Washington Post 2012 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 extensive
worldwide 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 55% of the Company’s
consolidated revenues in 2012. 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. In response to student demand levels,
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. These plans will continue to be
implemented in 2013, and Kaplan may develop additional
restructuring plans as management continues to evaluate Kaplan’s
cost structure. Kaplan is organized into the following three operating
segments: Kaplan Higher Education (KHE), Kaplan Test Preparation
(KTP) and Kaplan International.
KHE is the largest segment of Kaplan, representing 52% of total
Kaplan revenues in 2012. KHE’s revenue and operating income
were down very substantially in 2012, largely due to enrollment
declines arising from generally lower demand, along with
significant restructuring activities, including school closures. KHE’s
restructuring costs totaled $23.4 million in 2012.
Kaplan International reported revenue growth for 2012 due to
several acquisitions and enrollment growth in the English-language
and Singapore higher education programs. Kaplan International
results improved in 2012 due to strong results in Singapore, despite
overall losses from business acquired in 2011. Restructuring costs
totaled $16.4 million in 2012.
Operating results for KTP improved in 2012 and KTP generated
positive cash flow in 2012, due largely to lower operating
expenses from restructuring activities in prior years. Despite this,
KTP recorded a $111.6 million impairment charge on goodwill
and other long-lived assets due to a slowdown in enrollment growth
in the fourth quarter of 2012, KTP operating loss experience for the
past three years, and other factors.
Kaplan made three acquisitions in 2012, five acquisitions in 2011
and four acquisitions in 2010. None of these was individually
significant.
The cable television division continues to grow in certain service
categories and make substantial capital investments. The cable
television division continues to experience increased competition
from telephony providers and satellite television service providers.
Cable telephone subscribers and high-speed data subscribers grew
by 3% and 2%, respectively, to approximately 184,500 and
459,200 subscribers, respectively, at the end of 2012. The cable
television division’s basic video subscriber base was down in 2012
(decrease of approximately 27,800 subscribers to approximately
593,600 at the end of 2012). The cable television division
implemented rate increases for many subscribers in June 2012 as
they had not raised rates since June 2009. This rate increase will
help the division recover some of the significant programming and
retransmission rate increases that it has incurred in recent years.
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
a 14% decline in 2012. This follows an 11% print advertising decline
at the Post in 2011 and a 6% decline in 2010. Circulation volume
also continued a downward trend, and circulation revenues were
down 2% compared to 2011. The Company’s online publishing
activities, primarily at washingtonpost.com and The Slate Group,
reported a 5% revenue increase in 2012, following an 8% decline in
2011. The Post has implemented many cost-saving initiatives in the
past few years, which resulted in significant cost reductions in recent
years; however, newspaper publishing division operating results
declined in 2012 due primarily to revenue reductions and increased
restructuring costs incurred in 2012, offset by an overall reduction in
costs.
The Company’s television broadcasting division reported a
significant increase in revenues and in operating income in 2012
due primarily to significant political and Olympics-related
advertising included in 2012.
The Company generates a significant amount of cash from its
businesses that is used to support its operations, pay down debt
and fund capital expenditures, share repurchases, dividends,
acquisitions and other investments.
RESULTS OF OPERATIONS — 2012 COMPARED TO 2011
Net income attributable to common shares was $131.2 million
($17.39 per share) for the fiscal year ended December 31, 2012,
compared to $116.2 million ($14.70 per share) for the fiscal year
ended December 31, 2011. Net income includes $83.2 million in
income ($11.30 per share) and $28.5 million in losses ($3.60 per
share) from discontinued operations for 2012 and 2011,
respectively. Income from continuing operations attributable to
common shares was $48.0 million ($6.09 per share) for 2012,
compared to $144.7 million ($18.30 per share) for 2011. As a
result of the Company’s share repurchases, there were 6% fewer
diluted average shares outstanding in 2012.
50 THE WASHINGTON POST COMPANY