Washington Post 2011 Annual Report Download - page 70

Other. The Company does not have any off-balance-sheet
arrangements or financing activities with special-purpose entities
(SPEs). Transactions with related parties, as discussed in Note 4 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 2 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.
Starting in the fourth quarter of 2010, KHE implemented the Kaplan
Commitment program, which provides first-time students with a risk-
free trial period. Under the program, KHE also monitors academic
progress and conducts academic assessments to help determine
whether students are likely to be successful in their chosen course of
study. Students who withdraw or are subject to academic dismissal
during the risk-free trial period do not incur any significant financial
obligation. In general, the risk-free period is approximately four
weeks for diploma programs and five weeks for associate’s,
bachelor’s and master’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.
At KTP and Kaplan International, 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 changed, including more 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) December 31, 2011 January 2, 2011
Goodwill and indefinite-lived
intangible assets ................ $1,945.6 $1,907.2
Total assets ...................... $5,017.0 $5,158.4
Percentage of goodwill and indefinite-lived
intangibleassetstototalassets ....... 39% 37%
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. In the
fourth quarter of 2011, the Company adopted new accounting
guidance that allows for an initial 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.
58 THE WASHINGTON POST COMPANY