Washington Post 2008 Annual Report Download - page 54

revenues, as well as a rate increase in September 2007 for most
high-speed data subscribers; a January 2008 basic video cable
service rate increase at nearly all of its systems; and a rate increase
in August 2008 for telephone subscribers. Previously, the last rate
increase for most high-speed data subscribers was in March 2003,
and the last rate increase for basic cable subscribers was in
February 2006.
Cable television division operating income in 2008 increased 31%
to $162.2 million, from $123.7 million in 2007. The increase in
operating income is due to the division’s revenue growth, offset by
higher depreciation and programming expenses and increases in
Internet and telephony costs. Operating margin at the cable
television division was 23% in 2008, compared to 20% in 2007.
Revenue Generating Units (RGUs) grew 5% in 2008 due to
continued growth in high-speed data and telephony subscribers.
The cable television division began offering telephone service on a
very limited basis in the second quarter of 2006; at December 31,
2008, telephone service is being offered in all or part of systems
representing 95% of homes passed. A summary of RGUs is as
follows:
Cable Television Division
Subscribers December 31, 2008 December 31, 2007
Basic ...................... 699,469 702,669
Digital ..................... 224,877 223,931
High-speed data .............. 372,887 341,034
Telephony .................. 93,520 58,640
Total ..................... 1,390,753 1,326,274
RGUs include about 6,900 subscribers who receive free basic
video service, primarily local governments, schools and other
organizations as required by various franchise agreements.
Below are details of cable division capital expenditures for 2008
and 2007 in the NCTA Standard Reporting Categories:
(in millions) 2008 2007
Customer premise equipment ............... $ 34.5 $ 52.5
Commercial ........................... ——
Scalable infrastructure .................... 19.0 20.6
Line extensions ......................... 16.2 21.1
Upgrade/rebuild ....................... 14.8 12.8
Support capital ......................... 29.7 31.3
Total ............................... $114.2 $138.3
Newspaper Publishing Division. Newspaper publishing division
revenue in 2008 decreased 10% to $801.3 million, from $889.8
million in 2007. Print advertising revenue at The Post in 2008 declined
17% to $410.4 million, from $496.2 million in 2007. The decline in
2008 is primarily the result of a large decrease in classified advertising
revenue, along with reductions in retail, general, supplements and
zones. Revenue generated by the Company’s online publishing
activities, primarily washingtonpost.com, increased 7% to $122.7
million, from $114.2 million in 2007. Display online advertising
revenue grew 17%, and online classified advertising revenue on
washingtonpost.com declined 3%. A portion of the Company’s online
publishing revenue is included in the magazine publishing division.
Daily circulation at The Post declined 2.6%, and Sunday circulation
declined 3.3%; average daily circulation totaled 633,100
(unaudited), and average Sunday circulation totaled 872,500
(unaudited).
The newspaper publishing division reported an operating loss of
$192.7 million in 2008, compared to operating income of $66.4
million in 2007. In March 2008, the Company offered a Voluntary
Retirement Incentive Program to certain employees of The
Washington Post newspaper, and 231 employees accepted the
offer. Early retirement program expense of $79.8 million was
recorded in the second quarter of 2008, which is being funded
mostly from the assets of the Company’s pension plans. Also, The
Post will close its College Park, MD, printing plant in the second
half of 2009, and none of the four presses will be moved to The
Post’s Springfield, VA, plant. The Company reassessed the useful
life of the presses and the fair value of the plant building and
recorded accelerated depreciation beginning in June 2008; as a
result, accelerated depreciation of $22.3 million was recorded in
2008. The Company estimates that additional accelerated
depreciation of $29.2 million will be recorded in 2009. Also in
2008, as a result of the challenging advertising environment at the
Company’s community newspapers, The Herald and other
operations included in the newspaper publishing division, the
company recorded goodwill impairment charges of $65.8 million.
The decline in operating results is due to reduced revenues and the
unusual or one-time operating expense items noted above;
excluding these charges, however, the newspaper publishing
division still incurred an operating loss in 2008 due to revenue
declines. Newsprint expense was down 3% for 2008.
Television Broadcasting Division. Revenueforthetelevision
broadcasting division decreased 4% to $325.1 million in 2008,
from $340.0 million in 2007. The revenue decline is the result of
weaker advertising demand in most markets and product categories,
offset by a $22.3 million increase in political advertising and $6.3
million in incremental summer Olympics-related advertising at the
Company’s NBC affiliates. Excluding the increased political and
Olympics-related advertising, revenues were $296.5 million in
2008, a 13% decline from 2007.
In 2008, the television broadcasting division recorded $6.9 million
in non-cash property, plant and equipment gains as a reduction to
expense due to new digital equipment received at no cost from
Sprint/Nextel in connection with an FCC mandate reallocating a
portion of the broadcast spectrum. In July 2007, the Company
entered into a transaction to sell and lease back its current Miami
television station facility; a $9.5 million gain was recorded as a
reduction to expense in 2007.
Operating income for 2008 declined 13% to $123.5 million, from
$142.1 million in 2007. The decline in operating income is due
primarily to overall weak advertising demand and the $9.5 million
gain on the sale of property at the Miami television station in 2007,
offset by the $6.9 million in non-cash gains in 2008. Operating
margin at the broadcast television division was 38% for 2008 and
42% for 2007; however, the operating margins in 2008 and
2007 would have been lower without the property, plant and
equipment gains.
42 THE WASHINGTON POST COMPANY