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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly
Period Ended April 4, 1999 Commission File Number 1-6714
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THE WASHINGTON POST COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 53-0182885
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1150 15th Street, N.W. Washington, D.C. 20071
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(Address of principal executive offices) (Zip Code)
(202) 334-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
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Shares outstanding at May 3, 1999:
Class A Common Stock 1,739,250 Shares
Class B Common Stock 8,360,644 Shares
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THE WASHINGTON POST COMPANY
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
(Unaudited) for the Thirteen Weeks
Ended April 4, 1999 and March 29, 1998.........................................3
Condensed Consolidated Statements of Comprehensive
Income (Unaudited) for the Thirteen Weeks
Ended April 4, 1999 and March 29, 1998.........................................4
Condensed Consolidated Balance Sheets at April 4, 1999
(Unaudited) and January 3, 1999................................................5
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Thirteen Weeks Ended
April 4, 1999 and March 29, 1998...............................................6
Notes to Condensed Consolidated Financial Statements
(Unaudited)....................................................................7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..........................................................17
Signatures..........................................................................................18
Exhibit 11
Exhibit 27 (Electronic Filing Only)
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3.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Condensed Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended
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April 4, March 29,
(In thousands, except per share amounts) 1999 1998
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Operating revenues
Advertising $300,002 $292,685
Circulation and subscriber 141,431 130,341
Other 78,964 60,929
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520,397 483,955
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Operating costs and expenses
Operating 286,583 267,587
Selling, general and administrative 116,997 109,930
Depreciation of property, plant and equipment 25,118 20,380
Amortization of goodwill and other intangibles 14,425 10,741
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443,123 408,638
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Income from operations 77,274 75,317
Other income (expense)
Equity in (losses) earnings of affiliates (2,510) 988
Interest income 246 207
Interest expense (6,813) (2,244)
Other, net (Note 1) 6,143 258,106
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Income before income taxes 74,340 332,374
Provision for income taxes 29,150 124,500
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Net income 45,190 207,874
Redeemable preferred stock dividends (475) (478)
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Net income available for common shares $ 44,715 $207,396
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Basic earnings per common share $ 4.43 $ 20.57
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Diluted earnings per common share $ 4.41 $ 20.47
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Dividends declared per common share $ 2.60 $ 2.50
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Basic average number of common shares outstanding 10,098 10,084
Diluted average number of common shares outstanding 10,143 10,131
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The Washington Post Company
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Thirteen Weeks Ended
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April 4, March 29,
(In thousands) 1999 1998
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Net income $ 45,190 $ 207,874
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Other comprehensive income (loss)
Foreign currency translation adjustment (3,109) (296)
Change in unrealized gain on available-for-sale
securities 12,378 388
Less: reclassification adjustment for realized
gains included in net income (2,994) -
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6,275 92
Income tax expense related to other comprehensive
income (3,662) (152)
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2,613 (60)
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Comprehensive Income $ 47,803 $ 207,814
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The Washington Post Company
Condensed Consolidated Balance Sheets
(In thousands) April 4, January 3,
1999 1999
(unaudited)
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Assets
Current assets
Cash and cash equivalents $ 18,006 $ 15,190
Investments in marketable equity securities 65,095 71,676
Accounts receivable, net 226,563 236,514
Federal and state income taxes receivable 13,264 35,395
Inventories 24,488 20,154
Other current assets 21,552 25,949
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368,968 404,878
Property, plant and equipment
Buildings 248,921 248,764
Machinery, equipment and fixtures 984,235 977,710
