iHeartMedia 2011 Annual Report Download - page 94

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CLEAR CHANNEL CAPITAL I, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company entered into its swap agreement to effectively convert a portion of its floating-rate debt to a fixed basis, thus reducing
the impact of interest rate changes on future interest expense. The Company assesses at inception, and on an ongoing basis, whether
its interest rate swap agreement is highly effective in offsetting changes in the interest expense of its floating rate debt. A derivative
that is not a highly effective hedge does not qualify for hedge accounting.
The Company continually monitors its positions with, and credit quality of, the financial institution which is counterparty to its
interest rate swap. The Company may be exposed to credit loss in the event of nonperformance by its counterparty to the interest rate
swap. However, the Company considers this risk to be low. If a derivative instrument no longer qualifies as a cash flow hedge, hedge
accounting is discontinued and the gain or loss that was recorded in other comprehensive income is recognized currently in income.
The swap agreement is valued using a discounted cash flow model that takes into account the present value of the future cash flows
under the terms of the agreements by using market information available as of the reporting date, including prevailing interest rates
and credit spread. Due to the fact that the inputs are either directly or indirectly observable, the Company classified the fair value
measurement of the agreement as Level 2.
The fair value of the Company’s $2.5 billion notional amount interest rate swap designated as a hedging instrument and recorded in
“Other long-term liabilities” was $159.1 million and $213.1 million at December 31, 2011 and 2010, respectively.
The following table provides the beginning and ending accumulated other comprehensive loss and the current period activity related
to the interest rate swap agreements:
NOTE 7 – COMMITMENTS AND CONTINGENCIES
The Company accounts for its rentals that include renewal options, annual rent escalation clauses, minimum franchise payments and
maintenance related to displays under the guidance in ASC 840.
The Company considers its non-cancelable contracts that enable it to display advertising on buses, bus shelters, trains, etc. to be leases
in accordance with the guidance in ASC 840-10. These contracts may contain minimum annual franchise payments which generally
escalate each year. The Company accounts for these minimum franchise payments on a straight-line basis. If the rental increases are
not scheduled in the lease, such as an increase based on subsequent changes in the index or rate, those rents are considered contingent
rentals and are recorded as expense when accruable. Other contracts may contain a variable rent component based on revenue. The
Company accounts for these variable components as contingent rentals and records these payments as expense when accruable.
The Company accounts for annual rent escalation clauses included in the lease term on a straight-line basis under the guidance in
ASC 840-20-25. The Company considers renewal periods in determining its lease terms if at inception of the lease there is reasonable
assurance the lease will be renewed. Expenditures for maintenance are charged to operations as incurred, whereas expenditures for
renewal and betterments are capitalized.
The Company leases office space, certain broadcasting facilities, equipment and the majority of the land occupied by its outdoor
advertising structures under long-term operating leases. The Company accounts for these leases in accordance with the policies
described above.
The Company’s contracts with municipal bodies or private companies relating to street furniture, billboards, transit and malls
generally require the Company to build bus stops, kiosks and other public amenities or advertising structures during the term of the
contract. The Company owns these structures and is generally allowed to advertise on them for the remaining term of the
contract. Once the Company has built the structure, the cost is capitalized and expensed over the shorter of the economic life of the
asset or the remaining life of the contract.
91
(In thousands)
Accumulated other
com
p
rehensive loss
Balance at December 31, 2009
$ 149,179
Other com
p
rehensive income
15,112
Balance at December 31, 2010
134,067
Other com
p
rehensive income
33,775
Balance at December 31, 2011
$ 100,292