Graham Holdings Company Reports Second Quarter Earnings

ARLINGTON, Va.--()--Graham Holdings Company (NYSE: GHC) today reported net income attributable to common shares of $57.1 million ($10.65 per share) for the second quarter of 2019, compared to $46.6 million ($8.63 per share) for the second quarter of 2018.

The results for the second quarter of 2019 and 2018 were affected by a number of items as described in the following paragraphs. Excluding these items, net income attributable to common shares was $50.2 million ($9.36 per share) for the second quarter of 2019, compared to $64.5 million ($11.94 per share) for the second quarter of 2018. (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 2019:

  • a $7.8 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 $6.0 million, or $1.13 per share);
  • $6.6 million in expenses related to a non-operating Separation Incentive Program at the education division (after-tax impact of $5.1 million, or $0.95 per share);
  • $7.8 million in net gains on marketable equity securities (after-tax impact of $5.8 million, or $1.09 per share); and
  • $0.1 million in non-operating foreign currency gains (after-tax impact of $0.1 million, or $0.02 per share).

Items included in the Company’s net income for the second quarter of 2018:

  • an $0.8 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC (after-tax impact of $0.6 million, or $0.11 per share);
  • $6.2 million in interest expense related to the settlement of a mandatorily redeemable noncontroling interest ($1.14 per share);
  • $11.4 million in debt extinguishment costs (after-tax impact of $8.6 million, or $1.60 per share);
  • $2.6 million in net losses on marketable equity securities (after-tax impact of $1.9 million or $0.36 per share); and
  • $2.3 million in non-operating foreign currency losses (after-tax impact of $1.7 million, or $0.32 per share).

Revenue for the second quarter of 2019 was $737.6 million, up 10% from $672.7 million in the second quarter of 2018, largely due to the acquisition of two automotive dealerships that closed in January 2019. Revenues grew at television broadcasting, healthcare, and SocialCode, partially offset by declines at the education and manufacturing divisions. The Company reported operating income of $58.0 million for the second quarter of 2019, compared to $65.6 million for the second quarter of 2018. The operating income decline is driven by lower earnings in the education and manufacturing divisions, partially offset by improvements in television broadcasting, healthcare and other businesses results.

For the first six months of 2019, the Company reported net income attributable to common shares of $138.8 million ($25.91 per share), compared to $89.5 million ($16.40 per share) for the first six months of 2018. The results for the first six months of 2019 and 2018 were affected by a number of items as described in the following paragraphs. Excluding these items, net income attributable to common shares was $88.7 million ($16.55 per share) for the first six months of 2019, compared to $114.0 million ($20.93 per share) for the first six months of 2018. (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 six months of 2019:

  • a $9.6 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 $7.4 million, or $1.38 per share);
  • $6.6 million in expenses related to a non-operating Separation Incentive Program at the education division (after-tax impact of $5.1 million, or $0.95 per share);
  • $31.9 million in net gains on marketable equity securities (after-tax impact of $23.9 million, or $4.46 per share);
  • $29.0 million gain from the sale of Gimlet Media (after-tax impact of $21.7 million, or $4.06 per share);
  • $0.6 million in non-operating foreign currency gains (after-tax impact of $0.5 million, or $0.09 per share); and
  • $1.7 million in income tax benefits related to stock compensation ($0.32 per share).

Items included in the Company’s net income for the six months of 2018:

  • a $1.1 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC (after-tax impact of $0.8 million, or $0.15 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);
  • $16.7 million in net losses on marketable equity securities (after-tax impact of $12.7 million, or $2.30 per share);
  • a $4.3 million gain on the Kaplan University Transaction (after-tax impact of $1.8 million, or $0.33 per share);
  • $2.1 million in non-operating foreign currency losses (after-tax impact of $1.6 million, or $0.30 per share); and
  • $1.8 million in income tax benefits related to stock compensation ($0.33 per share).

Revenue for the first six months of 2019 was $1,429.8 million, up 7% from $1,332.1 million in the first six months of 2018, largely due to the acquisition of two automotive dealerships that closed in January 2019. Revenues grew at television broadcasting, healthcare and SocialCode, partially offset by declines at the education and manufacturing divisions. The Company reported operating income of $98.0 million for the first six months of 2019, compared to $109.8 million for the first six months of 2018. Operating results declined at the education, television broadcasting and manufacturing businesses, partially offset by improvements at healthcare and other businesses.

Division Results

Education

Education division revenue totaled $367.8 million for the second quarter of 2019, down 1% from $370.0 million for the same period of 2018. Kaplan reported operating income of $26.3 million for the second quarter of 2019, down 30% from $37.6 million for the second quarter of 2018.

For the first six months of 2019, education division revenue totaled $740.2 million, down 1% from revenue of $745.5 million for the same period of 2018. Kaplan reported operating income of $51.9 million for the first six months of 2019, a 14% decline from $60.3 million for the first six months of 2018.

