iHeartMedia 2005 Annual Report Download - page 61

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61
Purchase Accounting
The Company accounts for its business acquisitions under the purchase method of accounting. The total cost of
acquisitions is allocated to the underlying identifiable net assets, based on their respective estimated fair values. The
excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often
involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows
and outflows, discount rates, asset lives and market multiples, among other items. In addition, reserves have been
established on the Company’s balance sheet related to acquired liabilities and qualifying restructuring costs and
contingencies based on assumptions made at the time of acquisition. The Company evaluates these reserves on a
regular basis to determine the adequacies of the amounts.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method at rates
that, in the opinion of management, are adequate to allocate the cost of such assets over their estimated useful lives,
which are as follows:
Buildings and improvements - 10 to 39 years
Structures - 5 to 40 years
Towers, transmitters and studio equipment - 7 to 20 years
Furniture and other equipment - 3 to 20 years
Leasehold improvements - shorter of economic life or lease term
Expenditures for maintenance and repairs are charged to operations as incurred, whereas expenditures for renewal
and betterments are capitalized.
The Company tests for possible impairment of property, plant, and equipment whenever events or changes in
circumstances, such as a reduction in operating cash flow or a dramatic change in the manner that the asset is
intended to be used indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the
Company compares the undiscounted cash flows related to the asset to the carrying value of the asset. The
impairment loss calculations require management to apply judgment in estimating future cash flows and the
discount rates that reflects the risk inherent in future cash flows. If the carrying value is greater than the
undiscounted cash flow amount, an impairment charge is recorded in depreciation expense in the statement of
operations for amounts necessary to reduce the carrying value of the asset to fair value.
Intangible Assets
The Company classifies intangible assets as definite-lived or indefinite-lived intangible assets, as well as goodwill.
Definite-lived intangibles include primarily transit and street furniture contracts, talent, and representation contracts,
all of which are amortized over the respective lives of the agreements, typically four to fifteen years. The Company
periodically reviews the appropriateness of the amortization periods related to its definite-lived assets. These assets
are stated at cost. Indefinite-lived intangibles include broadcast FCC licenses and billboard permits. The excess
cost over fair value of net assets acquired is classified as goodwill. The indefinite-lived intangibles and goodwill
are not subject to amortization, but are tested for impairment at least annually.
The Company tests for possible impairment of definite-lived intangible assets whenever events or changes in
circumstances, such as a reduction in operating cash flow or a dramatic change in the manner that the asset is
intended to be used indicate that the carrying amount of the asset may not be recoverable. If indicators exist, the
Company compares the undiscounted cash flows related to the asset to the carrying value of the asset. If the
carrying value is greater than the undiscounted cash flow amount, an impairment charge is recorded in amortization
expense in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair value.
The Company performs its annual impairment test for its FCC licenses and permits using a direct valuation
technique as prescribed by the Emerging Issues Task Force (“EITF”) Topic D-108, Use of the Residual Method to
Value Acquired Assets Other Than Goodwill (“D-108”), which the Company adopted in the fourth quarter of 2004.
Certain assumptions are used under the Company’s direct valuation technique, including market penetration leading