Washington Post 2005 Annual Report Download - page 47

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the consolidated sion's subscriber base declined in 2005 as a result of Hurricane
financial statements and the notes thereto. Katrina, which had a significant impact on the cable division's
systems on the Gulf Coast of Mississippi. Excluding the impact of the
OVERVIEW hurricane, the Company estimates a very small increase in the
number of basic and digital cable subscribers in 2005. Cable One
The Washington Post Company is a diversified media and education had no monthly rate increase for basic cable service at its systems in
company, with education as the fastest-growing business. The 2005, but has implemented a $3 rate increase for basic cable
Company operates principally in four areas of the media business: service at most of its systems in February 2006. High-speed data
newspaper publishing, television broadcasting, magazine publish- subscribers grew 31% in 2005 (234,100 at the end 2005,
ing and cable television. Through its subsidiary Kaplan, Inc., the compared to 178,300 at the end of 2004), and this continues to
Company provides educational services for individuals, schools and have a large favorable impact on the division's revenue and
businesses. The Company's business units are diverse and subject operating income. The cable division began offering bundled ser-
to different trends and risks. vices in 2003 (basic and tier service, digital service, and high-
In 2004, the Company's education division became the largest speed data service in one package) with monthly subscriber
operating division of the Company from a revenue standpoint. In discounts. In the fourth quarter of 2005, a new bundling offer was
2005, the education division was also the largest operating division introduced whereby discounts are offered for new subscribers or
from an operating income standpoint. The Company has devoted existing subscribers taking new services (analog service, enhanced
significant resources and attention to this division, given the attrac- digital service and high-speed data service; telephony service will
tiveness of investment opportunities and growth prospects. The be offered starting in 2006). The new bundling elements are priced
growth of Kaplan in recent years has come from both rapid internal at $29.95 each for six months and most $29.95 pricing is availa-
growth and acquisitions. Each of Kaplan's businesses showed ble for an extended period of time for customers taking three or
revenue growth in 2005. While operating income increased in more services.
2005 for the education division as a whole, operating income was The Company's newspaper publishing, broadcast television and
down at Kaplan Professional, Score! and Kaplan Higher Education. magazine publishing divisions derive revenue from advertising and,
Kaplan Professional results were adversely impacted by soft market to a lesser extent, circulation and subscriptions. The results of these
demand in the securities and insurance course offerings. In 2005, divisions tend to fluctuate with the overall advertising cycle
Kaplan Professional completed the acquisition of BISYS Education (amongst other business factors). In 2005, advertising demand
Services, a provider of licensing education and compliance solu- was soft. Print advertising revenue at The Washington Post newspa-
tions for financial services institutions and professionals. Kaplan's per declined 1% (52 weeks in 2005 versus 53 weeks in 2004),
higher education division incurred increased operating costs associ- with declines in national and retail, offset by increases in zoned and
ated with expansion activities, which contributed to the decline in classified recruitment advertising. Circulation volume continued a
operating income, particularly at the fixed-facility operations. downward trend. However, the Company's online publishing busi-
Kaplan's international operations expanded in 2005 with the acqui- nesses, Washingtonpost.Newsweek Interactive and Slate, showed
sition of Singapore-based Asia Pacific Management Institute 29% revenue growth in 2005.
(APMI), a private education provider for undergraduate and
postgraduate students in Asia, and the acquisition of The Kidum The Company's television broadcasting division experienced a
Group, the leading provider of test preparation services in Israel. large decrease in operating income due primarily to the absence of
Kaplan's other international operations include businesses acquired significant political and Olympics-related advertising in 2005. The
in 2003, including The Financial Training Company, a training Company expects a large increase in television broadcasting oper-
services company for accountants and financial services profession- ating income for 2006 as a result of anticipated significant political
als, primarily in the United Kingdom; and Dublin Business School, and Olympics-related advertising. Newsweek magazine showed
Ireland's largest private undergraduate and graduate institution. advertising revenue declines in 2005 in both its domestic and
Kaplan made ten acquisitions in 2005; the three largest are men- international editions.
tioned above. Over the past several years, Kaplan's revenues have The Company generates a significant amount of cash from its
grown rapidly, while operating income (loss) has fluctuated due businesses that is used to support its operations, to pay down debt,
largely to various business investments and stock compensation and to fund capital expenditures, dividends and acquisitions.
charges.
RESULTS OF OPERATIONS Ì 2005 COMPARED TO 2004
The cable division has also been a source of recent growth and
capital investment. Cable ONE's industry has experienced signifi- Net income was $314.3 million ($32.59 per share) for the fiscal
cant technological changes, which have created new revenue year 2005 ended January 1, 2006, down from $332.7 million
opportunities, such as digital television and broadband, as well as ($34.59 per share) for the fiscal year 2004 ended January 2,
increased competition, particularly from satellite television service 2005. Operating results for the Company in 2005 include the
providers. In 2006, the cable division will begin to offer telephone impact of charges and lost revenues associated with Katrina and
service using voice over Internet protocol (VoIP). The cable divi- other hurricanes; the Company estimates that the adverse impact on
2005 FORM 10-K 31