Washington Post 2012 Annual Report Download - page 84

insurance provided on such deposits. Generally, these deposits may
be redeemed upon demand and are maintained with financial
institutions with investment-grade credit ratings. The Company
routinely assesses the financial strength of significant customers, and
this assessment, combined with the large number and geographical
diversity of its customers, limits the Company’s concentration of risk
with respect to trade accounts receivable.
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. The Company uses the average cost method
to determine the basis of the securities sold or reclassified out of
other comprehensive income.
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 obser-
vable 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 not be 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
and trade names and trademarks, 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 or indefinite-lived
intangible asset below its carrying value. The Company tests its
goodwill 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 or indefinite-lived intangible asset quantitative
impairment review. The Company reviews the goodwill for
impairment using the two-step process and the indefinite-lived
intangible assets using the quantitative 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 or indefinite-lived
intangible asset 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
72 THE WASHINGTON POST COMPANY