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Graham Holdings Co - Quarter Report: 2003 March (Form 10-Q)

Quarterly Report

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended March 30, 2003

 

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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1150 15th Street, N.W. Washington, D.C.

 

20071

(Address of principal executive offices)

 

(Zip Code)

 

(202) 334-6000

(Registrant’s telephone number, including area code)

 


 

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 ¨.

 

Shares outstanding at May 8, 2003:

 

Class A Common Stock

 

1,722,250 Shares

Class B Common Stock

 

7,804,370 Shares

 



 

THE WASHINGTON POST COMPANY

 

Index to Form 10-Q

 

PART I. FINANCIAL INFORMATION

    

Item 1.

  

Financial Statements

    
    

a. Condensed Consolidated Statements of Income (Unaudited) for the Thirteen Weeks Ended March 30, 2003 and March 31, 2002

  

3

    

b. Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Thirteen Weeks Ended March 30, 2003 and March 31, 2002

  

4

    

c. Condensed Consolidated Balance Sheets at March 30, 2003 (Unaudited) and December 29, 2002

  

5

    

d. Condensed Consolidated Statements of Cash Flows (Unaudited) for the Thirteen Weeks Ended March 30, 2003 and March 31, 2002

  

6

    

e. Notes to Condensed Consolidated Financial Statements (Unaudited)

  

7

Item 2.

  

Management’s Discussion and Analysis of Results of Operations and Financial Condition

  

12

Item 4.

  

Controls and Procedures

  

17

PART II. OTHER INFORMATION

    

Item 6.

  

Exhibits and Reports on Form 8-K

  

18

Signatures

  

19

Certifications

  

20

 

2.


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

The Washington Post Company

Condensed Consolidated Statements of Income (Unaudited)

 

(In thousands, except per share amounts)

  

March 30, 2003


    

March 31, 2002


 

Operating revenues

                 

Advertising

  

$

279,796

 

  

$

273,564

 

Circulation and subscriber

  

 

172,036

 

  

 

161,298

 

Education

  

 

177,778

 

  

 

146,929

 

Other

  

 

10,830

 

  

 

18,531

 

    


  


    

 

640,440

 

  

 

600,322

 

    


  


Operating costs and expenses

                 

Operating

  

 

348,634

 

  

 

333,239

 

Selling, general and administrative

  

 

169,170

 

  

 

176,866

 

Depreciation of property, plant and equipment

  

 

43,395

 

  

 

41,173

 

Amortization of intangible assets

  

 

149

 

  

 

152

 

    


  


    

 

561,348

 

  

 

551,430

 

    


  


Income from operations

  

 

79,092

 

  

 

48,892

 

Other income (expense)

                 

Equity in losses of affiliates

  

 

(2,642

)

  

 

(6,506

)

Interest income

  

 

114

 

  

 

133

 

Interest expense

  

 

(7,237

)

  

 

(8,867

)

Other, net

  

 

48,135

 

  

 

6,454

 

    


  


Income before income taxes and cumulative effect of change in accounting principle

  

 

117,462

 

  

 

40,106

 

Provision for income taxes

  

 

44,400

 

  

 

16,400

 

    


  


Income before cumulative effect of change in accounting principle

  

 

73,062

 

  

 

23,706

 

Cumulative effect of change in method of accounting for goodwill and other intangible assets, net of taxes

  

 

—  

 

  

 

(12,100

)

    


  


Net income

  

 

73,062

 

  

 

11,606

 

Redeemable preferred stock dividends

  

 

(517

)

  

 

(525

)

    


  


Net income available for common shares

  

$

72,545

 

  

$

11,081

 

    


  


Basic earnings per common share:

                 

Before cumulative effect of change in accounting principle

  

$

7.62

 

  

$

2.44

 

Cumulative effect of change in accounting principle

  

 

—  

 

  

 

(1.27

)

    


  


Net income available for common stock

  

$

7.62

 

  

$

1.17

 

    


  


Diluted earnings per share:

                 

Before cumulative effect of change in accounting principle

  

$

7.59

 

  

$

2.43

 

Cumulative effect of change in accounting principle

  

 

—  

 

  

 

(1.27

)

    


  


Net income available for common stock.

  

$

7.59

 

  

$

1.16

 

    


  


Dividends declared per common share

  

$

2.90

 

  

$

2.80

 

    


  


Basic average number of common shares outstanding

  

 

9,526

 

  

 

9,498

 

Diluted average number of common shares outstanding

  

 

9,553

 

  

 

9,512

 

 

3.


 

The Washington Post Compan y

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

(In thousands)

  

March 30, 2003


    

March 31, 2002


 

Net income

  

$

73,062

 

  

$

11,606

 

    


  


Other comprehensive income (loss)

                 

Foreign currency translation adjustment

  

 

3,105

 

  

 

99

 

Less: reclassification adjustment on sale of affiliate investment

  

 

(1,633

)

  

 

—  

 

Change in unrealized gain on available-for-sale securities

  

 

(21,718

)

  

 

(2,381

)

Less: reclassification adjustment for realized losses (gains) included in net income

  

 

214

 

  

 

(11,209

)

    


  


    

 

(20,032

)

  

 

(13,491

)

Income tax benefit related to other comprehensive income

  

 

8,387

 

  

 

5,265

 

    


  


    

 

(11,645

)

  

 

(8,226

)

    


  


Comprehensive income

  

$

61,417

 

  

$

3,380

 

    


  


 

4.


