SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended April 3, 2005
Commission File Number 1-6714
THE WASHINGTON POST COMPANY
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
(202) 334-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x. No ¨.
Shares outstanding at May 2, 2005:
1,722,250 Shares
7,870,171 Shares
Index to Form 10-Q
Condensed Consolidated Statements of Income (Unaudited) for the Thirteen Weeks Ended April 3, 2005 and March 28, 2004
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Thirteen Weeks Ended April 3, 2005 and March 28, 2004
Condensed Consolidated Balance Sheets at April 3, 2005 (Unaudited) and January 2, 2005
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Thirteen Weeks Ended April 3, 2005 and March 28, 2004
e.
2.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Washington Post Company
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share amounts)
Operating revenues
Advertising
Circulation and subscriber
Education
Other
Operating costs and expenses
Operating
Selling, general and administrative
Depreciation of property, plant and equipment
Amortization of intangible assets
Income from operations
Other income (expense)
Equity in losses of affiliates
Interest income
Interest expense
Other, net
Income before income taxes
Provision for income taxes
Net Income
Redeemable preferred stock dividends
Net income available for common shares
Basic earnings per common share
Diluted earnings per share
Dividends declared per common share
Basic average number of common shares outstanding
Diluted average number of common shares outstanding
3.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
Net income
Other comprehensive income (loss)
Foreign currency translation adjustment
Change in unrealized gain on available-for-sale securities
Less: reclassification adjustment for realized gains included in net income
Income tax (expense) benefit related to other comprehensive income
Comprehensive income
4.
Condensed Consolidated Balance Sheets
April 3,
2005
January 2,
Assets
Current assets
Cash and cash equivalents
Investments in marketable equity securities
Accounts receivable, net
Inventories
Deferred income taxes
Income taxes receivable
Other current assets
Property, plant and equipment
Buildings
Machinery, equipment and fixtures
Leasehold improvements
Less accumulated depreciation
Land
Construction in progress
Investments in affiliates
Goodwill, net
Indefinite-lived intangible assets, net
Amortized intangible assets, net
Prepaid pension cost
Deferred charges and other assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
Deferred revenue
Dividends declared
Federal and state income taxes payable
Short-term borrowings
Postretirement benefits other than pensions
Other liabilities
Long-term debt
Redeemable preferred stock
Preferred stock
Common shareholders’ equity
Common stock
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income
Cumulative foreign currency translation adjustment
Unrealized gain on available-for-sale securities
Cost of Class B common stock held in treasury
5.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Net pension credit
Gain on sale of land
Gain on disposition of marketable equity securities
Foreign exchange loss (gain)
Cost method and other investment write-downs
Equity in losses of affiliates, net of distributions
Provision for deferred income taxes
Change in assets and liabilities:
Decrease in accounts receivable, net
Increase in inventories
Decrease in accounts payable and accrued liabilities
Increase in deferred revenue
Increase in income taxes payable
(Increase) decrease in other assets and other liabilities, net
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Proceeds from the sale of land
Investments in certain businesses
Proceeds from the sale of marketable equity securities
Net cash used in investing activities
Cash flows from financing activities:
Net repayment of commercial paper
Principal payments on debt
Cash overdraft
Dividends paid
Proceeds from exercise of stock options
Net cash used in financing activities
Effect of currency exchange rate change
Net increase (decrease) in cash and cash equivalents
Beginning cash and cash equivalents
Ending cash and cash equivalents
6.
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.
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 and Dispositions.
In the first quarter of 2005, the Company acquired Slate, an online magazine and Kaplan acquired two businesses in their higher education division. These acquisitions totaled $26.5 million. Most of the purchase price has been allocated to goodwill and other intangibles on a preliminary basis.
On April 22, 2005, Kaplan acquired BISYS Education Services, a leading provider of licensing education and compliance solutions for financial services institutions and professionals. BISYS is now part of Kaplan Professional.
In the first quarter of 2004, Kaplan acquired three businesses in their higher education and test preparation divisions, totaling $49.8 million.
Note 2: Investments.
