Washington Post 2009 Annual Report Download - page 65

determine the estimated fair value of its reporting units. The
Company made estimates and assumptions regarding future cash
flows, discount rates, long-term growth rates and market values to
determine each reporting unit’s estimated fair value. The
methodology used to estimate the fair value of the Company’s
reporting units on November 30, 2009, was consistent with the
one used during our 2008 annual goodwill impairment test. The
Company made changes to certain of its assumptions utilized in the
discounted cash flow models for 2009 compared with the prior
year due largely to the adverse economic environment and its
impact on our businesses. The key assumptions used by the
Company were as follows:
• Expected cash flows underlying the Company’s business plans
for the periods 2010 through 2014. The expected cash flows
took into account historical growth rates, but also included the
adverse effect of the overall economic downturn at some of the
Company’s businesses, particularly at the Company’s advertising-
related businesses. Expected cash flows also reflected the
anticipated savings from restructuring plans at the newspaper
publishing, magazine publishing and education divisions’
reporting units, early retirement plans at the newspaper and
magazine publishing reporting units and other initiatives.
• Cash flows beyond 2014 were projected to grow at a long-term
growth rate, which the Company estimated between 1% and 6%
for each reporting unit.
• The Company used a discount rate of 8.3% to 18.5% to risk
adjust the cash flow projections in determining the estimated fair
value.
The fair value of each of the reporting units exceeded its respective
carrying value as of November 30, 2009.
In 2008, the Company recorded goodwill and other intangible
asset impairment charges at three of its reporting units totaling
$135.4 million. The remaining goodwill balances at these three
reporting units as of January 3, 2010 totaled $38.4 million.
Combined, the goodwill balance of $61.2 million at the five
reporting units that have been subject to impairment charges in
2009 and 2008 represents less than 5% of the Company’s total
goodwill balance of $1,423.5 million as of January 3, 2010.
There exists a reasonable possibility that a decrease in the
projected cash flows or long-term growth rate, or an increase in the
discount rate assumptions used in the discounted cash flow model of
these reporting units, could result in additional impairment charges.
The estimated fair value of the Company’s reporting units with
significant goodwill balances exceeded their respective carrying
values by a margin in excess of 25%. While less likely, additional
impairment charges could occur at these reporting units as well,
given the inherent variability in projecting future operating
performance.
Pension Costs. Excluding special termination benefits related to
early retirement programs, the Company’s net pension credit was
$8.1 million, $25.7 million and $22.3 million for 2009, 2008
and 2007, respectively. The Company’s pension benefit costs
are actuarially determined and are impacted significantly by the
Company’s assumptions related to future events, including the
discount rate, expected return on plan assets and rate of
compensation increases. The Company’s expected return on plan
assets assumption remained at 6.5% for fiscal years 2009, 2008
and 2007. At December 31, 2006, the Company raised its
discount rate assumption from 5.75% to 6.0%, which resulted in the
pension credit for 2007 increasing slightly for 2007 compared to
2006. At December 30, 2007, the discount rate assumption
remained at 6.0%; the pension credit increased by $3.4 million as
a result of higher than expected investment returns on plan assets in
2007. At December 28, 2008, the Company reduced its discount
rate assumption from 6.0% to 5.75% and changed to a more
current Mortality Table. The pension credit declined substantially in
2009 largely due to significant investment losses in 2008. At
January 3, 2010, the Company increased its discount rate
assumption from 5.75% to 6.0%. The Company estimates that it will
record a net pension credit of approximately $2.0 million in 2010.
This amount is lower than in 2009 as a result of significant
investment losses on pension plan assets in 2008, offset to some
extent by the investment gains in 2009. The Company’s actual
return (loss) on plan assets was 14.7% in 2009, (25.0%) in 2008
and 7.7% in 2007, based on plan assets at the beginning of each
year. For each 1% increase or decrease to the Company’s assumed
expected return on plan assets, the pension credit increases or
decreases by approximately $15 million. For each 1% increase or
decrease to the Company’s assumed discount rate, the pension
credit increases or decreases by approximately $10 million.
Note L to the Company’s consolidated financial statements provides
additional details surrounding pension costs and related assump-
tions.
Income Tax Valuation Allowances. Deferred income taxes arise
from temporary differences between the tax and financial statement
recognition of assets and liabilities. In evaluating its ability to
recover deferred tax assets within the jurisdiction from which they
arise, the Company considers all available positive and negative
evidence, including scheduled reversals of deferred tax liabilities,
projected future taxable income, tax planning strategies and recent
financial operations. These assumptions require significant judgment
about forecasts of future taxable income.
As of January 3, 2010, the Company had state income tax net
operating loss carryforwards of $525.6 million, which will expire at
various dates from 2010 through 2029. Also at January 3, 2010,
the Company had approximately $31.0 million of foreign income
tax loss carryforwards, of which $28.0 million may be carried
forward indefinitely and $3.0 million that, if unutilized, will start to
expire in 2012. At January 3, 2010, the Company has established
approximately $26.2 million in valuation allowances against these
deferred state and foreign income taxes, net of U.S. Federal income
taxes, as the Company believes that it is more likely than not that
the benefit from certain state and foreign net operating loss carry-
forwards will not be realized. The Company has established
valuation allowances against state income tax benefits recognized,
without considering potentially offsetting deferred tax liabilities
established with respect to prepaid pension cost and goodwill. Prepaid
2009 FORM 10-K 51