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8-K
GRAHAM HOLDINGS CO filed this Form 8-K on 08/02/2017
Entire Document
 
Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 2, 2017
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))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 


 

Item 2.02          Results of Operations and Financial Condition.
 
On August 2, 2017, Graham Holdings Company issued a press release announcing the Company’s earnings for the second quarter ended June 30, 2017.  A copy of this press release is furnished with this report as an exhibit to this Form 8-K.
 
 
Item 9.01          Financial Statements and Exhibits.
 
Exhibit 99.1 Graham Holdings Company Earnings Release Dated August 2, 2017.

 
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 2, 2017
 
/s/ Wallace R. Cooney
 
 
Wallace R. Cooney,
Senior Vice President-Finance
(Principal Financial Officer)



 
 



 
3

 

Exhibit Index
 
 
Exhibit 99.1   Graham Holdings Company Earnings Release dated August 2, 2017.


 
4
Exhibit


Exhibit 99.1
 
 
Contact:            Wallace R. Cooney                                                                                       For Immediate Release   
(703) 345-6470                                                                                                August 2, 2017
 
 
GRAHAM HOLDINGS COMPANY REPORTS
SECOND QUARTER EARNINGS
ARLINGTON, VA – Graham Holdings Company (NYSE: GHC) today reported income attributable to common shares of $42.0 million ($7.46 per share) for the second quarter of 2017, compared to $60.8 million ($10.76 per share) for the second quarter of 2016.
The results for the second quarter of 2017 and 2016 were affected by a number of items as described in the following paragraphs. Excluding these items, income attributable to common shares was $45.6 million ($8.10 per share) for the second quarter of 2017, compared to $45.0 million ($7.97 per share) for the second quarter of 2016. (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 second quarter 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); and
$3.5 million in non-operating foreign currency gains (after-tax impact of $2.2 million, or $0.39 per share).
Items included in the Company’s net income 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 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).
Revenue for the second quarter of 2017 was $676.1 million, up 7% from $628.9 million in the second quarter of 2016. Revenues increased at the television broadcasting division and in other businesses, offset by a decline at the education division. The Company reported operating income of $68.4 million for the second quarter of 2017, compared to $74.1 million for the second quarter of 2016. The operating income decline is driven by lower earnings at the television broadcasting division and in other businesses.
On April 27, 2017, certain Kaplan subsidiaries entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute Kaplan University (KU), its institutional assets and operations to a new, nonprofit, public-benefit corporation (New University) affiliated with Purdue University (Purdue) in exchange for a Transition and Operations Support Agreement (TOSA) to provide key non-academic operations support to New University for an initial term of 30 years with a buy-out option after six years. The transfer does not include any of the assets of Kaplan University School of Professional and Continuing Education (KU-PACE), which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education, the Indiana Commission for Higher Education and HLC, which is the regional accreditor of both Purdue and KU, and certain other state educational agencies and accreditors of programs. Kaplan is unable to predict with certainty when and if such approvals will be obtained; however, all approvals may not be received until the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.
For the first six months of 2017, the company reported income attributable to common shares of $63.1 million ($11.21 per share), compared to $98.5 million ($17.33 per share) for the first six months of 2016. The results for the first six months of 2017 and 2016 were affected by a number of items as described in the following paragraphs. Excluding these items, income attributable to common shares was $59.7 million ($10.60 per share) for the first six

