Washington Post 2013 Annual Report Download - page 64

Corporate Office. Corporate office includes the expenses of the
Company’s corporate office as well as a net pension credit.
Equity in Earnings of Affiliates. The Company holds a 16.5%
interest in Classified Ventures, LLC and interests in several other
affiliates. In the fourth quarter of 2012, the Company sold its 49%
interest in Bowater Mersey Paper Company for a nominal amount;
no gain or loss was recorded as the investment balance had
previously been written down to zero. The Company’s equity in
earnings of affiliates, net, for 2012 was $14.1 million, compared
to $5.9 million in 2011. In 2011, a $9.2 million impairment
charge was recorded on the Company’s interest in Bowater Mersey
Paper Company.
Other Non-Operating (Expense) Income. The Company recorded
other non-operating expense, net, of $5.5 million in 2012, compared
to other non-operating expense, net, of $55.2 million in 2011.
The 2012 non-operating expense, net, included an $18.0 million
write-down of a marketable equity security, offset by $6.6 million in
net gains from cost method investments, $3.1 million in unrealized
foreign currency gains and other items. The 2011 non-operating
expense, net, included a $53.8 million write-down of a marketable
equity security, $3.3 million in unrealized foreign currency losses
and other items.
During 2012, on an overall basis, the fair value of the Company’s
marketable securities appreciated by $32.5 million.
Net Interest Expense. The Company incurred net interest expense of
$32.6 million in 2012, compared to $29.1 million in 2011. At
December 31, 2012, the Company had $696.7 million in borrowings
outstanding at an average interest rate of 5.1%; at December 31, 2011,
the Company had $565.2 million in borrowings outstanding at an
average interest rate of 5.7%.
Provision for Income Taxes. The effective tax rate for income from
continuing operations in 2012 was 53.6%. This effective tax rate
was adversely impacted by $12.8 million from nondeductible
goodwill in connection with an impairment charge recorded in
2012, and $12.5 in net state and non-U.S. valuation allowances
provided against deferred income tax benefits where realization is
doubtful, offset by tax benefits from lower rates at jurisdictions
outside the United States.
The effective tax rate for income from continuing operations in
2011 was 40.8%. This effective tax rate was adversely impacted
by $17.8 million in valuation allowances provided against deferred
income tax benefits where realization is doubtful, offset by tax
benefits from lower rates at jurisdictions outside the United States.
Discontinued Operations. The Company completed the sale of the
Publishing Subsidiaries in October 2013 and The Herald in March
2013. Kaplan sold Kidum in August 2012, EduNeering in April
2012, KLT in February 2012, Kaplan Compliance Solutions (KCS)
in October 2011 and Kaplan Virtual Education (KVE) in July 2011.
In addition, the Company divested its interest in Avenue100 Media
Solutions on July 31, 2012. Consequently, income from continuing
operations excludes these businesses, which have been reclassified
to discontinued operations, net of tax.
The sale of KLT resulted in a pre-tax loss of $3.1 million, which was
recorded in the first quarter of 2012. The sale of EduNeering resulted
in a pre-tax gain of $29.5 million, which was recorded in the second
quarter of 2012. The sale of Kidum resulted in a pre-tax gain of $3.6
million, which was recorded in the third quarter of 2012.
In connection with each of the sales of the Company’s stock in
EduNeering and KLT, in the first quarter of 2012, 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 disposed.
In connection with the disposal of Avenue100 Media Solutions,
Inc., the Company recorded a pre-tax loss of $5.7 million in the
third quarter of 2012. An income tax benefit of $44.5 million was
also recorded in the third quarter of 2012 as the Company
determined that Avenue100 Media Solutions, Inc. 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
prior years, for which no tax benefit was previously recorded.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions and Dispositions
Acquisitions. The Company completed business acquisitions
totaling approximately $23.8 million in 2013; $55.6 million in
2012; and $136.5 million including assumed debt of $5.5 million
in 2011. The assets and liabilities of the companies acquired have
been recorded at their estimated fair values at the date of
acquisition.
During 2013, the Company acquired six businesses. On August 1,
2013, the Company completed its acquisition of Forney Corporation,
a global supplier of products and systems that control and monitor
combustion processes in electric utility and industrial applications.
The operating results for Forney are included in other businesses.
The Company also acquired four small businesses in other businesses
and one small business in its education division. In the second quarter
of 2013, Kaplan purchased the remaining 15% noncontrolling
interest in Kaplan China; this additional interest was accounted for as
an equity transaction. The purchase price allocations mostly comprise
goodwill, other intangible assets and current assets.
During 2012, the Company completed five business acquisitions.
In November 2012, the Company completed its acquisition of a
controlling interest in Celtic Healthcare, Inc. (Celtic), a provider of
home health care and hospice services in the northeastern and mid-
Atlantic regions. The operating results of Celtic are included in other
businesses. The fair value of the noncontrolling interest in Celtic was
$5.9 million at the acquisition date, determined using a market
approach. The minority shareholder has an option to put their
shares to the Company from 2018 to 2022, and the Company has
an option to buy the shares of the minority shareholder in 2022.
The Company also acquired three small businesses in its education
division and one small business in other businesses. The purchase
price allocations mostly comprised goodwill and other intangible
assets.
46 GRAHAM HOLDINGS COMPANY