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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 28, 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 October 31, 1997:
Class A Common Stock 1,739,250 Shares
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Class B Common Stock 8,733,799 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 28, 1997 and
September 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets
at September 28, 1997 (Unaudited)
and December 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Thirty-nine Weeks Ended
September 28, 1997 and September 29, 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 11
Exhibit 27 (Electronic Filing Only)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Condensed Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended
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Sep. 28, Sep. 29, Sep. 28, Sep. 29,
(In thousands, except per share amounts) 1997 1996 1997 1996
-------- -------- -------- --------
Operating revenues
Advertising $ 286,074 $ 274,719 $ 892,551 $ 837,986
Circulation and subscriber 134,238 124,916 386,814 363,475
Other 58,063 60,691 154,486 148,336
-------- -------- --------- ---------
478,375 460,326 1,433,851 1,349,797
-------- -------- --------- ---------
Operating costs and expenses
Operating 253,565 245,763 743,547 741,885
Selling, general and administrative 107,186 103,937 332,947 305,290
Depreciation and amortization of
property, plant and equipment 18,007 15,979 53,668 48,143
Amortization of goodwill and other
intangibles 8,382 7,427 24,549 21,575
-------- -------- --------- ---------
387,140 373,106 1,154,711 1,116,893
-------- -------- --------- ---------
Income from operations 91,235 87,220 279,140 232,904
Other income (expense)
Equity in earnings of affiliates 4,712 2,537 8,168 17,697
Interest income 725 1,358 2,917 3,757
Interest expense (182) (168) (505) (1,390)
Other 23,471 (53) 24,292 2,126
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Income before income taxes 119,961 90,894 314,012 255,094
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Provision for income taxes
Current 44,866 35,128 117,109 96,714
Deferred 3,544 375 6,301 2,829
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48,410 35,503 123,410 99,543
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Net income 71,551 55,391 190,602 155,551
Redeemable preferred stock dividends (239) (478) (956) (680)
-------- -------- --------- ---------
Net income available for common shares $ 71,312 $ 54,913 $ 189,646 $ 154,871
======== ======== ========= =========
Earnings per common share $ 6.64 $ 5.00 $ 17.57 $ 14.09
======== ======== ========= =========
Dividends declared per common share $ 1.20 $ 2.30 $ 4.80 $ 4.60
======== ======== ========= =========
Average number of common
shares outstanding 10,743 10,975 10,794 10,990
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The Washington Post Company
Condensed Consolidated Balance Sheets
September 28, December 29,
(In thousands) 1997 1996
(Unaudited)
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Assets
Current assets
Cash and cash equivalents $ 34,202 $ 102,278
Accounts receivable, less estimated returns,
doubtful accounts and allowances 243,789 233,063
Inventories 26,931 24,427
Other current assets 23,468 22,863
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328,390 382,631
Investments in affiliates 202,297 199,278
Property, plant and equipment
Buildings 190,006 188,527
Machinery, equipment and fixtures 758,163 768,509
Leasehold improvements 38,383 28,883
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986,552 985,919
Less accumulated depreciation and amortization (627,517) (594,195)
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359,035 391,724
Land 33,907 34,332
Construction in progress 199,688 85,307
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592,630 511,363
Goodwill and other intangibles,
less accumulated amortization 593,070 544,349
Deferred charges and other assets 266,717 232,790
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$1,983,104 $1,870,411
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 229,403 $ 194,186
Federal and state income taxes 12,536 5,381
Deferred subscription revenue 75,314 82,069
Dividends declared 13,097 --
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330,350 281,636
Other liabilities 232,444 223,878
Deferred income taxes 34,650 30,147
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597,444 535,661
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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 31,238 26,455
Retained earnings 2,140,335 2,002,359
Cumulative foreign currency translation
adjustment 1,132 4,663
Unrealized gain on available-for-sale
securities 344 3,155
Cost of Class B common stock held in Treasury (819,336) (733,829)
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1,373,713 1,322,803
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$1,983,104 $1,870,411
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The Washington Post Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Thirty-nine Weeks Ended
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September 28, September 29,
(In thousands) 1997 1996
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Cash flows from operating activities:
Net income $ 190,602 $ 155,551
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 53,668 48,143
Amortization of goodwill and other intangibles 24,549 21,575
Gain on sale of businesses, net (24,805) (3,112)
Increase in income taxes payable 7,155 2,510
Provision for deferred income taxes 6,301 2,829
Equity in earnings of affiliates, net
of distributions (6,550) (10,667)
Change in assets and liabilities:
(Increase) in accounts receivable (8,024) (20,687)
(Increase) decrease in inventories (2,504) 3,559
Increase in accounts payable and accrued
liabilities 35,216 50,521
Other (21,874) (33,253)
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Net cash provided by operating activities 253,734 216,969
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Cash flows from investing activities:
Net proceeds from sale of businesses 27,417 3,517
Purchases of property, plant and equipment (135,985) (43,312)
Proceeds from sales of marketable securities -- 12,821
Investments in certain businesses (83,616) (143,083)
Other 9,591 482
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Net cash used in investing activities (182,593) (169,575)
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Cash flows from financing activities:
Principal payments on debt -- (50,209)
Issuance of note receivable (12,417) --
Issuance of redeemable preferred stock -- 11,947
Dividends paid (39,529) (38,328)
Common shares repurchased (87,271) (16,695)
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Net cash used in financing activities (139,217) (93,285)
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Net decrease in cash and cash equivalents (68,076) (45,891)
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Beginning cash and cash equivalents 102,278 146,901
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Ending cash and cash equivalents $ 34,202 $ 101,010
========= ==========
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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 third
quarter and year-to-date of 1997 and 1996 for the company's affiliates are as
follows (in thousands):
Third Quarter Year-to-Date
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1997 1996 1997 1996
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Operating revenues $223,608 $226,310 $656,680 $698,214
Operating income 24,276 20,106 54,319 85,163
Net income 15,846 11,947 33,475 59,171
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 third quarter of 1997 the company completed a transaction with
Meredith Corporation to exchange the assets of WCPX-TV, the CBS affiliate in
Orlando, FL for the assets of WFSB-TV, the CBS affiliate in Hartford, CT and
approximately $60 million. In the third quarter of 1997, the company
also sold the assets of its PASS Sports subsidiary and terminated its regional
sports network for an after-tax gain of $16 million.
During the first three quarters of 1996 the company expended approximately
$143 million on investments in new businesses. These included, among others,
cable systems serving approximately 66,000 subscribers, a commercial printer in
the Maryland suburbs of Washington, D.C., a company which provides educational
services to students in grades K through 12, and a publisher of business
periodicals for the computer services industry and the Washington-area
technology community.
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
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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 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 nine months of 1997 the company repurchased 245,390
shares of its Class B common stock at a cost of approximately $87 million.
Note 6: In November 1997, the company reached an agreement to acquire a cable
system in Anniston, AL serving about 36,000 subscribers for approximately $66
million. The transaction, which will occur in three stages, is expected to
take place in the first half of 1998.
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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 1997 was $71.6 million, an
increase of 29 percent from net income of $55.4 million in the third quarter
last year. Earnings per share increased 33 percent to $6.64, from $5.00 for
the same period last year. The 1997 third quarter results included a one-time
after-tax gain of $16.0 million ($1.49 per share) relating to the sale of the
assets of its PASS Sports subsidiary and the termination of its regional sports
network. Excluding this one-time item, net income was $55.6 million and
earnings per share were $5.15.
Revenues for the third quarter of 1997 rose 4 percent to $478.4
million, from $460.3 million in the same period last year. Advertising
revenues and circulation and subscriber revenues increased 4 percent and 7
percent, respectively, while other revenues decreased 4 percent.
Costs and expenses for the third quarter of 1997 increased 4 percent
to $387.1 million, from $373.1 million in the third quarter of 1996. Both
operating expenses and selling, general and administrative expenses increased 3
percent compared with the third quarter last year. Depreciation expense and
amortization expense both increased 13 percent over the third quarter of 1996.
The increase was due primarily to recent acquisitions at the cable division.
