Back to GetFilings.com
1
================================================================================
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, 2000
Commission file number 1-6714
THE WASHINGTON POST COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 53-0182885
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1150 15TH ST., N.W., WASHINGTON, D.C. 20071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 334-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
Class B Common Stock, par value
$1.00 per share New York Stock Exchange
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 .
--- ---
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 registrant's 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. [ ]
Aggregate market value of the Company's voting stock held by non-affiliates
on February 29, 2000, based on the closing price for the Company's Class B
Common Stock on the New York Stock Exchange on such date: approximately
$2,258,000,000.
Shares of common stock outstanding at February 29, 2000:
Class A Common Stock - 1,739,250 shares
Class B Common Stock - 7,700,446 shares
Documents partially incorporated by reference:
Definitive Proxy Statement for the Company's 2000 Annual Meeting of
Stockholders (incorporated in Part III to the extent provided in Items
10, 11, 12 and 13 hereof).
===============================================================================
2
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
network-affiliated stations), the ownership and operation of cable television
systems, magazine publishing (principally Newsweek magazine), and (through its
Kaplan subsidiary) the provision of educational and career development services.
Information concerning the consolidated operating revenues, consolidated
income from operations and identifiable assets attributable to the principal
segments of the Company's business for the last three fiscal years is contained
in Note M to the Company's Consolidated Financial Statements appearing elsewhere
in this Annual Report on Form 10-K. (Revenues for each segment are shown in such
Note M net of intersegment sales, which did not exceed 0.4% of consolidated
operating revenues.)
During each of the last three years the Company's operations in
geographic areas outside the United States (consisting primarily of the
publication of the international editions of Newsweek) accounted for less than
5% of the Company's consolidated revenues and less than 2% of its consolidated
income from operations, and the identifiable assets attributable to such
operations represented less than 2% of the Company's consolidated assets.
NEWSPAPER PUBLISHING
THE WASHINGTON POST
The Washington Post 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 twelve-month periods ended September
30 in each of the last five years, as reported by the Audit Bureau of
Circulations ("ABC"):
AVERAGE PAID CIRCULATION
------------------------
DAILY SUNDAY
----- ------
1995......................... 807,818 1,140,498
1996......................... 800,295 1,129,519
1997......................... 784,199 1,109,344
1998......................... 774,414 1,095,091
1999......................... 775,005 1,085,060
A price increase for home-delivered copies of the daily and Sunday
newspaper went into effect on March 27, 2000, which raised the rate per
four-week period from $10.60 (which had been the rate since 1997) to $11.16. The
rate charged to subscribers for Sunday-only home-delivered copies of the
newspaper for each four-week period has been $6.00 since 1991. The newsstand
price for the Sunday newspaper has been $1.50 since 1992 and the newsstand price
for the daily newspaper has been $0.25 since 1981.
General advertising rates were increased by an average of 4.6% on
January 1, 1999, and by another 4.5% on January 1, 2000. Rates for most
categories of classified and retail advertising were increased by an average of
3.7% on February 1, 1999, and by an additional 4.7% on February 1, 2000.
1
3
The following table sets forth The Post's advertising inches (excluding
preprints) and number of preprints for the past five years:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Total Inches (in thousands)................. 3,212 3,070 3,192 3,199 3,265
Full-Run Inches......................... 2,950 2,814 2,897 2,806 2,747
Part-Run Inches......................... 262 256 294 393 518
Preprints (in millions)..................... 1,416 1,445 1,549 1,650 1,648
The Post also publishes The Washington Post National Weekly Edition, a
tabloid which 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 76,000 subscribers.
The Post has about 660 full-time editors, correspondents, reporters and
photographers on its staff, draws upon the news reporting facilities of the
major wire services and maintains correspondents in 20 news centers abroad and
in New York City; Los Angeles; Chicago; Miami; Richmond; Baltimore; Annapolis;
Austin, Texas; and Burlingame, California. The Post also maintains
correspondents in ten news bureaus in the greater Washington, D.C. metropolitan
area.
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 six controlled-circulation weekly community newspapers
(collectively know as The Enterprise Newspapers) that are distributed in south
Snohomish and north King Counties.
The Herald's average paid circulation as reported to ABC for the twelve
months ended September 30, 1999, was 53,910 daily (including Saturday) and
62,342 Sunday. The aggregate average weekly circulation of The Enterprise
Newspapers during the twelve-month period ended December 31, 1999, was
approximately 71,000 copies.
The Herald and The Enterprise Newspapers together employ approximately
70 editors, reporters and photographers.
THE GAZETTE NEWSPAPERS
The Gazette Newspapers, Inc., another subsidiary of the Company,
publishes one paid-circulation and 31 controlled-circulation weekly community
newspapers (collectively known as The Gazette Newspapers) in Montgomery and
Frederick Counties and parts of Prince George's and Carroll Counties, Maryland.
During 1999 The Gazette Newspapers had an aggregate average weekly circulation
of approximately 476,000 copies. This subsidiary also produces 12 military
newspapers (most of which are weekly) under agreements where editorial material
is supplied by local military bases; these newspapers had a combined 1999
circulation of over 214,000 copies.
The Gazette Newspapers have approximately 95 editors, reporters and
photographers on their combined staffs.
The Gazette Newspapers, Inc. also operates a commercial printing
business which it acquired in 1996.
2
4
WASHINGTONPOST.NEWSWEEK INTERACTIVE
Washingtonpost.Newsweek Interactive Company ("WPNI") develops news and
information products for electronic distribution. Since July 1996 this
subsidiary of the Company has operated washingtonpost.com, a World Wide Web site
that features the full editorial text of The Washington Post and most of The
Post's classified advertising as well as original content created by WPNI's
staff and content obtained from other sources. The washingtonpost.com site also
features a comprehensive city guide focusing on the Washington, D.C. area,
including an arts and entertainment section, a community section and an online
yellow pages directory. This site is currently generating more than 70 million
page views per month and the Company believes (based on data from Media Metrix)
is among the top six national news sites on the Internet. The Company (either
directly or through WPNI) also holds minority equity interests in Classified
Ventures, Inc. and CareerPath.com Inc., entities formed to compete in the
business of providing nationwide classified advertising databases on the
Internet. Classified Ventures covers the product categories of automobiles,
apartment rentals, real estate and auctions while CareerPath covers the area of
recruitment advertising. Listings for these services come from various sources,
including (in most cases) direct sales and classified listings from the
newspapers of participating companies. Links to the Classified Ventures and
CareerPath services are included in the washingtonpost.com site.
WPNI also produces the newsweek.com Web 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.
In November 1999, WPNI, together with certain other business units of
the Company, signed a non-binding agreement in principle with NBC News and MSNBC
pursuant to which the parties would share certain news material and
technological and promotional resources. Among other things, this agreement
contemplates that Newsweek's current Web site would become a feature on
MSNBC.com and that MSNBC.com would have access to content from The Washington
Post. Similarly, washingtonpost.com would have access to NBC News multimedia
content. A definitive agreement to memorialize this relationship is currently
being negotiated.
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 9th,
11th, 16th, 22nd, 37th and 52nd largest broadcasting markets in the United
States. Each of the Company's stations is affiliated with a national network.
Although network affiliation agreements generally have limited terms, each of
the Company's television stations has maintained a network affiliation
continuously for at least 20 years.
The Company's 1999 net operating revenues from national and local
television advertising and network compensation were as follows:
National..................... $ 101,626,000
Local........................ 204,423,000
Network...................... 29,552,000
-------------
Total.................... $ 335,601,000
3
5
The following table sets forth certain information with respect to each
of the Company's television stations:
EXPIRATION
STATION LOCATION AND NATIONAL DATE OF
YEAR COMMERCIAL MARKET NETWORK FCC
OPERATION COMMENCED RANKING(a) AFFILIATION LICENSE
------------------- ---------- ----------- -------
WDIV 9th NBC Oct. 1,
Detroit, Mich. 2005
1947
KPRC 11th NBC Aug. 1,
Houston, Tx. 2006
1949
WPLG 16th ABC Feb. 1,
Miami, Fla. 2005
1961
WKMG 22nd CBS
Orlando, Fla. Feb. 1,
1954 2005
KSAT 37th ABC
San Antonio, Tx. Aug. 1,
1957 2006
WJXT 52nd CBS
Jacksonville, Fla. Feb. 1,
1947 2005
TOTAL COMMERCIAL
STATION LOCATION AND EXPIRATION STATIONS IN DMA(b)
YEAR COMMERCIAL DATE OF ------------------
OPERATION COMMENCED NETWORK AGREEMENT ALLOCATED OPERATING
------------------- ----------------- --------- ---------
WDIV June 30, VHF-4 VHF-4
Detroit, Mich. 2004 UHF-6 UHF-5
1947
KPRC June 30, VHF-3 VHF-3
Houston, Tx. 2004 UHF-11 UHF-11
1949
WPLG Dec. 31, VHF-5 VHF-5
Miami, Fla. 2004 UHF-8 UHF-7
1961
WKMG
Orlando, Fla. Apr. 6, VHF-3 VHF-3
1954 2005 UHF-11 UHF-9
KSAT
San Antonio, Tx. Dec. 31, VHF-4 VHF-4
1957 2004 UHF-6 UHF-6
WJXT
Jacksonville, Fla. July 10, VHF-2 VHF-2
1947 2001 UHF-6 UHF-5
- -------------
(a) Source: 1999/2000 DMA Market Rankings, Nielsen Media Research, Fall
1999, 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.
REGULATION OF BROADCASTING AND RELATED MATTERS
The Company's 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 regulations and policies
which directly or indirectly affect the ownership, operations and profitability
of broadcasting stations.
Each of the Company's television stations holds an FCC license which is
renewable upon application for an eight-year period.
In December 1996 the FCC formally approved technical standards for
digital advanced television ("DTV"). DTV is a flexible system that will permit
broadcasters to utilize a single digital channel in various ways, including
providing one channel of high-definition television programming with greatly
enhanced image and sound quality or several channels of lower-definition
television programming ("multicasting"), and is capable of accommodating
subscription video and data services. Broadcasters may offer a combination of
services, so long as they transmit at least one stream of free video programming
on the DTV channel. The FCC has assigned to each existing full power television
station (including each station owned by the Company) a second channel to
implement DTV while
4
6
present television operations are continued on that station's existing channel.
Although in some cases a station's DTV channel may only permit operation over a
smaller geographic service area than that available using its existing channel,
the FCC's stated goal in assigning channels was to provide stations with DTV
service areas that will be generally consistent with their existing service
areas. The FCC's DTV rules also permit stations to request modifications to
their assigned DTV facilities, allowing them to expand their DTV service areas
if certain interference criteria are met. Under FCC rules and the Balanced
Budget Act of 1997, station owners will be required to surrender one channel in
2006 and thereafter provide service solely in the DTV format. The Company's
Detroit, Houston and Miami stations each commenced DTV broadcast operations
during 1999. The Company's Orlando station has obtained a waiver from the FCC
permitting it to delay the commencement of DTV broadcast operations until May 1,
2000. The deadline established by the FCC for the Company's two other stations
(San Antonio and Jacksonville) to begin DTV broadcast operations is May 1, 2002.
Through two rounds of reconsideration ending in December 1998, the FCC
refined its DTV rules and DTV channel assignments. The FCC's DTV decisions now
are subject to judicial review in a consolidated appeal before the U.S. Court of
Appeals for the District of Columbia Circuit. In November 1998 the FCC issued a
decision to implement 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 may include data, video or other
services that are offered on a subscription basis or for which broadcasters
receive compensation other than from advertising revenue. The FCC decided to
impose a fee of 5% of the gross revenues generated by such services. The FCC
also is considering whether and how to extend cable systems' obligations for
mandatory carriage of certain broadcast television signals to the DTV channel.
Deliberations on this issue include the question of whether cable systems should
be required to transmit DTV signals in the same definition in which originally
broadcast. The FCC also is implementing the Community Broadcasters Act of 1999,
which provides interference protection to low-power television stations. It is
likely that new FCC rules will be adopted which will provide several hundred
low-power stations with the same protection from interference currently provided
to full-power stations, with the result that it will be more difficult for some
existing full-power stations to alter their analog or DTV transmission
facilities. The FCC also has issued a Notice of Inquiry concerning whether
special public interest obligations should be imposed on the DTV channel.
Specifically, the FCC asked whether it should require broadcasters to provide
free time for 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.
The Company cannot predict what effects the DTV conversion eventually
will have upon its television broadcasting operations.
The FCC also is conducting proceedings dealing with such matters as
multiple ownership restrictions, regulations pertaining to cable television
(discussed below under "Cable Television Division - Regulation of Cable
Television and Related Matters"), and various proposals to further the
development of alternative video delivery systems that would compete in varying
degrees with both cable television and television broadcasting operations. In
August 1999 the FCC amended its local 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 (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 of certain failing or
unbuilt stations. These rule changes are likely to increase concentration of
ownership in local markets. For example, the Company's station in Jacksonville,
Florida is now competing against a broadcaster that owns two television
stations, and license transfer applications have been filed with the FCC which,
if approved, would create two-station combinations in Miami, Detroit and San
Antonio as well.
5
7
Separately, the rule governing the aggregate number of television stations a
single company can own was relaxed by amendments to the Communications Act
enacted in 1996, and broadcast companies are now permitted to own an unlimited
number of television stations as long as the combined service areas of such
stations do not include more than 35% of the U.S. population. The broadcast
networks are urging Congress and the FCC to raise this limit to 50%, but those
efforts are opposed by others in the industry, including the network affiliate
associations and the National Association of Broadcasters. The Company is unable
to determine what impact the various rule changes and other matters described in
this paragraph may ultimately have on the Company's television broadcasting
operations.
CABLE TELEVISION DIVISION
At the end of 1999 the Company (through its Cable One subsidiary)
provided basic cable service to approximately 740,000 subscribers (representing
about 72% of the 1,025,800 homes passed by the systems) and had in force more
than 423,000 subscriptions to premium program services.
During 1999 the Company purchased several small cable television systems
serving an aggregate of 10,300 subscribers.
The Company's cable systems are located in 18 Midwestern, Southern and
Western states and typically serve smaller communities: thus 21 of the Company's
current systems pass fewer than 10,000 dwelling units, 14 pass 10,000-25,000
dwelling units, and 17 pass more than 25,000 dwelling units, of which the two
largest are in Modesto and Santa Rosa, California (each of which serves more
than 50,000 subscribers). The largest cluster of systems (which together serve
about 92,000 subscribers) is located on the Gulf Coast of Mississippi.
On March 23, 2000, the Company announced that its Cable One subsidiary
had reached an agreement in principle with a unit of AT&T pursuant to which
Cable One would exchange its Modesto and Santa Rosa cable systems for AT&T cable
systems serving the communities of Bose, Idaho Falls, Twins Falls, Pocatello and
Lewiston, Idaho, and the communities of Ontario, Oregon and Smithfield, Utah. In
a related transaction, Cable One would sell its Greenwood, Indiana cable system
to a joint venture in which AT&T has an interest. If consummated, these
transactions would increase by approximately 26,000 the number of cable
subscribers being served by the Company's cable systems.
REGULATION OF CABLE TELEVISION AND RELATED MATTERS
The Company's 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 Cable Television Consumer Protection and Competition Act of 1992
(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.
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), relaxing cost-of-service rules, raising the threshold
6
8
for FCC investigations of rate complaints, and terminating rate regulation for
some small cable systems. For cable systems that do not fall within the
effective-competition or small-system exemptions (including all of the cable
systems owned by the Company), monthly subscription rates 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) may be regulated by
municipalities, subject to procedures and criteria established by the FCC. Rates
charged by cable television systems for pay-per-view service, for per-channel
premium program services and for advertising are all exempt from regulation. The
FCC's authority to regulate the rates charged for optional tiers of service
expired on March 31, 1999.
In April 1993 the FCC adopted a "freeze" on rate increases for regulated
services (i.e. the basic and, prior to March 1999, optional tiers). Later that
year the FCC promulgated benchmarks for determining the reasonableness of rates
for such services. The benchmarks provided for a percentage reduction in the
rates that were in effect when the benchmarks were announced. Under the FCC's
approach cable operators may exceed the benchmarks 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 March 1994 to be
11.25%. Also, the FCC has adopted so-called "going forward" rules which permit
cable operators to increase their benchmarked rates for regulated services when
new channels are added and to offset the effects of inflation, equipment
upgrades, and higher programming, franchising and regulatory fees.
Pursuant to the "must-carry" requirements of the 1992 Cable Act, a
commercial television broadcast station may, under certain circumstances, insist
on carriage of its signal on cable systems located within the station's market
area, while a noncommercial public station may insist on carriage of its signal
on cable systems located within either the station's predicted Grade B signal
contour or 50 miles of the station's transmitter. As a result of these
obligations (the constitutionality of which has been upheld by the U.S. Supreme
Court) certain of the Company's cable systems have had to carry broadcast
stations that they might not otherwise have elected to carry, and the freedom
the Company's systems would otherwise have to drop signals previously carried
has been reduced.
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. Before October
1993 some of the broadcast stations carried by the Company's cable television
systems opted for retransmission consent and initially took the position that
they would not grant consent without commitments by the Company's systems to
make cash payments. As a result of case-by-case negotiations, the Company's
cable systems were able to continue carrying virtually all of the stations
insisting on retransmission consent without having to agree to pay any stations
for the privilege of carrying their signals. However some commitments were made
to carry other program services offered by a station or an affiliated company,
to provide advertising availabilities on cable for sale by a station and to
distribute promotional announcements with respect to a station. Many of these
agreements between broadcast stations and the Company's cable systems expired at
the end of 1999 and the expired agreements were replaced by new agreements
having comparable terms.
The FCC is continuing to consider the extent to which the must-carry and
retransmission consent requirements described above will apply to broadcasters'
DTV operations. Such an extension of must-carry requirements could result in the
Company's 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, consumer protection measures, and various regulations intended to
facilitate the development of
7
9
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
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, regulates the assignment and
transfer of control of such licenses, and oversees compliance with certain
affirmative action and equal employment opportunity obligations applicable to
cable systems. In addition, pursuant to the Pole Attachment Act, the FCC
exercises authority to disapprove unreasonable rates charged to cable operators
by telephone and power utilities for utilizing space on utility poles or in
underground conduits.