A summary of Kaplan’s operating results is as follows:

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

June 30

 

 

 

June 30

 

 

(in thousands)

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

188,580

 

 

$

184,303

 

 

2

 

 

$

374,336

 

 

$

367,885

 

 

2

 

Higher education

 

76,288

 

 

85,981

 

 

(11

)

 

159,068

 

 

185,811

 

 

(14

)

Test preparation

 

65,673

 

 

68,604

 

 

(4

)

 

126,823

 

 

127,755

 

 

(1

)

Professional (U.S.)

 

35,147

 

 

31,057

 

 

13

 

 

76,361

 

 

64,413

 

 

19

 

Kaplan corporate and other

 

2,369

 

 

442

 

 

 

 

4,671

 

 

727

 

 

 

Intersegment elimination

 

(294

)

 

(382

)

 

 

 

(1,042

)

 

(1,087

)

 

 

 

 

$

367,763

 

 

$

370,005

 

 

(1

)

 

$

740,217

 

 

$

745,504

 

 

(1

)

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

25,537

 

 

$

24,187

 

 

6

 

 

$

49,822

 

 

$

44,591

 

 

12

 

Higher education

 

2,721

 

 

11,219

 

 

(76

)

 

4,636

 

 

12,574

 

 

(63

)

Test preparation

 

4,289

 

 

6,120

 

 

(30

)

 

3,835

 

 

6,641

 

 

(42

)

Professional (U.S.)

 

4,745

 

 

4,780

 

 

(1

)

 

16,004

 

 

14,095

 

 

14

 

Kaplan corporate and other

 

(6,920

)

 

(7,100

)

 

3

 

 

(14,757

)

 

(14,846

)

 

1

 

Amortization of intangible assets

 

(3,377

)

 

(1,663

)

 

 

 

(6,944

)

 

(2,812

)

 

 

Impairment of long-lived assets

 

(693

)

 

 

 

 

 

(693

)

 

 

 

 

Intersegment elimination

 

3

 

 

11

 

 

 

 

(3

)

 

11

 

 

 

 

 

$

26,305

 

 

$

37,554

 

 

(30

)

 

$

51,900

 

 

$

60,254

 

 

(14

)

Kaplan International includes English-language programs, and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased 2% for both the second quarter and first six months of 2019. On a constant currency basis, revenue increased 5% and 6% for the second quarter and first six months of 2019, respectively. Operating income increased to $25.5 million in the second quarter of 2019, compared to $24.2 million in the second quarter of 2018. Operating income increased to $49.8 million in the first six months of 2019, compared to $44.6 million in the first six months of 2018. Revenue and operating income increased due to improved results at Pathways and UK Professional, offset by declines in Singapore and English Language training.

Prior to the KU Transaction closing on March 22, 2018, Higher Education included Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. Following the KU Transaction closing, the Higher Education division includes the results as a service provider to higher education institutions. In the second quarter and first six months of 2019, Higher Education revenue was down 11% and 14%, respectively, due to the KU Transaction. In the first six months of 2019, the Company recorded a portion of the service fee with Purdue Global based on an assessment of its collectability under the TOSA. This resulted in a decline in Higher Education results for the first six months of 2019, as the Company recorded the full service fee for Purdue Global for the first six months of 2018. Following the transition from KU, Purdue Global launched a planned marketing campaign to fully establish its new brand. This significant marketing spend, which the Company supports, impacts the cash generated by Purdue Global and its current ability to fully pay the KHE service fee under the TOSA. The Company will continue to assess the collectability of the service fee with Purdue Global on a quarterly basis to make a determination as to whether to record all or part of the service fee in the future and whether to make adjustments to service fee amounts recognized in earlier periods.

Kaplan Test Preparation (KTP) includes Kaplan’s standardized test preparation programs. In September 2018, KTP acquired the test preparation and study guide assets of Barron’s Educational Series, a New York-based education publishing company. KTP revenue decreased 4% and 1% for the second quarter and first six months of 2019, respectively. Excluding revenue from the Barron’s acquisition, revenues were down 11% and 8%, respectively, due to declines in demand for classroom-based offerings, offset in part by growth in online-based programs. KTP operating results declined 30% and 42% in the second quarter and first six months of 2019, respectively, due primarily to revenue declines for classroom-based offerings. Operating losses for the new economy skills training programs were $2.0 million and $1.8 million for the first six months of 2019 and 2018, respectively.

In the second quarter of 2019, the Company approved a Separation Incentive Program (SIP) that will reduce the number of employees at KTP and Higher Education. In connection with the SIP, the Company recorded $6.6 million in non-operating pension expense in the second quarter of 2019.

