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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 June 29, 1997 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 July 31, 1997:
Class A Common Stock 1,739,250 Shares
Class B Common Stock 8,975,655 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 29, 1997 and
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets at
June 29, 1997 (Unaudited) and December 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Twenty-six Weeks Ended
June 29, 1997 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 11
Exhibit 27 (Electronic Filing Only)
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3.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Condensed Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
---------------------------- ----------------------------
June 29, June 30, June 29, June 30,
(In thousands, except per share amounts) 1997 1996 1997 1996
----------- ---------- ----------- ----------
Operating revenues
Advertising $327,949 $310,459 $606,477 $563,266
Circulation and subscriber 128,901 121,488 252,575 238,559
Other 44,525 40,905 96,424 87,646
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501,375 472,852 955,476 889,471
------- ------- ------- -------
Operating costs and expenses
Operating 246,478 253,639 489,982 496,121
Selling, general and administrative 118,875 100,562 225,761 201,354
Depreciation and amortization of
property, plant and equipment 17,871 16,004 35,661 32,164
Amortization of goodwill and other
intangibles 8,214 7,162 16,167 14,147
------- ------- ------- -------
391,438 377,367 767,571 743,786
------- ------- ------- -------
Income from operations 109,937 95,485 187,905 145,685
Other income (expense)
Equity in earnings of affiliates 3,331 7,807 3,456 15,160
Interest income 1,079 1,175 2,192 2,399
Interest expense (158) (139) (323) (1,222)
Other 1,668 (689) 821 2,178
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Income before income taxes 115,857 103,639 194,051 164,200
------- ------- ------- -------
Provision for income taxes
Current 41,990 39,243 72,243 61,586
Deferred 2,510 1,178 2,757 2,454
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44,500 40,421 75,000 64,040
------- ------- ------- -------
Net income 71,357 63,218 119,051 100,160
Redeemable preferred stock dividends (239) -- (717) (202)
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Net income available for common shares $ 71,118 $ 63,218 $118,334 $ 99,958
======= ======= ======= =======
Earnings per common share $ 6.60 $ 5.76 $ 10.94 $ 9.09
======= ======= ======= =======
Dividends declared per common share $ 1.20 $ - $ 3.60 $ 2.30
======= ====== ======= =======
Average number of common shares
outstanding 10,772 10,970 10,819 10,998
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The Washington Post Company
Condensed Consolidated Balance Sheets
June 29, December 29,
(In thousands) 1997 1996
(Unaudited)
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Assets
Current assets
Cash and cash equivalents $ 63,127 $ 102,278
Accounts receivable, less estimated returns,
doubtful accounts and allowances 234,560 233,063
Inventories 26,795 24,427
Other current assets 18,464 22,863
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342,946 382,631
Investments in affiliates 198,241 199,278
Property, plant and equipment
Buildings 187,542 188,527
Machinery, equipment and fixtures 752,428 768,509
Leasehold improvements 37,528 28,883
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977,498 985,919
Less accumulated depreciation and amortization (613,048) (594,195)
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364,450 391,724
Land 33,922 34,332
Construction in progress 164,855 85,307
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563,227 511,363
Goodwill and other intangibles,
less accumulated amortization 541,413 544,349
Deferred charges and other assets 241,042 232,790
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$1,886,869 $1,870,411
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 194,350 $ 194,186
Federal and state income taxes 3,889 5,381
Deferred subscription revenue 78,850 82,069
Dividends declared 13,206 --
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290,295 281,636
Other liabilities 226,237 223,878
Deferred income taxes 31,192 30,147
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547,724 535,661
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Redeemable preferred stock 11,947 11,947
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Preferred stock -- --
Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 31,080 26,455
Retained earnings 2,081,773 2,002,359
Cumulative foreign currency translation
adjustment 1,455 4,663
Unrealized gain on available-for-sale
securities 476 3,155
Cost of Class B common stock held in treasury (807,586) (733,829)
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1,327,198 1,322,803
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$1,886,869 $1,870,411
========= =========
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The Washington Post Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Twenty-six Weeks Ended