The Copyright Act of 1976 grants to cable television systems, under
certain terms and conditions, the right to retransmit the signals of television
stations pursuant to a compulsory copyright license. Those terms and conditions
include the payment of 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 the compulsory copyright license was extended to
"wireless cable" and direct broadcast satellite ("DBS") operators, although in
the latter case the license right was limited to stations whose over-the-air
signal was not available at the subscriber's location. However in November 1999
Congress enacted the Satellite Home Viewer Improvement Act, which extends the
compulsory copyright license to 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 other restrictions contained in the
original compulsory license for DBS operators, which permit the signal of a
distant network-affiliated station to be distributed only in areas where
subscribers cannot receive an over-the-air signal of another station affiliated
with the same network.
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 Company's 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 and be subject to reduced regulatory
burdens. The Act contains detailed requirements governing the operation of open
video systems, including 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 to be established by the FCC. (Cable operators and
others not affiliated with a telephone company may also become
8
10
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 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 connect with the telephone network and requires
telephone companies to give competitors access to the essential features and
functionalities of the local telephone network (such as switching capability,
signal carriage from the subscriber's residence to the switching center, and
directory assistance) on an unbundled basis. As an alternative method of
providing local telephone service, the Act permits cable companies and others to
purchase telephone service on a wholesale basis and then resell it to their
subscribers.
During the past several years, the FCC has adopted various rule changes
intended to facilitate the development of so-called "wireless cable," a video
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. Moreover,
in late 1998 the FCC began issuing licenses for a new digital wireless cable
service which will utilize up to 1,300 megahertz of spectrum in the 28 and 31
gigahertz bands and is intended to provide large numbers of video channels as
well as voice and data transmission services. Wireless cable services are not
required to obtain franchises from local governmental authorities and generally
operate under fewer regulatory requirements than conventional cable television
systems.
In October 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 allows 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 has the
effect of increasing the number of communities that can be served by a single
cable operator and may result in more consolidation in the cable industry.
A case is pending before the U.S. Court of Appeals for the Ninth Circuit
which challenges agreements between certain cable operators and Internet service
providers under which the cable operators can only offer Internet access to
their subscribers through the selected Internet service provider. The Company
does not, at this time, have any such arrangements. If this challenge is
successful, however, the Company may have less flexibility in using its cable
systems to offer Internet access to subscribers.
Litigation also is pending in various courts in which prohibitions on
cable television operations without a franchise and various franchise
requirements are being challenged as unlawful under the First Amendment, the
antitrust laws and on other grounds. If successful, such litigation could
facilitate the development of duplicative cable facilities that would compete
with existing cable systems.
The regulation of certain cable television rates pursuant to the
authority granted to the FCC has negatively impacted the revenues of the
Company's cable systems. The Company is unable to predict what effect the other
matters discussed above may ultimately have on its cable television business.
9
11
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 9 U.S. and 12 foreign cities.
The domestic edition of Newsweek is comprised of over 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 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 Newsweek's 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 33.5%.
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 April 1999, Newsweek's newsstand price was increased
from $2.95 per copy (which price had been in effect since 1992) to $3.50 per
copy.
The total number of Newsweek's domestic advertising pages and gross
domestic advertising revenues as reported by Publishers' Information Bureau,
Inc., together with Newsweek's percentages of the total number of advertising
pages and total advertising revenues of the three leading weekly news magazines,
for the past five years have been as follows:
PERCENTAGE
OF
THREE NEWSWEEK
NEWSWEEK LEADING GROSS PERCENTAGE OF
ADVERTISING NEWS ADVERTISING THREE LEADING
PAGES* MAGAZINES REVENUES* NEWS MAGAZINES
------ --------- --------- --------------
1995.................. 2,279 34.1% $328,886,000 34.9%
1996.................. 2,520 36.6% 381,621,000 37.0%
1997.................. 2,633 35.4% 406,324,000 35.1%
1998.................. 2,472 34.4% 393,168,000 33.8%
1999.................. 2,567 33.5% 432,701,000 32.8%
- ------------------
* Advertising pages and gross advertising revenues are those reported
by Publishers' Information Bureau, Inc. PIB computes gross advertising
revenues from basic one-time rates and the number of advertising pages
carried. PIB figures therefore materially exceed actual gross advertising
revenues, which reflect lower rates for multiple insertions. Net revenues
as reported in the Company's Consolidated Statements of Income also exclude
agency fees and cash discounts, which are included in the gross advertising
revenues shown above. Page and revenue figures exclude affiliated
advertising.
Newsweek's advertising rates are based on its average weekly circulation
rate base and are competitive with the other weekly news magazines. Effective
with the January 11, 1999 issue, national advertising rates were increased by an
average of 4.0%. Beginning with the issue dated January 10, 2000, national
advertising rates were increased again, also by an average of 4.0%.
Newsweek Business Plus, which is published 39 times a year, is a
demographic edition of Newsweek distributed to high-income professional and
managerial subscribers and subscribers in zip-code-defined areas. Advertising
rates for this edition were increased an average of 8.0% in January 1999 and by
an additional 4.0% in January 2000. The circulation rate base for this edition
was increased from 1,000,000 to 1,200,000 copies at the beginning of 1999.
10
12
Newsweek's other demographic edition, Newsweek Woman, which was
published 12 times during 1999, is distributed to selected female subscribers.
At the beginning of 1999 advertising rates for this edition were increased by an
average of 14.3% and the circulation rate base was increased from 700,000 to
800,000 copies. Early in 2000 advertising rates were increased by an additional
4.0%.
Internationally, Newsweek is published in an Atlantic edition covering
the British Isles, Europe, the Middle East and Africa, a Pacific edition
covering Japan, Korea and Southeast 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.
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. Since 1996 Newsweek en Espanol, a
Spanish-language edition of Newsweek distributed in Latin America, has been
published under an agreement with a Miami-based publishing company which
translates editorial copy, prints and distributes the edition and jointly sells
advertising with Newsweek. Also, a Russian-language newsweekly modeled after
Newsweek has been published since 1996 pursuant to licensing and advisory
agreements entered into by Newsweek with a Russian publishing and broadcasting
company. This magazine includes selected stories translated from Newsweek's
various U.S. and foreign editions and is called Itogi (which means "summing-up"
in Russian).
The average weekly circulation rate base, advertising pages and gross
advertising revenues of Newsweek's international editions (not including The
Bulletin insertions or the foreign-language editions of Newsweek) for the past
five years have been as follows:
AVERAGE WEEKLY GROSS
CIRCULATION ADVERTISING ADVERTISING
RATE BASE PAGES* REVENUES*
--------- ------ ---------
1995.................. 640,000 2,502 $90,968,000
1996.................. 642,000 2,446 92,638,000
1997.................. 657,000 2,287 89,330,000
1998.................. 660,000 2,120 83,051,000
1999.................. 660,000 2,492 90,023,000
- -------------------
* Advertising pages and gross advertising revenues are those reported by
CMR International. CMR computes gross advertising revenues from basic
one-time rates and the number of advertising pages carried. CMR figures
therefore materially exceed actual gross advertising revenues, which reflect
lower rates for multiple insertions. Net revenues as reported in the
Company's Consolidated Statements of Income also exclude agency fees and
cash discounts, which are included in the gross advertising revenues shown
above. Page and revenue figures exclude affiliated advertising.
For 2000 the average weekly circulation rate base for Newsweek's
English-language international editions (not including The Bulletin insertions)
will be 663,000 copies. Newsweek's rate card estimates the average weekly
circulation in 2000 for The Bulletin insertions will be 85,000 copies and for
the Japanese-, Korean-, Russian- and Spanish-language editions will be 130,000,
90,000, 85,000 and 50,000 copies, respectively.
11
13
Newsweek has produced a weekly news magazine for online distribution
since 1994 and in October 1998 launched newsweek.com, an Internet version of
Newsweek. This Internet magazine supplements Newsweek's print edition with daily
news updates and other features, and is being produced by
Washingtonpost.Newsweek Interactive Company, another subsidiary of the Company.
In December 1999 Newsweek purchased Arthur Frommer's Budget Travel
magazine and related assets (including a monthly newsletter). Launched in early
1998 as a quarterly, this magazine is now published six times a year and has a
current circulation of 350,000 copies. Budget Travel is headquartered in New
York City and has its own editorial staff.
In August 1996 the United States Food and Drug Administration issued
final rules designed to restrict the marketing of tobacco products to minors.
These rules, which among other things would have limited advertising for tobacco
products in print publications whose youth readership exceeds certain levels to
black and white, text-only "tombstone" ads, were scheduled to go into effect in
August 1997. Shortly before the effective date, a U.S. District Court in North
Carolina held that the FDA's proposed advertising rules exceeded its authority
and stayed the application of those rules. In August 1998 the U.S. Court of
Appeals for the Fourth Circuit ruled more broadly that the FDA has no
jurisdiction to regulate tobacco products and subsequently denied the FDA's
request for a rehearing. The United States Supreme Court granted the FDA's
certiorari petition in this case and on March 21, 2000, affirmed the decision of
the Court of Appeals. On the legislative front, proposals remain pending in
Congress which would deny the tobacco industry the ability to treat advertising
as a tax-deductible expense. The Company cannot now predict what actions may
eventually be taken to restrict tobacco advertising. However such advertising
accounts for only about 1% of Newsweek's operating revenues and negligible
revenues at The Washington Post and the Company's 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 which may
eventually be put into effect would not have a material adverse effect on
Newsweek or on any of the Company's other business operations.
POST-NEWSWEEK BUSINESS INFORMATION
The Company's Post-Newsweek Business Information, Inc. subsidiary
publishes controlled-circulation trade periodicals and produces trade shows for
the information technology industry.
PNBI's Government Group publishes Washington Technology, a biweekly
tabloid newspaper for government information technology systems integrators,
Government Computer News, a tabloid newspaper published 32 times per year
serving government managers who buy information technology products and
services, GCN State & Local, a monthly tabloid newspaper for state and local
information technology buyers, and GCN Shopper, a tabloid newspaper published
six times per year providing information technology product reviews and other
buying information for government managers. Washington Technology, Computer
Government News, GCN State & Local, and GCN Shopper have circulations of about
40,000, 87,000, 55,000, and 120,000 copies, respectively. Also part of PNBI's
Government Group is the FOSE trade show, held each spring in Washington, D.C.
for information technology decision makers in government and industry.
PNBI also publishes Washington Techway, a biweekly news magazine with a
circulation of 30,000 copies that addresses the needs of the private-sector
technology business community in the Washington region, and the IT Almanac, an
annual directory of technology industry executives. In addition, PNBI is the
sponsor of the annual Greater Washington High Technology Awards Banquet, which
is held each May in Washington, D.C. for over 1,200 technology executives.
PNBI provides companion Internet sites for its various publications and
the FOSE trade show, and also operates Newsbytes News Network, a newswire
service that electronically distributes about 80
12
14
news stories per day about the information technology, personal computer,
telecommunications and related industries to newspapers, magazines, online
services and other subscribers around the world.
EDUCATIONAL AND CAREER SERVICES
Kaplan, Inc., a subsidiary of the Company, provides an extensive range
of educational services for children, students and professionals. Kaplan's
historical focus on test preparation has been expanded as new educational and
career services businesses have been acquired or initiated.
Through its Test Preparation and Admissions Division, Kaplan prepares
students for a broad range of admissions and licensing examinations including
the SAT's, LSAT's, GMAT's, MCAT's, GRE's, and nursing and medical boards. This
business can be subdivided into four categories: Pre-college (serving primarily
high school students preparing for the SAT's and ACT's); Graduate (serving
college students and professionals, primarily with preparation for admission
tests to graduate, medical and law schools); Licensure (serving medical and
accounting professionals preparing for licensing exams); and English Language
Training (serving foreign students and professionals wishing to study or work in
the U.S.). During 1999 this division of Kaplan enrolled over 150,000 students
and provided courses at 150 permanent centers located throughout the United
States and in Canada, Puerto Rico and London. In the fall of 1999, Kaplan
launched kaptest.com, making Kaplan's test preparation and admissions courses
available to students via the Internet. In addition, Kaplan licenses material
for certain of these courses to third parties who during 1999 offered such
courses at 35 centers located in 17 countries.
The Test Preparation and Admissions Division also includes Kaplan's
publishing activities. Kaplan currently co-publishes over 100 book titles in the
areas of test preparation, admissions, career guidance and life skills through a
joint venture with Simon & Schuster, and also develops educational software for
the K through 12 retail and school markets which is sold through arrangements
with third parties who are responsible for production and distribution. Kaplan
also produces two college and career newsstand guides in conjunction with
Newsweek.
Kaplan's Professional Division offers educational services for
corporations and for individuals seeking to advance their careers. This division
includes Dearborn Publishing, a provider of pre-licensing training and
continuing education for securities, insurance and real estate professionals;
Perfect Access, a provider of software education and consulting services to law
firms and businesses; Schweser's Study Program (acquired in 1999), a provider of
materials aimed at preparing individuals for the Chartered Financial Analyst
examination; and Self Test Software (also acquired in 1999), a provider of
preparation services for software proficiency certification examinations.
Kaplan's Score Learning Division offers computer-based learning and
individualized tutoring for children, as well as educational resources for
parents, through three businesses. In 1999, the center-based business, which
provides educational after-school enrichment services, opened its 100th center
and served 40,000 students, up from 68 centers and 20,000 students in 1998.
Score's services are provided in facilities separate from Kaplan's test
preparation centers due to differing configuration and equipment requirements.
SCORE! Prep serves high school students with one-on-one, in-home tutoring for
standardized tests and academic subjects. eSCORE.com, which began operations in
early 2000, offers skills assessments, online workshops and other educational
resources to help parents provide appropriate learning opportunities for their
children.
KaplanCollege.com is a distance learning unit specializing in
professional and higher education. In 1999 it offered degree or certificate
correspondence programs to 8,000 students in the fields of paralegal studies,
legal nurse consulting, and criminal justice. KaplanCollege.com, which
anticipates
13
15
providing some of these programs on the Internet later in 2000, also includes
Concord School of Law, the nation's first online law school, which offers juris
doctor degrees wholly online. At year-end 1999, 250 students were enrolled in
Concord. Concord has received operating approval from the California Bureau of
Private Post-Secondary and Vocational Education and has complied with the
registration requirements of the State Bar of California; graduates are,
therefore, able to apply for admission to the California Bar.
Kaplan also owns an equity interest in BrassRing Inc., an Internet-based
career-assistance and hiring management company which was formed in September
1999. In connection with that formation, Kaplan contributed its career fair
business and HireSystems (a provider of Web-based resume and hiring management
services), while the other owners contributed cash and, in the case of the
Tribune Company, related businesses. Initially, BrassRing was 54% owned by
Kaplan, 36% by the Tribune Company, and 10% by the venture capital firm Accel
Partners. On March 10, 2000, BrassRing acquired the Internet recruitment service
and high-tech career fair businesses of the Westech subsidiary of Central
Newspapers, Inc. As a result of this transaction, Central Newspapers acquired a
23.2% ownership interest in BrassRing, while the interests of Kaplan, Tribune
and Accel were reduced to 41.6%, 27.5% and 7.7%, respectively. BrassRing has
advised the Company that, subject to prevailing market conditions, it currently
plans to register and sell shares of its common stock in an initial public
offering later in the year.
OTHER ACTIVITIES
LEGI-SLATE
During 1999, the Company's Legi-Slate, Inc. subsidiary disposed of
substantially all its assets and discontinued operations. Legi-Slate had
provided electronic database services focusing on the legislative and regulatory
activities of the United States government.
INTERNATIONAL HERALD TRIBUNE
The Company beneficially owns 50% of the outstanding common stock of the
International Herald Tribune, S.A.S., a French company which publishes the
International Herald Tribune in Paris, France. This English-language newspaper
has an average daily paid circulation of almost 235,000 copies and is
distributed in over 180 countries.
PRODUCTION AND RAW MATERIALS
Early in 1999 the Company completed a $230 million capital investment
program consisting of the expansion of The Washington Post's printing plant in
Fairfax County, Virginia, the construction of a new printing plant in Prince
George's County, Maryland, and the replacement of all the newspaper's printing
presses. The eight new presses installed in connection with this program have
allowed The Post to expand its use of color significantly and also have enhanced
its ability to zone editorial content and advertising.
All editions of The Herald and The Enterprise Newspapers are produced at
The Daily Herald Company's plant in Everett, Washington. The Gazette Newspapers
are printed at the commercial printing facility owned by The Gazette Newspapers,
Inc.
Newsweek's domestic edition is produced by three independent contract
printers at five 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, Hong
Kong, Singapore, Switzerland, the Netherlands, South Africa and Hollywood,
Florida; insertions
14
16
for The Bulletin are printed in Australia. Since 1997 Newsweek and a subsidiary
of Time Warner Inc. have used a jointly owned company based in England to
provide production and distribution services for the Atlantic editions of both
Newsweek and Time. Budget Travel is produced by one of the independent contract
printers that also prints Newsweek's domestic edition.
All Post-Newsweek Business Information publications are produced by
independent contract printers.
In 1999 The Washington Post consumed about 240,000* tons of newsprint
purchased from a number of suppliers, including Bowater Incorporated, which
supplied approximately 33% of The Post's 1999 newsprint requirements. Although
in prior years some of the newsprint The Post purchased from Bowater
Incorporated typically was provided by Bowater Mersey Paper Company Limited, 49%
of the common stock of which is owned by the Company (the majority interest
being held by a subsidiary of Bowater Incorporated), during 1999 none of the
newsprint consumed by The Post came from that source. Bowater Mersey owns and
operates a newsprint mill near Halifax, Nova Scotia, and owns extensive
woodlands that provide part of the mill's wood requirements. In 1999 Bowater
Mersey produced about 260,000 tons of newsprint.
