e10vk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
JANUARY 2, 2005
Commission file number 1-6714
The Washington Post Company
(Exact name of registrant as specified in its charter)
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Delaware |
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53-0182885 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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1150 15th St.,
N.W., Washington, D.C. |
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20071 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (202) 334-6000
Securities Registered Pursuant to Section 12(b) of the Act:
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Name of each exchange |
Title of each class |
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on which registered |
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Class B Common Stock, Par Value |
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New York Stock Exchange |
$1.00 Per Share |
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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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes þ No o
Aggregate market value of the Companys voting stock held by non-affiliates on
June 27, 2004, based on the closing price for the Companys Class B Common
Stock on the New York Stock Exchange on such date: approximately
$4,927,000,000.
Shares of common stock outstanding at
February 18, 2005:
Class A Common Stock 1,722,250 shares
Class B Common Stock 7,866,357 shares
Documents partially incorporated by reference:
Definitive Proxy Statement for the
Companys 2005 Annual Meeting of Stockholders
(incorporated in Part III to the extent provided in Items 10, 11, 12,
13 and 14 hereof).
THE WASHINGTON POST COMPANY 2004 FORM 10-K
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PART I |
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Page |
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Item 1.
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Business |
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1 |
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Newspaper Publishing |
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1 |
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Television Broadcasting |
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3 |
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Cable Television Operations |
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7 |
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Education |
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10 |
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Magazine Publishing |
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13 |
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Other Activities |
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15 |
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Production and Raw Materials |
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15 |
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Competition |
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16 |
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Executive Officers |
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18 |
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Employees |
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Forward-Looking Statements |
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Available Information |
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20 |
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Item 2.
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Properties |
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20 |
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Item 3.
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Legal Proceedings |
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22 |
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Item 4.
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Submission of Matters to a Vote of Security Holders |
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22 |
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PART II |
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Item 5.
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Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities |
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22 |
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Item 6.
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Selected Financial Data |
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22 |
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations |
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22 |
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk |
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22 |
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Item 8.
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Financial Statements and Supplementary Data |
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23 |
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure |
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23 |
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Item 9A.
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Controls and Procedures |
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23 |
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Item 9B.
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Other Information |
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24 |
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PART III |
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Item 10.
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Directors and Executive Officers of the Registrant |
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24 |
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Item 11.
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Executive Compensation |
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24 |
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters |
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25 |
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Item 13.
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Certain Relationships and Related Transactions |
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25 |
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Item 14.
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Principal Accountant Fees and Services |
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25 |
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PART IV |
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Item 15.
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Exhibits and Financial Statement Schedules |
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25 |
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SIGNATURES |
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26 |
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INDEX TO FINANCIAL INFORMATION |
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27 |
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Managements Discussion and Analysis of Results
of Operations and Financial Condition |
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28 |
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Financial Statements and Schedules: |
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Report of Independent Registered Public
Accounting Firm |
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38 |
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Consolidated Statements of Income and
Consolidated Statements of Comprehensive Income for the Three
Fiscal Years Ended
January 2, 2005 |
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39 |
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Consolidated Balance Sheets at January
2, 2005 and December 28, 2003 |
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40 |
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Consolidated Statements of Cash Flows
for the Three Fiscal Years Ended January 2, 2005 |
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42 |
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Consolidated Statements of Changes in
Common Shareholders Equity for the Three Fiscal Years
Ended January 2, 2005 |
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43 |
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Notes to Consolidated Financial
Statements |
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44 |
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Financial Statement Schedule for the
Three Fiscal Years Ended January 2, 2005: |
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II Valuation and
Qualifying Accounts |
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59 |
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Ten-Year Summary of Selected Historical Financial
Data (Unaudited) |
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60 |
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INDEX TO EXHIBITS |
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63 |
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PART I
Item 1. Business.
The principal business activities of The Washington Post Company
(the Company) consist of newspaper publishing
(principally The Washington Post), television
broadcasting (through the ownership and operation of six
television broadcast stations), the ownership and operation of
cable television systems, the provision of educational services
(through its Kaplan subsidiary), and magazine publishing
(principally Newsweek magazine).
Information concerning the consolidated operating revenues,
consolidated income from operations and identifiable assets
attributable to the principal segments of the Companys
business for the last three fiscal years is contained in
Note N to the Companys Consolidated Financial
Statements appearing elsewhere in this Annual Report on
Form 10-K. (Revenues for each segment are shown in such
Note N net of intersegment sales, which did not exceed 0.1%
of consolidated operating revenues.)
The Companys operations in geographic areas outside the
United States (consisting primarily of Kaplans foreign
operations and the publication of the international editions of
Newsweek) during the Companys 2004, 2003 and 2002
fiscal years accounted for approximately 6%, 5% and 3%,
respectively, of its consolidated revenues, and the identifiable
assets attributable to such operations represented approximately
6% of the Companys consolidated assets at January 2,
2005 and December 28, 2003, and less than 2% of the
Companys consolidated assets at December 29, 2002.
Newspaper Publishing
The Washington Post
WP Company LLC (WP Company), a subsidiary of the
Company, publishes The Washington Post, which is a
morning and Sunday newspaper primarily distributed by home
delivery in the Washington, D.C. metropolitan area, including
large portions of Virginia and Maryland.
The following table shows the average paid daily (including
Saturday) and Sunday circulation of The Post for the
12-month periods ended September 30 in each of the last five
years, as reported by the Audit Bureau of Circulations
(ABC) for the years 20002003 and as estimated
by The Post for the 12-month period ended
September 30, 2004 (for which period ABC had not completed
its audit as of the date of this report) from the semiannual
publishers statements submitted to ABC for the six-month
periods ended March 31, 2004 and September 30, 2004:
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Average Paid Circulation |
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Daily |
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Sunday |
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2000
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777,521 |
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1,075,918 |
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2001
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771,614 |
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1,066,723 |
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2002
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767,843 |
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1,058,458 |
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2003
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749,323 |
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1,035,204 |
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2004
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729,981 |
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1,016,533 |
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The newsstand price for the daily newspaper was increased from
$0.25 (which had been the price since 1981) to $0.35 effective
December 31, 2001. The newsstand price for the Sunday
newspaper has been $1.50 since 1992. In July 2004 the rate
charged for home-delivered copies of the daily and Sunday
newspaper for each four-week period was increased to $14.40 from
$13.44, which had been the rate since July 2003. The
corresponding rate charged for Sunday-only home delivery has
been $6.00 since 1991.
General advertising rates were increased by an average of
approximately 5.3% on January 1, 2004, and by approximately
another 4.5% on January 1, 2005. Rates for most categories
of classified and retail advertising were increased by an
average of approximately 3.2% on February 1, 2004, and by
approximately an additional 3.4% on February 1, 2005.
The following table sets forth The Posts
advertising inches (excluding preprints) and number of preprints
for the past five years:
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2000 | |
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2001 |
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2002 |
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2003 |
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2004 |
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Total Inches (in thousands)
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3,363 |
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2,714 |
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2,657 |
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2,675 |
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2,726 |
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Full-Run Inches
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2,634 |
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2,296 |
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2,180 |
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2,121 |
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2,120 |
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Part-Run Inches
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729 |
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418 |
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477 |
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554 |
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606 |
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Preprints (in millions)
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1,602 |
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1,556 |
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1,656 |
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1,835 |
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1,887 |
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2004 FORM 10-K
1
WP Company also publishes The Washington Post National Weekly
Edition, a tabloid that contains selected articles and
features from The Washington Post edited for a national
audience. The National Weekly Edition has a basic
subscription price of $78 per year and is delivered by
second-class mail to approximately 42,000 subscribers.
The Post has about 645 full-time editors, reporters and
photographers on its staff; draws upon the news reporting
facilities of the major wire services; and maintains
correspondents in 21 news centers abroad and in New York City;
Los Angeles; San Francisco; Chicago; Miami; Austin, Texas; and
Seattle, Washington. The Post also maintains reporters in
12 local news bureaus.
In August 2003, Express Publications Company, LLC (Express
Publications), another subsidiary of the Company, began
publishing a weekday tabloid newspaper named Express,
which is distributed free of charge using hawkers and news
boxes near Metro stations and in other locations in
Washington, D.C. and nearby suburbs with heavy daytime
sidewalk traffic. A typical edition of Express is 28 to
36 pages long and contains short news, entertainment and sports
stories as well as both classified and display advertising.
Current daily circulation is approximately 157,000 copies.
Express relies primarily on wire service and syndicated
content and is edited by a full-time newsroom staff of 13.
Advertising sales, production, and certain other services for
Express are provided by WP Company.
Washingtonpost.Newsweek Interactive
Washingtonpost.Newsweek Interactive Company, LLC
(WPNI) develops news and information products for
electronic distribution. Since 1996 this subsidiary of the
Company has produced washingtonpost.com, an Internet site that
features the full editorial text of The Washington Post
and most of The Posts classified advertising,
as well as original content created by WPNIs staff and
content obtained from other sources. As measured by WPNI, this
site is currently generating more than 190 million page
views per month. The washingtonpost.com site also features
comprehensive information about activities, groups and
businesses in the Washington, D.C. area, including an arts and
entertainment section and a news section focusing on technology
businesses and related policy issues. This site has developed a
substantial audience of users who are outside of the Washington,
D.C. area, and WPNI believes that at least three-quarters of the
unique users who access the site each month are in that
category. Since 2002 WPNI has required most users accessing the
washingtonpost.com site to register and provide their year of
birth, gender and zip code. The resulting information helps WPNI
provide online advertisers with opportunities to target specific
geographic areas and demographic groups. Early in 2004 this
registration process was modified to include the collection of
additional information from users, including job title and the
type of industry in which the user works. WPNI also offers
registered users the option of receiving various e-mail
newsletters that cover specific topics, including political news
and analysis, personal technology, and entertainment.
WPNI also produces the Newsweek Internet site, which was
launched in 1998 and contains editorial content from the print
edition of Newsweek as well as daily news updates and
analysis, photo galleries, web guides and other features.
On January 14, 2005, WPNI purchased Slate, an online
magazine that was founded by Microsoft Corporation in 1996.
Slate features articles analyzing news, politics and
contemporary culture, and adds new material on a daily basis.
Content is supplied by the magazines own editorial staff
as well as by independent contributors.
WPNI holds a minority equity interest in Classified Ventures
LLC, a company formed to compete in the business of providing
nationwide classified advertising databases on the Internet. The
Classified Ventures databases cover the product categories of
automobiles, apartment rentals and real estate. Listings for
these databases come from various sources, including direct
sales and classified listings from the newspapers of
participating companies. Links to the Classified Ventures
databases are included in the washingtonpost.com site.
Under an agreement signed in 2000 and amended in 2003, WPNI and
several other business units of the Company have been sharing
certain news material and promotional resources with NBC News
and MSNBC. Among other things, under this agreement the
Newsweek website has become a feature on MSNBC.com and
MSNBC.com is being provided access to certain content from
The Washington Post. Similarly, washingtonpost.com is
being provided access to certain MSNBC.com multimedia content.
Community Newspaper Division of Post-Newsweek Media
The Community Newspaper Division of Post-Newsweek Media, Inc.
publishes two weekly paid-circulation, three twice-weekly
paid-circulation and 34 controlled-circulation weekly community
newspapers. This divisions newspapers are divided into two
groups: The Gazette Newspapers, which circulate in
Montgomery, Prince Georges and Frederick Counties and in
parts of Carroll County, Maryland; and Southern Maryland
Newspapers, which circulate in southern Prince Georges
County and in Charles, St. Marys and Calvert Counties,
Maryland. During 2004 these newspapers had a
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THE WASHINGTON POST COMPANY
combined average circulation of approximately 680,000 copies.
This division also produces military newspapers (most of which
are weekly) under agreements where editorial material is
supplied by local military bases; in 2004 the 12 military
newspapers produced by this division had a combined average
circulation of more than 195,000 copies.
The Gazette Newspapers and Southern Maryland
Newspapers together employ approximately 165 editors,
reporters and photographers.
This division also operates two commercial printing businesses
in suburban Maryland.
The Herald
The Company owns The Daily Herald Company, publisher of The
Herald in Everett, Washington, about 30 miles north of
Seattle. The Herald is published mornings seven days a
week and is primarily distributed by home delivery in Snohomish
County. The Daily Herald Company also provides commercial
printing services and publishes four controlled-circulation
weekly community newspapers (collectively known as The
Enterprise Newspapers) that are distributed in south
Snohomish and north King Counties.
The Heralds average paid circulation as reported to
ABC for the 12 months ended September 30, 2004, was 50,659
daily (including Saturday) and 55,899 Sunday. The aggregate
average weekly circulation of The Enterprise Newspapers
during the 12-month period ended December 31, 2004, was
approximately 77,500 copies.
The Herald and The Enterprise Newspapers together
employ approximately 80 editors, reporters and photographers.
Greater Washington Publishing
The Companys Greater Washington Publishing, Inc.
subsidiary publishes several free-circulation advertising
periodicals that have little or no editorial content and are
distributed in the greater Washington, D.C. metropolitan area
using sidewalk distribution boxes. Greater Washington
Publishings two largest periodicals are The Washington
Post Apartment Showcase, which is published monthly and has
an average circulation of about 55,000 copies, and New Homes
Guide, which is published six times a year and also has an
average circulation of about 55,000 copies.
El Tiempo Latino
In May 2004 the Company acquired El Tiempo Latino LLC, the
publisher of El Tiempo Latino, a weekly Spanish-language
newspaper that is distributed free of charge in northern
Virginia, suburban Maryland and Washington, D.C. using sidewalk
news boxes and retail locations that provide space for
distribution. El Tiempo Latino provides a mix of local,
national and international news along with sports and
community-events coverage, and has a current circulation of
approximately 45,000 copies. Employees of the newspaper handle
advertising sales as well as pre-press production, and content
is provided by a combination of wire service copy, contributions
from freelance writers and photographers, and stories produced
by the newspapers own editorial staff.
Television Broadcasting
Through subsidiaries, the Company owns six VHF television
stations located in Detroit, Michigan; Houston, Texas; Miami,
Florida; Orlando, Florida; San Antonio, Texas; and Jacksonville,
Florida; which are, respectively, the 10th, 11th, 17th, 20th,
37th and 52nd largest broadcasting markets in the United States.
Five of the Companys television stations are affiliated
with one or another of the major national networks. The
Companys Jacksonville station, WJXT, has operated as an
independent station since July 2002.
The Companys 2004 net operating revenues from national and
local television advertising and network compensation were as
follows:
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National
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$ |
130,659,000 |
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Local
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209,256,000 |
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Network
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17,735,000 |
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Total
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$ |
357,650,000 |
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2004 FORM 10-K
3
The following table sets forth certain information with respect
to each of the Companys television stations:
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Station Location and |
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Expiration |
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Total Commercial |
Year Commercial |
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National |
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Expiration |
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Date of |
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Stations in DMA(b) |
Operation |
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Market |
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Network |
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Date of FCC |
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Network |
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Commenced |
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Ranking(a) |
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Affiliation |
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License |
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Agreement |
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Allocated |
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Operating |
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WDIV
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10th |
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NBC |
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Oct. 1, |
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Dec. 31, |
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VHF-4 |
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VHF-4 |
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Detroit, Mich.
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2005 |
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2011 |
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UHF-6 |
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UHF-5 |
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1947
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KPRC
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11th |
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NBC |
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Aug. 1, |
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Dec. 31, |
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VHF-3 |
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VHF-3 |
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Houston, Tx.
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2006 |
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2011 |
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UHF-11 |
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UHF-11 |
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1949
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WPLG
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17th |
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ABC |
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Feb. 1, |
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Dec. 31, |
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VHF-5 |
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VHF-5 |
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Miami, Fla.
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2005(c) |
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2009 |
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UHF-8 |
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UHF-8 |
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1961
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WKMG
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20th |
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CBS |
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Feb. 1, |
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Apr. 6, |
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VHF-3 |
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VHF-3 |
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Orlando, Fla.
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2013 |
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2015 |
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UHF-11 |
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UHF-10 |
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1954
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KSAT
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37th |
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ABC |
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Aug. 1, |
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Dec. 31, |
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VHF-4 |
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VHF-4 |
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San Antonio, Tx.
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2006 |
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2009 |
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UHF-6 |
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UHF-6 |
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1957
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WJXT
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52nd |
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None |
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Feb. 1, |
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VHF-2 |
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VHF-2 |
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Jacksonville, Fla.
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2013 |
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UHF-6 |
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UHF-5 |
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1947
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(a) |
Source: 2004/2005 DMA Market Rankings, Nielsen Media Research,
Fall 2004, based on television homes in DMA (see note
(b) below). |
|
(b) |
Designated Market Area (DMA) is a market designation
of A.C. Nielsen which defines each television market exclusive
of another, based on measured viewing patterns. References to
stations that are operating in each market are to stations that
are broadcasting analog signals. However most of the stations in
these markets are also engaged in digital broadcasting using the
FCC-assigned channels for DTV operations. |
|
(c) |
The Company has filed a timely application to renew the FCC
license of WPLG and such filing extends the effectiveness of the
stations existing license until the renewal application is
acted upon. |
Regulation of Broadcasting and Related Matters
The Companys television broadcasting operations are
subject to the jurisdiction of the Federal Communications
Commission under the Communications Act of 1934, as amended.
Under authority of such Act the FCC, among other things, assigns
frequency bands for broadcast and other uses; issues, revokes,
modifies and renews broadcasting licenses for particular
frequencies; determines the location and power of stations and
establishes areas to be served; regulates equipment used by
stations; and adopts and implements various regulations and
policies that directly or indirectly affect the ownership,
operations and profitability of broadcasting stations.
Each of the Companys television stations holds an FCC
license which is renewable upon application for an eight-year
period.
In 1996 the FCC formally approved technical standards for
digital television (DTV). DTV is a flexible system
that permits broadcasters to utilize a single digital channel in
various ways, including providing one channel of high-definition
television (HDTV) programming with greatly enhanced
image and sound quality or several channels of lower-definition
television programming (multicasting), and also is
capable of accommodating subscription video and data services.
Available compression technology also allows broadcasters to
transmit simultaneously one channel of HDTV programming and at
least one channel of lower-definition programming. Broadcasters
may offer a combination of services as long as they transmit at
least one stream of free video programming on the DTV channel.
The FCC assigned to each existing full-power television station
(including each station owned by the Company) a second channel
to implement DTV while present television operations are
continued on that stations analog channel. Although in
some cases a stations DTV channel may only permit
operation over a smaller geographic service area than that
available using its analog channel, the FCCs stated goal
in assigning channels was to provide stations with DTV service
areas that are generally consistent with their analog service
areas. Under FCC rules and the Balanced Budget Act of 1997, if
specified DTV household penetration levels are met, station
owners will be required to surrender one channel in 2006 and
thereafter provide service solely in the DTV format.
4
THE WASHINGTON POST COMPANY
The Companys Detroit, Houston and Miami stations each
commenced DTV broadcast operations in 1999, while the
Companys Orlando station commenced such operations in
2001. The Companys two other stations (San Antonio and
Jacksonville) began DTV broadcast operations in 2002.
In 1998 the FCC issued a decision implementing the requirement
of the Telecommunications Act of 1996 that it charge
broadcasters a fee for offering certain ancillary and
supplementary services on the DTV channel. These services
include data, video or other services that are offered on a
subscription basis or for which broadcasters receive
compensation other than from advertising revenue. In its
decision, the FCC imposed a fee of 5% of the gross revenues
generated by such services.
In September 2004 the FCC established certain rules for the DTV
operations of low-power television stations. Among other things,
the FCC decided to allow certain low-power television stations
to use a second channel for DTV operations while continuing
analog operations on their existing channels. Although the FCC
decided that low-power television stations must accept
interference from and avoid interference to full-power
broadcasters on their second channels, the use of second
channels by low-power television stations could cause additional
interference to the signals of full-power stations. The FCC also
decided that low-power television stations may convert to
digital operations on their current analog channels, which might
in some circumstances cause additional interference to the
signals of full-power stations and limit the ability of
full-power stations to modify their analog or DTV transmission
facilities.
The FCC has a policy of reviewing its DTV rules every two years
to determine whether those rules need to be adjusted in light of
new developments. In September 2004 the FCC issued an order
concerning the second periodic review of its DTV rules. This
review broadly examined the rules and policies governing
broadcasters DTV operations, including interference
protection rules and various operating requirements. In that
order the FCC established procedures by which stations will
elect the channel on which they will operate after the
transition to digital television is complete. In most cases,
stations will choose between their current analog channel and
current DTV channel, provided that those channels are between
channels 2 and 51. All of the Companys TV stations except
for WKMG have two channels that are within this range; for WKMG,
only its analog channel is within this range and, because of
technical issues related to its analog channel, WKMG is seeking
another channel between channels 2 and 51 to use as its
DTV channel when all-digital operations commence.
The FCC has received comments in long-pending proceedings to
determine what public interest obligations should apply to
broadcasters DTV operations. Among other things, the FCC
has asked whether it should require broadcasters to provide free
time to political candidates, increase the amount of programming
intended to meet the needs of minorities and women, and increase
communication with the public regarding programming decisions.
In November 2004 the FCC released a Report and Order adopting
new obligations concerning childrens programming by
digital television broadcasters (although some new obligations
apply to the analog signals as well). Among other things, the
FCC will require stations to air three hours of core
childrens programming on their primary digital video
streams and additional core childrens programming if they
also broadcast free multicast video streams. Many of these
requirements do not go into effect until 2006.
Pursuant to the must-carry requirements of the Cable
Television Consumer Protection and Competition Act of 1992 (the
1992 Cable Act), a commercial television broadcast
station may, under certain circumstances, insist on carriage of
its analog signal on cable systems serving the stations
market area. Alternatively, such stations may elect, at
three-year intervals that began in October 1993, to forego
must-carry rights and insist instead that their signals not be
carried without their prior consent pursuant to a retransmission
consent agreement. Stations that elect retransmission consent
may negotiate for compensation from cable systems in the form of
such things as mandatory advertising purchases by the system
operator, station promotional announcements on the system, and
cash payments to the station. The analog signal of each of the
Companys television stations, with the exception of WJXT,
is being carried on all of the major cable systems in the
stations respective local markets pursuant to
retransmission consent agreements. WJXTs analog signal is
being carried on cable in WJXTs local market pursuant to
that stations must-carry rights. The Satellite Home Viewer
Improvement Act of 1999 gave commercial television stations
similar rights to elect either must-carry or retransmission
consent with respect to the carriage of their analog signals on
direct broadcast satellite (DBS) systems that choose
to provide local-into-local service (i.e., to
distribute the signals of local television stations to viewers
in the local market area). Stations made their first DBS
carriage election in July 2001 and will make subsequent
elections at three-year intervals beginning in October 2005. The
analog signal of each of the Companys television stations
is being carried by DBS providers EchoStar and DirecTV on a
local-into-local basis pursuant to retransmission consent
agreements.
In 2001 the FCC issued an order governing the mandatory carriage
of DTV signals by cable television operators. The FCC decided
that, pending further inquiry, only stations that broadcast in a
DTV-only mode would be entitled to mandatory carriage of their
DTV signals. On February 23, 2005, the FCC issued another
order in the same proceeding affirming its
2004 FORM 10-K
5
earlier decision and thus declined to require cable television
operators to simultaneously carry both the analog and digital
signals of television broadcast stations. In the same order, the
FCC affirmed an earlier decision that only a single stream of
video (that is, a single channel of programming), rather than a
television broadcast stations entire DTV signal, is
eligible for mandatory carriage by cable television operators.
(In a pending proceeding, the FCC has sought comment on how it
should apply digital signal carriage rules to DBS providers.)
Thus, at present, a television station wishing to insure that
cable operators carry both the analog and digital signals of the
station, and all of the program streams that may be present in
the stations digital signal, can achieve those objectives
only if it is able to negotiate appropriate retransmission
consent agreements with cable operators. Cable operators will be
required to carry the portion of the DTV signal of any DTV
station eligible for mandatory carriage in the same format in
which the signal was originally broadcast. Thus, an HDTV video
stream eligible for mandatory carriage must be carried in HDTV
format by cable operators. However, it is still unclear whether
cable operators will be responsible for ensuring that their
set-top boxes are capable of passing DTV signals in their full
definition to the consumers DTV receiver. As noted
previously, all of the Companys television stations are
transmitting both analog and digital broadcasting signals; most
of those stations digital signals are being carried on at
least some local cable systems pursuant to retransmission
consent agreements.
The Communications Act requires the FCC to review its broadcast
ownership rules periodically and to repeal or modify any rule it
determines is no longer in the public interest. In June 2003,
following such a review, the FCC modified its national
television ownership limit to permit a broadcast company to own
an unlimited number of television stations as long as the
combined service areas of such stations do not include more than
45% of nationwide television households, an increase from the
previous limit of 35%. Subsequently, legislation was enacted
that fixed the national ownership limit at 39% of nationwide
television households, removed the national ownership limit from
the periodic FCC review process and changed the frequency of
such reviews from every two years to every four years.
In 1999 the FCC amended its local television ownership rule to
permit one company to own two television stations in the same
market if there are at least eight independently owned
full-power television stations in that market (including
non-commercial stations and counting the co-owned stations as
one), and if at least one of the co-owned stations is not among
the top four ranked television stations in that market. The FCC
also decided to permit common ownership of stations in a single
market if their signals do not overlap, and to permit common
ownership where one of the stations is failing or unbuilt. These
rule changes permitted increases in the concentration of station
ownership in local markets, and all of the Companys
stations are now competing against two-station combinations in
their respective markets.
In June 2003 the FCC issued an order that modified several of
its broadcast ownership rules. In its decision, the FCC further
relaxed the local television ownership rule and also relaxed two
FCC cross-ownership rules restricting common ownership of
television stations and newspapers and of television stations
and radio stations in the same market. This decision was
appealed to the U.S. Court of Appeals for the Third Circuit, and
that court stayed the effectiveness of the new rules pending the
outcome of the appeal. Subsequently, the Third Circuit held that
the FCC did not adequately justify its revised rules, remanded
the case to the FCC for further proceedings, and held that the
stay would remain in effect pending the outcome of the remand.
The FCC has not yet instituted remand proceedings, nor has it
resolved long-pending petitions for reconsideration of the
revised rules. In the interim, the former local ownership and
cross-ownership rules remain in effect. The rule changes
approved by the FCC in June 2003, would, if ultimately upheld or
justified by the FCC on remand, allow co-ownership of two
television stations in a market as long as the two stations are
not both ranked in the top four, and would also allow
co-ownership of three television stations if there are 18 or
more television stations in the market. Waivers of those limits
would also be available where a station is failing and under
certain other circumstances. In addition, the rule changes would
liberalize the FCCs restrictions on owning a combination
of radio stations, television stations, and daily newspapers in
the same market, and would, for example, allow one entity to own
a daily newspaper and a TV station in the same market as long as
there are four or more television stations in the market.
The Bipartisan Campaign Reform Act of 2002 imposed various
restrictions both on contributions to political parties during
federal elections and also on certain broadcast, cable
television and DBS advertisements that refer to a candidate for
federal office. Those restrictions may have the effect of
reducing the advertising revenues of the Companys
television stations during campaigns for federal office below
the levels that otherwise would be realized in the absence of
such restrictions.
The FCC is conducting proceedings dealing with various issues in
addition to those described elsewhere in this section, including
proposals to modify its regulations relating to the operation of
cable television systems (which regulations are discussed below
under Cable Television Operations Regulation
of Cable Television and Related Matters), and proposals
that could affect the development of alternative video delivery
systems that would compete in varying degrees with both cable
television and television broadcasting operations. Also, in July
2004 the FCC instituted an inquiry into its rules and policies
concerning broadcasters service to their local communities.
6
THE WASHINGTON POST COMPANY
The Company is unable to determine what impact the various rule
changes and other matters described in this section may
ultimately have on the Companys television broadcasting
operations.
Cable Television Operations
At the end of 2004 the Company (through its Cable One
subsidiary) provided cable service to approximately 709,100
basic video subscribers (representing about 54% of the 1,307,000
homes passed by the systems) and had in force approximately
219,200 subscriptions to digital video service (which number
does not include approximately 4,000 free trials of that service
then being offered by Cable One) and 178,300 subscriptions to
cable modem service. Digital video and cable modem services are
each currently available in markets serving virtually all of
Cable Ones subscriber base. Among the digital video
services offered by Cable One is the delivery of certain
premium, cable network and local over-the-air channels in HDTV.
The Companys cable systems are located in 19 Midwestern,
Southern and Western states and typically serve smaller
communities: Thus 13 of the Companys current systems pass
fewer than 10,000 dwelling units, 18 pass 10,000-25,000 dwelling
units, and 19 pass more than 25,000 dwelling units. The two
largest clusters of systems (which each serve about 75,000
subscribers) are located on the Gulf Coast of Mississippi and in
the Boise, Idaho area.
Regulation of Cable Television and Related Matters
The Companys cable operations are subject to various
requirements imposed by local, state and federal governmental
authorities. The franchises granted by local governmental
authorities are typically nonexclusive and limited in time and
generally contain various conditions and limitations relating to
payment of fees to the local authority, determined generally as
a percentage of revenues. Additionally, franchises often
regulate the conditions of service and technical performance and
contain various types of restrictions on transferability.
Failure to comply with such conditions and limitations may give
rise to rights of termination by the franchising authority.
The 1992 Cable Act requires or authorizes the imposition of a
wide range of regulations on cable television operations. The
three major areas of regulation are (i) the rates charged
for certain cable television services, (ii) required
carriage (must carry) of some local broadcast
stations, and (iii) retransmission consent rights for
commercial broadcast stations.
In 1993 the FCC adopted a freeze on rate increases
for the basic tier of cable service (i.e., the tier that
includes the signals of local over-the-air stations and any
public, educational or governmental channels required to be
carried under the applicable franchise agreement) and for
optional tiers (although the freeze on rate increases for
optional tiers expired in 1999). Later that year the FCC
promulgated benchmarks for determining the reasonableness of
rates for regulated services. The benchmarks provided for a
percentage reduction in the rates that were in effect when the
benchmarks were announced. Pursuant to the FCCs rules,
cable operators can increase their benchmarked rates for
regulated services to offset the effects of inflation, equipment
upgrades, and higher programming, franchising and regulatory
fees. Under the FCCs approach, cable operators may exceed
their benchmarked rates if they can show in a cost-of-service
proceeding that higher rates are needed to earn a reasonable
return on investment, which the Commission established in 1994
to be 11.25%. The FCCs rules also permit franchising
authorities to regulate equipment rentals and service and
installation rates on the basis of a cable operators
actual costs plus an allowable profit, which is calculated from
the operators net investment, income tax rate and other
factors.
Among other things, the Telecommunications Act of 1996 altered
the preexisting regulatory environment by expanding the
definition of effective competition (a condition
that precludes any regulation of the rates charged by a cable
system), terminating rate regulation for some small cable
systems, and sunsetting the FCCs authority to regulate the
rates charged for optional tiers of service (which authority
expired in 1999). Since very few of the cable systems owned by
the Company fall within the effective-competition or
small-system exemptions, monthly subscription rates charged by
most of the Companys cable systems for the basic tier of
cable service, as well as rates charged for equipment rentals
and service calls, may be regulated by municipalities, subject
to procedures and criteria established by the FCC. However,
rates charged by cable television systems for tiers of service
other than the basic tier, for pay-per-view and per-channel
premium program services, for digital video and cable modem
services, and for advertising are all currently exempt from
regulation.
As discussed in the preceding section, under the
must-carry requirements of the 1992 Cable Act, a
commercial television broadcast station may, subject to certain
limitations, insist on carriage of its signal on cable systems
located within the stations market area. Similarly, a
noncommercial public station may insist on carriage of its
signal on cable systems located either within the stations
predicted Grade B signal contour or within 50 miles of
a reference point in a stations
2004 FORM 10-K
7
community designated by the FCC. As a result of these
obligations (the constitutionality of which has been upheld by
the U.S. Supreme Court), certain of the Companys cable
systems have had to carry broadcast stations that they might not
otherwise have elected to carry, and the freedom the
Companys systems would otherwise have to drop signals
previously carried has been reduced.
Also as explained in the preceding section, at three-year
intervals beginning in October 1993 commercial broadcasters have
had the right to forego must-carry rights and insist instead
that their signals not be carried without their prior consent.
Under legislation enacted in 1999, Congress barred broadcasters
from entering into exclusive retransmission consent agreements
through 2006. In November 2004 Congress extended the ban on
exclusive retransmission consent agreements until the end of
2010. The Companys cable systems have been able to
continue carrying virtually all of the stations insisting on
retransmission consent. In doing so, no agreements have been
made to pay any station for the privilege of carrying its
signal. However, some commitments have been made to carry other
program services offered by a station or an affiliated company,
to purchase advertising on a station, to provide advertising
availabilities on cable for sale by a station, and to distribute
promotional announcements with respect to a station.
As has already been noted, the FCC has determined that only
television stations broadcasting in a DTV-only mode can require
local cable systems to carry their DTV signals and that if a DTV
signal contains multiple video streams only a single stream of
video is required to be carried. The imposition of additional
must-carry obligations, either by the FCC or as a result of
legislative action, could result in the Companys cable
systems being required to delete some existing programming to
make room for broadcasters DTV channels.
Various other provisions in current federal law may
significantly affect the costs or profits of cable television
systems. These matters include a prohibition on exclusive
franchises, restrictions on the ownership of competing video
delivery services, restrictions on transfers of cable television
ownership, a variety of consumer protection measures, and
various regulations intended to facilitate the development of
competing video delivery services. Other provisions benefit the
owners of cable systems by restricting regulation of cable
television in many significant respects, requiring that
franchises be granted for reasonable periods of time, providing
various remedies and safeguards to protect cable operators
against arbitrary refusals to renew franchises, and limiting
franchise fees to 5% of a cable systems gross revenues.
Apart from its authority under the 1992 Cable Act and the
Telecommunications Act of 1996, the FCC regulates various other
aspects of cable television operations. Since 1990 cable systems
have been required to black out from the distant broadcast
stations they carry syndicated programs for which local stations
have purchased exclusive rights and requested exclusivity. Other
long-standing FCC rules require cable systems to delete under
certain circumstances duplicative network programs broadcast by
distant stations. The FCC also imposes certain technical
standards on cable television operators, exercises the power to
license various microwave and other radio facilities frequently
used in cable television operations, and regulates the
assignment and transfer of control of such licenses. In
addition, pursuant to the Pole Attachment Act, the FCC exercises
authority to disapprove unreasonable rates charged to cable
operators by most telephone and power utilities for utilizing
space on utility poles or in underground conduits. However the
Pole Attachment Act does not apply to poles and conduits owned
by municipalities or cooperatives. Also, states can reclaim
exclusive jurisdiction over the rates, terms and conditions of
pole attachments by certifying to the FCC that they regulate
such matters, and several states in which the Company has cable
operations have so certified. A number of cable operators
(including the Companys Cable One subsidiary) are using
their cable systems to provide not only television programming
but also Internet access. In 2002, the U.S. Supreme Court ruled
that the FCCs authority under the Pole Attachment Act
extends to all pole attachments by cable operators, including
those attachments used to provide Internet access. Thus, except
where individual states have assumed regulatory responsibility
or where poles or conduits are owned by a municipality or
cooperative, the rates charged for pole or conduit access by
cable companies are subject to FCC rate regulation regardless of
whether or not the cable companies are providing Internet access
in addition to the delivery of television programming.
The Copyright Act of 1976 gives cable television systems the
ability, under certain terms and conditions and assuming that
any applicable retransmission consents have been obtained, to
retransmit the signals of television stations pursuant to a
compulsory copyright license. Those terms and conditions permit
cable systems to retransmit the signals of local television
stations on a royalty-free basis; however in most cases cable
systems retransmitting the signals of distant stations are
required to pay certain license fees set forth in the statute or
established by subsequent administrative regulations. The
compulsory license fees have been increased on several occasions
since this Act went into effect. In 1994 the availability of a
compulsory copyright license was extended to wireless
cable for both local and distant television signals.
Direct broadcast satellite (DBS) operators have had
a compulsory copyright license since 1988, although that license
was limited to distant television signals and only permitted the
delivery of the signals of distant network-affiliated stations
to subscribers who could not receive an over-the-air signal of a
station affiliated with the same network. However, in 1999
Congress enacted the Satellite Home Viewer Improvement Act,
which created a royalty-free compulsory copyright license
8
THE WASHINGTON POST COMPANY
for DBS operators who wish to distribute the signals of local
television stations to satellite subscribers in the markets
served by such stations. This Act continued the limitation on
importing the signals of distant network-affiliated stations
contained in the original compulsory license for DBS operators.
