FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended July 2, 2000
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Commission File Number 1-6714
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THE WASHINGTON POST COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 53-0182885
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1150 15th Street, N.W. Washington, D.C. 20071
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(Address of principal executive offices) (Zip Code)
(202) 334-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X. No: .
--- ---
Shares outstanding at August 8, 2000:
Class A Common Stock 1,739,250 Shares
Class B Common Stock 7,709,095 Shares
<PAGE> 2
THE WASHINGTON POST COMPANY
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
<C>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) for the Thirteen and Twenty-six
Weeks Ended July 2, 2000 and July 4, 1999............ 3
Condensed Consolidated Statements of Comprehensive
Income (Unaudited) for the Thirteen and
Twenty-six Weeks Ended July 2, 2000 and
July 4, 1999......................................... 4
Condensed Consolidated Balance Sheets
at July 2, 2000 (Unaudited) and January 2, 2000...... 5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Twenty-six Weeks Ended
July 2, 2000 and July 4, 1999........................ 6
Notes to Condensed Consolidated Financial Statements
(Unaudited).......................................... 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................... 12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders....... 21
Item 6. Exhibits and Reports on Form 8-K.......................... 22
Signatures.......................................................... 23
Exhibit 11
Exhibit 27 (Electronic Filing Only)
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Condensed Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
July 2, July 4, July 2, July 4,
(In thousands, except per share amounts) 2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues
Advertising $353,514 $341,602 $ 672,379 $ 641,604
Circulation and subscriber 148,905 142,854 296,495 284,285
Education 68,803 56,445 140,833 107,457
Other 20,318 16,294 28,604 44,246
-------- -------- --------- ---------
591,540 557,195 1,138,311 1,077,592
Operating costs and expenses
Operating 316,252 294,172 612,297 580,756
Selling, general and administrative 138,704 116,414 274,126 233,410
Depreciation of property, plant
and equipment 28,638 25,305 57,024 50,423
Amortization of goodwill and other
intangibles 14,755 14,619 29,493 29,044
-------- -------- --------- ---------
498,349 450,510 972,940 893,633
-------- -------- --------- ---------
Income from operations 93,191 106,685 165,371 183,959
Other income (expense)
Equity in (losses)earnings of affiliates (9,471) 731 (20,775) (1,779)
Interest income 275 213 498 459
Interest expense (12,573) (5,441) (25,140) (12,254)
Other 1,556 9,471 (5,408) 15,613
-------- -------- --------- ---------
Income before income taxes 72,978 111,659 114,546 185,998
-------- -------- --------- ---------
Provision for income taxes 31,800 43,750 49,300 72,900
-------- -------- --------- ---------
Net income 41,178 67,909 65,246 113,098
Redeemable preferred stock dividends (263) (237) (763) (712)
-------- -------- --------- ---------
Net income available for common shares $ 40,915 $ 67,672 $ 64,483 $ 112,386
======== ======== ========= =========
Basic earnings per common share $ 4.33 $ 6.70 $ 6.83 $ 11.13
======== ======== ========= =========
Diluted earnings per common share $ 4.33 $ 6.67 $ 6.82 $ 11.08
======== ======== ========= =========
Dividends declared per common share $ 1.35 $ 1.30 $ 4.05 $ 3.90
======== ======== ========= =========
Basic average number of common shares
outstanding 9,443 10,098 9,441 10,098
Diluted average number of common shares
outstanding 9,458 10,140 9,458 10,141
</TABLE>
<PAGE> 4
The Washington Post Company
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
July 2, July 4, July 2, July 4,
(In thousands) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $41,178 $67,909 $65,246 $113,098
-------- -------- -------- --------
Other comprehensive loss
Foreign currency translation adjustment (737) (239) (1,179) (3,348)
Change in unrealized gain on
available-for-sale securities (24,669) (20,385) (28,420) (12,420)
Less: reclassification adjustment
for realized gains included in
net income (16) (7,258) (197) (5,832)
-------- -------- -------- --------
(25,422) (27,882) (29,796) (21,600)
Income tax benefit related to
other comprehensive loss 9,736 10,781 11,193 7,112
-------- -------- -------- --------
( 15,686) (17,101) (18,603) (14,488)
-------- -------- -------- --------
Comprehensive income $ 25,492 $ 50,808 $ 46,643 $ 98,610
======== ======== ======== ========
</TABLE>
<PAGE> 5
The Washington Post Company
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands) July 2,
2000 January 2,
(unaudited) 2000
Assets --------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 26,520 $ 75,479
Investments in marketable equity securities 19,977 37,228
Accounts receivable, net 292,977 270,264
Federal and state income taxes receivable 25,817 48,597
Inventories 26,468 13,890
Other current assets 37,245 30,701
---------- ----------
429,004 476,159
Property, plant and equipment
Buildings 247,060 249,957
Machinery, equipment and fixtures 1,115,334 1,081,787
Leasehold improvements 55,113 53,048
---------- ----------
1,417,507 1,384,792
Less accumulated depreciation (678,484) (626,899)
---------- ----------
739,023 757,893
Land 36,900 37,301
Construction in progress 89,857 59,712
---------- ----------
865,780 854,906
