Graham Holdings Company (NYSE: GHC) today
reported net income attributable to common shares of $125.1 million
($23.28 per share) for the third quarter of 2018, compared to $24.8
million ($4.42 per share) for the third quarter of 2017.
The results for the third quarter of 2018 and
2017 were affected by a number of items as described in the
following paragraphs. Excluding these items, net income
attributable to common shares was $70.9 million ($13.19 per share)
for the third quarter of 2018, compared to $23.9 million ($4.26 per
share) for the third quarter of 2017. (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 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).
Items included in the Company’s net income for
the third quarter of 2017:
- $1.4 million in non-operating foreign
currency gains (after-tax impact of $0.9 million, or $0.16 per
share).
Revenue for the third quarter of 2018 was
$674.8 million, up 3% from $657.2 million in the third quarter of
2017. Revenues grew at the television broadcasting and
manufacturing businesses, offset by lower revenue at the education
division. The Company reported operating income of $60.7 million
for the third quarter of 2018, compared to $27.0 million for the
third quarter of 2017. The operating income increase is driven by
higher earnings in television broadcasting, education and
SocialCode, offset by the decline in healthcare results, largely
due to the intangible asset impairment charge.
For the first nine months of 2018, the Company
reported net income attributable to common shares of $214.5 million
($39.54 per share), compared to $87.9 million ($15.64 per share)
for the first nine months of 2017. The results for the first nine
months of 2018 and 2017 were affected by a number of items as
described in the following paragraphs. Excluding these items, net
income attributable to common shares was $179.5 million ($33.09 per
share) for the first nine months of 2018, compared to $83.6 million
($14.87 per share) for the first nine months of 2017. (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 first 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 gains 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).
Items included in the Company’s net income for
the first nine months of 2017:
- 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);
- $6.6 million in non-operating foreign
currency gains (after-tax impact of $4.2 million, or $0.74 per
share); and
- $5.9 million in income tax benefits
related to stock compensation ($1.06 per share).
Revenue for the first nine months of 2018 was
$2,006.9 million, up 5% from $1,916.0 million in the first nine
months of 2017. Revenues increased at the television broadcasting
and manufacturing businesses, offset by lower revenue at the
education division. The Company reported operating income of $170.6
million for the first nine months of 2018, compared to $86.9
million for first nine months of 2017. Operating results improved
at the education, television broadcasting and manufacturing
businesses.
On April 27, 2017, certain subsidiaries of
Kaplan, Inc. (Kaplan), a subsidiary of Graham Holdings Company
entered into a Contribution and Transfer Agreement (Transfer
Agreement) to contribute the institutional assets and operations of
Kaplan University (KU) to an Indiana non-profit, public-benefit
corporation that is a subsidiary affiliated with Purdue University
(Purdue). The closing of the transactions contemplated by the
Transfer Agreement occurred on March 22, 2018. At the same time,
the parties entered into a Transition and Operations Support
Agreement (TOSA) pursuant to which Kaplan will provide key
non-academic operations support to the new university. The new
university operates largely online as an Indiana public university
affiliated with Purdue under the name Purdue University Global
(Purdue Global).
Division
Results
Education
Education division revenue totaled $358.6
million for the third quarter of 2018, down 5% from $376.8 million
for the same period of 2017. Kaplan reported operating income of
$22.3 million for the third quarter of 2018, up 61% from $13.8
million for the third quarter of 2017.
For the first nine months of 2018, education
division revenue totaled $1,104.1 million, down 3% from revenue of
$1,136.2 million for the same period of 2017. Kaplan reported
operating income of $82.5 million for the first nine months of
2018, a 46% increase from $56.6 million for the first nine months
of 2017.
As a result of the KU Transaction that closed
on March 22, 2018, the Company has revised the financial reporting
for its education division to provide operating results for Higher
Education and Professional (U.S.).
A summary of Kaplan’s operating results is as
follows:
Three Months Ended Nine Months Ended September
30 September 30 (in thousands)
2018 2017 % Change
2018 2017 % Change
Revenue Kaplan international
$ 167,668 $ 171,259 (2 )
$ 535,553 $
507,568 6 Higher education
89,269 105,210 (15 )
275,080 328,161 (16 ) Test preparation
67,749 72,680
(7 )
195,504 212,978 (8 ) Professional (U.S.)
