Releases
The Washington Post Company Reports Third Quarter Earnings
WASHINGTON – The Washington Post Company (NYSE: WPO) today reported net income of $1.6 million ($0.14 per share) for its third quarter ended September 30, 2001, down from net income of $33.5 million ($3.51 per share) in the third quarter of last year.
Revenue for the third quarter of 2001 was $595.5 million, down 1 percent from $602.5 million in 2000. The revenue decline is mostly due to a decrease in advertising revenue of $61.6 million, or 19 percent, at the company’s advertising-based businesses, where an already-soft advertising environment worsened for several weeks following the events of September 11. This revenue decrease was offset by a significant spike in Newsweek’s newsstand sales in September, higher revenues at the cable division, an increase in revenue at Kaplan’s test preparation and Score! businesses, and increased revenue generated by Kaplan’s Quest Education unit (acquired in August 2000).
Operating income for the quarter decreased 44 percent to $47.0 million, from $84.6 million in 2000. The decrease in operating income is due primarily to the decline in advertising revenue and increased depreciation and amortization expense. These factors were offset in part by higher operating profits at Newsweek, increased operating income from Quest Education and from Kaplan’s test preparation and professional training businesses, reduced operating losses in Kaplan’s new business development activities, and an increased pension credit.
In addition to the factors accounting for the decline in the company’s third quarter operating income, the company’s pre-tax income for the third quarter of 2001 also includes write-downs of approximately $26 million to adjust several of the company’s investments to their estimated fair value. Excluding these non-operating investment write-downs, net income for the third quarter of 2001 totaled $15.1 million, or $1.56 per share.
For the first nine months of 2001, net income totaled $215.1 million ($22.53 per share), compared with net income of $98.8 million ($10.33 per share) for the same period of 2000. Excluding certain one-time non-operating transactions from the first nine months of 2001, principally net gains from the sale and exchange of certain cable systems and write-downs of investments, net income for the first nine months totaled $43.9 million, or $4.51 per share. Revenue for the first nine months of 2001 was $1,787.0 million, up 3 percent over revenue of $1,740.8 million for the same period in 2000. Operating income declined 41 percent to $146.8 million, from $249.9 million in 2000. The decrease in the company’s nine month earnings is primarily attributable to the 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, 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.
The company’s operating income for the third quarter and first nine months of 2001 includes $19.7 million and $60.3 million of pension credits, respectively, compared to $15.0 million and $45.0 million for the same periods of 2000.
Divisional Results
Newspaper Publishing
Newspaper publishing division revenue totaled $199.9 million for the third quarter of 2001, a decrease of 12 percent from revenue of $227.6 million in the third quarter of 2000; division revenue decreased 7 percent to $631.0 million for the first nine months of 2001. Division operating income for the third quarter declined 67 percent to $11.6 million, from $35.0 million in the third quarter of 2000; operating income decreased 44 percent to $61.0 million for the first nine months of 2001. The decrease in operating income for the third quarter and first nine months is due to the decline in print advertising, offset in part by higher online advertising revenues and cost control initiatives employed throughout the division.
Print advertising revenue at The Washington Post newspaper decreased 20 percent to $132.9 million, from $165.1 million in the third quarter of 2000, and declined 13 percent to $427.5 million for the first nine months of 2001. Volume declines of 48 percent and 40 percent in classified recruitment advertising for the third quarter and first nine months of 2001 caused classified recruitment advertising revenue declines of 45 percent and 36 percent, respectively. The economic environment surrounding most of the other advertising categories at The Post (i.e., retail, general, preprints) was also sluggish for the third quarter and the first nine months of 2001, compared to the prior year. In these categories, rate increases only partially offset volume declines ranging from 7 to 33 percent in the third quarter of 2001. The soft advertising climate worsened for several weeks late in the third quarter of 2001 as the company experienced further reductions in advertising revenue and volumes following the events of September 11.
For the first nine months of 2001, Post daily and Sunday circulation both declined 1 percent compared to the same period of the prior year. For the nine months ended September 30, 2001, average daily circulation at The Post totaled 758,000 and average Sunday circulation totaled 1,066,000.
Revenues generated by the company’s online publishing activities, primarily washingtonpost.com, increased 7 percent to $7.7 million for the third quarter of 2001, compared to the same period in the prior year; online revenues increased 19 percent to $23.1 million for the first nine months of 2001.
