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 March 31, 2013

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.

 

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 May 3, 2013:

                                                    Class A Common Stock – 1,219,383 Shares

                                                    Class B Common Stock – 6,202,149 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 Months Ended March 31, 2013 and 2012                                                 

           1

 

 

 

 

b.     Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2013 and 2012

           2

 

 

 

 

c.      Condensed Consolidated Balance Sheets at March 31, 2013 (Unaudited) and December 31, 2012

           3

 

 

 

 

d.     Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2013 and 2012

           4

 

 

 

 

e.     Notes to Condensed Consolidated Financial Statements (Unaudited)

           5

 

 

 

Item 2.

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

         21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

         27

 

 

 

Item 4.

Controls and Procedures

         27

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

         28

 

 

 

Item 6.

Exhibits

         29

 

 

Signatures

         30

 

 

 

 


 

 

 

PART I. FINANCIAL INFORMATION

 

Item  1.       Financial Statements

 

 

 

 

 

 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

(in thousands, except per share amounts)

2013 

 

2012 

Operating Revenues

 

 

 

 

 

 

Education

$

527,815 

 

$

546,685 

 

Advertising

 

163,148 

 

 

167,558 

 

Circulation and Subscriber

 

221,709 

 

 

213,677 

 

Other

 

46,433 

 

 

27,581 

 

 

 

959,105 

 

 

955,501 

Operating Costs and Expenses

 

 

 

 

 

 

Operating

 

451,981 

 

 

460,300 

 

Selling, general and administrative

 

414,556 

 

 

408,106 

 

Depreciation of property, plant and equipment

 

65,791 

 

 

61,924 

 

Amortization of intangible assets

 

3,717 

 

 

3,873 

 

 

 

936,045 

 

 

934,203 

Income from Operations

 

23,060 

 

 

21,298 

 

Equity in earnings of affiliates, net

 

3,418 

 

 

3,888 

 

Interest income

 

510 

 

 

1,069 

 

Interest expense

 

(8,960)

 

 

(9,163)

 

Other (expense) income, net

 

(4,083)

 

 

8,588 

Income from Continuing Operations Before Income Taxes

 

13,945 

 

 

25,680 

Provision for Income Taxes

 

7,300 

 

 

11,700 

Income from Continuing Operations

 

6,645 

 

 

13,980 

(Loss) Income from Discontinued Operations, Net of Tax

 

(1,386)

 

 

17,588 

Net Income

 

5,259 

 

 

31,568 

Net Income Attributable to Noncontrolling Interests

 

(97)

 

 

(70)

Net Income Attributable to The Washington Post Company

 

5,162 

 

 

31,498 

Redeemable Preferred Stock Dividends

 

(444)

 

 

(451)

Net Income Attributable to The Washington Post Company Common Stockholders

$

4,718 

 

$

31,047 

Amounts Attributable to The Washington Post Company Common Stockholders

 

 

 

 

 

Income from continuing operations

$

6,104 

 

$

13,459 

(Loss) income from discontinued operations, net of tax

 

(1,386)

 

 

17,588 

Net income attributable to The Washington Post Company common stockholders

$

4,718 

 

$

31,047 

Per Share Information Attributable to The Washington Post Company

 

 

 

 

 

 

Common Stockholders

 

 

 

 

 

Basic income per common share from continuing operations

$

0.82 

 

$

1.72 

Basic (loss) income per common share from discontinued operations

 

(0.18)

 

 

2.35 

Basic net income per common share

$

0.64 

 

$

4.07 

Basic average number of common shares outstanding

 

 7,227 

 

 

 7,514 

Diluted income per common share from continuing operations

$

0.82 

 

$

1.72 

Diluted (loss) income per common share from discontinued operations

 

(0.18)

 

 

2.35 

Diluted net income per common share

$

0.64 

 

$

4.07 

Diluted average number of common shares outstanding

 

 7,266 

 

 

 7,615 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1

 


 

 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

  

 

 

 

 

 

 

 

  

 

 

 

Three Months Ended

  

 

 

 

March 31,

(in thousands)

2013 

2012 

Net Income

$

 5,259 

$

 31,568 

Other Comprehensive Income (Loss), Before Tax

  

  

 

  

 

Foreign currency translation adjustments:

 

 

 

 

 

 

Translation adjustments arising during the period

 

 (4,191) 

 

 7,823 

 

 

Adjustment for sale of a business with foreign operations

 

 ― 

 

 513 

 

 

 

 

 

 (4,191) 

 

 8,336 

 

Unrealized gains on available-for-sale securities:

 

 

 

 

 

 

Unrealized gains for the period

 

 49,078 

 

 32,315 

 

 

Reclassification adjustment for gain on available-for-sale security included in net income

 

 (551) 

 

 ― 

 

 

 

 

 

 48,527 

 

 32,315 

 

Pension and other postretirement plans:

 

 

 

 

 

 

Amortization of net prior service credit included in net income

 

 (437) 

 

 (451) 

 

 

Amortization of net actuarial loss included in net income

 

 2,317 

 

 1,657 

 

 

Settlement gain included in net income

 

 (3,471) 

 

 ― 

 

 

 

 (1,591) 

 

 1,206 

 

Cash flow hedge gain (loss)

 

 30 

 

 (35) 

Other Comprehensive Income, Before Tax

  

 42,775 

 

 41,822 

 

Income tax expense related to items of other comprehensive income

 

 (18,787) 

 

 (13,393) 

Other Comprehensive Income, Net of Tax

 

 23,988 

 

 28,429 

Comprehensive Income

 

 29,247 

 

 59,997 

 

Comprehensive income attributable to noncontrolling interests

 

 (118) 

 

 (90) 

Total Comprehensive Income Attributable to The Washington Post Company

$

 29,129 

$

 59,907 

 

 

 

 

 

 

 

 

See accompanying Notes to Consolidated Financial Statements.

 

2

 


 

 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

March 31,

 

December 31,

(in thousands)

 

2013 

 

2012 

 

 

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 300,652 

 

$

 512,431 

 

Restricted cash

 

 

 37,457 

 

 

 28,538 

 

Investments in marketable equity securities and other investments

 

 

 470,023 

 

 

 418,938 

 

Accounts receivable, net

 

 

 372,466 

 

 

 399,204 

 

Deferred income taxes

 

 

 ― 

 

 

 3,974 

 

Inventories

 

 

 3,929 

 

 

 7,985 

 

Other current assets

 

 

 91,454 

 

 

 82,692 

 

 

Total Current Assets

 

 

 1,275,981 

 

 

 1,453,762 

Property, Plant and Equipment, Net

 

 

 1,045,670 

 

 

 1,081,237 

Investments in Affiliates

 

 

 22,068 

 

 

 15,535 

Goodwill, Net

 

 

 1,309,663 

 

 

 1,317,915 

Indefinite-Lived Intangible Assets, Net

 

 

 539,728 

 

 

 539,728 

Amortized Intangible Assets, Net

 

 

 42,053 

 

 

 45,577 

Prepaid Pension Cost

 

 

 589,230 

 

 

 604,823 

Deferred Charges and Other Assets

 

 

 52,113 

 

 

 46,492 

 

 

Total Assets

 

$

 4,876,506 

 

$

 5,105,069 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

  

 

 

  

 

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

 444,972 

 

$

 486,396 

 

Income taxes payable

 

 

 2,992 

 

 

 726 

 

Deferred income taxes

 

 

 15,597 

 

 

 ― 

 

Deferred revenue

 

 

 403,098 

 

 

 395,837 

 

Dividends declared

 

 

 222 

 

 

 ― 

 

Short-term borrowings

 

 

 3,169 

 

 

 243,327 

 

 

Total Current Liabilities

 

 

 870,050 

 

 

 1,126,286 

Postretirement Benefits Other Than Pensions

 

 

 60,804 

 

 

 59,949 

Accrued Compensation and Related Benefits

 

 

 214,745 

 

 

 216,280 

Other Liabilities

 

 

 107,210 

 

 

 109,774 

Deferred Income Taxes

 

 

 530,667 

 

 

 529,427 

Long-Term Debt

 

 

 453,726 

 

 

 453,384 

 

 

Total Liabilities

 

 

 2,237,202 

 

 

 2,495,100 

Redeemable Noncontrolling Interest

 

 

 12,664 

 

 

 12,655 

Redeemable Preferred Stock

 

 

 11,096 

 

 

 11,096 

Preferred Stock

 

 

 ― 

 

 

 ― 

Common Stockholders’ Equity

 

  

 

 

  

 

 

Common stock

 

 

 20,000 

 

 

 20,000 

 

Capital in excess of par value

 

 

 244,176 

 

 

 240,746 

 

Retained earnings

 

 

 4,551,493 

 

 

 4,546,775 

 

Accumulated other comprehensive income, net of tax

 

  

 

 

  

 

 

 

Cumulative foreign currency translation adjustment

 

 

 21,881 

 

 

 26,072 

 

 

Unrealized gain on available-for-sale securities

 

 

 139,669 

 

 

 110,553 

 

 

Unrealized gain on pensions and other postretirement plans

 

 

 116,214 

 

 

 117,169 

 

 

Cash flow hedge

 

 

 (922) 

 

 

 (940) 

 

Cost of Class B common stock held in treasury

 

 

 (2,477,245) 

 

 

 (2,474,347) 

 

 

Total Common Stockholders’ Equity

 

 

 2,615,266 

 

 

 2,586,028 

Noncontrolling Interests

 

 

 278 

 

 

 190 

 

 

Total Equity

 

 

 2,615,544 

 

 

 2,586,218 

 

 

 

Total Liabilities and Equity

 

$

 4,876,506 

 

$

 5,105,069 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

3

 


 

 

 

THE WASHINGTON POST COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

  

 

 

 

March 31,

(in thousands)

 

2013 

 

2012 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net Income

 

$

 5,259 

 

$

 31,568 

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

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

 65,973 

 

 

63,254 

 

Amortization of intangible assets

 

 

 3,717 

 

 

 4,278 

 

Net pension expense

 

 

4,390 

 

 

2,192 

 

Multiemployer pension plan withdrawal charge

 

 

 349 

 

 

 ― 

 

Early retirement program expense

 

 

 14,258 

 

 

 1,022 

 

Foreign exchange loss (gain)

 

 

 4,614 

 

 

 (2,660) 

 

Net loss on sales of businesses

 

 

 70 

 

 

 3,082 

 

Equity in earnings of affiliates, net of distributions

 

 

 (3,408) 

 

 

 (3,691) 

 

Provision (benefit) for deferred income taxes

 

 

 1,877 

 

 

 (23,744) 

 

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

 

 

 515 

 

 

 (7,203) 

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease in accounts receivable, net

 

 

 23,020 

 

 

 36,716 

 

 

Decrease in inventories

 

 

 3,658 

 

 

 2,016 

 

 

Decrease in accounts payable and accrued liabilities

 

 

 (43,487) 

 

 

 (22,828) 

 

 

Increase in deferred revenue

 

 

 15,529 

 

 

 3,647 

 

 

Increase in income taxes payable

 

 

 2,273 

 

 

 11,019 

 

 

Increase in other assets and other liabilities, net

 

 

 (24,202) 

 

 

 (14,817) 

 

Other

 

 

 (387) 

 

 

 165 

 

 

Net Cash Provided by Operating Activities

 

 

 74,018 

 

 

 84,016 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

 (36,462) 

 

 

 (44,875) 

 

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

 

 

 3,636 

 

 

 7,702 

 

Purchases of marketable equity securities and other investments

 

 

 (8,623) 

 

 

 (23,003) 

 

Investments in certain businesses, net of cash acquired

 

 

 (700) 

 

 

 (2,545) 

 

Other

 

 

 (18) 

 

 

 1,571 

 

 

Net Cash Used in Investing Activities

 

 

 (42,167) 

 

 

 (61,150) 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Repayment of short-term borrowing

 

 

 (240,121) 

 

 

 (109,671) 

 

Common shares repurchased

 

 

 (4,196) 

 

 

 (136) 

 

Dividends paid

 

 

 (222) 

 

 

 (18,889) 

 

Other

 

 

 3,311 

 

 

 16,459 

 

 

Net Cash Used in Financing Activities

 

 

 (241,228) 

 

 

 (112,237) 

Effect of Currency Exchange Rate Change

 

 

 (2,402) 

 

 

 3,263 

Net Decrease in Cash and Cash Equivalents

 

 

 (211,779) 

 

 

 (86,108) 

Beginning Cash and Cash Equivalents

 

 

 512,431 

 

 

 381,099 

Ending Cash and Cash Equivalents

 

$

 300,652 

 

$

 294,991 

 

 

 

 

 

 

 

 

 

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 – The Company and its subsidiaries 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 quarterly periods ended March 31, 2013 and 2012 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 year ended December 31, 2012.

