Business context and reporting period
The filing is The Washington Post Company’s Form 10-K for the fiscal year ended December 31, 2012—not a quarterly report. The company was a diversified education and media business, with Kaplan generating about 55% of consolidated revenue. The supplied request identifies Graham Holdings Co.; the filing itself names The Washington Post Company as registrant.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $4.018 billion | $4.131 billion |
| Operating income | $144.5 million | $325.9 million |
| Operating margin | 3.6% | 7.9% |
| Income from continuing operations | $49.0 million | $145.6 million |
| Net income attributable to common stockholders | $131.2 million; $17.39 per diluted share | $116.2 million; $14.70 per diluted share |
| Cash from operating activities | $477.2 million | $393.3 million |
| Capital expenditures | $218.0 million | $216.4 million |
| Cash and cash equivalents | $512.4 million | $381.1 million |
| Total borrowings | $696.7 million | $565.2 million |
| Working capital | $327.5 million | $250.1 million |
Net income rose despite a sharp decline in continuing-operations income, principally because 2012 included $83.2 million of income from discontinued operations, versus a $28.5 million loss in 2011. The 2012 effective tax rate on continuing operations was 59.4%, compared with 41.2% in 2011.
Segment results
| Segment | 2012 revenue | 2012 operating income (loss) | Notable comparison |
|---|---|---|---|
| Education (Kaplan) | $2.197 billion | $(105.4) million | Revenue down 9%; 2011 operating income was $96.3 million. |
| Cable television | $787.1 million | $154.6 million | Revenue up 4%; operating income down 1%. |
| Newspaper publishing | $581.7 million | $(53.7) million | Revenue down 7%; operating loss widened from $21.2 million. |
| Television broadcasting | $399.7 million | $191.6 million | Revenue up 25%; operating income up 64%. |
| Other businesses | $53.5 million | $(23.2) million | Includes Social Code, WaPo Labs and acquired Celtic Healthcare. |
Material changes versus the prior year
- Consolidated revenue declined 3%, while operating income fell 56%, reflecting the Kaplan downturn, newspaper weakness and a $111.6 million noncash impairment charge at Kaplan Test Preparation (KTP).
- Kaplan Higher Education revenue fell 18%; year-end student enrollment at Kaplan University and KHE Campuses declined 12% to 65,470.
- Television broadcasting benefited from political advertising, up $48.1 million, summer Olympics-related advertising, and higher retransmission revenue. Print advertising at The Washington Post fell 14%.
- Operating cash flow increased by $83.9 million. Borrowings rose $131.5 million, and cash increased $131.3 million. The company repurchased $103.2 million of shares.
Outlook, risks, contingencies and unusual items
- Management expected approximately $25 million of additional Kaplan restructuring costs in 2013 and estimated 2013 capital expenditures of $235–$260 million. Management stated it expected ample liquidity to meet 2013 cash needs.
- Kaplan’s results face material regulatory and funding risks: Title IV funding provided approximately $882 million, or 77% of KHE revenue, in 2012. Management estimated that, if trends continued, 20 KHE campus OPEID units representing about 21% of KHE’s 2012 revenue could exceed the 90/10 threshold in 2013.
- Kaplan’s risks also include accreditation and state-authorization matters, student-loan default rates, program reviews, and uncertain gainful-employment rules. The filing reported one KHE OPEID provisionally certified, and three campuses on accreditor “show cause” status.
- The 2012 results included a $111.6 million KTP impairment; $63.7 million of early-retirement, severance and restructuring charges across education and newspaper publishing; an $18.0 million investment write-down; and substantial tax benefits and gains associated with discontinued-business disposals. The impairment and restructuring charges reduced continuing-operations earnings.
- Several legal matters remained open, including an amended securities class action, a BAR/BRI antitrust settlement awaiting court approval, and a False Claims Act allegation revived in part on appeal. Management said existing legal matters were not expected to have a material adverse effect, based on information then available.
- Credit ratings were downgraded in 2012; at year-end Moody’s rated long-term debt Baa1 and S&P rated it BBB, both with negative outlooks. The $240 million U.S. revolving-credit borrowing outstanding at year-end was repaid January 11, 2013.
- The company agreed to sell The Herald, with closing expected in March 2013. Auditors reported that the consolidated financial statements were fairly presented under U.S. GAAP and that internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Confirm the registrant and reporting period: this is The Washington Post Company’s 2012 annual filing, although the request metadata names Graham Holdings Co.
- Review the audited statements and notes for cash, restricted cash, debt maturities, credit-facility availability and the post-year-end repayment of the $240 million draw.
- Assess Kaplan enrollment trends, restructuring execution, Title IV exposure, 90/10 compliance, accreditation status and the outcomes of pending reviews and litigation.
- Examine assumptions underlying the KTP impairment and the disclosed possibility of further impairment, including at KHE.
- Separate recurring operating performance from discontinued-operation gains, tax benefits, restructuring charges, investment write-downs and the exceptional political and Olympics advertising uplift.