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Notes to Consolidated Financial Statements
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I A I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Washington Post Company (the “Company”) is a diversified media organization whose principal operations consist of newspaper publishing (primarily The Washington Post newspaper), television broadcasting (through the ownership and operation of six network-affiliated television stations), the ownership and operation of cable television systems, and magazine publishing (primarily Newsweek magazine). Through its subsidiary Kaplan, Inc., the Company provides educational services for individuals, schools and businesses. The Company also owns and operates a number of media Web sites for the primary purpose of developing the Company’s newspaper and magazine publishing businesses on the World Wide Web. Fiscal Year. The Company reports on a 52-53 week fiscal year ending on the Sunday nearest December 31. The fiscal years 2000 and 1999, which ended on December 31, 2000 and January 2, 2000, respectively, both included 52 weeks, while 1998, which ended on January 3, 1999, included 53 weeks. With the exception of the newspaper publishing operations, subsidiaries of the Company report on a calendar-year basis. Principles of Consolidation. The accompanying financial statements include the accounts of the Company and its subsidiaries; significant intercompany transactions have been eliminated. Presentation. Certain amounts in previously issued financial statements have been reclassified to conform to the 2000 presentation. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Cash Equivalents. Short-term investments with original maturities of 90 days or less are considered cash equivalents. Investments in Marketable Equity Securities. The Company’s investments in marketable equity securities are classified as available-for-sale and therefore are recorded at fair value in the Consolidated Balance Sheets, with the change in fair value during the period excluded from earnings and recorded net of tax as a separate component of comprehensive income. Inventories. Inventories are valued at the lower of cost or market. Cost of newsprint is determined by the first-in, first-out method, and cost of magazine paper is determined by the specific-cost method. Property, Plant, and Equipment. Property, plant, and equipment is recorded at cost and includes interest capitalized in connection with major long-term construction projects. Replacements and major improvements are capitalized; maintenance and repairs are charged to operations as incurred. Depreciation is calculated
using the straight-line method over the estimated useful lives of the
property, plant, and equipment: 3 to 20 years for machinery and equipment,
and 20 to 50 years for buildings. The costs of leasehold improvements
are amortized over the lesser Investments in Affiliates. The Company uses the equity method of accounting for its investments in and earnings or losses of affiliates for which it does not control but does exert significant influence. Cost Method Investments. The Company uses the cost method of accounting for its minority investments in non-public companies where it does not have significant influence over the operations and management of the investee. Investments are recorded at the lower of cost or fair value as estimated by management. Goodwill and Other Intangibles. Goodwill and other intangibles represent the unamortized excess of the cost of acquiring subsidiary companies over the fair values of such companies’ net tangible assets at the dates of acquisition. Goodwill and other intangibles are being amortized by use of the straight-line method over periods ranging from 15 to 40 years (with the majority being amortized over 15 to 25 years). Long-lived Assets. The recoverability of long-lived assets, including goodwill and other intangibles, is assessed whenever adverse events and changes in circumstances indicate that previously anticipated undiscounted cash flows warrant assessment. Program Rights. The broadcast subsidiaries are parties to agreements that entitle them to show syndicated and other programs on television. The cost of such program rights is recorded when the programs are available for broadcasting, and such costs are charged to operations as the programming is aired. Revenue Recognition. Revenue from media advertising is recognized, net of agency commissions, when the underlying advertisement is published or broadcast. Revenues from newspaper and magazine subscriptions are recognized upon delivery. Revenues from newspaper and magazine retail sales are recognized upon delivery with adequate provision made for anticipated sales returns. Cable subscriber revenue is recognized monthly as earned. Education revenue is recognized ratably over the period during which educational services are delivered. The Company bases its estimates for sales returns on historical experience and has not experienced significant fluctuations between estimated and actual return