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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
Commission file number 1-6714
THE WASHINGTON POST COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Delaware 53-0182885
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO)
1150 15TH ST., N.W., WASHINGTON, D.C. 20071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 334-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- --------------------
Class B Common Stock, par value New York Stock Exchange
$1.00 per share
</TABLE>
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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the Company's voting stock held by
non-affiliates on February 28, 1997, based on the closing price for the
Company's Class B Common Stock on the New York Stock Exchange on such date:
approximately $1,993,000,000.
Shares of common stock outstanding at February 28, 1997:
Class A Common Stock - 1,779,250 shares
Class B Common Stock - 9,043,340 shares
Documents partially incorporated by reference:
Definitive Proxy Statement for the Company's 1997 Annual
Meeting of Stockholders (incorporated in Part III to the
extent provided in Items 10, 11, 12 and 13 hereof).
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PART I
ITEM 1. BUSINESS.
The principal business activities of The Washington Post Company (the
"Company") consist of newspaper publishing (principally The Washington Post),
television broadcasting (through the ownership and operation of six
network-affiliated stations), the ownership and operation of cable television
systems, and magazine publishing (Newsweek magazine).
Information concerning the consolidated operating revenues,
consolidated income from operations and identifiable assets attributable to the
principal segments of the Company's business for the last three fiscal years is
contained in Note M to the Company's Consolidated Financial Statements
appearing elsewhere in this Annual Report on Form 10-K. (Revenues for each
segment are shown in such Note M net of intersegment sales, which did not
exceed 0.2% of consolidated operating revenues.)
During each of the last three years the Company's operations in
geographic areas outside the United States (consisting primarily of the
publication of the international editions of Newsweek) accounted for less than
6% of the Company's consolidated revenues and less than 1% of its consolidated
income from operations, and the identifiable assets attributable to such
operations represented less than 3% of the Company's consolidated assets.
NEWSPAPER PUBLISHING
THE WASHINGTON POST
The Washington Post is a morning and Sunday newspaper primarily
distributed by home delivery in the Washington, D.C. metropolitan area,
including large portions of Virginia and Maryland.
The following table shows the average paid daily (including Saturday)
and Sunday circulation of The Post for the twelve-month periods ended September
30 in each of the last five years, as reported by the Audit Bureau of
Circulations ("ABC"):
<TABLE>
<CAPTION>
AVERAGE PAID CIRCULATION
------------------------
DAILY SUNDAY
----- ------
<S> <C> <C>
1992 . . . . . . . . . . . . . 815,225 1,158,329
1993 . . . . . . . . . . . . . 823,752 1,152,272
1994 . . . . . . . . . . . . . 821,956 1,152,441
1995 . . . . . . . . . . . . . 807,818 1,140,498
1996 . . . . . . . . . . . . . 800,295 1,129,519
</TABLE>
A price increase for home-delivered copies of the daily and Sunday
newspaper went into effect on February 3, 1997, raising the rate per four-week
period from $10.20 to $10.60. On January 8, 1996 that rate had been raised to
$10.20 from $9.80. The rate charged to subscribers for Sunday-only
home-delivered copies of the newspaper for each four-week period has been $6.00
since 1991. On April 6, 1992, the newsstand price for the Sunday newspaper was
increased from $1.25 (which price had been in effect since 1986) to $1.50. The
newsstand price for the daily newspaper has been $0.25 since 1981.
General advertising rates were increased by approximately 8.6% on
January 1, 1996, and approximately another 3.6% on January 1, 1997. Rates for
most categories of classified and retail advertising were increased by
approximately 6.4% on February 1, 1996, and approximately an additional 3.4% on
February 1, 1997.
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The following table sets forth The Post's advertising inches
(excluding preprints) and number of preprints for the past five years:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Inches (in thousands) . . . . . . . . . . . 3,435 3,394 3,391 3,212 3,070
Full-Run Inches . . . . . . . . . . . . . . 3,215 3,165 3,133 2,950 2,814
Part-Run Inches . . . . . . . . . . . . . . 220 229 258 262 256
Preprints (in millions) . . . . . . . . . . . . . 1,135 1,142 1,325 1,416 1,440
</TABLE>
The Post also publishes The Washington Post National Weekly Edition, a
tabloid which contains selected articles and features from The Washington Post
edited for a national audience. The National Weekly Edition has a basic
subscription price of $48.00 per year and is delivered by second class mail to
approximately 101,000 subscribers.
The Post has about 550 full-time editors, correspondents, reporters
and photographers on its staff, draws upon the news reporting facilities of the
major wire services and maintains correspondents in 20 news centers abroad and
in New York City, Los Angeles, Chicago, Miami, Richmond, Baltimore, Annapolis
and Austin, Texas.
THE HERALD
The Company owns The Daily Herald Company, publisher of The Herald in
Everett, Washington, about 30 miles north of Seattle. The Herald is published
mornings seven days a week and is primarily distributed by home delivery in
Snohomish County. The Daily Herald Company also provides commercial printing
services and in July 1996 acquired four controlled-circulation weekly community
newspapers (collectively know as The Enterprise Newspapers) that are
distributed in south Snohomish County.
The Herald's average paid circulation as reported to ABC for the
twelve months ended September 30, 1996, was 53,551 daily (including Saturday)
and 63,311 Sunday. The aggregate average weekly circulation of The Enterprise
Newspapers during the period from their acquisition through year-end 1996 was
approximately 44,000 copies.
The Herald and The Enterprise Newspapers together employ approximately
70 editors, reporters and photographers.
THE GAZETTE NEWSPAPERS
The Gazette Newspapers, Inc., another subsidiary of the Company,
publishes one paid-circulation and 21 controlled-circulation weekly community
newspapers (collectively known as The Gazette Newspapers) in Montgomery and
Frederick Counties and limited parts of Carroll County, Maryland. During 1996
The Gazette Newspapers had an aggregate average weekly circulation of more than
330,000 copies. This subsidiary also produces 11 military newspapers (most of
which are weekly) under agreements where editorial material is supplied by
local military bases; these newspapers had a combined 1996 circulation of over
140,000 copies.
The Gazette Newspapers have approximately 70 editors, reporters and
photographers on their combined staffs.
In early 1996 The Gazette Newspapers, Inc. acquired the assets of a
small commercial printing company located in Gaithersburg, Maryland.
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TELEVISION BROADCASTING
Through subsidiaries the Company owns six VHF television stations
located in Detroit, Michigan; Houston, Texas; Miami, Florida; Hartford,
Connecticut; San Antonio, Texas; and Jacksonville, Florida; which are
respectively the 9th, 11th, 16th, 27th, 38th and 54th largest broadcasting
markets in the United States. Each of the Company's stations is affiliated
with a national network. Although network affiliation agreements generally
have limited terms, each of the Company's television stations has maintained
its network affiliation continuously for at least 20 years.
The Company's 1996 net operating revenues from national and local
television advertising and network compensation were as follows:
<TABLE>
<S> <C>
National . . . . . . . . . . . $ 143,939,000
Local . . . . . . . . . . . . . 153,390,000
Network . . . . . . . . . . . . 35,075,000
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Total . . . . . . . . . . $ 332,404,000
</TABLE>
The following table sets forth certain information with respect to
each of the Company's television stations:
<TABLE>
<CAPTION>
STATION LOCATION AND EXPIRATION EXPIRATION TOTAL COMMERCIAL
YEAR COMMERCIAL NATIONAL DATE OF DATE OF STATIONS IN DMA(b)
OPERATION MARKET NETWORK FCC NETWORK ------------------
COMMENCED RANKING(a) AFFILIATION LICENSE AGREEMENT ALLOCATED OPERATING
--------- ----------- ----------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
WDIV 9th NBC Oct. 1, June 30, VHF-4 VHF-4
Detroit, Mich. 1997 2004 UHF-6 UHF-5
1947
KPRC 11th NBC Aug. 1, June 30, VHF-3 VHF-3
Houston, Tx. 1998 2004 UHF-11 UHF-10
1949
WPLG 16th ABC Feb. 1, Dec. 31, VHF-5 VHF-5
Miami, Fla. 2005 2004 UHF-8 UHF-8
1961
WFSB 27th CBS Apr. 1, Apr. 10, VHF-2 VHF-2
Hartford, Conn. 1999 2002 UHF-6 UHF-5
1957
KSAT 38th ABC Aug. 1, Dec. 31, VHF-4 VHF-3
San Antonio, Tx. 1998 2004 UHF-6 UHF-5
1957
WJXT 54th CBS Feb. 1, July 10, VHF-2 VHF-2
Jacksonville, Fla. 1997(c) 2001 UHF-6 UHF-4
1947
</TABLE>
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(a) Source: 1996/97 DMA Market Rankings, Nielsen Media Research, Fall
1996, based on television homes in DMA (see note (b) below).
(b) Designated Market Area ("DMA") is a market designation of A.C.
Nielsen which defines each television market exclusive of another, based
on measured viewing patterns.
(c) The Company has timely filed an application to renew the FCC
license of WJXT and such filing extends the effectiveness of the license
until the application is acted upon.
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REGULATION OF BROADCASTING AND RELATED MATTERS
The Company's television broadcasting operations are subject to the
jurisdiction of the Federal Communications Commission under the Communications
Act of 1934, as amended. Under authority of such Act the FCC, among other
things, assigns frequency bands for broadcast and other uses; issues, revokes,
modifies and renews broadcasting licenses for particular frequencies;
determines the location and power of stations and establishes areas to be
served; regulates equipment used by stations; and adopts and implements
regulations and policies which directly or indirectly affect the ownership,
operations and profitability of broadcasting stations.
Each of the Company's television stations holds an FCC license which
is renewable upon application for an eight-year period. The application to
renew WJXT's license is currently pending.
After proceedings that extended over many years, in December 1996 the
FCC formally approved technical standards for digital advanced television
("DTV"). DTV is a flexible system that will permit broadcasters to utilize a
single digital channel in various ways, including providing either one channel
of high-definition television programming with greatly enhanced image and sound
quality or multiple channels of standard-definition television programming.
The FCC is expected to assign to each existing full-power television station
(including each station owned by the Company) a second channel to implement DTV
while present television operations are continued on that station's existing
channel. Although in some cases a station's DTV channel may only permit
operation over a smaller geographic service area than that available using its
existing channel, most stations are expected to obtain DTV service areas that
will be generally consistent with their existing operations. Under current
proposals station owners will be required to surrender one channel after a
transition period of between 7 and 15 years and thereafter provide service
solely in the DTV format.
Various additional actions by the FCC are required in order to refine
the proposals summarized above and implement the transition to DTV. Among the
issues being considered by the FCC in connection with such transition is the
time period within which DTV transmission facilities must be constructed and
begin operation. Certain Congressional leaders have asked the FCC to postpone
issuing DTV licenses until Congress can consider legislation that might require
broadcasters to bid at auction for such licenses. In addition, the Clinton
Administration has proposed the establishment of an advisory committee to
consider whether public-interest obligations should be imposed on DTV
operations and, if so, what those obligations should consist of. The Company
anticipates that the conversion to DTV broadcasting will require significant
capital expenditures but cannot otherwise predict what effects such conversion
will eventually have on its television broadcast operations.
The FCC also is conducting proceedings dealing with such matters as
the standards to be applied to broadcast renewal applications, multiple
ownership restrictions, regulations pertaining to cable television (discussed
below under "Cable Television Division - Regulation of Cable Television and
Related Matters"), and various proposals to further the development of
alternative video delivery systems that would compete in varying degrees with
both cable television and television broadcasting operations. The multiple
ownership rules were relaxed by amendments to the Communications Act enacted in
1996 and broadcast companies are now permitted to own an unlimited number of
television stations as long as the combined service areas of such stations do
not include more than 35% of the U.S. population. Separately, the Clinton
Administration has suggested that broadcasters be required to provide free time
for political candidates. The Company is unable to determine what impact the
various proceedings and other matters described in this paragraph may
ultimately have on the Company's television broadcast operations.
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CABLE TELEVISION DIVISION
As of the end of 1996 the Company (through subsidiaries) provided
basic cable service to approximately 594,000 subscribers (representing about
74% of the 805,000 homes passed by the systems) and had in force more than
374,000 subscriptions to premium program services.
During 1996 the Company acquired cable television systems serving
24,000 subscribers in Texarkana, Arkansas-Texas; 16,000 subscribers in
Columbus, Mississippi; and 26,000 subscribers in Prescott, Arizona. In January
1997 it acquired the system serving 15,000 subscribers in Cleveland,
Mississippi. The Company has also entered into an agreement to trade systems
it currently owns in the Chicago suburbs and in Union City and Burlingame,
California for systems located in Minnesota, Mississippi and Oklahoma. The
systems it plans to acquire in the foregoing trade serve an aggregate of about
23,000 more subscribers than the systems it plans to dispose of in connection
therewith.
The Company's cable systems are located in 16 Midwestern, Southern and
Western states and typically serve smaller communities; thus 30 of the
Company's current systems pass fewer than 10,000 dwelling units, 13 pass
10,000-25,000 dwelling units, and only 12 pass more than 25,000 dwelling units,
of which the two largest are in Modesto and Santa Rosa, California, each
serving more than 47,000 basic subscribers.
REGULATION OF CABLE TELEVISION AND RELATED MATTERS
The Company's cable operations are subject to various requirements
imposed by local, state and federal governmental authorities. The franchises
granted by local governmental authorities are typically nonexclusive and
limited in time and generally contain various conditions and limitations
relating to payment of fees to the local authority, determined generally as a
percentage of revenues. Additionally, franchises often regulate the conditions
of service and technical performance, and contain various types of restrictions
on transferability. Failure to comply with such conditions and limitations may
give rise to rights of termination by the franchising authority.
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act"), requires or authorizes the imposition of a wide range
of regulations on cable television operations. The three major areas of
regulation are (i) the rates charged for certain cable television services,
(ii) required carriage ("must carry") of some local broadcast stations, and
(iii) retransmission consent rights for commercial broadcast stations.
Among other things, the Telecommunications Act of 1996, which has been
partially implemented by the FCC, altered the preexisting regulatory
environment by expanding the definition of "effective competition" (a condition
that precludes regulation of the rates charged by a cable system for basic and
optional tiers of service), relaxing cost-of-service rules, raising the
threshold for FCC investigations of rate complaints, terminating rate
regulations for some small cable systems, and providing for the elimination of
rate regulation for all cable systems regardless of size by March 31, 1999.
For cable systems that do not fall within the effective-competition or
small-system exemptions (including all of the cable systems owned by the
Company), monthly subscription rates for the basic tier of cable service may be
regulated by municipalities, subject to procedures and criteria established by
the FCC, and the FCC may regulate the rates charged for optional tiers of
service. Rates charged by cable television systems for pay-per-view service,
for per-channel premium program services and for advertising are all exempt
from regulation. Cable television systems may also add channels to an
unregulated new product tier, but the channels must be new to the system as of
October 1, 1994.
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In April 1993 the FCC adopted a "freeze" on rate increases for
regulated services (i.e., the basic and optional tiers). Later that year the
FCC promulgated benchmarks for determining the reasonableness of rates for such
services. The benchmarks provided for a percentage reduction in the rates that
were in effect when the benchmarks were announced. Under the FCC's approach
cable operators may exceed the benchmarks if they can show in a cost-of-service
proceeding that higher rates are needed to earn a reasonable return on
investment, which the Commission established in March 1994 to be 11.25%. Also,
over the past three years the FCC has adopted so-called "going forward" rules
which permit cable operators to increase their benchmarked rates for regulated
services when new channels are added and to offset the effects of inflation,
equipment upgrades, and higher programming, franchising and regulatory fees.
Pursuant to the "must-carry" rules a commercial television broadcast
station may, under certain circumstances, insist on carriage of its signal on
cable systems located within the station's market area, while a noncommercial
public station may insist on carriage of its signal on cable systems located
within either the station's predicted Grade B contour or 50 miles of the
station's transmitter. As a result of these obligations (the constitutionality
of which has been upheld by a lower court in a decision that is being reviewed
by the U.S. Supreme Court) certain of the Company's cable systems have had to
carry broadcast stations that they might not otherwise have elected to carry,
and the freedom the Company's systems would otherwise have to drop signals
previously carried has been reduced.
At three-year intervals beginning in October 1993 commercial
broadcasters have had the right to forego must-carry rights and insist instead
that their signals not be carried without their prior consent. Before October
1993 some of the broadcast stations carried by the Company's cable television
systems opted for retransmission consent and initially took the position that
they would not grant consent without commitments by the Company's systems to
make cash payments. As a result of case-by-case negotiations, the Company's
cable systems were able to continue carrying virtually all of the stations
insisting on retransmission consent without having to agree to pay any stations
for the privilege of carrying their signals. However some commitments were
made to carry other program services offered by a station or an affiliated
company, to provide advertising availabilities on cable for sale by a station
and to distribute promotional announcements with respect to a station. Many of
these agreements between broadcast stations and the Company's cable systems
expired at the end of 1996 and the expired agreements were replaced by new
agreements having comparable terms.
Various other provisions in current Federal law may significantly
affect the costs or profits of cable television systems. These matters include
a prohibition on exclusive franchises, restrictions on the ownership of
competing video delivery services, restrictions on transfers of cable
television ownership, consumer protection measures, and various regulations
intended to facilitate the development of competing video delivery services.
Other provisions benefit the owners of cable systems by restricting regulation
of cable television in many significant respects, requiring that franchises be
granted for reasonable periods of time, providing various remedies and
safeguards to protect cable operators against arbitrary refusals to renew
franchises, and limiting franchise fees to 5% of revenues.
