Washington Post 2014 Annual Report Download - page 64

in November 2012; Forney, a global supplier of products and
systems that control and monitor combustion processes in electric
utility and industrial applications, acquired by the Company in
August 2013; and Trove, a digital team focused on emerging
technologies and new product development.
The revenue increase of 77% in other businesses for 2013 is due to
growth at SocialCode and Slate and revenue from the Company’s
recently acquired Celtic and Forney businesses.
Corporate Office. Corporate office includes the expenses of the
Company’s corporate office as well as a net pension credit.
Corporate office also includes the current and historical pension and
postretirement benefits expense for retirees of the newspaper
publishing businesses that were sold since the associated assets and
liabilities are being retained by the Company.
In November 2013, the Company announced that its headquarters
building was to be sold for approximately $159 million.
Equity in Earnings of Affiliates. The Company holds a 16.5% interest
in Classified Ventures, LLC and interests in several other affiliates.
The Company’s equity in earnings of affiliates, net, for 2013 was
$13.2 million, compared to $14.1 million in 2012.
Other Non-Operating (Expense) Income. The Company recorded
other non-operating expense, net, of $23.8 million in 2013,
compared to $5.5 million in 2012.
The 2013 non-operating expense, net, included a $10.4 million
write-down of a marketable equity security, $13.4 million in
unrealized foreign currency losses and other items. 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.
During 2013, on an overall basis, the fair value of the Company’s
marketable securities appreciated by $96.3 million.
Net Interest Expense. The Company incurred net interest expense
of $33.8 million in 2013, compared to $32.6 million in 2012.
At December 31, 2013, the Company had $450.8 million in
borrowings outstanding at an average interest rate of 7.0%; at
December 31, 2012, the Company had $696.7 million in
borrowings outstanding at an average interest rate of 5.1%.
Provision for Income Taxes. The effective tax rate for income from
continuing operations in 2013 was 36.9%. This effective tax rate
benefited from lower state taxes and lower rates in jurisdictions
outside the United States, offset by $4.6 million in net state and
non-U.S. valuation allowances provided against deferred income
tax benefits where realization is doubtful.
The effective tax rate for income from continuing operations in
2012 was 58.9%. 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 million 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 in jurisdictions outside the United States.
Discontinued Operations. On June 30, 2014, the Company and
Berkshire Hathaway Inc. completed the Berkshire exchange
transaction that included the disposition of WPLG, a Miami-based
television station.
In the third quarter of 2014, Kaplan completed the sale of three of
its schools in China that were previously part of Kaplan International.
An additional school in China was sold by Kaplan in January 2015.
On October 1, 2013, the Company completed the sale of its
newspaper publishing businesses for $250.0 million. The related
publishing businesses sold include The Washington Post, Express,
The Gazette Newspapers, Southern Maryland Newspapers,
Greater Washington Publishing, Fairfax County Times, El Tiempo
Latino and related websites (Publishing Subsidiaries). In the fourth
quarter of 2013, a pre-tax gain of $157.5 million was recorded in
discontinued operations on the sale ($100.0 million after-tax gain).
In March 2013, the Company sold The Herald. Kaplan sold Kidum
in August 2012, EduNeering in April 2012 and Kaplan Learning
Technologies (KLT) in February 2012. In addition, the Company
divested its interest in Avenue100 Media Solutions in July 2012.
Consequently, income from continuing operations excludes the
operating results and related net gains on disposition of these
businesses, which have been reclassified to discontinued
operations, net of tax, for all periods presented.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions, Dispositions and Exchanges
Acquisitions. The Company completed business acquisitions
totaling approximately $210.2 million in 2014; $23.8 million in
2013; and $55.6 million in 2012. The assets and liabilities of the
companies acquired have been recorded at their estimated fair
values at the date of acquisition.
During 2014, the Company acquired nine businesses. On April 1,
2014, Celtic acquired VNA-TIP Healthcare, a provider of home health
and hospice services in Missouri and Illinois. On May 30, 2014, the
Company completed its acquisition of Joyce/Dayton, a Dayton, OH-
based manufacturer of screw jacks and other linear motion systems.
On July 3, 2014, the Company completed its acquisition of an 80%
interest in Residential, the parent company of Residential Home Health
and Residential Hospice, providers of skilled home health care and
hospice services in Michigan and Illinois. Residential has a 40%
ownership interest in Residential Home Health Illinois and a 42.5%
ownership interest in Residential Hospice Illinois, which are accounted
for as investments in affiliates. The fair value of the redeemable
noncontrolling interest in Residential was $17.1 million at the
acquisition date, determined using a market approach. The minority
shareholders have an option to put their shares to the Company
starting in 2017, and the Company has an option to buy the shares of
some minority shareholders in 2020 and those of the remaining
minority shareholders in 2024. The operating results of these
businesses are included in other businesses. The Company also
acquired three small businesses in its education division, one small
business in its broadcasting division and two small businesses in other
businesses. The purchase price allocation mostly comprised goodwill,
other intangible assets and other current assets on a preliminary basis.
48 GRAHAM HOLDINGS COMPANY