1
This report (including all exhibits)
consists of a total of 14 pages, of which this
page is number 1. The exhibit index is on page 12.
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 June 30, 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 August 5, 1996:
Class A Common Stock 1,804,250 Shares
Class B Common Stock 9,149,783 Shares
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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 June 30, 1996 and
July 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
at June 30, 1996 and December 31, 1995 . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Twenty-six Weeks Ended
June 30, 1996 and July 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit 11
Exhibit 27 (Electronic Filing Only)
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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
------------------------- ------------------------
June 30, July 2, June 30, July 2,
(In thousands, except per share amounts) 1996 1995 1996 1995
-------- -------- -------- --------
Operating revenues
Advertising $310,459 $284,954 $563,266 $537,163
Circulation and subscriber 121,488 114,079 238,559 222,546
Other 40,905 37,961 87,646 78,836
------- ------- ------- -------
472,852 436,994 889,471 838,545
------- ------- ------- -------
Operating costs and expenses
Operating 253,639 226,879 496,121 448,037
Selling, general and administrative 100,562 106,053 201,354 204,066
Depreciation and amortization of
property, plant and equipment 16,004 16,370 32,164 32,744
Amortization of goodwill and other
intangibles 7,162 8,956 14,147 16,629
------- ------- ------- -------
377,367 358,258 743,786 701,476
------- ------- ------- -------
Income from operations 95,485 78,736 145,685 137,069
Other income (expense)
Equity in earnings of affiliates 7,807 8,858 15,160 9,630
Interest income 1,175 2,032 2,399 4,366
Interest expense (139) (1,368) (1,222) (2,799)
Other (689) (869) 2,178 13,526
------- ------- ------- -------
Income before income taxes 103,639 87,389 164,200 161,792
------- ------- ------- -------
Provision for income taxes
Current 39,243 35,844 61,586 64,343
Deferred 1,178 31 2,454 2,037
------- ------- ------- -------
40,421 35,875 64,040 66,380
------- ------- ------- -------
Net income 63,218 51,514 100,160 95,412
Redeemable preferred stock dividends -- -- (202) --
Net income available for common stock $63,218 $51,514 $99,958 $95,412
====== ====== ====== ======
Earnings per common share $ 5.76 $ 4.65 $ 9.09 $ 8.56
======= ======= ======= =======
Dividends declared per common share -- -- $ 2.30 $ 2.20
======= ======= ======= ======
Average number of common shares outstanding 10,970 11,084 10,998 11,152
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4.
The Washington Post Company
Consolidated Balance Sheets (Unaudited)
June 30, December 31,
(In thousands) 1996 1995
-------- ------------
Assets
Current assets
Cash and cash equivalents $ 101,664 $ 146,901
Marketable securities -- 12,756
Accounts receivable, less estimated returns,
doubtful accounts and allowances 232,468 200,698
Inventories 24,531 26,766
Other current assets 22,221 19,449
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380,884 406,570
Investments in affiliates 198,683 189,053
Property, plant and equipment
Buildings 197,859 190,543
Machinery, equipment and fixtures 692,243 664,403
Leasehold improvements 34,326 33,805
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924,428 888,751
Less accumulated depreciation and amortization (566,918) (535,691)
--------- ---------
357,510 353,060
Land 34,350 32,513
Construction in progress 78,259 71,786
--------- ---------
470,119 457,359
Goodwill and other intangibles,
less accumulated amortization 522,488 472,291
Deferred charges and other assets 213,495 207,620
--------- ---------
$1,785,669 $1,732,893
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 191,982 $ 172,004
Federal and state income taxes 2,900 3,494
Deferred subscription revenue 81,594 82,457
Current portion of long-term debt -- 50,222
--------- ---------
276,476 308,177
Other liabilities 213,926 205,869
Deferred income taxes 37,037 34,643
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527,439 548,689
Redeemable preferred stock 11,947 --
Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 25,382 24,941
Retained earnings 1,907,385 1,832,706
Unrealized gain on available-for-sale
securities 3,138 3,224
Cumulative foreign currency translation
adjustment 5,364 5,537
Cost of Class B common stock held in Treasury (714,986) (702,204)
--------- ---------
1,246,283 1,184,204
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$1,785,669 $1,732,893
========= =========
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5.
