Washington Post 2007 Annual Report Download - page 61

A summary of non-operating income (expense) for the years
ended December 30, 2007 and December 31, 2006 follows
(in millions):
2007 2006
Foreign currency gains . . .............. $8.8 $ 11.9
Gain on sales of marketable equity securities . . 0.4 33.8
Gain on sale of affiliate . .............. —43.2
Impairment write-downs on investments . ..... —(15.1)
Other gains (losses) .................. 1.6 (0.3)
Total .......................... $10.8 $ 73.5
The Company incurred net interest expense of $12.7 million in
2007, compared to $14.9 million in 2006. At December 30,
2007, the Company had $490.1 million in borrowings
outstanding at an average interest rate of 5.3%; at
December 31, 2006, the Company had $407.2 million in
borrowings outstanding at an average interest rate of 5.5%.
Income Taxes. The effective tax rate was 40.0% for 2007 and
36.5% for 2006. As previously discussed, results for 2007
included an additional $12.9 million in income tax expense
related to the Company’s Bowater Mersey affiliate and a
$6.3 million income tax benefit related to a change in certain
state income tax laws enacted in the second quarter of 2007.
Both of these are non-cash items in 2007, impacting the
Company’s long-term net deferred income tax liabilities.
Excluding the impact of these items, the effective tax rate for
2007 was 38.6%. The higher effective tax rate in 2007
compared to 2006 was primarily due to higher state taxes and
an increase in nondeductible compensation expenses. The
Company expects an effective tax rate in 2008 of
approximately 38.5% to 39.0%.
Cumulative Effect of Change in Accounting Principle. In the
first quarter of 2006, the Company adopted SFAS 123R, which
requires companies to record the cost of employee services in
exchange for stock options based on the grant-date fair value of
the awards. SFAS 123R did not have any impact on the
Company’s results of operations for Company stock options as
the Company had adopted the fair-value-based method of
accounting for Company stock options in 2002. However, the
adoption of SFAS 123R required the Company to change its
accounting for Kaplan equity awards from the intrinsic value
method to the fair-value-based method of accounting. As a
result, in the first quarter of 2006, the Company reported a
$5.1millionafter-taxchargeforthecumulativeeffectof
change in accounting for Kaplan equity awards ($8.2 million
in pre-tax Kaplan stock compensation expense).
RESULTS OF OPERATIONS — 2006 COMPARED TO 2005
Net income was $324.5 million ($33.68 per share) for the fiscal
year 2006 ended December 31, 2006, up from $314.3 million
($32.59 per share) for the fiscal year 2005 ended January 1,
2006. The Company’s results for 2006 and 2005 include
several unusual or one-time items, as described below.
Items included in the Company’s results in 2006:
• Charges of $50.9 million related to early retirement plan
buyouts (after-tax impact of $31.7 million, or $3.30 per
share);
• A non-operating write-down of $14.2 million of a marketable
equity security (after-tax impact of $9.0 million, or $0.94 per
share);
• A charge of $13.0 million related to an agreement to settle a
lawsuit at Kaplan (after-tax impact of $8.3 million, or $0.86
per share);
• A goodwill impairment charge of $9.9 million at
PostNewsweek Tech Media and a $1.5 million loss on the
sale of PostNewsweek Tech Media, which was part of the
magazine publishing segment (after-tax impact of $7.3 million,
or $0.75 per share);
• Transition costs and operating losses at Kaplan related to
acquisitions and start-ups for 2006 of $11.9 million (after-
tax impact of $8.0 million, or $0.83 per share);
• A charge for the cumulative effect of a change in accounting for
Kaplan equity awards (after-tax impact of $5.1 million, or
$0.53 per share) in connection with the Company’s adoption
of Statement of Financial Accounting Standards No. 123R
(SFAS 123R), “Share-Based Payment”;
• A non-operating gain of $43.2 million on the sale of
BrassRing, in which the Company held a 49% interest (after-
tax impact of $27.4 million, or $2.86 per share);
• Insurance recoveries of $10.4 million from cable division
losses related to Hurricane Katrina (after-tax impact of
$6.4 million, or $0.67 per share); and
• Non-operating gains of $33.8 million from sales of marketable
equity securities for the year (after-tax impact of $21.1 million,
or $2.19 per share).
Items included in the Company’s results in 2005:
• Charges and lost revenue associated with Hurricane Katrina
and other hurricanes; estimated adverse impact on operating
income of $27.5 million (after-tax impact of $17.3 million, or
$1.80 per share) primarily at the cable division, but also at the
television broadcasting and education divisions; and
• Non-operating gains of $17.8 million from the sales of non-
operating land and marketable securities (after-tax impact of
$11.2 million, or $1.16 per share).
Revenue for 2006 was $3,904.9 million, up 10% compared to
revenue of $3,553.9 million in 2005. The increase is due mostly
to significant revenue growth at the education division, increases
at the cable and television broadcasting divisions, and a small
increase at the newspaper publishing division, offset by a decline
at the magazine publishing division. Advertising revenue
increased 3% in 2006, and circulation and subscriber revenue
increased 4%. Education revenue increased 19% in 2006, and
other revenue was up 7%. The increase in advertising revenue is
due primarily to increased revenue at the television broadcasting
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