Annual Statements Open main menu

Graham Holdings Co - Quarter Report: 2008 March (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 30, 2008

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-6714

 

 

THE WASHINGTON POST COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   53-0182885

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1150 15th Street, N.W. Washington, D.C.   20071
(Address of principal executive offices)   (Zip Code)

(202) 334-6000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Shares outstanding at April 30, 2008:

 

Class A Common Stock   1,291,693 Shares
Class B Common Stock   8,235,138 Shares

 

 

 


Table of Contents

THE WASHINGTON POST COMPANY

Index to Form 10-Q

 

PART I.   FINANCIAL INFORMATION   
Item 1.   Financial Statements   
 

a.      Condensed Consolidated Statements of Income (Unaudited) for the Thirteen Weeks Ended March 30, 2008 and April 1, 2007

   3
 

b.      Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Thirteen Weeks Ended March 30, 2008 and April 1, 2007

   4
 

c.      Condensed Consolidated Balance Sheets at March 30, 2008 (Unaudited) and December 30, 2007

   5
 

d.      Condensed Consolidated Statements of Cash Flows (Unaudited) for the Thirteen Weeks Ended March 30, 2008 and April 1, 2007

   6
 

e.      Notes to Condensed Consolidated Financial Statements (Unaudited)

   7
Item 2.   Management’s Discussion and Analysis of Results of Operations and Financial Condition    18
Item 3.   Quantitative and Qualitative Disclosures about Market Risk    24
Item 4.   Controls and Procedures    24
PART II.   OTHER INFORMATION   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds    25
Item 6.   Exhibits    26
Signatures      27

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

The Washington Post Company

Condensed Consolidated Statements of Income (Unaudited)

 

     Thirteen Weeks Ended  
(In thousands, except per share amounts)    March 30,
2008
    April 1,
2007
 

Operating revenues

    

Education

   $ 543,256     $ 475,781  

Advertising

     267,726       292,791  

Circulation and subscriber

     218,608       196,751  

Other

     33,550       20,285  
                
     1,063,140       985,608  
                

Operating costs and expenses

    

Operating

     491,153       450,675  

Selling, general and administrative

     440,048       386,757  

Depreciation of property, plant and equipment

     60,460       53,449  

Amortization of intangible assets

     4,610       2,732  
                
     996,271       893,613  
                

Income from operations

     66,869       91,995  

Other income (expense)

    

Equity in (losses) earnings of affiliates

     (3,243 )     9,083  

Interest income

     2,096       3,276  

Interest expense

     (6,534 )     (5,925 )

Other, net

     4,079       801  
                

Income before income taxes

     63,267       99,230  

Provision for income taxes

     24,000       34,800  
                

Net income

     39,267       64,430  

Redeemable preferred stock dividends

     (473 )     (485 )
                

Net income available for common shares

   $ 38,794     $ 63,945  
                

Basic earnings per common share

   $ 4.09     $ 6.72  
                

Diluted earnings per common share

   $ 4.08     $ 6.70  
                

Dividends declared per common share

   $ 4.30     $ 4.10  
                

Basic average number of common shares outstanding

     9,484       9,513  

Diluted average number of common shares outstanding

     9,513       9,547  

 

3


Table of Contents

The Washington Post Company

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

     Thirteen Weeks Ended  
(In thousands)    March 30,
2008
    April 1,
2007
 

Net income

   $ 39,267     $ 64,430  

Other comprehensive income (loss)

    

Foreign currency translation adjustment

     7,458       1,908  

Change in unrealized gain on available-for-sale securities

     (53,181 )     747  

Pension and other postretirement plan adjustments

     (1,887 )     (1,145 )
                
     (47,610 )     1,510  

Income tax benefit related to other comprehensive income (loss)

     22,954       159  
                
     (24,656 )     1,669  
                

Comprehensive income

   $ 14,611     $ 66,099  
                

 

4


Table of Contents

The Washington Post Company

Condensed Consolidated Balance Sheets

 

     March 30,
2008
    December 30,
2007
 
(In thousands)    (unaudited)        

Assets

    

Current assets

    

Cash and cash equivalents

   $ 228,128     $ 321,466  

Investments in marketable equity securities

     85,523       51,678  

Accounts receivable, net

     453,334       480,743  

Deferred income taxes

     46,397       46,399  

Inventories

     33,177       23,194  

Other current assets

     77,521       71,490  
                
     924,080       994,970  

Property, plant and equipment

    

Buildings

     348,432       346,116  

Machinery, equipment and fixtures

     2,230,685       2,185,920  

Leasehold improvements

     246,875       239,641  
                
     2,825,992       2,771,677  

Less accumulated depreciation

     (1,652,617 )     (1,596,698 )
                
     1,173,375       1,174,979  

Land

     49,333       49,187  

Construction in progress

     63,986       56,571  
                
     1,286,694       1,280,737  

Investments in marketable equity securities

     396,523       417,781  

Investments in affiliates

     104,353       102,399  

Goodwill, net

     1,542,424       1,498,237  

Indefinite-lived intangible assets, net

     530,304       520,905  

Amortized intangible assets, net

     65,584       70,437  

Prepaid pension cost

     1,018,367       1,034,789  

Deferred charges and other assets

     87,339       84,254  
                
   $ 5,955,668     $ 6,004,509  
                

Liabilities and Shareholders’ Equity

    

Current liabilities

    

Accounts payable and accrued liabilities

   $ 502,713     $ 564,744  

Income taxes

     15,105       4,580  

Deferred revenue

     408,883       354,564  

Dividends declared

     20,706       —    

Short-term borrowings

     466,974       89,585  
                
     1,414,381       1,013,473  

Postretirement benefits other than pensions

     81,907       81,041  

Accrued compensation and related benefits

     237,178       242,583  

Other liabilities

     82,667       84,214  

Deferred income taxes

     687,631       709,694  

Long-term debt

     103       400,519  
                
     2,503,867       2,531,524  

Redeemable preferred stock

     11,826       11,826  
                

Preferred stock

            
                

Common shareholders’ equity

    

Common stock

     20,000       20,000  

Capital in excess of par value

     223,369       217,780  

Retained earnings

     4,327,589       4,329,726  

Accumulated other comprehensive income

    

Cumulative foreign currency translation adjustment

     51,230       42,845  

Unrealized gain on available-for-sale securities

     121,630       153,539  

Unrealized gain on pension and other postretirement plans

     297,020       298,152  

Cost of Class B common stock held in treasury

     (1,600,863 )     (1,600,883 )
                
     3,439,975       3,461,159  
                
   $ 5,955,668     $ 6,004,509  
                

 

5


Table of Contents

The Washington Post Company

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

     Thirteen Weeks Ended  
(In thousands)    March 30,
2008
    April 1,
2007
 

Cash flows from operating activities:

    

Net income

   $ 39,267     $ 64,430  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation of property, plant and equipment

     60,460       53,449  

Amortization of intangibles

     4,610       2,732  

Net pension benefit

     (6,615 )     (5,035 )

Early retirement program expense

     24,623       —    

Foreign exchange gain

     (4,398 )     (833 )

Equity in losses (earnings) of affiliates, net of distributions

     3,243       (9,083 )

Provision for deferred income taxes

     3,373       4,173  

Change in assets and liabilities:

    

Decrease in accounts receivable, net

     31,344       24,935  

(Increase) decrease in inventories

     (9,983 )     1,485  

Decrease in accounts payable and accrued liabilities

     (64,703 )     (47,836 )

Increase in deferred revenue

     44,969       52,251  

Increase in income taxes payable

     10,518       15,592  

Increase in other assets and other liabilities, net

     (13,169 )     (9,422 )

Other

     (64 )     (149 )
                

Net cash provided by operating activities

     123,475       146,689  
                

Cash flows from investing activities:

    

Purchases of property, plant and equipment

     (60,139 )     (75,091 )

Investments in marketable equity securities

     (65,768 )     —    

Investments in certain businesses, net of cash acquired

     (45,751 )     (107,320 )

Investments in affiliates

     (7,788 )     —    

Proceeds from the sale of property, plant and equipment

     204       2,053  

Other

     (40 )     —    
                

Net cash used in investing activities

     (179,282 )     (180,358 )
                

Cash flows from financing activities:

    

Repayment of commercial paper, net

     (21,800 )     —    

Dividends paid

     (20,697 )     (19,813 )

Proceeds from exercise of stock options

     3,611       620  

Cash overdraft

     (3,600 )     14,411  

Common shares repurchased

     —         (15,609 )

Principal payments on debt

     (1,288 )     (1,989 )

Other

     2,058       (167 )
                

Net cash used in financing activities

     (41,716 )     (22,547 )
                

Effect of currency exchange rate change

     4,185       412  
                

Net decrease in cash and cash equivalents

     (93,338 )     (55,804 )

Beginning cash and cash equivalents

     321,466       348,148  
                

Ending cash and cash equivalents

   $ 228,128     $ 292,344  
                

 

6


Table of Contents

The Washington Post Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

Results of operations at the Kaplan education division, when examined on a quarterly basis, reflect the volatility of Kaplan stock compensation charges, as well as other seasonal effects. Results of operations, when examined on a quarterly basis, also reflect the seasonality of advertising that affects the newspaper, magazine and broadcasting operations. Advertising revenues in the second and fourth quarters are typically higher than first and third quarter revenues. All adjustments reflected in the interim financial statements are of a normal recurring nature.

The Washington Post Company (the “Company”) generally reports on a 13 week fiscal quarter ending on the Sunday nearest the calendar quarter-end. With the exception of the newspaper publishing operations, subsidiaries of the Company report on a calendar-quarter basis.

Certain amounts in previously issued financial statements have been reclassified to conform with the current year presentation.

Note 1: Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 (SFAS 157), “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of SFAS 157 related to financial assets and liabilities are effective as of the beginning of the Company’s 2008 fiscal year. The adoption of these provisions did not have any impact on the Company’s financial statements, as the Company’s existing fair value measurements are consistent with the guidance of SFAS 157. The FASB deferred the effective date of SFAS 157 for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis, until the beginning of the Company’s 2009 fiscal year. The Company is currently evaluating the impact that SFAS 157 will have on its pension related financial assets and nonfinancial assets and liabilities that are not valued on a recurring basis (at least annually). See Note 10 for additional disclosures about fair value measurements.

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115.” SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at such subsequent reporting dates. The provisions of SFAS 159 are effective as of the beginning of the Company’s 2008 fiscal year. The adoption of SFAS 159 in the first quarter of 2008 did not have any impact on the Company’s financial statements as the Company did not elect this fair value option.

In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations” (SFAS 141R), and SFAS 160, “Noncontrolling Interests in Consolidated Financial Statements,” to improve, simplify and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of SFAS 141R and SFAS 160 are effective as of the beginning of the Company’s 2009 fiscal year. The Company is currently evaluating the impact of adopting SFAS 141R and SFAS 160 on the Company’s financial statements.

Note 2: Investments.

Investments in marketable equity securities at March 30, 2008 and December 30, 2007 consist of the following (in thousands):

 

     March 30,
2008
    December 30,
2007

Total cost

   $ 279,329     $ 213,561

Gross unrealized gains

     213,251       255,898

Gross unrealized losses

     (10,534 )     —  
              

Total fair value

   $ 482,046     $ 469,459
              

 

7


Table of Contents

In the first quarter of 2008, the Company purchased $65.8 million in the common stock of Corinthian Colleges, Inc, a publicly traded education company. There were no investments made in marketable equity securities during the first quarter of 2007. Unrealized losses at March 30, 2008, consisted of securities whose cost exceeded fair value for less than three months.

As of March 30, 2008 and December 30, 2007, the Company had money market investments of $5.6 million and $5.1 million, respectively, that are classified as “cash and cash equivalents” on the Company’s consolidated balance sheet.

In the first quarter of 2007, $8.9 million of the equity in earnings of affiliates is due to a gain on the sale of land at the Company’s Bowater Mersey Paper Company Limited affiliate.

Note 3: Acquisitions.

In the first quarter of 2008, Kaplan acquired two businesses in their professional and test preparation divisions totaling $31.4 million. In addition, the cable division acquired subscribers in the Winona, Mississippi area for $15.4 million. Most of the purchase price for these acquisitions has been allocated to goodwill and other intangibles on a preliminary basis.

In 2007, Kaplan purchased a 40% interest in ACE Education, a provider of education in China that provides preparation courses for entry to U.K. universities, along with degree and professional training programs at campuses throughout China. In the first quarter of 2008, Kaplan exercised an option to increase its investment in ACE Education to a majority interest. This transaction is expected to close in the second quarter.

In the first quarter of 2007, Kaplan acquired two businesses in their professional division totaling $115.8 million. These acquisitions included EduNeering Holdings, Inc., a Princeton, N.J. based provider of knowledge management solutions for organizations in the pharmaceutical, medical device, healthcare, energy and manufacturing sectors. In addition, the cable division acquired subscribers in the Boise, Idaho area for $4.1 million.

In connection with certain 2007 acquisitions, additional purchase consideration of approximately $22 million is contingent on the achievement of certain future operating results; such amounts have largely been funded in escrow and are not included in the Company’s purchase accounting as of March 30, 2008. Any additional purchase consideration related to these contingencies is expected to be recorded as goodwill.

 

8


Table of Contents

Note 4: Goodwill and Other Intangible Assets.

