10-Q 1 d10Q.htm FORM 10-Q  

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

x     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2012

or

     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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  ¨.  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x.    No  ¨.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨

Smaller Reporting Company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨.    No  x.  

Shares outstanding at August 3, 2012:

                                                    Class A Common Stock – 1,219,383 Shares

                                                    Class B Common Stock – 6,225,472 Shares

 

 

 

 


 

 

THE WASHINGTON POST COMPANY

Index to Form 10-Q

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

a.     Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2012 and July 3, 2011                                                  

           1

 

 

 

 

b.     Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2012 and July 3, 2011

           2

 

 

 

 

c.      Condensed Consolidated Balance Sheets at June 30, 2012 (Unaudited) and December 31, 2011

           3

 

 

 

 

d.     Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2012 and July 3, 2011

           4

 

 

 

 

e.     Notes to Condensed Consolidated Financial Statements (Unaudited)

           5

 

 

 

Item 2.

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

         15

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

         22

 

 

 

Item 4.

Controls and Procedures

         22

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

         23

 

 

 

Item 6.

Exhibits

         24

 

 

Signatures

         25

 

 


 

 

PART I. FINANCIAL INFORMATION

 

Item  1.       Financial Statements

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Three Months Ended

  

Six Months Ended

  

  

  

June 30,

  

July 3,

  

June 30,

  

July 3,

(In thousands, except per share amounts)

  

2012 

  

2011 

  

2012 

  

2011 

Operating Revenues

  

  

  

  

  

  

  

  

  

  

  

  

  

Education

  

$

 558,404 

  

$

 616,962 

  

$

 1,111,805 

  

$

 1,235,891 

  

Advertising

  

  

 190,086 

  

  

 193,352 

  

  

 360,836 

  

  

 370,737 

  

Circulation and Subscriber

  

  

 219,286 

  

  

 216,606 

  

  

 434,516 

  

  

 431,129 

  

Other

  

  

 39,143 

  

  

 34,338 

  

  

 72,238 

  

  

 65,413 

  

  

  

  

 1,006,919 

  

  

 1,061,258 

  

  

 1,979,395 

  

  

 2,103,170 

Operating Costs and Expenses

  

  

  

  

  

  

  

  

  

  

  

  

  

Operating

  

  

 470,648 

  

  

 500,766 

  

  

 941,847 

  

  

 976,847 

  

Selling, general and administrative

  

  

 408,497 

  

  

 409,173 

  

  

 825,867 

  

  

 850,539 

  

Depreciation of property, plant and equipment

  

  

 62,978 

  

  

 62,882 

  

  

 125,479 

  

  

 125,078 

  

Amortization of intangible assets

  

  

 4,443 

  

  

 6,338 

  

  

 8,380 

  

  

 12,054 

  

  

  

  

 946,566 

  

  

 979,159 

  

  

 1,901,573 

  

  

 1,964,518 

Income from Operations

  

  

 60,353 

  

  

 82,099 

  

  

 77,822 

  

  

 138,652 

  

Equity in earnings of affiliates, net

  

  

 3,314 

  

  

 3,138 

  

  

 7,202 

  

  

 6,875 

  

Interest income

  

  

 775 

  

  

 997 

  

  

 1,844 

  

  

 1,979 

  

Interest expense

  

  

 (8,979) 

  

  

 (7,960) 

  

  

 (18,142) 

  

  

 (15,921) 

  

Other (expense) income, net

  

  

 (1,160) 

  

  

 (2,591) 

  

  

 7,428 

  

  

 (26,623) 

Income from Continuing Operations Before Income Taxes

  

  

 54,303 

  

  

 75,683 

  

  

 76,154 

  

  

 104,962 

Provision for Income Taxes

  

  

 20,100 

  

  

 27,900 

  

  

 30,600 

  

  

 38,800 

Income from Continuing Operations

  

  

 34,203 

  

  

 47,783 

  

  

 45,554 

  

  

 66,162 

Income (Loss) from Discontinued Operations, Net of Tax

  

  

 17,844 

  

  

 (2,020) 

  

  

 38,061 

  

  

 (4,770) 

Net Income

  

  

 52,047 

  

  

 45,763 

  

  

 83,615 

  

  

 61,392 

Net (Income) Loss Attributable to Noncontrolling Interests

  

  

 (11) 

  

  

 40 

  

  

 (81) 

  

  

 26 

Net Income Attributable to The Washington Post Company

  

  

 52,036 

  

  

 45,803 

  

  

 83,534 

  

  

 61,418 

Redeemable Preferred Stock Dividends

  

  

