Company Quick10K Filing
Graham
Price656.65 EPS45
Shares5 P/E15
MCap3,499 P/FCF48
Net Debt263 EBIT340
TEV3,762 TEV/EBIT11
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-05
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-07-31
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-25
10-Q 2018-09-30 Filed 2018-10-31
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-11-02
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-04
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-05
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-11
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-07
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-09
10-Q 2011-10-02 Filed 2011-11-09
10-Q 2011-07-03 Filed 2011-08-11
10-Q 2011-04-03 Filed 2011-05-11
10-K 2011-01-02 Filed 2011-03-02
10-Q 2010-10-03 Filed 2010-11-10
10-Q 2010-07-04 Filed 2010-08-11
10-Q 2010-04-04 Filed 2010-05-11
10-K 2010-01-03 Filed 2010-03-02
8-K 2020-05-07
8-K 2020-05-05
8-K 2020-04-01
8-K 2020-03-31
8-K 2020-02-26
8-K 2019-10-30
8-K 2019-07-31
8-K 2019-05-02
8-K 2019-05-01
8-K 2019-02-25
8-K 2018-10-31
8-K 2018-08-01
8-K 2018-05-24
8-K 2018-05-24
8-K 2018-05-21
8-K 2018-05-21
8-K 2018-05-03
8-K 2018-05-02
8-K 2018-03-22
8-K 2018-03-05
8-K 2018-02-23
8-K 2018-01-18

GHC 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits.
EX-4.2 dex42.htm
EX-31.1 dex311.htm
EX-31.2 dex312.htm
EX-32 dex32.htm

Graham Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
1.10.80.50.3-0.0-0.32012201420172020
Rev, G Profit, Net Income
0.60.40.20.0-0.2-0.42012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-06714
GRAHAM HOLDINGS COMPANY
(Exact name of registrant as specified in its charter)
Delaware
 
53-0182885
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
1300 North 17th Street
,
Arlington
,
Virginia
 
22209
(Address of principal executive offices)
 
(Zip Code)
(703) 345-6300
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class B Common Stock, par value $1.00 per share
 
 GHC
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  .    No  .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  .    No  .  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated
filer
Non-accelerated
filer
Smaller reporting
company
Emerging growth
company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  .    No  .  
Shares outstanding at May 1, 2020:
Class A Common Stock – 964,001 Shares
Class B Common Stock – 4,273,796 Shares
 




GRAHAM HOLDINGS COMPANY
Index to Form 10-Q
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
Condensed Consolidated Balance Sheets at March 31, 2020 (Unaudited) and December 31, 2019
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
Condensed Consolidated Statements of Changes in Common Stockholders' Equity (Unaudited) for the Three Months Ended March 31, 2020 and 2019
 
 
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
 
Organization, Basis of Presentation and Recent Accounting Pronouncements
 
Acquisitions and Dispositions of Businesses
 
Investments
 
Accounts Receivable
 
Inventories, Contracts in Progress and Vehicle Floor Plan Payable
 
Goodwill and Other Intangible Assets
 
Debt
 
Fair Value Measurements
 
Income Taxes
 
Revenue From Contracts With Customers
 
Earnings Per Share
 
Pension and Postretirement Plans
 
Other Non-Operating Income
 
Accumulated Other Comprehensive Income (Loss)
 
Contingencies
 
Business Segments
 
 
 
Item 2.
Management’s Discussion and Analysis of Results of Operations and Financial Condition
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
Signatures




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
  
Three Months Ended 
 March 31
  
(in thousands, except per share amounts)
2020
 
2019
Operating Revenues
$
732,257

 
$
692,199

Operating Costs and Expenses
 
 
  
Operating
497,427

 
451,355

Selling, general and administrative
179,475

 
174,258

Depreciation of property, plant and equipment
16,704

 
13,523

Amortization of intangible assets
14,165

 
13,060

Impairment of goodwill and intangible assets
16,401

 

  
724,172

 
652,196

Income from Operations
8,085

 
40,003

Equity in (losses) earnings of affiliates, net
(1,547
)
 
1,679

Interest income
1,151

 
1,700

Interest expense
(7,678
)
 