activity. Amounts received from customers in advance of revenue recognition are deferred as liabilities. Deferred revenue to be earned after one year is included in “Other Liabilities” in the Consolidated Balance Sheets. Postretirement Benefits Other Than Pensions. The Company provides certain healthcare and life insurance benefits for retired employees. The expected cost of providing these postretirement benefits is accrued over the years that employees render services. Income Taxes. The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Foreign Currency Translation. Gains and losses on foreign currency transactions and the translation of the accounts of the Company’s foreign operations where the U.S. dollar is the functional currency are recognized currently in the Consolidated Statements of Income. Gains and losses on translation of the accounts of the Company’s foreign operations, where the local currency is the functional currency, and the Company’s equity investments in its foreign affiliates are accumulated and reported as a separate component of equity and comprehensive income. Stock-based Compensation. The Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Pro forma disclosures of net income and earnings per share as if the fair-value based method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” had been applied in measuring compensation expense are provided in Note G. Sale of Subsidiary/Affiliate Securities. The Company’s policy is to record investment basis gains arising from the sale of equity interests in subsidiaries and affiliates that are in the early stages of building their operations as additional paid-in capital, net of taxes. New Accounting Pronouncements. In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements (‘SAB 101’).” This bulletin summarized certain of the SEC’s views regarding the application of generally accepted accounting principles to revenue recognition in financial statements. SAB 101 did not have a material impact on the Company’s financial statements. In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” effective for fiscal year 2001. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires companies to recognize derivative instruments as either an asset or liability on the balance sheet at fair value. This statement did not have a material impact on the Company’s financial statements as the Company does not engage in significant derivative or hedging activities. I
B I ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2000 and January 2, 2000 consist of the following (in thousands):  Investments in Marketable Equity Securities. Investments in marketable equity securities at December 31, 2000 and January 2, 2000 consist of the following (in thousands):
At December 31, 2000, the Company’s ownership of 2,634 shares of Berkshire Hathaway Inc. (“Berkshire”) Class A common stock and 9,845 shares of Berkshire Class B common stock accounted for $210,189,000 or 95 percent of the total fair value of the Company’s investments in marketable equity securities. The remaining investments in marketable equity securities at December 31, 2000 consist of common stock investments in various publicly traded companies, most of which have concentrations in Internet business activities. In most cases, the Company obtained ownership of these common stocks as a result of merger or acquisition transactions in which these companies merged or acquired various small Internet-related companies in which the Company held minor investments. Berkshire is a holding company owning subsidiaries engaged in a number of diverse business activities; the most significant of which consist of property and casualty insurance business conducted on both a direct and reinsurance basis. Berkshire also owns approximately 18 percent of the common stock of the Company. The chairman, chief executive officer, and largest shareholder of Berkshire, Mr. Warren Buffett, is a member of the Company’s Board of Directors. Neither Berkshire nor Mr. Buffett participated in the Company’s evaluation, approval, or execution of its decision to invest in Berkshire common stock. The Company’s investment in Berkshire common stock is less than 1 percent of the consolidated equity of Berkshire. At December 31, 2000, the unrealized gain related to the Company’s Berkshire stock investment totaled $25,271,000; the unrealized loss on this investment was $19,134,000 at January 2, 2000. The Company presently intends to hold the Berkshire common stock investment long term; thus the investment has been classified as a non-current asset in the Consolidated Balance Sheets. During 2000, 1999, and 1998 proceeds from sales of marketable equity securities were $6,332,000, $54,805,000, and $38,246,000, respectively, and gross realized gains on such sales were $4,929,000, $38,799,000, and $2,168,000, respectively. Gross realized gains or losses upon the sale of marketable equity securities are included in “Other (expense) income, net” in the Consolidated Statements of Income. For purposes of computing realized gains and losses, the cost basis of securities sold is determined by specific identification. Investments in Affiliates. The Company’s investments in affiliates at December 31, 2000 and January 2, 2000 include the following (in thousands):