Investments in marketable equity securities 159,036 165,784
Investments in affiliates 136,277 140,669
Goodwill and other intangibles,
less accumulated amortization 869,181 886,060
Prepaid pension cost 367,872 337,818
Deferred charges and other assets 139,396 125,548
---------- ----------
$2,966,546 $2,986,944
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 254,635 $ 254,105
Deferred subscription revenue 81,614 80,766
Dividends declared 13,000 --
Short-term borrowings 125,000 487,677
---------- ----------
474,249 822,548
Other liabilities 281,174 273,110
Deferred income taxes 134,089 114,003
Long-term debt 672,852 397,620
---------- ----------
1,562,364 1,607,281
---------- ----------
Redeemable preferred stock 13,148 11,873
---------- ----------
Preferred stock -- --
---------- ----------
Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 123,673 108,867
Retained earnings 2,795,934 2,769,676
Accumulated other comprehensive income (losses)
Cumulative foreign currency translation
adjustment (6,068) (4,889)
Unrealized (loss) gain on available-for-sale
securities (12,155) 5,269
Cost of Class B common stock held in treasury (1,530,350) (1,531,133)
__________ __________
1,391,034 1,367,790
---------- ----------
$2,966,546 $2,986,944
========== ==========
</TABLE>
<PAGE> 6
The Washington Post Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
----------------------
July 2, July 4,
(In thousands) 2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 65,246 $ 113,098
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 57,024 50,423
Amortization of goodwill and other intangibles 29,493 29,044
Net pension benefit (30,000) (43,000)
Gain on disposition of marketable equity securities (4,299) (17,013)
Provision for deferred income taxes 22,684 6,448
Equity in losses of affiliates, net of
distributions 20,775 1,779
Change in assets and liabilities:
Increase in accounts receivable, net (22,713) (20,902)
Increase in inventories (12,578) (1,116)
Increase in accounts payable and
accrued liabilities 500 7,879
Decrease in income taxes receivable 22,780 6,278
Decrease in other assets and other
liabilities, net 1,289 2,505
Other 9,043 1,165
---------- ----------
Net cash provided by operating activities 159,244 136,588
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (64,602) (64,951)
Investments in certain businesses (16,685) (28,431)
Proceeds from sale of marketable securities 5,609 27,379
Purchase of marketable securities -- (3,370)
Other investments (26,416) (14,387)
Other 5,017 4,280
---------- ----------
Net cash used in investing activities (97,077) (79,480)
---------- ----------
Cash flows from financing activities:
Principal payments on debt (87,576) (420,115)
Issuance of debt -- 397,425
Dividends paid (25,988) (26,719)
Common shares repurchased (219) (8,424)
Proceeds from exercise of stock options 2,657 3,242
---------- ----------
Net cash used in financing activities (111,126) (54,591)
---------- ----------
Net (decrease) increase in cash and cash equivalents (48,959) 2,517
Beginning cash and cash equivalents 75,479 15,190
---------- ----------
Ending cash and cash equivalents $ 26,520 $ 17,707
========== ==========
</TABLE>
<PAGE> 7
The Washington Post Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
Results of operations, when examined on a quarterly basis, reflect the
seasonality of advertising that affects the newspaper, magazine and
broadcasting operations. Advertising revenues in the second and fourth
quarters are typically higher than first and third quarter revenues.
All adjustments reflected in the interim financial statements are of a
normal recurring nature.
Note 1: Acquisitions and Dispositions
Acquisitions. During the first six months of 2000, the company acquired
various businesses for approximately $16.7 million, including a cable
system serving approximately 4,000 subscribers in South Sioux City,
Nebraska.
During the first six months of 1999, the company acquired various
businesses for approximately $28.4 million, including an accredited
distance education institute that offers degrees in paralegal studies
and legal nurse consulting, and a provider of test preparation services
for the United States Medical Licensing Exam.
Dispositions. There were no business dispositions during the first six
months of 2000. In June 1999, the company sold Legi-Slate, Inc. No
significant gain or loss arose from the sale of Legi-Slate.
Note 2: Investments in Marketable Securities
Investments in marketable equity securities at July 2, 2000 and
January 2, 2000 consist of the following (in thousands):
<TABLE>
<CAPTION>
July 2, January 2,
2000 2000
-------- ---------
<S> <C> <C>
Total cost $198,982 $194,364
Gross unrealized (losses) gains (19,969) 8,648
-------- ---------
Total fair value $179,013 $203,012
======== =========
</TABLE>
During the second quarter and first six months of 2000, proceeds from
sales of marketable equity securities were $5.6 million. Gross
realized gains on such sales were $4.3 million. During the second
quarter and first six months of 1999, proceeds from sales of marketable
equity securities were $16.9 million and $27.4 million, respectively.
Gross realized gains on such sales were $10.3 million and $17.0
million, respectively. Gross realized gains upon the sale of
marketable equity securities are included in "Other, net" in the
Condensed Consolidated Statements of Income.
Note 3: Borrowings
On February 15, 1999, the company completed the issuance of $400.0
million 5.5 percent unsecured notes due February 15, 2009. The company
is required to pay interest related to these notes on February 15 and
August 15 of each year.
