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) August 3, 2016
GRAHAM HOLDINGS COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
1-6714
53-0182885
(State or other jurisdiction of
incorporation)
(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))
 


 

Item 2.02          Results of Operations and Financial Condition.
 
On August 3, 2016, Graham Holdings Company issued a press release announcing the Company’s earnings for the second quarter ended June 30, 2016.  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 August 3, 2016.

 
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: August 3, 2016
 
/s/ Hal S. Jones
 
 
Hal S. Jones,
Senior Vice President-Finance
(Principal Financial Officer)



 
 



 
3

 

Exhibit Index
 
 
Exhibit 99.1   Graham Holdings Company Earnings Release dated August 3, 2016.


 
4
Exhibit


Exhibit 99.1
 
 
Contact:            Hal S. Jones                                                                                         For Immediate Release   
(703) 345-6370                                                                                        August 3, 2016
 
 
GRAHAM HOLDINGS COMPANY REPORTS
SECOND QUARTER EARNINGS
ARLINGTON, VA – Graham Holdings Company (NYSE: GHC) today reported income from continuing operations attributable to common shares of $60.8 million ($10.76 per share) for the second quarter of 2016, compared to $39.3 million ($6.71 per share) for the second quarter of 2015. Net income attributable to common shares was $57.8 million ($9.87 per share) for the second quarter of 2015, including $18.5 million ($3.16 per share) in income from discontinued operations. (Refer to “Discontinued Operations” discussion below.)
The results for the second quarter of 2016 and 2015 were affected by a number of items as described in the following paragraphs. Excluding these items, income from continuing operations attributable to common shares was $45.0 million ($7.97 per share) for the second quarter of 2016, compared to $47.1 million ($8.04 per share) for the second quarter of 2015. (Refer to the Non-GAAP Financial Information schedule at the end of this release for additional details.)
Items included in the Company’s income from continuing operations for the second quarter of 2016:
a $38.6 million non-operating gain from the sales of land and marketable equity securities (after-tax impact of $23.9 million, or $4.23 per share);
a $3.2 million non-operating gain arising from the formation of a joint venture (after-tax impact of $1.7 million, or $0.29 per share);
$24.1 million in non-operating unrealized foreign currency losses (after-tax impact of $15.4 million, or $2.73 per share); and
a favorable $5.6 million out of period deferred tax adjustment related to the Kaplan Higher Education (KHE) goodwill impairment recorded in the third quarter of 2015 ($1.00 per share). 
Items included in the Company’s loss from continuing operations for the second quarter of 2015:
$16.6 million in restructuring charges and accelerated depreciation at the education division (after-tax impact of $10.7 million, or $1.82 per share);
a $6.9 million long-lived asset impairment charge at the education division (after-tax impact of $4.4 million, or $0.75 per share);
$7.7 million in non-operating gains arising from the sales of three businesses and an investment (after tax impact of $5.0 million, or $0.85 share); and
$3.6 million in non-operating unrealized foreign currency gains (after-tax impact of $2.3 million, or $0.39 per share).
Revenue for the second quarter of 2016 was $628.9 million, down 8% from $680.9 million in the second quarter of 2015. Revenues declined at the education division, offset by an increase at the television broadcasting division and in other businesses. The Company reported operating income of $74.1 million for the second quarter of 2016, compared to $56.2 million for the second quarter of 2015. Operating results improved at the education and television broadcasting divisions, offset by a decline in other businesses.
For the first six months of 2016, the company reported income from continuing operations attributable to common shares of $98.5 million ($17.33 per share), compared to $36.6 million ($6.22 per share) for the first six months of 2015. Net income attributable to common shares was $78.4 million ($13.40 per share) for the first six months of 2015, including $41.8 million ($7.18 per share) in income from discontinued operations. (Refer to “Discontinued Operations” discussion below.)
The results for the first six months of 2016 and 2015 were affected by a number of items as described in the following paragraphs. Excluding these items, income from continuing operations attributable to common shares was $73.2 million ($12.87 per share) for the first six months of 2016, compared to $52.2 million ($8.97 per share) for the

