iHeartMedia 2012 Annual Report Download - page 68

65
future. When we determine that structures or other long-lived assets will be disposed of prior to the end of their useful lives, we
estimate the revised useful lives and depreciate the assets over the revised period. We also review long-lived assets for impairment
when events and circumstances indicate that depreciable and amortizable long-lived assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. When specific assets are
determined to be unrecoverable, the cost basis of the asset is reduced to reflect the current fair market value.
We use various assumptions in determining the remaining useful lives of assets to be disposed of prior to the end of their
useful lives and in determining the current fair market value of long-lived assets that are determined to be unrecoverable. Estimated
useful lives and fair values are sensitive to factors including contractual commitments, regulatory requirements, future expected cash
flows, industry growth rates and discount rates, as well as future salvage values. Our impairment loss calculations require management
to apply judgment in estimating future cash flows, including forecasting useful lives of the assets and selecting the discount rate that
reflects the risk inherent in future cash flows.
If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair
values, we may be exposed to future impairment losses that could be material to our results of operations
Indefinite-lived Intangible Assets
In connection with our Merger Agreement, we allocated the purchase price to all of our assets and liabilities at estimated fair
values, including our FCC licenses and our billboard permits. Indefinite-lived intangible assets, such as our FCC licenses and our
billboard permits, are reviewed annually for possible impairment using the direct valuation method as prescribed in ASC 805-20-S99.
Under the direct valuation method, the estimated fair value of the indefinite-lived intangible assets was calculated at the market level
as prescribed by ASC 350-30-35.Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible
assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new
operation with similar attributes from scratch. Thus, the buyer incurs start-up costs during the build-up phase which are normally
associated with going concern value. Initial capital costs are deducted from the discounted cash flows model which results in value
that is directly attributable to the indefinite-lived intangible assets.
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, 2012, we performed our annual impairment test in accordance with ASC 350-30-35 and recognized aggregate
impairment charges of $35.9 million related to permits in certain markets in our Americas outdoor business.
In determining the fair value of our FCC licenses, the following key assumptions were used:
Market revenue growth, forecast and published by BIA Financial Network, Inc. (“BIA”), of 3.0% was used for the initial
four-year period;
2% revenue growth was assumed beyond the initial four-year period;
Revenue was grown proportionally over a build-up period, reaching market revenue forecast by year 3;
Operating margins of 12.5% in the first year gradually climb to the industry average margin in year 3 of up to 30%,
depending on market size by year 3; and
Assumed discount rates of 9% for the 13 largest markets and 9.5% for all other markets.
In determining the fair value of our billboard permits, the following key assumptions were used:
Industry revenue growth forecast at 3.9% was used for the initial four-year period;
3% revenue growth was assumed beyond the initial four-year period;
Revenue was grown over a build-up period, reaching maturity by year 2;
Operating margins gradually climb to the industry average margin of up to 51%, depending on market size, by year 3;
and
Assumed discount rate of 9.5%.