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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 September 29, 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 November 1, 1996:
Class A Common Stock 1,804,250 Shares
Class B Common Stock 9,126,092 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 and Thirty-nine
Weeks Ended September 29, 1996 and
October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets (Unaudited)
at September 29, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Thirty-nine Weeks Ended
September 29, 1996 and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 10
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 Thirty-nine Weeks Ended
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Sep. 29, Oct. 1, Sep. 29, Oct. 1,
(In thousands, except per share amounts) 1996 1995 1996 1995
---------- ---------- ---------- ----------
Operating revenues
Advertising $ 274,719 $ 250,011 $ 837,986 $ 787,175
Circulation and subscriber 124,916 113,355 363,475 335,900
Other 60,691 54,553 148,336 133,389
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460,326 417,919 1,349,797 1,256,464
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Operating costs and expenses
Operating 245,763 240,912 741,885 688,949
Selling, general and administrative 103,937 96,606 305,290 300,672
Depreciation and amortization of
property, plant and equipment 15,979 16,379 48,143 49,123
Amortization of goodwill and other
intangibles 7,427 8,315 21,575 24,944
-------- -------- --------- ---------
373,106 362,212 1,116,893 1,063,688
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Income from operations 87,220 55,707 232,904 192,776
Other income (expense)
Equity in earnings of affiliates 2,537 6,268 17,697 15,898
Interest income 1,358 1,860 3,757 6,226
Interest expense (168) (1,388) (1,390) (4,187)
Other (53) 716 2,126 14,242
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Income before income taxes 90,894 63,163 255,094 224,955
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Provision for income taxes
Current 35,128 32,134 96,714 96,477
Deferred 375 (10,764) 2,829 (8,727)
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35,503 21,370 99,543 87,750
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Net income 55,391 41,793 155,551 137,205
Redeemable preferred stock dividends (478) - (680) -
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Net income available for common shares $ 54,913 $ 41,793 $ 154,871 $ 137,205
======== ======== ========= =========
Earnings per common share $ 5.00 $ 3.79 $ 14.09 $ 12.35
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Dividends declared per common share $ 2.30 $ 2.20 $ 4.60 $ 4.40
======== ======== ========= =========
Average number of common shares outstanding 10,975 11,019 10,990 11,108
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The Washington Post Company
Consolidated Balance Sheets (Unaudited)
September 29, December 31,
(In thousands) 1996 1995
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Assets
Current assets
Cash and cash equivalents $ 101,010 $ 146,901
Marketable securities -- 12,756
Accounts receivable, less estimated returns,
doubtful accounts and allowances 221,385 200,698
Inventories 23,207 26,766
Other current assets 42,343 19,449
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387,945 406,570
Investments in affiliates 199,550 189,053
Property, plant and equipment
Buildings 197,891 190,543
Machinery, equipment and fixtures 713,144 664,403
Leasehold improvements 34,377 33,805
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945,412 888,751
Less accumulated depreciation and amortization (581,698) (535,691)
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363,714 353,060
Land 34,350 32,513
Construction in progress 101,534 71,786
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499,598 457,359
Goodwill and other intangibles,
less accumulated amortization 542,173 472,291
Deferred charges and other assets 226,064 207,620
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$1,855,330 $1,732,893
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 218,377 $ 172,004
Federal and state income taxes 6,004 3,494
Deferred subscription revenue 77,476 82,457
Current portion of long-term debt -- 50,222
Dividends declared 12,847 --
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314,704 308,177
Other liabilities 219,233 205,869
Deferred income taxes 37,232 34,643
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571,169 548,689
Redeemable preferred stock 11,947 --
Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 25,530 24,941
Retained earnings 1,937,082 1,832,706
Unrealized gain on available-for-sale
securities 2,880 3,224
Cumulative foreign currency translation
adjustment 5,366 5,537
Cost of Class B common stock held in Treasury (718,644) (702,204)
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1,272,214 1,184,204
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$1,855,330 $1,732,893
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The Washington Post Company
Consolidated Statements of Cash Flows (Unaudited)
Thirty-nine Weeks Ended
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September 29, October 1,
(In thousands) 1996 1995
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Cash flows from operating activities:
Net income $ 155,551 $ 137,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 48,143 49,123
Amortization of goodwill and other intangibles 21,575 24,944
Gain from disposition of businesses, net (3,112) (1,341)
Increase in income taxes payable 2,510 1,207
Provision for deferred income taxes 2,829 (8,727)
Equity in earnings of affiliates, net of distributions (10,667) (11,710)
Change in assets and liabilities:
(Increase) in accounts receivable (20,687) (11,848)
Decrease (increase) in inventories 3,559 (11,314)
Increase in accounts payable and accrued
liabilities 50,521 17,628
Other (33,253) (11,121)
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Net cash provided by operating activities 216,969 174,046
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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 (43,312) (106,311)
Purchases of marketable securities -- (51,116)
Proceeds from sales of marketable securities 12,821 67,453
Investments in certain businesses (143,083) (1,568)
Other 482 116
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Net cash (used) by investing activities (169,575) (58,683)
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Cash flows from financing activities:
Principal payments on debt (50,209) --
Issuance of redeemable preferred stock 11,947 --
Dividends paid (38,328) (36,783)
Common shares repurchased (16,695) (89,584)
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Net cash (used) by financing activities (93,285) (126,367)
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Net (decrease) in cash and cash equivalents (45,891) (11,004)
Beginning cash and cash equivalents 146,901 117,269
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Ending cash and cash equivalents $ 101,010 $ 106,265
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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 third
quarter and year-to-date of 1996 and 1995 for the company's affiliates are as
follows (in thousands):
Third Quarter Year-to-Date
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1996 1995 1996 1995
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Operating revenues $226,310 $229,936 $698,214 $660,596
Operating income 20,106 30,427 85,163 77,268
Net income 11,947 18,813 59,171 46,492
Note 3: In the first quarter of 1996 the company purchased two businesses for
approximately $60 million, a cable system in Texarkana, Arkansas-Texas, 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.
