Annual report pursuant to Section 13 and 15(d)

IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS

v3.3.1.900
IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]  
IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS
NOTE 2. IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSETS
 
Goodwill and other indefinite-lived intangible assets
 
We account for goodwill and other indefinite-lived intangible assets in accordance with FASB ASC Topic 350 “Intangibles—Goodwill and Other.” Approximately 70% of our total assets as of December 31, 2015, consist of indefinite-lived intangible assets, such as broadcast licenses, goodwill and mastheads, the value of which depends significantly upon the operating results of our businesses. Broadcast licenses account for approximately 94% of our indefinite-lived intangible assets. Goodwill and mastheads account for the remaining 6%. 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.
 
We believe that our estimate of the value of our broadcast licenses, mastheads, and goodwill is a critical accounting estimate as the value is significant in relation to our total assets, and our estimates incorporate variables and assumptions that are based on experiences and judgment about future operating performance of our markets and business segments.
 
The fair value measurements for our indefinite-lived intangible assets 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 we used, we are subject to future impairment charges, the amount of which may be material. The fair value measurements for our indefinite-lived intangible assets 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. The unobservable inputs are defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” as Level 3 inputs discussed in detail in Note 9 to our Consolidated Financial Statements.
 
In accordance with the FASB Accounting Standards Update (“ASU”) 2012-02, “Intangibles – Goodwill and Other (Topic 350)” we have the option to perform a qualitative assessment as to whether it is more likely than not that an indefinite-lived intangible asset is impaired. The qualitative assessment requires significant judgment in considering events and circumstances that may affect the estimated fair value of our indefinite-lived intangible assets and requires that we weigh these events and circumstances by what we believe to be the strongest to weakest indicator of potential impairment. If it is more likely than not that impairment exists, we are required to perform a quantitative analysis to estimate the fair value of the assets.
 
ASU 2012-02 provides examples of events and circumstances that could affect the estimated fair value of indefinite-lived intangible assets; however, the examples are not all-inclusive and are not by themselves indicators of impairment. We consider these events and circumstances, as well as other external and internal considerations. Our analysis includes the following events and circumstances, which are presented in the order of what we believe to be the strongest to weakest indicators of impairment:
 
(1)
the difference between any recent fair value calculations and the carrying value;
(2)
financial performance, such as station operating income, including performance as compared to projected results used in prior estimates of fair value;
(3)
macroeconomic economic conditions, including limitations on accessing capital that could affect the discount rates used in prior estimates of fair value;
(4)
industry and market considerations such as a declines in market-dependent multiples or metrics, a change in demand, competition, or other economic factors;
(5)
operating cost factors, such as increases in labor, that could have a negative effect on future expected earnings and cash flows;
(6)
legal, regulatory, contractual, political, business, or other factors;
(7)
other relevant entity-specific events such as changes in management or customers; and
(8)
any changes to the carrying amount of the indefinite-lived intangible asset.
 
Broadcast licenses
 
In the case of our broadcast radio stations, we would not be able to operate the properties without the related FCC broadcast license for each property. Broadcast licenses are renewed with the FCC every eight years for a nominal fee that is expensed as incurred. We continually monitor our stations’ compliance with the various regulatory requirements that are necessary for FCC renewal and all of our broadcast licenses have been renewed at the end of their respective periods. We expect all of our broadcast licenses to be renewed in the future and therefore, we consider our broadcast licenses to be indefinite-lived intangible assets.
 
The unit of accounting we use to test broadcast licenses is the cluster level, which we define as a group of radio stations operating in the same geographic market, sharing the same building and equipment and managed by a single general manager. The cluster level 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 perform a qualitative assessment for each of our broadcast market clusters. We review the significant assumptions and key estimates applicable to our prior year estimated fair value calculations to assess if events and circumstances have occurred that could affect these assumptions and key estimates. We also review internal benchmarks and the economic performance for each market cluster to assess if it is more likely than not that impairment exists.
 
