Metro PCS 2011 Annual Report Download - page 76

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Inventories
We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the
cost of inventory and the estimated market value or replacement cost based upon assumptions about future demand and market
conditions. Write-downs for obsolescent and unmarketable inventory were not significant as of December 31, 2010 and 2011.
If actual market conditions are less favorable than those projected, additional inventory write-downs may be required.
Deferred Income Tax Asset and Other Tax Reserves
We assess our deferred tax asset and record a valuation allowance, when necessary, to reduce our deferred tax asset to the
amount that is more likely than not to be realized. We have considered future taxable income, taxable temporary differences
and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. Should we
determine that we would not be able to realize all or part of a deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to earnings in the period we made that determination.
We establish reserves when, despite our belief that our tax returns are fully supportable, we believe that certain positions
may be challenged and ultimately modified. We adjust the reserves in light of changing facts and circumstances. Our effective
tax rate includes the impact of income tax related reserve positions and changes to income tax reserves that we consider
appropriate. A number of years may elapse before a particular matter for which we have established a reserve is finally
resolved. Unfavorable settlement of any particular issue may require the use of cash or a reduction in our net operating loss
carryforwards. Favorable resolution would be recognized as a reduction to the effective rate in the year of resolution. Tax
reserves as of December 31, 2011 were approximately $13.7 million of which $6.0 million and approximately $7.7 million are
presented on the consolidated balance sheet in accounts payable and accrued expenses and other long-term liabilities,
respectively.
Property and Equipment
Depreciation on property and equipment is applied using the straight-line method over the estimated useful lives of the
assets once the assets are placed in service, which are five to ten years for network infrastructure assets, three to ten years for
capitalized interest, up to fifteen years for capital lease assets, approximately one to eight years for office equipment, which
includes software and computer equipment, approximately three to seven years for furniture and fixtures and five years for
vehicles. Leasehold improvements are amortized over the shorter of the remaining term of the lease and any renewal periods
reasonably assured or the estimated useful life of the improvement. The estimated life of property and equipment is based on
historical experience with similar assets, as well as taking into account anticipated technological or other changes. If
technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives
assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future
periods. Likewise, if the anticipated technological or other changes occur more slowly than anticipated, the life of the assets
could be extended based on the life assigned to new assets added to property and equipment. This could result in a reduction of
depreciation expense in future periods.
We assess the impairment of long-lived assets whenever events or changes in circumstances indicate the carrying value
may not be recoverable. Factors we consider important that could trigger an impairment review include significant
underperformance relative to historical or projected future operating results or significant changes in the manner of use of the
assets or in the strategy for our overall business. The carrying amount of a long-lived asset is not recoverable if it exceeds the
sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required
impairment loss would be measured as the amount by which the asset's carrying value exceeds its fair value and would be
recorded as a reduction in the carrying value of the related asset and charged to results of operations. There have been no
indicators that the carrying value of long-lived assets may not be recoverable and accordingly no impairment tests have been
performed. The carrying value of property and equipment was $4.0 billion as of December 31, 2011.
Fair Value Measurements
We follow the provisions of ASC 820 (Topic 820, “Fair Value Measurements and Disclosures”). ASC 820 establishes a
three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. ASC 820 requires
us to maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs
that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is
significant to the fair value calculation.