------------------------
June 29, June 30,
(In thousands) 1997 1996
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Cash flows from operating activities:
Net income $119,051 $100,160
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 35,661 32,164
Amortization of goodwill and other intangibles 16,167 14,147
Gain from sale of business -- (3,112)
(Decrease) in income taxes payable (1,492) (594)
Provision for deferred income taxes 2,757 2,454
Equity in earnings of affiliates, net of
distributions (2,171) (9,803)
Change in assets and liabilities:
(Increase) in accounts receivable, net (1,497) (31,770)
(Increase) decrease in inventories (2,368) 2,235
Increase in accounts payable and
accrued liabilities 163 24,125
(Increase) in other assets and other
liabilities, net (2,644) (12,960)
Other (630) 3,411
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Net cash provided by operating activities 162,997 120,457
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Cash flows from investing activities:
Net proceeds from sale of business -- 3,517
Purchases of property, plant and equipment (86,920) (16,197)
Proceeds from sales of marketable securities -- 12,821
Investments in certain businesses (23,141) (89,471)
Other 9,825 332
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Net cash used in investing activities (100,236) (88,998)
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Cash flows from financing activities:
Principal payments on debt -- (50,209)
Issuance of redeemable preferred stock -- 11,947
Dividends paid (26,432) (25,482)
Common shares repurchased (75,480) (12,952)
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Net cash used in financing activities (101,912) (76,696)
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Net decrease in cash and cash equivalents (39,151) (45,237)
Beginning cash and cash equivalents 102,278 146,901
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Ending cash and cash equivalents $ 63,127 $101,664
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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.
Note 2: Summarized combined (unaudited) results of operations for the second
quarter and year-to-date of 1997 and 1996 for the company's affiliates are as
follows (in thousands):
Second Quarter Year-to-Date
-------------------------- ----------------------------
1997 1996 1997 1996
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Operating revenues $219,474 $236,430 $433,072 $471,903
Operating income 22,897 27,655 30,043 65,057
Net income 13,327 19,851 17,629 47,224
Note 3: In the first quarter of 1997, the company purchased a cable system in
Cleveland, Mississippi, serving about 16,000 subscribers for approximately $23
million.
In the second quarter of 1997, the company completed the exchange of assets
of certain cable systems with Tele-Communications, Inc. The trade resulted in
an increase of about 21,000 subscribers for the company.
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 a year at the annual rate of $80 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: In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
which is effective for periods ending after December 15, 1997, including
interim periods. The new standard requires disclosure of basic and diluted
earnings per share for income from continuing operations and net income. The
company intends to adopt this standard in the fourth quarter of its fiscal year
ending December 28, 1997. Adoption of this new standard will not have a
material impact on the company's computation of earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997. The Statement
establishes standards for reporting and displaying comprehensive income, as
defined, and its components. The company plans to adopt the Statement's
disclosure standards in fiscal 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December
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15, 1997. The Statement establishes standards for the way companies report
information about operating segments in annual and interim financial
statements. Generally, the Statement requires financial information to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The company
plans to adopt the Statement's disclosure standards in fiscal 1998.
Note 5: During the first six months of 1997 the company repurchased 217,590
shares of its Class B common stock at a cost of $75.5 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.
SECOND QUARTER COMPARISONS
Net income for the second quarter of 1997 was $71.4 million, an increase of
13 percent over net income of $63.2 million in the second quarter last year.
Earnings per share increased 15 percent to $6.60, from $5.76 in the second
quarter of 1996, with a smaller number of shares outstanding.
Revenues for the second quarter of 1997 rose 6 percent to $501.4 million,
from $472.9 million in the same period last year. Both advertising revenues
and circulation and subscriber revenues increased 6 percent. Other revenues
increased 9 percent over the second quarter of 1996.
