Washington Post 2009 Annual Report Download - page 52

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 58% of the Company’s consolidated
revenues in 2009. 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.
Kaplan completed a reorganization of its organizational and
internal reporting structure in 2009 into the following four operating
segments: Higher Education, Test Preparation, Kaplan International
and Kaplan Ventures. Higher Education showed significant revenue
growth in 2009, while the other segments reported revenue declines.
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 Preparation division were adversely
impacted by continued weakness in the Score businesses and
declines at the traditional programs, offset by improved results at its
professional training businesses due to expense reductions. Kaplan
International results declined in 2009 primarily from weaknesses in
financial education programs in the U.K. and English-language
programs. Kaplan Ventures’ losses increased primarily from
development costs incurred at Kaplan Virtual Education, a group of
online high schools. The restructuring of Score was completed in 2009.
The Company decided to offer tutoring services, previously provided at
Score, in Kaplan Test Preparation centers; 14 Score centers were
converted into Kaplan test preparation centers and the remaining 64
Score centers were closed. Restructuring activities at Kaplan’s
professional domestic businesses were also completed in 2009.
Kaplan made two acquisitions in 2009, nine acquisitions in 2008
and nine acquisitions in 2007; the largest of these are mentioned
below. In 2007, Kaplan Ventures acquired EduNeering Holdings,
Inc., a Princeton, NJ-based provider of knowledge management
solutions for organizations in the pharmaceutical, medical device,
health care, energy and manufacturing sectors. In August 2007,
Kaplan International completed the acquisition of the education
division of Financial Services Institute of Australasia. Over the past
several years, Kaplan’s revenues have grown rapidly, while
operating income has fluctuated due largely to restructuring activities,
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 in
2009 (decrease of 30,500 subscribers to approximately 669,000
at the end of 2009) due to the challenging economic environment in
2009 and competition from satellite and telephone companies. Cable
telephone subscribers and high-speed data subscribers grew 17%
and 5%, respectively, to approximately 109,600 and 392,800,
respectively, at the end of 2009. 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 23% in 2009, reflecting a large
decline in classified, zones and retail advertising. This follows a 17%
print advertising decline at The Washington Post in 2008 and a 13%
decline in 2007. Circulation volume also continued a downward
trend, although revenues increased 7% due to home-delivery price
increases and significant single-copy sales in January 2009 during the
Presidential Inauguration. The Company’s online publishing businesses,
primarily washingtonpost.com and The Slate Group, reported an 8%
revenue decline in 2009, following a 7% revenue increase in 2008.
The Washington Post is integrating the print and online operations and
implemented cost savings initiatives in 2009, including a Voluntary
Retirement Incentive Program in which 221 employees accepted early
retirement and the July 2009 closing of the Post’s College Park, MD,
printing plant.
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 and the absence of significant political
and Olympics-related advertising revenue in 2009.
Newsweek magazine advertising revenue was down 37% in 2009
due to fewer ads at the domestic and international editions, following
a 14% decline 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
2009, Newsweek implemented another rate base reduction, to
1.5 million in January 2010. Also in 2009, Newsweek completed a
Voluntary Retirement Incentive Program, with 44 employees accepting
early retirement.
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.
38 THE WASHINGTON POST COMPANY