Investments in marketable equity securities at April 3, 2005 and January 2, 2005 consist of the following (in thousands):
Total cost
Gross unrealized gains
Total fair value
During the first quarter of 2005, the Company sold marketable equity securities for a pre-tax gain of $3.3 million. There were no sales of marketable equity securities in the first quarter of 2004.
At April 3, 2005 and January 2, 2005, the carrying value of the Company’s cost method investments was $4.9 million and $4.6 million, respectively. The Company recorded charges of $0 and $0.7 million during the first quarter of 2005 and 2004, respectively, to write-down certain of its investments to estimated fair value.
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Note 3: Borrowings.
Long-term debt consists of the following (in millions):
Commercial paper borrowings
5.5 percent unsecured notes due February 15, 2009
4.0 percent notes due 2006 (£8.35 million)
Other indebtedness
Total
Less current portion
Total long-term debt
The Company’s commercial paper borrowings at January 2, 2005 were at an average interest rate of 2.2% and matured through January 2005.
During 2003, notes of £16.7 million were issued to current FTC employees who were former FTC shareholders in connection with the FTC acquisition. In 2004, 50% of the balance on the notes was paid. The remaining balance outstanding of £8.35 million is due for repayment in August 2006.
The Company’s other indebtedness at April 3, 2005 and January 2, 2005 is at interest rates of 4% to 7% and matures from 2005 to 2009.
During the first quarter of 2005 and 2004, the Company had average borrowings outstanding of approximately $457.8 million and $550.8 million, respectively, at average annual interest rates of approximately 5.2% and 4.5%, respectively. During the first quarter of 2005 and 2004, the Company incurred net interest expense on borrowings of $5.9 million and $6.5 million, respectively.
Note 4: Business Segments.
The following table summarizes financial information related to each of the Company’s business segments. The 2005 and 2004 asset information is as of April 3, 2005 and January 2, 2005, respectively.
8.
First Quarter Period
(in thousands)
Income (loss) from operations
Interest expense, net
Depreciation expense
Amortization expense
Net pension credit (expense)
Identifiable assets
Total assets
2004
9.
Newspaper publishing includes the publication of newspapers in the Washington, D.C. area and Everett, Washington; newsprint warehousing and recycling facilities; and the Company’s electronic media publishing business (primarily washingtonpost.com).
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.
Television broadcasting operations are conducted through six VHF, television stations serving the Detroit, Houston, Miami, San Antonio, Orlando and Jacksonville television markets. All stations are network-affiliated (except for WJXT in Jacksonville) with revenues derived primarily from sales of advertising time.
Cable television operations consist of cable systems offering basic cable, digital cable, pay television, cable modem and other services to subscribers in midwestern, western, and southern states. The principal source of revenue is monthly subscription fees charged for services.
Education products and services are provided through the Company’s wholly-owned subsidiary Kaplan, Inc. Kaplan’s businesses include supplemental education services, which is made up of Kaplan Test Prep and Admissions, providing test preparation services for college and graduate school entrance exams; Kaplan Professional, providing education and career services to business people and other professionals; and Score!, offering multi-media learning and private tutoring to children and educational resources to parents. Kaplan’s businesses also include higher education services, which includes all of Kaplan’s post-secondary education businesses, including the fixed facility colleges that offer 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).
Corporate office includes the expenses of the Company’s corporate office.
Note 5: Goodwill and Other Intangible Assets.
The Company’s intangible assets with an indefinite life are principally from franchise agreements at its cable division, as the Company expects its cable franchise agreements to provide the Company with substantial benefit for a period that extends beyond the foreseeable horizon, and the Company’s cable division historically has obtained renewals and extensions of such agreements for nominal costs and without any material modifications to the agreements. Amortized intangible assets are primarily masthead and non-compete agreements, with amortization periods up to ten years.
The Company’s goodwill and other intangible assets as of April 3, 2005 and January 2, 2005 were as follows (in thousands):
Goodwill
Indefinite-lived intangible assets
Amortized intangible assets
10.
