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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
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Class B Common Stock, par value New York Stock Exchange
$1.00 per share
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 28, 2001, based on the closing price for the Company's Class B
Common Stock on the New York Stock Exchange on such date: approximately
$2,954,000,000.
Shares of common stock outstanding at February 28, 2001:
Class A Common Stock - 1,722,250 shares
Class B Common Stock - 7,738,620 shares
Documents partially incorporated by reference:
Definitive Proxy Statement for the Company's 2001 Annual Meeting of
Stockholders (incorporated in Part III to the extent provided in
Items 10, 11, 12 and 13 hereof).
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PART I
ITEM 1. BUSINESS.
The principal business activities of The Washington Post Company (the
"Company") consist of newspaper publishing (principally The Washington Post),
television broadcasting (through the ownership and operation of six
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 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 L 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 L net of intersegment sales, which did not exceed 0.1% 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") for the years 1996-1999 and as estimated by The Post for
the twelve-month period ended September 30, 2000 (for which period ABC had not
completed its audit as of the date of this report) from the semi-annual
publisher's statements submitted to ABC for the six-month periods ended March
31, 2000 and September 30, 2000:
AVERAGE PAID CIRCULATION
------------------------
DAILY SUNDAY
----- ------
1996................................ 800,295 1,129,519
1997................................ 784,199 1,109,344
1998................................ 774,414 1,095,091
1999................................ 775,005 1,085,060
2000................................ 778,714 1,076,135
A price increase for home-delivered copies of the daily and Sunday
newspaper went into effect on February 25, 2001, which raised the rate per
four-week period from $11.16 to $11.88. 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.
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General advertising rates were increased by an average of 4.6% on
January 1, 2000, and by another 5.4% on January 1, 2001. Rates for most
categories of classified and retail advertising were increased by an average of
5.0% on February 1, 2000, and by an additional 4.0% on February 1, 2001.
The following table sets forth The Post's advertising inches (excluding
preprints) and number of preprints for the past five years:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Total Inches (in thousands) ....... 3,070 3,192 3,199 3,288 3,363
Full-Run Inches .............. 2,814 2,897 2,806 2,745 2,634
Part-Run Inches .............. 256 294 393 543 729
Preprints (in millions) ........... 1,445 1,549 1,650 1,647 1,602
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 56,000 subscribers.
The Post has about 715 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 22 news centers abroad and
in New York City; Los Angeles; San Francisco; Chicago; Miami; and Austin, Texas.
The Post also maintains correspondents in 12 local news bureaus.
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 produced 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 comprehensive information about activities, groups and businesses in
the Washington, D.C. area, including an arts and entertainment section, an
online yellow pages directory, and a news section focusing on regional
technology businesses. This site is currently generating more than 115 million
page views per month and the Company believes (based on data from Media Metrix)
is among the top five national news sites on the Internet.
WPNI also produces the Newsweek 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
addition, WPNI operates the Newsbytes News Network, a newswire service that
electronically distributes approximately 60 news stories a day about the
information technology, Internet, telecommunications and related industries to
newspapers, magazines, online services and other subscribers around the world.
WPNI holds a minority equity interest in Classified Ventures, Inc., a
company formed to compete in the business of providing nationwide classified
advertising databases on the Internet. The Classified Ventures databases cover
the product categories of automobiles, apartment rentals and real estate.
Listings for these databases come from various sources, including direct sales
and classified listings from the newspapers of participating companies. Links to
the Classified Ventures databases are included in the washingtonpost.com site.
In June 2000, WPNI, together with certain other business units of the
Company, signed an agreement with NBC News and MSNBC pursuant to which the
parties share certain news material and promotional resources. Among other
things, under this agreement the Newsweek Web site has become a feature on
MSNBC.com, and MSNBC.com is being provided access to certain content from The
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Washington Post. Similarly, washingtonpost.com is being provided access to
certain MSNBC.com multimedia content.
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, 2000, was 52,566 daily (including Saturday) and
60,800 Sunday. The aggregate average weekly circulation of The Enterprise
Newspapers during the twelve-month period ended December 31, 2000, was
approximately 71,000 copies.
The Herald and The Enterprise Newspapers together employ approximately
75 editors, reporters and photographers.
THE GAZETTE NEWSPAPERS
The Company's Gazette Newspapers, Inc. subsidiary publishes one
paid-circulation and 35 controlled-circulation weekly community newspapers
(collectively known as The Gazette Newspapers) in Montgomery and Frederick
Counties and parts of Prince George's, Carroll, Anne Arundel and Howard
Counties, Maryland. During 2000 The Gazette Newspapers had an aggregate average
weekly circulation of approximately 554,000 copies. This subsidiary also
produces 11 military newspapers (most of which are weekly) under agreements
where editorial material is supplied by local military bases; in 2000 these
newspapers had a combined average circulation of over 200,000 copies. The
Gazette Newspapers have approximately 125 editors, reporters and photographers
on their combined staffs. The Gazette Newspapers, Inc. also operates a
commercial printing business in Montgomery County, Maryland.
On February 28, 2001, The Gazette Newspapers, Inc. acquired eight
community newspapers that circulate in southern Prince George's County and in
Charles, St. Mary's and Calvert Counties, Maryland, two military newspapers that
serve military bases in southern Maryland, and a commercial printing business
located in Charles County, Maryland. The acquired community newspapers will be
operated by the Gazette as the Southern Maryland Newspapers and include three
twice-weekly paid-circulation newspapers with a combined circulation of over
50,000 copies, four controlled-circulation weekly newspapers with a combined
circulation of 60,000 copies, and one paid-circulation weekly newspaper with a
circulation of 6,000 copies. The Southern Maryland Newspapers have approximately
40 editors, reporters and photographers on their combined staffs.
GREATER WASHINGTON PUBLISHING
Greater Washington Publishing, Inc., another subsidiary of the Company,
publishes several free-circulation advertising periodicals which have little or
no editorial content and are distributed in the greater Washington, D.C.
metropolitan area using sidewalk distribution boxes. Greater Washington
Publishing's two largest periodicals are The Washington Post Apartment Showcase,
which is published monthly and has an average circulation of about 55,000
copies, and New Homes Guide, which is published six times a year and also has an
average circulation of about 55,000 copies.
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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, 21st, 37th and 53rd 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 2000 net operating revenues from national and local
television advertising and network compensation were as follows:
National............................... $ 131,362,000
Local.................................. 203,022,000
Network................................ 28,886,000
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Total............................. $ 363,270,000
The following table sets forth certain information with respect to each
of the Company's television stations:
STATION LOCATION AND EXPIRATION EXPIRATION TOTAL COMMERCIAL
YEAR COMMERCIAL NATIONAL DATE OF DATE OF STATIONS IN DMA(b)
OPERATION MARKET NETWORK FCC NETWORK ------------------
COMMENCED RANKING(a) AFFILIATION LICENSE AGREEMENT ALLOCATED OPERATING
--------- ---------- ----------- ------- --------- --------- ---------
WDIV 9th NBC Oct. 1, June 30, VHF-4 VHF-4
Detroit, Mich. 2005 2004 UHF-6 UHF-5
1947
KPRC 11th NBC Aug. 1, June 30, VHF-3 VHF-3
Houston, Tx. 2006 2004 UHF-11 UHF-11
1949
WPLG 16th ABC Feb. 1, Dec. 31, VHF-5 VHF-5
Miami, Fla. 2005 2004 UHF-8 UHF-8
1961
WKMG 21st CBS Feb. 1, Apr. 6, VHF-3 VHF-3
Orlando, Fla. 2005 2005 UHF-11 UHF-10
1954
KSAT 37th ABC Aug. 1, Dec. 31, VHF-4 VHF-4
San Antonio, Tx. 2006 2004 UHF-6 UHF-6
1957
WJXT 53rd CBS Feb. 1, July 10, VHF-2 VHF-2
Jacksonville, Fla. 2005 2001 UHF-6 UHF-5
1947
- ------------------
(a) Source: 2000/2001 DMA Market Rankings, Nielsen Media Research, Fall
2000, 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
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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 permits
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 also 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 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 are 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,
assuming that specified DTV household penetration levels are met. In an order
issued in January 2001, the FCC has required most television stations (including
all of the Company's stations except WKMG) to elect by the end of 2003 which of
their two channels they will surrender at the end of the DTV transition period.
The Company's Detroit, Houston and Miami stations each commenced DTV
broadcast operations during 1999. The Company's Orlando station has requested a
waiver from the FCC permitting it to delay the commencement of DTV broadcast
operations until May 1, 2001. 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.
In November 1998 the FCC issued a decision implementing the requirement
of the Telecommunications Act of 1996 that it charge broadcasters a fee for
offering certain "ancillary and supplementary" services on the DTV channel.
These services include data, video or other services that are offered on a
subscription basis or for which broadcasters receive compensation other than
from advertising revenue. In its decision, the FCC imposed a fee of 5% of the
gross revenues generated by such services. In rules adopted in April 2000, the
FCC also implemented the Community Broadcasters Act of 1999, which provides
interference protection to certain low-power television stations. These rules
provide several hundred low-power stations with the same protection from
interference enjoyed by full-power stations, with the result that it may be more
difficult for some existing full-power stations to alter their analog or DTV
transmission facilities. Separately, in January 2001 the FCC issued an order
governing the mandatory carriage of DTV signals by cable television operators.
The FCC decided that, pending further inquiry, only stations that broadcast in a
DTV-only mode would be entitled to mandatory carriage of their signals. In
defining how a DTV signal should be carried, the FCC ruled that only a single
stream of video (that is, a single channel of programming) together with any
additional "program-related" material is eligible for mandatory carriage. The
determination of what constitutes "program-related" material has not yet been
made. Cable operators will be required to
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carry the DTV signal of any DTV station eligible for mandatory carriage in the
same definition in which the signal was originally broadcast. However, until
this order is clarified it is unclear whether cable operators will be
responsible for ensuring that their set-top boxes are capable of passing DTV
signals in their full definition to the consumer's DTV receiver. In another
order issued in January 2001, the FCC limited the interference protection a DTV
station enjoys. As a result, DTV stations are now required to replicate their
analog service areas by the end of 2004 or forfeit interference protection for
any areas that they do not serve. The FCC also has issued a Notice of Inquiry
addressing the question of whether special public interest obligations should be
imposed on DTV operations. 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 FCC also is conducting proceedings dealing with such matters as
regulations pertaining to cable television (discussed below under "Cable
Television Division - Regulation of Cable Television and Related Matters"), and
various proposals affecting 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 the concentration of ownership in local markets. For example,
the Company's stations in Detroit, Miami, Orlando, San Antonio and Jacksonville
are now each competing against two-station combinations in their respective
markets. 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 or eliminate this
limit, 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 section may ultimately have on the Company's
television broadcasting operations.
CABLE TELEVISION OPERATIONS
At the end of 2000 the Company (through its Cable One subsidiary)
provided basic cable service to approximately 735,000 subscribers (representing
about 69% of the 1,063,800 homes passed by the systems) and had in force more
than 416,000 subscriptions to premium program services.
During 2000 the Company purchased several small cable television systems
serving an aggregate of 8,500 subscribers.
On January 10, 2001, Cable One sold its Greenwood, Indiana cable system
to a joint venture in which AT&T has an interest. In a related transaction, on
March 1, 2001, Cable One transferred its Modesto and Santa Rosa, California
cable systems (which had been its two largest systems) together with an
undisclosed amount of cash to a unit of AT&T in return for AT&T cable systems
serving the communities of Boise, Idaho Falls, Twin Falls, Pocatello and
Lewistown, Idaho, and the community of Ontario, Oregon. These transactions had
the effect of increasing by approximately 26,000 the number of subscribers being
served by the Company's cable systems.
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The Company's cable systems are located in 19 Midwestern, Southern and
Western states and typically serve smaller communities: thus 19 of the Company's
current systems pass fewer than 10,000 dwelling units, 16 pass 10,000-25,000
dwelling units, and 19 pass more than 25,000 dwelling units, of which the
largest is Boise, Idaho with 65,000 subscribers. The largest cluster of systems
(which together serve about 95,000 subscribers) is located on the Gulf Coast of
Mississippi.
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), terminating rate regulation for some small cable systems, and
sunsetting the FCC's authority to regulate the rates charged for optional tiers
of service (which authority expired on March 31, 1999). 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), as well as rates charged for equipment rentals and service calls,
may be regulated by municipalities, subject to procedures and criteria
established by the FCC. 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.
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. Pursuant to the
FCC's rules, cable operators can increase their benchmarked rates for regulated
services to offset the effects of inflation, equipment upgrades, and higher
programming, franchising and regulatory fees. Under the FCC's approach cable
operators may exceed their benchmarked rates if they can show in a
cost-of-service proceeding that higher rates are needed to earn a reasonable
return on investment, which the Commission established in March 1994 to be
11.25%. The FCC's rules also permit franchising authorities to regulate
equipment rentals and service and installation rates on the basis of a cable
operator's actual costs plus an allowable profit which is calculated from the
operator's net investment, income tax rate and other factors.
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
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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.
As noted in the discussion above under "Television Broadcasting -
Regulation of Broadcasting and Related Matters," in January 2001 the FCC
determined that, pending further inquiry, only television stations broadcasting
in a DTV-only mode could require local cable systems to carry their DTV signals.
The FCC currently is conducting another inquiry to decide whether it should
require cable systems to carry both the analog and the DTV signals of local
television stations. 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, a variety of consumer protection measures, and various regulations
intended to facilitate the development of competing video delivery services.
Other provisions benefit the owners of cable systems by restricting regulation
of cable television in many significant respects, requiring that franchises be
granted for reasonable periods of time, providing various remedies and
safeguards to protect cable operators against arbitrary refusals to renew
franchises, and limiting franchise fees to 5% of revenues.
Apart from its authority under the 1992 Cable Act and the
Telecommunications Act of 1996, the FCC regulates various other aspects of cable
television operations. Since 1990 cable systems have been required to black out
from the distant broadcast stations they carry syndicated programs for which
local stations have purchased exclusive rights and requested exclusivity. Other
long-standing FCC rules require cable systems to delete under certain
circumstances duplicative network programs broadcast by distant stations. The
FCC also imposes certain technical standards on cable television operators,
exercises the power to license various microwave and other radio facilities
frequently used in cable television operations, and regulates the assignment and
transfer of control of such licenses. In addition, pursuant to the Pole
Attachment Act, the FCC exercises authority to disapprove unreasonable rates
charged to cable operators by telephone and power utilities for utilizing space
on utility poles or in underground conduits. Some cable operators (including the
Company's Cable One subsidiary) are using the right of access granted by the
Pole Attachment Act to provide not only television programming but also data
services such as Internet access over the same cables. In April 2000, the U.S.