During the second quarter and first half of 2000, the company had
average borrowings outstanding of approximately $797.7 million and
$816.8 million, respectively, at an average interest rate of
approximately 6.1 percent and 5.9 percent, respectively. During the
second quarter and first half of 1999, the company had average
borrowings outstanding of approximately $425.7 million and $437.7
million, respectively, at average interest rates of approximately 5.7
percent and 5.6 percent, respectively.
<PAGE> 8
The company's commercial paper borrowings at July 2, 2000 totaled
$400,232 of which $275,232 has been classified in the consolidated balance
sheet as long-term debt as the company has the ability and intent to
finance such borrowings on a long-term basis under its existing credit
agreements.
During the first half of 2000 and 1999, the company incurred interest
costs on borrowings of $24.2 million and $12.3 million, respectively,
of which $1.2 million was capitalized in 1999. No significant interest
costs were capitalized in the first half of 2000. Interest costs for
construction and upgrade of qualifying assets are capitalized.
<PAGE> 9
Note 4: Business Segments.
The following table summarizes financial information related to each of
the company's business segments. The 2000 and 1999 asset information is as
of July 2, 2000 and January 2, 2000, respectively.
Second Quarter Period
(in thousands)
<TABLE>
<CAPTION>
Education Other
and Businesses
Newspaper Television Magazine Cable Career and Corporate
Publishing Broadcasting Publishing Television Services Office Consolidated
---------- ------------ ---------- ---------- -------- ------------- ------------
<S>
2000 <C> <C> <C> <C> <C> <C> <C>
Operating revenues $228,158 $ 89,419 $115,624 $ 89,536 $ 68,803 $ - $ 591,540
Income (loss) from
operations $ 37,211 $ 42,769 $ 20,751 $ 16,084 $(16,355) $ (7,269) $ 93,191
Equity in losses of
affiliates (9,471)
Interest expense, net (12,298)
Other income, net 1,556
Income before income ----------
taxes $ 72,978
==========
Depreciation expense $ 9,452 $ 3,230 $ 1,288 $ 11,822 $ 2,846 $ - $ 28,638
Amortization expense $ 388 $ 3,534 $ 1,697 $ 7,388 $ 1,748 $ - $ 14,755
Pension credit (expense) $ 4,549 $ 1,346 $ 9,024 $ (170) $ (172) $ - $ 14,577
Identifiable assets $715,023 $432,786 $432,244 $719,582 $272,489 $ 79,132 $2,651,256
Investments in
marketable equity
securities 179,013
Investments in
affiliates 136,277
----------
Total assets $2,966,546
==========
Education Other
and Businesses
Newspaper Television Magazine Cable Career and Corporate
Publishing Broadcasting Publishing Television Services Office Consolidated
---------- ------------ ---------- ---------- -------- ------------- ------------
1999
Operating revenues $219,542 $ 91,022 $100,586 $ 83,120 $ 61,045 $ 1,880 $ 557,195
Income (loss) from
operations $ 42,301 $ 45,942 $ 17,719 $ 15,573 $ (6,958) $ (7,892) $ 106,685
Equity in earnings of
affiliates 731
Interest expense, net (5,228)
Other income, net 9,471
Income before income -----------
taxes $ 111,659
===========
Depreciation expense $ 8,361 $ 2,825 $ 1,244 $ 10,754 $ 2,012 $ 109 $ 25,305
Amortization expense $ 380 $ 3,559 $ 1,478 $ 7,446 $ 1,756 $ - $ 14,619
Pension credit (expense) $ 7,200 $ 2,246 $ 12,212 $ (149) $ (151) $ (14) $ 21,344
Identifiable assets $672,609 $444,372 $409,404 $718,230 $265,960 $132,688 $2,643,263
Investments in
marketable equity
securities 203,012
Investments in
affiliates 140,669
----------
Total assets $2,986,944
=========
</TABLE>
<PAGE> 10
Six Month Period
(in thousands)
<TABLE>
<CAPTION>
Education Other
and Businesses
Newspaper Television Magazine Cable Career and Corporate
Publishing Broadcasting Publishing Television Services Office Consolidated
---------- ------------ ---------- ---------- -------- ------------- ------------
<S>
2000 <C> <C> <C> <C> <C> <C> <C>
Operating revenues $452,814 $168,160 $200,314 $176,190 $140,833 $ - $1,138,311
Income (loss) from
operations $ 73,462 $ 75,145 $ 23,435 $ 30,729 $(25,982) $(11,418) $ 165,371
Equity in losses of
affiliates (20,775)
Interest expense, net (24,642)
Other expense, net (5,408)
Income before income ----------
taxes $ 114,546
==========
Depreciation expense $ 19,056 $ 6,341 $ 2,577 $ 23,580 $ 5,470 $ - $ 57,024
Amortization expense $ 781 $ 7,067 $ 3,394 $ 14,802 $ 3,449 $ - $ 29,493
Pension credit (expense) $ 9,098 $ 2,691 $ 18,048 $ (340) $ (344) $ - $ 29,153
Education Other
and Businesses
Newspaper Television Magazine Cable Career and Corporate
Publishing Broadcasting Publishing Television Services Office Consolidated
---------- ------------ ---------- ---------- -------- ------------- ------------
1999
Operating revenues $428,752 $171,319 $191,302 $163,919 $118,457 $ 3,843 $1,077,592
Income (loss) from
operations $ 75,991 $ 80,370 $ 26,689 $ 30,391 $(14,336) $(15,146) $ 183,959
Equity in losses of
affiliates (1,779)
Interest expense, net (11,795)
Other income, net 15,613
Income before income ----------
taxes $ 185,998
==========
Depreciation expense $ 16,576 $ 5,613 $ 2,507 $ 21,508 $ 4,005 $ 214 $ 50,423
Amortization expense $ 760 $ 7,119 $ 2,956 $ 14,892 $ 3,317 $ - $ 29,044
Pension credit (expense) $ 14,400 $ 4,492 $ 24,424 $ (298) $ (302) $ (28) $ 42,688
</TABLE>
Newspaper publishing includes the publication of newspapers in the
Washington, D.C. area (The Washington Post and the Gazette community
newspapers) and Everett, Washington (The Everett Herald). This business
division also includes newsprint warehousing, recycling operations and the
company's electronic media publishing business (primarily washingtonpost.com).
