1 ================================================================================SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549---------------------------FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER
31, 200029, 2002Commission 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 (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1150 15TH ST., N.W., WASHINGTON, D.C. 20071 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: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 St., N.W., Washington, D.C. 20071 (Address of principal executive offices) (Zip Code) Registrant’s Telephone Number, Including Area Code: (202) 334-6000
SECURITIES REGISTERED PURSUANT TO SECTIONSecurities Registered Pursuant to Section 12(b)
OF THE ACT:of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED ------------------- ----------------Name of each exchange Title of each class on which registered Class B Common Stock, par valuePar ValueNew York Stock Exchange $1.00 per share$1.00 Per Share 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 (the “Act”) 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][x] No. --- ---[ ]Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [x] No [ ]
Aggregate market value of the
Company's votingCompany’s common stock held by non-affiliates onFebruary 28, 2001,June 30, 2002, based on the closing price for theCompany'sCompany’s Class B Common Stock on the New York Stock Exchange on such date: approximately$2,954,000,000.$2,881,000,000.Shares of common stock outstanding at February 28,
2001:2003:Class A Common Stock
-– 1,722,250 shares
Class B Common Stock- 7,738,620– 7,804,400 sharesDocuments
partially incorporatedPartially Incorporated byreference:Reference:Definitive Proxy Statement for the
Company's 2001Company’s 2003 Annual Meeting of Stockholders(incorporated
(incorporated in Part III to the extent provided in Items 10, 11, 12 and 13 hereof).================================================================================2THE WASHINGTON POST COMPANY 2002 FORM 10-K
PART I Page Item 1. Business 1 Newspaper Publishing 1 Television Broadcasting 3 Cable Television Operations 6 Magazine Publishing 9 Education 12 Other Activities 14 Production and Raw Materials 14 Competition 15 Executive Officers 18 Employees 18 Forward-Looking Statements 19 Available Information 19 Item 2. Properties 19 Item 3. Legal Proceedings 20 Item 4. Submission of Matters to a Vote of Security Holders 21 PART II Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters 21 Item 6. Selected Financial Data 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22 Item 8. Financial Statements and Supplementary Data 22 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23 PART III Item 10. Directors and Executive Officers of the Registrant 23 Item 11. Executive Compensation 23 Item 12. Security Ownership of Certain Beneficial Owners and Management 23 Item 13. Certain Relationships and Related Transactions 23 Item 14. Controls and Procedures 23 PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 23 SIGNATURES 24 CERTIFICATIONS 25 INDEX TO FINANCIAL INFORMATION 27 Management’s Discussion and Analysis of Results of Operations and Financial
Condition (Unaudited)29 Financial Statements and Schedules: Report of Independent Accountants 38 Consolidated Statements of Income for the Three Fiscal Years Ended
December 29, 200239 Consolidated Statements of Comprehensive Income for the Three Fiscal
Years Ended December 29, 200239 Consolidated Balance Sheets at December 29, 2002 and December 30, 2001 40 Consolidated Statements of Cash Flows for the Three Fiscal Years Ended
December 29, 200242 Consolidated Statements of Changes in Common Shareholders’ Equity for
the Three Fiscal Years Ended December 29, 200243 Notes to Consolidated Financial Statements 44 Financial Statement Schedule for the Three Fiscal Years Ended
December 29, 2002: II — Valuation and Qualifying Accounts57 Ten-Year Summary of Selected Historical Financial Data (Unaudited) 58 INDEX TO EXHIBITS 61 PART I
ITEMItem 1.
BUSINESS.Business.The principal business activities of The Washington Post Company (the
"Company"“Company”) consist of newspaper publishing (principallyThe WashingtonPost)Post), television broadcasting (through the ownership and operation of sixnetwork-affiliatedVHF television stations), the ownership and operation of cable television systems, magazine publishing (principallyNewsweekmagazine), and (through its Kaplan subsidiary) the provision of educational services.Information concerning the consolidated operating revenues, consolidated income from operations and identifiable assets attributable to the principal segments of the
Company'sCompany’s business for the last three fiscal years is contained in NoteLM to theCompany'sCompany’s Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. (Revenues for each segment are shown in such NoteLM net of intersegment sales, which did not exceed 0.1% of consolidated operating revenues.)During each of the last three years the
Company'sCompany’s operations in geographic areas outside the United States (consisting primarily of the publication of the international editions ofNewsweek)Newsweek) accounted for less than5%4% of theCompany'sCompany’s consolidated revenuesand less than 2% of its consolidated income from operations,and the identifiable assets attributable to such operations represented less than 2% of theCompany'sCompany’s consolidated assets.NEWSPAPER PUBLISHING THE WASHINGTON POSTNewspaper Publishing
The Washington Post
The Washington Postis a morning and Sunday newspaper primarily distributed by home delivery in the Washington, D.C. metropolitan area, including large portions of Virginia and Maryland.
The following table shows the average paid daily (including Saturday) and Sunday circulation ofThe Postfor the twelve-month periods ended September 30 in each of the last five years, as reported by the Audit Bureau of Circulations
("ABC"(“ABC”) for the years1996-19991998-2001 and as estimated byThe Postfor the twelve-month period ended September 30,20002002 (for which period ABC had not completed its audit as of the date of this report) from the semi-annualpublisher'spublisher’s statements submitted to ABC for the six-month periods ended March 31,20002002 and September 30,2000:
AVERAGE PAID CIRCULATION ------------------------ DAILY SUNDAY ----- ------1996................................ 800,295 1,129,519 1997................................ 784,199 1,109,344 1998................................ 774,414 1,095,091 1999................................ 775,005 1,085,060 2000................................ 778,714 1,076,135A2002:
Average Paid Circulation Daily Sunday 1998 774,414 1,095,091 1999 775,005 1,085,060 2000 777,521 1,075,918 2001 771,614 1,066,723 2002 768,600 1,058,889 The newsstand price
increaseforhome-delivered copies ofthe dailyand Sundaynewspaperwent into effect on February 25, 2001, which raisedwas increased from $0.25 (which had been therate per four-week period from $11.16price since 1981) to$11.88. The rate charged to subscribers for Sunday-only home-delivered copies of the newspaper for each four-week period has been $6.00 since 1991.$0.35 effective December 31, 2001. The newsstand price for the Sunday newspaper has been $1.50 since1992 and1992. In July 2002 thenewsstand pricerate charged for home-delivered copies of the daily and Sunday newspaper for each four-week period was increased to $12.60 from $11.88, which had been the rate since February 2001. The corresponding rate charged for Sunday-only home-delivery has been$0.25$6.00 since1981. 131991.General advertising rates were increased by an average of
4.6%4.8% on January 1,2000,2002, and by another5.4%3.2% on January 1,2001.2003. Rates for most categories of classified and retail advertising were increased by an average of5.0%4.5% on February 1,2000,2002, and by an additional4.0%3.7% on February 1,2001.2003.The following table sets forthThe
Post'sPost’s advertising inches (excluding preprints) and number of preprints for the past five years:
1996 1997 1998 1999 2000 ---- ---- ---- ---- ----Total Inches (in thousands) ....... 3,070 3,192 3,199 3,288 3,363 Full-Run Inches .............. 2,814 2,897 2,806 2,745 2,634 Part-Run Inches .............. 256 294 393 543 729 Preprints (in millions) ........... 1,445 1,549 1,650 1,647 1,602
1998 1999 2000 2001 2002 Total Inches (in thousands) 3,199 3,288 3,363 2,714 2,657 Full-Run Inches 2,806 2,745 2,634 2,296 2,180 Part-Run Inches 393 543 729 418 477 Preprints (in millions) 1,650 1,647 1,602 1,556 1,656 The Postalso publishesThe Washington Post National Weekly Edition, a tabloid which contains selected articles and features fromThe Washington Postedited for a national audience. TheNational Weekly Editionhas a basic subscription price of $78 per year and is delivered by second class mail to approximately
56,00047,000 subscribers.The Posthas about
715675 full-time editors, correspondents, reporters and photographers on its staff, draws upon the news reporting facilities of the major wire services and maintains correspondents in2220 news centers abroad and in New York City; Los Angeles;San Francisco;Chicago; Miami; and Austin, Texas.The Postalso maintainscorrespondentsreporters in 12 local news bureaus.WASHINGTONPOST.NEWSWEEK INTERACTIVEWashingtonpost.Newsweek Interactive
Washingtonpost.Newsweek Interactive Company,
("WPNI"LLC (“WPNI”) develops news and information products for electronic distribution. Since July 1996 this subsidiary of the Company has produced washingtonpost.com,a World Wide Weban Internet site that features the full editorial text ofThe Washington Postand most ofThePost'sPost’s classified advertising as well as original content created byWPNI'sWPNI’s staff and content obtained from other sources. This site is currently generating more than 160 million page views per month. The washingtonpost.com site also features comprehensive information about activities, groups and businesses in the Washington, D.C. area, including an arts and entertainment sectionan online yellow pages directory,and a news section focusing onregionaltechnologybusinesses.businesses and related policy issues. This siteis currently generating more than 115 million page views perhas developed a substantial audience of users who are outside of the Washington, D.C. area, and WPNI believes that at least three-quarters of the unique users accessing the site each month are in that category. During the fall of 2002 WPNI began requiring most users accessing the washingtonpost.com site to register andthe Company believes (based on data from Media Metrix) is among the top five national news sites on the Internet.provide their year of birth, gender and zip code. The resulting information helps WPNI provide online advertisers with opportunities to target specific geographic areas and demographic groups.WPNI also produces theNewsweek
WebInternet site, which was launched in 1998 and contains editorial content from the print edition ofNewsweekas well as daily news updates and analysis, photo galleries, Web guides and other features.In addition, WPNI operates the Newsbytes News Network, a newswire service that electronically distributes approximately 60 news stories a day about the information technology, Internet, telecommunications and related industries to newspapers, magazines, online services and other subscribers around the world.WPNI holds a minority equity interest in Classified Ventures,
Inc.,LLC, a company formed to compete in the business of providing nationwide classified advertising databases on the Internet. The Classified Ventures databases cover the product categories of automobiles, apartment rentals and real estate. Listings for these databases come from various sources, including direct sales and classified listings from the newspapers of participating companies. Links to the Classified Ventures databases are included in the washingtonpost.com site.InUnder an agreement signed in June 2000, WPNI
together with certainand several other business units of the Companysigned an agreement with NBC News and MSNBC pursuant to which the parties sharehave been sharing certain news material and promotionalresources.resources with NBC News and MSNBC. Among other things, under this agreement theNewsweekWeb site has become a feature on MSNBC.com, and MSNBC.com is being provided access to certain content fromThe2. Similarly, washingtonpost.com is being provided access to certain MSNBC.com multimedia content. 4WashingtonPost.PostTHE HERALDCommunity Newspaper Division of Post-Newsweek Media
The Community Newspaper Division of Post-Newsweek Media, Inc. publishes two weekly paid-circulation, three twice-weekly paid-circulation and 39 controlled-circulation weekly community newspapers. This division’s newspapers are divided into two groups:The Gazette Newspapers, which circulate in Montgomery, Prince George’s and Frederick Counties and in parts of Carroll, Anne Arundel and Howard Counties, Maryland; andSouthern Maryland Newspapers, which circulate in southern Prince George’s County and in Charles, St. Mary’s and Calvert Counties, Maryland. During 2002 these newspapers had a combined average circulation of approximately 670,000 copies. This division also produces military newspapers (most of which are weekly) under agreements where editorial material is supplied by local military bases; in 2002 the 11 military newspapers produced by this division had a combined average circulation of over 200,000 copies.
The Gazette NewspapersandSouthern Maryland Newspaperstogether employ approximately 165 editors, reporters and photographers.
This division also operates two commercial printing businesses in suburban Maryland.
The Herald
The Company owns The Daily Herald Company, publisher ofThe Heraldin Everett, Washington, about 30 miles north of Seattle.The Heraldis published mornings seven days a week and is primarily distributed by home delivery in
2Snohomish County. The Daily Herald Company also provides commercial printing services and publishes six controlled-circulation weekly community newspapers (collectivelyknowknown asThe EnterpriseNewspapers)Newspapers) that are distributed in south Snohomish and north King Counties.The
Herald'sHerald’s average paid circulation as reported to ABC for the twelve months ended September 30,2000,2002, was52,56650,004 daily (including Saturday) and60,80058,203 Sunday. The aggregate average weekly circulation ofThe Enterprise Newspapersduring the twelve-month period ended December 31,2000,2002, was approximately71,00069,000 copies.The HeraldandThe Enterprise Newspaperstogether employ approximately 75 editors, reporters and photographers.
THE GAZETTE NEWSPAPERSGreater Washington Publishing
The
Company's Gazette Newspapers, Inc. subsidiary publishes one paid-circulation and 35 controlled-circulation weekly community newspapers (collectively known as The Gazette Newspapers) in Montgomery and Frederick Counties and parts of Prince George's, Carroll, Anne Arundel and Howard Counties, Maryland. During 2000 The Gazette Newspapers had an aggregate average weekly circulation of approximately 554,000 copies. This subsidiary also produces 11 military newspapers (most of which are weekly) under agreements where editorial material is supplied by local military bases; in 2000 these newspapers had a combined average circulation of over 200,000 copies. The Gazette Newspapers have approximately 125 editors, reporters and photographers on their combined staffs. The Gazette Newspapers, Inc. also operates a commercial printing business in Montgomery County, Maryland. On February 28, 2001, The Gazette Newspapers, Inc. acquired eight community newspapers that circulate in southern Prince George's County and in Charles, St. Mary's and Calvert Counties, Maryland, two military newspapers that serve military bases in southern Maryland, and a commercial printing business located in Charles County, Maryland. The acquired community newspapers will be operated by the Gazette as the Southern Maryland Newspapers and include three twice-weekly paid-circulation newspapers with a combined circulation of over 50,000 copies, four controlled-circulation weekly newspapers with a combined circulation of 60,000 copies, and one paid-circulation weekly newspaper with a circulation of 6,000 copies. The Southern Maryland Newspapers have approximately 40 editors, reporters and photographers on their combined staffs. GREATER WASHINGTON PUBLISHINGCompany’s Greater Washington Publishing, Inc., anothersubsidiaryof the Company,publishes several free-circulation advertising periodicals which have little or no editorial content and are distributed in the greater Washington, D.C. metropolitan area using sidewalk distribution boxes. Greater WashingtonPublishing'sPublishing’s two largest periodicals areThe Washington Post Apartment Showcase, which is published monthly and has an average circulation of about 55,000 copies, andNew Homes Guide, which is published six times a year and also has an average circulation of about 55,000 copies.35 TELEVISION BROADCASTINGTelevision Broadcasting
Through subsidiaries the Company owns six VHF television stations located in Detroit, Michigan; Houston, Texas; Miami, Florida; Orlando, Florida; San Antonio, Texas; and Jacksonville, Florida; which are respectively the
9th,10th, 11th,16th, 21st,17th, 20th, 37th and53rd51st largest broadcasting markets in the United States.EachFive of the
Company'sCompany’s television stationsisare affiliated with one or another of the major national networks. The Company’s Jacksonville station, WJXT, ended its affiliation with the CBS network in July 2002 when the parties were unable to negotiate mutually acceptable terms for anational network. Althoughrenewal of the station’s network affiliationagreements generally have limited terms,agreement. Subsequent to that date WJXT has been operated as an independent station.The following table sets forth certain information with respect to each of the
Company'sCompany’s televisionstations has maintained a network affiliation continuously for at least 20 years.stations:
Station Location and Expiration Expiration Total Commercial Year Commercial National Date of Date of Stations in DMA(b) Operation Market Network FCC Network Commenced Ranking(a) Affiliation License Agreement Allocated Operating WDIV 10th NBC Oct. 1, Dec. 31, VHF-4 VHF-4 Detroit, Mich. 2005 2011 UHF-6 UHF-5 1947 KPRC 11th NBC Aug. 1, Dec. 31, VHF-3 VHF-3 Houston, Tx. 2006 2011 UHF-11 UHF-11 1949 WPLG 17th ABC Feb. 1, Dec. 31, VHF-5 VHF-5 Miami, Fla. 2005 2004 UHF-8 UHF-8 1961 WKMG 20th CBS Feb. 1, Apr. 6, VHF-3 VHF-3 Orlando, Fla. 2005 2005 UHF-11 UHF-10 1954 KSAT 37th ABC Aug. 1, Dec. 31, VHF-4 VHF-4 San Antonio, Tx. 2006 2004 UHF-6 UHF-6 1957 WJXT 51st None Feb. 1, — VHF-2 VHF-2 Jacksonville, Fla. 2005 UHF-6 UHF-5 1947
(a) Source: 2002/2003 DMA Market Rankings, Nielsen Media Research, Fall 2002, based on television homes in DMA (see note (b) below). (b) Designated Market Area (“DMA”) is a market designation of A.C. Nielsen which defines each television market exclusive of another, based on measured viewing patterns. 3The
Company's 2000Company’s 2002 net operating revenues from national and local television advertising and network compensation were as follows:
National............................... $ 131,362,000 Local.................................. 203,022,000 Network................................ 28,886,000 ------------- Total............................. $ 363,270,000
National $ 118,124,000 Local 205,326,000 Network 18,409,000 Total $ 341,859,000 Regulation of Broadcasting and Related Matters
The
following table sets forth certain information with respect to each of the Company's television stations:
STATION LOCATION AND EXPIRATION EXPIRATION TOTAL COMMERCIAL YEAR COMMERCIAL NATIONAL DATE OF DATE OF STATIONS IN DMA(b) OPERATION MARKET NETWORK FCC NETWORK ------------------ COMMENCED RANKING(a) AFFILIATION LICENSE AGREEMENT ALLOCATED OPERATING --------- ---------- ----------- ------- --------- --------- ---------WDIV 9th NBC Oct. 1, June 30, VHF-4 VHF-4 Detroit, Mich. 2005 2004 UHF-6 UHF-5 1947 KPRC 11th NBC Aug. 1, June 30, VHF-3 VHF-3 Houston, Tx. 2006 2004 UHF-11 UHF-11 1949 WPLG 16th ABC Feb. 1, Dec. 31, VHF-5 VHF-5 Miami, Fla. 2005 2004 UHF-8 UHF-8 1961 WKMG 21st CBS Feb. 1, Apr. 6, VHF-3 VHF-3 Orlando, Fla. 2005 2005 UHF-11 UHF-10 1954 KSAT 37th ABC Aug. 1, Dec. 31, VHF-4 VHF-4 San Antonio, Tx. 2006 2004 UHF-6 UHF-6 1957 WJXT 53rd CBS Feb. 1, July 10, VHF-2 VHF-2 Jacksonville, Fla. 2005 2001 UHF-6 UHF-5 1947- ------------------ (a) Source: 2000/2001 DMA Market Rankings, Nielsen Media Research, Fall 2000, based on television homes in DMA (see note (b) below). (b) Designated Market Area ("DMA") is a market designation of A.C. Nielsen which defines each television market exclusive of another, based on measured viewing patterns. REGULATION OF BROADCASTING AND RELATED MATTERS The Company'sCompany’s television broadcasting operations are subject to the jurisdiction of the Federal Communications Commission under the Communications Act of 1934, as amended. Under authority of46such Act the FCC, among other things, assigns frequency bands for broadcast and other uses; issues, revokes, modifies and renews broadcasting licenses for particular frequencies; determines the location and power of stations and establishes areas to be served; regulates equipment used by stations; and adopts and implements regulations and policies which directly or indirectly affect the ownership, operations and profitability of broadcasting stations.Each of the
Company'sCompany’s television stations holds an FCC license which is renewable upon application for an eight-year period.In December 1996 the FCC formally approved technical standards for digital advanced television
("DTV"(“DTV”). DTV is a flexible system that permits broadcasters to utilize a single digital channel in various ways, including providing one channel of high-definition television (“HDTV”) programming with greatly enhanced image and sound quality or several channels of lower-definition television programming("multicasting"(“multicasting”), and also is capable of accommodating subscription video and data services. Recent advances in compression technology may also allow broadcasters to transmit simultaneously one channel of HDTV programming and at least one channel of lower-definition programming. Broadcasters may offer a combination of servicessoas long as they transmit at least one stream of free video programming on the DTV channel. The FCC has assigned to each existing full-power television station (including each station owned by the Company) a second channel to implement DTV while present television operations are continued on thatstation'sstation’s existing channel. Although in some cases astation'sstation’s DTV channel may only permit operation over a smaller geographic service area than that available using its existing channel, theFCC'sFCC’s stated goal in assigning channels was to provide stations with DTV service areas that are generally consistent with their existing service areas. TheFCC'sFCC’s DTV rules also permit stations to request modifications to their assigned DTV facilities, allowing them to expand their DTV service areas if certain interference criteria are met. Under FCC rules and the Balanced Budget Act of 1997, if specified DTV household penetration levels are met, station owners will be required to surrender one channel in 2006 and thereafter provide service solely in the DTVformat, assuming that specified DTV household penetration levels are met. In an order issued in January 2001, the FCC has required most television stations (including all of the Company's stations except WKMG) to elect by the end of 2003 which of their two channels they will surrender at the end of the DTV transition period.format.The
Company'sCompany’s Detroit, Houston and Miami stations each commenced DTV broadcast operations during1999. The Company's1999, while the Company’s Orlando stationhas requested a waiver from the FCC permitting it to delay the commencement of DTV broadcastcommenced such operationsuntil May 1,in 2001. Thedeadline established by the FCC for the Company'sCompany’s two other stations (San Antonio and Jacksonville)to beginbegan DTV broadcast operationsis May 1,during 2002.In November 1998 the FCC issued a decision implementing the requirement of the Telecommunications Act of 1996 that it charge broadcasters a fee for offering certain
"ancillary“ancillary andsupplementary"supplementary” services on the DTV channel. These services include data, video or other services that are offered on a subscription basis or for which broadcasters receive compensation other than from advertising revenue. In its decision, the FCC imposed a fee of 5% of the gross revenues generated by such services. In rules adopted in April 2000, the FCC also implemented the Community Broadcasters Protection Act of 1999, which provides interference protection to certain low-power television stations. These rules provide several hundred low-power stations with the same protection from interference enjoyed by full-power stations, with the result that it may be more difficult for some existing full-power stations to alter their analog or DTV transmission facilities. Separately, in January 2001 the FCC issued an order governing the mandatory carriage of DTV signals by cable television operators. The FCC decided that, pending further inquiry, only stations that broadcast in a DTV-only mode would be entitled to mandatory carriage of their DTV signals. In defining how a DTV signal should be carried, the FCC ruled that only a single stream of video (that is, a single channel of programming) together with any additional"program-related"“program-related” material is eligible for mandatory carriage. The determination of what constitutes"program-related"“program-related” material has not yet been made. Cable operators will be required to57carry the DTV signal of any DTV station eligible for mandatory carriage in the same definition in which the signal was originally broadcast. Thus, an HDTV signal of a station eligible for mandatory carriage could not be converted into a lower definition format by cable operators. However, until this FCC order is clarified it is4unclear whether cable operators will be responsible for ensuring that their set-top boxes are capable of passing DTV signals in their full definition to theconsumer'sconsumer’s DTV receiver.The FCC has a policy of reviewing its DTV rules every two years to determine whether those rules need to be adjusted in light of new developments. In
another order issued inJanuary2001,2003 the FCClimited the interference protection a DTV station enjoys. As a result, DTV stations are now required to replicate their analog service areas by the end of 2004 or forfeit interference protection for any areas that they do not serve. The FCC also has issuedreleased a Notice ofInquiry addressingProposed Rule Making, initiating thequestionsecond periodic review ofwhether specialits DTV rules. This review will examine broadly the rules and policies governing broadcasters’ DTV operations, including interference protection rules, operating requirements, and extensions of the 2006 deadline for ceasing analog operations. As a part of this review, the FCC sought further comment in long-pending proceedings to determine what public interest obligations shouldbe imposed onapply to broadcasters’ DTV operations.Specifically,Among other things, the FCC has asked whether it should require broadcasters to provide free timeforto political candidates, increase the amount of programming intended to meet the needs of minorities and women, and increase communication with the public regarding programming decisions.The Telecommunications Act of 1996 requires the FCC
alsoto review its broadcast ownership rules every two years and to repeal or modify any rule it determines isconducting proceedings dealing with such matters as regulations pertaining to cable television (discussed below under "Cable Television Division - Regulation of Cable Television and Related Matters"), and various proposals affectingno longer in thedevelopment of alternative video delivery systems that would compete in varying degrees with both cable television and television broadcasting operations.public interest. In August 1999 the FCC amended its local ownership rule to permit one company to own two television stations in the same market if there are at least eight independently owned full-power television stations in that market(counting(including non-commercial stations and counting the co-owned stations as one), and if at least one of the co-owned stations is not among the top four ranked television stations in that market. The FCC also decided to permit common ownership of stations in a single market if their signals do not overlap, and to permit common ownership where one ofcertainthe stations is failing orunbuilt stations.unbuilt. These rule changesare likely to increasepermitted increases in the concentration of station ownership in localmarkets. For example,markets, and all of theCompany'sCompany’s stationsin Detroit, Miami, Orlando, San Antonio and Jacksonvilleare noweachcompeting against two-station combinations in their respective markets. Separately, the rule governing the aggregate number of television stations a single company can own was relaxed by amendments to the Communications Act enacted in 1996, and broadcast companies are now permitted to own an unlimited number of television stations as long as the combined service areas of such stations do not include more than 35% of nationwide television households. The 35% limit is subject to the FCC’s periodic review, and in 1999 the agency decided to leave the rule unchanged. However, in February 2002 the U.S.population. TheCourt of Appeals for the District of Columbia Circuit found that the reasons given by the FCC for retaining the 35% limit were insufficient as a matter of law and remanded the matter to the FCC for further consideration. In addition, in April 2002 the same court found that the FCC’s rule permitting co-owned stations in markets with at least eight independent full-power stations had not been adequately justified because of a failure to consider the significance of other types of media and also remanded that rule to the FCC for further consideration. In September 2002 the FCC began a new periodic review of its broadcastnetworks are urging Congressownership rules, including the two rules remanded to it by the U.S. Court of Appeals. This review will also examine four other broadcast ownership rules, including the rule that prohibits common ownership of a television station and an English-language daily newspaper in the same community and theFCC to raise or eliminate this limit, but those efforts are opposed by othersrule that prohibits common ownership of any two of the four major television networks (ABC, CBS, NBC and Fox). This proceeding could result in theindustry,FCC’s relaxing or eliminating one or more of its broadcast ownership rules.Pursuant to the “must-carry” requirements of the Cable Television Consumer Protection and Competition Act of 1992 (the “1992 Cable Act”), a commercial television broadcast station may, under certain circumstances, insist on carriage of its signal on cable systems serving the station’s market area. Alternatively, such stations may elect, at three-year intervals that began in October 1993, to forego must-carry rights and insist instead that their signals not be carried without their prior consent pursuant to a retransmission consent agreement. The Satellite Home Viewer Improvement Act of 1999 gave commercial television stations similar rights to elect either must-carry or retransmission consent with respect to the carriage of their signals on direct broadcast satellite (“DBS”) systems that choose to provide “local-into-local” service (i.e., to distribute the signals of local television stations to viewers in the local market area). Stations made their first DBS carriage election in July 2001 and will make subsequent elections at three-year intervals beginning in October 2005. Stations that elect retransmission consent may negotiate for compensation from cable and DBS systems in the form of such things as mandatory advertising purchases by the system operator, station promotional announcements on the system, and cash payments to the station. The Company’s television stations, with the exception of WJXT, are being carried on all of the major cable systems in their respective local markets pursuant to retransmission consent agreements. WJXT is being carried on cable in its local market pursuant to its must-carry rights. All of the Company’s television stations are being carried by DBS providers EchoStar and DirecTV on a local-into-local basis pursuant to retransmission consent agreements. As noted previously, all of the Company’s television stations are transmitting both analog and digital broadcast signals; most of those stations’ digital signals are being carried on at least some local cable systems pursuant to retransmission consent agreements.
5The FCC is conducting proceedings dealing with various issues in addition to those described elsewhere in this section, including proposals to modify its regulations relating to the
network affiliate associationsoperation of cable television systems (which regulations are discussed below under “Cable Television Division – Regulation of Cable Television and Related Matters”), and proposals that could affect theNational Associationdevelopment ofBroadcasters.alternative video delivery systems that would compete in varying degrees with both cable television and television broadcasting operations.The Company is unable to determine what impact the various rule changes and other matters described in this section may ultimately have on the
Company'sCompany’s television broadcasting operations.CABLE TELEVISION OPERATIONSCable Television Operations
At the end of
20002002 the Company (through its Cable One subsidiary) provided basic cable service to approximately735,000718,000 subscribers (representing about69%57% of the1,063,8001,255,000 homes passed by the systems) and had in forcemore than 416,000approximately 340,000 subscriptions to premium programservices. During 2000 the Company purchased several smallservices, 196,000 subscriptions to digital video service (which number does not include approximately 19,000 free trials of that service then being offered by Cable One) and 78,000 subscriptions to cabletelevision systemsmodem service. Digital video and cable modem services are each currently available in markets servingan aggregatemore than 93% of8,500 subscribers.Cable One’s subscriber base.On
January 10, 2001, Cable One sold its Greenwood, Indiana cable system to a joint venture in which AT&T has an interest. In a related transaction, on MarchNovember 1,2001,2002, Cable One transferred itsModesto and Santa Rosa, California cable systems (which had been its two largest systems)Akron, Ohio system, together withan undisclosed amount ofa cash payment, to a unit ofAT&TAOL Time Warner in return forAT&Tcable systems serving the communities ofBoise, Idaho Falls, Twin Falls, PocatelloChanute, Emporia, Independence andLewistown, Idaho, and the community of Ontario, Oregon. These transactionsParsons, Kansas. That transaction had the effect of increasing by approximately26,0005,000 the number of subscribers being served by theCompany'sCompany’s cable systems.68The
Company'sCompany’s cable systems are located in 19 Midwestern, Southern and Western states and typically serve smaller communities: thus1921 of theCompany'sCompany’s current systems pass fewer than 10,000 dwelling units,1617 pass 10,000-25,000 dwelling units, and1918 pass more than 25,000 dwellingunits, of which the largest is Boise, Idaho with 65,000 subscribers.units. The largest cluster of systems (which together serve about95,00089,000 subscribers) is located on the Gulf Coast of Mississippi.REGULATION OF CABLE TELEVISION AND RELATED MATTERSRegulation of Cable Television and Related Matters
The
Company'sCompany’s cable operations are subject to various requirements imposed by local, state and federal governmental authorities. The franchises granted by local governmental authorities are typically nonexclusive and limited in time and generally contain various conditions and limitations relating to payment of fees to the local authority, determined generally as a percentage of revenues. Additionally, franchises often regulate the conditions of service and technical performance, and contain various types of restrictions on transferability. Failure to comply with such conditions and limitations may give rise to rights of termination by the franchising authority.The 1992 Cable
Television Consumer Protection and CompetitionActof 1992 (the "1992 Cable Act")requires or authorizes the imposition of a wide range of regulations on cable television operations. The three major areas of regulation are (i) the rates charged for certain cable television services, (ii) required carriage("(“mustcarry"carry”) of some local broadcast stations, and (iii) retransmission consent rights for commercial broadcast stations.Among other things, the Telecommunications Act of 1996 altered the preexisting regulatory environment by expanding the definition of
"effective competition"“effective competition” (a condition that precludes any regulation of the rates charged by a cable system), terminating rate regulation for some small cable systems, and sunsetting theFCC'sFCC’s authority to regulate the rates charged for optional tiers of service (which authority expired on March 31, 1999).For cable systems that do not fall within the effective-competition or small-system exemptions (including allSince none of the cable systems owned by theCompany),Company falls within the effective-competition or small-system exemptions, monthly subscription rates charged by the Company’s cable systems for the basic tier of cable service(i.e.(i.e., the tier that includes the signals of local over-the-air stations and any public, educational or governmental channels required to be carried under the applicable franchise agreement), as well as rates charged for equipment rentals and service calls, may be regulated by municipalities, subject to procedures and criteria established by the FCC.RatesHowever, rates charged by cable television systems for pay-per-view service, for per-channel premium program services and for advertising are all exempt from regulation.In April 1993 the FCC adopted a
"freeze"“freeze” on rate increases for regulated services(i.e.(i.e., the basic and, prior to March 1999, optional tiers). Later that year the FCC promulgated benchmarks for determining the reasonableness of rates for such services. The benchmarks provided for a percentage reduction in the rates that were in effect when the benchmarks were announced. Pursuant to theFCC'sFCC’s rules, cable operators can increase their benchmarked rates for regulated services to offset the effects of inflation, equipment upgrades, and higher programming, franchising and regulatory fees. Under theFCC'sFCC’s approach cable operators may exceed their benchmarked rates if they can show in6a cost-of-service proceeding that higher rates are needed to earn a reasonable return on investment, which the Commission established in March 1994 to be 11.25%. TheFCC'sFCC’s rules also permit franchising authorities to regulate equipment rentals and service and installation rates on the basis of a cableoperator'soperator’s actual costs plus an allowable profit which is calculated from theoperator'soperator’s net investment, income tax rate and other factors.Pursuant toAs discussed in the
"must-carry"preceding section, under the “must-carry” requirements of the 1992 Cable Act, a commercial television broadcast station may,undersubject to certaincircumstances,limitations, insist on carriage of its signal on cable systems located within thestation'sstation’s marketarea, whilearea. Similarly, a noncommercial public station may insist on carriage of its signal on cable systems located within either thestation'sstation’s predicted Grade B signal contour or 5079miles of thestation'sstation’s transmitter. As a result of these obligations (the constitutionality of which has been upheld by the U.S. Supreme Court), certain of theCompany'sCompany’s cable systems have had to carry broadcast stations that they might not otherwise have elected to carry, and the freedom theCompany'sCompany’s systems would otherwise have to drop signals previously carried has been reduced.AtAlso as explained in the preceding section, at three-year intervals beginning in October 1993 commercial broadcasters have had the right to forego must-carry rights and insist instead that their signals not be carried without their prior consent.
Before October 1993 some of the broadcast stations carried by the Company's cable television systems opted for retransmission consent and initially took the position that they would not grant consent without commitments by the Company's systems to make cash payments. As a result of case-by-case negotiations, the Company'sThe Company’s cable systemswerehave been able to continue carrying virtually all of the stations insisting on retransmission consent without having to agree to pay any stations for the privilege of carrying their signals. However, some commitmentswerehave been made to carry other program services offered by a station or an affiliated company, to provide advertising availabilities on cable for sale by a station and to distribute promotional announcements with respect to a station. Many of these agreements between broadcast stations and theCompany'sCompany’s cable systems expired at the end of19992002 and the expired agreements were replaced by new agreements having comparable terms.As has already been noted,
in the discussion above under "Television Broadcasting - Regulation of Broadcasting and Related Matters,"in January 2001 the FCC determined that, pending further inquiry, only television stations broadcasting in a DTV-only mode could require local cable systems to carry their DTV signals. The FCC currently is conducting another inquiry to decide whether it should require cable systems to carry both the analog and the DTV signals of local television stations. Such an extension of must-carry requirements could result in theCompany'sCompany’s cable systems being required to delete some existing programming to make room forbroadcasters'broadcasters’ DTV channels.Various other provisions in current federal law may significantly affect the costs or profits of cable television systems. These matters include a prohibition on exclusive franchises, restrictions on the ownership of competing video delivery services, restrictions on transfers of cable television ownership, a variety of consumer protection measures, and various regulations intended to facilitate the development of competing video delivery services. Other provisions benefit the owners of cable systems by restricting regulation of cable television in many significant respects, requiring that franchises be granted for reasonable periods of time, providing various remedies and safeguards to protect cable operators against arbitrary refusals to renew franchises, and limiting franchise fees to 5% of revenues.