The first step of our qualitative assessment is to calculate excess fair value, or the amount by which our prior year estimated fair value exceeds the current year carrying value. We believe based on our analysis and review, including the financial performance of each market, that a 25% excess fair value margin is a conservative and reasonable benchmark for our qualitative analysis. Markets with an excess fair value of 25% or more, which have had no significant changes in the prior year assumptions and key estimates, are not likely to be impaired.
 
Of the twenty-seven markets for which a fair value appraisal was performed in the prior year, eight markets were subject to further testing. The table below presents the percentage within a range by which our prior year start-up income estimated fair value exceeds the current year carrying value of our broadcasting licenses:
 
 
 
Geographic Market Clusters as of December 31, 2015
 
 
 
Percentage Range By Which 2014 Estimated Fair Value Exceeds 2015 Carrying Value
 
 
 
󖼩%
 
 
>26%-50%
 
 
>50% to 75%
 
 
> than 75%
 
Number of accounting units
 
 
8
 
 
 
5
 
 
 
3
 
 
 
11
 
Broadcast license carrying value (in thousands)
 
$
185,372 
 
 
$
66,914
 
 
$
35,843
 
 
$
51,941
 
 
The second step of our qualitative assessment consists of a review of the financial operating results for each market cluster. Radio stations are often sold on the basis of a multiple of projected cash flow, or station operating income less station operating expenses (“SOI”). Numerous trade organizations and analysts review these radio station sales to track SOI multiples applicable to each transaction. Based on published reports and analysis of market transactions, we believe industry benchmarks to be in the six to seven times cash flow range. We elected an SOI benchmark of four as a conservative indicator of fair value. Using an SOI multiple to estimate fair value, we did not identify additional markets for further testing.
 
We performed a quantitative analysis for three of our market clusters that we had not obtained an independent third party fair value appraisal for during the last annual testing period. The table below shows the percentage within a range by which our estimated fair value exceeded the carrying value of our broadcasting licenses for these three market clusters:
 
 
 
Geographic Market Clusters as of December 31, 2015
 
 
 
Tested due to length of time from prior valuation
 
 
 
>90%
 
 
>140%
 
Number of accounting units
 
 
2
 
 
 
1
 
Broadcast license carrying value (in thousands)
 
$
11,319
 
 
$
4,242
 
 
We engaged an independent third-party appraisal and valuation firm to assist us in estimating the fair value of our broadcast licenses that were subject to further testing. Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. Noble Financial Capital Markets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015.
 
In each of these years, the estimated fair value was determined using the Greenfield Method, a form of the income approach. The premise of the Greenfield Method is that the value of an FCC License is equivalent to a hypothetical start-up in which the only asset owned by the station as of the valuation date is the FCC License. This approach eliminates factors that are unique to the operation of the station, including its format and historical financial performance. The method then assumes the entity has to purchase, build, or rent all of the other assets needed to operate a comparable station to the one in which the FCC license is being utilized as of the valuation date. Cash flows are estimated and netted against all start-up costs, expenses and investments necessary to achieve a normalized and mature state of operations, thus reflecting only the cash flows directly attributable to the FCC License. A multi-year discounted cash flow approach is then used to determine the net present value of these cash flows to derive an indication of fair value. For cash flows beyond the projection period, a terminal value is calculated using the Gordon constant growth model and long-term industry growth rate assumptions based on long-term industry growth and Gross Domestic Product (“GDP”) inflation rates.
 
The primary assumptions used in the Greenfield Method are
 
(1)
gross operating revenue in the station’s designated market area,
(2)
normalized market share,
(3)
normalized profit margin,
(4)
duration of the “ramp-up” period to reach normalized operations, (which was assumed to be three years),
(5)
estimated start-up costs (based on market size),
(6)
ongoing replacement costs of fixed assets and working capital,
(7)
the calculations of yearly net free cash flows to invested capital; and
(8)
amortization of the intangible asset, the FCC license.
 
The assumptions used reflect those of a hypothetical market participant and not necessarily the actual or projected results of Salem.
 
