iHeartMedia 2007 Annual Report Download - page 58

the fair value of our reporting units. The fair value of our reporting units is used to apply value to the net assets of each reporting unit. To the
extent that the carrying amount of net assets would exceed the fair value, an impairment charge may be required to be recorded.
The income approach we use for valuing goodwill involves estimating future cash flows expected to be generated from the related assets,
discounted to their present value using a risk-adjusted discount rate. Terminal values were also estimated and discounted to their present value.
In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, or Statement 142, we
performed our annual impairment tests as of October 1, 2005, 2006 and 2007 on goodwill. No impairment charges resulted from these tests.
We may incur impairment charges in future periods under Statement 142 to the extent we do not achieve our expected cash flow growth rates,
and to the extent that market values decrease and long-term interest rates increase.
Indefinite-lived Assets
Indefinite-lived assets are reviewed annually for possible impairment using the direct method as prescribed in SEC Staff Announcement
No. D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill. Under the direct method, it is assumed that rather than
acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible
assets and builds a new operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are
normally associated with going concern value. Initial capital costs are deducted from the discounted cash flows model which results in value
that is directly attributable to the indefinite-lived intangible assets.
Our key assumptions using the direct method are market revenue growth rates, market share, profit margin, duration and profile of the
build-up period, estimated start-up capital costs and losses incurred during the build-up period, the risk-adjusted discount rate and terminal
values. This data is populated using industry normalized information representing an average station within a market.
If actual results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future. Our
annual impairment test was performed as of October 1, 2007, which resulted in no impairment.
Tax Accruals
The IRS and other taxing authorities routinely examine our tax returns. From time to time, the IRS challenges certain of our tax
positions. We believe our tax positions comply with applicable tax law and we would vigorously defend these positions if challenged. The final
disposition of any positions challenged by the IRS could require us to make additional tax payments. We believe that we have adequately
accrued for any foreseeable payments resulting from tax examinations and consequently do not anticipate any material impact upon their
ultimate resolution.
Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note K to our
financial statements and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving
consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in
income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities.
We have considered these potential changes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for
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ncome Taxes and Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, which requires us to record reserves
for estimates of probable settlements of federal and state audits. We adopted FIN 48 on January 1, 2007. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in the financial statements. FIN 48 prescribes a recognition threshold for the financial statement
recognition and measurement of a tax position taken or expected to be taken within an income tax return. The adoption of FIN 48 resulted in a
decrease of $0.2 million to the January 1, 2007 balance of “Retained deficit”, an increase of $101.7 million in “Other long term-liabilities” for
unrecognized tax benefits and a decrease of $123.0 million in “Deferred income taxes”.
Litigation Accruals
We are currently involved in certain legal proceedings and, as required, have accrued our estimate of the probable costs for the resolution
of these claims.
Management’s estimates used have been developed in consultation with counsel and are based upon an analysis of potential results,
assuming a combination of litigation and settlement strategies.
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