Intangible Assets and Goodwill

The following tables present goodwill balances and accumulated impairment losses on a segment and consolidated basis as of December 31, 2015 and December 31, 2016 (dollars in thousands):

Radio Station Group



Goodwill:
Balance as of December 31, 2015:
Goodwill	$	1,278,526
Accumulated impairment losses	(710,386		)
Total	$	568,140
Balance as of December 31, 2016:
Goodwill	1,278,526
Accumulated impairment losses	(1,278,526		)
Total	$	—

Westwood One



Goodwill:
Balance as of December 31, 2015:
Goodwill	$	304,280
Accumulated impairment losses	(169,066		)
Total	$	135,214
Balance as of December 31, 2016:
Goodwill	304,280
Accumulated impairment losses	(169,066		)
Total	$	135,214

Consolidated



Goodwill:
Balance as of December 31, 2015:
Goodwill	$	1,582,806
Accumulated impairment losses	(879,452		)
Total	$	703,354
Balance as of December 31, 2016:
Goodwill	1,582,806
Accumulated impairment losses	(1,447,592		)
Total	$	135,214

The following table presents the changes in intangible assets, other than goodwill, on a consolidated basis during the period December 31, 2015 to December 31, 2016, and balances as of such dates (dollars in thousands):



	FCC Licenses			Definite-Lived			Total
Intangible Assets:
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
Balance as of January 1, 2016	$	1,578,066		$	174,530		$	1,752,596
Impairment	(35,000		)	(1,816		)	(36,816		)
Disposition	(2,883		)	—			(2,883		)
Amortization	—			(56,215		)	(56,215		)
Balance as of December 31, 2016	$	1,540,183		$	116,499		$	1,656,682

The Company's definite-lived intangible assets primarily consist of broadcast advertising and affiliate relationships. Total amortization expense related to the Company’s definite-lived intangible assets was $56.2 million, $69.1 million and $80.0 million for the years ended December 31, 2016, 2015, and 2014, respectively. As of December 31, 2016, estimated future amortization expense related to the Company's definite-lived intangible assets was as follows (dollars in thousands):



2017	$	33,505
2018	18,201
2019	17,257
2020	17,197
2021	17,114
Thereafter	13,225
Total other intangibles, net	$	116,499

The Company performs its annual impairment testing of FCC licenses and goodwill as of December 31 and on an interim basis if events or circumstances indicate that FCC licenses or goodwill may be impaired. The Company reviews the carrying value of its definite-lived intangible assets for recoverability prior to its annual impairment test of goodwill and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Impairment Test - Definite-Lived Intangibles

The Company tested definite-lived intangible assets for recoverability by comparing the carrying value of an asset group to its undiscounted cash flows. As of December 31, 2016, the Company considered the lower than expected revenue and profitability levels as business indicators of impairment for its definite-lived intangible assets. Based on the results of the recoverability test, however, the Company determined that the future undiscounted cash flows expected to result from the continued use of the assets and their eventual disposition continued to exceed the carrying value of the applicable asset groups and were therefore recoverable. The Company did not recognize any impairment charges for its definite-lived intangible assets in 2016 as a result of this analysis.

During the second quarter of 2016, the Company recorded an impairment charge to its definite-lived intangible assets of $1.8 million at the Westwood One segment for all customer lists and trademark definite-lived intangible assets related to the print publication of NASH Country Weekly as the Company re-positioned the print publication to a digital only medium. There were no similar impairments in 2015.

Annual Impairment Test - Goodwill

As described in Note 1, "Description of Business, Basis of Presentation and Summary of Significant Accounting Policies" and Note 16 "Segment Data," during the first quarter of 2016 the Company modified its management reporting framework. This modification resulted in a reorganization of the Company's reportable segments and reporting units. Prior to this reorganization, the Company had three reporting units for purposes of goodwill allocation. The Company's top 50 Nielsen Audio rated markets and Westwood One comprised one reporting unit, the second reporting unit consisted of all of the Company's other radio markets while the third reporting unit, in which there was no goodwill, consisted of all non-radio lines of business. After the modification, all of the Company's radio markets comprise one reporting unit ("Reporting Unit 1" or the "Radio Station Group"), Westwood One comprises the second reporting unit ("Reporting Unit 2" or "Westwood One") and the third reporting unit, in which there is no goodwill, continues to consist of all of the Company's non-radio lines of business ("Reporting Unit 3"). As part of the reorganization, the Company's reporting units more closely align with its reportable segments. The Company allocated goodwill to the new reporting unit structure based upon a relative fair value approach. The Company determined that goodwill was not impaired before or immediately after the allocation.

