Graham Holdings Company (NYSE: GHC) today reported net income
attributable to common shares of $43.1 million ($8.05 per share)
for the third quarter of 2019, compared to $125.1 million ($23.28
per share) for the third quarter of 2018.
The results for the third quarter of 2019 and 2018 were affected
by a number of items as described in the following paragraphs.
Excluding these items, net income attributable to common shares was
$42.5 million ($7.94 per share) for the third quarter of 2019,
compared to $70.9 million ($13.19 per share) for the third quarter
of 2018. (Refer to the Non-GAAP Financial Information schedule at
the end of this release for additional details.)
Items included in the Company’s net income for the third quarter
of 2019:
- a $20.4 million provision recorded at Kaplan International
related to a Value Added Tax (VAT) receivable at UK Pathways
(after-tax impact of $16.5 million, or $3.09 per share);
- a $1.1 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC (after-tax impact of $0.9 million, or $0.16 per
share);
- $17.4 million in net gains on marketable equity securities
(after-tax impact of $13.1 million, or $2.44 per share);
- non-operating gain of $3.7 million from write-ups of cost
method investments (after-tax impact of $2.8 million or $0.51 per
share); and
- $0.7 million in non-operating foreign currency gains (after-tax
impact of $0.5 million, or $0.09 per share).
Items included in the Company’s net income for the third quarter
of 2018:
- a $7.9 million intangible asset impairment charge at the
healthcare business (after-tax impact of $5.8 million, or $1.08 per
share);
- a $1.0 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC (after-tax impact of $0.8 million, or $0.14 per
share);
- $45.0 million in net gains on marketable equity securities
(after-tax impact of $33.6 million, or $6.26 per share);
- non-operating gain, net, of $10.1 million from sales, write-ups
and impairments of cost method and equity method investments, and
related to sales of businesses (after-tax impact of $8.0 million,
or $1.48 per share);
- $0.1 million in non-operating foreign currency losses
(after-tax impact of $0.1 million, or $0.02 per share); and
- a nonrecurring discrete $17.8 million deferred state tax
benefit related to the release of valuation allowances ($3.31 per
share).
Revenue for the third quarter of 2019 was $738.8 million, up 9%
from $674.8 million in the third quarter of 2018, largely due to
the acquisition of two automotive dealerships in January 2019 and
the acquisition of Clyde’s Restaurant Group (CRG) in July 2019.
Revenues grew at healthcare and SocialCode, partially offset by
declines at the television broadcasting and manufacturing
businesses. The Company reported operating income of $16.3 million
for the third quarter of 2019, compared to $60.7 million for the
third quarter of 2018. The operating income decline is driven by
lower earnings in education, television broadcasting, SocialCode
and other businesses, partially offset by improvements in
manufacturing and healthcare results.
For the first nine months of 2019, the Company reported net
income attributable to common shares of $182.0 million ($33.96 per
share), compared to $214.5 million ($39.54 per share) for the first
nine months of 2018. The results for the first nine months of 2019
and 2018 were affected by a number of items as described in the
following paragraphs. Excluding these items, net income
attributable to common shares was $127.4 million ($23.76 per share)
for the first nine months of 2019, compared to $179.5 million
($33.09 per share) for the first nine months of 2018. (Refer to the
Non-GAAP Financial Information schedule at the end of this release
for additional details.)
Items included in the Company’s net income for the nine months
of 2019:
- a $17.1 million provision recorded at Kaplan International
related to a VAT receivable at UK Pathways (after-tax impact of
$13.9 million, or $2.59 per share);
- a $10.7 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC (after-tax impact of $8.3 million, or $1.55 per
share);
- $6.6 million in expenses related to a second quarter
non-operating Separation Incentive Program (SIP) at the education
division (after-tax impact of $5.1 million, or $0.95 per
share);
- $49.3 million in net gains on marketable equity securities
(after-tax impact of $36.9 million, or $6.90 per share);
- non-operating gain of $5.1 million from write-ups of cost
method investments (after-tax impact of $3.9 million or $0.73 per
share);
- $29.0 million gain from the sale of Gimlet Media (after-tax
impact of $21.7 million, or $4.06 per share);
- $1.3 million in non-operating foreign currency gains (after-tax
impact of $1.0 million, or $0.18 per share); and
- $1.7 million in income tax benefits related to stock
compensation ($0.32 per share).
