iHeartMedia 2004 Annual Report Download - page 53

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment, which is a revision of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends Statement No. 95,
StatementofCashFlows
. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However,
Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) is effective for financial statements for
the first interim or annual period beginning after June 15, 2005. Early adoption is permitted in periods in which financial statements have not
yet been issued. We expect to adopt Statement 123(R) in the third quarter of 2005.
As permitted by Statement 123, we currently account for share-based payments to employees using APB 25’s intrinsic value method and, as
such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value
method will have a significant impact on our result of operations, although it will have no impact on our overall financial position. We are
unable to quantify the impact of adoption of Statement 123(R) at this time because it will depend on levels of share-based payments granted in
the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note A to our consolidated financial statements.
Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash
flow. This requirement will increase net financing cash flows in periods after adoption. We cannot estimate what those amounts will be in the
future because they depend on, among other things, when employees exercise stock options.
Critical Accounting Estimates
The preparation of our financial statements in conformity with Generally Accepted Accounting Principles requires management to make
estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our
estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount
of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual
results could differ from our assumptions and estimates, and such difference could be material. Our significant accounting policies are
discussed in Note A, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8 of
this Annual Report on Form 10-K. Management believes that the following accounting estimates are the most critical to aid in fully
understanding and evaluating our reported financial results, and they require management’s most difficult, subjective or complex judgments,
resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical
accounting policies and related disclosures with our independent auditor and the Audit Committee of our Board of Directors. The following
narrative describes these critical accounting estimates, the judgments and assumptions and the effect if actual results differ from these
assumptions.
Allowance for Doubtful Accounts
We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a
specific customer’s inability to meet its financial obligations, we record a specific reserve to reduce the amounts recorded to what we believe
will be collected. For all other customers, we recognize reserves for bad debt based on historical experience of bad debts as a percent of
revenues for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in current economic conditions.
If our agings were to improve or deteriorate resulting in a10% change in our allowance, it is estimated that our 2004 bad debt expense
would have changed by $5.8 million and our 2004 net income would have changed by $3.6 million.
50