Intangible Assets and Goodwill

The following table presents the changes in intangible assets, other than goodwill, for the years ended December 31, 2013 and 2012 (dollars in thousands):



	Indefinite-Lived			Definite-Lived			Total
Intangible Assets:
Balance as of January 1, 2012	$	1,625,415		$	390,509		$	2,015,924
Purchase price allocation adjustments	—			(1,027		)	(1,027		)
Acquisitions	22,253			376			22,629
Impairment	(14,706		)	(12,435		)	(27,141		)
Dispositions	(30,589		)	(6,880		)	(37,469		)
Amortization	—			(112,240		)	(112,240		)
Balance as of December 31, 2012	$	1,602,373		$	258,303		$	1,860,676
Balance as of January 1, 2013	$	1,602,373		$	258,303		$	1,860,676
Acquisitions	61,730			152,522			214,252
Dispositions	(67,766		)	(8,627		)	(76,393		)
Amortization	—			(86,708		)	(86,708		)
Balance as of December 31, 2013	$	1,596,337		$	315,490		$	1,911,827

The following table presents the changes in goodwill and accumulated impairment losses for the years ended December 31, 2013 and 2012 (dollars in thousands):



	2013			2012
Balance as of January 1:
Goodwill	$	1,525,335		$	1,564,253
Accumulated impairment losses	(329,741		)	(229,741		)
Subtotal	1,195,594			1,334,512
Acquisitions	130,057			3,018
Purchase price allocation adjustments	—			(10,308		)
Finalization of purchase accounting for fourth quarter 2012 acquisition	(1,889		)	—
Dispositions	(67,021		)	(31,628		)
Impairment losses	—			(100,000		)
Balance as of December 31:
Goodwill	1,586,482			1,525,335
Accumulated impairment losses	(329,741		)	(329,741		)
Total	$	1,256,741		$	1,195,594

The Company has significant intangible assets recorded comprised primarily of broadcast licenses and goodwill acquired through the acquisition of radio stations and networks. The Company reviews the carrying value of its indefinite lived intangible assets and goodwill at least annually for impairment. If the carrying value exceeds the estimate of fair value, the Company calculates impairment as the excess of the carrying value of goodwill over its estimated fair value and charges the impairment to results of operations in the period in which the impairment occurred. 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. During the year ended December 31, 2012, the Company recorded goodwill and broadcast license impairments of $98.9 million and $14.7 million, respectively, and an impairment of $12.4 million of definite-lived intangible asset related to the cancellation of an underlying contract. There were no similar asset impairment charges during the year ended December 31, 2013.

In connection with the WestwoodOne Acquisition and the Townsquare Transaction, the Company made certain allocations of the purchase price paid therein among each of the tangible and intangible assets acquired and any liabilities assumed, including goodwill. Such purchase price allocations are preliminary and subject to change during the respective measurement periods. Any such changes could be material and could result in significantly different allocations from those contained in the tables above.

Total amortization expense related to the Company’s intangible assets was $86.7 million, $112.2 million and $37.9 million for the years ended December 31, 2013, 2012, and 2011, respectively. As of December 31, 2013, estimated future amortization expense related to intangible assets subject to amortization was as follows (dollars in thousands):



2014	$	79,519
2015	67,493
2016	54,692
2017	32,071
2018	17,280
Thereafter	64,435
Total other intangibles, net	$	315,490

Goodwill

2013 Impairment Testing

The Company performs its annual impairment testing of goodwill during the fourth quarter and on an interim basis if events or circumstances indicate that goodwill may be impaired. The calculation of the fair value of each reporting unit is prepared using an income approach and discounted cash flow methodology.

Historically, the Company determined that it had one reportable and operating segment, consisting of the consolidated Company. The Company's markets were historically considered the Company’s reporting units for goodwill impairment purposes. Given the changes in the Company that have occurred since the Citadel Acquisition, the dispositions of multiple markets to Townsquare and in the fourth quarter of 2013 acquisition of WestwoodOne, the Company has realigned its operational structure into three distinct verticals to more effectively manage the operations of the business. As a result, management determined it was appropriate to reassess the Company’s segments and its reporting units. Based thereon, the Company determined that there was no change to its reportable segment but that there are now three reporting units for goodwill impairment purposes. The Company's top 50 Nielsen Audio rated markets comprise one reporting unit, the second reporting unit consists of all of the Company's other radio markets while the third reporting unit, in which there is no goodwill, consists of all non-radio lines of business

During the fourth quarter of 2013, 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.

Step 1 Goodwill Test

The Company performed its annual impairment testing of goodwill using a discounted cash flow analysis, an income approach. The discounted cash flow approach 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 then projected future operating expenses in order to derive expected operating profits, which the Company combined with expected working capital additions and capital expenditures to determine expected operating cash flows.

The Company performed the Step 1 test and compared the fair value of each reporting unit to the carrying value of its net assets as of December 31, 2013. This test was used to determine if any of the Company’s reporting units had an indicator of impairment (i.e. the market net asset carrying value was greater than the calculated fair value of the reporting unit).

The discount rate employed in the fair value calculations in the Step 1 test in the Company’s markets was 10.0%. The Company believes this discount rate was appropriate and reasonable for estimating the fair value of the reporting units.

For periods after 2013, the Company projected annual revenue growth based on industry data and historical and expected performance. The Company projected 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 the reporting units.

To validate the Company’s conclusions and determine the reasonableness of the Company’s assumptions, the Company conducted an overall check of the Company’s fair value calculations by comparing the implied fair value of the Company’s reporting units, in the aggregate, to the Company’s market capitalization as of December 31, 2013. As compared with the market capitalization value of $4.5 billion as of December 31, 2013, the aggregate fair value of all reporting units of approximately $4.2 billion was approximately $294.8 million, or 7.0%, lower than the market capitalization.

Key data points included in the market capitalization calculation were as follows:


•	shares outstanding, including certain warrants, of 234.5 million as of December 31, 2013;


•	closing price of the Company’s Class A common stock on December 31, 2013, of $7.73 per share; and


•	total debt of $2.6 billion on December 31, 2013.

Step 2 Goodwill Test

The Company’s analysis determined that, based on its Step 1 goodwill test, the fair value of its reporting units containing goodwill balances exceeded their carrying value at December 31, 2013. As a result, the Company was not required to perform a Step 2 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 the broadcast license impairment testing.

For the annual impairment test of the Company’s FCC licenses, including both AM and FM licenses, 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 Company discounted the net free cash flows using an after-tax weighted average cost of capital of 10.0%, and then calculated the total discounted net free cash flows. For net free cash flows beyond the projection period, the Company estimated a perpetuity value, and then discounted the amounts to present values.

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 2018;


•	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 (the Company calculated amortization on a straight line basis over 15 years).

As a result of the annual impairment test conducted in the fourth quarter of 2013, the Company determined that no impairment existed for the FCC licenses.