The general prohibition on telephone companies operating cable
systems in areas where they provide local telephone service was
eliminated by the Telecommunications Act of 1996. Telephone
companies now can provide video services in their telephone
service areas under four different regulatory plans. First, they
can provide traditional cable television service and be subject
to the same regulations as the Companys cable television
systems (including compliance with local franchise and any other
local or state regulatory requirements). Second, they can
provide wireless cable service, which is described
below, and not be subject to either cable regulations or
franchise requirements. Third, they can provide video services
on a common-carrier basis, under which they would not be
required to obtain local franchises but would be subject to
common-carrier regulation (including a prohibition against
exercising control over programming content). Finally, they can
operate so-called open video systems without local
franchises (although local communities can choose to require a
franchise) and be subject to reduced regulatory burdens. The Act
contains detailed requirements governing the operation of open
video systems, including requiring the nondiscriminatory
offering of capacity to third parties and limiting to one-third
of total system capacity the number of channels the operator can
program when demand exceeds available capacity. In addition, the
rates charged by an open video system operator to a third party
for the carriage of video programming must be just and
reasonable as determined in accordance with standards
established by the FCC. (Cable operators and others not
affiliated with a telephone company may also become operators of
open video systems.) The Act also generally prohibits telephone
companies from acquiring or owning an interest in existing cable
systems operating in their service areas.
The Telecommunications Act of 1996 balances this grant of video
authority to telephone companies by removing various regulatory
barriers to the offering of telephone services by cable
companies and others. The Act preempts state and local laws that
have barred local telephone competition in some states. In
addition, the Act requires local telephone companies to permit
cable companies and other competitors to interconnect their
equipment and facilities with the local telephone network and
requires telephone companies to give competitors access on an
unbundled basis to certain essential features and
functionalities of that network (such as signal carriage from
the subscribers residence to the switching center). As an
alternative method of providing local telephone service, the Act
permits cable companies and others to purchase conventional
telephone service on a wholesale basis and then resell it to
their subscribers. In 2004 the FCC revised these rules and
limited the extent to which incumbent telephone companies must
provide access to these features and functionalities; the FCC
also permitted incumbent telephone companies to increase the
price they charge for such access.
At various times during the last decade, the FCC adopted rule
changes intended to facilitate the development of multichannel
multipoint distribution systems, also known as wireless
cable or MMDS, a video and data service that
is capable of distributing approximately 30 television channels
in a local area by over-the-air microwave transmission using
analog technology and a greater number of channels using digital
compression technologies. The use of digital technology and a
1998 change in the FCCs rules to permit reverse path
transmission over wireless facilities also make it possible for
such systems to deliver additional services, including Internet
access. Also, in late 1998 the FCC auctioned a sizeable amount
of spectrum in the 31 gigahertz band for use by a new wireless
service, which is referred to as the Local Multipoint
Distribution Service or LMDS, that has the potential
to deliver television programming directly to subscribers
homes as well as provide Internet access and telephony services.
To date, however, there are no LMDS systems in operation that
deliver television programming or provide either Internet access
or telephony. Separately, in 2000 the FCC approved the use of
spectrum in the 12.2-12.7 gigahertz band (the same band used by
DBS operators) to provide a new land-based interactive video and
data delivery service known as the Multichannel Video
Distribution and Data Service (MVDDS). MVDDS
providers will use reharvested DBS spectrum to
transmit programming on a non-harmful interference basis using
terrestrial microwave transmitters. (While DBS subscribers point
their dishes south to pick up their providers signal,
MVDDS customers will aim their antennas north.) In January 2004
the FCC conducted an auction for the purpose of selecting MVDDS
licensees. Ten bidders won licenses in more than 190 markets,
although the Company believes that no MVDDS systems are yet in
operation. MVDDS providers, like providers of other forms of
wireless cable, will not be required to obtain franchises from
local governmental authorities and generally will operate under
fewer regulatory requirements than conventional cable systems.
In 1999 the FCC amended its cable ownership rule, which governs
the number of subscribers an owner of cable systems may reach on
a national basis. Before revision, this rule provided that a
single company could not serve more than 30% of potential cable
subscribers (or homes passed by cable) nationwide.
The revised rule allowed a cable operator to provide service to
30% of all actual subscribers to cable, satellite and other
competing services nationwide, rather than to 30% of homes
passed by cable. This revision had the effect of increasing the
number of communities that could be served
2004 FORM 10-K
9
by a single cable operator and may have resulted in more
consolidation in the cable industry. In 2001 the U.S. Court of
Appeals for the D.C. Circuit voided the FCCs revised rule
on constitutional and procedural grounds and remanded the matter
to the FCC for further proceedings. The FCC has since opened a
proceeding to determine what the ownership limit should be, if
any. If the FCC eliminates the limit or adopts a new rule with a
higher percentage of nationwide subscribers a single cable
operator is permitted to serve, that action could lead to even
greater consolidation in the industry.
In 1996 Congress repealed the statutory provision that generally
prohibited a party from owning an interest in both a television
broadcast station and a cable television system within that
stations Grade B contour. However Congress left the
FCCs parallel rule in place, subject to a congressionally
mandated periodic review by the agency. The FCC, in its
subsequent review, decided to retain the prohibition for various
competitive and diversity reasons. However in 2002 the U.S.
Court of Appeals for the District of Columbia Circuit struck
down the rule, holding that the FCCs decision to retain
the rule was arbitrary and capricious. Thus there currently is
no restriction on the ownership of both a television broadcast
station and a cable television system in the same market.
In 2002 the FCC issued a declaratory ruling classifying cable
modem service as an interstate information service.
Concurrently, the FCC issued a notice of proposed rulemaking to
consider the regulatory implications of this classification.
Among the issues to be decided are whether local authorities can
require cable operators to provide competing Internet service
providers with access to the cable operators facilities,
the extent to which local authorities can regulate cable modem
service, and whether local authorities can impose fees on the
provision of cable modem service. In 2003 the U.S. Court of
Appeals for the Ninth Circuit, on an appeal from the FCCs
declaratory ruling noted above, ruled that cable modem service
is partly an information service and partly a
telecommunications service. After the Ninth Circuit
denied petitions requesting that it reconsider this decision,
appeals were filed with the U.S. Supreme Court and, in November
2004, the Court agreed to hear the case. If the Ninth
Circuits ruling is affirmed, the characterization of cable
modem service as partly a telecommunications service
will likely affect the FCCs decision on many of the issues
in its pending rulemaking. Moreover, the Pole Attachment Act
permits utilities to charge significantly higher rates for
attachments made by entities that are providing a
telecommunications service. The Companys Cable
One subsidiary currently offers Internet access on virtually all
of its cable systems and is the sole Internet service provider
on those systems. Thus, depending on the outcome, these judicial
and regulatory proceedings have the potential to interfere with
the Companys ability to deliver Internet access on a
profitable basis.
Consumers with cable modem or other broadband Internet
connections are increasingly using a technology known as voice
over Internet protocol (VoIP) to make telephone calls over the
Internet. Depending on their equipment and service provider,
such consumers can use a regular telephone (connected to an
adaptor) to make their calls and can complete calls to anyone
who has a telephone number. During 2004 some states sought to
regulate this activity pursuant to their common carrier
jurisdiction, but VoIP providers challenged these actions before
the FCC. Later in 2004, the FCC ruled that VoIP services are
interstate services subject exclusively to the FCCs
federal jurisdiction. This decision, if upheld on appeal
(consumer groups and some state regulatory commissions have
filed an appeal), is significant because it includes VoIP
offered by cable systems as within the scope of activities that
are not subject to state regulation. Legislation also has been
introduced in Congress to accomplish the same objective, though
the prospect for passage of such legislation is uncertain.
Litigation also is pending in various courts in which various
franchise requirements are being challenged as unlawful under
the First Amendment, the Communications Act, the antitrust laws
and on other grounds. Depending on the outcomes, such litigation
could facilitate the development of duplicative cable facilities
that would compete with existing cable systems, enable cable
operators to offer certain services outside of cable regulation
or otherwise materially affect cable television operations.
The regulation of certain cable television rates pursuant to the
authority granted to the FCC has negatively impacted the
revenues of the Companys cable systems. The Company is
unable to predict what effect the other matters discussed in
this section may ultimately have on its cable television
business.
Education
Kaplan, Inc., a subsidiary of the Company, provides an extensive
range of educational services for children, students and
professionals. Kaplans historical focus on test
preparation has been expanded as new educational and career
services businesses have been acquired or initiated. The Company
divides Kaplans various businesses into two categories:
supplemental education, which consists of the Test Preparation
and Admissions Division, the Professional Division, Score!
Educational Centers, and The Financial Training Company; and
higher education, which consists of Kaplans Higher
Education Division and the Dublin Business School.
10
THE WASHINGTON POST COMPANY
Through its Test Preparation and Admissions Division, Kaplan
prepares students for a broad range of admissions and licensing
examinations, including the SATs, LSATs, GMATs, MCATs, GREs, and
nursing and medical boards. This business can be subdivided into
four categories: K-12 (serving schools and school districts
seeking assistance in improving student performance using print-
and computer-based supplemental programs, preparing students for
state assessment tests and for the SATs and ACTs, providing
curriculum consulting services and providing professional
training for teachers); Graduate and Pre-College (serving high
school and college students and professionals, primarily with
preparation for admissions tests to college and to graduate,
medical and law schools); Medical (serving medical professionals
preparing for licensing exams); and English Language Training
(serving foreign students and professionals wishing to study or
work in the U.S.). Many of this divisions test preparation
courses have been available to students via the Internet since
1999. During 2004 the Test Preparation and Admissions Division
provided courses to over 280,000 students (including over 87,000
enrolled in online programs) and provided courses at 159
permanent centers located throughout the United States and in
Canada, Puerto Rico, London and Paris. In addition, Kaplan
licenses material for certain of these courses to third parties
who during 2004 offered such courses at 32 centers located in 14
foreign countries. The Test Preparation and Admissions Division
also currently co-publishes more than 190 book titles,
predominantly in the areas of test preparation, admissions,
career guidance and life skills, through a joint venture with
Simon & Schuster, and develops educational software for the
K-12, graduate and English-as-a-second-language markets which is
sold through an arrangement with a third party that is
responsible for production and distribution. This division also
produces a college newsstand guide in conjunction with Newsweek.
Kaplans Professional Division offers continuing education,
certification, licensing, exam preparation and professional
development to corporations and to individuals seeking to
advance their careers in a variety of disciplines. This division
includes Dearborn Financial Services, a provider of continuing
education and test preparation courses for financial services
and insurance industry professionals; Dearborn Publishing,
publisher of a variety of business and real estate books as well
as printed and online course materials for licensing, test
preparation and continuing education in the real estate,
architecture, home inspection, engineering and construction
industries; The Schweser Study Program, a provider of test
preparation courses for the Chartered Financial Analyst and
Financial Risk Manager examinations; Kaplan CPA, which offers
test preparation courses for the Certified Public Accounting
Exam; Kaplan Professional Schools, a provider of courses for
real estate, financial services and home inspection licensing
examinations as well as continuing education in those areas;
Perfect Access Speer, a provider of software consulting and
software training products, primarily to the legal profession;
and Kaplan IT, which offers online test preparation courses for
technical certifications in the information technology industry.
The courses offered by Kaplans Professional Division are
provided in various formats (including classroom-based
instruction, online programs, printed study guides, in-house
training and audio CDs) and at a wide range of per-course
prices. During 2004 this division sold approximately 500,000
courses and separately priced course components to students (who
in some subject areas typically purchase more than one course or
course component offered by the division).
Kaplans Score! Educational Centers offer computer-based
learning and individualized tutoring for children from pre-K
through the 10th grade. In 2004 this business, which provides
educational after-school enrichment services through 162 Score
centers located in various areas of the United States, served
more than 82,000 students. Scores services are provided in
facilities separate from Kaplans test preparation centers.
The Financial Training Company (FTC) is a U.K.-based
provider of training and test preparation services for
accounting and financial services professionals. At year-end
2004, FTC was the publisher of more than 100 textbooks and
manuals and during the year had provided courses to over 40,000
students. Headquartered in London, FTC has 22 training centers
around the UK as well as operations in Hong Kong, Shanghai and
Singapore.
The Higher Education Division of Kaplan currently consists of 72
schools in 17 states that provide classroom-based instruction
and three institutions that specialize in distance education.
The schools providing classroom-based instruction offer a
variety of bachelor degree, associate degree and diploma
programs primarily in the fields of healthcare, business,
paralegal studies, information technology, criminal justice and
fashion and design. These schools were serving more than 32,000
students at year-end 2004 (which total includes the
classroom-based programs of Kaplan University), with
approximately 40% of such students enrolled in accredited
bachelor or associate degree programs. Each of these schools has
its own accreditation from one of several regional or national
accrediting agencies recognized by the U.S. Department of
Education. The institutions that specialize in distance
education are Kaplan University, Concord University School of
Law and The College for Professional Studies. Kaplan University
offers various master degree, bachelor degree, associate degree
and certificate programs, principally in the fields of
management, criminal justice, paralegal studies, information
technology, financial planning, nursing and education, and is
accredited by the Higher Learning Commission of the North
Central Association of Colleges and Schools. Some of Kaplan
Universitys programs are offered online while others are
2004 FORM 10-K
11
offered in a traditional classroom format at the schools
Davenport, Iowa campus. At year-end 2004, Kaplan University had
approximately 19,000 students enrolled in online programs.
Concord University School of Law, the nations first online
law school, offers Juris Doctor and Executive Juris Doctor
degrees wholly online (the Executive Juris Doctor degree program
is designed for individuals who do not intend to practice law).
At year-end 2004, approximately 1,600 students were enrolled at
Concord. Concord is accredited by the Accrediting Commission of
the Distance Education and Training Council and has received
operating approval from the California Bureau of Private
Post-Secondary and Vocational Education. Concord also has
complied with the registration requirements of the State Bar of
California; graduates are, therefore, able to apply for
admission to the California Bar. The College for Professional
Studies, which had approximately 1,000 students enrolled at
year-end 2004, offers bachelor and associate degree and diploma
correspondence programs in the fields of legal nurse consulting,
paralegal studies and criminal justice; however, that school is
no longer enrolling students and will discontinue operations
after its current students complete their programs.
Dublin Business School (DBS) is an undergraduate and
graduate institution located in Dublin, Ireland, with satellite
locations in London; Dubai, United Arab Emirates; and Kuala
Lumpur, Malaysia. DBS offers various undergraduate and graduate
degree programs in business and the liberal arts. At year-end
2004, DBS was providing courses to approximately 4,000 students.
One of the ways a foreign national wishing to enter the United
States to study may do so is to obtain an F-1 student visa. For
many years, most of Kaplans Test Preparation and
Admissions Division centers in the United States have been
authorized by what is now the U.S. Citizenship and Immigration
Services (the USCIS) to issue certificates of
eligibility to prospective students to assist them in applying
for F-1 visas through a U.S. Embassy or Consulate. Under a
program that became effective early in 2003, educational
institutions are required to report electronically to the USCIS
specified enrollment, departure and other information about the
F-1 students to whom they have issued certificates of
eligibility. By year-end 2004, 137 of Kaplans U.S. Test
Preparation and Admissions Division centers had been certified
to participate in this program. Once certified, a center must
apply for recertification every two years. During 2004 students
holding F-1 visas accounted for approximately 2.1% of the
enrollment at Kaplans Test Preparation and Admissions
Division and an insignificant number of students at
Kaplans Higher Education Division.
Title IV Federal Student Financial Aid Programs
Funds provided under the student financial aid programs that
have been created under Title IV of the Higher Education
Act of 1965, as amended, historically have been responsible for
a majority of the net revenues of the schools in Kaplans
Higher Education Division accounting, for example, for
approximately $430 million of the revenues of such schools
for the Companys 2004 fiscal year. The significant role of
Title IV funding in the operations of these schools is
expected to continue.
To maintain Title IV eligibility a school must comply with
extensive statutory and regulatory requirements relating to its
financial aid management, educational programs, financial
strength, recruiting practices and various other matters. Among
other things, the school must be authorized to offer its
educational programs by the appropriate governmental body in the
state or states in which it is located, be accredited by an
accrediting agency recognized by the U.S. Department of
Education (the Department of Education), and enter
into a program participation agreement with the Department of
Education.
A school may lose its eligibility to participate in
Title IV programs if student defaults on the repayment of
Title IV loans exceed specified default rates (referred to
as cohort default rates). A school whose cohort
default rate exceeds 40% for any single year may have its
eligibility to participate in Title IV programs limited,
suspended or terminated at the discretion of the Department of
Education. A school whose cohort default rate equals or exceeds
25% for three consecutive years will automatically lose its
Title IV eligibility for at least two years unless the
school can demonstrate exceptional circumstances justifying its
continued eligibility. Pursuant to another program requirement,
any for-profit postsecondary institution (a category that
includes all of the schools in Kaplans Higher Education
Division) will lose its Title IV eligibility for at least
one year if more than 90% of that institutions receipts
for any fiscal year are derived from Title IV programs.
The Title IV program regulations also provide that not more
than 50% of an eligible institutions courses can be
provided online and that, in some cases, not more than 50% of an
eligible institutions students can be enrolled in online
courses and impose certain other requirements intended to insure
that individual programs (including online programs) eligible
for Title IV funding include minimum amounts of
instructional activity. However, Kaplan University currently is
a participant in the distance education demonstration program of
the Department of Education and as a result is exempt from the
foregoing requirements until at least June 30, 2006.
Several bills were introduced in the last Congress that would
have exempted
12
THE WASHINGTON POST COMPANY
online courses from the 50% rules and certain other existing
requirements if various other conditions set forth in such
legislation or to be specified in future Department of Education
regulations were satisfied and also would have extended
authority for the distance education demonstration program
through at least 2010. A bill has already been introduced in the
new Congress that would similarly exempt online courses from the
50% rules and extend authority for the distance education
demonstration program. However, the Company cannot now predict
whether any such legislation will eventually be enacted into law
and whether Kaplan University will be able to satisfy whatever
conditions may ultimately be imposed on the availability of
Title IV funding for online programs.
As a general matter, schools participating in Title IV
programs are not financially responsible for the failure of
their students to repay Title IV loans. However the
Department of Education may fine a school for a failure to
comply with Title IV requirements and may require a school
to repay Title IV program funds if it finds that such funds
have been improperly disbursed. In addition, there may be other
legal theories under which a school could be subject to suit as
a result of alleged irregularities in the administration of
student financial aid.
Pursuant to Title IV program regulations, a school that
undergoes a change in control must be reviewed and recertified
by the Department of Education. Certifications obtained
following a change in control are granted on a provisional basis
that permits the school to continue participating in
Title IV programs but provides fewer procedural protections
if the Department of Education asserts a material violation of
Title IV requirements. Most of the schools owned by Quest
Education Corporation at the time of Kaplans acquisition
of Quest in 2000 have now been fully certified. The remainder of
those schools as well as most of the schools subsequently
acquired by Kaplans Higher Education Division are
continuing to operate on the basis of provisional certifications.
No proceeding by the Department of Education is pending to fine
any Kaplan school for a failure to comply with any Title IV
requirement, or to limit, suspend or terminate the Title IV
eligibility of any Kaplan school. However no assurance can be
given that the Kaplan schools currently participating in
Title IV programs will maintain their Title IV
eligibility in the future or that the Department of Education
might not successfully assert that one or more of such schools
have previously failed to comply with Title IV requirements.
In accordance with Department of Education regulations, a number
of the schools in Kaplans Higher Education Division are
combined into groups of two or more schools for the purpose of
determining compliance with Title IV requirements.
Including schools that are not combined with other schools for
that purpose, the Higher Education Division currently has 38
Title IV reporting units, the largest of which in terms of
revenue accounted for approximately 24% of the Divisions
2004 revenues. If the Department of Education were to find that
one reporting unit had failed to comply with any applicable
Title IV requirement and as a result limited, suspended or
terminated the Title IV eligibility of the school or
schools in that unit, that action normally would not affect the
Title IV eligibility of the schools in other reporting
units that had continued to comply with Title IV
requirements. For the most recent year for which data is
available from the Department of Education, the cohort default
rate for the Title IV reporting units in Kaplans
Higher Education Division averaged 9.8%, and no unit had a
cohort default rate of 25% or more. In 2004 those reporting
units derived an average of less than 81% of their receipts from
Title IV programs, with no unit deriving more than 88.2% of
its receipts from such programs.
All of the Title IV financial aid programs are subject to
periodic legislative review and reauthorization, and the next
reauthorization is scheduled to take place during the current
Congressional term. In addition, the availability of funding for
the Title IV programs that provide non-repayable grants is
wholly contingent upon the outcome of the annual federal
appropriations process.
Whether as a result of changes in the laws and regulations
governing Title IV programs, a reduction in Title IV
program funding levels, or a failure of schools included in
Kaplans Higher Education Division to maintain eligibility
to participate in Title IV programs, a material reduction
in the amount of Title IV financial assistance available to
the students of those schools would have a significant negative
impact on Kaplans operating results.
Magazine Publishing
Newsweek
Newsweek is a weekly news magazine published both
domestically and internationally by Newsweek, Inc., a subsidiary
of the Company. In gathering, reporting and writing news and
other material for publication, Newsweek maintains news
bureaus in 8 U.S. and 11 foreign cities.
The domestic edition of Newsweek includes more than 100
different geographic or demographic editions which carry
substantially identical news and feature material but enable
advertisers to direct messages to specific market areas or
2004 FORM 10-K
13
demographic groups. Domestically, Newsweek ranks second
in circulation among the three leading weekly news magazines
(Newsweek, Time and U.S. News & World Report).
For each of the last five years, Newsweeks average
weekly domestic circulation rate base has been 3,100,000 copies
and its percentage of the total weekly domestic circulation rate
base of the three leading weekly news magazines has been 34.0%.
Newsweek is sold on newsstands and through subscription
mail order sales derived from a number of sources, principally
direct mail promotion. The basic one-year subscription price is
$41.08. Most subscriptions are sold at a discount from the basic
price. In May 2001 Newsweeks newsstand cover
price was increased from $3.50 to $3.95 per copy.
Newsweeks published advertising rates are based on
its average weekly circulation rate base and are competitive
with those of the other weekly news magazines. As is common in
the magazine industry, advertising typically is sold at varying
discounts from Newsweeks published rates. Effective
with the January 12, 2004 issue, Newsweeks
published national advertising rates for all categories of such
advertising were increased by an average of approximately 4.5%.
Beginning with the issue dated January 10, 2005, such rates
were increased again, in this case by 5.0%.
Internationally, Newsweek is published in a Europe,
Middle East and Africa edition; an Asia edition covering Japan,
Korea and south Asia; and a Latin American edition; all of which
are in the English language. Editorial copy solely of domestic
interest is eliminated in the international editions and is
replaced by other international, business or national coverage
primarily of interest abroad. Newsweek estimates that the
combined average weekly paid circulation for these
English-language international editions of Newsweek in
2004 was approximately 575,000 copies.
Since 1984 a section of Newsweek articles has been
included in The Bulletin, an Australian weekly news
magazine which also circulates in New Zealand. A
Japanese-language edition of Newsweek, Newsweek Nihon Ban,
has been published in Tokyo since 1986 pursuant to an
arrangement with a Japanese publishing company which translates
editorial copy, sells advertising in Japan and prints and
distributes the edition. Newsweek Hankuk Pan, a
Korean-language edition of Newsweek, began publication in
1991 pursuant to a similar arrangement with a Korean publishing
company. Newsweek en Español, a Spanish-language
edition of Newsweek which has been distributed in Latin
America since 1996, is currently being published under an
agreement with a Mexico-based company which translates editorial
copy, prints and distributes the edition and jointly sells
advertising with Newsweek. Newsweek Bil Logha Al-Arabia,
an Arabic-language edition of Newsweek, began publication
in 2000 under a similar arrangement with a Kuwaiti publishing
company. Pursuant to agreements with local subsidiaries of a
German publishing company, Newsweek Polska, a
Polish-language newsweekly, began publication in 2001, and
Russky Newsweek, a Russian-language newsweekly, began
publication in June 2004. In addition to containing selected
stories translated from Newsweeks various
U.S. and foreign editions, each of these magazines includes
editorial content created by a staff of local reporters and
editors. Under an agreement with a Hong Kong-based publisher,
Newsweek Select, a Chinese-language magazine based
primarily on selected content translated from
Newsweeks U.S. and international editions,
began distribution in Hong Kong during 2003 and expanded its
distribution into mainland China during 2004. Newsweek estimates
that the combined average weekly paid circulation of The
Bulletin insertions and the various foreign-language
international editions of Newsweek was approximately
700,000 copies in 2004.
The online version of Newsweek, which includes stories
from Newsweeks print edition as well as other
material, has been a co-branded feature on the MSNBC.com website
since 2000. This feature is being produced by
Washingtonpost.Newsweek Interactive Company, another subsidiary
of the Company.
Arthur Frommers Budget Travel magazine, another
Newsweek publication, was published ten times during 2004 and
had an average paid circulation of more than 500,000 copies.
Budget Travel is headquartered in New York City and has
its own editorial staff.
During recent years Congress has considered a range of proposals
intended to restrict the marketing of tobacco products. The
Company cannot now predict what actions may eventually be taken
to limit or restrict tobacco advertising. However, such
advertising accounts for less than 1% of Newsweeks
operating revenues and negligible revenues at The Washington
Post and the Companys other publications. Moreover,
federal law has prohibited the carrying of advertisements for
cigarettes and smokeless tobacco by commercial radio and
television stations for many years. Thus the Company believes
that any restrictions on tobacco advertising that may eventually
be put into effect would not have a material adverse effect on
Newsweek or on any of the Companys other business
operations.
PostNewsweek Tech Media
This division of Post-Newsweek Media, Inc. publishes
controlled-circulation trade periodicals and produces trade
shows and conferences for the government information technology
industry.
14
THE WASHINGTON POST COMPANY
Specifically, PostNewsweek Tech Media publishes Washington
Technology, a twice-monthly news magazine for government
information technology systems integrators; Government
Computer News, a news magazine published 30 times per year
serving government managers who buy information technology
products and services; and GCN Technology, a news
magazine published four times per year providing information
technology product reviews and other buying information for
government information technology managers. Washington
Technology, Government Computer News and GCN Technology
have circulations of about 40,000, 87,000 and 100,000
copies, respectively. This division also publishes the
Federal Technology Almanac, an annual reference guide for
federal government information technology managers and
private-sector information technology executives. In
March 2005 PostNewsweek Tech Media plans to launch
Government Leader, a quarterly publication that will
focus on issues of interest to senior government executives.
PostNewsweek Tech Media also produces the FOSE trade
show, which is held each spring in Washington, D.C. for
information technology decision makers in government and
industry. This division also produces a number of smaller
conferences and events, including awards dinners honoring
leading individuals and companies in the government information
technology community.
Other Activities
Bowater Mersey Paper Company
The Company owns 49% of the common stock of Bowater Mersey Paper
Company Limited, the majority interest in which is held by a
subsidiary of Bowater Incorporated. Bowater Mersey owns and
operates a newsprint mill near Halifax, Nova Scotia, and also
owns extensive woodlands that provide part of the mills
wood requirements. In 2004 Bowater Mersey produced about 275,000
tons* of newsprint.
BrassRing
The Company beneficially owns a 49.3% equity interest in
BrassRing LLC, an Internet-based hiring management company. The
other principal members of BrassRing are the Tribune Company
with a 26.9% interest; Gannett Co., Inc. with a 12.4% interest;
and the venture capital firm Accel Partners with a 10.5%
interest.
Production and Raw Materials
The Washington Post and Express are produced at
the printing plants of WP Company in Fairfax County, Virginia
and Prince Georges County, Maryland. The Herald and
The Enterprise Newspapers are produced at The Daily
Herald Companys plant in Everett, Washington, while The
Gazette Newspapers, Southern Maryland Newspapers, and El
Tiempo Latino are all printed at the commercial printing
facilities owned by Post-Newsweek Media, Inc. Greater Washington
Publishings periodicals are produced by independent
contract printers with the exception of one periodical that is
printed at one of the commercial printing facilities owned by
Post-Newsweek Media, Inc. All PostNewsweek Tech Media
publications are produced by independent contract printers.
Newsweeks domestic edition is produced by three
independent contract printers at six separate plants in the
United States; advertising inserts and photo-offset films for
the domestic edition are also produced by independent
contractors. The international editions of Newsweek are
printed in England, Singapore, Switzerland, the Netherlands,
South Africa and Hollywood, Florida; insertions for The
Bulletin are printed in Australia. Since 1997 Newsweek and a
subsidiary of Time Warner have used a jointly owned company
based in England to provide production and distribution services
for the Europe, Middle East and Africa edition of Newsweek
and the Europe edition of Time. In 2002 this jointly
owned company began providing certain production and
distribution services for the Asian editions of these magazines.
Budget Travel is produced by one of the independent
contract printers that also prints Newsweeks
domestic edition.
In 2004 The Washington Post and Express consumed
about 190,000 tons and 3,000 tons of newsprint, respectively.
Such newsprint was purchased from a number of suppliers,
including Bowater Incorporated, which supplied approximately 37%
of the 2004 newsprint requirements for these newspapers.
Although for many years some of the newsprint purchased for
The Post from Bowater Incorporated typically was provided
by Bowater Mersey Paper Company Limited, since 1999 none of the
newsprint consumed by either The Post or Express
has come from that source.
The announced price of newsprint (excluding discounts) was
approximately $750 per ton throughout 2004. Discounts from the
announced price of newsprint can be substantial, and prevailing
discounts decreased throughout the year. The
|
|
* |
All references in this report to newsprint tonnage and prices
refer to short tons (2,000 pounds) and not to metric tons
(2,204.6 pounds), which are often used in newsprint price
quotations. |
2004 FORM 10-K
15
Company believes adequate supplies of newsprint are available to
The Post and Express through contracts with
various suppliers. More than 90% of the newsprint used by The
Post and Express includes recycled content. The
Company owns 80% of the stock of Capitol Fiber Inc., which
handles and sells to recycling industries old newspapers, paper
and other recyclable materials collected in
Washington, D.C., Maryland and northern Virginia.
In 2004 the operations of The Daily Herald Company and
Post-Newsweek Media, Inc. consumed approximately 6,900 and
23,300 tons of newsprint, respectively, which were obtained in
each case from various suppliers. Approximately 85% of the
newsprint used by The Daily Herald Company and 65% of the
newsprint used by Post-Newsweek Media, Inc. includes recycled
content.
The domestic edition of Newsweek consumed about 31,000
tons of paper in 2004, the bulk of which was purchased from six
major suppliers. The current cost of body paper (the principal
paper component of the magazine) is approximately $940 per ton.
Over 90% of the aggregate domestic circulation of both
Newsweek and Budget Travel is delivered by
periodical (formerly second-class) mail; most subscriptions for
such publications are solicited by either first-class or
standard A (formerly third-class) mail; and all PostNewsweek
Tech Media publications are delivered by periodical mail. Thus,
substantial increases in postal rates for these classes of mail
could have a significant negative impact on the operating income
of these business units. On the other hand, since advertising
distributed by standard A mail competes to some degree with
newspaper advertising, the Company believes increases in
standard A rates could have a positive impact on the advertising
revenues of The Washington Post, Express, The Herald, The
Gazette Newspapers, Southern Maryland Newspapers and El
Tiempo Latino although the Company is unable to quantify the
amount of such impact.
Competition
The Washington Post competes in the Washington, D.C.
metropolitan area with The Washington Times, a newspaper
which has published weekday editions since 1982 and Saturday and
Sunday editions since 1991. The Post also encounters
competition in varying degrees from newspapers published in
suburban and outlying areas, other nationally circulated
newspapers, and from television, radio, magazines and other
advertising media, including direct mail advertising. Express
similarly competes with various other advertising media in
its service area, including both daily and weekly
free-distribution newspapers.
Washingtonpost.Newsweek Interactive faces competition from many
other Internet services, particularly services that feature
national and international news, as well as from alternative
methods of delivering news and information. In addition, other
Internet-based services, including search engines, are carrying
increasing amounts of advertising, and such services could also
adversely affect the Companys print publications and
television broadcasting operations, all of which rely on
advertising for the majority of their revenues. Several
companies are offering online services containing information
and advertising tailored for specific metropolitan areas,
including the Washington, D.C. metropolitan area. For
example, America Online (a unit of Time Warner) produces a
Washington, D.C. city guide which is part of AOLs
nationwide network of local online sites. National online
classified advertising is becoming a particularly crowded field,
with competitors such as Yahoo! and eBay aggregating large
volumes of content into a national classified database covering
a broad range of product lines. Other competitors are focusing
on vertical niches in specific content areas: autos.msn.com
(which is majority owned by Microsoft), AutoTrader.com and
Autobytel.com, for example, aggregate national car listings;
Realtor.com aggregates national real estate listings; while
Monster.com, HotJobs.Yahoo.com (which is owned by Yahoo!) and
CareerBuilder.com (which is jointly owned by Gannett,
Knight-Ridder and Tribune Co.) aggregate employment listings.
Slate competes for readers with many other political and
lifestyle publications, both online and in print, and competes
for advertising revenue with those publications as well as with
a wide variety of other print and online publications and other
forms of advertising.
The Herald circulates principally in Snohomish County,
Washington; its chief competitors are the Seattle Times
and the Seattle Post-Intelligencer, which are daily
and Sunday newspapers published in Seattle and whose Snohomish
County circulation is principally in the southwest portion of
the county. Since 1983 the two Seattle newspapers have
consolidated their business and production operations and
combined their Sunday editions pursuant to a joint operating
agreement, although they continue to publish separate daily
newspapers. The Enterprise Newspapers are distributed in
south Snohomish and north King Counties where their principal
competitors are the Seattle Times and The Journal
Newspapers, a group of weekly controlled-circulation
newspapers. Numerous other weekly and semi-weekly newspapers and
shoppers are distributed in The Heralds and The
Enterprise Newspapers principal circulation areas.
16
THE WASHINGTON POST COMPANY
The circulation of The Gazette Newspapers is limited to
Montgomery, Prince Georges and Frederick Counties and
parts of Carroll County, Maryland. The Gazette Newspapers
compete with many other advertising vehicles available in
their service areas, including The Potomac and
Bethesda/Chevy Chase Almanacs, The Western Montgomery
Bulletin, The Bowie Blade-News, The West County News and
The Laurel Leader, weekly controlled-circulation
community newspapers, The Montgomery Sentinel, a weekly
paid-circulation community newspaper, The Prince
Georges Sentinel, a weekly controlled-circulation
community newspaper (which also has a weekly paid-circulation
edition), and The Frederick News-Post and Carroll
County Times, daily paid-circulation community newspapers.
The Southern Maryland Newspapers circulate in southern
Prince Georges County and in Charles, Calvert and St.
Marys Counties, Maryland, where they also compete with
many other advertising vehicles available in their service
areas, including the Calvert County Independent and
St. Marys Today, weekly paid-circulation community
newspapers.
In October 2004 Clarity Media Group, a company associated with
Denver businessman and billionaire Philip Anschutz, bought the
The Montgomery, Prince Georges and Northern
Virginia Journals, three community newspapers with a
combination of paid and free circulation that had been published
in suburban Washington, D.C. for many years by a local company.
In early February 2005, Clarity Media Group relaunched The
Journal newspapers as The Examiner, a free newspaper
which is being published six days a week in northern Virginia,
suburban Maryland and Washington, D.C. zoned editions, each of
which contains national and international as well as local news.
The Company believes the three editions of The Examiner
are currently being distributed primarily by zip-code
targeted home delivery in their respective service areas. The
Examiner will compete in varying degrees with The Gazette
Newspapers, Express and The Washington Post, although
the Company is unable to predict how significant a competitive
factor The Examiner will ultimately prove to be.
The advertising periodicals published by Greater Washington
Publishing compete both with many other forms of advertising
available in their distribution area as well as with various
other free-circulation advertising periodicals.
El Tiempo Latino competes with other Spanish-language
advertising media available in the Washington, D.C. area,
including several other Spanish-language newspapers.
