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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1150 15TH ST., N.W., WASHINGTON, D.C. 20071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
CODE: (202) 334-6000 SECURITIES REGISTERED
PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Class B Common Stock, par value New York Stock Exchange
$1.00 per share
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Company's voting stock held by non-affiliates
on February 28, 2001, based on the closing price for the Company's Class B
Common Stock on the New York Stock Exchange on such date: approximately
$2,954,000,000.
Shares of common stock outstanding at February 28, 2001:
Class A Common Stock - 1,722,250 shares
Class B Common Stock - 7,738,620 shares
Documents partially incorporated by reference:
Definitive Proxy Statement for the Company's 2001 Annual Meeting of
Stockholders (incorporated in Part III to the extent provided in
Items 10, 11, 12 and 13 hereof).
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PART I
ITEM 1. BUSINESS.
The principal business activities of The Washington Post Company (the
"Company") consist of newspaper publishing (principally The Washington Post),
television broadcasting (through the ownership and operation of six
network-affiliated stations), the ownership and operation of cable television
systems, magazine publishing (principally Newsweek magazine), and (through its
Kaplan subsidiary) the provision of educational services.
Information concerning the consolidated operating revenues, consolidated
income from operations and identifiable assets attributable to the principal
segments of the Company's business for the last three fiscal years is contained
in Note L to the Company's Consolidated Financial Statements appearing elsewhere
in this Annual Report on Form 10-K. (Revenues for each segment are shown in such
Note L net of intersegment sales, which did not exceed 0.1% of consolidated
operating revenues.)
During each of the last three years the Company's operations in
geographic areas outside the United States (consisting primarily of the
publication of the international editions of Newsweek) accounted for less than
5% of the Company's consolidated revenues and less than 2% of its consolidated
income from operations, and the identifiable assets attributable to such
operations represented less than 2% of the Company's consolidated assets.
NEWSPAPER PUBLISHING
THE WASHINGTON POST
The Washington Post is a morning and Sunday newspaper primarily
distributed by home delivery in the Washington, D.C. metropolitan area,
including large portions of Virginia and Maryland.
The following table shows the average paid daily (including Saturday)
and Sunday circulation of The Post for the twelve-month periods ended September
30 in each of the last five years, as reported by the Audit Bureau of
Circulations ("ABC") for the years 1996-1999 and as estimated by The Post for
the twelve-month period ended September 30, 2000 (for which period ABC had not
completed its audit as of the date of this report) from the semi-annual
publisher's statements submitted to ABC for the six-month periods ended March
31, 2000 and September 30, 2000:
AVERAGE PAID CIRCULATION
------------------------
DAILY SUNDAY
----- ------
1996................................ 800,295 1,129,519
1997................................ 784,199 1,109,344
1998................................ 774,414 1,095,091
1999................................ 775,005 1,085,060
2000................................ 778,714 1,076,135
A price increase for home-delivered copies of the daily and Sunday
newspaper went into effect on February 25, 2001, which raised the rate per
four-week period from $11.16 to $11.88. The rate charged to subscribers for
Sunday-only home-delivered copies of the newspaper for each four-week period has
been $6.00 since 1991. The newsstand price for the Sunday newspaper has been
$1.50 since 1992 and the newsstand price for the daily newspaper has been $0.25
since 1981.
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General advertising rates were increased by an average of 4.6% on
January 1, 2000, and by another 5.4% on January 1, 2001. Rates for most
categories of classified and retail advertising were increased by an average of
5.0% on February 1, 2000, and by an additional 4.0% on February 1, 2001.
The following table sets forth The Post's advertising inches (excluding
preprints) and number of preprints for the past five years:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Total Inches (in thousands) ....... 3,070 3,192 3,199 3,288 3,363
Full-Run Inches .............. 2,814 2,897 2,806 2,745 2,634
Part-Run Inches .............. 256 294 393 543 729
Preprints (in millions) ........... 1,445 1,549 1,650 1,647 1,602
The Post also publishes The Washington Post National Weekly Edition, a
tabloid which contains selected articles and features from The Washington Post
edited for a national audience. The National Weekly Edition has a basic
subscription price of $78 per year and is delivered by second class mail to
approximately 56,000 subscribers.
The Post has about 715 full-time editors, correspondents, reporters and
photographers on its staff, draws upon the news reporting facilities of the
major wire services and maintains correspondents in 22 news centers abroad and
in New York City; Los Angeles; San Francisco; Chicago; Miami; and Austin, Texas.
The Post also maintains correspondents in 12 local news bureaus.
WASHINGTONPOST.NEWSWEEK INTERACTIVE
Washingtonpost.Newsweek Interactive Company ("WPNI") develops news and
information products for electronic distribution. Since July 1996 this
subsidiary of the Company has produced washingtonpost.com, a World Wide Web site
that features the full editorial text of The Washington Post and most of The
Post's classified advertising as well as original content created by WPNI's
staff and content obtained from other sources. The washingtonpost.com site also
features comprehensive information about activities, groups and businesses in
the Washington, D.C. area, including an arts and entertainment section, an
online yellow pages directory, and a news section focusing on regional
technology businesses. This site is currently generating more than 115 million
page views per month and the Company believes (based on data from Media Metrix)
is among the top five national news sites on the Internet.
WPNI also produces the Newsweek Web site, which was launched in 1998 and
contains editorial content from the print edition of Newsweek as well as daily
news updates and analysis, photo galleries, Web guides and other features. In
addition, WPNI operates the Newsbytes News Network, a newswire service that
electronically distributes approximately 60 news stories a day about the
information technology, Internet, telecommunications and related industries to
newspapers, magazines, online services and other subscribers around the world.
WPNI holds a minority equity interest in Classified Ventures, Inc., a
company formed to compete in the business of providing nationwide classified
advertising databases on the Internet. The Classified Ventures databases cover
the product categories of automobiles, apartment rentals and real estate.
Listings for these databases come from various sources, including direct sales
and classified listings from the newspapers of participating companies. Links to
the Classified Ventures databases are included in the washingtonpost.com site.
In June 2000, WPNI, together with certain other business units of the
Company, signed an agreement with NBC News and MSNBC pursuant to which the
parties share certain news material and promotional resources. Among other
things, under this agreement the Newsweek Web site has become a feature on
MSNBC.com, and MSNBC.com is being provided access to certain content from The
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Washington Post. Similarly, washingtonpost.com is being provided access to
certain MSNBC.com multimedia content.
THE HERALD
The Company owns The Daily Herald Company, publisher of The Herald in
Everett, Washington, about 30 miles north of Seattle. The Herald is published
mornings seven days a week and is primarily distributed by home delivery in
Snohomish County. The Daily Herald Company also provides commercial printing
services and publishes six controlled-circulation weekly community newspapers
(collectively know as The Enterprise Newspapers) that are distributed in south
Snohomish and north King Counties.
The Herald's average paid circulation as reported to ABC for the twelve
months ended September 30, 2000, was 52,566 daily (including Saturday) and
60,800 Sunday. The aggregate average weekly circulation of The Enterprise
Newspapers during the twelve-month period ended December 31, 2000, was
approximately 71,000 copies.
The Herald and The Enterprise Newspapers together employ approximately
75 editors, reporters and photographers.
THE GAZETTE NEWSPAPERS
The Company's Gazette Newspapers, Inc. subsidiary publishes one
paid-circulation and 35 controlled-circulation weekly community newspapers
(collectively known as The Gazette Newspapers) in Montgomery and Frederick
Counties and parts of Prince George's, Carroll, Anne Arundel and Howard
Counties, Maryland. During 2000 The Gazette Newspapers had an aggregate average
weekly circulation of approximately 554,000 copies. This subsidiary also
produces 11 military newspapers (most of which are weekly) under agreements
where editorial material is supplied by local military bases; in 2000 these
newspapers had a combined average circulation of over 200,000 copies. The
Gazette Newspapers have approximately 125 editors, reporters and photographers
on their combined staffs. The Gazette Newspapers, Inc. also operates a
commercial printing business in Montgomery County, Maryland.
On February 28, 2001, The Gazette Newspapers, Inc. acquired eight
community newspapers that circulate in southern Prince George's County and in
Charles, St. Mary's and Calvert Counties, Maryland, two military newspapers that
serve military bases in southern Maryland, and a commercial printing business
located in Charles County, Maryland. The acquired community newspapers will be
operated by the Gazette as the Southern Maryland Newspapers and include three
twice-weekly paid-circulation newspapers with a combined circulation of over
50,000 copies, four controlled-circulation weekly newspapers with a combined
circulation of 60,000 copies, and one paid-circulation weekly newspaper with a
circulation of 6,000 copies. The Southern Maryland Newspapers have approximately
40 editors, reporters and photographers on their combined staffs.
GREATER WASHINGTON PUBLISHING
Greater Washington Publishing, Inc., another subsidiary of the Company,
publishes several free-circulation advertising periodicals which have little or
no editorial content and are distributed in the greater Washington, D.C.
metropolitan area using sidewalk distribution boxes. Greater Washington
Publishing's two largest periodicals are The Washington Post Apartment Showcase,
which is published monthly and has an average circulation of about 55,000
copies, and New Homes Guide, which is published six times a year and also has an
average circulation of about 55,000 copies.
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TELEVISION BROADCASTING
Through subsidiaries the Company owns six VHF television stations
located in Detroit, Michigan; Houston, Texas; Miami, Florida; Orlando, Florida;
San Antonio, Texas; and Jacksonville, Florida; which are respectively the 9th,
11th, 16th, 21st, 37th and 53rd largest broadcasting markets in the United
States. Each of the Company's stations is affiliated with a national network.
Although network affiliation agreements generally have limited terms, each of
the Company's television stations has maintained a network affiliation
continuously for at least 20 years.