The key estimates and assumptions used in the start-up income valuation for our broadcast licenses were as follows:
 
Broadcast Licenses
 
December 31, 2013
 
 
December 31, 2014
 
 
December 31, 2015
 
Risk-adjusted discount rate
 
 
9.0%
 
 
8.0%
 
 
8.0%
Operating profit margin ranges
 
 
4.1% - 37.5%
 
 
(13.9%) - 30.8%
 
 
(13.9%) - 30.8%
Long-term market revenue growth rate ranges
 
 
1.0% - 2.5%
 
 
1.5% - 2.5%
 
 
2.0%
 
The risk-adjusted discount rate reflects the Weighted Average Cost of Capital (“WACC”) developed based on data from same or similar industry participants and publicly available market data as of the measurement date. The decrease in the WACC for 2014 as compared to 2013 was largely attributable to decreases in the risk free rate and corporate borrowing interest rates.
 
Based on our review and analysis we determined that no impairment charges were necessary to the carrying value of our broadcast licenses as of the annual testing period ending December 31, 2015, December 31, 2014, and December 31, 2013, respectively. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on the estimated fair value of our broadcast licenses. The sensitivity analysis indicated that a reduction in the long-term revenue growth rate and an increase in the WACC by 100 basis points would have resulted in an impairment to our broadcast licenses of $25.6 million.
 
The table below presents the results of our impairment testing under the income approach for the 2015 annual testing period:
 
 
 
Excess Fair Value
 
Market Cluster
 
2015 Estimate
 
Boston, MA
 
 
42.6
%
Chicago, IL
 
 
72.3
%
Colorado Springs, CO
 
 
142.8
%
Dallas, TX
 
 
10.9
%
Greenville, SC
 
 
95.5
%
Minneapolis, MN
 
 
92.2
%
Orlando FL
 
 
51.0
%
Phoenix, AZ
 
 
12.5
%
Portland, OR
 
 
2.2
%
Sacramento, CA
 
 
21.2
%
Tampa, FL
 
 
48.8
%
 
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 regularly perform quantitative reviews of our mastheads due to the low margin by which our estimated fair values have exceeded our carrying value, and ongoing operating results that have not met or exceeded our expectations. We engaged an independent third-party appraisal firm to assist us in estimating the fair value of our mastheads using a relief from royalty method, a form of the income approach. Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. Noble Financial Capital Markets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015.
 
The relief from royalty method estimates the fair value of mastheads through use of a discounted cash flow model that incorporates a hypothetical “royalty rate” that a third-party owner would be willing to pay in lieu of owning the asset. The royalty rate is based on observed royalty rates for comparable assets as of the measurement date. We adjust the selected royalty rate to account for a percentage of the royalty fee that could be attributed to the use of other intangibles, such as goodwill, time in existence, trade secrets and industry expertise. The adjusted royalty rate represents the royalty fee remaining that could be attributed to the use of the masthead only.
 
Pre-tax royalty income is based on a 10-year revenue forecast and assumed to carry on into perpetuity. Revenue beyond the projection period (terminal year) is based on estimated long-term industry growth rates. The risk-adjusted discount rate used in the analysis is based on our WACC. The analysis also incorporated the present value of the tax amortization benefit associated with the mastheads. The key estimates and assumptions are as follows:
 
Mastheads
 
Interim June 30, 2013
 
 
December 31, 2013
 
 
December 31, 2014
 
 
December 31, 2015
 
Risk-adjusted discount rate
 
 
9.0%
 
 
9.5%
 
 
8.0%
 
 
8.0%
Projected revenue growth ranges
 
 
1.0% - 2.8%
 
 
1.2% - 2.5%
 
 
(4.8%) – 1.4%
 
 
2.1 – 2.9%
Royalty growth rate
 
 
3.0%
 
 
2.0%
 
 
3.0%
 
 
3.0%
 
Due to actual operating results that did not meet or exceed the expectations and assumptions used in our prior estimates of fair value, we performed an interim valuation of our mastheads as of June 30, 2013. Based on our reductions in projected revenue growth and an increase in the risk-adjusted discount rate, we determined that the carrying value of the mastheads were less than their estimated fair value. We recorded an impairment charge of $0.3 million associated with the mastheads. During our annual testing for 2013 performed in the fourth quarter, we recorded an additional $0.7 million impairment charge based on further reductions in the projected revenue growth and an increase in the discount rate from 9.0% to 9.5%.
 
