Washington Post 2002 Annual Report Download - page 31

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the consolidated longer amortized under SFAS 142). The increase is primarily
financial statements and the notes thereto. due to higher depreciation expense, higher stock-based com-
pensation at the education division, early retirement program
RESULTS OF OPERATIONS — 2002 COMPARED TO 2001 charges, and a reduced net pension credit, offset by lower
expenses at the newspaper publishing and magazine publishing
Net income for the fiscal year ended December 29, 2002 was segments due to lower newsprint prices and tight cost controls.
$204.3 million ($21.34 per share), compared with net income
for the fiscal year ended December 30, 2001 of $229.6 million Operating income increased 27 percent to $377.6 million,
($24.06 per share). The Company’s 2002 results include a net from $298.3 million in 2001, adjusted as if SFAS 142 had
non-operating gain from the exchange of certain cable systems been adopted at the beginning of 2001. Operating results for
(after-tax impact of $16.7 million, or $1.75 per share), a transi- 2002 include $19.0 million in pre-tax charges from early retire-
tional goodwill impairment loss (after-tax impact of $12.1 mil- ment programs. The Company benefited from improved operat-
lion, or $1.27 per share), charges from early retirement pro- ing results at the education and broadcast divisions, along with
grams (after-tax impact of $11.3 million, or $1.18 per share), improved earnings at The Washington Post newspaper and the
and a net non-operating loss from the write-down of certain of cable division. These factors were offset in part by increased
the Company’s investments (after-tax impact of $2.3 million, or depreciation expense, a reduced net pension credit, the early
$0.24 per share). The Company’s 2001 results included net retirement program charges noted above and higher stock-
non-operating gains from the sale and exchange of certain cable based compensation expense accruals at the education division.
systems (after-tax impact of $196.5 million, or $20.69 per The Company’s 2002 operating income includes $64.4 million
share), a non-cash goodwill and other intangibles impairment of net pension credits, compared to $76.9 million in 2001.
charge recorded by one of the Company’s affiliates (after-tax These amounts exclude $19.0 million and $3.3 million in
impact of $19.9 million, or $2.10 per share), losses from the charges related to early retirement programs in 2002 and
write-down of a non-operating parcel of land and certain cost 2001, respectively.
method investments to their estimated fair value (after-tax impact
of $18.3 million, or $1.93 per share) and an after-tax charge of DIVISION RESULTS
$55.0 million, or $5.79 per share, for amortization of goodwill
and other intangible assets that are no longer amortized under As discussed above, the Company adopted SFAS 142 effective
Statement of Financial Accounting Standards No. 142 on the first day of its 2002 fiscal year. All operating income
(SFAS 142), ‘‘Goodwill and Other Intangible Assets.’’ The Com- comparisons presented below are on a pro forma basis as if
pany adopted SFAS 142 effective on the first day of its 2002 SFAS 142 had been adopted at the beginning of 2001. There-
fiscal year. fore, 2001 pro forma operating results exclude amortization
charges of goodwill and certain other intangible assets that are
Revenue for 2002 was $2,584.2 million, up 7 percent com- no longer amortized under SFAS 142.
pared to revenue of $2,411.0 million in 2001, with significant
revenue growth at the education, cable and broadcast divisions. Newspaper Publishing Division. Newspaper publishing divi-
Advertising revenue increased 1 percent in 2002, and circula- sion revenue in 2002 decreased slightly to $842.0 million, from
tion and subscriber revenue increased 3 percent. Education rev- $842.7 million in 2001. Division operating income for 2002
enue increased 26 percent in 2002, and other revenue totaled $109.0 million, an increase of 23 percent from pro
increased 10 percent. The increase in advertising revenue is due forma operating income of $88.6 million in 2001. Improved
primarily to significant political revenues at the broadcast divi- operating results for 2002 reflect the benefits of cost control
sion in 2002. The increase in circulation and subscriber revenue initiatives employed throughout the division and a 22 percent
is due to an 11 percent increase in subscriber revenue at the decrease in newsprint expense; these savings were partially
cable division from rapidly growing cable modem and digital offset by a pre-tax early retirement program charge of $2.9 mil-
service revenues, and a 4 percent increase in circulation reve- lion and a reduced net pension credit.
nue at The Post due to circulation price increases. This increase Print advertising revenue at The Washington Post newspaper
was offset by a 14 percent decrease in Newsweek domestic decreased 3 percent to $555.7 million, from $574.3 million in
circulation revenue due to difficult comparisons with 2001, 2001. The decrease in print advertising revenue for 2002 is
when Newsweek saw spikes in newsstand sales from regular due to a continued decline in recruitment advertising revenue,
and special editions surrounding the events of September 11. with volume decreases of 32 percent, offset by higher revenue
Revenue growth at Kaplan, Inc. (about one-third of which was from several advertising categories, including preprints, real
from acquisitions) accounted for the increase in education estate and other classified advertising.
revenue.
Circulation revenues at The Post were up 4 percent for 2002
Operating costs and expenses for the year increased 4 percent due to increases in single copy newsstand and home delivery
to $2,206.6 million, from $2,112.8 million in 2001 (excluding prices in 2002. Daily circulation at The Post declined 1.7 per-
amortization of goodwill and other intangible assets that are no cent, and Sunday circulation declined 1.2 percent in 2002. For
2002 FORM 10-K 29