Items included in the Company’s net income for the nine months
of 2018:
- a $7.9 million intangible asset impairment charge at the
healthcare business (after-tax impact of $5.8 million, or $1.08 per
share);
- a $2.1 million reduction to operating expenses from property,
plant and equipment gains in connection with the spectrum repacking
mandate of the FCC (after-tax impact of $1.6 million, or $0.29 per
share);
- $6.2 million in interest expense related to the settlement of a
mandatorily redeemable noncontrolling interest ($1.14 per
share);
- $11.4 million in debt extinguishment costs (after-tax impact of
$8.6 million, or $1.60 per share);
- $28.3 million in net losses on marketable equity securities
(after-tax impact of $20.9 million, or $3.86 per share);
- non-operating gain, net, of $17.0 million from sales, write-ups
and impairments of cost method and equity method investments, and
related to sales of land and businesses (after-tax impact of $13.4
million, or $2.46 per share);
- a $4.3 million gain on the Kaplan University Transaction
(after-tax impact of $1.8 million, or $0.33 per share);
- $2.2 million in non-operating foreign currency losses
(after-tax impact of $1.7 million, or $0.31 per share);
- a nonrecurring discrete $17.8 million deferred state tax
benefit related to the release of valuation allowances ($3.31 per
share); and
- $1.8 million in income tax benefits related to stock
compensation ($0.33 per share).
Revenue for the first nine months of 2019 was $2,168.6 million,
up 8% from $2,006.9 million in the first nine months of 2018,
largely due to the acquisition of two automotive dealerships in
January 2019 and the acquisition of CRG in July 2019. Revenues grew
at healthcare and SocialCode, partially offset by declines at the
education, television broadcasting and manufacturing businesses.
The Company reported operating income of $114.2 million for the
first nine months of 2019, compared to $170.6 million for the first
nine months of 2018. Operating results declined at the education,
television broadcasting, manufacturing, SocialCode and other
businesses, partially offset by improvements at healthcare.
Division Results
Education
Education division revenue totaled $357.3 million for the third
quarter of 2019, down slightly from $358.6 million for the same
period of 2018. Kaplan reported an operating loss of $7.2 million
for the third quarter of 2019, compared to operating income of
$22.3 million for the third quarter of 2018.
For the first nine months of 2019, education division revenue
totaled $1,097.5 million, down 1% from revenue of $1,104.1 million
for the same period of 2018. Kaplan reported operating income of
$44.7 million for the first nine months of 2019, a 46% decline from
$82.5 million for the first nine months of 2018.
A summary of Kaplan’s operating results is as follows:
Three Months Ended
Nine Months Ended
September 30
September 30
(in thousands)
2019
2018
% Change
2019
2018
% Change
Revenue
Kaplan international
$
178,169
$
167,668
6
$
552,505
$
535,553
3
Higher education
78,712
89,269
(12
)
237,780
275,080
(14
)
Test preparation
64,710
67,749
(4
)
191,533
195,504
(2
)
Professional (U.S.)
33,820
34,302
(1
)
110,181
98,715
12
Kaplan corporate and other
2,450
143
—
7,121
870
—
Intersegment elimination
(542
)
(530
)
—
(1,584
)
(1,617
)
—
$
357,319
$
358,601
0
$
1,097,536
$
1,104,105
(1
)
Operating Income (Loss)
Kaplan international
$
(14,226
)
$
8,375
—
$
35,596
$
52,966
(33
)
Higher education
5,177
6,042
(14
)
9,813
18,616
(47
)
Test preparation
4,959
10,572
(53
)
8,794
17,213
(49
)
Professional (U.S.)
4,939
6,768
(27
)
20,943
20,863
0
Kaplan corporate and other
(4,067
)
(6,770
)
40
(18,824
)
(21,616
)
13
Amortization of intangible assets
(3,944
)
(2,682
)
(47
)
(10,888
)
(5,494
)
(98
)
Impairment of long-lived assets
—
—
—
(693
)
—
—
Intersegment elimination
1
(43
)
—
(2
)
(32
)
—
$
(7,161
)
$
22,262
—
$
44,739
$
82,516
(46
)
Kaplan International includes English-language programs, and
postsecondary education and professional training businesses
largely outside the United States. In July 2019, Kaplan acquired
Heverald, the owner of ESL Education, Europe’s largest
language-travel agency and Alpadia, a chain of German and French
language schools and junior summer camps. Kaplan International
revenue increased 6% and 3% for the third quarter and first nine
months of 2019, respectively. On a constant currency basis, revenue
increased 13% and 8% for the third quarter and first nine months of
2019, respectively. The revenue increases were due to growth at UK
Pathways, UK Professional and Australia, and from the Heverald
acquisition. Kaplan International reported an operating loss of
$14.2 million in the third quarter of 2019, compared to operating
income of $8.4 million in the third quarter of 2018. Operating
income decreased to $35.6 million in the first nine months of 2019,
compared to $53.0 million in the first nine months of 2018. The
decline in operating results in 2019 is due to the VAT provision
recorded at UK Pathways and a decline in Singapore, offset by
increases at UK Professional and Australia.
