SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended March 30,June 29, 2003

 

Commission File Number 1-6714

 


 

THE WASHINGTON POST COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware

 

53-0182885

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1150 15th Street, N.W.

Washington, D.C.

 

20071

(Address of principal executive offices)

 

(Zip Code)

 

(202) 334-6000

(Registrant’s telephone number, including area code)

 


 

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

 

Shares outstanding at May 8,July 28, 2003:

 

Class A Common Stock

 

1,722,250 Shares

Class B Common Stock

 

7,804,3707,809,440 Shares

 



THE WASHINGTON POST COMPANY

 

Index to Form 10-Q

 

PART I.

FINANCIAL INFORMATION

   

Item 1.

  

Financial Statements

   
   

a.Condensed Consolidated Statements of Income (Unaudited) for the Thirteen and Twenty-six Weeks Ended March 30,June 29, 2003 and March 31,June 30, 2002

  

3

   

b.Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Thirteen and Twenty-six Weeks Ended March 30,June 29, 2003 and March 31,June 30, 2002

  

4

5
   

c.Condensed Consolidated Balance Sheets at March 30,June 29, 2003 (Unaudited) and December 29, 2002

  

5

6
   

d.Condensed Consolidated Statements of Cash Flows (Unaudited) for the ThirteenTwenty-six Weeks Ended March 30,June 29, 2003 and March 31,June 30, 2002

  

6

7
   

e.Notes to Condensed Consolidated Financial Statements (Unaudited)

  

7

8

Item 2.

  

Management’s Discussion and Analysis of Results of Operations and Financial Condition

  

12

15

Item 4.

  

Controls and Procedures

  

17

23

PART II.

OTHER INFORMATION

   

Item 4.

Submission of Matters to a Vote of Security Holders

24

Item 6.

  

Exhibits and Reports on Form 8-K

  

18

25

Signatures

  

19

Certifications

20

26

 

2.2


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The Washington Post Company

Condensed Consolidated Statements of Income (Unaudited)

 

  Thirteen Weeks Ended

  Twenty-six Weeks Ended

 

(In thousands, except per share amounts)

  

March 30, 2003


   

March 31, 2002


   June 29,
2003


  June 30,
2002


  June 29,
2003


  June 30,
2002


 

Operating revenues

               

Advertising

  

$

279,796

 

  

$

273,564

 

  $318,927  $316,102  $598,724  $589,671 

Circulation and subscriber

  

 

172,036

 

  

 

161,298

 

   176,348   168,614   348,534   329,755 

Education

  

 

177,778

 

  

 

146,929

 

   195,560   149,695   373,338   296,776 

Other

  

 

10,830

 

  

 

18,531

 

   16,105   13,292   26,784   31,823 
  


  


  


 


 


 


  

 

640,440

 

  

 

600,322

 

   706,940   647,703   1,347,380   1,248,025 
  


  


  


 


 


 


Operating costs and expenses

               

Operating

  

 

348,634

 

  

 

333,239

 

   368,974   335,443   717,608   668,683 

Selling, general and administrative

  

 

169,170

 

  

 

176,866

 

   187,493   160,387   356,663   337,252 

Depreciation of property, plant and equipment

  

 

43,395

 

  

 

41,173

 

   43,212   41,286   86,607   82,459 

Amortization of intangible assets

  

 

149

 

  

 

152

 

   363   159   512   311 
  


  


  


 


 


 


  

 

561,348

 

  

 

551,430

 

   600,042   537,275   1,161,390   1,088,705 
  


  


  


 


 


 


Income from operations

  

 

79,092

 

  

 

48,892

 

   106,898   110,428   185,990   159,320 

Other income (expense)

               

Equity in losses of affiliates

  

 

(2,642

)

  

 

(6,506

)

   (5,524)  (9,183)  (8,166)  (15,689)

Interest income

  

 

114

 

  

 

133

 

   458   59   573   192 

Interest expense

  

 

(7,237

)

  

 

(8,867

)

   (6,658)  (8,797)  (13,896)  (17,664)

Other, net

  

 

48,135

 

  

 

6,454

 

   2,274   (5,963)  50,409   491 
  


  


  


 


 


 


Income before income taxes and cumulative effect of change in accounting principle

  

 

117,462

 

  

 

40,106

 

   97,448   86,544   214,910   126,650 

Provision for income taxes

  

 

44,400

 

  

 

16,400

 

   36,800   35,400   81,200   51,800 
  


  


  


 


 


 


Income before cumulative effect of change in accounting principle

  

 

73,062

 

  

 

23,706

 

   60,648   51,144   133,710   74,850 

Cumulative effect of change in method of accounting for goodwill and other intangible assets, net of taxes

  

 

—  

 

  

 

(12,100

)

   —     —     —     (12,100)
  


  


  


 


 


 


Net income

  

 

73,062

 

  

 

11,606

 

   60,648   51,144   133,710   62,750 

Redeemable preferred stock dividends

  

 

(517

)

  

 

(525

)

   (258)  (259)  (775)  (784)
  


  


  


 


 


 


Net income available for common shares

  

$

72,545

 

  

$

11,081

 

  $60,390  $50,885  $132,935  $61,966 
  


  


  


 


 


 


Basic earnings per common share:

      

Basic earnings per share:

         

Before cumulative effect of change in accounting principle

  

$

7.62

 

  

$

2.44

 

  $6.34  $5.35  $13.95  $7.79 

Cumulative effect of change in accounting principle

  

 

—  

 

  

 

(1.27

)

   —     —     —     (1.27)
  


  


  


 


 


 


Net income available for common stock

  

$

7.62

 

  

$

1.17

 

  $6.34  $5.35  $13.95  $6.52 
  


  


  


 


 


 


Diluted earnings per share:

      

Before cumulative effect of change in accounting principle

  

$

7.59

 

  

$

2.43

 

Cumulative effect of change in accounting principle

  

 

—  

 

  

 

(1.27

)

  


  


Net income available for common stock.

  

$

7.59

 

  

$

1.16

 

  


  


Dividends declared per common share

  

$

2.90

 

  

$

2.80

 

  


  


Basic average number of common shares outstanding

  

 

9,526

 

  

 

9,498

 

Diluted average number of common shares outstanding

  

 

9,553

 

  

 

9,512

 

 

3.3


Diluted earnings per share:

                 

Before cumulative effect of change in accounting principle

  $6.32  $5.34  $13.91  $7.78 

Cumulative effect of change in accounting principle

   —     —     —     (1.27)
   

  

  

  


Net income available for common stock

  $6.32  $5.34  $13.91  $6.51 
   

  

  

  


Dividends declared per common share

  $1.45  $1.40  $4.35  $4.20 
   

  

  

  


Basic average number of common shares outstanding

   9,527   9,503   9,527   9,501 

Diluted average number of common shares outstanding

   9,555   9,521   9,554   9,516 

4


The Washington Post Company

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

  Thirteen Weeks Ended

  Twenty-six Weeks Ended

 

(In thousands)

  

March 30, 2003


   

March 31, 2002


   June 29,
2003


  June 30,
2002


  June 29,
2003


  June 30,
2002


 

Net income

  

$

73,062

 

  

$

11,606

 

  $60,648  $51,144  $133,710  $62,750 
  


  


  


 


 


 


Other comprehensive income (loss)

               

Foreign currency translation adjustment

  

 

3,105

 

  

 

99

 

   5,088   4,318   8,193   4,417 

Less: reclassification adjustment on sale of affiliate investment

  

 

(1,633

)

  

 

—  

 

Reclassification adjustment on sale of affiliate investment

   —     —     (1,633)  —   

Change in unrealized gain on available-for-sale securities

  

 

(21,718

)

  

 

(2,381

)

   23,370   (13,049)  1,652   (15,430)

Less: reclassification adjustment for realized losses (gains) included in net income

  

 

214

 

  

 

(11,209

)

Less: reclassification adjustment for realized (gains) losses included in net income

   —     —     214   (11,209)
  


  


  


 


 


 


  

 

(20,032

)

  

 

(13,491

)

   28,458   (8,731)  8,426   (22,222)

Income tax benefit related to other comprehensive income

  

 

8,387

 

  

 

5,265

 

Income tax (expense) benefit related to other comprehensive income

   (9,114)  5,080   (728)  10,345 
  


  


  


 


 


 


  

 

(11,645

)

  

 

(8,226

)

   19,344   (3,651)  7,698   (11,877)
  


  


  


 


 


 


Comprehensive income

  

$

61,417

 

  

$

3,380

 

  $79,992  $47,493  $141,408  $50,873 
  


  


  


 


 


 


 

4.5


The Washington Post Company

Condensed Consolidated Balance Sheets

 

  

March 30,

2003


   

December 29,

2002


 

(In thousands)

  

(unaudited)

       June 29, 2003
(unaudited)


  December 29,
2002


 

Assets

             

Current assets

           

