Washington Post 2007 Annual Report Download - page 65

office, increased technology costs and other compensation
related expenses.
Equity in Earnings (Losses) of Affiliates. The Company’s equity
in earnings of affiliates for 2006 was $0.8 million, compared to
losses of $0.9 million in 2005. The Company’s affiliate
investments at the end of 2006 consisted primarily of a 49%
interest in Bowater Mersey Paper Company Limited. In November
2006, the Company sold its 49% interest in BrassRing and
recorded a pre-tax non-operating gain of $43.2 million in the
fourth quarter of 2006.
Non-Operating Items. The Company recorded other non-
operating income, net, of $73.5 million in 2006, compared
to $9.0 million in 2005. The 2006 non-operating income, net,
comprised a $43.2 million gain from the sale of the Company’s
interest in BrassRing, $33.8 million in gains related to the sales of
marketable equity securities and $11.9 million in foreign
currency gains, offset by a $14.2 million write-down of a
marketable equity security and other non-operating items. The
2005 non-operating income comprised $17.8 million in gains
related to the sales of non-operating land and marketable equity
securities, offset by $8.1 million in foreign currency losses and
other non-operating items.
A summary of non-operating income (expense) for the years
ended December 31, 2006 and January 1, 2006 follows (in
millions):
2006 2005
Gain on sale of affiliate . . . ............ $43.2 $—
Gain on sales of marketable equity securities . . 33.8 12.7
Foreign currency gains (losses), net ........ 11.9 (8.1)
Impairment write-downs on investments . . . . . . (15.1) (1.5)
Gain on sales of non-operating land ....... —5.1
Other (losses) gains . ................. (0.3) 0.8
Total . ......................... $73.5 $ 9.0
The Company incurred net interest expense of $14.9 million in
2006, compared to $23.4 million in 2005. The decline in net
interest expense is primarily due to increases in interest income in
2006. At December 31, 2006, the Company had $407.2 million in
borrowings outstanding at an average interest rate of 5.5%; at
January 1, 2006, the Company had $428.4 million in borrowings
outstanding at an average interest rate of 5.4%.
Income Taxes. The effective tax rate was 36.5% for 2006 and
37.1% for 2005. The decline in the 2006 effective tax rate is
primarily due to lower state taxes.
Cumulative Effect of Change in Accounting Principle. In the first
quarter of 2006, the Company adopted SFAS 123R, which
requires companies to record the cost of employee services in
exchange for stock options based on the grant-date fair value of
the awards. SFAS 123R did not have any impact on the
Company’s results of operations for Company stock options as
the Company had adopted the fair-value-based method of
accounting for Company stock options in 2002. However, the
adoption of SFAS 123R required the Company to change its
accounting for Kaplan equity awards from the intrinsic value
method to the fair-value-based method of accounting. As a
result, in the first quarter of 2006, the Company reported a
$5.1 million after-tax charge for the cumulative effect of
change in accounting for Kaplan equity awards ($8.2 million
in pre-tax Kaplan stock compensation expense).
FINANCIAL CONDITION: CAPITAL RESOURCES AND
LIQUIDITY
Acquisitions and Dispositions. During 2007, the Company
acquired businesses for a total cost of $296.3 million,
financed with cash and $2.0 million in debt. Kaplan acquired
nine businesses in its higher education, test prep and professional
divisions, of which the largest two were the Kaplan professional
acquisition of EduNeering Holdings, Inc., a Princeton, NJ-based
provider of knowledge management solutions for organizations in
the pharmaceutical, medical device, healthcare, energy and
manufacturing sectors; and the education division of Financial
Services Institute of Australasia. In October 2007, the Company
acquired the outstanding stock of CourseAdvisor Inc., a premier
online lead generation provider, headquartered in Wakefield,
MA. Through its search engine marketing expertise and
proprietary technology platform, CourseAdvisor generates
student leads for the post-secondary education market.
CourseAdvisor operates as an independent subsidiary of the
Company. Most of the purchase price for the 2007
acquisitions has been allocated on a preliminary basis to
goodwill and other intangibles.
Also in 2007, the cable division acquired subscribers in the
Boise, ID area for $4.3 million. Most of the purchase price for
this transaction has been allocated to indefinite-lived intangibles
and property, plant and equipment.
In connection with the 2007 acquisitions, additional purchase
consideration of approximately $22 million is contingent on the
achievement of certain future operating results; such amounts
have largely been funded in escrow and are not included in
the Company’s purchase accounting as of December 30, 2007.
Any additional purchase consideration related to these
contingencies is expected to be recorded as goodwill.
In July 2007, the television broadcasting division entered into a
transaction to sell and lease back its current Miami television
station facility; a $9.5 million gain was recorded as reduction to
expense in the third quarter of 2007. An additional $1.9 million
deferred gain is being amortized over the leaseback period.
The television broadcasting division has purchased land and is
building a new Miami television station facility that is expected to
be completed in 2009.
During the second quarter of 2007, Kaplan purchased a 40%
interest in ACE Education, a provider of education in China that
provides preparation courses for entry to U.K. universities, along
with degree and professional training programs at campuses
throughout China. In February 2008, Kaplan exercised an option
to increase its investment in ACE Education to a majority interest.
2007 FORM 10-K 49