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months of 2017, compared to $73.2 million ($12.87 per share) for the first six months of 2016. (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 six 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);
$5.2 million in non-operating foreign currency gains (after-tax impact of $3.3 million, or $0.58 per share); and
$5.9 million in income tax benefits related to stock compensation ($1.06 per share).
Items included in the Company’s net income for 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 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).
Revenue for the first six months of 2017 was $1,258.8 million, up 2% from $1,230.7 million in the first six months of 2016. Revenues increased at the television broadcasting division and in other businesses, offset by a decline at the education division. The Company reported operating income of $97.4 million for the first six months of 2017, compared to $126.0 million for first six months of 2016. Operating results declined at the education and television broadcasting divisions and in other businesses.
Division Results
Education  
Education division revenue totaled $386.5 million for the second quarter of 2017, down 8% from revenue of $419.2 million for the same period of 2016. Kaplan reported operating income of $32.9 million for each of the second quarters of 2017 and 2016.
For the first six months of 2017, education division revenue totaled $759.4 million, down 7% from revenue of $820.3 million for the same period of 2016. Kaplan reported operating income of $42.0 million for the first six months of 2017, compared to $47.4 million for the first six months of 2016.
A summary of Kaplan’s operating results is as follows:
 
 
Three Months Ended
 
 
 
Six Months Ended
 
 
  
 
June 30
 
  
 
June 30
 
  
(in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
 
  
 
  
 
  
 
  
 
  
 
  
Higher education
 
$
139,204

 
$
157,980

 
(12
)
 
$
283,514

 
$
323,529

 
(12
)
Test preparation
 
75,730

 
79,349

 
(5
)
 
140,298

 
145,811

 
(4
)
Kaplan international
 
171,747

 
182,325

 
(6
)
 
336,309

 
351,612

 
(4
)
Kaplan corporate and other
 
57

 
18

 

 
71

 
143

 
(50
)
Intersegment elimination
 
(239
)
 
(459
)
 

 
(796
)
 
(806
)
 

  
 
$
386,499

 
$
419,213

 
(8
)
 
$
759,396

 
$
820,289

 
(7
)
Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
17,711

 
$
17,237

 
3

 
$
30,315

 
$
38,543

 
(21
)
Test preparation
 
5,741

 
7,036

 
(18
)
 
2,877

 
4,726

 
(39
)
Kaplan international
 
15,954

 
16,479

 
(3
)
 
23,661

 
21,376

 
11

Kaplan corporate and other
 
(5,128
)
 
(6,107
)
 
16

 
(12,477
)
 
(13,831
)
 
10

Amortization of intangible assets
 
(1,323
)
 
(1,704
)
 
22

 
(2,443
)
 
(3,385
)
 
28

Intersegment elimination
 
(30
)
 
(49
)
 

 
23

 
(49
)
 

  
 
$
32,925

 
$
32,892

 

 
$
41,956

 
$
47,380

 
(11
)
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.

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In the second quarter and first six months of 2017, KHE revenue was down 12%, due to declines in average enrollments at Kaplan University, offset by increased revenues at the domestic professional and other continuing education businesses. KHE operating results declined in the first half of 2017 due primarily to lower enrollment at Kaplan University.
New higher education student enrollments at Kaplan University declined 5% in the second quarter of 2017 and 1% for the first six months of 2017; total students at Kaplan University were 29,193 at June 30, 2017, down 13% from June 30, 2016.
Kaplan University enrollments at June 30, 2017 and 2016, by degree and certificate programs, are as follows:
  