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first six months of 2015. (Refer to the Non-GAAP Financial Information schedule at the end of this release for additional details.)
Items included in the Company’s income from continuing operations for the first six months of 2016:
a $40.3 million non-operating gain from the sales of land and marketable equity securities (after-tax impact of $25.0 million, or $4.42 per share);
a $22.2 million non-operating gain arising from the sale of a business and the formation of a joint venture (after-tax impact of $13.6 million, or $2.37 per share);
$29.5 million in non-operating unrealized foreign currency losses (after-tax impact of $18.9 million, or $3.33 per share); and
a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015 ($1.00 per share). 
Items included in the Company’s income from continuing operations for the first six months of 2015:
$27.3 million in restructuring charges and accelerated depreciation at the education division (after-tax impact of $17.5 million, or $2.99 per share);
a $6.9 million long-lived asset impairment charge at the education division (after-tax impact of $4.4 million, or $0.75 per share);
$13.7 million in non-operating gains arising from the sales of three businesses and an investment, and on the formation of a joint venture (after tax impact of $8.4 million, or $1.35 per share); and
$3.2 million in non-operating unrealized foreign currency losses (after-tax impact of $2.1 million, or $0.36 per share).
Revenue for the first six months of 2016 was $1,230.7 million, down 7% from $1,328.3 million in the first six months of 2015. Revenues declined at the education division, offset by an increase at the television broadcasting division and in other businesses. The Company reported operating income of $126.0 million for the first six months of 2016, compared to $65.1 million for the first six months of 2015. Operating results improved at the education and television broadcasting divisions, offset by a decline in other businesses.
Division Results
Education  
Education division revenue totaled $419.2 million for the second quarter of 2016, down 20% from revenue of $523.6 million for the same period of 2015. Kaplan reported operating income of $32.9 million for the second quarter of 2016, compared to $15.8 million for the second quarter of 2015. Operating results for the second quarter of 2015 included restructuring costs of $16.6 million and a $6.9 million long-lived asset impairment charge.
For the first six months of 2016, education division revenue totaled $820.3 million, down 20% from revenue of $1,024.2 million for the same period of 2015. Kaplan reported operating income of $47.4 million for the first six months of 2016, compared to an operating loss of $7.0 million for the first six months of 2015. Operating results for the first six months of 2015 included restructuring costs of $27.3 million and a $6.9 million long-lived asset impairment charge.

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A summary of Kaplan’s operating results for the second quarter of 2016 compared to 2015 is as follows:
 
 
Three Months Ended
 
 
 
Six Months Ended
 
 
  
 
June 30
 
  
 
June 30
 
  
(in thousands)
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
Revenue
 
  
 
  
 
  
 
  
 
  
 
  
Higher education
 
$
157,980

 
$
240,717

 
(34
)
 
$
323,529

 
$
478,285

 
(32
)
Test preparation
 
79,349

 
80,381

 
(1
)
 
145,811

 
149,607

 
(3
)
Kaplan international
 
182,325

 
200,703

 
(9
)
 
351,612

 
392,784

 
(10
)
Kaplan corporate and other
 
18

 
1,959

 
(99
)
 
143

 
3,818

 
(96
)
Intersegment elimination
 
(459
)
 
(135
)
 

 
(806
)
 
(267
)
 

  
 
$
419,213

 
$
523,625

 
(20
)
 
$
820,289

 
$
1,024,227

 
(20
)
Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
17,237

 
$
24,764

 
(30
)
 
$
38,543

 
$
25,357

 
52

Test preparation
 
7,036

 
7,079

 
(1
)
 
4,726

 
2,745

 
72

Kaplan international
 
16,479

 
17,573

 
(6
)
 
21,376

 
25,290

 
(15
)
Kaplan corporate and other
 
(6,107
)
 
(25,251
)
 
76

 
(13,831
)
 
(50,601
)
 
73

Amortization of intangible assets
 
(1,704
)
 
(1,467
)
 
(16
)
 
(3,385
)
 
(2,974
)
 
(14
)
Impairment of long-lived assets
 

 
(6,876
)
 

 

 
(6,876
)
 

Intersegment elimination
 
(49
)
 
26

 

 
(49
)
 
