Company: EVC
Filing Date: 2025-03-06
Form Type: 10-K
Source: 0000950170-25-034661
Chunk: 191

Company: ENTRAVISION COMMUNICATIONS CORP
Filing Date: 2025-03-06
Form: 10-K
Item: Item 1B
Chunk 191
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 reporting unit to its carrying amount. When the Company performs a quantitative analysis, the Company estimates the fair value of its reporting units using a combination of a market approach and an income approach. The market approach estimates fair value by applying sales, earnings and cash flow multiples to each reporting unit’s operating performance. The multiples are derived from comparable publicly-traded companies with similar operating and investment characteristics to the Company’s reporting units. The market approach requires the Company to make a series of assumptions, including the selection of comparable companies, comparable transactions and transaction premiums. The income approach estimates fair value based on the Company’s estimated future cash flows, discounted by an estimated weighted-average cost of capital.  The income approach incorporates a series of assumptions including, but not limited to, discount rates, revenue projections and profit margin projections. 

As described in Note 6 to the financial statements, the Company recognized a goodwill impairment charge of $35.4 million during the first quarter of 2024, due to a triggering event identified related to the then digital reporting unit, and an impairment charge of $43.3 million during the fourth quarter of 2024, as a result of its annual quantitative assessment of the fair value of the media reporting unit.

We identified goodwill impairment as a critical audit matter because the determination of fair value of the reporting unit involves significant assumptions made by management, including the revenue projections, profit margin projections, and discount rates.  This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the goodwill impairment analysis included the following, among others:

•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of each reporting unit such as controls related to management’s revenue projections, and other valuation inputs (e.g. method, discount rate, long term growth rates). 

•We evaluated the reasonableness of management's revenue projections and profit margin projections by comparing the projections to historical results, third-party industry forecasts, and internal communications to management and board of directors. 

With the assistance of our fair value specialists, we:

•Evaluated the reasonableness of the valuation methodology, and the weighting applied to value indications from different valuation techniques.

•Tested the source information underlying the determination of the weighted average cost of capital rate and the mathematical accuracy of the calculation.

•Developed a range of independent estimates and compared those to the weighted average cost of