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TMCNet:  Graham Holdings Company Reports 2013 and Fourth Quarter Earnings

[February 21, 2014]

Graham Holdings Company Reports 2013 and Fourth Quarter Earnings

WASHINGTON --(Business Wire)--

Graham Holdings Company (NYSE: GHC) today reported net income attributable to common shares of $236.0 million ($32.05 per share) for the year ended December 31, 2013, compared to $131.2 million ($17.39 per share) for the year ended December 31, 2012. Net income includes $46.1 million ($6.27 per share) and $60.1 million ($8.17 per share) in income from discontinued operations for 2013 and 2012, respectively. Income from continuing operations attributable to common shares was $189.9 million ($25.78 per share) for 2013, compared to $71.1 million ($9.22 per share) for 2012. For the fourth quarter of 2013, the Company reported net income attributable to common shares of $156.5 million ($21.14 per share), compared to a loss of $45.4 million ($6.57 per share) for the same period of 2012. Net income includes $100.8 million ($13.62 per share) and $5.6 million ($0.78 per share) in income from discontinued operations for the fourth quarter of 2013 and 2012, respectively. The Company reported income from continuing operations attributable to common shares of $55.6 million ($7.52 per share) for the fourth quarter of 2013, compared to a loss of $51.0 million ($7.35 per share) for the same period of 2012.

On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses, including The Washington Post. Consequently, income from continuing operations excludes these sold businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.

The results for 2013 and 2012 were affected by a number of items as described in the following paragraphs. Excluding these items, income from continuing operations attributable to common shares was $233.7 million ($31.76 per share) for 2013, compared to $191.4 million ($25.87 per share) for 2012. Excluding these items, income from continuing operations attributable to common shares was $80.3 million ($10.88 per share) for the fourth quarter of 2013, compared to $69.1 million ($9.27 per share) for the fourth quarter of 2012. (Refer to the Non-GAAP Financial Information schedule attached to this release for additional details.)

Items included in the Company's income from continuing operations for 2013 are listed below, and fourth quarter activity, if any, is highlighted for each item:

  • $36.4 million in severance and restructuring charges at the education division (after-tax impact of $25.3 million, or $3.46 per share); $18.1 million of these charges were recorded in the fourth quarter (after-tax impact of $12.2 million, or $1.66 per share);
  • a fourth quarter $3.3 million noncash intangible and other long-lived assets impairment charge at Kaplan (after-tax impact of $3.2 million, or $0.44 per share);
  • a fourth quarter $10.4 million write-down of a marketable equity security (after-tax impact of $6.7 million, or $0.91 per share); and
  • $13.4 million in non-operating unrealized foreign currency losses (after-tax impact of $8.6 million, or $1.17 per share); $4.0 million in losses were recorded in the fourth quarter (after-tax impact of $2.6 million, or $0.35 per share).

Items included in the Company's income from continuing operations for 2012 are listed below, and fourth quarter activity, if any, is highlighted for each item:

  • a fourth quarter $111.6 million noncash goodwill and other long-lived assets impairment charge at Kaplan Test Preparation (KTP) (after-tax impact of $81.9 million, or $11.33 per share);
  • $45.2 million in severance and restructuring charges at the education division (after-tax impact of $32.9 million, or $4.53 per share); $35.9 million of these charges were recorded in the fourth quarter (after-tax impact of $27.1 million, or $3.75 per share);
  • a fourth quarter $18.0 million write-down of a marketable equity security (after-tax impact of $11.2 million, or $1.54 per share);
  • a $5.8 million gain on the sale of a cost method investment (after-tax impact of $3.7 million, or $0.48 per share); and
  • $3.1 million in non-operating unrealized foreign currency gains (after-tax impact of $2.0 million, or $0.27 per share).

Revenue for 2013 was $3,487.9 million, up 1% from $3,455.6 million in 2012. Revenues increased at the cable division and in other businesses, offset by declines at the television broadcasting and education divisions. Operating income for 2013 increased to $345.6 million, from $179.2 million in 2012. Operating results improved at the education and cable divisions, offset by a decline at the television broadcasting division.

For the fourth quarter of 2013, revenue was $888.9 million, down 1% from $895.9 million in 2012. Revenues declined at the television broadcasting and cable divisions, offset by an increase at the education division. The Company reported operating income of $105.5 million in the fourth quarter of 2013, compared to an operating loss of $22.9 million in 2012. Operating results improved at the education and cable divisions, offset by a decline at the television broadcasting division.