 

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 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 February 2013, the Financial Accounting Standards Board (“FASB”) issued final guidance on the presentation of reclassifications out of other comprehensive income to net income. The amendment requires an entity to provide information about the amounts reclassified out of other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in a footnote, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, only if the amount reclassified is required by GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide detail about those amounts. This amendment is effective for interim and fiscal years beginning after December 15, 2012. The adoption of the amendment in the first quarter of 2013 is reflected in the Company's Notes to Condensed Consolidated Financial Statements.  

 

 

5

 


 

 

 

2. DISCONTINUED OPERATIONS

 

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. Under the terms of the agreement, the purchaser received most of the assets and liabilities; however, certain land and buildings and other assets and liabilities were retained by the Company. The results of operations of The Herald for the first quarter of 2013 and 2012, 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 Balance Sheets or Statements of Cash Flows to reflect the discontinued operations.

 

In August 2012, the Company completed the sale of Kidum and recorded a pre-tax gain of $3.6 million and an after-tax gain of $10.2 million related to this sale in the third quarter of 2012. On July 31, 2012, the Company disposed of its interest in Avenue100 Media Solutions, Inc. and recorded a pre-tax loss of $5.7 million related to the disposition. An income tax benefit of $44.5 million was also recorded in the third quarter of 2012 as the Company determined that Avenue100 had no value. The income tax benefit was due to the Company’s tax basis in the stock of Avenue100 exceeding its net book value, as a result of goodwill and other intangible asset impairment charges recorded in 2008, 2010 and 2011 for which no tax benefit was previously recorded. 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. 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. 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. The results of operations of Kidum, Avenue100, EduNeering, and KLT, for the first quarter of 2012 are included in the Company’s Condensed Consolidated Statement of Operations as Income (Loss) from Discontinued Operations, Net of Tax.

 

The summarized (loss) income from discontinued operations, net of tax, is presented below:  

 

 

 

 

Three Months Ended

 

 

 

March 31,

(in thousands)

 

2013 

 

2012 

Operating revenues

 

$

 3,461 

 

$

 23,171 

Operating costs and expenses

 

 

 (5,477) 

 

 

 (27,344) 

Loss from discontinued operations

 

 

 (2,016) 

 

 

 (4,173) 

Benefit from income taxes

 

 

 (676) 

 

 

 (23,700) 

Net (Loss) Income from Discontinued Operations

 

 

 (1,340) 

 

 

 19,527 

Loss on sale of discontinued operations

 

 

 (70) 

 

 

 (3,082) 

Benefit from income taxes on sale of discontinued operations

 

 

 (24) 

 

 

 (1,143) 

(Loss) Income from Discontinued Operations, Net of Tax

 

$

 (1,386) 

 

$

 17,588 

 

 

6

 


 

 

 

The following table summarizes the 2012 quarterly operating results of the Company following the reclassification of the operations discussed above as discontinued operations:

 

 

 

 

 

March 31,

 

June 30,

 

September 30,

 

December 31,

(in thousands, except per share amounts)

 

2012 

 

2012 

 

2012 

 

2012 

Operating Revenues

 

  

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

 546,685 

 

$

 551,774 

 

$

 551,696 

 

$

 546,341 

 

Advertising

 

 

 167,558 

 

 

 186,486 

 

 

 191,779 

 

 

 225,624 

 

Circulation and subscriber

 

 

 213,677 

 

 

 217,747 

 

 

 219,137 

 

 

 220,732 

 

Other

 

 

 27,581 

 

 

 33,096 

 

 

 42,582 

 

 

 53,127 

 

 

 

 

 

 955,501 

 

 

 989,103 

 

 

 1,005,194 

 

 

 1,045,824 

Operating Costs and Expenses

 

 

 

 

 

 

 

 

 

 

  

 

 

Operating

 

 

 460,300 

 

 

 461,788 

 

 

 480,731 

 

 

 463,626 

 

Selling, general and administrative

 

 

 408,106 

 

 

 397,465 

 

 

 380,214 

 

 

 397,280 

 

Depreciation of property, plant and equipment

 

 

 61,924 

 

 

 62,401 

 

 

 63,397 

 

 

 79,593 

 

Amortization of intangible assets

 

 

 3,873 

 

 

 4,428 

 

 

 5,091 

 

 

 7,610 

 

Impairment of goodwill and other long-lived assets

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 111,593 

 

 

 

 

 

 934,203 

 

 

 926,082 

 

 

 929,433 

 

 

 1,059,702 

Income (Loss) from Operations

 

 

 21,298 

 

 

 63,021 

 

 

 75,761 

 

 

 (13,878) 

 

Equity in earnings of affiliates, net

 

 

 3,888 

 

 

 3,314 

 

 

 4,099 

 

 

 2,785 

 

Interest income

 

 

 1,069 

 

 

 775 

 

 

 648 

 

 

 901 

 

Interest expense

 

 

 (9,163) 

 

 

 (8,979) 

 

 

 (8,738) 

 

 

 (9,064) 

 

Other income (expense), net

 

 

 8,588 

 

 

 (635) 

 

 

 4,163 

 

 

 (17,572) 

Income (Loss) from Continuing Operations before Income Taxes

 

 

 25,680 

 

 

 57,496 

 

 

 75,933 

 

 

 (36,828) 

Provision for Income Taxes

 

 

 11,700 

 

 

 21,200 

 

 

 31,100 

 

 

 8,200 

Income (Loss) from Continuing Operations

 

 

 13,980 

 

 

 36,296 

 

 

 44,833 

 

 

 (45,028) 

Income (Loss) from Discontinued Operations, Net of Tax

 

 

 17,588 

 

 

 15,751 

 

 

 49,114 

 

 

 (347) 

Net Income (Loss)

 

 

 31,568 

 

 

 52,047 

 

 

 93,947 

 

 

 (45,375) 

Net (Income) Loss Attributable to Noncontrolling Interests

 

 

 (70) 

 

 

 (11) 

 

 

 71 

 

 

 (64) 

Net Income (Loss) Attributable to The Washington Post Company

 

 

 31,498 

 

 

 52,036 

 

 

 94,018 

 

 

 (45,439) 

Redeemable Preferred Stock Dividends

 

 

 (451) 

 

 

 (222) 

 

 

 (222) 

 

 

 ― 

Net Income (Loss) Attributable to The Washington Post Company

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stockholders

 

$

 31,047 

 

$

 51,814 

 

$

 93,796 

 

$

 (45,439) 

Amounts Attributable to The Washington Post Company

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

 13,459 

 

$

 36,063 

 

$

 44,682 

 

$

 (45,092) 

Income (loss) from discontinued operations, net of tax

 

 

 17,588 

 

 

 15,751 

 

 

 49,114 

 

 

 (347) 

Net income (loss) attributable to the Washington Post

 

 

 

 

 

 

 

 

 

 

 

 

 

Company common stockholders

 

$

 31,047 

 

$

 51,814 

 

$

 93,796 

 

$

 (45,439) 

Per Share Information Attributable to The Washington Post

 

 

 

 

 

 

 

 

 

 

 

 

 

Company Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

Basic income (loss) per common share from continuing operations

 

$

 1.72 

 

$

 4.76 

 

$

 6.02 

 

$

 (6.52) 

Basic income (loss) per common share from discontinued operations

 

 

 2.35 

 

 

 2.08 

 

 

 6.62 

 

 

 (0.05) 

Basic net income (loss) per common share

 

$

 4.07 

 

$

 6.84 

 

$

 12.64 

 

$

 (6.57) 

Diluted income (loss) per common share from continuing operations

 

$

 1.72 

 

$

 4.76 

 

$

 6.02 

 

$

 (6.52) 

Diluted income (loss) per common share from discontinued operations

 

 

 2.35 

 

 

 2.08 

 

 

 6.62 

 

 

 (0.05) 

Diluted net income (loss) per common share

 

$

 4.07 

 

$

 6.84 

 

$

 12.64 

 

$

 (6.57) 

 

7

 


 

 

 

 

The following table summarizes the annual operating results of the Company following the reclassification of operations discussed above as discontinued operations:

 

(in thousands, except per share amounts)

 

2012 

 

2011 

Operating Revenues

 

  

 

 

 

 

 

Education

 

$

 2,196,496 

 

$

 2,404,459 

 

Advertising

 

 

 771,447 

 

 

 738,489 

 

Circulation and subscriber

 

 

 871,293 

 

 

 852,891 

 

Other

 

 

 156,386 

 

 

 113,973 

 

 

 

 

 3,995,622 

 

 

 4,109,812 

Operating Costs and Expenses

 

  

 

 

 

 

 

Operating

 

 

 1,866,445 

 

 

 1,891,888 

 

Selling, general and administrative

 

 

 1,583,065 

 

 

 1,617,641 

 

Depreciation of property, plant and equipment

 

 

 267,315 

 

 

 247,650 

 

Amortization of intangible assets

 

 

 21,002 

 

 

 22,335 

 

Impairment of goodwill and other long-lived assets

 

 

 111,593 

 

 

 ― 

 

 

 

 

 3,849,420 

 

 

 3,779,514 

Income from Operations

 

 

 146,202 

 

 

 330,298 

 

Equity in earnings of affiliates, net

 

 

 14,086 

 

 

 5,949 

 

Interest income

 

 

 3,393 

 

 

 4,147 

 

Interest expense

 

 

 (35,944) 

 

 

 (33,226) 

 

Other expense, net

 

 

 (5,456) 

 

 

 (55,200) 

Income from Continuing Operations Before Income Taxes

 

 

 122,281 

 

 

 251,968 

Provision for Income Taxes

 

 

 72,200 

 

 

 103,500 

Income from Continuing Operations

 

 

 50,081 

 

 

 148,468 

Income (Loss) from Discontinued Operations, Net of Tax

 

 

 82,106 

 

 

 (31,311) 

Net Income

 

 

 132,187 

 

 

 117,157 

Net Income Attributable to Noncontrolling Interests

 

 

 (74) 

 

 

 (7) 

Net Income Attributable to The Washington Post Company

 

 

 132,113 

 

 

 117,150 

Redeemable Preferred Stock Dividends

 

 

 (895) 

 

 

 (917) 

Net Income Attributable to The Washington Post Company Common Stockholders

 