Court of Appeals for the Eleventh Circuit ruled that cable provision of Internet
access is outside the scope of the FCC's pole attachment regulations, and thus
utilities may impose a surcharge for pole
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or conduit access by cable companies that provide data services as well as
television service. In January 2001, the U.S. Supreme Court agreed to hear an
appeal of the Eleventh Circuit's decision brought by cable operators and the
FCC.
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 (although local communities can choose
to require a franchise) and be subject to reduced regulatory burdens. The Act
contains detailed requirements governing the operation of open video systems,
including the nondiscriminatory offering of capacity to third parties and
limiting to one-third of total system capacity the number of channels the
operator can program when demand exceeds available capacity. In addition, the
rates charged by an open video system operator to a third party for the carriage
of video programming must be just and reasonable as determined in accordance
with standards established by the FCC. (Cable operators and others not
affiliated with a telephone company may also become operators of open video
systems.) The Act also generally prohibits telephone companies from acquiring or
owning an interest in existing cable systems operating in their service areas.
The Telecommunications Act of 1996 balances this grant of video
authority to telephone companies by removing 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.
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At various times during the last decade, the FCC adopted 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. 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 a
variety of other services (including two-way telephony and Internet access).
In November 2000, the FCC approved the use of spectrum in the 12.2-12.7
gigahertz band (the same band used by DBS operators) to provide a new land-based
interactive video and data delivery service which is known as the Multichannel
Video Distribution and Data Service ("MVDDS"). MVDDS providers will use
"reharvested" DBS spectrum to transmit programming on a no-harmful interference
basis using terrestrial microwave transmitters. (While DBS subscribers point
their dishes south to pick up their provider's signal, MVDDS customers will aim
their dishes north.) The Commission's order creating MVDDS did not grant any
licenses to operate MVDDS systems. Instead, it requested comment on service,
technical and licensing rules for the technology. Comments and reply comments to
the FCC's order are due in March 2001. MVDDS providers, like providers of other
forms of wireless cable, will not be required to obtain franchises from local
governmental authorities and generally will operate under fewer regulatory
requirements than conventional cable systems.
In 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 allowed a cable operator to provide service to 30%
of all actual subscribers to cable, satellite and other competing services
nationwide, rather than to 30% of homes passed by cable. This revision had the
effect of increasing the number of communities that could be served by a single
cable operator and may have resulted in more consolidation in the cable
industry. In March 2001 the U.S. Court of Appeals for the D.C. Circuit voided
the FCC's revised rule on constitutional and procedural grounds and remanded the
matter to the FCC for further proceedings. If the FCC adopts a new rule with a
higher percentage of nationwide subscribers a single cable operator is permitted
to serve, that action could lead to even greater consolidation in the industry.
The FCC also has opened a proceeding to determine whether cable
operators must provide third parties with nondiscriminatory access to the
operators' cable systems for the purpose of providing Internet access or whether
cable operators are free to offer Internet access only through a service
provider selected by the cable operator. The Company's Cable One subsidiary
currently serves as the Internet service provider on a number of its cable
systems. Thus, depending on the outcome, this proceeding has the potential to
interfere with the Company's ability to use its cable systems to deliver
Internet access on a profitable basis. In addition, several local franchising
authorities have attempted to require cable systems to provide open access to
multiple Internet service providers. Court challenges to such requirements have
thus far been successful with the courts holding that local governments lack
authority to mandate open access because the provision of Internet service is
not a cable service as that term is used in applicable federal law.
Litigation also is pending in various courts in which various franchise
requirements are being challenged as unlawful under the First Amendment, the
Communications Act, the antitrust laws and on other grounds. One of the issues
raised in these cases is whether local franchising authorities have the power to
regulate the provision of Internet access by cable systems. Depending on the
outcomes, such litigation could facilitate the development of duplicative cable
facilities that would compete with existing cable systems, enable cable
operators to offer certain services outside of cable regulation or otherwise
materially affect cable television operations.
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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.
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 13 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. From 1996 through 1999
Newsweek's percentage of the total weekly domestic circulation rate base of the
three leading weekly news magazines was 33.5%. In 2000 that percentage increased
to 34.0%.
Newsweek is sold on newsstands and through subscription mail order sales
derived from a number of sources, principally direct mail promotion. The basic
one-year subscription price is $41.08. Most subscriptions are sold at a discount
from the basic price. In 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 NEWSWEEK
NEWSWEEK THREE LEADING GROSS PERCENTAGE OF
ADVERTISING NEWS ADVERTISING THREE LEADING
PAGES* MAGAZINES REVENUES* NEWS MAGAZINES
------ --------- --------- --------------
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%
2000....................... 2,383 33.8% 433,932,000 34.2%
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* 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 10, 2000 issue, national advertising rates were increased by an
average of 4.0%. Beginning with the issue dated January 8, 2001, national
advertising rates were increased again, also by an average of 4.0%.
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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 4.0% in January 2000 and by
an additional 4.0% in January 2001. The circulation rate base for this edition
is 1,200,000 copies.
Newsweek's other demographic edition, Newsweek Woman, which was
published 12 times during 2000, has a circulation rate base of 800,000 selected
female subscribers. At the beginning of 2000 advertising rates for this edition
were increased by an average of 4.0%, with an additional average increase of
4.0% instituted early in 2001.
Internationally, Newsweek is published in an Atlantic edition covering,
Europe, the Middle East and Africa, a Pacific edition covering Japan, Korea and
south Asia, and a Latin American edition, all of which are in the English
language. Editorial copy solely of domestic interest is eliminated in the
international editions and is replaced by other international, business or
national coverage primarily of interest abroad.
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. In June 2000, Newsweek Bil Logha Al-Arabia, an
Arabic-language edition of Newsweek, was launched under a similar arrangement
with a Kuwaiti publishing company. 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*
--------- ------ ---------
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
2000....................... 663,000 2,606 104,868,000
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* 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.
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For 2001 the average weekly circulation rate base for Newsweek's
English-language international editions (not including The Bulletin insertions)
will be 666,000 copies. Newsweek's rate card estimates the average weekly
circulation in 2001 for The Bulletin insertions will be 85,000 copies and for
the Japanese-, Korean-, Russian-, Arabic- and Spanish-language editions will be
130,000, 90,000, 85,000, 30,000, and 52,500 copies, respectively.
In June 2000 the online version of Newsweek, which includes stories from
Newsweek's print edition as well as other material, became a co-branded feature
on the MSNBC.com Web site. This feature 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 400,000 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 invalidated in a series of
federal court rulings culminating in a March 2000 decision of the United States
Supreme Court that the FDA has no jurisdiction to regulate tobacco products.
During recent years Congress has also considered a range of proposals related to
the marketing of tobacco products. The Company cannot now predict what actions
may eventually be taken to restrict tobacco advertising. However such
advertising accounts for less than 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 TECH MEDIA GROUP
Post Newsweek Tech Media Group, Inc. ("TMG"), another subsidiary of the
Company, publishes controlled-circulation trade periodicals and produces trade
shows and conferences for the information technology industry.
TMG (which was formerly named Post-Newsweek Business Information, Inc.)
publishes Washington Technology, a biweekly tabloid newspaper for government
information technology systems integrators, Government Computer News, a tabloid
newspaper published 30 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 four 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.
TMG's other publications are 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
Technology Almanac, an annual directory of technology industry executives.
Washington Techway also sponsors the annual Greater Washington High Technology
Awards Banquet, which is held each spring in Washington, D.C. for over 1,200
technology
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executives. Together with The Washington Post and WPNI, TMG contributes to the
washtech.com Web site which serves the Washington Techway community online.
TMG also produces the FOSE trade show, which is held each spring in
Washington, D.C. for information technology decision makers in government and
industry.
EDUCATION
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: K-12 (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); Medical (serving medical professionals
preparing for licensing exams); and English Language Training (serving foreign
students and professionals wishing to study or work in the U.S.). During 2000
this division of Kaplan enrolled over 158,000 students and provided courses at
160 permanent centers located throughout the United States and in Canada, Puerto
Rico and London. Since the fall of 1999, Kaplan's test preparation and
admissions courses have been available to students via the Internet at
kaptest.com. In addition, Kaplan licenses material for certain of these courses
to third parties who during 2000 offered such courses at 36 centers located in
15 countries.
The Test Preparation and Admissions Division also includes Kaplan's
publishing activities. Kaplan currently co-publishes over 130 book titles,
predominately 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 and graduate markets which is sold
through arrangements with a third party who is responsible for production and
distribution. Kaplan also produces a college newsstand guide in conjunction with
Newsweek.
Kaplan's Professional Division offers licensing, continuing education,
certification and professional development 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 Speer, a
provider of software education and consulting services to law firms and
businesses; Schweser's Study Program, a provider of materials aimed at preparing
individuals for the Chartered Financial Analyst examination; and Self Test
Software, 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 2000, the center-based business, which
provides educational after-school enrichment services, opened 46 new centers
(bringing the total number of Score centers to 142) and served nearly 50,000
students, up from 40,000 students in 1999. Score's center-based 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
parenting and educational resources online to help parents provide learning
opportunities for their children.
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The Kaplan Colleges unit of Kaplan consists of three institutions
specializing in distance education: Kaplan College, The College for Professional
Studies, and Concord University School of Law. Kaplan College offers various
bachelor degree, associate degree and certificate programs, principally in the
fields of business and information technology, and is accredited by the
Commission on Institutions of Higher Education of the North Central Association
of Colleges and Schools. Some of Kaplan College's courses are offered online
while others are offered in a traditional classroom format. The College for
Professional Studies offers bachelor and associate degree and diploma
correspondence programs in the fields of legal nurse consulting, paralegal
studies and criminal justice, and is accredited by the Accreditation Commission
of the Distance Education and Training Council ("DETC"). The College for
Professional Studies had over 8,000 students enrolled at year-end 2000. Concord
University School of Law, the nation's first online law school, offers juris
doctor degrees wholly online. At year-end 2000, approximately 600 students were
enrolled at Concord. Concord is accredited by DETC and has received operating
approval from the California Bureau of Private Post-Secondary and Vocational
Education. Concord also has complied with the registration requirements of the
State Bar of California; graduates are, therefore, able to apply for admission
to the California Bar.
On August 1, 2000, Kaplan acquired all the outstanding stock of Quest
Education Corporation. Quest, which is continuing operations as a subsidiary of
Kaplan, offers a variety of bachelor degree, associate degree and diploma
programs in the fields of healthcare, business, information technology, and
fashion and design. Quest currently operates 34 schools (including Kaplan
College) which are located in 13 states. Quest was serving over 12,800 students
at year-end 2000, approximately 52% of whom were enrolled in accredited bachelor
or associate degree programs.
Kaplan also owns a 41.6% equity interest in BrassRing Inc., an
Internet-based career-assistance and hiring management company. The other
shareholders of BrassRing are the Tribune Company with a 27.5% interest, Gannett
Co., Inc. with a 23.2% interest, and the venture capital firm Accel Partners
with a 7.7% interest.
TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS
Prior to the acquisition of Quest Education Corporation, none of
Kaplan's educational offerings were eligible to participate in any of the
student financial assistance programs that have been created under Title IV of
the Higher Education Act of 1965, as amended. However funds provided under Title
IV programs historically have been responsible for a majority of Quest's net
revenues (accounting, for example, for about $82 million of Quest's $115 million
in net revenues for the 12-month period ended March 31, 2000), and the
significant role of Title IV funding in Quest's operations is expected to
continue. All Quest schools are currently eligible to participate in Title IV
programs, although certain schools have chosen not to participate in one or more
programs that otherwise would be available under Title IV.
To maintain Title IV eligibility a school must comply with extensive
statutory and regulatory requirements relating to its financial aid management,
educational programs, financial strength, recruiting practices and various other
matters. Among other things, the school must be authorized to offer its
educational programs by the appropriate governmental body in the state in which
it operates, be accredited by an accrediting agency recognized by the U.S.
Department of Education (the "Department of Education"), and enter into a
program participation agreement with the Department of Education.
A school may lose its eligibility to participate in Title IV programs if
student defaults on the repayment of Title IV loans exceed specified default
rates (referred to as "cohort default rates"). A school whose cohort default
rate exceeds 40% for any single year may have its eligibility to participate in
Title IV programs limited, suspended or terminated at the discretion of the
Department of Education.
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A school whose cohort default rate equals or exceeds 25% for three consecutive
years will automatically lose its Title IV eligibility for at least two years
unless the school can demonstrate exceptional circumstances justifying its
continued eligibility. In addition, a for-profit postsecondary institution, like
each of the Quest schools, will lose its Title IV eligibility for at least one
year if more than 90% of the institution's cash receipts for any fiscal year are
derived from Title IV programs.
No proceeding is pending to fine any Quest school for a failure to
comply with any Title IV requirement, or to limit, suspend or terminate the
Title IV eligibility of any Quest school. However no assurance can be given that
the Quest schools will maintain their Title IV eligibility in the future or that
the Department of Education might not successfully assert that one or more of
such schools have previously failed to comply with Title IV requirements. Most
Quest schools are considered separately for the purpose of determining
compliance with Title IV requirements. Thus if the Department of Education were
to find that one or more Quest schools had failed to comply with any applicable
Title IV requirement and as a result suspended or terminated the Title IV
eligibility of those schools, that action normally would not affect the Title IV
eligibility of other Quest schools that had continued to comply with Title IV
requirements.
As a general matter, schools participating in Title IV programs are not
financially responsible for the failure of their students to repay Title IV
loans. However the Department of Education may fine a school for a failure to
comply with Title IV requirements and may even require a school to repay Title
IV program funds if it finds that such funds have been administered improperly.