Division Results

Education

Education division revenue in 2013 totaled $2,177.5 million, a 1% decline from $2,196.5 million in 2012. For the fourth quarter of 2013, education division revenue totaled $555.0 million, a 2% increase from $546.3 million for the same period of 2012.

Kaplan reported operating income of $51.3 million for 2013, compared to an operating loss of $105.4 million in 2012; Kaplan reported operating income for the fourth quarter of 2013 of $14.6 million, compared to an operating loss of $111.9 million in the fourth quarter of 2012. Kaplan's 2013 operating results in comparison to 2012 benefited from strong improvement in Kaplan Higher Education (KHE) and Kaplan Test Preparation (KTP) results, and a $111.6 million noncash goodwill and other long-lived assets impairment charge related to KTP, recorded in the fourth quarter of 2012, that did not recur.

In response to student demand levels, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in significant costs in 2013 and 2012, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $36.4 million in 2013 and $45.2 million in 2012. Restructuring costs totaled $18.1 million in the fourth quarter of 2013 and $35.9 million in the fourth quarter of 2012. (Refer to the Education Division Information, Summary of Restructuring Charges schedule attached to this release for additional details.) Kaplan continues to evaluate its cost structure and may develop additional restructuring plans in 2014.

A summary of Kaplan's operating results, including and excluding restructuring costs, is as follows:




       
Three Months Ended Twelve Months Ended
December 31 December 31
(in thousands)   2013   2012   % Change   2013   2012   % Change
Revenue    
Higher education $ 269,895 $ 276,459 (2 ) $ 1,080,908 $ 1,149,407 (6 )
Test preparation 61,137 60,485 1 293,201 284,252 3
Kaplan international 223,276 206,928 8 797,362 753,790 6
Kaplan corporate 1,494 4,756 (69 ) 7,990 15,039 (47 )
Intersegment elimination (791 )   (2,287 ) - (1,953 )   (5,992 ) -
$ 555,011     $ 546,341   2 $ 2,177,508     $ 2,196,496   (1 )
Operating Income (Loss)
Higher education $ 29,230 $ 10,916 - $ 71,584 $ 27,245 -
Test preparation (3,188 ) (6,732 ) 53 4,118 (10,799 ) -
Kaplan international 28,517 15,319 86 53,424 49,612 8
Kaplan corporate (33,873 ) (14,060 ) - (64,948 ) (43,160 ) (50 )
Amortization of intangible assets (2,794 ) (6,191 ) 55 (9,962 ) (17,719 ) 44
Impairment of goodwill and other long-lived assets (3,250 ) (111,593 ) 97 (3,250 ) (111,593 ) 97
Intersegment elimination (46 )   467   - 335     1,046   -
$ 14,596     $ (111,874 ) - $ 51,301     $ (105,368 ) -
Operating Income (Loss)
Restructuring Costs Excluded from Divisions
Higher education* $ 34,640 $ 27,860 24 $ 91,128 $ 50,640 80
Test preparation (3,188 ) (6,732 ) 53 4,118 (10,799 ) -
Kaplan international* 30,182 30,201 - 59,196 66,054 (10 )
Kaplan corporate* (22,831 )   (12,575 ) (82 ) (53,906 )   (40,350 )

(34

)

38,803 38,754 - 100,536 65,545 53
Restructuring costs* (18,117 ) (35,906 ) 50 (36,358 ) (45,242 ) 20
Amortization of intangible assets* (2,794 ) (3,596 ) 22 (9,962 ) (15,124 ) 34
Impairment of goodwill and other long-lived assets (3,250 ) (111,593 ) 97 (3,250 ) (111,593 ) 97
Intersegment elimination (46 )   467   - 335     1,046   -
$ 14,596     $ (111,874 ) - $ 51,301     $ (105,368 ) -
 
*Non-GAAP Measure
 

KHE includes Kaplan's domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.

