Washington Post 2014 Annual Report Download - page 86

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.
Dispositions. In the third quarter of 2014, Kaplan completed the
sale of three of its schools in China that were previously included as
part of Kaplan International. In January 2015, Kaplan completed
the sale of an additional school in China.
On October 1, 2013, the Company completed the sale of its Publishing
Subsidiaries that together conducted most of the Company’s publishing
business and related services, including publishing The Washington Post,
Express, The Gazette Newspapers, Southern Mary-land Newspapers,
Greater Washington Publishing, Fairfax County Times, El Tiempo Latino
and related websites. In March 2013, the Company completed the sale
of The Herald, a daily and Sunday news-paper headquartered in
Everett, WA.
The Company divested its interest in Avenue100 Media Solutions
in July 2012, which was previously reported in other businesses.
Kaplan completed the sales of Kidum in August 2012, EduNeering
in April 2012 and KLT in February 2012.
On February 12, 2015, Kaplan entered into a Purchase and Sale
Agreement with 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. The Company expects
to report a pre-tax loss on the transaction that is not material to the
Company’s overall financial position.
Exchanges. On June 30, 2014, the Company and Berkshire
HathawayInc.completedapreviouslyannouncedtransactioninwhich
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 the
second quarter of 2014 includes a $266.7 million gain from the sale
of the Berkshire Hathaway shares, and income from discontinued
operations for the second quarter of 2014 includes a $375.0 million
gain from the WPLG exchange.
The pre-tax gain of $266.7 million related to the disposition of the
Berkshire shares was not subject to income tax as the Berkshire
exchange transaction qualifies as a tax-free distribution. The lower
effective tax rate for income from continuing operations for 2014 of
30.6% primarily resulted from this tax-free transaction.
As discussed above, this exchange transaction includes significant
noncash investing and financing activities. On the date of exchange,
the fair value of the Berkshire Class A and B shares was $400.3
million, and the fair value of WPLG was determined to be $438.0
million. In total, the Company recorded an increase in treasury stock
of $1,165.4 million in the second quarter of 2014 in connection
with the Berkshire exchange transaction.
The Company’s income from continuing operations excludes results
from the businesses described in dispositions and exchanges
above, which have been reclassified to discontinued operations
(see Note 3).
8. GOODWILL AND OTHER INTANGIBLE ASSETS
In 2014, as a result of regulatory changes impacting Kaplan’s
operations in China, Kaplan recorded an intangible asset impairment
charge of $7.8 million, reported in discontinued operations. The
Company estimated the fair value of the student and customer
relationships using an income approach. In addition, Kaplan recorded
intangible asset impairment charges of $1.8 million related to a KTP
business, $1.1 million related to one of the Kaplan International
businesses and $0.7 million related to KHE. The fair value of these
intangible assets were estimated using an income approach. One of
the businesses in the other businesses segment recorded an intangible
asset impairment charge of $0.1 million.
In 2013, as a result of operating losses and restructuring activities
at one of the Kaplan International businesses, Kaplan recorded an
intangible and other long-lived assets impairment charge of $3.3
million. The Company estimated the fair value of the student and
customer relationships and database and technology intangible
assets using the excess earnings method, and the fair value of the
trade name and trademarks using the relief from royalty method.
As part of the Company’s annual impairment review in 2012, the
KTP reporting unit failed the step one goodwill impairment test, and,
therefore, a step two analysis was performed. As a result of the step
two analysis, the Company recorded a goodwill and other long-
lived asset impairment charge of $111.6 million. The Company
estimated the fair value utilizing a discounted cash flow model,
supported by a market approach. The impairment charge was the
result of a slowdown in enrollment growth at KTP, operating losses
for the preceding three years and other factors. A substantial portion
of the impairment charge was due to the amount of unrecognized
intangible assets identified in the step two analysis.
Amortization of intangible assets for the years ended December 31,
2014, 2013 and 2012, was $18.4 million, $12.1 million and
$19.5 million, respectively. Amortization of intangible assets is
estimated to be approximately $19 million in 2015, $18 million in
2016, $14 million in 2017, $13 million in 2018, $12 million in
2019 and $21 million thereafter.
In July 2014, the cable division sold wireless spectrum licenses that
were purchased in 2006; a pre-tax non-operating gain of $75.2
million was recorded in the third quarter of 2014 in connection with
these sales.
70 GRAHAM HOLDINGS COMPANY