$

 131,218 

 

$

 116,233 

Amounts Attributable to The Washington Post Company Common Stockholders

 

 

 

 

 

 

Income from continuing operations

 

$

 49,112 

 

$

 147,544 

Income (loss) from discontinued operations, net of tax

 

 

 82,106 

 

 

 (31,311) 

Net income attributable to the Washington Post Company common stockholders

 

$

 131,218 

 

$

 116,233 

Per Share Information Attributable to The Washington Post Company Common

 

 

 

 

 

 

 

Stockholders

 

 

 

 

 

 

Basic income per common share from continuing operations

 

$

 6.23 

 

$

 18.66 

Basic income (loss) per common share from discontinued operations

 

 

 11.16 

 

 

 (3.96) 

Basic net income per common share

 

$

 17.39 

 

$

 14.70 

Diluted income per common share from continuing operations

 

$

 6.23 

 

$

 18.66 

Diluted income (loss) per common share from discontinued operations

 

 

 11.16 

 

 

 (3.96) 

Diluted net income per common share

 

$

 17.39 

 

$

 14.70 

 

3. INVESTMENTS

 

Investments in marketable equity securities comprised the following:

 

 

 

As of

  

 

March 31,

 

December 31,

(in thousands)

 

2013 

 

2012 

Total cost

 

$

 194,319 

 

$

 195,832 

Net unrealized gains

 

 

 232,782 

 

 

 184,255 

Total Fair Value

 

$

 427,101 

 

$

 380,087 

 

There were no new investments in marketable equity securities during the first quarter of 2013. The Company made $30.0 million in investments in marketable equity securities during the first quarter of 2012, of which $7.7 million was settled in April 2012. During the first quarter of 2013, the proceeds from sales of marketable equity securities were $2.1 million, and net realized gains on such sales were $0.6 million. There were no sales of marketable equity securities in the first quarter of 2012.

 

8

 


 

 

 

 

As of March 31, 2013, the Company has a $3.7 million unrealized loss on its investment in Strayer Education, Inc., a publicly traded company. At March 31, 2013, the investment has been in an unrealized loss position for under three 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 ability and intent to hold the investment and concluded that the unrealized loss is not other-than-temporary as of March 31, 2013. If any impairment is considered other-than-temporary, the investment will be written down to its fair market value with a corresponding charge to the Consolidated Statement of Operations.

 

4. ACQUISITIONS AND DISPOSITIONS

 

In the first quarter of 2013, the Company acquired one small business included in other businesses; the purchase price allocation mostly comprised goodwill and other intangible assets on a preliminary basis. In the first quarter of 2012, Kaplan acquired two small businesses in its International division; the purchase price allocation mostly comprised goodwill and other intangible assets. The assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition.

 

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. The Herald was previously reported in the newspaper publishing segment. Kaplan completed the sale of Kaplan Learning Technologies in February 2012, which was part of the Kaplan Ventures division.

 

 5. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Amortization of intangible assets for the three months ended March 31, 2013 and March 31, 2012 was $3.7 million and $3.9 million, respectively. Amortization of intangible assets is estimated to be approximately $9 million for the remainder of 2013, $9 million in 2014, $7 million in 2015, $6 million in 2016, $4 million in 2017, $4 million in 2018 and $3 million thereafter.

 

The changes in the carrying amount of goodwill, by segment, were as follows:

 

  

 

 

 

 

Cable

 

Newspaper

 

Television

 

Other

 

 

 

(in thousands)

Education

 

Television

 

Publishing

 

Broadcasting

 

Businesses

 

Total

Balance as of December 31, 2012

  

  

 

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

$

 1,097,058 

 

$

 85,488 

 

$

 81,183 

 

$

 203,165 

 

$

 19,052 

 

$

 1,485,946 

 

Accumulated impairment losses

 

 (102,259) 

 

 

 ― 

 

 

 (65,772) 

 

 

 ― 

 

 

 ― 

 

 

 (168,031) 

 

 

 

 994,799 

 

 

 85,488 

 

 

 15,411 

 

 

 203,165 

 

 

 19,052 

 

 

 1,317,915 

Acquisitions

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 627 

 

 

 627 

Foreign currency exchange rate changes

 

 (8,879) 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 (8,879) 

Balance as of March 31, 2013

  

  

 

  

  

 

 

  

 

 

  

 

 

  

 

 

  

 

Goodwill

 

 1,088,179 

 

 

 85,488 

 

 

 71,448 

 

 

 203,165 

 

 

 19,679 

 

 

 1,467,959 

 

Accumulated impairment losses

 

 (102,259) 

 

 

 ― 

 

 

 (56,037) 

 

 

 ― 

 

 

 ― 

 

 

 (158,296) 

 

 

$

 985,920 

 

$

 85,488 

 

$

 15,411 

 

$

 203,165 

 

$

 19,679 

 

$

 1,309,663 

 

The changes in carrying amount of goodwill at the Company’s education division were as follows:

 

  

 

Higher

 

Test

 

Kaplan

 

 

 

(in thousands)

Education

 

Preparation

 

International

 

Total

 

Balance as of December 31, 2012

  

  

 

  

  

 

 

 

 

 

 

 

 

Goodwill

$

 409,184 

 

$

 152,187 

 

$

 535,687 

 

$

 1,097,058 

 

 

Accumulated impairment losses

 

 ― 

 

 

 (102,259) 

 

 

 ― 

 

 

 (102,259) 

 

 

 

 

 409,184 

 

 

 49,928 

 

 

 535,687 

 

 

 994,799 

 

Foreign currency exchange rate changes

 

 (50) 

 

 

 ― 

 

 

 (8,829) 

 

 

 (8,879) 

 

Balance as of March 31, 2013

  

 

 

  

 

 

 

 

 

 

 

 

 

Goodwill

 

 409,134 

 

 

 152,187 

 

 

 526,858 

 

 

 1,088,179 

 

 

Accumulated impairment losses

 

 ― 

 

 

 (102,259) 

 

 

 ― 

 

 

 (102,259) 

 

 

 

$

 409,134 

 

$

 49,928 

 

$

 526,858 

 

$

 985,920 

 

 

9

 


 

 

 

 

Other intangible assets consist of the following:

 

 

 

 

 

As of March 31, 2013

 

As of December 31, 2012

 

 

 

 

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

 

$

 13,849 

 

$

 12,670 

 

$

 1,179 

 

$

 14,008 

 

$

 12,546 

 

$

 1,462 

 

Student and customer relationships

2-10 years

 

 

 73,457 

 

 

 42,651 

 

 

 30,806 

 

 

 73,693 

 

 

 40,787 

 

 

 32,906 

 

Databases and technology

3-5 years

 

 

 6,457 

 

 

 6,082 

 

 

 375 

 

 

 6,457 

 

 

 5,707 

 

 

 750 

 

Trade names and trademarks

2-10 years

 

 

 26,372 

 

 

 18,364 

 

 

 8,008 

 

 

 26,634 

 

 

 18,185 

 

 

 8,449 

 

Other

1-25 years

 

 

 8,872 

 

 

 7,187 

 

 

 1,685 

 

 

 8,849 

 

 

 6,839 

 

 

 2,010 

 

 

 

 

$

 129,007 

 

$

 86,954 

 

$

 42,053 

 

$

 129,641 

 

$

 84,064 

 

$

 45,577 

Indefinite-Lived Intangible Assets

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Franchise agreements

 

 

$

 496,321 

 

 

 

 

 

 

 

$

 496,321 

 

 

 

 

 

 

 

Wireless licenses

 

 

 

 22,150 

 

 

 

 

 

 

 

 

 22,150 

 

 

 

 

 

 

 

Licensure and accreditation

 

 

 

 7,371 

 

 

 

 

 

 

 

 

 7,371 

 

 

 

 

 

 

 

Other

 

 

 

 13,886 

 

 

 

 

 

 

 

 

 13,886 

 

 

 

 

 

 

 

 

 

 

$

 539,728 

 

 

 

 

 

 

 

$

 539,728 

 

 

 

 

 

 

 

6. DEBT

 

The Company’s borrowings consist of the following:

 

 

As of

 

March 31,

 

December 31,

(in thousands)

2013 

 

2012 

7.25% unsecured notes due February 1, 2019

$

 397,583 

 

$

 397,479 

USD Revolving credit borrowing

 

 ― 

 

 

 240,121 

AUD Revolving credit borrowing

 

 52,082 

 

 

 51,915 

Other indebtedness

 

 7,230 

 

 

 7,196 

Total Debt

 

 456,895 

 

 

 696,711 

Less: current portion

 

 (3,169) 

 

 

 (243,327) 

Total Long-Term Debt

$

 453,726 

 

$

 453,384 

 

The Company’s other indebtedness at March 31, 2013 and December 31, 2012 is at interest rates from 0% to 6% and matures from 2013 to 2017.

 

During the three months ended March 31, 2013 and March 31, 2012, the Company had average borrowings outstanding of approximately $516.7 million and $484.5 million, respectively, at average annual interest rates of approximately 7.0%. During the three months ended March 31, 2013 and March 31, 2012, the Company incurred net interest expense of $8.5 million and $8.1 million, respectively.

 

At March 31, 2013, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $471.5 million, compared with the carrying amount of $397.6 million. At December 31, 2012, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $481.4 million, compared with the carrying amount of $397.5 million. The carrying value of the Company’s other unsecured debt at March 31, 2013 approximates fair value.

 

7. FAIR VALUE MEASUREMENTS

 

Fair value measurements are determined based on the assumptions that a market participant would use in pricing an asset or liability based on a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) observable inputs, such as quoted prices in active markets (Level 1); (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

 

10

 


 

 

 

 

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:

 

(in thousands)

 

Level 1

 

Level 2

 

Total

As of March 31, 2013

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

Money market investments (1) 

 

$

 ― 

 

$

 190,915 

 

$

 190,915 

 

Marketable equity securities (2) 

 

 

 427,101 

 

 

 ― 

 

 

 427,101 

 

Other current investments (3) 

 

 

 14,495 

 

 

 28,427 

 

 

 42,922 

 

 

Total Financial Assets

 

$

 441,596 

 

$

 219,342 

 

$

 660,938 

  

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liabilities (4) 

 

$

 ― 

 

$

 60,919 

 

$

 60,919 

 

7.25% unsecured notes (5) 

 

 

 ― 

 

 

 471,528 

 

 

 471,528 

 

AUD revolving credit borrowing (5) 

 

 

 ― 

 

 

 52,082 

 

 

 52,082 

 

Interest rate swap (6) 

 

 

 ― 

 

 

 1,537 

 

 

 1,537 

 

 

Total Financial Liabilities

 

$

 ― 

 

$

 586,066 

 

$

 586,066 

 

As of December 31, 2012

 

  

  

 

  

  

 

  

  

Assets

 

 

 

 

 

 

 

 

 

 

Money market investments (1) 

 

$

 ― 

 

$

 432,670 

 

$

 432,670 

 

Marketable equity securities (2) 

 

 

 380,087 

 

 

 ― 

 

 

 380,087 

 

Other current investments (3) 

 

 

 14,134 

 

 

 24,717 

 

 

 38,851 

 

 

Total Financial Assets

 

$

 394,221 

 

$

 457,387 

 

$

 851,608 

  

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Deferred compensation plan liabilities (4) 

 

$

 ― 

 

$

 62,297 

 

$

 62,297 

 

7.25% unsecured notes (5) 

 

 

 ― 

 

 

 481,424 

 

 

 481,424 

 

AUD revolving credit borrowing (5) 

 

 

 ― 

 

 

 51,915 

 

 

 51,915 

 

Interest rate swap (6) 

 

 

 ― 

 

 

 1,567 

 

 

 1,567 

 

 

Total Financial Liabilities

 

$

 ― 

 

$

 597,203 

 

$

 597,203 

 

 

 

 

 

 

 

 

 

 

 

 

____________

(1)       The Company’s money market investments are included in cash, cash equivalents and restricted cash.