In 2012, KHE began implementing plans to close or merge 13 ground campuses, consolidate other facilities and reduce its workforce. In connection with these and other plans, KHE incurred $19.5 million and $23.4 million in restructuring costs from accelerated depreciation and severance and lease obligations in 2013 and 2012, respectively; $5.4 million and $16.9 million of these restructuring costs were recorded in the fourth quarter of 2013 and 2012, respectively. At the end of 2013, the KHE campus closures or mergers had been largely completed, with two remaining campus closures to be completed in the first half of 2014.

In 2013 and the fourth quarter of 2013, KHE revenue declined 6% and 2%, respectively, due largely to declines in average enrollments, which reflect weaker market demand over the past year, and the impact of campuses closed or in the process of closing. Operating income increased significantly for 2013 and the fourth quarter of 2013 due primarily to expense reductions associated with lower enrollments and recent restructuring efforts.

New student enrollments at KHE increased 4% in 2013 due to the positive impact of trial period modifications and process improvements, offset by the impact of campus closures. However, total students at December 31, 2013, were down 8% compared to December 31, 2012, and September 30, 2013. Excluding campuses closed or planned for closure, total students at December 31, 2013, were down 5% and 7%, compared to December 31, 2012, and September 30, 2013, respectively. The increase in new enrollments was offset by a reduction in the number of continuing students. A summary of student enrollments is as follows:

 
Students as of
December 31,   September 30,   December 31,
    2013   2013   2012
Kaplan University 42,816 46,340 44,371
Other Campuses 17,417     18,818     21,099
60,233     65,158     65,470
 
Students as of
December 31, September 30, December 31,
(excluding campuses closing)   2013   2013   2012
Kaplan University 42,816 46,340 44,371
Other Campuses 17,342     18,619     19,267
60,158     64,959     63,638
 

Kaplan University and Other Campuses enrollments by certificate and degree programs, are as follows:

 
As of December 31
    2013   2012
Certificate 21.7 %   23.2 %
Associate's 29.7 % 29.1 %
Bachelor's 32.3 % 33.8 %
Master's 16.3 %   13.9 %
100.0 %   100.0 %
 

KTP includes Kaplan's standardized test preparation programs. KTP revenue increased 3% in 2013 and 1% for the fourth quarter of 2013. Although total enrollment declined 4% and 3% for the fourth quarter and 2013, respectively, declines in revenue from graduate programs were offset by growth in medical and bar review programs and other products. KTP operating results improved in 2013 due to the increase in revenues and lower costs.

In the fourth quarter of 2012, Kaplan recorded a $111.6 million noncash goodwill and other long-lived assets impairment charge in connection with KTP. This impairment charge was determined as part of the Company's 2012 annual goodwill and intangible assets impairment testing.

Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased 6% and 8% in 2013 and the fourth quarter of 2013, respectively. Kaplan International revenue increases in 2013 are due to enrollment growth in the pathways, English-language and Singapore higher education programs.

Kaplan International operating income increased in 2013 due largely to a reduction in operating losses in Australia from lower restructuring costs, and improved results in Singapore. These increases were offset by reduced earnings in professional training and increased investment to support growth in English-language programs. Restructuring costs at Kaplan International totaled $5.8 million and $16.4 million in 2013 and 2012, respectively. Restructuring costs were $1.7 million and $14.9 million in the fourth quarter of 2013 and 2012, respectively. These restructuring costs were largely in Australia and included lease obligations, accelerated depreciation and severance charges; the restructuring plan in Australia has now been completed.

In the fourth quarter of 2013, Kaplan recorded $3.3 million in noncash intangible and other long-lived assets impairment charges primarily in connection with one of the businesses in Kaplan International.

Kaplan corporate represents unallocated expenses of Kaplan, Inc.'s corporate office, other minor businesses and certain shared activities. In the fourth quarter of 2013, $11.0 million in restructuring costs was recorded in connection with charges related to office space managed by Kaplan corporate.

In the fourth quarter of 2012, $2.6 million in restructuring costs was included in amortization of intangible assets, largely from accelerated intangible asset amortization associated with changes to business operations in Australia.

Cable

Cable division revenue for 2013 increased 3% to $807.3 million, from $787.1 million in 2012; revenue totaled $200.2 million for the fourth quarter of 2013, a 1% decline from $201.7 million for the fourth quarter of 2012. The revenue increase in 2013 is due to recent rate increases for a substantial portion of subscribers, growth in commercial sales and a reduction in promotional discounts. The increase was offset by a decline in video subscribers, as the cable division focuses its efforts on churn reduction and retention of its high-value subscribers.

