1
This report (including all exhibits)
consists of a total of 17 pages, of which this
page is number 1. The exhibit index is on page 14.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly
Period Ended July 2, 1995 Commission File Number 1-6714
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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 Street, N.W. Washington, D.C. 20071
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(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. Yes X . No .
-------- -------
Shares outstanding at August 6, 1995:
Class A Common Stock 1,843,250 Shares
Class B Common Stock 9,160,023 Shares
2
2.
THE WASHINGTON POST COMPANY
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) for the Thirteen and
Twenty-Six Weeks Ended July 2, 1995
and July 3, 1994 . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
at July 2, 1995 and January 1, 1995 . . . . . . 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Twenty-Six Weeks Ended
July 2, 1995 and July 3, 1994 . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote at Security
Holders. . . . . . . . . . . . . . . . . . . . .13
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . .14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit 11 . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit 27 (Electronic Filing Only) . . . . . . . . . . . . . 17
3
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------- ----------------------
July 2, July 3, July 2, July 3,
(In thousands, except per share amounts) 1995 1994 1995 1994
-------- -------- -------- --------
Operating revenues
Advertising $284,954 $261,682 $537,163 $473,877
Circulation and subscriber 114,079 110,098 222,546 219,263
Other 37,961 33,033 78,836 70,127
-------- -------- -------- --------
436,994 404,813 838,545 763,267
-------- -------- -------- --------
Operating costs and expenses
Operating 226,879 216,229 448,037 415,782
Selling, general and administrative 106,053 97,160 204,066 186,117
Depreciation and amortization of
property, plant and equipment 16,370 15,360 32,744 30,070
Amortization of goodwill and other
intangibles 8,956 6,502 16,629 10,533
-------- -------- -------- --------
358,258 335,251 701,476 642,502
-------- -------- -------- --------
Income from operations 78,736 69,562 137,069 120,765
Other income (expense)
Equity in earnings (losses) of affiliates 8,858 2,211 9,630 (3,174)
Interest income 2,032 2,030 4,366 5,595
Interest expense (1,368) (1,413) (2,799) (2,848)
Other (869) 2 13,526 2,606
-------- -------- -------- --------
Income before income taxes 87,389 72,392 161,792 122,944
-------- -------- -------- --------
Provision for income taxes
Current 35,844 31,763 64,343 54,725
Deferred 31 (628) 2,037 (1,850)
-------- -------- -------- --------
35,875 31,135 66,380 52,875
-------- -------- -------- --------
Net income $ 51,514 $ 41,257 $ 95,412 $ 70,069
======== ======== ======== ========
Earnings per share 4.65 3.54 8.56 5.99
======== ======== ======== ========
Dividends declared per share - $ - $ 2.20 $ 2.10
======== ======== ======== ========
Average number of shares outstanding 11,084 11,667 11,152 11,693
4
4.
The Washington Post Company
Consolidated Balance Sheets (Unaudited)
(In thousands)
July 2, January 1,
Assets 1995 1995
---------- ----------
Current assets
Cash and cash equivalents $ 90,310 $ 117,269
Marketable securities 9,312 24,570
Accounts receivable, less estimated returns,
doubtful accounts and allowances 194,466 175,441
Inventories 25,344 20,378
Program rights 13,479 18,972
Other current assets 16,800 19,249
--------- ---------
349,711 375,879
Investments in affiliates 180,190 170,754
Property, plant and equipment
Buildings 184,822 185,193
Machinery, equipment and fixtures 617,207 629,043
Leasehold improvements 33,004 33,287
--------- ---------
835,033 847,523
Less accumulated depreciation and amortization (510,402) (499,172)
--------- ---------
324,631 348,351
Land 32,459 32,562
Construction in progress 101,944 30,483
--------- ---------
459,034 411,396
Goodwill and other intangibles,
less accumulated amortization 496,052 512,405
Deferred charges and other assets 233,078 226,434
--------- ---------
$1,718,065 $1,696,868
========= =========
Liabilities and Shareholders' equity
Current liabilities
Accounts payable and accrued liabilities $ 182,989 $ 186,129
Federal and state income taxes 17,012 6,593
Deferred subscription revenue 79,727 80,351
Current portion of long-term debt 50,259 -
--------- ---------
329,987 273,073
Other liabilities 232,298 217,461
Long-term debt - 50,297
Deferred income taxes 31,739 29,104
--------- ---------
594,024 569,935
Shareholders' equity
Capital stock 20,000 20,000
Capital in excess of par value 24,262 21,273
Retained earnings 1,762,228 1,691,497
Unrealized gain on available-for-sale
securities 4,088 2,933
Cumulative foreign currency translation
adjustment 5,858 5,328
Cost of Class B common stock held in Treasury (692,395) (614,098)
-------- ---------
1,124,041 1,126,933
--------- ---------
$1,718,065 $1,696,868
========= =========
5
5.