 (222) 

  

  

 (230) 

  

  

 (673) 

  

  

 (691) 

Net Income Attributable to The Washington Post Company

  

  

  

  

  

  

  

  

  

  

  

  

  

Common Stockholders

  

$

 51,814 

  

$

 45,573 

  

$

 82,861 

  

$

 60,727 

Amounts Attributable to The Washington Post Company

  

  

  

  

  

  

  

  

  

  

  

  

  

Common Stockholders

  

  

  

  

  

  

  

  

  

  

  

  

Income from continuing operations

  

$

 33,970 

  

$

 47,593 

  

$

 44,800 

  

$

 65,497 

Income (loss) from discontinued operations, net of tax

  

  

 17,844 

  

  

 (2,020) 

  

  

 38,061 

  

  

 (4,770) 

Net income attributable to The Washington Post Company

  

  

  

  

  

  

  

  

  

  

  

  

  

common stockholders

  

$

 51,814 

  

$

 45,573 

  

$

 82,861 

  

$

 60,727 

Per Share Information Attributable to The Washington

  

  

  

  

  

  

  

  

  

  

  

  

  

Post Company Common Stockholders

  

  

  

  

  

  

  

  

  

  

  

  

Basic income per common share from continuing operations

  

$

 4.48 

  

$

 6.00 

  

$

 5.85 

  

$

 8.16 

Basic income (loss) per common share from discontinued

  

  

  

  

  

  

  

  

  

  

  

  

  

operations

  

  

 2.36 

  

  

 (0.26) 

  

  

 5.02 

  

  

 (0.59) 

Basic net income per common share

  

$

 6.84 

  

$

 5.74 

  

$

 10.87 

  

$

 7.57 

Basic average number of common shares outstanding

  

  

 7,431 

  

  

 7,852 

  

  

 7,473 

  

  

 7,949 

Diluted income per common share from continuing operations

  

$

 4.48 

  

$

 6.00 

  

$

 5.85 

  

$

 8.16 

Diluted income (loss) per common share from discontinued

  

  

  

  

  

  

  

  

  

  

  

  

  

operations

  

  

 2.36 

  

  

 (0.26) 

  

  

 5.02 

  

  

 (0.59) 

Diluted net income per common share

  

$

 6.84 

  

$

 5.74 

  

$

 10.87 

  

$

 7.57 

Diluted average number of common shares outstanding

  

  

 7,545 

  

  

 7,933 

  

  

 7,580 

  

  

 8,026 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1

 


 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Three Months Ended

  

Six Months Ended

  

  

  

  

  

June 30,

  

July 3,

  

June 30,

  

July 3,

(In thousands)

  

2012 

  

2011 

  

2012 

  

2011 

Net Income

  

$

 52,047 

  

$

 45,763 

  

$

 83,615 

  

$

 61,392 

Other Comprehensive Income (Loss), Before Tax

  

  

  

  

  

  

  

  

  

  

  

  

  

Foreign currency translation adjustments:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Translation adjustments arising during the period

  

  

 (8,911) 

  

  

 5,088 

  

  

 (1,088) 

  

  

 13,058 

  

  

Adjustment for sales of businesses with foreign operations

  

  

 8 

  

  

 ― 

  

  

 521 

  

  

 ― 

  

  

  

  

  

  

 (8,903) 

  

  

 5,088 

  

  

 (567) 

  

  

 13,058 

  

Unrealized gains (losses) on available-for-sale securities:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Unrealized gains (losses) for the period

  

  

 6,590 

  

  

 (22,315) 

  

  

 38,905 

  

  

 (15,105) 

  

  

Reclassification adjustment for gain or write-down on available-for-sale

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

securities included in net income

  

  

 (772) 

  

  

 ― 

  

  

 (772) 

  

  

 30,696 

  

  

  

  

  

  

 5,818 

  

  

 (22,315) 

  

  

 38,133 

  

  

 15,591 

  

Pension and other postretirement plans:

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Amortization of net prior service credit included in net income

  

  

 (470) 

  

  

 (465) 

  

  

 (921) 

  

  

 (932) 

  

  

Amortization of net actuarial loss (gain) included in net income

  

  

 2,590 

  

  

 (128) 

  

  

 4,247 

  

  

 (255) 

  

  

Foreign affiliate pension adjustments

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 (4,613) 

  

  

  

  

  

 2,120 

  

  

 (593) 

  

  

 3,326 

  

  

 (5,800) 

  

Cash flow hedge, net change

  

  

 (1,342) 

  

  

 ― 

  

  

 (1,377) 

  

  