Apart from its authority under the 1992 Cable Act and the Telecommunications Act of 1996, the FCC regulates various other aspects of cable television operations. Since 1990 cable systems have been required to black out from the distant broadcast stations they carry syndicated programs for which local stations have purchased exclusive rights and requested exclusivity. Other long-standing FCC rules require cable systems to delete under certain circumstances duplicative network programs broadcast by distant stations. The FCC also imposes certain technical standards on cable television operators, exercises the power to license various microwave and other radio facilities frequently used in cable television operations, and regulates the assignment and transfer of control of such licenses. In addition, pursuant to the Pole Attachment Act, the FCC exercises authority to disapprove unreasonable rates charged to cable operators by telephone and power utilities for utilizing space on utility poles or in underground
conduits. Someconduits (although states may reclaim exclusive jurisdiction over these matters by certifying to the FCC that they regulate the rates, terms and conditions of pole attachments, and some states in which the Company has cable operations have so certified). A number of cable operators (including theCompany'sCompany’s Cable One subsidiary) are usingthe right of access granted by the Pole Attachment Acttheir cable systems to provide not only television programming but alsodata services such asInternetaccess over the same cables.access. InApril 2000,January 2002, the U.S. Supreme Courtof Appeals for the Eleventh Circuitruled that the FCC’s authority under the Pole Attachment Act extends to all pole attachments by cableprovision ofoperators, including those attachments used to provide Internetaccess is outsideaccess. Thus, except where individual states have assumed regulatory responsibility, thescope of the FCC's pole attachment regulations, and thusrates charged by utilitiesmay impose a surchargefor pole810or conduit access by cable companiesthat provide data servicesare subject to FCC rate regulation regardless of whether or not the cable companies are providing Internet access as well as the delivery of televisionservice. In January 2001, the U.S. Supreme Court agreed to hear an appeal of the Eleventh Circuit's decision brought by cable operators and the FCC.programming.7The Copyright Act of 1976 grants to cable television systems, under certain terms and conditions, the right to retransmit the signals of television stations pursuant to a compulsory copyright license. Those terms and conditions
includepermit cable systems to retransmit thepaymentsignals of local television stations on a royalty-free basis; however in most cases cable systems retransmitting the signals of distant stations are required to pay certain license fees set forth in the statute or established by subsequent administrative regulations. The compulsory license fees have been increased on several occasions since this Act went into effect. In 1994 the availability ofthea compulsory copyright license was extended to"wireless cable"“wireless cable” for both local and distant television signals and to direct broadcast satellite("DBS"(“DBS”) operators for distant signals only, although in the latter case the licenserightwas limited to the signals of distant network-affiliated stationswhosedelivered to subscribers who could not receive an over-the-air signalwas not available atof a station affiliated with thesubscriber's location.same network. However, in November 1999 Congress enacted the Satellite Home Viewer Improvement Act, whichextends thecreated a royalty-free compulsory copyright licensetofor DBS operators who wish to distribute the signals of local television stations to satellite subscribers in the markets served by such stations. This Act continued theother restrictionslimitation on importing the signals of distant network-affiliated stations contained in the original compulsory license for DBSoperators, which permit the signal of a distant network-affiliated station to be distributed only in areas where subscribers cannot receive an over-the-air signal of another station affiliated with the same network.operators.The general prohibition on telephone companies operating cable systems in areas where they provide local telephone service was eliminated by the Telecommunications Act of 1996. Telephone companies now can provide video services in their telephone service areas under four different regulatory plans. First, they can provide traditional cable television service and be subject to the same regulations as the
Company'sCompany’s cable television systems (including compliance with local franchise and any other local or state regulatory requirements). Second, they can provide"wireless cable"“wireless cable” service, which is described below, and not be subject to either cable regulations or franchise requirements. Third, they can provide video services on a common-carrier basis, under which they would not be required to obtain local franchises but would be subject to common-carrier regulation (including a prohibition against exercising control over programming content). Finally, they can operate so-called"open“open videosystems"systems” without local franchises (although local communities can choose to require a franchise) and be subject to reduced regulatory burdens. The Act contains detailed requirements governing the operation of open video systems, including the nondiscriminatory offering of capacity to third parties and limiting to one-third of total system capacity the number of channels the operator can program when demand exceeds available capacity. In addition, the rates charged by an open video system operator to a third party for the carriage of video programming must be just and reasonable as determined in accordance with standards established by the FCC. (Cable operators and others not affiliated with a telephone company may also become operators of open video systems.) The Act also generally prohibits telephone companies from acquiring or owning an interest in existing cable systems operating in their service areas.The Telecommunications Act of 1996 balances this grant of video authority to telephone companies by removing various regulatory barriers to the offering of telephone services by cable companies and others. The Act preempts state and local laws that have barred local telephone competition in some states. In addition, the Act requires local telephone companies to permit cable companies and other competitors to connect with the telephone network and requires telephone companies to give competitors access to the essential features and functionalities of the local telephone network (such as switching capability, signal carriage from the
subscriber'ssubscriber’s residence to the switching center, and directory assistance) on an unbundled basis. As an alternative method of providing local telephone service, the Act permits cable companies and others to purchase telephone service on a wholesale basis and then resell it to their subscribers.911At various times during the last decade, the FCC adopted rule changes intended to facilitate the development of
so-called "wireless cable,"multichannel multipoint distribution systems, also known as “wireless cable” or “MMDS,” a video and data service that is capable of distributing approximately 30 television channels in a local area by over-the-air microwave transmission using analog technology and a greater number of channels using digital compression technologies.InThe use of digital technology and a 1998 change in the FCC’s rules to permit reverse path transmission over wireless facilities also make it possible for such systems to deliver additional services, including Internet access. Also, in late 1998 the FCCbegan issuing licenses forauctioned anew digital wireless cable service which will utilize up to 1,300 megahertzsizeable amount of spectrum in the28 and31 gigahertzbands andband for use by a new wireless service, which isintendedreferred toprovide large numbers of video channelsas the Local Multipoint Distribution Service or “LMDS,” that has the potential to deliver television programming directly to subscribers’ homes as well asa variety of other services (including two-wayprovide Internet access and telephonyandservices. To date, however, there are no LMDS systems in operation that deliver television programming or provide either Internetaccess). Inaccess or telephony. Separately, in November 2000 the FCC approved the use of spectrum in the 12.2-12.7 gigahertz band (the same band used by DBS operators) to provide a new land-based interactive video and data delivery servicewhich isknown as the Multichannel Video Distribution and Data Service("MVDDS"(“MVDDS”). MVDDS providers will use"reharvested"“reharvested” DBS spectrum to transmit programming on ano-harmfulnon-harmful interference basis using terrestrial microwave transmitters. (While DBS subscribers point their dishes south to pick up theirprovider'sprovider’s signal, MVDDS8customers will aim theirdishesantennas north.) TheCommission's order creating MVDDS didCommission has notgrantyet granted any licenses to operate MVDDS systems.Instead, it requested comment on service, technical and licensing rules for the technology. Comments and reply comments to the FCC's order are due in March 2001.MVDDS providers, like providers of other forms of wireless cable, will not be required to obtain franchises from local governmental authorities and generally will operate under fewer regulatory requirements than conventional cable systems.In October 1999 the FCC amended its cable ownership rule, which governs the number of subscribers an owner of cable systems may reach on a national basis. Before revision, this rule provided that a single company could not serve more than 30% of potential cable subscribers (or
"homes passed"“homes passed” by cable) nationwide. The revised rule allowed a cable operator to provide service to 30% of all actual subscribers to cable, satellite and other competing services nationwide, rather than to 30% of homes passed by cable. This revision had the effect of increasing the number of communities that could be served by a single cable operator and may have resulted in more consolidation in the cable industry. In March 2001 the U.S. Court of Appeals for the D.C. Circuit voided theFCC'sFCC’s revised rule on constitutional and procedural grounds and remanded the matter to the FCC for further proceedings. The FCC has since opened a proceeding to determine what the ownership limit should be, if any. If the FCC eliminates the limit or adopts a new rule with a higher percentage of nationwide subscribers a single cable operator is permitted to serve, that action could lead to even greater consolidation in the industry.In 1996 Congress repealed the statutory provision which generally prohibited a party from owning an interest in both a television broadcast station and a cable television system within that station’s Grade B contour. However Congress left the FCC’s parallel rule in place, subject to a Congressionally mandated periodic review by the agency. The FCC,
also has openedin its subsequent review, decided to retain the prohibition for various competitive and diversity reasons. However in February 2002 the U.S. Court of Appeals for the District of Columbia Circuit struck down the rule, holding that the FCC’s decision to retain the rule was arbitrary and capricious.On March 14, 2002, the FCC issued a
proceedingdeclaratory ruling classifying cable modem service as an “interstate information service.” Concurrently the FCC issued a notice of proposed rulemaking todetermineconsider the regulatory implications of this classification. Among the issues to be decided are whether local authorities can require cable operatorsmustto providethird partiescompeting Internet service providers withnondiscriminatoryaccess to theoperators'cablesystems foroperators’ facilities, thepurposeextent to which local authorities can regulate cable modem service, and whether local authorities can impose fees on the provision ofproviding Internet access or whethercableoperators are free to offer Internet access only through a service provider selected by the cable operator.modem service. TheCompany'sCompany’s Cable One subsidiary currentlyserves asoffers Internet access on most of its cable systems and is the sole Internet service provider ona number of its cablethose systems. Thus, depending on the outcome, this proceeding has the potential to interfere with theCompany'sCompany’s abilityto use its cable systemsto deliver Internet access on a profitable basis.In addition, several local franchising authorities have attempted to require cable systems to provide open access to multiple Internet service providers. Court challenges to such requirements have thus far been successful with the courts holding that local governments lack authority to mandate open access because the provision of Internet service is not a cable service as that term is used in applicable federal law.Litigation also is pending in various courts in which various franchise requirements are being challenged as unlawful under the First Amendment, the Communications Act, the antitrust laws and on other grounds. One of the issues raised in these cases is whether local franchising authorities have the power to regulate the provision of Internet access by cable systems. Depending on the outcomes, such litigation could facilitate the development of duplicative cable facilities that would compete with existing cable systems, enable cable operators to offer certain services outside of cable regulation or otherwise materially affect cable television operations.
1012The regulation of certain cable television rates pursuant to the authority granted to the FCC has negatively impacted the revenues of the
Company'sCompany’s cable systems. The Company is unable to predict what effect the other matters discussedabovein this section may ultimately have on its cable television business.MAGAZINE PUBLISHING NEWSWEEKMagazine Publishing
Newsweek
Newsweekis a weekly news magazine published both domestically and internationally by Newsweek, Inc., a subsidiary of the Company. In gathering, reporting and writing news and other material for publication,Newsweekmaintains news bureaus in 9 U.S. and
1311 foreign cities.The domestic edition ofNewsweek
is comprised of overincludes more than 100 different geographic or demographic editions which carry substantially identical news and feature material but enable advertisers to direct messages to specific market areas or demographic groups. Domestically,Newsweekranks second in circulation among the three leading weekly news magazines(Newsweek,(Newsweek,TimeandU.S. News & WorldReport)Report). For each of the last five yearsNewsweek'sNewsweek’s average weekly domestic circulation rate base has been 3,100,000 copies.From 1996 throughIn 1998 and 1999Newsweek'sNewsweek’s percentage of the total weekly domestic circulation rate base of the three leading weekly news magazines was 33.5%.InSince 2000 that percentageincreased tohas been 34.0%.9Newsweekis sold on newsstands and through subscription mail order sales derived from a number of sources, principally direct mail promotion. The basic one-year subscription price is $41.08. Most subscriptions are sold at a discount from the basic price. In
April 1999, Newsweek'sMay 2001,Newsweek’s newsstand cover price was increased from$2.95$3.50 per copy (which price had been in effect since1992)April 1999) to$3.50$3.95 per copy.The total number of
Newsweek'sNewsweek’s domestic advertising pages and gross domestic advertising revenues as reported byPublishers'Publishers’ Information Bureau, Inc., together withNewsweek'sNewsweek’s percentages of the total number of advertising pages and total advertising revenues of the three leading weekly news magazines, for the past five years have been as follows:
Percentage of Newsweek Newsweek Three Leading Gross Percentage of Advertising News Advertising Three Leading Pages* Magazines Revenues* News Magazines 1998 2,472 34.4 % $ 393,168,000 33.8 % 1999 2,567 33.5 % 432,701,000 32.8 % 2000 2,383 33.8 % 433,932,000 34.2 % 2001 1,822 33.6 % 334,179,000 32.5 % 2002 1,971 35.2 % 387,698,000 34.8 %
PERCENTAGE OF NEWSWEEK NEWSWEEK THREE LEADING GROSS PERCENTAGE OF ADVERTISING NEWS ADVERTISING THREE LEADING PAGES* MAGAZINES REVENUES* NEWS MAGAZINES ------ --------- --------- --------------1996....................... 2,520 36.6% $ 381,621,000 37.0% 1997....................... 2,633 35.4% 406,324,000 35.1% 1998....................... 2,472 34.4% 393,168,000 33.8% 1999....................... 2,567 33.5% 432,701,000 32.8% 2000....................... 2,383 33.8% 433,932,000 34.2%* Advertising pages and gross advertising revenues are those reported by Publishers’ Information Bureau, Inc. PIB computes gross advertising revenues from published basic one-time rates and the number of advertising pages carried. PIB figures therefore materially exceed actual gross advertising revenues, which reflect lower rates for multiple insertions and other discounts from published rates. Net revenues as reported in the Company’s Consolidated Statements of Income also exclude agency commissions, which are included in the gross advertising revenues shown above. Page and revenue figures exclude affiliated advertising. - ------------------------ * Advertising pages and gross advertising revenues are those reported by Publishers' Information Bureau, Inc. PIB computes gross advertising revenues from basic one-time rates and the number of advertising pages carried. PIB figures therefore materially exceed actual gross advertising revenues, which reflect lower rates for multiple insertions. Net revenues as reported in the Company's Consolidated Statements of Income also exclude agency fees and cash discounts, which are included in the gross advertising revenues shown above. Page and revenue figures exclude affiliated advertising. Newsweek'sNewsweek’s published advertising rates are based on its average weekly circulation rate base and are competitive with those of the other weekly news magazines. As is common in the magazine industry, advertising typically is sold at varying discounts fromNewsweek’s published rates. Effective with the January
10, 200014, 2002 issue,Newsweek’s published national advertising rates for all categories of such advertising were increased byan average of 4.0%5.0%. Beginning with the issue dated January8, 2001, national advertising13, 2003, such rateswere increased again, also by an average of 4.0%. 1113 Newsweek Business Plus, which is published 39 times a year, is a demographic edition of Newsweek distributed to high-income professional and managerial subscribers and subscribers in zip-code-defined areas. Advertising rates for this edition were increased an average of 4.0% in January 2000 and by an additional 4.0% in January 2001. The circulation rate base for this edition is 1,200,000 copies. Newsweek's other demographic edition, Newsweek Woman, which was published 12 times during 2000, has a circulation rate base of 800,000 selected female subscribers. At the beginning of 2000 advertising rates for this editionwere increased by anaverage of 4.0%, with anadditionalaverage increase of 4.0% instituted early in 2001.4.8%.Internationally,Newsweekis published in an Atlantic edition covering Europe, the Middle East and Africa, a Pacific edition covering Japan, Korea and south Asia, and a Latin American edition, all of which are in the English language. Editorial copy solely of domestic interest is eliminated in the international editions and is replaced by other international, business or national coverage primarily of interest abroad.
Since 1984 a section ofNewsweekarticles has been included inThe Bulletin, an Australian weekly news magazine which also circulates in New Zealand. A Japanese-language edition ofNewsweek, Newsweek Nihon Ban,has been published in Tokyo since 1986 pursuant to an arrangement with a Japanese publishing company which translates editorial copy, sells advertising in Japan and prints and distributes the edition.Newsweek Hankuk Pan,a Korean-language edition ofNewsweek,began publication in 1991 pursuant to a similar arrangement with a Korean publishing company. Since 1996Newsweek en
Espanol,Español, a Spanish-language edition ofNewsweekdistributed in Latin America, has been published under an agreement with a Miami-based publishing company which translates editorial copy, prints and distributes the edition and jointly sells advertising with Newsweek. In June 2000,Newsweek Bil Logha Al-Arabia, an Arabic-language edition ofNewsweek, was launched under a similar arrangement with a Kuwaiti publishing company. Also,Newsweek Polska, aRussian-languagePolish-language newsweekly,modeled after Newsweek has been published since 1996 pursuant towas launched in September 2001 under a licensingand advisory agreements entered into by Newsweekagreement with aRussianPolish publishingand broadcasting company. This magazine includescompany which, in addition to translating selected storiestranslatedfromNewsweek'sNewsweek’s various U.S. and foreign editions, has established a staff of Polish reporters andis called Itogi (which means "summing-up" in Russian).editors for the magazine. In December 2002 Newsweek announced an agreement with a Hong Kong-based publisher to publishNewsweek Select, a Chinese-language magazine which will be based primarily on selected content translated fromNewsweek’s U.S. and international editions.10The average weekly circulation rate base, advertising pages and gross advertising revenues of
Newsweek'sNewsweek’s international editions (not includingThe Bulletininsertions or the foreign-language editions ofNewsweek)Newsweek) for the past five years have been as follows:
Average Weekly Gross Circulation Advertising Advertising Rate Base Pages* Revenues* 1998 660,000 2,120 $ 83,051,000 1999 660,000 2,492 90,023,000 2000 663,000 2,606 104,868,000 2001 666,000 1,979 81,453,000 2002 646,000 1,882 76,711,000
AVERAGE WEEKLY GROSS CIRCULATION ADVERTISING ADVERTISING RATE BASE PAGES* REVENUES* --------- ------ ---------1996....................... 642,000 2,446 $ 92,638,000 1997....................... 657,000 2,287 89,330,000 1998....................... 660,000 2,120 83,051,000 1999....................... 660,000 2,492 90,023,000 2000....................... 663,000 2,606 104,868,000* Advertising pages and gross advertising revenues are those reported by CMR International. CMR computes gross advertising revenues from published basic one-time rates and the number of advertising pages carried. CMR figures therefore materially exceed actual gross advertising revenues, which reflect lower rates for multiple insertions and other discounts from published rates. Net revenues as reported in the Company’s Consolidated Statements of Income also exclude agency commissions, which are included in the gross advertising revenues shown above. Page and revenue figures exclude affiliated advertising. - ------------------------ * Advertising pages and gross advertising revenues are those reported by CMR International. CMR computes gross advertising revenues from basic one-time rates and the number of advertising pages carried. CMR figures therefore materially exceed actual gross advertising revenues, which reflect lower rates for multiple insertions. Net revenues as reported in the Company's Consolidated Statements of Income also exclude agency fees and cash discounts, which are included in the gross advertising revenues shown above. Page and revenue figures exclude affiliated advertising. 1214For
20012003 the average weekly circulation rate base forNewsweek'sNewsweek’s English-language international editions (not includingThe Bulletininsertions) will be666,000646,000 copies.Newsweek'sNewsweek’s rate card estimates the average weekly circulation in20012003 forThe Bulletininsertions will be85,00070,000 copies and for the Japanese-, Korean-,Russian-,Arabic- andSpanish-languageSpanish- and Polish-language editions will be130,000, 90,000, 85,000,110,000, 70,000, 30,000, 50,750 and52,500262,000 copies, respectively.In June 2000 theThe online version ofNewsweek, which includes stories from
Newsweek'sNewsweek’s print edition as well as other material,becamehas been a co-branded feature on the MSNBC.com Website.site since 2000. This feature is being produced by Washingtonpost.Newsweek Interactive Company, another subsidiary of the Company.In December 1999Arthur Frommer’s Budget Travelmagazine, another Newsweek
purchased Arthur Frommer's Budget Travel magazinepublication, was published eight times during 2002 andrelated assets (includinghad amonthly newsletter). Launched in early 1998 as a quarterly, this magazine is now published six times a year and has a currentcirculation of400,000450,000 copies.Budget Travelis headquartered in New York City and has its own editorial staff.In August 1996 the United States Food and Drug Administration issued final rules designed to restrict the marketing of tobacco products to minors. These rules, which among other things would have limited advertising for tobacco products in print publications whose youth readership exceeds certain levels to black and white, text-only "tombstone" ads, were invalidated in a series of federal court rulings culminating in a March 2000 decision of the United States Supreme Court that the FDA has no jurisdiction to regulate tobacco products.During recent years Congress has
alsoconsidered a range of proposalsrelatedintended to restrict the marketing of tobacco products. The Company cannot now predict what actions may eventually be taken to limit or restrict tobacco advertising. However, such advertising accounts forless thanonly about 1% ofNewsweek'sNewsweek’s operating revenues and negligible revenues atThe Washington Postand theCompany'sCompany’s other publications. Moreover, federal law has prohibited the carrying of advertisements for cigarettes and smokeless tobacco by commercial radio and television stations for many years. Thus the Company believes that any restrictions on tobacco advertising which may eventually be put into effect would not have a material adverse effect on Newsweek or on any of theCompany'sCompany’s other business operations.POST NEWSWEEK TECH MEDIA GROUP Post NewsweekPostNewsweek Tech Media
Group,This division of Post-Newsweek Media, Inc.
("TMG"), another subsidiary of the Company,publishes controlled-circulation trade periodicals and produces trade shows and conferences for the government information technology industry.TMG (which was formerly named Post-Newsweek Business Information, Inc.)Specifically, PostNewsweek Tech Media publishesWashington Technology, a
biweekly tabloid newspapertwice-monthly news magazine for government information technology systems integrators,Government Computer News, atabloid newspapernews magazine published 30 times per year serving government managers who buy information technology products and services, andGCNState & Local,Technology, amonthly tabloid newspaper for state and local information technology buyers, and GCN Shopper, a tabloid newspapernews magazine published four times per year providing information technology product reviews and other buying information for government information technology managers.Washington Technology,Computer Government News, andGCNState & Local, and GCN ShopperTechnologyhave circulations of about 40,000, 87,000,55,000,and 120,000 copies, respectively.TMG's other publications are Washington Techway, a biweekly news magazine with a circulation of 30,000 copies that addresses the needs of the private-sector technology business community in the Washington region, and the TechnologyThis division also publishesTech Almanac, an annual directory of technology industryexecutives. Washington Techway also sponsorsexecutives serving theannual Greater Washington High Technology Awards Banquet, which is held each spring in Washington, D.C. for over 1,200government information technology1315 executives. Together with The Washington Post and WPNI, TMG contributes to the washtech.com Web site which serves the Washington Techway community online. TMGcommunity.PostNewsweek Tech Media also produces theFOSEtrade show, which is held each spring in Washington, D.C. for information technology decision makers in government and
industry. EDUCATIONindustry, and thePSXtrade show, which attracts government procurement officers and vendors of the services such officers purchase. This division also produces a11number of smaller conferences and events, including awards dinners honoring leading individuals and companies in the government information technology community.Education
Kaplan, Inc., a subsidiary of the Company, provides an extensive range of educational services for children, students and professionals.
Kaplan'sKaplan’s historical focus on test preparation has been expanded as new educational and career services businesses have been acquired or initiated.Through its Test Preparation and Admissions Division, Kaplan prepares students for a broad range of admissions and licensing examinations including the
SAT's, LSAT's, GMAT's, MCAT's, GRE's,SATs, LSATs, GMATs, MCATs, GREs, and nursing and medical boards. This business can be subdivided into four categories: K-12 (servingprimarilyschools and school districts seeking assistance in preparing students for state assessment tests and for the SATs and ACTs); Graduate and Pre-College (serving high schoolstudents preparing for the SAT'sandACT's); Graduate (servingcollege students and professionals, primarily with preparation foradmissionadmissions tests to college and to graduate, medical and law schools); Medical (serving medical professionals preparing for licensing exams); and English Language Training (serving foreign students and professionals wishing to study or work in the U.S.). Many of this division’s test preparation courses have been available to students via the Internet since 1999. During2000 this division of Kaplan2002 the Test Preparation and Admissions Division enrolled nearly 250,000 students (including over158,000 students60,000 enrolled in online programs), and provided courses at160157 permanent centers located throughout the United States and in Canada, Puerto Rico, London andLondon. Since the fall of 1999, Kaplan's test preparation and admissions courses have been available to students via the Internet at kaptest.com.Paris. In addition, Kaplan licenses material for certain of these courses to third parties who during20002002 offered such courses at3629 centers located in1513 countries.The Test Preparation and Admissions Division also includes
Kaplan'sKaplan’s publishing activities. Kaplan currently co-publishesover 130more than 150 book titles, predominately in the areas of test preparation, admissions, career guidance and life skills, through a joint venture with Simon & Schuster, and also develops educational software for the K through 12 and graduate markets which is sold through arrangements with a third party who is responsible for production and distribution. Kaplan also produces a college newsstand guide in conjunction with Newsweek.Kaplan'sKaplan’s Professional Division offers licensing, continuing education, certification and professional development services for corporations and for individuals seeking to advance their careers. This division includes Dearborn Publishing Group, a provider of pre-licensing training and continuing education for securities, insurance and real estate professionals; Perfect Access Speer, a provider of software education and consulting services to law firms and businesses;
Schweser'sSchweser’s Study Program, a provider of materials aimed at preparing individuals for the Chartered Financial Analyst examination;andSelf Test Software, a provider of preparation services for software proficiency certificationexaminations. Kaplan'sexaminations; and Contact Center Solutions, a provider of assessment and training services for the call-center industry.Kaplan’s Score
LearningEducation Division offers computer-based learning and individualized tutoring for childrenas well as educational resources for parents,in grades K throughthree businesses.10. In2000, the center-based2002 this business, which provides educational after-school enrichment servicesopened 46 new centers (bringing the total number ofthrough 147 Score centersto 142) andlocated in various areas of the United States, served nearly50,00070,000 students, up from40,00060,000 students in1999. Score's center-based2001. Score’s services are provided in facilities separate fromKaplan'sKaplan’s test preparation centers due to differing configuration and equipment requirements.Score Prep serves high school students with one-on-one, in-home tutoring for standardized tests and academic subjects. eScore.com, which began operations in early 2000, offers parenting and educational resources online to help parents provide learning opportunities for their children. 1416The
Kaplan Colleges unitHigher Education Division of Kaplan consists of 46 schools in 14 states which provide classroom-based instruction and three institutionsspecializingwhich specialize in distanceeducation:education. The schools providing classroom-based instruction offer a variety of bachelor degree, associate degree and diploma programs in the fields of healthcare, business, paralegal studies, information technology, criminal justice and fashion and design. These schools were serving more than 20,600 students at year-end 2002 (which total includes the classroom-based programs of Kaplan College), with approximately half of such students enrolled in accredited bachelor or associate degree programs. Each of these schools has its own accreditation from one of several regional or national accrediting agencies recognized by the U.S. Department of Education. The institutions which specialize in distance education are Kaplan College, Concord University School of Law and The College for ProfessionalStudies, and Concord University School of Law.Studies. Kaplan College offers various bachelor degree, associate degree and certificate programs, principally in the fields ofbusinessfinancial planning, criminal justice, paralegal studies, information technology andinformation technology,management, and is accredited by theCommission on Institutions ofHigherEducationLearning Commission of the North Central Association of Colleges and Schools. Some of KaplanCollege's coursesCollege’s programs are offered online while others are offered in a traditional classroomformat. Theformat at the school’s Davenport, Iowa campus. At year-end 2002, Kaplan Collegefor Professional Studies offers bachelor and associate degree and diploma correspondence programshad approximately 6,000 students enrolled inthe fields of legal nurse consulting, paralegal studies and criminal justice, and is accredited by the Accreditation Commission of the Distance Education and Training Council ("DETC").online programs. The College for Professional Studies had over8,0004,400 students enrolled at year-end2000.2002. Concord University School of Law, thenation'snation’s first online law school, offersjuris doctorJuris Doctor and LLM degrees wholly online. At year-end2000,2002, approximately600121,200 students were enrolled at Concord. Concord is accredited byDETCthe Accrediting Commission of the Distance Education and Training Council and has received operating approval from the California Bureau of Private Post-Secondary and Vocational Education. Concord also has complied with the registration requirements of the State Bar of California; graduates are, therefore, able to apply for admission to the California Bar.On August 1, 2000, Kaplan acquired all the outstanding stock of Quest Education Corporation. Quest,The College for Professional Studies, whichis continuing operations as a subsidiary of Kaplan,had over 4,400 students enrolled at year-end 2002, offersa variety ofbachelordegree,and associate degree and diploma correspondence programs in the fields ofhealthcare, business, information technology,legal nurse consulting, paralegal studies andfashioncriminal justice; however, that school is no longer enrolling students anddesign. Quest currently operates 34 schools (including Kaplan College) whichwill discontinue operations after its current students complete their programs.One of the ways a foreign national wishing to enter the United States to study may do so is to obtain an F-1 student visa. For many years, most of Kaplan’s Test Preparation and Admissions Division centers in the United States have been authorized by what is now the U.S. Bureau of Citizenship and Immigration Services (the “BCIS”) to issue certificates of eligibility to prospective students to assist those students in applying for F-1 visas through a U.S. Embassy or Consulate. Under a program that became effective early in 2003, educational institutions are
located in 13 states. Quest was serving over 12,800 students at year-end 2000, approximately 52% of whom were enrolled in accredited bachelor or associate degree programs. Kaplan also owns a 41.6% equity interest in BrassRing Inc., an Internet-based career-assistance and hiring management company. The other shareholders of BrassRing are the Tribune Company with a 27.5% interest, Gannett Co., Inc. with a 23.2% interest, and the venture capital firm Accel Partners with a 7.7% interest. TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS Priorrequired to report electronically to theacquisitionBCIS specified enrollment, departure and other information about the F-1 students to whom they have issued certificates ofQuest Education Corporation, noneeligibility. Most ofKaplan's educational offerings were eligibleKaplan’s U.S. Test Preparation and Admissions Division centers have been designated to participate inanythis new program, and the applications of the other centers where Kaplan is seeking such a designation are pending. During 2002 students holding F-1 visas accounted for approximately 2.5% of the enrollment at Kaplan’s Test Preparation and Admissions Division and an insignificant number of students at Kaplan’s Higher Education Division.Title IV Student Financial Assistance Programs
Funds provided under the student financial assistance programs that have been created under Title IV of the Higher Education Act of 1965, as
amended. However funds provided under Title IV programsamended, historically have been responsible for a majority ofQuest'sthe net revenues(accounting,of the schools in Kaplan’s Higher Education Division which provide classroom-based instruction (including Kaplan College), accounting, for example, forabout $82slightly more than $160 million ofQuest's $115 million inthe net revenues of such schools for the12-month period ended March 31, 2000), and theCompany’s 2002 fiscal year. The significant role of Title IV funding inQuest'sthe operations of these schools is expected to continue.All Quest schools are currently eligible to participate in Title IV programs, although certain schools have chosen not to participate in one or more programs that otherwise would be available under Title IV.To maintain Title IV eligibility a school must comply with extensive statutory and regulatory requirements relating to its financial aid management, educational programs, financial strength, recruiting practices and various other matters. Among other things, the school must be authorized to offer its educational programs by the appropriate governmental body in the state or states in which it
operates,is located, be accredited by an accrediting agency recognized by the U.S. Department of Education (the"Department“Department ofEducation"Education”), and enter into a program participation agreement with the Department of Education.A school may lose its eligibility to participate in Title IV programs if student defaults on the repayment of Title IV loans exceed specified default rates (referred to as
"cohort“cohort defaultrates"rates”). A school whose cohort default rate exceeds 40% for any single year may have its eligibility to participate in Title IV programs limited, suspended or terminated at the discretion of the Department of Education.1517A school whose cohort default rate equals or exceeds 25% for three consecutive years will automatically lose its Title IV eligibility for at least two years unless the school can demonstrate exceptional circumstances justifying its continued eligibility.In addition,Moreover, a for-profit postsecondary institution, like each ofthe Questthese Kaplan schools, will lose its Title IV eligibility for at least one year if more than 90% of theinstitution'sinstitution’s cash receipts for any fiscal year are derived from Title IV programs.The Title IV program regulations also provide that not more than 50% of an eligible institution’s courses can be provided online and that, in some cases, not more than 50% of an eligible institution’s students can be enrolled in online courses, and impose certain other requirements intended to insure that individual programs (including online programs) eligible for Title IV funding include minimum amounts of instructional activity. However, Kaplan College currently is a participant in the distance education demonstration program of the Department of Education and as a result is exempt from the foregoing requirements until at least June 30, 2004. Legislation currently is pending in Congress which, if enacted, would exempt online courses from those requirements under certain circumstances, including the maintenance by the institution offering such courses of a cohort default rate of less than 10% for three consecutive years.
No proceeding by the Department of Education is pending to fine any
QuestKaplan school for a failure to comply with any Title IV requirement, or to limit, suspend or terminate the Title IV eligibility of anyQuestKaplan school. However no assurance can be given that theQuestKaplan schools which currently participate in Title IV programs will maintain their13Title IV eligibility in the future or that the Department of Education might not successfully assert that one or more of such schools have previously failed to comply with Title IV requirements. MostQuestschools within Kaplan’s Higher Education Division are considered separately for the purpose of determining compliance with Title IV requirements. Thus if the Department of Education were to find that one or moreQuestof such schools had failed to comply with any applicable Title IV requirement and as a result suspended or terminated the Title IV eligibility of those schools, that action normally would not affect the Title IV eligibility of otherQuestKaplan schools that had continued to comply with Title IV requirements.As a general matter, schools participating in Title IV programs are not financially responsible for the failure of their students to repay Title IV loans. However the Department of Education may fine a school for a failure to comply with Title IV requirements and may
evenrequire a school to repay Title IV program funds if it finds that such funds have beenadministered improperly.improperly disbursed. In addition, there may be other legal theories under which a school could be subject to suit as a result of alleged irregularities in the administration of student financial aid.Pursuant to Title IV program regulations, a school that undergoes a change in control must be reviewed and recertified by the Department of Education.
In the interim, suchCertifications obtained following aschool may be certifiedchange in control are granted on a provisional basis which permits the school to continue participating in Title IV programs but provides fewer procedural protections if the Department of Education asserts a material violation of Title IV requirements. As a result ofKaplan'sKaplan’s acquisition of Quest Education Corporation in 2000, all of the schools owned by Quest at that timehave beenwere provisionally certified by the Department of Education for a term expiring in June 2004; Kaplan will be eligible to apply for full certification for such schools (which constitute most of the schools in Kaplan’s Higher Educational Division) in the spring of 2004. The schools acquired by Kaplan’s Higher Education Division subsequent to the Quest acquisition have also been provisionally certified by the Department of Education, generally for terms expiring approximately three years after the date of the acquisition.Several Title IV programs are subject to periodic legislative review and
reauthorization.reauthorization, and the next reauthorization is scheduled to take place during the current Congressional term. In addition, the availability of funding for each Title IV program is wholly contingent upon the outcome of the annual federal appropriations process.Whether as a result of changes in the laws and regulations governing Title IV programs, a reduction in Title IV program funding levels, or a failure of
the Questschools included in Kaplan’s Higher Education Division to maintain eligibility to participate in Title IV programs, a material reduction in the amount of Title IV financial assistance available toQuestthe students of these schools would have a significant negative impact onKaplan'sKaplan’s operating results.OTHER ACTIVITIES INTERNATIONAL HERALD TRIBUNEOther Activities
International Herald Tribune
On January 1, 2003, the Company sold its 50% beneficial interest in the Paris-basedInternational Herald Tribuneto The New York Times Company.
BrassRing
The Company beneficially owns
50%a 49.4% equity interest in BrassRing LLC, an Internet-based career-assistance and hiring management company. The other principal members of BrassRing are theoutstanding common stock ofTribune Company with a 26.9% interest, Gannett Co., Inc. with a 12.4% interest, and theInternational Herald Tribune, S.A.S.,venture capital firm Accel Partners with aFrench company which publishes the International Herald Tribune in Paris, France. This English-language newspaper has an average daily paid circulation of almost 240,000 copies10.5% interest.Production and
is distributed in over 180 countries. 1618 PRODUCTION AND RAW MATERIALS Early in 1999 the Company completed a $230 million capital investment program consisting of the expansion ofRaw MaterialsThe Washington
Post'sPostis produced at the Company’s printingplantplants in Fairfax County, Virginiathe construction of a new printing plant inand PrinceGeorge'sGeorge’s County,Maryland, and the replacement of all the newspaper's printing presses. The eight new presses installed in connection with this program have allowed The Post to expand its use of color significantly and also have enhanced its ability to zone editorial content and advertising. All editions ofMaryland.The HeraldandThe Enterprise Newspapersare produced at The Daily HeraldCompany'sCompany’s plant in Everett,Washington.Washington, whileThe Gazette Newspapersand theSouthern Maryland Newspapersare all printed at the commercial printing facilities owned byThe Gazette Newspapers,Post-Newsweek Media, Inc. Greater WashingtonPublishing'sPublishing’s periodicals are produced by independent contract printers with the exception of one periodical which is printed at one of the commercial printing facilities owned byThe Gazette Newspapers,Post-Newsweek Media, Inc.Newsweek'sAll PostNewsweek Tech Media publications are produced by independent contract printers.Newsweek’s domestic edition is produced by three independent contract printers at five separate plants in the United States; advertising inserts and photo-offset films for the domestic edition are also produced by independent
contractors.contrac-14tors. The international editions ofNewsweekare printed in England,Hong Kong,Singapore, Switzerland, the Netherlands, South Africa and Hollywood, Florida; insertions forThe Bulletinare printed in Australia. Since 1997 Newsweek and a subsidiary of AOL Time Warner have used a jointly owned company based in England to provide production and distribution services for the Atlantic editions of bothNewsweekandTime. In 2002 this jointly owned company began providing certain production andTime.distribution services for the Asian editions of these magazines.Budget Travelis produced by one of the independent contract printers that also printsNewsweek'sNewsweek’s domestic edition.All Post Newsweek Tech Media Group publications are produced by independent contract printers.In
20002002The Washington Postconsumed about237,000*191,000* tons of newsprint purchased from a number of suppliers, including Bowater Incorporated, which supplied approximately34%39% ofThePost's 2000Post’s 2002 newsprint requirements. Althoughin priorfor many years some of the newsprintThe Postpurchased from Bowater Incorporated typically was provided by Bowater Mersey Paper Company Limited, 49% of the common stock of which is owned by the Company (the majority interest being held by a subsidiary of Bowater Incorporated),during 2000since 1999 none of the newsprint consumed byThe Postcamehas come from that source. Bowater Mersey owns and operates a newsprint mill near Halifax, Nova Scotia, and owns extensive woodlands that provide part of themill'smill’s wood requirements. In20002002 Bowater Mersey produced about 255,000 tons of newsprint.The announced price of newsprint (excluding discounts) was approximately $750 per ton throughout
2000.2002. Discounts from the announced price of newsprint can be substantial and prevailing discountsdeclinedincreased during thesecond halffirst three quarters of theyear.year and decreased slightly during the fourth quarter.The Postbelieves it has adequate newsprint available through contracts with its various suppliers. Over 90% of the newsprint used byThe Postincludes some recycled content. The Company owns 80% of the stock of Capitol Fiber Inc., which handles and sells to recycling industries old newspapers and other paper collected in Washington, D.C., Maryland and northern Virginia.In
20002002 the operations of The Daily Herald Company andThe Gazette Newspapers,Post-Newsweek Media, Inc. consumed approximately9,7006,500 and14,70020,600 tons of newsprint, respectively, which was obtained in each- ------------------------ * All references in this report to newsprint tonnage and prices refer to short tons (2,000) and not to metric tons (2,204.6 pounds) which are often used in newsprint price quotations. 1719case from various suppliers. Approximately80%85% of the newsprint used by The Daily Herald Company and50%35% of the newsprint used byThe Gazette Newspapers,Post-Newsweek Media, Inc. includes some recycled content.The domestic edition ofNewsweekconsumed about
34,20029,200 tons of paper in2000,2002, the bulk of which was purchased fromeightsix major suppliers. The current cost of body paper (the principal paper component of the magazine) is approximately$1,030$860 per ton.Over 90% of the aggregate domestic circulation of bothNewsweekandBudget Travelis delivered by periodical (formerly second-class) mail, most
Newsweeksubscriptions for such publications are solicited by either first-class or standard A (formerly third-class) mail, and allPost NewsweekPostNewsweek Tech MediaGrouppublications are delivered by periodical mail. Thus, substantial increases in postal rates for these classes of mail could have a significant negative impact on the operating income of these business units. InNovember 2000March 2002 theBoard of Governors of the U.S.PostalServiceRate Commission approved a rate increase of3.0%approximately 8% for both periodical and standard A mail and 9% for first-class mail,9.9% for periodical mail, and 6.0% for standard A mail, eachwhich increases became effectiveJanuary 7, 2001.on June 30, 2002. This actionwill increasehad the effect of increasing annual postage costs byapproximately $3.3about $2.9 million atNewsweekand byanominalamountamounts atTMG.PostNewsweek Tech Media. On the other hand, since advertising distributed by standard A mail competes to some degree with newspaper advertising, the Company believesthis increaseincreases in standard A rates could have a positive impact on the advertising revenues ofThe Washington Post,The Herald,The Gazette NewspapersandSouthern Maryland Newspapers, although the Company is unable to quantify the amount of such impact.COMPETITIONCompetition
The Washington Postcompetes in the Washington, D.C. metropolitan area withThe Washington Times, a newspaper which has published weekday editions since 1982 and Saturday and Sunday editions since 1991.The Postalso encounters competition in varying degrees from newspapers published in suburban and outlying areas, other nationally circulated newspapers, and from television, radio, magazines and other advertising media, including direct mail advertising. Since 1997The New York Timeshas produced a Washington Edition which is printed locally and includes television channel listings and weather for the Washington, D.C. area.
