Graham Holdings Company (NYSE: GHC) today reported net income
attributable to common shares of $271.2 million ($50.20 per share)
for the year ended December 31, 2018, compared to $302.0
million ($53.89 per share) for the year ended December 31,
2017. For the fourth quarter of 2018, the Company reported net
income attributable to common shares of $56.7 million ($10.61 per
share), compared to $214.2 million ($38.52 per share) for the same
period of 2017. The Company’s results for 2017 and the fourth
quarter of 2017 include a significant net deferred income tax
benefit related to the Tax Cuts and Jobs Act legislation enacted in
December 2017.
The results for 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 $255.0 million ($47.23
per share) for 2018, compared to $128.6 million ($22.93 per share)
for 2017. Excluding these items, net income attributable to common
shares was $75.6 million ($14.18 per share) for the fourth quarter
of 2018, compared to $43.2 million ($7.77 per share) for the fourth
quarter of 2017. (Refer to the Non-GAAP Financial Information
schedule attached to this release for additional details.)
Items included in the Company’s net income for 2018 are listed
below, and fourth quarter activity, if any, is highlighted for each
item:
- 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 $3.9 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
$3.0 million, or $0.55 per share); $1.8 million of these gains were
recorded in the fourth quarter (after-tax impact of $1.4 million,
or $0.26 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);
- a $30.3 million fourth quarter
settlement gain related to a bulk lump sum pension offering and
curtailment gain related to changes in the Company’s postretirement
healthcare benefit plan (after-tax amount of $22.2 million, or
$4.11 per share);
- $15.8 million in net losses on
marketable equity securities (after-tax impact of $12.6 million, or
$2.33 per share); $44.1 million of these losses were recorded in
the fourth quarter (after-tax impact of $33.6 million, or $6.28 per
share);
- non-operating gain, net, of $6.7
million from sales, write-ups and impairments of cost method and
equity method investments, and related to sales of land and
businesses, including guarantor lease obligations (after-tax impact
of $5.7 million, or $1.03 per share); $10.3 million in net losses
were recorded in the fourth quarter (after-tax impact of $7.7
million, or $1.43 per share);
- a $4.3 million gain on the Kaplan
University Transaction (after-tax impact of $1.8 million or $0.33
per share);
- $3.8 million in non-operating foreign
currency losses (after-tax impact of $2.9 million, or $0.54 per
share); $1.6 million in losses were recorded in the fourth quarter
(after-tax impact of $1.2 million or $0.23 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 2017 are listed
below, and fourth quarter activity, if any, is highlighted for each
item:
- $10.0 million in restructuring and
non-operating Separation Incentive Program charges at the education
division (after-tax impact of $6.3 million, or $1.12 per share);
$7.2 million of these charges were recorded in the fourth quarter
(after-tax impact of $4.5 million, or $0.81 per share);
- a $9.2 million goodwill and other
long-lived asset impairment charge at one of the manufacturing
businesses (after-tax impact of $5.8 million, or $1.03 per
share);
- $3.3 million in non-operating foreign
currency gains (after-tax impact of $2.1 million or $0.37 per
share); $3.3 million in losses were recorded in the fourth quarter
(after-tax impact of $2.1 million or $0.37 per share);
- $177.5 million in fourth quarter net
deferred tax benefits related to the enactment of the Tax Cuts and
Jobs Act in December 2017 ($31.68 per share); and
- $5.9 million in income tax benefits
related to stock compensation ($1.06 per share).
Revenue for 2018 was $2,696.0 million, up 4% from $2,591.8
million in 2017. Revenues increased at the television
broadcasting and manufacturing divisions, offset by a decline at
the education division. The Company reported operating income for
2018 of $246.2 million, an increase of 80%, from $136.4 million in
2017. Operating results improved at most of the Company’s
divisions in 2018.
For the fourth quarter of 2018, revenue was $689.1 million, up
2% from $675.8 million in 2017. Revenues increased at the
television broadcasting division and other businesses, offset by a
decline at the education division. The Company reported operating
income of $75.6 million in the fourth quarter of 2018, compared to
$49.5 million in 2017, largely due to improved results at the
television broadcasting division.