 

The Washington Post Company

Condensed Consolidated Balance Sheet s

 

    

March 30,

2003


    

December 29,

2002


 

(In thousands)

  

(unaudited)

        

Assets

             

Current assets

                 

Cash and cash equivalents

  

$

36,311

 

  

$

28,771

 

Investments in marketable equity securities

  

 

1,431

 

  

 

1,753

 

Accounts receivable, net

  

 

278,511

 

  

 

285,374

 

Inventories

  

 

29,972

 

  

 

27,629

 

Other current assets

  

 

41,771

 

  

 

39,428

 

    


  


    

 

387,996

 

  

 

382,955

 

Property, plant and equipment

                 

Buildings

  

 

283,318

 

  

 

283,233

 

Machinery, equipment and fixtures

  

 

1,596,044

 

  

 

1,551,931

 

Leasehold improvements

  

 

92,597

 

  

 

85,720

 

    


  


    

 

1,971,959

 

  

 

1,920,884

 

Less accumulated depreciation

  

 

(973,288

)

  

 

(926,385

)

    


  


    

 

998,671

 

  

 

994,499

 

Land

  

 

34,530

 

  

 

34,530

 

Construction in progress

  

 

47,779

 

  

 

65,371

 

    


  


    

 

1,080,980

 

  

 

1,094,400

 

Investments in marketable equity securities

  

 

193,384

 

  

 

214,780

 

Investments in affiliates

  

 

63,142

 

  

 

70,703

 

Goodwill, net

  

 

856,274

 

  

 

770,861

 

Indefinite-lived intangible assets, net

  

 

482,419

 

  

 

482,419

 

Amortized intangible assets, net

  

 

2,004

 

  

 

2,153

 

Prepaid pension cost

  

 

507,126

 

  

 

493,786

 

Deferred charges and other assets

  

 

79,843

 

  

 

71,837

 

    


  


    

$

3,653,168

 

  

$

3,583,894

 

    


  


Liabilities and Shareholders’ Equity

                 

Current liabilities

                 

Accounts payable and accrued liabilities

  

$

315,411

 

  

$

336,582

 

Deferred revenue

  

 

156,417

 

  

 

135,419

 

Dividends declared

  

 

13,912

 

  

 

—  

 

Federal and state income taxes payable

  

 

32,769

 

  

 

4,853

 

Short-term borrowings

  

 

217,436

 

  

 

259,258

 

    


  


    

 

735,945

 

  

 

736,112

 

Postretirement benefits other than pensions

  

 

137,440

 

  

 

136,393

 

Other liabilities

  

 

197,466

 

  

 

194,480

 

Deferred income taxes

  

 

256,347

 

  

 

261,153

 

Long-term debt

  

 

431,029

 

  

 

405,547

 

    


  


    

 

1,758,227

 

  

 

1,733,685

 

Redeemable preferred stock

  

 

12,916

 

  

 

12,916

 

    


  


Preferred stock

  

 

—  

 

  

 

—  

 

    


  


Common shareholders’ equity

                 

Common stock

  

 

20,000

 

  

 

20,000

 

Capital in excess of par value

  

 

157,976

 

  

 

149,090

 

Retained earnings

  

 

3,224,798

 

  

 

3,179,607

 

Accumulated other comprehensive income(loss)

                 

Cumulative foreign currency translation adjustment

  

 

(6,039

)

  

 

(7,511

)

Unrealized gain on available-for-sale securities

  

 

4,796

 

  

 

17,913

 

Cost of Class B common stock held in treasury

  

 

(1,519,506

)

  

 

(1,521,806

)

    


  


    

 

1,882,025

 

  

 

1,837,293

 

    


  


    

$

3,653,168

 

  

$

3,583,894

 

    


  


 

5.


 

The Washington Post Company

Condensed Consolidated Statements of Cash Flows (Unaudited )

 

    

Thirteen Weeks Ended


 

(In thousands)

  

March 30,

2003


    

March 31,

2002


 

Cash flows from operating activities:

                 

Net income

  

$

73,062

 

  

$

11,606

 

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Cumulative effect of change in accounting principle

  

 

—  

 

  

 

12,100

 

Depreciation of property, plant and equipment

  

 

43,395

 

  

 

41,173

 

Amortization of intangible assets

  

 

149

 

  

 

152

 

Net pension credit

  

 

(13,425

)

  

 

(16,082

)

Early retirement program expense

  

 

—  

 

  

 

10,313

 

Gain from sale of affiliate

  

 

(49,762

)

  

 

—  

 

Gain on sale of marketable securities

  

 

—  

 

  

 

(13,209

)

Cost method and other investment write-downs

  

 

1,112

 

  

 

10,050

 

Equity in losses of affiliates, net of distributions

  

 

2,642

 

  

 

6,506

 

Provision for deferred income taxes

  

 

3,827

 

  

 

2,986

 

Change in assets and liabilities:

                 

Decrease in accounts receivable, net

  

 

16,991

 

  

 

33,342

 

Increase in inventories

  

 

(2,342

)

  

 

(2,064

)

(Decrease) increase in accounts payable and accrued liabilities

  

 

(28,588

)

  

 

15,766

 

Increase (decrease) in deferred revenue

  

 

11,880

 

  

 

(1,876

)

Decrease in income taxes receivable

  

 

—  

 

  

 

10,253

 

Increase in income taxes payable

  

 

27,916

 

  

 

578

 

Increase (decrease) in other assets and other liabilities, net

  

 

3,356

 

  

 