* All references in this report to newsprint tonnage and prices refer to short tons (2,000) and not to metric tons (2,204.6 pounds) which are often used in newsprint price quotations. 15Washingtonpost.Newsweek Interactive faces competition from many other Internet services, particularly services that feature national and international news, as well as from alternative methods of delivering news and information. In addition, other Internet-based services are carrying increasing amounts of advertising and over time such services could also adversely affect the
Company'sCompany’s print publications and television broadcasting operations, all of which rely on advertising for the majority of their revenues. Several companies are offering online services containing information and advertising tailored for specific metropolitan areas, including the Washington, D.C. metropolitan area. For example, DigitalCitiesCity (asubsidiaryunit of AOL Time Warner) producesDigitalCityDigital City Washington,DC, which is part ofAOL'sAOL’s nationwide network of local online sites.Other popular Internet sites, such as those of Yahoo! and Netscape Netcenter, offer their own version of a local, D.C.-area guide. In addition, Verizon offers a yellow pages service on the Internet which includes information of local interest as well as a nationwide residential white pages directory, and Big Yellow, an electronic directory of businesses across the United States.National online classified advertising is becoming a particularly crowded field, with competitors such as Yahoo! and eBay aggregating large volumes of content into a national classified database covering a broad range of product lines. Other competitors are focusing on vertical niches in specific content areas:CarPointautos.msn.com (which is majority owned by Microsoft), AutoTrader.com and Autobytel.com, for example, aggregate national car listings; Realtor.com aggregates national real estate listings; while Monster.com, HotJobs.com (which is owned by Yahoo!) andMonster.com, CareerBuilder,CareerBuilder.com (which is jointly owned by Gannett, Knight-Ridder andHeadhunter.netTribune Co.) aggregate employment listings.The Heraldcirculates principally in Snohomish County, Washington; its chief competitors are theSeattle Timesand theSeattle Post-Intelligencer, which are daily and Sunday newspapers published
1820in Seattle and whose Snohomish County circulation is principally in the southwest portion of the county. Since 1983 the two Seattle newspapers have consolidated their business and production operations and combined their Sunday editions pursuant to a joint operating agreement, although they continue to publish separate daily newspapers.The Enterprise Newspapersare distributed in south Snohomish and north King Counties where their principal competitors are theSeattle TimesandThe Journal Newspapers, a group of weekly controlled-circulation newspapers. Numerous other weekly and semi-weekly newspapers and shoppers are distributed inTheHerald'sHerald’s andThe EnterpriseNewspapers'Newspapers’principal circulation areas.The circulation ofThe Gazette Newspapersis limited to Montgomery, Prince George’s and Frederick Counties and parts of
Prince George's,Carroll, Anne Arundel and Howard Counties, Maryland.The Gazette Newspaperscompete with many other advertising vehicles available in their service areas, includingThe PotomacandBethesda/Chevy Chase Almanacs,The Western Montgomery Bulletin,The Bowie Blade-News,The West County NewsandThe Laurel Leader, weeklycontrolled- circulationcontrolled-circulation community newspapers,The Montgomery Sentinel, a weeklypaid- circulationpaid-circulation community newspaper,The PrinceGeorge'sGeorge’s Sentinel, a weekly controlled-circulation community newspaper (which also has a weeklypaid- circulationpaid-circulation edition),The MontgomeryandPrinceGeorge'sGeorge’s Journals, daily paid-circulation community newspapers, andThe Frederick News-Post, a daily paid-circulation community newspaper. Thenewly acquiredSouthern Maryland Newspaperscirculate in southern PrinceGeorge'sGeorge’s County and in Charles, Calvert and St.Mary'sMary’s Counties, Maryland, where they also compete with many other advertising vehicles available in their service areas, including theCalvert County IndependentandSt.Mary'sMary’s Today, weeklycontrolled-circulationpaid-circulation community newspapers.The advertising periodicals published by Greater Washington Publishing compete both with many other forms of advertising available in their distribution area as well as with various other free-circulation advertising periodicals.
The
Company'sCompany’s television stations compete for audiences and advertising revenues with television and radio stations and cable television systems serving the same or nearby areas, with direct broadcast satellite services and to a lesser degree with other video programming providers and with other media such as newspapers and magazines. Cable television systems operate in substantial portions of theCompany'sCompany’s broadcast markets where they compete for television viewers by importing out-of-market television signals and by distributing pay-cable, advertiser-supported and other programming that is originated for cable systems. In addition, direct broadcast satellite("DBS"(“DBS”) services provide nationwide distribution of television programming (including in some cases pay-per-view programming and programming packages unique to DBS) using small receiving dishes and digital transmission technologies. In November 1999, Congress passed the Satellite Home Viewer Improvement Act, which gives DBS operators the ability to distribute the signals of local television stations to subscribers in thestations'stations’ local market area("local-into-local"(“local-into-local” service), although since April 2000 the DBS operator has been required to obtain the consent of each local television station included in such a service.The Company'sAll of the Company’s television stationsin Miami, Detroit, Houston, Orlando and San Antonioare currentlyarebeing distributed locally by satellite. Underaan FCC rulecurrently subject to judicial challenge on constitutional grounds, byimplementing provisions of this Act, since January1,2002 DBSprovidersoperators that offer local-into-local servicewill behave been required to carry all full-power television stations that request such carriage in the markets in whichtheythe DBS operators have chosen toprovide thisoffer local-into-local service. The FCC has also adopted rulesimplementing the provisions of this Actthat require certain program-exclusivity rules applicable to cable television to be applied to DBSproviders;operators, although certain of these rules, primarily relating to sports blackouts, are subject to reconsideration by the FCC. The Satellite Home Viewer Improvement Act also continues restrictions on the transmission of distant network stations by DBS16operators. Under these restrictions, DBS operators are prohibited from distributing in a local market the signals of any distant network-affiliated television station except in areas where the over-the-air signal of the samenetwork'snetwork’s local affiliate is notavailable.available or where the local affiliate grants a waiver. Several lawsuits were filed beginning inlate1996 in which plaintiffs1921(including all four major broadcast networks and network-affiliated stations including one of theCompany'sCompany’s Florida stations) alleged that certain DBS operators had not been complying with this restriction. The plaintiffs have entered into a settlement with DBS operator DirecTV, under which it will discontinue distant-network service to certain subscribers and alter the method by which it determines eligibility for this service. Litigation against DBS operatorEchostarEchoStar is continuing. The Satellite Home Viewer Improvement Act also provides that certain distant-network subscribers whose service would have been discontinued as a result of this litigation will continue to have access to distant-network servicefor a five-year period.through 2004. In addition to the matters discussed above, theCompany'sCompany’s television stations may also become subject to increased competition from low-power television stations, wireless cable services, satellite master antenna systems (which can carry pay-cable and similar program material) and prerecorded video programming. Further, the deployment of digital and other improved television technologies may enhance the ability of some of these other video providers to compete more effectively for viewers with the local television broadcasting stations owned by the Company.Cable television systems operate in a highly competitive environment. In addition to competing with the direct reception of television broadcast signals by the
viewer'sviewer’s own antenna, such systems (like existing television stations) are subject to competition from various other forms of television program delivery. In particular, DBS services (which are discussed in more detail in the preceding paragraph) have been growing rapidly and are now a significant competitive factor. The ability of DBS operators to provide local-into-local service (as described above)is expected to increasehas increased competition between cable and DBS operators in markets where local-into-local service is provided. DBS operators are not required to provide local-into-local service, and some smaller markets may not receive this service for several years. However, in December 2000 Congress passed and the President signed legislation to provide $1.25 billion in federal loan guarantees to help satellite carriers (and cable operators) provide local TV signals to rural areas, and DBS operators have stated that they intend to provide local-into-local service in a greater number of markets in the future. Local-into-local service is not yet offered in most markets in which the Company provides cable television service, but such services could be launched by DBS operators at any time. TheCompany'sCompany’s cable television systems also compete with wireless cable services in several of their markets and may face additional competition from such services in the future. Moreover, the Telecommunications Act of 1996 permits telephone companies to own and operate cable television systems in the same areas where they provide telephone services and thus may lead to the provision of competing program delivery services by local telephone companies.According to figures compiled by
Publishers'Publishers’ Information Bureau, Inc., of the268239 magazines reported on by the Bureau,Newsweekrankedeighthfifth in total advertising revenues in2000,2002, when it received approximately2.5%2.3% of all advertising revenues of the magazines included in the report. The magazine industry is highly competitive both within itself and with other advertising media which compete for audience and advertising revenue.Post NewsweekPostNewsweek Tech
Media Group'sMedia’s publications and tradeshowshows compete with many other advertising vehicles and sources of similar information.Kaplan competes in each of its test preparation product lines with a variety of regional and national test preparation businesses, as well as with individual tutors and in-school preparation for standardized tests.
Kaplan'sKaplan’s ScoreLearningEducation subsidiary competes with other regional and national learning centers, individual tutors and other educationale-commercebusinesseswhichthat target parents and students.Kaplan'sKaplan’s Professional Division competes with other companies which provide alternative or similar professional training, test-preparation and consulting services.Quest and The Kaplan 2022 Colleges competeKaplan’s Higher Education Division competes with both facilities-based and other distance learning providers of similar educational services, including not-for-profit colleges and universities and for-profit businesses.The
Company'sCompany’s publications and television broadcasting and cable operations also compete forreaders'readers’ andviewers'viewers’ time with various other leisure-time activities.The future of the
Company'sCompany’s various business activities depends on a number of factors, including the general strength of the economy, population growth and the level of economic activity in the particular geographic and other markets it serves, the impact of technological innovations on entertainment, news and information dissemination systems, overall advertising revenues, the relative efficiency of publishing and broadcasting compared to other forms of advertising and, particularly in the case of television broadcasting and cable operations, the extent and nature of government regulations.EXECUTIVE OFFICERS17Executive Officers
The executive officers of the Company, each of whom is elected for a one-year term at the meeting of the Board of Directors immediately following the Annual Meeting of Stockholders held in May of each year, are as follows:
Donald E. Graham, age
55,57, has been Chairman of the Board of the Company since September 1993 and Chief Executive Officer of the Company since May 1991. Mr. Graham served as President of the Company from May 1991 until September 1993 and prior to that had been a Vice President of the Company for more than five years. Mr. Graham also served as Publisher ofThe Washington Postfrom 1979 until September 2000.Katharine Graham, age 83, is Chairman of the Executive Committee of the Company's Board of Directors. Mrs. Graham previously served as Chairman of the Board of the Company from 1973 until September 1993 and as the Company's Chief Executive Officer from 1973 until May 1991.Diana M. Daniels, age
51,53, has been Vice President and General Counsel of the Company since November 1988 and Secretary of the Company since September 1991. Ms. Daniels served as General Counsel of the Company from January 1988 to November 1988 and prior to that had been Vice President and General Counsel of Newsweek, Inc. since 1979.Beverly R. Keil,Ann L. McDaniel, age
54, has been a47, became VicePresidentPresident-Human Resources of the Company in September 2001. Ms. McDaniel had previously served as Senior Director of Human Resources of the Company since1986; from 1982 through 1985January 2001, and prior to that held various editorial positions atNewsweekfor more than five years, most recently as Managing Editor, a position shewas the Company's Director of Human Resources.assumed in November 1998.John B. Morse, Jr., age
54,56, has been Vice President-Finance of the Company since November 1989. He joined the Company as Vice President and Controller in July 1989, and prior to that had been a partner of Price Waterhouse.Gerald M. Rosberg, age
54,56, was named Vice President-Planning and Development of the Company in February 1999. Mr. Rosberg had previously served as Vice President-Affiliates atThe Washington Post, a position he assumed in November 1997. Mr. Rosberg joined the Company in January 1996 asThePost'sPost’s Director of Affiliate Relations.EMPLOYEESEmployees
The Company and its subsidiaries employ approximately
10,70011,600 persons on a full-time basis.2123The Washington Posthas approximately
2,9002,610 full-time employees. About1,7701,600 ofThePost'sPost’s full-time employees and about560480 part-time employees are represented by one or another ofeightseven unions. Collective bargaining agreements are currently in effect with locals of the following unions covering the full-time and part-time employees and expiring on the dates indicated:1,5181,460 editorial, newsroom and commercial department employees represented by theCommunicationCommunications Workers of America(May 18, 2002)(November 7, 2005);9966 paperhandlers and general workers represented by the Graphic Communications International Union (November 20, 2004);4544 machinists represented by the International Association of Machinists (January 10, 2004);3329 photoengravers-platemakers represented by the Graphic Communications International Union (February 14, 2004);3228 electricians represented by the International Brotherhood of Electrical Workers (June 17,2001)2004);3933 engineers, carpenters and painters represented by the International Union of Operating Engineers(March 31, 2002)(April 9, 2005); and366420 mailers and125mailroom helpers represented by the Communications Workers of America (May 18, 2003).The contract covering 117 typographers represented by the Communications Workers of America expired on October 2, 2000. The traditional jobs performed by these employees had been eliminated by new technology. During negotiations for a new contract, The Post offered all members of the bargaining unit an early retirement incentive program which was accepted by all but three individuals. On February 27, 2001, The Post's building services employees voted against continued representation by the Service Employees International Union. At the time of the vote this unit included 92 employees.Washingtonpost.Newsweek Interactive has approximately
270220 full-time and3540 part-time employees, none of whom is represented by a union.Of the approximately
290270 full-time and12095 part-time employees at The Daily Herald Company, about7065 full-time and2520 part-time employees are represented by one or another of three unions. Thenewspaper'snewspaper’s collective bargaining agreement with the Graphic Communications International Union, which represents press operators, expires on March 15,2005. Its2005, and its agreement with the International Brotherhood of Teamsters, which represents bundle haulers, will expire onMay 31, 2001, and itsSeptember 22, 2003. The Newspaper’s agreement with the Communications Workers of America, which represents printers and mailers, will expire on October 31,2001.2005.The Company’s broadcasting operations have approximately 980 full-time employees, of whom about 240 are union-represented. Of the eight collective bargaining agreements covering union-represented employees, three have expired and are being renegotiated. Two other collective bargaining agreements will expire in 2003.
The Company’s Cable Television Division has approximately 1,610 full-time employees, none of whom is represented by a union.
18Newsweek has approximately
740650 full-time employees (including about165135 editorial employees represented by the Communications Workers of America under a collective bargaining agreement whichwill expire in December 2003)expired at the end of 2002 and currently is being renegotiated).The Company's broadcasting operations haveKaplan employs approximately
975 full-time employees, of whom about 245 are union-represented. Of the eight collective bargaining agreements covering union-represented employees, one has expired with Company implementing its last offer after the parties reached an impasse in negotiations. Two collective bargaining agreements will expire in December 2001. The Company's Cable Television Division has approximately 1,400 full-time employees. Kaplan and its subsidiary companies together employ approximately 3,4704,470 persons on a full-timebasis (which number does not includebasis. Kaplan also employs substantial numbers of part-time employees who serve in instructional andclerical capacities). The Gazette Newspapers,administrative capacities. During peak seasonal periods Kaplan’s part-time workforce exceeds 10,000 employees. None of Kaplan’s employees is represented by a union.Post-Newsweek Media, Inc. has approximately
590680 full-time and120130 part-time employees. Robinson Terminal Warehouse Corporation (theCompany'sCompany’s newsprint warehousing and distribution subsidiary),and Greater Washington Publishingand Post Newsweek Tech Media Groupeach employ fewer than150100 persons. None of theseunits'units’ employees is represented by a union.2224 FORWARD-LOOKING STATEMENTSForward-Looking Statements
All public statements made by the Company and its representatives which are not statements of historical fact, including certain statements in this Annual Report on Form 10-K and elsewhere in the
Company's 2000Company’s 2002 Annual Report to Stockholders, are"forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include comments about theCompany'sCompany’s business strategies and objectives, the prospects for growth in theCompany'sCompany’s various business operations, and theCompany'sCompany’s future financial performance. As with any projection or forecast, forward-looking statements are subject to various risks and uncertainties that could cause actual results or events to differ materially from those anticipated in such statements. In addition to the various matters discussed elsewhere in this Annual Report on Form 10-K (including the financial statements and other items filed herewith), specific factors identified by the Company that might cause such a difference include the following: changes in prevailing economic conditions, particularly in the specific geographic and other markets served by the Company; actions of competitors, including price changes and the introduction of competitive service offerings; changes in the preferences of readers, viewers and advertisers, particularly in response to the growth of Internet-based media; changes in communications and broadcast technologies; the effects of changing cost or availability of raw materials, including changes in the cost or availability of newsprint and magazine body paper; changes in the extent to which standardized tests are used in the admissions process by colleges and graduate schools; changes in the extent to which licensing or proficiency examinations are used to qualify individuals to pursue certain careers; changes in laws or regulations, including changes that affect the way business entities are taxed; and changes in accounting principles or in the way such principles are applied.ITEMAvailable Information
The Company’s Internet address iswww.washpostco.com. The Company makes available free of charge through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such documents are electronically filed with the Securities and Exchange Commission.
Item 2.
PROPERTIES.Properties.The Company owns the principal offices ofThe Washington Postin downtown Washington, D.C., including both a seven-story building in use since 1950 and a connected nine-story office building on contiguous property completed in 1972 in which the
Company'sCompany’s principal executive offices are located. Additionally, the Company owns land on the corner of 15th and L Streets, N.W., in Washington, D.C., adjacent toThe Washington Postoffice building. This land is leased on a long-term basis to the owner of a multi-story office building which was constructed on the site in 1982. The Company rents a number of floors in this building. The Company also owns and occupies a small office building on L Street which is next toThePost'sPost’s downtown office building.In 1980 theThe Company
builtowns a printing plant in Fairfax County, Virginia which was built in 1980 and expanded in 1998. That facility is located on1319 acres of land owned by theCompany in Fairfax County, Virginia, and in 1998 completed an expansion of that facility.Company. Also in 1998 the Company completed construction of a new printing plant and distribution facility forThe Poston a 17-acre tract of land in PrinceGeorge'sGeorge’s County, Maryland which was purchased by the Company in 1996. In addition, the Company owns undeveloped land near Dulles Airport in Fairfax County, Virginia (39 acres) and in PrinceGeorge'sGeorge’s County, Maryland (34 acres).During 2000 the Company sold the printing plant in Southeast Washington, D.C. which previously had been used as one of the production facilities for The Post.The Heraldowns its plant and office building in Everett, Washington; it also owns two warehouses adjacent to its plant and a small office building in Lynnwood, Washington.
The Gazette Newspapers,19Post-Newsweek Media, Inc. owns a two-story brick building that serves as its headquarters and as headquarters forThe Gazette Newspapersand a separate two-story brick building that houses its Montgomery County commercial printing business.
It also owns a one-story brick building that formerly served as its headquarters and is under contract to be sold.All of these properties are located in Gaithersburg,2325Maryland. Inconnection with its purchase of the Southern Maryland Newspapers, The Gazette Newspapers,addition, Post-Newsweek Media, Inc.acquiredowns a one-story brick building in Waldorf, Maryland that houses its Charles County commercial printing business and also serves as the headquarters forthreetwo of theSouthern MarylandNewspapers. OtherNewspapers. The other editorial and sales offices forThe Gazette Newspapersand theSouthern Maryland Newspapersare located in leased premises. The PostNewsweek Tech Media Division leases office space in Washington, D.C. and San Francisco, California.The headquarters offices of the Company’s broadcasting operations are located in Detroit, Michigan in the same facilities that house the offices and studios of WDIV. That facility and those that house the operations of each of the Company’s other television stations are all owned by subsidiaries of the Company, as are the related tower sites (except in Houston, Orlando and Jacksonville where the tower sites are 50% owned).
The headquarters offices of the Cable Television Division are located in a three-story office building in Phoenix, Arizona which was purchased by Cable One in 1998. The majority of the offices and head-end facilities of the Division’s individual cable systems are located in buildings owned by Cable One. Substantially all the tower sites used by the Division are leased.
The principal offices of Newsweek are located at 251 West 57th Street in New York City, where Newsweek rents space on nine floors. The lease on this space will expire in 2009 but is renewable for a 15-year period at
Newsweek'sNewsweek’s option at rentals to be negotiated or arbitrated.BudgetTravel'sTravel’s offices are also located in New York City where they occupy premises under a lease which expires in 2010. In 1997 Newsweek sold its Mountain Lakes, N.J. facility to a third party and leased back a portion of this building to house its accounting, production and distribution departments. The lease on this space will expire in 2007 but is renewable for two 5-year periods atNewsweek'sNewsweek’s option.The headquarters offices of the Company's broadcasting operations are located in Detroit, Michigan in the same facilities that house the offices and studios of WDIV. That facility and those that house the operations of each of the Company's other television stations are all owned by subsidiaries of the Company, as are the related tower sites (except in Houston, Orlando and Jacksonville where the tower sites are 50% owned). The headquarters offices of the Cable Television Division are located in a three-story office building in Phoenix, Arizona which was purchased by Cable One in 1998. The majority of the offices and head-end facilities of the Division's individual cable systems are located in buildings owned by Cable One. Substantially all the tower sites used by the Division are leased.Robinson Terminal Warehouse Corporation owns two wharves and several warehouses in Alexandria, Virginia. These facilities are adjacent to the business district and occupy approximately seven acres of land. Robinson also owns two partially developed tracts of land in Fairfax County, Virginia, aggregating about
2220 acres. These tracts are nearThe WashingtonPost'sPost’s Virginia printing plant and include several warehouses. In 1992 Robinson purchased approximately 23 acres of undeveloped land on the Potomac River in Charles County, Maryland, for the possible construction of additional warehouse capacity.Kaplan owns a total of
sixeight buildings including a six-story building located at 131 West 56th Street in New York City, which serves as an educational center primarily forforeigninternational students, and a2,2822,300 square foot office condominium in Chapel Hill, North Carolina which it utilizes for its Test Prep business. Kaplan also owns a 15,000 square foot three-story building in Berkeley, California utilized for itsforeign andTest Prepbusinesses. As part of the Quest acquisition, Kaplan acquiredand English Language businesses, a58,00039,000 square footfacilityfour-story brick building and a 19,000 square foot two-story brick building in Lincoln, Nebraska which are used by the Lincoln School of Commerce, a25,33525,000 square footfacilityone-story building in Omaha, Nebraska used by the Nebraska College of Business,anda 131,000 square footfacilityfive-story brick building in Manchester, New Hampshire used by HesserCollege. Kaplan'sCollege, and an 18,000 square foot one-story brick building in Dayton, Ohio used by the Ohio Institute of Photography and Technology. Kaplan’s principal educational center in New York City for other than international students is located at 16 Cooper Square, where Kaplan rents two floors under a lease expiring in 2013.Kaplan'sKaplan’s distribution facilities are located in a 169,000 square foot warehouse in Aurora, Illinois which has been rented under a lease which expires in 2010.Kaplan'sKaplan’s headquarters offices are located at 888 Seventh Avenue in New York City, where Kaplan rents space on three floors under a lease which expires in 2007. All other Kaplan facilities (including administrative offices and instructional locations) occupy leased premises.The offices of Washingtonpost.Newsweek Interactive occupy 85,000 square feet of office space in Arlington, Virginia under a lease which expires in 2010.
Greater Washington Publishing’s offices are located in
Arlington, Virginia, and the offices of Greater Washington Publishing are locatedleased space in Fairfax, Virginia.Post Newsweek Tech Media Group has its headquarters office in Vienna, Virginia, and also maintains office space in Silver 2426 Spring and Gaithersburg, Maryland and in San Francisco, California. The office space for each of these units is leased. ITEMItem 3.
LEGAL PROCEEDINGS.Legal Proceedings.The Company,
andits wholly owned subsidiary The Gazette Newspapers, Inc. (now Post-Newsweek Media, Inc.),its whollyand the Washington Suburban Press Network, Inc. (a corporation jointly ownedsubsidiary (the "Gazette")by Post-Newsweek Media and another media investor), are parties to an antitrust lawsuit filed on February 28, 2001, by the owners oftwoseveral local Maryland newspapers in the United States District Court for the District ofMaryland on February 28, 2001, following the acquisition by the GazetteMaryland. This suit alleges violations of the Sherman Act, the Clayton Act and the Maryland Antitrust Act, and asserts state law claims for unfair competition,20breach of contract and tortious interference. The allegations largely stem from the Gazette’s acquisition of theSouthern MarylandNewspapers. The lawsuit alleges thatNewspapersin 2001 and Press Network’s treatment of newspapers published by certain of theCompanyplaintiffs in connection with membership in the network and theGazette have used predatory pricingplacement of newspaper advertising. The suit seeks unspecified damages (which in certain instances may be trebled by statute) andother illegal means to restrain trade and monopolize the community newspaper market in Montgomery, Prince George's and several other counties in Maryland, and requests the award of unspecified treble damages and attorneys'attorneys’ fees, as well asremedialinjunctive relief (including the divestiture of the Gazette by the Company). TheCompanyDistrict Court granted summary judgment for defendants on all of plaintiffs’ claims on August 16, 2002. Plaintiffs filed a notice of appeal on September 27, 2002, and theGazette have not yet filed an answer to this complaint but anticipate denying all of the allegations of illegal conduct contained therein. The Company has learned that in late February 2001 the Antitrust Division ofcase is currently before the United StatesDepartmentCourt ofJustice was requested byAppeals for the Fourth Circuit.Kaplan, Inc., a
local newspaper competitor to investigate the Southern Maryland Newspapers acquisition. In addition, the Antitrust Divisionwholly owned subsidiary of theMaryland Attorney General's Office has confirmedCompany, is the named defendant in a class action filed on December 20, 2002, in Superior Court of the State of California, County of Alameda, brought by individuals who were engaged as Kaplan lecturers, teachers and tutors in California since December 20, 1998. The suit alleges breaches of implied contracts as well as violations of the California wage and hour laws and the California Business and Professions Code prohibitions against unfair competition by means of unlawful, unfair or fraudulent business practices or acts. The case arose out of claims that Kaplan failed tothe Company that it is reviewing the same transaction.pay its instructors for time spent preparing for lectures, classes and tutoring sessions, time spent after class answering students’ questions, and time spent traveling to and from different teaching locations. The suit seeks unspecified damages (which may in certain instances include penalties).The Company and its subsidiaries are also defendants in various other civil lawsuits that have arisen in the ordinary course of their businesses, including actions for libel and invasion of privacy. While it is not possible to predict the outcome of these lawsuits and
investigations,the lawsuits described in the preceding two paragraphs, in the opinion of management their ultimatedispositionsdisposition should not have a material adverse effect on the financial position, liquidity or results of operations of the Company.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Item 4. Submission of Matters to a Vote of Security Holders. Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters. The
Company'sCompany’s Class B Common Stock is traded on the New York Stock Exchange under the symbol"WPO."“WPO.” TheCompany'sCompany’s Class A Common Stock is not publicly traded.The high and low sales prices of the
Company'sCompany’s Class B Common Stock during the last two years were:
2000 1999 ---- ---- Quarter High Low High Low ------- ---- --- ---- ---January - March..................... $ 587 $ 472 $ 595 $ 517 April - June........................ 541 471 582 510 July - September.................... 528 467 574 508 October - December.................. 629 508 586 490
2002 2001 Quarter High Low High Low January – March $618 $520 $652 $524 April – June 634 545 608 542 July – September 675 516 599 470 October – December 743 646 540 479 During
20002002 the Company repurchased2001,229 shares of its Class B CommonStock in an unsolicited transaction.Stock.At
February 1, 2001,January 28, 2003, there were2328 holders of record of theCompany'sCompany’s Class A Common Stock and1,1251,046 holders of record of theCompany'sCompany’s Class B Common Stock.Both classes of the
Company'sCompany’s Common Stock participate equally as to dividends. Quarterly dividends were paid at the rate of$1.35$1.40 per share during2000both 2002 and$1.30 per share during 1999. 2527 ITEM2001.Item 6.
SELECTED FINANCIAL DATA.Selected Financial Data.See the information for the years
19961998 through20002002 contained in the table titled"Ten-Year“Ten-Year Summary of Selected Historical FinancialData"Data” which is included in this Annual Report on Form 10-K and listed in the index to financial information on page3027 hereof (with only the information for such years to be deemed filed as part of this Annual Report on Form 10-K).ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. See the information contained under the heading
"Management's“Management’s Discussion and Analysis of Results of Operations and FinancialCondition"Condition” which is included in this Annual Report on Form 10-K and listed in the index to financial information on page3027 hereof.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Item 7A. 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 and to its borrowing activities which are subject to interest rate risk.
Equity Price Risk
The Company has common stock investments in several publicly traded companies (as discussed in Note C to the
Company'sCompany’s consolidated Financial Statements) that are subject to market price volatility. The fair value of these common stock investments totaled$221,137,000$216,533,000 at December31, 2000.29, 2002.The following table presents the hypothetical change in the aggregate fair value of the
Company'sCompany’s common stock investments in publicly traded companies assuming hypothetical stock price fluctuations of plus or minus 10%, 20% and 30% in the market price of each stock included therein:
Value of Common Stock Investments Value of Common Stock Investments Assuming Indicated Decrease in Assuming Indicated Increase in Each Stock's Price Each Stock's Price - ------------------------------------------------------- -----------------------------------------------------30% -20% -10% +10% +20% +30% - ----------------- ---------------- ---------------- ---------------- --------------- --------------- $154,795,900 $176,909,600 $199,023,300 $243,250,700 $265,364,400 $287,478,100
Value of Common Stock Investments Value of Common Stock Investments Assuming Indicated Decrease in Assuming Indicated Increase in Each Stock’s Price Each Stock’s Price -30% -20% -10% +10% +20% +30% $ 151,573,000 $ 173,226,000 $ 194,880,000 $ 238,186,000 $ 259,840,000 $ 281,493,000 During the
eight16 quarters since the end of theCompany'sCompany’s 1998 fiscal year, market price movements caused the aggregate fair value of theCompany'sCompany’s common stock investments in publicly traded companies to change by approximately15% in two quarters,20% in one quarter, 15% in three quarters and by lessthenthan 10% in each of the otherfive12 quarters.Interest Rate Risk
At December
31, 2000,29, 2002, the Company had short-term commercial paper borrowings outstanding of$525,367,000$259,258,000 at an average interest rate of6.6%1.6%. AtJanuary 2, 2000,December 30, 2001, the Company had commercial paper borrowings outstanding of$487,677,000$533,896,000 at an average interest rate of6.4%2.0%. The Company is exposed to interest rate risk with respect to such borrowings since an increase in commercial paper borrowing rates would increase theCompany'sCompany’s interest expense on its commercial paper borrowings. Assuming a hypothetical 100 basis point increase in its average commercial paper borrowing rates from those that prevailed during theCompany's 2000Company’s 2002 and19992001 fiscal years, theCompany'sCompany’s interest expense would have been greater by approximately$4,600,000$4,100,000 in fiscal20002002 and by approximately$1,400,000$5,700,000 in fiscal1999.2001.The
Company'sCompany’s long-term debt consists of $400,000,000 principal amount of 5.5% unsecured notes due February 15, 2009 (the"Notes"“Notes”). At December31, 2000,29, 2002, the aggregate fair value of the2628Notes, based upon quoted market prices, was$376,200,000.$426,640,000. An increase in the market rate of interest applicable to the Notes would not increase theCompany'sCompany’s interest expense with respect to the Notes since the rate of interest the Company is required to pay on the Notes is fixed, but such an increase in rates would affect the fair value of the Notes. Assuming, hypothetically, that the market interest rate applicable to the Notes was 100 basis points higher than theNotes'Notes’ stated interest rate of 5.5%, the fair value of the Notes would be approximately$375,046,000.$380,027,000. Conversely, if the market interest rate applicable to the Notes was 100 basis points lower than theNotes'Notes’ stated interest rate, the fair value of the Notes would then be approximately$426,926,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.$421,176,000.
Item 8. Financial Statements and Supplementary Data. See the
Company'sCompany’s Consolidated Financial Statements at December31, 2000,29, 2002, and for the periods then ended, together with the report of PricewaterhouseCoopers LLP thereon and the information contained in Note N to said Consolidated Financial Statements titled"Summary“Summary of Quarterly Operating Results and Comprehensive Income (Unaudited),"” which are included in this Annual Report on Form 10-K and listed in the index to financial information on page3027 hereof.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Item 10. Directors and Executive Officers of the Registrant. The information contained under the heading
"Executive Officers"“Executive Officers” in Item 1 hereof and the information contained under the headings"Nominees“Nominees for Election by Class A Stockholders," "Nominees” “Nominees for Election by Class BStockholders"Stockholders” and"Section“Section 16(a) Beneficial Ownership ReportingCompliance"Compliance” in the definitive Proxy Statement for theCompany's 2001Company’s 2003 Annual Meeting of Stockholders is incorporated herein by reference thereto.ITEM 11. EXECUTIVE COMPENSATION.
Item 11. Executive Compensation. The information contained under the headings
"Compensation of Directors," "Executive“Director Compensation," "Retirement” “Executive Compensation,” “Retirement Plans," "Compensation” “Compensation Committee Report on Executive Compensation," "Compensation” “Compensation Committee Interlocks and Insider Participation,"” and"Performance Graph"“Performance Graph” in the definitive Proxy Statement for theCompany's 2001Company’s 2003 Annual Meeting of Stockholders is incorporated herein by reference thereto.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information contained under the heading
"Stock“Stock Holdings of Certain Beneficial Owners andManagement"Management” and in the table titled “Equity Compensation Plan Information” in the definitive Proxy Statement for theCompany's 2001Company’s 2003 Annual Meeting of Stockholders is incorporated herein by reference thereto.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Item 13. Certain Relationships and Related Transactions. The information contained under the heading
"Certain“Certain Relationships and RelatedTransactions"Transactions” in the definitive Proxy Statement for theCompany's 2001Company’s 2003 Annual Meeting of Stockholders is incorporated herein by reference thereto.2729 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT: (i) Financial Statements
Item 14. Controls and Procedures. A review and
Financial Statement Schedules As listedevaluation was performed by the Company’s management, at the direction 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 design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c), as of a date within 90 days prior to the filing of this annual report. Based on that review and 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 all material information required to be disclosed in theindexreports that the Company files or submits under the Exchange Act have been made known tofinancial information on page 30 hereof. (ii) Exhibits As listedthem in a timely fashion. There have been no significant changes in theindexCompany’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent toexhibits on page 60 hereof. (b) REPORTS ON FORM 8-K.the date of such evaluation.PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(i) Financial Statements and Financial Statement Schedules
As listed in the index to financial information on page 27 hereof.
(ii) Exhibits
As listed in the index to exhibits on page 61 hereof.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period covered by this report. 23SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
period coveredSecurities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 14, 2003.
THE WASHINGTON POST COMPANY (Registrant)
By /s/ JOHN B. MORSE, JR.
John B. Morse, Jr. Vice President-Finance Pursuant to the requirements of the Securities Exchange Act of 1934, this
report. SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, ON MARCH 23, 2001. THE WASHINGTON POST COMPANY (Registrant) By John B. Morse, Jr. ------------------------ John B. Morse, Jr. Vice President-Finance 2830 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 23, 2001:report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 14, 2003:
Donald E. Graham Chairman of the Board and Chief Executive Officer (Principal Executive Officer) and Director Katharine Graham Chairman of the Executive Committee of the Board and DirectorJohn B. Morse, Jr. Vice President-Finance (Principal Financial and Accounting Officer) Warren E. Buffett Director Daniel B. Burke Director Barry Diller Director John L. Dotson Jr. Director George J. Gillespie, III Director Ralph E. Gomory Director Donald R. KeoughAlice M. Rivlin Director William J. Ruane DirectorRichard D. Simmons Director George W. Wilson Director By John B. Morse, Jr. ------------------------ John B. Morse, Jr. Attorney-in-Fact
By /s/ JOHN B. MORSE, JR.
John B. Morse, Jr. Attorney-in-Fact An original power of attorney authorizing Donald E.