(7,425
)
Non-operating pension and postretirement benefit income, net
18,403

 
19,928

(Loss) gain on marketable equity securities, net
(100,393
)
 
24,066

Other income, net
2,688

 
29,351

(Loss) Income Before Income Taxes
(79,291
)
 
109,302

(Benefit from) Provision for Income Taxes
(45,400
)
 
27,600

Net (Loss) Income
(33,891
)
 
81,702

Net Loss Attributable to Noncontrolling Interests
646

 
46

Net (Loss) Income Attributable to Graham Holdings Company Common Stockholders
$
(33,245
)
 
$
81,748

Per Share Information Attributable to Graham Holdings Company Common Stockholders
  

 
  

Basic net (loss) income per common share
$
(6.32
)
 
$
15.38

Basic average number of common shares outstanding
5,274

 
5,284

Diluted net (loss) income per common share
$
(6.32
)
 
$
15.26

Diluted average number of common shares outstanding
5,274

 
5,326

See accompanying Notes to Condensed Consolidated Financial Statements.

1



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
  
Three Months Ended 
 March 31
(in thousands)
2020
 
2019
Net (Loss) Income
$
(33,891
)
 
$
81,702

Other Comprehensive (Loss) Income, Before Tax
 
 
  
Foreign currency translation adjustments:
 
 
  
Translation adjustments arising during the period
(37,376
)
 
10,033

Pension and other postretirement plans:
  
 
  
Amortization of net prior service cost (credit) included in net (loss) income
671

 
(1,347
)
Amortization of net actuarial loss (gain) included in net (loss) income
220

 
(548
)
  
891

 
(1,895
)
Cash flow hedges loss
(1,578
)
 
(467
)
Other Comprehensive (Loss) Income, Before Tax
(38,063
)
 
7,671

Income tax benefit related to items of other comprehensive (loss) income
120

 
619

Other Comprehensive (Loss) Income, Net of Tax
(37,943
)
 
8,290

Comprehensive (Loss) Income
(71,834
)
 
89,992

Comprehensive loss attributable to noncontrolling interests
646

 
46

Total Comprehensive (Loss) Income Attributable to Graham Holdings Company
$
(71,188
)
 
$
90,038


See accompanying Notes to Condensed Consolidated Financial Statements.

2



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
As of
(in thousands)
March 31,
2020
 
December 31,
2019
  
(Unaudited)
 
  
Assets
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
178,646

 
$
200,165

Restricted cash
22,993

 
13,879

Investments in marketable equity securities and other investments
451,380

 
599,967

Accounts receivable, net
514,564

 
624,216

Income taxes receivable
55,812

 
10,735

Inventories and contracts in progress
117,440

 
108,928

Prepaid expenses
96,407

 
92,289

Other current assets
11,783

 
13,306

Total Current Assets
1,449,025

 
1,663,485

Property, Plant and Equipment, Net
382,408

 
384,670

Lease Right-of-Use Assets
486,820

 
526,417

Investments in Affiliates
167,628

 
162,249

Goodwill, Net
1,362,191

 
1,388,279

Indefinite-Lived Intangible Assets
116,172

 
140,197

Amortized Intangible Assets, Net
235,008

 
233,481

Prepaid Pension Cost
1,306,843

 
1,292,350

Deferred Income Taxes
11,062

 
11,629

Deferred Charges and Other Assets
128,668

 
128,479

Total Assets
$
5,645,825

 
$
5,931,236

 
 
 
 
Liabilities and Equity
  

 
  

Current Liabilities
  

 
  

Accounts payable and accrued liabilities
$
433,666

 
$
507,701

Deferred revenue
327,830

 
355,156

Income taxes payable
615

 
4,121

Current portion of lease liabilities
89,107

 
92,714

Current portion of long-term debt
78,575

 
82,179

Dividends declared
7,586

 

Total Current Liabilities
937,379

 
1,041,871

Accrued Compensation and Related Benefits
179,574

 
193,836

Other Liabilities
31,430

 
27,223

Deferred Income Taxes
406,943

 
427,372

Mandatorily Redeemable Noncontrolling Interest
829

 
829

Lease Liabilities
440,732

 
477,004

Long-Term Debt
430,317

 
430,650

Total Liabilities
2,427,204

 
2,598,785

Redeemable Noncontrolling Interest
5,781

 
5,655

Preferred Stock

 