Costs and expenses for the second quarter of 1997 increased 4 percent to
$391.4 million, from $377.4 million in the second quarter of 1996. Operating
expenses decreased 3 percent. A 20 percent decline in newsprint expense
accounted for almost all of the net decrease in operating expenses. Selling,
general and administrative expenses increased 18 percent. Expansion at the
cable division and Kaplan Educational Centers contributed to the increase.
Depreciation expense increased 12 percent and amortization expense rose 15
percent compared to the second quarter of 1996 due primarily to recent
acquisitions.
In the second quarter of 1997 operating income rose to $109.9 million, a 15
percent increase over $95.5 million in 1996. The increase was primarily a
result of strength in the company's print businesses due to improved
advertising revenues and lower paper costs as discussed above.
NEWSPAPER DIVISION. At the newspaper division revenues increased 8 percent in
the second quarter of 1997. Advertising revenues for the division rose 10
percent for the quarter, due mainly to a 5 percent increase in advertising
volume at The Washington Post. All advertising categories - retail, general,
classified, and preprints - reported improved volume in the period.
Circulation revenues for the division did not vary significantly in comparison
to the same period last year.
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BROADCAST DIVISION. Revenues at the broadcast division increased 3 percent in
the second quarter of 1997.
MAGAZINE DIVISION. Newsweek revenues in the second quarter of 1997 declined 2
percent. Advertising revenues fell 3 percent, primarily due to lower
advertising page volume for the quarter. Circulation revenues did not vary
significantly from the comparable period last year.
CABLE DIVISION. At the cable division, second quarter 1997 revenues were 13
percent higher than 1996. Higher subscriber levels, resulting mainly from
recent acquisitions, as well as slightly higher rates accounted for the
increase. At the end of the second quarter, the number of basic subscribers
totaled approximately 633,000, 13 percent higher than at the same time last
year.
OTHER BUSINESSES. In the second quarter of 1997, revenues from other
businesses -- principally Kaplan Educational Centers, PASS Sports, Legi-Slate,
Digital Ink, MLJ (Moffet, Larson & Johnson),and TechNews -- increased 19
percent over the prior year. The increase was due to strong revenue growth at
Kaplan Educational Centers.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates in the second quarter of 1997 was $3.3 million, compared with
$7.8 million in the second quarter of 1996. The decrease was due to declining
results at the company's affiliated newsprint mills.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $0.9
million and $1.0 million for the second quarters of 1997 and 1996,respectively.
INCOME TAXES. The effective tax rate in the second quarter of 1997 decreased
to 38.4 percent, from 39.0 percent in 1996.
SIX MONTH COMPARISONS
Net income for the first six months of 1997 was $119.1 million, compared
with net income of $100.2 million in the first half of 1996. Earnings per
share for the first half of the year were $10.94, an increase of 20 percent
over the same period last year.
Revenues for the first half of 1997 increased 7 percent to $955.5 million,
from $889.5 million in the comparable period last year. Advertising revenues
increased 8 percent, circulation and subscriber revenues increased 6 percent
and other revenues increased 10 percent.
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10.
Costs and expenses increased 3 percent during the first half of 1997 to
$767.6 million, from $743.8 million in the corresponding period of 1996.
Operating expenses declined 1 percent due mainly to a 20 percent decrease in
newsprint expense. Selling, general and administrative expenses increased 12
percent, with expansion at the cable division and Kaplan Educational Centers
contributing to the increase. Depreciation expense and amortization expense
increased 11 percent and 14 percent, respectively, resulting from recent
acquisitions.
In the first half of 1997 operating income rose to $187.9 million, an
increase of 29 percent over $145.7 million in the same period last year.
NEWSPAPER DIVISION. Newspaper division revenues were up 8 percent in the first
half of 1997 over the comparable period of 1996. Advertising revenues for the
division rose 10 percent in the period due mainly to the increased advertising
volume. All advertising categories reported higher volume over the first six
months of 1996. Circulation revenues for the division did not vary
significantly compared with the first half of 1996. Daily and Sunday
circulation at The Post declined 2 percent and 1 percent, respectively, from
the prior year.
BROADCAST DIVISION. Revenues at the broadcast division increased 3 percent
over the first six months of 1996.