The announced price of newsprint (excluding discounts) was approximately
$750 per ton throughout 1999. Discounts from the announced price of newsprint
can be substantial and prevailing discounts increased during the first half of
the year but declined during the second half. The Post believes it has adequate
newsprint available through contracts with its various suppliers. Over 90% of
the newsprint used by The Post includes some recycled content. The Company owns
80% of the stock of Capitol Fiber Inc., which handles and sells to recycling
industries old newspapers and other paper collected in Washington, D.C.,
Maryland and northern Virginia.
In 1999 the operations of The Daily Herald Company and The Gazette
Newspapers, Inc. consumed approximately 9,400 and 14,000 tons of newsprint,
respectively, which was obtained in each case from various suppliers.
Approximately 80% of the newsprint used by The Daily Herald Company and 50% of
the newsprint used by The Gazette Newspapers, Inc. includes some recycled
content.
The domestic edition of Newsweek consumed about 34,900 tons of paper in
1999, the bulk of which was purchased from eight major suppliers. The current
cost of body paper (the principal paper component of the magazine) is
approximately $1,010 per ton.
Over 90% of the aggregate domestic circulation of Newsweek is delivered
by second-class mail, most Newsweek subscriptions are solicited by either first-
or third-class mail, and all Post-Newsweek Business Information publications are
delivered by second-class 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.
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.
Since 1997 The New York Times has produced a Washington Edition which is printed
locally and includes television channel
- ----------
* All references in this report to newsprint tonnage and prices refer to
short tons (2,000) and not to metric tons (2,204.6 pounds) which are often used
in newsprint price quotations.
15
17
listings and weather for the Washington, D.C. area. The New York Times had
previously been available in retail outlets and by home delivery in the
Washington, D.C. area for many years, during which time the papers were printed
at The Time's New York-area plant and trucked to local distributors.
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 Herald's
and The Enterprise Newspapers' principal circulation areas.
The circulation of The Gazette Newspapers is limited to Montgomery and
Frederick Counties and parts of Prince George's and Carroll Counties, Maryland
(areas where The Washington Post also circulates). The Gazette Newspapers
compete in varying degrees with many advertising vehicles available in their
service areas, including The Potomac and Bethesda/Chevy Chase Almanacs, The
Western Montgomery Bulletin, and The Bowie Blade, weekly controlled-circulation
community newspapers, The Montgomery Sentinel, a weekly paid-circulation
community newspaper, The Prince George's Sentinel, a weekly
controlled-circulation community newspaper (which also has a weekly
paid-circulation edition), The Montgomery and Prince George's Journals, daily
paid-circulation community newspapers, and The Frederick News-Post, a daily
paid-circulation community newspaper.
Washingtonpost.Newsweek Interactive faces competition from many other
Internet services as well as from alternative methods of delivering news and
information. In addition, Internet-based services are carrying increasing
amounts of advertising and over time such services could adversely affect the
Company's 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.
Digital Cities (a subsidiary of America Online) produces DigitalCity Washington,
which is part of AOL's nationwide network of local online sites. Other popular
Internet sites, such as those of Yahoo! and Netscape Netcenter offer their own
version of a local, D.C.-area guide. In addition, since 1997 Bell Atlantic has
offered a yellow pages service on the Internet which includes information of
local interest as well as a nationwide residential white pages directory, and
Big Yellow, an electronic directory of 16 million businesses across the United
States. 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: CarPoint and Autobytel.com, for example, aggregate national car
listings; Realtor.com aggregates national real estate listings; and Monster.com,
CareerBuilder, and CareerMosaic aggregate employment listings.
The Company's 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 services and to a
lesser degree with other media such as newspapers and magazines. Both
independent stations and stations affiliated with the Fox Network, the United
Paramount Network and the Warner Brothers Network are becoming increasingly
competitive. Cable television systems operate in substantial portions of the
Company's broadcast markets 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, direct broadcast
16
18
satellite ("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 November 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 beginning in April 2000 the DBS operator
must obtain the consent of each local television station included in such a
service. The Company's television stations in Miami, Detroit, Houston and
Orlando currently are being distributed locally by satellite. By January 1,
2002, DBS providers that offer local-into-local service will be required to
carry all full-power television stations in the markets in which they have
chosen to provide this service. The FCC is in the process of implementing the
retransmission consent provisions of this Act, as well as other provisions that
require certain program-exclusivity rules applicable to cable television to be
applied to DBS providers. This Act also continues restrictions on the
transmission of distant network stations by DBS operators. Under these
restrictions, DBS operators are prohibited from distributing the signals of any
network-affiliated television station except in areas where the over-the-air
signal of the same network's local affiliate is not available. Several lawsuits
were filed beginning in late 1996 in which plaintiffs (including all four major
broadcast networks and network-affiliated stations including one of the
Company's Florida stations) alleged that certain DBS operators had not been
complying with this restriction. The plaintiffs have entered into a settlement
with DBS operator DirecTV, under which it will 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. The Satellite Home Viewer Improvement Act also provides that certain
distant-network subscribers whose service would have been discontinued as a
result of this litigation will continue to have access to distant-network
service for a five-year period, and requires the FCC to reconsider the computer
model by which DBS providers predict eligibility for distant-signal service and
to make recommendations to Congress on whether the technical standard for
eligibility should be changed by subsequent legislation. In addition to the
matters discussed above, the Company's 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. Further, the
deployment of digital and other improved television technologies may enhance the
ability of some of these other video providers to compete more effectively for
viewers with the local television broadcasting stations owned by the Company.
Cable television systems operate in a highly competitive environment. In
addition to competing with the direct reception of television broadcast signals
by the viewer's 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 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) is expected to increase 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, legislation is
pending before Congress that would provide loan guarantees to companies
intending to offer local-into-local service in smaller communities, and DBS
operators have stated that they intend to provide this service in a greater
number of markets in the future. Local-into-local service is not yet offered in
most markets in which the Company provides cable television service, but such
services could be launched by DBS operators at any time. The Company's cable
television systems also compete with wireless cable services in a number 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.
17
19
According to figures compiled by Publishers' Information Bureau, Inc.,
of the 243 magazines reported on by the Bureau, Newsweek ranked seventh in total
advertising revenues in 1999, when it received approximately 2.8% 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 which compete for audience and advertising revenue.
Post-Newsweek Business Information's publications and trade show compete
with many other advertising vehicles and sources of similar information.
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. Kaplan's
Score Learning subsidiary competes with other regional and national learning
centers, individual tutors and other educational e-commerce businesses which
target parents and students. Kaplan's Professional Division competes with other
companies which provide alternative or similar professional training,
test-preparation and consulting services. KaplanCollege.com 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.
The Company's publications and television broadcasting and cable
operations also compete for readers' and viewers' time with various other
leisure-time activities.
The future of the Company's 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 54, 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 September 1993
and prior to that had been a Vice President of the Company for more than five
years. Mr. Graham also is Publisher of The Washington Post, having occupied that
position since 1979.
Katharine Graham, age 82, is Chairman of the Executive Committee of the
Company's Board of Directors. Mrs. Graham previously served as Chairman of the
Board of the Company from 1973 until September 1993 and as the Company's Chief
Executive Officer from 1973 until May 1991.
Diana M. Daniels, age 50, 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.
Beverly R. Keil, age 53, has been a Vice President of the Company since
1986; from 1982 through 1985 she was the Company's Director of Human Resources.
18
20
John B. Morse, Jr., age 53, 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.
EMPLOYEES
The Company and its subsidiaries employ approximately 9,010 persons on a
full-time basis.
The Washington Post has approximately 2,900 full-time employees. About
1,880 of The Post's full-time employees and about 610 part-time employees are
represented by one or another of nine 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: 1,509
editorial, newsroom and commercial department employees represented by the
Communication Workers of America (May 18, 2002); 105 paperhandlers and general
workers represented by the Graphic Communications Union (June 1, 2000); 48
machinists represented by the International Association of Machinists (January
13, 2001); 46 photoengravers-platemakers represented by the Graphic Arts
International Union (February 17, 2001); 31 electricians represented by the
International Brotherhood of Electrical Workers (June 17, 2001); 103 building
service employees represented by the Service Employees International Union
(April 30, 2001); 40 engineers, carpenters and painters represented by the
International Union of Operating Engineers (March 31, 2002); 122 typographers
represented by the Communications Workers of America (October 2, 2000); and 337
mailers and 142 mailroom helpers represented by the Communications Workers of
America (May 18, 2003).
Of the approximately 300 full-time and 95 part-time employees at The
Daily Herald Company, about 75 full-time and 15 part-time employees are
represented by one or another of three unions. The newspaper's collective
bargaining agreement with the Graphic Communications International Union, which
represents press operators, expired on March 15, 2000, and a new agreement is
currently being negotiated. Its agreement with the International Brotherhood of
Teamsters, which represents bundle haulers, will expire on May 31, 2001. The
newspaper's agreement with the Communications Workers of America, which
represents printers and mailers, will expire on October 31, 2001.
Newsweek has approximately 740 full-time employees (including about 155
editorial employees represented by the Communications Workers of America under a
collective bargaining agreement which will expire in December 2003).
The Company's broadcasting operations have approximately 975 full-time
employees, of whom about 245 are union-represented. Of the eight collective
bargaining agreements covering union-represented employees, one has expired with
Company implementing its last offer after the parties reached an impasse in
negotiations. One other collective bargaining agreement will expire in 2000.
The Company's Cable Television Division has approximately 1,340
full-time employees. Kaplan and its subsidiary companies together employ
approximately 1,900 persons on a full-time basis (which number does not include
substantial numbers of part-time employees who serve in instructional and
clerical capacities). The Gazette Newspapers, Inc. has approximately 390
full-time and 85 part-time employees. Robinson Terminal Warehouse Corporation
(the Company's newsprint warehousing and distribution subsidiary), Post-Newsweek
Business Information and Washingtonpost.Newsweek Interactive each employ fewer
than 250 persons. None of these units' employees is represented by a union.
19
21
FORWARD-LOOKING STATEMENTS
All public statements made by the Company and its representatives which
are not statements of historical fact, including certain statements in this
Annual Report on Form 10-K and in the Company's 1999 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 Company's business strategies and objectives, the prospects
for growth in the Company's various business operations, and the Company's
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.
ITEM 2. PROPERTIES.
The 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 Company's principal executive offices are located.
Additionally, the Company owns land on the corner of 15th and L Streets, N.W.,
in Washington, D.C., adjacent to The Washington Post office building. This land
is leased on a long-term basis to the owner of a multi-story office building
which was constructed on the site in 1982. The Company rents a number of floors
in this building. The Company also owns and occupies a small office building on
L Street which is next to The Post's downtown office building.
In 1980 the Company built a printing plant on 13 acres of land owned by
the Company in Fairfax County, Virginia, and in 1998 completed an expansion of
that facility. Also in 1998 the Company completed construction of a new printing
plant and distribution facility for The Post on a 17-acre tract of land in
Prince George's County, Maryland which was purchased by the Company in 1996. In
addition, the Company owns a printing plant in Southeast Washington, D.C. which
was used as one of the production locations for The Post until the end of 1998,
as well as undeveloped land near Dulles Airport in Fairfax County, Virginia (39
acres) and in Prince George's County, Maryland (34 acres).
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, that is currently leased to a third party.
The Gazette Newspapers, Inc. owns a two-story brick building that serves
as headquarters for The Gazette Newspapers and a separate two-story brick
building that houses its commercial printing business. It also owns a one-story
brick building that formerly served as its headquarters and is under contract to
be sold. All of these properties are located in Gaithersburg, Maryland.
Satellite editorial and sales offices for The Gazette Newspapers are located in
leased premises.
20
22
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 Newsweek's
option at rentals to be negotiated or arbitrated. Budget Travel's offices are
also located in New York City where they occupy premises under a lease which
expires in 2001. In 1997 Newsweek sold its Mountain Lakes, N.J. facility to a
third party and leased back a portion of this building to house its accounting,
production and distribution departments. The lease on this space will expire in
2007 but is renewable for two 5-year periods at Newsweek's option.
The headquarters offices of the Company's broadcasting operations are
located in Hartford, Connecticut, where they occupy premises under a lease which
expires in 2002. The facilities that house the operations of each of the
Company's 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 which was purchased by the
Division in 1998. The majority of the offices and head-end facilities of the
Division's individual cable systems are located in buildings owned by the
Division. Substantially all the tower sites used by the Division are leased.
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 22 acres. These tracts are near The Washington Post's 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.
Kaplan owns a six-story building located at 131 West 56th Street in New
York City, which serves as an educational center primarily for foreign students,
and a one-story building in Brooklyn, New York, which currently is for sale.
Kaplan's principal educational center in New York City for other than
international students is located at 16 Cooper Square, where Kaplan rents two
floors under a lease expiring in 2013. Kaplan's distribution facilities have
been consolidated in a 97,000 square foot warehouse in Aurora, Illinois which
has been rented under a lease which expires in 2008. Kaplan's headquarters
offices are located at 888 Seventh Avenue in New York City, where Kaplan rents
space on three floors under a lease which expires in 2007. All other Kaplan
facilities (including administrative offices and instructional locations) occupy
leased premises.
The offices of Washingtonpost.Newsweek Interactive are located in
Arlington, Virginia. Post-Newsweek Business Information has its headquarters
office in Vienna, Virginia and also maintains office space in Silver Spring,
Maryland and San Francisco, California. The office space for each of these units
is leased.
ITEM 3. LEGAL PROCEEDINGS.
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. Management does not believe that any
litigation pending against the Company will have a material adverse effect on
its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
21
23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Class B Common Stock is traded on the New York Stock
Exchange under the symbol "WPO." The Company's Class A Common Stock is not
publicly traded.
The high and low sales prices of the Company's Class B Common Stock
during the last two years were:
1999 1998
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
January - March.............. $ 595 $ 517 $ 540 $ 462
April - June................. 582 510 576 514
July - September............. 574 508 606 493
October - December........... 586 490 578 481
During 1999 the Company repurchased 744,095 shares of its Class B Common
Stock - 666,106 shares through an issuer tender offer at a price of $575 per
share, and 77,989 shares in unsolicited transactions at prices no higher than
the last sale price on the New York Stock Exchange. Of the total shares
repurchased in 1999, 57,900 shares were included in trading volume reported on
that year's consolidated tape and accounted for about 2% of such volume.
At February 1, 2000, there were 23 holders of record of the Company's
Class A Common Stock and 1,154 holders of record of the Company's Class B Common
Stock.
Both classes of the Company's Common Stock participate equally as to
dividends. Quarterly dividends were paid at the rate of $1.30 per share during
1999 and $1.25 per share during 1998.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1995 through 1999 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information contained under the heading "Management's 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.
Equity Price Risk
The Company has common stock investments in several publicly traded
companies (as discussed in Note C to the Company's consolidated Financial
Statements) that are subject to market price volatility. The fair value of these
common stock investments (most of which were acquired in the fourth quarter of
fiscal 1998) totaled $203,012,000 at January 2, 2000.
22
24
The following table presents the hypothetical change in the aggregate
fair value of the Company's 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:
Value of Common Stock Investments Value of Common Stock Investments
Assuming Indicated Decrease in Assuming Indicated Increase in
Each Stock's Price Each Stock's Price
-------------------------------------------- -------------------------------------------
-30% -20% -10% +10% +20% +30%
------------- ------------- ------------- ------------- ------------- ------------
$142,108,400 $162,409,600 $182,710,800 $223,313,200 $243,614,400 $263,915,600
During the four quarters since the end of the Company's 1998 fiscal
year, market price movements caused the aggregate fair value of the Company's
common stock investments in publicly traded companies to change by approximately
20% in one quarter and by less then 10% in each of the other three quarters.
Interest Rate Risk
At January 2, 2000, the Company had short-term commercial paper
borrowings outstanding of $487,677,000 at an average interest rate of 6.4%. At
January 3, 1999, the Company had commercial paper borrowings outstanding of
$453,362,000 at an average interest rate of 5.4%. The Company is exposed to
interest rate risk with respect to such borrowings since an increase in
commercial paper borrowing rates would increase the Company's 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 Company's 1999 and 1998 fiscal years, the Company's
interest expense would have been greater by approximately $1,400,000 in fiscal
1999 and by approximately $2,500,000 in fiscal 1998.
The Company's long-term debt consists of $400,000,000 principal amount
of 5.5% unsecured notes due February 15, 2009 (the "Notes"). At January 2, 2000,
the aggregate fair value of the Notes, based upon quoted market prices, was
$353,920,000. An increase in the market rate of interest applicable to the Notes
would not increase the Company's 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 $370,380,000. 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 $429,620,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Company's Consolidated Financial Statements at January 2, 2000,
and for the periods then ended, together with the report of
PricewaterhouseCoopers LLP thereon and the information contained in Note N 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.
23
25
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 Company's 2000 Annual Meeting of Stockholders is
incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the headings "Compensation of
Directors," "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 Company's 2000 Annual Meeting of Stockholders is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Stock Holdings of Certain
Beneficial Owners and Management" in the definitive Proxy Statement for the
Company's 2000 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 Company's 2000
Annual Meeting of Stockholders is incorporated herein by reference thereto.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(i) Financial Statements and Financial Statement Schedules
As listed in the index to financial information on page
27 hereof.
(ii) Exhibits
As listed in the index to exhibits on page 56 hereof.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
24
26
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 31, 2000.
THE WASHINGTON POST COMPANY
(Registrant)
By John B. Morse, Jr.
-----------------------
John B. Morse, Jr.
Vice President-Finance
25
27
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 31, 2000:
Donald E. Graham Chairman of the Board and Chief
Executive Office (Principal
Executive Officer) and Director
Katharine Graham Chairman of the Executive
Committee of the Board and Director
John B. Morse, Jr. Vice President-Finance (Principal
Financial and Accounting Officer)
Warren E. Buffett Director
Daniel B. Burke Director
James E. Burke Director
George J. Gillespie, III Director
Ralph E. Gomory Director
Donald R. Keough Director
Barbara Scott Preiskel Director
William J. Ruane Director
Richard D. Simmons Director
George W. Wilson Director
By John B. Morse, Jr.
-----------------------
John B. Morse, Jr.