34,302
28,249 21
98,715 88,812 11 Kaplan corporate and other
143 49 —
870 120 — Intersegment elimination
(530 ) (642 ) —
(1,617 )
(1,438 ) —
$ 358,601
$ 376,805 (5 )
$ 1,104,105
$ 1,136,201 (3 )
Operating Income
(Loss) Kaplan international
$ 8,375 $ 5,348 57
$ 52,966 $ 29,009 83 Higher education
6,042
1,493 —
18,616 17,079 9 Test preparation
10,572 7,330
44
17,213 10,207 69 Professional (U.S.)
6,768 7,316
(7 )
20,863 22,045 (5 ) Kaplan corporate and other
(6,770 ) (6,276 ) (8 )
(21,616 )
(17,941 ) (20 ) Amortization of intangible assets
(2,682
) (1,355 ) (98 )
(5,494 ) (3,798 ) (45 )
Intersegment elimination
(43 ) (59 ) —
(32 ) (36 ) —
$ 22,262
$ 13,797 61
$ 82,516
$ 56,565 46
Kaplan International includes English-language
programs, and postsecondary education and professional training
businesses largely outside the United States. Kaplan International
revenue declined 2% and increased 6% for the third quarter and
first nine months of 2018, respectively. On a constant currency
basis, revenue was flat for the third quarter and increased 2% for
the first nine months of 2018. Operating income increased to $8.4
million in the third quarter of 2018, compared to $5.3 million in
the third quarter of 2017 due to improved results at UK
Professional and English-language. Operating income increased to
$53.0 million for the first nine months of 2018, compared to $29.0
million for the same period of 2017 due largely to improved results
at Pathways, UK Professional, English-language and MPW.
Restructuring costs at Kaplan International totaled $0.9 million
for the first nine months of 2017.
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
2018, Higher Education revenue was down 15% and 16%, respectively,
due largely to the sale of KU on March 22, 2018 and fewer average
enrollments at KU prior to the sale. The Company recorded the
service fee with Purdue Global beginning in the second quarter of
2018, based on an assessment of its collectability under the TOSA.
The service fee recorded in the second quarter has since been
collected from Purdue Global for its fiscal year ended June 30,
2018. In the third quarter of 2018, the Company recorded a portion
of the service fee with Purdue Global based on an assessment of its
collectability 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 declined 7% and 8% for the third quarter and first nine
months of 2018, respectively due to lower enrollments in certain
test preparation programs and the disposition of Dev Bootcamp,
which made up the majority of KTP’s new economy skills training
programs. KTP operating results improved in the third quarter and
first nine months of 2018, due primarily to decreased losses from
the new economy skills training programs. Operating losses for the
new economy skills training programs were $2.8 million and $11.2
million for the first nine months of 2018 and 2017, respectively,
including $1.3 million in restructuring costs in the third quarter
of 2017. Dev Bootcamp was closed in the second half of 2017.
Kaplan Professional (U.S.) includes the
domestic professional and other continuing education businesses. In
the third quarter and first nine months of 2018, Kaplan
Professional (U.S.) revenue was up 21% and 11%, respectively, due
partly 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 7% and 5% for the third quarter and first nine
months of 2018, respectively, due mostly to a delay in the CFA exam
release and registration dates and increased spending on sales and
technology, offset in part by income from PPI and CFFP.
Kaplan corporate and other represents
unallocated expenses of Kaplan, Inc.’s corporate office, other
minor businesses and certain shared activities, with increased
healthcare expense in 2018.
Television Broadcasting
Revenue at the television broadcasting division
increased 28% to $130.0 million in the third quarter of 2018, from
$101.3 million in the same period of 2017 due to a $20.7 million
increase in political advertising revenue and a $10.2 million
increase in retransmission revenues. Operating income for the third
quarter of 2018 increased 66% to $55.5 million, from $33.5 million
in the same period of 2017 due to higher revenues.
Revenue at the television broadcasting division
increased 18% to $352.9 million in the first nine months of 2018,
from $298.9 million in the same period of 2017. The revenue
increase is due to $27.1 million in higher retransmission revenues,
a $26.8 million increase in political advertising revenue and $8.6
million in 2018 incremental winter Olympics-related advertising
revenue at the Company’s NBC stations. Operating income for the
first nine months of 2018 increased 37% to $137.1 million, from
$99.7 million in the same period of 2017 due to higher
revenues.