Television broadcasting operations are conducted through six VHF, network-
affiliated television stations serving the Detroit, Houston, Miami, San
Antonio, Orlando and Jacksonville television markets.
The magazine publishing division consists of the publication of a weekly
news magazine, Newsweek, which has one domestic and three international
editions, the publication of Arthur Frommer's Budget Travel, and the
publication of business periodicals for the computer services industry and
the Washington-area technology community.
Cable television operations consist of over 50 cable systems offering
basic cable and pay television services to approximately 740,000
subscribers in midwestern, western, and southern states.
Education and career services are provided through the company's wholly-
owned subsidiary Kaplan, Inc. Kaplan's four major lines of businesses
include Test Preparation and Admissions, providing test preparation
services for college and graduate school entrance exams; Kaplan
Professional, providing education and career services to business people
and other professionals; SCORE!, offering multi-media learning and private
tutoring to children in kindergarten through twelfth grade; and
KaplanCollege.com, Kaplan's distance learning business, including Concord
University School and Law, the country's first online Law School.
<PAGE> 11
Other businesses and corporate office for 2000 includes the expenses of
the company's corporate office. Through the first half of 1999, the other
businesses and corporate office segment also includes the result of Legi-
Slate, Inc., which was sold in June 1999.
The company maintains stock option and stock appreciation right plans at
its Kaplan subsidiary that provide for the issuance of stock options
representing 10 percent of Kaplan's stock and the issuance of stock
appreciation rights to certain members of Kaplan's management. The options
and appreciation rights vest ratably over five years from issuance. For
the second quarter and first half of 2000, the education and career
services operating results include a non-cash charge of $1.5 million and
$3.0 million, respectively, related to these plans. For the second quarter
and first half of 1999, the education and career services operating results
include a non-cash charge of $1.7 million and $3.7 million, respectively,
related to these plans.
Note 5: Subsequent Event
On July 27, 2000, the company acquired Quest Education Corporation
(Quest). The acquisition was completed through an all cash tender offer in
which the company purchased substantially all the outstanding stock of
Quest for $18.35 per share. The total purchase price, including
transaction fees, is expected to approximate $165 million. The acquisition
was financed through the issuance of additional short-term borrowings.
The operating results of Quest from the date of acquisition will
be included in the Education and Career Services segment. In its
Annual Report on Form 10-K for the year ended March 31, 2000, Quest
reported $115.3 million in net revenues and operating income of
$13.8 million.
Quest, headquartered in Atlanta, Ga., is a leading provider of post-
secondary education, currently serving more that 13,400 students in 30
schools located in 11 states. Quest's schools offer bachelor degrees,
associate degrees, and diploma programs designed to provide students with
the knowledge and skills necessary to qualify them for entry-level
employment, primarily in the fields of health care, business and
information technology.
<PAGE> 12
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
This analysis should be read in conjunction with the consolidated
financial statements and the notes thereto.
Revenues and expenses in the first and third quarters are
customarily lower than those in the second and fourth quarters because
of significant seasonal fluctuations in advertising volume. For that
reason, the results of operations for each quarter are compared with
those of the corresponding quarter in the preceding year.
Second Quarter Comparisons
Net income for the second quarter of 2000 was $41.2 million
($4.33 per share), a decrease of $26.7 million, or 39 percent, from
net income of $67.9 million ($6.67 per share) in the second quarter of
last year. The decline in second quarter earnings was primarily
caused by increased costs associated with the development of new
businesses (impact of $11.8 million or $1.34 per share), marketable
equity security gains recorded in the second quarter of 1999 which
did not recur in 2000 (impact of $7.2 million or $0.67 per share),
higher interest expense (impact of $4.0 million or $0.44 per share),
and a reduced pension credit (impact of $4.9 million or $0.43
per share). These declines were offset in part by higher operating
income at the company's magazine publishing division.
Revenue for the second quarter of 2000 was $591.5 million, up 6
percent from $557.2 million in 1999. Advertising revenues and
circulation and subscriber revenues increased 3 and 4 percent,
respectively, over the prior year. Education revenues increased 22
percent and other operating revenues increased 25 percent as compared
to last year. The increase in advertising revenues is mostly due to
advertising gains at The Washington Post newspaper, Newsweek magazine
and washingtonpost.com. The increase in circulation and subscriber
revenues is the result of a 7 percent improvement in subscriber
revenues at Cable One, mainly due to rate increases established to
offset the rising cost of programming. The growth in Education
revenues primarily resulted from acquisitions completed after June
1999 as well as growth at Kaplan's Score! and test preparation
businesses. The increase in other revenues is mostly attributable to
the timing of a technology trade show which occurred during the second
quarter of 2000 versus the first quarter of 1999.