The Company's 2000 net operating revenues from national and local
television advertising and network compensation were as follows:
National............................... $ 131,362,000
Local.................................. 203,022,000
Network................................ 28,886,000
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Total............................. $ 363,270,000
The following table sets forth certain information with respect to each
of the Company's television stations:
STATION LOCATION AND EXPIRATION EXPIRATION TOTAL COMMERCIAL
YEAR COMMERCIAL NATIONAL DATE OF DATE OF STATIONS IN DMA(b)
OPERATION MARKET NETWORK FCC NETWORK ------------------
COMMENCED RANKING(a) AFFILIATION LICENSE AGREEMENT ALLOCATED OPERATING
--------- ---------- ----------- ------- --------- --------- ---------
WDIV 9th NBC Oct. 1, June 30, VHF-4 VHF-4
Detroit, Mich. 2005 2004 UHF-6 UHF-5
1947
KPRC 11th NBC Aug. 1, June 30, VHF-3 VHF-3
Houston, Tx. 2006 2004 UHF-11 UHF-11
1949
WPLG 16th ABC Feb. 1, Dec. 31, VHF-5 VHF-5
Miami, Fla. 2005 2004 UHF-8 UHF-8
1961
WKMG 21st CBS Feb. 1, Apr. 6, VHF-3 VHF-3
Orlando, Fla. 2005 2005 UHF-11 UHF-10
1954
KSAT 37th ABC Aug. 1, Dec. 31, VHF-4 VHF-4
San Antonio, Tx. 2006 2004 UHF-6 UHF-6
1957
WJXT 53rd CBS Feb. 1, July 10, VHF-2 VHF-2
Jacksonville, Fla. 2005 2001 UHF-6 UHF-5
1947
- ------------------
(a) Source: 2000/2001 DMA Market Rankings, Nielsen Media Research, Fall
2000, based on television homes in DMA (see note (b) below).
(b) Designated Market Area ("DMA") is a market designation of A.C. Nielsen
which defines each television market exclusive of another, based on measured
viewing patterns.
REGULATION OF BROADCASTING AND RELATED MATTERS
The Company's television broadcasting operations are subject to the
jurisdiction of the Federal Communications Commission under the Communications
Act of 1934, as amended. Under authority of
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such Act the FCC, among other things, assigns frequency bands for broadcast and
other uses; issues, revokes, modifies and renews broadcasting licenses for
particular frequencies; determines the location and power of stations and
establishes areas to be served; regulates equipment used by stations; and adopts
and implements regulations and policies which directly or indirectly affect the
ownership, operations and profitability of broadcasting stations.
Each of the Company's television stations holds an FCC license which is
renewable upon application for an eight-year period.
In December 1996 the FCC formally approved technical standards for
digital advanced television ("DTV"). DTV is a flexible system that permits
broadcasters to utilize a single digital channel in various ways, including
providing one channel of high-definition television programming with greatly
enhanced image and sound quality or several channels of lower-definition
television programming ("multicasting"), and also is capable of accommodating
subscription video and data services. Broadcasters may offer a combination of
services, so long as they transmit at least one stream of free video programming
on the DTV channel. The FCC has assigned to each existing full-power television
station (including each station owned by the Company) a second channel to
implement DTV while present television operations are continued on that
station's existing channel. Although in some cases a station's DTV channel may
only permit operation over a smaller geographic service area than that available
using its existing channel, the FCC's stated goal in assigning channels was to
provide stations with DTV service areas that are generally consistent with their
existing service areas. The FCC's DTV rules also permit stations to request
modifications to their assigned DTV facilities, allowing them to expand their
DTV service areas if certain interference criteria are met. Under FCC rules and
the Balanced Budget Act of 1997, station owners will be required to surrender
one channel in 2006 and thereafter provide service solely in the DTV format,
assuming that specified DTV household penetration levels are met. In an order
issued in January 2001, the FCC has required most television stations (including
all of the Company's stations except WKMG) to elect by the end of 2003 which of
their two channels they will surrender at the end of the DTV transition period.
The Company's Detroit, Houston and Miami stations each commenced DTV
broadcast operations during 1999. The Company's Orlando station has requested a
waiver from the FCC permitting it to delay the commencement of DTV broadcast
operations until May 1, 2001. The deadline established by the FCC for the
Company's two other stations (San Antonio and Jacksonville) to begin DTV
broadcast operations is May 1, 2002.
In November 1998 the FCC issued a decision implementing the requirement
of the Telecommunications Act of 1996 that it charge broadcasters a fee for
offering certain "ancillary and supplementary" services on the DTV channel.
These services include data, video or other services that are offered on a
subscription basis or for which broadcasters receive compensation other than
from advertising revenue. In its decision, the FCC imposed a fee of 5% of the
gross revenues generated by such services. In rules adopted in April 2000, the
FCC also implemented the Community Broadcasters Act of 1999, which provides
interference protection to certain low-power television stations. These rules
provide several hundred low-power stations with the same protection from
interference enjoyed by full-power stations, with the result that it may be more
difficult for some existing full-power stations to alter their analog or DTV
transmission facilities. Separately, in January 2001 the FCC issued an order
governing the mandatory carriage of DTV signals by cable television operators.
The FCC decided that, pending further inquiry, only stations that broadcast in a
DTV-only mode would be entitled to mandatory carriage of their signals. In
defining how a DTV signal should be carried, the FCC ruled that only a single
stream of video (that is, a single channel of programming) together with any
additional "program-related" material is eligible for mandatory carriage. The
determination of what constitutes "program-related" material has not yet been
made. Cable operators will be required to
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carry the DTV signal of any DTV station eligible for mandatory carriage in the
same definition in which the signal was originally broadcast. However, until
this order is clarified it is unclear whether cable operators will be
responsible for ensuring that their set-top boxes are capable of passing DTV
signals in their full definition to the consumer's DTV receiver. In another
order issued in January 2001, the FCC limited the interference protection a DTV
station enjoys. As a result, DTV stations are now required to replicate their
analog service areas by the end of 2004 or forfeit interference protection for
any areas that they do not serve. The FCC also has issued a Notice of Inquiry
addressing the question of whether special public interest obligations should be
imposed on DTV operations. Specifically, the FCC asked whether it should require
broadcasters to provide free time for political candidates, increase the amount
of programming intended to meet the needs of minorities and women, and increase
communication with the public regarding programming decisions.
The FCC also is conducting proceedings dealing with such matters as
regulations pertaining to cable television (discussed below under "Cable
Television Division - Regulation of Cable Television and Related Matters"), and
various proposals affecting the development of alternative video delivery
systems that would compete in varying degrees with both cable television and
television broadcasting operations. In August 1999 the FCC amended its local
ownership rule to permit one company to own two television stations in the same
market if there are at least eight independently owned full-power television
stations in that market (counting the co-owned stations as one), and if at least
one of the co-owned stations is not among the top four ranked television
stations in that market. The FCC also decided to permit common ownership of
stations in a single market if their signals do not overlap, and to permit
common ownership of certain failing or unbuilt stations. These rule changes are
likely to increase the concentration of ownership in local markets. For example,
the Company's stations in Detroit, Miami, Orlando, San Antonio and Jacksonville
are now each competing against two-station combinations in their respective
markets. Separately, the rule governing the aggregate number of television
stations a single company can own was relaxed by amendments to the
Communications Act enacted in 1996, and broadcast companies are now permitted to
own an unlimited number of television stations as long as the combined service
areas of such stations do not include more than 35% of the U.S. population. The
broadcast networks are urging Congress and the FCC to raise or eliminate this
limit, but those efforts are opposed by others in the industry, including the
network affiliate associations and the National Association of Broadcasters.
The Company is unable to determine what impact the various rule changes
and other matters described in this section may ultimately have on the Company's
television broadcasting operations.
CABLE TELEVISION OPERATIONS
At the end of 2000 the Company (through its Cable One subsidiary)
provided basic cable service to approximately 735,000 subscribers (representing
about 69% of the 1,063,800 homes passed by the systems) and had in force more
than 416,000 subscriptions to premium program services.
During 2000 the Company purchased several small cable television systems
serving an aggregate of 8,500 subscribers.
On January 10, 2001, Cable One sold its Greenwood, Indiana cable system
to a joint venture in which AT&T has an interest. In a related transaction, on
March 1, 2001, Cable One transferred its Modesto and Santa Rosa, California
cable systems (which had been its two largest systems) together with an
undisclosed amount of cash to a unit of AT&T in return for AT&T cable systems
serving the communities of Boise, Idaho Falls, Twin Falls, Pocatello and
Lewistown, Idaho, and the community of Ontario, Oregon. These transactions had
the effect of increasing by approximately 26,000 the number of subscribers being
served by the Company's cable systems.
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The Company's cable systems are located in 19 Midwestern, Southern and
Western states and typically serve smaller communities: thus 19 of the Company's
current systems pass fewer than 10,000 dwelling units, 16 pass 10,000-25,000
dwelling units, and 19 pass more than 25,000 dwelling units, of which the
largest is Boise, Idaho with 65,000 subscribers. The largest cluster of systems
(which together serve about 95,000 subscribers) is located on the Gulf Coast of
Mississippi.
REGULATION OF CABLE TELEVISION AND RELATED MATTERS
The Company's cable operations are subject to various requirements
imposed by local, state and federal governmental authorities. The franchises
granted by local governmental authorities are typically nonexclusive and limited
in time and generally contain various conditions and limitations relating to
payment of fees to the local authority, determined generally as a percentage of
revenues. Additionally, franchises often regulate the conditions of service and
technical performance, and contain various types of restrictions on
transferability. Failure to comply with such conditions and limitations may give
rise to rights of termination by the franchising authority.
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") requires or authorizes the imposition of a wide range of
regulations on cable television operations. The three major areas of regulation
are (i) the rates charged for certain cable television services, (ii) required
carriage ("must carry") of some local broadcast stations, and (iii)
retransmission consent rights for commercial broadcast stations.
Among other things, the Telecommunications Act of 1996 altered the
preexisting regulatory environment by expanding the definition of "effective
competition" (a condition that precludes any regulation of the rates charged by
a cable system), terminating rate regulation for some small cable systems, and
sunsetting the FCC's authority to regulate the rates charged for optional tiers
of service (which authority expired on March 31, 1999). For cable systems that
do not fall within the effective-competition or small-system exemptions
(including all of the cable systems owned by the Company), monthly subscription
rates for the basic tier of cable service (i.e., the tier that includes the
signals of local over-the-air stations and any public, educational or
governmental channels required to be carried under the applicable franchise
agreement), as well as rates charged for equipment rentals and service calls,
may be regulated by municipalities, subject to procedures and criteria
established by the FCC. Rates charged by cable television systems for
pay-per-view service, for per-channel premium program services and for
advertising are all exempt from regulation.
In April 1993 the FCC adopted a "freeze" on rate increases for regulated
services (i.e., the basic and, prior to March 1999, optional tiers). Later that
year the FCC promulgated benchmarks for determining the reasonableness of rates
for such services. The benchmarks provided for a percentage reduction in the
rates that were in effect when the benchmarks were announced. Pursuant to the
FCC's rules, cable operators can increase their benchmarked rates for regulated
services to offset the effects of inflation, equipment upgrades, and higher
programming, franchising and regulatory fees. Under the FCC's approach cable
operators may exceed their benchmarked rates if they can show in a
cost-of-service proceeding that higher rates are needed to earn a reasonable
return on investment, which the Commission established in March 1994 to be
11.25%. The FCC's rules also permit franchising authorities to regulate
equipment rentals and service and installation rates on the basis of a cable
operator's actual costs plus an allowable profit which is calculated from the
operator's net investment, income tax rate and other factors.