Cash and cash equivalents

  

$

36,311

 

  

$

28,771

 

  $30,796  $28,771 

Investments in marketable equity securities

  

 

1,431

 

  

 

1,753

 

   1,920   1,753 

Accounts receivable, net

  

 

278,511

 

  

 

285,374

 

   300,982   285,374 

Inventories

  

 

29,972

 

  

 

27,629

 

   31,476   27,629 

Income taxes receivable

   1,004   —   

Other current assets

  

 

41,771

 

  

 

39,428

 

   35,695   39,428 
  


 


  


  


   401,873   382,955 
  

 

387,996

 

  

 

382,955

 

Property, plant and equipment

           

Buildings

  

 

283,318

 

  

 

283,233

 

   284,252   283,233 

Machinery, equipment and fixtures

  

 

1,596,044

 

  

 

1,551,931

 

   1,612,931   1,551,931 

Leasehold improvements

  

 

92,597

 

  

 

85,720

 

   94,671   85,720 
  


  


  


 


  

 

1,971,959

 

  

 

1,920,884

 

   1,991,854   1,920,884 

Less accumulated depreciation

  

 

(973,288

)

  

 

(926,385

)

   (1,018,458)  (926,385)
  


  


  


 


  

 

998,671

 

  

 

994,499

 

   973,396   994,499 

Land

  

 

34,530

 

  

 

34,530

 

   34,550   34,530 

Construction in progress

  

 

47,779

 

  

 

65,371

 

   61,033   65,371 
  


  


  


 


  

 

1,080,980

 

  

 

1,094,400

 

   1,068,979   1,094,400 

Investments in marketable equity securities

  

 

193,384

 

  

 

214,780

 

   216,265   214,780 

Investments in affiliates

  

 

63,142

 

  

 

70,703

 

   61,295   70,703 

Goodwill, net

  

 

856,274

 

  

 

770,861

 

   874,948   770,861 

Indefinite-lived intangible assets, net

  

 

482,419

 

  

 

482,419

 

   483,919   482,419 

Amortized intangible assets, net

  

 

2,004

 

  

 

2,153

 

   6,032   2,153 

Prepaid pension cost

  

 

507,126

 

  

 

493,786

 

   518,313   493,786 

Deferred charges and other assets

  

 

79,843

 

  

 

71,837

 

   83,442   71,837 
  


  


  


 


  

$

3,653,168

 

  

$

3,583,894

 

  $3,715,066  $3,583,894 
  


  


  


 


Liabilities and Shareholders’ Equity

           

Current liabilities

           

Accounts payable and accrued liabilities

  

$

315,411

 

  

$

336,582

 

  $351,674  $336,582 

Deferred revenue

  

 

156,417

 

  

 

135,419

 

   160,372   135,419 

Dividends declared

  

 

13,912

 

  

 

—  

 

   14,000   —   

Federal and state income taxes payable

  

 

32,769

 

  

 

4,853

 

   —   �� 4,853 

Short-term borrowings

  

 

217,436

 

  

 

259,258

 

   195,141   259,258 
  


  


  


 


  

 

735,945

 

  

 

736,112

 

   721,187   736,112 

Postretirement benefits other than pensions

  

 

137,440

 

  

 

136,393

 

   138,730   136,393 

Other liabilities

  

 

197,466

 

  

 

194,480

 

   198,538   194,480 

Deferred income taxes

  

 

256,347

 

  

 

261,153

 

   267,420   261,153 

Long-term debt

  

 

431,029

 

  

 

405,547

 

   427,793   405,547 
  


 


  


  


   1,753,668   1,733,685 
  

 

1,758,227

 

  

 

1,733,685

 

Redeemable preferred stock

  

 

12,916

 

  

 

12,916

 

   12,622   12,916 
  


  


  


 


Preferred stock

  

 

—  

 

  

 

—  

 

   —     —   
  


  


  


 


Common shareholders’ equity

           

Common stock

  

 

20,000

 

  

 

20,000

 

   20,000   20,000 

Capital in excess of par value

  

 

157,976

 

  

 

149,090

 

   158,754   149,090 

Retained earnings

  

 

3,224,798

 

  

 

3,179,607

 

   3,271,174   3,179,607 

Accumulated other comprehensive income(loss)

      

Accumulated other comprehensive income (loss)

     

Cumulative foreign currency translation adjustment

  

 

(6,039

)

  

 

(7,511

)

   (951)  (7,511)

Unrealized gain on available-for-sale securities

  

 

4,796

 

  

 

17,913

 

   19,051   17,913 

Cost of Class B common stock held in treasury

  

 

(1,519,506

)

  

 

(1,521,806

)

   (1,519,252)  (1,521,806)
  


  


  


 


  

 

1,882,025

 

  

 

1,837,293

 

   1,948,776   1,837,293 
  


  


  


 


  

$

3,653,168

 

  

$

3,583,894

 

  $3,715,066  $3,583,894 
  


  


  


 


 

5.6


The Washington Post Company

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

  

Thirteen Weeks Ended


   Twenty-six Weeks Ended

 

(In thousands)

  

March 30,

2003


   

March 31,

2002


   June 29,
2003


  June 30,
2002


 

Cash flows from operating activities:

           

Net income

  

$

73,062

 

  

$

11,606

 

  $133,710  $62,750 

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

           

Cumulative effect of change in accounting principle

  

 

—  

 

  

 

12,100

 

   —     12,100 

Depreciation of property, plant and equipment

  

 

43,395

 

  

 

41,173

 

   86,607   82,459 

Amortization of intangible assets

  

 

149

 

  

 

152

 

Net pension credit

  

 

(13,425

)

  

 

(16,082

)

Amortization of goodwill and other intangibles

   512   311 

Net pension benefit

   (26,850)  (32,164)

Early retirement program expense

  

 

—  

 

  

 

10,313

 

   2,165   12,986 

Gain from sale of affiliate

  

 

(49,762

)

  

 

—  

 

   (49,762)  —   

Gain on sale of marketable securities

  

 

—  

 

  

 

(13,209

)

   —     (13,209)

Cost method and other investment write-downs

  

 

1,112

 

  

 

10,050

 

   1,112   16,694 

Equity in losses of affiliates, net of distributions

  

 

2,642

 

  

 

6,506

 

   8,166   15,689 

Provision for deferred income taxes

  

 

3,827

 

  

 

2,986

 

   5,667   6,755 

Change in assets and liabilities:

           

Decrease in accounts receivable, net

  

 

16,991

 

  

 

33,342

 

(Increase) decrease in accounts receivable, net

   (2,957)  10,011 

Increase in inventories

  

 

(2,342

)

  

 

(2,064

)

   (3,847)  (10,246)

(Decrease) increase in accounts payable and accrued liabilities

  

 

(28,588

)

  

 

15,766

 

Increase (decrease) in deferred revenue

  

 

11,880

 

  

 

(1,876

)

Decrease in income taxes receivable

  

 

—  

 

  

 

10,253

 

Increase in income taxes payable

  

 

27,916

 

  

 

578

 

Increase (decrease) in other assets and other liabilities, net

  

 

3,356

 

  

 

(5,561

)

Increase in accounts payable and accrued liabilities

   7,263   42,668 

(Increase) decrease in income taxes receivable

   (1,004)  10,253 

(Decrease) increase in income taxes payable

   (4,853)  3,267 

Decrease in other assets and other liabilities, net

   24,139   23,164 

Other

  

 

(37

)

  

 

136

 

   (1,637)  (404)
  


  


  


 


Net cash provided by operating activities

  

 

90,176

 

  

 

116,169

 

   178,431   243,084 
  


  


  


 


Cash flows from investing activities:

           

Purchases of property, plant and equipment

  

 

(28,086

)

  

 

(37,310

)

   (58,772)  (79,559)

Investments in certain businesses

  

 

(57,537

)

  

 

(16,907

)

   (77,692)  (26,673)

Proceeds from the sale of affiliate

  

 

65,000

 

  

 

—  

 

Proceeds from the sale of business

   65,000   —   

Proceeds from sale of marketable securities

  

 

—  

 

  

 

19,701

 

   —     19,701 

Investment in affiliates

  

 

(5,977

)

  

 

(7,610

)

Other investments

   (5,977)  (7,610)

Other

  

 

378

 

  

 

249

 

   575   (189)
  


  


  


 


Net cash used in investing activities

  

 

(26,222

)

  

 

(41,877

)

   (76,866)  (94,330)
  


  


  


 


Cash flows from financing activities:

           

Net repayment of commercial paper

  

 

(41,882

)

  

 

(69,084

)

   (70,742)  (133,192)

Dividends paid

  

 

(13,959

)

  

 

(13,559

)

   (28,143)  (27,123)

Common shares repurchased

   —     (334)

Proceeds from exercise of stock options

  

 

380

 

  

 

2,394

 

   1,252   3,132 

Other

  

 

(953

)

  

 

—  

 

   (1,672)  —   
  


  


  


 


Net cash used in financing activities

  

 

(56,414

)

  

 

(80,249

)

   (99,305)  (157,517)
  


 


Effect of currency exchange rate change

   (235)  —   
  


  


  


 


Net increase (decrease) in cash and cash equivalents

  

 

7,540

 

  

 

(5,957

)

   2,025   (8,763)

Beginning cash and cash equivalents

  

 

28,771

 

  

 

31,480

 

   28,771   31,480 
  


  


  


 


Ending cash and cash equivalents

  

$

36,311

 

  

$

25,523

 

  $30,796  $22,717 
  


  


  


 


 

6.7


The Washington Post Company

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Results of operations, when examined on a quarterly basis, reflect the seasonality of advertising that affects the newspaper, magazine and broadcasting operations. Advertising revenues in the second and fourth quarters are typically higher than first and third quarter revenues. All adjustments reflected in the interim financial statements are of a normal recurring nature.