For the Company's annual goodwill impairment test, we performed the Step 1 goodwill test (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, 2016 as follows:

Step 1 Goodwill Test

In performing our annual impairment testing of goodwill, fair value was calculated using a discounted cash flow analysis, which is an income approach. The discounted cash flow analysis requires the projection of future cash flows and the discounting of these cash flows to their present value equivalent via a discount rate. We used a five-year projection period to derive operating cash flow projections. We made certain assumptions regarding future revenue growth based on industry market data and historical and expected performance. We then projected future operating expenses based primarily on historical financial performance in order to derive operating profits, which we combined with expected working capital additions and capital expenditures to determine operating cash flows. Our projections were based on then-current market and economic conditions and our historical knowledge of each of the relevant the reporting units.

During the 2016 year, based on interim financial performance, we determined that no indicators were present which would suggest the fair value of the reporting units may have declined below the carrying value. However, during the annual impairment test and as part of our 2017 budgeting process, we lowered our forecasted revenue and profitability levels for 2017 and future periods.

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 1.1% and a weighted average cost of capital of 9.3%. The residual year growth rate is estimated based on a perpetual nominal growth rate, which is based on 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.

The table below presents the percentages by which the fair value was above the carrying value of the Company's reporting units under the Step 1 test as of December 31, 2016 (dollars in thousands).



	Reporting Unit 1		Reporting Unit 2			Reporting Unit 3
Goodwill balance	$	568,141	$	135,213		N/A **
Carrying value (including goodwill)	$	2,040,207	$	194,282		N/A **
Percentage fair value above carrying value	N/A*		63.8		%	N/A **

* Reporting Unit 1 failed the Step 1 test
** Contains no goodwill

The Company's analysis determined that, based on its Step 1 goodwill test, the fair value of Reporting Unit 1 was below its carrying value at December 31, 2016, therefore a Step 2 test was performed. For Reporting Unit 2, no impairment indicator existed in Step 1, therefore the Company determined that a Step 2 test was not required and goodwill was appropriately stated as of December 31, 2016.

Step 2 Goodwill Test

As required by the Step 2 test, the Company prepared an allocation of the fair value of Reporting Unit 1 which was identified in the Step 1 test as containing indications of impairment. The allocation of fair value in the Step 2 test showed that the fair value of the individual assets of Reporting Unit 1 was above the fair value of Reporting Unit 1 calculated in the Step 1 test. As a result, the Company recorded a non-cash impairment charge of $568.1 million, reducing the goodwill in Reporting Unit 1 to $0.0 million at December 31, 2016. During the year ended December 31, 2015, the Company recorded a non-cash impairment charge of $549.7 million as a result of an interim impairment test of goodwill.

If actual results or events underlying the material assumptions are less favorable than those projected by us or if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of our goodwill below the amounts reflected in the balance sheet, we may be required to recognize impairment charges in future periods.

Annual Impairment Test - FCC Licenses

As part of its annual impairment testing of indefinite-lived intangibles, in addition to testing goodwill for impairment, the Company also tests its FCC licenses for impairment during the fourth quarter of each year and on an interim basis if events or circumstances indicate that the asset may be impaired. As part of the overall planning associated with the test, the Company determined that its geographic markets are the appropriate unit of accounting for FCC license impairment testing and therefore the Company has combined its FCC licenses within each geographic market cluster into a single unit of accounting for impairment testing purposes.

For the impairment test, we utilized the income approach, specifically the Greenfield Method. This approach values a license by calculating the value of a hypothetical start-up company that initially has no assets except the asset to be valued (the license). The value of the asset under consideration (the license) can be considered as equal to the value of this hypothetical start-up company. In completing the appraisals, we conducted a thorough review of all aspects of the assets being valued.

The estimated fair values of our 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 a use of the asset that is physically possible, legally permissible and financially feasible.

A basic assumption in our 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. We assumed the competitive situation that existed in those markets as of that date, except that these stations were just beginning operations.

In estimating the value of the licenses, we began with market revenue projections. Next, we 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 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 1.1% and a weighted average cost of capital of 9.3%. The residual year growth rate is estimated based on a perpetual nominal growth rate, which is based on long-term industry projections obtained from third party sources. The weighted average cost of capital was 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 other radio broadcasters capital structures.

In order to estimate what listening audience share could be expected to be achieved for each station by market, we analyzed the average local commercial share garnered by similar AM and FM stations competing in those radio markets. We may make adjustments to the listening share and revenue share based on a station's signal coverage within the market and the surrounding area population as compared to the other stations in the market. Based on our knowledge of the industry and familiarity with similar markets, we determined that approximately three years would be required for the stations to reach maturity. We also incorporated the following additional assumptions into the discounted cash flow valuation model:


•	projected operating revenues and expenses over a five-year period;


•	the estimation of initial and on-going capital expenditures (based on market size);


•	depreciation on initial and on-going capital expenditures (we 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); and


•	amortization of the intangible asset — the FCC license.

As a result of the impairment test of our FCC licenses, conducted as of December 31, 2016, we recorded a non-cash impairment charge of $35.0 million.