iHeartMedia 2002 Annual Report Download - page 79

Goodwill
Statement 142 requires the Company to test goodwill for impairment using a two-step process. The first step is a screen for potential
impairment, while the second step measures the amount, if any, of the impairment. The Company completed the two-step impairment test
during the first quarter of 2002. As a result of this test, the Company recognized impairment of approximately $10.8 billion, net of deferred
taxes of $659.1 million related to tax deductible goodwill, as a component of the cumulative effect of a change in accounting principle during
the first quarter of 2002. Consistent with the Company’s approach to fair valuing FCC licenses, the income approach was used to determine the
fair value of each of the Company’s reporting units. Throughout 2001, unfavorable economic conditions persisted in the industries that the
Company serves, which caused its customers to reduce the number of advertising dollars spent on the Company’s media inventory and live
entertainment events as compared to prior periods. These conditions adversely impacted the cash flow projections used to determine the fair
value of each reporting unit, resulting in the write-off of a portion of goodwill. The following table presents the changes in the carrying amount
of goodwill in each of the Company’s reportable segments for the year ended December 31, 2002:
(In thousands)
Other
Statement 142 does not change the requirements of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes,for
recognition of deferred taxes related to FCC licenses and tax-deductible goodwill. As a result of adopting Statement 142, a deferred tax benefit
for the difference between book and tax amortization on the Company’s FCC licenses and tax-deductible goodwill will no longer be recognized
as these assets are no longer amortized for book purposes. As the majority of the Company’s deferred tax liability recorded on the balance sheet
relates to the difference between book and tax basis on FCC licenses, the deferred tax liability will not reverse over time unless future
impairment charges are recognized on FCC licenses or the FCC licenses are sold.
Prior to adopting Statement 142, the Company recorded large amounts of non-deductible goodwill amortization, which resulted in a
corresponding large permanent tax item, which adversely impacted the Company’s effective tax rate. However, as a result of the Company’s
adoption of Statement 142, it no longer amortizes any goodwill for book and substantially all goodwill for tax purposes, thus its effective tax
rate now more closely approximates statutory tax rates.
NOTE C —BUSINESS ACQUISITIONS
2002 Acquisitions:
Ackerley Merger
On June 14, 2002, the Company consummated its merger with The Ackerley Group, Inc. (“Ackerley”). Pursuant to the terms of the merger
agreement, each share of Ackerley ordinary and Class B common stock was exchanged for 0.35 shares of the Company’scommonstock.After
canceling 1.2 million shares of Ackerley common stock that were held by the Company prior to the signing of the merger agreement,
approximately 12.0 million shares of the Company’s common stock were issued to Ackerley shareholders. The Company also assumed all of
Ackerley’s outstanding employee stock options, which as of the merger date were exercisable for approximately 114,000 shares of the
Company’s common stock. The merger is valued at approximately $493.0 million based on the number of the
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Radio Outdoor Entertainment Other Total
Balance as of December 31, 2001 $9,756,750 $4,216,618 $4,267,820 $26,118 $18,267,306
Acquisitions 15,581 414,054 16,353 1,753 447,741
Dispositions (2,529)(1,851) — — (4,380)
Foreign currency
—
43,579 1,767 —45,346
Adjustments (64,539)688 84 871 (62,896)
Impairment loss related to the adoption
of FAS 142 (pre-tax) (3,289,117) (4,032,122) (4,130,647) —(11,451,886)
Balance as of December 31, 2002 $6,416,146 $640,966 $155,377 $28,742 $7,241,231