Graham, KatharineGraham, John B. Morse, Jr. and Diana M. Daniels, and each of them, to sign all reports required to be filed by the Registrant pursuant to the Securities Exchange Act of 1934 on behalf of the above-named directors and officers has been filed with the Securities and Exchange Commission.293124CERTIFICATIONS
I, Donald E. Graham, Chief Executive Officer (principal executive officer) of The Washington Post Company (the “Registrant”), certify that:
1. I have reviewed this annual report on Form 10-K of the Registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6. The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 14, 2003
/s/ DONALD E. GRAHAM Donald E. Graham, Chief Executive Officer 25I, John B. Morse, Jr., Vice President–Finance (principal financial officer) of The Washington Post Company (the “Registrant”), certify that:
1. I have reviewed this annual report on Form 10-K of the Registrant; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report; 4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and
6. The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 14, 2003
/s/ JOHN B. MORSE, JR. John B. Morse, Jr., Vice President–Finance 26INDEX TO FINANCIAL INFORMATION
------------------THE WASHINGTON POST COMPANY
PAGE ----Page Management’s Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) 29 Financial Statements and Schedules: Report of Independent Accountants .............................................................. 3138 Consolidated Statements of Income for the Three Fiscal Years Ended December 31, 2000 ................................................................... 3229, 200239 Consolidated Statements of Comprehensive Income for the Three Fiscal Years Ended December 31, 2000 ...................................................... 3229, 200239 Consolidated Balance Sheets at December 31, 200029, 2002 andJanuary 2, 2000 ........................... 33December 30, 200140 Consolidated Statements of Cash Flows for the Three Fiscal Years Ended December 31, 2000 ................................................................... 3529, 200242 Consolidated Statements of Changes in Common Shareholders'Shareholders’ Equity for the Three Fiscal Years Ended December31, 2000 ...................................................... 3629, 200243 Notes to Consolidated Financial Statements ..................................................... 3744 Financial Statement SchedulesSchedule for the Three Fiscal Years Ended December31, 2000:29, 2002:II -— Valuation and Qualifying Accounts................................................ 50 Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) .......................................................................... 5157 Ten-Year Summary of Selected Historical Financial Data (Unaudited) ......................................58 ------------------All other schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto referred to above.
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28MANAGEMENT’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 — 2002 COMPARED TO 2001
Net income for the fiscal year ended December 29, 2002 was $204.3 million ($21.34 per share), compared with net income for the fiscal year ended December 30,
2001 of $229.6 million ($24.06 per share). The Company’s 2002 results include a net non-operating gain from the exchange of certain cable systems (after-tax impact of $16.7 million, or $1.75 per share), a transitional goodwill impairment loss (after-tax impact of $12.1 million, or $1.27 per share), charges from early retirement programs (after-tax impact of $11.3 million, or $1.18 per share), and a net non-operating loss from the write-down of certain of the Company’s investments (after-tax impact of $2.3 million, or $0.24 per share). The Company’s 2001 results included net non-operating gains from the sale and exchange of certain cable systems (after-tax impact of $196.5 million, or $20.69 per share), a non-cash goodwill and other intangibles impairment charge recorded by one of the Company’s affiliates (after-tax impact of $19.9 million, or $2.10 per share), losses from the write-down of a non-operating parcel of land and certain cost method investments to their estimated fair value (after-tax impact of $18.3 million, or $1.93 per share) and an after-tax charge of $55.0 million, or $5.79 per share, for amortization of goodwill and other intangible assets that are no longer amortized under Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” The Company adopted SFAS 142 effective on the first day of its 2002 fiscal year. Revenue for 2002 was $2,584.2 million, up 7 percent compared to revenue of $2,411.0 million in 2001, with significant revenue growth at the education, cable and broadcast divisions. Advertising revenue increased 1 percent in 2002, and circulation and subscriber revenue increased 3 percent. Education revenue increased 26 percent in 2002, and other revenue increased 10 percent. The increase in advertising revenue is due primarily to significant political revenues at the broadcast division in 2002. The increase in circulation and subscriber revenue is due to an 11 percent increase in subscriber revenue at the cable division from rapidly growing cable modem and digital service revenues, and a 4 percent increase in circulation revenue at The Post due to circulation price increases. This increase was offset by a 14 percent decrease in Newsweek domestic circulation revenue due to difficult comparisons with 2001, when Newsweek saw spikes in newsstand sales from regular and special editions surrounding the events of September 11. Revenue growth at Kaplan, Inc. (about one-third of which was from acquisitions) accounted for the increase in education revenue.
Operating costs and expenses for the year increased 4 percent to $2,206.6 million, from $2,112.8 million in 2001 (excluding amortization of goodwill and other intangible assets that are no longer amortized under SFAS 142). The increase is primarily due to higher depreciation expense, higher stock-based compensation at the education division, early retirement program charges, and a reduced net pension credit, offset by lower expenses at the newspaper publishing and magazine publishing segments due to lower newsprint prices and tight cost controls.
Operating income increased 27 percent to $377.6 million, from $298.3 million in 2001, adjusted as if SFAS 142 had been adopted at the beginning of 2001. Operating results for 2002 include $19.0 million in pre-tax charges from early retirement programs. The Company benefited from improved operating results at the education and broadcast divisions, along with improved earnings at The Washington Post newspaper and the cable division. These factors were offset in part by increased depreciation expense, a reduced net pension credit, the early retirement program charges noted above and higher stock-based compensation expense accruals at the education division.
The Company’s 2002 operating income includes $64.4 million of net pension credits, compared to $76.9 million in 2001. These amounts exclude $19.0 million and $3.3 million in charges related to early retirement programs in 2002 and 2001, respectively.
DIVISION RESULTS
As discussed above, the Company adopted SFAS 142 effective on the first day of its 2002 fiscal year. All operating income comparisons presented below are on a pro forma basis as if SFAS 142 had been adopted at the beginning of 2001. Therefore, 2001 pro forma operating results exclude amortization charges of goodwill and certain other intangible assets that are no longer amortized under SFAS 142.
Newspaper Publishing Division.Newspaper publishing division revenue in 2002 decreased slightly to $842.0 million, from $842.7 million in 2001. Division operating income for 2002 totaled $109.0 million, an increase of 23 percent from pro forma operating income of $88.6 million in 2001. Improved operating results for 2002 reflect the benefits of cost control initiatives employed throughout the division and a 22 percent decrease in newsprint expense; these savings were partially offset by a pre-tax early retirement program charge of $2.9 million and a reduced net pension credit.
Print advertising revenue at The Washington Post newspaper decreased 3 percent to $555.7 million, from $574.3 million in 2001. The decrease in print advertising revenue for 2002 is due to a continued decline in recruitment advertising revenue, with volume decreases of 32 percent, offset by higher revenue from several advertising categories, including preprints, real estate and other classified advertising.
Circulation revenues at The Post were up 4 percent for 2002 due to increases in single copy newsstand and home delivery prices in 2002. Daily circulation at The Post declined 1.7 percent, and Sunday circulation declined 1.2 percent in 2002. For
29the year ended December 29, 2002, average daily circulation at The Post totaled 760,000 (unaudited) and average Sunday circulation totaled 1,054,000 (unaudited).Revenue generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 18 percent to $35.9 million during the year, from $30.4 million in 2001. Local and national online advertising revenues grew 60 percent in 2002, while revenue at the Jobs section of washingtonpost.com decreased 1 percent in 2002.
Television Broadcasting Division.Revenue at the television broadcasting division increased 9 percent to $343.6 million in 2002, from $314.0 million in 2001, due primarily to $31.8 million in political advertising, as well as Olympics-related advertising at the Company’s NBC affiliates in the first quarter of 2002. Additionally, revenues in 2001 were lower due to a general softness in advertising and several days of commercial-free coverage following the events of September 11. These increases were partially offset by reduced network compensation revenues in 2002.
Competitive market position remained strong for the Company’s television stations. WDIV in Detroit was ranked number one in the latest ratings period, Monday through Friday, sign-on to sign-off; KSAT in San Antonio was tied for number one; WJXT in Jacksonville ranked second; WPLG was tied for second among English-language stations in the Miami market; and KPRC in Houston and WKMG in Orlando ranked third in their respective markets.
Operating income for 2002 increased 16 percent to $168.8 million, from pro forma operating income of $146.0 million in 2001. Operating income growth for 2002 is due to strong revenue growth, along with tight cost controls, partially offset by a reduced pension credit. Operating margin at the broadcast division was 49 percent for 2002 and 46 percent for 2001, excluding amortization of goodwill and other intangibles.
In July 2002, WJXT in Jacksonville, Florida, began operations as an independent station when its network affiliation with CBS ended.
Magazine Publishing Division.Revenue for the magazine publishing division totaled $349.1 million for 2002, a 7 percent decrease from $374.6 million in 2001. Revenues for 2001 reflect a significant spike in newsstand circulation revenue at Newsweek due to regular and special editions related to the events of September 11. Advertising revenues were down for 2002, primarily due to declines in the international division. Operating income totaled $25.7 million for 2002, a decrease of 20 percent from pro forma operating income of $32.0 million in 2001. Operating results for 2002 include $16.1 million in pre-tax charges in connection with early retirement programs at Newsweek. Expenses for 2001 included approximately $5.0 million in nonrecurring costs associated with regular and special editions related to September 11. Costs for 2002 also have declined due to payroll and other related cost savings from employees accepting early retirement programs offered by Newsweek, and from significant cost savings programs put into place at Newsweek’s international operations.
Excluding amortization of goodwill and other intangibles, operating margin at the magazine publishing division was 7 percent for 2002 and 9 percent for 2001.
Cable Television Division.Cable division revenue of $428.5 million for 2002 represents an 11 percent increase from revenues of $386.0 in 2001. The 2002 revenue increase is principally due to rapid growth in the division’s cable modem and digital service revenues. Cable division operating income increased 15 percent in 2002 to $80.9 million, from pro forma operating income of $70.6 million in 2001. The increase in operating income for 2002 is due mostly to the division’s revenue growth, offset by higher depreciation expense and increased programming expense.
Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $169.8 million for 2002, an increase of 25 percent from $135.3 million for 2001.
The increase in depreciation expense for 2002 is primarily due to significant capital spending, primarily in 2001 and 2000, which has enabled the cable division to offer digital and broadband cable services to its subscribers; depreciation expense for 2002 also includes $5.4 million in charges for obsolete assets. The cable division began its rollout plan for these services in the third quarter of 2000. At December 31, 2002, the cable division had approximately 214,900 digital cable subscribers, representing a 30 percent penetration of the subscriber base in the markets where digital services are offered. Digital services are currently offered in markets serving 98 percent of the cable division’s subscriber base. The initial rollout plan for the new digital cable services included an offer for the cable division’s customers to obtain these services free for one year. At December 31, 2002, the cable division had 194,200 paying digital subscribers, compared to 31,000 at the end of 2001. Most of the benefits from these services began to show in the first quarter of 2002 and continued throughout the year, with the remaining portion of free one-year periods generally having ended by the close of 2002.
At December 31, 2002, the cable division had 718,000 basic subscribers, compared to 752,700 at the end of December 2001, with the decrease due primarily to the difficult economic environment over the past year; basic customer disconnects for non-payment of bills have increased significantly. At December 31, 2002, the cable division had 79,400 CableONE.net service subscribers, compared to 46,400 at the end of December 2001, due to a large increase in the Company’s cable modem deployment (offered to 93 percent of homes passed at the end of December 2002) and subscriber penetration rates. Of these subscribers, 78,100 and 32,900 were cable modem subscribers at the end of 2002 and 2001, respectively, with the remainder being dial-up subscribers.
30Education Division.Education division revenue in 2002 increased 26 percent to $621.1 million, from $493.7 million in 2001. Kaplan reported operating income for the year of $20.5 million, compared to a pro forma operating loss of $13.1 million in 2001. Approximately one-third of the increase in Kaplan revenue and approximately $9 million of the increase in Kaplan operating income is from newly acquired businesses, primarily in the higher education division. Excluding goodwill amortization in 2001, a summary of operating results for 2002 compared to 2001 is as follows (in thousands):
2002 2001 % Change Supplemental education $ 371,248 $ 328,039 13% Higher education 249,877 165,642 51% $ 621,125 $ 493,681 26% Supplemental education $ 54,103 $ 27,509 97% Higher education 27,569 9,149 201% Kaplan corporate overhead (26,143 ) (23,981 ) (9% ) Other (35,017 ) (25,738 ) (36% ) $ 20,512 $ (13,061 ) — Supplemental education includes Kaplan’s test preparation, professional training and Score! businesses. The improvement in supplemental education results for 2002 is due mostly to higher enrollments and to a lesser extent, higher prices at Kaplan’s traditional test preparation business (particularly the LSAT, MCAT and GRE prep courses), as well as higher revenues and operating income from Kaplan’s CFA® and real estate licensure preparation services. Score! also contributed to the improved results, with increased enrollment, higher prices and strong cost controls.
Higher education includes all of Kaplan’s post-secondary education businesses, including the fixed-facility colleges that were formerly part of Quest Education, as well as online post-secondary and career programs (various distance-learning businesses). Higher education results are showing significant growth due to student enrollment increases, high student retention rates and several acquisitions.
Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, including expenses associated with the design and development of educational software that, if successfully completed, will benefit all of Kaplan’s business units.
Other expense is comprised primarily of accrued charges for stock-based incentive compensation arising from a stock option plan established for certain members of Kaplan’s management (the general provisions of which are discussed in Note G to the Consolidated Financial Statements) and amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. For 2002 and 2001, the Company recorded expense of $34.5 million and $25.3 million, respectively, related to this plan. The increase in other expense for 2002 is attributable to an increase in stock-based incentive compensation, which is due to an increase in Kaplan’s estimated value.
Equity in Losses of Affiliates.The Company’s equity in losses of affiliates for 2002 was $19.3 million, compared to losses of $68.7 million for 2001. The improvements were primarily due to better operating results at BrassRing LLC, which accounted for approximately $13.9 million of 2002 equity in losses of affiliates, compared to $75.1 million in equity losses for 2001. The Company’s affiliate investments at the end of 2002 consisted of a 49.4 percent interest in BrassRing LLC, a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited.
On January 1, 2003, the Company sold its 50 percent interest in the International Herald Tribune for $65 million; the Company will report an after-tax non-operating gain of approximately $32 million in the first quarter of 2003.
Non-Operating Items.The Company recorded other non-operating income, net, of $28.9 million in 2002, compared to $283.7 million of non-operating income, net, for 2001. The 2002 non-operating income includes a pre-tax gain of $27.8 million on the exchange of certain cable systems in the fourth quarter of 2002 and a gain on the sale of marketable securities; these gains were offset by write-downs recorded on certain investments. The 2001 non-operating income mostly comprised gains arising from the sale and exchange of certain cable systems completed in the first quarter of 2001, offset by write-downs recorded on certain investments and a parcel of non-operating land to their estimated fair value.
The Company incurred net interest expense of $33.5 million in 2002, compared to $47.5 million in 2001. At December 29, 2002, the Company had $664.8 million in borrowings outstanding at an average interest rate of 4.0 percent; at December 30, 2001, the Company had $933.1 million in borrowings outstanding.
Income Taxes.The effective tax rate was 38.8 percent for 2002, compared to 40.7 percent for 2001. Excluding the effect of the cable gain transactions, the Company’s effective rate approximated 38.7 percent for 2002 and 50.2 percent for 2001. The effective tax rate for 2002 declined primarily because the Company no longer has any permanent difference from goodwill amortization not deductible for tax purposes as a result of the adoption of SFAS 142. The Company’s effective tax rate also has declined due to an increase in operating earnings and a decrease in the overall state tax rate.
Cumulative Effect of Change in Accounting Principle.In 2002, the Company completed its SFAS 142 transitional goodwill impairment test, resulting in an after-tax impairment loss of $12.1 million, or $1.27 per share, related to PostNewsweek Tech Media (part of the magazine publishing segment). This loss is included in the Company’s 2002 results as a cumulative effect of change in accounting principle.
31RESULTS OF OPERATIONS — 2001 COMPARED TO 2000
Net income for 2001 was $229.6 million, compared with net income of $136.5 million for 2000. Diluted earnings per share totaled $24.06 in 2001, compared with $14.32 in 2000. The Company’s 2001 results include after-tax gains of $196.5 million, or $20.69 per share, from the sale and exchange of certain cable systems in the first quarter; a non-cash goodwill and other intangibles impairment charge recorded by the Company’s BrassRing affiliate (after-tax impact of $19.9 million, or $2.10 per share); and losses from the write-down of a non-operating parcel of land and certain cost method investments to their estimated fair value (after-tax impact of $18.3 million, or $1.93 per share).
Revenue for 2001 totaled $2,411.0 million, or flat compared to revenue of $2,409.6 million in 2000. Advertising revenue decreased 13 percent in 2001, and circulation and subscriber revenue increased 9 percent. Education revenue increased 40 percent in 2001, and other revenue decreased 10 percent. The large decrease in advertising revenue is due to declines at the newspaper, broadcast and magazine divisions. The increase in circulation and subscriber revenue is due to a 20 percent increase in Newsweek domestic circulation revenue and a 10 percent increase in subscriber revenue at the cable division. Revenue growth at Kaplan, Inc. (about two-thirds of which was from acquisitions) accounted for the increase in education revenue.
Operating costs and expenses for the year increased 6 percent to $2,191.1 million, from $2,069.8 million in 2000. The cost and expense increase is primarily attributable to companies acquired in 2001 and 2000, higher depreciation and amortization expense, and higher stock-based compensation expense accruals at the education division, offset by a higher pension credit and lower expenses at the newspaper publishing, television broadcasting and magazine publishing segments due to extensive cost control initiatives.
Operating income decreased 35 percent to $219.9 million in 2001, from $339.9 million in 2000. The decline in 2001 operating income is largely due to a significant decline in advertising revenue, increased depreciation and amortization expenses, and higher stock-based compensation expense accruals at the education division. These factors were offset in part by increased operating income contributed by Quest Education (acquired in August 2000), higher profits from Kaplan’s test preparation and professional training businesses, reduced operating losses at Kaplan’s new business development activities, and an increased pension credit. In addition, 2000 earnings included a fourth quarter after-tax charge of $16.5 million, or $1.74 per share, arising from an early retirement program at The Washington Post.
The Company’s 2001 operating income includes $76.9 million of net pension credits, compared to $65.3 million in 2000. These amounts exclude $3.3 million and $29.0 million in charges related to early retirement programs in 2001 and 2000, respectively.
DIVISION RESULTS
Newspaper Publishing Division.Newspaper publishing division revenues in 2001 decreased 8 percent to $842.7 million, from $918.2 million in 2000. Division operating income for 2001 totaled $84.7 million, a decrease of 26 percent from operating income of $114.4 million in 2000.
The decrease in operating income for 2001 is due to a significant decline in print advertising, offset in part by a higher pension credit, higher online advertising revenue, lower newsprint expense, cost control initiatives employed throughout the division, and the $27.5 million charge recorded in the fourth quarter of 2000 in connection with an early retirement program completed at The Post.
Print advertising revenue at The Washington Post newspaper decreased 14 percent to $574.3 million, from $664.1 million in 2000. Volume declines of 41 percent in classified recruitment advertising for 2001 caused classified recruitment advertising revenue declines of 37 percent. The economic environment surrounding most of the other advertising categories at The Post (i.e., retail, general, preprints) was also sluggish for fiscal 2001 compared to the prior year. In these categories, rate increases only partially offset volume declines ranging from 3 percent to 28 percent during 2001. The soft advertising climate worsened late in the third quarter of 2001 as the Company experienced further reductions in advertising revenue and volumes following the events of September 11.
Daily and Sunday circulation at The Post declined 0.5 percent and 0.7 percent, respectively, in 2001. For the year ended December 30, 2001, average daily circulation at The Post totaled 773,000 (unaudited) and average Sunday circulation totaled 1,067,000 (unaudited). Newsprint expense at the newspaper publishing division decreased 6 percent for 2001 due to reduced consumption offset by overall higher prices during the year.
Revenues generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 12 percent to $30.4 million during the year.
Television Broadcasting Division.Revenue for the television broadcasting division totaled $314.0 million for 2001, a 14 percent decline from 2000. Excluding approximately $42 million in political and Olympics advertising in 2000, revenue in 2001 decreased 3 percent due to a general softness in advertising (particularly national advertising) and several days of commercial-free coverage following the events of September 11.
Competitive market position remained strong for the Company’s television stations. WJXT in Jacksonville and WDIV in Detroit were ranked number one in the latest ratings period, sign-on to sign-off, in their respective markets; KSAT in San Antonio ranked second; WPLG was tied for second among English-language stations in the Miami market; and KPRC in Houston and WKMG in Orlando ranked third in their respective markets.
32Operating income for 2001 declined 26 percent to $131.8 million, from $177.4 million in 2000, due to revenue declines discussed above. Operating margin at the broadcast division was 42 percent for 2001 and 49 percent for 2000. Excluding amortization of goodwill and intangibles, operating margin was 46 percent for 2001 and 53 percent for 2000.
Magazine Publishing Division.Revenue for the magazine publishing division totaled $374.6 million for 2001, a 9 percent decrease from revenue of $413.9 million in 2000. Operating income totaled $25.3 million for 2001, a decrease of 48 percent from 2000. The decline in 2001 operating income resulted from a 24 percent decrease in advertising revenue at Newsweek due to fewer advertising pages at both the domestic and international editions. The decline was offset in part by increased newsstand sales on regular and special editions related to the September 11 terrorist attacks, a higher pension credit and reduced operating expenses.
Operating margin at the magazine publishing division decreased to 7 percent for 2001, compared to 12 percent in 2000.
Cable Television Division.Cable division revenue of $386.0 million for 2001 represents an 8 percent increase over 2000. The 2001 revenue increase is due to rapid growth in the division’s digital and cable modem service revenues, along with an increased number of basic subscribers from the cable exchange transactions completed in the first quarter of 2001. Cable division operating income declined 51 percent in 2001 to $32.2 million, due mostly to a $25.3 million increase in depreciation and amortization expense compared to 2000.
Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $135.3 million for 2001, a decrease of 6 percent from 2000. The decline in cable division cash flow is mostly due to higher programming expense, costs associated with the launch of digital services, and comparatively lower cash flow margin subscribers acquired in the cable system exchanges completed in the first quarter of 2001.
The increase in depreciation expense is due to capital spending, which is enabling the Company to offer digital cable services to its subscribers. The cable division began its rollout plan for these services in the third quarter of 2000. At December 31, 2001, the cable division had approximately 239,500 digital cable subscribers, representing a 35 percent penetration of the subscriber base in the markets where digital services are offered. Digital services were offered in markets serving 91 percent of the cable division’s subscriber base. The rollout plan for the new digital cable services included an offer for the cable division’s customers to obtain these services free for one year. At the end of December 2001, the cable division had about 31,000 paying digital subscribers. Of these, 24,000 were from the new Idaho subscribers and were not offered one-year free digital service. Most of the benefits from these new services are expected to show beginning in 2002 and thereafter.
At December 31, 2001, the cable division had 752,700 basic subscribers, compared to 735,400 at the end of December 2000. The increase in basic subscribers is largely due to a net gain in subscribers arising from cable system exchanges and sale transactions completed in the first quarter of 2001. At December 31, 2001, the cable division had 46,400 CableONE.net service subscribers, compared to 18,200 at the end of 2000, with the increase due to a large increase in the Company’s cable modem deployment (offered to 89 percent of homes passed at the end of December 2001) and take-up rates. Of these subscribers, 32,900 and 3,600 were cable modem subscribers at the end of 2001 and 2000, respectively, with the remainder being dial-up subscribers.
Education Division.Education revenue in 2001 increased 40 percent to $493.7 million, from $353.8 million in 2000; excluding Quest Education (acquired in August 2000), education division revenue increased 15 percent to $342.3 million for 2001, compared to $296.9 million for 2000. Excluding goodwill amortization, a summary of operating results for 2001 compared to 2000 is as follows (in thousands):
2001 2000 % Change Supplemental education $ 328,039 $ 286,386 15% Higher education 165,642 67,435 146% $ 493,681 $ 353,821 40% Supplemental education $ 27,509 $ 18,636 48% Higher education 9,149 (5,705 ) — Kaplan corporate overhead (23,981 ) (38,693 ) 38% Other (25,738 ) (6,250 ) (312% ) $ (13,061 ) $ (32,012 ) 59% Supplemental education includes Kaplan’s test preparation, professional training and Score! businesses. The improvement in supplemental education results for 2001 is due mostly to higher enrollments and, to a lesser extent, higher prices at Kaplan’s traditional test preparation business (particularly the GMAT and the LSAT prep courses) and higher revenues and profits from Kaplan’s CFA® and real estate licensure preparation services. Score! also contributed to the improved results, with both increased enrollment from new learning centers opened (147 centers at the end of 2001 versus 142 centers at the end of 2000) and rate increases implemented early in 2001.
Higher education includes all of Kaplan’s post-secondary education businesses, including the fixed-facility colleges that were formerly part of Quest Education, as well as online post-secondary and career programs (various distance-learning businesses). Higher education results increased as 2001 includes a full year of Quest results versus five months of activity in 2000.
Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, including expenses associated with the design and development of educational software that, if successfully completed, will benefit all of Kaplan’s business
33units. Also included in 2000 corporate overhead results are costs associated with eScore.com.Other expense is comprised primarily of accrued charges for stock-based incentive compensation arising from a stock option plan established for certain members of Kaplan’s management and amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. For 2001 and 2000, the Company recorded expense of $25.3 million and $6.0 million, respectively, related to this plan. The increase in other expense for 2001 is attributable to an increase in stock-based incentive compensation, which is due to an increase in Kaplan’s estimated value.
Equity in Losses of Affiliates.The Company’s equity in losses of affiliates for 2001 was $68.7 million, compared to losses of $36.5 million for 2000. The Company’s affiliate investments consisted of a 39.7 percent common interest in BrassRing LLC, a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited.
BrassRing accounted for approximately $75.1 million of the 2001 equity in losses of affiliates, compared to $37.0 million in 2000. The increase in 2001 equity in affiliate losses from BrassRing is largely due to a non-cash goodwill and other intangibles impairment charge that BrassRing recorded in 2001 primarily to reduce the carrying value of its career fair business. As a substantial portion of BrassRing’s losses arose from goodwill and intangible amortization expense for both 2001 and 2000, the $75.1 million and $37.0 million of equity in affiliate losses recorded by the Company in 2001 and 2000 did not require significant funding by the Company.
In December 2001, BrassRing, Inc. was restructured and the Company’s interest in BrassRing, Inc. was converted into an interest in the newly-formed BrassRing LLC. At December 30, 2001, the Company held a 39.7 percent interest in the BrassRing LLC common equity and a $14.9 million Subordinated Convertible Promissory Note (“Note”) from BrassRing LLC. In February 2002, the Note was converted into Preferred Units, which are convertible at the Company’s option to BrassRing LLC common equity. Assuming the conversion of the Preferred Units, the Company’s common equity interest in BrassRing LLC would have been approximately 49.5 percent.
Non-Operating Items.The Company recorded other non-operating income of $283.7 million in 2001, compared to $19.8 million in non-operating expense for 2000. The 2001 non-operating income mostly comprised gains arising from the sale and exchange of certain cable systems completed in January and March of 2001. Offsetting these gains were losses from the write-downs of a non-operating parcel of land and certain investments to their estimated fair value. For income tax purposes, substantial components of the cable system sale and exchange transactions qualify as like-kind exchanges, and therefore, a large portion of these transactions does not result in a current tax liability.
The Company incurred net interest expense of $47.5 million in 2001, compared to $53.8 million in 2000. At December 30, 2001, the Company had $933.1 million in borrowings outstanding at an average interest rate of 3.5 percent.
Income Taxes.The effective rate was 40.7 percent for 2001, compared to 40.6 percent for 2000. Excluding the effect of the cable gain transactions, the Company’s effective tax rate approximated 50.2 percent for 2001, with the increase in rate due mostly to the decline in pre-tax income.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions, Exchanges and Dispositions.During 2002, Kaplan acquired several businesses in its higher education and test preparation divisions for approximately $42.2 million. About $9.6 million remains to be paid on these acquisitions, of which $2.2 million has been classified in current liabilities and $7.4 million as long-term debt at December 29, 2002.
In November 2002, the Company completed a cable system exchange transaction with Time Warner Cable which consisted of the exchange by the Company of its cable system in Akron, Ohio serving about 15,500 subscribers, and $5.2 million to Time Warner Cable, for cable systems serving about 20,300 subscribers in Kansas. The non-cash, non-operating gain resulting from the exchange transaction increased net income by $16.7 million, or $1.75 per share.
During 2001, the Company spent approximately $104.4 million on business acquisitions and exchanges, which principally included the purchase of Southern Maryland Newspapers, a division of Chesapeake Publishing Corporation, and amounts paid as part of a cable system exchange with AT&T Broadband. During 2001, the Company also acquired a provider of CFA® exam preparation services and a company that provides pre-certification training for real estate, insurance and securities professionals.
Southern Maryland Newspapers publishes the Maryland Independent in Charles County, Maryland; The Enterprise in St. Mary’s County, Maryland; and The Calvert Recorder in Calvert County, Maryland, with a combined total paid circulation of approximately 50,000.
The cable system exchange with AT&T Broadband was completed in March 2001 and consisted of the exchange by the Company of its cable systems in Modesto and Santa Rosa, California, and approximately $42.0 million to AT&T Broadband for cable systems serving approximately 155,000 subscribers principally located in Idaho. In a related transaction in January 2001, the Company completed the sale of a cable system serving about 15,000 subscribers in Greenwood, Indiana, for $61.9 million. The gain resulting from the cable system sale and exchange transactions increased net income by $196.5 million, or $20.69 per share. For income tax purposes, substantial components of the cable system sale and exchange transactions qualify as like-kind exchanges and therefore, a large portion of these transactions does not result in a current tax liability.
34During 2000, the Company spent $212.3 million on business acquisitions. These acquisitions included $177.7 million for Quest Education Corporation, a provider of post-secondary education; $16.2 million for two cable systems serving 8,500 subscribers; and $18.4 million for various other small businesses (principally consisting of educational services companies). There were no significant business dispositions in 2000.
Capital Expenditures.During 2002, the Company’s capital expenditures totaled $153.0 million. The Company’s capital expenditures for 2002, 2001 and 2000 are disclosed in Note M to the Consolidated Financial Statements. The Company estimates that its capital expenditures will total $180 million in 2003.
Investments in Marketable Equity Securities.At December 29, 2002, the fair value of the Company’s investments in marketable equity securities was $216.5 million, which includes $214.8 million in Berkshire Hathaway Inc. Class A and B common stock and $1.7 million of various common stocks of publicly traded companies with e-commerce business concentrations.
At December 29, 2002, the gross unrealized gain related to the Company’s Berkshire Hathaway Inc. stock investment totaled $29.9 million; the gross unrealized gain on this investment was $34.1 million at December 30, 2001. The Company presently intends to hold the Berkshire Hathaway stock long term.
Cost Method Investments.At December 29, 2002 and December 30, 2001, the Company held minority investments in various non-public companies. The companies represented by these investments have products or services that in most cases have potential strategic relevance to the Company’s operating units. The Company records its investment in these companies at the lower of cost or estimated fair value. During 2002 and 2001, the Company invested $0.3 million and $11.7 million, respectively, in various cost method investees. At December 29, 2002 and December 30, 2001, the carrying value of the Company’s cost method investments totaled $9.5 million and $29.6 million, respectively.
Common Stock Repurchases and Dividend Rate.During 2002, 2001 and 2000, the Company repurchased 1,229 shares, 714 shares and 200 shares, respectively, of its Class B common stock at a cost of $0.8 million, $0.4 million and $0.1 million. At December 29, 2002, the Company had authorization from the Board of Directors to purchase up to 544,796 shares of Class B common stock. The annual dividend rate for 2003 was increased to $5.80 per share, from $5.60 per share in 2002 and 2001.
Liquidity.At December 29, 2002, the Company had $28.8 million in cash and cash equivalents.
At December 29, 2002, the Company had $259.3 million in commercial paper borrowings outstanding at an average interest rate of 1.6 percent with various maturities throughout the first and second quarters of 2003. In addition, the Company had outstanding $398.4 million of 5.5 percent, 10-year unsecured notes due February 2009. These notes require semiannual interest payments of $11.0 million payable on February 15 and August 15. The Company also had $7.1 million in other debt.
In the third quarter of 2002, the Company replaced its revolving credit facility agreements with a five-year $350 million revolving credit facility, which expires in August 2007, and a 364-day $350 million revolving credit facility, which expires in August 2003. These revolving credit facility agreements support the issuance of the Company’s short-term commercial paper and provide for general corporate purposes. In May 2002, Moody’s downgraded the Company’s long-term debt ratings to A1 from Aa3 and affirmed the Company’s short-term debt rating at P-1.
During 2002, the Company’s borrowings, net of repayments, decreased by $268.3 million, with the decrease primarily due to cash flow from operations.
The Company expects to fund its estimated capital needs primarily through internally generated funds and, to a lesser extent, commercial paper borrowings. In management’s opinion, the Company will have ample liquidity to meet its various cash needs in 2003.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. In preparing these financial statements, management has made their best estimates and judgments of certain amounts included in the financial statements. Actual results will inevitably differ to some extent from these estimates.
The following are accounting policies that management believes are the most important to the Company’s portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments.
Revenue Recognition and Trade Accounts Receivable, Less Estimated Returns, Doubtful Accounts and Allowances.Revenues from magazine retail sales are recognized on the later of delivery or the cover date, with adequate provision made for anticipated sales returns. The Company bases its estimates for sales returns on historical experience and has not experienced significant fluctuations between estimated and actual return activity. Education revenue is recognized ratably over the period during which educational services are delivered. For example, at Kaplan’s test preparation division, estimates of average student course length are developed for each course and these estimates are evaluated on an ongoing basis and adjusted as necessary. As Kaplan’s businesses and related course offerings have expanded, including distance-learning businesses, the complexity and significance of management estimates have increased.
Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical trends and management’s evaluation of the financial condition of the customer. Accounts receivable also have been reduced by
35an estimate of advertising rate adjustments and discounts, based on estimates of advertising volumes for contract customers that are eligible for advertising rate adjustments and discounts.Pension Costs.Excluding special termination benefits related to early retirement programs, the Company’s net pension credit was $64.4 million, $76.9 million and $65.3 million for 2002, 2001 and 2000, respectively. The Company’s pension benefit costs are actuarially determined and are impacted significantly by the Company’s assumptions related to future events including the discount rate, expected return on plan assets and rate of compensation increases. At December 30, 2001, the Company modified certain assumptions surrounding the Company’s pension plans. Specifically, the Company reduced its assumptions on discount rate from 7.5 percent to 7.0 percent and expected return on plan assets from 9.0 percent to 7.5 percent. These assumption changes resulted in a reduction of approximately $20 million in the Company’s net pension credit in 2002. At December 29, 2002, the Company reduced its discount rate assumption to 6.75 percent. Due to the reduction in the discount rate and lower than expected investment returns in 2002, the pension credit for 2003 is expected to be down by about $10 million compared to 2002. For each one-half percent increase or decrease to the Company’s assumed expected return on plan assets, the pension credit increases or decreases by approximately $6.5 million. For each one-half percent increase or decrease to the Company’s assumed discount rate, the pension credit increases or decreases by approximately $5 million. The Company’s actual rate of return on plan assets was a decline of 2.3 percent in 2002, an increase of 10.9 percent in 2001, and an increase of 19.0 percent in 2000, based on plan assets at the beginning of each year. Note H to the Consolidated Financial Statements provides additional details surrounding pension costs and related assumptions.
Goodwill and Other Intangibles.The Company reviews the carrying value of goodwill and indefinite-lived intangible assets at least annually utilizing a discounted cash flow model (in the case of the Company’s cable systems, both a discounted cash flow model and an estimated fair market value per cable subscriber approach are used). The Company must make assumptions regarding estimated future cash flows and market values to determine a reporting unit’s estimated fair value. In reviewing the carrying value of goodwill and indefinite-lived intangible assets at the cable division, the Company aggregates its cable systems on a regional basis. If these estimates or related assumptions change in the future, the Company may be required to record an impairment charge. At December 29, 2002, the Company has $1,255.4 million in goodwill and other intangibles.
Cost Method Investments.The Company uses the cost method of accounting for its minority investments in non-public companies where it does not have significant influence over the operations and management of the investee. Most of the companies represented by these cost method investments have concentrations in Internet-related business activities. Investments are recorded at the lower of cost or fair value as estimated by management. Fair value estimates are based on a review of the investees’ product development activities, historical financial results and projected discounted cash flows. These estimates are highly judgmental, given the inherent lack of marketability of investments in private companies. The Company has recorded write-down charges on cost method investments of $19.2 million, $29.4 million and $23.1 million in 2002, 2001 and 2000, respectively. Note C to the Consolidated Financial Statements provides additional details surrounding cost method investments.
Kaplan Stock Option Plan.The Company maintains a stock option plan at its Kaplan subsidiary that provides for the issuance of stock options representing 10.6 percent of Kaplan, Inc. common stock to certain members of Kaplan’s management. Under the provisions of this plan, options are issued with an exercise price equal to the estimated fair value of Kaplan’s common stock. In general, options vest ratably over five years. Upon exercise, an option holder may either purchase vested shares at the exercise price or elect to receive cash equal to the difference between the exercise price and the then fair value. The fair value of Kaplan’s common stock is determined by the compensation committee of the Company’s Board of Directors, with input from management and an independent outside valuation firm. The compensation committee has historically modified the fair value of Kaplan stock on an annual basis and management expects this practice to continue. At December 29, 2002, options representing 10.4 percent of Kaplan’s common stock were issued and outstanding, and 69 percent of Kaplan stock options were fully vested and exercisable. For 2002, 2001 and 2000, the Company recorded expense of $34.5 million, $25.3 million and $6.0 million, respectively, related to this plan. In 2002 and 2001, payouts from option exercises totaled $0.2 million and $2.1 million, respectively. At December 29, 2002, the Company’s Kaplan stock-based compensation accrual balance totaled $74.4 million. Management expects Kaplan’s profits and related fair value to increase again in 2003, with a corresponding increase in the stock-based compensation expense for 2003 as compared to 2002. Note G to the Consolidated Financial Statements provides additional details surrounding the Kaplan Stock Option Plan.