The Companys television stations compete for audiences and
advertising revenues with television and radio stations and
cable television systems serving the same or nearby areas, with
direct broadcast satellite (DBS) services, and to a
lesser degree with other video programming providers and with
other media such as newspapers and magazines. Cable television
systems operate in substantially all of the areas served by the
Companys television stations where they compete for
television viewers by importing out-of-market television signals
and by distributing pay-cable, advertiser-supported and other
programming that is originated for cable systems. In addition,
DBS services provide nationwide distribution of television
programming (including in some cases pay-per-view programming
and programming packages unique to DBS) using small receiving
dishes and digital transmission technologies. In 1999 Congress
passed the Satellite Home Viewer Improvement Act, which gives
DBS operators the ability to distribute the signals of local
television stations to subscribers in the stations local
market area (local-into-local service), although
since 2000 DBS operators have been required to obtain the
consent of each local television station included in such a
service. The analog signal of each of the Companys
television stations is currently being distributed locally by
DBS providers DirecTV and EchoStar. Under an FCC rule
implementing provisions of this Act, since 2002 DBS operators
have been required to carry the analog signals of all full-power
television stations that request such carriage in the markets in
which the DBS operators have chosen to offer local-into-local
service. The FCC has also adopted rules that require certain
program-exclusivity rules applicable to cable television to be
applied to DBS operators. In addition, the Satellite Home Viewer
Improvement Act and subsequent legislation continued
restrictions on the transmission of distant network stations by
DBS operators. Thus DBS operators generally are prohibited from
delivering the signals of distant network stations to
subscribers who can receive the analog signal of the
networks local affiliate. Several lawsuits were filed
beginning in 1996 in which plaintiffs (including all four major
broadcast networks and network-affiliated stations including one
of the Companys Florida stations) alleged that certain DBS
operators had not been complying with the prohibition on
delivering network signals to households that can receive the
analog signal of the local network affiliate over the air. The
plaintiffs entered into a settlement with DBS operator DirecTV,
under which it agreed to discontinue distant-network service to
certain subscribers and alter the method by which it determines
eligibility for this service. Litigation against DBS operator
EchoStar is continuing. In addition to the matters discussed
above, the Companys television stations may also become
subject to increased competition from low-power television
stations, wireless cable services, satellite master antenna
systems (which can carry pay-cable and similar program material)
and prerecorded video programming.
Cable television systems operate in a highly competitive
environment. In addition to competing with the direct reception
of television broadcast signals by the viewers own
antenna, such systems (like existing television stations) are
subject to competition from various other forms of television
program delivery. In particular, DBS services (which are
discussed in
2004 FORM 10-K
17
more detail in the preceding paragraph) have been growing
rapidly and are now a significant competitive factor. The
ability of DBS operators to provide local-into-local service (as
described above) has increased competition between cable and DBS
operators in markets where local-into-local service is provided.
DBS operators are not required to provide local-into-local
service, and some smaller markets may not receive this service
for several years. However, local-into-local service is
currently being offered by at least one DBS operator in most
markets in which the Company provides cable television service.
In December 2003 News Corporation Limited (News
Corp), a global media company that in the United States
owns the Fox Television Network, 35 broadcast television
stations, a group of regional sports networks and a number of
nationally distributed cable networks (including the Fox News
Channel, FX, the Fox Movie Channel, the Speed Channel and the
National Geographic Channel), acquired a controlling interest in
DirecTV. This acquisition was approved by the FCC in an order
that, among other things, requires News Corp to offer carriage
of its broadcast television stations and access to its cable
programming services to cable television systems and other
multichannel video programming distributors on nonexclusive and
nondiscriminatory terms and conditions. Notwithstanding the
requirements imposed by the FCC, this acquisition has the
potential not only to enhance DirecTVs effectiveness as a
competitor, but also to limit the access of cable television
systems to desirable programming and to increase the costs of
such programming. The Companys cable television systems
also compete with wireless cable services in several of their
markets and may face additional competition from such services
in the future. Moreover, the Telecommunications Act of 1996
permits telephone companies to own and operate cable television
systems in the same areas where they provide telephone services
and thus may lead to the provision of competing program delivery
services by local telephone companies. Telephone companies can
also compete with cable television systems in providing
broadband Internet access by using DSL and other technologies.
Some telephone companies have entered into strategic
partnerships with DBS operators that permit the telephone
company to package the video programming services of the DBS
operator with the telephone companys own DSL service,
thereby competing directly with the video programming and cable
modem services being offered by existing cable television
systems.
Kaplan competes in each of its test preparation product lines
with a variety of regional and national test preparation
businesses, as well as with individual tutors and in-school
preparation for standardized tests. Kaplans Score
Education subsidiary competes with other regional and national
learning centers, individual tutors and other educational
businesses that target parents and students. Kaplans
Professional Division competes with other companies that provide
alternative or similar professional training, test preparation
and consulting services. Kaplans Higher Education Division
competes with both facilities-based and other distance learning
providers of similar educational services, including
not-for-profit colleges and universities and for-profit
businesses. Overseas, both The Financial Training Company and
Dublin Business School compete with other for-profit companies
and with governmentally supported schools and institutions that
provide similar training and educational programs.
According to figures compiled by Publishers Information
Bureau, Inc., of the 226 magazines reported on by the Bureau,
Newsweek ranked fifth in total advertising revenues in
2004, when it received approximately 2.6% of all advertising
revenues of the magazines included in the report. The magazine
industry is highly competitive, both within itself and with
other advertising media that compete for audience and
advertising revenue.
PostNewsweek Tech Medias publications and trade shows
compete with many other advertising vehicles and sources of
similar information.
The Companys publications and television broadcasting and
cable operations also compete for readers and
viewers time with various other leisure-time activities.
The future of the Companys various business activities
depends on a number of factors, including the general strength
of the economy; population growth and the level of economic
activity in the particular geographic and other markets it
serves; the impact of technological innovations on
entertainment, news and information dissemination systems;
overall advertising revenues; the relative efficiency of
publishing and broadcasting compared to other forms of
advertising; and, particularly in the case of television
broadcasting and cable operations, the extent and nature of
government regulations.
Executive Officers
The executive officers of the Company, each of whom is elected
for a one-year term at the meeting of the Board of Directors
immediately following the Annual Meeting of Stockholders held in
May of each year, are as follows:
Donald E. Graham, age 59, has been Chairman of the Board of the
Company since September 1993 and Chief Executive Officer of the
Company since May 1991. Mr. Graham served as President of
the Company from May 1991 until
18
THE WASHINGTON POST COMPANY
September 1993 and prior to that had been a Vice President of
the Company for more than five years. Mr. Graham also
served as Publisher of The Washington Post from 1979
until September 2000.
Diana M. Daniels, age 55, has been Vice President and General
Counsel of the Company since November 1988 and Secretary of the
Company since September 1991. Ms. Daniels served as General
Counsel of the Company from January 1988 to November 1988 and
prior to that had been Vice President and General Counsel of
Newsweek, Inc. since 1979.
Ann L. McDaniel, age 49, became Vice President-Human Resources
of the Company in September 2001. Ms. McDaniel had
previously served as Senior Director of Human Resources of the
Company since January 2001, and prior to that held various
editorial positions at Newsweek for more than five years,
most recently as Managing Editor, a position she assumed in
November 1998.
John B. Morse, Jr., age 58, has been Vice President-Finance
of the Company since November 1989. He joined the Company as
Vice President and Controller in July 1989 and prior to that had
been a partner of Price Waterhouse.
Gerald M. Rosberg, age 58, became Vice President-Planning and
Development of the Company in February 1999. He had previously
served as Vice President-Affiliates at The Washington
Post, a position he assumed in November 1997.
Mr. Rosberg joined the Company in January 1996 as The
Posts Director of Affiliate Relations.
Employees
The Company and its subsidiaries employ approximately 14,800
persons on a full-time basis.
WP Company has approximately 2,630 full-time employees. About
1,475 of that units full-time employees and about 455
part-time employees are represented by one or another of five
unions. Collective bargaining agreements are currently in effect
with locals of the following unions covering the full-time and
part-time employees and expiring on the dates indicated: 1,231
editorial, newsroom and commercial department employees
represented by the Communications Workers of America
(November 7, 2005); 39 machinists represented by the
International Association of Machinists (January 10, 2007);
32 photoengravers-platemakers represented by the Graphic
Communications International Union (February 10, 2007); 27
electricians represented by the International Brotherhood of
Electrical Workers (December 13, 2007); and 31 engineers,
carpenters and painters represented by the International Union
of Operating Engineers (April 9, 2005). The agreement
covering 410 mailroom workers represented by the Communications
Workers of America expired on May 18, 2003, and efforts to
negotiate a new agreement are continuing. Also, the agreement
covering 63 paper handlers and general workers represented by
the Graphic Communications International Union expired on
November 20, 2004; a replacement agreement had been
negotiated but that agreement was subsequently rejected by the
members of the bargaining unit.
Washingtonpost.Newsweek Interactive has approximately 230
full-time and 35 part-time employees, none of whom is
represented by a union.
Of the approximately 250 full-time and 100 part-time employees
at The Daily Herald Company, about 70 full-time and 20 part-time
employees are represented by one or another of three unions. The
newspapers collective bargaining agreement with the
Graphic Communications International Union, which represents
press operators, expires on March 15, 2005, and its
agreement with the Communications Workers of America, which
represents printers and mailers, expires on October 31,
2005. The Newspapers agreement with the International
Brotherhood of Teamsters, which represents bundle haulers,
expires on September 22, 2007.
The Companys broadcasting operations have approximately
980 full-time employees, of whom about 230 are
union-represented. Of the eight collective bargaining agreements
covering union-represented employees, one has expired and is
being renegotiated. Two other collective bargaining agreements
will expire in 2005.
The Companys Cable Television Division has approximately
1,700 full-time employees, none of whom is represented by a
union.
Worldwide, Kaplan employs approximately 7,600 persons on a
full-time basis. Kaplan also employs substantial numbers of
part-time employees who serve in instructional and
administrative capacities. During peak seasonal periods,
Kaplans part-time workforce exceeds 15,500 employees. None
of Kaplans employees is represented by a union.
Newsweek has approximately 620 full-time employees (including
about 130 editorial employees represented by the Communications
Workers of America under a collective bargaining agreement that
will expire on December 31, 2005).
2004 FORM 10-K
19
Post-Newsweek Media, Inc. has approximately 645 full-time and
160 part-time employees. Robinson Terminal Warehouse Corporation
(the Companys newsprint warehousing and distribution
subsidiary), Greater Washington Publishing, Express Publications
Company and El Tiempo Latino LLC each employ fewer than 100
persons. None of these units employees is represented by a
union.
Forward-Looking Statements
All public statements made by the Company and its
representatives that are not statements of historical fact,
including certain statements in this Annual Report on
Form 10-K and elsewhere in the Companys 2004 Annual
Report to Stockholders, are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements
include comments about the Companys business strategies
and objectives, the prospects for growth in the Companys
various business operations, and the Companys future
financial performance. As with any projection or forecast,
forward-looking statements are subject to various risks and
uncertainties that could cause actual results or events to
differ materially from those anticipated in such statements. In
addition to the various matters discussed elsewhere in this
Annual Report on Form 10-K (including the financial
statements and other items filed herewith), specific factors
identified by the Company that might cause such a difference
include the following: changes in prevailing economic
conditions, particularly in the specific geographic and other
markets served by the Company; actions of competitors, including
price changes and the introduction of competitive service
offerings; changes in the preferences of readers, viewers and
advertisers, particularly in response to the growth of
Internet-based media; changes in communications and broadcast
technologies; the effects of changing cost or availability of
raw materials, including changes in the cost or availability of
newsprint and magazine body paper; changes in the extent to
which standardized tests are used in the admissions process by
colleges and graduate schools; changes in the extent to which
licensing or proficiency examinations are used to qualify
individuals to pursue certain careers; changes in laws or
regulations, including changes that affect the way business
entities are taxed; and changes in accounting principles or in
the way such principles are applied.
Available Information
The Companys Internet address is
www.washpostco.com. The Company makes available free of
charge through its website its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after such documents are
electronically filed with the Securities and Exchange
Commission. In addition, the Companys Certificate of
Incorporation, its Corporate Governance Guidelines, the Charters
of the Audit and Compensation Committees of the Companys
Board of Directors, and the codes of conduct adopted by the
Company and referred to in Item 10 of this Annual Report on
Form 10-K are each available on the Companys website;
printed copies of such documents may be obtained by any
stockholder upon written request to the Secretary of the Company
at 1150 15th Street, N.W.,
Washington, D.C. 20071.
Item 2. Properties.
WP Company owns the principal offices of The Washington Post
in downtown Washington, D.C., including both a seven-story
building in use since 1950 and a connected nine-story office
building on contiguous property completed in 1972 in which the
Companys principal executive offices are located.
Additionally, WP Company owns land on the corner of 15th and L
Streets, N.W., in Washington, D.C., adjacent to The
Posts office building. This land is leased on a
long-term basis to the owner of a multi-story office building
that was constructed on the site in 1982. WP Company rents a
number of floors in this building. WP Company also owns and
occupies a small office building on L Street which is connected
to The Posts office building. On December 22,
2003, WP Company sold a 35,000-square-foot lot on 15th Street
next to the lot containing The Posts office
building.
WP Company owns a printing plant in Fairfax County, Virginia
which was built in 1980 and expanded in 1998. That facility is
located on 19 acres of land owned by WP Company. WP Company also
owns a printing plant and distribution facility in Prince
Georges County, Maryland, which was built in 1998 on a
17-acre tract of land owned by WP Company. In addition, WP
Company owns undeveloped land near Dulles Airport in Fairfax
County, Virginia (39 acres) and in Prince Georges County,
Maryland (34 acres); both of these properties currently are
under contract to be sold.
The Herald owns its plant and office building in Everett,
Washington; it also owns two warehouses adjacent to its plant
and a small office building in Lynnwood, Washington.
20
THE WASHINGTON POST COMPANY
Post-Newsweek Media, Inc. owns a two-story brick building that
serves as its headquarters and as headquarters for The
Gazette Newspapers and a separate two-story brick building
that houses its Montgomery County commercial printing business.
All of these properties are located in Gaithersburg, Maryland.
In addition, Post-Newsweek Media, Inc. owns a one-story brick
building in Waldorf, Maryland that houses its Charles County
commercial printing business and also serves as the headquarters
for two of the Southern Maryland Newspapers. The other
editorial and sales offices for The Gazette Newspapers
and the Southern Maryland Newspapers are located in
leased premises. The PostNewsweek Tech Media Division leases
office space in Washington, D.C. and Oakland, California.
Post-Newsweek Media has contracted to purchase approximately 7
acres of undeveloped land in Prince Georges County,
Maryland, on which it plans to build a combination office
building and commercial printing facility.
The headquarters offices of the Companys broadcasting
operations are located in Detroit, Michigan in the same
facilities that house the offices and studios of WDIV. That
facility and those that house the operations of each of the
Companys other television stations are all owned by
subsidiaries of the Company, as are the related tower sites
(except in Houston, Orlando and Jacksonville, where the tower
sites are 50% owned).
The headquarters offices of the Cable Television Division are
located in a three-story office building in Phoenix, Arizona
that was purchased by Cable One in 1998. The majority of the
offices and head-end facilities of the Divisions
individual cable systems are located in buildings owned by Cable
One. Most of the tower sites used by the Division are leased. In
addition, the Division houses a call-center operation in
20,000 square feet of rented space in Phoenix under a lease
that expires in 2013.
Kaplan owns a total of ten buildings, including a
26,000-square-foot six-story building located at 131 West 56th
Street in New York City, which serves as an educational center
primarily for international students, and a 2,300-square-foot
office condominium in Chapel Hill, North Carolina which it
utilizes for its Test Prep business. Kaplan also owns a
15,000-square-foot three-story building in Berkeley, California
utilized for its Test Prep and English Language Training
businesses; a 39,000-square-foot four-story brick building and a
19,000-square-foot two-story brick building in Lincoln, Nebraska
which are used by Hamilton College; a 25,000-square-foot
one-story building in Omaha, Nebraska also used by Hamilton
College; a 131,000-square-foot five-story brick building in
Manchester, New Hampshire used by Hesser College; an
18,000-square-foot one-story brick building in Dayton, Ohio used
by the Ohio Institute of Photography and Technology; a
25,000-square-foot building in Hammond, Indiana used by Sawyer
College; and a 45,000-square-foot three-story brick building in
Houston, Texas used by the Texas School of Business. Kaplan
Universitys new corporate office is in a
97,000-square-foot building located in Ft. Lauderdale, Florida,
which has been leased for a term expiring in 2015. Kaplans
distribution facilities for most of its domestic publications
are located in a 169,000-square-foot warehouse in Aurora,
Illinois which has been rented under a lease which expires in
2010. Kaplans headquarters offices are located at
888 7th Avenue in New York City, where Kaplan rents space
on three floors under a lease which expires in 2017. Overseas,
Dublin Business Schools facilities in Dublin, Ireland are
located in four buildings aggregating approximately 54,000
square feet of space which have been rented under leases
expiring between 2018 and 2028. The Financial Training
Companys two largest leaseholds are office and
instructional space in London of 21,000 square feet and 28,000
square feet which are being occupied under leases that expire in
2007 and 2019, respectively. All other Kaplan facilities in the
United States and overseas (including administrative offices and
instructional locations) also occupy leased premises.
The principal offices of Newsweek are located at 251 West 57th
Street in New York City, where Newsweek rents space on nine
floors. The lease on this space will expire in 2009 but is
renewable for a 15-year period at Newsweeks option at
rentals to be negotiated or arbitrated. Budget
Travels offices are also located in New York City,
where they occupy premises under a lease that expires in 2010.
Newsweek also leases a portion of a building in Mountain Lakes,
N.J. to house its accounting, production and distribution
departments. The lease on this space will expire in 2007 but is
renewable for two five-year periods at Newsweeks option.
Robinson Terminal Warehouse Corporation owns two wharves and
several warehouses in Alexandria, Virginia. These facilities are
adjacent to the business district and occupy approximately seven
acres of land. Robinson also owns two partially developed tracts
of land in Fairfax County, Virginia, aggregating about 20 acres.
These tracts are near The Washington Posts Virginia
printing plant and include several warehouses. In 1992 Robinson
purchased approximately 23 acres of undeveloped land on the
Potomac River in Charles County, Maryland, for the possible
construction of additional warehouse capacity.
The offices of Washingtonpost.Newsweek Interactive occupy 85,000
square feet of office space in Arlington, Virginia under a lease
which expires in 2010. Express Publications Company subleases
part of this space. In addition, WPNI leases space in
Washington, D.C. and subleases space from Newsweek in New York
City for Slates offices in those
2004 FORM 10-K
21
cities, and also leases office space for WPNI sales
representatives in New York City, Chicago, San Francisco and Los
Angeles.
Greater Washington Publishings offices are located in
leased space in Fairfax, Virginia, while El Tiempo Latino
LLCs offices are located in leased space in Arlington,
Virginia.
Item 3. Legal Proceedings.
The Company and its subsidiaries are defendants in various civil
lawsuits that have arisen in the ordinary course of their
businesses, including actions alleging libel, invasion of
privacy and violations of applicable wage and hour laws. While
it is not possible to predict the outcome of these lawsuits, in
the opinion of management their ultimate disposition should not
have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders. |
Not applicable.
PART II
|
|
Item 5. |
Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities. |
The Companys Class B Common Stock is traded on the
New York Stock Exchange under the symbol WPO. The
Companys Class A Common Stock is not publicly traded.
The high and low sales prices of the Companys Class B
Common Stock during the last two years were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
|
|
|
|
Quarter |
|
High | |
|
Low | |
|
High | |
|
Low | |
|
January March
|
|
|
$921 |
|
|
|
$790 |
|
|
|
$764 |
|
|
|
$659 |
|
|
|
|
|
April June
|
|
|
983 |
|
|
|
886 |
|
|
|
741 |
|
|
|
679 |
|
|
|
|
|
July September
|
|
|
956 |
|
|
|
830 |
|
|
|
752 |
|
|
|
650 |
|
|
|
|
|
October December
|
|
|
999 |
|
|
|
862 |
|
|
|
820 |
|
|
|
667 |
|
During 2004 the Company did not repurchase any shares of its
Class B Common Stock.
At January 31, 2005, there were 28 holders of record of the
Companys Class A Common Stock and 1,006 holders of
record of the Companys Class B Common Stock.
Both classes of the Companys Common Stock participate
equally as to dividends. Quarterly dividends were paid at the
rate of $1.75 per share during 2004 and $1.45 per share during
2003.
|
|
Item 6. |
Selected Financial Data. |
See the information for the years 2000 through 2004 contained in
the table titled Ten-Year Summary of Selected Historical
Financial Data which is included in this Annual Report on
Form 10-K and listed in the index to financial information
on page 27 hereof (with only the information for such years
to be deemed filed as part of this Annual Report on
Form 10-K).
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations. |
See the information contained under the heading
Managements Discussion and Analysis of Results of
Operations and Financial Condition which is included in
this Annual Report on Form 10-K and listed in the index to
financial information on page 27 hereof.
|
|
Item 7A. |
Quantitative and Qualitative Disclosures About Market
Risk. |
The Company is exposed to market risk in the normal course of
its business due primarily to its ownership of marketable equity
securities, which are subject to equity price risk, and to its
borrowing activities, which are subject to interest rate risk.
22
THE WASHINGTON POST COMPANY
Equity Price Risk
The Company has common stock investments in several publicly
traded companies (as discussed in Note C to the
Companys consolidated Financial Statements) that are
subject to market price volatility. The fair value of these
common stock investments totaled $409,736,000 at January 2,
2005.
The following table presents the hypothetical change in the
aggregate fair value of the Companys common stock
investments in publicly traded companies assuming hypothetical
stock price fluctuations of plus or minus 10%, 20% and 30% in
the market price of each stock included therein:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Common Stock Investments |
|
Value of Common Stock Investments |
Assuming Indicated Decrease in |
|
Assuming Indicated Increase in |
Each Stocks Price |
|
Each Stocks Price |
|
-30% |
|
-20% |
|
-10% |
|
+10% |
|
+20% |
|
+30% |
|
|
|
|
|
|
|
|
|
|
|
$ |
286,815,000 |
|
|
$ |
327,789,000 |
|
|
$ |
368,762,000 |
|
|
$ |
450,710,000 |
|
|
$ |
491,683,000 |
|
|
$ |
532,657,000 |
|
During the 24 quarters since the end of the Companys 1998
fiscal year, market price movements caused the aggregate fair
value of the Companys common stock investments in publicly
traded companies to change by approximately 20% in one quarter,
15% in five quarters and by 10% or less in each of the other 18
quarters.
Interest Rate Risk
At January 2, 2005, the Company had short-term commercial
paper borrowings outstanding of $50,187,000 at an average
interest rate of 2.2%. At December 28, 2003, the Company
had commercial paper borrowings outstanding of $188,316,000 at
an average interest rate of 1.1%. The Company is exposed to
interest rate risk with respect to such borrowings since an
increase in commercial paper borrowing rates would increase the
Companys interest expense on its commercial paper
borrowings. Assuming a hypothetical 100 basis point increase in
its average commercial paper borrowing rates from those that
prevailed during the Companys 2004 and 2003 fiscal years,
the Companys interest expense would have been greater by
approximately $726,000 in fiscal 2004 and by approximately
$1,800,000 in fiscal 2003.
The Companys long-term debt consists of $400,000,000
principal amount of 5.5% unsecured notes due February 15,
2009 (the Notes). At January 2, 2005, the
aggregate fair value of the Notes, based upon quoted market
prices, was $423,000,000. An increase in the market rate of
interest applicable to the Notes would not increase the
Companys interest expense with respect to the Notes since
the rate of interest the Company is required to pay on the Notes
is fixed, but such an increase in rates would affect the fair
value of the Notes. Assuming, hypothetically, that the market
interest rate applicable to the Notes was 100 basis points
higher than the Notes stated interest rate of 5.5%, the
fair value of the Notes would be approximately $385,720,000.
Conversely, if the market interest rate applicable to the Notes
was 100 basis points lower than the Notes stated interest
rate, the fair value of the Notes would then be approximately
$414,860,000.
|
|
Item 8. |
Financial Statements and Supplementary Data. |
See the Companys Consolidated Financial Statements at
January 2, 2005, and for the periods then ended, together
with the report of PricewaterhouseCoopers LLP thereon and the
information contained in Note O to said Consolidated
Financial Statements titled Summary of Quarterly Operating
Results and Comprehensive Income (Unaudited), which are
included in this Annual Report on Form 10-K and listed in
the index to financial information on page 27 hereof.
|
|
Item 9. |
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure. |
Not applicable.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
An evaluation was performed by the Companys management,
with the participation of the Companys Chief Executive
Officer (the Companys principal executive officer) and the
Companys Vice President-Finance (the Companys
principal financial officer), of the effectiveness of the
Companys disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), as of
January 2, 2005. Based on that evaluation, the
Companys Chief Executive
2004 FORM 10-K
23
Officer and Vice President-Finance have concluded that the
Companys disclosure controls and procedures, as designed
and implemented, are effective in ensuring that information
required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Managements Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)). The
Companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. Our management
assessed the effectiveness of our internal control over
financial reporting as of January 2, 2005. In making this
assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. Our
management has concluded that, as of January 2, 2005, our
internal control over financial reporting is effective based on
these criteria. Our independent auditors, PricewaterhouseCoopers
LLP, have audited our assessment of the effectiveness of our
internal control over financial reporting as of January 2,
2005, as stated in their report which is included herein.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Item 9B. Other Information.
Not applicable.
PART III
|
|
Item 10. |
Directors and Executive Officers of the Registrant. |
The information contained under the heading Executive
Officers in Item 1 hereof and the information
contained under the headings Nominees for Election by
Class A Stockholders, Nominees for Election by
Class B Stockholders and Section 16(a)
Beneficial Ownership Reporting Compliance in the
definitive Proxy Statement for the Companys 2005 Annual
Meeting of Stockholders is incorporated herein by reference
thereto.
The Company has adopted codes of conduct that constitute
codes of ethics as that term is defined in paragraph
(b) of Item 406 of Regulation S-K and that apply
to the Companys principal executive officer, principal
financial officer, principal accounting officer or controller
and to any persons performing similar functions. Such codes of
conduct are posted on the Companys Internet website, the
address of which is www.washpostco.com, and the Company
intends to satisfy the disclosure requirements under
Item 5.05 of Form 8-K with respect to certain
amendments to, and waivers of the requirements of, the
provisions of such codes of conduct applicable to the officers
and persons referred to above by posting the required
information on its Internet website.
In addition to the certifications of the Companys Chief
Executive Officer and Chief Financial Officer filed as exhibits
to this Annual Report on Form 10-K, in May 2004 the
Companys Chief Executive Officer submitted to the New York
Stock Exchange the certification regarding compliance with the
NYSEs corporate governance listing standards required by
Section 303A.12 of the NYSE Listed Company Manual.
Item 11. Executive Compensation.
The information contained under the headings Director
Compensation, Executive Compensation,
Retirement Plans, Compensation Committee
Report on Executive Compensation, Compensation
Committee Interlocks and Insider Participation and
Performance Graph in the definitive Proxy Statement
for the Companys 2005 Annual Meeting of Stockholders is
incorporated herein by reference thereto.
24
THE WASHINGTON POST COMPANY
|
|
Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. |
The information contained under the heading Stock Holdings
of Certain Beneficial Owners and Management and in the
table titled Equity Compensation Plan Information in
the definitive Proxy Statement for the Companys 2005
Annual Meeting of Stockholders is incorporated herein by
reference thereto.
|
|
Item 13. |
Certain Relationships and Related Transactions. |
The information contained under the heading Certain
Relationships and Related Transactions in the definitive
Proxy Statement for the Companys 2005 Annual Meeting of
Stockholders is incorporated herein by reference thereto.
|
|
Item 14. |
Principal Accountant Fees and Services. |
The information contained under the heading Audit
Committee Report in the definitive Proxy Statement for the
Companys 2005 Annual Meeting of Stockholders is
incorporated herein by reference thereto.
PART IV
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|
Item 15. |
Exhibits and Financial Statement Schedules. |
The following documents are filed as part of this report:
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|
As listed in the index to financial information on page 27
hereof. |
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|
2. Financial Statement Schedules |
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As listed in the index to financial information on page 27
hereof. |
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|
As listed in the index to exhibits on page 63 hereof. |
2004 FORM 10-K
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 2,
2005.
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|
THE WASHINGTON POST COMPANY |
|
(Registrant) |
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|
|
|
By |
/s/ JOHN B. MORSE, JR. |
|
|
|
|
|
John B. Morse, Jr. |
|
Vice President-Finance |
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
indicated on March 2, 2005:
|
|
|
|
|
|
Donald E. Graham |
|
Chairman of the Board and Chief Executive Officer (Principal
Executive Officer) and Director |
|
|
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John B. Morse, Jr. |
|
Vice President-Finance (Principal Financial and Accounting
Officer) |
|
|
|
Warren E. Buffett |
|
Director |
|
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Barry Diller |
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Director |
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John L. Dotson Jr. |
|
Director |
|
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Melinda French Gates |
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Director |
|
|
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George J. Gillespie, III |
|
Director |
|
|
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Ronald L. Olson |
|
Director |
|
|
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Alice M. Rivlin |
|
Director |
|
|
|
Richard D. Simmons |
|
Director |
|
|
|
George W. Wilson |
|
Director |
|
|
|
|
|
|
By |
/s/ JOHN B. MORSE, JR. |
|
|
|
|
|
John B. Morse, Jr. |
|
Attorney-in-Fact |
An original power of attorney authorizing Donald E. Graham, John
B. Morse, Jr. and Diana M. Daniels, and each of them, to sign
all reports required to be filed by the Registrant pursuant to
the Securities Exchange Act of 1934 on behalf of the above-named
directors and officers has been filed with the Securities and
Exchange Commission.
26
THE WASHINGTON POST COMPANY
INDEX TO FINANCIAL INFORMATION
THE WASHINGTON POST COMPANY
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Page |
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Managements Discussion and Analysis of Results of
Operations and Financial Condition (Unaudited)
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28 |
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Financial Statements and Schedules:
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Report of Independent Registered Public Accounting Firm
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38 |
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Consolidated Statements of Income and Consolidated Statements of
Comprehensive Income for the Three Fiscal Years Ended
January 2, 2005
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39 |
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Consolidated Balance Sheets at January 2, 2005 and
December 28, 2003
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40 |
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Consolidated Statements of Cash Flows for the Three Fiscal Years
Ended January 2, 2005
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42 |
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Consolidated Statements of Changes in Common Shareholders
Equity for the Three Fiscal Years Ended January 2, 2005
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43 |
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Notes to Consolidated Financial Statements
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44 |
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Financial Statement Schedule for the Three Fiscal Years Ended
January 2, 2005:
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II Valuation and Qualifying Accounts
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59 |
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Ten-Year Summary of Selected Historical Financial Data
(Unaudited)
|
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|
60 |
|
All other schedules have been
omitted either because they are not applicable or because the
required information is included in the Consolidated Financial
Statements or the notes thereto referred to above.
2004 FORM 10-K
27
MANAGEMENTS 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.
OVERVIEW
The Washington Post Company is a diversified media and education
company, with education as the fastest-growing business. The
Company operates principally in four areas of the media
business: newspaper publishing, television broadcasting,
magazine publishing and cable television. Through its subsidiary
Kaplan, Inc., the Company provides educational services for
individuals, schools and businesses. The Companys business
units are diverse and subject to different trends and risks.
In 2004, the Companys education segment became the largest
operating segment of the Company from a revenue standpoint. The
Company has devoted significant resources and attention to this
division, given the attractiveness of investment opportunities
and growth prospects. The growth of Kaplan in recent years has
come from both rapid internal growth and acquisitions. Each of
Kaplans businesses showed revenue and operating income
growth in 2004, except for Professional, which showed solid
revenue growth, but was essentially flat in operating income due
to new programs and increased technology costs. The campus-based
and online businesses in Kaplans higher education division
showed particularly significant revenue and operating income
growth. Kaplan completed its first full year operating The
Financial Training Company, a test preparation services company
for accountants and financial services professionals, primarily
in the United Kingdom; and Dublin Business School,
Irelands largest private undergraduate institution. These
2003 acquisitions marked the Companys most significant
business investments outside the United States in more than
10 years, and both have helped grow Kaplans revenue
and operating income in 2004. Kaplan made eight acquisitions in
2004, none of them individually significant from a financial
standpoint. Over the past several years, Kaplans revenues
have grown rapidly while operating income (loss) has
fluctuated due largely to various business investments and stock
compensation charges.
The cable division has also been a source of recent growth and
capital investment. Cable Ones industry has experienced
significant technological changes, which have created new
revenue opportunities, such as digital television and broadband,
as well as increased competition, particularly from satellite
television service providers. While the cable divisions
subscriber base stabilized in 2003, there was a modest decline
in the number of basic cable subscribers in 2004 (709,100 at the
end of 2004, compared to 720,800 at the end of 2003) and paying
digital subscribers (219,200 at the end of 2004, as compared to
222,900 at the end of December 2003). Cable One implemented a $2
monthly rate increase for basic cable service at most of its
systems in March 2004, but has no plans for a basic rate
increase in 2005. High-speed data subscribers grew 33% in 2004
(178,300 at the end of 2004, compared to 133,800 at the end of
2003). The cable division began offering bundled services in
2003 (basic and tier service, digital service, and high speed
data service in one package) with monthly subscriber discounts.
By the end of 2004, 12% of the cable divisions subscribers
accepted the full bundle of services.
The Companys newspaper publishing, broadcast television
and magazine publishing divisions derive revenue from
advertising and, to a lesser extent, circulation and
subscriptions. The results of these divisions tend to fluctuate
with the overall advertising cycle (amongst other business
factors). In 2004, advertising showed continued improvement. The
Washington Post newspaper reported continued strong increases in
print classified recruitment revenue, with a 20% increase for
the year. Preprint and general print advertising categories had
solid growth in 2004 as well. Circulation volume continued a
downward trend. The Post benefited from payroll savings in 2004
as a result of early retirement programs in 2003 that were
accepted by 153 employees. The Companys online
publishing business, Washingtonpost.Newsweek Interactive, showed
32% revenue growth in 2004 and reported positive operating
income (as we measure it internally) for the first time.
The Companys television broadcasting division experienced
a large increase in operating income due primarily to
significant political and Olympics-related advertising in 2004.
The Company expects a significant decline in television
broadcasting operating income for 2005 as a result of the
absence of any significant political elections and no Olympics
programming. Newsweek magazine showed ad growth in 2004 in both
its domestic and international editions.
The Company generates a significant amount of cash from its
businesses that is used to support its operations, to pay down
debt, and to fund capital expenditures, dividends and
acquisitions.
RESULTS OF OPERATIONS 2004 COMPARED TO
2003
Net income was $332.7 million ($34.59 per share) for the
fiscal year 2004 ended January 2, 2005, compared with
$241.1 million ($25.12 per share) for the fiscal year 2003
ended December 28, 2003. Each of the Companys
divisions reported strong growth in operating income for 2004.
The Companys 2003 results included a non-operating gain
from the sale of the Companys 50% interest in the
International Herald Tribune (after-tax impact of $32.3 million,
or $3.38 per share), an operating gain from the sale of land at
The Washington Post newspaper (after-tax impact of
$25.5 million, or $2.66 per share) and early retirement
program charges at The Washington Post newspaper (after-tax
impact of $20.8 million, or $2.18 per share). Also included
in 2003 results is a charge in connection with the establishment
of the Kaplan Educational Foundation (after-tax impact of
$3.9 million, or $0.41 per share) and Kaplan stock
compensation expense for the 10% premium associated with a
partial buyout of the Kaplan stock compensation plan (after-tax
impact of $6.4 million, or $0.67 per share).
Revenue for 2004 was $3,300.1 million, up 16% compared to
$2,838.9 million in 2003. The increase in revenue is due mostly
to significant revenue growth at the education and television
broadcasting divisions, along with increases at the
Companys cable
28
THE WASHINGTON POST COMPANY
television, newspaper publishing and magazine publishing
divisions. Advertising revenue increased 10% in 2004, and
circulation and subscriber revenue increased 5%. Education
revenue increased 35% in 2004, and other revenue was up 6%. The
increase in advertising revenue is due to increases at the
television broadcasting, newspaper publishing and magazine
publishing divisions. The increase in circulation and subscriber
revenue is due to a 9% increase in subscriber revenue at the
cable division from continued growth in cable modem, basic and
digital service revenues, a 2% increase in circulation revenue
at The Post, and a 4% decline in Newsweek circulation
revenues due to subscription rate declines at the domestic
edition of Newsweek. Revenue growth at Kaplan, Inc. (about 33%
of which was from acquisitions) accounted for the increase in
education revenue.
Operating costs and expenses for the year increased 11% to
$2,737.1 million, from $2,475.1 million in 2003. The
increase is primarily due to higher expenses from operating
growth at the education, cable television and television
broadcasting divisions, higher newsprint prices and a reduced
pension credit, offset by a significant decrease in stock-based
compensation expense at Kaplan.
Operating income increased 55% to $563.0 million, from
$363.8 million in 2003, due largely to significantly
improved results at the education and television broadcasting
divisions. Kaplan results for 2004 include $32.5 million in
stock compensation expense. In addition to pre-tax charges of
$10.5 million for the 10% buyout premium and
$6.5 million for the Kaplan Education Foundation, Kaplan
results for 2003 included an additional $108.6 million in Kaplan
stock compensation expense. Operating results for 2003 also
included a $41.7 million pre-tax gain on the sale of land
at The Washington Post newspaper and $34.1 million in
pre-tax charges from early retirement programs at The Washington
Post newspaper.