58

 

  
 
$
32,892

 
$
15,848

 

 
$
47,380

 
$
(7,001
)
 

Kaplan Higher Education (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 and other continuing education businesses.
Since 2012, KHE has closed campuses, consolidated facilities and reduced its workforce. On September 3, 2015, Kaplan completed the sale of substantially all of the remaining assets of its KHE Campuses business. In connection with these and other plans, KHE incurred $2.5 million and $5.4 million in restructuring costs in the second quarter and first six months of 2015, respectively. For the second quarter of 2015, these costs included severance ($1.0 million), lease obligation losses ($0.9 million) and accelerated depreciation ($0.6 million). For the six months of 2015, these costs included severance ($2.2 million), lease obligation losses ($1.8 million), accelerated depreciation ($1.3 million) and other items ($0.1 million).
In the second quarter of 2015, Kaplan recorded a $6.9 million long-lived asset impairment charge in connection with the KHE Campuses business. KHE results, excluding the impairment charge, include revenue and operating losses (including restructuring charges) related to all KHE Campuses, those sold or closed, including Mount Washington College and Bauder College, as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
(in thousands)
 
2016
 
2015
 
2016
 
2015
Revenue
 
$
266

 
$
66,152

 
$
1,064

 
$
131,459

Operating loss
 
$
(907
)
 
$
(6,776
)
 
$
(2,099
)
 
$
(19,063
)
In the second quarter and first six months of 2016, KHE revenue declined 34% and 32%, respectively, due to campus sales and closings, and declines in average enrollments at Kaplan University. KHE operating results declined in the second quarter of 2016 due primarily to lower enrollment at Kaplan University, offset by reduced losses at the KHE Campuses business. KHE operating results improved in the first six months of 2016 due to reduced losses at the KHE Campuses business and lower marketing expenditures at Kaplan University.
New higher education student enrollments at Kaplan University declined 25% in the second quarter of 2016 and 31% for the first six months of 2016 due to lower demand across Kaplan University programs. Total students at Kaplan University were 33,367 at June 30, 2016, down 19% from June 30, 2015.


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Kaplan University enrollments at June 30, 2016 and 2015, by degree and certificate programs, are as follows:
  