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 provides 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 in 2018 totaled $1,451.0 million,
down 4% from $1,516.8 million in 2017. For the fourth quarter of
2018, education division revenue totaled $346.9 million, down 9%
from $380.6 million for the same period of 2017.
Kaplan reported operating income of $97.1 million for 2018, a
25% increase from $77.7 million in 2017; Kaplan reported operating
income for the fourth quarter of 2018 of $14.6 million, a 31%
decrease from $21.1 million in the fourth quarter of 2017. In 2018,
operating results increased at Kaplan International, Kaplan Test
Preparation and Kaplan Professional (U.S.), partially offset by
decreased results at Higher Education.
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. There were no significant restructuring
charges during 2018. Across all businesses, restructuring costs
totaled $9.1 million in 2017 and $6.3 million in the fourth quarter
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 EndedDecember
31 Twelve Months EndedDecember 31 (in thousands)
2018 2017 % Change
2018
2017 % Change
Revenue Kaplan
international
$ 184,429 $ 190,431 (3 )
$
719,982 $ 697,999 3 Higher education
67,005 103,264
(35 )
342,085 431,425 (21 ) Test preparation
60,598
60,320 0
256,102 273,298 (6 ) Professional (U.S.)
35,472 27,027 31
134,187 115,839 16 Kaplan corporate
and other
272 174 56
1,142 294 — Intersegment
elimination
(866 ) (641 ) —
(2,483
) (2,079 ) —
$ 346,910 $
380,575 (9 )
$ 1,451,015 $
1,516,776 (4 )
Operating Income (Loss) Kaplan
international
$ 17,349 $ 22,614 (23 )
$
70,315 $ 51,623 36 Higher education
(3,399 )
(360 ) —
15,217 16,719 (9 ) Test preparation
1,883
1,300 45
19,096 11,507 66 Professional (U.S.)
7,745
5,513 40
28,608 27,558 4 Kaplan corporate and other
(5,086 ) (6,760 ) 25
(26,702 ) (24,701
) (8 ) Amortization of intangible assets
(3,868 )
(1,364 ) —
(9,362 ) (5,162 ) (81 ) Intersegment
elimination
(4 ) 179 —
(36
) 143 —
$ 14,620 $
21,122 (31 )
$ 97,136 $ 77,687
25
Kaplan International includes English-language programs and
postsecondary education and professional training businesses
largely outside the United States. Kaplan International revenue
increased 3% in 2018, and on a constant currency basis, revenue
increased 1%, primarily due to growth in Pathways enrollments.
Revenue declined 3% in the fourth quarter of 2018; however, on a
constant currency basis, revenue remained flat. Kaplan
International operating income increased 36% in 2018, due largely
to improved results at English-language, Pathways and UK
Professional. Operating income decreased 23% in the fourth quarter
of 2018 due to a decline in results in Singapore and increased
incentive compensation costs, offset by improved English-language
results. Restructuring costs at Kaplan International totaled $2.9
million in 2017.
Prior to the KU Transaction closing on March 22, 2018, Higher
Education included Kaplan’s domestic postsecondary education
business, 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 2018 and the fourth quarter of 2018, Higher Education revenue
declined 21% and 35%, 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 $16.8 million of service fee with Purdue
Global in its Higher Education operating results in 2018, based on
an assessment of its collectability under the TOSA; no service fee
with Purdue Global was recorded in the fourth quarter of 2018. Each
quarter, the Company assesses the collectability of the service fee
with Purdue Global to make a determination as to whether to record
all or part of the service fee and whether to make adjustments to
service fee amounts recognized in earlier periods. Additionally,
Higher Education reported losses in the fourth quarter of 2018
related to costs incurred that are not reimbursable under the TOSA.
Restructuring costs at Higher Education were $1.4 million and $0.8
million for 2017 and the fourth quarter of 2017, respectively.
