Washington Post 2004 Annual Report Download - page 53

ny further reduced its discount rate assumption to 5.75%, and the options expiring in 2007 and half expiring in 2011. In January
pension credit for 2005 is expected to be down by about $4 mil- 2005, the committee set the fair value price at $2,080 per share.
lion. For each one-half percent increase or decrease to the Compa- Also in January 2005, 15,353 Kaplan stock options were exer-
ny's assumed expected return on plan assets, the pension credit cised, and 10,582 Kaplan stock options were awarded at an
increases or decreases by approximately $6.5 million. For each option price of $2,080.
one-half percent increase or decrease to the Company's assumed For 2004, 2003 and 2002, the Company recorded expense of
discount rate, the pension credit increases or decreases by approx- $32.5 million, $119.1 million and $34.5 million, respectively,
imately $5 million. The Company's actual rate of return on plan related to this plan. In 2004 and 2003, payouts from option
assets was 4.3% in 2004, 16.7% in 2003, and (2.3%) in 2002, exercises totaled $10.3 million and $119.6 million, respectively. At
based on plan assets at the beginning of each year. Note H to the December 31, 2004, the Company's stock-based compensation
Consolidated Financial Statements provides additional details sur- accrual balance totaled $96.2 million. If Kaplan's profits increase
rounding pension costs and related assumptions. and the value of education companies remains relatively high in
Kaplan Stock Option Plan. The Kaplan stock option plan was 2005, there will be significant Kaplan stock-based compensation
adopted in 1997 and initially reserved 15%, or 150,000 shares of expense again in 2005. Note G to the Consolidated Financial
Kaplan's common stock, for options to be granted under the plan to Statements provides additional details surrounding the Kaplan stock
certain members of Kaplan management. Under the provisions of option plan.
this plan, options are issued with an exercise price equal to the Goodwill and Other Intangibles. The Company reviews the
estimated fair value of Kaplan's common stock, and options vest carrying value of goodwill and indefinite-lived intangible assets at
ratably over the number of years specified (generally 4 to 5 least annually, utilizing a discounted cash flow model (in the case
years) at the time of the grant. Upon exercise, an option holder of the Company's cable systems, both a discounted cash flow
receives cash equal to the difference between the exercise price model and an estimated fair market value per cable subscriber
and the then fair value. The amount of compensation expense varies approach are considered). The Company must make assumptions
directly with the estimated fair value of Kaplan's common stock and regarding estimated future cash flows and market values to deter-
the number of options outstanding. The estimated fair value of mine a reporting unit's estimated fair value. In reviewing the carrying
Kaplan's common stock is based upon a comparison of operating value of goodwill and indefinite-lived intangible assets at the cable
results and public market values of other education companies and division, the Company aggregates its cable systems on a regional
is determined by the Company's compensation committee of the basis. If these estimates or related assumptions change in the future,
Board of Directors, with input from management and an indepen- the Company may be required to record an impairment charge. At
dent outside valuation firm. Over the past several years, the value January 2, 2005, the Company has $1,524.2 million in goodwill
of education companies has fluctuated significantly, and conse- and other intangibles.
quently, there has been significant volatility in the amounts recorded
as expense each year as well as on a quarterly basis. OTHER
In September 2003, the committee set the fair value price of Kaplan New Accounting Pronouncements. In December 2004,
common stock at $1,625 per share, which was determined after Statement of Financial Accounting Standards No. 123R (SFAS
deducting intercompany debt from Kaplan's enterprise value. Also 123R), ""Share-Based Payment'' was issued, which requires com-
in September 2003, the Company announced an offer totaling panies to record the cost of employee services in exchange for
$138 million for approximately 55% of the stock options outstand- stock options based on the grant-date fair value of the award.
ing at Kaplan. The Company's offer included a 10% premium over Because the Company adopted the fair-value-based method of
the then current valuation price of Kaplan common stock of $1,625 accounting for Company stock options in 2002, SFAS 123R will
per share and 100% of the eligible stock options were tendered. have a minimal impact on the Company's results of operations when
The Company paid out $118.7 million in the fourth quarter of 2003 adopted in the third quarter of 2005.
and $10.3 million in 2004. The remainder of the payouts will be
EITF Topic D-108, ""Use of the Residual Method to Value Acquired
made at the time of their scheduled vesting, from 2005 to 2008, if
Assets Other than Goodwill,'' requires companies that have applied
the option holder is still employed at Kaplan. Additionally, stock
the residual method to value intangible assets to perform an impair-
compensation expense will be recorded on these remaining exer-
ment test on those intangible assets using the direct value method by
cised stock options over the remaining vesting periods of 2005 to
the end of the first quarter of 2005. The Company is in the process
2008. A small number of key Kaplan executives continue to hold the
of performing such an impairment test at its cable division.
remaining 68,000 outstanding Kaplan stock options (representing
about 4.8% of Kaplan's common stock), with roughly half of these
2004 FORM 10-K 37