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8-K
GRAHAM HOLDINGS CO filed this Form 8-K on 11/01/2017
Entire Document
 
Exhibit


Exhibit 99.1
 
 
Contact:            Wallace R. Cooney                                                                                       For Immediate Release   
(703) 345-6470                                                                                           November 1, 2017
 
 
GRAHAM HOLDINGS COMPANY REPORTS
THIRD QUARTER EARNINGS
ARLINGTON, VA – Graham Holdings Company (NYSE: GHC) today reported income attributable to common shares of $24.8 million ($4.42 per share) for the third quarter of 2017, compared to $33.1 million ($5.87 per share) for the third quarter of 2016.
The results for the third 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 $23.9 million ($4.26 per share) for the third quarter of 2017, compared to $36.9 million ($6.53 per share) for the third 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 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).
Items included in the Company’s net income for the third quarter of 2016:
a $15.0 million non-operating expense from the write-down of a cost method investment (after-tax impact of $9.6 million, or $1.70 per share);
$3.8 million in non-operating foreign currency losses (after-tax impact of $2.4 million, or $0.43 per share); and
a net nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations ($1.47 per share).
Revenue for the third quarter of 2017 was $657.2 million, up 6% from $621.6 million in the third quarter of 2016. Revenues increased in other businesses, offset by a decline at the education and television broadcasting divisions. The Company reported operating income of $44.6 million for the third quarter of 2017, compared to $68.0 million for the third quarter of 2016. The operating income decline is driven by lower earnings at the television broadcasting and education divisions, offset by an increase 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 (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.
For the first nine months of 2017, the Company reported income attributable to common shares of $87.9 million ($15.64 per share), compared to $131.7 million ($23.21 per share) for the first nine months of 2016. The results for the first nine 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 $83.6 million ($14.87 per share) for the first nine months of 2017, compared to $110.1 million ($19.41 per share) for the first nine months of 2016. (Refer to the Non-GAAP Financial Information schedule at the end of this release for additional details.)

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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).
Items included in the Company’s net income for the first nine 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);
a $15.0 million non-operating expense from the write-down of a cost method investment (after-tax impact of $9.6 million, or $1.70 per share);
$33.3 million in non-operating foreign currency losses (after-tax impact of $21.3 million, or $3.76 per share);
a net nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations ($1.47 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 nine months of 2017 was $1,916.0 million, up 3% from $1,852.3 million in the first nine months of 2016. Revenues increased in other businesses, offset by a decline at the education and television broadcasting divisions. The Company reported operating income of $142.0 million for the first nine months of 2017, compared to $194.0 million for first nine months of 2016. Operating results declined at the education and television broadcasting divisions and in other businesses.
Division Results
Education  
Education division revenue totaled $376.8 million for the third quarter of 2017, down 3% from $386.9 million for the same period of 2016. Kaplan reported operating income of $13.4 million for the third quarter of 2017, compared to $16.3 million for the third quarter of 2016.
For the first nine months of 2017, education division revenue totaled $1,136.2 million, down 6% from $1,207.2 million for the same period of 2016. Kaplan reported operating income of $55.3 million for the first nine months of 2017, compared to $63.7 million for the first nine months of 2016.
In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in restructuring costs, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $2.7 million and $4.9 million for the first nine months of 2017 and 2016, respectively. Additional restructuring costs are expected to be incurred in the fourth quarter of 2017.

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A summary of Kaplan’s operating results is as follows:
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
  
 
September 30
 
  
 
September 30
 
  
(in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
 
  
 
  
 
  
 
  
 
  
 
  
Higher education
 
$
133,459

 
$
148,602

 
(10
)
 
$
416,973

 
$
472,131

 
(12
)
Test preparation
 
72,680

 
78,291

 
(7
)
 
212,978

 
224,102

 
(5
)
Kaplan international
 
171,259

 
160,456

 
7

 
507,568

 
512,068

 
(1
)
Kaplan corporate and other
 
49

 
47

 
4

 
120

 
190

 
(37
)
Intersegment elimination
 
(642
)
 
(460
)
 

 
(1,438
)
 
(1,266
)
 

  
 
$
376,805

 
$
386,936

 
(3
)
 
$
1,136,201

 
$
1,207,225

 
(6
)
Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
8,809

 
$
11,494

 
(23
)
 