The Washington Post Company
Consolidated Statements of Cash Flows (Unaudited)
Twenty-six Weeks Ended
------------------------
July 2, July 3,
(In thousands) 1995 1994
-------- --------
Cash flows from operating activities:
Net income $ 95,412 $ 70,069
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 32,744 30,070
Amortization of goodwill and other intangibles 16,629 10,533
Amortization of program rights 11,657 10,195
Provision for doubtful accounts 26,913 29,428
Gain from sale of business (14,253) -
Increase (decrease) in interest and income
taxes payable 7,891 (1,082)
Provision for deferred income taxes 2,037 (1,850)
Change in assets and liabilities:
(Increase) in accounts receivable (45,938) (60,837)
(Increase) in inventories (4,966) (1,784)
(Decrease) increase in accounts payable and
accrued liabilities (610) 12,556
(Increase) in other assets and other
liabilities, net (5,151) -
Other (4,732) 2,565
------- -------
Net cash provided by operating activities 117,633 99,863
Cash flows from investing activities:
Net proceeds from sale of business 32,743 -
Purchases of property, plant and equipment (81,971) (44,108)
Purchases of marketable securities (43,116) (14,657)
Proceeds from sales of marketable securities 58,498 256,617
Investments in certain businesses - (284,207)
Payments for program rights (6,571) (9,867)
Other 85 405
------- -------
Net cash (used) by investing activities (40,332) (95,817)
Cash flows from financing activities:
Principal payments on debt - (1,400)
Dividends paid (24,680) (24,598)
Common shares repurchased (79,580) (52,303)
------- -------
Net cash (used) by financing activities (104,260) (78,301)
------- -------
Net (decrease) in cash and cash
equivalents (26,959) (74,255)
Beginning cash and cash equivalents 117,269 171,512
------- -------
Ending cash and cash equivalents $ 90,310 $ 97,257
======= =======
6
6.
The Washington Post Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: 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.
Note 2: Summarized combined (unaudited) results of operations for the second
quarter and year-to-date of 1995 and 1994 for the company's affiliates are as
follows (in thousands):
Second Quarter Year-to-Date
------------------- -----------------
1995 1994 1995 1994
--------- --------- --------- -------
Operating revenues $229,850 $199,742 $430,660 $360,661
Operating income 31,427 19,111 46,841 16,670
Net income (loss) 19,909 6,152 27,679 (240)
Note 3: In April 1994 the company acquired substantially all of the assets
comprising the businesses of television stations KPRC-TV, an NBC affiliate
in Houston, Texas, and KSAT-TV, an ABC affiliate in San Antonio, Texas, for
$253 million in cash. The transaction was accounted for as a purchase
and the results of operations of the television stations were included with
those of the company for the period subsequent to the date of acquisition.
The following statement presents the company's unaudited pro forma
condensed consolidated income statement for the six months ended July 3, 1994,
as if the acquisition of the television stations had occurred at the
beginning of the six month period. Amounts reflect an allocation of the
purchase price to the acquired net tangible assets, with the excess being
amortized over a period of 20 years. The revenues and results of
operations presented in the pro forma income statement do not necessarily
reflect the results of operations that would actually have been obtained if
the acquisition had occurred at the beginning of the six month period.
7
7.