(5,561

)

Other

  

 

(37

)

  

 

136

 

    


  


Net cash provided by operating activities

  

 

90,176

 

  

 

116,169

 

    


  


Cash flows from investing activities:

                 

Purchases of property, plant and equipment

  

 

(28,086

)

  

 

(37,310

)

Investments in certain businesses

  

 

(57,537

)

  

 

(16,907

)

Proceeds from the sale of affiliate

  

 

65,000

 

  

 

—  

 

Proceeds from sale of marketable securities

  

 

—  

 

  

 

19,701

 

Investment in affiliates

  

 

(5,977

)

  

 

(7,610

)

Other

  

 

378

 

  

 

249

 

    


  


Net cash used in investing activities

  

 

(26,222

)

  

 

(41,877

)

    


  


Cash flows from financing activities:

                 

Net repayment of commercial paper

  

 

(41,882

)

  

 

(69,084

)

Dividends paid

  

 

(13,959

)

  

 

(13,559

)

Proceeds from exercise of stock options

  

 

380

 

  

 

2,394

 

Other

  

 

(953

)

  

 

—  

 

    


  


Net cash used in financing activities

  

 

(56,414

)

  

 

(80,249

)

    


  


Net increase (decrease) in cash and cash equivalents

  

 

7,540

 

  

 

(5,957

)

Beginning cash and cash equivalents

  

 

28,771

 

  

 

31,480

 

    


  


Ending cash and cash equivalents

  

$

36,311

 

  

$

25,523

 

    


  


 

6.


 

The Washington Post Company

Notes to Condensed Consolidated Financial Statements (Unaudite d)

 

Results of operations, when examined on a quarterly basis, reflect the seasonality of advertising that affects the newspaper, magazine and broadcasting operations. Advertising revenues in the second and fourth quarters are typically higher than first and third quarter revenues. All adjustments reflected in the interim financial statements are of a normal recurring nature.

 

The Company generally reports on a 13 week fiscal quarter ending on the Sunday nearest the calendar quarter-end. With the exception of the newspaper publishing operations, subsidiaries of the Company report on a calendar-quarter basis.

 

Note 1: Acquisitions and Dispositions.

 

In March 2003, Kaplan completed its acquisition of the stock of FTC Holdings Limited (FTC), for £55.3 million ($87.4 million). Headquartered in London, FTC is a leader in test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore. The acquisition was financed through cash and debt with $26.5 million remaining to be paid, primarily to employees of the business (included in long-term debt at March 30, 2003). Most of the purchase price has been allocated to goodwill, on a preliminary basis.

 

On January 1, 2003, the Company sold its 50 percent interest in the International Herald Tribune for $65 million and the Company recorded an after-tax non-operating gain of $32.3 million in the first quarter of 2003.

 

In the first quarter of 2002, Kaplan acquired several businesses in their higher education and test preparation divisions, totaling $23.2 million.

 

Note 2: Investments.

 

Investments in marketable equity securities at March 30, 2003 and December 29, 2002 consist of the following (in thousands):

 

    

March 30,

2003


  

December 29,

2002


Total cost

  

$

186,955

  

$

187,169

Gross unrealized gains

  

 

7,860

  

 

29,364

    

  

Total fair value

  

$

194,815

  

$

216,533

    

  

 

There were no sales of marketable equity securities in the first quarter of 2003. During the first quarter of 2002, the Company sold its shares of Ticketmaster, resulting in a pre-tax gain of $13.2 million.

 

At March 30, 2003 and December 29, 2002, the carrying value of the Company’s cost method investments was $8.6 million and $9.5 million, respectively. There were no investments in companies constituting cost method investments during the first three months of 2003 or 2002.

 

The Company recorded charges of $1.1 million and $10.1 million during the first quarter of 2003 and 2002, respectively, to write-down certain of its investments to estimated fair value.

 

7.


 

Note 3: Borrowings.

 

At March 30, 2003, the Company had $648.5 million in total debt outstanding, which comprised $217.4 million of commercial paper borrowings, $398.5 million of 5.5 percent unsecured notes due February 15, 2009, and $32.6 million in other debt.

 

During the first quarter of 2003 and 2002 the Company had average borrowings outstanding of approximately $601.6 million and $888.3 million, respectively, at average annual interest rates of approximately 4.2 percent and 3.5 percent, respectively. During the first quarter of 2003 and 2002, the Company incurred net interest expense on borrowings of $7.1 million and $8.7 million, respectively.

 

Note 4: Business Segments.

 

The following table summarizes financial information related to each of the Company’s business segments. The 2003 and 2002 asset information is as of March 30, 2003 and December 29, 2002, respectively.

 

 

8.