 

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

 

Note 1: Acquisitions, Exchanges and Dispositions.

In the second quarter of 2003, Kaplan acquired two additional businesses in its higher education and professional divisions for a total of $17.5 million, financed through cash and debt, with $3 million remaining to be paid. In addition, the cable division acquired a system in North Dakota for $1.5 million. Most of the purchase price for these acquisitions has been preliminarily allocated to goodwill and intangible assets.

 

In March 2003, Kaplan completed its acquisition of the stock of FTC Holdings LimitedFinancial Training Corporation (FTC), for £55.3 million ($87.4 million). Headquartered in London, FTC is a leader inprovides test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore.Asia. The acquisition was financed through cash and debt with $26.5 million remaining to be paid, primarily to employees of the business (included in long-term debt at March 30, 2003).business. Most of the purchase price has been allocated to goodwill, on a preliminary basis.

 

On January 1, 2003, the Company sold its 50 percent interest in the International Herald Tribune for $65 million and the Company recorded an after-tax non-operating gain of $32.3 million in the first quarter of 2003.

 

In the first quartersix months of 2002, Kaplan acquired several businesses in their higher education and test preparation divisions, totaling $23.2 million.$37.9 million, with most of the aggregate purchase price allocated to goodwill.

 

Note 2: Investments.

 

Investments in marketable equity securities at March 30,June 29, 2003 and December 29, 2002 consist of the following (in thousands):

 

  

March 30,

2003


  

December 29,

2002


  

June 29,

2003


  

December 29,

2002


Total cost

  

$

186,955

  

$

187,169

  $186,955  $187,169

Gross unrealized gains

  

 

7,860

  

 

29,364

   31,230   29,364
  

  

  

  

Total fair value

  

$

194,815

  

$

216,533

  $218,185  $216,533
  

  

  

  

 

There were no sales of marketable equity securities in the first quartersix months of 2003. During the first quarter of 2002, the Company sold its shares of Ticketmaster, resulting in a pre-tax gain of $13.2 million. There were no sales of marketable equity securities in the second quarter of 2002.

 

At March 30,June 29, 2003 and December 29, 2002, the carrying value of the Company’s cost method investments was $8.6$9.0 million and $9.5 million, respectively. There were no

8


investments in companies constituting cost method investments during the first threesix months of 2003 or 2002.

 

The Company recorded charges of $1.1$0 million and $10.1$1.1 million during the second quarter and first quartersix months of 2003, and 2002, respectively, to write-down certain of its investments to estimated fair value.value; for the same periods of 2002, the Company recorded charges of $6.6 million and $16.7 million, respectively. The Company’s 2002 write-downs relate to several investments. Three of the investments were written down by an aggregate $11.1 million, primarily as a result of significant recurring losses in each of the underlying businesses, with the write-downs recorded based on the Company’s best estimate of the fair value of each of these investments. Another of the Company’s investments was written down by $2.8 million, due to the investee’s announced merger and the Company’s best estimate of anticipated proceeds.

7.


 

Note 3: Borrowings.

 

At March 30, 2003,Long-term debt consists of the Company had $648.5 million in total debt outstanding, which comprised $217.4 million offollowing (in millions):

   

June 29,

        2003        


  December 30,
2002


 

Commercial paper borrowings

  $188.5  $259.3 

5.5 percent unsecured notes due February 15, 2009

   398.5   398.4 

4.0 percent notes due 2004-2006 (£16.7 million)

   26.5   —   

Other indebtedness

   9.4   7.1 
   


 


Total

   622.9   664.8 

Less current portion

   (195.1)  (259.3)
   


 


Total long-term debt

  $427.8  $405.5 
   


 


The Company’s commercial paper borrowings $398.5at June 29, 2003 were at an average interest rate of 1.2 percent and mature through August 2003; the Company’s commercial paper borrowings at December 30, 2002 were at an average interest rate of 1.6 percent and matured through April 2003. The notes of £16.7 million were issued to current FTC employees who were former FTC shareholders in connection with the acquisition. The noteholders, at their discretion, may elect to receive 25 percent of 5.5their outstanding balance in January 2004. In August 2004, 50 percent unsecured notesof the original outstanding balance (less any amounts paid in January 2004) is due February 15, 2009,for payment. The remaining balance outstanding is due for repayment in August 2006. The Company’s other indebtedness at June 29, 2003 and $32.6 million in other debt.December 30, 2002 is at interest rates of 6 percent to 7 percent and matures from 2004 to 2007.

 

During the firstsecond quarter of 2003 and 2002, the Company had average borrowings outstanding of approximately $601.6$633.2 million and $888.3$830.6 million, respectively, at average annual interest rates of approximately 4.24.1 percent and 3.53.7 percent, respectively. During the firstsecond quarter of 2003 and 2002, the Company incurred net interest expense on borrowings of $7.1$6.2 million and $8.7 million, respectively.

During the first six months of 2003 and 2002, the Company had average borrowings outstanding of approximately $617.4 million and $859.5 million, respectively, at average annual interest rates of approximately 4.1 percent and 3.6 percent, respectively. During the first six months of 2003 and 2002, the Company incurred net interest expense on borrowings of $13.3 million and $17.5 million, respectively.

 

Note 4: Business Segments.

 

The following table summarizes financial information related to each of the Company’s business segments. The 2003 and 2002 asset information is as of March 30,June 29, 2003 and December 29, 2002, respectively.

 

8.9


FirstSecond Quarter Period

(in thousands)

 

  

Newspaper Publishing


  

Television Broadcasting


  

Magazine Publishing


  

Cable Television


   

Education


   

Corporate Office


   

Consolidated


   Newspaper
Publishing


  Television
Broadcasting


  Magazine
Publishing


  Cable
Television


  Education

  Corporate
Office


  Consolidated

 

2003

                                       

Operating revenues

  

$

204,040

  

$

70,752

  

$

77,502

  

$

110,368

 

  

$

177,778

 

  

$

—  

 

  

$

640,440

 

  $223,142  $81,825  $91,861  $114,552  $195,560  $—    $706,940 

Income (loss) from operations

  

$

21,358

  

$

26,347

  

$

837

  

$

20,762

 

  

$

15,927

 

  

$

(6,139

)

  

$

79,092

 

  $37,030  $38,986  $12,404  $21,248  $3,527  $(6,297) $106,898 

Equity in losses of affiliates

                    

 

(2,642

)

                  (5,524)

Interest expense, net

                    

 

(7,123

)

                  (6,200)

Other, net

                    

 

48,135

 

                  2,274 
                    


                 


Income before income taxes

                    

$

117,462

 

                 $97,448 
                    


                 


Depreciation expense

  

$

11,297

  

$

2,746

  

$

952

  

$

22,713

 

  

$

5,687

 

  

$

—  

 

  

$

43,395

 

  $10,451  $2,774  $929  $22,964  $6,094  $—    $43,212 

Amortization expense

  

$

4

  

$

—  

  

$

—  

  

$

38

 

  

$

107

 

  

$

—  

 

  

$

149

 

  $4  $—    $—    $37  $322  $—    $363 

Net pension credit (expense)

  

$

3,957

  

$

1,065

  

$

8,998

  

$

(243

)

  

$

(352

)

  

$

—  

 

  

$

13,425

 

  $1,792  $1,065  $8,998  $(243) $(352) $—    $11,260 

Identifiable assets

  

$

706,539

  

$

407,619

  

$

488,573

  

$

1,136,798

 

  

$

647,244

 

  

$

8,438

 

  

$

3,395,211

 

  $701,725  $410,696  $497,092  $1,134,182  $675,640  $16,251  $3,435,586 

Investments in marketable equity securities

                    

 

194,815

 

                  218,185 

Investments in affiliates

                    

 

63,142

 

                  61,295 
                    


                 


Total assets

                    

$

3,653,168

 

                 $3,715,066 
                    


                 


 

  

Newspaper Publishing


  

Television Broadcasting


  

Magazine Publishing


   