Common Stockholders’ Equity
  

 
  

Common stock
20,000

 
20,000

Capital in excess of par value
383,237

 
381,669

Retained earnings
6,485,893

 
6,534,427

Accumulated other comprehensive income, net of tax
 
 
  

Cumulative foreign currency translation adjustment
(59,264
)
 
(21,888
)
Unrealized gain on pensions and other postretirement plans
326,571

 
325,921

Cash flow hedges
(1,955
)
 
(738
)
Cost of Class B common stock held in treasury
(3,948,427
)
 
(3,920,152
)
Total Common Stockholders’ Equity
3,206,055

 
3,319,239

Noncontrolling Interest
6,785

 
7,557

Total Equity
3,212,840

 
3,326,796

Total Liabilities and Equity
$
5,645,825

 
$
5,931,236


See accompanying Notes to Condensed Consolidated Financial Statements.

3



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  
Three Months Ended 
 March 31
(in thousands)
2020
 
2019
Cash Flows from Operating Activities
  
 
  
Net (Loss) Income
$
(33,891
)
 
$
81,702

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
  
 
  
Depreciation, amortization and goodwill and intangible asset impairments
47,270

 
26,583

Amortization of lease right-of-use asset
23,749

 
20,353

Net pension benefit
(13,784
)
 
(13,653
)
Loss (gain) on marketable equity securities and cost method investments, net
102,970

 
(25,357
)
Loss (gain) on disposition of businesses, property, plant and equipment and investments, net
184

 
(29,204
)
Provision for doubtful trade receivables
2,429

 
171

Stock-based compensation expense, net
1,568

 
1,611

Foreign exchange gain
(4,290
)
 
(514
)
Equity in earnings of affiliates, net of distributions
1,547

 
1,021

(Benefit from) provision for deferred income taxes
(21,550
)
 
5,892

Change in operating assets and liabilities:
 
 
 
Accounts receivable, net
100,732

 
30,385

Inventories
(8,512
)
 
(8,807
)
Accounts payable and accrued liabilities
(97,476
)
 
(84,663
)
Deferred revenue
(12,790
)
 
(16,459
)
Income taxes receivable
(27,774
)
 
17,964

Other assets and other liabilities, net
(47,483
)
 
(45,327
)
Other
(496
)
 
380

Net Cash Provided by (Used in) Operating Activities
12,403

 
(37,922
)
Cash Flows from Investing Activities
  
 
  
Investments in certain businesses, net of cash acquired
(6,011
)
 
(83,721
)
Purchases of property, plant and equipment
(25,235
)
 
(28,252
)
Net proceeds from disposition of businesses, property, plant and equipment and investments
218

 
34,718

Investments in equity affiliates, cost method and other investments
(7,427
)
 
(3,401
)
Proceeds from sales of marketable equity securities
48,016

 
17,162

Purchases of marketable equity securities

 
(7,499
)
Loan to related party

 
(3,500
)
Return of investment in equity affiliates

 
615

Net Cash Provided by (Used in) Investing Activities
9,561

 
(73,878
)
Cash Flows from Financing Activities
  
 
  
Common shares repurchased
(33,610
)
 

Issuance of borrowings
1,023

 
30,000

Net proceeds from vehicle floor plan payable
2,478

 
9,529

Dividends paid
(7,703
)
 
(7,391
)
Issuance of noncontrolling interest

 
6,000

Proceeds from exercise of stock options
5,335

 

Deferred payments of acquisition
(2,423
)
 

Other
8,215

 
(1,104
)
Net Cash (Used in) Provided by Financing Activities
(26,685
)
 
37,034

Effect of Currency Exchange Rate Change
(7,684
)
 
1,776

Net Decrease in Cash and Cash Equivalents and Restricted Cash
(12,405
)
 
(72,990
)
Beginning Cash and Cash Equivalents and Restricted Cash
214,044

 
264,115

Ending Cash and Cash Equivalents and Restricted Cash
$
201,639

 
$
191,125



See accompanying Notes to Condensed Consolidated Financial Statements.