 
As of June 30
  
 
2017
 
2016
Certificate
 
9.4
%
 
6.6
%
Associate’s
 
16.9
%
 
20.4
%
Bachelor’s
 
50.3
%
 
50.4
%
Master’s
 
23.4
%
 
22.6
%
  
 
100.0
%
 
100.0
%
Kaplan Test Preparation (KTP) includes Kaplan’s standardized test preparation programs. KTP revenue declined 5% and 4% for the second quarter and first six months of 2017, respectively. Enrollments, excluding the new economy skills training offerings, were up 3% in the second quarter and were flat for the first six months of 2017; however, unit prices were generally lower. In comparison to 2016, KTP operating results were down 18% and 39% in the second quarter and first six months of 2017, respectively, due to lower revenues. Operating losses for the new economy skills training programs were $7.2 million and $6.9 million for the first six months of 2017 and 2016, respectively. In July 2017, Kaplan announced that Dev Bootcamp, which makes up the majority of KTP’s new economy skills training programs, will be closing operations by the end of 2017.
Kaplan International includes English-language programs, and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue declined 6% and 4% for the second quarter and first six months of 2017, respectively. On a constant currency basis, revenue was flat for the second quarter and increased 2% for the first six months of 2017, respectively, primarily due to growth in Pathways enrollments. Operating income increased 11% in the first six months of 2017, due largely to the improved Pathways and English-language results, partially offset by a decline in Singapore. Operating income declined 3% in the second quarter of 2017, due largely to a decline in Singapore.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities.
Television Broadcasting
On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire WCWJ, a CW affiliate television station in Jacksonville, FL and WSLS, an NBC affiliate television station in Roanoke, VA for $60 million in cash and the assumption of certain pension obligations. The Company continues to operate both stations under their current network affiliations.
Revenue at the television broadcasting division increased 10% to $106.1 million in the second quarter of 2017, from $96.5 million in the same period of 2016. Excluding revenue from the two newly acquired stations, revenue increased 3% due to $5.8 million in higher retransmission revenues, offset by a $1.3 million decrease in political advertising revenue and lower network revenue. As previously disclosed, the Company’s NBC affiliates in Houston and Detroit are operating under a new contract with NBC effective January 1, 2017 that has resulted in a significant increase in network fees in 2017, compared to 2016. Operating income for the second quarter of 2017 decreased 11% to $39.3 million, from $44.2 million in the same period of 2016 due primarily to the significantly higher network fees. The Company’s television broadcasting division stations are operating under a new retransmission contract with Comcast effective April 1, 2017.
Revenue at the television broadcasting division increased 5% to $197.6 million in the first six months of 2017, from $188.5 million in the same period of 2016. Excluding revenue from the two newly acquired stations, revenue declined 1% due to a $5.3 million decrease in political advertising revenue and lower network revenue, offset by $8.8 million in higher retransmission revenues. Operating income for the first six months of 2017 decreased 24% to $65.2 million from $85.4 million in the same period of 2016, due primarily to significantly higher network fees.
Other Businesses
Manufacturing includes four businesses: Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton Corp., a Dayton, OH-based manufacturer of

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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 Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications that the Company acquired in April 2017. In September 2016, Dekko acquired Electri-Cable Assemblies (ECA), a Shelton, CT-based manufacturer of power, data and electrical solutions for the office furniture industry.
In the second quarter of 2017, the Company recorded a $9.2 million goodwill and other long-lived asset impairment charge at Forney, due to lower than expected revenues resulting from sluggish overall demand for its energy products. Excluding this impairment charge, manufacturing revenues and operating income increased in the first six months of 2017 due to the Hoover acquisition and growth and improved results at Dekko, including the ECA acquisition.
The Graham Healthcare Group (GHG) provides home health and hospice services in three states. In June 2016, the Company acquired the outstanding 20% redeemable noncontrolling interest in Residential Healthcare (Residential). Also in June 2016, Celtic Healthcare (Celtic) and Residential combined their business operations and the Company now owns 90% of the combined entity, known as GHG. Healthcare revenues increased 4% in the first six months of 2017, while operating results were down, due largely to increased bad debt expense and higher information systems and other integration costs. In the second quarter of 2016, GHG incurred approximately $2.0 million in expenses in conjunction with the June 2016 transactions discussed above. At the end of June 2017, GHG acquired Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider.
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 June 2016 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.
SocialCode is a provider of marketing solutions on social, mobile and video platforms. SocialCode revenues increased 13% and 15% in the second quarter and for the first six months of 2017, due to growth in digital advertising service revenues. SocialCode reported operating income of $2.6 million and an operating loss of $1.9 million for the second quarter and first six months of 2017, compared to operating losses of $1.5 million and $4.4 million in the second quarter and first six months of 2016. The improved results include a $4.7 million and $3.9 million credit related to SocialCode’s phantom equity plans in the second quarter and first six months of 2017, respectively.
Other businesses also include Slate and Foreign Policy, which publish online and print magazines and websites; and two investment stage businesses, Panoply and CyberVista. Losses from each of these businesses in the first six months of 2017 adversely affected operating results.
Corporate Office
Corporate office includes the expenses of the Company’s corporate office, the pension credit for the Company’s traditional defined benefit plan and certain continuing obligations related to prior business dispositions. The total pension credit for the Company’s traditional defined benefit plan was $36.4 million and $32.1 million in the first six months of 2017 and 2016, respectively.
Without the pension credit, corporate office expenses declined slightly in the first six months of 2017.
Equity in Earnings of Affiliates
At June 30, 2017, 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 earnings of affiliates of $1.3 million for the second quarter of 2017, compared to losses of $0.9 million for the second quarter of 2016. The Company recorded equity in earnings of affiliates of $2.0 million for the first six months of 2017, compared to $0.1 million for the first six months of 2016.
Other Non-Operating Income (Expense)
The Company recorded total other non-operating income, net, of $4.1 million for the second quarter of 2017, compared to $19.0 million for the second quarter of 2016. The 2017 amounts included $3.5 million in foreign currency gains and other items. 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 foreign currency losses and other items.