Attorney-in-Fact
An original power of attorney authorizing Donald E. Graham, Katharine
Graham and John B. Morse, Jr., 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
28
INDEX TO FINANCIAL INFORMATION
------------
THE WASHINGTON POST COMPANY
Page
----
Financial Statements and Schedules:
Report of Independent Accountants ..................................................................... 28
Consolidated Statements of Income for the Three Fiscal Years
Ended January 2, 2000 .............................................................................. 29
Consolidated Statements of Comprehensive Income for the Three
Fiscal Years Ended January 2, 2000 ................................................................. 29
Consolidated Balance Sheets at January 2, 2000 and January 3, 1999 .................................... 30
Consolidated Statements of Cash Flows for the Three Fiscal Years
Ended January 2, 2000 .............................................................................. 32
Consolidated Statements of Changes in Common Shareholders' Equity for the Three
Fiscal Years Ended January 2, 2000 ................................................................. 33
Notes to Consolidated Financial Statements ............................................................ 34
Financial Statement Schedules for the Three Fiscal Years Ended January 2, 2000:
II - Valuation and Qualifying Accounts ......................................................... 46
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Unaudited) ................................................................................. 47
Ten-Year Summary of Selected Historical Financial Data (Unaudited) ......................................... 54
----------------------
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.
27
29
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
The Washington Post Company
In our opinion, the consolidated financial statements, including the financial
statement schedule, referred to under Item 14(a)(i) on page 24 and listed in 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, 2000
and January 3, 1999, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended January 2, 2000, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit 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 the opinion expressed above.
PricewaterhouseCoopers LLP
Washington, D.C.
January 25, 2000
28
30
CONSOLIDATED STATEMENTS OF INCOME
Fiscal year ended
-----------------------------------------------------------
January 2, January 3, December 28,
(in thousands, except share amounts) 2000 1999 1997
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Advertising................................................ $ 1,330,560 $ 1,297,621 $ 1,236,877
Circulation and subscriber................................. 579,693 547,450 519,620
Education.................................................. 240,075 171,372 117,268
Other...................................................... 65,243 93,917 82,488
---------------------------------------------------------
2,215,571 2,110,360 1,956,253
---------------------------------------------------------
OPERATING COSTS AND EXPENSES
Operating.................................................. 1,189,734 1,139,177 1,019,869
Selling, general and administrative........................ 474,586 453,149 449,996
Depreciation of property, plant and equipment.............. 104,235 89,248 71,478
Amortization of goodwill and other intangibles............. 58,563 49,889 33,559
---------------------------------------------------------
1,827,118 1,731,463 1,574,902
---------------------------------------------------------
INCOME FROM OPERATIONS........................................ 388,453 378,897 381,351
Equity in (losses) earnings of affiliates.................. (8,814) (5,140) 9,955
Interest income............................................ 1,097 1,137 3,471
Interest expense........................................... (26,786) (11,538) (1,252)
Other income, net.......................................... 21,435 304,703 69,549
---------------------------------------------------------
INCOME BEFORE INCOME TAXES.................................... 375,385 668,059 463,074
PROVISION FOR INCOME TAXES.................................... 149,600 250,800 181,500
---------------------------------------------------------
NET INCOME.................................................... 225,785 417,259 281,574
REDEEMABLE PREFERRED STOCK DIVIDENDS.......................... (950) (956) (956)
---------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON SHARES $ 224,835 $ 416,303 $ 280,618
=========================================================
BASIC EARNINGS PER COMMON SHARE............................... $ 22.35 $ 41.27 $ 26.23
=========================================================
DILUTED EARNINGS PER COMMON SHARE............................. $ 22.30 $ 41.10 $ 26.15
=========================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal year ended
---------------------------------------------
January 2, January 3, December 28,
(in thousands) 2000 1999 1997
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME............................................................... $ 225,785 $ 417,259 $ 281,574
---------------------------------------------
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustments.............................. (3,289) (1,136) (5,127)
Change in net unrealized gain on available-for-sale securities........ (48,176) 68,768 (5,121)
Less reclassification adjustment for realized gains
included in net income........................................... (11,995) -- --
---------------------------------------------
(63,460) 67,632 (10,248)
Income tax benefit (expense) related to other
comprehensive (loss) income...................................... 23,460 (26,819) 1,997
---------------------------------------------
(40,000) 40,813 (8,251)
=============================================
COMPREHENSIVE INCOME..................................................... $ 185,785 $ 458,072 $ 273,323
=============================================
The information on pages 34 through 45 is an integral part of the financial
statements.
29
31
CONSOLIDATED BALANCE SHEETS
January 2, January 3,
(in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 75,479 $ 15,190
Investments in marketable equity securities............ 37,228 71,676
Accounts receivable, net............................... 270,264 236,514
Federal and state income taxes......................... 48,597 35,395
Inventories............................................ 13,890 20,154
Other current assets................................... 30,701 25,949
---------------------------------
476,159 404,878
PROPERTY, PLANT AND EQUIPMENT
Buildings.............................................. 249,957 248,764
Machinery, equipment and fixtures...................... 1,081,787 977,710
Leasehold improvements................................. 53,048 50,556
---------------------------------
1,384,792 1,277,030
Less accumulated depreciation.......................... (626,899) (566,616)
---------------------------------
757,893 710,414
Land................................................... 37,301 41,191
Construction in progress............................... 59,712 89,457
---------------------------------
854,906 841,062
INVESTMENTS IN MARKETABLE EQUITY SECURITIES............... 165,784 184,440
INVESTMENTS IN AFFILIATES................................. 140,669 68,530
GOODWILL AND OTHER INTANGIBLES, less accumulated
amortization of $341,879 and $286,135................... 886,060 883,232
PREPAID PENSION COST...................................... 337,818 256,134
DEFERRED CHARGES AND OTHER ASSETS......................... 125,548 91,385
---------------------------------
$ 2,986,944 $ 2,729,661
=================================
The information on pages 34 through 45 is an integral part of the financial
statements.
30
32
January 2, January 3,
(in thousands, except share amounts) 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities................................................ $ 254,105 $ 245,068
Deferred subscription revenue........................................................... 80,766 85,649
Short-term borrowings................................................................... 487,677 58,362
---------------------------------
822,548 389,079
OTHER LIABILITIES.......................................................................... 273,110 261,896
DEFERRED INCOME TAXES...................................................................... 114,003 83,710
LONG-TERM DEBT............................................................................. 397,620 395,000
---------------------------------
1,607,281 1,129,685
---------------------------------
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; 11,873 shares issued and
outstanding............................................................................. 11,873 11,873
---------------------------------
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; 1,739,250 shares issued and outstanding............................... 1,739 1,739
Class B common stock, $1 par value; 40,000,000 shares authorized;
18,260,750 shares issued; 7,700,146 and 8,353,994 shares outstanding.............. 18,261 18,261
Capital in excess of par value.......................................................... 108,867 46,199
Retained earnings....................................................................... 2,769,676 2,597,217
Accumulated other comprehensive income (loss), net of taxes
Cumulative foreign currency translation adjustment................................... (4,889) (1,600)
Unrealized gain on available-for-sale securities..................................... 5,269 41,980
Cost of 10,560,604 and 9,906,756 shares of Class B common stock held in treasury........ (1,531,133) (1,115,693)
---------------------------------
1,367,790 1,588,103
---------------------------------
$ 2,986,944 $ 2,729,661
=================================
The information on pages 34 through 45 is an integral part of the financial
statements.
31
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal year ended
----------------------------------------
January 2, January 3, December 28,
(in thousands) 2000 1999 1997
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................ $ 225,785 $ 417,259 $ 281,574
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property, plant and equipment .......................... 104,235 89,248 71,478
Amortization of goodwill and other intangibles ......................... 58,563 49,889 33,559
Net pension benefit .................................................... (81,683) (61,997) (30,227)
Gain from disposition of businesses and
marketable equity securities, net .................................... (38,799) (314,400) (44,560)
Equity in losses (earnings) of affiliates, net of distributions ........ 9,744 9,145 (6,996)
Provision for deferred income taxes .................................... 29,988 26,987 3,089
Change in assets and liabilities:
(Increase) decrease in accounts receivable, net ..................... (28,194) 22,041 (8,438)
Decrease (increase) in inventories .................................. 6,264 (941) 5,214
(Decrease) increase in accounts payable and accrued liabilities ..... (7,749) 13,949 19,638
Increase in income taxes receivable ................................. (2,909) (50,735) --
(Increase) decrease in other assets and other liabilities, net ...... (4,274) 12,241 2,690
Other .................................................................. 12,034 10,427 (8,724)
------------------------------------
Net cash provided by operating activities ........................... 283,005 223,113 318,297
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of businesses ...................................... 2,000 376,442 120,208
Purchases of property, plant and equipment ................................ (130,045) (244,219) (214,573)
Purchases of marketable equity securities ................................. (23,332) (164,955) --
Sales and maturities of marketable equity securities ...................... 54,805 38,246 --
Investments in certain businesses ......................................... (90,455) (320,597) (178,943)
Other ..................................................................... (13,356) (5,960) (3,187)
------------------------------------
Net cash used in investing activities ............................... (200,383) (321,043) (276,495)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper, net ......................................... 34,087 156,968 296,394
Issuance of notes ......................................................... 397,620 -- --
Redemption of redeemable preferred stock .................................. -- (74) --
Dividends paid ............................................................ (53,326) (51,383) (52,592)
Common shares repurchased ................................................. (425,865) (20,512) (368,565)
Proceeds from exercise of stock options ................................... 25,151 7,004 1,800
------------------------------------
Net cash (used in) provided by financing activities ................. (22,333) 92,003 (122,963)
------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................... 60,289 (5,927) (81,161)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................... 15,190 21,117 102,278
-------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ..................................... $ 75,479 $ 15,190 $ 21,117
=====================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes ........................................................... $ 125,000 $ 280,000 $ 164,000
Interest, net of amounts capitalized ................................... $ 16,000 $ 8,700 $ 350
The information on pages 34 through 45 is an integral part of the financial
statements.
32
34
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
Class A Class B Capital in
Common Common Excess of Retained
(in thousands, except share amounts) Stock Stock Par Value Earnings
- -------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 29, 1996................................. $1,779 $18,221 $ 26,455 $2,002,359
Net income for the year................................. 281,574
Dividends paid on common stock--$4.80 per share......... (51,636)
Dividends paid on redeemable preferred stock............ (956)
Repurchase of 846,290 shares of
Class B common stock..................................
Issuance of 24,962 shares of Class B common
stock, net of restricted stock award forfeitures..... 6,025
Change in foreign currency translation
adjustment (net of taxes)............................
Change in unrealized gain on available-for-sale
securities (net of taxes)............................
Conversion of Class A common stock to
Class B common stock................................. (40) 40
Tax benefits arising from employee stock plans.......... 935
------------------------------------------------
BALANCE, DECEMBER 28, 1997................................. 1,739 18,261 33,415 2,231,341
Net income for the year................................. 417,259
Dividends paid on common stock--$5.00 per share......... (50,427)
Dividends paid on redeemable preferred stock............ (956)
Repurchase of 41,033 shares of
Class B common stock..................................
Issuance of 45,065 shares of Class B common
stock, net of restricted stock award forfeitures..... 9,772
Change in foreign currency translation
adjustment (net of taxes)............................
Change in unrealized gain on available-for-sale
securities (net of taxes)............................
Tax benefits arising from employee stock plans.......... 3,012
------------------------------------------------
BALANCE, JANUARY 3, 1999................................... 1,739 18,261 46,199 2,597,217
Net income for the year................................. 225,785
Dividends paid on common stock--$5.20 per share......... (52,376)
Dividends paid on redeemable preferred stock............ (950)
Repurchase of 744,095 shares of
Class B common stock..................................
Issuance of 90,247 shares of Class B common
stock, net of restricted stock award forfeitures..... 16,023
Change in foreign currency translation
adjustment (net of taxes)............................
Change in unrealized gain on available-for-sale
securities (net of taxes)............................
Issuance of subsidiary stock (net of taxes)............. 34,571
Tax benefits arising from employee stock plans.......... 12,074
------------------------------------------------
BALANCE, JANUARY 2, 2000................................... $1,739 $18,261 $108,867 $2,769,676
================================================
Cumulative Unrealized
Foreign Gain on
Currency Available-
Translation for-Sale Treasury
(in thousands, except share amounts) Adjustment Securities Stock
- --------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 29, 1996................................. $ 4,663 $ 3,155 $ (733,829)
Net income for the year.................................
Dividends paid on common stock--$4.80 per share.........
Dividends paid on redeemable preferred stock............
Repurchase of 846,290 shares of
Class B common stock.................................. (368,565)
Issuance of 24,962 shares of Class B common
stock, net of restricted stock award forfeitures..... 2,145
Change in foreign currency translation
adjustment (net of taxes)............................ (5,127)
Change in unrealized gain on available-for-sale
securities (net of taxes)............................ (3,124)
Conversion of Class A common stock to
Class B common stock.................................
Tax benefits arising from employee stock plans..........
------------------------------------------
BALANCE, DECEMBER 28, 1997................................. (464) 31 (1,100,249)
Net income for the year.................................
Dividends paid on common stock--$5.00 per share.........
Dividends paid on redeemable preferred stock............
Repurchase of 41,033 shares of
Class B common stock.................................. (20,512)
Issuance of 45,065 shares of Class B common
stock, net of restricted stock award forfeitures..... 5,068
Change in foreign currency translation
adjustment (net of taxes)............................ (1,136)
Change in unrealized gain on available-for-sale
securities (net of taxes)............................ 41,949
Tax benefits arising from employee stock plans..........
------------------------------------------
BALANCE, JANUARY 3, 1999................................... (1,600) 41,980 (1,115,693)
Net income for the year.................................
Dividends paid on common stock--$5.20 per share.........
Dividends paid on redeemable preferred stock............
Repurchase of 744,095 shares of
Class B common stock.................................. (425,865)
Issuance of 90,247 shares of Class B common
stock, net of restricted stock award forfeitures..... 10,425
Change in foreign currency translation
adjustment (net of taxes)............................ (3,289)
Change in unrealized gain on available-for-sale
securities (net of taxes)............................ (36,711)
Issuance of subsidiary stock (net of taxes).............
Tax benefits arising from employee stock plans..........
------------------------------------------
BALANCE, JANUARY 2, 2000................................... $(4,889) $ 5,269 $(1,531,133)
==========================================
The information on pages 34 through 45 is an integral part of the financial
statements.
33
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Washington Post Company (the "Company") is a diversified media organization
whose principal operations consist of newspaper publishing (primarily The
Washington Post newspaper), television broadcasting (through the ownership and
operation of six network-affiliated television stations), the ownership and
operation of cable television systems, and magazine publishing (primarily
Newsweek magazine). Through its subsidiary Kaplan, Inc., the Company provides
educational and career services for individuals, schools and businesses. The
Company also owns and operates a number of media web sites for the primary
purpose of developing the Company's newspaper and magazine publishing businesses
on the world wide web.
FISCAL YEAR. The Company reports on a 52-53 week fiscal year ending on the
Sunday nearest December 31. The fiscal year 1999, which ended on January 2,
2000, included 52 weeks, while 1998 included 53 weeks and 1997 included 52
weeks. With the exception 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 to the 1999 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 Company's 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 equity and comprehensive income.
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.
INVESTMENTS IN AFFILIATES. The Company uses the equity method of accounting for
its investments in and earnings or losses of affiliates.
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.
GOODWILL AND OTHER INTANGIBLES. Goodwill and other intangibles represent the
unamortized excess of the cost of acquiring subsidiary companies over the fair
values of such companies' net tangible assets at the dates of acquisition.
Goodwill and other intangibles are being amortized by use of the straight-line
method over periods ranging from 15 to 40 years (with the majority being
amortized over 15 to 20 years).
LONG-LIVED ASSETS. The recoverability of long-lived assets, including goodwill
and other intangibles, is assessed annually or whenever adverse events and
changes in circumstances indicate that previously anticipated undiscounted cash
flows warrant assessment.
PROGRAM RIGHTS. The broadcast subsidiaries are parties to agreements that
entitle them to show syndicated and other programs on television. The cost of
such program rights is recorded when the programs are available for broadcasting
and such costs are charged to operations as the programming is aired.
DEFERRED SUBSCRIPTION REVENUE AND MAGAZINE SUBSCRIPTION PROCUREMENT COSTS.
Deferred subscription revenue, which primarily represents amounts received from
customers in advance of magazine and newspaper deliveries, is included in
revenues over the related subscription term.
Deferred subscription revenue to be earned after one year is included in
"Other liabilities" in the Consolidated Balance Sheets. Magazine subscription
procurement costs are charged to operations as incurred.
EDUCATION REVENUE. Education revenue in recognized ratably over the period
during which educational services are delivered.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company provides certain health
care and life insurance benefits for 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
34
36
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 Company's 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 Company's foreign operations where the local currency is the
functional currency and the Company's equity investments in its foreign
affiliates are accumulated and reported as a separate component of equity and
comprehensive income.
STOCK-BASED COMPENSATION. The Company accounts for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Pro forma
disclosures of net income and earnings per share as if the fair-value based
method prescribed by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" had been applied in measuring
compensation expense are provided in Note H.
SALE OF SUBSIDIARY SECURITIES. The Company's policy is to record investment
basis gains arising from the sale of equity interests in subsidiaries that are
in the early stages of building their operations as additional paid in capital,
net of taxes.
B. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts receivable at January 2, 2000 and January 3, 1999 consist of the
following (in thousands):
1999 1998
- ---------------------------------------------------------------------------------
Trade accounts receivable, less estimated
returns, doubtful accounts and
allowances of $60,621 and $55,050................. $ 248,279 $ 216,500
Other accounts receivable........................... 21,985 20,014
----------------------
$ 270,264 $ 236,514
======================
Accounts payable and accrued liabilities at January 2, 2000 and January
3, 1999 consist of the following (in thousands):
1999 1998
- ---------------------------------------------------------------------------------
Accounts payable and accrued expenses................... $ 158,197 $ 170,018
Accrued payroll and related benefits.................... 58,420 55,133
Deferred tuition revenue................................ 28,060 13,166
Due to affiliates (newsprint)........................... 9,428 6,751
-----------------------
$ 254,105 $ 245,068
=======================
C. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Investments in marketable equity securities at January 2, 2000 and January 3,
1999 consist of the following (in thousands):
1999 1998
- ---------------------------------------------------------------------------------
Total cost.............................................. $ 194,364 $ 187,297
Net unrealized gains.................................... 8,648 68,819
---------------------
Total fair value........................................ $ 203,012 $ 256,116
=====================
At January 2, 2000, the Company's 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 $165,800,000 or 82 percent of the total fair
value of the Company's investments in marketable equity securities. The
remaining investments in marketable equity securities at January 2, 2000 consist
of common stock investments in various publicly traded companies, most of which
have concentrations in Internet business activities. In most cases, the Company
obtained ownership of these common stocks as a result of merger or acquisition
transactions in which these companies merged or acquired various small Internet
related companies in which the Company held minor investments.
