Washington Post 2010 Annual Report Download - page 75

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 Company uses a discounted cash flow model, and in certain
cases, a market value approach is also utilized to supplement the
discounted cash flow model to determine the estimated fair value of
the indefinite-lived intangible assets. The Company makes estimates
and assumptions regarding future cash flows, discount rates, long-
term growth rates and other market values to determine the
estimated fair value of the indefinite-lived intangible assets.
The Company’s intangible assets with an indefinite life are
principally from franchise agreements at its cable television division.
These franchise agreements result from agreements the Company has
with state and local governments that allow the Company to contract
and operate a cable business within a specified geographic area.
The Company expects its cable franchise agreements to provide the
Company with substantial benefit for a period that extends beyond
the foreseeable horizon, and the Company’s cable television
division historically has obtained renewals and extensions of such
agreements for nominal costs and without material modifications to
the agreements. The franchise agreements represent 93% of the
$530.8 million of indefinite-lived intangible assets of the Company
as of January 2, 2011. The Company grouped the recorded values
of its various cable franchise agreements into regional cable
television systems or units of account.
The key assumptions used by the Company to determine the fair
value of its franchise agreements as of November 30, 2010, the
date of its annual impairment review, were as follows:
• Expected cash flows underlying the Company’s business plans for
the periods 2011 through 2020, assuming 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 2020 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.
The estimated fair value of the Company’s franchise agreements
exceeded their respective carrying values by a margin in excess of
50%. 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. Excluding special termination benefits, the
Company’s net pension credit was $3.9 million, $8.1 million
and $25.7 million for 2010, 2009 and 2008, 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 2010, 2009 and 2008. 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%. At January 2, 2011,
the Company reduced its discount rate assumption to 5.6%. The
Company estimates that it will record a net pension credit of
approximately $3 million in 2011. The Company’s actual return
(loss) on plan assets was 19.1% in 2010, 14.7% in 2009 and
(25.0%) in 2008, 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 $3 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 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:
• 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).
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