Washington Post 2008 Annual Report Download - page 52

Newsweek magazine advertising revenue was down 14% in 2008
due to fewer ad pages at the domestic edition. In 2008,
Newsweek implemented a circulation rate base reduction at its
domestic edition, from 3.1 million to 2.6 million, and in February
2009, Newsweek announced another rate base reduction, to 1.5
million by January 2010. Also in 2008, Newsweek completed a
Voluntary Retirement Incentive Program, with 117 employees
accepting early retirement. Newsweek recently announced another
Voluntary Retirement Incentive Program that will be completed in the
first quarter of 2009; a total of 43 employees have accepted the
offer.
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, share repurchases, dividends,
acquisitions and other investments.
RESULTS OF OPERATIONS — 2008 COMPARED TO 2007
Net income was $65.7 million ($6.87 per share) for the fiscal year
ended December 28, 2008, down from $288.6 million ($30.19
per share) for the fiscal year ended December 30, 2007. The
Company’s results for 2008 and 2007 include several unusual or
one-time items, as described below.
Items included in the Company’s results in 2008:
• Goodwill, intangible assets and other impairment charges of
$142.3 million at the Company’s online lead generation
business, included in the other businesses and corporate office
segment; at the Company’s community newspapers, The Herald
and other operations, included in the newspaper publishing
segment; and at two of the Company’s equity affiliates (after-tax
impact of $115.7 million, or $12.35 per share);
• Charges of $111.1 million related to early retirement program
expense at The Washington Post newspaper, the corporate office
and Newsweek (after-tax impact of $67.2 million, or $7.07 per
share);
• $22.3 million in accelerated depreciation related to the planned
closing of The Washington Post’s College Park, MD, plant
(after-tax impact of $13.9 million, or $1.48 per share);
• Expenses and charges of $11.0 million (after-tax impact of $6.8
million, or $0.72 per share) in connection with the restructuring of
Kaplan Professional (U.S.);
• Non-operating gains include $47.3 million from the sales of
marketable equity securities (after-tax impact of $28.9 million, or
$3.09 per share), offset by $46.3 million in non-operating
unrealized foreign currency losses on intercompany loans arising
from the strengthening of the U.S. dollar (after-tax impact of
$28.5 million, or $3.04 per share); and
• Income tax expense of $9.5 million related to valuation
allowances provided against certain state and local income tax
benefits, net of U.S. Federal income tax benefits ($1.01 per
share).
Items included in the Company’s results in 2007:
• A gain of $9.5 million from the sale of property at the Company’s
television station in Miami (after-tax impact of $5.9 million, or
$0.62 per share);
• Expenses and charges of $17.2 million (after-tax impact of
$10.3 million, or $1.08 per share) in connection with the
restructuring of Kaplan Professional (U.S.) and Score;
• Non-operating unrealized foreign currency gains on inter-
company loans of $8.8 million (after-tax impact of $5.5 million,
or $0.58 per share); and
• A charge of $6.6 million ($0.70 per share) in additional income
tax expense, as the result of a $12.9 million increase in taxes
associated with Bowater Mersey, offset by a tax benefit of $6.3
million associated with changes in certain state income tax laws.
Both of these were non-cash items in 2007, impacting the
Company’s long-term net deferred income tax liabilities.
Revenue for 2008 was $4,461.6 million, up 7% compared to
revenue of $4,180.4 million in 2007. The increase is due primarily
to significant revenue growth at the education and cable divisions,
partially offset by revenue declines at the Company’s newspaper
publishing, magazine publishing and television broadcasting
divisions. Advertising revenue decreased 12% in 2008, and
circulation and subscriber revenue increased 10%. Education
revenue increased 15% in 2008, and other revenue was up 49%.
The decrease in advertising revenue is due to declines in print
advertising at The Washington Post, as well as declines in the
television broadcasting and magazine publishing division. The
increase in circulation and subscriber revenue is due to a 16%
increase in subscriber revenue at the cable division from continued
growth in all major product offerings, and a 4% increase in
circulation revenue at The Post. This increase was offset by a 12%
decline in Newsweek circulation revenue due primarily to a
circulation rate base reduction at the domestic edition of
Newsweek, from 3.1 million to 2.6 million. Revenue growth at
Kaplan (about 24% of which was from acquisitions) accounted for
the increase in education revenue. Other revenues increased due to
the CourseAdvisor acquisition in October 2007.
Operating costs and expenses for the year increased 16% to
$4,287.4 million, from $3,703.4 million in 2007. The increase is
due to higher expenses from operating growth at Kaplan and Cable
ONE, as well as goodwill and other intangible asset impairment
charges, and early retirement program expenses as previously
discussed.
Operating income for 2008 declined to $174.2 million, from
$477.0 million in 2007. Operating results were significantly
impacted by the unusual or one-time operating items described
above. Excluding these one-time or unusual items, results at the
newspaper publishing, magazine publishing and television
broadcasting divisions were down generally due to weakness in
advertising demand, offset by improved results at the Company’s
education and cable television divisions.
The Company’s 2008 operating income includes $25.7 million of
net pension credits, compared to $22.3 million in 2007. These
amounts exclude $111.1 million in charges related to early
retirement programs in 2008.
40 THE WASHINGTON POST COMPANY