<PAGE> 13
Costs and expenses for the second quarter of 2000 increased 11
percent to $498.3 million from $450.5 million in 1999. The increase
in costs and expenses is the result of increased spending for new
business initiatives, higher depreciation expense and a lower pension
credit.
The increased spending for new business initiatives occurred
mainly at Kaplan, Inc., and Washingtonpost.Newsweek Interactive. At
Kaplan, new business spending was focused on the build-out of various
distance learning websites (including kaptest.com and
kaplancollege.com) and the marketing and expansion of Score!
Educational Centers. In addition, Kaplan continued the development
and marketing of eSCORE.com, an educational services website designed
to help parents with the development of their children. At
Washingtonpost.Newsweek Interactive, increased spending was dedicated
principally to marketing and sales initiatives.
Also included in the quarterly impact of new business development
activities quantified above is $2.9 million ($0.33 earnings per share)
in incremental net losses arising from the company's development of
web-delivered recruiting, career development, and hiring management
services (BrassRing, Inc.). The company owns a 42 percent equity
interest in BrassRing and records its percentage of BrassRing losses
in the equity in losses of affiliates line. For the first nine months
of 1999, prior to the formation of BrassRing, the company developed
these activities through majority-owned subsidiaries, the results of
which were included in the Education and Career Services segment.
The increase in depreciation expense is mainly due to capital
spending at Cable One, The Washington Post, and Kaplan.
The company's expenses for the second quarter of 2000 were
reduced by $14.6 million of pension credits, compared to $21.3 million
in the second quarter of 1999. Management expects the 2000 annual
pension credit will approximate $60.0 million, compared to $82.0
million in 1999. The decline in the 2000 pension credit is mostly
attributable to lower investment returns generated by pension funds in
1999.
Operating income in the second quarter of 2000 and 1999 was $93.2
million and $106.7 million, respectively, a decrease of 13 percent.
Newspaper Publishing. At the newspaper division, revenues increased 4
percent in the second quarter of 2000 to $228.2 million; division
operating income for the second quarter declined 12 percent to $37.2
million. The overall decline in division operating income is
attributable to increased spending for the marketing and advancement
of washingtonpost.com and a lower pension credit, offset in part by
higher operating income at The Washington Post newspaper.
Print advertising revenues at The Washington Post newspaper
increased 2 percent in the second quarter of 2000. Online advertising
revenues increased approximately 140 percent for the second quarter
2000 compared to the same period in the prior year.
<PAGE> 14
Post daily circulation increased 1 percent; Sunday circulation
decreased 1 percent from the same period last year.
Newsprint expense at the newspaper publishing division increased
6 percent in the second quarter of 2000 due mostly to price increases.
Television Broadcasting. Revenues at the broadcast division totaled
$89.4 million for the second quarter of 2000, a 2 percent decline from
the second quarter of 1999. Division operating income for the quarter
totaled $42.8 million, a decrease of 7 percent from the prior year.
The decline in second quarter 2000 operating results is primarily
attributable to general softness in advertising, as well as a decline
in the pension credit.
Magazine Publishing. Revenues at the magazine division were $115.6
million for the second quarter of 2000, a 15 percent increase from the
second quarter of 1999; division operating income for the second
quarter of 2000 improved 17 percent to $20.8 million.
The 17 percent improvement in second quarter operating results is
due in part to the timing of a technology trade show conducted by the
division's computer technology trade periodicals unit. The trade show
was conducted in the second quarter of 2000 versus the first quarter
of 1999. Improved operating results at Newsweek for the second
quarter of 2000, offset in part by lower pension credits, also
contributed to the division's positive second quarter operating income
trend.
Cable Television. At the cable division, second quarter 2000 revenues
of $89.5 million were 8 percent higher than 1999; division cash flow
(operating income excluding depreciation and amortization expense)
rose to $35.3 million for the second quarter of 2000, an increase of 5
percent over the second quarter of 1999.
Cable division operating income increased 3 percent for the
second quarter of 2000. The increase in operating income is mostly
due to higher rates, offset in part by an increase in programming
expenses and higher depreciation expense.
The increase in depreciation expense is due to capital spending
for system rebuilds and upgrades which will enable the cable division
to offer new digital video and high-speed cable modem services. The
cable division began its roll-out plan for cable modem services in the
second quarter of 2000 and plans to launch its digital services
program in the third quarter of this year.
At the end of the second quarter of 2000, there were 738,400
basic service subscribers.