4



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated Other Comprehensive Income
Treasury
Stock
Noncontrolling
Interest
Total Equity
 
Redeemable Noncontrolling Interest
As of December 31, 2019
$
20,000

$
381,669

$
6,534,427

$
303,295

$
(3,920,152
)
$
7,557

$
3,326,796

 
$
5,655

Net loss for the period
 
 
(33,891
)
 
 
 
(33,891
)
 
 
Net loss attributable to noncontrolling interest
 
 
772

 
 
(772
)

 
 
Net income attributable to redeemable noncontrolling interests
 
 
(126
)
 
 
 
(126
)
 
126

Dividends on common stock
 
 
(15,289
)
 
 
 
(15,289
)
 
 
Repurchase of Class B common stock
 
 
 
 
(33,610
)
 
(33,610
)
 
 
Issuance of Class B common stock
 
 
 
 
5,335

 
5,335

 
 
Amortization of unearned stock compensation and stock option expense
 
1,568

 
 
 
 
1,568

 
 
Other comprehensive loss, net of income taxes
 
 
 
(37,943
)
 
 
(37,943
)
 
 
As of March 31, 2020
$
20,000

$
383,237

$
6,485,893

$
265,352

$
(3,948,427
)
$
6,785

$
3,212,840

 
$
5,781

As of December 31, 2018
$
20,000

$
378,837

$
6,236,125

$
203,829

$
(3,922,009
)
$

$
2,916,782

 
$
4,346

Net income for the period
 
 
81,702

 
 
 
81,702

 
 
Issuance of noncontrolling interest
 
 
 
 
 
6,000

6,000

 
 
Net loss attributable to noncontrolling interest
 
 
62

 
 
(62
)

 
 
Net income attributable to redeemable noncontrolling interests
 
 
(16
)
 
 
 
(16
)
 
16

Change in redemption value of redeemable noncontrolling interests
 
(54
)
 
 
 
 
(54
)
 
54

Dividends on common stock
 
 
(14,779
)
 
 
 
(14,779
)
 
 
Issuance of Class B common stock, net of restricted stock award forfeitures
 
(3,783
)
 
 
3,755

 
(28
)
 
 
Amortization of unearned stock compensation and stock option expense
 
1,639

 
 
 
 
1,639

 
 
Other comprehensive income, net of income taxes
 
 
 
8,290

 
 
8,290

 
 
Purchase of redeemable noncontrolling interest
 
 
 
 
 
 

 
(550
)
As of March 31, 2019
$
20,000

$
376,639

$
6,303,094

$
212,119

$
(3,918,254
)
$
5,938

$
2,999,536

 
$
3,866

See accompanying Notes to Condensed Consolidated Financial Statements.


5



GRAHAM HOLDINGS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
Graham Holdings Company (the Company), is a diversified education and media company. The Company’s Kaplan subsidiary provides a wide variety of educational services, both domestically and outside the United States. The Company’s media operations comprise the ownership and operation of seven television broadcasting stations, several websites and print publications, and a marketing solutions provider. The Company’s other business operations include manufacturing, automotive dealerships, restaurants and entertainment venues and home health and hospice services.
Basis of Presentation – The accompanying condensed consolidated financial statements have been prepared in accordance with: (i) generally accepted accounting principles in the United States of America (GAAP) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, for financial statements required to be filed with the Securities and Exchange Commission (SEC). They include the assets, liabilities, results of operations and cash flows of the Company, including its domestic and foreign subsidiaries that are more than 50% owned or otherwise controlled by the Company. As permitted under such rules, certain notes and other financial information normally required by GAAP have been condensed or omitted. Management believes the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. The Company’s results of operations for the three months ended March 31, 2020 and 2019 may not be indicative of the Company’s future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Use of Estimates in the Preparation of the Condensed Consolidated Financial Statements – The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported herein. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates.
The Company assessed certain accounting matters that generally require consideration of forecasted financial information, in context with the information reasonably available to the Company and the unknown future impacts of the novel coronavirus (COVID-19) pandemic as of March 31, 2020 and through the date of this filing. The accounting matters assessed included, but were not limited to, the Company’s carrying value of goodwill and other long-lived assets, allowance for doubtful accounts, inventory valuation and related reserves, fair value of financial assets, valuation allowances for tax assets and revenue recognition. Other than the goodwill and indefinite-lived impairment charges (see Note 6), there were no other impacts to the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2020 resulting from our assessments. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s condensed consolidated financial statements in future reporting periods.
Reclassifications – Certain amounts in previously issued condensed consolidated financial statements have been reclassified to conform with the presentation for the period ended March 31, 2020. This includes the reclassification of $25.9 million from operating to selling, general and administrative in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2019.
Recently Adopted and Issued Accounting Pronouncements – In June 2016, the FASB issued new guidance that requires financial assets measured at amortized cost, including accounts receivable, to be measured using the current expected credit losses model (CECL). CECL requires current expected credit losses to be measured upon the initial recognition of a financial asset by considering all available relevant information, including information about past events, current conditions and reasonable and supportable forecasts of future economic conditions. The standard was adopted by the Company in the first quarter of 2020 and did not have a significant impact on its Condensed Consolidated Financial Statements.