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The Company recorded total other non-operating income, net, of $4.9 million for the first six months of 2017, compared to $34.1 million for the first six months of 2016. The 2017 amounts included $5.2 million in foreign currency gains, offset by other items. 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 foreign currency losses.
Net Interest Expense and Related Balances
The Company incurred net interest expense of $7.9 million and $14.6 million for the second quarter and first six months of 2017, compared to $7.3 million and $14.6 million for the second quarter and first six months of 2016. At June 30, 2017, the Company had $496.2 million in borrowings outstanding at an average interest rate of 6.2% and cash, marketable equity securities and other investments of $925.1 million.
Provision for Income Taxes 
The Company’s effective tax rate for the first six months of 2017 was 29.7%, compared to 31.7% for the first six months of 2016. The low effective tax rate in the first six months of 2017 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 in the first six months of 2017 was 36.3%.
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%.
Earnings Per Share
The calculation of diluted earnings per share for the second quarter and first six months of 2017 was based on 5,577,275 and 5,573,167 weighted average shares outstanding, compared to 5,574,336 and 5,612,959 for the second quarter and first six months of 2016. At June 30, 2017, there were 5,593,030 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 223,526 shares as of June 30, 2017.
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)
2017
 
2016
Change
Operating revenues
$
676,087

 
$
628,933

7

Operating expenses
572,100

 
532,470

7

Depreciation of property, plant and equipment
15,871

 
16,045

(1
)
Amortization of intangible assets
10,531

 
6,278

68

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

 


Operating income
68,361

 
74,140

(8
)
Equity in earnings (losses) of affiliates, net
1,331

 
(891
)

Interest income
1,173

 
721

63

Interest expense
(9,035
)
 
(7,971
)
13

Other income, net
4,069

 
19,000

(79
)
Income before income taxes
65,899

 
84,999

(22
)
Provision for income taxes
23,900

 
23,800


Net income
41,999

 
61,199

(31
)
Net income attributable to noncontrolling interests
(3
)
 
(433
)
(99
)
Net Income Attributable to Graham Holdings Company Common Stockholders
$
41,996

 
$
60,766

(31
)
Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 
Basic net income per common share
$
7.51

 
$
10.82

(31
)
Basic average number of common shares outstanding
5,539

 
5,544

 
Diluted net income per common share
$
7.46

 
$
10.76

(31
)
Diluted average number of common shares outstanding
5,577

 
5,574

 

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GRAHAM HOLDINGS COMPANY
  
CONSOLIDATED STATEMENTS OF OPERATIONS
  
(Unaudited)
  
 
 
 
  
Six Months Ended
  
  
June 30
%
(in thousands, except per share amounts)
2017
 
2016
Change
Operating revenues
$
1,258,804

 
$
1,230,673

2

Operating expenses
1,104,275

 
1,059,315

4

Depreciation of property, plant and equipment
30,523

 
32,806

(7
)
Amortization of intangible assets
17,367

 
12,540

38

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

 


