SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION
Quarterly Report Pursuant to Section 13 ORor 15(d) OFTHE SECURITIES EXCHANGE ACT OF
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 29, 2002March 30, 2003
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
1150 15th Street, N.W. Washington, D.C. | 20071 | |
(Address of principal executive offices) | (Zip Code) |
1150 15th Street, N.W. Washington, D.C. 20071(Address of principal executive offices) (Zip Code)(202) 334-6000
(Registrant’s telephone number, including area code:(202) 334-6000code)
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. YesxYes X . No____.No
Shares outstanding at November 6, 2002:
Class A Common Stock | 1,722,250 | Shares | ||||||
Class B Common Stock | 7,804,370 Shares |
2.
THE WASHINGTON POST COMPANY
Index to Form 10-Q
PART I. FINANCIAL INFORMATION | ||||||||||
Item 1. | Financial Statements | |||||||||
3 | ||||||||||
4 | ||||||||||
5 | ||||||||||
6 | ||||||||||
e.Notes to Condensed Consolidated Financial Statements | 7 | |||||||||
Item 2. | Management’s Discussion and Analysis of Results of | 12 | ||||||||
Item 4. | 17 | |||||||||
PART II. | OTHER INFORMATION | |||||||||
Item 6. | 18 | |||||||||
19 | ||||||||||
20 |
3.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Condensed Consolidated Statements of Income (Unaudited)
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||
September 29, | September 30, | September 29, | September 30, | ||||||||||||||
(In thousands, except per share amounts) | 2002 | 2001 | 2002 | 2001 | |||||||||||||
Operating revenues | |||||||||||||||||
Advertising | $ | 292,523 | $ | 277,425 | $ | 882,183 | $ | 888,281 | |||||||||
Circulation and subscriber | 171,535 | 174,716 | 501,382 | 483,469 | |||||||||||||
Education | 160,454 | 127,159 | 457,148 | 367,680 | |||||||||||||
Other | 15,781 | 13,007 | 47,605 | 43,185 | |||||||||||||
640,293 | 592,307 | 1,888,318 | 1,782,615 | ||||||||||||||
Operating costs and expenses | |||||||||||||||||
Operating | 342,411 | 345,567 | 1,011,093 | 1,029,097 | |||||||||||||
Selling, general and administrative | 162,642 | 144,954 | 499,895 | 444,278 | |||||||||||||
Depreciation of property, plant and equipment | 45,808 | 34,765 | 128,267 | 105,264 | |||||||||||||
Amortization of goodwill and other intangibles | 172 | 20,068 | 483 | 57,185 | |||||||||||||
551,033 | 545,354 | 1,639,738 | 1,635,824 | ||||||||||||||
Income from operations | 89,260 | 46,953 | 248,580 | 146,791 | |||||||||||||
Other income (expense) | |||||||||||||||||
Equity in losses of affiliates | (1,254 | ) | (26,535 | ) | (16,943 | ) | (45,636 | ) | |||||||||
Interest income | 69 | 226 | 261 | 1,597 | |||||||||||||
Interest expense | (8,717 | ) | (11,861 | ) | (26,381 | ) | (39,726 | ) | |||||||||
Other, net | 1,115 | (4,365 | ) | 1,606 | 293,688 | ||||||||||||
Income before income taxes and cumulative effect of change in accounting principle | 80,473 | 4,418 | 207,123 | 356,714 | |||||||||||||
Provision for income taxes | 32,700 | 2,850 | 84,500 | 141,600 | |||||||||||||
Income before cumulative effect of change in accounting principle | 47,773 | 1,568 | 122,623 | 215,114 | |||||||||||||
Cumulative effect in method of accounting for goodwill and other intangible assets, net of taxes | — | — | (12,100 | ) | — | ||||||||||||
Net income | 47,773 | 1,568 | 110,523 | 215,114 | |||||||||||||
Redeemable preferred stock dividends | (249 | ) | (263 | ) | (1,033 | ) | (1,052 | ) | |||||||||
Net income available for common shares | $ | 47,524 | $ | 1,305 | $ | 109,490 | $ | 214,062 | |||||||||
Basic earnings per common share: | |||||||||||||||||
Before cumulative effect of change in accounting principle | $ | 5.03 | $ | 0.17 | $ | 12.90 | $ | 22.68 | |||||||||
Cumulative effect of change in accounting principle | — | — | (1.27 | ) | — | ||||||||||||
Redeemable preferred stock dividends | (0.03 | ) | (0.03 | ) | (0.11 | ) | (0.11 | ) | |||||||||
Net income available for common stock | $ | 5.00 | $ | 0.14 | $ | 11.52 | $ | 22.57 | |||||||||
Diluted earnings per share: | |||||||||||||||||
Before cumulative effect of change in accounting principle | $ | 5.02 | $ | 0.17 | $ | 12.88 | $ | 22.64 | |||||||||
Cumulative effect of change in accounting principle | — | — | (1.27 | ) | — | ||||||||||||
Redeemable preferred stock dividends | (0.03 | ) | (0.03 | ) | (0.11 | ) | (0.11 | ) | |||||||||
Net income available for common stock | $ | 4.99 | $ | 0.14 | $ | 11.50 | $ | 22.53 | |||||||||
Dividends declared per common share | $ | 1.40 | $ | 1.40 | $ | 5.60 | $ | 5.60 | |||||||||
Basic average number of common shares outstanding | 9,506 | 9,489 | 9,502 | 9,484 | |||||||||||||
Diluted average number of common shares outstanding | 9,523 | 9,502 | 9,518 | 9,500 |
(In thousands, except per share amounts) | March 30, 2003 | March 31, 2002 | ||||||
Operating revenues | ||||||||
Advertising | $ | 279,796 |
| $ | 273,564 |
| ||
Circulation and subscriber |
| 172,036 |
|
| 161,298 |
| ||
Education |
| 177,778 |
|
| 146,929 |
| ||
Other |
| 10,830 |
|
| 18,531 |
| ||
| 640,440 |
|
| 600,322 |
| |||
Operating costs and expenses | ||||||||
Operating |
| 348,634 |
|
| 333,239 |
| ||
Selling, general and administrative |
| 169,170 |
|
| 176,866 |
| ||
Depreciation of property, plant and equipment |
| 43,395 |
|
| 41,173 |
| ||
Amortization of intangible assets |
| 149 |
|
| 152 |
| ||
| 561,348 |
|
| 551,430 |
| |||
Income from operations |
| 79,092 |
|
| 48,892 |
| ||
Other income (expense) | ||||||||
Equity in losses of affiliates |
| (2,642 | ) |
| (6,506 | ) | ||
Interest income |
| 114 |
|
| 133 |
| ||
Interest expense |
| (7,237 | ) |
| (8,867 | ) | ||
Other, net |
| 48,135 |
|
| 6,454 |
| ||
Income before income taxes and cumulative effect of change in accounting principle |
| 117,462 |
|
| 40,106 |
| ||
Provision for income taxes |
| 44,400 |
|
| 16,400 |
| ||
Income before cumulative effect of change in accounting principle |
| 73,062 |
|
| 23,706 |
| ||
Cumulative effect of change in method of accounting for goodwill and other intangible assets, net of taxes |
| — |
|
| (12,100 | ) | ||
Net income |
| 73,062 |
|
| 11,606 |
| ||
Redeemable preferred stock dividends |
| (517 | ) |
| (525 | ) | ||
Net income available for common shares | $ | 72,545 |
| $ | 11,081 |
| ||
Basic earnings per common share: | ||||||||
Before cumulative effect of change in accounting principle | $ | 7.62 |
| $ | 2.44 |
| ||
Cumulative effect of change in accounting principle |
| — |
|
| (1.27 | ) | ||
Net income available for common stock | $ | 7.62 |
| $ | 1.17 |
| ||
Diluted earnings per share: | ||||||||
Before cumulative effect of change in accounting principle | $ | 7.59 |
| $ | 2.43 |
| ||
Cumulative effect of change in accounting principle |
| — |
|
| (1.27 | ) | ||
Net income available for common stock. | $ | 7.59 |
| $ | 1.16 |
| ||
Dividends declared per common share | $ | 2.90 |
| $ | 2.80 |
| ||
Basic average number of common shares outstanding |
| 9,526 |
|
| 9,498 |
| ||
Diluted average number of common shares outstanding |
| 9,553 |
|
| 9,512 |
|
3.
4.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Thirteen Weeks Ended | Thirty-nine Weeks Ended | ||||||||||||||||
September 29, | September 30, | September 29, | September 30, | ||||||||||||||
(In thousands) | 2002 | 2001 | 2002 | 2001 | |||||||||||||
Net income | $ | 47,773 | $ | 1,568 | $ | 110,523 | $ | 215,114 | |||||||||
Other comprehensive income (loss) | |||||||||||||||||
Foreign currency translation adjustment | (1,906 | ) | (423 | ) | 2,511 | (3,799 | ) | ||||||||||
Change in unrealized gain on available-for-sale securities | 20,427 | (3,439 | ) | 4,997 | (2,067 | ) | |||||||||||
Less: reclassification adjustment for realized (gains) losses included in net income | — | 24 | (11,209 | ) | 3,238 | ||||||||||||
18,521 | (3,838 | ) | (3,701 | ) | (2,628 | ) | |||||||||||
Income tax (expense) benefit related to other comprehensive income | (7,961 | ) | 1,333 | 2,383 | (513 | ) | |||||||||||
10,560 | (2,505 | ) | (1,318 | ) | (3,141 | ) | |||||||||||
Comprehensive income (loss) | $ | 58,333 | $ | (937 | ) | $ | 109,205 | $ | 211,973 | ||||||||
(In thousands) | March 30, 2003 | March 31, 2002 | ||||||
Net income | $ | 73,062 |
| $ | 11,606 |
| ||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment |
| 3,105 |
|
| 99 |
| ||
Less: reclassification adjustment on sale of affiliate investment |
| (1,633 | ) |
| — |
| ||
Change in unrealized gain on available-for-sale securities |
| (21,718 | ) |
| (2,381 | ) | ||
Less: reclassification adjustment for realized losses (gains) included in net income |
| 214 |
|
| (11,209 | ) | ||
| (20,032 | ) |
| (13,491 | ) | |||
Income tax benefit related to other comprehensive income |
| 8,387 |
|
| 5,265 |
| ||
| (11,645 | ) |
| (8,226 | ) | |||
Comprehensive income | $ | 61,417 |
| $ | 3,380 |
| ||
4.
5.
