Washington Post 2010 Annual Report Download - page 71

higher average interest rates in 2009 compared to 2008, as well
as a decline in interest income. At January 3, 2010, the Company
had $399.3 million in borrowings outstanding at an average
interest rate of 7.2%; at December 28, 2008, the Company had
$553.8 million in borrowings outstanding at an average interest
rate of 4.1%.
Income Taxes. The effective tax rate for income from continuing
operations in 2009 was 35.9%. This effective tax rate was
adversely impacted by $7.4 million in noncash valuation
allowances provided against deferred state and local income tax
benefits, net of U.S. Federal income taxes, and $3.3 million from
nondeductible goodwill in connection with impairment charges
recorded in 2009; these items were offset by favorable adjustments
recorded for a reduction in state income taxes and for prior-year
permanent U.S. Federal tax deductions.
The effective tax rate for 2008 was 52.5%. This high effective tax
rate was due to $31.1 million from nondeductible goodwill in
connection with impairment charges recorded in 2008 and $9.5
million in noncash valuation allowances provided against deferred
state and local income tax benefits, net of U.S. Federal income
taxes; these were offset by a favorable $4.6 million provision to
return adjustment from 2007.
Discontinued Operations. In connection with the 2010 sale of
Newsweek, the Company’s income from continuing operations for
2009 and 2008 excludes magazine publishing operations, which
have been reclassified to discontinued operations, net of tax.
Newsweek employees were participants in The Washington Post
Company Retirement Plan, and Newsweek was historically
allocated a net pension credit. The magazine publishing division
pension credit has been excluded from the reclassification of
Newsweek results to discontinued operations. The pension cost
arising from early retirement programs at Newsweek, however, is
included in discontinued operations.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions and Dispositions. The Company completed business
acquisitions totaling approximately $14.1 million in 2010, $26.1
million in 2009 and $123.5 million in 2008. The assets and
liabilities of the companies acquired have been recorded at their
estimated fair values at the date of acquisition; the purchase price
allocations mostly comprised goodwill and other intangible assets,
and property, plant and equipment.
During 2010, the Company acquired six businesses for $14.1
million. Kaplan acquired two small businesses in its Test Preparation
division, one small business in its Ventures division and one small
business in its International division. The Company made two small
acquisitions in its Cable and Other Businesses divisions. The
purchase price allocations for these acquisitions mostly comprised
goodwill and other intangible assets.
On September 30, 2010, the Company completed the sale of
Newsweek. In December 2009, the Company completed the sale
of Newsweek’s Budget Travel. Consequently, the Company’s
income from continuing operations excludes magazine publishing
division results, which have been reclassified to discontinued
operations.
In the second quarter of 2010, Kaplan completed the sale of
Education Connection, which was part of the Kaplan Ventures
division.
During 2009, the Company acquired three businesses for $22.9
million. Kaplan acquired one business in each of its International
and Test Preparation divisions, and the newspaper division
acquired a small local publication. The purchase price allocations
for these acquisitions mostly comprised goodwill and other
intangible assets. Also in 2009, the Company recorded
$3.2 million of additional purchase consideration in connection
with the achievement of certain operating results by a company
acquired in 2007 and allocated the additional purchase
consideration to goodwill.
During 2008, the Company acquired ten businesses within its
education and newspaper segments, for a total of $93.1 million,
financed with cash and $3.2 million in debt. Kaplan acquired nine
businesses in its International, Test Preparation and Ventures
divisions. In November 2008, Kaplan International exercised an
option to acquire an 85% majority interest in Shanghai Kai Bo
Education Management Investment Co., Ltd. (“Kaplan China”), a
provider of education in China that offers preparation courses for
entry to U.K. universities. Kaplan China’s results from the transaction
date forward are included in the Company’s Consolidated
Financial Statements. The purchase price allocations for these
acquisitions mostly comprised goodwill and other intangible assets.
Also in 2008, the cable television division acquired subscribers
primarily in the Mississippi area for $15.3 million. The purchase
price allocations for these transactions mostly comprised intangible
assets and property, plant and equipment.
During 2008, the Company recorded $15.1 million of additional
purchase consideration in connection with the achievement of
certain operating results by a company acquired in 2007 and
allocated the additional purchase consideration to goodwill.
Capital Expenditures. During 2010, the Company’s capital
expenditures totaled $243.7 million. The Company’s capital
expenditures for businesses included in continuing operations for
2010, 2009 and 2008 are disclosed in Note R to the
Consolidated Financial Statements. The Company estimates that
its capital expenditures will be in the range of $260 million to
$295 million in 2011.
Investments in Marketable Equity Securities. At January 2, 2011,
the fair value of the Company’s investments in marketable equity
securities was $340.9 million, which includes $300.7 million in
Berkshire Hathaway Inc. Class A and B common stock and $40.2
million in the common stock of Corinthian Colleges, Inc., a publicly
traded education company.
At January 2, 2011, and January 3, 2010, the gross unrealized
gain related to the Company’s Berkshire stock investment totaled
$143.4 million and $90.2 million, respectively. During 2009, the
Company invested $10.8 million in the Class B common stock of
Berkshire. During 2008, the Company sold 420 and 5,975 shares
of Berkshire Class A and Class B common stock, respectively. Total
proceeds from the sale were $64.4 million, and the net realized
gains were $26.0 million.
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