MAGAZINE DIVISION. At Newsweek revenues increased 3 percent in the first half
of 1997. Advertising revenues rose 5 percent, resulting primarily from higher
advertising page volume, combined with higher net advertising revenue realized
per page for the period. Circulation revenues did not vary significantly
compared to the first six months of 1996.
CABLE DIVISION. Cable division revenues increased 13 percent in the first half
of 1997. Subscriber revenues grew 14 percent in the first six months of 1997
due to a 13 percent increase in the number of basic subscribers, resulting
mainly from recent acquisitions, as well as slightly higher rates.
OTHER BUSINESSES. At the company's other businesses, revenues rose 18 percent
in the first half of 1997. Strong revenue growth at Kaplan Educational Centers
accounted for almost all of the increase.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates during the first half of 1997 was $3.5 million, compared with
$15.2 million in the first six months of 1996. Declining results at the
company's newsprint mill affiliates were responsible for the decrease.
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11.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $1.9
million in the first six months of 1997, compared to $1.2 million in 1996.
Other income in the first half of 1997 was $0.8 million, compared with $2.2
million in the comparable period of 1996.
INCOME TAXES. The effective tax rate for the first six months of 1997
decreased to 38.7 percent, from 39.0 percent in 1996.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
During the first half 1997 the company purchased a cable system in
Cleveland, Mississippi, serving about 16,000 subscribers for approximately $23
million. The company also completed the exchange of the assets of certain
cable systems with Tele-Communications, Inc. The trade resulted in an increase
of about 21,000 subscribers for the company.
In June 1997 the company entered into an agreement with Meredith
Corporation to acquire the assets of WCPX, the CBS affiliate in Orlando,
Florida, in exchange for the assets of WFSB, the company's CBS affiliate in
Hartford, Connecticut, and approximately $60 million in cash. The exchange is
contingent on approval by the Federal Communications Commission and is expected
to be completed in the second half of the year.
The company estimates that it will spend approximately $50 million during
the remainder of 1997 as part of a three-year $250 million project to provide
new production facilities for The Washington Post newspaper.
At June 29, 1997, the company had $63 million in cash and cash equivalents.
The company expects to fund the majority of its estimated capital expenditures
and business acquisitions through internally generated funds and, if necessary,
through the issuance of short-term promissory notes supported by existing
credit facilities. In management's opinion, the company will have ample
liquidity to meet its various cash needs in the second half of 1997 as outlined
above.
As of the end of 1996, the company had repurchased approximately 339,000
shares of the one million Class B shares authorized for repurchase by the Board
of Directors in January 1995. In the first half of 1997, the company
repurchased 217,590 shares of its Class B common stock for approximately $75.5
million. Approximately 444,000 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 1996.
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's May 8, 1997, 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 28, 1997. The voting results are set
forth below:
Class A Directors
Votes Votes Broker
Nominee For Withheld Non-Votes
------- ----- -------- ---------
Warren E. Buffett 1,779,250 -0- -0-
Martin Cohen 1,779,250 -0- -0-
George J. Gillespie III 1,779,250 -0- -0-
Donald E. Graham 1,779,250 -0- -0-
Katharine Graham 1,779,250 -0- -0-
William J. Ruane 1,779,250 -0- -0-
Richard D. Simmons 1,779,250 -0- -0-
Alan G. Spoon 1,779,250 -0- -0-
George W. Wilson 1,779,250 -0- -0-
Class B Directors
Votes Votes Broker
Nominee For Withheld Non-Votes
------- ----- -------- ---------
Daniel B. Burke 6,971,165 150,563 -0-
James E. Burke 7,071,851 49,877 -0-
Ralph E. Gomory 7,072,094 49,634 -0-
Donald R. Keough 7,071,812 49,916 -0-
Barbara Scott Preiskel 7,070,333 51,395 -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
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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14.
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 8, 1997 /s/ Donald E. Graham
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Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 1997 /s/ John B. Morse, Jr.
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John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)