Washington Post 2002 Annual Report Download - page 33

Education Division. Education division revenue in 2002 expense of $34.5 million and $25.3 million, respectively, relat-
increased 26 percent to $621.1 million, from $493.7 million in ed to this plan. The increase in other expense for 2002 is attribu-
2001. Kaplan reported operating income for the year of table to an increase in stock-based incentive compensation,
$20.5 million, compared to a pro forma operating loss of which is due to an increase in Kaplan’s estimated value.
$13.1 million in 2001. Approximately one-third of the increase Equity in Losses of Affiliates. The Company’s equity in losses of
in Kaplan revenue and approximately $9 million of the increase affiliates for 2002 was $19.3 million, compared to losses of
in Kaplan operating income is from newly acquired businesses, $68.7 million for 2001. The improvements were primarily due
primarily in the higher education division. Excluding goodwill to better operating results at BrassRing LLC, which accounted for
amortization in 2001, a summary of operating results for 2002 approximately $13.9 million of 2002 equity in losses of affili-
compared to 2001 is as follows (in thousands): ates, compared to $75.1 million in equity losses for 2001. The
2002 2001 % Change Company’s affiliate investments at the end of 2002 consisted of
a 49.4 percent interest in BrassRing LLC, a 50 percent interest in
Revenue the International Herald Tribune, and a 49 percent interest in
Supplemental education** $ 371,248 $328,039 13% Bowater Mersey Paper Company Limited.
Higher education ******** 249,877 165,642 51%
On January 1, 2003, the Company sold its 50 percent interest
$ 621,125 $493,681 26%
in the International Herald Tribune for $65 million; the Company
Operating income (loss) will report an after-tax non-operating gain of approximately
Supplemental education** $ 54,103 $ 27,509 97% $32 million in the first quarter of 2003.
Higher education ******** 27,569 9,149 201%
Kaplan corporate Non-Operating Items. The Company recorded other non-oper-
overhead************** (26,143) (23,981) (9%) ating income, net, of $28.9 million in 2002, compared to
Other ******************* (35,017) (25,738) (36%) $283.7 million of non-operating income, net, for 2001. The
$ 20,512 $ (13,061) — 2002 non-operating income includes a pre-tax gain of $27.8
million on the exchange of certain cable systems in the fourth
Supplemental education includes Kaplan’s test preparation, pro- quarter of 2002 and a gain on the sale of marketable securities;
fessional training and Score! businesses. The improvement in these gains were offset by write-downs recorded on certain
supplemental education results for 2002 is due mostly to higher investments. The 2001 non-operating income mostly comprised
enrollments and to a lesser extent, higher prices at Kaplan’s gains arising from the sale and exchange of certain cable sys-
traditional test preparation business (particularly the LSAT, MCAT tems completed in the first quarter of 2001, offset by write-
and GRE prep courses), as well as higher revenues and operat- downs recorded on certain investments and a parcel of non-
ing income from Kaplan’s CFA˛ and real estate licensure prepa- operating land to their estimated fair value.
ration services. Score! also contributed to the improved results,
with increased enrollment, higher prices and strong cost The Company incurred net interest expense of $33.5 million in
controls. 2002, compared to $47.5 million in 2001. At December 29,
2002, the Company had $664.8 million in borrowings out-
Higher education includes all of Kaplan’s post-secondary educa- standing at an average interest rate of 4.0 percent; at Decem-
tion businesses, including the fixed-facility colleges that were ber 30, 2001, the Company had $933.1 million in borrowings
formerly part of Quest Education, as well as online post-secon- outstanding.
dary and career programs (various distance-learning business-
es). Higher education results are showing significant growth due Income Taxes. The effective tax rate was 38.8 percent for
to student enrollment increases, high student retention rates and 2002, compared to 40.7 percent for 2001. Excluding the
several acquisitions. effect of the cable gain transactions, the Company’s effective
rate approximated 38.7 percent for 2002 and 50.2 percent for
Corporate overhead represents unallocated expenses of 2001. The effective tax rate for 2002 declined primarily
Kaplan, Inc.’s corporate office, including expenses associated because the Company no longer has any permanent difference
with the design and development of educational software that, if from goodwill amortization not deductible for tax purposes as a
successfully completed, will benefit all of Kaplan’s business result of the adoption of SFAS 142. The Company’s effective tax
units. rate also has declined due to an increase in operating earnings
Other expense is comprised primarily of accrued charges for and a decrease in the overall state tax rate.
stock-based incentive compensation arising from a stock option Cumulative Effect of Change in Accounting Principle. In 2002,
plan established for certain members of Kaplan’s management the Company completed its SFAS 142 transitional goodwill
(the general provisions of which are discussed in Note G to the impairment test, resulting in an after-tax impairment loss of
Consolidated Financial Statements) and amortization of certain $12.1 million, or $1.27 per share, related to PostNewsweek
intangibles. Under the stock-based incentive plan, the amount of Tech Media (part of the magazine publishing segment). This loss
compensation expense varies directly with the estimated fair is included in the Company’s 2002 results as a cumulative effect
value of Kaplan’s common stock and the number of options of change in accounting principle.
outstanding. For 2002 and 2001, the Company recorded
2002 FORM 10-K 31