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
6% in 2018 due to reduced demand for classroom-based offerings, and
the disposition of Dev Bootcamp, which made up the majority of
KTP’s new economy skills training programs, offset in part by
growth in online-based programs. Revenues were flat for the fourth
quarter of 2018. Excluding revenues from the Barron’s acquisition,
revenues were down 5% for the fourth quarter of 2018, due to
declines in demand for classroom-based offerings, offset in part by
growth in online-based programs. KTP operating results improved in
2018 due primarily to decreased losses from the new economy skills
training programs. Operating losses for the new economy skills
training programs were $3.6 million and $16.7 million for 2018 and
2017, respectively, including restructuring costs incurred in
connection with the closing of Dev Bootcamp that was completed in
the second half of 2017. Operating losses from the new economy
skills training programs were $0.8 million and $5.5 million for the
fourth quarter of 2018 and 2017, respectively. Excluding losses
from the new economy skills training programs, KTP operating
results were down in 2018, due primarily to revenue declines for
classroom-based offerings.
Kaplan Professional (U.S.) includes the domestic professional
and other continuing education businesses. In 2018 and the fourth
quarter of 2018, Kaplan Professional (U.S.) revenue was up 16% and
31%, respectively, due primarily 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 improved 4% in 2018, due mostly to income from
PPI and CFFP, offset by increased spending on sales, marketing and
technology. Kaplan Professional (U.S.) operating results improved
40% in the fourth quarter of 2018, due mostly to a delay in the CFA
exam and registration dates in 2018.
Kaplan corporate and other represents unallocated expenses of
Kaplan, Inc.’s corporate office, other minor businesses and certain
shared activities.
Television Broadcasting
Revenue at the television broadcasting division increased 23% to
$505.5 million in 2018, from $409.9 million in 2017. The revenue
increase is due to a $64.9 million increase in political
advertising revenue, $38.0 million in higher retransmission
revenues, $8.6 million in 2018 incremental winter Olympics-related
advertising revenue at the Company’s NBC stations, and the adverse
impact from hurricanes Harvey and Irma in the third quarter of
2017. Operating income for 2018 was up 51% to $210.5 million, from
$139.3 million in 2017, due to higher revenues.
For the fourth quarter of 2018, revenue increased 37% to $152.6
million, from $111.0 million in 2017. The revenue increase is due
to a $38.0 million increase in political advertising revenue and
$10.9 million in higher retransmission revenues. Operating income
for the fourth quarter of 2018 was up 86% to $73.4 million, from
$39.5 million in the same period of 2017, due to higher
revenues.
In 2018 and the fourth quarter of 2018, the television
broadcasting division recorded $3.9 million and $1.8 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.
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 industries.
Manufacturing revenues and operating income increased in 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. Manufacturing operating income declined in the
fourth quarter of 2018 due largely to a decline at Hoover. While
Hoover holds inventory for relatively short periods, wood prices
declined on a consistent basis in the second half of 2018,
resulting in losses on inventory sales.
Healthcare
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 declined 3% in 2018,
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 was phased out in the second half of 2018. 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, offset by lower bad debt expense and overall cost
reductions.
SocialCode
SocialCode is a provider of marketing solutions on social,
mobile and video platforms. In the third quarter of 2018,
SocialCode acquired Marketplace Strategy, a Cleveland-based Amazon
sales acceleration agency. SocialCode revenue decreased 5% in 2018
and 16% in the fourth quarter of 2018, resulting from declines in
digital advertising service revenues, partly due to a transition
from agency-based clients to direct-relationship clients.
SocialCode reported an operating loss of $1.1 million and $0.7
million in 2018 and the fourth quarter of 2018, respectively,
compared to an operating loss of $3.7 million and operating income
of $4.5 million in 2017 and the fourth quarter of 2017,
respectively. SocialCode’s operating results included a credit of
$7.1 million and expense of $0.1 million related to phantom equity
plans in 2018 and the fourth quarter of 2018, respectively; whereas
2017 results included expense of $1.4 million and $0.2 million
related to phantom equity plans in 2017 and the fourth quarter of
2017, respectively. Excluding the amounts related to phantom equity
plans for the relevant periods, SocialCode results are down in
2018, largely due to revenue declines.
