Washington Post 2002 Annual Report Download - page 38

an estimate of advertising rate adjustments and discounts, based development activities, historical financial results and projected
on estimates of advertising volumes for contract customers that discounted cash flows. These estimates are highly judgmental,
are eligible for advertising rate adjustments and discounts. given the inherent lack of marketability of investments in private
companies. The Company has recorded write-down charges on
Pension Costs. Excluding special termination benefits related to cost method investments of $19.2 million, $29.4 million and
early retirement programs, the Company’s net pension credit $23.1 million in 2002, 2001 and 2000, respectively. Note C
was $64.4 million, $76.9 million and $65.3 million for 2002, to the Consolidated Financial Statements provides additional
2001 and 2000, respectively. The Company’s pension benefit details surrounding cost method investments.
costs are actuarially determined and are impacted significantly
by the Company’s assumptions related to future events including Kaplan Stock Option Plan. The Company maintains a stock
the discount rate, expected return on plan assets and rate of option plan at its Kaplan subsidiary that provides for the issu-
compensation increases. At December 30, 2001, the Company ance of stock options representing 10.6 percent of Kaplan, Inc.
modified certain assumptions surrounding the Company’s pen- common stock to certain members of Kaplan’s management.
sion plans. Specifically, the Company reduced its assumptions Under the provisions of this plan, options are issued with an
on discount rate from 7.5 percent to 7.0 percent and expected exercise price equal to the estimated fair value of Kaplan’s com-
return on plan assets from 9.0 percent to 7.5 percent. These mon stock. In general, options vest ratably over five years. Upon
assumption changes resulted in a reduction of approximately exercise, an option holder may either purchase vested shares at
$20 million in the Company’s net pension credit in 2002. At the exercise price or elect to receive cash equal to the difference
December 29, 2002, the Company reduced its discount rate between the exercise price and the then fair value. The fair value
assumption to 6.75 percent. Due to the reduction in the discount of Kaplan’s common stock is determined by the compensation
rate and lower than expected investment returns in 2002, the committee of the Company’s Board of Directors, with input from
pension credit for 2003 is expected to be down by about management and an independent outside valuation firm. The
$10 million compared to 2002. For each one-half percent compensation committee has historically modified the fair value
increase or decrease to the Company’s assumed expected return of Kaplan stock on an annual basis and management expects
on plan assets, the pension credit increases or decreases by this practice to continue. At December 29, 2002, options repre-
approximately $6.5 million. For each one-half percent increase senting 10.4 percent of Kaplan’s common stock were issued
or decrease to the Company’s assumed discount rate, the pen- and outstanding, and 69 percent of Kaplan stock options were
sion credit increases or decreases by approximately $5 million. fully vested and exercisable. For 2002, 2001 and 2000, the
The Company’s actual rate of return on plan assets was a Company recorded expense of $34.5 million, $25.3 million
decline of 2.3 percent in 2002, an increase of 10.9 percent in and $6.0 million, respectively, related to this plan. In 2002 and
2001, and an increase of 19.0 percent in 2000, based on 2001, payouts from option exercises totaled $0.2 million and
plan assets at the beginning of each year. Note H to the Consol- $2.1 million, respectively. At December 29, 2002, the Compa-
idated Financial Statements provides additional details surround- ny’s Kaplan stock-based compensation accrual balance totaled
ing pension costs and related assumptions. $74.4 million. Management expects Kaplan’s profits and relat-
ed fair value to increase again in 2003, with a corresponding
Goodwill and Other Intangibles. The Company reviews the car- increase in the stock-based compensation expense for 2003 as
rying value of goodwill and indefinite-lived intangible assets at compared to 2002. Note G to the Consolidated Financial State-
least annually utilizing a discounted cash flow model (in the case ments provides additional details surrounding the Kaplan Stock
of the Company’s cable systems, both a discounted cash flow Option Plan.
model and an estimated fair market value per cable subscriber
approach are used). The Company must make assumptions Other. The Company does not have any off-balance sheet
regarding estimated future cash flows and market values to arrangements or financing activities with special-purpose entities
determine a reporting unit’s estimated fair value. In reviewing the (SPEs). Transactions with related parties, as discussed in Note C
carrying value of goodwill and indefinite-lived intangible assets to the Consolidated Financial Statements, are in the ordinary
at the cable division, the Company aggregates its cable systems course of business and are conducted on an arms-length basis.
on a regional basis. If these estimates or related assumptions
OTHER
change in the future, the Company may be required to record an
impairment charge. At December 29, 2002, the Company has New Accounting Pronouncements. The Company adopted
$1,255.4 million in goodwill and other intangibles. SFAS 142 effective on the first day of its 2002 fiscal year. As a
result of the adoption of SFAS 142, the Company ceased most
Cost Method Investments. The Company uses the cost method of
of the periodic charges previously recorded from the amortiza-
accounting for its minority investments in non-public companies
tion of goodwill and other intangibles.
where it does not have significant influence over the operations
and management of the investee. Most of the companies repre- As required under SFAS 142, the Company completed its transi-
sented by these cost method investments have concentrations in tional impairment review of indefinite-lived intangible assets and
Internet-related business activities. Investments are recorded at goodwill. The expected future cash flows of PostNewsweek Tech
the lower of cost or fair value as estimated by management. Fair Media (part of the magazine publishing segment), on a dis-
value estimates are based on a review of the investees’ product
36 THE WASHINGTON POST COMPANY