 
During our annual testing for 2014, which coincided with our budget and financial forecasts process for the following year, we decided to cease publishing Townhall Magazine as of December 2014. We reduced our projected net revenues for the following year and considered ceasing additional print magazines in the future. Although we expected to realize cost savings from the reduction in the number of print magazines produced, we did not expect the cost savings to increase operating margins. Based on the reduction of projected net revenues and the potential to further reduce the number of magazine published, we recorded an impairment charge of $34,000 associated with magazine mastheads as of December 2014.
 
 
Based on our review and analysis as of the December 2015 annual testing period, we determined that no impairment charges were necessary to the carrying value of our mastheads. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on the estimated fair value of the mastheads. The sensitivity analysis indicated that reducing the long-term revenue growth rate and increasing the WACC by 100 basis points would have resulted in an impairment to our mastheads of $0.2 million.
 
The table below presents the results of our impairment testing under the income approach for the 2015 annual testing period:
 
 
 
Excess Fair Value
 
Mastheads
 
2015 Estimate
 
Print Magazines
 
 
1.1%
 
The impairments recognized in 2013 and 2014 were driven by reductions in the projected net revenues and a reduction in the number of print magazines produced. The growth of digital-only publications, which are often free to readers or at a significantly reduced cost to readers, has hindered the ability of the publishing industry to recover from the economic recession that began in 2008. We believe that the impairments are indicative of trends in the publishing industry as a whole and are not unique to our company or operations.
 
Goodwill – Broadcast Radio Stations 
 
The unit of accounting we use to test goodwill associated with our radio stations is the cluster level, which we define as a group of radio stations operating in the same geographic market, sharing the same building and equipment and managed by a single general manager. Nineteen of our 34 market clusters have goodwill associated with them as of our annual testing period ending December 31, 2015.
 
We perform a qualitative assessment to determine if events and circumstances have occurred that indicate it is more likely than not that the fair value of the assets in each of our market clusters are less than their carrying values. We review the significant inputs used in our prior year fair value estimates to determine if any changes to those inputs should be made. We estimate fair value using a market approach and compare the estimated fair value of each market cluster to its carrying value, including goodwill. If the carrying amount, including goodwill, exceeds the estimated fair value of the market cluster, a potential indication exists that the amount of goodwill attributed to that market cluster may be impaired.
 
When we have indication of impairment, we engage an independent third-party appraisal and valuation firm to assist us with determining the enterprise value. Bond & Pecaro prepared valuations of the estimated fair value for the testing periods ending December 31, 2013. Noble Financial Capital Markets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015.
 
In performing our annual impairment testing of goodwill, the fair value of each applicable accounting unit was estimated using a discounted cash flow analysis, a form of the income approach. The discounted cash flow analysis utilizes a five-year projection period to derive operating cash flow projections from a market participant view. We made certain assumptions regarding future revenue growth based on industry market data, historical performance and expected future performance. We also made assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets.
 
Future net free cash flows were calculated on a debt free basis and discounted to present value using a risk adjusted discount rate, which reflected our WACC. The terminal year value was calculated using the Gordon constant growth method and long-term growth rate assumptions based on long-term industry growth and GDP inflation rates. The resulting fair value estimates, net of any interest bearing debt, are compared to the carrying value of each accounting units’ net assets.
 
