NOTE 3. IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

We account for goodwill and other indefinite-lived intangible assets in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 350 “Intangibles—Goodwill and Other.” We do not amortize goodwill or other indefinite-lived intangible assets, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We complete our annual impairment tests in the fourth quarter of each year unless events or circumstances indicate that an asset may be impaired.

Due to actual operating results that did not meet or exceed our expectations and assumptions used in prior valuations, we performed an interim valuation of mastheads as of June 30, 2012.

Mastheads

Mastheads consist of the graphic elements that identify our publications to readers and advertisers. These include customized typeset page headers, section headers, and column graphics as well as other name and identity stylized elements within the body of each publication. We test the value of mastheads as a single combined publishing entity as our print magazines operate from one shared facility under one general manager with operating results and cash flows reported on a combined basis for all publications. This is the lowest level for which discrete financial information and cash flows are available and the level reviewed by management to analyze operating results. We engaged Bond & Pecaro, an independent third-party appraisal and valuation firm, to perform an income-based approach to determine the estimated fair value of our mastheads. The income approach is based upon an estimated royalty stream that measures a cost savings to the business because it does not have to pay a royalty to use the owned trade name and content. The analysis assumes that the assets are employed by a typical market participant in their highest and best use. Under the income approach, we utilize a discounted cash flow method to calculate the estimated fair value of our mastheads, the key estimates and assumptions to which are as follows:

Based on our review and analysis we determined that no impairment charges were necessary for mastheads as of the interim testing period ending June 31, 2012. The estimated fair value exceeded the carrying value of our mastheads by 1.7% as of June 30, 2012.

Goodwill – Publishing

Our publishing segment consists of two accounting units for goodwill testing. The first publishing accounting unit is the magazine unit, which operates and produces all publications from a stand-alone facility, under one general manager, with operating results and cash flows of all publications reported on a combined basis. The second accounting unit is our book publishing division, Xulon Press, which also operates from a stand-alone facility, under one general manager who is responsible for the separately stated operating results and cash flows. These are the lowest levels for which discrete financial information and cash flows are available and the level reviewed by management to analyze operating results. During the period ending June 30, 2012, we performed an interim review and valuation of goodwill in our magazine unit.

Our review consisted of a qualitative assessment of the circumstances to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying amount. Our assessment included reviews of the actual operating results for our magazine publishing unit compared to our projections and compared to growth rates and estimates used in prior period valuations. Based on our review, we performed additional analysis to estimate the fair value of the reporting unit for comparison to the carrying amount.

We engaged Bond & Pecaro to determine the enterprise value of our magazine business in a manner similar to a purchase price allocation. The enterprise valuation assumes that the subject assets are installed as part of an operating business rather than as a hypothetical start-up. The key estimates and assumptions used for our enterprise valuations are as follows:

Based on our analysis we determined that no impairment charge was necessary as of the interim testing period ending June 30, 2012. The table below presents the percentage within a range by which the enterprise value exceeded the carrying value of our accounting units, including goodwill.

There were no indications of impairment during the period ending June 30, 2012 for our broadcast licenses or Internet entities. Broadcast licenses account for approximately 94% of our indefinite-lived intangible assets. Goodwill and magazine mastheads account for the remaining 6%.