GOODWILL, RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2012

GOODWILL, RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS

4.  GOODWILL, RADIO BROADCASTING LICENSES AND OTHER INTANGIBLE ASSETS:

Impairment Testing

In the past, we have made acquisitions whereby a significant amount of the purchase price was allocated to radio broadcasting licenses, goodwill and other intangible assets. In accordance with ASC 350, “Intangibles - Goodwill and Other,” we do not amortize our radio broadcasting licenses and goodwill. Instead, we perform a test for impairment annually or on an interim basis when events or changes in circumstances or other conditions suggest impairment may have occurred. Other intangible assets continue to be amortized on a straight-line basis over their useful lives. We perform our annual impairment test as of October 1 of each year.

Valuation of Broadcasting Licenses

We utilize the services of a third-party valuation firm to provide independent analysis when evaluating the fair value of our radio broadcasting licenses and reporting units. Fair value is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Effective January 1, 2002, we began using the income approach to test for impairment of radio broadcasting licenses. We believe this method of valuation to be consistent with ASC 805-20-S-99-3, “Use of the Residual Method to Value Acquired Assets Other Than Goodwill.” A projection period of 10 years is used, as that is the time horizon in which operators and investors generally expect to recover their investments. When evaluating our radio broadcasting licenses for impairment, the testing is done at the unit of accounting level as determined by ASC 350, “Intangibles - Goodwill and Other.” In our case, each unit of accounting is a clustering of radio stations into one of the 15 geographical radio markets that we own and/or operate.  Broadcasting license fair values are based on the estimated after-tax discounted future cash flows of the applicable unit of accounting assuming an initial hypothetical start-up operation which possesses FCC licenses as the only asset. Over time, it is assumed the operation acquires other tangible assets such as advertising and programming contracts, employment agreements and going concern value, and matures into an average performing operation in a specific radio market. The income approach model incorporates several variables, including, but not limited to: (i) radio market revenue estimates and growth projections; (ii) estimated market share and revenue for the hypothetical participant; (iii) likely media competition within the market; (iv) estimated start-up costs and losses incurred in the early years; (v) estimated profit margins and cash flows based on market size and station type; (vi) anticipated capital expenditures; (vii) probable future terminal values; (viii) an effective tax rate assumption; and (ix) a discount rate based on the weighted-average cost of capital for the radio broadcast industry. In calculating the discount rate, we considered: (i) the cost of equity, which includes estimates of the risk-free return, the long-term market return, small stock risk premiums and industry beta; (ii) the cost of debt, which includes estimates for corporate borrowing rates and tax rates; and (iii) estimated average percentages of equity and debt in capital structures. Since our annual October 2011 assessment, we have not made any changes to the methodology for valuing broadcasting licenses.

During the second quarter of 2011, the total market revenue growth for certain markets was below that used in our 2010 annual impairment testing. We deemed that to be an impairment indicator that warranted interim impairment testing of certain of our radio broadcasting licenses, which we performed as of May 31, 2011. During the third quarter of 2011, there was further deterioration of revenue growth in certain markets, and as such, we deemed that to be an impairment indicator that warranted interim testing of certain radio broadcasting licenses as of September 30, 2011. The Company concluded that our radio broadcasting licenses were not impaired during the second or third quarters of 2011. The Company completed its annual impairment testing as of October 1, 2011 and concluded that our radio broadcasting licenses were not impaired. Below are some of the key assumptions used in the income approach model for estimating broadcasting licenses fair values for all annual and interim impairment assessments performed since January 2011.

Radio Broadcasting Licenses	May 31,			September 30,			October 1,
	2011 (a)			2011 (a)			2011
Pre-tax impairment charge (in millions)	$	—		$	—		$	—
Discount Rate		10.0	%		9.5	%		10.0	%
Year 1 Market Revenue Growth Rate or Range		1.3% -2.8	%		1.5% -2.0	%		1.5% -2.5	%
Long-term Market Revenue Growth Rate Range (Years 6 – 10)		1.5% - 2.0	%		1.5% - 2.0	%		1.0% - 2.0	%
Mature Market Share Range		9.0% - 22.5	%		9.3% - 22.4	%		0.7% - 28.9	%
Operating Profit Margin Range		32.7% - 40.8	%		32.7% - 33.0	%		19.1% - 47.4	%

(a) Reflects changes only to the key assumptions used in the second and third quarter interim testing for certain reporting units.

