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The Washington Post Company Reports 2001 and Fourth Quarter Earnings
WASHINGTON — The Washington Post Company (NYSE: WPO) today reported net income of $229.6 million for its fiscal year ended December 30, 2001, compared with $136.5 million for the fiscal year ended December 31, 2000. Diluted earnings per share totaled $24.06 in 2001, compared to $14.32 in 2000. Revenue for 2001 was $2,416.7 million, or flat compared to revenue of $2,412.2 million in 2000. Operating income decreased 35 percent to $219.9 million, from $339.9 million in 2000.
The company's 2001 results include after-tax gains of $196.5 million, or $20.69 per share, from the sale and exchange of certain cable systems in the first quarter, a non-cash goodwill and other intangibles impairment charge recorded by one of the company's affiliates (after-tax impact of $19.9 million, or $2.10 per share), and losses from the write-down of a non-operating parcel of land and certain cost method investments to their estimated fair value (after-tax impact of $18.3 million or $1.93 per share). Excluding these one-time, non-operating and principally non-cash transactions in 2001, net income totaled $71.3 million, or $7.40 per share.
The decline in 2001 operating earnings is largely due to a significant decline in advertising revenues, increased depreciation and amortization expenses, and higher stock-based compensation expense accruals at the education division. These factors were offset in part by increased operating income contributed by Quest Education (acquired in August 2000), higher profits from Kaplan's test preparation and professional training businesses, reduced operating losses at Kaplan's new business development activities, and an increased pension credit. In addition, 2000 earnings included a one-time fourth quarter after-tax charge of $16.5 million, or $1.74 per share, arising from an early retirement program at The Washington Post.
Net income for the fourth quarter of 2001 was $14.5 million ($1.53 per share), down from net income of $37.7 million ($3.98 per share) for the same period in 2000. Results for the fourth quarter of 2001 include cost method investment write-downs to their estimated fair value (after-tax impact of $4.3 million, or $0.46 per share) and a portion of the affiliate's non-cash goodwill and other intangibles impairment charge (after-tax impact of $9.0 million, or $0.94 per share). Excluding these one-time, non-operating, non-cash charges, net income for the fourth quarter of 2001 totaled $27.8 million, or $2.93 per share.
Revenue for the fourth quarter of 2001 was $629.6 million, down 6 percent from revenue of $671.4 million for the same period of 2000. Operating income declined 19 percent to $73.1 million, from $90.0 million in 2000. Consistent with the company's 2001 annual results, the decrease in the company's fourth quarter operating earnings is primarily attributable to advertising revenue declines, increased depreciation and amortization expenses, and higher stock-based compensation expense accruals at the education division, offset in part by higher operating profits at Quest Education, reduced operating losses at Kaplan's new business development activities, and an increased pension credit. In addition, fourth quarter 2000 earnings included an after-tax $16.5 million charge for the early retirement program at The Post.
The company's 2001 and 2000 operating income includes $76.9 million and $62.7 million of pension credits, respectively; $17.9 million and $16.6 million for the fourth quarter of 2001 and 2000, respectively. At December 30, 2001, the company modified certain assumptions surrounding the company's pension plans. Specifically, the company reduced its assumptions on discount rate from 7.5 percent to 7.0 percent and expected return on plan assets from 9.0 percent to 7.5 percent. The company expects the pension credit for 2002 to be reduced by approximately $20 million to $25 million.
Divisional Results
Newspaper Publishing
Newspaper publishing division revenues in 2001 decreased 8 percent to $842.7 million, from $918.2 million in 2000; revenues decreased 11 percent to $211.8 million for the fourth quarter of 2001. Division operating income for 2001 totaled $84.7 million, a decrease of 26 percent from operating income of $114.4 million in 2000; operating income increased to $23.8 million in the fourth quarter of 2001, from $6.0 million in the fourth quarter of 2000. The division's fourth quarter 2000 results include a $27.5 million, pre-tax charge in connection with the early retirement program completed at The Washington Post. Excluding this charge, operating income declined 29 percent in the fourth quarter of 2001.
