1 This report (including all exhibits) consists of a total of 12 pages, of which this page is number 1. The exhibit index is on page 10. 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 April 3, 1994 Commission File Number 1-6714 ------------------------------------------------------------------- THE WASHINGTON POST COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 53-0182885 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1150 15th Street, N.W. Washington, D.C. 20071 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (202) 334-6000 - -------------------------------------------------------------------------------- (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 April 30, 1994: Class A Common Stock 1,843,250 Shares Class B Common Stock 9,869,154 Shares 2 THE WASHINGTON POST COMPANY INDEX TO FORM 10-Q 2
PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income (Unaudited) for the Thirteen Weeks Ended April 3, 1994 and April 4, 1993......... 3 Condensed Consolidated Balance Sheets (Unaudited) at April 3, 1994 and January 2, 1994.......... 4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Thirteen Weeks Ended April 3, 1994 and April 4, 1993............... 5 Notes to Condensed Consolidated Financial Statements (Unaudited)................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..................... 10 Signatures...................................................... 11 Exhibit 11...................................................... 12 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The Washington Post Company Consolidated Statements of Income (Unaudited) 3
Thirteen Weeks Ended ------------------------------- April 3, April 4, (In thousands, except per share amounts) 1994 1993 -------- -------- Operating revenues Advertising $212,195 $214,602 Circulation and subscriber 109,165 113,428 Other 37,094 33,676 ------- -------- 358,454 361,706 ------- -------- Operating costs and expenses Operating 199,553 195,083 Selling, general and administrative 88,957 97,783 Depreciation and amortization of property, plant and equipment 14,710 14,982 Amortization of goodwill and other intangibles 4,031 4,067 ------- ------- 307,251 311,915 ------- ------- Income from operations 51,203 49,791 Other income (expense) Equity in losses of affiliates (5,385) (1,795) Interest income 3,565 2,606 Interest expense (1,435) (1,446) Other 2,604 (51) ------- ------- Income before income taxes and cumulative effect of change in accounting principle 50,552 49,105 ------- ------- Provision for income taxes Current 22,962 20,991 Deferred (1,222) (391) ------- ------- 21,740 20,600 ------- ------- Income before cumulative effect of change in accounting principle 28,812 28,505 Cumulative effect of change in method of accounting for income taxes -- 11,600 ------- ------- Net income $ 28,812 $ 40,105 ======= ======= Earnings per share: Before cumulative effect of change in accounting principle $2.46 $2.42 Cumulative effect of change in accounting principle -- .98 ------ ------ Net income $ 2.46 $ 3.40 ====== ====== Dividends declared per share $ 2.10 $ 2.10 ====== ====== Average number of shares outstanding 11,720 11,796 4 The Washington Post Company Consolidated Balance Sheets (Unaudited) 4
April 3, January 2, (In thousands) 1994 1994 -------- -------- Assets Current assets Cash and cash equivalents $ 377,891 $ 171,512 Marketable securities 76,870 258,412 Accounts receivable, less estimated returns, doubtful accounts and allowances 126,004 140,518 Inventories 20,678 16,419 Program rights 14,564 15,460 Other current assets 17,451 23,253 --------- --------- 633,458 625,574 Investments in affiliates 158,845 155,251 Property, plant and equipment Buildings 170,159 166,433 Machinery, equipment and fixtures 582,030 579,423 Leasehold improvements 29,452 29,287 --------- --------- 781,641 775,143 Less accumulated depreciation and amortization (482,015) (469,359) --------- --------- 299,626 305,784 Land 28,841 28,799 Construction in progress 43,269 29,135 --------- --------- 371,736 363,718 Goodwill and other intangibles, less accumulated amortization 304,898 309,157 Deferred charges and other assets 190,675 168,804 --------- -------- $1,659,612 $1,622,504 ========= ========= Liabilities and Shareholders' equity Current liabilities Accounts payable and accrued liabilities $ 147,639 $ 163,553 Federal and state income taxes 36,912 15,726 Deferred subscription revenue 80,779 79,254 Dividends declared 12,299 -- --------- -------- 277,629 258,533 Other liabilities 195,610 191,088 Long-term debt 50,350 51,768 Deferred income taxes 37,415 33,696 --------- --------- 561,004 535,085 Shareholders' equity Capital stock 20,000 20,000 Capital in excess of par value 21,322 21,354 Retained earnings 1,574,759 1,570,546 Unrealized gain on available-for-sale securities (Note 3) 6,285 -- Cumulative foreign currency translation adjustment 3,645 2,908 Cost of class B common stock held in Treasury (527,403) (527,389) --------- --------- 1,098,608 1,087,419 --------- -------- $1,659,612 $1,622,504 ========= ========= 5 The Washington Post Company Consolidated Statements of Cash Flows (Unaudited) 5