Other.The Company does not have any off-balance sheet arrangements or financing activities with special-purpose entities (SPEs). Transactions with related parties, as discussed in Note C to the Consolidated Financial Statements, are in the ordinary course of business and are conducted on an arms-length basis.
OTHER
New Accounting Pronouncements.The Company adopted SFAS 142 effective on the first day of its 2002 fiscal year. As a result of the adoption of SFAS 142, the Company ceased most of the periodic charges previously recorded from the amortization of goodwill and other intangibles.
As required under SFAS 142, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill. The expected future cash flows of PostNewsweek Tech Media (part of the magazine publishing segment), on a dis-
36counted basis, did not support the net carrying value of the related goodwill. Accordingly, an after-tax goodwill impairment loss of $12.1 million, or $1.27 per share was recorded. The loss is included in the Company’s 2002 results as a cumulative effect of change in accounting principle.Stock Options — Change in Accounting Method.Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting for Company stock options as outlined in Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation.” This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal year 2002 will continue to be accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”
In December 2002, the Company awarded 11,500 stock options, resulting in total stock option compensation expense of $45,000 for 2002.
The accounting treatment for the Company’s Kaplan stock option plan is not impacted by this change in accounting method, as the expense related to the Kaplan stock option plan has been and will continue to be recorded in the Company’s results of operations.
37REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
The Washington Post CompanyIn our opinion, the consolidated financial statements referred to under Item
14(a)15(a)(i) on page2823 and listed in the index on page3027 present fairly, in all material respects, the financial position of The Washington Post Company and its subsidiaries at December31, 200029, 2002 andJanuary 2, 2000,December 30, 2001, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December31, 2000,29, 2002, in conformity with accounting principles generally accepted in the UnitedStates.States of America. In addition, in our opinion, the financial statement schedule referred to under Item14(a)15(a)(i) on page2823 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of theCompany'sCompany’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.As discussed in Note A to the
opinion expressed above.financial statements, the Company ceased amortizing certain goodwill and intangibles as a result of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” effective on the first day of its 2002 fiscal year. Also as discussed in Note A, the Company adopted the fair-value-based method of accounting for stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” beginning with stock options granted in fiscal 2002 and thereafter.PricewaterhouseCoopers LLP
Washington, D.C.
January26, 2001 3133 Consolidated Statements of Income
Fiscal year ended ------------------------------------------------- December 31, January 2, January 3, (in thousands, except share amounts) 2000 2000 1999 - ---------------------------------------------------------------------------------------------------------------OPERATING REVENUE Advertising ........................................ $ 1,396,583 $ 1,330,560 $ 1,297,621 Circulation and subscriber ......................... 601,258 579,693 547,450 Education .......................................... 352,753 240,075 171,372 Other .............................................. 61,556 65,243 93,917 ------------------------------------------------- 2,412,150 2,215,571 2,110,360 ------------------------------------------------- OPERATING COSTS AND EXPENSES Operating .......................................... 1,308,063 1,189,734 1,139,177 Selling, general, and administrative ............... 583,623 474,586 453,149 Depreciation of property, plant, and equipment ..... 117,948 104,235 89,248 Amortization of goodwill and other intangibles ..... 62,634 58,563 49,889 ------------------------------------------------- 2,072,268 1,827,118 1,731,463 ------------------------------------------------- INCOME FROM OPERATIONS ................................ 339,882 388,453 378,897 Equity in losses of affiliates ..................... (36,466) (8,814) (5,140) Interest income .................................... 967 1,097 1,137 Interest expense ................................... (54,731) (26,786) (11,538) Other (expense) income, net ........................ (19,782) 21,435 304,703 ------------------------------------------------- INCOME BEFORE INCOME TAXES ............................ 229,870 375,385 668,059 PROVISION FOR INCOME TAXES ............................ 93,400 149,600 250,800 ------------------------------------------------- NET INCOME ............................................ 136,470 225,785 417,259 REDEEMABLE PREFERRED STOCK DIVIDENDS .................. (1,026) (950) (956) ------------------------------------------------- NET INCOME AVAILABLE FOR COMMON SHARES ................ $ 135,444 $ 224,835 $ 416,303 ================================================= BASIC EARNINGS PER COMMON SHARE ....................... $ 14.34 $ 22.35 $ 41.27 ================================================= DILUTED EARNINGS PER COMMON SHARE ..................... $ 14.32 $ 22.30 $ 41.10 =================================================Consolidated Statements of Comprehensive Income24, 2003
Fiscal year ended ---------------------------------------------- December 31, January 2, January 3, (in thousands) 2000 2000 1999 - ------------------------------------------------------------------------------------------------------------------------NET INCOME ........................................................... $ 136,470 $ 225,785 $ 417,259 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustments .......................... (1,685) (3,289) (1,136) Change in net unrealized gain on available-for-sale securities .... 13,527 (48,176) 68,768 Less reclassification adjustment for realized gains included in net income .......................... (197) (11,995) -- ---------------------------------------------- 11,645 (63,460) 67,632 Income tax (expense) benefit related to other comprehensive income (loss) .................................... (5,097) 23,460 (26,819) ---------------------------------------------- 6,548 (40,000) 40,813 ============================================== COMPREHENSIVE INCOME ................................................. $ 143,018 $ 185,785 $ 458,072 ==============================================38CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended December 29, December 30, December 31, (in thousands, except per share amounts) 2002 2001 2000 Advertising $ 1,226,834 $ 1,209,327 $ 1,396,583 Circulation and subscriber 675,136 653,028 598,741 Education 621,125 493,271 352,753 Other 61,108 55,398 61,556 2,584,203 2,411,024 2,409,633 Operating 1,369,955 1,387,101 1,305,546 Selling, general and administrative 664,095 586,758 583,623 Depreciation of property, plant and equipment 171,908 138,300 117,948 Amortization of goodwill and other intangibles 655 78,933 62,634 2,206,613 2,191,092 2,069,751 377,590 219,932 339,882 Equity in losses of affiliates (19,308 ) (68,659 ) (36,466 ) Interest income 332 2,167 967 Interest expense (33,819 ) (49,640 ) (54,731 ) Other income (expense), net 28,873 283,739 (19,782 ) 353,668 387,539 229,870 137,300 157,900 93,400 216,368 229,639 136,470 (12,100 ) — — 204,268 229,639 136,470 (1,033 ) (1,052 ) (1,026 ) $ 203,235 $ 228,587 $ 135,444 $ 22.65 $ 24.10 $ 14.34 (1.27 ) — — $ 21.38 $ 24.10 $ 14.34 $ 22.61 $ 24.06 $ 14.32 (1.27 ) — — $ 21.34 $ 24.06 $ 14.32 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal year ended December 29, December 30, December 31, (in thousands) 2002 2001 2000 $ 204,268 $ 229,639 $ 136,470 Foreign currency translation adjustments 2,167 (3,104 ) (1,685 ) Change in net unrealized gain on available-for-sale securities 829 14,528 13,527 Less reclassification adjustment for realized (gains)
losses included in net income(11,209 ) 3,238 (197 ) (8,213 ) 14,662 11,645 Income tax benefit (expense) related to other
comprehensive income (loss)4,012 (6,987 ) (5,097 ) (4,201 ) 7,675 6,548 $ 200,067 $ 237,314 $ 143,018 The information on pages 44 through 56 is an integral part of the financial statements. CONSOLIDATED BALANCE SHEETS
December 29, December 30, (in thousands) 2002 2001 Cash and cash equivalents $ 28,771 $ 31,480 Investments in marketable equity securities 1,753 16,366 Accounts receivable, net 285,374 279,328 Federal and state income taxes — 10,253 Inventories 27,629 19,042 Other current assets 39,428 40,388 382,955 396,857 Buildings 283,233 267,658 Machinery, equipment and fixtures 1,551,931 1,422,228 Leasehold improvements 85,720 79,108 1,920,884 1,768,994 Less accumulated depreciation (926,385 ) (794,596 ) 994,499 974,398 Land 34,530 34,733 Construction in progress 65,371 89,080 1,094,400 1,098,211 214,780 219,039 70,703 80,936 less accumulated amortization of
$463,580 and $443,9251,255,433 1,206,761 493,786 447,688 71,837 109,606 $ 3,583,894 $ 3,559,098 The information on pages 44 through 56 is an integral part of the financial statements.
December 29, December 30, (in thousands, except share amounts) 2002 2001 Accounts payable and accrued liabilities $ 336,582 $ 253,346 Deferred revenue 135,419 130,744 Federal and state income taxes 4,853 — Short-term borrowings 259,258 50,000 736,112 434,090 136,393 130,824 194,480 192,540 261,153 221,949 405,547 883,078 1,733,685 1,862,481 12,916 13,132 — — Common stock Class A common stock, $1 par value; 7,000,000 shares authorized; 1,722,250 shares issued and outstanding 1,722 1,722 Class B common stock, $1 par value; 40,000,000 shares authorized; 18,277,750 shares issued; 7,788,543 and 7,772,616 shares outstanding 18,278 18,278 Capital in excess of par value 149,090 142,814 Retained earnings 3,179,607 3,029,595 Accumulated other comprehensive income (loss), net of taxes Cumulative foreign currency translation adjustment (7,511 ) (9,678 ) Unrealized gain on available-for-sale securities 17,913 24,281 Cost of 10,489,207 and 10,505,134 shares of Class B common stock held in treasury (1,521,806 ) (1,523,527 ) 1,837,293 1,683,485 $ 3,583,894 $ 3,559,098 The information on pages 44 through 56 is an integral part of the financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended December 29, December 30, December 31, (in thousands) 2002 2001 2000 Net income $ 204,268 $ 229,639 $ 136,470 Adjustments to reconcile net income to net
cash provided by operating activities:Cumulative effect of change in accounting principle 12,100 — — Depreciation of property, plant and equipment 171,908 138,300 117,948 Amortization of goodwill and other intangibles 655 78,933 62,634 Net pension benefit (64,447 ) (76,945 ) (65,312 ) Early retirement program expense 19,001 3,344 29,049 Gain from sale or exchange of businesses (27,844 ) (321,091 ) — (Gain) loss on disposition of marketable equity
securities and cost method investments, net(13,209 ) 511 (11,588 ) Cost method investment and other write-downs 21,194 36,672 23,097 Equity in losses of affiliates, net of distributions 20,018 69,359 37,406 Provision for deferred income taxes 50,115 97,302 (7,743 ) Change in assets and liabilities: (Increase) decrease in accounts receivable, net (1,116 ) 28,803 (44,413 ) Increase in inventories (11,142 ) (3,390 ) (1,265 ) Increase in accounts payable and accrued liabilities 73,653 24,756 22,192 Decrease in income taxes receivable 15,106 1,591 36,227 Decrease in other assets and other liabilities, net 21,360 38,294 23,141 Other 5,846 2,752 10,701 Net cash provided by operating activities 497,466 348,830 368,544 Investments in certain businesses (36,016 ) (104,356 ) (212,274 ) Net proceeds from sale of businesses — 61,921 1,650 Purchases of property, plant and equipment (152,992 ) (224,227 ) (172,383 ) Purchases of cost method investments (250 ) (11,675 ) (42,459 ) Investments in affiliates (7,610 ) (21,112 ) (12,430 ) Proceeds from sale of marketable equity securities 19,701 145 6,332 Other 1,484 1,477 8,036 Net cash used in investing activities (175,683 ) (297,827 ) (423,528 ) (Repayment) issuance of commercial paper, net (276,189 ) 10,072 35,071 Dividends paid (54,256 ) (54,166 ) (52,024 ) Common shares repurchased (786 ) (445 ) (96 ) Proceeds from exercise of stock options 6,739 4,671 7,056 Other — — 9,843 Net cash used in financing activities (324,492 ) (39,868 ) (150 ) (2,709 ) 11,135 (55,134 ) 31,480 20,345 75,479 $ 28,771 $ 31,480 $ 20,345 Cash paid during the year for: Income taxes $ 68,900 $ 52,600 $ 95,000 Interest, net of amounts capitalized $ 30,600 $ 48,000 $ 52,700 The information on pages
3744 through4956 is an integral part of the financial statements.3234 Consolidated Balance Sheets
December 31, January 2, (in thousands) 2000 2000 - ---------------------------------------------------------------------------------------------ASSETS CURRENT ASSETS Cash and cash equivalents .......................... $ 20,345 $ 75,479 Investments in marketable equity securities ........ 10,948 37,228 Accounts receivable, net ........................... 306,016 270,264 Federal and state income taxes ..................... 12,370 48,597 Inventories ........................................ 15,178 13,890 Other current assets ............................... 40,210 30,701 ------------------------------ 405,067 476,159 PROPERTY, PLANT, AND EQUIPMENT Buildings .......................................... 263,311 249,957 Machinery, equipment, and fixtures ................. 1,217,282 1,081,787 Leasehold improvements ............................. 70,706 53,048 ------------------------------ 1,551,299 1,384,792 Less accumulated depreciation ...................... (736,781) (626,899) ------------------------------ 814,518 757,893 Land ............................................... 38,000 37,301 Construction in progress ........................... 74,543 59,712 ------------------------------ 927,061 854,906 INVESTMENTS IN MARKETABLE EQUITY SECURITIES ........... 210,189 165,784 INVESTMENTS IN AFFILIATES ............................. 131,629 140,669 GOODWILL AND OTHER INTANGIBLES, less accumulated amortization of $404,513 and $341,879 .............. 1,007,720 886,060 PREPAID PENSION COST .................................. 374,084 337,818 DEFERRED CHARGES AND OTHER ASSETS ..................... 144,993 125,548 ------------------------------ $ 3,200,743 $ 2,986,944 ==============================The information on pages 37 through 49 is an integral part of the financial statements. 3335
December 31, January 2, (in thousands, except share amounts) 2000 2000 - ----------------------------------------------------------------------------------------------------------------------------------LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities ................................................... $ 273,076 $ 254,105 Deferred subscription revenue .............................................................. 85,721 80,766 Short-term borrowings ...................................................................... 50,000 487,677 ------------------------------ 408,797 822,548 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS ................................................... 128,764 124,291 OTHER LIABILITIES ............................................................................. 178,029 148,819 DEFERRED INCOME TAXES ......................................................................... 117,731 114,003 LONG-TERM DEBT ................................................................................ 873,267 397,620 ------------------------------ 1,706,588 1,607,281 ------------------------------ COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED STOCK, Series A, $1 par value, with a redemption and liquidation value of $1,000 per share; 23,000 shares authorized; 13,148 and 11,873 shares issued and outstanding ............................................ 13,148 11,873 PREFERRED STOCK, $1 par value; 977,000 shares authorized; none issued ......................... -- -- ------------------------------ COMMON SHAREHOLDERS' EQUITY Common stock Class A common stock, $1 par value; 7,000,000 shares authorized; 1,739,250 shares issued and outstanding .................................. 1,739 1,739 Class B common stock, $1 par value; 40,000,000 shares authorized; 18,260,750 shares issued; 7,721,225 and 7,700,146 shares outstanding ..... 18,261 18,261 Capital in excess of par value ............................................................. 128,159 108,867 Retained earnings .......................................................................... 2,854,122 2,769,676 Accumulated other comprehensive income (loss), net of taxes Cumulative foreign currency translation adjustment ...................................... (6,574) (4,889) Unrealized gain on available-for-sale securities ........................................ 13,502 5,269 Cost of 10,539,525 and 10,560,604 shares of Class B common stock held in treasury .......... (1,528,202) (1,531,133) ------------------------------ 1,481,007 1,367,790 ------------------------------ $ 3,200,743 $ 2,986,944 ==============================The information on pages 37 through 49 is an integral part of the financial statements. 3436 Consolidated Statements of Cash Flows
Fiscal year ended ---------------------------------------------- December 31, January 2, January 3, (in thousands) 2000 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................... $ 136,470 $ 225,785 $ 417,259 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant, and equipment ........................ 117,948 104,235 89,248 Amortization of goodwill and other intangibles ........................ 62,634 58,563 49,889 Net pension benefit ................................................... (61,719) (81,683) (61,997) Early retirement program expense ...................................... 25,456 -- -- Gain from disposition of businesses, marketable equity securities, and cost method investment, net ........................ (11,588) (38,799) (314,400) Cost method investment write-downs .................................... 23,097 13,555 -- Equity in losses of affiliates, net of distributions .................. 37,406 9,744 9,145 Provision for deferred income taxes ................................... (7,743) 29,988 26,987 Change in assets and liabilities: (Increase) decrease in accounts receivable, net .................... (44,413) (28,194) 22,041 (Increase) decrease in inventories ................................. (1,265) 6,264 (941) Increase (decrease) in accounts payable and accrued liabilities .... 22,192 (7,749) 13,949 Decrease (increase) in income taxes receivable ..................... 36,227 (2,909) (50,735) Increase in other assets and other liabilities, net ................ 23,141 3,314 12,241 Other ................................................................. 10,701 (1,521) 10,427 --------------------------------------------- Net cash provided by operating activities .......................... 368,544 290,593 223,113 --------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in certain businesses ........................................ (212,274) (90,455) (320,597) Net proceeds from sale of businesses ..................................... 1,650 2,000 376,442 Purchases of property, plant, and equipment .............................. (172,383) (130,045) (244,219) Purchases of marketable equity securities ................................ -- (23,332) (164,955) Purchases of cost method investments ..................................... (42,459) (33,549) -- Proceeds from sale of marketable equity securities ....................... 6,332 54,805 38,246 Other .................................................................... (4,394) 12,605 (5,960) --------------------------------------------- Net cash used in investing activities .............................. (423,528) (207,971) (321,043) --------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of commercial paper, net ........................................ 35,071 34,087 156,968 Issuance of notes ........................................................ -- 397,620 -- Dividends paid ........................................................... (52,024) (53,326) (51,383) Common shares repurchased ................................................ (96) (425,865) (20,512) Proceeds from exercise of stock options .................................. 7,056 25,151 7,004 Other .................................................................... 9,843 -- (74) --------------------------------------------- Net cash (used in) provided by financing activities ................ (150) (22,333) 92,003 --------------------------------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........................ (55,134) 60,289 (5,927) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............................. 75,479 15,190 21,117 --------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR .................................... $ 20,345 $ 75,479 $ 15,190 ============================================= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Income taxes .......................................................... $ 95,000 $ 125,000 $ 280,000 Interest, net of amounts capitalized .................................. $ 52,700 $ 16,000 $ 8,700The information on pages 37 through 49 is an integral part of the financial statements. 3537 Consolidated Statements of Changes in Common Shareholders' Equity
Class A Class B Capital in Common Common Excess of Retained Stock Stock Par Value Earnings - -----------------------------------------------------------------------------------------------------------------------------------BALANCE, DECEMBER 28, 1997 .............................. $ 1,739 $ 18,261 $ 33,415 $ 2,231,341 Net income for the year .............................. 417,259 Dividends paid on common stock-$5.00 per share ....... (50,427) Dividends paid on redeemable preferred stock ......... (956) Repurchase of 41,033 shares of Class B common stock ...................................... Issuance of 45,065 shares of Class B common stock, net of restricted stock award forfeitures ......... 9,772 Change in foreign currency translation adjustment (net of taxes) ......................... Change in unrealized gain on available-for-sale securities (net of taxes) ......................... Tax benefits arising from employee stock plans ....... 3,012 ------------------------------------------------------------------- BALANCE, JANUARY 3, 1999 ................................ 1,739 18,261 46,199 2,597,217 Net income for the year .............................. 225,785 Dividends paid on common stock-$5.20 per share ....... (52,376) Dividends paid on redeemable preferred stock ......... (950) Repurchase of 744,095 shares of Class B common stock ..................................... Issuance of 90,247 shares of Class B common stock, net of restricted stock award forfeitures ......... 16,023 Change in foreign currency translation adjustment (net of taxes) ......................... Change in unrealized gain on available-for-sale securities (net of taxes) ......................... Issuance of subsidiary stock (net of taxes) .......... 34,571 Tax benefits arising from employee stock plans ....... 12,074 ------------------------------------------------------------------- BALANCE, JANUARY 2, 2000 ................................ 1,739 18,261 108,867 2,769,676 Net income for the year .............................. 136,470 Dividends paid on common stock-$5.40 per share ....... (50,998) Dividends paid on redeemable preferred stock ......... (1,026) Repurchase of 200 shares of Class B common stock ...................................... Issuance of 21,279 shares of Class B common stock, net of restricted stock award forfeitures ......... 4,433 Change in foreign currency translation adjustment (net of taxes) ......................... Change in unrealized gain on available-for-sale securities (net of taxes) ......................... Issuance of affiliate stock (net of taxes) ........... 13,332 Tax benefits arising from employee stock plans ....... 1,527 ------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 .............................. $ 1,739 $ 18,261 $ 128,159 $ 2,854,122 ===================================================================Cumulative Unrealized Foreign Gain on Currency Available- Translation for-Sale Treasury Adjustment Securities Stock - ----------------------------------------------------------------------------------------------------------------------BALANCE, DECEMBER 28, 1997 .............................. $ (464) $ 31 $(1,100,249) Net income for the year .............................. Dividends paid on common stock-$5.00 per share ....... Dividends paid on redeemable preferred stock ......... Repurchase of 41,033 shares of Class B common stock ...................................... (20,512) Issuance of 45,065 shares of Class B common stock, net of restricted stock award forfeitures ......... 5,068 Change in foreign currency translation adjustment (net of taxes) ......................... (1,136) Change in unrealized gain on available-for-sale securities (net of taxes) ......................... 41,949 Tax benefits arising from employee stock plans ....... ------------------------------------------------------ BALANCE, JANUARY 3, 1999 ................................ (1,600) 41,980 (1,115,693) Net income for the year .............................. Dividends paid on common stock-$5.20 per share ....... Dividends paid on redeemable preferred stock ......... Repurchase of 744,095 shares of Class B common stock ..................................... (425,865) Issuance of 90,247 shares of Class B common stock, net of restricted stock award forfeitures ......... 10,425 Change in foreign currency translation adjustment (net of taxes) ......................... (3,289) Change in unrealized gain on available-for-sale securities (net of taxes) ......................... (36,711) Issuance of subsidiary stock (net of taxes) .......... Tax benefits arising from employee stock plans ....... ------------------------------------------------------ BALANCE, JANUARY 2, 2000 ................................ (4,889) 5,269 (1,531,133) Net income for the year .............................. Dividends paid on common stock-$5.40 per share ....... Dividends paid on redeemable preferred stock ......... Repurchase of 200 shares of Class B common stock ...................................... (96) Issuance of 21,279 shares of Class B common stock, net of restricted stock award forfeitures ......... 3,027 Change in foreign currency translation adjustment (net of taxes) ......................... (1,685) Change in unrealized gain on available-for-sale securities (net of taxes) ......................... 8,233 Issuance of affiliate stock (net of taxes) ........... Tax benefits arising from employee stock plans ....... ------------------------------------------------------ BALANCE, DECEMBER 31, 2000 .............................. $ (6,574) $ 13,502 $(1,528,202) ======================================================The information on pages 37 through 49 is an integral part of the financial statements. 3638 Notes to Consolidated Financial Statements | A |42CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS’ EQUITY
Cumulative Unrealized Foreign Gain on Class A Class B Capital in Currency Available- Common Common Excess of Retained Translation for-Sale Treasury (in thousands) Stock Stock Par Value Earnings Adjustment Securities Stock $ 1,739 $ 18,261 $ 108,867 $ 2,769,676 $ (4,889 ) $ 5,269 $ (1,531,133 ) Net income for the year 136,470 Dividends paid on common stock — $5.40 per share (50,998 ) Dividends paid on redeemable preferred stock (1,026 ) Repurchase of 200 shares of Class B common stock (96 ) Issuance of 21,279 shares of Class B common stock, net of restricted stock award forfeitures 4,433 3,027 Change in foreign currency translation adjustment (net of taxes) (1,685 ) Change in unrealized gain on available-for-sale securities (net of taxes) 8,233 Issuance of subsidiary stock (net of taxes) 13,332 Tax benefits arising from employee stock plans 1,527 1,739 18,261 128,159 2,854,122 (6,574 ) 13,502 (1,528,202 ) Net income for the year 229,639 Dividends paid on common stock — $5.60 per share (53,114 ) Dividends paid on redeemable preferred stock (1,052 ) Repurchase of 714 shares of Class B common stock (445 ) Issuance of 35,105 shares of Class B common stock, net of restricted stock award forfeitures 10,639 5,120 Change in foreign currency translation adjustment (net of taxes) (3,104 ) Change in unrealized gain on available-for-sale securities (net of taxes) 10,779 Conversion of Class A common stock to Class B common stock (17 ) 17 Tax benefits arising from employee stock plans 4,016 1,722 18,278 142,814 3,029,595 (9,678 ) 24,281 (1,523,527 ) Net income for the year 204,268 Dividends paid on common stock — $5.60 per share (53,223 ) Dividends paid on redeemable preferred stock (1,033 ) Repurchase of 1,229 shares of Class B common stock (786 ) Issuance of 17,156 shares of Class B common stock, net of restricted stock award forfeitures 4,440 2,507 Change in foreign currency translation adjustment (net of taxes) 2,167 Change in unrealized gain on available-for-sale securities (net of taxes) (6,368 ) Stock option expense 45 Tax benefits arising from employee stock plans 1,791 $ 1,722 $ 18,278 $ 149,090 $ 3,179,607 $ (7,511 ) $ 17,913 $ (1,521,806 ) The information on pages 44 through 56 is an integral part of the financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Washington Post Company (the "Company") is a diversified media organization whose principal operations consist of newspaper publishing (primarily The Washington Post newspaper), television broadcasting (through the ownership and operation of six network-affiliated television stations), the ownership and operation of cable television systems, and magazine publishing (primarily Newsweek magazine). Through its subsidiary Kaplan, Inc., the Company provides educational services for individuals, schools and businesses. The Company also owns and operates a number of media Web sites for the primary purpose of developing the Company's newspaper and magazine publishing businesses on the World Wide Web. FISCAL YEAR.Fiscal Year.The Company reports on a 52-53 week fiscal year ending on the Sunday nearest December 31. The fiscal years
20002002, 2001 and1999,2000, which ended on December 29, 2002, December 30, 2001, and December 31, 2000,and January 2, 2000,respectively,bothincluded 52weeks, while 1998, which ended on January 3, 1999, included 53weeks. With the exception of the newspaper publishing operations, subsidiaries of the Company report on a calendar-year basis.PRINCIPLES OF CONSOLIDATION.Principles of Consolidation.The accompanying financial statements include the accounts of the Company and its subsidiaries; significant intercompany transactions have been eliminated.
PRESENTATION.Presentation.Certain amounts in previously issued financial statements have been reclassified to conform
towith the20002002 presentation.USE OF ESTIMATES.Use of Estimates.The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.
CASH EQUIVALENTS.Cash Equivalents.Short-term investments with original maturities of 90 days or less are considered cash equivalents.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES.Investments in Marketable Equity Securities.The
Company'sCompany’s investments in marketable equity securities are classified as available-for-sale and therefore are recorded at fair value in the Consolidated Balance Sheets, with the change in fair value during the period excluded from earnings and recorded net of tax as a separate component of comprehensive income.INVENTORIES.Marketable equity securities that the Company expects to hold long term are classified as non-current assets.Inventories.Inventories are valued at the lower of cost or market. Cost of newsprint is determined by the first-in, first-out method, and cost of magazine paper is determined by the specific-cost method.
PROPERTY, PLANT, AND EQUIPMENT.Property, Plant and Equipment.Property, plant and equipment is recorded at cost and includes interest capitalized in connection with major long-term construction projects. Replacements and major improvements are capitalized; maintenance and repairs are charged to operations as incurred.
Depreciation is calculated using the straight-line method over the estimated useful lives of the property, plant and equipment: 3 to 20 years for machinery and equipment, and 20 to 50 years for buildings. The costs of leasehold improvements are amortized over the lesser of the useful lives or the terms of the respective leases.
INVESTMENTS IN AFFILIATES.Investments in Affiliates.The Company uses the equity method of accounting for its investments in and earnings or losses of affiliates
for whichthat it does not control but over which it does exert significant influence.COST METHOD INVESTMENTS.Cost Method Investments.The Company uses the cost method of accounting for its minority investments in non-public companies where it does not have significant influence over the operations and management of the investee. Investments are recorded at the lower of cost or fair value as estimated by management.
GOODWILL AND OTHER INTANGIBLES.Charges recorded to write-down cost method investments to their estimated fair value and gross realized gains or losses upon the sale of cost method investments are included in “Other income (expense), net” in the Consolidated Statements of Income.Goodwill and Other Intangibles.Prior to 2002, goodwill and other intangibles
represent the unamortized excess of the cost of acquiring subsidiary companies over the fair values of such companies' net tangible assets at the dates of acquisition. Goodwill and other intangibles are beingwere amortized by use of the straight-line method over periods ranging from 15 to 40 years (with the majority being amortized over 15 to 25 years).LONG-LIVED ASSETS.In 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets.” As a result of the adoption of SFAS 142, goodwill and indefinite-lived intangibles are no longer amortized, but are reviewed at least annually for impairment. All other intangible assets are amortized over their useful lives.Long-Lived Assets.The recoverability of long-lived assets
including goodwill and other intangibles,is assessed whenever adverse events and changes in circumstances indicate that previously anticipated undiscounted cash flows warrant assessment.PROGRAM RIGHTS.Program Rights.The broadcast subsidiaries are parties to agreements that entitle them to show syndicated and other programs on television. The
costcosts of such program rightsisare recorded when the programs are available for broadcasting, and such costs are charged to operations as the programming is aired.REVENUE RECOGNITION.Revenue Recognition.Revenue from media advertising is recognized, net of agency commissions, when the underlying advertisement is published or broadcast.
RevenueRevenues from newspaper and magazine subscriptions are recognized upon delivery. Revenues from newspaper retail sales are recognized upon delivery, and revenues from magazine retail sales are recognizeduponon the later of delivery or cover date, with adequate provision made for anticipated sales returns. Cable subscriber revenue is recognized monthly asearned.services are delivered. Education revenue is recognized ratably over the period during which educational services are delivered. For example, at Kaplan’s test preparation division, estimates of average student course length are developed for each course and these estimates are evaluated on an ongoing basis and adjusted as necessary.The Company bases its estimates for sales returns on historical experience and has not experienced significant fluctuations between estimated and actual return activity. Amounts received from customers in advance of revenue recognition are deferred as liabilities. Deferred revenue to be earned after one year is included in
"Other Liabilities"“Other Liabilities” in the Consolidated Balance Sheets.POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.Postretirement Benefits Other Than Pensions.The Company provides
certain healthcarehealth care and life insurance benefits for certain44retired employees.3739The expected cost of providing these postretirement benefits is accrued over the years that employees render services.INCOME TAXES.Income Taxes.The provision for income taxes is determined using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities.
FOREIGN CURRENCY TRANSLATION.Foreign Currency Translation.Gains and losses on foreign currency transactions and the translation of the accounts of the
Company'sCompany’s foreign operations where the U.S. dollar is the functional currency are recognized currently in the Consolidated Statements of Income. Gains and losses on translation of the accounts of theCompany'sCompany’s foreign operations, where the local currency is the functional currency, and theCompany'sCompany’s equity investments in its foreign affiliates are accumulated and reported as a separate component of equity and comprehensive income.STOCK-BASED COMPENSATION. TheStock Options.Effective the first day of the Company’s 2002 fiscal year, the Company
accountsadopted the fair-value-based method of accounting forstock-based compensation usingCompany stock options as outlined in Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation.” This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal year 2002 will continue to be accounted for under the intrinsic value methodprescribed byunder Accounting Principles Board Opinion No. 25,"Accounting“Accounting for Stock Issued to Employees." Pro forma disclosures”Sale of
net income and earnings per share as if the fair-value based method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" had been applied in measuring compensation expense are provided in Note G. SALE OF SUBSIDIARY/AFFILIATE SECURITIES.Subsidiary/Affiliate Securities.TheCompany's policy is to recordCompany records investment basis gains arising from the sale of equity interests in subsidiaries and affiliates that are in the early stages ofbuilding their operationsdevelopment asadditional paid-incapital in excess of par value, net of taxes.NEW ACCOUNTING PRONOUNCEMENTS. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements ('SAB 101')." This bulletin summarized certain of the SEC's views regarding the application of generally accepted accounting principles to revenue recognition in financial statements. SAB 101 did not have a material impact on the Company's financial statements. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal year 2001. This statement establishes accounting and reporting standards for derivative instruments and hedging activities and requires companies to recognize derivative instruments as either an asset or liability on the balance sheet at fair value. This statement did not have a material impact on the Company's financial statements as the Company does not engage in significant derivative or hedging activities. | B | ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
B. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts receivable at December
31, 200029, 2002 andJanuary 2, 2000December 30, 2001 consist of the following (in thousands):
2000 1999 - ----------------------------------------------------------------------------Trade accounts receivable, less estimated returns, doubtful accounts and allowances of $65,198 and $60,621 ......... $277,788 $248,279 Other accounts receivable ................... 28,228 21,985 ----------------------- $306,016 $270,264 =======================
2002 2001 Trade accounts receivable,
less estimated returns, doubtful
accounts and allowances of
$65,396 and $73,248$ 266,319 $ 261,898 Other accounts receivable 19,055 17,430 $ 285,374 $ 279,328 Accounts payable and accrued liabilities at December
31, 200029, 2002 andJanuary 2, 2000December 30, 2001 consist of the following (in thousands):
2000 1999 - ---------------------------------------------------------------------------Accounts payable and accrued expenses ....... $163,197 $158,197 Accrued payroll and related benefits ........ 66,169 58,420 Deferred tuition revenue .................... 36,414 28,060 Due to affiliates (newsprint) ............... 7,296 9,428 ----------------------- $273,076 $254,105 =======================| C |
2002 2001 Accounts payable and accrued expenses $ 175,174 $ 158,744 Accrued compensation and related benefits 154,666 89,061 Due to affiliates (newsprint) 6,742 5,541 $ 336,582 $ 253,346 C. INVESTMENTS
INVESTMENTS IN MARKETABLE EQUITY SECURITIES.Investments in Marketable Equity Securities.Investments in marketable equity securities at December
31, 200029, 2002 andJanuary 2, 2000December 30, 2001 consist of the following (in thousands):
2000 1999 - -------------------------------------------------------Total cost .............. $199,159 $194,364 Net unrealized gains .... 21,978 8,648 ----------------------- Total fair value ........ $221,137 $203,012 =======================
2002 2001 Total cost $ 187,169 $ 195,661 Net unrealized gains 29,364 39,744 Total fair value $ 216,533 $ 235,405 At December
31, 2000,29, 2002 and December 30, 2001, theCompany'sCompany’s ownership of 2,634 shares of Berkshire Hathaway Inc.("Berkshire"(“Berkshire”) Class A common stock and 9,845 shares of Berkshire Class B common stock accounted for$210,189,000$214.8 million or9599 percent and $219.0 million or 93 percent, respectively, of the total fair value of theCompany'sCompany’s investments in marketable equity securities. The remaining investments in marketable equity securities at December31, 2000 consist29, 2002 and December 30, 2001 consisted of common stock investments in various publicly traded companies, most of which have concentrations in Internet business activities. In most cases, the Company obtained ownership of these common stocks as a result of merger or acquisition transactions in which these companies merged or acquired various small Internet-related companies in which the Company held minor investments.Berkshire is a holding company owning subsidiaries engaged in a number of diverse business
activities;activities, the most significant of which consist of property and casualty insurance business conducted on both a direct and reinsurance basis. Berkshire also owns approximately 18 percent of the common stock of the Company. The chairman, chief executive officer and largest shareholder of Berkshire,3840Mr. Warren Buffett, is a member of theCompany'sCompany’s Board of Directors. Neither Berkshire nor Mr. Buffett participated in theCompany'sCompany’s evaluation, approval or execution of its decision to invest in Berkshire common stock. TheCompany'sCompany’s investment in Berkshire common stock is less than 1 percent of the consolidated equity of Berkshire. At December31, 2000,29, 2002 and December 30, 2001, the unrealized gain related to theCompany'sCompany’s Berkshire stock investment totaled$25,271,000; the unrealized loss on this investment was $19,134,000 at January 2, 2000.$29.9 million and $34.1 million, respectively. The Company presently intends to hold the Berkshire common stock investment longterm;term, thus the investment has been classified as a non-current asset in the Consolidated Balance Sheets.45During
2000, 1999,2002, 2001 and19982000, proceeds from sales of marketable equity securities were$6,332,000, $54,805,000,$19.7 million, $0.1 million and$38,246,000,$6.3 million, respectively, and gross realized gains (losses) on such sales were$4,929,000, $38,799,000,$13.2 million, ($0.3 million) and$2,168,000,$4.9 million, respectively.Gross realizedDuring 2002 and 2001, the Company recorded write-downs on marketable equity securities of $2.0 million and $3.0 million, respectively. Realized gains or lossesupon the sale ofon marketable equity securities are included in"Other“Other income (expense)income, net", net” in the Consolidated Statements of Income. For purposes of computing realized gains and losses, the cost basis of securities sold is determined by specific identification.INVESTMENTS IN AFFILIATES.Investments in Affiliates.The
Company'sCompany’s investments in affiliates at December31, 200029, 2002 andJanuary 2, 2000December 30, 2001 include the following (in thousands):
2000 1999 - -------------------------------------------------------------------BrassRing, Inc. ................... $ 73,310 $ 75,842 Bowater Mersey Paper Company ...... 40,227 39,885 International Herald Tribune ...... 17,561 19,890 Other ............................. 531 5,052 ------------------------- $ 131,629 $ 140,669 =========================The Company's
2002 2001 BrassRing $ 13,658 $ 19,992 Bowater Mersey Paper Company 42,519 45,822 International Herald Tribune 13,776 14,480 Other 750 642 $ 70,703 $ 80,936 At the end of 2002, the Company’s investments in affiliates
consistconsisted of a4249.4 percent interest in BrassRingInc.,LLC, which provides recruiting, career development and hiring management services for employers and job candidates; a 49 percent interest in the common stock of Bowater Mersey Paper Company Limited, which owns and operates a newsprint mill in Nova Scotia; a 50 percentcommon stockinterest in the International Herald Tribune newspaper, published near Paris, France; and a 50 percent common stock interest in the Los Angeles Times-Washington Post News Service, Inc.Summarized financial data for the
affiliates'affiliates’ operations are as follows (in thousands):
2000 1999 1998 - --------------------------------------------------------------------------------------Financial Position: Working capital .................. $ 29,427 $ 69,155 $ 34,628 Property, plant, and equipment ... 143,749 133,425 125,025 Total assets ..................... 432,458 365,694 252,231 Long-term debt ................... -- -- -- Net equity ....................... 291,481 236,597 122,267 Results of Operations: Operating revenue ................ $ 345,913 $ 267,788 $ 279,779 Operating (loss) income .......... (27,505) (37,889) 10,978 Net loss ......................... (77,739) (40,035) (63)
2002 2001 2000 Working capital $ 10,366 $ (8,767 ) $ 29,427 Property, plant and equipment 135,013 126,682 143,749 Total assets 235,208 246,321 432,458 Long-term debt — — — Net equity 138,723 125,211 291,481 Operating revenues $ 263,709 $ 317,389 $ 345,913 Operating loss (21,725 ) (14,793 ) (27,505 ) Net loss (36,326 ) (157,409 ) (77,739 ) The following table summarizes the status and results of the
Company'sCompany’s investments in affiliates (in thousands):
2000 1999 - --------------------------------------------------------------------------Beginning investment ................... $ 140,669 $ 68,530 Issuance of stock by BrassRing, Inc. ... 21,973 83,493 Additional investment .................. 12,480 8,734 Equity in losses ....................... (36,466) (8,814) Dividends and distributions received ... (940) (930) Foreign currency translation ........... (1,685) (3,289) Other .................................. (4,402) (7,055) -------------------------- Ending investment ...................... $ 131,629 $ 140,669 ==========================On September 29, 1999, the Company merged its career fair and HireSystems businesses together and renamed the combined operations BrassRing, Inc. On the same date, BrassRing issued stock representing a 46 percent equity interest to two parties under two separate transactions for cash and businesses with an aggregate fair value of $87,000,000. As a result of this transaction, the Company's ownership of BrassRing was reduced to 54 percent and the minority investors were granted certain participatory rights. As such, the Company de-consolidated BrassRing on September 29, 1999 and recorded its investment under the equity method of accounting. The 1999 increase in the basis of the Company's investment in BrassRing resulting from this transaction of $34,571,000, net of taxes, has been recorded as contributed capital.