The Washington Post Company
Condensed Consolidated Balance Sheets
September 29, | December 30, | |||||||||
2002 | 2001 | |||||||||
(In thousands) | ||||||||||
(unaudited) | ||||||||||
Assets | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 35,280 | $ | 31,480 | ||||||
Investments in marketable equity securities | 4,597 | 16,366 | ||||||||
Accounts receivable, net | 291,098 | 279,328 | ||||||||
Federal and state income taxes receivable | — | 10,253 | ||||||||
Inventories | 36,208 | 19,042 | ||||||||
Other current assets | 39,744 | 40,388 | ||||||||
406,927 | 396,857 | |||||||||
Property, plant and equipment | ||||||||||
Buildings | 270,511 | 267,658 | ||||||||
Machinery, equipment and fixtures | 1,539,683 | 1,422,228 | ||||||||
Leasehold improvements | 82,214 | 79,108 | ||||||||
1,892,408 | 1,768,994 | |||||||||
Less accumulated depreciation | (915,389 | ) | (794,596 | ) | ||||||
977,019 | 974,398 | |||||||||
Land | 34,733 | 34,733 | ||||||||
Construction in progress | 85,413 | 89,080 | ||||||||
1,097,165 | 1,098,211 | |||||||||
Investments in marketable equity securities | 218,921 | 219,039 | ||||||||
Investments in affiliates | 74,124 | 80,936 | ||||||||
Goodwill, net | 771,053 | 754,554 | ||||||||
Indefinite lived intangible assets, net | 453,306 | 450,759 | ||||||||
Other intangible assets, net | 2,095 | 1,448 | ||||||||
Prepaid pension cost | 476,679 | 447,688 | ||||||||
Deferred charges and other assets | 76,504 | 109,606 | ||||||||
$ | 3,576,774 | $ | 3,559,098 | |||||||
Liabilities and Shareholders’ Equity | ||||||||||
Current liabilities | ||||||||||
Accounts payable and accrued liabilities | $ | 330,840 | $ | 253,346 | ||||||
Deferred revenue | 138,827 | 130,744 | ||||||||
Dividends declared | 13,550 | — | ||||||||
Federal and state income taxes payable | 5,126 | — | ||||||||
Short-term borrowings | 362,714 | 50,000 | ||||||||
851,057 | 434,090 | |||||||||
Postretirement benefits other than pensions | 134,867 | 130,824 | ||||||||
Other liabilities | 198,536 | 192,540 | ||||||||
Deferred income taxes | 231,179 | 221,949 | ||||||||
Long-term debt | 405,267 | 883,078 | ||||||||
1,820,906 | 1,862,481 | |||||||||
Redeemable preferred stock | 12,916 | 13,132 | ||||||||
Preferred stock | — | — | ||||||||
Common shareholders’ equity | ||||||||||
Common stock | 20,000 | 20,000 | ||||||||
Capital in excess of par value | 146,080 | 142,814 | ||||||||
Retained earnings | 3,085,882 | 3,029,595 | ||||||||
Accumulated other comprehensive income(loss) | ||||||||||
Cumulative foreign currency translation adjustment | (7,167 | ) | (9,678 | ) | ||||||
Unrealized gain on available-for-sale securities | 20,452 | 24,281 | ||||||||
Cost of Class B common stock held in treasury | (1,522,295 | ) | (1,523,527 | ) | ||||||
1,742,952 | 1,683,485 | |||||||||
$ | 3,576,774 | $ | 3,559,098 | |||||||
March 30, 2003 | December 29, 2002 | |||||||
(In thousands) | (unaudited) | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 36,311 |
| $ | 28,771 |
| ||
Investments in marketable equity securities |
| 1,431 |
|
| 1,753 |
| ||
Accounts receivable, net |
| 278,511 |
|
| 285,374 |
| ||
Inventories |
| 29,972 |
|
| 27,629 |
| ||
Other current assets |
| 41,771 |
|
| 39,428 |
| ||
| 387,996 |
|
| 382,955 |
| |||
Property, plant and equipment | ||||||||
Buildings |
| 283,318 |
|
| 283,233 |
| ||
Machinery, equipment and fixtures |
| 1,596,044 |
|
| 1,551,931 |
| ||
Leasehold improvements |
| 92,597 |
|
| 85,720 |
| ||
| 1,971,959 |
|
| 1,920,884 |
| |||
Less accumulated depreciation |
| (973,288 | ) |
| (926,385 | ) | ||
| 998,671 |
|
| 994,499 |
| |||
Land |
| 34,530 |
|
| 34,530 |
| ||
Construction in progress |
| 47,779 |
|
| 65,371 |
| ||
| 1,080,980 |
|
| 1,094,400 |
| |||
Investments in marketable equity securities |
| 193,384 |
|
| 214,780 |
| ||
Investments in affiliates |
| 63,142 |
|
| 70,703 |
| ||
Goodwill, net |
| 856,274 |
|
| 770,861 |
| ||
Indefinite-lived intangible assets, net |
| 482,419 |
|
| 482,419 |
| ||
Amortized intangible assets, net |
| 2,004 |
|
| 2,153 |
| ||
Prepaid pension cost |
| 507,126 |
|
| 493,786 |
| ||
Deferred charges and other assets |
| 79,843 |
|
| 71,837 |
| ||
$ | 3,653,168 |
| $ | 3,583,894 |
| |||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 315,411 |
| $ | 336,582 |
| ||
Deferred revenue |
| 156,417 |
|
| 135,419 |
| ||
Dividends declared |
| 13,912 |
|
| — |
| ||
Federal and state income taxes payable |
| 32,769 |
|
| 4,853 |
| ||
Short-term borrowings |
| 217,436 |
|
| 259,258 |
| ||
| 735,945 |
|
| 736,112 |
| |||
Postretirement benefits other than pensions |
| 137,440 |
|
| 136,393 |
| ||
Other liabilities |
| 197,466 |
|
| 194,480 |
| ||
Deferred income taxes |
| 256,347 |
|
| 261,153 |
| ||
Long-term debt |
| 431,029 |
|
| 405,547 |
| ||
| 1,758,227 |
|
| 1,733,685 |
| |||
Redeemable preferred stock |
| 12,916 |
|
| 12,916 |
| ||
Preferred stock |
| — |
|
| — |
| ||
Common shareholders’ equity | ||||||||
Common stock |
| 20,000 |
|
| 20,000 |
| ||
Capital in excess of par value |
| 157,976 |
|
| 149,090 |
| ||
Retained earnings |
| 3,224,798 |
|
| 3,179,607 |
| ||
Accumulated other comprehensive income(loss) | ||||||||
Cumulative foreign currency translation adjustment |
| (6,039 | ) |
| (7,511 | ) | ||
Unrealized gain on available-for-sale securities |
| 4,796 |
|
| 17,913 |
| ||
Cost of Class B common stock held in treasury |
| (1,519,506 | ) |
| (1,521,806 | ) | ||
| 1,882,025 |
|
| 1,837,293 |
| |||
$ | 3,653,168 |
| $ | 3,583,894 |
| |||
5.
6.
The Washington Post Company
Condensed Consolidated Statements of Cash Flows (Unaudited)
Thirty-nine Weeks Ended | |||||||||||
September 29, | September 30, | ||||||||||
2002 | 2001 | ||||||||||
(In thousands) | |||||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 110,523 | $ | 215,114 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Cumulative effect of change in method of accounting for goodwill and other intangibles | 12,100 | — | |||||||||
Depreciation of property, plant and equipment | 128,267 | 105,264 | |||||||||
Amortization of goodwill and other intangibles | 483 | 57,185 | |||||||||
Net pension benefit | (48,280 | ) | (59,053 | ) | |||||||
Early retirement program expense | 19,001 | — | |||||||||
Gain from disposition of businesses | — | (321,091 | ) | ||||||||
Gain on sale of marketable securities | (13,209 | ) | 354 | ||||||||
Cost method and other investment write-downs | 18,194 | 22,850 | |||||||||
Equity in losses of affiliates, net of distributions | 16,943 | 45,636 | |||||||||
Provision for deferred income taxes | 18,514 | 84,207 | |||||||||
Change in assets and liabilities: | |||||||||||
(Increase) decrease in accounts receivable, net | (8,242 | ) | 1,208 | ||||||||
Increase in inventories | (17,166 | ) | (8,607 | ) | |||||||
Increase in accounts payable and accrued liabilities | 68,508 | 30,307 | |||||||||
Decrease in income taxes receivable | 10,253 | 12,370 | |||||||||
Increase in income taxes payable | 5,126 | 2,477 | |||||||||
Decrease in other assets and other liabilities, net | 24,642 | 50,972 | |||||||||
Other | (1,931 | ) | (5,100 | ) | |||||||
Net cash provided by operating activities | 343,726 | 234,093 | |||||||||
Cash flows from investing activities: | |||||||||||
Purchases of property, plant and equipment | (116,882 | ) | (167,500 | ) | |||||||
Investments in certain businesses | (26,673 | ) | (104,356 | ) | |||||||
Proceeds from the sale of business | — | 61,921 | |||||||||
Proceeds from sale of marketable securities | 19,701 | 145 | |||||||||
Investment in affiliates | (7,610 | ) | (32,787 | ) | |||||||
Other | 706 | 770 | |||||||||
Net cash used in investing activities | (130,758 | ) | (241,807 | ) | |||||||
Cash flows from financing activities: | |||||||||||
Net (repayment) issuance of commercial paper | (172,693 | ) | 48,037 | ||||||||
Dividends paid | (40,686 | ) | (40,616 | ) | |||||||
Common shares repurchased | (786 | ) | (445 | ) | |||||||
Proceeds from exercise of stock options | 4,997 | 4,241 | |||||||||
Net cash (used in) provided by financing activities | (209,168 | ) | 11,217 | ||||||||
Net increase in cash and cash equivalents | 3,800 | 3,503 | |||||||||
Beginning cash and cash equivalents | 31,480 | 20,345 | |||||||||
Ending cash and cash equivalents | $ | 35,280 | $ | 23,848 | |||||||
Thirteen Weeks Ended | ||||||||
(In thousands) | March 30, 2003 | March 31, 2002 | ||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 73,062 |
| $ | 11,606 |
| ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Cumulative effect of change in accounting principle |
| — |
|
| 12,100 |
| ||
Depreciation of property, plant and equipment |
| 43,395 |
|
| 41,173 |
| ||
Amortization of intangible assets |
| 149 |
|
| 152 |
| ||
Net pension credit |
| (13,425 | ) |
| (16,082 | ) | ||
Early retirement program expense |
| — |
|
| 10,313 |
| ||
Gain from sale of affiliate |
| (49,762 | ) |
| — |
| ||
Gain on sale of marketable securities |
| — |
|
| (13,209 | ) | ||
Cost method and other investment write-downs |
| 1,112 |
|
| 10,050 |
| ||
Equity in losses of affiliates, net of distributions |
| 2,642 |
|
| 6,506 |
| ||
Provision for deferred income taxes |
| 3,827 |
|
| 2,986 |
| ||
Change in assets and liabilities: | ||||||||
Decrease in accounts receivable, net |
| 16,991 |
|
| 33,342 |
| ||
Increase in inventories |
| (2,342 | ) |
| (2,064 | ) | ||
(Decrease) increase in accounts payable and accrued liabilities |
| (28,588 | ) |
| 15,766 |
| ||
Increase (decrease) in deferred revenue |
| 11,880 |
|
| (1,876 | ) | ||
Decrease in income taxes receivable |
| — |
|
| 10,253 |
| ||
Increase in income taxes payable |
| 27,916 |
|
| 578 |
| ||
Increase (decrease) in other assets and other liabilities, net |
| 3,356 |
|
| (5,561 | ) | ||
Other |
| (37 | ) |
| 136 |
| ||
Net cash provided by operating activities |
| 90,176 |
|
| 116,169 |
| ||
Cash flows from investing activities: | ||||||||
Purchases of property, plant and equipment |
| (28,086 | ) |
| (37,310 | ) | ||
Investments in certain businesses |
| (57,537 | ) |
| (16,907 | ) | ||
Proceeds from the sale of affiliate |
| 65,000 |
|
| — |
| ||
Proceeds from sale of marketable securities |
| — |
|
| 19,701 |
| ||
Investment in affiliates |
| (5,977 | ) |
| (7,610 | ) | ||
Other |
| 378 |
|
| 249 |
| ||
Net cash used in investing activities |
| (26,222 | ) |
| (41,877 | ) | ||
Cash flows from financing activities: | ||||||||
Net repayment of commercial paper |
| (41,882 | ) |
| (69,084 | ) | ||
Dividends paid |
| (13,959 | ) |
| (13,559 | ) | ||
Proceeds from exercise of stock options |
| 380 |
|
| 2,394 |
| ||
Other |
| (953 | ) |
| — |
| ||
Net cash used in financing activities |
| (56,414 | ) |
| (80,249 | ) | ||
Net increase (decrease) in cash and cash equivalents |
| 7,540 |
|
| (5,957 | ) | ||
Beginning cash and cash equivalents |
| 28,771 |
|
| 31,480 |
| ||
Ending cash and cash equivalents | $ | 36,311 |
| $ | 25,523 |
| ||
6.