 
As of June 30
  
 
2016
 
2015
Certificate
 
6.6
%
 
2.9
%
Associate’s
 
20.4
%
 
28.0
%
Bachelor’s
 
50.4
%
 
46.8
%
Master’s
 
22.6
%
 
22.3
%
  
 
100.0
%
 
100.0
%
Kaplan Test Preparation (KTP) includes Kaplans standardized test preparation programs. KTP revenue declined 1% and 3% for the second quarter and first six months of 2016, respectively. Enrollments, excluding the new economy skills training offerings, were down 10% for the first six months of 2016 due primarily to declines in pre-college programs; however, unit prices were generally higher. In comparison to 2015, KTP operating results were down 1% in the second quarter of 2016, but improved for the first six months of 2016. KTP's results reflect a reduction in operating expenses, despite increased investment in new economy skills training programs.
Kaplan International includes English-language programs, and postsecondary education and professional training businesses largely outside the United States. In January and February 2016, Kaplan acquired Mander Portman Woodward, a leading provider of high-quality, bespoke education to UK and international students in London, Cambridge and Birmingham; and Osborne Books, an education publisher of learning resources for accounting qualifications in the UK.
Kaplan International revenue declined 9% and 10% for the second quarter and first six months of 2016, of which 3% was due to currency fluctuations. The remaining decrease is due to enrollment declines in English-language and UK Pathways programs, partially offset by enrollment growth in Singapore and Australia higher education programs. Revenue growth from the 2016 acquisitions was largely offset by revenue declines due to prior year dispositions. Operating income declined in the second quarter and first six months of 2016, due largely to the declines in English-language and Pathways results, partially offset by operating income from newly acquired businesses.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities. In the second quarter of 2015, Kaplan corporate recorded $13.6 million in restructuring charges, including accelerated depreciation ($9.7 million) and lease obligation losses ($3.8 million), related to office space managed by Kaplan corporate. In the first six months of 2015, Kaplan corporate recorded $21.2 million in restructuring charges, including accelerated depreciation ($16.2 million) and lease obligation losses ($4.9 million) related to office space managed by Kaplan corporate. In 2016, Kaplan corporate expenses also declined due to the benefits from restructuring activities. Also, 2015 spending for the replacement of its human resources system was not repeated in 2016.
In the first quarter of 2016, Kaplan sold Colloquy, which was a part of Kaplan corporate and other, for a gain of $18.9 million that is included in other non-operating income. In the second quarter of 2015, Kaplan sold two small businesses; one was part of KHE and the other was part of Kaplan International. The gains on these dispositions are included in other non-operating income in the second quarter of 2015.
Television Broadcasting
Revenue at the television broadcasting division increased 6% to $96.5 million in the second quarter of 2016, from $90.8 million in the same period of 2015; operating income for the second quarter of 2016 increased 5% to $44.2 million, from $42.0 million in the same period of 2015. The revenue increase is due primarily to $5.3 million more in retransmission revenues. The increase in operating income is due to the revenue increase, offset by higher spending on digital initiatives and increased network fees.
Revenue at the television broadcasting division increased 8% to $188.5 million in the first six months of 2016, from $174.3 million in the same period of 2015; operating income for the first six months of 2016 increased 6% to $85.4 million, from $80.6 million in the same period of 2015. The revenue increase is due primarily to $10.1 million more in retransmission revenues and a $2.7 million increase in political advertising revenue. The increase in operating income is due to the revenue increase, offset by higher spending on digital initiatives and increased network fees.
In May 2016, the Company announced that it had reached an 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 will continue to operate both stations under their current network affiliations. The acquisition is subject to approval by the FCC, other regulatory approvals, and the satisfaction of closing conditions. 

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Other Businesses
Other businesses is comprised of three manufacturing businesses, including Dekko, a manufacturer of electrical workspace solutions, architectural lighting, and electrical components and assemblies acquired in November 2015; and providers of home health and hospice services. Other businesses also include SocialCode, a provider of marketing solutions on social-media platforms; Slate and Foreign Policy, which publish online and print magazines and websites; and certain other new ventures.
The increase in revenues for the second quarter and first six months of 2016 is mostly due to the Dekko acquisition. In the second quarter and first six months of 2016, positive operating results from the manufacturing and healthcare businesses were offset by intangibles amortization and losses from publishing, SocialCode and new ventures.
Supplementary information regarding manufacturing results is as follows:
(in thousands)
 
Three Months Ended 
 June 30, 2016
 
Six Months Ended 
 June 30, 2016
Operating revenues
 
$
58,026

 
$
114,701

Operating expenses
 
50,455

 
101,303

Depreciation
 
1,906

 
3,779

Amortization of intangible assets
 
2,816

 
5,633

Operating income
 
$
2,849

 
$
3,986

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.
In June 2016, Residential and a Michigan hospital formed a joint venture to provide home health services to West Michigan patients. Residential 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 non-operating income. 
In January 2015, Celtic Healthcare and Allegheny Health Network formed a joint venture to combine each other’s home health and hospice assets in the western Pennsylvania region. Celtic manages the operations of the joint venture for a fee 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 noncash pre-tax gain of $6.0 million in the first quarter of 2015 that is included in other non-operating income.
In the second quarter of 2015, the Company sold The Root, an online magazine; the related gain on disposition is included in other non-operating income.
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. The total pension credit for the Company’s traditional defined benefit plan was $32.1 million and $34.1 million in the first six months of 2016 and 2015, respectively.
Without the pension credit, corporate office expenses declined in the first six months of 2016 due primarily to lower compensation costs.
Equity in Earnings (Losses) of Affiliates
At June 30, 2016, the Company held interests in a number of home health and hospice joint ventures, and interests in several other affiliates. The Company recorded equity in losses of affiliates of $0.9 million for the second quarter of 2016, compared to losses of $0.4 million for the second quarter of 2015. The Company recorded equity in earnings of affiliates of $0.1 million for the first six months of 2016, compared to losses of $0.8 million for the first six months of 2015.
Other Non-Operating Income (Expense)
The Company recorded total other non-operating income, net, of $19.0 million for the second quarter of 2016, compared to $11.7 million for the second quarter of 2015. The 2016 amounts included a $34.1 million gain on the sale of land; a $4.5 million gain on the sale of marketable equity securities; a $3.2 million gain on the Residential joint venture transaction and other items, offset by $24.1 million in unrealized foreign currency losses. The 2015

