Quarterly report pursuant to Section 13 or 15(d)

Goodwill

v3.20.2
Goodwill
 9 Months Ended
Sep. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill
NOTE 10. GOODWILL
We account for goodwill in accordance with FASB ASC Topic 350 “
Intangibles—Goodwill and Other
.” We do not amortize goodwill, but rather test for impairment annually or more frequently if events or circumstances indicate that an asset may be impaired. We perform our annual impairment testing during the fourth quarter of each year, which coincides with our budget and planning process for the upcoming year.
We performed an interim review of goodwill during the three
 months ended
 March 31, 2020 due to the
COVID-19
pandemic and the resulting
stay-at-home
orders that began to adversely impact revenues. We assessed a variety of factors, including media industry forecasts and the amount by which the prior estimated fair value exceeded the carrying value including goodwill. The results of our interim impairment analysis are described further below.
We
re-evaluated
these factors as of the interim period ending September 30, 2020 to determine if it was more likely than not that assets are impaired. We concluded that there are no indications of impairment, mainly because of the difference between the most recent fair value estimates and the carrying value.
Impairment testing requires estimates of the fair value of our indefinite-lived intangible assets. We believe that these fair value estimates are critical accounting estimates as the value is significant in relation to our total assets and the estimates incorporate variables and assumptions based on our experiences and judgment about our future operating performance. Fair value measurements use significant unobservable inputs that reflect our own assumptions about the estimates that market participants would use in measuring fair value, including assumptions about risk. If actual future results are less favorable than the assumptions and estimates used in our estimates, we are subject to future impairment charges, the amount of which may be material. The unobservable inputs are defined in FASB ASC Topic 820 “Fair Value Measurements and Disclosures” as Level 3 inputs discussed in detail in Note 14 – Fair Value Measurements.
For the interim testing performed during the three
 months ended
 March 31, 2020, we engaged Bond & Pecaro, an independent appraisal and valuation firm, to assist us in estimating the enterprise of value Salem Author Services for the purpose of evaluating if goodwill is impaired. 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 for the reporting units subject to testing are as follows:
 
Publishing Enterprise Valuations
    December 31, 2019   
March 31, 2020
Risk adjusted discount rate
    10.0%   
10.5%
Operating margin ranges
    1.5% – 3.9%   
0.0% – 3.9%
Long-term revenue growth rates
    0.5%   
0.5%
 
The risk-adjusted discount rate reflects the WACC developed based on data from same or similar industry participants and publicly available market data as of the measurement date.
Based on our review and analysis, we recorded an impairment charge of $0.3 million, including a $0.1 million charge to the carrying value of goodwill associated with Salem Author Services as of the interim testing period ended March 31, 2020. The impairment charges were driven by a decrease in the operating margins due to the impact of
COVID-19
on revenue and an increase in the WACC. We believe that these factors are indicative of trends in the industry as a whole and not unique to our company or operations.
We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of goodwill, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. Due to the continued impact of the
COVID-19
pandemic we will continue to evaluate goodwill for impairment and further assess if an impairment triggering event has occurred. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of goodwill below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.
The following table presents the changes in goodwill including business acquisitions and dispositions as discussed in Note 3 of our Condensed Consolidated Financial Statements.
 
Goodwill
    Twelve Months Ended
December 31, 2019		     
Nine Months Ended
September 30, 2020
  
    
(Dollars in thousands)
  
Balance, beginning of period before cumulative loss on impairment,
    $ 28,818      $
28,454
 
Accumulated loss on impairment
      (2,029 )    
 
(4,456
) 
  
 
 
     
 
 
  
Balance, beginning of period after cumulative loss on impairment
      26,789     
 
23,998
 
  
 
 
     
 
 
  
Acquisitions of radio stations
      —       
 
—  
 
Acquisitions of digital media entities
      6     
 
66
 
Disposition of radio stations
      (29 )    
 
—  
 
Disposition of digital media entities
      (341 )    
 
—  
 
Impairments based on the estimated fair value goodwill
      (2,427 )    
 
(307
) 
  
 
 
     
 
 
  
Ending period balance
    $ 23,998      $
23,757
 
  
 
 
     
 
 
  
Balance, end of period before cumulative loss on impairment
      28,454     
 
28,520
 
Accumulated loss on impairment
      (4,456 )    
 
(4,763
) 
  
 
 
     
 
 
  
Ending period balance
    $ 23,998      $
23,757