US Cellular 2008 Annual Report Download - page 31

(subject to income tax withholding) upon exercise of a nonqualified stock option equal to the excess of
the fair market value on the date of exercise of the shares purchased over their exercise price, and
U.S. Cellular will be entitled to a corresponding corporate income tax deduction, except to the extent the
limit of Section 162(m) of the Code applies.
Incentive Stock Options. An award recipient will not recognize taxable income at the time of grant
or at the time of exercise of an ISO, and U.S. Cellular will not be entitled to a corporate income tax
deduction at that time. However, the excess of the fair market value on the date of exercise of the shares
purchased over their exercise price is included in alternative minimum taxable income subject to the
alternative minimum tax. If the shares acquired by exercise of an ISO are not disposed of during the
period ending on the later of: (i) two years from the date the option was granted and (ii) one year from
the date the shares were transferred to the award recipient, any gain or loss arising from a subsequent
disposition of such shares will be taxed as long-term capital gain or loss, and U.S. Cellular will not be
entitled to any corporate income tax deduction. If, however, such shares are disposed of within such two
or one year period, then upon such disposition of the shares:
• if the amount realized upon the disposition is equal to or greater than the fair market value of the
shares on the date of exercise:
the amount, if any, by which such fair market value exceeds the option exercise price of the
shares will be treated as compensation taxable as ordinary income to the award recipient in
the year of the disposition; and
the amount, if any, realized in excess of such fair market value will be treated as short-term or
long-term capital gain;
• if the amount realized upon the disposition is less than the fair market value of the shares on the
date of exercise but not less than the option exercise price of the shares, the excess of the
amount realized upon the disposition over the option exercise price will be treated as
compensation taxable as ordinary income to the award recipient in the year of the disposition;
• if the amount realized upon the disposition is less than the option exercise price of the shares, the
excess of the option exercise price over the amount realized will be treated as short-term or
long-term capital loss;
and U.S. Cellular will be entitled to a corporate income tax deduction in the year of the disposition to the
extent the award recipient realizes ordinary income therefrom, except to the extent the limit of
Section 162(m) of the Code applies.
SARs. An award recipient will not recognize taxable income at the time of grant of an SAR, and
U.S. Cellular will not be entitled to a corporate income tax deduction at that time. In the case of an SAR
settled in Common Shares, cash or a combination of both, an award recipient will recognize
compensation taxable as ordinary income (subject to income tax withholding) upon exercise in an
amount equal to the fair market value of any Common Shares delivered and any cash paid by
U.S. Cellular, and U.S. Cellular will be entitled to a corresponding corporate income tax deduction,
except to the extent the limit of Section 162(m) of the Code applies.
Restricted Stock. An award recipient will not recognize taxable income at the time of grant of
shares of restricted stock, and U.S. Cellular will not be entitled to a corporate income tax deduction at
such time, unless the award recipient makes an election with the Internal Revenue Service, within
30 days after the date of grant, to be taxed at the time the shares of restricted stock are granted. If such
election is made, the award recipient will recognize compensation taxable as ordinary income (subject to
income tax withholding) at the time of the grant equal to the excess of the fair market value of the shares
at such time over the amount, if any, paid for such shares. If such election is not made, the award
recipient will recognize compensation taxable as ordinary income (subject to income tax withholding) at
the time the restrictions on the shares lapse in an amount equal to the excess of the fair market value of
the shares at such time over the amount, if any, paid for such shares. U.S. Cellular is entitled to a
corresponding corporate income tax deduction at the time the ordinary income is recognized by the
award recipient, except to the extent the limit of Section 162(m) of the Code applies. In addition, an
award recipient receiving dividends with respect to restricted stock for which the above-described
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