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amounts included $7.7 million in gains from the sales of businesses and an investment, $3.6 million in unrealized foreign currency gains and other items.
The Company recorded total other non-operating income, net, of $34.1 million for the first six months of 2016, compared to $10.6 million for the first six months of 2015. The 2016 amounts included a $34.1 million gain on the sale of land; an $18.9 million gain on the sale of a business; a $6.3 million gain on the sale of marketable equity securities; a $3.2 million gain on the Residential joint venture transaction and other items, offset by $29.5 million in unrealized foreign currency losses. The 2015 amounts included a $6.0 million gain on the Celtic joint venture transaction, $7.7 million in gains from the sales of businesses and an investment, and other items, offset by $3.2 million in unrealized foreign currency losses.
Net Interest Expense and Related Balances
The Company incurred net interest expense of $7.3 million and $14.6 million for the second quarter and first six months of 2016, respectively, compared to $8.0 million and $16.0 million for the second quarter and first six months of 2015. At June 30, 2016, the Company had $400.0 million in borrowings outstanding at an average interest rate of 7.2% and cash, marketable equity securities and other investments of $999.8 million.
In July 2016, a Kaplan UK company entered into a 4-year loan agreement for a £75 million borrowing. The overall effective interest rate is 2.01%, taking into account an interest rate swap agreement the Company entered into on the same date as the borrowing.
Provision for Income Taxes 
The Company's effective tax rate for the first six months of 2016 was 31.7%, compared with 34.8% for the first six months of 2015. 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 this adjustment, the Company's effective tax rate for the first six months of 2016 was 35.6%.
Discontinued Operations
In 2015, the Company completed the spin-off of Cable ONE as an independent, publicly traded company and the sale of a school in China that was previously part of Kaplan International.
As a result of these transactions, income from continuing operations excludes the operating results and related loss, if any, on dispositions of these businesses, which have been reclassified to discontinued operations, net of tax, in 2015.
Earnings Per Share
The calculation of diluted earnings per share for the second quarter and first six months of 2016 was based on 5,574,336 and 5,612,959 weighted average shares outstanding, respectively, compared to 5,804,511 and 5,797,756 for the second quarter and first six months of 2015. At June 30, 2016, there were 5,617,444 shares outstanding. On May 14, 2015, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock; the Company has remaining authorization for 267,528 shares as of June 30, 2016.
Forward-Looking Statements
This press release 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
  
  
June 30
%
(in thousands, except per share amounts)
2016
 
2015
Change
Operating revenues
$
628,933

 
$
680,890

(8
)
Operating expenses
532,470

 
587,533

(9
)
Depreciation of property, plant and equipment
16,045

 
25,609

(37
)
Amortization of intangible assets
6,278

 
4,647

35

Impairment of long-lived assets

 
6,876


Operating income
74,140

 
56,225

32

Equity in losses of affiliates, net
(891
)
 
(353
)

Interest income
721

 
323


Interest expense
(7,971
)
 
(8,348
)
(5
)
Other income, net
19,000

 
11,678

63

Income from continuing operations before income taxes
84,999

 
59,525

43

Provision for income taxes
23,800

 
19,600

21

Income from continuing operations
61,199

 
39,925

53

Income from discontinued operations, net of tax

 
18,502


Net income
61,199

 
58,427

5

Net income attributable to noncontrolling interests
(433
)
 
(434
)

Net income attributable to Graham Holdings Company
60,766

 
57,993

5

Redeemable preferred stock dividends

 
(211
)

Net Income Attributable to Graham Holdings Company Common Stockholders
$
60,766

 
$
57,782

5

Amounts Attributable to Graham Holdings Company Common Stockholders
 
 
 