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 percent 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 Company's Board of Directors.
Neither Berkshire nor Mr. Buffett participated in the Company's evaluation,
approval or execution of its decision to invest in Berkshire common stock. The
Company's investment in Berkshire common stock is less than 1 percent of the
consolidated equity of Berkshire. At present, the Company intends to hold the
Berkshire common stock investment long-term; thus this investment has been
classified as a non-current asset in the Consolidated Balance Sheets.
At January 2, 2000, net unrealized gains consisted of unrealized gains
totaling $27,782,000 on various common stock investments offset in part by
$19,134,000 in unrealized losses on the company's investment in Berskshire
common stock. The company intends to hold the Berkshire common stock investment
long-term and views the unrealized loss position at January 2,000 as temporary.
During 1999 and 1998, proceeds from sales of marketable equity securities
were $54,805,000 and $38,246,000, respectively, and gross realized gains on such
sales were $38,799,000 and $2,168,000, respectively. There were no sales of
marketable equity securities during 1997. Gross realized gains or losses upon
the sale of marketable equity securities are included in "Other income, net" in
the Consolidated Statements of Income. For purposes of comput-
35
37
ing realized gains and losses, the cost basis of securities sold is determined
by specific identification.
D. INVESTMENTS IN AFFILIATES
The Company's investments in affiliates at January 2, 2000 and January 3, 1999
include the following (in thousands):
1999 1998
- --------------------------------------------------------------------------------
BrassRing, Inc. ....................................... $ 75,842 --
Bowater Mersey Paper Company........................... 39,885 $ 40,121
International Herald Tribune........................... 19,890 23,026
Other.................................................. 5,052 5,383
----------------------
$ 140,669 $ 68,530
======================
The Company's investments in affiliates consist of a 54 percent
non-controlling interest in BrassRing, Inc., a recently established company
which provides recruiting, career development and hiring management services for
employers and job candidates; a 49 percent interest in the common stock of
Bowater Mersey Paper Company Limited, which owns and operates a newsprint mill
in Nova Scotia; a 50 percent common stock interest in The International Herald
Tribune Newspaper, published near Paris, France; and a 50 percent common stock
interest in the Los Angeles Times-Washington Post News Service, Inc.
Operating costs and expenses of the Company include newsprint supplied by
Bowater, Inc. (parent to Bowater Mersey Paper Company Limited), the cost of
which was approximately $36,300,000 in 1999, $39,800,000 in 1998 and $40,100,000
in 1997.
The following table summarizes the status and results of the Company's
investments in affiliates (in thousands):
1999 1998
- --------------------------------------------------------------------------
Beginning investment ....................... $ 68,530 $ 154,791
BrassRing, Inc. ............................ 83,493 --
Additional investment ...................... 8,734 15,187
Equity in losses ........................... (8,814) (5,140)
Dividends and distributions received ....... (930) (1,587)
Foreign currency translation ............... (3,289) (1,134)
Sale of interest in Cowles ................. -- (93,587)
Other ...................................... (7,055) --
-------------------------
Ending investment .......................... $ 140,669 $ 68,530
=========================
On September 29, 1999, the Company merged its career fair and HireSystems
businesses together and renamed the combined operations BrassRing, Inc. On the
same date, BrassRing issued stock representing a 46 percent equity interest to
two parties under two separate transactions for cash and businesses with an
aggregate fair value of $87,000,000. As a result of this transaction, the
Company's ownership of BrassRing was reduced to 54 percent and the minority
investors were granted certain participatory rights. As such, the Company has
prospectively de-consolidated BrassRing and recorded its investment under the
equity method of accounting. The increase in the basis of the Company's
investment in BrassRing resulting from this transaction of $34,571,000, net of
taxes, has been recorded as contributed capital.
E. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Current Deferred
- --------------------------------------------------------------------------------
1999
U.S. Federal............................................ $ 94,609 $ 30,346
Foreign................................................. 1,306 (22)
State and local......................................... 23,697 (336)
----------------------
$ 119,612 $ 29,988
======================
1998
U.S. Federal............................................ $ 200,898 $ 20,446
Foreign................................................. 1,233 255
State and local......................................... 21,682 6,286
----------------------
$ 223,813 $ 26,987
======================
1997
U.S. Federal............................................ $ 149,003 $ 2,210
Foreign................................................. 915 (165)
State and local......................................... 28,493 1,044
----------------------
$ 178,411 $ 3,089
======================
The provision for income taxes exceeds the amount of income tax
determined by applying the U.S. Federal statutory rate of 35 percent to income
before taxes as a result of the following (in thousands):
1999 1998 1997
- -------------------------------------------------------------------------------------
U.S. Federal statutory taxes............. $ 131,385 $ 233,821 $ 162,076
State and local taxes,
net of U.S. Federal
income tax benefit..................... 15,185 18,179 19,199
Amortization of goodwill
not deductible for
income tax purposes.................... 4,178 5,644 2,492
IRS approved accounting
change................................. -- (3,550) --
Other, net............................... (1,148) (3,294) (2,267)
-----------------------------------------
Provision for income taxes............... $ 149,600 $ 250,800 $ 181,500
=========================================
36
38
Deferred income taxes at January 2, 2000 and January 3, 1999 consist of
the following (in thousands):
1999 1998
- ------------------------------------------------------------------------------------
Accrued postretirement benefits......................... $ 53,819 $ 52,971
Other benefit obligations............................... 54,101 37,450
Accounts receivable..................................... 14,016 13,695
Other................................................... 16,848 9,656
------------------------
Deferred tax asset...................................... 138,784 113,772
------------------------
Property, plant and equipment........................... 77,907 60,793
Prepaid pension cost.................................... 140,640 101,884
Affiliate operations.................................... 21,741 4,797
Unrealized gain on available-
for-sale securities................................... 3,379 26,839
Other................................................... 9,120 3,169
------------------------
Deferred tax liability.................................. 252,787 197,482
------------------------
Deferred income taxes................................... $ 114,003 $ 83,710
========================
F. DEBT
At January 2, 2000, the Company had $885,297,000 in total debt outstanding
including long-term debt of $397,620,000 and short-term commercial paper
borrowings of $487,677,000. At January 3, 1999, the Company had $453,362,000 in
commercial paper borrowings outstanding.
The Company's long-term debt, stated net of unamortized original issue
discount, consists of $400,000,000 5.5 percent unsecured notes due February 15,
2009. Interest is payable semi-annually on February 15 and August 15.
At January 2, 2000 and January 3, 1999, the average interest rate on the
Company's outstanding commercial paper borrowings was 6.4 percent and 5.4
percent, respectively. The Company's commercial paper borrowings are supported
by a five-year $500,000,000 revolving credit facility. Under the terms of the
revolving credit facility, interest on borrowings are at floating rates, and the
Company is required to pay an annual facility fee of 0.055 percent and 0.15
percent on the unused and used portions of the facility, respectively.
The Company incurred interest costs on its borrowings of $25,700,000 and
$13,800,000 during 1999 and 1998, respectively, of which $1,800,000 and
$5,600,000 were capitalized in connection with the construction and upgrade of
qualifying assets.
At January 2, 2000, the fair value of the Company's long-term debt, based
upon quoted market prices, totalled $353,920,000 compared with the carrying
amount of $397,620,000. At January 3, 1999, the Company's long-term debt of
$395,000,000 consisted of commercial paper borrowings classified as long-term
due to the Company's ability and intent to refinance such borrowings with
long-term debt; the carrying value of these borrowings approximated fair value.
The carrying value of the Company's short-term borrowings at January 2,
2000 and January 3, 1999 approximates fair value.
The Company's borrowing arrangements contain various covenants, including
financial covenants that require the Company to maintain at least $850,000,000
of consolidated shareholders' equity.
G. 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 and agreed to issue
an additional 1,282 shares of such stock on February 23, 2000 (which additional
number of shares is subject to reduction in the event of any breach of the
representations and warranties made by the seller in the acquisition agreement).
During 1998, the Company redeemed 74 shares of the Series A Preferred Stock at
the request of a Series A Preferred Stockholder.
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, with the first such period beginning 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 Company's 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.
H. 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 percent 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 1999, 1998 and 1997, the Company purchased a total of 744,095,
41,033 and 846,290 shares, respectively, of its Class B common stock at a cost
of approximately $425,865,000, $20,512,000 and $368,565,000.
STOCK AWARDS. In 1982, the Company adopted a long-term incentive compensation
plan that, 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 participant's employment
terminates before the end of a specified period of service to the Company. At
January 2, 2000, there were 90,260 shares reserved
37
39
for issuance under the incentive compensation plan. Of this number, 31,360
shares were subject to awards outstanding, and 58,900 shares were available for
future awards. Activity related to stock awards under the long-term incentive
compensation plan for the years ended January 2, 2000, January 3, 1999 and
December 28, 1997 was as follows:
1999 1998 1997
- ---------------------------------------------------------------------------------------
Number Average Number Average Number Average
of Award of Award of Award
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------
Awards Outstanding
Beginning of year... 30,730 $ 405.40 32,331 $ 281.19 30,490 $ 237.83
Awarded........... 2,615 543.02 14,120 522.56 18,285 351.68
Vested............ (167) 349.00 (15,075) 244.10 (13,521) 228.96
Forfeited......... (1,818) 479.90 (646) 293.83 (2,923) 285.35
------------------------------------------------------------------
End of year......... 31,360 $ 412.86 30,730 $ 405.40 32,331 $ 281.19
==================================================================
In addition to stock awards granted under the long-term incentive
compensation plan, the Company also made stock awards of 1,750 shares in 1999,
938 shares in 1998, and 2,000 shares in 1997.
For the share awards outstanding at January 2, 2000, the aforementioned
restriction will lapse in 2000 for 100 shares, 2001 for 17,683 shares, 2002 for
1,371 shares, 2003 for 15,794 shares, and 2004 for 1,100 shares. Stock-based
compensation costs resulting from stock awards reduced net income by $2.2
million ($0.22 per share, basic and diluted), $1.9 million ($0.19 per share,
basic and diluted), and $1.2 million ($0.11 per share, basic and diluted) in
1999, 1998 and 1997, respectively.
STOCK OPTIONS. The Company's employee stock option plan, which was adopted in
1971 and amended in 1993, reserves 1,900,000 shares of the Company's 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, 2000, there were 524,000 shares reserved for issuance under
the stock option plan, of which 156,497 shares were subject to options
outstanding and 367,503 shares were available for future grants.
Changes in options outstanding for the years ended January 2, 2000,
January 3, 1999 and December 28, 1997 were as follows:
1999 1998 1997
- ----------------------------------------------------------------------------------------
Number Average Number Average Number Average
of Option of Option of Option
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------
Beginning of year... 246,072 $ 404.482 51,225 $ 371.35 178,625 $ 270.21
Granted........... 3,750 516.36 25,500 519.32 80,200 583.62
Exercised......... (87,825) 288.43 (30,653) 228.53 (7,600) 234.20
Forfeited......... (5,500) 450.86 -- -- -- --
------------------------------------------------------------------
End of year......... 156,497 $ 470.642 46,072 $ 404.48 251,225 $ 371.35
==================================================================
Of the shares covered by options outstanding at the end of 1999, 109,022
are now exercisable, 22,342 will become exercisable in 2000, 17,925 will become
exercisable in 2001, 6,625 will become exercisable in 2002, and 583 will become
exercisable in 2003.
Information related to stock options outstanding at January 2, 2000 is as
follows:
Weighted
average Weighted Weighted
Number remaining average Number average
Range of outstanding contractual exercise exercisable exercise
exercise prices at 1/2/00 life (yrs.) price at 1/2/00 price
- -------------------------------------------------------------------------------------
$ 173 5,000 2.0 $ 173.00 5,000 $ 173.00
222-299 30,675 4.3 247.70 30,675 247.70
344-350 17,497 7.1 344.44 12,347 344.29
472 41,575 8.0 472.00 20,000 472.00
509-570 26,750 9.1 519.10 6,000 520.70
733 35,000 8.0 733.00 35,000 733.00
All options were granted at an exercise price equal to or greater than
the fair market value of the Company's common stock at the date of grant. The
weighted-average fair value for options granted during 1999, 1998 and 1997 was
$157.77, $126.57 and $87.94, respectively. The fair value of options at date of
grant was estimated using the Black-Scholes method utilizing the following
assumptions:
1999 1998 1997
- ----------------------------------------------------------------------------------------
Expected life (years).......................... 7 7 7
Interest rate.................................. 6.19% 4.68% 5.84%
Volatility..................................... 16.0% 14.6% 14.2%
Dividend yield................................. 1.1% 1.2% 1.5%
Had the fair values of option granted after 1995 been recognized as
compensation expense, net income would have been reduced by $1.9 million ($0.19
per share, basic and diluted), $2.0 million ($0.19 per share, basic and diluted)
and $1.6 million ($0.15 per share, basic and diluted) in 1999, 1998 and 1997
respectively.
The Company also 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, Inc. stock and the issuance of stock
appreciation rights to certain members of Kaplan's management. These options and
appreciation rights vest ratably over five years from issuance. For 1999 and
1998, the Company recorded expense of $7,200,000 and $6,000,000 related to these
plans.
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
38
40
issuable under outstanding stock options. Basic and diluted weighted average
share information for 1999, 1998 and 1997 is as follows:
Basic Dilutive Diluted
Weighted Effect of Weighted
Average Stock Average
Shares Options Shares
- ------------------------------------------------------------------------------------
1999............................... 10,060,578 21,206 10,081,784
1998............................... 10,086,786 42,170 10,128,956
1997............................... 10,699,713 33,278 10,732,991
I. 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 Company's 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 following table sets forth obligation, asset and funding information
for the Company's defined benefit pension and postretirement plans at January 2,
2000 and January 3, 1999 (in thousands):
Pension Plans Postretirement Benefits
--------------------------------------------------------
1999 1998 1999 1998
- -------------------------------------- ---------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning
of year............................. $ 338,045 $ 284,278 $ 107,779 $ 101,255
Service cost.......................... 14,756 11,335 3,585 3,764
Interest cost......................... 23,584 21,344 6,039 7,417
Amendments............................ 3,205 4,690 2,379 --
Actuarial (gain) loss................. (22,281) 26,871 (27,981) 155
Benefits paid......................... (12,698) (10,473) (4,863) (4,812)
--------------------------------------------------------
Benefit obligation at end
of year............................. $ 344,611 $ 338,045 $ 86,938 $ 107,779
========================================================
CHANGE IN PLAN ASSETS
Fair value of assets at beginning
of year............................. $ 1,308,418 $ 1,014,531 -- --
Actual return on plan assets.......... (175,804) 304,360 -- --
Employer contributions................ -- -- $ 4,863 $ 4,812
Benefits paid......................... (12,698) (10,473) (4,863) (4,812)
--------------------------------------------------------
Fair value of assets at end of year... $ 1,119,916 $ 1,308,418 $ -- $ --
========================================================
Funded status......................... $775,305 $970,373 $ (86,938) $ (107,779)
Unrecognized transition asset......... (22,941) (30,606) -- --
Unrecognized prior service cost....... 18,930 17,835 (825) (3,366)
Unrecognized actuarial gain........... (433,476) (701,468) (36,528) (11,433)
--------------------------------------------------------
Net prepaid (accrued) cost............ $ 337,818 $256,134 $ (124,291) $ (122,578)
========================================================
The total (income) cost arising from the Company's defined benefit pension and
postretirement plans for the years ended January 2, 2000, January 3, 1999 and
December 28, 1997, consists of the following components (in thousands):
Pension Plans Postretirement Plans
-------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Service cost ................. $ 14,756 $ 11,335 $ 10,567 $ 3,585 $ 3,764 $ 3,511
Interest cost ................ 23,584 21,344 19,433 6,039 7,417 6,973
Expected return
on assets .................. (92,566) (71,814) (51,842) -- -- --
Amortization of
transition asset ........... (7,665) (7,665) (7,665) -- -- --
Amortization of
prior service cost ......... 2,110 1,679 1,512 (162) (378) (378)
Recognized
actuarial gain ............. (21,902) (16,876) (2,232) (2,886) (1,379) (1,576)
-------------------------------------------------------------------------------------
Total (benefit) cost
for the year ............... $(81,683) $(61,997) $(30,227) $ 6,576 $ 9,424 $ 8,530
=====================================================================================
The cost for the Company's defined benefit pension and postretirement
plans are actuarially determined. Key assumptions utilized at January 2, 2000,
January 3, 1999 and December 28, 1997 include the following:
Pension Plans Postretirement Plans
-------------------------------------------------
1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------
Discount rate ................ 7.5% 7.0% 7.5% 7.5% 7.0% 7.5%
Expected return on
plan assets ................ 9.0% 9.0% 9.0% -- -- --
Rate of compensation
increase ................... 4.0% 4.0% 4.0% -- -- --
The assumed health care cost trend rate used in measuring the
postretirement benefit obligation at January 2, 2000 was 7.6 percent for pre-age
65 benefits ( 7.1 percent for post-age 65 benefits) decreasing to 5 percent in
the year 2005 and thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage point change 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.............. $ 12,944 $ (12,091)
Service cost plus interest cost................ 1,510 (1,464)
39
41
Contributions to multi-employer pension plans, which are generally based
on hours worked, amounted to $2,300,000 in 1999 and 1998, and $2,000,000 in
1997.