Kaplan Professional (U.S.) includes the domestic professional and other continuing education businesses. In the second quarter and first six months of 2019, Kaplan Professional (U.S.) revenue was up 13% and 19%, due to the May 2018 acquisition of Professional Publications, Inc. (PPI), an independent publisher of professional licensing exam review materials that provides engineering, surveying, architecture, and interior design licensure exam review products, and the July 2018 acquisition of College for Financial Planning (CFFP), a provider of financial education and training to individuals through programs of study for professionals pursuing a career in Financial Planning. Kaplan Professional (U.S.) operating results declined in the second quarter of 2019, due to lower demand for real estate and accountancy programs and increased spending for sales and marketing. Kaplan Professional (U.S) operating results increased 14% for the first six months of 2019, due mostly to earnings from PPI and CFFP.

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 2% to $116.6 million in the second quarter of 2019, from $114.1 million in the same period of 2018. The revenue increase is due to $4.8 million in higher retransmission revenues, offset by a $3.4 million decrease in political advertising revenue. In the second quarter of 2019 and 2018, the television broadcasting division recorded $7.8 million and $0.8 million, respectively, in reductions to operating expenses related to property, plant and equipment gains due to new equipment received at no cost in connection with the spectrum repacking mandate of the FCC. Operating income for the second quarter of 2019 increased 8% to $44.5 million, from $41.1 million in the same period of 2018, due to increased property, plant and equipment gains, partially offset by higher network fees.

Revenue at the television broadcasting division increased 1% to $224.9 million in the first six months of 2019, from $222.9 million in the same period of 2018. The revenue increase is due primarily to $14.4 million in higher retransmission revenues, offset by an $8.6 million decrease in 2018 incremental winter Olympics-related advertising revenue at the Company’s NBC stations and a $5.1 million decrease in political advertising revenue. In the first six months of 2019 and 2018, the television broadcasting division recorded $9.6 million and $1.1 million, respectively, in reductions to operating expenses related to non-cash property, plant and equipment gains due to new equipment received at no cost in connection with the spectrum repacking mandate of the FCC. Operating income for the first six months of 2019 decreased 2% to $80.0 million from $81.7 million in the same period of 2018, due to the decline in political advertising revenue, the absence of winter Olympics-related advertising and increased network fees, partially offset by increased property, plant and equipment gains.

Manufacturing

Manufacturing includes four businesses: Hoover, a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications; Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton, a manufacturer of screw jacks and other linear motion systems; and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications. In July 2018, Dekko acquired Furnlite, Inc., a Fallston, NC-based manufacturer of power and data solutions for the hospitality and residential furniture industry.

Manufacturing revenues declined 9% and 6% in the second quarter and first six months of 2019, respectively, due to a decline at Hoover from lower wood prices, partially offset by increases due to the Furnlite acquisition. Manufacturing operating income declined in the second quarter and first six months of 2019 due largely to increased labor and other operating costs at Hoover and Dekko, along with gains on inventory sales at Hoover in 2018.

Healthcare

The Graham Healthcare Group (GHG) provides home health and hospice services in three states. Healthcare revenues increased in the first six months of 2019, largely due to growth in home health and hospice services. The improvement in GHG operating results in 2019 is due to increased revenues and the absence of integration costs and other overall cost reduction in the first six months of 2019.

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’s revenue increased 11% and 6% in the second quarter and first six months of 2019, respectively. SocialCode reported operating losses of $1.0 million and $5.0 million in the second quarter and first six months of 2019, respectively, compared to $1.7 million and $5.5 million in the second quarter and first six months of 2018, respectively.

Other Businesses

On January 31, 2019, the Company acquired two automotive dealerships, Lexus of Rockville and Honda of Tysons Corner, from Sonic Automotive. The Company also announced it had entered into an agreement with Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships. Mr. Ourisman and his team of industry professionals operate and manage the dealerships. Graham Holdings Company holds a 90% stake. Revenues from other businesses increased due mostly to the automotive dealership acquisition. Operating results from other businesses also improved in the first six months of 2019, due partly to the acquisition.

Other businesses also includes Slate and Foreign Policy, which publish online and print magazines and websites; and three investment stage businesses, Megaphone, Pinna and CyberVista. Megaphone, Slate and CyberVista reported revenue increases in the first six months of 2019. Losses from each of these five businesses in the first six months of 2019 adversely affected operating results.

On July 31, 2019, the Company announced the closing on its acquisition of Clyde’s Restaurant Group (CRG). CRG owns and operates thirteen restaurants and entertainment venues in the Washington, DC metropolitan area, including Old Ebbitt Grill and The Hamilton, two of the top twenty highest grossing independent restaurants in the United States. CRG will be managed by its existing management team as a wholly-owned subsidiary of the Company.