$
39,124

 
$
50,037

 
(22
)
Test preparation
 
7,330

 
8,588

 
(15
)
 
10,207

 
13,314

 
(23
)
Kaplan international
 
5,348

 
1,561

 

 
29,009

 
22,937

 
26

Kaplan corporate and other
 
(6,682
)
 
(3,537
)
 
(89
)
 
(19,159
)
 
(17,368
)
 
(10
)
Amortization of intangible assets
 
(1,355
)
 
(1,773
)
 
24

 
(3,798
)
 
(5,158
)
 
26

Intersegment elimination
 
(59
)
 

 

 
(36
)
 
(49
)
 

  
 
$
13,391

 
$
16,333

 
(18
)
 
$
55,347

 
$
63,713

 
(13
)
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.
In the third quarter and first nine months of 2017, KHE revenue was down 10% and 12%, respectively, due to declines in average enrollments at Kaplan University. KHE operating results declined in the first nine months of 2017 due primarily to lower enrollment at Kaplan University.
New higher education student enrollments at Kaplan University declined 8% in the third quarter of 2017 and 4% for the first nine months of 2017; total students at Kaplan University were 30,461 at September 30, 2017, down 12% from September 30, 2016.
Kaplan University enrollments at September 30, 2017 and 2016, by degree and certificate programs, are as follows:
  
 
As of September 30
  
 
2017
 
2016
Certificate
 
10.0
%
 
7.7
%
Associate’s
 
16.8
%
 
19.5
%
Bachelor’s
 
50.1
%
 
51.0
%
Master’s
 
23.1
%
 
21.8
%
  
 
100.0
%
 
100.0
%
Kaplan Test Preparation (KTP) includes Kaplan’s standardized test preparation programs. KTP revenue declined 7% and 5% for the third quarter and first nine months of 2017, respectively. Enrollments, excluding the new economy skills training offerings, were flat for both the third quarter and the first nine months of 2017; however, unit prices were generally lower. In comparison to 2016, KTP operating results were down 15% and 23% in the third quarter and first nine months of 2017, respectively, due to lower revenues and increased losses from the new economy skills training programs. Operating losses for the new economy skills training programs were $11.2 million and $9.8 million for the first nine months of 2017 and 2016, respectively, including $1.3 million in restructuring costs in the third quarter of 2017. 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 increased 7% for the third quarter and decreased 1% for the first nine months of 2017, respectively. On a constant currency basis, revenue increased 6% for the third quarter and 3% for the first nine months of 2017, respectively, primarily due to growth in Pathways enrollments and favorable timing of class starts in the third quarter of 2017. Operating income increased 26% in the first nine months of 2017, due largely to improved Pathways results, partially offset by a decline in Singapore. Restructuring costs at Kaplan International totaled $0.9 million and $3.2 million for the first nine months of 2017 and 2016, respectively.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities.

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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.
In the third quarter of 2017, the Company's televisions 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
Revenue at the television broadcasting division decreased 10% to $101.3 million in the third quarter of 2017, from $112.4 million in the same period of 2016. Excluding revenue from the two newly acquired stations, revenue declined 15% due to $13.1 million in third quarter 2016 incremental summer Olympics-related advertising revenue at the Company's NBC affiliates, an $8.1 million decrease in political advertising revenue, lower network revenue and the adverse impact of the hurricanes, offset by $6.0 million in higher retransmission revenues. 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 third quarter of 2017 decreased 44% to $32.9 million, from $59.2 million in the same period of 2016 due to lower revenues and the significantly higher network fees.
Revenue at the television broadcasting division decreased 1% to $298.9 million in the first nine months of 2017, from $300.9 million in the same period of 2016. Excluding revenue from the two newly acquired stations, revenue declined 7% due to $13.1 million in third quarter 2016 incremental summer Olympic-related advertising revenue at the Company's NBC affiliates, a $13.4 million decrease in political advertising revenue, lower network revenue and the adverse impact of the hurricanes, offset by $14.7 million in higher retransmission revenues. Operating income for the first nine months of 2017 decreased 32% to $98.2 million from $144.6 million in the same period of 2016, due to lower revenues and the 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 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 September 2016, Dekko acquired Electri-Cable Assemblies (ECA), a 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 nine months of 2017 due to the Hoover acquisition and growth and improved results at Dekko, including the ECA acquisition, offset by a decline in results at Forney, which included $1.2 million in expense related to a separation incentive program implemented in the third quarter of 2017 that will be mostly funded from the assets of the Company's pension plan.
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. The company incurred approximately $2.0 million in expense in conjunction with these transactions in the second quarter of 2016. At the end of June 2017, GHG acquired Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider. Healthcare revenues increased 5% in the first nine months of 2017, while operating results were down, due largely to increased bad debt expense and higher information systems and other integration costs.
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 revenue declined 4% in the third quarter of 2017 due to lower digital advertising spend from its clients in the retail and consumer packaged goods sectors. SocialCode revenue increased 8% for the first nine months of 2017, due to growth in

