Business Context and Reporting Period
This Form 10-Q covers The Washington Post Company (Note: Metadata listed "Graham Holdings Co," but the filing text identifies the registrant as The Washington Post Company) for the thirteen-week period ended March 28, 2004. The company operates through five primary segments: Newspaper Publishing, Television Broadcasting, Magazine Publishing, Cable Television, and Education (Kaplan, Inc.).
Key Financial Metrics
| Metric | Q1 2004 | Q1 2003 |
|---|---|---|
| Operating Revenues | $758.97 million | $640.44 million |
| Income from Operations | $104.92 million | $79.09 million |
| Net Income | $59.43 million | $73.06 million |
| Diluted EPS | $6.15 | $7.59 |
| Operating Cash Flow | $145.40 million | $90.18 million |
| Total Debt Outstanding | $561.9 million | $631.1 million (Dec 2003) |
| Cash and Equivalents | $63.87 million | $87.44 million (Dec 2003) |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 19% to $759.0 million, driven by strong growth across all divisions, particularly Education (up 45%) and Cable Television (up 10%).
- Operating Income: Increased 33% to $104.9 million, reflecting improved divisional results and cost controls, partially offset by a reduced net pension credit ($10.0 million in 2004 vs. $13.4 million in 2003).
- Net Income Decline: Despite higher operating income, Net Income decreased 19% to $59.4 million. This decline is primarily due to a one-time non-operating gain of $49.8 million in Q1 2003 from the sale of the company's 50% interest in the International Herald Tribune (IHT), which did not recur in 2004.
- Segment Performance:
- Newspaper: Revenue up 7%; Operating income up 50% due to higher ad revenue and payroll savings.
- Education (Kaplan): Revenue up 45% and operating income up 30%, driven by acquisitions and enrollment growth.
- Cable: Revenue up 10% due to rate increases and growth in digital/broadband services.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates 2004 capital expenditures will range between $200 million and $225 million.
- Liquidity: The company maintains a working capital deficit of $240.7 million but asserts ample liquidity to meet cash needs through internally generated funds and commercial paper. Total debt decreased by $69.2 million during the quarter.
- Seasonality: Advertising revenues are typically lower in the first and third quarters compared to the second and fourth.
- Risks: Forward-looking statements are subject to risks including changes in advertising demand, regulatory changes, and the impact of the Medicare Prescription Drug Act on postretirement benefit costs.
Investor Verification Checklist
- One-Time Gains: Verify the impact of the Q1 2003 IHT sale gain ($32.3 million after-tax) on year-over-year net income comparisons.
- Pension Assumptions: Review the reduction in the discount rate assumption (from 6.75% to 6.25%) and its projected $14 million negative impact on 2004 pension credits.
- Acquisition Integration: Assess the performance of recent Kaplan acquisitions (FTC and three Q1 2004 businesses) and their contribution to the 45% revenue surge in the Education segment.
- Debt Structure: Confirm the maturity profile of the $117.2 million commercial paper and the $398.7 million unsecured notes due 2009.
- Stock Compensation: Note the $9.8 million expense related to the Kaplan stock option plan and the remaining vesting obligations.