 

First Quarter Period

(in thousands)

 

    

Newspaper Publishing


  

Television Broadcasting


  

Magazine Publishing


  

Cable Television


    

Education


    

Corporate Office


    

Consolidated


 

2003

                                                        

Operating revenues

  

$

204,040

  

$

70,752

  

$

77,502

  

$

110,368

 

  

$

177,778

 

  

$

—  

 

  

$

640,440

 

Income (loss) from operations

  

$

21,358

  

$

26,347

  

$

837

  

$

20,762

 

  

$

15,927

 

  

$

(6,139

)

  

$

79,092

 

Equity in losses of affiliates

                                                  

 

(2,642

)

Interest expense, net

                                                  

 

(7,123

)

Other, net

                                                  

 

48,135

 

                                                    


Income before income taxes

                                                  

$

117,462

 

                                                    


Depreciation expense

  

$

11,297

  

$

2,746

  

$

952

  

$

22,713

 

  

$

5,687

 

  

$

—  

 

  

$

43,395

 

Amortization expense

  

$

4

  

$

—  

  

$

—  

  

$

38

 

  

$

107

 

  

$

—  

 

  

$

149

 

Net pension credit (expense)

  

$

3,957

  

$

1,065

  

$

8,998

  

$

(243

)

  

$

(352

)

  

$

—  

 

  

$

13,425

 

Identifiable assets

  

$

706,539

  

$

407,619

  

$

488,573

  

$

1,136,798

 

  

$

647,244

 

  

$

8,438

 

  

$

3,395,211

 

Investments in marketable equity securities

                                                  

 

194,815

 

Investments in affiliates

                                                  

 

63,142

 

                                                    


Total assets

                                                  

$

3,653,168

 

                                                    


 

    

Newspaper Publishing


  

Television Broadcasting


  

Magazine Publishing


    

Cable Television


    

Education


    

Corporate Office


    

Consolidated


 

2002

                                                          

Operating revenues

  

$

200,772

  

$

75,418

  

$

75,018

 

  

$

102,033

 

  

$

147,081

 

  

$

—  

 

  

$

600,322

 

Income (loss) from operations

  

$

17,543

  

$

33,551

  

$

(11,578

)

  

$

16,042

 

  

$

(550

)

  

$

(6,116

)

  

$

48,892

 

Equity in losses of affiliates

                                                    

 

(6,506

)

Interest expense, net

                                                    

 

(8,734

)

Other, net

                                                    

 

6,454

 

                                                      


Income before income taxes

                                                    

$

40,106

 

                                                      


Depreciation expense

  

$

10,879

  

$

2,765

  

$

1,050

 

  

$

20,479

 

  

$

6,000

 

  

$

—  

 

  

$

41,173

 

Amortization expense

  

$

4

  

$

—  

  

$

—  

 

  

$

39

 

  

$

109

 

  

$

—  

 

  

$

152

 

Net pension credit (expense)

  

$

5,491

  

$

1,220

  

$

9,895

 

  

$

(226

)

  

$

(298

)

  

$

—  

 

  

$

16,082

 

Identifiable assets

  

$

690,197

  

$

413,663

  

$

488,562

 

  

$

1,142,995

 

  

$

542,251

 

  

$

18,990

 

  

$

3,296,658

 

Investments in marketable equity securities

                                                    

 

216,533

 

Investments in affiliates

                                                    

 

70,703

 

                                                      


Total assets

                                                    

$

3,583,894

 

                                                      


 

 

9.


 

Newspaper publishing includes the publication of newspapers in the Washington, D.C. area (The Washington Post, the Gazette community newspapers, and Southern Maryland newspapers) and Everett, Washington (The Everett Herald). This business division also includes newsprint warehousing, recycling operations and the Company’s electronic media publishing business (primarily washingtonpost.com).

 

Television broadcasting operations are conducted through six VHF, television stations serving the Detroit, Houston, Miami, San Antonio, Orlando and Jacksonville television markets. All stations are network-affiliated (except for WJXT in Jacksonville).

 

The magazine publishing division consists of the publication of a weekly news magazine, Newsweek, which has one domestic and three international editions, the publication of Arthur Frommer’s Budget Travel, and the publication of business periodicals for the computer services industry and the Washington-area technology community.

 

Cable television operations consist of cable systems offering basic cable, digital cable, pay television, cable modem and other services to approximately 719,000 subscribers in mid-western, western, and southern states.

 

Education products and services are provided through the Company’s wholly-owned subsidiary Kaplan, Inc. Kaplan’s businesses include supplemental education services, which is made up of test preparation and admissions, providing test preparation services for college and graduate school entrance exams; Kaplan Professional, providing education and career services to business people and other professionals; and Score!, offering multimedia learning and private tutoring to children and educational resources to parents. Kaplan’s businesses also include higher education services, which includes all of Kaplan’s post-secondary education businesses, including the fixed facility colleges that were formerly part of Quest Education, which offers bachelor’s degrees, associate’s degrees and diploma programs primarily in the fields of healthcare, business and information technology; and online post-secondary and career programs (various distance-learning businesses, including kaplancollege.com).

 

Corporate office includes the expenses of the Company’s corporate office.

 

Note 5: Goodwill and Other Intangible Assets.

 

In accordance with Statement of Financial Accounting Standards No. 142(SFAS 142), “Goodwill and Other Intangible Assets,” the Company has reviewed its goodwill and other intangible assets and classified them in three categories (goodwill, indefinite-lived intangible assets, and amortized intangible assets). The Company’s intangible assets with an indefinite life are from franchise agreements at its cable division. Amortized intangible assets are primarily non-compete agreements, with amortization periods up to five years. The Company’s amortized intangible assets decreased in the first quarter of 2003 as a result of $149,000 of amortization expense.

 

The Company’s goodwill and other intangible assets as of March 30, 2003 and December 29, 2002 were as follows (in thousands):

 

10.