In the third quarter of 1996 the company acquired two businesses for
approximately $51 million, a cable system in Prescott, Arizona, serving about
25,000 subscribers and the publisher of Washington Technology newspaper,
located in the Virginia suburbs of Washington, D.C.
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
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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 nine months of 1996 the company repurchased 57,215
shares of its Class B common stock at a cost of approximately $16.7 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.
THIRD QUARTER COMPARISONS
Net income for the third quarter of 1996 was $55.4 million ($5.00 per
share), an increase of 33 percent from net income of $41.8 million ($3.79 per
share) in the third quarter last year. The 1995 third quarter results included
a one-time after-tax charge of $5.6 million ($0.51 per share) relating to a
write-off of the company's investment in Mammoth Micro Productions. Excluding
this one-time item, net income increased 17 percent and earnings per share rose
16 percent in the third quarter this year.
Revenues for the third quarter of 1996 rose 10 percent to $460.3
million, from $417.9 million in the same period last year. Both advertising
revenues and circulation and subscriber revenues increased 10 percent. Other
revenues increased 11 percent. All divisions posted higher revenues in the
third quarter this year.
Costs and expenses for the third quarter of 1996 increased 3 percent
to $373.1 million, from $362.2 million in the third quarter of 1995. Operating
expenses and selling, general and administrative expenses increased 2 percent
and 8 percent, respectively, compared with the third quarter last year.
Depreciation expense decreased 2 percent from the third quarter of 1995.
Amortization expense for the third quarter of 1996 decreased 11 percent as 1995
amortization included expense related to the operations of Mammoth Micro
Productions which was written off in September 1995.
Third quarter 1996 operating income was $87.2 million, a 57 percent
increase from $55.7 million in 1995. Excluding the one-time charge described
above, operating income rose 27 percent in the quarter with all divisions
contributing to the increase.
NEWSPAPER DIVISION. At the newspaper division revenues rose 7 percent in the
third quarter of 1996. Although advertising volume at The Washington Post fell
3 percent, advertising revenues for the division rose 5 percent for the quarter
due mainly to rate increases for classified advertising at The Post.
Classified volume declined 1 percent compared to third quarter 1995 although
recruitment advertising
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remained strong. Retail inches fell 6 percent and general advertisement volume
improved 1 percent compared with the same period last year. Preprint volume
increased 4 percent for the quarter. Circulation revenues for the division rose
2 percent compared to the third quarter of 1995.
BROADCAST DIVISION. Revenues at the broadcast division increased 14 percent
over the third quarter of 1995. Local advertising revenues increased 19
percent and national advertising revenues rose 12 percent in the third quarter
of 1996. About two-thirds of the total increase reflect Olympics related
advertising. Network compensation increased 8 percent over the comparable
period last year.
MAGAZINE DIVISION. Newsweek revenues in the third quarter of 1996 increased 12
percent. Advertising revenues rose 17 percent and circulation revenues were up
6 percent, primarily due to one additional published weekly edition in the
third quarter of 1996.
CABLE DIVISION. At the cable division third quarter 1996 revenues were up 19
percent over 1995. Higher subscriber levels, resulting mainly from recent
acquisitions, as well as higher rates accounted for the increase.
OTHER BUSINESSES. In the third quarter of 1996, revenues from other
businesses, principally Kaplan Educational Centers (Kaplan), PASS Sports,
Legi-Slate, Digital Ink and MLJ (Moffet, Larson, & Johnson) increased 4
percent.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates in the third quarter of 1996 was income of $2.5 million, compared
with income of $6.3 million in the third quarter of 1995. In the third quarter
of 1996, declining newsprint prices had a negative impact on the results of the
company's affiliate newsprint mills.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $1.2
million, compared with $0.5 million in the same period last year.