<PAGE> 15
Education and Career Services. The company provides education and
career services through its subsidiary, Kaplan, Inc. Kaplan's four
major lines of business include Test Preparation and Admissions,
providing test preparation services for college and graduate school
entrance exams; Kaplan Professional, providing education and career
services to business people and other professionals; SCORE!, offering
multi-media learning and private tutoring to children in kindergarten
through twelfth grade; and KaplanCollege.com, Kaplan's distance
learning business, including Concord University School of Law, the
country's first online Law School
Excluding the operating results of the career fair and
HireSystems businesses from 1999 (these businesses were contributed to
BrassRing in the third quarter of 1999), education division revenue
increased 22 percent to $68.8 million in the second quarter of 2000,
compared to $56.4 million in 1999. Operating losses for the quarter
totaled $16.4 million, compared to operating losses of $2.1 million in
the second quarter of 1999. Approximately half of the second quarter
revenue increase for 2000 is attributable to acquisitions. The
remaining increase in revenue is due mostly to growth at the Score!
and test preparation businesses. The decline in 2000 operating
results is primarily attributable to marketing and expansion
activities at Score!, start-up costs associated with eSCORE.com, and
the development of various distance learning initiatives (including
kaptest.com and kaplancollege.com), offset in part by operating income
generated by acquisitions completed after the second quarter of 1999.
Including the operating results of the career fair and
HireSystems businesses in 1999, education and career services revenue
increased 13 percent to $68.8 million in the second quarter of 2000,
compared to $61.0 million in 1999. Operating losses for the second
quarter totaled $16.4 million, compared to operating losses of $7.0
million in the second quarter of 1999.
Test preparation revenues, which comprise approximately half of
Kaplan's annual revenues, are seasonally strongest in the third and
fourth quarters while test preparation operating expenses are
relatively consistent throughout the year.
Other Businesses and Corporate Office. Operating losses for the second
quarter of 2000 totaled $7.3 million, representing an 8 percent
improvement compared to the second quarter of 1999. The reduction in
2000 losses is primarily attributable to the absence of losses
generated by Legi-Slate (sold in June 1999) and reduced spending at
the company's corporate office.
Equity in Earnings and Losses of Affiliates. The company's equity in
losses of affiliates for the second quarter of 2000 was $9.5 million,
compared to earnings of $0.7 million in the second quarter of 1999.
The company's affiliate investments consist of a 42 percent interest
<PAGE> 16
in BrassRing, Inc. (formed in late September 1999), a 50 percent
interest in the International Herald Tribune, and a 49 percent
interest in Bowater Mersey Paper Company Limited. The decline in 2000
affiliate results is primarily attributable to BrassRing, Inc., which
is in the development and marketing phase of its operations.
BrassRing accounted for approximately $9.3 million of the total 2000
second quarter equity in losses of affiliates.
Non-Operating Items. The company recorded other non-operating income
of $1.6 million for the second quarter of 2000, compared to income of
$9.5 million in the second quarter of 1999. The 1999 non-operating
income was comprised mostly of non-recurring gains arising from the
sale of marketable securities (mostly various Internet-related
securities).
Net Interest Expense. For the second quarter of 2000, the company
incurred net interest expense of $12.3 million, compared to $5.2
million for the same period in the prior year. At July 2, 2000, the
company had $797.9 million in borrowings outstanding.
Income taxes. The effective tax rate during the second quarter of
2000 was 43.6 percent compared to 39.2 percent in 1999. The increase
in the effective tax rate is principally due to the non-recognition of
benefits from state net operating loss carryforwards generated by
certain of the company's new business start-up activities.
Earnings Per Share. The calculation of diluted earnings per share for
the second quarter of 2000 was based on 9,458,000 weighted average
shares outstanding, compared to 10,140,000 for the second quarter.
The company made no significant repurchases of its stock during the
second quarter of 2000.
Six Month Comparisons
For the first six months of 2000, net income totaled $65.2
million ($6.82 per share), compared with net income of $113.1 million
($11.08 per share) for the same period in 1999. Consistent with the
company's results for the second quarter of 2000, the decrease in the
company's six-month earnings is primarily attributable to new business
development, the absence of non-recurring gains from the sale
marketable securities which occurred in 1999, higher interest expense,
and a lower pension credit. These factors were offset in part by
increased operating income at The Washington Post newspaper and the
company's magazine publishing division.
Revenue for the first half of 2000 was $1,138.3 million, up 6
percent over revenue of $1,077.6 million for the first six months of
1999. Advertising revenues and circulation and subscriber revenues
increased 5 percent and 4 percent, respectively, over the prior year.
Education revenues increased 31 percent, while other operating
<PAGE> 17
revenues decreased 35 percent, as compared to the first six months of
1999. The increase in advertising revenue is mostly attributable to
advertising gains at The Washington Post newspaper, Newsweek magazine
and washingtonpost.com. The improvement in circulation and subscriber
revenues is attributable to 6 percent improvement in Cable One
subscriber revenues, mainly due to rate increases. The increase in
education revenues arose from acquisitions completed after June 1999,
and to a lesser extent, growth at Score and the test preparation
businesses. The decrease in other revenues is primarily due to the
absence of revenues generated by Legi-Slate (sold in June 1999).
Costs and expenses for the first six months of 2000 increased 9
percent to $972.9 million from $893.6 million in 1999. The increase
in costs and expenses is the result of increased spending for new
business initiatives, higher depreciation expense and lower pension
credits.
The increased spending for new business initiatives occurred
mainly at Kaplan, Inc., and Washingtonpost.Newsweek Interactive. At
Kaplan, new business spending was focused on the build-out of various
distance learning websites (including kaptest.com and
kaplancollege.com) and the marketing and expansion of Score!
