2011 ANNUAL REPORT REVENUE BY PRINCIPAL OPERATIONS EDUCATION 58% CABLE TELEVISION 18% NEWSPAPER PUBLISHING 15% TELEVISION BROADCASTING 8% OTHER BUSINESSES 1% FINANCIAL HIGHLIGHTS (in thousands, except per share amounts) 2011 2010 Change Operating revenues $ 4,214,833 $ 4,684,041 –10% Income from operations $ 295,958 $ 562,662 –47% Net income attributable to common shares $ 116,233 $ 277,1 92 –58% Diluted earnings per common share from continuing operations $ 15.23 $ 35.75 –57% Diluted earnings per common share $ 14.70 $ 3 1.04 –53% Dividends per common share $ 9.40 $ 9.00 +4% Common stockholders’ equity per share $ 342.76 $ 343.47 — Diluted average number of common shares outstanding 7,905 8,931 –11% OPERATING REVENUES INCOME FROM OPERATIONS ($ in millions) ($ in millions) 11 4,215 11 296 10 4,684 10 563 09 4,326 09 290 08 4, 161 08 239 07 3,852 07 485 NET INCOME ATTRIBUTABLE TO COMMON SHARES RETURN ON AVERAGE COMMON ($ in millions) STOCKHOLDERS’ EQUITY* 11 116 11 4.4% 10 277 10 9.8% 09 92 09 3. 1% 08 65 08 2. 1% 07 288 07 9.5% DILUTED EARNINGS PER COMMON SHARE DILUTED EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS ($) ($) 11 15.23 11 14.70 10 35.75 10 31.04 09 1 6.70 09 9.78 08 10.57 08 6.87 07 30.68 07 30.19 * Computed on a comparable basis, excluding the impact of the adjustment for pensions and other postretirement plans on average common stockholders’ equity. 1 THE WASHINGTON POST COMPANY TO OUR SHAREHOLDERS 2011 was a poor year in financial results for Why? The Washington Post Company; 2012 is almost certain to be little better. Many of us read and love the print Washington Post newspaper every day when we’re at home. We are investing significantly to see healthy The Post team, led by publisher Katharine growth from Kaplan in 2013 and beyond. (I’ll Weymouth, president Steve Hills and executive explain in this letter why simple mathematics editor Marcus Brauchli, has managed the print makes such growth in 2012 very unlikely.) I think newspaper business very well. While our circu- this is the smartest course for the Company. lation continued to decline in 2011, it is unbe- lievably strong compared to that of others. Since you, as shareholders, are partners of all of us in Post Company management going Washington is the number eight market in the forward, I’ll try to spell out what we see as the U.S., according to Nielsen. The Post’s circulation pluses and minuses of the approach we’re is miles higher than the local circulation of news- taking. You can then make up your own mind papers in all the larger markets, except for The about whether you want to come with us. Los Angeles Times (which is about 11% larger than the Post in daily circulation — in a market To sum up the high points from the non- more than twice the size of Washington). education parts of the Company: it was another good year (though operating results declined) DAILY CIRCULATION at Cable ONE, where some competitive storm Rank Newspaper Total Print clouds continue to gather; and an even better year at Post–Newsweek Stations, which was far 1 Los Angeles Times 534,843 more profitable in 2011 than I’d have predicted 2 The Washington Post 480,310 in 2009. Cable ONE was our most profitable 3 New York Post 441,201 business in 2011. With political and Olympics-year 4 New York Daily News 435,656 advertising, Post–Newsweek Stations should lead 5 Chicago Tribune 413,630 the Company in 2012. 6 Newsday 292,056 7 Phoenix Republic 291,799 This account leaves out our most famous busi- 8 Houston Chronicle 259,098 ness, the one our Company is named for. 9 Denver Post 258,876 The Washington Post had its ups and downs 10 Minneapolis Star-Tribune 247,264 in 2011. I’ll try to sum up both the progress and Source: September 2011 ABC FAS-FAX the problems honestly. And this is honest: I feel better about the Post’s future prospects at the In addition, the Post remained profitable, end of 2011 than at the beginning. excluding pension expense (though less so in 2011 than in 2010) and continued to put out great newspapers. 