6



2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
AcquisitionsIn the first three months of 2020, Kaplan acquired two small businesses; one in its professional (U.S.) division and one in its international division.
During 2019, the Company acquired eight businesses, one in education, three in healthcare, one in manufacturing, and three in other businesses for $211.8 million in cash and contingent consideration and the assumption of $25.8 million in floor plan payables. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition.
On January 31, 2019, the Company acquired an interest in two automotive dealerships for cash and the assumption of floor plan payables (see Note 5). In connection with the acquisition, the automotive subsidiary of the Company borrowed $30 million to finance the acquisition and entered into an interest rate swap to fix the interest rate on the debt at 4.7% per annum (see Note 7). The Company has a 90% interest in the automotive subsidiary. The Company also entered into a management services agreement with an entity affiliated with Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships. Mr. Ourisman and his team operate and manage the dealerships. The Company paid a fee of $2.3 million for the year ended December 31, 2019 in connection with the management services provided under this agreement. In addition, the Company advanced $3.5 million to the minority shareholder, an entity controlled by Mr. Ourisman, at an interest rate of 6% per annum. The minority shareholder has the option to acquire up to an additional 10% interest in the automotive subsidiary. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and is included in other businesses.
In July 2019, Graham Healthcare Group (GHG) acquired a 100% interest in a small business which is expected to provide certain strategic benefits in the future and is included in healthcare. On July 11, 2019, Kaplan acquired a 100% interest in Heverald, the owner of ESL Education, Europe’s largest language-travel agency and Alpadia, a chain of German and French language schools and junior summer camps. The acquisition is expected to provide synergies within Kaplan’s International English business and is included in Kaplan’s international division.
On July 31, 2019, the Company announced the closing of its acquisition of Clyde’s Restaurant Group (CRG). CRG owns and operates 13 restaurants and entertainment venues in the Washington, DC metropolitan area, including Old Ebbitt Grill and The Hamilton. In connection with the acquisition, the Company entered into several leases with an entity affiliated with some of CRG’s senior managers. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and is included in other businesses.
In September 2019, Joyce/Dayton Corp. acquired the assets of a small business. The acquisition is expected to complement current product offerings and is included in manufacturing.
On December 1, 2019, GHG acquired 75% of the preferred shares of CSI Pharmacy Holding Company, LLC, (CSI). In connection with the acquisition, CSI entered into an $11.25 million Term Loan (see Note 7) to finance the acquisition. CSI is a specialty and home infusion pharmacy which provides intravenous immunoglobulin therapies to patients. The minority shareholders may put up to 50% of their preferred shares to GHG and the first put period begins in 2022. A second put period for another tranche of preferred shares begins in 2024. The fair value of the redeemable noncontrolling interest in CSI was $1.7 million at the acquisition date, determined using an income approach. The acquisition is expected to expand the product offerings of the healthcare division.