The Company’s intangible assets with an indefinite life are principally from franchise agreements at its cable division, as the Company expects its cable franchise agreements to provide the Company with substantial benefit for a period that extends beyond the foreseeable horizon, and the Company’s cable division historically has obtained renewals and extensions of such agreements for nominal costs and without any material modifications to the agreements. Amortized intangible assets are primarily mastheads, customer relationship intangibles, non-compete agreements, trademarks and databases, with amortization periods up to ten years.

The Company’s goodwill and other intangible assets as of March 30, 2008 and December 30, 2007 were as follows (in thousands):

 

     Gross    Accumulated
Amortization
   Net

2008

        

Goodwill

   $ 1,840,826    $ 298,402    $ 1,542,424

Indefinite-lived intangible assets

     694,110      163,806      530,304

Amortized intangible assets

     114,420      48,836      65,584
                    
   $ 2,649,356    $ 511,044    $ 2,138,312
                    

2007

        

Goodwill

   $ 1,796,639    $ 298,402    $ 1,498,237

Indefinite-lived intangible assets

     684,711      163,806      520,905

Amortized intangible assets

     114,663      44,226      70,437
                    
   $ 2,596,013    $ 506,434    $ 2,089,579
                    

 

9


Table of Contents

Activity related to the Company’s goodwill and other intangible assets during the three months ended March 30, 2008 was as follows (in thousands):

 

     Goodwill, Net
     Beginning
of Year
   Acquisitions    Foreign Currency
Exchange Rate
Changes
   Balance as of
March 30,
2008

Education

   $ 1,020,177    $ 32,493    $ 11,550    $ 1,064,220

Newspaper Publishing

     81,169      —        —        81,169

Television Broadcasting

     203,165      —        —        203,165

Magazine Publishing

     25,015      —        —        25,015

Cable Television

     85,666      —        —        85,666

Other Businesses and Corporate Office

     83,045      144      —        83,189
                           
   $ 1,498,237    $ 32,637    $ 11,550    $ 1,542,424
                           

 

     Indefinite-Lived Intangible Assets, Net
     Beginning
of Year
   Acquisitions    Balance as of
March 30,
2008

Education

   $ 9,262      —      $ 9,262

Newspaper Publishing

     —        —        —  

Television Broadcasting

     —        —        —  

Magazine Publishing

     —        —        —  

Cable Television

     511,643    $ 9,399      521,042

Other Businesses and Corporate Office

     —        —        —  
                    
   $ 520,905    $ 9,399    $ 530,304
                    

 

     Amortized Intangible Assets, Net
     Beginning
of Year
   Acquisitions and
Additions
    Amortization     Foreign
Currency
Exchange Rate
Changes and
other
    Balance
as of
March 30,
2008

Education

   $ 36,822      —       $ (2,840 )   $ (43 )   $ 33,939

Newspaper Publishing

     4,240      —         (174 )     1       4,067

Television Broadcasting

     —        —         —         —         —  

Magazine Publishing

     —        —         —         —         —  

Cable Television

     1,081      —         (66 )     40       1,055

Other Businesses and Corporate Office

     28,294    $ (241 )     (1,530 )     —         26,523
                                     
   $ 70,437    $ (241 )   $ (4,610 )   $ (2 )   $ 65,584
                                     

 

10


Table of Contents

Activity related to the Company’s goodwill and other intangible assets during the three months ended April 1, 2007 was as follows (in thousands):

 

     Goodwill, Net
     Beginning
of Year
   Acquisitions    Foreign Currency
Exchange Rate
Changes
   Balance as of
April 1,
2007

Education

   $ 845,754    $ 109,174    $ 2,410    $ 957,338

Newspaper Publishing

     79,739      —        —        79,739

Television Broadcasting

     203,165      —        —        203,165

Magazine Publishing

     25,015      —        —        25,015

Cable Television

     85,666      —        —        85,666

Other Businesses and Corporate Office

     912      —        —        912
                           
   $ 1,240,251    $ 109,174    $ 2,410    $ 1,351,835
                           

 

     Indefinite-Lived Intangible Assets, Net
     Beginning
of Year
   Acquisitions    Balance as of
April 1,2007

Education

   $ 9,262      —      $ 9,262

Newspaper Publishing

     —        —        —  

Television Broadcasting

     —        —        —  

Magazine Publishing

     —        —        —  

Cable Television

     508,480    $ 3,300      511,780

Other Businesses and Corporate Office

     —        —        —  
                    
   $ 517,742    $ 3,300    $ 521,042
                    

 

     Amortized Intangible Assets, Net
     Beginning
of Year
   Acquisitions
and Additions
   Amortization     Foreign Currency
Exchange Rate
Changes
and other
   Balance as of
April 1, 2007

Education

   $ 25,270    $ 83    $ (2,268 )   $ 111    $ 23,196

Newspaper Publishing

     5,508      —        (292 )     —        5,216

Television Broadcasting

     —        —        —         —        —  

Magazine Publishing

     —        —        —         —        —  

Cable Television

     1,021      —        (172 )     —        849

Other Businesses and Corporate Office

     —        —        —         —        —  
                                   
   $ 31,799    $ 83    $ (2,732 )   $ 111    $ 29,261
                                   

 

11


Table of Contents

Note 5: Borrowings.

The Company’s borrowings consist of the following (in millions):

 

     March 30,
2008
    December 30,
2007
 

Commercial paper borrowings

   $ 63.0     $ 84.8  

5.5 percent unsecured notes due February 15, 2009

     399.8       399.7  

Other indebtedness

     4.3       5.6  
                

Total

     467.1       490.1  

Less current portion

     (467.0 )     (89.6 )
                

Total long-term debt

   $ 0.1     $ 400.5  
                

The Company’s commercial paper borrowings at March 30, 2008 and December 30, 2007 were at average interest rates of 2.3 percent and 4.5 percent, respectively. The commercial paper borrowings have various maturities through the second quarter of 2008.

The Company’s $399.8 million unsecured notes that are due February 15, 2009 are now classified as current liabilities at March 30, 2008.

The Company’s other indebtedness at March 30, 2008 and December 30, 2007 is at interest rates of 5% to 8% and matures from 2008 to 2010.

During the first quarter of 2008 and 2007, the Company had average borrowings outstanding of approximately $490.8 million and $404.9 million, respectively, at average annual interest rates of approximately 5.0 percent and 5.5 percent, respectively. During the first quarter of 2008 and 2007, the Company incurred net interest expense of $4.4 million and $2.6 million, respectively.

Note 6: Earnings Per Share.