The key estimates and assumptions used for our enterprise valuations are as follows:
 
 
 
December 31, 2013
 
 
December 31, 2014
 
 
December 31, 2015
 
Enterprise Valuations
 
Broadcast Markets
 
 
Broadcast Markets
 
 
Broadcast Markets
 
Risk-adjusted discount rate
 
 
9.0%
 
 
8.0%
 
 
8.0%
Operating profit margin ranges
 
 
11.9% - 44.7%
 
 
8.4% - 46.1%
 
 
49.7%
Long-term revenue market growth rate ranges
 
 
1.0% - 2.5%
 
 
1.0% - 5.0%
 
 
2.0%
 
Based on our review and analysis, we determined that no impairment charges were necessary to the carrying value of our broadcast market goodwill as of the annual testing period ending December 31, 2015, December 31, 2014, and December 31, 2013, respectively. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on the estimated fair value of goodwill associated with our broadcast segment. The sensitivity analysis indicated that reducing the long-term revenue growth rate and increasing the WACC by 100 basis points would have no incremental impact to the carrying value of goodwill associated with our broadcast markets.
 
The tables below present the percentage within a range by which the estimated fair value exceeded the carrying value of each of our market clusters, including goodwill:
  
 
 
Broadcast Market Clusters as of December 31, 2015
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
3
 
 
 
3
 
 
 
2
 
 
 
11
 
Carrying value including goodwill (in thousands)
 
$
56,179
 
 
$
52,164
 
 
$
37,570
 
 
 
169,907
 
 
 
 
Broadcast Market Clusters as of December 31, 2014
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
5
 
 
 
—
 
 
 
2
 
 
 
7
 
Carrying value including goodwill (in thousands)
 
$
81,507
 
 
$
—
 
 
$
27,636
 
 
$
84,693
 
 
 
 
Broadcast Market Clusters as of December 31, 2013
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<1%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
4
 
 
 
1
 
 
 
3
 
 
 
3
 
Carrying value including goodwill (in thousands)
 
$
28,952
 
 
$
17,978
 
 
$
45,375
 
 
$
45,152
 
 
Goodwill – Broadcast Networks 
 
The unit of accounting we use to test goodwill in our radio networks is the entity level, which includes Salem Radio Network® (“SRN”), SRN News Network (“SNN”), Salem Music Network (“SMN”), Todays Christian Music (“TCM”) and Singing News Network (formerly Solid Gospel Network. The entity level is the level reviewed by management for which discreet financial information is available. Two of our five networks have goodwill associated with them as of our annual testing period ending December 31, 2015.
 
The estimated fair value of our networks exceeded the carrying value by 64% and 63% for each of the annual testing periods ending December 31, 2014 and 2013, respectively. For our annual testing as of the fourth quarter of 2015, we identified operating losses within our Singing News Network that indicated that the value of goodwill may be impaired. We engaged an independent third-party appraisal and valuation firm to assist us with determining the enterprise value.
 
In performing our annual impairment testing of goodwill, the fair value of each entity was estimated using a discounted cash flow analysis, a form of the income approach. The discounted cash flow analysis utilizes a seven-year projection period to derive operating cash flow projections from a market participant view. We made certain assumptions regarding future revenue growth based on industry market data, historical performance and expected future performance. We also made assumptions regarding working capital requirements and ongoing capital expenditures for fixed assets.
 
Future net free cash flows were calculated on a debt free basis and discounted to present value using a risk adjusted discount rate, which reflected a risk adjusted WACC. The terminal year value was calculated using the Gordon constant growth method and long-term growth rate assumptions based on long-term industry growth and GDP inflation rates. The resulting fair value estimates, net of any interest bearing debt, are compared to the carrying value of each reporting units’ net assets.
 
The key estimates and assumptions used for our enterprise valuations are as follows:
 
 
 
December 31, 2015
 
Enterprise Valuations
 
Broadcast Networks
 
Risk-adjusted discount rate
 
 
9.0%
Operating profit margin ranges
 
 
(74.1%) – (97.5%)
 
Long-term revenue market growth rate ranges
 
 
2.0%
 
Based on this review and analysis, we recorded an impairment charge of $0.4 million associated with the value of goodwill for the Singing News Network. Based on our prior review and analysis, we determined that no impairment charges were necessary to the carrying value of our network goodwill as of the annual testing period ending December 31, 2014 and December 31, 2013. We did not perform a sensitivity analysis for the current year certain key assumptions, as such changes in assumptions would have no impact on the carrying value of goodwill associated with our broadcast networks.
 
