Metro PCS 2007 Annual Report Download - page 112

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
F-13
FCC Licenses and Microwave Relocation Costs
The Company operates broadband PCS networks under licenses granted by the FCC for a particular geographic
area on spectrum allocated by the FCC for broadband PCS services. In addition, in November 2006, the Company
acquired a number of advanced wireless services (“AWS”) licenses which can be used to provide services
comparable to the PCS services provided by the Company, and other advanced wireless services. The PCS and
AWS licenses included the obligation and resulting costs to relocate existing fixed microwave users of the
Company’ s licensed spectrum if the Company’ s spectrum interfered with their systems and/or reimburse other
carriers (according to FCC rules) that relocated prior users if the relocation benefits the Company’ s system.
Accordingly, the Company incurred costs related to microwave relocation in constructing its PCS and AWS
networks. The PCS and AWS licenses and microwave relocation costs are recorded at cost. Although PCS and AWS
licenses are issued with a stated term, ten years in the case of the PCS licenses and fifteen years in the case of the
AWS licenses, the renewal of PCS and AWS licenses is generally a routine matter without substantial cost and the
Company has determined that no legal, regulatory, contractual, competitive, economic, or other factors currently
exist that limit the useful life of its PCS and AWS licenses. As such, under the provisions of SFAS No. 142,
“Goodwill and Other Intangible Assets,” the Company does not amortize PCS and AWS licenses and microwave
relocation costs as they are considered to have indefinite lives and together represent the cost of the Company’ s
spectrum. The Company is required to test indefinite-lived intangible assets, consisting of PCS and AWS licenses
and microwave relocation costs, for impairment on an annual basis based upon a fair value approach. Indefinite-
lived intangible assets must be tested between annual tests if events or changes in circumstances indicate that the
asset might be impaired. These events or circumstances could include a significant change in the business climate,
including a significant sustained decline in an entity’ s market value, legal factors, operating performance indicators,
competition, sale or disposition of a significant portion of the business, or other factors. The Company completed its
impairment tests during the third quarter of 2007 and no impairment has been recognized through December 31,
2007.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred. Advertising costs totaled $73.2 million, $46.4 million
and $25.6 million during the years ended December 31, 2007, 2006 and 2005, respectively.
Income Taxes
The Company records income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes,”
(“SFAS No. 109”). SFAS No. 109 uses an asset and liability approach to account for income taxes, wherein deferred
taxes are provided for book and tax basis differences for assets and liabilities. In the event differences between the
financial reporting basis and the tax basis of the Company’ s assets and liabilities result in deferred tax assets, a
valuation allowance is provided for a portion or all of the deferred tax assets when there is sufficient uncertainty
regarding the Company’ s ability to recognize the benefits of the assets in future years.
On January 1, 2007, the Company adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income
Taxes,” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial
statements in accordance with SFAS No. 109. FIN 48 provides guidance on the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-
recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition issues.
The adoption of FIN 48 did not have a significant impact on the Company’ s financial statements. There was no
cumulative effect adjustment related to adopting FIN 48.
Other Comprehensive Income
Unrealized gains on available-for-sale securities and cash flow hedging derivatives are reported in accumulated
other comprehensive income as a separate component of stockholders’ equity until realized. Realized gains and
losses on available-for-sale securities are included in interest and other income. Gains or losses on cash flow
hedging derivatives reported in accumulated other comprehensive income are reclassified to earnings in the period
in which earnings are affected by the underlying hedged transaction.