US Cellular 2008 Annual Report Download - page 161

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily consist of amounts owed by customers pursuant to service contracts and
for equipment sales, by agents for equipment sales, by other wireless carriers whose customers have
used U.S. Cellular’s wireless systems and by unaffiliated third-party partnerships or corporations pursuant
to equity distribution declarations.
The allowance for doubtful accounts is the best estimate of the amount of probable credit losses related
to existing accounts receivable. The allowance is estimated based on historical experience and other
factors that could affect collectability. Accounts receivable balances are reviewed on either an aggregate
or individual basis for collectability depending on the type of receivable. When it is probable that an
account balance will not be collected, the account balance is charged against the allowance for doubtful
accounts. U.S. Cellular does not have any off-balance sheet credit exposure related to its customers.
The changes in the allowance for doubtful accounts during 2008, 2007 and 2006 were as follows:
(Dollars in thousands) 2008 2007 2006
Beginning balance ................................ $12,417 $ 13,016 $ 11,410
Additions, net of recoveries ........................ 73,157 66,923 62,030
Deductions .................................... (77,202) (67,522) (60,424)
Ending balance .................................. $ 8,372 $ 12,417 $ 13,016
Inventory
Inventory primarily consists of handsets stated at the lower of cost or market, with cost determined using
the first-in, first-out method and market determined by replacement costs.
Marketable Equity Securities
As of December 31, 2008, U.S. Cellular does not hold any marketable equity securities. Marketable
equity securities held at December 31, 2007, were classified as available-for-sale and were stated at fair
market value. Net unrealized holding gains and losses were included in Accumulated other
comprehensive income, net of tax. Realized gains and losses recognized at the time of disposition were
determined on the basis of specific identification. See Note 9—Marketable Equity Securities for additional
information.
Fair Value Measurements
Effective January 1, 2008, U.S. Cellular adopted the provisions of Financial Accounting Standards Board
(‘‘FASB’’) Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, Fair Value Measurements, for
its financial assets and liabilities. SFAS 157 defines ‘‘fair value,’’ establishes a framework for measuring
fair value in the application of GAAP, and expands disclosures about fair value measurements. SFAS 157
does not expand the use of fair value measurements in financial statements, but standardizes its
definition and application in GAAP. SFAS 157 provides that fair value is a market-based measurement
and not an entity-specific measurement, based on an exchange transaction in which the entity sells an
asset or transfers a liability (exit price). This pronouncement establishes a fair value hierarchy that
contains three levels for inputs used in fair value measurements. Level 1 inputs include quoted market
prices for identical assets or liabilities in active markets. Level 2 inputs include quoted market prices for
similar assets and liabilities in active markets or quoted market prices for identical assets and liabilities in
inactive markets. Level 2 inputs must be observable either directly or indirectly for substantially the full
term of the financial instrument. Level 3 inputs are unobservable. As of December 31, 2008, U.S. Cellular
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