Pursuant to the "must-carry" requirements of the 1992 Cable Act, a
commercial television broadcast station may, under certain circumstances, insist
on carriage of its signal on cable systems located within the station's market
area, while a noncommercial public station may insist on carriage of its signal
on cable systems located within either the station's predicted Grade B signal
contour or 50
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miles of the station's transmitter. As a result of these obligations (the
constitutionality of which has been upheld by the U.S. Supreme Court), certain
of the Company's cable systems have had to carry broadcast stations that they
might not otherwise have elected to carry, and the freedom the Company's systems
would otherwise have to drop signals previously carried has been reduced.
At three-year intervals beginning in October 1993 commercial
broadcasters have had the right to forego must-carry rights and insist instead
that their signals not be carried without their prior consent. Before October
1993 some of the broadcast stations carried by the Company's cable television
systems opted for retransmission consent and initially took the position that
they would not grant consent without commitments by the Company's systems to
make cash payments. As a result of case-by-case negotiations, the Company's
cable systems were able to continue carrying virtually all of the stations
insisting on retransmission consent without having to agree to pay any stations
for the privilege of carrying their signals. However some commitments were made
to carry other program services offered by a station or an affiliated company,
to provide advertising availabilities on cable for sale by a station and to
distribute promotional announcements with respect to a station. Many of these
agreements between broadcast stations and the Company's cable systems expired at
the end of 1999 and the expired agreements were replaced by new agreements
having comparable terms.
As noted in the discussion above under "Television Broadcasting -
Regulation of Broadcasting and Related Matters," in January 2001 the FCC
determined that, pending further inquiry, only television stations broadcasting
in a DTV-only mode could require local cable systems to carry their DTV signals.
The FCC currently is conducting another inquiry to decide whether it should
require cable systems to carry both the analog and the DTV signals of local
television stations. Such an extension of must-carry requirements could result
in the Company's cable systems being required to delete some existing
programming to make room for broadcasters' DTV channels.
Various other provisions in current federal law may significantly affect
the costs or profits of cable television systems. These matters include a
prohibition on exclusive franchises, restrictions on the ownership of competing
video delivery services, restrictions on transfers of cable television
ownership, a variety of consumer protection measures, and various regulations
intended to facilitate the development of competing video delivery services.
Other provisions benefit the owners of cable systems by restricting regulation
of cable television in many significant respects, requiring that franchises be
granted for reasonable periods of time, providing various remedies and
safeguards to protect cable operators against arbitrary refusals to renew
franchises, and limiting franchise fees to 5% of revenues.
Apart from its authority under the 1992 Cable Act and the
Telecommunications Act of 1996, the FCC regulates various other aspects of cable
television operations. Since 1990 cable systems have been required to black out
from the distant broadcast stations they carry syndicated programs for which
local stations have purchased exclusive rights and requested exclusivity. Other
long-standing FCC rules require cable systems to delete under certain
circumstances duplicative network programs broadcast by distant stations. The
FCC also imposes certain technical standards on cable television operators,
exercises the power to license various microwave and other radio facilities
frequently used in cable television operations, and regulates the assignment and
transfer of control of such licenses. In addition, pursuant to the Pole
Attachment Act, the FCC exercises authority to disapprove unreasonable rates
charged to cable operators by telephone and power utilities for utilizing space
on utility poles or in underground conduits. Some cable operators (including the
Company's Cable One subsidiary) are using the right of access granted by the
Pole Attachment Act to provide not only television programming but also data
services such as Internet access over the same cables. In April 2000, the U.S.
Court of Appeals for the Eleventh Circuit ruled that cable provision of Internet
access is outside the scope of the FCC's pole attachment regulations, and thus
utilities may impose a surcharge for pole
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or conduit access by cable companies that provide data services as well as
television service. In January 2001, the U.S. Supreme Court agreed to hear an
appeal of the Eleventh Circuit's decision brought by cable operators and the
FCC.
The Copyright Act of 1976 grants to cable television systems, under
certain terms and conditions, the right to retransmit the signals of television
stations pursuant to a compulsory copyright license. Those terms and conditions
include the payment of certain license fees set forth in the statute or
established by subsequent administrative regulations. The compulsory license
fees have been increased on several occasions since this Act went into effect.
In 1994 the availability of the compulsory copyright license was extended to
"wireless cable" and direct broadcast satellite ("DBS") operators, although in
the latter case the license right was limited to stations whose over-the-air
signal was not available at the subscriber's location. However, in November 1999
Congress enacted the Satellite Home Viewer Improvement Act which extends the
compulsory copyright license to DBS operators who wish to distribute the signals
of local television stations to satellite subscribers in the markets served by
such stations. This Act continued the other restrictions contained in the
original compulsory license for DBS operators, which permit the signal of a
distant network-affiliated station to be distributed only in areas where
subscribers cannot receive an over-the-air signal of another station affiliated
with the same network.
The general prohibition on telephone companies operating cable systems
in areas where they provide local telephone service was eliminated by the
Telecommunications Act of 1996. Telephone companies now can provide video
services in their telephone service areas under four different regulatory plans.
First, they can provide traditional cable television service and be subject to
the same regulations as the Company's cable television systems (including
compliance with local franchise and any other local or state regulatory
requirements). Second, they can provide "wireless cable" service, which is
described below, and not be subject to either cable regulations or franchise
requirements. Third, they can provide video services on a common-carrier basis,
under which they would not be required to obtain local franchises but would be
subject to common-carrier regulation (including a prohibition against exercising
control over programming content). Finally, they can operate so-called "open
video systems" without local franchises (although local communities can choose
to require a franchise) and be subject to reduced regulatory burdens. The Act
contains detailed requirements governing the operation of open video systems,
including the nondiscriminatory offering of capacity to third parties and
limiting to one-third of total system capacity the number of channels the
operator can program when demand exceeds available capacity. In addition, the
rates charged by an open video system operator to a third party for the carriage
of video programming must be just and reasonable as determined in accordance
with standards established by the FCC. (Cable operators and others not
affiliated with a telephone company may also become operators of open video
systems.) The Act also generally prohibits telephone companies from acquiring or
owning an interest in existing cable systems operating in their service areas.
The Telecommunications Act of 1996 balances this grant of video
authority to telephone companies by removing regulatory barriers to the offering
of telephone services by cable companies and others. The Act preempts state and
local laws that have barred local telephone competition in some states. In
addition, the Act requires local telephone companies to permit cable companies
and other competitors to connect with the telephone network and requires
telephone companies to give competitors access to the essential features and
functionalities of the local telephone network (such as switching capability,
signal carriage from the subscriber's residence to the switching center, and
directory assistance) on an unbundled basis. As an alternative method of
providing local telephone service, the Act permits cable companies and others to
purchase telephone service on a wholesale basis and then resell it to their
subscribers.
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At various times during the last decade, the FCC adopted rule changes
intended to facilitate the development of so-called "wireless cable," a video
service that is capable of distributing approximately 30 television channels in
a local area by over-the-air microwave transmission using analog technology and
a greater number of channels using digital compression technologies. In late
1998 the FCC began issuing licenses for a new digital wireless cable service
which will utilize up to 1,300 megahertz of spectrum in the 28 and 31 gigahertz
bands and is intended to provide large numbers of video channels as well as a
variety of other services (including two-way telephony and Internet access).
In November 2000, the FCC approved the use of spectrum in the 12.2-12.7
gigahertz band (the same band used by DBS operators) to provide a new land-based
interactive video and data delivery service which is known as the Multichannel
Video Distribution and Data Service ("MVDDS"). MVDDS providers will use
"reharvested" DBS spectrum to transmit programming on a no-harmful interference
basis using terrestrial microwave transmitters. (While DBS subscribers point
their dishes south to pick up their provider's signal, MVDDS customers will aim
their dishes north.) The Commission's order creating MVDDS did not grant any
licenses to operate MVDDS systems. Instead, it requested comment on service,
technical and licensing rules for the technology. Comments and reply comments to
the FCC's order are due in March 2001. MVDDS providers, like providers of other
forms of wireless cable, will not be required to obtain franchises from local
governmental authorities and generally will operate under fewer regulatory
requirements than conventional cable systems.
In October 1999 the FCC amended its cable ownership rule, which governs
the number of subscribers an owner of cable systems may reach on a national
basis. Before revision, this rule provided that a single company could not serve
more than 30% of potential cable subscribers (or "homes passed" by cable)
nationwide. The revised rule allowed a cable operator to provide service to 30%
of all actual subscribers to cable, satellite and other competing services
nationwide, rather than to 30% of homes passed by cable. This revision had the
effect of increasing the number of communities that could be served by a single
cable operator and may have resulted in more consolidation in the cable
industry. In March 2001 the U.S. Court of Appeals for the D.C. Circuit voided
the FCC's revised rule on constitutional and procedural grounds and remanded the
matter to the FCC for further proceedings. If the FCC adopts a new rule with a
higher percentage of nationwide subscribers a single cable operator is permitted
to serve, that action could lead to even greater consolidation in the industry.
The FCC also has opened a proceeding to determine whether cable
operators must provide third parties with nondiscriminatory access to the
operators' cable systems for the purpose of providing Internet access or whether
cable operators are free to offer Internet access only through a service
provider selected by the cable operator. The Company's Cable One subsidiary
currently serves as the Internet service provider on a number of its cable
systems. Thus, depending on the outcome, this proceeding has the potential to
interfere with the Company's ability to use its cable systems to deliver
Internet access on a profitable basis. In addition, several local franchising
authorities have attempted to require cable systems to provide open access to
multiple Internet service providers. Court challenges to such requirements have
thus far been successful with the courts holding that local governments lack
authority to mandate open access because the provision of Internet service is
not a cable service as that term is used in applicable federal law.
Litigation also is pending in various courts in which various franchise
requirements are being challenged as unlawful under the First Amendment, the
Communications Act, the antitrust laws and on other grounds. One of the issues
raised in these cases is whether local franchising authorities have the power to
regulate the provision of Internet access by cable systems. Depending on the
outcomes, such litigation could facilitate the development of duplicative cable
facilities that would compete with existing cable systems, enable cable
operators to offer certain services outside of cable regulation or otherwise
materially affect cable television operations.