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digital advertising service revenues. SocialCode reported operating losses of $6.2 million and $8.2 million in the third quarter and first nine months of 2017, compared to operating losses of $10.8 million and $15.3 million in the third quarter and first nine months of 2016. SocialCode's operating results included incentive accruals of $5.1 million and $1.2 million related to SocialCode’s phantom equity plans in the third quarter and first nine months of 2017, respectively; whereas 2016 results included incentive accruals of $11.3 million and $12.0 million related to phantom equity plans for the relevant periods.
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 nine 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 $54.6 million and $48.1 million in the first nine months of 2017 and 2016, respectively.
Without the pension credit, corporate office expenses declined slightly in the first nine months of 2017.
Equity in Earnings (Losses) of Affiliates
At September 30, 2017, the Company held interests in a number of home health and hospice joint ventures, and interests in several other affiliates. In September 2017, the Company acquired approximately 10% 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 losses of affiliates of $0.5 million for the third quarter of 2017, compared to $1.0 million for the third quarter of 2016. The Company recorded equity in earnings of affiliates of $1.4 million for the first nine months of 2017, compared to equity in losses of affiliates of $0.9 million for the first nine months of 2016.
Other Non-Operating Income (Expense) 
The Company recorded total other non-operating income, net, of $2.0 million for the third quarter of 2017, compared to other non-operating expense, net, of $18.2 million for the third quarter of 2016. The 2017 amounts included $1.4 million in foreign currency gains and other items. The 2016 amounts included a $15.0 million write-down of a cost method investment and $3.8 million in foreign currency losses, partially offset by other items.
The Company recorded total other non-operating income, net, of $6.9 million for the first nine months of 2017, compared to $15.9 million for the first nine months of 2016. The 2017 amounts included $6.6 million in foreign currency gains and 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, partially offset by $33.3 million in foreign currency losses and $15.2 million in cost method investment write-downs.
Net Interest Expense and Related Balances
The Company incurred net interest expense of $7.8 million and $22.4 million for the third quarter and first nine months of 2017, compared to $7.9 million and $22.5 million for the third quarter and first nine months of 2016. At September 30, 2017, the Company had $493.0 million in borrowings outstanding at an average interest rate of 6.3% and cash, marketable equity securities and other investments of $936.0 million.
Provision for Income Taxes
The Company’s effective tax rate for the first nine months of 2017 was 31.3%, compared to 28.9% for the first nine months of 2016. The low effective tax rate in the first nine 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 for the first nine months of 2017 was 35.9%.
In the third quarter of 2016, a net nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations was recorded. 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 these adjustments, the Company’s effective tax rate for the first nine months of 2016 was 36.4%.

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Earnings Per Share
The calculation of diluted earnings per share for the third quarter and first nine months of 2017 was based on 5,554,458 and 5,566,874 weighted average shares outstanding, compared to 5,573,982 and 5,599,898 for the third quarter and first nine months of 2016. At September 30, 2017, there were 5,531,816 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 163,237 shares as of September 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
  
  
September 30
%
(in thousands, except per share amounts)
2017
 
2016
Change
Operating revenues
$
657,225

 
$
621,638

6

Operating expenses
585,417

 
530,888

10

Depreciation of property, plant and equipment
16,002

 
16,097

(1
)
Amortization of intangible assets
10,923

 
6,620

65

Impairment of goodwill and other long-lived assets
312

 


Operating income
44,571

 
68,033

(34
)
Equity in losses of affiliates, net
(532
)
 