Other Businesses
Other businesses include Slate and Foreign Policy, which publish
online and print magazines and websites; and three investment stage
businesses, Panoply, Pinna and CyberVista. Revenues increased 26%
in 2018 and 80% for the fourth quarter of 2018, largely due to
growth at Panoply. Losses from each of these businesses in 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 December 31, 2018, the Company held interests in a
number of home health and hospice joint ventures, and interests in
several other affiliates. During 2017, the Company acquired an
approximate 11% interest in Intersection Holdings, LLC, a company
that provides digital marketing and advertising services and
products for cities, transit systems, airports, and other public
and private spaces. In the third quarter of 2018, the Company
recorded $7.9 million in gains in earnings of affiliates related to
two of its investments. In total, the Company recorded equity in
earnings of affiliates of $14.5 million for 2018, compared to
losses of $3.2 million in 2017.
Net Interest Expense, Debt
Extinguishment Costs and Related Balances
On May 30, 2018, the Company issued $400 million of 5.75%
unsecured eight-year fixed-rate notes due June 1, 2026. Interest is
payable semi-annually on June 1 and December 1. On June 29, 2018,
the Company used the net proceeds from the sale of the notes and
other cash to repay $400 million of 7.25% notes that were due
February 1, 2019. The Company incurred $11.4 million in debt
extinguishment costs related to the early termination of the 7.25%
notes.
The Company incurred net interest expense of $32.5 million in
2018, compared to $27.3 million in 2017; net interest expense
totaled $5.1 million and $4.9 million for the fourth quarters of
2018 and 2017, respectively. 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 December 31, 2018, the Company had $477.1 million in
borrowings outstanding at an average interest rate of 5.1%, and
cash, marketable securities and other investments of $778.7
million. At December 31, 2017, the Company had $493.3
million in borrowings outstanding at an average interest rate of
6.3%, and cash, marketable securities and other investments of
$964.7 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 retroactively, 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.
In the fourth quarter of 2018, the Company recorded a $26.9
million gain related to a bulk lump sum pension program offering.
Also in the fourth quarter of 2018, the Company made changes to its
postretirement healthcare benefit plan, resulting in a $3.4 million
curtailment gain. In total, the Company recorded net non-operating
pension and postretirement benefit income of $120.5 million in
2018, compared to $72.7 million in 2017. The Company recorded $53.9
million for the fourth quarter of 2018, compared to $17.7 million
for the fourth quarter of 2017.
Loss 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 $15.8 million in
net losses on marketable equity securities in 2018 and $44.1
million in net losses in the fourth quarter of 2018.
Other Non-Operating Income
(Expense)
The Company recorded total other non-operating income, net, of
$2.1 million in 2018, compared to $4.2 million in 2017. The 2018
non-operating income, net, included $11.7 million in fair value
increases on cost method investments; $8.2 million in net gains
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 $17.5
million in losses on guarantor lease obligations in connection with
the 2015 sale of the KHE Campuses businesses; $3.8 million in
foreign currency losses; and $2.7 million in impairments on cost
method investments. The 2017 non-operating income, net, included
$3.3 million in foreign currency gains and other items.
For the fourth quarter of 2018, the Company recorded other
non-operating expense, net, of $12.6 million, compared to $2.6
million for the fourth quarter of 2017. The 2018 non-operating
expense, net, included $13.3 million in losses on guarantor lease
obligations in connection with the 2015 sale of the KHE Campuses
businesses and $1.6 million in foreign currency losses and other
items; partially offset by a $3.2 million fair value increase on
cost method investments. The fourth quarter of 2017 non-operating
expense, net, included $3.3 million in foreign currency losses
offset by other items.
Provision for (Benefit From) Income
Taxes
The Company’s effective tax rate for 2018 was 16.1%. 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 2018 was 22.2%. 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 reported an income tax benefit of $119.7 million for
2017, which was significantly impacted by the enactment of the Tax
Cuts and Jobs Act in December 2017. Overall, the Company recorded a
$177.5 million net deferred tax benefit in the fourth quarter of
2017 as a result of enactment of this legislation, due largely to
the revaluation of the Company’s U.S. deferred tax assets and
liabilities to the lower federal tax rate and a significant
reduction in the amount of deferred taxes previously provided on
undistributed earnings of investments in non-U.S. subsidiaries. In
the first quarter of 2017, the Company recorded a $5.9 million
income tax benefit related to the vesting of restricted stock
awards in connection with the adoption of 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 the effect of these items,
the effective tax rate for 2017 was 34.9%.