Apart from its authority under the 1992 Cable Act and the
Telecommunications Act of 1996, the FCC regulates various other aspects of
cable television operations. Since 1990 cable systems have been required to
black out from the distant broadcast stations they carry syndicated programs
for which local stations have purchased exclusive rights and requested
exclusivity. Other long-standing FCC rules require cable systems to delete
under certain circumstances duplicative network programs broadcast by distant
stations. The FCC also imposes certain technical standards on cable television
operators, exercises the power to license various microwave and other radio
facilities frequently used in cable television operations, regulates the
assignment and transfer of control of such licenses, and oversees
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compliance with certain affirmative action and equal employment opportunity
obligations applicable to cable systems. In addition, pursuant to the Pole
Attachment Act, the FCC exercises authority to disapprove unreasonable rates
charged to cable operators by telephone and power utilities for utilizing space
on utility poles or in underground conduits.
The Copyright Act of 1976 grants to cable television systems, under
certain terms and conditions, the right to retransmit the signals of television
stations pursuant to a compulsory copyright license. Those terms and
conditions include the payment of certain license fees set forth in the statute
or established by subsequent administrative regulations. The compulsory
license fees have been increased on several occasions since this Act went into
effect. In 1994 the availability of the compulsory copyright license was
extended to "wireless cable" and direct broadcast satellite operators, although
in the latter case the license right is currently limited to independent and
network-affiliated stations whose over-the-air signal (or a signal carrying the
same network's programming) is not available at the subscriber's location.
Some pending legislative proposals would modify or eliminate the compulsory
copyright licensing scheme, and the FCC and others have urged that the
compulsory license be phased out for local or distant broadcast signals or
both.
Until recently, telephone companies were generally prohibited from
operating cable systems in areas in which they provide local telephone service.
However, that prohibition was eliminated by the Telecommunications Act of 1996.
Telephone companies now can provide video services in their telephone service
areas under four different regulatory plans. First, they can provide
traditional cable television service and be subject to the same regulations as
the Company's cable television systems (including compliance with local
franchise and any other local or state regulatory requirements). Second, they
can provide "wireless cable" service, which is described below, and not be
subject to either cable regulations or franchise requirements. Third, they
can provide video services on a common-carrier basis, under which they would
not be required to obtain local franchises but would be subject to
common-carrier regulation (including a prohibition against exercising control
over programming content). Finally, they can operate so-called "open video
systems" without local franchises and be subject to reduced regulatory burdens.
The Act contains detailed requirements governing the operation of open video
systems, including the nondiscriminatory offering of capacity to third parties
and limiting to one-third of total system capacity the number of channels the
operator can program when demand exceeds available capacity. In addition, the
rates charged by an open video system operator to a third party for the
carriage of video programming must be just and reasonable as determined in
accordance with standards to be established by the FCC. (Cable operators and
others not affiliated with a telephone company may also become operators of
open video systems.) The Act also generally prohibits telephone companies from
acquiring or owning an interest in existing cable systems operating in their
service areas.
The Telecommunications Act of 1996 balances this grant of video
authority to telephone companies by removing regulatory barriers to the
offering of telephone services by cable companies and others. The Act preempts
state and local laws that have barred local telephone competition in some
states. In addition, the Act requires local telephone companies to permit
cable companies and other competitors to connect with the telephone network and
requires telephone companies to give competitors access to the essential
features and functionalities of the local telephone network (such as switching
capability, signal carriage from the subscriber's residence to the switching
center and directory assistance) on an unbundled basis. As an alternative
method of providing local telephone service, the Act permits cable companies
and others to purchase telephone service on a wholesale basis and then resell
it to their subscribers.
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During the past several years, the FCC has adopted various rule
changes intended to facilitate the development of so-called "wireless cable," a
video service that is capable of distributing 30 television channels in a local
area by over-the-air microwave transmission using analog technology and is
capable of providing a greater number of channels using digital compression
technologies. The FCC also is expected to issue licenses in 1997 for a new
digital wireless cable service which may utilize up to 1,300 megahertz of
spectrum in the 28 and 31 gigahertz bands and is intended to provide large
numbers of video channels as well as voice and data transmission services.
Wireless cable services are not required to obtain franchises from local
governmental authorities and generally operate under fewer regulatory
requirements than conventional cable television systems.
Litigation is pending in various courts in which prohibitions on cable
television operations without a franchise and various franchise requirements
are being challenged as unlawful under the First Amendment, the antitrust laws
and on other grounds. If successful, such litigation could facilitate the
development of duplicative cable facilities that would compete with existing
cable systems.
The regulation of certain cable television rates pursuant to the
authority granted to the FCC has negatively impacted the revenues of the
Company's cable systems. The Company is unable to predict what effect the other
matters discussed above may ultimately have on its cable television business.
MAGAZINE PUBLISHING
Newsweek is a weekly news magazine published both domestically and
internationally by Newsweek, Inc., a subsidiary of the Company. In gathering,
reporting and writing news and other material for publication, Newsweek
maintains news bureaus in 9 U.S. and 14 foreign cities.
The domestic edition of Newsweek is comprised of over 100 different
geographic or demographic editions which carry substantially identical news and
feature material but enable advertisers to direct messages to specific market
areas or demographic groups. Domestically, Newsweek ranks second in
circulation among the three leading weekly news magazines (Newsweek, Time and
U.S. News & World Report). Its average weekly domestic circulation rate base
and its percentage of the total weekly domestic circulation rate base of the
three leading weekly news magazines for the past five years are set forth in
the following table:
<TABLE>
<CAPTION>
NEWSWEEK AVERAGE PERCENTAGE OF
WEEKLY CIRCULATION THREE LEADING
RATE BASE NEWS MAGAZINES
--------- --------------
<S> <C> <C>
1992 . . . . . . . . . . . . . 3,100,000 33.2%
1993 . . . . . . . . . . . . . 3,100,000 32.7%
1994 . . . . . . . . . . . . . 3,100,000 33.0%
1995 . . . . . . . . . . . . . 3,100,000 33.0%
1996 . . . . . . . . . . . . . 3,100,000 33.4%
</TABLE>
Newsweek is sold on newsstands and through subscription mail order
sales derived from a number of sources, principally direct mail promotion. The
basic one-year subscription price is $41.08. During 1996 most subscriptions
were sold at a discount from the basic price. Since January 1992 Newsweek's
newsstand price has been $2.95 per copy.
The total number of Newsweek's domestic advertising pages and gross
domestic advertising revenues as reported by Publishers' Information Bureau,
Inc., together with Newsweek's percentages of the total number of advertising
pages and total advertising revenues of the three leading weekly news
magazines, for the past five years have been as follows:
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<TABLE>
<CAPTION>
NEWSWEEK
NEWSWEEK PERCENTAGE OF GROSS PERCENTAGE OF
ADVERTISING THREE LEADING ADVERTISING THREE LEADING
PAGES* NEWS MAGAZINES REVENUES* NEWS MAGAZINES
------ -------------- --------- --------------
<S> <C> <C> <C> <C>
1992 . . . . . . . . . 2,109 33.2% $258,396,000 32.4%
1993 . . . . . . . . . 2,102 33.3% 260,673,000 32.3%
1994 . . . . . . . . . 2,057 32.1% 276,074,000 32.4%
1995 . . . . . . . . . 2,279 34.1% 328,886,000 34.9%
1996 . . . . . . . . . 2,520 36.6% 381,621,000 37.0%
</TABLE>
--------------------------
* Advertising pages and gross advertising revenues are those reported
by Publishers' Information Bureau, Inc. PIB computes gross advertising
revenues from basic one-time rates and the number of advertising pages
carried. PIB figures therefore materially exceed actual gross advertising
revenues, which reflect lower rates for multiple insertions. Net revenues
as reported in the Company's Consolidated Statements of Income also
exclude agency fees and cash discounts, which are included in the gross
advertising revenues shown above. Page and revenue figures exclude
affiliated advertising.
Newsweek's advertising rates are based on its average weekly
circulation rate base and are competitive with the other weekly news magazines.
Effective with the January 8, 1996 issue, national advertising rates were
increased by an average of 7.0%. Beginning with the issue dated January 13,
1997, national advertising rates were increased again by an average of 3.5%.
Newsweek Business Plus, which is published 39 times a year, is a
demographic edition of Newsweek distributed to high-income professional and
managerial subscribers and subscribers in zip-code-defined areas. Advertising
rates for this edition, which has a circulation rate base of 1,000,000 copies,
were increased an average of 7.0% in January 1996 and by an additional 3.5% in
January 1997.
Newsweek's other demographic edition, Newsweek Woman, which was
published 13 times during 1996, has a circulation rate base of 700,000 selected
female subscribers. At the beginning of 1996 advertising rates for this
edition were increased by an average of 7.0%, with an additional average
increase of 3.5% instituted early in 1997.
Internationally, Newsweek is published in an Atlantic edition covering
the British Isles, Europe, the Middle East and Africa, a Pacific edition
covering Japan, Korea and Southeast Asia, and a Latin America edition, all of
which are in the English language. Editorial copy solely of domestic interest
is eliminated in the international editions and is replaced by other
international, business or national coverage primarily of interest abroad.
Since 1984 a section of Newsweek articles has been included in The
Bulletin, an Australian weekly news magazine which also circulates in New
Zealand. In 1986 a Japanese-language edition of Newsweek, Newsweek Nihon Ban,
began publication in Tokyo pursuant to an arrangement with a Japanese
publishing company which translates editorial copy, sells advertising in Japan
and prints and distributes the edition. Newsweek Hankuk Pan, a Korean-language
edition of Newsweek began publication in 1991 pursuant to a similar arrangement
with a Korean publishing company. In 1996 Newsweek en Espanol, a
Spanish-language edition of Newsweek intended primarily for distribution in
Latin America, began publication pursuant to an agreement with a Miami-based
publishing company which translates editorial copy, prints and distributes the
edition and jointly sells advertising with Newsweek. Also during 1996,
Newsweek signed licensing and advisory agreements with a Russian publishing and
broadcasting company to produce a Russian-language newsweekly modeled after
Newsweek which will include selected stories translated from Newsweek's various
U.S. and foreign
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<PAGE> 11
editions. This magazine is called Itogi (which means "summing-up" in Russian)
and published its first issue in May 1996.
The average weekly circulation rate base, advertising pages and gross
advertising revenues of Newsweek's international editions (including The
Bulletin insertions but not including the foreign-language editions of
Newsweek) for the past five years have been as follows:
<TABLE>
<CAPTION>
AVERAGE WEEKLY GROSS
CIRCULATION ADVERTISING ADVERTISING
RATE BASE PAGES* REVENUES*
--------- ------ ---------
<S> <C> <C> <C>
1992 . . . . . . . . . 730,000 2,549 $76,765,000
1993 . . . . . . . . . 745,000 2,128 68,347,000
1994 . . . . . . . . . 748,000 2,351 79,900,000
1995 . . . . . . . . . 750,000 2,502 90,968,000
1996 . . . . . . . . . 752,000 2,446 92,638,000
</TABLE>
--------------------------
* Advertising pages and gross advertising revenues are those reported
by LNA International. LNA computes gross advertising revenues from basic
one-time rates and the number of advertising pages carried. LNA figures
therefore materially exceed actual gross advertising revenues, which
reflect lower rates for multiple insertions. Net revenues as reported in
the Company's Consolidated Statements of Income also exclude agency fees
and cash discounts, which are included in the gross advertising revenues
shown above. Page and revenue figures exclude affiliated advertising.
For 1997 the average weekly circulation rate base for Newsweek's
English-language international editions (including The Bulletin insertions)
will be 767,000 copies. Newsweek's rate card estimates the average weekly
circulation for 1997 for the Japanese-, Korean-, Russian- and Spanish-language
editions will be 140,000, 150,000, 100,000 and 54,000 copies, respectively.
Since 1994 Newsweek has produced a weekly news magazine for online
distribution. This magazine, Newsweek Interactive, integrates text, photos and
audio and is currently available on the America Online service. In November
1996 Newsweek also launched its Parent's Guide to Children's Software '97 site
on the World Wide Web, which is an updated, online version of the multimedia
CD-ROM Newsweek released in September 1995.
VirtualCity, a quarterly magazine designed to attract readers
interested in the emerging online community, ceased publication in mid-1996.
The first issue of this magazine was published in September 1995 pursuant to a
collaboration between Newsweek and a third party.
In August 1996 the United States Food and Drug Administration issued
final rules designed to restrict the marketing of tobacco products to minors.
These rules, which among other things would limit advertising for tobacco
products in print publications whose youth readership exceeds certain levels to
black and white, text-only "tombstone" ads, will go into effect on August 28,
1997, unless enjoined by a court. Litigation is currently pending which
challenges the legality of these rules on First Amendment and other grounds.
The Company cannot now predict whether these rules will go into effect or what
other legislative or regulatory actions may be taken in the future to restrict
tobacco advertising. However such advertising accounts for only about 1% of
Newsweek's operating revenues and negligible revenues at The Washington Post
and the Company's other newspapers. Moreover, Federal law has prohibited the
carrying of advertisements for cigarettes or smokeless tobacco by commercial
radio and television stations for many years. Thus the Company believes that
any restrictions on tobacco advertising which may eventually be put into effect
would not have a material adverse effect on Newsweek or on any of the Company's
other business operations.
10
<PAGE> 12
OTHER ACTIVITIES
KAPLAN EDUCATIONAL CENTERS
Kaplan Educational Centers, Inc., a subsidiary of the Company, owns
the Kaplan Educational Centers, which are engaged in preparing students for a
broad range of admissions tests and licensing examinations including SAT's,
LSAT's, GMAT's and GRE's, and nursing and medical boards. In 1996 the Kaplan
Centers had nearly 125,000 enrollments and provided courses through more than
150 permanent educational centers located throughout the United States and in
Canada, Puerto Rico and London. In addition, Kaplan licenses material for
certain of its courses to third parties who in turn offer Kaplan courses in
other foreign locations.
In April 1996 Kaplan acquired Score Learning Corporation, which offers
computer-based multimedia curricula, individualized tutoring and other learning
enrichment services to students in kindergarten through grade twelve. Score's
services are being provided in facilities separate from existing Kaplan Centers
due to differing configuration and equipment requirements. During 1996 Score
served more than 7,000 students and currently operates 22 centers located in
California, Massachusetts, Connecticut and New York.
LEGI-SLATE
Legi-Slate, Inc., another subsidiary of the Company, provides its
customers with access to a computerized database containing detailed
information on the legislative and regulatory activities of the United States
government. The Legi-Slate database contains both abstracts and the full text
of every bill and resolution introduced in Congress, the entire Congressional
Record and every document published in the Federal Register. Content compiled
by Legi-Slate includes detailed legislative histories, complete voting records
and the Daily CFR(TM) service, a daily update of the Code of Federal
Regulations. The database also includes relevant editorial material which is
both licensed from third parties and produced by Legi-Slate's own editorial
staff. State Capital Strategies, Inc., a subsidiary of Legi-Slate, was formed
in 1996 to provide customers with online access to a database containing the
information necessary to monitor legislative activity in all 50 states.
PASS SPORTS
Pro Am Sports System, Inc. ("PASS") is a Detroit-based regional cable
sports network that provides programming to approximately 1,100,000 cable
television subscribers in Michigan and northwest Ohio. PASS programming
includes games of the Detroit Tigers baseball team, the Detroit Pistons
basketball team and the Detroit Red Wings hockey team.
INTERNATIONAL HERALD TRIBUNE
The Company beneficially owns 50% of the outstanding common stock of
the International Herald Tribune, S.A., a French company which publishes the
International Herald Tribune in Paris, France. This English-language newspaper
has an average daily paid circulation of almost 200,000 copies and is
distributed in over 180 countries.
COWLES MEDIA COMPANY
The Company owns approximately 28% of the outstanding common stock of
Cowles Media Company, most of which was acquired in 1985. Cowles owns the
Minneapolis-St. Paul Star Tribune and a number of smaller publications.
11
<PAGE> 13
DIGITAL INK
The Company's Digital Ink Co. subsidiary was organized to develop news
and information products for distribution by computers, fax and telephone.
Since July 1996 Digital Ink has operated washingtonpost.com, a World Wide Web
site on the Internet that features the full editorial text of The_Washington
Post and most of The Post's classified advertising as well as original content
created by Digital Ink's staff and content obtained from other sources. The
Digital Ink service had previously utilized the AT&T Interchange Network as its
publishing platform.
MOFFET, LARSON & JOHNSON
The Company owns 71% of the outstanding common stock of Moffet, Larson
& Johnson, Inc., a telecommunications engineering firm specializing in the
design and development of advanced mobile, broadcast and common carrier radio
systems.
TECHNEWS
In September 1996 the Company acquired TechNews, Inc., publisher of
Washington Technology, a controlled circulation biweekly tabloid newspaper for
government information systems integrators which has a current circulation of
about 36,000 copies. TechNews also publishes an annual directory of
Washington-area technology companies and conducts seminars and briefings on
subjects of interest to Washington Technology readers and advertisers.
PRODUCTION AND RAW MATERIALS
The Washington Post is produced at the newspaper's principal place of
business and plant in downtown Washington, D.C., and at its satellite printing
plants in Fairfax County, Virginia, and Southeast Washington, D.C. The Post is
building a new production facility in Prince George's County, Maryland, and is
expanding its Fairfax County facility. New press equipment will be installed
in both plants during 1997 and 1998 and is expected to be fully operational by
late 1998 or early 1999. At that time production at the newspaper's two
Washington, D.C. facilities will be discontinued.