 ― 

Other Comprehensive (Loss) Income, Before Tax

  

  

 (2,307) 

  

  

 (17,820) 

  

  

 39,515 

  

  

 22,849 

  

Income tax (expense) benefit related to items of other comprehensive income

  

  

 (2,638) 

  

  

 9,100 

  

  

 (16,031) 

  

  

 (6,269) 

Other Comprehensive (Loss) Income, Net of Tax

  

  

 (4,945) 

  

  

 (8,720) 

  

  

 23,484 

  

  

 16,580 

Comprehensive Income

  

  

 47,102 

  

  

 37,043 

  

  

 107,099 

  

  

 77,972 

  

Comprehensive income attributable to noncontrolling interests

  

  

 (17) 

  

  

 (3) 

  

  

 (107) 

  

  

 (38) 

Total Comprehensive Income Attributable to The Washington

  

  

  

  

  

  

  

  

  

  

  

  

  

Post Company

  

$

 47,085 

  

$

 37,040 

  

$

 106,992 

  

$

 77,934 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

See accompanying Notes to Consolidated Financial Statements.

 

2

 


 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

June 30,

  

December 31,

(In thousands)

  

2012 

  

2011 

  

  

  

  

  

(Unaudited)

  

  

  

Assets

  

  

  

  

  

  

Current Assets

  

  

  

  

  

  

  

Cash and cash equivalents

  

$

 264,119 

  

$

 381,099 

  

Restricted cash

  

  

 19,997 

  

  

 25,287 

  

Investments in marketable equity securities and other investments

  

  

 423,945 

  

  

 338,674 

  

Accounts receivable, net

  

  

 355,753 

  

  

 392,725 

  

Income taxes receivable

  

  

 12,343 

  

  

 16,990 

  

Deferred income taxes

  

  

 3,212 

  

  

 13,343 

  

Inventories

  

  

 6,673 

  

  

 6,571 

  

Other current assets

  

  

 78,716 

  

  

 70,936 

  

  

Total Current Assets

  

  

 1,164,758 

  

  

 1,245,625 

Property, Plant and Equipment, Net

  

  

 1,117,421 

  

  

 1,152,390 

Investments in Affiliates

  

  

 21,721 

  

  

 17,101 

Goodwill, Net

  

  

 1,398,503 

  

  

 1,414,997 

Indefinite-Lived Intangible Assets, Net

  

  

 530,502 

  

  

 530,641 

Amortized Intangible Assets, Net

  

  

 50,787 

  

  

 54,622 

Prepaid Pension Cost

  

  

 537,467 

  

  

 537,262 

Deferred Charges and Other Assets

  

  

 56,443 

  

  

 64,348 

  

  

Total Assets

  

$

 4,877,602 

  

$

 5,016,986 

  

  

  

  

  

  

  

  

Liabilities and Equity

  

  

  

  

  

  

Current Liabilities

  

  

  

  

  

  

  

Accounts payable and accrued liabilities

  

$

 492,244 

  

$

 495,041 

  

Deferred revenue

  

  

 360,492 

  

  

 387,532 

  

Dividends declared

  

  

 18,461 

  

  

 ― 

  

Short-term borrowings

  

  

 3,173 

  

  

 112,983 

  

  

Total Current Liabilities

  

  

 874,370 

  

  

 995,556 

Postretirement Benefits Other Than Pensions

  

  

 69,440 

  

  

 67,864 

Accrued Compensation and Related Benefits

  

  

 224,086 

  

  

 228,304 

Other Liabilities

  

  

 112,108 

  

  

 107,741 

Deferred Income Taxes

  

  

 542,241 

  

  

 545,361 

Long-Term Debt

  

  

 452,569 

  

  

 452,229 

  

  

Total Liabilities

  

  

 2,274,814 

  

  

 2,397,055 

Redeemable Noncontrolling Interest

  

  

 6,821 

  

  

 6,740 

Redeemable Preferred Stock

  

  

 11,096 

  

  

 11,295 

Preferred Stock

  

  

 ― 

  

  

 ― 

Common Stockholders’ Equity

  

  

  

  

  

  

  

Common stock

  

  

 20,000 

  

  

 20,000 

  

Capital in excess of par value

  

  

 245,393 

  

  

 252,767 

  

Retained earnings

  

  

 4,589,287 

  

  

 4,561,989 

  

Accumulated other comprehensive income, net of tax

  

  

  

  

  

  

  

  

Cumulative foreign currency translation adjustment

  

  

 20,771 

  

  

 21,338 

  

  

Unrealized gain on available-for-sale securities

  

  

 103,238 

  