Earnings Per Share
The calculation of diluted earnings per share for 2018 and the
fourth quarter of 2018 was based on 5,369,611 and 5,308,710
weighted average shares, respectively, compared to 5,552,163 and
5,508,530 weighted average shares, respectively, for 2017 and the
fourth quarter of 2017. At December 31, 2018, there were
5,300,959 shares outstanding. On November 9, 2017, the Board of
Directors authorized the Company to acquire up to 500,000 shares of
Class B common stock; the Company has remaining authorization for
273,655 shares as of December 31, 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 and operating expenses would have
been $1.7 million and $0.6 million lower, respectively, for
2018.
Forward-Looking
Statements
This report 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 December
31 % (in thousands, except per share amounts)
2018 2017 Change Operating revenues
$
689,087 $ 675,817 2 Operating expenses
585,330
597,399 (2 ) Depreciation of property, plant and equipment
14,813 15,984 (7 ) Amortization of intangible assets
13,362 12,897 4 Impairment of goodwill and other long-lived
assets
— 78 —
Operating income
75,582 49,459 53 Equity in earnings (losses) of affiliates,
net
1,426 (4,697 ) — Interest income
1,469 3,184 (54
) Interest expense
(6,531 ) (8,103 ) (19 )
Non-operating pension and postretirement benefit income, net
53,900 17,657 — Loss on marketable equity securities, net
(44,149 ) — — Other expense, net
(12,559
) (2,640 ) —
Income from operations before income
taxes 69,138 54,860 26
Provision for (Benefit from)
income taxes 12,400 (159,700 ) —
Net
income 56,738 214,560 (74 )
Net income attributable
to noncontrolling interests (53 ) (382 )
(86 )
Net Income Attributable to Graham Holdings Company Common
Stockholders $ 56,685 $ 214,178
(74 )
Per Share Information Attributable to Graham
Holdings Company Common Stockholders Basic net income per
common share
$ 10.69 $ 38.76 (72 ) Basic average
number of common shares outstanding
5,270 5,473 Diluted net
income per common share
$ 10.61 $ 38.52 (72 ) Diluted
average number of common shares outstanding
5,309 5,509
GRAHAM HOLDINGS COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
Twelve Months Ended December
31 % (in thousands, except per share amounts)
2018 2017 Change Operating revenues
$
2,695,966 $ 2,591,846 4 Operating expenses
2,337,560 2,342,133 0 Depreciation of property, plant and
equipment
56,722 62,509 (9 ) Amortization of intangible
assets
47,414 41,187 15 Impairment of intangible and other
long-lived assets
8,109 9,614 (16 )
Operating income 246,161 136,403 80 Equity in
earnings (losses) of affiliates, net
14,473 (3,249 ) —
Interest income
5,353 6,581 (19 ) Interest expense
(37,902 ) (33,886 ) 12 Debt extinguishment costs
(11,378 ) — — Non-operating pension and
postretirement benefit income, net
120,541 72,699 66 Loss on
marketable equity securities, net
(15,843 ) — — Other
income, net
2,103 4,241 (50 )
Income
from operations before income taxes 323,508 182,789 77
Provision for (Benefit from) income taxes 52,100
(119,700 ) —
Net income 271,408 302,489
(10 )
Net income attributable to noncontrolling interests
(202 ) (445 ) (55 )
Net Income Attributable
to Graham Holdings Company Common Stockholders $
271,206 $ 302,044 (10 )
Per Share
Information Attributable to Graham Holdings Company Common
Stockholders Basic net income per common share
$