7.
The Washington Post Company
Notes to Condensed Consolidated Financial Statements (Unaudited)
Results of operations, when examined on a quarterly basis, reflect the seasonality of advertising that affects the newspaper, magazine and broadcasting operations. Advertising revenues in the second and fourth quarters are typically higher than first and third quarter revenues. All adjustments reflected in the interim financial statements are of a normal recurring nature. Certain 2001 amounts have been reclassified to conform with current year presentation.
The Company generally reports on a 13 week fiscal quarter ending on the Sunday nearest the calendar quarter-end. With the exception of the newspaper publishing operations, subsidiaries of the Company report on a calendar-quarter basis.
Note 1: Acquisitions Exchanges and Dispositions.
In March 2003, Kaplan completed its acquisition of the stock of FTC Holdings Limited (FTC), for £55.3 million ($87.4 million). Headquartered in London, FTC is a leader in test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore. The acquisition was financed through cash and debt with $26.5 million remaining to be paid, primarily to employees of the business (included in long-term debt at March 30, 2003). Most of the purchase price has been allocated to goodwill, on a preliminary basis.
On January 1, 2003, the Company sold its 50 percent interest in the International Herald Tribune for $65 million and the Company recorded an after-tax non-operating gain of $32.3 million in the first quarter of 2003.
In the first nine monthsquarter of 2002, Kaplan acquired several businesses in their higher education and test preparation divisions, totaling $37.9 million, with most of the aggregate purchase price allocated to goodwill. Approximately $9.1 million remains to be paid on these acquisitions, of which $2.1 million has been classified in current liabilities and $7.0 million as long-term debt at September 29, 2002.$23.2 million.
During the first nine months of 2001, the Company spent approximately $104.4 million on business acquisitions and exchanges, which principally included the purchase of Southern Maryland Newspapers, a division of Chesapeake Publishing Corporation, and amounts paid as part of a cable system exchange with AT&T Broadband. Kaplan also acquired two businesses that are part of their professional division.
The gain resulting from the cable system sale and exchange transactions, which is included in “Other income, net” in the Condensed Consolidated Statements of Income, increased net income for the first nine months of 2001 by $196.5 million, or $20.69 per share. For income tax purposes, the cable system sale and exchange transactions qualified as like-kind exchanges, and therefore, a large portion of these transactions did not result in a current tax liability.
Note 2: Investments.
Investments in marketable equity securities at SeptemberMarch 30, 2003 and December 29, 2002 and December 30, 2001 consist of the following (in thousands):
September 29, | December 30, | |||||||
2002 | 2001 | |||||||
Total cost | $ | 189,986 | $ | 195,661 | ||||
Gross unrealized gains | 33,532 | 39,744 | ||||||
Total fair value | $ | 223,518 | $ | 235,405 | ||||
March 30, 2003 | December 29, 2002 | |||||
Total cost | $ | 186,955 | $ | 187,169 | ||
Gross unrealized gains |
| 7,860 |
| 29,364 | ||
Total fair value | $ | 194,815 | $ | 216,533 | ||
There were no sales of marketable equity securities in the first quarter of 2003. During the first quarter of 2002, the Company sold its shares of Ticketmaster, resulting in a pre-tax gain of $13.2 million. There were no sales of marketable equity securities in the second or third quarters of 2002. During the first nine months of 2001, proceeds from sales of marketable equity securities were $0.1 million. Gross realized losses on such sales were $0.4 million.
At SeptemberMarch 30, 2003 and December 29, 2002, and December 30, 2001, the carrying value of the Company’s cost method investments was $12.2$8.6 million and $29.6$9.5 million, respectively. There were no investments in companies constituting cost method investments during the first ninethree months of 2003 or 2002. During the third quarter and the first nine months of 2001, the Company invested 4.0 million and $11.7 million, respectively, in companies constituting cost method investments.
The Company recorded charges of $1.5$1.1 million and $18.2$10.1 million during the thirdfirst quarter of 2003 and first nine months of 2002, respectively, to write-down certain of its investments to estimated fair value; for the same periods of 2001, the Company recorded charges of $8.6 million and $25.9 million, respectively.value.
8.
Note 3: Borrowings.
At September 29, 2002,March 30, 2003, the Company had $768.0$648.5 million in total debt outstanding, which was comprised of $362.7$217.4 million of commercial paper borrowings, $398.3$398.5 million of 5.5 percent unsecured notes due February 15, 2009, and $7.0$32.6 million in other debt. During the third quarter, the Company replaced its revolving credit facility agreements with a five year $350 million revolving credit facility, which expires in August 2007 and 364 day $350 million revolving credity facility, which expires in August 2003. Refer to Exhibits 4.6 and 4.7 for the Company’s new revolving credit facilities.
During the thirdfirst quarter of 20022003 and 20012002 the Company had average borrowings outstanding of approximately $773.4$601.6 million and $995.9$888.3 million, respectively, at average annual interest rates of approximately 3.84.2 percent and 4.53.5 percent, respectively. During the thirdfirst quarter of 20022003 and 2001,2002, the Company incurred net interest expense on borrowings of $8.6$7.1 million and $11.6$8.7 million, respectively.
During the first nine months of 2002 and 2001 the Company had average borrowings outstanding of approximately $830.8 million and $973.4 million, respectively, at average annual interest rates of approximately 3.6 percent and 5.1 percent, respectively. During the first nine months of 2002 and 2001, the Company incurred net interest expense on borrowings of $26.1 million and $38.1 million, respectively.
Note 4: Business Segments.
The following table summarizes financial information related to each of the Company’s business segments. The 20022003 and 20012002 asset information is as of SeptemberMarch 30, 2003 and December 29, 2002, and December 30, 2001, respectively.
9.
