Washington Post 2014 Annual Report Download - page 68

Goodwill and Other Intangible Assets. The Company has a
significant amount of goodwill and indefinite-lived intangible assets
that are reviewed at least annually for possible impairment.
As of December 31
(in millions) 2014 2013
Goodwill and indefinite-lived intangible
assets .......................... $1,865.5 $1,829.9
Total assets ........................ $5,752.3 $5,811.0
Percentage of goodwill and indefinite-lived
intangible assets to total assets ........ 32% 31%
The Company performs its annual goodwill and intangible assets
impairment test as of November 30. Goodwill and other intangible
assets are reviewed for possible impairment between annual tests if
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.
Goodwill
The Company tests its goodwill at the reporting unit level, which is
an operating segment or one level below an operating segment.
The Company initially performs an assessment of qualitative factors
to determine if it is necessary to perform the two-step goodwill
impairment test. The Company tests goodwill for impairment using
the two-step process if, based on its assessment of the qualitative
factors, it determines that it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, or if it decides to
bypass the qualitative assessment. 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 Company had 13 reporting units as of December 31, 2014.
The reporting units with significant goodwill balances as of
December 31, 2014, were as follows, representing 90% of the
total goodwill of the Company:
(in millions) Goodwill
Education
Higher education ............................ $ 409.9
Test preparation ............................. 63.8
Kaplan international .......................... 481.2
Cable ...................................... 85.5
Television broadcasting ......................... 168.3
Total ....................................... $1,208.7
As of November 30, 2014, in connection with the Company’s
annual impairment testing, the Company decided to perform the
two-step goodwill impairment process at all of the reporting units.
The Company’s policy requires the performance of a quantitative
impairment review of the goodwill at least once every three years.
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 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, 2014, was consistent with the one used during the
2013 annual goodwill impairment test.
The Company made changes to certain of its assumptions utilized in
the discounted cash flow models for 2014 compared with the prior
year to take into account changes in the economic environment,
regulations and their impact on the Company’s businesses. The key
assumptions used by the Company were as follows:
• Expected cash flows underlying the Company’s business plans for
the periods 2015 through 2019 were used. The expected cash
flows took into account historical growth rates, the effect of the
changed economic outlook at some of the Company’s
businesses, industry challenges and an estimate for the possible
impact of any applicable regulations. Expected cash flows also
reflected the anticipated savings from restructuring plans at certain
of the education division’s reporting units, and other initiatives.
• Cash flows beyond 2019 were projected to grow at a long-term
growth rate, which the Company estimated between 1% and 3%
for each reporting unit.
• The Company used a discount rate of 7.0% to 20.0% 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, 2014.
In 2012, the Company recorded a goodwill and other long-lived asset
impairment charge of $111.6 million at the KTP reporting unit. The
remaining goodwill balance at the KTP reporting unit as of
December 31, 2014, totaled $63.8 million. The estimated fair value
of the KTP reporting unit exceeded its carrying value by a margin in
excess of 25%. The estimated fair value of the Company’s other
reporting units with significant goodwill balances also exceeded their
respectivecarryingvaluesbyamargininexcessof25%.Itispossible
that impairment charges could occur in the future, given the inherent
variability in projecting future operating performance.
Indefinite-Lived Intangible Assets
The Company initially assesses qualitative factors to determine if it is
more likely than not that the fair value of its indefinite-lived intangible
assets is less than its carrying value. The Company compares the fair
value of the indefinite-lived intangible asset with its carrying value if
the qualitative factors indicate it is more likely than not that the fair
value of the asset is less than its carrying value or if it decides to
bypass the qualitative assessment. The Company records an
impairment loss if the carrying value of the indefinite-lived intangible
52 GRAHAM HOLDINGS COMPANY