All editions of The Herald and The Enterprise Newspapers are produced
at The Daily Herald Company's plant in Everett, Washington. During 1996 the
production of The Gazette Newspapers was transferred from independent contract
printers to the commercial printing operation acquired by The Gazette
Newspapers, Inc. in early 1996. Newsweek's domestic edition is produced by
three independent contract printers at five separate plants in the United
States; advertising inserts and photo-offset films for the domestic edition are
also produced by independent contractors. The international editions of
Newsweek are printed in England, Hong Kong, Singapore, Switzerland and
Hollywood, Florida; insertions for The Bulletin are printed in Australia. The
publications of TechNews, Inc. are produced by independent contract printers.
In 1996 The Washington Post consumed about 240,000 tons* of newsprint
purchased from a number of suppliers, including Bowater Incorporated, which
supplied approximately 30% of The Post's 1996 newsprint requirements. About
40% of the newsprint The Post purchases from Bowater Incorporated is provided
by Bowater Mersey Paper Company Limited, 49% of the common stock of which is
owned by the Company (the majority interest being held by a subsidiary of
Bowater Incorporated). Bowater Mersey owns and operates a newsprint mill near
Halifax, Nova Scotia, and owns
- -----------------
* All references in this report to newsprint tonnage and prices refer
to short tons (2,000) and not to metric tons (2,204.6 pounds) which are often
used in newsprint price quotations.
12
<PAGE> 14
extensive woodlands that provide part of the mill's wood requirements. In 1996
Bowater Mersey produced about 260,000 tons of newsprint.
The Company, through a subsidiary, has a 35% limited partnership
interest in Bear Island Paper Company, which owns and operates a newsprint mill
in Doswell, Virginia, about 85 miles south of Washington, D.C. The general
partner, which has a 30% interest and manages the mill, is Brant-Allen
Industries, Inc., a firm experienced in the construction and operation of
similar mills; the other limited partner, also with a 35% interest, is a
subsidiary of Dow Jones & Company, Inc. The Paper Company and Bear Island
Timberlands Company, in which a subsidiary of the Company also has a 35%
limited partnership interest, own an aggregate of approximately 135,000 acres
of Virginia woodlands. These woodlands supply a portion of the wood
requirements of the Paper Company's mill. That mill produced about 240,000
tons of newsprint in 1996, and during that year The Post purchased about 20% of
its newsprint requirements from Bear Island Paper Company. Bear Island Paper
Company also owns a recycling plant that provides 20% of the pulp used by the
mill.
The announced price of newsprint (excluding discounts which increased
substantially during the year) was approximately $750 per ton throughout 1996.
The Post believes it has adequate newsprint available through contracts with
its various suppliers. About 85% of the newsprint used by The Post includes
some recycled content. The Company owns 80% of the stock of Capitol Fiber
Inc., which handles and sells to recycling industries old newspapers and other
paper collected in Washington, D.C., Maryland and northern Virginia.
In 1996 the operations of The Daily Herald Company and The Gazette
Newspapers, Inc. consumed approximately 7,800 and 12,100 tons of newsprint,
respectively, which was obtained in each case from various suppliers.
Approximately 70% of the newsprint used by The Daily Herald Company and 20% of
the newsprint used by The Gazette Newspapers, Inc. includes some recycled
content.
The domestic edition of Newsweek consumed about 33,900 tons of paper
in 1996, the bulk of which was purchased from eight major suppliers. The
current cost of body paper (the principal paper component of the magazine) is
approximately $1,000 per ton.
Over 90% of the aggregate domestic circulation of Newsweek is
delivered by second class mail, and most subscriptions are solicited by either
first- or third-class mail. Thus substantial increases in postal rates for
these classes of mail could have a significant negative impact on Newsweek's
operating income.
COMPETITION
The Washington Post competes in the Washington, D.C. metropolitan area
with The Washington Times, a newspaper which has published weekday editions
since 1982 and Saturday and Sunday editions since 1991. The Post also
encounters competition in varying degrees from newspapers published in suburban
and outlying areas, other nationally circulated newspapers, and from
television, radio, magazines and other advertising media, including direct mail
advertising. In February 1997 The New York Times launched a Washington Edition
which is printed locally and currently includes television channel listings and
weather for the Washington, D.C. area. The New York Times has been available
in retail outlets and by home delivery in the Washington, D.C. area for many
years, during which time the papers were printed at The Time's New York-area
plant and trucked to local distributors.
The Herald circulates principally in Snohomish County, Washington; its
chief competitors are the Seattle Times and the Seattle Post-Intelligencer,
which are daily and Sunday newspapers published in Seattle and whose Snohomish
County circulation is principally in the southwest portion of the county. Since
1983 the two Seattle newspapers have consolidated their business and production
operations and
13
<PAGE> 15
combined their Sunday editions pursuant to a joint operating agreement,
although they continue to publish separate daily newspapers. The Enterprise
Newspapers are distributed in south Snohomish County where their principal
competitors are the Seattle Times and The Journal Newspapers, a group of weekly
controlled-circulation newspapers. Numerous other weekly and semi-weekly
newspapers and shoppers are distributed in The Herald's and The Enterprise
Newspapers' principal circulation areas.
The circulation of The Gazette Newspapers is limited to Montgomery and
Frederick Counties and parts of Carroll County, Maryland (areas where The
Washington Post also circulates). The Gazette Newspapers compete in varying
degrees with many advertising vehicles available in their service areas,
including The Potomac and Bethesda/Chevy Chase Almanacs and The Western
Montgomery Bulletin, weekly controlled-circulation community newspapers, The
Montgomery County Sentinel, a weekly paid-circulation community newspaper, The
Montgomery County Journal, a daily paid-circulation community newspaper (which
also publishes two controlled-circulation weekly editions), and The Frederick
News-Post, a daily paid-circulation community newspaper.
On July 1, 1996, third-class postal rates were modified by the
addition of a special "enhanced carrier route" subclass which provides lower
rates for the mailing of bulk advertising. The Company believes this decrease
in postal rates applicable to bulk advertising has had an adverse impact on the
advertising revenues of The Washington Post, The Herald, The Enterprise
Newspapers and The Gazette Newspapers, although the Company is unable to
quantify the amount of such impact. However other changes in postal rates
which went into effect at the same time (principally increased second-class
discounts for carrier-route sorting and bar coding) reduced Newsweek's annual
postage costs by approximately $2.5 million.
The Company's television stations compete for audiences and
advertising revenues with television and radio stations and cable television
systems serving the same or nearby areas, with direct broadcast satellite
services and to a lesser degree with other media such as newspapers and
magazines. Both independent stations and stations affiliated with the Fox
Network, the United Paramount Network and the Warner Brothers Network are
becoming increasingly competitive, and cable television systems operate in
substantial portions of the Company's broadcast markets where they compete for
television viewing by importing out-of-market television signals and by
distributing pay-cable, advertiser-supported and other programming that is
originated for cable systems. In addition, direct broadcast satellite or "DBS"
services provide nationwide distribution of television programming (including
in some cases pay-per-view programming and programming packages unique to DBS)
using small receiving dishes and digital transmission technologies. Because
they lack a compulsory copyright license that would permit such distributions,
DBS operators are effectively prohibited from distributing the signals of any
network affiliated television station except in areas where the over-the-air
signal of the same network's local affiliate is not available. Several
lawsuits were filed in late 1996 which allege that certain DBS operators have
not been complying with this restriction; plaintiffs in one or more of these
lawsuits include the CBS and Fox television networks and various network
affiliated television stations (including one of the Company's Florida
stations.) A venture of News Corporation (the owner of the Fox television
network) and MCI recently agreed to acquire a 50% interest in an existing DBS
provider and News Corporation officials have said the combined entity intends
to offer a DBS service that will deliver the signals of local network
affiliated stations to subscribers in major U.S. markets. Earlier this venture
said it would seek changes in existing laws to permit DBS services to
distribute the signals of local network affiliated stations. Such a
development may be advantageous for the local stations included in such DBS
offerings but could increase the competition faced by local stations that are
not included. The Company's television stations may also become subject to
increased competition from low power television stations, wireless cable
services, satellite master antenna systems (which can carry pay-cable and
similar program material) and prerecorded video programming. Further, the
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<PAGE> 16
deployment of high definition and other improved television technologies may
enhance the ability of some of these other video providers to compete more
effectively for viewers with the local television broadcasting stations owned
by the Company.
Cable television systems operate in a highly competitive environment.
In addition to competing with the direct reception of television broadcast
signals by the viewer's own antenna, such systems (like existing television
stations) are subject to competition from various other forms of television
program delivery. In particular, DBS services (which are discussed in more
detail in the preceding paragraph) have been growing rapidly and are now a
significant competitive factor. The Company's cable television systems also
compete with wireless cable services in a number of their markets and may face
additional competition from such services in the future. Moreover, the
Telecommunications Act of 1996 permits telephone companies to own and operate
cable television systems in the same areas where they provide telephone
services and thus may lead to the provision of competing program delivery
services by local telephone companies.
According to figures compiled by Publishers' Information Bureau, Inc.,
of the 209 magazines reported on by the Bureau, Newsweek ranked fifth in total
advertising revenues in 1996, when it received approximately 3.4% of all
advertising revenues of the magazines included in the report. The magazine
industry is highly competitive both within itself and with other advertising
media which compete for audience and advertising revenue.
Digital Ink faces competition from many other online services as well
as from alternative methods of delivering news and information. In addition,
Internet-based and other online services are carrying increasing amounts of
advertising and over time such services could adversely affect the Company's
print publications and television broadcasting operations, all of which rely on
advertising for the majority of their revenues. Several companies are either
offering or have announced their intention to offer online services containing
information and advertising tailored for specific metropolitan areas, including
the Washington, D.C. metropolitan area. Digital Cities (an 80%-owned
subsidiary of America Online) currently produces Digital-City Washington which
can be accessed by subscribers to the AOL service and is part of AOL's
announced intention to build a network of local online sites. Both Microsoft
and Yahoo! have said they have similar goals and each may launch a Washington,
D.C.-oriented online service later in 1997. Also, in February 1997 Bell
Atlantic began commercial operation of an interactive yellow pages service on
the World Wide Web which includes information of local interest as well as a
nationwide residential white pages directory and Big Yellow,(TM) an electronic
directory of 16 million businesses across the United States.
The Company's publications and television broadcasting and cable
operations also compete for readers' and viewers' time with various other
leisure-time activities.
The future of the Company's various business activities depends on a
number of factors, including the general strength of the economy, population
growth and the level of economic activity in the particular geographic markets
it serves, the impact of technological innovations on entertainment, news and
information dissemination systems, overall advertising revenues, the relative
efficiency of publishing and broadcasting compared to other forms of
advertising and, particularly in the case of television broadcasting and cable
operations, the extent and nature of government regulations.
EXECUTIVE OFFICERS
The executive officers of the Company, each of whom is elected for a
one-year term at the meeting of the Board of Directors immediately following
the Annual Meeting of Stockholders held in May of each year, are as follows:
15
<PAGE> 17
Donald E. Graham, age 51, has been Chairman of the Board of the
Company since September 1993 and Chief Executive Officer of the Company since
May 1991. Mr. Graham served as President of the Company from May 1991 until
September 1993 and prior to that had been a Vice President of the Company for
more than five years. Mr. Graham also is Publisher of The Washington Post,
having occupied that position since 1979.
Alan G. Spoon, age 45, is President and Chief Operating Officer of the
Company. Mr. Spoon served as Executive Vice President and Chief Operating
Officer of the Company from May 1991 until September 1993 and had previously
been a Vice President of the Company since July 1987. Mr. Spoon also served as
the Company's Vice President-Finance from July 1987 until November 1989, and as
President of Newsweek, Inc. from September 1989 until May 1991.
Katharine Graham, age 79, is Chairman of the Executive Committee of
the Company's Board of Directors. Mrs. Graham previously served as Chairman of
the Board of the Company from 1973 until September 1993 and as the Company's
Chief Executive Officer from 1973 until May 1991.
Martin Cohen, age 65, is a Vice President of the Company; from 1975 to
July 1987 he served as Vice President-Finance and Treasurer of the Company.
Diana M. Daniels, age 47, has been Vice President and General Counsel
of the Company since November 1988 and Secretary of the Company since September
1991. Ms. Daniels served as General Counsel of the Company from January 1988
to November 1988 and prior to that had been Vice President and General Counsel
of Newsweek, Inc. since 1979.
Beverly R. Keil, age 50, has been Vice President-Human Resources of
the Company since 1986; from 1982 through 1985 she was the Company's Director
of Human Resources.
John B. Morse, Jr., age 50, has been Vice President-Finance of the
Company since November 1989. He joined the Company as Vice President and
Controller in July 1989, and prior to that had been a partner of Price
Waterhouse.
EMPLOYEES
The Company and its subsidiaries employ approximately 7,300 persons on
a full-time basis.
The Washington Post has approximately 2,820 full-time employees.
About 1,965 of The Post's full-time employees and about 440 part-time employees
are represented by one or another of nine unions. Collective bargaining
agreements are currently in effect with locals of the following unions covering
the full-time and part-time employees and expiring on the dates indicated:
1,267 employees in the editorial, newsroom and commercial departments
represented by the Washington-Baltimore Newspaper Guild (November 12, 1998);
135 paperhandlers and general workers represented by the Graphic Communications
Union (June 1, 2000); 43 machinists represented by the International
Association of Machinists (January 13, 2001); 50 photoengravers-platemakers
represented by the Graphic Arts International Union (February 17, 2001); 29
electricians represented by the International Brotherhood of Electrical Workers
(June 17, 2001); 114 building service employees represented by the Service
Employees International Union (April 30, 2001); 37 engineers, carpenters and
painters represented by the International Union of Operating Engineers (March
31, 2002); 378 mailers and 184 mailroom helpers represented by the Washington
Mailers' Union (June 15, 1997); and 170 typographers represented by the
Columbia Typographical Union (October 2, 2000).
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<PAGE> 18
Of the approximately 290 full-time and 140 part-time employees at The
Daily Herald Company, about 64 full-time and 16 part-time employees are
represented by one or another of three unions. The newspaper's collective
bargaining agreement with the Graphic Communications International Union, which
represents press operators, will expire on March 15, 2000. Its agreement with
the International Brotherhood of Teamsters, which represents bundle haulers,
will expire on May 31, 1998, and its agreement with the Communications Workers
of America, which represents printers and mailers, will expire on October 31,
1998.
Newsweek has approximately 840 full-time employees (including about
175 editorial employees represented by the New York Newspaper Guild under a
collective bargaining agreement which will expire in December 1998. In
September 1996 Newsweek announced that it was contracting with an outside
vendor to handle subscription fulfillment functions. As a result, employment
at Newsweek is expected to decline by approximately 90 full-time employees by
the end of the first quarter of 1997.
The Company's broadcasting operations have approximately 930 full-time
employees, of whom about 255 are union-represented. Of the ten collective
bargaining agreements covering union-represented employees, four have expired
and are being renegotiated. One other collective bargaining agreement will
expire in 1997.
The Company's Cable Television Division has approximately 1,040
full-time employees. Kaplan Educational Centers, Inc. and Score Learning
Corporation together employ approximately 730 persons on full-time basis (which
number does not include substantial numbers of part-time employees who serve in
instructional and clerical capacities). The Gazette Newspapers, Inc. has
approximately 280 full-time and 60 part-time employees. Robinson Terminal
Warehouse Corporation (the Company's newsprint warehousing and distribution
subsidiary), Legi-Slate, State Capital Strategies, Digital Ink, TechNews and
Moffet, Larson & Johnson each employ fewer than 150 persons. None of these
units' employees is represented by a union.
ITEM 2. PROPERTIES.
The Company owns the publishing plant and principal offices of The
Washington Post in downtown Washington, D.C., including both a seven-story
building in use since 1950 and a connected nine-story office building on
contiguous property completed in 1972 in which are located the Company's
principal executive offices. Additionally, the Company owns land on the corner
of 15th and L Streets, N.W., in Washington, D.C., adjacent to The Washington
Post plant and office building. This land is leased on a long-term basis to
the owner of a multi-story office building which was constructed on the site in
1982. The Company rents a number of floors in this building. The Company
also owns and occupies a small office building on L Street which is next to The
Post's downtown plant.
In 1980 the Company built a satellite printing plant on 13 acres of
land owned by the Company in Fairfax County, Virginia, and in 1981 purchased
the printing plant of the defunct Washington Star located in Southeast
Washington, D.C. In early 1996 the Company purchased a 17-acre tract of
undeveloped land in Prince George's County, Maryland, where a new printing and
distribution facility for The Post is being constructed. The Company also owns
undeveloped land near Dulles Airport in Fairfax County, Virginia (39 acres), in
Prince George's County, Maryland (34 acres), and in Montgomery County, Maryland
(10 acres).
The Herald owns its plant and office building in Everett, Washington;
it also owns two warehouses adjacent to its plant and a small office building
in Lynnwood, Washington, that is currently leased to a third party.
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The Gazette Newspapers, Inc. owns a two-story brick building that
serves as headquarters for The Gazette Newspapers and a separate two-story
brick building that houses its commercial printing business. It also owns a
one-story brick building that formerly served as its headquarters and is
currently leased to a third party. All of these properties are located in
Gaithersburg, Maryland. Satellite editorial and sales offices for The Gazette
Newspapers are located in leased premises.