Leasehold improvements 51,973 50,556
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1,285,129 1,277,030
Less accumulated depreciation (591,413) (566,616)
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693,716 710,414
Land 41,204 41,191
Construction in progress 112,919 89,457
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847,839 841,062
Investments in marketable equity securities 196,557 184,440
Investments in affiliates 66,645 68,530
Goodwill and other intangibles,
less accumulated amortization 885,669 883,232
Prepaid pension cost 277,430 256,134
Deferred charges and other assets 100,852 91,385
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$2,743,960 $2,729,661
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 238,306 $ 245,068
Deferred subscription revenue 82,465 85,649
Dividends declared 13,364 --
Short-term borrowings 37,572 58,362
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371,707 389,079
Other liabilities 264,122 261,896
Deferred income taxes 88,886 83,710
Long-term debt 397,425 395,000
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1,122,140 1,129,685
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Redeemable preferred stock 11,873 11,873
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Preferred stock -- --
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Common shareholders' equity
Common stock 20,000 20,000
Capital in excess of par value 46,977 46,199
Retained earnings 2,615,679 2,597,217
Accumulated other comprehensive income (losses)
Cumulative foreign currency translation
adjustment (4,708) (1,600)
Unrealized gain on available-for-sale
securities 47,702 41,980
Cost of Class B common stock held in treasury (1,115,703) (1,115,693)
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1,609,947 1,588,103
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$2,743,960 $2,729,661
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The Washington Post Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Thirteen Weeks Ended
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April 4, March 29,
(In thousands) 1999 1998
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Cash flows from operating activities:
Net income $ 45,190 $207,874
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 25,118 20,380
Amortization of goodwill and other intangibles 14,425 10,741
Net pension benefit (21,658) (12,011)
Gain on disposition of business -- (258,436)
Gain on disposition of marketable equity
securities (6,689) --
Equity in losses (earnings) of affiliates, net
of distributions 2,509 (326)
Provision for deferred income taxes 4,048 (752)
Change in assets and liabilities:
Decrease in accounts receivable, net 9,951 9,787
Increase in inventories (4,334) (4,356)
Decrease in accounts payable and
accrued liabilities (6,762) (19,672)
Increase in income taxes payable -- 108,427
Decrease in income taxes receivable 22,131 --
(Increase) decrease in other assets and
other liabilities, net (11,324) 4,395
Other (491) 4,931
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Net cash provided by operating activities 72,114 70,982
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Cash flows from investing activities:
Proceeds from sale of business -- 330,473
Proceeds from sales of marketable equity securities 10,527 --
Purchases of property, plant and equipment (29,366) (26,104)
Investments in certain businesses (16,284) (43,580)
Other (3,360) 28
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Net cash (used in) provided by investing
activities (38,483) 260,817
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Cash flows from financing activities:
Principal payments on debt (415,790) (296,394)
Issuance of debt 397,425 --
Dividends paid (13,364) (12,855)
Proceeds from exercise of stock options 1,684 1,158
Common shares repurchased (770) (5,593)
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Net cash used in financing activities (30,815) (313,684)
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Net increase in cash and cash equivalents 2,816 18,115
Beginning cash and cash equivalents 15,190 21,117
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Ending cash and cash equivalents $ 18,006 $ 39,232
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The Washington Post Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
Results of operations, when examined on a quarterly basis, reflect the
seasonality of advertising that affects the newspaper, magazine and broadcasting
operations. Advertising revenues in the second and fourth quarters are typically
higher than first and third quarter revenues. All adjustments reflected in the
interim financial statements are of a normal recurring nature.
Note 1: Acquisitions and Dispositions.
Acquisitions. In the first quarter of 1999, the company acquired businesses for
approximately $16.3 million, including an accredited distance education
institute that offers degrees in paralegal studies and legal nurse consulting.
In the first quarter of 1998, the company acquired various businesses for
approximately $43.6 million. These acquisitions included, among others, a cable
system in Grenada, Mississippi serving approximately 7,400 subscribers, an
educational services company that provides English language study programs, and
the publishing rights to the "New Homes Guide", a free-circulation publication
serving the Washington, DC metropolitan area.