Activity related to the Company’s goodwill and other intangible assets during the three months ended April 3, 2005 was as follows (in thousands):
Beginning of year
Acquisitions
Foreign currency exchange rate changes
Balance at April 3, 2005
Indefinite-Lived Intangible Assets, net
Amortization
Activity related to the Company’s goodwill and other intangible assets during the three months ended March 28, 2004 was as follows (in thousands):
Balance at March 28, 2004
11.
Note 6: Stock Options
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 following table presents what the Company’s results would have been had the fair values of options granted after 1995, but prior to 2002, been recognized as compensation expense in the first quarter of 2005 and 2004 (in thousands except per share amounts).
Net income available for common shares, as reported
Add: Company stock option compensation expense included in net income, net of related tax effects
Deduct: Total Company stock option compensation expense determined under the fair value based method for all awards, net of related tax effects
Pro forma net income available for common shares
Basic earnings per share, as reported
Pro forma basic earnings per share
Diluted earnings per share, as reported
Pro forma diluted earnings per share
The Company also maintains a stock option plan at its Kaplan subsidiary that provides for the issuance of Kaplan stock options to certain members of Kaplan’s management. Under the provisions of the plan, options are issued with an exercise price equal to the estimated fair value of Kaplan’s common stock and options vest ratably over the number of years specified (generally four to five years) at the time of grant. Upon exercise, an option holder receives cash equal to the difference between the exercise price and the then fair value. The fair value of Kaplan’s common stock is determined by the Company’s compensation committee of the Board of Directors and in January 2005, the committee set the fair value price at $2,080 per share. Also in January 2005, 15,353 Kaplan stock options were exercised, and 10,582 Kaplan stock options were awarded at an option price of $2,080. At March 31, 2005, there are 63,229 Kaplan stock options outstanding. For the first quarter of 2005 and 2004, the Company recorded expense of $7.0 and $9.8 million, respectively, related to this plan.
12.
Note 7: Antidilutive Securities
The first quarter 2005 diluted earnings per share amounts exclude the effects of 4,000 stock options outstanding as their inclusion would be antidilutive. There were no antidilutive stock options outstanding during the first quarter of 2004.
Note 8: Pension and Postretirement Plans
The total (income) cost arising from the Company’s defined benefit pension and postretirement plans for the quarters ended April 3, 2005 and March 28, 2004 consists of the following components (in thousands):
Service cost
Interest cost
Expected return on assets
Amortization of transition asset
Amortization of prior service cost
Recognized actuarial gain
Total (benefit) cost for the quarter
The expected rate of return on plan assets is 7.5% in 2005. At January 2, 2005, the Company reduced its assumption on the discount rate from 6.25% to 5.75% for both its pension plans and postretirement plans. During the first quarter of 2005, the Company changed from the 1983 Group Annuity Mortality Table to the 1994 Group Annuity Mortality Table, for its pension plans. These assumption changes are estimated to cause an approximate $7 million reduction in the 2005 pension credit. Overall, the pension credit for 2005 is expected to be down by approximately $5 million compared to 2004.
In December of 2003, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Act) was enacted. The Act introduced a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health benefit plans that provide a benefit that meets certain criteria. The Company’s other postretirement plans covering retirees currently provide certain prescription benefits to eligible participants. In accordance with FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003,” the Company has concluded that the Act is not significant to the Company’s other postretirement plans and therefore, the effects of the Act were incorporated into the latest valuation of December 31, 2004. Overall, the Company’s Postretirement benefit obligation was reduced by about $4.0 million at January 2, 2005 as a result of the Act; the Company’s postretirement expense is expected to be reduced by about $0.5 million in fiscal year 2005 as a result of the Act.
Note 9 – Other Non-Operating Income (Expense)
The Company recorded other non-operating income, net, of $7.1 million for the first quarter of 2005, compared to $0.7 million for the first quarter of 2004. The 2005 non-operating income is comprised of pre-tax gains of $8.7 million related to the sales of non-operating land and marketable securities.
13.
A summary of non-operating income (expense) for the thirteen weeks ended April 3, 2005 and March 28, 2004, follows (in millions):
Gain on sale of non-operating property
Gain on sale of marketable equity securities
Foreign currency (losses) gains, net
Impairment write-downs on cost method and other investments
Other gains (losses), net
Note 10 – Contingencies
On April 29, 2005, Kaplan was named as a party in a class action antitrust lawsuit in California. The Company intends to defend this lawsuit vigorously.