(1,008
)
(47
)
Interest income
861

 
740

16

Interest expense
(8,619
)
 
(8,614
)

Other income (expense), net
1,963

 
(18,225
)

Income before income taxes
38,244

 
40,926

(7
)
Provision for income taxes
13,400

 
7,800

72

Net income
24,844

 
33,126

(25
)
Net income attributable to noncontrolling interests
(60
)
 


Net Income Attributable to Graham Holdings Company Common Stockholders
$
24,784

 
$
33,126

(25
)
Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 
Basic net income per common share
$
4.45

 
$
5.90

(25
)
Basic average number of common shares outstanding
5,518

 
5,544

 
Diluted net income per common share
$
4.42

 
$
5.87

(25
)
Diluted average number of common shares outstanding
5,554

 
5,574

 

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GRAHAM HOLDINGS COMPANY
  
CONSOLIDATED STATEMENTS OF OPERATIONS
  
(Unaudited)
  
 
 
 
  
Nine Months Ended
  
  
September 30
%
(in thousands, except per share amounts)
2017
 
2016
Change
Operating revenues
$
1,916,029

 
$
1,852,311

3

Operating expenses
1,689,692

 
1,590,203

6

Depreciation of property, plant and equipment
46,525

 
48,903

(5
)
Amortization of intangible assets
28,290

 
19,160

48

Impairment of goodwill and other long-lived assets
9,536

 


Operating income
141,986

 
194,045

(27
)
Equity in earnings (losses) of affiliates, net
1,448

 
(895
)

Interest income
3,397

 
2,052

66

Interest expense
(25,783
)
 
(24,533
)
5

Other income, net
6,881

 
15,871

(57
)
Income before income taxes
127,929

 
186,540

(31
)
Provision for income taxes
40,000

 
54,000

(26
)
Net income
87,929

 
132,540

(34
)
Net income attributable to noncontrolling interests
(63
)
 
(868
)
(93
)
Net Income Attributable to Graham Holdings Company Common Stockholders
$
87,866

 
$
131,672

(33
)
Per Share Information Attributable to Graham Holdings Company Common Stockholders
 
 
 
 

Basic net income per common share
$
15.74

 
$
23.33

(33
)
Basic average number of common shares outstanding
5,530

 
5,570

 

Diluted net income per common share
$
15.64

 
$
23.21

(33
)
Diluted average number of common shares outstanding
5,567

 
5,600

 




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GRAHAM HOLDINGS COMPANY
BUSINESS SEGMENT INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Nine Months Ended
 
  
  
 
September 30
 
%
 
September 30
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Education
 
$
376,805

 
$
386,936

 
(3
)
 
$
1,136,201

 
$
1,207,225

 
(6
)
Television broadcasting
 
101,295

 
112,389

 
(10
)
 
298,893

 
300,927

 
(1
)
Other businesses
 
179,125

 
122,313

 
46

 
480,935

 
344,298

 
40

Corporate office
 

 

 

 

 

 

Intersegment elimination
 

 

 

 

 
(139
)
 

  
 
$
657,225

 
$
621,638

 
6

 
$
1,916,029

 
$
1,852,311

 
3

Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Education
 
$
363,414

 
$
370,603

 
(2
)
 
$
1,080,854

 
$
1,143,512

 
(5
)
Television broadcasting
 
68,347

 
53,230

 
28

 
200,712

 
156,333

 
28

Other businesses
 
186,158

 
133,114

 
40

 
507,450

 
365,891

 
39

Corporate office
 
(5,265
)
 
(3,342
)
 
58

 
(14,973
)
 
(7,331
)
 

Intersegment elimination
 

 

 

 

 
(139
)
 

  
 
$
612,654

 
$
553,605

 
11

 
$
1,774,043

 
$
1,658,266

 
7

Operating Income (Loss)
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
13,391

 
$
16,333

 
(18
)
 
$
55,347

 
$
63,713

 
(13
)
Television broadcasting
 
32,948

 
59,159

 
(44
)
 
98,181

 
144,594

 
(32
)
Other businesses
 
(7,033
)
 
(10,801
)
 
35

 
(26,515
)
 
(21,593
)
 
(23
)
Corporate office
 
5,265

 
3,342

 
58

 
14,973

 
7,331

 

  
 
