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 thirty-nine weeks ended September 27, 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 Sep 27, 2009 | 39 Weeks Ended Sep 27, 2009 |
|---|---|---|
| Operating Revenues | $1,148.7 million | $3,331.3 million |
| Income from Operations | $61.2 million | $47.8 million |
| Net Income (Attributable to Company) | $17.3 million | $11.1 million |
| Diluted EPS | $1.81 | $1.08 |
| Operating Cash Flow (YTD) | $503.6 million | |
| Cash and Equivalents (Sep 27, 2009) | $500.6 million | |
| Total Debt (Sep 27, 2009) | $399.3 million | |
| Working Capital (Sep 27, 2009) | $364.1 million |
Material Changes vs. Prior Period
- Revenue: Total revenue increased 2% in Q3 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: Net income for Q3 2009 ($17.1M) increased significantly from Q3 2008 ($10.4M). However, YTD 2009 net income ($9.0M) decreased sharply from YTD 2008 ($47.0M) due to significant one-time charges.
- Segment Performance:
- Education: Revenue up 14% in Q3; Operating income down 10% due to a $25.4M impairment charge.
- Newspaper Publishing: Revenue down 20% in Q3; Operating loss narrowed to $23.6M from $82.7M in Q3 2008 (excluding prior year impairment).
- Magazine Publishing: Revenue down 33% in Q3; Operating loss of $4.3M vs. income of $9.0M in Q3 2008.
- Cable Television: Revenue up 4% in Q3; Operating income declined 3% to $40.3M.
- Debt: Total borrowings decreased by $154.6 million to $399.2 million as of September 27, 2009, following the repayment of $400 million in maturing notes.
Guidance, Outlook, and Unusual Items
Unusual Items and Charges
- Impairment Charges: Recorded a $25.4 million goodwill and long-lived asset impairment charge in Q3 2009 related to Kaplan Ventures (EduNeering and Compliance Solutions). Also recorded $29.0 million in impairment charges on affiliate investments (primarily Bowater Mersey Paper Company).
- Restructuring and Retirement: Incurred $63.4 million in early retirement program expenses YTD 2009 (The Washington Post and Newsweek) and $33.0 million in restructuring charges related to Kaplan's Score and Test Prep operations.
- Accelerated Depreciation: Recorded $33.8 million in accelerated depreciation YTD 2009 related to The Washington Post's printing plant consolidation.
- Foreign Currency: Recorded $18.4 million in unrealized foreign currency gains YTD 2009 due to the weakening of the U.S. dollar.
Outlook and Risks
- Capital Expenditures: Estimated to be in the range of $260 million to $285 million for the full year 2009.
- Liquidity: Management expects ample liquidity to meet cash needs, supported by $500.6 million in cash and a $500 million commercial paper program.
- Credit Ratings: Standard & Poor's lowered the long-term rating to "A" from "A+" in June 2009 with a negative outlook. Moody's rating remains A1.
- Future Risks: Potential for additional goodwill impairment charges if projected cash flows or growth rates decline. Continued weakness in advertising demand for print and broadcast media.
Investor Verification Checklist
- Impairment Sustainability: Verify the assumptions used in the discounted cash flow models for the $25.4M Kaplan Ventures impairment and the risk of future write-downs.
- Advertising Trends: Monitor the trajectory of print and online advertising revenue declines at The Washington Post and Newsweek, which are significantly impacting operating margins.
- Debt Refinancing: Confirm the impact of the new 7.25% notes issued in January 2009 on future interest expense compared to the refinanced 5.5% notes.
- Restructuring Completion: Track the execution of cost-saving initiatives at Newsweek and the consolidation of The Washington Post's printing operations to assess future expense reductions.
- Affiliate Exposure: Review the status of the Bowater Mersey Paper Company investment and the potential for further losses given the bankruptcy of its majority owner.