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CLEAR CHANNEL CAPITAL I, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
80
The impairment tests for indefinite-lived intangible assets consist of a comparison between the fair value of the indefinite-lived
intangible asset at the market level with its carrying amount. If the carrying amount of the indefinite-lived intangible asset exceeds its
fair value, an impairment loss is recognized equal to that excess. After an impairment loss is recognized, the adjusted carrying amount
of the indefinite-lived asset is its new accounting basis. The fair value of the indefinite-lived asset is determined using the direct
valuation method as prescribed in ASC 805-20-S99. Under the direct valuation method, the fair value of the indefinite-lived assets is
calculated at the market level as prescribed by ASC 350-30-35. The Company engaged Mesirow Financial, a third-party valuation
firm, to assist it in the development of the assumptions and the Company’s determination of the fair value of its indefinite-lived
intangible assets.
The application of the direct valuation method attempts to isolate the income that is properly attributable to the indefinite-lived
intangible asset alone (that is, apart from tangible and identified intangible assets and goodwill). It is based upon modeling a
hypothetical “greenfield” build-up to a “normalized” enterprise that, by design, lacks inherent goodwill and whose only other assets
have essentially been paid for (or added) as part of the build-up process. The Company forecasts revenue, expenses, and cash flows
over a ten-year period for each of its markets in its application of the direct valuation method. The Company also calculates a
“normalized” residual year which represents the perpetual cash flows of each market. The residual year cash flow was capitalized to
arrive at the terminal value of the licenses in each market.
Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as part of a going concern
business, the buyer hypothetically develops 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 flow model which results in value that is directly attributable to the
indefinite-lived intangible assets.
The 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 FCC license or
billboard permit within a market.
Annual Impairment Test to FCC Licenses and Billboard Permits
The Company performs its annual impairment test on October 1 of each year.
During 2012, the Company recognized a $35.9 million impairment charge related to billboard permits in certain markets due to a
change in the Company’s forecast of revenue growth within the markets. 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. There was no impairment of FCC licenses during 2012
or 2011. 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.
Other Intangible Assets
Other intangible assets include definite-lived intangible assets and permanent easements. The Company’s definite-lived intangible
assets include primarily transit and street furniture contracts, talent and representation contracts, customer and advertiser relationships,
and site-leases, all of which are amortized over the respective lives of the agreements, or over the period of time the assets are
expected to contribute directly or indirectly to the Company’s future cash flows. Permanent easements are indefinite-lived intangible
assets which include certain rights to use real property not owned by the Company. There were no impairments of other intangible
assets for the years ended December 31, 2012 and 2011. The Company impaired certain definite-lived intangible assets primarily
related to a talent contract in its CCME segment by $3.9 million in 2010.