Washington Post 2004 Annual Report Download - page 44

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the consolidated monthly subscriber discounts. By the end of 2004, 12% of the
financial statements and the notes thereto. cable division's subscribers accepted the full bundle of services.
The Company's newspaper publishing, broadcast television and
OVERVIEW magazine publishing divisions derive revenue from advertising and,
The Washington Post Company is a diversified media and education to a lesser extent, circulation and subscriptions. The results of these
company, with education as the fastest-growing business. The divisions tend to fluctuate with the overall advertising cycle
Company operates principally in four areas of the media business: (amongst other business factors). In 2004, advertising showed
newspaper publishing, television broadcasting, magazine publish- continued improvement. The Washington Post newspaper reported
ing and cable television. Through its subsidiary Kaplan, Inc., the continued strong increases in print classified recruitment revenue,
Company provides educational services for individuals, schools and with a 20% increase for the year. Preprint and general print
businesses. The Company's business units are diverse and subject advertising categories had solid growth in 2004 as well. Circulation
to different trends and risks. volume continued a downward trend. The Post benefited from
payroll savings in 2004 as a result of early retirement programs in
In 2004, the Company's education segment became the largest 2003 that were accepted by 153 employees. The Company's
operating segment of the Company from a revenue standpoint. The online publishing business, Washingtonpost.Newsweek Interactive,
Company has devoted significant resources and attention to this showed 32% revenue growth in 2004 and reported positive
division, given the attractiveness of investment opportunities and operating income (as we measure it internally) for the first time.
growth prospects. The growth of Kaplan in recent years has come
from both rapid internal growth and acquisitions. Each of Kaplan's The Company's television broadcasting division experienced a
businesses showed revenue and operating income growth in 2004, large increase in operating income due primarily to significant
except for Professional, which showed solid revenue growth, but political and Olympics-related advertising in 2004. The Company
was essentially flat in operating income due to new programs and expects a significant decline in television broadcasting operating
increased technology costs. The campus-based and online busi- income for 2005 as a result of the absence of any significant
nesses in Kaplan's higher education division showed particularly political elections and no Olympics programming. Newsweek mag-
significant revenue and operating income growth. Kaplan complet- azine showed ad growth in 2004 in both its domestic and interna-
ed its first full year operating The Financial Training Company, a test tional editions.
preparation services company for accountants and financial ser- The Company generates a significant amount of cash from its
vices professionals, primarily in the United Kingdom; and Dublin businesses that is used to support its operations, to pay down debt,
Business School, Ireland's largest private undergraduate institution. and to fund capital expenditures, dividends and acquisitions.
These 2003 acquisitions marked the Company's most significant
business investments outside the United States in more than RESULTS OF OPERATIONS Ì 2004 COMPARED TO 2003
10 years, and both have helped grow Kaplan's revenue and
Net income was $332.7 million ($34.59 per share) for the fiscal
operating income in 2004. Kaplan made eight acquisitions in 2004,
year 2004 ended January 2, 2005, compared with $241.1 million
none of them individually significant from a financial standpoint.
($25.12 per share) for the fiscal year 2003 ended Decem-
Over the past several years, Kaplan's revenues have grown rapidly
ber 28, 2003. Each of the Company's divisions reported strong
while operating income (loss) has fluctuated due largely to various
growth in operating income for 2004. The Company's 2003 results
business investments and stock compensation charges.
included a non-operating gain from the sale of the Company's 50%
The cable division has also been a source of recent growth and interest in the International Herald Tribune (after-tax impact of
capital investment. Cable One's industry has experienced significant $32.3 million, or $3.38 per share), an operating gain from the
technological changes, which have created new revenue opportuni- sale of land at The Washington Post newspaper (after-tax impact
ties, such as digital television and broadband, as well as increased of $25.5 million, or $2.66 per share) and early retirement pro-
competition, particularly from satellite television service providers. gram charges at The Washington Post newspaper (after-tax impact
While the cable division's subscriber base stabilized in 2003, there of $20.8 million, or $2.18 per share). Also included in 2003
was a modest decline in the number of basic cable subscribers in results is a charge in connection with the establishment of the Kaplan
2004 (709,100 at the end of 2004, compared to 720,800 at Educational Foundation (after-tax impact of $3.9 million, or $0.41
the end of 2003) and paying digital subscribers (219,200 at the per share) and Kaplan stock compensation expense for the 10%
end of 2004, as compared to 222,900 at the end of December premium associated with a partial buyout of the Kaplan stock
2003). Cable One implemented a $2 monthly rate increase for compensation plan (after-tax impact of $6.4 million, or $0.67 per
basic cable service at most of its systems in March 2004, but has share).
no plans for a basic rate increase in 2005. High-speed data
Revenue for 2004 was $3,300.1 million, up 16% compared to
subscribers grew 33% in 2004 (178,300 at the end of 2004,
$2,838.9 million in 2003. The increase in revenue is due mostly to
compared to 133,800 at the end of 2003). The cable division
significant revenue growth at the education and television broad-
began offering bundled services in 2003 (basic and tier service,
casting divisions, along with increases at the Company's cable
digital service, and high speed data service in one package) with
28 THE WASHINGTON POST COMPANY