50.55 $ 54.24 (7 ) Basic average number of common shares
outstanding
5,333 5,516 Diluted net income per common share
$ 50.20 $ 53.89 (7 ) Diluted average number of common
shares outstanding
5,370 5,552 GRAHAM HOLDINGS
COMPANY
BUSINESS DIVISION
INFORMATION
(Unaudited)
Three Months Ended
Twelve Months Ended December 31 %
December
31 % (in thousands)
2018 2017
Change
2018 2017 Change
Operating
Revenues Education
$ 346,910 $
380,575 (9 )
$ 1,451,015 $ 1,516,776 (4 ) Television
broadcasting
152,647 111,023 37
505,549 409,916 23
Manufacturing
117,723 116,029 1
487,619 414,193 18
Healthcare
37,960 38,610 (2 )
149,275 154,202 (3 )
SocialCode
16,878 20,151 (16 )
58,728 62,077 (5 )
Other businesses
17,024 9,480 80
43,880 34,733 26
Corporate office
— — —
— — — Intersegment elimination
(55 ) (51 ) —
(100 ) (51
) —
$ 689,087 $ 675,817 2
$ 2,695,966 $ 2,591,846 4
Operating Expenses Education
$ 332,290 $
359,453 (8 )
$ 1,353,879 $ 1,439,089 (6 ) Television
broadcasting
79,227 71,487 11
295,016 270,658 9
Manufacturing
111,311 107,285 4
458,768 399,246 15
Healthcare
37,032 41,557 (11 )
157,676 156,771 1
SocialCode
17,560 15,673 12
59,809 65,751 (9 ) Other
businesses
22,864 16,004 43
71,896 65,269 10
Corporate office
13,276 14,950 (11 )
52,861 58,710
(10 ) Intersegment elimination
(55 ) (51 ) —
(100 ) (51 ) —
$ 613,505
$ 626,358 (2 )
$ 2,449,805
$ 2,455,443 0
Operating Income (Loss)
Education
$ 14,620 $ 21,122 (31 )
$
97,136 $ 77,687 25 Television broadcasting
73,420
39,536 86
210,533 139,258 51 Manufacturing
6,412
8,744 (27 )
28,851 14,947 93 Healthcare
928 (2,947 )
—
(8,401 ) (2,569 ) — SocialCode
(682 )
4,478 —
(1,081 ) (3,674 ) 71 Other businesses
(5,840 ) (6,524 ) 10
(28,016 ) (30,536
) 8 Corporate office
(13,276 ) (14,950 ) 11
(52,861 ) (58,710 ) 10
$ 75,582
$ 49,459 53
$ 246,161
$ 136,403 80
Depreciation Education
$
6,969 $ 7,912 (12 )
$ 28,099 $ 32,906 (15 )
Television broadcasting
3,961 3,476 14
13,204 12,179
8 Manufacturing
2,400 2,544 (6 )
9,515 9,173 4
Healthcare
629 1,154 (45 )
2,577 4,583 (44 )
SocialCode
177 251 (29 )
797 1,004 (21 ) Other
businesses
428 389 10
1,523 1,546 (1 ) Corporate
office
249 258 (3 )
1,007
1,118 (10 )
$ 14,813 $
15,984 (7 )
$ 56,722 $ 62,509
(9 )
Amortization of Intangible Assets and Impairment of
Goodwill and Other Long-Lived Assets Education
$
3,868 $ 1,364 —
$ 9,362 $ 5,162 81 Television
broadcasting
1,408 3,406 (59 )
5,632 6,349 (11 )
Manufacturing
6,530 5,935 10
24,746 31,052 (20 )
Healthcare
1,399 2,187 (36 )
14,855 7,905 88
SocialCode
157 83 89
928 333 — Other businesses
— — —
— — — Corporate office
— —
—
— — —
$ 13,362
$ 12,975 3
$ 55,523
$ 50,801 9
Pension Expense Education
$
2,104 $ 2,431 (13 )
$ 8,753 $ 9,720 (10 )
Television broadcasting
550 485 13
2,188 1,942 13
Manufacturing
18 17 6
72 79 (9 ) Healthcare
143 167 (14 )
573 665 (14 ) SocialCode
181 148
22
723 593 22 Other businesses
161 117 38
578
453 28 Corporate office
1,334 1,226 9
5,334 5,235 2
$ 4,491
$ 4,591 (2 )
$ 18,221
$ 18,687 (2 ) GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION
INFORMATION
(Unaudited)
Three Months Ended
Twelve Months Ended December 31 %
December
31 % (in thousands)
2018 2017
Change
2018 2017 Change
Operating
Revenues Kaplan international
$
184,429 $ 190,431 (3 )
$ 719,982 $ 697,999 3
Higher education
67,005 103,264 (35 )
342,085 431,425
(21 ) Test preparation
60,598 60,320 0
256,102
273,298 (6 ) Professional (U.S.)
