US Cellular 2008 Annual Report Download - page 168

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
U.S. Cellular has established a long-term incentive plan, an employee stock purchase plan, and a
non-employee director compensation plan. Also, U.S. Cellular employees are eligible to participate in the
TDS employee stock purchase plan. These plans are described more fully in Note 18—Stock-Based
Compensation.
Prior to January 1, 2006, U.S. Cellular accounted for these plans under the recognition and measurement
provisions of Accounting Principles Board (‘‘APB’’) Opinion No. 25, Accounting for Stock Issued to
Employees (‘‘APB 25’’), and related interpretations, as permitted by SFAS No. 123, Accounting for Stock-
Based Compensation (‘‘SFAS 123’’). Effective January 1, 2006, U.S. Cellular adopted the fair value
recognition provisions of SFAS No. 123(R), Share-Based Payment (‘‘SFAS 123(R)’’), using the modified
prospective transition method. Under the modified prospective transition method, compensation costs
recognized in 2006, 2007 and 2008 include: (a) compensation cost for all share-based payments granted
prior to but not yet vested as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based
payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in
accordance with the provisions of SFAS 123(R).
Under SFAS 123(R), the long-term incentive plan, the employee stock purchase plans and the
non-employee director compensation plan are considered compensatory plans; therefore, recognition of
compensation cost for grants made under these plans is required.
Upon adoption of SFAS 123(R), U.S. Cellular elected to continue to value its share-based payment
transactions using a Black-Scholes valuation model, which it previously used for purposes of preparing
the pro forma disclosures under SFAS 123. Under the provisions of SFAS 123(R), stock-based
compensation cost recognized during the period is based on the portion of the share-based payment
awards that is ultimately expected to vest. Accordingly, stock-based compensation cost recognized has
been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Pre-vesting forfeitures and expected life are estimated based on historical experience related to similar
awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and
expectations of future employee behavior. U.S. Cellular believes that its historical experience provides the
best estimates of future pre-vesting forfeitures and future expected life. The expected volatility
assumption is based on the historical volatility of U.S. Cellular’s common stock over a period
commensurate with expected life. The dividend yield assumption is zero because U.S. Cellular has never
paid a dividend and has expressed its intention to retain all future earnings in the business. The risk-free
interest rate assumption is determined using the implied yield for zero-coupon U.S. government issues
with a remaining term that approximates the expected life of the stock options.
Compensation cost for stock option awards is recognized over the respective requisite service period of
the awards, which is generally the vesting period, on a straight-line basis for each separate vesting
portion of the awards as if the awards were, in-substance, multiple awards (graded vesting attribution
method).
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