$
44,571

 
$
68,033

 
(34
)
 
$
141,986

 
$
194,045

 
(27
)
Depreciation
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
8,085

 
$
9,977

 
(19
)
 
$
24,994

 
$
31,322

 
(20
)
Television broadcasting
 
3,118

 
2,540

 
23

 
8,703

 
7,367

 
18

Other businesses
 
4,520

 
3,289

 
37

 
11,968

 
9,389

 
27

Corporate office
 
279

 
291

 
(4
)
 
860

 
825

 
4

  
 
$
16,002

 
$
16,097

 
(1
)
 
$
46,525

 
$
48,903

 
(5
)
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
1,355

 
$
1,773

 
(24
)
 
$
3,798

 
$
5,158

 
(26
)
Television broadcasting
 
1,071

 
63

 

 
2,943

 
189

 

Other businesses
 
8,809

 
4,784

 
84

 
31,085

 
13,813

 

Corporate office
 

 

 

 

 

 

  
 
$
11,235

 
$
6,620

 
70

 
$
37,826

 
$
19,160

 
97

Pension Expense (Credit)
 
  

 
  

 
  
 
  

 
  

 
  
Education
 
$
2,430

 
$
2,838

 
(14
)
 
$
7,289

 
$
8,965

 
(19
)
Television broadcasting
 
485

 
428

 
13

 
1,457

 
1,285

 
13

Other businesses
 
1,375

 
279

 

 
2,273

 
839

 

Corporate office
 
(18,122
)
 
(15,934
)
 
14

 
(54,368
)
 
(47,803
)
 
14

  
 
$
(13,832
)
 
$
(12,389
)
 
12

 
$
(43,349
)
 
$
(36,714
)
 
18


-more-
9



GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Nine Months Ended
 
  
  
 
September 30
 
%
 
September 30
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Higher education
 
$
133,459

 
$
148,602

 
(10
)
 
$
416,973

 
$
472,131

 
(12
)
Test preparation
 
72,680

 
78,291

 
(7
)
 
212,978

 
224,102

 
(5
)
Kaplan international
 
171,259

 
160,456

 
7

 
507,568

 
512,068

 
(1
)
Kaplan corporate and other
 
49

 
47

 
4

 
120

 
190

 
(37
)
Intersegment elimination
 
(642
)
 
(460
)
 

 
(1,438
)
 
(1,266
)
 

  
 
$
376,805

 
$
386,936

 
(3
)
 
$
1,136,201

 
$
1,207,225

 
(6
)
Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
124,650

 
$
137,108

 
(9
)
 
$
377,849

 
$
422,094

 
(10
)
Test preparation
 
65,350

 
69,703

 
(6
)
 
202,771

 
210,788

 
(4
)
Kaplan international
 
165,911

 
158,895

 
4

 
478,559

 
489,131

 
(2
)
Kaplan corporate and other
 
6,731

 
3,584

 
88

 
19,279

 
17,558

 
10

Amortization of intangible assets
 
1,355

 
1,773

 
(24
)
 
3,798

 
5,158

 
(26
)
Intersegment elimination
 
(583
)
 
(460
)
 

 
(1,402
)
 
(1,217
)
 

  
 
$
363,414

 
$
370,603

 
(2
)
 
$
1,080,854

 
$
1,143,512

 
(5
)
Operating Income (Loss)
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
8,809

 
$
11,494

 
(23
)
 
$
39,124

 
$
50,037

 
(22
)
Test preparation
 
7,330

 
8,588

 
(15
)
 
10,207

 
13,314

 
(23
)
Kaplan international
 
5,348

 
1,561

 

 
29,009

 
22,937

 
26

Kaplan corporate and other
 
(6,682
)
 
(3,537
)
 
(89
)
 
(19,159
)
 
(17,368
)
 
(10
)
Amortization of intangible assets
 
(1,355
)
 
(1,773
)
 
24

 
(3,798
)
 
(5,158
)
 
26

Intersegment elimination
 
(59
)
 

 

 
(36
)
 
(49
)
 

  
 
$
13,391

 
$
16,333

 
(18
)
 
$
55,347

 
$
63,713

 
(13
)
Depreciation
 
  

 
  

 
  

 
  

 
  

 
  

Higher education
 
$
2,768

 
$
4,157

 
(33
)
 