Pursuant to Title IV program regulations, a school that undergoes a
change in control must be reviewed and recertified by the Department of
Education. In the interim, such a school may be certified on a provisional basis
which permits the school to continue participating in Title IV programs but
provides fewer procedural protections if the Department of Education asserts a
material violation of Title IV requirements. As a result of Kaplan's acquisition
of Quest, all of the schools owned by Quest at that time have been provisionally
certified by the Department of Education for a term expiring in June 2004;
Kaplan will be eligible to apply for full certification for such schools in the
spring of 2004.
Several Title IV programs are subject to periodic legislative review and
reauthorization. In addition, the availability of funding for each Title IV
program is wholly contingent upon the outcome of the annual federal
appropriations process.
Whether as a result of changes in the laws and regulations governing
Title IV programs, a reduction in Title IV program funding levels, or a failure
of the Quest schools to maintain eligibility to participate in Title IV
programs, a material reduction in the amount of Title IV financial assistance
available to Quest students would have a significant negative impact on Kaplan's
operating results.
OTHER ACTIVITIES
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 240,000 copies and is
distributed in over 180 countries.
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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
and the Southern Maryland Newspapers are all printed at the commercial printing
facilities owned by The Gazette Newspapers, Inc. Greater Washington Publishing's
periodicals are produced by independent contract printers with the exception of
one periodical which is printed at one of the commercial printing facilities
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 for The Bulletin are printed in Australia. Since 1997
Newsweek and a subsidiary of AOL Time Warner 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 Tech Media Group publications are produced by
independent contract printers.
In 2000 The Washington Post consumed about 237,000* tons of newsprint
purchased from a number of suppliers, including Bowater Incorporated, which
supplied approximately 34% of The Post's 2000 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 2000 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 2000 Bowater
Mersey produced about 255,000 tons of newsprint.
The announced price of newsprint (excluding discounts) was approximately
$750 per ton throughout 2000. Discounts from the announced price of newsprint
can be substantial and prevailing discounts declined during the second half of
the year. 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 2000 the operations of The Daily Herald Company and The Gazette
Newspapers, Inc. consumed approximately 9,700 and 14,700 tons of newsprint,
respectively, which was obtained in each
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* 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.
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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 34,200 tons of paper in
2000, 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 $1,030 per ton.
Over 90% of the aggregate domestic circulation of Newsweek is delivered
by periodical (formerly second-class) mail, most Newsweek subscriptions are
solicited by either first-class or standard A (formerly third-class) mail, and
all Post Newsweek Tech Media Group publications are delivered by periodical
mail. Thus, substantial increases in postal rates for these classes of mail
could have a significant negative impact on the operating income of these
business units. In November 2000 the Board of Governors of the U.S. Postal
Service approved a rate increase of 3.0% for first-class mail, 9.9% for
periodical mail, and 6.0% for standard A mail, each effective January 7, 2001.
This action will increase annual postage costs by approximately $3.3 million at
Newsweek and by a nominal amount at TMG. On the other hand, since advertising
distributed by standard A mail competes to some degree with newspaper
advertising, the Company believes this increase in standard A rates could have a
positive impact on the advertising revenues of The Washington Post, The Herald,
The Gazette Newspapers and Southern Maryland Newspapers, although the Company is
unable to quantify the amount of such impact.
COMPETITION
The Washington Post competes in the Washington, D.C. metropolitan area
with The Washington Times, a newspaper which has published weekday editions
since 1982 and Saturday and Sunday editions since 1991. The Post also encounters
competition in varying degrees from newspapers published in suburban and
outlying areas, other nationally circulated newspapers, and from television,
radio, magazines and other advertising media, including direct mail advertising.
Since 1997 The New York Times has produced a Washington Edition which is printed
locally and includes television channel listings and weather for the Washington,
D.C. area.
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 AOL Time Warner) 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, Verizon offers
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 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
Headhunter.net aggregate employment listings.
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
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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, Carroll, Anne Arundel and
Howard Counties, Maryland. The Gazette Newspapers compete with many other
advertising vehicles available in their service areas, including The Potomac and
Bethesda/Chevy Chase Almanacs, The Western Montgomery Bulletin, The Bowie
Blade-News, The West County News and The Laurel Leader, weekly controlled-
circulation community newspapers, The Montgomery Sentinel, a weekly paid-
circulation community newspaper, The Prince 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. The newly acquired Southern Maryland
Newspapers circulate in southern Prince George's County and in Charles, Calvert
and St. Mary's Counties, Maryland, where they also compete with many other
advertising vehicles available in their service areas, including the Calvert
County Independent and St. Mary's Today, weekly controlled-circulation
community newspapers.
The advertising periodicals published by Greater Washington Publishing
compete both with many other forms of advertising available in their
distribution area as well as with various other free-circulation advertising
periodicals.
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. 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
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 since April 2000 the DBS operator has
been required to obtain the consent of each local television station included in
such a service. The Company's television stations in Miami, Detroit, Houston,
Orlando and San Antonio currently are being distributed locally by satellite.
Under a rule currently subject to judicial challenge on constitutional grounds,
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 has adopted rules implementing
the provisions of this Act that require certain program-exclusivity rules
applicable to cable television to be applied to DBS providers; although certain
of these rules, primarily relating to sports blackouts, are subject to
reconsideration by the FCC. The Satellite Home Viewer Improvement 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
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(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. 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, in December
2000 Congress passed and the President signed legislation to provide $1.25
billion in federal loan guarantees to help satellite carriers (and cable
operators) provide local TV signals to rural areas, and DBS operators have
stated that they intend to provide local-into-local 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 several of their
markets and may face additional competition from such services in the future.
Moreover, the Telecommunications Act of 1996 permits telephone companies to own
and operate cable television systems in the same areas where they provide
telephone services and thus may lead to the provision of competing program
delivery services by local telephone companies.
According to figures compiled by Publishers' Information Bureau, Inc.,
of the 268 magazines reported on by the Bureau, Newsweek ranked eighth in total
advertising revenues in 2000, when it received approximately 2.5% 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 Tech Media Group'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. Quest and The Kaplan
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Colleges compete 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 55, 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 served as Publisher of The Washington Post from 1979
until September 2000.
Katharine Graham, age 83, 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 51, 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 54, has been a Vice President of the Company since
1986; from 1982 through 1985 she was the Company's Director of Human Resources.
John B. Morse, Jr., age 54, has been Vice President-Finance of the
Company since November 1989. He joined the Company as Vice President and
Controller in July 1989, and prior to that had been a partner of Price
Waterhouse.
Gerald M. Rosberg, age 54, was named Vice President-Planning and
Development of the Company in February 1999. Mr. Rosberg had previously served
as Vice President-Affiliates at The Washington Post, a position he assumed in
November 1997. Mr. Rosberg joined the Company in January 1996 as The Post's
Director of Affiliate Relations.
EMPLOYEES
The Company and its subsidiaries employ approximately 10,700 persons on
a full-time basis.
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The Washington Post has approximately 2,900 full-time employees. About
1,770 of The Post's full-time employees and about 560 part-time employees are
represented by one or another of eight 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: 1,518
editorial, newsroom and commercial department employees represented by the
Communication Workers of America (May 18, 2002); 99 paperhandlers and general
workers represented by the Graphic Communications International Union (November
20, 2004); 45 machinists represented by the International Association of
Machinists (January 10, 2004); 33 photoengravers-platemakers represented by the
Graphic Communications International Union (February 14, 2004); 32 electricians
represented by the International Brotherhood of Electrical Workers (June 17,
2001); 39 engineers, carpenters and painters represented by the International
Union of Operating Engineers (March 31, 2002); and 366 mailers and 125 mailroom
helpers represented by the Communications Workers of America (May 18, 2003). The
contract covering 117 typographers represented by the Communications Workers of
America expired on October 2, 2000. The traditional jobs performed by these
employees had been eliminated by new technology. During negotiations for a new
contract, The Post offered all members of the bargaining unit an early
retirement incentive program which was accepted by all but three individuals. On
February 27, 2001, The Post's building services employees voted against
continued representation by the Service Employees International Union. At the
time of the vote this unit included 92 employees.
Washingtonpost.Newsweek Interactive has approximately 270 full-time and
35 part-time employees, none of whom is represented by a union.
Of the approximately 290 full-time and 120 part-time employees at The
Daily Herald Company, about 70 full-time and 25 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, expires on March 15, 2005. Its agreement with the
International Brotherhood of Teamsters, which represents bundle haulers, will
expire on May 31, 2001, and its 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 165
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. Two collective bargaining agreements will expire in December 2001.
The Company's Cable Television Division has approximately 1,400
full-time employees. Kaplan and its subsidiary companies together employ
approximately 3,470 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 590
full-time and 120 part-time employees. Robinson Terminal Warehouse Corporation
(the Company's newsprint warehousing and distribution subsidiary), Greater
Washington Publishing, and Post Newsweek Tech Media Group each employ fewer than
150 persons. None of these units' employees is represented by a union.
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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 2000 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 undeveloped land near Dulles Airport in Fairfax
County, Virginia (39 acres) and in Prince George's County, Maryland (34 acres).
During 2000 the Company sold the printing plant in Southeast Washington, D.C.
which previously had been used as one of the production facilities for The Post.
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.
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 Montgomery County 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,
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Maryland. In connection with its purchase of the Southern Maryland Newspapers,
The Gazette Newspapers, Inc. acquired a one-story brick building in Waldorf,
Maryland, that houses its Charles County commercial printing business and also
serves as the headquarters for three of the Southern Maryland Newspapers. Other
editorial and sales offices for The Gazette Newspapers and the Southern Maryland
Newspapers are located in leased premises.
The principal offices of Newsweek are located at 251 West 57th Street in
New York City, where Newsweek rents space on nine floors. The lease on this
space will expire in 2009 but is renewable for a 15-year period at 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 2010. 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 Detroit, Michigan in the same facilities that house the offices and
studios of WDIV. That facility and those that house the operations of each of
the Company's other television stations are all owned by subsidiaries of the
Company, as are the related tower sites (except in Houston, Orlando and
Jacksonville where the tower sites are 50% owned).
The headquarters offices of the Cable Television Division are located in
a three-story office building in Phoenix, Arizona which was purchased by Cable
One in 1998. The majority of the offices and head-end facilities of the
Division's individual cable systems are located in buildings owned by Cable One.
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 total of six buildings including 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 2,282 square foot office
condominium in Chapel Hill, North Carolina which it utilizes for its Test Prep
business. Kaplan also owns a 15,000 square foot three-story building in
Berkeley, California utilized for its foreign and Test Prep businesses. As part
of the Quest acquisition, Kaplan acquired a 58,000 square foot facility in
Lincoln, Nebraska used by the Lincoln School of Commerce, a 25,335 square foot
facility in Omaha, Nebraska used by the Nebraska College of Business, and a
131,000 square foot facility in Manchester, New Hampshire used by Hesser
College. 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 are
located in a 169,000 square foot warehouse in Aurora, Illinois which has been
rented under a lease which expires in 2010. 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, and the offices of Greater Washington Publishing are
located in Fairfax, Virginia. Post Newsweek Tech Media Group has its
headquarters office in Vienna, Virginia, and also maintains office space in
Silver
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Spring and Gaithersburg, Maryland and in San Francisco, California. The office
space for each of these units is leased.
ITEM 3. LEGAL PROCEEDINGS.
The Company and The Gazette Newspapers, Inc., its wholly owned
subsidiary (the "Gazette"), are parties to an antitrust lawsuit filed by the
owners of two local Maryland newspapers in the United States District Court for
the District of Maryland on February 28, 2001, following the acquisition by the
Gazette of the Southern Maryland Newspapers. The lawsuit alleges that the
Company and the Gazette have used predatory pricing and other illegal means to
restrain trade and monopolize the community newspaper market in Montgomery,
Prince George's and several other counties in Maryland, and requests the award
of unspecified treble damages and attorneys' fees as well as remedial injunctive
relief (including the divestiture of the Gazette by the Company). The Company
and the Gazette have not yet filed an answer to this complaint but anticipate
denying all of the allegations of illegal conduct contained therein. The Company
has learned that in late February 2001 the Antitrust Division of the United
States Department of Justice was requested by a local newspaper competitor to
investigate the Southern Maryland Newspapers acquisition. In addition, the
Antitrust Division of the Maryland Attorney General's Office has confirmed to
the Company that it is reviewing the same transaction. The Company and its
subsidiaries are also defendants in various other civil lawsuits that have
arisen in the ordinary course of their businesses, including actions for libel
and invasion of privacy. While it is not possible to predict the outcome of
these lawsuits and investigations, in the opinion of management their ultimate
dispositions should not have a material adverse effect on the financial
position, liquidity or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE 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:
2000 1999
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
January - March..................... $ 587 $ 472 $ 595 $ 517
April - June........................ 541 471 582 510
July - September.................... 528 467 574 508
October - December.................. 629 508 586 490
During 2000 the Company repurchased 200 shares of its Class B Common
Stock in an unsolicited transaction.
At February 1, 2001, there were 23 holders of record of the Company's
Class A Common Stock and 1,125 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 $1.35 per share during
2000 and $1.30 per share during 1999.
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ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1996 through 2000 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 30 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 30 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 totaled $221,137,000 at December 31, 2000.
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%
- ----------------- ---------------- ---------------- ---------------- --------------- ---------------
$154,795,900 $176,909,600 $199,023,300 $243,250,700 $265,364,400 $287,478,100
During the eight 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
15% in two quarters, 20% in one quarter and by less then 10% in each of the
other five quarters.
Interest Rate Risk
At December 31, 2000, the Company had short-term commercial paper
borrowings outstanding of $525,367,000 at an average interest rate of 6.6%. At
January 2, 2000, the Company had commercial paper borrowings outstanding of
$487,677,000 at an average interest rate of 6.4%. 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 2000 and 1999 fiscal years, the Company's
interest expense would have been greater by approximately $4,600,000 in fiscal
2000 and by approximately $1,400,000 in fiscal 1999.
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 December 31,
2000, the aggregate fair value of the
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Notes, based upon quoted market prices, was $376,200,000. 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 $375,046,000. 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 $426,926,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Company's Consolidated Financial Statements at December 31,
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 30
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Executive Officers" in Item
1 hereof and the information contained under the headings "Nominees for Election
by Class A Stockholders," "Nominees for Election by Class B Stockholders" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement for the Company's 2001 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 2001 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 2001 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 2001
Annual Meeting of Stockholders is incorporated herein by reference thereto.
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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
30 hereof.