The company’s earnings per share (basic and diluted) for the first quarters of 2008 and 2007, are presented below:

 

     Thirteen Weeks Ended
     March 30,
2008
   April 1,
2007

Net income available for common shares

   $ 38,794    $ 63,945
             

Weighted average shares outstanding – basic

     9,484      9,513

Effect of dilutive shares:

     

Stock options and restricted stock

     29      34
             

Weighted average shares outstanding – diluted

     9,513      9,547

Basic earnings per common share

   $ 4.09    $ 6.72
             

Diluted earnings per common share

   $ 4.08    $ 6.70
             

The first quarter 2008 and 2007 diluted earnings per share amount excludes the effects of 11,875 stock options outstanding and 7,500 stock options outstanding, respectively, as their inclusion would be antidilutive.

Note 7: Pension and Postretirement Plans.

The total cost (income) arising from the Company’s defined benefit pension plans for the first quarters ended March 30, 2008 and April 1, 2007, consists of the following components (in thousands):

 

12


Table of Contents
     Pension Plans     SERP
     March 30,
2008
    April 1,
2007
    March 30,
2008
   April 1,
2007

Service cost

   $ 6,906     $ 6,133     $ 406    $ 385

Interest cost

     11,418       10,359       849      769

Expected return on assets

     (24,427 )     (21,627 )     —        —  

Amortization of transition asset

     (10 )     (11 )     —        —  

Amortization of prior service cost

     1,074       1,112       112      111

Recognized actuarial (gain) loss

     (1,576 )     (1,001 )     171      230
                             

Net periodic (benefit) cost

     (6,615 )     (5,035 )     1,538      1,495

Early retirement programs expense

     22,524       —         2,099      —  
                             

Total cost (benefit)

   $ 15,909     $ (5,035 )   $ 3,637    $ 1,495
                             

The total cost arising from the Company’s postretirement plan for the first quarters ended March 30, 2008 and April 1, 2007, consists of the following components (in thousands):

 

     Postretirement Plans  
     March 30,
2008
    April 1,
2007
 

Service cost

   $ 943     $ 914  

Interest cost

     1,211       1,227  

Amortization of prior service cost

     (1,286 )     (1,176 )

Recognized actuarial gain

     (371 )     (410 )
                

Net periodic cost

   $ 497     $ 555  
                

Newsweek offered a Voluntary Retirement Incentive Program to certain employees in February 2008 and 115 employees have accepted the offer. The early retirement program expense is estimated at $33.0 million, which will be funded primarily from the assets of the Company’s pension plans. Of this amount, $24.6 million was recorded in the first quarter of 2008 and the remainder will be recorded in the second quarter of 2008.

The Company offered a Voluntary Retirement Incentive Program in March 2008 to some employees of The Washington Post newspaper and the corporate office. The early retirement program will be completed in the second quarter of 2008, and the related cost will be funded primarily from the assets of the Company’s pension plans.

Note 8: Other Non-Operating Income (Expense).

During the first quarter of 2008 and 2007, the Company recorded other non-operating income, net, of $4.1 million and $0.8 million, respectively.

A summary of non-operating income (expense) for the thirteen weeks ended March 30, 2008 and April 1, 2007, is as follows (in millions):

 

     2008     2007

Foreign currency gains, net

   $ 4.4     $ 0.8

Other losses, net

     (0.3 )     —  
              

Total

   $ 4.1     $ 0.8
              

Note 9: Contingencies.

As previously disclosed in the 2007 Annual Report, in February 2008, Kaplan, Inc. was served with a purported class action lawsuit alleging similar claims as a previously settled lawsuit. The putative class is said to include all persons who purchased a bar review course from BAR/BRI in the United States since 2006 and all potential future purchasers of bar review courses. In April 2008, the case was dismissed by the U.S. District Court for the Central District of California.

 

13


Table of Contents

Note 10: Fair Value Measurements.

In accordance with SFAS 157, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. SFAS 157 also established a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

The Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 30, 2008 were as follows (in thousands):

 

          Fair Value Measurements as of
March 30, 2008
     Fair Value at
March 30, 2008
   Quoted Prices in
Active Markets for
Identical Items
(Level 1)
   Significant Other
Observable Inputs

(Level 2)

Assets:

        

Marketable equity securities(1)

        

Current

   $ 85,523    $ 85,523    $  

Non-current

     396,523      396,523      —  
                    

Total financial assets

   $ 482,046    $ 482,046    $ —  
                    

Liabilities:

        

Deferred compensation plan liabilities(2)

   $ 82,261    $ —      $ 82,261
                    

Total financial liabilities

   $ 82,261    $ —      $ 82,261
                    

 

(1)

The Company’s investments in marketable equity securities are classified as available-for-sale.

(2)

Includes The Washington Post Company Deferred Compensation Plan and supplemental savings plan benefits under The Washington Post Company Supplemental Executive Retirement Plan.

For assets that are measured using quoted prices in active markets, the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.

Note 11: Business Segments.

The following table summarizes financial information related to each of the Company’s business segments. The 2008 and 2007 asset information is as of March 30, 2008 and December 30, 2007, respectively.

 

14


Table of Contents

First Quarter Period

(in thousands)

 

    Education     Newspaper
Publishing
    Television
Broadcasting
  Magazine
Publishing
    Cable
Television
    Other
Businesses
and
Corporate
Office
    Intersegment
Elimination
    Consolidated  

2008

               

Operating revenues

  $ 543,256     $ 206,090     $  77,668   $ 53,388     $ 174,257     $ 9,459     $ (978 )   $ 1,063,140  

Income (loss) from operations

  $ 46,731     $ 1,158     $  26,604   $ (32,330 )   $ 34,285     $ (9,579 )   $ —       $ 66,869  

Equity in losses of affiliates

                  (3,243 )

Interest expense, net

                  (4,438 )

Other, net

                  4,079  
                     

Income before income taxes

                $ 63,267  
                     

Depreciation expense

  $ 16,299     $ 10,484     $    2,198   $ 524     $ 30,824     $ 131     $ —       $ 60,460  

Amortization expense

  $ 2,840     $ 174     $       —     $ —       $ 66     $ 1,530     $ —       $ 4,610  

Net pension (expense) credit

  $ (878 )   $ (2,240 )   $       284   $ (12,699 )   $ (359 )   $ (17 )   $ —       $ (15,909 )

Identifiable assets

  $ 1,895,581     $ 830,583     $458,997   $ 818,948     $ 1,214,041     $ 151,119     $ —       $ 5,369,269  

Investments in marketable equity securities

                  482,046  

Investments in affiliates

                  104,353  
                     

Total assets

                $ 5,955,668  
                     
    Education     Newspaper
Publishing
    Television
Broadcasting
  Magazine
Publishing
    Cable
Television
    Other
Businesses
and
Corporate
Office
    Intersegment
Elimination
    Consolidated  

2007

               