2002 2001 Beginning investment $ 80,936 $ 131,629 Additional investment 7,610 21,112 Equity in losses (19,308 ) (68,659 ) Dividends and distributions received (710 ) (700 ) Foreign currency translation 2,175 (3,122 ) Other — 676 Ending investment $ 70,703 $ 80,936 During 2000, BrassRing issued stock to various parties in connection with its acquisitions of various career fair and recruiting services companies. The effect of these transactions reduced the
Company'sCompany’s investment interest in BrassRing to 42 percent, from 54 percent at January 2, 2000, and increased theCompany'sCompany’s investment basis in BrassRing by$13,332,000,$13.3 million, net of taxes. The increase in investment basishas beenwas recorded as contributed capital.3941 COST METHOD INVESTMENTS. The Company's cost method investments consist of minority investmentsIn December 2001, BrassRing, Inc. was restructured and the Company’s interest in
non-public companies whereBrassRing, Inc. was converted into an interest in the newly-formed BrassRing LLC. At December 30, 2001, the Companydoesheld a 39.7 percent interest in the BrassRing LLC common equity and a $14.9 million Subordinated Convertible Promissory Note (“Note”) from BrassRing LLC. In February 2002, the Note was converted into Preferred Units, which are convertible at the Company’s option to BrassRing LLC common equity. Assuming the conversion of the Preferred Units, the Company’s common equity interest in BrassRing LLC would have been approximately 49.5 percent.BrassRing accounted for approximately $13.9 million of the 2002 equity in losses of affiliates, compared to $75.1 million in 2001. The decrease from 2001 equity in affiliate losses from BrassRing is largely due to a non-cash goodwill and other intangibles impairment charge that BrassRing recorded in 2001 primarily to reduce the carrying value of its career fair business. As a substantial portion of BrassRing’s losses arose from goodwill and intangible amortization expense for 2001, the $75.1 million of equity in affiliate losses recorded by the Company in 2001 did not
haverequire significantinfluence overfunding by theinvestees' operating and management decisions.Company.On January 1, 2003, the Company sold its 50 percent interest in The International Herald Tribune newspaper for $65 million; the Company will report an after-tax non-operating gain of approximately $32 million in the first quarter of 2003.
Cost Method Investments.Most of the companies represented by
thesethe Company’s cost method investments have concentrations in Internet-related business activities. At December31, 200029, 2002 andJanuary 2, 2000,December 30, 2001, the carrying value of theCompany'sCompany’s cost method investments was$48,617,000$9.5 million and$30,009,000,$29.6 million, respectively. Cost method investments are included inDeferred“Deferred Charges and OtherAssetsAssets” in the Consolidated Balance Sheets.46During
20002002, 2001 and1999,2000, the Company invested$42,459,000$0.3 million, $11.7 million and$33,549,000,$42.5 million, respectively, in companies constituting cost method investments and recorded charges of$23,097,000$19.2 million, $29.4 million and$13,555,000,$23.1 million, respectively, to write-down cost method investments to estimated fair value.The company made no significant investments in cost method investments during 1998.Charges recorded to write-down cost method investments are included in"Other“Other income (expense)income, net", net” in the Consolidated Statements of Income.During 2002, 2001 and 2000, proceeds from sales of cost method investments were
$7,070,000,$1.2 million, $0.5 million and $7.1 million, respectively, and gross realized (losses) gains on such sales were$6,570,000. There were no sales of cost method investments in 1999 or 1998.$0, ($0.2 million) and $6.6 million, respectively. Gross realized gains or lossesuponon the sale of cost method investments are included in"Other“Other income (expense)income, net", net” in the Consolidated Statements of Income.| D | INCOME TAXES
D. INCOME TAXES The provision for income taxes consists of the following (in thousands):
Current Deferred - -----------------------------------------------------2000 U.S. Federal ....... $ 77,517 $ 4,854 Foreign ............ 1,033 75 State and local .... 22,593 (12,672) -------------------------- $ 101,143 $ (7,743) ========================== 1999 U.S. Federal ....... $ 94,609 $ 30,346 Foreign ............ 1,306 (22) State and local .... 23,697 (336) -------------------------- $ 119,612 $ 29,988 ========================== 1998 U.S. Federal ....... $ 200,898 $ 20,446 Foreign ............ 1,233 255 State and local .... 21,682 6,286 -------------------------- $ 223,813 $ 26,987 ==========================
Current Deferred Total U.S. Federal $ 75,654 $ 38,934 $ 114,588 Foreign 1,634 (499 ) 1,135 State and local 9,897 11,680 21,577 $ 87,185 $ 50,115 $ 137,300 U.S. Federal $ 48,253 $ 86,384 $ 134,637 Foreign 1,270 714 1,984 State and local 11,075 10,204 21,279 $ 60,598 $ 97,302 $ 157,900 U.S. Federal $ 77,517 $ 4,854 $ 82,371 Foreign 1,033 75 1,108 State and local 22,593 (12,672 ) 9,921 $ 101,143 $ (7,743 ) $ 93,400 In addition to the income tax provision presented above, in 2002, the Company recorded a federal and state income tax benefit of $6.9 million on the impairment loss recorded as a cumulative effect of change in accounting principle in connection with the adoption of SFAS 142.
The provision for income taxes exceeds the amount of income tax determined by applying the U.S. Federal statutory rate of 35 percent to income before taxes as a result of the following (in thousands):
2000 1999 1998 - ------------------------------------------------------------------------------------U.S. Federal statutory taxes ...... $ 80,455 $ 131,385 $ 233,821 State and local taxes, net of U.S. Federal income tax benefit .............. 6,449 15,185 18,179 Amortization of goodwill not deductible for income tax purposes ............. 5,011 4,178 5,644 IRS approved accounting change .......................... -- -- (3,550) Other, net ........................ 1,485 (1,148) (3,294) ------------------------------------------ Provision for income taxes ........ $ 93,400 $ 149,600 $ 250,800 ==========================================
2002 2001 2000 U.S. Federal statutory taxes $ 123,784 $ 135,639 $ 80,455 State and local taxes, net of U.S. Federal income tax benefit 14,025 13,832 6,449 Amortization of goodwill not deductible for income tax purposes — 6,988 5,011 Other, net (509 ) 1,441 1,485 Provision for income taxes $ 137,300 $ 157,900 $ 93,400 Deferred income taxes at December
31, 200029, 2002 andJanuary 2, 2000December 30, 2001 consist of the following (in thousands):
2000 1999 - ----------------------------------------------------------------------Accrued postretirement benefits ........ $ 55,280 $ 53,819 Other benefit obligations .............. 60,676 54,101 Accounts receivable .................... 17,296 14,016 State income tax loss carryforwards .... 12,013 4,767 Other .................................. 20,693 12,081 ----------------------- Deferred tax asset ..................... 165,958 138,784 ----------------------- Property, plant, and equipment ......... 90,391 77,907 Prepaid pension cost ................... 152,609 140,640 Affiliate operations ................... 18,365 21,741 Unrealized gain on available- for-sale securities .................. 8,476 3,379 Amortized goodwill ..................... 12,050 8,513 Other .................................. 1,798 607 ----------------------- Deferred tax liability ................. 283,689 252,787 ----------------------- Deferred income taxes .................. $117,731 $114,003 =======================| E |
2002 2001 Accrued postretirement benefits $ 58,874 $ 56,955 Other benefit obligations 94,280 73,080 Accounts receivable 16,252 15,949 State income tax loss carryforwards 13,693 17,218 Other 22,140 14,612 Deferred tax asset 205,239 177,814 Property, plant and equipment 135,520 110,763 Prepaid pension cost 200,315 181,434 Affiliate operations 180 (1,195 ) Unrealized gain on available-for-sale securities 11,463 15,475 Goodwill and other intangibles 118,914 93,286 Deferred tax liability 466,392 399,763 Deferred income taxes $ 261,153 $ 221,949 E. DEBT
At December
31, 2000,29, 2002, the Company had$923,267,000$664.8 million in total debt outstandingwhichat an average interest rate of 4.0 percent. Debt was comprised of$525,386,000 of$259.3 million in commercial paper borrowings,and $397,881,000$398.4 million of 5.5 percent unsecured notes due February 15,2009. At December 31, 2000, the Company has classified $475,386,000 of its commercial paper borrowings as Long-Term Debt2009, and $7.1 million inits Consolidated Balance Sheets as the Company has the ability and intent to finance such borrowings on a long-term basis under its credit agreements.other debt.Interest on the 5.5 percent unsecured notes is payable semi-annually on February 15 and August 15.
4042At December
31, 200029, 2002, andJanuary 2, 2000,December 30, 2001, the average interest rate on theCompany'sCompany’s outstanding commercial paper borrowings was6.61.6 percent and6.42.0 percent, respectively.The Company's commercial paper borrowings are supported by a five-year $500,000,000In the third quarter of 2002, the Company replaced its revolving credit facility agreements with a new five-year $350 million revolving credit facility, which expires in August 2007, and aone-year $250,000,000new 364-day $350 million revolving creditfacility.facility, which expires in August 2003. These revolving credit facility agreements support the issuance of the Company’s short-term commercial paper.Under the terms of the
$500,000,000five-year $350 million revolving credit facility, interest on borrowings is at floating rates, and depending on the Company’s long-term debt rating, the Company is required to pay an annualfacilityfee of0.0550.07 percent to 0.15 percent47on the unused portion of the facility, and0.150.25 percent to 0.75 percent on theunused andusedportionsportion of thefacility, respectively.facility. Under the terms of the$250,000,000$350 million 364-day revolving credit facility, interest on borrowings is at floating rates, and based on thecompanyCompany’s long-term debt rating, the Company is required to paya variable facilityan annual feeranging from 0.03of 0.05 percent to0.050.125 percentper annum,on theused andunused portion of the facility, and 0.25 percent to 0.75 percent on the used portion of the facility. Also under the terms of the $350 million 364-day revolving credit facility, the Company has the right to extend the term of any borrowings for up to one year from the credit facility’s maturity date for an additional fee of 0.125 percent. Both revolving credit facilities contain certain covenants, including a financial covenant that the Company maintain at least$850,000,000$1 billion of consolidatedshareholder'sshareholders’ equity.During 2002 and 2001, the Company had average borrowings outstanding of approximately $793.7 million and $965.8 million, respectively, at average annual interest rates of approximately 3.7 percent and 4.9 percent, respectively. The Company incurred net interest costs on its
borrowingborrowings of$52,700,000$33.5 million and$25,700,000$47.5 million during20002002 and1999, respectively, of which $1,800,000 was capitalized in 1999 in connection with the construction and upgrade of qualifying assets.2001, respectively. No interest expense was capitalized in2000.2002 or 2001.At December
31, 200029, 2002 andJanuary 2, 2000,December 30, 2001, the fair value of theCompany'sCompany’s 5.5 percent unsecured notes, based on quoted market prices, totaled$376,200,000$426.6 million and$353,920,000,$387.7 million, respectively, compared with the carrying amount of$397,881,000$398.4 million and$397,620,000,$398.1 million, respectively.The carrying value of the
Company'sCompany’s commercial paper borrowings and other unsecured debt at December31, 200029, 2002 andJanuary 2, 2000December 30, 2001 approximates fair value.| F | REDEEMABLE PREFERRED STOCK
F. REDEEMABLE PREFERRED STOCK In connection with the acquisition of a cable television system in 1996, the Company issued 11,947 shares of its Series A Preferred Stock. On February 23, 2000, the Company issued an additional 1,275 shares related to this transaction.
DuringFrom 1998the Company redeemed 74to 2002, 306 shares oftheSeries A Preferred Stock were redeemed at the request ofaSeries A PreferredStockholder.Stockholders.The Series A Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share; it is redeemable by the Company at any time on or after October 1, 2015 at a redemption price of $1,000 per share. In addition, the holders of such stock have a right to require the Company to purchase their shares at the redemption price during an annual 60-day election
period, withperiod; the first such periodbeginningbegan on February 23, 2001. Dividends on the Series A Preferred Stock are payable four times a year at the annual rate of $80.00 per share and in preference to any dividends on theCompany'sCompany’s common stock. The Series A Preferred Stock is not convertible into any other security of the Company, and the holders thereof have no voting rights except with respect to any proposed changes in the preferences and special rights of such stock.| G | CAPITAL STOCK, STOCK AWARDS, AND STOCK OPTIONS CAPITAL STOCK.
G. CAPITAL STOCK, STOCK AWARDS, AND STOCK OPTIONS Capital Stock.Each share of Class A common stock and Class B common stock participates equally in dividends. The Class B stock has limited voting rights and as a class has the right to elect 30 percent of the Board of Directors; the Class A stock has unlimited voting rights, including the right to elect a majority of the Board of Directors.
During
2000, 1999,2002, 2001 and1998,2000, the Company purchased a total of200, 744,095,1,229 shares, 714 shares and41,033200 shares, respectively, of its Class B common stock at a cost of approximately$96,000, $425,865,000,$0.8 million, $0.4 million and$20,512,000. STOCK AWARDS.$0.1 million. At December 29, 2002, the Company has authorization from the Board of Directors to purchase up to 544,796 shares of Class B common stock.Stock Awards.In 1982, the Company adopted a long-term incentive compensation plan, which, among other provisions, authorizes the awarding of Class B common stock to key employees. Stock awards made under this incentive compensation plan are subject to the general restriction that stock awarded to a participant will be forfeited and revert to Company ownership if the
participant'sparticipant’s employment terminates before the end of a specified period of service to the Company. At December31, 2000,29, 2002, there were87,91068,290 shares reserved for issuance under the incentive compensation plan. Of this number,30,16527,625 shares were subject to awards outstanding, and57,74540,665 shares were available for future awards. Activity related to stock awards under the long-term incentive compensation plan for the years ended December 29, 2002, December 30, 2001 and December 31, 2000,January 2, 2000, and January 3, 1999was as follows:
2000 1999 1998 ------------------------------------------------------------------------------- Number Average Number Average Number Average of Award of Award of Award Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------------Awards Outstanding Beginning of year ....... 31,360 $412.86 30,730 $405.40 32,331 $281.19 Awarded ............... 1,155 501.72 2,615 543.02 14,120 522.56 Vested ................ (99) 330.75 (167) 349.00 (15,075) 244.10 Forfeited ............. (2,251) 456.41 (1,818) 479.90 (646) 293.83 ------------------------------------------------------------------------------- End of year ............. 30,165 $413.28 31,360 $412.86 30,730 $405.40 ===============================================================================
2002 2001 2000 Number Average Number Average Number Average of Award of Award of Award Shares Price Shares Price Shares Price Awards Outstanding Beginning of year 29,895 $539.25 30,165 $413.28 31,360 $412.86 Awarded 215 563.36 16,865 608.96 1,155 501.72 Vested (601 ) 540.61 (15,200 ) 364.13 (99 ) 330.75 Forfeited (1,884 ) 578.37 (1,935 ) 555.02 (2,251 ) 456.41 End of year 27,625 $536.74 29,895 $539.25 30,165 $413.28 In addition to stock awards granted under the long-term incentive compensation plan, the Company also made stock awards of 2,150 shares in 2002, 3,300 shares in 2001 and 1,950 shares in
2000, 1,750 shares in 1999, and 938 shares in 1998.2000.For the share awards outstanding at December
31, 2000,29, 2002, the aforementioned restriction will lapse in20012003 for15,83314,861 shares, in20022004 for1,3712,637 shares, in20032005 for16,64917,623 shares, and in20042006 for2,0501,438 shares. Stock-based compensation costs resulting from stock awards reduced net income by $3.5 million ($0.37 per share, basic and diluted), $2.6 million ($0.27 per share, basic and diluted), and $2.4 million ($0.25 per share, basic and diluted), $2.2 million ($0.22 per share, basicin 2002, 2001 anddiluted), and $1.9 million ($0.19 per share, basic and diluted), in2000,1999, and 1998,respectively.4143 STOCK OPTIONS.Stock Options.The
Company'sCompany’s employee stock option plan, which was adopted in 1971 and amended in 1993, reserves 1,900,000 shares of theCompany'sCompany’s Class B common stock for48options to be granted under the plan. The purchase price of the shares covered by an option cannot be less than the fair value on the granting date. At December31, 2000,29, 2002, there were503,575470,025 shares reserved for issuance under the stock option plan, of which166,450163,900 shares were subject to options outstanding, and337,125306,125 shares were available for future grants.Changes in options outstanding for the years ended December 29, 2002, December 30, 2001, and December 31, 2000,
January 2, 2000, and January 3, 1999were as follows:
2000 1999 1998 ------------------------------------------------------------------------------------- Number Average Number Average Number Average of Option of Option of Option Shares Price Shares Price Shares Price - ----------------------------------------------------------------------------------------------------------------------Beginning of year ....... 156,497 $ 470.64 246,072 $ 404.48 251,225 $ 371.35 Granted ................. 89,500 544.90 3,750 516.36 25,500 519.32 Exercised ............... (20,425) 345.46 (87,825) 288.43 (30,653) 228.53 Forfeited ............... (59,122) 643.71 (5,500) 450.86 -- -- ------------------------------------------------------------------------------------- End of year ............. 166,450 $ 465.55 156,497 $ 470.64 246,072 $ 404.48 =====================================================================================
2002 2001 2000 Number Average Number Average Number Average of Option of Option of Option Shares Price Shares Price Shares Price Beginning of year 170,575 $490.86 166,450 $465.55 156,497 $470.64 Granted 11,500 729.00 24,000 522.75 89,500 544.90 Exercised (16,675 ) 404.14 (16,875 ) 276.79 (20,425 ) 345.46 Forfeited (1,500 ) 561.77 (3,000 ) 546.04 (59,122 ) 643.71 End of year 163,900 $515.74 170,575 $490.86 166,450 $465.55 Of the shares covered by options outstanding at the end of
2000, 75,4632002, 102,650 are now exercisable,31,612 will become exercisable in 2001, 25,375 will become exercisable in 2002, 20,25027,875 will become exercisable in 2003,and 13,75021,875 will become exercisable in2004.2004, 8,625 will become exercisable in 2005, and 2,875 will become exercisable in 2006. Information related to stock options outstanding at December31, 200029, 2002, is as follows:
Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise exercise prices at 12/31/00 Life (yrs.) Price at 12/31/00 Price - ---------------------------------------------------------------------------------------$ 173 2,500 1.0 $ 173.00 2,500 $ 173.00 222-299 23,750 3.3 247.91 23,750 247.91 344 13,750 6.0 343.94 13,750 343.94 472-484 31,450 7.6 473.89 18,713 472.00 500-586 95,000 9.3 542.81 16,750 526.03
Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/29/02 Life (yrs.) Price at 12/29/02 Price $222–319 8,800 2.3 $ 261.49 8,800 $ 261.49 344 9,850 4.0 343.94 9,850 343.94 472–484 24,750 5.8 474.34 21,750 473.43 500–596 109,000 7.7 538.70 62,250 537.47 729 11,500 10.0 729.00 — — All options were granted at an exercise price equal to or greater than the fair market value of the
Company'sCompany’s common stock at the date of grant. Theweighted-averageweighted average fair value for options granted during 2002, 2001 and 20001999,was $197.89, $107.78 and1998 was$161.15,$157.77, and $126.57,respectively. The fair value of options at date of grant was estimated using the Black-Scholes method utilizing the following assumptions:
2000 1999 1998 - ------------------------------------------------------------------Expected life (years) ..... 7 7 7 Interest rate ............. 5.98% 6.19% 4.68% Volatility ................ 17.9% 16.0% 14.6% Dividend yield ............ 1.0% 1.1% 1.2%Had
2002 2001 2000 Expected life (years) 7 7 7 Interest rate 3.69% 2.30% 5.98% Volatility 21.74% 19.46% 17.9% Dividend yield 0.77% 1.1% 1.0% Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting for Company stock options as outlined in SFAS 123. This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal year 2002 will continue to be accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The following table presents what the Company’s results would have been had the fair values of options granted after 1995, but prior to 2002, been recognized as compensation expense
net income would have been reduced by $3.8 million ($0.40in 2002, 2001 and 2000 (in thousands, except per sharebasic and diluted), $1.9 million ($0.19 per share, basic and diluted), and $2.0 million ($0.19 per share, basic and diluted) in 2000, 1999, and 1998, respectively.amounts).
2002 2001 2000 Stock-based compensation expense included in net income $ 45 $ — $ — Net income available for common shares, as reported 203,235 228,587 135,444 Stock-based compensation expense not included in net income 3,617 4,309 2,139 Pro forma net income available for common shares $ 199,618 $ 224,278 $ 133,305 Basic earnings per share, as reported $ 21.38 $ 24.10 $ 14.34 Pro forma basic earnings per share $ 21.00 $ 23.64 $ 14.11 Diluted earnings per share, as reported $ 21.34 $ 24.06 $ 14.32 Pro forma diluted earnings per share $ 20.96 $ 23.61 $ 14.09 The Company also maintains a stock option plan at its Kaplan subsidiary that provides for the issuance of Kaplan stock options
representing 15 percent of Kaplan, Inc. common stockto certain members ofKaplan'sKaplan’s management. The Kaplan stock option plan was adopted in 1998 and reserves 10.6 percent, or 150,000 shares, of Kaplan’s common stock for options to be granted under the plan. At December 29, 2002, 147,463 shares were subject to options outstanding. The balance of 2,537 shares have been granted with vesting beginning as of January 1, 2003. Under the provisions of this plan, options are issued with an exercise price equal to the estimated fair value ofKaplan'sKaplan’s common stock.OptionsIn general, options vest ratably over fiveyears from issuance, and uponyears. Upon exercise, an option holderhas the right to require the Company to repurchase the Kaplan stockmay either purchase vested shares at thestock'sexercise price or elect to receive cash equal to the difference between the exercise price and the then fair value. The fair value ofKaplan'sKaplan’s common stock is determined by theCompany'sCompany’s compensationcommittee. At December 31, 2000, options representing 12.5 percentcommittee ofKaplan'sthe Board of Directors. In January 2003, the committee set the fair value price of Kaplan common stockwere issuedat $861 per share, which is determined after deducting intercompany debt from Kaplan’s enterprise value.For 2002, 2001 and
outstanding. For2000,1999, and 1998,the Company recorded expense of$6,000,000, $7,200,000,$34.5 million, $25.3 million and$6,000,000,$6.0 million, respectively, related to this plan.NoIn 2002 and 2001, payouts from option exercises totaled $0.2 million and $2.1 million, respectively. At December 29, 2002, the Company’s stock-based compensation accrual balance totaled $74.4 million.49Changes in Kaplan stock options
have been exercisedoutstanding for the years ended December 29, 2002, December 30, 2001, and December 31, 2000, were as follows:
2002 2001 2000 Number Average Number Average Number Average of Option of Option of Option Shares Price Shares Price Shares Price Beginning of year 142,578 $296.69 131,880 $246.14 95,100 $196.31 Granted 6,475 652.00 27,962 526.00 36,780 375.00 Exercised (540 ) 375.00 (7,247 ) 227.20 – – Forfeited (1,050 ) 403.76 (10,017 ) 321.67 – – End of year 147,463 $311.24 142,578 $296.69 131,880 $246.14 Of the shares covered by options outstanding at the end of 2002, 101,804 are now exercisable, 12,755 will become exercisable in 2003, 12,755 will become exercisable in 2004, 12,005 will become exercisable in 2005, 6,849 will become exercisable in 2006, and 1,295 will become exercisable in 2007. Information related to
date under this plan. AVERAGE NUMBER OF SHARES OUTSTANDING.stock options outstanding at December 29, 2002, is as follows:
Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/29/02 Life (yrs.) Price at 12/29/02 Price $ 190 83,686 5.0 $ 190 83,686 $ 190 350–375 29,540 6.9 372 12,566 371 526 27,762 8.0 526 5,552 526 652 6,475 8.0 652 – 652 Average Number of Shares Outstanding.Basic earnings per share are based on the weighted average number of shares of common stock outstanding during each year. Diluted earnings per common share are based upon the weighted average number of shares of common stock outstanding each year, adjusted for the dilutive effect of shares issuable under outstanding stock options. Basic and diluted weighted average share information for
2000, 1999,2002, 2001 and19982000 is as follows:
Basic Dilutive Diluted Weighted Effect of Weighted Average Stock Average Shares Options Shares 2002 9,503,983 18,671 9,522,654 2001 9,486,386 13,173 9,499,559 2000 9,445,466 14,362 9,459,828
Basic Dilutive Diluted Weighted Effect of Weighted Average Stock Average Shares Options Shares - --------------------------------------------------------------------------------2000............................ 9,445,466 14,362 9,459,828 1999............................ 10,060,578 21,206 10,081,784 1998............................ 10,086,786 42,170 10,128,956H. PENSIONS AND OTHER POSTRETIREMENT PLANS | H | PENSIONS AND OTHER POSTRETIREMENT PLANSThe Company maintains various pension and incentive savings plans and contributes to several multi-employer plans on behalf of certain
union representedunion-represented employee groups. Substantially all of theCompany'sCompany’s employees are covered by these plans.The Company also provides
healthcarehealth care and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.4244The following table sets forth obligation, asset and funding information for the
Company'sCompany’s defined benefit pension and postretirement plans at December31, 200029, 2002 andJanuary 2, 2000December 30, 2001 (in thousands):
Pension Plans Postretirement Benefits -------------------------------------------------------------------- 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------------------CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year .................... $ 344,611 $ 338,045 $ 86,938 $ 107,779 Service cost ........................... 14,566 14,756 3,496 3,585 Interest cost .......................... 24,962 23,584 6,338 6,039 Amendments ............................. 29,442 3,205 1,968 2,379 Actuarial gain ......................... (5,091) (22,281) (1,199) (27,981) Benefits paid .......................... (17,324) (12,698) (4,298) (4,863) -------------------------------------------------------------------- Benefit obligation at end of year ...... $ 391,166 $ 344,611 $ 93,243 $ 86,938 ==================================================================== CHANGE IN PLAN ASSETS Fair value of assets at beginning of year .................... $ 1,119,916 $ 1,308,418 -- -- Actual return on plan assets ........... 212,293 (175,804) -- -- Employer contributions ................. -- -- $ 4,298 $ 4,863 Benefits paid .......................... (17,324) (12,698) (4,298) (4,863) -------------------------------------------------------------------- Fair value of assets at end of year .... $ 1,314,885 $ 1,119,916 $ -- $ -- ==================================================================== Funded status .......................... $ 923,719 $ 775,305 $ (93,243) $ (86,938) Unrecognized transition asset .......... (15,354) (22,941) -- -- Unrecognized prior service cost ........ 17,230 18,930 (663) (825) Unrecognized actuarial gain ............ (551,511) (433,476) (34,858) (36,528) -------------------------------------------------------------------- Net prepaid (accrued) cost ............. $ 374,084 $ 337,818 $ (128,764) $ (124,291) ====================================================================
Pension Plans Postretirement Plans 2002 2001 2002 2001 Benefit obligation at beginning of year $ 431,017 $ 391,166 $ 105,392 $ 93,243 Service cost 17,489 15,393 5,418 3,707 Interest cost 30,820 27,526 7,997 6,811 Amendments 28,817 5,182 (3,130 ) — Actuarial loss 22,851 22,334 1,487 6,519 Benefits paid (32,042 ) (30,584 ) (4,990 ) (4,888 ) Benefit obligation at end of year $ 498,952 $ 431,017 $ 112,174 $ 105,392 Fair value of assets at beginning of year $ 1,427,554 $ 1,314,885 — — Actual return on plan assets (33,428 ) 143,253 — — Employer contributions — — $ 4,990 $ 4,888 Benefits paid (32,042 ) (30,584 ) (4,990 ) (4,888 ) Fair value of assets at end of year $ 1,362,084 $ 1,427,554 $ — $ — Funded status $ 863,132 $ 996,537 $ (112,174 ) $ (105,392 ) Unrecognized transition asset (3,631 ) (8,852 ) — — Unrecognized prior service cost 24,553 16,949 (3,469 ) (501 ) Unrecognized actuarial gain (390,268 ) (556,946 ) (20,750 ) (24,931 ) Net prepaid (accrued) cost $ 493,786 $ 447,688 $ (136,393 ) $ (130,824 ) The total (income) cost arising from the
Company'sCompany’s defined benefit pension and postretirement plans for the years ended December 29, 2002, December 30, 2001, and December 31, 2000,January 2, 2000, and January 3, 1999,consists of the following components (in thousands):
Pension Plans Postretirement Plans ---------------------------------------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------------Service cost ............. $ 14,566 $ 14,756 $ 11,335 $ 3,496 $ 3,585 $ 3,764 Interest cost ............ 24,962 23,584 21,344 6,338 6,039 7,417 Expected return on assets .............. (85,522) (92,566) (71,814) -- -- -- Amortization of transition asset ....... (7,585) (7,665) (7,665) -- -- -- Amortization of prior service cost ........... 2,091 2,110 1,679 (162) (162) (378) Recognized actuarial gain ......... (10,231) (21,902) (16,876) (2,870) (2,886) (1,379) ---------------------------------------------------------------------------------------- Net periodic (benefit) cost for the year ...... (61,719) (81,683) (61,997) 6,802 6,576 9,424 Composing Room early buyout expense ................ 25,456 -- -- 1,968 -- -- ---------------------------------------------------------------------------------------- Total (benefit) cost for the year ........... $(36,263) $(81,683) $(61,997) $ 8,770 $ 6,576 $ 9,424 ========================================================================================
Pension Plans Postretirement Plans 2002 2001 2000 2002 2001 2000 Service cost $ 17,489 $ 15,393 $ 14,566 $ 5,418 $ 3,707 $ 3,496 Interest cost 30,820 27,526 24,962 7,997 6,811 6,338 Expected return on assets (92,192 ) (97,567 ) (85,522 ) — — — Amortization of transition asset (5,221 ) (6,502 ) (7,585 ) — — — Amortization of prior service cost 2,185 2,122 2,091 (421 ) (162 ) (162 ) Recognized actuarial gain (17,528 ) (17,917 ) (13,824 ) (2,435 ) (3,408 ) (2,870 ) Net periodic (benefit) cost for the year (64,447 ) (76,945 ) (65,312 ) 10,559 6,948 6,802 Early retirement programs expense 19,001 3,344 29,049 — — 1,968 Total (benefit) cost for the year $ (45,446 ) $ (73,601 ) $ (36,263 ) $ 10,559 $ 6,948 $ 8,770 The
costcosts for theCompany'sCompany’s defined benefit pension and postretirement plans are actuarially determined. Key assumptions utilized at December 29, 2002, December 30, 2001, and December 31, 2000,January 2, 2000, and January 3, 1999include the following:
Pension Plans Postretirement Plans ----------------------------------------------------------- 2000 1999 1998 2000 1999 1998 - -------------------------------------------------------------------------------------------Discount rate ........... 7.5% 7.5% 7.0% 7.5% 7.5% 7.0% Expected return on plan assets ........... 9.0% 9.0% 9.0% -- -- -- Rate of compensation increase .............. 4.0% 4.0% 4.0% -- -- --
Pension Plans Postretirement Plans 2002 2001 2000 2002 2001 2000 Discount rate 6.75% 7.0% 7.5% 6.75% 7.0% 7.5% Expected return on plan assets 7.5% 7.5% 9.0% — — — Rate of compensation increase 4.0% 4.0% 4.0% — — — The assumed
healthcarehealth care cost trend rate used in measuring the postretirement benefit obligation at December31, 200029, 2002 was6.910.5 percent for both pre-age 65benefits (6.4 percent forand post-age 65benefits)benefits decreasing to 5 percent in the year20052013 and thereafter.Assumed
healthcarehealth care cost trend rates have a significant effect on the amounts reported for thehealthcarehealth care plans. Aone-percentagechange of 1 percentage pointchangein the assumedhealthcarehealth care cost trend rates would have the following effects (in thousands):
1% 1% Increase Decrease - ---------------------------------------------------------------------------------------Benefit obligation at end of year......................... $ 13,917 $ (13,000) Service cost plus interest cost........................... 1,544 (1,497)
1% 1% Increase Decrease Benefit obligation at end of year $ 16,740 $ (15,637 ) Service cost plus interest cost 2,115 (2,050 ) Contributions to multi-employer pension plans, which are generally based on hours worked, amounted to
$1,100,000$2.0 million in20002002, $1.8 million in 2001 and$2,300,000$1.1 million in1999 and 1998.2000.The Company recorded expense associated with retirement benefits provided under incentive savings plans (primarily 401(k) plans) of approximately
$13,300,000$15.4 million in2000, 1999,2002, $14.5 million in 2001 and1998. | I |$13.3 million in 2000.I. LEASE AND OTHER COMMITMENTS
The Company leases real property under operating agreements. Many of the leases contain renewal options and escalation clauses that require payments of additional rent to the extent of increases in the related operating costs.
At December
31, 2000,29, 2002, future minimum rental payments under noncancelable operating leases approximate the following (in thousands):
2001................................................. $ 54,800 2002................................................. 47,500 2003................................................. 40,100 2004................................................. 34,300 2005................................................. 28,400 Thereafter........................................... 88,700 --------- $ 293,800 =========4345
2003 $ 55,335 2004 49,650 2005 43,178 2006 37,915 2007 32,855 Thereafter 74,039 $ 292,972 Minimum payments have not been reduced by minimum sublease rentals of
$3,250,000$4.4 million due in the future under noncancelable subleases.Rent expense under operating leases included in operating costs and expenses was approximately
$49,700,000, $33,600,000,$60.7 million, $58.3 million and$31,800,000$49.7 million in2000, 1999,2002, 2001 and1998,2000, respectively. Sublease income was approximately$1,150,000, $433,000,$0.6 million, $1.5 million and$500,000$1.2 million in 2002, 2001 and 2000,1999, and 1998,respectively.The
Company'sCompany’s broadcast subsidiaries are parties to certain agreements that commit them to purchase programming to be produced in future years. At December31, 2000,29, 2002, such commitments amounted to approximately$62,800,000.$52.3 million. If such programs are not produced, theCompany'sCompany’s commitment would expire without obligation.| J |J. ACQUISITIONS, EXCHANGES AND DISPOSITIONS
ACQUISITIONS.The Company completed business acquisitions and exchanges totaling approximately
$212,300,000$47.4 million in 2002, $104.4 million in 2001 and $212.3 million in 2000 (including assumed debt and related acquisition costs), $90,500,000 in 1999, and $320,600,000 in 1998.. All of these acquisitions were accounted for using the purchase method, and accordingly, the assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition.OnThe purchase price allocations for these acquisitions mostly comprised goodwill and other intangibles and property, plant and equipment.During 2002, Kaplan acquired several businesses in their higher education and test preparation divisions for approximately $42.2 million. About $9.6 million remains to be paid on these acquisitions, of which $2.2 million has been classified in current liabilities and $7.4 million as long-term debt at December 29, 2002.