(ii) Exhibits
As listed in the index to exhibits on page 60 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.
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 23, 2001.
THE WASHINGTON POST COMPANY
(Registrant)
By John B. Morse, Jr.
------------------------
John B. Morse, Jr.
Vice President-Finance
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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 23, 2001:
Donald E. Graham Chairman of the Board and Chief
Executive Officer (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
Barry Diller Director
George J. Gillespie, III Director
Ralph E. Gomory Director
Donald R. Keough 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, John B. Morse, Jr. and Diana M. Daniels, and each of them, to sign all
reports required to be filed by the Registrant pursuant to the Securities
Exchange Act of 1934 on behalf of the above-named directors and officers has
been filed with the Securities and Exchange Commission.
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INDEX TO FINANCIAL INFORMATION
------------------
THE WASHINGTON POST COMPANY
PAGE
----
Financial Statements and Schedules:
Report of Independent Accountants .............................................................. 31
Consolidated Statements of Income for the Three Fiscal Years
Ended December 31, 2000 ................................................................... 32
Consolidated Statements of Comprehensive Income for the Three
Fiscal Years Ended December 31, 2000 ...................................................... 32
Consolidated Balance Sheets at December 31, 2000 and January 2, 2000 ........................... 33
Consolidated Statements of Cash Flows for the Three Fiscal Years
Ended December 31, 2000 ................................................................... 35
Consolidated Statements of Changes in Common Shareholders' Equity for the Three
Fiscal Years Ended December 31, 2000 ...................................................... 36
Notes to Consolidated Financial Statements ..................................................... 37
Financial Statement Schedules for the Three Fiscal Years Ended December 31, 2000:
II - Valuation and Qualifying Accounts ................................................ 50
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Unaudited) .......................................................................... 51
Ten-Year Summary of Selected Historical Financial Data (Unaudited) ...................................... 58
------------------
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.
30
32
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
The Washington Post Company
In our opinion, the consolidated financial statements referred to under Item
14(a)(i) on page 28 and listed in the index on page 30 present fairly, in all
material respects, the financial position of The Washington Post Company and
its subsidiaries at December 31, 2000 and January 2, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule referred to under Item 14(a)(i) on page 28
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
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 26, 2001
31
33
Consolidated Statements of Income
Fiscal year ended
-------------------------------------------------
December 31, January 2, January 3,
(in thousands, except share amounts) 2000 2000 1999
- ---------------------------------------------------------------------------------------------------------------
OPERATING REVENUE
Advertising ........................................ $ 1,396,583 $ 1,330,560 $ 1,297,621
Circulation and subscriber ......................... 601,258 579,693 547,450
Education .......................................... 352,753 240,075 171,372
Other .............................................. 61,556 65,243 93,917
-------------------------------------------------
2,412,150 2,215,571 2,110,360
-------------------------------------------------
OPERATING COSTS AND EXPENSES
Operating .......................................... 1,308,063 1,189,734 1,139,177
Selling, general, and administrative ............... 583,623 474,586 453,149
Depreciation of property, plant, and equipment ..... 117,948 104,235 89,248
Amortization of goodwill and other intangibles ..... 62,634 58,563 49,889
-------------------------------------------------
2,072,268 1,827,118 1,731,463
-------------------------------------------------
INCOME FROM OPERATIONS ................................ 339,882 388,453 378,897
Equity in losses of affiliates ..................... (36,466) (8,814) (5,140)
Interest income .................................... 967 1,097 1,137
Interest expense ................................... (54,731) (26,786) (11,538)
Other (expense) income, net ........................ (19,782) 21,435 304,703
-------------------------------------------------
INCOME BEFORE INCOME TAXES ............................ 229,870 375,385 668,059
PROVISION FOR INCOME TAXES ............................ 93,400 149,600 250,800
-------------------------------------------------
NET INCOME ............................................ 136,470 225,785 417,259
REDEEMABLE PREFERRED STOCK DIVIDENDS .................. (1,026) (950) (956)
-------------------------------------------------
NET INCOME AVAILABLE FOR COMMON SHARES ................ $ 135,444 $ 224,835 $ 416,303
=================================================
BASIC EARNINGS PER COMMON SHARE ....................... $ 14.34 $ 22.35 $ 41.27
=================================================
DILUTED EARNINGS PER COMMON SHARE ..................... $ 14.32 $ 22.30 $ 41.10
=================================================
Consolidated Statements of Comprehensive Income
Fiscal year ended
----------------------------------------------
December 31, January 2, January 3,
(in thousands) 2000 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME ........................................................... $ 136,470 $ 225,785 $ 417,259
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments .......................... (1,685) (3,289) (1,136)
Change in net unrealized gain on available-for-sale securities .... 13,527 (48,176) 68,768
Less reclassification adjustment for
realized gains included in net income .......................... (197) (11,995) --
----------------------------------------------
11,645 (63,460) 67,632
Income tax (expense) benefit related to other
comprehensive income (loss) .................................... (5,097) 23,460 (26,819)
----------------------------------------------
6,548 (40,000) 40,813
==============================================
COMPREHENSIVE INCOME ................................................. $ 143,018 $ 185,785 $ 458,072
==============================================
The information on pages 37 through 49 is an integral part of the financial
statements.
32
34
Consolidated Balance Sheets
December 31, January 2,
(in thousands) 2000 2000
- ---------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................... $ 20,345 $ 75,479
Investments in marketable equity securities ........ 10,948 37,228
Accounts receivable, net ........................... 306,016 270,264
Federal and state income taxes ..................... 12,370 48,597
Inventories ........................................ 15,178 13,890
Other current assets ............................... 40,210 30,701
------------------------------
405,067 476,159
PROPERTY, PLANT, AND EQUIPMENT
Buildings .......................................... 263,311 249,957
Machinery, equipment, and fixtures ................. 1,217,282 1,081,787
Leasehold improvements ............................. 70,706 53,048
------------------------------
1,551,299 1,384,792
Less accumulated depreciation ...................... (736,781) (626,899)
------------------------------
814,518 757,893
Land ............................................... 38,000 37,301
Construction in progress ........................... 74,543 59,712
------------------------------
927,061 854,906
INVESTMENTS IN MARKETABLE EQUITY SECURITIES ........... 210,189 165,784
INVESTMENTS IN AFFILIATES ............................. 131,629 140,669
GOODWILL AND OTHER INTANGIBLES, less accumulated
amortization of $404,513 and $341,879 .............. 1,007,720 886,060
PREPAID PENSION COST .................................. 374,084 337,818
DEFERRED CHARGES AND OTHER ASSETS ..................... 144,993 125,548
------------------------------
$ 3,200,743 $ 2,986,944
==============================
The information on pages 37 through 49 is an integral part of the financial
statements.
33
35
December 31, January 2,
(in thousands, except share amounts) 2000 2000
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities ................................................... $ 273,076 $ 254,105
Deferred subscription revenue .............................................................. 85,721 80,766
Short-term borrowings ...................................................................... 50,000 487,677
------------------------------
408,797 822,548
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS ................................................... 128,764 124,291
OTHER LIABILITIES ............................................................................. 178,029 148,819
DEFERRED INCOME TAXES ......................................................................... 117,731 114,003
LONG-TERM DEBT ................................................................................ 873,267 397,620
------------------------------
1,706,588 1,607,281
------------------------------
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;
13,148 and 11,873 shares issued and outstanding ............................................ 13,148 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; 7,721,225 and 7,700,146 shares outstanding ..... 18,261 18,261
Capital in excess of par value ............................................................. 128,159 108,867
Retained earnings .......................................................................... 2,854,122 2,769,676
Accumulated other comprehensive income (loss), net of taxes
Cumulative foreign currency translation adjustment ...................................... (6,574) (4,889)
Unrealized gain on available-for-sale securities ........................................ 13,502 5,269
Cost of 10,539,525 and 10,560,604 shares of Class B common stock held in treasury .......... (1,528,202) (1,531,133)
------------------------------
1,481,007 1,367,790
------------------------------
$ 3,200,743 $ 2,986,944
==============================
The information on pages 37 through 49 is an integral part of the financial
statements.
34
36
Consolidated Statements of Cash Flows
Fiscal year ended
----------------------------------------------
December 31, January 2, January 3,
(in thousands) 2000 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 136,470 $ 225,785 $ 417,259
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant, and equipment ........................ 117,948 104,235 89,248
Amortization of goodwill and other intangibles ........................ 62,634 58,563 49,889
Net pension benefit ................................................... (61,719) (81,683) (61,997)
Early retirement program expense ...................................... 25,456 -- --
Gain from disposition of businesses, marketable equity
securities, and cost method investment, net ........................ (11,588) (38,799) (314,400)
Cost method investment write-downs .................................... 23,097 13,555 --
Equity in losses of affiliates, net of distributions .................. 37,406 9,744 9,145
Provision for deferred income taxes ................................... (7,743) 29,988 26,987
Change in assets and liabilities:
(Increase) decrease in accounts receivable, net .................... (44,413) (28,194) 22,041
(Increase) decrease in inventories ................................. (1,265) 6,264 (941)
Increase (decrease) in accounts payable and accrued liabilities .... 22,192 (7,749) 13,949
Decrease (increase) in income taxes receivable ..................... 36,227 (2,909) (50,735)
Increase in other assets and other liabilities, net ................ 23,141 3,314 12,241
Other ................................................................. 10,701 (1,521) 10,427
---------------------------------------------
Net cash provided by operating activities .......................... 368,544 290,593 223,113
---------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in certain businesses ........................................ (212,274) (90,455) (320,597)
Net proceeds from sale of businesses ..................................... 1,650 2,000 376,442
Purchases of property, plant, and equipment .............................. (172,383) (130,045) (244,219)
Purchases of marketable equity securities ................................ -- (23,332) (164,955)
Purchases of cost method investments ..................................... (42,459) (33,549) --
Proceeds from sale of marketable equity securities ....................... 6,332 54,805 38,246
Other .................................................................... (4,394) 12,605 (5,960)
---------------------------------------------
Net cash used in investing activities .............................. (423,528) (207,971) (321,043)
---------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of commercial paper, net ........................................ 35,071 34,087 156,968
Issuance of notes ........................................................ -- 397,620 --
Dividends paid ........................................................... (52,024) (53,326) (51,383)
Common shares repurchased ................................................ (96) (425,865) (20,512)
Proceeds from exercise of stock options .................................. 7,056 25,151 7,004
Other .................................................................... 9,843 -- (74)
---------------------------------------------
Net cash (used in) provided by financing activities ................ (150) (22,333) 92,003
---------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........................ (55,134) 60,289 (5,927)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............................. 75,479 15,190 21,117
---------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................................... $ 20,345 $ 75,479 $ 15,190
=============================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes .......................................................... $ 95,000 $ 125,000 $ 280,000
Interest, net of amounts capitalized .................................. $ 52,700 $ 16,000 $ 8,700
The information on pages 37 through 49 is an integral part of the financial
statements.
35
37
Consolidated Statements of Changes in Common Shareholders' Equity
Class A Class B Capital in
Common Common Excess of Retained
Stock Stock Par Value Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
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
Net income for the year .............................. 136,470
Dividends paid on common stock-$5.40 per share ....... (50,998)
Dividends paid on redeemable preferred stock ......... (1,026)
Repurchase of 200 shares of Class B
common stock ......................................
Issuance of 21,279 shares of Class B common stock,
net of restricted stock award forfeitures ......... 4,433
Change in foreign currency translation
adjustment (net of taxes) .........................
Change in unrealized gain on available-for-sale
securities (net of taxes) .........................
Issuance of affiliate stock (net of taxes) ........... 13,332
Tax benefits arising from employee stock plans ....... 1,527
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 .............................. $ 1,739 $ 18,261 $ 128,159 $ 2,854,122
===================================================================
Cumulative Unrealized
Foreign Gain on
Currency Available-
Translation for-Sale Treasury
Adjustment Securities Stock
- ----------------------------------------------------------------------------------------------------------------------
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)
Net income for the year ..............................
Dividends paid on common stock-$5.40 per share .......
Dividends paid on redeemable preferred stock .........
Repurchase of 200 shares of Class B
common stock ...................................... (96)
Issuance of 21,279 shares of Class B common stock,
net of restricted stock award forfeitures ......... 3,027
Change in foreign currency translation
adjustment (net of taxes) ......................... (1,685)
Change in unrealized gain on available-for-sale
securities (net of taxes) ......................... 8,233
Issuance of affiliate stock (net of taxes) ...........
Tax benefits arising from employee stock plans .......
------------------------------------------------------
BALANCE, DECEMBER 31, 2000 .............................. $ (6,574) $ 13,502 $(1,528,202)
======================================================
The information on pages 37 through 49 is an integral part of the financial
statements.
36
38
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 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 years 2000 and 1999, which ended on
December 31, 2000 and January 2, 2000, respectively, both included 52 weeks,
while 1998, which ended on January 3, 1999, included 53 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 2000 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 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.
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.
INVESTMENTS IN AFFILIATES. The Company uses the equity method of accounting for
its investments in and earnings or losses of affiliates for which it does not
control but does exert significant influence.
COST METHOD INVESTMENTS. The Company uses the cost method of accounting for its
minority investments in non-public companies where it does not have significant
influence over the operations and management of the investee. Investments are
recorded at the lower of cost or fair value as estimated by management.
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 25 years).
LONG-LIVED ASSETS. The recoverability of long-lived assets, including goodwill
and other intangibles, is assessed 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.
REVENUE RECOGNITION. Revenue from media advertising is recognized, net of agency
commissions, when the underlying advertisement is published or broadcast.
Revenue from newspaper and magazine subscriptions are recognized upon delivery.
Revenues from newspaper and magazine retail sales are recognized upon delivery
with adequate provision made for anticipated sales returns. Cable subscriber
revenue is recognized monthly as earned. Education revenue is recognized ratably
over the period during which educational services are delivered.
The Company bases its estimates for sales returns on historical
experience and has not experienced significant fluctuations between estimated
and actual return activity. Amounts received from customers in advance of
revenue recognition are deferred as liabilities. Deferred revenue to be earned
after one year is included in "Other Liabilities" in the Consolidated Balance
Sheets.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company provides certain
healthcare and life insurance benefits for retired employees.
37
39
The expected cost of providing these postretirement benefits is accrued over the
years that employees render services.
