US Cellular 2008 Annual Report Download - page 167

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ETC revenues recognized in the reporting period represent the amounts which U.S. Cellular is entitled to
receive for such period, as determined and approved in connection with U.S. Cellular’s designation as an
ETC in various states.
Amounts Collected from Customers and Remitted to Governmental Authorities
U.S. Cellular records amounts collected from customers and remitted to governmental authorities net
within a tax liability account if the tax is assessed upon the customer and U.S. Cellular merely acts as an
agent in collecting the tax on behalf of the imposing governmental authority. If the tax is assessed upon
U.S. Cellular, then amounts collected from customers as recovery of the tax are recorded in Service
revenues and amounts remitted to governmental authorities are recorded in Selling, general and
administrative expenses in the Consolidated Statement of Operations. The amounts recorded gross in
revenues that are billed to customers and remitted to governmental authorities totaled $146.1 million,
$131.2 million and $82.0 million for 2008, 2007 and 2006, respectively. The increase in amounts recorded
gross in revenues during 2007 reflected significant growth in the billed revenues upon which the taxes
are based as well as an increase in the safe harbor factor prescribed by the FCC that is used to
determine the portion of billed revenues that is subject to the federal universal service fund charge.
Advertising Costs
U.S. Cellular expenses advertising costs as incurred. Advertising costs totaled $276.5 million,
$229.2 million and $208.6 million for 2008, 2007 and 2006, respectively.
Income Taxes
U.S. Cellular is included in a consolidated federal income tax return with other members of the TDS
consolidated group. TDS and U.S. Cellular are parties to a Tax Allocation Agreement which provides that
U.S. Cellular and its subsidiaries be included with the TDS affiliated group in a consolidated federal
income tax return and in state income or franchise tax returns in certain situations. For financial
statement purposes, U.S. Cellular and its subsidiaries calculate their income, income taxes and credits as
if they comprised a separate affiliated group. Under the Tax Allocation Agreement, U.S. Cellular remits its
applicable income tax payments to TDS. U.S. Cellular had a tax receivable balance with TDS of
$19.4 million as of December 31, 2008 and a tax payable balance with TDS of $7.7 million as of
December 31, 2007.
Deferred taxes are computed using the liability method, whereby deferred tax assets are recognized for
future deductible temporary differences and operating loss carryforwards, and deferred tax liabilities are
recognized for future taxable temporary differences. Both deferred tax assets and liabilities are measured
using 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.
Effective January 1, 2007, U.S. Cellular adopted FASB Interpretation (‘‘FIN’’) 48, Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (‘‘FIN 48’’). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in
accordance with SFAS No. 109, Accounting for Income Taxes (‘‘SFAS 109’’). Under FIN 48, 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. U.S. Cellular had previously set up
tax accruals, as needed, to cover its potential liability for income tax uncertainties pursuant to SFAS
No. 5, Accounting for Contingencies (‘‘SFAS 5’’).
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