The Company’s investments in affiliates consist of a 42 percent interest in BrassRing, Inc., which provides recruiting, career development and hiring management services for employers and job candidates; a 49 percent interest in the common stock of Bowater Mersey Paper Company Limited, which owns and operates a newsprint mill in Nova Scotia; a 50 percent common stock interest in the International Herald Tribune newspaper, published near Paris, France; and a 50 percent common stock interest in the Los Angeles Times-Washington Post News Service, Inc. Summarized financial data for the affiliates’ operations are as follows (in thousands):
The following table summarizes the status and results of the Company’s investments in affiliates (in thousands):
On September 29, 1999, the Company merged its career fair and HireSystems businesses together and renamed the combined operations BrassRing, Inc. On the same date, BrassRing issued stock representing a 46 percent equity interest to two parties under two separate transactions for cash and businesses with an aggregate fair value of $87,000,000. As a result of this transaction, the Company’s ownership of BrassRing was reduced to 54 percent and the minority investors were granted certain participatory rights. As such, the Company de-consolidated BrassRing on September 29, 1999 and recorded its investment under the equity method of accounting. The 1999 increase in the basis of the Company’s investment in BrassRing resulting from this transaction of $34,571,000, net of taxes, has been recorded as contributed capital. During 2000, SBrassRing issued stock to various parties in connection with its acquisitions of various career fair and recruiting services companies. The effect of these transactions reduced the Company’s investment interest in BrassRing to 42 percent, from 54 percent at January 2, 2000, and increased the Company’s investment basis in BrassRing by $13,332,000, net of taxes. The increase in investment basis has been recorded as contributed capital. Cost Method Investments. The Company’s cost method investments consist of minority investments in non-public companies where the Company does not have significant influence over the investees’ operating and management decisions. Most of the companies represented by these cost method investments have concentrations in Internetrelated business activities. At December 31, 2000 and January 2, 2000, the carrying value of the Company’s cost method investments was $48,617,000 and $30,009,000, respectively. Cost method investments are included in Deferred Charges and Other Assets in the Consolidated Balance Sheets. During 2000 and 1999, the Company invested $42,459,000 and $33,549,000, respectively, in companies constituting cost method investments and recorded charges of $23,097,000 and $13,555,000, respectively, to write-down cost method investments to estimated fair value. The company made no significant investments in cost method investments during 1998. Charges recorded to write-down cost method investments are included in “Other (expense) income, net” in the Consolidated Statements of Income. During 2000, proceeds from sales of cost method investments were $7,070,000, and gross realized gains on such sales were $6,570,000. There were no sales of cost method investments in 1999 or 1998. Gross realized gains or losses upon the sale of cost method investments are included in “Other (expense) income, net” in the Consolidated Statements of Income. I D I INCOME TAXES The provision for income taxes consists of the following (in thousands):
The provision for income taxes exceeds the amount of income tax determined by applying the U.S. Federal statutory rate of 35 percent to income before taxes as a result of the following (in thousands):
Deferred income taxes at December 31, 2000 and January 2, 2000 consist of the following (in thousands):
I E I DEBT At December 31, 2000, the Company had $923,267,000 in total debt outstanding, which was comprised of $525,386,000 of commercial paper borrowings and $397,881,000 of 5.5 percent unsecured notes due February 15, 2009. At December 31, 2000, the Company has classified $475,386,000 of its commercial paper borrowings as Long-Term Debt in its Consolidated Balance Sheets as the Company has the ability and intent to finance such borrowings on a long-term basis under its credit agreements. Interest on the 5.5 percent unsecured notes is payable semi-annually on February 15 and August 15. At December 31, 2000 and January 2, 2000, the average interest rate on the Company’s outstanding commercial paper borrowings was 6.6 percent and 6.4 percent, respectively. The Company’s commercial paper borrowings are supported by a five-year $500,000,000 revolving credit facility and a one-year $250,000,000 revolving credit facility. Under the terms of the $500,000,000 revolving credit facility, interest on borrowings is at floating