  

 80,358 

  

  

Unrealized gain on pensions and other postretirement plans

  

  

 65,621 

  

  

 63,625 

  

  

Cash flow hedge

  

  

 (817) 

  

  

 8 

  

Cost of Class B common stock held in treasury

  

  

 (2,458,622) 

  

  

 (2,398,189) 

  

  

Total Equity

  

  

 2,584,871 

  

  

 2,601,896 

  

  

  

Total Liabilities and Equity

  

$

 4,877,602 

  

$

 5,016,986 

  

  

  

  

  

  

  

  

  

  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3

 


 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  

  

  

  

  

  

  

  

  

  

  

  

  

Six Months Ended

  

  

  

  

June 30,

  

July 3,

(In thousands)

  

2012 

  

2011 

Cash Flows from Operating Activities:

  

  

  

  

  

  

Net Income

  

$

 83,615 

  

$

 61,392 

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

  

  

  

  

  

  

  

Depreciation of property, plant and equipment

  

  

 126,276 

  

  

128,973 

  

Amortization of intangible assets

  

  

 8,738 

  

  

 14,215 

  

Net pension expense (benefit)

  

  

4,634 

  

  

(1,747)

  

Early retirement program expense

  

  

 1,022 

  

  

 430 

  

Foreign exchange gain

  

  

 (68) 

  

  

 (3,031) 

  

Net gain on sales of businesses

  

  

 (26,459) 

  

  

 ― 

  

Net (gain) loss on sale or write-down of marketable equity securities

  

  

 (505) 

  

  

 30,696 

  

Equity in earnings of affiliates, net of distributions

  

  

 (7,202) 

  

  

 (6,875) 

  

(Benefit) provision for deferred income taxes

  

  

 (11,698) 

  

  

 4,798 

  

Net (gain) loss on sale or write-down of property, plant and equipment and other assets

  

  

 (8,398) 

  

  

 5,638 

  

Change in assets and liabilities:

  

  

  

  

  

  

  

  

Decrease in accounts receivable, net

  

  

 32,736 

  

  

 43,375 

  

  

Increase in inventories

  

  

 (102) 

  

  

 (3,158) 

  

  

Decrease in accounts payable and accrued liabilities

  

  

 (24,145) 

  

  

 (44,623) 

  

  

Decrease in deferred revenue

  

  

 (15,702) 

  

  

 (28,216) 

  

  

Decrease in income taxes receivable

  

  

 3,823 

  

  

 6,655 

  

  

Decrease (increase) in other assets and other liabilities, net

  

  

 2,292 

  

  

 (29,105) 

  

Other

  

  

 850 

  

  

 597 

  

  

Net Cash Provided by Operating Activities

  

  

 169,707 

  

  

 180,014 

  

  

  

  

  

  

  

  

  

Cash Flows from Investing Activities:

  

  

  

  

  

  

  

Purchases of property, plant and equipment

  

  

 (97,830) 

  

  

 (92,842) 

  

Net proceeds from sales of businesses, property, plant and equipment and other assets

  

  

 73,959 

  

  

 7,913 

  

Purchase of marketable equity securities and other investments

  

  

 (46,133) 

  

  

 (4,928) 

  

Investments in certain businesses, net of cash acquired

  

  

 (8,971) 

  

  

 (79,065) 

  

Other

  

  

 1,623 

  

  

 (36) 

  

  

Net Cash Used in Investing Activities

  

  

 (77,352) 

  

  

 (168,958) 

  

  

  

  

  

  

  

  

  

Cash Flows from Financing Activities:

  

  

  

  

  

  

  

Repayment of commercial paper, net

  

  

 (109,671) 

  

  

 ― 

  

Common shares repurchased

  

  

 (74,472) 

  

  

 (131,520) 

  

Dividends paid

  

  

 (37,775) 

  

  

 (38,262) 

  

Other

  

  

 11,438 

  

  

 16,298 

  

  

Net Cash Used in Financing Activities

  

  

 (210,480) 

  

  

 (153,484) 

Effect of Currency Exchange Rate Change

  

  

 1,145 

  

  

 4,050 

Net Decrease in Cash and Cash Equivalents

  

  

 (116,980) 

  

  

 (138,378) 

Beginning Cash and Cash Equivalents

  

  

 381,099 

  

  

 437,740 

Ending Cash and Cash Equivalents

  

$

 264,119 

  

$

 299,362 

  

  

  

  

  

  

  

  

  

See accompanying Notes to Condensed Consolidated Financial Statements.

