SEC Filing | Graham Holdings Company

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 ------------ 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 August 8, 2000: Class A Common Stock 1,739,250 Shares Class B Common Stock 7,709,095 Shares

2 THE WASHINGTON POST COMPANY Index to Form 10-Q Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income (Unaudited) for the Thirteen and 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)

3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements The Washington Post Company Condensed Consolidated Statements of Income (Unaudited) 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 -------- -------- --------- --------- 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

4 The Washington Post Company Condensed Consolidated Statements of Comprehensive Income (Unaudited) Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 2, July 4, July 2, July 4, (In thousands) 2000 1999 2000 1999 -------- -------- -------- -------- 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 ======== ======== ======== ========

5 The Washington Post Company Condensed Consolidated Balance Sheets (In thousands) July 2, 2000 January 2, (unaudited) 2000 Assets --------- ---------- 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 ========== ==========

6 The Washington Post Company Condensed Consolidated Statements of Cash Flows (Unaudited) Twenty-six Weeks Ended ---------------------- July 2, July 4, (In thousands) 2000 1999 ---------- ---------- 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 ========== ==========

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): July 2, January 2, 2000 2000 -------- --------- Total cost $198,982 $194,364 Gross unrealized (losses) gains (19,969) 8,648 -------- --------- Total fair value $179,013 $203,012 ======== ========= 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.

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.

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) Education Other and Businesses Newspaper Television Magazine Cable Career and Corporate Publishing Broadcasting Publishing Television Services Office Consolidated ---------- ------------ ---------- ---------- -------- ------------- ------------ 2000 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 =========

10 Six Month Period (in thousands) Education Other and Businesses Newspaper Television Magazine Cable Career and Corporate Publishing Broadcasting Publishing Television Services Office Consolidated ---------- ------------ ---------- ---------- -------- ------------- ------------ 2000 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 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.

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.

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.

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.

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.

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

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

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,

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

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

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

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.

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-

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.

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)

1 EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE OF COMMON STOCK (In thousands of shares) Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------- ---------------------- July 2, July 4, July 2, July 4, 2000 1999 2000 1999 -------------------- ---------------------- Number of shares of Class A and Class B Common stock outstanding at beginning of period 9,440 10,099 9,439 10,093 Issuance of shares of Class B common stock (weighted), net of forfeiture of re- stricted stock awards 3 3 2 8 Repurchase of Class B common stock (weighted) - (4) - (3) ------ ------ ------ ------ Shares used in the computation of basic earnings per share 9,443 10,098 9,441 10,098 Adjustment to reflect dilution from common stock equivalents 15 42 17 43 ------ ------ ------ ------ Shares used in the computation Of diluted earnings per share 9,458 10,140 9,458 10,141 ------ ------ ------ ------ 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 ------ ------ ------ -------

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

5 This schedule contains summary financial information extracted from the Condensed Consolidated Statement of Income for the twenty-six weeks ended July 2, 2000 and the Condensed Consolidated Balance Sheet as of July 2, 2000 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS Dec-31-2000 July-2-2000 26,520 179,013 371,115 78,138 26,468 429,004 1,544,264 678,484 2,966,546 749,350 397,751 13,148 0 20,000 1,371,034 2,966,546 0 1,138,311 0 612,297 0 37,063 25,140 114,546 49,300 65,246 0 0 0 65,246 6.83 6.82