The Companys 2004 operating income includes
$42.0 million of net pension credits, compared to
$55.1 million in 2003. These amounts exclude
$0.1 million and $34.1 million in charges related to
early retirement programs in 2004 and 2003, respectively.
DIVISION RESULTS
Newspaper Publishing Division. At the newspaper
publishing division, 2004 generally included 53 weeks
compared to 52 weeks in 2003. Newspaper publishing division
revenue in 2004 increased 7% to $938.1 million, from
$872.8 million in 2003. Division operating income for 2004
totaled $143.1 million, an increase of 7% from
$134.2 million in 2003. The increase in operating income
for 2004 reflects higher print and online advertising revenue,
2003 pre-tax charges of $34.1 million from early retirement
programs at The Washington Post newspaper and payroll savings
from the early retirement programs implemented at The Post in
2003. These factors were partially offset by a
$41.7 million pre-tax gain on the sale of land at The
Washington Post newspaper in the fourth quarter of 2003, a 12%
increase in newsprint expense at The Post and a
$10.8 million reduction in the net pension credit,
excluding charges related to early retirement programs.
Operating margin at the newspaper publishing division was 15%
for 2004 and 2003.
Print advertising revenue at The Washington Post newspaper in
2004 increased 5% to $603.3 million, from
$572.2 million in 2003. The increase in print advertising
revenue for 2004 is primarily due to increases in classified
recruitment, preprints and general advertising categories.
Classified recruitment advertising revenue was up 20% to
$74.8 million in 2004, a $12.5 million increase compared to
2003.
Circulation revenue at The Post was up 2% for 2004 due to an
increase in home delivery prices in 2003 and an extra week in
fiscal 2004. Daily circulation at The Post declined 2.6% and
Sunday circulation declined 2.3% in 2004; average daily
circulation totaled 726,000 (unaudited) and average Sunday
circulation totaled 1,011,000 (unaudited).
During 2004, revenue generated by the Companys online
publishing activities, primarily washingtonpost.com, increased
32% to $62.0 million, from $46.9 million in 2003. Local and
national online advertising revenues grew 46% and online
classified advertising revenue on washingtonpost.com increased
33%.
On January 14, 2005, the Company completed the acquisition
of Slate, the online magazine, which will be included as part of
the Companys newspaper publishing division.
Television Broadcasting Division. Revenue for the
television broadcasting division increased 15% to
$361.7 million in 2004, from $315.1 million in 2003,
due to $34.3 million in political advertising in 2004,
$8.0 million in incremental summer Olympics-related
advertising at the Companys NBC affiliates in 2004 and
several days of commercial-free coverage in connection with the
Iraq war in March 2003.
Operating income for 2004 increased 25% to $174.2 million,
from $139.7 million in 2003, primarily as a result of the
revenue increases discussed above. Operating margin at the
broadcast division was 48% for 2004 and 44% for 2003.
Competitive market position remained strong for the
Companys television stations. WDIV in Detroit and KSAT in
San Antonio were ranked number one in the November 2004 ratings
period, Monday through Friday, sign-on to sign-off; WKMG in
Orlando ranked second; WJXT in Jacksonville and KPRC in Houston
ranked third; and WPLG was third among English-language stations
in the Miami market.
Magazine Publishing Division. Revenue for the magazine
publishing division totaled $366.1 million for 2004, a 4%
increase from $353.6 million in 2003. The revenue increase
in 2004 is primarily due to a 9% increase in advertising
revenue, largely from increased ad pages at the domestic and
international editions of Newsweek and at Arthur Frommers
Budget Travel magazine, as well as lower travel-related
advertising revenues at the Pacific edition of Newsweek in 2003
due to the SARS outbreak, offset by a 4% decline in circulation
revenue.
Operating income totaled $52.9 million for 2004, an
increase of 22% from $43.5 million in 2003. The improvement
in operating
2004 FORM 10-K
29
results for 2004 is primarily due to increased advertising
revenue, continued cost controls at Newsweeks
international editions and improved results at the
Companys trade magazines.
Operating margin at the magazine publishing division was 14% for
2004 and 12% for 2003.
Cable Television Division. Cable division revenue of
$499.3 million for 2004 represents a 9% increase from
revenue of $459.4 million in 2003. The 2004 revenue
increase is due to continued growth in the divisions cable
modem and digital service revenues and a $2 monthly rate
increase for basic cable service, effective March 1, 2004,
at most of the cable divisions systems.
Cable division operating income increased 18% in 2004 to
$104.2 million, from $88.4 million in 2003. The
increase in 2004 operating income is due mostly to the
divisions significant revenue growth, offset by higher
programming, Internet and depreciation costs. Operating margin
at the cable television division was 21% in 2004 and 19% in 2003.
At December 31, 2004, the cable division had approximately
219,200 digital cable subscribers, down slightly from 222,900 at
December 31, 2003. This represents a 31% penetration of the
subscriber base. At December 31, 2004, the cable division
had 178,300 CableONE.net service subscribers, compared to
133,800 at December 31, 2003. Both digital and cable modem
services are now offered in virtually all of the cable
divisions markets. At December 31, 2004, the cable
division had 709,100 basic subscribers, compared to 720,800 at
December 31, 2003. The decrease is due to small losses
associated with the basic rate increase discussed above, along
with continued competition from DBS providers.
At December 31, 2004, Revenue Generating Units (RGUs), the
sum of basic video, digital video and cable modem subscribers,
totaled 1,106,600, compared to 1,077,500 as of December 31,
2003. The increase is due to an increase in the number of cable
modem customers. RGUs include about 6,500 subscribers who
receive free basic video service, primarily local governments,
schools and other organizations as required by various franchise
agreements.
Below are details of cable division capital expenditures for
2004 and 2003, in the NCTA Standard Reporting Categories (in
millions):
|
|
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|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
|
|
|
Customer premise equipment
|
|
$ |
23.5 |
|
|
$ |
17.0 |
|
|
|
|
|
Commercial
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
Scaleable infrastructure
|
|
|
8.6 |
|
|
|
5.3 |
|
|
|
|
|
Line extensions
|
|
|
14.0 |
|
|
|
10.6 |
|
|
|
|
|
Upgrade/rebuild
|
|
|
15.6 |
|
|
|
21.4 |
|
|
|
|
|
Support capital
|
|
|
17.1 |
|
|
|
11.5 |
|
|
|
|
|
Total
|
|
$ |
78.9 |
|
|
$ |
65.9 |
|
|
|
|
Education Division. Education division revenue in 2004
increased 35% to $1,134.9 million, from $838.1 million
in 2003. Excluding revenue from acquired businesses, primarily
in the higher education division and the professional training
schools that are part of supplemental education, education
division revenue increased 24% in 2004. Kaplan reported
operating income of $121.5 million for the year, compared to an
operating loss of $11.7 million in 2003; a significant
portion of the improvement is from a $93.1 million decline
in costs associated with the Kaplan stock option plan and the
establishment of the Kaplan Educational Foundation, as discussed
previously. A summary of operating results for 2004 compared to
2003 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
% Change | |
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental education
|
|
$ |
575,014 |
|
|
$ |
469,757 |
|
|
|
22 |
|
|
|
|
|
|
Higher education
|
|
|
559,877 |
|
|
|
368,320 |
|
|
|
52 |
|
|
|
|
|
|
|
$ |
1,134,891 |
|
|
$ |
838,077 |
|
|
|
35 |
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental education
|
|
$ |
100,795 |
|
|
$ |
87,044 |
|
|
|
16 |
|
|
|
|
|
|
Higher education
|
|
|
93,402 |
|
|
|
58,428 |
|
|
|
60 |
|
|
|
|
|
|
Kaplan corporate overhead
|
|
|
(31,533 |
) |
|
|
(36,782 |
) |
|
|
14 |
|
|
|
|
|
|
Other
|
|
|
(41,209 |
) |
|
|
(120,399 |
) |
|
|
66 |
|
|
|
|
|
|
|
$ |
121,455 |
|
|
$ |
(11,709 |
) |
|
|
|
|
|
|
|
Supplemental education includes Kaplans test preparation,
professional training and Score! businesses. Excluding revenues
from acquired businesses, supplemental education revenues grew
by 14%. Test preparation revenue grew by 15% due to strong
enrollment in the SAT/ PSAT, MCAT and Advanced Med. Operating
results in 2004 reflect increased course development costs. Also
included in supplemental education is The Financial Training
Company (FTC), which was acquired in March 2003. Headquartered
in London, FTC provides test preparation services for
accountants and financial services professionals, with training
centers in the United Kingdom and Asia. FTC revenues grew by 44%
in 2004 over the same time period the business was owned by
Kaplan in 2003. Supplemental education results also include
professional real estate, insurance and security courses. Real
estate publishing and training courses contributed to growth in
supplemental education in 2004. The final component of
supplemental education is Score!, which provides academic
enrichment to children and has lower operating margins than the
other supplemental education businesses due to higher fixed
costs. Revenues at Score! were up slightly compared to 2003.
Higher education includes all of Kaplans post-secondary
education businesses, including fixed-facility colleges as well
as online post-secondary and career programs (various
distance-learning businesses). Excluding revenue from acquired
businesses, higher education revenues grew by 35% in 2004.
Higher education results are showing significant growth,
especially the online programs, in which revenues more than
doubled in 2004. At the end of 2004, higher education
enrollments totaled 58,000, compared to 45,000 at the end of
2003.
30
THE WASHINGTON POST COMPANY
Corporate overhead represents unallocated expenses of Kaplan,
Inc.s corporate office, including a $6.5 million
charge in the fourth quarter of 2003 for the Kaplan Educational
Foundation.
Other expense comprises accrued charges for stock-based
incentive compensation arising from a stock option plan
established for certain members of Kaplans management (the
general provisions of which are discussed in Note G to the
Consolidated Financial Statements) and amortization of certain
intangibles. Under the stock-based incentive plan, the amount of
compensation expense varies directly with the estimated fair
value of Kaplans common stock and the number of options
outstanding. The Company recorded expense of $32.5 million and
$119.1 million for 2004 and 2003, respectively, related to
this plan. The stock compensation expense for 2003 included the
impact of the third quarter 2003 buyout offer for approximately
55% of the stock options outstanding at Kaplan. The stock
compensation expense in 2004 is based on the remaining Kaplan
stock options held by a small number of Kaplan executives after
the 2003 buyout.
Corporate Office. The corporate office operating expenses
increased to $32.8 million in 2004, from $30.3 million in
2003. The increase is primarily due to the corporate
offices share of increased compliance costs in connection
with Section 404 of the SarbanesOxley Act of 2002.
Equity in Losses of Affiliates. The Companys equity
in losses of affiliates for 2004 was $2.3 million, compared
to losses of $9.8 million for 2003. The Companys
affiliate investments at the end of 2004 consisted of a 49%
interest in BrassRing LLC and a 49% interest in Bowater Mersey
Paper Company Limited. The reduction in affiliate losses for
2004 is attributable to improved operating results at both
BrassRing and Bowater.
On January 1, 2003, the Company sold its 50% interest in
the International Herald Tribune for $65 million and
recorded an after-tax non-operating gain of $32.3 million
in the first quarter of 2003.
Non-Operating Items. The Company recorded other
non-operating income, net, of $8.1 million in 2004,
compared to $55.4 million in 2003. The 2004 non-operating
income, net, is primarily from foreign currency gains. The 2003
non-operating income, net, mostly comprises a $49.8 million
pre-tax gain from the sale of the Companys 50% interest in
the International Herald Tribune.
A summary of non-operating income (expense) for the years
ended January 2, 2005 and December 28, 2003, follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
Foreign currency gains, net
|
|
$ |
5.5 |
|
|
$ |
4.2 |
|
|
|
|
|
Gain on sale of interest in IHT
|
|
|
|
|
|
|
49.8 |
|
|
|
|
|
Impairment write-downs on cost method and other investments
|
|
|
(0.7 |
) |
|
|
(1.3 |
) |
|
|
|
|
Gain on exchange of cable system business
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
Other gains
|
|
|
2.8 |
|
|
|
2.7 |
|
|
|
|
|
Total
|
|
$ |
8.1 |
|
|
$ |
55.4 |
|
|
|
|
The Company incurred net interest expense of $26.4 million
in 2004, compared to $26.9 million in 2003. At
January 2, 2005, the Company had $484.1 million in
borrowings outstanding at an average interest rate of 5.1%; at
December 28, 2003, the Company had $631.1 million in
borrowings outstanding.
Income Taxes. The effective tax rate was 38.7% for 2004,
compared to 37.0% for 2003. The 2003 effective tax rate
benefited from the 35.1% effective tax rate applicable to the
one-time gain arising from the sale of the Companys
interest in the International Herald Tribune. The Company
expects an effective tax rate in 2005 of approximately 38.7%.
RESULTS OF OPERATIONS 2003 COMPARED TO
2002
Net income was $241.1 million ($25.12 per share) for the
fiscal year ended December 28, 2003, compared with net
income of $204.3 million ($21.34 per share) for the fiscal
year ended December 29, 2002. The Companys 2003
results include a non-operating gain from the sale of the
Companys 50% interest in the International Herald Tribune
(after-tax impact of $32.3 million, or $3.38 per share), an
operating gain from the sale of land at The Washington Post
newspaper (after-tax impact of $25.5 million, or $2.66 per
share), early retirement program charges at The Washington Post
newspaper (after-tax impact of $20.8 million, or $2.18 per
share), Kaplan stock compensation expense for the 10% premium
associated with the purchase of certain outstanding stock
options announced in the third quarter (after-tax impact of
$6.4 million, or $0.67 per share), and a charge in
connection with the establishment of the Kaplan Educational
Foundation (after-tax impact of $3.9 million, or $0.41 per
share). The Companys 2002 results included a net
non-operating gain from the exchange of certain cable systems
(after-tax impact of $16.7 million, or $1.75 per
share), a transitional goodwill impairment loss (after-tax
impact of $12.1 million, or $1.27 per share), charges from early
retirement programs (after-tax impact of $11.3 million, or
$1.18 per share), and a net non-operating loss from the
write-down of certain of the Companys investments
(after-tax impact of $2.3 million, or $0.24 per share).
Results for 2003 include $119.1 million in stock
compensation expense at the Kaplan education division, which was
significantly higher than the $34.5 million in Kaplan stock
compensation expense in 2002. In September 2003, the Company
announced an offer totaling $138 million for approximately
55% of the stock options outstanding at Kaplan. The
Companys offer included a 10% premium over the then
current valuation price. The Company paid out
$118.7 million in the fourth quarter of 2003, with the
remainder of the payouts to be made from 2004 through 2008. A
small number of key Kaplan executives will continue to hold the
remaining 45% of outstanding Kaplan stock options, with roughly
half of the remaining options expiring in 2007 and half expiring
in 2011.
Revenue for 2003 was $2,838.9 million, up 10% compared to
revenue of $2,584.2 million in 2002. The increase in revenue is
due mostly to significant revenue growth at the education
division, along with increases at the Companys cable
television, newspaper publishing, and magazine publishing
divisions; revenues were down
2004 FORM 10-K
31
at the television broadcasting division. Advertising revenue was
essentially flat in 2003, and circulation and subscriber revenue
increased 5%. Education revenue increased 35% in 2003, and other
revenue was up 8%. The change in advertising revenue is due to
increases at the newspaper publishing and magazine publishing
divisions, offset by a decline at the television broadcasting
division due primarily to significant political revenues in
2002. The increase in circulation and subscriber revenue is due
to an 8% increase in subscriber revenue at the cable division
from continued growth in cable modem and digital service
revenues, a 1% increase in circulation revenue at The Post, and
a slight increase in Newsweek circulation revenues due to
increased newsstand sales for both the domestic and
international editions of Newsweek. Revenue growth at Kaplan,
Inc. (about 43% of which was from acquisitions) accounted for
the increase in education revenue.
Operating costs and expenses for the year increased 12% to
$2,475.1 million, from $2,206.6 million in 2002. The
increase is primarily due to a significant increase in
stock-based compensation expense at Kaplan, higher expenses from
operating growth at Kaplan, early retirement program charges,
higher newsprint prices and a reduced pension credit, offset by
a $41.7 million pre-tax gain on the sale of land at The
Washington Post newspaper.
Operating income declined 4% to $363.8 million, from
$377.6 million in 2002, due largely to the
$84.6 million increase in Kaplan stock compensation
discussed above. Operating results for 2003 also include a
$41.7 million pre-tax gain on the sale of land at The
Washington Post newspaper, $34.1 million in pre-tax charges from
early retirement programs at The Washington Post newspaper, and
a $6.5 million charge for the Kaplan Educational
Foundation. Operating results for 2002 included
$19.0 million in pre-tax charges from early retirement
programs. The Companys year-to-date results were adversely
impacted by a reduction in operating income at the television
broadcasting division and a reduced net pension credit. Improved
results at the Companys newspaper publishing, magazine
publishing and cable television divisions helped to offset these
declines.
The Companys 2003 operating income includes
$55.1 million of net pension credits, compared to
$64.4 million in 2002. These amounts exclude
$34.1 million and $19.0 million in charges related to
early retirement programs in 2003 and 2002, respectively.
DIVISION RESULTS
Newspaper Publishing Division. Newspaper publishing
division revenue in 2003 increased 4% to $872.8 million,
from $842.0 million in 2002. Division operating income for
2003 totaled $134.2 million, an increase of 23% from
operating income of $109.0 million in 2002. Operating
results for 2003 include a fourth quarter $41.7 million
pre-tax gain on the sale of land at The Washington Post
newspaper and $34.1 million in pre-tax charges from early
retirement programs at The Washington Post newspaper. Operating
results for 2002 included a $2.9 million charge from an early
retirement program at The Washington Post newspaper. Improved
operating results for 2003 are due to increased advertising
revenue and cost control initiatives employed throughout the
division, offset by a 3% increase in newsprint expense,
incremental costs associated with the war in Iraq, a reduced
pension credit, and a small loss from a new newspaper, Express,
which was launched in August 2003. Operating margin at the
newspaper publishing division was 15% for 2003 and 13% for 2002.
Print advertising revenue at The Washington Post newspaper
increased 3% to $572.2 million, from $555.7 million in
2002. The rise in print advertising revenue for 2003 was due to
increases in general and preprint advertising revenue, which
more than offset declines in classified and retail advertising
revenue from volume declines. Classified recruitment advertising
revenue decreased $6.1 million in 2003, due to a 14% volume
decline. Classified recruitment advertising revenue increased by
$0.8 million, or 6%, during the fourth quarter of 2003,
with flat volume compared to 2002. This was the first quarter
with an increase in classified recruitment advertising revenue
since the third quarter of 2000.
Circulation revenue at The Post was up 1% for 2003 due to an
increase in home delivery prices. Daily circulation at The Post
declined 2.0%, and Sunday circulation declined 1.8%. Single copy
sales contributed to the decline, with a 9% daily decrease and a
6% Sunday decrease. For the year ended December 28, 2003,
average daily circulation at The Post totaled 745,000
(unaudited), and average Sunday circulation totaled 1,035,000
(unaudited).
During 2003, revenue generated by the Companys online
publishing activities, primarily washingtonpost.com, increased
30% to $46.9 million, from $35.9 million in 2002. Local and
national online advertising revenues grew 59% and revenues at
the Jobs section of washingtonpost.com increased 29%.
As previously discussed, the Post launched a new newspaper,
Express, in August 2003. The new publication appears each
morning, Monday through Friday, in tabloid form and is
distributed free-of-charge in the Washington, D.C. area.
Television Broadcasting Division. Revenue for the
television broadcasting division decreased 8% to
$315.1 million in 2003, from $343.6 million in 2002,
due to approximately $31.8 million in political advertising
in 2002, $5.0 million in incremental Olympics-related
advertising at the Companys NBC affiliates in the first
quarter of 2002, and several days of commercial-free coverage in
connection with the Iraq war in March 2003.
Operating income for 2003 decreased 17% to $139.7 million,
from $168.8 million in 2002, primarily as a result of the
revenue reductions discussed above. Operating margin at the
broadcast division was 44% for 2003 and 49% for 2002.
Competitive market position remained strong for the
Companys television stations. WDIV in Detroit and KSAT in
San Antonio were ranked number one in the November 2003 ratings
period, Monday through Friday, sign-on to sign-off; WJXT in
Jacksonville ranked second; WKMG in Orlando was tied for second;
KPRC in Houston ranked third; and WPLG was third among
English-language stations in the Miami market.
32
THE WASHINGTON POST COMPANY
In July 2002, WJXT in Jacksonville, Florida began operations as
an independent station when its network affiliation with CBS
ended.
Magazine Publishing Division. Revenue for the magazine
publishing division totaled $353.6 million for 2003, a 1%
increase from $349.1 million in 2002. The revenue increase
in 2003 is due to increases in ad pages at Newsweeks
domestic edition, Arthur Frommers Budget Travel magazine,
and the Companys trade magazines, offset by lower
advertising revenue at the international editions of Newsweek,
particularly travel-related advertising at the Pacific edition.
Operating income totaled $43.5 million for 2003, an
increase of 69% from $25.7 million in 2002. The improvement
in operating results for 2003 is primarily attributable to
$16.1 million in pre-tax charges in connection with early
retirement programs at Newsweek in 2002, offset by a reduced
pension credit.
Operating margin at the magazine publishing division was 12% for
2003 and 7% for 2002.
Cable Television Division. Cable division revenue of
$459.4 million for 2003 represents a 7% increase from
$428.5 million in 2002. The 2003 revenue increase is
principally due to rapid growth in the divisions cable
modem and digital service revenues, offset by lower pay and
basic revenues due to fewer average basic and pay subscribers
during the year, and the lack of rate increases due to a
decision to freeze most rates for Cable One subscribers in 2003.
Cable division operating income increased 9% in 2003 to
$88.4 million, from $80.9 million in 2002. The
increase in operating income for 2003 is due mostly to the
divisions revenue growth, offset by higher depreciation
expense and an increase in technical, Internet, marketing and
employee benefits costs. Operating margin at the cable
television division was 19% in 2003 and 2002.
Depreciation expense increased due to significant capital
spending in recent years that has enabled the cable division to
offer digital and broadband cable services to its subscribers.
The cable division began its rollout plan for these services in
the third quarter of 2000. Depreciation expense in 2002 included
a $5.4 million charge for obsolete assets. At
December 31, 2003, the cable division had approximately
222,900 digital cable subscribers, representing a 31%
penetration of the subscriber base. Both digital and cable modem
services are now offered in virtually all of the cable
divisions markets.
At December 31, 2003, the cable division had 720,800 basic
subscribers, compared to 718,000 at the end of December 2002,
with the increase due to significant marketing efforts in 2003
to stabilize the subscriber base. At December 31, 2003, the
cable division had 133,800 CableONE.net service subscribers,
compared to 79,400 at the end of December 2002, due to a large
increase in the Companys cable modem deployment and
take-up rates. In 2003, the cable division launched a number of
marketing initiatives, including door-to-door sales and bundled
service offers with monthly discounts, which have resulted in
increased customer subscription rates.
At December 31, 2003, Revenue Generating Units (RGUs), the
sum of basic video, digital video and cable modem subscribers,
totaled 1,077,500, compared to 993,600 as of December 31,
2002. The increase is due to an increase in the number of
digital cable and cable modem customers.
Below are details of cable division capital expenditures for
2003 and 2002, as defined by the NCTA Standard Reporting
Categories (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
Customer premise equipment
|
|
$ |
17.0 |
|
|
$ |
27.2 |
|
|
|
|
|
Commercial
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
Scaleable infrastructure
|
|
|
5.3 |
|
|
|
6.8 |
|
|
|
|
|
Line extensions
|
|
|
10.6 |
|
|
|
10.4 |
|
|
|
|
|
Upgrade/rebuild
|
|
|
21.4 |
|
|
|
37.4 |
|
|
|
|
|
Support capital
|
|
|
11.5 |
|
|
|
10.6 |
|
|
|
|
|
Total
|
|
$ |
65.9 |
|
|
$ |
92.5 |
|
|
|
|
Education Division. Education division revenue in 2003
increased 35% to $838.1 million, from $621.1 million in
2002. Kaplan reported an operating loss of $11.7 million
for the year, compared to operating income of $20.5 million
in 2002. The decline is due to an $84.6 million increase in
Kaplan stock compensation expense in 2003 and a
$6.5 million contribution to the Kaplan Educational
Foundation in the fourth quarter of 2003, offset by significant
revenue growth during the year. Approximately 43% of the
increase in Kaplan revenue is from acquired businesses,
primarily in the higher education division and the professional
training schools that are part of supplemental education. A
summary of operating results for 2003 compared to 2002 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
% Change | |
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental education
|
|
$ |
469,757 |
|
|
$ |
371,248 |
|
|
|
27 |
|
|
|
|
|
|
Higher education
|
|
|
368,320 |
|
|
|
249,877 |
|
|
|
47 |
|
|
|
|
|
|
|
$ |
838,077 |
|
|
$ |
621,125 |
|
|
|
35 |
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental education
|
|
$ |
87,044 |
|
|
$ |
54,103 |
|
|
|
61 |
|
|
|
|
|
|
Higher education
|
|
|
58,428 |
|
|
|
27,569 |
|
|
|
112 |
|
|
|
|
|
|
Kaplan corporate overhead
|
|
|
(36,782 |
) |
|
|
(26,143 |
) |
|
|
(41 |
) |
|
|
|
|
|
Other
|
|
|
(120,399 |
) |
|
|
(35,017 |
) |
|
|
(244 |
) |
|
|
|
|
|
|
$ |
(11,709 |
) |
|
$ |
20,512 |
|
|
|
|
|
|
|
|
Supplemental education includes Kaplans test preparation,
professional training and Score! businesses. On March 31,
2003, Kaplan completed its acquisition of The Financial Training
Company (FTC) for £55.3 million ($87.4 million),
financed through cash and debt. Headquartered in London, FTC
provides test preparation services for accountants and financial
services professionals, with training centers in the United
Kingdom and Asia. The improvement in supplemental education
results for 2003 is due to increased enrollment at Kaplans
traditional test preparation business, significant increases in
the professional real estate courses, and the FTC acquisition.
Score! also contributed to the improved results, with
2004 FORM 10-K
33
increased enrollments at existing centers and the addition of 10
new centers compared to the previous year.
Higher education includes all of Kaplans post-secondary
education businesses, including fixed-facility colleges, as well
as online post-secondary and career programs (various
distance-learning businesses). Higher education results are
showing significant growth due to student enrollment increases,
high student retention rates and several acquisitions.
Corporate overhead represents unallocated expenses of
Kaplans corporate office, including a $6.5 million
charge in the fourth quarter of 2003 for the Kaplan Educational
Foundation, and expenses associated with the design and
development of educational software that, if successfully
completed, will benefit all of Kaplans business units.
Other expense comprises accrued charges for stock-based
incentive compensation arising from a stock option plan
established for certain members of Kaplans management (the
general provisions of which are discussed in Note G to the
Consolidated Financial Statements) and amortization of certain
intangibles. Under the stock-based incentive plan, the amount of
compensation expense varies directly with the estimated fair
value of Kaplans common stock and the number of options
outstanding. The Company recorded expense of $119.1 million
and $34.5 million for 2003 and 2002, respectively, related
to this plan. The increase for 2003 reflects a significant
increase in the value of Kaplan due to its rapid earnings growth
and the general rise in valuations of education companies. See
additional discussion above regarding the Companys
announcement in September 2003 of its offer to purchase 55% of
the outstanding Kaplan stock options.
Corporate Office. The corporate office operating expenses
increased to $30.3 million in 2003, from $27.4 million in
2002. The increase in expenses for 2003 is associated with
several companywide technology projects.
Equity in Losses of Affiliates. The Companys equity
in losses of affiliates for 2003 was $9.8 million, compared
to losses of $19.3 million for 2002. The Companys
affiliate investments at the end of 2003 consisted of a 49%
interest in BrassRing LLC and a 49% interest in Bowater Mersey
Paper Company Limited. BrassRing results improved in 2003,
despite a second quarter charge arising from the shutdown of one
of the BrassRing businesses, which increased the Companys
equity in losses of BrassRing by $2.2 million. The
Companys equity in losses of BrassRing totaled
$7.7 million for 2003, compared to $13.9 million for
2002.
On January 1, 2003, the Company sold its 50% interest in
the International Herald Tribune for $65 million and
recorded an after-tax non-operating gain of $32.3 million
in the first quarter of 2003.
Non-Operating Items. The Company recorded other
non-operating income, net, of $55.4 million in 2003,
compared to $28.9 million in 2002. The 2003 non-operating
income, net, mostly comprises a $49.8 million pre-tax gain
from the sale of the Companys 50% interest in the
International Herald Tribune. The 2002 non-operating income,
net, includes a pre-tax gain of $27.8 million on the
exchange of certain cable systems in the fourth quarter of 2002
and a gain on the sale of marketable securities, offset by
write-downs recorded on certain investments.
A summary of non-operating income (expense) for the years
ended December 28, 2003 and December 29, 2002, follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2002 | |
|
Gain on sale of interest in IHT
|
|
$ |
49.8 |
|
|
$ |
|
|
|
|
|
|
Foreign currency gains, net
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
Impairment write-downs on cost method and other investments
|
|
|
(1.3 |
) |
|
|
(21.2 |
) |
|
|
|
|
Gain on exchange of cable system business
|
|
|
|
|
|
|
27.8 |
|
|
|
|
|
Gain on sale of marketable securities
|
|
|
|
|
|
|
13.2 |
|
|
|
|
|
Other gains
|
|
|
2.7 |
|
|
|
9.1 |
|
|
|
|
|
Total
|
|
$ |
55.4 |
|
|
$ |
28.9 |
|
|
|
|
The Company incurred net interest expense of $26.9 million
in 2003, compared to $33.5 million in 2002, due to lower
average borrowings during 2003 compared to 2002. At
December 28, 2003, the Company had $631.1 million in
borrowings outstanding at an average interest rate of 4.1%; at
December 29, 2002, the Company had $664.8 million in
borrowings outstanding.
Income Taxes. The effective tax rate was 37.0% for 2003,
compared to 38.8% for 2002. The 2003 effective tax rate
benefited from the 35.1% effective tax rate applicable to the
one-time gain arising from the sale of the Companys
interest in the International Herald Tribune.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions, Exchanges and Dispositions. During 2004,
Kaplan acquired eight businesses in its higher education and
professional divisions for a total of $59.6 million,
financed with cash and $8.7 million of debt. In addition,
the cable division completed two small transactions. In May
2004, the Company acquired El Tiempo Latino, a leading
Spanish-language weekly newspaper in the greater Washington
area. Most of the purchase price for the 2004 acquisitions was
allocated to goodwill and other intangibles.
During 2003, Kaplan acquired 13 businesses in its higher
education and professional divisions for a total of
$166.8 million, financed with cash and $36.7 million
of debt. The largest of these was the March 2003 acquisition of
the stock of The Financial Training Company (FTC), for
£55.3 million ($87.4 million). Headquartered in
London, FTC provides test preparation services for accountants
and financial services professionals, with 28 training
centers in the United Kingdom as well as operations in Asia.
This acquisition was financed with cash and $29.7 million
of debt, primarily to employees of the business. In November
2003, Kaplan acquired Dublin Business School, Irelands
largest private undergraduate institution. Most of the purchase
price for the 2003 Kaplan acquisitions was allocated to goodwill
and other intangibles and property, plant and equipment.
34
THE WASHINGTON POST COMPANY
In addition, the cable division acquired three additional
systems in 2003 for $2.8 million. Most of the purchase
price for these acquisitions was allocated to franchise
agreements, an indefinite-lived intangible asset.
On January 1, 2003, the Company sold its 50% interest in
the International Herald Tribune for $65 million and the
Company recorded an after-tax non-operating gain of
$32.3 million ($3.38 per share) in the first quarter
of 2003.
During 2002, Kaplan acquired several businesses in its higher
education and test preparation divisions for approximately
$42.2 million. In November 2002, the Company completed a
cable system exchange transaction with Time Warner Cable which
consisted of the exchange by the Company of its cable system in
Akron, Ohio serving about 15,500 subscribers, and
$5.2 million to Time Warner Cable, for cable systems
serving about 20,300 subscribers in Kansas. The non-cash,
non-operating gain resulting from the exchange transaction
increased net income by $16.7 million, or $1.75 per share.
Capital Expenditures. During 2004, the Companys
capital expenditures totaled $204.6 million. The
Companys capital expenditures for 2004, 2003 and 2002 are
disclosed in Note N to the Consolidated Financial Statements.
The Company estimates that its capital expenditures will be in
the range of $250 million to $275 million in 2005.
Investments in Marketable Equity Securities. At
January 2, 2005, the fair value of the Companys
investments in marketable equity securities was $409.7 million,
which includes $260.4 million in Berkshire Hathaway Inc.
Class A and B common stock and $149.3 million of
various common stocks of publicly traded companies with
education and e-commerce business concentrations.
At January 2, 2005, the gross unrealized gain related to
the Companys Berkshire Hathaway Inc. stock investment
totaled $75.5 million; the gross unrealized gain on this
investment was $60.4 million at December 28, 2003. The
Company presently intends to hold the Berkshire Hathaway stock
long term. The gross unrealized gain related to the
Companys other marketable security investments at
January 2, 2005 totaled $48.3 million.
Common Stock Repurchases and Dividend Rate. During 2004,
there were no share repurchases. During 2003 and 2002, the
Company repurchased 910 shares and 1,229 shares,
respectively, of its Class B common stock at a cost of $0.7
million and $0.8 million, respectively. At January 2,
2005, the Company had authorization from the Board of Directors
to purchase up to 542,800 shares of Class B common stock.
The annual dividend rate for 2005 was increased to
$7.40 per share, from $7.00 per share in 2004, and from
$5.80 per share in 2003.
Liquidity. At January 2, 2005, the Company had
$119.4 million in cash and cash equivalents, compared to
$116.6 million at December 28, 2003.
At January 2, 2005, the Company had $50.2 million in
commercial paper borrowing outstanding at an average interest
rate of 2.2% with various maturities through the first
quarter of 2005. In addition, the Company had outstanding $398.9
million of 5.5%, 10-year unsecured notes due February 2009.
These notes require semiannual interest payments of
$11.0 million payable on February 15 and August 15.
The Company also had $35.0 million in other debt.
During 2004, the Companys borrowings, net of repayments,
decreased by $147.0 million, with the decrease primarily due to
cash flow from operations. While the Company paid down
$157.4 million in commercial paper borrowings and other
debt during 2004, the Company also partially financed several
acquisitions during this period.
During the third quarter of 2004, the Company replaced its
expiring $250 million 364-day revolving credit facility with a
new $250 million revolving credit facility on essentially
the same terms. The new facility expires in August 2005. The
Companys five-year $350 million revolving credit
facility, which expires in August 2007, remains in effect. These
revolving credit facility agreements support the issuance of the
Companys short-term commercial paper and provide for
general corporate purposes.
During 2004 and 2003, the Company had average borrowings
outstanding of approximately $516.0 million and
$605.7 million, respectively, at average annual interest
rates of approximately 4.8% and 4.2%, respectively. The Company
incurred net interest costs on its borrowings of
$26.4 million and $26.9 million during 2004 and 2003,
respectively.
At January 2, 2005, the Company had working capital of
$66.2 million and at December 28, 2003, the Company
had a working capital deficit of $184.7 million. The
improvement in working capital in 2004 is due primarily to
short-term debt repayments and an increase in investments in
marketable securities that are classified as current assets. The
Company maintains working capital levels consistent with its
underlying business requirements and consistently generates cash
from operations in excess of required interest or principal
payments. The Company has classified all of its commercial paper
borrowing obligations as a current liability at January 2,
2005 and December 28, 2003, as the Company intends to pay
down commercial paper borrowings from operating cash flow.
However, the Company continues to maintain the ability to
refinance such obligations on a long-term basis through new debt
issuance and/or its revolving credit facility agreements.
The Companys net cash provided by operating activities, as
reported in the Companys Consolidated Statements of Cash
Flows, was $561.7 million in 2004, as compared to
$337.7 million in 2003. The increase is primarily due to
the Companys significant increase in operating income in
2004 and significant payments for Kaplan stock options in 2003,
offset by an increase in the companys income tax payments
in 2004.
The Company expects to fund its estimated capital needs
primarily through internally generated funds and, to a lesser
extent, commercial paper borrowings. In managements
opinion, the Company will have ample liquidity to meet its
various cash needs in 2005.