In the third quarter and first nine months of
2018, the television broadcasting division recorded $1.0 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.
In the third quarter of 2017, the Company’s
television stations in Texas and Florida ran extensive news
programming coverage of hurricanes Harvey and Irma; this adversely
impacted revenues by an estimated $2.1 million and resulted in $0.6
million in additional expenses during the third quarter of
2017.
Manufacturing
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 global supplier of products and systems that
control and monitor combustion processes 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 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 increased in the first
nine months of 2018 due to the Hoover acquisition. Manufacturing
operating income decreased in the third quarter of 2018 due largely
to a decline at Hoover from the adverse impact of lower wood prices
on inventory values. Operating income increased in the first nine
months of 2018 due largely to the Hoover acquisition. Also, 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.
Healthcare
The Graham Healthcare Group (GHG) provides home
health and hospice services in three states. At the end of June
2017, GHG acquired Hometown Home Health and Hospice, a Lapeer,
MI-based healthcare services provider. Healthcare revenues were
down 12% and 4% in the third quarter and first nine months of 2018,
respectively. The revenue declines are primarily due to a new
management services agreement (MSA) with one of GHG’s joint
ventures that was effective in the third quarter of 2018. In the
third quarter of 2018, GHG recorded a $7.9 million intangible asset
impairment charge related to the Celtic trademark, which is in the
process of being phased-out. The decline in GHG operating results
in 2018 is due to the intangible asset impairment charge and a
decline in results from the MSA with one of GHG’s joint
ventures.
SocialCode
SocialCode is a provider of marketing solutions
on social, mobile and video platforms. In the third quarter of
2018, SocialCode acquired Marketplace Strategy (MPS), a
Cleveland-based Amazon sales acceleration agency. SocialCode’s
revenue decreased 5% in the third quarter of 2018 and was flat for
the first nine months of 2018. SocialCode reported 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, compared to
operating losses of $6.2 million and $8.2 million in the third
quarter and first nine months of 2017, respectively. The improved
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; 2017 results included $5.1
million and $1.2 million in expense related to SocialCode’s phantom
equity plans in the third quarter and first nine months,
respectively.
Other Businesses
Other businesses 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 the first nine months of 2018
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
(Losses) of Affiliates
At September 30, 2018, the Company held
interests in a number of home health and hospice joint ventures,
and interests in several other affiliates. In the second half of
2017, the Company acquired approximately 11% of Intersection
Holdings, LLC, which provides digital marketing and advertising
services and products for cities, transit systems, airports,
and other public and private spaces. The Company recorded equity in
earnings of affiliates of $9.5 million for the third quarter of
2018, compared to equity in losses of affiliates of $0.5 million
for the third quarter of 2017. 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. The Company recorded
equity in earnings of affiliates of $13.0 million for the first
nine months of 2018, compared to $1.4 million for the first nine
months of 2017.
Net Interest Expense,
Debt Extinguishment Costs and Related Balances
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, beginning on
December 1, 2018. 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
$5.5 million and $27.5 million for the third quarter and first nine
months of 2018, compared to $7.8 million and $22.4 million for the
third quarter and first nine months of 2017. The Company incurred
$6.2 million in interest expense related to the mandatorily
redeemable noncontrolling interest at GHG settled in the second
quarter of 2018.
At September 30, 2018, the Company had
$479.6 million in borrowings outstanding at an average interest
rate of 5.1% and cash, marketable equity securities and other
investments of $794.7 million.
Non-operating Pension
and Postretirement Benefit Income, net
In the first quarter of 2018, the Company
adopted new accounting guidance that changes the income statement
classification of net periodic pension and postretirement pension
cost. Under the new guidance, service cost is included in operating
income, while the other components (including expected return on
assets) are included in non-operating income. The new guidance was
required to be applied retrospectively, with prior period financial
information revised to reflect the reclassification. From a segment
reporting perspective, this change had a significant impact on
Corporate office reporting, with minimal impact on the television
broadcasting and Kaplan corporate reporting.