The principal offices of Newsweek are located at 251 West 57th Street
in New York City, where Newsweek rents space on nine floors. The lease on this
space will expire in 2009 but is renewable for a 15-year period at Newsweek's
option at rentals to be negotiated or arbitrated. Newsweek's accounting,
production and distribution departments are located in a facility Newsweek
built in 1987 on a 16-acre tract in Mountain Lakes, New Jersey.
The headquarters offices of the Company's broadcasting operations are
located in Hartford, Connecticut, in the same facilities that house the offices
and studios of WFSB. That facility and those that house the operations of each
of the Company's other television stations are all owned by the Company.
The headquarters offices of the Cable Television Division are located
in leased premises in Phoenix, Arizona. The majority of the offices and
head-end facilities of the Division's individual cable systems are located in
buildings owned by the Company. Substantially all the tower sites used by the
Division are leased.
Robinson Terminal Warehouse Corporation owns two wharves and several
warehouses in Alexandria, Virginia. These facilities are adjacent to the
business district and occupy approximately seven acres of land. Robinson also
owns two partially developed tracts of land in Fairfax County, Virginia,
aggregating about 22 acres. These tracts are near The Washington Post's
existing satellite printing plant and include several warehouses. In 1992
Robinson purchased approximately 23 acres of undeveloped land on the Potomac
River in Charles County, Maryland, for the possible construction of additional
warehouse capacity.
Kaplan Educational Centers, Inc. owns a six-story building located at
131 West 56th Street in New York City, which serves as the Manhattan
Educational Center, and a one-story building in Brooklyn, New York, which
houses Kaplan's printing and production facilities. In January 1997 Kaplan's
headquarters offices were relocated to 888 Seventh Avenue in New York City,
where Kaplan rents space on three floors under a lease which expires in 2007.
All Kaplan educational centers outside of Manhattan and all Score Learning
Corporation facilities (including Score's headquarters offices in San
Francisco, California) occupy leased premises.
The offices of Legi-Slate and State Capital Strategies are located in
Washington, D.C. and Raleigh, North Carolina respectively; the offices of
Digital Ink and Moffet, Larson & Johnson are located in separate facilities in
Arlington, Virginia; and the offices of TechNews are located in Vienna,
Virginia. The office space for each of these units is leased.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are parties to various civil lawsuits
that have arisen in the ordinary course of their businesses, including actions
for libel and invasion of privacy. Management does not believe that any
litigation pending against the Company will have a material adverse effect on
its business or financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Class B Common Stock is traded on the New York Stock
Exchange under the symbol "WPO." The Company's Class A Common Stock is not
publicly traded.
The high and low sales prices of the Company's Class B Common Stock
during the last two years were:
<TABLE>
<CAPTION>
1996 1995
---- ----
Quarter High Low High Low
------- ---- --- ---- ----
<S> <C> <C> <C> <C>
January - March . . . . . . . . $ 300 $ 278 $ 258 $ 238
April - June . . . . . . . . . 324 277 271 255
July - September . . . . . . . 350 300 315 258
October - December . . . . . . 352 325 312 280
</TABLE>
During 1996 the Company repurchased 103,642 shares of Class B Common
Stock in unsolicited transactions at prices no higher than the last sale price
on the New York Stock Exchange. Of the total number of shares repurchased in
1996, 95,848 shares were included in trading volume reported on 1996's
consolidated tape and accounted for less than 1% of such volume.
At February 20, 1997, there were 23 holders of record of the Company's
Class A Common Stock and 1,340 holders of record of the Company's Class B
Common Stock.
Both classes of the Company's Common Stock participate equally as to
dividends. Quarterly dividends were paid at the rate of $1.15 per share during
1996 and $1.10 per share during 1995.
On February 23, 1996, the Company issued 11,947 shares of its Series A
Preferred Stock (and also agreed to issue up to an additional 1,282 shares of
such stock on February 23, 2000) to stockholders of a cable television system
in connection with the acquisition of that system by a subsidiary of the
Company. This transaction was effected in compliance with the terms and
conditions of Rule 506 of Regulation D under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1992 through 1996 contained in the
table titled "Ten-Year Summary of Selected Historic Financial Data" which is
included in this Annual Report on Form 10-K and listed in the index to
financial information on page 23 hereof (with only the information for such
years to be deemed filed as part of this Annual Report on Form 10-K).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See the information contained under the heading "Management's
Discussion and Analysis of Results of Operations and Financial Condition" which
is included in this Annual Report on Form 10-K and listed in the index to
financial information on page 23 hereof.
19
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Company's Consolidated Financial Statements at December 29,
1996, and for the periods then ended, together with the report of Price
Waterhouse LLP thereon and the information contained in Note N to said
Consolidated Financial Statements titled "Summary of Quarterly Operating
Results (Unaudited)," which are included in this Annual Report on Form 10-K and
listed in the index to financial information on page 23 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Executive Officers" in
Item 1 hereof and the information contained under the headings "Nominees for
Election by Class A Stockholders," "Nominees for Election by Class B
Stockholders" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the definitive Proxy Statement for the Company's 1997 Annual Meeting of
Stockholders is incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the headings "Compensation of
Directors," "Executive Compensation," "Retirement Plans," "Compensation
Committee Report on Executive Compensation," "Compensation Committee Interlocks
and Insider Participation," and "Performance Graph" in the definitive Proxy
Statement for the Company's 1997 Annual Meeting of Stockholders is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Stock Holdings of Certain
Beneficial Owners and Management" in the definitive Proxy Statement for the
Company's 1997 Annual Meeting of Stockholders is incorporated herein by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Transactions" in
the definitive Proxy Statement for the Company's 1997 Annual Meeting of
Stockholders is incorporated herein by reference thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(i) Financial Statements and Financial Statement Schedules
As listed in the index to financial information on
page 23 hereof.
20
<PAGE> 22
(ii) Exhibits
As listed in the index to exhibits on page 48 hereof.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, ON MARCH 20, 1997.
THE WASHINGTON POST COMPANY
(Registrant)
By John B. Morse, Jr.
-----------------------------
John B. Morse, Jr.
Vice President-Finance
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 20, 1997:
<TABLE>
<S> <C>
Donald E. Graham Chairman of the Board and Chief
Executive Office (Principal Executive
Officer) and Director
Alan G. Spoon President, Chief Operating Officer and
Director
Katharine Graham Chairman of the Executive Committee of
the Board and Director
John B. Morse, Jr. Vice President-Finance (Principal
Financial and Accounting Officer)
Warren E. Buffett Director
Daniel B. Burke Director
James E. Burke Director
Martin Cohen Director
George J. Gillespie, III Director
Ralph E. Gomory Director
Donald R. Keough Director
Barbara Scott Preiskel Director
William J. Ruane Director
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C>
Richard D. Simmons Director
George W. Wilson Director
By John B. Morse, Jr.
-----------------------------
John B. Morse, Jr.
Attorney-in-Fact
</TABLE>
An original power of attorney authorizing Donald E. Graham, Alan G.
Spoon, Katharine Graham and John B. Morse, Jr., and each of them, to sign all
reports required to be filed by the Registrant pursuant to the Securities
Exchange Act of 1934 on behalf of the above-named directors and officers has
been filed with the Securities and Exchange Commission.
22
<PAGE> 24
INDEX TO FINANCIAL INFORMATION
---------------
THE WASHINGTON POST COMPANY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements and Schedules:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Income for the Three Fiscal Years
Ended December 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Balance Sheets at December 29, 1996 and December 31, 1995 . . . . . . . . . 26
Consolidated Statements of Cash Flows for the Three Fiscal Years
Ended December 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Changes in Common Shareholders' Equity for the Three
Fiscal Years Ended December 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 30
Financial Statement Schedules for the Three Fiscal Years Ended December 29, 1996:
II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . 40
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Ten-Year Summary of Selected Historical Financial Data (Unaudited) . . . . . . . . . . . . . . . 46
</TABLE>
---------------
All other schedules have been omitted either because they are not
applicable or because the required information is included in the consolidated
financial statements or the notes thereto referred to above.
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
The Washington Post Company
In our opinion, the consolidated financial statements, including the financial
statement schedule, referred to under Item 14(a)(i) on page 20 and listed in
the index on page 23 present fairly, in all material respects, the financial
position of The Washington Post Company and its subsidiaries at December 29,
1996 and December 31, 1995, and the results of their operations and their cash
flows for each of the three fiscal years in the period ended December 29, 1996,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Washington, D.C.
January 28, 1997
24
<PAGE> 26
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Fiscal year ended
---------------------------------------
December 29, December 31, January 1,
(in thousands, except share amounts) 1996 1995 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Advertising . . . . . . . . . . . . . . . $1,172,706 $1,094,620 $1,026,672
Circulation and subscriber . . . . . . . . 490,973 453,330 438,500
Other . . . . . . . . . . . . . . . . . . 189,766 171,499 148,806
---------- ---------- ----------
1,853,445 1,719,449 1,613,978
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Operating . . . . . . . . . . . . . . . . 1,007,057 948,088 861,464
Selling, general, and administrative . . . 414,280 403,064 390,296
Depreciation and amortization of property, plant,
and equipment . . . . . . . . . . . . . 65,103 65,850 61,950
Amortization of goodwill and other intangibles 29,836 31,429 25,393
---------- ---------- ----------
1,516,276 1,448,431 1,339,103
---------- ---------- ----------
INCOME FROM OPERATIONS . . . . . . . . . . . 337,169 271,018 274,875
Equity in earnings of affiliates . . . . . 19,702 24,512 7,325
Interest income . . . . . . . . . . . . . 5,359 7,974 9,196
Interest expense . . . . . . . . . . . . . (1,514) (5,600) (5,590)
Other income (expense), net . . . . . . . (499) 13,492 1,116
---------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . 360,217 311,396 286,922
PROVISION FOR INCOME TAXES . . . . . . . . . 139,400 121,300 117,250
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . 220,817 190,096 169,672
REDEEMABLE PREFERRED STOCK DIVIDENDS . . . . (680) -- --
---------- ---------- ----------
NET INCOME AVAILABLE FOR COMMON SHARES . . . $ 220,137 $ 190,096 $ 169,672
========== ========== ==========
EARNINGS PER COMMON SHARE . . . . . . . . . . $ 20.05 $ 17.15 $ 14.65
========== ========== ==========
</TABLE>
The information on pages 30 through 39 is an integral part of the financial
statements.
25
<PAGE> 27
Consolidated Balance Sheets
================================================================================
<TABLE>
<CAPTION>
December 29, December 31,
(in thousands, except share amounts) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 102,278 $ 146,901
Investments in marketable debt securities . . . . . . . . . . . -- 12,756
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 233,063 200,698
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 24,427 26,766
Other current assets . . . . . . . . . . . . . . . . . . . . . . 22,863 19,449
---------- ----------
382,631 406,570
INVESTMENTS IN AFFILIATES . . . . . . . . . . . . . . . . . . . . 199,278 189,053
PROPERTY, PLANT, AND EQUIPMENT
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,527 190,543
Machinery, equipment, and fixtures . . . . . . . . . . . . . . . 768,509 664,403
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 28,883 33,805
---------- ----------
985,919 888,751
Less accumulated depreciation and amortization . . . . . . . . . (594,195) (535,691)
---------- ----------
391,724 353,060
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,332 32,513
Construction in progress . . . . . . . . . . . . . . . . . . . . 85,307 71,786
---------- ----------
511,363 457,359
GOODWILL AND OTHER INTANGIBLES, less accumulated amortization of
$207,768 and $177,932 . . . . . . . . . . . . . . . . . . . . . 544,349 472,291
DEFERRED CHARGES AND OTHER ASSETS . . . . . . . . . . . . . . . . 232,790 207,620
---------- ----------
$1,870,411 $1,732,893
========== ==========
</TABLE>
The information on pages 30 through 39 is an integral part of the financial
statements.
26
<PAGE> 28
<TABLE>
<CAPTION>
December 29, December 31,
(in thousands, except share amounts) 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 194,186 $ 172,004
Federal and state income taxes . . . . . . . . . . . . . . . . . . . . 5,381 3,494
Deferred subscription revenue . . . . . . . . . . . . . . . . . . . . . 82,069 82,457
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . -- 50,222
---------- ----------
281,636 308,177
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,878 205,869
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,147 34,643
---------- ----------
535,661 548,689
---------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, Series A, $1 par value, with a redemption and
liquidation value of $1,000 per share; 23,000 shares authorized; 11,947
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . 11,947 --
PREFERRED STOCK, $1 par value; 977,000 shares authorized . . . . . . . . . -- --
COMMON SHAREHOLDERS' EQUITY
Common stock
Class A common stock, $1 par value; 7,000,000 shares
authorized; 1,779,250 and 1,804,250 shares
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . 1,779 1,804
Class B common stock, $1 par value; 40,000,000 shares
authorized; 18,220,750 and 18,195,750 shares
issued; 9,131,165 and 9,201,163 shares outstanding . . . . . . . . 18,221 18,196
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 26,455 24,941
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,002,359 1,832,706
Cumulative foreign currency translation adjustment . . . . . . . . . . 4,663 5,537
Unrealized gain on available-for-sale securities (net of taxes) . . . . 3,155 3,224
Cost of 9,089,585 and 8,994,587 shares of Class B
common stock held in treasury . . . . . . . . . . . . . . . . . . (733,829) (702,204)
---------- ----------
1,322,803 1,184,204
---------- ----------
$1,870,411 $1,732,893
========== ==========
</TABLE>
The information on pages 30 through 39 is an integral part of the financial
statements.
27
<PAGE> 29
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
Fiscal year ended
----------------------------------------
December 29, December 31, January 1,
(in thousands) 1996 1995 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220,817 $ 190,096 $ 169,672
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property,
plant, and equipment . . . . . . . . . . . . . . . . . . . . . 65,103 65,850 61,950
Amortization of goodwill and other intangibles . . . . . . . . . 29,836 31,429 25,393
Gain from disposition of businesses, net . . . . . . . . . . . . (3,112) (1,341) --
Equity in earnings of affiliates, net of distributions . . . . . (11,099) (18,090) (4,333)
Provision for deferred income taxes . . . . . . . . . . . . . . . (4,273) 5,408 (6,882)
Change in assets and liabilities:
(Increase) in accounts receivable, net . . . . . . . . . . . . (31,444) (25,579) (34,543)
Decrease (increase) in inventories . . . . . . . . . . . . . . 2,339 (6,388) (3,959)
Increase (decrease) in accounts payable and
accrued liabilities . . . . . . . . . . . . . . . . . . . . 26,923 (15,507) 17,376
Increase (decrease) in income taxes payable . . . . . . . . . 1,887 (3,099) (9,133)
(Increase) decrease in other assets and other liabilities, net (19,635) 13,074 (20,192)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,093 10,605 9,110
---------- ---------- ----------
Net cash provided by operating activities . . . . . . . . . . 287,435 246,458 204,459
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of businesses . . . . . . . . . . . . . . . . . 3,517 32,743 --
Purchases of property, plant, and equipment . . . . . . . . . . . . . . (79,981) (121,697) (74,642)
Purchases of marketable debt securities . . . . . . . . . . . . . . . . -- (55,649) (38,994)
Maturities and sales of marketable debt securities . . . . . . . . . . 12,821 67,453 274,776
Investments in certain businesses . . . . . . . . . . . . . . . . . . . (147,471) (1,757) (281,937)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 784 552 (1,124)
---------- ---------- ----------
Net cash used in investing activities . . . . . . . . . . . . (210,330) (78,355) (121,921)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt . . . . . . . . . . . . . . . . . . . . . . (50,209) -- (1,400)
Issuance of redeemable preferred stock . . . . . . . . . . . . . . . . 11,947 -- --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51,164) (48,887) (48,721)
Common shares repurchased . . . . . . . . . . . . . . . . . . . . . . . (32,302) (89,584) (86,660)
---------- ---------- ----------
Net cash used in financing activities . . . . . . . . . . . . (121,728) (138,471) (136,781)
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (44,623) 29,632 (54,243)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . 146,901 117,269 171,512
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . $ 102,278 $ 146,901 $ 117,269
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 142,000 $ 122,000 $ 134,700
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,115 $ 5,102 $ 5,200
</TABLE>
The information on pages 30 through 39 is an integral part of the financial
statements.
