Washington Post 2007 Annual Report Download - page 62

and magazine publishing divisions, offset by declines in print
advertising at The Washington Post. The increase in circulation
and subscriber revenue is due to an 11% increase in subscriber
revenue at the cable division from continued growth in cable
modem, basic and digital service revenue. This increase was
offset by a 4% decrease in circulation revenue at The Post, and an
11%declineinNewsweekcirculationrevenuedueto
subscription rate declines at the domestic edition and
international editions of Newsweek and subscription rate base
declines at certain of the international editions. Revenue growth at
Kaplan, Inc. (about 31% of which was from acquisitions)
accounted for the increase in education revenue.
Operating costs and expenses for the year increased 13% to
$3,445.1 million, from $3,039.0 million in 2005. The increase
is primarily due to higher expenses from operating growth,
increased stock compensation expense at the education
division, charges of $50.9 million in early retirement plan
buyouts at The Washington Post and the Company’s corporate
office, and a reduced pension credit.
Operating income for 2006 declined by 11% to $459.8 million,
from $514.9 million in 2005. Much of the decline is due to the
unusual or one-time operating items described above, as well as a
$24.7 million increase in Kaplan stock compensation expense,
offset by strong results at the Company’s cable television and
television broadcasting divisions.
The Company’s 2006 operating income includes $21.8 million
of net pension credits, compared to $37.9 million in 2005.
These amounts exclude $50.9 million and $1.2 million in
charges related to early retirement programs in 2006 and
2005, respectively.
DIVISION RESULTS
Education Division. Education division revenue in 2006
increased 19% to $1,684.1 million, from $1,412.4 million in
2005. Excluding revenue from acquired businesses, education
division revenue increased 13% in 2006. Kaplan reported
operating income of $130.2 million for the year, compared to
$157.8 million in 2005. The decline is due to a $24.7 million
increase in stock compensation expense; a $13.0 million charge
related to an agreement to settle a lawsuit; a $13.3 million
operating income decline at Kaplan Professional’s real estate
businesses; $11.9 million in transition costs and operating
losses from acquisitions and start-ups; a reduction in revenue
growth at Kaplan’s test prep division due to a fourth quarter
$6.1 million revenue decrease related to timing of courses and
estimates of average course length; and $3.0 million in asset
write-downs at the higher education division. These declines were
offset by operating income growth at Kaplan’s higher education
businesses.
In the second quarter of 2006, Kaplan completed the
acquisitions of two businesses: Tribeca Learning Limited, a
leading provider of education to the Australian financial
services sector, and SpellRead, originator of SpellRead
Phonological Auditory Training, a reading intervention program
for struggling students. In October 2006, Kaplan completed the
acquisitions of two additional businesses: Aspect Education
Limited, a major provider of English-language instruction in the
U.K., Ireland, Australia, New Zealand, Canada and the U.S.;
and PMBR, a nationwide provider of test preparation for the
Multistate Bar Exam. Tribeca is included in Kaplan
professional, and the other acquisitions are included in Kaplan
test prep. As noted above, Kaplan incurred $11.9 million in
transition costs and operating losses from these acquired
businesses and start-ups.
A summary of operating results for 2006 compared to 2005 is as
follows (in thousands):
(In thousands) 2006 2005 % Change
Revenue
Higher education .... $855,757 $ 707,966 21
Test prep ......... 457,293 391,456 17
Professional ....... 371,091 312,972 19
$1,684,141 $1,412,394 19
Operating income (loss)
Higher education .... $100,690 $ 77,728 30
Test prep ......... 77,632 75,940 2
Professional ....... 35,503 46,067 (23)
Kaplan corporate .... (50,726) (33,305) (52)
Other ........... (32,910) (8,595) —
$130,189 $ 157,835 (18)
Higher education includes Kaplan’s domestic and international
post-secondary education businesses, including fixed-facility
colleges, as well as online post-secondary and career
programs. Higher education revenue grew by 21% for 2006.
Excluding revenue from acquired businesses, higher education
revenue grew 19% for 2006. Higher education enrollments
increased 8% to 72,000 at December 31, 2006, compared
to 66,500 at December 31, 2005, with most of the enrollment
growth occurring in the online programs. Higher education results
for the online programs in 2006 benefited from increases in both
price and demand, as well as an increase in the number of course
offerings. Higher education results were adversely affected by
$3.0 million in asset write-downs related to three campuses in the
fourth quarter of 2006.
Test prep includes Kaplan’s standardized test preparation and
English-language course offerings, as well as the K12 and Score!
businesses. Test prep revenue grew 17% in 2006, due to strong
enrollment in the GMAT, MCAT, nursing and English-language
course offerings, as well as from acquisitions (the October 2006
Aspect and PMBR acquisitions and the August 2005 acquisition
of The Kidum Group, the leading provider of test preparation
services in Israel), offset by declines at Score! Excluding revenue
from acquired businesses, revenue grew 9% in 2006. Operating
income was up slightly due to overall revenue growth, offset by
the reduction in revenue growth at Kaplan’s test prep division due
to a fourth quarter revenue decrease related to timing of courses
and estimates of average course length (discussed above), as
well as a decline in operating income at Score!
46 THE WASHINGTON POST COMPANY