iHeartMedia 2009 Annual Report Download - page 107

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nterim Impairments to Billboard Permits
The Company’s billboard permits are effectively issued in perpetuity by state and local governments as they are transferable or
renewable at little or no cost. Permits typically include the location which permits the Company to operate an advertising structure.
Due to significant differences in both business practices and regulations, billboards in the International segment are subject to long-
term, finite contracts unlike the Company’s permits in the United States and Canada. Accordingly, there are no indefinite-lived assets
in the International segment.
The United States and global economies have undergone a period of economic uncertainty, which caused, among other things, a
general tightening in the credit markets, limited access to the credit markets, lower levels of liquidity and lower consumer and
business spending. These disruptions in the credit and financial markets and the impact of adverse economic, financial and industry
conditions on the demand for advertising negatively impacted the key assumptions used in the discounted cash flow models used to
value the Company’s billboard permits since the merger. Therefore, the Company performed an interim impairment test on its
billboard permits as of December 31, 2008, which resulted in a non-cash impairment charge of $722.6 million.
The Company’s cash flows during the first six months of 2009 were below those in the discounted cash flow model used to calculate
the impairment at December 31, 2008. As a result, the Company performed an interim impairment test as of June 30, 2009 on its
billboard permits resulting in a non-cash impairment charge of $345.4 million.
The impairment test consisted of a comparison of the fair value of the billboard permits at the market level with their carrying
amount. If the carrying amount of the billboard permits exceeded their fair value, an impairment loss was recognized equal to that
excess. After an impairment loss is recognized, the adjusted carrying amount of the billboard permit is its new accounting basis. The
fair value of the billboard permits was determined using the direct valuation method as prescribed in ASC 805-20-S99. Under the
direct valuation method, the fair value of the billboard permits was calculated at the market level as prescribed by ASC 350-30-35.
The Company engaged Mesirow Financial to assist it in the development of the assumptions and the Company’s determination of the
fair value of the billboard permits.
The Company’s application of the direct valuation method utilized the “greenfield” approach as discussed above. The key
assumptions using the direct valuation 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 billboard permit within a
market.
Management uses its internal forecasts to estimate industry normalized information as it believes these forecasts are similar to what a
market participant would expect to generate. This is due to the pricing structure and demand for outdoor signage in a market being
relatively constant regardless of the owner of the operation. Management also relied on its internal forecasts because there is little
public data available for each of its markets.
The build-up period represents the time it takes for the hypothetical start-up operation to reach normalized operations in terms of
achieving a mature market revenue share and profit margin. Management believes that a one-year build-up period is required for a
start-up operation to erect the necessary structures and obtain advertisers in order achieve mature market revenue share. It is estimated
that a start-up operation would be able to obtain 10% of the potential revenues in the first year of operations and 100% in the second
year. Management assumed industry revenue growth of negative 9% and negative 16%, respectively, during the build-up period used
in the December 31, 2008 and June 30, 2009 interim impairment tests. However, the cost structure is expected to reach the
normalized level over three years due to the time required to recognize the synergies and cost savings associated with the ownership
of the permits within the market.
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