Operating income
97,415

 
126,012

(23
)
Equity in earnings of affiliates, net
1,980

 
113


Interest income
2,536

 
1,312

93

Interest expense
(17,164
)
 
(15,919
)
8

Other income, net
4,918

 
34,096

(86
)
Income before income taxes
89,685

 
145,614

(38
)
Provision for income taxes
26,600

 
46,200

(42
)
Net income
63,085

 
99,414

(37
)
Net income attributable to noncontrolling interests
(3
)
 
(868
)

Net Income Attributable to Graham Holdings Company Common Stockholders
$
63,082

 
$
98,546

(36
)
Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 

Basic net income per common share
$
11.29

 
$
17.42

(35
)
Basic average number of common shares outstanding
5,537

 
5,584

 

Diluted net income per common share
$
11.21

 
$
17.33

(35
)
Diluted average number of common shares outstanding
5,573

 
5,613

 




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GRAHAM HOLDINGS COMPANY
BUSINESS SEGMENT INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Six Months Ended
 
  
  
 
June 30
 
%
 
June 30
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Education
 
$
386,499

 
$
419,213

 
(8
)
 
$
759,396

 
$
820,289

 
(7
)
Television broadcasting
 
106,102

 
96,520

 
10

 
197,598

 
188,538

 
5

Other businesses
 
183,486

 
113,269

 
62

 
301,810

 
221,985

 
36

Corporate office
 

 

 

 

 

 

Intersegment elimination
 

 
(69
)
 

 

 
(139
)
 

  
 
$
676,087

 
$
628,933

 
7

 
$
1,258,804

 
$
1,230,673

 
2

Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Education
 
$
353,574

 
$
386,321

 
(8
)
 
$
717,440

 
$
772,909

 
(7
)
Television broadcasting
 
66,838

 
52,305

 
28

 
132,365

 
103,103

 
28

Other businesses
 
192,404

 
118,331

 
63

 
321,292

 
232,777

 
38

Corporate office
 
(5,090
)
 
(2,095
)
 

 
(9,708
)
 
(3,989
)
 

Intersegment elimination
 

 
(69
)
 

 

 
(139
)
 

  
 
$
607,726

 
$
554,793

 
10

 
$
1,161,389

 
$
1,104,661

 
5

Operating Income (Loss)
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
32,925

 
$
32,892

 

 
$
41,956

 
$
47,380

 
(11
)
Television broadcasting
 
39,264

 
44,215

 
(11
)
 
65,233

 
85,435

 
(24
)
Other businesses
 
(8,918
)
 
(5,062
)
 
(76
)
 
(19,482
)
 
(10,792
)
 
(81
)
Corporate office
 
5,090

 
2,095

 

 
9,708

 
3,989

 

  
 
$
68,361

 
$
74,140

 
(8
)
 
$
97,415

 
$
126,012

 
(23
)
Depreciation
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
8,325

 
$
10,242

 
(19
)
 
$
16,909

 
$
21,345

 
(21
)
Television broadcasting
 
2,991

 
2,450

 
22

 
5,585

 
4,827

 
16

Other businesses
 
4,264

 
3,073

 
39

 
7,448

 
6,100

 
22

Corporate office
 
291

 
280

 
4

 
581

 
534

 
9

  
 
$
15,871

 
$
16,045

 
(1
)
 
$
30,523

 
$
32,806

 
(7
)
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
1,323

 
$
1,704

 
(22
)
 
$
2,443

 
$
3,385

 
(28
)
Television broadcasting
 
970

 
63

 

 
1,872

 
126

 

Other businesses
 
17,462

 
4,511

 

 
22,276

 
9,029

 

Corporate office
 

 

 

 

 

 

  
 
$
19,755

 
$
6,278

 

 
$
26,591

 
$
12,540

 

Pension Expense (Credit)
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
2,153

 
$
3,018

 
(29
)
 