2004 FORM 10-K
35
The following reflects a summary of the Companys
contractual obligations and commercial commitments as of
January 2, 2005:
Contractual Obligations
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2006 |
|
2007 |
|
2008 |
|
2009 |
|
Thereafter |
|
Total |
|
|
|
Commercial paper
|
|
$ |
50,201 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
50,201 |
|
Long-term debt
|
|
|
8,035 |
|
|
|
24,679 |
|
|
|
1,479 |
|
|
|
407 |
|
|
|
400,224 |
|
|
|
200 |
|
|
|
435,024 |
|
Programming purchase commitments
(1)
|
|
|
126,848 |
|
|
|
115,076 |
|
|
|
105,863 |
|
|
|
85,943 |
|
|
|
58,008 |
|
|
|
216,711 |
|
|
|
708,449 |
|
Operating leases
|
|
|
80,842 |
|
|
|
75,974 |
|
|
|
71,181 |
|
|
|
61,767 |
|
|
|
52,303 |
|
|
|
154,541 |
|
|
|
496,608 |
|
Other purchase obligations
(2)
|
|
|
371,973 |
|
|
|
117,614 |
|
|
|
94,653 |
|
|
|
78,058 |
|
|
|
71,615 |
|
|
|
145,003 |
|
|
|
878,916 |
|
Long-term liabilities
(3)
|
|
|
7,300 |
|
|
|
8,000 |
|
|
|
8,700 |
|
|
|
9,500 |
|
|
|
10,400 |
|
|
|
111,098 |
|
|
|
154,998 |
|
|
|
|
Total
|
|
$ |
645,199 |
|
|
$ |
341,343 |
|
|
$ |
281,876 |
|
|
$ |
235,675 |
|
|
$ |
592,550 |
|
|
$ |
627,553 |
|
|
$ |
2,724,196 |
|
|
|
|
|
|
(1) |
Includes commitments for the Companys television
broadcasting and cable television businesses that are reflected
in the Companys Consolidated Balance Sheet and commitments
to purchase programming to be produced in future years. |
|
(2) |
Includes purchase obligations related to newsprint contracts,
printing contracts, employment agreements, circulation
distribution agreements, capital projects and other legally
binding commitments. Other purchase orders made in the ordinary
course of business are excluded from the table above. Any
amounts for which the Company is liable under purchase orders
are reflected in the Companys Consolidated Balance Sheet
as Accounts payable and accrued liabilities. |
|
(3) |
Primarily made up of postretirement benefit obligations other
than pensions. The Company has other long-term liabilities
excluded from the table above, including obligations for
deferred compensation, long-term incentive plans and long-term
deferred revenue. |
Other Commercial Commitments
(in thousands)
|
|
|
|
|
|
|
|
Lines of |
Fiscal Year |
|
Credit |
|
|
|
|
|
|
2005
|
|
$ |
250,000 |
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
350,000 |
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
600,000 |
|
|
|
|
|
|
Other. The Company does not have any off-balance sheet
arrangements or financing activities with special-purpose
entities (SPEs). Transactions with related parties, as discussed
in Note C to the Consolidated Financial Statements, are in the
ordinary course of business and are conducted on an
arms-length basis.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements. In preparing these financial
statements, management has made their best estimates and
judgments of certain amounts included in the financial
statements. Actual results will inevitably differ to some extent
from these estimates.
The following are accounting policies that management believes
are the most important to the Companys portrayal of the
Companys financial condition and results and require
managements most difficult, subjective or complex
judgments.
Revenue Recognition and Trade Accounts Receivable, Less
Estimated Returns, Doubtful Accounts and Allowances. The
Companys revenue recognition policies are described in
Note A to the Consolidated Financial Statements. Education
revenue is generally recognized ratably over the period during
which educational services are delivered. For example, at
Kaplans test preparation division, estimates of average
student course length are developed for each course, along with
estimates for the anticipated level of student drops and refunds
from test performance guarantees, and these estimates are
evaluated on an ongoing basis and adjusted as necessary. As
Kaplans businesses and related course offerings have
expanded, including distance-learning businesses, and contracts
with school districts as part of its K12 business, the
complexity and significance of management estimates have
increased. Revenues from magazine retail sales are recognized on
the later of delivery or the cover date, with adequate provision
made for anticipated sales returns. The Company bases its
estimates for sales returns on historical experience and has not
experienced significant fluctuations between estimated and
actual return activity.
Accounts receivable have been reduced by an allowance for
amounts that may be uncollectible in the future. This estimated
allowance is based primarily on the aging category, historical
trends and managements evaluation of the financial
condition of the customer. Accounts receivable also have been
reduced by an estimate of advertising rate adjustments and
discounts, based on estimates of advertising volumes for
contract customers who are eligible for advertising rate
adjustments and discounts.
Pension Costs. Excluding special termination benefits
related to early retirement programs, the Companys net
pension credit was $42.0 million, $55.1 million and
$64.4 million for 2004, 2003 and 2002, respectively. The
Companys pension benefit costs are actuarially determined
and are impacted significantly by the Companys assumptions
related to future events, including the discount rate, expected
return on plan assets and rate of compensation increases. At
December 29, 2002, the Company reduced its discount rate
assumption to 6.75%. Due to the reduction in the discount rate,
lower than expected investment returns in 2002, and an amendment
to the pension retirement program for certain employees at the
Post effective June 1, 2003, the pension credit for 2003
declined by $9.3 million compared to 2002. At
December 28, 2003, the Company reduced its discount rate
assumption to 6.25%. Due to the reduction in the discount rate,
the plan amendment from June 2003, and a reduction in the
estimated actuarial gain amortization, offset by higher than
expected investment returns in 2003, the pension credit for 2004
declined by $13.2 million compared to 2003. At January 2,
2005, the Compa-
36
THE WASHINGTON POST COMPANY
ny further reduced its discount rate assumption to 5.75%, and
the pension credit for 2005 is expected to be down by about
$4 million. For each one-half percent increase or decrease
to the Companys assumed expected return on plan assets,
the pension credit increases or decreases by approximately
$6.5 million. For each one-half percent increase or
decrease to the Companys assumed discount rate, the
pension credit increases or decreases by approximately
$5 million. The Companys actual rate of return on
plan assets was 4.3% in 2004, 16.7% in 2003, and (2.3%) in 2002,
based on plan assets at the beginning of each year. Note H to
the Consolidated Financial Statements provides additional
details surrounding pension costs and related assumptions.
Kaplan Stock Option Plan. The Kaplan stock option plan
was adopted in 1997 and initially reserved 15%, or 150,000
shares of Kaplans common stock, for options to be granted
under the plan to certain members of Kaplan management. Under
the provisions of this plan, options are issued with an exercise
price equal to the estimated fair value of Kaplans common
stock, and options vest ratably over the number of years
specified (generally 4 to 5 years) at the time of the grant.
Upon exercise, an option holder receives cash equal to the
difference between the exercise price and the then fair value.
The amount of compensation expense varies directly with the
estimated fair value of Kaplans common stock and the
number of options outstanding. The estimated fair value of
Kaplans common stock is based upon a comparison of
operating results and public market values of other education
companies and is determined by the Companys compensation
committee of the Board of Directors, with input from management
and an independent outside valuation firm. Over the past several
years, the value of education companies has fluctuated
significantly, and consequently, there has been significant
volatility in the amounts recorded as expense each year as well
as on a quarterly basis.
In September 2003, the committee set the fair value price of
Kaplan common stock at $1,625 per share, which was determined
after deducting intercompany debt from Kaplans enterprise
value. Also in September 2003, the Company announced an offer
totaling $138 million for approximately 55% of the stock
options outstanding at Kaplan. The Companys offer included
a 10% premium over the then current valuation price of Kaplan
common stock of $1,625 per share and 100% of the eligible stock
options were tendered. The Company paid out $118.7 million
in the fourth quarter of 2003 and $10.3 million in 2004.
The remainder of the payouts will be made at the time of their
scheduled vesting, from 2005 to 2008, if the option holder is
still employed at Kaplan. Additionally, stock compensation
expense will be recorded on these remaining exercised stock
options over the remaining vesting periods of 2005 to 2008. A
small number of key Kaplan executives continue to hold the
remaining 68,000 outstanding Kaplan stock options (representing
about 4.8% of Kaplans common stock), with roughly half of
these options expiring in 2007 and half expiring in 2011. In
January 2005, the committee set the fair value price at $2,080
per share. Also in January 2005, 15,353 Kaplan stock options
were exercised, and 10,582 Kaplan stock options were awarded at
an option price of $2,080.
For 2004, 2003 and 2002, the Company recorded expense of
$32.5 million, $119.1 million and $34.5 million,
respectively, related to this plan. In 2004 and 2003, payouts
from option exercises totaled $10.3 million and
$119.6 million, respectively. At December 31, 2004,
the Companys stock-based compensation accrual balance
totaled $96.2 million. If Kaplans profits increase
and the value of education companies remains relatively high in
2005, there will be significant Kaplan stock-based compensation
expense again in 2005. Note G to the Consolidated Financial
Statements provides additional details surrounding the Kaplan
stock option plan.
Goodwill and Other Intangibles. The Company reviews the
carrying value of goodwill and indefinite-lived intangible
assets at least annually, utilizing a discounted cash flow model
(in the case of the Companys cable systems, both a
discounted cash flow model and an estimated fair market value
per cable subscriber approach are considered). The Company must
make assumptions regarding estimated future cash flows and
market values to determine a reporting units estimated
fair value. In reviewing the carrying value of goodwill and
indefinite-lived intangible assets at the cable division, the
Company aggregates its cable systems on a regional basis. If
these estimates or related assumptions change in the future, the
Company may be required to record an impairment charge. At
January 2, 2005, the Company has $1,524.2 million in
goodwill and other intangibles.
OTHER
New Accounting Pronouncements. In December 2004,
Statement of Financial Accounting Standards No. 123R (SFAS
123R), Share-Based Payment was issued, which
requires companies to record the cost of employee services in
exchange for stock options based on the grant-date fair value of
the award. Because the Company adopted the fair-value-based
method of accounting for Company stock options in 2002, SFAS
123R will have a minimal impact on the Companys results of
operations when adopted in the third quarter of 2005.
EITF Topic D-108, Use of the Residual Method to Value
Acquired Assets Other than Goodwill, requires companies
that have applied the residual method to value intangible assets
to perform an impairment test on those intangible assets using
the direct value method by the end of the first quarter of 2005.
The Company is in the process of performing such an impairment
test at its cable division.
2004 FORM 10-K
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of The Washington Post Company
We have completed an integrated audit of The Washington Post
Companys 2004 consolidated financial statements referred
to under Item 15(1) on page 25 and listed on the index
on page 27 and of its internal control over financial
reporting as of January 2, 2005 and audits of its
December 28, 2003 and December 29, 2002 consolidated
financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated financial statements and financial statement
schedule
In our opinion, the consolidated financial statements referred
to under Item 15(1) on page 25 and listed on the index
on page 27 present fairly, in all material respects, the
financial position of The Washington Post Company and its
subsidiaries at January 2, 2005 and December 28, 2003,
and the results of their operations and their cash flows for
each of the three years in the period ended January 2, 2005
in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
Internal control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of January 2, 2005 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of January 2, 2005,
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Washington, D.C.
March 1, 2005
38
THE WASHINGTON POST COMPANY
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
|
|
|
January 2, |
|
December 28, |
|
December 29, |
(in thousands, except per share amounts) |
|
2005 |
|
2003 |
|
2002 |
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$ |
1,346,870 |
|
|
$ |
1,222,324 |
|
|
$ |
1,221,180 |
|
|
|
|
|
|
Circulation and subscriber
|
|
|
741,810 |
|
|
|
706,248 |
|
|
|
675,136 |
|
|
|
|
|
|
Education
|
|
|
1,134,891 |
|
|
|
838,077 |
|
|
|
621,125 |
|
|
|
|
|
|
Other
|
|
|
76,533 |
|
|
|
72,262 |
|
|
|
66,762 |
|
|
|
|
|
|
|
|
3,300,104 |
|
|
|
2,838,911 |
|
|
|
2,584,203 |
|
|
|
|
|
Operating Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
1,717,059 |
|
|
|
1,549,262 |
|
|
|
1,369,955 |
|
|
|
|
|
|
Selling, general and administrative
|
|
|
835,367 |
|
|
|
792,292 |
|
|
|
664,095 |
|
|
|
|
|
|
Gain on sale of land
|
|
|
|
|
|
|
(41,747 |
) |
|
|
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
175,338 |
|
|
|
173,848 |
|
|
|
171,908 |
|
|
|
|
|
|
Amortization of goodwill and other intangibles
|
|
|
9,334 |
|
|
|
1,436 |
|
|
|
655 |
|
|
|
|
|
|
|
|
2,737,098 |
|
|
|
2,475,091 |
|
|
|
2,206,613 |
|
|
|
|
Income from Operations
|
|
|
563,006 |
|
|
|
363,820 |
|
|
|
377,590 |
|
|
|
|
|
|
Equity in losses of affiliates
|
|
|
(2,291 |
) |
|
|
(9,766 |
) |
|
|
(19,308 |
) |
|
|
|
|
|
Interest income
|
|
|
1,622 |
|
|
|
953 |
|
|
|
332 |
|
|
|
|
|
|
Interest expense
|
|
|
(28,032 |
) |
|
|
(27,804 |
) |
|
|
(33,819 |
) |
|
|
|
|
|
Other income (expense), net
|
|
|
8,127 |
|
|
|
55,385 |
|
|
|
28,873 |
|
|
|
|
Income Before Income Taxes and Cumulative Effect of Change in
Accounting Principle
|
|
|
542,432 |
|
|
|
382,588 |
|
|
|
353,668 |
|
|
|
|
|
Provision for Income Taxes
|
|
|
209,700 |
|
|
|
141,500 |
|
|
|
137,300 |
|
|
|
|
Income Before Cumulative Effect of Change in Accounting
Principle
|
|
|
332,732 |
|
|
|
241,088 |
|
|
|
216,368 |
|
|
|
|
|
Cumulative Effect of Change in Method of Accounting for
Goodwill and Other Intangible Assets, Net of Taxes
|
|
|
|
|
|
|
|
|
|
|
(12,100 |
) |
|
|
|
Net Income
|
|
|
332,732 |
|
|
|
241,088 |
|
|
|
204,268 |
|
|
|
|
|
Redeemable Preferred Stock Dividends
|
|
|
(992 |
) |
|
|
(1,027 |
) |
|
|
(1,033 |
) |
|
|
|
Net Income Available for Common Shares
|
|
$ |
331,740 |
|
|
$ |
240,061 |
|
|
$ |
203,235 |
|
|
|
|
Basic Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Cumulative Effect of Change in Accounting Principle
|
|
$ |
34.69 |
|
|
$ |
25.19 |
|
|
$ |
22.65 |
|
|
|
|
|
|
Cumulative Effect of Change in Accounting Principle
|
|
|
|
|
|
|
|
|
|
|
(1.27 |
) |
|
|
|
|
Net Income Available for Common Shares
|
|
$ |
34.69 |
|
|
$ |
25.19 |
|
|
$ |
21.38 |
|
|
|
|
Diluted Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before Cumulative Effect of Change in Accounting Principle
|
|
$ |
34.59 |
|
|
$ |
25.12 |
|
|
$ |
22.61 |
|
|
|
|
|
|
Cumulative Effect of Change in Accounting Principle
|
|
|
|
|
|
|
|
|
|
|
(1.27 |
) |
|
|
|
|
Net Income Available for Common Shares
|
|
$ |
34.59 |
|
|
$ |
25.12 |
|
|
$ |
21.34 |
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
|
|
|
January 2, |
|
December 28, |
|
December 29, |
(in thousands) |
|
2005 |
|
2003 |
|
2002 |
|
|
|
|
|
Net Income
|
|
$ |
332,732 |
|
|
$ |
241,088 |
|
|
$ |
204,268 |
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
9,601 |
|
|
|
13,416 |
|
|
|
2,167 |
|
|
|
|
|
|
Reclassification adjustment on sale of affiliate investment
|
|
|
|
|
|
|
(1,633 |
) |
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on available-for-sale securities
|
|
|
63,022 |
|
|
|
31,426 |
|
|
|
829 |
|
|
|
|
|
|
Less reclassification adjustment for realized (gains) losses
included in net income
|
|
|
(202 |
) |
|
|
214 |
|
|
|
(11,209 |
) |
|
|
|
|
|
|
|
72,421 |
|
|
|
43,423 |
|
|
|
(8,213 |
) |
|
|
|
|
|
Income tax (expense) benefit related to other comprehensive
income (loss)
|
|
|
(24,577 |
) |
|
|
(12,348 |
) |
|
|
4,012 |
|
|
|
|
|
|
|
|
47,844 |
|
|
|
31,075 |
|
|
|
(4,201 |
) |
|
|
|
Comprehensive Income
|
|
$ |
380,576 |
|
|
$ |
272,163 |
|
|
$ |
200,067 |
|
|
|
|
The information on pages 44 through 57 is an integral part of
the financial statements. |
|
|
|
|
|
|
|
|
2004 FORM 10-K
39
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
December 28, |
(in thousands) |
|
2005 |
|
2003 |
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
119,400 |
|
|
$ |
116,561 |
|
|
|
|
|
|
Investments in marketable equity securities
|
|
|
149,303 |
|
|
|
2,623 |
|
|
|
|
|
|
Accounts receivable, net
|
|
|
362,862 |
|
|
|
328,816 |
|
|
|
|
|
|
Federal and state income taxes
|
|
|
18,375 |
|
|
|
5,318 |
|
|
|
|
|
|
Deferred income taxes
|
|
|
30,871 |
|
|
|
31,376 |
|
|
|
|
|
|
Inventories
|
|
|
25,127 |
|
|
|
27,709 |
|
|
|
|
|
|
Other current assets
|
|
|
48,429 |
|
|
|
43,933 |
|
|
|
|
|
|
|
|
754,367 |
|
|
|
556,336 |
|
|
|
|
|
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
304,606 |
|
|
|
288,961 |
|
|
|
|
|
|
Machinery, equipment and fixtures
|
|
|
1,730,997 |
|
|
|
1,656,111 |
|
|
|
|
|
|
Leasehold improvements
|
|
|
133,674 |
|
|
|
102,753 |
|
|
|
|
|
|
|
|
2,169,277 |
|
|
|
2,047,825 |
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(1,197,375 |
) |
|
|
(1,084,790 |
) |
|
|
|
|
|
|
|
971,902 |
|
|
|
963,035 |
|
|
|
|
|
|
Land
|
|
|
37,470 |
|
|
|
36,491 |
|
|
|
|
|
|
Construction in progress
|
|
|
80,580 |
|
|
|
56,104 |
|
|
|
|
|
|
|
|
1,089,952 |
|
|
|
1,055,630 |
|
|
|
|
|
Investments in Marketable Equity Securities
|
|
|
260,433 |
|
|
|
245,335 |
|
|
|
|
|
Investments in Affiliates
|
|
|
61,814 |
|
|
|
61,312 |
|
|
|
|
|
Goodwill, Net
|
|
|
1,023,140 |
|
|
|
965,694 |
|
|
|
|
|
Indefinite-Lived Intangible Assets, Net
|
|
|
493,192 |
|
|
|
486,656 |
|
|
|
|
|
Amortized Intangible Assets, Net
|
|
|
7,879 |
|
|
|
5,226 |
|
|
|
|
|
Prepaid Pension Cost
|
|
|
556,747 |
|
|
|
514,801 |
|
|
|
|
|
Deferred Charges and Other Assets
|
|
|
69,117 |
|
|
|
71,068 |
|
|
|
|
|
|
|
$ |
4,316,641 |
|
|
$ |
3,962,058 |
|
|
|
|
The information on pages 44 through 57 is an integral part of
the financial statements. |
|
|
|
|
40
THE WASHINGTON POST COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2, |
|
December 28, |
(in thousands, except share amounts) |
|
2005 |
|
2003 |
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$ |
443,332 |
|
|
$ |
368,363 |
|
|
|
|
|
|
Deferred revenue
|
|
|
186,593 |
|
|
|
164,014 |
|
|
|
|
|
|
Short-term borrowings
|
|
|
58,236 |
|
|
|
208,620 |
|
|
|
|
|
|
|
|
688,161 |
|
|
|
740,997 |
|
|
|
|
|
Postretirement Benefits Other Than Pensions
|
|
|
145,490 |
|
|
|
140,740 |
|
|
|
|
|
Other Liabilities
|
|
|
228,654 |
|
|
|
235,169 |
|
|
|
|
|
Deferred Income Taxes
|
|
|
403,698 |
|
|
|
335,200 |
|
|
|
|
|
Long-Term Debt
|
|
|
425,889 |
|
|
|
422,471 |
|
|
|
|
|
|
|
|
1,891,892 |
|
|
|
1,874,577 |
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Preferred Stock, Series A, $1 par value,
with a redemption and liquidation value of $1,000 per share;
23,000 shares authorized; 12,267 and 12,540 shares issued and
outstanding
|
|
|
12,267 |
|
|
|
12,540 |
|
|
|
|
|
Preferred Stock, $1 par value; 977,000 shares authorized,
none issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shareholders Equity
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $1 par value; 7,000,000 shares
authorized; 1,722,250 shares issued and outstanding
|
|
|
1,722 |
|
|
|
1,722 |
|
|
|
|
|
|
|
Class B common stock, $1 par value; 40,000,000 shares
authorized; 18,277,750 shares issued; 7,853,822 and 7,819,330
shares outstanding
|
|
|
18,278 |
|
|
|
18,278 |
|
|
|
|
|
|
Capital in excess of par value
|
|
|
186,827 |
|
|
|
166,951 |
|
|
|
|
|
|
Retained earnings
|
|
|
3,629,222 |
|
|
|
3,364,407 |
|
|
Accumulated other comprehensive income, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative foreign currency translation adjustment
|
|
|
13,873 |
|
|
|
4,272 |
|
|
|
|
|
|
|
Unrealized gain on available-for-sale securities
|
|
|
75,448 |
|
|
|
37,205 |
|
|
|
|
|
|
Cost of 10,423,928 and 10,458,420 shares of Class B common
stock held in treasury
|
|
|
(1,512,888 |
) |
|
|
(1,517,894 |
) |
|
|
|
|
|
|
|
2,412,482 |
|
|
|
2,074,941 |
|
|
|
|
|
|
|
$ |
4,316,641 |
|
|
$ |
3,962,058 |
|
|
|
|
The information on pages 44 through 57 is an integral part of
the financial statements. |
|
|
|
|
2004 FORM 10-K
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended |
|
|
|
|
|
January 2, |
|
December 28, | |
|
December 29, | |
(in thousands) |
|
2005 |
|
2003 |
|
2002 |
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
332,732 |
|
|
$ |
241,088 |
|
|
$ |
204,268 |
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
12,100 |
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
175,338 |
|
|
|
173,848 |
|
|
|
171,908 |
|
|
|
|
|
|
|
Amortization of goodwill and other intangibles
|
|
|
9,334 |
|
|
|
1,436 |
|
|
|
655 |
|
|
|
|
|
|
|
Net pension benefit
|
|
|
(41,954 |
) |
|
|
(55,137 |
) |
|
|
(64,447 |
) |
|
|
|
|
|
|
Early retirement program expense
|
|
|
132 |
|
|
|
34,135 |
|
|
|
19,001 |
|
|
|
|
|
|
|
Gain from sale or exchange of businesses
|
|
|
(497 |
) |
|
|
(49,762 |
) |
|
|
(27,844 |
) |
|
|
|
|
|
|
Gain on sale of property, plant and equipment
|
|
|
(2,669 |
) |
|
|
(41,734 |
) |
|
|
|
|
|
|
|
|
|
|
Gain on disposition of marketable equity securities and cost
method investments, net
|
|
|
|
|
|
|
|
|
|
|
(13,209 |
) |
|
|
|
|
|
|
Cost method investment and other write-downs
|
|
|
677 |
|
|
|
1,337 |
|
|
|
21,194 |
|
|
|
|
|
|
|
Equity in losses of affiliates, net of distributions
|
|
|
3,091 |
|
|
|
10,516 |
|
|
|
20,018 |
|
|
|
|
|
|
|
Foreign exchange gain
|
|
|
(5,505 |
) |
|
|
(4,187 |
) |
|
|
|
|
|
|
|
|
|
|
Provision for deferred income taxes
|
|
|
44,321 |
|
|
|
30,704 |
|
|
|
50,115 |
|
|
|
|
|
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable, net
|
|
|
(23,722 |
) |
|
|
(9,936 |
) |
|
|
(1,116 |
) |
|
|
|
|
|
|
|
Decrease (increase) in inventories
|
|
|
2,640 |
|
|
|
829 |
|
|
|
(11,142 |
) |
|
|
|
|
|
|
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
70,058 |
|
|
|
(14,308 |
) |
|
|
73,653 |
|
|
|
|
|
|
|
|
(Increase) decrease in income taxes receivable
|
|
|
(13,079 |
) |
|
|
(10,171 |
) |
|
|
15,106 |
|
|
|
|
|
|
|
|
Decrease in other assets and other liabilities, net
|
|
|
3,477 |
|
|
|
34,460 |
|
|
|
21,360 |
|
|
|
|
|
|
|
Other
|
|
|
7,347 |
|
|
|
(5,404 |
) |
|
|
5,846 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
561,721 |
|
|
|
337,714 |
|
|
|
497,466 |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in certain businesses
|
|
|
(55,232 |
) |
|
|
(134,541 |
) |
|
|
(36,016 |
) |
|
|
|
|
|
Net proceeds from sale of businesses
|
|
|
|
|
|
|
65,000 |
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(204,632 |
) |
|
|
(125,588 |
) |
|
|
(152,992 |
) |
|
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
|
5,340 |
|
|
|
44,973 |
|
|
|
1,484 |
|
|
|
|
|
|
Purchases of cost method investments
|
|
|
(224 |
) |
|
|
(849 |
) |
|
|
(250 |
) |
|
|
|
|
|
Investments in affiliates
|
|
|
|
|
|
|
(5,976 |
) |
|
|
(7,610 |
) |
|
|
|
|
|
Purchases of marketable equity securities
|
|
|
(94,560 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
19,701 |
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(349,308 |
) |
|
|
(156,981 |
) |
|
|
(175,683 |
) |
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of commercial paper, net
|
|
|
(138,116 |
) |
|
|
(70,942 |
) |
|
|
(276,189 |
) |
|
|
|
|
|
Principal payments on debt
|
|
|
(19,253 |
) |
|
|
(784 |
) |
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
(67,917 |
) |
|
|
(56,289 |
) |
|
|
(54,256 |
) |
|
|
|
|
|
Common shares repurchased
|
|
|
|
|
|
|
(687 |
) |
|
|
(786 |
) |
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
15,616 |
|
|
|
5,898 |
|
|
|
6,739 |
|
|
|
|
|
|
Other
|
|
|
(1,953 |
) |
|
|
1,245 |
|
|
|
(1,867 |
) |
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(211,623 |
) |
|
|
(121,559 |
) |
|
|
(326,359 |
) |
|
|
|
|
|
|
|
Effect of Currency Exchange Rate Change
|
|
|
2,049 |
|
|
|
737 |
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
2,839 |
|
|
|
59,911 |
|
|
|
(4,576 |
) |
|
|
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
116,561 |
|
|
|
56,650 |
|
|
|
61,226 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$ |
119,400 |
|
|
$ |
116,561 |
|
|
$ |
56,650 |
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$ |
171,400 |
|
|
$ |
116,900 |
|
|
$ |
68,900 |
|
|
|
|
|
|
|
Interest, net of amounts capitalized
|
|
$ |
25,500 |
|
|
$ |
27,500 |
|
|
$ |
30,600 |
|
The information on pages 44 through 57 is an integral part of
the financial statements.
42
THE WASHINGTON POST COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative |
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
Gain on |
|
|
|
|
Class A |
|
Class B |
|
Capital in |
|
|
|
Currency |
|
Available- |
|
|
|
|
Common |
|
Common |
|
Excess of |
|
Retained |
|
Translation |
|
for-Sale |
|
|
(in thousands) |
|
Stock |
|
Stock |
|
Par Value |
|
Earnings |
|
Adjustment |
|
Securities |
|
Treasury Stock |
|
Balance, December 30, 2001
|
|
$ |
1,722 |
|
|
$ |
18,278 |
|
|
$ |
142,814 |
|
|
$ |
3,029,595 |
|
|
$ |
(9,678 |
) |
|
$ |
24,281 |
|
|
$ |
(1,523,527 |
) |
|
|
|
|
|
Net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock $5.60 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of 1,229 shares of Class B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(786 |
) |
|
|
|
|
|
Issuance of 17,156 shares of Class B common stock, net of
restricted stock award forfeitures
|
|
|
|
|
|
|
|
|
|
|
4,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,507 |
|
|
|
|
|
|
Change in foreign currency translation adjustment (net of taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on available-for-sale securities (net
of taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,368 |
) |
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits arising from employee stock plans
|
|
|
|
|
|
|
|
|
|
|
1,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 29, 2002.
|
|
|
1,722 |
|
|
|
18,278 |
|
|
|
149,090 |
|
|
|
3,179,607 |
|
|
|
(7,511 |
) |
|
|
17,913 |
|
|
|
(1,521,806 |
) |
|
|
|
|
|
Net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock $5.80 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,261 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,027 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of 910 shares of Class B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(687 |
) |
|
|
|
|
|
Issuance of 31,697 shares of Class B common stock, net of
restricted stock award forfeitures
|
|
|
|
|
|
|
|
|
|
|
14,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,599 |
|
|
|
|
|
|
Change in foreign currency translation adjustment (net of taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on available-for-sale securities (net
of taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,292 |
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits arising from employee stock plans
|
|
|
|
|
|
|
|
|
|
|
3,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 28, 2003
|
|
|
1,722 |
|
|
|
18,278 |
|
|
|
166,951 |
|
|
|
3,364,407 |
|
|
|
4,272 |
|
|
|
37,205 |
|
|
|
(1,517,894 |
) |
|
|
|
|
|
Net income for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
332,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock $7.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 34,492 shares of Class B common stock, net of
restricted stock award forfeitures
|
|
|
|
|
|
|
|
|
|
|
11,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,006 |
|
|
|
|
|
|
Change in foreign currency translation adjustment (net of taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain on available-for-sale securities (net
of taxes)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,243 |
|
|
|
|
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefits arising from employee stock plans
|
|
|
|
|
|
|
|
|
|
|
7,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 2, 2005
|
|
$ |
1,722 |
|
|
$ |
18,278 |
|
|
$ |
186,827 |
|
|
$ |
3,629,222 |
|
|
$ |
13,873 |
|
|
$ |
75,448 |
|
|
$ |
(1,512,888 |
) |
|
|
|
The information on pages 44 through 57 is an integral part of
the financial statements. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 FORM 10-K
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company reports on a 52- to 53-week
fiscal year ending on the Sunday nearest December 31. The
fiscal year 2004, which ended on January 2, 2005, included
53 weeks. The fiscal years 2003 and 2002, which ended on
December 28, 2003 and December 29, 2002, respectively,
included 52 weeks. With the exception of most of the
newspaper publishing operations, subsidiaries of the Company
report on a calendar-year basis.
Principles of Consolidation. The accompanying financial
statements include the accounts of the Company and its
subsidiaries; significant intercompany transactions have been
eliminated.
Presentation. Certain amounts in previously issued
financial statements have been reclassified to conform with the
2004 presentation.
Use of Estimates. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual
results could differ from those estimates.
Cash Equivalents. Short-term investments with original
maturities of 90 days or less are considered cash
equivalents.
Investments in Marketable Equity Securities. The
Companys investments in marketable equity securities are
classified as available-for-sale and therefore are recorded at
fair value in the Consolidated Balance Sheets, with the change
in fair value during the period excluded from earnings and
recorded net of tax as a separate component of comprehensive
income. Marketable equity securities that the Company expects to
hold long term are classified as non-current assets. If the fair
value of a marketable security declines below its cost basis,
and the decline is considered other than temporary, the Company
will record a write-down which is included in earnings.
Inventories. Inventories are valued at the lower of cost
or market. Cost of newsprint is determined by the first-in,
first-out method, and cost of magazine paper is determined by
the specific-cost method.
Property, Plant and Equipment. Property, plant and
equipment is recorded at cost and includes interest capitalized
in connection with major long-term construction projects.
Replacements and major improvements are capitalized; maintenance
and repairs are charged to operations as incurred.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the property, plant and equipment:
3 to 20 years for machinery and equipment, and 20 to
50 years for buildings. The costs of leasehold improvements
are amortized over the lesser of the useful lives or the terms
of the respective leases.
The cable division capitalizes the costs associated with the
construction of cable transmission and distribution facilities
and new cable service installations. Costs include all direct
labor and materials, as well as certain indirect costs. Also at
the cable division, the carrying value applicable to assets sold
or retired is removed from the accounts, with the gain or loss
on disposition recognized as a component of depreciation expense.
Investments in Affiliates. The Company uses the equity
method of accounting for its investments in and earnings or
losses of affiliates that it does not control but over which it
does exert significant influence. The Company considers whether
the fair values of any of its equity method investments have
declined below their carrying value whenever adverse events or
changes in circumstances indicate that recorded values may not
be recoverable. If the Company considered any such decline to be
other than temporary (based on various factors, including
historical financial results, product development activities and
the overall health of the affiliates industry), then a
write-down would be recorded to estimated fair value.
Cost Method Investments. The Company uses the cost method
of accounting for its minority investments in non-public
companies where it does not have significant influence over the
operations and management of the investee. Investments are
recorded at the lower of cost or fair value as estimated by
management. Charges recorded to write-down cost method
investments to their estimated fair value and gross realized
gains or losses upon the sale of cost method investments are
included in Other income (expense), net in the
Consolidated Statements of Income. Fair value estimates are
based on a review of the investees product development
activities, historical financial results and projected
discounted cash flows.
Goodwill and Other Intangibles. The Company adopted
Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Other Intangible
Assets in 2002. Under SFAS 142, goodwill and
indefinite-lived intangibles are no longer amortized, but are
reviewed at least annually for impairment. All other intangible
assets are amortized over their useful lives. The Company
reviews the carrying value of goodwill and indefinite-lived
intangible assets utilizing a discounted cash flow model (in the
case of the Companys cable systems, both a discounted cash
flow model and an estimated fair market value per cable
subscriber approach are considered). The Company must make
assumptions regarding estimated future cash flows and market
values to determine a reporting units estimated fair
value. In reviewing the carrying value of goodwill and
indefinite-lived intangible assets at the cable division, the
Company aggregates its cable systems on a regional basis. If
these estimates or related assumptions change in the future, the
Company may be required to record an impairment charge.
EITF Topic D-108, Use of the Residual Method to Value
Acquired Assets Other than Goodwill, requires companies
that have applied the residual method to value intangible assets
to perform an impairment test on those intangible assets using
the direct value method by the end of the first quarter of 2005.
The Company is in the process of performing such an impairment
test at its cable division.
44
THE WASHINGTON POST COMPANY
Long-Lived Assets. The recoverability of long-lived
assets other than goodwill and other intangibles is assessed
whenever adverse events or changes in circumstances indicate
that recorded values may not be recoverable. A long-lived asset
is considered to be not recoverable when the undiscounted
estimated future cash flows are less than its recorded value. An
impairment charge is measured based on estimated fair market
value, determined primarily using estimated future cash flows on
a discounted basis. Losses on long-lived assets to be disposed
are determined in a similar manner, but the fair market value
would be reduced for estimated costs to dispose.
Program Rights. The broadcast subsidiaries are parties to
agreements that entitle them to show syndicated and other
programs on television. The costs of such program rights are
recorded when the programs are available for broadcasting, and
such costs are charged to operations as the programming is aired.
Revenue Recognition. Revenue from media advertising is
recognized, net of agency commissions, when the underlying
advertisement is published or broadcast. Revenues from newspaper
and magazine subscriptions and retail sales are recognized upon
the later of delivery or cover date, with adequate provision
made for anticipated sales returns. Cable subscriber revenue is
recognized monthly as services are delivered. Education revenue
is generally recognized ratably over the period during which
educational services are delivered. At Kaplans test
preparation division, estimates of average student course length
are developed for each course, and these estimates are evaluated
on an ongoing basis and adjusted as necessary.
The Company bases its estimates for sales returns on historical
experience and has not experienced significant fluctuations
between estimated and actual return activity. Amounts received
from customers in advance of revenue recognition are deferred as
liabilities. Deferred revenue to be earned after one year is
included in Other Liabilities in the Consolidated
Balance Sheets.
Postretirement Benefits Other Than Pensions. The Company
provides health care and life insurance benefits for certain
retired employees. The expected cost of providing these
postretirement benefits is accrued over the years that employees
render services.
Income Taxes. The provision for income taxes is
determined using the asset and liability approach. Under this
approach, deferred income taxes represent the expected future
tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities.
