US Cellular 2009 Annual Report Download - page 54

UNITED STATES CELLULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
appropriate. Revenues from sales of equipment and accessories are recognized when title passes to the
agent or end-user customer.
In order to provide better control over handset quality, U.S. Cellular sells handsets to agents.
U.S. Cellular provides rebates to agents at the time an agent activates a new customer for U.S. Cellular
or retains an existing customer in a transaction involving a handset. U.S. Cellular accounts for anticipated
rebates on sales of handsets to agents by reducing revenues at the time of the sale to the agent rather
than at the time the agent enrolls a new customer or retains a current customer. Similarly, U.S. Cellular
offers certain rebates to retail customers who purchase new handsets. The revenue from a handset sale
which includes such a rebate is recorded net of the rebate.
Activation fees charged with the sale of service only, where U.S. Cellular does not also sell a handset to
the end user, are deferred and recognized over the average customer life. U.S. Cellular defers
recognition of a portion of commission expenses related to activations in the amount of deferred
activation fee revenues. This method of accounting provides for matching of revenues from activations to
direct incremental costs associated with such activations within each reporting period. The activation fee
charged with the sale of equipment and service is allocated to the equipment and service based upon
the relative fair values of each item. This generally results in the recognition of the activation fee as
additional handset revenue at the time of sale.
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 $116.0 million,
$146.1 million and $131.2 million for 2009, 2008 and 2007, respectively.
Advertising Costs
U.S. Cellular expenses advertising costs as incurred. Advertising costs totaled $258.2 million,
$276.5 million and $229.2 million for 2009, 2008 and 2007, 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 payable balance with TDS of
$12.2 million as of December 31, 2009 and a tax receivable balance with TDS of $19.4 million as of
December 31, 2008.
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