Thirteen Weeks Ended ------------------------------ April 3, April 4, (In thousands) 1994 1993 -------- -------- Cash flows from operating activities: Net income $ 28,812 $ 40,105 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle -- (11,600) Depreciation and amortization of property, plant and equipment 14,710 14,982 Amortization of goodwill and other intangibles 4,031 4,067 Amortization of program rights 4,661 4,795 Provision for doubtful accounts 15,276 14,319 Increase in interest and income taxes payable 17,437 11,047 Provision for deferred income taxes (1,222) (391) Change in assets and liabilities: (Increase) in accounts receivable (937) (33,879) (Increase) in inventories (4,259) (1,557) (Decrease) in accounts payable and accrued liabilities (11,905) (8,634) Other 5,202 6,281 -------- -------- Net cash provided by operating activities 71,806 39,535 Cash flows from investing activities: Purchases of property, plant and equipment (22,894) (17,673) Purchases of marketable securities -- (103,965) Proceeds from sales of marketable securities 182,587 124,200 Investments in certain businesses (8,750) -- Payments for program rights (4,526) (5,361) Other 456 18 -------- -------- Net cash provided (used) by investing activities 146,873 (2,781) Cash flows from financing activities: Dividends paid (12,300) (12,404) Common shares repurchased -- (14,947) -------- -------- Net cash (used) by financing activities (12,300) (27,351) -------- -------- Net increase in cash and cash equivalents 206,379 9,403 Beginning cash and cash equivalents 171,512 86,840 -------- -------- Ending cash and cash equivalents $ 377,891 $ 96,243 ======== ======== 6 The Washington Post Company Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1: Results of operations, when examined on a quarterly basis, reflect the seasonality of advertising that affects the newspaper, magazine and broadcasting operations. Advertising revenues in the second and fourth quarters are typically higher than first and third quarter revenues. All adjustments reflected in the interim financial statements are of a normal recurring nature. Note 2: Summarized combined (unaudited) results of operations for the first quarters of 1994 and 1993 for the company's affiliates are as follows (in thousands): Note 3: Effective January 3, 1994, the company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). The adoption of SFAS No. 115 requires that certain investments in equity securities held by the company be classified as "available-for-sale" and measured at fair value. At April 3, 1994, the fair value of such equity securities was $14,341,000, which exceeded cost by approximately $11,026,000. The unrealized gain, net of deferred taxes of $4,741,000, is included as a separate item in shareholders' equity. 6
First Quarter ------------------------ 1994 1993 --------- --------- Operating revenues $167,142 $162,301 Operating income 2,454 (4,129) Net loss (4,204) (3,323) 7 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 fluctuations in advertising volume. For that reason, the results of operations for each quarter are compared with those of the corresponding quarter in the preceding year. RESULTS OF OPERATIONS Net income for the first quarter of 1994 was $28.8 million ($2.46 per share), a decrease of 28 percent from net income of $40.1 million ($3.40 per share) last year. First quarter 1993 earnings included a one-time credit of $11.6 million ($.98 per share) resulting from the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Excluding this credit, net income in the first quarter of 1993 was $28.5 million ($2.42 per share). Revenues for the first three months of 1994 were $358.5 million, a decrease of 1 percent from $361.7 million in the same period last year. Advertising revenues declined 1 percent and circulation revenues fell 4 percent, while other revenues increased 10 percent. Costs and expenses for the first quarter of 1994 decreased 1.5 percent to $307.3 million, from $311.9 million in the first quarter of 1993. Operating expenses increased 2 percent, while selling, general and administrative expenses decreased 9 percent compared with the first three months of 1993. Normal increases in fixed costs, such as payroll and fringe benefits, were more than offset by newsprint and magazine paper expenses and other circulation related expenses, which declined due to lower consumption. In the first quarter of 1994 operating income rose to $51.2 million, a 3 percent increase over $49.8 million in 1993. Newspaper Division. At the newspaper division revenues decreased 2 percent in the first three months of 1994. Advertising revenues for the division fell 2 percent, primarily due to a 3.5 percent decline in advertising volume at The Washington Post. Retail linage at The Post decreased 8.5 percent and classified volume was down 1 percent. A soft market continues to affect the real estate category, while recruitment advertising remains strong. General linage increased 4 percent and preprint volume was even with the same period last year. Circulation revenues were flat when