Washington Post 2008 Annual Report Download - page 51

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. Through its subsidiary Kaplan, Inc., the Company
provides educational services for individuals, schools and
businesses. The Company also operates principally in four areas of
the media business: cable television, newspaper publishing,
television broadcasting and magazine publishing. 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 52% of the Company’s
consolidated revenues in 2008. 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 2008. Kaplan’s higher education division
showed strong operating income growth, for both its online and
fixed-facility operations, due to increased enrollment in both online
and residential programs. Operating results for Kaplan’s test prep
division were adversely impacted by continued weakness in the
Score businesses, and higher payroll and marketing costs for the
traditional test prep program in 2008, offset by strong results for the
English-language programs in 2008. Kaplan’s professional division
results declined in 2008 due to continued weakness in the real
estate, insurance and securities businesses, and unfavorable
exchange rates at Kaplan Professional (U.K.); Kaplan’s Schweser
CFA program and Kaplan Professional (Asia-Pacific) reported
improved results in 2008. As a result of the continued weakness at
Score and Kaplan Professional (U.S.), Kaplan implemented
restructuring plans in the fourth quarter of 2007 and in 2008 to
better position these businesses for the future.
Kaplan made 9 acquisitions in 2008, 9 acquisitions in 2007 and
11 acquisitions in 2006; the largest of these are mentioned below.
In 2007, Kaplan made several acquisitions in its professional
division, 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. 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.
The cable division has also been a source of recent growth and
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’s subscriber
base was down very slightly in 2008 (decrease of 3,200
subscribers to approximately 699,500 at the end of 2008); a basic
cable service rate increase was implemented in January 2008. 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 2008, cable telephone services were being
offered in all or part of systems representing 95% of homes passed,
with approximately 93,500 subscribers. High-speed data
subscribers grew 9% to approximately 372,900 at the end of
2008. 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, The Washington Post has
experienced a significant continued downward trend in print advertising
revenue, which declined 17% in 2008, reflecting a large decline in
classifieds, along with reductions in retail, general, supplements and
zones. This follows a 13% print advertising revenue decline at The
Washington Post in 2007 and a 4% decline in 2006. Circulation
volume also continued a downward trend. The Company’s online
publishing businesses, Washingtonpost.Newsweek Interactive and The
Slate Group, reported a 7% revenue increase in 2008; however,
online revenue growth has slowed, from 11% growth in 2007 and
28% growth in 2006. Given the continued downward trend in print
advertising and circulation, The Washington Post has developed plans
to integrate the print and online operations in 2009 and has developed
and implemented initiatives to reduce its cost structure now and in the
future. In the first quarter of 2008, a Voluntary Retirement Incentive
Program was completed, with 231 employees accepting early
retirement. Also in 2008, The Post developed plans to close the
College Park, MD, printing plant in the second half of 2009.
The Company’s television broadcasting division reported a decline
in revenues and operating income due largely to weakness in most
of its markets and product categories, despite $28.6 million in
increased political and Olympics-related advertising revenue in
2008.
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