 

    

Gross


  

Accumulated Amortization


  

Net


2003

                    

Goodwill

  

$

1,154,676

  

$

298,402

  

$

856,274

Indefinite-lived intangible assets

  

 

646,225

  

 

163,806

  

 

482,419

Amortized intangible assets

  

 

3,525

  

 

1,521

  

 

2,004

    

  

  

    

$

1,804,426

  

$

463,729

  

$

1,340,697

    

  

  

2002

                    

Goodwill

  

$

1,069,263

  

$

298,402

  

$

770,861

Indefinite-lived intangible assets

  

 

646,225

  

 

163,806

  

 

482,419

Amortized intangible assets

  

 

3,525

  

 

1,372

  

 

2,153

    

  

  

    

$

1,719,013

  

$

463,580

  

$

1,255,433

    

  

  

 

Activity related to the Company’s goodwill during the quarter ended March 30, 2003 was as follows (in thousands):

 

    

Newspaper Publishing


    

Television Broadcasting


  

Magazine Publishing


  

Cable Television


  

Education


  

Total


 

Goodwill, net

                                             

Beginning of year

  

$

72,738

 

  

$

203,165

  

$

69,556

  

$

85,666

  

$

339,736

  

$

770,861

 

Acquisitions

                                

 

86,874

  

 

86,874

 

Disposition

  

 

(1,461

)

  

 

—  

  

 

—  

  

 

—  

  

 

—  

  

 

(1,461

)

    


  

  

  

  

  


End of Quarter

  

$

71,277

 

  

$

203,165

  

$

69,556

  

$

85,666

  

$

426,610

  

$

856,274

 

    


  

  

  

  

  


 

There was no activity related to the Company’s indefinite-lived intangible assets during the first quarter of 2003.

 

As required under SFAS 142, the Company completed its transitional impairment review of indefinite-lived intangible assets and goodwill in 2002. The expected future cash flows for PostNewsweek Tech Media (part of the magazine publishing segment), on a discounted basis, did not support the net carrying value of the related goodwill. Accordingly, an after-tax goodwill impairment loss of $12.1 million, or $1.27 per share was recorded. The loss is included in the Company’s 2002 first quarter results as a cumulative effect of change in accounting principle.

 

Note 6: Change in Accounting Method – Stock Options

 

Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting for Company stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal 2002 are accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” The following table presents what the Company’s results would have been had the fair values of options granted after 1995, but prior to 2002, been recognized as compensation expense in the first quarter of 2003 and 2002 (in thousands except per share amounts).

 

    

2003


  

2002


Company stock-based compensation expense included in net income (pre-tax)

  

$

142

  

$

—  

    

  

Net income available for common shares, as reported

  

$

72,545

  

$

11,081

Stock-based compensation expense not included in net income (after-tax)

  

 

790

  

 

904

    

  

Pro forma net income available for common shares

  

$

71,755

  

$

10,177

    

  

Basic earnings per share, as reported

  

$

7.62

  

$

1.17

Pro forma basic earnings per share

  

$

7.53

  

$

1.07

Diluted earnings per share, as reported

  

$

7.59

  

$

1.16

Pro forma diluted earnings per share

  

$

7.51

  

$

1.07

 

11.


 

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

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

 

Revenues and expenses in the first and third quarters are customarily lower than those in the second and fourth quarters because of significant seasonal fluctuations in advertising volume.

 

Results of Operations

 

Net income for the first quarter of 2003 was $73.1 million ($7.59 per share), up from net income of $11.6 million ($1.16 per share) in the first quarter of last year.

 

Results for the first quarter of 2003 include an after-tax non-operating gain from the sale of the Company’s 50 percent interest in the International Herald Tribune (after-tax impact of $32.3 million, or $3.38 per share). Results for the first quarter of 2002 included a transitional goodwill impairment loss (after-tax impact of $12.1 million, or $1.27 per share), a charge arising from an early retirement program at Newsweek (after-tax impact of $6.1 million, or $0.64 per share), and a net non-operating gain primarily from the sale of marketable securities (after-tax impact of $3.8 million, or $0.40 per share).

 

Revenue for the first quarter of 2003 was $640.4 million, up 7 percent from $600.3 million in 2002. The increase in revenue is due mostly to significant revenue growth at the education and cable divisions. Although advertising revenues have suffered due to the war in Iraq, the magazine and newspaper divisions showed modest revenue growth; revenues were down at the broadcast division.

 

Operating income for the quarter increased 62 percent to $79.1 million, from $48.9 million in 2002. Operating results for 2002 included a $10.3 million pre-tax charge from the Newsweek early retirement program. The Company’s results benefited from significantly improved operating results at the education, cable and newspaper divisions. These factors were offset by a reduction in advertising demand late in the quarter and certain incremental costs due to the war in Iraq, a reduction in operating income at the broadcast division, increased depreciation expense, and a reduced net pension credit.

 

The Company’s operating income for the first quarter of 2003 includes $13.4 million of net pension credits, compared to $16.1 million in the first quarter of 2002. At December 29, 2002, the Company reduced its assumption on discount rate from 7.0 percent to 6.75 percent. Due to the reduction in the discount rate and lower than expected investment returns in 2002, the net pension credit for 2003 is expected to be down by about $10 million compared to 2002, excluding charges related to early retirement programs.

 

Newspaper Publishing Division. Newspaper publishing division revenue totaled $204.0 million for the first quarter of 2003, a 2 percent increase from revenue of $200.8 million in the first quarter of 2002. Division operating income increased 22 percent to $21.4 million, from $17.5 million in 2002. The increase in division operating income is primarily attributable to increases in print and online advertising revenue, combined with an 11 percent decrease in newsprint expense at The Post.

