1
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 March 31, 1996 Commission File Number 1-6714
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THE WASHINGTON POST COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 53-0182885
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(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
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(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 .
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Shares outstanding at May 3, 1996:
Class A Common Stock 1,804,250 Shares
Class B Common Stock 9,175,418 Shares
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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 Weeks
Ended March 31, 1996 and April 2, 1995............... 3
Condensed Consolidated Balance Sheets (Unaudited)
at March 31, 1996 and December 31, 1995.............. 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Thirteen Weeks Ended
March 31, 1996 and April 2, 1995..................... 5
Notes to Condensed Consolidated Financial Statements
(Unaudited).......................................... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................... 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 10
Item 6. Exhibits and Reports on Form 8-K.............................. 11
Signatures.................................................... 12
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 11
Exhibit 27 (Electronic Filing Only)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended
--------------------------------
March 31, April 2,
(In thousands, except per share amounts) 1996 1995
---------- ----------
Operating revenues
Advertising $ 252,807 $ 252,210
Circulation and subscriber 117,070 108,466
Other 46,742 40,875
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416,619 401,551
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Operating costs and expenses
Operating 242,482 221,158
Selling, general and administrative 100,792 98,013
Depreciation and amortization of
property, plant and equipment 16,160 16,374
Amortization of goodwill and other intangibles 6,985 7,673
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366,419 343,218
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Income from operations 50,200 58,333
Other income (expense)
Equity in earnings of affiliates 7,353 772
Interest income 1,224 2,334
Interest expense (1,083) (1,431)
Other 2,867 14,395
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Income before income taxes 60,561 74,403
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Provision for income taxes
Current 22,343 28,500
Deferred 1,276 2,005
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23,619 30,505
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Net income 36,942 43,898
Redeemable preferred stock dividends (202)
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Net income available for common stock $ 36,740 $ 43,898
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Earnings per share $ 3.34 $ 3.91
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Dividends declared per share $ 2.30 $ 2.20
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Average number of shares outstanding 11,011 11,220
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The Washington Post Company
Consolidated Balance Sheets (Unaudited)
(In thousands)
March 31, December 31,
Assets 1996 1995
----------- ------------
Current assets
Cash and cash equivalents $ 73,950 $ 146,901
Marketable securities -- 12,756
Accounts receivable, less estimated returns,
doubtful accounts and allowances 197,413 200,698
Inventories 30,601 26,766
Other current assets 27,784 19,449
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329,748 406,570
Investments in affiliates 192,196 189,053
Property, plant and equipment
Buildings 199,072 190,543
Machinery, equipment and fixtures 686,038 664,403
Leasehold improvements 34,074 33,805
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919,184 888,751
Less accumulated depreciation and amortization (550,799) (535,691)
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368,385 353,060
Land 32,518 32,513
Construction in progress 90,945 71,786
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491,848 457,359
Goodwill and other intangibles,
less accumulated amortization 502,890 472,291
Deferred charges and other assets 236,654 207,620
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$1,753,336 $1,732,893
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 177,675 $ 172,004
Federal and state income taxes 23,120 3,494
Deferred subscription revenue 86,680 82,457
Current portion of long-term debt -- 50,222
Dividends declared 12,836 --
--------- ---------
300,311 308,177
Other liabilities 212,731 205,869
Deferred income taxes 36,639 34,643
--------- ---------
549,681 548,689
Redeemable preferred stock 11,947 --
Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 25,097 24,941
Retained earnings 1,844,167 1,832,706
Unrealized gain on available-for-sale
securities 4,260 3,224
Cumulative foreign currency translation
adjustment 6,111 5,537
Cost of Class B common stock held in Treasury (707,927) (702,204)
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1,191,708 1,184,204
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$1,753,336 $1,732,893
========= =========
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The Washington Post Company
Consolidated Statements of Cash Flows (Unaudited)
Thirteen Weeks Ended
--------------------------------
March 31, April 2,
(In thousands) 1996 1995
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Cash flows from operating activities:
Net income $ 36,942 $ 43,898
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 16,160 16,374
Amortization of goodwill and other intangibles 6,985 7,673
Gain on disposition of businesses (3,112) (14,253)
Equity in earnings of affiliates, net
of distributions (2,569) (227)
Increase in income taxes payable 19,626 28,721
Provision for deferred income taxes 1,276 2,005
Change in assets and liabilities:
Decrease in accounts receivable, net 3,284 5,205
(Increase) in inventories (3,835) (5,288)
Increase (decrease) in accounts payable and accrued
liabilities 9,818 (22,158)
(Increase) in other assets and other
liabilities, net (16,700) (3,844)
Other 6,099 5,792
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Net cash provided by operating activities 73,974 63,898
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Cash flows from investing activities:
Net proceeds from sale of business 3,517 32,743
Purchases of property, plant and equipment (23,078) (16,259)
Purchases of marketable securities -- (43,116)
Proceeds from sales of marketable securities 12,821 -
Investments in certain businesses (83,638) -
Other 72 33
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Net cash (used) by investing activities (90,306) (26,599)
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Cash flows from financing activities:
Principal payments on debt (50,209) --
Issuance of redeemable preferred stock 11,947 --
Dividends paid (12,645) (12,443)
Common shares repurchased (5,712) (59,536)
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Net cash (used) by financing activities (56,619) (71,979)
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Net (decrease) in cash and cash equivalents (72,951) (34,680)
Beginning cash and cash equivalents 146,901 117,269
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Ending cash and cash equivalents $ 73,950 $ 82,589
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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.
