Washington Post 2011 Annual Report Download - page 60

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 education services
for individuals, schools and businesses. The Company also operates
principally in three areas of the media industry: 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 58% of the Company’s
consolidated revenues in 2011. The Company has devoted
significant resources and attention to this division for many years,
given the attractiveness of investment opportunities and growth
prospects during this time. With recent revenue declines and other
business challenges, Kaplan has formulated and implemented
restructuring plans at many of its businesses, resulting in significant
costs in order to establish lower cost levels in future periods. Kaplan
is organized into the following four operating segments: Kaplan
Higher Education (KHE), Kaplan Test Preparation (KTP), Kaplan
International and Kaplan Ventures.
KHE is the largest segment of Kaplan, representing 57% of total
Kaplan revenues in 2011. KHE’s revenue and operating income
were down very substantially in 2011, largely due to enrollment
declines arising from generally lower demand, along with marketing
and admissions changes to increase student selectivity and help
KHE comply with recent regulations. KHE implemented a new
program, the Kaplan Commitment, starting in the fourth quarter of
2010 that provides first-time students with a risk-free trial period.
Kaplan International reported revenue growth for 2011 due to
several acquisitions, favorable exchange rates and enrollment
growth in the pathways and English-language programs. Kaplan
International results declined in 2011 due to overall losses from
newly acquired businesses, increased expenses and declines at its
U.K. professional training schools due to new pending student visa
restrictions. Operating results for KTP were adversely impacted by
restructuring activity in connection with the migration of students to
less expensive online and hybrid test preparation offerings. Also,
price reductions for many programs related to increased competition
resulted in reduced revenues. Kaplan Ventures reported losses of
$10.1 million in 2011; the Company is exploring other
alternatives, including possible sales, with respect to the remaining
Kaplan Ventures businesses.
Kaplan made five acquisitions in 2011, four acquisitions in 2010
and two acquisitions in 2009. None of these was individually
significant; however, two of the 2011 acquisitions were in
Australia, where the Company sees attractive growth opportunities
in higher education.
The cable television division continues to grow in certain service
categories and make substantial capital investments. The cable
television division 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 18% and 6%, respectively,
to approximately 180,000 and 451,100 subscribers, respectively,
at the end of 2011. The cable television division’s basic video
subscriber base was down in 2011 (decrease of 27,000
subscribers to approximately 621,400 at the end of 2011). The
cable television division continues to focus on subscriber retention
and growth in overall Primary Service Units (PSUs) and has not
raised rates since June 2009. The cable television division has
expanded promotional discount offerings to new subscribers and
existing subscribers adding new services, as well as subscribers
who take more than one offered service (video service, high-speed
data service and telephony service).
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 (the Post) has experienced a significant continued downward
trend in print advertising revenue over the past several years,
including an 11% decline in 2011. This follows a 6% print
advertising decline at the Post in 2010 and a 23% decline in
2009. Circulation volume also continued a downward trend,
although revenues were even compared to 2010 due to home-
delivery price increases. The Company’s online publishing activities,
primarily at washingtonpost.com and The Slate Group, reported an
8% revenue decline in 2011, following a 14% increase in 2010.
The Post has implemented many cost-saving initiatives in the past
few years, which resulted in significantly improved operating results
for the newspaper publishing division in 2010, however,
newspaper publishing division operating results declined in 2011
due to revenue reductions, offset by a small decrease in costs.
The Company’s television broadcasting division reported a decline
in revenues and in operating income in 2011 due primarily to
significant political and Olympics-related advertising included in
2010.
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 — 2011 COMPARED TO 2010
Net income attributable to common shares was $116.2 million
($14.70 per share) for the fiscal year ended December 31, 2011,
down from net income attributable to common shares of $277.2
million ($31.04 per share) for the fiscal year ended January 2,
2011. Net income includes $4.2 million ($0.53 per share) and
$42.1 million ($4.71 per share) in losses from discontinued
operations for fiscal year 2011 and 2010, respectively. Income
from continuing operations attributable to common shares was
$120.4 million ($15.23 per share) for fiscal year 2011, compared
48 THE WASHINGTON POST COMPANY