28
<PAGE> 30
Consolidated Statements of Changes
in Common Shareholders' Equity
================================================================================
<TABLE>
<CAPTION>
Cumulative Unrealized
Foreign Gain on
Class A Class B Capital in Currency Available-
Common Common Excess of Retained Translation for-Sale Treasury
(in thousands, except share amounts) Stock Stock Par Value Earnings Adjustment Securities Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 2, 1994 . . . . . . . . . . . . $1,843 $18,157 $21,354 $1,570,546 $2,908 $ -- $(527,389)
Net income for the year . . . . . . . . . . 169,672
Dividends paid on common stock --
$4.20 per share . . . . . . . . . . . . . (48,721)
Repurchase of 366,500 shares of
Class B common stock . . . . . . . . . . (86,660)
Restricted stock award forfeitures of 811
shares, net of issuance of Class B common
stock . . . . . . . . . . . . . . . . . . (130) (49)
Change in foreign currency translation
adjustment . . . . . . . . . . . . . . . 2,420
Unrealized gain on available-for-sale
securities (net of taxes) . . . . . . . . 2,933
Other . . . . . . . . . . . . . . . . . . . 49
------ ------- ------- ---------- ------ --------- ---------
BALANCE JANUARY 1, 1995 . . . . . . . . . . . . 1,843 18,157 21,273 1,691,497 5,328 2,933 (614,098)
Net income for the year . . . . . . . . . . 190,096
Dividends paid on common stock --
$4.40 per share . . . . . . . . . . . . . (48,887)
Repurchase of 361,106 shares of
Class B common stock . . . . . . . . . . (89,584)
Issuance of 20,465 shares of Class B common
stock, net of restricted stock award
forfeitures. . . . . . . . . . . . . . . . 3,403 1,478
Change in foreign currency translation
adjustment . . . . . . . . . . . . . . . 209
Unrealized gain on available-for-sale
securities (net of taxes) . . . . . . . . 291
Conversion of Class A common
stock to Class B common stock . . . . . . (39) 39
Other . . . . . . . . . . . . . . . . . . . 265
------ ------- ------- ---------- ------ --------- ---------
BALANCE DECEMBER 31, 1995 . . . . . . . . . . . 1,804 18,196 24,941 1,832,706 5,537 3,224 (702,204)
Net income for the year . . . . . . . . . . 220,817
Dividends paid on common stock --
$4.60 per share . . . . . . . . . . . . . (50,484)
Dividends paid on redeemable preferred stock (680)
Repurchase of 103,642 shares of
Class B common stock . . . . . . . . . . (32,302)
Issuance of 8,644 shares of Class B common
stock, net of restricted stock award
forfeitures. . . . . . . . . . . . . . . . 1,173 677
Change in foreign currency translation
adjustment . . . . . . . . . . . . . . . (874)
Unrealized gain on available-for-sale
securities (net of taxes) . . . . . . . . (69)
Conversion of Class A common
stock to Class B common stock . . . . . . (25) 25
Other . . . . . . . . . . . . . . . . . . . 341
------ ------- ------- ---------- ------ --------- ---------
BALANCE DECEMBER 29, 1996 . . . . . . . . . . . $1,779 $18,221 $26,455 $2,002,359 $4,663 $ 3,155 $(733,829)
====== ======= ======= ========== ====== ========= =========
</TABLE>
The information on pages 30 through 39 is an integral part of the financial
statements.
29
<PAGE> 31
Notes to Consolidated Financial Statements
================================================================================
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Washington Post Company (the company) operates principally in four areas of
the media business: newspaper publishing, television broadcasting, magazine
publishing, and cable television. Segment data is set forth in Note M.
FISCAL YEAR. The company reports on a 52-53 week fiscal year ending on the
Sunday nearest December 31. The fiscal years 1996, 1995, and 1994, which ended
December 29, 1996, December 31, 1995, and January 1, 1995, respectively,
included 52 weeks. With the exception of the newspaper publishing operations,
subsidiaries of the company report on a calendar-year basis.
PRINCIPLES OF CONSOLIDATION. The accompanying financial statements include the
accounts of the company and its subsidiaries; significant intercompany
transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements.
Actual results could differ from those estimates.
CASH EQUIVALENTS. Short-term investments with original maturities of 90 days or
less are considered cash equivalents. The carrying amount reported approximates
fair value.
INVESTMENTS IN MARKETABLE SECURITIES. Marketable securities held to maturity
consist of debt instruments that mature over 90 days from the purchase date and
are stated at cost plus accrued interest, which approximates fair value. At
December 31, 1995, the company's investments in marketable debt securities
consisted of U.S. Government and Government Agency obligations. Other
investments in marketable equity securities available for sale are classified
in "Deferred charges and other assets" in the Consolidated Balance Sheets.
Unrealized gains or losses (net of taxes) relating to such investments are
reported separately in the "Unrealized gain on available-for-sale securities
(net of taxes)" in the Consolidated Balance Sheets.
INVENTORIES. Inventories are valued at the lower of cost or market. Cost of
newsprint is determined by the first-in, first-out method, and cost of magazine
paper is determined by the specific-cost method.
INVESTMENTS IN AFFILIATES. The company uses the equity method of accounting for
its investments in and earnings or losses of affiliates.
PROPERTY, PLANT, AND EQUIPMENT. Property, plant, and equipment is recorded at
cost and includes interest capitalized in connection with major long-term
construction projects. Replacements and major improvements are capitalized;
maintenance and repairs are charged to operations as incurred.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the property, plant, and equipment: 3 to 12 years for
machinery and equipment, 20 to 50 years for buildings, and 5 to 20 years for
land improvements. The costs of leasehold improvements are amortized over the
lesser of the useful lives or the terms of the respective leases.
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles represent the
unamortized excess of the cost of acquiring subsidiary companies over the fair
values of such companies' net tangible assets at the dates of acquisition.
Goodwill and other intangibles are being amortized by use of the straight-line
method over various periods up to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS. Effective January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
FAS 121 requires that long-lived assets and certain identifiable intangibles,
including goodwill, to be held and used by an entity, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Upon adoption of this
standard, the company evaluated its long-lived assets using projected
undiscounted future cash flows and operating income for each subsidiary and
determined that no material impairment of these assets existed at January 1,
1996, and, accordingly, no loss was recognized. The company believes that no
material impairment existed at December 29, 1996.
PROGRAM RIGHTS. The broadcast subsidiaries are parties to agreements that
entitle them to show syndicated and other programs on television. The cost of
such program rights is recognized as the gross amount of the related liability
when the programs are available for broadcasting. The cost is charged to
operations using accelerated and straight-line rates that appropriately match
the cost of programming with associated revenues. The unamortized cost of such
rights and the liability for future payments under these agreements are
included in the Consolidated Balance Sheets.
DEFERRED SUBSCRIPTION REVENUE AND MAGAZINE SUBSCRIPTION PROCUREMENT COSTS.
Deferred subscription revenue, which primarily represents amounts received from
customers in advance of magazine and newspaper deliveries, is included in
revenues over the subscription term. Deferred subscription revenue to be
earned after one year is included in "Other liabilities" in the Consolidated
Balance Sheets. Subscription procurement costs are charged to operations as
incurred.
INCOME TAXES. The provision for income taxes is determined in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires the use of the asset and liability approach. Under this
approach, deferred taxes represent the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities.
FOREIGN CURRENCY TRANSLATION. Gains and losses on foreign currency transactions
and the translation of the accounts of the company's foreign operations where
the U.S. dollar is the func-
30
<PAGE> 32
tional currency are recognized currently in the Consolidated Statements of
Income. Gains and losses on translation of the accounts of the company's
foreign operations where the local currency is the functional currency and the
company's equity investments in its foreign affiliates are accumulated and
reported separately in the "Cumulative foreign currency translation adjustment"
in the Consolidated Balance Sheets.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The company provides certain
health care and life insurance benefits for retired employees. The expected
cost of providing these postretirement benefits is accrued over the years that
employees render services.
STOCK-BASED COMPENSATION. Effective January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting for
Stock-Based Compensation." In accordance with the standard, the company has
elected to continue to measure compensation expense for its stock option plan
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"; accordingly, the
company does not recognize compensation expense for its stock option plan. 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 are provided in Note G.
B. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts receivable at December 29, 1996, and December 31, 1995, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Accounts receivable, less estimated
returns, doubtful accounts
and allowances of $48,388
and $41,964 . . . . . . . . . . . $220,168 $188,845
Other . . . . . . . . . . . . . . . . 12,895 11,853
-------- --------
$233,063 $200,698
======== ========
</TABLE>
Accounts payable and accrued liabilities at December 29, 1996, and
December 31, 1995, consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Accounts payable and accrued
expenses . . . . . . . . . . . . . $121,485 $ 97,520
Accrued payroll and related benefits 41,083 40,781
Accrued interest expense . . . . . . -- 4,232
Deferred tuition revenue . . . . . . 18,299 15,862
Due to affiliates (newsprint) . . . . 13,319 13,609
-------- --------
$194,186 $172,004
======== ========
</TABLE>
C. INVESTMENTS IN AFFILIATES
The company's investments in affiliates at December 29, 1996, and December 31,
1995, include the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Cowles Media Company . . . . . . . . . $ 86,087 $ 83,097
Newsprint mills . . . . . . . . . . . . 87,122 77,018
Other . . . . . . . . . . . . . . . . . 26,069 28,938
-------- --------
$199,278 $189,053
======== ========
</TABLE>
The company's investments in affiliates include a 28 percent interest in
the stock of Cowles Media Company, which owns and operates the Minneapolis Star
Tribune and several other smaller properties.
The company's interest in newsprint mills includes a 49 percent interest
in the common stock of Bowater Mersey Paper Company Limited, which owns and
operates a newsprint mill in Nova Scotia and 35 percent limited partnership
interests in both Bear Island Paper Company, which owns and operates a
newsprint mill near Richmond, Virginia, and Bear Island Timberlands Company,
which owns timberland and supplies Bear Island Paper Company with a major
portion of its wood requirements. Operating costs and expenses of the company
include newsprint supplied by Bowater, Inc. (parent to Bowater Mersey Paper
Company), and Bear Island Paper Company, the cost of which was approximately
$67,200,000 in 1996, $73,600,000 in 1995, and $53,200,000 in 1994.
The company's other investments represent a 50 percent common stock
interest in the International Herald Tribune newspaper, published near Paris,
France, and a 50 percent common stock interest in the Los Angeles
Times-Washington Post News Service, Inc.
Summarized financial data for the affiliates' operations are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
FINANCIAL POSITION
Working capital . . . $(31,042) $(82,505) $(125,667)
Property, plant, and
equipment . . . . 411,644 415,874 407,235
Total assets . . . . 788,024 791,748 749,165
Long-term debt . . . 158,999 165,284 180,988
Net equity . . . . . 304,828 265,918 213,484
RESULTS OF OPERATIONS
Operating revenues . $918,148 $904,482 $ 766,232
Operating income . . 115,738 120,843 46,741
Net income . . . . . 68,918 69,070 29,235
</TABLE>
31
<PAGE> 33
The following table summarizes the status and results of the company's
investments in affiliates (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Beginning investment . . . . . $189,053 $170,754
Equity in earnings . . . . . . 19,702 24,512
Dividends and distributions
received . . . . . . . . . (8,603) (6,422)
Foreign currency translation . (874) 209
-------- --------
Ending investment . . . . . . . $199,278 $189,053
======== ========
</TABLE>
At December 29, 1996, the unamortized excess of the company's investments
over its equity in the underlying net assets of its affiliates at the dates of
acquisition was approximately $78,500,000. Amortization included in "Equity in
earnings of affiliates" in the Consolidated Statements of Income was
approximately $2,600,000 for the years ended December 29, 1996, December 31,
1995, and January 1, 1995.
D. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Current Deferred
- ---------------------------------------------------------
<S> <C> <C>
1996
U.S. Federal . . . . . . . . . $ 120,612 $ (3,575)
Foreign . . . . . . . . . . . . 718 598
State and local . . . . . . . . 22,343 (1,296)
---------- --------
$ 143,673 $ (4,273)
========== ========
1995
U.S. Federal . . . . . . . . . $ 96,630 $ 3,525
Foreign . . . . . . . . . . . . 608 1,215
State and local . . . . . . . . 18,654 668
---------- --------
$ 115,892 $ 5,408
========== ========
1994
U.S. Federal . . . . . . . . . $ 103,182 $ (6,356)
Foreign . . . . . . . . . . . . 509 323
State and local . . . . . . . . 20,441 (849)
---------- --------
$ 124,132 $ (6,882)
========== ========
</TABLE>
The provision for income taxes exceeds the amount of income tax determined
by applying the U.S. Federal statutory rate of 35 percent to income before
taxes as a result of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory
taxes . . . . . . . . . $126,076 $108,989 $100,423
State and local taxes
net of U.S. Federal
income tax benefit . . 13,681 12,559 12,735
Amortization of goodwill
not deductible for
income tax purposes . . 2,336 2,373 3,146
Other, net . . . . . . . . (2,693) (2,621) 946
-------- -------- --------
Provision for income
taxes . . . . . . . . . $139,400 $121,300 $117,250
======== ======== ========
</TABLE>
Deferred income taxes at December 29, 1996, December 31, 1995, and January
1, 1995, consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Accrued postretirement
benefits . . . . . . . . $ 49,363 $ 47,167 $ 45,568
Other benefit obligations . 26,634 20,963 22,903
Accounts receivable . . . . 8,399 6,765 6,559
Other . . . . . . . . . . . 12,373 9,134 7,664
-------- -------- --------
Deferred tax asset . . . . 96,769 84,029 82,694
-------- -------- --------
Property, plant, and
equipment . . . . . . . 39,248 42,159 44,250
Prepaid pension cost . . . 65,300 55,574 48,732
Affiliate operations . . . 14,977 14,165 12,671
Investment tax credit . . . 1,589 2,301 3,013
Other . . . . . . . . . . . 5,802 4,473 3,132
-------- -------- --------
Deferred tax liability . . 126,916 118,672 111,798
-------- -------- --------
Deferred income taxes . . . $ 30,147 $ 34,643 $ 29,104
======== ======== ========
</TABLE>
E. DEBT
As of December 31, 1995, the company held long-term debt totaling $50,222,000,
which consisted of unsecured European Currency Unit notes bearing interest at
10.1 percent. The company retired the notes in the first quarter of 1996.
In 1996 the company established a five-year, $300,000,000 revolving credit
facility to provide for direct borrowings and also support the issuance of
short-term promissory notes. Under the terms of the credit agreement, interest
on borrowings is at floating rates, and the company is required to pay a
32
<PAGE> 34
facility fee on used and unused portions of the facility. The agreement also
contains certain covenants, including a financial covenant that requires the
company to maintain common shareholders' equity of $850,000,000. At December
29, 1996, there were no borrowings outstanding under the facility, and the
company was in compliance with all covenants.
F. REDEEMABLE PREFERRED STOCK
In connection with the acquisition of a cable television system during the
first quarter of 1996, the company issued 11,947 shares of its Series A
Preferred Stock and agreed to issue an additional 1,282 shares of such stock on
February 23, 2000 (which additional number of shares is subject to reduction in
the event of any breach of the representations and warranties made by the
seller in the acquisition agreement).
The Series A Preferred Stock has a par value of $1.00 per share and a
liquidation preference of $1,000 per share; it is redeemable by the company at
any time on or after October 1, 2015, at a redemption price of $1,000 per
share. In addition, the 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. Dividends on the Series A Preferred Stock are payable four times a year
at the annual rate of $80.00 per share in preference to any dividends on the
company's common stock. The Series A Preferred Stock is not convertible into
any other security of the company, and the holders thereof have no voting
rights except with respect to any proposed changes in the preferences and
special rights of such stock.
G. CAPITAL STOCK, STOCK AWARDS AND STOCK OPTIONS
CAPITAL STOCK. Each share of Class A common stock and Class B common stock
participates equally in dividends. The Class B stock has limited voting rights
and as a class has the right to elect 30 percent of the Board of Directors; the
Class A stock has unlimited voting rights including the right to elect a
majority of the Board of Directors.
During 1996, 1995, and 1994 the company purchased a total of 103,642,
361,106, and 366,500 shares, respectively, of its Class B common stock at a
cost of approximately $32,302,000, $89,584,000, and $86,660,000.
STOCK AWARDS. In 1982 the company adopted a Long-Term Incentive Compensation
Plan that, among other provisions, authorizes the awarding of stock to key
employees. Stock awards made under the Incentive Compensation Plan are subject
to the general restriction that stock awarded to a participant will be
forfeited and revert to company ownership if the participant's employment
terminates before the end of a specified period of service to the company. At
December 29, 1996, there were 124,410 shares reserved for issuance under the
Incentive Compensation Plan. Of this number, 30,490 shares were subject to
awards outstanding, and 93,920 shares were available for future awards.
Activity related to stock awards for the years ended December 29, 1996, and
December 31, 1995, was as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- ----------------
Number Average Number Average
of Award of Award
Shares Price Shares Price
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
AWARDS OUTSTANDING
Beginning of year . . 31,378 $237.85 26,860 $214.79
Awarded . . . . . 64 313.88 17,753 244.90
Vested . . . . . -- -- (12,472) 198.50
Forfeited . . . . (952) 243.61 (763) 233.23
------ -------
End of year . . . . . 30,490 $237.83 31,378 $237.85
====== =======
</TABLE>
For the share awards outstanding at December 29, 1996, the
aforementioned restriction will lapse in January 1997 for 13,521 shares and in
January 1999 for 16,969 shares.
STOCK OPTIONS. The Employee Stock Option Plan, which was adopted in 1971 and
amended in 1993, reserves 1,900,000 shares of the company's Class B common
stock for options to be granted under the plan. The purchase price of the
shares covered by an option cannot be less than the fair value on the granting
date. At December 29, 1996, there were 650,075 shares reserved for issuance
under the Stock Option Plan, of which 178,625 shares were subject to options
outstanding and 471,450 shares were available for future grants.
Changes in options outstanding for the years ended December 29, 1996,
and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- -----------------
Number Average Number Average
of Option of Option
Shares Price Shares Price
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of year . 168,525 $258.59 164,500 $255.35
Granted . . . 19,500 343.94 9,000 298.75
Exercised . . (9,400) 214.89 (3,475) 204.81
Canceled . . -- -- (1,500) 268.50
------- -------
End of year . . . . 178,625 $270.21 168,525 $258.59
======= =======
</TABLE>
Of the shares covered by options outstanding at the end of 1996,
93,500 are now exercisable, 13,000 will become exercisable in 1997, 10,125 will
become exercisable in 1998, 57,125 will become exercisable in 1999, and, 4,875
will become exercisable in 2000.
