Washington Post 2009 Annual Report Download - page 57

The Company incurred net interest expense of $29.0 million in
2009, compared to $19.0 million in 2008. The increases are
due to higher average interest rates in 2009 compared to 2008,
as well as a decline in interest income. At January 3, 2010, the
Company had $399.3 million in borrowings outstanding at an
average interest rate of 7.2%; at December 28, 2008, the
Company had $553.8 million in borrowings outstanding at an
average interest rate of 4.1%.
Income Taxes. The effective tax rate for 2009 was 38.7%. This
effective tax rate was adversely impacted by $12.2 million in
noncash valuation allowances provided against deferred state and
local income tax benefits, net of U.S. Federal income taxes, and
$3.3 million from nondeductible goodwill in connection with
impairment charges recorded in 2009; these items were offset by
favorable adjustments recorded for a reduction in state income
taxes and for prior year permanent U.S. Federal tax deductions.
The effective tax rate for 2008 was 54.7%. This high effective tax
rate was due to $31.1 million from nondeductible goodwill in
connection with impairment charges recorded in 2008 and $9.5
million in noncash 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.
RESULTS OF OPERATIONS—2008 COMPARED TO 2007
Net income was $65.8 million ($6.87 per share) for the fiscal
year ended December 28, 2008, down from $289.0 million
($30.19 per share) for the fiscal year ended December 30, 2007.
The Company’s results for 2008 and 2007 include several unusual
or one-time items, as described below.
Items included in the Company’s results in 2008:
• Goodwill, intangible assets and other impairment charges of
$142.3 million at the Company’s online lead generation
business, included in the other businesses and corporate office
segment; at the Company’s community newspapers, The Herald
and other operations, included in the newspaper publishing
segment; and at two of the Company’s equity affiliates (after-tax
impact of $115.7 million, or $12.35 per share);
• Charges of $111.1 million related to early retirement program
expense at The Washington Post newspaper, the corporate office
and Newsweek (after-tax impact of $67.2 million, or $7.07 per
share);
• $22.3 million in accelerated depreciation related to the planned
closing of The Washington Post’s College Park, MD, plant
(after-tax impact of $13.9 million, or $1.48 per share);
• Expenses and charges of $11.0 million (after-tax impact of $6.8
million, or $0.72 per share) in connection with the restructuring of
Test Preparation’s professional training businesses;
• Non-operating gains include $47.3 million from the sales of
marketable equity securities (after-tax impact of $28.9 million, or
$3.09 per share), offset by $46.3 million in non-operating
unrealized foreign currency losses arising from the strengthening
of the U.S. dollar (after-tax impact of $28.5 million, or $3.04
per share); and
• Income tax expense of $9.5 million related to valuation
allowances provided against certain state and local income tax
benefits, net of U.S. Federal income tax benefits ($1.01 per
share).
Items included in the Company’s results in 2007:
• 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);
• Expenses and charges of $17.2 million (after-tax impact of
$10.3 million, or $1.08 per share) in connection with the
restructuring of Kaplan’s Score and Test Preparation operations;
• Non-operating unrealized foreign currency gains on
intercompany loans of $8.8 million (after-tax impact of $5.5
million, or $0.58 per share); and
• A charge of $6.6 million ($0.70 per share) in additional income
tax expense, 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 noncash items in 2007, impacting the
Company’s long-term net deferred income tax liabilities.
Revenue for 2008 was $4,461.6 million, up 7% compared to
revenue of $4,180.4 million in 2007. The increase is due primarily
to significant revenue growth at the education and cable divisions,
partially offset by revenue declines at the Company’s newspaper
publishing, magazine publishing and television broadcasting
divisions. Advertising revenue decreased 12% in 2008, and
circulation and subscriber revenue increased 10%. Education
revenue increased 15% in 2008, and other revenue was up 49%.
The decrease in advertising revenue is due to declines in print
advertising at The Washington Post, as well as declines in the
television broadcasting and magazine publishing divisions. The
increase in circulation and subscriber revenue is due to a 16%
increase in subscriber revenue at the cable division from continued
growth in all major product offerings, and a 4% increase in
circulation revenue at the Post. This increase was offset by a 12%
decline in Newsweek circulation revenue due primarily to a
circulation rate base reduction at the domestic edition of
Newsweek, from 3.1 million to 2.6 million. Revenue growth at
Kaplan (about 24% of which was from acquisitions) accounted for
the increase in education revenue. Other revenues increased due to
the CourseAdvisor acquisition in October 2007. CourseAdvisor is
now known as Avenue100 Media Solutions.
Operating costs and expenses for the year increased 16% to
$4,287.4 million, from $3,703.4 million in 2007. The increase is
due to higher expenses from operating growth at Kaplan and Cable
ONE, as well as goodwill and other intangible asset impairment
charges, and early retirement program expenses as previously
discussed.
2009 FORM 10-K 43