Pro Forma Income Statement
For the Six-months Ended
July 3,
(in thousands, except per share amounts) 1994
-------
Operating revenues $782,634
Net income $69,605
Earnings per share $5.95
In January 1995 the company sold substantially all of its 70 percent
limited partnership interest in American Personal Communications (APC) to its
partner APC, Inc., and others, for approximately $33 million. The proceeds
approximate the amounts The Washington Post Company had cumulatively invested
in the partnership since it was formed in August 1990. The company's 1995 net
income includes $8.4 million ($0.75 per share) from the sale.
Note 4: During the first six months of 1995 the company repurchased 322,606
shares of its Class B common stock at a cost of $79.6 million.
8
8.
ITEM 2. 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. For that reason, the results of
operations for each quarter are compared with those of the corresponding quarter
in the preceding year.
SECOND QUARTER COMPARISONS
Net income for the second quarter of 1995 was $51.5 million, an increase
of 24.9 percent from net income of $41.3 million in the second quarter last
year. Earnings per share increased 31.4 percent to $4.65 per share, from $3.54
per share in the second quarter of 1994, with a smaller number of shares
outstanding.
Revenues for the second quarter of 1995 rose 7.9 percent to $437.0
million, from $404.8 million in the same period last year. Advertising revenues
rose 8.9 percent and circulation and subscriber revenues increased 3.6 percent.
Other revenues increased 14.9 percent over the second quarter of 1994. All
divisions posted higher revenue in the second quarter this year. The broadcast
division had exceptionally strong revenue gains, reflecting the results of the
two television stations acquired on April 22, 1994, as well as improved network
compensation.
Costs and expenses for the second quarter of 1995 increased 6.9 percent
to $358.3 million, from $335.3 million in the second quarter of 1994.
Operating expenses increased 4.9 percent, while selling, general and
administrative expenses increased 9.2 percent. Depreciation expense increased
6.6 percent compared to the second quarter of 1994, while amortization expense
increased 37.7 percent. Approximately 35 percent of the total increase in costs
and expenses (and all of the amortization increase) relates to additional
expenses associated with newly acquired businesses, principally the two Texas
stations acquired in April 1994. In addition, a 28.6 percent increase in
newsprint expense accounted for approximately 30 percent of the increase in
total expense. The remainder reflects normal increases in the costs of
operations.
In the second quarter of 1995 operating income rose to $78.7 million, a
13.2 percent increase over $69.6 million in 1994.
NEWSPAPER DIVISION. At the newspaper division revenues increased 2.4 percent
in the second quarter of 1995. Although advertising volume at The Washington
Post fell 5.0 percent, advertising revenues for the
9
9.
division rose 1.6 percent for the quarter due mainly to rate increases for
retail and classified advertising. Classified volume declined 4.3 percent in
the quarter, though recruitment advertising volume remained strong. Retail
linage was down 6.4 percent, while general remained essentially unchanged
compared with the same period last year. Preprint volume increased 5.7 percent
over the second quarter of 1994. Circulation revenues for the division increased
1.9 percent compared with the second quarter of 1994.
BROADCAST DIVISION. Revenues at the broadcast division, which include the
results of the two Texas television stations purchased on April 22, 1994,
increased 26.3 percent in the second quarter of 1995. Local advertising
revenues increased 19.4 percent and national advertising revenues rose 6.6
percent over the second quarter of 1994. Approximately 53 percent of the
increase in total revenues is attributable to the newly acquired stations.
MAGAZINE DIVISION. Newsweek revenues in the second quarter of 1995 increased
5.9 percent. Advertising revenues rose 7.8 percent, primarily due to higher
rates at the domestic edition and increased volume at the international
editions. Circulation revenues were up 2.8 percent, with higher subscription
rates being the major contributor to the improvement. In the second quarter
Newsweek published the same number of weekly issues (13) and newsstand-only
issues (1) as in 1994.
CABLE DIVISION. At the cable division, second quarter 1995 revenues were 5.6
percent higher than 1994, due primarily to an increase in basic subscribers. At
the end of second quarter, the number of basic subscribers totaled almost
507,000, 3.8 percent higher than at the same time last year.