33
<PAGE> 35
At December 29, 1996, options were outstanding at prices ranging from
$173.00 to $343.94 with a weighted-average remaining contractual life of
approximately 6 years. All options were granted at an exercise price equal to
or greater than the fair market value of the company's common stock at the date
of grant. The weighted-average fair value at date of grant for options granted
during 1996 and 1995 was $96.53 and $77.12 per option, respectively. The fair
value of options at date of grant was estimated using the Black-Scholes method
with the following assumptions:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Expected life (years) . . . . . . . . 7 7
Interest rate . . . . . . . . . . . . 6.26% 5.61%
Volatility . . . . . . . . . . . . . 14.6% 14.3%
Dividend yield . . . . . . . . . . . 1.5% 1.5%
</TABLE>
Stock-based compensation costs resulting from stock awards reduced
pretax income by $1.9 million ($1.1 million after tax or $0.10 per share) and
$1.8 million ($1.1 million after tax or $0.10 per share) in 1996 and 1995,
respectively. Had the fair values of options granted in 1996 and 1995 been
recognized as compensation expense, stock-based compensation costs would have
been increased by $0.6 million ($0.4 million after tax or $0.04 per share) and
$0.2 million ($0.1 million after tax or $0.01 per share) in 1996 and 1995,
respectively. The pro forma effect on net income for 1996 and 1995 is not
representative of the pro forma effect on net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
AVERAGE NUMBER OF SHARES OUTSTANDING. Earnings per share are based on the
weighted average number of shares of common stock outstanding during each year,
adjusted for the dilutive effect of shares issuable under outstanding stock
options, and awards made under the Incentive Compensation Plan. The average
number of shares outstanding was 10,980,000 for 1996, 11,086,000 for 1995, and
11,582,000 for 1994.
H. RETIREMENT PLANS
The company and its subsidiaries have various funded and unfunded pension and
incentive savings plans and in addition contribute to several multi-employer
plans on behalf of certain union-represented employee groups. Substantially all
of the company's employees, including some located in foreign countries, are
covered by these plans. Pension benefit for all retirement plans combined was
$3,900,000 in 1996, $600,000 in 1995, and $1,600,000 in 1994.
The costs for the company's defined benefit pension plans are
actuarially determined and include amortization of prior service costs over
various periods, generally not exceeding 20 years. The company's policy is to
fund the costs accrued for its defined benefit plans.
The following table sets forth the funded status of the defined
benefit plans and amounts recognized in "Deferred charges and other assets" in
the Consolidated Balance Sheets at December 29, 1996, and December 31, 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
plan benefits, including
vested benefits of $212,158
and $179,123 . . . . . . . . . . . . . . . . . . $219,154 $183,573
======== ========
Plan assets at fair value, primarily
listed securities . . . . . . . . . . . . . . . $731,999 $610,560
Projected benefit obligation for
service rendered to date . . . . . . . . . . . . (261,266) (227,793)
-------- --------
Plan assets in excess of projected
benefit obligation . . . . . . . . . . . . . . . 470,733 382,767
Prior service cost not yet recognized in
periodic pension cost . . . . . . . . . . . . . 15,987 12,185
Less unrecognized net gain from past
experience different from that
assumed . . . . . . . . . . . . . . . . . . . . (277,049) (201,024)
Less unrecognized net asset
(transition amount) being
recognized over approximately
17 years . . . . . . . . . . . . . . . . . . . . (45,937) (53,602)
-------- --------
Prepaid pension cost . . . . . . . . . . . . . . . $163,734 $140,326
======== ========
</TABLE>
The net pension credit for the years ended December 29, 1996, December
31, 1995, and January 1, 1995, includes the following components (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the
period . . . . . . . . . $ 10,373 $ 10,623 $ 9,117
Interest cost on projected
benefit obligation . . . 17,741 15,430 14,022
Actual return on plan
assets . . . . . . . . . (129,756) (162,253) (7,211)
Net amortization and
deferral . . . . . . . . 78,373 116,812 (36,751)
--------- --------- --------
Net pension credit . . . . $ (23,269) $ (19,388) $(20,823)
========= ========= ========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used for 1996, 1995, and 1994 in determining the actuarial
present value of the projected benefit obligation were 7.5 percent and 4
percent, respectively. The expected long-term rate of return on assets was 9
percent in 1996, 1995, and 1994.
34
<PAGE> 36
Contributions to multi-employer pension plans, which are generally based
on hours worked, amounted to $1,700,000 in 1996, $1,800,000 in 1995, and
$1,700,000 in 1994.
The costs of unfunded retirement plans are charged to expense when
accrued. The company's liability for such plans, which is included in "Other
liabilities" in the Consolidated Balance Sheets, was $51,600,000 at December
29, 1996, and $50,700,000 at December 31, 1995.
I. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The company and its subsidiaries provide health care and life insurance
benefits to certain retired employees. These employees become eligible for
benefits after meeting minimum age and service requirements.
The following table sets forth the amounts included in "Other
liabilities" in the Consolidated Balance Sheets at December 29, 1996, and
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees . . . . . . . . . . . . . . . . $ 49,806 $ 48,178
Fully eligible active plan
participants . . . . . . . . . . . . 7,828 7,356
Other active plan participants . . . . 36,125 33,538
-------- --------
93,759 89,072
Unrecognized prior service costs arising
from plan amendments . . . . . . . . . 4,123 3,017
Unrecognized net gain from past
experience different from that
assumed . . . . . . . . . . . . . . . 15,911 17,268
-------- --------
Accrued postretirement benefit cost . . . $113,793 $109,357
======== ========
</TABLE>
Net periodic postretirement benefit cost for 1996, 1995, and 1994
includes the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits
earned during the
period . . . . . . . . . $2,939 $ 2,719 $ 3,373
Interest cost on accumulated
post-retirement benefit
obligation . . . . . . . 6,546 6,515 7,419
Amortization of prior
service costs . . . . . . (290) (290) (214)
Amortization of gains . . . . (909) (1,296) --
------ ------- -------
Net periodic postretirement
benefit cost . . . . . . $8,286 $ 7,648 $10,578
====== ======= =======
</TABLE>
For 1996 and 1995 the accumulated postretirement benefit obligation
was determined using a discount rate of 7.5 percent and health care cost trend
rates of approximately 11.4 percent to 12 percent for pre-age-65 benefits,
decreasing to 5.5 percent in the year 2015 and thereafter; and rates of
approximately 10.8 percent to 11.4 percent for post-age-65 benefits, decreasing
to 5.5 percent in the year 2015 and thereafter. For 1994 the accumulated
postretirement benefit obligation was determined using a discount rate of 8
percent and a health care cost trend rate of approximately 14 percent for
pre-age-65 benefits, decreasing to 6.5 percent in the year 2022 and thereafter;
and rates of approximately 11 to 14 percent for post-age-65 benefits,
decreasing to 6.5 percent in the year 2022 and thereafter.
The effect on the accumulated postretirement benefit obligation at
December 29, 1996, of a 1 percent increase each year in the health care cost
trend rate used would result in increases of approximately $11,900,000 in the
obligation and $1,300,000 in the aggregate service and interest components of
the 1996 expense.
The company's policy is to fund the above-mentioned benefits as claims
and premiums are paid. The cash expenditures for postretirement benefits were
$3,850,000 in 1996, $2,980,000 in 1995, and $3,262,000 in 1994.
J. LEASE AND OTHER COMMITMENTS
The company leases primarily real property under operating agreements. Many of
the leases contain renewal options and escalation clauses that require payments
of additional rent to the extent of increases in the related operating costs.
At December 29, 1996, future minimum rental payments under
noncancelable operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . $ 20,918
1998 . . . . . . . . . . . . . . . . . . . 18,130
1999 . . . . . . . . . . . . . . . . . . . 15,533
2000 . . . . . . . . . . . . . . . . . . . 13,089
2001 . . . . . . . . . . . . . . . . . . . 9,703
Thereafter . . . . . . . . . . . . . . . . 42,865
--------
$120,238
========
</TABLE>
Minimum payments have not been reduced by minimum sublease rentals of
$3,800,000 due in the future under noncancelable subleases.
Rent expense under operating leases included in operating costs and
expenses was approximately $24,900,000 in 1996, $22,900,000 in 1995, and
$22,600,000 in 1994. Sublease income was approximately $800,000 in 1996,
$1,600,000 in 1995, and $1,500,000 in 1994.
The company's broadcast subsidiaries are parties to certain agreements
that commit them to purchase programming to be produced in future years. At
December 29, 1996 such
35
<PAGE> 37
commitments amounted to approximately $62,400,000. If such programs are not
produced, the company's commitment would expire without obligation.
In conjunction with the construction of new newspaper production
facilities in the Washington, D.C., area, the company has entered into certain
commitments to purchase plant and equipment. As of December 29, 1996, the open
commitments relating to this project were approximately $140,000,000. The
company expects this project to be completed in late 1998.
K. ACQUISITIONS AND DISPOSITIONS
During 1996 the company expended approximately $147,471,000 for 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.
In April 1994 the company acquired substantially all of the assets
comprising the businesses of television stations KPRC-TV, the NBC affiliate in
Houston, Texas, and KSAT-TV, the ABC affiliate in San Antonio, Texas, for
approximately $253,000,000 in cash, including related expenses.
All acquisitions discussed above were accounted for using the purchase
method and, accordingly, the assets and liabilities of the companies acquired
have been recorded at their estimated fair values at the date of acquisition.
The excess of the cost over the fair value of net assets acquired is being
amortized over periods from 15 to 20 years. Pro forma results of operations,
assuming these acquisitions were made at the beginning of the year in which the
transactions were consummated, are not materially different from reported
results of operations.
In January 1995 the company sold substantially all of its 70 percent
limited partnership interest in American Personal Communications (APC) to its
partner, APC, Inc., and others, for approximately $33,000,000. The proceeds
approximate the amounts the company had cumulatively invested in the
partnership since it was formed in August 1990. The resulting gain, which is
included in "Other income (expense), net" in the Consolidated Statements of
Income, increased 1995 net income by $8.4 million and earnings per share by
$0.75.
In September 1995 the company wrote off its remaining investment in
Mammoth Micro Productions, a producer and publisher of multimedia CD-ROM
titles, originally acquired in 1994 for approximately $23,000,000. The loss
resulting from the write-off, which is included in "Operating costs and
expenses" in the Consolidated Statements of Income, decreased 1995 net income
by $5.6 million and earnings per share by $0.51.
In early 1997 the company purchased a cable system serving about
15,000 subscribers for approximately $22,000,000.
L. CONTINGENCIES
The company and its subsidiaries are parties to various civil lawsuits that
have arisen in the ordinary course of their businesses, including actions
for libel and invasion of privacy. Management does not believe that any
litigation pending against the company will have a material adverse effect on
its business or financial condition.
M. BUSINESS SEGMENTS
The company operates principally in four areas of the media business: newspaper
publishing, television broadcasting, magazine publishing, and cable
television.
Newspaper operations involve the publication of newspapers in the
Washington, D.C., area and Everett, Washington, and newsprint warehousing and
recycling facilities.
Broadcast operations are conducted primarily through six VHF
television stations. All stations are network-affiliated, with revenues derived
primarily from sales of advertising time.
Magazine operations consist of the publication of a weekly news
magazine, Newsweek, which has one domestic and three international editions.
Revenues from both newspaper and magazine publishing operations are derived
from advertising and, to a lesser extent, from circulation.
Cable television operations consist of over 50 cable systems offering
basic cable and pay television services to more than 594,000 subscribers in 16
midwestern, western, and southern states. The principal source of revenues is
monthly subscription fees charged for services.
Other businesses include the operations of educational centers engaged
in preparing students for admissions tests and licensing examinations and
offering academic enrichment programs, an engineering firm which provides
services to the telecommunications industry, a regional sports cable system, an
online information service devoted to federal and state legislation and
regulations, a digital media and electronic information services provider, and
a publisher of business periodicals for the computer services industry and the
Washington-area technology community. The results of APC and Mammoth Micro
Productions are included in other businesses prior to their disposition in
January 1995 and September 1995, respectively.
Income from operations is the excess of operating revenues over
operating expenses including corporate expenses, which are allocated based on
relative operating revenues to operations of the segments. In computing income
from operations by segment, the effects of equity in earnings of affiliates,
interest income, interest expense, other income and expense items, and income
taxes are not included.
Identifiable assets by segment are those assets used in the company's
operations in each business segment. Investments in affiliates are discussed in
Note C. Corporate assets are principally cash and cash equivalents and
investments in marketable debt securities.
36
<PAGE> 38
<TABLE>
<CAPTION>
Newspaper Magazine Cable Other
(in thousands) Publishing Broadcasting Publishing Television Businesses Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Operating revenues . . . . . . . . . . . . . . $763,935 $335,156 $377,063 $229,695 $147,596 $1,853,445
==========
Income (loss) from operations . . . . . . . . $116,773 $155,026 $ 22,823 $ 56,023 $(13,476) $ 337,169
Equity in earnings of affiliates . . . . . . . 19,702
Interest expense . . . . . . . . . . . . . . . (1,514)
Other income, net . . . . . . . . . . . . . . 4,860
----------
Income before income taxes . . . . . . . . . . $ 360,217
==========
Identifiable assets . . . . . . . . . . . . . $420,601 $377,799 $226,411 $452,525 $ 86,070 $1,563,406
Investments in affiliates . . . . . . . . . . 199,278
Corporate assets . . . . . . . . . . . . . . . 107,727
----------
Total assets . . . . . . . . . . . . . . . $1,870,411
Depreciation and amortization of property, ==========
plant, and equipment . . . . . . . . . . . $ 20,386 $ 10,482 $ 4,610 $ 25,075 $ 4,550 $ 65,103
Amortization of goodwill and other intangibles $ 830 $ 11,252 $ 16,785 $ 969 $ 29,836
Capital expenditures . . . . . . . . . . . . . $ 19,441 $ 10,923 $ 4,798 $ 37,362 $ 7,457 $ 79,981
1995
Operating revenues . . . . . . . . . . . . . . $729,172 $306,108 $352,619 $194,142 $137,408 $1,719,449
==========
Income (loss) from operations . . . . . . . . $109,737 $132,351 $ 15,008 $ 41,019 $(27,097) $ 271,018
Equity in earnings of affiliates . . . . . . . 24,512
Interest expense . . . . . . . . . . . . . . . (5,600)
Other income, net . . . . . . . . . . . . . . 21,466
----------
Income before income taxes . . . . . . . . . . $ 311,396
==========
Identifiable assets . . . . . . . . . . . . . $399,090 $387,462 $204,947 $322,443 $ 73,055 $1,386,997
Investments in affiliates . . . . . . . . . . 189,053
Corporate assets . . . . . . . . . . . . . . . 156,843
----------
Total assets . . . . . . . . . . . . . . . $1,732,893
Depreciation and amortization of property, ==========
plant, and equipment . . . . . . . . . . . $ 18,248 $ 9,958 $ 4,633 $ 28,819 $ 4,192 $ 65,850
Amortization of goodwill and other intangibles $ 800 $ 11,253 $ 12,150 $ 7,226 $ 31,429
Capital expenditures . . . . . . . . . . . . . $ 61,879 $ 9,265 $ 4,145 $ 40,050 $ 6,358 $ 121,697
1994
Operating revenues . . . . . . . . . . . . . . $717,280 $260,252 $337,602 $182,140 $116,704 $1,613,978
==========
Income (loss) from operations . . . . . . . . $134,415 $107,656 $ 14,159 $ 41,464 $(22,819) $ 274,875
Equity in earnings of affiliates . . . . . . . 7,325
Interest expense . . . . . . . . . . . . . . . (5,590)
Other income, net . . . . . . . . . . . . . . 10,312
----------
Income before income taxes . . . . . . . . . . $ 286,922
==========
Identifiable assets . . . . . . . . . . . . . $349,194 $425,789 $187,052 $326,645 $100,028 $1,388,708
Investments in affiliates . . . . . . . . . . 170,754
Corporate assets . . . . . . . . . . . . . . . 137,406
----------
Total assets . . . . . . . . . . . . . . . $1,696,868
Depreciation and amortization of property, ==========
plant, and equipment . . . . . . . . . . . $ 18,086 $ 8,123 $ 5,075 $ 26,912 $ 3,754 $ 61,950
Amortization of goodwill and other intangibles $ 800 $ 7,725 $ 12,149 $ 4,719 $ 25,393
Capital expenditures . . . . . . . . . . . . . $ 20,681 $ 8,881 $ 23,028 $ 18,860 $ 3,192 $ 74,642
</TABLE>
37
<PAGE> 39
N. SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 29, 1996, and
December 31, 1995, are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Operating revenues
Advertising . . . . . . . . . . . . . . . . . $252,807 $310,459 $274,719 $334,720
Circulation and subscriber . . . . . . . . . . 117,070 121,488 124,916 127,498
Other . . . . . . . . . . . . . . . . . . . . 46,742 40,905 60,691 41,430
-------- -------- -------- --------
416,619 472,852 460,326 503,648
-------- -------- -------- --------
Operating costs and expenses
Operating . . . . . . . . . . . . . . . . . . 242,482 253,639 245,763 265,173
Selling, general, and administrative . . . . . 100,792 100,562 103,937 108,988
Depreciation and amortization of
property, plant, and equipment . . . . . . 16,160 16,004 15,979 16,960
Amortization of goodwill and other intangibles 6,985 7,162 7,427 8,262
-------- -------- -------- --------
366,419 377,367 373,106 399,383
-------- -------- -------- --------
Income from operations . . . . . . . . . . . . . 50,200 95,485 87,220 104,265
Other income (expense)
Equity in earnings of affiliates . . . . . . . 7,353 7,807 2,537 2,005
Interest income . . . . . . . . . . . . . . . 1,224 1,175 1,358 1,602
Interest expense . . . . . . . . . . . . . . . (1,083) (139) (168) (124)
Other . . . . . . . . . . . . . . . . . . . . 2,867 (689) (53) (2,625)
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . 60,561 103,639 90,894 105,123
Provision for income taxes . . . . . . . . . . . 23,619 40,421 35,503 39,857
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . 36,942 63,218 55,391 65,266
Redeemable preferred stock dividends . . . . . . (202) -- (478) --
-------- -------- -------- --------
Net income available for common stock . . . . . . $ 36,740 $ 63,218 $ 54,913 $ 65,266
======== ======== ======== ========
Earnings per common share . . . . . . . . . . . . $ 3.34 $ 5.76 $ 5.00 $ 5.96
======== ======== ======== ========
Average number of common shares outstanding . . . 11,011 10,970 10,975 10,953
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Operating revenues
Advertising . . . . . . . . . . . . . . . . . $252,210 $284,954 $250,011 $307,445
Circulation and subscriber . . . . . . . . . . 108,466 114,079 113,355 117,430
Other . . . . . . . . . . . . . . . . . . . . 40,875 37,961 54,553 38,111
-------- -------- -------- --------
401,551 436,994 417,919 462,986
-------- -------- -------- --------
Operating costs and expenses
Operating . . . . . . . . . . . . . . . . . . 221,158 226,879 240,912 259,140
Selling, general, and administrative . . . . . 98,013 106,053 96,606 102,391
Depreciation and amortization of
property, plant, and equipment . . . . . 16,374 16,370 16,379 16,728
Amortization of goodwill and other intangibles 7,673 8,956 8,315 6,485
-------- -------- -------- --------
343,218 358,258 362,212 384,744
-------- -------- -------- --------
Income from operations . . . . . . . . . . . . . 58,333 78,736 55,707 78,242
Other income (expense)
Equity in earnings of affiliates . . . . . . . 772 8,858 6,268 8,614
Interest income . . . . . . . . . . . . . . . 2,334 2,032 1,860 1,748
Interest expense . . . . . . . . . . . . . . . (1,431) (1,368) (1,388) (1,413)
Other . . . . . . . . . . . . . . . . . . . . 14,395 (869) 716 (751)
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . 74,403 87,389 63,163 86,440
Provision for income taxes . . . . . . . . . . . 30,505 35,875 21,370 33,550
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 43,898 $ 51,514 $ 41,793 $ 52,890
======== ======== ======== ========
Earnings per common share . . . . . . . . . . . . $ 3.91 $ 4.65 $ 3.79 $ 4.80
======== ======== ======== ========
Average number of common shares outstanding . . . 11,220 11,084 11,019 11,020
</TABLE>
The sum of the four quarters may not necessarily be equal to the annual amounts
reported in the Consolidated Statements of Income due to rounding.