In 2017, HMRC raised assessments against Kaplan UK Pathways for
VAT relating to 2014 to 2017, which were paid by Kaplan. Kaplan
challenged these assessments and the Company believes it has met
all requirements under UK VAT law and is entitled to recover the
£17.3 million receivable from assessments and subsequent payments
through September 30, 2019. Due to recent developments in the case,
in the third quarter of 2019, the Company recorded a full provision
of £17.3 million ($21.0 million) against this receivable; of this
amount, £14.1 million ($17.1 million) relates to years 2014 to
2018. The Company estimates total additional annual VAT expense at
the UK Pathways business of approximately $6.0 million related to
this matter for 2019. If the Company ultimately prevails in this
case, the provision will be reversed and a pre-tax credit will be
recorded in the Company’s Consolidated Statement of Operations. The
result of the case is expected to be known by the end of 2020.
Prior to the KU Transaction closing on March 22, 2018, Higher
Education included Kaplan’s domestic postsecondary education
businesses, made up of fixed-facility colleges and online
postsecondary and career programs. Following the KU Transaction
closing, the Higher Education division includes the results as a
service provider to higher education institutions. In the third
quarter and first nine months of 2019, Higher Education revenue was
down 12% and 14%, respectively, due to the KU Transaction. In the
first nine months of 2019, the Company recorded a portion of the
service fee with Purdue Global based on an assessment of its
collectability under the TOSA. This resulted in a decline in Higher
Education results for the first nine months of 2019, as the Company
recorded the full service fee for Purdue Global for the first six
months of 2018, and a portion of the service fee for the third
quarter of 2018. Following the transition from KU, Purdue Global
launched a planned marketing campaign to fully establish its new
brand. This significant marketing spend, which the Company
supports, impacts the cash generated by Purdue Global and its
current ability to fully pay the KHE service fee under the TOSA.
The Company will continue to assess the collectability of the
service fee with Purdue Global on a quarterly basis to make a
determination as to whether to record all or part of the service
fee in the future and whether to make adjustments to service fee
amounts recognized in earlier periods.
Kaplan Test Preparation (KTP) includes Kaplan’s standardized
test preparation programs. In September 2018, KTP acquired the test
preparation and study guide assets of Barron’s Educational Series,
a New York-based education publishing company. KTP revenue
decreased 4% and 2% for the third quarter and first nine months of
2019, respectively. Excluding revenue from the Barron’s
acquisition, revenues were down 11% and 9%, respectively, due to
declines in KTP’s retail comprehensive test preparation programs.
KTP operating results declined 53% and 49% in the third quarter and
first nine months of 2019, respectively, due primarily to revenue
declines for retail comprehensive test preparation programs.
Operating losses for the new economy skills training programs were
$3.2 million and $2.8 million for each of the first nine months of
2019 and 2018, respectively.
In the second quarter of 2019, the Company approved a SIP to
reduce the number of employees at KTP and Higher Education. In
connection with the SIP, the Company recorded $6.6 million in
non-operating pension expense in the second quarter of 2019.
Kaplan Professional (U.S.) includes the domestic professional
and other continuing education businesses. Kaplan Professional
(U.S.) revenue in the third quarter of 2019 declined 1% due to
declines in CFA, real estate and accountancy programs. In the first
nine months of 2019, Kaplan Professional (U.S.) revenue increased
12%, due to the May 2018 acquisition of Professional Publications,
Inc. (PPI), an independent publisher of professional licensing exam
review materials that provides engineering, surveying,
architecture, and interior design licensure exam review products,
and the July 2018 acquisition of College for Financial Planning
(CFFP), a provider of financial education and training to
individuals through programs of study for professionals pursuing a
career in Financial Planning. Kaplan Professional (U.S.) operating
results declined in the third quarter of 2019, primarily due to
lower demand for real estate and accountancy programs and increased
spending for sales and marketing. Kaplan Professional (U.S)
operating results were flat for the first nine months of 2019, due
to increased earnings at PPI and CFFP, offset by increased sales
and marketing expenses.
Kaplan corporate and other represents unallocated expenses of
Kaplan, Inc.’s corporate office, other minor businesses and certain
shared activities. Overall, Kaplan corporate and other expenses
declined in 2019 due to lower incentive compensation costs.
Television Broadcasting
Revenue at the television broadcasting division declined 11% to
$115.2 million in the third quarter of 2019, from $130.0 million in
the same period of 2018. The revenue decrease is due to a $19.9
million decrease in political advertising revenue, slightly offset
by a $3.1 million increase in retransmission revenues. In the third
quarter of 2019 and 2018, the television broadcasting division
recorded $1.1 million and $1.0 million, respectively, in reductions
to operating expenses related to property, plant and equipment
gains due to new equipment received at no cost in connection with
the spectrum repacking mandate of the FCC. Operating income for the
third quarter of 2019 decreased 34% to $36.8 million, from $55.5
million in the same period of 2018, due to lower revenues and
higher network fees.