Television Broadcasting
Revenue for the television broadcasting division declined 23 percent for the third quarter of 2001 to $68.2 million; revenue decreased 12 percent to $226.0 million for the first nine months of 2001. Excluding approximately $16 million in political and Olympics advertising in 2000, the decline in third quarter 2001 revenues was 6 percent, due largely to several days of commercial-free coverage following the events of September 11. A general softness in advertising (particularly national advertising) also adversely impacted comparisons for both the third quarter and first nine months of 2001.
Operating income for the third quarter of 2001 totaled $22.3 million, a 47 percent decrease from the third quarter of 2000; operating income for the first nine months of 2001 declined 24 percent to $88.7 million.
Magazine Publishing
Revenue for the magazine publishing division totaled $101.5 million for the third quarter of 2001, a 6 percent increase from $95.9 million in 2000; division revenue decreased 6 percent to $277.6 million for the first nine months of 2001. Operating income totaled $9.4 million for the third quarter of 2001, a 106 percent increase from the same period in the prior year; operating income totaled $15.5 million for the first nine months of 2001, a decrease of 45 percent. The increase in operating income for the third quarter of 2001 is primarily attributable to a significant increase in newsstand circulation revenues on regular and special editions related to the September 11 terrorist attacks offset by a 21 percent decrease in advertising revenue at Newsweek due to fewer advertising pages at both the domestic and international editions.
Softness in domestic and international advertising pages at Newsweek, offset in part by increased newsstand sales, a higher pension credit and reduced operating expenses, accounted for most of the 45 percent decline in the operating results for the first nine months of 2001.
Cable Television
Cable division revenue of $98.7 million for the third quarter of 2001 represents a 9 percent increase over 2000 third quarter revenue; for the first nine months of 2001, revenue increased 7 percent to $284.3 million. Cable division cash flow (operating income excluding depreciation and amortization expense) totaled $35.2 million for the third quarter of 2001 compared with $35.3 million for the third quarter of 2000; cash flow decreased 5 percent to $99.3 for the first nine months of 2001. 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.
Cable division operating income declined 50 percent and 55 percent for the third quarter and nine month periods of 2001, respectively, versus the same periods of 2000. The decline in operating income is due mostly to higher depreciation and amortization expense, which increased by $7.8 million and $20.5 million for the third quarter and first nine months of 2001, respectively.
The increase in depreciation expense is due to capital spending, which is enabling the cable division 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 September 30, 2001, the cable division had approximately 172,000 digital cable subscribers, representing a 23 percent penetration of the subscriber base in the markets where digital services are offered. Digital services are currently offered in markets serving 90 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. Accordingly, management expects the benefits from these new services to show beginning in 2002 and thereafter.
At September 30, 2001, the cable division had 753,000 basic subscribers, compared to 735,700 at the end of September 2000. The increase in basic subscribers is largely due to a net gain in subscribers arising from cable system exchange and sale transactions completed in the first quarter of 2001.
Education
Excluding Quest Education (acquired in August 2000), education division revenue increased 16 percent to $90.3 million in the third quarter of 2001; the operating loss for the quarter improved from $7.7 million to $1.1 million. On the same basis of presentation, the division’s nine month revenue for 2001 grew 18 percent to $258.9 million and operating losses were reduced from $33.6 million to $26.6 million. A summary of operating results for the third quarter and first nine months of 2001 compared to 2000 is as follows (in thousands):
Third Quarter YTD
-------------------------- --------------------------
% Better % Better
2001 2000 (worse) 2001 2000 (worse)
--------- --------- ---- --------- --------- ----
Revenue
Test prep and
professional
training $ 71,489 $ 63,879 +12 $ 207,462 $ 181,122 +15
Quest post-
secondary
education(1) 36,894 21,634 +71 109,197 21,634 +405
New business
development
activities 18,776 13,915 +35 51,444 37,505 +37
--------- --------- ---- --------- --------- ----
$ 127,159 $ 99,428 +28 $ 368,103 $ 240,261 +53
========= ========= ==== ========= ========= ====
Operating
income (loss)
Test prep and
professional
training $ 12,523 $ 10,778 +16 $ 31,104 $ 20,191 +54
Quest post-
secondary
education(1) 3,669 2,216 +66 11,241 2,216 +407
New business
development
activities (2,752) (12,826) +79 (18,202) (37,273) +51
Kaplan
corporate
overhead (5,897) (2,421) (144) (14,807) (6,920) (114)
Other(2) (6,783) (4,415) (54) (30,330) (10,864) (179)
--------- --------- ---- --------- --------- ----
$ 760 $ (6,668) +111 $ (20,994) $ (32,650) +36
========= ========= ==== ========= ========= ====
(1) Quest was acquired in August 2000, therefore, 2000 results only
include 2 months of activity for the third quarter and
year-to-date.