Cable Television


   

Education


   

Corporate Office


   

Consolidated


   Newspaper
Publishing


  Television
Broadcasting


  Magazine
Publishing


  Cable
Television


  Education

  Corporate
Office


  Consolidated

 

2002

                                       

Operating revenues

  

$

200,772

  

$

75,418

  

$

75,018

 

  

$

102,033

 

  

$

147,081

 

  

$

—  

 

  

$

600,322

 

  $215,067  $86,092  $88,886  $107,963  $149,695  $—    $647,703 

Income (loss) from operations

  

$

17,543

  

$

33,551

  

$

(11,578

)

  

$

16,042

 

  

$

(550

)

  

$

(6,116

)

  

$

48,892

 

  $37,811  $43,459  $13,272  $21,766  $624  $(6,504) $110,428 

Equity in losses of affiliates

                    

 

(6,506

)

                  (9,183)

Interest expense, net

                    

 

(8,734

)

                  (8,738)

Other, net

                    

 

6,454

 

                  (5,963)
                    


                 


Income before income taxes

                    

$

40,106

 

                 $86,544 
                    


                 


Depreciation expense

  

$

10,879

  

$

2,765

  

$

1,050

 

  

$

20,479

 

  

$

6,000

 

  

$

—  

 

  

$

41,173

 

  $10,744  $2,784  $1,022  $20,738  $5,998  $—    $41,286 

Amortization expense

  

$

4

  

$

—  

  

$

—  

 

  

$

39

 

  

$

109

 

  

$

—  

 

  

$

152

 

  $4  $—    $—    $39  $116  $—    $159 

Net pension credit (expense)

  

$

5,491

  

$

1,220

  

$

9,895

 

  

$

(226

)

  

$

(298

)

  

$

—  

 

  

$

16,082

 

  $5,492  $1,220  $7,221  $(226) $(298) $—    $13,409 

Identifiable assets

  

$

690,197

  

$

413,663

  

$

488,562

 

  

$

1,142,995

 

  

$

542,251

 

  

$

18,990

 

  

$

3,296,658

 

  $690,197  $413,663  $488,562  $1,142,995  $542,251  $18,990  $3,296,658 

Investments in marketable equity securities

                    

 

216,533

 

                  216,533 

Investments in affiliates

                    

 

70,703

 

                  70,703 
                    


                 


Total assets

                    

$

3,583,894

 

                 $3,583,894 
                    


                 


 

 

9.10


Six Month Period

(in thousands)

   Newspaper
Publishing


  Television
Broadcasting


  Magazine
Publishing


  Cable
Television


  Education

  Corporate
Office


  Consolidated

 

2003

                             

Operating revenues

  $427,182  $152,577  $169,363  $224,920  $373,338  $—    $1,347,380 

Income (loss) from operations

  $58,388  $65,333  $13,241  $42,010  $19,454  $(12,436) $185,990 

Equity in losses of affiliates

                           (8,166)

Interest expense, net

                           (13,323)

Other, net

                           50,409 
                           


Income before income taxes

                          $214,910 
                           


Depreciation expense

  $21,748  $5,520  $1,881  $45,677  $11,781  $—    $86,607 

Amortization expense

  $8  $—    $—    $75  $429  $—    $512 

Net pension credit (expense)

  $5,749  $2,130  $17,995  $(485) $(704) $—    $24,685 

   Newspaper
Publishing


  Television
Broadcasting


  Magazine
Publishing


  Cable
Television


  Education

  Corporate
Office


  Consolidated

 

2002

                             

Operating revenues

  $415,839  $161,510  $163,904  $209,996  $296,776  $—    $1,248,025 

Income (loss) from operations

  $55,354  $77,010  $1,694  $37,808  $74  $(12,620) $159,320 

Equity in losses of affiliates

                           (15,689)

Interest expense, net

                           (17,472)

Other, net

                           491 
                           


Income before income taxes

                          $126,650 
                           


Depreciation expense

  $21,623  $5,549  $2,072  $41,217  $11,998  $—    $82,459 

Amortization expense

  $8  $—    $—    $78  $225  $—    $311 

Net pension credit (expense)

  $10,983  $2,440  $6,803  $(451) $(597) $—    $19,178 

11


Newspaper publishing includes the publication of newspapers in the Washington, D.C. area (The Washington Post, the Gazettecommunity newspapers, and Southern Maryland newspapers) and Everett, Washington (The Everett Herald). This business division also includes newsprint warehousing, recycling operations and the Company’s electronic media publishing business (primarily washingtonpost.com).

 

Television broadcasting operations are conducted through six VHF, television stations serving the Detroit, Houston, Miami, San Antonio, Orlando and Jacksonville television markets. All stations are network-affiliated (except for WJXT in Jacksonville).

 

The magazine publishing division consists of the publication of a weekly news magazine, Newsweek, which has one domestic and three international editions, the publication of Arthur Frommer’s Budget Travel, and the publication of business periodicals for the computer services industry and the Washington-area technology community.

 

Cable television operations consist of cable systems offering basic cable, digital cable, pay television, cable modem and other services to approximately 719,000715,000 subscribers in mid-western,midwestern, western, and southern states.

 

Education products and services are provided through the Company’s wholly-owned subsidiary Kaplan, Inc. Kaplan’s businesses include supplemental education services, which is made up of test preparation and admissions, providing test preparation services for college and graduate school entrance exams; Kaplan Professional, providing education and career services to business people and other professionals; and Score!, offering multimediamulti-media learning and private tutoring to children and educational resources to parents. Kaplan’s businesses also include higher education services, which includes all of Kaplan’s post-secondary education businesses, including the 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 healthcare, business and information technology; and online post-secondary and career programs (various distance-learning businesses, including kaplancollege.com).

 

Corporate office includes the expenses of the Company’s corporate office.

 

Note 5: Goodwill and Other Intangible Assets.

 

In accordance with Statement of Financial Accounting Standards No. 142(SFAS 142), “Goodwill and Other Intangible Assets,” the Company has 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 cable division. Amortized intangible assets are primarily non-compete agreements, with amortization periods up to five years. The Company’s amortized intangible assets decreased in the first quarter of 2003 as a result of $149,000 of amortization expense.

 

The Company’s goodwill and other intangible assets as of March 30,June 29, 2003 and December 29, 2002 were as follows (in thousands):

 

10.12


  

Gross


  

Accumulated Amortization


  

Net


  Gross

  

Accumulated

Amortization


  Net

2003

                  

Goodwill

  

$

1,154,676

  

$

298,402

  

$

856,274

  $1,173,350  $298,402  $874,948

Indefinite-lived intangible assets

  

 

646,225

  

 

163,806

  

 

482,419

   647,725   163,806   483,919

Amortized intangible assets

  

 

3,525

  

 

1,521

  

 

2,004

   7,916   1,884   6,032
  

  

  

  

  

  

  

$

1,804,426

  

$

463,729

  

$

1,340,697

  $1,828,991  $464,092  $1,364,899
  

  

  

  

  

  

2002

                  

Goodwill

  

$

1,069,263

  

$

298,402

  

$

770,861

  $1,069,263  $298,402  $770,861

Indefinite-lived intangible assets

  

 

646,225

  

 

163,806

  

 

482,419

   646,225   163,806   482,419

Amortized intangible assets

  

 

3,525

  

 

1,372

  

 

2,153

   3,525   1,372   2,153
  

  

  

  

  

  

  

$

1,719,013

  

$

463,580

  

$

1,255,433

  $1,719,013  $463,580  $1,255,433
  

  

  

  

  

  

 

Activity related to the Company’s goodwill and amortized intangible assets during the quartersix months ended March 30,June 29, 2003 was as follows (in thousands):

 

  

Newspaper Publishing


   

Television Broadcasting


  

Magazine Publishing


  

Cable Television


  

Education


  

Total


   Newspaper
Publishing


  Television
Broadcasting


  Magazine
Publishing


  Cable
Television


  Education

  Total

 

Goodwill, net

                                 

Beginning of year

  

$

72,738

 

  

$

203,165

  

$

69,556

  

$

85,666

  

$

339,736

  

$

770,861

 

  $72,738  $203,165  $69,556  $85,666  $339,736  $770,861 

Acquisitions

              

 

86,874

  

 

86,874

 

             101,719   101,719 

Disposition

  

 

(1,461

)

  

 

—  

  

 

—  

  

 

—  

  

 

—  

  

 

(1,461

)

   (1,461)  —     —     —     —     (1,461)

Foreign currency exchange rate changes

   —     —     —     —     3,829   3,829 
  


  

  

  

  

  


  


 

  

  


 


 


End of Quarter

  

$

71,277

 

  

$

203,165

  

$

69,556

  

$

85,666

  

$

426,610

  

$

856,274

 

Balance at June 29, 2003

  $71,277  $203,165  $69,556  $85,666  $445,284  $874,948 
  


  

  

  

  

  


  


 

  

  


 


 


  Newspaper
Publishing


  Television
Broadcasting


  Magazine
Publishing


  Cable
Television


  Education

  Total

 

Amortized intangible assets, net

               

Beginning of year

  $45   —     —    $1,232  $876  $2,153 

Acquisitions

             4,391   4,391 

Amortization

   (8)        (75)  (429)  (512)
  


 

  

  


 


 


Balance at June 29, 2003

  $37   —     —    $1,157  $4,838  $6,032 
  


 

  

  


 


 


 

There was no activity related to theThe Company’s indefinite-lived intangible assets increased $1.5 million during the first quartersix months of 2003.2003 due to an acquisition by the cable division.

