US Cellular 2008 Annual Report Download - page 162

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
did not have any financial assets or liabilities that required the application of SFAS 157 for purposes of
valuing and reporting such amounts in its Consolidated Balance Sheet. However, U.S. Cellular has
applied the provisions of SFAS 157 for purposes of computing fair value for disclosure purposes.
Derivative Financial Instruments
U.S. Cellular does not hold or issue derivative financial instruments for trading purposes. U.S. Cellular
used derivative financial instruments to reduce risks related to fluctuations in market price of its Vodafone
Group Plc (‘‘Vodafone’’) American Depository Receipts (‘‘ADRs’’). U.S. Cellular had variable prepaid
forward contracts (‘‘forward contracts’’) in place with respect to all of its Vodafone marketable equity
securities for this purpose. These forward contracts matured in 2007. A substantial majority of the related
Vodafone ADRs were delivered upon settlement of the forward contracts upon maturity. The remaining
Vodafone ADRs were sold in 2007.
U.S. Cellular recognized all of the forward contracts as either assets or liabilities in the Consolidated
Balance Sheet and measured those instruments at their fair values. U.S. Cellular originally designated the
embedded collars within the forward contracts as cash flow hedges of its Vodafone ADRs. Accordingly,
all changes in the fair value of the embedded collars were recorded in Accumulated other
comprehensive income, net of income taxes. Subsequently, upon contractual modifications to the terms
of the collars in September 2002, the embedded collars no longer qualified for hedge accounting
treatment and all changes in fair value of the collars from the time of the contractual modification to the
termination or settlement of the terms of the collars have been included in the Consolidated Statement of
Operations.
Licenses
Licenses consist of costs incurred in acquiring Federal Communications Commission (‘‘FCC’’) licenses to
provide wireless service. These costs include amounts paid to license applicants and owners of interests
in entities awarded licenses and all direct and incremental costs related to acquiring the licenses.
U.S. Cellular accounts for wireless licenses in accordance with the provisions of SFAS No. 142, Goodwill
and Other Intangible Assets (‘‘SFAS 142’’). In accordance with SFAS 142, U.S. Cellular has determined
that such wireless licenses have indefinite lives and, therefore, that the costs of the licenses are not
subject to amortization.
U.S. Cellular has determined that licenses are intangible assets with indefinite useful lives, based on the
following factors:
• Radio spectrum is not a depleting asset.
• The ability to use radio spectrum is not limited to any one technology.
• U.S. Cellular and its consolidated subsidiaries are licensed to use radio spectrum through the FCC
licensing process, which enables licensees to utilize specified portions of the spectrum for the
provision of wireless service.
• U.S. Cellular and its consolidated subsidiaries are required to renew their FCC licenses every ten
years. From the inception of U.S. Cellular to date, all of U.S. Cellular’s license renewal applications
have been granted by the FCC. Generally, license renewal applications filed by licensees otherwise in
compliance with FCC regulations are routinely granted. If, however, a license renewal application is
challenged, either by a competing applicant for the license or by a petition to deny the renewal
application, the license will be renewed if the licensee can demonstrate its entitlement to a ‘‘renewal
expectancy.’’ Licensees are entitled to such an expectancy if they can demonstrate to the FCC that
they have provided ‘‘substantial service’’ during their license term and have ‘‘substantially complied’’
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