(2)       The Company’s investments in marketable equity securities are classified as available-for-sale.

(3)       Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits (with original maturities greater than 90 days, but less than one year).

(4)       Includes The Washington Post Company Deferred Compensation Plan and supplemental savings plan benefits under The Washington Post Company Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits.

(5)       See Note 6 for carrying amount of these notes and borrowing.

(6)       Included in Other liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.

 

For assets that are measured using quoted prices in active markets, the total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.

 

11

 


 

 

 

8. EARNINGS PER SHARE

 

The Company’s earnings per share from continuing operations (basic and diluted) are presented below:

 

 

 

 

 

Three Months Ended

  

 

 

 

March 31,

(in thousands, except per share amounts)

 

2013 

 

2012 

Income from continuing operations attributable to The Washington Post Company

  

  

  

 

 

 

 

common stockholders

 

$

 6,104 

 

$

 13,459 

Less: Amount attributable to participating securities

 

 

 (160) 

 

 

 (501) 

Basic income from continuing operations attributable to The Washington Post Company

 

 

  

 

 

  

 

common stockholders

 

$

 5,944 

 

$

 12,958 

 

 

 

 

 

 

 

 

 

Plus: Amount attributable to participating securities

  

 

 160 

 

 

 501 

Diluted income from continuing operations attributable to The Washington Post Company

 

 

  

 

 

  

 

common stockholders

 

$

 6,104 

 

$

 13,459 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

 7,227 

 

 

 7,514 

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

 

 

 39 

 

 

 101 

Diluted weighted average shares outstanding

 

 

 7,266 

 

 

 7,615 

  

 

 

 

 

  

 

 

  

Income Per Share from Continuing Operations Attributable to The Washington Post Company

  

  

  

 

  

  

 

Common Stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

 0.82 

 

$

 1.72 

  

 

Diluted

 

$

 0.82 

 

$

 1.72 

 

For the first quarter of 2013 and 2012, the basic earnings per share computed under the two-class method is lower than the diluted earnings per share computed under the if-converted method for participating securities, resulting in the presentation of the lower amount in diluted earnings per share. The first quarter of 2013 and 2012 diluted earnings per share amounts exclude the effects of 85,861 and 115,294 stock options outstanding, respectively, as their inclusion would be antidilutive. The first quarter of 2013 and 2012 diluted earnings per share amounts also exclude the effects of 52,200 and 7,500 restricted stock awards, respectively, as their inclusion would have been antidilutive.

 

In the first quarter of 2012, the Company declared regular dividends totaling $4.90 per share. In December 2012, the Company declared and paid an accelerated cash dividend totaling $9.80 per share, in lieu of regular quarterly dividends that the Company otherwise would have declared and paid in calendar year 2013.

 

9. PENSION AND POSTRETIREMENT PLANS

 

Defined Benefit Plans. The total cost arising from the Company’s defined benefit pension plans, including a portion included in discontinued operations, consists of the following components:

 

 

 

 

 

 

 

 

Supplemental Executive

 

 

Pension Plan

 

Retirement Plan

 

 

Three Months Ended March 31,

 

Three Months Ended March 31,

(in thousands)

 

2013 

 

2012 

 

2013 

 

2012 

Service cost

 

$

 13,365 

 

$

 9,107 

 

$

 429 

 

$

 367 

Interest cost

 

 

 14,291 

 

 

 14,591 

 

 

 1,023 

 

 

 1,060 

Expected return on assets

 

 

 (26,322) 

 

 

 (24,012) 

 

 

 ― 

 

 

 ― 

Amortization of prior service cost

 

 

 909 

 

 

 937 

 

 

 14 

 

 

 14 

Recognized actuarial loss

 

 

 2,147 

 

 

 1,569 

 

 

 711 

 

 

 458 

Net Periodic Cost

 

 

 4,390 

 

 

 2,192 

 

 

 2,177 

 

 

 1,899 

Early retirement program expense

 

 

 14,258 

 

 

 1,022 

 

 

 ― 

 

 

 ― 

Total Cost

 

$

 18,648 

 

$

 3,214 

 

$

 2,177 

 

$

 1,899 

 

The Company announced a Voluntary Retirement Incentive Program in February 2013, which was offered to certain employees of the Washington Post newspaper. The early retirement program expense is estimated at $20.4 million. Of this amount, $12.0 million was recorded in the first quarter of 2013 and the remainder will be recorded in the second quarter of 2013. In addition, the Washington Post newspaper recorded $2.3 million in special separation benefits for a group of employees. The early retirement program expense and special separation benefits for these programs will be funded from the assets of the Company’s pension plan.

 

12

 


 

 

 

 

In the first quarter of 2012, the Company offered a Voluntary Retirement Incentive Program to certain employees of Post-Newsweek Media and recorded early retirement program expense of $1.0 million. The early retirement program expense for these programs is funded from the assets of the Company’s pension plan.

 

Defined Benefit Plan Assets. The Company’s defined benefit pension obligations are funded by a portfolio made up of a relatively small number of stocks and high-quality fixed-income securities that are held by a third-party trustee. The assets of the Company’s pension plan were allocated as follows:

 

 

 

As of

 

 

March 31,

 

December 31,

 

 

2013 

 

2012 

U.S. equities

 

 

 64 

%

 

 

 64 

%

U.S. fixed income

 

 

 11 

%

 

 

 13 

%

International equities

 

 

 25 

%

 

 

 23 

%

 

 

 

 100 

%

 

 

 100 

%

 

Essentially all of the assets are actively managed by two investment companies. The goal of the investment managers is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both of these managers may invest in a combination of equity and fixed-income securities and cash. The managers are not permitted to invest in securities of the Company or in alternative investments. The investment managers cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway or more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval by the Plan administrator. As of March 31, 2013, the managers can invest no more than 24% of the assets in international stocks at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities. None of the assets is managed internally by the Company.

 

In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.

 

The Company evaluated its defined benefit pension plan asset portfolio for the existence of significant concentrations (defined as greater than 10% of plan assets) of credit risk as of March 31, 2013. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country and individual fund. At March 31, 2013 and December 31, 2012, the pension plan held common stock in one investment that exceeded 10% of total plan assets. This investment was valued at $280.0 million and $223.1 million at March 31, 2013 and December 31, 2012, respectively, or approximately 12% and 11%, respectively, of total plan assets. Assets also included $209.7 million and $179.9 million of Berkshire Hathaway common stock at March 31, 2013 and December 31, 2012, respectively. At March 31, 2013 and December 31, 2012, the pension plan held investments in one foreign country that exceeded 10% of total plan assets. These investments were valued at $298.2 million and $240.4 million at March 31, 2013 and December 31, 2012, respectively, or approximately 13% and 12%, respectively, of total plan assets.

 

Other Postretirement Plans. The total benefit arising from the Company’s postretirement plans, including a portion included in discontinued operations, consists of the following components:

 

 

Three Months Ended

 

 

March 31,

(in thousands)

 

2013 

 

2012 

Service cost

 

$

 727 

 

$

 778 

Interest cost

 

 

 510 

 

 

 684 

Amortization of prior service credit

 

 

 (1,360) 

 

 

 (1,402) 

Recognized actuarial gain

 

 

 (541) 

 

 

 (370) 

Net Periodic Benefit

 

 

 (664) 

 

 

 (310) 

Settlement gain

 

 

 (3,471) 

 

 

 ― 

Total Periodic Benefit

 

$

 (4,135) 

 

$

 (310) 

 

As part of the sale of The Herald, changes were made with respect to its postretirement medical plan, resulting in a $3.5 million settlement gain that is included in discontinued operations, net of tax, for the first quarter of 2013.

 

13

 


 

 

 

10. OTHER NON-OPERATING (EXPENSE) INCOME

 

A summary of non-operating (expense) income is as follows:

 

 

 

 

Three Months Ended

 

 

 

March 31,

(in thousands)

 

2013 

 

2012 

Foreign currency (losses) gains, net

 

$

 (4,614) 

 

$

 2,660 

(Losses) gains on sales or write-downs of cost method investments

 

 

 (179) 

 

 

 5,766 

Other, net

 

 

 710 

 

 

 162 

 

Total Other Non-Operating (Expense) Income

 

$

 (4,083) 

 

$

 8,588 

 

11. ACCUMULATED OTHER COMPREHENSIVE INCOME

 

The other comprehensive income (loss) consists of the following components:

 

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2013 

 

 

2012 

 

 

 

Before-Tax

 

Income

 

After-Tax

 

Before-Tax

 

Income

 

After-Tax

(in thousands)

Amount

 

Tax

 

Amount

 

Amount

 

Tax

 

Amount

Foreign currency translation adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustments arising during the period

$

 (4,191) 

 

$

 ― 

 

$

 (4,191) 

 

$

 7,823 

 

$

 ― 

 

$

 7,823 

 

Adjustment for sale of a business with foreign operations

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 513 

 

 

 ― 

 

 

 513 

 

 

 

 

 (4,191) 

 

 

 ― 

 

 

 (4,191) 

 

 

 8,336 

 

 

 ― 

 

 

 8,336 

Unrealized gains on available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains for the period

 

 49,078 

 

 

 (19,631) 

 

 

 29,447 

 

 

 32,315 

 

 

 (12,925) 

 

 

 19,390 

 

Reclassification adjustment for gain on available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

security included in net income

 

 (551) 

 

 

 220 

 

 

 (331) 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 

 

 48,527 

 

 

 (19,411) 

 

 

 29,116 

 

 

 32,315 

 

 

 (12,925) 

 

 

 19,390 

Pension and other postretirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of net prior service credit included in net income

 

 (437) 

 

 

 175 

 

 

 (262) 

 

 

 (451) 

 

 

 180 

 

 

 (271) 

 

Amortization of net actuarial loss included in net income

 

 2,317 

 

 

 (927) 

 

 

 1,390 

 

 

 1,657 

 

 

 (662) 

 

 

 995 

 

Settlement gain included in net income

 

 (3,471) 

 

 

 1,388 

 

 

 (2,083) 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 

 

 (1,591) 

 

 

 636 

 

 

 (955) 

 

 

 1,206 

 

 

 (482) 

 

 

 724 

Cash flow hedge:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) for the period

 

 30 

 

 

 (12) 

 

 

 18 

 

 

 (35) 

 

 

 14 

 

 

 (21) 

Other Comprehensive Income

$

 42,775 

 

$

 (18,787) 

 

$

 23,988 

 

$

 41,822 

 

$

 (13,393) 

 

$

 28,429 

 

The accumulated balances related to each component of other comprehensive income (loss) are as follows:

 

  

 

 

Cumulative

 

 

 

 

Unrealized Gain

 

 

 

 

  

 

 

Foreign

 

 

 

 

on Pensions

 

 

 

Accumulated

 

 

 

Currency

 

Unrealized Gain

 

and Other

 

 

 

 

Other

 

 

 

Translation

 

on Available-for-

 

Postretirement

 

Cash Flow

 

Comprehensive

(in thousands, net of taxes)

Adjustment

 

Sale Securities

 

