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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 March 29, 1998 Commission File Number 1-6714
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THE WASHINGTON POST COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 53-0182885
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1150 15th Street, N.W. Washington, D.C. 20071
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(Address of principal executive offices) (Zip Code)
(202) 334-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
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Shares outstanding at May 1, 1998:
Class A Common Stock 1,739,250 Shares
Class B Common Stock 8,350,259 Shares
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THE WASHINGTON POST COMPANY
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) for the Thirteen Weeks
Ended March 29, 1998 and March 30, 1997..........................3
Condensed Consolidated Balance Sheets at March 29, 1998
(Unaudited) and December 28, 1997................................4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Thirteen Weeks Ended
March 29, 1998 and March 30, 1997................................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......................................12
Signatures........................................................................13
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
Condensed Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended
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March 29, March 30,
(In thousands, except per share amounts) 1998 1997
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Operating revenues
Advertising $292,685 $278,528
Circulation and subscriber 130,341 123,674
Other 60,929 51,899
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483,955 454,101
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Operating costs and expenses
Operating 267,587 243,504
Selling, general and administrative 109,930 106,886
Depreciation and amortization of
property, plant and equipment 20,378 17,790
Amortization of goodwill and other intangibles 10,743 7,953
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408,638 376,133
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Income from operations 75,317 77,968
Other income (expense)
Equity in earnings of affiliates 988 125
Interest income 207 1,112
Interest expense (2,244) (165)
Other, net (Note 2) 258,106 (846)
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Income before income taxes 332,374 78,194
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Provision for income taxes
Current 125,252 30,253
Deferred (752) 247
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124,500 30,500
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Net income 207,874 47,694
Redeemable preferred stock dividends (478) (478)
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Net income available for common shares $207,396 $ 47,216
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Basic earnings per common share $ 20.57 $ 4.35
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Diluted earnings per common share $ 20.47 $ 4.35
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Dividends declared per common share $ 2.50 $ 2.40
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Basic average number of common shares outstanding 10,084 10,844
Diluted average number of common shares outstanding 10,131 10,866
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The Washington Post Company
Condensed Consolidated Balance Sheets
(In thousands) March 29, December 28,
1998 1997
(Unaudited)
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Assets
Current assets
Cash and cash equivalents $ 39,232 $ 21,117
Accounts receivable, less estimated returns,
doubtful accounts and allowances 234,416 244,203
Inventories 23,569 19,213
Other current assets 18,245 23,959
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315,462 308,492
Investments in affiliates 63,734 154,791
Property, plant and equipment
Buildings 188,856 188,836
Machinery, equipment and fixtures 805,608 800,435
Leasehold improvements 40,815 39,017
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1,035,279 1,028,288
Less accumulated depreciation and amortization (598,328) (577,445)
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436,951 450,843
Land 33,953 33,953
Construction in progress 186,923 168,954
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657,827 653,750
Goodwill and other intangibles,
less accumulated amortization 712,547 679,714
Deferred charges and other assets 319,465 280,570
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$ 2,069,035 $ 2,077,317
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 207,324 $ 213,824
Federal and state income taxes 126,779 18,352
Deferred subscription revenue 84,481 80,186
Short-term borrowings -- 296,394
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418,584 608,756
Other liabilities 246,248 241,234
Deferred income taxes 31,005 31,306
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695,837 881,296
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Redeemable preferred stock 11,947 11,947
Preferred stock -- --
Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 34,142 33,415
Retained earnings 2,413,033 2,231,341
Accumulated other comprehensive income (losses)
Cumulative foreign currency translation
adjustment (759) (464)
Unrealized gain on available-for-sale
securities 268 31
Cost of Class B common stock held in treasury (1,105,433) (1,100,249)
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1,361,251 1,184,074
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$ 2,069,035 $ 2,077,317
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The Washington Post Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Thirteen Weeks Ended
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March 29, March 30,
(In thousands) 1998 1997
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Cash flows from operating activities:
Net income $ 207,874 $ 47,694
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment 20,378 17,790
Amortization of goodwill and other intangibles 10,743 7,953
Gain on disposition of business (258,436) --
Equity in earnings of affiliates, net
of distributions (326) 498
Provision for deferred income taxes (752) 247
Change in assets and liabilities:
Decrease in accounts receivable, net 9,787 23,574
Increase in inventories (4,356) (6,214)
Decrease in accounts payable and
accrued liabilities (19,672) (13,405)
Increase in income taxes payable 108,427 26,923
(Increase) decrease in other assets and other
liabilities, net (7,616) 4,719
Other 6,089 4,925
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Net cash provided by operating activities 72,140 114,704
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Cash flows from investing activities:
Proceeds from sale of business 330,473 --
Purchases of property, plant and equipment (26,104) (35,206)
Investments in certain businesses (43,580) (23,098)
Other 28 391
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Net cash provided by (used in) investing
activities 260,817 (57,913)
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Cash flows from financing activities:
Principal payments on debt (296,394) --
Dividends paid (12,855) (13,226)
Common shares repurchased (5,593) (41,039)
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Net cash used in financing activities (314,842) (54,265)
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Net increase in cash and cash equivalents 18,115 2,526
Beginning cash and cash equivalents 21,117 102,278
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Ending cash and cash equivalents $ 39,232 $104,804
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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: On March 20, 1998, Cowles Media Company ("Cowles") and McClatchy
Newspapers, Inc. ("McClatchy") completed a series of transactions resulting in
the merger of Cowles and McClatchy. In the merger, each share of Cowles common
stock was converted (based upon elections of Cowles stockholders) into shares of
McClatchy stock or a combination of cash and McClatchy stock.
