US Cellular 2014 Annual Report Download - page 51

United States Cellular Corporation
Notes to Consolidated Financial Statements (Continued)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS (Continued)
Treasury Shares
Common Shares repurchased by U.S. Cellular are recorded at cost as treasury shares and result in a
reduction of equity. Treasury shares are reissued as part of U.S. Cellular’s stock-based compensation
programs. When treasury shares are reissued, U.S. Cellular determines the cost using the first-in, first-out
cost method. The difference between the cost of the treasury shares and reissuance price is included in
Additional paid-in capital or Retained earnings.
Revenue Recognition
Revenues related to services are recognized as services are rendered. Revenues billed in advance or in
arrears of the services being provided are estimated and deferred or accrued, as appropriate.
Revenues from sales of equipment and accessories are recognized when title and risk of loss passes to
the agent or end-user customer.
Multiple Deliverable Arrangements
U.S. Cellular sells multiple element service and equipment offerings. In these instances, revenues are
allocated using the relative selling price method. Under this method, arrangement consideration, which
consists of the amounts billed to the customer net of any cash-based discounts, is allocated to each
element on the basis of its relative selling price. Revenue recognized for the delivered items is limited to
the amount due from the customer that is not contingent upon the delivery of additional products or
services.
Loyalty Reward Program
U.S. Cellular follows the deferred revenue method of accounting for its loyalty reward program. Under
this method, revenue allocated to loyalty reward points is deferred. The amount allocated to the loyalty
points is based on the estimated retail price of the products and services for which points may be
redeemed divided by the number of loyalty points required to receive such products and services. This is
calculated on a weighted average basis and requires U.S. Cellular to estimate the percentage of loyalty
points that will be redeemed for each product or service.
As of December 31, 2014 and 2013, U.S. Cellular had deferred revenue related to loyalty reward points
outstanding of $94.6 million and $116.2 million, respectively. These amounts are recorded in Customer
deposits and deferred revenues (a current liability account) in the Consolidated Balance Sheet, as
customers may redeem their reward points within the current period.
Revenue is recognized at the time of customer redemption or when such points have been depleted via
an account maintenance charge. U.S. Cellular employs the proportional model to recognize revenues
associated with breakage. Under the proportional model, U.S. Cellular allocates a portion of the
estimated future breakage to each redemption and records revenue proportionally. U.S. Cellular
periodically reviews and revises the redemption and depletion rates to estimate future breakage as
appropriate based on history and related future expectations.
In the fourth quarter of 2013, U.S. Cellular issued loyalty reward points with a value of $43.5 million as a
loyalty bonus in recognition of the inconvenience experienced by customers during U.S. Cellular’s billing
system conversion in 2013. The value of the loyalty bonus reduced Service revenues in the Consolidated
Statement of Operations and increased Customer deposits and deferred revenues in the Consolidated
Balance Sheet.
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