Washington Post 2014 Annual Report Download - page 69

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 policy requires the performance of a quantitative
impairment review of the indefinite-lived intangible assets at least
once every three years.
The Company’s intangible assets with an indefinite life are principally
from franchise agreements at its cable 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 division historically has obtained
renewals and extensions of such agreements for nominal costs and
without material modifications to the agreements. The franchise
agreements represent 96% of the $516.8 million of indefinite-lived
intangible assets of the Company as of December 31, 2014. The
Company grouped the recorded values of its various cable franchise
agreements into regional cable systems or units of account.
As of November 30, 2014, the Company performed a quantitative
review to test the franchise agreements for impairment. The key
assumptions used by the Company to determine the fair value of its
franchise agreements as of November 30, 2014, the date of its
annual impairment review, were as follows:
• Expected cash flows underlying the Company’s business plans for
the periods 2015 through 2024 were used, with the assumption
that the only assets the unbuilt start-up cable 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 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 2024 were projected to grow at a long-
term growth rate, which the Company estimated by considering
historical market growth trends, anticipated cable system
performance and expected market conditions.
• The Company used a discount rate of 7% 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% as of November 30, 2014. There is always a possibility that
impairment charges could occur in the future, given changes in the
cable market and the 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 curtailment gain, settlement
loss and special termination benefits, the Company’s net pension credit
including amounts for discontinued operations was $69.4 million for
2014, and the net pension cost was $1.9 million and $16.0 million for
2013 and 2012, respectively. The Company’s pension benefit
obligation and related (credits) 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.
TheCompanyassumeda6.5%expectedreturnonplanassetsfor
year 2014, which is consistent with the expected return assumption for
years 2013 and 2012. The Company’s actual return on plan assets
was 7.4% in 2014, 36.2% in 2013 and 18.5% in 2012. The 10-
year and 20-year actual returns on plan assets were 10.3% and
13.0%, 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,
2014, 2013 and 2012, was 4.0%, 4.8% and 4.0%, respectively,
reflecting market interest rates.
Changes in key assumptions for the Company’s pension plan would
have the following effects on the 2014 pension credit, excluding
curtailment gain, settlement loss and special termination benefits:
• Expected return on assets—A 1% increase or decrease to the
Company’s assumed expected return on plan assets would have
increased or decreased the pension credit by approximately
$18.5 million.
• Discount rate—A 1% decrease to the Company’s assumed
discount rate would have decreased the pension credit by
approximately $20.2 million. A 1% increase to the Company’s
assumed discount rate would have increased the pension credit
by approximately $16.8 million.
The Company’s net pension (credit) cost 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 (credit) cost for the year.
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