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10-Q
GRAHAM HOLDINGS CO filed this Form 10-Q on 11/01/2017
Entire Document
 


In June 2016, the Company purchased the outstanding 20% redeemable noncontrolling interest in Residential. At that time, the Company recorded an increase to redeemable noncontrolling interest of $3.0 million, with a corresponding decrease to capital in excess of par value, to reflect the redemption value of the redeemable noncontrolling interest at $24.0 million. Following this transaction, Celtic and Residential combined their business operations to form GHG. The redeemable noncontrolling interest shareholders in Celtic exchanged their 20% interest in Celtic for a 10% mandatorily redeemable noncontrolling interest in the combined entity and the Company recorded a $4.1 million net increase to the mandatorily redeemable noncontrolling interest to reflect the estimated fair value of the mandatorily redeemable noncontrolling interest. The minority shareholders have an option to put their shares to the Company starting in 2020, and are required to put a percentage of their shares in 2022 and 2024, with the remaining shares required to be put by the minority shareholders in 2026. The redemption value is based on an EBITDA multiple, adjusted for working capital and other items, computed annually, with no limit on the amount payable. The Company now owns 90% of GHG. Because the noncontrolling interest is now mandatorily redeemable by the Company by 2026, it is reported as a noncurrent liability at September 30, 2017.
Kaplan University Transaction. 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 (ED), the Indiana Commission for Higher Education (ICHE) and Higher Learning Commissions (HLC), which is the regional accreditor of both Purdue and KU, and certain other state educational agencies and accreditors of programs. In the third quarter of 2017, ICHE granted its approval and the ED provided preliminary approval based on its review of a pre-acquisition application, subject to certain conditions. Kaplan is unable to predict with certainty when and if HLC approval will be obtained; however, such approval is not expected to 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.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
In the second quarter of 2017, as a result of a challenging operating environment, the Forney reporting unit recorded a goodwill and other long-lived asset impairment charge of $9.2 million. The Company performed an interim review of the goodwill and other long-lived assets of the reporting unit by utilizing a discounted cash flow model to estimate the fair value. The carrying value of the reporting unit exceeded the estimated fair value, resulting in a goodwill impairment charge for the amount by which the carrying value exceeded the reporting unit’s estimated fair value.
Amortization of intangible assets for the three months ended September 30, 2017 and 2016 was $10.9 million and $6.6 million, respectively. Amortization of intangible assets for the nine months ended September 30, 2017 and 2016 was $28.3 million and $19.2 million, respectively. Amortization of intangible assets is estimated to be approximately $10 million for the remainder of 2017, $38 million in 2018, $37 million in 2019, $33 million in 2020, $28 million in 2021 and $93 million thereafter.
The changes in the carrying amount of goodwill, by segment, were as follows:
(in thousands)
Education
 
Television
Broadcasting
 
Other
Businesses
 
Total
Balance as of December 31, 2016
  
 
  
 
  
 
  
Goodwill
$
1,111,003

 
$
168,345

 
$
202,141

 
$
1,481,489

Accumulated impairment losses
(350,850
)
 

 
(7,685
)
 
(358,535
)
 
760,153

 
168,345

 
194,456

 
1,122,954

Acquisitions
18,986

 
24,256

 
100,191

 
143,433

Impairment

 

 
(7,616
)
 
(7,616
)
Dispositions

 

 
(412
)
 
(412
)
Foreign currency exchange rate changes
40,867

 

 

 
40,867

Balance as of September 30, 2017
  

 
  

 
  

 
  

Goodwill
1,170,856

 
192,601

 
301,920

 
1,665,377

Accumulated impairment losses
(350,850
)
 

 
(15,301
)
 
(366,151
)
 
$
820,006

 
$
192,601

 
$
286,619

 
$
1,299,226


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