EX-99.1 2 dex991.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1
 
Contact: 
 
Wallace R. Cooney
 
For Immediate Release 
 
 
(703) 345-6470
 
February 25, 2019
 
 
 
 
 
 
 
 
GRAHAM HOLDINGS COMPANY REPORTS
 
 
 
 
2018 AND FOURTH QUARTER EARNINGS
 
ARLINGTON, VA - 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).

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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 2017Revenues 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 2017Revenues 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.).

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A summary of Kaplan’s operating results is as follows:
 
 
Three Months Ended
 
 
 
Twelve Months Ended
 
 
 
 
December 31
 
 
 
December 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

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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.

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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 millionAt 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

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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.

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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

 

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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

 



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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 (Credit)
 

 
 

 
 

 
 

 
 

 
 

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
)

-more-
9


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
)


-more-
10



NON-GAAP FINANCIAL INFORMATION
GRAHAM HOLDINGS COMPANY
(Unaudited)
 
In addition to the results reported in accordance with accounting principles generally accepted in the United States (GAAP) included in this press release, the Company has provided information regarding net income excluding certain items described below reconciled to the most directly comparable GAAP measures. Management believes that these non-GAAP measures, when read in conjunction with the Company’s GAAP financials, provide useful information to investors by offering:
the ability to make meaningful period-to-period comparisons of the Company’s ongoing results;
the ability to identify trends in the Company’s underlying business; and
a better understanding of how management plans and measures the Company’s underlying business.
Net income excluding certain items should not be considered substitutes or alternatives to computations calculated in accordance with and required by GAAP. These non-GAAP financial measures should be read only in conjunction with financial information presented on a GAAP basis. 
The following table reconciles the non-GAAP financial measures to the most directly comparable GAAP measures:
  
Three Months Ended December 31
 
2018
 
2017
(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
$
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.


-more-
11



  
Twelve Months Ended December 31
 
2018
 
2017
(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
$
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.


# # #