Revenue at the television broadcasting division declined 4% to
$340.0 million in the first nine months of 2019, from $352.9
million in the same period of 2018. The revenue decrease is due
primarily to a $25.0 million decrease in political advertising
revenue, an $8.6 million decrease in 2018 incremental winter
Olympics-related advertising revenue at the Company’s NBC stations;
partially offset by $17.5 million in higher retransmission
revenues. In the first nine months of 2019 and 2018, the television
broadcasting division recorded $10.7 million and $2.1 million,
respectively, in reductions to operating expenses related to
non-cash property, plant and equipment gains due to new equipment
received at no cost in connection with the spectrum repacking
mandate of the FCC. Operating income for the first nine months of
2019 decreased 15% to $116.8 million from $137.1 million in the
same period of 2018, due to lower revenues and higher network fees,
partially offset by increased property, plant and equipment
gains.
Manufacturing
Manufacturing includes four businesses: Hoover, a supplier of
pressure impregnated kiln-dried lumber and plywood products for
fire retardant and preservative applications; Dekko, a manufacturer
of electrical workspace solutions, architectural lighting and
electrical components and assemblies; Joyce/Dayton, a manufacturer
of screw jacks and other linear motion systems; and Forney, a
global supplier of products and systems that control and monitor
combustion processes in electric utility and industrial
applications. In July 2018, Dekko acquired Furnlite, Inc., a
Fallston, NC-based manufacturer of power and data solutions for the
hospitality and residential furniture industry.
Manufacturing revenues declined 11% and 8% in the third quarter
and first nine months of 2019, respectively, due primarily to a
decline at Hoover from lower wood prices, partially offset by
increases due to the Furnlite acquisition. Manufacturing operating
income increased in the third quarter of 2019, due partly to
improved results at Hoover from losses on inventory sales in the
third quarter of 2018. Operating income declined in the first nine
months of 2019 due largely to increased labor and other operating
costs at Hoover.
Healthcare
The Graham Healthcare Group (GHG) provides home health and
hospice services in three states. Healthcare revenues increased in
the first nine months of 2019, largely due to growth in home health
and hospice services. The improvement in GHG operating results in
2019 is due to increased revenues and the absence of integration
costs and other overall cost reduction in the first nine months of
2019. In the third quarter of 2018, GHG recorded a $7.9 million
intangible asset impairment charge related to the Celtic trademark,
which was phased-out in the second half of 2018.
SocialCode
SocialCode is a provider of marketing solutions managing data,
creative, media and marketplaces to accelerate client growth. In
the third quarter of 2018, SocialCode acquired Marketplace
Strategy, a Cleveland-based Amazon sales acceleration agency.
SocialCode’s revenue increased 16% and 9% in the third quarter and
first nine months of 2019, respectively. SocialCode reported
operating losses of $0.4 million and $5.4 million in the third
quarter and first nine months of 2019, respectively, compared to
operating income of $5.1 million and an operating loss of $0.4
million in the third quarter and first nine months of 2018,
respectively. The 2018 results include a $7.5 million and $7.2
million credit related to SocialCode’s phantom equity plans in the
third quarter and first nine months of 2018, respectively.
Other Businesses
On July 31, 2019, the Company acquired CRG. CRG owns and
operates thirteen restaurants and entertainment venues in the
Washington, DC metropolitan area, including Old Ebbitt Grill and
The Hamilton, two of the top twenty highest grossing independent
restaurants in the United States. CRG is managed by its existing
management team as a wholly-owned subsidiary of the Company.
On January 31, 2019, the Company acquired two automotive
dealerships, Lexus of Rockville and Honda of Tysons Corner, from
Sonic Automotive. The Company also announced it had entered into an
agreement with Christopher J. Ourisman, a member of the Ourisman
Automotive Group family of dealerships. Mr. Ourisman and his team
of industry professionals operate and manage the dealerships.
Graham Holdings Company holds a 90% stake.
Revenues from other businesses increased due mostly to the
automotive dealership and CRG acquisitions.
Other businesses also includes Slate and Foreign Policy, which
publish online and print magazines and websites; and three
investment stage businesses, Megaphone, Pinna and CyberVista.
Megaphone, Slate and CyberVista reported revenue increases in the
first nine months of 2019. Losses from each of these five
businesses in the first nine months of 2019 adversely affected
operating results.
Corporate Office
Corporate office includes the expenses of the Company’s
corporate office and certain continuing obligations related to
prior business dispositions.
Equity in Earnings of
Affiliates
At September 30, 2019, the Company held an approximate 11%
interest in 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 also holds interests in a number of home health and hospice
joint ventures, and several other affiliates. The Company recorded
equity in earnings of affiliates of $4.7 million for the third
quarter of 2019, compared to $9.5 million for the third quarter of
2018. The Company recorded equity in earnings of affiliates of $7.8
million for the first nine months of 2019, compared to $13.0
million for the first nine months of 2018. In the third quarter of
2018, the Company recorded $7.9 million in gains in equity in
earnings of affiliates related to two of its investments.