39
<PAGE> 41
SCHEDULE II
THE WASHINGTON POST COMPANY
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------------
ADDITIONS -
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended January 1, 1995
Allowance for doubtful accounts and returns . . . . . . . $30,848,000 $51,383,000 $48,795,000 $33,436,000
Allowance for advertising rate adjustments and discounts 7,754,000 6,600,000 7,847,000 6,507,000
----------- ----------- ----------- -----------
$38,602,000 $57,983,000 $56,642,000 $39,943,000
=========== =========== =========== ===========
Year Ended December 31, 1995
Allowance for doubtful accounts and returns . . . . . . . $33,436,000 $49,980,000 $47,341,000 $36,075,000
Allowance for advertising rate adjustments and discounts 6,507,000 7,253,000 7,871,000 5,889,000
----------- ----------- ----------- -----------
$39,943,000 $57,233,000 $55,212,000 $41,964,000
=========== =========== =========== ===========
Year Ended December 29, 1996
Allowance for doubtful accounts and returns . . . . . . . $36,075,000 $52,658,000 $49,072,000 $39,661,000
Allowance for advertising rate adjustments and discounts 5,889,000 8,995,000 6,157,000 8,727,000
----------- ----------- ----------- -----------
$41,964,000 $61,653,000 $55,229,000 $48,388,000
=========== =========== =========== ===========
</TABLE>
40
<PAGE> 42
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.
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995
Net income in 1996 was $220.8 million, an increase of 16 percent over net
income of $190.1 million in 1995. Earnings per share rose 17 percent to $20.05,
from $17.15 in 1995. The company's 1995 net income included $8.4 million
($0.75 per share) from the sale of the company's investment in American PCS,
L.P. (APC), as well as an after-tax charge of $5.6 million ($0.51 per share)
relating to the write-off of the company's interest in Mammoth Micro
Productions. Excluding these items, net income and earnings per share increased
18 percent and 19 percent, respectively, in 1996.
Revenues for 1996 totaled $1.853 billion, an increase of 8 percent
from $1.719 billion in 1995. Advertising revenues increased 7 percent in 1996,
and circulation and subscriber revenues increased 8 percent. Other revenues
increased 11 percent. The broadcast, newspaper, and magazine divisions all
contributed significantly to the improvement in advertising revenues. The
increase in circulation and subscriber revenues was principally due to growth
at the cable division. About two-thirds of growth in other revenues over 1995
is attributable to new businesses acquired in 1996.
Costs and expenses for the year increased 5 percent to $1.516 billion,
from $1.448 billion in 1995. Approximately one-half of the increase is
attributable to businesses acquired in 1996, while the remainder of the
increase reflects normal growth in the costs of operations.
Operating income increased 24 percent to $337.2 million, from $271.0
million in 1995.
NEWSPAPER DIVISION. Newspaper division revenues increased 5 percent to $763.9
million, from $729.2 million in 1995. Advertising revenues at the newspaper
division rose 4 percent over the previous year. At The Washington Post,
advertising revenues increased 3 percent as higher rates offset a decline in
volume. Retail revenues at The Washington Post declined 4 percent as a result
of a 9 percent decline in inches. Classified revenues rose 13 percent in the
year primarily as a result of higher recruitment volume and associated rates.
Other advertising revenues (including general and preprint) at The Washington
Post increased 2 percent. General advertising volume was essentially unchanged
from 1995, though preprint volume at The Washington Post increased 2 percent.
Circulation revenues for the newspaper division rose 2 percent in 1996
due to a home delivery price increase at The Washington Post. For the 12-month
period ended September 30, 1996, both daily and Sunday circulation at The
Washington Post declined 1 percent. The Washington Post's share of the market
was 48.5 percent penetration in its daily editions and 63.9 percent penetration
in its Sunday editions.
Newspaper division operating margin in 1996 remained at 15 percent,
consistent with the prior year. The previously mentioned increases in
advertising and circulation revenues were offset by higher newsprint expense
(up 4 percent) and other normal operating cost increases.
BROADCAST DIVISION. Revenues at the broadcast division rose 9 percent to $335.2
million over last year, with both national and local advertising revenues
increasing by 10 percent. The improvement for 1996 is attributable almost
entirely to political and Olympics-related advertising as other categories
generally remained unchanged. Network revenues rose 12 percent in 1996.
Viewership remained strong for the television stations. Four stations
were ranked number one in the latest ratings period, sign-on to sign-off, in
their markets; one station was ranked a strong number two; one station was
ranked number three.
The increases in advertising and network compensation were partially
offset by normal operating cost increases of about 4 percent. As a result, the
operating margin at the broadcast division increased to 46 percent, from 43
percent in 1995. Excluding amortization of goodwill and intangibles, operating
margins for 1996 and 1995 were 50 percent and 47 percent, respectively.
MAGAZINE DIVISION. Newsweek revenues in 1996 increased 7 percent to $377.1
million due primarily to increased advertising revenues at the domestic
edition. Advertising revenues rose 11 percent overall, 16 percent at the
domestic edition. The domestic improvement was due to a 9 percent increase in
page volume as well as the realization of higher advertising rates. Total
circulation revenues for 1996 increased 1 percent over the prior year. In 1996
the domestic and international editions published 52 weekly issues versus 51
issues in 1995.
At Newsweek the operating margin increased to 6 percent, from 4
percent in 1995. The increased cost of magazine paper, one-time costs
associated with the magazine's decision to outsource its fulfillment
operations, and higher general operating costs offset much of the revenue
increase.
CABLE DIVISION. Revenues at the cable division increased 18 percent to $229.7
million in 1996 over the prior year. All revenue categories -- basic, tier,
pay, pay-per-view, advertising, and other -- showed improvement from 1995.
About two-thirds of the total increase is attributable to higher average
subscriber counts, with the remainder due to higher rates and increased
advertising. During 1996 the number of domestic basic subscribers rose by 15
percent to 594,000. About 66,000 subscribers were added as a result of cable
system acquisitions and the remainder by internal growth.
Operating margin at the cable division was 24 percent, compared to 21
percent in 1995. Cable cash flow increased 18 percent to $100.9 million, from
$85.2 million in 1995. About half of the improvement in cash flow is
attributable to the results of cable systems acquired in 1996.
41
<PAGE> 43
OTHER BUSINESSES. In 1996 revenues from other businesses, including Kaplan,
MLJ, PASS Sports, LEGI-SLATE, and Digital Ink, increased 7 percent to $147.6
million, from $137.4 million in 1995. Half of the increase relates to Kaplan,
where tuition revenues increased 6 percent. Most of the remainder is due to
PASS Sports, which experienced revenue growth of 18 percent.
Other businesses recorded an operating loss in 1996 of $13.5 million,
compared with a loss of $27.1 million in 1995. The 1995 results included the
write-off of Mammoth Micro Productions as previously mentioned. If all costs
associated with Mammoth Micro Productions are excluded from the 1995 results,
other businesses operating losses amounted to $5.3 million in 1995. The
increase in the 1996 operating loss, over this latter amount, reflects the
company's increased expenditures for digital media and electronic information
services and other new business ventures.
EQUITY IN EARNINGS OF AFFILIATES. The company's equity in earnings of
affiliates for 1996 declined to $19.7 million, from $24.5 million in 1995. The
reduction in earnings resulted from lower income at the company's affiliated
newsprint mills, which were adversely affected by declining newsprint prices
beginning in mid-1996.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $3.8
million, compared with $2.4 million in 1995. The increase was a result of lower
interest expense following the retirement of the company's remaining long-term
debt in March 1996. Other income (expense), net in 1996 was a loss of $0.5
million, compared with income of $13.5 million in 1995. The gain from the sale
of the company's investment in APC is included in the 1995 amount.
INCOME TAXES. The effective tax rate in both 1996 and 1995 was approximately 39
percent.
RESULTS OF OPERATIONS - 1995 COMPARED TO 1994
Net income in 1995 was $190.1 million, an increase of 12 percent over net
income of $169.7 million in 1994. Earnings per share rose 17 percent to $17.15,
from $14.65 in 1994. The company's 1995 net income included $8.4 million ($0.75
per share) from the sale of the company's investment in APC, as well as an
after-tax charge of $5.6 million ($0.51 per share) relating to the write-off of
the company's interest in Mammoth Micro Productions. Earnings in 1994 included
an after-tax gain of $8.1 million ($0.70 per share) from the sale of land at
one of the company's newsprint affiliates. Excluding these items, net income
and earnings per share increased 16 percent and 21 percent, respectively, in
1995.
Revenues for 1995 totaled $1.719 billion, an increase of 7 percent
from $1.614 billion in 1994. Advertising revenues increased 7 percent in 1995,
and circulation and subscriber revenues increased 3 percent. Other revenues
increased 15 percent. Advertising revenues in the broadcast division, which
included two additional television stations in Houston and San Antonio acquired
in April of 1994, rose 18 percent in 1995. Newsweek also contributed to the
improvement in advertising revenues with a 7 percent increase over 1994. The
increase in circulation and subscriber revenues was principally due to growth
at the cable division. Other revenues rose in 1995 due to growth in fees for
engineering services at MLJ and higher tuition revenues at Kaplan.
Costs and expenses for the year increased 8 percent to $1.448 billion,
from $1.339 billion in 1994. Approximately one-third of the increase was
attributable to the higher cost of newsprint and magazine paper, while the
remainder of the increase reflected normal increases in the costs of operations
as well as the write-off of Mammoth Micro Productions mentioned previously.
Operating income declined 1 percent to $271.0 million, from $274.9
million in 1994.
NEWSPAPER DIVISION. Newspaper division revenues for 1995 increased 2 percent to
$729.2 million, from $717.3 million in 1994. Advertising revenues at the
newspaper division rose 1 percent over 1994. At The Washington Post,
advertising revenues increased 1 percent as higher rates offset a decline in
volume. Retail revenues at The Washington Post declined 5 percent from 1994 as
a result of a 10 percent decline in inches. Classified revenues rose 7 percent,
primarily as a result of improved recruitment-related volume in the year. Other
advertising revenues were flat; general advertising inches declined 3 percent
and preprint volume at The Washington Post increased 7 percent versus 1994.
Circulation revenues for the newspaper division rose 2 percent in 1995 due to a
home delivery price increase. For the 12-month period ended September 30, 1995,
daily and Sunday circulation at The Washington Post declined 2 and 1 percent,
respectively. The Washington Post's share of the market was 49.5 percent
penetration in its daily editions and 65.1 percent penetration in its Sunday
editions.
Newspaper division operating margin in 1995 was 15 percent, down from
19 percent in 1994. The previously mentioned increases in advertising and
circulation revenues were offset by higher newsprint expense, which increased
29 percent.
BROADCAST DIVISION. Revenues at the broadcast division increased 18 percent
over 1994. National and local advertising revenues increased 5 percent and 18
percent, respectively. Increased revenues for 1995 in a broad range of
categories, including auto and truck advertising, more than offset a $12
million decline in political advertising versus 1994.
Approximately two-fifths of these increases were attributable to the
inclusion of a full twelve months of revenue for KSAT and KPRC in 1995 versus
only eight and one-half months' revenue in 1994. Network revenues rose 88
percent in
42
<PAGE> 44
1995 as a result of the renegotiation of network affiliation contracts in 1995
and the second half of 1994.
Viewership remained strong for the original four television stations.
Three stations were ranked number one in the latest ratings period, sign-on to
sign-off, in their markets; one station was ranked number two. With respect to
the stations acquired in 1994, San Antonio was ranked number two, sign-on to
sign-off, while Houston was ranked number three.
Operating margin at the broadcast division increased to 43 percent,
from 41 percent in 1994. Excluding amortization of goodwill and intangibles,
operating margins for 1995 and 1994 were 47 percent and 44 percent,
respectively. Increases in advertising and network compensation accounted for
most of the improvement in margins as expenses remained stable.
MAGAZINE DIVISION. Newsweek revenues in 1995 increased 4 percent due primarily
to increased advertising revenues at both the domestic and international
editions. Advertising revenues rose 7 percent overall, 6 percent at the
domestic edition, and 11 percent at the international editions. These
improvements were due to better page volume at slightly higher rates.
Circulation revenues for 1995 were essentially even with 1994. In 1995 the
domestic and international editions published 51 weekly issues versus 52 issues
in 1994.
At Newsweek the operating margin remained at 4 percent. The higher
cost of magazine paper, distribution, and subscription acquisition offset much
of the revenue increase.
CABLE DIVISION. Revenues at the cable division increased 7 percent in 1995 over
1994. The number of basic subscribers increased 4 percent to 518,000, all of
which were from internal growth. All revenue categories -- basic, tier, pay,
pay-per-view, advertising, and other -- showed improvement from 1994.
Operating margin at the cable division was 21 percent, compared to 23
percent in 1994. However, cable cash flow increased 2 percent to $85.2 million,
from $83.6 million in 1994. Programming costs continued to increase due to the
increased number of subscribers and license fee increases by programming
suppliers.
OTHER BUSINESSES. In 1995 revenues from other businesses, including Kaplan,
MLJ, PASS Sports, LEGI-SLATE, and Digital Ink, increased 18 percent to $137.4
million, from $116.7 million in 1994. Half of the increase related to MLJ,
where fees for engineering services almost tripled in 1995. Most of the
remainder was due to Kaplan, which experienced an 11 percent increase in
revenues, mostly graduate school courses and new products.
Other businesses recorded an operating loss in 1995 of $27.1 million,
compared with a loss of $22.8 million in 1994. The 1995 results included the
write-off of Mammoth Micro Productions as previously mentioned. The 1994
results included operating expenses of APC, which was disposed of in January
1995. If all costs associated with these units are excluded from both years,
other businesses operating losses amounted to $4.8 million and $7.3 million in
1995 and 1994, respectively.
EQUITY IN EARNINGS OF AFFILIATES. The company's equity in earnings of
affiliates for 1995 was $24.5 million, compared with $7.3 million in 1994. The
improved results were derived from the company's newsprint mills, which
benefited from higher newsprint prices. The 1994 results included an $8.1
million after-tax gain from the sale of land at one of the company's newsprint
affiliates.
NON-OPERATING ITEMS. Interest income, net of interest expense, was $2.4
million, compared with $3.6 million in 1994. The decrease was a result of lower
average invested cash balances. Other income in 1995 was $13.5 million,
compared with income of $1.1 million in 1994. The gain from the sale of the
company's investment in APC was included in the 1995 amount.