In November 2002, the Company completed a cable system exchange transaction with Time Warner Cable which consisted of the exchange by the Company of its cable system in Akron, Ohio serving about 15,500 subscribers, and $5.2 million to Time Warner Cable, for cable systems serving about 20,300 subscribers in Kansas. The Kansas systems acquired in the exchange transaction were recorded at their estimated fair value. The non-cash, non-operating gain resulting from the exchange transaction increased net income by $16.7 million, or $1.75 per share.
The Company’s acquisitions in 2001 principally included the purchase of Southern Maryland Newspapers, a division of Chesapeake Publishing Corporation, and amounts paid as part of a cable system exchange with AT&T Broadband. During 2001, the Company also acquired a provider of CFA® exam preparation services and a company that provides pre-certification training for real estate, insurance and securities professionals.
Southern Maryland Newspapers publishes the Maryland Independent in Charles County, Maryland; The Enterprise in St. Mary’s County, Maryland; and The Calvert Recorder in Calvert County, Maryland, with a combined total paid circulation of approximately 50,000.
The cable system exchange with AT&T Broadband was completed in March 2001 and consisted of the exchange by the Company of its cable systems in Modesto and Santa Rosa, California, and approximately $42.0 million to AT&T Broadband for cable systems serving approximately 155,000 subscribers principally located in Idaho. The Idaho systems acquired in the exchange transactions were recorded at their estimated fair value. In a related transaction in January 2001, the Company completed the sale of a cable system serving about 15,000 subscribers in Greenwood, Indiana, for $61.9 million. The gain resulting from the cable system sale and exchange transactions increased net income by $196.5 million, or $20.69 per share. For income tax purposes, substantial components of the cable
51system sale and exchange transactions qualify as like-kind exchanges and therefore, a large portion of these transactions does not result in a current tax liability.In August
2,2000, the Company acquired Quest Education Corporation (Quest) for approximately$177,700,000,$177.7 million, including assumed debt. The acquisition of Quest was completed through an all cash tender offer in which thecompanyCompany purchased substantially all of the outstanding stock of Quest for $18.35 per share. The acquisition was financed through the issuance of additional borrowings. Quest is a provider of post-secondary educationcurrently serving nearly 13,000 students in 34 schools located in 13 states. Quest's schools offer Bachelor'soffering Bachelor’s degrees,Associate'sAssociate’s degrees and diploma programsdesigned to provide students with the knowledge and skills necessary to qualify them for entry-level employment,primarily in the fields ofhealthcare,health care, business and informationtechnology, fashion, and design.technology.In addition, the Company acquired two cable systems serving approximately 8,500 subscribers in Nebraska (in June 2000) and Mississippi (in August 2000) for approximately
$16,200,000,$16.2 million, as well as various other smaller businesses throughout 2000 for$18,400,000$18.4 million (principally consisting of educational services companies).During 1999, the Company acquired cable systems serving 10,300 subscribers in North Dakota, Oklahoma, and Arizona (April and August 1999 for $18,300,000); two Certified Financial Analyst test preparation companies (November and December 1999 for $16,000,000), and a travel guide magazine (in December 1999 for $10,200,000). In addition, the Company acquired various other smaller businesses throughout 1999 for $46,000,000 (principally consisting of educational services companies). Acquisitions in 1998 included an educational services company that provides English-language study programs (in January 1998 for $16,100,000); a 36,000-subscriber cable system serving Anniston, Alabama (in June 1998 for $66,500,000); cable systems serving 72,000 subscribers in Mississippi, Louisiana, Texas, and Oklahoma (in July 1998 for $130,100,000); and a publisher and provider of licensing training for securities, insurance, and real estate professionals (in July 1998 for $35,200,000). In addition, the Company acquired various other smaller businesses throughout 1998 for $72,700,000 (principally consisting of educational and career service companies and small cable systems).The results of operations for each of the businesses acquired are included in the Consolidated Statements of Income from their respective dates of acquisition. Pro forma results of operations for
2000, 1999,2002, 2001 and1998,2000, assuming the acquisitions and exchanges occurred at the beginning of1998,2000, are not materially different from reported results of operations.DISPOSITIONS. In June 1999,K. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets” effective on the
Company sold the assetsfirst day ofLegi-Slate, Inc.,itsonline services subsidiary that covered Federal legislation and regulation. No significant gain or loss was realized as a result of the sale. In March 1998, Cowles Media Company ("Cowles") and McClatchy Newspapers, Inc. ("McClatchy") completed a series of transactions resulting in the merger of Cowles and McClatchy. In the merger, each share of Cowles common stock was converted (based upon elections of Cowles stockholders) into shares of McClatchy stock or a combination of cash and McClatchy stock. As of the date of the Cowles and McClatchy merger transaction, a wholly-owned subsidiary of the Company owned 3,893,796 shares (equal to about 28 percent) of the outstanding common stock of Cowles, most of which was acquired in 1985.2002 fiscal year. As a result of thetransaction,adoption of SFAS 142, theCompany's subsidiary received $330,500,000 inCompany ceased most of the periodic charges previously recorded from the amortization of goodwill and other intangibles.As required under SFAS 142, earlier this year, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill. The expected future cash
from McClatchy and 730,525 sharesflows for PostNewsweek Tech Media (part ofMcClatchy Class A common stock. The marketthe magazine publishing segment), on a discounted basis, did not support the net carrying value of theMcClatchy stock received approximated $21,600,000.related goodwill. Accordingly, an after-tax goodwill impairment loss of $12.1 million, or $1.27 per share, was recorded. Thegain resulting from this transaction, whichloss is included in1998 "Other (expense)the Company’s fiscal year results as a cumulative effect of change in accounting principle.On a pro forma basis, the Company’s 2001 and 2000 operating income
net" inwould have been $298.3 million and $402.1 million, respectively, if SFAS 142 had been adopted at theConsolidated Statementsbeginning ofIncome, increased net income by approximately $162,800,000fiscal 2000, compared to $377.6 million for 2002.Other pro forma results for the years ended December 30, 2001, and
basicDecember 30, 2000, to exclude amortization of goodwill anddiluted earningsindefinite-lived intangible assets, were as follows (in thousands, except per shareby $16.14 and $16.07, respectively.amounts):
2002 2001 2000 Income before cumulative effect of change in accounting principle,
as reported$ 216,368 $ 229,639 $ 136,470 Amortization of goodwill and other intangibles, net of tax — 54,989 43,079 Pro forma income before cumulative effect of change in
accounting principle216,368 284,628 179,549 Cumulative effect of change in method of accounting for goodwill
and other intangible assets, net of tax(12,100 ) — — Redeemable preferred stock dividends (1,033 ) (1,052 ) (1,026 ) Pro forma net income available for common shares $ 203,235 $ 283,576 $ 178,523 Basic earnings per share: Before cumulative effect of change in accounting principle, as reported $ 22.65 24.10 14.34 Cumulative effect of change in accounting principle (1.27 ) — — Amortization of goodwill and other intangibles — 5.79 4.56 Pro forma net income available for common shares $ 21.38 $ 29.89 $ 18.90 Diluted earnings per share: Before cumulative effect of change in accounting principle, as reported $ 22.61 $ 24.06 $ 14.32 Cumulative effect of change in accounting principle (1.27 ) — — Amortization of goodwill and other intangibles — 5.79 4.55 Pro forma net income available for common shares $ 21.34 $ 29.85 $ 18.87 In
July 1998,accordance with SFAS 142, the Companycompleted the sale of 14 smallhas reviewed its goodwill and other intangible assets and classified them in three categories (goodwill, indefinite-lived intangible assets and amortized intangible assets). The Company’s intangible assets with an indefinite life are from franchise agreements at its cablesystemsdivision. Amortized intangible assets are primarily non-compete agreements, with amortization periods up to five years. The Company’s amortized intangible assets increased $1.4 million inTexas, Missouri,2002 due to acquisitions. Amortization expense was $655,000 in 2002, andKansas serving approximately 29,000 subscribers for approximately $41,900,000. The gain resulting from this transaction, whichisincludedestimated to be less than $1 million in1998 "Other (expense) income, net" in the Consolidated Statements of Income, increased net income by approximately $17,300,000 and basic and diluted earnings per share by $1.71. 4446 In August 1998, Junglee Corporation ("Junglee") merged with a wholly-owned subsidiary of Amazon.com Inc. ("Amazon.com"). As a result,eachshare of Junglee common and preferred stock was converted into shares of Amazon.com. On the dateof themerger, a wholly-owned subsidiarynext five years.The Company’s goodwill and other intangible assets as of December 29, 2002 and December 30, 2001 were as follows (in thousands):
Accumulated Gross Amortization Net Goodwill $ 1,069,263 $ 298,402 $ 770,861 Indefinite-lived intangible assets 646,225 163,806 482,419 Amortized intangible assets 3,525 1,372 2,153 $ 1,719,013 $ 463,580 $ 1,255,433 Goodwill $ 1,033,956 $ 279,402 $ 754,554 Indefinite-lived intangible assets 614,565 163,806 450,759 Amortized intangible assets 2,165 717 1,448 $ 1,650,686 $ 443,925 $ 1,206,761 Activity related to the
Company owned 750,000 common sharesCompany’s goodwill and750,000 preferred shares of Junglee. As a result of the merger, the Company's subsidiary received 202,961 shares of Amazon.com common stock. The market value of the Amazon.com stock received approximated $25,200,000 on the date of the merger. The gain resulting from this transaction, which is included in 1998 "Other (expense) income, net" in the Consolidated Statements of Income, increased net income by approximately $14,300,000 and basic and diluted earnings per share by $1.42 and $1.41, respectively. | K |intangible assets during 2002 was as follows (in thousands):
Newspaper Television Magazine Cable Publishing Broadcasting Publishing Television Education Total Beginning of year $ 72,738 $ 203,165 $ 88,556 $ 88,197 $ 301,898 $ 754,554 Acquisitions 37,838 37,838 Disposition (2,531 ) (2,531 ) Impairment (19,000 ) (19,000 ) End of year $ 72,738 $ 203,165 $ 69,556 $ 85,666 $ 339,736 $ 770,861 Beginning of year $ 450,759 $ 450,759 Acquisitions 32,160 32,160 Disposition (500 ) (500 ) Impairment — — End of year $ 482,419 $ 482,419 L. CONTINGENCIES
The Company and its subsidiaries are parties to various civil lawsuits that have arisen in the ordinary course of their businesses, including actions for libel and invasion of
privacy.privacy, and also to an antitrust lawsuit related to the acquisition by a subsidiary of a group of community newspapers in 2001. Management does not believe that any litigation pending against the Company will have a material adverse effect on its business or financial condition.The
Company'sCompany’s education division derives a portion of its netrevenuerevenues from financial aid received by its students under Title IV programs("Title IV Programs")administered by the United States Department of Education pursuant to the Federal Higher Education Act of 1965("HEA"(“HEA”), as amended. In order to participate in Title IV Programs, the Company must comply with complex standards set forth in the HEA and the regulations promulgated thereunder (the"Regulations"“Regulations”). The failure to comply with the requirements of HEA or the Regulations could result in the restriction or loss of the ability to participate in Title IV Programs and subject the Company to financial penalties. For theyearyears ended December 29, 2002, December 30, 2001, and December 31, 2000, approximately$35,000,000$161.7 million, $101.5 million and $35.0 million, respectively, of theCompany'sCompany’s education division revenues were derived from financial aid received by students under Title IV Programs. These revenues were earned and recognized by Quest following theCompany'sCompany’s acquisition of Quest in August 2000. Management believes that theCompany'sCompany’s education division schools that participate in Title IV Programs are in material compliance with the standards set forth in the HEA and the Regulations.| L |M. BUSINESS SEGMENTS
The Company operates principally in four areas of the media business: newspaper publishing, television broadcasting, magazine publishing and cable television. Through its subsidiary Kaplan, Inc., the Company also provides educational services for individuals, schools and businesses.
Newspaper operations involve the publication of newspapers in the Washington, D.C.
,area and Everett, Washington; newsprint warehousing and recycling facilities; and theCompany'sCompany’s electronic media publishing business (primarily washingtonpost.com).Magazine operations consist principally of the publication of a weekly news magazine, Newsweek, which has one domestic and three international editions, the publication of a travel magazine and the publication of business periodicals for the computer services industry and the Washington-area technology community.
Revenues from both newspaper and magazine publishing operations are derived from advertising and, to a lesser extent, from circulation.
Broadcast operations are conducted through six VHF television stations. All stations are network affiliated (except for WJXT in Jacksonville, Florida) with revenues derived primarily from sales of advertising time.
Cable television operations consist of cable systems offering basic cable,
anddigital cable, pay television, cable modem and other services to approximately735,000718,000 subscribers in1819 midwestern, western and southern states. The principal source of revenues is monthly subscription fees charged for services.EducationalEducation products and services are provided through the
Company'sCompany’s wholly-owned subsidiary Kaplan, Inc.Kaplan's five major lines ofKaplan’s businesses includeTest Preparationsupplemental education services, which is made up of test preparation andAdmissions,admissions, providing test preparation services for college and graduate school entrance exams;Quest Education Corporation, a provider of post-secondary education offering Bachelor's degrees, Associate's degrees and diploma programs primarily in the fields of healthcare, business and information technology;Kaplan Professional, providingeducationaleducation and career services to business people and other professionals; and Score!, offeringmulti-mediamultimedia learning and private tutoring to children and educational resources toparents; and The Kaplan Colleges, Kaplan's distance learningparents. Kaplan’s businesses also include higher education services, which includes all of Kaplan’s post-secondary education businesses, includingkaplancollege.com. Otherthe fixed facility colleges that were formerly part of Quest Education, which offers Bachelor’s degrees, Associate’s degrees and diploma programs primarily in the fields of health care, business and information technology; and online post-secondary and career programs (various distance-learning businesses,and corporateincluding kaplancollege.com).Corporate office includes the
Company'sexpenses of the Company’s corporate office.Through the first half of 1999, the other businesses and corporate office segment also includes the result of Legi-Slate, Inc., which was sold in June 1999. The 1998 results for other businesses and corporate office include Moffet, Larson & Johnson, which was sold in July 1998.Income from operations is the excess of operating revenues over operating expenses. In computing income from operations by segment, the effects of equity in earnings of affiliates, interest income, interest expense, other non-operating income and expense items, and income taxes are not included.
Identifiable assets by segment are those assets used in the
Company'sCompany’s operations in each business segment. Investments in marketable equity securities and investments in affiliates are discussed in Note C.4547
Newspaper Television Magazine Cable (in thousands) Publishing Broadcasting Publishing Television - -----------------------------------------------------------------------------------------------------------------------2000 Operating revenue ................................ $ 918,234 $ 364,758 $ 416,421 $ 358,916 Income (loss) from operations .................... $ 114,435 $ 177,396 $ 49,119 $ 65,967 Equity in losses of affiliates ................... Interest expense, net ............................ Other expense, net ............................... --------------------------------------------------------------- Income before income taxes .................... =============================================================== Identifiable assets .............................. $ 684,908 $ 430,444 $ 452,453 $ 757,083 Investments in marketable equity securities ...... Investments in affiliates ........................ --------------------------------------------------------------- Total assets .................................. =============================================================== Depreciation of property, plant, and equipment ... $ 38,579 $ 12,991 $ 5,059 $ 47,670 Amortization of goodwill ......................... $ 1,588 $ 14,135 $ 6,758 $ 30,069 Pension credit (expense) ......................... $ (5,579) $ 5,767 $ 37,341 $ (599) Capital expenditures ............................. $ 33,117 $ 11,672 $ 1,858 $ 96,167 1999 Operating revenue ................................ $ 875,109 $ 341,761 $ 401,096 $ 336,259 Income (loss) from operations .................... $ 156,731 $ 167,639 $ 62,057 $ 67,145 Equity in losses of affiliates ................... Interest expense, net ............................ Other income, net ................................ --------------------------------------------------------------- Income before income taxes .................... =============================================================== Identifiable assets .............................. $ 672,609 $ 444,372 $ 409,404 $ 718,230 Investments in marketable equity securities ...... Investments in affiliates ........................ --------------------------------------------------------------- Total assets .................................. =============================================================== Depreciation of property, plant, and equipment ... $ 35,363 $ 11,719 $ 4,972 $ 43,092 Amortization of goodwill ......................... $ 1,535 $ 14,248 $ 5,912 $ 30,007 Pension credit (expense) ......................... $ 26,440 $ 8,191 $ 48,309 $ (597) Capital expenditures ............................. $ 19,279 $ 17,839 $ 3,364 $ 62,586 1998 Operating revenue ................................ $ 848,934 $ 357,616 $ 399,483 $ 297,980 Income (loss) from operations .................... $ 139,032 $ 171,194 $ 44,524 $ 65,022 Equity in losses of affiliates ................... Interest expense, net ............................ Other income, net ................................ --------------------------------------------------------------- Income before income taxes .................... =============================================================== Identifiable assets .............................. $ 646,151 $ 437,506 $ 355,176 $ 710,641 Investments in marketable equity securities ...... Investments in affiliates ........................ --------------------------------------------------------------- Total assets .................................. =============================================================== Depreciation of property, plant, and equipment ... $ 29,033 $ 11,378 $ 4,888 $ 37,271 Amortization of goodwill ......................... $ 1,372 $ 14,368 $ 5,912 $ 24,178 Pension credit ................................... $ 19,828 $ 6,256 $ 35,913 $ -- Capital expenditures ............................. $ 122,667 $ 14,492 $ 3,666 $ 80,795Other Businesses and Corporate (in thousands) Education Office Consolidated - --------------------------------------------------------------------------------------------------------2000 Operating revenue ................................ $ 353,821 $ -- $2,412,150 Income (loss) from operations .................... $ (41,846) $ (25,189) $ 339,882 Equity in losses of affiliates ................... (36,466) Interest expense, net ............................ (53,764) Other expense, net ............................... (19,782) ----------------------------------------------- Income before income taxes .................... $ 229,870 =============================================== Identifiable assets .............................. $ 482,014 $ 41,075 $2,847,977 Investments in marketable equity securities ...... 221,137 Investments in affiliates ........................ 131,629 ----------------------------------------------- Total assets .................................. $3,200,743 =============================================== Depreciation of property, plant, and equipment ... $ 13,649 -- $ 117,948 Amortization of goodwill ......................... $ 10,084 -- $ 62,634 Pension credit (expense) ......................... $ (667) -- $ 36,263 Capital expenditures ............................. $ 29,569 -- $ 172,383 1999 Operating revenue ................................ $ 257,503 $ 3,843 $2,215,571 Income (loss) from operations .................... $ (37,998) $ (27,121) $ 388,453 Equity in losses of affiliates ................... (8,814) Interest expense, net ............................ (25,689) Other income, net ................................ 21,435 ----------------------------------------------- Income before income taxes .................... $ 375,385 =============================================== Identifiable assets .............................. $ 265,960 $ 132,688 $2,643,263 Investments in marketable equity securities ...... 203,012 Investments in affiliates ........................ 140,669 ----------------------------------------------- Total assets .................................. $2,986,944 =============================================== Depreciation of property, plant, and equipment ... $ 8,850 $ 239 $ 104,235 Amortization of goodwill ......................... $ 6,861 $ -- $ 58,563 Pension credit (expense) ......................... $ (603) $ (57) $ 81,683 Capital expenditures ............................. $ 26,977 $ -- $ 130,045 1998 Operating revenue ................................ $ 194,854 $ 11,492 $2,110,359 Income (loss) from operations .................... $ (7,453) $ (33,422) $ 378,897 Equity in losses of affiliates ................... (5,140) Interest expense, net ............................ (10,401) Other income, net ................................ 304,703 ----------------------------------------------- Income before income taxes .................... $ 668,059 =============================================== Identifiable assets .............................. $ 196,702 $ 58,839 $2,405,015 Investments in marketable equity securities ...... 256,116 Investments in affiliates ........................ 68,530 ----------------------------------------------- Total assets .................................. $2,729,661 =============================================== Depreciation of property, plant, and equipment ... $ 5,925 $ 753 $ 89,248 Amortization of goodwill ......................... $ 4,057 $ 2 $ 49,889 Pension credit ................................... $ -- $ -- $ 61,997 Capital expenditures ............................. $ 21,411 $ 1,188 $ 244,2194648 | M | SUBSEQUENT EVENTS (UNAUDITED) On January 12,53
Newspaper Television Magazine Cable Corporate (in thousands) Publishing Broadcasting Publishing Television Education Office Consolidated Operating revenues $ 841,984 $ 343,552 $ 349,050 $ 428,492 $ 621,125 $ — $ 2,584,203 Income (loss) from operations $ 109,006 $ 168,826 $ 25,728 $ 80,937 $ 20,512 $ (27,419 ) $ 377,590 Equity in losses of affiliates (19,308 ) Interest expense, net (33,487 ) Other income, net 28,873 Income before income taxes $ 353,668 Identifiable assets $ 690,197 $ 413,663 $ 488,562 $ 1,142,995 $ 542,251 $ 18,990 $ 3,296,658 Investments in marketable equity securities 216,533 Investments in affiliates 70,703 Total assets $ 3,583,894 Depreciation of property, plant and equipment $ 42,961 $ 11,187 $ 4,124 $ 88,751 $ 24,885 $ — $ 171,908 Amortization expense $ 15 $ — $ — $ 155 $ 485 $ — $ 655 Pension credit (expense) $ 18,902 $ 4,730 $ 23,814 $ (814 ) $ (1,186 ) $ — $ 45,446 Kaplan stock-based incentive compensation $ 34,531 $ 34,531 Capital expenditures $ 27,280 $ 8,784 $ 1,672 $ 92,499 $ 22,757 $ — $ 152,992 Operating revenues $ 842,721 $ 314,010 $ 374,575 $ 386,037 $ 493,681 $ — $ 2,411,024 Income (loss) from operations $ 84,744 $ 131,847 $ 25,306 $ 32,237 $ (28,337 ) $ (25,865 ) $ 219,932 Equity in losses of affiliates (68,659 ) Interest expense, net (47,473 ) Other income, net 283,739 Income before income taxes $ 387,539 $ 88,592 $ 145,982 $ 31,975 $ 70,634 $ (13,061 ) $ (25,865 ) $ 298,257 Identifiable assets $ 703,947 $ 419,246 $ 486,804 $ 1,117,426 $ 472,988 $ 42,346 $ 3,242,757 Investments in marketable equity securities 235,405 Investments in affiliates 80,936 Total assets $ 3,559,098 Depreciation of property, plant and equipment $ 37,862 $ 11,932 $ 4,654 $ 64,505 $ 19,347 $ — $ 138,300 Amortization expense $ 3,864 $ 14,135 $ 6,669 $ 38,553 $ 15,712 $ — $ 78,933 Pension credit (expense) $ 25,197 $ 6,263 $ 44,989 $ (638 ) $ (847 ) $ (1,363 ) $ 73,601 Kaplan stock-based incentive compensation $ 25,302 $ 25,302 Capital expenditures $ 32,551 $ 11,032 $ 1,737 $ 166,887 $ 12,020 $ — $ 224,227 Operating revenues $ 918,234 $ 364,758 $ 413,904 $ 358,916 $ 353,821 $ — $ 2,409,633 Income (loss) from operations $ 114,435 $ 177,396 $ 49,119 $ 65,967 $ (41,846 ) $ (25,189 ) $ 339,882 Equity in losses of affiliates (36,466 ) Interest expense, net (53,764 ) Other expense, net (19,782 ) Income before income taxes $ 229,870 $ 116,023 $ 191,531 $ 55,877 $ 95,906 $ (32,012 ) $ (25,189 ) $ 402,136 Identifiable assets $ 684,908 $ 430,444 $ 452,453 $ 757,083 $ 482,014 $ 41,075 $ 2,847,977 Investments in marketable equity securities 221,137 Investments in affiliates 131,629 Total assets $ 3,200,743 Depreciation of property, plant and equipment $ 38,579 $ 12,991 $ 5,059 $ 47,670 $ 13,649 $ — $ 117,948 Amortization expense $ 1,588 $ 14,135 $ 6,758 $ 30,069 $ 10,084 $ — $ 62,634 Pension (expense) credit $ (5,579 ) $ 5,767 $ 37,341 $ (599 ) $ (667 ) $ — $ 36,263 Kaplan stock-based incentive compensation $ 6,000 $ 6,000 Capital expenditures $ 33,117 $ 11,672 $ 1,858 $ 96,167 $ 29,569 $ — $ 172,383 (1) 2001
the Company completed the saleand 2000 results, adjusted to exclude amortization ofa cable system serving about 15,000 subscribers in Greenwood, Indiana, for $61,900,000. In a related transaction, on March 1, 2001, the Company completed a cable system exchange with AT&T Broadband whereby the Company exchanged its cable systems in Modestogoodwill andSanta Rosa, California, and approximately $42,000,000 to AT&T Broadband for cable systems serving approximately 155,000 subscribers principally located in Idaho. For income tax purposes, these transactions qualify as like-kind exchanges and are substantially tax free in nature. However, the Company will record a book accounting gain of approximately $195.3 million ($20.50 per share) in its earnings for the first quarter of 2001. On February 28, 2001, the Company acquired Southern Maryland Newspapers, a division of Chesapeake Publishing Corp. Southern Maryland Newspapers publishes the Maryland Independent in Charles County, Maryland; the Lexington Park Enterprise in St. Mary's County, Maryland; and the Recorder in Calvert County, Maryland. The acquired newspapers have a combined total paid circulation of 50,000. 4749 | N |indefinite-lived intangible assets no longer amortized under SFAS 142.54N. SUMMARY OF QUARTERLY OPERATING RESULTS AND COMPREHENSIVE INCOME (UNAUDITED)
Quarterly results of operations and comprehensive income for the years ended December
31, 200029, 2002 andJanuary 2, 2000December 30, 2001 are as follows (in thousands, except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------2000 QUARTERLY OPERATING RESULTS Operating revenue Advertising ......................................... $ 318,865 $ 353,514 $ 338,428 $ 385,776 Circulation and subscriber .......................... 147,589 148,905 151,144 153,619 Education ........................................... 71,450 68,803 99,428 113,072 Other ............................................... 8,867 20,318 13,452 18,919 ------------------------------------------------------ 546,771 591,540 602,452 671,386 ====================================================== Operating costs and expenses Operating ........................................... 296,072 316,252 340,733 355,006 Selling, general, and administrative ................ 135,421 138,704 131,206 178,291 Depreciation of property, plant, and equipment ...... 28,386 28,638 30,019 30,905 Amortization of goodwill and other intangibles ...... 14,738 14,755 15,937 17,204 ------------------------------------------------------ 474,617 498,349 517,895 581,406 ====================================================== Income from operations ................................ 72,154 93,191 84,557 89,980 Other income (expense) Equity in losses of affiliates ...................... (11,304) (9,471) (8,890) (6,800) Interest income ..................................... 224 275 228 241 Interest expense .................................... (12,567) (12,573) (14,617) (14,974) Other income (expense), net ......................... (6,938) 1,556 238 (14,639) ------------------------------------------------------ Income before income taxes ............................ 41,569 72,978 61,516 53,808 Provision for income taxes ............................ 17,500 31,800 28,000 16,100 ------------------------------------------------------ Net income ............................................ 24,069 41,178 33,516 37,708 Redeemable preferred stock dividends .................. (500) (263) (263) -- ------------------------------------------------------ Net income available for common shares ................ $ 23,569 $ 40,915 $ 33,253 $ 37,708 ====================================================== Basic earnings per common share ....................... $ 2.50 $ 4.33 $ 3.52 $ 3.99 ====================================================== Diluted earnings per common share ..................... $ 2.49 $ 4.33 $ 3.51 $ 3.98 ====================================================== Basic average number of common shares outstanding ..... 9,440 9,443 9,448 9,452 Diluted average number of common shares outstanding ... 9,458 9,458 9,463 9,470 2000 QUARTERLY COMPREHENSIVE INCOME ................... $ 21,152 $ 25,492 $ 49,789 $ 46,586 ======================================================4850
First Second Third Fourth Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------1999 QUARTERLY OPERATING RESULTS Operating revenue Advertising ......................................... $ 300,002 $ 341,602 $ 311,891 $ 377,065 Circulation and subscriber .......................... 141,431 142,854 147,016 148,393 Education ........................................... 52,018 55,284 67,522 65,251 Other ............................................... 26,946 17,455 13,151 7,691 ------------------------------------------------------ 520,397 557,195 539,580 598,400 ====================================================== Operating costs and expenses Operating ........................................... 286,583 294,172 293,948 314,698 Selling, general, and administrative ................ 116,997 116,414 118,198 123,311 Depreciation of property, plant, and equipment ...... 25,118 25,305 26,265 27,547 Amortization of goodwill and other intangibles ...... 14,425 14,619 14,813 14,706 ------------------------------------------------------ 443,123 450,510 453,224 480,262 ====================================================== Income from operations ................................ 77,274 106,685 86,356 118,138 Other income (expense) Equity in (losses) earnings of affiliates ........... (2,510) 731 (59) (6,975) Interest income ..................................... 246 213 186 452 Interest expense .................................... (6,813) (5,441) (6,473) (8,059) Other income (expense), net ......................... 6,143 9,471 8,279 (2,458) ------------------------------------------------------ Income before income taxes ............................ 74,340 111,659 88,289 101,098 Provision for income taxes ............................ 29,150 43,750 36,600 40,100 ------------------------------------------------------ Net income ............................................ 45,190 67,909 51,689 60,998 Redeemable preferred stock dividends .................. (475) (237) (237) -- ------------------------------------------------------ Net income available for common shares ................ $ 44,715 $ 67,672 $ 51,452 $ 60,998 ====================================================== Basic earnings per common share ....................... $ 4.43 $ 6.70 $ 5.12 $ 6.11 ====================================================== Diluted earnings per common share ..................... $ 4.41 $ 6.67 $ 5.10 $ 6.09 ====================================================== Basic average number of common shares outstanding ..... 10,098 10,098 10,060 9,988 Diluted average number of common shares outstanding ... 10,143 10,140 10,101 10,008 1999 QUARTERLY COMPREHENSIVE INCOME ................... $ 47,803 $ 50,808 $ 19,615 $ 67,559 ======================================================
First Second Third Fourth Quarter Quarter Quarter Quarter Operating revenues Advertising $ 273,564 $ 316,102 $ 292,523 $ 344,645 Circulation and subscriber 161,298 168,614 171,535 173,689 Education 146,929 149,695 160,454 164,047 Other 18,531 13,292 15,781 13,504 600,322 647,703 640,293 695,885 Operating costs and expenses Operating 333,239 335,443 342,411 358,862 Selling, general and administrative 176,866 160,387 162,642 164,200 Depreciation of property, plant and equipment 41,173 41,286 45,808 43,641 Amortization of goodwill and other intangibles 152 159 172 172 551,430 537,275 551,033 566,875 Income from operations 48,892 110,428 89,260 129,010 Equity in losses of affiliates (6,506 ) (9,183 ) (1,254 ) (2,366 ) Interest income 133 59 69 71 Interest expense (8,867 ) (8,797 ) (8,717 ) (7,438 ) Other income (expense), net 6,454 (5,963 ) 1,115 27,268 Income before income taxes and cumulative effect of change in accounting principle 40,106 86,544 80,473 146,545 Provision for income taxes 16,400 35,400 32,700 52,800 Income before cumulative effect of change in accounting principle 23,706 51,144 47,773 93,745 (12,100 ) — — — Net income 11,606 51,144 47,773 93,745 Redeemable preferred stock dividends (525 ) (259 ) (249 ) — Net income available for common shares $ 11,081 $ 50,885 $ 47,524 $ 93,745 Basic earnings per common share: Before cumulative effect of change in accounting principle $ 2.44 $ 5.35 $ 5.00 $ 9.86 Cumulative effect of change in accounting principle (1.27 ) — — — Net income available for common shares $ 1.17 $ 5.35 $ 5.00 $ 9.86 Diluted earnings per common share: Before cumulative effect of change in accounting principle $ 2.43 $ 5.34 $ 4.99 $ 9.83 Cumulative effect of change in accounting principle (1.27 ) — — — Net income available for common shares $ 1.16 $ 5.34 $ 4.99 $ 9.83 Basic average number of common shares outstanding 9,498 9,503 9,506 9,509 Diluted average number of common shares outstanding 9,512 9,521 9,523 9,537 2002 Quarterly Comprehensive Income $ 3,380 $ 47,493 $ 58,333 $ 90,861 The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Income due to rounding.
