Washington Post 2005 Annual Report Download - page 56

to 6.25%. Due to the reduction in the discount rate, the plan Additionally, stock compensation expense will be recorded on these
amendment from June 2003, and a reduction in the actuarial gain remaining exercised stock options over the remaining vesting peri-
amortization, offset by higher than expected investment returns in ods of 2006 to 2008. A small number of key Kaplan executives
2003, the pension credit for 2004 declined by $13.2 million continue to hold the remaining 62,229 outstanding Kaplan stock
compared to 2003. At January 2, 2005, the Company reduced its options (representing about 4.4% of Kaplan's common stock),
discount rate assumption from 6.25% to 5.75% and, during the first with roughly 25% of these options expiring in 2007 and 75%
quarter of 2005, the Company changed to a more current Mortality expiring in 2011. In January 2006, the committee set the fair value
Table. As a result, the pension credit in 2005 declined by $4.0 mil- price at $1,833 per share. Option holders had a 30-day window
lion compared to 2004. At January 1, 2006, the Company in which to exercise at this price, after which time the committee has
reduced its expected return on plan assets from 7.5% to 6.5%, the right to determine a new price in the event of an exercise. Also
and the pension credit for 2006 is expected to be down by about in January 2006, 15,298 Kaplan stock options were exercised,
$15 million. For each one-half percent increase or decrease to the and 12,239 Kaplan stock options were awarded at an option price
Company's assumed expected return on plan assets, the pension of $1,833 per share.
credit increases or decreases by approximately $7.5 million. For In December 2005, the compensation committee awarded to a
each one-half percent increase or decrease to the Company's senior manager of Kaplan shares or share equivalents equal in
assumed discount rate, the pension credit increases or decreases value to $4.8 million, with the number of shares or share equivalents
by approximately $5 million. The Company's actual rate of return determined by the January 2006 valuation. In 2006, based on the
on plan assets was 7.6% in 2005, 4.3% in 2004 and 16.7% in $1,833 per share value, 2,619 shares or share equivalents will be
2003, based on plan assets at the beginning of each year. Note H issued. The expense of this award has been reflected in the 2005
to the Consolidated Financial Statements provides additional details results of operations.
surrounding pension costs and related assumptions.
For 2005, 2004 and 2003, the Company recorded total Kaplan
Kaplan Stock Compensation. The Kaplan stock option plan stock compensation expense of $3.0 million, $32.5 million and
was adopted in 1997 and initially reserved 15%, or $119.1 million, respectively. In 2005, 2004 and 2003, total
150,000 shares of Kaplan's common stock, for awards to be payouts from option exercises were $35.2 million, $10.3 million,
granted under the plan to certain members of Kaplan management. and $119.6 million, respectively. At December 31, 2005, the
Under the provisions of this plan, options are issued with an exercise Company's stock-based compensation accrual balance totaled
price equal to the estimated fair value of Kaplan's common stock, $63.6 million. If Kaplan's profits increase and the value of educa-
and options vest ratably over the number of years specified (gen- tion companies increases in 2006, there will be significant Kaplan
erally 4 to 5 years) at the time of the grant. Upon exercise, an stock-based compensation in 2006. A discussion of pending
option holder receives cash equal to the difference between the changes in the Company's accounting for Kaplan equity awards is
exercise price and the then fair value. The amount of compensation provided in ""New Accounting Pronouncements'' below.
expense varies directly with the estimated fair value of Kaplan's
common stock and the number of options outstanding. The estimated Note G to the Consolidated Financial Statements provides addition-
fair value of Kaplan's common stock is based upon a comparison of al details surrounding Kaplan stock compensation.
operating results and public market values of other education Goodwill and Other Intangibles. The Company reviews
companies and is determined by the Company's compensation goodwill and indefinite-lived intangibles at least annually for impair-
committee of the Board of Directors (the committee), with input ment, generally utilizing a discounted cash flow model. In the case
from management and an independent outside valuation firm. Over of the Company's cable systems, both a discounted cash flow
the past several years, the value of education companies has model and a market approach employing comparable sales analy-
fluctuated significantly, and consequently, there has been significant sis are considered. In reviewing the carrying value of goodwill and
volatility in the amounts recorded as expense each year as well as indefinite-lived intangible assets at the cable division, the Company
on a quarterly basis. aggregates its cable systems on a regional basis. The Company
In September 2003, the committee set the fair value price of Kaplan must make assumptions regarding estimated future cash flows and
common stock at $1,625 per share, which was determined after market values to determine a reporting unit's estimated fair value. If
deducting intercompany debt from Kaplan's enterprise value. Also these estimates or related assumptions change in the future, the
in September 2003, the Company announced an offer totaling Company may be required to record an impairment charge. At
$138 million for approximately 55% of the stock options outstand- January 1, 2006, the Company has $1,643.1 million in goodwill
ing at Kaplan. The Company's offer included a 10% premium over and other intangibles, net.
the then current valuation price of Kaplan common stock of
OTHER
$1,625 per share and 100% of the eligible stock options were
tendered. The Company paid out $118.7 million in the fourth New Accounting Pronouncements. In December 2004,
quarter of 2003, $10.3 million in 2004 and $5.1 million in 2005, Statement of Financial Accounting Standards No. 123R
with the remainder of the payouts related to 1,705 tendered stock (SFAS 123R), ""Share-Based Payment,'' was issued, which
options, to be made at the time of their scheduled vesting, from requires companies to record the cost of employee services in
2006 to 2008, if the option holder is still employed at Kaplan. exchange for stock options based on the grant-date fair value of
40 THE WASHINGTON POST COMPANY