35,472 27,027 31
134,187 115,839 16 Kaplan corporate and other
272 174
56
1,142 294 — Intersegment elimination
(866 )
(641 ) —
(2,483 ) (2,079 ) —
$
346,910 $ 380,575 (9 )
$
1,451,015 $ 1,516,776 (4 )
Operating
Expenses Kaplan international
$ 167,080 $ 167,817
0
$ 649,667 $ 646,376 1 Higher education
70,404 103,624 (32 )
326,868 414,706 (21 ) Test
preparation
58,715 59,020 (1 )
237,006 261,791 (9 )
Professional (U.S.)
27,727 21,514 29
105,579 88,281
20 Kaplan corporate and other
5,358 6,934 (23 )
27,844 24,995 11 Amortization of intangible assets
3,868 1,364 —
9,362 5,162 81 Intersegment elimination
(862 ) (820 ) —
(2,447 )
(2,222 ) —
$ 332,290 $ 359,453
(8 )
$ 1,353,879 $ 1,439,089 (6
)
Operating Income (Loss) Kaplan international
$
17,349 $ 22,614 (23 )
$ 70,315 $ 51,623 36
Higher education
(3,399 ) (360 ) —
15,217
16,719 (9 ) Test preparation
1,883 1,300 45
19,096
11,507 66 Professional (U.S.)
7,745 5,513 40
28,608
27,558 4 Kaplan corporate and other
(5,086 ) (6,760 )
25
(26,702 ) (24,701 ) (8 ) Amortization of
intangible assets
(3,868 ) (1,364 ) —
(9,362
) (5,162 ) (81 ) Intersegment elimination
(4 )
179 —
(36 ) 143 —
$ 14,620 $ 21,122 (31 )
$
97,136 $ 77,687 25
Depreciation
Kaplan international
$ 4,258 $ 3,821 11
$
15,755 $ 14,892 6 Higher education
779 1,975 (61 )
4,826 9,117 (47 ) Test preparation
957 1,206 (21 )
3,941 5,286 (25 ) Professional (U.S.)
925 735 26
3,096 3,041 2 Kaplan corporate and other
50
175 (71 )
481 570 (16 )
$ 6,969 $ 7,912 (12 )
$
28,099 $ 32,906 (15 )
Pension
Expense Kaplan international
$ 65 $ 66 (2 )
$ 298 $ 264 13 Higher education
1,050 1,318
(20 )
4,310 5,269 (18 ) Test preparation
576 689 (16
)
2,611 2,755 (5 ) Professional (U.S.)
291 228 28
1,162 913 27 Kaplan corporate and other
122
130 (6 )
372 519 (28 )
$ 2,104 $ 2,431 (13 )
$
8,753 $ 9,720 (10 )
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 December 31 2018
2017 (in thousands, except per share amounts)
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Amounts attributable to Graham Holdings Company Common
Stockholders As reported
$ 69,138 $ 12,400 $
56,738 $ 54,860 $ (159,700 ) $ 214,560 Attributable to
noncontrolling interests
(53 ) (382 ) Attributable to
Graham Holdings Company Stockholders
56,685 214,178
Adjustments:
Restructuring and non-operating separation
incentive program charges
— — — 7,181 2,657 4,524 Reduction to operating
expenses in connection with the broadcast spectrum repacking
(1,814 ) (399 ) (1,415 )
— — — Settlement gain related to bulk lump sum pension offering and
curtailment gain related to postretirement healthcare benefit plan
(30,298 ) (8,120 ) (22,178
) — — — Net losses on marketable equity securities
44,148 10,596 33,552 — — — Non-operating loss,
net, from cost method investments and guarantor lease obligations
10,333 2,669 7,664 — — — Foreign currency loss
1,639 393 1,246 3,298 1,220 2,078 Net deferred
tax benefits related to the enactment of the Tax Cuts and Jobs Act
— — — — 177,532 (177,532 ) Net Income,
adjusted (non-GAAP)
$ 75,554 $ 43,248
Per share information attributable to Graham Holdings
Company Common Stockholders Diluted income per common share, as
reported
$ 10.61 $ 38.52 Adjustments:
Restructuring and non-operating separation incentive program
charges
— 0.81 Reduction to operating expenses in connection
with the broadcast spectrum repacking
(0.26 ) —
Settlement gain related to bulk lump sum pension offering and
curtailment gain related to postretirement healthcare benefit plan
(4.11 ) — Net losses on marketable equity securities
6.28 — Non-operating loss, net, from cost method investments
and guarantor lease obligations
1.43 — Foreign currency loss
0.23 0.37 Net deferred tax benefits related to the enactment
of the Tax Cuts and Jobs Act
— (31.93 ) Diluted
income per common share, adjusted (non-GAAP)
$ 14.18
$ 7.77 The adjusted diluted per share amounts
may not compute due to rounding.
