7. Impairment of FCC Broadcasting Licenses

We generally perform our annual impairment test of our indefinite-lived intangibles during the fourth quarter of the fiscal year but, given the recent projection of slightly reduced anticipated long-term growth rates for total radio revenues, we performed an interim impairment test as of September 30, 2015.

Our valuations principally use the discounted cash flow methodology. This income approach consists of a quantitative model, which assumes the FCC broadcasting licenses are acquired and operated by a third-party. The valuation method used is based on the premise that the only asset that the unbuilt start-up station would possess is the FCC broadcasting license. The valuation method isolates the income attributable to a FCC broadcasting license by modeling a hypothetical greenfield build-up to a normalized enterprise that, by design, lacks inherent goodwill and whose only other assets have essentially been paid for as part of the build-up process. Consequently, the resulting accretion in value is solely attributed to the FCC broadcasting license.

In the discounted cash flow projections, a period of ten years was determined to be an appropriate time horizon for the analysis. The yearly streams of cash flows are adjusted to present value using an after-tax discount rate calculated for the broadcast industry as of December 31 of each year. Additionally, it is necessary to project the terminal value at the end of the ten-year projection period. The terminal value represents the hypothetical value of the licenses at the end of a ten-year period. An estimated amount of taxes are deducted from the assumed terminal value, which accordingly is discounted to net present value.

The key assumptions incorporated in the discounted cash flow model are market revenue projections, market revenue share projections, anticipated operating profit margins and risk adjusted discount rates. These assumptions vary based on the market size, type of broadcast signal, media competition and audience share. These assumptions primarily reflect industry norms for similar stations/broadcast signals, as well as historical performance and trends of the markets. In the preparation of the FCC broadcasting license appraisals, estimates and assumptions are made that affect the valuation of the intangible asset. These estimates and assumptions could differ from actual results and could have a material impact on our financial statements in the future.

The methodology used by us in determining our key estimates and assumptions was applied consistently to each market. Below are some of the key assumptions used in our impairment assessment using significant unobservable inputs (Level 3 non-reoccurring fair value measure).

		September 30, 2015
Discount Rate		10.0%
Long-term Revenue Growth Rate		0.5% - 1.5%
Mature Market Share		2.7% - 23.1%
Mature Operating Profit Margin		29.0 – 34.7%

As a result of the interim impairment test, we determined that there was an impairment of one of our FCC broadcasting licenses primarily due to lower industry advertising revenue growth projections in the subject market. We recorded a non-cash impairment loss of approximately $0.9 million that reduced the carrying value of our San Francisco market FCC broadcasting license. The tax impact of the impairment loss was an approximate $0.4 million tax benefit, which was related to the reduction of the book/tax basis difference on our FCC broadcasting license.