The Washington Post Company
Consolidated Statements of Cash Flows (Unaudited)
Twenty-six Weeks Ended
----------------------------
June 30, July 2,
(In thousands) 1996 1995
-------- --------
Cash flows from operating activities:
Net income $100,160 $ 95,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 32,164 32,744
Amortization of goodwill and other intangibles 14,147 16,629
Gain from sale of business (3,112) (14,253)
(Decrease) increase in income taxes payable (594) 10,419
Provision for deferred income taxes 2,454 2,037
Equity in earnings of affiliates, net of
distributions (9,803) (8,501)
Change in assets and liabilities:
(Increase) in accounts receivable, net (31,770) (19,025)
Decrease (increase) in inventories 2,235 (4,966)
Increase (decrease) in accounts payable and
accrued liabilities 24,125 (610)
(Increase) in other assets and other
liabilities, net (12,960) (2,595)
Other 3,411 3,771
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Net cash provided by operating activities 120,457 111,062
Cash flows from investing activities:
Net proceeds from sale of business 3,517 32,743
Purchases of property, plant and equipment (16,197) (81,971)
Purchases of marketable securities -- (43,116)
Proceeds from sales of marketable securities 12,821 58,498
Investments in certain businesses (89,471) --
Other 332 85
------- -------
Net cash (used) by investing activities (88,998) (33,761)
Cash flows from financing activities:
Principal payments on debt (50,209) --
Issuance of redeemable preferred stock 11,947 --
Dividends paid (25,482) (24,680)
Common shares repurchased (12,952) (79,580)
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Net cash (used) by financing activities (76,696) (104,260)
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Net (decrease) in cash and cash equivalents (45,237) (26,959)
Beginning cash and cash equivalents 146,901 117,269
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Ending cash and cash equivalents $101,664 $ 90,310
======= =======
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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.
Certain prior year amounts have been reclassified to conform with current year
presentation.
Note 2: Summarized combined (unaudited) results of operations for the second
quarter and year-to-date of 1996 and 1995 for the company's affiliates are as
follows (in thousands):
Second Quarter Year-to-Date
-------------------------- -----------------------------
1996 1995 1996 1995
--------- --------- ---------- --------
Operating revenues $236,430 $229,850 $471,903 $430,660
Operating income 27,655 31,427 65,057 46,841
Net income 19,851 19,909 47,224 27,679
Note 3: 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. In the first quarter of 1996 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 four
times each year 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 six months of 1996 the company repurchased 45,315
shares of its Class B common stock at a cost of $13.0 million.
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7.
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 1996 was $63.2 million, an
increase of 23 percent from net income of $51.5 million in the second quarter
last year. Earnings per share increased 24 percent to $5.76 per share, from
$4.65 per share in the second quarter of 1995, with a smaller number of shares
outstanding.
Revenues for the second quarter of 1996 rose 8 percent to $472.9
million, from $437.0 million in the same period last year. Advertising
revenues rose 9 percent and circulation and subscriber revenues increased 7
percent. Other revenues increased 8 percent over the second quarter of 1995.
All divisions posted higher revenues in the second quarter this year. The
magazine division had exceptionally strong gains resulting from increased
advertising page volume as well as higher advertising revenue realized per
page.
Costs and expenses for the second quarter of 1996 increased 5 percent
to $377.4 million, from $358.3 million in the second quarter of 1995.
Operating expenses increased 12 percent, while selling, general and
administrative expenses decreased 5 percent. Depreciation expense decreased 2
percent compared to the second quarter of 1995. Amortization expense for the
second quarter of 1996 decreased 20 percent as 1995 amortization included
expense related to the operations of Mammoth Micro Productions which was
written off in September 1995. A 16 percent higher newsprint expense accounted
for about a fourth of the net increase in total costs and expenses. The
remainder of the net increase relates primarily to additional expenses
associated with newly acquired businesses as well as normal increases in the
cost of operations.
In the second quarter of 1996 operating income rose to $95.5 million,
a 21 percent increase over $78.7 million in 1995.
NEWSPAPER DIVISION. At the newspaper division revenues increased 4 percent in
the second quarter of 1996. Although advertising volume at The Washington Post
fell 5 percent, advertising revenues for the division rose 3 percent for the
quarter due mainly to rate increases
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8.
for retail and classified advertising. Classified volume at the Post increased
2 percent in the quarter, as recruitment advertising volume remained strong.
Retail lineage was down 13 percent, and general lineage declined 4 percent
compared with the same period last year. Preprint volume decreased 2 percent
versus the second quarter of 1995. Circulation revenues for the division
increased 2 percent compared with the same period last year.
BROADCAST DIVISION. Revenues at the broadcast division increased 5 percent in
the second quarter of 1996. Local advertising revenues increased 10 percent
and national advertising revenues rose 6 percent over the second quarter of
1995. Network compensation increased 20 percent over the comparable period
last year.
MAGAZINE DIVISION. Newsweek revenues in the second quarter of 1996 increased
16 percent. Advertising revenues rose 31 percent, primarily due to increased
advertising page volume combined with higher net advertising revenue realized
per page. Circulation revenues declined 2 percent. In the second quarter
Newsweek published the same number of weekly issues (13) as in 1995; 1995 also
included one special newsstand-only issue.
