iHeartMedia 2010 Annual Report Download - page 85

CLEAR CHANNEL CAPITAL I, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The discount rate used in the December 31, 2008 impairment model increased approximately 100 basis points over the discount rate
used to value the permits in the preliminary purchase price allocation as of July 30, 2008. Industry revenue forecasts declined 10%
through 2013 compared to the forecasts used in the preliminary purchase price allocation as of July 30, 2008. These market driven
changes were primarily responsible for the decline in fair value of the billboard permits below their carrying value. As a result, the
Company recognized a non-cash impairment charge at December 31, 2008 which totaled $722.6 million.
The discount rate used in the June 30, 2009 impairment model increased approximately 50 basis points over the discount rate used to
value the permits at December 31, 2008. Industry revenue forecasts declined 8% through 2013 compared to the forecasts used in the
2008 impairment test. These market driven changes were primarily responsible for the decline in fair value of the billboard permits
below their carrying value. As a result, the Company recognized a non-cash impairment charge at June 30, 2009 in all but five of its
markets in the United States and Canada, which totaled $345.4 million.
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 its assumptions and the Company’s determination of the fair value of its reporting units.
Each of the Company’s U.S. radio markets and outdoor advertising markets are components. The U.S. radio markets are aggregated
into a single reporting unit and the U.S. outdoor advertising markets are aggregated into a single reporting unit for purposes of the
goodwill impairment test using the guidance in ASC 350-20-55. The Company also determined that within its Americas outdoor
segment, Canada, Mexico, Peru, and Brazil constitute separate reporting units and each country in its International outdoor segment
constitutes a separate reporting unit.
The goodwill impairment test is a two-step process. The first step, used to screen for potential impairment, compares the fair value of
the reporting unit with its carrying amount, including goodwill. If applicable, the second step, used to measure the amount of the
impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
Each of the Company’s reporting units is valued using a discounted cash flow model which requires estimating future cash flows
expected to be generated from the reporting unit, discounted to their present value using a risk-adjusted discount rate. Terminal values
were also estimated and discounted to their present value. Assessing the recoverability of goodwill requires the Company to make
estimates and assumptions about sales, operating margins, growth rates and discount rates based on its budgets, business plans,
economic projections, anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and
management’s judgment in applying these factors.
The following table presents the changes in the carrying amount of goodwill in each of the Company’s reportable segments. The
provisions of ASC 350-20-50-1 require the disclosure of cumulative impairment. As a result of the merger, a new basis in goodwill
was recorded in accordance with ASC 805-10. All impairments shown in the table below have been recorded subsequent to the
merger and, therefore, do not include any pre-merger impairment.
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(iii) Industry average revenue growth of 3% beyond the discrete build-up projection period in the December 31, 2008 and
June 30, 2009 im
p
airment tests;
(iv) Discount rates of 9.5% and 10%, res
p
ectivel
y
, in the December 31, 2008 and June 30, 2009 im
p
airment tests.