Operating revenues

  $ 475,781     $ 219,154     $  80,834   $ 61,243     $ 148,975     $ —       $ (379 )   $ 985,608  

Income (loss) from operations

  $ 34,343     $ 14,926     $  29,411   $ (5,983 )   $ 28,019     $ (8,721 )   $ —       $ 91,995  

Equity in earnings of affiliates

                  9,083  

Interest expense, net

                  (2,649 )

Other, net

                  801  
                     

Income before income taxes

                $ 99,230  
                     

Depreciation expense

  $ 14,053     $ 9,244     $    2,358   $ 541     $ 26,888     $ 365     $ —       $ 53,449  

Amortization expense

  $ 2,268     $ 292     $       —     $ —       $ 172     $ —       $ —       $ 2,732  

Net pension credit (expense)

  $ (842 )   $ (2,599 )   $       306   $ 8,489     $ (319 )   $ —       $ —       $ 5,035  

Identifiable assets

  $ 1,930,525     $ 832,655     $464,815   $ 837,527     $ 1,205,374     $ 161,755     $ —       $ 5,432,651  

Investments in marketable equity securities

                  469,459  

Investments in affiliates

                  102,399  
                     

Total assets

                $ 6,004,509  
                     

 

15


Table of Contents

The Company’s education division comprises the following operating segments:

First Quarter Period

(in thousands)

 

     Higher
Education
   Test Prep    Professional    Corporate
Overhead
and Other
    Intersegment
Elimination
    Total
Education
 

2008

               

Operating revenues

   $ 294,603    $ 135,875    $ 112,593    $ 384     $ (199 )   $ 543,256  

Income (loss) from operations

   $ 44,203    $ 9,139    $ 735    $ (7,384 )   $ 38     $ 46,731  

Identifiable assets

   $ 641,374    $ 397,295    $ 843,811    $ 13,101     $     $ 1,895,581  

Depreciation expense

   $ 8,205    $ 3,488    $ 3,665    $ 941     $     $ 16,299  

Amortization expense

            $ 2,840     $       $ 2,840  

Kaplan stock-based incentive compensation credit

            $ (6,682 )   $       $ (6,682 )
     Higher
Education
   Test Prep    Professional    Corporate
Overhead
and Other
    Intersegment
Elimination
    Total
Education
 

2007

               

Operating revenues

   $ 248,021    $ 134,279    $ 93,119    $ 362     $     $ 475,781  

Income (loss) from operations

   $ 36,246    $ 14,631    $ 5,831    $ (22,365 )   $     $ 34,343  

Identifiable assets

   $ 748,269    $ 380,158    $ 785,593    $ 16,505     $     $ 1,930,525  

Depreciation expense

   $ 6,900    $ 3,468    $ 2,741    $ 944     $     $ 14,053  

Amortization expense

            $ 2,268     $       $ 2,268  

Kaplan stock-based incentive compensation expense

            $ 10,268     $       $ 10,268  

 

16


Table of Contents

Education products and services are provided through the Company’s subsidiary Kaplan, Inc. Kaplan’s businesses include higher education services, which includes Kaplan’s domestic and international post-secondary education businesses, including fixed facility colleges which offer bachelor’s degrees, associate’s degrees and diploma programs primarily in the fields of healthcare, business and information technology; and online post-secondary and career programs. Kaplan’s businesses also include domestic and international test preparation, which includes Kaplan’s standardized test prep and English-language course offerings, as well as K12 and Score!, which offer multi-media learning and private tutoring to children and educational resources to parents. Kaplan’s businesses also include Kaplan professional, which provides education and career services to business people and other professionals domestically and internationally. The education division’s primary segments are higher education, test prep and professional. Kaplan “Corporate Overhead and Other” is also included; “Other” includes Kaplan stock compensation expense and amortization of certain intangibles. Certain minor changes were made to Kaplan’s segment reporting in the third quarter of 2007 due to changes in the management structure, which are reflected in the first quarter 2007 Kaplan segment amounts.

Newspaper publishing includes the publication of newspapers in the Washington, D.C. area and Everett, Washington; newsprint warehousing and recycling facilities; and the majority of the Company’s online media publishing businesses (primarily washingtonpost.com).

The magazine publishing division consists of the publication of a weekly news magazine, Newsweek, which has one domestic and three English-language international editions (and, in conjunction with others, publishes seven foreign-language editions around the world) and the publication of Arthur Frommer’s Budget Travel. The magazine publishing division also includes certain online media publishing businesses (newsweek.com and budgettravel.com).

Revenues from both newspaper and magazine publishing operations are derived from advertising and, to a lesser extent, from circulation.

Television broadcasting operations are conducted through six VHF, television stations serving the Detroit, Houston, Miami, San Antonio, Orlando and Jacksonville television markets. All stations are network-affiliated (except for WJXT in Jacksonville) with revenues derived primarily from sales of advertising time.

Cable television operations consist of cable systems offering basic cable, digital cable, pay television, cable modem, telephony and other services to subscribers in midwestern, western, and southern states. The principal source of revenue is monthly subscription fees charged for services.

In the first quarter of 2008, other businesses and corporate office includes the expenses associated with the Company’s corporate office and the operating results of CourseAdvisor. In the first quarter of 2007, other businesses and corporate office includes the expenses associated with the Company’s corporate office. CourseAdvisor is a lead generation provider for the post-secondary market.

 

17


Table of Contents
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

This analysis should be read in conjunction with the consolidated financial statements and the notes thereto.

Results of Operations

Net income for the first quarter of 2008 was $39.3 million ($4.08 per share), down from net income of $64.4 million ($6.70 per share) in the first quarter of last year.

Results for the first quarter of 2008 included charges of $24.6 million related to early retirement program expense at Newsweek (after-tax impact of $15.3 million, or $1.60 per share). Results for the first quarter of 2007 included a significant increase in equity in earnings of affiliates primarily as a result of a large gain on the sale of land at the Company’s Bowater Mersey Paper Company Limited affiliate (after-tax impact of $8.5 million, or $0.89 per share).

Revenue for the first quarter of 2008 was $1,063.1 million, up 8% from $985.6 million in 2007. The increase is due to revenue growth at the education and cable television divisions, while revenues were down at the newspaper publishing, magazine publishing and television broadcasting divisions. Operating income for the quarter declined 27% to $66.9 million, from $92.0 million in 2007. Operating results were down at the newspaper publishing, magazine publishing and television broadcasting divisions, while the education and cable divisions reported improved results for the quarter.

Excluding charges related to early retirement programs, the Company’s operating income for the first quarter of 2008 includes $6.6 million of net pension credits, compared to $5.0 million in the first quarter of 2007.

