iHeartMedia 2012 Annual Report Download - page 78

CLEAR CHANNEL CAPITAL I, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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merger that resulted in the Company’s acquisition of Clear Channel. The Company is the beneficial owner of the trust, but the radio
stations are managed by an independent trustee. The Company will have to divest all of these radio stations unless any stations may
be owned by the Company under then-current FCC rules, in which case the trust will be terminated with respect to such stations. The
trust agreement stipulates that the Company must fund any operating shortfalls of the trust activities, and any excess cash flow
generated by the trust is distributed to the Company. The Company is also the beneficiary of proceeds from the sale of stations held in
the trust. The Company consolidates the trust in accordance with ASC 810-10, which requires an enterprise involved with variable
interest entities to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial
interest in the variable interest entity, as the trust was determined to be a variable interest entity and the Company is its primary
beneficiary.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where it is
aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve to reduce the amounts recorded to
what it believes will be collected. For all other customers, it recognizes reserves for bad debt based on historical experience of bad
debts as a percent of revenue for each business unit, adjusted for relative improvements or deteriorations in the agings and changes in
current economic conditions. The Company believes its concentration of credit risk is limited due to the large number and the
geographic diversification of its customers.
Purchase Accounting
The Company accounts for its business combinations under the acquisition method of accounting. The total cost of an acquisition 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.
Various acquisition agreements may include contingent purchase consideration based on performance requirements of the investee.
The Company accounts for these payments in conformity with the provisions of ASC 805-20-30, which establish the requirements
related to recognition of certain assets and liabilities arising from contingencies.
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 15 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 assuming renewal periods, if appropriate
For assets associated with a lease or contract, the assets are depreciated at the shorter of the economic life or the lease or contract term,
assuming renewal periods, if appropriate. 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 and circumstances indicate that
depreciable assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the
carrying amounts of those assets. When specific assets are determined to be unrecoverable, the cost basis of the asset is reduced to
reflect the current fair market value.
Land Leases and Other Structure Licenses
Most of the Company’s outdoor advertising structures are located on leased land. Americas outdoor land leases are typically paid in
advance for periods ranging from one to 12 months. International outdoor land leases are paid both in advance and in arrears, for
periods ranging from one to 12 months. Most international street furniture display faces are operated through contracts with
municipalities for up to 20 years. The leased land and street furniture contracts often include a percent of revenue to be paid along