7



Acquisition-related costs were expensed as incurred. The aggregate purchase price of the 2019 acquisitions was allocated as follows, based on acquisition date fair values to the following assets and liabilities:
 
 
Purchase Price Allocation
 
 
Year Ended
(in thousands)
 
December 31, 2019
Accounts receivable
 
$
6,762

Inventory
 
34,134

Property, plant and equipment
 
56,391

Lease right-of-use assets
 
98,505

Goodwill
 
84,515

Indefinite-lived intangible assets
 
46,900

Amortized intangible assets
 
21,291

Other assets
 
8,308

Floor plan payables
 
(25,755
)
Other liabilities
 
(42,555
)
Deferred income taxes
 
(2,703
)
Current and noncurrent lease liabilities
 
(99,131
)
Redeemable noncontrolling interest
 
(1,715
)
Noncontrolling interest
 
(1,154
)
Aggregate purchase price, net of cash acquired
 
$
183,793


The 2019 fair values recorded were based upon preliminary valuations and the estimates and assumptions used in such valuations are subject to change within the measurement period (up to one year from the acquisition date). The values above reflect a measurement period adjustment related to the Lease Right-of-Use Assets and Current and noncurrent lease liabilities. The recording of deferred tax assets or liabilities, working capital and the final amount of residual goodwill and other intangibles are not yet finalized. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recorded due to these acquisitions is attributable to the assembled workforces of the acquired companies and expected synergies. The Company expects to deduct $70.7 million of goodwill for income tax purposes for the acquisitions completed in 2019.
The acquired companies were consolidated into the Company’s financial statements starting on their respective acquisition dates. The following unaudited pro forma financial information presents the Company’s results as if the current year acquisitions had occurred at the beginning of 2019. The unaudited pro forma information also includes the 2019 acquisitions as if they occurred at the beginning of 2018:
 
Three Months Ended 
 March 31
(in thousands)
2020
 
2019
Operating revenues
$
732,598

 
$
751,191

Net (loss) income
(36,414
)
 
78,896

These pro forma results were based on estimates and assumptions, which the Company believes are reasonable, and include the historical results of operations of the acquired companies and adjustments for depreciation and amortization of identified assets and the effect of pre-acquisition transaction related expenses incurred by the Company and the acquired entities. The pro forma information does not include efficiencies, cost reductions and synergies expected to result from the acquisitions. They are not the results that would have been realized had these entities been part of the Company during the periods presented and are not necessarily indicative of the Company’s consolidated results of operations in future periods.
Sale of Businesses. In November 2019, Kaplan UK completed the sale of a small business which was included in Kaplan International.

8



Other Transactions. During 2019, the Company established GHC One as a vehicle to invest in a portfolio of healthcare businesses together with a group of senior managers of GHG. As a holder of preferred units, the Company is obligated to contribute 95% of the capital required for the acquisition of portfolio investments with the remaining 5% of the capital coming from the group of senior managers. The operating agreement of GHC One requires the dissolution of the entity on March 31, 2026, at which time the net assets will be distributed to its members. As a preferred unit holder, the Company will receive an amount up to its contributed capital plus a preferred annual return of 8% (guaranteed return) after the group of senior managers has received a redemption of their 5% interest in net assets (manager return). All distributions in excess of the manager and guaranteed return will be paid to common unit holders, which currently comprise the group of senior managers of GHG. The Company may convert its preferred units to common units at any time after which it will receive 80% of all distributions in excess of the manager return, with the remaining 20% of excess distributions going to the group of senior managers as holders of the other common units.
As of March 31, 2020, the Company held a controlling financial interest in GHC One and therefore includes the assets, liabilities, results of operations and cash flows in its consolidated financial statements. GHC One acquired CSI and another small business during 2019. The Company accounts for the minority ownership of the group of senior managers as a mandatorily redeemable noncontrolling interest.