Net Interest Expense, Debt
Extinguishment Costs and Related Balances
In connection with the auto dealership acquisition that closed
on January 31, 2019, a subsidiary of the Company borrowed $30
million to finance a portion of the acquisition and entered into an
interest rate swap to fix the interest rate on the debt at 4.7% per
annum. The subsidiary is required to repay the loan over a 10-year
period by making monthly installment payments.
On May 30, 2018, the Company issued 5.75% unsecured eight-year
fixed-rate notes due June 1, 2026. Interest is payable
semi-annually on June 1 and December 1. On June 29, 2018, the
Company used the net proceeds from the sale of the notes and other
cash to repay $400 million of 7.25% notes that were due February 1,
2019. The Company incurred $11.4 million in debt extinguishment
costs related to the early termination of the 7.25% notes.
The Company incurred net interest expense of $5.3 million and
$17.8 million for the third quarter and first nine months of 2019,
respectively, compared to $5.5 million and $27.5 million for the
third quarter and first nine months of 2018, respectively. The
Company incurred $6.2 million in interest expense related to the
mandatorily redeemable noncontrolling interest at the Graham
Healthcare Group settled in the second quarter of 2018. The higher
interest expense in 2018 is also due to both the $400 million
eight-year and ten-year notes outstanding for the month of June
2018.
At September 30, 2019, the Company had $502.2 million in
borrowings outstanding at an average interest rate of 5.1% and
cash, marketable equity securities and other investments of $711.6
million.
Non-operating Pension and
Postretirement Benefit Income, net
The Company recorded net non-operating pension and
postretirement benefit income of $19.6 million and $51.7 million
for the third quarter and first nine months of 2019, respectively,
compared to $22.2 million and $66.6 million for the third quarter
and first nine months of 2018, respectively.
In the second quarter of 2019, the Company recorded $6.6 million
in expenses related to a non-operating SIP at the education
division.
Gain on Marketable Equity Securities,
net
Overall, the Company recognized $17.4 million and $49.3 million
in net gains on marketable equity securities in the third quarter
and first nine months of 2019, respectively, compared to $45.0
million and $28.3 million in net gains on marketable equity
securities in the third quarter and first nine months of 2018,
respectively.
Other Non-Operating
Income
The Company recorded total other non-operating income, net, of
$5.6 million for the third quarter of 2019, compared to $3.1
million for the third quarter of 2018. The 2019 amounts included
$3.7 million in fair value increases on cost method investments;
$0.7 million in foreign currency gains; and other items. The 2018
amounts included $8.5 million in fair value increases on cost
method investments and other items, partially offset by a $3.3
million net loss related to sales of businesses and contingent
consideration; a $2.5 million impairment of a cost method
investment; and $0.1 million in foreign currency losses.
The Company recorded total other non-operating income, net, of
$36.1 million for the first nine months of 2019 compared to $14.7
million for the first nine months of 2018. The 2019 amounts
included a $29.0 million gain on the sale of the Company’s interest
in Gimlet Media; $5.1 million in fair value increases on cost
method investments; $1.3 million in foreign currency gains and
other items. The 2018 amounts include $8.5 million in fair value
increases on cost method investments; $4.0 million net gain related
to sales of businesses and contingent consideration; a $2.8 million
gain on sale of a cost method investment; a $2.5 million gain on
sale of land; and other items, partially offset by a $2.5 million
impairment of a cost method investment and $2.2 million in foreign
currency losses.
Provision for Income
Taxes
The Company’s effective tax rate for the first nine months of
2019 was 24.7%. In the first quarter of 2019, the Company recorded
income tax benefits related to stock compensation of $1.7
million.
The Company’s effective tax rate for the first nine months of
2018 was 15.6%. In the third quarter of 2018, the Company recorded
a $17.8 million deferred state tax benefit related to the release
of valuation allowances. Excluding this $17.8 million benefit and a
$1.8 million income tax benefit related to stock compensation
recorded in the first quarter of 2018, the overall income tax rate
for the first nine months of 2018 was 23.3%.
Earnings Per Share
The calculation of diluted earnings per share for the third
quarter and first nine months of 2019 was based on 5,328,855 and
5,327,865 weighted average shares outstanding, compared to
5,336,612 and 5,390,049 for the third quarter and first nine months
of 2018. At September 30, 2019, there were 5,314,386 shares
outstanding. On November 9, 2017, 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 273,655 shares
as of September 30, 2019.
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.
GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Three Months Ended
September 30
%
(in thousands, except per share
amounts)
2019
2018
Change
Operating revenues
$
738,820
$
674,766
9
Operating expenses
693,257
580,001
20
Depreciation of property, plant and
equipment
15,351
13,648
12
Amortization of intangible assets
13,572
12,269
11
Impairment of long-lived assets
372
8,109
(95
)
Operating income
16,268
60,739
(73
)
Equity in earnings of affiliates, net
4,683
9,537
(51
)
Interest income
1,474
611
—
Interest expense
(6,776
)
(6,135
)
10
Non-operating pension and postretirement
benefit income, net
19,556
22,214
(12
)
Gain on marketable equity securities,
net
17,404
44,962
(61
)
Other income, net
5,556
3,142
77
Income before income taxes
58,165
135,070
(57
)
Provision for income taxes
15,200
10,000
52
Net income
42,965
125,070
(66
)
Net loss (income) attributable to
noncontrolling interests
180
(6
)
—
Net Income Attributable to Graham
Holdings Company Common Stockholders
$
43,145
$
125,064
(66
)
Per Share Information Attributable to
Graham Holdings Company Common Stockholders
Basic net income per common share
$
8.12
$
23.43
(65
)
Basic average number of common shares
outstanding
5,285
5,302
Diluted net income per common share
$
8.05
$
23.28
(65
)
Diluted average number of common shares
outstanding
5,329
5,337
GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
Nine Months Ended
September 30
%
(in thousands, except per share
amounts)
2019
2018
Change
Operating revenues
$
2,168,621
$
2,006,879
8
Operating expenses
1,971,052
1,752,230
12
Depreciation of property, plant and
equipment
42,758
41,909
2
Amortization of intangible assets
39,512
34,052
16
Impairment of long-lived assets
1,065
8,109
(87
)
Operating income
114,234
170,579
(33
)
Equity in earnings of affiliates, net
7,829
13,047
(40
)
Interest income
4,753
3,884
22
Interest expense
(22,587
)
(31,371
)
(28
)
Debt extinguishment costs
—
(11,378
)
—
Non-operating pension and postretirement
benefit income, net
51,737
66,641
(22
)
Gain on marketable equity securities,
net
49,261
28,306
74
Other income, net
36,135
14,662
—
Income before income taxes
241,362
254,370
(5
)
Provision for income taxes
59,500
39,700
50
Net income
181,862
214,670
(15
)
Net loss (income) attributable to
noncontrolling interests
112
(149
)
—
Net Income Attributable to Graham
Holdings Company Common Stockholders
$
181,974
$
214,521
(15
)
Per Share Information Attributable to
Graham Holdings Company Common Stockholders
Basic net income per common share
$
34.24
$
39.81
(14
)
Basic average number of common shares
outstanding
5,285
5,354
Diluted net income per common share
$
33.96
$
39.54
(14
)
Diluted average number of common shares
outstanding
5,328
5,390
GRAHAM HOLDINGS COMPANY
BUSINESS DIVISION INFORMATION
(Unaudited)
Three Months Ended
Nine Months Ended
September 30
%
September 30
%
(in thousands)
2019
2018
Change
2019
2018
Change
Operating Revenues
Education
$
357,319
$
358,601
0
$
1,097,536
$
1,104,105
(1
)
Television broadcasting
115,161
130,014
(11
)
340,012
352,902
(4
)
Manufacturing
111,676
126,028
(11
)
341,706
369,896
(8
)
Healthcare
40,688
35,486
15
119,057
111,315
7
SocialCode
15,975
13,781
16
45,804
41,850
9
Other businesses
98,225
10,856
—
224,814
26,856
—
Corporate office
—
—
—
—
—
—
Intersegment elimination
(224
)
—
—
(308
)
(45
)
—
$
738,820
$
674,766
9
$
2,168,621
$
2,006,879
8
Operating Expenses
Education
$
364,480
$
336,339
8
$
1,052,797
$
1,021,589
3
Television broadcasting
78,348
74,561
5
223,165
215,789
3
Manufacturing
104,831
120,882
(13
)
326,895
347,457
(6
)
Healthcare
39,480
44,188
(11
)
112,922
120,644
(6
)
SocialCode
16,353
8,657
89
51,175
42,249
21
Other businesses
107,254
16,513
—
248,249
49,032
—
Corporate office
12,030
12,887
(7
)
39,492
39,585
0
Intersegment elimination
(224
)
—
—
(308
)
(45
)
—
$
722,552
$
614,027
18
$
2,054,387
$
1,836,300
12
Operating Income (Loss)
Education
$
(7,161
)
$
22,262
—
$
44,739