 

Print advertising revenue at The Washington Post newspaper increased slightly to $132.5 million, from $131.5 million in 2002, due to increases in preprint and zone advertising revenue, which more than offset a decrease in classified advertising revenue from volume declines. Recruitment advertising revenue was down $2.3 million due to a 17 percent volume decline. Advertising demand was down late in the quarter due to the war in Iraq.

 

For the first quarter of 2003, Post daily and Sunday circulation declined 1.9 percent and 1.1 percent, respectively, compared to the first quarter of 2002. For

 

12.


the three months ended March 30, 2003, average daily circulation at The Post totaled 757,000 and average Sunday circulation totaled 1,052,000.

 

Revenues generated by the Company’s online publishing activities, primarily washingtonpost.com, increased 27 percent to $9.5 million for the first quarter of 2003, versus $7.5 million for 2002. Local and national online advertising revenues grew 78 percent in 2003, while revenue at the Jobs section of washingtonpost.com increased 17 percent.

 

Television Broadcasting Division. Revenue for the broadcast division decreased 6 percent in the first quarter of 2003 to $70.8 million, from $75.4 million in 2002, due to significant Olympics related advertising at the Company’s NBC affiliates in 2002 and several days of commercial-free coverage in connection with the war in Iraq. Operating income for the first quarter of 2003 decreased 21 percent to $26.3 million, from $33.6 million in 2002.

 

In July 2002, WJXT in Jacksonville, Florida began operations as an independent station when its network affiliation with CBS ended.

 

Magazine Publishing Division. Revenue for the magazine publishing division totaled $77.5 million for the first quarter of 2003, a 3 percent increase from $75.0 million for the first quarter of 2002. This increase was primarily due to an 18 percent increase in advertising revenue at Newsweek, as a result of increased ad pages at both the domestic and international editions, as well as an additional issue of the magazine in the first quarter of 2003 versus the first quarter of 2002. This revenue increase was partially offset by reduced advertising demand late in the quarter due to the Iraq war, and a decline in revenue at PostNewsweek Tech Media, whose primary trade show is in the second quarter of 2003, versus the first quarter in 2002.

 

Magazine division operating income totaled $0.8 million, compared to a loss of $11.6 million for the first quarter of 2002. The improvement in operating results is primarily attributable to a $10.3 million charge in connection with an early retirement program at Newsweek in the first quarter of 2002.

 

During the second quarter of 2003, Newsweek has experienced a reduction in advertising demand and increased costs due to the Iraq war, along with a reduction in travel-related advertising demand at Newsweek International due to the SARS epidemic.

 

Cable Television Division. Cable division revenue of $110.4 million for the first quarter of 2003 represents an 8 percent increase over 2002 first quarter revenue of $102.0 million. The 2003 revenue increase is due to continued growth in the division’s cable modem and digital service revenues, offset by lower pay revenues.

 

Cable division operating income increased 29 percent to $20.8 million in the first quarter of 2003, versus $16.0 million in the first quarter of 2002. The increase in operating income is due mostly to the division’s revenue growth, offset by higher depreciation expense and increased programming expense.

 

The increase in depreciation expense is due to significant capital spending in recent years that has enabled the cable division to offer digital and broadband cable services to its subscribers. The cable division began its rollout plan for these services in the third quarter of 2000. At March 31, 2003, the cable division had approximately 210,500 digital cable subscribers, representing a 30 percent penetration of the subscriber base in the markets where digital services are offered. Digital services are offered in markets serving 99 percent of the cable division’s subscriber base. The initial rollout plan for the new digital cable services included an offer for the cable division’s customers to obtain these services free for one year. At the end of March 2003, the cable division had about 205,300 paying digital subscribers.

 

At March 31, 2003, the cable division had 719,300 basic subscribers, lower than 751,700 basic subscribers at the end of March 2002 but up slightly from 718,000 basic subscribers at the end of December 2002. At March 31, 2003, the cable division had 95,800 CableONE.net service subscribers, compared to 53,100 at the end

 

13.


of March 2002, due to a large increase in the Company’s cable modem deployment (offered to 97 percent of homes passed at the end of March 2003) and take-up rates.

 

At March 31, 2003, Revenue Generating Units (RGUs), representing the sum of basic, digital and high-speed data customers, as defined by the NCTA Standard Reporting Categories, totaled 1,020,500, compared to 870,000 as of March 31, 2002. The increase is due to increased paying digital cable and high-speed data customers.

 

Below are details of Cable division capital expenditures for the first quarter of 2003 and 2002, as defined by the NCTA Standard Reporting Categories (in millions):

 

    

2003


  

2002


Customer Premise Equipment

  

$

2.6

  

$

14.5

Commercial

  

 

0.1

  

 

0.1

Scaleable Infrastructure

  

 

1.2

  

 

0.7

Line Extensions

  

 

3.1

  

 

1.8

Upgrade/Rebuild

  

 

8.1

  

 

4.9

Support Capital

  

 

1.8

  

 

2.1

    

  

Total

  

$

16.9

  

$

24.1

    

  

 

Education Division. Education division revenue totaled $177.8 million for the first quarter of 2003, a 21 percent increase over revenue of $147.1 million for the same period of 2002. Kaplan reported operating income for the first quarter of 2003 of $15.9 million, compared to an operating loss of $0.6 million in the first quarter of 2002. Approximately 20 percent of the increase in Kaplan revenue is from acquired businesses, primarily in the higher education division. A summary of first quarter operating results is as follows:

 

    

First Quarter


 

(in thousands)

  

2003


    

2002


    

% Change


 

Revenue

                        

Supplemental education

  

$

98,182

 

  

$

90,750

 

  

8

 

Higher education

  

 

79,596

 

  

 

56,331

 

  

41

 

    


  


  

    

$

177,778

 

  

$

147,081

 

  

21

 

    


  


  

Operating income (loss)

                        

Supplemental education

  

$

18,552

 

  

$

13,204

 

  

41

 

Higher education

  

 

14,922

 

  

 

8,886

 

  

68

 

Kaplan corporate overhead

  

 

(7,440

)

  

 

(5,902

)

  

(26

)

Other*

  

 

(10,107

)

  

 

(16,738

)

  

40

 

    


  


  

    

$

15,927

 

  

$

(550

)

  

—  

 

    


  


  


*   Other includes charges accrued for stock-based incentive compensation and amortization of certain intangibles.

