MPI was contacted by a major law firm in the Southeast. Their client, a television and radio broadcasting company, had been informed by its CPA firm that management’s internal impairment analysis would not meet the qualifications required for a successful audit. The CPA firm recommended that the impairment test be prepared by an independent third party.
The company was party to a bank lending agreement with an extremely favorable interest rate. The bank sought a reason to call a default with a view to revising the agreement and raising the interest rate, an adjustment which would cost the company millions of dollars in additional interest expense. If the financial statements (complete with impairment testing) were not submitted to the bank by the impending deadline, a technical default would be called.
MPI was retained as a trusted advisor to prepare an independent impairment test under ASC Topic 350 – Intangibles, Goodwill & Other. Several reporting units required testing for impairment of goodwill. Indefinite-lived FCC licenses required impairment testing, as well.
The assignment encompassed the following steps conducted by MPI:
• Discussed the assignment with management and representatives from its CPA firm to ensure all parties understood scope and timing.
• Reviewed and analyzed historical and projected financial information; prepared and discussed due diligence questions with management. Prepared enterprise valuations at the reporting unit level using market (guideline transaction) and income (discounted cash flow) approaches to valuation.
• Compared the fair values determined by MPI to the carrying values of each reporting unit.
• Prepared separate valuations of FCC licenses using a greenfield approach.
• Documented the analysis in a self-contained valuation report.
• Provided follow-up consultation with management and its CPA firm.
• MPI met an aggressive deadline allowing ample time for the company to finalize its financials and avoid a technical default on its loan.
• The valuation analysis was thorough and complete, resulting in a smooth audit review process with the company’s CPA firm.
• MPI’s independence and expertise represented industry best practices, generating additional comfort for the CPA firm with management’s financial reporting for the business combination.
• MPI has provided ongoing counsel to our client relative to the upcoming impairment test, which will translate into increased efficiencies and additional time for management to focus onoperating and improving its business.