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 of Affiliates

At June 30, 2019, the Company held an 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. The Company also holds interests in a number of home health and hospice joint ventures, and several other affiliates. The Company recorded equity in earnings of affiliates of $1.5 million for the second quarter of 2019, compared to $0.9 million for the second quarter of 2018. The Company recorded $3.1 million for the first six months of 2019, compared to $3.5 million for the first six months of 2018.

Net Interest Expense, Debt Extinguishment Costs and Related Balances

In connection with the auto dealership acquisition that closed on January 31, 2019, a subsidiary of the Company borrowed $30 million to finance a portion of the acquisition and entered into an interest rate swap to fix the interest rate on the debt at 4.7% per annum. The subsidiary is required to repay the loan over a 10-year period by making monthly installment payments.

On May 30, 2018, the Company issued 5.75% unsecured eight-year fixed-rate notes due June 1, 2026. Interest is payable semi-annually on June 1 and December 1. 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 $6.8 million and $12.5 million for the second quarter and first six months of 2019, respectively, compared to $15.3 million and $22.0 million for the second quarter and first six months of 2018, respectively. The Company incurred $6.2 million in interest expense related to the mandatorily redeemable noncontrolling interest at the Graham Healthcare Group settled in the second quarter of 2018. The higher interest expense in 2018 is also due to both the $400 million eight-year and ten-year notes outstanding for the month of June 2018.

At June 30, 2019, the Company had $506.4 million in borrowings outstanding at an average interest rate of 5.1% and cash, marketable equity securities and other investments of $724.5 million.

Non-operating Pension and Postretirement Benefit Income, net

The Company recorded net non-operating pension and postretirement benefit income of $12.3 million and $32.2 million for the second quarter and first six months of 2019, respectively, compared to $23.0 million and $44.4 million for the second quarter and first six months of 2018, respectively.

In the second quarter of 2019, the Company recorded $6.6 million in expenses related to a non-operating Separation Incentive Program at the education division.

Gain (Loss) on Marketable Equity Securities, net

Overall, the Company recognized $7.8 million and $31.9 million in net gains on marketable equity securities in the second quarter and first six months of 2019, respectively, compared to $2.6 million and $16.7 million in net losses on marketable equity securities in the second quarter and first six months of 2018, respectively.

Other Non-Operating Income

The Company recorded total other non-operating income, net, of $1.2 million for the second quarter of 2019, compared to $2.3 million for the second quarter of 2018. The 2019 amounts included $0.1 million in foreign currency gains and other items. The 2018 amounts included a $1.4 million contingent consideration gain related to the sale of a business; a $2.5 million gain on sale of land and other items; partially offset by $2.3 million in foreign currency losses.

The Company recorded total other non-operating income, net, of $30.6 million for the first six months of 2019, compared to $11.5 million for the first six months of 2018. The 2019 amounts included a $29.0 million gain on the sale of the Company’s interest in Gimlet Media; $0.6 million in foreign currency gains and other items. The 2018 amounts included a $7.2 million gain on sales of businesses and related 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; offset by $2.1 million in foreign currency losses.

Provision for Income Taxes

The Company’s effective tax rate for the first six months of 2019 and 2018 was 24.2% and 24.9%, respectively.

In the first quarter of 2019 and 2018, the Company recorded income tax benefits related to stock compensation of $1.7 million and $1.8 million, respectively.

Earnings Per Share

The calculation of diluted earnings per share for the second quarter and first six months of 2019 was based on 5,328,252 and 5,327,369 weighted average shares outstanding, compared to 5,362,277 and 5,417,162 for the second quarter and first six months of 2018. At June 30, 2019, there were 5,314,930 shares outstanding. On November 9, 2017, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock; the Company has remaining authorization for 273,655 shares as of June 30, 2019.

Forward-Looking Statements

This press release contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K.

GRAHAM HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

Three Months Ended

 

 

June 30

%

(in thousands, except per share amounts)

2019

 

2018

Change

Operating revenues

$

737,602

 

 

$

672,677

 

10

 

Operating expenses

652,182

 

 

582,033

 

12

 

Depreciation of property, plant and equipment

13,884

 

 

13,619

 

2

 

Amortization of intangible assets

12,880

 

 

11,399

 

13

 

Impairment of long-lived assets

693

 

 

 

 

Operating income

57,963

 

 

65,626

 

(12

)

Equity in earnings of affiliates, net

1,467

 

 

931

 

58

 

Interest income

1,579

 

 

1,901

 

(17

)

Interest expense

(8,386

)

 

(17,165

)

(51

)

Debt extinguishment costs

 

 

(11,378

)

 

Non-operating pension and postretirement benefit income, net

12,253

 

 

23,041

 

(47

)

Gain (loss) on marketable equity securities, net

7,791

 

 

(2,554

)

 

Other income, net

1,228

 

 