Plans

 

Hedge

 

Income

Balance as of December 31, 2012

$

 26,072 

 

$

 110,553 

 

$

 117,169 

 

$

 (940) 

 

$

 252,854 

 

Other comprehensive income (loss) before

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reclassifications

 

 (4,191) 

 

 

 29,447 

 

 

 ― 

 

 

 (94) 

 

 

 25,162 

 

Net amount reclassified from accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

other comprehensive income

 

 ― 

 

 

 (331) 

 

 

 (955) 

 

 

 112 

 

 

 (1,174) 

 

Net other comprehensive income (loss)

 

 (4,191) 

 

 

 29,116 

 

 

 (955) 

 

 

 18 

 

 

 23,988 

Balance as of March 31, 2013

$

 21,881 

 

$

 139,669 

 

$

 116,214 

 

$

 (922) 

 

$

 276,842 

 

14

 


 

 

 

 

The amounts and line items of reclassifications out of Accumulated Other Comprehensive Income are as follows:

 

 

 

For the Three Months Ended

 

 

 

 

 March 31, 2013

 

 

 

Amount Reclassified from

 

 

 

Accumulated Other

 

Affected Line Item in the Condensed

(in thousands)

Comprehensive Income

 

Consolidated Statement of Operations

Unrealized Gains (Losses) on Available-for-sale Securities:

 

 

 

 

 

Realized gains for the period

$

 (551) 

 

Other (Expense) Income, net

 

 

 

 220 

 

Provision for Income Taxes

 

 

 

 (331) 

 

Net of Tax

Pension and Other Postretirement Plans

 

 

 

 

 

Amortization of net prior service credit

 

 (437) 

 

(1)

 

Amortization of net actuarial loss

 

 2,317 

 

(1)

 

Settlement gain

 

 (3,471) 

 

(1)

 

 

 

 (1,591) 

 

Before tax

 

 

 

 636 

 

Provision for Income Taxes

 

 

 

 (955) 

 

Net of Tax

Cash Flow Hedge

 

 

 

 

 

 

 

 186 

 

Interest Expense

 

 

 

 (74) 

 

Provision for Income Taxes

 

 

 112 

 

Net of Tax

Total reclassification for the period

$

 (1,174) 

 

Net of Tax

____________

(1)       These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 9).

 

12. CONTINGENCIES

 

Litigation and Legal Matters.  The Company and its subsidiaries are involved in various legal proceedings that arise in the ordinary course of its business. Although the outcomes of the legal claims and proceedings against the Company cannot be predicted with certainty, based on currently available information, management believes that there are no existing claims or proceedings that are likely to have a material effect on the Company's business, financial condition, results of operations or cash flows. Also, based on currently available information, management is of the opinion that the exposure to future material losses from existing legal proceedings is not reasonably possible, or that future material losses in excess of the amounts accrued are not reasonably possible.

 

A purported class-action complaint was filed against the Company, Donald E. Graham and Hal S. Jones on October 28, 2010, in the U.S. District Court for the District of Columbia, by the Plumbers Local #200 Pension Fund. The complaint alleged that the Company and certain of its officers made materially false and misleading statements, or failed to disclose material facts relating to KHE, in violation of the U.S. Federal securities laws. The complaint sought damages, attorneys’ fees, costs and equitable/injunctive relief. The Company moved to dismiss the complaint, and on December 23, 2011, the court granted the Company’s motion and dismissed the case with prejudice. On January 25, 2012, the Plaintiff filed a motion seeking leave to amend or alter that final judgment, which the court granted in part on March 13, 2012 by allowing the Plaintiff to file an amended complaint. On May 11, 2012, the Company moved to dismiss the amended complaint. On March 19, 2013, the court granted the Company’s motion and dismissed the case.

 

DOE Program Reviews.  The U.S. Department of Education (DOE) undertakes program reviews at Title IV participating institutions. Currently, there are four pending program reviews, including Kaplan University. In addition, the Company is awaiting the DOE’s final report on the program review at KHE’s Broomall, PA, location. In May 2012, the DOE issued a preliminary report on its 2009 onsite program review at Kaplan University containing several findings that required Kaplan University to conduct additional, detailed file reviews and submit additional data. In January 2013, Kaplan submitted a response to the DOE’s data request and is awaiting a final report on this review. The Company does not expect the final program review report to have a material impact on KHE; however, the results of this and the other open reviews and their impact on Kaplan’s operations are uncertain.

 

The 90/10 Rule.  Under regulations referred to as the 90/10 rule, a KHE OPEID unit would lose its eligibility to participate in Title IV programs for a period of at least two fiscal years if it derives more than 90% of its receipts from Title IV programs, as calculated on a cash basis in accordance with the Higher Education Act and applicable DOE regulations, in each of two consecutive fiscal years, commencing with the unit’s first fiscal year that ends after August 14, 2008. Any

 

15

 


 

 

 

OPEID unit with Title IV receipts exceeding 90% for a single fiscal year ending after August 14, 2008, will be placed on provisional certification and may be subject to other enforcement measures. KHE is taking various measures to reduce the percentage of its receipts attributable to Title IV funds, including modifying student payment options; emphasizing direct-pay and employer-paid education programs; encouraging students to carefully evaluate the amount of their Title IV borrowing; eliminating some programs; cash-matching; and developing and offering additional non-Title IV-eligible certificate preparation, professional development and continuing education programs. Some of the other programs may currently be offered by other Kaplan businesses. Absent the adoption of the changes mentioned above, and if current trends continue, management estimates that in 2013, at least 17 of the KHE Campuses’ OPEID units, representing approximately 19% of KHE’s 2012 revenues, could have a 90/10 ratio over 90%. As noted above, Kaplan is taking steps to address compliance with the 90/10 rule; however, there can be no guarantee that these measures will be adequate to prevent the 90/10 rule calculations at some or all of the schools from exceeding 90% in the future.

 

13. BUSINESS SEGMENTS

 

The Company has seven reportable segments: Kaplan Higher Education, Kaplan Test Preparation, Kaplan International, cable television, newspaper publishing, and television broadcasting and other businesses.

 

Education.  Kaplan’s Colloquy business moved from Kaplan International to Kaplan Corporate effective January 1, 2013. Segment operating results of the education division have been restated to reflect this change.

 

Newspaper  Publishing. In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. As a result, The Herald results are included in discontinued operations, net of tax, for all periods presented. The newspaper publishing segment operating results have been restated to reflect this change.

 

16

 


 

 

 

 

The following table summarizes the quarterly financial information related to each of the Company’s business segments:

 

 

 

 

March 31,

 

March 31,

 

June 30,

 

September 30,

 

December 31,

(in thousands)

 

2013 

 

2012 

 

2012 

 

2012 

 

2012 

Operating Revenues

 

 

 

 

  

  

 

  

 

 

  

  

 

  

 

 

Education

 

$

 527,815 

 

$

 546,685 

 

$

 551,774 

 

$

 551,696 

 

$

 546,341 

 

Cable television

 

 

 200,138 

 

 

 190,210 

 

 

 195,579 

 

 

 199,625 

 

 

 201,703 

 

Newspaper publishing

 

 

 127,264 

 

 

 132,450 

 

 

 139,228 

 

 

 132,025 

 

 

 155,952 

 

Television broadcasting

 

 

 85,270 

 

 

 81,497 

 

 

 95,591 

 

 

 106,411 

 

 

 116,192 

 

Other businesses

 

 

 18,891 

 

 

 4,768 

 

 

 7,177 

 

 

 15,834 

 

 

 25,761 

 

Corporate office

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

Intersegment elimination

 

 

 (273) 

 

 

 (109) 

 

 

 (246) 

 

 

 (397) 

 

 

 (125) 

 

 

 

$

 959,105 

 

$

 955,501 

 

$

 989,103 

 

$

 1,005,194 

 

$

 1,045,824 

Income (Loss) From Operations

 

  

 

 

  

  

 

  

  

 

  

  

 

  

  

 

Education

 

$

 (4,056) 

 

$

 (11,915) 

 

$

 3,728 

 

$

 14,693 

 

$

 (111,874) 

 

Cable television

 

 

 36,613 

 

 

 32,777 

 

 

 38,446 

 

 

 39,913 

 

 

 43,445 

 

Newspaper publishing

 

 

 (34,472) 

 

 

 (20,612) 

 

 

 (12,614) 

 

 

 (21,985) 

 

 

 3,180 

 

Television broadcasting

 

 

 35,362 

 

 

 30,999 

 

 

 43,728 

 

 

 54,082 

 

 

 62,833 

 

Other businesses

 

 

 (6,113) 

 

 

 (4,643) 

 

 

 (6,775) 

 

 

 (5,248) 

 

 

 (6,578) 

 

Corporate office

 

 

 (4,274) 

 

 

 (5,308) 

 

 

 (3,492) 

 

 

 (5,694) 

 

 

 (4,884) 

 

 

 

$

 23,060 

 

$

 21,298 

 

$

 63,021 

 

$

 75,761 

 

$

 (13,878) 

Equity in Earnings (Losses) of Affiliates, Net

 

 

 3,418 

 

 

 3,888 

 

 

 3,314 

 

 

 4,099 

 

 

 2,785 

Interest Expense, Net

 

 

 (8,450) 

 

 

 (8,094) 

 

 

 (8,204) 

 

 

 (8,090) 

 

 

 (8,163) 

Other (Expense) Income, Net

 

 

 (4,083) 

 

 

 8,588 

 

 

 (635) 

 

 

 4,163 

 

 

 (17,572) 

Income from Continuing Operations Before Income Taxes

 

$

 13,945 

 

$

 25,680 

 

$

 57,496 

 

$

 75,933 

 

$

 (36,828) 

Depreciation of Property, Plant and Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

 22,588 

 

$

 20,717 

 

$

 21,011 

 

$

 22,024 

 

$

 37,431 

 

Cable television

 

 

 33,733 

 

 

 32,197 

 

 

 32,234 

 

 

 32,310 

 

 

 32,366 

 

Newspaper publishing

 

 

 6,015 

 

 

 5,885 

 

 

 5,934 

 

 

 5,932 

 

 

 5,993 

 

Television broadcasting

 

 

 3,145 

 

 

 3,125 

 

 

 3,222 

 

 

 3,126 

 

 

 3,545 

 

Other businesses

 

 

 310 

 

 

 ― 

 

 

 ― 

 

 

 5 

 

 

 258 

 

Corporate office

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 

$

 65,791 

 

$

 61,924 

 

$

 62,401 

 

$

 63,397 

 

$

 79,593 

Amortization of Intangible Assets and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment of Goodwill and Other Long-Lived Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

 2,518 

 

$

 3,236 

 

$

 3,803 

 

$

 4,489 

 

$

 117,784 

 

Cable television

 

 

 50 

 

 

 54 

 

 

 53 

 

 

 52 

 

 

 52 

 

Newspaper publishing

 

 

 150 

 

 

 183 

 

 

 172 

 

 

 150 

 

 

 149 

 

Television broadcasting

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

Other businesses

 

 

 999 

 

 

 400 

 

 

 400 

 

 

 400 

 

 

 1,218 

 

Corporate office

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 ― 

 

 

 

$

 3,717 

 

$

 3,873 

 

$

 4,428 

 

$

 5,091 

 

$

 119,203 

Net Pension Expense (Credit)

 

  

 

 

  

  

 

  

  

 

  

  

 

  

  

 

Education

 

$

 4,106 

 

$

 2,392 

 

$

 1,969 

 

$

 3,522 

 

$

 3,701 

 

