US Cellular 2008 Annual Report Download - page 188

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 COMMITMENTS AND CONTINGENCIES (Continued)
Legal Proceedings
The United States Department of Justice (‘‘DOJ’’) has notified U.S. Cellular and its parent, TDS, that each
is a named defendant in a civil action brought by a private party in the U.S. District Court for the District
of Columbia under the ‘‘qui tam’’ provisions of the federal False Claims Act. TDS and U.S. Cellular were
advised that the complaint seeks return of approximately $165 million of bid credits from certain FCC auctions
and requests treble damages. The complaint remains under seal pending the DOJ’s consideration as to
whether to intervene in the proceeding. The DOJ has not yet made any decision as to whether it will intervene.
However, as a result of the complaint, the DOJ is investigating TDS’ and U.S. Cellular’s participation in certain
spectrum auctions conducted by the FCC between 2005 and 2008, through Carroll Wireless, L.P., Barat
Wireless, L.P., and King Street Wireless, L.P. These limited partnerships were winning bidders in Auction 58,
Auction 66, and Auction 73, respectively, and received a 25% bid credit in the applicable auction price under
FCC rules. The DOJ is investigating whether these limited partnerships qualified for the 25% bid credit in
auction price considering their arrangements with TDS and U.S. Cellular. TDS and U.S. Cellular are cooperating
with the DOJ’s review. TDS and U.S. Cellular believe that U.S. Cellular’s arrangements with these limited
partnerships and the limited partnerships’ participation in the FCC auctions complied with applicable law and
FCC rules and each of TDS and U.S. Cellular intends to vigorously defend itself against any claim that it
violated applicable law or FCC rules. At this time, U.S. Cellular cannot predict the outcome of this review or any
proceeding.
U.S. Cellular is involved or may be involved from time to time in legal proceedings before the FCC, other
regulatory authorities, and/or various state and federal courts. If U.S. Cellular believes that a loss arising
from such legal proceedings is probable and can be reasonably estimated, an amount is accrued in the
financial statements for the estimated loss. If only a range of loss can be determined, the best estimate
within that range is accrued; if none of the estimates within that range is better than another, the low end
of the range is accrued. The assessment of the expected outcomes of legal proceedings is a highly
subjective process that requires judgments about future events. The legal proceedings are reviewed at
least quarterly to determine the adequacy of accruals and related financial statement disclosures. The
ultimate outcomes of legal proceedings could differ materially from amounts accrued in the financial
statements.
Mandatorily Redeemable Minority Interest in Subsidiaries
Under SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities
and Equity (‘‘SFAS 150’’), certain minority interests in consolidated entities with finite lives may meet the
standard’s definition of a mandatorily redeemable financial instrument and thus require reclassification as
liabilities and re-measurement at the estimated amount of cash that would be due and payable to settle
such minority interests under the applicable entity’s organization agreement assuming an orderly
liquidation of the finite-lived entity, net of estimated liquidation costs (the ‘‘settlement value’’). U.S.
Cellular’s consolidated financial statements include certain minority interests that meet the standard’s
definition of mandatorily redeemable financial instruments. These mandatorily redeemable minority
interests represent interests held by third parties in consolidated partnerships and limited liability
companies (‘‘LLCs’’), where the terms of the underlying partnership or LLC agreement provide for a
defined termination date at which time the assets of the subsidiary are to be sold, the liabilities are to be
extinguished and the remaining net proceeds are to be distributed to the minority interest holders and
U.S. Cellular in accordance with the respective partnership and LLC agreements. The termination dates
of U.S. Cellular’s mandatorily redeemable minority interests range from 2042 to 2107.
The settlement value of U.S. Cellular’s mandatorily redeemable minority interests was estimated to be
$149.9 million at December 31, 2008. This represented the estimated amount of cash that would be due
and payable to settle these minority interests assuming an orderly liquidation of the finite-lived
66