2,333

 

(47

)

Income before income taxes

73,895

 

 

62,735

 

18

 

Provision for income taxes

16,700

 

 

16,100

 

4

 

Net income

57,195

 

 

46,635

 

23

 

Net income attributable to noncontrolling interests

(114

)

 

(69

)

65

 

Net Income Attributable to Graham Holdings Company Common Stockholders

$

57,081

 

 

$

46,566

 

23

 

Per Share Information Attributable to Graham Holdings Company Common Stockholders

 

 

 

 

Basic net income per common share

$

10.74

 

 

$

8.69

 

24

 

Basic average number of common shares outstanding

5,285

 

 

5,325

 

 

Diluted net income per common share

$

10.65

 

 

$

8.63

 

23

 

Diluted average number of common shares outstanding

5,329

 

 

5,362

 

 

GRAHAM HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

Six Months Ended

 

 

June 30

%

(in thousands, except per share amounts)

2019

 

2018

Change

Operating revenues

$

1,429,801

 

 

$

1,332,113

 

7

 

Operating expenses

1,277,795

 

 

1,172,229

 

9

 

Depreciation of property, plant and equipment

27,407

 

 

28,261

 

(3

)

Amortization of intangible assets

25,940

 

 

21,783

 

19

 

Impairment of long-lived assets

693

 

 

 

 

Operating income

97,966

 

 

109,840

 

(11

)

Equity in earnings of affiliates, net

3,146

 

 

3,510

 

(10

)

Interest income

3,279

 

 

3,273

 

 

Interest expense

(15,811

)

 

(25,236

)

(37

)

Debt extinguishment costs

 

 

(11,378

)

 

Non-operating pension and postretirement benefit income, net

32,181

 

 

44,427

 

(28

)

Gain (loss) on marketable equity securities, net

31,857

 

 

(16,656

)

 

Other income, net

30,579

 

 

11,520

 

 

Income before income taxes

183,197

 

 

119,300

 

54

 

Provision for income taxes

44,300

 

 

29,700

 

49

 

Net income

138,897

 

 

89,600

 

55

 

Net income attributable to noncontrolling interests

(68

)

 

(143

)

(52

)

Net Income Attributable to Graham Holdings Company Common Stockholders

$

138,829

 

 

$

89,457

 

55

 

Per Share Information Attributable to Graham Holdings Company Common Stockholders

 

 

 

 

Basic net income per common share

$

26.12

 

 

$

16.52

 

58

 

Basic average number of common shares outstanding

5,285

 

 

5,380

 

 

Diluted net income per common share

$

25.91

 

 

$

16.40

 

58

 

Diluted average number of common shares outstanding

5,328

 

 

5,417

 

 

GRAHAM HOLDINGS COMPANY

BUSINESS DIVISION INFORMATION

(Unaudited)

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

June 30

 

%

 

June 30

 

%

(in thousands)

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

367,763

 

 

$

370,005

 

 

(1

)

 

$

740,217

 

 

$

745,504

 

 

(1

)

Television broadcasting

 

116,628

 

 

114,086

 

 

2

 

 

224,851

 

 

222,888

 

 

1

 

Manufacturing

 

114,873

 

 

126,462

 

 

(9

)

 

230,030

 

 

243,868

 

 

(6

)

Healthcare

 

40,641

 

 

38,208

 

 

6

 

 

78,369

 

 

75,829

 

 

3

 

SocialCode

 

16,382

 

 

14,770

 

 

11

 

 

29,829

 

 

28,069

 

 

6

 

Other businesses

 

81,359

 

 

9,167

 

 

 

 

126,589

 

 

16,000

 

 

 

Corporate office

 

 

 

 

 

 

 

 

 

 

 

 

Intersegment elimination

 

(44

)

 

(21

)

 

 

 

(84

)

 

(45

)

 

 

 

 

$

737,602

 

 

$

672,677

 

 

10

 

 

$

1,429,801

 

 

$

1,332,113

 

 

7

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

341,458

 

 

$

332,451

 

 

3

 

 

$

688,317

 

 

$

685,250

 

 

0

 

Television broadcasting

 

72,134

 

 

72,968

 

 

(1

)

 

144,817

 

 

141,228

 

 

3

 

Manufacturing

 

110,181

 

 

117,797

 

 

(6

)

 

222,064

 

 

226,575

 

 

(2

)

Healthcare

 

38,043

 

 

37,444

 

 

2

 

 

73,442

 

 

76,456

 

 

(4

)

SocialCode

 

17,357

 

 

16,512

 

 

5

 

 

34,822

 

 

33,592

 

 

4

 

Other businesses

 

87,272

 

 

17,144

 

 

 

 

140,995

 

 

32,519

 

 

 

Corporate office

 

13,238

 

 

12,756

 

 

4

 

 

