Washington Post 2008 Annual Report Download - page 58

declined in 2007 primarily due to the fourth quarter 2006 charge
of $13.0 million related to an agreement to settle a lawsuit, along
with a reduction in technology and other general expenses in the
fourth quarter of 2007.
Other includes 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 stock compensation expense of $41.3 million in 2007,
compared to $27.7 million in 2006 (excluding stock compensation
recorded in the first quarter of 2006 related to a change in
accounting discussed below). The increase in the charge for 2007
reflects growth and improved prospects for several Kaplan
businesses, as well as an increase in public market values of other
education companies. In addition, Other includes amortization of
certain intangibles, which increased by $9.5 million in 2007 due
to recent Kaplan acquisitions.
Cable Television Division. Cable television division revenue of
$626.4 million for 2007 represents an 11% increase from
$565.9 million in 2006. The 2007 revenue increase is due to
continued growth in the division’s cable modem and digital
revenues, along with revenues from telephony services. The cable
division did not raise basic video cable service rates in 2007,
having last implemented a basic video cable service rate increase
of $3 per month at most of its systems effective February 1, 2006.
In September 2007, a $3.05 monthly rate increase was
implemented for a majority of high-speed data subscribers. Effective
January 1, 2008, the cable division implemented a basic video
cable service rate increase of $3.50 per month at nearly all of its
systems.
Cable division operating income increased in 2007 to $123.7
million, from $120.0 million in 2006. This increase is due to the
division’s revenue growth, offset by increases in programming,
telephony and technical costs. The annual trends are also impacted
by certain activity in the prior year. In 2006, the cable division
incurred an estimated $5.4 million in incremental cleanup and
repair expense from Hurricane Katrina, offset by $10.4 million in
2006 insurance recoveries. Operating margin at the cable
television division was 20% in 2007, compared to 21% in 2006.
At December 31, 2007, Revenue Generating Units (RGUs) grew
11% due to continued growth in high-speed data and telephony
subscribers and increases in the basic video and digital video
subscriber categories. The cable division began offering telephone
service on a very limited basis in the second quarter of 2006; as of
December 31, 2007, telephone service is being offered in all or
part of systems representing 90% of homes passed. A summary of
RGUs is as follows:
Cable Television Division Subscribers December 31, 2007 December 31, 2006
Basic ....................... 702,669 693,550
Digital ....................... 223,931 213,873
High-speed data ............... 341,034 289,010
Telephony .................... 58,640 2,925
Total ...................... 1,326,274 1,199,358
RGUs include about 6,700 subscribers who receive free basic
video service, primarily local governments, schools and other
organizations as required by various franchise agreements.
Below are details of cable division capital expenditures for 2007
and 2006 in the NCTA Standard Reporting Categories:
(in millions) 2007 2006
Customer premise equipment ................ $ 52.5 $ 49.7
Commercial ............................ —0.1
Scalable infrastructure ..................... 20.6 24.4
Line extensions .......................... 21.1 19.4
Upgrade/rebuild ........................ 12.8 9.5
Support capital .......................... 31.3 39.4
Total ................................ $138.3 $142.5
Newspaper Publishing Division. Newspaper publishing division
revenue in 2007 decreased 7% to $889.8 million, from
$961.9 million in 2006. Division operating income for 2007
totaled $66.4 million, compared to $63.4 million in 2006. The
increase in operating income for 2007 is due primarily to $47.1
million in pre-tax charges associated with early retirement plan
buyouts at The Washington Post during 2006. Excluding this charge,
operating income was down sharply for 2007 due to a decline in
division revenues and a $2.3 million pre-tax gain on the sale of
property in 2006, partially offset by a reduction in newspaper
division operating expenses, including a 19% reduction in newsprint
expense. Operating margin at the newspaper publishing division
was 7% for 2007 and 2006; however, the 2007 operating margin
declined significantly, excluding the $47.1 million in early retirement
plan buyouts in 2006.
Print advertising revenue at The Post in 2007 declined 13% to
$496.2 million, from $573.2 million in 2006. The decline in
2007 is due to reductions in real estate, classified, general and
retail. Daily circulation at The Post declined 3.6%, and Sunday
circulation declined 3.7% in 2007; average daily circulation
totaled 649,700 (unaudited), and average Sunday circulation
totaled 902,500 (unaudited).
During 2007, revenue generated by the Company’s online
publishing activities, primarily washingtonpost.com, increased 11%
to $114.2 million, from $102.7 million in 2006. Display online
advertising revenue grew 16%, and online classified advertising
revenue on washingtonpost.com increased 10%. A portion of the
Company’s online publishing revenue is included in the magazine
publishing division.
In February 2008, the Company announced that a Voluntary
Retirement Incentive Program would be offered to some employees
of The Washington Post newspaper and the Company’s corporate
office, funded primarily from the assets of the Company’s pension
plans. The Company also announced that The Post will close its
College Park, MD, printing plant.
Television Broadcasting Division. Revenue for the television
broadcasting division decreased 6% to $340.0 million in 2007,
from $361.9 million in 2006. The revenue decline is due to a
46 THE WASHINGTON POST COMPANY