iHeartMedia 2007 Annual Report Download - page 70

are stated at cost. Indefinite-lived intangibles include broadcast FCC licenses and billboard permits. The excess cost over fair value of net
assets acquired is classified as goodwill. The indefinite-lived intangibles and goodwill are not subject to amortization, but are tested for
impairment at least annually.
The Company tests for possible impairment of definite-lived intangible assets whenever events or changes in circumstances, such as a
reduction in operating cash flow or a dramatic change in the manner for which the asset is intended to be used indicate that the carrying amount
of the asset may not be recoverable. If indicators exist, the Company compares the undiscounted cash flows related to the asset to the carrying
value of the asset. If the carrying value is greater than the undiscounted cash flow amount, an impairment charge is recorded in amortization
expense in the statement of operations for amounts necessary to reduce the carrying value of the asset to fair value.
The Company performs its annual impairment test for its FCC licenses and permits using a direct valuation technique as prescribed by the
Emerging Issues Task Force (“EITF”) Topic D-108, Use of the Residual Method to Value Acquired Assets Other Than Goodwill (“D-108”).
Certain assumptions are used under the Company’s direct valuation technique, including market revenue growth rates, market share, profit
margin, duration and profile of the build-up period, estimated start-up cost and losses incurred during the build-up period, the risk adjusted
discount rate and terminal values. The Company utilizes Mesirow Financial Consulting LLC, a third party valuation firm, to assist the
Company in the development of these assumptions and the Company’s determination of the fair value of its FCC licenses and permits.
Impairment charges are recorded in amortization expense in the statement of operations.
At least annually, the Company performs its impairment test for each reporting unit’s goodwill using a discounted cash flow model to
determine if the carrying value of the reporting unit, including goodwill, is less than the fair value of the reporting unit. The Company
identified its reporting units under the guidance in Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(“Statement 142”) and EITF D-101, Clarification of Reporting Unit Guidance in Paragraph 30 of FASB Statement No. 142. The Company’s
reporting units for radio broadcasting and Americas outdoor advertising are the reportable segments. The Company determined that each
country in its International outdoor segment constitutes a reporting unit and therefore tests goodwill for impairment at the country level. Certain
assumptions are used in determining the fair value, including assumptions about future cash flows, discount rates, and terminal values. If the
fair value of the Company’s reporting unit is less than the carrying value of the reporting unit, the Company reduces the carrying amount of
goodwill. Impairment charges are recorded in amortization expense on the statement of operations.
Other Investments
Other investments are composed primarily of equity securities. These securities are classified as available-for-sale or trading and are carried at
fair value based on quoted market prices. Securities are carried at historical value when quoted market prices are unavailable. The net
unrealized gains or losses on the available-for-sale securities, net of tax, are reported as a separate component of shareholders’ equity. The net
unrealized gains or losses on the trading securities are reported in the statement of operations. In addition, the Company holds investments that
do not have quoted market prices. The Company periodically reviews the value of available-for-sale, trading and non-marketable securities and
records impairment charges in the statement of operations for any decline in value that is determined to be other-than-temporary. The average
cost method is used to compute the realized gains and losses on sales of equity securities.
Nonconsolidated Affiliates
In general, investments in which the Company owns 20 percent to 50 percent of the common stock or otherwise exercises significant influence
over the investee are accounted for under the equity method. The Company does not recognize gains or losses upon the issuance of securities
by any of its equity method investees. The Company reviews the value of equity method investments and records impairment charges in the
statement of operations for any decline in value that is determined to be other-than-temporary.
Financial Instruments
Due to their short maturity, the carrying amounts of accounts and notes receivable, accounts payable, accrued liabilities, and short-term
borrowings approximated their fair values at December 31, 2007 and 2006.
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