US Cellular 2012 Annual Report Download - page 55

United States Cellular Corporation
Notes to the Consolidated Financial Statements (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
using the tax rates anticipated to be in effect when the temporary differences reverse. Temporary
differences are the differences between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. Deferred tax assets are reduced by a valuation allowance when it is more likely than
not that some portion or all of the deferred tax assets will not be realized. U.S. Cellular evaluates income
tax uncertainties, assesses the probability of the ultimate settlement with the applicable taxing authority
and records an amount based on that assessment.
Stock-Based Compensation
U.S. Cellular has established a long-term incentive plan and a Non-Employee Director compensation
plan, and previously had an employee stock purchase plan before this was terminated in the fourth
quarter of 2011. Also, U.S. Cellular employees were eligible to participate in the TDS employee stock
purchase plan before this was terminated in the fourth quarter of 2011. These plans are described more
fully in Note 15—Stock-based Compensation. These plans are considered compensatory plans and,
therefore, recognition of compensation cost for grants made under these plans is required.
U.S. Cellular values its share-based payment transactions using a Black-Scholes valuation model. 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. Forfeitures are 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 the 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 U.S. Treasury Yield Curve Rate with a term
length 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).
Defined Contribution Plans
U.S. Cellular participates in a qualified noncontributory defined contribution pension plan sponsored by
TDS; such plan provides pension benefits for the employees of U.S. Cellular and its subsidiaries. Under
this plan, pension benefits and costs are calculated separately for each participant and are funded
currently. Pension costs were $12.4 million, $11.6 million and $11.6 million in 2012, 2011 and 2010,
respectively.
U.S. Cellular also participates in a defined contribution retirement savings plan (‘‘401(k) plan’’) sponsored
by TDS. Total costs incurred from U.S. Cellular’s contributions to the 401(k) plan were $17.1 million,
$15.5 million and $15.3 million in 2012, 2011 and 2010, respectively.
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