SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 29, 2002JANUARY 1, 2006

Commission file number 1-6714

The Washington Post Company
(Exact name of registrant as specified in its charter)

   
Delaware 53-0182885
(State or other jurisdiction of incorporation or
organization)
 (I.R.S. Employer Identification No.)
   
1150 15th St., N.W., Washington, D.C. 20071
(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (202) 334-6000

Securities Registered Pursuant to Section 12(b) of the Act:

   
  Name of each exchange
Title of each class on which registered

 
Class B Common Stock, Par Value New York Stock Exchange
$1.00 Per Share  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Act”). Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [x]þ No [  ]o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of  “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):
Large accelerated filer þ           Accelerated filer o          Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [x]o No [  ]þ

Aggregate market value of the Company’s commonvoting stock held by non-affiliates on June 30, 2002,July 1, 2005, based on the closing price for the Company’s Class B Common Stock on the New York Stock Exchange on such date: approximately $2,881,000,000.$4,700,000,000.

Shares of common stock outstanding at February 28, 2003:21, 2006:

Class A Common Stock – 1,722,250 shares
Class B Common Stock – 7,804,4007,879,881 shares

Documents Partially Incorporatedpartially incorporated by Reference:reference:

Definitive Proxy Statement for the Company’s 20032006 Annual Meeting of Stockholders
(incorporated in Part III to the extent provided in Items 10, 11, 12, 13 and 1314 hereof).




 

THE WASHINGTON POST COMPANY 20022005 FORM 10-K
Item 1A.
           
Page
PART IPage

 Business  1 
   Newspaper Publishing  1 
   Television Broadcasting  3 
Magazine Publishing7
   Cable Television Operations  68 
   Magazine Publishing9
Education  12 
Other Activities16
   Other ActivitiesProduction and Raw Materials  1416 
   Production and Raw MaterialsCompetition  1417 
   CompetitionExecutive Officers  1520 
   Executive OfficersEmployees  1820 
   EmployeesForward-Looking Statements  1821 
   Forward-Looking StatementsAvailable Information  1921 
 Risk Factors  Available Information21
Unresolved Staff Comments  1923 
 Properties  1923 
 Legal Proceedings  2024 
 Submission of Matters to a Vote of Security Holders  2125 
PART II
PART II
 Market for the Registrant’s Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities  2125 
 Selected Financial Data  2125 
 Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperation  2225 
 Quantitative and Qualitative Disclosures About Market Risk  2225 
 Financial Statements and Supplementary Data  2226 
 Changes in and Disagreements withWith Accountants on Accounting and Financial Disclosure  2326 
PART IIIControls and Procedures26
Other Information27
PART III
 Directors and Executive Officers of the Registrant  2327 
 Executive Compensation  2327 
 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  2328 
 Certain Relationships and Related Transactions  2328 
 ControlsPrincipal Accountant Fees and ProceduresServices  2328 
PART IV
PART IV
 Exhibits and Financial Statement Schedules and Reports on Form 8-K  2328 
 SIGNATURES  29
INDEX TO FINANCIAL INFORMATION  30 
SIGNATURES24
CERTIFICATIONS25
INDEX TO FINANCIAL INFORMATION27
Management’s Discussion and Analysis of Results of Operations and Financial
Condition (Unaudited)
  2931 
Financial Statements and Schedules:    
    Report of Independent Registered Public Accounting Firm  Report of Independent Accountants3842 
Consolidated Statements of Income for the Three Fiscal Years Ended
   December 29, 2002
39
and Consolidated Statements of Comprehensive Income for the Three Fiscal Years
      Years Ended December 29, 2002January 1, 2006
  3943 
    Consolidated Balance Sheets at January 1, 2006 and January 2, 2005  Consolidated Balance Sheets at December 29, 2002 and December 30, 20014044 
Consolidated Statements of Cash Flows for the Three Fiscal Years Ended
   December 29, 2002 January 1, 2006
  4246 
Consolidated Statements of Changes in Common Shareholders’ Equity for
the Three Fiscal Years Ended December 29, 2002January 1, 2006
  4347 
Notes to Consolidated Financial Statements  4448 
Financial Statement Schedule for the Three Fiscal Years Ended
   December 29, 2002: January 1, 2006:
      II — Valuation and Qualifying Accounts  5765 
Ten-Year Summary of Selected Historical Financial Data (Unaudited)  5866 
INDEX TO EXHIBITS  6169 
Exhibit 11
Exhibit 21
Exhibit 23
Exhibit 24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


PART I

Item 1. Business.

The principal business activities of

The Washington Post Company (the “Company”) is a diversified media and education company. Its media operations consist of newspaper publishing (principallyThe Washington Post), television broadcasting (through the ownership and operation of six VHF television broadcast stations), magazine publishing (principallyNewsweekmagazine), and the ownership and operation of cable television systems, magazine publishing (principallyNewsweekmagazine), and (through itssystems. The Company’s Kaplan subsidiary) the provisionsubsidiary provides a wide variety of educational services.

Information concerning the consolidated operating revenues, consolidated income from operations and identifiable assets attributable to the principal segments of the Company’s business for the last three fiscal years is contained in Note MN to the Company’s Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. (Revenues for each segment are shown in such Note MN net of intersegment sales, which did not exceed 0.1% of consolidated operating revenues.)

During each of the last three years the

The Company’s operations in geographic areas outside the United States (consisting primarily of Kaplan’s foreign operations and the publication of the international editions ofNewsweek) during the Company’s 2005, 2004 and 2003 fiscal years accounted for less than 4%approximately 7%, 6% and 5%, respectively, of the Company’sits consolidated revenues, and the identifiable assets attributable to such operations represented less than 2%approximately 7%, 6% and 6% of the Company’s consolidated assets.

assets at January 1, 2006, January 2, 2005 and December 28, 2003 respectively.

Newspaper Publishing

The Washington Post

WP Company LLC (“WP Company”), a subsidiary of the Company, publishesThe Washington Post,which is a morning and Sunday newspaper primarily distributed by home delivery in the Washington, D.C. metropolitan area, including large portions of Virginia and Maryland.

The following table shows the average paid daily (including Saturday) and Sunday circulation ofThe Postfor the twelve-month12-month periods ended September 30 in each of the last five years, as reported by the Audit Bureau of Circulations (“ABC”) for the years 1998-20012001–2004 and as estimated byThe Postfor the twelve-month12-month period ended September 30, 20022005 (for which period ABC had not completed its audit as of the date of this report) from the semi-annualsemiannual publisher’s statements submitted to ABC for thesix-month periods ended March 31, 2002April 3, 2005 and September 30, 2002:2005:
         
Average Paid Circulation

DailySunday

1998  774,414   1,095,091 
1999  775,005   1,085,060 
2000  777,521   1,075,918 
2001  771,614   1,066,723 
2002  768,600   1,058,889 
         
  Average Paid Circulation
   
  Daily Sunday
   
2001  771,614   1,066,723 
2002  767,843   1,058,458 
2003  749,323   1,035,204 
2004  729,068   1,016,163 
2005  706,135   983,243 

The newsstand price for the daily newspaper was increased from $0.25 (which had been the price since 1981) to $0.35 effective December 31, 2001. The newsstand price for the Sunday newspaper has been $1.50 since 1992. In July 20022004 the rate charged for home-delivered copies of the daily and Sunday newspaper for eachfour-week period was increased to $12.60$14.40 from $11.88,$13.44, which had been the rate since February 2001.July 2003. The corresponding rate charged for Sunday-only home-deliveryhome delivery has been $6.00 since 1991.

General advertising rates were increased by an average of 4.8%approximately 4.5% on January 1, 2002,2005, and by approximately another 3.2%4.0% on January 1, 2003.2006. Rates for most categories of classified and retail advertising were increased by an average of 4.5%approximately 3.4% on February 1, 2002,2005, and by approximately an additional 3.7%4.0% on February 1, 2003.

2006.

The following table sets forthThe PostPost’’ss advertising inches (excluding preprints) and number of preprints for the past five years:
                     
19981999200020012002                     
 2001 2002 2003 2004 2005

  
Total Inches (in thousands)Total Inches (in thousands) 3,199 3,288 3,363 2,714 2,657 Total Inches (in thousands)  2,714  2,657  2,675  2,726  2,661 
Full-Run Inches 2,806 2,745 2,634 2,296 2,180 Full-Run Inches  2,296  2,180  2,121  2,120  1,941 
Part-Run Inches 393 543 729 418 477 Part-Run Inches  418  477  554  606  720 
Preprints (in millions)Preprints (in millions) 1,650 1,647 1,602 1,556 1,656 Preprints (in millions)  1,556  1,656  1,835  1,887  1,833 
2005 FORM 10-K
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The Post

WP Company also publishesThe Washington Post National Weekly Edition,, a tabloid whichthat contains selected articles and features fromThe Washington Postedited for a national audience. TheNational Weekly Editionhas a basic subscription price of $78 per year and is delivered by second classsecond-class mail to approximately 47,00040,000 subscribers.

The Posthas about 675 full-time editors, correspondents, reporters and photographers on its staff,staff; draws upon the news reporting facilities of the major wire servicesservices; and maintains correspondents in 20 news centers abroad and in New York City; Los Angeles; San Francisco; Chicago; Miami; Austin, Texas; and Austin, Texas.Seattle, Washington.The Postalso maintains reporters in 12 local news bureaus.
In 2003, Express Publications Company, LLC (“Express Publications”), another subsidiary of the Company, began publishing a weekday tabloid newspaper namedExpress,which is distributed free of charge using hawkers and news boxes near Metro stations and in other locations in Washington, D.C. and nearby suburbs with heavy daytime sidewalk traffic. A typical edition ofExpressis 40 to 50 pages long and contains short news, entertainment and sports stories as well as both classified and display advertising. Current daily circulation is approximately 185,000 copies.Expressrelies primarily on wire service and syndicated content and is edited by afull-time

newsroom staff of 19. Advertising sales, production, and certain other services forExpressare provided by WP Company.

Washingtonpost.Newsweek Interactive

Washingtonpost.Newsweek Interactive Company, LLC (“WPNI”) develops news and information products for electronic distribution. Since July 1996 this subsidiary of the Company has produced washingtonpost.com, an Internet site that features the full editorial text ofThe Washington Postand most ofThe PostPost’s’s classified advertising, as well as original content created by WPNI’s staff and content obtained from other sources. ThisAs measured by WPNI, this site is currently generating more than 160200 million page views per month. The washingtonpost.com site also features comprehensive information about activities, groups and businesses in the Washington, D.C. area, including an arts and entertainment section and a news section focusing on technology businesses and related policy issues. This site has developed a substantial audience of users who are outside of the Washington, D.C. area, and WPNI believes that at least three-quarters of the unique users accessingwho access the site each month are in that category. During the fall of 2002 WPNI began requiringrequires most users accessing the washingtonpost.com site to register and provide their year of birth, gender, zip code, job title and zip code.the type of industry in which they work. The resulting information helps WPNI provide online advertisers with opportunities to target specific geographic areas and demographic groups. WPNI also offers registered users the option of receiving variouse-mail

newsletters that cover specific topics, including political news and analysis, personal technology, and entertainment.

WPNI also produces theNewsweekInternet site,website, which was launched in 1998 and contains editorial content from the print edition ofNewsweekas well as daily news updates and analysis, photo galleries, Webweb guides and other features.

In June 2005, WPNI assumed responsibility for the production of theBudget Travel magazine website and relaunched it as BudgetTravelOnline.com. This site contains editorial content fromArthur Frommer’s Budget Travelmagazine and other sources.

On January 14, 2005, WPNI purchasedSlate, an online magazine that was founded by Microsoft Corporation in 1996.Slatefeatures articles analyzing news, politics and contemporary culture, and adds new material on a daily basis. Content is supplied by the magazine’s own editorial staff as well as by independent contributors.
WPNI holds a minority equity interest in Classified Ventures LLC, a company formed to compete in the business of providing nationwide classified advertising databases on the Internet. The Classified Ventures databases cover the product categories of automobiles, apartment rentals and real estate. Listings for these databases come from various sources, including direct sales and classified listings from the newspapers of participating companies. Links to the Classified Ventures databases are included in the washingtonpost.com site.

Under an agreement signed in June 2000 and amended in 2003, WPNI and several other business units of the Company have been sharing certain news material and promotional resources with NBC News and MSNBC. Among other things, under this agreement theNewsweekWeb sitewebsite has become a feature on MSNBC.com and MSNBC.com is being provided access to certain content fromThe Washington PostPost.. Similarly, washingtonpost.com is being provided access to certain MSNBC.com multimedia content.

Community Newspaper Division of Post-Newsweek Media

The Community Newspaper Division of Post-Newsweek Media, Inc. publishes two weekly paid-circulation, three twice-weekly paid-circulation and 3935 controlled-circulation weekly community newspapers. This division’s newspapers are divided into two groups:The Gazette Newspapers,, which circulate in Montgomery, Prince George’s and Frederick Counties and in parts of Carroll Anne Arundel and Howard Counties,County, Maryland; andSouthern Maryland Newspapers,, which circulate in southern Prince George’s County and in Charles, St. Mary’s and Calvert Counties, Maryland. During 20022005 these newspapers had a
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THE WASHINGTON POST COMPANY


combined average circulation of approximately 670,000680,000 copies. This division also produces military newspapers (most of which are weekly) under agreements where editorial material is supplied by local military bases; in 20022005 the 1112 military newspapers produced by this division had a combined average circulation of over 200,000more than 195,000 copies.

The Gazette Newspapershave a companion website that includes editorial material and classified advertising from the print newspapers. The military newspapers produced by this division are supported by a website (dcmilitary.com) that includes base guides and other features as well as articles from the print newspapers. Each website also contains display advertising that is sold specifically for the site.
The Gazette NewspapersandSouthern Maryland Newspaperstogether employ approximately 165 editors, reporters and photographers.

This division also operates two commercial printing businesses in suburban Maryland.

The Herald

The Company owns The Daily Herald Company, publisher ofThe Heraldin Everett, Washington, about 30 miles north of Seattle.The Heraldis published mornings seven days a week and is primarily distributed by home delivery in
2


Snohomish County. The Daily Herald Company also provides commercial printing services and publishes sixfour controlled-circulation weekly community newspapers (collectively known asThe Enterprise Newspapers) that are distributed in south Snohomish and north King Counties.

The Herald’s average paid circulation as reported to ABC for the twelve12 months ended September 30, 2002,2005, was 50,00450,438 daily (including Saturday) and 58,20354,953 Sunday. The aggregate average weekly circulation ofThe Enterprise Newspapersduring the twelve-month12-month period ended December 31, 2002,2005, was approximately 69,00073,000 copies.

The HeraldandThe Enterprise Newspaperstogether employ approximately 7580 editors, reporters and photographers.

Greater Washington Publishing

The Company’s Greater Washington Publishing, Inc. subsidiary publishes several free-circulation advertising periodicals whichthat have little or no editorial content and are distributed in the greater Washington, D.C. metropolitan area using sidewalk distribution boxes. Greater Washington Publishing’s two largest periodicals areThe Washington Post Apartment Showcase,, which is published monthly and has an average circulation of about 55,00052,000 copies, andNew Homes Guide,, which is published six times a year and also has an average circulation of about 55,00084,000 copies.

El Tiempo Latino
In 2004 the Company acquired El Tiempo Latino LLC, the publisher ofEl Tiempo Latino, a weekly Spanish-language newspaper that is distributed free of charge in northern Virginia, suburban Maryland and Washington, D.C. using sidewalk news boxes and retail locations that provide space for distribution.El Tiempo Latinoprovides a mix of local, national and international news along with sports and community-events coverage, and has a current circulation of approximately 60,000 copies. Employees of the newspaper handle advertising sales as well as pre-press production, and content is provided by a combination of wire service copy, contributions from freelance writers and photographers, and stories produced by the newspaper’s own editorial staff.
Television Broadcasting

Through subsidiaries, the Company owns six VHF television stations located in Houston, Texas; Detroit, Michigan; Houston, Texas; Miami, Florida; Orlando, Florida; San Antonio, Texas; and Jacksonville, Florida; which are, respectively, the 10th, 11th, 17th, 20th, 37th and 51st52nd largest broadcasting markets in the United States.

Five of the Company’s television stations are affiliated with one or another of the major national networks. The Company’s Jacksonville station, WJXT, ended its affiliation with the CBS network in July 2002 when the parties were unable to negotiate mutually acceptable terms for a renewal of the station’s network affiliation agreement. Subsequent to that date WJXT has been operated as an independent station.station since 2002.
The Company’s 2005 net operating revenues from national and local television advertising and network compensation were as follows:
      
National $101,055,000 
Local  212,379,000 
Network  13,810,000 
    
 Total $327,244,000 
    
2005 FORM 10-K
3


The following table sets forth certain information with respect to each of the Company’s television stations:
                        
                        
Station Location andExpirationExpirationTotal Commercial       Expiration Total Commercial Stations in
Year CommercialNationalDate ofDate ofStations in DMA(b) National   Expiration Date of DMA(b)
OperationMarketNetworkFCCNetwork
 Market Network Date of FCC Network  
CommencedRanking(a)AffiliationLicenseAgreementAllocatedOperating Ranking(a) Affiliation License Agreement Allocated Operating
KPRC  10th  NBC Aug. 1, Dec. 31,  VHF-3  VHF-3 
Houston, Tx        2006  2011  UHF-11  UHF-11 
1949                   


WDIV 10th NBC Oct. 1, Dec. 31, VHF-4 VHF-4   11th  NBC Oct. 1, Dec. 31,  VHF-4  VHF-4 
Detroit, Mich. 2005 2011 UHF-6 UHF-5 
Detroit, Mich        2005(c)  2011  UHF-6  UHF-5 
1947                    
KPRC 11th NBC Aug. 1, Dec. 31, VHF-3 VHF-3 
Houston, Tx. 2006 2011 UHF-11 UHF-11 
1949 
WPLG 17th ABC Feb. 1, Dec. 31, VHF-5 VHF-5   17th  ABC Feb. 1, Dec. 31,  VHF-5  VHF-5 
Miami, Fla. 2005 2004 UHF-8 UHF-8 
Miami, Fla        2005(c)  2009  UHF-8  UHF-8 
1961                    
WKMG 20th CBS Feb. 1, Apr. 6, VHF-3 VHF-3   20th  CBS Feb. 1, Apr. 6,  VHF-3  VHF-3 
Orlando, Fla. 2005 2005 UHF-11 UHF-10 
Orlando, Fla        2013  2015  UHF-10  UHF-9 
1954                    
KSAT 37th ABC Aug. 1, Dec. 31, VHF-4 VHF-4   37th  ABC Aug. 1, Dec. 31,  VHF-4  VHF-4 
San Antonio, Tx. 2006 2004 UHF-6 UHF-6 
San Antonio, Tx        2006  2009  UHF-6  UHF-6 
1957                    
WJXT 51st None Feb. 1,  VHF-2 VHF-2   52nd  None Feb. 1,    VHF-2  VHF-2 
Jacksonville, Fla. 2005 UHF-6 UHF-5 
Jacksonville, Fla        2013     UHF-6  UHF-5 
1947                    


(a)Source: 2002/20032005/2006 DMA Market Rankings, Nielsen Media Research, Fall 2002,2005, based on television homes in DMA (see note (b) below).
 
(b)Designated Market Area (“DMA”) is a market designation of A.C. Nielsen which defines each television market exclusive of another, based on measured viewing patterns. References to stations that are operating in each market are to stations that are broadcasting analog signals. However most of the stations in these markets are also engaged in digital broadcasting using theFCC-assigned channels for DTV operations.
(c)The Company has filed timely applications to renew the FCC licenses of WDIV and WPLG, and such filings extend the effectiveness of each station’s existing license until the renewal application is acted upon.
3


The Company’s 2002 net operating revenues from national and local television advertising and network compensation were as follows:

      
National $118,124,000 
Local  205,326,000 
Network  18,409,000 
   
 
 Total $341,859,000 
   
 

Regulation of Broadcasting and Related Matters

The Company’s television broadcasting operations are subject to the jurisdiction of the Federal Communications Commission under the Communications Act of 1934, as amended. Under authority of such Act the FCC, among other things, assigns frequency bands for broadcast and other uses; issues, revokes, modifies and renews broadcasting licenses for particular frequencies; determines the location and power of stations and establishes areas to be served; regulates equipment used by stations; and adopts and implements various regulations and policies whichthat directly or indirectly affect the ownership, operations and profitability of broadcasting stations.

Each of the Company’s television stations holds an FCC license which is renewable upon application for an eight-year period.

In December 1996 the FCC formally approved technical standards for digital advanced television (“DTV”). DTV is a flexible system that permits broadcasters to utilize a single digital channel in various ways, including providing one channel of high-definition television (“HDTV”) programming with greatly enhanced image and sound quality and one or severalmore channels of lower-definition television programming (“multicasting”), and also is capable of accommodating subscription video and data services. Recent advances in compression technology may also allow broadcasters to transmit simultaneously one channel of HDTV programming and at least one channel of lower-definition programming. Broadcasters may offer a combination of services as long as they transmit at least one stream of free video programming on the DTV channel. The FCC has assigned to each existing full-power television station (including each station owned by the Company) a second channel to implement DTV while presentanalog television operations are continued on that station’s existinganalog channel. Although in some cases a station’s DTV channel may only permit operation over a smaller geographic service area than that available using its existinganalog channel, the FCC’s stated goal in assigning channels was to provide stations with DTV service areas that are generally consistent with their existinganalog service areas. The FCC’s DTV rules also permit stationsPursuant to request modifications to their assigned DTV facilities, allowing them to expand their DTV service areas if certain interference criteria are met. Under FCC rules and the Balanced Budget Act of 1997, if specified DTV household penetration levels are met,legislation enacted in February 2006, station owners will be required to surrender one channelof their channels in 2006February 2009 and thereafter provide service solely in the DTV format.
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THE WASHINGTON POST COMPANY


The Company’s Detroit, Houston and Miami stations each commenced DTV broadcast operations duringin 1999, while the Company’s Orlando station commenced such operations in 2001. The Company’s two other stations (San Antonio and Jacksonville) began DTV broadcast operations duringin 2002.

In November 1998 the FCC issued a decision implementing the requirement of the Telecommunications Act of 1996 that it charge broadcasters a fee for offering certain “ancillary and supplementary” services on the DTV channel. These services include data, video or other services that are offered on a subscription basis or for which broadcasters receive compensation other than from advertising revenue. In its decision, the FCC imposed a fee of 5% of the gross revenues generated by such services.
In rules adopted in April 2000,September 2004 the FCC also implementedestablished certain rules for the Community Broadcasters Protection ActDTV operations of 1999, which provides interference protection to certain low-power television stations. These rules provide several hundred Among other things, the FCC decided to allow certainlow-power television stations withto use a second channel for DTV operations while continuing analog operations on their existing channel. Although the same protectionFCC decided thatlow-power television stations must accept interference from and avoid interference enjoyedto full-power broadcasters on their second channels, the use of second channels bylow-power television stations could cause additional interference to the signals of full-power stations. The FCC also decided thatlow-power television stations may convert to digital operations on their current analog channels, which might in some circumstances cause additional interference to the signals of full-power stations withand limit the result that it may be more difficult for some existingability of full-power stations to altermodify their analog or DTV transmission facilities. Separately, in January 2001 the FCC issued an order governing the mandatory carriage of DTV signals by cable television operators. The FCC decided that, pending further inquiry, only stations that broadcast in a DTV-only mode would be entitled to mandatory carriage of their DTV signals. In defining how a DTV signal should be carried, the FCC ruled that only a single stream of video (that is, a single channel of programming) together with any additional “program-related” material is eligible for mandatory carriage. The determination of what constitutes “program-related” material has not yet been made. Cable operators will be required to carry the DTV signal of any DTV station eligible for mandatory carriage in the same definition in which the signal was originally broadcast. Thus, an HDTV signal of a station eligible for mandatory carriage could not be converted into a lower definition format by cable operators. However, until this FCC order is clarified it is
4


unclear whether cable operators will be responsible for ensuring that their set-top boxes are capable of passing DTV signals in their full definition to the consumer’s DTV receiver.

The FCC has a policy of reviewing its DTV rules every two years to determine whether those rules need to be adjusted in light of new developments. In January 2003September 2004 the FCC released a Notice of Proposed Rule Making, initiatingissued an order concerning the second periodic review of its DTV rules. This review will examine broadly examined the rules and policies governing broadcasters’ DTV operations, including interference protection rules and various operating requirements,requirements. In that order the FCC established procedures for stations to elect the channel on which they will operate after the transition to digital television is complete. In most cases, stations will choose between their current analog channel and extensionscurrent DTV channel, provided that those channels are between channels 2 and 51. All of the Company’s TV stations except for WKMG have two channels that are within this range, and they have accordingly elected to operate on either their existing analog or digital channel. In WKMG’s case, only its analog channel is within this range and, because of technical issues related to its analog channel, WKMG is seeking another channel between channels 2 and 51 to use as its DTV channel whenall-digital operations commence. All channel elections are subject to final FCC approval in a rulemaking proceeding that is expected to occur later in 2006 deadline for ceasing analog operations. As a part of this review, theor in 2007.

The FCC sought further commenthas received comments in long-pending proceedings to determine what public interest obligations should apply to broadcasters’ DTV operations. Among other things, the FCC has asked whether it should require broadcasters to provide free time to political candidates, increase the amount of programming intended to meet the needs of minorities and women, and increase communication with the public regarding programming decisions.

The Telecommunications Act of 1996 requires In November 2004 the FCC released a Report and Order adopting new obligations concerning children’s programming by digital television broadcasters (although some new obligations apply to review its broadcast ownership rules every two years and to repeal or modify any rule it determines is no longer in the public interest. In August 1999analog signals as well). Among other things, the FCC amended its local ownership rulewill require stations to permit one companyair three hours of “core” children’s programming on their primary digital video stream and additional core children’s programming if they also broadcast free multicast video streams. The FCC is currently considering petitions for reconsideration with respect to own two televisionthese rules and accordingly has stayed their effectiveness.

Effective January 1, 2006, the FCC increased the amount of programming aired on broadcast stations inwhich must contain closed captioning. As of that date, all programming aired between 6 a.m. and 2 a.m. must be captioned unless the same market if there are at least eight independently owned full-power television stations in that market (including non-commercial stations and counting the co-owned stations as one), and if at leastprogramming or programming provider falls within one of several exemptions. Network programming is closed captioned when delivered to network affiliates for broadcast, but the co-owned stations is not among the top four ranked television stations in that market. The FCC also decided to permit common ownershipcost of stations in a single market if their signals do not overlap,captioning locally originated and to permit common ownership where one of the stations is failing or unbuilt. These rule changes permitted increases in the concentration of station ownership in local markets, and all of the Company’s stations are now competing against two-station combinations in their respective markets. Separately, the rule governing the aggregate number of television stations a single company can own was relaxed by amendments to the Communications Act enacted in 1996, and broadcast companies are now permitted to own an unlimited number of television stations as long as the combined service areas of such stations do not include more than 35% of nationwide television households. The 35% limit is subject to the FCC’s periodic review, and in 1999 the agency decided to leave the rule unchanged. However, in February 2002 the U.S. Court of Appeals for the District of Columbia Circuit found that the reasons givencertain syndicated programming must be borne by the FCC for retaining the 35% limit were insufficient as a matter of law and remanded the matter to the FCC for further consideration. In addition, in April 2002 the same court found that the FCC’s rule permitting co-ownedbroadcast stations in markets with at least eight independent full-power stations had not been adequately justified because of a failure to consider the significance of other types of media and also remanded that rule to the FCC for further consideration. In September 2002 the FCC began a new periodic review of its broadcast ownership rules, including the two rules remanded to it by the U.S. Court of Appeals. This review will also examine four other broadcast ownership rules, including the rule that prohibits common ownership of a television station and an English-language daily newspaper in the same community and the rule that prohibits common ownership of any two of the four major television networks (ABC, CBS, NBC and Fox). This proceeding could result in the FCC’s relaxing or eliminating one or more of its broadcast ownership rules.

themselves.

Pursuant to the “must-carry” requirements of the Cable Television Consumer Protection and Competition Act of 1992 (the “1992 Cable Act”), a commercial television broadcast station may, under certain circumstances, insist on carriage of its analog signal on cable systems serving the station’s market area. Alternatively, such stations may elect, at three-year intervals that began in October 1993, to forego must-carry rights and insist instead that their signals not be carried without their prior consent pursuant to a retransmission consent agreement. Stations that elect retransmission consent may negotiate for compensation from cable systems in the form of such things as mandatory advertising purchases by the system operator, station promotional announcements on the system, and cash payments to the station. The analog signal of each of the Company’s television stations is being carried on all of the major cable systems in the stations’ respective local markets pursuant to retransmission consent agreements. The Satellite Home Viewer Improvement Act of 1999 gave commercial television stations similar rights to elect either must-carry or retransmission consent with respect to the carriage of their analog signals on direct broadcast satellite (“DBS”) systems that choose to provide “local-into-local” service (i.e.(i.e., to distribute the signals of local television stations to viewers in the local market area). Stations made their first DBS
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carriage election in July 2001, and will makewith subsequent elections occurring atthree-year intervals beginning in October 2005. Stations that elect retransmission consent may negotiate for compensation from cable and DBS systems in the formThe analog signal of such things as mandatory advertising purchases by the system operator, station promotional announcements on the system, and cash payments to the station. The Company’s television stations, with the exception of WJXT, are being carried on all of the major cable systems in their respective local markets pursuant to retransmission consent agreements. WJXT is being carried on cable in its local market pursuant to its must-carry rights. Alleach of the Company’s television stations areis being carried by DBS providers EchoStar and DirecTV on a local-into-local basis pursuant to retransmission consent agreements.
In 2001 the FCC issued an order governing the mandatory carriage of DTV signals by cable television operators. The FCC decided that, pending further inquiry, only stations that broadcast in aDTV-only mode would be entitled to mandatory carriage of their DTV signals. In February 2005 the FCC issued another order in the same proceeding affirming its earlier decision and thus declined to require cable television operators to simultaneously carry both the analog and digital signals of television broadcast stations. In the same 2005 order, the FCC affirmed an earlier decision that only a single stream of video (that is, a single channel of programming), rather than a television broadcast station’s entire DTV signal, is eligible for mandatory carriage by cable television operators. (In a pending proceeding, the FCC has sought comment on how it should apply digital signal carriage rules to DBS providers.) Thus, at present, a television station wishing to insure that cable operators carry both the analog and digital signals of the station, and all of the program streams that may be present in the station’s digital signal, can achieve those objectives only if it is able to negotiate appropriate transmission consent agreements with cable operators. Cable operators are required to carry the portion of the DTV signal of any DTV station eligible for mandatory carriage in the same format in which the signal was originally broadcast. Thus, an HDTV video stream eligible for mandatory carriage must be carried in HDTV format by cable operators. However, it is still unclear whether cable operators will be required to insure that theirset-top boxes are capable of passing DTV signals in their full definition to the consumer’s DTV receiver. As noted previously, all of the Company’s television stations are transmitting both analog and digital broadcastbroadcasting signals; most of those stations’ digital signals are being carried on at least some local cable systems pursuant to retransmission consent agreements.
5The Communications Act requires the FCC to review its broadcast ownership rules periodically and to repeal or modify any rule it determines is no longer in the public interest. In June 2003, following such a review, the FCC modified its national television ownership limit to permit a broadcast company to own an unlimited number of television stations as long as the combined service areas of such stations do not include more than 45% of nationwide television households, an increase from the previous limit of 35%. Subsequently, legislation was enacted that fixed the national ownership limit at 39% of nationwide television households and removed the national ownership limit from the periodic FCC review process.


In 1999 the FCC amended its local television ownership rule to permit one company to own two television stations in the same market if there are at least eight independently owned full-power television stations in that market (includingnon-commercial stations and counting theco-owned stations as one), and if at least one of theco-owned stations is not among the top four ranked television stations in that market. The FCC also decided to permit common ownership of stations in a single market where one of the stations is failing or unbuilt. These rule changes permitted increases in the concentration of station ownership in local markets, and all of the Company’s stations are now competing againsttwo-station combinations in their respective markets.
In June 2003 the FCC issued an order that modified several of its local broadcast ownership rules. In its decision, the FCC expanded the circumstances under whichco-ownership of two television stations in a market is permitted, and provided that in a market with 18 or more television stations, one entity may own up to three television stations. The FCC retained, however, the requirement that a single entity may not own more than one of the top four ranked television stations in a market. Waivers of these local ownership limits would be available where a station is failing and under certain other circumstances. In addition to the changes to its local television ownership rules, the FCC liberalized its restrictions on owning a combination of radio stations, television stations, and daily newspapers in the same market, allowing, for example, one entity to own a daily newspaper and a TV station in the same market as long as there are four or more television stations in the market. The FCC’s decision to adopt these new rules, however, was appealed to the U.S. Court of Appeals for the Third Circuit, and that court stayed the effectiveness of the new rules pending the outcome of the appeal. Subsequently, the Third Circuit held that the FCC did not adequately justify its revised rules, remanded the case to the FCC for further proceedings, and held that the stay would remain in effect pending the outcome of the remand. The FCC has not yet instituted remand proceedings, nor has it resolved long-pending petitions for reconsideration of the revised rules. In the interim, the former local ownership and cross-ownership rules remain in effect.
The Bipartisan Campaign Reform Act of 2002 imposed various restrictions both on contributions to political parties during federal elections and on certain broadcast, cable television and DBS advertisements that refer to a candidate for federal office. Those restrictions may have the effect of reducing the advertising revenues of the Company’s television stations during campaigns for federal office below the levels that otherwise would be realized in the absence of such restrictions.
The FCC is conducting proceedings dealing with various issues in addition to those described elsewhere in this section, including proposals to modify its regulations relating to the ownership and operation of cable television systems (which
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THE WASHINGTON POST COMPANY


regulations are discussed below underin the section titled “Cable Television Division – Regulation of Cable Television and Related Matters”Operations”), and proposals that could affect the development of alternative video delivery systems that would compete in varying degrees with both cable television and television broadcasting operations.

The Company is unable to determine what impact the various rule changes and other matters described in this section may ultimately have on the Company’s television broadcasting operations.
Magazine Publishing
Newsweek
Newsweekis a weekly news magazine published both domestically and internationally by Newsweek, Inc., another subsidiary of the Company. In gathering, reporting and writing news and other material for publication,Newsweekmaintains news bureaus in 8 U.S. and 11 foreign cities.
The domestic edition ofNewsweekincludes more than 100 different geographic or demographic editions which carry substantially identical news and feature material but enable advertisers to direct messages to specific market areas or demographic groups. Domestically,Newsweekranks second in circulation among the three leading weekly news magazines (Newsweek, TimeandU.S. News & World Report). For each of the last five years,Newsweek’s average weekly domestic circulation rate base has been 3,100,000 copies and its percentage of the total weekly domestic circulation rate base of the three leading weekly news magazines has been 34.0%.
Newsweekis sold on newsstands and through subscription mail order sales derived from a number of sources, principally direct mail promotion. The basicone-year subscription price is $41.08. Most subscriptions are sold at a discount from the basic price.Newsweek’s newsstand cover price has been $3.95 per copy since 2001.
Newsweek’s published advertising rates are based on its average weekly circulation rate base and are competitive with those of the other weekly news magazines. As is common in the magazine industry, advertising typically is sold at varying discounts fromNewsweek’s published rates. Effective with the January 10, 2005 issue,Newsweek’s published national advertising rates for all categories of such advertising were increased by an average of approximately 5.0%. Beginning with the issue dated January 7, 2006, such rates were increased again, also by an average of approximately 5.0%.
Internationally,Newsweekis published in a Europe, Middle East and Africa edition; an Asia edition covering Japan, Korea and south Asia; and a Latin American edition; all of which are in the English language. Editorial copy solely of domestic interest is eliminated in the international editions and is replaced by other international, business or national coverage primarily of interest abroad. Newsweek estimates that the combined average weekly paid circulation for these English-language international editions ofNewsweekin 2005 was approximately 570,000 copies.
Since 1984 a section ofNewsweekarticles has been included inThe Bulletin, an Australian weekly news magazine which also circulates in New Zealand. A Japanese-language edition ofNewsweek, Newsweek Nihon Ban,has been published in Tokyo since 1986 pursuant to an arrangement with a Japanese publishing company which translates editorial copy, sells advertising in Japan and prints and distributes the edition.Newsweek Hankuk Pan,a Korean-language edition ofNewsweek,began publication in 1991 pursuant to a similar arrangement with a Korean publishing company.Newsweek en Español, a Spanish-language edition ofNewsweekwhich has been distributed in Latin America since 1996, is currently being published under an agreement with a Mexico-based company which translates editorial copy, prints and distributes the edition and jointly sells advertising with Newsweek.Newsweek Bil LoghaAl-Arabia, an Arabic-language edition ofNewsweek, began publication in 2000 under a similar arrangement with a Kuwaiti publishing company. Pursuant to agreements with local subsidiaries of a German publishing company,Newsweek Polska, a Polish-language newsweekly, began publication in 2001, andRussky Newsweek, a Russian-language newsweekly, began publication in 2004. In addition to containing selected stories translated fromNewsweek’s various U.S. and foreign editions, each of these magazines includes editorial content created by a staff of local reporters and editors. Under an agreement with a Hong Kong-based publisher,Newsweek Select, a Chinese-language magazine based primarily on selected content translated fromNewsweek’s U.S. and international editions, has been distributed in Hong Kong since 2003 and in mainland China since 2004. Newsweek estimates that the combined average weekly paid circulation ofThe Bulletininsertions and the various foreign-language international editions ofNewsweekwas approximately 697,000 copies in 2005.
The online version ofNewsweek, which includes stories fromNewsweek’s print edition as well as other material, has been aco-branded feature on the MSNBC.com website since 2000. This feature is being produced by Washingtonpost.Newsweek Interactive, another subsidiary of the Company.
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Arthur Frommer’s Budget Travelmagazine, another Newsweek publication, was published ten times during 2005 and had an average paid circulation of more than 500,000 copies.Budget Travelis headquartered in New York City and has its own editorial staff. This magazine’s website is also being produced by Washingtonpost.Newsweek Interactive.
PostNewsweek Tech Media
This division of Post-Newsweek Media, Inc. publishes controlled-circulation trade periodicals and produces trade shows, conferences and online information services for the government information technology industry.
Specifically, PostNewsweek Tech Media publishesGovernment Computer News, a news magazine published 34 times per year serving government managers who buy information technology products and services;Washington Technology, a twice-monthly magazine of market news and analysis for government information technology systems integrators; andGovernment Leader, a magazine published six times a year serving government technology, finance, human resources and procurement managers.Government Computer News, Washington TechnologyandGovernment Leaderhave circulations of about 100,000, 40,000 and 72,000 copies, respectively. In January 2006 PostNewsweek Tech Media launchedDefense Systems, a six-times-a-year publication that serves communications and information technology managers in the defense and intelligence communities. All of PostNewsweek Tech Media’s publications have companion websites and offer at least onee-mail newsletter.
PostNewsweek Tech Media also produces theFOSEtrade show, which is held each spring in Washington, D.C. for information technology decision makers in government. This division also produces a number of smaller conferences and events, including awards dinners honoring leading individuals and companies in the government information technology community.
Cable Television Operations

At the end of 20022005 the Company (through its Cable One subsidiary) provided basic cable service to approximately 718,000689,200 basic video subscribers (representing about 57%54% of the 1,255,0001,288,000 homes passed by the systems) and had in force approximately 340,000 subscriptions to premium program services, 196,000214,400 subscriptions to digital video service (which number does not include approximately 19,000 free trials of that service then being offered by Cable One) and 78,000234,100 subscriptions to cable modem service. Digital video and cable modem services are each currently available in markets serving more than 93%virtually all of Cable One’s subscriber base.

On November 1, 2002, Among the digital video services offered by Cable One transferred its Akron, Ohio system, together with a cash payment, to a unitis the delivery of AOL Time Warnercertain premium, cable network and localover-the-air channels in return forHDTV.

On August 29, 2005, portions of the Company’s cable systems servingon the communitiesGulf Coast of Chanute, Emporia, IndependenceMississippi, which systems together served about 94,000 basic video subscribers, were seriously damaged by Hurricane Katrina. Service has been restored in most of the damaged areas and Parsons, Kansas. That transaction had the effectrestoration efforts are continuing. As a result of increasing by approximately 5,000this storm, the number of homes passed by Cable One’s systems at the end of 2005 was reduced by approximately 30,000 homes and the number of basic video subscribers being servedwas reduced by approximately 21,400 subscribers (with comparable proportional reductions in the Company’s cable systems.

number of subscriptions to the other services offered by Cable One).

The Company’s cable systems are located in 19 Midwestern, Southern and Western states and typically serve smaller communities: thus 21Thus 10 of the Company’s current systems pass fewer than 10,000 dwelling units, 1734 pass 10,000-25,00010,000-50,000 dwelling units, and 184 pass more than 25,00050,000 dwelling units. The two largest clusterclusters of systems (which togethereach currently serve about 89,000more than 70,000 basic video subscribers) isare located on the Gulf Coast of Mississippi.

Mississippi and in the Boise, Idaho area.

Regulation of Cable Television and Related Matters

The Company’s cable operations are subject to various requirements imposed by local, state and federal governmental authorities. TheAs a condition to their ability to operate, the Company’s cable systems have been required to obtain franchises granted by local governmental authoritiesauthorities. Those franchises typically are typically nonexclusive and limited in time, and generally contain various conditions and limitations relating toand provide for the payment of fees to the local authority, determined generally as a percentage of revenues. Additionally, those franchises often regulate the conditions of service and technical performance and contain various types of restrictions on transferability. Failure to comply with suchall of the terms and conditions and limitationsof a franchise may give rise to rights of termination by the franchising authority.

The Cable Television Consumer Protection and Competition Act of 1992 (the “1992 Cable ActAct”) requires or authorizes the imposition of a wide range of regulations on cable television operations. The three major areas of regulation are (i) the rates charged for certain cable television services, (ii) required carriage (“must carry”) of some local broadcast stations, and (iii) retransmission consent rights for commercial broadcast stations.
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THE WASHINGTON POST COMPANY

Among other things,


In 1993 the Telecommunications Act of 1996 altered the preexisting regulatory environment by expanding the definition of “effective competition” (a condition that precludes any regulation of the rates charged byFCC adopted a cable system), terminating“freeze” on rate regulation for some small cable systems, and sunsetting the FCC’s authority to regulate the rates charged for optional tiers of service (which authority expired on March 31, 1999). Since none of the cable systems owned by the Company falls within the effective-competition or small-system exemptions, monthly subscription rates charged by the Company’s cable systemsincreases for the basic tier of cable service (i.e.(i.e., the tier that includes the signals of local over-the-airover-the-air stations and any public, educational or governmental channels required to be carried under the applicable franchise agreement), as well as rates charged for equipment rentals and service calls, may be regulated by municipalities, subject to procedures and criteria established by the FCC. However, rates charged by cable television systems for pay-per-view service, for per-channel premium program services and for advertising are all exempt from regulation.

In April 1993optional tiers (although the FCC adopted a “freeze”freeze on rate increases for regulated services (i.e., the basic and, prior to March 1999, optional tiers)tiers expired in 1999). Later that yearin 1993 the FCC promulgated benchmarks for determining the reasonableness of rates for suchregulated services. The benchmarks provided for a percentage reduction in the rates that were in effect when the benchmarks were announced. Pursuant to the FCC’s rules, cable operators can increase their benchmarked rates for regulated services to offset the effects of inflation, equipment upgrades, and higher programming, franchising and regulatory fees. Under the FCC’s approach, cable operators may exceed their benchmarked rates if they can show in acost-of

6


a cost-of-service-service proceeding that higher rates are needed to earn a reasonable return on investment, which the Commission established in March 1994 to be 11.25%. The FCC’s rules also permit franchising authorities to regulate equipment rentals and service and installation rates on the basis of a cable operator’s actual costs plus an allowable profit, which is calculated from the operator’s net investment, income tax rate and other factors.