 
Income from continuing operations
$
60,766

 
$
39,280

55

Income from discontinued operations, net of tax

 
18,502


Net income
$
60,766

 
$
57,782

5

Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 
Basic income per common share from continuing operations
$
10.82

 
$
6.74

61

Basic income per common share from discontinued operations

 
3.18


Basic net income per common share
$
10.82

 
$
9.92

9

Basic average number of common shares outstanding
5,544

 
5,720

 
Diluted income per common share from continuing operations
$
10.76

 
$
6.71

60

Diluted income per common share from discontinued operations

 
3.16


Diluted net income per common share
$
10.76

 
$
9.87

9

Diluted average number of common shares outstanding
5,574

 
5,805

 

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GRAHAM HOLDINGS COMPANY
  
CONSOLIDATED STATEMENTS OF OPERATIONS
  
(Unaudited)
  
 
 
 
  
Six Months Ended
  
  
June 30
%
(in thousands, except per share amounts)
2016
 
2015
Change
Operating revenues
$
1,230,673

 
$
1,328,315

(7
)
Operating expenses
1,059,315

 
1,199,161

(12
)
Depreciation of property, plant and equipment
32,806

 
47,806

(31
)
Amortization of intangible assets
12,540

 
9,385

34

Impairment of long-lived assets

 
6,876


Operating income
126,012

 
65,087

94

Equity in earnings (losses) of affiliates, net
113

 
(757
)

Interest income
1,312

 
882

49

Interest expense
(15,919
)
 
(16,849
)
(6
)
Other income, net
34,096

 
10,573


Income from continuing operations before income taxes
145,614

 
58,936


Provision for income taxes
46,200

 
20,500


Income from continuing operations
99,414

 
38,436


Income from discontinued operations, net of tax

 
41,791


Net income
99,414

 
80,227

24

Net income attributable to noncontrolling interests
(868
)
 
(1,208
)
(28
)
Net income attributable to Graham Holdings Company
98,546

 
79,019

25

Redeemable preferred stock dividends

 
(631
)

Net Income Attributable to Graham Holdings Company Common Stockholders
$
98,546

 
$
78,388

26

Amounts Attributable to Graham Holdings Company Common Stockholders
 
 
 
 

Income from continuing operations
$
98,546

 
$
36,597


Income from discontinued operations, net of tax

 
41,791


Net income
$
98,546

 
$
78,388

26

Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 

Basic income per common share from continuing operations
$
17.42

 
$
6.26


Basic income per common share from discontinued operations

 
7.21


Basic net income per common share
$
17.42

 
$
13.47

29

Basic average number of common shares outstanding
5,584

 
5,712

 

Diluted income per common share from continuing operations
$
17.33

 
$
6.22


Diluted income per common share from discontinued operations

 
7.18


Diluted net income per common share
$
17.33

 
$
13.40

29

Diluted average number of common shares outstanding
5,613

 
5,798

 




-more-
8



GRAHAM HOLDINGS COMPANY
BUSINESS SEGMENT INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Six Months Ended
 
  
  
 
June 30
 
%
 
June 30
 
%
(in thousands)
 
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Education
 
$
419,213

 
$
523,625

 
(20
)
 
$
820,289

 
$
1,024,227

 
(20
)
Television broadcasting
 
96,520

 
90,753

 
6

 
188,538

 
174,317

 
8

Other businesses
 
113,269

 
66,512

 
70

 
221,985

 
129,771

 
71

Corporate office
 

 

 

 

 

 

Intersegment elimination
 
(69
)
 

 

 
(139
)
 

 

  
 
$
628,933

 
$
680,890

 
(8
)
 
$
1,230,673

 
$
1,328,315

 
(7
)
Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Education
 
$
386,321

 
$
507,777

 
(24
)
 
$
772,909

 
$
1,031,228

 
(25
)
Television broadcasting
 
52,305

 
48,739

 
7

 
103,103

 
93,741

 
10

Other businesses
 
118,331

 
68,673

 
72

 
232,777

 
137,094

 
70

Corporate office
 
(2,095
)
 
(524
)
 

 
(3,989
)
 
1,165

 

Intersegment elimination
 
(69
)
 

 

 
(139
)
 