Note 11 – Recent Accounting Pronouncements
In December 2004, Statement of Financial Accounting Standards No. 123R (SFAS 123R), “Shared Based Payment” was issued, which requires companies to record the cost of employee services in exchange for stock options based on the grant-date fair value of the award. Because the Company adopted the fair-value-based method of accounting for Company stock options in 2002, SFAS 123R will have a minimal impact on the Company’s results of operations when adopted in the first quarter of 2006.
EITF Topic D-108, “Use of the Residual Method to Value Acquired Assets Other than Goodwill,” requires companies that have applied the residual method to value intangible assets to perform an impairment test on those intangible assets using the direct method by the end of the first quarter of 2005. As a result, the Company was required to complete such an impairment test at its cable division in the first quarter of 2005, and the Company has concluded that no impairment charge was required.
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.
Results of Operations
Net income for the first quarter of 2005 was $66.6 million ($6.87 per share), up from net income of $59.4 million ($6.15 per share) in the first quarter of last year.
Results for the first quarter of 2005 include after-tax non-operating gains from the sales of non-operating land and marketable securities (after-tax impact of $5.4 million, or $0.56 per share).
Revenue for the first quarter of 2005 was $833.9 million, up 10% from $759.0 million in 2004. The increase is the result of strong revenue growth at the education division, along with increased revenues at the Company’s newspaper publishing, cable television and television broadcasting divisions. These increases were offset by a decline in operating revenues at the Company’s magazine division due to a reduction in ad pages at the domestic and international editions of Newsweek and the timing of the magazine division’s primary trade show, which was held in the second quarter of 2005 but in the first quarter last year.
Operating income for the quarter increased 3% to $108.0 million, from $104.9 million in 2004. The Company benefited from an increase in earnings at the education division, offset by a decline in magazine division results due to the revenue reductions discussed above.
The Company’s operating income for the first quarter of 2005 includes $9.2 million of net pension credits, compared to $10.0 million in the first quarter of 2004. At January 2, 2005, the Company reduced its assumption on the discount rate from 6.25% to 5.75% and, during the first quarter of 2005, the Company changed from the 1983 Group Annuity Mortality Table to the 1994 Group Annuity Mortality Table. Overall, the pension credit for 2005 is expected to be down by approximately $5 million compared to 2004.
15.
Newspaper Publishing Division. Newspaper publishing division revenue totaled $233.0 million for the first quarter of 2005, a 6% increase from revenue of $218.8 million for the first quarter of 2004. Division operating income was down 2% to $31.4 million, from $32.0 million in 2004. The decline in operating income reflects an 11% increase in newsprint expense at The Post and increased pension expense; in addition, operating results for 2005 include small losses from two recent acquisitions, Slate and El Tiempo Latino, and costs associated with Spaces, a start-up real estate publication. This was offset by increased division revenues and improved results at the Company’s online publishing activities, primarily washingtonpost.com.
Print advertising revenue at The Washington Post newspaper increased 2% to $145.7 million, from $142.1 million in 2004. This growth was driven by advertising revenue increases in zones and classified, offset by a decline in preprints. Classified recruitment advertising revenue was up 10% to $21.7 million, from $19.6 million in the first quarter of 2004.
For the first quarter of 2005, Post daily and Sunday circulation declined 3.8% and 3.1%, respectively, compared to the first quarter of 2004. For the three months ended April 3, 2005, average daily circulation at The Post totaled 704,700 and average Sunday circulation totaled 993,000.
Revenue generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 27% to $17.0 million for the first quarter of 2005, versus $13.4 million for 2004. The increase is largely due to growth in local and national online advertising revenues of 32%, as well as a 24% increase in online classified advertising revenue on washingtonpost.com.