Educational Centers. In addition, Kaplan continued the development
and marketing of eSCORE.com, an educational services website designed
to help parents with the development of their children. At
Washingtonpost.Newsweek Interactive, increased spending was dedicated
principally to marketing and sales initiatives.
The increase in depreciation expense is mainly due to capital
spending at Cable One, The Washington Post newspaper and Kaplan. The
company's expenses for the first six months of 2000 were reduced by
$29.2 million of pension credits, compared to $42.7 million during the
first six months of 1999.
Operating income declined 10 percent to $165.4 million, from
$184.0 million in 1999.
Newspaper Publishing. Newspaper division revenues of $452.8 million
in the first half of 2000 were up 6 percent over the comparable period
of 1999; division operating income for the first half of 2000 totaled
$73.5 million, a 3 percent decrease from the prior year. The decrease
in operating income for the first six months is due to increased
spending for the marketing and advancement of washingtonpost.com and
reduced pension credits, offset in part by higher operating income at
The Washington Post newspaper.
Print advertising revenue at The Washington Post newspaper
increased 4 percent for the first six months of 2000. For the first
six months of 2000, daily circulation at The Post increased 1 percent,
<PAGE> 18
while Sunday circulation declined 1 percent compared to the same
period of the prior year. Newsprint expense decreased 3 percent from
the same period in the prior year.
Online advertising revenues increased approximately 140
percent for first six months of 2000 compared to the same period in
the prior year.
Television Broadcasting. Revenues at the broadcast division totaled
$168.2 million, 2 percent less than revenues for the first six months
of 1999; division operating income through the first six months of
1999 totaled $75.1 million, a decline of 7 percent as compared to the
same period in 1999. The overall decrease in broadcast division
operating results is due to general softness in advertising.
Magazine Publishing. Magazine division revenue totaled $200.3 million
for the first six months of 2000, an increase of 5 percent over 1999.
Magazine division operating income for the first six months of 2000
totaled $23.4 million, a 12 percent decrease from 1999.
The 12 percent decline in operating income for the first six
months was principally due to reduced pension credits, offset by
improved operating results at Newsweek.
Cable Television. Cable division revenues of $176.2 million increased
7 percent in the first half of 2000; division cash flow (operating
income excluding depreciation and amortization expense) of $69.1
million increased 3 percent over 1999. Cable division operating income
increased 1 percent for the first six months of 2000. The increase in
operating income is mostly due to higher rates, offset in part by an
increase in programming expenses and higher depreciation expense.
The increase in depreciation expense is due to capital spending
for system rebuilds and upgrades which will enable the cable division
to offer new digital video and high-speed cable modem services.
Education and Career Services. Excluding the operating results of the
career fair and HireSystems businesses from 1999 (these businesses
were contributed to BrassRing in the third quarter of 1999), education
division revenue increased 31 percent to $140.8 million for the first
six months of 2000. Operating losses for the first six months of 2000
totaled $26.0 million, compared to operating losses of $6.7 million
for the same period of 1999. Approximately half of the six-month
revenue increase for 2000 is attributable to acquisitions. The
remaining increase in revenue is due mostly to growth at the Score!
and test preparation businesses. The decline in 2000 operating
results is primarily attributable to marketing and expansion
activities at Score!, start-up costs associated with eSCORE.com, and
the development of various distance learning initiatives (including
<PAGE> 19
kaptest.com and kaplancollege.com), offset in part by operating income
generated by acquisitions completed after the second quarter of 1999.
Including the operating results of the career fair and
HireSystems businesses in 1999, education and career services revenue
increased 19 percent to $140.8 million for the first six months of
2000. Operating losses for the first six months of 2000 totaled $26.0
million compared to $14.3 million in 1999.
Other Businesses and Corporate Office. Operating losses for the first
six months of 2000 totaled $11.4 million, a 25 percent improvement
from 1999. The reduction in 2000 losses is primarily attributable to
the absence of losses generated by Legi-Slate (sold in June 1999) and
reduced spending at the company's corporate office.
Equity in Losses of Affiliates. For the first six months of 2000, the
company's equity in losses of affiliates totaled $20.8 million,
compared to losses of $1.8 million for the same period in 1999. The
decline in 2000 affiliate results is primarily attributable to
BrassRing, Inc., which is in the development and marketing phase of
its operations. BrassRing accounted for approximately $18.3 million
of the total equity in losses of affiliates during the first six
months of 2000.
Non-Operating Items. The company recorded other non-operating losses
of $5.4 million for the first six months of 2000, compared to non-
operating income of $15.6 million for the same period of 1999. The
1999 non-operating income was comprised mostly of non-recurring gains
arising from the sale of marketable securities (mostly various
Internet-related securities).
Income Taxes. The effective tax rate during the first six months of
2000 was 43.0 percent compared to 39.2 percent in 1999. The increase
in the effective tax rate is principally due to the non-recognition of
benefits from state net operating loss carryforwards generated by
certain of the company's new business start-up activities.
Earnings Per Share. The calculation of diluted earnings per share for
the first six months of 2000 was based on 9,458,000 weighted average
shares outstanding, compared to 10,141,000 for the first six months of
1999. The company made no significant repurchases of its stock during
the first six months of 2000.