Valuation of Goodwill

The impairment testing of goodwill is performed at the reporting unit level. We had 19 reporting units as of our October 2011 annual impairment assessment. For the purpose of evaluating goodwill for impairment, the 19 reporting units consisted of the 15 radio markets that we own and/or operate and four other business divisions. In testing for the impairment of goodwill, with the assistance of a third-party valuation firm, we primarily rely on the income approach. The approach involves a 10-year model with similar variables as described above for broadcasting licenses, except that the discounted cash flows are generally based on the Company’s estimated and projected market revenue, market share and operating performance for its reporting units, instead of those for a hypothetical participant. We follow a two-step process to evaluate if a potential impairment exists for goodwill. The first step of the process involves estimating the fair value of each reporting unit. If the reporting unit’s fair value is less than its carrying value, a second step is performed as per the guidance of ASC 805-10, “Business Combinations,” to allocate the fair value of the reporting unit to the individual assets and liabilities of the reporting unit in order to determine the implied fair value of the reporting unit’s goodwill as of the impairment assessment date. Any excess of the carrying value of the goodwill over the implied fair value of the goodwill is written off as a charge to operations. Since our annual assessment, we have not made any changes to the methodology of valuing or allocating goodwill when determining the carrying values of the radio markets, Reach Media, Interactive One or TV One.

During the second and third quarters of 2011, the operating performance and current projections for the remainder of the year for specific radio markets were below that used in our 2010 annual impairment testing. We deemed that to be an impairment indicator that warranted interim impairment testing of goodwill associated with specific radio markets, which we performed as of May 31, 2011 and as of September 30, 2011, respectively. The Company concluded that goodwill had not been impaired during the second and third quarters of 2011. We completed our annual impairment assessment as of October 1, 2011. As a result of our annual testing, we recorded an impairment charge of approximately $14.5 million against goodwill in our Columbus market during the fourth quarter of 2011.

Below are some of the key assumptions used in the income approach model for estimating goodwill fair values for the annual and interim impairments assessments performed since January 2011.

Goodwill (Radio Market Reporting	May 31,			September 30,			October 1,
Units)	2011 (a)			2011 (a)			2011
Pre-tax impairment charge (in millions)	$	–		$	–		$	14.5
Discount Rate		10.0	%		9.5	%		10.0	%
Year 1 Market Revenue Growth Rate or Range		1.5% -3.0 %			1.5	%		2.0% -2.5 %
Long-term Market Revenue Growth Rate or Range (Years 6 – 10)		1.5% - 2.0 %			1.5	%		1.5% - 2.0 %
Mature Market Share or Share Range		7.0% - 23.0 %			13.8	%		7.4% - 20.8 %
Operating Profit Margin or Margin Range		30.0% - 56.0 %			36.0	%		29.5% - 54.0 %

(a)  Reflects changes only to the key assumptions used in the second and third quarter interim testing for certain reporting units.

In March, June and September of 2011, the Company performed interim impairment testing on the valuation of goodwill associated with Reach Media. Reach Media’s actual operating results did not meet budgeted results during 2011 and as such, interim impairment testing for goodwill attributable to Reach Media was performed. As a result of the interim impairment tests, the Company concluded that the carrying value of goodwill attributable to Reach Media had not been impaired. We also completed an impairment assessment as of December 31, 2011 for Reach Media. Due to amendments of existing Reach Media affiliate agreements with Radio One, Reach Media’s expected future cash flows will be reduced. There were no goodwill impairment charges recorded as part of our year end impairment testing. However, the Company recognized a non-cash impairment charge of approximately $7.8 million related to the long-lived assets of Reach Media.

Below are some of the key assumptions used in the income approach model for estimating the fair value for Reach Media for all interim, annual and year end assessments since January 2011. When compared to the discount rates used for assessing radio market reporting units, the higher discount rates used in these assessments reflect a premium for a riskier and broader media business, with a heavier concentration and significantly higher amount of programming content related intangible assets that are highly dependent on the on-air personality Tom Joyner. With the assistance of a third-party valuation firm, the Company assessed the fair value of the redeemable noncontrolling interest in Reach Media at March 31, 2012. Upon review of the results of the interim and year-end impairment tests, and quarter-end assessment, the Company concluded that the carrying value of goodwill attributable to Reach Media had not been impaired.