 

As required under SFAS 142, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill in 2002. The expected future cash flows for PostNewsweek Tech Media (part of the magazine publishing segment), on a discounted 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 first quarteryear-to-date results as a cumulative effect of change in accounting principle.principle

 

Note 6: Change in Accounting Method – Method—Stock Options

 

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, “Accounting for Stock-Based Compensation” (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 2002 are 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 in the second quarter and first quartersix-months of 2003 and 2002 (in thousands, except per share amounts).

 

   

2003


  

2002


Company stock-based compensation expense included in net income (pre-tax)

  

$

142

  

$

—  

   

  

Net income available for common shares, as reported

  

$

72,545

  

$

11,081

Stock-based compensation expense not included in net income (after-tax)

  

 

790

  

 

904

   

  

Pro forma net income available for common shares

  

$

71,755

  

$

10,177

   

  

Basic earnings per share, as reported

  

$

7.62

  

$

1.17

Pro forma basic earnings per share

  

$

7.53

  

$

1.07

Diluted earnings per share, as reported

  

$

7.59

  

$

1.16

Pro forma diluted earnings per share

  

$

7.51

  

$

1.07

13


   Quarter ended

  Six-months ended

   

June 29,

2003


  

June 30,

2002


  

June 29,

2003


  

June 30,

2002


Company stock-based compensation expense included in net income (pre-tax)

  $142  $—    $284  $—  
   

  

  

  

Net income available for common shares, as reported

  $60,390  $50,885  $132,935  $61,966

Stock-based compensation expense not included in net income (after-tax)

   790   904   1,580   1,809
   

  

  

  

Pro forma net income available for common shares

  $59,600  $49,981  $131,355  $60,157
   

  

  

  

Basic earnings per share, as reported

  $6.34  $5.35  $13.95  $6.52

Pro forma basic earnings per share

  $6.26  $5.26  $13.79  $6.33

Diluted earnings per share, as reported

  $6.32  $5.34  $13.91  $6.51

Pro forma diluted earnings per share

  $6.24  $5.25  $13.75  $6.32

 

11.Note 7: Antidilutive Securities

The second quarter 2003 diluted earnings per share amount excludes the effects of 11,500 stock options outstanding as their inclusion would be antidilutive (there were no antidilutive stock options outstanding during the second quarter of 2002).

The year-to-date 2003 and 2002 diluted earnings per share amounts exclude the effects of 11,500 and 1,000 stock options outstanding, respectively, as their inclusion would be antidilutive.

Note 8: Pension Plan Amendment

Effective June 1, 2003, the retirement pension program for certain employees at the Post was amended and provides for increased annuity payments for vested employees retiring after this date. This plan amendment was not significant to the newspaper division results for the second quarter of 2003.

14


Item 2. Management’s2.Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

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

 

Revenues and expenses in the first and third quarters are customarily lower than those in the second and fourth quarters because of significant seasonal fluctuations in advertising volume.

 

Results of Operations

 

Net income for the firstsecond quarter of 2003 was $73.1$60.6 million ($7.596.32 per share), up from net income of $11.6$51.1 million ($1.165.34 per share) infor the firstsecond quarter of last year.

 

Results for the second quarter of 2003 include an early retirement program charge at The Washington Post newspaper (after-tax impact of $1.3 million, or $0.14 per share). Results for the second quarter of 2002 included net losses on the write-down of certain investments (after-tax impact of $3.3 million, or $0.34 per share) and an early retirement program charge at Newsweek (after-tax impact of $1.6 million, or $0.17 per share).

Revenue for the second quarter of 2003 was $706.9 million, up 9 percent from $647.7 million in 2002. The increase in revenue is due mostly to significant revenue growth at the education division. Revenues at the Company’s cable, newspaper publishing, and magazine publishing divisions also increased for the second quarter of 2003, while revenues were down at the broadcast division.

Operating income for the quarter was down 3 percent for the second quarter of 2003 to $106.9 million, from $110.4 million in 2002. The Company’s results were adversely impacted by the sluggish economy, certain incremental costs due to the war in Iraq, increased depreciation expense, higher stock-based compensation expense accruals at the education division, and a reduced net pension credit, partially offset by improved operating results at the education division.

For the first quartersix months of 2003, net income totaled $133.7 million ($13.91 per share), compared with net income of $62.8 million ($6.51 per share) for the same period of 2002. Results for the first six months of 2003 include an after-tax non-operating gain from the sale of the Company’s 50 percent interest in the International Herald Tribune (after-tax impact of $32.3 million, or $3.38 per share) and an early retirement program charge at The Washington Post newspaper (after-tax impact of $1.3 million, or $0.14 per share). Results for the first quartersix months of 2002 included a transitional goodwill impairment loss (after-tax impact of $12.1 million, or $1.27 per share), a charge arisingcharges from an early retirement programprograms at Newsweek (after-tax impact of $6.1$7.7 million, or $0.64$0.81 per share), and a net non-operating gain primarily from the sale of marketable securities (after-tax impact of $3.8$0.6 million, or $0.40$0.06 per share).

 

Revenue for the first half of 2003 was $1,347.4 million, up 8 percent over revenue of $1,248.0 million for the first six months of 2002. Operating income increased 17 percent to $186.0 million, from $159.3 million in 2002. Consistent with the Company’s results for the second quarter of 2003, was $640.4 million, up 7 percent from $600.3 million in 2002. The increase in revenue is due mostly to significant revenue growth at the education and cable divisions. Although advertising revenues have suffered due to the war in Iraq, the magazine and newspaper divisions showed modest revenue growth; revenues were down at the broadcast division.

Operating income for the quarter increased 62 percent to $79.1 million, from $48.9 million in 2002. Operating results for 2002 included a $10.3 million pre-tax charge from the Newsweek early retirement program. The Company’s year-to-date results benefited from significantly improved operating results at the education division. Year-to-date results also benefited from improved operating results at the cable, newspaper publishing, and newspapermagazine publishing divisions. These factors were offset by a reduction in advertising demand late in the quarter andpart by certain incremental costs due to the war in Iraq, a reduction in operating income at the broadcast division, increased depreciation expense, higher stock-based compensation expense accruals at the education division and a reduced net pension credit.

 

15


The Company’s operating income for the second quarter and first quartersix months of 2003 includes $13.4 million and $26.9 million of net pension credits, respectively, compared to $16.1 million inand $32.2 million for the first quartersame periods of 2002. At December 29, 2002, the Company reduced its assumption on discount rate from 7.0 percent to 6.75 percent. Due to the reduction in the discount rate and lower than expected investment returns in 2002, the net pension credit for 2003 is expected to be down by about $10 million compared to 2002, excluding charges related to early retirement programs.

 

Newspaper Publishing Division. Newspaper publishing division revenue totaled $204.0$223.1 million for the second quarter of 2003, an increase of 4 percent from revenue of $215.1 million in the second quarter of 2002; division revenue increased 3 percent to $427.2 million for the first quartersix months of 2003, a 2 percent increase from revenue of $200.8$415.8 million infor the first quartersix months of 2002. Division operating income increased 22for the second quarter declined 2 percent to $21.4$37.0 million, from $17.5operating income of $37.8 million in the second quarter of 2002; operating income increased 5 percent to $58.4 million for the first six months of 2003, compared to operating income of $55.4 million for the first six months of 2002. The increasedecrease in division operating income for the second quarter is primarily attributabledue to a $2.2 million pre-tax early retirement charge at The Washington Post newspaper, a 10 percent increase in newsprint expense, incremental costs associated with the war in Iraq, and a reduced net pension credit, offset by increases in print and online advertising revenue. The increase in operating income for the first six months of 2003 is due to increased advertising revenue combined with an 11 percent decrease in newsprint expense at The Post.and cost control initiatives employed throughout the division, offset by the early retirement charge noted above and a reduced net pension credit.

