Intangible Assets and Goodwill
 12 Months Ended
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill
Intangible Assets and Goodwill
The following table presents the changes in intangible assets, other than goodwill, for the years ended December 31, 2015 and 2014 (dollars in thousands):
 
Indefinite-Lived
 
Definite-Lived
 
Total
Intangible Assets:
 
 
 
 
 
Balance as of January 1, 2014
$
1,596,337

 
$
315,490

 
$
1,911,827

Purchase price allocation adjustments
963

 
—

 
963

Acquisitions
—

 
8,205

 
8,205

Dispositions
(585
)
 
(74
)
 
(659
)
Amortization
—

 
(79,981
)
 
(79,981
)
Balance as of December 31, 2014
$
1,596,715

 
$
243,640

 
$
1,840,355

Balance as of January 1, 2015
$
1,596,715

 
$
243,640

 
$
1,840,355

Impairment
(15,873
)
 
—

 
(15,873
)
Disposition
(2,776
)
 
—

 
(2,776
)
Amortization
—

 
(69,110
)
 
(69,110
)
Balance as of December 31, 2015
$
1,578,066

 
$
174,530

 
$
1,752,596



The following table presents the changes in goodwill and accumulated impairment losses for the years ended December 31, 2015 and 2014 (dollars in thousands):
 
2015
 
2014
Balance as of January 1:
 
 
 
Goodwill
$
1,583,564

 
$
1,586,482

Accumulated impairment losses
(329,741
)
 
(329,741
)
Subtotal
1,253,823

 
1,256,741

Acquisitions
—

 
886

Purchase price allocation adjustments
371

 
(3,188
)
Disposition
(1,129
)
 
(616
)
Impairment losses
(549,711
)
 
—

Balance as of December 31:
 
 
 
Goodwill
1,582,806

 
1,583,564

Accumulated impairment losses
(879,452
)
 
(329,741
)
Total
$
703,354

 
$
1,253,823


Total amortization expense related to the Company’s intangible assets was $69.1 million, $80.0 million and $86.7 million for the years ended December 31, 2015, 2014, and 2013, respectively. As of December 31, 2015, estimated future amortization expense related to intangible assets subject to amortization was as follows (dollars in thousands):
2016
$
56,315

