Annual Shareholders Meeting May 8, 2003 Remarks by Donald E. Graham Chairman and Chief Executive Officer I'd like to begin by talking about what The Post and Newsweek invested in their coverage of the war in Iraq. By that, I don't mean their financial investment. Both the newspaper and the magazine recognized for months, as the buildup for Iraq began, that telling all the truth we could learn about the war would be one of those challenges by which we are judged for a long time. Post-Newsweek Stations and Washingtonpost.Newsweek Interactive also committed substantial resources to covering the war. Altogether, the company had 50 reporters and photographers on the ground in the Middle East. We were lucky that each staff possesses remarkable journalists who started off able to provide a unique perspective for our readers. At the newspaper, Bob Woodward demonstrated again in his book "Bush at War," and in the newspaper reporting preceding it, that his mastery of the complexities of Washington is unequaled. In addition, Tom Ricks, a Pulitzer Prize-winner who has covered military affairs and diplomacy for many years - and wrote two books on the subject - is considered the foremost reporter at the Pentagon. Karen DeYoung and Walter Pincus bring decades of experience to covering diplomacy and the CIA. Then there were The Post's reporters on the ground in the theater. To single out a few: Rick Atkinson, a Post reporter and senior editor since 1983, had left the newspaper to become a military historian and had recently published "An Army at Dawn," a history of military operations in West Africa during World War II, which just won the Pulitzer Prize for history. Rick's work was greatly admired by career military officers, and he was called up by the commanding general of the 101st Airborne and asked to go with the unit to Iraq. Since "An Army at Dawn" was Rick's third great book, he was completely prepared to bring an understanding of the past to bear on today's infantrymen, and his reports have been a highlight of The Post's coverage. Meanwhile, Moscow correspondents Peter Baker and Susan Glasser, who had become experienced military reporters by covering the war in Afghanistan, joined a team of 15 Post reporters, some of whom were embedded with U.S. forces in the region. Just before the war began, The Post was fortunate to hire Anthony Shadid from The Boston Globe. Anthony is a Lebanese American who speaks fluent Arabic. After intense consultation with executive editor Len Downie, he remained in Baghdad to cover the war from the Iraqi perspective. Since Shadid's experience at The Globe included being shot in the shoulder during fighting in Ramallah, he knew better than anyone the risks involved. But his courage in choosing to remain, and his ability to converse with the local population, have provided uniquely astute reporting. At Newsweek, the remarkable Evan Thomas continued to pour out brilliant lead articles on the war. Melinda Liu, a talented and experienced foreign correspondent, chose to remain in Baghdad and filed compelling, personal stories from the front line. A team of reporters headed by Rod Norland in Kuwait and Iraq, followed the progress of the military coalition. I also want to highlight Newsweek International editor Fareed Zakaria's remarkable work interpreting the diplomacy surrounding the war. Finally, I have to mention washingtonpost.com's Travis Fox, who produced more than 35 quite remarkable edited audio, video and photographic reports for washingtonpost.com. At The Washington Post Company, every day since the war started was centered around our concern for the safety of reporters and photographers. We were grieved when Michael Kelly, an editor of the Atlantic Monthly whose weekly column appeared in The Post and was syndicated by The Washington Post Writers Group, died in Iraq on April 4. Michael was a strong believer in the merits of President Bush's war effort and put his life on the line to tell the story. The Post was fortunate to have printed his columns ever since former editorial page editor Meg Greenfield asked him about writing for us six years ago. Our pride in the achievements of all Post, post.com Newsweek, and Post-Newsweek Stations journalists who covered the war is great. The people of this country - both policymakers in Washington and the rest of us - need the multiple perspectives that only experienced and committed reporters around the world can provide. Never has it been more challenging to provide that perspective. And never has it seemed more important. For that reason, we were especially pleased that the work of Post journalists was recognized with three Pulitzer Prizes this year, in addition to the Pulitzer won by Rick Atkinson I mentioned a moment ago. Kevin Sullivan and Mary Jordan, a husband-and-wife team on The Post’s foreign staff, won the international reporting prize for exposing corruption in Mexico’s criminal justice system. Columnist Colby King won the commentary Pulitzer for his pieces on the District’s poorer and most neglected residents. And film critic Stephen Hunter won the Pulitzer for criticism. Likewise, KPRC, our television station in Houston, was one of only three local news organizations to win a Peabody Award, the broadcast industry's equivalent of a Pulitzer. Reporter Stephen Dean, with photographers Mark Muller and Glenn Garcia, recounted in a series of reports how the U.S. Army, citing federal law, refused access to soldiers' DNA in criminal investigations where enlisted personnel were suspects. The series resulted in the law being changed. Congratulations also to KPRC's news director Nancy Shafran. To go on to more mundane subjects - but these are the appropriate subjects of this meeting - let me bring you up to date on the company's business operations. I'd like to begin by unscrambling our first quarter results, which were announced on April 22. Net income for the first quarter of 2003 was $7.59 per share, compared to $1.16 per share in the first quarter of last year. But the first quarter this year included our previously announced $32.3 million after-tax gain on the sale of our share of the International Herald Tribune. The first quarter last year included an after-tax goodwill impairment charge of $12.1 million, an after-tax charge for an early retirement program at Newsweek of $6.1 million, and a net after-tax gain of $3.8 million, primarily from the sale of marketable securities. You can do the math - our results were up sharply compared to 2002. There is little chance in this living, breathing world that any other quarter this year will produce an even remotely comparable earnings gain. The remaining three of quarters of 2002 stepped up nicely from the first quarter of that year, so even with excellent results this year, similar increases are not a possibility. Shareholders should be clear about that. The Washington Post Company has been affected, of course, by the general economic and business downturn that followed the outbreak of the war. First quarter advertising revenue at the newspaper, Newsweek, and Post-Newsweek Stations was down about $6-to-$7 million from what we expected before the war began. Since the quarter bore most of the revenue impact from ad cancellations, it's gratifying that results were as good as they turned out to be. At the same time, expenses have been quite a bit higher, both for paper at The Post and Newsweek and for staff expenses, though the expense impact will be greater in the second quarter than the first. Newsweek domestic has had a very strong start in 2003. But Newsweek International has experienced a significant decline in advertising - after an on-budget start - as a result of the SARS epidemic. The falloff happened within a four-week period, and much of it comes from the airline and hotel categories. Singapore Airlines and Cathay Pacific have cut back in particularly dramatic ways to offset losses that are running at a multimillion-dollar-a-day clip because of the staggering drop in Asian travel. Unlike a lot of war-related cancellations in domestic, the Asian business isn't likely to be rescheduled, even if the health situation improves. Our Hong Kong office is up and operating, but it's pretty tough for ad sales people to do much business when everybody else is discouraging (or banning) face-to-face meetings with outsiders. All in all, it's an ugly situation. We are fortunate that two of our businesses are not advertising- dependent, though neither can escape being affected by general conditions in the economy. Our outlook for Cable One and Kaplan is optimistic. As I mentioned in the annual report, Cable One lost about 5 percent of its basic subscribers last year to a combination of weak economies in our markets and satellite competition. I'm pleased to report that this decline has been reversed. As of March 31 this year, the cable division had 719,300 basic subscribers, lower than the 751,700 subs at the same point last year, but up slightly from 718,000 basic subscribers at the end of December. This is a modest increase, but an increase nonetheless. The gain results in part from newly added direct sales people in almost every market. Cable One concluded that our product offering is now broad enough that going into people's homes to demonstrate it would be very useful. And that has proved to be true. When we sell a new basic subscriber, there is a high likelihood they'll also take digital and modem service.