 

Print advertising revenue at The Washington Post newspaper in the second quarter increased slightly3 percent to $132.5$148.1 million, from $131.5$143.7 million in 2002, and increased 2 percent to $280.6 million for the first six months of 2003, from $275.3 million for the first six months of 2002. The increase in print advertising revenues for the second quarter of 2003 was due to increases in general and preprint and zone advertising revenue,revenues, which more than offset a decreasedecline in classified advertising revenue from volume declines. RecruitmentClassified recruitment advertising revenue was down $2.3decreased $2.8 million during the second quarter, due to a 1720 percent volume decline. Advertising demand was down lateThe increase in print advertising revenues for the quarterfirst six months of 2003 is primarily due to the warincreases in Iraq.general and preprint advertising categories, offset by a $5.1 million decrease in classified recruitment advertising revenue resulting from a 19 percent volume decline.

 

For the first quartersix months of 2003, Post daily and Sunday circulation declined 1.9 percent and 1.1 percent, respectively, compared to the first quartersame period of 2002.the prior year. For

12.


the threesix months ended March 30,June 29, 2003, average daily circulation at The Post totaled 757,000745,000 and average Sunday circulation totaled 1,052,000.1,048,000.

 

RevenuesRevenue generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 27 percent to $9.5$11.1 million for the second quarter of 2003, versus $8.7 million for the second quarter of 2002; online revenues increased 27 percent to $20.6 million for the first quartersix months of 2003, versus $7.5$16.2 million for 2002. Local and national online advertising revenues grew 7847 percent inand 59 percent for the second quarter and first six months of 2003, while revenuerespectively. Revenues at the Jobs section of washingtonpost.com increased 17 percent.24 percent in the second quarter of 2003 and increased 21 percent for the first six months of 2003.

 

In July, the Company announced that it will launch a new commuter newspaper, EXPRESS, in August. The new publication will appear each weekday morning, Monday through Friday, in tabloid form and will be distributed free-of-charge in the Washington area.

16


Television Broadcasting Division.Revenue for the broadcasttelevision broadcasting division decreased 5 percent in the second quarter of 2003 to $81.8 million, from $86.1 million in 2002, due to declines in both local and national advertising, and higher political advertising in 2002. For the first six months of 2003, revenue decreased 6 percent to $152.6 million, from $161.5 million in 2002, due to heavy Olympics-related advertising at the Company’s NBC affiliates in the first quarter of 2003 to $70.8 million, from $75.4 million2002, declines in 2002, due to significant Olympics relatedboth local and national advertising, at the Company’s NBC affiliateshigher political advertising in 2002, and several days of commercial-free coverage in connection with the Iraq war in Iraq. March 2003.

Operating income for the second quarter and first quartersix months of 2003 decreased 2110 percent and 15 percent, respectively, to $26.3$39.0 million and $65.3 million, respectively, from $33.6operating income of $43.5 million in 2002.and $77.0 million for the second quarter and first six months of 2002, respectively. The operating income declines are primarily related to the revenue reductions discussed above.

 

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 $77.5$91.9 million for the firstsecond quarter of 2003, a 3 percent increase from $75.0$88.9 million for the second quarter of 2002; division revenue totaled $169.4 million for the first six months of 2003, a 3 percent increase from $163.9 million for the first six months of 2002. The revenue increase for the second quarter was primarily due to the timing of the primary trade show of PostNewsweek Tech Media, which was in the second quarter of 2003 versus the first quarter of 2002. This increase wasmore than offset a second quarter drop of 6 percent in advertising revenues at Newsweek due to declines in ad pages at both the domestic and international editions. Travel-related advertising revenues at the Pacific edition of Newsweek were down sharply in the second quarter of 2003 due to the SARS outbreak. The increase in revenues for the first six months of 2003 is primarily due to an 18 percent increase inincreased advertising revenue at Newsweek, as a result of increased ad pages at the domestic edition, as well as one additional issue of both the domestic and international editions, as well as an additional issue ofeditions.

Operating income totaled $12.4 million for the magazine in the firstsecond quarter of 2003, versus the first quartera 7 percent decline from operating income of 2002. This revenue increase was partially offset by reduced advertising demand late in the quarter due to the Iraq war, and a decline in revenue at PostNewsweek Tech Media, whose primary trade show is$13.3 million in the second quarter of 2003, versus2002. In the firstsecond quarter of 2002, Newsweek had a $2.7 million charge in 2002.

Magazine divisionconnection with an early retirement program. The decline in operating income is primarily due to the reduction in advertising revenue, increased manufacturing and distribution expenses at the international editions of Newsweek, and a reduced net pension credit. Operating income totaled $0.8 million, compared to a loss of $11.6$13.2 million for the first quartersix months of 2003, up from operating income of $1.7 million for the first six months of 2002. The year-to-date improvement in operating results is primarily attributable to a $10.3$13.0 million chargein charges in connection with an early retirement programprograms at Newsweek in the first quarter of 2002.

During the second quarter of 2003, Newsweek has experienced a reduction in advertising demand and increased costs due to the Iraq war, along with a reduction in travel-related advertising demand at Newsweek International due to the SARS epidemic.

 

Cable Television Division. Cable division revenue of $110.4$114.6 million for the firstsecond quarter of 2003 represents an 8a 6 percent increase over 2002 firstsecond quarter revenue of $102.0 million.$108.0 million; for the first six months of 2003, revenue increased 7 percent to $224.9 million, from $210.0 million in 2002. The 2003 revenue increase is principally due to continuedrapid growth in the division’s cable modem and digital service revenues, offset by lower pay revenues.and basic revenues due to fewer basic and pay subscribers and the lack of rate increases due to a decision to freeze most rates for Cable One subscribers in 2003 (the Company’s price increases normally take effect in the second quarter each year).

 

Cable division operating income increased 29 percent to $20.8 million infor the firstsecond quarter of 2003 versus $16.0decreased 2 percent to $21.2 million, infrom operating income of $21.8 million for the firstsecond quarter of 2002. The increasedecrease in operating income is due mostly to the division’s higher depreciation and programming expenses, along with an increase in technical, internet, marketing and employee benefits costs; part of the decrease is also

17


attributable to the rate freeze on subscribers noted above. Cable division operating income for the first six months of 2003 increased 11 percent to $42.0 million, from operating income of $37.8 million for the first six months of 2002. The increase is due mostly to the division’s significant revenue growth, offset by higher depreciation expense and increased programming expense.expenses, along with an increase in technical, internet, marketing, and employee benefits costs.

 

The increase in depreciation expense is due to significant capital spending in recent years that has enabled the cable division to offer digital and broadband cable services to its subscribers. The cable division began its rollout plan for these services in the third quarter of 2000. At March 31,June 30, 2003, the cable division had approximately 210,500210,000 digital cable subscribers, representing a 30 percent penetration of the subscriber base in the markets where digital services are offered. Digital services are offered in markets serving 99 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 the end of MarchJune 2003, the cable division had about 205,300203,900 paying digital subscribers.

 

At March 31,June 30, 2003, the cable division had 719,300714,500 basic subscribers, lower than 751,700736,100 basic subscribers at the end of MarchJune 2002 but up slightly fromand 718,000 basic subscribers at the end of December 2002. At March 31,June 30, 2003, the cable division had 95,800106,600 CableONE.net service subscribers, compared to 53,10060,600 at the end

13.


of MarchJune 2002, due to a large increase in the Company’s cable modem deployment (offered to 9799 percent of homes passed at the end of MarchJune 2003) and take-up rates.

 

At March 31,June 30, 2003, Revenue Generating Units (RGUs), representing the sum of basic, digital, and high-speed data customers, as defined by the NCTA Standard Reporting Categories, totaled 1,020,500,1,025,400, compared to 870,000886,300 as of March 31,June 30, 2002. The increase is due to increased paying digital cable and high-speed data customers.

 

Below are details of Cable division capital expenditures for the first quartersix months of 2003 and 2002, as defined by the NCTA Standard Reporting Categories (in millions):

 

  

2003


  

2002


  2003

  2002

Customer Premise Equipment

  

$

2.6

  

$

14.5

  $7.4  $15.1

Commercial

  

 

0.1

  

 

0.1

   0.1   0.1

Scaleable Infrastructure

  

 

1.2

  

 

0.7

   2.4   6.5

Line Extensions

  

 

3.1

  

 

1.8

   4.4   6.1

Upgrade/Rebuild

  

 

8.1

  

 

4.9

   14.5   23.4

Support Capital

  

 

1.8

  

 

2.1

   6.0   4.4
  

  

  

  

Total

  

$

16.9

  

$

24.1

  $34.8  $55.6
  

  

  

  

 

Education Division.Education division revenue totaled $177.8$195.6 million for the firstsecond quarter of 2003, a 2131 percent increase over revenue of $147.1$149.7 million for the same period of 2002. Kaplan reported operating income for the firstsecond quarter of 2003 of $15.9$3.5 million, compared to an operating lossincome of $0.6 million in the firstsecond quarter of 2002. Approximately 2041 percent of the increase in Kaplan revenue is from acquired businesses, primarily in the higher education division.division and the professional training schools that are part of supplemental education. For the first six months of 2003, education division revenue totaled $373.3 million, a 26 percent increase over revenue of $296.8 million for the same period of 2002. Kaplan reported operating income of $19.5 million for the first six months of 2003, compared to operating income of $0.1 million for the first six months of 2002. Approximately 33 percent of the increase in Kaplan revenue is from acquired businesses, primarily in the higher education division and the professional training schools that are part of supplemental education. A summary of first quarter operating results for the second quarter and the first six months of 2003 compared to 2002 is as follows:

 

   

First Quarter


 

(in thousands)

  

2003


   

2002


   

% Change


 

Revenue

              

Supplemental education

  

$

98,182

 

  

$

90,750

 

  

8

 

Higher education

  

 

79,596

 

  

 

56,331

 

  

41

 

   


  


  

   

$

177,778

 

  

$

147,081

 

  

21

 

   


  


  

Operating income (loss)

              

Supplemental education

  

$

18,552

 

  

$

13,204

 

  

41

 

Higher education

  

 

14,922

 

  

 

8,886

 

  

68

 

Kaplan corporate overhead

  

 

(7,440

)

  

 

(5,902

)

  

(26

)

Other*

  

 

(10,107

)

  

 

(16,738

)

  

40

 

   


  


  

   

$

15,927

 

  

$

(550

)

  

—  

 

   


  


  

18


(In thousands)

   Second Quarter

  Year-to-Date

 
   2003

  2002

  % Change

  2003

  2002

  % Change

 

Revenue

                       

Supplemental education

  $115,708  $92,623  25  $213,890  $183,373  17 

Higher education

   79,852   57,072  40   159,448   113,403  41 
   


 


 

 


 


 

   $195,560  $149,695  31  $373,338  $296,776  26 
   


 


 

 


 


 

Operating income (loss)

                       

Supplemental education

  $21,643  $10,989  97  $40,195  $24,191  66 

Higher education

   9,099   5,065  80   24,021   13,951  72 

Kaplan corporate overhead

   (6,893)  (5,314) (30)  (14,333)  (11,216) (28)

Other*

   (20,322)  (10,116) (101)  (30,429)  (26,852) (13)
   


 


 

 


 


 

   $3,527  $624  465  $19,454  $74  —   
   


 


 

 


 


 


* Other includes charges accrued for stock-based incentive compensation and amortization of certain intangibles.

 

Supplemental education includes Kaplan’s test preparation, professional training, and Score! businesses. On March 31, 2003, Kaplan completed its acquisition of Financial Training Corporation (FTC) for £55.3 million ($87.4 million), financed through cash and debt. Headquartered in London, FTC provides test preparation services for accountants and financial services professionals, with training centers in the United Kingdom and Asia. The improvement in supplemental education results for the second quarter and the first quartersix months of 2003 is due mostly to increased enrollment at Kaplan’s traditional test preparation business, as well as a significant increaseincreases in the professional real estate courses.courses, and the FTC acquisition. Score! also contributed to the improved results, with increased enrollment fromenrollments at existing sitescenters, and twofive new centers compared to last year, combined with tight cost controls.year.

 

Higher education includes all of Kaplan’s post-secondary education businesses, including fixed-facility colleges 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.

 

14.


Other expense is comprised 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. ForAt the end of each of the first, second and third quarters, the Company estimates the value of Kaplan based upon a comparison of operating results and public market values of other education companies. At the end of each year, a final value is set by the Compensation Committee of the Company’s Board of Directors. Over the past several years, the value of education companies has fluctuated significantly and there could be significant volatility in the amounts recorded as expense each quarter. If Kaplan’s profits continue to grow and values of education companies remain relatively high, this could lead to larger accruals in upcoming quarters. The Company recorded expense of $20.0 million and $10.0 million for the second quarter of 2003 and 2002, the Company recorded expense of $10.0respectively, and $30.0 million and $16.6$26.6 million for the first six months of 2003 and 2002, respectively, related to this plan. The Company prepares estimates of the Kaplan

19


increased stock option expense and related accrual balance on a quarterly basis. The trend in Kaplan stock optioncompensation expense in 2002 ($10.0 million, $6.7 million and $1.2 million for the second thirdquarter of 2003 reflects the positive earnings growth of Kaplan and fourth quartersthe general rise in valuations of 2002, respectively) is not indicative ofeducation companies over the expected expense to be recorded for the remainder of 2003.

On March 31, 2003, Kaplan completed its acquisition of the stock of FTC Holdings Limited (FTC) for £55.3 million ($87.4 million), financed through cash and debt. Headquartered in London, FTC is a leader in test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore.

In May 2003, Kaplan announced it had entered into an agreement for its higher education division to acquire Heritage College, a career-oriented postsecondary school providing training in the fields of allied health, paralegal, travel and information technology. The acquisition is contingent upon regulatory approvals.past three months.

 

Equity in Losses of Affiliates. The Company’s equity in losses of affiliates for the firstsecond quarter of 2003 was $2.6$5.5 million, compared to losses of $6.5$9.2 million for the second quarter of 2002. For the first quartersix months of 2003, the Company’s equity in losses of affiliates totaled $8.2 million, compared to losses of $15.7 million for the same period of 2002. The Company’s affiliate investments consist of a 49 percent interest in BrassRing LLC and a 49 percent interest in Bowater Mersey Paper Company Limited.

BrassRing results improved this year, despite a 2003 second quarter charge arising from the shutdown of one of BrassRing businesses, which increased the Company’s equity in losses of BrassRing by $2.2 million. The reductionCompany’s equity in firstlosses of BrassRing totaled $4.3 million and $6.3 million for the second quarter and year-to-date of 2003, affiliate losses is primarily attributablerespectively, compared to improved operating results at BrassRing.$6.5 million and $10.7 million for the same periods of 2002.

 

On January 1, 2003, the Company sold its 50 percent interest in the International Herald Tribune for $65 million and the Company recorded an after-tax non-operating gain of $32.3 million in the first quarter of 2003.

 

Non-Operating Items. The Company recorded other non-operating income, net, of $48.1$2.3 million for the second quarter of 2003, compared to $6.0 million of non-operating expense, net, in the second quarter of 2002. The 2003 non-operating income, net is primarily related to foreign currency gains, and the 2002 non-operating expense, net, includes charges for the write-down of certain investments.

The Company recorded non-operating income, net, of $50.4 million for the first quartersix months of 2003, compared to non-operating income, net, of $6.5$0.5 million for the first quartersame period of 2002.the prior year. The 2003 non-operating income, net, is comprised mostly of a $49.8 million pre-tax gain from the sale of the Company’s 50 percent interest in the International Herald Tribune. The 2002 non-operating income, is comprised mostly ofnet, includes a gain fromon the sale of marketable securities, offset by write-downs recorded on certain investments.

A summary of non-operating income (expense) for the twenty-six weeks ended June 29, 2003, and June 30, 2002, follow (in millions):

   2003

  2002

 

Gain on sale of interest in IHT

  $49.8  $—   

Impairment write-downs on cost method and other investments

   (1.1)  (16.7)

Gain on sale of marketable securities

   —     13.2 

Foreign currency gains (losses), net

   0.8   —   

Other gains

   0.9   4.0 
   


 


Total

  $50.4  $0.5 
   


 


 

Net Interest ExpenseExpense.. The Company incurred net interest expense of $7.1$6.2 million for the firstsecond quarter of 2003, compared to $8.7 million for the same periodsecond quarter of 2002; net interest expense totaled $13.3 million for the prior year.first six months of 2003,

20


versus $17.5 million in 2002. The reduction is due to lower average borrowings in the first quartersix months of 2003 versus the same period of the prior year. At MarchJune 30, 2003, the Company had $648.5$622.9 million in borrowings outstanding at an average interest rate of 4.04.1 percent.

 

Provision for Income Taxes. The effective tax rate for the second quarter and first quartersix months of 2003 was 37.8 percent, compared to 40.9 percent for the same periodperiods of 2002. The 2003 rate benefited from a lowerthe 35.1 percent effective tax rate applicable to the one-time gain arising from the sale of the Company’s interest in the International Herald Tribune. Excluding the effect of the International Herald Tribune gain, the Company’s effective tax rate approximated 39.8 percent for the first quarter of 2003. The effective tax rate for 2003 has also declined due to an increase in operating earnings.earnings and a decrease in the overall state tax rate.

 

Cumulative Effect of Change in Accounting Principle.In 2002, the Company completed its transitional goodwill impairment test required under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), resulting in an after-tax impairment loss of $12.1 million, or $1.27 per share, related to PostNewsweek Tech Media (part of magazine publishing segment). This loss is included in the Company’s 2002 results as a cumulative effect of change in accounting principle.

 

15.


Earnings Per Share. The calculation of diluted earnings per share for the second quarter and first quartersix months of 2003 was based on 9,553,0009,555,000 and 9,554,000 weighted average shares outstanding, respectively, compared to 9,512,0009,521,000 and 9,516,000 weighted average shares outstanding, respectively, for the second quarter and first quartersix months of 2002. The Company made no significant repurchases of its stock during the first quarterhalf of 2003.