 

4

 


 

 

THE WASHINGTON POST COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. ORGANIZATION, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

The Washington Post Company, Inc. (the Company) is a diversified education and media company. The Company’s Kaplan subsidiary provides a wide variety of educational services, both domestically and outside the United States. The Company’s media operations consist of the ownership and operation of cable television systems, newspaper publishing (principally The Washington Post), and television broadcasting (through the ownership and operation of six television broadcast stations).

Financial Periods – In the fourth quarter of 2011, the Company changed its fiscal quarter from a thirteen week quarter ending on the Sunday nearest the calendar quarter-end to a quarterly month end. The fiscal quarters for 2012 and 2011 ended on June 30, 2012, March 31, 2012, July 3, 2011, and April 3, 2011, respectively. Subsidiaries of the Company report on a calendar-quarter basis, with the exception of most of the newspaper publishing operations, which report on a thirteen week quarter ending on the Sunday nearest the calendar quarter-end.

Basis of Presentation – The accompanying condensed consolidated financial statements have been prepared in accordance with: (i) generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, for financial statements required to be filed with the Securities and Exchange Commission (“SEC”). They include the assets, liabilities, results of operations and cash flows of the Company, including its domestic and foreign subsidiaries that are more than 50% owned or otherwise controlled by the Company. As permitted under such rules, certain notes and other financial information normally required by GAAP have been condensed or omitted. Management believes the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. The Company’s results of operations for the three and six months ended June 30, 2012 and July 3, 2011 may not be indicative of the Company’s future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Certain amounts in previously issued financial statements have been reclassified to conform to the current year presentation, which includes the reclassification of the results of operations of certain Kaplan businesses as discontinued operations for all periods presented.

Use of Estimates in the Preparation of the Condensed Consolidated Financial Statements – The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported herein. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates.

Recently Adopted and Issued Accounting PronouncementsIn June 2011, the Financial Accounting Standards Board (“FASB”) issued an amended standard to increase the prominence of items reported in other comprehensive income. The amendment eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requires that all changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the amendment requires companies to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. The amendment does not affect how earnings per share is calculated or presented. This amendment is effective for interim and fiscal years beginning after December 15, 2011 and must be applied retrospectively. In December 2011, the FASB deferred the requirements related to the presentation of reclassification adjustments until further deliberations have taken place. Entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the issuance of the June 2011 amended standard. The adoption of the amendment not deferred by the FASB in the first quarter of 2012 is reflected in the Company’s Condensed Consolidated Statements of Comprehensive Income.

 

5

 


 

 

In July 2012, the FASB issued new guidance that amends the current indefinite-lived intangible assets impairment testing process. The new guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of its indefinite-lived intangible assets is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. Previous guidance required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of an indefinite-lived intangible asset with its carrying amount. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted if an entity’s financial statements for the most recent period have not yet been issued. The Company plans to early adopt this guidance at the beginning of the fourth quarter of 2012 and the guidance will not have an effect on the Company’s Condensed Consolidated Financial Statements.

 

2. DISCONTINUED OPERATIONS

 

In April 2012, the Company completed the sale of Kaplan EduNeering. Under the terms of the agreement, the purchaser acquired the stock of EduNeering and received substantially all the assets and liabilities. In the second quarter of 2012, the Company recorded an after-tax gain of $18.5 million related to this sale, subject to final net working capital adjustments, which is included in Income (Loss) from Discontinued Operations, Net of Tax in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2012. In February 2012, Kaplan completed the stock sale of Kaplan Learning Technologies (KLT) and recorded an after-tax loss on the sale of $1.9 million, which is included in Income (Loss) from Discontinued Operations, Net of Tax in the Company’s Condensed Consolidated Statement of Operations for the six months ended June 30, 2012.

 

The Company recorded $23.2 million of income tax benefits in the first quarter of 2012 in connection with the sale of its stock in EduNeering and KLT related to the excess of the outside stock tax basis over the net book value of the net assets disposed.

 

In October 2011, Kaplan completed the sale of Kaplan Compliance Solutions (KCS) and in July 2011, Kaplan completed the sale of Kaplan Virtual Education (KVE). The results of operations of EduNeering, KLT, KCS and KVE, for the second quarter and first six months of 2012 and 2011, where applicable, are included in the Company’s Condensed Consolidated Statements of Operations as Income (Loss) from Discontinued Operations, Net of Tax. All corresponding prior period operating results presented in the Company’s condensed consolidated financial statements and the accompanying notes have been reclassified to reflect the discontinued operations presented. The Company did not reclassify its Condensed Consolidated Statements of Cash Flows or prior year Condensed Consolidated Balance Sheet to reflect the discontinued operations.