Among other things, the Telecommunications Act of 1996 altered the preexisting regulatory environment by expanding the definition of “effective competition” (a condition that precludes any regulation of the rates charged by a cable system), terminating rate regulation for some small cable systems, and sunsetting the FCC’s authority to regulate the rates charged for optional tiers of service (which authority expired in 1999). Although the FCC has confirmed that some of the cable systems owned by the Company fall within the effective-competition exemption and the Company believes that other of its systems also qualify for that exemption, monthly subscription rates charged by many of the Company’s cable systems for the basic tier of cable service, as well as rates charged for equipment rentals and service calls, are still subject to regulation by municipalities, subject to procedures and criteria established by the FCC. However, rates charged by cable television systems for tiers of service other than the basic tier, for pay-per-view and per-channel premium program services, for digital video and cable modem services, and for advertising are all currently exempt from regulation.
As previously discussed in the preceding section titled “Television Broadcasting,” under the “must-carry” requirements of the 1992 Cable Act, a commercial television broadcast station may, subject to certain limitations, insist on carriage of its signal on cable systems located within the station’s market area. Similarly, a noncommercial public station may insist on carriage of its signal on cable systems located either within either the station’s predicted Grade B signal contour or within 50 miles of a reference point in a station’s community designated by the station’s transmitter.FCC. As a result of these obligations (the constitutionality of which has been upheld by the U.S. Supreme Court), certain of the Company’s cable systems have had to carry broadcast stations that they might not otherwise have elected to carry, and the freedom the Company’s systems would otherwise have to drop signals previously carried has been reduced.

Also as explained in the precedingthat section, at three-year intervals beginning in October 1993 commercial broadcasters have had the right to forego must-carry rights and insist instead that their signals not be carried by cable systems without their prior consent. Under legislation enacted in 1999, Congress barred broadcasters from entering into exclusive retransmission consent agreements through 2006. In November 2004 Congress extended the ban on exclusive retransmission consent agreements until the end of 2010. The Company’s cable systems have been able to continueare currently carrying virtually all of the stations insistingthat insisted on retransmission consent without having to agreeconsent. In doing so, no agreements have been made to pay any stationsstation for the privilege of carrying their signals.its signal. However, somein a limited number of cases commitments have been made to carry other program services offered by a station or an affiliated company, to purchase advertising on a station, or to provide advertising availabilities on cable for sale by a station and to distribute promotional announcements with respect to a station. Many of these agreements between broadcast stations and the Company’s cable systems expired at the end of 2002 and the expired agreements were replaced by new agreements having comparable terms.

As has already been noted, in January 2001 the FCC has determined that pending further inquiry, only television stations broadcasting in a DTV-only mode couldcan require local cable systems to carry their DTV signals.signals and that if a DTV signal contains multiple video streams only a single stream of video is required to be carried. The imposition of additional must-carry obligations, either by the FCC currently is conducting another inquiry to decide whether it should require cable systems to carry both the analog and the DTV signalsor as a result of local television stations. Such an extension of must-carry requirementslegislative action, could result in the Company’s cable systems being required to delete some existing programming to make room for broadcasters’ DTV channels.

Various other provisions in current federal law may significantly affect the costs or profits of cable television systems. These matters include a prohibition on exclusive franchises, restrictions on the ownership of competing video delivery services, restrictions on transfers of cable television ownership, a variety of consumer protection measures, and various regulations intended to facilitate the development of competing video delivery services. Other provisions benefit the owners of cable systems by restricting regulation of cable television in many significant respects, requiring that franchises be granted for reasonable periods of time, providing various remedies and safeguards to protect cable operators against arbitrary refusals to renew franchises, and limiting franchise fees to 5% of revenues.a cable system’s gross revenues from the provision of cable service (which for this purpose includes digital video service but does not include cable modem service).
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Apart from its authority under the 1992 Cable Act and the Telecommunications Act of 1996, the FCC regulates various other aspects of cable television operations. Since 1990 cable systems have been required to black out from the distant broadcast stations they carry syndicated programs for which local stations have purchased exclusive rights and requested exclusivity. Other long-standing FCC rules require cable systems to delete under certain circumstances duplicative network programs broadcast by distant stations. The FCC also imposes certain technical standards on cable television operators, exercises the power to license various microwave and other radio facilities frequently used in cable television operations, and regulates the assignment and transfer of control of such licenses. In addition, pursuant to the Pole Attachment Act, the FCC exercises authority to disapprove unreasonable rates charged to cable operators by most telephone and power utilities for utilizing space on utility poles or in underground conduits. However the Pole Attachment Act does not apply to poles and conduits (althoughowned by municipalities or cooperatives. Also, states maycan reclaim exclusive jurisdiction over these mattersthe rates, terms and conditions of pole attachments by certifying to the FCC that they regulate the rates, termssuch matters, and conditions of pole attachments, and someseveral states in which the Company has cable operations have so certified).certified. A number of cable operators (including the Company’s Cable One subsidiary) are using their cable systems to provide not only television programming but also Internet access. In January 2002 the U.S. Supreme Court ruled that the FCC’s authority under the Pole Attachment Act extends to all pole attachments by cable operators, including those attachments used to provide Internet access. Thus, except where individual states have assumed regulatory responsibility or where poles or conduits are owned by a municipality or cooperative, the rates charged by utilities for pole or conduit access by cable companies are subject to FCC rate regulation regardless of whether or not the cable companies are providing Internet access as well asin addition to the delivery of television programming.
7


The Copyright Act of 1976 grants togives cable television systems the ability, under certain terms and conditions the rightand assuming that any applicable retransmission consents have been obtained, to retransmit the signals of television stations pursuant to a compulsory copyright license. Those terms and conditions permit cable systems to retransmit the signals of local television stations on a royalty-free basis; however in most cases cable systems retransmitting the signals of distant stations are required to pay certain license fees set forth in the statute or established by subsequent administrative regulations. The compulsory license fees have been increased on several occasions since this Act went into effect. In 1994 the availability of a compulsory copyright license was extended to “wireless cable” for both local and distant television signals and to directDirect broadcast satellite (“DBS”) operators for distant signals only,have had a compulsory copyright license since 1988, although in the latter case thethat license was limited to distant television signals and only permitted the delivery of the signals of distant network-affiliated stations delivered to subscribers who could not receive an over-the-airover-the-air signal of a station affiliated with the same network. However, in November 1999 Congress enacted the Satellite Home Viewer Improvement Act, which created a royalty-free compulsory copyright license for DBS operators who wish to distribute the signals of local television stations to satellite subscribers in the markets served by such stations. This Act continued the limitation on importing the signals of distant network-affiliated stations contained in the original compulsory license for DBS operators.

The general prohibition onTelecommunications Act of 1996 permits telephone companies operating cable systemsto offer video programming services in areas where they provide local telephone service, was eliminated byand over the Telecommunications Actpast decade telephone companies have pursued multiple strategies to enter the multichannel video programming delivery market, yet to date they serve only a relatively small number of 1996. Telephonesubscribers. Some telephone companies, now can provideincluding AT&T (formerly SBC) and smaller companies serving rural areas, have partnered with DBS operators to resell a DBS service to telephone customers. Other telephone companies have obtained traditional cable franchise agreements and built their own cable systems. During 2005, Verizon, the second-largest local telephone company in the country, obtained cable franchises in a few states and announced plans to obtain cable franchises covering most of its service territory. Verizon plans to use afiber-to-the-home technology that will enable it to deliver high-speed data and Internet access, voice over Internet Protocol (VoIP), and a variety of video services includingvideo-on-demand. Verizon’s cable systems would be regulated in their telephone service areas under four different regulatory plans. First, they can provide traditional cable television service and be subjecta manner similar to the same regulations as the Company’s cable televisionsystems. AT&T, on the other hand, is proposing to deploy a type of system developed by Microsoft called Internet Protocol Television (IPTV) that uses basic Internet protocol technology to deliver video programming. An IPTV system stores the video programming on a local computer server and delivers to consumers just the content they request using the last-mile copper wire that also provides conventional telephone service. BellSouth has announced that it also will deploy IPTV systems (including compliance withto deliver video programming. AT&T has taken the position before the FCC that this new offering does not require a local franchise because AT&T is not providing a “cable service,” as that term is defined in federal law, but rather is using IPTV technology to deliver an “information service,” which by law is not subject to regulation by state and any other local governments. The FCC has yet to rule on AT&T’s argument. In the meantime, telephone companies have urged the adoption of state-wide or state regulatory requirements). Second,national franchise rules, in order to circumvent the need for local franchise approvals before they can provide “wireless cable”offer video service. In August 2005 the State of Texas enacted a law that enables Verizon, AT&T and others to offer cable service which is described below,within the state without obtaining local government approvals. Verizon already has begun offering cable service in some Texas communities, and not be subject to either cable regulations or franchise requirements. Third, they can provide video services onAT&T has begun a common-carrier basis, under which they would not be required to obtain local franchises but would be subject to common-carrier regulation (including a prohibition against exercising control over programming content). Finally, they can operate so-called “open video systems” without local franchises (although local communities can choose to require a franchise) and be subject to reduced regulatory burdens. The Act contains detailed requirements governing the operationbeta-test of open video systems, including the nondiscriminatory offering of capacity to third parties and limiting to one-third of totalits IPTV system capacity thein Texas. A number of channelsother states are considering similar legislation. At the operator can program when demand exceeds available capacity.same time, the telephone companies have asked Congress to pass legislation establishing a national franchise for certain types of video delivery systems. The prospect of this legislation is uncertain, but
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THE WASHINGTON POST COMPANY


if passed it could accelerate the development of duplicative cable facilities. In addition, the rates chargedFCC in November 2005 initiated a proceeding seeking information on whether local governments are managing the franchising process in a manner that facilitates entry by an open video system operator to a third party for the carriage of video programming must be just and reasonable as determined in accordance with standards established by the FCC. (Cable operators and others not affiliated with a telephone company may also become operators of open video systems.) The Act also generally prohibits telephone companies from acquiring or owning an interest in existing cable systems operating in their service areas.

The Telecommunications Act of 1996 balances this grant of video authority to telephone companies by removing various regulatory barriers to the offering of telephone services by cable companies and others. The Act preempts state and local laws that have barred local telephone competition in some states. In addition, the Act requires local telephone companies to permit cable companies and other competitors to connect with the telephone network and requires telephone companies to give competitors access to the essential features and functionalities of the local telephone network (such as switching capability, signal carriage from the subscriber’s residence to the switching center, and directory assistance) on an unbundled basis. As an alternative method of providing local telephone service, the Act permits cable companies and others to purchase telephone service on a wholesale basis and then resell it to their subscribers.

new companies.

At various times during the last decade, the FCC adopted rule changes intended to facilitate the development of multichannel multipoint distribution systems, also known as “wireless cable” or “MMDS,” a video and data service that is capable of distributing approximately 30 television channels in a local area by over-the-airover-the-air microwave transmission using analog technology and a greater number of channels using digital compression technologies. The use of digital technology and a 1998 change in the FCC’s rules to permit reverse path transmission over wireless facilities also make it possible for such systems to deliver additional services, including Internet access. Also, in late 1998In 2004, to facilitate provision of wireless broadband services, the FCC auctioned a sizeable amountadopted an order reconfiguring the 2.5 gigahertz band in which the MMDS services are licensed. Since that decision, many of these licensees (now referred to by the FCC as Broadband Radio Service licensees) have announced that they will use the spectrum to deliver broadband Internet access and will no longer seek to provide video distribution services. Over the past decade, the FCC also has made other spectrum available for other video distribution services, including Local Multipoint Distribution Service (“LMDS”) in the 31 gigahertz band for use by a new wireless service, which is referred to as the Local Multipoint Distribution Service or “LMDS,” that has the potential to deliver television programming directly to subscribers’ homes as well as provide Internet access and telephony services. To date, however, there are no LMDS systems in operation that deliver television programming or provide either Internet access or telephony. Separately, in November 2000 the FCC approved the use of spectrum in the 12.2-12.7 gigahertz band (the same band used by DBS operators) to provide a new land-based interactive video and data delivery service known as the Multichannel Video Distribution and Data Service (“MVDDS”). MVDDS providers will use “reharvested” in the 12.2–12.7 gigahertz band, but the Company believes that none of these systems are yet in operation in any of the areas where the Company provides cable service. Like DBS spectrum to transmit programming on a non-harmful interference basis using terrestrial microwave transmitters. (While DBS subscribers point their dishes south to pick up their provider’s signal, MVDDS
8


customers will aim their antennas north.) The Commission has not yet granted any licenses to operate MVDDS systems. MVDDS providers, likeoperators, providers of other forms of wireless cable, willthese services would not be required to obtain franchises from local governmental authorities and generally willwould operate under fewer regulatory requirements than conventional cable systems.

In October 1999 the FCC amended its cable ownership rule, which governs the number of subscribers an owner of cable systems may reach on a national basis. Before revision, this rule provided that a single company could not serve more than 30% of potential cable subscribers (or “homes passed” by cable) nationwide. The revised rule allowed a cable operator to provide service to 30% of all actual subscribers to cable, satellite and other competing services nationwide, rather than to 30% of homes passed by cable. This revision had the effect of increasing the number of communities that could be served by a single cable operator and may have resulted in more consolidation in the cable industry. In March 2001 the U.S. Court of Appeals for the D.C. Circuit voided the FCC’s revised rule on constitutional and procedural grounds and remanded the matter to the FCC for further proceedings. The FCC has since opened a proceeding to determine what the ownership limit should be, if any. If the FCC eliminates the limit or adopts a new rule with a higher percentage of nationwide subscribers a single cable operator is permitted to serve, that action could lead to even greater consolidation in the industry.

In 1996 Congress repealed the statutory provision whichthat generally prohibited a party from owning an interest in both a television broadcast station and a cable television system within that station’s Grade B contour. However Congress left the FCC’s parallel rule in place, subject to a Congressionallycongressionally mandated periodic review by the agency. The FCC, in its subsequent review, decided to retain the prohibition for various competitive and diversity reasons. However in February 2002 the U.S. Court of Appeals for the District of Columbia Circuit struck down the rule, holding that the FCC’s decision to retain the rule was arbitrary and capricious.

On March 14, Thus there currently is no restriction on the ownership of both a television broadcast station and a cable television system in the same market.

In 2002 the FCC issued a declaratory ruling classifying cable modem service as an “interstate information“information service.” Concurrently, the FCC issued a notice of proposed rulemaking to consider the regulatory implications of this classification. Among the issues to be decidedraised in that proceeding are whether local authorities can require cable operators to provide competing Internet service providers with access to the cable operators’ facilities, the extent to which local authorities can regulate cable modem service, and whether local authorities can impose fees on the provision of cable modem service. In 2003 the U.S. Court of Appeals for the Ninth Circuit, on an appeal from the FCC’s declaratory ruling noted above, ruled that cable modem service is partly an “information service” and partly a “telecommunications service.” In June 2005 the U.S. Supreme Court reversed the Ninth Circuit and held that the FCC’s classification of cable modem service as an “information service” was a reasonable interpretation of the statute. As a result, cable modem service is not subject to the full panoply of regulations applied to “telecommunications services” or to “cable services” under the Communications Act, nor is it subject to state or local government regulation. In the wake of the Supreme Court’s decision, the FCC ruled in August 2005 that a telephone company’s offering of digital subscriber line (“DSL”) Internet access service is also an “information service.” At that time, the FCC adopted a general policy statement that the providers of cable modem and DSL services should not interfere with the use of the Internet by their customers, but it declined to adopt any specific rules in that regard. However, the FCC also initiated a rulemaking on what consumer protection requirements should apply in the context of cable modem and DSL services. That rulemaking is currently pending and its outcome is uncertain. The Company’s Cable One subsidiary currently offers Internet access on mostvirtually all of its cable systems and is the sole Internet service provider on those systems. Thus, depending onThe Court’s decision affirming the outcome, this proceeding has the potential to interfere withFCC’s classification of cable modem service removes some uncertainty surrounding the Company’s ability to deliver Internet access without facing substantially increased
2005 FORM 10-K
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regulatory burdens, although the FCC could still propose regulations that might restrict the Company’s future ability to modify the way it provides cable modem service.
Cable companies and others have begun to offer telephone service using a technology known as voice over Internet protocol (VoIP) which permits users to make telephone calls over the Internet. Depending on their equipment and service provider, some VoIP subscribers can use a profitable basis.

regular telephone (connected to an adaptor) to make and receive calls to or from anyone on the public network. The 1996 Act preempts state and local regulatory barriers to the offering of telephone service by cable companies and others, and the FCC has used that federal provision to preempt specific state laws that seek to regulate VoIP. Other provisions of the 1996 Act enable a competitor such as a cable company to exchange voice and data traffic with the incumbent telephone company and to purchase certain features at reduced costs, and these provisions have enabled some cable companies to offer a competing telephone service. Earlier this year, the FCC ruled that a VoIP provider that enables its customers to make calls to and from persons that use the public switched telephone network must provide its customers with the same “enhanced 911” or “E911” features that traditional telephone and wireless companies are obligated to provide. This decision has been challenged on appeal, though VoIP providers in the meantime have been required to comply, including by ceasing to offer VoIP services in areas where they cannot ensure E911 compliance. The FCC took another step in extending certain requirements to cable modem providers by ruling that Internet access providers and VoIP providers are subject to the requirements of the Communications Assistance for Law Enforcement Act (CALEA), which requires covered carriers and their equipment suppliers to deploy equipment that law enforcement can readily access for lawful wiretap purposes. The FCC ruling, if upheld on appeal, means that cable modem (and DSL) providers and VoIP companies all would be subject to CALEA’s requirements. It is difficult at this time to gauge the cost of compliance, since the FCC has not finished writing those rules, but the Company’s cable modem operations are likely to incur additionalnon-recurring and recurring costs to comply with CALEA. During 2004 some states sought to regulate VoIP service pursuant to their common carrier jurisdiction, but VoIP providers challenged these actions before the FCC. Later in 2004, the FCC ruled that VoIP services are interstate services subject exclusively to the FCC’s federal jurisdiction. This decision, if upheld on appeal (consumer groups and some state regulatory commissions have filed an appeal), is significant because it includes VoIP offered by cable systems as within the scope of activities that are not subject to state telecommunications regulation. Legislation also has been introduced in Congress to accomplish the same objective, though the prospect for passage of such legislation is uncertain.

Litigation also is pending in various courts in which various franchise requirements are being challenged as unlawful under the First Amendment, the Communications Act, the antitrust laws and on other grounds. One of the issues raised in these cases is whether local franchising authorities have the power to regulate the provision of Internet access by cable systems. Depending on the outcomes, such litigation could facilitate the development of duplicative cable facilities that would compete with existing cable systems, enable cable operators to offer certain services outside of cable regulation or otherwise materially affect cable television operations.

The regulation of certain cable television rates pursuant to the authority granted to the FCC has negatively impacted the revenues of the Company’s cable systems. The Company is unable to predict what effect the other matters discussed in this section may ultimately have on its cable television business.

Magazine Publishing

Newsweek

Newsweekis a weekly news magazine published both domestically and internationally by Newsweek, Inc., a subsidiary of the Company. In gathering, reporting and writing news and other material for publication,Newsweekmaintains news bureaus in 9 U.S. and 11 foreign cities.

The domestic edition ofNewsweekincludes more than 100 different geographic or demographic editions which carry substantially identical news and feature material but enable advertisers to direct messages to specific market areas or demographic groups. Domestically,Newsweekranks second in circulation among the three leading weekly news magazines (Newsweek,TimeandU.S. News & World Report). For each of the last five yearsNewsweek’s average weekly domestic circulation rate base has been 3,100,000 copies. In 1998 and 1999Newsweek’s percentage of the total weekly domestic circulation rate base of the three leading weekly news magazines was 33.5%. Since 2000 that percentage has been 34.0%.

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Newsweekis sold on newsstands and through subscription mail order sales derived from a number of sources, principally direct mail promotion. The basic one-year subscription price is $41.08. Most subscriptions are sold at a discount from the basic price. In May 2001,Newsweek’s newsstand cover price was increased from $3.50 per copy (which price had been in effect since April 1999) to $3.95 per copy.

The total number ofNewsweek’s domestic advertising pages and gross domestic advertising revenues as reported by Publishers’ Information Bureau, Inc., together withNewsweek’s percentages of the total number of advertising pages and total advertising revenues of the three leading weekly news magazines, for the past five years have been as follows:

                 
Percentage ofNewsweek
NewsweekThree LeadingGrossPercentage of
AdvertisingNewsAdvertisingThree Leading
Pages*MagazinesRevenues*News Magazines

1998  2,472   34.4% $393,168,000   33.8%
1999  2,567   33.5%  432,701,000   32.8%
2000  2,383   33.8%  433,932,000   34.2%
2001  1,822   33.6%  334,179,000   32.5%
2002  1,971   35.2%  387,698,000   34.8%


Advertising pages and gross advertising revenues are those reported by Publishers’ Information Bureau, Inc. PIB computes gross advertising revenues from published basic one-time rates and the number of advertising pages carried. PIB figures therefore materially exceed actual gross advertising revenues, which reflect lower rates for multiple insertions and other discounts from published rates. Net revenues as reported in the Company’s Consolidated Statements of Income also exclude agency commissions, which are included in the gross advertising revenues shown above. Page and revenue figures exclude affiliated advertising.

Newsweek’s published advertising rates are based on its average weekly circulation rate base and are competitive with those of the other weekly news magazines. As is common in the magazine industry, advertising typically is sold at varying discounts fromNewsweek’s published rates. Effective with the January 14, 2002 issue,Newsweek’s published national advertising rates for all categories of such advertising were increased by 5.0%. Beginning with the issue dated January 13, 2003, such rates were increased by an additional 4.8%.

Internationally,Newsweekis published in an Atlantic edition covering Europe, the Middle East and Africa, a Pacific edition covering Japan, Korea and south Asia, and a Latin American edition, all of which are in the English language. Editorial copy solely of domestic interest is eliminated in the international editions and is replaced by other international, business or national coverage primarily of interest abroad.

Since 1984 a section ofNewsweekarticles has been included inThe Bulletin, an Australian weekly news magazine which also circulates in New Zealand. A Japanese-language edition ofNewsweek, Newsweek Nihon Ban,has been published in Tokyo since 1986 pursuant to an arrangement with a Japanese publishing company which translates editorial copy, sells advertising in Japan and prints and distributes the edition.Newsweek Hankuk Pan,a Korean-language edition ofNewsweek,began publication in 1991 pursuant to a similar arrangement with a Korean publishing company. Since 1996Newsweek en Español, a Spanish-language edition ofNewsweekdistributed in Latin America, has been published under an agreement with a Miami-based publishing company which translates editorial copy, prints and distributes the edition and jointly sells advertising with Newsweek. In June 2000,Newsweek Bil Logha Al-Arabia, an Arabic-language edition ofNewsweek, was launched under a similar arrangement with a Kuwaiti publishing company. Also,Newsweek Polska, a Polish-language newsweekly, was launched in September 2001 under a licensing agreement with a Polish publishing company which, in addition to translating selected stories fromNewsweek’s various U.S. and foreign editions, has established a staff of Polish reporters and editors for the magazine. In December 2002 Newsweek announced an agreement with a Hong Kong-based publisher to publishNewsweek Select, a Chinese-language magazine which will be based primarily on selected content translated fromNewsweek’s U.S. and international editions.

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The average weekly circulation rate base, advertising pages and gross advertising revenues ofNewsweek’s international editions (not includingThe Bulletininsertions or the foreign-language editions ofNewsweek) for the past five years have been as follows:

             
Average WeeklyGross
CirculationAdvertisingAdvertising
Rate BasePages*Revenues*

1998  660,000   2,120  $83,051,000 
1999  660,000   2,492   90,023,000 
2000  663,000   2,606   104,868,000 
2001  666,000   1,979   81,453,000 
2002  646,000   1,882   76,711,000 


Advertising pages and gross advertising revenues are those reported by CMR International. CMR computes gross advertising revenues from published basic one-time rates and the number of advertising pages carried. CMR figures therefore materially exceed actual gross advertising revenues, which reflect lower rates for multiple insertions and other discounts from published rates. Net revenues as reported in the Company’s Consolidated Statements of Income also exclude agency commissions, which are included in the gross advertising revenues shown above. Page and revenue figures exclude affiliated advertising.

For 2003 the average weekly circulation rate base forNewsweek’s English-language international editions (not includingThe Bulletininsertions) will be 646,000 copies.Newsweek’s rate card estimates the average weekly circulation in 2003 forThe Bulletininsertions will be 70,000 copies and for the Japanese-, Korean-, Arabic- and Spanish- and Polish-language editions will be 110,000, 70,000, 30,000, 50,750 and 262,000 copies, respectively.

The online version ofNewsweek, which includes stories fromNewsweek’s print edition as well as other material, has been a co-branded feature on the MSNBC.com Web site since 2000. This feature is being produced by Washingtonpost.Newsweek Interactive Company, another subsidiary of the Company.

Arthur Frommer’s Budget Travelmagazine, another Newsweek publication, was published eight times during 2002 and had a circulation of 450,000 copies.Budget Travelis headquartered in New York City and has its own editorial staff.

During recent years Congress has considered a range of proposals intended to restrict the marketing of tobacco products. The Company cannot now predict what actions may eventually be taken to limit or restrict tobacco advertising. However, such advertising accounts for only about 1% of Newsweek’s operating revenues and negligible revenues atThe Washington Postand the Company’s other publications. Moreover, federal law has prohibited the carrying of advertisements for cigarettes and smokeless tobacco by commercial radio and television stations for many years. Thus the Company believes that any restrictions on tobacco advertising which may eventually be put into effect would not have a material adverse effect on Newsweek or on any of the Company’s other business operations.

PostNewsweek Tech MediaEducation

This division of Post-Newsweek Media, Inc. publishes controlled-circulation trade periodicals and produces trade shows and conferences for the government information technology industry.

Specifically, PostNewsweek Tech Media publishesWashington Technology, a twice-monthly news magazine for government information technology systems integrators,Government Computer News, a news magazine published 30 times per year serving government managers who buy information technology products and services, andGCN Technology, a news magazine published four times per year providing information technology product reviews and other buying information for government information technology managers.Washington Technology,Computer Government News, andGCN Technologyhave circulations of about 40,000, 87,000, and 120,000 copies, respectively. This division also publishesTech Almanac, an annual directory of technology industry executives serving the government information technology community.

PostNewsweek Tech Media also produces theFOSEtrade show, which is held each spring in Washington, D.C. for information technology decision makers in government and industry, and thePSXtrade show, which attracts government procurement officers and vendors of the services such officers purchase. This division also produces a

11


number of smaller conferences and events, including awards dinners honoring leading individuals and companies in the government information technology community.

Education

Kaplan, Inc., a subsidiary of the Company, provides an extensive range of educational services for children, students and professionals. Kaplan’s historical focus on test preparation has been expanded as new educational and career services businesses have been acquired or initiated.

The Company divides Kaplan’s various businesses into two categories: supplemental education, which consists of the Test Preparation and Admissions Division, the Professional Division, Score! Educational Centers, and FTC Kaplan Limited (formerly known as The Financial Training Company); and higher education, which consists of Kaplan’s Higher Education Division and several companies that provide higher education services outside the U.S.

Through its Test Preparation and Admissions Division, Kaplan prepares students for a broad range of admissions and licensing examinations, including the SATs, LSATs, GMATs, MCATs, GREs,SAT, LSAT, GMAT, MCAT, GRE, and nursing and medical boards. This business can be subdivided into four categories: K-12K–12 (serving schools and school districts seeking assistance in improving student performance using print- and computer-based supplemental programs, preparing students for state assessment tests and for the SATsSAT and ACTs)ACT, providing curriculum consulting services and providing professional training for teachers); Graduate andPre-College (serving high school and college students and professionals, primarily with preparation for admissions tests to college and to graduate, medical and law schools); Medical (serving medical professionals preparing for licensing exams); and English Language Training (serving foreign students and professionals wishing to study or work in the U.S.). Many of this division’s test preparation courses have been available to students via the Internet since 1999.
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THE WASHINGTON POST COMPANY


During 20022005 the Test Preparation and Admissions Division enrolled nearly 250,000provided courses to over 280,000 students (including over 60,00080,000 enrolled in online programs), and provided courses at 157161 permanent centers located throughout the United States and in Canada, Puerto Rico, Mexico, London and Paris. In addition, Kaplan licenses material for certain of these courses to third parties who during 20022005 offered suchtest prep courses at 29 centers located39 locations in 1314 foreign countries.

The Test Preparation and Admissions Division also includes Kaplan’s publishing activities. Kaplan currently co-publishes more than 150is theco-publisher with Simon & Schuster of 187 book titles, predominatelypredominantly in the areas of test preparation, admissions and career guidance, and life skills, through a joint venture with Simon & Schuster, and also develops educational software for the K through K–12, graduate and graduateEnglish-as-a-second-language markets which is sold through arrangementsan arrangement with a third party whothat is responsible for production and distribution. KaplanThis division also produces a college newsstand guide in conjunction with Newsweek.

Acquired in 2005 and included in Kaplan’s Test Preparation and Admissions division is The Kidum Group, which is a provider of test preparation and English-as-a-second-language courses in Israel. During 2005 the Kidum Group provided courses to over 40,000 students at 49 permanent centers located throughout Israel.
Kaplan’s Professional Division offers licensing, continuing education, certification, licensing, exam preparation and professional development services forto corporations and forto individuals seeking to advance their careers.careers in a variety of disciplines. This division includes Kaplan Financial (formerly known as Dearborn Publishing Group,Financial Services), a provider of pre-licensing trainingcontinuing education and test preparation courses for financial services and insurance industry professionals; Dearborn Publishing, publisher of a variety of business and real estate books as well as printed and online course materials for licensing, test preparation and continuing education for securities, insurance andin the real estate, professionals;architecture, home inspection, engineering and construction industries; The Schweser Study Program, a provider of test preparation courses for the Chartered Financial Analyst and Financial Risk Manager examinations; Kaplan CPA, which offers test preparation courses for the Certified Public Accounting Exam; Kaplan Professional Schools, a provider of courses for real estate, financial services and home inspection licensing examinations as well as continuing education in those areas; Perfect Access Speer, a provider of software educationconsulting and consulting servicessoftware training products, primarily to law firmsthe legal profession; and businesses; Schweser’s Study Program,Kaplan IT, which offers online test preparation courses for technical certifications in the information technology industry. The courses offered by Kaplan’s Professional Division are provided in various formats (including classroom-based instruction, online programs, printed study guides,in-house training and audio CD’s) and at a wide range ofper-course prices. During 2005 this division sold approximately 500,000 courses and separately priced course components to students (who in some subject areas typically purchase more than one course component offered by the division). In April 2005 Kaplan acquired BISYS Education Services, a provider of materials aimed at preparing individuals for the Chartered Financial Analyst examination; Self Test Software, a provider of preparationregulatory compliance tracking software and services for software proficiency certification examinations;financial service and Contact Center Solutions, a providerinsurance firms. BISYS Education Services subsequently became part of assessment and training services for the call-center industry.

Kaplan Financial.

Kaplan’s Score Education Division offersScore! Educational Centers offer computer-based learning and individualized tutoring for children in grades Kfrompre-K through 10.the 10th grade. In 20022005 this business which providesprovided after-school educational after-school enrichment services through 147168 Score centers located in various areas of the United States served nearly 70,000 students, up from 60,000 students in 2001.to more than 80,000 students. Score’s services are provided in facilities separate from Kaplan’s test preparation centers.
FTC Kaplan Limited (“FTC”), formerly known as The Financial Training Company, is aU.K.-based provider of training and test preparation services for accounting and financial services professionals. Atyear-end 2005, FTC was the publisher of more than 200 textbooks and manuals and during the year had provided courses to over 40,000 students. Headquartered in London, FTC has 22 training centers due to differing configurationaround the United Kingdom as well as operations in Hong Kong, Shanghai and equipment requirements.

Singapore.

The Higher Education Division of Kaplan currently consists of 4675 schools in 1419 states whichthat provide classroom-based instruction and three institutions whichthat specialize in distance education. The schools providing classroom-based instruction offer a variety of bachelor degree, associate degree and diploma programs primarily in the fields of healthcare, business, paralegal studies, information technology, criminal justice and fashion and design. These schools were serving more than 20,60034,000 students atyear-end 2002 2005 (which total includes the classroom-based programs of Kaplan College)University), with approximately half40% of such students enrolled in accredited bachelor or associate degree programs. Each of these schools has its own accreditation from one of several regional or national accrediting agencies recognized by the U.S. Department of Education. The institutions whichthat specialize in distance education are Kaplan College,University, Concord UniversityLaw School of Law and The College for Professional Studies. Kaplan CollegeUniversity offers various master degree, bachelor degree, associate degree and certificate programs, principally in the fields of financial planning,management, criminal justice, paralegal studies, information technology, financial planning, nursing and management,education, and is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools. Some of Kaplan College’sUniversity’s programs are offered online while others are offered in a traditional classroom format at the school’s Davenport, Iowa campus. Atyear-end 2002, 2005, Kaplan CollegeUniversity had approximately 6,00024,000 students enrolled in online programs. The College for Professional Studies had over 4,400 students enrolled at year-end 2002. Concord UniversityLaw School, of Law, the nation’s first online law school, offers Juris Doctor and LLMExecutive Juris Doctor degrees wholly online.online (the Executive Juris Doctor degree program is designed for individuals who do not intend to practice law). Atyear-end 2002, 2005, approximately
1,500 students were
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2005 FORM 10-K
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1,200 students were enrolled at Concord. Concord is accredited by the Accrediting Commission of the Distance Education and Training Council and has received operating approval from the California Bureau of Private Post-Secondary and Vocational Education. Concord also has complied with the registration requirements of the State Bar of California; graduates are, therefore, able to apply for admission to the California Bar. The College for Professional Studies, which had over 4,400approximately 300 students enrolled atyear-end 2002, 2005, offers bachelor and associate degree and diploma correspondence programs in the fields of legal nurse consulting, paralegal studies and criminal justice; however, that school is no longer enrolling students and will discontinue operations afterat the end of 2006.
Dublin Business School (“DBS”) is an undergraduate and graduate institution located in Dublin, Ireland, with a satellite location in Kuala Lumpur, Malaysia. DBS offers various undergraduate and graduate degree programs in business and the liberal arts. Atyear-end 2005, DBS was providing courses to approximately 4,000 students.
In May 2005 Kaplan acquired Asia Pacific Management Institute (“APMI”), which is headquartered in Singapore and has a satellite location in Hong Kong. APMI provides students with the opportunity to earn undergraduate and graduate degrees, principally in business-related subjects, offered by affiliated educational institutions in Australia, the United Kingdom and the United States. APMI had more than 3,000 students enrolled at year-end 2005.
Kaplan acquired Holborn College in November 2005. Holborn is located in London and offers variouspre-university, undergraduate, post-graduate and professional programs, primarily in law and business, with its current students complete their programs.receiving degrees from affiliated universities in the United Kingdom. Most of Holborn’s students come from outside the United Kingdom and the European Union. At year-end 2005, Holborn was providing courses to approximately 1,500 students.

One of the ways a foreign national wishing to enter the United States to study may do so is to obtain anF-1 student visa. For many years, most of Kaplan’s Test Preparation and Admissions Division centers in the United States have been authorized by what is now the U.S. Bureau of Citizenship and Immigration Services (the “BCIS”“USCIS”) to issue certificates of eligibility to prospective students to assist those studentsthem in applying forF-1 visas through a U.S. Embassy or Consulate. Under aan administrative program that became effective early in 2003, educational institutions are required to report electronically to the BCISUSCIS specified enrollment, departure and other information about theF-1 students to whom they have issued certificates of eligibility. MostKaplan has certified 137 of Kaplan’sits U.S. Test Preparation and Admissions Division centers have been designated to participate in this new program, and the applications of the other centers where Kaplan is seeking suchprogram. Once certified, a designation are pending.center must apply for recertification every two years. During 20022005 students holdingF-1 visas accounted for approximately 2.5%2.1% of the enrollment at Kaplan’s Test Preparation and Admissions Division and an insignificant number of students at Kaplan’s Higher Education Division.

Title IV Federal Student Financial AssistanceAid Programs

Funds provided under the student financial assistanceaid programs that have been created under Title IV of the Higher Education Act of 1965, as amended, historically have been responsible for a majority of the net revenues of the schools in Kaplan’s Higher Education Division which provide classroom-based instruction (including Kaplan College), accounting, for example, for slightly more than $160$500 million of the net revenues of such schools for the Company’s 20022005 fiscal year. The significant role of Title IV funding in the operations of these schools is expected to continue.

Title IV programs encompass various forms of student loans with the funds being provided either by the federal government itself or by private financial institutions with a federal guaranty protecting the institutions against the risk of default. In some cases the federal government pays part of the interest expense. Other Title IV programs offernon-repayable grants. Subsidized loans and grants are only available to students who can demonstrate financial need. During 2005 approximately 70% of the Title IV funds received by the schools in Kaplan’s Higher Education Division came from student loans and approximately 30% of such funds came from grants.
To maintain Title IV eligibility a school must comply with extensive statutory and regulatory requirements relating to its financial aid management, educational programs, financial strength, recruiting practices and various other matters. Among other things, the school must be licensed or otherwise authorized to offer its educational programs by the appropriate governmental body in the state or states in which it is located, be accredited by an accrediting agency recognized by the U.S. Department of Education (the “Department of Education”), and enter into a program participation agreement with the Department of Education.

A school may lose its eligibility to participate in Title IV programs if student defaults on the repayment of Title IV loans exceed specified default rates (referred to as “cohort default rates”). A school whose cohort default rate exceeds 40% for any single year may have its eligibility to participate in Title IV programs limited, suspended or terminated at the discretion of the Department of Education. A school whose cohort default rate equals or exceeds 25% for three consecutive years will automatically lose its Title IV eligibility for at least two years unless the school can demonstrate
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THE WASHINGTON POST COMPANY


exceptional circumstances justifying its continued eligibility. Moreover, a Pursuant to another program requirement, anyfor-profit postsecondary institution like each(a category that includes all of these Kaplanthe schools in Kaplan’s Higher Education Division) will lose its Title IV eligibility for at least one year if more than 90% of thethat institution’s cash receipts for any fiscal year are derived from Title IV programs.

The Title IV program regulations also provide that not more than 50% of an eligible institution’s courses can be provided online and that, in some cases, not more than 50% of an eligible institution’s students can be enrolled in online courses, andcourses. Those regulations also impose certain other requirements intended to insure that individual programs (including online programs) eligible for Title IV funding include minimum amounts of instructional activity. However, Kaplan College currentlyUniversity is a participant in the distance education demonstration programDistance Education Demonstration Program of the Department of Education and as a result is exempt from the foregoing requirements until at least June 30, 2004. Legislation currently is pending2006. Moreover, legislation enacted in Congress which, if enacted, would exemptFebruary 2006 repealed the 50% rules described above effective July 1, 2006, for institutions like Kaplan University whose online courses from those requirements under certain circumstances, including the maintenanceprograms are approved by the institution offering such courses of a cohort default rate of less than 10% for three consecutive years.

No proceedingan accrediting agency recognized by the Department of Education is pending to fine any Kaplan school for a failure to comply with any Title IV requirement, or to limit, suspend or terminate the Title IV eligibility of any Kaplan school. However no assurance can be given that the Kaplan schools which currently participate in Title IV programs will maintain their

purpose.
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Title IV eligibility in the future or that the Department of Education might not successfully assert that one or more of such schools have previously failed to comply with Title IV requirements. Most schools within Kaplan’s Higher Education Division are considered separately for the purpose of determining compliance with Title IV requirements. Thus if the Department of Education were to find that one or more of such schools had failed to comply with any applicable Title IV requirement and as a result suspended or terminated the Title IV eligibility of those schools, that action normally would not affect the Title IV eligibility of other Kaplan schools that had continued to comply with Title IV requirements.

As a general matter, schools participating in Title IV programs are not financially responsible for the failure of their students to repay Title IV loans. However the Department of Education may fine a school for a failure to comply with Title IV requirements and may require a school to repay Title IV program funds if it finds that such funds have been improperly disbursed. In addition, there may be other legal theories under which a school could be subject to suit as a result of alleged irregularities in the administration of student financial aid.

Pursuant to Title IV program regulations, a school that undergoes a change in control must be reviewed and recertified by the Department of Education. Certifications obtained following a change in control are granted on a provisional basis whichthat permits the school to continue participating in Title IV programs but provides fewer procedural protections if the Department of Education asserts a material violation of Title IV requirements. As a result of Kaplan’s acquisition of Quest Education Corporation in 2000, all of the schools owned by Quest at that time were provisionally certified by theIn accordance with Department of Education forregulations, a term expiring in June 2004; Kaplan will be eligible to apply for full certification for such schools (which constitute mostnumber of the schools in Kaplan’s Higher Educational Division)Education Division are combined into groups of two or more schools for the purpose of determining compliance with Title IV requirements. Including schools that are not combined with other schools for that purpose, the Higher Education division has 39 Title IV reporting units; of these 13 reporting units have been provisionally certified, while the remaining 26 are fully certified.
Of the 39 Title IV reporting units in the spring of 2004. The schools acquired by Kaplan’s Higher Education Division, subsequentthe largest in terms of revenue accounted for approximately 28% of the Division’s 2005 revenues. If the Department of Education were to find that one reporting unit had failed to comply with any applicable Title IV requirement and as a result limited, suspended or terminated the Quest acquisition have also been provisionally certifiedTitle IV eligibility of the school or schools in that reporting unit, that action normally would not affect the Title IV eligibility of the schools in other reporting units that had continued to comply with Title IV requirements. For the most recent year for which data is available from the Department of Education, the cohort default rate for the Title IV reporting units in Kaplan’s Higher Education Division averaged 8.5%, and no reporting unit had a cohort default rate of 25% or more. In 2005 those reporting units derived an average of less than 83% of their receipts from Title IV programs, with no unit deriving more than 87.4% of its receipts from such programs.
No proceeding by the Department of Education generallyis currently pending to fine any Kaplan school for terms expiringa failure to comply with any Title IV requirement, or to limit, suspend or terminate the Title IV eligibility of any Kaplan school. However during 2005 a Kaplan school in Texas was unable to satisfy certain state licensing requirements that applied to two of its associate degree programs and as a result had to discontinue those programs, return approximately three years after$400,000 in Title IV funds and refund certain other tuition payments. Also, as noted previously, to remain eligible to participate in Title IV programs a school must maintain its accreditation by an accrediting agency recognized by the dateDepartment of Education. At the present time schools in four of Kaplan’s Title IV reporting units (which collectively accounted for approximately 6% of the acquisition.

Several Title IV funds received in 2005 by the schools in Kaplan’s Higher Education Division) have unresolved show cause orders issued against them by their respective accrediting agencies. Such orders are issued when an accrediting agency is concerned that an institution may be out of compliance with one or more applicable accrediting standards, and gives the institution an opportunity to respond before any further action is taken. The institution may be able to demonstrate that the concern is unfounded, that the necessary corrective action has already been taken or that it has implemented an ongoing program that will resolve the concern. The agency may then vacate the order or continue the order pending the receipt of additional information or the achievement of specified objectives. If the agency’s concerns are not resolved to its satisfaction, it may then withdraw the institution’s accreditation.

No assurance can be given that the Kaplan schools currently participating in Title IV programs will maintain their Title IV eligibility in the future or that the Department of Education might not successfully assert that one or more of such schools have previously failed to comply with Title IV requirements.
All of the Title IV financial aid programs are subject to periodic legislative review and reauthorization, and the next reauthorization is scheduled to take place during the current Congressional term.reauthorization. In addition, while Congress historically has not limited the amount of funding available for the various Title IV student loan programs, the
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availability of funding for eachthe Title IV programprograms that provide for the payment of grants is wholly contingent upon the outcome of the annual federal appropriations process.

Whether as a result of changes in the laws and regulations governing Title IV programs, a reduction in Title IV program funding levels, or a failure of schools included in Kaplan’s Higher Education Division to maintain eligibility to participate in Title IV programs, a material reduction in the amount of Title IV financial assistance available to the students of thesethose schools would have a significant negative impact on Kaplan’s operating results.