OTHER BUSINESSES. In the second quarter of 1995, revenues from other businesses
-- principally Kaplan Educational Centers, PASS Sports, Legi-Slate, Digital Ink,
Mammoth Micro Productions, and Moffet, Larson, & Johnson (MLJ) -- increased 10.6
percent. At Kaplan, revenues were up 4.3 percent in the quarter reflecting
improved results in the company's core courses, while at MLJ, increased demand
for engineering services to the expanding PCS industry generated a three-fold
jump in revenues.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates in the second quarter of 1995 was $8.9 million, compared with $2.2
million in the second quarter of 1994. The improvement was due to better
results at the company's affiliated newsprint mills, which are benefiting from
higher newsprint prices.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $0.6
million, unchanged over the comparable period in 1994.
10
10.
INCOME TAXES. The effective tax rate in 1995 decreased to 41 percent, from 43
percent in 1994.
SIX MONTH COMPARISONS
Net income for the first six months of 1995 was $95.4 million ($8.56 per
share), compared with net income of $70.1 million ($5.99 per share) in the first
half of 1994. The company's net income for the first half of 1995 includes $8.4
million ($0.75 per share) from the sale, at its original cost, of substantially
all of the company's investment in American PCS, L.P. Excluding the effect of
the sale, net income increased $16.9 million, or 24.2 percent, in the first six
months of 1995.
Revenues for the first half of 1995 increased 9.9 percent to $838.5
million, from $763.3 million in the comparable period last year. Advertising
revenues increased 13.4 percent, circulation and subscriber revenues increased
1.5 percent and other revenues increased 12.4 percent.
Costs and expenses increased 9.2 percent during the first half of 1995
to $701.5 million, from $642.5 million in the corresponding period of 1994.
Operating expenses and selling, general and administrative expenses increased
7.8 and 9.6 percent, respectively. Depreciation expense increased 8.9 percent
while amortization expense increased 57.9 percent. Approximately 43 percent of
the total increase in costs and expenses (and all of the amortization increase)
relates to additional expenses associated with new businesses. In addition, a
25.7 percent increase in newsprint expense accounted for approximately 20
percent of the increase in total expense. The remainder of the increases
reflect normal growth in operating expenses.
In the first half of 1995 operating income rose to $137.1 million, an
increase of 13.5 percent over $120.8 million in the same period last year.
NEWSPAPER DIVISION. Newspaper division revenues were up 4.6 percent in the first
half of 1995 over the comparable period of 1994. Although advertising volume at
The Washington Post fell 3.0 percent, advertising revenues for the division rose
4.3 percent in the period due mainly to rate increases for retail and classified
advertising, as well as improvement in recruitment and preprint volume at The
Post. Circulation revenues for the division increased 2.0 percent compared with
the first half of 1994. Daily circulation at The Post declined 2.0 percent from
the prior year, and Sunday circulation dropped 1.1 percent.
BROADCAST DIVISION. Revenues at the broadcast division, which include the
results of the two Texas television stations purchased on April
11
11.
22, 1994, increased 39.8 percent over the first six months of 1994. In the first
half of 1995 local advertising revenues rose 34.3 percent and national
advertising revenues increased 22.2 percent. Approximately 64 percent of the
increase in total revenues is attributable to the newly acquired stations.
MAGAZINE DIVISION. At Newsweek revenues increased 4.3 percent in the first half
of 1995. A major contributor to the improvement was a 9.2 percent increase in
advertising revenues, which resulted primarily from higher advertising page
volume, despite one less regular and one less newsstand-only issue published in
1995. In the first six months of 1995, circulation revenues decreased 1.6
percent, primarily due to the publication of one less issue in 1995. Stronger
subscription and foreign currency rates at the international editions partially
offset this decline.
CABLE DIVISION. Cable division revenues increased 4.1 percent in the first half
of 1995. Subscriber revenues grew 3.9 percent in the first six months of 1995,
due to a 3.8 percent increase in the number of basic subscribers.
OTHER BUSINESSES. At the company's other businesses, revenues rose 10.7 percent
in the first half of 1995. Improved results at Kaplan Educational Centers and
Moffet, Larson, & Johnson were the major contributors to the increase over 1994.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates during the first half of 1995 was income of $9.6 million, compared
with a loss of $3.2 million in the first six months of 1994. Improved results
from the company's newsprint mill affiliates were the major contributors to the
increase.