ThirdFirst Quarter Period
(in thousands)
Newspaper | Television | Magazine | Cable | Corporate | ||||||||||||||||||||||||
Publishing | Broadcasting | Publishing | Television | Education | Office | Consolidated | ||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||
Operating revenues | $ | 202,445 | $ | 82,074 | $ | 87,487 | $ | 107,647 | $ | 160,640 | $ | — | $ | 640,293 | ||||||||||||||
Income (loss) from operations | $ | 18,197 | $ | 38,464 | $ | 12,450 | $ | 16,597 | $ | 11,500 | $ | (7,948 | ) | $ | 89,260 | |||||||||||||
Equity in losses of affiliates | (1,254 | ) | ||||||||||||||||||||||||||
Interest expense, net | (8,648 | ) | ||||||||||||||||||||||||||
Other expense, net | 1,115 | |||||||||||||||||||||||||||
Income before income taxes | $ | 80,473 | ||||||||||||||||||||||||||
Depreciation expense | $ | 10,672 | $ | 2,873 | $ | 1,010 | $ | 24,866 | $ | 6,387 | $ | — | $ | 45,808 | ||||||||||||||
Amortization expense | $ | 3 | $ | — | $ | — | $ | 39 | $ | 130 | $ | — | $ | 172 | ||||||||||||||
Net pension credit (expense) | $ | 5,454 | $ | 1,182 | $ | 9,979 | $ | (203 | ) | $ | (296 | ) | $ | — | $ | 16,116 | ||||||||||||
Identifiable assets | $ | 699,681 | $ | 410,801 | $ | 474,312 | $ | 1,122,103 | $ | 550,442 | $ | 21,793 | $ | 3,279,132 | ||||||||||||||
Investments in marketable equity securities | 223,518 | |||||||||||||||||||||||||||
Investments in affiliates | 74,124 | |||||||||||||||||||||||||||
Total assets | $ | 3,576,774 | ||||||||||||||||||||||||||
Newspaper | Television | Magazine | Cable | Corporate | ||||||||||||||||||||||||
Publishing | Broadcasting | Publishing | Television | Education | Office | Consolidated | ||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||
Operating revenues | $ | 199,946 | $ | 68,191 | $ | 98,337 | $ | 98,674 | $ | 127,159 | $ | — | $ | 592,307 | ||||||||||||||
Income (loss) from operations | $ | 11,574 | $ | 22,329 | $ | 9,430 | $ | 8,037 | $ | 760 | $ | (5,177 | ) | $ | 46,953 | |||||||||||||
Pro forma income (loss) from operations (1) | $ | 12,261 | $ | 25,863 | $ | 11,097 | $ | 18,227 | $ | 4,598 | $ | (5,177 | ) | $ | 66,869 | |||||||||||||
Equity in losses of affiliates | (26,535 | ) | ||||||||||||||||||||||||||
Interest expense, net | (11,635 | ) | ||||||||||||||||||||||||||
Other expense, net | (4,365 | ) | ||||||||||||||||||||||||||
Income before income taxes | $ | 4,418 | ||||||||||||||||||||||||||
Depreciation expense | $ | 8,911 | $ | 2,933 | $ | 1,160 | $ | 16,886 | $ | 4,875 | $ | — | $ | 34,765 | ||||||||||||||
Amortization expense | $ | 691 | $ | 3,534 | $ | 1,667 | $ | 10,229 | $ | 3,947 | $ | — | $ | 20,068 | ||||||||||||||
Net pension credit (expense) | $ | 6,808 | $ | 1,565 | $ | 11,246 | $ | (152 | ) | $ | (170 | ) | $ | — | $ | 19,297 | ||||||||||||
Identifiable assets | $ | 703,947 | $ | 419,246 | $ | 486,804 | $ | 1,117,426 | $ | 472,988 | $ | 42,346 | $ | 3,242,757 | ||||||||||||||
Investments in marketable equity securities | 235,405 | |||||||||||||||||||||||||||
Investments in affiliates | 80,936 | |||||||||||||||||||||||||||
Total assets | $ | 3,559,098 | ||||||||||||||||||||||||||
Newspaper Publishing | Television Broadcasting | Magazine Publishing | Cable Television | Education | Corporate Office | Consolidated | |||||||||||||||||||
2003 | |||||||||||||||||||||||||
Operating revenues | $ | 204,040 | $ | 70,752 | $ | 77,502 | $ | 110,368 |
| $ | 177,778 |
| $ | — |
| $ | 640,440 |
| |||||||
Income (loss) from operations | $ | 21,358 | $ | 26,347 | $ | 837 | $ | 20,762 |
| $ | 15,927 |
| $ | (6,139 | ) | $ | 79,092 |
| |||||||
Equity in losses of affiliates |
| (2,642 | ) | ||||||||||||||||||||||
Interest expense, net |
| (7,123 | ) | ||||||||||||||||||||||
Other, net |
| 48,135 |
| ||||||||||||||||||||||
Income before income taxes | $ | 117,462 |
| ||||||||||||||||||||||
Depreciation expense | $ | 11,297 | $ | 2,746 | $ | 952 | $ | 22,713 |
| $ | 5,687 |
| $ | — |
| $ | 43,395 |
| |||||||
Amortization expense | $ | 4 | $ | — | $ | — | $ | 38 |
| $ | 107 |
| $ | — |
| $ | 149 |
| |||||||
Net pension credit (expense) | $ | 3,957 | $ | 1,065 | $ | 8,998 | $ | (243 | ) | $ | (352 | ) | $ | — |
| $ | 13,425 |
| |||||||
Identifiable assets | $ | 706,539 | $ | 407,619 | $ | 488,573 | $ | 1,136,798 |
| $ | 647,244 |
| $ | 8,438 |
| $ | 3,395,211 |
| |||||||
Investments in marketable equity securities |
| 194,815 |
| ||||||||||||||||||||||
Investments in affiliates |
| 63,142 |
| ||||||||||||||||||||||
Total assets | $ | 3,653,168 |
| ||||||||||||||||||||||
Newspaper Publishing | Television Broadcasting | Magazine Publishing | Cable Television | Education | Corporate Office | Consolidated | ||||||||||||||||||||
2002 | ||||||||||||||||||||||||||
Operating revenues | $ | 200,772 | $ | 75,418 | $ | 75,018 |
| $ | 102,033 |
| $ | 147,081 |
| $ | — |
| $ | 600,322 |
| |||||||
Income (loss) from operations | $ | 17,543 | $ | 33,551 | $ | (11,578 | ) | $ | 16,042 |
| $ | (550 | ) | $ | (6,116 | ) | $ | 48,892 |
| |||||||
Equity in losses of affiliates |
| (6,506 | ) | |||||||||||||||||||||||
Interest expense, net |
| (8,734 | ) | |||||||||||||||||||||||
Other, net |
| 6,454 |
| |||||||||||||||||||||||
Income before income taxes | $ | 40,106 |
| |||||||||||||||||||||||
Depreciation expense | $ | 10,879 | $ | 2,765 | $ | 1,050 |
| $ | 20,479 |
| $ | 6,000 |
| $ | — |
| $ | 41,173 |
| |||||||
Amortization expense | $ | 4 | $ | — | $ | — |
| $ | 39 |
| $ | 109 |
| $ | — |
| $ | 152 |
| |||||||
Net pension credit (expense) | $ | 5,491 | $ | 1,220 | $ | 9,895 |
| $ | (226 | ) | $ | (298 | ) | $ | — |
| $ | 16,082 |
| |||||||
Identifiable assets | $ | 690,197 | $ | 413,663 | $ | 488,562 |
| $ | 1,142,995 |
| $ | 542,251 |
| $ | 18,990 |
| $ | 3,296,658 |
| |||||||
Investments in marketable equity securities |
| 216,533 |
| |||||||||||||||||||||||
Investments in affiliates |
| 70,703 |
| |||||||||||||||||||||||
Total assets | $ | 3,583,894 |
| |||||||||||||||||||||||
10.
Nine Month Period(in thousands)
Newspaper | Television | Magazine | Cable | Corporate | ||||||||||||||||||||||||
Publishing | Broadcasting | Publishing | Television | Education | Office | Consolidated | ||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||
Operating revenues | $ | 618,284 | $ | 243,584 | $ | 251,391 | $ | 317,643 | $ | 457,416 | — | $ | 1,888,318 | |||||||||||||||
Income (loss) from operations | $ | 73,551 | $ | 115,474 | $ | 14,144 | $ | 54,405 | $ | 11,574 | $ | (20,568 | ) | $ | 248,580 | |||||||||||||
Equity in losses of affiliates | (16,943 | ) | ||||||||||||||||||||||||||
Interest expense, net | (26,120 | ) | ||||||||||||||||||||||||||
Other expense, net | 1,606 | |||||||||||||||||||||||||||
Income before income taxes | $ | 207,123 | ||||||||||||||||||||||||||
Depreciation expense | $ | 32,295 | $ | 8,422 | $ | 3,082 | $ | 66,083 | $ | 18,385 | $ | — | $ | 128,267 | ||||||||||||||
Amortization expense | $ | 11 | $ | — | $ | — | $ | 117 | $ | 355 | $ | — | $ | 483 | ||||||||||||||
Net pension credit (expense) | $ | 16,437 | $ | 3,622 | $ | 29,768 | $ | (654 | ) | $ | (893 | ) | $ | — | $ | 48,280 |
Newspaper | Television | Magazine | Cable | Corporate | ||||||||||||||||||||||||
Publishing | Broadcasting | Publishing | Television | Education | Office | Consolidated | ||||||||||||||||||||||
2001 | ||||||||||||||||||||||||||||
Operating revenues | $ | 630,965 | $ | 226,046 | $ | 273,198 | $ | 284,303 | $ | 368,103 | $ | — | $ | 1,782,615 | ||||||||||||||
Income (loss) from operations | $ | 60,981 | $ | 88,688 | $ | 15,450 | $ | 21,118 | $ | (20,994 | ) | $ | (18,452 | ) | $ | 146,791 | ||||||||||||
Pro forma income (loss) from operations(1) | $ | 62,854 | $ | 99,289 | $ | 20,452 | $ | 49,168 | $ | (9,791 | ) | $ | (18,452 | ) | $ | 203,520 | ||||||||||||
Equity in losses of affiliates | (45,636 | ) | ||||||||||||||||||||||||||
Interest expense, net | (38,129 | ) | ||||||||||||||||||||||||||
Other expense, net | 293,688 | |||||||||||||||||||||||||||
Income before income taxes | $ | 356,714 | ||||||||||||||||||||||||||
Depreciation expense | $ | 28,438 | $ | 8,791 | $ | 3,597 | $ | 50,031 | $ | 14,407 | $ | — | $ | 105,264 | ||||||||||||||
Amortization expense | $ | 1,885 | $ | 10,601 | $ | 5,002 | $ | 28,167 | $ | 11,530 | $ | — | $ | 57,185 | ||||||||||||||
Net pension credit (expense) | $ | 21,054 | $ | 4,891 | $ | 34,078 | $ | (458 | ) | $ | (512 | ) | $ | — | $ | 59,053 |
11.
Newspaper publishing includes the publication of newspapers in the Washington, D.C. area (The Washington Post, theGazettecommunity newspapers, and Southern Maryland newspapers) and Everett, Washington (The Everett Herald). This business division also includes newsprint warehousing, recycling operations and the Company’s electronic media publishing business (primarily washingtonpost.com).
Television broadcasting operations are conducted through six VHF, television stations serving the Detroit, Houston, Miami, San Antonio, Orlando and Jacksonville television markets. Each of theAll stations isare network-affiliated except(except for Jacksonville, which became an independent station on July 15, 2002, when its network affiliation agreement with CBS expired.WJXT in Jacksonville).
The magazine publishing division consists of the publication of a weekly news magazine, Newsweek, which has one domestic and three international editions, the publication of Arthur Frommer’s Budget Travel, and the publication of business periodicals for the computer services industry and the Washington-area technology community.
Cable television operations consist of cable systems offering basic cable, digital cable, pay television, cable modem and other services to approximately 721,000719,000 subscribers in midwestern,mid-western, western, and southern states.
Education products and career services are provided through the Company’s wholly-owned subsidiary Kaplan, Inc. Kaplan’s businesses include supplemental education services, which is made up of test preparation and admissions, providing test preparation services for college and graduate school entrance exams; Kaplan Professional, providing education and career services to business people and other professionals; and Score!, offering multi-mediamultimedia learning and private tutoring to children and educational resources to parents. Kaplan’s businesses also include higher education services, which includes all of Kaplan’s post-secondary education businesses, including the fixed facility colleges that were formerly part of Quest Education, which offers bachelor’s degrees, associate’s degrees and diploma programs primarily in the fields of healthcare, business and information technology; and online post-secondary and career programs (various distance-learning businesses, including kaplancollege.com).