The Company recorded net non-operating pension
and postretirement benefit income of $22.2 million and $66.6
million for the third quarter and first nine months of 2018,
compared to $17.6 million and $55.0 million for the third quarter
and first nine months of 2017.
Gain on Marketable
Equity Securities, net
In the first quarter of 2018, the Company
adopted new guidance that requires changes in the fair value of
marketable equity securities to be included in non-operating income
(expense) on a prospective basis. Overall, the Company recognized
$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 (Expense)
The Company recorded total other non-operating
income, net, of $3.1 million for the third quarter of 2018,
compared to $2.0 million for the third quarter of 2017. 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 2017
amounts included $1.4 million in foreign currency gains and other
items.
The Company recorded total other non-operating
income, net, of $14.7 million for the first nine months of 2018,
compared to $6.9 million for the first nine months of 2017. The
2018 amounts included $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. The 2017 amounts included $6.6 million in foreign
currency gains and other items.
Provision for Income
Taxes
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, the overall income tax rate for the first nine
months of 2018 was 23.3%. The Tax Cuts and Jobs Act was enacted in
December 2017, which included lowering the federal corporate income
tax rate from 35% to 21%.
The Company's effective tax rate for the first
nine months of 2017 was 31.3%. This low effective tax rate is due
to a $5.9 million income tax benefit related to the vesting of
restricted stock awards. In the first quarter of 2017, the Company
adopted 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 this $5.9 million benefit, the overall income tax rate
for the first nine months of 2017 was 35.9%.
Earnings Per
Share
The calculation of diluted earnings per share
for the third quarter and first nine months of 2018 was based on
5,336,612 and 5,390,049 weighted average shares outstanding,
compared to 5,554,458 and 5,566,874 for the third quarter and first
nine months of 2017. At September 30, 2018, there were
5,316,329 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 286,025 shares as of September 30, 2018.
Adoption of Revenue
Recognition Standard
On January 1, 2018, the Company adopted the new
revenue recognition guidance using the modified retrospective
approach. In connection with the KU Transaction, Kaplan recognized
$4.5 million in service fee revenue and operating income in the
third quarter of 2018. Under the previous guidance, this would not
have been recognized as a determination would not have been made
until the end of Purdue Global’s fiscal year (June 30, 2019). If
the company applied the accounting policies under the previous
guidance for all other revenue streams, revenue would have been
$1.2 million lower and operating expenses would have been $2.6
million lower for the first nine months of 2018.
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)
2018 2017
Change Operating revenues
$ 674,766
$ 657,225 3 Operating expenses
580,001 603,038 (4 )
Depreciation of property, plant and equipment
13,648 16,002
(15 ) Amortization of intangible assets
12,269 10,923 12
Impairment of long-lived assets
8,109
312 —
Operating income 60,739 26,950 — Equity
in earnings (losses) of affiliates, net
9,537 (532 ) —
Interest income