Third quarter 1997 operating income was $91.2 million, a 5 percent
increase from $87.2 million in 1996. The increase resulted from strength at
the company's print businesses, partially offset by increased spending at the
company's other businesses.
NEWSPAPER DIVISION. At the newspaper division revenues rose 4 percent in the
third quarter of 1997. Advertising revenues for the division increased 7
percent for the quarter due mainly to strong classified and preprint
advertising results at The Washington Post. Overall, classified volume
improved 4 percent compared to third quarter 1996; recruitment advertising rose
15 percent. Preprint volume increased 8 percent for the quarter. Retail and
general advertisement volume declined 4 percent and 1 percent, respectively,
compared with the same
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period last year. Circulation revenues for the division were essentially
unchanged compared to the third quarter of 1996.
BROADCAST DIVISION. Revenues at the broadcast division decreased 1 percent
from the third quarter of 1996 due mainly to a 1 percent decline in advertising
revenues. The comparable quarter last year included significant amounts of
Olympics-related and political advertising, which did not recur in 1997.
Network compensation increased 2 percent over the comparable period last year.
MAGAZINE DIVISION. Newsweek revenues in the third quarter of 1997 increased 2
percent. Circulation revenues were up 5 percent due primarily to increased
newsstand sales from the publication of a special newsstand-only edition after
the death of Princess Diana.
CABLE DIVISION. At the cable division third quarter 1997 revenues were up 13
percent over 1996. About one-third of the increase resulted from the effects of
cable system acquisitions in 1997 and late 1996.
OTHER BUSINESSES. In the third quarter of 1997, revenues from other
businesses, principally Kaplan Educational Centers (Kaplan), PASS Sports,
Legi-Slate, Digital Ink, MLJ (Moffet, Larson, & Johnson) and TechNews,
increased 3 percent.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates in the third quarter of 1997 was $4.7 million, compared with $2.5
million in the third quarter of 1996. The increase was due to strong results
at Cowles Media.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $0.5
million for the third quarter of 1997 compared with $1.2 million in the same
period last year.
Other income (expense), net was income of $23.5 million compared to
expense of $0.05 million in the third quarter of 1996. The 1997 amount
included the gain on the sale of assets of the company's PASS Sports subsidiary
mentioned previously.
INCOME TAXES. The effective income tax rate for the third quarter of 1997
increased to 40.4 percent from 39.1 percent in the same period of 1996,
resulting from a revised estimate in the tax rate for the entire year.
NINE MONTH COMPARISONS
Net income for the first nine months of 1997 was $190.6 million, up 23
percent from net income of $155.6 million in the same period last year.
Earnings per share increased 25 percent to $17.57 in 1997, from $14.09 in 1996.
The company's net income for the first nine months of 1997 included $16.0
million ($1.49 per share)from the sale of the
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assets of its PASS Sports subsidiary mentioned previously. Excluding the
effect of this one-time item, net income increased 12 percent and earnings per
share rose 14 percent in the first nine months of 1997.
Revenues for the first nine months of 1997 increased 6 percent to
$1,433.9 million, from $1,349.8 million in the comparable period last year.
Advertising revenues increased 7 percent, circulation and subscriber revenues
rose 6 percent, and other revenues increased 4 percent.
Total costs and expenses increased 3 percent during the first nine
months of 1997 to $1,154.7 million, from $1,116.9 million in the corresponding
period of 1996. Operating expenses did not vary significantly from the prior
year, while selling, general and administrative expenses increased 9 percent.
A 16 percent decline in newsprint expense was offset by increased spending at
the company's other businesses as well as normal growth in the cost of
operations. Depreciation expense increased 11 percent and amortization expense
increased 14 percent for the first nine months of 1997 due to recent
acquisitions at the cable division.
In the first three quarters of 1997 operating income rose to $279.1
million, a 20 percent increase over $232.9 million in the same period last
year.
NEWSPAPER DIVISION. Newspaper division revenues were up 6 percent in the first
three quarters of 1997 over the comparable period of 1996. Advertising revenues
for the division rose 9 percent in the period due mainly to increased
advertising volume. Advertising volume at The Washington Post rose 4 percent
to 2,328,000 inches from 2,237,300 inches in the first nine months of 1996.
