Washington Post - Guild NewsMarch 19, 2002
The past year was dismal for the newspaper industry. Declines in advertising were described in some quarters as the worst since World War II. Many publishers slashed jobs to prop up sagging profit margins. Some took the radical step of freezing, or even reducing, executive pay. The Washington Post was not immune to the recession. But make no mistake: Neither The Post newspaper nor its corporate parent, the Washington Post Co., lost money last year. To the contrary, company profits went up. And with the economy turning around, top management sees the financial future as “reasonably good.” So as another round of collective bargaining between the Newspaper Guild and The Post draws near, it’s time once again to take a closer look at the numbers that reflect, in various ways, the Fruits of Your Labor. First, the bottom line. Then, some caveats. Despite the falloff in advertising and the fallout from 9/11, the Washington Post Co. reported after-tax profits of almost $230 million last year, an increase of 70 percent from 2000. That net income was better than the annual average of $197 million over the past three years -– roughly comparable to the period covered by the current Guild contract. And it was better than the average over the past 10 years, when the company’s cumulative profits were just shy of $2.2 billion. In the company’s newspaper division -– primarily The Washington Post but including Washingtonpost.Newsweek Interactive (WPNI), which runs washingtonpost.com -– pre-tax operating profits last year were about $85 million. That was down 26 percent from 2000, but still represented a margin of better than 10 percent. Of the company’s five operating segments, only television broadcasting topped the newspaper division in operating profits or margin, and none came close to the newspaper division in operating revenue -– underscoring The Washington Post’s continuing place as the company’s biggest profit center. So how did the Post Co. manage to raise its bottom line even as the industry ’s biggest players -– Gannett, Tribune and Knight Ridder –- reported declines of 40 percent or more? In part, as a Wall Street Journal article in January explained succinctly if somewhat inscrutably, the year’s results at the Post Co. reflected "the sale and exchange of cable systems; an affiliate’s noncash goodwill and other intangibles impairment charge … and losses from the write-down of a nonoperating parcel of land and certain cost-method investments to their estimated fair value." One, Two, Many Yardsticks Since the Enron scandal, the issue of accountability in corporate financial disclosure has been front-page news. But even before America’s biggest bankruptcy, BusinessWeek devoted a November cover story –- "Confused About Earnings?" -- to the notion that the bottom line had lost its meaning. It noted "a disturbing trend among companies to calculate profits in their own idiosyncratic ways" while predicting a record year for one-time "special charges," accounting devices that can paint a rosier future by bringing high expectations of the past back to earth. Unlike some business sectors, the newspaper industry is regarded as relatively "transparent" in communicating financials to stockholders. The Post Co. appears more straightforward than most in this regard. In addition, the company says it "does not engage in significant derivative or hedging activities," though it does own a 49 percent, longtime stake in Bowater Mersey Paper Co., a major newsprint supplier. Many of its fellow publishers, meanwhile, have been bailing out of newsprint hedge deals with Enron Corp. (And on a related note, the Post Co. has long employed Price Waterhouse, now known as PricewaterhouseCoopers, as its auditor –- not the paper-shredders at Arthur Andersen.) Still, the Post Co. can be less than totally candid in certain respects. A lengthy company news release on fourth-quarter and year-end 2001 results, for example, noted: "Revenues generated by the company’s online publishing activities, primarily washingtonpost.com, increased 12 percent to $30.4 million during the year." There was no specific mention, nor has there been in past company reports, of the extent of WPNI ’s operating losses –- known in corporate jargon as "developmental investments." At this writing, neither the Post Co. nor most other major media companies have made their formal filings for 2001 with the Securities and Exchange Commission. But the company’s January news release, with unaudited numbers, does offer some other ways to view the 2001 results. Excluding the one-time charges noted in the Journal story, for example, would yield net income of $71 million for the past year, much less than the official bottom line and a decline from 2000. The Long Run But as Post Co. Chairman Donald E.Graham said last May in the 2000 annual report, the company’s long-term success in building value "can only be measured by net income." And as he is fond of reminding audiences, the company cares "enormously" about profits, but "nothing" about quarterly results. Because the corporate structure concentrates control in the Graham family and makes the company highly resistant to takeover or outside pressure, this long view is one that he can take wisely and with confidence. Similarly, Guild-represented workers at The Washington Post, the foundation and profit engine of the company, have a long-term interest and long-standing investment in the paper’s continuing success. It is in this spirit of mutual benefit that we will bring our proposals and concerns to the bargaining table later this month. Making a regular appearance before financial analysts in early December, Graham alluded to Fed Chairman Alan Greenspan in quipping: "One key part of my role here is to rain gloom and doom on anyone who might view the company with, shall we say, 'irrational exuberance.'" He continued: "But, perversely, this time around, even I have to admit that -– despite the current advertising picture –- I feel pretty good about our prospects. Relative to the very poor year we’re having in earnings per share in 2001 –- and I want to emphasize it’s very poor –- we think both the immediate and long-term future look reasonably good for us, unless the ad climate deteriorates still further." What’s behind the optimism? And how did a newspaper company that grew into "a diversified media organization" become what is now "a diversified media and education company"? Details to come, in ripening Fruits. Roots of Fruits This series continues a tradition, begun in 1978 by veteran Post investigative reporter Morton Mintz, of examining the thicket of fine print in the orchard of the public record for insights into corporate profits, executive compensation and related matters, and setting these Fruits of Your Labor in the sunshine. My continuing thanks to Mort for his model, inspiration and encouragement. Although these bulletins have always been dedicated, at least implicitly, to the cause of fair treatment for the women and men who work at The Post, this year’s edition of Fruits is dedicated also to the memory of a colleague and friend. With cartoon in hand, Herbert L. Block brightened many of my evenings –- "Got a sec?" -– even as he no doubt darkened the mornings of his well-chosen targets. Despite achieving great fame and substantial wealth (mostly in Post stock, as we later learned), Herb was a working man who never forgot his roots. He joined what became Guild Local #1 in my home town, Cleveland, in 1934, soon after the union’s founding. And he continued to carry a Guild card for 67 years -– no one else did so for so long –- until his death last Oct.7. Herblock’s generous bequeathal to the Guild was a last, and lasting, testament of his stalwart support. If you’re not a Guild member, please join today.
-– Keith Sinzinger, Post Foreign Desk Fruits of Your Labor II: Who's Optimistic? -- Guild member and Foreign Desk editor Keith Sinzinger takes a look at spending, acquisitions and allegations of illegal conduct by the Post. Second in a series. Fruits of Your Labor III: Don Graham’s Salary Freeze –and Yours -- Guild member and Foreign Desk editor Keith Sinzinger compares Washington Post CEO and chairman Donald E.Graham's pay freeze (locked in at $399,996) to managment's proposal to freeze employees' pay this year. Third in a series.
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Washington-Baltimore
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