(2) 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 the third quarter and first nine months of 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 development revenue is primarily attributable to Score!, with both increased enrollment from new learning centers opened (operated 147 centers at the end of the third quarter of 2001 versus 115 centers at the end of the same period in the prior year) 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 internal software 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 the third quarter and first nine months of 2001 compared to the same periods of 2000 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 the third quarter of 2001 was $5.5 million, compared to losses of $8.9 million for the third quarter of 2000. For the first nine months of 2001, the company’s equity in losses of affiliates totaled $24.6 million, compared to losses of $29.7 million for the same period of 2000. The company’s affiliate investments consist of a 42 percent interest in BrassRing, Inc., a 50 percent interest in the International Herald Tribune, and a 49 percent interest in Bowater Mersey Paper Company Limited.
BrassRing accounted for approximately $8.1 million and $30.6 million of the 2001 third quarter and first nine-month equity in losses of affiliates, respectively, compared to $9.8 million and $28.1 million in equity losses for the same periods of 2000.
Other Non-Operating (Expense) Income
The company recorded other non-operating expense, net, of $25.4 million for the third quarter of 2001, compared to non–operating income of $0.2 million for the third quarter of 2000. The 2001 non-operating expense includes investment write-downs of approximately $26 million to adjust several of the company’s investments to their estimated fair values.
For the first nine months of 2001, the company recorded non-operating income, net, of $272.7 million, compared to non-operating expense of $5.2 million for the same period of the prior year. 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-down of a non-operating parcel of land and certain investments to their estimated fair value.
For income tax purposes, a substantial component 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 $11.6 million for the third quarter of 2001, compared to $14.4 million for the same period of 2000; net interest expense totaled $38.1 million for the first nine months of 2001, versus $39.0 million in 2000. At September 30, 2001, the company had $971.1 million in borrowings outstanding at an average interest rate of 4.2 percent.
Provision for Income Taxes
The effective rate was 64.5 percent for the third quarter of 2001 compared to 45.5 percent for the same period of 2000 and 39.7 percent versus 43.9 percent for the 2001 and 2000 nine month periods, respectively. Excluding the effect of the cable gain transactions, the company’s effective tax rate approximated 64.5 percent and 47.8 percent for the third quarter and first nine months of 2001, respectively, with the increase in the rate due mostly to the decline in pretax income. The company anticipates that the overall effective tax rate for 2001 will be approximately 41 percent.
Earnings Per Share
The calculation of diluted earnings per share for the third quarter and first nine months of 2001 was based on 9,502,000 and 9,500,000 weighted average shares outstanding, respectively, compared to 9,463,000 and 9,459,000 for the third quarter and first nine months of 2000. The company made no significant repurchases of its stock during the first nine months of 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
(Unaudited)
(In thousands, except share and per share amounts)
Third Quarter Year-to-Date
---------------------------- -----------------------------
% %
2001 2000 Change 2001 2000 Change
----------- ----------- --- ----------- ----------- ---
Operating
revenues $ 595,516 $ 602,452 -1 $ 1,787,027 $ 1,740,764 3
Operating
