iHeartMedia 2014 Annual Report Download - page 78

IHEARTCOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
76
The Company is the beneficiary of two trusts created to comply with Federal Communications Commission (“FCC”) ownership rules.
The radio stations owned by the trusts are managed by independent trustees. The trustees are marketing these stations for sale, and the
stations will have to be sold unless any stations may be owned by the Company under then-current FCC rules, in which case the trusts
will be terminated with respect to such stations. The trust agreements stipulate that the Company must fund any operating shortfalls of
the trust activities, and any excess cash flow generated by the trusts is distributed to the Company. The Company is also the
beneficiary of proceeds from the sale of stations held in the trusts. The Company consolidates the trusts 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 trusts were determined to be a
variable interest entity and the Company is the primary beneficiary under the trusts.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount, net of reserves for sales returns and allowances, and allowances 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.
Business Combinations
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
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