Other Activities

International Herald TribuneBowater Mersey Paper Company

On January 1, 2003,

The Company owns 49% of the common stock of Bowater Mersey Paper Company sold its 50% beneficialLimited, the majority interest in which is held by a subsidiary of Bowater Incorporated. Bowater Mersey owns and operates a newsprint mill near Halifax, Nova Scotia, and also owns extensive woodlands that provide part of the Paris-basedInternational Herald Tribuneto The New York Times Company.

mill’s wood requirements. In 2005 Bowater Mersey produced about 270,000 tons* of newsprint.

BrassRing

The Company beneficially owns a 49.4% equity interest in BrassRing LLC, an Internet-based career-assistance and hiring management company. The other principal members of BrassRing are the Tribune Company with a 26.9% interest,interest; Gannett Co., Inc. with a 12.4% interest,interest; and the venture capital firm Accel Partners with a 10.5% interest.

Production and Raw Materials

The Washington Post, ExpressisandEl Tiempo Latino are all produced at the Company’s printing plants of WP Company in Fairfax County, Virginia and Prince George’s County, Maryland.The HeraldandThe Enterprise Newspapersare produced at The Daily Herald Company’s plant in Everett, Washington, whileThe Gazette Newspapersand theSouthern Maryland Newspapersare all printed at the commercial printing facilities owned by Post-Newsweek Media, Inc. (the PostNewsweek Media facilities also producedEl Tiempo Latinoprior to February 2006). Greater Washington Publishing’s periodicals are produced by independent contract printers with the exception of one periodical whichthat is printed at one of the commercial printing facilities owned by Post-Newsweek Media, Inc. All PostNewsweek Tech Media publications are produced by independent contract printers.

Newsweek’s domestic edition is produced by three independent contract printers at fivesix separate plants in the United States; advertising inserts and photo-offset films for the domestic edition are also produced by independent contrac-
14


tors.contractors. The international editions ofNewsweekare printed in England, Singapore, Switzerland, the Netherlands, South Africa and Hollywood, Florida; insertions forThe Bulletinare printed in Australia. Since 1997 Newsweek and a subsidiary of AOL Time Warner have used a jointly owned company based in England to provide production and distribution services for the Atlantic editionsEurope, Middle East and Africa edition of bothNewsweekand the Europe edition ofTimeTime.. In 2002 this jointly owned company began providing certain production and distribution services for the Asian editions of these magazines.Budget Travelis produced by one of the independent contract printers that also printsNewsweek’s domestic edition.

In 20022005The Washington PostandExpressconsumed about 191,000*175,300 tons and 4,400 tons of newsprint, respectively. Such newsprint was purchased from a number of suppliers, including Bowater Incorporated, which supplied approximately 39% ofThe Post’s 2002 the 2005 newsprint requirements.requirements for these newspapers. Although for many years some of the newsprintThe Postpurchased by WP Company from Bowater Incorporated typically was provided by Bowater Mersey Paper Company Limited, 49% of the common stock of which is owned by the Company (the majority interest being held by a subsidiary of Bowater Incorporated), since 1999 none of the newsprint consumed byThe Postdelivered to WP Company has come from that source. Bowater Mersey owns and operates a newsprint mill near Halifax, Nova Scotia, and owns extensive woodlands that provide part of the mill’s wood requirements. In 2002 Bowater Mersey produced about 255,000 tons of newsprint.

The announced price of newsprint (excluding discounts) was approximately $750 per ton throughout 2002.2005. Discounts from the announced price of newsprint can be substantial, and prevailing discounts increased duringdecreased throughout the first three quartersyear. The Company believes adequate supplies of the year and decreased slightly during the fourth quarter.newsprint are available toThe Washington Postbelieves it has adequate newsprint availableand the other newspapers published by the Company’s subsidiaries through contracts with its various suppliers. OverMore than 90% of the newsprint usedconsumed byThe Post WP company’s printing plants includes some recycled content. The Company owns 80% of the stock of Capitol Fiber Inc., which handles and sells to recycling industries old newspapers, paper and other paperrecyclable materials collected in Washington, D.C., Maryland and northern Virginia.

In 20022005 the operations of The Daily Herald Company and Post-Newsweek Media, Inc. consumed approximately 6,5006,800 and 20,60023,000 tons of newsprint, respectively, which waswere obtained in each case from various suppliers. Approximately 85%
All references in this report to newsprint tonnage and prices refer to short tons (2,000 pounds) and not to metric tons (2,204.6 pounds), which are often used in newsprint quotations.
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THE WASHINGTON POST COMPANY


95% of the newsprint used by The Daily Herald Company and 35%75% of the newsprint used by Post-Newsweek Media, Inc. includes some recycled content.

The domestic edition ofNewsweekconsumed about 29,20029,000 tons of paper in 2002,2005, the bulk of which was purchased from six major suppliers. The current cost of body paper (the principal paper component of the magazine) is approximately $860$995 per ton.

Over 90% of the aggregate domestic circulation of bothNewsweekandBudget Travelis delivered by periodical (formerly second-class) mail,mail; most subscriptions for such publications are solicited by either first-class or standard A (formerly third-class) mail,mail; and all PostNewsweek Tech Media publications are delivered by periodical mail. Thus, substantial increases in postal rates for these classes of mail could have a significant negative impact on the operating income of these business units. In March 2002 the Postal Rate Commission approved a rate increaseincreases of approximately 8%5.4% for both periodical and first-class mail and 5.3% for standard A mail and 9% for first-class mail, which increases became effectivewent into effect on June 30, 2002. This action hadJanuary 8, 2006. These actions will have the effect of increasing annual postage costs by about $2.9$2.0 million atNewsweekand by nominal amounts at PostNewsweek Tech Media. On the other hand, since advertising distributed by standard A mail competes to some degree with newspaper advertising, the Company believes increases in standard A rates could have a positive impact on the advertising revenues ofThe Washington Post,The Herald,The Gazette NewspapersandSouthern Maryland Newspapers, the other newspapers published by the Company’s subsidiaries, although the Company is unable to quantify the amount of such impact.

Competition

The Washington Postcompetes in the Washington, D.C. metropolitan area withThe Washington Times,, a newspaper which has published weekday editions since 1982 and Saturday and Sunday editions since 1991.The Postalso encounters competition in varying degrees from newspapers published in suburban and outlying areas,areas; other nationally circulated newspapers,newspapers; and from television, radio, magazines and other advertising media, including direct mail advertising. Since 1997Expresssimilarly competes with various other advertising media in its service area, including both daily and weekly free-distribution newspapers.
The New York Timeshaswebsites produced a Washington Edition which is printed locally and includes television channel listings and weather for the Washington, D.C. area.
All references in this report to newsprint tonnage and prices refer to short tons (2,000) and not to metric tons (2,204.6 pounds) which are often used in newsprint price quotations.
15


by Washingtonpost.Newsweek Interactive facesface competition from many other Internet services particularly(particularly in the case of washingtonpost.com from services that feature national and international news,news), as well as from alternative methods of delivering news and information. In addition, other Internet-based services, including search engines, are carrying increasing amounts of advertising, and over time such services could also adversely affect the Company’s print publications and television broadcasting operations, all of which rely on advertising for the majority of their revenues. Several companies are offering online services containing information and advertising tailored for specific metropolitan areas, including the Washington, D.C. metropolitan area. For example, Digital City (a unit of AOL Time Warner) producesDigital City Washington,DC, which is part of AOL’s nationwide network of local online sites. National online classified advertising is becoming a particularly crowded field, with competitors such as Yahoo! and eBay aggregating large volumes of content into a national classified databaseor direct-shopping databases covering a broad range of product lines. OtherSome nationally managed sites, such as Fandango and Weather.com also offer local information and services (in the case of those sites, movie information and tickets and local weather). In addition, major national search engines have entered local markets. For example, Google and Yahoo have launched local services which offer directory information for local markets with enhanced functionality such as mapping and links to reviews and other information. At the same time, other competitors are focusing on vertical niches in specific content areas: autos.msn.com (which is majority owned by Microsoft),areas. For example, AutoTrader.com and Autobytel.com for example, aggregate national car listings; Realtor.com aggregates national real estate listings; while Monster.com, HotJobs.comYahoo! Hotjobs (which is owned by Yahoo!) and CareerBuilder.com (which is jointly owned by Gannett, Knight-Ridder and Tribune Co.) aggregate employment listings.

All of these vertical-niche sites can be searched for local listings, typically by using zip codes. Finally, several new services have been launched in the past several years that have challenged established business models. Many of these are free classified sites, one of which is craigslist.com. In addition, the role of the free classified board as a center for community information has been expanded by “hyper local” neighborhood sites such as dcurbanmom.com (which provides community information to mothers in the DC Metro area) and backfence.com (which offers community information about McLean and Reston, Virginia as well as Bethesda, Maryland). Some free classified sites, such as Oodle and Indeed, feature databases populated with listings indexed from other publishers’ classified sites. Google Base is taking a somewhat different approach and is accepting free uploads of any type of structured data, from classified listings to an individual’s favorite recipes. For its part,Slatecompetes for readers with many other political and lifestyle publications, both online and in print, and competes for advertising revenue with those publications as well as with a wide variety of other print publications and online services, as well as with other forms of advertising.

The Heraldcirculates principally in Snohomish County, Washington; its chief competitors are theSeattle Timesand theSeattle Post-Intelligencer,, which are daily and Sunday newspapers published in Seattle and whose Snohomish County circulation is principally in the southwest portion of the county. Since 1983 the two Seattle newspapers have consolidated their business and production operations and combined their Sunday editions pursuant to a joint operating agreement, although they continue to publish separate daily newspapers.The Enterprise Newspapersare distributed in south Snohomish and north King Counties where their principal competitors are theSeattle TimesandThe Journal Newspapers,, a
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group of weeklymonthly controlled-circulation newspapers. Numerous other weekly and semi-weekly newspapers and shoppers are distributed inThe HeraldHerald’s’s andThe Enterprise Newspapers’principal circulation areas.

The circulation ofThe Gazette Newspapersis limited to Montgomery, Prince George’s and Frederick Counties and parts of Carroll Anne Arundel and Howard Counties,County, Maryland.The Gazette Newspaperscompete with many other advertising vehicles available in their service areas, includingThe PotomacandBethesda/ Chevy Chase Almanacs,,The Western Montgomery Bulletin,,The Bowie Blade-News,,The West County NewsandThe Laurel Leader,, weekly controlled-circulation community newspapers,newspapers;The Montgomery Sentinel,, a weekly paid-circulation community newspaper,newspaper;The Prince George’s Sentinel,, a weekly controlled-circulation community newspaper (which also has a weekly paid-circulation edition),The MontgomeryandPrince George’s Journals, daily paid-circulation community newspapers,; andThe Frederick News-Post, aandCarroll County Times, daily paid-circulation community newspaper.newspapers. TheSouthern Maryland Newspaperscirculate in southern Prince George’s County and in Charles, Calvert and St. Mary’s Counties, Maryland, where they also compete with many other advertising vehicles available in their service areas, including theCalvert County IndependentandSt. Mary’s Today,, weekly paid-circulation community newspapers.

In October 2004 Clarity Media Group, a company associated with Denver businessman and billionaire Philip Anschutz, bought theThe Montgomery, Prince George’sandNorthern Virginia Journals, three community newspapers with a combination of paid and free circulation that had been published in suburban Washington, D.C. for many years by a local company. In February 2005 Clarity Media Group relaunchedThe Journalnewspapers asThe Washington Examiner, a free newspaper which is being published six days a week in northern Virginia, suburban Maryland and Washington, D.C. zoned editions, each of which contains national and international as well as local news. The Company believes the three editions ofThe Washington Examinerare currently being distributed primarily by zip-code targeted home delivery in their respective service areas.The Washington Examinercompetes in varying degrees withThe Gazette Newspapers, ExpressandThe Washington Post. Late in 2005 Clarity Media Group announced that it will begin publishing a similar type of free-distribution newspaper for the greater Baltimore, Maryland metropolitan area which will be calledThe Baltimore Examiner.
The advertising periodicals published by Greater Washington Publishing compete both with many other forms of advertising available in their distribution area as well as with various other free-circulation advertising periodicals.

El Tiempo Latinocompetes with other Spanish-language advertising media available in the Washington, D.C. area, including several other Spanish-language newspapers.
The Company’s television stations compete for audiences and advertising revenues with television and radio stations and cable television systems serving the same or nearby areas, with direct broadcast satellite (“DBS”) services, and to a lesser degree with other video programming providers and with other media such as newspapers and magazines. Cable television systems operate in substantial portionssubstantially all of the areas served by the Company’s broadcast marketstelevision stations where they compete for television viewers by importing out-of-marketout-of-market television signals and by distributing pay-cable, advertiser-supported and other programming that is originated for cable systems. In addition, direct broadcast satellite (“DBS”)DBS services provide nationwide distribution of television programming (including in some cases pay-per-view programming and programming packages unique to DBS) using small receiving dishes and digital transmission technologies. In November 1999 Congress passed the Satellite Home Viewer Improvement Act, which gives DBS operators the ability to distribute the signals of local television stations to subscribers in the stations’ local market area (“local-into-local” service), although since April 2000 the DBS operator has been requiredsubject to obtainobtaining the consent of each local television station included in such a service. All of the Company’s television stations are currently being distributed locally by satellite. Under an FCC rule implementing provisions of this Act, since January 2002 DBS operators that offer local-into-local service have beenare required to carry the analog signals of all full-power television stations that request such carriage in the markets in which the DBS operators have chosen to offer local-into-local service. The FCC has also adopted rules that require certain program-exclusivity rules applicable to cable television to be applied to DBS operators, although certain of these rules, primarily relating to sports blackouts, are subject to reconsideration byoperators. In addition, the FCC. The Satellite Home Viewer Improvement Act also continuesand subsequent legislation continued restrictions on the transmission of distant network stations by DBS
16


operators. Under these restrictions,Thus DBS operators generally are prohibited from distributing in a local marketdelivering the signals of any distant network-affiliated television station except in areas wherenetwork stations to subscribers who can receive the over-the-airanalog signal of the same network’s local affiliate is not available or where the local affiliate grants a waiver.affiliate. Several lawsuits were filed beginning in 1996 in which plaintiffs (including all four major broadcast networks and network-affiliated stations including one of the Company’s Florida stations) alleged that certain DBS operators had not been complying with this restriction.the prohibition on delivering network signals to households that can receive the analog signal of the local network affiliate over the air. The plaintiffs have entered into a settlement with DBS operator DirecTV, under which it willagreed to discontinue distant-network service to certain subscribers and alter the method by which it determines eligibility for this service. LitigationIn 2003 the plaintiff’s obtained a favorable jury verdict and an injunction against DBS operator EchoStarEchostar, but Echostar appealed that decision to the U.S. Court of Appeals for the Eleventh Circuit which stayed the injunction. That appeal is continuing. The Satellite Home Viewer Improvement Act also provides that certain distant-network subscribers whose service would have been discontinued as a result of this litigation will continue to have access to distant-network service through 2004.still pending. In addition to the matters discussed above, the Company’s television stations may also become subject to increased competition from low-power television stations, wireless cable services and satellite master antenna systems (which can carry pay-cable and similar program material) and prerecorded video programming. Further, the deployment of digital and other improved television technologies may enhance the ability of some of these other video providers to. Television stations also compete more effectively for viewers with the localsale and rental of prerecorded video programming. Beginning in late 2005, the ABC and NBC television broadcasting stations owned bynetworks and the Company.MTV cable
18
THE WASHINGTON POST COMPANY


network began to make certain of their television programming available on a fee-per-episode basis for downloading over the Internet to video-enabled iPod players. In January 2006 Google announced that it would soon launch a similar fee-based service that would distribute certain programming from the CBS television network, the National Basketball Association and other sources for viewing on personal computers as well as portable video players. If these types of services become popular, they could become a competitive factor for both the Company’s television stations and, with respect to the conventional delivery of television programming, the Company’s cable television systems. Such services could also present additional revenue opportunities for the Company’s television stations from the possible distribution on such services of the stations’ news and other local programming.
Cable television systems operate in a highly and increasingly competitive environment. In addition to competing with the direct reception of television broadcast signals by the viewer’s own antenna, such systems (like existing television stations) are subject to competition from various other forms of televisionvideo program delivery. In particular, DBS services (which are discussed in more detail in the preceding paragraph) have been growing rapidly and are now a significant competitive factor. The ability of DBS operators to provide local-into-local service (as described above) has increased competition between cable and DBS operators in markets where local-into-local service is provided. DBS operators are not required to provide local-into-local service, and some smaller markets may not receive this service for several years. However, in December 2000 Congress passed and the President signed legislation to provide $1.25 billion in federal loan guarantees to help satellite carriers (and cable operators) provide local TV signals to rural areas, and DBS operators have stated that they intend to provide local-into-local service in a greater number of markets in the future. Local-into-local service is not yetcurrently being offered by both DirecTV and EchoStar in most markets in which the Company provides cable television service,service. In December 2003 News Corporation (“News Corp.”), a global media company that in the United States owns the Fox Television Network, 35 broadcast television stations, a group of regional sports networks and a number of nationally distributed cable networks (including the Fox News Channel, FX, the Fox Movie Channel, the Speed Channel and Fox Sports Net), acquired a controlling interest in DirecTV. This acquisition was approved by the FCC in an order that, among other things, requires News Corp. to offer carriage of its broadcast television stations and access to its cable programming services to cable television systems and other multichannel video programming distributors on nonexclusive and nondiscriminatory terms and conditions. Notwithstanding the requirements imposed by the FCC, this acquisition has the potential not only to enhance DirecTV’s effectiveness as a competitor, but also to limit the access of cable television systems to desirable programming and to increase the costs of such services could be launched by DBS operators at any time. Theprogramming. Certain of the Company’s cable television systems have also been partially or substantially overbuilt using conventional cable-system technology by various small to mid-sized independent telephone companies, which typically offer cable modem and telephone service as well as basic cable service. At the end of 2005, such overbuilt systems accounted for approximately 4% of the Company’s total number of basic video subscribers at that date. The Company anticipates that some overbuilding of its cable systems will continue, although it cannot predict the rate at which overbuilding will occur or whether any major telephone companies like Verizon, Quest or AT&T will decide to overbuild any of its cable systems. Even without constructing their own cable plant, local telephone companies can also compete with wireless cable services in several of their markets and may face additional competition from such services in the future. Moreover, the Telecommunications Act of 1996 permits telephone companies to own and operate cable television systems in the same areas where they providedelivery of high-speed Internet access by providing DSL service. In addition, some telephone companies have entered into strategic partnerships with DBS operators that permit the telephone company to package the video programming services of the DBS operator with the telephone company’s own DSL service, thereby competing directly with the video programming and thuscable modem services being offered by existing cable television systems. Finally, DBS operators, telephone companies and others may leadalso be able to the provision of competing program delivery servicescompete with cable television systems in providing high-speed Internet access by local telephone companies.

using a relatively new wireless technology known as WiMAX.

According to figures compiled by Publishers’ Information Bureau, Inc., of the 239244 magazines reported on by the Bureau,Newsweekranked fifthsixth in total advertising revenues in 2002,2005, when it received approximately 2.3%2.1% of all advertising revenues of the magazines included in the report. The magazine industry is highly competitive, both within itself and with other advertising media whichthat compete for audience and advertising revenue.

PostNewsweek Tech Media’s publications and trade shows compete with many other advertising vehicles and sources of similar information.

Kaplan competes in each of its test preparation product lines with a variety of regional and national test preparation businesses, as well as with individual tutors and in-school preparation for standardized tests. Kaplan’s Score Education subsidiary competes with other regional and national learning centers, individual tutors and other educational businesses that target parents and students. Kaplan’s Professional Division competes with other companies whichthat provide alternative or similar professional training, test-preparationtest preparation and consulting services. Kaplan’s Higher Education Division competes with both facilities-based and other distance learning providers of similar educational services, including not-for-profit colleges and universities and for-profit businesses. Overseas, each of Kaplan’s businesses competes with other for-profit companies and, in certain instances, with governmentally supported schools and institutions that provide similar training and educational programs.
2005 FORM 10-K
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The Company’s publications and television broadcasting and cable operations also compete for readers’ and viewers’ time with various other leisure-time activities.

The future of the Company’s various business activities depends on a number of factors, including the general strength of the economy, population growth and the level of economic activity in the particular geographic and other markets it serves, the impact of technological innovations on entertainment, news and information dissemination systems, overall advertising revenues, the relative efficiency of publishing and broadcasting compared to other forms of advertising and, particularly in the case of television broadcasting and cable operations, the extent and nature of government regulations.

17


Executive Officers

The executive officers of the Company, each of whom is elected for a one-year term at the meeting of the Board of Directors immediately following the Annual Meeting of Stockholders held in May of each year, are as follows:

Donald E. Graham, age 57,60, has been Chairman of the Board of the Company since September 1993 and Chief Executive Officer of the Company since May 1991. Mr. Graham served as President of the Company from May 1991 until September 1993 and prior to that had been a Vice President of the Company for more than five years. Mr. Graham also served as Publisher ofThe Washington Postfrom 1979 until September 2000.

Diana M. Daniels, age 53,56, has been Vice President and General Counsel of the Company since November 1988 and Secretary of the Company since September 1991. Ms. Daniels served as General Counsel of the Company from January 1988 to November 1988 and prior to that had been Vice President and General Counsel of Newsweek, Inc. since 1979.

Ann L. McDaniel, age 47,50, became Vice President-HumanPresident–Human Resources of the Company in September 2001. Ms. McDaniel had previously served as Senior Director of Human Resources of the Company since January 2001 and prior to that held various editorial positions atNewsweekfor more than five years, most recently as Managing Editor, a position she assumed in November 1998.

John B. Morse, Jr., age 56,59, has been Vice President-FinancePresident–Finance of the Company since November 1989. He joined the Company as Vice President and Controller in July 1989 and prior to that had been a partner of Price Waterhouse.

Gerald M. Rosberg, age 56, was named59, became Vice President-PlanningPresident–Planning and Development of the Company in February 1999. Mr. RosbergHe had previously served as Vice President-AffiliatesPresident–Affiliates atThe Washington Post,, a position he assumed in November 1997. Mr. Rosberg joined the Company in January 1996 asThe Post’s Director of Affiliate Relations.

Employees

The Company and its subsidiaries employ approximately 11,60016,400 persons on a full-time basis.

The Washington Post

WP Company has approximately 2,6102,720 full-time employees. About 1,6001,525 ofThe Post’s that unit’s full-time employees and about 480510 part-time employees are represented by one or another of sevenfive unions. Collective bargaining agreements are currently in effect with locals of the following unions covering the full-time and part-time employees and expiring on the dates indicated: 1,4601,312 editorial, newsroom and commercial department employees represented by the Communications Workers of America (November 7, 2005)2008); 66 paperhandlers and general workers represented by the Graphic Communications International Union (November 20, 2004); 4441 machinists represented by the International Association of Machinists (January 10, 2004)2007); 2932 photoengravers-platemakers represented by the Graphic Communications Conference of the International UnionBrotherhood of Teamsters (February 14, 2004)10, 2007); 2829 electricians represented by the International Brotherhood of Electrical Workers (June 17, 2004)(December 13, 2007); 3331 engineers, carpenters and painters represented by the International Union of Operating Engineers (April 9, 2005)12, 2008); and 420 mailers61 paper handlers and general workers represented by the Graphic Communications Conference of the International Brotherhood of Teamsters (November 17, 2008). The agreement covering 531 mailroom helpersworkers represented by the Communications Workers of America (Mayexpired on May 18, 2003).

2003, and no new agreement has been negotiated.

Washingtonpost.Newsweek Interactive has approximately 220240 full-time and 4030 part-time employees, none of whom is represented by a union.

Of the approximately 270250 full-time and 95100 part-time employees at The Daily Herald Company, about 6550 full-time and 2015 part-time employees are represented by one or another of three unions. The newspaper’s collective bargaining agreement with the Graphic Communications Conference of the International Union,Brotherhood of Teamsters, which represents press operators, expires on March 15, 2005,2008; its agreement with the Communications Workers of America, which represents printers and mailers, expires on October 31, 2009; and its agreement with the International Brotherhood of Teamsters, which represents bundle haulers, will expireexpires on September 22, 2003. The Newspaper’s agreement with the Communications Workers of America, which represents printers and mailers, will expire on October 31, 2005.

2007.

The Company’s broadcasting operations have approximately 980 full-time employees, of whom about 240230 are union-represented. Of the eight collective bargaining agreements covering union-represented employees, three haveone has expired and areis being renegotiated. TwoFour other collective bargaining agreements will expire in 2003.

2006.

The Company’s Cable Television Division has approximately 1,6101,800 full-time employees, none of whom is represented by a union.
18
20
THE WASHINGTON POST COMPANY


Newsweek has approximately 650 full-time employees (including about 135 editorial employees represented by the Communications Workers of America under a collective bargaining agreement which expired at the end of 2002 and currently is being renegotiated).

Worldwide, Kaplan employs approximately 4,4708,980 persons on a full-time basis. Kaplan also employs substantial numbers of part-time employees who serve in instructional and administrative capacities. During peak seasonal periods, Kaplan’s part-time workforce exceeds 10,00015,400 employees. None of Kaplan’s employees is represented by a union.

Newsweek has approximately 600 full-time employees (including about 125 editorial employees represented by the Communications Workers of America under a collective bargaining agreement that expired on December 31, 2005, and is currently being renegotiated).
Post-Newsweek Media, Inc. has approximately 680615 full-time and 130205 part-time employees. Robinson Terminal Warehouse Corporation (the Company’s newsprint warehousing and distribution subsidiary) and, Greater Washington Publishing, Inc., Express Publications Company, LLC and El Tiempo Latino LLC each employ fewer than 100 persons. None of these units’ employees is represented by a union.

Forward-Looking Statements

All public statements made by the Company and its representatives whichthat are not statements of historical fact, including certain statements in this Annual Report on Form 10-K and elsewhere in the Company’s 20022005 Annual Report to Stockholders, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include comments about the Company’s business strategies and objectives, the prospects for growth in the Company’s various business operations, and the Company’s future financial performance. As with any projection or forecast, forward-looking statements are subject to various risks and uncertainties, including the risks and uncertainties described in Item 1A of this Annual Report on Form 10-K,that could cause actual results or events to differ materially from those anticipated in such statements. In additionAccordingly, undue reliance should not be placed on any forward-looking statement made by or on behalf of the Company. The Company assumes no obligation to update any forward-looking statement after the various matters discussed elsewhere in this Annual Reportdate on Form 10-K (including the financial statements and other items filed herewith), specific factors identified by the Company that might causewhich such a difference include the following: changes in prevailing economic conditions, particularly in the specific geographic and other markets served by the Company; actions of competitors, including price changes and the introduction of competitive service offerings; changes in the preferences of readers, viewers and advertisers, particularly in response to the growth of Internet-based media; changes in communications and broadcast technologies; the effects of changing cost or availability of raw materials, including changes in the cost or availability of newsprint and magazine body paper; changes in the extent to which standardized tests are used in the admissions process by colleges and graduate schools; changes in the extent to which licensing or proficiency examinations are used to qualify individuals to pursue certain careers; changes in laws or regulations, including changes that affect the way business entities are taxed; and changes in accounting principles or in the way such principles are applied.

statement is made, even if new information subsequently becomes available.

Available Information

The Company’s Internet address iswww.washpostco.comwww.washpostco.com.. The Company makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with the Securities and Exchange Commission. In addition, the Company’s Certificate of Incorporation, its Corporate Governance Guidelines, the Charters of the Audit and Compensation Committees of the Company’s Board of Directors, and the codes of conduct adopted by the Company and referred to in Item 10 of this Annual Report on Form 10-K are each available on the Company’s website; printed copies of such documents may be obtained by any stockholder upon written request to the Secretary of the Company at 1150 15th Street, N.W., Washington, D.C. 20071.
Item 1A. Risk Factors.
There are a wide range of risks and uncertainties that could adversely affect the Company’s various businesses and the Company’s overall financial performance. In addition to the matters discussed elsewhere in this Annual Report on Form 10-K (including the financial statements and other items filed herewith), the Company believes the more significant of such risks and uncertainties include the following:
• Changes in Prevailing Economic Conditions, Particularly in the Specific Geographic Markets Served by the Company’s Newspaper Publishing and Television Broadcasting Businesses
A significant portion of the Company’s revenues comes from advertising, and the demand for advertising is sensitive to the overall level of economic activity, both nationally and in specific local markets. Thus declines in economic activity could adversely affect the operating results of the Company’s newspaper and magazine publishing and television broadcasting businesses.
• Actions of Competitors, Including Price Changes and the Introduction of Competitive Offerings
All of the Company’s various businesses face significant competition and could be negatively impacted if competitors reduce prices or introduce new products or services that compete more effectively with the corresponding products or services offered by the Company.
2005 FORM 10-K
21


• Changing Preferences of Readers or Viewers
The Company’s publishing and television broadcasting businesses need to attract significant numbers of readers and viewers in order to sell advertising on favorable terms. Those businesses will be adversely affected to the extent individuals decide to obtain news and entertainment from Internet-based or other media.
• Changing Perceptions About the Effectiveness of Publishing and Television Broadcasting in Delivering Advertising
Historically, newspaper and magazine publishing and television broadcasting have been viewed as cost-effective methods of delivering various forms of advertising. If a consensus emerges that other media in which the Company has a less significant position are superior in terms of cost-effectiveness or other features, the profitability of the Company’s publishing and television broadcasting businesses could suffer.
• Technological Innovations in News, Information or Video Programming Distribution Systems
The continuing growth and technological expansion of Internet-based services has impacted the Company’s media businesses in various ways, and the deployment of direct broadcast satellite systems has significantly increased the competition faced by the Company’s cable television systems. The development and deployment of new technologies has the potential to affect the Company’s businesses, both positively and negatively, in ways that cannot now be reliably predicted.
• Changes in the Nature and Extent of Government Regulations, Particularly in the Case of Television Broadcasting and Cable Television Operations
The Company’s television broadcasting and cable television businesses operate in highly regulated environments and complying with applicable regulations has increased the costs and reduced the revenues of both businesses. Changes in regulations have the potential to further negatively impact those businesses, not only by increasing compliance costs and (through restrictions on certain types of advertising, limitations on pricing flexibility or other means) reducing revenues, but also by possibly creating more favorable regulatory environments for the providers of competing services. More generally, all of the Company’s businesses could have their profitability or their competitive positions adversely affected by significant changes in applicable regulations.
• Changes in the Cost or Availability of Raw Materials, Particularly Newsprint
The Company’s newspaper publishing businesses collectively spend over $100 million a year on newsprint. Thus material increases in the cost of newsprint or significant disruptions in the supply of newsprint could negatively affect the operating results of the Company’s newspaper publishing businesses.
• Changes in the Extent to Which Standardized Tests Are Used in the Admissions Process by Colleges or Graduate Schools
A substantial portion of Kaplan’s revenues and operating income are generated by its Test Preparation and Admissions Division. Thus any significant reduction in the use of standardized tests in the college or graduate school admissions process could have an adverse effect on Kaplan’s operating results.
• Changes in the Extent to Which Licensing and Proficiency Examinations Are Used to Qualify Individuals to Pursue Certain Careers
A substantial portion of the revenues of Kaplan’s Professional Division comes from preparing individuals for licensing or technical-proficiency examinations in various fields. If licensing or technical-proficiency requirements are relaxed or eliminated to any significant degree in those fields served by Kaplan’s Professional Division, such actions could negatively impact Kaplan’s operating results.
• Reductions in the Amount of Funds Available Under the Federal Title IV Programs to Students in Kaplan’s Higher Education Division Schools
During the Company’s 2005 fiscal year, funds provided under the student financial aid programs created under Title IV of the Federal Higher Education Act accounted for slightly more than $500 million of the net revenues of the schools in Kaplan’s Higher Education Division. As noted above in the section titled “Education–Title IV Federal Student Financial Aid Programs,” any legislative, regulatory or other development that had the effect of materially reducing the amount of Title IV financial assistance available to the students of those schools would have a significant adverse effect on Kaplan’s operating results.
22
THE WASHINGTON POST COMPANY


Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.

The

WP Company owns the principal offices ofThe Washington Postin downtown Washington, D.C., including both a seven-story building in use since 1950 and a connected nine-story office building on contiguous property completed in 1972 in which the Company’s principal executive offices are located. Additionally, theWP Company owns land on the corner of 15th and L Streets, N.W., in Washington, D.C., adjacent toThe Washington Post’s office building. This land is leased on a long-term basis to the owner of a multi-story office building whichthat was constructed on the site in 1982. TheWP Company rents a number of floors in this building. TheWP Company also owns and occupies a small office building on L Street which is nextconnected toThe Post’s downtown office building.

The

WP Company owns a printing plant in Fairfax County, Virginia which was built in 1980 and expanded in 1998. That facility is located on 19 acres of land owned by theWP Company. Also in 1998 theWP Company completed construction ofalso owns a new printing plant and distribution facility forThe Poston a 17-acre tract of land in Prince George’s County, Maryland, which was purchasedbuilt in 1998 on a17-acre tract of land owned by theWP Company. In March 2005 WP Company in 1996. In addition,sold the Company owns undeveloped land it owned near Dulles Airport in Fairfax County, Virginia (39 acres) and in Prince George’s County, Maryland (34 acres).

The Daily Herald Company owns its plant and office building in Everett, Washington; it also owns two warehouses adjacent to its plant and a small office building in Lynnwood, Washington.
19


Post-Newsweek Media, Inc. owns a two-story brick building that serves as its headquarters and as headquarters forThe Gazette Newspapersand a separate two-story brick building that houses its Montgomery County commercial printing business. All of these properties are located in Gaithersburg, Maryland. In addition, Post-Newsweek Media Inc. owns a one-story brick building in Waldorf, Maryland that houses its Charles County commercial printing business and also serves as the headquarters for two of theSouthern Maryland NewspapersNewspapers.. The other editorial and sales offices forThe Gazette Newspapersand theSouthern Maryland Newspapersare located in leased premises. Post-Newsweek Media owns approximately seven acres of land in Prince George’s County, Maryland, on which it is currently constructing a combination office building and commercial printing facility. That facility is expected to become operational in 2007, at which time production operations at its Gaithersburg and Waldorf locations will be discontinued. The PostNewsweek Tech Media Division leases office space in Washington, D.C. and San Francisco,in Oakland, California.

The headquarters offices of the Company’s broadcasting operations are located in Detroit, Michigan in the same facilities that house the offices and studios of WDIV. That facility and those that house the operations of each of the Company’s other television stations are all owned by subsidiaries of the Company, as are the related tower sites (except in Houston, Orlando and Jacksonville, where the tower sites are 50% owned).

The headquarters offices of the Cable Television Division are located in a three-story office building in Phoenix, Arizona which was purchased by Cable One in 1998. The majority of the offices and head-end facilities of the Division’s individual cable systems are located in buildings owned by Cable One. Substantially all the tower sites used by the Division are leased.

The principal offices of Newsweek are located at 251 West 57th Street in New York City, where Newsweek rents space on nine floors. The lease on this space will expire in 2009 but is renewable for a15-year period at Newsweek’s option at rentals to be negotiated or arbitrated.Budget Travel’s offices are also located in New York City, where they occupy premises under a lease whichthat expires in 2010. In 1997 Newsweek sold its Mountain Lakes, N.J. facility to a third party and leased backalso leases a portion of thisa building in Mountain Lakes, New Jersey to house its accounting, production and distribution departments. The lease on this space will expire in 2007 but is renewable for two 5-yearfive-year periods at Newsweek’s option.
The headquarters offices of the Cable Television Division are located in a three-story office building in Phoenix, Arizona that was purchased by Cable One in 1998. Cable One purchased an adjoining two-story office building in 2005; that building is currently leased to third-party tenants. The majority of the offices and head-end facilities of the Division’s individual cable systems are located in buildings owned by Cable One. Most of the tower sites used by the Division are leased. In addition, the Division houses call-center operations in 60,000 square feet of rented space in Phoenix under a lease that expires in 2013.
Directly or through subsidiaries Kaplan owns a total of 13 properties: a26,000-square-foot six-story building located at 131 West 56th Street in New York City, which serves as an educational center primarily for international students; a2,300-square-foot office condominium in Chapel Hill, North Carolina which it utilizes for its Test Prep business; a15,000-square-foot three-story building in Berkeley, California used for its Test Prep and English Language Training businesses; a39,000-square-foot four-story brick building and a19,000-square-foot two-story brick building in Lincoln, Nebraska each of which are used by Hamilton College; a25,000-square-foot one-story building in Omaha, Nebraska also used by Hamilton College; a131,000-square-foot five-story brick building in Manchester, New Hampshire used by Hesser College; an18,000-square-foot one-story brick building in Dayton, Ohio used by the Ohio Institute of Photography
2005 FORM 10-K
23


and Technology; a25,000-square-foot building in Hammond, Indiana used by Sawyer College; a45,000-square-foot three-story brick building in Houston, Texas used by the Texas School of Business; a35,000-square-foot building in London, England and a5,000-square-foot building in Oxfordshire, England, each of which are used by Holborn College; and 4,000 square feet of office condominium space in Singapore which serves as APMI’s headquarters. Kaplan University’s corporate offices together with call-center and employee-training facilities are located in a leased97,000-square-foot building in Ft. Lauderdale, Florida. In addition, a lease has been entered into for an additional97,000-square-foot building that is to be built on a lot adjacent to the currently occupied space; that building will house a Kaplan University datacenter as well as additional training and call-center facilities. Both of those leases will expire in 2017. Kaplan’s distribution facilities for most of its domestic publications are located in a169,000-square-foot warehouse in Aurora, Illinois. In 2005 Kaplan exercised a termination option and as a result the lease for this property will expire in April 2006. Thereafter, these distribution facilities will be relocated to a new291,000-square-foot location, also in Aurora, Illinois, under a lease expiring in 2017. Kaplan’s headquarters offices are located at 888 7th Avenue in New York City, where Kaplan rents space on three floors under a lease which expires in 2017. Overseas, Dublin Business School’s facilities in Dublin, Ireland are located in five buildings aggregating approximately 63,000 square feet of space which have been rented under leases expiring between 2008 and 2028. FTC Kaplan Limited’s two largest leaseholds are office and instructional space in London of 21,000 square feet and 28,000 square feet which are being occupied under leases that expire in 2007 and 2019, respectively. Kidum has over 40 locations throughout Israel, all of which are occupied under leases that expire between 2006 and 2010. All other Kaplan facilities in the United States and overseas (including administrative offices and instructional locations) also occupy leased premises.
Robinson Terminal Warehouse Corporation owns two wharves and several warehouses in Alexandria, Virginia. These facilities are adjacent to the business district and occupy approximately seven acres of land. Robinson also owns two partially developed tracts of land in Fairfax County, Virginia, aggregating about 20 acres. These tracts are nearThe Washington Post’s Virginia printing plant and include several warehouses. In 1992 Robinson purchased approximately 23 acres of undeveloped land on the Potomac River in Charles County, Maryland, for the possible construction of additional warehouse capacity.

Kaplan owns a total of eight buildings including a six-story building located at 131 West 56th Street in New York City, which serves as an educational center primarily for international students, and a 2,300 square foot office condominium in Chapel Hill, North Carolina which it utilizes for its Test Prep business. Kaplan also owns a 15,000 square foot three-story building in Berkeley, California utilized for its Test Prep and English Language businesses, a 39,000 square foot four-story brick building and a 19,000 square foot two-story brick building in Lincoln, Nebraska which are used by the Lincoln School of Commerce, a 25,000 square foot one-story building in Omaha, Nebraska used by the Nebraska College of Business, a 131,000 square foot five-story brick building in Manchester, New Hampshire used by Hesser College, and an 18,000 square foot one-story brick building in Dayton, Ohio used by the Ohio Institute of Photography and Technology. Kaplan’s principal educational center in New York City for other than international students is located at 16 Cooper Square, where Kaplan rents two floors under a lease expiring in 2013. Kaplan’s distribution facilities are located in a 169,000 square foot warehouse in Aurora, Illinois which has been rented under a lease which expires in 2010. Kaplan’s headquarters offices are located at 888 Seventh Avenue in New York City, where Kaplan rents space on three floors under a lease which expires in 2007. All other Kaplan facilities (including administrative offices and instructional locations) occupy leased premises.

The offices of Washingtonpost.Newsweek Interactive occupy 85,000 square feet of office space in Arlington, Virginia under a lease which expires in 2010.

2015. Express Publications Company subleases part of this space. In addition, WPNI leases space in Washington, D.C. and subleases space from Newsweek in New York City forSlate’s offices in those cities, and also leases office space for WPNI sales representatives in New York City, Chicago, San Francisco, Los Angeles and Detroit.

Greater Washington Publishing’s offices are located in leased space in Fairfax,Vienna, Virginia, while El Tiempo Latino’s offices are located in leased space in Arlington, Virginia.

Item 3. Legal Proceedings.

The

Kaplan, Inc. a subsidiary of the Company, its wholly owned subsidiary The Gazette Newspapers, Inc. (now Post-Newsweek Media, Inc.), and the Washington Suburban Press Network, Inc. (a corporation jointly owned by Post-Newsweek Media and another media investor), are partiesis a party to ana putative class action antitrust lawsuit filed on February 28, 2001,April 29, 2005 by the ownerspurchasers of several local Maryland newspapersBAR/BRI bar review courses in the United States District Court for the Central District of Maryland. ThisCalifornia. The suit alleges violations of the Sherman Act,Act. The allegations center around a claim that Kaplan entered into an agreement in 1997 with BAR/BRI (the leading domestic provider of bar review courses) not to provide bar review courses in the Clayton ActUnited States. The suit further alleges that but for the purported agreement not to compete Kaplan would have purchased another provider of bar review services at that time, West Bar Review. Further, it is alleged that by not having acquired West Bar Review, that provider went out of business and the Maryland Antitrust Act, and asserts stateprice for bar review courses increased significantly. The plaintiffs have asserted the same claim against BAR/BRI, plus two other putative violations of federal antitrust law claims for unfair competition,
20


breach of contract and tortious interference.that are not alleged to involve Kaplan. The allegations largely stemputative class is said to include all persons who purchased a bar review course from the Gazette’s acquisition of theSouthern Maryland Newspapersin 2001 and Press Network’s treatment of newspapers published by certain of the plaintiffs in connection with membershipBAR/BRI in the network and the placement of newspaper advertising.United States from 1997 to 2005. The suit seeks unspecified damages (which in certain instances maywhich would be trebled by statute) and attorneys’ fees,under the Sherman Act, as well as injunctive relief (includingattorneys’ fees and costs. Kaplan has filed an answer denying all allegations of illegal conduct. The litigation is in the divestitureearly stages of discovery, with the Gazette by the Company).hearing on class certification scheduled for May 15, 2006. The District Court granted summary judgmentdiscovery cut-off is July 17, 2006, and trial is set for defendants on all of plaintiffs’ claims on August 16, 2002. Plaintiffs filed a notice of appeal on September 27, 2002, and the case is currently before the United States Court of Appeals for the Fourth Circuit.

Kaplan, Inc., a wholly owned subsidiary of the Company, is the named defendant in a class action filed on December 20, 2002, in Superior Court of the State of California, County of Alameda, brought by individuals who were engaged as Kaplan lecturers, teachers and tutors in California since December 20, 1998. The suit alleges breaches of implied contracts as well as violations of the California wage and hour laws and the California Business and Professions Code prohibitions against unfair competition by means of unlawful, unfair or fraudulent business practices or acts. The case arose out of claims that Kaplan failed to pay its instructors for time spent preparing for lectures, classes and tutoring sessions, time spent after class answering students’ questions, and time spent traveling to and from different teaching locations. The suit seeks unspecified damages (which may in certain instances include penalties).

12, 2006. The Company and its subsidiaries are also defendants in various other civil lawsuits that have arisen in the ordinary course of their businesses, including actions foralleging libel, and invasion of privacy.privacy and violations of applicable wage and hour laws. While it is not possible to predict the outcome of these lawsuits, and the lawsuits described in the preceding two paragraphs, in the opinion of management their ultimate dispositiondispositions should not have a material adverse effect on the financial position, liquidity or results of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders.
24
THE WASHINGTON POST COMPANY


Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.

