Washington Post 2014 Annual Report Download - page 58

Items included in the Company’s income from continuing operations
for 2013 are listed below:
• $36.4 million in severance and restructuring charges at the
education division (after-tax impact of $25.3 million, or $3.46
per share);
• a $3.3 million noncash intangible assets impairment charge at
Kaplan (after-tax impact of $3.2 million, or $0.44 per share);
• a $10.4 million write-down of a marketable equity security (after-
tax impact of $6.7 million, or $0.91 per share); and
• $13.4 million in non-operating unrealized foreign currency losses
(after-tax impact of $8.6 million, or $1.17 per share).
Revenue for 2014 was $3,535.2 million, up 4% from $3,407.9
million in 2013. Revenues increased at the television broadcasting
division and in other businesses, offset by a small decline at the
cable and education divisions.
In 2014, education revenue was flat, subscriber revenue decreased
1%, advertising revenue increased 11% and other revenue increased
60%. The flat revenue results at Kaplan account for the reported
education revenue. Subscriber revenue declined slightly at the cable
division. The increase in advertising revenue is due to increased
television broadcasting revenue. The increase in other revenues is
due primarily to the inclusion of revenues from businesses acquired in
2014 and 2013.
Operating costs and expenses for the year increased 1% to $3,127.2
million in 2014, from $3,088.7 million in 2013. Expenses were higher
in other businesses and the television broadcasting division in 2014.
This was offset by decreased costs at the education and cable divisions.
Operating income for 2014 increased to $407.9 million, from
$319.2 million in 2013. Operating results improved at all reporting
segments and benefited from an increase in the net pension credit.
On June 30, 2014, the Company and Berkshire Hathaway Inc.
completed a transaction in which Berkshire acquired a wholly-
owned subsidiary of the Company that included, among other
things, WPLG, a Miami-based television station, 2,107 Class A
Berkshire shares and 1,278 Class B Berkshire shares owned by
Graham Holdings and $327.7 million in cash, in exchange for
1,620,190 shares of Graham Holdings Class B common stock
owned by Berkshire Hathaway (Berkshire exchange transaction). As
a result, income from continuing operations for 2014 includes a
$266.7 million gain from the exchange of the Berkshire Hathaway
shares, and income from discontinued operations for 2014 includes
a $375.0 million gain from the WPLG exchange.
In November 2014, the Company announced that its Board of
Directors authorized management to proceed with plans for the
complete legal and structural separation of Cable ONE, Inc., a
Graham Holdings subsidiary, from Graham Holdings. Following the
proposed transaction, Cable ONE will be an independent, publicly
traded company. The Company intends to complete the proposed
transaction later in 2015. The proposed transaction will be structured
as a tax-free spin-off of Cable ONE to the stockholders of the
Company. The transaction is contingent on the satisfaction of a
number of conditions, including completion of the review process by
the Securities and Exchange Commission of required filings under
applicable securities regulations, other applicable regulatory
approvals and the final approval of transaction terms by the
Company’s Board of Directors.
On February 12, 2015, Kaplan entered into a Purchase and Sale
Agreement with Education Corporation of America (ECA) to
sell substantially all of the assets of its KHE Campuses business,
consisting of 38 nationally accredited ground campuses, and
certain related assets, in exchange for a preferred equity interest in
ECA. The transaction is contingent upon certain regulatory and
accrediting agency approvals and is expected to close in the
second or third quarter of 2015.
DIVISION RESULTS
Education Division. Education division revenue in 2014 totaled
$2,160.4 million, compared to revenue of $2,163.7 million in
2013. Kaplan reported operating income of $65.5 million for 2014,
compared to $51.0 million in 2013. Kaplan’s 2014 operating
results in comparison to 2013 benefited from improvement in KHE
and Kaplan International results, offset by increased intangible and
other long-lived asset impairment charges.
In recent years, Kaplan has formulated and implemented restructuring
plansatitsvariousbusinessesthathaveresultedinsignificantcostsin
2014 and 2013, with the objective of establishing lower cost levels
in future periods. Across all businesses, restructuring costs and
software asset write-offs totaled $16.8 million in 2014 and $36.4
million in 2013.
In the third quarter of 2014, Kaplan completed the sale of three of its
schools in China that were previously part of Kaplan International. The
sale of an additional school in China was completed in January
2015. Kaplan’s operating results exclude these schools, which have
been reclassified to discontinued operations for all periods presented.
A summary of Kaplan’s operating results is as follows:
Year Ended December 31
(in thousands) 2014 2013 % Change
Revenue
Higher education ......... $1,010,058 $1,080,908 (7)
Test preparation .......... 304,662 293,201 4
Kaplan international ....... 840,915 783,588 7
Kaplan corporate and
other ................ 6,094 7,990 (24)
Intersegment elimination .... (1,312) (1,953) —
$2,160,417 $2,163,734 —
Operating Income (Loss)
Higher education ......... $ 83,069 $ 71,584 16
Test preparation .......... (4,730) 4,118 —
Kaplan international ....... 69,153 51,653 34
Kaplan corporate and
other ................ (57,093) (64,948) 12
Amortization of intangible
assets................ (7,738) (8,503) 9
Impairment of intangible and
other long-lived assets .... (17,203) (3,250) —
Intersegment elimination .... 5335 —
$ 65,463 $ 50,989 28
42 GRAHAM HOLDINGS COMPANY