Washington Post 2006 Annual Report Download - page 70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES well as certain indirect costs. Also at the cable division, the carrying
value applicable to assets sold or retired is removed from the
Fiscal Year. The Company reports on a 52 to 53-week fiscal accounts, with the gain or loss on disposition recognized as a
year ending on the Sunday nearest December 31. The fiscal years component of depreciation expense.
2006 and 2005, which ended on December 31, 2006 and
January 1, 2006, respectively, included 52 weeks. The fiscal year Investments in Affiliates. The Company uses the equity
2004, which ended on January 2, 2005, included 53 weeks. With method of accounting for its investments in and earnings or losses of
the exception of most of the newspaper publishing operations, affiliates that it does not control but over which it does exert
subsidiaries of the Company report on a calendar-year basis. significant influence. The Company considers whether the fair values
of any of its equity method investments have declined below their
Principles of Consolidation. The accompanying financial carrying value whenever adverse events or changes in circum-
statements include the accounts of the Company and its subsidiar- stances indicate that recorded values may not be recoverable. If
ies; significant intercompany transactions have been eliminated. the Company considered any such decline to be other than tempo-
Presentation. Certain amounts in previously issued financial rary (based on various factors, including historical financial results,
statements have been reclassified to conform with the 2006 product development activities and the overall health of the affili-
presentation. ate's industry), then a write-down would be recorded to estimated
fair value.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires Cost Method Investments. The Company uses the cost
management to make estimates and assumptions that affect the method of accounting for its minority investments in non-public
amounts reported in the financial statements. Actual results could companies where it does not have significant influence over the
differ from those estimates. operations and management of the investee. Investments are
recorded at the lower of cost or fair value as estimated by
Cash Equivalents. Short-term investments with original maturities management. Charges recorded to write-down cost method invest-
of 90 days or less are considered cash equivalents. ments to their estimated fair value and gross realized gains or losses
Investments in Marketable Equity Securities. The Com- upon the sale of cost method investments are included in ""Other
pany's investments in marketable equity securities are classified as income (expense), net'' in the Consolidated Statements of Income.
available-for-sale and therefore are recorded at fair value in the Fair value estimates are based on a review of the investees' product
Consolidated Balance Sheets, with the change in fair value during development activities, historical financial results and projected
the period excluded from earnings and recorded net of tax as a discounted cash flows.
separate component of comprehensive income. Marketable equity Goodwill and Other Intangibles. The Company reviews
securities the Company expects to hold long term are classified as goodwill and indefinite-lived intangibles at least annually for impair-
non-current assets. If the fair value of a marketable equity security ment. All other intangible assets are amortized over their useful
declines below its cost basis, and the decline is considered other lives. The Company reviews the carrying value of goodwill and
than temporary, the Company will record a write-down, which is indefinite-lived intangible assets generally utilizing a discounted
included in earnings. cash flow model. In the case of the Company's cable systems, both
Inventories. Inventories are valued at the lower of cost or a discounted cash flow model and a market approach employing
market. Cost of newsprint is determined by the first-in, first-out comparable sales analysis are considered. In reviewing the carry-
method, and cost of magazine paper is determined by the specific- ing value of goodwill and indefinite-lived intangible assets at the
cost method. cable division, the Company aggregates its cable systems on a
regional basis. The Company must make assumptions regarding
Property, Plant and Equipment. Property, plant and equip- estimated future cash flows and market values to determine a
ment is recorded at cost and includes interest capitalized in connec- reporting unit's estimated fair value. If these estimates or related
tion with major long-term construction projects. Replacements and assumptions change in the future, the Company may be required to
major improvements are capitalized; maintenance and repairs are record an impairment charge.
charged to operations as incurred.
Long-Lived Assets. The recoverability of long-lived assets other
Depreciation is calculated using the straight-line method over the than goodwill and other intangibles is assessed whenever adverse
estimated useful lives of the property, plant and equipment: 3 to events or changes in circumstances indicate that recorded values
20 years for machinery and equipment, and 20 to 50 years for may not be recoverable. A long-lived asset is considered to be not
buildings. The costs of leasehold improvements are amortized over recoverable when the undiscounted estimated future cash flows are
the lesser of the useful lives or the terms of the respective leases. less than its recorded value. An impairment charge is measured
The cable division capitalizes costs associated with the construction based on estimated fair market value, determined primarily using
of cable transmission and distribution facilities and new cable estimated future cash flows on a discounted basis. Losses on long-
service installations. Costs include all direct labor and materials, as lived assets to be disposed are determined in a similar manner, but
54 THE WASHINGTON POST COMPANY