The decrease in operating income for 2001 is due to a significant decline in print advertising, offset in part by a higher pension credit, higher online advertising revenues, lower newsprint cost, cost control initiatives employed throughout the division, and the $27.5 million charge recorded in the fourth quarter of 2000 in connection with the early retirement program completed at The Post.
Print advertising revenue at The Washington Post newspaper decreased 14 percent to $574.3 million, from $664.1 million in 2000, and declined 14 percent to $146.8 million for the fourth quarter of 2001. Volume declines of 41 percent and 47 percent in classified recruitment advertising for 2001 and the fourth quarter of 2001 caused classified recruitment advertising revenue declines of 37 percent and 42 percent, respectively. The economic environment surrounding most of the other advertising categories at The Post (i.e., retail, general, preprints) was also sluggish for both the fourth quarter and fiscal 2001 compared to the prior year. In these categories, rate increases only partially offset volume declines ranging from 6 percent to 35 percent during the fourth quarter. The soft advertising climate worsened late in the third quarter of 2001 as the company experienced further reductions in advertising revenue and volumes following the events of September 11.
Daily and Sunday circulation at The Post both declined 1 percent in 2001. For the year ended December 30, 2001, average daily circulation at The Post totaled 773,000 and average Sunday circulation totaled 1,067,000. Newsprint expense at the newspaper publishing division decreased 6 percent for 2001 due to reduced consumption offset by overall higher prices during the year.
Revenues generated by the company's online publishing activities, primarily washingtonpost.com, increased 12 percent to $30.4 million during the year. Online revenues decreased 4 percent to $7.3 million for the fourth quarter largely as a result of a decline in revenues in October; revenues were up in November and December.
Television Broadcasting
Revenue for the television broadcasting division totaled $314.0 million for 2001, a 14 percent decline from 2000; revenue decreased 18 percent in the fourth quarter of 2001 to $88.0 million. Excluding approximately $42 million in political and Olympics advertising in 2000, revenues in 2001 decreased 3 percent due to a general softness in advertising (particularly national advertising) and several days of commercial-free coverage following the events of September 11. Operating income for 2001 declined 26 percent to $131.8 million; fourth quarter operating income totaled $43.2 million, a 28 percent decrease over the same period of 2000.
Magazine Publishing
Revenue for the magazine publishing division totaled $380.2 million for 2001, a 9 percent decrease from 2000; revenue decreased 15 percent to $102.6 million for the fourth quarter of 2001. Operating income totaled $25.3 million for 2001, a decrease of 48 percent from 2000; division operating income was down 53 percent to $9.9 million in the fourth quarter of 2001. The decline in 2001 operating income resulted from a 24 percent decrease in advertising revenue at Newsweek due to fewer advertising pages at both the domestic and international editions. The decline was offset in part by increased newsstand sales on regular and special editions related to the September 11 terrorist attacks, a higher pension credit, and reduced operating expenses.
Cable Television
Cable division revenue of $386.0 million for 2001 represents an 8 percent increase over 2000; revenue totaled $101.7 million for the fourth quarter of 2001, a 10 percent increase over the same period of 2000. The 2001 revenue increase is due to rapid growth in the division's digital and cable modem service revenues, along with an increased number of basic subscribers from the cable exchange transactions completed in the first quarter of 2001. Cable division operating income declined 51 percent in 2001 to $32.2 million due mostly to a $25.3 increase in depreciation and amortization expense compared to 2000. For the fourth quarter of 2001, operating income was down 42 percent to $11.1 million due mostly to a $4.9 million increase in depreciation and amortization expense compared to the fourth quarter of 2000.
Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $135.3 million for 2001, a decrease of 6 percent from 2000. Cable cash flow for the fourth quarter of 2001 totaled $36.0 million, a 9 percent decrease from the fourth quarter of 2000. The decline in cable division cash flow is mostly due to higher programming expense, costs associated with the launch of digital services, and comparatively lower cash flow margin subscribers acquired in the cable system exchanges completed in the first quarter of 2001.