Cable television

 

 

 882 

 

 

 530 

 

 

 514 

 

 

 694 

 

 

 802 

 

Newspaper publishing

 

 

 22,929 

 

 

 8,540 

 

 

 7,717 

 

 

 16,140 

 

 

 8,954 

 

Television broadcasting

 

 

 1,288 

 

 

 960 

 

 

 1,055 

 

 

 1,432 

 

 

 1,523 

 

Other businesses

 

 

 76 

 

 

 10 

 

 

 10 

 

 

 18 

 

 

 22 

 

Corporate office

 

 

 (10,666) 

 

 

 (9,298) 

 

 

 (8,896) 

 

 

 (9,021) 

 

 

 (8,982) 

 

 

 

$

 18,615 

 

$

 3,134 

 

$

 2,369 

 

$

 12,785 

 

$

 6,020 

 

17

 


 

 

 

 

The following table summarizes annual financial information related to each of the Company’s business segments:

 

(in thousands)

 

2012 

 

2011 

Operating Revenues

 

  

  

 

 

 

 

Education

 

$

 2,196,496 

 

$

 2,404,459 

 

Cable television

 

 

 787,117 

 

 

 760,221 

 

Newspaper publishing

 

 

 559,655 

 

 

 601,199 

 

Television broadcasting

 

 

 399,691 

 

 

 319,206 

 

Other businesses

 

 

 53,540 

 

 

 25,507 

 

Corporate office

 

 

 ― 

 

 

 ― 

 

Intersegment elimination

 

 

 (877) 

 

 

 (780) 

  

 

 

$

 3,995,622 

 

$

 4,109,812 

Income (Loss) from Operations

 

 

 

 

 

 

 

Education

 

$

 (105,368) 

 

$

 96,286 

 

Cable television

 

 

 154,581 

 

 

 156,844 

 

Newspaper publishing

 

 

 (52,031) 

 

 

 (16,764) 

 

Television broadcasting

 

 

 191,642 

 

 

 117,089 

 

Other businesses

 

 

 (23,244) 

 

 

 (8,735) 

 

Corporate office

 

 

 (19,378) 

 

 

 (14,422) 

  

 

 

$

 146,202 

 

$

 330,298 

Equity in Earnings of Affiliates, Net

 

 

 14,086 

 

 

 5,949 

Interest Expense, Net

 

 

 (32,551) 

 

 

 (29,079) 

Other Expense, Net

 

 

 (5,456) 

 

 

 (55,200) 

Income from Continuing Operations Before Income Taxes

 

$

 122,281 

 

$

 251,968 

Depreciation of Property, Plant and Equipment

 

 

 

 

 

 

 

Education

 

$

 101,183 

 

$

 83,735 

 

Cable television

 

 

 129,107 

 

 

 126,302 

 

Newspaper publishing

 

 

 23,744 

 

 

 24,921 

 

Television broadcasting

 

 

 13,018 

 

 

 12,448 

 

Other businesses

 

 

 263 

 

 

 ― 

 

Corporate office

 

 

 ― 

 

 

 244 

  

 

 

$

 267,315 

 

$

 247,650 

Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets

 

 

 

 

 

 

 

Education

 

$

 129,312 

 

$

 19,417 

 

Cable television

 

 

 211 

 

 

 267 

 

Newspaper publishing

 

 

 654 

 

 

 1,051 

 

Television broadcasting

 

 

 ― 

 

 

 ― 

 

Other businesses

 

 

 2,418 

 

 

 1,600 

 

Corporate office

 

 

 ― 

 

 

 ― 

  

 

 

$

 132,595 

 

$

 22,335 

Net Pension Expense (Credit)

 

  

  

 

 

  

 

Education

 

$

 11,584 

 

$

 6,345 

 

Cable television

 

 

 2,540 

 

 

 1,924 

 

Newspaper publishing

 

 

 41,351 

 

 

 22,614 

 

Television broadcasting

 

 

 4,970 

 

 

 1,669 

 

Other businesses

 

 

 60 

 

 

 17 

 

Corporate office

 

 

 (36,197) 

 

 

 (36,983) 

  

 

 

$

 24,308 

 

$

 (4,414) 

 

Asset information for the Company’s business segments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

March 31,

 

December 31,

(in thousands)

 

2013 

 

2012 

Identifiable Assets

 

 

 

 

 

 

 

Education

 

$

 1,727,078 

 

$

 1,988,015 

 

Cable television

 

 

 1,181,320 

 

 

 1,187,603 

 

Newspaper publishing

 

 

 255,574 

 

 

 280,323 

 

Television broadcasting

 

 

 373,532 

 

 

 374,075 

 

Other businesses

 

 

 64,215 

 

 

 81,211 

 

Corporate office

 

 

 236,388 

 

 

 193,397 

 

 

 

$

 3,838,107 

 

$

 4,104,624 

Investments in Marketable Equity Securities

 

 

 427,101 

 

 

 380,087 

Investments in Affiliates

 

 

 22,068 

 

 

 15,535 

Prepaid Pension Cost

 

 

 589,230 

 

 

 604,823 

Total Assets

 

$

 4,876,506 

 

$

 5,105,069 

 

18

 


 

 

 

 

The following table summarizes the quarterly financial information related to the operating segments of the Company’s education division:

 

 

 

 

March 31,

March 31,

 

June 30,

 

September 30,

 

December 31,

(in thousands)

 

2013 

2012 

 

2012 

 

2012 

 

2012 

Operating Revenues

 

  

 

  

 

 

  

 

 

  

  

 

  

 

 

Higher education

 

$

 271,860 

$

 308,384 

 

$

 290,861 

 

$

 273,703 

 

$

 276,459 

 

Test preparation

 

 

 68,943 

 

 62,829 

 

 

 79,787 

 

 

 81,151 

 

 

 60,485 

 

Kaplan international

 

 

 184,813 

 

 173,563 

 

 

 179,141 

 

 

 194,158 

 

 

 206,928 

 

Kaplan corporate and other

 

 

 2,604 

 

 3,384 

 

 

 3,090 

 

 

 3,809 

 

 

 4,756 

 

Intersegment elimination

 

 

 (405) 

 

 (1,475) 

 

 

 (1,105) 

 

 

 (1,125) 

 

 

 (2,287) 

 

 

 

$

 527,815 

$

 546,685 

 

$

 551,774 

 

$

 551,696 

 

$

 546,341 

Income (Loss) from Operations

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

Higher education

 

$

 5,101 

$

 8,959 

 

$

 5,860 

 

$

 1,510 

 

$

 10,916 

 

Test preparation

 

 

 (4,345) 

 

 (10,219) 

 

 

 2,706 

 

 

 3,446 

 

 

 (6,732) 

 

Kaplan international

 

 

 6,397 

 

 4,140 

 

 

 9,788 

 

 

 20,365 

 

 

 15,319 

 

Kaplan corporate and other

 

 

 (11,340) 

 

 (14,989) 

 

 

 (14,787) 

 

 

 (10,852) 

 

 

 (131,844) 

 

Intersegment elimination

 

 

 131 

 

 194 

 

 

 161 

 

 

 224 

 

 

 467 

 

 

 

$

 (4,056) 

$

 (11,915) 

 

$

 3,728 

 

$

 14,693 

 

$

 (111,874) 

Depreciation of Property, Plant and Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Higher education

 

$

 13,439 

$

 11,757 

 

$

 11,673 

 

$

 12,168 

 

$

 22,916 

 

Test preparation

 

 

 4,758 

 

 4,315 

 

 

 4,449 

 

 

 5,544 

 

 

 5,410 

 

Kaplan international

 

 

 3,996 

 

 4,178 

 

 

 4,471 

 

 

 3,841 

 

 

 8,659 

 

Kaplan corporate and other

 

 

 395 

 

 467 

 

 

 418 

 

 

 471 

 

 

 446 

 

 

 

$

 22,588 

$

 20,717 

 

$

 21,011 

 

$

 22,024 

 

$

 37,431 

Amortization of Intangible Assets

 

$

 2,518 

$

 3,236 

 

$

 3,803 

 

$

 4,489 

 

$

 6,191 

Impairment of Goodwill and Other Long-Lived Assets

 

$

 ― 

$

 ― 

 

$

 ― 

 

$

 ― 

 

$

 111,593 

Pension Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Higher education

 

$

 2,807 

$

 1,587 

 

$

 1,587 

 

$

 2,234 

 

$

 2,535 

 

Test preparation

 

 

 640 

 

 413 

 

 

 414 

 

 

 554 

 

 

 626 

 

Kaplan international

 

 

 87 

 

 12 

 

 

 (11) 

 

 

 112 

 

 

 76 

 

Kaplan corporate and other

 

 

 572 

 

 380 

 

 

 (21) 

 

 

 622 

 

 

 464 

 

 

 

$

 4,106 

$

 2,392 

 

$

 1,969 

 

$

 3,522 

 

$

 3,701 

 

19

 


 

 

 

 

The following table summarizes annual financial information related to the reportable segments of the Company’s education division segments:

 

(in thousands)

 

2012 

 

2011 

Operating Revenues

 

  

  

 

  

 

 

Higher education

 

$

 1,149,407 

 

$

 1,399,583 

 

Test preparation

 

 

 284,252 

 

 

 303,093 

 

Kaplan international

 

 

 753,790 

 

 

 690,226 

 

Kaplan corporate and other

 

 

 15,039 

 

 

 18,940 

 

Intersegment elimination

 

 

 (5,992) 

 

 

 (7,383) 

  

 

 

$

 2,196,496 

 

$

 2,404,459 

Income (Loss) from Operations

 

  

 

 

  

 

 

Higher education

 

$

 27,245 

 

$

 148,915 

 

Test preparation

 

 

 (10,799) 

 

 

 (28,498) 

 

Kaplan international

 

 

 49,612 

 

 

 46,498 

 

Kaplan corporate and other

 

 

 (172,472) 

 

 

 (69,509) 

 

Intersegment elimination

 

 

 1,046 

 

 

 (1,120) 

  

 

 

$

 (105,368) 

 

$

 96,286 

Depreciation of Property, Plant and Equipment

 

 

 

 

 

 

 

Higher education

 

$

 58,514 

 

$

 48,379 

 

Test preparation

 

 

 19,718 

 

 

 15,489 

 

Kaplan international

 

 

 21,149 

 

 

 16,746 

 

Kaplan corporate and other

 

 

 1,802 

 

 

 3,121 

  

 

 

$

 101,183 

 

$

 83,735 

Amortization of Intangible Assets

 

$

 17,719 

 

$

 19,417 

Impairment of Goodwill and Other Long-Lived Assets

 

$

 111,593 

 

$

 ― 

Pension Expense

 

 

 

 

 

 

 

Higher education

 

$

 7,943 

 

$

 4,249 

 

Test preparation

 

 

 2,007 

 

 

 1,288 

 

Kaplan international

 

 

 189 

 

 

 142 

 

Kaplan corporate and other

 

 

 1,445 

 

 

 666 

 

 

 

$

 11,584 

 

$

 6,345 

 

Identifiable assets for the Company’s education division consist of the following:

 

 

 

 

 

 

 

 

  

 

 

As of

 

 

 

March 31,

 

December 31,

(in thousands)

 

2013 

 

2012 

Identifiable Assets

  

  

  

 

 

 

 

Higher education

 

$

 650,375 

 

$

 949,260 

 

Test preparation

 

 

 198,639 

 

 

 197,672 

 

Kaplan international

 

 

 840,187 

 

 

 818,613 

 

Kaplan corporate and other

 

 

 37,877 

 

 

 22,470 

  

 

  

$

 1,727,078 

 

$

 1,988,015 

 

20

 


 

 

 

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

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

 

Results of Operations

  

The Company reported net income attributable to common shares of $4.7 million ($0.64 per share) for the first quarter ended March 31, 2013, compared to $31.0 million ($4.07 per share) for the first quarter of last year. Net income includes $1.4 million in losses ($0.18 per share) and $17.6 million in income ($2.35 per share) from discontinued operations for the first quarter of 2013 and 2012, respectively. Income from continuing operations attributable to common shares was $6.1 million ($0.82 per share) for the first quarter of 2013, compared to $13.5 million ($1.72 per share) for the first quarter of 2012. As a result of the Company’s share repurchases, there were 5% fewer diluted average shares outstanding in the first quarter of 2013.

 

Items included in the Company’s income from continuing operations for the first quarter of 2013:

§ $25.3 million in early retirement, severance and restructuring charges at the newspaper publishing and education divisions (after-tax impact of $16.2 million, or $2.23 per share); and

§ $4.6 million in non-operating unrealized foreign currency losses (after-tax impact of $3.0 million, or $0.41 per share).

                                          

Items included in the Company’s income from continuing operations for the first quarter of 2012:

§ $1.9 million in severance and early retirement charges at the newspaper publishing division (after-tax impact of $1.2 million, or $0.16 per share);

§ a $5.8 million gain on the sale of a cost method investment (after-tax impact of $3.7 million, or $0.48 per share); and

§ $2.7 million in non-operating unrealized foreign currency gains (after-tax impact of $1.7 million, or $0.22 per share).

 

Revenue for the first quarter of 2013 was $959.1 million, up slightly compared to $955.5 million in the first quarter of 2012. The Company reported operating income of $23.1 million in the first quarter of 2013, compared to operating income of $21.3 million in the first quarter of 2012. Revenues increased at the television broadcasting and cable television divisions, offset by declines at the education and newspaper publishing divisions. Operating results improved at the education, television broadcasting and cable television divisions, offset by a decline at the newspaper publishing division. 

 

Division Results

 

Education

 

Education division revenue totaled $527.8 million for the first quarter of 2013, a 3% decline from revenue of $546.7 million for the first quarter of 2012. Kaplan reported a first quarter 2013 operating loss of $4.1 million, compared to an $11.9 million operating loss in the first quarter of 2012.

 

In response to student demand levels, Kaplan has formulated and implemented restructuring plans at its various businesses, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $9.5 million in the first quarter of 2013. Kaplan currently expects to incur approximately $15 million in additional restructuring costs for the remainder of 2013 at KHE and Kaplan International in conjunction with completing these restructuring plans. Kaplan may also incur additional restructuring charges in 2013 as Kaplan continues to evaluate its cost structure.

 

21

 


 

 

 

 

A summary of Kaplan’s first quarter 2013 operating results compared to 2012 is as follows:

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

 

(in thousands)

 

2013 

 

2012 

 

% Change

Revenue

 

 

 

 

 

 

 

 

 

Higher education

 

$

 271,860 

 

$

 308,384 

 

 (12) 

 

Test preparation

 

 

 68,943 

 

 

 62,829 

 

 10 

 

Kaplan international

 

 

 184,813 

 

 

 173,563 

 

 6 

 

Kaplan corporate

 

 

 2,604 

 

 

 3,384 

 

 (23) 

 

Intersegment elimination

 

 

 (405) 

 

 

 (1,475) 

 

 ― 

 

  

 

$

 527,815 

 

$

 546,685 

 

 (3) 

Operating Income (Loss)

 

 

 

 

 

 

 

 

  

Higher education

 

$

 5,101 

 

$

 8,959 

 

 (43) 

  

Test preparation

 

 

 (4,345) 

 

 

 (10,219) 

 

 57 

 

Kaplan international

 

 

 6,397 

 

 

 4,140 

 

 55 

 

Kaplan corporate and other

 

 

 (11,340) 

 

 

 (14,989) 

 

 24 

 

Intersegment elimination

 

 

 131 

 

 

 194 

 

 ― 

 

 

 

$

 (4,056) 

 

$

 (11,915) 

 

 66 

 

Kaplan Higher Education (KHE) includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.

 

In September 2012, KHE announced a plan to consolidate its market presence at certain of its fixed-facility campuses. Under this plan, KHE ceased new enrollments at nine ground campuses as it considered alternatives for these locations, and is in the process of consolidating operations of four other campuses into existing, nearby locations. Revenues at these campuses represented approximately 4% of KHE’s total revenues in 2012. In the fourth quarter of 2012, KHE also began implementing plans to consolidate facilities and reduce its workforce. In connection with these and other plans, KHE incurred $9.1 million in total restructuring costs in the first quarter of 2013, including accelerated depreciation ($3.6 million), severance ($0.9 million), lease obligation losses ($3.7 million) and other items ($0.9 million). In the first quarter of 2013, five of the KHE campuses were closed.

 

In the first quarter of 2013, KHE revenue declined 12% due to a decline in average enrollments, reflecting weaker market demand over the past year and the impact of campuses in the process of closing. These declines were partially offset by a revenue increase arising from changes in the trial period offered to new students in 2013. These changes had the effect, among others, of recognizing revenue of $5.6 million in the first quarter of 2013 that otherwise would have been recognized in the second quarter of 2013.

 

Operating income decreased 43% due primarily to lower revenue and restructuring costs noted above. Partially offsetting the declines were expense reductions associated with lower enrollments and recent restructuring efforts.

 

New student enrollments at KHE decreased 9% in the first quarter of 2013. New student enrollments were adversely affected by campuses planned for closure that are no longer recruiting students, but were positively impacted by the changes in the trial period offered to new students.

 

Total students at March 31, 2013 were down 12% compared to March 31, 2012, and increased 3% compared to December 31, 2012. Excluding campuses planned for closure, total students at March 31, 2013 were down 8% compared to March 31, 2012, and increased 4% compared to December 31, 2012. A summary of student enrollments is as follows: 

 

Students as of

 

March 31,

 

December 31,

 

March 31,

 

2013 

 

2012 

 

2012 

Kaplan University

 48,673 

 

 46,737 

 

 52,800 

KHE Campuses

 18,523 

 

 18,733 

 

 23,184 

 

 67,196 

 

 65,470 

 

 75,984 

 

 

 

 

 

 

 

Students as of

 

March 31,

 

December 31,

 

March 31,

(excluding campuses closing)

2013 

 

2012 

 

2012 

Kaplan University

 48,673 

 

 46,737 

 

 52,800 

KHE Campuses

 17,615 

 

 16,901 

 

 19,459 

 

 66,288 

 

 63,638 

 

 72,259 

 

22

 


 

 

 

 

Kaplan University enrollments included 8,819, 7,991 and 9,298 campus-based students as of March 31, 2013, December 31, 2012, and March 31, 2012, respectively.

 

Kaplan University and KHE Campuses enrollments at March 31, 2013, and March 31, 2012, by degree and certificate programs, are as follows:

 

 

As of March 31,

 

 

2013 

 

 

2012 

Certificate

 

 23.0 

%

 

 

 25.2 

%

Associate’s

 

 35.7 

%

 

 

 29.7 

%

Bachelor’s

 

 29.5 

%

 

 

 33.6 

%

Master’s

 

 11.8 

%

 

 

 11.5 

%

 

 

 100.0 

%

 

 

 100.0 

%

 

Kaplan Test Preparation (KTP) includes Kaplan’s standardized test preparation and tutoring offerings and other businesses. KTP revenue increased 10% in the first quarter of 2013. Total enrollment was down slightly in the first quarter of 2013 due to declines in graduate programs, offset by continued strength in pre-college, nursing and bar review programs. KTP operating results improved in the first quarter of 2013 due largely to increased revenues.

 

Kaplan International includes English-language programs and postsecondary education and professional training businesses outside the United States. Kaplan International revenue increased 6% in the first quarter of 2013 due largely to enrollment growth in the pathways, English-language and Singapore higher education programs. Kaplan International operating income increased in the first quarter of 2013 due primarily to strong results in Singapore. In the first quarter of 2013, severance costs totaled $0.3 million in Australia, where Kaplan has been consolidating and restructuring its businesses to optimize operations.  

 

Corporate represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and shared activities, and Colloquy, which was moved from Kaplan International to Kaplan corporate in 2013. The comparative division results presented above reflect this change. 

 

Cable Television

 

Cable television division revenue for the first quarter of 2013 increased 5% to $200.1 million, from $190.2 million for the first quarter of 2012. The revenue results reflect rate increases for many subscribers in June 2012, partially offset by a decline in basic video subscribers. 

 

Cable television division operating income increased 12% to $36.6 million, from $32.8 million in the first quarter of 2012, due to increased revenues, partially offset by higher programming and depreciation costs.

 

At March 31, 2013, Primary Service Units (PSUs) were down 3% from the prior year due to a decline in basic video subscribers. PSUs include about 6,000 subscribers who receive free basic cable service, primarily local governments, schools and other organizations as required by various franchise agreements. A summary of PSUs is as follows:

 

 

 

 

As of March 31,

 

 

 

2013 

 

2012 

Basic video

 

 588,180 

 

 622,339 

High-speed data

 

 463,726 

 

 463,443 

Telephony

 

 185,717 

 

 186,009 

 

 

 

 1,237,623 

 

 1,271,791 

 

Below are details of Cable division capital expenditures as defined by the NCTA Standard Reporting Categories:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

(in thousands)

 

2013 

 

2012 

Customer Premise Equipment

 

$

 5,361 

 

$

 15,813 

Commercial

 

 

 790 

 

 

 864 

Scaleable Infrastructure

 

 

 3,032 

 

 

 5,525 

Line Extensions

 

 

 890 

 

 

 1,123 

Upgrade/Rebuild

 

 

 6,001 

 

 

 3,228 

Support Capital

 

 

 11,085 

 

 

 5,172 

 

 

 

$

 27,159 

 

$

 31,725 

 

23

 


 

 

 

 

 

Newspaper Publishing

 

Newspaper publishing division revenue totaled $127.3 million for the first quarter of 2013, down 4% from revenue of $132.5 million for the first quarter of 2012. Print advertising revenue at The Washington Post (“the Post”) in the first quarter of 2013 declined 8% to $48.6 million, from $52.7 million in the first quarter of 2012. The decline is largely due to reductions in general and retail advertising. Revenue generated by the Company’s newspaper online publishing activities, primarily washingtonpost.com and Slate, increased 8% to $25.8 million for the first quarter of 2013, versus $23.9 million for the first quarter of 2012. Display online advertising revenue increased 16% for the first quarter of 2013. Online classified advertising revenue on washingtonpost.com declined 6% for the first quarter of 2013.  

 

For the first quarter of 2013, daily and Sunday circulation at the Post declined 7.2% and 7.7%, respectively, compared to the first quarter of 2012. For the first quarter of 2013, average daily circulation at the Post totaled 457,100, and average Sunday circulation totaled 659,500. In January 2013, the Post implemented circulation price increases for daily home delivery and daily and Sunday single copy categories.

