PCS » Topics » Asset Retirement Obligations

This excerpt taken from the PCS 8-K filed Jun 9, 2009.

Asset Retirement Obligations

The Company accounts for asset retirement obligations as determined by SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”) and FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143,” (“FIN No. 47”). SFAS No. 143 and FIN No. 47 address financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. SFAS No. 143 requires that companies recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.

 

F-12


MetroPCS Communications, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2008, 2007 and 2006

 

The Company is subject to asset retirement obligations associated with its cell site operating leases, which are subject to the provisions of SFAS No. 143 and FIN No. 47. Cell site lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term to its original condition, creating an asset retirement obligation. This liability is classified under other long-term liabilities. Landlords may choose not to exercise these rights as cell sites are considered useful improvements. In addition to cell site operating leases, the Company has leases related to switch site, retail, and administrative locations subject to the provisions of SFAS No. 143 and FIN No. 47.

The following table summarizes the Company’s asset retirement obligation transactions (in thousands):

 

     2008     2007  

Beginning asset retirement obligations

   $ 14,298     $ 6,685  

Liabilities incurred

     28,816       6,929  

Reductions

     (138 )     (755 )

Accretion expense

     3,542       1,439  
                

Ending asset retirement obligations

   $ 46,518     $ 14,298  
                
This excerpt taken from the PCS 10-K filed May 12, 2006.

Asset Retirement Obligations

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). This statement provides accounting and reporting standards for costs associated with the retirement of long-lived assets. This statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company adopted SFAS No. 143 on January 1, 2003.

The Company is subject to asset retirement obligations associated with its cell site operating leases, which are subject to the provisions of SFAS No. 143. Cell site lease agreements may contain clauses requiring restoration of the leased site at the end of the lease term to its original condition, creating an asset retirement obligation. This liability is classified under other long-term liabilities. Landlords may choose not to exercise these rights as cell sites are considered useful improvements. In addition to cell site operating leases, the Company has leases related to switch site, retail, and administrative locations subject to the provisions of SFAS No. 143.

The adoption of SFAS No. 143 resulted in a January 1, 2003 adjustment to record a $0.7 million increase in the carrying values of property and equipment with a corresponding increase in other long-term liabilities. In addition, $0.1 million of accretion, before taxes, was recorded to increase the liability to $0.8 million at adoption. The net effect was to record a loss of approximately $0.1 million as a cumulative effect adjustment resulting from a change in accounting principle in the Company’s consolidated statements of income upon adoption on January 1, 2003.

The following pro forma data summarizes the Company’s net income as if the Company had adopted the provisions of SFAS No. 143 on January 1, 2002, including an associated pro forma asset retirement obligation on that date of $0.5 million (in thousands):

 

     2004    2003    2002  
          (Restated)    (Restated)  

Net income, as reported

   $ 66,600    $ 15,358    $ 130,305  

Pro forma adjustments to reflect adoption of SFAS No. 143

     —        120      (34 )

Pro forma adjustments to reflect accretion expense

     —        —        (53 )

Pro forma adjustments to reflect depreciation expense

     —        —        (33 )
                      

Pro forma net income

   $ 66,600    $ 15,478    $ 130,185  
                      

 

F-54


Table of Contents

MetroPCS, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2004, 2003 and 2002

 

The following table summarizes the Company’s asset retirement obligation transactions recorded in accordance with the provisions of SFAS No. 143 (in thousands):

 

     2004    2003    Pro Forma
2002
          (Restated)     

Beginning asset retirement obligations

   $ 1,115    $ 832    $ 490

Cumulative effect of accounting change, before taxes

     —        122      —  

Liabilities incurred

     559      34      253

Accretion expense

     219      127      89
                    

Ending asset retirement obligations

   $ 1,893    $ 1,115    $ 832
                    

EXCERPTS ON THIS PAGE:

8-K
Jun 9, 2009
10-K
May 12, 2006
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