NON-OPERATING ITEMS. Interest income, net of interest expense, was
$1.6 million in the first six months of 1995, compared to $2.8 million in 1994.
The company had lower invested cash balances due mainly to the acquisition of
two television stations in April 1994 and the repurchase of company stock.
Other income in the first half of 1995 was $13.5 million, compared with
$2.6 million in the comparable period of 1994. The increase is due to the sale
of substantially all of the company's interest in American PCS, L.P. in January
1995. In 1994 other income included a gain of $2.5 million resulting from a
change in the company's ownership interest in one of its affiliates.
INCOME TAXES. The effective tax rate in 1995 decreased to 41 percent, from 43
percent in 1994.
12
12.
FINANCIAL CONDITION
The company has completed its assessment of the need for a new
production facility at The Washington Post newspaper. On May 17, 1995, the
company announced a contract to purchase new press equipment as part of an
estimated three year $250 million capital project which it anticipates
completing by 1998.
On August 8, the company announced it had reached agreements in
principle to acquire three cable systems serving approximately 65,000
subscribers in four states from Time Warner and from Cox Communications. The
combined purchase price is approximately $120 million in cash.
The company expects to fund both the new plant construction and the
cable system acquisitions through internally generated funds and short-term
borrowings.
As indicated previously, the newspaper division has experienced
significant increases in newsprint prices in the first half of 1995 and
anticipates further increases during the year. These increases have had and
will continue to have a negative impact on the company's operating results. As
a result of the company's investment in newsprint paper mills, which are
included in equity in income of affiliates, the company expects that a
significant portion of the increased costs will be offset by its share of
increased profits at the newsprint affiliates.
As of the end of 1994, the company had repurchased approximately 885,000
shares of the one million Class B shares authorized for repurchase by the Board
of Directors in May 1990. In January 1995 the Board of Directors authorized the
company to repurchase an additional one million Class B shares, primarily
through block purchases. In the first six months of 1995, the company
repurchased 322,606 shares of its Class B common stock for $79.6 million. This
completed the repurchase under the May 1990 authorization; approximately 790,000
Class B shares remain to be repurchased under the January 1995 authorization.
The company has experienced no other significant changes in its
financial condition since the end of 1994.
13
13.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's May 11, 1995, Annual Meeting of Stockholders, the
stockholders elected each of the nominees to its Board of Directors
named in the Company's proxy statement dated March 31, 1995. The voting
results are set forth below:
Election of the nominees to the Board of Directors:
CLASS A DIRECTORS
-----------------
BROKER
NOMINEE FOR WITHHELD NON-VOTES
------- --- -------- ---------
Cohen 1,843,250 - 0 - - 0 -
Gillespie 1,843,250 - 0 - - 0 -
D. Graham 1,843,250 - 0 - - 0 -
K. Graham 1,843,250 - 0 - - 0 -
Ruane 1,843,250 - 0 - - 0 -
Simmons 1,843,250 - 0 - - 0 -
Spoon 1,843,250 - 0 - - 0 -
Wilson 1,843,250 - 0 - - 0 -
CLASS B DIRECTORS
-----------------
BROKER
NOMINEE FOR WITHHELD NON-VOTES
------- --- -------- ---------
Burke 7,934,697 35,060 - 0 -
Gomory 7,934,747 35,010 - 0 -
Keough 7,934,707 35,050 - 0 -
Preiskel 7,931,962 37,795 - 0 -
14
14.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as exhibits to this report:
EXHIBIT FILING
NUMBER DESCRIPTION PAGE NUMBER
11 Calculation of average number of
shares outstanding............................... 16
27 Financial Data Schedule (Electronic Filing Only). 17
(b) No reports on Form 8-K were filed during the period covered by
this report.
15
15.
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: August 16, 1995 /s/ Donald E. Graham
--------------- ------------------------------------
Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1995 /s/ John B. Morse, Jr.
--------------- ------------------------------------------
John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)