Cable division operating income in 2013 increased 10% to $169.7 million, from $154.6 million in 2012; operating income for the fourth quarter of 2013 increased 12% to $48.7 million, from $43.4 million in the fourth quarter of 2012. Cable division operating income for 2013 improved primarily due to increased revenues, partially offset by higher programming costs. The division's operating income for the fourth quarter of 2013 increased primarily due to lower depreciation and marketing expenses.

At December 31, 2013, Primary Service Units (PSUs) were down 4% from the prior year due primarily to a decline in video subscribers. A summary of PSUs is as follows:

 
As of December 31
    2013   2012
Video 538,894   593,615
High-speed data 472,631 459,235
Telephony 177,483     184,528
1,189,008     1,237,378
 

Television Broadcasting

Revenue for the television broadcasting division decreased 6% to $374.6 million in 2013, from $399.7 million in 2012; for the fourth quarter of 2013, revenue decreased 11% to $103.0 million, from $116.2 million in 2012. Television broadcasting division operating income for 2013 decreased 11% to $171.3 million, from $191.6 million in 2012. For the fourth quarter of 2013, operating income decreased 17% to $51.9 million, from $62.8 million in 2012.

The decline in revenue and operating income for 2013 and the fourth quarter of 2013 is due to a $49.7 million and $25.6 million decrease in political advertising revenue, respectively, and $10.8 million in incremental summer Olympics-related advertising at the Company's NBC affiliates included in the third quarter of 2012. The decline in revenue and operating income was partially offset by increased retransmission revenues.

Other Businesses

Other businesses includes the operating results of The Slate Group and Foreign Policy Group, which publish online and print magazines and websites; SocialCode, a marketing solutions provider helping companies with marketing on social-media platforms; Celtic Healthcare, a provider of home health and hospice services in the northeastern and mid-Atlantic regions, acquired by the Company in November 2012; Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications, acquired by the Company in August 2013; and Trove, a digital team focused on emerging technologies and new product development.

The revenue increase of 77% in other businesses for 2013 is due to growth at SocialCode and Slate and revenue from the Company's recently acquired Celtic Healthcare and Forney businesses. Revenue decreased slightly in the fourth quarter of 2013. While gross bookings increased substantially in the fourth quarter of 2013 at SocialCode, revenue declined as changes to customer contract arrangements resulted in a modification to net revenue presentation. Also, $29.9 million of revenue and operating expenses from the third quarter of 2013 have been reclassified to a net revenue presentation in 2013.

Corporate Office

Corporate office includes the expenses of the Company's corporate office, as well as a net pension credit. Corporate office also includes the current and historical pension and postretirement benefits expense for retirees of the newspaper publishing businesses that were sold since the associated assets and liabilities are being retained by the Company.

In November 2013, the Company announced that its headquarters building was to be sold for approximately $159 million. The sale is currently expected to close at the end of March 2014.

Equity in Earnings of Affiliates

The Company holds a 16.5% interest in Classified Ventures, LLC and interests in several other affiliates.

The Company's equity in earnings of affiliates, net, for 2013 was $13.2 million, compared to $14.1 million in 2012. For the fourth quarter of 2013, the Company's equity in earnings of affiliates was insignificant, compared to $2.8 million for the fourth quarter of 2012.

Other Non-Operating (Expense) Income

The Company recorded other non-operating expense, net, of $23.8 million in 2013, compared to $5.5 million in 2012. For the fourth quarter of 2013, the Company recorded other non-operating expense, net, of $14.9 million, compared to $17.6 million for the fourth quarter of 2012.

The 2013 non-operating expense, net, included a $10.4 million fourth quarter write-down of a marketable equity security, $13.4 million in unrealized foreign currency losses ($4.0 million in unrealized foreign currency losses in the fourth quarter) and other items. The 2012 non-operating expense, net, included an $18.0 million fourth quarter write-down of a marketable equity security, offset by $6.6 million in net gains from cost method investments, $3.1 million in unrealized foreign currency gains and other items.

During 2013, on an overall basis, the fair value of the Company's marketable securities appreciated by $96.3 million.