4951 SCHEDULE II THE WASHINGTON POST COMPANY SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
=================================================================================================================================== COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ----------------------------------------------------------------------------------------------------------------------------------- ADDITIONS - BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END OF DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD - -----------------------------------------------------------------------------------------------------------------------------------Year Ended January 3, 1999 Allowance for doubtful accounts and returns ................ $39,834,000 $58,100,000 $51,242,000 $46,692,000 Allowance for advertising rate adjustments and discounts ... 9,872,000 9,792,000 11,306,000 8,358,000 ----------- ----------- ----------- ----------- $49,706,000 $67,892,000 $62,548,000 $55,050,000 =========== =========== =========== =========== Year Ended January 2, 2000 Allowance for doubtful accounts and returns ................ $46,692,000 $62,824,000 $58,337,000 $51,179,000 Allowance for advertising rate adjustments and discounts ... 8,358,000 9,136,000 8,052,000 9,442,000 ----------- ----------- ----------- ----------- $55,050,000 $71,960,000 $66,389,000 $60,621,000 =========== =========== =========== =========== Year Ended December 31, 2000 Allowance for doubtful accounts and returns ................ $51,179,000 $74,540,000 $67,716,000 $58,003,000 Allowance for advertising rate adjustments and discounts ... 9,442,000 2,662,000 4,909,000 7,195,000 ----------- ----------- ----------- ----------- $60,621,000 $77,202,000 $72,625,000 $65,198,000 =========== =========== =========== ===========5052 Management's Discussion and Analysis of Results of Operations and Financial Condition This analysis should be read(1) Cumulative effect charge presented inconjunction withtheconsolidated financial statements and the notes thereto. RESULTS OF OPERATIONS--2000 COMPARED TO 1999 Net income for 2000 was $136.5 million, compared with net income of $225.8 million for 1999. Diluted earnings per share totaled $14.32 in 2000, compared with $22.30 in 1999, with fewer average shares outstanding in 2000.first quarter as required by SFAS 142.55
First Second Third Fourth (in thousands, except per share amounts) Quarter Quarter Quarter Quarter Operating revenues Advertising $ 297,974 $ 312,881 $ 277,425 $ 321,047 Circulation and subscriber 148,016 161,260 174,716 169,036 Education 121,341 119,442 127,159 125,329 Other 19,068 10,326 13,007 12,997 586,399 603,909 592,307 628,409 Operating costs and expenses Operating 343,416 340,114 345,567 358,003 Selling, general and administrative 147,915 151,409 144,954 142,480 Depreciation of property, plant and equipment 34,632 35,867 34,765 33,036 Amortization of goodwill and other intangibles 17,192 19,926 20,068 21,748 543,155 547,316 545,354 555,267 Income from operations 43,244 56,593 46,953 73,141 Equity in losses of affiliates (12,461 ) (6,641 ) (26,535 ) (23,023 ) Interest income 325 1,047 226 570 Interest expense (14,624 ) (13,240 ) (11,861 ) (9,914 ) Other income (expense), net 308,769 (10,717 ) (4,365 ) (9,949 ) Income before income taxes 325,253 27,042 4,418 30,825 Provision for income taxes 126,200 12,550 2,850 16,300 Net income 199,053 14,492 1,568 14,525 Redeemable preferred stock dividends (526 ) (263 ) (263 ) — Net income available for common shares 198,527 14,229 1,305 14,525 Basic earnings per common share $ 20.94 $ 1.50 $ 0.14 $ 1.53 Diluted earnings per common share $ 20.90 $ 1.50 $ 0.14 $ 1.53 Basic average number of common shares outstanding 9,479 9,485 9,489 9,492 Diluted average number of common shares outstanding 9,499 9,502 9,502 9,501 2001 Quarterly Comprehensive Income (loss) $ 187,049 $ 25,860 $ (937 ) $ 25,342 Net income available for common shares, as reported $ 198,527 $ 14,229 $ 1,305 $ 14,525 Amortization of goodwill and other intangibles, net of tax 12,224 13,863 13,948 14,954 Pro forma net income available for common shares $ 210,751 $ 28,092 $ 15,253 $ 29,479 Basic earnings per share $ 22.23 $ 2.96 $ 1.61 $ 3.11 Diluted earnings per share $ 22.19 $ 2.96 $ 1.61 $ 3.10 The
decline in 2000 net income and diluted earnings per share was primarily caused by increased costs associated with the development of new businesses (impact of $28.9 million or $3.47 per diluted share), a one-time charge arising from an early retirement program at The Washington Post newspaper (impact of $16.5 million or $1.74 per diluted share), higher interest expense (impact of $16.6 million or $1.85 per diluted share), and a reduced pension credit (impact of $11.7 million or $0.92 per diluted share). In addition, 1999 net income included gains from the sale of marketable equity securities, which did not recur in 2000 (impact of $18.6 million or $1.81 per share). These factors were offset in part by improved operating results at The Washington Post newspaper and the television broadcasting division. Revenue for 2000 totaled $2,412.2 million, an increase of 9 percent from $2,215.6 million in 1999. Advertising revenue increased 5 percent in 2000, and circulation and subscriber revenue increased 4 percent. Education revenue increased 47 percent in 2000, and other revenue decreased 6 percent. Increases in advertising revenue at the newspaper and television broadcasting divisions accounted for mostsum of theincreasefour quarters may not necessarily be equal to the annual amounts reported inadvertising revenue. The increase in circulation and subscriber revenue is primarilythe Consolidated Statements of Income due toa 6 percent increase in subscriber revenue at the cable division. Revenue growth at Kaplan, Inc. (about two-thirds of which was from acquisitions) accounted for the increase in education revenue. The decrease in other revenue is primarily duerounding.(1) Quarterly 2001 results are adjusted to
the disposition of Legi-Slate in June of 1999. Operating costs and expenses for the year increased 13 percent to $2,072.3 million, from $1,827.1 million in 1999. The cost and expense increase is primarily attributable to the one-time charge arising from the early retirement program at The Post, companies acquired in 2000 and 1999, greater spending for new business development at Kaplan, Inc. and washingtonpost.com, higher depreciation and amortization expense, and a reduced pension credit. Operating income decreased 13 percent to $339.9 million in 2000, from $388.5 million in 1999. The Company's 2000 operating income includes $61.7 million of net pension credits (excluding the one-time charge related to the early retirement program completed at The Washington Post newspaper), compared to $81.7 million in 1999. DIVISION RESULTS NEWSPAPER PUBLISHING DIVISION. Newspaper division revenue in 2000 increased 5 percent to $918.2 million, from $875.1 million in 1999. Advertising revenue at the newspaper division rose 5 percent over the previous year; circulation revenue remained essentially unchanged. Total print advertising revenue grew 4 percent in 2000 at The Washington Post newspaper, principally as a result of higher advertising rates. At The Post, higher advertising rates, offset in part by advertising volume declines, generated a 4 percent and 2 percent increase in full run retail and classified print advertising revenue, respectively. Other print advertising revenue (including general and preprint) at The Post increased 5 percent due mainly to increased general advertising volume and higher rates. Newspaper division operating margin in 2000 decreased to 12 percent, from 18 percent in 1999. Excluding the $27.5 million, pre-tax, one-time charge for the early retirement program completed at The Washington Post, the 2000 newspaper division operating margin totaled 15 percent. The decline in operating margin resulted mostly from increased spending on marketing and sales initiatives at washingtonpost.com, an 8 percent increase in newsprint expense, and a reduced pension credit, offset in part by higher advertising revenues. Daily circulation remained unchanged at The Washington Post; Sunday circulation declined 1 percent. Revenue generated by the Company's online publishing activities, primarily washingtonpost.com, totaled $27.1 million for 2000, versus $15.6 million for 1999. TELEVISION BROADCASTING DIVISION. Revenue at the broadcast division increased 7 percent to $364.8 million, from $341.8 million in 1999. Political and Olympics advertising in the third and fourth quarters of 2000 totaled approximately $42 million, accounting for the increase in 2000 revenue. Competitive market position remained strong for the Company's television stations. WJXT in Jacksonville, KSAT in San Antonio, and WDIV in Detroit were all ranked number one in the latest ratings period, sign-on to sign-off, in their markets; WPLG was tied for first among English-language stations in the Miami market; and KPRC in Houston and WKMG in Orlando ranked third in their respective markets, but continued to make good progress in improving market share. Operating margin at the broadcast division was 49 percent for both 2000 and 1999. Excludingexclude amortization of goodwill andintangibles, operating margin was 53 percent for 2000 and 1999. MAGAZINE PUBLISHING DIVISION. Magazine division revenue was $416.4 million for 2000, up 4 percent over 1999 revenue of $401.1 million. Operating income for the magazine division totaled $49.1 million for 2000, a decrease of 21 percent from operating income of $62.1 million in 1999. The 21 percent decrease in operating income occurred primarily at Newsweek, where reduced pension credits and higher subscription acquisition costs at the domestic edition outpaced revenue and operating income improvements at the international edition. Operating margin at the magazine publishing division decreased to 12 percent for 2000, compared to 15 percent in 1999. 5153 CABLE TELEVISION DIVISION. Revenue at the cable division rose 7 percent to $358.9 million in 2000, compared to $336.3 million in 1999. Basic, tier, and advertising revenue categories each showed improvement over 1999. The increase in subscriber revenue is attributable to higher rates. The number of basic subscribers at the end of 2000 totaled 735,000, a 1 percent decline from 739,850 basic subscribers at the end of 1999. Cable operating cash flow (operating income excluding depreciation and amortization expense) increased 2 percent to $143.7 million, from $140.2 million in 1999; operating cash flow margins totaled 40 percent and 42 percent, for 2000 and 1999, respectively. Operating income at the cable division for 2000 and 1999 totaled $66.0 million and $67.1 million, respectively. The decline in operating income is primarily attributable to an increase in programming expense, additional costs associated with the launch of new services, and higher depreciation expense, offset in part by higher revenue. The increase in depreciation expense is due to recent capital spending for continuing system rebuilds and upgrades, which will enable the cable division to offer new digital and high-speed cable modem services to its subscribers. The cable division began its rollout plan for these services in the second and third quarters of 2000. The rollout plan for the new digital cable services includes an offer to provide services free for one year. Accordingly, management does not believe the cable division's financial operating performance will materially benefit from these new services in 2001; however, financial benefits are expected in 2002 and thereafter. EDUCATION DIVISION. Excluding the operating results of the career fair and HireSystems businesses from 1999 (these businesses were contributed to BrassRing at the end of the third quarter of 1999), 2000 education division operating results compared with 1999 are as follows (in thousands):
2000 1999 % change - ---------------------------------------------------------------------------------REVENUE Test prep and professional training ....................... $ 244,865 $ 209,964 17% Quest post-secondary education ... 56,908 -- n/a New business development activities ..................... 52,048 30,175 72% ---------------------------------------- $ 353,821 $ 240,139 47% ======================================== OPERATING INCOME (LOSS) Test prep and professional training ....................... $ 30,399 $ 25,733 18% Quest post-secondary education ... 8,359 -- n/a New business development activities ..................... (56,155) (20,128) 179% Kaplan corporate overhead ........ (8,365) (7,153) 17% Stock-based incentive compensation ................... (6,000) (7,250) (17%) Goodwill and other intangible amortization ................... (10,084) (6,861) 47% ---------------------------------------- $ (41,846) $ (15,659) 167% ========================================Approximately 50 percent of the 2000 increase in test preparation and professional training revenue is attributable to acquisitions; the remaining increase is due to higher enrollments and tuition increases. Post-secondary education represents the results of Quest Education Corporation from the date of its acquisition in August 2000. New business development activities represent the results of Score!, eScore.com and The Kaplan Colleges. The increase in new business development revenue is attributable mostly to new learning centers opened by Score!, which operated 142 centers at the end of 2000 versus 100 centers at the end of 1999. The increase in new business development losses is attributable to start-up period spending at eScore.com and kaplancollege.com (part of The Kaplan Colleges) and to losses associated with the early operating periods of new Score! centers. Management presently expects new business development losses in 2001 will be 35 percent to 45 percent less than the losses in 2000 that resulted from these activities. Corporate overhead represents unallocated expenses of Kaplan, Inc.'s corporate office. Stock-based incentive compensation represents expense arising from a stock option plan established for certain members of Kaplan's management (the general provisions of which are discussed in Note G to the Consolidated Financial Statements). Under this plan, the amount of stock-based incentive compensation expense varies directly with the estimated fair value of Kaplan's common stock. Including the operating results of the career fair and HireSystems businesses for the first nine months of 1999 (these businesses were contributed to BrassRing at the end of the third quarter of 1999), education division revenue increased 37 percent to $353.8 million for 2000, compared to $257.5 million for 1999. Operating losses increased 10 percent in 2000 to $41.8 million, from $38.0 million in 1999. OTHER BUSINESSESindefinite-lived intangible assets no longer amortized under SFAS 142.56SCHEDULE II
THE WASHINGTON POST COMPANY
SCHEDULE II — VALUATION AND
CORPORATE OFFICE. For 2000, other businesses and corporate office includes the expenses of the Company's corporate office. For 1999, other businesses and corporate office includes the expenses associated with the corporate office and the operating results of Legi-Slate through June 30, 1999, the date of its sale. Operating losses for 2000 totaled $25.2 million, representing a 7 percent improvement over 1999. The reduction in 2000 losses is primarily attributable to the absence of losses generated by Legi-Slate and reduced spending at the Company's corporate office. EQUITY IN LOSSESQUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E Additions - Balance at Charged to Balance at beginning costs and end of Description of period expenses Deductions period Year Ended December 31, 2000 Allowance for doubtful accounts and returns $ 51,179,000 $ 74,540,000 $ 67,716,000 $ 58,003,000 Allowance for advertising rate adjustments and discounts 9,442,000 2,662,000 4,909,000 7,195,000 $ 60,621,000 $ 77,202,000 $ 72,625,000 $ 65,198,000 Year Ended December 30, 2001 Allowance for doubtful accounts and returns $ 58,003,000 $ 98,655,000 $ 88,689,000 $ 67,969,000 Allowance for advertising rate adjustments and discounts 7,195,000 4,163,000 6,079,000 5,279,000 $ 65,198,000 $ 102,818,000 $ 94,768,000 $ 73,248,000 Year Ended December 29, 2002 Allowance for doubtful accounts and returns $ 67,969,000 $ 91,091,000 $ 98,820,000 $ 60,240,000 Allowance for advertising rate adjustments and discounts 5,279,000 4,938,000 5,061,000 5,156,000 $ 73,248,000 $ 96,029,000 $ 103,881,000 $ 65,396,000 TEN-YEAR SUMMARY OF
AFFILIATES. The Company's equity in losses of affiliates for 2000 was $36.5 million, compared to losses of $8.8 million for 1999. The Company's affiliate investments consist of a 42 percent effective interest in BrassRing, Inc. (formed in late September 1999), a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited. The decline in 2000 affiliate results is attributable to BrassRing, Inc., which is in the integration and marketing phase of its operations. 5254 BrassRing accounted for approximately $37.0 million of the Company's 2000 equity in affiliate losses. A substantial portion of BrassRing's losses arises from goodwill and intangible amortization expense. Accordingly, the $37.0 million of equity in affiliate losses recorded by the Company in 2000 did not require significant funding by the Company. NON-OPERATING ITEMS. In 2000, the Company incurred net interest expense of $53.8 million, compared to $25.7 million of net interest expense in 1999. The 2000 increase in net interest expense is attributable to borrowings executed by the Company during 1999 and 2000 to fund capital improvements, acquisition activities, and share repurchases. The Company recorded other non-operating expense of $19.8 million in 2000, compared to $21.4 million in non-operating income for 1999. The 1999 non-operating income was comprised mostly of non-recurring gains arising from the sale of marketable securities (mostly various Internet-related securities). The 2000 non-operating expense resulted mostly from the write-downs of certain of the Company's e-commerce focused cost method investments. INCOME TAXES. The effective tax rate in 2000 was 40.6 percent, compared to 39.9 percent in 1999. The increase in the effective tax rate is principally due to the non-recognition of benefits from state net operating loss carryforwards generated by certain of the Company's new business start-up activities and an increase in goodwill amortization expense that is not deductible for income tax purposes. RESULTS OF OPERATIONS--1999 COMPARED TO 1998 Net income in 1999 was $225.8 million, compared with net income of $417.3 million for 1998. Diluted earnings per share totaled $22.30 in 1999, compared to $41.10 in 1998. The Company's 1998 net income includes $194.4 million from the disposition of the Company's 28 percent interest in Cowles Media Company, the sale of 14 small cable systems, and the disposition of the Company's investment in Junglee, a facilitator of Internet commerce. Excluding the effect of these one-time items from 1998 net income, the Company's 1999 net income of $225.8 million increased 1 percent, from net income of $222.9 million in 1998. On the same basis of presentation, diluted earnings per share for 1999 of $22.30 increased 2 percent, compared to $21.90 in 1998, with fewer average shares outstanding. Revenue for 1999 totaled $2,215.6 million, an increase of 5 percent from $2,110.4 million in 1998. Advertising revenue increased 3 percent in 1999, and circulation and subscriber revenue increased 6 percent. Education revenue increased 40 percent in 1999, and other revenue decreased 31 percent. The newspaper and magazine divisions generated most of the increase in advertising revenue. The increase in circulation and subscriber revenue is primarily due to a 13 percent increase in subscriber revenue at the cable division. Revenue growth at Kaplan, Inc. (about two-thirds of which was from acquisitions) accounted for the increase in education revenue. The decline in other revenue is principally due to the disposition of Moffet, Larson & Johnson (July 1998) and Legi-Slate (June 1999). Operating costs and expenses for the year increased 6 percent to $1,827.1 million, from $1,731.5 million in 1998. The cost and expense increase is primarily due to companies acquired in 1999 and 1998, greater spending for new business development activities at Kaplan, Inc. and washingtonpost.com, and higher depreciation and amortization expense. These expense increases were offset in part by a 19 percent decline in newsprint expense and an increase in the Company's pension credit. Operating income increased 3 percent to $388.5 million in 1999, from $378.9 million in 1998. The Company's 1999 operating income includes $81.7 million of net pension credits, compared to $62.0 million in 1998. DIVISION RESULTS NEWSPAPER PUBLISHING DIVISION. At the newspaper division, 1999 included 52 weeks, compared to 53 weeks in 1998. Newspaper division revenue increased 3 percent to $875.1 million, from $848.9 million in 1998. Advertising revenue at the newspaper division rose 5 percent over the previous year. At The Washington Post, advertising revenue increased 3 percent as a result of higher rates and volume. Classified advertising revenue at The Washington Post increased 2 percent primarily due to higher rates. Retail advertising revenue at The Post remained essentially even with the previous year. Other advertising revenue (including general and preprint) at The Post increased 7 percent due mainly to increased general advertising volume and higher rates. Circulation revenue for the newspaper division declined by 3 percent in 1999 due primarily to the extra week in 1998 versus 1999. At The Washington Post, daily circulation for 1999 remained essentially even with 1998; Sunday circulation declined by 1 percent. Newspaper division operating margin in 1999 increased to 18 percent, from 16 percent in 1998. The improvement in operating margin resulted mostly from an improvement in the operating results of The Washington Post, offset in part by increased spending for the continued development of washingtonpost.com. The Post's 1999 operating results benefited from the higher advertising revenue discussed above, a 19 percent reduction in newsprint expense and larger pension credits ($28.0 million in 1999 versus $19.0 million in 1998). These operating income improvements were offset in part by higher depreciation expense (arising from the recently completed expansion of The Post's printing facilities) and other general expense increases, including increased promotion and marketing. TELEVISION BROADCASTING DIVISION. Revenue at the broadcast division declined 4 percent to $341.8 million in 1999, compared to $357.6 million in 1998. The decline in 1999 revenue is due to softness in national advertising revenue and the absence of Winter Olympics advertising revenue (first quarter of 1998) and political advertising 5355 revenue (third and fourth quarter of 1998), offset in part by growth in local advertising revenue. Competitive market position remained strong for the Company's television stations. WJXT in Jacksonville and KSAT in San Antonio continued to be ranked number one in the latest ratings period, sign-on to sign-off, in their markets; WPLG in Miami achieved the top ranking among English-language stations in the Miami market; WDIV in Detroit was ranked second in the Detroit market with very little distance between it and the first place ranking; and KPRC in Houston and WKMG in Orlando ranked third in their respective markets but continued to make good progress in improving market share. Operating margin at the broadcast division was 49 percent in 1999, compared to 48 percent in 1998. Excluding amortization of goodwill and intangibles, operating margin was 53 percent in 1999 and 52 percent in 1998. The improvement in 1999 operating margin is attributable to 1999 expense control initiatives, the benefits of which were offset in part by the decline in national advertising revenue. MAGAZINE PUBLISHING DIVISION. Magazine division revenue was $401.1 million for 1999, up slightly over 1998 revenue of $399.5 million. Operating income for the magazine division totaled $62.1 million in 1999, an increase of 39 percent over operating income of $44.5 million in 1998. The 39 percent increase in operating income is primarily attributable to the operating results of Newsweek. At Newsweek, operating income improved as a result of an increase in the number of advertising pages at the domestic edition, higher pension credits ($48.3 million in 1999 versus $35.9 million in 1998), and a reduction in other operating expenses. Offsetting these improvements were the effects of a decline in advertising revenue at the Company's trade periodicals unit. Operating margin of the magazine division increased to 15 percent in 1999, from 11 percent in 1998. CABLE TELEVISION DIVISION. Revenue at the cable division increased 13 percent to $336.3 million in 1999, from $298.0 million in 1998. Basic, tier, pay, and advertising revenue categories showed improvement over 1998. Increased subscribers in 1999, primarily from acquisitions, and higher rates accounted for most of the increase in revenue. The number of basic subscribers at the end of 1999 increased to 739,850 from 733,000 at the end of 1998. Operating margin at the cable division before amortization expense was 29 percent for 1999, compared to 30 percent for 1998. The decline in operating margin is primarily attributable to a 16 percent increase in depreciation expense arising from system rebuilds and upgrades, offset in part by higher revenue. Cable operating cash flow increased 11 percent to $140.2 million, from $126.5 million in 1998. Approximately 70 percent of the 1999 improvement in operating cash flow is due to the results of cable systems acquired in 1999 and 1998. EDUCATION DIVISION. Excluding the operating results of the career fair and HireSystems businesses (these businesses were contributed to BrassRing at the end of the third quarter of 1999), 1999 revenue for the education division totaled $240.1 million, a 40 percent increase from 1998 revenue of $171.4 million. Approximately two-thirds of the 1999 revenue increase is attributable to businesses acquired in 1999 and 1998. The remaining increase in revenue is due to growth in the test preparation and Score! businesses. Operating losses for 1999 totaled $15.7 million, compared to $6.0 million in 1998. The decline in 1999 operating results is primarily attributable to the opening of new Score! centers, start-up costs associated with eScore.com, and the development of various distance learning initiatives, offset in part by operating income improvements in the traditional test preparation business. Including the results of the career fair businesses and HireSystems, the education and career services division's 1999 revenue totaled $257.5 million, a 32 percent increase over the same period in the prior year. Approximately two-thirds of the increase is due to business acquisitions completed in 1999 and 1998. The remaining increase in 1999 revenue is due to growth in the test preparation and Score! businesses. Division operating losses of $38.0 million represent a $30.5 million increase in operating losses over 1998. The decline in 1999 operating results is primarily attributable to start-up costs associated with opening new Score! centers and the launch of the eScore.com web site, as well as increased spending for HireSystems and the development of various distance learning initiatives, offset in part by operating income improvements in the traditional test preparation business. OTHER BUSINESSES AND CORPORATE OFFICE. For 1999, other businesses and corporate office includes the expenses associated with the Company's corporate office and the operating results of Legi-Slate through June 30, 1999, the date of its sale. For 1998, other businesses and corporate office includes the Company's corporate office, the operating results of Legi-Slate, and the results of MLJ through July 1998, the date of its sale. Revenue for other businesses totaled $3.8 million and $11.5 million in 1999 and 1998, respectively. Operating losses for other businesses and corporate office were $27.1 million for 1999 and $33.4 million for 1998. The decrease in operating losses in 1999 is due to the absence of full-year operating losses of MLJ (sold in July 1998) and Legi-Slate (sold in June 1999). EQUITY IN LOSSES OF AFFILIATES. The Company's equity in losses of affiliates in 1999 was $8.8 million, compared to losses of $5.1 million in 1998. The Company's affiliate investments consist primarily of a 54 percent non-controlling interest in BrassRing (formed in late September 1999), a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited. The decline in 1999 affiliate results is primarily attributable 5456 to BrassRing, which is in the development and marketing phase of its operations. NON-OPERATING ITEMS. In 1999, the Company incurred net interest expense of $25.7 million, compared to $10.4 million of net interest expense in 1998. The 1999 increase in net interest expense is attributable to borrowings executed by the Company to fund capital improvements, acquisition activities, and share repurchases. The Company recorded other non-operating income of $21.4 million in 1999, compared to $304.7 million in 1998. The Company's 1999 other non-operating income consists principally of gains on the sale of marketable equity securities (mostly various Internet-related securities). The Company's 1998 other non-operating income consisted mostly of the non-recurring gains resulting from the Company's disposition of its 28 percent interest in Cowles Media Company, sale of 14 small cable systems, and disposition of its investment interest in Junglee. INCOME TAXES. The effective tax rate in 1999 was 39.9 percent, as compared to 37.5 percent in 1998. The increase in the effective tax rate is principally due to the 1998 disposition of Cowles Media Company being subject to state income tax in jurisdictions with lower tax rates.SELECTED HISTORICAL FINANCIALCONDITION: CAPITAL RESOURCES AND LIQUIDITY ACQUISITIONS. During 2000, the Company spent $212.3 million on business acquisitions. These acquisitions included $177.7 million for Quest Education Corporation, a provider of post-secondary education; $16.2 million for two cable systems serving 8,500 subscribers; and $18.4 million for various other small businesses (principally consisting of educational services companies). During 1999, the Company acquired various businesses for about $90.5 million, which included, among others, $18.3 million for cable systems serving approximately 10,300 subscribers and $61.8 million for various educational and training companies to expand Kaplan, Inc.'s business offerings. In 1998, the Company acquired various businesses for about $320.6 million, which principally included $209.0 million for cable systems serving approximately 115,400 subscribers and $100.4 million for educational, training, and career services companies. DISPOSITIONS. There were no significant business dispositions in 2000. The Company sold Legi-Slate in June 1999; no significant gain or loss resulted. In March 1998, the Company received $330.5 million in cash and 730,525 shares of McClatchy Newspapers, Inc. Class A common stock as a result of a merger of Cowles Media Company and McClatchy. The market value of the McClatchy stock received was $21.6 million. During 1998 and 1999, the Company sold the McClatchy common stock for $24.3 million. In July 1998, the Company completed the sale of 14 small cable systems in Texas, Missouri, and Kansas serving approximately 29,000 subscribers for $41.9 million. In August 1998, the Company received 202,961 shares of Amazon.com common stock as a result of the merger of Amazon.com and Junglee Corporation. At the time of the merger transaction, the Company owned a minority investment interest in Junglee Corporation, a facilitator of Internet commerce. The market value of the Amazon.com stock received was $25.2 million. During 1999 and 1998, the Company sold the Amazon.com common stock for $31.5 million. CAPITAL EXPENDITURES. During 2000, the Company's capital expenditures totaled $172.4 million, about half of which related to plant upgrades at the Company's cable division. The Company's capital expenditures for 2000, 1999, and 1998 are itemized by operating division in Note L to the Consolidated Financial Statements. The Company estimates that in 2001 it will spend approximately $200 million for property and equipment. Approximately 60 percent of this spending is earmarked for the cable division in connection with its rollout of new digital and cable modem services. If the rate of customer acceptance for these new services is slower than anticipated, then the Company will consider slowing its capital expenditures in this area to a level consistent with customer demand. INVESTMENTS IN MARKETABLE EQUITY SECURITIES. At December 31, 2000, the fair value of the Company's investments in marketable equity securities was $221.1 million, which includes $210.2 million in Berkshire Hathaway Inc. Class A and B common stock and $10.9 million of various common stocks of publicly traded companies with e-commerce business concentrations. At December 31, 2000, the gross unrealized gain related to the Company's Berkshire Hathaway Inc. stock investment totaled $25.3 million; the gross unrealized loss on this investment was $19.1 million at January 2, 2000. The Company presently intends to hold the Berkshire Hathaway stock long term. COST METHOD INVESTMENTS. At December 31, 2000 and January 2, 2000, the Company held minority investments in various non-public companies. The companies represented by these investments have products or services that in most cases have potential strategic relevance to the Company's operating units. The Company records its investment in these companies at the lower of cost or estimated fair value. During 2000 and 1999, the Company invested $42.5 million and $33.5 million, respectively, in various cost method investees. At December 31, 2000 and January 2, 2000, the carrying value of the Company's cost method investments totaled $48.6 million and $30.0 million, respectively. COMMON STOCK REPURCHASES AND DIVIDEND RATE. During 2000, 1999, and 1998, the Company repurchased 200, 744,095, and 41,033 shares, respectively, of its Class B common stock at a cost of $0.1 million, $425.9 million, and $20.5 million. The annual dividend rate 5557 for 2001 was increased to $5.60 per share, from $5.40 per share in 2000, $5.20 per share in 1999, and $5.00 per share in 1998. LIQUIDITY. At December 31, 2000, the Company had $20.3 million in cash and cash equivalents. At December 31, 2000, the Company had $525.4 million in commercial paper borrowings outstanding at an average interest rate of 6.6 percent with various maturities throughout the first and second quarter of 2001. In addition, the Company had outstanding $397.9 million of 5.5 percent, 10 year unsecured notes due February 2009. These notes require semiannual interest payments of $11.0 million payable on February 15 and August 15. The Company utilizes a five-year $500 million revolving credit facility and a one-year $250 million revolving credit facility to support the issuance of its short-term commercial paper, and to provide for general corporate purposes. At December 31, 2000, the Company has classified $475.4 million of its commercial paper borrowings as long-term debt in its Consolidated Balance Sheets as the Company has the ability and intent to finance such borrowings on a long-term basis under its credit agreements. During 2000, the Company's borrowings, net of repayments, increased by $38.0 million. The net increase is principally attributable to the acquisition of Quest Education Corporation in July 2000, partially offset by cash generated by operations. The Company expects to fund its estimated capital needs primarily through internally generated funds and, to a lesser extent, commercial paper borrowings. In management's opinion, the Company will have ample liquidity to meet its various cash needs in 2001. SUBSEQUENT EVENTS. On January 12, 2001, the Company sold a cable system serving about 15,000 subscribers in Greenwood, Indiana, for $61.9 million. In a related transaction, on March 1, 2001, the Company completed a cable system exchange with AT&T Broadband whereby the Company exchanged its cable systems in Modesto and Santa Rosa, California, and approximately $42.0 million to AT&T Broadband for cable systems serving approximately 155,000 subscribers principally located in Idaho. For income tax purposes, these transactions qualify as like-kind exchanges and are substantially tax free in nature. However, the Company will record a book accounting gain of approximately $195.3 million ($20.50 per share) in its earnings for the first quarter of 2001. On February 28, 2001, the Company acquired Southern Maryland Newspapers, a division of Chesapeake Publishing Corp. Southern Maryland Newspapers publishes the Maryland Independent in Charles County, Maryland; the Lexington Park Enterprise in St. Mary's County, Maryland; and the Recorder in Calvert County, Maryland. The acquired newspapers have a combined total paid circulation of 50,000. FORWARD-LOOKING STATEMENTS. This annual report contains certain forward-looking statements that are based largely on the Company's current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please refer to the section titled "Forward-looking Statements" in Part 1 of the Company's Annual Report on Form 10-K. 5658 [ This Page Intentionally Left Blank ] 5759 Ten-Year Summary of Selected Historical Financial DataDATASee Notes to Consolidated Financial Statements for the summary of significant accounting policies and additional information relative to the years
1998 - 2000.2000-2002. Operating results prior to 2002 include amortization of goodwill and certain other intangible assets that are no longer amortized under SFAS 142.
(in thousands, except per share amounts) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------RESULTS OF OPERATIONS Operating revenue ........................................................ $ 2,412,150 $ 2,215,571 $ 2,110,360 Income from operations ................................................... $ 339,882 $ 388,453 $ 378,897 Income before cumulative effect of changes in accounting principle ....... $ 136,470 $ 225,785 $ 417,259 Cumulative effect of change in method of accounting for income taxes ..... -- -- -- Cumulative effect of change in method of accounting for postretirement benefits other than pensions ........................................... -- -- -- --------------------------------------------- Net income ............................................................... $ 136,470 $ 225,785 $ 417,259 ============================================= PER SHARE AMOUNTS Basic earnings per common share Income before cumulative effect of changes in accounting principles .... $ 14.34 $ 22.35 $ 41.27 Cumulative effect of changes in accounting principles .................. -- -- -- --------------------------------------------- Net income ............................................................. $ 14.34 $ 22.35 $ 41.27 ============================================= Basic average shares outstanding ....................................... 9,445 10,061 10,087 Diluted earnings per share Income before cumulative effect of changes in accounting principles .... $ 14.32 $ 22.30 $ 41.10 Cumulative effect of changes in accounting principles .................. -- -- -- --------------------------------------------- Net income ............................................................. $ 14.32 $ 22.30 $ 41.10 ============================================= Diluted average shares outstanding ..................................... 9,460 10,082 10,129 Cash dividends ........................................................... $ 5.40 $ 5.20 $ 5.00 Common shareholders' equity .............................................. $ 156.55 $ 144.90 $ 157.34 FINANCIAL POSITION Current assets ........................................................... $ 405,067 $ 476,159 $ 404,878 Working capital (deficit) ................................................ (3,730) (346,389) 15,799 Property, plant, and equipment ........................................... 927,061 854,906 841,062 Total assets ............................................................. 3,200,743 2,986,944 2,729,661 Long-term debt ........................................................... 873,267 397,620 395,000 Common shareholders' equity .............................................. 1,481,007 1,367,790 1,588,103
(in thousands, except per share amounts) 2002 2001 2000 $ 2,584,203 $ 2,411,024 $ 2,409,633 Income from operations $ 377,590 $ 219,932 $ 339,882 Income before cumulative effect of changes in accounting principles $ 216,368 $ 229,639 $ 136,470 Cumulative effect of change in method of accounting for goodwill and other intangibles (12,100 ) — — Cumulative effect of change in method of accounting for income taxes — — — Net income $ 204,268 $ 229,639 $ 136,470 Basic earnings per common share Income before cumulative effect of changes in accounting principles $ 22.65 $ 24.10 $ 14.34 Cumulative effect of changes in accounting principles (1.27 ) — — Net income available for common shares $ 21.38 $ 24.10 $ 14.34 Basic average shares outstanding 9,504 9,486 9,445 Diluted earnings per share Income before cumulative effect of changes in accounting principles $ 22.61 $ 24.06 $ 14.32 Cumulative effect of changes in accounting principles (1.27 ) — — Net income available for common shares $ 21.34 $ 24.06 $ 14.32 Diluted average shares outstanding 9,523 9,500 9,460 Cash dividends $ 5.60 $ 5.60 $ 5.40 Common shareholders’ equity $ 193.18 $ 177.30 $ 156.55 Current assets $ 382,955 $ 396,857 $ 405,067 Working capital (deficit) (353,157 ) (37,233 ) (3,730 ) Property, plant and equipment 1,094,400 1,098,211 927,061 Total assets 3,583,894 3,559,098 3,200,743 Long-term debt 405,547 883,078 873,267 Common shareholders’ equity 1,837,293 1,683,485 1,481,007 (1) Operating revenues have been reclassified to conform with the current year presentation.
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(in thousands, except per share amounts) 1999 1998 1997 1996 1995 1994 1993 $ 2,212,177 $ 2,107,593 $ 1,952,986 $ 1,851,058 $ 1,716,971 $ 1,611,629 $ 1,496,029 Income from operations $ 388,453 $ 378,897 $ 381,351 $ 337,169 $ 271,018 $ 274,875 $ 238,980 Income before cumulative effect of changes in accounting principles $ 225,785 $ 417,259 $ 281,574 $ 220,817 $ 190,096 $ 169,672 $ 153,817 Cumulative effect of change in method of accounting for goodwill and other intangibles — — — — — — — Cumulative effect of change in method of accounting for income taxes — — — — — — 11,600 Net income $ 225,785 $ 417,259 $ 281,574 $ 220,817 $ 190,096 $ 169,672 $ 165,417 Basic earnings per common share Income before cumulative effect of changes in accounting principles $ 22.35 $ 41.27 $ 26.23 $ 20.08 $ 17.16 $ 14.66 $ 13.10 Cumulative effect of changes in accounting principles — — — — — — 0.98 Net income available for common shares $ 22.35 $ 41.27 $ 26.23 $ 20.08 $ 17.16 $ 14.66 $ 14.08 Basic average shares outstanding 10,061 10,087 10,700 10,964 11,075 11,577 11,746 Diluted earnings per share Income before cumulative effect of changes in accounting principles $ 22.30 $ 41.10 $ 26.15 $ 20.05 $ 17.15 $ 14.65 $ 13.10 Cumulative effect of changes in accounting principles — — — — — — 0.98 Net income available for common shares $ 22.30 $ 41.10 $ 26.15 $ 20.05 $ 17.15 $ 14.65 $ 14.08 Diluted average shares outstanding 10,082 10,129 10,733 10,980 11,086 11,582 11,750 Cash dividends $ 5.20 $ 5.00 $ 4.80 $ 4.60 $ 4.40 $ 4.20 $ 4.20 Common shareholders’ equity $ 144.90 $ 157.34 $ 117.36 $ 121.24 $ 107.60 $ 99.32 $ 92.84 Current assets $ 476,159 $ 404,878 $ 308,492 $ 382,631 $ 406,570 $ 375,879 $ 625,574 Working capital (deficit) (346,389 ) 15,799 (300,264 ) 100,995 98,393 102,806 367,041 Property, plant and equipment 854,906 841,062 653,750 511,363 457,359 411,396 363,718 Total assets 2,986,944 2,729,661 2,077,317 1,870,411 1,732,893 1,696,868 1,622,504 Long-term debt 397,620 395,000 — — — 50,297 51,768 Common shareholders’ equity 1,367,790 1,588,103 1,184,074 1,322,803 1,184,204 1,126,933 1,087,419 (1) Operating revenues have been reclassified to conform with the current year presentation.
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1997 1996 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------$ 1,956,253 $ 1,853,445 $ 1,719,449 $ 1,613,978 $ 1,498,191 $ 1,450,867 $ 1,380,261 $ 381,351 $ 337,169 $ 271,018 $ 274,875 $ 238,980 $ 232,112 $ 192,866 $ 281,574 $ 220,817 $ 190,096 $ 169,672 $ 153,817 $ 127,796 $ 118,721 -- -- -- -- 11,600 -- -- -- -- -- -- -- -- (47,897) - ------------------------------------------------------------------------------------------------------------ $ 281,574 $ 220,817 $ 190,096 $ 169,672 $ 165,417 $ 127,796 $ 70,824 ============================================================================================================ $ 26.23 $ 20.08 $ 17.16 $ 14.66 $ 13.10 $ 10.81 $ 10.00 -- -- -- -- 0.98 -- (4.04) - ------------------------------------------------------------------------------------------------------------ $ 26.23 $ 20.08 $ 17.16 $ 14.66 $ 14.08 $ 10.81 $ 5.96 ============================================================================================================ 10,700 10,964 11,075 11,577 11,746 11,827 11,874 $ 26.15 $ 20.05 $ 17.15 $ 14.65 $ 13.10 $ 10.80 $ 10.00 -- -- -- -- 0.98 -- (4.04) - ------------------------------------------------------------------------------------------------------------ $ 26.15 $ 20.05 $ 17.15 $ 14.65 $ 14.08 $ 10.80 $ 5.96 ============================================================================================================ 10,733 10,980 11,086 11,582 11,750 11,830 11,876 $ 4.80 $ 4.60 $ 4.40 $ 4.20 $ 4.20 $ 4.20 $ 4.20 $ 117.36 $ 121.24 $ 107.60 $ 99.32 $ 92.84 $ 84.17 $ 78.12 $ 308,492 $ 382,631 $ 406,570 $ 375,879 $ 625,574 $ 524,975 $ 472,219 (300,264) 100,995 98,393 102,806 367,041 242,627 183,959 653,750 511,363 457,359 411,396 363,718 390,804 390,313 2,077,317 1,870,411 1,732,893 1,696,868 1,622,504 1,568,121 1,487,661 -- -- -- 50,297 51,768 51,842 51,915 1,184,074 1,322,803 1,184,204 1,126,933 1,087,419 993,005 924,2855961INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- -----------3.1 --- Certificate of Incorporation of the Company as amended through May 12, 1988, and the Certificate of Designation for the Company's Series A Preferred Stock filed January 22, 1996 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3.2 --- By-Laws of the Company as amended through March 8, 2001. 4.1 --- Credit Agreement dated as of March 17, 1998, among the Company, Citibank, N.A., Wachovia Bank of Georgia, N.A., and the other Lenders named therein (incorporated by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1997). 4.2 --- 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). 4.3 --- Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1999). 4.4 --- 364-Day Credit Agreement dated as of September 30, 2000, among the Company, Citibank, N.A., SunTrust Bank and The Chase Manhattan Bank (incorporated by reference to Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 2000). 10.1 --- The Washington Post Company Annual Incentive Compensation Plan as amended and restated effective June 30, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).* 10.2 --- The Washington Post Company Long-Term Incentive Compensation Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000).* 10.3 --- The Washington Post Company Stock Option Plan as amended and restated through March 12, 1998 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1997).* 10.4 --- The Washington Post Company Supplemental Executive Retirement Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000).*[Index Continued on Next Page] 6062 INDEX TO EXHIBITS (CONTINUED)
EXHIBIT NUMBER DESCRIPTION - ------- -----------10.5 --- The Washington Post Company Deferred Compensation Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000).* 10.6 --- Consulting Agreement between the Company and Alan G. Spoon dated March 8, 2000 (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2000).* 11 --- Calculation of earnings per share of common stock. 21 --- List of subsidiaries of the Company. 23 --- Consent of independent accountants. 24 --- Power of attorney dated March 8, 2001.- ---------------
Exhibit Number Description 3 .1 Certificate of Incorporation of the Company as amended through May 12, 1988, and the Certificate of Designation for the Company’s Series A Preferred Stock filed January 22, 1996 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 3 .2 By-Laws of the Company as amended through March 8, 2001 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000). 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 Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999). 4 .3 364-Day Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, N.A., SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs Bank (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002). 4 .4 5-Year Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, N.A., SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs Bank (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002). 10 .1 The Washington Post Company Annual Incentive Compensation Plan as amended and restated effective June 30, 1995 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).* 10 .2 The Washington Post Company Long-Term Incentive Compensation Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2000).* 10 .3 The Washington Post Company Stock Option Plan as amended and restated through March 12, 1998 (corrected copy) (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2001).* 10 .4 The Washington Post Company Supplemental Executive Retirement Plan as amended and restated through March 14, 2002 (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001).* 10 .5 The Washington Post Company Deferred Compensation Plan as amended and restated effective March 9, 2000 (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2000).* 11 Calculation of earnings per share of common stock. 21 List of subsidiaries of the Company. 23 Consent of independent accountants. 24 Power of attorney dated March 13, 2003. 99 .1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. 99 .2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act. * A management contract or compensatory plan or arrangement required to be included as an exhibit hereto pursuant to Item14(c)15(c) of
Form 10-K.61