Corporate office includes the expenses of the Company’s corporate office.
Note 5: New Accounting Pronouncement.Goodwill and Other Intangible Assets.
The Company adopted
In accordance with Statement of Financial Accounting Standards No. 142 (SFAS142(SFAS 142), “Goodwill and Other Intangible Assets” effective onAssets,” the Company has reviewed its goodwill and other intangible assets and classified them in three categories (goodwill, indefinite-lived intangible assets, and amortized intangible assets). The Company’s intangible assets with an indefinite life are from franchise agreements at its cable division. Amortized intangible assets are primarily non-compete agreements, with amortization periods up to five years. The Company’s amortized intangible assets decreased in the first dayquarter of its 2002 fiscal year. As2003 as a result of the adoption$149,000 of SFAS 142, the Company ceased most of the periodic charges previously recorded from the amortization ofexpense.
The Company’s goodwill and other intangibles.intangible assets as of March 30, 2003 and December 29, 2002 were as follows (in thousands):
10.
Gross | Accumulated Amortization | Net | |||||||
2003 | |||||||||
Goodwill | $ | 1,154,676 | $ | 298,402 | $ | 856,274 | |||
Indefinite-lived intangible assets |
| 646,225 |
| 163,806 |
| 482,419 | |||
Amortized intangible assets |
| 3,525 |
| 1,521 |
| 2,004 | |||
$ | 1,804,426 | $ | 463,729 | $ | 1,340,697 | ||||
2002 | |||||||||
Goodwill | $ | 1,069,263 | $ | 298,402 | $ | 770,861 | |||
Indefinite-lived intangible assets |
| 646,225 |
| 163,806 |
| 482,419 | |||
Amortized intangible assets |
| 3,525 |
| 1,372 |
| 2,153 | |||
$ | 1,719,013 | $ | 463,580 | $ | 1,255,433 | ||||
Activity related to the Company’s goodwill during the quarter ended March 30, 2003 was as follows (in thousands):
Newspaper Publishing | Television Broadcasting | Magazine Publishing | Cable Television | Education | Total | |||||||||||||||
Goodwill, net | ||||||||||||||||||||
Beginning of year | $ | 72,738 |
| $ | 203,165 | $ | 69,556 | $ | 85,666 | $ | 339,736 | $ | 770,861 |
| ||||||
Acquisitions |
| 86,874 |
| 86,874 |
| |||||||||||||||
Disposition |
| (1,461 | ) |
| — |
| — |
| — |
| — |
| (1,461 | ) | ||||||
End of Quarter | $ | 71,277 |
| $ | 203,165 | $ | 69,556 | $ | 85,666 | $ | 426,610 | $ | 856,274 |
| ||||||
There was no activity related to the Company’s indefinite-lived intangible assets during the first quarter of 2003.
As required under SFAS 142, earlier this year, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill.goodwill in 2002. The expected future cash flows for onePostNewsweek Tech Media (part of the business units in the Company’s magazine segment,publishing segment), on a discounted basis, did not support the net carrying value of the related goodwill. Accordingly, an after-tax goodwill impairment loss of $12.1 million, or $1.27 per share was recorded. The loss is included in the Company’s year-to-date2002 first quarter results for the nine months ended September 29, 2002 as a cumulative effect of change in accounting principle.
On a pro forma basis, the Company’s operating income would have been $66.9 million in the third quarter of 2001, if SFAS 142 had been adopted at the beginning of fiscal 2001, compared to $89.3 for the third quarter of 2002. On a pro forma basis, the Company’s operating income would have been $203.5 million in the first nine months of 2001, if SFAS 142 had been adopted at the beginning of fiscal 2001, compared to $248.6 million for the first nine months of 2002.
12.
Other pro forma results for the third quarter of 2002, compared to 2001, adjusted as if SFAS 142 had been adopted at the beginning of 2001, are as follows:
Third Quarter | |||||||||
2002 | 2001 | ||||||||
Net income available for common stock as reported | $ | 47,524 | $ | 1,305 | |||||
Amortization of goodwill and other intangibles, net of tax | — | 13,948 | |||||||
Pro forma net income available for common stock | $ | 47,524 | $ | 15,253 | |||||
Basic earnings per share | $ | 5.00 | $ | 1.61 | |||||
Diluted earnings per share | $ | 4.99 | $ | 1.61 | |||||
Other pro forma results for the first nine months of 2002, compared to 2001, adjusted as if SFAS 142 had been adopted at the beginning of 2001, are as follows:
Year-to-Date | ||||||||||
2002 | 2001 | |||||||||
Income before cumulative effect of change in accounting principle, as reported | $ | 122,623 | $ | 215,114 | ||||||
Amortization of goodwill and other intangibles, net of tax | — | 40,035 | ||||||||
Pro forma income before cumulative effect of change in accounting principle | 122,623 | 255,149 | ||||||||
Cumulative effect of change in method of accounting for goodwill and other intangible assets, net of tax | (12,100 | ) | — | |||||||
Redeemable preferred stock dividends | (1,033 | ) | (1,052 | ) | ||||||
Pro forma net income available for common stock | $ | 109,490 | $ | 254,097 | ||||||
Basic earnings per share: | ||||||||||
Before cumulative effect of change in accounting principle | $ | 12.90 | $ | 26.90 | ||||||
Cumulative effect of change in accounting principle | (1.27 | ) | — | |||||||
Redeemable preferred stock dividends | (0.11 | ) | (0.11 | ) | ||||||
Net income available for common stock | $ | 11.52 | $ | 26.79 | ||||||
Diluted earnings per share: | ||||||||||
Before cumulative effect of change in accounting principle | $ | 12.88 | $ | 26.86 | ||||||
Cumulative effect of change in accounting principle | (1.27 | ) | — | |||||||
Redeemable preferred stock dividends | (0.11 | ) | (0.11 | ) | ||||||
Net income available for common stock | $ | 11.50 | $ | 26.75 | ||||||
13.
In accordance with SFAS 142, the Company has reviewed its goodwill and other intangible assets and reported them on the consolidated balance sheet in three categories (goodwill, indefinite-lived intangible assets, and other intangible assets). The Company’s intangible assets with an indefinite life are from franchise agreements at its cable division. Other intangible assets are primarily non-compete agreements, with amortization periods up to five years. At September 29, 2002, goodwill, indefinite lived intangible assets and other intangible assets were net of accumulated amortization of $298.4 million, $163.8 million and $1.2 million, respectively. At December 30, 2001, goodwill, indefinite lived intangible assets and other intangible assets were net of accumulated amortization of $279.4 million, $163.8 million and $0.7 million, respectively.
Note 6: Change in Accounting Method —– Stock Options
Effective the first day of the Company’s 2002 fiscal year, the Company has adopted the fair-value-based method of accounting for companyCompany stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). This change in accounting method will bewas applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal 2002 will continue to beare accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”
No stock options The following table presents what the Company’s results would have been awardedhad the fair values of options granted after 1995, but prior to 2002, been recognized as compensation expense in fiscal yearthe first quarter of 2003 and 2002 through the end of the third quarter; therefore, this change in accounting method has had no impact on the Company’s reported results of operations in 2002. The impact on the Company’s overall 2002 operating results is not expected to be material.(in thousands except per share amounts).
2003 | 2002 | |||||
Company stock-based compensation expense included in net income (pre-tax) | $ | 142 | $ | — | ||
Net income available for common shares, as reported | $ | 72,545 | $ | 11,081 | ||
Stock-based compensation expense not included in net income (after-tax) |
| 790 |
| 904 | ||
Pro forma net income available for common shares | $ | 71,755 | $ | 10,177 | ||
Basic earnings per share, as reported | $ | 7.62 | $ | 1.17 | ||
Pro forma basic earnings per share | $ | 7.53 | $ | 1.07 | ||
Diluted earnings per share, as reported | $ | 7.59 | $ | 1.16 | ||
Pro forma diluted earnings per share | $ | 7.51 | $ | 1.07 |
11.
14.
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
This analysis should be read in conjunction with the consolidated financial statements and the notes thereto.
Revenues and expenses in the first and third quarters are customarily lower than those in the second and fourth quarters because of significant seasonal fluctuations in advertising volume.
As discussed above, the Company adopted SFAS 142 effective on the first day of its 2002 fiscal year. All operating income comparisons presented below are on a pro forma basis as if SFAS 142 had been adopted at the beginning of 2001. Therefore, 2001 pro forma operating results exclude amortization charges of goodwill and certain other intangible assets that are no longer amortized under SFAS 142.
Results of Operations
Net income for the thirdfirst quarter of 20022003 was $47.8$73.1 million ($4.997.59 per share), up from net income of $1.6$11.6 million ($0.141.16 per share) in the thirdfirst quarter of last year.
Results for the thirdfirst quarter of 20022003 include early retirement program charges ($3.6an after-tax non-operating gain from the sale of the Company’s 50 percent interest in the International Herald Tribune (after-tax impact of $32.3 million, or $0.38 per share) and losses on the write-down of certain investments $0.8 million, or $0.09$3.38 per share). Results for the thirdfirst quarter of 2001 include losses on the write-down2002 included a transitional goodwill impairment loss (after-tax impact of certain investments ($13.4$12.1 million, or $1.41$1.27 per share), a charge arising from an early retirement program at Newsweek (after-tax impact of $6.1 million, or $0.64 per share), and a chargenet non-operating gain primarily from the sale of $13.9marketable securities (after-tax impact of $3.8 million, or $1.47$0.40 per share, for amortization of goodwill and certain other intangible assets that are no longer amortized under SFAS 142.share).
Revenue for the thirdfirst quarter of 20022003 was $640.3$640.4 million, up 87 percent from $592.3$600.3 million in 2001.2002. The increase in revenue is due mostly to significant revenue growth at the education broadcast and cable divisions. Revenues atAlthough advertising revenues have suffered due to the company’swar in Iraq, the magazine and newspaper publishing division were up slightly for the third quarter of 2002, whiledivisions showed modest revenue growth; revenues were down at the magazine publishing division compared to the prior year; the advertising climate at both divisions continues to be soft. In addition, Newsweek newsstand sales were significantly higher in the third quarter of 2001, following the events of September 11.broadcast division.
