Washington Post 2014 Annual Report Download - page 93

At December 31, 2014, the intrinsic value for all options outstanding,
exercisable and unvested was $39.8 million, $27.5 million and $12.3
million, respectively. The intrinsic value of a stock option is the amount
by which the market value of the underlying stock exceeds the exercise
price of the option. The market value of the Company’s stock was
$863.71 at December 31, 2014. At December 31, 2014, there
were 81,500 unvested options related to this plan with an average
exercise price of $863.72 and a weighted average remaining
contractual term of 8.9 years. At December 31, 2013, there were
48,500 unvested options with an average exercise price of $442.02
and a weighted average remaining contractual term of 7.9 years.
As of December 31, 2014, total unrecognized stock-based compensation
expense related to stock options was $10.5 million, which is expected to
be recognized on a straight-line basis over a weighted average period of
approximately 5.2 years. There were 19,125 options exercised during
2014. The total intrinsic value of options exercised during 2014 was $6.7
million; a tax benefit from these stock option exercises of $2.7 million was
realized. There were 14,500 options exercised during 2013. The total
intrinsic value of options exercised during 2013 was $3.2 million; a tax
benefit from these stock option exercises of $1.3 million was realized. No
options were exercised during 2012.
During 2014, the Company granted 50,000 options at an exercise
price above the fair market value of its common stock at the date of
grant. All other options granted during 2014 were at an exercise price
equal to the fair market value of the Company’s common stock at the
date of grant. All options granted during 2013 and 2012 were at an
exercise price equal to the fair market value of the Company’s common
stock at the date of grant. The weighted average grant-date fair value of
options granted during 2014, 2013 and 2012 was $178.95,
$91.74 and $91.71, respectively. Also, in early 2015, an additional
5,000 stock options were granted.
The fair value of options at date of grant was estimated using the Black-
Scholes method utilizing the following assumptions:
2014 2013 2012
Expected life (years) . . 7–8 77
Interest rate ........ 2.15%–2.45% 1.31% 1.04%–1.27%
Volatility ........... 30.75%–32.10% 31.80% 31.71%–31.80%
Dividend yield ...... 1.30%–1.54% 2.63% 2.54%–2.60%
The Company also maintains a stock option plan at Kaplan. Under
the provisions of this plan, options are issued with an exercise price
equal to the estimated fair value of Kaplan’s common stock, and
options vest ratably over the number of years specified (generally
four to five years) at the time of the grant. Upon exercise, an option
holder may receive Kaplan shares or cash equal to the difference
between the exercise price and the then fair value.
At December 31, 2014, a Kaplan senior manager holds 7,206
Kaplan restricted shares. The fair value of Kaplan’s common stock is
determined by the Company’s compensation committee of the Board of
Directors, and in January 2015, the committee set the fair value price at
$1,180 per share. During 2013, 5,000 options were awarded to a
Kaplan senior manager at a price of $973 per share that vest over a
four-year period. No options were awarded during 2014 and 2012;
no options were exercised during 2014, 2013 or 2012; and there
were 5,000 options outstanding at December 31, 2014. Additionally,
in January 2015, an additional 2,500 stock options were awarded.
Kaplan recorded stock compensation expense of $0.9 million and $2.9
million in 2014 and 2013, and a stock compensation credit of $1.1
million in 2012, respectively. At December 31, 2014, the Company’s
accrual balance related to Kaplan stock-based compensation totaled
$10.8 million. There were no payouts in 2014, 2013 or 2012.
Earnings Per Share. The Company’s unvested restricted stock awards
contain nonforfeitable rights to dividends and, therefore, are considered
participating securities for purposes of computing earnings per share
pursuant to the two-class method. The diluted earnings per share computed
under the two-class method is lower than the diluted earnings per share
computed under the treasury stock method, resulting in the presentation of
the lower amount in diluted earnings per share. The computation of
earnings per share under the two-class method excludes the income
attributable to the unvested restricted stock awards from the numerator and
excludes the dilutive impact of those underlying shares from the
denominator.
The following reflects the Company’s income from continuing operations
and share data used in the basic and diluted earnings per share
computations using the two-class method:
Year Ended December 31
(in thousands, except per share
amounts) 2014 2013 2012
Numerator:
Numerator for basic earnings
per share
Income from continuing operations
attributable to Graham Holdings
Company common
stockholders .............. $920,747 $171,995 $ 50,323
Less: Dividends paid–common
stock outstanding and unvested
restricted shares ............ (67,267) — (146,432)
Undistributed earnings (losses) . . . 853,480 171,995 (96,109)
Percent allocated to common
stockholders (1) ............. 97.98% 98.45% 100.00%
836,246 169,329 (96,109)
Add: Dividends paid–common
stock outstanding ........... 66,012 — 143,175
Numerator for basic earnings
per share ................. 902,258 169,329 47,066
Add: Additional undistributed
earnings due to dilutive stock
options .................. 79 5—
Numerator for diluted earnings
per share ................. $902,337 $169,334 $ 47,066
Denominator:
Denominator for basic earnings
per share
Weighted average shares
outstanding ............... 6,470 7,238 7,360
Add: Effect of dilutive stock
options .................. 27 12 —
Denominator for diluted earnings
per share ................. 6,497 7,250 7,360
Graham Holdings Company
Common Stockholders:
Basic earnings per share from
continuing operations ....... $139.44 $23.39 $6.40
Diluted earnings per share from
continuing operations ....... $138.88 $23.36 $6.40
(1) Percent of undistributed losses allocated to common stockholders is 100% in
2012 as participating securities are not contractually obligated to share in
losses.
2014 FORM 10-K 77