Goodwill – Digital Media
 
The unit of accounting we use to test goodwill in our digital media segment is the entity level, which includes Salem Web Network, Townhall.com, Eagle Financial Publications and Wellness products. The financial statements for Salem Web Network reflect the operating results and cash flows for all of our Internet sites and our church product sites exclusive of Townhall.com. The financial statements for Townhall.com reflect the operating results for each of our conservative opinion sites. Eagle Wellness includes only the results of the e-commerce site for nutritional products.
 
We perform a qualitative assessment to determine if events and circumstances have occurred that indicate it is more likely than not that the fair value of the assets in each of our digital media entities are less than their carrying values. We review the significant inputs used in our prior year fair value estimates to determine if any changes should be made to those inputs. We estimate the fair value using a market approach and compare the estimated fair value of each entity to its carrying value, including goodwill. Under the market approach, we apply a multiple of four to each entities operating income to estimate the fair value. We believe that a multiple of four is a conservative indicator of fair value as described above.
 
If the carrying amount, including goodwill, exceeds the estimated fair value of the entity, an indication exists that the amount of goodwill attributed to that entity may be impaired. When we have indication of impairment, we engage an independent third-party appraisal and valuation firm to assist us with determining the enterprise value. Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. Noble Financial Capital Markets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015.
 
In performing our annual impairment testing of goodwill, the fair value of each applicable accounting unit was estimated using a discounted cash flow analysis as described above. The key estimates and assumptions used in the valuation of our digital media entities for each testing period are as follows:
 
Enterprise Valuation
 
December 31, 2013
 
 
December 31, 2014
 
 
December 31, 2015
 
Risk adjusted discount rate
 
 
13.5%
 
 
8.0%
 
 
8.0% - 9.0%
Operating profit margin ranges
 
 
21.2% - 22.0%
 
 
(7.4%) - 34.9%
 
 
(8.9%) - 13.8%
Long-term revenue market growth rate ranges
 
 
3.0%
 
 
2.50%
 
 
2.0-3.0%
 
Based on our review and analysis, we determined that no impairment charges were necessary to the carrying value of goodwill associated with our digital media entities as of the annual testing period ending December 31, 2015, December 31, 2014, and December 31, 2013, respectively. The estimated fair value of Townhall.com exceeded its carrying value, including goodwill, by 0.8% as of December 31, 2015.
 
We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on the estimated fair value of goodwill associated with our digital media segment. The sensitivity analysis indicated that reducing the long-term revenue growth rates and increasing the WACC by 100 basis points would have resulted in an impairment to goodwill associated with our digital media entities of $1.1 million.
 
The table below presents the percentage within a range by which the estimated fair value exceeded the carrying value of our accounting units, including goodwill.
 
 
 
Digital Media Entities as of December 31, 2015
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
1
 
 
 
-
 
 
 
 
 
 
 
4
 
Carrying value including goodwill (in thousands)
 
$
4,488
 
 
$
-
 
 
 
$
 
 
$
29,126
 
 
 
 
Digital Media Entities as of December 31, 2014
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
1
 
 
 
1
 
 
 
1
 
 
 
1
 
Carrying value including goodwill (in thousands)
 
$
4,649
 
 
$
6,118
 
 
$
385
 
 
$
26,101
 
 
 
 
Digital Media Entities as of December 31, 2013
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
1
 
 
 
-
 
 
 
1
 
 
 
-
 
Carrying value including goodwill (in thousands)
 
$
27,456
 
 
$
-
 
 
$
2,984
 
 
$
-
 
 
Goodwill – Publishing
 
The unit of accounting we use to test goodwill in our publishing segment is the entity level, which includes Salem Publishing, Regnery Publishing, and Xulon Press. Salem Publishing is our printing entity that produces our print magazines from a stand-alone facility, under one general manager, with operating results and cash flows of all publications reported on a combined basis. Regnery Publishing is our book publishing entity based in Washington DC, with a stand-alone facility under one general manager, with operating results and cash flows of reported at the entity level. Xulon Press also operates from a stand-alone facility in Orlando, Florida under one general manager who is responsible for the separately stated operating results and cash flows.
 