$
82,516
(46
)
Television broadcasting
36,813
55,453
(34
)
116,847
137,113
(15
)
Manufacturing
6,845
5,146
33
14,811
22,439
(34
)
Healthcare
1,208
(8,702
)
—
6,135
(9,329
)
—
SocialCode
(378
)
5,124
—
(5,371
)
(399
)
—
Other businesses
(9,029
)
(5,657
)
(60
)
(23,435
)
(22,176
)
(6
)
Corporate office
(12,030
)
(12,887
)
7
(39,492
)
(39,585
)
0
$
16,268
$
60,739
(73
)
$
114,234
$
170,579
(33
)
Depreciation
Education
$
6,258
$
6,685
(6
)
$
18,596
$
21,130
(12
)
Television broadcasting
3,307
3,198
3
9,839
9,243
6
Manufacturing
2,671
2,333
14
7,488
7,115
5
Healthcare
566
648
(13
)
1,783
1,948
(8
)
SocialCode
356
187
90
892
620
44
Other businesses
1,974
345
—
3,459
1,095
—
Corporate office
219
252
(13
)
701
758
(8
)
$
15,351
$
13,648
12
$
42,758
$
41,909
2
Amortization of Intangible Assets and
Impairment of Long-Lived Assets
Education
$
3,944
$
2,682
47
$
11,581
$
5,494
—
Television broadcasting
1,408
1,408
—
4,224
4,224
—
Manufacturing
6,522
6,345
3
19,580
18,216
7
Healthcare
1,914
9,839
(81
)
4,722
13,456
(65
)
SocialCode
156
104
50
470
771
(39
)
Other businesses
—
—
—
—
—
—
Corporate office
—
—
—
—
—
—
$
13,944
$
20,378
(32
)
$
40,577
$
42,161
(4
)
Pension Expense
Education
$
2,603
$
2,107
24
$
7,789
$
6,649
17
Television broadcasting
762
544
40
2,273
1,638
39
Manufacturing
20
18
11
60
54
11
Healthcare
123
143
(14
)
369
430
(14
)
SocialCode
219
181
21
658
542
21
Other businesses
215
147
46
577
417
38
Corporate office
1,200
1,333
(10
)
3,600
4,000
(10
)
$
5,142
$
4,473
15
$
15,326
$
13,730
12
GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION
INFORMATION
(Unaudited)
Three Months Ended
Nine Months Ended
September 30
%
September 30
%
(in thousands)
2019
2018
Change
2019
2018
Change
Operating Revenues
Kaplan international
$
178,169
$
167,668
6
$
552,505
$
535,553
3
Higher education
78,712
89,269
(12
)
237,780
275,080
(14
)
Test preparation
64,710
67,749
(4
)
191,533
195,504
(2
)
Professional (U.S.)
33,820
34,302
(1
)
110,181
98,715
12
Kaplan corporate and other
2,450
143
—
7,121
870
—
Intersegment elimination
(542
)
(530
)
—
(1,584
)
(1,617
)
—
$
357,319
$
358,601
0
$
1,097,536
$
1,104,105
(1
)
Operating Expenses
Kaplan international
$
192,395
$
159,293
21
$
516,909
$
482,587
7
Higher education
73,535
83,227
(12
)
227,967
256,464
(11
)
Test preparation
59,751
57,177
5
182,739
178,291
2
Professional (U.S.)
28,881
27,534
5
89,238
77,852
15
Kaplan corporate and other
6,517
6,913
(6
)
25,945
22,486
15
Amortization of intangible assets
3,944
2,682
47
10,888
5,494
98
Impairment of long-lived assets
—
—
—
693
—
—
Intersegment elimination
(543
)
(487
)
—
(1,582
)
(1,585
)
—
$
364,480
$
336,339
8
$
1,052,797
$
1,021,589
3
Operating Income (Loss)
Kaplan international
$
(14,226
)
$
8,375
—
$
35,596
$
52,966
(33
)
Higher education
5,177
6,042
(14
)
9,813
18,616
(47
)
Test preparation
4,959
10,572
(53
)
8,794
17,213
(49
)
Professional (U.S.)
4,939
6,768
(27
)
20,943
20,863
0
Kaplan corporate and other
(4,067
)
(6,770
)
40
(18,824
)
(21,616
)
13
Amortization of intangible assets
(3,944
)
(2,682
)
(47
)
(10,888
)
(5,494
)
(98
)
Impairment of long-lived assets
—
—
—
(693
)
—
—
Intersegment elimination
1
(43
)
—
(2
)
(32
)
—
$
(7,161
)
$
22,262
—
$
44,739
$
82,516
(46
)
Depreciation
Kaplan international
$
3,600
$
3,759
(4
)
$
11,198
$
11,497
(3
)
Higher education
840
915
(8
)
2,066
4,047
(49
)
Test preparation
774
1,033
(25
)
2,358
2,984
(21
)
Professional (U.S.)
978
859
14
2,802
2,171
29
Kaplan corporate and other
66
119
(45
)
172
431
(60
)
$
6,258
$
6,685
(6
)
$
18,596
$
21,130
(12
)
Pension Expense
Kaplan international
$
114
$
66
73
$
341
$
233
46
Higher education
1,136
1,050
8
3,401
3,260
4
Test preparation
847
577
47
2,534
2,035
25
Professional (U.S.)
340
291
17
1,017
871
17
Kaplan corporate and other
166
123
35
496
250
98
$
2,603
$
2,107
24
$
7,789
$
6,649
17
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 net income, 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.
