Broadcast License, Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2020

Broadcast License, Goodwill and Other Intangible Assets

Broadcast License, Goodwill and Other Intangible Assets

3.    Broadcast Licenses, Goodwill and Other Intangible Assets

We evaluate our FCC licenses for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. We operate our broadcast licenses in each market as a single asset and determine the fair value by relying on a discounted cash flow approach assuming a start-up scenario in which the only assets held by an investor are broadcast licenses. The fair value calculation contains assumptions incorporating variables that are based on past experiences and judgments about future operating performance using industry normalized information for an average station within a market. These variables include, but are not limited to: (1) the forecasted growth rate of each radio market, including population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) the estimated available advertising revenue within the market and the related market share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) terminal values. If the carrying amount of FCC licenses is greater than their estimated fair value in a given market, the carrying amount of FCC licenses in that market is reduced to its estimated fair value.

We also evaluate goodwill for impairment annually, or more frequently if certain circumstances are present. If the carrying amount of goodwill in a reporting unit is greater than the implied value of goodwill determined by completing a hypothetical purchase price allocation using estimated fair value of the reporting unit, the carrying amount of goodwill in that reporting unit is reduced to its implied value.

We evaluate amortizable intangible assets for recoverability when circumstances indicate impairment may have occurred, using an undiscounted cash flow methodology. If the future undiscounted cash flows for the intangible asset are less than net book value, then the net book value is reduced to the estimated fair value. Amortizable intangible assets are included in other intangibles, deferred costs and investments in the consolidated balance sheets.

Broadcast Licenses

We have recorded the changes to broadcast licenses for the years ended December 31, 2020 and 2019 as follows:

	Total
	(in thousands)
Balance at January 1, 2019	$	95,250
Acquisitions		61
Balance at December 31, 2019	$	95,311
Acquisitions		46
Impairment charge		(5,149)
Balance at December 31, 2020	$	90,208

2020 Impairment Test

Due to the impact of the COVID-19 pandemic on the U.S. economy and the related significant negative impact on our revenue for the second, third and fourth quarter of 2020 (excluding political advertising) and beyond in the majority of our markets, the Company tested its FCC License for impairment during the second quarter and again in the third quarter of 2020. Our broadcast revenue has been significantly negatively impacted in the majority of the states where we operate, due to economic shutdowns and the related decline in advertising spending nationwide as most companies were making massive payroll cuts out of a necessity to survive with their revenues also significantly impacted. We have experienced a significant number of cancellations of advertising on our stations, with the greatest decreases in the following industries/categories: Automotive, Entertainment, Home Improvement, Professional Services, Restaurants, and Retail. The only category where we saw an increase over the prior quarters and year to date were political advertising and government/public service/issue advertising. We also saw significant declines in our revenue related to events, venues, travel and sports as these types of businesses have been virtually shut down. We are starting to see increased revenues from our low point in Q2 2020, however, they are not at the previously expected recovery rate. Based on the trends we are seeing at our markets we believe that our analysis and estimates used during the third quarter 2020 analysis still remain our best estimate and we do not believe any further triggering events occurred during the fourth quarter of 2020 since the date of the previous analysis that would require any additional impairment testing for broadcast licenses.

As a result of the quantitative impairment test performed as of June 30, 2020, the Company determined that the fair value of the broadcast licenses were less than the carrying amount on the balance sheet and recorded non-cash impairment charges totaling $3.8 million related to the FCC licenses in our Bucyrus, Ohio; Champaign, Illinois; Charleston, South Carolina; Columbus, Ohio; Harrisonburg, Virginia; Hilton Head, South Carolina; Mitchell, South Dakota; and Ocala, Florida markets. The impairment charges were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic, an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our FCC licenses due to certain risks specifically associated with the Company and the radio broadcasting industry, and a decrease in mature operating margins in small markets due to the cost of operations in a small market.

As a result of the quantitative impairment test performed as of September 30, 2020, the Company determined that the fair value of the broadcast licenses were less than the carrying amount on the balance sheet and recorded non-cash impairment charges totaling $1.4 million for the quarter ended September 30, 2020 related to the FCC licenses in our Bellingham, Washington; Champaign, Illinois; Charleston, South Carolina; Columbus, Ohio; Harrisonburg, Virginia; Mitchell, South Dakota; Spencer, Iowa and Springfield, Illinois. The impairment charges were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic, an increase in the discount rate used in 2019 but slightly less than in the second quarter of 2020, in the discounted cash flow analyses to estimate the fair value of our FCC licenses due to certain risks specifically associated with the Company and the radio broadcasting industry, and a decrease in mature operating margins in small markets due to the cost of operations in a small market.

