US Cellular 2009 Annual Report Download - page 74

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UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 COMMITMENTS AND CONTINGENCIES (Continued)
Rent expense totaled $149.2 million, $139.6 million and $130.2 million in 2009, 2008 and 2007,
respectively. During 2009, U.S. Cellular recorded a $6.5 million out-of-period adjustment to correct rent
expense. Management does not believe that the adjustment is material to the current year or any prior
year earnings, earnings trends or financial statement line items. The adjustment was recorded in the
quarter ended December 31, 2009 and no prior periods were adjusted. The impact of the out-of-period
adjustment on the affected line items in the Consolidated Statement of Operations in 2009 is as follows:
Increase
(Amounts in thousands) (Decrease)
System operations .......................................... $(5,813)
Selling, general and administrative .............................. (696)
Total operating expenses ..................................... (6,509)
Operating income .......................................... 6,509
Income before income taxes ................................... 6,509
Rent revenue totaled $31.8 million, $26.8 million and $23.8 million in 2009, 2008 and 2007, respectively.
Indemnifications
U.S. Cellular enters into agreements in the normal course of business that provide for indemnification of
counterparties. These agreements include certain asset sales and financings with other parties. The
terms of the indemnification vary by agreement. The events or circumstances that would require
U.S. Cellular to perform under these indemnities are transaction specific; however, these agreements
may require U.S. Cellular to indemnify the counterparty for costs and losses incurred from litigation or
claims arising from the underlying transaction. U.S. Cellular is unable to estimate the maximum potential
liability for these types of indemnifications as the amounts are dependent on the outcome of future
events, the nature and likelihood of which cannot be determined at this time. Historically, U.S. Cellular
has not made any significant indemnification payments under such agreements.
Legal Proceedings
In February 2009, the United States Department of Justice (‘‘DOJ’’) notified U.S. Cellular and its parent,
TDS, that each was 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 was under seal while the
DOJ considered whether to intervene in the proceeding. On October 13, 2009, TDS and U.S. Cellular
were advised that the DOJ had determined not to intervene in the proceeding. As a result of the
complaint, the DOJ had investigated 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. Carroll Wireless, L.P., Barat Wireless, L.P. and King Street Wireless, L.P. were
winning bidders in Auction 58, Auction 66 and Auction 73, respectively. These limited partnerships
received a 25% bid credit in the applicable auction price under FCC rules. The DOJ investigated whether
these limited partnerships qualified for the 25% bid credit in auction price considering their arrangements
with TDS and U.S. Cellular. In addition, on October 13, 2009, the District Court unsealed the complaint.
At that time, the District Court also ordered that, if the private party plaintiff decides to pursue the matter,
it must serve the complaint on TDS and U.S. Cellular within 120 days. On January 12, 2010, the private
party plaintiff filed a request to voluntarily dismiss the complaint and, on January 13, 2010, the U.S.
District Court for the District of Columbia issued an order dismissing the complaint. The FCC sent a letter
to King Street Wireless, L.P. requesting that it submit to the FCC a written response to the allegations in
the complaint. King Street Wireless, L.P. made this submission as requested by the FCC on May 8, 2009.
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