PART II
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer  Purchases of Equity Securities.
The Company’s Class B Common Stock is traded on the New York Stock Exchange under the symbol “WPO.” The Company’s Class A Common Stock is not publicly traded.

The high and low sales prices of the Company’s Class B Common Stock during the last two years were:
                
                
20022001 2005 2004


    
QuarterHighLowHighLow High Low High Low

January – March $618 $520 $652 $524   $963  $880  $921  $790 
April – June 634 545 608 542   900  814  983  886 
July – September 675 516 599 470   900  787  956  830 
October – December 743 646 540 479   806  717  999  862 

During 20022005 the Company repurchased 1,229did not repurchase any shares of its Class B Common Stock.

At January 28, 2003,31, 2006, there were 2830 holders of record of the Company’s Class A Common Stock and 1,046966 holders of record of the Company’s Class B Common Stock.

Both classes of the Company’s Common Stock participate equally as to dividends. Quarterly dividends were paid at the rate of $1.40$1.85 per share during both 20022005 and 2001.

$1.75 per share during 2004.

Item 6. Selected Financial Data.

See the information for the years 19982001 through 20022005 contained in the table titled “Ten-Year Summary of Selected Historical Financial Data” which is included in this Annual Report on Form 10-K and listed in the index to financial information on page 2730 hereof (with only the information for such years to be deemed filed as part of this Annual Report on Form 10-K).
21


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of  Operations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

See the information contained under the heading “Management’s Discussion and Analysis of Results of Operations and Financial Condition” which is included in this Annual Report on Form 10-K and listed in the index to financial information on page 2730 hereof.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk in the normal course of its business due primarily to its ownership of marketable equity securities, which are subject to equity price risk andrisk; to its borrowing and cash-management activities, which are subject to interest rate risk; and to its foreign business operations, which are subject to foreign exchange rate risk.

Neither the Company nor any of its subsidiaries is a party to any derivative financial instruments.

Equity Price Risk

The Company has common stock investments in several publicly traded companies (as discussed in Note C to the Company’s consolidatedConsolidated Financial Statements) that are subject to market price volatility. The fair value of these common stock investments totaled $216,533,000$329,921,000 at December 29, 2002.

January 1, 2006.

The following table presents the hypothetical change in the aggregate fair value of the Company’s common stock investments in publicly traded companies assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in the market price of each stock included therein:
                      
                      
Value of Common Stock InvestmentsValue of Common Stock InvestmentsValue of Common Stock InvestmentsValue of Common Stock Investments Value of Common Stock Investments
Assuming Indicated Decrease inAssuming Indicated Decrease inAssuming Indicated Increase inAssuming Indicated Decrease in Assuming Indicated Increase in
Each Stock’s PriceEach Stock’s PriceEach Stock’s PriceEach Stock’s Price Each Stock’s Price

-30%-30%-20%-10%+10%+20%+30%-30% -20% -10% +10% +20% +30%







          
$151,573,000 $173,226,000 $194,880,000 $238,186,000 $259,840,000 $281,493,000 230,945,000 $263,937,000 $296,929,000 $362,913,000 $395,905,000 $428,897,000 
2005 FORM 10-K
25


During the 1628 quarters since the end of the Company’s 1998 fiscal year, market price movements caused the aggregate fair value of the Company’s common stock investments in publicly traded companies to change by approximately 20% in one quarter, 15% in threesix quarters and by 10% or less than 10% in each of the other 1221 quarters.

Interest Rate Risk

The Company has historically satisfied some of its financing requirements through the issuance of short-term commercial paper. Conversely, when cash generation exceeds its current need for cash the Company may pay down its commercial paper borrowings and invest some or all of the surplus in commercial paper issued by third parties. Although during most of fiscal 2005 the Company had commercial paper borrowings outstanding, at January 1, 2006, the Company had no such borrowings outstanding and held commercial paper investments aggregating $59,240,000 at an average interest rate of 4.2%. At December 29, 2002,January 2, 2005, the Company had short-term commercial paper borrowings outstanding of $259,258,000$50,187,000 at an average interest rate of 1.6%. At December 30, 2001, the Company had commercial paper borrowings outstanding of $533,896,000 at an average interest rate of 2.0%2.2%. The Company is exposed to interest rate risk with respect to such investments and borrowings since an increase in the interest rates on commercial paper borrowing rates would increase the Company’s interest income on commercial paper investments it held at the time and would also increase the Company’s interest expense on itsany commercial paper borrowings.borrowings it had outstanding at the time. Assuming a hypothetical 100 basis point increase in itsthe average interest rate on commercial paper borrowingfrom the rates from those that prevailed during the Company’s 20022005 and 20012004 fiscal years, the Company’s interest income (net of interest expense on commercial paper borrowings) would have been greater by approximately $200,000 in fiscal 2005 and its interest expense would have been greater by approximately $4,100,000$726,000 in fiscal 2002 and by approximately $5,700,000 in fiscal 2001.

2004.

The Company’s long-term debt consists of $400,000,000 principal amount of 5.5% unsecured notes due February 15, 2009 (the “Notes”). At December 29, 2002,January 1, 2006, the aggregate fair value of the Notes, based upon quoted market prices, was $426,640,000.$404,080,000. An increase in the market rate of interest applicable to the Notes would not increase the Company’s interest expense with respect to the Notes since the rate of interest the Company is required to pay on the Notes is fixed, but such an increase in rates would affect the fair value of the Notes. Assuming, hypothetically, that the market interest rate applicable to the Notes was 100 basis points higher than the Notes’ stated interest rate of 5.5%, the fair value of the Notes would be approximately $380,027,000.$388,850,000. Conversely, if the market interest rate applicable to the Notes was 100 basis points lower than the Notes’ stated interest rate, the fair value of the Notes would then be approximately $421,176,000.$411,490,000.
Foreign Exchange Rate Risk
Item 8. Financial Statements and Supplementary Data.

The Company is exposed to foreign exchange rate risk due to its Newsweek and Kaplan international operations, and the primary exposure relates to the exchange rate between the British pound and the U.S. dollar. Translation gains and losses affecting the Consolidated Statements of Income have historically not been significant and represented less than 2% of net income during each of the Company’s last three fiscal years. If the value of the British pound relative to U.S. dollar had been 10% lower than the values that prevailed during 2005, the Company’s reported net income for fiscal 2005 would have been decreased by approximately 1%. Conversely, if such value had been 10% greater, the Company’s reported net income for fiscal 2005 would have been increased by approximately 1%.
Item 8. Financial Statements and Supplementary Data.
See the Company’s Consolidated Financial Statements at December 29, 2002,January 1, 2006, and for the periods then ended, together with the report of PricewaterhouseCoopers LLP thereon and the information contained in Note NO to said Consolidated Financial Statements titled “Summary of Quarterly Operating Results and Comprehensive Income (Unaudited),” which are included in this Annual Report on Form 10-K and listed in the index to financial information on page 2730 hereof.
22
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal executive officer) and the Company’s Vice President–Finance (the Company’s principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act
26
THE WASHINGTON POST COMPANY


Rules 13a-15(e) and15d-15(e)), as of January 1, 2006. Based on that evaluation, the Company’s Chief Executive Officer and Vice President-Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management assessed the effectiveness of our internal control over financial reporting as of January 1, 2006. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of January 1, 2006, our internal control over financial reporting is effective based on these criteria. Our independent auditors, PricewaterhouseCoopers LLP, have audited our assessment of the effectiveness of our internal control over financial reporting as of January 1, 2006, as stated in their report which is included herein.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended January 1, 2006 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
Not applicable.

PART III
Item 10. Directors and Executive Officers of the Registrant.

Item 10. Directors and Executive Officers of the Registrant.
The information contained under the heading “Executive Officers” in Item 1 hereof and the information contained under the headings “Nominees for Election by Class A Stockholders,” “Nominees for Election by Class B Stockholders” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for the Company’s 20032006 Annual Meeting of Stockholders is incorporated herein by reference thereto.
The Company has adopted codes of conduct that constitute “codes of ethics” as that term is defined in paragraph (b) of Item 406 of Regulation S-K and that apply to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller and to any persons performing similar functions. Such codes of conduct are posted on the Company’s Internet website, the address of which iswww.washpostco.com, and the Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K with respect to certain amendments to, and waivers of the requirements of, the provisions of such codes of conduct applicable to the officers and persons referred to above by posting the required information on its Internet website.
In addition to the certifications of the Company’s Chief Executive Officer and Chief Financial Officer filed as exhibits to this Annual Report on Form 10-K, on May 12, 2005, the Company’s Chief Executive Officer submitted to the New York Stock Exchange the annual certification regarding compliance with the NYSE’s corporate governance listing standards required by Section 303A.12(a) of the NYSE Listed Company Manual.
Item 11. Executive Compensation.

Item 11. Executive Compensation.
The information contained under the headings “Director Compensation,” “Executive Compensation,” “Retirement Plans,” “Compensation Committee Report on Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,”
2005 FORM 10-K
27


Participation” and “Performance Graph” in the definitive Proxy Statement for the Company’s 20032006 Annual Meeting of Stockholders is incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information contained under the heading “Stock Holdings of Certain Beneficial Owners and Management” and in the table titled “Equity Compensation Plan Information” in the definitive Proxy Statement for the Company’s 20032006 Annual Meeting of Stockholders is incorporated herein by reference thereto.
Item 13. Certain Relationships and Related Transactions.

Item 13. Certain Relationships and Related Transactions.
The information contained under the heading “Certain Relationships and Related Transactions” in the definitive Proxy Statement for the Company’s 20032006 Annual Meeting of Stockholders is incorporated herein by reference thereto.
Item 14. Controls and Procedures.

A review

Item 14. Principal Accountant Fees and evaluation was performed byServices.
The information contained under the heading “Audit Committee Report” in the definitive Proxy Statement for the Company’s management, at the direction2006 Annual Meeting of the Company’s Chief Executive Officer (the Company’s principal executive officer)Stockholders is incorporated herein by reference thereto.
PART IV
Item 15. Exhibits and the Company’s Vice President–Finance (the Company’s principal financial officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c),Financial Statement Schedules.
The following documents are filed as of a date within 90 days prior to the filingpart of this annual report. Based on that review and evaluation, the Company’s Chief Executive Officer and Vice President–Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that all material information required to be disclosed in the reports that the Company files or submits under the Exchange Act have been made known to them in a timely fashion. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of such evaluation.

PART IVreport:

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) The following documents are filed as part of this report:

  (i)1. Financial Statements and Financial Statement Schedules

 As listed in the index to financial information on page 2730 hereof.

 (ii)2. Financial Statement Schedules
As listed in the index to financial information on page 30 hereof.
3. Exhibits

 As listed in the index to exhibits on page 6169 hereof.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of the period covered by this report.

2328
THE WASHINGTON POST COMPANY


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 14, 2003.3, 2006.

 THE WASHINGTON POST COMPANY
 (Registrant)

 By /s/ JOHNJohn B. MORSE, JR.Morse, Jr.
 
 John B. Morse, Jr.
 Vice President-FinancePresident–Finance

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 14, 2003:3, 2006:
     
 
Donald E. Graham Chairman of the Board and Chief Executive Officer (Principal Executive Officer) and Director  
 
John B. Morse, Jr. Vice President-FinancePresident–Finance (Principal Financial and Accounting Officer)  
 
Warren E. Buffett Director  
 
Daniel B. BurkeChristopher C. Davis Director  
 
Barry Diller Director  
 
John L. Dotson Jr.Director
Melinda French Gates Director  
 
George J. Gillespie, III Director  
 
Ralph E. GomoryRonald L. Olson Director  
 
Alice M. Rivlin Director  
 
Richard D. Simmons Director  
 
George W. Wilson Director  

 By /s/ JOHNJohn B. MORSE, JR.Morse, Jr.
 
 John B. Morse, Jr.
 Attorney-in-FactAttorney-in-Fact

An original power of attorney authorizing Donald E. Graham, John B. Morse, Jr. and Diana M. Daniels, and each of them, to sign all reports required to be filed by the Registrant pursuant to the Securities Exchange Act of 1934 on behalf of the above-named directors and officers has been filed with the Securities and Exchange Commission.
24
2005 FORM 10-K
29


 

CERTIFICATIONS

     I, Donald E. Graham, Chief Executive Officer (principal executive officer) of The Washington Post Company (the “Registrant”), certify that:

     1. I have reviewed this annual report on Form 10-K of the Registrant;
     2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
     3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:

     (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     (b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
     (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

     6. The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 14, 2003

/s/ DONALD E. GRAHAM

Donald E. Graham,
Chief Executive Officer

25


     I, John B. Morse, Jr., Vice President–Finance (principal financial officer) of The Washington Post Company (the “Registrant”), certify that:

     1. I have reviewed this annual report on Form 10-K of the Registrant;
     2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
     3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:

     (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
     (b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
     (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and
     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

     6. The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 14, 2003

/s/ JOHN B. MORSE, JR.

John B. Morse, Jr.,
Vice President–Finance

26


INDEX TO FINANCIAL INFORMATION


THE WASHINGTON POST COMPANY
       
Page

  2931 
 
Financial Statements and Schedules:    
 
   3842 
 
 39
and Consolidated Statements of Comprehensive Income for the Three Fiscal Years Ended December 29, 2002January 1, 2006  3943 
 
   4044 
 
   4246 
 
   4347 
 
   4448 
 
 Financial Statement Schedule for the Three Fiscal Years Ended December 29, 2002:January 1, 2006:    
 
    5765 
 
  5866 


     All other schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statementsConsolidated Financial Statements or the notesNotes thereto referred to above.
27
30
THE WASHINGTON POST COMPANY


[This Page Intentionally Left Blank]

28


MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This analysis should be read in conjunction with the consolidated financial statements and the notes thereto.

OVERVIEW
The Washington Post Company is a diversified media and education company, with education as the fastest-growing business. 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 provides educational services for individuals, schools and businesses. The Company’s business units are diverse and subject to different trends and risks.
In 2004, the Company’s education division became the largest operating division of the Company from a revenue standpoint. In 2005, the education division was also the largest operating division from an operating income standpoint. The Company has devoted significant resources and attention to this division, given the attractiveness of investment opportunities and growth prospects. The growth of Kaplan in recent years has come from both rapid internal growth and acquisitions. Each of Kaplan’s businesses showed revenue growth in 2005. While operating income increased in 2005 for the education division as a whole, operating income was down at Kaplan Professional, Score! and Kaplan Higher Education. Kaplan Professional results were adversely impacted by soft market demand in the securities and insurance course offerings. In 2005, Kaplan Professional completed the acquisition of BISYS Education Services, a provider of licensing education and compliance solutions for financial services institutions and professionals. Kaplan’s higher education division incurred increased operating costs associated with expansion activities, which contributed to the decline in operating income, particularly at the fixed-facility operations. Kaplan’s international operations expanded in 2005 with the acquisition of Singapore-based Asia Pacific Management Institute (APMI), a private education provider for undergraduate and postgraduate students in Asia, and the acquisition of The Kidum Group, the leading provider of test preparation services in Israel. Kaplan’s other international operations include businesses acquired in 2003, including The Financial Training Company, a training services company for accountants and financial services professionals, primarily in the United Kingdom; and Dublin Business School, Ireland’s largest private undergraduate and graduate institution. Kaplan made ten acquisitions in 2005; the three largest are mentioned above. Over the past several years, Kaplan’s revenues have grown rapidly, while operating income (loss) has fluctuated due largely to various business investments and stock compensation charges.
The cable division has also been a source of recent growth and capital investment. Cable ONE’s industry has experienced significant technological changes, which have created new revenue opportunities, such as digital television and broadband, as well as increased competition, particularly from satellite television service providers. In 2006, the cable division will begin to offer telephone service using voice over Internet protocol (VoIP). The cable division’s subscriber base declined in 2005 as a result of Hurricane Katrina, which had a significant impact on the cable division’s systems on the Gulf Coast of Mississippi. Excluding the impact of the hurricane, the Company estimates a very small increase in the number of basic and digital cable subscribers in 2005. Cable One had no monthly rate increase for basic cable service at its systems in 2005, but has implemented a $3 rate increase for basic cable service at most of its systems in February 2006. High-speed data subscribers grew 31% in 2005 (234,100 at the end 2005, compared to 178,300 at the end of 2004), and this continues to have a large favorable impact on the division’s revenue and operating income. The cable division began offering bundled services in 2003 (basic and tier service, digital service, and high-speed data service in one package) with monthly subscriber discounts. In the fourth quarter of 2005, a new bundling offer was introduced whereby discounts are offered for new subscribers or existing subscribers taking new services (analog service, enhanced digital service and high-speed data service; telephony service will be offered starting in 2006). The new bundling elements are priced at $29.95 each for six months and most $29.95 pricing is available for an extended period of time for customers taking three or more services.
The Company’s newspaper publishing, broadcast television and magazine publishing divisions derive revenue from advertising and, to a lesser extent, circulation and subscriptions. The results of these divisions tend to fluctuate with the overall advertising cycle (amongst other business factors). In 2005, advertising demand was soft. Print advertising revenue at The Washington Post newspaper declined 1% (52 weeks in 2005 versus 53 weeks in 2004), with declines in national and retail, offset by increases in zoned and classified recruitment advertising. Circulation volume continued a downward trend. However, the Company’s online publishing businesses, Washingtonpost.Newsweek Interactive and Slate, showed 29% revenue growth in 2005.
The Company’s television broadcasting division experienced a large decrease in operating income due primarily to the absence of significant political and Olympics-related advertising in 2005. The Company expects a large increase in television broadcasting operating income for 2006 as a result of anticipated significant political and Olympics-related advertising. Newsweek magazine showed advertising revenue declines in 2005 in both its domestic and international editions.
The Company generates a significant amount of cash from its businesses that is used to support its operations, to pay down debt, and to fund capital expenditures, dividends and acquisitions.
RESULTS OF OPERATIONS — 20022005 COMPARED TO 20012004

Net income was $314.3 million ($32.59 per share) for the fiscal year 2005 ended December 29, 2002 was $204.3January 1, 2006, down from $332.7 million ($21.3434.59 per share), compared with net income for the fiscal year 2004 ended December 30, 2001January 2, 2005. Operating results for the Company in 2005 include the impact of $229.6charges and lost revenues associated with Katrina and other hurricanes; the Company estimates that the adverse impact on
2005 FORM 10-K
31


operating income was approximately $27.5 million ($24.06(after-tax impact of $17.3 million, or $1.80 per share). The Company’s 2002 results include a net non-operating gain from the exchange of certain cable systems (after-tax impact of $16.7 million, or $1.75 per share), a transitional goodwill impairment loss (after-tax impact of $12.1 million, or $1.27 per share), charges from early retirement programs (after-tax impact of $11.3 million, or $1.18 per share), and a net non-operating loss from the write-down of certainMost of the Company’s investments (after-tax impact of $2.3 million, or $0.24 per share). The Company’s 2001was at the cable division, but the television broadcasting and education divisions were also adversely impacted. 2005 results included netalso include non-operating gains from the salesales of non-operating land and exchange of certain cable systemsmarketable securities (after-tax impact of $196.5$11.2 million, or $20.69$1.16 per share), a non-cash goodwill.
About 94,000 of the cable division’s pre-hurricane subscribers were located on the Gulf Coast of Mississippi, including Gulfport, Biloxi, Pascagoula and other intangibles impairment chargeneighboring communities where storm damage from Hurricane Katrina was significant. Overall, the hurricane had an estimated adverse impact of $23.7 million on the cable division’s results in 2005. Through the end of 2005, the Company recorded by one$9.6 million in property, plant and equipment losses; incurred an estimated $9.4 million in incremental cleanup, repair and other expenses in connection with the hurricane; and experienced an estimated $9.7 million reduction in operating income from subscriber losses and the granting of a30-day service credit to all its 94,000 pre-hurricane Gulf Coast subscribers. As of December 31, 2005, the Company has recorded a $5.0 million receivable for recovery of a portion of cable hurricane losses through December 31, 2005 under the Company’s affiliates (after-tax impactproperty and business interruption insurance program; this recovery was recorded as a reduction of $19.9 million, or $2.10 per share),cable division expense in the fourth quarter of 2005. Actual insurance recovery amounts for cable losses fromthrough December 31, 2005 may ultimately be higher than the write-downestimated $5.0 million. Additional costs and losses related to the hurricane will continue to be incurred in 2006, and property and business interruption insurance coverage is expected to cover some of a non-operating parcel of land and certain cost method investments to their estimated fair value (after-tax impact of $18.3 million, or $1.93 per share) and an after-tax charge of $55.0 million, or $5.79 per share, for amortization of goodwill and other intangible assets that are no longer amortized under Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” The Company adopted SFAS 142 effective on the first day of its 2002 fiscal year.

these losses.

Revenue for 20022005 was $2,584.2$3,553.9 million, up 7 percent8% compared to revenue of $2,411.0$3,300.1 million in 2001, with2004. The increase in revenue is due mostly to significant revenue growth at the education division, along with small increases at the Company’s newspaper publishing and cable divisions, offset by declines at the Company’s television broadcasting and broadcastmagazine publishing divisions. Advertising revenue increased 1 percentdeclined 2% in 2002,2005, and circulation and subscriber revenue increased 3 percent.1%. Education revenue increased 26 percent24% in 2002,2005, and other revenue increased 10 percent.was up 1%. The increasedecrease in advertising revenue is due to primarily to significant political revenues atdeclines in the broadcast division in 2002.television broadcasting and magazine publishing divisions. The increase in circulation and subscriber revenue is due to an 11 percenta 3% increase in subscriber revenue at the cable division from rapidly growingcontinued growth in cable modem, basic and digital service revenues, andoffset by a 4 percent increase2% decrease in circulation revenue at The Post, due to circulation price increases. This increase was offset byand a 14 percent decrease3% decline in Newsweek circulation revenues due primarily to subscription rate declines at the domestic circulation revenue due to difficult comparisons with 2001, when Newsweek saw spikes in newsstand sales from regular and specialinternational editions surrounding the events of September 11.Newsweek. Revenue growth at Kaplan, Inc. (about one-third27% of which was from acquisitions) accounted for the increase in education revenue.

Operating costs and expenses for the year increased 4 percent11% to $2,206.6$3,039.0 million, from $2,112.8$2,737.1 million in 2001 (excluding amortization of goodwill and other intangible assets that are no longer amortized under SFAS 142).2004. The increase is primarily due to higher depreciation expense, higher stock-based compensationexpenses from operating growth at the education division, early retirement program charges,higher expenses from operating growth and Hurricane Katrina at the cable division, higher newsprint prices and a reduced net pension credit, offset by lower expenses at the newspaper publishing and magazine publishing segments due to lower newsprint prices and tight cost controls.

Operating income increased 27 percent to $377.6 million, from $298.3 milliona decrease in 2001, adjusted as if SFAS 142 had been adopted at the beginning of 2001. Operating results for 2002 include $19.0 million in pre-tax charges from early retirement programs. The Company benefited from improved operating results at the education and broadcast divisions, along with improved earnings at The Washington Post newspaper and the cable division. These factors were offset in part by increased depreciation expense, a reduced net pension credit, the early retirement program charges noted above and higher stock-based compensation expense accruals at Kaplan.

Operating income declined 9% to $514.9 million, from $563.0 million in 2004, due to declines at all of the Company’s divisions except the Kaplan education division.

Kaplan results for 2005 include $3.0 million in stock compensation expense, compared to $32.5 million in stock compensation expense in 2004.

The Company’s 20022005 operating income includes $64.4$37.9 million of net pension credits, compared to $76.9$42.0 million in 2001.2004. These amounts exclude $19.0$1.2 million and $3.3$0.1 million in charges related to early retirement programs in 20022005 and 2001,2004, respectively.

DIVISION RESULTS

As discussed above, the Company adopted SFAS 142 effective on the first day of its 2002 fiscal year. All operating income comparisons presented below are on a pro forma basis as if SFAS 142 had been adopted at the beginning of 2001. Therefore, 2001 pro forma operating results exclude amortization charges of goodwill and certain other intangible assets that are no longer amortized under SFAS 142.

Newspaper Publishing Division. At the newspaper publishing division, 2005 included 52 weeks while 2004 generally included 53 weeks. Newspaper publishing division revenue in 2002 decreased slightly2005 increased 2% to $842.0$957.1 million, from $842.7$938.1 million in 2001.2004. Division operating income for 20022005 totaled $109.0$125.4 million, an increasea decrease of 23 percent12% from pro forma$143.1 million in 2004. The decline in operating income of $88.6 million in 2001. Improved2005 reflects a 4% increase in newsprint expense at The Washington Post, as well as increased pension and payroll costs; in addition, operating results for 2002 reflect2005 include losses from the benefits of cost control initiatives employed throughout the division and a 22 percent decrease in newsprint expense; these savingsrecent Slate acquisition. The declines were partially offset by a pre-tax early retirement program charge of $2.9 millionimproved results at Washingtonpost.Newsweek Interactive and a reduced net pension credit.

Gazette Newspapers. Operating margin at the newspaper publishing division was 13% for 2005 and 15% for 2004.

Print advertising revenue at The Washington Post newspaper decreased 3 percentin 2005 declined 1% to $555.7$595.8 million, from $574.3$603.3 million in 2001.2004. The decrease in print advertising revenue for 2002 isdecline was partially due to a continued declineone less week included in 2005 compared to 2004. The Post reported declines in national, retail and supplements advertising in 2005, offset by increases in zoned and classified advertising. Classified recruitment advertising revenue with volume decreases of 32 percent, offset by higherwas up 6% to $79.3 million in 2005, from $74.8 million in 2004.
Circulation revenue from several advertising categories, including preprints, real estate and other classified advertising.

Circulation revenues at The Post were up 4 percentwas down 2% for 20022005 due to increasesdeclining circulation and one less week in single copy newsstand and home delivery prices in 2002.fiscal 2005 compared to fiscal 2004. Daily circulation at The Post declined 1.7 percent,4.3% and Sunday circulation declined 1.2 percent4.1% in 2002. For

29


the year ended December 29, 2002,2005; average daily circulation at The Post totaled 760,000694,100 (unaudited) and average Sunday circulation totaled 1,054,000969,000 (unaudited).
During 2005, revenues generated by the Company’s online publishing activities (including Slate, which was acquired in January 2005), primarily washingtonpost.com, increased 29% to $80.2 million, from $62.0 million in 2004. Local and national online advertising revenues grew 49%, partly due to Slate. Online classified advertising revenue on washingtonpost.com increased 22%.
Television Broadcasting Division.Revenue for the television broadcasting division declined 8% to $331.8 million in 2005, from $361.7 million in 2004, due to strong 2004 revenues that included $34.3 million in political advertising and $8.0 million in incremental summer Olympics-related advertising at the Company’s NBC affiliates.
32
THE WASHINGTON POST COMPANY


Operating income for 2005 decreased 18% to $142.5 million, from $174.2 million in 2004. The operating income declines are primarily related to the absence of significant political and Olympics revenue in 2005, as well as the adverse impact of 2005 hurricanes in Florida and Texas. Operating margin at the broadcast division was 43% for 2005 and 48% for 2004.
Competitive market position remained strong for the Company’s television stations. KSAT in San Antonio ranked number one in the November 2005 ratings period, Monday through Friday, sign-on to sign-off; WDIV in Detroit and WKMG in Orlando ranked second; WPLG in Miami tied for second among English-language stations in the Miami market; WJXT in Jacksonville ranked third; and KPRC in Houston ranked fourth.
Magazine Publishing Division.Revenue for the magazine publishing division totaled $344.9 million for 2005, a 6% decline from $366.1 million in 2004. The revenue decline in 2005 reflects the weak domestic and international advertising environment at Newsweek, particularly in the first quarter of 2005; overall, Newsweek advertising revenues are down 8% for the year as a result of fewer ad pages at both the domestic and international editions of Newsweek.
Operating income totaled $45.1 million for 2005, down 15% from $52.9 million in 2004. The decline in 2005 operating income is due primarily to the revenue reductions at Newsweek discussed above, weaker results at the Company’s trade magazines and a $1.5 million early retirement charge at Newsweek International, offset by a reduction in subscription acquisition, distribution and advertising expenses at Newsweek’s domestic and international editions, and an increased pension credit. Operating margin at the magazine publishing division was 13% for 2005 and 14% for 2004, including the pension credit.
Cable Television Division.Cable division revenue of $507.7 million for 2005 represents a 2% increase from $499.3 million in 2004. Revenues for 2005 were adversely impacted by approximately $12.5 million from subscriber losses and the granting of a30-day service credit to the 94,000pre-hurricane Gulf Coast subscribers; this was offset by increased growth in the division’s cable modem revenues. Also, the Company did not implement an overall basic rate increase in 2005.
Cable division operating income decreased in 2005 to $76.7 million, from $104.2 million in 2004. The decline in operating income in 2005 is due mostly to Hurricane Katrina, which had an estimated adverse impact of $23.7 million on the cable division’s results. Through the end of 2005, the cable division recorded $9.6 million in property, plant and equipment losses; incurred an estimated $9.4 million in incrementalclean-up, repair and other expenses associated with the hurricane; and experienced an estimated $9.7 million reduction in operating income from subscriber losses and the granting of a30-day service credit to all of its 94,000pre-hurricane Gulf Coast subscribers. Offsetting these items, as of December 31, 2005, the Company has recorded a $5.0 million receivable for recovery of a portion of cable hurricane losses through December 31, 2005 under the Company’s property and business interruption insurance program; this recovery was recorded as a reduction of cable division expense in the fourth quarter of 2005. The decrease in operating income is also due to higher depreciation, programming and customer service costs. Operating margin at the cable television division declined to 15% in 2005, from 21% in 2004, due largely to the impact of hurricane.
At December 31, 2005, the cable division had approximately 689,200 basic subscribers, compared to 709,100 at December 31, 2004. The Company estimates a decline of 21,400 basic subscribers as a result of the hurricane. At December 31, 2005, the cable division had approximately 214,400 digital cable subscribers, down from 219,200 at December 31, 2004. This represents a 31% penetration of the subscriber base. The Company estimates a decline of 7,700 digital subscribers as a result of the hurricane. At December 31, 2005, the cable division had approximately 234,100 CableONE.net service subscribers, compared to 178,300 at December 31, 2004. The Company estimates a decline of 3,100 CableONE.net service subscribers as a result of the hurricane. Both digital and cable modem services are now offered in virtually all of the cable division’s markets. The estimated hurricane-related basic, digital and cable modem subscriber losses are from destroyed or severely damaged homes.
At December 31, 2005, Revenue Generating Units (RGUs), the sum of basic video, digital video and cable modem subscribers, totaled 1,137,600, compared to 1,106,600 as of December 31, 2004. The increase is due to growth in high-speed data customers, offset by an approximate 32,200 RGU reduction due to the hurricane. RGUs include about 6,500 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 2005 and 2004, in the NCTA Standard Reporting Categories (in millions):
          
  2005 2004
 
Customer premise equipment $30.0  $23.5 
Commercial  0.2   0.1 
Scaleable infrastructure  8.1   8.6 
Line extensions  14.6   14.0 
Upgrade/rebuild  13.1   15.6 
Support capital  45.3   17.1 
   
 Total $111.3  $78.9 
   
Education Division.Education division revenue in 2005 increased 24% to $1,412.4 million, from $1,134.9 million in 2004. Excluding revenue from acquired businesses, primarily in the higher education division and the professional training schools that are part of supplemental education, education division revenue increased 18% in 2005. Kaplan reported operating income of $157.8 million for the year, compared to $121.5 million in 2004; a large portion of the improvement is from a $29.5 million decline in
2005 FORM 10-K
33


Kaplan stock compensation costs. A summary of operating results for 2005 compared to 2004 is as follows (in thousands):
              
  2005 2004 % Change
 
Revenue
            
 Supplemental education $690,815  $575,014   20 
 Higher education  721,579   559,877   29 
   
 
  $1,412,394  $1,134,891   24 
   
Operating income (loss)
            
 Supplemental education $117,075  $100,795   16 
 Higher education  82,660   93,402   (12)
 Kaplan corporate overhead  (33,305)  (31,533)  (6)
 Other  (8,595)  (41,209)  79 
   
 
  $157,835  $121,455   30 
   
Supplemental education includes Kaplan’s test preparation, professional training and Score! businesses. Excluding revenue from acquired businesses, supplemental education revenues grew by 13% in 2005. Test preparation revenue grew by 22% due to strong enrollment in the K12 business as well as MCAT, GMAT and GRE. In August 2005, Kaplan completed the acquisition of The Kidum Group, the leading provider of test preparation services in Israel. Also included in supplemental education is The Financial Training Company (FTC). Headquartered in London, FTC provides training services for accountants and financial services professionals, with training centers in the United Kingdom and Asia. FTC revenues grew by 14% in 2005. Supplemental education results also include professional real estate, insurance and security courses. In April 2005, Kaplan Professional completed the acquisition of BISYS Education Services, a provider of licensing education and compliance solutions for financial services institutions and professionals. Real estate publishing and training courses contributed to growth in supplemental education in 2005, as did the BISYS business. These results were offset by soft market demand for Kaplan Professional’s securities and insurance course offerings. The final component of supplemental education is Score!, which provides academic enrichment to children and has lower operating margins than the other supplemental education businesses due to higher fixed costs. Revenues at Score! were about equal compared to 2004, while there was a drop in operating income. There were 168 Score! centers at the end of December 2005, compared to 162 at the end of December 2004.
Higher education includes all of Kaplan’s post-secondary education businesses, including fixed-facility colleges as well as online post-secondary and career programs. In May 2005, Kaplan acquired Singapore-based Asia Pacific Management Institute (APMI), a private education provider for undergraduate and postgraduate students in Asia. Excluding revenue from acquired businesses, higher education revenues grew by 23% in 2005. Higher education enrollments increased by 19% to 69,700 at December 31, 2005, compared to 58,500 at the end of 2004, with most of the new enrollment growth occurring in the online programs. Increased operating costs associated with expansion activities at both the online and the fixed-facility operations, including new program offerings and higher facility and advertising expenses, contributed significantly to theyear-to-date declines in operating income.
Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office.
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 (the general provisions of which are discussed in Note G to the Consolidated Financial Statements). In addition, Other includes amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of stock options and stock awards outstanding. The Company recorded total stock compensation expense of $3.0 million in 2005, which includes a Kaplan award of $4.8 million that was recorded in the fourth quarter. In 2004, total stock compensation expense was $32.5 million. The decline in the charge for 2005 reflects slower growth in Kaplan’s operating results and an overall decline in public market values of other education companies.
Equity in Losses of Affiliates.The Company’s equity in losses of affiliates for 2005 was $0.9 million, compared to losses of $2.3 million for 2004. The Company’s affiliate investments at the end of 2005 consisted of a 49% interest in BrassRing LLC and a 49% interest in Bowater Mersey Paper Company Limited.
Non-Operating Items.The Company recorded othernon-operating income, net, of $9.0 million in 2005, compared to $8.1 million in 2004. The 2005non-operating income comprisespre-tax gains of $17.8 million related to the sales ofnon-operating land and marketable securities, offset by foreign currency losses of $8.1 million and othernon-operating items. The 2004non-operating income, net, is primarily from foreign currency gains.
A summary ofnon-operating income (expense) for the years ended January 1, 2006 and January 2, 2005, follows (in millions):
          
  2005 2004
 
Gain on sales of marketable securities $12.7  $ 
Gain on sales of non-operating land  5.1    
Foreign currency (losses) gains, net  (8.1)  5.5 
Impairment write-downs on cost method and other investments  (1.5)  (0.7)
Gain on exchange of cable system business     0.5 
Other gains  0.8   2.8 
   
 Total $9.0  $8.1 
   
The Company incurred net interest expense of $23.4 million in 2005, compared to $26.4 million in 2004. At January 1, 2006, the Company had $428.4 million in borrowings outstanding at an average interest rate of 5.4%; at January 2, 2005, the Company had $484.1 million in borrowings outstanding at an average interest rate of 5.1%.
Income Taxes. The effective tax rate was 37.1% for 2005 and 38.7% for 2004. The 2005 effective tax rate benefited from lower
34
THE WASHINGTON POST COMPANY


taxes provided on foreign earnings and an increase in foreign tax credits. The Company does not expect foreign tax credits to reduce the 2006 effective tax rate to the same extent as in 2005 and, accordingly, expects an effective tax rate in 2006 of approximately 38.5%.
RESULTS OF OPERATIONS — 2004 COMPARED TO 2003
Net income was $332.7 million ($34.59 per share) for the fiscal year 2004 ended January 2, 2005, compared with $241.1 million ($25.12 per share) for the fiscal year 2003 ended December 28, 2003. Each of the Company’s divisions reported strong growth in operating income for 2004. The Company’s 2003 results included anon-operating gain from the sale of the Company’s 50% interest in the International Herald Tribune(after-tax impact of $32.3 million, or $3.38 per share), an operating gain from the sale of land at The Washington Post newspaper (after-tax impact of $25.5 million, or $2.66 per share) and early retirement program charges at The Washington Post newspaper (after-tax impact of $20.8 million, or $2.18 per share). Also included in 2003 results is a charge in connection with the establishment of the Kaplan Educational Foundation (after-tax impact of $3.9 million, or $0.41 per share) and Kaplan stock compensation expense for the 10% premium associated with a partial buyout of the Kaplan stock compensation plan (after-tax impact of $6.4 million, or $0.67 per share).
Revenue for 2004 was $3,300.1 million, up 16% compared to $2,838.9 million in 2003. The increase in revenue is due mostly to significant revenue growth at the education and television broadcasting divisions, along with increases at the Company’s cable television, newspaper publishing and magazine publishing divisions. Advertising revenue increased 10% in 2004, and circulation and subscriber revenue increased 5%. Education revenue increased 35% in 2004, and other revenue was up 6%. The increase in advertising revenue is due to increases at the television broadcasting, newspaper publishing and magazine publishing divisions. The increase in circulation and subscriber revenue is due to a 9% increase in subscriber revenue at the cable division from continued growth in cable modem, basic and digital service revenues, a 2% increase in circulation revenue at The Post, and a 4% decline in Newsweek circulation revenues due to subscription rate declines at the domestic edition of Newsweek. Revenue growth at Kaplan, Inc. (about 33% of which was from acquisitions) accounted for the increase in education revenue.
Operating costs and expenses for the year increased 11% to $2,737.1 million, from $2,475.1 million in 2003. The increase is primarily due to higher expenses from operating growth at the education, cable television and television broadcasting divisions, higher newsprint prices and a reduced pension credit, offset by a significant decrease in stock-based compensation expense at Kaplan.
Operating income increased 55% to $563.0 million, from $363.8 million in 2003, due largely to significantly improved results at the education and television broadcasting divisions. Kaplan results for 2004 include $32.5 million in stock compensation expense. In addition to pre-tax charges of $10.5 million for the 10% buyout premium and $6.5 million for the Kaplan Education Foundation, Kaplan results for 2003 included an additional $108.6 million in Kaplan stock compensation expense. Operating results for 2003 also included a $41.7 million pre-tax gain on the sale of land at The Washington Post newspaper and $34.1 million in pre-tax charges from early retirement programs at The Washington Post newspaper.
The Company’s 2004 operating income includes $42.0 million of net pension credits, compared to $55.1 million in 2003. These amounts exclude $0.1 million and $34.1 million in charges related to early retirement programs in 2004 and 2003, respectively.
DIVISION RESULTS
Newspaper Publishing Division. At the newspaper publishing division, 2004 generally included 53 weeks compared to 52 weeks in 2003. Newspaper publishing division revenue in 2004 increased 7% to $938.1 million, from $872.8 million in 2003. Division operating income for 2004 totaled $143.1 million, an increase of 7% from $134.2 million in 2003. The increase in operating income for 2004 reflects higher print and online advertising revenue, 2003 pre-tax charges of $34.1 million from early retirement programs at The Washington Post newspaper and payroll savings from the early retirement programs implemented at The Post in 2003. These factors were partially offset by a $41.7 million pre-tax gain on the sale of land at The Washington Post newspaper in the fourth quarter of 2003, a 12% increase in newsprint expense at The Post and a $10.8 million reduction in the net pension credit, excluding charges related to early retirement programs. Operating margin at the newspaper publishing division was 15% for 2004 and 2003.
Print advertising revenue at The Washington Post newspaper in 2004 increased 5% to $603.3 million, from $572.2 million in 2003. The increase in print advertising revenue for 2004 is primarily due to increases in classified recruitment, preprints and general advertising categories. Classified recruitment advertising revenue was up 20% to $74.8 million in 2004, a $12.5 million increase compared to 2003.
Circulation revenue at The Post was up 2% for 2004 due to an increase in home delivery prices in 2003 and an extra week in fiscal 2004. Daily circulation at The Post declined 2.6% and Sunday circulation declined 2.3% in 2004; average daily circulation totaled 726,000 (unaudited) and average Sunday circulation totaled 1,011,000 (unaudited).
During 2004, revenue generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 18 percent32% to $35.9$62.0 million, during the year, from $30.4$46.9 million in 2001.2003. Local and national online advertising revenues grew 60 percent in 2002, while46% and online classified advertising revenue at the Jobs section ofon washingtonpost.com decreased 1 percent in 2002.

increased 33%.

Television Broadcasting Division.Revenue atfor the television broadcasting division increased 9 percent15% to $343.6$361.7 million in 2002,2004, from $314.0$315.1 million in 2001,2003, due primarily to $31.8$34.3 million in political advertising as well as Olympics-relatedin 2004, $8.0 million in incremental summer Olympics-
2005 FORM 10-K
35


related advertising at the Company’s NBC affiliates in the first quarter of 2002. Additionally, revenues in 2001 were lower due to a general softness in advertising2004 and several days of commercial-free coverage followingin connection with the eventsIraq war in March 2003.
Operating income for 2004 increased 25% to $174.2 million, from $139.7 million in 2003, primarily as a result of September 11. Thesethe revenue increases were partially offset by reduced network compensation revenues in 2002.

discussed above. Operating margin at the broadcast division was 48% for 2004 and 44% for 2003.

Competitive market position remained strong for the Company’s television stations. WDIV in Detroit wasand KSAT in San Antonio were ranked number one in the latestNovember 2004 ratings period, Monday through Friday, sign-on to sign-off; KSATWKMG in San Antonio was tied for number one;Orlando ranked second; WJXT in Jacksonville and KPRC in Houston ranked second;third; and WPLG was tied for secondthird among English-language stations in the Miami market; and KPRC in Houston and WKMG in Orlando ranked third in their respective markets.

Operating income for 2002 increased 16 percent to $168.8 million, from pro forma operating income of $146.0 million in 2001. Operating income growth for 2002 is due to strong revenue growth, along with tight cost controls, partially offset by a reduced pension credit. Operating margin at the broadcast division was 49 percent for 2002 and 46 percent for 2001, excluding amortization of goodwill and other intangibles.

In July 2002, WJXT in Jacksonville, Florida, began operations as an independent station when its network affiliation with CBS ended.

market.

Magazine Publishing Division.Revenue for the magazine publishing division totaled $349.1$366.1 million for 2002,2004, a 7 percent decrease4% increase from $374.6$353.6 million in 2001. Revenues for 2001 reflect a significant spike2003. The revenue increase in newsstand circulation revenue at Newsweek due to regular and special editions related to the events of September 11. Advertising revenues were down for 2002,2004 is primarily due to declinesa 9% increase in advertising revenue, largely from increased ad pages at the domestic and international division. editions of Newsweek and at Arthur Frommer’s Budget Travel magazine, as well as lower travel-related advertising revenues at the Pacific edition of Newsweek in 2003 due to the SARS outbreak, offset by a 4% decline in circulation revenue.
Operating income totaled $25.7$52.9 million for 2002, a decrease2004, an increase of 20 percent22% from pro forma operating income of $32.0$43.5 million in 2001. Operating2003. The improvement in operating results for 2002 include $16.1 million in pre-tax charges in connection with early retirement programs at Newsweek. Expenses for 2001 included approximately $5.0 million in nonrecurring costs associated with regular and special editions related to September 11. Costs for 2002 also have declined2004 is primarily due to payroll and other relatedincreased advertising revenue, continued cost savings from employees accepting early retirement programs offered by Newsweek, and from significant cost savings programs put into placecontrols at Newsweek’s international operations.