We have regularly performed quantitative reviews of goodwill associated with our print magazine entity based on the low margins by which our estimated fair values exceed our carrying value including goodwill and actual operating results that have not met our expectations. As of our annual testing period for 2015, only Regnery Publishing and Xulon Press have goodwill associated with them. Based on actual operating results that did not meet our projections, we engaged an independent third-party appraisal firm to assist us with estimating the enterprise value Regnery Publishing.
 
Bond & Pecaro prepared valuations of the estimated fair value for the testing period ending December 31, 2013. Noble Financial Capital Markets prepared the valuations for the testing periods ending December 31, 2014 and December 31, 2015. 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:
 
Enterprise Valuation
 
Interim
June 30, 2013
 
 
December 31, 2013
 
 
December 31, 2014
 
 
December 31, 2015
 
Risk adjusted discount rate
 
 
9.0%
 
 
9.5%
 
 
8.0%
 
 
9.5%
Operating margin ranges
 
 
0.9% - 6.0%
 
 
(0.5%) – 6.0%
 
 
2.4% - 5.9%
 
 
(0.5%) – 6.0%
Long-term revenue market growth rate ranges
 
 
1.0%
 
 
0.5%
 
 
1.5%
 
 
2.0%
 
 Based on our review and analysis of the enterprise estimated fair value, we recorded a $0.4 million impairment charge associated with the print magazine goodwill as of the June 2013 interim testing period. This impairment was driven by lower projected profit margins based on the failure of the print magazine segment to achieve the amounts previously projected. Additionally, the discount rate was raised from 9.0% to 9.5% based on risks associated with print magazines. The decline in revenues from print magazines is prevalent throughout the industry and is not unique to our operations. No goodwill impairment charges were necessary as of the annual testing period ended December 31, 2013.
 
Based on the impairment recognized to the value of our mastheads in 2014, we could not conclude that it was more likely than not that goodwill associated with our magazine publishing unit was not impaired. We obtained an independent fair value of our magazine publishing unit as of December 2014. Based on this valuation, we determined that the carrying value of the goodwill was less than the implied value of goodwill as of that date and we recorded an impairment charge of $45,000.
 
Based on our review and analysis, we determined that no impairment charges were necessary to the carrying value of goodwill associated with our publishing entities as of the annual testing period ending December 31, 2015. We performed a sensitivity analysis of certain current year key assumptions, including the long-term revenue growth rate and the WACC, to determine the impact that such changes would have on the estimated fair value of goodwill associated with our publishing segment. The sensitivity analysis indicated that reducing the long-term revenue growth rate and increasing the WACC by 100 basis points would have no incremental impact to the carrying value of goodwill associated with our publishing entities.
 
The table below presents the percentage within a range by which the estimated fair value exceeded the carrying value of our accounting units, including goodwill.
 
 
 
Publishing Accounting units as of December 31, 2015
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
1
 
 
 
-
 
 
 
-
 
 
 
1
 
Carrying value including goodwill (in thousands)
 
$
854
 
 
$
-
 
 
$
-
 
 
$
2,453
 
 
 
 
Publishing Accounting units as of December 31, 2014
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
2
 
 
 
-
 
 
 
-
 
 
 
1
 
Carrying value including goodwill (in thousands)
 
$
3,417
 
 
$
-
 
 
$
-
 
 
$
2,314
 
 
 
 
Publishing Accounting units as of December 31, 2013
 
 
 
Percentage Range By Which Estimated Fair Value Exceeds Carrying Value Including
Goodwill
 
 
 
<10%
 
 
>10% to 20%
 
 
>20% to 50%
 
 
> than 50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of accounting units
 
 
1
 
 
 
-
 
 
 
1
 
 
 
-
 
Carrying value including goodwill (in thousands)
 
$
1,251
 
 
$
-
 
 
$
2,123
 
 
$
-
 
 
We believe that we have made reasonable estimates and assumptions to calculate the estimated fair value of our indefinite-lived intangible assets, however, these estimates and assumptions could be materially different from actual results. 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 our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.