CenturyLink 2015 Annual Report Download - page 154

We offer bundle discounts to our customers who receive certain groupings of services. These bundle
discounts are recognized concurrently with the associated revenue and are allocated to the various services in the
bundled offering based on the estimated selling price of services included in each bundled combination.
Customer arrangements that include both equipment and services are evaluated to determine whether the
elements are separable. If the elements are deemed separable and separate earnings processes exist, the revenue
associated with the customer arrangement is allocated to each element based on the relative estimated selling
price of the separate elements. We have estimated the selling prices of each element by reference to vendor-
specific objective evidence of selling prices when the elements are sold separately. The revenue associated with
each element is then recognized as earned. For example, if we receive an advance payment when we sell
equipment and continuing service together, we immediately recognize as revenue the amount allocated to the
equipment as long as all the conditions for revenue recognition have been satisfied. The portion of the advance
payment allocated to the service based upon its relative selling price is recognized ratably over the longer of the
contractual period or the expected customer relationship period.
We periodically transfer optical capacity assets on our network to other telecommunications service carriers.
These transactions are structured as indefeasible rights of use, commonly referred to as IRUs, which are the
exclusive right to use a specified amount of capacity or fiber for a specified term, typically 20 years. We account
for the cash consideration received on transfers of optical capacity assets and on all of the other elements
deliverable under an IRU, as revenue ratably over the term of the agreement. We have not recognized revenue on
any contemporaneous exchanges of our optical capacity assets for other optical capacity assets.
In connection with offering products and services provided by third-party vendors, we review the
relationship between us, the vendor and the end customer to assess whether revenue should be reported on a
gross or net basis. In assessing whether revenue should be reported on a gross or net basis, we consider whether
we act as a principal in the transaction, take title to the products, have risk and rewards of ownership or act as an
agent or broker. Based on our agreements with DIRECTV and Verizon Wireless, we offer these services through
sales agency relationships which are reported on a net basis.
We have service level commitments pursuant to contracts with certain of our customers. To the extent that
such service levels are not achieved or are otherwise disputed due to performance or service issues or other
service interruptions or conditions, we will estimate the amount of credits to be issued and record a reduction to
revenues, with a corresponding increase in the credit reserve.
USF, Gross Receipts Taxes and Other Surcharges
In determining whether to include in our revenues and expenses the taxes and surcharges collected from
customers and remitted to government authorities, including USF charges, sales, use, value added and some
excise taxes, we assess, among other things, whether we are the primary obligor or principal taxpayer for the
taxes assessed in each jurisdiction where we do business. In jurisdictions where we determine that we are the
principal taxpayer, we record the surcharges on a gross basis and include them in our revenues and costs of
services and products. In jurisdictions where we determine that we are merely a collection agent for the
government authority, we record the taxes on a net basis and do not include them in our revenues and costs of
services and products.
Advertising Costs
Costs related to advertising are expensed as incurred and included in selling, general and administrative
expenses in our consolidated statements of operations. Our advertising expense was $210 million, $214 million
and $210 million for the years ended December 31, 2015, 2014 and 2013, respectively.
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