    

In February 2013, the Company announced a Voluntary Retirement Incentive Program (VRIP) which was offered to certain employees of the Post. The VRIP expense is estimated at $20.4 million, which will be funded from the assets of the Company’s pension plan. Of this amount, $12.0 million was recorded in the first quarter of 2013; the remainder will be recorded in the second quarter of 2013. The Post also implemented a Separation Incentive Program in February 2013 that resulted in an additional $2.3 million in early retirement program expense, which will also be funded from the assets of the Company pension plan. In addition, voluntary severance and other early retirement expense of $1.6 million and $1.9 million was recorded at the newspaper publishing division in the first quarter of 2013 and 2012, respectively. 

 

The newspaper publishing division reported an operating loss of $34.5 million in the first quarter of 2013, compared to an operating loss of $20.6 million in the first quarter of 2012. These operating losses include noncash pension expense of $22.9 million and $8.5 million for the first quarter of 2013 and 2012, respectively. The decline in operating results is primarily due to the $14.0 million increase in early retirement and severance expense, offset partially by a reduction in other operating expenses. Newsprint expense was down 12% for the first quarter of 2013 compared to the first quarter of 2012 due to a decline in newsprint consumption.

 

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. Consequently, the newspaper division’s operating results exclude The Herald.

 

Television Broadcasting

 

Revenue for the television broadcasting division increased 5% in the first quarter of 2013 to $85.3 million, from $81.5 million in 2012; operating income for the first quarter of 2013 increased 14% to $35.4 million, from $31.0 million in 2012. The increase in revenue and operating income reflects growth in advertising demand across many product categories and increased retransmission revenues, offset by a $2.8 million decline in political advertising revenue.

 

Other Businesses

 

Other businesses includes the operating results of Social Code, a marketing solutions provider helping companies with marketing on social media platforms; Celtic Healthcare, Inc., a provider of home health care and hospice services in the northeastern and mid-Atlantic regions that was acquired by the Company in November 2012; and WaPo Labs, a digital team focused on emerging technologies and new product development.  

 

Corporate Office

 

Corporate office includes the expenses of the Company’s corporate office as well as a net pension credit.

 

Equity in Earnings (Losses) of Affiliates

 

The Company holds a 16.5% interest in Classified Ventures, LLC, and interests in several other affiliates.

 

24

 


 

 

 

 

The Company’s equity in earnings of affiliates, net, for the first quarter of 2013 was $3.4 million, compared to $3.9 million for the first quarter of 2012. 

 

Other Non-Operating (Expense) Income

 

The Company recorded other non-operating expense, net, of $4.1 million for the first quarter of 2013, compared to other non-operating income, net, of $8.6 million for the first quarter of 2012. The first quarter 2013 non-operating expense, net, included $4.6 million in unrealized foreign currency losses and other items. The first quarter 2012 non-operating income, net, included a $5.8 million gain on the sale of a cost method investment, $2.7 million in unrealized foreign currency gains and other items.

 

A summary of non-operating (expense) income is as follows:

 

 

 

 

Three Months Ended

 

 

 

March 31,

(in thousands)

 

2013 

 

2012 

Foreign currency (losses) gains, net

 

$

 (4,614) 

 

$

 2,660 

(Losses) gains on sales or write-downs of cost method investments

 

 

 (179) 

 

 

 5,766 

Other, net

 

 

 710 

 

 

 162 

 

Total

 

$

 (4,083) 

 

$

 8,588 

 

Net Interest Expense

 

The Company incurred net interest expense of $8.5 million for the first quarter of 2013, compared to $8.1 million for the first quarter of 2012. At March 31, 2013, the Company had $456.9 million in borrowings outstanding at an average interest rate of 7.0%.

 

Provision for Income Taxes

 

The effective tax rate for income from continuing operations for the first quarter of 2013 was 52.3%, compared to 45.6% for the first quarter of 2012. The high effective tax rate in the first quarter of 2013 and 2012 results primarily from losses in Australia for which no tax benefit is recorded.

 

Discontinued Operations

 

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. Kaplan sold Kidum in August 2012, EduNeering in April 2012 and Kaplan Learning Technologies (KLT) in February 2012. The Company also divested its interest in Avenue100 Media Solutions in July 2012. Consequently, the Company’s income from continuing operations excludes these businesses, which have been reclassified to discontinued operations, net of tax.

 

The sale of The Herald resulted in a pre-tax loss of $0.1 million that was recorded in the first quarter of 2013. The sale of KLT resulted in a pre-tax loss of $3.1 million that was recorded in the first quarter of 2012. The sale of EduNeering resulted in a pre-tax gain of $29.5 million that was recorded in the second quarter of 2012. In the first quarter of 2012, in connection with each of the sales of the Company’s stock in KLT and EduNeering, the Company recorded $23.2 million of income tax benefits related to the excess of the outside stock tax basis over the net book value of the net assets acquired.

 

Earnings (Loss) Per Share

 

The calculation of diluted earnings per share for the first quarter of 2013 was based on 7,266,284 weighted average shares outstanding, compared to 7,614,623 for the first quarter of 2012. At March 31, 2013, there were 7,422,732 shares outstanding and the Company had remaining authorization from the Board of Directors to purchase up to 180,993 shares of Class B common stock.

 

 

25

 


 

 

 

Financial Condition: Capital Resources and Liquidity

 

Acquisitions and Dispositions

 

In the first quarter of 2013, the Company acquired one small business included in other businesses; the purchase price allocation mostly comprised goodwill and other intangible assets on a preliminary basis. In the first quarter of 2012, Kaplan acquired two small businesses in its International division; the purchase price allocation mostly comprised goodwill and other intangible assets. The assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition.

 

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. The Herald was previously reported in the newspaper publishing segment. Kaplan completed the sale of Kaplan Learning Technologies in February 2012, which was part of the Kaplan Ventures division.

 

Capital Expenditures

 

During the first three months of 2013, the Company’s capital expenditures totaled $36.5 million. The Company estimates that its capital expenditures will be in the range of $225 million to $250 million in 2013.

 

Liquidity

 

The Company’s borrowings decreased by $239.8 million, to $456.9 million at March 31, 2013, as compared to borrowings of $696.7 million at December 31, 2012. At March 31, 2013, the Company had $300.7 million in cash and cash equivalents, compared to $512.4 million at December 31, 2012. The Company had money market investments of $190.9 million and $432.7 million that are classified as cash, cash equivalents and restricted cash in the Company’s condensed consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, respectively.

 

The Company’s total debt outstanding of $456.9 million at March 31, 2013 included $397.6 million of 7.25% unsecured notes due February 1, 2019, $52.1 million of AUD 50M borrowing and $7.2 million in other debt.

 

In June 2011, the Company entered into a credit agreement (the “Credit Agreement”) providing for a U.S. $450 million, AUD 50 million four year revolving credit facility (the “Facility”), with each of the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent (“JP Morgan”), and J.P. Morgan Australia Limited, as Australian Sub-Agent. The Facility will expire on June 17, 2015, unless the Company and the banks agree to extend the term.

 

The Company’s credit ratings were unchanged during the first quarter of 2013 and are as follows:

  

 

 

 

 

Standard

 

 

Moody’s

 

& Poor’s

Long-term

 

 

Baa1

 

 

BBB

Short-term

 

 

Prime-2

 

 

A-3

 

During the first quarter of 2013 and 2012, the Company had average borrowings outstanding of approximately $516.7 million and $484.5 million, respectively, at average annual interest rates of approximately 7.0%. During the first quarter of 2013 and 2012, the Company incurred net interest expense of $8.5 million and $8.1 million, respectively.

 

At March 31, 2013 and December 31, 2012, the Company had working capital of $405.9 million and $327.5 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments. The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds and to a lesser extent borrowings supported by our Credit Agreement. In management’s opinion, the Company will have ample liquidity to meet its various cash needs throughout 2013.

 

There were no significant changes to the Company’s contractual obligations or other commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

26

 


 

 

 

 

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 certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking 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.

 

Item  3.       Quantitative and Qualitative Disclosures about Market Risk

 

The Company is exposed to market risk in the normal course of its business due primarily to its ownership of marketable equity securities, which are subject to equity price risk; to its borrowing and cash-management activities, which are subject to interest rate risk; and to its foreign business operations, which are subject to foreign exchange rate risk. The Company’s market risk disclosures set forth in its 2012 Annual Report filed on Form 10-K have not otherwise changed significantly.

 

Item 4.        Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal executive officer) and the Company’s Senior Vice President-Finance (the Company’s principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of March 31, 2013. Based on that evaluation, the Company’s Chief Executive Officer and Senior Vice President-Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Senior Vice President-Finance, in a manner that allows timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting

 

There has been no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

27

 


 

 

 

PART II. OTHER INFORMATION

 

Item  2.       Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

During the quarter ended March 31, 2013, the Company purchased shares of its Class B Common Stock as set forth in the following table:

 

 

 

 

 

Average

 

Total Number of

 

 Maximum Number

 

 

Total Number

 

Price

 

Shares Purchased

 

of Shares That May

 

 

of Shares

 

Paid per

 

as Part of a Publicly

 

Yet Be Purchased

Period

Purchased

 

Share

 

Announced Plan*

 

Under the Plan*

2013 

 

 

 

 

 

 

 

 

January

11,250 

 

$

373.03 

 

 ― 

 

180,993 

February

 ― 

 

 

 ― 

 

 ― 

 

180,993 

March

 ― 

 

 

 ― 

 

 ― 

 

180,993 

 

 

11,250 

 

$

373.03 

 

 ― 

 

 

 

*   On September 8, 2011, the Company’s Board of Directors authorized the Company to purchase, on the open market or otherwise, up to 750,000 shares of its Class B Common Stock. There is no expiration date for that authorization. In the first quarter of 2013, 11,250 shares were purchased from recipients of vested awards of restricted shares at market price. Under the Company’s Incentive Compensation Plan, the Compensation Committee may permit the recipient of a vested award of restricted shares of the Company’s Class B Common Stock to receive some or all of the value of the award in cash rather than in shares.

 

28

 


 

 

 

Item 6.            Exhibits.

 

 

 

Exhibit
Number

 

Description

 

 

 

    3.1

Restated Certificate of Incorporation of the Company dated November 13, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003).

 

 

    3.2

Certificate of Designation for the Company’s Series A Preferred Stock dated September 22, 2003 (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company’s Current Report on Form 8-K dated September 22, 2003).

 

 

    3.3

By-Laws of the Company as amended and restated through November 8, 2007 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated November 14, 2007).

 

 

    4.1

Second Supplemental Indenture dated January 30, 2009, between the Company and The Bank of New York Mellon Trust Company, N.A., as successor to The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 30, 2009).

 

 

    4.2

Four Year Credit Agreement, dated as of June 17, 2011, among the Company, JPMorgan Chase Bank, N.A., J.P. Morgan Australia Limited, Wells Fargo Bank, N.A., The Royal Bank of Scotland PLC, HSBC Bank USA, National Association, The Bank of New York Mellon, PNC Bank, National Association, Bank of America, N.A., Citibank, N.A. and The Northern Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 17, 2011).

 

 

    31.1

Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

 

 

    31.2

Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

 

 

    32

Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer.

 

 

    101

The following financial information from The Washington Post Company Quarterly Report on Form 10-Q for the period ended March 31, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2013 and 2012, (ii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2013 and 2012, (iii) Condensed Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012, and (v) Notes to Condensed Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.

 

 

29

 


 

 

 

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 7, 2013

 

/s/ Donald E. Graham

 

 

 

Donald E. Graham,

Chairman & Chief Executive Officer

(Principal Executive Officer)

 

 

 

Date: May 7, 2013

 

/s/ Hal S. Jones

 

 

 

Hal S. Jones,

Senior Vice President-Finance

(Principal Financial Officer)

 

 

30