$
4,859

 
$
6,127

 
(21
)
Television broadcasting
 
479

 
418

 
15

 
972

 
857

 
13

Other businesses
 
415

 
306

 
36

 
898

 
560

 
60

Corporate office
 
(17,876
)
 
(16,008
)
 
12

 
(36,246
)
 
(31,869
)
 
14

  
 
$
(14,829
)
 
$
(12,266
)
 
21

 
$
(29,517
)
 
$
(24,325
)
 
21


-more-
8



GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Six Months Ended
 
  
  
 
June 30
 
%
 
June 30
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Higher education
 
$
139,204

 
$
157,980

 
(12
)
 
$
283,514

 
$
323,529

 
(12
)
Test preparation
 
75,730

 
79,349

 
(5
)
 
140,298

 
145,811

 
(4
)
Kaplan international
 
171,747

 
182,325

 
(6
)
 
336,309

 
351,612

 
(4
)
Kaplan corporate and other
 
57

 
18

 

 
71

 
143

 
(50
)
Intersegment elimination
 
(239
)
 
(459
)
 

 
(796
)
 
(806
)
 

  
 
$
386,499

 
$
419,213

 
(8
)
 
$
759,396

 
$
820,289

 
(7
)
Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
121,493

 
$
140,743

 
(14
)
 
$
253,199

 
$
284,986

 
(11
)
Test preparation
 
69,989

 
72,313

 
(3
)
 
137,421

 
141,085

 
(3
)
Kaplan international
 
155,793

 
165,846

 
(6
)
 
312,648

 
330,236

 
(5
)
Kaplan corporate and other
 
5,185

 
6,125

 
(15
)
 
12,548

 
13,974

 
(10
)
Amortization of intangible assets
 
1,323

 
1,704

 
(22
)
 
2,443

 
3,385

 
(28
)
Intersegment elimination
 
(209
)
 
(410
)
 

 
(819
)
 
(757
)
 

  
 
$
353,574

 
$
386,321

 
(8
)
 
$
717,440

 
$
772,909

 
(7
)
Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
17,711

 
$
17,237

 
3

 
$
30,315

 
$
38,543

 
(21
)
Test preparation
 
5,741

 
7,036

 
(18
)
 
2,877

 
4,726

 
(39
)
Kaplan international
 
15,954

 
16,479

 
(3
)
 
23,661

 
21,376

 
11

Kaplan corporate and other
 
(5,128
)
 
(6,107
)
 
16

 
(12,477
)
 
(13,831
)
 
10

Amortization of intangible assets
 
(1,323
)
 
(1,704
)
 
22

 
(2,443
)
 
(3,385
)
 
28

Intersegment elimination
 
(30
)
 
(49
)
 

 
23

 
(49
)
 

  
 
$
32,925

 
$
32,892

 

 
$
41,956

 
$
47,380

 
(11
)
Depreciation
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
3,249

 
$
3,993

 
(19
)
 
$
6,680

 
$
8,168

 
(18
)
Test preparation
 
1,332

 
1,615

 
(18
)
 
2,673

 
3,396

 
(21
)
Kaplan international
 
3,609

 
4,319

 
(16
)
 
7,291

 
9,379

 
(22
)
Kaplan corporate and other
 
135

 
315

 
(57
)
 
265

 
402

 
(34
)
  
 
$
8,325

 
$
10,242

 
(19
)
 
$
16,909

 
$
21,345

 
(21
)
Pension Expense
 
 
 
  

 
  

 
  

 
 
 
  

Higher education
 
$
2,044

 
$
1,905

 
7

 
$
4,088

 
$
3,810

 
7

Test preparation
 
911

 
768

 
19

 
1,822

 
1,536

 
19

Kaplan international
 
87

 
67

 
30

 
174

 
134

 
30

Kaplan corporate and other
 
(889
)
 
278

 

 
(1,225
)
 
647

 

  
 
$
2,153

 
$
3,018

 
(29
)
 
$
4,859

 
$
6,127

 
(21
)

-more-
9



GRAHAM HOLDINGS COMPANY
OTHER BUSINESSES INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Six Months Ended
 