INCOME TAXES. The effective tax rate in 1995 decreased to 39.0 percent, from
40.9 percent in 1994.
FINANCIAL CONDITION:
CAPITAL RESOURCES AND LIQUIDITY
During the period 1994 through 1996 the company spent approximately $916.0
million on purchases of additional plant, property, and equipment,
investments in new businesses, and the repurchase of Class B common stock. The
company also retired $51.6 million of long-term debt.
In April 1994 the company acquired substantially all of the assets
comprising the businesses of television stations KPRC-TV, the NBC affiliate in
Houston, Texas, and KSAT-TV, the ABC affiliate in San Antonio, Texas, for
approximately $253 million in cash. Additionally, the company acquired an 80
percent interest in Mammoth Micro Productions, a producer and publisher of
multimedia CD-ROM titles, for approximately $23 million in cash. (As previously
mentioned, this investment was written off in 1995.) In January 1995 the
company divested substantially all of its 70 percent limited partnership
interest in APC for a sales price of approximately $33 million. During 1996 the
company purchased cable systems serving about 66,000 subscribers, in four
states, for about $129 million, including $11.9 million of the company's
redeemable Series A Preferred Stock. The company also acquired various other
new businesses in 1996 for an aggregate purchase price of about $18.5 million.
These acquisitions include, among others, Comprint, Inc., a commercial printer
in the Maryland suburbs of Washington, D.C., Score Learning Corp., which
provides educational services to students in grades K through 12, and TechNews,
Inc., a producer of business publications for the computer services industry
and the Washington-area technology community.
During 1996, 1995, and 1994 the company repurchased 103,642, 361,106,
and 366,500 shares, respectively, of its Class B common stock at a cost of
$32.3 million, $89.6 million, and $86.7 million, respectively. Sixty-three
thousand of these shares were purchased from The Washington Post Company Profit
Sharing Plan in 1994. The annual dividend rate for 1997 was
43
<PAGE> 45
increased to $4.80 per share, from $4.60 per share in 1996, $4.40 per share in
1995, and $4.20 per share in 1994.
The company estimates that in 1997 it will spend approximately $200
million for plant and equipment, principally for various projects at the
newspaper and cable divisions. This estimate includes about $75 million to be
expended as part of a $250 million project to provide new production facilities
for The Washington Post newspaper. In 1995 and 1996 approximately $50 million
was expended in conjunction with this project, which is expected to be
completed in late 1998.
In early 1997 the company purchased a cable system serving about
15,000 subscribers for approximately $22 million. The company has also reached
an agreement in principle with Tele-Communications, Inc. (TCI) to exchange the
assets of certain cable systems. According to the terms of the TCI agreement,
the exchange will result in an aggregate increase of about 23,000 subscribers
for the company. The exchange is expected to be completed in the first half of
1997.
At December 29, 1996, the company had $102 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. In
early 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. In management's opinion,
the company will have ample liquidity to meet its various cash needs in 1997 as
outlined above.
44
<PAGE> 46
[THIS PAGE INTENTIONALLY LEFT BLANK]
45
<PAGE> 47
Ten-Year Summary of Selected Historical Financial Data
================================================================================
See Notes to Consolidated Financial Statements for the summary of significant
accounting policies and additional information relative to the years
1994-1996.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Operating revenues . . . . . . . . . . . . . . . . . . . . . $1,853,445 $1,719,449 $1,613,978
Income from operations . . . . . . . . . . . . . . . . . . . . $ 337,169 $ 271,018 $ 274,875
Income before cumulative effect of changes in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . $ 220,817 $ 190,096 $ 169,672
Cumulative effect of change in method of accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . -- -- --
Cumulative effect of change in method of accounting
for postretirement benefits other than pensions . . . . . . -- -- --
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220,817 $ 190,096 $ 169,672
========== ========== ==========
PER SHARE AMOUNTS
Earnings per common share
Income before cumulative effect of changes in accounting
principle . . . . . . . . . . . . . . . . . . . . . . . . $ 20.05 $ 17.15 $ 14.65
Cumulative effect of change in method of accounting
for income taxes . . . . . . . . . . . . . . . . . . . . . -- -- --
Cumulative effect of change in method of accounting
for postretirement benefits other than pensions . . . . . -- -- --
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.05 $ 17.15 $ 14.65
========== ========== ==========
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . $ 4.60 $ 4.40 $ 4.20
Common shareholders' equity . . . . . . . . . . . . . . . . . $ 121.24 $ 107.60 $ 99.32
AVERAGE NUMBER OF SHARES OUTSTANDING . . . . . . . . . . . . . . 10,980 11,086 11,582
FINANCIAL POSITION
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 382,631 $ 406,570 $ 375,879
Working capital . . . . . . . . . . . . . . . . . . . . . . . 100,995 98,393 102,806
Property, plant, and equipment . . . . . . . . . . . . . . . . 511,363 457,359 411,396
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,870,411 1,732,893 1,696,868
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . -- -- 50,297
Common shareholders' equity . . . . . . . . . . . . . . . . . 1,322,803 1,184,204 1,126,933
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,498,191 $1,450,867 $1,380,261 $1,438,640 $1,444,094 $1,367,613 $1,315,422
$ 238,980 $ 232,112 $ 192,866 $ 281,768 $ 313,691 $ 233,290 $ 257,073
$ 153,817 $ 127,796 $ 118,721 $ 174,576 $ 197,893 $ 269,117 $ 186,743
11,600 -- -- -- -- -- --
-- -- (47,897) -- -- -- --
---------- ---------- ---------- ---------- ----------- ---------- ----------
$ 165,417 $ 127,796 $ 70,824 $ 174,576 $ 197,893 $ 269,117 $ 186,743
========== ========== ========== ========== =========== ========== ==========
$ 13.10 $ 10.80 $ 10.00 $ 14.45 $ 15.50 $ 20.91 $ 14.52
0.98 -- -- -- -- -- --
-- -- (4.04) -- -- -- --
---------- ---------- ---------- ---------- ----------- ---------- ----------
$ 14.08 $ 10.80 $ 5.96 $ 14.45 $ 15.50 $ 20.91 $ 14.52
========== ========== ========== ========== =========== ========== ==========
$ 4.20 $ 4.20 $ 4.20 $ 4.00 $ 1.84 $ 1.56 $ 1.28
$ 92.84 $ 84.17 $ 78.12 $ 76.31 $ 75.40 $ 67.50 $ 47.80
11,750 11,830 11,876 12,081 12,768 12,873 12,861
$ 625,574 $ 524,975 $ 472,219 $ 471,669 $ 553,188 $ 493,736 $ 226,523
367,041 242,627 183,959 175,807 283,118 235,698 (50,290)
363,718 390,804 390,313 394,979 370,597 352,113 371,080
1,622,504 1,568,121 1,487,661 1,496,509 1,532,211 1,422,267 1,194,196
51,768 51,842 51,915 126,988 152,061 154,751 155,791
1,087,419 993,005 924,285 905,112 941,522 868,240 614,009
</TABLE>
47
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
------
<S> <C>
3.1 --- Certificate of Incorporation of the Company as amended through May 12, 1988, and the Certificate of
Designation for the Company's Series A Preferred Stock filed January 22, 1996 (incorporated by reference
to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
3.2 --- By-Laws of the Company as amended through September 9, 1993 (incorporated by reference to Exhibit 3 to
the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 1993).
4.1 --- Credit Agreement dated as of January 31, 1996, among the Company, Citibank, N.A., Wachovia Bank of
Georgia, N.A., and the other Lenders named therein (incorporated by reference to Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.1 --- The Washington Post Company Annual Incentive Compensation Plan as amended and restated effective June 30,
1995 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996).*
10.2 --- The Washington Post Company Long-Term Incentive Compensation Plan as amended and restated effective June
30, 1995 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).*
10.3 --- The Washington Post Company Stock Option Plan as amended and restated through June 29, 1995 (incorporated
by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996).*
10.4 --- The Washington Post Company Supplemental Executive Retirement Plan as amended and restated effective
December 31, 1993 (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 1994).*
10.5 --- The Washington Post Company Deferred Compensation Plan effective November 15, 1996 (incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September
29, 1996.)*
10.6 --- Letter Agreement between the Company and Richard D. Simmons dated May 9, 1991, and the amendment thereto
dated June 30, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the fiscal year ended January 1, 1995).*
</TABLE>
[Index continued on Next Page]
- -----------------
* A management contract or compensatory plan or arrangement required to be
included as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
48
<PAGE> 50
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER -----------
------
<S> <C>
11 --- Calculation of earnings per share of common stock.
21 --- List of subsidiaries of the Company.
23 --- Consent of independent accountants.
24 --- Power of attorney dated March 13, 1997
27 --- Financial Data Schedule.
</TABLE>
49
<PAGE> 1
EXHIBIT 11
THE WASHINGTON POST COMPANY
AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE OF COMMON STOCK
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted average shares outstanding
Class A Common 1,802 1,838 1,843
Class B Common (excluding shares
issuable upon exercise of
stock options - accounted
for below) 9,162 9,237 9,734
----- ----- -----
10,964 11,075 11,577
------ ------ ------
Add - Shares assumed issuable upon
exercise of stock options 109 111 79
Deduct - Shares assumed to be
purchased for Treasury with proceeds
from exercise of stock options (93) (100) (74)
-------- -------- --------
16 11 5
-------- -------- --------
Shares used in computation of
primary earnings per common share 10,980 11,086 11,582
Adjustment to reflect fully
diluted computation (1) -- -- --
-------- -------- --------
10,980 11,086 11,582
======== ======== ========
Net income available for common shares $220,137 $190,096 $169,672
======== ======== ========
Primary earnings per common share $ 20.05 $ 17.15 $ 14.65
======== ======== ========
Fully diluted earnings per common
share (1) $ 20.05 $ 17.15 $ 14.65
======== ======== ========
</TABLE>
(1) This computation is submitted although it is not required by Accounting
Principles Board Opinion No. 15 since it results in dilution of less than
3%.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction % of
of Voting Stock
Incorporation or Partnership
or Interest Owned
Name of Subsidiary Organization by Company
------------------ ------------ ---------------
<S> <C> <C>
Bowater Mersey Paper Company Limited . . . . . . . . . . . . . . . . . Nova Scotia 49%
Capitol Fiber, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Maryland 80%
Coast TV Cable, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Mississippi 100%
Coastal Bend Cablevision Corp. . . . . . . . . . . . . . . . . . . . . Texas 100%
Digital Ink Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
The Photo Store LLC . . . . . . . . . . . . . . . . . . . . . Maryland 50%
The Gazette Newspapers, Inc. . . . . . . . . . . . . . . . . . . . . . Maryland 100%
I.H.T. Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware 50%
International Herald Tribune S.A. . . . . . . . . . . . . . . France 33-1/3%
International Hearld Tribune S.A. . . . . . . . . . . . . . . . . . . France 33-1/3%
Legi-Slate, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
State Capital Strategies, Inc. . . . . . . . . . . . . . . . Delaware 100%
Los Angeles Times-Washington Post News
Service, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . D.C. 50%
Marks Cablevision of Green, Incorporated . . . . . . . . . . . . . . . Ohio 100%
Newsprint, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia 100%
Bear Island Paper Company . . . . . . . . . . . . . . . . . . Virginia 35% (a)
Bear Island Timberlands Company . . . . . . . . . . . . . . . Virginia 35% (a)
Newsweek, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York 100%
Newsweek Services, Inc. . . . . . . . . . . . . . . . . . . . Delaware 100%
Newsweek Services (Canada), Inc. . . . . . . . . . . . . . . Delaware 100%
Omnicom Cablevision of Illinois, Inc. . . . . . . . . . . . . . . . . Illinois 100%
Post-Newsweek Cable, Inc. . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
Post-Newsweek Cable of California, Inc. . . . . . . . . . . . . . . . California 100%
Post-Newsweek Cable of North Dakota, Inc. . . . . . . . . . . . . . . Delaware 100%
Post-Newsweek Pacific Cable, Inc. . . . . . . . . . . . . . . . . . . California 100%
</TABLE>
- ---------------
(a) Limited partnership interest.
<PAGE> 2
SUBSIDIARIES OF THE COMPANY
(Continued)
<TABLE>
<CAPTION>
Jurisdiction % of
of Voting Stock
Incorporation or Partnership
or Interest Owned
Name of Subsidiary Organization by Company
------------------ ------------ ---------------
<S> <C> <C>
Post-Newsweek Stations, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware 100%
Post-Newsweek Stations, Connecticut, Inc. . . . . . . . . . . Delaware 100%
Post-Newsweek Stations, Florida, Inc. . . . . . . . . . . . . Florida 100%
Post-Newsweek Stations, Houston, Inc. . . . . . . . . . . . . Delaware 100%
Post-Newsweek Stations, Michigan, Inc. . . . . . . . . . . . Delaware 100%
Pro Am Sports System, Inc. . . . . . . . . . . . . . Delaware 100%
Post-Newsweek Stations, San Antonio, Inc. . . . . . . . . . . Delaware 100%
Robinson Terminal Warehouse Corporation . . . . . . . . . . . . . . . Delaware 100%
Kaplan Educational Centers, Inc. . . . . . . . . . . . . . . . . . . . Delaware 100%
Score Learning Corporation . . . . . . . . . . . . . . . . . California 100%
Stanley H. Kaplan Educational Center of
Canada Ltd. . . . . . . . . . . . . . . . . . . . . . . . Ontario 100%
Stanley H. Kaplan Educational Center of
Puerto Rico, Inc. . . . . . . . . . . . . . . . . . . . . Puerto Rico 100%
TechNews, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia 100%
The Daily Herald Company . . . . . . . . . . . . . . . . . . . . . . . Washington 100%
WPC Productions, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
WPC Telecommunications, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware 100%
Moffet, Larson & Johnson, Inc. . . . . . . . . . . . . . . . Delaware 71%
</TABLE>
- ------------------
As permitted by Item 601(b)(21) of Regulation S-K, the foregoing list
omits certain subsidiaries which, if considered in the aggregate as a single
subsidiary, would not constitute a "significant subsidiary" as that term is
defined in Rule 1-02(v) of Regulation S-X.
2
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 2-42170) of The Washington Post
Company, and in the Prospectus constituting a part thereof, of our report dated
January 28, 1997 appearing on page 24 of this Annual Report on Form 10-K, and
to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Washington, D.C.
March 20, 1997
<PAGE> 1
EXHIBIT 24
Power of Attorney
Reports Under the Securities Exchange Act of 1934
March 13, 1997
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned
directors and officers of The Washington Post Company, a Delaware corporation
(hereinafter called the "Company"), hereby constitutes and appoints DONALD E.
GRAHAM, ALAN G. SPOON, KATHARINE GRAHAM and JOHN B. MORSE, JR., and each of
them, his or her true and lawful attorneys-in-fact and agents with full power
to act without the others and with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all reports required to be filed by the
Company pursuant to the Securities Exchange Act of 1934, as amended, and any
and all amendments thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
<TABLE>
<S> <C>
/s/ Donald E. Graham /s/ George J. Gillespie, III
- -------------------------------------------- --------------------------------------------
Donald E. Graham, Chairman of the George J. Gillespie, III, Director
Board and Chief Executive Office
(Principal Executive Officer)
and Director
/s/ Alan G. Spoon /s/ Ralph E. Gomory
- -------------------------------------------- --------------------------------------------
Alan G. Spoon, President, Chief Ralph E. Gomory, Director
Operating Officer and Director
/s/ Katharine Graham /s/ Donald R. Keough
- -------------------------------------------- --------------------------------------------
Katharine Graham, Chairman of the Donald R. Keough, Director
Executive Committee of the Board
and Director
/s/ John B. Morse, Jr. /s/ Barabara Scott Preiskel
- -------------------------------------------- --------------------------------------------
John B. Morse, Jr., Vice President-Finance Barbara Scott Preiskel, Director
(Principal Financial and Accounting Officer)
/s/ Warren E. Buffett /s/ William J. Ruane
- -------------------------------------------- --------------------------------------------
Warren E. Buffett, Director William J. Ruane, Director
/s/ Daniel E. Burke /s/ Richard D. Simmons
- -------------------------------------------- --------------------------------------------
Daniel E. Burke, Director Richard D. Simmons, Director
/s/ James E. Burke /s/ George W. Wilson
- -------------------------------------------- --------------------------------------------
James E. Burke, Director George W. Wilson, Director
/s/ Martin Cohen
- --------------------------------------------
Martin Cohen, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 29, 1996 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 29, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-END> DEC-29-1996
<CASH> 102,278
<SECURITIES> 0
<RECEIVABLES> 281,451
<ALLOWANCES> 48,388
<INVENTORY> 24,427
<CURRENT-ASSETS> 382,631
<PP&E> 1,105,558
<DEPRECIATION> 594,195
<TOTAL-ASSETS> 1,870,411
<CURRENT-LIABILITIES> 281,636
<BONDS> 0
11,947
0
<COMMON> 20,000
<OTHER-SE> 1,302,803
<TOTAL-LIABILITY-AND-EQUITY> 1,870,411
<SALES> 0
<TOTAL-REVENUES> 1,853,445
<CGS> 0
<TOTAL-COSTS> 1,007,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,653
<INTEREST-EXPENSE> 1,514
<INCOME-PRETAX> 360,217
<INCOME-TAX> 139,400
<INCOME-CONTINUING> 220,817
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,817
<EPS-PRIMARY> 20.05
<EPS-DILUTED> 20.05
</TABLE>