The increase in depreciation expense is due to capital spending, which is enabling the company to offer digital cable services to its subscribers. The cable division began its rollout plan for these services in the third quarter of 2000. At December 31, 2001, the cable division had approximately 216,000 digital cable subscribers, representing a 32 percent penetration of the subscriber base in the markets where digital services are offered. Digital services are currently offered in markets serving 91 percent of the cable division's subscriber base. The rollout plan for the new digital cable services includes an offer for the cable division's customers to obtain these services free for one year. At the end of December 2001, the cable division had about 9,000 “paying” digital subscribers. Most of the benefits from these new services are expected to show beginning in 2002 and thereafter.
At December 31, 2001, the cable division had 752,700 basic subscribers, compared to 735,400 at the end of December 2000. The increase in basic subscribers is largely due to a net gain in subscribers arising from cable system exchanges and sale transactions completed in the first quarter of 2001. At December 31, 2001, the cable division had 32,900 cable modem service subscribers, compared to 3,600 at the end of 2000, with the increase due to a large increase in the company's cable modem deployment (offered to 89 percent of homes passed at the end of December 2001) and take-up rates.
Education
Education revenue in 2001 increased 40 percent to $493.7 million, from $353.8 million in 2000; excluding Quest Education (acquired in August 2000), education division revenue increased 15 percent to $342.3 million for 2001, compared to $296.9 million for 2000. The operating loss for the year improved from $41.8 million to $28.3 million. For the fourth quarter of 2001, education division revenue increased 11 percent to $125.6; the operating loss for the quarter improved from $9.2 million to $7.3 million. A summary of operating results for 2001 and the fourth quarter of 2001 compared to 2000 is as follows (in thousands):
Fourth Quarter YTD
------------------------ -------------------------
% Better % Better
2001 2000 (worse) 2001 2000 (worse)
-------- -------- ---- -------- -------- ----
Revenue
Test prep
and professional
training $ 64,469 $ 63,684 +1 $271,931 $244,189 +11
Quest post-
secondary
education(a) 42,203 35,275 +20 151,400 56,908 +166
New business
development
activities 18,906 14,601 +29 70,350 52,724 +33
-------- -------- --- -------- -------- ----
$125,578 $113,560 +11 $493,681 $353,821 +40
======== ======== === ======== ======== ====
Operating
income (loss)
Test prep
and professional
training $ 5,399 $ 10,121 -47 $ 36,391 $ 30,315 +20
Quest post-
secondary
education(a) 8,521 6,143 +39 19,858 8,359 +138
New business
development
activities (7,575) (18,038) +58 (24,136) (55,313) +56
Kaplan
corporate
overhead (3,027) (2,203) (37) (19,436) (9,123) (113)
Other(b) (10,661) (5,219) (104) (41,014) (16,084) (155)
-------- -------- --- -------- -------- ----
$ (7,343) $ (9,196) +20 $(28,337) $(41,846) +32
======== ======== === ======== ======== ====
(a) Quest was acquired in August 2000; therefore, 2000 year-to-date
results include only 5 months of activity.
(b) Other includes charges accrued for stock-based incentive
compensation and amortization of goodwill and other intangibles.
The improvement in test preparation and professional training results for 2001 is due mostly to higher enrollments, and to a lesser extent higher rates at Kaplan's traditional test preparation business (particularly the GMAT and the LSAT prep courses) and higher revenues and profits from Kaplan's CFA and real estate exam preparation services.
New business development activities represent the results of Score! and Kaplan College (various distance learning businesses). The improvement in new business development revenue is primarily attributable to Score!, with both increased enrollment from new learning centers opened (147 centers at the end of 2001 versus 142 centers at the end of 2000) and rate increases implemented early in 2001.
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 increase in this expense category in 2001 is principally due to increased spending for these development initiatives.
Other expense is comprised 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 goodwill and other 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 increase in other expense for 2001 is mostly attributable to an increase in stock-based incentive compensation, which was primarily due to an increase in Kaplan's estimated value.
Equity in Losses of Affiliates
The company's equity in losses of affiliates for 2001 was $68.7 million, compared to losses of $36.5 million for 2000. The company's affiliate investments consist of a 40 percent interest in BrassRing, LLC, a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited. For the fourth quarter of 2001, the company's equity in losses of affiliates totaled $23.0 million, compared to $6.8 million for the same period of 2000. BrassRing accounted for substantially all of the company's 2001 and fourth quarter equity in losses of affiliates. The increase in 2001 equity in affiliate losses from BrassRing is largely due to a one-time non-cash goodwill and other intangibles impairment charge which BrassRing recorded in the fourth quarter of 2001 primarily to reduce the carrying value of its career fair business.