rates, and the Company is required to pay an annual facility fee of 0.055 percent and 0.15 percent on the unused and used portions of the facility, respectively. Under the terms of the $250,000,000 revolving credit facility, interest on borrowings is at floating rates, and the company is required to pay a variable facility fee, ranging from 0.03 percent to 0.05 percent per annum, on the used and unused portion of the facility. Both revolving credit facilities contain certain covenants, including a financial covenant that the Company maintain at least $850,000,000 of consolidated shareholder’s equity. The Company incurred interest costs on its borrowing of $52,700,000 and $25,700,000 during 2000 and 1999, respectively, of which $1,800,000 was capitalized in 1999 in connection with the construction and upgrade of qualifying assets. No interest expense was capitalized in 2000. At December 31, 2000 and January 2, 2000, the fair value of the Company’s 5.5 percent unsecured notes, based on quoted market prices, totaled $376,200,000 and $353,920,000, respectively, compared with the carrying amount of $397,881,000 and $397,620,000, respectively. The carrying value of the Company’s commercial paper borrowings at December 31, 2000 and January 2, 2000 approximates fair value. I F I REDEEMABLE PREFERRED STOCK In connection with the acquisition of a cable television system in 1996, the Company issued 11,947 shares of its Series A Preferred Stock. On February 23, 2000, the Company issued an additional 1,275 shares related to this transaction. During 1998, the Company redeemed 74 shares of the Series A Preferred Stock at the request of a Series A Preferred Stockholder. The Series A Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share; it is redeemable by the Company at any time on or after October 1, 2015 at a redemption price of $1,000 per share. In addition, the holders of such stock have a right to require the Company to purchase their shares at the redemption price during an annual 60-day election period, with the first such period beginning on February 23, 2001. Dividends on the Series A Preferred Stock are payable four times a year at the annual rate of $80.00 per share and in preference to any dividends on the Company’s common stock. The Series A Preferred Stock is not convertible into any other security of the Company, and the holders thereof have no voting rights except with respect to any proposed changes in the preferences and special rights of such stock. I G I CAPITAL STOCK, STOCK AWARDS, AND STOCK OPTIONS Capital Stock. Each share of Class A common stock and Class B common stock participates equally in dividends. The Class B stock has limited voting rights and as a class has the right to elect 30 percent of the Board of Directors; the Class A stock has unlimited voting rights, including the right to elect a majority of the Board of Directors. During 2000, 1999, and 1998, the Company purchased a total of 200, 744,095, and 41,033 shares, respectively, of its Class B common stock at a cost of approximately $96,000, $425,865,000, and $20,512,000. Stock Awards. In 1982, the Company adopted a long-term incentive compensation plan, which, among other provisions, authorizes the awarding of Class B common stock to key employees. Stock awards made under this incentive compensation plan are subject to the general restriction that stock awarded to a participant will be forfeited and revert to Company ownership if the participant’s employment terminates before the end of a specified period of service to the Company. At December 31, 2000, there were 87,910 shares reserved for issuance under the incentive compensation plan. Of this number, 30,165 shares were subject to awards outstanding, and 57,745 shares were available for future awards. Activity related to stock awards under the long-term incentive compensation plan for the years ended December 31, 2000, January 2, 2000, and January 3, 1999 was as follows:
In addition to stock awards granted under the long-term incentive compensation plan, the Company also made stock awards of 1,950 shares in 2000, 1,750 shares in 1999, and 938 shares in 1998. For the share awards outstanding at December 31, 2000, the aforementioned restriction will lapse in 2001 for 15,833 shares, in 2002 for 1,371 shares, in 2003 for 16,649 shares, and in 2004 for 2,050 shares. Stock-based compensation costs resulting from stock awards reduced net income by $2.4 million ($0.25 per share, basic and diluted), $2.2 million ($0.22 per share, basic and diluted), and $1.9 million ($0.19 per share, basic and diluted), in 2000, 1999, and 1998, respectively. Stock Options. The Company’s employee stock option plan, which was adopted in 1971 and amended in 1993, reserves 1,900,000 shares of the Company’s Class B common stock for options to be granted under the plan. The purchase price of the shares covered by an option cannot be less than the fair value on the granting date. At December 31, 2000, there were 503,575 shares reserved for issuance under the stock option plan, of which 166,450 shares were subject to options outstanding and 337,125 shares were available for future grants. Changes in options outstanding for the years ended December 31, 2000, January 2, 2000, and January 3, 1999 were as follows:
Of the shares covered by options outstanding at the end of 2000, 75,463 are now exercisable, 31,612 will become exercisable in 2001, 25,375 will become exercisable in 2002, 20,250 will become exercisable in 2003, and 13,750 will become exercisable in 2004. Information related to stock options outstanding at December 31, 2000 is as follows:
All options were granted at an exercise price equal to or greater than the fair market value of the Company’s common stock at the date of grant. The weighted-average fair value for options granted during 2000, 1999, and 1998 was $161.15, $157.77, and $126.57, respectively. The fair value of options at date of grant was estimated using the Black-Scholes method utilizing the following assumptions:
Had the fair values of options granted after 1995 been recognized as compensation expense, net income would have been reduced by $3.8 million ($0.40 per share, basic and diluted), $1.9 million ($0.19 per share, basic and diluted), and $2.0 million ($0.19 per share, basic and diluted) in 2000, 1999, and 1998, respectively. The Company also maintains
a stock option plan at its Kaplan subsidiary that provides for the issuance
of stock options representing 15 percent of Kaplan, Inc. common stock
to certain members of Kaplan’s management. Under the provisions of
this plan, options are issued with an exercise price equal to the estimated
fair value of Kaplan’s common stock. Options vest ratably over five
years from issuance, and upon exercise, an option holder has the right
to require the Company to repurchase the Kaplan stock at the stock’s
then fair value. The fair value of Kaplan’s common stock is determined
by the Company’s compensation committee. At December 31, 2000, options
representing 12.5 percent of Kaplan’s common stock were issued and
outstanding. For 2000, 1999, and 1998, the Company recorded expense of
$6,000,000, $7,200,000, and $6,000,000, respectively, related to this
plan. No options have been exercised Average Number of Shares Outstanding. Basic earnings per share are based on the weighted average number of shares of common stock outstanding during each year. Diluted earnings per common share are based upon the weighted average number of shares of common stock outstanding each year, adjusted for the dilutive effect of shares issuable under outstanding stock options. Basic and diluted weighted average share information for 2000, 1999, and 1998 is as follows:
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H I PENSIONS AND OTHER POSTRETIREMENT PLANS The Company also provides healthcare and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements. The following table sets forth obligation, asset, and funding information for the Company’s defined benefit pension and postretirement plans at December 31, 2000 and January 2, 2000 (in thousands):
The total (income) cost arising from the Company’s defined benefit pension and postretirement plans for the years ended December 31, 2000, January 2, 2000, and January 3, 1999, consists of the following components (in thousands):
The cost for the Company’s defined benefit pension and postretirement plans are actuarially determined. Key assumptions utilized at December 31, 2000, January 2, 2000, and January 3, 1999 include the following:
The assumed healthcare cost trend rate used in measuring the postretirement benefit obligation at December 31, 2000 was 6.9 percent for pre-age 65 benefits (6.4 percent for post-age 65 benefits) decreasing to 5 percent in the year 2005 and thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage point change in the assumed healthcare cost trend rates would have the following effects (in thousands):
Contributions to multi-employer pension plans, which are generally based on hours worked, amounted to $1,100,000 in 2000 and $2,300,000 in 1999 and 1998. The Company recorded expense associated with retirement benefits provided under incentive savings plans (primarily 401(k) plans) of approximately $13,300,000 in 2000, 1999, and 1998. I I I LEASE AND OTHER COMMITMENTS The Company leases real property under operating agreements. Many of the leases contain renewal options and escalation clauses that require payments of additional rent to the extent of increases in the related operating costs. At December 31, 2000, future minimum rental payments under noncancelable operating leases approximate the following (in thousands):
