Business Context and Reporting Period
This Form 10-Q covers The Washington Post Company for the quarterly period ended September 27, 1998, and the thirty-nine weeks ended on that date. The company operates in newspaper, broadcast, magazine, cable, and other business sectors. The filing notes that results are subject to seasonality, with advertising revenues typically higher in the second and fourth quarters.
Key Financial Metrics
| Metric | 13 Weeks Ended Sept 27, 1998 | 39 Weeks Ended Sept 27, 1998 |
|---|---|---|
| Operating Revenues | $509.3 million | $1,519.0 million |
| Income from Operations | $87.6 million | $269.4 million |
| Net Income | $81.8 million | $353.5 million |
| Diluted EPS | $8.05 | $34.79 |
| Cash and Equivalents | $4.5 million | $4.5 million (Ending Balance) |
| Short-term Borrowings | $380.5 million | $380.5 million (Outstanding) |
| Operating Cash Flow (39 weeks) | $112.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 6% in the third quarter and 6% for the first nine months compared to 1997. Advertising and circulation revenues each rose 3% in the quarter.
- Profitability: Net income increased 14% in the third quarter and 86% for the first nine months. However, excluding non-recurring gains, net income decreased 8% in the quarter and 8% for the nine-month period.
- Operating Income: Operating income declined 4% in the third quarter and 3% for the first nine months, primarily due to increased operating expenses (10% increase in the quarter) and higher depreciation/amortization.
- Costs: Total costs and expenses increased 9% in the quarter and 8% for the nine months. Increases were driven by newsprint costs, new media spending, and printing facility expansion.
Guidance, Outlook, and Unusual Items
Unusual Items and Non-Recurring Gains
Reported earnings were significantly boosted by non-operating gains:
- Cowles Media Disposition: A gain of approximately $162.8 million from the merger of Cowles Media and McClatchy (Q1 1998).
- Cable and Junglee Sales: Gains of $17.3 million from the sale of 14 cable systems and $14.3 million from the Junglee/Amazon.com merger (Q3 1998).
- Total Impact: Non-recurring gains totaled $193.7 million for the first nine months of 1998.
Management Commentary and Outlook
- Segment Performance: The Cable division saw an 18% revenue increase in the quarter due to acquisitions. The Newspaper division saw a 3% revenue increase driven by higher ad rates, though volume declined slightly. The Magazine division revenue decreased 3% due to one fewer special issue of Newsweek and a decline in automotive advertising.
- Year 2000 Readiness: The company estimates total compliance costs of $25 million. Approximately $5 million was expensed in the first nine months of 1998. Management does not believe the Y2K issue will have a material adverse effect on operations.
- Liquidity: The company utilized cash from the Cowles transaction to repay debt in Q1 but incurred short-term borrowings of $380.5 million by Q3 to fund acquisitions and capital expenditures. These are supported by a $500 million revolving credit facility.
Investor Verification Checklist
- Adjusted Earnings: Verify the company's core operating performance by excluding the $193.7 million in non-recurring gains, which inflated reported net income and EPS.
- Debt Levels: Confirm the sustainability of the $380.5 million in short-term borrowings and the reliance on the revolving credit facility.
- Advertising Trends: Monitor the impact of the automotive strike and economic conditions on advertising volume, particularly in the Newspaper and Broadcast divisions.
- Year 2000 Costs: Track the remaining $20 million in estimated Y2000 compliance costs and potential capital expenditures for system replacements.
- Acquisition Integration: Assess the performance of recent cable and educational services acquisitions (e.g., Kaplan, Dearborn Publishing) which drove revenue growth in "Other Businesses."