INCOME TAXES. The effective income tax rate for the third quarter of 1996
increased to 39 percent from 34 percent in the third quarter of 1995. The 1995
effective tax rate included the recognition of certain tax benefits associated
with the company's write-off of its investment in Mammoth Micro Productions.
NINE MONTH COMPARISONS
Net income for the first nine months of 1996 was $155.6 million
($14.09 per share), up from net income of $137.2 million ($12.35 per share) in
the same period last year. The company's net income for the first nine months
of 1995 included $8.4 million ($0.75 per share) from
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the sale of substantially all of the company's investment in American PCS,
L.P., as well as the after-tax charge of $5.6 million ($0.51 per share)
relating to the write-off of the company's investment in Mammoth Micro
Productions. Excluding the effect of these one-time items, net income and
earnings per share each rose 16 percent in the first nine months of 1996.
Revenues for the first nine months of 1996 increased 7 percent to
$1,349.8 million, from $1,256.5 million in the comparable period last year.
Advertising revenues increased 7 percent, circulation and subscriber revenues
rose 8 percent, and other revenues increased 11 percent.
Total costs and expenses increased 5 percent during the first nine
months of 1996 to $1,116.9 million, from $1,063.7 million in the corresponding
period of 1995. Operating expenses increased 8 percent, and selling, general
and administrative expenses increased 2 percent. Depreciation expense
decreased 2 percent. Amortization expense for the first nine months of 1996
decreased 14 percent as the 1995 amortization included expenses related to the
operations of Mammoth Micro Productions which was written off in September
1995. A 13 percent increase in newsprint expense accounted for about one-third
of the 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 three quarters of 1996 operating income rose to $232.9
million, a 21 percent increase over $192.8 million in the same period last
year.
NEWSPAPER DIVISION. Newspaper division revenues were up 4 percent in the first
three quarters of 1996 over the comparable period of 1995. Although
advertising volume at The Washington Post fell 6 percent from 2,380,600 inches
to 2,237,300 inches in the first nine months of 1996, advertising revenues for
the division rose 2 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 three quarters 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 8 percent
over the first nine months of 1995. In the first three quarters of 1996 local
advertising revenues rose 12 percent, national advertising revenues increased 6
percent, and network compensation improved 13 percent.
MAGAZINE DIVISION. At Newsweek revenues increased 9 percent in the first three
quarters of 1996. A major contributor to the improvement was a 16 percent
increase in advertising revenues, which resulted primarily from higher
advertising page volume and net advertising
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revenues realized per page at the domestic edition. In the first nine months of
1996, circulation revenues increased 2 percent. In the first three quarters of
1996 thirty-nine weekly issues were published versus thirty-eight weekly issues
and one newsstand-only special issue in 1995.
CABLE DIVISION. Cable division revenues were up 18 percent in the first three
quarters of 1996. Subscriber revenues increased 19 percent in the first nine
months of 1996, principally due to an increase in the number of basic
subscribers resulting from recent acquisitions, as well as higher rates. At
the end of September 1996, cable operations had 587,000 basic subscribers
compared to 511,000 basic subscribers at the same time last year.
OTHER BUSINESSES. At the company's other businesses, revenues rose 8 percent
in the first three quarters of 1996. At MLJ, increased demand for engineering
services to the expanding PCS industry generated a 30 percent increase in
revenues.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates during the first nine months of 1996 was income of $17.7 million,
compared with income of $15.9 million in the first nine months of 1995.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $2.4
million for the first three quarters of 1996 compared to $2.0 million in the
same period of last year.
Other income in the first three quarters of 1996 was $2.1 million,
compared with $14.2 million in the comparable period of 1995. Other income in
1995 included the gain from the sale of substantially all of the company's
interest in American PCS, L.P. in January 1995.
INCOME TAXES. The effective income tax rate for the first nine months of 1996
remained consistent at 39 percent with the same period last year.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
In early 1996 the company purchased two businesses for approximately
$60 million, a cable system in Texarkana, Arkansas-Texas, 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. During the third quarter of 1996, the company purchased two
businesses for approximately $51 million, a cable system in Prescott, Arizona,
serving about 25,000 subscribers and the publisher of Washington Technology
newspaper, located in the Virginia suburbs of Washington, D.C. The
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company has also reached agreements in principle to purchase cable systems
serving 26,000 subscribers in two states for approximately $37 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 about 28,000 subscribers for the company. These
transactions are expected to be completed during 1996 and early 1997.
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 nine months of 1996, the
company repurchased 57,215 shares of its Class B common stock for approximately
$16.7 million. Approximately 708,000 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as exhibits to this report:
EXHIBIT
NUMBER DESCRIPTION
10 The Washington Post Company Deferred
Compensation Plan as effective
November 15, 1996
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: November 13, 1996 /s/ Donald E. Graham
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Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1996 /s/ John B. Morse, Jr.
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John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)