Operating income for the quarter increased 3362 percent to $89.3$79.1 million, from $66.9$48.9 million in 2001, adjusted as if SFAS 142 had been adopted at2002. Operating results for 2002 included a $10.3 million pre-tax charge from the beginning of 2001. Excluding the $6.0 million in pre-tax charges fromNewsweek early retirement programs, operating income for the third quarter of 2002 was $95.3 million, an increase of 42 percent. Third quarter 2002 operatingprogram. The Company’s results benefited from significant increases at the company’s broadcast, education and newspaper publishing divisions. These factors were offset in part by increased depreciation expense, a reduced net pension credit, early retirement program charges and higher stock-based compensation expense accruals at the education division.
For the first nine months of 2002, net income totaled $110.5 million ($11.50 per share), compared with net income of $215.1 million ($22.53 per share) for the same period of 2001. Results for the first nine months of 2002 include a transitional goodwill impairment loss ($12.1 million, or $1.27 per share), charges from early retirement programs ($11.3 million, or $1.18 per share), and a net non-operating loss from the write-down of certain of the company’s investments ($0.3 million, or $0.04 per share). Results for the first nine months of 2001 include net non-operating gains, principally from the sale and exchange of certain cable systems ($171.3 million, or $18.03 per share), and a charge of $40.0 million, or $4.21 per share, for amortization of goodwill and other intangible assets that are no longer amortized under SFAS 142.
15.
Revenue for the first nine months of 2002 was $1,888.3 million, up 6 percent over revenue of $1,782.6 million for the first nine months of 2001. Operating income increased 22 percent to $248.6 million, from $203.5 million in 2001, adjusted as if SFAS 142 had been adopted at the beginning of 2001. Excluding the $19.0 million in pre-tax charges from early retirement programs, operating income for the first nine months of 2002 was $267.6 million, an increase of 31 percent. The company’s year-to-date results benefited fromsignificantly improved operating results at the education, cable and broadcast divisions, along with improved earnings at The Washington Post newspaper and the cable division.divisions. These factors were offset by a reduction in part byadvertising demand late in the quarter and certain incremental costs due to the war in Iraq, a reduction in operating income at the broadcast division, increased depreciation expense, and a reduced net pension credit, early retirement program charges and higher stock-based compensation expense accruals at the education division.credit.
Excluding charges related to early retirement programs, the company’s
The Company’s operating income for the thirdfirst quarter and first nine months of 20022003 includes $16.1 million and $48.3$13.4 million of net pension credits, respectively, compared to $19.3$16.1 million and $59.1 million forin the same periodsfirst quarter of 2001.2002. At December 30, 2001,29, 2002, the company modified certain assumptions surrounding the company’s pension plans. Specifically, the companyCompany reduced its assumptionsassumption on discount rate from 7.57.0 percent to 7.0 percent and expected return on plan assets from 9.0 percent6.75 percent. Due to 7.5 percent. These assumption changes result in athe reduction of approximately $5.5 million in the company’sdiscount rate and lower than expected investment returns in 2002, the net pension credit each quarter. Management expects the 2002 annual net pension creditfor 2003 is expected to approximate $64be down by about $10 million compared to $76.9 million in 2001,2002, excluding charges related to early retirement programs.
Newspaper Publishing Division.Division. Newspaper publishing division revenue totaled $202.4$204.0 million for the thirdfirst quarter of 2002,2003, a 12 percent increase from revenue of $199.9$200.8 million in the thirdfirst quarter of 2001; division revenue decreased 2 percent to $618.3 million for the first nine months of 2002, from $631.0 million for the first nine months of 2001.2002. Division operating income for the third quarter increased 4822 percent to $18.2$21.4 million, from pro forma$17.5 million in 2002. The increase in division operating income of $12.3 millionis primarily attributable to increases in the third quarter of 2001; operating income increased 17 percent to $73.6 million for the first nine months of 2002, compared to pro forma operating income of $62.9 million for the first nine months of 2001. Improved operating results for the third quarter of 2002 reflect the benefits of cost control initiatives employed throughout the divisionprint and a 26online advertising revenue, combined with an 11 percent decrease in newsprint expense; these savings were partially offset by a pre-tax early retirement program charge of $2.9 million and a reduced pension credit. Operating results for the first nine months of 2002 also benefited from cost control initiatives employed throughout the division, and a 25 percent decrease in newsprint expense; these savings were partially offset by a decrease in print advertising revenues, the early retirement charge discussed above and a reduced pension credit.expense at The Post.
Print advertising revenue at The Washington Post newspaper in the third quarter decreased 2 percentincreased slightly to $130.4$132.5 million, from $132.9$131.5 million in 2001,2002, due to increases in preprint and decreased 5 percent to $405.7 million for the first nine months of 2002, from $427.6 million for the first nine months of 2001. Thezone advertising revenue, which more than offset a decrease in printclassified advertising revenues for the third quarter of 2002 isrevenue from volume declines. Recruitment advertising revenue was down $2.3 million due to a continued decline in recruitment advertising revenue, with17 percent volume decreases of 22 percentdecline. Advertising demand was down late in the third quarter offset by higher revenue from several advertising categories, including preprints and other classified advertising. The decrease in print advertising revenues for the first nine months of 2002 is primarily due to a $26.1 million declinethe war in recruitment advertising revenue, resulting from a 35 percent volume decline, and a decline in retail advertising sales and volume. These declines are partially offset by higher revenues from several advertising categories, including preprints and other classified advertising.Iraq.
For the first nine monthsquarter of 2002,2003, Post daily and Sunday circulation each declined about 11.9 percent and 1.1 percent, respectively, compared to the same periodfirst quarter of 2002. For
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the prior year. For the ninethree months ended September 29, 2002,March 30, 2003, average daily circulation at The Post totaled 749,000757,000 and average Sunday circulation totaled 1,054,000.1,052,000.
16.
RevenueRevenues generated by the company’sCompany’s online publishing activities, primarily washingtonpost.com, totaled $9.1 million for the third quarter of 2002, versus $7.7 million for 2001; online revenue totaled $25.3increased 27 percent to $9.5 million for the first nine monthsquarter of 2002,2003, versus $23.1$7.5 million for 2001.2002. Local and national online advertising revenues grew 5178 percent and 50 percent for the third quarter and first nine months of 2002, respectively. Revenuein 2003, while revenue at the Jobs section of washingtonpost.com increased 11 percent in the third quarter of 2002 but was down 6 percent for the first nine months of 2002.17 percent.
Television Broadcasting Division.Revenue for the television broadcastingbroadcast division increased 20decreased 6 percent in the thirdfirst quarter of 20022003 to $82.1$70.8 million, from $68.2$75.4 million in 2001, primarily2002, due to approximately $9.0 million of political advertising. Additionally, third quarter revenuessignificant Olympics related advertising at the Company’s NBC affiliates in 2001 were lower due to2002 and several days of commercial freecommercial-free coverage followingin connection with the events of September 11. Revenueswar in Iraq. Operating income for the thirdfirst quarter were higher at all of the company’s stations, including2003 decreased 21 percent to $26.3 million, from $33.6 million in 2002.
In July 2002, WJXT in Jacksonville, Florida which began operations as an independent station in July 2002 when its network affiliation with CBS ended. For the first nine months of 2002, revenue increased 8 percent to $243.6 million, from $226.0 million in 2001, due to an increase in national advertising, including political, and Olympics-related advertising at the company’s NBC affiliates in the first quarter of 2002. These increases were partially offset by reduced network compensation revenues in both the third quarter and first nine months of 2002.
Operating income for the third quarter and first nine months of 2002 increased 49 percent and 16 percent to $38.5 million and $115.5 million, respectively, from pro forma operating income of $25.9 million and $99.3 million for the third quarter and first nine months of 2001, respectively. Operating income growth for the third quarter and first nine months of 2002 is due to revenue growth and tight cost controls, partially offset by a reduced pension credit.
Magazine Publishing Division.Revenue for the magazine publishing division totaled $87.5 million for the third quarter of 2002, an 11 percent decrease from $98.3 million for the third quarter of 2001; division revenue totaled $251.4$77.5 million for the first nine monthsquarter of 2002, an 82003, a 3 percent declineincrease from $273.2$75.0 million for the first nine monthsquarter of 2001. The revenue declines for the third quarter and first nine months of 2002 are2002. This increase was primarily due to a significant spikean 18 percent increase in newsstand circulationadvertising revenue at Newsweek, as a result of increased ad pages at both the domestic and international editions, as well as an additional issue of the magazine in the thirdfirst quarter of 20012003 versus the first quarter of 2002. This revenue increase was partially offset by reduced advertising demand late in the quarter due to regularthe Iraq war, and special editions related to the events of September 11. Advertising revenuesa decline in revenue at Newsweek were up slightlyPostNewsweek Tech Media, whose primary trade show is in the thirdsecond quarter of 2002, but were down2003, versus the first quarter in 2002.
Magazine division operating income totaled $0.8 million, compared to a loss of $11.6 million for the first nine months of 2002, primarily due to declines in the international division. Operating income totaled $12.5 million for the third quarter of 2002,2002. The improvement in operating results is primarily attributable to a 12 percent increase from pro forma operating income of $11.1$10.3 million in the third quarter of 2001. Excluding the $3.1 million pre-tax charge in connection with an early retirement program at Newsweek operating incomein the first quarter of 2002.
During the second quarter of 2003, Newsweek has experienced a reduction in advertising demand and increased 40 percent to $15.6 million. Third quarter 2001 operating results included approximately $5.0 million in nonrecurring costs associated with regular and special editions related to September 11; 2002 costs have also declined due to payroll and other related cost savings from employees accepting early retirement programs offered by Newsweek, and from significant cost savings programs put into place at Newsweek’s international operations.
Operating income totaled $14.1 million for the first nine months of 2002, down from pro forma operating income of $20.5 million for the first nine months of 2001. Excluding the $16.1 millionIraq war, along with a reduction in pre-tax charges in connection with early retirement programstravel-related advertising demand at Newsweek operating income increased 48 percentInternational due to $30.2 million, primarily as a result of the decline in operating expenses noted above.SARS epidemic.
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Cable Television Division.Cable division revenue of $107.6$110.4 million for the thirdfirst quarter of 20022003 represents a 9an 8 percent increase over 2001 third2002 first quarter revenue of $98.7 million; for the first nine months of 2002, revenue increased 12 percent to $317.6 million, from $284.3 million in 2001.$102.0 million. The 20022003 revenue increase is principally due to rapidcontinued growth in the division’s cable modem and digital service revenues, offset by lower pay revenues.
Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $41.5 million for the third quarter of 2002, an increase of 18 percent from $35.2 million for the third quarter of 2001; for the first nine months of 2002, cash flow increased 21 percent to $120.6 million, from $99.3 million in 2001.
Cable division operating income forincreased 29 percent to $20.8 million in the thirdfirst quarter of 2002 decreased 9 percent to $16.6 million, from pro forma operating income of $18.22003, versus $16.0 million in 2001. Although revenues increased for the quarter, depreciation expense was up 47 percent, including a $3.5 million charge for obsolete assets. Operating income increased 11 percent for the first nine monthsquarter of 2002 to $54.4 million from pro forma operating income of $49.2 million for the first nine months of 2001.2002. The increase in operating income is due mostly to the division’s revenue growth, offset by higher depreciation expense and increased programming expense.
The increase in depreciation expense is due to the charge discussed above, as well as significant capital spending primarily in 2001 and 2000, whichrecent years that has enabled the cable division to offer digital and broadband cable services to its subscribers. The cable division began its rollout plan for these services in the third quarter of 2000. At September 29, 2002,March 31, 2003, the cable division had approximately 218,600210,500 digital cable subscribers, representing a 3130 percent penetration of the subscriber base in the markets where digital services are offered. Digital services are currently offered in markets serving 9799 percent of the cable division’s subscriber base. The initial rollout plan for the new digital cable services included an offer for the cable division’s customers to obtain these services free for one year. At September 29, 2002,the end of March 2003, the cable division had 142,900about 205,300 paying digital subscribers. The benefits from these services began to show in the first quarter of 2002 and are expected to continue throughout the year, with the remaining portion of free one-year periods generally ending later in 2002.
At September 29, 2002,March 31, 2003, the cable division had 721,000719,300 basic subscribers, compared to 753,000lower than 751,700 basic subscribers at the end of September 2001, withMarch 2002 but up slightly from 718,000 basic subscribers at the decrease due primarily to the difficult economic environment over the past year; basic customer disconnects for non-paymentend of bills have increased significantly.December 2002. At September 29, 2002,March 31, 2003, the cable division had 69,30095,800 CableONE.net service subscribers, compared to 35,80053,100 at the end
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of September 2001,March 2002, due to a large increase in the company’sCompany’s cable modem deployment (offered to 9597 percent of homes passed at the end of September 2002)March 2003) and subscriber penetrationtake-up rates. Of these subscribers, 65,900
At March 31, 2003, Revenue Generating Units (RGUs), representing the sum of basic, digital and 22,600 werehigh-speed data customers, as defined by the NCTA Standard Reporting Categories, totaled 1,020,500, compared to 870,000 as of March 31, 2002. The increase is due to increased paying digital cable modem subscribers atand high-speed data customers.
Below are details of Cable division capital expenditures for the end of the thirdfirst quarter of 2003 and 2002, and 2001, respectively, with the remainder being dial-up subscribers.
On November 1, 2002, the Company completed a cable system exchange transaction with Time Warner Cable which consisted of the exchangeas defined by the Company of its cable system in Akron, Ohio serving about 15,500 subscribers, and approximately $5 million to Time Warner Cable, for cable systems serving about 20,300 subscribers in Kansas. The company will report a non-cash, non-operating gain on this transaction in the fourth quarter, which will reflect the step-up of assets exchanged to their fair market value, in accordance with generally accepted accounting principles.NCTA Standard Reporting Categories (in millions):
2003 | 2002 | |||||
Customer Premise Equipment | $ | 2.6 | $ | 14.5 | ||
Commercial |
| 0.1 |
| 0.1 | ||
Scaleable Infrastructure |
| 1.2 |
| 0.7 | ||
Line Extensions |
| 3.1 |
| 1.8 | ||
Upgrade/Rebuild |
| 8.1 |
| 4.9 | ||
Support Capital |
| 1.8 |
| 2.1 | ||
Total | $ | 16.9 | $ | 24.1 | ||
18.
Education Division.Education division revenue totaled $160.6$177.8 million for the thirdfirst quarter of 2002,2003, a 2621 percent increase over revenue of $127.2$147.1 million for the same period of 2001.2002. Kaplan reported operating income for the thirdfirst quarter of $11.52003 of $15.9 million, compared to a pro forma operating income of $4.6 million for the third quarter of 2001. Excluding charges for stock options held by Kaplan management, Kaplan operating earnings were $18.2 million for the third quarter of 2002, compared to $8.1 million for the third quarter of 2001. For the first nine months of 2002, education division revenue totaled $457.4 million, a 24 percent increase over revenue of $368.1 million for the same period of 2001. Kaplan reported operating income of $11.6 million for the first nine months of 2002, compared to a pro formaan operating loss of $9.8$0.6 million forin the first nine monthsquarter of 2001. Excluding charges for stock options held by2002. Approximately 20 percent of the increase in Kaplan management, Kaplan operating earnings were $44.9 million forrevenue is from acquired businesses, primarily in the first nine months of 2002, compared to operating earnings of $9.0 million for the first nine months of 2001. Excluding goodwill amortization in 2001, ahigher education division. A summary of first quarter operating results for the third quarter and first nine months of 2002 compared to 2001 is as follows:
Third Quarter | Year-to-date | ||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||
2002 | 2001 | % Change | 2002 | 2001 | % Change | ||||||||||||||||||||
Revenue | |||||||||||||||||||||||||
Supplemental education | $ | 97,414 | $ | 86,533 | +13 | $ | 280,787 | $ | 249,232 | +13 | |||||||||||||||
Higher education | 63,226 | 40,626 | +56 | 176,629 | 118,871 | +49 | |||||||||||||||||||
$ | 160,640 | $ | 127,159 | +26 | $ | 457,416 | $ | 368,103 | +24 | ||||||||||||||||
Operating income (loss) | |||||||||||||||||||||||||
Supplemental education | $ | 19,505 | $ | 11,755 | +66 | $ | 43,696 | $ | 23,708 | +84 | |||||||||||||||
Higher education | 4,150 | 1,695 | +145 | 18,101 | 3,114 | +481 | |||||||||||||||||||
Kaplan corporate overhead | (5,356 | ) | (5,214 | ) | (3 | ) | (16,574 | ) | (17,494 | ) | +5 | ||||||||||||||
Other* | (6,799 | ) | (3,638 | ) | (87 | ) | (33,649 | ) | (19,119 | ) | (76 | ) | |||||||||||||
$ | 11,500 | $ | 4,598 | 150 | $ | 11,574 | $ | (9,791 | ) | — | |||||||||||||||
First Quarter | |||||||||||
(in thousands) | 2003 | 2002 | % Change | ||||||||
Revenue | |||||||||||
Supplemental education | $ | 98,182 |
| $ | 90,750 |
| 8 |
| |||
Higher education |
| 79,596 |
|
| 56,331 |
| 41 |
| |||
$ | 177,778 |
| $ | 147,081 |
| 21 |
| ||||
Operating income (loss) | |||||||||||
Supplemental education | $ | 18,552 |
| $ | 13,204 |
| 41 |
| |||
Higher education |
| 14,922 |
|
| 8,886 |
| 68 |
| |||
Kaplan corporate overhead |
| (7,440 | ) |
| (5,902 | ) | (26 | ) | |||
Other* |
| (10,107 | ) |
| (16,738 | ) | 40 |
| |||
$ | 15,927 |
| $ | (550 | ) | — |
| ||||
* | Other includes charges accrued for stock-based incentive compensation and amortization of certain intangibles. |
Supplemental education includes Kaplan’s test preparation, professional training, and Score! businesses. The improvement in supplemental education results for the thirdfirst quarter and first nine months of 20022003 is due mostly to higher enrollments and to a lesser extent higher pricesincreased enrollment at Kaplan’s traditional test preparation business, (particularly the LSAT, MCAT and GRE prep courses), as well as higher revenues and profits from Kaplan’s CFA anda significant increase in the professional real estate exam preparation services.courses. Score! also contributed to the improved results, with increased enrollment higher pricesfrom existing sites and strongtwo new centers compared to last year, combined with tight cost controls.
Higher education includes all of Kaplan’s post-secondary education businesses, including the fixed-facility colleges that were formerly part of Quest Education, as well as online post-secondary and career programs (various distance learningdistance-learning businesses). Higher education results are showing significant growth due to student enrollment increases, high student retention rates, and as a result of several acquisitions.
Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, including expenses associated with the design and development of educational software that, if successfully completed, will benefit all of Kaplan’s business units. The decrease in this expense category in 2002 is due to decreased spending for these development initiatives.
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Other expense is comprised primarily of accrued charges for stock-based incentive compensation arising from a stock option plan established for certain members of Kaplan’s management and amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. For the first quarter of 2003 and 2002, the Company recorded expense of $10.0 million and $16.6 million, respectively, related to this plan. The increaseCompany prepares estimates of the Kaplan stock option expense and related accrual balance on a quarterly basis. The trend in otherKaplan stock option expense in 2002 ($10.0 million, $6.7 million and $1.2 million for the second, third and fourth quarters of 2002, respectively) is attributablenot indicative of the expected expense to be recorded for the remainder of 2003.
On March 31, 2003, Kaplan completed its acquisition of the stock of FTC Holdings Limited (FTC) for £55.3 million ($87.4 million), financed through cash and debt. Headquartered in London, FTC is a leader in test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore.
In May 2003, Kaplan announced it had entered into an increaseagreement for its higher education division to acquire Heritage College, a career-oriented postsecondary school providing training in stock-based incentive compensation, whichthe fields of allied health, paralegal, travel and information technology. The acquisition is due to an increase in Kaplan’s estimated value.contingent upon regulatory approvals.
19.
Equity in Losses of Affiliates.The company’sCompany’s equity in losses of affiliates for the thirdfirst quarter of 20022003 was $1.3$2.6 million, compared to losses of $26.5$6.5 million for the thirdfirst quarter of 2001. For the first nine months2002. The Company’s affiliate investments consist of 2002, the company’s equity in losses of affiliates totaled $16.9 million, compared to losses of $45.6 million for the same period of 2001. The improvements were primarily due to better operating results at BrassRing LLC, which accounted for approximately $2.0 million and $12.7 million of the 2002 third quarter and first nine month equity in losses of affiliates, respectively, compared to $29.1 million and $51.6 million in equity losses for the same periods of 2001. In addition to itsa 49 percent interest in BrassRing LLC the company’s affiliate investments include a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited. The reduction in first quarter 2003 affiliate losses is primarily attributable to improved operating results at BrassRing.