 

Supplemental education includes Kaplan’s test preparation, professional training, and Score! businesses. The improvement in supplemental education results for the first quarter of 2003 is due mostly to increased enrollment at Kaplan’s traditional test preparation business, as well as a significant increase in the professional real estate courses. Score! also contributed to the improved results, with increased enrollment from existing sites and two new centers compared to last year, combined with tight cost controls.

 

Higher education includes all of Kaplan’s post-secondary education businesses, including fixed-facility colleges as well as online post-secondary and career programs (various distance-learning businesses). Higher education results are showing significant growth due to student enrollment increases, high student retention rates, and several acquisitions.

 

Corporate overhead represents unallocated expenses of Kaplan, Inc.’s corporate office, including expenses associated with the design and development of educational software that, if successfully completed, will benefit all of Kaplan’s business units.

 

 

14.


Other expense is comprised of accrued charges for stock-based incentive compensation arising from a stock option plan established for certain members of Kaplan’s management and amortization of certain intangibles. Under the stock-based incentive plan, the amount of compensation expense varies directly with the estimated fair value of Kaplan’s common stock and the number of options outstanding. For the first quarter of 2003 and 2002, the Company recorded expense of $10.0 million and $16.6 million, respectively, related to this plan. The Company prepares estimates of the Kaplan stock option expense and related accrual balance on a quarterly basis. The trend in Kaplan stock option expense in 2002 ($10.0 million, $6.7 million and $1.2 million for the second, third and fourth quarters of 2002, respectively) is not indicative of the expected expense to be recorded for the remainder of 2003.

 

On March 31, 2003, Kaplan completed its acquisition of the stock of FTC Holdings Limited (FTC) for £55.3 million ($87.4 million), financed through cash and debt. Headquartered in London, FTC is a leader in test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore.

 

In May 2003, Kaplan announced it had entered into an agreement for its higher education division to acquire Heritage College, a career-oriented postsecondary school providing training in the fields of allied health, paralegal, travel and information technology. The acquisition is contingent upon regulatory approvals.

 

Equity in Losses of Affiliates. The Company’s equity in losses of affiliates for the first quarter of 2003 was $2.6 million, compared to losses of $6.5 million for the first quarter of 2002. The Company’s affiliate investments consist of a 49 percent interest in BrassRing LLC and a 49 percent interest in Bowater Mersey Paper Company Limited. The reduction in first quarter 2003 affiliate losses is primarily attributable to improved operating results at BrassRing.

 

On January 1, 2003, the Company sold its 50 percent interest in the International Herald Tribune for $65 million and the Company recorded an after-tax non-operating gain of $32.3 million in the first quarter of 2003.

 

Non-Operating Items. The Company recorded other non-operating income, net, of $48.1 million for the first quarter of 2003, compared to non-operating income, net, of $6.5 million for the first quarter of 2002. The 2003 non-operating income is comprised mostly of a $49.8 million pre-tax gain from the sale of the Company’s 50 percent interest in the International Herald Tribune. The 2002 non-operating income is comprised mostly of a gain from the sale of marketable securities, offset by write-downs recorded on certain investments.

 

Net Interest Expense. The Company incurred net interest expense of $7.1 million for the first quarter of 2003, compared to $8.7 million for the same period of the prior year. The reduction is due to lower average borrowings in the first quarter of 2003 versus the same period of the prior year. At March 30, 2003, the Company had $648.5 million in borrowings outstanding at an average interest rate of 4.0 percent.

 

Provision for Income Taxes. The effective tax rate for the first quarter of 2003 was 37.8 percent, compared to 40.9 percent for the same period of 2002. The 2003 rate benefited from a lower effective tax rate applicable to the one-time gain arising from the sale of the Company’s interest in the International Herald Tribune. Excluding the effect of the International Herald Tribune gain, the Company’s effective tax rate approximated 39.8 percent for the first quarter of 2003. The effective tax rate for 2003 has declined due to an increase in operating earnings.

 

Cumulative Effect of Change in Accounting Principle. In 2002, the Company completed its transitional goodwill impairment test required under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), resulting in an after-tax impairment loss of $12.1 million, or $1.27 per share, related to PostNewsweek Tech Media (part of magazine publishing segment). This loss is included in the Company’s 2002 results as a cumulative effect of change in accounting principle.

 

15.


 

Earnings Per Share. The calculation of diluted earnings per share for the first quarter of 2003 was based on 9,553,000 weighted average shares outstanding, compared to 9,512,000 for the first quarter of 2002. The Company made no repurchases of its stock during the first quarter of 2003.

