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-Q (Quarterly Report).
Reporting Period: Thirteen and twenty-six weeks ended June 28, 2009.
Business Overview: A diversified education and media company. Key segments include Education (Kaplan), Cable Television, Newspaper Publishing (The Washington Post), Television Broadcasting, and Magazine Publishing (Newsweek).
Key Financial Metrics
| Metric | 13 Weeks Ended June 28, 2009 |
26 Weeks Ended June 28, 2009 |
26 Weeks Ended June 29, 2008 |
|---|---|---|---|
| Operating Revenues | $1,128.5 million | $2,182.6 million | $2,169.4 million |
| Operating Income (Loss) | $6.2 million | $(13.4) million | $71.7 million |
| Net Income (Loss) Attributable to Company | $12.5 million | $(6.2) million | $36.6 million |
| Diluted EPS | $1.30 | $(0.74) | $3.77 |
| Cash and Cash Equivalents | $349.3 million | $349.3 million | $196.3 million (Ending Q2 2008) |
| Total Debt Outstanding | $399.1 million | $399.1 million | $553.8 million (Dec 28, 2008) |
| Net Cash Provided by Operating Activities | N/A | $282.4 million | $217.1 million |
Material Changes vs. Prior Period
- Revenue: Consolidated revenue increased 2% in Q2 2009 and 1% YTD 2009 compared to 2008. Growth was driven by the Education and Cable Television divisions, offset by declines in Newspaper, Magazine, and TV Broadcasting.
- Profitability: Q2 2009 reported a net income of $12.5 million, a reversal from a $2.7 million loss in Q2 2008. However, YTD 2009 shows a net loss of $6.2 million compared to $36.6 million income in YTD 2008.
- Segment Performance:
- Education: Revenue up 13% Q2 and 11% YTD. Operating income up 23% Q2 but down 26% YTD due to restructuring charges.
- Newspaper Publishing: Revenue down 14% Q2 and 18% YTD. Operating loss widened to $89.3 million (Q2) and $143.1 million (YTD) due to advertising declines and significant one-time charges.
- Cable Television: Revenue up 4% Q2 and 5% YTD. Operating income flat Q2 but up 10% YTD.
- Magazine Publishing: Revenue down 27% Q2 and 21% YTD, driven by a 40% drop in Newsweek advertising revenue.
- Debt Structure: Total borrowings decreased by $154.7 million from year-end 2008. In January 2009, the company issued $400 million in 7.25% notes due 2019 to refinance maturing 5.5% notes.
Guidance, Outlook, and Unusual Items
Unusual Items and Charges
Results for the first half of 2009 were significantly impacted by the following non-recurring or unusual items:
- Early Retirement Programs: $63.4 million in expenses recorded (after-tax impact $39.3 million), primarily at The Washington Post and Newsweek.
- Restructuring Charges: $32.1 million related to Kaplan's Score and Professional (U.S.) operations, including $24.9 million in asset write-downs and lease terminations for the Score tutoring business.
- Accelerated Depreciation: $27.7 million recorded at The Washington Post due to the consolidation of printing operations and office closures.
- Foreign Currency Gains: $18.4 million in unrealized gains (after-tax impact $11.4 million) due to the weakening of the U.S. dollar against the British pound and Australian dollar.
Outlook and Risks
- Capital Expenditures: Estimated to be between $280 million and $305 million for the full year 2009.
- Liquidity: Management expects ample liquidity to meet cash needs, supported by $349.3 million in cash and a $500 million commercial paper program.
- Credit Ratings: In June 2009, Standard & Poor's lowered the long-term rating to "A" from "A+" with a negative outlook. Moody's rating remains "A1".
- Student Loans: The Education division expects private student loan funding to diminish, to be replaced by Title IV funds and cash payments.
Investor Verification Checklist
- One-Time Charges: Verify the sustainability of earnings by excluding the $123.2 million in combined early retirement, restructuring, and accelerated depreciation charges recorded in the first half of 2009.
- Foreign Currency Impact: Assess the volatility of net income due to the $18.4 million unrealized foreign currency gain, which is non-operating and dependent on exchange rates.
- Advertising Trends: Monitor the continued decline in print advertising revenue for The Washington Post (-27% YTD) and Newsweek (-32% YTD) as a leading indicator of media segment health.
- Debt Refinancing: Confirm the impact of the new 7.25% interest rate on future interest expense compared to the refinanced 5.5% notes.
- Score Restructuring: Track the integration of Score tutoring services into Kaplan test prep centers and the associated cost savings versus revenue loss.