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The regulation of certain cable television rates pursuant to the
authority granted to the FCC has negatively impacted the revenues of the
Company's cable systems. The Company is unable to predict what effect the other
matters discussed above may ultimately have on its cable television business.
MAGAZINE PUBLISHING
NEWSWEEK
Newsweek is a weekly news magazine published both domestically and
internationally by Newsweek, Inc., a subsidiary of the Company. In gathering,
reporting and writing news and other material for publication, Newsweek
maintains news bureaus in 9 U.S. and 13 foreign cities.
The domestic edition of Newsweek is comprised of over 100 different
geographic or demographic editions which carry substantially identical news and
feature material but enable advertisers to direct messages to specific market
areas or demographic groups. Domestically, Newsweek ranks second in circulation
among the three leading weekly news magazines (Newsweek, Time and U.S. News &
World Report). For each of the last five years Newsweek's average weekly
domestic circulation rate base has been 3,100,000 copies. From 1996 through 1999
Newsweek's percentage of the total weekly domestic circulation rate base of the
three leading weekly news magazines was 33.5%. In 2000 that percentage increased
to 34.0%.
Newsweek is sold on newsstands and through subscription mail order sales
derived from a number of sources, principally direct mail promotion. The basic
one-year subscription price is $41.08. Most subscriptions are sold at a discount
from the basic price. In April 1999, Newsweek's newsstand price was increased
from $2.95 per copy (which price had been in effect since 1992) to $3.50 per
copy.
The total number of Newsweek's domestic advertising pages and gross
domestic advertising revenues as reported by Publishers' Information Bureau,
Inc., together with Newsweek's percentages of the total number of advertising
pages and total advertising revenues of the three leading weekly news magazines,
for the past five years have been as follows:
PERCENTAGE OF NEWSWEEK
NEWSWEEK THREE LEADING GROSS PERCENTAGE OF
ADVERTISING NEWS ADVERTISING THREE LEADING
PAGES* MAGAZINES REVENUES* NEWS MAGAZINES
------ --------- --------- --------------
1996....................... 2,520 36.6% $ 381,621,000 37.0%
1997....................... 2,633 35.4% 406,324,000 35.1%
1998....................... 2,472 34.4% 393,168,000 33.8%
1999....................... 2,567 33.5% 432,701,000 32.8%
2000....................... 2,383 33.8% 433,932,000 34.2%
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* Advertising pages and gross advertising revenues are those reported by
Publishers' Information Bureau, Inc. PIB computes gross advertising revenues
from basic one-time rates and the number of advertising pages carried. PIB
figures therefore materially exceed actual gross advertising revenues, which
reflect lower rates for multiple insertions. Net revenues as reported in the
Company's Consolidated Statements of Income also exclude agency fees and cash
discounts, which are included in the gross advertising revenues shown above.
Page and revenue figures exclude affiliated advertising.
Newsweek's advertising rates are based on its average weekly circulation
rate base and are competitive with the other weekly news magazines. Effective
with the January 10, 2000 issue, national advertising rates were increased by an
average of 4.0%. Beginning with the issue dated January 8, 2001, national
advertising rates were increased again, also by an average of 4.0%.
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Newsweek Business Plus, which is published 39 times a year, is a
demographic edition of Newsweek distributed to high-income professional and
managerial subscribers and subscribers in zip-code-defined areas. Advertising
rates for this edition were increased an average of 4.0% in January 2000 and by
an additional 4.0% in January 2001. The circulation rate base for this edition
is 1,200,000 copies.
Newsweek's other demographic edition, Newsweek Woman, which was
published 12 times during 2000, has a circulation rate base of 800,000 selected
female subscribers. At the beginning of 2000 advertising rates for this edition
were increased by an average of 4.0%, with an additional average increase of
4.0% instituted early in 2001.
Internationally, Newsweek is published in an Atlantic edition covering,
Europe, the Middle East and Africa, a Pacific edition covering Japan, Korea and
south Asia, and a Latin American edition, all of which are in the English
language. Editorial copy solely of domestic interest is eliminated in the
international editions and is replaced by other international, business or
national coverage primarily of interest abroad.
Since 1984 a section of Newsweek articles has been included in The
Bulletin, an Australian weekly news magazine which also circulates in New
Zealand. A Japanese-language edition of Newsweek, Newsweek Nihon Ban, has been
published in Tokyo since 1986 pursuant to an arrangement with a Japanese
publishing company which translates editorial copy, sells advertising in Japan
and prints and distributes the edition. Newsweek Hankuk Pan, a Korean-language
edition of Newsweek, began publication in 1991 pursuant to a similar arrangement
with a Korean publishing company. Since 1996 Newsweek en Espanol, a
Spanish-language edition of Newsweek distributed in Latin America, has been
published under an agreement with a Miami-based publishing company which
translates editorial copy, prints and distributes the edition and jointly sells
advertising with Newsweek. In June 2000, Newsweek Bil Logha Al-Arabia, an
Arabic-language edition of Newsweek, was launched under a similar arrangement
with a Kuwaiti publishing company. Also, a Russian-language newsweekly modeled
after Newsweek has been published since 1996 pursuant to licensing and advisory
agreements entered into by Newsweek with a Russian publishing and broadcasting
company. This magazine includes selected stories translated from Newsweek's
various U.S. and foreign editions and is called Itogi (which means "summing-up"
in Russian).
The average weekly circulation rate base, advertising pages and gross
advertising revenues of Newsweek's international editions (not including The
Bulletin insertions or the foreign-language editions of Newsweek) for the past
five years have been as follows:
AVERAGE WEEKLY GROSS
CIRCULATION ADVERTISING ADVERTISING
RATE BASE PAGES* REVENUES*
--------- ------ ---------
1996....................... 642,000 2,446 $ 92,638,000
1997....................... 657,000 2,287 89,330,000
1998....................... 660,000 2,120 83,051,000
1999....................... 660,000 2,492 90,023,000
2000....................... 663,000 2,606 104,868,000
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* Advertising pages and gross advertising revenues are those reported by
CMR International. CMR computes gross advertising revenues from basic one-time
rates and the number of advertising pages carried. CMR figures therefore
materially exceed actual gross advertising revenues, which reflect lower rates
for multiple insertions. Net revenues as reported in the Company's Consolidated
Statements of Income also exclude agency fees and cash discounts, which are
included in the gross advertising revenues shown above. Page and revenue figures
exclude affiliated advertising.
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For 2001 the average weekly circulation rate base for Newsweek's
English-language international editions (not including The Bulletin insertions)
will be 666,000 copies. Newsweek's rate card estimates the average weekly
circulation in 2001 for The Bulletin insertions will be 85,000 copies and for
the Japanese-, Korean-, Russian-, Arabic- and Spanish-language editions will be
130,000, 90,000, 85,000, 30,000, and 52,500 copies, respectively.
In June 2000 the online version of Newsweek, which includes stories from
Newsweek's print edition as well as other material, became a co-branded feature
on the MSNBC.com Web site. This feature is being produced by
Washingtonpost.Newsweek Interactive Company, another subsidiary of the Company.
In December 1999 Newsweek purchased Arthur Frommer's Budget Travel
magazine and related assets (including a monthly newsletter). Launched in early
1998 as a quarterly, this magazine is now published six times a year and has a
current circulation of 400,000 copies. Budget Travel is headquartered in New
York City and has its own editorial staff.
In August 1996 the United States Food and Drug Administration issued
final rules designed to restrict the marketing of tobacco products to minors.
These rules, which among other things would have limited advertising for tobacco
products in print publications whose youth readership exceeds certain levels to
black and white, text-only "tombstone" ads, were invalidated in a series of
federal court rulings culminating in a March 2000 decision of the United States
Supreme Court that the FDA has no jurisdiction to regulate tobacco products.
During recent years Congress has also considered a range of proposals related to
the marketing of tobacco products. The Company cannot now predict what actions
may eventually be taken to restrict tobacco advertising. However such
advertising accounts for less than 1% of Newsweek's operating revenues and
negligible revenues at The Washington Post and the Company's other publications.
Moreover, federal law has prohibited the carrying of advertisements for
cigarettes and smokeless tobacco by commercial radio and television stations for
many years. Thus the Company believes that any restrictions on tobacco
advertising which may eventually be put into effect would not have a material
adverse effect on Newsweek or on any of the Company's other business operations.
POST NEWSWEEK TECH MEDIA GROUP
Post Newsweek Tech Media Group, Inc. ("TMG"), another subsidiary of the
Company, publishes controlled-circulation trade periodicals and produces trade
shows and conferences for the information technology industry.
TMG (which was formerly named Post-Newsweek Business Information, Inc.)
publishes Washington Technology, a biweekly tabloid newspaper for government
information technology systems integrators, Government Computer News, a tabloid
newspaper published 30 times per year serving government managers who buy
information technology products and services, GCN State & Local, a monthly
tabloid newspaper for state and local information technology buyers, and GCN
Shopper, a tabloid newspaper published four times per year providing information
technology product reviews and other buying information for government managers.
Washington Technology, Computer Government News, GCN State & Local, and GCN
Shopper have circulations of about 40,000, 87,000, 55,000, and 120,000 copies,
respectively.
TMG's other publications are Washington Techway, a biweekly news
magazine with a circulation of 30,000 copies that addresses the needs of the
private-sector technology business community in the Washington region, and the
Technology Almanac, an annual directory of technology industry executives.
Washington Techway also sponsors the annual Greater Washington High Technology
Awards Banquet, which is held each spring in Washington, D.C. for over 1,200
technology
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executives. Together with The Washington Post and WPNI, TMG contributes to the
washtech.com Web site which serves the Washington Techway community online.
TMG also produces the FOSE trade show, which is held each spring in
Washington, D.C. for information technology decision makers in government and
industry.
EDUCATION
Kaplan, Inc., a subsidiary of the Company, provides an extensive range
of educational services for children, students and professionals. Kaplan's
historical focus on test preparation has been expanded as new educational and
career services businesses have been acquired or initiated.
Through its Test Preparation and Admissions Division, Kaplan prepares
students for a broad range of admissions and licensing examinations including
the SAT's, LSAT's, GMAT's, MCAT's, GRE's, and nursing and medical boards. This
business can be subdivided into four categories: K-12 (serving primarily high
school students preparing for the SAT's and ACT's); Graduate (serving college
students and professionals, primarily with preparation for admission tests to
graduate, medical and law schools); Medical (serving medical professionals
preparing for licensing exams); and English Language Training (serving foreign
students and professionals wishing to study or work in the U.S.). During 2000
this division of Kaplan enrolled over 158,000 students and provided courses at
160 permanent centers located throughout the United States and in Canada, Puerto
Rico and London. Since the fall of 1999, Kaplan's test preparation and
admissions courses have been available to students via the Internet at
kaptest.com. In addition, Kaplan licenses material for certain of these courses
to third parties who during 2000 offered such courses at 36 centers located in
15 countries.