The Company recorded expense associated with retirement benefits provided
under incentive savings plans (primarily 401k plans) of approximately
$13,300,000 in 1999 and 1998, and $12,400,000 in 1997.
J. 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, 2000, future minimum rental payments under noncancelable
operating leases approximate the following (in thousands):
2000 .................................................................. $ 31,300
2001................................................................... 26,600
2002................................................................... 23,000
2003 .................................................................. 19,100
2004 .................................................................. 16,500
Thereafter ............................................................ 50,600
---------
$ 167,100
=========
Minimum payments have not been reduced by minimum sublease rentals of
$1,900,000 due in the future under noncancelable subleases.
Rent expense under operating leases included in operating costs and
expenses was approximately $33,600,000, $31,800,000 and $27,800,000 in 1999,
1998 and 1997, respectively. Sublease income was approximately $433,000,
$500,000 and $400,000 in 1999, 1998 and 1997, respectively.
The Company's broadcast subsidiaries are parties to certain agreements
that commit them to purchase programming to be produced in future years. At
January 2, 2000, such commitments amounted to approximately $47,000,000. If such
programs are not produced, the Company's commitment would expire without
obligation.
K. ACQUISITIONS, EXCHANGES AND DISPOSITIONS
ACQUISITIONS. The Company completed acquisitions totaling approximately
$90,500,000 in 1999, $320,600,000 in 1998 and $118,900,000 in 1997. 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.
During 1999, the Company acquired cable systems serving 10,300
subscribers in North Dakota, Oklahoma and Arizona (April and August 1999 for
$18,300,000); two Certified Financial Analyst test preparation companies
(November and December 1999 for $16,000,000) and a travel guide magazine (in
December 1999 for $10,200,000). In addition, the Company acquired various other
smaller businesses throughout 1999 for $46,000,000 (principally consisting of
educational services companies).
Acquisitions in 1998 included an educational services company that
provides English language study programs (in January 1998 for $16,100,000); a
36,000 subscriber cable system serving Anniston, Alabama (in June 1998 for
$66,500,000); cable systems serving 72,000 subscribers in Mississippi,
Louisiana, Texas and Oklahoma (in July 1998 for $130,100,000); and a publisher
and provider of licensing training for securities, insurance and real estate
professionals (in July 1998 for $35,200,000). In addition, the Company acquired
various other smaller businesses throughout 1998 for $72,700,000 (principally
consisting of educational and career service companies and small cable systems).
In 1997, the Company acquired cable systems serving approximately 16,000
subscribers in Cleveland, Mississippi (in February 1997 for $23,900,000), the
publishing rights to two computer service industry trade periodicals and the
rights to conduct two computer industry trade shows (in December 1997 for
$84,500,000), and various other smaller businesses throughout 1997 for
$10,500,000.
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 1999, 1998 and 1997, assuming
the acquisitions occurred at the beginning of 1997, are not materially different
from reported results of operations.
EXCHANGES. In June 1997, the Company exchanged the assets of certain cable
systems with Tele-Communications, Inc. This trade resulted in an increase of
about 21,000 subscribers for the Company.
In September 1997, the Company completed a transaction with Meredith
Corporation whereby the Company exchanged the assets of WFSB-TV, the CBS
affiliate in Hartford, Connecticut, and approximately $60,000,000 for the assets
of WCPX-TV, the CBS affiliate in Orlando, Florida.
The assets obtained in these transactions were recorded at the carrying
value of the assets exchanged plus cash consideration. No gain or loss resulted
from these exchange transactions.
40
42
DISPOSITIONS. In June 1999, the Company sold the assets of Legi-Slate, Inc., its
on-line services subsidiary that covered federal legislation and regulation. No
significant gain or loss was realized as a result of the sale.
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 the transaction, the
Company's subsidiary received $330,500,000 in cash from McClatchy and 730,525
shares of McClatchy Class A common stock. The market value of the McClatchy
stock received approximated $21,600,000. The gain resulting from this
transaction, which is included in 1998 "Other income, net" in the Consolidated
Statements of Income, increased net income by approximately $162,800,000 and
basic and diluted earnings per share by $16.14 and $16.07 respectively.
In July 1998, the Company completed the sale of 14 small cable systems in
Texas, Missouri and Kansas serving approximately 29,000 subscribers for
approximately $41,900,000. The gain resulting from this transaction, which is
included in 1998 "Other income, net" in the Consolidated Statements of Income,
increased net income by approximately $17,300,000 and basic and diluted earnings
per share by $1.71.
In August 1998, Junglee Corporation ("Junglee") merged with a wholly
owned subsidiary of Amazon.com Inc. ("Amazon.com"). As a result, each share of
Junglee common and preferred stock was converted into shares of Amazon.com. On
the date of the merger, a wholly-owned subsidiary of the Company owned 750,000
common shares and 750,000 preferred shares of Junglee. As a result of the
merger, the Company's subsidiary received 202,961 shares of Amazon.com common
stock. The market value of the Amazon.com stock received approximated
$25,200,000 on the date of the merger. The gain resulting from this transaction,
which is included in 1998 "Other income (expense), net" in the Consolidated
Statements of Income, increased net income by approximately $14,300,000 and
basic and diluted earnings per share by $1.42 and $1.41, respectively.
In September 1997, the Company sold the assets of its PASS regional
sports network for approximately $27,400,000. In December 1997, the Company sold
its 35 percent limited partnership interest in both Bear Island Paper Company
and Bear Island Timberlands Company for approximately $92,800,000. The gains
resulting from these dispositions, which are included in "Other income, net" in
the Consolidated Statements of Income, increased 1997 net income by
approximately $44,500,000 and basic and diluted earnings per share by $4.16 and
$4.15, respectively.
L. 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. Management does not believe that any litigation pending
against the Company will have a material adverse effect on its business or
financial condition.
M. 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 and
career services for individuals, schools and businesses.
Newspaper operations involve the publication of newspapers in the
Washington, D.C. area and Everett, Washington, newsprint warehousing and
recycling facilities, and the Company's electronic media publishing business
(primarily washingtonpost.com).
Magazine operations consist 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.
Revenues from both newspaper and magazine publishing operations are
derived from advertising and, to a lesser extent, from circulation.
Broadcast operations are conducted primarily through six VHF television
stations. All stations are network-affiliated, with revenues derived primarily
from sales of advertising time.
Cable television operations consist of more than 50 cable systems
offering basic cable and pay television services to approximately 740,000
subscribers in midwestern, western, and southern states. The principal source of
revenues is monthly subscription fees charged for services.
41
43
Education and career services are provided through the Company's
wholly-owned subsidiary Kaplan, Inc. Kaplan's four major lines of businesses
include Test Preparation and Admissions, providing test preparation services for
college and graduate school entrance exams; Kaplan Professional, providing
education and career services to business people and other professionals;
SCORE!, offering multi-media learning and private tutoring to children in
kindergarten through twelfth grade; and KaplanCollege.com, Kaplan's distance
learning business, including Concord University School of Law, the country's
first online Law School.
Other businesses and corporate office includes the Company's corporate
office. Through the first half of 1999, the other businesses and corporate
office segment also includes the result of Legi-Slate, Inc., which was sold in
June 1999. The 1998 results for other businesses and corporate office include
Moffet, Larson & Johnson, which was sold in July 1998.
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 Company's
operations in each business segment. Investments in marketable equity securities
and investments in affiliates are discussed in Notes C and D, respectively.
42
44
Newspaper Television Magazine Cable
Publishing Broadcasting Publishing Television
- ------------------------------------------------------------------------------------------------------------------------
1999
Operating revenues ........................ $ 875,109 $ 341,761 $ 401,096 $ 336,259
Income (loss) from operations ............. $ 156,731 $ 167,639 $ 62,057 $ 67,145
Equity in losses of affiliates ............
Interest expense, net .....................
Other income, net .........................
----------------------------------------------------------------------
Income before income taxes .............
======================================================================
Identifiable assets ....................... $ 672,609 $ 444,372 $ 409,404 $ 718,230
Investments in marketable equity securities
Investments in affiliates .................
----------------------------------------------------------------------
Total assets ...........................
======================================================================
Depreciation of property, plant & equipment $ 35,363 $ 11,719 $ 4,972 $ 43,092
Amortization of goodwill .................. $ 1,535 $ 14,248 $ 5,912 $ 30,007
Pension credit (expense) .................. $ 26,440 $ 8,191 $ 48,309 $ (597)
Capital expenditures ...................... $ 19,279 $ 17,839 $ 3,364 $ 62,586
1998
Operating revenues ........................ $ 848,934 $ 357,616 $ 399,483 $ 297,980
Income (loss) from operations ............. $ 139,032 $ 171,194 $ 44,524 $ 65,022
Equity in losses of affiliates ............
Interest expense, net .....................
Other income, net .........................
----------------------------------------------------------------------
Income before income taxes .............
======================================================================
Identifiable assets ....................... $ 646,151 $ 437,506 $ 355,176 $ 710,641
Investments in marketable equity securities
Investments in affiliates .................
----------------------------------------------------------------------
Total assets ...........................
======================================================================
Depreciation of property, plant & equipment $ 29,033 $ 11,378 $ 4,888 $ 37,271
Amortization of goodwill .................. $ 1,372 $ 14,368 $ 5,912 $ 24,178
Pension credit ............................ $ 19,828 $ 6,256 $ 35,913 $ --
Capital expenditures ...................... $ 122,667 $ 14,492 $ 3,666 $ 80,795
1997
Operating revenues ........................ $ 814,263 $ 338,373 $ 389,853 $ 257,732
Income (loss) from operations ............. $ 154,512 $ 163,703 $ 42,719 $ 54,659
Equity in earnings of affiliates ..........
Interest income, net ......................
Other income, net .........................
----------------------------------------------------------------------
Income before income taxes .............
======================================================================
Identifiable assets ....................... $ 522,210 $ 436,760 $ 323,573 $ 502,642
Investments in marketable equity securities
Investments in affiliates .................
----------------------------------------------------------------------
Total assets ...........................
======================================================================
Depreciation of property, plant & equipment $ 20,234 $ 11,011 $ 4,484 $ 30,672
Amortization of goodwill .................. $ 874 $ 12,213 $ 136 $ 19,371
Pension credit ............................ $ 6,843 $ 2,887 $ 20,497 $ --
Capital expenditures ...................... $ 114,187 $ 11,651 $ 3,022 $ 73,156
Other
Education Business
and Career and Corporate
Services Office Consolidated
- ----------------------------------------------------------------------------------------------------
1999
Operating revenues ........................ $ 257,503 $ 3,843 $ 2,215,571
Income (loss) from operations ............. $ (37,998) $ (27,121) $ 388,453
Equity in losses of affiliates ............ (8,814)
Interest expense, net ..................... (25,689)
Other income, net ......................... 21,435
---------------------------------------------------
Income before income taxes ............. $ 375,385
===================================================
Identifiable assets ....................... $ 265,960 $ 132,688 $ 2,643,263
Investments in marketable equity securities 203,012
Investments in affiliates ................. 140,669
---------------------------------------------------
Total assets ........................... $ 2,986,944
===================================================
Depreciation of property, plant & equipment $ 8,850 $ 239 $ 104,235
Amortization of goodwill .................. $ 6,861 $ -- $ 58,563
Pension credit (expense) .................. $ (603) $ (57) $ 81,683
Capital expenditures ...................... $ 26,977 $ -- $ 130,045
1998
Operating revenues ........................ $ 194,854 $ 11,492 $ 2,110,359
Income (loss) from operations ............. $ (7,453) $ (33,422) $ 378,897
Equity in losses of affiliates ............ (5,140)
Interest expense, net ..................... (10,401)
Other income, net ......................... 304,703
---------------------------------------------------
Income before income taxes ............. $ 668,059
===================================================
Identifiable assets ....................... $ 196,702 $ 58,839 $ 2,405,015
Investments in marketable equity securities 256,116
Investments in affiliates ................. 68,530
---------------------------------------------------
Total assets ........................... $ 2,729,661
===================================================
Depreciation of property, plant & equipment $ 5,925 $ 753 $ 89,248
Amortization of goodwill .................. $ 4,057 $ 2 $ 49,889
Pension credit ............................ $ -- $ -- $ 61,997
Capital expenditures ...................... $ 21,411 $ 1,188 $ 244,219
1997
Operating revenues ........................ $ 117,268 $ 38,764 $ 1,956,253
Income (loss) from operations ............. $ (8,436) $ (25,806) $ 381,351
Equity in earnings of affiliates .......... 9,955
Interest income, net ...................... 2,219
Other income, net ......................... 69,549
---------------------------------------------------
Income before income taxes ............. $ 463,074
===================================================
Identifiable assets ....................... $ 75,045 $ 58,930 $ 1,919,160
Investments in marketable equity securities 3,366
Investments in affiliates ................. 154,791
---------------------------------------------------
Total assets ........................... $ 2,077,317
===================================================
Depreciation of property, plant & equipment $ 3,699 $ 1,378 $ 71,478
Amortization of goodwill .................. $ 936 $ 29 $ 33,559
Pension credit ............................ $ -- $ -- $ 30,227
Capital expenditures ...................... $ 10,121 $ 2,436 $ 214,573
43
45
N. SUMMARY OF QUARTERLY OPERATING RESULTS AND COMPREHENSIVE INCOME (UNAUDITED)
Quarterly results of operations and comprehensive income for the years ended
January 2, 2000 and January 3, 1999 are as follows (in thousands, except per
share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
1999 QUARTERLY OPERATING RESULTS
Operating revenues
Advertising .................................... $ 300,002 $ 341,602 $ 311,891 $ 377,065
Circulation and subscriber ..................... 141,431 142,854 147,016 148,393
Education ...................................... 52,018 55,284 67,522 65,251
Other .......................................... 26,946 17,455 13,151 7,691
--------------------------------------------------------------
520,397 557,195 539,580 598,400
==============================================================
Operating costs and expenses
Operating ...................................... 286,583 294,172 293,948 314,698
Selling, general and administrative ............ 116,997 116,414 118,198 123,311
Depreciation of property, plant and equipment .. 25,118 25,305 26,265 27,547
Amortization of goodwill and other intangibles . 14,425 14,619 14,813 14,706
--------------------------------------------------------------
443,123 450,510 453,224 480,262
==============================================================
Income from operations ............................ 77,274 106,685 86,356 118,138
Equity in (losses) earnings of affiliates ...... (2,510) 731 (59) (6,975)
Interest income ................................ 246 213 186 452
Interest expense ............................... (6,813) (5,441) (6,473) (8,059)
Other income (expense), net .................... 6,143 9,471 8,279 (2,458)
--------------------------------------------------------------
Income before income taxes ........................ 74,340 111,659 88,289 101,098
Provision for income taxes ........................ 29,150 43,750 36,600 40,100
--------------------------------------------------------------
Net income ........................................ 45,190 67,909 51,689 60,998
Redeemable preferred stock dividends .............. (475) (237) (237) --
--------------------------------------------------------------
Net income available for common shares ............ $ 44,715 $ 67,672 $ 51,452 $ 60,998
==============================================================
Basic earnings per common share ................... $ 4.43 $ 6.70 $ 5.12 $ 6.11
==============================================================
Diluted earnings per common share ................. $ 4.41 $ 6.67 $ 5.10 $ 6.09
==============================================================
Basic average number of common shares outstanding . 10,098 10,098 10,060 9,988
Diluted average number of common shares outstanding 10,143 10,140 10,101 10,008
1999 QUARTERLY COMPREHENSIVE INCOME ............... $ 47,803 $ 50,808 $ 19,615 $ 67,559
==============================================================
44
46
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------
1998 QUARTERLY OPERATING RESULTS
Operating revenues
Advertising .................................... $ 292,685 $ 342,247 $ 293,277 $ 369,412
Circulation and subscriber ..................... 130,341 133,365 138,783 144,961
Education ...................................... 31,845 28,226 52,864 58,438
Other .......................................... 29,084 21,919 24,357 18,555
--------------------------------------------------------------
483,955 525,757 509,281 591,366
==============================================================
Operating costs and expenses
Operating ...................................... 267,587 276,399 278,241 316,950
Selling, general and administrative ............ 109,930 111,005 107,533 124,681
Depreciation of property, plant and equipment .. 20,378 20,733 22,058 26,079
Amortization of goodwill and other intangibles . 10,743 11,127 13,853 14,166
--------------------------------------------------------------
408,638 419,264 421,685 481,876
==============================================================
Income from operations ............................ 75,317 106,493 87,596 109,490
Equity in earnings (losses) of affiliates ...... 988 (71) (4,060) (1,996)
Interest income ................................ 207 384 217 328
Interest expense ............................... (2,244) (330) (2,246) (6,717)
Other income (expense), net .................... 258,106 (1,594) 50,241 (2,050)
--------------------------------------------------------------
Income before income taxes ........................ 332,374 104,882 131,748 99,055
Provision for income taxes ........................ 124,500 41,100 49,900 35,300
--------------------------------------------------------------
Net income ........................................ 207,874 63,782 81,848 63,755
Redeemable preferred stock dividends .............. (478) (239) (239) --
--------------------------------------------------------------
Net income available for common shares ............ $ 207,396 $ 63,543 $ 81,609 $ 63,755
==============================================================
Basic earnings per common share ................... $ 20.57 $ 6.30 $ 8.09 $ 6.32
==============================================================
Diluted earnings per common share ................. $ 20.47 $ 6.27 $ 8.05 $ 6.30
==============================================================
Basic average number of common shares outstanding . 10,084 10,088 10,093 10,082
Diluted average number of common shares outstanding 10,131 10,136 10,139 10,124
1998 QUARTERLY COMPREHENSIVE INCOME ............... $ 207,814 $ 64,253 $ 74,503 $ 111,502
==============================================================
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.