 

Stock Options – Options—Change in Accounting Method.Effective the first day of the Company’s 2002 fiscal year, the Company has adopted the fair-value-based method of accounting for Companycompany stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). This change in accounting method waswill be applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal 2002 arewill continue to be accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

 

The Company recorded $142,000$284,000 in Company stock option expense for the first quartersix-months of 2003; there was no Company stock option expense in the first quartersix-months of 2002.

 

Financial Condition: Capital Resources and Liquidity

 

Acquisitions. OnIn the second quarter of 2003, Kaplan acquired two additional businesses in its higher education and professional divisions for a total of $17.5 million, financed through cash and debt, with $3 million remaining to be paid. In addition, the cable division acquired a system in North Dakota for $1.5 million. Most of the purchase price for these acquisitions has been preliminarily allocated to goodwill.

In March 31, 2003, Kaplan completed its acquisition of the stock of FTC Holdings LimitedFinancial Training Corporation (FTC), for £55.3 million ($87.4 million). Headquartered in London, FTC is a leader inprovides test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore.Asia. The acquisition was financed through cash and debt with $26.5 million remaining to be

21


paid, primarily to employees of the business (included in long-term debt at March 30, 2003).business. Most of the purchase price has been allocated to goodwill, on a preliminary basis.

 

Capital expenditures. During the first quartersix months of 2003, the Company’s capital expenditures totaled $28.1$58.8 million. The Company anticipates it will spend approximately $160 to $170 – 180 million throughout 2003 for property and equipment.

 

Liquidity. Throughout the first threesix months of 2003, the Company’s borrowings, net of repayments, decreased by $16.3$41.9 million, with the decrease primarily due to cash flows from operationsoperations. While the Company paid down $72.4 million in commercial paper borrowings and proceedsother long-term debt during the first six months of 2003, the Company also financed part of certain acquisitions during this period, principally $26.5 million in debt from the sale of the International Herald Tribune, offset in part by borrowings for the purchase of FTC by Kaplan.acquisition.

 

At March 30,June 29, 2003, the Company had $648.5$622.9 million in total debt outstanding, which was comprised of $217.4$188.5 million of commercial paper borrowings, $398.5 million of 5.5 percent unsecured notes due February 15, 2009, and $32.6$35.9 million in other debt.

 

During the firstsecond quarter of 2003 and 2002, the Company had average borrowings outstanding of approximately $601.6$633.2 million and $888.3$830.6 million, respectively, at average annual interest rates of approximately 4.24.1 percent and 3.53.7 percent, respectively. During the firstsecond quarter of 2003 and 2002, the Company incurred net interest expense on borrowings of $7.1$6.2 million and $8.7 million, respectively.

During the first six months of 2003 and 2002 the Company had average borrowings outstanding of approximately $617.4 million and $859.5 million, respectively, at average annual interest rates of approximately 4.1 percent and 3.6 percent, respectively. During the first six months of 2003 and 2002, the Company incurred net interest expense on borrowings of $13.3 million and $17.5 million, respectively.

At June 29, 2003 and December 29, 2002, the Company has a working capital deficit of $319.3 million and $353.2 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments. The Company has classified all of its commercial paper borrowing obligations as a current liability at June 29, 2003 and December 29, 2002 as the Company intends to pay down commercial paper borrowings from operating cash flow. However, the Company continues to maintain the ability to refinance such obligations on a long-term basis through new debt issuance and/or its revolving credit facility agreements.

 

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 throughout 2003.

The table below presents long-term debt maturities, required payments under contractual agreements for programming rights (includes commitments that are recorded in the consolidated balance sheet and commitments to purchase programming to be produced in future years) and future minimum lease payments to be made under noncancelable operating leases as of June 29, 2003:

22


Contractual Obligations

(in thousands)

Fiscal

Year


  Commercial
Paper


  Long-term
Debt


  Programming
Purchase
Commitments


  Future
Minimum
Lease
Payments


  Total

Twenty-six weeks ended December 28, 2003

  $188,516  $—    $15,761  $31,039  $235,316

2004

   —     16,440   16,260   57,229   89,929

2005

   —     3,190   12,407   51,120   66,717

2006

   —     15,320   6,196   46,518   68,034

2007

   —     935   851   41,118   42,904

Thereafter

   —     398,533   2,313   100,716   501,562
   

  

  

  

  

Total

  $188,516  $434,418  $53,788  $327,740  $1,004,462
   

  

  

  

  

Other Commercial Commitments

(in thousands)

Fiscal Year


  Lines of
Credit


Twenty-six weeks ended December 28, 2003

  $350,000

2004

   —  

2005

   —  

2006

   —  

2007

   350,000
   

Total

  $700,000
   

 

Forward-Looking Statements

 

This report contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to various risks and uncertainties that could cause actual results or events to differ materially from those anticipated in such statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002.

16.


 

Item 4. Controls4.Controls and Procedures

 

A review andAn evaluation was performed by the Company’s management, at the direction of the Company’s Chief Executive Officer (the Company’s principal executive officer) and 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 and 15d-14) as of a date within 90 days prior to the filingend of this quarterly report.the quarter. 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 the reports that the Company files or submits under the Exchange Act have been made known to them in a timely fashion. There have been no significant changes

23


PART II—OTHER INFORMATION

Item 4.Submission of Matters to a Vote of Security Holders.

At the Company’s May 8, 2003 Annual Meeting of Stockholders, the stockholders elected each of the nominees named in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequentproxy statement dated March 28, 2003 to the dateits Board of such evaluation.Directors. The voting results are set forth below:

 

Class A Directors

         

Nominee


  Votes For

  Votes
Withheld


  Broker
Non-Votes


Warren E. Buffett

  1,722,250  -0-  -0-

Barry Diller

  1,722,250  -0-  -0-

George J. Gillespie, III

  1,722,250  -0-  -0-

Ralph E. Gomory

  1,722,250  -0-  -0-

Donald E. Graham

  1,722,250  -0-  -0-

Richard D. Simmons

  1,722,250  -0-  -0-

George W. Wilson

  1,722,250  -0-  -0-

Class B Directors

         

Nominee


  Votes For

  Votes
Withheld


  Broker
Non-Votes


Daniel B. Burke

  6,800,004  74,100  -0-

John L. Dotson Jr.

  6,852,176  21,928  -0-

Alice M. Rivlin

  6,814,797  59,307  -0-

17.

24


PART II – OTHER INFORMATION

Item 6. Exhibits6.Exhibits and Reports on Form 8-K.

 

 (a) The following documents are filed as exhibits to this report:

 

Exhibit
Number



  

Description


3.1

  

Certificate of Incorporation of the Company as amended through May 12, 1998,1988, 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 May 8, 2003.

2003 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Reported on Form 10-Q for the quarter ended March 30, 2003).

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, National Association, 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, National Association, 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).

11   

4.5
  

The Washington Post Company Stock Option Plan as amended and restated effective May 31, 2003.

11   Calculation of Earnings per Share of Common Stock.

99.1

31.1
  

Certification pursuant to 18 U.S.C. Section 1350, as adopted302 of the Sarbanes-Oxley Act of 2002.

31.2Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2

32.2
  

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 (b) No reports on Form 8-K were filed during the period covered by this report.

 

18.Current report on Form 8-K filed April 22, 2003—The Washington Post Company Earnings Press Release.

25


SIGNATURES

 

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

 

   

THE WASHINGTON POST COMPANY

(Registrant)

Date:

May 12, 2003


/s/    DONALD E. GRAHAM


THE WASHINGTON POST COMPANY
   (Registrant)

Date:    July 31, 2003

  

/s/ Donald E. Graham


   

Donald E. Graham,

Chairman & Chief Executive Officer

(Principal Executive Officer)

Date:    July 31, 2003

  

May 12, 2003


/s/ JOHNJohn B. MORSE, JR.Morse, Jr.


   

John B. Morse, Jr.,

Vice President-Finance

(Principal Financial Officer)

 

19.26


CERTIFICATION PURSUANT TO

RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald E. Graham, Chief Executive Officer (principal executive officer) of The Washington Post Company (the “Registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Registrant;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly report (the “Evaluation Date”); and

(c)presented in this quarterly 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 quarterly report whether or not 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.

/s/    DONALD E. GRAHAM


Donald E. Graham

Chief Executive Officer

May 12, 2003

20.


CERTIFICATION PURSUANT TO

RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John B. Morse, Jr., Vice President-Finance (principal financial officer) of The Washington Post Company (the “Registrant”), certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Registrant;

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly report (the “Evaluation Date”); and

(c)presented in this quarterly 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 quarterly report whether or not 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.

/s/    JOHN B. MORSE, JR.


John B. Morse, Jr.

Vice President-Finance

May 12, 2003

21.