  
  
 
June 30
 
%
 
June 30
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Manufacturing
 
$
120,672

 
$
58,026

 

 
$
182,570

 
$
114,701

 
59

Healthcare
 
38,220

 
36,498

 
5

 
75,119

 
72,378

 
4

SocialCode
 
14,855

 
13,126

 
13

 
27,429

 
23,781

 
15

Other
 
9,739

 
5,619

 
73

 
16,692

 
11,125

 
50

  
 
$
183,486

 
$
113,269

 
62

 
$
301,810

 
$
221,985

 
36

Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Manufacturing
 
$
124,847

 
$
55,177

 

 
$
183,080

 
$
110,715

 
65

Healthcare
 
37,836

 
37,544

 
1

 
75,661

 
70,905

 
7

SocialCode
 
12,251

 
14,581

 
(16
)
 
29,333

 
28,206

 
4

Other
 
17,470

 
11,029

 
58

 
33,218

 
22,951

 
45

  
 
$
192,404

 
$
118,331

 
63

 
$
321,292

 
$
232,777

 
38

Operating Income (Loss)
 
  

 
  

 
  
 
  

 
  

 
  
Manufacturing
 
$
(4,175
)
 
$
2,849

 

 
$
(510
)
 
$
3,986

 

Healthcare
 
384

 
(1,046
)
 

 
(542
)
 
1,473

 

SocialCode
 
2,604

 
(1,455
)
 

 
(1,904
)
 
(4,425
)
 
57

Other
 
(7,731
)
 
(5,410
)
 
(43
)
 
(16,526
)
 
(11,826
)
 
(40
)
  
 
$
(8,918
)
 
$
(5,062
)
 
(76
)
 
$
(19,482
)
 
$
(10,792
)
 
(81
)
Depreciation
 
  

 
 
 
  
 
  

 
  

 
  
Manufacturing
 
$
2,404

 
$
1,906

 
26

 
$
3,912

 
$
3,779

 
4

Healthcare
 
1,194

 
666

 
79

 
2,263

 
1,403

 
61

SocialCode
 
251

 
213

 
18

 
497

 
442

 
12

Other
 
415

 
288

 
44

 
776

 
476

 
63

  
 
$
4,264

 
$
3,073

 
39

 
$
7,448

 
$
6,100

 
22

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

 
 
 
  
 
  

 
  

 
  
Manufacturing
 
$
15,734

 
$
2,816

 

 
$
18,811

 
$
5,633

 

Healthcare
 
1,644

 
1,674

 
(2
)
 
3,298

 
3,355

 
(2
)
SocialCode
 
84

 

 

 
167

 

 

Other
 

 
21

 

 

 
41

 

  
 
$
17,462

 
$
4,511

 

 
$
22,276

 
$
9,029

 

Pension Expense
 
  

 
  

 
  
 
  

 
  

 
  
Manufacturing
 
$
22

 
$
20

 
10

 
$
47

 
$
38

 
24

Healthcare
 
166

 

 

 
332

 

 

SocialCode
 
142

 
147

 
(3
)
 
296

 
271

 
9

Other
 
85

 
139

 
(39
)
 
223

 
251

 
(11
)
  
 
$
415

 
$
306

 
36

 
$
898

 
$
560

 
60



-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 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 June 30
 
2017
 
2016
(in thousands, except per share amounts)
Income before income taxes
 
Income Taxes
 
Net Income
 
Income before income taxes
 
Income Taxes
 
Net Income
Amounts attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
As reported
$
65,899

 
$
23,900

 
$
41,999

 
$
84,999

 
$
23,800

 
$
61,199

Attributable to noncontrolling interests
 
 
 
 
(3
)
 
 
 
 
 
(433
)
Attributable to Graham Holdings Company Stockholders
 
 
 
 
41,996

 
 
 
 
 
60,766

Adjustments:
 
 
 
 
  
 
 
 
 
 
  