$
9,448

 
$
12,325

 
(23
)
Test preparation
 
1,407

 
1,441

 
(2
)
 
4,080

 
4,837

 
(16
)
Kaplan international
 
3,780

 
4,360

 
(13
)
 
11,071

 
13,739

 
(19
)
Kaplan corporate and other
 
130

 
19

 

 
395

 
421

 
(6
)
  
 
$
8,085

 
$
9,977

 
(19
)
 
$
24,994

 
$
31,322

 
(20
)
Pension Expense
 
 
 
  

 
  

 
  

 
 
 
  

Higher education
 
$
548

 
$
1,905

 
(71
)
 
$
4,636

 
$
5,715

 
(19
)
Test preparation
 
244

 
768

 
(68
)
 
2,066

 
2,304

 
(10
)
Kaplan international
 
24

 
67

 
(64
)
 
198

 
201

 
(1
)
Kaplan corporate and other
 
1,614

 
98

 

 
389

 
745

 
(48
)
  
 
$
2,430

 
$
2,838

 
(14
)
 
$
7,289

 
$
8,965

 
(19
)

-more-
10



GRAHAM HOLDINGS COMPANY
OTHER BUSINESSES INFORMATION
(Unaudited)
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
 
  
 
Nine Months Ended
 
  
  
 
September 30
 
%
 
September 30
 
%
(in thousands)
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Operating Revenues
 
  
 
  
 
  
 
  
 
  
 
  
Manufacturing
 
$
115,594

 
$
62,207

 
86

 
$
298,164

 
$
176,908

 
69

Healthcare
 
40,473

 
37,690

 
7

 
115,592

 
110,068

 
5

SocialCode
 
14,497

 
15,180

 
(4
)
 
41,926

 
38,961

 
8

Other
 
8,561

 
7,236

 
18

 
25,253

 
18,361

 
38

  
 
$
179,125

 
$
122,313

 
46

 
$
480,935

 
$
344,298

 
40

Operating Expenses
 
  

 
  

 
  

 
  

 
  

 
  

Manufacturing
 
$
109,813

 
$
58,430

 
88

 
$
292,893

 
$
169,145

 
73

Healthcare
 
39,553

 
36,383

 
9

 
115,214

 
107,288

 
7

SocialCode
 
20,745

 
26,017

 
(20
)
 
50,078

 
54,223

 
(8
)
Other
 
16,047

 
12,284

 
31

 
49,265

 
35,235

 
40

  
 
$
186,158

 
$
133,114

 
40

 
$
507,450

 
$
365,891

 
39

Operating Income (Loss)
 
  

 
  

 
  
 
  

 
  

 
  
Manufacturing
 
$
5,781

 
$
3,777

 
53

 
$
5,271

 
$
7,763

 
(32
)
Healthcare
 
920

 
1,307

 
(30
)
 
378

 
2,780

 
(86
)
SocialCode
 
(6,248
)
 
(10,837
)
 
42

 
(8,152
)
 
(15,262
)
 
47

Other
 
(7,486
)
 
(5,048
)
 
(48
)
 
(24,012
)
 
(16,874
)
 
(42
)
  
 
$
(7,033
)
 
$
(10,801
)
 
35

 
$
(26,515
)
 
$
(21,593
)
 
(23
)
Depreciation
 
  

 
 
 
  
 
  

 
  

 
  
Manufacturing
 
$
2,717

 
$
1,809

 
50

 
$
6,629

 
$
5,588

 
19

Healthcare
 
1,166

 
686

 
70

 
3,429

 
2,090

 
64

SocialCode
 
256

 
241

 
6

 
753

 
683

 
10

Other
 
381

 
553

 
(31
)
 
1,157

 
1,028

 
13

  
 
$
4,520

 
$
3,289

 
37

 
$
11,968

 
$
9,389

 
27

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

 
 
 
  
 
  

 
  

 
  
Manufacturing
 
$
6,306

 
$
3,089

 

 
$
25,117

 
$
8,722

 

Healthcare
 
2,420

 
1,674

 
45

 
5,718

 
5,028

 
14

SocialCode
 
83

 

 

 
250

 

 

Other
 

 
21

 

 

 
63

 

  
 
$
8,809

 
$
4,784

 
84

 
$
31,085

 
$
13,813

 