27,462

 

 

26,698

 

 

3

 

Intersegment elimination

 

(44

)

 

(21

)

 

 

 

(84

)

 

(45

)

 

 

 

 

$

679,639

 

 

$

607,051

 

 

12

 

 

$

1,331,835

 

 

$

1,222,273

 

 

9

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

26,305

 

 

$

37,554

 

 

(30

)

 

$

51,900

 

 

$

60,254

 

 

(14

)

Television broadcasting

 

44,494

 

 

41,118

 

 

8

 

 

80,034

 

 

81,660

 

 

(2

)

Manufacturing

 

4,692

 

 

8,665

 

 

(46

)

 

7,966

 

 

17,293

 

 

(54

)

Healthcare

 

2,598

 

 

764

 

 

 

 

4,927

 

 

(627

)

 

 

SocialCode

 

(975

)

 

(1,742

)

 

44

 

 

(4,993

)

 

(5,523

)

 

10

 

Other businesses

 

(5,913

)

 

(7,977

)

 

26

 

 

(14,406

)

 

(16,519

)

 

13

 

Corporate office

 

(13,238

)

 

(12,756

)

 

(4

)

 

(27,462

)

 

(26,698

)

 

(3

)

 

 

$

57,963

 

 

$

65,626

 

 

(12

)

 

$

97,966

 

 

$

109,840

 

 

(11

)

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

6,137

 

 

$

6,839

 

 

(10

)

 

$

12,338

 

 

$

14,445

 

 

(15

)

Television broadcasting

 

3,293

 

 

2,974

 

 

11

 

 

6,532

 

 

6,045

 

 

8

 

Manufacturing

 

2,384

 

 

2,331

 

 

2

 

 

4,817

 

 

4,782

 

 

1

 

Healthcare

 

607

 

 

647

 

 

(6

)

 

1,217

 

 

1,300

 

 

(6

)

SocialCode

 

384

 

 

200

 

 

92

 

 

536

 

 

433

 

 

24

 

Other businesses

 

837

 

 

375

 

 

 

 

1,485

 

 

750

 

 

98

 

Corporate office

 

242

 

 

253

 

 

(4

)

 

482

 

 

506

 

 

(5

)

 

 

$

13,884

 

 

$

13,619

 

 

2

 

 

$

27,407

 

 

$

28,261

 

 

(3

)

Amortization of Intangible Assets and Impairment of Long-Lived Assets

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

4,070

 

 

$

1,663

 

 

 

 

$

7,637

 

 

$

2,812

 

 

 

Television broadcasting

 

1,408

 

 

1,408

 

 

 

 

2,816

 

 

2,816

 

 

 

Manufacturing

 

6,528

 

 

5,935

 

 

10

 

 

13,058

 

 

11,871

 

 

10

 

Healthcare

 

1,410

 

 

1,809

 

 

(22

)

 

2,808

 

 

3,617

 

 

(22

)

SocialCode

 

157

 

 

584

 

 

(73

)

 

314

 

 

667

 

 

(53

)

Other businesses

 

 

 

 

 

 

 

 

 

 

 

 

Corporate office

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

13,573

 

 

$

11,399

 

 

19

 

 

$

26,633

 

 

$

21,783

 

 

22

 

Pension Expense

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

$

2,522

 

 

$

1,878

 

 

34

 

 

$

5,186

 

 

$

4,542

 

 

14

 

Television broadcasting

 

780

 

 

601

 

 

30

 

 

1,511

 

 

1,094

 

 

38

 

Manufacturing

 

15

 

 

19

 

 

(21

)

 

40

 

 

36

 

 

11

 

Healthcare

 

63

 

 

165

 

 

(62

)

 

246

 

 

287

 

 

(14

)

SocialCode

 

191

 

 

205

 

 

(7

)

 

439

 

 

361

 

 

22

 

Other businesses

 

161

 

 

154

 

 

5

 

 

362

 

 

270

 

 

34

 

Corporate office

 

1,231

 

 

1,295

 

 

(5

)

 

2,400

 

 

2,667

 

 

(10

)

 

 

$

4,963

 

 

$

4,317

 

 

15

 

 

$

10,184

 

 

$

9,257

 

 

10

 

GRAHAM HOLDINGS COMPANY

EDUCATION DIVISION INFORMATION

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

June 30

 

%

 

June 30

 

%

(in thousands)

 

2019

 

2018

 

Change

 

2019

 

2018

 

Change

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

188,580

 

 

$

184,303

 

 

2

 

 

$

374,336

 

 

$

367,885

 

 

2

 

Higher education

 

76,288

 

 

85,981

 

 

(11

)

 

159,068

 

 

185,811

 

 

(14

)

Test preparation

 

65,673

 

 

68,604

 

 

(4

)

 

126,823

 

 

127,755

 

 

(1

)

Professional (U.S.)