 

Stock Options – Change in Accounting Method. Effective the first day of the Company’s 2002 fiscal year, the Company adopted the fair-value-based method of accounting for Company stock options as outlined in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). This change in accounting method was applied prospectively to all awards granted from the beginning of the Company’s fiscal year 2002 and thereafter. Stock options awarded prior to fiscal 2002 are accounted for under the intrinsic value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.”

 

The Company recorded $142,000 in Company stock option expense for the first quarter of 2003; there was no Company stock option expense in the first quarter of 2002.

 

Financial Condition: Capital Resources and Liquidity

 

Acquisitions. On March 31, 2003, Kaplan completed its acquisition of the stock of FTC Holdings Limited (FTC), for £55.3 million ($87.4 million). Headquartered in London, FTC is a leader in test preparation services for accountants and financial services professionals, with 18 training centers in the United Kingdom and a growing presence in Asia, including operations in Hong Kong and Singapore. The acquisition was financed through cash and debt with $26.5 million remaining to be paid, primarily to employees of the business (included in long-term debt at March 30, 2003).

 

Capital expenditures. During the first quarter of 2003, the Company’s capital expenditures totaled $28.1 million. The Company anticipates it will spend $170 – 180 million throughout 2003 for property and equipment.

 

Liquidity. Throughout the first three months of 2003, the Company’s borrowings, net of repayments, decreased by $16.3 million, with the decrease primarily due to cash flows from operations and proceeds from the sale of the International Herald Tribune, offset in part by borrowings for the purchase of FTC by Kaplan.

 

At March 30, 2003, the Company had $648.5 million in total debt outstanding, which was comprised of $217.4 million of commercial paper borrowings, $398.5 million of 5.5 percent unsecured notes due February 15, 2009, and $32.6 million in other debt.

 

During the first quarter of 2003 and 2002 the Company had average borrowings outstanding of approximately $601.6 million and $888.3 million, respectively, at average annual interest rates of approximately 4.2 percent and 3.5 percent, respectively. During the first quarter of 2003 and 2002, the Company incurred net interest expense on borrowings of $7.1 million and $8.7 million, respectively.

 

The Company expects to fund its estimated capital needs primarily through internally generated funds, and to a lesser extent, commercial paper borrowings. In management’s opinion, the Company will have ample liquidity to meet its various cash needs throughout 2003.

 

Forward-Looking Statements

 

This report contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to various risks and uncertainties that could cause actual results or events to differ materially from those anticipated in such statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2002.

 

16.


 

Item 4. Controls and Procedures

 

A review and evaluation was performed by the Company’s management, at the direction of the Company’s Chief Executive Officer (the Company’s principal executive officer) and Vice President-Finance (the Company’s principal financial officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to the filing of this quarterly report. Based on that review and evaluation, the Company’s Chief Executive Officer and Vice President-Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that all material information required to be disclosed in the reports that the Company files or submits under the Exchange Act have been made known to them in a timely fashion. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of such evaluation.

 

17.


 

PART II – OTHER INFORMATION

 

Item 6. Exhibits and Reports on Form 8-K.

 

  (a)   The following documents are filed as exhibits to this report:

 

Exhibit Number


  

Description


  3.1

  

Certificate of Incorporation of the Company as amended through May 12, 1998, and the Certificate of Designation for the Company’s Series A Preferred Stock filed January 22, 1996 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995).

  3.2

  

By-Laws of the Company as amended through May 8, 2003.

  4.1

  

Form of the Company’s 5.50% Notes due February 15, 2009, issued under the Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).

  4.2

  

Indenture dated as of February 17, 1999, between the Company and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 1999).

  4.3

  

364-Day Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, National Association, SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs Bank (incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002).

  4.4

  

5-Year Credit Agreement dated as of August 14, 2002, among the Company, Citibank, N.A., Wachovia Bank, National Association, SunTrust Bank, JPMorgan Chase Bank, Bank One, N.A., The Bank of New York and Riggs Bank (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2002).

11   

  

Calculation of Earnings per Share of Common Stock.

99.1

  

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2

  

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  (b)   No reports on Form 8-K were filed during the period covered by this report.

 

18.


 

SIGNATURES

 

Pursuant to the requirements 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.

 

       

THE WASHINGTON POST COMPANY

(Registrant)

Date:

 

May 12, 2003


         

/s/    DONALD E. GRAHAM         


               

Donald E. Graham

Chairman & Chief Executive Officer

(Principal Executive Officer)

 

Date:

 

May 12, 2003


         

/s/    JOHN B. MORSE, JR.


               

John B. Morse, Jr.

Vice President-Finance

(Principal Financial Officer)

 

19.


 

CERTIFICATION PURSUANT TO

RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Donald E. Graham, Chief Executive Officer (principal executive officer) of The Washington Post Company (the “Registrant”), certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of the Registrant;

 

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

 

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

 

  (a)   designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  (b)   evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

  (c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

 

  (a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

 

  (b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

 

6. The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

/s/    DONALD E. GRAHAM


Donald E. Graham

Chief Executive Officer

May 12, 2003

 

20.


 

CERTIFICATION PURSUANT TO

RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, John B. Morse, Jr., Vice President-Finance (principal financial officer) of The Washington Post Company (the “Registrant”), certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of the Registrant;

 

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3. Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

 

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

 

  (a)   designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

  (b)   evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

  (c)   presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

 

  (a)   all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

 

  (b)   any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

 

6. The Registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

/s/    JOHN B. MORSE, JR.


John B. Morse, Jr.

Vice President-Finance

May 12, 2003

 

21.