Washington Post 2009 Annual Report Download - page 64

an event occurred or circumstances changed that would more likely
than not reduce the fair value of the reporting unit or other intangible
assets below its carrying value. The Company tests its goodwill at
the reporting unit level, which is an operating segment or one level
below an operating segment. The Company tests the goodwill for
impairment using a two-step process. The first step of the goodwill
impairment test compares the estimated fair value of a reporting unit
with its carrying amount, including goodwill. This step is performed
to identify potential impairment, which occurs when the carrying
amount of the reporting unit exceeds its estimated fair value. The
second step of the goodwill impairment test is only performed when
there is a potential impairment and is performed to measure the
amount of impairment loss at the reporting unit. During the second
step, the Company allocates the estimated fair value of the
reporting unit to all of the assets and liabilities of the unit (including
any unrecognized intangible assets). The excess of the fair value of
the reporting unit over the amounts assigned to its assets and
liabilities is the implied fair value of goodwill. The amount of the
goodwill impairment is the difference between the carrying value of
the reporting unit’s goodwill and the implied fair value determined
during the second step. The other intangible assets impairment test
compares the fair value of the asset with its carrying value. The
Company records an impairment loss if the carrying value of the
other intangible assets exceeds the fair value of the assets for the
difference in the values.
The education division completed a reorganization of its
organizational and internal structure during the third quarter of
2009. As a result, the education division reorganized its operations
for the purpose of making operating decisions and assessing
performance into four operating segments: Higher Education, Test
Preparation, Kaplan International and Kaplan Ventures. The re-
organization significantly changed the composition of the reporting
units within the education division and resulted in the reassignment
of the goodwill to the affected reporting units using a relative fair
value approach.
The fair value of the previous reporting units and components
transferred were generally determined utilizing a discounted cash
flow model and, where appropriate, a market value approach to
supplement the discounted cash flow model. The Company made
estimates and assumptions regarding future cash flows, discount
rates, long-term growth rates and market values to determine each
reporting unit and component’s estimated fair value.
The assumptions about future cash flows and growth rates were
based on forecasts and long-term business plans of each reporting
unit and component. Such assumptions took into account numerous
factors including historical experience; anticipated economic
conditions; changes in the reporting unit and component’s cost
structures; cost savings from recent restructuring activities and
other initiatives; and expected revenues from current and future
enrollments at the universities, campuses and education centers.
The discount rate assumptions for each reporting unit and component
took into account the Company’s assessment of the risks inherent in
thefuturecashflowsoftherespectivereportingunitandcomponent
and the weighted-average cost of capital of market participants in
businesses similar to each reporting unit and component.
The key assumptions used by the Company were as follows:
• Expected cash flows underlying the education division’s business
plans for the periods 2009 through 2013.
• Cash flows beyond 2013 were projected to grow at a long-term
growth rate, which the Company estimated between 3% and 6%
for each reporting unit and component.
• The Company used a discount rate of 10.5% to 20% to risk
adjust the cash flow projections in determining the estimated fair
value.
The effect of the reallocation of goodwill is included in Note G,
“Goodwill and Other Intangible Assets,” of the consolidated
financial statements of the Company for fiscal year 2009. Each
postreorganization reportable segment is also a reporting unit,
except for Kaplan Ventures, which consists of seven reporting units.
As a result of the reassignment, the Company performed an
interim review of the carrying value of goodwill at the education
division for possible impairment on a prereorganization and post-
reorganization basis. The fair value of the prereorganization
reporting units each exceeded their respective carrying value by
a margin in excess of 15%. On a postreorganization basis, the
estimated fair value of the reporting units within the education
division with significant goodwill balances (Higher Education, Test
Preparation and Kaplan International) exceeded their respective
carrying values by a margin in excess of 50%.
Following the reorganization, two reporting units (Kaplan
EduNeering and Kaplan Compliance Solutions, previously within
Kaplan Professional) newly included in the Kaplan Ventures
operating segment failed step one of the interim goodwill
impairment review, and the Company performed a step two
analysis. The Company recorded a goodwill and other long-lived
assets impairment charge of $25.4 million related to these two
reporting units. Following the impairment, the remaining goodwill
balances at these two reporting units as of January 3, 2010,
totaled $22.8 million.
The Company had 18 reporting units as of January 3, 2010. The
reporting units with significant goodwill balances as of January 3,
2010, were as follows, representing 91% of the total goodwill of
the Company:
(in millions) Goodwill
Education
Higher education ............................ $ 335.2
Test preparation ............................. 236.8
Kaplan international .......................... 433.0
Cable television ............................... 85.5
Television broadcasting ......................... 203.2
Total ....................................... $1,293.7
As of November 30, 2009, in connection with the Company’s
annual impairment testing, the Company used a discounted cash
flow model, and where appropriate, a market value approach
was also utilized to supplement the discounted cash flow model to
50 THE WASHINGTON POST COMPANY