	March 31,			June 30,			September 30,			December 31,			March 31,
Reach Media Goodwill	2011			2011			2011			2011			2012
Pre-tax impairment charge (in millions)	$	–		$	–		$	–		$	–		$	–
Discount Rate		13.5	%		13.0	%		12.0	%		12.5	%		12.5	%
Year 1 Revenue Growth Rate		2.5	%		2.5	%		2.5	%		2.5	%		2.5	%
Long-term Revenue Growth Rate Range		(1.3)% - 4.9	%		(0.2)% - 3.9	%		(2.0)% - 3.5	%		3.0% - 12.7	%		2.2% - 9.7	%
Operating Profit Margin Range		16.2% - 27.4	%		17.6% - 22.6	%		18.8% - 21.7	%		(2.0)% - 16.8	%		3.7% - 18.1	%

Goodwill Valuation Results

The table below presents the changes in the carrying amount of goodwill by segment during the three month period ended March 31, 2012. The goodwill balances for each reporting unit are not disclosed so as to not make publicly available sensitive information that could potentially be competitively harmful to the Company.

	Goodwill Carrying Balances
	As of				As of
Segment	December 31, 2011		Increase (Decrease)		March 31,  2012
			(In millions)
Radio Broadcasting Segment	$	70.8	$	—	$	70.8
Reach Media Segment		14.4		—		14.4
Internet Segment		21.8		—		21.8
Cable Television Segment		165.0		—		165.0
Total	$	272.0	$	—	$	272.0

Intangible Assets Excluding Goodwill and Radio Broadcasting Licenses

Other intangible assets, excluding goodwill and radio broadcasting licenses, are amortized on a straight-line basis over various periods. Other intangible assets consist of the following:

	As of
	March 31, 2012			December 31, 2011			Period of Amortization
	(Unaudited)
	(In thousands)
Trade names	$	17,133		$	17,133			2-5 Years
Talent agreement		19,549			19,549			10 Years
Debt financing and modification costs		16,128			16,115			Term of debt
Intellectual property		14,151			14,151			4-10 Years
Affiliate agreements		186,755			186,755			1-10 Years
Acquired income leases		1,282			1,282			3-9 Years
Non-compete agreements		1,260			1,260			1-3 Years
Advertiser agreements		47,688			47,688			2-7 Years
Favorable office and transmitter leases		3,358			3,358			2-60 Years
Brand names		2,539			2,539			2.5 Years
Brand name - unamortized		39,688			39,688			Indefinite
Other intangibles		3,662			3,662			1-5 Years
		353,193			353,180
Less: Accumulated amortization		(98,087	)		(90,200	)
Other intangible assets, net	$	255,106		$	262,980

Amortization expense of intangible assets for the three months ended March 31, 2012 and 2011 was approximately $7.1 million and $1.4 million, respectively. The amortization of deferred financing costs was charged to interest expense for all periods presented. The amount of deferred financing costs included in interest expense for the three months ended March 31, 2012 and 2011 was approximately $1.1 million and $1.6 million, respectively.

The following table presents the Company’s estimate of amortization expense for the remainder of 2012 and years 2013 through 2017 for intangible assets, excluding deferred financing costs:

	(In thousands)
2012 (April through December)	$	21,341
2013	$	27,912
2014	$	27,314
2015	$	26,043
2016	$	25,886
2017	$	25,880

Actual amortization expense may vary as a result of future acquisitions and dispositions.

The gross value and accumulated amortization of the launch assets is as follows:

	March 31, 2012			Weighted Average Period of Amortization
	(Unaudited)
	(In thousands)
Launch assets	$	39,543			3.6 Years
Less: Accumulated amortization		(9,595	)
Launch assets, net	$	29,948

Future estimated launch support amortization expense or revenue reduction related to launch assets for the remainder of 2012 and years 2013 through 2015 is as follows:

	(In thousands)
2012 (April through December)	$	7,500
2013	$	9,947
2014	$	9,902
2015	$	2,599