Washington Post 2010 Annual Report Download - page 62

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 business. Through its
subsidiary Kaplan, Inc., the Company provides educational services
for individuals, schools and businesses. The Company also operates
principally in three areas of the media business: cable television,
newspaper publishing and television broadcasting. 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 about 62% of the Company’s
consolidated revenues in 2010. 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 is organized into the
following four operating segments: Kaplan Higher Education (KHE),
Test Preparation, Kaplan International and Kaplan Ventures.
KHE is the largest segment of Kaplan, representing 62% of total
Kaplan revenues in 2010. KHE showed significant revenue growth
in 2010; however, fourth quarter 2010 revenue was down by
3% compared to 2009 as enrollments declined. The KHE division
showed strong operating income growth in 2010; however,
operating income also declined in the fourth quarter of 2010.
KHE businesses are subject to a number of recently enacted and
pending regulations by the U.S. Department of Education, and
Kaplan implemented a new program, the Kaplan Commitment, in
the fourth quarter of 2010 that includes a “risk-free period” of
enrollment. The recent and potential rulemaking activities and the
Kaplan Commitment could have a material adverse effect on
Kaplan’s future operating results. In the short term, the Company
expects KHE’s operating income to be down very substantially in
2011.
Kaplan International also reported revenue growth for 2010,
while the remaining segments reported revenue declines. Kaplan
International results improved in 2010, primarily from enrollment
growth in the pathway and other higher education programs in the
U.K. and Singapore. Operating results for Kaplan’s Test Preparation
division were adversely impacted by restructuring activity at K12,
and at the traditional test prep centers, with the migration of students
to online and hybrid test preparation offerings; these results were
offset by improved results at its professional training businesses due
to expense reductions. Kaplan Ventures’ losses increased primarily
from increased investment at certain developing business units and
the sale of a business.
Kaplan made four acquisitions in 2010, two acquisitions in 2009
and nine acquisitions in 2008. None of these was individually
significant. 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 and DVRs. Cable ONE has also experienced
increased competition, particularly from satellite television service
providers and, to a lesser extent, other telephony providers. Cable
telephone subscribers and high-speed data subscribers grew by
40% and 8%, respectively, to approximately 153,000 and
425,400, respectively, at the end of 2010. The cable division’s
basic subscriber base was down in 2010 (decrease of 20,600
subscribers to approximately 648,400 at the end of 2010). The
cable division continues to provide monthly discounts for subscribers
who take three offered services (video service, high-speed data
service and telephony service). Promotional discounts are offered for
new subscribers or existing subscribers adding new services.
The Company’s newspaper publishing and television broadcasting
divisions derive revenue from advertising and, at the publishing
units, circulation and subscriptions. The results of these divisions tend
to fluctuate with the overall advertising cycle, among other business
factors.
Like many other large metropolitan newspapers, The Washington
Post has experienced a significant continued downward trend in
print advertising revenue over the past several years, which
moderated to a 6% decline in 2010. This follows a 23% print
advertising decline at The Washington Post in 2009 and a 17%
decline in 2008. Circulation volume also continued a downward
trend, although revenues increased 4% due to home-delivery
price increases. The Company’s online publishing activities at
washingtonpost.com and The Slate Group reported a 14% revenue
increase in 2010, following an 8% revenue decline in 2009. The
Washington Post implemented many recent cost-saving initiatives,
including a Voluntary Retirement Incentive Program in 2009, the July
2009 closing of the Post’s College Park, MD, printing plant and the
integration of the print and online operations. These initiatives have
resulted in significantly improved operating results for the newspaper
publishing division in 2010.
The Company’s television broadcasting division reported a
significant increase in revenues and a 72% increase in operating
income in 2010 due to improved advertising demand in all markets
and significant political and winter Olympics-related advertising.
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 — 2010 COMPARED TO 2009
Net income available for common shares was $277.2 million
($31.04 per share) for the fiscal year ended January 2, 2011, up
from net income available for common shares of $91.8 million
($9.78 per share) for the fiscal year ended January 3, 2010. Net
income includes $28.8 million ($3.22 per share) and $45.1
million ($4.80 per share) in losses from discontinued operations for
46 THE WASHINGTON POST COMPANY