expenses (493,730) (471,939) 5 (1,477,787) (1,358,363) 9
----------- ----------- ----------- -----------
Operating
income
before
depreciation
and
amortization 101,786 130,513 -22 309,240 382,401 -19
Depreciation (34,765) (30,019) 16 (105,264) (87,043) 21
Amortization (20,068) (15,937) 26 (57,185) (45,430) 26
----------- ----------- ----------- -----------
Operating
income 46,953 84,557 -44 146,791 249,928 -41
Equity in
losses of
affiliates,
net (5,535) (8,890) (24,636) (29,666)
Interest
income 226 228 1,597 726
Interest
expense (11,861) (14,617) (39,726) (39,757)
Other (expense)
income, net (25,365) 238 272,688 (5,169)
----------- ----------- ----------- -----------
Income before
income taxes 4,418 61,516 -93 356,714 176,062 103
Provision for
income taxes (2,850) (28,000) (141,600) (77,300)
----------- ----------- ----------- -----------
Net income 1,568 33,516 -95 215,114 98,762 118
Redeemable
preferred
stock
dividends (263) (263) (1,052) (1,026)
----------- ----------- ----------- -----------
Net income
available for
common
stock $ 1,305 $ 33,253 -96 $ 214,062 $ 97,736 119
=========== =========== =========== ===========
Basic
earnings per
share $ 0.14 $ 3.52 -96 $ 22.57 $ 10.35 118
=========== =========== =========== ===========
Diluted
earnings
per
share $ 0.14 $ 3.51 -96 $ 22.53 $ 10.33 118
=========== =========== =========== ===========
Basic
average
shares
outstanding 9,489,000 9,448,000 9,484,000 9,443,000
Diluted
average
shares
outstanding 9,502,000 9,463,000 9,500,000 9,459,000
THE WASHINGTON POST COMPANY
BUSINESS SEGMENT INFORMATION
(Unaudited)
(In thousands)
Third Quarter Year-to-Date
----------------------- ------------------------
2001 2000 % Change 2001 2000 % Change
---- ---- -------- ---- ---- --------
Operating
Revenues:
Newspaper
publishing $199,946 $227,634 -12 $630,965 $680,448 -7
Television
broadcasting 68,191 88,857 -23 226,046 257,017 -12
Magazine
publishing 101,546 95,911 6 277,610 296,225 -6
Cable
television 98,674 90,622 9 284,303 266,813 7
Education 127,159 99,428 28 368,103 240,261 53
-------- -------- ---------- ----------
$595,516 $602,452 -1 $1,787,027 $1,740,764 3
======== ======== ========== ==========
Operating
Expenses:
Newspaper
publishing $188,372 $192,640 -2 $569,984 $571,992 -
Television
broadcasting 45,862 46,951 -2 137,358 139,967 -2
Magazine
publishing 92,116 91,334 1 262,160 268,213 -2
Cable
television 90,637 74,699 21 263,185 220,161 20
Education 126,399 106,096 19 389,097 272,911 43
Corporate
office 5,177 6,175 -16 18,452 17,592 5
-------- -------- ---------- ----------
$548,563 $517,895 6 $1,640,236 $1,490,836 10
======== ======== ========== ==========
Operating
Income:
Newspaper
publishing $11,574 $34,994 -67 $60,981 $108,456 -44
Television
broadcasting 22,329 41,906 -47 88,688 117,050 -24
Magazine
publishing 9,430 4,577 106 15,450 28,012 -45
Cable
television 8,037 15,923 -50 21,118 46,652 -55
Education 760 (6,668) (a) (20,994) (32,650) 36
Corporate
office (5,177) (6,175) 16 (18,452) (17,592) -5
-------- -------- ---------- ----------
$46,953 $84,557 -44 $146,791 $249,928 -41
======== ======== ========== ==========
Depreciation:
Newspaper
publishing $8,911 $9,683 -8 $28,438 $28,739 -1
Television
broadcasting 2,933 3,335 -12 8,791 9,676 -9
Magazine
publishing 1,160 1,270 -9 3,597 3,847 -6
Cable
television 16,886 11,945 41 50,031 35,525 41
Education 4,875 3,786 29 14,407 9,256 56
-------- -------- ---------- ----------
$34,765 $30,019 16 $105,264 $87,043 21
======== ======== ========== ==========
Amortization:
Newspaper
publishing $691 $389 78 $1,885 $1,170 61
Television
broadcasting 3,534 3,534 - 10,601 10,601 -
Magazine
publishing 1,667 1,697 -2 5,002 5,091 -2
Cable
television 10,229 7,401 38 28,167 22,204 27
Education 3,947 2,916 35 11,530 6,364 81
-------- -------- ---------- ----------
$20,068 $15,937 26 $57,185 $45,430 26
======== ======== ========== ==========
(a) percentage not meaningful.
CONTACT:
The Washington Post Company, Washington
John B. Morse, Jr., 202/334-6662