Certain prior year amounts have been reclassified to conform with current year
presentation.
Note 2: Summarized combined (unaudited) results of operations for the first
quarters of 1996 and 1995 for the company's affiliates are as follows (in
thousands):
First Quarter
------------------------
1996 1995
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Operating revenues $235,473 $200,810
Operating income 37,403 15,414
Net income 27,373 7,770
Note 3: 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 company had invested in the partnership
since it was formed in August 1990. The company's 1995 first-quarter net
income includes $8.4 million ($0.75 per share) from the sale.
In the first quarter of 1996 the company purchased two businesses for
approximately $60 million, a cable system in Texarkana serving about 24,000
subscribers and a commercial printing operation located in the Maryland suburbs
of Washington, D.C. The company also acquired a cable system in Columbus,
Mississippi, serving about 15,700 subscribers for approximately $23 million
consisting of cash and non-convertible, redeemable preferred stock of the
company.
The redeemable preferred stock issued in conjunction with the Columbus
cable acquisition has a par value of $1.00 per share and a redemption price and
liquidation preference of $1,000 per share. Dividends are payable quarterly at
the rate of $20 per share. Shares of the redeemable preferred stock are
redeemable by the company at any time on or after October 1, 2015. In
addition, holders of such stock have a right to require the company to purchase
their shares at the redemption price during an annual 60-day election period,
with the first such period beginning on February 23, 2001.
Note 4: Effective January 1, 1996, the company adopted Statements of Financial
Accounting Standards No. 121 (FAS 121) "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and No. 123 (FAS 123),
"Accounting for Stock-Based Compensation." In accordance with FAS 121 the
company periodically evaluates the realizability of long-lived assets,
including goodwill, based upon projected undiscounted cash flows and operating
income for each subsidiary.
In accordance with the provisions of FAS 123, the company has elected to
continue to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
will provide pro forma disclosures of net income and earnings per share as if
the fair value-based method prescribed by FAS 123 had been applied in measuring
compensation expense. The adoption of these standards did not have a material
effect on the company's financial position or results of operations.
Note 5: During the first three months of 1996 the company repurchased 20,335
shares of its Class B common stock at a cost of approximately $5.7 million.
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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.
RESULTS OF OPERATIONS
Net income for the first quarter of 1996 was $36.9 million ($3.34 per
share), compared with net income of $43.9 million ($3.91 per share) in the
first quarter last year. The company's 1995 first-quarter net income 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 4.1 percent in the first quarter
this year; earnings per share increased 5.7 percent with fewer weighted average
shares outstanding.
Revenues for the first three months of 1996 were $416.6 million, an
increase of 3.8 percent from $401.6 million in the first quarter of 1995.
Advertising revenues were essentially even with the prior year. Circulation
and subscriber revenues increased 7.9 percent, and other revenues increased
14.4 percent from 1995. The broadcast division, cable division, and other
businesses reported strong gains in revenue in the first quarter of 1996
compared to the same period last year.
Costs and expenses for the first quarter of 1996 increased 6.8 percent
to $366.4 million , from $343.2 million in the first quarter of 1995.
Operating expenses and selling, general and administrative expenses increased
9.6 percent and 2.8 percent, respectively, over the same period last year. A
29.7 percent increase in newsprint expense for the company had a significant
negative impact on operating results versus last year. The remainder of the
increase in expenses reflects normal growth in operating expenses and the
effect of certain acquisitions described below.
In the first quarter of 1996 operating income was $50.2 million
compared to $58.3 million in 1995. The decline resulted from weakness in the
company's print businesses, primarily due to increased newsprint expense,
offset by strong performances in the broadcast and cable divisions.
NEWSPAPER DIVISION. At the newspaper division, revenues were essentially even
with the first quarter of 1995. Advertising revenues for the division declined
1.1 percent. Retail lineage at The Post was
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down 16.2 percent; weak market conditions continue to affect the real estate
and other retail categories. Classified lineage declined 5.9 percent from the
first quarter of 1995 despite strong results for recruitment advertising.
General lineage improved 5.9 percent and preprint volume declined 1 percent.
Circulation revenues increased 1.3 percent for the division compared to the
first quarter of 1995. Daily and Sunday circulation at The Post were both down
1.7 percent compared to the first quarter of last year.