 

The summarized Income (Loss) from Discontinued Operations, Net of Tax, for the three and six months ended June 30, 2012 and July 3, 2011 is presented below:  

 

  

  

  

Three Months Ended

  

Six Months Ended

  

  

  

June 30,

  

July 3,

  

June 30,

  

July 3,

(in thousands)

  

2012 

  

2011 

  

2012 

  

2011 

Operating revenues

  

$

 518 

  

$

 24,618 

  

$

 7,309 

  

$

 46,318 

Operating costs and expenses

  

  

 (1,485) 

  

  

 (27,838) 

  

  

 (8,620) 

  

  

 (54,088) 

Loss from discontinued operations

  

  

 (967) 

  

  

 (3,220) 

  

  

 (1,311) 

  

  

 (7,770) 

Benefit from income taxes

  

  

 (270) 

  

  

 (1,200) 

  

  

 (459) 

  

  

 (3,000) 

Net Loss from Discontinued Operations

  

  

 (697) 

  

  

 (2,020) 

  

  

 (852) 

  

  

 (4,770) 

Gain on sale of discontinued operations

  

  

 29,541 

  

  

 ― 

  

  

 26,459 

  

  

 ― 

Provision for (benefit from) income taxes on sale of discontinued operations

  

  

 11,000 

  

  

 ― 

  

  

 (12,454) 

  

  

 ― 

Income (Loss) from Discontinued Operations, Net of Tax

  

$

 17,844 

  

$

 (2,020) 

  

$

 38,061 

  

$

 (4,770) 

 

6

 


 

 

3. INVESTMENTS

 

Investments in marketable equity securities at June 30, 2012 and December 31, 2011 comprised the following:

 

  

  

June 30,

  

December 31,

(in thousands)

  

2012 

  

2011 

Total cost

  

$

 213,831 

  

$

 169,271 

Net unrealized gains

  

  

 172,064 

  

  

 133,930 

Total Fair Value

  

$

 385,895 

  

$

 303,201 

 

The Company invested $45.0 million in marketable equity securities during the first six months of 2012. There were no new investments in marketable equity securities during the first six months of 2011. During the first six months of 2012, proceeds from sales of marketable equity securities were $2.0 million, and net realized gains on such sales were $0.5 million. There were no sales of marketable equity securities in the first six months of 2011.

 

At the end of the first quarter of 2011, the Company’s investment in Corinthian Colleges, Inc. had been in an unrealized loss position for over six months. The Company evaluated this investment for other-than-temporary impairment based on various factors, including the duration and severity of the unrealized loss, the reason for the decline in value and the potential recovery period, and the Company’s ability and intent to hold the investment. In the first quarter of 2011, the Company concluded the loss was other-than-temporary and recorded a $30.7 million write-down on the investment. The investment continued to decline and in the third quarter of 2011, the Company recorded another $23.1 million write-down on the investment. The Company’s investment in Corinthian Colleges, Inc. accounted for $21.5 million of the total fair value of the Company’s investments in marketable equity securities at June 30, 2012.

 

4. ACQUISITIONS AND DISPOSITIONS

 

In the first six months of 2012, the Company acquired four small businesses in its education division and other businesses segment; the purchase price allocation mostly comprised goodwill and other intangible assets on a preliminary basis. In the first six months of 2011, the Company acquired four businesses. In the second quarter of 2011, Kaplan acquired three businesses in its Kaplan International division. These acquisitions included Kaplan’s May 2011 acquisitions of Franklyn Scholar and Carrick Education Group, leading national providers of vocational training and higher education in Australia. In June 2011, Kaplan acquired Structuralia, a provider of e-learning for the engineering and infrastructure sector in Spain. The assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition.

 

Kaplan completed the sales of EduNeering in April 2012 and Kaplan Learning Technologies in February 2012, which were part of the Kaplan Ventures division. In July 2011, Kaplan completed the sale of Kaplan Virtual Education, which was part of Kaplan Ventures division.

 

 5. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Amortization of intangible assets for the three months ended June 30, 2012 and July 3, 2011 was $4.5 million and $7.4 million, respectively. Amortization of intangible assets for the six months ended June 30, 2012 and July 3, 2011 was $8.7 and $14.2 million. Amortization of intangible assets is estimated to be approximately $9 million for the remainder of 2012, $14 million in 2013, $8 million in 2014, $6 million in 2015, $5 million in 2016, $6 million in 2017 and $3 million thereafter.