Net income, 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 September
30
2019
2018
(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
$
58,165
$
15,200
$
42,965
$
135,070
$
10,000
$
125,070
Attributable to noncontrolling
interests
180
(6
)
Attributable to Graham Holdings Company
Stockholders
43,145
125,064
Adjustments:
Provision related to a VAT receivable
20,412
3,878
16,534
—
—
—
Intangible asset impairment charge
—
—
—
7,909
2,099
5,810
Reduction to operating expenses in
connection with the broadcast spectrum repacking
(1,129
)
(260
)
(869
)
(999
)
(229
)
(770
)
Net gains on marketable equity
securities
(17,404
)
(4,351
)
(13,053
)
(44,962
)
(11,357
)
(33,605
)
Non-operating gain, net, from cost and
equity method investments and related to sales of businesses
(3,669
)
(917
)
(2,752
)
(10,091
)
(2,138
)
(7,953
)
Foreign currency (gain) loss
(661
)
(165
)
(496
)
116
28
88
Nonrecurring deferred state tax benefit
related to release of valuation allowances
—
—
—
—
17,783
(17,783
)
Net Income, adjusted (non-GAAP)
$
42,509
$
70,851
Per share information attributable to
Graham Holdings Company Common Stockholders
Diluted income per common share, as
reported
$
8.05
$
23.28
Adjustments:
Provision related to a VAT receivable
3.09
—
Intangible asset impairment charge
—
1.08
Reduction to operating expenses in
connection with the broadcast spectrum repacking
(0.16
)
(0.14
)
Net gains on marketable equity
securities
(2.44
)
(6.26
)
Non-operating gain, net, from cost and
equity method investments and related to sales of businesses
(0.51
)
(1.48
)
Foreign currency (gain) loss
(0.09
)
0.02
Nonrecurring deferred state tax benefit
related to release of valuation allowances
—
(3.31
)
Diluted income per common share, adjusted
(non-GAAP)
$
7.94
$
13.19
The adjusted diluted per share amounts may
not compute due to rounding.
Nine Months Ended September
30
2019
2018
(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
$
241,362
$
59,500
$
181,862
$
254,370
$
39,700
$
214,670
Attributable to noncontrolling
interests
112
(149
)
Attributable to Graham Holdings Company
Stockholders
181,974
214,521
Adjustments:
Provision related to a VAT receivable
17,132
3,255
13,877
—
—
—
Intangible asset impairment charge
—
—
—
7,909
2,099
5,810
Reduction to operating expenses in
connection with the broadcast spectrum repacking
(10,748
)
(2,472
)
(8,276
)
(2,067
)
(475
)
(1,592
)
Interest expense related to the settlement
of a mandatorily redeemable noncontrolling interest
—
—
—
6,169
—
6,169
Debt extinguishment costs
—
—
—
11,378
2,731
8,647
Charges related to non-operating SIP at
the education division
6,607
1,520
5,087
—
—
—
Net gains on marketable equity
securities
(49,261
)
(12,315
)
(36,946
)
(28,305
)
(7,359
)
(20,946
)
Non-operating gain, net, from cost and
equity method investments and related to sales of land and
businesses
(5,080
)
(1,168
)
(3,912
)
(17,038
)
(3,664
)
(13,374
)
Gain on sale of Gimlet Media
(28,994
)
(7,248
)
(21,746
)
—
—
—
Gain on Kaplan University Transaction
—
—
—
(4,315
)
(2,472
)
(1,843
)
Foreign currency (gain) loss
(1,284
)
(321
)
(963
)
2,205
529
1,676
Nonrecurring deferred state tax benefit
related to the release of valuation allowances
—
—
—
—
17,783
(17,783
)
Tax benefit related to stock
compensation
—
1,700
(1,700
)
—
1,810
(1,810
)
Net Income, adjusted (non-GAAP)
$
127,395
$
179,475
Per share information attributable to
Graham Holdings Company Common Stockholders
Diluted income per common share, as
reported
$
33.96
$
39.54
Adjustments:
Provision related to a VAT receivable
2.59
—
Intangible asset impairment charge
—
1.08
Reduction to operating expenses in
connection with the broadcast spectrum repacking
(1.55
)
(0.29
)
Interest expense related to the settlement
of a mandatorily redeemable noncontrolling interest
—
1.14
Debt extinguishment costs
—
1.60
Charges related to non-operating SIP at
the education division
0.95
—
Net gains on marketable equity
securities
(6.90
)
(3.86
)
Non-operating gain, net, from cost and
equity method investments and related to sales of land and
businesses
(0.73
)
(2.46
)
Gain on sale of Gimlet Media
(4.06
)
—
Gain on Kaplan University Transaction
—
(0.33
)
Foreign currency (gain) loss
(0.18
)
0.31
Nonrecurring deferred state tax benefit
related to the release of valuation allowances
(3.31
)
Tax benefit related to stock
compensation
(0.32
)
(0.33
)
Diluted income per common share, adjusted
(non-GAAP)
$
23.76
$
33.09
The adjusted diluted per share amounts may
not compute due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191030005130/en/
Wallace R. Cooney (703) 345-6470
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