BROADCAST DIVISION. Revenues at the broadcast division increased 5.5 percent
over the first quarter of 1995. Local advertising revenues increased 8.1
percent and national advertising revenues rose 1.0 percent in the first quarter
of 1996 compared to the same period last year. Network compensation increased
9.9 percent in the first three months of 1996, resulting from the renegotiation
of certain network affiliation contracts.
MAGAZINE DIVISION. Newsweek revenues in the first quarter of 1996 declined 1.8
percent. Advertising revenues fell 4.8 percent due to lower advertising volume
at both the domestic and international divisions. Circulation revenues
increased 1.2 percent.
CABLE DIVISION. At the cable division, first quarter revenues were 17.4
percent higher than in the comparable period in 1995. Higher subscriber
levels, resulting mainly from recent acquisitions, as well as higher rates
accounted for the increase. At the end of the quarter, there were
approximately 560,000 basic subscribers.
OTHER BUSINESSES. In the first quarter of 1996, revenues from other
businesses, principally PASS Sports, Legi-Slate, Digital Ink, and MLJ (Moffet,
Larson & Johnson) increased 13.4 percent. The improvement was due mainly to
significant improvement at MLJ resulting from increased demand for engineering
services by the wireless communications industry.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates in the first three months was $7.4 million compared $0.8 million
in 1995. 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, declined to
$0.1 million, compared with $0.9 million in the first quarter of 1995
reflecting lower invested balances.
Other income in the first quarter of 1996 was $2.9 million compared
with $14.4 million in the same period last year. The 1995 amount includes the
gain resulting from the sale of substantially all of the company's interest in
American PCS, L.P. in January 1995.
INCOME TAXES. The effective tax rate in 1996 decreased to 39 percent, from 41
percent in 1995.
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FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
During the first quarter 1996 the company purchased two businesses for
approximately $60 million, a cable system in Texarkana serving about 24,000
subscribers and a commercial printing operation located in the Maryland suburbs
of Washington, D.C. The company also acquired a cable system in Columbus,
Mississippi, serving about 15,700 subscribers for approximately $23 million
consisting of cash and shares of non-convertible, redeemable preferred stock of
the company. The company has also reached agreements in principle to purchase
cable systems serving 41,000 subscribers in two states for approximately $70
million, and to exchange the assets of certain cable systems with
Tele-Communications, Inc. (TCI). According to the terms of the TCI agreement,
the exchange will result in an aggregate increase of about 23,000 subscribers
for the company. These transactions are expected to be completed before the
end of 1996.
In January 1996 the company established a five-year, $300 million
revolving credit facility with a group of banks to provide for general
corporate purposes and support the issuance of short-term promissory notes. In
March 1996, the company retired its European Currency Notes for $50.2 million.
As of the end of 1995, the company had repurchased approximately
235,000 shares of the one million Class B shares authorized for repurchase by
the Board of Directors in January 1995. In the first quarter of 1996, the
company repurchased 20,335 shares of its Class B common stock for approximately
$5.7 million. Approximately 745,000 Class B common 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 1995.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's May 9, 1996, 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 29, 1996. The voting results are set
forth below:
Class A Directors
Votes Votes Broker
Nominee For Withheld Non-Votes
------- ----- -------- ---------
Warren E. Buffett 1,804,250 -0- -0-
Martin Cohen 1,804,250 -0- -0-
George J. Gillespie III 1,804,250 -0- -0-
Donald E. Graham 1,804,250 -0- -0-
Katharine Graham 1,804,250 -0- -0-
William J. Ruane 1,804,250 -0- -0-
Richard D. Simmons 1,804,250 -0- -0-
Alan G. Spoon 1,804,250 -0- -0-
George W. Wilson 1,804,250 -0- -0-
Class B Directors
Votes Votes Broker
Nominee For Withheld Non-Votes
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Daniel B. Burke 7,920,730 95,439 -0-
James E. Burke 7,921,202 94,967 -0-
Ralph E. Gomory 7,920,902 95,267 -0-
Donald R. Keough 7,920,830 95,339 -0-
Barbara Scott Preiskel 7,920,329 95,840 -0-
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as exhibits to this report:
EXHIBIT
NUMBER DESCRIPTION
10.1 The Washington Post Company Annual
Incentive Compensation Plan as amended
and restated effective June 30, 1995.
10.2 The Washington Post Company Long-Term
Incentive Compensation Plan as amended
and restated effective June 30, 1995.
10.3 The Washington Post Company Stock Option
Plan as amended and restated through
June 29, 1995.
11 Calculation of Earnings per Share of Common
Stock.
27 Financial Data Schedule (Electronic Filing Only).
(b) No reports on Form 8-K were filed during the period covered by
this report.
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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 15, 1996 /s/ Donald E. Graham
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Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1996 /s/ John B. Morse, Jr.
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John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)