Washington Post 2009 Annual Report Download - page 66

pension cost and goodwill have not been considered a source of
future taxable income for realizing deferred tax benefits recognized
since these temporary differences are not likely to reverse in the
foreseeable future. The valuation allowances established against
state income tax benefits recorded may increase or decrease within
the next 12 months, based on operating results or the market value
of investment holdings; as a result, the Company is unable to
estimate the potential tax impact, given the uncertain operating and
market environment.
Kaplan Stock Compensation. The Kaplan stock option plan was
adopted in 1997 and initially reserved 15%, or 150,000 shares,
of Kaplan’s common stock for awards to be granted under the plan
to certain members of Kaplan management. Under the provisions of
this plan, options are issued with an exercise price equal to the
estimated fair value of Kaplan’s common stock, and options vest
ratably over the number of years specified (generally four to five
years) at the time of the grant. Upon exercise, an option holder may
receive Kaplan shares or cash equal to the difference between the
exercise price and the then fair value.
The amount of compensation expense varies directly with the
estimated fair value of Kaplan’s common stock, the number of
options and shares outstanding and the key assumptions used to
determine the fair value of Kaplan stock options. The estimated fair
value of Kaplan’s common stock is based upon a comparison of
operating results and public market values of other education
companies and is determined by the Company’s compensation
committee of the Board of Directors (the “committee”), with input
from management. Over the past several years, the value of
education companies has fluctuated significantly, and consequently,
there has been significant volatility in the amounts recorded as
expense each year, as well as on a quarterly basis.
In November 2008, Kaplan’s then chief executive officer resigned.
The executive exercised 40,805 Kaplan stock options, sold 6,572
Kaplan shares and forfeited 21,526 unvested Kaplan stock options
at the time of his resignation. A Kaplan senior manager continues to
hold the remaining 2,000 outstanding Kaplan stock options
(representing about 0.2% of Kaplan’s common stock), which expire
in 2011. In January 2010, the committee set the fair value price at
$1,975 per share. Option holders have a 30-day window in
which to exercise at this price, after which time the committee has
the right to determine a new price in the event of an exercise. No
options were awarded or exercised during 2009 or the first two
months of 2010.
The committee awarded to a senior manager of Kaplan shares
equal in value to $4.8 million for the 2007 fiscal year, and the
expense of this award was recorded in the Company’s results of
operations for the relevant fiscal year. As a result, in the first quarter
of 2008, 1,778 Kaplan shares were issued related to the 2007
Kaplan share awards. In the fourth quarter of 2007, a Kaplan
senior manager exercised Kaplan stock options and received
1,750 Kaplan shares that remain outstanding at January 3, 2010.
In February 2010 and 2009, a Kaplan senior manager was
granted 2,278 and 1,176 shares, respectively, of Kaplan restricted
stock that vest over a three-year period.
Kaplan recorded stock compensation expense of $0.9 million for
2009, compared to a credit of $7.8 million for 2008 and expense
of $41.3 million for 2007. There were no payouts in 2009. In
2008 and 2007, total net payouts were $85.1 million and $8.1
million, respectively. At December 31, 2009, the Company’s
accrual balance related to Kaplan stock-based compensation
totaled $9.2 million. Note K to the Company’s consolidated
financial statements provides additional details surrounding Kaplan
stock compensation.
Recent Accounting Pronouncements. See Note B to the
Company’s consolidated financial statements for a discussion of
recent accounting pronouncements.
52 THE WASHINGTON POST COMPANY