Net Interest Expense and Related Balances

The Company incurred net interest expense of $33.8 million in 2013, compared to $32.6 million in 2012; net interest expense totaled $8.2 million for the fourth quarters of 2013 and 2012. At December 31, 2013, the Company had $450.8 million in borrowings outstanding at an average interest rate of 7.0%, and cash, marketable securities and other investments of $1,175.8 million. At December 31, 2012, the Company had $696.7 million in borrowings outstanding at an average interest rate of 5.1%, and cash, marketable securities and other investments of $959.9 million.

Provision for Income Taxes

The effective tax rate for income from continuing operations in 2013 was 36.5%. This effective tax rate benefited from lower state taxes and lower rates in jurisdictions outside the United States, offset by $4.6 million in net state and non-U.S. valuation allowances provided against deferred income tax benefits where realization is doubtful.

The effective tax rate for income from continuing operations in 2012 was 53.6%. This effective tax rate was adversely impacted by $12.8 million from nondeductible goodwill in connection with an impairment charge recorded in 2012, and $12.5 million in net state and non-U.S. valuation allowances provided against deferred income tax benefits where realization is doubtful, offset by tax benefits from lower rates in jurisdictions outside the United States.

Discontinued Operations

On October 1, 2013, the Company completed the sale of most of its newspaper Publishing Subsidiaries. The related publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times, El Tiempo Latino and related websites. Slate magazine, TheRoot.com and Foreign Policy were not part of the transaction and remain with the Company, as do the Trove and SocialCode businesses. The Company's interest in Classified Ventures and certain real estate assets, including the headquarters building in downtown Washington, DC, also remain with the Company. Consequently, income from continuing operations excludes these sold businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.

The Purchaser acquired all the issued and outstanding equity securities of the Publishing Subsidiaries for $250 million, subject to customary adjustments for cash, debt and working capital at closing. In 2013, a pre-tax gain of $157.5 million was recorded on the sale ($100.0 million after-tax gain).

In March 2013, the Company sold The Herald. Kaplan sold Kidum in August 2012, EduNeering in April 2012 and Kaplan Learning Technologies (KLT) in February 2012. In addition, the Company divested its interest in Avenue100 Media Solutions in July 2012. Consequently, income from continuing operations also excludes the operating results and related net gains on disposition of these businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.

Earnings (Loss) Per Share

The calculation of diluted earnings (loss) per share for 2013 and the fourth quarter of 2013 was based on 7,332,508 and 7,347,267 weighted average shares, respectively, compared to 7,403,946 and 7,223,281 weighted average shares, respectively, for 2012 and the fourth quarter of 2012. In 2013, the Company repurchased 33,024 shares of its Class B common stock at a cost of $17.7 million. At December 31, 2013, there were 7,387,124 shares outstanding and the Company had remaining authorization from the Board of Directors to purchase up to 159,219 shares of Class B common stock.

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)   2013   2012 Change
Operating revenues $ 888,899   $ 895,891 (1 )
Operating expenses 716,520 725,882 (1 )
Depreciation of property, plant and equipment 59,874 73,731 (19 )
Amortization of intangible assets 3,731 7,610 (51 )
Impairment of goodwill and other long-lived assets 3,250     111,593   (97 )
Operating income (loss) 105,524 (22,925 ) -
Equity in earnings of affiliates, net 37 2,785 (99 )
Interest income 590 901 (35 )
Interest expense (8,838 ) (9,064 ) (2 )
Other expense, net (14,920 )   (17,572 ) (15 )
Income (loss) from continuing operations before income taxes 82,393 (45,875 ) -
Provision for income taxes 26,700     5,100   -
Income (loss) from continuing operations 55,693 (50,975 ) -
Income from discontinued operations, net of tax 100,835     5,600   -
Net income (loss) 156,528 (45,375 ) -
Net income attributable to noncontrolling interests (55 )   (64 ) (14 )
Net income (loss) attributable to Graham Holdings Company 156,473 (45,439 ) -
Redeemable preferred stock dividends -     -   -
Net Income (Loss) Attributable to Graham Holdings Company Common Stockholders $ 156,473     $ (45,439 ) -
Amounts Attributable to Graham Holdings Company Common Stockholders
Income (loss) from continuing operations $ 55,638 $ (51,039 ) -
Income from discontinued operations, net of tax 100,835     5,600   -
Net income (loss) $ 156,473     $ (45,439 ) -
Per Share Information Attributable to Graham Holdings Company Common Stockholders
Basic income (loss) per common share from continuing operations $ 7.54 $ (7.35 ) -
Basic income per common share from discontinued operations 13.66     0.78   -
Basic net income (loss) per common share $ 21.20     $ (6.57 ) -
Basic average number of common shares outstanding 7,266 7,223
Diluted income (loss) per common share from continuing operations $ 7.52 $ (7.35 ) -
Diluted income per common share from discontinued operations 13.62     0.78   -
Diluted net income (loss) per common share $ 21.14     $ (6.57 ) -
Diluted average number of common shares outstanding 7,347     7,223  
 