Minimum payments have not been reduced by minimum sublease rentals of $3,250,000 due in the future under noncancelable subleases. Rent expense under operating leases included in operating costs and expenses was approximately $49,700,000, $33,600,000, and $31,800,000 in 2000, 1999, and 1998, respectively. Sublease income was approximately $1,150,000, $433,000, and $500,000 in 2000, 1999, and 1998, respectively. The Company’s broadcast subsidiaries are parties to certain agreements that commit them to purchase programming to be produced in future years. At December 31, 2000, such commitments amounted to approximately $62,800,000. If such programs are not produced, the Company’s commitment would expire without obligation. I J I ACQUISITIONS AND DISPOSITIONS Acquisitions. The Company completed acquisitions totaling approximately $212,300,000 in 2000 (including assumed debt and related acquisition costs), $90,500,000 in 1999, and $320,600,000 in 1998. All of these acquisitions were accounted for using the purchase method, and accordingly, the assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition. On August 2, 2000, the Company acquired Quest Education Corporation (Quest) for approximately $177,700,000, including assumed debt. The acquisition of Quest was completed through an all cash tender offer in which the company purchased substantially all of the outstanding stock of Quest for $18.35 per share. The acquisition was financed through the issuance of additional borrowings. Quest is a provider of post-secondary education, currently serving nearly 13,000 students in 34 schools located in 13 states. Quest’s schools offer Bachelor’s degrees, Associate’s degrees, and diploma programs designed to provide students with the knowledge and skills necessary to qualify them for entry-level employment, primarily in the fields of healthcare, business, information technology, fashion, and design. In addition, the Company acquired two cable systems serving approximately 8,500 subscribers in Nebraska (in June 2000) and Mississippi (in August 2000) for approximately $16,200,000, as well as various other smaller businesses throughout 2000 for $18,400,000 (principally consisting of educational services companies). During 1999, the Company acquired cable systems serving 10,300 subscribers in North Dakota, Oklahoma, and Arizona (April and August 1999 for $18,300,000); two Certified Financial Analyst test preparation companies (November and December 1999 for $16,000,000), and a travel guide magazine (in December 1999 for $10,200,000). In addition, the Company acquired various other smaller businesses throughout 1999 for $46,000,000 (principally consisting of educational services companies). Acquisitions in 1998 included an educational services company that provides English-language study programs (in January 1998 for $16,100,000); a 36,000-subscriber cable system serving Anniston, Alabama (in June 1998 for $66,500,000); cable systems serving 72,000 subscribers in Mississippi, Louisiana, Texas, and Oklahoma (in July 1998 for $130,100,000); and a publisher and provider of licensing training for securities, insurance, and real estate professionals (in July 1998 for $35,200,000). In addition, the Company acquired various other smaller businesses throughout 1998 for $72,700,000 (principally consisting of educational and career service companies and small cable systems). The results of operations for each of the businesses acquired are included in the Consolidated Statements of Income from their respective dates of acquisition. Pro forma results of operations for 2000, 1999, and 1998, assuming the acquisitions occurred at the beginning of 1998, are not materially different from reported results of operations. Dispositions. In June 1999, the Company sold the assets of Legi-Slate, Inc., its online services subsidiary that covered Federal legislation and regulation. No significant gain or loss was realized as a result of the sale. In March 1998, Cowles Media Company (“Cowles”) and McClatchy Newspapers, Inc. (“McClatchy”) completed a series of transactions resulting in the merger of Cowles and McClatchy. In the merger, each share of Cowles common stock was converted (based upon elections of Cowles stockholders) into shares of McClatchy stock or a combination of cash and McClatchy stock. As of the date of the Cowles and McClatchy merger transaction, a wholly-owned subsidiary of the Company owned 3,893,796 shares (equal to about 28 percent) of the outstanding common stock of Cowles, most of which was acquired in 1985. As a result of the transaction, the Company’s subsidiary received $330,500,000 in cash from McClatchy and 730,525 shares of McClatchy Class A common stock. The market value of the McClatchy stock received approximated $21,600,000. The gain resulting from this transaction, which is included in 1998 “Other (expense) income, net” in the Consolidated Statements of Income, increased net income by approximately $162,800,000 and basic and diluted earnings per share by $16.14 and $16.07, respectively. In July 1998, the Company completed the sale of 14 small cable systems in Texas, Missouri, and Kansas serving approximately 29,000 subscribers for approximately $41,900,000. The gain resulting from this transaction, which is included in 1998 “Other (expense) income, net” in the Consolidated Statements of Income, increased net income by approximately $17,300,000 and basic and diluted earnings per share by $1.71. In August 1998, Junglee Corporation (“Junglee”) merged with a wholly-owned subsidiary of Amazon.com Inc. (“Amazon.com”). As a result, each share of Junglee common and preferred stock was converted into shares of Amazon.com. On the date of the merger, a wholly-owned subsidiary of the Company owned 750,000 common shares and 750,000 preferred shares of Junglee. As a result of the merger, the Company’s subsidiary received 202,961 shares of Amazon.com common stock. The market value of the Amazon.com stock received approximated $25,200,000 on the date of the merger. The gain resulting from this transaction, which is included in 1998 “Other (expense) income, net” in the Consolidated Statements of Income, increased net income by approximately $14,300,000 and basic and diluted earnings per share by $1.42 and $1.41, respectively. I
