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GRAHAM HOLDINGS CO filed this Form 10-K on 03/29/1994
Entire Document
<PAGE>   46

                          THE WASHINGTON POST COMPANY

                          MANAGEMENT'S DISCUSSION AND
                            AND FINANCIAL CONDITION

This analysis should be read in conjunction with the consolidated financial
statements and the notes thereto.


Net income in 1993 was $165.4 million, an increase of 29 percent over net
income of $127.8 million last year. Earnings per share rose 30 percent to
$14.08, from $10.80 in 1992. Earnings in 1993 included a one-time credit of
$11.6 million ($.98 per share) related to the adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" and an
after-tax gain of $13.4 million ($1.14 per share) from the sale of the
company's cable franchises in the United Kingdom. Excluding these two items,
1993 net income and earnings per share increased 10 percent and 11 percent,
    Revenues for 1993 totaled $1,498 million, an increase of 3 percent from
$1,451 million in 1992. Both advertising revenues and circulation and
subscriber revenues rose 2 percent, while other revenues increased 18 percent.
Full year revenues from businesses acquired at the end of 1992, principally Pro
Am Sports System (PASS), a regional sports cable network, contributed to the
improvement in other revenues in 1993. Results for 1993 included 52 weeks at
The Washington Post and The Herald newspapers; 1992 included 53 weeks.
    Costs and expenses for the year increased 3 percent to $1,259 million, from
$1,219 million in 1992. Approximately 40 percent of the total increase relates
to additional expenses associated with businesses that were acquired at the end
of 1992, while the remainder reflects normal increases in the costs of
operations and the continued investment in personal communications services
(PCS). Nonrecurring charges included in 1992 costs were expenses related to a
restructuring at Kaplan and net costs associated with the termination of one of
the health care plans at The Washington Post newspaper. In 1993 operating
income rose to $239.0 million, a 3 percent increase over $232.1 million in

NEWSPAPER DIVISION. Results at the newspaper division included 52 weeks in
1993, compared with 53 weeks in 1992 and also included full year results at The
Gazette Newspapers (formerly known as The Gaithersburg Gazette) in 1993,
compared with ten months in 1992.  At the newspaper division revenues increased
2 percent in 1993. Advertising revenue for the division rose 3 percent. At The
Washington Post, advertising revenues increased 2 percent, as rate increases
more than offset a 1 percent decline in advertising linage. Retail linage at
The Post decreased by less than 1 percent, and general volume was down 2
percent. Classified linage was 3 percent below last year, primarily due to the
continued softness in the Washington, D.C., real estate market. Preprint volume
remained strong in 1993. Circulation revenues for the newspaper division
decreased 1 percent, principally due to the inclusion of the 53rd week in 1992.
For the twelve-month period ended September 30, 1993, daily circulation at The
Washington Post rose 1 percent, while Sunday circulation decreased almost 1
percent from 1992 levels, reflecting the introduction of several competing
Sunday newspapers in the Washington, D.C., market. The Post maintained its
share of the market with 51 percent penetration daily, while Sunday penetration
declined to 66 percent.
    Newspaper division operating margin was 18 percent, unchanged from the
prior year. The previously mentioned increases in advertising revenues were
offset by normal increases in payroll and fringe benefit costs. A slight
increase in average newsprint prices accounted for the 3 percent rise in
newsprint expense.

BROADCAST DIVISION. Revenues at the broadcast division increased 9 percent over
last year. National advertising revenues increased 10 percent during the year,
while local advertising revenues rose 8 percent. These increases were primarily
due to a surge in automobile advertising in 1993.
    Viewership remained strong in all four markets in 1993. In the latest
ratings period, all four television stations were ranked number one, sign-on to
sign-off, in their markets.
    Operating margin at the broadcast division increased to 37 percent, from 34
percent in 1992. Results in 1992 included the impact of Hurricane Andrew on
WPLG in Miami and lower revenues from sports programming at WDIV in Detroit,
which were partially offset by higher political advertising revenues.