Education Division. Education division revenue totaled $543.3 million for the first quarter of 2008, a 14% increase over revenue of $475.8 million for the first quarter of 2007. Excluding revenue from acquired businesses, education division revenue increased 9% for the first quarter of 2008. Kaplan reported first quarter 2008 operating income of $46.7 million, an increase from $34.3 million in the first quarter of 2007. Operating income in the first quarter of 2008 includes a $6.7 million credit in stock compensation expense in the first quarter of 2008, compared to stock compensation expense of $10.3 million in the first quarter of 2007.

A summary of Kaplan’s first quarter operating results compared to 2007 is as follows:

 

     First Quarter  
(in thousands)    2008     2007     % change  

Revenue

      

Higher education

   $ 294,603     $ 248,021     19  

Test prep

     135,875       134,279     1  

Professional

     112,593       93,119     21  

Kaplan corporate

     384       362     6  

Intersegment elimination

     (199 )     —       —    
                      
   $ 543,256     $ 475,781     14  
                      

Operating income (loss)

      

Higher education

   $ 44,203     $ 36,246     22  

Test preparation

     9,139       14,631     (38 )

Professional

     735       5,831     (87 )

Kaplan corporate

     (11,226 )     (9,829 )   (14 )

Other*

     3,842       (12,536 )   —    

Intersegment elimination

     38       —       —    
                      
   $ 46,731     $ 34,343     36  
                      
 
  * Other includes credits (charges) for stock-based incentive compensation and amortization of certain intangibles.

 

18


Table of Contents

Higher education includes Kaplan’s domestic and international post-secondary education businesses, including fixed-facility colleges as well as online post-secondary and career programs. Higher education revenue grew 19% for the first quarter of 2008. Enrollments increased 17% to 94,200 at March 31, 2008, compared to 80,500 at March 31, 2007, due primarily to enrollment growth in the online programs. Higher education results in the first quarter of 2008 include additional costs associated with the expansion of Kaplan’s online high school and international programs. Higher education results in the first quarter of 2007 were adversely affected by $2.7 million in lease termination charges.

Funds provided under student financial aid programs created under Title IV of the Federal Higher Education Act account for a large portion of Kaplan Higher Education (KHE) revenues; these funds are provided in the form of federal loans and grants. In addition, some KHE students also obtain non-Title IV private loans from lenders to finance a portion of their education. In response to recent tightening in the credit markets, certain lenders have announced that they will apply more stringent lending standards for non-Title IV private student loans. KHE estimates that approximately 9% of its domestic revenues come from non-Title IV private loans obtained by its students. To date, KHE has not been significantly impacted by the changes in the student loan market; however, continued tightening of the credit markets may result in financing difficulties for those students who rely on non-Title IV loans. Legislative and administrative efforts by both the U.S. Congress and the U.S. Department of Education are currently pending to help enhance stability in the U.S. student loan markets; however, the ultimate outcome of these efforts is uncertain.

Test prep includes Kaplan’s standardized test preparation and English-language course offerings, as well as the K12 and Score! businesses. Test prep revenue, excluding Score!, grew 7% in the first quarter of 2008, largely due to growth in English-language programs. Score! revenues declined 46% as a result of the restructuring announced in the fourth quarter of 2007, which resulted in the closing of 75 Score! centers. After closings and consolidations, Score! operates 79 centers that focus on providing computer-assisted instruction and small-group tutoring. Operating income for test prep declined in the first quarter of 2008 due to higher sales and marketing costs for the English-language and traditional test preparation programs, along with continued weakness at Score!

Professional includes Kaplan’s domestic and overseas professional businesses. Professional revenue grew 21% in the first quarter of 2008 largely due to the March 2007 acquisition of EduNeering Holdings, Inc., a Princeton, NJ-based provider of knowledge management solutions for organizations in the pharmaceutical, medical device, healthcare, energy and manufacturing sectors; and the August 2007 acquisition of the education division of Financial Services Institute of Australasia. Excluding revenue from acquired businesses, professional revenue grew 2% in the first quarter of 2008 due to revenue growth at Kaplan Professional (U.K.) and Kaplan Professional (Asia-Pacific), and from growth in the Schweser CFA exam course offerings, offset by continued declines in professional’s real estate book publishing and real estate course offerings. Operating income is down largely due to continued weakness in professional’s real estate businesses, and severance and other transition costs related to the restructuring of the Kaplan Professional (U.S.) businesses, which was announced in the fourth quarter of 2007. In connection with this restructuring, product changes are being implemented and certain operations are being decentralized, in addition to employee terminations. The restructuring has largely been completed; $1.4 million in severance costs were recorded in the first quarter of 2008, and additional severance costs of an estimated $1.8 million are expected to be incurred during the remainder of 2008.

Corporate represents unallocated expenses of Kaplan, Inc.’s corporate office and other minor activities.

Other includes (credits) charges for incentive compensation arising from equity awards under the Kaplan stock option plan, which was established for certain members

 

19


Table of Contents

of Kaplan’s management. Under the plan, the amount of compensation (credit) expense varies directly with the estimated fair value of Kaplan’s common stock, which is based on a comparison of operating results and public market values of other education companies. In the first quarter of 2008, Kaplan reversed a portion of the accrual related to this plan, resulting in a stock compensation credit of $6.7 million, compared to stock compensation expense of $10.3 million in the first quarter of 2007. The credit reflects a decline in the estimated fair value of Kaplan’s common stock, due largely to an overall decrease in the public market values of other education companies. In addition, Other includes amortization of certain intangibles, which increased due to recent Kaplan acquisitions.

Newspaper Publishing Division. Newspaper publishing division revenue totaled $206.1 million for the first quarter of 2008, a 6% decline from revenue of $219.2 million for the first quarter of 2007. Division operating income was $1.2 million, down from $14.9 million in 2007. The decrease in operating income reflects the continued decline in division revenues, while expenses were flat, despite a 13% reduction in newsprint expense.

Print advertising revenue at The Post decreased 11% to $111.6 million, from $125.1 million in 2007. This decline is primarily due to a sharp reduction in classified advertising, along with declines in general and retail.

For the first quarter of 2008, Post daily and Sunday circulation declined 3.6% and 4.3%, respectively, compared to the first quarter of 2007. Average daily circulation totaled 638,300, and average Sunday circulation totaled 886,000.

Revenue generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 8% to $27.1 million for the first quarter of 2008, versus $25.1 million for the first quarter of 2007. Display online advertising revenue grew 17%, and online classified advertising revenue on washingtonpost.com increased 2%. A small portion of the Company’s online publishing revenues is included in the magazine publishing division.

As previously announced, the Company offered a Voluntary Retirement Incentive Program in March 2008 to some employees of The Washington Post newspaper and the corporate office. The early retirement program will be completed in the second quarter of 2008, and the related cost will be funded primarily from the assets of the Company’s pension plans. Also as previously announced, The Post will close its College Park, MD, printing plant in early 2010, after two presses are moved to The Post’s Springfield, VA, plant.