Dispositions. In March 1998, Cowles Media Company ("Cowles") and McClatchy
Newspapers, Inc. ("McClatchy") completed a series of transactions resulting in
the merger of Cowles and McClatchy. In the merger, each share of Cowles common
stock was converted (based upon elections of Cowles stockholders) into shares of
McClatchy stock or a combination of cash and McClatchy stock. As of the date of
the Cowles and McClatchy merger transaction, a wholly-owned subsidiary of the
company owned 3,893,796 (equal to about 28 percent) of the outstanding common
stock of Cowles, most of which was acquired in 1985. As a result of this
transaction, the company's subsidiary received $330.5 million in cash from
McClatchy and 730,525 shares of McClatchy Class A common stock. The market value
of the McClatchy stock received approximated $21.6 million. The gain resulting
from this transaction, which is included in "Other, net" in the Condensed
Consolidated Statements of Income, increased 1998 net income by approximately
$162.8 million and basic and diluted earnings per share by $16.14 and $16.07,
respectively.
Note 2: Investments in Marketable Securities.
Investments in marketable equity securities at April 4, 1999 and January
3, 1999 consist of the following (in thousands):
April 4, January 3,
1999 1999
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Total cost $183,452 $187,297
Gross unrealized gains 78,200 68,819
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Total fair value $261,652 $256,116
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During the first quarter of 1999, proceeds from sales of marketable equity
securities were $10.5 million and gross realized gains on such sales were $6.7
million. There were no sales of marketable equity securities during the first
quarter of 1998. Gross realized gains or losses upon the sale of marketable
equity securities are included in "Other, net" in the Condensed Consolidated
Statements of Income.
Note 3: Borrowings.
On February 15, 1999, the company completed the issuance of $400.0 million
5.5 percent unsecured notes due February 15, 2009. The company is required to
pay interest related to these notes on February 15 and August 15 of each year.
The first interest payment of approximately $11.0 million is due on August 15,
1999.
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During the first quarter of 1999 and 1998, the company had average
borrowings outstanding of approximately $449.0 million and $272.0 million,
respectively, at average annual interest rates of approximately 5.5 percent and
5.6 percent, respectively. During the first quarter of 1999 and 1998, the
company incurred interest expense on borrowings of $6.2 million and $3.9
million, respectively. Approximately $2.0 million of interest costs incurred in
the first quarter of 1998 were capitalized. No significant interest costs were
capitalized in the first quarter of 1999.
Note 4: Business Segments.
The following table summarizes financial information related to each of
the company's business segments. The 1999 and 1998 results of operations
information is for the thirteen weeks ended April 4, 1999 and March 29, 1998,
respectively. The 1999 and 1998 asset information is as of April 4, 1999 and
January 3, 1999, respectively.
(in thousands) Education Other
and Businesses
Newspaper Television Magazine Cable Career and Corporate
Publishing Broadcasting Publishing Television Services Office Consolidated
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1999
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Operating revenues $208,462 $ 80,297 $ 90,716 $ 80,799 $ 57,412 $ 2,711 $ 520,397
Income (loss) from
operations $ 39,502 $ 34,428 $ 8,970 $ 14,818 $ (7,378) $(13,066) $ 77,274
Equity in losses of
affiliates (2,510)
Interest expense, net (6,567)
Other income, net 6,143
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Income before income
taxes $ 74,340
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Depreciation expense $ 7,582 $ 2,788 $ 1,263 $ 10,754 $ 1,993 $ 738 $ 25,118
Amortization expense $ 380 $ 3,560 $ 1,478 $ 7,446 $ 1,561 $ - $ 14,425
Identifiable assets $636,131 $434,135 $354,675 $702,201 $223,270 $ 65,251 $2,415,663
Investments in
marketable equity
securities 261,652
Investments in
affiliates 66,645
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Total assets $2,743,960
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Education Other
and Businesses
Newspaper Television Magazine Cable Career and Corporate
Publishing Broadcasting Publishing Television Services Office Consolidated
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1998
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Operating revenues $203,880 $ 79,057 $ 91,854 $ 67,303 $ 39,566 $ 2,295 $ 483,955
Income (loss) from
operations $ 42,449 $ 34,000 $ 6,291 $ 12,094 $ (4,112) $(15,405) $ 75,317
Equity in losses of
affiliates 988
Interest expense, net (2,037)
Other income, net 258,106
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Income before income
taxes $ 332,374
=========
Depreciation expense $ 5,048 $ 2,805 $ 1,244 $ 9,292 $ 1,261 $ 730 $ 20,380
Amortization expense $ 218 $ 3,533 $ 1,482 $ 4,874 $ 634 $ - $ 10,741
Identifiable assets $634,882 $437,506 $355,176 $710,641 $196,702 $ 70,108 $2,405,015
Investments in
marketable equity
securities 256,116
Investments in
affiliates 68,530
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Total assets $2,729,661
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Newspaper publishing includes the publication of newspapers in the
Washington, D.C. area (The Washington Post and the Gazette community newspapers)
and Everett, Washington (The Everett Herald). This business division also
includes newsprint warehousing and recycling operations.