As of the date of the Cowles and McClatchy merger transaction, a wholly-owned
subsidiary of the company owned 3,893,796 (equal to about 28%) of the
outstanding common stock of Cowles, most of which was acquired in 1985. As a
result of this transaction, the company's subsidiary received $330.5 million in
cash from McClatchy and 730,525 shares of McClatchy Class A common stock. The
market value of the McClatchy stock received approximated $21.6 million and is
reflected in "Deferred Charges and other assets" in the Condensed Consolidated
Balance Sheet.
The gain resulting from this transaction, which is included in "Other, net"
in the Condensed Consolidated Statements of Income, increased net income by
approximately $162.8 million and basic and diluted earnings per share by $16.14
and $16.07, respectively.
Note 3: In the first quarter of 1998, the company acquired various businesses
for approximately $43.6 million. These acquisitions included, among others, a
cable system in Grenada, Mississippi serving approximately 7,400 subscribers, an
educational services company that provides English language study programs, and
the publishing rights to the "New Homes Guide", a free-circulation publication
serving the Washington, DC metropolitan area.
In the first quarter of 1997, the company purchased a cable system in
Cleveland, Mississippi serving about 16,000 subscribers for approximately $23.0
million.
In the first quarter of 1998, the company reached definitive agreements to
acquire the assets of cable systems in Anniston, Alabama serving 35,000
subscribers and the assets of cable systems in Mississippi, Texas and Oklahoma
serving approximately 71,500 subscribers. The company also reached an agreement
to sell the assets of 14 small systems in Texas, Oklahoma, Missouri and Kansas
serving approximately 28,000 subscribers. The company expects these transactions
will be completed before the end of the third quarter of 1998 at a net cost of
approximately $153.0 million.
The company has also reached an agreement with TCA Cable Partners to exchange
the assets of selected cable systems in Texas for the assets of selected TCA
Cable Partners cable systems in Oklahoma. The exchange will result in an
increase of approximately 2,500 subscribers to the company. This transaction is
expected to be completed during the second quarter of 1998.
Note 4: During the first three months of 1998 the company repurchased 11,700
shares of its Class B common stock at a cost of approximately $5.6 million.
Note 5: During the first quarter of 1998, the company had average short-term
borrowings of approximately $272 million outstanding at an average interest rate
of approximately 5.6 percent. In March 1998, upon receipt of the cash proceeds
from the Cowles transaction, the company repaid all of its short-term borrowings
then
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outstanding. During the first quarter of 1998, the company incurred interest
cost on short-term borrowings of $3.9 million of which $2.0 million was
capitalized. Interest costs for construction and upgrade of qualifying assets
are capitalized.
In March 1998, the company replaced its existing $300.0 million credit
facility with a five-year, $500.0 million revolving credit facility to support
the issuance of commercial paper. Borrowings under the facility can be used for
general corporate purposes. Under the terms of the credit agreement, interest on
borrowings is at floating rates, and the company is required to pay a facility
fee of 0.055 percent and 0.15 percent on unused and used portions of the
facility, respectively. The credit agreement also contains certain covenants,
including a financial covenant that requires the company to maintain
consolidated shareholders' equity of $850 million. At March 29, 1998, there were
no borrowings outstanding under the facility and the company was in compliance
with all covenants.