INCOME TAXES. The provision for income taxes is determined using the asset and
liability approach. Under this approach, deferred income taxes represent the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities.
FOREIGN CURRENCY TRANSLATION. Gains and losses on foreign currency transactions
and the translation of the accounts of the 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 G.
SALE OF SUBSIDIARY/AFFILIATE SECURITIES. The Company's policy is to record
investment basis gains arising from the sale of equity interests in subsidiaries
and affiliates that are in the early stages of building their operations as
additional paid-in capital, net of taxes.
NEW ACCOUNTING PRONOUNCEMENTS. In December 1999, the Securities and Exchange
Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements ('SAB 101')." This bulletin summarized
certain of the SEC's views regarding the application of generally accepted
accounting principles to revenue recognition in financial statements. SAB 101
did not have a material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal year 2001. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities and requires companies to recognize
derivative instruments as either an asset or liability on the balance sheet at
fair value. This statement did not have a material impact on the Company's
financial statements as the Company does not engage in significant derivative or
hedging activities.
| B | ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts receivable at December 31, 2000 and January 2, 2000 consist of the
following (in thousands):
2000 1999
- ----------------------------------------------------------------------------
Trade accounts receivable, less estimated
returns, doubtful accounts and
allowances of $65,198 and $60,621 ......... $277,788 $248,279
Other accounts receivable ................... 28,228 21,985
-----------------------
$306,016 $270,264
=======================
Accounts payable and accrued liabilities at December 31, 2000 and
January 2, 2000 consist of the following (in thousands):
2000 1999
- ---------------------------------------------------------------------------
Accounts payable and accrued expenses ....... $163,197 $158,197
Accrued payroll and related benefits ........ 66,169 58,420
Deferred tuition revenue .................... 36,414 28,060
Due to affiliates (newsprint) ............... 7,296 9,428
-----------------------
$273,076 $254,105
=======================
| C | INVESTMENTS
INVESTMENTS IN MARKETABLE EQUITY SECURITIES. Investments in marketable equity
securities at December 31, 2000 and January 2, 2000 consist of the following (in
thousands):
2000 1999
- -------------------------------------------------------
Total cost .............. $199,159 $194,364
Net unrealized gains .... 21,978 8,648
-----------------------
Total fair value ........ $221,137 $203,012
=======================
At December 31, 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 $210,189,000 or 95 percent of the
total fair value of the Company's investments in marketable equity securities.
The remaining investments in marketable equity securities at December 31, 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,
38
40
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 December 31, 2000, the unrealized gain related to the
Company's Berkshire stock investment totaled $25,271,000; the unrealized loss on
this investment was $19,134,000 at January 2, 2000. The Company presently
intends to hold the Berkshire common stock investment long term; thus the
investment has been classified as a non-current asset in the Consolidated
Balance Sheets.
During 2000, 1999, and 1998 proceeds from sales of marketable equity
securities were $6,332,000, $54,805,000, and $38,246,000, respectively, and
gross realized gains on such sales were $4,929,000, $38,799,000, and $2,168,000,
respectively. Gross realized gains or losses upon the sale of marketable equity
securities are included in "Other (expense) income, net" in the Consolidated
Statements of Income. For purposes of computing realized gains and losses, the
cost basis of securities sold is determined by specific identification.
INVESTMENTS IN AFFILIATES. The Company's investments in affiliates at December
31, 2000 and January 2, 2000 include the following (in thousands):
2000 1999
- -------------------------------------------------------------------
BrassRing, Inc. ................... $ 73,310 $ 75,842
Bowater Mersey Paper Company ...... 40,227 39,885
International Herald Tribune ...... 17,561 19,890
Other ............................. 531 5,052
-------------------------
$ 131,629 $ 140,669
=========================
The Company's investments in affiliates consist of a 42 percent interest
in BrassRing, Inc., 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.
Summarized financial data for the affiliates' operations are as follows
(in thousands):
2000 1999 1998
- --------------------------------------------------------------------------------------
Financial Position:
Working capital .................. $ 29,427 $ 69,155 $ 34,628
Property, plant, and equipment ... 143,749 133,425 125,025
Total assets ..................... 432,458 365,694 252,231
Long-term debt ................... -- -- --
Net equity ....................... 291,481 236,597 122,267
Results of Operations:
Operating revenue ................ $ 345,913 $ 267,788 $ 279,779
Operating (loss) income .......... (27,505) (37,889) 10,978
Net loss ......................... (77,739) (40,035) (63)
The following table summarizes the status and results of the Company's
investments in affiliates (in thousands):
2000 1999
- --------------------------------------------------------------------------
Beginning investment ................... $ 140,669 $ 68,530
Issuance of stock by BrassRing, Inc. ... 21,973 83,493
Additional investment .................. 12,480 8,734
Equity in losses ....................... (36,466) (8,814)
Dividends and distributions received ... (940) (930)
Foreign currency translation ........... (1,685) (3,289)
Other .................................. (4,402) (7,055)
--------------------------
Ending investment ...................... $ 131,629 $ 140,669
==========================
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
de-consolidated BrassRing on September 29, 1999 and recorded its investment
under the equity method of accounting. The 1999 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.
During 2000, BrassRing issued stock to various parties in connection
with its acquisitions of various career fair and recruiting services companies.
The effect of these transactions reduced the Company's investment interest in
BrassRing to 42 percent, from 54 percent at January 2, 2000, and increased the
Company's investment basis in BrassRing by $13,332,000, net of taxes. The
increase in investment basis has been recorded as contributed capital.
39
41
COST METHOD INVESTMENTS. The Company's cost method investments consist of
minority investments in non-public companies where the Company does not have
significant influence over the investees' operating and management decisions.
Most of the companies represented by these cost method investments have
concentrations in Internet-related business activities. At December 31, 2000 and
January 2, 2000, the carrying value of the Company's cost method investments was
$48,617,000 and $30,009,000, respectively. Cost method investments are included
in Deferred Charges and Other Assets in the Consolidated Balance Sheets.
During 2000 and 1999, the Company invested $42,459,000 and $33,549,000,
respectively, in companies constituting cost method investments and recorded
charges of $23,097,000 and $13,555,000, respectively, to write-down cost method
investments to estimated fair value. The company made no significant investments
in cost method investments during 1998. Charges recorded to write-down cost
method investments are included in "Other (expense) income, net" in the
Consolidated Statements of Income.
During 2000, proceeds from sales of cost method investments were
$7,070,000, and gross realized gains on such sales were $6,570,000. There were
no sales of cost method investments in 1999 or 1998. Gross realized gains or
losses upon the sale of cost method investments are included in "Other (expense)
income, net" in the Consolidated Statements of Income.
| D | INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Current Deferred
- -----------------------------------------------------
2000
U.S. Federal ....... $ 77,517 $ 4,854
Foreign ............ 1,033 75
State and local .... 22,593 (12,672)
--------------------------
$ 101,143 $ (7,743)
==========================
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
==========================
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):
2000 1999 1998
- ------------------------------------------------------------------------------------
U.S. Federal statutory taxes ...... $ 80,455 $ 131,385 $ 233,821
State and local taxes,
net of U.S. Federal
income tax benefit .............. 6,449 15,185 18,179
Amortization of goodwill
not deductible for
income tax purposes ............. 5,011 4,178 5,644
IRS approved accounting
change .......................... -- -- (3,550)
Other, net ........................ 1,485 (1,148) (3,294)
------------------------------------------
Provision for income taxes ........ $ 93,400 $ 149,600 $ 250,800
==========================================
Deferred income taxes at December 31, 2000 and January 2, 2000 consist
of the following (in thousands):
2000 1999
- ----------------------------------------------------------------------
Accrued postretirement benefits ........ $ 55,280 $ 53,819
Other benefit obligations .............. 60,676 54,101
Accounts receivable .................... 17,296 14,016
State income tax loss carryforwards .... 12,013 4,767
Other .................................. 20,693 12,081
-----------------------
Deferred tax asset ..................... 165,958 138,784
-----------------------
Property, plant, and equipment ......... 90,391 77,907
Prepaid pension cost ................... 152,609 140,640
Affiliate operations ................... 18,365 21,741
Unrealized gain on available-
for-sale securities .................. 8,476 3,379
Amortized goodwill ..................... 12,050 8,513
Other .................................. 1,798 607
-----------------------
Deferred tax liability ................. 283,689 252,787
-----------------------
Deferred income taxes .................. $117,731 $114,003
=======================
| E | DEBT
At December 31, 2000, the Company had $923,267,000 in total debt outstanding,
which was comprised of $525,386,000 of commercial paper borrowings and
$397,881,000 of 5.5 percent unsecured notes due February 15, 2009. At December
31, 2000, the Company has classified $475,386,000 of its commercial paper
borrowings as Long-Term Debt in its Consolidated Balance Sheets as the Company
has the ability and intent to finance such borrowings on a long-term basis under
its credit agreements.
Interest on the 5.5 percent unsecured notes is payable semi-annually on
February 15 and August 15.
40
42
At December 31, 2000 and January 2, 2000, the average interest rate on
the Company's outstanding commercial paper borrowings was 6.6 percent and 6.4
percent, respectively. The Company's commercial paper borrowings are supported
by a five-year $500,000,000 revolving credit facility and a one-year
$250,000,000 revolving credit facility.
Under the terms of the $500,000,000 revolving credit facility, interest
on borrowings is 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. Under the terms of the $250,000,000 revolving
credit facility, interest on borrowings is at floating rates, and the company is
required to pay a variable facility fee, ranging from 0.03 percent to 0.05
percent per annum, on the used and unused portion of the facility. Both
revolving credit facilities contain certain covenants, including a financial
covenant that the Company maintain at least $850,000,000 of consolidated
shareholder's equity.
The Company incurred interest costs on its borrowing of $52,700,000 and
$25,700,000 during 2000 and 1999, respectively, of which $1,800,000 was
capitalized in 1999 in connection with the construction and upgrade of
qualifying assets. No interest expense was capitalized in 2000.
At December 31, 2000 and January 2, 2000, the fair value of
the Company's 5.5 percent unsecured notes, based on quoted market prices,
totaled $376,200,000 and $353,920,000, respectively, compared with the carrying
amount of $397,881,000 and $397,620,000, respectively.
The carrying value of the Company's commercial paper borrowings at
December 31, 2000 and January 2, 2000 approximates fair value.
| F | REDEEMABLE PREFERRED STOCK
In connection with the acquisition of a cable television system in 1996, the
Company issued 11,947 shares of its Series A Preferred Stock. On February 23,
2000, the Company issued an additional 1,275 shares related to this transaction.
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.
| G | CAPITAL STOCK, STOCK AWARDS, AND STOCK OPTIONS
CAPITAL STOCK. Each share of Class A common stock and Class B common stock
participates equally in dividends. The Class B stock has limited voting rights
and as a class has the right to elect 30 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 2000, 1999, and 1998, the Company purchased a total of 200,
744,095, and 41,033 shares, respectively, of its Class B common stock at a cost
of approximately $96,000, $425,865,000, and $20,512,000.
STOCK AWARDS. In 1982, the Company adopted a long-term incentive compensation
plan, which, among other provisions, authorizes the awarding of Class B common
stock to key employees. Stock awards made under this incentive compensation plan
are subject to the general restriction that stock awarded to a participant will
be forfeited and revert to Company ownership if the participant's employment
terminates before the end of a specified period of service to the Company. At
December 31, 2000, there were 87,910 shares reserved for issuance under the
incentive compensation plan. Of this number, 30,165 shares were subject to
awards outstanding, and 57,745 shares were available for future awards. Activity
related to stock awards under the long-term incentive compensation plan for the
years ended December 31, 2000, January 2, 2000, and January 3, 1999 was as
follows:
2000 1999 1998
-------------------------------------------------------------------------------
Number Average Number Average Number Average
of Award of Award of Award
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------
Awards Outstanding
Beginning of year ....... 31,360 $412.86 30,730 $405.40 32,331 $281.19
Awarded ............... 1,155 501.72 2,615 543.02 14,120 522.56
Vested ................ (99) 330.75 (167) 349.00 (15,075) 244.10
Forfeited ............. (2,251) 456.41 (1,818) 479.90 (646) 293.83
-------------------------------------------------------------------------------
End of year ............. 30,165 $413.28 31,360 $412.86 30,730 $405.40
===============================================================================
In addition to stock awards granted under the long-term incentive
compensation plan, the Company also made stock awards of 1,950 shares in 2000,
1,750 shares in 1999, and 938 shares in 1998.
For the share awards outstanding at December 31, 2000, the
aforementioned restriction will lapse in 2001 for 15,833 shares, in 2002 for
1,371 shares, in 2003 for 16,649 shares, and in 2004 for 2,050 shares.
Stock-based compensation costs resulting from stock awards reduced net income by
$2.4 million ($0.25 per share, basic and diluted), $2.2 million ($0.22 per
share, basic and diluted), and $1.9 million ($0.19 per share, basic and
diluted), in 2000, 1999, and 1998, respectively.
41
43
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 December 31, 2000, there were 503,575 shares reserved for issuance
under the stock option plan, of which 166,450 shares were subject to options
outstanding and 337,125 shares were available for future grants.
Changes in options outstanding for the years ended December 31, 2000,
January 2, 2000, and January 3, 1999 were as follows:
2000 1999 1998
-------------------------------------------------------------------------------------
Number Average Number Average Number Average
of Option of Option of Option
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year ....... 156,497 $ 470.64 246,072 $ 404.48 251,225 $ 371.35
Granted ................. 89,500 544.90 3,750 516.36 25,500 519.32
Exercised ............... (20,425) 345.46 (87,825) 288.43 (30,653) 228.53
Forfeited ............... (59,122) 643.71 (5,500) 450.86 -- --
-------------------------------------------------------------------------------------
End of year ............. 166,450 $ 465.55 156,497 $ 470.64 246,072 $ 404.48
=====================================================================================
Of the shares covered by options outstanding at the end of 2000, 75,463
are now exercisable, 31,612 will become exercisable in 2001, 25,375 will become
exercisable in 2002, 20,250 will become exercisable in 2003, and 13,750 will
become exercisable in 2004.
