Washington Post 2011 Annual Report Download - page 81

Allowance for Doubtful Accounts—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.
Investments in Marketable Equity Securities—The Company’s
investments in marketable equity securities are classified as
available-for-sale and, therefore, are recorded at fair value in the
Consolidated Financial Statements, with the change in fair value
during the period excluded from earnings and recorded net of
income taxes as a separate component of other comprehensive
income. If the fair value of a marketable equity security declines
below its cost basis 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 amounts reported
in the Company’s Consolidated Financial Statements for cash and
cash equivalents, restricted cash, 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. The fair value of the interest rate hedge is
determined based on a number of observable inputs, including time to
maturity and market interest rates.
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.
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 intangible assets 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 relationships,
noncompete agreements, trademarks and databases, with
amortization periods up to 10 years.
The Company reviews goodwill and indefinite-lived intangible
assets at least annually, as of November 30, for possible
impairment. Goodwill and indefinite-lived intangible assets are
reviewed for possible impairment between annual tests if an event
occurs or circumstances change that would more likely than not
reduce the fair value of the reporting unit below its carrying value.
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 initially assesses qualitative factors to determine if it is
necessary to perform the two-step goodwill impairment review. The
Company reviews the 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 value, or if it decides to bypass
the qualitative assessment. 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.
2011 FORM 10-K 69