611 861 (29 ) Interest expense
(6,135
) (8,619 ) (29 ) Non-operating pension and postretirement
benefit income, net
22,214 17,621 26 Gain on marketable
equity securities, net
44,962 — — Other income, net
3,142 1,963 60
Income before
income taxes 135,070 38,244 —
Provision for income
taxes 10,000 13,400 (25 )
Net income 125,070 24,844 —
Net income
attributable to noncontrolling interests (6 )
(60 ) (90 )
Net Income Attributable to Graham
Holdings Company Common Stockholders $ 125,064
$ 24,784 —
Per Share Information
Attributable to Graham Holdings Company Common Stockholders
Basic net income per common share
$ 23.43 $ 4.45 —
Basic average number of common shares outstanding
5,302
5,518 Diluted net income per common share
$ 23.28 $
4.42 — Diluted average number of common shares outstanding
5,337 5,554 GRAHAM HOLDINGS COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months
Ended September 30 % (in thousands, except per share
amounts)
2018 2017
Change Operating revenues
$ 2,006,879
$ 1,916,029 5 Operating expenses
1,752,230 1,744,734
0 Depreciation of property, plant and equipment
41,909
46,525 (10 ) Amortization of intangible assets
34,052 28,290
20 Impairment of goodwill and other long-lived assets
8,109
9,536 (15 )
Operating income
170,579 86,944 96 Equity in earnings of affiliates, net
13,047 1,448 — Interest income
3,884 3,397 14
Interest expense
(31,371 ) (25,783 ) 22 Debt
extinguishment costs
(11,378 ) — — Non-operating
pension and postretirement benefit income, net
66,641 55,042
21 Gain on marketable equity securities, net
28,306 — —
Other income, net
14,662 6,881 —
Income before income taxes 254,370 127,929 99
Provision for income taxes 39,700
40,000 (1 )
Net income 214,670 87,929 —
Net income attributable to noncontrolling interests
(149 ) (63 ) —
Net Income
Attributable to Graham Holdings Company Common Stockholders
$ 214,521 $ 87,866 —
Per Share Information Attributable to Graham Holdings Company
Common Stockholders Basic net income per common share
$
39.81 $ 15.74 — Basic average number of common shares
outstanding
5,354 5,530 Diluted net income per common share
$ 39.54 $ 15.64 — Diluted average number of common
shares outstanding
5,390 5,567 GRAHAM HOLDINGS
COMPANY
BUSINESS DIVISION
INFORMATION
(Unaudited)
Three Months Ended
Nine Months Ended
September 30 %
September 30 % (in thousands)
2018 2017 Change
2018 2017 Change
Operating Revenues Education
$ 358,601 $ 376,805 (5 )
$ 1,104,105 $
1,136,201 (3 ) Television broadcasting
130,014 101,295 28
352,902 298,893 18 Manufacturing
126,028 115,594 9
369,896 298,164 24 Healthcare
35,486 40,473 (12 )
111,315 115,592 (4 ) SocialCode
13,781 14,497 (5 )
41,850 41,926 0 Other businesses
10,856 8,561 27
26,856 25,253 6 Corporate office
— — —
— — —
Intersegment elimination
— — —
(45 ) — —
$
674,766 $ 657,225 3
$
2,006,879 $ 1,916,029 5
Operating Expenses Education
$ 336,339 $
363,008 (7 )
$ 1,021,589 $ 1,079,636 (5 ) Television
broadcasting
74,561 67,833 10
215,789 199,171 8
Manufacturing
120,882 108,881 11
347,457 291,961 19
Healthcare
44,188 39,553 12
120,644 115,214 5
SocialCode
8,657 20,745 (58 )
42,249 50,078 (16 )
Other businesses
16,513 16,047 3
49,032 49,265 0
Corporate office
12,887 14,208 (9 )
39,585 43,760 (10
) Intersegment elimination
— — —
(45 ) — —
$
614,027 $ 630,275 (3 )
$
1,836,300 $ 1,829,085 0
Operating Income (Loss) Education
$ 22,262 $
13,797 61
$ 82,516 $ 56,565 46 Television
broadcasting
55,453 33,462 66
137,113 99,722 37
Manufacturing
5,146 6,713 (23 )
22,439 6,203 —