Foreign Currency Translation. Gains and losses on foreign
currency transactions and the translation of the accounts of the
Companys foreign operations where the U.S. dollar is the
functional currency are recognized currently in the Consolidated
Statements of Income. Gains and losses on translation of the
accounts of the Companys foreign operations, where the
local currency is the functional currency, and the
Companys equity investment in its foreign affiliate are
accumulated and reported as a separate component of equity and
comprehensive income.
Stock Options. Effective the first day of the
Companys 2002 fiscal year, the Company adopted the
fair-value-based method of accounting for Company stock options
as outlined in Statement of Financial Accounting Standards
No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. This change in accounting method was applied
prospectively to all awards granted from the beginning of the
Companys fiscal year 2002 and thereafter. Stock options
awarded prior to fiscal year 2002 have been accounted for under
the intrinsic value method under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees. The following table presents what the
Companys results would have been had the fair values of
options granted after 1995, but prior to 2002, been recognized
as compensation expense in 2004, 2003 and 2002 (in thousands,
except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
Net income available for common shares, as reported
|
|
$ |
331,740 |
|
|
$ |
240,061 |
|
|
$ |
203,235 |
|
|
|
|
|
Add: Company stock option compensation expense included in net
income, net of related tax effects
|
|
|
506 |
|
|
|
370 |
|
|
|
28 |
|
|
|
|
|
Deduct: Total Company stock option compensation expense
determined under the fair-value-based method for all awards, net
of related tax effects
|
|
|
(2,946 |
) |
|
|
(3,529 |
) |
|
|
(3,645 |
) |
|
|
|
|
Pro forma net income available for common shares
|
|
$ |
329,300 |
|
|
$ |
236,902 |
|
|
$ |
199,618 |
|
|
|
|
|
Basic earnings per share, as reported
|
|
$ |
34.69 |
|
|
$ |
25.19 |
|
|
$ |
21.38 |
|
|
|
|
|
Pro forma basic earnings per share
|
|
$ |
34.43 |
|
|
$ |
24.86 |
|
|
$ |
21.00 |
|
|
|
|
|
Diluted earnings per share, as reported
|
|
$ |
34.59 |
|
|
$ |
25.12 |
|
|
$ |
21.34 |
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$ |
34.33 |
|
|
$ |
24.79 |
|
|
$ |
20.96 |
|
In December 2004, Statement of Financial Accounting
Standards No. 123R (SFAS 123R), Share-Based
Payment was issued which requires companies to record the
cost of employee services in exchange for stock options based on
the grant-date fair value of the award. Because the Company
adopted the fair-value-based method of accounting for Company
stock options in 2002, SFAS 123R will have a minimal impact
on the Companys results of operations when adopted in the
third quarter of 2005.
B. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts receivable at January 2, 2005 and
December 28, 2003 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
Trade accounts receivable,
less estimated returns, doubtful
accounts and allowances of $70,965 and $66,524
|
|
$ |
342,879 |
|
|
$ |
311,807 |
|
|
|
|
|
Other accounts receivable
|
|
|
19,983 |
|
|
|
17,009 |
|
|
|
|
|
|
|
$ |
362,862 |
|
|
$ |
328,816 |
|
|
|
|
2004 FORM 10-K
45
Accounts payable and accrued liabilities at January 2, 2005
and December 28, 2003 consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
Accounts payable and accrued expenses
|
|
$ |
229,380 |
|
|
$ |
211,972 |
|
|
|
|
|
Accrued compensation and related benefits
|
|
|
204,225 |
|
|
|
147,985 |
|
|
|
|
|
Due to affiliates (newsprint)
|
|
|
9,727 |
|
|
|
8,406 |
|
|
|
|
|
|
|
$ |
443,332 |
|
|
$ |
368,363 |
|
|
|
|
Book overdrafts of $27.2 million and $29.1 million are
included in accounts payable and accrued expenses at
January 2, 2005 and December 29, 2003, respectively.
C. INVESTMENTS
Investments in Marketable Equity Securities. Investments
in marketable equity securities at January 2, 2005 and
December 28, 2003 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
Total cost
|
|
$ |
285,912 |
|
|
$ |
186,954 |
|
|
|
|
|
Net unrealized gains
|
|
|
123,824 |
|
|
|
61,004 |
|
|
|
|
|
Total fair value
|
|
$ |
409,736 |
|
|
$ |
247,958 |
|
|
|
|
At January 2, 2005 and December 28, 2003, the
Companys ownership of 2,634 shares of Berkshire Hathaway
Inc. (Berkshire) Class A common stock and 9,845
shares of Berkshire Class B common stock accounted for
$260.4 million or 64% and $245.3 million or 99%,
respectively, of the total fair value of the Companys
investments in marketable equity securities.
Berkshire is a holding company owning subsidiaries engaged in a
number of diverse business activities, the most significant of
which consist of property and casualty insurance business
conducted on both a direct and reinsurance basis. Berkshire also
owns approximately 18% of the common stock of the Company. The
chairman, chief executive officer and largest shareholder of
Berkshire, Mr. Warren Buffett, is a member of the
Companys Board of Directors. Neither Berkshire nor
Mr. Buffett participated in the Companys evaluation,
approval or execution of its decision to invest in Berkshire
common stock. The Companys investment in Berkshire common
stock is less than 1% of the consolidated equity of Berkshire.
At January 2, 2005 and December 28, 2003, the
unrealized gain related to the Companys Berkshire stock
investment totaled $75.5 million and $60.4 million,
respectively. The Company presently intends to hold the
Berkshire common stock investment long term, thus the investment
has been classified as a non-current asset in the Consolidated
Balance Sheets.
The Company made $94.6 million in investments in marketable
equity securities in 2004. There were no investments in
marketable equity securities in 2003 and 2002. During 2004 and
2003, there were no sales of marketable equity securities or
realized gains (losses). During 2002, proceeds from sales of
marketable equity securities were $19.7 million, and gross
realized gains (losses) on such sales were
$13.2 million. During 2003 and 2002, the Company recorded
write-downs on marketable equity securities of $0.2 million
and $2.0 million, respectively. Realized gains or losses on
marketable equity securities are included in Other income
(expense), net in the Consolidated Statements of Income.
For purposes of computing realized gains and losses, the cost
basis of securities sold is determined by specific
identification.
Investments in Affiliates. The Companys investments
in affiliates at January 2, 2005 and December 28, 2003
include the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 |
|
BrassRing
|
|
$ |
8,755 |
|
|
$ |
11,892 |
|
|
|
|
|
Bowater Mersey Paper Company
|
|
|
52,112 |
|
|
|
48,559 |
|
|
|
|
|
Los Angeles TimesWashington Post News Service
|
|
|
947 |
|
|
|
861 |
|
|
|
|
|
|
|
$ |
61,814 |
|
|
$ |
61,312 |
|
|
|
|
At the end of 2004, the Companys investments in affiliates
consisted of a 49.3% interest in BrassRing LLC, an
Internet-based hiring management company; a 49% interest in the
common stock of Bowater Mersey Paper Company Limited, which owns
and operates a newsprint mill in Nova Scotia; and a 50% common
stock interest in the Los Angeles TimesWashington Post
News Service, Inc. Summarized financial data for the
affiliates operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$ |
9,014 |
|
|
$ |
11,108 |
|
|
$ |
10,366 |
|
|
|
|
|
|
Property, plant and equipment
|
|
|
137,321 |
|
|
|
140,917 |
|
|
|
135,013 |
|
|
|
|
|
|
Total assets
|
|
|
202,904 |
|
|
|
214,658 |
|
|
|
235,208 |
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net equity
|
|
|
155,147 |
|
|
|
149,584 |
|
|
|
138,723 |
|
|
|
|
|
Results of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
221,618 |
|
|
$ |
174,505 |
|
|
$ |
263,709 |
|
|
|
|
|
|
Operating income (loss)
|
|
|
1,695 |
|
|
|
(18,753 |
) |
|
|
(21,725 |
) |
|
|
|
|
|
Net loss
|
|
|
(4,577 |
) |
|
|
(20,164 |
) |
|
|
(36,326 |
) |
The following table summarizes the status and results of the
Companys investments in affiliates (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
Beginning investment
|
|
$ |
61,312 |
|
|
$ |
70,703 |
|
|
|
|
|
Additional investment
|
|
|
|
|
|
|
5,976 |
|
|
|
|
|
Equity in losses
|
|
|
(2,291 |
) |
|
|
(9,766 |
) |
|
|
|
|
Dividends and distributions received
|
|
|
(800 |
) |
|
|
(750 |
) |
|
|
|
|
Foreign currency translation
|
|
|
3,593 |
|
|
|
9,205 |
|
|
|
|
|
Sale of interest
|
|
|
|
|
|
|
(14,056 |
) |
|
|
|
|
Ending investment
|
|
$ |
61,814 |
|
|
$ |
61,312 |
|
|
|
|
In December 2001, BrassRing, Inc. was restructured and the
Companys interest in BrassRing, Inc. was converted into an
interest in the newly-formed BrassRing LLC. At December 30,
2001, the Company held a 39.7% interest in the BrassRing LLC
common equity and a $14.9 million Subordinated Convertible
Promissory Note (Note) from BrassRing LLC. In
February 2002, the Note was converted into Preferred Units,
which are convertible at the Companys option to BrassRing
LLC common equity. Assuming the conversion of the Preferred
Units, the Companys common equity interest in BrassRing
LLC would have been approximately 49.5%. BrassRing
46
THE WASHINGTON POST COMPANY
accounted for $3.1 million of the 2004 equity in losses of
affiliates, compared to $7.7 million in 2003 and
$13.9 million in 2002.
On January 1, 2003, the Company sold its 50% interest in
The International Herald Tribune newspaper for $65 million;
the Company reported a $49.8 million pre-tax gain that is
included in Other income (expense), net in the
Consolidated Statements of Income.
Cost Method Investments. Most of the companies
represented by the Companys cost method investments have
concentrations in Internet-related business activities. At
January 2, 2005 and December 28, 2003, the carrying
value of the Companys cost method investments was
$4.6 million and $9.6 million, respectively. Cost
method investments are included in Deferred Charges and
Other Assets in the Consolidated Balance Sheets.
In June 2004, one of the Companys cost method investments
went public and is now reported as a marketable equity security,
recorded at fair value in the Consolidated Balance Sheets, with
the change in fair value during the period excluded from
earnings and recorded net of tax as a separate component of
comprehensive income.
During 2004, 2003, and 2002, the Company invested
$0.2 million, $0.8 million, and $0.3 million,
respectively, in companies constituting cost method investments
and recorded charges of $0.7 million, $1.1 million,
and $19.2 million, respectively, to write-down cost method
investments to estimated fair value. In 2002, three of the
investments were written down by an aggregate of
$15.6 million, primarily as a result of significant
recurring losses in each of the underlying businesses, with the
write-downs recorded based on the Companys best estimate
of the fair value of each these investments. Another of the
Companys investments was written down in 2002 by
$2.8 million, based on proceeds received by the Company
arising from the investees merger. Charges recorded to
write-down cost method investments are included in Other
income (expense), net in the Consolidated Statements of
Income.
D. INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current | |
|
Deferred | |
|
Total | |
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$ |
138,429 |
|
|
$ |
35,544 |
|
|
$ |
173,973 |
|
|
|
|
|
|
Foreign
|
|
|
4,751 |
|
|
|
(361 |
) |
|
|
4,390 |
|
|
|
|
|
|
State and local
|
|
|
22,199 |
|
|
|
9,138 |
|
|
|
31,337 |
|
|
|
|
|
|
|
$ |
165,379 |
|
|
$ |
44,321 |
|
|
$ |
209,700 |
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$ |
93,329 |
|
|
$ |
27,189 |
|
|
$ |
120,518 |
|
|
|
|
|
|
Foreign
|
|
|
4,129 |
|
|
|
(159 |
) |
|
|
3,970 |
|
|
|
|
|
|
State and local
|
|
|
13,338 |
|
|
|
3,674 |
|
|
|
17,012 |
|
|
|
|
|
|
|
$ |
110,796 |
|
|
$ |
30,704 |
|
|
$ |
141,500 |
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$ |
75,654 |
|
|
$ |
38,934 |
|
|
$ |
114,588 |
|
|
|
|
|
|
Foreign
|
|
|
1,634 |
|
|
|
(499 |
) |
|
|
1,135 |
|
|
|
|
|
|
State and local
|
|
|
9,897 |
|
|
|
11,680 |
|
|
|
21,577 |
|
|
|
|
|
|
|
$ |
87,185 |
|
|
$ |
50,115 |
|
|
$ |
137,300 |
|
|
|
|
In addition to the income tax provision presented above, in
2002, the Company recorded a federal and state income tax
benefit of $6.9 million on the impairment loss recorded as
a cumulative effect of change in accounting principle in
connection with the adoption of SFAS 142.
The provision for income taxes exceeds the amount of income tax
determined by applying the U.S. Federal statutory rate of 35% to
income before taxes as a result of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
|
|
|
|
U.S. Federal statutory taxes
|
|
$ |
189,851 |
|
|
$ |
133,906 |
|
|
$ |
123,784 |
|
|
|
|
|
State and local taxes, net of U.S. Federal income tax benefit
|
|
|
20,369 |
|
|
|
11,058 |
|
|
|
14,025 |
|
|
|
|
|
Sale of affiliate with higher tax basis
|
|
|
|
|
|
|
(2,188 |
) |
|
|
|
|
|
|
|
|
Other, net
|
|
|
(520 |
) |
|
|
(1,276 |
) |
|
|
(509 |
) |
|
|
|
|
Provision for income taxes
|
|
$ |
209,700 |
|
|
$ |
141,500 |
|
|
$ |
137,300 |
|
|
|
|
Deferred income taxes at January 2, 2005 and
December 28, 2003 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
|
|
|
|
Accrued postretirement benefits
|
|
$ |
61,221 |
|
|
$ |
60,536 |
|
|
|
|
|
Other benefit obligations
|
|
|
122,608 |
|
|
|
102,791 |
|
|
|
|
|
Accounts receivable
|
|
|
18,939 |
|
|
|
17,650 |
|
|
|
|
|
State income tax loss carryforwards
|
|
|
10,753 |
|
|
|
12,068 |
|
|
|
|
|
Affiliate operations
|
|
|
4,403 |
|
|
|
4,334 |
|
|
|
|
|
Other
|
|
|
19,866 |
|
|
|
25,480 |
|
|
|
|
|
Deferred tax asset
|
|
|
237,790 |
|
|
|
222,859 |
|
|
|
|
Property, plant and equipment
|
|
|
173,101 |
|
|
|
153,615 |
|
|
|
|
|
Prepaid pension cost
|
|
|
224,991 |
|
|
|
207,312 |
|
|
|
|
|
Unrealized gain on available-for-sale securities
|
|
|
48,387 |
|
|
|
23,811 |
|
|
|
|
|
Goodwill and other intangibles
|
|
|
164,138 |
|
|
|
141,945 |
|
|
|
|
|
Deferred tax liability
|
|
|
610,617 |
|
|
|
526,683 |
|
|
|
|
|
Deferred income taxes
|
|
$ |
372,827 |
|
|
$ |
303,824 |
|
|
|
|
The Company has approximately $213 million in state income
tax loss carryforwards. If unutilized, state income tax loss
carryforwards will start to expire approximately as follows (in
millions):
|
|
|
|
|
|
|
|
|
2005
|
|
$ |
3.0 |
|
|
|
|
|
2006
|
|
|
5.0 |
|
|
|
|
|
2007
|
|
|
1.0 |
|
|
|
|
|
2008
|
|
|
9.0 |
|
|
|
|
|
2009
|
|
|
4.0 |
|
|
|
|
|
2010
|
|
|
7.0 |
|
|
|
|
|
2011 to 2023
|
|
|
184.0 |
|
|
|
|
|
|
Total
|
|
$ |
213.0 |
|
|
|
|
|
|
2004 FORM 10-K
47
E. DEBT
Long-term debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
January 2, | |
|
December 28, | |
|
|
2005 |
|
2003 |
|
Commercial paper borrowings
|
|
$ |
50.2 |
|
|
|
$ 188.3 |
|
|
|
|
|
5.5% unsecured notes due February 15, 2009
|
|
|
398.9 |
|
|
|
398.7 |
|
|
|
|
|
4.0% notes due 2004
2006 (£8.35 million and £16.7 million)
|
|
|
16.1 |
|
|
|
29.7 |
|
|
|
|
|
Other indebtedness
|
|
|
18.9 |
|
|
|
14.4 |
|
|
|
|
|
Total
|
|
|
484.1 |
|
|
|
631.1 |
|
|
|
|
|
Less current portion
|
|
|
(58.2 |
) |
|
|
(208.6 |
) |
|
|
|
|
Total long-term debt
|
|
$ |
425.9 |
|
|
|
$ 422.5 |
|
|
|
|
During 2003, notes of £16.7 million were issued to FTC
employees who were former FTC shareholders in connection with
the acquisition. The noteholders, at their discretion, had the
option of electing to receive 25% of their outstanding balance
in January 2004 and in August 2004, 50% of the original
outstanding balance (less the amount paid in January) was due
for payment. Payments of $6.2 million and $8.8 million
were made in January 2004 and August 2004, respectively. The
remaining balance outstanding of £8.35 million is due for
payment in August 2006.
Interest on the 5.5% unsecured notes is payable semi-annually on
February 15 and August 15.
At January 2, 2005 and December 28, 2003, the average
interest rate on the Companys outstanding commercial paper
borrowings was 2.2% and 1.1%, respectively. During the third
quarter of 2004, the Company replaced its expiring
$250 million 364-day revolving credit facility with a new
$250 million revolving credit facility on essentially the
same terms. The new facility expires in August 2005. In 2002,
the Company replaced its revolving credit facility agreements
with a new five-year $350 million revolving credit
facility, which expires in August 2007. These revolving credit
facility agreements support the issuance of the Companys
short-term commercial paper.
Under the terms of the five-year $350 million revolving
credit facility, interest on borrowings is at floating rates,
and depending on the Companys long-term debt rating, the
Company is required to pay an annual fee of 0.07% to 0.15% on
the unused portion of the facility, and 0.25% to 0.75% on the
used portion of the facility. Under the terms of the
$250 million 364-day revolving credit facility, interest on
borrowings is at floating rates, and based on the Companys
long-term debt rating, the Company is required to pay an annual
fee of 0.05% to 0.125% on the unused portion of the facility,
and 0.25% to 0.75% on the used portion of the facility. Also
under the terms of the $250 million 364-day revolving
credit facility, the Company has the right to extend the term of
any borrowings for up to one year from the credit
facilitys maturity date for an additional fee of 0.125%.
Both revolving credit facilities contain certain covenants,
including a financial covenant that the Company maintain at
least $1 billion of consolidated shareholders equity.
During 2004 and 2003, the Company had average borrowings
outstanding of approximately $516.0 million and
$605.7 million, respectively, at average annual interest
rates of approximately 4.8% and 4.2%, respectively. The Company
incurred net interest costs on its borrowings of
$26.4 million and $26.9 million during 2004 and 2003,
respectively. No interest expense was capitalized in 2004 or
2003.
At January 2, 2005 and December 28, 2003, the fair
value of the Companys 5.5% unsecured notes, based on
quoted market prices, totaled $423.0 million and
$434.6 million, respectively, compared with the carrying
amount of $398.9 million and $398.7 million,
respectively.
The carrying value of the Companys commercial paper
borrowings and other unsecured debt at January 2, 2005 and
December 28, 2003 approximates fair value.
F. REDEEMABLE PREFERRED STOCK
In connection with the acquisition of a cable television system
in 1996, the Company issued 11,947 shares of its Series A
Preferred Stock. On February 23, 2000, the Company issued
an additional 1,275 shares related to this transaction. From
1998 to 2004, 955 shares of Series A Preferred Stock were
redeemed at the request of Series A Preferred Stockholders.
The Series A Preferred Stock has a par value of $1.00 per
share and a liquidation preference of $1,000 per share; it is
redeemable by the Company at any time on or after
October 1, 2015 at a redemption price of $1,000 per share.
In addition, the holders of such stock have a right to require
the Company to purchase their shares at the redemption price
during an annual 60-day election period; the first such period
began on February 23, 2001. Dividends on the Series A
Preferred Stock are payable four times a year at the annual rate
of $80.00 per share and in preference to any dividends on the
Companys common stock. The Series A Preferred Stock
is not convertible into any other security of the Company, and
the holders thereof have no voting rights except with respect to
any proposed changes in the preferences and special rights of
such stock.
G. CAPITAL STOCK, STOCK AWARDS AND STOCK OPTIONS
Capital Stock. Each share of Class A common stock
and Class B common stock participates equally in dividends.
The Class B stock has limited voting rights and as a class
has the right to elect 30% of the Board of Directors; the
Class A stock has unlimited voting rights, including the
right to elect a majority of the Board of Directors.
During 2004 the Company did not purchase any shares of its
Class B common stock. During 2003 and 2002, the Company
purchased a total of 910 shares and 1,229 shares, respectively,
of its Class B common stock at a cost of approximately
$0.7 million and $0.8 million. At January 2,
2005, the Company has authorization from the Board of Directors
to purchase up to 542,800 shares of Class B common stock.
48
THE WASHINGTON POST COMPANY
Stock Awards. In 1982, the Company adopted a long-term
incentive compensation plan, which, among other provisions,
authorizes the awarding of Class B common stock to key
employees. Stock awards made under this incentive compensation
plan are subject to the general restriction that stock awarded
to a participant will be forfeited and revert to Company
ownership if the participants employment terminates before
the end of a specified period of service to the Company. At
January 2, 2005, there were 52,476 shares reserved for
issuance under the incentive compensation plan. Of this number,
28,001 shares were subject to awards outstanding, and 24,475
shares were available for future awards. Activity related to
stock awards under the long-term incentive compensation plan for
the years ended January 2, 2005, December 28, 2003,
and December 29, 2002, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
Number |
|
Average |
|
Number |
|
Average |
|
Number |
|
Average |
|
|
of |
|
Award |
|
of |
|
Award |
|
of |
|
Award |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Beginning of year
|
|
|
29,845 |
|
|
|
$643.89 |
|
|
|
27,625 |
|
|
|
$536.74 |
|
|
|
29,895 |
|
|
|
$539.25 |
|
|
|
|
|
|
Awarded
|
|
|
200 |
|
|
|
973.88 |
|
|
|
15,990 |
|
|
|
734.01 |
|
|
|
215 |
|
|
|
563.36 |
|
|
|
|
|
|
Vested
|
|
|
(561 |
) |
|
|
625.91 |
|
|
|
(12,752 |
) |
|
|
523.60 |
|
|
|
(601 |
) |
|
|
540.61 |
|
|
|
|
|
|
Forfeited
|
|
|
(1,483 |
) |
|
|
683.58 |
|
|
|
(1,018 |
) |
|
|
658.44 |
|
|
|
(1,884 |
) |
|
|
578.37 |
|
|
|
|
|
End of year
|
|
|
28,001 |
|
|
|
$644.51 |
|
|
|
29,845 |
|
|
|
$643.89 |
|
|
|
27,625 |
|
|
|
$536.74 |
|
|
|
|
In addition to stock awards granted under the long-term
incentive compensation plan, the Company also made stock awards
of 2,550 shares in 2004, 1,050 shares in 2003, and 2,150 shares
in 2002. Also, on January 3, 2005, the Company made stock
awards of 13,090 shares.
For the share awards outstanding at January 2, 2005, the
aforementioned restriction will lapse in 2005 for 15,491 shares,
in 2006 for 450 shares, in 2007 for 17,435 shares, and in 2008
for 675 shares. Stock-based compensation costs resulting
from stock awards reduced net income by $3.6 million ($0.38
per share, basic and diluted), $3.9 million ($0.41 per
share, basic and diluted), and $3.5 million ($0.37 per
share, basic and diluted) in 2004, 2003, and 2002, respectively.
Stock Options. The Companys employee stock option
plan reserves 1,900,000 shares of the Companys
Class B common stock for options to be granted under the
plan. The purchase price of the shares covered by an option
cannot be less than the fair value on the granting date. At
January 2, 2005, there were 421,125 shares reserved for
issuance under the stock option plan, of which 122,250 shares
were subject to options outstanding, and 298,875 shares were
available for future grants.
Changes in options outstanding for the years ended
January 2, 2005, December 28, 2003, and
December 29, 2002, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
Number | |
|
Average |
|
Number |
|
Average |
|
Number |
|
Average |
|
|
of |
|
Option |
|
of |
|
Option |
|
of |
|
Option |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Beginning of year
|
|
|
152,475 |
|
|
$ |
530.81 |
|
|
|
163,900 |
|
|
|
$515.74 |
|
|
|
170,575 |
|
|
|
$490.86 |
|
|
|
|
|
|
Granted
|
|
|
4,000 |
|
|
|
953.50 |
|
|
|
5,000 |
|
|
|
803.70 |
|
|
|
11,500 |
|
|
|
729.00 |
|
|
|
|
|
|
Exercised
|
|
|
(33,225 |
) |
|
|
467.68 |
|
|
|
(15,675 |
) |
|
|
450.87 |
|
|
|
(16,675 |
) |
|
|
404.14 |
|
|
|
|
|
|
Forfeited
|
|
|
(1,000 |
) |
|
|
621.38 |
|
|
|
(750 |
) |
|
|
729.00 |
|
|
|
(1,500 |
) |
|
|
561.77 |
|
|
|
|
|
End of year
|
|
|
122,250 |
|
|
$ |
561.05 |
|
|
|
152,475 |
|
|
|
$530.81 |
|
|
|
163,900 |
|
|
|
$515.74 |
|
|
|
|
Of the shares covered by options outstanding at the end of 2004,
103,750 are now exercisable, 10,500 will become exercisable in
2005, 4,750 will become exercisable in 2006, 2,250 will become
exercisable in 2007, and 1,000 will become exercisable in 2008.
Information related to stock options outstanding at
January 2, 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
|
Number |
|
Remaining |
|
Average |
|
Number |
|
Average |
Range of |
|
Outstanding |
|
Contractual |
|
Exercise |
|
Exercisable |
|
Exercise |
Exercise Prices |
|
at 1/2/2005 |
|
Life (yrs.) |
|
Price |
|
at 1/2/2005 |
|
Price |
|
|
$222299 |
|
|
|
500 |
|
|
|
1.0 |
|
|
$ |
298.75 |
|
|
|
500 |
|
|
$ |
298.75 |
|
|
|
|
|
|
344 |
|
|
|
5,000 |
|
|
|
2.0 |
|
|
|
343.94 |
|
|
|
5,000 |
|
|
|
343.94 |
|
|
|
|
|
|
472484 |
|
|
|
12,125 |
|
|
|
3.7 |
|
|
|
473.70 |
|
|
|
12,125 |
|
|
|
473.70 |
|
|
|
|
|
|
500596 |
|
|
|
85,625 |
|
|
|
6.0 |
|
|
|
535.51 |
|
|
|
79,875 |
|
|
|
530.99 |
|
|
|
|
|
|
693 |
|
|
|
500 |
|
|
|
9.0 |
|
|
|
692.51 |
|
|
|
125 |
|
|
|
692.51 |
|
|
|
|
|
|
729 |
|
|
|
10,000 |
|
|
|
8.0 |
|
|
|
729.00 |
|
|
|
5,000 |
|
|
|
729.00 |
|
|
|
|
|
|
816 |
|
|
|
4,500 |
|
|
|
9.0 |
|
|
|
816.05 |
|
|
|
1,125 |
|
|
|
816.05 |
|
|
|
|
|
|
954 |
|
|
|
4,000 |
|
|
|
10.0 |
|
|
|
953.50 |
|
|
|
|
|
|
|
|
|
All options were granted at an exercise price equal to or
greater than the fair market value of the Companys common
stock at the date of grant. The weighted average fair value for
options granted during 2004, 2003 and 2002 was $274.93, $229.81,
and $197.89, respectively. The fair value of options at date of
grant was estimated using the Black-Scholes method utilizing the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
Expected life (years)
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
|
|
|
Interest rate
|
|
|
3.85 |
% |
|
|
4.38 |
% |
|
|
3.69 |
% |
|
|
|
|
Volatility
|
|
|
20.24 |
% |
|
|
20.43 |
% |
|
|
21.74 |
% |
|
|
|
|
Dividend yield
|
|
|
0.73 |
% |
|
|
0.71 |
% |
|
|
0.77 |
% |
Refer to Note A for additional disclosures surrounding stock
option accounting.
The Company also maintains a stock option plan at its Kaplan
subsidiary that provides for the issuance of Kaplan stock
options to certain members of Kaplans management. The
Kaplan stock option plan was adopted in 1997 and initially
reserved 15 percent, or 150,000 shares, of Kaplans
common stock for options to be granted under the plan. Under the
provisions of this plan, options are issued with an exercise
price equal to the estimated fair value of Kaplans common
stock and options vest ratably over the number of years
specified (generally 4 to 5 years) at the time of the
grant. Upon exercise, an option holder receives cash equal to the
2004 FORM 10-K
49
difference between the exercise price and the then fair value.
The fair value of Kaplans common stock is determined by
the Companys compensation committee of the Board of
Directors. In January 2005, the committee set the fair value
price at $2,080 per share.
In September 2003, the committee set the fair value price of
Kaplan common stock at $1,625 per share, and announced an offer
totaling $138 million for approximately 55% of the stock
options outstanding at Kaplan. The Companys offer included
a 10% premium over the then current valuation price of Kaplan
common stock of $1,625 per share. As a result of this offer,
100% of the eligible stock options were tendered. The Company
paid out $118.7 million in the fourth quarter of 2003, and
$10.3 million in 2004, with the remainder of the payouts,
related to 6,131 tendered stock options, to be made at the time
of their scheduled vesting from 2005 to 2008 if the option
holder is still employed at Kaplan. Additionally, stock
compensation expense will be recorded on these remaining
exercised stock options over the remaining vesting periods of
2005 to 2008. A small number of key Kaplan executives continue
to hold the remaining 68,000 of outstanding Kaplan stock
options, with roughly half of these options expiring in 2007 and
half expiring in 2011. In January 2005, 15,353 Kaplan stock
options were exercised, and 10,582 Kaplan stock options were
awarded at an option price of $2,080.
For 2004, 2003, and 2002, the Company recorded expense of
$32.5 million, $119.1 million, and $34.5 million,
respectively, related to this plan. In 2004, 2003, and 2002
payouts from option exercises totaled $10.3 million,
$119.6 million and $1.5 million, respectively. At
December 31, 2004, the Companys stock-based
compensation accrual balance totaled $96.2 million.
Changes in Kaplan stock options outstanding for the years ended
January 2, 2005, December 28, 2003, and
December 29, 2002, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
|
|
|
|
Number |
|
Average |
|
Number |
|
Average |
|
Number |
|
Average |
|
|
of |
|
Option |
|
of |
|
Option |
|
of |
|
Option |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
|
|
|
|
Beginning of Year
|
|
|
68,000 |
|
|
|
$596.17 |
|
|
|
147,463 |
|
|
$ |
311.24 |
|
|
|
142,578 |
|
|
|
$296.69 |
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
16,037 |
|
|
|
1,546.23 |
|
|
|
6,475 |
|
|
|
652.00 |
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(94,652 |
) |
|
|
303.66 |
|
|
|
(540 |
) |
|
|
375.00 |
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(848 |
) |
|
|
382.12 |
|
|
|
(1,050 |
) |
|
|
403.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
|
68,000 |
|
|
|
$596.17 |
|
|
|
68,000 |
|
|
$ |
596.17 |
|
|
|
147,463 |
|
|
|
$311.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of the shares covered by options outstanding at the end of 2004,
47,836 are now exercisable, 7,034 will become exercisable in
2005, 6,935 will become exercisable in 2006, 3,397 will become
exercisable in 2007, and 2,798 will become exercisable in 2008.
Information related to stock options outstanding at
January 2, 2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
Number |
|
Remaining |
|
Number |
Range of |
|
Outstanding |
|
Contractual |
|
Exercisable |
Exercise Prices |
|
at 1/2/05 |
|
Life (yrs.) |
|
at 1/2/05 |
|
$ |
190 |
|
|
|
31,341 |
|
|
|
3.0 |
|
|
|
31,341 |
|
|
|
|
|
|
375 |
|
|
|
500 |
|
|
|
4.6 |
|
|
|
400 |
|
|
|
|
|
|
526 |
|
|
|
19,172 |
|
|
|
6.0 |
|
|
|
12,098 |
|
|
|
|
|
|
652 |
|
|
|
3,000 |
|
|
|
6.0 |
|
|
|
1,200 |
|
|
|
|
|
|
861 |
|
|
|
487 |
|
|
|
6.0 |
|
|
|
97 |
|
|
|
|
|
|
1,625 |
|
|
|
13,500 |
|
|
|
7.0 |
|
|
|
2,700 |
|
Average Number of Shares Outstanding. Basic earnings per
share are based on the weighted average number of shares of
common stock outstanding during each year. Diluted earnings per
common share are based upon the weighted average number of
shares of common stock outstanding each year, adjusted for the
dilutive effect of shares issuable under outstanding stock
options. Basic and diluted weighted average share
information for 2004, 2003 and 2002 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
Dilutive |
|
Diluted |
|
|
Weighted |
|
Effect of |
|
Weighted |
|
|
Average |
|
Stock |
|
Average |
|
|
Shares |
|
Options |
|
Shares |
|
|
|
|
|
2004
|
|
|
9,563,314 |
|
|
|
28,311 |
|
|
|
9,591,625 |
|
|
|
|
|
2003
|
|
|
9,530,209 |
|
|
|
24,454 |
|
|
|
9,554,663 |
|
|
|
|
|
2002
|
|
|
9,503,983 |
|
|
|
18,671 |
|
|
|
9,522,654 |
|
The 2004, 2003 and 2002 diluted earnings per share amounts
exclude the effects of 4,000, 16,750, and 11,500 stock options
outstanding, respectively, as their inclusion would be
antidilutive.
|
|
H. |
PENSIONS AND OTHER POSTRETIREMENT PLANS |
The Company maintains various pension and incentive savings
plans and contributes to several multi-employer plans on behalf
of certain union-represented employee groups. Substantially all
of the Companys employees are covered by these plans.
The Company also provides health care and life insurance
benefits to certain retired employees. These employees become
eligible for benefits after meeting age and service requirements.
The Company uses a measurement date of December 31 for its
pension and other postretirement benefit plans.
In 2004, 2003, and 2002, the Company offered several early
retirement programs to certain groups of employees at The
Washington Post newspaper, Newsweek and the corporate office,
the effects of which are included below. Effective June 1,
2003, the retirement pension program for certain employees at
The Washington Post newspaper and the corporate office was
amended and provides for increased annuity payments for vested
employees retiring after this date. This plan amendment resulted
in a reduction in the pension credit of approximately
$5.1 million and $2.6 million for the years ended
January 2, 2005 and December 28, 2003, respectively.
The following table sets forth obligation, asset and funding
information for the Companys defined benefit pension and
postretirement
50
THE WASHINGTON POST COMPANY
plans at January 2, 2005 and December 28, 2003 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Postretirement Plans |
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$ |
625,774 |
|
|
$ |
498,952 |
|
|
$ |
120,444 |
|
|
$ |
112,174 |
|
|
|
|
|
Service cost
|
|
|
22,896 |
|
|
|
19,965 |
|
|
|
5,285 |
|
|
|
5,164 |
|
|
|
|
|
Interest cost
|
|
|
37,153 |
|
|
|
33,696 |
|
|
|
7,355 |
|
|
|
7,395 |
|
|
|
|
|
Amendments
|
|
|
218 |
|
|
|
60,697 |
|
|
|
|
|
|
|
(5,479 |
) |
|
|
|
|
Actuarial loss
|
|
|
46,655 |
|
|
|
37,339 |
|
|
|
5,764 |
|
|
|
6,733 |
|
|
|
|
|
Benefits paid
|
|
|
(43,555 |
) |
|
|
(24,875 |
) |
|
|
(6,308 |
) |
|
|
(5,543 |
) |
|
|
|
|
Benefit obligation at end of year
|
|
$ |
689,141 |
|
|
$ |
625,774 |
|
|
$ |
132,540 |
|
|
$ |
120,444 |
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets at beginning of year
|
|
$ |
1,564,966 |
|
|
$ |
1,362,084 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Actual return on plan assets
|
|
|
66,802 |
|
|
|
227,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
|
|
|
|
|
|
|
|
|
6,308 |
|
|
|
5,543 |
|
|
|
|
|
Benefits paid
|
|
|
(43,555 |
) |
|
|
(24,875 |
) |
|
|
(6,308 |
) |
|
|
(5,543 |
) |
|
|
|
|
Fair value of assets at end of year
|
|
$ |
1,588,213 |
|
|
$ |
1,564,966 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Funded status
|
|
$ |
899,072 |
|
|
$ |
939,192 |
|
|
$ |
(132,540 |
) |
|
$ |
(120,444 |
) |
|
|
|
|
Unrecognized transition asset
|
|
|
(355 |
) |
|
|
(1,442 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized prior service cost
|
|
|
38,389 |
|
|
|
46,941 |
|
|
|
(8,001 |
) |
|
|
(8,589 |
) |
|
|
|
|
Unrecognized actuarial gain
|
|
|
(380,359 |
) |
|
|
(469,890 |
) |
|
|
(4,949 |
) |
|
|
(11,707 |
) |
|
|
|
|
Net prepaid (accrued) cost
|
|
$ |
556,747 |
|
|
$ |
514,801 |
|
|
$ |
(145,490 |
) |
|
$ |
(140,740 |
) |
|
|
|
The accumulated benefit obligation for the Companys
defined benefit pension plans at January 2, 2005 and
December 28, 2003 was $599.2 million and
$548.4 million, respectively.