The Test Preparation and Admissions Division also includes Kaplan's
publishing activities. Kaplan currently co-publishes over 130 book titles,
predominately in the areas of test preparation, admissions, career guidance and
life skills, through a joint venture with Simon & Schuster, and also develops
educational software for the K through 12 and graduate markets which is sold
through arrangements with a third party who is responsible for production and
distribution. Kaplan also produces a college newsstand guide in conjunction with
Newsweek.
Kaplan's Professional Division offers licensing, continuing education,
certification and professional development services for corporations and for
individuals seeking to advance their careers. This division includes Dearborn
Publishing, a provider of pre-licensing training and continuing education for
securities, insurance and real estate professionals; Perfect Access Speer, a
provider of software education and consulting services to law firms and
businesses; Schweser's Study Program, a provider of materials aimed at preparing
individuals for the Chartered Financial Analyst examination; and Self Test
Software, a provider of preparation services for software proficiency
certification examinations.
Kaplan's Score Learning Division offers computer-based learning and
individualized tutoring for children, as well as educational resources for
parents, through three businesses. In 2000, the center-based business, which
provides educational after-school enrichment services, opened 46 new centers
(bringing the total number of Score centers to 142) and served nearly 50,000
students, up from 40,000 students in 1999. Score's center-based services are
provided in facilities separate from Kaplan's test preparation centers due to
differing configuration and equipment requirements. Score Prep serves high
school students with one-on-one, in-home tutoring for standardized tests and
academic subjects. eScore.com, which began operations in early 2000, offers
parenting and educational resources online to help parents provide learning
opportunities for their children.
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The Kaplan Colleges unit of Kaplan consists of three institutions
specializing in distance education: Kaplan College, The College for Professional
Studies, and Concord University School of Law. Kaplan College offers various
bachelor degree, associate degree and certificate programs, principally in the
fields of business and information technology, and is accredited by the
Commission on Institutions of Higher Education of the North Central Association
of Colleges and Schools. Some of Kaplan College's courses are offered online
while others are offered in a traditional classroom format. The College for
Professional Studies offers bachelor and associate degree and diploma
correspondence programs in the fields of legal nurse consulting, paralegal
studies and criminal justice, and is accredited by the Accreditation Commission
of the Distance Education and Training Council ("DETC"). The College for
Professional Studies had over 8,000 students enrolled at year-end 2000. Concord
University School of Law, the nation's first online law school, offers juris
doctor degrees wholly online. At year-end 2000, approximately 600 students were
enrolled at Concord. Concord is accredited by DETC and has received operating
approval from the California Bureau of Private Post-Secondary and Vocational
Education. Concord also has complied with the registration requirements of the
State Bar of California; graduates are, therefore, able to apply for admission
to the California Bar.
On August 1, 2000, Kaplan acquired all the outstanding stock of Quest
Education Corporation. Quest, which is continuing operations as a subsidiary of
Kaplan, offers a variety of bachelor degree, associate degree and diploma
programs in the fields of healthcare, business, information technology, and
fashion and design. Quest currently operates 34 schools (including Kaplan
College) which are located in 13 states. Quest was serving over 12,800 students
at year-end 2000, approximately 52% of whom were enrolled in accredited bachelor
or associate degree programs.
Kaplan also owns a 41.6% equity interest in BrassRing Inc., an
Internet-based career-assistance and hiring management company. The other
shareholders of BrassRing are the Tribune Company with a 27.5% interest, Gannett
Co., Inc. with a 23.2% interest, and the venture capital firm Accel Partners
with a 7.7% interest.
TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS
Prior to the acquisition of Quest Education Corporation, none of
Kaplan's educational offerings were eligible to participate in any of the
student financial assistance programs that have been created under Title IV of
the Higher Education Act of 1965, as amended. However funds provided under Title
IV programs historically have been responsible for a majority of Quest's net
revenues (accounting, for example, for about $82 million of Quest's $115 million
in net revenues for the 12-month period ended March 31, 2000), and the
significant role of Title IV funding in Quest's operations is expected to
continue. All Quest schools are currently eligible to participate in Title IV
programs, although certain schools have chosen not to participate in one or more
programs that otherwise would be available under Title IV.
To maintain Title IV eligibility a school must comply with extensive
statutory and regulatory requirements relating to its financial aid management,
educational programs, financial strength, recruiting practices and various other
matters. Among other things, the school must be authorized to offer its
educational programs by the appropriate governmental body in the state in which
it operates, be accredited by an accrediting agency recognized by the U.S.
Department of Education (the "Department of Education"), and enter into a
program participation agreement with the Department of Education.
A school may lose its eligibility to participate in Title IV programs if
student defaults on the repayment of Title IV loans exceed specified default
rates (referred to as "cohort default rates"). A school whose cohort default
rate exceeds 40% for any single year may have its eligibility to participate in
Title IV programs limited, suspended or terminated at the discretion of the
Department of Education.
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A school whose cohort default rate equals or exceeds 25% for three consecutive
years will automatically lose its Title IV eligibility for at least two years
unless the school can demonstrate exceptional circumstances justifying its
continued eligibility. In addition, a for-profit postsecondary institution, like
each of the Quest schools, will lose its Title IV eligibility for at least one
year if more than 90% of the institution's cash receipts for any fiscal year are
derived from Title IV programs.
No proceeding is pending to fine any Quest school for a failure to
comply with any Title IV requirement, or to limit, suspend or terminate the
Title IV eligibility of any Quest school. However no assurance can be given that
the Quest schools will maintain their Title IV eligibility in the future or that
the Department of Education might not successfully assert that one or more of
such schools have previously failed to comply with Title IV requirements. Most
Quest schools are considered separately for the purpose of determining
compliance with Title IV requirements. Thus if the Department of Education were
to find that one or more Quest schools had failed to comply with any applicable
Title IV requirement and as a result suspended or terminated the Title IV
eligibility of those schools, that action normally would not affect the Title IV
eligibility of other Quest schools that had continued to comply with Title IV
requirements.
As a general matter, schools participating in Title IV programs are not
financially responsible for the failure of their students to repay Title IV
loans. However the Department of Education may fine a school for a failure to
comply with Title IV requirements and may even require a school to repay Title
IV program funds if it finds that such funds have been administered improperly.
Pursuant to Title IV program regulations, a school that undergoes a
change in control must be reviewed and recertified by the Department of
Education. In the interim, such a school may be certified on a provisional basis
which permits the school to continue participating in Title IV programs but
provides fewer procedural protections if the Department of Education asserts a
material violation of Title IV requirements. As a result of Kaplan's acquisition
of Quest, all of the schools owned by Quest at that time have been provisionally
certified by the Department of Education for a term expiring in June 2004;
Kaplan will be eligible to apply for full certification for such schools in the
spring of 2004.
Several Title IV programs are subject to periodic legislative review and
reauthorization. In addition, the availability of funding for each Title IV
program is wholly contingent upon the outcome of the annual federal
appropriations process.
Whether as a result of changes in the laws and regulations governing
Title IV programs, a reduction in Title IV program funding levels, or a failure
of the Quest schools to maintain eligibility to participate in Title IV
programs, a material reduction in the amount of Title IV financial assistance
available to Quest students would have a significant negative impact on Kaplan's
operating results.
OTHER ACTIVITIES
INTERNATIONAL HERALD TRIBUNE
The Company beneficially owns 50% of the outstanding common stock of the
International Herald Tribune, S.A.S., a French company which publishes the
International Herald Tribune in Paris, France. This English-language newspaper
has an average daily paid circulation of almost 240,000 copies and is
distributed in over 180 countries.
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PRODUCTION AND RAW MATERIALS
Early in 1999 the Company completed a $230 million capital investment
program consisting of the expansion of The Washington Post's printing plant in
Fairfax County, Virginia, the construction of a new printing plant in Prince
George's County, Maryland, and the replacement of all the newspaper's printing
presses. The eight new presses installed in connection with this program have
allowed The Post to expand its use of color significantly and also have enhanced
its ability to zone editorial content and advertising.
All editions of The Herald and The Enterprise Newspapers are produced at
The Daily Herald Company's plant in Everett, Washington. The Gazette Newspapers
and the Southern Maryland Newspapers are all printed at the commercial printing
facilities owned by The Gazette Newspapers, Inc. Greater Washington Publishing's
periodicals are produced by independent contract printers with the exception of
one periodical which is printed at one of the commercial printing facilities
owned by The Gazette Newspapers, Inc.
Newsweek's domestic edition is produced by three independent contract
printers at five separate plants in the United States; advertising inserts and
photo-offset films for the domestic edition are also produced by independent
contractors. The international editions of Newsweek are printed in England, Hong
Kong, Singapore, Switzerland, the Netherlands, South Africa and Hollywood,
Florida; insertions for The Bulletin are printed in Australia. Since 1997
Newsweek and a subsidiary of AOL Time Warner have used a jointly owned company
based in England to provide production and distribution services for the
Atlantic editions of both Newsweek and Time. Budget Travel is produced by one of
the independent contract printers that also prints Newsweek's domestic edition.
All Post Newsweek Tech Media Group publications are produced by
independent contract printers.
In 2000 The Washington Post consumed about 237,000* tons of newsprint
purchased from a number of suppliers, including Bowater Incorporated, which
supplied approximately 34% of The Post's 2000 newsprint requirements. Although
in prior years some of the newsprint The Post purchased from Bowater
Incorporated typically was provided by Bowater Mersey Paper Company Limited, 49%
of the common stock of which is owned by the Company (the majority interest
being held by a subsidiary of Bowater Incorporated), during 2000 none of the
newsprint consumed by The Post came from that source. Bowater Mersey owns and
operates a newsprint mill near Halifax, Nova Scotia, and owns extensive
woodlands that provide part of the mill's wood requirements. In 2000 Bowater
Mersey produced about 255,000 tons of newsprint.
The announced price of newsprint (excluding discounts) was approximately
$750 per ton throughout 2000. Discounts from the announced price of newsprint
can be substantial and prevailing discounts declined during the second half of
the year. The Post believes it has adequate newsprint available through
contracts with its various suppliers. Over 90% of the newsprint used by The Post
includes some recycled content. The Company owns 80% of the stock of Capitol
Fiber Inc., which handles and sells to recycling industries old newspapers and
other paper collected in Washington, D.C., Maryland and northern Virginia.