Circulation revenues for the division increased 1 percent compared with the
first three quarters of 1996, though both daily and Sunday circulation at The
Washington Post declined 1 percent from the prior year.
BROADCAST DIVISION. Revenues at the broadcast division increased 2 percent
over the first nine months of 1996. In the first three quarters of 1997, local
advertising revenues rose 4 percent. National advertising revenues and network
compensation did not vary significantly from 1996.
MAGAZINE DIVISION. At Newsweek revenues increased 3 percent in the first three
quarters of 1997. Advertising revenues increased 3 percent primarily due to
higher page volume. Circulation revenues increased 2 percent due to the
publication of an additional newsstand-only issue. In the first three quarters
of 1997 thirty-eight weekly and two special newsstand-only issues were
published versus thirty-nine weekly issues in 1996.
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CABLE DIVISION. Cable division revenues were up 13 percent in the first three
quarters of 1997. Subscriber revenues increased 14 percent in the first nine
months of 1997; about half of the increase was due to the effects of cable
system acquisitions in 1997 and 1996. At the end of September 1997, cable
operations had 635,000 basic subscribers compared to 587,000 basic subscribers
at the same time last year.
OTHER BUSINESSES. At the company's other businesses, revenues rose 12 percent
in the first three quarters of 1997. Most of the increase was due to growth at
Kaplan Educational Centers and the addition of TechNews beginning in September
1996.
EQUITY IN EARNINGS AND LOSSES OF AFFILIATES. The company's equity in earnings
of affiliates during the first nine months of 1997 was $8.2 million, compared
with $17.7 million in the first nine months of 1996. The decrease was due to
declining results at the affiliated newsprint mills resulting from lower
newsprint prices.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $2.4
million for the first three quarters of 1997, unchanged from 1996.
Other income in the first three quarters of 1997 was $24.3 million,
compared with $2.1 million in the comparable period of 1996. Other income in
1997 included the gain from the sale of the assets of the company's PASS Sports
subsidiary mentioned previously.
INCOME TAXES. The effective income tax rate for the first nine months of 1997
increased to 39.3 percent from 39.0 percent in 1996.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
During the first half of 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 September 1997, the company completed a transaction with Meredith
Corporation to exchange the assets of WCPX-TV, the CBS affiliate in Orlando, FL
for the assets of WFSB-TV, the CBS affiliate in Hartford, CT and approximately
$60 million in cash. The company also completed the sale of the assets of its
PASS Sports subsidiary for $32.5 million in cash and notes receivable.
The company has reached an agreement to sell its 35 percent interests
in Bear Island Paper Company and Bear Island Timberlands Company to Brant-Allen
Industries. The transaction is expected to be completed by the end of 1997.
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The company has also reached an agreement in principle to exchange the
assets of selected cable systems with TCA Cable Partners. The exchange is
expected to be completed by the end of 1997.
In November 1997, the company reached an agreement to acquire a cable
system in Anniston, AL serving about 36,000 subscribers for approximately $66
million. The transaction, which will occur in three stages, is expected to
take place in the first half of 1998.
As of the end of the third quarter of 1997, the company had spent
approximately $86 million as part of a three-year $250 million project to
provide new production facilities for the Washington Post newspaper. The
company estimates that it will spend approximately $40 million during the
remainder of the year on this project.
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 nine months of 1997, the
company repurchased 245,390 shares of its Class B common stock for
approximately $87.3 million. In October 1997, the company repurchased an
additional 214,100 shares for approximately $92.9 million. Approximately
200,000 Class B common shares remain to be repurchased under the January 1995
authorization.
At September 28, 1997, the company had $34.2 million in cash and cash
equivalents. The company expects to fund the majority of its estimated capital
expenditures 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 during the remainder of 1997 and 1998 as outlined
above.
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 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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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 12, 1997 /S/ DONALD E. GRAHAM
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Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1997 /S/ JOHN B. MORSE, JR.
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John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)