Note 6: In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. For the thirteen weeks ended March 29, 1998 and March
30, 1997, comprehensive income totaled $207.8 million and $44.1 million,
respectively. Comprehensive income includes net income, foreign currency
translation adjustments and the change in unrealized gain on available-for-sale
securities.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the consolidated
financial statements and the notes thereto.
Revenues and expenses in the first and third quarters are customarily
lower than those in the second and fourth quarters because of significant
seasonal fluctuations in advertising volume. For that reason, the results of
operations for each quarter are compared with those of the corresponding quarter
in the preceding year.
RESULTS OF OPERATIONS
Net income for the first quarter of 1998 was $207.9 million ($20.47 per
share - diluted basis), an increase of $160.2 million from net income of $47.7
million ($4.35 per share - diluted basis) in the first quarter of last year.
The company's net income included $162.8 million ($16.07 per share -
diluted basis) from the disposition of its 28 percent interest in Cowles Media
Company. The disposition resulted from the merger of Cowles and McClatchy
Newspapers, Inc., which was completed in March of 1998. Excluding the effect of
the disposition, net income decreased $2.6 million, or 5 percent, in the first
quarter of 1998; diluted earnings per share increased 1 percent to $4.40, from
$4.35 in the first quarter of 1997, with fewer average shares outstanding.
Revenues for the first three months of 1998 were $484.0 million, up 7
percent from $454.1 million in 1997. Advertising revenues and circulation and
subscriber revenues both increased 5 percent over the prior year. Other
operating revenues were up 17 percent. The newspaper and broadcast divisions as
well as the recently acquired trade periodicals included in the magazine
division accounted for substantially all of the increase in advertising
revenues. The increase in circulation and subscriber revenues is due to growth
at the cable division and the increase in other revenues is primarily
attributable to higher tuition and other revenues at Kaplan Educational Centers.
Costs and expenses for the first quarter of 1998 increased 9 percent to
$408.6 million, from $376.1 million in the first quarter of 1997. The increase
in costs and expenses is attributable to increases in newsprint expense, new
media spending, and depreciation as well as expenses arising from companies
acquired in 1997 and 1998 and the expansion of the printing facilities of The
Washington Post. These expense increases were partially offset by an increase in
the company's pension credit.
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In the first quarter of 1998, operating income was $75.3 million compared
to $78.0 million in 1997.
NEWSPAPER DIVISION. At the newspaper division, revenues for the first quarter of
1998 increased 5 percent over the comparable period last year. Advertising
revenues for the division rose 6 percent. Advertising volume at The Post totaled
763,400 inches, substantially unchanged from 763,200 inches in the first quarter
of 1997. Preprint advertising volume at The Post increased 13 percent to 363.4
million pieces, compared to 322.9 million pieces in 1997. Circulation revenues
were essentially unchanged from the first quarter of 1997. The Post's Sunday
circulation declined 1 percent while daily circulation was flat compared to the
same period in 1997. Newsprint expense at the Post increased 10 percent in the
first quarter of 1998 compared to the first quarter of last year.
BROADCAST DIVISION. Broadcast division revenues increased 8 percent in the first
quarter of 1998. The increase in revenues is attributable to a 10 percent and 11
percent increase in national and local advertising, respectively, offset
partially by a decline in network compensation.
MAGAZINE DIVISION. Revenues at the magazine division increased 10 percent over
the first quarter of 1997 due primarily to the trade periodicals acquired in the
fourth quarter of 1997.
CABLE DIVISION. At the cable division, first quarter revenues were 11 percent
higher than in the comparable period in 1997. Higher subscriber levels,
resulting mainly from recent acquisitions, as well as slightly higher rates,
accounted for the increase. At the end of the quarter, there were approximately
646,700 basic subscribers.
OTHER BUSINESSES. Revenues from other businesses, principally Kaplan Educational
Centers, Legi-Slate, Digital Ink, MLJ (Moffet, Larson & Johnson) and PASS Sports
(for 1997 only) were substantially the same as the first quarter of last year.
Excluding PASS Sports, which was sold in the third quarter of 1997, revenues
from other businesses increased 17 percent. Growth at Kaplan Education Centers
produced most of the increase.
EQUITY IN EARNINGS OF AFFILIATES. The company's equity in earnings of affiliates
in the first quarter of 1998 was $1.0 million compared with $0.1 million in
1997. The increase was due primarily to improved results at the company's
affiliated newsprint mill, which has benefited from rising newsprint prices.