 

35,147

 

 

31,057

 

 

13

 

 

76,361

 

 

64,413

 

 

19

 

Kaplan corporate and other

 

2,369

 

 

442

 

 

 

 

4,671

 

 

727

 

 

 

Intersegment elimination

 

(294

)

 

(382

)

 

 

 

(1,042

)

 

(1,087

)

 

 

 

 

$

367,763

 

 

$

370,005

 

 

(1

)

 

$

740,217

 

 

$

745,504

 

 

(1

)

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

163,043

 

 

$

160,116

 

 

2

 

 

$

324,514

 

 

$

323,294

 

 

0

 

Higher education

 

73,567

 

 

74,762

 

 

(2

)

 

154,432

 

 

173,237

 

 

(11

)

Test preparation

 

61,384

 

 

62,484

 

 

(2

)

 

122,988

 

 

121,114

 

 

2

 

Professional (U.S.)

 

30,402

 

 

26,277

 

 

16

 

 

60,357

 

 

50,318

 

 

20

 

Kaplan corporate and other

 

9,289

 

 

7,542

 

 

23

 

 

19,428

 

 

15,573

 

 

25

 

Amortization of intangible assets

 

3,377

 

 

1,663

 

 

 

 

6,944

 

 

2,812

 

 

 

Impairment of long-lived assets

 

693

 

 

 

 

 

 

693

 

 

 

 

 

Intersegment elimination

 

(297

)

 

(393

)

 

 

 

(1,039

)

 

(1,098

)

 

 

 

 

$

341,458

 

 

$

332,451

 

 

3

 

 

$

688,317

 

 

$

685,250

 

 

0

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

25,537

 

 

$

24,187

 

 

6

 

 

$

49,822

 

 

$

44,591

 

 

12

 

Higher education

 

2,721

 

 

11,219

 

 

(76

)

 

4,636

 

 

12,574

 

 

(63

)

Test preparation

 

4,289

 

 

6,120

 

 

(30

)

 

3,835

 

 

6,641

 

 

(42

)

Professional (U.S.)

 

4,745

 

 

4,780

 

 

(1

)

 

16,004

 

 

14,095

 

 

14

 

Kaplan corporate and other

 

(6,920

)

 

(7,100

)

 

3

 

 

(14,757

)

 

(14,846

)

 

1

 

Amortization of intangible assets

 

(3,377

)

 

(1,663

)

 

 

 

(6,944

)

 

(2,812

)

 

 

Impairment of long-lived assets

 

(693

)

 

 

 

 

 

(693

)

 

 

 

 

Intersegment elimination

 

3

 

 

11

 

 

 

 

(3

)

 

11

 

 

 

 

 

$

26,305

 

 

$

37,554

 

 

(30

)

 

$

51,900

 

 

$

60,254

 

 

(14

)

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

3,716

 

 

$

3,764

 

 

(1

)

 

$

7,598

 

 

$

7,738

 

 

(2

)

Higher education

 

629

 

 

1,274

 

 

(51

)

 

1,226

 

 

3,132

 

 

(61

)

Test preparation

 

779

 

 

973

 

 

(20

)

 

1,584

 

 

1,951

 

 

(19

)

Professional (U.S.)

 

959

 

 

670

 

 

43

 

 

1,824

 

 

1,312

 

 

39

 

Kaplan corporate and other

 

54

 

 

158

 

 

(66

)

 

106

 

 

312

 

 

(66

)

 

 

$

6,137

 

 

$

6,839

 

 

(10

)

 

$

12,338

 

 

$

14,445

 

 

(15

)

Pension Expense

 

 

 

 

 

 

 

 

 

 

 

 

Kaplan international

 

$

110

 

 

$

84

 

 

31

 

 

$

227

 

 

$

167

 

 

36

 

Higher education

 

1,102

 

 

804

 

 

37

 

 

2,265

 

 

2,210

 

 

2

 

Test preparation

 

821

 

 

729

 

 

13

 

 

1,687

 

 

1,458

 

 

16

 

Professional (U.S.)

 

329

 

 

290

 

 

13

 

 

677

 

 

580

 

 

17

 

Kaplan corporate and other

 

160

 

 

(29

)

 

 

 

330

 

 

127

 

 

 

 

 

$

2,522

 

 

$

1,878

 

 

34

 

 

$

5,186

 

 

$

4,542

 

 

14

 

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

 

2019

 

2018

(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

$

73,895

 

 

$

16,700

 

 

$

57,195

 

 

$

62,735

 

 

$

16,100

 

 

$

46,635

 

Attributable to noncontrolling interests

 

 

 

 

(114

)

 

 

 

 

 

(69

)

Attributable to Graham Holdings Company Stockholders

 

 

 

 

57,081

 

 

 

 