Television Broadcasting Division. Revenue for the broadcast division declined 4% in the first quarter of 2008 to $77.7 million, from $80.8 million in 2007; operating income for the first quarter of 2008 declined 10% to $26.6 million, from $29.4 million in 2007. The decrease in revenue and operating income is primarily due to soft advertising demand overall, offset by an increase of $2.8 million in political advertising revenue.

Magazine Publishing Division. Revenue for the magazine publishing division totaled $53.4 million for the first quarter of 2008, a 13% decrease from $61.2 million for the first quarter of 2007. The decline is due to a 15% reduction in advertising revenue at Newsweek due in part to fewer ad pages at the domestic edition, but to a larger extent as a result of lower rates due to the previously announced circulation rate base reduction, from 3.1 million to 2.6 million. Subscription revenue at the domestic edition also declined due to the rate base reduction.

As previously announced, Newsweek offered a Voluntary Retirement Incentive Program to certain employees in February 2008 and 115 employees have accepted the offer. The early retirement program expense is estimated at $33.0 million, which will be funded primarily from the assets of the Company’s pension plans. Of this amount, $24.6 million was recorded in the first quarter of 2008 and the remainder will be recorded in the second quarter of 2008.

 

20


Table of Contents

The division had an operating loss of $32.3 million in the first quarter of 2008, compared to an operating loss of $6.0 million in the first quarter of 2007, with the decline due primarily to $24.6 million in early retirement program expense and the revenue reductions discussed above, offset by a decline in subscription, manufacturing and distribution expenses at the domestic edition of Newsweek.

Cable Television Division. Cable division revenue of $174.3 million for the first quarter of 2008 represents a 17% increase from $149.0 million in the first quarter of 2007. The 2008 revenue increase is due to continued growth in the division’s cable modem, telephone and digital revenues, as well as the $3.05 monthly rate increase in September 2007 for most high-speed data subscribers, and the January 2008 basic video cable service rate increase of $3.50 per month at nearly all of its systems. In January 2008, the cable division purchased approximately 6,600 subscribers in Winona, MS, which also had a favorable impact on revenue growth for the quarter.

Cable division operating income increased 22% to $34.3 million in the first quarter of 2008, versus $28.0 million in the first quarter of 2007. The increase in operating income is due to the division’s revenue growth, offset by higher depreciation and programming expenses and increases in Internet and telephony costs.

At March 31, 2008, Revenue Generating Units (RGUs) grew 10% due to continued growth in high-speed data and telephony subscribers and increases in the basic video and digital video subscriber categories. The cable division began offering telephone service on a very limited basis in the second quarter of 2006; as of March 31, 2008, telephone service is being offered in all or part of systems representing 90% of homes passed. RGUs include about 7,000 subscribers who receive free basic cable service, primarily local governments, schools and other organizations as required by the various franchise agreements. A summary of RGUs is as follows:

 

Cable Television Division Subscribers

   March 31,
2008
   March 31,
2007

Basic

   711,049    703,190

Digital

   227,104    220,542

High-speed data

   356,543    308,089

Telephony

   73,786    10,009
         

Total

   1,368,482    1,241,830
         

Below are details of Cable division capital expenditures for the first quarter of 2008 and 2007, as defined by the NCTA Standard Reporting Categories (in millions):

 

     2008    2007

Customer Premise Equipment

   $ 10.2    $ 15.9

Scaleable Infrastructure

     1.6      5.8

Line Extensions

     3.6      4.4

Upgrade/Rebuild

     1.6      2.0

Support Capital

     8.1      10.3
             

Total

   $ 25.1    $ 38.4
             

Other Businesses and Corporate Office. In October 2007, the Company acquired the outstanding stock of CourseAdvisor, Inc., a premier online lead generation provider, headquartered in Wakefield, MA. Through its search engine marketing expertise and proprietary technology platform, CourseAdvisor generates student leads for the post-secondary education market. CourseAdvisor operates as an independent subsidiary of The Washington Post Company.

In the first quarter of 2008, other businesses and corporate office included the expenses associated with the Company’s corporate office and the operating results of CourseAdvisor. In the first quarter of 2007, other businesses and corporate office included the expenses of the Company’s corporate office.

 

21


Table of Contents

Revenue for other businesses (CourseAdvisor) totaled $9.5 million in the first quarter of 2008. Operating expenses were $19.0 million for the first quarter of 2008, from $8.7 million in the first quarter of 2007. The increase in expenses for 2008 is due to expenses from CourseAdvisor.

Equity in Earnings (Losses) of Affiliates. The Company’s equity in losses of affiliates for the first quarter of 2008 was $3.2 million, compared to earnings of $9.1 million in the first quarter of 2007. In the first quarter of 2007, $8.9 million of the equity in earnings of affiliates was due to a gain on the sale of land at the Company’s Bowater Mersey Paper Company Limited affiliate. The Company holds a 49% interest in Bowater Mersey Paper Company.

Other Non-Operating Income (Expense). The Company recorded other non-operating income, net, of $4.1 million for the first quarter of 2008, compared to other non-operating income, net, of $0.8 million for the first quarter of 2007.

A summary of non-operating income (expense) for the thirteen weeks ended March 30, 2008 and April 1, 2007, is as follows (in millions):

 

     2008     2007

Foreign currency gains, net

   $ 4.4     $ 0.8

Other losses, net

     (0.3 )     —  
              

Total

   $ 4.1     $ 0.8
              

Net Interest Expense. The Company incurred net interest expense of $4.4 million for the first quarter of 2008, compared to $2.6 million for the first quarter of 2007. The increase is due to a decline in interest income, as well as higher average borrowings in the first quarter of 2008 versus the same period of the prior year. At March 30, 2008, the Company had $467.1 million in borrowings outstanding, at an average interest rate of 5.0%.

Provision for Income Taxes. The effective tax rate for the first quarter of 2008 was 37.9%, compared to 35.1% for the same period of 2007. The 2007 effective rate was impacted by lower taxes provided on the gain on the sale of land at the Company’s Bowater Mersey Paper Company Limited affiliate investment. Excluding this gain, the effective tax rate for the first quarter of 2007 was 38.0%.

Earnings Per Share. The calculation of diluted earnings per share for the first quarter of 2008 was based on 9,512,966 weighted average shares outstanding, compared to 9,547,097 for the first quarter of 2007. The Company repurchased 2,604 shares of its Class B common stock at a cost of $1.8 million during the first quarter of 2008.

