Washington Post 2008 Annual Report Download - page 53

DIVISION RESULTS
Education Division. Education division revenue in 2008 increased
15% to $2,331.6 million, from $2,030.9 million in 2007.
Excluding revenue from acquired businesses, education division
revenue increased 11% in 2008. Kaplan reported operating
income of $206.3 million for 2008, compared to $149.0 million
in 2007. Kaplan’s results for 2008 and 2007 were impacted by
several unusual or one-time items (discussed below).
A summary of Kaplan’s operating results for 2008 compared to
2007 is as follows:
(in thousands) 2008 2007 % Change
Revenue
Higher education .... $1,275,840 $1,021,595 25
Test prep .......... 587,970 569,316 3
Professional ........ 467,101 439,720 6
Kaplan corporate . . . 1,426 1,261 13
Intersegment
elimination ....... (757) (1,003) —
$2,331,580 $2,030,889 15
Operating income (loss)
Higher education .... $ 168,774 $ 125,629 34
Test prep .......... 70,717 71,316 (1)
Professional ........ 23,851 41,073 (42)
Kaplan corporate . . . (49,142) (32,773) (50)
Other ............ (7,644) (55,964) 86
Intersegment
elimination ....... (254) (244) —
$ 206,302 $ 149,037 38
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 25% for 2008. Enrollments increased
24% to 96,400 at December 31, 2008, compared to 77,900 at
December 31, 2007, due to growth in the online and residential
programs. Higher education results in 2008 include additional
costs associated with the expansion of Kaplan’s online high school
and international programs. Higher education results in 2007 were
adversely affected by $2.7 million in lease termination charges.
Funds provided under student financial aid programs created under
Title IV of the Federal Higher Education Act account for a large
portion of Kaplan Higher Education (KHE) revenues; these funds are
provided in the form of federal loans and grants. In addition, some
KHE students also obtain non-Title IV private loans from lenders to
finance a portion of their education. In response to recent tightening
in the credit markets, certain lenders have announced that they will
apply more stringent lending standards for non-Title IV private student
loans. Approximately 5% of KHE’s domestic revenues in 2008 came
from non-Title IV private loans obtained by its students. Prospectively,
KHE expects private student loan funding to diminish due to strains in
theU.S.creditmarkets;KHEexpectsthissourcetobereplacedwith
funds provided under Title IV sources, student cash payments and, to
a lesser extent, a self-funded internal loan program.
Test prep includes Kaplan’s standardized test preparation and
English-language course offerings, as well as the K12 and Score
businesses. Test prep revenue, excluding Score, grew 9% in 2008,
largely due to growth in English-language programs. Score revenues
declined 49% in 2008 as a result of the Score restructuring in 2007
that included the closing of 75 Score centers. Score incurred
approximately $11.2 million in expenses in 2007 related to lease
obligations, severance and accelerated depreciation of fixed assets.
Operating income for test prep declined slightly in 2008 due to
higher payroll and marketing costs for the traditional test preparation
programs and continued losses at Score, offset by improved results
for the English-language programs and the $11.2 million Score
restructuring charge recorded in 2007.
Professional includes Kaplan’s domestic and overseas training
businesses. Professional revenue grew 6% in 2008. Excluding
revenue from acquired businesses, professional revenue was down
4% in 2008 due to continued declines in professional’s real estate,
securities and insurance businesses, and a decline at Kaplan
Professional (U.K.) due to unfavorable exchange rates, partially offset
by revenue growth at Kaplan Professional (Asia-Pacific) and
Schweser CFA exam course offerings. Professional operating income
is down largely due to continued weakness in professional’s real
estate, securities and insurance businesses. In 2007, Kaplan
announced plans to restructure Kaplan Professional (U.S.) that
involved product changes and decentralization of certain operations,
in addition to employee terminations. A charge of $6.0 million was
recorded in 2007 related to the write-off of an integrated software
product under development and severance costs in connection with
the restructuring; an additional $3 million was anticipated to be
incurred in 2008. In the fourth quarter of 2008, Kaplan expanded
the Kaplan Professional (U.S.) restructuring to include additional
operations. Total severance and other restructuring-related expenses
of $11.0 million were recorded in 2008; additional restructuring-
related expenses of $9.0 million are expected to be incurred in
2009. Operating results were also affected by unfavorable
exchange rates at Kaplan Professional (U.K.), offset by improved
operating results at Kaplan Professional (Asia-Pacific).
Kaplan corporate represents unallocated expenses of Kaplan, Inc.’s
corporate office and other minor activities. Kaplan corporate
expenses increased in 2008 due to an increase in employee
benefits costs in the fourth quarter of 2008, and expenses
associated with the resignation of Kaplan’s former chief executive
officer in November 2008.
Other includes credits (charges) for incentive compensation arising
from equity awards under the Kaplan stock option plan, which was
established for certain members of Kaplan’s management. Kaplan
recorded a stock compensation credit of $7.8 million in 2008,
compared to stock compensation expense of $41.3 million in
2007. The stock compensation credit in 2008 relates primarily to
the forfeiture of 21,526 Kaplan stock options due to the resignation
noted above. In addition, other includes amortization of certain
intangible assets.
Cable Television Division. Cable television division revenue of
$719.1 million for 2008 represents a 15% increase from $626.4
million in 2007. The 2008 revenue increase is due to continued
growth in the division’s cable modem, telephone and digital
2008 FORM 10-K 41