Washington Post 2008 Annual Report Download - page 60

The Company incurred net interest expense of $12.7 million in
2007, compared to $14.9 million in 2006. At December 30,
2007, the Company had $490.1 million in borrowings
outstanding at an average interest rate of 5.3%; at December 31,
2006, the Company had $407.2 million in borrowings
outstanding at an average interest rate of 5.5%.
Income Taxes. The effective tax rate was 40.0% for 2007 and
36.5% for 2006. As previously discussed, results for 2007
included an additional $12.9 million in income tax expense related
to the Company’s Bowater Mersey affiliate and a $6.3 million
income tax benefit related to a change in certain state income tax
laws enacted in the second quarter of 2007. Both of these are
non-cash items in 2007, impacting the Company’s long-term net
deferred income tax liabilities. Excluding the impact of these items,
the effective tax rate for 2007 was 38.6%. The higher effective tax
rate in 2007 compared to 2006 was primarily due to higher state
taxes and an increase in nondeductible compensation expenses.
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 2008, the Company
acquired businesses for a total of $123.5 million, financed with
cash and $3.2 million in debt.
The Company acquired 10 businesses within its education and
newspaper segments for a total of $93.1 million. Kaplan acquired
9 businesses in its higher education, test prep and professional
divisions. These include Kaplan Professional’s acquisition of a
majority interest in Shanghai Kai Bo Education Investment
Management Co., Ltd. (“Kaplan China”), a provider of education in
China that offers preparation courses for entry to U.K. universities,
along with degree and professional training programs at campuses
throughout China. In 2007, Kaplan purchased a 40% interest in
Kaplan China. In the first quarter of 2008, Kaplan exercised an
option to increase its investment in Kaplan China to an 85%
majority interest. The transaction was completed in November
2008, and Kaplan China’s results from the transaction date forward
have been 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 this transaction is comprised mostly of
intangible assets and property, plant and equipment.
In connection with a 2008 acquisition, additional purchase
consideration of approximately $1.5 million is contingent on the
achievement of certain future operating results and is not included in
the Company’s purchase accounting as of December 28, 2008. In
connection with certain 2007 acquisitions, additional purchase
consideration of approximately $22 million was contingent on the
achievement of certain future operating results; such amounts were
largely funded in escrow in 2007 and were not included in the
Company’s purchase accounting as of December 30, 2007. In
2008, the Company recorded $15.1 million of additional
purchase consideration in connection with the achievement of
certain operating results by one of these acquired companies and
allocated the additional purchase consideration to goodwill. Any
remaining purchase consideration related to these contingencies is
expected to be recorded as goodwill.
In July 2008, the Company announced an agreement with NBC
Universal to acquire WTVJ, the NBC-owned and operated television
station in Miami, FL, for approximately $205 million. The agreement
was subject to approval by the Federal Communications Commission
and required that the transaction close by the end of 2008. The
regulatory approval process was not completed by the end of 2008;
consequently, the agreement expired.
During 2007, the Company acquired businesses for a total 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. The purchase price
allocations for these acquisitions mostly comprised goodwill and other
intangible assets.
2007 acquisition activity also included the cable television
division’s acquisition of subscribers in the Boise, ID, area for
$4.3 million. Most of the purchase price for this transaction was
allocated to indefinite-lived intangible assets and property, plant
and equipment.
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 purchased land and is building a new Miami
television station facility that is expected to be completed in 2009.
48 THE WASHINGTON POST COMPANY