CABLE DIVISION. At the cable division, second quarter 1996 revenues were 17
percent higher than 1995. Higher subscriber levels, resulting mainly from
recent acquisitions, as well as higher rates accounted for the increase. At
the end of the second quarter, the number of basic subscribers totaled
approximately 560,000, 11 percent higher than at the same time last year.
OTHER BUSINESSES. In the second quarter of 1996, revenues from other
businesses -- principally Kaplan Educational Centers, PASS Sports, Legi-Slate,
Digital Ink, and MLJ (Moffet, Larson & Johnson) -- increased 7 percent over the
prior year. At MLJ, increased demand for engineering services to the expanding
PCS industry generated a 33 percent jump in revenues.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates in the second quarter of 1996 was $7.8 million, compared with
$8.9 million in the second quarter of 1995.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $1.0
million for the second quarter of 1996, compared to $0.6 million in 1995.
INCOME TAXES. The effective tax rate in the second quarter of 1996 decreased
to 39 percent, from 41 percent in 1995.
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9.
SIX MONTH COMPARISONS
Net income for the first six months of 1996 was $100.2 million ($9.09
per share), compared with net income of $95.4 million ($8.56 per share) in the
first half of 1995. 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 $13.2 million, or 15 percent, in
the first six months of 1996.
Revenues for the first half of 1996 increased 6 percent to $889.5
million, from $838.5 million in the comparable period last year. Advertising
revenues increased 5 percent, circulation and subscriber revenues increased 7
percent and other revenues increased 11 percent.
Costs and expenses increased 6 percent during the first half of 1996
to $743.8 million, from $701.5 million in the corresponding period of 1995.
Operating expenses increased 11 percent and selling, general and administrative
expenses decreased 1 percent. Depreciation expense decreased 2 percent.
Amortization expense for the first half of 1996 decreased 15 percent as the
1995 amortization includes expense related to the operations of Mammoth Micro
Productions which was written off in September 1995. A 23 percent higher
newsprint expense accounted for about one-third of the net increase in total
costs and expenses. The remainder of the net increase relates primarily to
additional expenses associated with newly acquired businesses as well as normal
growth in the cost of operations.
In the first half of 1996 operating income rose to $145.7 million, an
increase of 6 percent over $137.1 million in the same period last year.
NEWSPAPER DIVISION. Newspaper division revenues were up 2 percent in the first
half of 1996 over the comparable period of 1995. Although advertising volume
at The Washington Post fell 8 percent, advertising revenues for the division
rose 1 percent in the period due mainly to the growth in volume and rates
realized in recruitment advertising. Circulation revenues for the division
increased 2 percent compared with the first half of 1995. Both daily and
Sunday circulation at The Post declined 1 percent from the prior year.
BROADCAST DIVISION. Revenues at the broadcast division increased 5 percent
over the first six months of 1995. In the first half of 1996 local advertising
rose 9 percent, national advertising revenues increased 4 percent and network
compensation increased 15 percent.
MAGAZINE DIVISION. At Newsweek revenues increased 8 percent in the first half
of 1996. A major contributor to the improvement was a 15 percent increase in
advertising revenues, which resulted primarily
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10.
from higher advertising page volume, combined with higher net advertising
revenue realized per page. In the first six months of 1996, circulation
revenues declined 1 percent, primarily due to the publication of one less issue
in 1996.
CABLE DIVISION. Cable division revenues increased 17 percent in the first half
of 1996. Subscriber revenues grew 18 percent in the first six months of 1996
due to an increase of 11 percent in the number of basic subscribers, resulting
mainly from recent acquisitions, as well as higher rates.
OTHER BUSINESSES. At the company's other businesses, revenues rose 10 percent
in the first half of 1996. At MLJ, increased demand for engineering services
to the expanding PCS industry generated a 72 percent increase in revenues.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates during the first half of 1996 was income of $15.2 million,
compared with $9.6 million in the first six months of 1995. 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 $1.2
million in the first six months of 1996, compared to $1.6 million in 1995.
Other income in the first half of 1996 was $2.2 million, compared with
$13.5 million in the comparable period of 1995. 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.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
During the first half 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 agreements,
the exchanges will result in an aggregate increase of
11
11.
about 28,000 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.
The company has yet to draw on this facility in 1996. 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 half of 1996, the company
repurchased 45,315 shares of its Class B common stock for approximately $13.0
million. Approximately 720,000 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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12.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following document is filed as an exhibit to this report:
EXHIBIT
NUMBER DESCRIPTION
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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13.
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 14, 1996 /s/ Donald E. Graham
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Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1996 /s/ John B. Morse, Jr.
--------------- -------------------------------
John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)