Goodwill and other long-lived asset impairment charge
$
9,224

 
3,413

 
5,811

 

 

 

Gain from the sales of land and marketable equity securities

 

 

 
(38,575
)
 
(14,659
)
 
(23,916
)
Gain from the formation of a joint venture

 

 

 
(3,232
)
 
(1,577
)
 
(1,655
)
Foreign currency (gain) loss
(3,466
)
 
(1,283
)
 
(2,183
)
 
24,084

 
8,670

 
15,414

Favorable out of period deferred tax adjustment

 

 

 

 
5,631

 
(5,631
)
Net Income, adjusted (non-GAAP)
 
 
 
 
$
45,624

 
 
 
 
 
$
44,978

 
 
 
 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
Diluted income per common share, as reported
 
 
 
 
$
7.46

 
 
 
 
 
$
10.76

Adjustments:
 
 
 
 
  
 
 
 
 
 
  
Goodwill and other long-lived asset impairment charge
 
 
 
 
1.03

 
 
 
 
 

Gain from the sales of land and marketable equity securities
 
 
 
 

 
 
 
 
 
(4.23
)
Gain from the formation of a joint venture
 
 
 
 

 
 
 
 
 
(0.29
)
Foreign currency (gain) loss
 
 
 
 
(0.39
)
 
 
 
 
 
2.73

Favorable out of period deferred tax adjustment
 
 
 
 

 
 
 
 
 
(1.00
)
Diluted income per common share, adjusted (non-GAAP)
 
 
 
 
$
8.10

 
 
 
 
 
$
7.97

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



-more-
11



  
Six Months Ended June 30
 
2017
 
2016
(in thousands, except per share amounts)
Income before income taxes
 
Income Taxes
 
Net Income
 
Income before income taxes
 
Income Taxes
 
Net Income
Amounts attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
As reported
$
89,685

 
$
26,600

 
$
63,085

 
$
145,614

 
$
46,200

 
$
99,414

Attributable to noncontrolling interests
 
 
 
 
(3
)
 
 
 
 
 
(868
)
Attributable to Graham Holdings Company Stockholders
 
 
 
 
$
63,082

 
 
 
 
 
$
98,546

Adjustments:
 
 
 
 
  
 
 
 
 
 
  

Goodwill and other long-lived asset impairment charge
9,224

 
3,413

 
5,811

 

 

 

Gain from the sales of land and marketable equity securities

 

 

 
(40,328
)
 
(15,324
)
 
(25,004
)
Gain from the sale of a business and formation of a joint venture

 

 

 
(22,163
)
 
(8,582
)
 
(13,581
)
Foreign currency (gain) loss
(5,194
)
 
(1,922
)
 
(3,272
)
 
29,527

 
10,630

 
18,897

Tax benefit related to stock compensation

 
5,933

 
(5,933
)
 

 

 

Favorable out of period deferred tax adjustment

 

 

 

 
5,631

 
(5,631
)
Net Income, adjusted (non-GAAP)
 
 
 
 
$
59,688

 
 
 
 
 
$
73,227

 
 
 
 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
Diluted income per common share, as reported
 
 
 
 
$
11.21

 
 
 
 
 
$
17.33

Adjustments:
 
 
 
 
  
 
 
 
 
 
  
Goodwill and other long-lived asset impairment charge
 
 
 
 
1.03

 
 
 
 
 

Gain from the sales of land and marketable equity securities
 
 
 
 

 
 
 
 
 
(4.42
)
Gain from the sale of a business and formation of a joint venture
 
 
 
 

 
 
 
 
 
(2.37
)
Foreign currency (gain) loss
 
 
 
 
(0.58
)
 
 
 
 
 
3.33

Tax benefit related to stock compensation
 
 
 
 
(1.06
)
 
 
 
 
 

Favorable out of period deferred tax adjustment
 
 
 
 

 
 
 
 
 
(1.00
)
Diluted income per common share, adjusted (non-GAAP)
 
 
 
 
$
10.60

 
 
 
 
 
$
12.87

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

# # #