Washington Post 2005 Annual Report Download - page 64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES buildings. The costs of leasehold improvements are amortized over
the lesser of the useful lives or the terms of the respective leases.
Fiscal Year. The Company reports on a 52- to 53-week fiscal
year ending on the Sunday nearest December 31. The fiscal year The cable division capitalizes the costs associated with the construc-
2005, which ended on January 1, 2006, included 52 weeks. The tion of cable transmission and distribution facilities and new cable
fiscal year 2004, which ended on January 2, 2005, included service installations. Costs include all direct labor and materials, as
53 weeks. The fiscal year 2003, which ended on December 28, well as certain indirect costs. Also at the cable division, the carrying
2003, included 52 weeks. With the exception of most of the value applicable to assets sold or retired is removed from the
newspaper publishing operations, subsidiaries of the Company accounts, with the gain or loss on disposition recognized as a
report on a calendar-year basis. component of depreciation expense.
Principles of Consolidation. The accompanying financial Investments in Affiliates. The Company uses the equity
statements include the accounts of the Company and its subsidiar- method of accounting for its investments in and earnings or losses of
ies; significant intercompany transactions have been eliminated. affiliates that it does not control but over which it does exert
significant influence. The Company considers whether the fair values
Presentation. Certain amounts in previously issued financial of any of its equity method investments have declined below their
statements have been reclassified to conform with the 2005 presen- carrying value whenever adverse events or changes in circum-
tation. The Consolidated Balance Sheets and Consolidated State- stances indicate that recorded values may not be recoverable. If
ments of Changes in Common Shareholders' Equity have been the Company considered any such decline to be other than tempo-
revised to reflect unearned stock compensation from restricted stock rary (based on various factors, including historical financial results,
awards in common shareholders' equity. This revised classification product development activities and the overall health of the affili-
also resulted in a corresponding reduction in other current assets ate's industry), then a write-down would be recorded to estimated
and deferred charges and other assets. fair value.
Use of Estimates. The preparation of financial statements in Cost Method Investments. The Company uses the cost
conformity with generally accepted accounting principles requires method of accounting for its minority investments in non-public
management to make estimates and assumptions that affect the companies where it does not have significant influence over the
amounts reported in the financial statements. Actual results could operations and management of the investee. Investments are
differ from those estimates. 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
upon the sale of cost method investments are included in ""Other
Investments in Marketable Equity Securities. The Com- income (expense), net'' in the Consolidated Statements of Income.
pany's investments in marketable equity securities are classified as Fair value estimates are based on a review of the investees' product
available-for-sale and therefore are recorded at fair value in the development activities, historical financial results and projected
Consolidated Balance Sheets, with the change in fair value during discounted cash flows.
the period excluded from earnings and recorded net of tax as a
separate component of comprehensive income. Marketable equity Goodwill and Other Intangibles. The Company reviews
securities that the Company expects to hold long term are classified goodwill and indefinite-lived intangibles at least annually for impair-
as non-current assets. If the fair value of a marketable 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
a discounted cash flow model and a market approach employing
Inventories. Inventories are valued at the lower of cost or comparable sales analysis are considered. In reviewing the carry-
market. Cost of newsprint is determined by the first-in, first-out ing value of goodwill and indefinite-lived intangible assets at the
method, and cost of magazine paper is determined by the specific- cable division, the Company aggregates its cable systems on a
cost method. 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. EITF Topic D-108, ""Use of the Residual Method to Value Acquired
Depreciation is calculated using the straight-line method over the Assets Other than Goodwill,'' required companies that had applied
estimated useful lives of the property, plant and equipment: 3 to the residual method to value intangible assets to perform an impair-
20 years for machinery and equipment, and 20 to 50 years for ment test on those intangible assets using the direct method by the
48 THE WASHINGTON POST COMPANY