US Cellular 2013 Annual Report Download - page 53

United States Cellular Corporation
Notes to Consolidated Financial Statements (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
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 $114.7 million,
$135.7 million and $125.2 million for 2013, 2012 and 2011, respectively.
Advertising Costs
U.S. Cellular expenses advertising costs as incurred. Advertising costs totaled $199.9 million,
$227.0 million and $257.8 million in 2013, 2012 and 2011, 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
$34.8 million and $1.1 million as of December 31, 2013 and 2012, respectively.
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 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 are 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
45