In 2000 the operations of The Daily Herald Company and The Gazette
Newspapers, Inc. consumed approximately 9,700 and 14,700 tons of newsprint,
respectively, which was obtained in each
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* All references in this report to newsprint tonnage and prices refer to
short tons (2,000) and not to metric tons (2,204.6 pounds) which are often used
in newsprint price quotations.
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case from various suppliers. Approximately 80% of the newsprint used by The
Daily Herald Company and 50% of the newsprint used by The Gazette Newspapers,
Inc. includes some recycled content.
The domestic edition of Newsweek consumed about 34,200 tons of paper in
2000, the bulk of which was purchased from eight major suppliers. The current
cost of body paper (the principal paper component of the magazine) is
approximately $1,030 per ton.
Over 90% of the aggregate domestic circulation of Newsweek is delivered
by periodical (formerly second-class) mail, most Newsweek subscriptions are
solicited by either first-class or standard A (formerly third-class) mail, and
all Post Newsweek Tech Media Group publications are delivered by periodical
mail. Thus, substantial increases in postal rates for these classes of mail
could have a significant negative impact on the operating income of these
business units. In November 2000 the Board of Governors of the U.S. Postal
Service approved a rate increase of 3.0% for first-class mail, 9.9% for
periodical mail, and 6.0% for standard A mail, each effective January 7, 2001.
This action will increase annual postage costs by approximately $3.3 million at
Newsweek and by a nominal amount at TMG. On the other hand, since advertising
distributed by standard A mail competes to some degree with newspaper
advertising, the Company believes this increase in standard A rates could have a
positive impact on the advertising revenues of The Washington Post, The Herald,
The Gazette Newspapers and Southern Maryland Newspapers, although the Company is
unable to quantify the amount of such impact.
COMPETITION
The Washington Post competes in the Washington, D.C. metropolitan area
with The Washington Times, a newspaper which has published weekday editions
since 1982 and Saturday and Sunday editions since 1991. The Post also encounters
competition in varying degrees from newspapers published in suburban and
outlying areas, other nationally circulated newspapers, and from television,
radio, magazines and other advertising media, including direct mail advertising.
Since 1997 The New York Times has produced a Washington Edition which is printed
locally and includes television channel listings and weather for the Washington,
D.C. area.
Washingtonpost.Newsweek Interactive faces competition from many other
Internet services as well as from alternative methods of delivering news and
information. In addition, Internet-based services are carrying increasing
amounts of advertising and over time such services could adversely affect the
Company's print publications and television broadcasting operations, all of
which rely on advertising for the majority of their revenues. Several companies
are offering online services containing information and advertising tailored for
specific metropolitan areas, including the Washington, D.C. metropolitan area.
Digital Cities (a subsidiary of AOL Time Warner) produces DigitalCity
Washington, which is part of AOL's nationwide network of local online sites.
Other popular Internet sites, such as those of Yahoo! and Netscape Netcenter,
offer their own version of a local, D.C.-area guide. In addition, Verizon offers
a yellow pages service on the Internet which includes information of local
interest as well as a nationwide residential white pages directory, and Big
Yellow, an electronic directory of businesses across the United States. National
online classified advertising is becoming a particularly crowded field, with
competitors such as Yahoo! and eBay aggregating large volumes of content into a
national classified database covering a broad range of product lines. Other
competitors are focusing on vertical niches in specific content areas: CarPoint
and Autobytel.com, for example, aggregate national car listings; Realtor.com
aggregates national real estate listings; and Monster.com, CareerBuilder, and
Headhunter.net aggregate employment listings.
The Herald circulates principally in Snohomish County, Washington; its
chief competitors are the Seattle Times and the Seattle Post-Intelligencer,
which are daily and Sunday newspapers published
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in Seattle and whose Snohomish County circulation is principally in the
southwest portion of the county. Since 1983 the two Seattle newspapers have
consolidated their business and production operations and combined their Sunday
editions pursuant to a joint operating agreement, although they continue to
publish separate daily newspapers. The Enterprise Newspapers are distributed in
south Snohomish and north King Counties where their principal competitors are
the Seattle Times and The Journal Newspapers, a group of weekly
controlled-circulation newspapers. Numerous other weekly and semi-weekly
newspapers and shoppers are distributed in The Herald's and The Enterprise
Newspapers' principal circulation areas.
The circulation of The Gazette Newspapers is limited to Montgomery and
Frederick Counties and parts of Prince George's, Carroll, Anne Arundel and
Howard Counties, Maryland. The Gazette Newspapers compete with many other
advertising vehicles available in their service areas, including The Potomac and
Bethesda/Chevy Chase Almanacs, The Western Montgomery Bulletin, The Bowie
Blade-News, The West County News and The Laurel Leader, weekly controlled-
circulation community newspapers, The Montgomery Sentinel, a weekly paid-
circulation community newspaper, The Prince George's Sentinel, a weekly
controlled-circulation community newspaper (which also has a weekly paid-
circulation edition), The Montgomery and Prince George's Journals, daily
paid-circulation community newspapers, and The Frederick News-Post, a daily
paid-circulation community newspaper. The newly acquired Southern Maryland
Newspapers circulate in southern Prince George's County and in Charles, Calvert
and St. Mary's Counties, Maryland, where they also compete with many other
advertising vehicles available in their service areas, including the Calvert
County Independent and St. Mary's Today, weekly controlled-circulation
community newspapers.
The advertising periodicals published by Greater Washington Publishing
compete both with many other forms of advertising available in their
distribution area as well as with various other free-circulation advertising
periodicals.
The Company's television stations compete for audiences and advertising
revenues with television and radio stations and cable television systems serving
the same or nearby areas, with direct broadcast satellite services and to a
lesser degree with other media such as newspapers and magazines. Cable
television systems operate in substantial portions of the Company's broadcast
markets where they compete for television viewers by importing out-of-market
television signals and by distributing pay-cable, advertiser-supported and other
programming that is originated for cable systems. In addition, direct broadcast
satellite ("DBS") services provide nationwide distribution of television
programming (including in some cases pay-per-view programming and programming
packages unique to DBS) using small receiving dishes and digital transmission
technologies. In November 1999, Congress passed the Satellite Home Viewer
Improvement Act, which gives DBS operators the ability to distribute the signals
of local television stations to subscribers in the stations' local market area
("local-into-local" service), although since April 2000 the DBS operator has
been required to obtain the consent of each local television station included in
such a service. The Company's television stations in Miami, Detroit, Houston,
Orlando and San Antonio currently are being distributed locally by satellite.
Under a rule currently subject to judicial challenge on constitutional grounds,
by January 1, 2002, DBS providers that offer local-into-local service will be
required to carry all full-power television stations in the markets in which
they have chosen to provide this service. The FCC has adopted rules implementing
the provisions of this Act that require certain program-exclusivity rules
applicable to cable television to be applied to DBS providers; although certain
of these rules, primarily relating to sports blackouts, are subject to
reconsideration by the FCC. The Satellite Home Viewer Improvement Act also
continues restrictions on the transmission of distant network stations by DBS
operators. Under these restrictions, DBS operators are prohibited from
distributing the signals of any network-affiliated television station except in
areas where the over-the-air signal of the same network's local affiliate is not
available. Several lawsuits were filed beginning in late 1996 in which
plaintiffs
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(including all four major broadcast networks and network-affiliated stations
including one of the Company's Florida stations) alleged that certain DBS
operators had not been complying with this restriction. The plaintiffs have
entered into a settlement with DBS operator DirecTV, under which it will
discontinue distant-network service to certain subscribers and alter the method
by which it determines eligibility for this service. Litigation against DBS
operator Echostar is continuing. The Satellite Home Viewer Improvement Act also
provides that certain distant-network subscribers whose service would have been
discontinued as a result of this litigation will continue to have access to
distant-network service for a five-year period. In addition to the matters
discussed above, the Company's television stations may also become subject to
increased competition from low-power television stations, wireless cable
services, satellite master antenna systems (which can carry pay-cable and
similar program material) and prerecorded video programming. Further, the
deployment of digital and other improved television technologies may enhance the
ability of some of these other video providers to compete more effectively for
viewers with the local television broadcasting stations owned by the Company.
Cable television systems operate in a highly competitive environment. In
addition to competing with the direct reception of television broadcast signals
by the viewer's own antenna, such systems (like existing television stations)
are subject to competition from various other forms of television program
delivery. In particular, DBS services (which are discussed in more detail in the
preceding paragraph) have been growing rapidly and are now a significant
competitive factor. The ability of DBS operators to provide local-into-local
service (as described above) is expected to increase competition between cable
and DBS operators in markets where local-into-local service is provided. DBS
operators are not required to provide local-into-local service, and some smaller
markets may not receive this service for several years. However, in December
2000 Congress passed and the President signed legislation to provide $1.25
billion in federal loan guarantees to help satellite carriers (and cable
operators) provide local TV signals to rural areas, and DBS operators have
stated that they intend to provide local-into-local service in a greater number
of markets in the future. Local-into-local service is not yet offered in most
markets in which the Company provides cable television service, but such
services could be launched by DBS operators at any time. The Company's cable
television systems also compete with wireless cable services in several of their
markets and may face additional competition from such services in the future.
Moreover, the Telecommunications Act of 1996 permits telephone companies to own
and operate cable television systems in the same areas where they provide
telephone services and thus may lead to the provision of competing program
delivery services by local telephone companies.
According to figures compiled by Publishers' Information Bureau, Inc.,
of the 268 magazines reported on by the Bureau, Newsweek ranked eighth in total
advertising revenues in 2000, when it received approximately 2.5% of all
advertising revenues of the magazines included in the report. The magazine
industry is highly competitive both within itself and with other advertising
media which compete for audience and advertising revenue.
Post Newsweek Tech Media Group's publications and trade show compete
with many other advertising vehicles and sources of similar information.
Kaplan competes in each of its test preparation product lines with a
variety of regional and national test preparation businesses, as well as with
individual tutors and in-school preparation for standardized tests. Kaplan's
Score Learning subsidiary competes with other regional and national learning
centers, individual tutors and other educational e-commerce businesses which
target parents and students. Kaplan's Professional Division competes with other
companies which provide alternative or similar professional training,
test-preparation and consulting services. Quest and The Kaplan
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Colleges compete with both facilities-based and other distance learning
providers of similar educational services, including not-for-profit colleges and
universities and for-profit businesses.