 
GRAHAM HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
 
Twelve Months Ended
December 31 %
(in thousands, except per share amounts)   2013   2012 Change
Operating revenues $ 3,487,864   $ 3,455,570 1
Operating expenses 2,892,233 2,899,773 0
Depreciation of property, plant and equipment 233,218 244,078 (4 )
Amortization of intangible assets 13,598 20,946 (35 )
Impairment of goodwill and other long-lived assets 3,250     111,593   (97 )
Operating income 345,565 179,180 93
Equity in earnings of affiliates, net 13,215 14,086 (6 )
Interest income 2,264 3,393 (33 )
Interest expense (36,067 ) (35,944 ) 0
Other expense, net (23,751 )   (5,456 ) -
Income from continuing operations before income taxes 301,226 155,259 94
Provision for income taxes 110,000     83,200   32
Income from continuing operations 191,226 72,059 -
Income from discontinued operations, net of tax 46,119     60,128   (23 )
Net income 237,345 132,187 80
Net income attributable to noncontrolling interests (480 )   (74 ) -
Net income attributable to Graham Holdings Company 236,865 132,113 79
Redeemable preferred stock dividends (855 )   (895 ) (4 )
Net Income Attributable to Graham Holdings Company Common Stockholders $ 236,010     $ 131,218   80
Amounts Attributable to Graham Holdings Company Common Stockholders
Income from continuing operations $ 189,891 $ 71,090 -
Income from discontinued operations, net of tax 46,119     60,128   (23 )
Net income $ 236,010     $ 131,218   80
Per Share Information Attributable to Graham Holdings Company Common Stockholders
Basic income per common share from continuing operations $ 25.83 $ 9.22 -
Basic income per common share from discontinued operations 6.27     8.17   (23 )
Basic net income per common share $ 32.10     $ 17.39   85
Basic average number of common shares outstanding 7,238 7,360
Diluted income per common share from continuing operations $ 25.78 $ 9.22 -
Diluted income per common share from discontinued operations 6.27     8.17   (23 )
Diluted net income per common share $ 32.05     $ 17.39   84
Diluted average number of common shares outstanding 7,333     7,404  
 
 
GRAHAM HOLDINGS COMPANY

BUSINESS SEGMENT INFORMATION

(Unaudited)
       