Excluding amortization of goodwilleditions and other intangibles, operatingimproved results at the Company’s trade magazines.

Operating margin at the magazine publishing division was 7 percent14% for 20022004 and 9 percent12% for 2001.

2003.

Cable Television Division.Cable division revenue of $428.5$499.3 million for 20022004 represents an 11 percenta 9% increase from revenuesrevenue of $386.0$459.4 million in 2001.2003. The 20022004 revenue increase is principally due to rapidcontinued growth in the division’s cable modem and digital service revenues. revenues and a $2 monthly rate increase for basic cable service, effective March 1, 2004, at most of the cable division’s systems.
Cable division operating income increased 15 percent18% in 20022004 to $80.9$104.2 million, from pro forma operating income of $70.6$88.4 million in 2001.2003. The increase in 2004 operating income for 2002 is due mostly to the division’s significant revenue growth, offset by higher programming, Internet and depreciation expense and increased programming expense.

Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $169.8 million for 2002, an increase of 25 percent from $135.3 million for 2001.

The increase in depreciation expense for 2002 is primarily due to significant capital spending, primarily in 2001 and 2000, which has enabledcosts. Operating margin at the cable television division to offer digitalwas 21% in 2004 and broadband cable services to its subscribers; depreciation expense for 2002 also includes $5.4 million19% in charges for obsolete assets. The cable division began its rollout plan for these services in the third quarter of 2000. 2003.

At December 31, 2002,2004, the cable division had approximately 214,900219,200 digital cable subscribers, representingdown slightly from 222,900 at December 31, 2003. This represents a 30 percent31% penetration of the subscriber base in the markets where digital services are offered. Digital services are currently offered in markets serving 98 percent of the cable division’s subscriber base. The initial rollout plan for the new digital cable services included an offer for the cable division’s customers to obtain these services free for one year. At December 31, 2002,2004, the cable division had 194,200 paying digital subscribers, compared to 31,000 at the end of 2001. Most of the benefits from these services began to show in the first quarter of 2002 and continued throughout the year, with the remaining portion of free one-year periods generally having ended by the close of 2002.

At December 31, 2002, the cable division had 718,000 basic subscribers, compared to 752,700 at the end of December 2001, with the decrease due primarily to the difficult economic environment over the past year; basic customer disconnects for non-payment of bills have increased significantly. At December 31, 2002, the cable division had 79,400178,300 CableONE.net service subscribers, compared to 46,400133,800 at December 31, 2003. Both digital and cable modem services are now offered in virtually all of the endcable division’s markets. At December 31, 2004, the cable division had 709,100 basic subscribers, compared to 720,800 at December 31, 2003. The decrease is due to small losses associated with the basic rate increase discussed above, along with continued competition from DBS providers.

At December 31, 2004, Revenue Generating Units (RGUs), the sum of basic video, digital video and cable modem subscribers, totaled 1,106,600, compared to 1,077,500 as of December 2001,31, 2003. The increase is due to a largean increase in the Company’snumber of cable modem deployment (offered to 93 percentcustomers. RGUs include about 6,500 subscribers who receive free basic video service, primarily local governments, schools and other organizations as required by various franchise agreements.
Below are details of homes passed atcable division capital expenditures for 2004 and 2003, in the end of December 2002) and subscriber penetration rates. Of these subscribers, 78,100 and 32,900 were cable modem subscribers at the end of 2002 and 2001, respectively, with the remainder being dial-up subscribers.NCTA Standard Reporting Categories (in millions):
          
  2004 2003
 
Customer premise equipment $23.5  $17.0 
Commercial  0.1   0.1 
Scaleable infrastructure  8.6   5.3 
Line extensions  14.0   10.6 
Upgrade/rebuild  15.6   21.4 
Support capital  17.1   11.5 
   
 Total $78.9  $65.9 
   
30


Education Division.Education division revenue in 20022004 increased 26 percent35% to $621.1$1,134.9 million, from $493.7$838.1 million in 2001. Kaplan reported operating income for the year of $20.5 million, compared to a pro forma operating loss of $13.1 million in 2001. Approximately one-third of the increase in Kaplan2003. Excluding revenue and approximately $9 million of the increase in Kaplan operating income is from newly acquired businesses, primarily in the higher education division. Excluding goodwill amortizationdivision and the professional training schools that are part of supplemental education, education division revenue increased 24% in 2001,2004. Kaplan reported operating income of $121.5 million for the year, compared to an operating loss of $11.7 million in 2003; a significant portion of the improvement is from a $93.1 million decline in costs associated with the Kaplan stock option plan and the establishment of the Kaplan Educational Foundation, as discussed previously. A summary of operating results for 20022004 compared to 20012003 is as follows (in thousands):

             
20022001% Change             
 2004 2003 % Change


Revenue
Revenue
 
Revenue
          
Supplemental education $371,248 $328,039 13% Supplemental education $575,014 $469,757  22 
Higher education 249,877 165,642 51% Higher education  559,877  368,320  52 
 
  
 $621,125 $493,681 26%   $1,134,891 $838,077  35 
 
  
Operating income (loss)
Operating income (loss)
 
Operating income (loss)
          
Supplemental education $54,103 $27,509 97% Supplemental education $100,795 $87,044  16 
Higher education 27,569 9,149 201% Higher education  93,402  58,428  60 
Kaplan corporate overhead (26,143) (23,981) (9%)Kaplan corporate overhead  (31,533)  (36,782)  14 
Other (35,017) (25,738) (36%)Other  (41,209)  (120,399)  66 
 
  
 $20,512 $(13,061)    $121,455 $(11,709)   
 
  

Supplemental education includes Kaplan’s test preparation, professional training and Score! businesses. The improvementExcluding revenues from acquired businesses, supplemental education revenues grew by 14%. Test preparation revenue grew by 15% due to strong enrollment in the SAT/ PSAT, MCAT and Advanced Med. Operating results in 2004 reflect increased course development costs. Also
36
THE WASHINGTON POST COMPANY


included in supplemental education is The Financial Training Company (FTC), which was acquired in March 2003. Headquartered in London, FTC provides training services for accountants and financial services professionals, with training centers in the United Kingdom and Asia. FTC revenues grew by 44% in 2004 over the same time period the business was owned by Kaplan in 2003. Supplemental education results for 2002also include professional real estate, insurance and security courses. Real estate publishing and training courses contributed to growth in supplemental education in 2004. The final component of supplemental education is Score!, which provides academic enrichment to children and has lower operating margins than the other supplemental education businesses due mostly to higher enrollments andfixed costs. Revenues at Score! were up slightly compared to a lesser extent, higher prices at Kaplan’s traditional test preparation business (particularly the LSAT, MCAT and GRE prep courses), as well as higher revenues and operating income from Kaplan’s CFA® and real estate licensure preparation services. Score! also contributed to the improved results, with increased enrollment, higher prices and strong cost controls.

2003.

Higher education includes all of Kaplan’s post-secondary education businesses, including the fixed-facility colleges that were formerly part of Quest Education, as well as online post-secondary and career programs (various distance-learning businesses). Excluding revenue from acquired businesses, higher education revenues grew by 35% in 2004. Higher education results are showing significant growth, dueespecially the online programs, in which revenues more than doubled in 2004. At the end of 2004, higher education enrollments totaled 58,500, compared to student enrollment increases, high student retention rates and several acquisitions.

45,000 at the end of 2003.

Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, including expenses associated witha $6.5 million charge in the design and developmentfourth quarter of educational software that, if successfully completed, will benefit all of Kaplan’s business units.

2003 for the Kaplan Educational Foundation.

Other expense is comprised primarily ofcomprises accrued charges for stock-based incentive compensation arising from a stock option plan established for certain members of Kaplan’s management (the general provisions of which are discussed in Note G to the Consolidated Financial Statements) and amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. For 2002 and 2001, theThe Company recorded expense of $34.5$32.5 million and $25.3$119.1 million for 2004 and 2003, respectively, related to this plan. The increase in otherstock compensation expense for 20022003 included the impact of the third quarter 2003 buyout offer for approximately 55% of the stock options outstanding at Kaplan. The stock compensation expense in 2004 is attributablebased on the remaining Kaplan stock options held by a small number of Kaplan executives after the 2003 buyout.
Corporate Office. The corporate office operating expenses increased to an$32.8 million in 2004, from $30.3 million in 2003. The increase in stock-based incentive compensation, which is primarily due to an increasethe corporate office’s share of increased compliance costs in Kaplan’s estimated value.

connection with Section 404 of the Sarbanes–Oxley Act of 2002.

Equity in Losses of Affiliates.The Company’s equity in losses of affiliates for 20022004 was $19.3$2.3 million, compared to losses of $68.7$9.8 million for 2001. The improvements were primarily due to better operating results at BrassRing LLC, which accounted for approximately $13.9 million of 2002 equity in losses of affiliates, compared to $75.1 million in equity losses for 2001.2003. The Company’s affiliate investments at the end of 20022004 consisted of a 49.4 percent49% interest in BrassRing LLC a 50 percent interest in the International Herald Tribune, and a 49 percent49% interest in Bowater Mersey Paper Company Limited.

The reduction in affiliate losses for 2004 is attributable to improved operating results at both BrassRing and Bowater.

On January 1, 2003, the Company sold its 50 percent50% interest in the International Herald Tribune for $65 million; the Company will reportmillion and recorded an after-tax non-operating gain of approximately $32$32.3 million in the first quarter of 2003.

Non-Operating Items.The Company recorded other non-operating income, net, of $28.9$8.1 million in 2002,2004, compared to $283.7$55.4 million in 2003. The 2004 non-operating income, net, is primarily from foreign currency gains. The 2003 non-operating income, net, mostly comprises a $49.8 million pre-tax gain from the sale of the Company’s 50% interest in the International Herald Tribune.
A summary of non-operating income net,(expense) for 2001. The 2002 non-operating income includes a pre-tax gain of $27.8 million on the exchange of certain cable systems in the fourth quarter of 2002years ended January 2, 2005 and a gain on the sale of marketable securities; these gains were offset by write-downs recorded on certain investments. The 2001 non-operating income mostly comprised gains arising from the sale and exchange of certain cable systems completed in the first quarter of 2001, offset by write-downs recorded on certain investments and a parcel of non-operating land to their estimated fair value.

December 28, 2003, follows (in millions):

          
  2004 2003
 
Foreign currency gains, net $5.5  $4.2 
Gain on sale of interest in IHT     49.8 
Impairment write-downs on cost method and other investments  (0.7)  (1.3)
Gain on exchange of cable system business  0.5    
Other gains  2.8   2.7 
   
 Total $8.1  $55.4 
   
The Company incurred net interest expense of $33.5$26.4 million in 2002,2004, compared to $47.5$26.9 million in 2001.2003. At December 29, 2002,January 2, 2005, the Company had $664.8$484.1 million in borrowings outstanding at an average interest rate of 4.0 percent;5.1%; at December 30, 2001,28, 2003, the Company had $933.1$631.1 million in borrowings outstanding.

Income Taxes.The effective tax rate was 38.8 percent38.7% for 2002,2004, compared to 40.7 percent37.0% for 2001. Excluding the effect of the cable gain transactions, the Company’s effective rate approximated 38.7 percent for 2002 and 50.2 percent for 2001.2003. The 2003 effective tax rate for 2002 declined primarily becausebenefited from the Company no longer has any permanent difference from goodwill amortization not deductible for tax purposes as a result of the adoption of SFAS 142. The Company’s35.1% effective tax rate also has declined dueapplicable to an increase in operating earnings and a decreasethe one-time gain arising from the sale of the Company’s interest in the overall state tax rate.

International Herald Tribune.

Cumulative EffectFINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions, Exchanges and Dispositions.During 2005, Kaplan acquired ten businesses in its higher education, professional and test preparation divisions for a total of Change$140.1 million, financed with cash and $3.0 million in Accounting Principle.debt. The largest of these included BISYS Education Services, a provider of licensing education and compliance solutions for financial service institutions and professionals; The Kidum Group, the leading provider of test preparation services in Israel; and Asia Pacific Management Institute, a private education provider for undergraduate and postgraduate students in Asia. In 2002,January 2005, the Company completed its SFAS 142 transitional goodwill impairment test, resulting in an after-tax impairment lossthe acquisition of $12.1 million, or $1.27 per share, related to PostNewsweek Tech Media (partSlate, the online magazine, which is included as part of the magazineCompany’s newspaper publishing segment). This loss is included indivision. Most of the Company’s 2002 results as a cumulative effect of change in accounting principle.
31


RESULTS OF OPERATIONS — 2001 COMPARED TO 2000

Net incomepurchase price for 2001the 2005 acquisitions was $229.6 million, compared with net income of $136.5 million for 2000. Diluted earnings per share totaled $24.06 in 2001, compared with $14.32 in 2000. The Company’s 2001 results include after-tax gains of $196.5 million, or $20.69 per share, from the sale and exchange of certain cable systems in the first quarter; a non-cashallocated to goodwill and other intangibles, impairment charge recorded by the Company’s BrassRing affiliate (after-tax impactand property, plant and equipment.

During 2004, Kaplan acquired eight businesses in its higher education and professional divisions for a total of $19.9$59.6 million, or $2.10 per share);financed with cash and losses from the write-down$8.7 million of a non-operating parcel of land and certain cost method investments to their estimated fair value (after-tax impact of $18.3 million, or $1.93 per share).

Revenue for 2001 totaled $2,411.0 million, or flat compared to revenue of $2,409.6 million in 2000. Advertising revenue decreased 13 percent in 2001, and circulation and subscriber revenue increased 9 percent. Education revenue increased 40 percent in 2001, and other revenue decreased 10 percent. The large decrease in advertising revenue is due to declines at the newspaper, broadcast and magazine divisions. The increase in circulation and subscriber revenue is due to a 20 percent increase in Newsweek domestic circulation revenue and a 10 percent increase in subscriber revenue atdebt. In addition, the cable division. Revenue growth at Kaplan, Inc. (about two-thirds of which was from acquisitions) accounted for the increase in education revenue.

Operating costs and expenses for the year increased 6 percent to $2,191.1 million, from $2,069.8 million in 2000. The cost and expense increase is primarily attributable to companies acquired in 2001 and 2000, higher depreciation and amortization expense, and higher stock-based compensation expense accruals at the education division offset by a higher pension credit and lower expenses at the newspaper publishing, television broadcasting and magazine publishing segments due to extensive cost control initiatives.

Operating income decreased 35 percent to $219.9 million in 2001, from $339.9 million in 2000. The decline in 2001 operating income is largely due to a significant decline in advertising revenue, increased depreciation and amortization expenses, and higher stock-based compensation expense accruals at the education division. These factors were offset in part by increased operating income contributed by Quest Education (acquired in August 2000), higher profits from Kaplan’s test preparation and professional training businesses, reduced operating losses at Kaplan’s new business development activities, and an increased pension credit. In addition, 2000 earnings included a fourth quarter after-tax charge of $16.5 million, or $1.74 per share, arising from an early retirement program at The Washington Post.

The Company’s 2001 operating income includes $76.9 million of net pension credits, compared to $65.3 million in 2000. These amounts exclude $3.3 million and $29.0 million in charges related to early retirement programs in 2001 and 2000, respectively.

DIVISION RESULTS

Newspaper Publishing Division.Newspaper publishing division revenues in 2001 decreased 8 percent to $842.7 million, from $918.2 million in 2000. Division operating income for 2001 totaled $84.7 million, a decrease of 26 percent from operating income of $114.4 million in 2000.

The decrease in operating income for 2001 is due to a significant decline in print advertising, offset in part by a higher pension credit, higher online advertising revenue, lower newsprint expense, cost control initiatives employed throughout the division, and the $27.5 million charge recorded in the fourth quarter of 2000 in connection with an early retirement program completed at The Post.

Print advertising revenue at The Washington Post newspaper decreased 14 percent to $574.3 million, from $664.1 million in 2000. Volume declines of 41 percent in classified recruitment advertising for 2001 caused classified recruitment advertising revenue declines of 37 percent. The economic environment surrounding most of the other advertising categories at The Post (i.e., retail, general, preprints) was also sluggish for fiscal 2001 compared to the prior year. In these categories, rate increases only partially offset volume declines ranging from 3 percent to 28 percent during 2001. The soft advertising climate worsened late in the third quarter of 2001 as the Company experienced further reductions in advertising revenue and volumes following the events of September 11.

Daily and Sunday circulation at The Post declined 0.5 percent and 0.7 percent, respectively, in 2001. For the year ended December 30, 2001, average daily circulation at The Post totaled 773,000 (unaudited) and average Sunday circulation totaled 1,067,000 (unaudited). Newsprint expense at the newspaper publishing division decreased 6 percent for 2001 due to reduced consumption offset by overall higher prices during the year.

Revenues generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 12 percent to $30.4 million during the year.

Television Broadcasting Division.Revenue for the television broadcasting division totaled $314.0 million for 2001, a 14 percent decline from 2000. Excluding approximately $42 million in political and Olympics advertising in 2000, revenue in 2001 decreased 3 percent due to a general softness in advertising (particularly national advertising) and several days of commercial-free coverage following the events of September 11.

Competitive market position remained strong for the Company’s television stations. WJXT in Jacksonville and WDIV in Detroit were ranked number one in the latest ratings period, sign-on to sign-off, in their respective markets; KSAT in San Antonio ranked second; WPLG was tied for second among English-language stations in the Miami market; and KPRC in Houston and WKMG in Orlando ranked third in their respective markets.

32
2005 FORM 10-K
37


Operating income

completed two small transactions. In May 2004, the Company acquired El Tiempo Latino, a leading Spanish-language weekly newspaper in the greater Washington area. Most of the purchase price for 2001 declined 26 percentthe 2004 acquisitions was allocated to $131.8 million, from $177.4 million in 2000, due to revenue declines discussed above. Operating margin at the broadcast division was 42 percent for 2001 and 49 percent for 2000. Excluding amortization of goodwill and intangibles, operating marginother intangibles.
During 2003, Kaplan acquired 13 businesses in its higher education and professional divisions for a total of $166.8 million, financed with cash and $36.7 million of debt. The largest of these was 46 percentthe March 2003 acquisition of the stock of The Financial Training Company (FTC), for 2001£55.3 million ($87.4 million). Headquartered in London, FTC provides training services for accountants and 53 percent for 2000.

Magazine Publishing Division.Revenuefinancial services professionals, with 28 training centers in the United Kingdom as well as operations in Asia. This acquisition was financed with cash and $29.7 million of debt, primarily to employees of the business. In November 2003, Kaplan acquired Dublin Business School, Ireland’s largest private undergraduate institution. Most of the purchase price for the magazine publishing division totaled $374.6 million for 2001, a 9 percent decrease from revenue of $413.9 million in 2000. Operating income totaled $25.3 million for 2001, a decrease of 48 percent from 2000. The decline in 2001 operating income resulted from a 24 percent decrease in advertising revenue at Newsweek due2003 Kaplan acquisitions was allocated to fewer advertising pages at both the domesticgoodwill and international editions. The decline was offset in part by increased newsstand sales on regularother intangibles, and special editions related to the September 11 terrorist attacks, a higher pension creditproperty, plant and reduced operating expenses.

Operating margin at the magazine publishing division decreased to 7 percent for 2001, compared to 12 percent in 2000.

Cable Television Division.Cable division revenue of $386.0 million for 2001 represents an 8 percent increase over 2000. The 2001 revenue increase is due to rapid growth in the division’s digital and cable modem service revenues, along with an increased number of basic subscribers from the cable exchange transactions completed in the first quarter of 2001. Cable division operating income declined 51 percent in 2001 to $32.2 million, due mostly to a $25.3 million increase in depreciation and amortization expense compared to 2000.

Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $135.3 million for 2001, a decrease of 6 percent from 2000. The decline in cable division cash flow is mostly due to higher programming expense, costs associated with the launch of digital services, and comparatively lower cash flow margin subscribers acquired in the cable system exchanges completed in the first quarter of 2001.

The increase in depreciation expense is due to capital spending, which is enabling the Company to offer digital cable services to its subscribers. The cable division began its rollout plan for these services in the third quarter of 2000. At December 31, 2001,equipment.

In addition, the cable division had approximately 239,500 digital cable subscribers, representing a 35 percent penetration of the subscriber baseacquired three additional systems in the markets where digital services are offered. Digital services were offered in markets serving 91 percent of the cable division’s subscriber base. The rollout plan2003 for the new digital cable services included an offer for the cable division’s customers to obtain these services free for one year. At the end of December 2001, the cable division had about 31,000 paying digital subscribers. Of these, 24,000 were from the new Idaho subscribers and were not offered one-year free digital service.$2.8 million. Most of the benefits frompurchase price for these new services are expectedacquisitions was allocated to show beginning in 2002 and thereafter.

At December 31, 2001, the cable division had 752,700 basic subscribers, compared to 735,400 at the end of December 2000. The increase in basic subscribers is largely due to a net gain in subscribers arising from cable system exchanges and sale transactions completed in the first quarter of 2001. At December 31, 2001, the cable division had 46,400 CableONE.net service subscribers, compared to 18,200 at the end of 2000, with the increase due to a large increase in the Company’s cable modem deployment (offered to 89 percent of homes passed at the end of December 2001) and take-up rates. Of these subscribers, 32,900 and 3,600 were cable modem subscribers at the end of 2001 and 2000, respectively, with the remainder being dial-up subscribers.

Education Division.Education revenue in 2001 increased 40 percent to $493.7 million, from $353.8 million in 2000; excluding Quest Education (acquired in August 2000), education division revenue increased 15 percent to $342.3 million for 2001, compared to $296.9 million for 2000. Excluding goodwill amortization, a summary of operating results for 2001 compared to 2000 is as follows (in thousands):

              
20012000% Change

Revenue
            
 Supplemental education $328,039  $286,386   15% 
 Higher education  165,642   67,435   146% 
  
 
  $493,681  $353,821   40% 
  
Operating income (loss)
            
 Supplemental education $27,509  $18,636   48% 
 Higher education  9,149   (5,705)   
 Kaplan corporate overhead  (23,981)  (38,693)  38% 
 Other  (25,738)  (6,250)  (312%)
  
 
  $(13,061) $(32,012)  59% 
  

Supplemental education includes Kaplan’s test preparation, professional training and Score! businesses. The improvement in supplemental education results for 2001 is due mostly to higher enrollments and, to a lesser extent, higher prices at Kaplan’s traditional test preparation business (particularly the GMAT and the LSAT prep courses) and higher revenues and profits from Kaplan’s CFA® and real estate licensure preparation services. Score! also contributed to the improved results, with both increased enrollment from new learning centers opened (147 centers at the end of 2001 versus 142 centers at the end of 2000) and rate increases implemented early in 2001.

Higher education includes all of Kaplan’s post-secondary education businesses, including the fixed-facility colleges that were formerly part of Quest Education, as well as online post-secondary and career programs (various distance-learning businesses). Higher education results increased as 2001 includes a full year of Quest results versus five months of activity in 2000.

Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, including expenses associated with the design and development of educational software that, if successfully completed, will benefit all of Kaplan’s business

franchise agreements, an indefinite-lived intangible asset.
33


units. Also included in 2000 corporate overhead results are costs associated with eScore.com.

Other expense is comprised primarily of accrued charges for stock-based incentive compensation arising from a stock option plan established for certain members of Kaplan’s management and amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. For 2001 and 2000,On January 1, 2003, the Company recorded expense of $25.3 million and $6.0 million, respectively, related to this plan. The increase in other expense for 2001 is attributable to an increase in stock-based incentive compensation, which is due to an increase in Kaplan’s estimated value.

Equity in Losses of Affiliates.The Company’s equity in losses of affiliates for 2001 was $68.7 million, compared to losses of $36.5 million for 2000. The Company’s affiliate investments consisted of a 39.7 percent common interest in BrassRing LLC, a 50 percentsold its 50% interest in the International Herald Tribune and a 49 percent interest in Bowater Mersey Paper Company Limited.

BrassRing accounted for approximately $75.1 million of the 2001 equity in losses of affiliates, compared to $37.0 million in 2000. The increase in 2001 equity in affiliate losses from BrassRing is largely due to a non-cash goodwill and other intangibles impairment charge that BrassRing recorded in 2001 primarily to reduce the carrying value of its career fair business. As a substantial portion of BrassRing’s losses arose from goodwill and intangible amortization expense for both 2001 and 2000, the $75.1$65 million and $37.0 million of equity in affiliate losses recorded by the Company in 2001 and 2000 did not require significant funding by the Company.

In December 2001, BrassRing, Inc. was restructured and the Company’s interest in BrassRing, Inc. was converted intorecorded an interestafter-tax non-operating gain of $32.3 million ($3.38 per share) in the newly-formed BrassRing LLC. At December 30, 2001, the Company held a 39.7 percent interest in the BrassRing LLC common equity and a $14.9 million Subordinated Convertible Promissory Note (“Note”) from BrassRing LLC. In February 2002, the Note was converted into Preferred Units, which are convertible at the Company’s option to BrassRing LLC common equity. Assuming the conversionfirst quarter of the Preferred Units, the Company’s common equity interest in BrassRing LLC would have been approximately 49.5 percent.

Non-Operating Items.The Company recorded other non-operating income of $283.7 million in 2001, compared to $19.8 million in non-operating expense for 2000. The 2001 non-operating income mostly comprised gains arising from the sale and exchange of certain cable systems completed in January and March of 2001. Offsetting these gains were losses from the write-downs of a non-operating parcel of land and certain investments to their estimated fair value. For income tax purposes, substantial components of the cable system sale and exchange transactions qualify as like-kind exchanges, and therefore, a large portion of these transactions does not result in a current tax liability.

The Company incurred net interest expense of $47.5 million in 2001, compared to $53.8 million in 2000. At December 30, 2001, the Company had $933.1 million in borrowings outstanding at an average interest rate of 3.5 percent.

Income Taxes.The effective rate was 40.7 percent for 2001, compared to 40.6 percent for 2000. Excluding the effect of the cable gain transactions, the Company’s effective tax rate approximated 50.2 percent for 2001, with the increase in rate due mostly to the decline in pre-tax income.

FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY

Acquisitions, Exchanges and Dispositions.During 2002, Kaplan acquired several businesses in its higher education and test preparation divisions for approximately $42.2 million. About $9.6 million remains to be paid on these acquisitions, of which $2.2 million has been classified in current liabilities and $7.4 million as long-term debt at December 29, 2002.

In November 2002, the Company completed a cable system exchange transaction with Time Warner Cable which consisted of the exchange by the Company of its cable system in Akron, Ohio serving about 15,500 subscribers, and $5.2 million to Time Warner Cable, for cable systems serving about 20,300 subscribers in Kansas. The non-cash, non-operating gain resulting from the exchange transaction increased net income by $16.7 million, or $1.75 per share.

During 2001, the Company spent approximately $104.4 million on business acquisitions and exchanges, which principally included the purchase of Southern Maryland Newspapers, a division of Chesapeake Publishing Corporation, and amounts paid as part of a cable system exchange with AT&T Broadband. During 2001, the Company also acquired a provider of CFA® exam preparation services and a company that provides pre-certification training for real estate, insurance and securities professionals.

Southern Maryland Newspapers publishes the Maryland Independent in Charles County, Maryland; The Enterprise in St. Mary’s County, Maryland; and The Calvert Recorder in Calvert County, Maryland, with a combined total paid circulation of approximately 50,000.

The cable system exchange with AT&T Broadband was completed in March 2001 and consisted of the exchange by the Company of its cable systems in Modesto and Santa Rosa, California, and approximately $42.0 million to AT&T Broadband for cable systems serving approximately 155,000 subscribers principally located in Idaho. In a related transaction in January 2001, the Company completed the sale of a cable system serving about 15,000 subscribers in Greenwood, Indiana, for $61.9 million. The gain resulting from the cable system sale and exchange transactions increased net income by $196.5 million, or $20.69 per share. For income tax purposes, substantial components of the cable system sale and exchange transactions qualify as like-kind exchanges and therefore, a large portion of these transactions does not result in a current tax liability.

2003.
34


During 2000, the Company spent $212.3 million on business acquisitions. These acquisitions included $177.7 million for Quest Education Corporation, a provider of post-secondary education; $16.2 million for two cable systems serving 8,500 subscribers; and $18.4 million for various other small businesses (principally consisting of educational services companies). There were no significant business dispositions in 2000.

Capital Expenditures.During 2002,2005, the Company’s capital expenditures totaled $153.0 million.$238.3 million; about $20.0 million is related to rebuilding efforts on the Gulf Coast of Mississippi due to Hurricane Katrina. The Company’s capital expenditures for 2002, 20012005, 2004 and 20002003 are disclosed in Note MN to the Consolidated Financial Statements. The Company estimates that its capital expenditures will total $180be in the range of $275 million to $300 million in 2003.

2006.

Investments in Marketable Equity Securities.At December 29, 2002,January 1, 2006, the fair value of the Company’s investments in marketable equity securities was $216.5$329.9 million, which includes $214.8$262.3 million in Berkshire Hathaway Inc. Class A and B common stock and $1.7$67.6 million of various common stocks of publicly traded companies with e-commerce businesseducation concentrations.

At December 29, 2002,January 1, 2006 and January 2, 2005, the gross unrealized gain related to the Company’s Berkshire Hathaway Inc. stock investment totaled $29.9 million; the gross unrealized gain on this investment was $34.1$77.4 million at December 30, 2001.and $75.5 million, respectively. The Company presently intends to hold the Berkshire Hathawaycommon stock investment long term.

Cost Method Investments.At December 29, 2002 and December 30, 2001,term, thus the Company held minority investmentsinvestment has been classified as a non-current asset in various non-public companies.the Consolidated Balance Sheets. The companies represented by these investments have products or services that in most cases have potential strategic relevancegross unrealized gain related to the Company’s operating units. The Company records its investment in these companies at the lower of cost or estimated fair value. During 2002 and 2001, the Company invested $0.3other marketable security investments totaled $18.3 million and $11.7$48.3 million respectively, in various cost method investees. At December 29, 2002at January 1, 2006 and December 30, 2001, the carrying value of the Company’s cost method investments totaled $9.5 million and $29.6 million,January 2, 2005, respectively.

Common Stock Repurchases and Dividend Rate.During 2002, 20012005 and 2000,2004, there were no share repurchases. During 2003, the Company repurchased 1,229910 shares 714 shares and 200 shares, respectively, of its Class B common stock at a cost of $0.8 million, $0.4 million and $0.1$0.7 million. At December 29, 2002,January 1, 2006, the Company had authorization from the Board of Directors to purchase up to 544,796542,800 shares of Class B common stock. The annual dividend rate for 20032006 was increased to $5.80$7.80 per share, from $5.60$7.40 per share in 20022005 and 2001.

from $7.00 per share in 2004.

Liquidity.At December 29, 2002,January 1, 2006, the Company had $28.8$215.9 million in cash and cash equivalents.

At December 29, 2002,equivalents, compared to $119.4 million at January 2, 2005. As of January 1, 2006, the Company had $259.3 million in commercial paper borrowings outstanding at an average interest rateinvestments of 1.6 percent with various maturities throughout$59.2 million that are classified as “Cash and cash equivalents” in the first and second quarters of 2003. In addition,Company’s Consolidated Balance Sheet.

At January 1, 2006, the Company had $428.4 million in total debt outstanding, $398.4which comprised $399.2 million of 5.5 percent, 10-year5.5% unsecured notes due February 2009. These15, 2009, and $29.2 million in other debt. The unsecured notes require semiannualsemi-annual interest payments of $11.0 million payable on February 15 and August 15.
During 2005, the Company’s borrowings, net of repayments, decreased by $55.7 million, and the Company’s commercial paper investments increased to $59.2 million; this activity is primarily due to cash flow from operations. The Company also had $7.1 millionpartially financed several acquisitions in other debt.

In2005.

During the third quarter of 2002,2005, the Company replaced its expiring $250 million364-dayrevolving credit facility agreements with a new $250 million revolving credit facility on essentially the same terms. The new facility expires in August 2006. The Company’s five-year $350 million revolving credit facility, which expires in August 2007, and a 364-day $350 million revolving credit facility, which expiresremains in August 2003.effect. These revolving credit facility agreements support the issuance of the Company’s short-term commercial paper and provide for general corporate purposes. In May 2002, Moody’s downgraded
During 2005 and 2004, the Company had average borrowings outstanding of approximately $442.0 million and $516.0 million, respectively, at average annual interest rates of approximately 5.4% and 4.8%, respectively. The Company incurred net interest costs on its borrowings of $23.4 million and $26.4 million during 2005 and 2004, respectively.
At January 1, 2006 and January 2, 2005, the Company had working capital of $123.6 million and $62.3 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments. The Company classified all of its commercial paper borrowing obligations as a current liability at January 2, 2005, as the Company’s intention was to pay down commercial paper borrowings from operating cash flow. The Company continues to maintain the ability to refinance any such obligations on a long-term basis through new debt ratings to A1 from Aa3 and affirmedissuance and/or its revolving credit facility agreements.
The Company’s net cash provided by operating activities, as reported in the Company’s short-term debt rating at P-1.

During 2002, the Company’s borrowings, netConsolidated Statements of repayments, decreased by $268.3Cash Flows, was $522.8 million with the decreasein 2005, compared to $561.7 million in 2004. The decline is primarily due to cash flow from operations.the Company’s reduction in operating income in 2005.

38
THE WASHINGTON POST COMPANY


The Company expects to fund its estimated capital needs primarily through internally generated funds and, to a lesser extent, commercial paper borrowings. In management’s opinion, the Company will have ample liquidity to meet its various cash needs in 2003.

2006.

The following reflects a summary of the Company’s contractual obligations and commercial commitments as of January 1, 2006:
Contractual Obligations
(in thousands)
                             
  2006 2007 2008 2009 2010 Thereafter Total
   
Debt $24,820  $2,453  $1,295  $399,887  $  $  $428,455 
Programming purchase commitments(1)
  137,530   133,733   111,888   86,138   58,252   189,246   716,787 
Operating leases  95,226   91,109   82,649   71,907   61,703   185,392   587,986 
Other purchase obligations(2)
  391,570   104,020   76,775   62,409   4,741   352   639,867 
Long-term liabilities(3)
  7,200   8,800   10,400   12,000   13,600   107,992   159,992 
   
Total $656,346  $340,115  $283,007  $632,341  $138,296  $482,982  $2,533,087 
   
(1) Includes commitments for the Company’s television broadcasting and cable television businesses that are reflected in the Company’s Consolidated Balance Sheet and commitments to purchase programming to be produced in future years.
(2) Includes purchase obligations related to newsprint contracts, printing contracts, employment agreements, circulation distribution agreements, capital projects and other legally binding commitments. Other purchase orders made in the ordinary course of business are excluded from the table above. Any amounts for which the Company is liable under purchase orders are reflected in the Company’s Consolidated Balance Sheet as “Accounts payable and accrued liabilities.”
(3) Primarily made up of postretirement benefit obligations other than pensions. The Company has other long-term liabilities excluded from the table above, including obligations for deferred compensation, long-term incentive plans and long-term deferred revenue.
Other Commercial Commitments
(in thousands)
      
  Lines of
Fiscal Year Credit
 
 2006 $250,000 
 2007  350,000 
 2008   
 2009   
 2010   
Thereafter   
    
 
Total $600,000 
    
Other.The Company does not have any off-balance sheet arrangements or financing activities with special-purpose entities (SPEs). Transactions with related parties, as discussed in Note C to the Consolidated Financial Statements, are in the ordinary course of business and are conducted on an arm’s-length basis.
CRITICAL ACCOUNTING POLICIES AND 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. In preparing these financial statements, management has made their best estimates and judgments of certain amounts included in the financial statements. Actual results will inevitably differ to some extent from these estimates.

The following are accounting policies that management believes are the most important to the Company’s portrayal of the Company’s financial condition and results and require management’s most difficult, subjective or complex judgments.

Revenue Recognition and Trade Accounts Receivable, Less Estimated Returns, Doubtful Accounts and Allowances.The Company’s revenue recognition policies are described in Note A to the Consolidated Financial Statements. Education revenue is generally recognized ratably over the period during which educational services are delivered. For example, at Kaplan’s test preparation division, estimates of average student course length are developed for each course, along with estimates for the anticipated level of student drops and refunds from test performance guarantees, and these estimates are evaluated on an ongoing basis and adjusted as necessary. As Kaplan’s businesses and related course offerings have expanded, including distance-learning businesses, and contracts with school districts as part of its K12 business, the complexity and significance of management estimates have increased. Revenues from magazine retail sales are recognized on the later of delivery or the cover date, with adequate provision made for anticipated sales returns. The Company bases its estimates for sales returns on historical experience and has not experienced significant fluctuations between estimated and actual return activity. Education revenue is recognized ratably over the period during which educational services are delivered. For example, at Kaplan’s test preparation division, estimates of average student course length are developed for each course and these estimates are evaluated on an ongoing basis and adjusted as necessary. As Kaplan’s businesses and related course offerings have expanded, including distance-learning businesses, the complexity and significance of management estimates have increased.

Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical trends and management’s evaluation of the financial condition of the customer. Accounts receivable also have been reduced by
35


an estimate of advertising rate adjustments and discounts, based on estimates of advertising volumes for contract customers thatwho are eligible for advertising rate adjustments and discounts.

Pension Costs.Excluding special termination benefits related to early retirement programs, the Company’s net pension credit was $64.4$37.9 million, $76.9$42.0 million and $65.3$55.1 million for 2002, 20012005, 2004 and 2000,2003, respectively. The Company’s pension benefit costs are actuarially determined and are impacted significantly by the Company’s assumptions related to future events, including the discount rate, expected return on plan assets and rate of compensation increases. At December 30, 2001, the Company modified certain assumptions surrounding the Company’s pension plans. Specifically, the Company reduced its assumptions on discount rate from 7.5 percent to 7.0 percent and expected return on plan assets from 9.0 percent to 7.5 percent. These assumption changes resulted in a reduction of approximately $20 million in the Company’s net pension credit in 2002. At December 29, 2002, the Company reduced its discount rate assumption to 6.75 percent.6.75%. Due to the reduction in the discount rate, and lower than expected investment returns in 2002, and an amendment to the pension retirement program for certain employees at the Post effective June 1, 2003, the pension credit for 2003 declined by $9.3 million compared to 2002. At December 28, 2003, the Company reduced its discount rate assumption
2005 FORM 10-K
39


to 6.25%. Due to the reduction in the discount rate, the plan amendment from June 2003, and a reduction in the actuarial gain amortization, offset by higher than expected investment returns in 2003, the pension credit for 2004 declined by $13.2 million compared to 2003. At January 2, 2005, the Company reduced its discount rate assumption from 6.25% to 5.75% and, during the first quarter of 2005, the Company changed to a more current Mortality Table. As a result, the pension credit in 2005 declined by $4.0 million compared to 2004. At January 1, 2006, the Company reduced its expected return on plan assets from 7.5% to 6.5%, and the pension credit for 2006 is expected to be down by about $10 million compared to 2002.$15 million. For each one-half percent increase or decrease to the Company’s assumed expected return on plan assets, the pension credit increases or decreases by approximately $6.5$7.5 million. For each one-half percent increase or decrease to the Company’s assumed discount rate, the pension credit increases or decreases by approximately $5 million. The Company’s actual rate of return on plan assets was a decline of 2.3 percent7.6% in 2002, an increase of 10.9 percent2005, 4.3% in 2001,2004 and an increase of 19.0 percent16.7% in 2000,2003, based on plan assets at the beginning of each year. Note H to the Consolidated Financial Statements provides additional details surrounding pension costs and related assumptions.

Kaplan Stock Compensation.The Kaplan stock option plan was adopted in 1997 and initially reserved 15%, or 150,000 shares of Kaplan’s common stock, for awards to be granted under the plan to certain members of Kaplan 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, and options vest ratably over the number of years specified (generally 4 to 5 years) at the time of the grant. Upon exercise, an option holder receives cash equal to the difference between the exercise price and the then fair value. The amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. The estimated fair value of Kaplan’s common stock is based upon a comparison of operating results and public market values of other education companies and is determined by the Company’s compensation committee of the Board of Directors (the committee), with input from management and an independent outside valuation firm. Over the past several years, the value of education companies has fluctuated significantly, and consequently, there has been significant volatility in the amounts recorded as expense each year as well as on a quarterly basis.
In September 2003, the committee set the fair value price of Kaplan common stock at $1,625 per share, which was determined after deducting intercompany debt from Kaplan’s enterprise value. Also in September 2003, the Company announced an offer totaling $138 million for approximately 55% of the stock options outstanding at Kaplan. The Company’s offer included a 10% premium over the then current valuation price of Kaplan common stock of $1,625 per share and 100% of the eligible stock options were tendered. The Company paid out $118.7 million in the fourth quarter of 2003, $10.3 million in 2004 and $5.1 million in 2005, with the remainder of the payouts related to 1,705 tendered stock options, to be made at the time of their scheduled vesting, from 2006 to 2008, if the option holder is still employed at Kaplan. Additionally, stock compensation expense will be recorded on these remaining exercised stock options over the remaining vesting periods of 2006 to 2008. A small number of key Kaplan executives continue to hold the remaining 62,229 outstanding Kaplan stock options (representing about 4.4% of Kaplan’s common stock), with roughly 25% of these options expiring in 2007 and 75% expiring in 2011. In January 2006, the committee set the fair value price at $1,833 per share. Option holders had a 30-day window in which to exercise at this price, after which time the committee has the right to determine a new price in the event of an exercise. Also in January 2006, 15,298 Kaplan stock options were exercised, and 12,239 Kaplan stock options were awarded at an option price of $1,833 per share.
In December 2005, the compensation committee awarded to a senior manager of Kaplan shares or share equivalents equal in value to $4.8 million, with the number of shares or share equivalents determined by the January 2006 valuation. In 2006, based on the $1,833 per share value, 2,619 shares or share equivalents will be issued. The expense of this award has been reflected in the 2005 results of operations.
For 2005, 2004 and 2003, the Company recorded total Kaplan stock compensation expense of $3.0 million, $32.5 million and $119.1 million, respectively. In 2005, 2004 and 2003, total payouts from option exercises were $35.2 million, $10.3 million, and $119.6 million, respectively. At December 31, 2005, the Company’s stock-based compensation accrual balance totaled $63.6 million. If Kaplan’s profits increase and the value of education companies increases in 2006, there will be significant Kaplan stock-based compensation in 2006. A discussion of pending changes in the Company’s accounting for Kaplan equity awards is provided in “New Accounting Pronouncements” below.
Note G to the Consolidated Financial Statements provides additional details surrounding Kaplan stock compensation.
Goodwill and Other Intangibles.The Company reviews the carrying value of goodwill and indefinite-lived intangible assetsintangibles at least annually for impairment, generally utilizing a discounted cash flow model (inmodel. In the case of the Company’s cable systems, both a discounted cash flow model and an estimated faira market value per cable subscriber approach employing comparable sales analysis are used). The Company must make assumptions regarding estimated future cash flows and market values to determine a reporting unit’s estimated fair value.considered. In reviewing the carrying value of goodwill and indefinite-lived intangible assets at the cable division, the Company aggregates its cable systems on a regional basis. The Company must make assumptions regarding estimated future cash flows and market values to determine a reporting unit’s estimated fair value. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge. At December 29, 2002,January 1, 2006, the Company has $1,255.4$1,643.1 million in goodwill and other intangibles.

intangibles, net.

Cost Method Investments.OTHERThe Company uses
New Accounting Pronouncements.In December 2004, Statement of Financial Accounting Standards No. 123R (SFAS 123R), “Share-Based Payment,” was issued, which requires companies to record the cost method of accountingemployee services in exchange for its minority investments in non-public companies where it does not have significant influence over the operations and management of the investee. Most of the companies represented by these cost method investments have concentrations in Internet-related business activities. Investments are recorded at the lower of cost or fair value as estimated by management. Fair value estimates arestock options based on a review of the investees’ product development activities, historical financial results and projected discounted cash flows. These estimates are highly judgmental, given the inherent lack of marketability of investments in private companies. The Company has recorded write-down charges on cost method investments of $19.2 million, $29.4 million and $23.1 million in 2002, 2001 and 2000, respectively. Note C to the Consolidated Financial Statements provides additional details surrounding cost method investments.