Pension Expense
 
  

 
  

 
  
 
  

 
  

 
  
Manufacturing
 
$
947

 
$
24

 

 
$
994

 
$
62

 

Healthcare
 
166

 

 

 
498

 

 

SocialCode
 
149

 
135

 
10

 
445

 
406

 
10

Other
 
113

 
120

 
(6
)
 
336

 
371

 
(9
)
  
 
$
1,375

 
$
279

 

 
$
2,273

 
$
839

 



-more-
11



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
 
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
$
38,244

 
$
13,400

 
$
24,844

 
$
40,926

 
$
7,800

 
$
33,126

Attributable to noncontrolling interests
 
 
 
 
(60
)
 
 
 
 
 

Attributable to Graham Holdings Company Stockholders
 
 
 
 
24,784

 
 
 
 
 
33,126

Adjustments:
 
 
 
 
  
 
 
 
 
 
  

Foreign currency (gain) loss
(1,414
)
 
(523
)
 
(891
)
 
3,796

 
1,366

 
2,430

Write-down of a cost method investment

 

 

 
15,000

 
5,400

 
9,600

Nonrecurring deferred tax benefit

 

 

 

 
8,286

 
(8,286
)
Net Income, adjusted (non-GAAP)
 
 
 
 
$
23,893

 
 
 
 
 
$
36,870

 
 
 
 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
Diluted income per common share, as reported
 
 
 
 
$
4.42

 
 
 
 
 
$
5.87

Adjustments:
 
 
 
 
  
 
 
 
 
 
  
Foreign currency (gain) loss
 
 
 
 
(0.16
)
 
 
 
 
 
0.43

Write-down of a cost method investment
 
 
 
 

 
 
 
 
 
1.70

Nonrecurring deferred tax benefit
 
 
 
 

 
 
 
 
 
(1.47
)
Diluted income per common share, adjusted (non-GAAP)
 
 
 
 
$
4.26

 
 
 
 
 
$
6.53

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

-more-
12



  
Nine Months Ended September 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
$
127,929

 
$
40,000

 
$
87,929

 
$
186,540

 
$
54,000

 
$
132,540

Attributable to noncontrolling interests
 
 
 
 
(63
)
 
 
 
 
 
(868
)
Attributable to Graham Holdings Company Stockholders
 
 
 
 
$
87,866

 
 
 
 
 
$
131,672

Adjustments:
 
 
 
 
  
 
 
 
 
 
  

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

 
3,413

 
5,811

 

 

 

Foreign currency (gain) loss
(6,608
)
 
(2,445
)
 
(4,163
)
 
33,324

 
11,997

 
21,327

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
)
Write-down of a cost method investment

 

 

 
15,000

 
5,400

 
9,600

Tax benefit related to stock compensation

 
5,933

 
(5,933
)
 

 

 

Nonrecurring deferred tax benefit

 

 

 

 
8,286

 
(8,286
)
Favorable out of period deferred tax adjustment

 

 

 

 
5,631

 
(5,631
)
Net Income, adjusted (non-GAAP)
 
 
 
 
$
83,581

 
 
 
 
 
$
110,097

 
 
 
 
 
 
 
 
 
 
 
 
Per share information attributable to Graham Holdings Company Common Stockholders
 
 
 
 
  
 
 
 
 
 
  
Diluted income per common share, as reported
 
 
 
 
$
15.64

 
 
 
 
 
$
23.21

Adjustments:
 
 
 
 
  

 
 
 
 
 
  

Goodwill and other long-lived asset impairment charge
 
 
 
 
1.03

 
 
 
 
 

Foreign currency (gain) loss
 
 
 
 
(0.74
)
 
 
 
 
 
3.76

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
)
Write-down of a cost method investment
 
 
 
 

 
 
 
 
 
1.70

Tax benefit related to stock compensation
 
 
 
 
(1.06
)
 
 
 
 
 

Nonrecurring deferred tax benefit
 
 
 
 

 
 
 
 
 
(1.47
)
Favorable out of period deferred tax adjustment
 
 
 
 

 
 
 
 
 
(1.00
)
Diluted income per common share, adjusted (non-GAAP)
 
 
 
 
$
14.87

 
 
 
 
 
$
19.41

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


# # #