Three Months Ended Twelve Months Ended
December 31 % December 31 %
(in thousands)   2013   2012   Change   2013   2012   Change
Operating Revenues    
Education $ 555,011 $ 546,341 2 $ 2,177,508 $ 2,196,496 (1 )
Cable 200,240 201,703 (1 ) 807,309 787,117 3
Television broadcasting 102,952 116,192 (11 ) 374,605 399,691 (6 )
Other businesses 30,735 31,655 (3 ) 128,803 72,837 77
Corporate office - - - - - -
Intersegment elimination (39 )   -     -   (361 )   (571 ) -
$ 888,899     $ 895,891     (1 )   $ 3,487,864     $ 3,455,570   1
Operating Expenses
Education $ 540,415 $ 658,215 (18 ) $ 2,126,207 $ 2,301,864 (8 )
Cable 151,543 158,258 (4 ) 637,574 632,536 1
Television broadcasting 51,046 53,359 (4 ) 203,329 208,049 (2 )
Other businesses 34,647 41,590 (17 ) 152,271 105,847 44
Corporate office 5,763 7,394 (22 ) 23,279 28,665 (19 )
Intersegment elimination (39 )   -   - (361 )   (571 ) -
$ 783,375     $ 918,816   (15 ) $ 3,142,299     $ 3,276,390   (4 )
Operating Income (Loss)
Education $ 14,596 $ (111,874 ) - $ 51,301 $ (105,368 ) -
Cable 48,697 43,445 12 169,735 154,581 10
Television broadcasting 51,906 62,833 (17 ) 171,276 191,642 (11 )
Other businesses (3,912 ) (9,935 ) 61 (23,468 ) (33,010 ) 29
Corporate office (5,763 )   (7,394 ) 22 (23,279 )   (28,665 ) 19
$ 105,524     $ (22,925 ) - $ 345,565     $ 179,180   93
Depreciation
Education $ 28,134 $ 37,431 (25 ) $ 89,764 $ 101,183 (11 )
Cable 27,541 32,366 (15 ) 128,184 129,107 (1 )
Television broadcasting 3,062 3,545 (14 ) 12,467 13,018 (4 )
Other businesses 616 389 58 2,177 770 -
Corporate office 521     -   - 626     -   -
$ 59,874     $ 73,731   (19 ) $ 233,218     $ 244,078   (4 )
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
Education $ 6,044 $ 117,784 (95 ) $ 13,212 $ 129,312 (90 )
Cable 52 52 - 220 211 4
Television broadcasting - - - - - -
Other businesses 885 1,367 (35 ) 3,416 3,016 13
Corporate office -     -   - -     -   -
$ 6,981     $ 119,203   (94 ) $ 16,848     $ 132,539   (87 )
Pension Expense (Credit)
Education $ 4,032 $ 3,701 9 $ 16,538 $ 11,584 43
Cable 940 802 17 3,708 2,540 46
Television broadcasting (371 ) 1,523 - 3,381 4,970 (32 )
Other businesses 187 55 - 610 169 -
Corporate office (14,287 )   (6,712 )   - (41,836 )   (27,871 ) 50
$ (9,499 )   $ (631 )   - $ (17,599 )   $ (8,608 ) -
 
 
GRAHAM HOLDINGS COMPANY

EDUCATION DIVISION INFORMATION

(Unaudited)
       
Three Months Ended Twelve Months Ended
December 31 % December 31 %
(in thousands)   2013   2012   Change   2013   2012   Change
Operating Revenues    
Higher education $ 269,895 $ 276,459 (2 ) $ 1,080,908 $ 1,149,407 (6 )
Test preparation 61,137 60,485 1 293,201 284,252 3
Kaplan international 223,276 206,928 8 797,362 753,790 6
Kaplan corporate 1,494 4,756 (69 ) 7,990 15,039 (47 )
Intersegment elimination (791 )   (2,287 ) - (1,953 )   (5,992 ) -
$ 555,011     $ 546,341   2 $ 2,177,508     $ 2,196,496   (1 )
Operating Expenses
Higher education $ 240,665 $ 265,543 (9 ) $ 1,009,324 $ 1,122,162 (10 )
Test preparation 64,325 67,217 (4 ) 289,083 295,051 (2 )
Kaplan international 194,759 191,609 2 743,938 704,178 6
Kaplan corporate 35,367 18,816 88 72,938 58,199 25
Amortization of intangible assets 2,794 6,191 (55 ) 9,962 17,719 (44 )
Impairment of goodwill and other long-lived assets 3,250 111,593 (97 ) 3,250 111,593 (97 )
Intersegment elimination (745 )   (2,754 ) - (2,288 )   (7,038 ) -
$ 540,415     $ 658,215   (18 ) $ 2,126,207     $ 2,301,864   (8 )
Operating Income (Loss)
Higher education $ 29,230 $ 10,916 - $ 71,584 $ 27,245 -
Test preparation (3,188 ) (6,732 ) 53 4,118 (10,799 ) -
Kaplan international 28,517 15,319 86 53,424 49,612 8
Kaplan corporate (33,873 ) (14,060 ) - (64,948 ) (43,160 ) (50 )
Amortization of intangible assets (2,794 ) (6,191 ) 55 (9,962 ) (17,719 ) 44
Impairment of goodwill and other long-lived assets (3,250 ) (111,593 ) 97 (3,250 ) (111,593 ) 97
Intersegment elimination (46 )   467   - 335     1,046   -
$ 14,596     $ (111,874 ) - $ 51,301     $ (105,368 ) -
Depreciation
Higher education $ 9,973 $ 22,916 (56 ) $ 43,892 $ 58,514 (25 )
Test preparation 4,536 5,410 (16 ) 19,194 19,718 (3 )
Kaplan international 4,281 8,659 (51 ) 16,296 21,149 (23 )
Kaplan corporate 9,344     446   - 10,382     1,802   -
$ 28,134     $ 37,431   (25 ) $ 89,764     $ 101,183   (11 )
Pension Expense
Higher education $ 2,899 $ 2,535 14 $ 11,714 $ 7,943 47
Test preparation 662 626 6 2,674 2,007 33
Kaplan international 90 76 18 363 189 92
Kaplan corporate 381     464   (18 ) 1,787     1,445   24
$ 4,032     $ 3,701   9 $ 16,538     $ 11,584   43
 