Television Broadcasting Division. Revenue for the broadcast division rose 4% in the first quarter of 2005 to $79.3 million, from $76.3 million in 2004. The increase is due to strong revenue growth at the Company’s independent station, WJXT in Jacksonville, Florida, along with increases at all but one of the Company’s other television stations, offset by a decline in political advertising from the first quarter of 2004. Operating income for the first quarter of 2005 increased 5% to $32.8 million, from $31.3 million in 2004, due to higher advertising revenues.
Magazine Publishing Division. Revenue for the magazine publishing division totaled $69.9 million for the first quarter of 2005, a 17% decline from $84.5 million for the first quarter of 2004. The division had an operating loss of $5.2 million in the first quarter of 2005, compared to operating income of $6.8 million in the first quarter of 2004. The decline in revenue and operating results is due to the combination of a 22% advertising revenue reduction at Newsweek from lower ad pages at both the domestic and international editions and lower revenue at PostNewsweek Tech Media, whose primary trade show took place in the second quarter of 2005, versus the first quarter in 2004.
Cable Television Division. Cable division revenue of $126.4 million for the first quarter of 2005 represents a 4% increase over 2004 first quarter revenue of $121.0 million. The 2005 revenue increase is due to continued growth in the division’s cable modem revenues and a $2 monthly rate increase for basic cable service, effective March 1, 2004 at most of the cable division’s systems. The Company does not plan to implement an overall basic rate increase in 2005.
Cable division operating income increased 3% to $23.4 million in the first quarter of 2005, versus $22.6 million in the first quarter of 2004. The increase in operating income is due mostly to the division’s revenue growth, offset by higher depreciation and programming expenses and increases in internet and customer service costs.
16.
At March 31, 2005, the cable division had approximately 220,400 digital cable subscribers (compared to 229,600 at the end of March 2004 and 219,200 at the end of 2004), representing a 31% penetration of the subscriber base. At March 31, 2005, the cable division had 197,400 CableONE.net service subscribers, compared to 147,300 at the end of March 2004. Both digital and cable modem services are now offered in virtually all of the cable division’s markets. At March 31, 2005, the cable division had 710,400 basic subscribers, compared to 724,700 at the end of March 2004 and 709,100 at the end of December 2004. The decrease is due to small losses associated with the basic rate increase discussed above, along with continued competition from DBS providers.
At March 31, 2005, Revenue Generating Units (the sum of basic video, digital video and cable modem subscribers) totaled 1,128,100, compared to 1,101,700 as of March 31, 2004. The increase is due to growth in high-speed data customers. RGUs include about 7,000 subscribers who receive free basic cable service, primarily local governments, schools and other organizations as required by the various franchise agreements.
Below are details of Cable division capital expenditures for the first quarter of 2005 and 2004, in the NCTA Standard Reporting Categories (in millions):
Customer Premise Equipment
Commercial
Scaleable Infrastructure
Line Extensions
Upgrade/Rebuild
Support Capital
Education Division. Education division revenue totaled $325.4 million for the first quarter of 2005, a 26% increase over revenue of $258.3 million for the first quarter of 2004. Kaplan reported first quarter 2005 operating income of $32.6 million, an increase of 58% from $20.6 million in the first quarter of 2004. Excluding revenue from acquired businesses, primarily in the higher education division and the professional training schools that are part of supplemental education, education division revenue increased 23% for the first quarter of 2005. A summary of first quarter operating results is as follows:
Revenue
Supplemental education
Higher education
Operating income (loss)
Kaplan corporate overhead
Other*
Supplemental education includes Kaplan’s test preparation, professional training and Score! businesses. The improvement in supplemental education results for the first quarter of 2005 is to due to enrollment growth at Kaplan’s test preparation business (particularly the K12 business), the professional real estate courses and The Financial Training Company (FTC). Revenues at Score! were flat compared to the first quarter of 2004.
17.
Higher education includes all of Kaplan’s post-secondary education businesses, including fixed-facility colleges as well as online post-secondary and career programs (various distance-learning businesses). Excluding revenue from acquired businesses, higher education revenues grew by 33% in the first quarter of 2005. Higher education results are showing significant growth due to student enrollment increases.
Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, which rose in the first quarter of 2005 primarily due to increased compensation costs associated with various incentive plans, including one that replaced the Kaplan stock option plan for certain employees.
Other expense comprises 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. The Company recorded expense of $7.0 million and $9.8 million for the first quarter of 2005 and 2004, respectively, related to this plan.
Equity in Losses of Affiliates. The Company’s equity in losses of affiliates for the first quarter of 2005 was $0.5 million, compared to losses of $1.7 million for the first quarter of 2004. The Company’s affiliate investments consist of a 49% interest in BrassRing LLC and a 49% interest in Bowater Mersey Paper Company Limited. The reduction in first quarter 2005 affiliate losses is attributable to improved operating results at both BrassRing and Bowater.
Other Non-Operating Income. The Company recorded other non-operating income, net, of $7.1 million for the first quarter of 2005, compared to $0.7 million for the first quarter of 2004. The 2005 non-operating income is comprised of pre-tax gains of $8.7 million related to the sales of non-operating land and marketable securities.
Net Interest Expense. The Company incurred net interest expense of $5.9 million for the first quarter of 2005, compared to $6.5 million for the same period of the prior year. The reduction is due to lower average borrowings in the first quarter of 2005 versus the same period of the prior year. At April 3, 2005, the Company had $431.7 million in borrowings outstanding, at an average interest rate of 5.5%.
Provision for Income Taxes. The effective tax rate for the first quarter of 2005 was 38.7%, compared to 39.0% for the same period of 2004.
18.
Earnings Per Share. The calculation of diluted earnings per share for the first quarter of 2005 was based on 9,617,000 weighted average shares outstanding, compared to 9,582,000 for the first quarter of 2004. The Company made no repurchases of its stock during the first quarter of 2005.
Financial Condition: Capital Resources and Liquidity
Acquisitions. In the first quarter of 2005, the Company acquired Slate, an online magazine and Kaplan acquired two businesses in their higher education division. These acquisitions totaled $26.5 million. Most of the purchase price has been allocated to goodwill and other intangibles on a preliminary basis.
Capital expenditures. During the first quarter of 2005, the Company’s capital expenditures totaled $52.1 million. The Company estimates that its capital expenditures will be in the range of $225 million to $250 million in 2005.
Liquidity. During the first quarter of 2005, the Company paid off its commercial paper borrowings. At April 3, 2005, the Company had $27.6 million in short-term debt investments which are included in cash and cash equivalents. The improvement is primarily due to cash flows from operations, offset in part by borrowings for acquisitions.
At April 3, 2005, the Company had $431.7 million in total debt outstanding, which was comprised of $399.0 million of 5.5 percent unsecured notes due February 15, 2009, and $32.7 million in other debt.
At April 3, 2005 and January 2, 2005, the Company had working capital of $84.3 million and $66.2 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments.
The Company 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 2005.
As noted above, the Company’s borrowings have declined by $52.4 million, to $431.7 million, as compared to borrowings of $484.1 million at January 2, 2005. There were no other significant changes to the Company’s contractual obligations or other commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the year ended January 2, 2005.
19.
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 January 2, 2005.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal executive officer) and the Company’s Vice President-Finance (the Company’s principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of April 3, 2005. Based on that evaluation, the Company’s Chief Executive Officer and Vice President-Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) Changes in Internal Control Over Financial Reporting
Except as otherwise discussed below, there has been no change in the Company’s internal control over financial reporting during the quarter ended April 3, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
During the first quarter of 2005, The Company implemented a new system for advertising traffic, sales and billing at four of its six television stations.
20.
PART II – OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Description
21.
Current Report on Form 8-K dated January 20, 2005, reporting under Item 1 amendments relating to The Washington Post Company Incentive Compensation Plan
Current Report on Form 8-K dated January February 25, 2005, reporting under Item 2 the Company’s fourth quarter earnings and including as an exhibit the Company’s press release dated February 25, 2005.
Current Report on Form 8-K dated February 28, 2005, reporting under Item 1 amendments to The Washington Post Company Deferred Compensation Plan
22.
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.
/s/ Donald E. Graham
/s/ John B. Morse, Jr.
23.