In March 2019, a Hoover minority shareholder put some shares to the Company, which had a redemption value of $0.6 million. Following the redemption, the Company owns 98.01% of Hoover.
3. INVESTMENTS
Money Market Investments. As of March 31, 2020 and December 31, 2019, the Company had money market investments of $93.7 million and $45.2 million, respectively, that are classified as cash and cash equivalents in the Company’s Condensed Consolidated Balance Sheets.
Investments in Marketable Equity Securities. Investments in marketable equity securities consist of the following:
  
As of
  
March 31,
2020
 
December 31,
2019
(in thousands)
 
Total cost
$
232,096

 
$
282,349

Gross unrealized gains
204,108

 
302,731

Total Fair Value
$
436,204

 
$
585,080


There were no purchases of marketable equity securities during the first three months of 2020. The Company purchased $7.5 million of marketable equity securities during the first three months of 2019.
During the first three months of 2020, the gross cumulative realized losses from the sales of marketable equity securities were $2.0 million. The total proceeds from such sales were $48.0 million. During the first three months of 2019, the gross cumulative realized gains from the sales of marketable equity securities were $9.7 million. The total proceeds from such sales were $17.2 million.
The net (loss) gain on marketable equity securities comprised the following:
 
Three Months Ended 
 March 31
(in thousands)
2020
 
2019
(Loss) gain on marketable equity securities, net
$
(100,393
)
 
$
24,066

Less: Net losses (gains) in earnings from marketable equity securities sold and donated
8,774

 
(2,982
)
Net unrealized (losses) gains in earnings from marketable equity securities still held at the end of the period
$
(91,619
)
 
$
21,084


Investments in Affiliates. As of March 31, 2020, the Company held an approximate 12% interest in Intersection Holdings, LLC, and in several other affiliates; GHG held a 40% interest in Residential Home Health Illinois, a 42.5% interest in Residential Hospice Illinois, a 40% interest in the joint venture formed between GHG and a Michigan hospital, and a 40% interest in the joint venture formed between GHG and Allegheny Health Network (AHN). For the three months ended March 31, 2020 and 2019, the Company recorded $2.5 million and $2.3 million, respectively, in revenue for services provided to the affiliates of GHG.
In the first quarter of 2020, the Company recorded impairment charges of $3.6 million on two of its investments in affiliates as a result of the challenging economic environment for these businesses, of which $2.7 million relates to the Company’s investment in Framebridge. The Company records its share of the earnings or losses of its affiliates from their most recent available financial statements. In some instances, the reporting period of the affiliates’

9



financial statements lags the Company’s financial reporting period, but such lag is never more than three months. It is possible that the Company’s results of operations for the three months ended March 31, 2020 does not capture the impact of the COVID-19 pandemic on the earnings or losses of the affiliates whose financial results are recorded on a lag basis.
The Company had $29.0 million and $25.6 million in its investment account that represents cumulative undistributed income in its investments in affiliates as of March 31, 2020 and December 31, 2019, respectively.
In the second quarter of 2019, the Company made an investment in Framebridge, a custom framing service company based in Washington, DC. The Company accounts for this investment under the equity method, and included it in Investments in Affiliates on the Condensed Consolidated Balance Sheet. Timothy J. O’Shaughnessy, President and Chief Executive Officer of Graham Holdings Company, is a personal investor in Framebridge and serves as Chairman of the Board.
In February 2019, the Company sold its interest in Gimlet Media. In connection with this sale, the Company recorded a gain of $29.0 million in the first quarter of 2019. The total proceeds from the sale were $33.5 million.
Additionally, Kaplan International Holdings Limited (KIHL) held a 45% interest in a joint venture formed with York University. KIHL loaned the joint venture £22 million, which loan is repayable over 25 years at an interest rate of 7% and guaranteed by the University of York.
Cost Method Investments. The Company held investments without readily determinable fair values in a number of equity securities that are accounted for as cost method investments, which are recorded at cost, less impairment, and adjusted for observable price changes for identical or similar investments of the same issuer. The carrying value of these investments was $35.9 million and $38.5 million as of March 31, 2020 and December 31, 2019, respectively. During the first three months of 2020, the Company recorded impairment losses of $2.6 million to those equity securities. During the first three months of 2019, the Company recorded gains of $1.4 million to those equity securities based on observable transactions.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
 
As of
 
March 31,
2020
 
December 31,
2019
(in thousands)
 
Receivables from contracts with customers, less estimated credit losses of $15,127 and $14,276
$
485,229

 
$
595,321

Other receivables
29,335

 
28,895

 
$
514,564

 
$
624,216


Bad debt expense was $2.4 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.
5. INVENTORIES, CONTRACTS IN PROGRESS AND VEHICLE FLOOR PLAN PAYABLE
Inventories and contracts in progress consist of the following:
 