Financial Condition: Capital Resources and Liquidity

Acquisitions and Dispositions. In the first quarter of 2008, Kaplan acquired two businesses in their professional and test preparation divisions totaling $31.4 million. In addition, the cable division acquired subscribers in the Winona, Mississippi area for $15.4 million. Most of the purchase price for these acquisitions has been allocated to goodwill and other intangibles on a preliminary basis.

In 2007, Kaplan purchased a 40% interest in ACE Education, a provider of education in China that provides preparation courses for entry to U.K. universities, along with degree and professional training programs at campuses throughout China. In the first quarter of 2008, Kaplan exercised an option to increase its investment in ACE Education to a majority interest. This transaction is expected to close in the second quarter.

 

22


Table of Contents

In the first quarter of 2007, Kaplan acquired two businesses in their professional division totaling $115.8 million. These acquisitions included EduNeering Holdings, Inc., a Princeton, N.J. based provider of knowledge management solutions for organizations in the pharmaceutical, medical device, healthcare, energy and manufacturing sectors. In addition, the cable division acquired subscribers in the Boise, Idaho area for $4.1 million.

In connection with certain 2007 acquisitions, additional purchase consideration of approximately $22 million is contingent on the achievement of certain future operating results; such amounts have largely been funded in escrow and are not included in the Company’s purchase accounting as of March 30, 2008. Any additional purchase consideration related to these contingencies is expected to be recorded as goodwill.

Capital expenditures. During the first three months of 2008, the Company’s capital expenditures totaled $60.1 million. The Company estimates that its capital expenditures will be in the range of $325 million to $350 million in 2008.

Liquidity. The Company’s borrowings have decreased by $23.0 million, to $467.1 million at March 30, 2008, as compared to borrowings of $490.1 million at December 30, 2007. At March 30, 2008, the Company has $228.1 million in cash and cash equivalents, compared to $321.5 million at December 30, 2007. The Company had money market investments of $5.6 million and $5.1 million that are classified ad “Cash and cash equivalents” in the Company’s Consolidated Balance Sheet as of March 30, 2008 and December 30, 2007, respectively.

At March 30, 2008, the Company had $467.1 million in total debt outstanding, which comprised $63.0 million of commercial paper borrowings, $399.8 million of 5.5 percent unsecured notes due February 15, 2009, and $4.3 million in other debt.

The Company has $399.8 million in unsecured notes that mature on February 15, 2009 and are now classified as short-term borrowings. As of March 30, 2008, the Company has sufficient cash and marketable equity securities that could be used to pay off this debt at maturity. In addition, the Company could refinance some or all of this debt by issuing commercial paper under its $500 million commercial paper program or by borrowing money in the capital markets.

During the first quarter of 2008 and 2007, the Company had average borrowings outstanding of approximately $490.8 million and $404.9 million, respectively, at average annual interest rates of approximately 5.0 percent and 5.5 percent, respectively. During the first quarter of 2008 and 2007, the Company incurred net interest expense of $4.4 million and $2.6 million, respectively.

At March 30, 2008 and December 30, 2007, the Company had a working capital deficit of $490.3 million and $18.5 million, respectively. The increase in working capital deficit is due to the Company’s $399.8 million unsecured notes due February 15, 2009 now classified as current liabilities. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments. The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds and, to a lesser extent, through commercial paper borrowings. In management’s opinion, the Company will have ample liquidity to meet its various cash needs throughout 2008.

There were no significant changes to the Company’s contractual obligations or other commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007.

Forward-Looking Statements

This report contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to various risks and uncertainties that could cause actual results or events to differ

 

23


Table of Contents

materially from those anticipated in such statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2007.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk in the normal course of its business due primarily to its ownership of marketable equity securities, which are subject to equity price risk; to its borrowing and cash-management activities, which are subject to interest rate risk; and to its foreign business operations, which are subject to foreign exchange rate risk. The Company’s market risk disclosures set forth in its 2007 Annual Report filed on Form 10-K have not otherwise changed significantly.

 

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal executive officer) and the Company’s Vice President-Finance (the Company’s principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of March 30, 2008. Based on that evaluation, the Company’s Chief Executive Officer and Vice President-Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Vice President—Finance, in a manner that allows timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended March 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

24


Table of Contents

PART II. OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

During the quarter ended March 30, 2008, the Company purchased shares of its Class B Common Stock as set forth in the following table:

 

Period

   Total Number
of Shares
Purchased
   Average
Price
Paid per
Share
   Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plan*
   Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Plan*

Dec. 31 – Feb. 3, 2008

   0      —      0    410,994

Feb. 4 – Mar. 2, 2008

   0      —      0    410,994

Mar. 3 – Mar. 30, 2008

   2,604    $ 694.99    0    410,994

Total

   2,604    $ 694.99    0   

 

* On September 22, 2003, the Company’s Board of Directors authorized the Company to purchase, on the open market or otherwise, up to 542,800 shares of its Class B Common Stock, and the existence of that authorization was disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003. There is no expiration date for that authorization. Under the Company’s Stock Option Plan, the holder of a vested stock option has the right to pay some or all of the exercise price of the option by surrendering shares of the Company’s Class B Common Stock owned by such holder. In the first quarter of 2008, 2,604 shares were acquired from an employee electing this option for a stock option exercise. This activity does not count toward the Company’s stock repurchase plan.

 

25


Table of Contents
Item 6. Exhibits.

 

Exhibit
Number

 

Description

  3.1   Restated Certificate of Incorporation of the Company dated November 13, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003).
  3.2   Certificate of Designation for the Company’s Series A Preferred Stock dated September 22, 2003 (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company’s Current Report on Form 8-K dated September 22, 2003).
  3.3   By-Laws of the Company as amended and restated through November 8, 2007 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 14, 2007).
  4.1   Form of the Company’s 5.50% Notes due February 15, 2009, issued under the Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).
  4.2   Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).
  4.3   First Supplemental Indenture dated as of September 22, 2003, among WP Company LLC, the Company and Bank One, NA, as successor to The First National Bank of Chicago, as trustee, to the Indenture dated as of February 17, 1999, between The Washington Post Company and The First National Bank of Chicago, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated September 22, 2003).
  4.4   Five Year Credit Agreement dated as of August 8, 2006, among the Company, Citibank, N.A., JPMorgan Chase Bank, N.A., Wachovia Bank, National Association, SunTrust Bank, The Bank of New York, PNC Bank, National Association, Bank of America, N.A. and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2006).
31.1   Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2   Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32   Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer.

 

26


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

THE WASHINGTON POST COMPANY

(Registrant)

Date:   May 6, 2008  

/s/ Donald E. Graham

    Donald E. Graham,
    Chairman & Chief Executive Officer
    (Principal Executive Officer)
Date:   May 6, 2008  

/s/ John B. Morse

    John B. Morse, Jr.,
    Vice President-Finance
    (Principal Financial Officer)

 

27