2 THE WASHINGTON POST COMPANY But the future of the Post will be affected more The Post now has a strong top-management by the substantial digital progress of 2011. team across the board. Excellence at what we have done for years will not get us to the future; we need to transition to a new business model: Meanwhile, the WaPo Labs team created two • Visits have been up 14% two years in a row. new products: Trove, a personalized news • Monthly unique readers were up 26% for site, and Washington Post Social Reader, a the year. Facebook app. • Mobile visits were up 98%. • Engagement and repeat visits, however Trove is off to a very promising start. I use it measured, were up (but in this crucial area, often, and it points me to stories of great inter- we all want to do much better). est that I’d otherwise miss. Marcus Brauchli and the whole Post newsroom Social Reader has astonished us all. It debuted (and a lot of technology and business people) on September 22, the day of Facebook’s devel- deserve credit for all the digital achievements. oper conference. Every day of my 41 years here, I’ve been proud to As I write, just five months later, 15 million peo- be part of The Washington Post — now as much ple have downloaded it. as ever. In 2011, Post reporters had a particularly good year raising bipartisan havoc among the What is it? corrupt, the inept and the lazy. Brave war corre- 1. It’s an application on Facebook. To use it, you spondents (Ernesto Londono, Josh Partlow, Karin have to download it on the Facebook site: Brulliard, Sudarsan Raghavan and others) kept just enter “Washington Post Social Reader” the focus on Iraq, Afghanistan and other war into the Facebook search bar, then click on zones; Dan Balz, Karen Tumulty and a brilliant cast “Go to App” when a permission box appears. of young reporters led our campaign coverage. 2. It’s a “social reading” experience. If you sign Though cost-cutting is an inevitable and crucial up, you’ll see what your friends are reading, part of the future, we’ll continue to give readers and they’ll see what you’re reading. a great newspaper every day (to use an old- fashioned term). I certainly don’t think Social Reader is the answer to the future of news. But, it’s taught The Post also added Shailesh Prakash, vice me three things: president–technology, who may become the 1. 80% of those downloading it are 18 to 34 newspaper’s Most Valuable Player in the future. years old. It’s the first news project our He’s a highly sophisticated engineer and team Company’s ever done that reaches millions builder who takes on the task of leading our of young people. developers, engineers and systems people into the future. 3 2011 ANNUAL REPORT 2. It’s convinced me that successful news sites defense of private-sector education; it’s a look at in the future will include social features. what’s ahead in all of American higher education. You’ll be offered the chance to see what your friends are reading, and vice versa (of Andy provides sympathetic insight into the course, not everyone will want to do this). challenges facing our private colleges and an equally sympathetic look at the benefits and 3. The WaPo Labs team is terrific. Chief digital limitations of community colleges. officer Vijay Ravindran has built a team that could build Social Reader quickly and well. Then he writes about private-sector colleges, describing what we do well and not as well. Expect a lot more activity from the Labs team in 2012. Their charge is to skip a generation It’s a terrific book. Former New York City schools and create compelling news sites way beyond chancellor Joel Klein wrote: “This is a must- today’s. Obviously, this will include attempts to read book for those who care about fixing our monetize them. national higher-education problems.” Bill Gates called it “persuasive,” “truly important” On Kaplan, I’ll start with the bad news. Operating and “highly readable.” income fell from $347 million in 2010 to $89 mil- lion in 2011. It won’t go up much, if at all, in 2012. I think so much of Andy’s book that I’ll send a free copy to any shareholder who writes to We fell that much in part because of new fed- me ([email protected]) and asks. It’s an eral regulations on private-sector higher edu- invaluable argument on a critical subject. cation. We’ll be serving 40,000 fewer students in 2012 than in 2010. The gist of Andy’s argument (and mine) is that 60% of U.S. jobs today require some col- To go over old ground for one paragraph: fed- lege. (Will this number not go up?) Only 40% eral regulation of private-sector higher educa- of adults have an associate’s degree or higher. tion is now almost completely incoherent. Every This country needs more college graduates; it ten years or so, congressional investigations or needs them, in particular, from demographic news stories lead to the adoption of new layers groups not served (or served poorly) by exist- of regulation aimed at “punishing bad actors.” ing universities.