Information related to stock options outstanding at December 31, 2000 is
as follows:
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
exercise prices at 12/31/00 Life (yrs.) Price at 12/31/00 Price
- ---------------------------------------------------------------------------------------
$ 173 2,500 1.0 $ 173.00 2,500 $ 173.00
222-299 23,750 3.3 247.91 23,750 247.91
344 13,750 6.0 343.94 13,750 343.94
472-484 31,450 7.6 473.89 18,713 472.00
500-586 95,000 9.3 542.81 16,750 526.03
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 2000, 1999, and 1998 was
$161.15, $157.77, and $126.57, respectively. The fair value of options at date
of grant was estimated using the Black-Scholes method utilizing the following
assumptions:
2000 1999 1998
- ------------------------------------------------------------------
Expected life (years) ..... 7 7 7
Interest rate ............. 5.98% 6.19% 4.68%
Volatility ................ 17.9% 16.0% 14.6%
Dividend yield ............ 1.0% 1.1% 1.2%
Had the fair values of options granted after 1995 been recognized as
compensation expense, net income would have been reduced by $3.8 million ($0.40
per share, basic and diluted), $1.9 million ($0.19 per share, basic and
diluted), and $2.0 million ($0.19 per share, basic and diluted) in 2000, 1999,
and 1998, respectively.
The Company also maintains a stock option plan at its Kaplan subsidiary
that provides for the issuance of stock options representing 15 percent of
Kaplan, Inc. common stock to certain members of Kaplan's management. Under the
provisions of this plan, options are issued with an exercise price equal to the
estimated fair value of Kaplan's common stock. Options vest ratably over five
years from issuance, and upon exercise, an option holder has the right to
require the Company to repurchase the Kaplan stock at the stock's then fair
value. The fair value of Kaplan's common stock is determined by the Company's
compensation committee. At December 31, 2000, options representing 12.5 percent
of Kaplan's common stock were issued and outstanding. For 2000, 1999, and 1998,
the Company recorded expense of $6,000,000, $7,200,000, and $6,000,000,
respectively, related to this plan. No options have been exercised to date under
this plan.
AVERAGE NUMBER OF SHARES OUTSTANDING. Basic earnings per share are based on the
weighted average number of shares of common stock outstanding during each year.
Diluted earnings per common share are based upon the weighted average number of
shares of common stock outstanding each year, adjusted for the dilutive effect
of shares issuable under outstanding stock options. Basic and diluted weighted
average share information for 2000, 1999, and 1998 is as follows:
Basic Dilutive Diluted
Weighted Effect of Weighted
Average Stock Average
Shares Options Shares
- --------------------------------------------------------------------------------
2000............................ 9,445,466 14,362 9,459,828
1999............................ 10,060,578 21,206 10,081,784
1998............................ 10,086,786 42,170 10,128,956
| H | PENSIONS AND OTHER POSTRETIREMENT PLANS
The Company maintains various pension and incentive savings plans and
contributes to several multi-employer plans on behalf of certain union
represented employee groups. Substantially all of the Company's employees are
covered by these plans.
The Company also provides healthcare and life insurance benefits to
certain retired employees. These employees become eligible for benefits after
meeting age and service requirements.
42
44
The following table sets forth obligation, asset, and funding
information for the Company's defined benefit pension and postretirement plans
at December 31, 2000 and January 2, 2000 (in thousands):
Pension Plans Postretirement Benefits
--------------------------------------------------------------------
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at
beginning of year .................... $ 344,611 $ 338,045 $ 86,938 $ 107,779
Service cost ........................... 14,566 14,756 3,496 3,585
Interest cost .......................... 24,962 23,584 6,338 6,039
Amendments ............................. 29,442 3,205 1,968 2,379
Actuarial gain ......................... (5,091) (22,281) (1,199) (27,981)
Benefits paid .......................... (17,324) (12,698) (4,298) (4,863)
--------------------------------------------------------------------
Benefit obligation at end of year ...... $ 391,166 $ 344,611 $ 93,243 $ 86,938
====================================================================
CHANGE IN PLAN ASSETS
Fair value of assets at
beginning of year .................... $ 1,119,916 $ 1,308,418 -- --
Actual return on plan assets ........... 212,293 (175,804) -- --
Employer contributions ................. -- -- $ 4,298 $ 4,863
Benefits paid .......................... (17,324) (12,698) (4,298) (4,863)
--------------------------------------------------------------------
Fair value of assets at end of year .... $ 1,314,885 $ 1,119,916 $ -- $ --
====================================================================
Funded status .......................... $ 923,719 $ 775,305 $ (93,243) $ (86,938)
Unrecognized transition asset .......... (15,354) (22,941) -- --
Unrecognized prior service cost ........ 17,230 18,930 (663) (825)
Unrecognized actuarial gain ............ (551,511) (433,476) (34,858) (36,528)
--------------------------------------------------------------------
Net prepaid (accrued) cost ............. $ 374,084 $ 337,818 $ (128,764) $ (124,291)
====================================================================
The total (income) cost arising from the Company's defined benefit
pension and postretirement plans for the years ended December 31, 2000, January
2, 2000, and January 3, 1999, consists of the following components (in
thousands):
Pension Plans Postretirement Plans
----------------------------------------------------------------------------------------
2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
Service cost ............. $ 14,566 $ 14,756 $ 11,335 $ 3,496 $ 3,585 $ 3,764
Interest cost ............ 24,962 23,584 21,344 6,338 6,039 7,417
Expected return
on assets .............. (85,522) (92,566) (71,814) -- -- --
Amortization of
transition asset ....... (7,585) (7,665) (7,665) -- -- --
Amortization of prior
service cost ........... 2,091 2,110 1,679 (162) (162) (378)
Recognized
actuarial gain ......... (10,231) (21,902) (16,876) (2,870) (2,886) (1,379)
----------------------------------------------------------------------------------------
Net periodic (benefit)
cost for the year ...... (61,719) (81,683) (61,997) 6,802 6,576 9,424
Composing Room
early buyout
expense ................ 25,456 -- -- 1,968 -- --
----------------------------------------------------------------------------------------
Total (benefit) cost
for the year ........... $(36,263) $(81,683) $(61,997) $ 8,770 $ 6,576 $ 9,424
========================================================================================
The cost for the Company's defined benefit pension and postretirement
plans are actuarially determined. Key assumptions utilized at December 31, 2000,
January 2, 2000, and January 3, 1999 include the following:
Pension Plans Postretirement Plans
-----------------------------------------------------------
2000 1999 1998 2000 1999 1998
- -------------------------------------------------------------------------------------------
Discount rate ........... 7.5% 7.5% 7.0% 7.5% 7.5% 7.0%
Expected return on
plan assets ........... 9.0% 9.0% 9.0% -- -- --
Rate of compensation
increase .............. 4.0% 4.0% 4.0% -- -- --
The assumed healthcare cost trend rate used in measuring the
postretirement benefit obligation at December 31, 2000 was 6.9 percent for
pre-age 65 benefits (6.4 percent for post-age 65 benefits) decreasing to 5
percent in the year 2005 and thereafter.
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. A one-percentage point change in the
assumed healthcare cost trend rates would have the following effects (in
thousands):
1% 1%
Increase Decrease
- ---------------------------------------------------------------------------------------
Benefit obligation at end of year......................... $ 13,917 $ (13,000)
Service cost plus interest cost........................... 1,544 (1,497)
Contributions to multi-employer pension plans, which are generally based
on hours worked, amounted to $1,100,000 in 2000 and $2,300,000 in 1999 and 1998.
The Company recorded expense associated with retirement benefits
provided under incentive savings plans (primarily 401(k) plans) of approximately
$13,300,000 in 2000, 1999, and 1998.
| I | LEASE AND OTHER COMMITMENTS
The Company leases real property under operating agreements. Many of the leases
contain renewal options and escalation clauses that require payments of
additional rent to the extent of increases in the related operating costs.
At December 31, 2000, future minimum rental payments under noncancelable
operating leases approximate the following (in thousands):
2001................................................. $ 54,800
2002................................................. 47,500
2003................................................. 40,100
2004................................................. 34,300
2005................................................. 28,400
Thereafter........................................... 88,700
---------
$ 293,800
=========
43
45
Minimum payments have not been reduced by minimum sublease rentals of
$3,250,000 due in the future under noncancelable subleases.
Rent expense under operating leases included in operating costs and
expenses was approximately $49,700,000, $33,600,000, and $31,800,000 in 2000,
1999, and 1998, respectively. Sublease income was approximately $1,150,000,
$433,000, and $500,000 in 2000, 1999, and 1998, respectively.
The Company's broadcast subsidiaries are parties to certain agreements
that commit them to purchase programming to be produced in future years. At
December 31, 2000, such commitments amounted to approximately $62,800,000. If
such programs are not produced, the Company's commitment would expire without
obligation.
| J | ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS. The Company completed acquisitions totaling approximately
$212,300,000 in 2000 (including assumed debt and related acquisition costs),
$90,500,000 in 1999, and $320,600,000 in 1998. 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.
On August 2, 2000, the Company acquired Quest Education Corporation
(Quest) for approximately $177,700,000, including assumed debt. The acquisition
of Quest was completed through an all cash tender offer in which the company
purchased substantially all of the outstanding stock of Quest for $18.35 per
share. The acquisition was financed through the issuance of additional
borrowings. Quest is a provider of post-secondary education, currently serving
nearly 13,000 students in 34 schools located in 13 states. Quest's schools offer
Bachelor's degrees, Associate's degrees, and diploma programs designed to
provide students with the knowledge and skills necessary to qualify them for
entry-level employment, primarily in the fields of healthcare, business,
information technology, fashion, and design.
In addition, the Company acquired two cable systems serving
approximately 8,500 subscribers in Nebraska (in June 2000) and Mississippi (in
August 2000) for approximately $16,200,000, as well as various other smaller
businesses throughout 2000 for $18,400,000 (principally consisting of
educational services companies).
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).
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 2000, 1999, and 1998, assuming
the acquisitions occurred at the beginning of 1998, are not materially different
from reported results of operations.
DISPOSITIONS. In June 1999, the Company sold the assets of Legi-Slate, Inc., its
online 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 shares (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 (expense) 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 (expense) 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.
44
46
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 (expense) income, 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.
| K | 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.
The Company's education division derives a portion of its net revenue
from financial aid received by its students under Title IV programs ("Title IV
Programs") administered by the United States Department of Education pursuant to
the Federal Higher Education Act of 1965, ("HEA"), as amended. In order to
participate in Title IV Programs, the Company must comply with complex standards
set forth in the HEA and the regulations promulgated thereunder (the
"Regulations"). The failure to comply with the requirements of HEA or the
Regulations could result in the restriction or loss of the ability to
participate in Title IV Programs and subject the Company to financial penalties.
For the year ended December 31, 2000, approximately $35,000,000 of the Company's
education division revenues were derived from financial aid received by students
under Title IV Programs. These revenues were earned and recognized by Quest
following the Company's acquisition of Quest in August 2000. Management believes
that the Company's education division schools that participate in Title IV
Programs are in material compliance with the standards set forth in the HEA and
the Regulations.
| L | BUSINESS SEGMENTS
The Company operates principally in four areas of the media business: newspaper
publishing, television broadcasting, magazine publishing, and cable television.
Through its subsidiary Kaplan, Inc., the Company also provides educational
services for individuals, schools, and businesses.
Newspaper 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 principally 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 through six VHF television stations.
All stations are network affiliated, with revenues derived primarily from sales
of advertising time.
Cable television operations consist of cable systems offering basic
cable and pay television services to approximately 735,000 subscribers in 18
midwestern, western, and southern states. The principal source of revenues is
monthly subscription fees charged for services.
Educational products and services are provided through the Company's
wholly-owned subsidiary Kaplan, Inc. Kaplan's five major lines of businesses
include Test Preparation and Admissions, providing test preparation services for
college and graduate school entrance exams; Quest Education Corporation, a
provider of post-secondary education offering Bachelor's degrees, Associate's
degrees and diploma programs primarily in the fields of healthcare, business and
information technology; Kaplan Professional, providing educational services to
business people and other professionals; Score!, offering multi-media learning
and private tutoring to children and educational resources to parents; and The
Kaplan Colleges, Kaplan's distance learning businesses, including
kaplancollege.com.
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 Note C.
45
47
Newspaper Television Magazine Cable
(in thousands) Publishing Broadcasting Publishing Television
- -----------------------------------------------------------------------------------------------------------------------
2000
Operating revenue ................................ $ 918,234 $ 364,758 $ 416,421 $ 358,916
Income (loss) from operations .................... $ 114,435 $ 177,396 $ 49,119 $ 65,967
Equity in losses of affiliates ...................
Interest expense, net ............................
Other expense, net ...............................
---------------------------------------------------------------
Income before income taxes ....................
===============================================================
Identifiable assets .............................. $ 684,908 $ 430,444 $ 452,453 $ 757,083
Investments in marketable equity securities ......
Investments in affiliates ........................
---------------------------------------------------------------
Total assets ..................................
===============================================================
Depreciation of property, plant, and equipment ... $ 38,579 $ 12,991 $ 5,059 $ 47,670
Amortization of goodwill ......................... $ 1,588 $ 14,135 $ 6,758 $ 30,069
Pension credit (expense) ......................... $ (5,579) $ 5,767 $ 37,341 $ (599)
Capital expenditures ............................. $ 33,117 $ 11,672 $ 1,858 $ 96,167
1999
Operating revenue ................................ $ 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, and 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 revenue ................................ $ 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, and 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
Other
Businesses
and Corporate
(in thousands) Education Office Consolidated
- --------------------------------------------------------------------------------------------------------
2000
Operating revenue ................................ $ 353,821 $ -- $2,412,150
Income (loss) from operations .................... $ (41,846) $ (25,189) $ 339,882
Equity in losses of affiliates ................... (36,466)
Interest expense, net ............................ (53,764)
Other expense, net ............................... (19,782)
-----------------------------------------------
Income before income taxes .................... $ 229,870
===============================================
Identifiable assets .............................. $ 482,014 $ 41,075 $2,847,977
Investments in marketable equity securities ...... 221,137
Investments in affiliates ........................ 131,629
-----------------------------------------------
Total assets .................................. $3,200,743
===============================================
Depreciation of property, plant, and equipment ... $ 13,649 -- $ 117,948
Amortization of goodwill ......................... $ 10,084 -- $ 62,634
Pension credit (expense) ......................... $ (667) -- $ 36,263
Capital expenditures ............................. $ 29,569 -- $ 172,383
1999
Operating revenue ................................ $ 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, and 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 revenue ................................ $ 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, and 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
46
48
| M | SUBSEQUENT EVENTS (UNAUDITED)
On January 12, 2001, the Company completed the sale of a cable system serving
about 15,000 subscribers in Greenwood, Indiana, for $61,900,000. In a related
transaction, on March 1, 2001, the Company completed a cable system exchange
with AT&T Broadband whereby the Company exchanged its cable systems in Modesto
and Santa Rosa, California, and approximately $42,000,000 to AT&T Broadband for
cable systems serving approximately 155,000 subscribers principally located in
Idaho. For income tax purposes, these transactions qualify as like-kind
exchanges and are substantially tax free in nature. However, the Company will
record a book accounting gain of approximately $195.3 million ($20.50 per share)
in its earnings for the first quarter of 2001.