Healthcare
(8,702 ) 920 —
(9,329 ) 378
— SocialCode
5,124 (6,248 ) —
(399 ) (8,152 )
95 Other businesses
(5,657 ) (7,486 ) 24
(22,176 ) (24,012 ) 8 Corporate office
(12,887
) (14,208 ) 9
(39,585 )
(43,760 ) 10
$ 60,739 $
26,950 —
$ 170,579 $
86,944 96
Depreciation Education
$
6,685 $ 8,085 (17 )
$ 21,130 $ 24,994 (15 )
Television broadcasting
3,198 3,118 3
9,243 8,703 6
Manufacturing
2,333 2,717 (14 )
7,115 6,629 7
Healthcare
648 1,166 (44 )
1,948 3,429 (43 )
SocialCode
187 256 (27 )
620 753 (18 ) Other
businesses
345 381 (9 )
1,095 1,157 (5 ) Corporate
office
252 279 (10 )
758
860 (12 )
$ 13,648
$ 16,002 (15 )
$ 41,909
$ 46,525 (10 )
Amortization of Intangible
Assets and Impairment of Goodwill and Other Long-Lived Assets
Education
$ 2,682 $ 1,355 98
$ 5,494 $
3,798 45 Television broadcasting
1,408 1,071 31
4,224
2,943 44 Manufacturing
6,345 6,306 1
18,216 25,117
(27 ) Healthcare
9,839 2,420 —
13,456 5,718 —
SocialCode
104 83 25
771 250 — Other businesses
— — —
— — — Corporate office
—
— —
— — —
$
20,378 $ 11,235 81
$
42,161 $ 37,826 11
Pension
Expense Education
$ 2,107 $ 2,430 (13 )
$
6,649 $ 7,289 (9 ) Television broadcasting
544 485 12
1,638 1,457 12 Manufacturing
18 15 20
54 62
(13 ) Healthcare
143 166 (14 )
430 498 (14 )
SocialCode
181 149 21
542 445 22 Other businesses
147 113 30
417 336 24 Corporate office
1,333
1,233 8
4,000
4,009 —
$ 4,473 $
4,591 (3 )
$ 13,730 $
14,096 (3 ) GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION
INFORMATION
(Unaudited)
Three Months Ended Nine Months Ended
September 30 %
September 30 % (in thousands)
2018 2017 Change
2018 2017 Change
Operating Revenues Kaplan
international
$ 167,668 $ 171,259 (2 )
$
535,553 $ 507,568 6 Higher education
89,269 105,210
(15 )
275,080 328,161 (16 ) Test preparation
67,749
72,680 (7 )
195,504 212,978 (8 ) Professional (U.S.)
34,302 28,249 21
98,715 88,812 11
Kaplan corporate and other
143 49 —
870 120 — Intersegment elimination
(530 ) (642 ) —
(1,617 )
(1,438 ) —
$ 358,601
$ 376,805 (5 )
$ 1,104,105
$ 1,136,201 (3 )
Operating Expenses
Kaplan international
$ 159,293 $ 165,911 (4 )
$ 482,587 $ 478,559 1 Higher education
83,227
103,717 (20 )
256,464 311,082 (18 ) Test preparation
57,177 65,350 (13 )
178,291 202,771 (12 )
Professional (U.S.)
27,534 20,933 32
77,852 66,767 17
Kaplan corporate and other
6,913 6,325 9
22,486
18,061 25 Amortization of intangible assets
2,682 1,355 98
5,494 3,798 45 Intersegment elimination
(487 )
(583 ) —
(1,585 ) (1,402
) —
$ 336,339 $ 363,008
(7 )
$ 1,021,589 $ 1,079,636
(5 )
Operating Income (Loss) Kaplan international
$ 8,375 $ 5,348 57
$ 52,966 $ 29,009 83
Higher education
6,042 1,493 —
18,616 17,079 9 Test
preparation
10,572 7,330 44
17,213 10,207 69
Professional (U.S.)
6,768 7,316 (7 )
20,863 22,045 (5
) Kaplan corporate and other
(6,770 ) (6,276 ) (8 )
(21,616 ) (17,941 ) (20 ) Amortization of intangible
assets
(2,682 ) (1,355 ) (98 )
(5,494 )
(3,798 ) (45 ) Intersegment elimination
(43 )
(59 ) —
(32 ) (36 ) —
$
22,262 $ 13,797 61
$
82,516 $ 56,565 46
Depreciation Kaplan international
$ 3,759 $
3,780 (1 )
$ 11,497 $ 11,071 4 Higher education
915 2,010 (54 )
4,047 7,142 (43 ) Test preparation
1,033 1,407 (27 )
2,984 4,080 (27 ) Professional
(U.S.)
859 758 13
2,171 2,306 (6 ) Kaplan corporate
and other
119 130 (8 )
431 395 9
$ 6,685
$ 8,085 (17 )
$ 21,130
$ 24,994 (15 )
Pension Expense
Kaplan international
$ 66 $ 24 —
$ 233
$ 198 18 Higher education
1,050 467 —
3,260 3,951 (17
) Test preparation
577 244 —
2,035 2,066 (2 )
Professional (U.S.)
