Washington Post 2009 Annual Report Download - page 74

and the decline is considered other than temporary, the Company
will record a write-down, which is included in earnings.
Fair Value of Financial Instruments—The carrying amount reported
in the Company’s consolidated financial statements for cash and
cash equivalents, accounts receivable, accounts payable and
accrued liabilities, the current portion of deferred revenue and the
current portion of debt approximate fair value because of the short-
term nature of these financial instruments. The fair value of long-term
debt is determined based on a number of observable inputs,
including the current market activity of the Company’s publicly
traded notes, trends in investor demands and market values of
comparable publicly traded debt.
Inventories—Inventories are stated at the lower of cost or current
market value. Cost of newsprint is determined on the first-in, first-out
(“FIFO”) method, and cost of magazine paper is determined on the
specific-cost method.
Property, Plant and Equipment—Property, plant and equipment is
recorded at cost and includes interest capitalized in connection with
major long-term construction projects. Replacements and major
improvements are capitalized; maintenance and repairs are
expensed as incurred. Depreciation is calculated using the straight-
line method over the estimated useful lives of the property, plant and
equipment: 3 to 20 years for machinery and equipment, and 20 to
50 years for buildings. The costs of leasehold improvements are
amortized over the lesser of their useful lives or the terms of the
respective leases.
The cable television division capitalizes costs associated with the
construction of cable transmission and distribution facilities and new
cable service installations. Costs include all direct labor and
materials, as well as certain indirect costs. The cost of subsequent
disconnects and reconnects are expensed as they are incurred.
Evaluation of Long-Lived Assets—The recoverability of long-lived
assets and finite-lived intangibles is assessed whenever adverse
events or changes in circumstances indicate that recorded values
may not be recoverable. A long-lived asset is considered to be not
recoverable when the undiscounted estimated future cash flows are
less than the asset’s recorded value. An impairment charge is
measured based on estimated fair market value, determined
primarily using estimated future cash flows on a discounted basis.
Losses on long-lived assets to be disposed of are determined in a
similar manner, but the fair market value would be reduced for
estimated costs to dispose.
Goodwill and Other Intangible Assets—Goodwill is the excess
of purchase price over the fair value of identified net assets of
businesses acquired. The Company’s intangible assets with an
indefinite life are principally from franchise agreements at its cable
television division, as the Company expects its cable franchise
agreements to provide the Company with substantial benefit for a
period that extends beyond the foreseeable horizon, and the
Company’s cable television division historically has obtained
renewals and extensions of such agreements for nominal costs and
without any material modifications to the agreements. Amortized
intangible assets are primarily student and customer relationship
intangibles, noncompete agreements, trademarks and databases,
with amortization periods up to 15 years.
The Company reviews goodwill and indefinite-lived intangible
assets at least annually, as of November 30, for possible
impairment. Goodwill and indefinite-lived intangibles 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 below its carrying value. All other
intangible assets are amortized over their useful lives. The Company
tests its goodwill and indefinite-lived intangible assets at the
reporting unit level, which is an operating segment or one level
below an operating segment. In reviewing the carrying value of
indefinite-lived intangible assets at the cable television division, the
Company aggregates its cable systems on a regional basis. The
Company reviews the carrying value of goodwill and indefinite-
lived intangible assets utilizing a discounted cash flow model, and,
where appropriate, a market value approach is also utilized to
supplement the discounted cash flow model. The Company makes
assumptions regarding estimated future cash flows, discount rates,
long-term growth rates and market values to determine each
reporting unit’s estimated fair value. If these estimates or related
assumptions change in the future, the Company may be required to
record impairment charges.
Investments in Affiliates—The Company uses the equity method of
accounting for its investments in and earnings or losses of affiliates
that it does not control, but over which it exerts significant influence.
The Company considers whether the fair values of any of its equity
method investments have declined below their carrying value
whenever adverse events or changes in circumstances indicate
that recorded values may not be recoverable. If the Company
considered any such decline to be other than temporary (based
on various factors, including historical financial results, product
development activities and the overall health of the affiliate’s
industry), a write-down would be recorded to estimated fair value.
Cost Method Investments—The Company uses the cost method
of accounting for its minority investments in nonpublic companies
where it does not have significant influence over the operations and
management of the investee. Investments are recorded at the lower
of cost or fair value as estimated by management. Charges
recorded to write down cost method investments to their estimated
fair value and gross realized gains or losses upon the sale of cost
method investments are included in other (expense) income, net, in
the Company’s consolidated financial statements. Fair value
estimates are based on a review of the investees’ product
development activities, historical financial results and projected
discounted cash flows.
Revenue Recognition—Revenue is recognized when persuasive
evidence of an arrangement exists, the fees are fixed or determinable,
the product or service has been delivered and collectability is
reasonably assured. The Company considers the terms of each
arrangement to determine the appropriate accounting treatment.
Education revenues: 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. At Kaplan’s Test Preparation and International divisions,
estimates of average student course length are developed for each
course, and these estimates are evaluated on an ongoing basis and
adjusted as necessary. Online access revenue is recognized ratably
60 THE WASHINGTON POST COMPANY