Kaplan Stock Option Plan.The Company maintains a stock option plan at its Kaplan subsidiary that provides for the issuance of stock options representing 10.6 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 estimatedgrant-date fair value of Kaplan’s common stock. In general, options vest ratably over five years. Upon exercise, an option holder may either purchase vested shares at the exercise price or elect to receive cash equal to the difference between the exercise price and the then fair value. The fair value of Kaplan’s common stock is determined by the compensation committee of the Company’s Board of Directors, with input from management and an independent outside valuation firm. The compensation committee has historically modified the fair value of Kaplan stock on an annual basis and management expects this practice to continue. At December 29, 2002, options representing 10.4 percent of Kaplan’s common stock were issued and outstanding, and 69 percent of Kaplan stock options were fully vested and exercisable. For 2002, 2001 and 2000, the Company recorded expense of $34.5 million, $25.3 million and $6.0 million, respectively, related to this plan. In 2002 and 2001, payouts from option exercises totaled $0.2 million and $2.1 million, respectively. At December 29, 2002, the Company’s Kaplan stock-based compensation accrual balance totaled $74.4 million. Management expects Kaplan’s profits and related fair value to increase again in 2003, with a corresponding increase in the stock-based compensation expense for 2003 as compared to 2002. Note G to the Consolidated Financial Statements provides additional details surrounding the Kaplan Stock Option Plan.

Other.The Company does not have any off-balance sheet arrangements or financing activities with special-purpose entities (SPEs). Transactions with related parties, as discussed in Note C to the Consolidated Financial Statements, are in the ordinary course of business and are conducted on an arms-length basis.

OTHER

New Accounting Pronouncements.The Company adopted SFAS 142 effective on the first day of its 2002 fiscal year. As a result of the adoption of SFAS 142, the Company ceased most of the periodic charges previously recorded from the amortization of goodwill and other intangibles.

As required under SFAS 142, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill. The expected future cash flows of PostNewsweek Tech Media (part of the magazine publishing segment), on a dis-

36
40
THE WASHINGTON POST COMPANY


counted basis, did not support the net carrying value of the related goodwill. Accordingly, an after-tax goodwill impairment loss of $12.1 million, or $1.27 per share was recorded.award. The lossCompany is includedrequired to adopt SFAS 123R in the Company’s 2002 results asfirst quarter of 2006. SFAS 123R will have a cumulative effect of change in accounting principle.

Stock Options — Change in Accounting Method.Effective the first day ofminimal impact on the Company’s 2002 fiscal year,results of operations for Company stock options as the Company adopted the fair-value-based method of accounting for Company stock options as outlined in Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation.” This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002, and thereafter. Stockall unvested stock options awarded prior to fiscal year 2002 will continue to beat January 2, 2006 are accounted for under the fair-value-based method of accounting. The new standard will require the Company to change its accounting for Kaplan equity awards (Kaplan stock options and Kaplan shares or share equivalents) from the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accountingto the fair-value-based method of accounting. This change is expected to result in the acceleration of expense recognition for Stock IssuedKaplan equity awards; however, it will not impact the overall Kaplan stock compensation expense that will ultimately be recorded over the life of the award. The Company has elected to Employees.”

report the impact of SFAS 123R on the adoption date of January 2, 2006 as a cumulative effect of change in accounting. In December 2002,the first quarter of 2006, the Company awarded 11,500 stock options, resulting in total stock option compensation expense of $45,000 for 2002.

The accounting treatmentexpects to report an estimated $5.0 million as an after-tax charge for the Company’s Kaplan stock option plan is not impacted by thiscumulative effect of change in accounting method, as the expense relatedfor Kaplan equity awards.

Note G to the Consolidated Financial Statements provides additional details surrounding The Washington Post Company and Kaplan stock option plan has been and will continuecompensation plans.
EITF Topic D-108, “Use of the Residual Method to be recordedValue Acquired Assets Other than Goodwill,” required companies that had applied the residual method to value intangible assets to perform an impairment test on those intangible assets using the direct method by the end of the first quarter of 2005. The Company completed such an impairment test at its cable division in the Company’s resultsfirst quarter of operations.
2005 and no impairment charge was required.
37
2005 FORM 10-K
41


REPORT OF INDEPENDENT ACCOUNTANTSREGISTERED PUBLIC ACCOUNTING FIRM

To Thethe Board of Directors and
Shareholders of
The Washington Post Company:
We have completed integrated audits of The Washington Post Company’s 2005 and 2004 consolidated financial statements referred to under Item 15(1) on page 28 and listed in the index on page 30 and of its internal control over financial reporting as of January 1, 2006, and an audit of its December 28, 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule
In our opinion, the consolidated financial statements referred to under Item 15(a)(i)15(1) on page 2328 and listed in the index on page 2730 present fairly, in all material respects, the financial position of The Washington Post Company and its subsidiaries at December 29, 2002January 1, 2006 and December 30, 2001,January 2, 2005, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 2002,January 1, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule referred to under Item 15(a)(i) on page 23listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; ourmanagement. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditingthe standards generally accepted inof the United States of America whichPublic Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed

Internal control over financial reporting
Also, in Note our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of January 1, 2006 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 1, 2006, based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements the Company ceased amortizing certain goodwillin accordance with generally accepted accounting principles, and intangibles as a resultthat receipts and expenditures of the adoptioncompany are being made only in accordance with authorizations of Statementmanagement and directors of Financial Accounting Standards No. 142, “Goodwillthe company; and Other Intangible Assets,” effective(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the first dayfinancial statements.
Because of its 2002 fiscal year.inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, as discussedprojections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in Note A,conditions, or that the Company adopteddegree of compliance with the fair-value-based method of accounting for stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” beginning with stock options granted in fiscal 2002 and thereafter.

policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Washington, D.C.

January 24, 2003

McLean, Virginia
March 3, 2006
3842
THE WASHINGTON POST COMPANY


CONSOLIDATED STATEMENTS OF INCOME
             
             
Fiscal year ended  Fiscal year ended

  
December 29,December 30,December 31,  January 1, January 2, December 28,
(in thousands, except per share amounts)(in thousands, except per share amounts)200220012000(in thousands, except per share amounts) 2006 2005 2003
Operating Revenues
Operating Revenues
          


Advertising $1,317,484 $1,346,870 $1,222,324 
Operating Revenues
 
Advertising $1,226,834 $1,209,327 $1,396,583 Circulation and subscriber  747,079  741,810  706,248 
Circulation and subscriber 675,136 653,028 598,741 Education  1,412,394  1,134,891  838,077 
Education 621,125 493,271 352,753 Other  76,930  76,533  72,262 
Other 61,108 55,398 61,556    
 
  3,553,887  3,300,104  2,838,911 
 2,584,203 2,411,024 2,409,633    
 
Operating Costs and Expenses
Operating Costs and Expenses
 
Operating Costs and Expenses
          
Operating 1,369,955 1,387,101 1,305,546 Operating  1,909,615  1,717,059  1,549,262 
Selling, general and administrative 664,095 586,758 583,623 Selling, general and administrative  931,337  835,367  792,292 
Depreciation of property, plant and equipment 171,908 138,300 117,948 Gain on sale of land      (41,747)
Amortization of goodwill and other intangibles 655 78,933 62,634 Depreciation of property, plant and equipment  190,543  175,338  173,848 
 
Amortization of goodwill and other intangibles  7,478  9,334  1,436 
  
 2,206,613 2,191,092 2,069,751 
 
  3,038,973  2,737,098  2,475,091 
  
Income from Operations
Income from Operations
 377,590 219,932 339,882 
Income from Operations
  514,914  563,006  363,820 
Equity in losses of affiliates (19,308) (68,659) (36,466)Equity in losses of affiliates  (881)  (2,291)  (9,766)
Interest income 332 2,167 967 Interest income  3,385  1,622  953 
Interest expense (33,819) (49,640) (54,731)Interest expense  (26,754)  (28,032)  (27,804)
Other income (expense), net 28,873 283,739 (19,782)Other income (expense), net  8,980  8,127  55,385 
 
  
Income Before Income Taxes and Cumulative Effect of Change in Accounting Principle
 353,668 387,539 229,870 
Income Before Income Taxes
Income Before Income Taxes
  499,644  542,432  382,588 
Provision for Income Taxes
Provision for Income Taxes
 137,300 157,900 93,400 
Provision for Income Taxes
  185,300  209,700  141,500 
 
Income Before Cumulative Effect of Change in Accounting Principle
 216,368 229,639 136,470 
Cumulative Effect of Change in Method of Accounting for Goodwill and Other Intangible Assets, Net of Taxes
 (12,100)   
 
  
Net Income
Net Income
 204,268 229,639 136,470 
Net Income
  314,344  332,732  241,088 
Redeemable Preferred Stock Dividends
Redeemable Preferred Stock Dividends
 (1,033) (1,052) (1,026)
Redeemable Preferred Stock Dividends
  (981)  (992)  (1,027)
 
  
Net Income Available for Common Shares
Net Income Available for Common Shares
 $203,235 $228,587 $135,444 
Net Income Available for Common Shares
 $313,363 $331,740 $240,061 
 
  
Basic Earnings per Common Share:
 
Before Cumulative Effect of Change in Accounting Principle
 $22.65 $24.10 $14.34 
Cumulative Effect of Change in Accounting Principle
 (1.27)   
Basic Earnings per Common Share
Basic Earnings per Common Share
 $32.66 $34.69 $25.19 
 
  
Diluted Earnings per Common Share
Diluted Earnings per Common Share
 $32.59 $34.59 $25.12 
  
Net Income Available for Common Shares
 $21.38 $24.10 $14.34 
 
Diluted Earnings per Common Share:
 
Before Cumulative Effect of Change in Accounting Principle
 $22.61 $24.06 $14.32 
Cumulative Effect of Change in Accounting Principle
 (1.27)   
 
Net Income Available for Common Shares
 $21.34 $24.06 $14.32 
 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
             
             
Fiscal year ended  Fiscal year ended

  
December 29,December 30,December 31,  January 1, January 2, December 28,
(in thousands)(in thousands)200220012000(in thousands) 2006 2005 2003


Net Income
Net Income
 $204,268 $229,639 $136,470 
Net Income
 $314,344 $332,732 $241,088 
Other Comprehensive Income (Loss)
Other Comprehensive Income (Loss)
 
Other Comprehensive Income (Loss)
          
Foreign currency translation adjustments 2,167 (3,104) (1,685)Foreign currency translation adjustments  (8,834)  9,601  13,416 
Change in net unrealized gain on available-for-sale securities 829 14,528 13,527 Reclassification adjustment on sale of affiliate investment      (1,633)
Less reclassification adjustment for realized (gains)
losses included in net income
 (11,209) 3,238 (197)Change in net unrealized gain on available-for-sale securities  (15,014)  63,022  31,426 
 
Less reclassification adjustment for realized (gains) losses included in net income  (13,085)  (202)  214 
  
 (8,213) 14,662 11,645 
Income tax benefit (expense) related to other
comprehensive income (loss)
 4,012 (6,987) (5,097)   (36,933)  72,421  43,423 
 
Income tax benefit (expense) related to other comprehensive income (loss)  10,964  (24,577)  (12,348)
  
 (4,201) 7,675 6,548 
 
  (25,969)  47,844  31,075 
  
Comprehensive Income
Comprehensive Income
 $200,067 $237,314 $143,018 
Comprehensive Income
 $288,375 $380,576 $272,163 
 
  
The information on pages 44 through 56 is an integral part of the financial statements. 
39


CONSOLIDATED BALANCE SHEETS

          
December 29,December 30,
(in thousands)20022001

Assets
        
Current Assets
        
 Cash and cash equivalents $28,771  $31,480 
 Investments in marketable equity securities  1,753   16,366 
 Accounts receivable, net  285,374   279,328 
 Federal and state income taxes     10,253 
 Inventories  27,629   19,042 
 Other current assets  39,428   40,388 
  
 
   382,955   396,857 
Property, Plant and Equipment
        
 Buildings  283,233   267,658 
 Machinery, equipment and fixtures  1,551,931   1,422,228 
 Leasehold improvements  85,720   79,108 
  
 
   1,920,884   1,768,994 
 Less accumulated depreciation  (926,385)  (794,596)
  
 
   994,499   974,398 
 Land  34,530   34,733 
 Construction in progress  65,371   89,080 
  
 
   1,094,400   1,098,211 
Investments in Marketable Equity Securities
  214,780   219,039 
Investments in Affiliates
  70,703   80,936 
Goodwill and Other Intangibles,
        
 less accumulated amortization of
$463,580 and $443,925
  1,255,433   1,206,761 
Prepaid Pension Cost
  493,786   447,688 
Deferred Charges and Other Assets
  71,837   109,606 
  
 
  $3,583,894  $3,559,098 
  
The information on pages 44 through 56 is an integral part of the financial statements.    
40


           
December 29,December 30,
(in thousands, except share amounts)20022001

Liabilities and Shareholders’ Equity
        
Current Liabilities
        
 Accounts payable and accrued liabilities $336,582  $253,346 
 Deferred revenue  135,419   130,744 
 Federal and state income taxes  4,853    
 Short-term borrowings  259,258   50,000 
  
 
   736,112   434,090 
Postretirement Benefits Other Than Pensions
  136,393   130,824 
Other Liabilities
  194,480   192,540 
Deferred Income Taxes
  261,153   221,949 
Long-Term Debt
  405,547   883,078 
  
 
   1,733,685   1,862,481 
  
Commitments and Contingencies
        
Redeemable Preferred Stock,Series A, $1 par value, with a redemption and liquidation value of $1,000 per share; 23,000 shares authorized; 12,916 and 13,132 shares issued and outstanding
  12,916   13,132 
  
 
Preferred Stock, $1 par value; 977,000 shares authorized, none issued
      
  
Common Shareholders’ Equity
        
 Common stock        
  Class A common stock, $1 par value; 7,000,000 shares authorized; 1,722,250 shares issued and outstanding  1,722   1,722 
  Class B common stock, $1 par value; 40,000,000 shares authorized; 18,277,750 shares issued; 7,788,543 and 7,772,616 shares outstanding  18,278   18,278 
 Capital in excess of par value  149,090   142,814 
 Retained earnings  3,179,607   3,029,595 
 Accumulated other comprehensive income (loss), net of taxes        
  Cumulative foreign currency translation adjustment  (7,511)  (9,678)
  Unrealized gain on available-for-sale securities  17,913   24,281 
 Cost of 10,489,207 and 10,505,134 shares of Class B common stock held in treasury  (1,521,806)  (1,523,527)
  
 
   1,837,293   1,683,485 
  
 
  $3,583,894  $3,559,098 
  
The information on pages 44 through 56 is an integral part of the financial statements.    
41


CONSOLIDATED STATEMENTS OF CASH FLOWS

                
Fiscal year ended

December 29,December 30,December 31,
(in thousands)200220012000

Cash Flows from Operating Activities:
            
 Net income $204,268  $229,639  $136,470 
 Adjustments to reconcile net income to net
cash provided by operating activities:
            
  Cumulative effect of change in accounting principle  12,100       
  Depreciation of property, plant and equipment  171,908   138,300   117,948 
  Amortization of goodwill and other intangibles  655   78,933   62,634 
  Net pension benefit  (64,447)  (76,945)  (65,312)
  Early retirement program expense  19,001   3,344   29,049 
  Gain from sale or exchange of businesses  (27,844)  (321,091)   
  (Gain) loss on disposition of marketable equity
securities and cost method investments, net
  (13,209)  511   (11,588)
  Cost method investment and other write-downs  21,194   36,672   23,097 
  Equity in losses of affiliates, net of distributions  20,018   69,359   37,406 
  Provision for deferred income taxes  50,115   97,302   (7,743)
  Change in assets and liabilities:            
   (Increase) decrease in accounts receivable, net  (1,116)  28,803   (44,413)
   Increase in inventories  (11,142)  (3,390)  (1,265)
   Increase in accounts payable and accrued liabilities  73,653   24,756   22,192 
   Decrease in income taxes receivable  15,106   1,591   36,227 
   Decrease in other assets and other liabilities, net  21,360   38,294   23,141 
  Other  5,846   2,752   10,701 
  
 
   Net cash provided by operating activities  497,466   348,830   368,544 
  
Cash Flows from Investing Activities:
            
 Investments in certain businesses  (36,016)  (104,356)  (212,274)
 Net proceeds from sale of businesses     61,921   1,650 
 Purchases of property, plant and equipment  (152,992)  (224,227)  (172,383)
 Purchases of cost method investments  (250)  (11,675)  (42,459)
 Investments in affiliates  (7,610)  (21,112)  (12,430)
 Proceeds from sale of marketable equity securities  19,701   145   6,332 
 Other  1,484   1,477   8,036 
  
 
  Net cash used in investing activities  (175,683)  (297,827)  (423,528)
  
Cash Flows from Financing Activities:
            
 (Repayment) issuance of commercial paper, net  (276,189)  10,072   35,071 
 Dividends paid  (54,256)  (54,166)  (52,024)
 Common shares repurchased  (786)  (445)  (96)
 Proceeds from exercise of stock options  6,739   4,671   7,056 
 Other        9,843 
  
 
  Net cash used in financing activities  (324,492)  (39,868)  (150)
  
Net (Decrease) Increase in Cash and Cash Equivalents
  (2,709)  11,135   (55,134)
Cash and Cash Equivalents at Beginning of Year
  31,480   20,345   75,479 
  
Cash and Cash Equivalents at End of Year
 $28,771  $31,480  $20,345 
  
Supplemental Cash Flow Information:
            
 Cash paid during the year for:            
  Income taxes $68,900  $52,600  $95,000 
  Interest, net of amounts capitalized $30,600  $48,000  $52,700 

The information on pages 4448 through 5663 is an integral part of the financial statements.

42
2005 FORM 10-K
43


CONSOLIDATED BALANCE SHEETS
          
  January 1, January 2,
(in thousands) 2006 2005
 
Assets
        
Current Assets
        
 Cash and cash equivalents $215,861  $119,400 
 Investments in marketable equity securities  67,596   149,303 
 Accounts receivable, net  398,552   362,862 
 Federal and state income taxes  26,651   18,375 
 Deferred income taxes  37,320   30,871 
 Inventories  15,079   25,127 
 Other current assets  57,267   44,571 
   
 
   818,326   750,509 
Property, Plant and Equipment
        
 Buildings  327,569   304,606 
 Machinery, equipment and fixtures  1,839,983   1,730,997 
 Leasehold improvements  167,116   133,674 
   
 
   2,334,668   2,169,277 
 Less accumulated depreciation  (1,325,676)  (1,197,375)
   
 
   1,008,992   971,902 
 Land  42,257   37,470 
 Construction in progress  91,383   80,580 
   
 
   1,142,632   1,089,952 
Investments in Marketable Equity Securities
  262,325   260,433 
Investments in Affiliates
  66,775   61,814 
Goodwill, Net
  1,125,570   1,023,140 
Indefinite-Lived Intangible Assets, Net
  494,692   493,192 
Amortized Intangible Assets, Net
  22,814   7,879 
Prepaid Pension Cost
  593,469   556,747 
Deferred Charges and Other Assets
  58,170   65,099 
   
 
  $4,584,773  $4,308,765 
   
The information on pages 48 through 63 is an integral part of the financial statements.    
44
THE WASHINGTON POST COMPANY


           
  January 1, January 2,
(in thousands, except share amounts) 2006 2005
 
Liabilities and Shareholders’ Equity
        
Current Liabilities
        
 Accounts payable and accrued liabilities $438,693  $443,332 
 Deferred revenue  231,208   186,593 
 Short-term borrowings  24,820   58,236 
   
 
   694,721   688,161 
Postretirement Benefits Other Than Pensions
  150,909   145,490 
Other Liabilities
  262,270   228,654 
Deferred Income Taxes
  422,548   403,698 
Long-Term Debt
  403,635   425,889 
   
 
   1,934,083   1,891,892 
   
Commitments and Contingencies
        
Redeemable Preferred Stock,Series A, $1 par value, with a redemption and liquidation value of $1,000 per share; 23,000 shares authorized; 12,267 shares issued and outstanding
  12,267   12,267 
   
 
Preferred Stock,$1 par value; 977,000 shares authorized, none issued
      
   
Common Shareholders’ Equity
        
 Common stock        
  Class A common stock, $1 par value; 7,000,000 shares authorized; 1,722,250 shares issued and outstanding  1,722   1,722 
  Class B common stock, $1 par value; 40,000,000 shares authorized; 18,277,750 shares issued; 7,879,281 and 7,853,822 shares outstanding  18,278   18,278 
 Capital in excess of par value  207,328   186,827 
 Retained earnings  3,871,587   3,629,222 
 Accumulated other comprehensive income, net of taxes        
  Cumulative foreign currency translation adjustment  5,039   13,873 
  Unrealized gain on available-for-sale securities  58,313   75,448 
 Unearned stock compensation  (14,656)  (7,876)
 Cost of 10,398,469 and 10,423,928 shares of Class B common stock held in treasury  (1,509,188)  (1,512,888)
   
 
   2,638,423   2,404,606 
   
 
  $4,584,773  $4,308,765 
   
The information on pages 48 through 63 is an integral part of the financial statements.    
2005 FORM 10-K
45


CONSOLIDATED STATEMENTS OF CASH FLOWS
                
  Fiscal year ended
   
  January 1, January 2, December 28,
(In thousands) 2006 2005 2003
 
Cash Flows from Operating Activities:
            
 Net income $314,344  $332,732  $241,088 
 Adjustments to reconcile net income to net cash provided by
operating activities:
            
  Depreciation of property, plant and equipment  190,543   175,338   173,848 
  Amortization of goodwill and other intangibles  7,478   9,334   1,436 
  Net pension benefit  (37,914)  (41,954)  (55,137)
  Early retirement program expense  1,192   132   34,135 
  Gain from sale or exchange of businesses     (497)  (49,762)
  Gain on sale of non-operating land and property, plant and equipment  (5,148)  (2,669)  (41,734)
  Gain on disposition of marketable equity securities  (12,661)      — 
  Property, plant and equipment losses  9,665       — 
  Cost method investment and other write-downs  1,465   677   1,337 
  Equity in losses of affiliates, net of distributions  1,731   3,091   10,516 
  Foreign exchange loss (gain)  8,099   (5,505)  (4,187)
  Provision for deferred income taxes  29,297   44,321   30,704 
  Change in assets and liabilities:            
   Increase in accounts receivable, net  (19,416)  (23,722)  (9,936)
   Decrease in inventories  11,483   2,640   829 
   (Decrease) increase in accounts payable and accrued liabilities  (27,033)  70,058   (14,308)
   Increase in income taxes receivable  (8,139)  (13,079)  (10,171)
   Decrease in other assets and other liabilities, net  53,618   3,477   34,460 
  Other  4,168   7,347   (5,404)
   
 
   Net cash provided by operating activities  522,772   561,721   337,714 
   
Cash Flows from Investing Activities:
            
 Investments in certain businesses  (143,478)  (55,232)  (134,541)
 Purchases of property, plant and equipment  (238,349)  (204,632)  (125,588)
 Proceeds from sale of marketable equity securities  64,801       — 
 Proceeds from sale of property, plant and equipment  24,077   5,340   44,973 
 Purchases of cost method investments  (8,709)  (224)  (849)
 Investments in affiliates  (4,981)     (5,976)
 Purchases of marketable equity securities     (94,560)   
 Net proceeds from sale of businesses        65,000 
   
 
  Net cash used in investing activities  (306,639)  (349,308)  (156,981)
   
Cash Flows from Financing Activities:
            
 Repayment of commercial paper, net  (50,201)  (138,116)  (70,942)
 Principal payments on debt  (6,964)  (19,253)  (784)
 Dividends paid  (71,979)  (67,917)  (56,289)
 Common shares repurchased        (687)
 Proceeds from exercise of stock options  6,832   15,616   5,898 
 Cash overdraft.   6,534   (1,953)  1,245 
   
  Net cash used in financing activities  (115,778)  (211,623)  (121,559)
   
Effect of Currency Exchange Rate Change
  (3,894)  2,049   737 
   
 
Net Increase in Cash and Cash Equivalents
  96,461   2,839   59,911 
Cash and Cash Equivalents at Beginning of Year
  119,400   116,561   56,650 
   
Cash and Cash Equivalents at End of Year
 $215,861  $119,400  $116,561 
   
Supplemental Cash Flow Information:
            
 Cash paid during the year for:            
  Income taxes $161,600  $171,400  $116,900 
  Interest, net of amounts capitalized $27,300  $25,500  $27,500 
The information on pages 48 through 63 is an integral part of the financial statements.
46
THE WASHINGTON POST COMPANY


CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY
                              
CumulativeUnrealized
ForeignGain on
Class AClass BCapital inCurrencyAvailable-
CommonCommonExcess ofRetainedTranslationfor-SaleTreasury
(in thousands)StockStockPar ValueEarningsAdjustmentSecuritiesStock

Balance, January 2, 2000
 $1,739  $18,261  $108,867  $2,769,676  $(4,889) $5,269  $(1,531,133)
 Net income for the year              136,470             
 Dividends paid on common stock — $5.40 per share              (50,998)            
 Dividends paid on redeemable preferred stock              (1,026)            
 Repurchase of 200 shares of Class B common stock                          (96)
 Issuance of 21,279 shares of Class B common stock, net of restricted stock award forfeitures          4,433               3,027 
 Change in foreign currency translation adjustment (net of taxes)                  (1,685)        
 Change in unrealized gain on available-for-sale securities (net of taxes)                      8,233     
 Issuance of subsidiary stock (net of taxes)          13,332                 
 Tax benefits arising from employee stock plans          1,527                 
  
 
Balance, December 31, 2000
  1,739   18,261   128,159   2,854,122   (6,574)  13,502   (1,528,202)
 Net income for the year              229,639             
 Dividends paid on common stock — $5.60 per share              (53,114)            
 Dividends paid on redeemable preferred stock              (1,052)            
 Repurchase of 714 shares of Class B common stock                          (445)
 Issuance of 35,105 shares of Class B common stock, net of restricted stock award forfeitures          10,639               5,120 
 Change in foreign currency translation adjustment (net of taxes)                  (3,104)        
 Change in unrealized gain on available-for-sale securities (net of taxes)                      10,779     
 Conversion of Class A common stock to Class B common stock  (17)  17                     
 Tax benefits arising from employee stock plans          4,016                 
  
 
Balance, December 30, 2001
  1,722   18,278   142,814   3,029,595   (9,678)  24,281   (1,523,527)
 Net income for the year              204,268             
 Dividends paid on common stock — $5.60 per share              (53,223)            
 Dividends paid on redeemable preferred stock              (1,033)            
 Repurchase of 1,229 shares of Class B common stock                          (786)
 Issuance of 17,156 shares of Class B common stock, net of restricted stock award forfeitures          4,440               2,507 
 Change in foreign currency translation adjustment (net of taxes)                  2,167         
 Change in unrealized gain on available-for-sale securities (net of taxes)                      (6,368)    
 Stock option expense          45                 
 Tax benefits arising from employee stock plans          1,791                 
  
 
Balance, December 29, 2002
 $1,722  $18,278  $149,090  $3,179,607  $(7,511) $17,913  $(1,521,806)
  
The information on pages 44 through 56 is an integral part of the financial statements.        
                                  
          Cumulative Unrealized    
          Foreign Gain on    
  Class A Class B Capital in   Currency Available- Unearned  
  Common Common Excess of Retained Translation for-Sale Stock  
(in thousands) Stock Stock Par Value Earnings Adjustment Securities Compensation Treasury Stock
 
 
Balance, December 29, 2002
 $1,722  $18,278  $149,090  $3,179,607  $(7,511) $17,913  $(6,907) $(1,521,806)
 Net income for the year              241,088                 
 Dividends paid on common stock — $5.80 per share              (55,261)                
 Dividends paid on redeemable preferred stock              (1,027)                
 Repurchase of 910 shares of Class B common stock                              (687)
 Issuance of 31,697 shares of Class B common stock, net of restricted stock award forfeitures          14,147               (11,315)  4,599 
 Amortization of unearned stock compensation                          5,962     
 Change in foreign currency translation adjustment (net of taxes)                  11,783             
 Change in unrealized gain on available-for-sale securities (net of taxes)                      19,292         
 Stock option expense          606                     
 Tax benefits arising from employee stock plans          3,108                     
           
         
Balance, December 28, 2003
  1,722   18,278   166,951   3,364,407   4,272   37,205   (12,260)  (1,517,894)
 Net income for the year              332,732                 
 Dividends paid on common stock — $7.00 per share              (66,925)                
 Dividends paid on redeemable preferred stock              (992)                
 Issuance of 34,492 shares of Class B common stock, net of restricted stock award forfeitures          11,956              (1,793)  5,006 
 Amortization of unearned stock compensation                          6,177     
 Change in foreign currency translation adjustment (net of taxes)                  9,601             
 Change in unrealized gain on available-for-sale securities (net of taxes)                      38,243         
 Stock option expense          829                     
 Tax benefits arising from employee stock plans          7,091                     
           
         
Balance, January 2, 2005
  1,722   18,278   186,827   3,629,222   13,873   75,448   (7,876)  (1,512,888)
 Net income for the year              314,344                 
 Dividends paid on common stock — $7.40 per share              (70,998)                
 Dividends paid on redeemable preferred stock              (981)                
 Issuance of 25,459 shares of Class B common stock, net of restricted stock award forfeitures          15,496               (12,358)  3,700 
 Amortization of unearned stock compensation                          5,578     
 Change in foreign currency translation adjustment (net of taxes)                  (8,834)            
 Change in unrealized gain on available-for-sale securities (net of taxes)                      (17,135)        
 Stock option expense          1,101                     
 Tax benefits arising from employee stock plans          3,904                     
           
         
Balance, January 1, 2006
 $1,722  $18,278  $207,328  $3,871,587  $5,039  $58,313  $(14,656) $(1,509,188)
           
The information on pages 48 through 63 is an integral part of the financial statements.
432005 FORM 10-K
47


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year.The Company reports on a 52-53 week52- to53-week fiscal year ending on the Sunday nearest December 31. The fiscal years 2002, 2001 and 2000,year 2005, which ended on January 1, 2006, included 52 weeks. The fiscal year 2004, which ended on January 2, 2005, included 53 weeks. The fiscal year 2003, which ended on December 29, 2002, December 30, 2001, and December 31, 2000, respectively,28, 2003, included 52 weeks. With the exception of most 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 with the 20022005 presentation.

The Consolidated Balance Sheets and Consolidated Statements of Changes in Common Shareholders’ Equity have been revised to reflect unearned stock compensation from restricted stock awards in common shareholders’ equity. This revised classification also resulted in a corresponding reduction in other current assets and deferred charges and other assets.

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. Marketable equity securities that the Company expects to hold long term are classified as non-current assets.

If the fair value of a marketable security declines below its cost basis, and the decline is considered other than temporary, the Company will record a write-down which is included in earnings.

Inventories.Inventories are valued at the lower of cost or market. Cost of newsprint is determined by thefirst-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 of the useful lives or the terms of the respective leases.

The cable division capitalizes the costs associated with the construction of cable transmission and distribution facilities and new cable service installations. Costs include all direct labor and materials, as well as certain indirect costs. Also at the cable division, the carrying value applicable to assets sold or retired is removed from the accounts, with the gain or loss on disposition recognized as a component of depreciation expense.
Investments in Affiliates.The Company uses the equity method of accounting for its investments in and earnings or losses of affiliates that it does not control but over which it does exert significant influence.

The Company considers whether the fair values of any of its equity method investments have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary (based on various factors, including historical financial results, product development activities and the overall health of the affiliate’s industry), then a write-down would be recorded to estimated fair value.

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. Charges recorded to write-down cost method investments to their estimated fair value and gross realized gains or losses upon the sale of cost method investments are included in “Other income (expense), net” in the Consolidated Statements of Income.

Fair value estimates are based on a review of the investees’ product development activities, historical financial results and projected discounted cash flows.

Goodwill and Other Intangibles.Prior to 2002, goodwill and other intangibles were 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). In 2002, theThe Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” As a result of the adoption of SFAS 142,reviews goodwill and indefinite-lived intangibles are no longer amortized, but are reviewed at least annually for impairment. All other intangible assets are amortized over their useful lives. The Company reviews the carrying value of goodwill and indefinite-lived intangible assets generally utilizing a discounted cash flow model. In the case of the Company’s cable systems, both a discounted cash flow model and a market approach employing comparable sales analysis are considered. In reviewing the carrying value of goodwill and indefinite-lived intangible assets at the cable division, the Company aggregates its cable systems on a regional basis. The Company must make assumptions regarding estimated future cash flows and market values to determine a reporting unit’s estimated fair value. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge.
EITF Topic D-108, “Use of the Residual Method to Value Acquired Assets Other than Goodwill,” required companies that had applied the residual method to value intangible assets to perform an impairment test on those intangible assets using the direct method by the
48
THE WASHINGTON POST COMPANY


end of the first quarter of 2005. The Company completed such an impairment test at its cable division in the first quarter of 2005 and no impairment charge was required.
Long-Lived Assets.The recoverability of long-lived assets other than goodwill and other intangibles is assessed whenever adverse events andor changes in circumstances indicate that previously anticipatedrecorded values may not be recoverable. A long-lived asset is considered to be not recoverable when the undiscounted estimated future cash flows warrant assessment.

are less than its recorded value. An impairment charge is measured based on estimated fair market value, determined primarily using estimated future cash flows on a discounted basis. Losses on long-lived assets to be disposed are determined in a similar manner, but the fair market value would be reduced for estimated costs to dispose.

Program Rights.The broadcast subsidiaries are parties to agreements that entitle them to show syndicated and other programs on television. The costs of such program rights are 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 newspaperand retail sales are recognized upon delivery, and revenues from magazine retail sales are recognized on the later of delivery or cover date, with adequate provision made for anticipated sales returns. Cable subscriber revenue is recognized monthly as services are delivered. Education revenue is generally recognized ratably over the period during which educational services are delivered. For example, atAt Kaplan’s test preparation division, estimates of average student course length are developed for each course, and these estimates are evaluated on an ongoing basis and adjusted as necessary.

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 health care and life insurance benefits for certain
44


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 investmentsinvestment in its foreign affiliatesaffiliate are accumulated and reported as a separate component of equity and comprehensive income.

Stock Options.Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting for Company stock options as outlined in Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation.” This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal year 2002 will continue to behave been accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

Sale The following table presents what the Company’s results would have been had the fair values of Subsidiary/Affiliate Securities.options granted prior to 2002 been recognized as compensation expense in 2005, 2004 and 2003 (in thousands, except per share amounts).

             
  2005 2004 2003
 
Net income available for common shares, as reported $313,363  $331,740  $240,061 
Add: Company stock option compensation expense included in net income, net of related tax effects  694   536   370 
Deduct: Total Company stock option compensation expense determined under the fair-value-based method for all awards, net of related tax effects  (1,071)  (2,946)  (3,529)
   
Pro forma net income available for common shares $312,986  $329,330  $236,902 
   
Basic earnings per share, as reported $32.66  $34.69  $25.19 
Pro forma basic earnings per share $32.62  $34.44  $24.86 
Diluted earnings per share, as reported $32.59  $34.59  $25.12 
Pro forma diluted earnings per share $32.55  $34.34  $24.79 
The Company records investment basis gains arisingis required to adopt Statement of Financial Accounting Standards No. 123R (SFAS 123R), “Share-Based Payment,” in the first quarter of 2006. SFAS 123R will have a minimal impact on the Company’s results of operations for Company stock options as the Company adopted the fair-value-based method of accounting for Company stock options in 2002, and all unvested stock options at January 2, 2006 are accounted for under the fair-value-based method of accounting. The new standard will require the Company to change its accounting for Kaplan equity awards (Kaplan stock options and Kaplan shares or share equivalents) from the saleintrinsic value method to the fair-value-based method of equity interests in subsidiaries and affiliates that areaccounting. This change is expected to result in the early stagesacceleration of developmentexpense recognition for Kaplan equity awards; however, it will not impact the overall Kaplan stock compensation expense that will ultimately be recorded over the life of the award. The Company has elected to report the impact of SFAS 123R on the adoption date of January 2, 2006 as capitala cumulative effect of change in excessaccounting. In the first quarter of par value, net2006, the Company expects to report an estimated $5.0 million as an after-tax charge for the cumulative effect of taxes.change in accounting for Kaplan equity awards.
2005 FORM 10-K
49


Note G provides additional details surrounding The Washington Post Company and Kaplan stock option plans.
B. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts receivable at December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 consist of the following (in thousands):
                
20022001 2005 2004

Trade accounts receivable,
less estimated returns, doubtful
accounts and allowances of
$65,396 and $73,248
 $266,319 $261,898 
Trade accounts receivable, less estimated returns, doubtful accounts and allowances of $78,099 and $70,965 $375,668 $342,879 
Other accounts receivable 19,055 17,430   22,884  19,983 
 
  
 $398,552 $362,862 
 $285,374 $279,328   
 

Accounts payable and accrued liabilities at December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 consist of the following (in thousands):
        
20022001        
 2005 2004


Accounts payable and accrued expenses $175,174 $158,744  $272,441 $231,066 
Accrued compensation and related benefits 154,666 89,061   158,612  204,225 
Due to affiliates (newsprint) 6,742 5,541   7,640  8,041 
 
  
 $438,693 $443,332 
 $336,582 $253,346   
 

Book overdrafts of $33.7 million and $27.2 million are included in accounts payable and accrued expenses at January 1, 2006 and January 2, 2005, respectively.
C. INVESTMENTS
C. INVESTMENTS

Investments in Marketable Equity Securities.Investments in marketable equity securities at December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 consist of the following (in thousands):

        
20022001        
 2005 2004


Total cost $187,169 $195,661  $234,196 $285,912 
Net unrealized gains 29,364 39,744   95,725  123,824 
 
  
Total fair value $216,533 $235,405  $329,921 $409,736 
 
  

At December 29, 2002January 1, 2006 and December 30, 2001,January 2, 2005, 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 $214.8$262.3 million or 99 percent80% and $219.0$260.4 million or 93 percent,64%, respectively, of the total fair value of the Company’s investments in marketable equity securities. The remaining investments in marketable equity securities at December 29, 2002 and December 30, 2001 consisted 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 percent18% 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 percent1% of the consolidated equity of Berkshire. At December 29, 2002January 1, 2006 and December 30, 2001,January 2, 2005, the unrealized gain related to the Company’s Berkshire stock investment totaled $29.9$77.4 million and $34.1$75.5 million, respectively. 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.
45


There were no investments in marketable equity securities in 2005 and 2003. The Company made $94.6 million in investments in marketable equity securities in 2004. During 2002, 2001 and 2000,2005, proceeds from the sales of marketable equity securities were $19.7 million, $0.1$64.8 million, and $6.3 million, respectively, and grossnet realized gains (losses) on such sales were $13.2 million, ($0.3 million)$12.7 million. During 2004 and $4.9 million, respectively.2003, there were no sales of marketable equity securities or realized gains (losses). During 2002 and 2001,2003, the Company recorded write-downs on marketable equity securities of $2.0 million and $3.0 million, respectively.$0.2 million. Realized gains or losses on marketable equity securities are included in “Other income (expense), 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 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 include the following (in thousands):
        
20022001        
 2005 2004


BrassRing $13,658 $19,992  $11,349 $8,755 
Bowater Mersey Paper Company 42,519 45,822   54,407  52,112 
International Herald Tribune 13,776 14,480 
Other 750 642 
Los Angeles Times–Washington Post News Service  1,019  947 
 
  
 $70,703 $80,936  $66,775 $61,814 
 
  

At the end of 2002,2005, the Company’s investments in affiliates consisted of a 49.4 percent49.4% interest in BrassRing LLC, which provides recruiting, career development andan Internet-based hiring management services for employers and job candidates;company; a 49 percent49% interest in the common stock of Bowater Mersey Paper Company Limited, which owns and operates a newsprint mill in Nova Scotia; a 50 percent interest in the International Herald Tribune newspaper, published near Paris, France; and a 50 percent50% common stock interest in the Los Angeles Times-WashingtonTimes– Washington Post News Service, Inc.

Summarized financial data for the affiliates’ operations are as follows (in thousands):

              
200220012000

Financial Position:
            
 Working capital $10,366  $(8,767) $29,427 
 Property, plant and equipment  135,013   126,682   143,749 
 Total assets  235,208   246,321   432,458 
 Long-term debt         
 Net equity  138,723   125,211   291,481 
Results of Operations:
            
 Operating revenues $263,709  $317,389  $345,913 
 Operating loss  (21,725)  (14,793)  (27,505)
 Net loss  (36,326)  (157,409)  (77,739)
              
  2005 2004 2003
 
Financial Position
            
 Working capital $13,861  $9,014  $11,108 
 Property, plant and equipment  131,823   137,321   140,917 
 Total assets  214,333   202,904   214,658 
 Long-term debt         
 Net equity  164,801   155,147   149,584 
Results of Operations
            
 Operating revenues $236,233  $221,618  $174,505 
 Operating income (loss)  3,513   1,695   (18,753)
 Net loss  (1,806)  (4,577)  (20,164)
50
THE WASHINGTON POST COMPANY


The following table summarizes the status and results of the Company’s investments in affiliates (in thousands):
        
20022001        
 2005 2004


Beginning investment $80,936 $131,629  $61,814 $61,312 
Additional investment 7,610 21,112   4,981   
Equity in losses (19,308) (68,659)  (881)  (2,291)
Dividends and distributions received (710) (700)  (850)  (800)
Foreign currency translation 2,175 (3,122)  1,711  3,593 
Other  676 
 
  
Ending investment $70,703 $80,936  $66,775 $61,814 
 
  

During 2000, BrassRing 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 $13.3 million, net of taxes. The increase in investment basis was recorded as contributed capital.

In December 2001, BrassRing, Inc. was restructured and the Company’s interest in BrassRing, Inc. was converted into an interest in the newly-formed BrassRing LLC. At December 30, 2001, the Company held a 39.7 percent interest in the BrassRing LLC common equity and a $14.9 million Subordinated Convertible Promissory Note (“Note”) from BrassRing LLC. In February 2002, the Note was converted into Preferred Units, which are convertible at the Company’s option to BrassRing LLC common equity. Assuming the conversion of the Preferred Units, the Company’s common equity interest in BrassRing LLC would have been approximately 49.5 percent.

BrassRing accounted for approximately $13.9$2.4 million of the 20022005 equity in losses of affiliates, compared to $75.1$3.1 million in 2001. The decrease from 2001 equity2004 and $7.7 million in affiliate losses from BrassRing is largely due to a non-cash goodwill and other intangibles impairment charge that BrassRing recorded in 2001 primarily to reduce the carrying value of its career fair business. As a substantial portion of BrassRing’s losses arose from goodwill and intangible amortization expense for 2001, the $75.1 million of equity in affiliate losses recorded by the Company in 2001 did not require significant funding by the Company.

2003.

On January 1, 2003, the Company sold its 50 percent50% interest in The International Herald Tribune newspaper for $65 million; the Company will report an after-tax non-operatingreported a $49.8 million pre-tax gain of approximately $32 millionthat is included in “Other income (expense), net” in the first quarterConsolidated Statements of 2003.

Income.

Cost Method Investments.Most of the companies represented by the Company’s cost method investments have concentrations in Internet-related business activities. At December 29, 2002January 1, 2006 and December 30, 2001,January 2, 2005, the carrying value of the Company’s cost method investments was $9.5$11.9 million and $29.6$4.6 million, respectively. Cost method investments are included in “Deferred Charges and Other Assets” in the Consolidated Balance Sheets.
46


During 2002, 20012005, 2004, and 2000,2003, the Company invested $0.3$8.7 million, $11.7$0.2 million, and $42.5$0.8 million, respectively, in companies constituting cost method investments and recorded charges of $19.2$1.5 million, $29.4$0.7 million, and $23.1$1.1 million, respectively, to write-down cost method investments to estimated fair value. Charges recorded to write-down cost method investments are included in “Other income (expense), net” in the Consolidated Statements of Income.