291 81 —
871 685 27 Kaplan
corporate and other
123 1,614
(92 )
250 389 (36 )
$
2,107 $ 2,430 (13 )
$
6,649 $ 7,289 (9 )
NON-GAAP FINANCIAL INFORMATIONGRAHAM 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
2018 2017 (in thousands, except per
share amounts)
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Amounts attributable to Graham Holdings Company Common
Stockholders
As reported
$ 135,070 $
10,000 $ 125,070 $ 38,244 $ 13,400 $ 24,844
Attributable to noncontrolling interests
(6 ) (60 )
Attributable to Graham Holdings Company Stockholders
125,064
24,784 Adjustments: Intangible asset impairment charge
7,909
2,099 5,810 — — — Reduction to operating expenses in
connection with the broadcast spectrum repacking
(999
) (229 ) (770 ) — — — Net gains
on marketable equity securities
(44,962 )
(11,357 ) (33,605 ) — — — Non-operating
gain, net, from cost and equity method investments and related to
sales of businesses
(10,091 ) (2,138 )
(7,953 ) — — — Foreign currency loss (gain)
116 28 88 (1,414 ) (523 ) (891 ) Nonrecurring
deferred state tax benefit related to release of valuation
allowances
— 17,783 (17,783 ) — — —
Net Income, adjusted (non-GAAP)
$ 70,851
$ 23,893
Per share information attributable
to Graham Holdings Company Common Stockholders Diluted income
per common share, as reported
$ 23.28 $ 4.42
Adjustments: Intangible asset impairment charge
1.08
— Reduction to operating expenses in connection with the broadcast
spectrum repacking
(0.14 ) — Net losses on marketable
equity securities
(6.26 ) — Non-operating gain, net,
from cost and equity method investments and related to sales of
businesses
(1.48 ) — Foreign currency loss (gain)
0.02 (0.16 ) Nonrecurring deferred state tax benefit related
to release of valuation allowances
(3.31 ) —
Diluted income per common share, adjusted (non-GAAP)
$
13.19 $ 4.26
The adjusted diluted per share amounts may not compute due to
rounding.
Nine Months Ended September 30
2018 2017 (in thousands, except per share
amounts)
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Amounts attributable to Graham Holdings Company Common
Stockholders
As reported
$ 254,370 $
39,700 $ 214,670 $ 127,929 $ 40,000 $ 87,929
Attributable to noncontrolling interests
(149 ) (63 )
Attributable to Graham Holdings Company Stockholders
$
214,521 $ 87,866 Adjustments: Goodwill and other long-lived
asset impairment charge
7,909 2,099 5,810
9,224 3,413 5,811 Reduction to operating expenses in connection
with the broadcast spectrum repacking
(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 —
— — Net gains on marketable equity securities
(28,305
) (7,359 ) (20,946 ) — — —
Non-operating gain, net, from cost and equity method investments
and related to sales of land and businesses
(17,038 )
(3,664 ) (13,374 ) — — — Gain on Kaplan
University Transaction
(4,315 ) (2,472
) (1,843 ) — — — Foreign currency loss (gain)
2,205 529 1,676 (6,608 ) (2,445 ) (4,163 )
Nonrecurring deferred state tax benefit related to the release of
valuation allowances
— 17,783 (17,783 )
— — — Tax benefit related to stock compensation
—
1,810 (1,810 ) — 5,933 (5,933 ) Net Income,
adjusted (non-GAAP)
$ 179,475 $ 83,581
Per share information attributable to Graham Holdings
Company Common Stockholders Diluted income per common share, as
reported
$ 39.54 $ 15.64 Adjustments:
Goodwill and other long-lived asset impairment charge
1.08
1.03 Reduction to operating expenses in connection with the
broadcast spectrum repacking
(0.29 ) — Interest
expense related to the settlement of a mandatorily redeemable
noncontrolling interest
1.14 — Debt extinguishment costs
1.60 — Net gains on marketable equity securities
(3.86 ) — Non-operating gain, net, from cost and
equity method investments and related to sales of land and
businesses
(2.46 ) — Gain on Kaplan University
Transaction
(0.33 ) — Foreign currency loss (gain)
0.31 (0.74 ) Nonrecurring deferred state tax benefit related
to the release of valuation allowances
(3.31 ) — Tax
benefit related to stock compensation
(0.33 ) (1.06 )
Diluted income per common share, adjusted (non-GAAP)
$
33.09 $ 14.87
The adjusted diluted per share amounts may not compute due to
rounding.
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version on businesswire.com: https://www.businesswire.com/news/home/20181031005115/en/
Graham Holdings CompanyWallace R. Cooney, 703-345-6470
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