On February 28, 2001, the Company acquired Southern Maryland Newspapers,
a division of Chesapeake Publishing Corp. Southern Maryland Newspapers publishes
the Maryland Independent in Charles County, Maryland; the Lexington Park
Enterprise in St. Mary's County, Maryland; and the Recorder in Calvert County,
Maryland. The acquired newspapers have a combined total paid circulation of
50,000.
47
49
| N | SUMMARY OF QUARTERLY OPERATING RESULTS AND COMPREHENSIVE INCOME
(UNAUDITED)
Quarterly results of operations and comprehensive income for the years ended
December 31, 2000 and January 2, 2000 are as follows (in thousands, except per
share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
2000 QUARTERLY OPERATING RESULTS
Operating revenue
Advertising ......................................... $ 318,865 $ 353,514 $ 338,428 $ 385,776
Circulation and subscriber .......................... 147,589 148,905 151,144 153,619
Education ........................................... 71,450 68,803 99,428 113,072
Other ............................................... 8,867 20,318 13,452 18,919
------------------------------------------------------
546,771 591,540 602,452 671,386
======================================================
Operating costs and expenses
Operating ........................................... 296,072 316,252 340,733 355,006
Selling, general, and administrative ................ 135,421 138,704 131,206 178,291
Depreciation of property, plant, and equipment ...... 28,386 28,638 30,019 30,905
Amortization of goodwill and other intangibles ...... 14,738 14,755 15,937 17,204
------------------------------------------------------
474,617 498,349 517,895 581,406
======================================================
Income from operations ................................ 72,154 93,191 84,557 89,980
Other income (expense)
Equity in losses of affiliates ...................... (11,304) (9,471) (8,890) (6,800)
Interest income ..................................... 224 275 228 241
Interest expense .................................... (12,567) (12,573) (14,617) (14,974)
Other income (expense), net ......................... (6,938) 1,556 238 (14,639)
------------------------------------------------------
Income before income taxes ............................ 41,569 72,978 61,516 53,808
Provision for income taxes ............................ 17,500 31,800 28,000 16,100
------------------------------------------------------
Net income ............................................ 24,069 41,178 33,516 37,708
Redeemable preferred stock dividends .................. (500) (263) (263) --
------------------------------------------------------
Net income available for common shares ................ $ 23,569 $ 40,915 $ 33,253 $ 37,708
======================================================
Basic earnings per common share ....................... $ 2.50 $ 4.33 $ 3.52 $ 3.99
======================================================
Diluted earnings per common share ..................... $ 2.49 $ 4.33 $ 3.51 $ 3.98
======================================================
Basic average number of common shares outstanding ..... 9,440 9,443 9,448 9,452
Diluted average number of common shares outstanding ... 9,458 9,458 9,463 9,470
2000 QUARTERLY COMPREHENSIVE INCOME ................... $ 21,152 $ 25,492 $ 49,789 $ 46,586
======================================================
48
50
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
1999 QUARTERLY OPERATING RESULTS
Operating revenue
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
Other income (expense)
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
======================================================
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.
49
51
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 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 $62,548,000 $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
=========== =========== =========== ===========
Year Ended December 31, 2000
Allowance for doubtful accounts and returns ................ $51,179,000 $74,540,000 $67,716,000 $58,003,000
Allowance for advertising rate adjustments and discounts ... 9,442,000 2,662,000 4,909,000 7,195,000
----------- ----------- ----------- -----------
$60,621,000 $77,202,000 $72,625,000 $65,198,000
=========== =========== =========== ===========
50
52
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--2000 COMPARED TO 1999
Net income for 2000 was $136.5 million, compared with net income of $225.8
million for 1999. Diluted earnings per share totaled $14.32 in 2000, compared
with $22.30 in 1999, with fewer average shares outstanding in 2000. The decline
in 2000 net income and diluted earnings per share was primarily caused by
increased costs associated with the development of new businesses (impact of
$28.9 million or $3.47 per diluted share), a one-time charge arising from an
early retirement program at The Washington Post newspaper (impact of $16.5
million or $1.74 per diluted share), higher interest expense (impact of $16.6
million or $1.85 per diluted share), and a reduced pension credit (impact of
$11.7 million or $0.92 per diluted share). In addition, 1999 net income included
gains from the sale of marketable equity securities, which did not recur in 2000
(impact of $18.6 million or $1.81 per share). These factors were offset in part
by improved operating results at The Washington Post newspaper and the
television broadcasting division.
Revenue for 2000 totaled $2,412.2 million, an increase of 9 percent from
$2,215.6 million in 1999. Advertising revenue increased 5 percent in 2000, and
circulation and subscriber revenue increased 4 percent. Education revenue
increased 47 percent in 2000, and other revenue decreased 6 percent. Increases
in advertising revenue at the newspaper and television broadcasting divisions
accounted for most of the increase in advertising revenue. The increase in
circulation and subscriber revenue is primarily due to a 6 percent increase in
subscriber revenue at the cable division. Revenue growth at Kaplan, Inc. (about
two-thirds of which was from acquisitions) accounted for the increase in
education revenue. The decrease in other revenue is primarily due to the
disposition of Legi-Slate in June of 1999.
Operating costs and expenses for the year increased 13 percent to $2,072.3
million, from $1,827.1 million in 1999. The cost and expense increase is
primarily attributable to the one-time charge arising from the early retirement
program at The Post, companies acquired in 2000 and 1999, greater spending for
new business development at Kaplan, Inc. and washingtonpost.com, higher
depreciation and amortization expense, and a reduced pension credit.
Operating income decreased 13 percent to $339.9 million in 2000, from $388.5
million in 1999.
The Company's 2000 operating income includes $61.7 million of net pension
credits (excluding the one-time charge related to the early retirement program
completed at The Washington Post newspaper), compared to $81.7 million in 1999.
DIVISION RESULTS
NEWSPAPER PUBLISHING DIVISION. Newspaper division revenue in 2000 increased 5
percent to $918.2 million, from $875.1 million in 1999. Advertising revenue at
the newspaper division rose 5 percent over the previous year; circulation
revenue remained essentially unchanged.
Total print advertising revenue grew 4 percent in 2000 at The Washington
Post newspaper, principally as a result of higher advertising rates. At The
Post, higher advertising rates, offset in part by advertising volume declines,
generated a 4 percent and 2 percent increase in full run retail and classified
print advertising revenue, respectively. Other print advertising revenue
(including general and preprint) at The Post increased 5 percent due mainly to
increased general advertising volume and higher rates.
Newspaper division operating margin in 2000 decreased to 12 percent, from 18
percent in 1999. Excluding the $27.5 million, pre-tax, one-time charge for the
early retirement program completed at The Washington Post, the 2000 newspaper
division operating margin totaled 15 percent. The decline in operating margin
resulted mostly from increased spending on marketing and sales initiatives at
washingtonpost.com, an 8 percent increase in newsprint expense, and a reduced
pension credit, offset in part by higher advertising revenues.
Daily circulation remained unchanged at The Washington Post; Sunday
circulation declined 1 percent.
Revenue generated by the Company's online publishing activities, primarily
washingtonpost.com, totaled $27.1 million for 2000, versus $15.6 million for
1999.
TELEVISION BROADCASTING DIVISION. Revenue at the broadcast division increased 7
percent to $364.8 million, from $341.8 million in 1999. Political and Olympics
advertising in the third and fourth quarters of 2000 totaled approximately $42
million, accounting for the increase in 2000 revenue.
Competitive market position remained strong for the Company's television
stations. WJXT in Jacksonville, KSAT in San Antonio, and WDIV in Detroit were
all ranked number one in the latest ratings period, sign-on to sign-off, in
their markets; WPLG was tied for first among English-language stations in the
Miami market; and KPRC in Houston and WKMG in Orlando ranked third in their
respective markets, but continued to make good progress in improving market
share.
Operating margin at the broadcast division was 49 percent for both 2000 and
1999. Excluding amortization of goodwill and intangibles, operating margin was
53 percent for 2000 and 1999.
MAGAZINE PUBLISHING DIVISION. Magazine division revenue was $416.4 million for
2000, up 4 percent over 1999 revenue of $401.1 million. Operating income for the
magazine division totaled $49.1 million for 2000, a decrease of 21 percent from
operating income of $62.1 million in 1999. The 21 percent decrease in operating
income occurred primarily at Newsweek, where reduced pension credits and higher
subscription acquisition costs at the domestic edition outpaced revenue and
operating income improvements at the international edition.
Operating margin at the magazine publishing division decreased to 12 percent
for 2000, compared to 15 percent in 1999.
51
53
CABLE TELEVISION DIVISION. Revenue at the cable division rose 7 percent to
$358.9 million in 2000, compared to $336.3 million in 1999. Basic, tier, and
advertising revenue categories each showed improvement over 1999. The increase
in subscriber revenue is attributable to higher rates. The number of basic
subscribers at the end of 2000 totaled 735,000, a 1 percent decline from 739,850
basic subscribers at the end of 1999.
Cable operating cash flow (operating income excluding depreciation and
amortization expense) increased 2 percent to $143.7 million, from $140.2 million
in 1999; operating cash flow margins totaled 40 percent and 42 percent, for 2000
and 1999, respectively.
Operating income at the cable division for 2000 and 1999 totaled $66.0
million and $67.1 million, respectively. The decline in operating income is
primarily attributable to an increase in programming expense, additional costs
associated with the launch of new services, and higher depreciation expense,
offset in part by higher revenue.
The increase in depreciation expense is due to recent capital spending for
continuing system rebuilds and upgrades, which will enable the cable division to
offer new digital and high-speed cable modem services to its subscribers. The
cable division began its rollout plan for these services in the second and third
quarters of 2000.
The rollout plan for the new digital cable services includes an offer to
provide services free for one year. Accordingly, management does not believe the
cable division's financial operating performance will materially benefit from
these new services in 2001; however, financial benefits are expected in 2002 and
thereafter.
EDUCATION DIVISION. Excluding the operating results of the career fair and
HireSystems businesses from 1999 (these businesses were contributed to BrassRing
at the end of the third quarter of 1999), 2000 education division operating
results compared with 1999 are as follows (in thousands):
2000 1999 % change
- ---------------------------------------------------------------------------------
REVENUE
Test prep and professional
training ....................... $ 244,865 $ 209,964 17%
Quest post-secondary education ... 56,908 -- n/a
New business development
activities ..................... 52,048 30,175 72%
----------------------------------------
$ 353,821 $ 240,139 47%
========================================
OPERATING INCOME (LOSS)
Test prep and professional
training ....................... $ 30,399 $ 25,733 18%
Quest post-secondary education ... 8,359 -- n/a
New business development
activities ..................... (56,155) (20,128) 179%
Kaplan corporate overhead ........ (8,365) (7,153) 17%
Stock-based incentive
compensation ................... (6,000) (7,250) (17%)
Goodwill and other intangible
amortization ................... (10,084) (6,861) 47%
----------------------------------------
$ (41,846) $ (15,659) 167%
========================================
Approximately 50 percent of the 2000 increase in test preparation and
professional training revenue is attributable to acquisitions; the remaining
increase is due to higher enrollments and tuition increases. Post-secondary
education represents the results of Quest Education Corporation from the date of
its acquisition in August 2000. New business development activities represent
the results of Score!, eScore.com and The Kaplan Colleges. The increase in new
business development revenue is attributable mostly to new learning centers
opened by Score!, which operated 142 centers at the end of 2000 versus 100
centers at the end of 1999. The increase in new business development losses is
attributable to start-up period spending at eScore.com and kaplancollege.com
(part of The Kaplan Colleges) and to losses associated with the early operating
periods of new Score! centers. Management presently expects new business
development losses in 2001 will be 35 percent to 45 percent less than the losses
in 2000 that resulted from these activities.
Corporate overhead represents unallocated expenses of Kaplan, Inc.'s
corporate office.
Stock-based incentive compensation represents expense arising from a stock
option plan established for certain members of Kaplan's management (the general
provisions of which are discussed in Note G to the Consolidated Financial
Statements). Under this plan, the amount of stock-based incentive compensation
expense varies directly with the estimated fair value of Kaplan's common stock.
Including the operating results of the career fair and HireSystems
businesses for the first nine months of 1999 (these businesses were contributed
to BrassRing at the end of the third quarter of 1999), education division
revenue increased 37 percent to $353.8 million for 2000, compared to $257.5
million for 1999. Operating losses increased 10 percent in 2000 to $41.8
million, from $38.0 million in 1999.
OTHER BUSINESSES AND CORPORATE OFFICE. For 2000, other businesses and corporate
office includes the expenses of the Company's corporate office. For 1999, other
businesses and corporate office includes the expenses associated with the
corporate office and the operating results of Legi-Slate through June 30, 1999,
the date of its sale.
Operating losses for 2000 totaled $25.2 million, representing a 7 percent
improvement over 1999. The reduction in 2000 losses is primarily attributable to
the absence of losses generated by Legi-Slate and reduced spending at the
Company's corporate office.
EQUITY IN LOSSES OF AFFILIATES. The Company's equity in losses of affiliates for
2000 was $36.5 million, compared to losses of $8.8 million for 1999. The
Company's affiliate investments consist of a 42 percent effective interest in
BrassRing, Inc. (formed in late September 1999), a 50 percent interest in the
International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper
Company Limited. The decline in 2000 affiliate results is attributable to
BrassRing, Inc., which is in the integration and marketing phase of its
operations.