 

 

46,566

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Reduction to operating expenses in connection with the broadcast spectrum repacking

(7,831

)

 

(1,801

)

 

(6,030

)

 

(755

)

 

(174

)

 

(581

)

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

 

Charges related to non-operating Separation Incentive Program at the education division

6,607

 

 

1,520

 

 

5,087

 

 

 

 

 

 

 

Net (gains) losses on marketable equity securities

(7,790

)

 

(1,947

)

 

(5,843

)

 

2,554

 

 

613

 

 

1,941

 

Foreign currency (gain) loss

(109

)

 

(27

)

 

(82

)

 

2,266

 

 

544

 

 

1,722

 

Net Income, adjusted (non-GAAP)

 

 

 

 

$

50,213

 

 

 

 

 

 

$

64,464

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information attributable to Graham Holdings Company Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

Diluted income per common share, as reported

 

 

 

 

$

10.65

 

 

 

 

 

 

$

8.63

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Reduction to operating expenses in connection with the broadcast spectrum repacking

 

 

 

 

(1.13

)

 

 

 

 

 

(0.11

)

Interest expense related to the settlement of a mandatorily redeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

1.14

 

Debt extinguishment costs

 

 

 

 

 

 

 

 

 

 

1.60

 

Charges related to non-operating Separation Incentive Program at the education division

 

 

 

 

0.95

 

 

 

 

 

 

 

Net (gains) losses on marketable equity securities

 

 

 

 

(1.09

)

 

 

 

 

 

0.36

 

Foreign currency (gain) loss

 

 

 

 

(0.02

)

 

 

 

 

 

0.32

 

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

 

 

 

 

$

9.36

 

 

 

 

 

 

$

11.94

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Six Months Ended June 30

 

2019

 

2018

(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

$

183,197

 

 

$

44,300

 

 

$

138,897

 

 

$

119,300

 

 

$

29,700

 

 

$

89,600

 

Attributable to noncontrolling interests

 

 

 

 

(68

)

 

 

 

 

 

(143

)

Attributable to Graham Holdings Company Stockholders

 

 

 

 

$

138,829

 

 

 

 

 

 

$

89,457

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Reduction to operating expenses in connection with the broadcast spectrum repacking

(9,619

)

 

(2,212

)

 

(7,407

)

 

(1,062

)

 

(245

)

 

(817

)

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

 

Charges related to non-operating Separation Incentive Program at the education division

6,607

 

 

1,520

 

 

5,087

 

 

 

 

 

 

 

Net gains on marketable equity securities

(31,857

)

 

(7,964

)

 

(23,893

)

 

16,656

 

 

3,997

 

 

12,659

 

Gain on sale of Gimlet media

(28,994

)

 

(7,248

)

 

(21,746

)

 

 

 

 

 

 

Gain on Kaplan University Transaction

 

 

 

 

 

 

(4,315

)

 

(2,472

)

 

(1,843

)

Foreign currency (gain) loss

(623

)

 

(156

)

 

(467

)

 

2,089

 

 

502

 

 

1,587

 

Tax benefit related to stock compensation

 

 

1,700

 

 

(1,700

)

 

 

 

1,810

 

 

(1,810

)

Net Income, adjusted (non-GAAP)

 

 

 

 

$

88,703

 

 

 

 

 

 

$

114,049

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information attributable to Graham Holdings Company Common Stockholders

 

 

 

 

 

 

 

 

 

 

 

Diluted income per common share, as reported

 

 

 

 

$

25.91

 

 

 

 

 

 

$

16.40

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

Reduction to operating expenses in connection with the broadcast spectrum repacking

 

 

 

 

(1.38

)

 

 

 

 

 

(0.15

)

Interest expense related to the settlement of a mandatorily redeemable noncontrolling interest

 

 

 

 

 

 

 

 

 

 

1.14

 

Debt extinguishment costs

 

 

 

 

 

 

 

 

 

 

1.60

 

Charges related to non-operating Separation Incentive Program at the education division

 

 

 

 

0.95

 

 

 

 

 

 

 

Net gains on marketable equity securities

 

 

 

 

(4.46

)

 

 

 

 

 

2.30

 

Gain on sale of Gimlet media

 

 

 

 

(4.06

)

 

 

 

 

 

 

Gain on Kaplan University Transaction

 

 

 

 

 

 

 

 

 

 

(0.33

)

Foreign currency (gain) loss

 

 

 

 

(0.09

)

 

 

 

 

 

0.30

 

Tax benefit related to stock compensation

 

 

 

 

(0.32

)

 

 

 

 

 

(0.33

)

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

 

 

 

 

$

16.55

 

 

 

 

 

 

$

20.93

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Contacts

Wallace R. Cooney
(703) 345-6470

Contacts

Wallace R. Cooney
(703) 345-6470