Other Non-Operating Income(Expense)
The company recorded other non-operating income of $283.7 million in 2001, compared to $19.8 million in non-operating expense for 2000. For the fourth quarter of 2001, the company recorded non-operating expense of $9.9 million, compared to $14.6 million for the fourth quarter of 2000. The 2001 non-operating income is comprised mostly of gains arising from the sale and exchange of certain cable systems completed in January and March of 2001. Offsetting these gains were losses from the write-downs of a non-operating parcel of land and certain investments to their estimated fair value.
For income tax purposes, substantial components of the cable system sale and exchange transactions qualify as like-kind exchanges and, therefore, a large portion of these transactions does not result in a current tax liability.
Net Interest Expense
The company incurred net interest expense of $47.5 million in 2001, compared to $53.8 million in 2000; net interest expense totaled $9.3 million for the fourth quarter of 2001, compared to $14.7 million for the same period of 2000. At December 30, 2001, the company had $933.1 million in borrowings outstanding at an average interest rate of 3.5 percent.
Provision for Income Taxes
The effective rate was 40.7 percent for 2001, compared to 40.6 percent for 2000. Excluding the effect of the cable gain transactions, the company's effective tax rate approximated 50.2 percent for 2001, with the increase in rate due mostly to the decline in pretax income.
Earnings Per Share
The calculation of diluted earnings per share for 2001 and the fourth quarter of 2001 was based on 9,500,000 and 9,501,000 weighted average shares, respectively, compared to 9,460,000 and 9,470,000 shares, respectively, in 2000. The company made no significant repurchases of its stock during 2001.
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 certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-looking Statements” in the company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
THE WASHINGTON POST COMPANY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousands, except share and per share amounts)
Fourth Quarter (unaudited) Fiscal Year
-------------------------- --------------------------
2001
2001 2000 %Change (unaudited) 2000 %Change
-------- -------- ----- --------- ------- -----
Operating
revenues 629,646 $671,386 -6 $2,416,673 $2,412,150 -
Operating
expenses (501,721) (533,323) -6 (1,979,508) (1,891,686) 5
-------- -------- --------- ---------
Operating
income
before
depreciation
and
amortization 127,925 138,063 -7 437,165 520,464 -16
Depreciation (33,036) (30,905) 7 (138,300) (117,948) 17
Amortization (21,748) (17,204) 26 (78,933) (62,634) 26
-------- -------- --------- ---------
Operating
income 73,141 89,954 -19 219,932 339,882 -35
Equity in
losses of
affiliates,
net (23,023) (6,800) (68,659) (36,466)
Interest
income 570 241 2,167 967
Interest
expense (9,914) (14,974) (49,640) (54,731)
Other
(expense)
income, net (9,949) (14,613) 283,739 (19,782)
-------- -------- --------- ---------
Income before
income taxes 30,825 53,808 -43 387,539 229,870 69
Provision for
income taxes (16,300) (16,100) 1 (157,900) (93,400) 69
-------- -------- --------- ---------
Net income 14,525 37,708 -61 229,639 136,470 68
Redeemable
preferred
stock
dividends - - (1,052) (1,026)
-------- -------- --------- ---------
Net income
available
for common
stock $14,525 $37,708 -61 $228,587 $135,444 69
======== ======== ========= =========
Basic
earnings per
share $1.53 $3.99 -62 $24.10 $14.34 68
======== ======== ========= =========
Diluted
earnings per
share $1.53 $3.98 -62 $24.06 $14.32 68
======== ======== ========= =========
Basic average
shares
outstanding 9,492,000 9,452,000 9,486,000 9,445,000
Diluted
average
shares
outstanding 9,501,000 9,470,000 9,500,000 9,460,000
THE WASHINGTON POST COMPANY
QUARTERLY PER SHARE AMOUNTS (UNAUDITED)
(in thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
2001
----
Net income available for
common stockholders $198,527 $ 14,229 $ 1,305 $ 14,525
======== ======== ======== ========
Basic earnings per share $ 20.94 $ 1.50 $ 0.14 $ 1.53
======== ======== ======== ========
Diluted earnings per share $ 20.90 $ 1.50 $ 0.14 $ 1.53
======== ======== ======== ========
Basic average shares
outstanding 9,479 9,485 9,489 9,492
Diluted average shares
outstanding 9,499 9,502 9,502 9,501
2000
----
Net income available for
common stockholders $ 23,569 $ 40,915 $ 33,253 $ 37,708
======== ======== ======== ========
Basic earnings per share $ 2.50 $ 4.33 $ 3.52 $ 3.99
======== ======== ======== ========
Diluted earnings per share $ 2.49 $ 4.33 $ 3.51 $ 3.98
======== ======== ======== ========
Basic average shares
outstanding 9,440 9,443 9,448 9,452
Diluted average shares
outstanding 9,458 9,458 9,463 9,470
The sum of the four quarters may not necessarily be equal to the
amounts reported for the full year due to rounding.
