Washington Post 2008 Annual Report Download - page 56

Income Taxes. The effective tax rate was 54.7% for 2008 and
40.0% for 2007. The higher effective tax rate for 2008 is due to
$31.1 million from nondeductible goodwill in connection with
impairment charges recorded in 2008 and $9.5 million in non-cash
valuation allowances provided against deferred state and local
income tax benefits, net of U.S. Federal income taxes; these were
offset by a favorable $4.6 million provision to return adjustment
from 2007. 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 were non-cash items in
2007 that impacted the Company’s long-term net deferred income
tax liabilities. Excluding the impact of these items, the effective tax
rate for 2008 was 35.1%, compared to 37.7% for 2007. The
decline is due to a reduction in state income taxes and a higher
proportion of earnings in jurisdictions outside the U.S. with lower
effective tax rates.
RESULTS OF OPERATIONS — 2007 COMPARED TO 2006
Net income was $288.6 million ($30.19 per share) for the fiscal
year 2007 ended December 30, 2007, down from $324.5
million ($33.68 per share) for the fiscal year 2006 ended
December 31, 2006. The Company’s results for 2007 and 2006
include several unusual or one-time items, as described below.
Items included in the Company’s results in 2007:
• A charge of $6.6 million ($0.70 per share) in additional income
tax expense, net, as the result of a $12.9 million increase in
taxes associated with Bowater Mersey, offset by a tax benefit of
$6.3 million associated with changes in certain state income tax
laws. Both of these were non-cash items in 2007, impacting the
Company’s long-term net deferred income tax liabilities;
• Expenses of $11.2 million (after-tax impact of $6.7 million, or
$0.70 per share) related to lease obligations, severance and
accelerated depreciation of fixed assets in connection with
Kaplan’s restructuring of the Score business;
• A charge of $6.0 million (after-tax impact of $3.6 million, or
$0.38 per share) related to the write-off of an integrated software
product under development, and severance costs in connection
with Kaplan’s restructuring of Kaplan Professional (U.S.); and
• A gain of $9.5 million from the sale of property at the
Company’s television station in Miami (after-tax impact of
$5.9 million, or $0.62 per share).
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).
Revenue for 2007 was $4,180.4 million, up 7% compared to
revenue of $3,904.9 million in 2006. The increase is due to
significant revenue growth at the education division, along with
strong revenue growth at the cable division. Revenues were down
at the Company’s newspaper publishing, magazine publishing and
television broadcasting divisions. Advertising revenue decreased 9%
in 2007, and circulation and subscriber revenue increased 6%.
Education revenue increased 21% in 2007, and other revenue was
up 8%. The decline in advertising revenue is due to declines in print
advertising at The Washington Post, the absence of significant
political and Olympics-related television advertising in 2007 and
declines in the magazine publishing division. The increase in
circulation and subscriber revenue is due to a 12% increase in
subscriber revenue at the cable division from continued growth in all
major product offerings. This increase was offset by a 5% decrease
in circulation revenue at The Post and a 6% decline in Newsweek
circulation revenue due to subscription rate declines at the domestic
and international editions of Newsweek. Revenue growth at Kaplan
(about 38% of which was from acquisitions) accounted for the
increase in education revenue.
Operating costs and expenses for the year increased 7% to
$3,703.4 million, from $3,445.1 million in 2006. The increase is
primarily due to higher expenses from operating growth at Kaplan
and Cable ONE, and increased stock compensation expense,
offset by charges of $50.9 million in early retirement plan buyouts
at The Washington Post and the Company’s corporate office in
2006.
44 THE WASHINGTON POST COMPANY