2017
33,704

2018
18,400

2019
17,456

2020
17,396

Thereafter
31,259

Total other intangibles, net
$
174,530


The Company has significant intangible assets recorded comprised primarily of broadcast licenses and goodwill acquired through acquisitions. The Company performs its annual impairment testing of broadcast licenses and goodwill during the fourth quarter of each year and on an interim basis if events or circumstances indicate that broadcast licenses or goodwill may be impaired. The Company reviews the carrying value of its definite-lived intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Prior to conducting the first step of the goodwill impairment test, the Company evaluates the recoverability of the long-lived assets, including purchased intangible assets.
As a result of a sustained decline in the Company's stock price and operating results, the Company performed an interim goodwill and broadcast licenses impairment assessment as of September 30, 2015. In determining the fair value of each reporting unit, the Company used an income approach and discounted cash flow methodology. After completing the step one evaluation, the estimated fair value of Reporting Unit 1 (as defined below) was determined to be lower than the carrying value. As such, Reporting Unit 1 failed step one of the interim impairment assessment. Step two of the interim impairment assessment required the Company to perform a hypothetical purchase price allocation for Reporting Unit 1 to determine the implied fair value of goodwill and compared that implied fair value of goodwill to the carrying amount of goodwill. Based on the results thereof, the Company recorded impairment charges of $549.7 million and $15.9 million, for goodwill and broadcast licenses, respectively, during the year ended December 31, 2015.
The Company tests long-lived assets (other than goodwill and indefinite-lived intangible assets) for recoverability by comparing the carrying value of an asset group to its undiscounted cash flows. The Company considered the lower than expected revenue and profitability levels as business indicators of impairment for long-lived assets. Based on the results of the recoverability test, the Company determined that the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition exceeded the carrying value of the applicable asset groups and were therefore recoverable. The Company did not recognize any impairment charges for intangible assets as a result of this analysis. There were no asset impairment charges during the year ended December 31, 2014.
2015 Annual Impairment Test - Goodwill
The Company has three reporting units for goodwill impairment purposes which align with the Company's operational structure of three distinct verticals effectively managed as one for the operations of the business. The Company's top 50 Nielsen Audio rated markets and WestwoodOne comprise one reporting unit ("Reporting Unit 1"), the second reporting unit consists of all of the Company's other radio markets ("Reporting Unit 2") while the third reporting unit, in which there is no goodwill, consists of all non-radio lines of business ("Reporting Unit 3").
During the fourth quarter of 2015, the Company performed its annual impairment test. The assumptions used in estimating the fair values of reporting units are based on currently available data at the time the test is conducted and management’s best estimates and accordingly, a change in market conditions or other factors could have a material effect on the estimated values.
The calculation of the fair value of each reporting unit is prepared using an income approach and discounted cash flow methodology as described below.
Step 1 Goodwill Test
In performing the Company's annual impairment testing of goodwill, the fair value of each reporting unit was calculated using a discounted cash flow analysis, an income approach. The discounted cash flow analysis requires the projection of future cash flows and the calculation of these cash flows into their present value equivalent via a discount rate. The Company used an approximate five-year projection period to derive operating cash flow projections from a market participant view. The Company made certain assumptions regarding future revenue growth based on industry market data and historical and expected performance. The Company projected future operating expenses in order to derive operating profits, which the Company combined with expected working capital additions and capital expenditures to determine operating cash flows. For periods after 2015, the Company projected annual revenue growth based on standard industry data and historical performance. The Company derived projected annual expense growth based primarily on the stations’ historical financial performance and expected growth. The Company's projections were based on then-current market and economic conditions and the Company's historical knowledge of each of the relevant the reporting units.
The material assumptions utilized in these analyses, for both reporting units that have goodwill, included overall future market revenue growth rates for the residual year of 1.9%, an estimated multiple of earnings before interest, taxes, depreciation and amortization ("EBITDA") of approximately 10 times and a weighted average cost of capital of 8.6%. The residual year growth rate is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections obtained from third party sources. The estimated EBITDA multiple is derived from public company peer comparables. The weighted average cost of capital was determined based on (i) the cost of equity, which includes estimates of the risk-free return, stock risk premiums and industry beta; (ii) the cost of debt, which includes estimates for corporate borrowing rates and (iii) estimated average percentages of equity and debt in capital structures.
If actual results or events underlying the material assumptions are less favorable than those projected by the Company or if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of the Company's goodwill below the amounts reflected in the balance sheet, the Company may be required to recognize impairment charges in future periods, which could have a material adverse impact on the Company's financial condition and results of operations.
To validate the Company’s conclusions and determine the reasonableness of the Company’s assumptions, the Company compared the implied fair value of the Company’s reporting units, in the aggregate, to the Company’s market capitalization as of December 31, 2015. The market capitalization of $2.5 billion as of December 31, 2015, was approximately the same as the aggregate fair value of all reporting units.
Key data points included in the market capitalization calculation were as follows:
•
shares outstanding, including certain warrants, of 234.6 million as of December 31, 2015;
•
closing price of the Company’s Class A common stock on December 31, 2015, of $0.33 per share; and
•
total debt of $2.4 billion on December 31, 2015.
Based on the results of this analysis, the Company determined that the fair value of its reporting units containing goodwill balances exceeded their carrying value at December 31, 2015. As a result, the Company was not required to perform a Step 2 test. For these reporting units, since no impairment indicator existed in Step 1, the Company determined goodwill was appropriately stated as of December 31, 2015. The Company did record a non-cash goodwill impairment charge in Reporting Unit 1 of approximately $549.7 million as a result of an interim impairment assessment during the year ended December 31, 2015.
2015 Annual Impairment Test - Indefinite Lived Intangibles (FCC Licenses)
The Company performs its annual impairment testing of indefinite-lived intangibles (the Company’s FCC licenses) during the fourth quarter of each year and on an interim basis if events or circumstances indicate that the asset may be impaired. The Company has combined all of the Company’s broadcast licenses within a single geographic market cluster into a single unit of accounting for impairment testing purposes. As part of the overall planning associated with the indefinite-lived intangibles test, the Company determined that the Company’s geographic markets are the appropriate unit of accounting for broadcast license impairment testing.
For the impairment test, the Company utilized the income approach, specifically the Greenfield Method. This approach values the license by calculating the value of a hypothetical start-up company that goes into business with no assets except the asset to be valued (the license). The value of the asset under consideration can be considered as equal to the value of this hypothetical start-up company. In completing the appraisals, the Company conducted a thorough review of all aspects of the assets being valued.
The income approach measures value based on income generated by the subject property, which is then analyzed and projected over a specified time and capitalized at an appropriate market rate to arrive at the estimated value. The Greenfield Method isolates cash flows attributable to the subject asset using a hypothetical start-up approach.
The estimated fair values of the Company’s FCC licenses represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the Company and willing market participants at the measurement date. The estimated fair value also assumes the highest and best use of the asset by market participants, considering the use of the asset that is physically possible, legally permissible and financially feasible.
A basic assumption in the Company’s valuation of these FCC licenses was that these radio stations were new radio stations, signing on-the-air as of the date of the valuation. The Company assumed the competitive situation that existed in those markets as of that date, except that these stations were just beginning operations. In doing so, the Company bifurcated the value of going concern and any other assets acquired, and strictly valued the FCC licenses.
In estimating the value of the licenses using a discounted cash flow analysis, the Company began with market revenue projections. Next, the Company estimated the percentage of the market’s total revenue, or market share, that market participants could reasonably expect an average start-up station to attain, as the well as the duration (in years) required to reach the average market share. The estimated average market share was computed based on market share data, by type (i.e., AM and FM).
After market revenue and market shares have been estimated, operating expenses, including depreciation based on assumed investments in fixed assets and future capital expenditures, of a start-up station or operation are similarly estimated based on industry-average cost data. Appropriate estimated income taxes are then subtracted, estimated depreciation added back, estimated capital expenditures subtracted, and estimated working capital adjustments are made to calculate estimated free cash flow during the build-up period until a steady state or mature “normalized” operation is achieved.
The analysis included overall future market revenue growth rates for the residual year of 1.9% and a weighted average cost of capital of 8.6%. The residual year growth rate is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections obtained from third party sources. The weighted average cost of capital was determined based on (i) the cost of equity, which includes estimates of the risk-free return, stock risk premiums and industry beta; (ii) the cost of debt, which includes estimates for corporate borrowing rates and (iii) estimated average percentages of equity and debt in capital structures.
In order to estimate what listening audience share would be expected for each station by market, the Company analyzed the average local commercial share garnered by similar AM and FM stations competing in those radio markets. The Company made any appropriate adjustments to the listening share and revenue share based on the stations’ signal coverage within the market and the surrounding area population as compared to the other stations in the market. Based on the Company’s knowledge of the industry and familiarity with similar markets, the Company determined that approximately three years would be required for the stations to reach maturity. The Company also incorporated the following additional assumptions into the discounted cash flow valuation model:
•
the projected operating revenues and expenses through 2020;
•
the estimation of initial and on-going capital expenditures (based on market size);
•
depreciation on initial and on-going capital expenditures (the Company calculated depreciation using accelerated double declining balance guidelines over five years for the value of the tangible assets necessary for a radio station to go on-the-air);
•
the estimation of working capital requirements (based on working capital requirements for comparable companies);
•
the calculations of yearly net free cash flows to invested capital; and
•
amortization of the intangible asset — the FCC license.

As a result of the impairment test of its indefinite-lived intangibles conducted as of December 31, 2015, the Company determined the indefinite-lived intangibles were appropriately stated as of December 31, 2015. The Company did record a non-cash impairment charge of approximately $15.9 million as a result of an interim impairment assessment during the year ended December 31, 2015.