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Television broadcasting operations are conducted through six VHF,
network-affiliated television stations serving the Detroit, Houston, Miami, San
Antonio, Orlando and Jacksonville television markets.
The magazine publishing division consists of the publication of a weekly
news magazine, Newsweek, which has one domestic and three international
editions, and the publication of business periodicals for the computer services
industry and the Washington-area technology community.
Cable television operations consist of over 53 cable systems offering
basic cable and pay television services to approximately 738,300 subscribers in
midwestern, western, and southern states.
Education and career services are provided through the Company's wholly
owned subsidiary Kaplan Educational Center, Inc. Kaplan's six operating
divisions include Test Preparation and Admissions; Score! Educational Centers,
offering K-8 after-school programs; Kaplan Learning Services, providing
customized education services and professional development at schools and
universities; Publishing, which produces educational books and software; Kaplan
Professional, providing recruitment, assessment, training and certification
services; and Kaplan University, offering distance learning programs.
Other businesses and corporate office include the operations of an online
information service devoted to federal and state legislation and regulations, a
digital media and electronic information services provider and the company's
corporate office.
Income from operations includes actuarially determined net pension
credits, which are significant to the magazine and newspaper publishing
divisions. These pension credits totaled $12.2 and $8.6 for the magazine
division in the first quarter of 1999 and 1998, respectively; $7.2 and $2.1 for
the newspaper division.
The company maintains stock option and stock appreciation right plans at
its Kaplan subsidiary that provide for the issuance of stock options
representing 10 percent of Kaplan's stock and the issuance of stock appreciation
rights to certain members of Kaplan's management. The options and appreciation
rights vest ratably over five years from issuance. For the first quarter of 1999
and 1998, the education and career services operating results include a non-cash
charge of $2.0 and $1.5 million, respectively, related to these plans.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the consolidated
financial statements and the notes thereto.
Revenues and expenses in the first and third quarters are customarily
lower than those in the second and fourth quarters because of significant
seasonal fluctuations in advertising volume. For that reason, the results of
operations for each quarter are compared with those of the corresponding quarter
in the preceding year.
RESULTS OF OPERATIONS
Net income for the first quarter of 1999 was $45.2 million ($4.41 per
share), a decrease of $162.7 million from net income of $207.9 ($20.47 per
share) in the first quarter of last year. The company's 1998 first quarter net
income included $162.8 million ($16.07 per share) from the disposition of its 28
percent interest in Cowles Media Company. Excluding the effect of the prior year
disposition, the company's 1999 first quarter net income and earnings per share
remained essentially unchanged.
Revenue for the first quarter of 1999 was $520.4 million, up 8 percent
from $484.0 million in 1998. Advertising revenues and circulation and subscriber
revenues increased 2 percent and 9 percent, respectively, over the prior year.
Other operating revenues increased 30 percent as compared to last year. The
increase in circulation and subscriber revenues is due to growth at the cable
division, resulting mostly from acquisitions completed after March 1998. Growth
at Kaplan Education Centers accounted for the majority of the increase in other
operating revenues.
Costs and expenses for the first quarter of 1999 increased 8 percent to
$443.1 million from $408.6 million in 1998. The increase in costs and expenses
is attributable to expenses arising from companies acquired after March 1998,
including amortization expense, higher depreciation expense, and increased
spending for new business initiatives at the Company's education and career
services division. These expense increases were partially offset by growth in
the Company's pension credit. The increase in depreciation expense is
principally due to the recently completed expansion of The Washington Post's
printing facilities.
Operating income for the quarter increased 3 percent to $77.3 million,
from $75.3 million in 1998.
The company's operating income for the first quarter of 1999 includes
$21.7 million of pension credits, compared to $12.0 million in the first quarter
of 1998. Management expects the 1999 annual
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pension credit will approximate $85.0 million, compared to $62.0 million in
1998. The company's pension funds continue to earn strong investment returns,
thus driving the growth in pension credits. These earnings are not cash; they
are meaningful, however, in that they will reduce the company's future cash
funding requirements for employee pension benefits.
NEWSPAPER PUBLISHING DIVISION. Newspaper division revenue totaled $208.5 million
for the first quarter of 1999, a 2 percent increase over revenue of $203.9
million in the first quarter of 1998. Division operating income for the first
quarter of 1999 decreased 7 percent to $39.5 million, from $42.4 million in the
first quarter of 1998. The decrease resulted from a decline in the operating
results of The Washington Post, where revenues were flat and operating expenses
increased 4 percent. The expense increase at The Post was due primarily to
increased depreciation expense (arising from the recently completed expansion of
its printing facilities) and higher promotional expenses, offset in part by
growth in pension credit.
Advertising volume at The Washington Post totaled 752,000 inches in the
first quarter of 1999, down 1.5 percent from 763,400 inches in the first quarter
of 1998. Post daily circulation remained unchanged and Sunday circulation
declined 2 percent, compared to the first quarter of 1998.
TELEVISION BROADCASTING DIVISION. Revenue for the broadcast division increased 2
percent in the first quarter to $80.3 million, from $79.1 million in 1998.
Operating income for the first quarter of 1999 increased 1 percent to $34.4
million, compared to $34.0 million in the first quarter of 1998. In the first
quarter of 1998, the broadcast division benefited from incremental advertising
derived from the 1998 Winter Olympics.
MAGAZINE PUBLISHING DIVISION. Revenue for the magazine division decreased 1
percent in the first quarter of 1999 to $90.7, from $91.9 million in the first
quarter of 1998. Magazine division operating income totaled $9.0 million for the
first quarter of 1999, compared to $6.3 million for the same period in the prior
year. The increase in operating income is primarily attributable to the
operating results of Newsweek. At Newsweek, growth in pension credit and an 8
percent increase in advertising revenues at the domestic edition offset the
adverse affects of reduced revenues at the international edition (due primarily
to prior year special issues that did not recur in 1999).
CABLE TELEVISION DIVISION. Cable division revenue of $80.8 million for the first
quarter of 1999 represents a 20 percent increase over 1998 first quarter
revenue. Cable division operating income of $14.8 million for the quarter was 23
percent higher than operating income of $12.1 million in the first quarter of
1998. The increase in operating income is due to higher subscriber levels and,
to a lesser extent, an
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increase in rates, offset partially by increased depreciation and amortization
arising from acquisitions and capital improvements. At the end of the first
quarter of 1999, there were 738,300 basic subscribers, an increase of 14 percent
compared to the end of the first quarter of 1998. Most of the basic subscriber
increase resulted from acquisitions completed after March of 1998.
EDUCATION AND CAREER SERVICES DIVISION. The company provides education and
career services through its subsidiary, Kaplan Educational Centers. Kaplan
provides test preparation programs in the U.S. and abroad for individuals taking
admissions and professional licensing exams. Kaplan also provides on-site
educational programs to students and teachers at elementary, secondary and
post-secondary institutions, and offers a growing number of distance learning
programs. In addition, Kaplan publishes books, software and other materials. For
career services, Kaplan is the leading provider of career fairs in North
America, bringing together technical, sales and diversity candidates with
corporate recruiters.
Completing the business offerings of Kaplan are two subsidiaries that are
in the early growth phase of their operations. Score! Learning Centers is a
provider of after-school learning opportunities for students in kindergarten
through the eighth grade. Score! presently operates 70 Score! centers (most
opened within the last two years) and plans to open an additional 30 centers in
the remainder of 1999. HireSystems provides corporate clients with Web-based
tools to streamline the recruitment and hiring process. HireSystems established
its products during 1998 and plans to spend significant resources in 1999
developing its customer base.
Education and career services revenue in the first quarter of 1999 totaled
$57.4 million, a 45 percent increase over the same period in the prior year.
Most of the increase is attributable to businesses acquired subsequent to the
first quarter of 1998. Classroom test preparation revenue grew 32 percent (11
percent excluding acquisitions). Growth in institutional sales and at Score!
also contributed to the revenue increase.
Division operating losses of $7.4 million in the first quarter of 1999
were in line with management's expectations and include approximately $4.1
million in losses arising from the expansion activities of Score! and
HireSystems, as previously discussed. Operating results also reflect
amortization expense from acquisitions and the seasonality of test preparation
revenues. Test preparation revenues, which comprise approximately half of
Kaplan's annual revenues, are seasonally strongest in the third and fourth
quarters; the first quarter is seasonally the weakest. Test preparation
operating expenses are relatively constant throughout the year.
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OTHER BUSINESSES AND CORPORATE OFFICE. Other businesses and corporate office
include Washingtonpost.Newsweek Interactive, Legi-Slate, Moffet, Larson &
Johnson (sold in July 1998), and the company's corporate office. Revenues for
other businesses totaled $2.7 million, compared to $2.3 million in the first
quarter of 1998. Operating losses for other businesses and corporate office in
the first quarter of 1999 decreased 15 percent to $13.1 million, from $15.4
million in the first quarter of 1998.
EQUITY IN (LOSSES) EARNINGS OF AFFILIATES. The company's equity in losses of
affiliates in the first quarter of 1999 was $2.5 million, compared with income
of $1.0 million in the first quarter of 1998. The 1999 decline resulted from
lower results at the company's affiliated newsprint mill and the absence of
affiliate earnings provided in the first quarter of 1998 from Cowles Media
Company (disposed of in March 1998).
NON-OPERATING ITEMS. For the first quarter of 1999, the company incurred net
interest expense of $6.6 million, compared to $2.0 million for the same period
in the prior year. Included in 1998 other, net is a $258.4 million pre-tax gain
resulting from the disposition of the company's 28 percent interest in Cowles
Media Company.
INCOME TAXES. The effective tax rate during the first quarter of 1999 was 39.2
percent as compared to 37.5 percent in 1998. The lower state tax rate applicable
to the sale of the company's 28 percent interest in Cowles Media Company
(completed in March 1998) resulted in a lower effective tax rate during 1998.
EARNINGS PER SHARE. The calculation of diluted earnings per share for the first
quarter of 1999 was based on 10,142,800 weighted average shares outstanding,
compared to 10,131,500 for the first quarter of 1998.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
ACQUISITIONS. In the first quarter of 1999, the company acquired businesses for
approximately $16.3 million, including an accredited distance education business
that offers degrees in paralegal studies and legal nurse consulting.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES. During the first quarter of 1999,
the company received $10.5 million from the sale of certain marketable equity
securities.
At April 4, 1999, the fair value of the company's investments in
marketable equity securities was $261.7 million, of which $196.5 million
consists of the company's investment in the common stock of
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Berkshire Hathaway, Inc. The remaining investments in marketable equity
securities consist of common stock investments in various publicly traded
companies, most of which have concentrations in Internet business activities.
CAPITAL EXPENDITURES. During the first quarter of 1999, the company's capital
expenditures totaled $29.4 million, the most significant portion of which
related to plant upgrades at the company's cable subsidiary. The company
anticipates it will spend approximately $150.0 million throughout 1999 for
property and equipment, primarily for various projects at the newspaper and
cable divisions.
LIQUIDITY. On February 15, 1999, the company completed the issuance of $400.0
million, 5.5 percent unsecured notes due February 15, 2009, netting
approximately $395.0 million in proceeds after discount and fees. The company
used the proceeds from the issuance of these unsecured notes to repay
approximately $395.0 million of commercial paper borrowings then outstanding.
Throughout the first quarter of 1999 the company also repaid an additional $20.7
million of commercial paper borrowings with cash generated from operations.
During the first quarter of 1999, the company had average borrowings outstanding
of approximately $449.0 million at an average annual interest rate of 5.5
percent.
The company expects to fund its estimated capital needs primarily through
internally generated funds, and to a lesser extent, commercial paper borrowings.
In management's opinion, the company will have ample liquidity to meet its
various cash needs throughout 1999.
YEAR 2000. The company's assessment, remediation, testing and contingency
planning efforts surrounding Year 2000 readiness are proceeding as planned with
completion of all project phases projected for late Fall of 1999. To date, the
assessment of internal systems and equipment has been completed and the company
has made substantial progress in completing the remediation, testing and
contingency planning phases of its Year 2000 readiness project.
Most of the company's significant internal systems and equipment, including
equipment with embedded controls, have been determined to be Year 2000
compliant. Certain critical internal systems, however, have been identified as
incapable of processing transactions beyond the Year 2000 the most significant
of which include some of the revenue related business systems at The Washington
Post and Newsweek. At Newsweek, the non-compliant systems have since been
repaired and testing of such remediation is near completion. For the
non-compliant systems at The Washington Post, which principally include the
advertising and circulation billing systems, the remediation efforts
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are continuing and are presently expected to be completed and tested by late
Fall of 1999. The Company believes it has the ability to perform these functions
manually should the remediation efforts not be completed according to plan. The
majority of the non-compliant internal systems currently being replaced were
scheduled to be replaced prior to Year 2000 for operating efficiency reasons.
For critical internal systems and equipment determined to be compliant during
the assessment phase of the project, and for non-compliant equipment that has
been repaired or replaced, the company has devised and is executing a testing
plan to provide additional compliance assurance. To date, the results of the
company's Year 2000 compliance testing program have not revealed any new
problems, or ineffective remediation. The Year 2000 testing phase for internal
systems and equipment is believed to be approximately 70 percent complete as of
the end of April 1999.
The company's Year 2000 readiness project also includes procedures designed to
identify and assess Year 2000 business interruption which may occur as a result
of the company's dependency on third parties. Vendors, suppliers, service
providers, customers and governmental entities that are believed to be critical
to the company's business operations after January 1, 2000 ("key business
partners") have been identified and significant progress has been made in
ascertaining their stage of Year 2000 readiness. These efforts include, among
others, circularization of Year 2000 compliance confirmations and conducting
interviews and on-site reviews.
The company could potentially experience disruptions as a result of
non-compliant systems utilized by some of its key business partners or unrelated
third party governmental and business entities. Contingency plans are under
development to mitigate these potential disruptions to business operations.
These contingency plans include, but are not limited to, identification of
alternative suppliers, vendors and service providers and planned accumulation of
inventory to ensure production capability. The Company is also developing
contingency plans for its internal critical business systems. These contingency
planning activities are intended to reduce risk, but cannot eliminate the
potential for business disruption caused by third party failures.
The company estimates that its total Year 2000 compliance costs will approximate
$25 million. Approximately $15 million of the estimated costs are attributable
to assessment, repair and testing activities and will be expensed as incurred
(approximately $7 million expensed in 1998 and $8 million expected to be
expensed in 1999). The remaining $10 million represents the estimated cost to
replace non-compliant systems and will be capitalized and amortized over a
period ranging between five and ten years. The company anticipates that the
funds needed to complete the Year 2000 compliance efforts and referenced system
16
16.
replacements will be provided primarily from the company's operating cash flows.
Based upon the activities described above, the company does not believe that the
Year 2000 problem is likely to have a material adverse effect on the company's
business or results of operations.
The above discussion contains forward-looking statements that reflect the
company's current expectations or beliefs concerning future results and events.
These statements are made pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Readers are cautioned that
forward-looking statements contained in the Year 2000 discussion should be read
in conjunction with the following disclosures of the Company.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS. Forward-looking
statements, which the company believes to be reasonable and are made in good
faith, are subject to certain risks and uncertainties that could cause actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the company.
Taking into account the foregoing, the following are identified as important
risk factors that could cause actual results to differ from those expressed in
any forward-looking statement made by, or on behalf of, the company.
The dates on which the company believes its Year 2000 readiness project will be
completed are based on management's best estimates, which were derived utilizing
numerous assumptions of future events, including the continued availability of
certain resources, third-party modification plans and other factors.
Unanticipated failures by critical vendors, as well as a failure by the company
to execute successfully its own remediation efforts, however, could have a
material adverse effect on the costs associated with the Year 2000 readiness
project and on its completion. Some important factors that might cause
differences between the estimates and actual results include, but are not
limited to, the availability and cost of personnel trained in these areas, the
ability to locate and correct all relevant computer code, the timely and
accurate responses to and correction by third-parties and suppliers, the ability
to implement interfaces between new systems and the systems not being replaced
and similar uncertainties. Due to the general uncertainty inherent in the Year
2000 problem, the company cannot ensure its ability to timely and
cost-effectively resolve problems associated with the Year 2000 issue that may
affect its operations and business or expose it to third-party liability.
17
17.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as exhibits to this report:
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company as amended
through May 12, 1998, and the Certificate of Designation for
the Company's Series A Preferred Stock filed January 22,
1996 (incorporated by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
3.2 By-Laws of the Company as amended through September 9, 1993
(incorporated by reference to Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 3,
1993).
4.1 Credit Agreement dated as of March 17, 1998 among the Company,
Citibank, N.A., Wachovia Bank of Georgia, N.A., and the other
Lenders named therein (incorporated by reference to Exhibit
4.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1997).
4.2 Form of the Company's 5.50% Notes due February 15, 2009,
issued under the Indenture dated as of February 17, 1999,
between the Company and The First National Bank of Chicago, as
Trustee (incorporate by reference to Exhibit 4.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 3, 1999).
4.3 Indenture dated as of February 17, 1999, between the Company
and The First National Bank of Chicago, as Trustee
(incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended January
3, 1999).
11 Calculation of Earnings per Share of Common Stock.
27 Financial Data Schedule - April 4, 1999
(Electronic filing only).
(b) No reports on Form 8-K were filed during the period covered by
this report.
18
18.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WASHINGTON POST COMPANY
(Registrant)
Date: May 17, 1999 /s/ DONALD E. GRAHAM
------------ ---------------------------------
Donald E. Graham, Chairman &
Chief Executive Officer
(Principal Executive Officer)
Date: May 17, 1999 /s/ JOHN B. MORSE, JR.
------------ ------------------------------------------
John B. Morse, Jr., Vice President-Finance
(Principal Financial Officer)
1
Exhibit 11
CALCULATION OF EARNINGS
PER SHARE OF COMMON STOCK
(In thousands of shares)
Thirteen Weeks Ended
--------------------------------
April 4, March 29,
1999 1998
-------- -----------
Number of shares of
Class A and Class B
common stock outstanding
at beginning of
period 10,093 10,089
Issuance of shares of
Class B common stock
(weighted), net of
forfeiture of restricted
stock awards 5 3
Repurchase of Class B
common stock (weighted) -- (8)
------ ------
Shares used in the
computation of basic
earnings per common share 10,098 10,084
Adjustment to reflect
dilution from common stock
equivalents 45 47
------ ------
10,143 10,131
------ ------
Net income available for
common shares $ 44,715 $207,396
------- -------
Basic earnings per common
share $ 4.43 $ 20.57
------- -------
Diluted earnings per
common share $ 4.41 $ 20.47
------- -------
5
1,000
3-MOS
JAN-02-2000
APR-04-1999
18,006
261,652
282,310
55,747
24,488
368,968
1,439,252
591,413
2,743,960
371,707
397,425
11,873
0
20,000
1,589,947
2,743,960
0
520,397
0
286,583
0
17,055
6,813
74,340
29,150
45,190
0
0
0
45,190
4.43
4.41