45
47
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 28, 1997
Allowance for doubtful accounts and returns ............ $39,661,000 $54,163,000 $53,990,000 $39,834,000
Allowance for advertising rate adjustments and discounts 8,727,000 11,095,000 9,950,000 9,872,000
---------- ---------- ---------- ----------
$48,388,000 $65,258,000 $63,940,000 $49,706,000
=========== =========== =========== ===========
Year Ended January 3, 1999
Allowance for doubtful accounts and returns ............ $39,834,000 $58,100,000 $51,242,000 $46,692,000
Allowance for advertising rate adjustments and discounts 9,872,000 9,792,000 11,306,000 8,358,000
---------- ---------- ---------- ----------
$49,706,000 $67,892,000 $65,548,000 $55,050,000
=========== =========== =========== ===========
Year Ended January 2, 2000
Allowance for doubtful accounts and returns ............ $46,692,000 $62,824,000 $58,337,000 $51,179,000
Allowance for advertising rate adjustments and discounts 8,358,000 9,136,000 8,052,000 9,442,000
---------- ---------- ---------- ----------
$55,050,000 $71,960,000 $66,389,000 $60,621,000
=========== =========== =========== ===========
46
48
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.
RESULTS OF OPERATIONS--1999 COMPARED TO 1998
Net income in 1999 was $225.8 million, compared with net income of $417.3
million for 1998. Basic and diluted earnings per share totaled $22.35 and $22.30
in 1999, respectively, compared to $41.27 and $41.10 in 1998. The Company's 1998
net income includes $194.4 million from the disposition of the Company's 28
percent interest in Cowles Media Company, the sale of 14 small cable systems and
the disposition of the Company's investment in Junglee, a facilitator of
Internet commerce. Excluding the effect of these one time items from 1998 net
income, the Company's 1999 net income of $225.8 million increased 1 percent,
from net income of $222.9 million in 1998. On the same basis of presentation,
diluted earnings per share for 1999 of $22.30 increased 2 percent compared to
$21.90 in 1998, with fewer average shares outstanding.
Revenues for 1999 totaled $2,215.6 million, an increase of 5 percent from
$2,110.4 million in 1998. Advertising revenues increased 3 percent in 1999, and
circulation and subscriber revenues increased 6 percent. Education revenues
increased 40 percent in 1999, and other revenues decreased 31 percent. The
newspaper and magazine divisions generated most of the increase in advertising
revenues. The increase in circulation and subscriber revenues is primarily due
to a 13 percent increase in subscriber revenues at the cable division. Revenue
growth at Kaplan, Inc. (about two-thirds of which was from acquisitions)
accounted for the increase in education revenues. The decline in other revenues
is principally due to the disposition of MLJ (July 1998) and Legi-Slate (June
1999).
Operating costs and expenses for the year increased 6 percent to $1,827.1
million, from $1,731.5 million in 1998. The cost and expense increase is
primarily due to companies acquired in 1999 and 1998, greater spending for
Internet-related businesses (approximately $34 million increase), higher
depreciation and amortization expense and increased spending for new business
initiatives at the education and career services division. These expense
increases were offset in part by a 19 percent decline in newsprint expense and
an increase in the Company's pension credit.
Operating income increased 3 percent to $388.5 million in 1999, from
$378.9 million in 1998.
The Company's 1999 operating income includes $81.7 million of net pension
credits, compared to $62.0 million in 1998.
DIVISION RESULTS. The Company now includes the results of its electronic media
publishing operations (primarily washingtonpost.com) within the newspaper
publishing division. Previously, these operating results were included in the
"other businesses and corporate office" segment. All prior year division results
have been restated to reflect this change in reporting.
NEWSPAPER PUBLISHING DIVISION. At the newspaper division, 1999 included 52
weeks, compared to 53 weeks in 1998. Newspaper division revenues increased 3
percent to $875.1 million, from $848.9 million in 1998. Advertising revenues at
the newspaper division rose 5 percent over the previous year. At The Washington
Post, advertising revenues increased 3 percent as a result of higher rates and
volume. Classified advertising revenues at The Washington Post increased 2
percent primarily due to higher rates. Retail advertising revenues at The Post
remained essentially even with the previous year. Other advertising revenues
(including general and preprint) at The Post increased 7 percent due mainly to
increased general advertising volume and higher rates.
Circulation revenues for the newspaper division declined by 3 percent in
1999 due primarily to the extra week in 1998 versus 1999. At The Washington
Post, daily circulation for 1999 remained essentially even with 1998; Sunday
circulation declined by 1 percent.
Newspaper division operating margin in 1999 increased to 18 percent, from
16 percent in 1998. The improvement in operating margin resulted mostly from an
improvement in the operating results of The Washington Post, offset in part by
increased electronic media spending for the continued development of
washingtonpost.com. The Post's 1999 operating results benefited from the higher
advertising revenues discussed above, a 19 percent reduction in newsprint
expense and larger pension credits ($28.0 million in 1999 versus $19.0 million
in 1998). These operating income improvements were offset in part by higher
depreciation expense (arising from the recently completed expansion of The
Post's printing facilities) and other general expense increases including
increased promotion and marketing.
TELEVISION BROADCASTING DIVISION. Revenues at the broadcast division declined 4
percent to $341.8 million in 1999, compared to $357.6 million in 1998. The
decline in 1999 revenues is due to softness in national advertising revenues and
the absence of Winter Olympic advertising revenues (first quarter of 1998) and
political advertising revenues (third and fourth quarter of 1998), offset in
part by growth in local advertising revenues.
Competitive market position remained strong for the Company's television
stations. WJXT in Jacksonville and KSAT in San Antonio continued to be ranked
number one in the latest ratings period, sign-on to sign-off, in their markets;
WPLG in Miami achieved the top ranking among English-language stations in the
Miami market; WDIV in Detroit was ranked second in the Detroit market with very
little distance between it and the first place ranking; and KPRC in
47
49
Houston and WKMG in Orlando ranked third in their respective markets but
continued to make good progress in improving market share.
The operating margin at the broadcast division was 49 percent in 1999,
compared to 48 percent in 1998. Excluding amortization of goodwill and
intangibles, the operating margin was 53 percent in 1999 and 52 percent in 1998.
The improvement in 1999 operating margin is attributable to 1999 expense control
initiatives, the benefits of which were offset in part by the decline in
national advertising revenues.
MAGAZINE PUBLISHING DIVISION. Magazine division revenues were $401.1 million for
1999, up slightly over 1998 revenues of $399.5 million. Operating income for the
magazine division totaled $62.1 million in 1999, an increase of 39 percent over
operating income of $44.5 million in 1998. The 39 percent increase in operating
income is primarily attributable to the operating results of Newsweek. At
Newsweek, operating income improved as a result of an increase in the number of
advertising pages at the domestic edition, higher pension credits ($48.3 million
in 1999 versus $35.9 million in 1998) and a reduction in other operating
expenses. Offsetting these improvements were the effects of a decline in
advertising revenues at the Company's trade periodicals unit.
Operating margin of the magazine division increased to 15 percent in
1999, from 11 percent in 1998.
CABLE DIVISION. Revenues at the cable division increased 13 percent to $336.3
million in 1999, from $298.0 million in 1998. Basic, tier, pay and advertising
revenue categories showed improvement over 1998. Increased subscribers in 1999,
primarily from acquisitions, and higher rates accounted for most of the increase
in revenues. The number of basic subscribers at the end of the year increased to
739,850 from 733,000 at the end of 1998.
Operating margin at the cable division before amortization expense was 29
percent for 1999, compared to 30 percent for 1998. The decline in operating
margin is primarily attributable to a 16 percent increase in depreciation
expense arising from system rebuilds and upgrades, offset in part by higher
revenues. Cable operating cash flow increased 11 percent to $140.2 million, from
$126.5 million in 1998. Approximately 70 percent of the 1999 improvement in
operating cash flow is due to the results of cable systems acquired in 1999 and
1998.
EDUCATION AND CAREER SERVICES DIVISION. The Company provides education and
career services through its subsidiary Kaplan, Inc. 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.
Kaplan also owns SCORE! Learning Corporation, a provider of after-school
learning opportunities for students in kindergarten through the twelfth grade.
SCORE! presently operates 100 SCORE! Educational Centers (most opened within the
last two years) and plans to open an additional 45 centers in 2000. In September
1999, SCORE! announced the launch of a new e-commerce site, eSCORE.com, to
provide customized online educational resources and services to parents and
children.
For the first nine months of 1999 and all of 1998, Kaplan, through its
career services division, was the leading provider of career fairs in North
America, bringing together technical, sales and diversity candidates with
corporate recruiters. Kaplan, through its subsidiary HireSystems, also provided
corporate clients with web-based tools to streamline the recruitment and hiring
process. On September 29, 1999, Kaplan contributed its ownership of these two
businesses to a newly formed company named BrassRing, Inc. (BrassRing).
Partnering with Kaplan in the formation of this new business are the Tribune
Company and Accel Partners, which each contributed cash and/or other assets to
BrassRing. From September 30, 1999, the operating results of the career fair
businesses and HireSystems have been included in BrassRing, of which the Company
records its 54 percent non-controlling interest in accordance with the equity
method of accounting.
Excluding the operating results of the career fair and HireSystems
businesses, the 1999 revenues for the education and career services division
totaled $240.1 million, a 40 percent increase from 1998 revenues of $171.4
million. Approximately two-thirds of the 1999 revenue increase is attributable
to businesses acquired in 1999 and 1998. The remaining increase in revenue is
due to growth in the test preparation and SCORE! businesses. Operating losses
for 1999 totaled $17.4 million, compared to $6.0 million in 1998. The decline in
1999 operating results is primarily attributable to the opening of new SCORE!
centers, start-up costs associated with eSCORE.com and the development of
various distance learning initiatives, offset in part by operating income
improvements in the traditional test preparation business.
Including the results of the career fair businesses and HireSystems, the
education and career services division's 1999 revenues totaled $257.5 million, a
32 percent increase over the same period in the prior year. Approximately
two-thirds of the increase is due to business acquisitions completed in 1999 and
1998. The remaining increase in 1999 revenue is due to growth in the test
preparation business and SCORE! businesses. Division operating losses of $38.0
million represent a $30.5 million increase in operating losses from 1998. The
decline in 1999 operating results is primarily attributable to start-up costs
associated with opening new SCORE! centers and the launch of the eSCORE.com web
site,
48
50
as well as increased spending for HireSystems and the development of various
distance learning initiatives, offset in part by operating income improvements
in the traditional test preparation business.
OTHER BUSINESSES AND CORPORATE OFFICE. For 1999, other businesses and corporate
office includes the expenses associated with the Company's corporate office and
the operating results of Legi-Slate through June 30, 1999, the date of its sale.
For 1998, other businesses and corporate office includes the Company's corporate
office, the operating results of Legi-Slate, and the results of MLJ through July
1998, the date of its sale.
Revenue for other businesses totaled $3.8 million and $11.5 million in
1999 and 1998, respectively. Operating losses for other businesses and corporate
office were $27.1 million for 1999 and $33.4 million for 1998. The decrease in
operating losses in 1999 is due to the absence of full-year operating losses of
MLJ (sold in July 1998) and Legi-Slate (sold in June 1999).
EQUITY IN LOSSES OF AFFILIATES. The Company's equity in losses of affiliates in
1999 was $8.8 million, compared to losses of $5.1 million in 1998. The Company's
affiliate investments consists primarily of a 54 percent non-controlling
interest in BrassRing (formed in late September 1999), a 50 percent interest in
the International Herald Tribune, and a 49 percent interest in Bowater Mersey
Paper Company Limited. The decline in 1999 affiliate results is primarily
attributable to BrassRing, Inc., which is in the development and marketing phase
of its operations.
NON-OPERATING ITEMS. In 1999, the Company incurred net interest expense of $25.7
million, compared to $10.4 million of net interest expense in 1998. The 1999
increase in net interest expense is attributable to borrowings executed by the
Company to fund capital improvements, acquisition activities and share
repurchases.
The Company recorded other non-operating income of $21.4 million in 1999,
compared to $304.7 million in 1998. The Company's 1999 other non-operating
income consists principally of gains on the sale of marketable equity securities
(mostly various Internet-related securities). The Company's 1998 other
non-operating income consisted mostly of the non-recurring gains resulting from
the Company's disposition of its 28 percent interest in Cowles Media Company,
sale of 14 small cable systems and disposition of its investment interest in
Junglee.
INCOME TAXES. The effective tax rate in 1999 was 39.9 percent, as compared to
37.5 percent in 1998. The increase in the effective tax rate is principally due
to the 1998 disposition of Cowles Media Company being subject to state income
tax in jurisdictions with lower tax rates.
RESULTS OF OPERATIONS--1998 COMPARED TO 1997
Net income in 1998 was $417.3 million, an increase of 48 percent over net income
of $281.6 million in 1997. Basic and diluted earnings per share both rose 57
percent to $41.27 and $41.10, respectively, in 1998. The Company's 1998 net
income includes $194.4 million from the disposition of the Company's 28 percent
interest in Cowles Media Company, the sale of 14 small cable systems and the
disposition of the Company's investment interest in Junglee, a facilitator of
Internet commerce. The Company's 1997 net income includes $44.5 million from the
sale of the Company's investment in Bear Island Paper Company, L.P., and Bear
Island Timberlands Company, L.P., and the sale of the assets of its PASS
regional cable sports network. Excluding these non-recurring gains, net income
decreased 6 percent in 1998 and basic and diluted earnings per share remained
essentially unchanged with fewer average shares outstanding.
Revenues for 1998 totaled $2,110.4 million, an increase of 8 percent from
$1,956.3 million in 1997. Advertising revenues increased 5 percent in 1998, and
circulation and subscriber revenues increased 5 percent. Education revenues
increased 46 percent in 1998 and other revenues increased 14 percent. The
newspaper and broadcast divisions generated most of the increase in advertising
revenues. The increase in circulation and subscriber revenues is primarily due
to a 15 percent increase in subscriber revenues at the cable division (arising
mostly from cable system acquisitions in 1998 and 1997). Revenue growth at
Kaplan, Inc. (about two-thirds of which was from acquisitions) accounted for the
increase in education revenues.
Operating costs and expenses for the year increased 10 percent to
$1,731.5 million, from $1,574.9 million in 1997. The cost and expense increase
is primarily due to companies acquired in 1998 and 1997, increased spending for
new media activities, a 10 percent increase in newsprint expense, and expenses
arising from the expansion of the printing facilities of The Washington Post.
These expense increases were partially offset by an increase in the Company's
pension credit.
Operating income decreased 1 percent to $378.9 million in 1998, from
$381.4 million in 1997.
The Company's 1998 operating income includes $62.0 million of net pension
credits, compared to $30.2 million in 1997.
DIVISION RESULTS
NEWSPAPER PUBLISHING DIVISION. At the newspaper division, 1998 included 53 weeks
as compared to 52 weeks in 1997. Newspaper division revenues increased 4 percent
to $848.9 million, from $814.3 million in 1997. Advertising revenues at the
newspaper division rose 5 percent over the previous year. At The Washington
Post, advertising revenues increased 4 percent as a result of higher rates
49
51
and a slight increase in volume. Classified advertising revenues at The
Washington Post increased 5 percent primarily due to higher rates and higher
recruitment volume. Retail advertising revenues at The Post declined 3 percent
primarily as a result of a 7.5 percent decline in inches. Other advertising
revenues (including general and preprint) at The Post increased 11 percent;
general advertising volume was essentially unchanged for 1998; however, preprint
volume increased 6 percent.
Circulation revenues for the newspaper division remained essentially
unchanged from 1997, with the extra week in 1998 offsetting the effects of a 1.3
percent decline in daily and Sunday circulation at The Washington Post.
Newspaper division operating margin in 1998 decreased to 16 percent, from
19 percent in 1997. The decrease in 1998 operating margin is primarily
attributable to increased costs arising from the expansion of the printing
facilities of The Washington Post, a 10 percent increase in newsprint costs, and
increased electronic media spending for the continued development of
washingtonpost.com. The 10 percent increase in newsprint costs is comprised of a
4 percent increase in newsprint consumed (driven primarily by expanded suburban
community coverage at The Washington Post) and a 6 percent increase in newsprint
prices.
TELEVISION BROADCASTING DIVISION. Revenues at the broadcast division rose 6
percent to $357.6 million in 1998, compared to $338.4 million in 1997. The
increase in revenues is primarily attributable to 1998 political advertising and
increased local advertising revenues.
Competitive market position remained strong for the Company's television
stations. In the November 1998 Nielsen ratings book, WDIV, WJXT and KSAT
continued to rank number one in audience share sign-on to sign-off, while WPLG
tied for first place among English-language stations in the Miami market. KPRC,
although still ranked third in the market, has narrowed the gap significantly
and now challenges its closest competitors by as little as two audience share
points. WKMG, which the broadcast division took over in September 1997, has
remained in third place in Orlando while moving aggressively to build a strong
news franchise.
The operating margin at the broadcast division was 48 percent in 1998 and
1997. Excluding amortization of goodwill and intangibles, the operating margin
was 52 percent in 1998 and 1997.
MAGAZINE PUBLISHING DIVISION. Magazine division revenues rose 2 percent to
$399.5 million, from $389.9 million in 1997. The increase in revenue is
attributable to revenue contributed by the business information trade
periodicals acquired in December 1997, offset partially by a decline in revenue
at Newsweek. Advertising revenues at Newsweek declined 7 percent primarily as
the result of two fewer Newsweek domestic special issues in 1998 versus 1997 and
softness in advertising at the international editions of Newsweek (particularly
the Asian and Latin American editions). Total circulation revenue for the
magazine division decreased 6 percent in 1998 due predominantly to the newsstand
sales of two Newsweek domestic edition special issues in 1997, which were not
recurring in 1998, as well as currency deflation at most of the international
editions of Newsweek.
Operating margin at the magazine division was 11 percent in both 1998 and
1997. The 2 percent increase in 1998 revenues combined with an increase in the
pension credit at Newsweek were offset by normal expense growth and the
amortization expense arising from the December 1997 acquisition of the business
unit trade periodicals.
CABLE DIVISION. Revenues at the cable division increased 16 percent to $298.0
million in 1998, from $257.7 million in 1997. Basic, tier, pay and advertising
revenue categories showed improvement over 1997. Increased subscribers in 1998,
primarily from acquisitions, and higher rates accounted for most of the 15
percent increase in subscriber revenues. The number of basic subscribers at the
end of the year increased to 733,000, from 637,300 at the end of 1997. During
1998, the cable division acquired cable systems serving approximately 115,400
subscribers and sold cable systems serving approximately 29,000 subscribers.