K I CONTINGENCIES The Company’s education division derives a portion of its net revenues from financial aid received by its students under Title IV programs (“Title IV Programs”) administered by the United States Department of Education pursuant to the Federal Higher Education Act of 1965, (“HEA”), as amended. In order to participate in Title IV Programs, the Company must comply with complex standards set forth in the HEA and the regulations promulgated thereunder (the “Regulations”). The failure to comply with the requirements of HEA or the Regulations could result in the restriction or loss of the ability to participate in Title IV Programs and subject the Company to financial penalties. For the year ended December 31, 2000, approximately $35,000,000 of the Company’s education division revenues were derived from financial aid received by students under Title IV Programs. These revenues were earned and recognized by Quest following the Company’s acquisition of Quest in August 2000. Management believes that the Company’s education division schools that participate in Title IV Programs are in material compliance with the standards set forth in the HEA and the Regulations. I L I BUSINESS SEGMENTS The Company operates principally in four areas of the media business: newspaper publishing, television broadcasting, magazine publishing, and cable television. Through its subsidiary Kaplan, Inc., the Company also provides educational services for individuals, schools, and businesses. Newspaper operations involve the publication of newspapers in the Washington, D.C., area and Everett, Washington; newsprint ware-housing and recycling facilities; and the Company’s electronic media publishing business (primarily washingtonpost.com). Magazine operations consist principally of the publication of a weekly news magazine, Newsweek, which has one domestic and three international editions and the publication of business periodicals for the computer services industry and the Washington-area technology community. Revenues from both newspaper and magazine publishing operations are derived from advertising and, to a lesser extent, from circulation. Broadcast operations are conducted through six VHF television stations. All stations are network affiliated, with revenues derived primarily from sales of advertising time. Cable television operations consist of cable systems offering basic cable and pay television services to approximately 735,000 subscribers in 18 midwestern, western, and southern states. The principal source of revenues is monthly subscription fees charged for services. Educational products and services are provided through the Company’s wholly-owned subsidiary Kaplan, Inc. Kaplan’s five major lines of businesses include Test Preparation and Admissions, providing test preparation services for college and graduate school entrance exams; Quest Education Corporation, a provider of post-secondary education offering Bachelor’s degrees, Associate’s degrees and diploma programs primarily in the fields of healthcare, business and information technology; Kaplan Professional, providing educational services to business people and other professionals; Score!, offering multi-media learning and private tutoring to children and educational resources to parents; and The Kaplan Colleges, Kaplan’s distance learning businesses, including kaplancollege.com. Other businesses and corporate office includes the Company’s corporate office. Through the first half of 1999, the other businesses and corporate office segment also includes the result of Legi-Slate, Inc., which was sold in June 1999. The 1998 results for other businesses and corporate office include Moffet, Larson & Johnson, which was sold in July 1998. Income from operations is the excess of operating revenues over operating expenses. In computing income from operations by segment, the effects of equity in earnings of affiliates, interest income, interest expense, other non-operating income and expense items, and income taxes are not included. Identifiable assets by segment are those assets used in the Company’s operations in each business segment. Investments in marketable equity securities and investments in affiliates are discussed in Note C.
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The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Income due to rounding. |
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