iHeartMedia 2014 Annual Report Download - page 68

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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, 2014, we performed our annual impairment test in accordance with ASC 350-30-35 and recognized aggregate
impairment charges of $15.7 million related to FCC Licenses in our iHM business.
In determining the fair value of our FCC licenses, the following key assumptions were used:
Revenue growth sales forecast and published by BIA Financial Network, Inc. (“BIA”), varying by market, were 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 29.6%,
depending on market size; and
Assumed discount rates of 9.5% for the 13 largest markets and 10.0% for all other markets.
In determining the fair value of our billboard permits, the following key assumptions were used:
Industry revenue growth forecast at 3.0% 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 56%, depending on market size, by year 3;
and
Assumed discount rate of 8.5%.
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:
(In thousands)
Revenue
Profit
Discount
Description
Growth Rate
Margin
Rates
FCC license
$
387,466
$
139,220
$
414,736
Billboard permits
$
803,300
$
137,600
$
807,000
The estimated fair value of our FCC licenses and billboard permits at October 1, 2014 and 2013 was $5.5 billion and
$5.6 billion, respectively, while the carrying value was $3.5 billion and $3.5 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.
On October 1, 2014, we performed our annual impairment test in accordance with ASC 350-30-35, resulting in no goodwill
impairment charge. In determining the fair value of our reporting units, we used the following assumptions: