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8-K
GRAHAM HOLDINGS CO filed this Form 8-K on 02/23/2018
Entire Document
 
Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 23, 2018
GRAHAM HOLDINGS COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
1-6714
53-0182885
(State or other jurisdiction of
incorporation or organization)
(Commission
File Number)
(I.R.S. Employer
Identification No.)
 
 
 
1300 North 17th Street, Arlington, Virginia
22209
(Address of principal executive offices)
(Zip Code)
(703) 345-6300
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


 
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Item 2.02          Results of Operations and Financial Condition.
 
On February 23, 2018, Graham Holdings Company issued a press release announcing the Company’s earnings for the fourth quarter and year ended December 31, 2017.  A copy of this press release is furnished with this report as an exhibit to this Form 8-K.
 
 
Item 9.01          Financial Statements and Exhibits
 
Exhibit 99.1 Graham Holdings Company Earnings Release Dated February 23, 2018.






 
2

 

SIGNATURE
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
     
 
 
Graham Holdings Company
 
 
(Registrant)
 
 
 
 
 
 
Date: February 23, 2018
 
/s/ Wallace R. Cooney
 
 
Wallace R. Cooney,
Senior Vice President–Finance


 
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Exhibit Index
 
 


 
4
Exhibit
Exhibit 99.1
 
Contact: 
 
Wallace R. Cooney
 
For Immediate Release 
 
 
(703) 345-6470
 
February 23, 2018
 
 
 
 
 
 
 
 
GRAHAM HOLDINGS COMPANY REPORTS
 
 
 
 
2017 AND FOURTH QUARTER EARNINGS
 
ARLINGTON, VA - Graham Holdings Company (NYSE: GHC) today reported net income attributable to common shares of $302.0 million ($53.89 per share) for the year ended December 31, 2017, compared to $168.6 million ($29.80 per share) for the year ended December 31, 2016. For the fourth quarter of 2017, the Company reported net income attributable to common shares of $214.2 million ($38.52 per share), compared to $36.9 million ($6.57 per share) for the same period of 2016. The Company’s results for 2017 and the fourth quarter of 2017 include a significant net deferred income tax benefit related to the Tax Cuts and Jobs Act legislation enacted in December 2017.
The results for 2017 and 2016 were affected by a number of items as described in the following paragraphs. Excluding these items, net income attributable to common shares was $128.6 million ($22.93 per share) for 2017, compared to $167.6 million ($29.66 per share) for 2016. Excluding these items, net income attributable to common shares was $43.2 million ($7.77 per share) for the fourth quarter of 2017, compared to $54.4 million ($9.68 per share) for the fourth quarter of 2016. (Refer to the Non-GAAP Financial Information schedule attached to this release for additional details.)
Items included in the Company’s net income for 2017 are listed below, and fourth quarter activity, if any, is highlighted for each item:
$10.0 million in restructuring charges at the education division (after-tax impact of $6.3 million, or $1.12 per share); $7.2 million of these charges were recorded in the fourth quarter (after-tax impact of $4.5 million, or $0.81 per share);
a $9.2 million goodwill and other long-lived asset impairment charge in other businesses (after-tax impact of $5.8 million, or $1.03 per share);
$3.3 million in non-operating foreign currency gains (after-tax impact of $2.1 million, or $0.37 per share); $3.3 million in losses were recorded in the fourth quarter (after-tax impact of $2.1 million or $0.37 per share);
$177.5 million in fourth quarter net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act in December 2017 ($31.68 per share); and
$5.9 million in income tax benefits related to stock compensation ($1.06 per share).
Items included in the Company’s net income for 2016 are listed below, and fourth quarter activity, if any, is highlighted for each item:
an $18.0 million fourth quarter gain related to a bulk lump sum pension program offering (after-tax impact of $10.8 million, or $1.92 per share);
$11.9 million in restructuring charges at the education division (after-tax impact of $7.7 million, or $1.36 per share); $7.0 million of these charges were recorded in the fourth quarter (after-tax impact of $4.5 million, or $0.81 per share);
$16.8 million in net non-operating gains from the sales of assets and write-downs of cost and equity method investments (after tax impact of $9.5 million, or $1.62 per share); $30.7 million in losses were recorded in the fourth quarter (after-tax impact of $19.5 million, or $3.47 per share);
$39.9 million in non-operating foreign currency losses (after-tax impact of $25.5 million, or $4.51 per share); $6.6 million in losses were recorded in the fourth quarter (after-tax impact of $4.2 million, or $0.75 per share); and
a net nonrecurring $13.9 million deferred tax benefit related to Kaplan ($2.47 per share).
Revenue for 2017 was $2,591.8 million, up 4% from $2,481.9 million in 2016Revenues increased in other businesses, offset by a decline at the education division. The Company reported operating income for 2017 of $209.1 million, a decrease of 31%, from $303.5 million in 2016. Operating results declined at the television broadcasting and education divisions and in other businesses.
For the fourth quarter of 2017, revenue was $675.8 million, up 7% from $629.6 million in 2016Revenues increased in other businesses and at the television broadcasting division, offset by a decline at the education division. The Company reported operating income of $67.1 million in the fourth quarter of 2017, compared to $109.5 million in

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2016. Operating results declined at the education and television broadcasting divisions, offset by an increase in other businesses.
On April 27, 2017, certain Kaplan subsidiaries entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute Kaplan University (KU), its institutional assets and operations to a new, non-profit, public-benefit corporation affiliated with Purdue University (Purdue) in exchange for a Transition and Operations Support Agreement (TOSA) to provide key non-academic operations support to the new university for an initial term of 30 years with a buy-out option after six years. The transfer does not include any of the assets of Kaplan University School of Professional and Continuing Education (KU-PACE), which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education (ED), the Indiana Commission for Higher Education (ICHE) and the Higher Learning Commission (HLC), which is the regional accreditor of both Purdue and KU, and certain other state educational agencies and accreditors of programs. In the third quarter of 2017, ICHE granted its approval and the ED provided preliminary approval based on its review of a pre-acquisition application, subject to certain conditions. Kaplan is unable to predict with certainty when and if HLC approval will be obtained; however, a decision is not expected to be received until later in the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.
Division Results
Education
Education division revenue in 2017 totaled $1,516.8 million, down 5% from $1,598.5 million in 2016. For the fourth quarter of 2017, education division revenue totaled $380.6 million, down 3% from $391.2 million for the same period of 2016.
Kaplan reported operating income of $75.2 million for 2017, a 20% decrease from $93.6 million in 2016; Kaplan reported operating income for the fourth quarter of 2017 of $19.8 million, a 34% decrease from $29.9 million in the fourth quarter of 2016. In 2017, operating results declined at Kaplan Higher Education (KHE), partially offset by improved results at Kaplan Test Preparation (KTP) and Kaplan International.
In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in restructuring costs in 2017 and 2016, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $10.0 million in 2017 and $11.9 million in 2016. Restructuring costs totaled $7.2 million in the fourth quarter of 2017 and $7.0 million in the fourth quarter of 2016.
A summary of Kaplan’s operating results is as follows:
 
 
Three Months Ended
 
 
 
Twelve Months Ended
 
 
 
 
December 31
 
 
 
December 31
 
 
(in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Higher education
 
$
130,291

 
$
144,916

 
(10
)
 
$
547,264

 
$
617,047

 
(11
)
Test preparation
 
60,320

 
62,454

 
(3
)
 
273,298

 
286,556

 
(5
)
Kaplan international
 
190,431

 
184,294

 
3

 
697,999

 
696,362

 

Kaplan corporate and other
 
174

 
24

 

 
294

 
214

 
37

Intersegment elimination
 
(641
)
 
(452
)
 

 
(2,079
)
 
(1,718
)
 

  
 
$
380,575

 
$
391,236

 
(3
)
 
$
1,516,776

 
$
1,598,461

 
(5
)
Operating Income (Loss)
 
 

 
 

 
 

 
 

 
 

 
 

Higher education
 
$
5,153

 
$
16,595

 
(69
)
 
$
44,277

 
$
66,632

 
(34
)
Test preparation
 
1,300

 
(3,715
)
 

 
11,507

 
9,599

 
20

Kaplan international
 
21,721

 
25,461

 
(15
)
 
50,730

 
48,398

 
5

Kaplan corporate and other
 
(7,167
)
 
(6,084
)
 
(18
)
 
(26,326
)
 
(23,452
)
 
(12
)
Amortization of intangible assets
 
(1,364
)
 
(2,358
)
 
42

 
(5,162
)
 
(7,516
)
 
31

Intersegment elimination
 
179

 
20

 

 
143

 
(29
)
 

 
 
$
19,822

 
$
29,919

 
(34
)
 
$
75,169

 
$
93,632

 
(20
)
KHE includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.
In 2017 and the fourth quarter of 2017, KHE revenue declined 11% and 10%, respectively, due to declines in average enrollments at Kaplan University. KHE operating income declined in 2017 and the fourth quarter of 2017 due primarily to lower enrollment at Kaplan University, partially offset by lower restructuring costs. Restructuring

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costs at KHE were $1.8 million and $1.2 million for 2017 and the fourth quarter of 2017, respectively, compared to $7.2 million and $5.5 million for 2016 and the fourth quarter of 2016, respectively.
New higher education student enrollments at Kaplan University declined 4% in 2017 due to lower demand across Kaplan University programs. Total students at Kaplan University were 28,718 at December 31, 2017, down 11% from December 31, 2016.
Kaplan University higher education student enrollments by certificate and degree programs are as follows:
 
 
As of December 31
 
 
2017
 
2016
Certificate
 
9.5
%
 
7.7
%
Associate’s
 
16.5
%
 
18.1
%
Bachelor’s
 
50.9
%
 
50.9
%
Master’s
 
23.1
%
 
23.3
%
 
 
100.0
%
 
100.0
%
KTP includes Kaplan’s standardized test preparation and new economy skills training programs. KTP revenue declined 5% in 2017 and 3% for the fourth quarter of 2017. Enrollments, excluding the new economy skills training offerings, were up 4% in 2017; however, unit prices were generally lower. In comparison to 2016, KTP operating results improved in 2017 due primarily to operating cost efficiencies. Operating losses for the new economy skills training programs were $16.7 million and $13.0 million for 2017 and 2016, respectively, including restructuring costs incurred in connection with the closing of Dev Bootcamp that was completed in the second half of 2017. Dev Bootcamp made up the majority of KTP’s new economy skills training programs.
Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased slightly in 2017, and on a constant currency basis, revenue increased 2%, primarily due to growth in Pathways enrollments. Revenue was up in the fourth quarter of 2017; however, on a constant currency basis, revenue decreased 1%, largely due to timing of class starts at Pathways in the fourth quarter of 2017. Kaplan International operating income increased 5% in 2017, due largely to improved Pathways program results, partially offset by a decline in Singapore. Operating income decreased 15% in the fourth quarter of 2017 largely due to timing of class starts at Pathways. Restructuring costs at Kaplan International totaled $3.8 million and $4.7 million in 2017 and 2016, respectively.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities.
Television Broadcasting
On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire WCWJ, a CW affiliate television station in Jacksonville, FL, and WSLS, an NBC affiliate television station in Roanoke, VA, for $60 million in cash and the assumption of certain pension obligations. The Company continues to operate both stations under their current network affiliations.
Revenue at the television broadcasting division increased slightly to $409.9 million in 2017, from $409.7 million in 2016. Excluding revenue from the two newly acquired stations, revenue declined 6% due to a $28.7 million decrease in political advertising revenue, $13.1 million in 2016 incremental summer Olympics-related advertising revenue at the Company’s NBC affiliates, lower network revenue and the adverse impact from hurricanes Harvey and Irma in the third quarter of 2017, partially offset by $20.7 million in increased retransmission revenues. As previously disclosed, the Company’s NBC affiliates in Houston and Detroit are operating under a new contract with NBC effective January 1, 2017 that has resulted in a significant increase in network fees in 2017, compared to 2016. Operating income for 2017 was down 32% to $137.2 million, from $200.5 million in 2016 due to lower revenues, the significantly higher network fees and increased amortization of intangibles expense.
For the fourth quarter of 2017, revenue increased 2% to $111.0 million, from $108.8 million in 2016. Excluding revenue from the two newly acquired stations, revenue declined 4% due to a $15.3 million decrease in political advertising revenue and lower network revenue, partially offset by $5.9 million in higher retransmission revenues and an increase in advertising revenue in several key sectors. Operating income for the fourth quarter of 2017 was down 30% to $39.0 million, from $55.9 million in the same period of 2016, due to the significantly higher network fees and increased amortization of intangible assets expense.
Other Businesses
Manufacturing includes four businesses: Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton Corp., a manufacturer of screw jacks and other linear motion systems; Forney, a supplier of products and systems that control and monitor combustion processes

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in electric utility and industrial applications; and Hoover Treated Wood Products, Inc., a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications that the Company acquired in April 2017. In September 2016, Dekko acquired Electri-Cable Assemblies (ECA), a manufacturer of power, data and electrical solutions for the office furniture industry.
In the second quarter of 2017, the Company recorded a $9.2 million goodwill and other long-lived asset impairment charge at Forney, due to lower than expected revenues resulting from sluggish overall demand for its energy products. Excluding this impairment charge, manufacturing revenues and operating income increased in 2017 due to the Hoover acquisition and growth and improved results at Dekko, including the ECA acquisition, offset by a decline in results at Forney, which included $1.2 million in expense related to a separation incentive program implemented in the third quarter of 2017 that was mostly funded from the assets of the Company’s pension plan.
Graham Healthcare Group (GHG) provides home health and hospice services in three states. In June 2016, the Company acquired the outstanding 20% redeemable noncontrolling interest in Residential Healthcare (Residential). Also in June 2016, Celtic Healthcare (Celtic) and Residential combined their business operations and the Company now owns 90% of the combined entity. The Company incurred approximately $2.0 million in expenses in conjunction with these transactions in the second quarter of 2016. At the end of June 2017, GHG acquired Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider. Healthcare revenues increased 5% in 2017, while operating results were down, due largely to increased bad debt expenses and higher information systems and other integration costs.
In June 2016, Residential and a Michigan hospital formed a joint venture to provide home health services to West Michigan patients. GHG manages the operations of the joint venture and holds a 40% interest. The pro rata operating results of the joint venture are included in the Company’s equity in earnings of affiliates. In connection with this transaction, the Company recorded a pre-tax gain of $3.2 million in the second quarter of 2016 that is included in other income (expense), net.
SocialCode is a provider of marketing solutions on social, mobile and video platforms. SocialCode revenue increased 5% in 2017 and 1% in the fourth quarter of 2017, due to continued growth in digital advertising service revenues. SocialCode reported an operating loss of $3.7 million and operating income of $4.5 million in 2017 and the fourth quarter of 2017, respectively, compared to an operating loss of $12.4 million and operating income of $2.9 million in 2016 and the fourth quarter of 2016, respectively. SocialCode’s operating results included incentive accruals of $1.4 million and $0.2 million related to phantom equity appreciation plans in 2017 and the fourth quarter of 2017, respectively; whereas 2016 results included incentive accruals of $12.8 million and $0.8 million related to phantom equity plans for the relevant periods.
Other businesses also include Slate and Foreign Policy, which publish online and print magazines and websites; and two investment stage businesses, Panoply and CyberVista. Losses from each of these businesses in 2017 adversely affected operating results.
Corporate Office
Corporate office includes the expenses of the Company’s corporate office, the pension credit for the Company’s traditional defined benefit plan and certain continuing obligations related to prior business dispositions. In the fourth quarter of 2016, the Company recorded an $18.0 million gain related to a bulk lump sum pension program offering.
Excluding the pension gain, the total pension credit for the Company’s traditional defined benefit plan was $72.9 million and $64.1 million for 2017 and 2016, respectively.
Excluding the pension credit, corporate office expenses increased slightly in 2017 due primarily to higher professional services costs.
Equity in Losses of Affiliates
At December 31, 2017, the Company held interests in a number of home health and hospice joint ventures, and interests in several other affiliates. During 2017, the Company acquired approximately 11% of Intersection Holdings, LLC, a company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces. The Company recorded equity in losses of affiliates of $3.2 million for 2017, compared to $7.9 million in 2016. In the fourth quarter of 2016, the Company recorded an $8.4 million write-down on its investment in HomeHero, a company that managed an online senior home care marketplace.
Other Non-Operating Income (Expense)
The Company recorded total other non-operating income, net, of $4.2 million in 2017, compared to non-operating expense, net, of $12.6 million in 2016. For the fourth quarter of 2017, the Company recorded other non-operating expense, net, of $2.6 million, compared to $28.5 million for the fourth quarter of 2016.

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The 2017 non-operating income, net, included $3.3 million in foreign currency gains ($3.3 million in foreign currency losses in the fourth quarter) and other items. The 2016 non-operating expense, net, included $39.9 million in foreign currency losses ($6.6 million in foreign currency losses in the fourth quarter); $29.4 million in cost method investment write-downs ($14.2 million in the fourth quarter); and $1.8 million in net losses on the sales of marketable securities ($8.0 million loss in the fourth quarter), partially offset by a $34.1 million gain on the sale of land; an $18.9 million gain on the sale of a business; a $3.2 million gain on the Residential joint venture transaction and other items.
Net Interest Expense and Related Balances
The Company incurred net interest expense of $27.3 million in 2017, compared to $32.3 million in 2016; net interest expense totaled $4.9 million and $9.8 million for the fourth quarters of 2017 and 2016, respectively. At December 31, 2017, the Company had $493.3 million in borrowings outstanding at an average interest rate of 6.3%, and cash, marketable securities and other investments of $964.7 millionAt December 31, 2016, the Company had $491.8 million in borrowings outstanding at an average interest rate of 6.3%, and cash, marketable securities and other investments of $1,119.1 million.
(Benefit from) Provision for Income Taxes
The Company is reporting an income tax benefit of $119.7 million for 2017, which was significantly impacted by the enactment of the Tax Cuts and Jobs Act in December 2017. Overall, the Company recorded a $177.5 million net deferred tax benefit in the fourth quarter of 2017 as a result of enactment of this legislation, due largely to the revaluation of the Company’s U.S. deferred tax assets and liabilities to the lower federal tax rate and a significant reduction in the amount of deferred taxes previously provided on undistributed earnings of investments in non-U.S. subsidiaries. In the first quarter of 2017, the Company recorded a $5.9 million income tax benefit related to the vesting of restricted stock awards in connection with the adoption of a new accounting standard that requires all excess income tax benefits and deficiencies from stock compensation to be recorded as discrete items in the provision for income taxes. Excluding the effect of these items, the effective tax rate for 2017 was 34.9%.
The Company’s effective tax rate for 2016 was 32.4%. In the third quarter of 2016, a net nonrecurring $8.3 million deferred tax benefit related to Kaplan’s international operations was recorded. In the second quarter of 2016, the Company benefited from a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015. Excluding the effect of these items, the effective tax rate in 2016 was 37.9%.
Earnings Per Share
The calculation of diluted earnings per share for 2017 and the fourth quarter of 2017 was based on 5,552,163 and 5,508,530 weighted average shares, respectively, compared to 5,588,733 and 5,555,510 weighted average shares, respectively, for 2016 and the fourth quarter of 2016. At December 31, 2017, there were 5,504,494 shares outstanding. On November 9, 2017, the Board of Directors authorized the Company to acquire up to 500,000 shares of Class B common stock; the Company has remaining authorization for 472,678 shares as of December 31, 2017.
Forward-Looking Statements
This report contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K.



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GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
 
Three Months Ended
 
 
December 31
%
(in thousands, except per share amounts)
2017
 
2016
Change
Operating revenues
$
675,817

 
$
629,579

7

Operating expenses
579,742

 
495,259

17

Depreciation of property, plant and equipment
15,984

 
15,717

2

Amortization of intangible assets
12,897

 
7,511

72

Impairment of goodwill and other long-lived assets
78

 
1,603

(95
)
Operating income
67,116

 
109,489

(39
)
Equity in losses of affiliates, net
(4,697
)
 
(7,042
)
(33
)
Interest income
3,184

 
1,041


Interest expense
(8,103
)
 
(10,857
)
(25
)
Other expense, net
(2,640
)
 
(28,513
)
(91
)
Income from operations before income taxes
54,860

 
64,118

(14
)
(Benefit from) provision for income taxes
(159,700
)
 
27,200


Net income
214,560

 
36,918


Net income attributable to noncontrolling interests
(382
)
 


Net Income Attributable to Graham Holdings Company Common Stockholders
$
214,178

 
$
36,918


Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 
Basic net income per common share
$
38.76

 
$
6.60


Basic average number of common shares outstanding
5,473

 
5,527

 
Diluted net income per common share
$
38.52

 
$
6.57


Diluted average number of common shares outstanding
5,509

 
5,556

 

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GRAHAM HOLDINGS COMPANY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited)
 
 
 
 
 
Twelve Months Ended
 
 
December 31
%
(in thousands, except per share amounts)
2017
 
2016
Change
Operating revenues
$
2,591,846

 
$
2,481,890

4

Operating expenses
2,269,434

 
2,085,462

9

Depreciation of property, plant and equipment
62,509

 
64,620

(3
)
Amortization of intangible assets
41,187

 
26,671

54

Impairment of intangible and other long-lived assets
9,614

 
1,603


Operating income
209,102

 
303,534

(31
)
Equity in losses of affiliates, net
(3,249
)
 
(7,937
)
(59
)
Interest income
6,581

 
3,093


Interest expense
(33,886
)
 
(35,390
)
(4
)
Other income (expense), net
4,241

 
(12,642
)

Income from operations before income taxes
182,789

 
250,658

(27
)
(Benefit from) provision for income taxes
(119,700
)
 
81,200


Net income
302,489

 
169,458

79

Net income attributable to noncontrolling interests
(445
)
 
(868
)
(49
)
Net Income Attributable to Graham Holdings Company Common Stockholders
$
302,044

 
$
168,590

79

Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 

Basic net income per common share
$
54.24

 
$
29.95

81

Basic average number of common shares outstanding
5,516

 
5,559

 

Diluted net income per common share
$
53.89

 
$
29.80

81

Diluted average number of common shares outstanding
5,552

 
5,589

 



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GRAHAM HOLDINGS COMPANY
BUSINESS SEGMENT INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
 
 
Twelve Months Ended
 
 
 
 
December 31
 
%
 
December 31
 
%
(in thousands)
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
  
 
 
 
 
 
  
 
 
 
 
Education
 
$
380,575

 
$
391,236

 
(3
)
 
$
1,516,776

 
$
1,598,461

 
(5
)
Television broadcasting
 
111,023

 
108,791

 
2

 
409,916

 
409,718

 

Other businesses
 
184,270

 
129,552

 
42

 
665,205

 
473,850

 
40

Corporate office
 

 

 

 

 

 

Intersegment elimination
 
(51
)
 

 

 
(51
)
 
(139
)
 

 
 
$
675,817

 
$
629,579

 
7

 
$
2,591,846

 
$
2,481,890

 
4

Operating Expenses
 

 
 

 
 

 
 

 
 

 
 

Education
 
$
360,753

 
$
361,317

 

 
$
1,441,607

 
$
1,504,829

 
(4
)
Television broadcasting
 
72,001

 
52,915

 
36

 
272,713

 
209,248

 
30

Other businesses
 
180,519

 
130,061

 
39

 
687,969

 
495,952

 
39

Corporate office
 
(4,521
)
 
(24,203
)
 
(81
)
 
(19,494
)
 
(31,534
)
 
(38
)
Intersegment elimination
 
(51
)
 

 

 
(51
)
 
(139
)
 

 
 
$
608,701

 
$
520,090

 
17

 
$
2,382,744

 
$
2,178,356

 
9

Operating Income (Loss)
 

 
 

 
 

 
 

 
 

 
 

Education
 
$
19,822

 
$
29,919

 
(34
)
 
$
75,169

 
$
93,632

 
(20
)
Television broadcasting
 
39,022

 
55,876

 
(30
)
 
137,203

 
200,470

 
(32
)
Other businesses
 
3,751

 
(509
)
 

 
(22,764
)
 
(22,102
)
 
(3
)
Corporate office
 
4,521

 
24,203

 
(81
)
 
19,494

 
31,534

 
(38
)
 
 
$
67,116

 
$
109,489

 
(39
)
 
$
209,102

 
$
303,534

 
(31
)
Depreciation
 

 
 

 
 

 
 

 
 

 
 

Education
 
$
7,912

 
$
9,865

 
(20
)
 
$
32,906

 
$
41,187

 
(20
)
Television broadcasting
 
3,476

 
2,575

 
35

 
12,179

 
9,942

 
23

Other businesses
 
4,338

 
2,986

 
45

 
16,306

 
12,375

 
32

Corporate office
 
258

 
291

 
(11
)
 
1,118

 
1,116

 

 
 
$
15,984

 
$
15,717

 
2

 
$
62,509

 
$
64,620

 
(3
)
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
 
 
 
 

 
 

 
 

 
 

 
 

Education
 
$
1,364

 
$
2,358

 
(42
)
 
$
5,162

 
$
7,516

 
(31
)
Television broadcasting
 
3,406

 
62

 

 
6,349

 
251

 

Other businesses
 
8,205

 
6,694

 
23

 
39,290

 
20,507

 
92

Corporate office
 

 

 

 

 

 

 
 
$
12,975

 
$
9,114

 
42

 
$
50,801

 
$
28,274

 
80

Pension Expense (Credit)
 

 
 

 
 

 
 

 
 

 
 

Education
 
$
3,324

 
$
2,838

 
17

 
$
10,613

 
$
11,803

 
(10
)
Television broadcasting
 
485

 
429

 
13

 
1,942

 
1,714

 
13

Other businesses
 
449

 
279

 
61

 
2,722

 
1,118

 

Corporate office
 
(18,123
)
 
(33,929
)
 
(47
)
 
(72,491
)
 
(81,732
)
 
(11
)
 
 
$
(13,865
)
 
$
(30,383
)
 
(54
)
 
$
(57,214
)
 
$
(67,097
)
 
(15
)

-more-
8


GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
Twelve Months Ended
 
 
 
 
December 31
 
%
 
December 31
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
 
 
 
 
  
 
 
 
 

Higher education
 
$
130,291

 
$
144,916

 
(10
)
 
$
547,264

 
$
617,047

 
(11
)
Test preparation
 
60,320

 
62,454

 
(3
)
 
273,298

 
286,556

 
(5
)
Kaplan international
 
190,431

 
184,294

 
3

 
697,999

 
696,362

 

Kaplan corporate and other
 
174

 
24

 

 
294

 
214

 
37

Intersegment elimination
 
(641
)
 
(452
)
 

 
(2,079
)
 
(1,718
)
 

 
 
$
380,575

 
$
391,236

 
(3
)
 
$
1,516,776

 
$
1,598,461

 
(5
)
Operating Expenses
 
  

 
  

 
 

 
  

 
  

 
 

Higher education
 
$
125,138

 
$
128,321

 
(2
)
 
$
502,987

 
$
550,415

 
(9
)
Test preparation
 
59,020

 
66,169

 
(11
)
 
261,791

 
276,957

 
(5
)
Kaplan international
 
168,710

 
158,833

 
6

 
647,269

 
647,964

 

Kaplan corporate and other
 
7,341

 
6,108

 
20

 
26,620

 
23,666

 
12

Amortization of intangible assets
 
1,364

 
2,358

 
(42
)
 
5,162

 
7,516

 
(31
)
Intersegment elimination
 
(820
)
 
(472
)
 

 
(2,222
)
 
(1,689
)
 

 
 
$
360,753

 
$
361,317

 

 
$
1,441,607

 
$
1,504,829

 
(4
)
Operating Income (Loss)
 
  

 
  

 
 

 
  

 
  

 
 

Higher education
 
$
5,153

 
$
16,595

 
(69
)
 
$
44,277

 
$
66,632

 
(34
)
Test preparation
 
1,300

 
(3,715
)
 

 
11,507

 
9,599

 
20

Kaplan international
 
21,721

 
25,461

 
(15
)
 
50,730

 
48,398

 
5

Kaplan corporate and other
 
(7,167
)
 
(6,084
)
 
(18
)
 
(26,326
)
 
(23,452
)
 
(12
)
Amortization of intangible assets
 
(1,364
)
 
(2,358
)
 
42

 
(5,162
)
 
(7,516
)
 
31

Intersegment elimination
 
179

 
20

 

 
143

 
(29
)
 

 
 
$
19,822

 
$
29,919

 
(34
)
 
$
75,169

 
$
93,632

 
(20
)
Depreciation
 
  

 
  

 
 

 
  

 
  

 
 

Higher education
 
$
2,710

 
$
4,497

 
(40
)
 
$
12,158

 
$
16,822

 
(28
)
Test preparation
 
1,206

 
1,450

 
(17
)
 
5,286

 
6,287

 
(16
)
Kaplan international
 
3,821

 
3,784

 
1

 
14,892

 
17,523

 
(15
)
Kaplan corporate and other
 
175

 
134

 
31

 
570

 
555

 
3

 
 
$
7,912

 
$
9,865

 
(20
)
 
$
32,906

 
$
41,187

 
(20
)
Pension Expense
 
 
 
  

 
 

 
  

 
 
 
 

Higher education
 
$
1,546

 
$
1,905

 
(19
)
 
$
6,182

 
$
7,620

 
(19
)
Test preparation
 
689

 
768

 
(10
)
 
2,755

 
3,072

 
(10
)
Kaplan international
 
959

 
67

 

 
1,157

 
268

 

Kaplan corporate and other
 
130

 
98

 
33

 
519

 
843

 
(38
)
 
 
$
3,324

 
$
2,838

 
17

 
$
10,613

 
$
11,803

 
(10
)


-more-
9


GRAHAM HOLDINGS COMPANY
OTHER BUSINESSES INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
Twelve Months Ended
 
 
  
 
December 31
 
%
 
December 31
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Manufacturing
 
$
116,029

 
$
64,696

 
79

 
$
414,193

 
$
241,604

 
71

Healthcare
 
38,610

 
36,894

 
5

 
154,202

 
146,962

 
5

SocialCode
 
20,151

 
19,890

 
1

 
62,077

 
58,851

 
5

Other
 
9,480

 
8,072

 
17

 
34,733

 
26,433

 
31

  
 
$
184,270

 
$
129,552

 
42

 
$
665,205

 
$
473,850

 
40

Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Manufacturing
 
$
107,285

 
$
59,742

 
80

 
$
400,178

 
$
228,887

 
75

Healthcare
 
41,557

 
36,875

 
13

 
156,771

 
144,163

 
9

SocialCode
 
15,673

 
17,035

 
(8
)
 
65,751

 
71,258

 
(8
)
Other
 
16,004

 
16,409

 
(2
)
 
65,269

 
51,644

 
26

  
 
$
180,519

 
$
130,061

 
39

 
$
687,969

 
$
495,952

 
39

Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Manufacturing
 
$
8,744

 
$
4,954

 
77

 
$
14,015

 
$
12,717

 
10

Healthcare
 
(2,947
)
 
19

 

 
(2,569
)
 
2,799

 

SocialCode
 
4,478

 
2,855

 
57

 
(3,674
)
 
(12,407
)
 
70

Other
 
(6,524
)
 
(8,337
)
 
22

 
(30,536
)
 
(25,211
)
 
(21
)
  
 
$
3,751

 
$
(509
)
 

 
$
(22,764
)
 
$
(22,102
)
 
(3
)
Depreciation
 
  

 
 
 
 
 
 
 
 
 
 
Manufacturing
 
$
2,544

 
$
1,663

 
53

 
$
9,173

 
$
7,251

 
27

Healthcare
 
1,154

 
715

 
61

 
4,583

 
2,805

 
63

SocialCode
 
251

 
246

 
2

 
1,004

 
929

 
8

Other
 
389

 
362

 
7

 
1,546

 
1,390

 
11

  
 
$
4,338

 
$
2,986

 
45

 
$
16,306

 
$
12,375

 
32

Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
 
  

 
 
 
 
 
 
 
 
 
 
Manufacturing
 
$
5,935

 
$
3,397

 
75

 
$
31,052

 
$
12,119

 

Healthcare
 
2,187

 
1,673

 
31

 
7,905

 
6,701

 
18

SocialCode
 
83

 

 

 
333

 

 

Other
 

 
1,624

 

 

 
1,687

 

  
 
$
8,205

 
$
6,694

 
23

 
$
39,290

 
$
20,507

 
92

Pension Expense
 
  

 
  

 
  

 
  

 
  

 
  

Manufacturing
 
$
17

 
$
24

 
(29
)
 
$
1,011

 
$
86

 

Healthcare
 
167

 

 

 
665

 

 

SocialCode
 
148

 
135

 
10

 
593

 
541

 
10

Other
 
117

 
120

 
(3
)
 
453

 
491

 
(8
)
  
 
$
449

 
$
279

 
61

 
$
2,722

 
$
1,118

 



-more-
10



NON-GAAP FINANCIAL INFORMATION
GRAHAM HOLDINGS COMPANY
(Unaudited)
 
In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP) included in this press release, the Company has provided information regarding income from continuing operations excluding certain items described below reconciled to the most directly comparable GAAP measures. Management believes that these non-GAAP measures, when read in conjunction with the Company’s GAAP financials, provide useful information to investors by offering:
the ability to make meaningful period-to-period comparisons of the Company’s ongoing results;
the ability to identify trends in the Company’s underlying business; and
a better understanding of how management plans and measures the Company’s underlying business.
Income from continuing operations excluding certain items should not be considered substitutes or alternatives to computations calculated in accordance with and required by GAAP. These non-GAAP financial measures should be read only in conjunction with financial information presented on a GAAP basis. 
The following table reconciles the non-GAAP financial measures to the most directly comparable GAAP measures:
  
Three Months Ended December 31
 
2017
 
2016
(in thousands, except per share amounts)
Income before income taxes
 
Income Taxes
 
Net Income
 
Income before income taxes
 
Income Taxes
 
Net Income
Amounts attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
As reported
$
54,860

 
$
(159,700
)
 
$
214,560

 
$
64,118

 
$
27,200

 
$
36,918

Attributable to noncontrolling interests
 
 
 
 
(382
)
 
 
 
 
 

Attributable to Graham Holdings Company Stockholders
 
 
 
 
214,178

 
 
 
 
 
36,918

Adjustments:
 
 
 
 
  
 
 
 
 
 
  

Restructuring charges
7,181

 
2,657

 
4,524

 
6,973

 
2,441

 
4,532

Settlement gain related to a bulk lump sum pension offering

 