The Company's publications and television broadcasting and cable
operations also compete for readers' and viewers' time with various other
leisure-time activities.
The future of the Company's various business activities depends on a
number of factors, including the general strength of the economy, population
growth and the level of economic activity in the particular geographic and other
markets it serves, the impact of technological innovations on entertainment,
news and information dissemination systems, overall advertising revenues, the
relative efficiency of publishing and broadcasting compared to other forms of
advertising and, particularly in the case of television broadcasting and cable
operations, the extent and nature of government regulations.
EXECUTIVE OFFICERS
The executive officers of the Company, each of whom is elected for a
one-year term at the meeting of the Board of Directors immediately following the
Annual Meeting of Stockholders held in May of each year, are as follows:
Donald E. Graham, age 55, has been Chairman of the Board of the Company
since September 1993 and Chief Executive Officer of the Company since May 1991.
Mr. Graham served as President of the Company from May 1991 until September 1993
and prior to that had been a Vice President of the Company for more than five
years. Mr. Graham also served as Publisher of The Washington Post from 1979
until September 2000.
Katharine Graham, age 83, is Chairman of the Executive Committee of the
Company's Board of Directors. Mrs. Graham previously served as Chairman of the
Board of the Company from 1973 until September 1993 and as the Company's Chief
Executive Officer from 1973 until May 1991.
Diana M. Daniels, age 51, has been Vice President and General Counsel of
the Company since November 1988 and Secretary of the Company since September
1991. Ms. Daniels served as General Counsel of the Company from January 1988 to
November 1988 and prior to that had been Vice President and General Counsel of
Newsweek, Inc. since 1979.
Beverly R. Keil, age 54, has been a Vice President of the Company since
1986; from 1982 through 1985 she was the Company's Director of Human Resources.
John B. Morse, Jr., age 54, has been Vice President-Finance of the
Company since November 1989. He joined the Company as Vice President and
Controller in July 1989, and prior to that had been a partner of Price
Waterhouse.
Gerald M. Rosberg, age 54, was named Vice President-Planning and
Development of the Company in February 1999. Mr. Rosberg had previously served
as Vice President-Affiliates at The Washington Post, a position he assumed in
November 1997. Mr. Rosberg joined the Company in January 1996 as The Post's
Director of Affiliate Relations.
EMPLOYEES
The Company and its subsidiaries employ approximately 10,700 persons on
a full-time basis.
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The Washington Post has approximately 2,900 full-time employees. About
1,770 of The Post's full-time employees and about 560 part-time employees are
represented by one or another of eight unions. Collective bargaining agreements
are currently in effect with locals of the following unions covering the
full-time and part-time employees and expiring on the dates indicated: 1,518
editorial, newsroom and commercial department employees represented by the
Communication Workers of America (May 18, 2002); 99 paperhandlers and general
workers represented by the Graphic Communications International Union (November
20, 2004); 45 machinists represented by the International Association of
Machinists (January 10, 2004); 33 photoengravers-platemakers represented by the
Graphic Communications International Union (February 14, 2004); 32 electricians
represented by the International Brotherhood of Electrical Workers (June 17,
2001); 39 engineers, carpenters and painters represented by the International
Union of Operating Engineers (March 31, 2002); and 366 mailers and 125 mailroom
helpers represented by the Communications Workers of America (May 18, 2003). The
contract covering 117 typographers represented by the Communications Workers of
America expired on October 2, 2000. The traditional jobs performed by these
employees had been eliminated by new technology. During negotiations for a new
contract, The Post offered all members of the bargaining unit an early
retirement incentive program which was accepted by all but three individuals. On
February 27, 2001, The Post's building services employees voted against
continued representation by the Service Employees International Union. At the
time of the vote this unit included 92 employees.
Washingtonpost.Newsweek Interactive has approximately 270 full-time and
35 part-time employees, none of whom is represented by a union.
Of the approximately 290 full-time and 120 part-time employees at The
Daily Herald Company, about 70 full-time and 25 part-time employees are
represented by one or another of three unions. The newspaper's collective
bargaining agreement with the Graphic Communications International Union, which
represents press operators, expires on March 15, 2005. Its agreement with the
International Brotherhood of Teamsters, which represents bundle haulers, will
expire on May 31, 2001, and its agreement with the Communications Workers of
America, which represents printers and mailers, will expire on October 31, 2001.
Newsweek has approximately 740 full-time employees (including about 165
editorial employees represented by the Communications Workers of America under a
collective bargaining agreement which will expire in December 2003).
The Company's broadcasting operations have approximately 975 full-time
employees, of whom about 245 are union-represented. Of the eight collective
bargaining agreements covering union-represented employees, one has expired with
Company implementing its last offer after the parties reached an impasse in
negotiations. Two collective bargaining agreements will expire in December 2001.
The Company's Cable Television Division has approximately 1,400
full-time employees. Kaplan and its subsidiary companies together employ
approximately 3,470 persons on a full-time basis (which number does not include
substantial numbers of part-time employees who serve in instructional and
clerical capacities). The Gazette Newspapers, Inc. has approximately 590
full-time and 120 part-time employees. Robinson Terminal Warehouse Corporation
(the Company's newsprint warehousing and distribution subsidiary), Greater
Washington Publishing, and Post Newsweek Tech Media Group each employ fewer than
150 persons. None of these units' employees is represented by a union.
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FORWARD-LOOKING STATEMENTS
All public statements made by the Company and its representatives which
are not statements of historical fact, including certain statements in this
Annual Report on Form 10-K and in the Company's 2000 Annual Report to
Stockholders, are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include
comments about the Company's business strategies and objectives, the prospects
for growth in the Company's various business operations, and the Company's
future financial performance. As with any projection or forecast,
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. In addition to the various matters discussed elsewhere in
this Annual Report on Form 10-K (including the financial statements and other
items filed herewith), specific factors identified by the Company that might
cause such a difference include the following: changes in prevailing economic
conditions, particularly in the specific geographic and other markets served by
the Company; actions of competitors, including price changes and the
introduction of competitive service offerings; changes in the preferences of
readers, viewers and advertisers, particularly in response to the growth of
Internet-based media; changes in communications and broadcast technologies; the
effects of changing cost or availability of raw materials, including changes in
the cost or availability of newsprint and magazine body paper; changes in the
extent to which standardized tests are used in the admissions process by
colleges and graduate schools; changes in the extent to which licensing or
proficiency examinations are used to qualify individuals to pursue certain
careers; changes in laws or regulations, including changes that affect the way
business entities are taxed; and changes in accounting principles or in the way
such principles are applied.
ITEM 2. PROPERTIES.
The Company owns the principal offices of The Washington Post in
downtown Washington, D.C., including both a seven-story building in use since
1950 and a connected nine-story office building on contiguous property completed
in 1972 in which the Company's principal executive offices are located.
Additionally, the Company owns land on the corner of 15th and L Streets, N.W.,
in Washington, D.C., adjacent to The Washington Post office building. This land
is leased on a long-term basis to the owner of a multi-story office building
which was constructed on the site in 1982. The Company rents a number of floors
in this building. The Company also owns and occupies a small office building on
L Street which is next to The Post's downtown office building.
In 1980 the Company built a printing plant on 13 acres of land owned by
the Company in Fairfax County, Virginia, and in 1998 completed an expansion of
that facility. Also in 1998 the Company completed construction of a new printing
plant and distribution facility for The Post on a 17-acre tract of land in
Prince George's County, Maryland which was purchased by the Company in 1996. In
addition, the Company owns undeveloped land near Dulles Airport in Fairfax
County, Virginia (39 acres) and in Prince George's County, Maryland (34 acres).
During 2000 the Company sold the printing plant in Southeast Washington, D.C.
which previously had been used as one of the production facilities for The Post.
The Herald owns its plant and office building in Everett, Washington; it
also owns two warehouses adjacent to its plant and a small office building in
Lynnwood, Washington.
The Gazette Newspapers, Inc. owns a two-story brick building that serves
as headquarters for The Gazette Newspapers and a separate two-story brick
building that houses its Montgomery County commercial printing business. It also
owns a one-story brick building that formerly served as its headquarters and is
under contract to be sold. All of these properties are located in Gaithersburg,
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Maryland. In connection with its purchase of the Southern Maryland Newspapers,
The Gazette Newspapers, Inc. acquired a one-story brick building in Waldorf,
Maryland, that houses its Charles County commercial printing business and also
serves as the headquarters for three of the Southern Maryland Newspapers. Other
editorial and sales offices for The Gazette Newspapers and the Southern Maryland
Newspapers are located in leased premises.
The principal offices of Newsweek are located at 251 West 57th Street in
New York City, where Newsweek rents space on nine floors. The lease on this
space will expire in 2009 but is renewable for a 15-year period at Newsweek's
option at rentals to be negotiated or arbitrated. Budget Travel's offices are
also located in New York City where they occupy premises under a lease which
expires in 2010. In 1997 Newsweek sold its Mountain Lakes, N.J. facility to a
third party and leased back a portion of this building to house its accounting,
production and distribution departments. The lease on this space will expire in
2007 but is renewable for two 5-year periods at Newsweek's option.
The headquarters offices of the Company's broadcasting operations are
located in Detroit, Michigan in the same facilities that house the offices and
studios of WDIV. That facility and those that house the operations of each of
the Company's other television stations are all owned by subsidiaries of the
Company, as are the related tower sites (except in Houston, Orlando and
Jacksonville where the tower sites are 50% owned).
The headquarters offices of the Cable Television Division are located in
a three-story office building in Phoenix, Arizona which was purchased by Cable
One in 1998. The majority of the offices and head-end facilities of the
Division's individual cable systems are located in buildings owned by Cable One.
Substantially all the tower sites used by the Division are leased.
Robinson Terminal Warehouse Corporation owns two wharves and several
warehouses in Alexandria, Virginia. These facilities are adjacent to the
business district and occupy approximately seven acres of land. Robinson also
owns two partially developed tracts of land in Fairfax County, Virginia,
aggregating about 22 acres. These tracts are near The Washington Post's Virginia
printing plant and include several warehouses. In 1992 Robinson purchased
approximately 23 acres of undeveloped land on the Potomac River in Charles
County, Maryland, for the possible construction of additional warehouse
capacity.