The following table reflects certain key estimates and assumptions used in the impairment tests during the year ended 2020 and in the fourth quarter of 2019, and 2018. The ranges for operating profit margin and market long-term revenue growth rates vary by market. In general, when comparing between 2020, 2019 and 2018: (1) the market specific operating profit margin range remained relatively consistent with some decreases to our smaller markets due to the cost of operations in a small market; (2) the market long-term revenue growth rates were relatively consistent; (3) the discount rate increased a small percentage due to the COVID-19 pandemic; and (4) current year revenue projections were 10.4% - 21.4% lower than previously projected for 2020 and revenue projections for 2021 were 7.6% - 10.7% lower than previously projected.

	Year		Fourth		Fourth
	Ended		Quarter		Quarter
	2020		2019		2018
Discount rates	12.6% - 13.0	%	12.2% - 12.2	%	12.0% - 12.0	%
Operating profit margin ranges	17.8% - 36.4	%	19.0% - 36.4	%	19.0% - 36.4	%
Market long-term revenue growth rates	0.2% - 2.9	%	0.0% - 2.9	%	0.5% - 2.9	%

If actual market conditions are less favorable than those estimated by us or if events occur or circumstances change that would reduce the fair value of our broadcast licenses below the carrying value, we may be required to recognize additional impairment charges in future periods. Such a charge could have a material effect on our consolidated financial statements. We will continue to monitor potential triggering events and perform the appropriate analysis when deemed necessary.

2019 Impairment Test

During the fourth quarter of 2019, we completed our annual impairment test of broadcast and determined that the fair value of the broadcast licenses was greater than the carrying value recorded for each of our markets and, accordingly, no impairment was recorded.

2018 Impairment Test

During the fourth quarter of 2018, we completed our annual impairment test of broadcast licenses and determined that the fair value of the broadcast licenses was greater than the carrying value recorded for each of our markets and, accordingly, no impairment was recorded.

Goodwill

As a result of the decreased revenues associated with the COVID-19 pandemic, as mentioned above, we also reviewed our value of goodwill and other long-lived assets during the second quarter of 2020 as of June 30, 2020 and again in the third quarter of 2020 as of September 30, 2020, noting no impairment in goodwill or other long-lived assets. Based on the trends we are seeing at our markets we believe that our analysis and estimates used during the third quarter 2020 analysis still remain our best estimate and we do not believe any further triggering events occurred during the fourth quarter of 2020 since the date of the previous analysis that would require any additional impairment testing for goodwill.

We have recorded the changes to goodwill for each of the years ended December 31, 2020 and 2019 as follows:

	Total
	(in thousands)
Balance at January 1, 2019	$	18,839
Acquisitions		124
Balance at December 31, 2019	$	18,963
Acquisitions		143
Balance at December 31, 2020	$	19,106

Other Intangible Assets

We have recorded amortizable intangible assets at December 31, 2020 as follows:

	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
	(In thousands)
Non-competition agreements	$	3,861	$	3,861	$	—
Favorable lease agreements		5,965		5,570		395
Customer relationships		4,660		4,322		338
Other intangibles		1,834		1,771		63
Total amortizable intangible assets	$	16,320	$	15,524	$	796

We have recorded amortizable intangible assets at December 31, 2019 as follows:

	Gross
	Carrying		Accumulated		Net
	Amount		Amortization		Amount
	(In thousands)
Non-competition agreements	$	3,861	$	3,861	$	—
Favorable lease agreements		5,965		5,539		426
Customer relationships		4,660		3,584		1,076
Other intangibles		1,834		1,727		107
Total amortizable intangible assets	$	16,320	$	14,711	$	1,609

Aggregate amortization expense for these intangible assets for the years ended December 31, 2020, 2019 and 2018, was $813,000, $1,029,000 and $1,094,000, respectively. Our estimated annual amortization expense for the years ending December 31, 2021, 2022, 2023, 2024 and 2025 is $387,000, $39,000, $35,000, $33,000 and $33,000, respectively.