Operating margin at the cable division was 22 percent in 1998, compared
to 21 percent in 1997. Cable operating cash flow increased 21 percent to $126.5
million, from $104.7 million in 1997. Approximately 40 percent of the 1998
improvement in operating cash flow is attributable to the results of cable
systems acquired in 1998 and 1997.
EDUCATION AND CAREER SERVICES DIVISION. The education and career services
division's 1998 revenues totaled $194.9 million, a 66 percent increase over 1997
(with acquisitions accounting for approximately two-thirds of the increase). The
remaining growth in revenue was primarily generated by the traditional test
preparation and SCORE! businesses. Operating losses totaled $7.5 million for
1998, compared to $8.4 million in 1997. The 1998 operating results reflect
improvements in operating income arising from the traditional test preparation
business and acquisitions, offset by start-up costs associated with the opening
of new SCORE! centers.
OTHER BUSINESSES AND CORPORATE OFFICE. Revenues from other businesses, including
Legi-Slate, MLJ (sold in July 1998) and PASS Sports (nine months of 1997)
totaled $11.5 million in 1998, compared to $38.8 million in 1997. The decline in
revenue is due to the sale of PASS and MLJ.
Other businesses and the corporate office recorded an operating loss in
1998 of $33.4 million, compared to a loss of $25.8 million in 1997.
50
52
EQUITY IN (LOSSES) EARNINGS OF AFFILIATES. The Company's equity in losses of
affiliates in 1998 was $5.1 million, compared with income of $10.0 million in
1997. The $15.1 million decline in affiliate earnings resulted from increased
spending at new media joint ventures (principally Classified Ventures and
CareerPath.com) and the absence of affiliate earnings that were provided in the
prior year from the Company's investment interest in the Bear Island
Partnerships (sold in November 1997) and Cowles Media Company (disposed of in
March 1998).
NON-OPERATING ITEMS. In 1998, the Company incurred net interest expense of $10.4
million, compared to $2.2 million of net interest income in 1997. The average
short-term borrowings outstanding in 1998 was $231.8 million, as compared to
$10.7 million in average borrowings outstanding in 1997.
Other income, net, in 1998 was $304.7 million, compared to $69.5 million
in 1997. For 1998, other income, net, includes $309.7 million arising from the
disposition of the Company's 28 percent interest in Cowles Media Company, the
sale of 14 small cable systems and the disposition of the Company's interest in
Junglee, a facilitator of Internet commerce. For 1997, other income, net,
includes $74.8 million in gains arising from the sale of the Bear Island
partnerships and the sale of the assets of the Company's PASS regional cable
sports network.
INCOME TAXES. The effective tax rate in 1998 was 37.5 percent, as compared to 39
percent in 1997. The decrease in the effective income tax rate is principally
the result of the disposition of Cowles Media Company being subject to state
income tax in jurisdictions with lower tax rates, and to a lesser extent, from a
favorable IRS-approved income tax change in the fourth quarter of 1998.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
ACQUISITIONS. During 1999, the Company acquired various businesses for about
$90.5 million, which included, among others, $18.3 million for cable systems
serving approximately 10,300 subscribers and $61.8 million for various
educational and training companies to expand Kaplan, Inc.'s business offerings.
During 1998, the Company acquired various businesses for about $320.6
million, which included, among others, $209.0 million for cable systems serving
approximately 115,400 subscribers and $100.4 million for educational, training
and career services companies.
In 1997, the Company spent $118.9 million on business acquisitions. These
acquisitions included, among others, $23.9 million for cable systems serving
approximately 16,000 subscribers and $84.5 million for the publishing rights to
two computer services industry periodicals and the rights to conduct two
computer industry trade shows.
On February 10, 2000, BrassRing, Inc. announced an agreement to acquire
from Central Newspapers, Inc. the Westech Group of Companies in exchange for
BrassRing, Inc. stock representing a 23 percent equity ownership in BrassRing,
Inc. Westech provides Internet recruitment services and high-tech career fairs.
Upon the closing of this transaction, the Company's ownership in BrassRing, Inc.
will decline from 54 percent to 42 percent.
EXCHANGES. During 1997, the Company exchanged the assets of certain cable
systems with Tele-Communications, Inc., resulting in an increase of about 21,000
subscribers for the Company. The Company also completed, in 1997, a transaction
with Meredith Corporation whereby the Company exchanged the assets of WFSB-TV,
the CBS affiliate in Hartford, Connecticut, and $60.0 million in cash for the
assets of WCPX-TV (renamed WKMG), the CBS affiliate in Orlando, Florida.
DISPOSITIONS
In March 1998, the Company received $330.5 million in cash and 730,525 shares of
McClatchy Newspapers, Inc. Class A common stock as a result of the merger of
Cowles and McClatchy. The market value of the McClatchy stock received was $21.6
million, based upon publicly quoted market prices. During the last three
quarters of 1998, the Company sold 464,700 shares of the McClatchy stock (64
percent of the total shares received) for $15.4 million.
In July 1998, the Company completed the sale of 14 small cable systems in
Texas, Missouri and Kansas serving approximately 29,000 subscribers for $41.9
million. In August 1998, the Company received 202,961 shares of Amazon.com
common stock as a result of the merger of Amazon.com and Junglee Corporation. At
the time of the merger transaction, the Company owned a minority investment
interest in Junglee Corporation, a facilitator of Internet commerce. The market
value of the Amazon.com stock received was $25.2 million.
In November 1997, the Company sold its 35 percent interest in Bear Island
Paper Company, L.P., and Bear Island Timberlands Company, L.P., for
approximately $92.8 million. In September 1997, the Company sold the assets of
its PASS regional cable sports network for $27.4 million.
CAPITAL EXPENDITURES. During 1999, the Company's capital expenditures totaled
$130.0 million, about half of which related to plant upgrades at the Company's
cable subsidiary. The Company estimates that in 2000 it will spend approximately
$145.0 million for property and equipment, primarily for various projects at the
cable, broadcasting and newspaper divisions.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES. At January 2, 2000, the fair value
of the Company's investments in marketable equity securities was $203.0 million,
which includes $165.8 million of Berkshire
51
53
Hathaway, Inc. Class A and B common stock and $37.2 million of various publicly
traded common stocks of companies with Internet business concentrations.
During 1999 the Company spent $20.0 million for 9,820 shares of Berkshire
Hathaway, Inc. Class B common stock. The Company spent $165.0 million for 2,634
and 25 shares of Berkshire Hathaway, Inc. Class A and B common stock,
respectively, during 1998. At February 25, 2000, the gross unrealized loss on
the Company's Berkshire Hathaway, Inc. stock holdings totaled $51.5 million. The
Company intends to hold the Berkshire Hathaway stock long-term and views the
unrealized loss position at February 25, 2000 as temporary.
During 1999, the Company sold various of its common stock holdings (most
of which were Internet-related) netting proceeds of $54.8 million.
COMMON STOCK REPURCHASES AND DIVIDEND RATE. During 1999, 1998 and 1997, the
Company repurchased 744,095, 41,033 and 846,290 shares, respectively, of its
Class B common stock at a cost of $425.9 million, $20.5 million and $368.6
million, respectively. The annual dividend rate for 2000 was increased to $5.40
per share, from $5.20 per share in 1999, $5.00 per share in 1998 and $4.80 per
share in 1997.
LIQUIDITY. At January 2, 2000, the Company had $75.5 million in cash and cash
equivalents. At January 2, 2000, the Company had $487.7 million in short-term
commercial paper borrowings outstanding at an average interest rate of 6.4
percent with various maturities throughout the first quarter of 2000.
Additionally, at January 2, 2000 the Company had outstanding $400.0
million of 5.5 percent, 10 year unsecured notes, due in February 2009. The
$400.0 million, 10 year notes were issued on February 15, 1999, netting
approximately $395.0 million in proceeds after discount and fees. The notes
require semiannual interest payments of $11.0 million payable on February 15th
and August 15th. The Company used the proceeds from the issuance of the notes to
repay an equal amount of short-term commercial paper borrowings then
outstanding.
The Company utilizes a $500.0 million revolving credit facility to
support the issuance of its short-term commercial paper and to provide for
general corporate purposes.
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 in 2000.
YEAR 2000. The Company did not experience any significant malfunctions or errors
in its operating or business systems when the date changed from 1999 to 2000.
Based on operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of the "Year 2000 issue."
However, it is possible that the full impact of the date change, which was of
concern due to computer programs that use two digits instead of four digits to
define years, has not been fully recognized. For example, it is possible that
the Year 2000 or similar issues such as leap year-related problems may occur
with billing, payroll, or financial closings at month, quarterly, or year-end.
The Company believes that any such problems are likely to be minor and
correctable. In addition, the Company could still be negatively affected if its
customers or suppliers are adversely affected by the Year 2000 or similar
issues. The Company currently is not aware of any significant Year 2000 or
similar problems that have arisen for its customers and suppliers.
The Company spent about $25 million on Year 2000 readiness efforts; $15
million related to assessment, repair and testing efforts and was expensed as
incurred (approximately $8 million in 1999 and $7 million in 1998) and $10
million related to the replacement of non-compliant systems which have been
capitalized and will be amortized over a period ranging between five and seven
years.
FORWARD-LOOKING STATEMENTS. This annual report contains certain forward-looking
statements that are based largely on the Company's current expectations.
Forward-looking statements are subject to certain risks and uncertainties that
could cause actual results and achievements to differ materially from those
expressed in the forward-looking statements. For more information about these
forward-looking statements, and related risks, please refer to the section
titled "Forward-looking Statements" in Part 1 of the Company's Annual Report on
Form 10-K.
52
54
[ THIS PAGE INTENTIONNALY LEFT BLANK ]
53
55
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 1997-1999.
(in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenues............................................. $ 2,215,571 $ 2,110,360 $ 1,956,253
Income from operations......................................... $ 388,453 $ 378,897 $ 381,351
Income before cumulative effect of changes in accounting
principle................................................... $ 225,785 $ 417,259 $ 281,574
Cumulative effect of change in method of accounting for
income taxes................................................ -- -- --
Cumulative effect of change in method of accounting
for postretirement benefits other than pensions............. -- -- --
----------------------------------------------------------
Net income..................................................... $ 225,785 $ 417,259 $ 281,574
==========================================================
PER SHARE AMOUNTS
Basic earnings per common share
Income before cumulative effect of changes in accounting
principles............................................... $ 22.35 $ 41.27 $ 26.23
Cumulative effect of changes in accounting principles....... -- -- --
----------------------------------------------------------
Net income.................................................. $ 22.35 $ 41.27 $ 26.23
==========================================================
Basic average shares outstanding............................ 10,061 10,087 10,700
Diluted earnings per share
Income before cumulative effect of changes in accounting
principles............................................... $ 22.30 $ 41.10 $ 26.15
Cumulative effect of changes in accounting principles....... -- -- --
----------------------------------------------------------
Net income.................................................. $ 22.30 $ 41.10 $ 26.15
==========================================================
Diluted average shares outstanding.......................... 10,082 10,129 10,733
Cash dividends................................................. $ 5.20 $ 5.00 $ 4.80
Common shareholders' equity.................................... $ 144.90 $ 157.34 $ 117.36
FINANCIAL POSITION
Current assets................................................. $ 476,159 $ 404,878 $ 308,492
Working capital (deficit) ..................................... (346,389) 15,799 (300,264)
Property, plant and equipment.................................. 854,906 841,062 653,750
Total assets................................................... 2,986,944 2,729,661 2,077,317
Long-term debt................................................. 397,620 395,000 --
Common shareholders' equity.................................... 1,367,790 1,588,103 1,184,074
54
56
(in thousands, except per share amounts) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenues............................................. $ 1,853,445 $ 1,719,449 $ 1,613,978
Income from operations......................................... $ 337,169 $ 271,018 $ 274,875
Income before cumulative effect of changes in accounting
principle................................................... $ 220,817 $ 190,096 $ 169,672
Cumulative effect of change in method of accounting for
income taxes................................................ -- -- --
Cumulative effect of change in method of accounting
for postretirement benefits other than pensions............. -- -- --
-----------------------------------------------------------
Net income..................................................... $ 220,817 $ 190,096 $ 169,672
===========================================================
PER SHARE AMOUNTS
Basic earnings per common share
Income before cumulative effect of changes in accounting
principles............................................... $ 20.08 $ 17.16 $ 14.66
Cumulative effect of changes in accounting principles....... -- -- --
-----------------------------------------------------------
Net income.................................................. $ 20.08 $ 17.16 $ 14.66
===========================================================
Basic average shares outstanding............................ 10,964 11,075 11,577
Diluted earnings per share
Income before cumulative effect of changes in accounting
principles............................................... $ 20.05 $ 17.15 $ 14.65
Cumulative effect of changes in accounting principles....... -- -- --
-----------------------------------------------------------
Net income.................................................. $ 20.05 $ 17.15 $ 14.65
===========================================================
Diluted average shares outstanding.......................... 10,980 11,086 11,582
Cash dividends................................................. $ 4.60 $ 4.40 $ 4.20
Common shareholders' equity.................................... $ 121.24 $ 107.60 $ 99.32
FINANCIAL POSITION
Current assets................................................. $ 382,631 $ 406,570 $ 375,879
Working capital (deficit) ..................................... 100,995 98,393 102,806
Property, plant and equipment.................................. 511,363 457,359 411,396
Total assets................................................... 1,870,411 1,732,893 1,696,868
Long-term debt................................................. -- -- 50,297
Common shareholders' equity.................................... 1,322,803 1,184,204 1,126,933
(in thousands, except per share amounts) 1993 1992
- -------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenues............................................. $ 1,498,191 $ 1,450,867
Income from operations......................................... $ 238,980 $ 232,112
Income before cumulative effect of changes in accounting
principle................................................... $ 153,817 $ 127,796
Cumulative effect of change in method of accounting for
income taxes................................................ 11,600 --
Cumulative effect of change in method of accounting
for postretirement benefits other than pensions............. -- --
---------------------------------------
Net income..................................................... $ 165,417 $ 127,796
=======================================
PER SHARE AMOUNTS
Basic earnings per common share
Income before cumulative effect of changes in accounting
principles............................................... $ 13.10 $ 10.81
Cumulative effect of changes in accounting principles....... 0.98 --
---------------------------------------
Net income.................................................. $ 14.08 $ 10.81
=======================================
Basic average shares outstanding............................ 11,746 11,827
Diluted earnings per share
Income before cumulative effect of changes in accounting
principles............................................... $ 13.10 $ 10.80
Cumulative effect of changes in accounting principles....... 0.98 --
---------------------------------------
Net income.................................................. $ 14.08 $ 10.80
=======================================
Diluted average shares outstanding.......................... 11,750 11,830
Cash dividends................................................. $ 4.20 $ 4.20
Common shareholders' equity.................................... $ 92.84 $ 84.17
FINANCIAL POSITION
Current assets................................................. $ 625,574 $ 524,975
Working capital (deficit) ..................................... 367,041 242,627
Property, plant and equipment.................................. 363,718 390,804
Total assets................................................... 1,622,504 1,568,121
Long-term debt................................................. 51,768 51,842
Common shareholders' equity.................................... 1,087,419 993,005
(in thousands, except per share amounts) 1991 1990
- -------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenues............................................. $ 1,380,261 $ 1,438,640
Income from operations......................................... $ 192,866 $ 281,768
Income before cumulative effect of changes in accounting
principle................................................... $ 118,721 $ 174,576
Cumulative effect of change in method of accounting for
income taxes................................................ -- --
Cumulative effect of change in method of accounting
for postretirement benefits other than pensions............. (47,897) --
------------------------------------------
Net income..................................................... $ 70,824 $ 174,576
==========================================
PER SHARE AMOUNTS
Basic earnings per common share
Income before cumulative effect of changes in accounting
principles............................................... $ 10.00 $ 14.46
Cumulative effect of changes in accounting principles....... (4.04) --
------------------------------------------
Net income.................................................. $ 5.96 $ 14.46
==========================================
Basic average shares outstanding............................ 11,874 12,073
Diluted earnings per share
Income before cumulative effect of changes in accounting
principles............................................... $ 10.00 $ 14.45
Cumulative effect of changes in accounting principles....... (4.04) --
------------------------------------------
Net income.................................................. $ 5.96 $ 14.45
==========================================
Diluted average shares outstanding.......................... 11,876 12,081
Cash dividends................................................. $ 4.20 $ 4.00
Common shareholders' equity.................................... $ 78.12 $ 76.31
FINANCIAL POSITION
Current assets................................................. $ 472,219 $ 471,669
Working capital (deficit) ..................................... 183,959 175,807
Property, plant and equipment.................................. 390,313 394,979
Total assets................................................... 1,487,661 1,496,509
Long-term debt................................................. 51,915 126,988
Common shareholders' equity.................................... 924,285 905,112
55
57
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER -----------
- ------
3.1 --- Certificate of Incorporation of the Company as amended through May
12, 1988, 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
(incorporated 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).
10.1 --- The Washington Post Company Annual Incentive Compensation Plan as
amended and restated effective June 30, 1995 (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
l0-Q for the quarter ended March 31, 1996).*
10.2 --- The Washington Post Company Long-Term Incentive Compensation Plan as
amended and restated effective March 9, 2000.*
10.3 --- The Washington Post Company Stock Option Plan as amended and
restated through March 12, 1998 (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1997).*
10.4 --- The Washington Post Company Supplemental Executive Retirement
Plan as amended and restated effective March 9, 2000. *
10.5 --- The Washington Post Company Deferred Compensation Plan as
amended and restated effective March 9, 2000.*
10.6 --- Promissory Note between the Company and Alan G. Spoon dated
November 24, 1999.*
10.7 --- Consulting Agreement between the Company and Alan G. Spoon dated
March 8, 2000.*
[Index Continued on Next Page]
56
58
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT DESCRIPTION
NUMBER -----------
- ------
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 March 9, 2000.
27 --- Financial Data Schedule.
- -----------------------
* A management contract or compensatory plan or arrangement required to
be included as an exhibit hereto pursuant to Item 14(c) of Form 10-K.
57