Financial Condition: Capital Resources and Liquidity
Acquisitions. During the first six months of 2000, the company
acquired various businesses for approximately $16.7 million, including
<PAGE> 20
a cable system in South Sioux City, Nebraska, serving approximately
4,000 subscribers.
Investments in Marketable Equity Securities. At July 2, 2000, the fair
value of the company's investments in marketable equity securities was
$179.0 million, of which $159.0 million consists of the company's
investment in the common stock of Berkshire Hathaway, Inc.
("Berkshire"). The remaining investments in marketable equity
securities consist of common stock investments in various publicly
traded companies, most of which have concentrations in Internet
business activities.
At July 2, 2000 the gross unrealized loss attributable to the
company's investment in the common stock of Berkshire totaled $25.9
million. The company intends to hold the Berkshire stock long-term
and views the unrealized loss position at July 2, 2000 as temporary.
In fact, as of August 8, 2000, the fair value of Berkshire Hathaway,
Inc. common stock had increased to the point where the company's
investment in Berkshire was in a gross unrealized gain position.
During the first six months of 2000, the company received
approximately $5.6 million from the sale of certain marketable equity
securities.
Capital Expenditures. During the first six months of 2000, the
company's capital expenditures totaled approximately $64.6 million,
the most significant portion of which related to plant upgrades at the
company's cable subsidiary. The company anticipates it will spend
approximately $145 million throughout 2000 for property and equipment,
primarily for various projects at the cable, newspaper and broadcast
divisions.
Liquidity. Throughout the first half of 2000 the company repaid $87.6
million of commercial paper borrowings with cash generated from
operations as well as from the receipt of a $45.0 million income tax
refund.
During the first half of 2000, the company had average borrowings
outstanding of approximately $816.8 million at an average annual
interest rate of 5.9 percent.
The company expects to fund its estimated capital needs, including
the Quest acquisition described in Note 5 to the Condensed Consolidated
Financial Statements for the second quarter ended July 2, 2000, primarily
through internally generated funds and commercial paper borrowings.
In management's opinion, the company will have ample liquidity to meet
its various cash needs throughout 2000.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements ("SAB 101"). This bulletin summarizes certain of the
Staff's views in the application of generally accepted accounting
principles to revenue recognition in financial statements. The
required implementation of SAB 101 has been deferred until the fourth
quarter of 2000, although adoption would be as of January 1, 2000.
The company is monitoring on-going interpretations of SAB 101, but at
this time believes that there will be no material impact on the
company's financial statements.
Forward-Looking Statements
All public statements made by the company and its representatives
which are not statements of historical fact, including statements in
<PAGE> 21
this quarterly report, are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results and achievements to
differ materially from those expressed in the forward-looking
statements. These risks and uncertainties include: changes in
prevailing economic conditions, particularly in the specific
geographic and other markets served by the company; actions of
competitors; changes in customer preferences; changes in
communications and broadcast technologies; and the effects of changing
cost or availability of raw materials, including changes in the cost
or availability of newsprint and magazine body paper. They also
include other risks detailed from time to time in the company's
publicly-filed documents, including the company's Annual Report on
Form 10-K for the period ended January 2, 2000.
<PAGE> 22
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the company's May 11, 2000, Annual Meeting of Stockholders, the
stockholders elected each of the nominees to its Board of Directors
named in the company's proxy statement dated March 31, 2000. The
voting results are set forth below:
Class A Directors
Votes Votes Broker
Nominee For Withheld Non-Votes
Warren E. Buffett 1,739,250 -0- -0-
George J. Gillespie III 1,739,250 -0- -0-
Donald E. Graham 1,739,250 -0- -0-
Katharine Graham 1,739,250 -0- -0-
William J. Ruane 1,739,250 -0- -0-
Richard D. Simmons 1,739,250 -0- -0-
George W. Wilson 1,739,250 -0- -0-
Class B Directors
Votes Votes Broker
Nominee For Withheld Non-Votes
Daniel B. Burke 6,305,104 25,804 -0-
Donald R. Keough 6,301,816 29,092 -0-
Ralph E. Gormory 6,305,304 25,604 -0-
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as exhibits to this report:
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company as amended through
May 12, 1998, 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 March 17, 1998 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 28, 1997).
4.2 Form of the Company's 5.50% Notes due February 15, 2009,
issued under the Indenture dated as of February 17, 1999,
between the Company and The First National Bank of Chicago, as
Trustee (incorporate by reference to Exhibit 4.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 3, 1999).
4.3 Indenture dated as of February 17, 1999, between the Company
and The First National Bank of Chicago, as Trustee
(incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended January
3, 1999).
11 Calculation of Earnings per Share of
Common Stock.
27 Financial Data Schedule - July 2, 2000 (Electronic filing only).
(b) On June 27, 2000, the company filed a report on Form 8-K
related to the announcement of its agreement to purchase all
the outstanding shares of Quest Education Corporation in an
all cash tender offer to be commenced by Kaplan, Inc., a
wholly-owned subsidiary of the company.
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE WASHINGTON POST COMPANY
(Registrant)
Date: August 11, 2000 /s/ Donald E. Graham
--------------- ----------------------------
Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: August 11 , 2000 /s/ John B. Morse, Jr.
---------------- ----------------------------
John B. Morse, Jr., Vice
President-Finance
(Principal Financial Officer)
