Washington Post 2007 Annual Report Download - page 77

value, determined primarily using estimated future cash flows on a
discounted basis. Losses on long-lived assets to be disposed are
determined in a similar manner, but the fair market value would be
reduced for estimated costs to dispose.
Program Rights. The broadcast subsidiaries are parties to
agreements that entitle them to show syndicated and other
programs on television. The costs of such program rights are
recorded when the programs are available for broadcasting,
and such costs are charged to operations as the programming
is aired.
Revenue Recognition. Education revenue is recognized ratably
over the period during which educational services are delivered.
At Kaplan’s test prep division, estimates of average student course
length are developed for each course, and these estimates are
evaluated on an ongoing basis and adjusted as necessary.
Revenue from media advertising is recognized, net of agency
commissions, when the underlying advertisement is published or
broadcast. Revenues from newspaper and magazine
subscriptions and retail sales are recognized upon the later of
delivery or cover date, with adequate provision made for
anticipated sales returns. Cable subscriber revenue is
recognized monthly as services are delivered.
The Company bases its estimates for sales returns on historical
experience and has not experienced significant fluctuations
between estimated and actual return activity. Amounts received
from customers in advance of revenue recognition are deferred as
liabilities. Deferred revenue to be earned after one year is
included in “Other Liabilities” in the Consolidated Balance
Sheets.
Pensions and Other Postretirement Benefits. Note J provides
detailed information on the Company’s pension and other
postretirement plans, including the adoption of SFAS 158.
Income Taxes. The provision for income taxes is determined
using the asset and liability approach. Under this approach,
deferred income taxes represent the expected future tax
consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. The Company
adopted FASB Interpretation No. 48 (FIN 48), “Accounting for
Uncertainty in Income Taxes — an Interpretation of FASB
Statement No. 109,” in the first quarter of 2007. FIN 48
prescribes a comprehensive model of how a company should
recognize, measure, present and disclose in its financial
statements uncertain tax positions that a company has taken or
expects to take on a tax return. See Note F for additional details
surrounding FIN 48.
Foreign Currency Translation. Gains and losses on foreign
currency transactions and the translation of the accounts of the
Company’s foreign operations where the U.S. dollar is the
functional currency are recognized currently in the
Consolidated Statements of Income. Gains and losses on
translation of the accounts of the Company’s foreign operations
where the local currency is the functional currency, and the
Company’s equity investment in its foreign affiliates, are
accumulated and reported as a separate component of equity
and comprehensive income.
Stock Options. Effective the first day of the Company’s 2002
fiscal year, the Company adopted the fair-value-based method of
accounting for Company stock options as outlined in Statement of
Financial Accounting Standards No. 123 (SFAS 123),
“Accounting for Stock-Based Compensation.” This change in
accounting method was applied prospectively to all awards
granted from the beginning of the Company’s fiscal year 2002
and thereafter. Stock options awarded prior to fiscal year 2002,
which were 100% vested by the end of 2005, were accounted
for under the intrinsic value method under Accounting Principles
Board Opinion No. 25, “Accounting for Stock Issued to
Employees.” The following table presents what the Company’s
results would have been had the fair values of options granted
prior to 2002 been recognized as compensation expense in
2005 (in thousands, except per share amounts).
2005
Net income available for common shares, as
reported . .......................... $313,363
Add: Company stock option compensation expense
included in net income, net of related tax effects . . 694
Deduct: Total Company stock option compensation
expense determined under the fair-value-based
method for all awards, net of related tax effects . . . (1,071)
Pro forma net income available for common shares . . $312,986
Basic earnings per share, as reported . . ........ $ 32.66
Pro forma basic earnings per share ............ $ 32.62
Diluted earnings per share, as reported . ........ $ 32.59
Pro forma diluted earnings per share . . . ........ $ 32.55
In the first quarter of 2006, the Company adopted Statement of
Financial Accounting Standards No. 123R (SFAS 123R), “Share-
Based Payment.” SFAS 123R requires companies to record the
cost of employee services in exchange for stock options based on
the grant-date fair value of the awards. SFAS 123R did not have
any impact on the Company’s results of operations for Company
stock options as the Company had adopted the fair-value-based
method of accounting for Company stock options in 2002.
However, the adoption of SFAS 123R required the Company
to change its accounting for Kaplan equity awards from the
intrinsic value method to the fair-value-based method of
accounting. This change in accounting results in the
acceleration of expense recognition for Kaplan equity awards.
As a result, for the year ended December 31, 2006, the
Company reported a $5.1 million after-tax charge for the
cumulative effect of change in accounting for Kaplan equity
awards ($8.2 million in pre-tax Kaplan stock compensation
expense).
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