THE WASHINGTON POST COMPANY
BUSINESS SEGMENT INFORMATION
(In thousands)
Fourth Quarter (unaudited) Fiscal Year
------------------------- --------------------------
2001
2001 2000 %Change (unaudited) 2000 %Change
---- ---- ------- ----------- ---- -------
Operating
Revenues:
Newspaper
publishing $211,756 $237,786 -11 $842,721 $918,234 -8
Television
broadcasting 87,964 107,741 -18 314,010 364,758 -14
Magazine
publishing 102,614 120,196 -15 380,224 416,421 -9
Cable
television 101,734 92,103 10 386,037 358,916 8
Education 125,578 113,560 11 493,681 353,821 40
-------- -------- -------- --------
$629,646 $671,386 -6 $2,416,673 $2,412,150 --
======== ======== ========== ==========
Operating
Expenses:
Newspaper
publishing $187,993 $231,806 -19 $757,977 $803,799 -6
Television
broadcasting 44,805 47,395 -5 182,163 187,362 -3
Magazine
publishing 92,758 99,090 -6 354,918 367,302 -3
Cable
television 90,615 72,788 24 353,800 292,949 21
Education 132,921 122,756 8 522,018 395,667 32
Corporate
office 7,413 7,597 -2 25,865 25,189 3
-------- -------- -------- --------
$556,505 $581,432 -4 $2,196,741 $2,072,268 6
======== ======== ========== ==========
Operating
Income:
Newspaper
publishing $23,763 $5,980 297 $84,744 $114,435 -26
Television
broadcasting 43,159 60,346 -28 131,847 177,396 -26
Magazine
publishing 9,856 21,106 -53 25,306 49,119 -48
Cable
television 11,119 19,315 -42 32,237 65,967 -51
Education (7,343) (9,196) 20 (28,337) (41,846) 32
Corporate
office (7,413) (7,597) 2 (25,865) (25,189) -3
-------- -------- -------- --------
$73,141 $89,954 -19 $219,932 $339,882 -35
======== ======== ========== ==========
Depreciation:
Newspaper
publishing $9,424 $9,840 -4 $37,862 $38,579 -2
Television
broadcasting 3,141 3,315 -5 11,932 12,991 -8
Magazine
publishing 1,057 1,212 -13 4,654 5,059 -8
Cable
television 14,474 12,145 19 64,505 47,670 35
Education 4,940 4,393 12 19,347 13,649 42
-------- -------- -------- --------
$33,036 $30,905 +7 $138,300 $117,948 17
======== ======== ========== ==========
Amortization:
Newspaper
publishing $1,979 $419 372 $3,864 $1,588 143
Television
broadcasting 3,534 3,534 -- 14,135 14,135 --
Magazine
publishing 1,667 1,667 -- 6,669 6,758 -1
Cable
television 10,386 7,865 32 38,553 30,069 28
Education 4,182 3,719 12 15,712 10,084 56
-------- -------- -------- --------
$21,748 $17,204 26 $78,933 $62,634 26
======== ======== ========== ==========
| CONTACT: | The Washington Post Company, Washington |
|---|---|
| John B. Morse, Jr., 202/334-6662 | |