compared with the first quarter of 1993. Daily circulation at The Post declined slightly in the quarter as a result of 7 8 adverse weather conditions in January and February in the Washington, D.C., area; Sunday circulation was even with the same period last year. Broadcast Division. Revenues at the broadcast division increased 13 percent over the first quarter of 1993. Local advertising revenues increased 15 percent and national advertising revenues rose 12 percent in the first quarter of 1994. The major factor contributing to this improvement was an increase in automotive advertising. Magazine Division. Newsweek revenues in the first quarter of 1994 decreased 8 percent, principally due to a 12 percent decline in advertising revenues. Fewer pages and lower rates at the domestic edition were the major contributors to the decrease. Circulation revenues fell 3 percent at Newsweek, primarily due to lower volume at both the domestic and international divisions. In the first quarter of 1994 Newsweek published the same number of weekly (13) and special (1) issues as in 1993. Cable Division. At the cable division first quarter 1994 revenues were 3 percent lower than 1993, including operations in the United Kingdom, which were subsequently sold during 1993. Excluding foreign operations, cable division revenues were even with the first three months of 1993. A 2 percent increase in basic subscribers was offset by a decrease in subscriber rates attributable to the rate freeze and reductions enacted in the 1992 Cable Act. Other Businesses. In the first quarter of 1994, revenues from other businesses, principally Stanley H. Kaplan Educational Center, Pro Am Sports System (PASS), and Legi-Slate, increased 10 percent. Revenues at Kaplan increased 7 percent over the first three months of 1993, and enrollments increased 8 percent. Equity in Earnings and Losses of Affiliates. The company's equity in earnings of affiliates in the first quarter of 1994 was a loss of $5.4 million, compared with a loss of $1.8 million in the first quarter of 1993. Lower results at the company's affiliated newsprint mills, which included a large gain on the sale of land in the first three months of 1993, were the major reason for the decrease. Non-operating Items. Interest income, net of interest expense, was $2.1 million, compared with $1.2 million in the same period last year. The increase was attributable to higher invested cash balances. Other income in the first quarter of 1994 was $2.6 million, compared with other expense of $.1 million in the first quarter of 1993. In 1994 other income included a gain of $2.5 million resulting from a change in the company's ownership interest in one of its affiliates. 8 9 FINANCIAL CONDITION In January 1994 American PCS, L.P. (known as American Personal Communications or APC), a limited partnership in which the company has a 70 percent interest, filed an application for a PCS authorization with the Federal Communications Commission (FCC). APC has begun some operations, and immediately following receipt of authorization from the FCC, the company expects to substantially increase the level of its capital investment in the business. In February 1994 the FCC issued new rules related to pricing and the reregulation of the cable industry. The company has evaluated the rules and does not expect them to have a material effect on consolidated financial results. In April 1994 the company purchased the assets of two television stations in Houston and San Antonio, Texas, for $253 million in cash and the assumption of approximately $4 million in liabilities related to the operations of the two stations. The company has experienced no other significant changes in its financial condition since the end of 1993. 9 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) The following documents are filed as exhibits to this report: (b) No reports on Form 8-K were filed during the period covered by this report. 10
EXHIBIT FILING NUMBER DESCRIPTION PAGE NUMBER 11 Calculation of average number of shares outstanding.......................... 12 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE WASHINGTON POST COMPANY (Registrant) Date: May 18, 1994 /s/ Donald E. Graham ------------------------------------- Donald E. Graham, Chairman & Chief Executive Officer (Principal Executive Officer) Date: May 18, 1994 /s/ John B. Morse, Jr. ------------------------------------- John B. Morse, Jr., Vice President-Finance (Principal Financial Officer) 11
1 Exhibit 11 CALCULATION OF AVERAGE NUMBER OF SHARES OUTSTANDING (In thousands of shares) 12
Thirteen Weeks Ended -------------------- April 3, April 4, 1994 1993 -------- -------- Number of shares of Class A and Class B stock outstanding at beginning of period 11,713 11,798 Issuance of shares of Class B common stock (weighted), net of forfeiture of re- stricted stock awards --- 14 Repurchase of Class B common stock (weighted) --- (21) Unexercised stock option equivalent shares com- puted under the "treasury stock method" 7 5 ------- ------- Average number of shares outstanding during the period 11,720 11,796 ======= =======