iHeartMedia 2010 Annual Report Download - page 62

In determining the fair value of our billboard permits, the following key assumptions were used:
While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our
indefinite-lived assets, it is possible a material change could occur. If future results are not consistent with our assumptions and
estimates, we may be exposed to impairment charges in the future. The following table shows the decline in the fair value of our
indefinite-lived intangibles that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate
and profit margin assumptions and a 100 basis point increase in our discount rate assumption:
The estimated fair value of our FCC licenses and permits at October 1, 2010 was $3.1 billion and $1.9 billion, respectively,
while the carrying value was $2.4 billion and $1.1 billion, respectively.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business
combinations. We test goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired. 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 discounted cash flow 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 are also estimated and
discounted to their present value.
On October 1, 2010, we performed our annual impairment test in accordance with ASC 350-30-35 and recognized an
impairment charge of $2.1 million in one country. In determining the fair value of our reporting units, we used the following
assumptions:
Based on our annual assessment using the assumptions described above, a hypothetical 25% reduction in the estimated fair value
in each of our reporting units would not result in a material impairment condition.
57
(ii) 2% revenue
g
rowth was assumed be
y
ond the initial four-
y
ear
p
eriod;
(iii) Revenue was
g
rown
p
ro
p
ortionall
y
over a build-u
p
p
eriod, reachin
g
market revenue forecast b
y
y
ear 3;
(iv) Operating margins of 12.5% in the first year gradually climb to the industry average margin in year 3 of up to 30%,
de
p
endin
g
on market size b
y
y
ear 3; and
(v) Assumed discount rates of 9% for the 13 lar
g
est markets and 9.5% for all other markets.
(i) Industr
y
revenue
g
rowth forecast at 7% was used for the initial four-
y
ear
p
eriod;
(ii) 3% revenue
g
rowth was assumed be
y
ond the initial four-
y
ear
p
eriod;
(iii) Revenue was
g
rown over a build-u
p
p
eriod, reachin
g
maturit
y
b
y
y
ear 2;
(iv) O
p
eratin
g
mar
g
ins
g
raduall
y
climb to the industr
y
avera
g
e mar
g
in of u
p
to 51%, de
p
endin
g
on market size, b
y
y
ear 3; and
(v) Assumed discount rate of 10%.
(In thousands)
Descri
p
tio
n
Revenue
g
rowth rate Profit mar
g
i
n
Discount rates
FCC licenses $ (335,390) $(147,650) $(458,595)
Billboard
p
ermits $ (548,200) $ (117,600) $ (554,900)
• Expected cash flows underlying our business plans for the periods 2011 through 2015. Our cash flow assumptions are
based on detailed, multi-year forecasts performed by each of our operating segments, and reflect the improved advertising
outlook across our businesses.
• Cash flows beyond 2015 are projected to grow at a perpetual growth rate, which we estimated at 2% for radio broadcasting
and 3% for our Americas outdoor and International outdoor se
g
ments.
• In order to risk adjust the cash flow projections in determining fair value, we utilized a discount rate of approximately
10.5% to 11% for each of our re
p
ortin
g
units.