Kaplan owns a total of six buildings including a six-story building
located at 131 West 56th Street in New York City, which serves as an educational
center primarily for foreign students, and a 2,282 square foot office
condominium in Chapel Hill, North Carolina which it utilizes for its Test Prep
business. Kaplan also owns a 15,000 square foot three-story building in
Berkeley, California utilized for its foreign and Test Prep businesses. As part
of the Quest acquisition, Kaplan acquired a 58,000 square foot facility in
Lincoln, Nebraska used by the Lincoln School of Commerce, a 25,335 square foot
facility in Omaha, Nebraska used by the Nebraska College of Business, and a
131,000 square foot facility in Manchester, New Hampshire used by Hesser
College. Kaplan's principal educational center in New York City for other than
international students is located at 16 Cooper Square, where Kaplan rents two
floors under a lease expiring in 2013. Kaplan's distribution facilities are
located in a 169,000 square foot warehouse in Aurora, Illinois which has been
rented under a lease which expires in 2010. Kaplan's headquarters offices are
located at 888 Seventh Avenue in New York City, where Kaplan rents space on
three floors under a lease which expires in 2007. All other Kaplan facilities
(including administrative offices and instructional locations) occupy leased
premises.
The offices of Washingtonpost.Newsweek Interactive are located in
Arlington, Virginia, and the offices of Greater Washington Publishing are
located in Fairfax, Virginia. Post Newsweek Tech Media Group has its
headquarters office in Vienna, Virginia, and also maintains office space in
Silver
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Spring and Gaithersburg, Maryland and in San Francisco, California. The office
space for each of these units is leased.
ITEM 3. LEGAL PROCEEDINGS.
The Company and The Gazette Newspapers, Inc., its wholly owned
subsidiary (the "Gazette"), are parties to an antitrust lawsuit filed by the
owners of two local Maryland newspapers in the United States District Court for
the District of Maryland on February 28, 2001, following the acquisition by the
Gazette of the Southern Maryland Newspapers. The lawsuit alleges that the
Company and the Gazette have used predatory pricing and other illegal means to
restrain trade and monopolize the community newspaper market in Montgomery,
Prince George's and several other counties in Maryland, and requests the award
of unspecified treble damages and attorneys' fees as well as remedial injunctive
relief (including the divestiture of the Gazette by the Company). The Company
and the Gazette have not yet filed an answer to this complaint but anticipate
denying all of the allegations of illegal conduct contained therein. The Company
has learned that in late February 2001 the Antitrust Division of the United
States Department of Justice was requested by a local newspaper competitor to
investigate the Southern Maryland Newspapers acquisition. In addition, the
Antitrust Division of the Maryland Attorney General's Office has confirmed to
the Company that it is reviewing the same transaction. The Company and its
subsidiaries are also defendants in various other civil lawsuits that have
arisen in the ordinary course of their businesses, including actions for libel
and invasion of privacy. While it is not possible to predict the outcome of
these lawsuits and investigations, in the opinion of management their ultimate
dispositions should not have a material adverse effect on the financial
position, liquidity or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Class B Common Stock is traded on the New York Stock
Exchange under the symbol "WPO." The Company's Class A Common Stock is not
publicly traded.
The high and low sales prices of the Company's Class B Common Stock
during the last two years were:
2000 1999
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
January - March..................... $ 587 $ 472 $ 595 $ 517
April - June........................ 541 471 582 510
July - September.................... 528 467 574 508
October - December.................. 629 508 586 490
During 2000 the Company repurchased 200 shares of its Class B Common
Stock in an unsolicited transaction.
At February 1, 2001, there were 23 holders of record of the Company's
Class A Common Stock and 1,125 holders of record of the Company's Class B Common
Stock.
Both classes of the Company's Common Stock participate equally as to
dividends. Quarterly dividends were paid at the rate of $1.35 per share during
2000 and $1.30 per share during 1999.
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ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1996 through 2000 contained in the
table titled "Ten-Year Summary of Selected Historical Financial Data" which is
included in this Annual Report on Form 10-K and listed in the index to financial
information on page 30 hereof (with only the information for such years to be
deemed filed as part of this Annual Report on Form 10-K).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
See the information contained under the heading "Management's Discussion
and Analysis of Results of Operations and Financial Condition" which is included
in this Annual Report on Form 10-K and listed in the index to financial
information on page 30 hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk in the normal course of its
business due primarily to its ownership of marketable equity securities which
are subject to equity price risk and to its borrowing activities which are
subject to interest rate risk.
Equity Price Risk
The Company has common stock investments in several publicly traded
companies (as discussed in Note C to the Company's consolidated Financial
Statements) that are subject to market price volatility. The fair value of these
common stock investments totaled $221,137,000 at December 31, 2000.
The following table presents the hypothetical change in the aggregate
fair value of the Company's common stock investments in publicly traded
companies assuming hypothetical stock price fluctuations of plus or minus 10%,
20% and 30% in the market price of each stock included therein:
Value of Common Stock Investments Value of Common Stock Investments
Assuming Indicated Decrease in Assuming Indicated Increase in
Each Stock's Price Each Stock's Price
- ------------------------------------------------------- ----------------------------------------------------
-30% -20% -10% +10% +20% +30%
- ----------------- ---------------- ---------------- ---------------- --------------- ---------------
$154,795,900 $176,909,600 $199,023,300 $243,250,700 $265,364,400 $287,478,100
During the eight quarters since the end of the Company's 1998 fiscal
year, market price movements caused the aggregate fair value of the Company's
common stock investments in publicly traded companies to change by approximately
15% in two quarters, 20% in one quarter and by less then 10% in each of the
other five quarters.
Interest Rate Risk
At December 31, 2000, the Company had short-term commercial paper
borrowings outstanding of $525,367,000 at an average interest rate of 6.6%. At
January 2, 2000, the Company had commercial paper borrowings outstanding of
$487,677,000 at an average interest rate of 6.4%. The Company is exposed to
interest rate risk with respect to such borrowings since an increase in
commercial paper borrowing rates would increase the Company's interest expense
on its commercial paper borrowings. Assuming a hypothetical 100 basis point
increase in its average commercial paper borrowing rates from those that
prevailed during the Company's 2000 and 1999 fiscal years, the Company's
interest expense would have been greater by approximately $4,600,000 in fiscal
2000 and by approximately $1,400,000 in fiscal 1999.
The Company's long-term debt consists of $400,000,000 principal amount
of 5.5% unsecured notes due February 15, 2009 (the "Notes"). At December 31,
2000, the aggregate fair value of the
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Notes, based upon quoted market prices, was $376,200,000. An increase in the
market rate of interest applicable to the Notes would not increase the Company's
interest expense with respect to the Notes since the rate of interest the
Company is required to pay on the Notes is fixed, but such an increase in rates
would affect the fair value of the Notes. Assuming, hypothetically, that the
market interest rate applicable to the Notes was 100 basis points higher than
the Notes' stated interest rate of 5.5%, the fair value of the Notes would be
approximately $375,046,000. Conversely, if the market interest rate applicable
to the Notes was 100 basis points lower than the Notes' stated interest rate,
the fair value of the Notes would then be approximately $426,926,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Company's Consolidated Financial Statements at December 31,
2000, and for the periods then ended, together with the report of
PricewaterhouseCoopers LLP thereon and the information contained in Note N to
said Consolidated Financial Statements titled "Summary of Quarterly Operating
Results and Comprehensive Income (Unaudited)," which are included in this Annual
Report on Form 10-K and listed in the index to financial information on page 30
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Executive Officers" in Item
1 hereof and the information contained under the headings "Nominees for Election
by Class A Stockholders," "Nominees for Election by Class B Stockholders" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement for the Company's 2001 Annual Meeting of Stockholders is
incorporated herein by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the headings "Compensation of
Directors," "Executive Compensation," "Retirement Plans," "Compensation
Committee Report on Executive Compensation," "Compensation Committee Interlocks
and Insider Participation," and "Performance Graph" in the definitive Proxy
Statement for the Company's 2001 Annual Meeting of Stockholders is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Stock Holdings of Certain
Beneficial Owners and Management" in the definitive Proxy Statement for the
Company's 2001 Annual Meeting of Stockholders is incorporated herein by
reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Relationships and
Related Transactions" in the definitive Proxy Statement for the Company's 2001
Annual Meeting of Stockholders is incorporated herein by reference thereto.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(i) Financial Statements and Financial Statement Schedules
As listed in the index to financial information on page
30 hereof.
(ii) Exhibits
As listed in the index to exhibits on page 60 hereof.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, ON MARCH 23, 2001.
THE WASHINGTON POST COMPANY
(Registrant)
By John B. Morse, Jr.
------------------------
John B. Morse, Jr.
Vice President-Finance
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 23, 2001:
Donald E. Graham Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer) and Director
Katharine Graham Chairman of the Executive Committee
of the Board and Director
John B. Morse, Jr. Vice President-Finance (Principal
Financial and Accounting Officer)
Warren E. Buffett Director
Daniel B. Burke Director
Barry Diller Director
George J. Gillespie, III Director
Ralph E. Gomory Director
Donald R. Keough Director
William J. Ruane Director
Richard D. Simmons Director
George W. Wilson Director
By John B. Morse, Jr.
------------------------
John B. Morse, Jr.
Attorney-in-Fact
An original power of attorney authorizing Donald E. Graham, Katharine
Graham, John B. Morse, Jr. and Diana M. Daniels, and each of them, to sign all
reports required to be filed by the Registrant pursuant to the Securities
Exchange Act of 1934 on behalf of the above-named directors and officers has
been filed with the Securities and Exchange Commission.
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INDEX TO FINANCIAL INFORMATION
------------------
THE WASHINGTON POST COMPANY
PAGE
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Financial Statements and Schedules:
Report of Independent Accountants .............................................................. 31
Consolidated Statements of Income for the Three Fiscal Years
Ended December 31, 2000 ................................................................... 32
Consolidated Statements of Comprehensive Income for the Three
Fiscal Years Ended December 31, 2000 ...................................................... 32
Consolidated Balance Sheets at December 31, 2000 and January 2, 2000 ........................... 33
Consolidated Statements of Cash Flows for the Three Fiscal Years
Ended December 31, 2000 ................................................................... 35
Consolidated Statements of Changes in Common Shareholders' Equity for the Three
Fiscal Years Ended December 31, 2000 ...................................................... 36
Notes to Consolidated Financial Statements ..................................................... 37
Financial Statement Schedules for the Three Fiscal Years Ended December 31, 2000:
II - Valuation and Qualifying Accounts ................................................ 50
Management's Discussion and Analysis of Results of Operations and Financial
Condition (Unaudited) .......................................................................... 51
Ten-Year Summary of Selected Historical Financial Data (Unaudited) ...................................... 58
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All other schedules have been omitted either because they are not
applicable or because the required information is included in the consolidated
financial statements or the notes thereto referred to above.