Washington Post 2012 Annual Report Download - page 72

ongoing basis and adjusted as necessary. As Kaplan’s businesses
and related course offerings have changed, including more online
programs, the complexity and significance of management’s
estimates have increased.
KHE, through the Kaplan Commitment program, provides first-time
students with a risk-free trial period. Under the program, KHE
monitors academic progress and conducts assessments to help
determine whether students are likely to be successful in their
chosen course of study. Students who withdraw or are subject to
dismissal during the risk-free trial period do not incur any signifi-
cant financial obligation. 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.
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.
As of December 31,
(in millions) 2012 2011
Goodwill and indefinite-lived
intangible assets .................. $1,857.6 $1,945.6
Total assets ........................ $5,105.1 $5,017.0
Percentage of goodwill and indefinite-lived
intangible assets to total assets ........ 36% 39%
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 initially performs an assessment of qualitative factors to
determine if it is necessary to perform the two-step goodwill impairment
test. The Company tests goodwill for impairment using the two-step
process if, based on its assessment of the qualitative factors, it
determines that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, or if it decides to bypass the
qualitative assessment. 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.
The Company had 12 reporting units as of December 31, 2012.
The reporting units with significant goodwill balances as of
December 31, 2012, were as follows, representing 97% of the
total goodwill of the Company:
(in millions) Goodwill
Education
Higher education ............................ $ 409.2
Test preparation ............................. 49.9
Kaplan international .......................... 535.7
Cable television ............................... 85.5
Television broadcasting ......................... 203.2
Total ....................................... $1,283.5
As of November 30, 2012, in connection with the Company’s
annual impairment testing, the Company assessed the qualitative
factors at the cable television and the television broadcasting
reporting units and concluded it was not necessary to perform
the two-step goodwill impairment process. The Company
performed the two-step goodwill impairment process at the other
reporting units.
The estimated fair value of the cable television reporting unit
exceeded its carrying value by a margin in excess of 100% as of
November 30, 2011, the last date a quantitative review was
performed. The Company’s qualitative assessment indicated that it
is not more likely than not that the estimated fair value of the
reporting unit is less than its carrying amount considering all factors,
including the reporting unit’s financial performance and conditions
in the cable television industry.
The estimated fair value of the television broadcasting reporting unit
exceeded its carrying value by a margin in excess of 100% as of
November 30, 2010, the last date a quantitative review was
performed. The Company’s qualitative assessment indicated that it
is not more likely than not that the estimated fair value of the
reporting unit is less than its carrying amount considering all factors,
60 THE WASHINGTON POST COMPANY