Key assumptions utilized for determining the benefit obligation
at January 2, 2005 and December 28, 2003 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
Pension Plans |
|
Plans |
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2004 | |
|
2003 | |
|
|
|
|
|
Discount rate
|
|
|
5.75% |
|
|
|
6.25% |
|
|
|
5.75% |
|
|
|
6.25% |
|
|
|
|
|
Rate of compensation increase
|
|
|
4.0% |
|
|
|
4.0% |
|
|
|
|
|
|
|
|
|
The assumed health care cost trend rate used in measuring the
postretirement benefit obligation at January 2, 2005 was
9.5% for both pre-age 65 and post-age 65 benefits, decreasing to
5% in the year 2015 and thereafter.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A change of
1 percentage point in the assumed health care cost trend
rates would have the following effects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
1% |
|
1% |
|
|
Increase |
|
Decrease |
|
|
|
|
|
Benefit obligation at end of year
|
|
$ |
20,106 |
|
|
$ |
(18,798 |
) |
|
|
|
|
Service cost plus interest cost
|
|
$ |
2,018 |
|
|
$ |
(1,957 |
) |
The Company made no contributions to its defined benefit pension
plans in 2004 and 2003, and the Company does not expect to make
any contributions in 2005 or in the foreseeable future. The
Company made contributions to its postretirement benefit plans
of $6.3 million and $5.5 million for the years ended
January 2, 2005 and December 28, 2003, respectively,
as the plans are unfunded and the Company covers benefit
payments. The Company expects to make contributions for its
postretirement plans by funding benefit payments consistent with
the assumed heath care cost trend rates discussed above.
At January 2, 2005, future estimated benefit payments are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement |
|
|
Pension Plans |
|
Plans |
|
|
|
|
|
2005
|
|
$ |
26.2 |
|
|
$ |
6.6 |
|
|
|
|
|
2006
|
|
$ |
27.2 |
|
|
$ |
6.9 |
|
|
|
|
|
2007
|
|
$ |
28.5 |
|
|
$ |
7.4 |
|
|
|
|
|
2008
|
|
$ |
30.0 |
|
|
$ |
8.0 |
|
|
|
|
|
2009
|
|
$ |
31.8 |
|
|
$ |
8.6 |
|
|
|
|
|
2010-2014
|
|
$ |
196.9 |
|
|
$ |
52.7 |
|
The Companys defined benefit pension obligations are
funded by a relatively small but diversified mix of stocks and
high-quality fixed-income securities that are held in trust.
Essentially all of the assets are managed by two investment
companies. None of the assets are managed internally by the
Company or are invested in securities of the Company. The goal
of the investment managers is to produce moderate long-term
growth in the value of those assets while protecting them
against decreases in value. The investment managers cannot
invest more than 20% of the assets at the time of purchase in
the stock of Berkshire Hathaway or more than 10% of the assets
in the securities of any other single issuer, except for
obligations of the U.S. Government, without receiving prior
approval by the Plan administrator. Over the past five years,
the managers together have invested between 60% and 90% of the
assets in equities. At the end of 2004, 86% of the assets were
invested in equities; 26% of the assets were invested in
Berkshire Hathaway common stock. The Companys retirement
plan trust held shares of Berkshire Class A and
Class B common stock with a total market value of
$415.4 million and $398.2 million at January 2,
2005 and December 28, 2003, respectively.
The total (income) cost arising from the Companys
defined benefit pension and postretirement plans for the years
ended January 2, 2005, December 28, 2003, and
December 29, 2002, consists of the following components (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Postretirement Plans |
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
Service cost
|
|
$ |
22,896 |
|
|
$ |
19,965 |
|
|
$ |
17,489 |
|
|
$ |
5,285 |
|
|
$ |
5,164 |
|
|
$ |
5,418 |
|
|
|
|
|
Interest cost
|
|
|
37,153 |
|
|
|
33,696 |
|
|
|
30,820 |
|
|
|
7,355 |
|
|
|
7,395 |
|
|
|
7,997 |
|
|
|
|
|
Expected return on assets
|
|
|
(97,702 |
) |
|
|
(96,116 |
) |
|
|
(92,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of transition asset
|
|
|
(1,086 |
) |
|
|
(2,189 |
) |
|
|
(5,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
4,530 |
|
|
|
4,172 |
|
|
|
2,185 |
|
|
|
(588 |
) |
|
|
(360 |
) |
|
|
(421 |
) |
|
|
|
|
Recognized actuarial gain
|
|
|
(7,745 |
) |
|
|
(14,665 |
) |
|
|
(17,528 |
) |
|
|
(995 |
) |
|
|
(1,675 |
) |
|
|
(2,435 |
) |
|
|
|
|
Net periodic (benefit) cost for the year
|
|
|
(41,954 |
) |
|
|
(55,137 |
) |
|
|
(64,447 |
) |
|
|
11,057 |
|
|
|
10,524 |
|
|
|
10,559 |
|
|
|
|
|
Early retirement programs expense
|
|
|
132 |
|
|
|
34,135 |
|
|
|
19,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailment gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(634 |
) |
|
|
|
|
|
|
|
|
Total (benefit) cost for the year
|
|
$ |
(41,822 |
) |
|
$ |
(21,002 |
) |
|
$ |
(45,446 |
) |
|
$ |
11,057 |
|
|
$ |
9,890 |
|
|
$ |
10,559 |
|
|
|
|
The costs for the Companys defined benefit pension and
postretirement plans are actuarially determined. Below are the
key assump-
2004 FORM 10-K
51
tions utilized to determine periodic cost for the years ended
January 2, 2005, December 28, 2003, and
December 29, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans |
|
Postretirement Plans |
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
Discount rate
|
|
|
6.25% |
|
|
|
6.75% |
|
|
|
7.0% |
|
|
|
6.25% |
|
|
|
6.75% |
|
|
|
7.0% |
|
|
|
|
|
Expected return on plan assets
|
|
|
7.5% |
|
|
|
7.5% |
|
|
|
7.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
4.0% |
|
|
|
4.0% |
|
|
|
4.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
In determining the expected rate of return on plan assets, the
Company considers the relative weighting of plan assets, the
historical performance of total plan assets and individual asset
classes and economic and other indicators of future performance.
In addition, the Company may consult with and consider the input
of financial and other professionals in developing appropriate
return benchmarks.
In December of 2003, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (the Act) was
enacted. The Act introduced a prescription drug benefit under
Medicare, as well as a federal subsidy to sponsors of retiree
health benefit plans that provide a benefit that meets certain
criteria. The Companys other postretirement plans covering
retirees currently provide certain prescription benefits to
eligible participants. In accordance with FASB Staff Position
No. 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, the Company has concluded that
the Act is not significant to the Companys other
postretirement plans and therefore, the effects of the Act were
incorporated into the latest valuation of December 31,
2004. Overall, the Companys Postretirement benefit
obligation was reduced by about $4.0 million at
January 2, 2005 as a result of the Act; the Companys
postretirement expense is expected to be reduced by about
$0.5 million in fiscal year 2005 as a result of the Act.
Contributions to multi-employer pension plans, which are
generally based on hours worked, amounted to $2.0 million
in 2004, $2.0 million in 2003, and $2.0 million in
2002.
The Company recorded expense associated with retirement benefits
provided under incentive savings plans (primarily 401(k) plans)
of approximately $17.6 million in 2004, $15.5 million
in 2003, and $15.4 million in 2002.
I. LEASE AND OTHER COMMITMENTS
The Company leases real property under operating agreements.
Many of the leases contain renewal options and escalation
clauses that require payments of additional rent to the extent
of increases in the related operating costs.
At January 2, 2005, future minimum rental payments under
noncancelable operating leases approximate the following (in
thousands):
|
|
|
|
|
|
|
|
|
2005
|
|
$ |
80,842 |
|
|
|
|
|
2006
|
|
|
75,974 |
|
|
|
|
|
2007
|
|
|
71,181 |
|
|
|
|
|
2008
|
|
|
61,767 |
|
|
|
|
|
2009
|
|
|
52,303 |
|
|
|
|
|
Thereafter
|
|
|
154,541 |
|
|
|
|
|
|
|
|
|
$ |
496,608 |
|
|
|
|
|
|
Minimum payments have not been reduced by minimum sublease
rentals of $5.5 million due in the future under
noncancelable subleases.
Rent expense under operating leases included in operating costs
was approximately $97.6 million, $76.8 million, and
$60.7 million in 2004, 2003, and 2002, respectively.
Sublease income was approximately $0.6 million,
$0.6 million, and $0.6 million in 2004, 2003, and
2002, respectively.
The Companys broadcast subsidiaries are parties to certain
agreements that commit them to purchase programming to be
produced in future years. At January 2, 2005, such
commitments amounted to approximately $93.0 million. If
such programs are not produced, the Companys commitment
would expire without obligation.
J. ACQUISITIONS, EXCHANGES AND DISPOSITIONS
The Company completed business acquisitions and exchanges
totaling approximately $63.9 million in 2004,
$169.5 million in 2003 and $90.5 million in 2002
(including estimated fair value of cable systems surrendered,
assumed debt and related acquisition costs). All of these
acquisitions were accounted for using the purchase method, and
accordingly, the assets and liabilities of the companies
acquired have been recorded at their estimated fair values at
the date of acquisition. The purchase price allocations for
these acquisitions mostly comprised goodwill and other
intangibles and property, plant and equipment.
On January 14, 2005, the Company completed the acquisition
of Slate, the online magazine, which will be included as part of
the Companys newspaper publishing division.
During 2004, Kaplan acquired eight businesses in its higher
education and professional divisions for a total of
$59.6 million, financed with cash and $8.7 million of
debt. In addition, the cable division completed two small
transactions for $2.8 million. In May 2004, the
Company acquired El Tiempo Latino, a leading Spanish-language
weekly newspaper in the greater Washington area. Most of the
purchase price for the 2004 acquisitions was allocated to
goodwill and other intangibles.
During 2003, Kaplan acquired 13 businesses in its higher
education and professional divisions for a total of
$166.8 million, financed with cash and $36.7 million
of debt. The largest of these was the March 2003 acquisition of
the stock of The Financial Training Company (FTC), for
£55.3 million ($87.4 million). Headquartered in
London, FTC provides test preparation services for accountants
and financial services professionals, with 28 training centers
in the United Kingdom as well as operations in Asia. This
acquisition was financed with cash and $29.7 million of
debt, primarily to employees of the business. In November 2003,
Kaplan acquired Dublin Business School, Irelands largest
private undergraduate institution. Most of the purchase price
for the 2003 Kaplan acquisitions was allocated to goodwill and
other intangibles and property, plant and equipment.
In addition, the cable division acquired three additional
systems in 2003 for $2.8 million. Most of the purchase
price for these
52
THE WASHINGTON POST COMPANY
acquisitions was allocated to franchise agreements, an
indefinite-lived intangible asset.
On January 1, 2003, the Company sold its 50 percent
interest in the International Herald Tribune for
$65 million and the Company recorded an after-tax
non-operating gain of $32.3 million ($3.38 per share)
in the first quarter of 2003.
During 2002, Kaplan acquired several businesses in its higher
education and test preparation divisions for approximately
$42.2 million. In November 2002, the Company completed a
cable system exchange transaction with Time Warner Cable which
consisted of the exchange by the Company of its cable system in
Akron, Ohio serving about 15,500 subscribers, and
$5.2 million to Time Warner Cable, for cable systems
serving about 20,300 subscribers in Kansas. The Kansas systems
acquired in the exchange transaction were recorded at their
estimated fair value, as determined based on an appraisal
completed by an independent third- party firm. The non-cash,
non-operating gain resulting from the exchange transaction
increased net income by $16.7 million, or $1.75 per
share.
The results of operations for each of the businesses acquired
are included in the Consolidated Statements of Income from their
respective dates of acquisition. Pro forma results of operations
for 2004, 2003 and 2002, assuming the acquisitions and exchanges
occurred at the beginning of 2002, are not materially different
from reported results of operations.
K. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company adopted Statement of Financial Accounting Standards
No. 142 (SFAS 142), Goodwill and Other
Intangible Assets effective on the first day of its 2002
fiscal year. As a result of the adoption of SFAS 142, the
Company ceased most of the periodic charges previously recorded
from the amortization of goodwill and other intangibles.
As required under SFAS 142, the Company completed its
transitional impairment review of indefinite-lived intangible
assets and goodwill. The expected future cash flows for
PostNewsweek Tech Media (part of the magazine publishing
segment), on a discounted basis, did not support the net
carrying value of the related goodwill. Accordingly, an
after-tax goodwill impairment loss of $12.1 million, or
$1.27 per share, was recorded. The loss is included in the
Companys 2002 fiscal year results as a cumulative effect
of change in accounting principle.
The Companys intangible assets with an indefinite life are
principally from franchise agreements at its cable division, as
the Company expects its cable franchise agreements to provide
the Company with substantial benefit for a period that extends
beyond the foreseeable horizon, and the Companys cable
division historically has obtained renewals and extensions of
such agreements for nominal costs and without any material
modifications to the agreements. Amortized intangible assets are
primarily non-compete agreements, with amortization periods up
to five years. Amortization expense was $9.3 million in
2004 and is estimated to be approximately $6 million in
each of the next five years.
The Companys goodwill and other intangible assets as of
January 2, 2005 and December 28, 2003 were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
Gross | |
|
Amortization |
|
Net | |
|
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
1,321,542 |
|
|
$ |
298,402 |
|
|
$ |
1,023,140 |
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
656,998 |
|
|
|
163,806 |
|
|
|
493,192 |
|
|
|
|
|
|
Amortized intangible assets
|
|
|
20,021 |
|
|
|
12,142 |
|
|
|
7,879 |
|
|
|
|
|
|
|
$ |
1,998,561 |
|
|
$ |
474,350 |
|
|
$ |
1,524,211 |
|
|
|
|
|
|
|
|
2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
1,264,096 |
|
|
$ |
298,402 |
|
|
$ |
965,694 |
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
650,462 |
|
|
|
163,806 |
|
|
|
486,656 |
|
|
|
|
|
|
Amortized intangible assets
|
|
|
8,034 |
|
|
|
2,808 |
|
|
|
5,226 |
|
|
|
|
|
|
|
$ |
1,922,592 |
|
|
$ |
465,016 |
|
|
$ |
1,457,576 |
|
|
|
|
Activity related to the Companys goodwill and intangible
assets during 2004 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper |
|
Television |
|
Magazine |
|
Cable |
|
|
|
|
|
|
Publishing |
|
Broadcasting |
|
Publishing |
|
Television |
|
Education |
|
Total |
|
Goodwill, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$ |
71,277 |
|
|
$ |
203,165 |
|
|
$ |
69,556 |
|
|
$ |
85,666 |
|
|
$ |
536,030 |
|
|
$ |
965,694 |
|
|
|
|
|
|
Acquisitions
|
|
|
1,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,143 |
|
|
|
45,636 |
|
|
|
|
|
|
Foreign currency exchange rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,810 |
|
|
|
11,810 |
|
|
|
|
|
|
End of year
|
|
$ |
72,770 |
|
|
$ |
203,165 |
|
|
$ |
69,556 |
|
|
$ |
85,666 |
|
|
$ |
591,983 |
|
|
$ |
1,023,140 |
|
|
|
|
|
|
|
|
Indefinite-Lived Intangible Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
484,556 |
|
|
$ |
2,100 |
|
|
$ |
486,656 |
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,774 |
|
|
|
4,762 |
|
|
|
6,536 |
|
|
|
|
|
|
End of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
486,330 |
|
|
$ |
6,862 |
|
|
$ |
493,192 |
|
|
|
|
|
|
|
|
Amortized Intangible Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
$ |
1,081 |
|
|
$ |
4,115 |
|
|
$ |
5,226 |
|
|
|
|
|
|
Acquisitions
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
2,045 |
|
|
|
9,845 |
|
|
|
11,997 |
|
|
|
|
|
|
Foreign currency exchange rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
(10 |
) |
|
|
|
|
|
Amortization
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
(652 |
) |
|
|
(8,663 |
) |
|
|
(9,334 |
) |
|
|
|
|
|
End of year
|
|
$ |
118 |
|
|
|
|
|
|
|
|
|
|
$ |
2,474 |
|
|
$ |
5,287 |
|
|
$ |
7,879 |
|
|
|
|
Activity related to the Companys goodwill and intangible
assets during 2003 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper |
|
Television |
|
Magazine |
|
Cable |
|
|
|
|
|
|
Publishing |
|
Broadcasting |
|
Publishing |
|
Television |
|
Education |
|
Total |
|
Goodwill, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$ |
72,738 |
|
|
$ |
203,165 |
|
|
$ |
69,556 |
|
|
$ |
85,666 |
|
|
$ |
339,736 |
|
|
$ |
770,861 |
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,075 |
|
|
|
184,075 |
|
|
|
|
|
|
Disposition
|
|
|
(1,461 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,461 |
) |
|
|
|
|
|
Foreign currency exchange rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,219 |
|
|
|
12,219 |
|
|
|
|
|
|
End of year
|
|
$ |
71,277 |
|
|
$ |
203,165 |
|
|
$ |
69,556 |
|
|
$ |
85,666 |
|
|
$ |
536,030 |
|
|
$ |
965,694 |
|
|
|
|
|
|
|
|
Indefinite-Lived Intangible Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
482,419 |
|
|
|
|
|
|
$ |
482,419 |
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,137 |
|
|
$ |
2,100 |
|
|
|
4,237 |
|
|
|
|
|
|
End of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
484,556 |
|
|
$ |
2,100 |
|
|
$ |
486,656 |
|
|
|
|
|
|
|
|
Amortized Intangible Assets, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$ |
45 |
|
|
|
|
|
|
|
|
|
|
$ |
1,232 |
|
|
$ |
876 |
|
|
$ |
2,153 |
|
|
|
|
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,463 |
|
|
|
4,463 |
|
|
|
|
|
|
Amortization
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
(151 |
) |
|
|
(1,270 |
) |
|
|
(1,436 |
) |
|
|
|
|
|
Foreign currency exchange rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
46 |
|
|
|
|
|
|
End of year
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
$ |
1,081 |
|
|
$ |
4,115 |
|
|
$ |
5,226 |
|
|
|
|
2004 FORM 10-K
53
L. OTHER NON-OPERATING INCOME (EXPENSE)
The Company recorded other non-operating income, net, of
$8.1 million in 2004, $55.4 million in 2003 and
$28.9 million in 2002. The 2003 non-operating income, net,
mostly comprises a $49.8 million pre-tax gain from the sale
of the Companys 50 percent interest in the
International Herald Tribune. The 2002 non-operating income,
net, includes a pre-tax gain of $27.8 million on the
exchange of certain cable systems in the fourth quarter of 2002
and a gain on the sale of marketable securities, offset by
write-downs recorded on certain investments.
A summary of non-operating income (expense) for the years
ended January 2, 2005, December 28, 2003, and
December 29, 2002 follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2003 | |
|
2002 | |
|
Foreign currency gains, net
|
|
$ |
5.5 |
|
|
$ |
4.2 |
|
|
$ |
|
|
|
|
|
|
Gain on sale of interest in IHT
|
|
|
|
|
|
|
49.8 |
|
|
|
|
|
|
|
|
|
Impairment write-downs on cost method and other investments
|
|
|
(0.7 |
) |
|
|
(1.3 |
) |
|
|
(21.2 |
) |
|
|
|
|
Gain on sale or exchange of cable system businesses
|
|
|
0.5 |
|
|
|
|
|
|
|
27.8 |
|
|
|
|
|
Gain on sales of marketable securities
|
|
|
|
|
|
|
|
|
|
|
13.2 |
|
|
|
|
|
Other
|
|
|
2.8 |
|
|
|
2.7 |
|
|
|
9.1 |
|
|
|
|
|
|
Total
|
|
$ |
8.1 |
|
|
$ |
55.4 |
|
|
$ |
28.9 |
|
|
|
|
M. CONTINGENCIES
The Company and its subsidiaries are parties to various civil
lawsuits that have arisen in the ordinary course of their
businesses, including actions for libel and invasion of privacy,
and violations of applicable wage and hour laws. Management does
not believe that any litigation pending against the Company will
have a material adverse effect on its business or financial
condition.
The Companys education division derives a portion of its
net revenues from financial aid received by its students under
Title IV Programs administered by the U.S. Department of
Education pursuant to the Federal Higher Education Act of 1965
(HEA), as amended. In order to participate in Title IV Programs,
the Company must comply with complex standards set forth in the
HEA and the regulations promulgated thereunder (the
Regulations). The failure to comply with the requirements of HEA
or the Regulations could result in the restriction or loss of
the ability to participate in Title IV Programs and subject the
Company to financial penalties. For the years ended
January 2, 2005, December 28, 2003 and December 29,
2002, approximately $430.0 million, $250.0 million and
$161.7 million, respectively, of the Companys
education division revenues were derived from financial aid
received by students under Title IV Programs. Management
believes that the Companys education division schools that
participate in Title IV Programs are in material compliance with
standards set forth in the HEA and the Regulations.
N. BUSINESS SEGMENTS
The Company operates principally in four areas of the media
business: newspaper publishing, television broadcasting,
magazine publishing and cable television. Through its subsidiary
Kaplan, Inc., the Company also provides educational services for
individuals, schools and businesses.
Newspaper publishing includes the publication of newspapers in
the Washington, D.C. area and Everett, Washington; newsprint
warehousing and recycling facilities; and the Companys
electronic media publishing business (primarily
washingtonpost.com).
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
Frommers Budget Travel, and the publication of business
periodicals for the computer services industry and the
Washington-area technology community.
Revenues from both newspaper and magazine publishing operations
are derived from advertising and, to a lesser extent, from
circulation.
Television broadcasting operations are conducted through six VHF
television stations serving the Detroit, Houston, Miami, San
Antonio, Orlando and Jacksonville television markets. All
stations are network-affiliated (except for WJXT in
Jacksonville) with revenues derived primarily from sales of
advertising time.
Cable television operations consist of cable systems offering
basic cable, digital cable, pay television, cable modem and
other services to subscribers in midwestern, western, and
southern states. The principal source of revenues is monthly
subscription fees charged for services.
Education products and services are provided through the
Companys wholly-owned subsidiary, Kaplan, Inc.
Kaplans businesses include supplemental education
services, which is made up of Kaplan Test Prep 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;
and Score!, offering multi-media learning and private tutoring
to children and educational resources to parents. Kaplans
businesses also provide higher education services, which include
all of Kaplans post-secondary education businesses,
including the fixed-facility colleges that offer Bachelors
degrees, Associates degrees and diploma programs primarily
in the fields of health care, business and information
technology; and online post-secondary and career programs
(various distance-learning businesses).
Corporate office includes the expenses of the Companys
corporate office.
The Companys foreign revenues in 2004, 2003, and 2002
totaled approximately $209 million, $140 million, and
$81 million, respectively, principally from Kaplans
foreign operations and the publication of the international
editions of Newsweek. The Companys long-lived assets in
foreign countries (excluding goodwill and other intangibles),
principally in the United Kingdom, totaled approximately
$29 million at January 2, 2005 and $19 million at
December 28, 2003.
Income from operations is the excess of operating revenues over
operating expenses. In computing income from operations by
segment, the effects of equity in earnings of affiliates,
interest income, interest expense, other non-operating income
and expense items, and income taxes are not included.
Identifiable assets by segment are those assets used in the
Companys operations in each business segment. Investments
in marketable equity securities and investments in affiliates
are discussed in Note C.
54
THE WASHINGTON POST COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper |
|
Television |
|
Magazine |
|
Cable |
|
|
|
Corporate |
|
|
(in thousands) |
|
Publishing |
|
Broadcasting |
|
Publishing |
|
Television |
|
Education |
|
Office |
|
Consolidated |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
938,066 |
|
|
$ |
361,716 |
|
|
$ |
366,119 |
|
|
$ |
499,312 |
|
|
$ |
1,134,891 |
|
|
$ |
|
|
|
$ |
3,300,104 |
|
|
|
|
|
|
Income (loss) from operations
|
|
$ |
143,086 |
|
|
$ |
174,176 |
|
|
$ |
52,921 |
|
|
$ |
104,171 |
|
|
$ |
121,455 |
|
|
$ |
(32,803 |
) |
|
$ |
563,006 |
|
|
|
|
|
|
Equity in losses of affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,291 |
) |
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,410 |
) |
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,127 |
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
542,432 |
|
|
|
|
|
Identifiable assets
|
|
$ |
688,812 |
|
|
$ |
410,294 |
|
|
$ |
582,489 |
|
|
$ |
1,113,554 |
|
|
$ |
1,035,772 |
|
|
$ |
14,170 |
|
|
$ |
3,845,091 |
|
|
|
|
|
|
Investments in marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
409,736 |
|
|
|
|
|
|
Investments in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,814 |
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,316,641 |
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$ |
36,862 |
|
|
$ |
11,093 |
|
|
$ |
3,255 |
|
|
$ |
94,974 |
|
|
$ |
29,154 |
|
|
$ |
|
|
|
$ |
175,338 |
|
|
|
|
|
|
Amortization expense
|
|
$ |
19 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
652 |
|
|
$ |
8,663 |
|
|
$ |
|
|
|
$ |
9,334 |
|
|
|
|
|
|
Pension credit (expense)
|
|
$ |
3,598 |
|
|
$ |
3,172 |
|
|
$ |
37,613 |
|
|
$ |
(1,030 |
) |
|
$ |
(1,531 |
) |
|
$ |
|
|
|
$ |
41,822 |
|
|
|
|
|
|
Kaplan stock-based incentive compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,546 |
|
|
|
|
|
|
$ |
32,546 |
|
|
|
|
|
|
Capital expenditures
|
|
$ |
27,959 |
|
|
$ |
6,967 |
|
|
$ |
1,499 |
|
|
$ |
78,873 |
|
|
$ |
85,221 |
|
|
$ |
4,113 |
|
|
$ |
204,632 |
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
872,754 |
|
|
$ |
315,126 |
|
|
$ |
353,555 |
|
|
$ |
459,399 |
|
|
$ |
838,077 |
|
|
$ |
|
|
|
$ |
2,838,911 |
|
|
|
|
|
|
Income (loss) from
operations(1)
|
|
$ |
134,197 |
|
|
$ |
139,744 |
|
|
$ |
43,504 |
|
|
$ |
88,392 |
|
|
$ |
(11,709 |
) |
|
$ |
(30,308 |
) |
|
$ |
363,820 |
|
|
|
|
|
|
Equity in losses of affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,766 |
) |
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,851 |
) |
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,385 |
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
382,588 |
|
|
|
|
|
Identifiable assets
|
|
$ |
690,226 |
|
|
$ |
412,799 |
|
|
$ |
534,671 |
|
|
$ |
1,131,580 |
|
|
$ |
872,133 |
|
|
$ |
11,379 |
|
|
$ |
3,652,788 |
|
|
|
|
|
|
Investments in marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247,958 |
|
|
|
|
|
|
Investments in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,312 |
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,962,058 |
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$ |
41,914 |
|
|
$ |
11,414 |
|
|
$ |
3,727 |
|
|
$ |
92,804 |
|
|
$ |
23,989 |
|
|
$ |
|
|
|
$ |
173,848 |
|
|
|
|
|
|
Amortization expense
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
151 |
|
|
$ |
1,270 |
|
|
$ |
|
|
|
$ |
1,436 |
|
|
|
|
|
|
Pension credit (expense)
|
|
$ |
(19,580 |
) |
|
$ |
4,165 |
|
|
$ |
38,493 |
|
|
$ |
(853 |
) |
|
$ |
(1,223 |
) |
|
$ |
|
|
|
$ |
21,002 |
|
|
|
|
|
|
Kaplan stock-based incentive compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
119,126 |
|
|
|
|
|
|
$ |
119,126 |
|
|
|
|
|
|
Capital expenditures
|
|
$ |
18,642 |
|
|
$ |
5,434 |
|
|
$ |
1,027 |
|
|
$ |
65,948 |
|
|
$ |
34,537 |
|
|
$ |
|
|
|
$ |
125,588 |
|
|
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
841,984 |
|
|
$ |
343,552 |
|
|
$ |
349,050 |
|
|
$ |
428,492 |
|
|
$ |
621,125 |
|
|
$ |
|
|
|
$ |
2,584,203 |
|
|
|
|
|
|
Income (loss) from operations
|
|
$ |
109,006 |
|
|
$ |
168,826 |
|
|
$ |
25,728 |
|
|
$ |
80,937 |
|
|
$ |
20,512 |
|
|
$ |
(27,419 |
) |
|
$ |
377,590 |
|
|
|
|
|
|
Equity in losses of affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,308 |
) |
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,487 |
) |
|
|
|
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,873 |
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
353,668 |
|
|
|
|
|
Identifiable assets
|
|
$ |
697,606 |
|
|
$ |
414,722 |
|
|
$ |
488,345 |
|
|
$ |
1,154,534 |
|
|
$ |
549,390 |
|
|
$ |
19,940 |
|
|
$ |
3,324,537 |
|
|
|
|
|
|
Investments in marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,533 |
|
|
|
|
|
|
Investments in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,703 |
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,611,773 |
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
$ |
42,961 |
|
|
$ |
11,187 |
|
|
$ |
4,124 |
|
|
$ |
88,751 |
|
|
$ |
24,885 |
|
|
$ |
|
|
|
$ |
171,908 |
|
|
|
|
|
|
Amortization expense
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
155 |
|
|
$ |
485 |
|
|
$ |
|
|
|
$ |
655 |
|
|
|
|
|
|
Pension credit (expense)
|
|
$ |
18,902 |
|
|
$ |
4,730 |
|
|
$ |
23,814 |
|
|
$ |
(814 |
) |
|
$ |
(1,186 |
) |
|
$ |
|
|
|
$ |
45,446 |
|
|
|
|
|
|
Kaplan stock-based incentive compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
34,531 |
|
|
|
|
|
|
$ |
34,531 |
|
|
|
|
|
|
Capital expenditures
|
|
$ |
27,280 |
|
|
$ |
8,784 |
|
|
$ |
1,672 |
|
|
$ |
92,499 |
|
|
$ |
22,757 |
|
|
$ |
|
|
|
$ |
152,992 |
|
(1) Newspaper publishing operating income in 2003 includes
gain on sale of land at The Washington Post newspaper of
$41.7 million.
2004 FORM 10-K
55
O. SUMMARY OF QUARTERLY OPERATING RESULTS AND
COMPREHENSIVE INCOME (UNAUDITED)
Quarterly results of operations and comprehensive income for the
years ended January 2, 2005 and December 28, 2003 are
as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
2004 Quarterly Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$ |
299,127 |
|
|
$ |
338,060 |
|
|
$ |
323,021 |
|
|
$ |
386,662 |
|
|
|
|
|
|
|
Circulation and subscriber
|
|
|
180,259 |
|
|
|
185,728 |
|
|
|
185,521 |
|
|
|
190,302 |
|
|
|
|
|
|
|
Education
|
|
|
258,271 |
|
|
|
276,696 |
|
|
|
293,621 |
|
|
|
306,303 |
|
|
|
|
|
|
|
Other
|
|
|
21,312 |
|
|
|
17,907 |
|
|
|
17,869 |
|
|
|
19,445 |
|
|
|
|
|
|
|
758,969 |
|
|
|
818,391 |
|
|
|
820,032 |
|
|
|
902,712 |
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
409,681 |
|
|
|
420,407 |
|
|
|
422,894 |
|
|
|
464,077 |
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
198,132 |
|
|
|
203,334 |
|
|
|
210,488 |
|
|
|
223,413 |
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
43,859 |
|
|
|
44,769 |
|
|
|
45,020 |
|
|
|
41,690 |
|
|
|
|
|
|
|
Amortization of goodwill and other intangibles
|
|
|
2,380 |
|
|
|
3,881 |
|
|
|
1,332 |
|
|
|
1,741 |
|
|
|
|
|
|
|
|
654,052 |
|
|
|
672,391 |
|
|
|
679,734 |
|
|
|
730,921 |
|
|
|
|
|
Income from operations
|
|
|
104,917 |
|
|
|
146,000 |
|
|
|
140,298 |
|
|
|
171,791 |
|
|
|
|
|
|
|
Equity in (losses) earnings of affiliates
|
|
|
(1,716 |
) |
|
|
(353 |
) |
|
|
539 |
|
|
|
(761 |
) |
|
|
|
|
|
|
Interest income
|
|
|
344 |
|
|
|
458 |
|
|
|
351 |
|
|
|
469 |
|
|
|
|
|
|
|
Interest expense
|
|
|
(6,861 |
) |
|
|
(6,830 |
) |
|
|
(6,874 |
) |
|
|
(7,467 |
) |
|
|
|
|
|
|
Other income (expense), net
|
|
|
742 |
|
|
|
(71 |
) |
|
|
858 |
|
|
|
6,598 |
|
|
|
|
|
Income before income taxes
|
|
|
97,426 |
|
|
|
139,204 |
|
|
|
135,172 |
|
|
|
170,630 |
|
|
|
|
|
|
Provision for income taxes
|
|
|
38,000 |
|
|
|
54,300 |
|
|
|
52,700 |
|
|
|
64,700 |
|
|
|
|
|
Net income
|
|
|
59,426 |
|
|
|
84,904 |
|
|
|
82,472 |
|
|
|
105,930 |
|
|
|
|
|
|
Redeemable preferred stock dividends
|
|
|
(502 |
) |
|
|
(245 |
) |
|
|
(245 |
) |
|
|
|
|
|
|
|
|
|
Net income available for common shares
|
|
$ |
58,924 |
|
|
$ |
84,659 |
|
|
$ |
82,227 |
|
|
$ |
105,930 |
|
|
|
|
|
Basic earnings per common share
|
|
$ |
6.17 |
|
|
$ |
8.85 |
|
|
$ |
8.59 |
|
|
$ |
11.07 |
|
|
|
|
|
Diluted earnings per common share:
|
|
$ |
6.15 |
|
|
$ |
8.82 |
|
|
$ |
8.57 |
|
|
$ |
11.03 |
|
|
|
|
|
Basic average shares outstanding
|
|
|
9,550 |
|
|
|
9,563 |
|
|
|
9,568 |
|
|
|
9,571 |
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
9,582 |
|
|
|
9,596 |
|
|
|
9,598 |
|
|
|
9,601 |
|
|
|
|
|
|
2004 Quarterly comprehensive income
|
|
$ |
74,806 |
|
|
$ |
78,719 |
|
|
$ |
90,962 |
|
|
$ |
136,089 |
|
|
|
|
The sum of the four quarters may not necessarily be equal to the
annual amounts reported in the Consolidated Statements of Income
due to rounding.
