iHeartMedia 2009 Annual Report Download - page 112

The market comparable method provides an indication of the fair value of the invested capital of a business by comparing it to
publicly traded companies in similar lines of business. The conditions and prospects of companies in similar lines of business depend
on common factors such as overall demand for their products and services. An analysis of the market multiples of companies engaged
in similar lines of business yields insight into investor perceptions and, therefore, the value of the subject business. These multiples
are then applied to the operating results of the subject business to estimate the fair value of the invested capital on a marketable,
noncontrolling basis. The Company then applies a premium for control to indicate the fair value of the business on a marketable,
controlling basis.
The market transaction method estimates the fair value of the invested capital of a business based on exchange prices in actual
transactions and on asking prices for controlling interests in similar companies recently offered for sale. This process involves
comparison and correlation of the subject business with other similar companies that have recently been purchased. Considerations
such as location, time of sale, physical characteristics, and conditions of sale are analyzed for comparable businesses.
The three variations of the market approach indicated that the fair value determined by the Company’s discounted cash flow model
was within a reasonable range of outcomes as of December 31, 2008 and June 30, 2009.
The revenue forecasts for 2009 declined 18%, 21% and 29% for Radio, Americas outdoor and International outdoor, respectively,
compared to the forecasts used in the July 30, 2008 preliminary purchase price allocation primarily as a result of the revenues realized
for the year ended December 31, 2008. These market driven changes were primarily responsible for the decline in fair value of the
reporting units below their carrying value. As a result, the Company recognized a non-cash impairment charge to reduce its goodwill
of $3.6 billion at December 31, 2008.
The revenue forecasts for 2009 declined 8%, 7% and 9% for Radio, Americas outdoor and International outdoor, respectively,
compared to the forecasts used in the 2008 impairment test primarily as a result of the revenues realized during the first six months of
2009. These market driven changes were primarily responsible for the decline in fair value of the reporting units below their carrying
value. As a result, the Company recognized a non-cash impairment charge to reduce its goodwill of $3.1 billion at June 30, 2009.
A
nnual Impairment Test to Goodwill
The Company performs its annual impairment test on October 1 of each year. The Company engaged Mesirow Financial to assist the
Company in the development of these assumptions and the Company’s determination of the fair value of its reporting units. The fair
value of the Company’s reporting units on October 1, 2009 increased from the fair value at June 30, 2009. The increase in fair value
of the radio reporting unit was primarily the result of a 50 basis point decline in the WACC as well as a 130 basis point increase in the
long-term operating margin. The increase in fair value of the Americas reporting unit was primarily the result of a 150 basis point
decline in the WACC. Application of the market approach described above supported lowering the company-specific risk premium
used in the discounted cash flow model to fair value the Americas reporting unit. The increase in the aggregate fair value of the
reporting units in the Company’s International outdoor segment was primarily the result of an improvement in the long-term revenue
forecasts. As discussed in Note B, a certain reporting unit in the International outdoor segment recognized a $41.4 million impairment
to goodwill related to the fair value adjustments of certain noncontrolling interests recorded in the merger pursuant to ASC 480-10-
S99.
NOTE E – INVESTMENTS
The Company’s most significant investments in nonconsolidated affiliates are listed below:
Australian Radio Network
The Company owns a fifty-percent (50%) interest in Australian Radio Network (“ARN”), an Australian company that owns and
operates radio stations in Australia and New Zealand.
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