NON-OPERATING ITEMS. Interest expense, net of interest income, was $2.0 million,
compared with net interest income of $0.9 million in the first quarter of 1997
due to borrowings outstanding for the majority of the first quarter of 1998.
There were no borrowings outstanding
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during the first quarter of 1997. Included in 1998 other, net is a $258.4
million pre-tax gain resulting from the disposition of the company's 28 percent
interest in Cowles Media Company.
INCOME TAXES. The effective tax rate in 1998 was approximately 37.5 percent as
compared to 39.0 percent in 1997. The lower state tax rate applicable to the
Cowles transaction resulted in the overall decline in the effective tax rate.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
In the first quarter of 1998, the company acquired various businesses for
approximately $43.6 million. These acquisitions included, among others, a cable
system in Grenada, Mississippi serving approximately 7,400 subscribers, an
educational services company that provides English language study programs, and
the publishing rights to the "New Homes Guide", a free-circulation publication
serving the Washington, DC metropolitan area.
In the first quarter of 1998, the company reached agreements to acquire
the assets of cable systems in Anniston, Alabama serving 35,000 subscribers and
the assets of cable systems in Mississippi, Texas and Oklahoma serving
approximately 71,500 subscribers. The company also reached an agreement to sell
the assets of 14 small systems in Texas, Oklahoma, Missouri and Kansas serving
approximately 28,000 subscribers. The company expects these transactions will be
completed before the end of the third quarter of 1998 at a net cost of
approximately $153.0 million.
The company has also reached an agreement to exchange the assets of
selected cable systems in Texas for the assets of cable systems located in
Oklahoma. The exchange is expected to be completed during the second quarter of
1998 and result in a 2,500 increase in subscribers.
In March 1998, the company received approximately $330.5 million in cash
and 730,525 shares of McClatchy Class A common stock as a result of the Cowles
and McClatchy merger transaction, as previously described. The market value of
the McClatchy stock received approximated $21.6 million, based upon publicly
quoted market prices.
During the first three months of 1998, the company repurchased 11,700
shares of its Class B common stock at a cost of approximately $5.6 million.
Approximately 804,000 Class B common shares remain available for repurchase
under a November 13, 1997 authorization by the Board of Directors.
During the first quarter of 1998, the company had average short-term
borrowings outstanding of approximately $272.0 million at an average interest
rate of 5.6 percent. In March 1998, upon receipt of the cash proceeds from the
Cowles transaction, the company repaid all
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of its short-term borrowings then outstanding totaling approximately $290.0
million.
In March 1998, the company established a 5-year, $500.0 million revolving
credit facility to support the issuance of commercial paper by the company.
Borrowings under the facility can be used for general corporate purposes. At
March 29, 1998, there were no amounts drawn under the facility. This credit
facility replaces a previously existing $300.0 million credit facility.
The company has experienced no other significant changes in its financial
condition since the end of 1997.
The company is continuing its assessment, planning, remediation and
testing efforts surrounding the year 2000 readiness of its computer systems and
software. Included in these efforts, is the process of seeking confirmation from
key vendors stating that materials and services provided to the company will not
be interrupted by year 2000 processing issues. The company plans to implement
the system and programming changes necessary to address year 2000 issues, and
does not believe based upon present facts that the cost of such actions will
have a material effect on the company's results of operations or financial
condition.
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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 Stock Option Plan as amended and
restated effective March 12, 1998 (supersedes Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997).
11 Calculation of Earnings per Share of
Common Stock.
27.1 Financial Data Schedule - March 29, 1998
27.2 Financial Data Schedule - September 28, 1997
27.3 Financial Data Schedule - June 29, 1997
27.4 Financial Data Schedule - March 30, 1997
27.5 Financial Data Schedule - December 29, 1996
27.6 Financial Data Schedule - September 29, 1996
27.7 Financial Data Schedule - June 30, 1996
27.8 Financial Data Schedule - March 31, 1996
27.9 Financial Data Schedule - December 31, 1995
(Electronic filing only).
(b) On April 2, 1998, the company filed a Report on Form 8-K related to
the disposition of its 28 percent interest in Cowles Media Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WASHINGTON POST COMPANY
(Registrant)
Date: May 12, 1998 /s/ Donald E. Graham
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Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1998 /s/ John B. Morse, Jr.
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John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)