56
THE WASHINGTON POST COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
(in thousands, except per share amounts) |
|
Quarter |
|
Quarter |
|
Quarter(1 |
|
) Quarter |
|
2003 Quarterly Operating Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$ |
277,121 |
|
|
$ |
316,288 |
|
|
$ |
285,143 |
|
|
$ |
343,772 |
|
|
|
|
|
|
|
Circulation and subscriber
|
|
|
172,036 |
|
|
|
176,348 |
|
|
|
175,595 |
|
|
|
182,269 |
|
|
|
|
|
|
|
Education
|
|
|
177,778 |
|
|
|
195,560 |
|
|
|
224,663 |
|
|
|
240,076 |
|
|
|
|
|
|
|
Other
|
|
|
13,505 |
|
|
|
18,744 |
|
|
|
20,678 |
|
|
|
19,335 |
|
|
|
|
|
|
|
640,440 |
|
|
|
706,940 |
|
|
|
706,079 |
|
|
|
785,452 |
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
348,634 |
|
|
|
368,974 |
|
|
|
378,864 |
|
|
|
411,043 |
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
169,170 |
|
|
|
187,493 |
|
|
|
244,299 |
|
|
|
191,330 |
|
|
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
|
43,395 |
|
|
|
43,212 |
|
|
|
42,420 |
|
|
|
44,821 |
|
|
|
|
|
|
|
Amortization of goodwill and other intangibles
|
|
|
149 |
|
|
|
363 |
|
|
|
398 |
|
|
|
526 |
|
|
|
|
|
|
|
561,348 |
|
|
|
600,042 |
|
|
|
665,981 |
|
|
|
647,720 |
|
|
|
|
|
Income from operations
|
|
|
79,092 |
|
|
|
106,898 |
|
|
|
40,098 |
|
|
|
137,732 |
|
|
|
|
|
|
|
Equity in losses of affiliates
|
|
|
(2,642 |
) |
|
|
(5,524 |
) |
|
|
(1,116 |
) |
|
|
(484 |
) |
|
|
|
|
|
|
Interest income
|
|
|
114 |
|
|
|
458 |
|
|
|
189 |
|
|
|
191 |
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,237 |
) |
|
|
(6,658 |
) |
|
|
(7,037 |
) |
|
|
(6,872 |
) |
|
|
|
|
|
|
Other income (expense), net
|
|
|
48,135 |
|
|
|
2,274 |
|
|
|
1,565 |
|
|
|
3,412 |
|
|
|
|
|
Income before income taxes
|
|
|
117,462 |
|
|
|
97,448 |
|
|
|
33,699 |
|
|
|
133,979 |
|
|
|
|
|
|
Provision for income taxes
|
|
|
44,400 |
|
|
|
36,800 |
|
|
|
13,800 |
|
|
|
46,500 |
|
|
|
|
|
Net income
|
|
|
73,062 |
|
|
|
60,648 |
|
|
|
19,899 |
|
|
|
87,479 |
|
|
|
|
|
|
Redeemable preferred stock dividends
|
|
|
(517 |
) |
|
|
(258 |
) |
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
Net income available for common shares
|
|
$ |
72,545 |
|
|
$ |
60,390 |
|
|
$ |
19,647 |
|
|
$ |
87,479 |
|
|
|
|
|
Basic earnings per common share
|
|
$ |
7.62 |
|
|
$ |
6.34 |
|
|
$ |
2.06 |
|
|
$ |
9.17 |
|
|
|
|
|
Diluted earnings per common share
|
|
$ |
7.59 |
|
|
$ |
6.32 |
|
|
$ |
2.06 |
|
|
$ |
9.15 |
|
|
|
|
|
Basic average shares outstanding
|
|
|
9,526 |
|
|
|
9,527 |
|
|
|
9,532 |
|
|
|
9,536 |
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
9,553 |
|
|
|
9,555 |
|
|
|
9,556 |
|
|
|
9,563 |
|
|
|
|
|
|
2003 Quarterly comprehensive income
|
|
$ |
61,417 |
|
|
$ |
79,992 |
|
|
$ |
24,158 |
|
|
$ |
106,596 |
|
|
|
|
The sum of the four quarters may not necessarily be equal to the
annual amounts reported in the Consolidated Statements of Income
due to rounding.
(1) Results for the third quarter of 2003 include
$74.6 million in pre-tax Kaplan stock compensation expense
at the education division.
Quarterly impact from certain unusual items (after-tax and
diluted EPS amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Early retirement program charges ($1.3 million and
$19.5 million in the second and fourth quarters,
respectively)
|
|
|
|
|
|
$ |
(0.14 |
) |
|
|
|
|
|
$ |
(2.04 |
) |
|
|
|
|
Gain on sale of IHT ($32.3 million)
|
|
$ |
3.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of land ($25.5 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.66 |
|
|
|
|
|
Kaplan stock compensation expense for 10% premium on Kaplan
stock option offer ($6.4 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.67 |
) |
|
|
|
|
Establishment of Kaplan Educational Foundation ($3.9 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.41 |
) |
|
|
|
2004 FORM 10-K
57
(This page intentionally left blank)
58
THE WASHINGTON POST COMPANY
SCHEDULE II
THE WASHINGTON POST COMPANY
SCHEDULE II VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
Column C |
|
Column D |
|
Column E |
|
|
|
Additions |
|
|
|
|
Balance at |
|
Charged to |
|
|
|
Balance at |
|
|
Beginning |
|
Costs and |
|
|
|
End of |
Description |
|
of Period |
|
Expenses |
|
Deductions |
|
Period |
|
Year Ended December 29, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and returns
|
|
$ |
67,969,000 |
|
|
$ |
91,091,000 |
|
|
$ |
98,820,000 |
|
|
$ |
60,240,000 |
|
|
|
|
|
|
Allowance for advertising rate adjustments and discounts
|
|
|
5,279,000 |
|
|
|
4,938,000 |
|
|
|
5,061,000 |
|
|
|
5,156,000 |
|
|
|
|
|
|
$ |
73,248,000 |
|
|
$ |
96,029,000 |
|
|
$ |
103,881,000 |
|
|
$ |
65,396,000 |
|
|
|
|
Year Ended December 28, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and returns
|
|
$ |
60,240,000 |
|
|
$ |
93,565,000 |
|
|
$ |
91,951,000 |
|
|
$ |
61,854,000 |
|
|
|
|
|
|
Allowance for advertising rate adjustments and discounts
|
|
|
5,156,000 |
|
|
|
6,371,000 |
|
|
|
6,857,000 |
|
|
|
4,670,000 |
|
|
|
|
|
|
$ |
65,396,000 |
|
|
$ |
99,936,000 |
|
|
$ |
98,808,000 |
|
|
$ |
66,524,000 |
|
|
|
|
Year Ended January 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts and returns
|
|
$ |
61,854,000 |
|
|
$ |
106,605,000 |
|
|
$ |
102,807,000 |
|
|
$ |
65,652,000 |
|
|
|
|
|
|
Allowance for advertising rate adjustments and discounts
|
|
|
4,670,000 |
|
|
|
7,874,000 |
|
|
|
7,231,000 |
|
|
|
5,313,000 |
|
|
|
|
|
|
$ |
66,524,000 |
|
|
$ |
114,479,000 |
|
|
$ |
110,038,000 |
|
|
$ |
70,965,000 |
|
|
|
|
2004 FORM 10-K
59
TEN-YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
See Notes to Consolidated Financial Statements for the summary
of significant accounting policies and additional information
relative to the years 20022004. Operating results prior to
2002 include amortization of goodwill and certain other
intangible assets that are no longer amortized under SFAS 142.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts) |
|
2004 |
|
2003 |
|
2002 |
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
3,300,104 |
|
|
$ |
2,838,911 |
|
|
$ |
2,584,203 |
|
|
|
|
|
|
Income from operations
|
|
$ |
563,006 |
|
|
$ |
363,820 |
|
|
$ |
377,590 |
|
|
|
|
|
|
Income before cumulative effect of change in accounting principle
|
|
$ |
332,732 |
|
|
$ |
241,088 |
|
|
$ |
216,368 |
|
|
|
|
|
|
Cumulative effect of change in method of accounting for goodwill
and other intangibles
|
|
|
|
|
|
|
|
|
|
|
(12,100 |
) |
|
|
|
|
Net income
|
|
$ |
332,732 |
|
|
$ |
241,088 |
|
|
$ |
204,268 |
|
|
|
|
|
|
|
|
Per Share Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$ |
34.69 |
|
|
$ |
25.19 |
|
|
$ |
22.65 |
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(1.27 |
) |
|
|
|
|
|
Net income available for common shares
|
|
$ |
34.69 |
|
|
$ |
25.19 |
|
|
$ |
21.38 |
|
|
|
|
|
|
Basic average shares outstanding
|
|
|
9,563 |
|
|
|
9,530 |
|
|
|
9,504 |
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$ |
34.59 |
|
|
$ |
25.12 |
|
|
$ |
22.61 |
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
(1.27 |
) |
|
|
|
|
|
Net income available for common shares
|
|
$ |
34.59 |
|
|
$ |
25.12 |
|
|
$ |
21.34 |
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
9,592 |
|
|
|
9,555 |
|
|
|
9,523 |
|
|
|
|
|
|
Cash dividends
|
|
$ |
7.00 |
|
|
$ |
5.80 |
|
|
$ |
5.60 |
|
|
|
|
|
|
Common shareholders equity
|
|
$ |
251.93 |
|
|
$ |
217.46 |
|
|
$ |
193.18 |
|
|
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
754,367 |
|
|
$ |
556,336 |
|
|
$ |
410,834 |
|
|
|
|
|
|
Working capital (deficit)
|
|
|
66,206 |
|
|
|
(184,661 |
) |
|
|
(353,157 |
) |
|
|
|
|
|
Property, plant and equipment
|
|
|
1,089,952 |
|
|
|
1,051,373 |
|
|
|
1,094,400 |
|
|
|
|
|
|
Total assets
|
|
|
4,316,641 |
|
|
|
3,962,058 |
|
|
|
3,611,773 |
|
|
|
|
|
|
Long-term debt
|
|
|
425,889 |
|
|
|
422,471 |
|
|
|
405,547 |
|
|
|
|
|
|
Common shareholders equity
|
|
|
2,412,482 |
|
|
|
2,074,941 |
|
|
|
1,837,293 |
|
Impact from certain unusual items (after-tax and diluted EPS
amounts):
2003
|
|
|
gain of $32.3 million ($3.38 per share) on the sale of the
Companys 50% interest in the International Herald Tribune |
|
gain of $25.5 million ($2.66 per share) on sale of land at
The Washington Post newspaper |
|
charge of $20.8 million ($2.18 per share) for early
retirement programs at The Washington Post newspaper |
|
Kaplan stock compensation expense of $6.4 million ($0.67
per share) for the 10% premium associated with the purchase of
outstanding Kaplan stock options |
|
charge of $3.9 million ($0.41 per share) in connection with
the establishment of the Kaplan Educational Foundation |
2002
|
|
|
gain of $16.7 million ($1.75 per share) on the exchange of
certain cable systems |
|
charge of $11.3 million ($1.18 per share) for early
retirement programs at Newsweek and The Washington Post newspaper |
2001
|
|
|
gain of $196.5 million ($20.69 per share) on the exchange
of certain cable systems |
|
non-cash goodwill and other intangibles impairment charge of
$19.9 million ($2.10 per share) recorded in conjunction with the
Companys BrassRing investment |
|
charges of $18.3 million ($1.93 per share) from the
write-down of a non-operating parcel of land and certain
cost-method investments to their estimated fair value |
60
THE WASHINGTON POST COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 |
|
2000 |
|
1999 |
|
1998 |
|
1997 |
|
1996 |
|
1995 |
|
|
|
|
|
|
|
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$ |
2,411,024 |
|
|
$ |
2,409,633 |
|
|
$ |
2,212,177 |
|
|
$ |
2,107,593 |
|
|
$ |
1,952,986 |
|
|
$ |
1,851,058 |
|
|
$ |
1,716,971 |
|
|
Income from operations
|
|
$ |
219,932 |
|
|
$ |
339,882 |
|
|
$ |
388,453 |
|
|
$ |
378,897 |
|
|
$ |
381,351 |
|
|
$ |
337,169 |
|
|
$ |
271,018 |
|
|
Income before cumulative effect of change in accounting principle
|
|
$ |
229,639 |
|
|
$ |
136,470 |
|
|
$ |
225,785 |
|
|
$ |
417,259 |
|
|
$ |
281,574 |
|
|
$ |
220,817 |
|
|
$ |
190,096 |
|
|
Cumulative effect of change in method of accounting for goodwill
and other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
229,639 |
|
|
$ |
136,470 |
|
|
$ |
225,785 |
|
|
$ |
417,259 |
|
|
$ |
281,574 |
|
|
$ |
220,817 |
|
|
$ |
190,096 |
|
|
|
|
|
|
|
|
Per Share Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$ |
24.10 |
|
|
$ |
14.34 |
|
|
$ |
22.35 |
|
|
$ |
41.27 |
|
|
$ |
26.23 |
|
|
$ |
20.08 |
|
|
$ |
17.16 |
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common shares
|
|
$ |
24.10 |
|
|
$ |
14.34 |
|
|
$ |
22.35 |
|
|
$ |
41.27 |
|
|
$ |
26.23 |
|
|
$ |
20.08 |
|
|
$ |
17.16 |
|
|
|
|
|
|
Basic average shares outstanding
|
|
|
9,486 |
|
|
|
9,445 |
|
|
|
10,061 |
|
|
|
10,087 |
|
|
|
10,700 |
|
|
|
10,964 |
|
|
|
11,075 |
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of change in accounting principle
|
|
$ |
24.06 |
|
|
$ |
14.32 |
|
|
$ |
22.30 |
|
|
$ |
41.10 |
|
|
$ |
26.15 |
|
|
$ |
20.05 |
|
|
$ |
17.15 |
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common shares
|
|
$ |
24.06 |
|
|
$ |
14.32 |
|
|
$ |
22.30 |
|
|
$ |
41.10 |
|
|
$ |
26.15 |
|
|
$ |
20.05 |
|
|
$ |
17.15 |
|
|
|
|
|
|
Diluted average shares outstanding
|
|
|
9,500 |
|
|
|
9,460 |
|
|
|
10,082 |
|
|
|
10,129 |
|
|
|
10,733 |
|
|
|
10,980 |
|
|
|
11,086 |
|
|
Cash dividends
|
|
$ |
5.60 |
|
|
$ |
5.40 |
|
|
$ |
5.20 |
|
|
$ |
5.00 |
|
|
$ |
4.80 |
|
|
$ |
4.60 |
|
|
$ |
4.40 |
|
|
Common shareholders equity
|
|
$ |
177.30 |
|
|
$ |
156.55 |
|
|
$ |
144.90 |
|
|
$ |
157.34 |
|
|
$ |
117.36 |
|
|
$ |
121.24 |
|
|
$ |
107.60 |
|
|
|
|
|
Financial Position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
426,603 |
|
|
$ |
405,067 |
|
|
$ |
476,159 |
|
|
$ |
404,878 |
|
|
$ |
308,492 |
|
|
$ |
382,631 |
|
|
$ |
406,570 |
|
|
Working capital (deficit)
|
|
|
(37,233 |
) |
|
|
(3,730 |
) |
|
|
(346,389 |
) |
|
|
15,799 |
|
|
|
(300,264 |
) |
|
|
100,995 |
|
|
|
98,393 |
|
|
Property, plant and equipment
|
|
|
1,098,211 |
|
|
|
927,061 |
|
|
|
854,906 |
|
|
|
841,062 |
|
|
|
653,750 |
|
|
|
511,363 |
|
|
|
457,359 |
|
|
Total assets
|
|
|
3,588,844 |
|
|
|
3,200,743 |
|
|
|
2,986,944 |
|
|
|
2,729,661 |
|
|
|
2,077,317 |
|
|
|
1,870,411 |
|
|
|
1,732,893 |
|
|
Long-term debt
|
|
|
883,078 |
|
|
|
873,267 |
|
|
|
397,620 |
|
|
|
395,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity
|
|
|
1,683,485 |
|
|
|
1,481,007 |
|
|
|
1,367,790 |
|
|
|
1,588,103 |
|
|
|
1,184,074 |
|
|
|
1,322,803 |
|
|
|
1,184,204 |
|
2000
|
|
|
charge of $16.5 million ($1.74 per share) for an early
retirement program at The Washington Post newspaper |
1999
|
|
|
gains of $18.6 million ($1.81 per share) on the sales of
marketable equity securities |
1998
|
|
|
gain of $168.0 million ($16.59 per share) on the
disposition of the Companys 28% interest in Cowles Media
Company |
|
gain of $13.8 million ($1.36 per share) from the sale of 14
small cable systems |
|
gain of $12.6 million ($1.24 per share) on the disposition
of the Companys investment in Junglee, a facilitator of
internet commerce |
1997
|
|
|
gain of $28.4 million ($2.65 per share) from the sale of
the Companys investments in Bear Island Paper Company LP
and Bear Island Timberlands Company LP |
|
gain of $16.0 million ($1.50 per share) from the sale of
the PASS regional cable sports network |
1995
|
|
|
gain of $8.4 million ($0.75 per share) from the sale of the
Companys investment in American PCS, LP |
|
charge of $5.6 million ($0.51 per share) for the write-off
of the Companys interest in Mammoth Micro Productions |
2004 FORM 10-K
61
(This page intentionally left blank)
62
THE WASHINGTON POST COMPANY
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
3 |
.1 |
|
Restated Certificate of Incorporation of the Company dated
November 13, 2003 (incorporated by reference to
Exhibit 3.1 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2003). |
|
|
3 |
.2 |
|
Certificate of Designation for the Companys Series A
Preferred Stock dated September 22, 2003 (incorporated by
reference to Exhibit 3.2 to Amendment No. 1 to the
Companys Current Report on Form 8-K dated
September 22, 2003). |
|
|
3 |
.3 |
|
By-Laws of the Company as amended and restated through
September 22, 2003 (incorporated by reference to
Exhibit 3.4 to the Companys Current Report on
Form 8-K dated September 22, 2003). |
|
|
4 |
.1 |
|
Form of the Companys 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 (incorporated by reference to
Exhibit 4.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended January 3, 1999). |
|
|
4 |
.2 |
|
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
Companys Annual Report on Form 10-K for the fiscal
year ended January 3, 1999). |
|
|
4 |
.3 |
|
First Supplemental Indenture dated as of September 22,
2003, among WP Company LLC, the Company and Bank One, NA, as
successor to The First National Bank of Chicago, as Trustee, to
the Indenture dated as of February 17, 1999, between The
Washington Post Company and The First National Bank of Chicago,
as Trustee (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K dated
September 22, 2003). |
|
|
4 |
.4 |
|
364-Day Credit Agreement dated as of August 11, 2004, among
the Company, Citibank, N.A., JP Morgan Chase Bank, Wachovia
Bank, N.A., SunTrust Bank, The Bank of New York and Riggs Bank
N.A. (incorporated by reference to Exhibit 4.4 to the
Companys Quarterly Report on Form 10-Q for the
quarter ended September 26, 2004). |
|
|
4 |
.5 |
|
5-Year Credit Agreement dated as of August 14, 2002, among
the Company, Citibank, N.A., Wachovia Bank, N.A., SunTrust Bank,
Bank One, N.A., JPMorgan Chase Bank, The Bank of New York and
Riggs Bank N.A. (incorporated by reference to Exhibit 4.4
to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 29, 2002). |
|
|
4 |
.6 |
|
Consent and Amendment No. 1 dated as of August 13,
2003, to the 5-Year Credit Agreement dated as of August 14,
2002, among the Company, Citibank, N.A. and the other lenders
that are parties to such Credit Agreement (incorporated by
reference to Exhibit 4.3 to the Companys Current
Report on Form 8-K dated September 22, 2003). |
|
|
10 |
.1 |
|
The Washington Post Company Incentive Compensation Plan as
adopted January 20, 2005 (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K dated January 20, 2005).* |
|
|
10 |
.2 |
|
The Washington Post Company Stock Option Plan as amended and
restated effective May 31, 2003 (incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for the quarter ended September 28, 2003).* |
|
|
10 |
.3 |
|
The Washington Post Company Supplemental Executive Retirement
Plan as amended and restated through March 14, 2002
(incorporated by reference to Exhibit 10.4 to the
Companys Annual Report on Form 10-K for the fiscal
year ended December 30, 2001).* |
|
|
10 |
.4 |
|
The Washington Post Company Deferred Compensation Plan as
amended and restated effective February 24, 2005
(incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K dated
February 28, 2005).* |
|
|
11 |
|
|
Calculation of earnings per share of common stock. |
|
|
21 |
|
|
List of subsidiaries of the Company. |
|
|
23 |
|
|
Consent of independent accountants. |
|
|
24 |
|
|
Power of attorney dated February 24, 2005. |
|
|
31 |
.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief
Executive Officer. |
|
|
31 |
.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief
Financial Officer. |
|
|
32 |
.1 |
|
Section 1350 Certification of the Chief Executive Officer. |
|
|
32 |
.2 |
|
Section 1350 Certification of the Chief Financial Officer. |
* A management contract or compensatory plan or arrangement
required to be included as an exhibit hereto pursuant to
Item 15(c) of Form 10-K.
2004 FORM 10-K
63
exv11
EXHIBIT 11
THE WASHINGTON POST COMPANY
and Subsidiaries
CALCULATION OF EARNINGS PER SHARE OF COMMON STOCK
(Amounts in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common |
|
|
1,722 |
|
|
|
1,722 |
|
|
|
1,722 |
|
Class B Common (excluding shares issuable
upon exercise of stock options accounted for below) |
|
|
7,841 |
|
|
|
7,808 |
|
|
|
7,782 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic earnings
per share |
|
|
9,563 |
|
|
|
9,530 |
|
|
|
9,504 |
|
Add Shares assumed issuable upon exercise of
stock options |
|
|
119 |
|
|
|
138 |
|
|
|
152 |
|
Deduct Shares assumed to be purchased for
Treasury with proceeds from exercise of stock
options |
|
|
(90 |
) |
|
|
(113 |
) |
|
|
(133 |
) |
|
|
|
|
|
|
|
|
|
|
Shares used in computation of diluted earnings
per common share |
|
|
9,592 |
|
|
|
9,555 |
|
|
|
9,523 |
|
|
|
|
|
|
|
|
|
|
|
Net income available for common shares |
|
$ |
331,740 |
|
|
$ |
240,061 |
|
|
$ |
203,235 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
34.69 |
|
|
$ |
25.19 |
|
|
$ |
21.38 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
34.59 |
|
|
$ |
25.12 |
|
|
$ |
21.34 |
|
|
|
|
|
|
|
|
|
|
|
exv21
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
% of |
|
|
of |
|
Voting |
|
|
Incorporation |
|
Equity |
|
|
or |
|
Owned |
Name of Subsidiary |
|
Organization |
|
by Parent |
|
Bowater Mersey Paper Company Limited |
|
Nova Scotia |
|
|
49 |
% |
BRLLC Holdings, Inc. |
|
Delaware |
|
|
100 |
% |
Cable One, Inc. |
|
Delaware |
|
|
100 |
% |
Capitol Fiber, Inc. |
|
Maryland |
|
|
80 |
% |
The Daily Herald Company |
|
Washington |
|
|
100 |
% |
El Tiempo Latino LLC |
|
Delaware |
|
|
100 |
% |
Express Publications Company, LCC |
|
Delaware |
|
|
100 |
% |
Greater Washington Publishing, Inc. |
|
Delaware |
|
|
100 |
% |
Kaplan, Inc. |
|
Delaware |
|
|
100 |
% |
Accountancy & Business College Holdings
Limited |
|
Ireland |
|
|
100 |
%(a) |
Accountancy & Business College (Ireland)
Limited |
|
Ireland |
|
|
100 |
% |
Accountancy & Business College (Software)
Limited |
|
Ireland |
|
|
100 |
%(b) |
DBS Training Limited |
|
Ireland |
|
|
100 |
% |
DBS Recruitment Limited |
|
Ireland |
|
|
100 |
% |
LSB College Limited |
|
Ireland |
|
|
100 |
% |
Buccleuch Estates Limited |
|
Ireland |
|
|
100 |
% |
Newhall Printing Co. Limited |
|
Ireland |
|
|
100 |
% |
The Dublin Business College Limited |
|
Ireland |
|
|
100 |
% |
The Dublin Business School Limited |
|
Ireland |
|
|
100 |
% |
American Educational Resources, Inc. |
|
Massachusetts |
|
|
100 |
% |
Coxcourt Limited |
|
Ireland |
|
|
100 |
% |
DP Group, Inc. |
|
Delaware |
|
|
100 |
% |
DF Institute, Inc. |
|
Illinois |
|
|
100 |
% |
Anthony Schools Corporation |
|
California |
|
|
100 |
% |
SUBSIDIARIES OF THE COMPANY
(Continued)
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
% of |
|
|
of |
|
Voting |
|
|
Incorporation |
|
Equity |
|
|
or |
|
Owned |
Name of Subsidiary |
|
Organization |
|
by Parent |
|
Leonards Training Programs, Inc. |
|
Texas |
|
|
100 |
% |
Prosource Educational Services, Inc. |
|
Minnesota |
|
|
100 |
% |
Dearborn Financial Publishing, Inc. |
|
Illinois |
|
|
100 |
% |
Kaplan (Canada) Ltd. |
|
Ontario |
|
|
100 |
% |
Kaplan Educational Services de Mexico,
S. de R.L. de C.V. |
|
Mexico |
|
|
99 |
% |
Kaplan Higher Education Corporation |
|
Delaware |
|
|
100 |
% |
Andon Colleges, Inc. |
|
California |
|
|
100 |
% |
DEST Education Corporation |
|
California |
|
|
100 |
% |
California Academy of Merchandising,
Art & Design, Inc. |
|
Delaware |
|
|
100 |
% |
CHI Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Computer Hardware Service Company,
Inc. |
|
Pennsylvania |
|
|
100 |
% |
Denver Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Educational Ventures (Texas), Inc. |
|
Delaware |
|
|
100 |
% |
Texas Educational Ventures, LLP |
|
Texas |
|
|
1 |
%(c) |
HBC Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Heritage-KHEC, Inc. |
|
Nevada |
|
|
100 |
% |
ICM Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Iowa College Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
KHEC-Florida, Inc. |
|
Florida |
|
|
100 |
% |
KHEC-Maine, Inc. |
|
Maine |
|
|
100 |
% |
Andover College |
|
Maine |
|
|
100 |
% |
MTSX Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Maric Learning Systems |
|
California |
|
|
100 |
% |
New Hamsphire Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
2
SUBSIDIARIES OF THE COMPANY
(Continued)
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
% of |
|
|
of |
|
Voting |
|
|
Incorporation |
|
Equity |
|
|
or |
|
Owned |
Name of Subsidiary |
|
Organization |
|
by Parent |
|
Hesser, Inc. |
|
New Hampshire |
|
|
100 |
% |
OIOPT Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Palo Vista College of Nursing &
Allied Health Sciences, Inc. |
|
California |
|
|
100 |
% |
Quest Ventures, LLC |
|
Delaware |
|
|
100 |
% |
Texas Educational Ventures, LLP |
|
Texas |
|
|
99 |
%(d) |
RETS Acquisition Corp. |
|
Massachusetts |
|
|
100 |
% |
SACMD Acquisition Corp. |
|
Delaware |
|
|
100 |
% |
Sawyer-KHEC, Inc. |
|
Indiana |
|
|
100 |
% |
Sawyer College, Inc. |
|
Indiana |
|
|
100 |
% |
Scottsdale Educational Center for
Allied Health Careers, Incorporated |
|
Arizona |
|
|
100 |
% |
Tesst-Kap, LLC |
|
Delaware |
|
|
100 |
% |
Thompson Education, LLC |
|
Delaware |
|
|
100 |
% |
Kaplan International, Inc. |
|
Delaware |
|
|
100 |
% |
Kaplan IT, Inc. |
|
Georgia |
|
|
100 |
% |
Kaplan Mexico Holdings, LLC |
|
Delaware |
|
|
100 |
% |
Kaplan Educational Services de Mexico,
S. de R.L. de C.V. |
|
Mexico |
|
|
1 |
% |
Kaplan (PR) Inc. |
|
Puerto Rico |
|
|
100 |
% |
3
SUBSIDIARIES OF THE COMPANY
(Continued)
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
% of |
|
|
of |
|
Voting |
|
|
Incorporation |
|
Equity |
|
|
or |
|
Owned |
Name of Subsidiary |
|
Organization |
|
by Parent |
|
Kaplan Test Prep International, Inc. |
|
California |
|
|
100 |
% |
Kaplan U.K. Limited |
|
England & Wales |
|
|
100 |
% |
Kaplan International Colleges U.K.
Limited |
|
England & Wales |
|
|
100 |
% |
Kaplan NT Limited |
|
England & Wales |
|
|
100 |
% |
FTC Holdings Limited |
|
England & Wales |
|
|
100 |
% |
The Financial Training Company
Limited |
|
England & Wales |
|
|
100 |
% |
Accountancy & Financial
Publishing Limited |
|
England & Wales |
|
|
50 |
% |
Accountancy & Management Training
Limited |
|
England & Wales |
|
|
100 |
% |
Accountancy Tuition Centre
(Eastern) Limited |
|
England & Wales |
|
|
100 |
% |
Accountancy Tutors Limited |
|
England & Wales |
|
|
100 |
% |
AT Foulks Lynch Limited |
|
England & Wales |
|
|
100 |
% |
ATC (North West) Limited |
|
England & Wales |
|
|
100 |
% |
Business Training for
Accountants Limited |
|
England & Wales |
|
|
100 |
% |
Financial Training (City Courses)
Ltd. |
|
England & Wales |
|
|
100 |
% |
Financial Training Company
(Mauritius) Limited |
|
Mauritius |
|
|
50 |
% |
The Financial Training (Shanghai)
Co., Ltd. |
|
China (PR) |
|
|
100 |
% |
The Financial Training Company
(Singapore) Pte Limited |
|
Singapore |
|
|
100 |
% |
Portman College Limited |
|
England & Wales |
|
|
100 |
% |
Score! Learning, Inc. |
|
Delaware |
|
|
95.85 |
% |
eScore.com, Inc. |
|
Delaware |
|
|
100 |
% |
4
SUBSIDIARIES OF THE COMPANY
(Continued)
|
|
|
|
|
|
|
|
|
Jurisdiction |
|
% of |
|
|
of |
|
Voting |
|
|
Incorporation |
|
Equity |
|
|
or |
|
Owned |
Name of Subsidiary |
|
Organization |
|
by Parent |
|
Score! Educational Centers, Inc. |
|
California |
|
|
100 |
% |
Los Angeles Times-Washington Post News Service, Inc. |
|
D.C. |
|
|
50 |
% |
Newsprint, Inc. |
|
Virginia |
|
|
100 |
% |
Newsweek, Inc. |
|
New York |
|
|
100 |
% |
Newsweek Budget Travel, Inc. |
|
Delaware |
|
|
100 |
% |
Newsweek Productions, Inc. |
|
Delaware |
|
|
100 |
% |
Newsweek Services, Inc. |
|
Delaware |
|
|
100 |
% |
Newsweek Services (Canada), Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Media, Inc. |
|
Maryland |
|
|
100 |
% |
Post-Newsweek Stations, Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, Florida, Inc. |
|
Florida |
|
|
100 |
% |
Post-Newsweek Stations, Houston GP, Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, Houston, LP |
|
Delaware |
|
|
1 |
%(c) |
Post-Newsweek Stations, Houston Holdings
(Limited), Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, Houston, LP |
|
Delaware |
|
|
99 |
%(d) |
Post-Newsweek Stations, Michigan, Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, Orlando, Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, San Antonio GP, Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, San Antonio, LP |
|
Delaware |
|
|
1 |
%(c) |
Post-Newsweek Stations, San Antonio Holdings
(Limited), Inc. |
|
Delaware |
|
|
100 |
% |
Post-Newsweek Stations, San Antonio, LP |
|
Delaware |
|
|
99 |
%(d) |
Robinson Terminal Warehouse Corporation |
|
Delaware |
|
|
100 |
% |
Washingtonpost.Newsweek Interactive Company, LLC |
|
Delaware |
|
|
100 |
% |
WP Company LLC |
|
Delaware |
|
|
100 |
% |
5
SUBSIDIARIES OF THE COMPANY
(Continued)
|
(a) |
Coxcourt Limited also owns voting stock in Accountancy & Business College Holdings
Limited. The combined stock ownership of Kaplan, Inc. and Coxcourt Limited in Accounting &
Business College Holdings Limited is 100%. |
|
|
(b) |
Kaplan, Inc. also owns voting stock in Accountancy & Business College (Software)
Limited. The combined stock ownership of Accountancy & Business College Holdings Limited
and Kaplan, Inc. in Accountancy & Business College (Software) Limited is 100%. |
|
|
(c) |
General partnership interest. |
|
|
(d) |
Limited partnership interest. |
As permitted by Item 601(b)(21) of Regulation S-K, the foregoing list omits certain
subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary as that term is defined in Rule
1-02(w) of Regulation S-X.
6
exv23
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3
(Registration Nos. 333-72162 and 333-71350) and Form S-8 (Registration No. 2-42170) of The
Washington Post Company, and in the Prospectuses constituting a part thereof, of our report dated
March 1, 2005 relating to the financial statements, managements assessment of the effectiveness of
internal control over financial reporting and the effectiveness of internal control over financial
reporting, which appears in this Annual Report on Form 10-K, and to the reference to us under the
heading Experts in such Prospectuses.
PricewaterhouseCoopers LLP
Washington, D.C.
March 2, 2005
exv24
EXHIBIT 24
Power of Attorney
Reports Under the Securities Exchange Act of 1934
February 24, 2005
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned directors and officers of The
Washington Post Company, a Delaware corporation (hereinafter called the Company), hereby
constitutes and appoints DONALD E. GRAHAM, JOHN B. MORSE, JR. and DIANA M. DANIELS, and each of
them, his or her true and lawful attorneys-in-fact and agents with full power to act without the
others and with full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all reports required to be filed
by the Company pursuant to the Securities Exchange Act of 1934, as amended, and any and all
amendments thereto and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in and
about the premises as fully and to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them,
or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
|
|
|
/s/ Donald E. Graham
|
|
/s/ George J. Gillespie, III |
|
|
|
Donald E. Graham, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
and Director
|
|
George J. Gillespie, III, Director |
|
|
|
/s/ John B. Morse, Jr.
|
|
/s/ Ronald L. Olson |
|
|
|
John B. Morse, Jr., Vice
President-Finance (Principal Financial
and Accounting Officer)
|
|
Ronald L. Olson, Director |
|
|
|
/s/ Warren E. Buffett
|
|
/s/ Alice M. Rivlin |
|
|
|
Warren E. Buffett, Director
|
|
Alice M. Rivlin, Director |
|
|
|
/s/ Barry Diller
|
|
/s/ Richard D. Simmons |
|
|
|
Barry Diller, Director
|
|
Richard D. Simmons, Director |
|
|
|
/s/ John L. Dotson Jr. |
|
/s/ George W. Wilson |
|
|
|
John L. Dotson Jr., Director
|
|
George W. Wilson, Director |
|
|
|
/s/ Melinda French Gates
|
|
|
Melinda French Gates, Director |
|
|
exv31w1
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
I, Donald E. Graham, Chief Executive Officer (principal executive officer) of The Washington
Post Company (the Registrant), certify that:
1. I have reviewed this annual report on Form 10-K of the Registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating
to the Registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based upon such evaluation; and
(d) Disclosed in this report any change in the Registrants internal control over financial
reporting that occurred during the Registrants fourth fiscal quarter that has materially
affected, or is reasonable likely to materially affect, the Registrants internal control over
financial reporting;
5. The Registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrants auditors and the
audit committee of the Registrants board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
Registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the Registrants internal control over financial reporting.
|
|
|
|
|
|
|
|
|
By |
/s/ Donald E. Graham
|
|
Date: March 2, 2005 |
|
Donald E. Graham, |
|
|
|
Chief Executive Officer |
|
|
exv31w2
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
I, John B. Morse, Jr., Vice PresidentFinance (principal financial officer) of The Washington
Post Company (the Registrant), certify that:
1. I have reviewed this annual report on Form 10-K of the Registrant;
2. Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information relating
to the Registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the Registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based upon such evaluation; and
(d) Disclosed in this report any change in the Registrants internal control over financial
reporting that occurred during the Registrants fourth fiscal quarter that has materially
affected, or is reasonable likely to materially affect, the Registrants internal control over
financial reporting;
5. The Registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Registrants auditors and the
audit committee of the Registrants board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
Registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the Registrants internal control over financial reporting.
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By |
/s/ John B. Morse, Jr.
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Date: March 2, 2005 |
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John B. Morse, Jr., |
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Vice PresidentFinance |
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exv32w1
EXHIBIT 32.1
SECTION 1350 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
In connection with the Annual Report of The Washington Post Company (the Company) on Form 10-K
for the period ending January 2, 2005 (the Report), I, Donald E. Graham, Chief Executive Officer
(principal executive officer) of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material aspects,
the financial condition and results of operations of the Company. |
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Date: March 2, 2005 |
/s/ Donald E. Graham
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Donald E. Graham, |
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Chief Executive Officer |
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exv32w2
EXHIBIT 32.2
SECTION 1350 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
In connection with the Annual Report of The Washington Post Company (the Company) on Form 10-K
for the period ending January 2, 2005 (the Report), I, John B. Morse, Jr., Vice PresidentFinance
(principal financial officer) of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material aspects,
the financial condition and results of operations of the Company. |
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Date: March 2, 2005 |
/s/ John B. Morse, Jr.
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John B. Morse, Jr., |
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Vice PresidentFinance |
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