 

The changes in the carrying amount of goodwill, by segment, for the six months ended June 30, 2012 were as follows:

 

  

  

  

  

  

Cable

  

Newspaper

  

Television

  

Other

  

  

  

(in thousands)

Education

  

Television

  

Publishing

  

Broadcasting

  

Businesses

  

Total

Balance as of December 31, 2011

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Goodwill

$

 1,116,615 

  

$

 85,488 

  

$

 81,183 

  

$

 203,165 

  

$

 100,152 

  

$

 1,586,603 

  

Accumulated impairment losses

  

 (8,492) 

  

  

 ― 

  

  

 (65,772) 

  

  

 ― 

  

  

 (97,342) 

  

  

 (171,606) 

  

  

  

 1,108,123 

  

  

 85,488 

  

  

 15,411 

  

  

 203,165 

  

  

 2,810 

  

  

 1,414,997 

Acquisitions

  

 7,364 

  

  

 ― 

  

  

 4,098 

  

  

 ― 

  

  

 ― 

  

  

 11,462 

Dispositions

  

 (27,373) 

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 (27,373) 

Foreign currency exchange rate changes and other

  

 (583) 

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 (583) 

Balance as of June 30, 2012

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Goodwill

  

 1,087,531 

  

  

 85,488 

  

  

 85,281 

  

  

 203,165 

  

  

 100,152 

  

  

 1,561,617 

  

Accumulated impairment losses

  

 ― 

  

  

 ― 

  

  

 (65,772) 

  

  

 ― 

  

  

 (97,342) 

  

  

 (163,114) 

  

  

$

 1,087,531 

  

$

 85,488 

  

$

 19,509 

  

$

 203,165 

  

$

 2,810 

  

$

 1,398,503 

 

7

 


 

 

The changes in carrying amount of goodwill at the Company’s education division for the six months ended June 30, 2012 were as follows:

 

  

   

Higher

  

Test

  

Kaplan

  

Kaplan

  

  

  

(in thousands)

Education

  

Preparation

  

International

  

Ventures

  

Total

  

Balance as of December 31, 2011  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Goodwill

$

 409,128 

  

$

 152,187 

  

$

 515,936 

  

$

 39,364 

  

$

 1,116,615 

  

  

Accumulated impairment losses

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 (8,492) 

  

  

 (8,492) 

  

  

   

  

 409,128 

  

  

 152,187 

  

  

 515,936 

  

  

 30,872 

  

  

 1,108,123 

  

Acquisitions  

  

 ― 

  

  

 ― 

  

  

 7,364 

  

  

 ― 

  

  

 7,364 

  

Dispositions  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 (27,373) 

  

  

 (27,373) 

  

Foreign currency exchange rate changes and other  

  

 (21) 

  

  

 ― 

  

  

 623 

  

  

 (1,185) 

  

  

 (583) 

  

Balance as of June 30, 2012

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Goodwill  

  

 409,107 

  

  

 152,187 

  

  

 523,923 

  

  

 2,314 

  

  

 1,087,531 

  

  

Accumulated impairment losses  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

 ― 

  

  

   

$

 409,107 

  

$

 152,187 

  

$

 523,923 

  

$

 2,314 

  

$

 1,087,531 

  

 

Other intangible assets consist of the following:

 

  

  

  

  

As of June 30, 2012

  

As of December 31, 2011

  

  

  

  

Gross

  

  

  

Net

  

Gross

  

  

  

Net

  

  

Useful Life

  

Carrying

  

Accumulated

  

Carrying

  

Carrying

  

Accumulated

  

Carrying

(in thousands)

Range

  

Amount

  

Amortization

  

Amount

  

Amount

  

Amortization

  

Amount

Amortized Intangible Assets

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Non-compete agreements

2-5 years

  

$

 14,297 

  

$

 11,633 

  

$

 2,664 

  

$

 14,493 

  

$

 10,764 

  

$

 3,729 

  

Student and customer relationships

2-10 years

  

  

 65,851 

  

  

 37,727 

  

  

 28,124 

  

  

 75,734 

  

  

 47,888 

  

  

 27,846 

  

Databases and technology

3-5 years

  

  

 10,514 

  

  

 8,974 

  

  

 1,540 

  

  

 10,514 

  

  

 8,159 

  

  

 2,355 

  

Trade names and trademarks

2-10 years

  

  

 32,323 

  

  

 16,592 

  

  

 15,731 

  

  

 36,222 

  

  

 18,936 

  

  

 17,286 

  

Other

1-25 years

  

  

 9,563 

  

  

 6,835 

  

  

 2,728 

  

  

 9,971 

  

  

 6,565 

  

  

