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Washington Post's Kaplan unit sees new enrollments sink 47 percent in 4th quarter

By Steven Mufson
Washington Post Staff Writer
Thursday, February 24, 2011; A14

The Washington Post Co.'s Kaplan education division reported Wednesday a 47 percent plunge in new enrollments for its higher-education programs in the fourth quarter of last year as the company introduced a new program to respond to criticism of its marketing tactics.

The drop in new enrollments signaled the start of what the company concedes will be a difficult period as Kaplan, the engine of The Post Co.'s earnings, adopts measures to mend its reputation and comply with tighter Education Department regulations.

Overall, The Washington Post Co. reported a fourth-quarter profit of $79 million, down 3 percent from $81.7 million in the same quarter of 2009. Revenue was $1.2 billion, the same as the year before.

After the announcement, The Post's stock tumbled nearly 6 percent, falling $25.83 a share to $414.55.

Thanks to $405 million in share buybacks that reduced the number of shares outstanding by more than 10 percent during the course of the year, the diluted net income per share of common stock rose 8 percent, to $9.42, in the fourth quarter of 2010.

The company benefited from strong earnings at its television broadcasting division, lower expenses at its newspaper division and last year's sale of the money-losing Newsweek magazine, which in 2009 was still a drag on the company's finances.

But the cable television division saw higher costs. At the flagship Washington Post newspaper, circulation sank and print advertising fell 12 percent in the fourth quarter from the year before. That $10.6 million decline was not offset by the 13 percent, or $4 million, increase in combined online revenue from the paper's Web site and Slate.

For the full year, The Post Co. chalked up earnings of $277.2 million, or $31.04 a share, up from $91.8 million, or $9.78 a share, in 2009. Revenue rose 8 percent, to $4.7 billion.

Much of that was due to the newspaper's recovery from heavy losses in early 2009. For the full year, without counting depreciation or one-time pension and early-retirement costs, the newspaper division earned $10.5 million, compared with $71.8 million in losses during 2009.

Kaplan remained The Post Co.'s biggest area of business. For all of 2010, education revenue amounted to $2.9 billion, up 10 percent from 2009 and equal to 61 percent of the company's revenue.

But in the fourth quarter, the explosive growth at Kaplan showed signs of leveling off or reversing.

The number of students enrolled in the online Kaplan University and at Kaplan higher-education campuses fell to 96,701 by Dec. 31, down 8 percent from a year earlier. That trend could continue, warned Ariel Sokol, an education industry analyst at Swiss bank UBS, because new enrollments are a "leading indicator."

Part of the reason was the phasing in of the "Kaplan Commitment," a program that allows higher-education students to withdraw from courses after a month without paying tuition. No reason is required. The program is also designed to improve the track record of Kaplan students for repaying government loans and finding good jobs, two areas in which the Education Department is seeking improvement.

The earnings report Wednesday gave a first glimpse of the effect of the program. The company said 28 percent of eligible students left before the deadline, though The Post Co. said a majority of them left because of "dismissal" by Kaplan. It reiterated that if the program had been in effect for all of 2010, it would have resulted in the loss of $140 million in revenue, much of that coming directly off the company's bottom line.

The Post Co. said it hopes the money-back program will attract new students and improve the retention of students for other courses, but the company also said it was too soon to tell whether that would turn out to be the case.

Other for-profit education companies have also reported large drops in new enrollments, but Kaplan's was among the biggest.

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