iHeartMedia 2005 Annual Report Download - page 49

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In June 2005, the Emerging Issues Task Force (“EITF”) issued EITF 05-6, Determining the Amortization
Period of Leasehold Improvements (“EITF 05-6”). EITF 05-6 requires that assets recognized under capital leases
generally be amortized in a manner consistent with the lessee’s normal depreciation policy except that the amortization
period is limited to the lease term (which includes renewal periods that are reasonably assured). EITF 05-6 also
addresses the determination of the amortization period for leasehold improvements that are purchased subsequent to the
inception of the lease. Leasehold improvements acquired in a business combination or purchased subsequent to the
inception of the lease should be amortized over the lesser of the useful life of the asset or the lease term that includes
reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. We
adopted EITF 05-6 on July 1, 2005 which did not materially impact our financial position or results of operations.
In October 2005, the FASB issued Staff Position 13-1 (“FSP 13-1”). FSP 13-1 requires rental costs associated
with ground or building operating leases that are incurred during a construction period be recognized as rental expense.
The guidance in FSP 13-1 shall be applied to the first reporting period beginning after December 15, 2005. We will
adopt FSP 13-1 January 1, 2006 and do not anticipate adoption to materially impact our financial position or results of
operations.
In November, the FASB staff issued FASB Staff Position FAS 115-1 (“FAS 115-1”). FAS 115-1 replaces the
impairment evaluation guidance (paragraphs 10-18) of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (“EITF 03-1”), with references to the existing other-than-
temporary impairment guidance. EITF 03-1 disclosure requirements remain in effect, and are applicable for year-end
reporting and for interim periods if there are significant changes from the previous year-end. FAS 115-1 also supersedes
EITF Topic No. D-44, Recognition of Other Than-Temporary Impairment upon the Planned Sale of a Security Whose
Cost Exceeds Fair Value, and clarifies that an investor should recognize an impairment loss no later than when the
impairment is deemed other-than-temporary, even if a decision to sell an impaired security has not been made. The
guidance in FAS 115-1 is to be applied to reporting periods beginning after December 15, 2005. We will adopt FAS
115-1 January 1, 2006 and anticipate adoption will not materially impact our financial position or results of operations.
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 a 10% change in our allowance, it is estimated that our
2005 bad debt expense would have changed by $4.7 million and our 2005 net income would have changed by $2.9
million.