To Our Shareholders:

At the start of last year, the future of The Washington Post Company seemed somewhat uncertain. As a symbol of the uncertainty, we had $400 million in bonds coming due in just six weeks — and no lender had said they could be renewed at less-thanextortionate rates.

The wise advice from our lead director was: wait about three weeks. And indeed, new ten-year bonds were sold (albeit at a somewhat higher rate than the old ones). This modest success turned out to be a good sign. 2009 was a much better year than anyone could have expected for The Washington Post Company. While GAAP results looked awful, the balance sheet doesn’t lie: cash and securities net of debt were $269 million more at year-end 2009 than 12 months earlier (and the money overwhelmingly came from business proceeds, not from asset sales).

The Nature of the Company
This somewhat complicated report will read better if you keep in mind the dramatically changed nature of our Company.

In 1991 (the year present management took over), 82% of The Post Company’s revenues came from newspaper, magazine and local TV broadcasting businesses. The newspaper division — then, as now, mostly the Post — was 47% of the Company.

In 2009, these same three divisions accounted for only 25% of our revenues. Kaplan alone was 58% of revenues, and Cable ONE was 16%. In profits, the change was even more dramatic. Our once-mighty newspaper business lost a lot of money in 2009; so did Newsweek. That new money in the corporate cashbox at year-end came almost entirely from Kaplan, Cable ONE and Post–Newsweek Stations.

This new order of things suggests that shareholders are looking at a different set of realities at The Washington Post Company; the Company is more dependent than ever on a single business: Kaplan. (The Post was never as much as 58% of Company revenues since we went public.) Education has been a terrific business, for us and for many other companies.

It should be in the future, as well. But as 2010 dawns, Kaplan’s business faces some risks our shareholders should know about and understand. I will address each of our large businesses. But our reported results for 2009 were so confusing that they should be explained first.

2009 Results: The Meaning of “One-Time Charges”
A reasonable shareholder might ask: how did we accumulate $87 million of additional cash and pay off $155 million of debt, while reporting only $91 million of net income?

The answer to this question is astonishingly complicated. We are not a very large company (less than Fortune 500 size), but for years, our income statement has offered a reference book of one-time charges. We have closed businesses; we have sold businesses, stocks and real estate; we have announced restructuring plans that required lease terminations, severance payments to employees and accelerated depreciation of fixed assets; we have recorded impairments to goodwill and other assets of businesses we own and to stocks we’ve owned; we’ve also reduced the book value of hard-to-value investments in early-stage companies, offered retirement incentives (repeatedly) to long-service employees, closed a printing plant, recorded gains in broadcast division assets, booked losses (and gains) on foreign exchange, booked charges for a nonsolicitation agreement, have had a 49% owned subsidiary record a one-time tax charge, benefited from a state tax change, recorded non-cash charges when the accounting treatment of equity awards was changed, and recovered insurance proceeds.

Those were only in the past four years! What’s the meaning of all those charges? Are we better understood at the end of 2009 as a company that earned only $91.2 million in corporate net income, down 78% from our best year ever (as the income statement says), or as a company that generated the additional hundreds of millions of dollars described at the beginning of this letter?

At the very least, this set of questions is an advertisement for reading all of the financial statements of a company you own shares in (at least the income statement, balance sheet and cash flow statement). ...

Download Full Report: The Washington Post Company 2009 Annual Report

PDF format, 1MB, 106Pages.

The Washington Post Company
1150 15th Street, NW
Washington, DC 20071
(202) 334-6000
washpostco.com

THE WASHINGTON POST COMPANY (NYSE: WPO) is a diversified education and media company committed to building long-term value for our shareholders.

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