Washington Post 2006 Annual Report Download - page 57

results of operations for Company stock options as the Company nues, offset by a 2% decrease in circulation revenue at The Post,
adopted the fair-value-based method of accounting for Company and a 3% decline in Newsweek circulation revenues due primarily
stock options in 2002. However, the adoption of SFAS 123R to subscription rate declines at the domestic and international
required the Company to change its accounting for Kaplan equity editions of Newsweek. Revenue growth at Kaplan, Inc. (about
awards from the intrinsic value method to the fair-value-based 27% of which was from acquisitions) accounted for the increase in
method of accounting. As a result, in the first quarter of 2006, the education revenue.
Company reported a $5.1 million after-tax charge for the cumula- Operating costs and expenses for the year increased 11% to
tive effect of change in accounting for Kaplan equity awards $3,039.0 million, from $2,737.1 million in 2004. The increase is
($8.2 million in pre-tax Kaplan stock compensation expense). primarily due to higher expenses from operating growth at the
education division, higher expenses from operating growth and
RESULTS OF OPERATIONS Ì 2005 COMPARED TO 2004 Hurricane Katrina at the cable division, higher newsprint prices and
Net income was $314.3 million ($32.59 per share) for the fiscal a reduced pension credit, offset by a decrease in stock-based
year 2005 ended January 1, 2006, down from $332.7 million compensation expense at Kaplan.
($34.59 per share) for the fiscal year 2004 ended January 2, Operating income declined 9% to $514.9 million, from
2005. Operating results for the Company in 2005 include the $563.0 million in 2004, due to declines at all of the Company's
impact of charges and lost revenues associated with Katrina and divisions except the Kaplan education division. Kaplan results for
other hurricanes; the Company estimates that the adverse impact on 2005 include $3.0 million in stock compensation expense, com-
operating income was approximately $27.5 million (after-tax pared to $32.5 million in stock compensation expense in 2004.
impact of $17.3 million, or $1.80 per share). Most of the impact
was at the cable division, but the television broadcasting and The Company's 2005 operating income includes $37.9 million of
education divisions were also adversely impacted. 2005 results net pension credits, compared to $42.0 million in 2004. These
also include non-operating gains from the sales of non-operating amounts exclude $1.2 million and $0.1 million in charges related to
land and marketable securities (after-tax impact of $11.2 million, early retirement programs in 2005 and 2004, respectively.
or $1.16 per share).
DIVISION RESULTS
About 94,000 of the cable division's pre-hurricane subscribers
were located on the Gulf Coast of Mississippi, including Gulfport, Education Division. Education division revenue in 2005
Biloxi, Pascagoula and other neighboring communities where storm increased 24% to $1,412.4 million, from $1,134.9 million in
damage from Hurricane Katrina was significant. Overall, the hurri- 2004. Excluding revenue from acquired businesses, primarily in the
cane had an estimated adverse impact of $23.7 million on the higher education division and the professional training schools that
cable division's results in 2005. Through the end of 2005, the are part of supplemental education, education division revenue
Company recorded $9.6 million in property, plant and equipment increased 18% in 2005. Kaplan reported operating income of
losses; incurred an estimated $9.4 million in incremental cleanup, $157.8 million for the year, compared to $121.5 million in 2004;
repair and other expenses in connection with the hurricane; and a large portion of the improvement is from a $29.5 million decline in
experienced an estimated $9.7 million reduction in operating Kaplan stock compensation costs. A summary of operating results
income from subscriber losses and the granting of a 30-day service for 2005 compared to 2004 is as follows (in thousands):
credit to all of its 94,000 pre-hurricane Gulf Coast subscribers. As 2005 2004 % Change
of December 31, 2005, the Company recorded a $5.0 million
receivable for recovery of a portion of cable hurricane losses Revenue
through December 31, 2005 under the Company's property and Supplemental educationÏÏÏÏ $ 690,815 $ 575,014 20
business interruption insurance program; this recovery was record- Higher education ÏÏÏÏÏÏÏÏÏ 721,579 559,877 29
ed as a reduction of cable division expense in the fourth quarter of $1,412,394 $1,134,891 24
2005. Operating income
(loss)
Revenue for 2005 was $3,553.9 million, up 8% compared to Supplemental educationÏÏÏÏ $ 117,075 $ 100,795 16
$3,300.1 million in 2004. The increase in revenue is due mostly to Higher education ÏÏÏÏÏÏÏÏÏ 82,660 93,402 (12)
significant revenue growth at the education division, along with Kaplan corporate overhead (33,305) (31,533) (6)
small increases at the Company's newspaper publishing and cable OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (8,595) (41,209) 79
divisions, offset by declines at the Company's television broadcast- $ 157,835 $ 121,455 30
ing and magazine publishing divisions. Advertising revenue declined
2% in 2005, and circulation and subscriber revenue increased 1%. Supplemental education includes Kaplan's test preparation, profes-
Education revenue increased 24% in 2005, and other revenue was sional training and Score! businesses. Excluding revenue from
up 1%. The decrease in advertising revenue is primarily due to acquired businesses, supplemental education revenues grew by
declines in the television broadcasting and magazine publishing 13% in 2005. Test preparation revenue grew by 22% due to
divisions. The increase in circulation and subscriber revenue is due strong enrollment in the K12 business as well as MCAT, GMAT and
to a 3% increase in subscriber revenue at the cable division from GRE. In August 2005, Kaplan completed the acquisition of The
continued growth in cable modem, basic and digital service reve- Kidum Group, the leading provider of test preparation services in
2006 FORM 10-K 41