Washington Post 2012 Annual Report Download - page 74

The key assumptions used by the Company to determine the fair
value of its franchise agreements as of November 30, 2011, the
date of its last annual quantitative impairment review, were as
follows:
• Expected cash flows underlying the Company’s business plans for
the periods 2012 through 2021 were used, with the assumption
that the only assets the unbuilt start-up cable television systems
possess are the various franchise agreements. The expected cash
flows took into account the estimated initial capital investment in
the system region’s physical plant and related start-up costs,
revenues, operating margins and growth rates. These cash flows
and growth rates were based on forecasts and long-term business
plans and take into account numerous factors, including historical
experience, anticipated economic conditions, changes in the
cable television systems’ cost structures, homes in each region’s
service area, number of subscribers based on penetration of
homes passed by the systems and expected revenues per
subscriber.
• Cash flows beyond 2021 were projected to grow at a long-
term growth rate, which the Company estimated by considering
historical market growth trends, anticipated cable television
system performance and expected market conditions.
• The Company used a discount rate of 8% to risk adjust the cash
flow projections in determining the estimated fair value.
There is always a possibility that impairment charges could occur in
the future, given changes in the cable television market and U.S.
economic environment, as well as the inherent variability in
projecting future operating performance.
Pension Costs. The Company sponsors a defined benefit pension
plan for eligible employees in the U.S. Excluding special termination
benefits, the Company’s net pension cost was $16.0 million for
2012, and the net pension credit was $4.7 million and $3.9
million for 2011 and 2010, respectively. The Company’s pension
benefit obligation and related 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 evaluates
these critical assumptions at least annually, and periodically
evaluates other assumptions involving demographic factors, such as
retirement age, mortality and turnover, and updates them to reflect
its experience and expectations for the future. Actual results in any
given year will often differ from actuarial assumptions because of
economic and other factors.
The Company assumed a 6.5% expected return on plan assets for
fiscal year 2012, which is consistent with the expected return
assumption for fiscal years 2011 and 2010. The Company’s actual
return on plan assets was 18.5% in 2012, 14.7% in 2011 and
20.3% in 2010. The 10-year and 20-year actual returns on plan
assets were 8.5% and 11.4%, respectively.
Accumulated and projected benefit obligations are measured as the
present value of future cash payments. The Company discounts those
cash payments using the weighted average of market-observed
yields for high-quality fixed-income securities with maturities that
correspond to the payment of benefits. Lower discount rates increase
present values and increase subsequent-year pension costs; higher
discount rates decrease present values and decrease subsequent-
year pension costs. The Company’s discount rate at December 31,
2012 and 2011, and January 2, 2011, was 4.0%, 4.7% and
5.6%, respectively, reflecting market interest rates.
Changes in key assumptions for the Company’s pension plan would
have the following effects on the 2012 pension cost:
• Expected return on assets—A 1% increase or decrease to the Company’s
assumed expected return on plan assets would have decreased or
increased the pension cost by approximately $15 million.
• Discount rate—A 1% decrease to the Company’s assumed
discount rate would have increased the pension cost by approx-
imately $32 million. A 1% increase to the Company’s assumed
discount rate would have decreased the pension cost by
approximately $11 million.
The Company’s net pension cost (credit) includes an expected return
on plan assets component, calculated using the expected return on
plan assets assumption applied to a market-related value of plan
assets. The market-related value of plan assets is determined using a
five-year average market value method, which recognizes realized
and unrealized appreciation and depreciation in market values over
a five-year period. The value resulting from applying this method is
adjusted, if necessary, such that it cannot be less than 80% or more
than 120% of the market value of plan assets as of the relevant
measurement date. As a result, year-to-year increases or decreases
in the market-related value of plan assets impact the return on plan
assets component of pension cost (credit) for the year.
At the end of each year, differences between the actual return on plan
assets and the expected return on plan assets are combined with other
differences in actual versus expected experience to form a net
unamortized actuarial gain or loss in accumulated other comprehensive
income. Only those net actuarial gains or losses in excess of the
deferred realized and unrealized appreciation and depreciation are
potentially subject to amortization. The types of items that generate
actuarial gains and losses that may be subject to amortization in net
periodic pension cost (credit) include the following:
• Asset returns that are more or less than the expected return on plan
assets for the year;
• Actual participant demographic experience different from assumed
(retirements, terminations and deaths during the year);
• Actual salary increases different from assumed; and
• Any changes in assumptions that are made to better reflect
anticipated experience of the plan or to reflect current market
conditions on the measurement date (discount rate, longevity
increases, changes in expected participant behavior and
expected return on plan assets).
Amortization of the unrecognized actuarial gain or loss is included
as a component of expense for a year if the magnitude of the net
unamortized gain or loss in accumulated other comprehensive
income exceeds 10% of the greater of the benefit obligation or the
market-related value of assets (10% corridor). The amortization
component is equal to that excess divided by the average remaining
service period of active employees expected to receive benefits
under the plan. At the end of 2009, the Company had no net
62 THE WASHINGTON POST COMPANY