 3,406 

  

  

  

  

$

 132,548 

  

$

 81,761 

  

$

 50,787 

  

$

 146,934 

  

$

 92,312 

  

$

 54,622 

Indefinite-Lived Intangible Assets

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Franchise agreements

  

  

$

 496,321 

  

  

  

  

  

  

  

$

 496,321 

  

  

  

  

  

  

  

Wireless licenses

  

  

  

 22,150 

  

  

  

  

  

  

  

  

 22,150 

  

  

  

  

  

  

  

Licensure and accreditation

  

  

  

 7,862 

  

  

  

  

  

  

  

  

 7,862 

  

  

  

  

  

  

  

Other

  

  

  

 4,169 

  

  

  

  

  

  

  

  

 4,308 

  

  

  

  

  

  

  

  

  

  

$

 530,502 

  

  

  

  

  

  

  

$

 530,641 

  

  

  

  

  

  

 

6. DEBT

 

The Company’s borrowings consist of the following:

 

  

June 30,

  

December 31,

(in thousands)

2012 

  

2011 

7.25% unsecured notes due February 1, 2019

$

 397,272 

  

$

 397,065 

Commercial paper borrowings

  

 ― 

  

  

 109,671 

AUD 50M borrowing

  

 51,168 

  

  

 51,012 

Other indebtedness

  

 7,302 

  

  

 7,464 

Total Debt

  

 455,742 

  

  

 565,212 

Less: current portion

  

 (3,173) 

  

  

 (112,983) 

Total Long-Term Debt

$

 452,569 

  

$

 452,229 

 

The Company’s other indebtedness at June 30, 2012 and December 31, 2011 is at interest rates from 0% to 6% and matures from 2012 to 2017 and 2012 to 2016, respectively.

 

During the three months ended June 30, 2012 and July 3, 2011, the Company had average borrowings outstanding of approximately $455.5 million and $401.2 million, respectively, at average annual interest rates of approximately 7.0% and 7.2%. During the three months ended June 30, 2012 and July 3, 2011, the Company incurred net interest expense of $8.2 million and $7.0 million, respectively.

 

During the six months ended June 30, 2012 and July 3, 2011, the Company had average borrowings outstanding of approximately $472.0 million and $400.6 million, respectively, at average annual interest rates of approximately 7.0% and 7.2%. During the six months ended June 30, 2012 and July 3, 2011, the Company incurred net interest expense of $16.3 million and $13.9 million, respectively.

 

8

 


 

 

 

At June 30, 2012, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $464.5 million, compared with the carrying amount of $397.3 million. At December 31, 2011, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $460.5 million, compared with the carrying amount of $397.1 million. The carrying value of the Company’s other unsecured debt at June 30, 2012 approximates fair value.

 

7. EARNINGS PER SHARE

 

The Company’s earnings per share from continuing operations (basic and diluted) for the three and six months ended June 30, 2012 and July 3, 2011 are presented below:

 

  

  

  

  

Three Months Ended

  

Six Months Ended

  

  

  

  

June 30,

  

July 3,

  

June 30,

  

July 3,

(in thousands, except per share amounts)

  

2012 

  

2011 

  

2012 

  

2011 

Income from continuing operations attributable to The

  

  

  

  

  

  

  

  

  

  

  

  

  

Washington Post Company common stockholders

  

$

 33,970 

  

$

 47,593 

  

$

 44,800 

  

$

 65,497 

Less: Amount attributable to participating securities

  

  

 (670) 

  

  

 (486) 

  

  

 (1,079) 

  

  

 (647) 

Basic income from continuing operations attributable to

  

  

  

  

  

  

  

  

  

  

  

  

  

The Washington Post Company common stockholders

  

$

 33,300 

  

$

 47,107 

  

$

 43,721 

  

$

 64,850 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Plus: Amount attributable to participating securities

  

  

 670 

  

  

 486 

  

  

 1,079 

  

  

 647 

Diluted income from continuing operations attributable to

  

  

  

  

  

  

  

  

  

  

  

  

  

The Washington Post Company common stockholders

  

$

 33,970 

  

$

 47,593 

  

$

 44,800 

  

$

 65,497 

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

Basic weighted average shares outstanding

  

  

 7,431 

  

  

 7,852 

  

  

 7,473 

  

  

 7,949 

Plus: Effect of dilutive shares related to stock options and restricted stock

  

  

 114 

  

  

 81 

  

  

 107 

  

  

 77 

Diluted weighted average shares outstanding

  

  

 7,545 

  

  

 7,933 

  

  

 7,580 

  

  

 8,026