Washington Post 2012 Annual Report Download - page 71

on the AUD 50 million notional amount at the three-month bank bill
rate, and the Company will pay the counterparties a fixed rate of
4.5275%. These interest rate swap agreements were entered into to
convert the variable rate Australian dollar borrowing under the
revolving credit facility into a fixed rate borrowing. Based on the
terms of the interest rate swap agreements and the underlying
borrowing, these interest rate swap agreements were determined to
be effective, and thus qualify as a cash flow hedge. As such, any
changes in the fair value of these interest rate swaps are recorded in
other comprehensive income on the accompanying condensed
consolidated balance sheets until earnings are affected by the
variability of cash flows.
In November 2011, Standard & Poor’s lowered the Company’s
long-term corporate debt rating from “A-” to “BBB+” and changed
the outlook from Negative to Stable. Standard & Poor’s kept the
short-term rating unchanged at “A-2.” In November 2011, Moody’s
downgraded the Company’s senior unsecured rating from “A2” to
“A3” and the commercial paper rating from “Prime-1” to “Prime-2.”
The outlook was changed from Rating Under Review to Negative.
In May 2012, Standard & Poor’s affirmed the Company’s credit
ratings, but revised the outlook from Stable to Negative. In August
2012, Standard & Poor’s placed the Company’s long and short-
term credit ratings on Credit Watch with negative implications. In
September 2012, Standard & Poor’s lowered the Company’s long-
term and short-term corporate debt rating from “BBB+” to “BBB” and
from “A2” to “A3,” respectively. S&P removed the Company from
Credit Watch, but left the outlook at Negative. In July 2012,
Moody’s changed the outlook of the Company’s long-term debt
rating from Negative to Rating Under Review. In August 2012,
Moody’s downgraded the Company’s senior unsecured rating from
“A3” to “Baa1” and changed the outlook to Negative.
The Company’s current credit ratings are as follows:
Moody’s Standard & Poor’s
Long-term ........................... Baa1 BBB
Short-term ........................... Prime-2 A-3
During 2012 and 2011, the Company had average borrowings
outstanding of approximately $483.3 million and $426.7 million,
respectively, at average annual interest rates of approximately 6.7% and
7.0%, respectively. The Company incurred net interest expense of
$32.6 million and $29.1 million, respectively, during 2012 and 2011.
At December 31, 2012 and December 31, 2011, the Company
had working capital of $327.5 million and $250.1 million, respect-
ively. 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’s net cash provided by operating activities, as reported
in the Company’s Consolidated Statements of Cash Flows, was
$477.2 million in 2012, compared to $393.3 million in 2011.
The Company expects to fund its estimated capital needs primarily
through existing cash balances and internally generated funds and,
to a lesser extent, borrowings under its revolving credit facility. In
management’s opinion, the Company will have ample liquidity to
meet its various cash needs in 2013.
The following reflects a summary of the Company’s contractual
obligations as of December 31, 2012:
(in thousands) 2013 2014 2015 2016 2017 Thereafter Total
Debt and
interest . . . $275,077 $ 31,750 $ 81,750 $ 29,000 $ 29,000 $443,500 $ 890,077
Programming
purchase
commitments (1) 194,902 124,451 31,131 15,227 571 — 366,282
Operating
leases.... 131,737 118,524 98,013 88,852 76,573 260,129 773,828
Other purchase
obligations (2) 179,016 66,130 28,845 16,926 10,575 3,261 304,753
Long-term
liabilities (3) 5,242 5,445 5,692 5,966 6,109 61,111 89,565
Total.... $785,974 $346,300 $245,431 $155,971 $122,828 $768,001 $2,424,505
(1) Includes commitments for the Company’s television broadcasting and cable television businesses
that are reflected in the Company’s Consolidated Financial Statements and commitments to
purchase programming to be produced in future years.
(2) Includes purchase obligations related to newsprint contracts, printing contracts, employment
agreements, circulation distribution agreements, capital projects and other legally binding
commitments. Other purchase orders made in the ordinary course of business are excluded from
the table above. Any amounts for which the Company is liable under purchase orders are
reflected in the Company’s Consolidated Balance Sheets as accounts payable and accrued
liabilities.
(3) Primarily made up of postretirement benefit obligations other than pensions. The Company has
other long-term liabilities excluded from the table above, including obligations for deferred
compensation, long-term incentive plans and long-term deferred revenue.
Other. The Company does not have any off-balance-sheet
arrangements or financing activities with special-purpose entities
(SPEs). Transactions with related parties, as discussed in Note 4 to
the Company’s Consolidated Financial Statements, are in the
ordinary course of business and are conducted on an arm’s-length
basis.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and judgments that affect the amounts reported in the
financial statements. On an ongoing basis, the Company evaluates
its estimates and assumptions. The Company bases its estimates on
historical experience and other assumptions believed to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual
results could differ from these estimates.
An accounting policy is considered to be critical if it is important to
the Company’s financial condition and results and if it requires
management’s most difficult, subjective and complex judgments in
its application. For a summary of all of the Company’s significant
accounting policies, see Note 2 to the Company’s Consolidated
Financial Statements.
Revenue Recognition, Trade Accounts Receivable, Sales Returns
and Allowance for Doubtful Accounts. Education tuition revenue is
recognized ratably over the period of instruction as services are
delivered to students, net of any refunds, corporate discounts,
scholarships and employee tuition discounts.
At KTP and Kaplan International, estimates of average student
course length are developed for each course, along with estimates
for the anticipated level of student drops and refunds from test
performance guarantees, and these estimates are evaluated on an
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