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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis. All posts prior to September, 2007 are in the public domain, but after September 4, 2007, only subscribers to The Analyst's Accounting Observer will see all posts going forward. Only selected, occasional posts will be released to the public domain from September 4 forward.
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| That Sneaky FIN 47
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Location: Blogs AAO Weblog (Public) |
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| Posted by: Jack Ciesielski |
4/7/2006 8:38 AM |
About a month ago, I mentioned that FIN 47 was likely to be a cattle prod for companies - a stimulant to get their proper Statement 143 obligations on the balance sheet.
(Quick refresher: Statement 143 calls on firms to record an obligation, when incurred, for the cost of retiring assets. In other words, if a company legally has to restore a building site, or a mine, or a chemical plant back to a certain condition, they're supposed to accrue that obligation as the asset is constructed/used over time as opposed to suddenly leaping onto the balance sheet at the end of the asset's useful life. FIN 47 goaded firms into living with the fact that the estimates of such liabilities were in fact estimates - and getting them onto the balance sheet instead of waiting for them to become virtual certainties.)
It looks like it's turning out that way. In the past month, we've come up with 43 instances where adoption of FIN 47 prompted the recording of asset retirement obligations in companies where none had been recorded before. (Perhaps more accurately, we couldn't tell if there had been no asset retirement obligation recorded before. We could find no mention of Statement 143 or asset retirement obligations in 2003 10-Ks. That was the year Statement 143 became effective.) The players, with the implementation charge in millions of dollars:
Company |
Industry |
FIN 47 AT charge |
Relates to: |
AK Steel |
Metals & Mining |
$1.50 |
NA |
Applebees Int'l |
Hotels, Restaurants & Leisure |
$0.23 |
NA |
Biosante Pharmaceuticals |
Biotechnology |
NA |
NA |
Boston Properties |
Real Estate |
$4.20 |
Asbestos |
Brinks |
Commercial Services & Supplies |
$5.40 |
Associated with leased facilities |
Buca |
Hotels, Restaurants & Leisure |
$0.36 |
Leasehold improvements |
Canyon Resources |
Metals & Mining |
NA |
NA |
CBL & Associates |
Real Estate |
NA |
NA |
CDI Corp |
Commercial Services & Supplies |
$0.20 |
Leasehold improvements |
Central Vermont Public Service |
Electric Utilities |
NA |
Asbestos, PCB's, mercury |
Citigroup |
Diversified Financial Services |
$49.00 |
Real estate restoration activities |
Covenant Transport |
Road & Rail |
$0.50 |
Return leased items to landlords in pre-lease condition |
Daimler Chrysler AG |
Automobiles |
$5.00 |
NA |
Extendicare |
Health Care Providers & Services |
$11.08 |
Asbestos |
Ford |
Automobiles |
$251.00 |
PCB's (Polychlorinated Biphenyls ) |
Insight Enterprises |
Internet & Catalog Retail |
$0.65 |
Return leased areas to landlords in pre-lease condition |
Iron Mountain |
IT Services |
NA |
Leased facilities |
Kopin |
Semiconductors |
NA |
Leasehold improvements |
Libby |
Household Durables |
$0.10 |
NA |
Lydall |
Machinery |
$0.30 |
Building materials, leasehold improvements |
Maine & Maritimes |
Electric Utilities |
NA |
PCB's (Polychlorinated Biphenyls ) |
Molson Coors |
Beverages |
$3.70 |
Asbestos, other contaminants |
Northeast Utilities |
Electric Utilities |
$1.00 |
Asbestos, hazardous contamination |
Northwestern |
Multi-Utilities |
NA |
Gas pipeline |
O'Charley's |
Hotels, Restaurants & Leisure |
$0.15 |
NA |
Payless |
Specialty Retail |
$4.10 |
Leasehold improvements |
Praxair |
Chemicals |
$6.00 |
NA |
Quaker Chemical |
Chemicals |
NA |
Asbestos, storage tanks |
RadioShack |
Specialty Retail |
$2.90 |
NA |
Reckson Associates Realty |
Real Estate |
NA |
Asbestos |
Serologicals |
Biotechnology |
NA |
NA |
Smithway Motor Xpress |
Road & Rail |
NA |
NA |
Southebys Holdings |
Diversified Consumer Services |
$1.60 |
Restore leased property to pre-lease condition |
Tecumseh Products |
Machinery |
NA |
NA |
Tenet Healthcare |
Health Care Providers & Services |
$16.00 |
Asbestos |
Thomas Properties |
Real Estate |
$1.28 |
Asbestos |
Transworld Entertainment |
Specialty Retail |
$2.30 |
NA |
Trizec |
Real Estate |
$4.90 |
Asbestos |
Ultratech |
Semiconductors |
$1.10 |
Retirement of long-lived assets |
United Technologies |
Aerospace & Defense |
$95.00 |
Building materials |
Vornado Realty Trust |
Real Estate |
NA |
Asbestos |
Wells Fargo |
Commercial Banks |
$16.25 |
Leasehold improvements |
Winston Hotels |
Real Estate |
0.36 |
Asbestos |
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$485.80 |
(Yes, I know how crummy it looks. It's not my forte. Anyone who wants to offer correct instructions on how to copy a table from Quattro/Excel into Paint, save as a JPG, then introduce into WordPress - please send them in. Man, I miss the days when "Javelin" was the leading edge software...)
Back to the issue: one interesting thing is the diversity of companies booking the charges/obligation. When you think of Statement 143, you think of the "dirty" industries that show up in the table like companies in the metals, chemicals, automakers, and trucking industries. But you'd be unlikely to think of restaurants (Applebee's, Buca, O'Charley's); REITs (Boston Properties, Trizec, Vornado); bankers (Citigroup, Wells Fargo);and retailers (Payless, RadioShack, Transworld). Not to neglect brewers (Molson Coors).
Another thing you don't think of immediately: asbestos. We're used to thinking of asbestos in terms of manufacturers who've been held liable for its unhappy side-effects, but we don't usually think of the liability for its removal in firms with real estate that contains the stuff. Now we will.
The total tab for these companies to adopt FIN 47/Statement 143 is pretty small: under half a billion for the 43 firms. It's not a bank-breaker. But, it is something for common shareholders to monitor going forward, as it represents a claim that should, by its very nature, grow with the passage of time - and crowd out shareholders claims, to some degree. |
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