Washington Post 2010 Annual Report Download - page 73

Other. The Company does not have any off-balance-sheet arrange-
ments or financing activities with special-purpose entities (SPEs).
Transactions with related parties, as discussed in Note F to the
Company’s Consolidated Financial Statements, are in the ordinary
course of business and are conducted on an arm’s-length basis.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and judgments that affect the amounts reported in the
financial statements. On an ongoing basis, the Company evaluates
its estimates and assumptions. The Company bases its estimates on
historical experience and other assumptions believed to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual
results could differ from these estimates.
An accounting policy is considered to be critical if it is important to
the Company’s financial condition and results and if it requires
management’s most difficult, subjective and complex judgments in
its application. For a summary of all of the Company’s significant
accounting policies, see Note B to the Company’s Consolidated
Financial Statements.
Revenue Recognition, Trade Accounts Receivable, Sales Returns
and Allowance for Doubtful Accounts. Education tuition revenue is
recognized ratably over the period of instruction as services are
delivered to students, net of any refunds, corporate discounts,
scholarships and employee tuition discounts.
During the fourth quarter of 2010, KHE phased in a new program,
the Kaplan Commitment. Under this program, new students of
Kaplan University, Kaplan College and other KHE schools enroll in
classes for several weeks and assess whether their educational
experience meets their needs and expectations before incurring any
significant financial obligation. Kaplan also conducts academic
assessments to help determine whether students are likely to be
successful in their chosen course of study. Students who choose to
withdraw from the program during this time frame (“risk-free period”)
and students who do not pass the academic evaluation do not
have to pay for the coursework. In general, the risk-free period is
approximately four weeks for diploma programs and five weeks
for associate’s and bachelor’s degrees. The Company does not
recognize revenues related to coursework until the students complete
the risk-free period, meet the academic requirements and decide to
continue with their studies, at which time the fees become fixed and
determinable. In 2009, KHE modified its method of recognizing
revenue ratably over the period of instruction as services are
delivered to students from a weekly convention to a daily
convention, on a prospective basis.
At Kaplan’s Test Preparation and International divisions, estimates
of average student course length are developed for each course,
along with estimates for the anticipated level of student drops and
refunds from test performance guarantees, and these estimates are
evaluated on an ongoing basis and adjusted as necessary. As
Kaplan’s businesses and related course offerings have expanded,
including online programs, the complexity and significance of
management’s estimates have increased.
Revenue from media advertising is recognized, net of agency
commissions, when the underlying advertisement is published or
broadcast. Revenues from newspaper subscriptions and retail
sales are recognized upon the later of delivery or publication
date, with adequate provision made for anticipated sales returns.
The Company records, as a reduction of revenue, the estimated
impact of such returns. The Company bases its estimates for sales
returns on historical experience and has not experienced significant
fluctuations between estimated and actual return activity.
Accounts receivable have been reduced by an allowance for
amounts that may be uncollectible in the future. This estimated
allowance is based primarily on the aging category, historical
trends and management’s evaluation of the financial condition of
the customer. Accounts receivable also have been reduced by an
estimate of advertising rate adjustments and discounts, based on
estimates of advertising volumes for contract customers who are
eligible for advertising rate adjustments and discounts.
Goodwill and Other Intangible Assets. The Company has a
significant amount of goodwill and indefinite-lived intangible assets
that are reviewed at least annually for possible impairment.
(in millions)
January 2,
2011 January 3, 2010
Goodwill and indefinite-lived
intangible assets .................. $1,907.2 $1,963.5
Total assets ........................ $5,158.4 $5,186.2
Percentage of goodwill and indefinite-lived
intangible assets to total assets ........ 37% 38%
The Company performs its annual goodwill and intangible assets
impairment test as of November 30. Goodwill and other intangible
assets are reviewed for possible impairment between annual tests if
an event occurred or circumstances changed that would more likely
than not reduce the fair value of the reporting unit or other intangible
assets below its carrying value.
Goodwill
The Company tests its goodwill at the reporting unit level, which is
an operating segment or one level below an operating segment. The
Company tests the goodwill for impairment using a two-step process.
The first step of the goodwill impairment test compares the estimated
fair value of a reporting unit with its carrying amount, including
goodwill. This step is performed to identify potential impairment,
which occurs when the carrying amount of the reporting unit exceeds
its estimated fair value. The second step of the goodwill impairment
test is only performed when there is a potential impairment and is
performed to measure the amount of impairment loss at the reporting
unit. During the second step, the Company allocates the estimated
fair value of the reporting unit to all of the assets and liabilities of the
unit (including any unrecognized intangible assets). The excess of the
fair value of the reporting unit over the amounts assigned to its assets
and liabilities is the implied fair value of goodwill. The amount of the
goodwill impairment is the difference between the carrying value of
the reporting unit’s goodwill and the implied fair value determined
during the second step.
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