Washington Post 2007 Annual Report Download - page 56

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 education and
media company, with education as the largest and 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.
The Company’s education division is the largest operating
division of the Company, accounting for 49% of the
Company’s consolidated revenues in 2007. 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
segments showed revenue growth in 2007. Kaplan’s higher
education division showed strong operating income growth,
for both its online and fixed-facility operations, due to
increased enrollment in the online programs, course fee
increases and demand for higher priced programs. Operating
results for Kaplan’s test prep division were adversely impacted by
weakness in the Score! and K12 businesses; however, the
traditional test preparation programs, as well as the Aspect
and PMBR businesses (acquired in 2006), reported strong
results for 2007. Kaplan professional results improved in 2007
due to growth at Kaplan Professional (U.K.) and Kaplan’s
Schweser CFA programs. Overall operating income was down
at Kaplan Professional (U.S.), due to continued weakness in the
real estate, insurance and securities businesses. As a result of the
continued weakness at Score! and Kaplan Professional (U.S.),
Kaplan announced plans to restructure these businesses in the
fourth quarter of 2007 to better position these businesses for
improved operating results in the future.
Kaplan made several acquisitions in its professional division in
2007, including the March 2007 acquisition of EduNeering
Holdings, Inc., a Princeton, NJ-based provider of knowledge
management solutions for organizations in the pharmaceutical,
medical device, healthcare, energy and manufacturing sectors;
and the August 2007 acquisition of the education division of
Financial Services Institute of Australasia. In 2006, Kaplan
acquired Tribeca Learning Limited, a leading provider of
education to the Australian financial services sector, also
included in Kaplan’s professional division. Other significant
2006 acquisitions were in Kaplan’s test prep business,
including PMBR, a nationwide provider of test preparation for
the Multistate Bar Exam, and Aspect Education Limited, a major
provider of English-language instruction in the U.K., Ireland,
Australia, New Zealand, Canada and the U.S. Kaplan made
9 acquisitions in 2007 and 11 acquisitions in 2006; the largest
of these are mentioned above. Over the past several years,
Kaplan’s revenues have grown rapidly, while operating income
has fluctuated due largely to various business investments and
stock compensation charges.
Thecabledivisionhasalsobeenasourceofrecentgrowthand
capital investment. Cable ONE’s industry has experienced
significant technological changes that have created new
revenue opportunities, such as digital television, broadband
and, more recently, telephony. Cable ONE has also
experienced increased competition, particularly from satellite
television service providers and, to a smaller extent, other
telephony providers. The cable division began offering
telephone service on a limited basis using voice over Internet
protocol (VoIP) in the second quarter of 2006; by the end of
2007, cable telephone services were being offered in all or part
of systems representing 90% of homes passed, with
approximately 58,600 subscribers at the end of 2007. The
continued launch and selling of telephony will be a major
emphasis for the division in 2008. The cable division’s
subscriber base improved overall in 2007 (increase of 9,100
subscribers to approximately 702,700 at the end of 2007).
There was no monthly rate increase for basic cable service in
2007, but effective January 1, 2008, a $3.50 monthly basic
cable service increase was implemented. High-speed data
subscribers grew 18% to approximately 341,000 at the end
of 2007, and a $3.05 monthly rate increase was implemented
for most high-speed data subscribers in September 2007. The
cable division continues to provide monthly discounts for
subscribers who take at least three offered services (basic
service, digital service, high-speed data service and/or
telephony service). Promotional discounts are offered for new
subscribers or existing subscribers adding new 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,
among other business factors. Like many other large newspapers,
however, The Washington Post has experienced a continued
downward trend in print advertising revenue, which was down
13% in 2007, with declines in real estate, classified, national
and retail. This follows a 4% print advertising revenue decline at
The Washington Post in 2006. Circulation volume also continued
a downward trend. The Company’s online publishing businesses,
Washingtonpost.Newsweek Interactive and Slate, reported an
11% revenue increase in 2007; however, online revenue growth
has slowed down, from 28% growth in 2006. Given the
continued downward trend in print advertising and circulation,
in February 2008, The Washington Post announced that a
Voluntary Retirement Incentive Program will be offered to some
of its employees in 2008, and that its College Park, MD, printing
plant will close in early 2010.
The Company’s television broadcasting division reported a
largedecreaseinoperatingincomedueprimarilytosignificant
political and Olympics-related advertising in 2006. Newsweek
40 THE WASHINGTON POST COMPANY