 

  
 
$
554,793

 
$
624,665

 
(11
)
 
$
1,104,661

 
$
1,263,228

 
(13
)
Operating Income (Loss)
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
32,892

 
$
15,848

 

 
$
47,380

 
$
(7,001
)
 

Television broadcasting
 
44,215

 
42,014

 
5

 
85,435

 
80,576

 
6

Other businesses
 
(5,062
)
 
(2,161
)
 

 
(10,792
)
 
(7,323
)
 
(47
)
Corporate office
 
2,095

 
524

 

 
3,989

 
(1,165
)
 

  
 
$
74,140

 
$
56,225

 
32

 
$
126,012

 
$
65,087

 
94

Depreciation
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
10,242

 
$
21,980

 
(53
)
 
$
21,345

 
$
40,508

 
(47
)
Television broadcasting
 
2,450

 
2,125

 
15

 
4,827

 
4,234

 
14

Other businesses
 
3,073

 
1,254

 

 
6,100

 
2,556

 

Corporate office
 
280

 
250

 
12

 
534

 
508

 
5

  
 
$
16,045

 
$
25,609

 
(37
)
 
$
32,806

 
$
47,806

 
(31
)
Amortization of Intangible Assets and Impairment of Long-Lived Assets
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
1,704

 
$
8,343

 
(80
)
 
$
3,385

 
$
9,850

 
(66
)
Television broadcasting
 
63

 
63

 

 
126

 
126

 

Other businesses
 
4,511

 
3,117

 
45

 
9,029

 
6,285

 
44

Corporate office
 

 

 

 

 

 

  
 
$
6,278

 
$
11,523

 
(46
)
 
$
12,540

 
$
16,261

 
(23
)
Pension Expense (Credit)
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
3,018

 
$
3,947

 
(24
)
 
$
6,127

 
$
7,894

 
(22
)
Television broadcasting
 
418

 
391

 
7

 
857

 
782

 
10

Other businesses
 
306

 
186

 
65

 
560

 
379

 
48

Corporate office
 
(16,008
)
 
(16,939
)
 
(5
)
 
(31,869
)
 
(33,877
)
 
(6
)
  
 
$
(12,266
)
 
$
(12,415
)
 
(1
)
 
$
(24,325
)
 
$
(24,822
)
 
(2
)

-more-
9



GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Six Months Ended
 
  
  
 
June 30
 
%
 
June 30
 
%
(in thousands)
 
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Higher education
 
$
157,980

 
$
240,717

 
(34
)
 
$
323,529

 
$
478,285

 
(32
)
Test preparation
 
79,349

 
80,381

 
(1
)
 
145,811

 
149,607

 
(3
)
Kaplan international
 
182,325

 
200,703

 
(9
)
 
351,612

 
392,784

 
(10
)
Kaplan corporate and other
 
18

 
1,959

 
(99
)
 
143

 
3,818

 
(96
)
Intersegment elimination
 
(459
)
 
(135
)
 

 
(806
)
 
(267
)
 

  
 
$
419,213

 
$
523,625

 
(20
)
 
$
820,289

 
$
1,024,227

 
(20
)
Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
140,743

 
$
215,953

 
(35
)
 
$
284,986

 
$
452,928

 
(37
)
Test preparation
 
72,313

 
73,302

 
(1
)
 
141,085

 
146,862

 
(4
)
Kaplan international
 
165,846

 
183,130

 
(9
)
 
330,236

 
367,494

 
(10
)
Kaplan corporate and other
 
6,125

 
27,210

 
(77
)
 
13,974

 
54,419

 
(74
)
Amortization of intangible assets
 
1,704

 
1,467

 
16

 
3,385

 
2,974

 
14

Impairment of long-lived assets
 

 
6,876

 

 

 
6,876

 

Intersegment elimination
 
(410
)
 
(161
)
 

 
(757
)
 
(325
)
 

  
 
$
386,321

 
$
507,777

 
(24
)
 
$
772,909

 
$
1,031,228

 
(25
)
Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
17,237

 
$
24,764

 
(30
)
 
$
38,543

 
$
25,357

 
52

Test preparation
 
7,036

 
7,079

 
(1
)
 