During 2002, 2001

Cash and 2000, proceeds from salesCash Equivalents.As of cost methodJanuary 1, 2006, the Company has commercial paper investments were $1.2of $59.2 million $0.5 millionthat are classified as “Cash and $7.1 million, respectively, and gross realized (losses) gains on such sales were $0, ($0.2 million) and $6.6 million, respectively. Gross realized gains or losses on the sale of cost method investments are included in “Other income (expense), net”cash equivalents” in the Company’s Consolidated Statements of Income.Balance Sheet. There were no commercial paper investments outstanding at January 2, 2005.
D. INCOME TAXES
D. INCOME TAXES

The provision for income taxes consists of the following (in thousands):
              
CurrentDeferredTotal

2002
            
 U.S. Federal $75,654  $38,934  $114,588 
 Foreign  1,634   (499)  1,135 
 State and local  9,897   11,680   21,577 
  
 
  $87,185  $50,115  $137,300 
  
2001
            
 U.S. Federal $48,253  $86,384  $134,637 
 Foreign  1,270   714   1,984 
 State and local  11,075   10,204   21,279 
  
 
  $60,598  $97,302  $157,900 
  
2000
            
 U.S. Federal $77,517  $4,854  $82,371 
 Foreign  1,033   75   1,108 
 State and local  22,593   (12,672)  9,921 
  
 
  $101,143  $(7,743) $93,400 
  
              
  Current Deferred Total
 
2005
            
 U.S. Federal $132,650  $22,591  $155,241 
 Foreign  4,849   29   4,878 
 State and local  18,504   6,677   25,181 
   
 
  $156,003  $29,297  $185,300 
   
2004            
 U.S. Federal $138,429  $35,544  $173,973 
 Foreign  4,751   (361)  4,390 
 State and local  22,199   9,138   31,337 
   
 
  $165,379  $44,321  $209,700 
   
2003            
 U.S. Federal $93,329  $27,189  $120,518 
 Foreign  4,129   (159)  3,970 
 State and local  13,338   3,674   17,012 
   
 
  $110,796  $30,704  $141,500 
   

In addition to the income tax provision presented above, in 2002, the Company recorded a federal and state income tax benefit of $6.9 million on the impairment loss recorded as a cumulative effect of change in accounting principle in connection with the adoption of SFAS 142.

The provision for income taxes exceeds the amount of income tax determined by applying the U.S. Federal statutory rate of 35 percent35% to income before taxes as a result of the following (in thousands):
            
200220012000            
 2005 2004 2003


U.S. Federal statutory taxes $123,784 $135,639 $80,455  $174,875 $189,851 $133,906 
State and local taxes, net of U.S. Federal income tax benefit 14,025 13,832 6,449   16,368  20,369  11,058 
Amortization of goodwill not deductible for income tax purposes  6,988 5,011 
Tax provided on foreign subsidiary earnings at less than the expected U.S. Federal statutory tax rate  (3,622)  (1,373)   
Sale of affiliate with higher tax basis      (2,188)
Other, net (509) 1,441 1,485   (2,321)  853  (1,276)
 
  
Provision for income taxes $137,300 $157,900 $93,400  $185,300 $209,700 $141,500 
 
  

Deferred income taxes at December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 consist of the following (in thousands):
        
20022001        
 2005 2004


Accrued postretirement benefits $58,874 $56,955  $63,129 $61,221 
Other benefit obligations 94,280 73,080   104,105  122,608 
Accounts receivable 16,252 15,949   21,762  18,939 
State income tax loss carryforwards 13,693 17,218   9,185  10,753 
Affiliate operations  3,135  4,403 
Other 22,140 14,612   20,335  19,866 
 
  
Deferred tax asset 205,239 177,814   221,651  237,790 
 
  
Property, plant and equipment 135,520 110,763   153,445  173,101 
Prepaid pension cost 200,315 181,434   240,495  224,991 
Affiliate operations 180 (1,195)
Unrealized gain on available-for-sale securities 11,463 15,475   37,422  48,387 
Goodwill and other intangibles 118,914 93,286   175,517  164,138 
 
  
Deferred tax liability 466,392 399,763   606,879  610,617 
 
  
Deferred income taxes $261,153 $221,949  $385,228 $372,827 
 
  
2005 FORM 10-K
51

E. DEBT


At December 29, 2002,

Deferred U.S. and state income taxes have been recorded for undistributed earnings of investments in foreign subsidiaries to the Company had $664.8extent taxable dividend income would be recognized if such earnings were distributed. Deferred income taxes recorded for undistributed earnings of investments in foreign subsidiaries are net of foreign tax credits estimated to be available. The Company’s estimate of foreign tax credits and the Company’s change to provide only deferred U.S. and state income taxes for a portion of the book value and tax basis differences related to investments in foreign subsidiaries resulted in a reduction of approximately $6.0 million in total debt outstandingincome tax expense in the fourth quarter of 2005.
Deferred U.S. and state income taxes have not been recorded for the full book value and tax basis differences related to investments in foreign subsidiaries because such investments are expected to be indefinitely held. The book value exceeded the tax basis of investments in foreign subsidiaries by approximately $35.2 million and $30.0 million at an average interest rateJanuary 1, 2006 and January 2, 2005, respectively. If the investments in foreign subsidiaries were held for sale, instead of 4.0 percent. Debt was comprisedas permanent investments, then additional U.S. and state deferred income tax liabilities, net of $259.3foreign tax credits estimated to be available on undistributed earnings, of approximately $9.8 million and $4.5 million would have been recorded at January 1, 2006 and January 2, 2005, respectively.
The Company has approximately $180 million in commercial paper borrowings, $398.4state income tax loss carryforwards. If unutilized, state income tax loss carryforwards will start to expire approximately as follows (in millions):
     
2006 $4.3 
2007  3.5 
2008  3.8 
2009  7.7 
2010  8.6 
2011 to 2023  152.3 
    
Total $180.2 
     
E. DEBT
Long-term debt consists of the following (in millions):
         
  January 1, January 2,
  2006 2005
 
Commercial paper borrowings $   $ 50.2 
5.5% unsecured notes due February 15, 2009  399.2   398.9 
4.0% notes due 2006 (£8.4 million)  14.4   16.1 
Other indebtedness  14.8   18.9 
   
 
Total  428.4   484.1 
Less current portion  (24.8)  (58.2)
   
 
Total long-term debt $403.6   $425.9 
   
During 2003, notes of £16.7 million were issued to FTC employees who were former FTC shareholders in connection with the acquisition. In 2004, 50% of 5.5 percent unsecuredthe balance, or $15.0 million, on the notes was paid. The remaining balance outstanding of £8.4 million is due February 15, 2009, and $7.1 millionfor payment in other debt.

August 2006.

Interest on the 5.5 percent5.5% unsecured notes is payable semi-annually on February 15 and August 15.

At December 29, 2002, and December 30, 2001,January 2, 2005, the average interest rate on the Company’s outstanding commercial paper borrowings was 1.6 percent and 2.0 percent, respectively. In2.2%. During the third quarter of 2002,2005, the Company replaced its expiring $250 million364-dayrevolving credit facility agreements with a new $250 million revolving credit facility on essentially the same terms. The new facility expires in August 2006. The Company also has a five-year $350 million revolving credit facility, which expires in August 2007, and a new 364-day $350 million revolving credit facility, which expires in August 2003.2007. These revolving credit facility agreements support the issuance of the Company’s short-term commercial paper.

Under the terms of the five-year $350 million revolving credit facility, interest on borrowings is at floating rates, and depending on the Company’s long-term debt rating, the Company is required to pay an annual fee of 0.07 percent0.07% to 0.15 percent
47


0.15% on the unused portion of the facility, and 0.25 percent0.25% to 0.75 percent0.75% on the used portion of the facility. Under the terms of the $350$250 million364-day revolving credit facility, interest on borrowings is at floating rates, and based on the Company’s long-term debt rating, the Company is required to pay an annual fee of 0.05 percent0.04% to 0.125 percent0.10% on the unused portion of the facility, and 0.25 percent0.20% to 0.75 percent0.65% on the used portion of the facility. Also under the terms of the $350$250 million364-day revolving credit facility, the Company has the right to extend the term of any borrowings for up to one year from the credit facility’s maturity date for an additional fee of 0.125 percent.0.10%. Both revolving credit facilities contain certain covenants, including a financial covenant that the Company maintain at least $1 billion of consolidated shareholders’ equity.

During 20022005 and 2001,2004, the Company had average borrowings outstanding of approximately $793.7$442.0 million and $965.8$516.0 million, respectively, at average annual interest rates of approximately 3.7 percent5.4% and 4.9 percent,4.8%, respectively. The Company incurred net interest costs on its borrowings of $33.5$23.4 million and $47.5$26.4 million during 20022005 and 2001,2004, respectively. No interest expense was capitalized in 20022005 or 2001.

2004.

At December 29, 2002January 1, 2006 and December 30, 2001,January 2, 2005, the fair value of the Company’s 5.5 percent5.5% unsecured notes, based on quoted market prices, totaled $426.6$404.1 million and $387.7$423.0 million, respectively, compared with the carrying amount of $398.4$399.2 million and $398.1$398.9 million, respectively.

The carrying value of the Company’s commercial paper borrowings and other unsecured debt at December 29, 2002 and December 30, 2001January 1, 2006 approximates fair value.
F. REDEEMABLE PREFERRED STOCK
F. 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. From 1998 to 2002, 3062005, 955 shares of Series A Preferred Stock were redeemed at the request of Series A Preferred Stockholders.

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
52
THE WASHINGTON POST COMPANY


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 annual60-day election period; the first such period began 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.
G. 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 percent30% 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 2002, 20012005 and 2000,2004, the Company did not purchase any shares of its Class B common stock. During 2003, the Company purchased a total of 1,229910 shares 714 shares and 200 shares, respectively, of its Class B common stock at a cost of approximately $0.8 million, $0.4 million and $0.1$0.7 million. At December 29, 2002,January 1, 2006, the Company has authorization from the Board of Directors to purchase up to 544,796542,800 shares of Class B common stock.

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 29, 2002,January 1, 2006, there were 68,290187,505 shares reserved for issuance under the incentive compensation plan. Of this number, 27,62529,580 shares were subject to awards outstanding, and 40,665157,925 shares were available for future awards. Activity related to stock awards under the long-term incentive compensation plan for the years ended December 29, 2002, December 30, 2001January 1, 2006, January 2, 2005, and December 31, 2000,28, 2003, was as follows:
                                                  
 200520042003
200220012000     



 NumberAverageNumberAverageNumberAverage
NumberAverageNumberAverageNumberAverage  ofAwardofAwardofAward
ofAwardofAwardofAward  SharesPriceSharesPriceSharesPrice
SharesPriceSharesPriceSharesPrice

Awards Outstanding 
Beginning of yearBeginning of year 29,895 $539.25 30,165 $413.28 31,360 $412.86 Beginning of year  28,001  $644.51  29,845  $643.89  27,625  $536.74 
Awarded 215 563.36 16,865 608.96 1,155 501.72 Awarded  16,550  940.96  200  973.88  15,990  734.01 
Vested (601) 540.61 (15,200) 364.13 (99) 330.75 Vested  (13,830)  609.87  (561)  625.91  (12,752)  523.60 
Forfeited (1,884) 578.37 (1,935) 555.02 (2,251) 456.41 Forfeited  (1,141)  819.22  (1,483)  683.58  (1,018)  658.44 
 
  
End of yearEnd of year 27,625 $536.74 29,895 $539.25 30,165 $413.28 End of year  29,580  $819.83  28,001  $644.51  29,845  $643.89 
 
  

In addition to stock awards granted under the long-term incentive compensation plan, the Company also made stock awards of 2,1502,550 shares in 2002, 3,3002004 and 1,050 shares in 2001 and 1,950 shares in 2000.

2003.

For the share awards outstanding at December 29, 2002,January 1, 2006, the aforementioned restriction will lapse in 20032006 for 14,8611,450 shares, in 20042007 for 2,63714,190 shares, in 20052008 for 17,623425 shares, and in 20062009 for 1,43815,865 shares. Stock-based compensation costs resulting from stock awards reduced net income by $3.5 million ($0.370.36 per share, basic and diluted), $2.6$3.6 million ($0.270.38 per share, basic and diluted), and $2.4$3.9 million ($0.250.41 per share, basic and diluted) in 2002, 20012005, 2004, and 2000,2003, 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
48


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 29, 2002,January 1, 2006, there were 470,025408,325 shares reserved for issuance under the stock option plan, of which 163,900113,325 shares were subject to options outstanding, and 306,125295,000 shares were available for future grants.

Changes in options outstanding for the years ended December 29, 2002, December 30, 2001,January 1, 2006, January 2, 2005, and December 31, 2000,28, 2003, were as follows:
                         
200220012000                        



 200520042003 
NumberAverageNumberAverageNumberAverage      
ofOptionofOptionofOption  NumberAverageNumberAverageNumberAverage 
SharesPriceSharesPriceSharesPrice  ofOptionofOptionofOption 
 SharesPriceSharesPriceSharesPrice 


Beginning of yearBeginning of year 170,575 $490.86 166,450 $465.55 156,497 $470.64 Beginning of year  122,250 $561.05  152,475  $530.81  163,900  $515.74 
Granted 11,500 729.00 24,000 522.75 89,500 544.90 Granted  4,500  762.50  4,000  953.50  5,000  803.70 
Exercised (16,675) 404.14 (16,875) 276.79 (20,425) 345.46 Exercised  (12,800)  533.24  (33,225)  467.68  (15,675)  450.87 
Forfeited (1,500) 561.77 (3,000) 546.04 (59,122) 643.71 Forfeited  (625)  530.87  (1,000)  621.38  (750)  729.00 
 
  
End of yearEnd of year 163,900 $515.74 170,575 $490.86 166,450 $465.55 End of year  113,325 $572.36  122,250  $561.05  152,475  $530.81 
 
  

Of the shares covered by options outstanding at the end of 2002, 102,6502005, 100,950 are now exercisable, 27,8755,750 will become exercisable in 2003, 21,8752006, 3,375 will become exercisable in 2004, 8,6252007, 2,125 will become exercisable in 2005,2008, and 2,8751,125 will become exercisable in 2006.2009. For 2005, 2004, and 2003, the Company recorded expense of $1.1 million, $0.8 million, and $0.6 million, respectively, related to this plan. Information related to stock options outstanding at December 29, 2002,January 1, 2006 is as follows:
                                          
Weighted    Weighted     
AverageWeightedWeighted    AverageWeighted  Weighted
NumberRemainingAverageNumberAverage  NumberRemainingAverageNumberAverage
Range ofRange ofOutstandingContractualExerciseExercisableExerciseRange ofOutstandingContractualExerciseExercisableExercise
Exercise PricesExercise Pricesat 12/29/02Life (yrs.)Priceat 12/29/02PriceExercise Pricesat 1/1/2006Life (yrs.)Priceat 1/1/2006Price
$344  3,300  1.0 $343.94  3,300 $343.94 


472–484  12,125  2.7  473.70  12,125  473.70 
$222–319 8,800 2.3 $261.49 8,800 $261.49 500–596  74,900  4.8  531.42  74,900  531.42 
344 9,850 4.0 343.94 9,850 343.94 693  500  8.0  692.51  250  692.51 
472–484 24,750 5.8 474.34 21,750 473.43 729–763  14,000  8.0  739.77  7,125  729.00 
500–596 109,000 7.7 538.70 62,250 537.47 816  4,500  8.0  816.05  2,250  816.05 
729 11,500 10.0 729.00   954  4,000  9.0  953.50  1,000  953.50 

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 2002, 20012005, 2004, and 20002003 was $197.89, $107.78$218.62, $274.93, and $161.15,$229.81, respectively. The fair value of options at date of grant
2005 FORM 10-K
53


was estimated using the Black-Scholes method utilizing the following assumptions:
           
200220012000            
 2005 2004 2003


Expected life (years) 7 7 7   7  7  7 
Interest rate 3.69% 2.30% 5.98%   4.49%  3.85%  4.38%
Volatility 21.74% 19.46% 17.9%   19.08%  20.24%  20.43%
Dividend yield 0.77% 1.1% 1.0%   0.97%  0.73%  0.71%

Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting

Refer to Note A for Companyadditional disclosures surrounding stock options as outlined in SFAS 123. This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal year 2002 will continue to be accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The following table presents what the Company’s results would have been had the fair values of options granted after 1995, but prior to 2002, been recognized as compensation expense in 2002, 2001 and 2000 (in thousands, except per share amounts).
             
200220012000

Stock-based compensation expense included in net income $45  $  $ 
Net income available for common shares, as reported  203,235   228,587   135,444 
Stock-based compensation expense not included in net income  3,617   4,309   2,139 
   
   
   
 
Pro forma net income available for common shares $199,618  $224,278  $133,305 
   
   
   
 
Basic earnings per share, as reported $21.38  $24.10  $14.34 
Pro forma basic earnings per share $21.00  $23.64  $14.11 
Diluted earnings per share, as reported $21.34  $24.06  $14.32 
Pro forma diluted earnings per share $20.96  $23.61  $14.09 

option accounting.

The Company also maintains a stock option plan at its Kaplan subsidiary that provides for the issuance of Kaplan stock options to certain members of Kaplan’s management. The Kaplan stock option plan was adopted in 19981997 and reserves 10.6 percent,initially reserved 15%, or 150,000 shares, of Kaplan’s common stock for optionsawards to be granted under the plan. At December 29, 2002, 147,463 shares were subject to options outstanding. The balance of 2,537 shares have been granted with vesting beginning as of January 1, 2003. Under the provisions of this plan, options are issued with an exercise price equal to the estimated fair value of Kaplan’s common stock. In general,stock and options vest ratably over five years.the number of years specified (generally 4 to 5 years) at the time of the grant. Upon exercise, an option holder may either purchase vested shares at the exercise price or elect to receivereceives cash equal to the difference between the exercise price and the then fair value. The fair value of Kaplan’s common stock is determined by the Company’s compensation committee of the Board of Directors. In January 2006, the committee set the fair value price at $1,833 per share. Option holders have a 30-day window in which they may exercise at this price, after which time the compensation committee has the right to determine a new price in the event of an exercise.
In September 2003, the compensation committee set the fair value price of Kaplan common stock at $861$1,625 per share, whichand announced an offer totaling $138 million for approximately 55% of the stock options outstanding at Kaplan. The Company’s offer included a 10% premium over the then current valuation price of Kaplan common stock of $1,625 per share. As a result of this offer, 100% of the eligible stock options were tendered. The Company paid out $118.7 million in the fourth quarter of 2003, $10.3 million in 2004, and $5.1 million in 2005, with the remainder of the payouts, related to 1,705 tendered stock options, to be made at the time of their scheduled vesting in 2006 to 2008 if the option holder is still employed at Kaplan. Additionally, stock compensation expense will be recorded on these remaining exercised stock options over the remaining vesting periods of 2006 to 2008. A small number of key Kaplan executives continue to hold the remaining 62,229 of outstanding Kaplan stock options. In January 2006, 15,298 Kaplan stock options were exercised, and 12,239 Kaplan stock options were awarded at an option price of $1,833 per share.
In December 2005, the compensation committee awarded to a senior manager Kaplan shares or share equivalents equal in value to $4.8 million, with the number of shares or share equivalents determined after deducting intercompany debt from Kaplan’s enterprise value.

by the January 2006 valuation. In 2006, based on the $1,833 per share value, 2,619 shares or share equivalents will be issued. The expense of this award has been reflected in the 2005 results of operations.

For 2002, 20012005, 2004 and 2000,2003, the Company recorded total Kaplan stock compensation expense of $34.5$3.0 million, $25.3$32.5 million and $6.0$119.1 million, respectively, related to this plan.respectively. In 20022005, 2004, and 2001,2003 payouts from option exercises totaled $0.2$35.2 million, $10.3 million, and $2.1$119.6 million, respectively. At December 29, 2002,31, 2005, the Company’s accrual balance related to Kaplan stock-based compensation accrual balance totaled $74.4$63.6 million.
49


Changes in Kaplan stock options outstanding for the years ended December 29, 2002, December 30, 2001,January 1, 2006, January 2, 2005, and December 31, 2000,28, 2003, were as follows:

                                                  
 200520042003
200220012000     



NumberAverageNumberAverageNumberAverage
NumberAverageNumberAverageNumberAverage ofOptionofOptionofOption
ofOptionofOptionofOption  SharesPriceSharesPriceSharesPrice
SharesPriceSharesPriceSharesPrice
Beginning of YearBeginning of Year  68,000 $596.17  68,000  $596.17  147,463 $311.24 
Granted  10,582  2,080.00      16,037  1,546.23 

Beginning of year 142,578 $296.69 131,880 $246.14 95,100 $196.31 
Granted 6,475 652.00 27,962 526.00 36,780 375.00 Exercised  (16,153)  225.14      (94,652)  303.66 
Exercised (540) 375.00 (7,247) 227.20   Forfeited  (200)  652.00      (848)  382.12 
Forfeited (1,050) 403.76 (10,017) 321.67      
 
 
 
 
 
 
 
End of yearEnd of year 147,463 $311.24 142,578 $296.69 131,880 $246.14 End of year  62,229 $944.63  68,000  $596.17  68,000 $596.17 
 
 
 
 
 
 
    

Of the shares covered by options outstanding at the end of 2002, 101,8042005, 38,931 are now exercisable, 12,755 will become exercisable in 2003, 12,755 will become exercisable in 2004, 12,005 will become exercisable in 2005, 6,8499,366 will become exercisable in 2006, and 1,2955,843 will become exercisable in 2007.2007, 5,443 will become exercisable in 2008, and 2,646 will become exercisable in 2009. Information related to stock options outstanding at December 29, 2002,January 1, 2006, is as follows:
                      
Weighted
AverageWeightedWeighted              
NumberRemainingAverageNumberAverage  Number Weighted Average Number 
Range ofRange ofOutstandingContractualExerciseExercisableExerciseRange of Outstanding Remaining Contractual Exercisable 
Exercise PricesExercise Pricesat 12/29/02Life (yrs.)Priceat 12/29/02PriceExercise Prices at 1/1/06 Life (yrs.) at 1/1/06 
$190  16,650  2.0  16,650 
375  338  4.5  338 


526  18,672  5.5  15,139 
$   190 83,686 5.0 $190 83,686 $190 652  2,000  6.0  1,200 
350–375 29,540 6.9 372 12,566 371 861  487  6.0  204 
   526 27,762 8.0 526 5,552 526 1,625  13,500  6.0  5,400 
   652 6,475 8.0 652  652 2,080  10,582  6.0   

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 uponon 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 2002, 20012005, 2004, and 20002003 is as follows:
             
BasicDilutiveDiluted
WeightedEffect ofWeighted
AverageStockAverage
SharesOptionsShares

2002  9,503,983   18,671   9,522,654 
2001  9,486,386   13,173   9,499,559 
2000  9,445,466   14,362   9,459,828 
             
  BasicDilutiveDiluted
  Weighted AverageEffect ofWeighted Average
  SharesStock OptionsShares
 
2005  9,593,837   22,060   9,615,897 
2004  9,563,314   28,311   9,591,625 
2003  9,530,209   24,454   9,554,663 
The 2005, 2004, and 2003, diluted earnings per share amounts exclude the effects of 4,000, 4,000, and 16,750 stock options outstanding, respectively, as their inclusion would be antidilutive.
54
THE WASHINGTON POST COMPANY


H. PENSIONS AND OTHER POSTRETIREMENT PLANS

The Company maintains various pension and incentive savings plans and contributes to several multi-employer plans on behalf of certain union-represented employee groups. Substantially all of the Company’s employees are covered by these plans.

The Company also provides health care and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.

The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.
In 2005, 2004, and 2003, the Company offered several early retirement programs to certain groups of employees at The Washington Post newspaper, Newsweek and the corporate office, the effects of which are included below. Effective June 1, 2003, the retirement pension program for certain employees at The Washington Post newspaper and the corporate office was amended and provides for increased annuity payments for vested employees retiring after this date. This plan amendment resulted in a reduction in the pension credit of approximately $5.1 million and $2.6 million for the years ended January 2, 2005 and December 28, 2003, respectively.
The following table sets forth obligation, asset and funding information for the Company’s defined benefit pension and postretirement plans at December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 (in thousands):
                  
Pension PlansPostretirement Plans


2002200120022001

Change in benefit obligation
                
 Benefit obligation at beginning of year $431,017  $391,166  $105,392  $93,243 
 Service cost  17,489   15,393   5,418   3,707 
 Interest cost  30,820   27,526   7,997   6,811 
 Amendments  28,817   5,182   (3,130)   
 Actuarial loss  22,851   22,334   1,487   6,519 
 Benefits paid  (32,042)  (30,584)  (4,990)  (4,888)
  
 
 Benefit obligation at end of year $498,952  $431,017  $112,174  $105,392 
  
Change in plan assets
                
 Fair value of assets at beginning of year $1,427,554  $1,314,885       
 Actual return on plan assets  (33,428)  143,253       
 Employer contributions       $4,990  $4,888 
 Benefits paid  (32,042)  (30,584)  (4,990)  (4,888)
  
 
 Fair value of assets at end of year $1,362,084  $1,427,554  $  $ 
  
 Funded status $863,132  $996,537  $(112,174) $(105,392)
 Unrecognized transition asset  (3,631)  (8,852)      
 Unrecognized prior service cost  24,553   16,949   (3,469)  (501)
 Unrecognized actuarial gain  (390,268)  (556,946)  (20,750)  (24,931)
  
 
 Net prepaid (accrued) cost $493,786  $447,688  $(136,393) $(130,824)
  
                 
  Pension Plans Postretirement Plans
     
  2005 2004 2005 2004
 
Change in Benefit Obligation
                
Benefit obligation at beginning of year $689,141  $625,774  $132,540  $120,444 
Service cost  27,161   22,896   6,026   5,285 
Interest cost  39,989   37,153   7,434   7,355 
Amendments  3,751   218       
Actuarial loss  15,272   46,655   1,860   5,764 
Benefits paid  (26,441)  (43,555)  (6,391)  (6,308)
   
 
Benefit obligation at end of year $748,873  $689,141  $141,469  $132,540 
   
Change in Plan Assets
                
Fair value of assets at beginning of year $1,588,213  $1,564,966  $  $ 
Actual return on plan assets  121,493   66,802       
Employer contributions        6,391   6,308 
Benefits paid  (26,441)  (43,555)  (6,391)  (6,308)
   
 
Fair value of assets at end of year $1,683,265  $1,588,213  $  $ 
   
 
Funded status $934,392  $899,072  $(141,469) $(132,540)
Unrecognized transition asset  (249)  (355)      
Unrecognized prior service cost  36,233   38,389   (7,413)  (8,001)
Unrecognized actuarial gain  (376,907)  (380,359)  (2,027)  (4,949)
   
 
Net prepaid (accrued) cost $593,469  $556,747  $(150,909) $(145,490)
   

The total (income) cost arising from the Company’s definedaccumulated benefit pension and postretirement plans for the years ended December 29, 2002, December 30, 2001, and December 31, 2000, consists of the following components (in thousands):
                         
Pension PlansPostretirement Plans


200220012000200220012000

Service cost $17,489  $15,393  $14,566  $5,418  $3,707  $3,496 
Interest cost  30,820   27,526   24,962   7,997   6,811   6,338 
Expected return on assets  (92,192)  (97,567)  (85,522)         
Amortization of transition asset  (5,221)  (6,502)  (7,585)         
Amortization of prior service cost  2,185   2,122   2,091   (421)  (162)  (162)
Recognized actuarial gain  (17,528)  (17,917)  (13,824)  (2,435)  (3,408)  (2,870)
  
 
Net periodic (benefit) cost for the year  (64,447)  (76,945)  (65,312)  10,559   6,948   6,802 
Early retirement programs expense  19,001   3,344   29,049         1,968 
  
 
Total (benefit) cost for the year $(45,446) $(73,601) $(36,263) $10,559  $6,948  $8,770 
  

The costsobligation for the Company’s defined benefit pension plans at January 1, 2006 and postretirement plans are actuarially determined. January 2, 2005, was $650.6 million and $599.2 million, respectively.

Key assumptions utilized for determining the benefit obligation at December 29, 2002, December 30, 2001,January 1, 2006 and December 31, 2000, include the following:January 2, 2005, are as follows:
                     
Pension PlansPostretirement Plans                


 Pension Plans Postretirement Plans
200220012000200220012000    
 2005 2004 2005 2004


Discount rate 6.75% 7.0% 7.5% 6.75% 7.0% 7.5%   5.75%  5.75%  5.60%  5.75% 
Expected return on plan assets 7.5% 7.5% 9.0%    
Rate of compensation increase 4.0% 4.0% 4.0%      4.0%  4.0%     
50


The assumed health care cost trend rate used in measuring the postretirement benefit obligation at December 29, 2002January 1, 2006 was 10.5 percent9.5% for both pre-age 65 and post-age 65 benefits, decreasing to 5 percent5.0% in the year 20132015 and thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of 1 percentage point in the assumed health care cost trend rates would have the following effects (in thousands):
        
1%1%        
IncreaseDecrease 1% 1%
 Increase Decrease


Benefit obligation at end of year $16,740 $(15,637) $21,471 $(20,075)
Service cost plus interest cost 2,115 (2,050) $2,150 $(2,085)
The Company made no contributions to its defined benefit pension plans in 2005, 2004 and 2003, and the Company does not expect to make any contributions in 2006 or in the foreseeable future. The Company made contributions to its postretirement benefit plans of $6.4 million and $6.3 million for the years ended January 1, 2006 and January 2, 2005, respectively, as the plans are unfunded and the Company covers benefit payments. The Company expects to make contributions for its postretirement plans by funding benefit payments consistent with the assumed heath care cost trend rates discussed above.
At January 1, 2006, future estimated benefit payments are as follows (in millions):
         
    Postretirement
  Pension Plans Plans
     
2006 $28.5  $6.9 
2007 $30.1  $7.4 
2008 $32.3  $8.0 
2009 $34.4  $8.6 
2010 $36.6  $9.4 
2011-2015 $230.8  $55.7 
The Company’s defined benefit pension obligations are funded by a portfolio made up of a relatively small number of stocks and high-quality fixed-income securities that are held in trust. The asset allocations of the Company’s pension plans were as follows (in millions):
                 
  Plan Asset Allocations
   
  January 1, 2006 January 2, 2005
 
Equities $1,427   84.8%  $1,362   85.8% 
Fixed Income  256   15.2%   226   14.2% 
   
 
Total $1,683   100.0%  $1,588   100.0% 
   
The equity amounts shown above include $418.6 million and $415.4 million of Berkshire Hathaway Class A and Class B common stocks at January 1, 2006 and January 2, 2005, respectively.
Essentially all of the assets are managed by two investment companies. None of the assets are managed internally by the Company or are invested in securities of the Company. The goal of the investment managers is to try to produce moderate long-term growth in the value of those assets, while trying to protect them against large decreases in value. The managers cannot invest more than 20% of
2005 FORM 10-K
55


the assets at the time of purchase in the stock of Berkshire Hathaway or more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval by the Plan administrator.
The total (income) cost arising from the Company’s defined benefit pension and postretirement plans for the years ended January 1, 2006, January 2, 2005, and December 28, 2003, consists of the following components (in thousands):
                         
  Pension Plans Postretirement Plans
     
  2005 2004 2003 2005 2004 2003
 
Service cost $27,161  $22,896  $19,965  $6,026  $5,285  $5,164 
Interest cost  39,989   37,153   33,696   7,434   7,355   7,395 
Expected return on assets  (104,589)  (97,702)  (96,116)         
Amortization of transition asset  (106)  (1,086)  (2,189)         
Amortization of prior service cost  4,716   4,530   4,172   (588)  (588)  (360)
Recognized actuarial gain  (5,085)  (7,745)  (14,665)  (1,061)  (995)  (1,675)
   
 
Net periodic (benefit) cost for the year  (37,914)  (41,954)  (55,137)  11,811   11,057   10,524 
Early retirement programs expense  1,192   132   34,135          
Curtailment gain                 (634)
   
 
Total (benefit) cost for the year $(36,722) $(41,822) $(21,002) $11,811  $11,057  $9,890 
   
The costs for the Company’s defined benefit pension and postretirement plans are actuarially determined. Below are the key assumptions utilized to determine periodic cost for the years ended January 1, 2006, January 2, 2005, and December 28, 2003:
                         
  Pension Plans Postretirement Plans
     
  2005 2004 2003 2005 2004 2003
 
Discount rate  5.75%   6.25%   6.75%   5.75%   6.25%   6.75% 
Expected return on plan assets  7.5%   7.5%   7.5%          
Rate of compensation increase  4.0%   4.0%   4.0%          
In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.
In December of 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Act) was enacted. The Act introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health benefit plans that provide a benefit that meets certain criteria. The Company’s other postretirement plans covering retirees currently provide certain prescription benefits to eligible participants. Overall, the Company’s Postretirement benefit obligation was reduced by about $4.0 million at January 2, 2005 as a result of the Act; the Company’s postretirement expense was reduced by about $0.5 million in fiscal year 2005 as a result of the Act.
Contributions to multi-employer pension plans, which are generally based on hours worked, amounted to $2.6 million in 2005, $2.0 million in 2002, $1.82004, and $2.0 million in 2001 and $1.1 million in 2000.

2003.

The Company recorded expense associated with retirement benefits provided under incentive savings plans (primarily 401(k) plans) of approximately $15.4$18.3 million in 2002, $14.52005, $17.6 million in 20012004, and $13.3$15.5 million in 2000.

I. LEASE AND OTHER COMMITMENTS

2003.

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 29, 2002,January 1, 2006, future minimum rental payments under noncancelable operating leases approximate the following (in thousands):
        
2003 $55,335 
2004 49,650 
2005 43,178 
2006 37,915  $95,226 
2007 32,855   91,109 
2008  82,649 
2009  71,907 
2010  61,703 
Thereafter 74,039   185,392 
 
    
 $292,972  $587,986 
 
    

Minimum payments have not been reduced by minimum sublease rentals of $4.4$4.8 million due in the future under noncancelable subleases.

Rent expense under operating leases included in operating costs and expenses was approximately $60.7$113.0 million, $58.3$97.6 million, and $49.7$76.8 million, in 2002, 20012005, 2004, and 2000,2003, respectively. Sublease income was approximately $0.8 million, $0.6 million, $1.5 million and $1.2$0.6 million in 2002, 20012005, 2004, and 2000,2003, 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 29, 2002,January 1, 2006, such commitments amounted to approximately $52.3$97.3 million. If such programs are not produced, the Company’s commitment would expire without obligation.

J. ACQUISITIONS, EXCHANGES AND DISPOSITIONS

The Company completed business acquisitions and exchanges totaling approximately $47.4$156.1 million in 2002, $104.42005, $63.9 million in 20012004, and $212.3$169.5 million in 2000 (including assumed debt and related acquisition costs).2003. 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. The purchase price allocations for these acquisitions mostly comprised goodwill and other intangibles, and property, plant and equipment.

In December 2005, Kaplan announced an agreement to acquire Tribeca Learning Limited, a leading education provider to the Australian financial services sector. The acquisition is expected to close in the second quarter of 2006.
During 2002,2005, Kaplan acquired severalten businesses in theirits higher education, professional and test preparation divisions for approximately $42.2 million. About $9.6a total of $140.1 million, remains to be paid onfinanced with cash and $3.0 million in debt. The largest of these acquisitions, of which $2.2 million has been classified in current liabilities and $7.4 million as long-term debt at December 29, 2002.

In November 2002, the Company completed a cable system exchange transaction with Time Warner Cable which consisted of the exchange by the Company of its cable system in Akron, Ohio serving about 15,500 subscribers, and $5.2 million to Time Warner Cable, for cable systems serving about 20,300 subscribers in Kansas. The Kansas systems acquired in the exchange transaction were recorded at their estimated fair value. The non-cash, non-operating gain resulting from the exchange transaction increased net income by $16.7 million, or $1.75 per share.

The Company’s acquisitions in 2001 principally included the purchase of Southern Maryland Newspapers, a division of Chesapeake Publishing Corporation, and amounts paid as part of a cable system exchange with AT&T Broadband. During 2001, the Company also acquiredBISYS Education Services, a provider of CFA® examlicensing education and compliance solutions for financial service institutions and professionals, The Kidum Group, the leading provider of test preparation services in Israel, and Asia Pacific Manage-

56
THE WASHINGTON POST COMPANY


ment Institute, a company that provides pre-certification trainingprivate education provider for real estate, insuranceundergraduate and securities professionals.

Southern Maryland Newspapers publishes the Maryland Independentpostgraduate students in Charles County, Maryland; The Enterprise in St. Mary’s County, Maryland; and The Calvert Recorder in Calvert County, Maryland, with a combined total paid circulation of approximately 50,000.

The cable system exchange with AT&T Broadband was completed in March 2001 and consisted of the exchange by the Company of its cable systems in Modesto and Santa Rosa, California, and approximately $42.0 million to AT&T Broadband for cable systems serving approximately 155,000 subscribers principally located in Idaho. The Idaho systems acquired in the exchange transactions were recorded at their estimated fair value.Asia. In a related transaction inaddition, on January 2001,14, 2005, the Company completed the saleacquisition of Slate, the online magazine, which is now included as part of the Company’s newspaper publishing division. Most of the purchase price for the 2005 acquisitions was allocated to goodwill and other intangibles, and property, plant and equipment.

During 2004, Kaplan acquired eight businesses in its higher education and professional divisions for a cable system serving about 15,000 subscribers in Greenwood, Indiana, for $61.9 million. The gain resulting fromtotal of $59.6 million, financed with cash and $8.7 million of debt. In addition, the cable system sale and exchangedivision completed two small transactions increased net income by $196.5 million, or $20.69 per share. For income tax purposes, substantial components of the cable
51


system sale and exchange transactions qualify as like-kind exchanges and therefore, a large portion of these transactions does not result in a current tax liability.

for $2.8 million. In August 2000,May 2004, the Company acquired Quest Education Corporation (Quest)El Tiempo Latino, a leading Spanish-language weekly newspaper in the greater Washington area. Most of the purchase price for approximately $177.7the 2004 acquisitions was allocated to goodwill and other intangibles.

During 2003, Kaplan acquired 13 businesses in its higher education and professional divisions for a total of $166.8 million, including assumedfinanced with cash and $36.7 million of debt. The largest of these was the March 2003 acquisition of Quest was completed through an all cash tender offer in which the Company purchased substantially all of the outstanding stock of QuestThe Financial Training Company (FTC), for $18.35 per share. The£55.3 million ($87.4 million). Headquartered in London, FTC provides training services for accountants and financial services professionals, with 28 training centers in the United Kingdom as well as operations in Asia. This acquisition was financed throughwith cash and $29.7 million of debt, primarily to employees of the issuancebusiness. In November 2003, Kaplan acquired Dublin Business School, Ireland’s largest private undergraduate institution. Most of additional borrowings. Quest is a provider of post-secondary education offering Bachelor’s degrees, Associate’s degreesthe purchase price for the 2003 Kaplan acquisitions was allocated to goodwill and diploma programs primarily in the fields of health care, businessother intangibles and information technology.

property, plant and equipment.

In addition, the cable division acquired three additional systems in 2003 for $2.8 million. Most of the purchase price for these acquisitions was allocated to franchise agreements, an indefinite-lived intangible asset.
On January 1, 2003, the Company acquired two cable systems serving approximately 8,500 subscriberssold its 50 percent interest in Nebraska (in June 2000)the International Herald Tribune for $65 million and Mississippi (in August 2000) for approximately $16.2the Company recorded an after-tax non-operating gain of $32.3 million as well as various other smaller businesses throughout 2000 for $18.4 million (principally consisting($3.38 per share) in the first quarter of educational services companies).

2003.

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 2002, 20012005, 2004 and 2000,2003, assuming the acquisitions and exchanges occurred at the beginning of 2000,2003, are not materially different from reported results of operations.

K. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets” effective on the first day of its 2002 fiscal year. As a result of the adoption of SFAS 142, the Company ceased most of the periodic charges previously recorded from the amortization of goodwill and other intangibles.

As required under SFAS 142, earlier this year, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill. The expected future cash flows for PostNewsweek Tech Media (part of the magazine publishing segment), on a discounted basis, did not support the net carrying value of the related goodwill. Accordingly, an after-tax goodwill impairment loss of $12.1 million, or $1.27 per share, was recorded. The loss is included in the Company’s fiscal year results as a cumulative effect of change in accounting principle.

On a pro forma basis, the Company’s 2001 and 2000 operating income would have been $298.3 million and $402.1 million, respectively, if SFAS 142 had been adopted at the beginning of fiscal 2000, compared to $377.6 million for 2002.

Other pro forma results for the years ended December 30, 2001, and December 30, 2000, to exclude amortization of goodwill and indefinite-lived intangible assets, were as follows (in thousands, except per share amounts):

              
200220012000

Income before cumulative effect of change in accounting principle,
as reported
 $216,368  $229,639  $136,470 
Amortization of goodwill and other intangibles, net of tax     54,989   43,079 
  
 
Pro forma income before cumulative effect of change in
accounting principle
  216,368   284,628   179,549 
Cumulative effect of change in method of accounting for goodwill
and other intangible assets, net of tax
  (12,100)      
Redeemable preferred stock dividends  (1,033)  (1,052)  (1,026)
  
 
Pro forma net income available for common shares $203,235  $283,576  $178,523 
  
 
Basic earnings per share:            
 Before cumulative effect of change in accounting principle, as reported $22.65   24.10   14.34 
 Cumulative effect of change in accounting principle  (1.27)      
 Amortization of goodwill and other intangibles     5.79   4.56 
  
 
 Pro forma net income available for common shares $21.38  $29.89  $18.90 
  
Diluted earnings per share:            
 Before cumulative effect of change in accounting principle, as reported $22.61  $24.06  $14.32 
 Cumulative effect of change in accounting principle  (1.27)      
 Amortization of goodwill and other intangibles     5.79   4.55 
  
 
 Pro forma net income available for common shares $21.34  $29.85  $18.87 
  

In accordance with SFAS 142, the Company has reviewed its goodwill and other intangible assets and classified them in three categories (goodwill, indefinite-lived intangible assets and amortized intangible assets).

The Company’s intangible assets with an indefinite life are principally from franchise agreements at its cable division.division, as the Company expects its cable franchise agreements to provide the Company with substantial benefit for a period that extends beyond the foreseeable horizon, and the Company’s cable division historically has obtained renewals and extensions of such agreements for nominal costs and without any material modifications to the agreements. Amortized intangible assets are primarily mastheads, customer relationship intangibles and non-compete agreements, with amortization periods up to fiveten years. The Company’s amortized intangible assets increased $1.4 million in 2002 due to acquisitions. Amortization expense was $655,000$7.5 million in 2002,2005 and is estimated to be less than $1approximately $6 million in each of the next five years.