In October 2002,
On January 1, 2003, the Company signed a letter of intent to sellsold its fifty50 percent shareinterest in the International Herald Tribune to The New York Times Company. The closing is expected to occur after a definitive agreement is reachedfor $65 million and all regulatory approvals have been obtained, which will likely bethe Company recorded an after-tax non-operating gain of $32.3 million in late 2002 or earlythe first quarter of 2003. The Company expects to report a gain on the transaction upon closing.
Non-Operating Items.The companyCompany recorded other non-operating income, net, of $1.1 million for the third quarter of 2002, compared to $4.4 million of non-operating expense, net, in the third quarter of 2001. The 2002 and 2001 non-operating income (expense) includes non-operating gains and charges for the write-down of certain investments to their estimated fair value.
The company recorded non-operating income, net, of $1.6$48.1 million for the first nine monthsquarter of 2002,2003, compared to non-operating income, net, of $293.7$6.5 million for the same periodfirst quarter of 2002. The 2003 non-operating income is comprised mostly of a $49.8 million pre-tax gain from the sale of the prior year.Company’s 50 percent interest in the International Herald Tribune. The 2002 non-operating income net, includesis comprised mostly of a gain onfrom the sale of marketable securities, offset by write-downs recorded on certain investments. The 2001 non-operating income is comprised mostly of gains arising from the sale and exchange of certain cable systems completed in the first quarter of 2001, offset by write-downs recorded on certain investments and a parcel of non-operating land to their estimated fair value.
Net Interest Expense.Expense. The companyCompany incurred net interest expense of $8.6$7.1 million for the thirdfirst quarter of 2002,2003, compared to $11.6$8.7 million for the same period of 2001; net interest expense totaled $26.1 million forthe prior year. The reduction is due to lower average borrowings in the first nine monthsquarter of 2002,2003 versus $38.1 million in 2001.the same period of the prior year. At September 29, 2002,March 30, 2003, the companyCompany had $768.0$648.5 million in borrowings outstanding at an average interest rate of 3.84.0 percent.
Provision for Income Taxes.The effective tax rate for the thirdfirst quarter of 20022003 was 40.637.8 percent, compared to 64.540.9 percent for the same period of 2001, and 40.8 percent versus 39.7 percent for2002. The 2003 rate benefited from a lower effective tax rate applicable to the 2002 and 2001 nine month periods, respectively.one-time gain arising from the sale of the Company’s interest in the International Herald Tribune. Excluding the effect of the cableInternational Herald Tribune gain, transactions, the company’sCompany’s effective tax rate approximated 47.839.8 percent for the first nine monthsquarter of 2001.2003. The effective tax rate for 20022003 has declined because the company no longer has any permanent difference from goodwill amortization not deductible for tax purposes as a result of the adoption of SFAS 142.due to an increase in operating earnings.
Cumulative Effect of Change in Accounting Principle.Earlier this year,In 2002, the companyCompany completed its SFAS 142 transitional goodwill impairment test required under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), resulting in an after-tax impairment loss related to its magazine division of $12.1 million, or $1.27 per share.share, related to PostNewsweek Tech Media (part of magazine publishing segment). This loss is included in the company’s year-to-dateCompany’s 2002 results for the nine months ended September 29, 2002 as a cumulative effect of change in accounting principle.
20.
Earnings Per Share.The calculation of diluted earnings per share for the thirdfirst quarter and first nine months of 20022003 was based on 9,523,000 and 9,518,0009,553,000 weighted average shares outstanding, respectively, compared to 9,502,000 and 9,500,000, respectively,9,512,000 for the thirdfirst quarter and first nine months of 2001.2002. The companyCompany made no significant repurchases of its stock during the first nine monthsquarter of 2003.
Stock Options – Change in Accounting Method. Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting for Company stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal 2002 are accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”
The Company recorded $142,000 in Company stock option expense for the first quarter of 2003; there was no Company stock option expense in the first quarter of 2002.
Financial Condition: Capital Resources and Liquidity
Acquisitions.In On March 31, 2003, Kaplan completed its acquisition of the first nine monthsstock of 2002, Kaplan acquired several businessesFTC Holdings Limited (FTC), for £55.3 million ($87.4 million). Headquartered in their higher education andLondon, FTC is a leader in test preparation divisions, totaling approximately $37.9 million. About $9.5services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore. The acquisition was financed through cash and debt with $26.5 million remainsremaining to be paid, on these acquisitions,primarily to employees of which $2.1 million has been classifiedthe business (included in current liabilities and $7.4 million as long-term debt at September 29, 2002.March 30, 2003).
Capital expenditures.During the first nine monthsquarter of 2002,2003, the Company’s capital expenditures totaled $116.9$28.1 million. The Company anticipates it will spend approximately $170.0$170 – 180 million throughout 20022003 for property and equipment.
Liquidity.Throughout the first ninethree months of 2002,2003, the Company’s borrowings, net of repayments, decreased by $165.1$16.3 million, with the decrease primarily due to cash flows from operations.operations and proceeds from the sale of the International Herald Tribune, offset in part by borrowings for the purchase of FTC by Kaplan.
At September 29, 2002,March 30, 2003, the Company had $768.0$648.5 million in total debt outstanding, which was comprised of $362.7$217.4 million of commercial paper borrowings, $398.3$398.5 million of 5.5 percent unsecured notes due February 15, 2009, and $7.0$32.6 million in other debt. During the third quarter, the Company replaced its revolving credit facility agreements with a five year $350 million revolving credit facility, which expires in August 2007 and 364 day $350 million revolving credit facility, which expires in August 2003. In May 2002, Moody’s downgraded the Company’s long-term debt ratings to A1 from Aa3 and affirmed the Company’s short-term debt rating at P-1.
During the first nine monthsquarter of 20022003 and 20012002 the Company had average borrowings outstanding of approximately $830.8$601.6 million and $973.4$888.3 million, respectively, at average annual interest rates of approximately 3.64.2 percent and 5.13.5 percent, respectively. During the first nine monthsquarter of 20022003 and 2001,2002, the Company incurred net interest expense on borrowings of $26.1$7.1 million and $38.1$8.7 million, respectively.
The Company expects to fund its estimated capital needs primarily through internally generated funds, and to a lesser extent, commercial paper borrowings. In management’s opinion, the Company will have ample liquidity to meet its various cash needs throughout 2002.
Change in Accounting Method – Stock Options
Effective the first day of the Company’s 2002 fiscal year, the Company has adopted the fair-value-based method of accounting for company stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). This change in accounting method will be applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal 2002 will continue to be accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”
No stock options have been awarded in fiscal year 2002 through the end of the third quarter; therefore, this change in accounting method has had no impact on the Company’s reported results of operations in 2002. The impact on the Company’s overall 2002 operating results is not expected to be material.2003.
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The accounting treatment for the Company’s Kaplan stock option plan is not impacted by this change in accounting method, as the expense related to the Kaplan stock option plan has been and will continue to be recorded in the Company’s results of operations.
Forward–Looking Statements
This report contains certain forward-looking statements that are based largely on the Company’s current expectations. 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. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2001.29, 2002.
16.
Item 4. Controls and Procedures
A review and evaluation was performed by the Company’s management, at the direction of the Company’s Chairman and Chief Executive Officer (the Company’s principal executive officer) and Vice President-Finance Chief Financial Officer (the Company’s principal finance and accountingfinancial officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to the filing of this quarterly report. Based on that review and evaluation, the Company’s Chairman and Chief Executive Officer and Vice President-Finance Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that all material information required to be includeddisclosed in our periodic SECthe reports hasthat the Company files or submits under the Exchange Act have been made known to them in a timely fashion. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of theirsuch evaluation.
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PART II – OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) | The following documents are filed as exhibits to this report: |
Exhibit Number | Description | |
3.1 | ||
Certificate of Incorporation of the Company as amended through May 12, 1998, and the Certificate of Designation for the Company’s Series A Preferred Stock filed January 22, 1996 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995). | ||
3.2 | By-Laws of the Company as amended through | |
4.1 | 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). | |
4.2 | Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999). | |
4.3 | 364-Day Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, National Association, SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs | |
4.4 | 5-Year Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, National Association, SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs | |
11 | Calculation of Earnings per Share of Common Stock. | |
99.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) | No reports on Form 8-K were filed during the period covered by this report. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE WASHINGTON POST COMPANY (Registrant) | ||||||||
Date: | May 12, 2003 | |||||||
| /s/ | |||||||
GRAHAM | ||||||||
Donald E. Graham Chairman & Chief Executive Officer (Principal Executive Officer) |
Date: | May 12, 2003 | |||||||
/s/ JOHN B. MORSE, JR. | ||||||||
John B. Morse, Jr. Vice President-Finance (Principal Financial Officer) |
24.
RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Donald E. Graham, Chief Executive Officer (principal executive officer) of theThe Washington Post Company (the “Registrant”), certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Washington Post Company (the “registrant”);the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrantRegistrant as of, and for, the periods presented in this quarterly report;
4. The registrant’sRegistrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrantRegistrant and we have:
(a) | designed such disclosure controls and procedures to ensure that material information relating to the | ||
(b) | evaluated the effectiveness of the | ||
(c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’sRegistrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’sRegistrant’s auditors and the audit committee of registrant’sRegistrant’s board of directors (or persons performing the equivalent function)functions):
(a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the |
6. The registrant’sRegistrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ Donald E. Graham Donald E. GrahamChairman and Chief Executive OfficerNovember 12, 2002
/s/ DONALD E. GRAHAM | ||
Donald E. Graham Chief Executive Officer May 12, 2003 |
25.
CERTIFICATION PURSUANT TO
RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John B. Morse, Jr., Vice President-Finance Chief Financial Officer(principal financial officer) of theThe Washington Post Company (the “Registrant”), certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Washington Post Company (the “registrant”);the Registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrantRegistrant as of, and for, the periods presented in this quarterly report;
4. The registrant’sRegistrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrantRegistrant and we have:
(a) | designed such disclosure controls and procedures to ensure that material information relating to the | ||
(b) | evaluated the effectiveness of the | ||
(c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
5. The registrant’sRegistrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’sRegistrant’s auditors and the audit committee of registrant’sRegistrant’s board of directors (or persons performing the equivalent function)functions):
(a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the |
6. The registrant’sRegistrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ John B. Morse, Jr. John B. Morse, Jr.Vice President-Finance, Chief Financial OfficerNovember 12, 2002
/s/ JOHN B. MORSE, JR. | ||
John B. Morse, Jr. Vice President-Finance May 12, 2003 |
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