iHeartMedia 2011 Annual Report Download - page 62

Our 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 asset
within a market.
On October 1, 2011, we performed our annual impairment test in accordance with ASC 350-30-35 and recognized
aggregate impairment charges of $6.5 million related to permits in one of our markets.
In determining the fair value of our FCC licenses, the following key assumptions were used:
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 intangible 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 change in the fair value of our
indefinite-lived intangible assets 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 billboard permits at October 1, 2011 was $3.4 billion and $2.1 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 as part of the two-step impairment testing approach
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.
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Market revenue growth, forecast and published by BIA Financial Network, Inc. (“BIA”), of 4.5% was used for the initial
four-
y
ear
p
eriod;
2% revenue
g
rowth was assumed be
y
ond the initial four-
y
ear
p
eriod;
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;
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
Assumed discount rates of 9% for the 13 lar
g
est markets and 9.5% for all other markets.
Industr
y
revenue
g
rowth forecast at 7.8% was used for the initial four-
y
ear
p
eriod;
3% revenue
g
rowth was assumed be
y
ond the initial four-
y
ear
p
eriod;
Revenue was
g
rown over a build-u
p
p
eriod, reachin
g
maturit
y
b
y
y
ear 2;
Operating margins gradually climb to the industry average margin of up to 52%, depending on market size, by year 3;
and
Assumed discount rate of 10%.
(In thousands)
Descri
p
tio
n
Revenue
g
rowth rate Profit mar
g
in Discount rates
FCC licenses
$ (403,470) $(164,040) $(511,440)
Billboard
p
ermits $ (596,200) $(129,200) $(603,700)