The Company’s goodwill and other intangible assets as of December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 were as follows (in thousands):
              
Accumulated
GrossAmortizationNet

2002:
            
 Goodwill $1,069,263  $298,402  $770,861 
 Indefinite-lived intangible assets  646,225   163,806   482,419 
 Amortized intangible assets  3,525   1,372   2,153 
  
 
  $1,719,013  $463,580  $1,255,433 
  
2001:
            
 Goodwill $1,033,956  $279,402  $754,554 
 Indefinite-lived intangible assets  614,565   163,806   450,759 
 Amortized intangible assets  2,165   717   1,448 
  
   $1,650,686  $443,925  $1,206,761 
  
              
    Accumulated  
  Gross Amortization Net
 
2005:
            
 
Goodwill
 $1,423,972  $298,402  $1,125,570 
 
Indefinite-lived intangible assets
  658,498   163,806   494,692 
 
Amortized intangible assets
  42,434   19,620   22,814 
   
   $2,124,904  $481,828  $1,643,076 
   
2004:
            
 Goodwill $1,321,542  $298,402  $1,023,140 
 Indefinite-lived intangible assets  656,998   163,806   493,192 
 Amortized intangible assets  20,021   12,142   7,879 
   
   $1,998,561  $474,350  $1,524,211 
   
52


Activity related to the Company’s goodwill and intangible assets during 20022005 was as follows (in thousands):

                          
NewspaperTelevisionMagazineCable
PublishingBroadcastingPublishingTelevisionEducationTotal

Goodwill, net
                        
 Beginning of year $72,738  $203,165  $88,556  $88,197  $301,898  $754,554 
 Acquisitions                  37,838   37,838 
 Disposition              (2,531)      (2,531)
 Impairment          (19,000)          (19,000)
  
 
 End of year $72,738  $203,165  $69,556  $85,666  $339,736  $770,861 
  
Indefinite-lived intangibles, net
                        
 Beginning of year             $450,759      $450,759 
 Acquisitions              32,160       32,160 
 Disposition              (500)      (500)
 Impairment                      
  
 
 End of year             $482,419      $482,419 
  
                          
  Newspaper Television Magazine Cable    
  Publishing Broadcasting Publishing Television Education Total
 
Goodwill, Net
                        
 Beginning of year $72,770  $203,165  $69,556  $85,666  $591,983  $1,023,140 
 Acquisitions  7,881               111,623   119,504 
 Foreign currency exchange rate                  (17,074)  (17,074)
   
 
 End of year $80,651  $203,165  $69,556  $85,666  $686,532  $1,125,570 
   
Indefinite-Lived Intangible Assets, Net
                        
 Beginning of year             $486,330  $6,862  $493,192 
 Acquisitions                  1,500   1,500 
   
 
 End of year             $486,330  $8,362  $494,692 
   
Amortized Intangible Assets, Net
                        
 Beginning of year $118          $2,474  $5,287  $7,879 
 Acquisitions  7,677               14,989   22,666 
 Foreign currency exchange rate                  (253)  (253)
 Amortization  (1,119)          (764)  (5,595)  (7,478)
   
 
 End of year $6,676          $1,710  $14,428  $22,814 
   
2005 FORM 10-K
57


Activity related to the Company’s goodwill and intangible assets during 2004 was as follows (in thousands):
                          
  Newspaper Television Magazine Cable    
  Publishing Broadcasting Publishing Television Education Total
 
Goodwill, Net
                        
 Beginning of year $71,277  $203,165  $69,556  $85,666  $536,030  $965,694 
 Acquisitions  1,493               44,143   45,636 
 Foreign currency exchange rate                  11,810   11,810 
   
 
 End of year $72,770  $203,165  $69,556  $85,666  $591,983  $1,023,140 
   
Indefinite-Lived Intangible Assets, Net
                        
 Beginning of year             $484,556  $2,100  $486,656 
 Acquisitions              1,774   4,762   6,536 
   
 
 End of year             $486,330  $6,862  $493,192 
   
Amortized Intangible Assets, Net
                        
 Beginning of year $30          $1,081  $4,115  $5,226 
 Acquisitions  107           2,045   9,845   11,997 
 Foreign currency exchange rate                  (10)  (10)
 Amortization  (19)          (652)  (8,663)  (9,334)
   
 
 End of year $118          $2,474  $5,287  $7,879 
   
L. OTHER NON-OPERATING INCOME (EXPENSE)
The Company recorded other non-operating income, net, of $9.0 million in 2005, $8.1 million in 2004 and $55.4 million in 2003. The 2003 non-operating income, net, mostly comprises a $49.8 million pre-tax gain from the sale of the Company’s 50 percent interest in the International Herald Tribune.
A summary of non-operating income (expense) for the years ended January 1, 2006, January 2, 2005, and December 28, 2003 follows (in millions):
              
  2005 2004 2003
 
Gain on sales of marketable securities $12.7  $  $ 
Gain on sale of non-operating land  5.1       
Foreign currency (losses) gains, net  (8.1)  5.5   4.2 
Impairment write-downs on cost method and other investments  (1.5)  (0.7)  (1.3)
Gain on sale of interest in IHT        49.8 
Gain on sale or exchange of cable system businesses     0.5    
Other  0.8   2.8   2.7 
   
 
 Total $9.0  $8.1  $55.4 
   
M. CONTINGENCIES AND LOSSES

The Company and its subsidiaries are parties to various civil lawsuits that have arisen in the ordinary course of their businesses, including actions for libel and invasion of privacy, and alsoviolations of applicable wage and hour laws. Kaplan Inc. is a party to ana proposed class action antitrust lawsuit relatedin California filed on April 29, 2005. The suit alleges violations of the Sherman Act. The Company intends to defend the acquisition by a subsidiary of a group of community newspapers in 2001.lawsuit vigorously. Management does not believe that any litigation pending against the Company will have a material adverse effect on its business or financial condition.

The Company’s education division derives a portion of its net revenues from financial aid received by its students under Title IV programsPrograms administered by the United StatesU.S. Department of Education pursuant to the Federal Higher Education Act of 1965 (“HEA”)(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”)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 years ended December 29, 2002, December 30, 2001,January 1, 2006, January 2, 2005 and December 31, 2000,28, 2003, approximately $161.7$505.0 million, $101.5$430.0 million and $35.0$250.0 million, respectively, of the Company’sCompany 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.

Operating results for the Company in 2005 include the impact of charges and lost revenues associated with Katrina and other hurricanes. Most of the impact was at the cable division, but the television broadcasting and education divisions were also adversely impacted. About 94,000 of the cable division’s pre-hurricane subscribers were located on the Gulf Coast of Mississippi, including Gulfport, Biloxi, Pascagoula and other neighboring communities where storm damage from Hurricane Katrina was significant. Through the end of 2005, the cable division recorded $9.6 million in property, plant and equipment losses; incurred an estimated $9.4 million in incremental cleanup, repair and other expenses in connection with the hurricane; and experienced an estimated $9.7 million reduction in operating income from subscriber losses and the granting of a30-day service credit to all its 94,000 pre-hurricane Gulf Coast subscribers. As of December 31, 2005, the Company has recorded a $5.0 million receivable for recovery of a portion of cable hurricane losses through December 31, 2005 under the Company’s property and business interruption insurance program; this recovery was recorded as a reduction of cable division expense in the fourth quarter of 2005. Actual insurance recovery amounts for cable losses through December 31, 2005 may ultimately be higher than the estimated $5.0 million. Additional costs and losses related to the hurricane will continue to be incurred in 2006, and property and business interruption insurance coverage is expected to cover some of these losses.
M.N. 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 involvepublishing includes the publication of newspapers in the Washington, D.C. area and Everett, Washington; newsprint warehousing and recycling facilities; and the Company’s electronic media publishing business (primarily washingtonpost.com).

Magazine operations consist principally

The magazine publishing division consists of the publication of a weekly news magazine, Newsweek, which has one domestic and three English-language international editions (and, in conjunction with others, publishes eight foreign-language editions around the world), the publication of a travel magazineArthur Frommer’s Budget Travel, and the
58
THE WASHINGTON POST COMPANY


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

Television broadcasting operations are conducted through six VHF television stations.stations serving the Detroit, Houston, Miami, San Antonio, Orlando and Jacksonville television markets. All stations are network affiliatednetwork-affiliated (except for WJXT in Jacksonville, Florida)Jacksonville) with revenues derived primarily from sales of advertising time.

Cable television operations consist of cable systems offering basic cable, digital cable, pay television, cable modem and other services to approximately 718,000 subscribers in 19 midwestern, western, and southern states. The principal source of revenues is monthly subscription fees charged for services.

Education products and services are provided through the Company’s wholly-owned subsidiary, Kaplan, Inc. Kaplan’s businesses include supplemental education services, which is made up of test preparationKaplan Test Prep and admissions,Admissions, providing test preparation services for college and graduate school entrance exams; Kaplan Professional, providing education and career services to business people and other professionals; and Score!, offering multimediamulti-media learning and private tutoring to children and educational resources to parents. Kaplan’s businesses also includeprovide higher education services, which includesinclude all of Kaplan’s post-secondary education businesses, including the fixed facilityfixed-facility colleges that were formerly part of Quest Education, which offersoffer Bachelor’s degrees, Associate’s degrees and diploma programs primarily in the fields of health care, business and information technology; and online post-secondary and career programs (various distance-learning businesses, including kaplancollege.com)businesses).

For segment reporting purposes, the education division has two primary segments, supplemental education and higher education. Kaplan corporate overhead and “other” is also included; “other ” includes Kaplan stock compensation expense and amortization of certain intangibles.

Corporate office includes the expenses of the Company’s corporate office.

The Company’s foreign revenues in 2005, 2004, and 2003, totaled approximately $248 million, $209 million, and $140 million, respectively, principally from Kaplan’s foreign operations and the publication of the international editions of Newsweek. The Company’s long-lived assets in foreign countries (excluding goodwill and other intangibles), principally in the United Kingdom, totaled approximately $29 million at each of January 1, 2006 and January 2, 2005.
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.
53
2005 FORM 10-K
59


                               
NewspaperTelevisionMagazineCableCorporate
(in thousands)PublishingBroadcastingPublishingTelevisionEducationOfficeConsolidated

2002
                            
 Operating revenues $841,984  $343,552  $349,050  $428,492  $621,125  $  $2,584,203 
 Income (loss) from operations $109,006  $168,826  $25,728  $80,937  $20,512  $(27,419) $377,590 
 Equity in losses of affiliates                          (19,308)
 Interest expense, net                          (33,487)
 Other income, net                          28,873 
  
 
  Income before income taxes                         $353,668 
  
 Identifiable assets $690,197  $413,663  $488,562  $1,142,995  $542,251  $18,990  $3,296,658 
 Investments in marketable equity securities                          216,533 
 Investments in affiliates                          70,703 
  
 
  Total assets                         $3,583,894 
  
 Depreciation of property, plant and equipment $42,961  $11,187  $4,124  $88,751  $24,885  $  $171,908 
 Amortization expense $15  $  $  $155  $485  $  $655 
 Pension credit (expense) $18,902  $4,730  $23,814  $(814) $(1,186) $  $45,446 
 Kaplan stock-based incentive compensation                 $34,531      $34,531 
 Capital expenditures $27,280  $8,784  $1,672  $92,499  $22,757  $  $152,992 
2001
                            
 Operating revenues $842,721  $314,010  $374,575  $386,037  $493,681  $  $2,411,024 
 Income (loss) from operations $84,744  $131,847  $25,306  $32,237  $(28,337) $(25,865) $219,932 
 Equity in losses of affiliates                          (68,659)
 Interest expense, net                          (47,473)
 Other income, net                          283,739 
  
 
  Income before income taxes                         $387,539 
  
 
Pro forma income (loss) from operations(1)
 $88,592  $145,982  $31,975  $70,634  $(13,061) $(25,865) $298,257 
 Identifiable assets $703,947  $419,246  $486,804  $1,117,426  $472,988  $42,346  $3,242,757 
 Investments in marketable equity securities                          235,405 
 Investments in affiliates                          80,936 
  
 
  Total assets                         $3,559,098 
  
 Depreciation of property, plant and equipment $37,862  $11,932  $4,654  $64,505  $19,347  $  $138,300 
 Amortization expense $3,864  $14,135  $6,669  $38,553  $15,712  $  $78,933 
 Pension credit (expense) $25,197  $6,263  $44,989  $(638) $(847) $(1,363) $73,601 
 Kaplan stock-based incentive compensation                 $25,302      $25,302 
 Capital expenditures $32,551  $11,032  $1,737  $166,887  $12,020  $  $224,227 
2000
                            
 Operating revenues $918,234  $364,758  $413,904  $358,916  $353,821  $  $2,409,633 
 Income (loss) from operations $114,435  $177,396  $49,119  $65,967  $(41,846) $(25,189) $339,882 
 Equity in losses of affiliates                          (36,466)
 Interest expense, net                          (53,764)
 Other expense, net                          (19,782)
  
 
  Income before income taxes                         $229,870 
  
 
Pro forma income (loss) from operations(1)
 $116,023  $191,531  $55,877  $95,906  $(32,012) $(25,189) $402,136 
 Identifiable assets $684,908  $430,444  $452,453  $757,083  $482,014  $41,075  $2,847,977 
 Investments in marketable equity securities                          221,137 
 Investments in affiliates                          131,629 
  
 
  Total assets                         $3,200,743 
  
 Depreciation of property, plant and equipment $38,579  $12,991  $5,059  $47,670  $13,649  $  $117,948 
 Amortization expense $1,588  $14,135  $6,758  $30,069  $10,084  $  $62,634 
 Pension (expense) credit $(5,579) $5,767  $37,341  $(599) $(667) $  $36,263 
 Kaplan stock-based incentive compensation                 $6,000      $6,000 
 Capital expenditures $33,117  $11,672  $1,858  $96,167  $29,569  $  $172,383 
                               
  Newspaper Television Magazine Cable   Corporate  
(in thousands) Publishing Broadcasting Publishing Television Education Office Consolidated
 
2005
                            
 Operating revenues $957,082  $331,817  $344,894  $507,700  $1,412,394  $  $3,553,887 
 Income (loss) from operations $125,359  $142,478  $45,122  $76,720  $157,835  $(32,600) $514,914 
 Equity in losses of affiliates                          (881)
 Interest expense, net                          (23,369)
 Other income, net                          8,980 
   
 
  Income before income taxes                         $499,644 
   
 Identifiable assets $702,221  $420,154  $594,937  $1,122,654  $1,257,952  $90,159  $4,188,077 
 Investments in marketable equity securities                          329,921 
 Investments in affiliates                          66,775 
   
 
  Total assets                         $4,584,773 
   
 Depreciation of property, plant and equipment $36,556  $10,202  $2,801  $100,031  $39,453  $1,500  $190,543 
 Amortization expense $1,119  $  $  $764  $5,595  $  $7,478 
 Pension credit (expense) $(784) $2,939  $38,184  $(1,252) $(2,365) $  $36,722 
 Kaplan stock-based incentive compensation                 $3,000      $3,000 
 Capital expenditures $33,276  $8,557  $660  $111,331  $84,257  $268  $238,349 
2004
                            
 Operating revenues $938,066  $361,716  $366,119  $499,312  $1,134,891  $  $3,300,104 
 Income (loss) from operations $143,086  $174,176  $52,921  $104,171  $121,455  $(32,803) $563,006 
 Equity in losses of affiliates                          (2,291)
 Interest expense, net                          (26,410)
 Other income, net                          8,127 
   
 
  Income before income taxes                         $542,432 
   
 Identifiable assets $685,744  $409,574  $581,601  $1,112,935  $1,033,810  $13,551  $3,837,215 
 Investments in marketable equity securities                          409,736 
 Investments in affiliates                          61,814 
   
 
  Total assets                         $4,308,765 
   
 Depreciation of property, plant and equipment $36,862  $11,093  $3,255  $94,974  $29,154  $  $175,338 
 Amortization expense $19  $  $  $652  $8,663  $  $9,334 
 Pension credit (expense) $3,598  $3,172  $37,613  $(1,030) $(1,531) $  $41,822 
 Kaplan stock-based incentive compensation                 $32,546      $32,546 
 Capital expenditures $27,959  $6,967  $1,499  $78,873  $85,221  $4,113  $204,632 
2003
                            
 Operating revenues $872,754  $315,126  $353,555  $459,399  $838,077  $  $2,838,911 
 
Income (loss) from operations(1)
 $134,197  $139,744  $43,504  $88,392  $(11,709) $(30,308) $363,820 
 Equity in losses of affiliates                          (9,766)
 Interest expense, net                          (26,851)
 Other income, net                          55,385 
   
 
  Income before income taxes                         $382,588 
   
 Identifiable assets $684,944  $411,434  $532,867  $1,130,410  $870,850  $10,023  $3,640,528 
 Investments in marketable equity securities                          247,958 
 Investments in affiliates                          61,312 
   
 
  Total assets                         $3,949,798 
   
 Depreciation of property, plant and equipment $41,914  $11,414  $3,727  $92,804  $23,989  $  $173,848 
 Amortization expense $15  $  $  $151  $1,270  $  $1,436 
 Pension credit (expense) $(19,580) $4,165  $38,493  $(853) $(1,223) $  $21,002 
 Kaplan stock-based incentive compensation                 $119,126      $119,126 
 Capital expenditures $18,642  $5,434  $1,027  $65,948  $34,537  $  $125,588 

(1) 2001 and 2000 results, adjusted to exclude amortizationNewspaper publishing operating income in 2003 includes gain on sale of goodwill and indefinite-lived intangible assets no longer amortized under SFAS 142.
land at The Washington Post newspaper of $41.7 million.
54
60
THE WASHINGTON POST COMPANY


The Company’s education division comprises the following operating segments:
                  
      Corporate  
  Higher Supplemental Overhead Total
(in thousands) Education Education and Other Education
 
2005
                
 Operating revenues $721,579  $690,815  $  $1,412,394 
 Income (loss) from operations $82,660  $117,075  $(41,900) $157,835 
 Identifiable assets $587,997  $645,957  $23,998  $1,257,952 
 Depreciation of property, plant and equipment $20,100  $16,073  $3,280  $39,453 
 Amortization expense         $5,595  $5,595 
 Kaplan stock-based incentive compensation         $3,000  $3,000 
 Capital expenditures $49,406  $30,134  $4,717  $84,257 
2004
                
 Operating revenues $559,877  $575,014  $  $1,134,891 
 Income (loss) from operations $93,402  $100,795  $(72,742) $121,455 
 Identifiable assets $505,077  $492,195  $36,538  $1,033,810 
 Depreciation of property, plant and equipment $13,222  $13,899  $2,033  $29,154 
 Amortization expense         $8,663  $8,663 
 Kaplan stock-based incentive compensation         $32,546  $32,546 
 Capital expenditures $48,990  $26,550  $9,681  $85,221 
2003
                
 Operating revenues $368,320  $469,757  $  $838,077 
 Income (loss) from operations $58,428  $87,044  $(157,181) $(11,709)
 Identifiable assets $389,365  $458,156  $23,329  $870,850 
 Depreciation of property, plant and equipment $7,970  $14,624  $1,395  $23,989 
 Amortization expense         $1,270  $1,270 
 Kaplan stock-based incentive compensation         $119,126  $119,126 
 Capital expenditures $20,876  $10,513  $3,148  $34,537 
2005 FORM 10-K
61


N.O. SUMMARY OF QUARTERLY OPERATING RESULTS AND COMPREHENSIVE INCOME (UNAUDITED)

Quarterly results of operations and comprehensive income for the years ended December 29, 2002January 1, 2006 and December 30, 2001January 2, 2005 are as follows (in thousands, except per share amounts):
                   
FirstSecondThirdFourth
QuarterQuarterQuarterQuarter

2002 Quarterly Operating Results
                
 Operating revenues                
  Advertising $273,564  $316,102  $292,523  $344,645 
  Circulation and subscriber  161,298   168,614   171,535   173,689 
  Education  146,929   149,695   160,454   164,047 
  Other  18,531   13,292   15,781   13,504 
  
 
   600,322   647,703   640,293   695,885 
  
 Operating costs and expenses                
  Operating  333,239   335,443   342,411   358,862 
  Selling, general and administrative  176,866   160,387   162,642   164,200 
  Depreciation of property, plant and equipment  41,173   41,286   45,808   43,641 
  Amortization of goodwill and other intangibles  152   159   172   172 
  
 
   551,430   537,275   551,033   566,875 
  
 Income from operations  48,892   110,428   89,260   129,010 
  Equity in losses of affiliates  (6,506)  (9,183)  (1,254)  (2,366)
  Interest income  133   59   69   71 
  Interest expense  (8,867)  (8,797)  (8,717)  (7,438)
  Other income (expense), net  6,454   (5,963)  1,115   27,268 
  
 Income before income taxes and cumulative effect of change in accounting principle  40,106   86,544   80,473   146,545 
 Provision for income taxes  16,400   35,400   32,700   52,800 
  
 Income before cumulative effect of change in accounting principle  23,706   51,144   47,773   93,745 
 
Cumulative effect of change in method of accounting for goodwill and other intangible assets,net of taxes(1)
  (12,100)         
  
 Net income  11,606   51,144   47,773   93,745 
 Redeemable preferred stock dividends  (525)  (259)  (249)   
  
 
 Net income available for common shares $11,081  $50,885  $47,524  $93,745 
  
 Basic earnings per common share:                
 Before cumulative effect of change in accounting principle $2.44  $5.35  $5.00  $9.86 
 Cumulative effect of change in accounting principle  (1.27)         
  
 
 Net income available for common shares $1.17  $5.35  $5.00  $9.86 
  
 Diluted earnings per common share:                
 Before cumulative effect of change in accounting principle $2.43  $5.34  $4.99  $9.83 
 Cumulative effect of change in accounting principle  (1.27)         
  
 
 Net income available for common shares $1.16  $5.34  $4.99  $9.83 
  
 Basic average number of common shares outstanding  9,498   9,503   9,506   9,509 
 Diluted average number of common shares outstanding  9,512   9,521   9,523   9,537 
 2002 Quarterly Comprehensive Income $3,380  $47,493  $58,333  $90,861 
  
                   
  First Second Third Fourth
  Quarter Quarter Quarter Quarter
 
2005 Quarterly Operating Results
                
 Operating revenues                
  Advertising $305,550  $336,563  $311,581  $363,790 
  Circulation and subscriber  186,222   191,622   182,677   186,557 
  Education  325,383   345,780   362,822   378,409 
  Other  16,775   23,612   16,582   19,962 
   
   833,930   897,577   873,662   948,718 
   
 Operating costs and expenses                
  Operating  452,453   472,981   486,400   497,782 
  Selling, general and administrative  226,312   237,531   225,760   241,734 
  Depreciation of property, plant and equipment  45,568   47,905   47,531   49,538 
  Amortization of goodwill and other intangibles  1,608   1,465   1,587   2,818 
   
   725,941   759,882   761,278   791,872 
   
 Income from operations  107,989   137,695   112,384   156,846 
  Equity in (losses) earnings of affiliates  (525)  342   (952)  254 
  Interest income  574   576   611   1,624 
  Interest expense  (6,519)  (6,436)  (7,554)  (6,245)
  Other income (expense), net  7,072   (3,622)  6,869   (1,339)
   
 Income before income taxes  108,591   128,555   111,358   151,140 
 Provision for income taxes  42,000   49,800   44,800   48,700 
   
 Net income  66,591   78,755   66,558   102,440 
 Redeemable preferred stock dividends  (491)  (245)  (245)   
   
 
 Net income available for common shares $66,100  $78,510  $66,313  $102,440 
   
 Basic earnings per common share $6.89  $8.18  $6.91  $10.67 
   
 Diluted earnings per common share $6.87  $8.16  $6.89  $10.65 
   
 Basic average shares outstanding  9,589   9,594   9,596   9,598 
 Diluted average shares outstanding  9,617   9,618   9,618   9,616 
 2005 Quarterly comprehensive income $51,301  $66,397  $56,318  $114,359 
   

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.
(1) Cumulative effect charge presented in the first quarter as required by SFAS 142.
Quarterly impact from certain unusual items (after-tax and diluted EPS amounts):
                 
  First Second Third Fourth
  Quarter Quarter Quarter Quarter
 
Charges and lost revenues associated with Katrina and other hurricanes ($12.6 million and $4.7 million in the third and fourth quarters, respectively)         $(1.31) $(0.49)
Gain on sale of marketable equity securities and land ($5.4 million, $5.2 million and $0.6 million in the first, third and fourth quarters, respectively) $0.56      $0.54  $0.06 
   
5562
THE WASHINGTON POST COMPANY


                   
FirstSecondThirdFourth
(in thousands, except per share amounts)QuarterQuarterQuarterQuarter

2001 Quarterly Operating Results
                
 Operating revenues                
  Advertising $297,974  $312,881  $277,425  $321,047 
  Circulation and subscriber  148,016   161,260   174,716   169,036 
  Education  121,341   119,442   127,159   125,329 
  Other  19,068   10,326   13,007   12,997 
  
 
   586,399   603,909   592,307   628,409 
  
 Operating costs and expenses                
  Operating  343,416   340,114   345,567   358,003 
  Selling, general and administrative  147,915   151,409   144,954   142,480 
  Depreciation of property, plant and equipment  34,632   35,867   34,765   33,036 
  Amortization of goodwill and other intangibles  17,192   19,926   20,068   21,748 
  
 
   543,155   547,316   545,354   555,267 
  
 Income from operations  43,244   56,593   46,953   73,141 
  Equity in losses of affiliates  (12,461)  (6,641)  (26,535)  (23,023)
  Interest income  325   1,047   226   570 
  Interest expense  (14,624)  (13,240)  (11,861)  (9,914)
  Other income (expense), net  308,769   (10,717)  (4,365)  (9,949)
  
 
 Income before income taxes  325,253   27,042   4,418   30,825 
 Provision for income taxes  126,200   12,550   2,850   16,300 
  
 
 Net income  199,053   14,492   1,568   14,525 
 Redeemable preferred stock dividends  (526)  (263)  (263)   
  
 
 Net income available for common shares  198,527   14,229   1,305   14,525 
  
 Basic earnings per common share $20.94  $1.50  $0.14  $1.53 
  
 Diluted earnings per common share $20.90  $1.50  $0.14  $1.53 
  
 Basic average number of common shares outstanding  9,479   9,485   9,489   9,492 
 Diluted average number of common shares outstanding  9,499   9,502   9,502   9,501 
 2001 Quarterly Comprehensive Income (loss) $187,049  $25,860  $(937) $25,342 
  
Pro forma results:(1)
                
 Net income available for common shares, as reported $198,527  $14,229  $1,305  $14,525 
 Amortization of goodwill and other intangibles, net of tax  12,224   13,863   13,948   14,954 
  
 
 Pro forma net income available for common shares $210,751  $28,092  $15,253  $29,479 
  
 Basic earnings per share $22.23  $2.96  $1.61  $3.11 
 Diluted earnings per share $22.19  $2.96  $1.61  $3.10 
                   
  First Second Third Fourth
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter
 
2004 Quarterly Operating Results
                
 Operating revenues                
  Advertising $299,127  $338,060  $323,021  $386,662 
  Circulation and subscriber  180,259   185,728   185,521   190,302 
  Education  258,271   276,696   293,621   306,303 
  Other  21,312   17,907   17,869   19,445 
   
   758,969   818,391   820,032   902,712 
   
 Operating costs and expenses                
  Operating  409,681   420,407   422,894   464,077 
  Selling, general and administrative  198,132   203,334   210,488   223,413 
  Depreciation of property, plant and equipment  43,859   44,769   45,020   41,690 
  Amortization of goodwill and other intangibles  2,380   3,881   1,332   1,741 
   
 
   654,052   672,391   679,734   730,921 
   
 Income from operations  104,917   146,000   140,298   171,791 
  Equity in losses of affiliates  (1,716)  (353)  539   (761)
  Interest income  344   458   351   469 
  Interest expense  (6,861)  (6,830)  (6,874)  (7,467)
  Other income (expense), net  742   (71)  858   6,598 
   
 Income before income taxes  97,426   139,204   135,172   170,630 
 Provision for income taxes  38,000   54,300   52,700   64,700 
   
 Net income  59,426   84,904   82,472   105,930 
 Redeemable preferred stock dividends  (502)  (245)  (245)   
   
 
 Net income available for common shares $58,924  $84,659  $82,227  $105,930 
   
 Basic earnings per common share $6.17  $8.85  $8.59  $11.07 
   
 Diluted earnings per common share $6.15  $8.82  $8.57  $11.03 
   
 Basic average shares outstanding  9,550   9,563   9,568   9,571 
 Diluted average shares outstanding  9,582   9,596   9,598   9,601 
 2004 Quarterly comprehensive income $74,806  $78,719  $90,962  $136,089 
   

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.

(1) Quarterly 2001 results are adjusted to exclude amortization of goodwill and indefinite-lived intangible assets no longer amortized under SFAS 142.

56
2005 FORM 10-K
63


SCHEDULE II

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64
THE WASHINGTON POST COMPANY


SCHEDULE II
THE WASHINGTON POST COMPANY
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
                  

Column AColumn BColumn CColumn DColumn E

Additions -
Balance atCharged toBalance at
beginningcosts andend of
Descriptionof periodexpensesDeductionsperiod

Year Ended December 31, 2000                
 Allowance for doubtful accounts and returns $51,179,000  $74,540,000  $67,716,000  $58,003,000 
 Allowance for advertising rate adjustments and discounts  9,442,000   2,662,000   4,909,000   7,195,000 
  
  $60,621,000  $77,202,000  $72,625,000  $65,198,000 
  
Year Ended December 30, 2001                
 Allowance for doubtful accounts and returns $58,003,000  $98,655,000  $88,689,000  $67,969,000 
 Allowance for advertising rate adjustments and discounts  7,195,000   4,163,000   6,079,000   5,279,000 
  
  $65,198,000  $102,818,000  $94,768,000  $73,248,000 
  
Year Ended December 29, 2002                
 Allowance for doubtful accounts and returns $67,969,000  $91,091,000  $98,820,000  $60,240,000 
 Allowance for advertising rate adjustments and discounts  5,279,000   4,938,000   5,061,000   5,156,000 
  
  $73,248,000  $96,029,000  $103,881,000  $65,396,000 
  
                  
 
Column A Column B Column C Column D Column E
 
  Additions –  
  Balance at Charged to   Balance at
  Beginning Costs and   End of
Description of Period Expenses Deductions Period
 
Year Ended December 28, 2003                
 Allowance for doubtful accounts and returns $60,240,000  $93,565,000  $91,951,000  $61,854,000 
 Allowance for advertising rate adjustments and discounts  5,156,000   6,371,000   6,857,000   4,670,000 
   
  $65,396,000  $99,936,000  $98,808,000  $66,524,000 
   
Year Ended January 2, 2005                
 Allowance for doubtful accounts and returns $61,854,000  $106,605,000  $102,807,000  $65,652,000 
 Allowance for advertising rate adjustments and discounts  4,670,000   7,874,000   7,231,000   5,313,000 
   
  $66,524,000  $114,479,000  $110,038,000  $70,965,000 
   
Year Ended January 1, 2006                
 Allowance for doubtful accounts and returns $65,652,000  $127,195,000  $121,722,000  $71,125,000 
 Allowance for advertising rate adjustments and discounts  5,313,000   14,970,000   13,309,000   6,974,000 
   
  $70,965,000  $142,165,000  $135,031,000  $78,099,000 
   
572005 FORM 10-K
65


TEN-YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA

See Notes to Consolidated Financial Statements for the summary of significant accounting policies and additional information relative to the years 2000-2002.2003–2005. Operating results prior to 2002 include amortization of goodwill and certain other intangible assets that are no longer amortized under SFAS 142.
               
(in thousands, except per share amounts) 2005 2004 2003
 
Results of Operations
            
 Operating revenues $3,553,887  $3,300,104  $2,838,911 
 Income from operations $514,914  $563,006  $363,820 
 Income before cumulative effect of change in accounting principle $314,344  $332,732  $241,088 
 Cumulative effect of change in method of accounting for goodwill and other intangibles         
   
 Net income $314,344  $332,732  $241,088 
   
Per Share Amounts
            
 Basic earnings per common share            
  Before cumulative effect of change in accounting principle $32.66  $34.69  $25.19 
  Cumulative effect of change in accounting principle         — 
   
  Net income available for common shares $32.66  $34.69  $25.19 
   
  Basic average shares outstanding  9,594   9,563   9,530 
 Diluted earnings per share            
  Before cumulative effect of change in accounting principle $32.59  $34.59  $25.12 
  Cumulative effect of change in accounting principle         — 
   
  Net income available for common shares $32.59  $34.59  $25.12 
   
  Diluted average shares outstanding  9,616   9,592   9,555 
 Cash dividends $7.40  $7.00  $5.80 
 Common shareholders’ equity $274.79  $251.11  $216.17 
Financial Position
            
 Current assets $818,326  $750,509  $550,571 
 Working capital (deficit)  123,605   62,348   (190,426)
 Property, plant and equipment  1,142,632   1,089,952   1,051,373 
 Total assets  4,584,773   4,308,765   3,949,798 
 Long-term debt  403,635   425,889   422,471 
 Common shareholders’ equity  2,638,423   2,404,606   2,062,681 
Impact from certain unusual items (after-tax and diluted EPS amounts):
2005
• charges and lost revenues of $17.3 million ($1.80 per share) associated with Katrina and other hurricanes
• gain of $11.2 million ($1.16 per share) from sales of non-operating land and marketable equity securities
2003
• gain of $32.3 million ($3.38 per share) on the sale of the Company’s 50% interest in the International Herald Tribune
• gain of $25.5 million ($2.66 per share) on sale of land at The Washington Post newspaper
• charge of $20.8 million ($2.18 per share) for early retirement programs at The Washington Post newspaper
• Kaplan stock compensation expense of $6.4 million ($0.67 per share) for the 10% premium associated with the purchase of outstanding Kaplan stock options
• charge of $3.9 million ($0.41 per share) in connection with the establishment of the Kaplan Educational Foundation
2002
• gain of $16.7 million ($1.75 per share) on the exchange of certain cable systems
• charge of $11.3 million ($1.18 per share) for early retirement programs at Newsweek and The Washington Post newspaper
               
(in thousands, except per share amounts) 2002 2001 2000

Results of Operations
            
 
Operating revenues(1)
 $2,584,203  $2,411,024  $2,409,633 
 Income from operations $377,590  $219,932  $339,882 
 Income before cumulative effect of changes in accounting principles $216,368  $229,639  $136,470 
 Cumulative effect of change in method of accounting for goodwill and other intangibles  (12,100)      
 Cumulative effect of change in method of accounting for income taxes         
  
 Net income $204,268  $229,639  $136,470 
  
Per Share Amounts
            
 Basic earnings per common share            
  Income before cumulative effect of changes in accounting principles $22.65  $24.10  $14.34 
  Cumulative effect of changes in accounting principles  (1.27)      
  
  Net income available for common shares $21.38  $24.10  $14.34 
  
  Basic average shares outstanding  9,504   9,486   9,445 
 Diluted earnings per share            
  Income before cumulative effect of changes in accounting principles $22.61  $24.06  $14.32 
  Cumulative effect of changes in accounting principles  (1.27)      
  
  Net income available for common shares $21.34  $24.06  $14.32 
  
  Diluted average shares outstanding  9,523   9,500   9,460 
 Cash dividends $5.60  $5.60  $5.40 
 Common shareholders’ equity $193.18  $177.30  $156.55 
Financial Position
            
 Current assets $382,955  $396,857  $405,067 
 Working capital (deficit)  (353,157)  (37,233)  (3,730)
 Property, plant and equipment  1,094,400   1,098,211   927,061 
 Total assets  3,583,894   3,559,098   3,200,743 
 Long-term debt  405,547   883,078   873,267 
 Common shareholders’ equity  1,837,293   1,683,485   1,481,007 

(1)    Operating revenues have been reclassified to conform with the current year presentation.

58


                               
(in thousands, except per share amounts) 1999 1998 1997 1996 1995 1994 1993

Results of Operations
                            
 
Operating revenues(1)
 $2,212,177  $2,107,593  $1,952,986  $1,851,058  $1,716,971  $1,611,629  $1,496,029 
 Income from operations $388,453  $378,897  $381,351  $337,169  $271,018  $274,875  $238,980 
 Income before cumulative effect of changes in accounting principles $225,785  $417,259  $281,574  $220,817  $190,096  $169,672  $153,817 
 Cumulative effect of change in method of accounting for goodwill and other intangibles                     
 Cumulative effect of change in method of accounting for income taxes                    11,600 
   
 Net income $225,785  $417,259  $281,574  $220,817  $190,096  $169,672  $165,417 
   
Per Share Amounts
                            
 Basic earnings per common share                            
  Income before cumulative effect of changes in accounting principles $22.35  $41.27  $26.23  $20.08  $17.16  $14.66  $13.10 
  Cumulative effect of changes in accounting principles                    0.98 
   
  Net income available for common shares $22.35  $41.27  $26.23  $20.08  $17.16  $14.66  $14.08 
   
  Basic average shares outstanding  10,061   10,087   10,700   10,964   11,075   11,577   11,746 
 Diluted earnings per share                            
  Income before cumulative effect of changes in accounting principles $22.30  $41.10  $26.15  $20.05  $17.15  $14.65  $13.10 
  Cumulative effect of changes in accounting principles                    0.98 
   
  Net income available for common shares $22.30  $41.10  $26.15  $20.05  $17.15  $14.65  $14.08 
   
  Diluted average shares outstanding  10,082   10,129   10,733   10,980   11,086   11,582   11,750 
 Cash dividends $5.20  $5.00  $4.80  $4.60  $4.40  $4.20  $4.20 
 Common shareholders’ equity $144.90  $157.34  $117.36  $121.24  $107.60  $99.32  $92.84 
Financial Position
                            
 Current assets $476,159  $404,878  $308,492  $382,631  $406,570  $375,879  $625,574 
 Working capital (deficit)  (346,389)  15,799   (300,264)  100,995   98,393   102,806   367,041 
 Property, plant and equipment  854,906   841,062   653,750   511,363   457,359   411,396   363,718 
 Total assets  2,986,944   2,729,661   2,077,317   1,870,411   1,732,893   1,696,868   1,622,504 
 Long-term debt  397,620   395,000            50,297   51,768 
 Common shareholders’ equity  1,367,790   1,588,103   1,184,074   1,322,803   1,184,204   1,126,933   1,087,419 

(1)  Operating revenues have been reclassified to conform with the current year presentation.

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60THE WASHINGTON POST COMPANY




                               
     2002 2001 2000 1999 1998 1997 1996
     
Results of Operations
 Operating revenues $2,584,203  $2,411,024  $2,409,633  $2,212,177  $2,107,593  $1,952,986  $1,851,058 
 Income from operations $377,590  $219,932  $339,882  $388,453  $378,897  $381,351  $337,169 
 Income before cumulative effect of change in accounting principle $216,368  $229,639  $136,470  $225,785  $417,259  $281,574  $220,817 
 Cumulative effect of change in method of accounting for goodwill and other intangibles  (12,100)                  
   
 Net income $204,268  $229,639  $136,470  $225,785  $417,259  $281,574  $220,817 
   
Per Share Amounts
 Basic earnings per common share
  Before cumulative effect of change in accounting principle $22.65  $24.10  $14.34  $22.35  $41.27  $26.23  $20.08 
  Cumulative effect of change in accounting principle  (1.27)                  
   
  Net income available for common shares $21.38  $24.10  $14.34  $22.35  $41.27  $26.23  $20.08 
   
  Basic average shares outstanding  9,504   9,486   9,445   10,061   10,087   10,700   10,964 
 Diluted earnings per share
  Before cumulative effect of change in accounting principle $22.61  $24.06  $14.32  $22.30  $41.10  $26.15  $20.05 
  Cumulative effect of change in accounting principle  (1.27)                  
   
  Net income available for common shares $21.34  $24.06  $14.32  $22.30  $41.10  $26.15  $20.05 
   
  Diluted average shares outstanding  9,523   9,500   9,460   10,082   10,129   10,733   10,980 
 Cash dividends $5.60  $5.60  $5.40  $5.20  $5.00  $4.80  $4.60 
 Common shareholders’ equity $192.45  $177.30  $156.55  $144.90  $157.34  $117.36  $121.24 
Financial Position
 Current assets $407,347  $426,603  $405,067  $476,159  $404,878  $308,492  $382,631 
 Working capital (deficit)  (356,644)  (37,233)  (3,730)  (346,389)  15,799   (300,264)  100,995 
 Property, plant and equipment  1,094,400   1,098,211   927,061   854,906   841,062   653,750   511,363 
 Total assets  3,604,866  ��3,588,844   3,200,743   2,986,944   2,729,661   2,077,317   1,870,411 
 Long-term debt  405,547   883,078   873,267   397,620   395,000       
 Common shareholders’ equity  1,830,386   1,683,485   1,481,007   1,367,790   1,588,103   1,184,074   1,322,803 
2001
• gain of $196.5 million ($20.69 per share) on the exchange of certain cable systems
• non-cash goodwill and other intangibles impairment charge of $19.9 million ($2.10 per share) recorded in conjunction with the Company’s BrassRing investment
• charges of $18.3 million ($1.93 per share) from the write-down of a non-operating parcel of land and certain cost-method investments to their estimated fair value
2000
• charge of $16.5 million ($1.74 per share) for an early retirement program at The Washington Post newspaper
1999
• gains of $18.6 million ($1.81 per share) on the sales of marketable equity securities
1998
• gain of $168.0 million ($16.59 per share) on the disposition of the Company’s 28% interest in Cowles Media Company
• gain of $13.8 million ($1.36 per share) from the sale of 14 small cable systems
• gain of $12.6 million ($1.24 per share) on the disposition of the Company’s investment in Junglee, a facilitator of internet commerce
1997
• gain of $28.4 million ($2.65 per share) from the sale of the Company’s investments in Bear Island Paper Company LP and Bear Island Timberlands Company LP
• gain of $16.0 million ($1.50 per share) from the sale of the PASS regional cable sports network
2005 FORM 10-K
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THE WASHINGTON POST COMPANY


INDEX TO EXHIBITS
        
ExhibitExhibitExhibit 
NumberNumberDescriptionNumber Description


3.1 Restated Certificate of Incorporation of the Company dated November 13, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003).
3.1 Certificate of Incorporation of the Company as amended through May 12, 1988, and the Certificate of Designation for the Company’s Series A Preferred Stock filed January 22, 1996 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
3.2 Certificate of Designation for the Company’s Series A Preferred Stock dated September 22, 2003 (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company’s Current Report on Form 8-K dated September 22, 2003).
3.2 By-Laws of the Company as amended through March 8, 2001 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000).
3.3 By-Laws of the Company as amended and restated through September 22, 2003 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K dated September 22, 2003).
4.1 Form of the Company’s 5.50% Notes due February 15, 2009, issued under the Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).
4.1 Form of the Company’s 5.50% Notes due February 15, 2009, issued under the Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).
4.2 Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).
4.2 Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).
4.3 364-Day Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, N.A., SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs Bank (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002).
4.3 First Supplemental Indenture dated as of September 22, 2003, among WP Company LLC, the Company and Bank One, NA, as successor to The First National Bank of Chicago, as Trustee, to the Indenture dated as of February 17, 1999, between The Washington Post Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 22, 2003).
4.4 5-Year Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, N.A., SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs Bank (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002).
4.4 364-Day Credit Agreement dated as of August 10, 2005, among the Company, Citibank, N.A., JP Morgan Chase Bank, N.A., Wachovia Bank, National Association, SunTrust Bank, The Bank of New York and PNC Bank, N.A. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on form 8-K dated August 12, 2005).
10.1 The Washington Post Company Annual Incentive Compensation Plan as amended and restated effective June 30, 1995 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).*
4.5 5-Year Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, N.A., SunTrust Bank, Bank One, N.A., JPMorgan Chase Bank, The Bank of New York and PNC Bank, N.A. (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002).
10.2 The Washington Post Company Long-Term Incentive Compensation Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2000).*
4.6 Consent and Amendment No. 1 dated as of August 13, 2003, to the 5-Year Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A. and the other lenders that are parties to such Credit Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated September 22, 2003).
10.3 The Washington Post Company Stock Option Plan as amended and restated through March 12, 1998 (corrected copy) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2001).*
10.1 The Washington Post Company Incentive Compensation Plan as amended and restated on January 20, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 20, 2006).*
10.4 The Washington Post Company Supplemental Executive Retirement Plan as amended and restated through March 14, 2002 (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001).*
10.2 The Washington Post Company Stock Option Plan as amended and restated effective May 31, 2003 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2003).*
10.5 The Washington Post Company Deferred Compensation Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2000).*
10.3 The Washington Post Company Supplemental Executive Retirement Plan as amended and restated through March 14, 2002 (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001).*
11 Calculation of earnings per share of common stock.
10.4 The Washington Post Company Deferred Compensation Plan as amended and restated effective May 12, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 12, 2005).*
21 List of subsidiaries of the Company.
11 Calculation of earnings per share of common stock.
23 Consent of independent accountants.
21 List of subsidiaries of the Company.
24 Power of attorney dated March 13, 2003.
23 Consent of independent registered public accounting firm.
99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
24 Power of attorney dated February 28, 2006.
99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.
31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32.1 Section 1350 Certification of the Chief Executive Officer.
32.2 Section 1350 Certification of the Chief Financial Officer.

* A management contract or compensatory plan or arrangement required to be included as an exhibit hereto pursuant to Item 15(c) of
Form 10-K.
612005 FORM 10-K
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