Twelve Months
Ended December 31 2018 2017 (in thousands,
except per share amounts)
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Incomebeforeincometaxes
IncomeTaxes
NetIncome
Amounts attributable to Graham Holdings Company Common
Stockholders As reported
$ 323,508 $ 52,100 $
271,408 $ 182,789 $ (119,700 ) $ 302,489 Attributable to
noncontrolling interests
(202 ) (445 ) Attributable
to Graham Holdings Company Stockholders
$ 271,206 $
302,044 Adjustments: Restructuring and non-operating separation
incentive program charges
— — — 9,958 3,684
6,274 Goodwill and other long-lived asset impairment charges
7,909 2,099 5,810 9,224 3,413 5,811 Reduction
to operating expenses in connection with the broadcast spectrum
repacking
(3,881 ) (854 ) (3,027
) — — — 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 — — — Settlement gain related to bulk
lump sum pension offering and curtailment gain related to
postretirement healthcare benefit plan
(30,298 )
(8,120 ) (22,178 ) — — — Net losses on
marketable equity securities
15,843 3,236
12,607 — — — Non-operating gain, net, from cost and equity
method investments and related to sales of land and businesses,
including guarantor lease obligations
(6,705 )
(995 ) (5,710 ) — — — Gain on Kaplan
University Transaction
(4,315 ) (2,472
) (1,843 ) — — — Foreign currency loss (gain)
3,844 923 2,921 (3,310 ) (1,225 ) (2,085 )
Nonrecurring deferred state tax benefit related to the release of
valuation allowances
— 17,783 (17,783 )
— — — Net deferred tax benefits related to the enactment of the Tax
Cuts and Jobs Act
— — — — 177,532 (177,532 )
Tax benefit related to stock compensation
— 1,810
(1,810 ) — 5,933 (5,933 ) Net Income, adjusted
(non-GAAP)
$ 255,009 $ 128,579
Per share information attributable to Graham Holdings Company
Common Stockholders Diluted income per common share, as
reported
$ 50.20 $ 53.89 Adjustments:
Restructuring and non-operating separation incentive program
charges
— 1.12 Goodwill and other long-lived asset
impairment charges
1.08 1.03 Reduction to operating expenses
in connection with the broadcast spectrum repacking
(0.55
) — Interest expense related to the settlement of a
mandatorily redeemable noncontrolling interest
1.14 — Debt
extinguishment costs
1.60 — Settlement gain related to bulk
lump sum pension offering and curtailment gain related to
postretirement healthcare benefit plan
(4.11 ) — Net
losses on marketable equity securities
2.33 — Non-operating
gain, net, from cost and equity method investments and related to
sales of land and businesses, including guarantor lease obligations
(1.03 ) — Gain on Kaplan University Transaction
(0.33 ) — Foreign currency loss (gain)
0.54
(0.37 ) Nonrecurring deferred state tax benefit related to the
release of valuation allowances
(3.31 ) — Net
deferred tax benefits related to the enactment of the Tax Cuts and
Jobs Act
— (31.68 ) Tax benefit related to stock
compensation
(0.33 ) (1.06 ) Diluted income per
common share, adjusted (non-GAAP)
$ 47.23 $
22.93 The adjusted diluted per share amounts may not
compute due to rounding.
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Wallace R. Cooney(703) 345-6470
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