 
GRAHAM HOLDINGS COMPANY
EDUCATION DIVISION INFORMATION

SUMMARY OF RESTRUCTURING CHARGES

(Unaudited)
           
Lease
Accelerated Obligation Accelerated
(in thousands)   Severance   Depreciation   Losses   Amortization   Other   Total

Three Months Ended December 31

    2013

Higher education $ 1,217 $ 1,728 $ 2,290 $ - $ 175 $ 5,410
Test preparation - - - - - -
Kaplan international 580 536 318 - 231 1,665
Kaplan corporate 341     9,107     1,594     -     -     11,042
$ 2,138     $ 11,371     $ 4,202     $ -     $ 406     $ 18,117

    2012

Higher education $ 3,211 $ 12,291 $ 1,420 $ - $ 22 $ 16,944
Test preparation - - - - - -
Kaplan international 1,172 4,294 8,374 - 1,042 14,882
Kaplan corporate and amortization of intangible assets 1,485     -     -     2,595     -     4,080
$ 5,868     $ 16,585     $ 9,794     $ 2,595     $ 1,064     $ 35,906

Twelve Months Ended December 31

    2013

Higher education $ 4,264 $ 7,489 $ 6,627 $ - $ 1,164 $ 19,544
Test preparation - - - - - -
Kaplan international 1,684 260 1,130 - 2,698 5,772
Kaplan corporate 341     9,107     1,594     -     -     11,042
$ 6,289     $ 16,856     $ 9,351     $ -     $ 3,862     $ 36,358

    2012

Higher education $ 8,807 $ 12,936 $ 1,420 $ - $ 232 $ 23,395
Test preparation - - - - - -
Kaplan international 2,732 4,294 8,374 - 1,042 16,442
Kaplan corporate and amortization of intangible assets 2,810     -     -     2,595     -     5,405
$ 14,349     $ 17,230     $ 9,794     $ 2,595     $ 1,274     $ 45,242
 

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 income from continuing operations 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.

Income from continuing operations 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 Twelve Months Ended
December 31   December 31
(in thousands, except per share amounts)   2013   2012   2013   2012
Amounts Attributable to Graham Holdings Company Common Stockholders    
Income (loss) from continuing operations, as reported $ 55,638     $ (51,039 )   $ 189,891     $ 71,090  
Adjustments:
Severance and restructuring charges 12,194 27,102 25,347 32,891
Goodwill and other long-lived assets impairment charge 3,210 81,875 3,210 81,875
Marketable equity securities write-down 6,680 11,159 6,680 11,159
Gain on sale of a cost method investment - - - (3,657 )
Foreign currency loss (gain) 2,580     29     8,564     (1,968 )
Income from continuing operations, adjusted (non-GAAP) $ 80,302     $ 69,126     $ 233,692     $ 191,390  
Per Share Information Attributable to Graham Holdings Company Common Stockholders
Diluted income (loss) per common share from continuing operations, as reported $ 7.52     $ (7.35 )   $ 25.78     $ 9.22  
Adjustments:
Severance and restructuring charges 1.66 3.75 3.46 4.53
Goodwill and other long-lived assets impairment charge 0.44 11.33 0.44 11.33
Marketable equity securities write-down 0.91 1.54 0.91 1.54
Gain on sale of a cost method investment - - - (0.48 )
Foreign currency loss (gain) 0.35     -     1.17     (0.27 )
Diluted income per common share from continuing operations, adjusted (non-GAAP) $ 10.88     $ 9.27     $ 31.76     $ 25.87  
The adjusted diluted per share amounts may not compute due to rounding.
 


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