 

 
(17,993
)
 
(7,197
)
 
(10,796
)
Loss from the sales of marketable securities

 

 

 
8,135

 
3,091

 
5,044

Write-downs of cost method and equity method investments

 

 

 
22,592

 
8,133

 
14,459

Foreign currency loss
3,298

 
1,220

 
2,078

 
6,567

 
2,364

 
4,203

Net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act

 
177,532

 
(177,532
)
 

 

 

Net Income, adjusted (non-GAAP)
 
 
 
 
$
43,248

 
 
 
 
 
$
54,360

 
 
 
 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
Diluted income per common share, as reported
 
 
 
 
$
38.52

 
 
 
 
 
$
6.57

Adjustments:
 
 
 
 
  
 
 
 
 
 
  
Restructuring charges
 
 
 
 
0.81

 
 
 
 
 
0.81

Settlement gain related to a bulk lump sum pension offering
 
 
 
 

 
 
 
 
 
(1.92
)
Loss from the sales of marketable securities
 
 
 
 

 
 
 
 
 
0.90

Write-downs of cost method and equity method investments
 
 
 
 

 
 
 
 
 
2.57

Foreign currency loss
 
 
 
 
0.37

 
 
 
 
 
0.75

Net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act
 
 
 
 
(31.93
)
 
 
 
 
 

Diluted income per common share, adjusted (non-GAAP)
 
 
 
 
$
7.77

 
 
 
 
 
$
9.68

 
 
 
 
 
 
 
 
 
 
 
 
The adjusted diluted per share amounts may not compute due to rounding.


-more-
11



  
Twelve Months Ended December 31
 
2017
 
2016
(in thousands, except per share amounts)
Income before income taxes
 
Income Taxes
 
Net Income
 
Income before income taxes
 
Income Taxes
 
Net Income
Amounts attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
As reported
$
182,789

 
(119,700
)
 
$
302,489

 
$
250,658

 
$
81,200

 
$
169,458

Attributable to noncontrolling interests
 
 
 
 
(445
)
 
 
 
 
 
(868
)
Attributable to Graham Holdings Company Stockholders
 
 
 
 
$
302,044

 
 
 
 
 
$
168,590

Adjustments:
 
 
 
 
  
 
 
 
 
 
  

Restructuring charges
9,958

 
3,684

 
6,274

 
11,852

 
4,148

 
7,704

Impairment of goodwill and other long-lived assets
9,224

 
3,413

 
5,811

 

 

 

Settlement gain related to a bulk lump sum pension offering

 

 

 
(17,993
)
 
(7,197
)
 
(10,796
)
Net gain from the sales of land and marketable securities

 

 

 
(32,193
)
 
(12,233
)
 
(19,960
)
Gains from the sale of a business and the formation of a joint venture

 

 

 
(22,163
)
 
(8,582
)
 
(13,581
)
Write-downs of cost method and equity method investment

 

 

 
37,592

 
13,533

 
24,059

Foreign currency (gain) loss
(3,310
)
 
(1,225
)
 
(2,085
)
 
39,890

 
14,360

 
25,530

Net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act

 
177,532

 
(177,532
)
 

 

 

Tax benefit related to stock compensation

 
5,933

 
(5,933
)
 

 

 

Nonrecurring deferred tax benefit

 

 

 

 
8,286

 
(8,286
)
Favorable out of period deferred tax adjustment

 

 

 

 
5,631

 
(5,631
)
Net Income, adjusted (non-GAAP)
 
 
 
 
$
128,579

 
 
 
 
 
$
167,629

 
 
 
 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
Diluted income per common share, as reported
 
 
 
 
$
53.89

 
 
 
 
 
$
29.80

Adjustments:
 
 
 
 
  

 
 
 
 
 
  

Restructuring charges
 
 
 
 
1.12

 
 
 
 
 
1.36

Impairment of goodwill and other long-lived assets
 
 
 
 
1.03

 
 
 
 
 

Settlement gain related to a bulk lump sum pension offering
 
 
 
 

 
 
 
 
 
(1.92
)
Net gain from the sales of land and marketable securities
 
 
 
 

 
 
 
 
 
(3.52
)
Gains from the sale of a business and the formation of a joint venture
 
 
 
 

 
 
 
 
 
(2.37
)
Write-downs of cost method and equity method investment
 
 
 
 

 
 
 
 
 
4.27

Foreign currency (gain) loss
 
 
 
 
(0.37
)
 
 
 
 
 
4.51

Net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act
 
 
 
 
(31.68
)
 
 
 
 
 

Tax benefit related to stock compensation
 
 
 
 
(1.06
)
 
 
 
 
 

Nonrecurring deferred tax benefit
 
 
 
 

 
 
 
 
 
(1.47
)
Favorable out of period deferred tax adjustment
 
 
 
 

 
 
 
 
 
(1.00
)
Diluted income per common share, adjusted (non-GAAP)
 
 
 
 
$
22.93

 
 
 
 
 
$
29.66

 
 
 
 
 
 
 
 
 
 
 
 
The adjusted diluted per share amounts may not compute due to rounding.


# # #