4,726

 
2,745

 
72

Kaplan international
 
16,479

 
17,573

 
(6
)
 
21,376

 
25,290

 
(15
)
Kaplan corporate and other
 
(6,107
)
 
(25,251
)
 
76

 
(13,831
)
 
(50,601
)
 
73

Amortization of intangible assets
 
(1,704
)
 
(1,467
)
 
(16
)
 
(3,385
)
 
(2,974
)
 
(14
)
Impairment of long-lived assets
 

 
(6,876
)
 

 

 
(6,876
)
 

Intersegment elimination
 
(49
)
 
26

 

 
(49
)
 
58

 

  
 
$
32,892

 
$
15,848

 

 
$
47,380

 
$
(7,001
)
 

Depreciation
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
3,993

 
$
4,794

 
(17
)
 
$
8,168

 
$
9,622

 
(15
)
Test preparation
 
1,615

 
2,263

 
(29
)
 
3,396

 
5,153

 
(34
)
Kaplan international
 
4,319

 
5,073

 
(15
)
 
9,379

 
9,727

 
(4
)
Kaplan corporate and other
 
315

 
9,850

 
(97
)
 
402

 
16,006

 
(97
)
  
 
$
10,242

 
$
21,980

 
(53
)
 
$
21,345

 
$
40,508

 
(47
)
Pension Expense
 
 
 
  

 
  

 
  

 
 
 
  

Higher education
 
$
1,905

 
$
2,532

 
(25
)
 
$
3,810

 
$
5,064

 
(25
)
Test preparation
 
768

 
775

 
(1
)
 
1,536

 
1,550

 
(1
)
Kaplan international
 
67

 
106

 
(37
)
 
134

 
212

 
(37
)
Kaplan corporate and other
 
278

 
534

 
(48
)
 
647

 
1,068

 
(39
)
  
 
$
3,018

 
$
3,947

 
(24
)
 
$
6,127

 
$
7,894

 
(22
)



-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
 
Six Months Ended
  
 
June 30
 
June 30
(in thousands, except per share amounts)
 
2016
 
2015
 
2016
 
2015
Amounts attributable to Graham Holdings Company Common Stockholders
 
  
 
  
 
  
 
  
Income from continuing operations, as reported
 
$
60,766

 
$
39,280

 
$
98,546

 
$
36,597

Adjustments:
 
  
 
  
 
  
 
  
Restructuring charges
 

 
10,656

 

 
17,497

Impairment of long-lived assets
 

 
4,400

 

 
4,400

Gain from the sales of land and marketable equity securities
 
(23,916
)
 

 
(25,004
)
 

Gain from the sales of businesses and an investment, and the formation of joint ventures
 
(1,655
)
 
(4,957
)
 
(13,581
)
 
(8,367
)
Foreign currency loss (gain)
 
15,414

 
(2,309
)
 
18,897

 
2,060

Favorable out of period deferred tax adjustment
 
(5,631
)
 

 
(5,631
)
 

Income from continuing operations, adjusted (non-GAAP)
 
$
44,978

 
$
47,070

 
$
73,227

 
$
52,187

 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
  
 
  
 
  
 
  
Diluted income per common share from continuing operations, as reported
 
$
10.76

 
$
6.71

 
$
17.33

 
$
6.22

Adjustments:
 
  
 
  
 
  
 
  
Restructuring charges
 

 
1.82

 

 
2.99

Impairment of long-lived assets
 

 
0.75

 

 
0.75

Gain from the sales of land and marketable equity securities
 
(4.23
)
 

 
(4.42
)
 

Gain from the sales of businesses and an investment, and the formation of joint ventures
 
(0.29
)
 
(0.85
)
 
(2.37
)
 
(1.35
)
Foreign currency loss (gain)
 
2.73

 
(0.39
)
 
3.33

 
0.36

Favorable out of period deferred tax adjustment
 
(1.00
)
 

 
(1.00
)
 

Diluted income per common share from continuing operations, adjusted (non-GAAP)
 
$
7.97

 
$
8.04

 
$
12.87

 
$
8.97

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

 



# # #