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CLEAR CHANNEL CAPITAL I, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 2011, the Company recognized a $6.5 million impairment charge related to billboard permits in one market due to significant
declines in permit value resulting from flat revenues, a slight decline in margin and increased capital expenditures within the market.
During 2010, although the aggregate fair values of FCC licenses and billboard permits increased, certain markets experienced
continuing declines. As a result, impairment charges were recorded in 2010 for FCC licenses and billboard permits of $0.5 million
and $4.8 million, respectively.
I
nterim Impairment to FCC Licenses
The Company performed an interim impairment test on its FCC licenses as of June 30, 2009 as a result of the poor economic
environment during the period. In determining the fair value of the Company’s FCC licenses, the following key assumptions were
used:
The BIA forecast for 2009 declined 8.7% and declined between 13.8% and 15.7% through 2013 compared to the BIA forecasts used
in the 2008 impairment test. Additionally, the industry profit margin declined 100 basis points from the 2008 impairment test. These
market driven changes were primarily responsible for the decline in fair value of the FCC licenses below their carrying value. As a
result, the Company recognized a non-cash impairment charge at June 30, 2009 in approximately one-quarter of its markets, which
totaled $590.3 million.
In calculating the fair value of its FCC licenses, the Company primarily relied on the discounted cash flow models. However, the
Company relied on the stick method for those markets where the discounted cash flow model resulted in a value less than the stick
method indicated. Approximately 23% of the fair value of the Company’s FCC licenses at June 30, 2009 was determined using the
stick method.
I
nterim Impairment to Billboard Permits
The Company performed an interim impairment test on its billboard permits as June 30, 2009 as a result of the poor economic
environment during the period. In determining the fair value of the Company’s billboard permits, the following key assumptions were
used:
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. 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.
76
Industry revenue forecast by BIA Financial Network, Inc. (“BIA”) of 1.8% were used during the three year build-up
p
eriod;
O
p
eratin
g
mar
g
in of 12.5% in the first
y
ear
g
raduall
y
climbs to the industr
y
avera
g
e mar
g
in in
y
ear three of 29%;
2% revenue
g
rowth was assumed be
y
ond the discrete build-u
p
p
ro
j
ection; and
Assumed discount rates of 10% for the 13 lar
g
est markets and 10.5% for all other markets.
Industry revenue growth of negative 16% during the one year build-up period;
Cost structure reached a normalized level over a three year period and the operating margins gradually grew over that
period to the industry average margins of 45%. The margin in year three was the lower of the industry average margin or
the actual mar
g
in for the market;
Industr
y
avera
g
e revenue
g
rowth of 3% be
y
ond the discrete build-u
p
p
ro
j
ection; and
A discount rate of 10%.