Business Context and Reporting Period
Company: The Washington Post Company (Note: Metadata listed "Graham Holdings Co," but the filing text identifies the registrant as The Washington Post Company).
Filing Type: Form 10-K (Annual Report)
Fiscal Year Ended: January 3, 2010 (53-week year)
Business Overview: A diversified education and media company. The Education division (Kaplan) is the largest segment, accounting for 58% of consolidated revenues. Media operations include Cable ONE (cable television), newspaper publishing (The Washington Post), television broadcasting (six stations), and magazine publishing (Newsweek).
Key Financial Metrics
| Metric | 2009 (in millions) | 2008 (in millions) |
|---|---|---|
| Operating Revenues | $4,569.7 | $4,461.6 |
| Income from Operations | $194.0 | $174.2 |
| Net Income | $91.2 | $65.8 |
| Diluted EPS | $9.78 | $6.87 |
| Operating Cash Flow | $653.0 | $535.8 |
| Long-Term Debt | $396.2 | $400.0 |
| Cash and Cash Equivalents | $477.7 | $390.5 |
| Working Capital | $398.5 | $257.3 |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 2% to $4.57 billion, driven by a 13% increase in Education revenue (Kaplan) and a 4% increase in Cable revenue. This offset declines in Newspaper (-15%), Magazine (-27%), and Television Broadcasting (-16%) revenues due to advertising weakness.
- Profitability: Net income rose 39% to $91.2 million. Operating income increased 11% to $194.0 million.
- Segment Performance:
- Education: Kaplan Higher Education revenue grew 33% with operating income up 59%. However, the Test Preparation segment faced declines, and Kaplan Ventures incurred a $25.4 million impairment charge.
- Media: The Washington Post print advertising revenue fell 23%. Newsweek advertising revenue dropped 37%. Cable ONE saw subscriber declines in basic video but growth in high-speed data and telephony.
- One-Time Items (2009): Results included $64.5 million in early retirement expenses, $33.2 million in restructuring charges (Kaplan), $33.8 million in accelerated depreciation (Post plant closure), and $25.4 million in goodwill impairment (Kaplan Ventures). These were partially offset by $16.9 million in unrealized foreign currency gains.
Guidance, Outlook, and Risks
- Capital Expenditures: Estimated to be between $280 million and $320 million for 2010.
- Dividends: Annual dividend rate increased to $9.00 per share for 2010 (from $8.60 in 2009).
- Key Risks:
- Regulatory (Education): Significant reliance on Title IV federal student aid (83% of Kaplan Higher Education revenue). Risks include loss of eligibility due to student loan default rates, failure to meet the "90/10" rule, or Department of Education program reviews.
- Economic Sensitivity: Media divisions (Newspaper, Magazine, TV) are highly sensitive to advertising demand, which remains weak due to the economic downturn.
- Competition: Cable ONE faces competition from satellite and telephone companies; print media faces competition from digital platforms.
- Legal Proceedings: Kaplan is involved in class action antitrust lawsuits regarding bar review courses (settlements pending) and False Claims Act lawsuits regarding Title IV eligibility (government declined to intervene).
Investor Verification Checklist
- Title IV Compliance: Verify Kaplan Higher Education's cohort default rates and compliance with the "90/10" rule to ensure continued access to federal student aid.
- Advertising Trends: Monitor the trajectory of print and broadcast advertising revenue, which declined significantly in 2009.
- Restructuring Costs: Assess the impact of ongoing restructuring at Kaplan (Score closure) and The Washington Post (plant consolidation) on future operating margins.
- Foreign Currency Exposure: Review the impact of exchange rate fluctuations (GBP/AUD vs. USD) on non-operating income, which contributed $16.9 million in 2009.
- Debt Maturity: Confirm the status of the $400 million 7.25% notes due 2019 and the company's liquidity position relative to its $500 million credit facility.