its subsidiaries calculate their income, income tax and credits as if
they comprised a separate affiliated group. Under the Tax Allocation Agreement, U.S. Cellular remits its
applicable income tax payments to TDS.
The amounts of income tax assets and liabilities, the related income tax provision and the amount of
unrecognized tax benefits are critical accounting estimates because such amounts are significant to U.S.
Cellular’s financial condition and results of operations.
The preparation of the consolidated financial statements requires U.S. Cellular to calculate a provision for
income taxes. This process involves estimating the actual current income tax liability together with
assessing temporary differences resulting from the different treatment of items for tax purposes. These
temporary differences result in deferred income tax assets and liabilities, which are included in U.S.
Cellular’s Consolidated Balance Sheet. U.S. Cellular must then assess the likelihood that deferred
income tax assets will be realized based on future taxable income and, to the extent management
believes that realization is not likely, establish a valuation allowance. Management’s judgment is required
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