52
54
BrassRing accounted for approximately $37.0 million of the Company's 2000
equity in affiliate losses. A substantial portion of BrassRing's losses arises
from goodwill and intangible amortization expense. Accordingly, the $37.0
million of equity in affiliate losses recorded by the Company in 2000 did not
require significant funding by the Company.
NON-OPERATING ITEMS. In 2000, the Company incurred net interest expense of $53.8
million, compared to $25.7 million of net interest expense in 1999. The 2000
increase in net interest expense is attributable to borrowings executed by the
Company during 1999 and 2000 to fund capital improvements, acquisition
activities, and share repurchases.
The Company recorded other non-operating expense of $19.8 million in 2000,
compared to $21.4 million in non-operating income for 1999. The 1999
non-operating income was comprised mostly of non-recurring gains arising from
the sale of marketable securities (mostly various Internet-related securities).
The 2000 non-operating expense resulted mostly from the write-downs of certain
of the Company's e-commerce focused cost method investments.
INCOME TAXES. The effective tax rate in 2000 was 40.6 percent, compared to 39.9
percent in 1999. The increase in the effective tax rate is principally due to
the non-recognition of benefits from state net operating loss carryforwards
generated by certain of the Company's new business start-up activities and an
increase in goodwill amortization expense that is not deductible for income tax
purposes.
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. Diluted earnings per share totaled $22.30 in 1999, compared to
$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.
Revenue for 1999 totaled $2,215.6 million, an increase of 5 percent from
$2,110.4 million in 1998. Advertising revenue increased 3 percent in 1999, and
circulation and subscriber revenue increased 6 percent. Education revenue
increased 40 percent in 1999, and other revenue decreased 31 percent. The
newspaper and magazine divisions generated most of the increase in advertising
revenue. The increase in circulation and subscriber revenue is primarily due to
a 13 percent increase in subscriber revenue at the cable division. Revenue
growth at Kaplan, Inc. (about two-thirds of which was from acquisitions)
accounted for the increase in education revenue. The decline in other revenue is
principally due to the disposition of Moffet, Larson & Johnson (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 new
business development activities at Kaplan, Inc. and washingtonpost.com, and
higher depreciation and amortization expense. 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
NEWSPAPER PUBLISHING DIVISION. At the newspaper division, 1999 included 52
weeks, compared to 53 weeks in 1998. Newspaper division revenue increased 3
percent to $875.1 million, from $848.9 million in 1998. Advertising revenue at
the newspaper division rose 5 percent over the previous year. At The Washington
Post, advertising revenue increased 3 percent as a result of higher rates and
volume. Classified advertising revenue at The Washington Post increased 2
percent primarily due to higher rates. Retail advertising revenue at The Post
remained essentially even with the previous year. Other advertising revenue
(including general and preprint) at The Post increased 7 percent due mainly to
increased general advertising volume and higher rates.
Circulation revenue 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 spending for the continued development of washingtonpost.com. The
Post's 1999 operating results benefited from the higher advertising revenue
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. Revenue at the broadcast division declined 4
percent to $341.8 million in 1999, compared to $357.6 million in 1998. The
decline in 1999 revenue is due to softness in national advertising revenue and
the absence of Winter Olympics advertising revenue (first quarter of 1998) and
political advertising
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revenue (third and fourth quarter of 1998), offset in part by growth in local
advertising revenue.
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 Houston and
WKMG in Orlando ranked third in their respective markets but continued to make
good progress in improving market share.
Operating margin at the broadcast division was 49 percent in 1999, compared
to 48 percent in 1998. Excluding amortization of goodwill and intangibles,
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
revenue.
MAGAZINE PUBLISHING DIVISION. Magazine division revenue was $401.1 million for
1999, up slightly over 1998 revenue 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 revenue 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 TELEVISION DIVISION. Revenue 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 revenue. The number of basic subscribers at the end of
1999 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
revenue. 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 DIVISION. Excluding the operating results of the career fair and
HireSystems businesses (these businesses were contributed to BrassRing at the
end of the third quarter of 1999), 1999 revenue for the education division
totaled $240.1 million, a 40 percent increase from 1998 revenue 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 $15.7 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 revenue 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 and Score! businesses. Division operating losses of $38.0 million
represent a $30.5 million increase in operating losses over 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, 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 consist 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
54
56
to BrassRing, 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.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
ACQUISITIONS. During 2000, the Company spent $212.3 million on business
acquisitions. These acquisitions included $177.7 million for Quest Education
Corporation, a provider of post-secondary education; $16.2 million for two cable
systems serving 8,500 subscribers; and $18.4 million for various other small
businesses (principally consisting of educational services companies).
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.
In 1998, the Company acquired various businesses for about $320.6 million,
which principally included $209.0 million for cable systems serving
approximately 115,400 subscribers and $100.4 million for educational, training,
and career services companies.
DISPOSITIONS. There were no significant business dispositions in 2000. The
Company sold Legi-Slate in June 1999; no significant gain or loss resulted.
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 a
merger of Cowles Media Company and McClatchy. The market value of the McClatchy
stock received was $21.6 million. During 1998 and 1999, the Company sold the
McClatchy common stock for $24.3 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. During 1999 and 1998,
the Company sold the Amazon.com common stock for $31.5 million.
CAPITAL EXPENDITURES. During 2000, the Company's capital expenditures totaled
$172.4 million, about half of which related to plant upgrades at the Company's
cable division. The Company's capital expenditures for 2000, 1999, and 1998 are
itemized by operating division in Note L to the Consolidated Financial
Statements.
The Company estimates that in 2001 it will spend approximately $200 million
for property and equipment. Approximately 60 percent of this spending is
earmarked for the cable division in connection with its rollout of new digital
and cable modem services. If the rate of customer acceptance for these new
services is slower than anticipated, then the Company will consider slowing its
capital expenditures in this area to a level consistent with customer demand.
INVESTMENTS IN MARKETABLE EQUITY SECURITIES. At December 31, 2000, the fair
value of the Company's investments in marketable equity securities was $221.1
million, which includes $210.2 million in Berkshire Hathaway Inc. Class A and B
common stock and $10.9 million of various common stocks of publicly traded
companies with e-commerce business concentrations.
At December 31, 2000, the gross unrealized gain related to the Company's
Berkshire Hathaway Inc. stock investment totaled $25.3 million; the gross
unrealized loss on this investment was $19.1 million at January 2, 2000. The
Company presently intends to hold the Berkshire Hathaway stock long term.
COST METHOD INVESTMENTS. At December 31, 2000 and January 2, 2000, the Company
held minority investments in various non-public companies. The companies
represented by these investments have products or services that in most cases
have potential strategic relevance to the Company's operating units. The Company
records its investment in these companies at the lower of cost or estimated fair
value. During 2000 and 1999, the Company invested $42.5 million and $33.5
million, respectively, in various cost method investees. At December 31, 2000
and January 2, 2000, the carrying value of the Company's cost method investments
totaled $48.6 million and $30.0 million, respectively.
COMMON STOCK REPURCHASES AND DIVIDEND RATE. During 2000, 1999, and 1998, the
Company repurchased 200, 744,095, and 41,033 shares, respectively, of its Class
B common stock at a cost of $0.1 million, $425.9 million, and $20.5 million. The
annual dividend rate
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57
for 2001 was increased to $5.60 per share, from $5.40 per share in 2000, $5.20
per share in 1999, and $5.00 per share in 1998.
LIQUIDITY. At December 31, 2000, the Company had $20.3 million in cash and cash
equivalents.
At December 31, 2000, the Company had $525.4 million in commercial paper
borrowings outstanding at an average interest rate of 6.6 percent with various
maturities throughout the first and second quarter of 2001. In addition, the
Company had outstanding $397.9 million of 5.5 percent, 10 year unsecured notes
due February 2009. These notes require semiannual interest payments of $11.0
million payable on February 15 and August 15.
The Company utilizes a five-year $500 million revolving credit facility and
a one-year $250 million revolving credit facility to support the issuance of its
short-term commercial paper, and to provide for general corporate purposes.
At December 31, 2000, the Company has classified $475.4 million of its
commercial paper borrowings as long-term debt in its Consolidated Balance Sheets
as the Company has the ability and intent to finance such borrowings on a
long-term basis under its credit agreements.
During 2000, the Company's borrowings, net of repayments, increased by $38.0
million. The net increase is principally attributable to the acquisition of
Quest Education Corporation in July 2000, partially offset by cash generated by
operations.
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 2001.
SUBSEQUENT EVENTS. On January 12, 2001, the Company sold a cable system serving
about 15,000 subscribers in Greenwood, Indiana, for $61.9 million. In a related
transaction, on March 1, 2001, the Company completed a cable system exchange
with AT&T Broadband whereby the Company exchanged its cable systems in Modesto
and Santa Rosa, California, and approximately $42.0 million to AT&T Broadband
for cable systems serving approximately 155,000 subscribers principally located
in Idaho. For income tax purposes, these transactions qualify as like-kind
exchanges and are substantially tax free in nature. However, the Company will
record a book accounting gain of approximately $195.3 million ($20.50 per share)
in its earnings for the first quarter of 2001.
On February 28, 2001, the Company acquired Southern Maryland Newspapers, a
division of Chesapeake Publishing Corp. Southern Maryland Newspapers publishes
the Maryland Independent in Charles County, Maryland; the Lexington Park
Enterprise in St. Mary's County, Maryland; and the Recorder in Calvert County,
Maryland. The acquired newspapers have a combined total paid circulation of
50,000.
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.
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[ This Page Intentionally Left Blank ]
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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 1998 -
2000.
(in thousands, except per share amounts) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating revenue ........................................................ $ 2,412,150 $ 2,215,571 $ 2,110,360
Income from operations ................................................... $ 339,882 $ 388,453 $ 378,897
Income before cumulative effect of changes in accounting principle ....... $ 136,470 $ 225,785 $ 417,259
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 ............................................................... $ 136,470 $ 225,785 $ 417,259
=============================================
PER SHARE AMOUNTS
Basic earnings per common share
Income before cumulative effect of changes in accounting principles .... $ 14.34 $ 22.35 $ 41.27
Cumulative effect of changes in accounting principles .................. -- -- --
---------------------------------------------
Net income ............................................................. $ 14.34 $ 22.35 $ 41.27
=============================================
Basic average shares outstanding ....................................... 9,445 10,061 10,087
Diluted earnings per share
Income before cumulative effect of changes in accounting principles .... $ 14.32 $ 22.30 $ 41.10
Cumulative effect of changes in accounting principles .................. -- -- --
---------------------------------------------
Net income ............................................................. $ 14.32 $ 22.30 $ 41.10
=============================================
Diluted average shares outstanding ..................................... 9,460 10,082 10,129
Cash dividends ........................................................... $ 5.40 $ 5.20 $ 5.00
Common shareholders' equity .............................................. $ 156.55 $ 144.90 $ 157.34
FINANCIAL POSITION
Current assets ........................................................... $ 405,067 $ 476,159 $ 404,878
Working capital (deficit) ................................................ (3,730) (346,389) 15,799
Property, plant, and equipment ........................................... 927,061 854,906 841,062
Total assets ............................................................. 3,200,743 2,986,944 2,729,661
Long-term debt ........................................................... 873,267 397,620 395,000
Common shareholders' equity .............................................. 1,481,007 1,367,790 1,588,103
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1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
$ 1,956,253 $ 1,853,445 $ 1,719,449 $ 1,613,978 $ 1,498,191 $ 1,450,867 $ 1,380,261
$ 381,351 $ 337,169 $ 271,018 $ 274,875 $ 238,980 $ 232,112 $ 192,866
$ 281,574 $ 220,817 $ 190,096 $ 169,672 $ 153,817 $ 127,796 $ 118,721
-- -- -- -- 11,600 -- --
-- -- -- -- -- -- (47,897)
- ------------------------------------------------------------------------------------------------------------
$ 281,574 $ 220,817 $ 190,096 $ 169,672 $ 165,417 $ 127,796 $ 70,824
============================================================================================================
$ 26.23 $ 20.08 $ 17.16 $ 14.66 $ 13.10 $ 10.81 $ 10.00
-- -- -- -- 0.98 -- (4.04)
- ------------------------------------------------------------------------------------------------------------
$ 26.23 $ 20.08 $ 17.16 $ 14.66 $ 14.08 $ 10.81 $ 5.96
============================================================================================================
10,700 10,964 11,075 11,577 11,746 11,827 11,874
$ 26.15 $ 20.05 $ 17.15 $ 14.65 $ 13.10 $ 10.80 $ 10.00
-- -- -- -- 0.98 -- (4.04)
- ------------------------------------------------------------------------------------------------------------
$ 26.15 $ 20.05 $ 17.15 $ 14.65 $ 14.08 $ 10.80 $ 5.96
============================================================================================================
10,733 10,980 11,086 11,582 11,750 11,830 11,876
$ 4.80 $ 4.60 $ 4.40 $ 4.20 $ 4.20 $ 4.20 $ 4.20
$ 117.36 $ 121.24 $ 107.60 $ 99.32 $ 92.84 $ 84.17 $ 78.12
$ 308,492 $ 382,631 $ 406,570 $ 375,879 $ 625,574 $ 524,975 $ 472,219
(300,264) 100,995 98,393 102,806 367,041 242,627 183,959
653,750 511,363 457,359 411,396 363,718 390,804 390,313
2,077,317 1,870,411 1,732,893 1,696,868 1,622,504 1,568,121 1,487,661
-- -- -- 50,297 51,768 51,842 51,915
1,184,074 1,322,803 1,184,204 1,126,933 1,087,419 993,005 924,285
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 March 8, 2001.
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).
4.4 --- 364-Day Credit Agreement dated as of September 30, 2000, among the
Company, Citibank, N.A., SunTrust Bank and The Chase Manhattan Bank
(incorporated by reference to Exhibit 4.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 1, 2000).
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
10-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 (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 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 (incorporated by
reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 2, 2000).*
[Index Continued on Next Page]
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62
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.5 --- The Washington Post Company Deferred Compensation Plan as amended and
restated effective March 9, 2000 (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 2, 2000).*
10.6 --- Consulting Agreement between the Company and Alan G. Spoon dated March
8, 2000 (incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 2,
2000).*
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 8, 2001.
- ---------------
* 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.
61