As of
 
March 31,
2020
 
December 31,
2019
(in thousands)
 
Raw materials
$
34,331

 
$
35,119

Work-in-process
11,105

 
10,775

Finished goods
68,400

 
58,696

Contracts in progress
3,604

 
4,338

 
$
117,440

 
$
108,928


The Company finances all new vehicle inventory through a standardized floor plan facility (the “floor plan facility”) with SunTrust Bank. The new vehicle floor plan facility bears interest at variable rates that are based on LIBOR plus 1.15% per annum. The weighted average interest rate for the floor plan facility was 2.6% and 3.5% for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, the aggregate capacity under the floor plan facility was $50 million, of which $42.6 million had been utilized, and is included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet. Changes in the vehicle floor plan payable are reported as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.
The floor plan facility is collateralized by vehicle inventory and other assets of the relevant dealership subsidiary, and contains a number of covenants, including, among others, covenants restricting the dealership subsidiary with

10



respect to the creation of liens and changes in ownership, officers and key management personnel. The Company was in compliance with all of these restrictive covenants as of March 31, 2020.
The floor plan interest expense related to the new vehicle floor plan arrangements is offset by amounts received from manufacturers in the form of floor plan assistance capitalized in inventory and recorded against operating expense in the Condensed Consolidated Statements of Operations when the associated inventory is sold. For the three months ended March 31, 2020 and 2019, the Company recognized a reduction in operating expense of $0.4 million related to manufacturer floor plan assistance.
6. GOODWILL AND OTHER INTANGIBLE ASSETS
In the first quarter of 2020, as a result of the uncertainty and challenging operating environment created by the COVID-19 pandemic, the Company performed an interim review of the goodwill, indefinite-lived intangibles and other long-lived assets of the CRG and automotive dealership reporting units and asset groups. As a result of the impairment reviews, the Company recorded a $9.7 million goodwill and indefinite-lived intangible asset impairment charge at CRG and a $6.7 million indefinite-lived intangible asset impairment charge at the auto dealerships. The Company estimated the fair value of the reporting units and indefinite-lived intangible assets by utilizing a discounted cash flow model. The carrying value of the CRG reporting unit and the indefinite-lived intangible assets exceeded the estimated fair value, resulting in a goodwill and indefinite-lived intangible asset impairment charge for the amount by which the carrying value exceeded the estimated fair value. CRG and the automotive dealerships are included in other businesses. Additional COVID-19 disruptions could result in future adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with fair value estimates and could lead to additional future impairments, which could be material.
Amortization of intangible assets for the three months ended March 31, 2020 and 2019, was $14.2 million and $13.1 million, respectively. Amortization of intangible assets is estimated to be approximately $41 million for the remainder of 2020, $50 million in 2021, $44 million in 2022, $36 million in 2023, $26 million in 2024 and $38 million thereafter. The changes in the carrying amount of goodwill, by segment, were as follows:
(in thousands)
Education
 
Television
Broadcasting
 
Manufacturing
 
Healthcare
 
SocialCode
 
Other
Businesses
 
Total
Balance as of December 31, 2019
  
 
  
 
 
 
 
 
 
 
  
 
  
Goodwill
$
1,140,958

 
$
190,815

 
$
234,993

 
$
98,421

 
$
15,860

 
$
53,684

 
$
1,734,731

Accumulated impairment losses
(331,151
)
 

 
(7,616
)
 

 

 
(7,685
)
 
(346,452
)
 
809,807

 
190,815

 
227,377

 
98,421

 
15,860

 
45,999

 
1,388,279

Acquisitions
13,151

 

 

 

 

 

 
13,151

Impairment

 

 

 

 

 
(6,878
)
 
(6,878
)
Foreign currency exchange rate changes
(32,361
)
 

 

 

 

 

 
(32,361
)
Balance as of March 31, 2020
  

 
  

 
 
 
 
 
 
 
  

 
  

Goodwill
1,121,748

 
190,815

 
234,993

 
98,421

 
15,860

 
53,684

 
1,715,521

Accumulated impairment losses
(331,151
)