Graham Earnings 2019-09-30

GHC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
HRB	4,859	3,110	2,819	3,100	1,335	425	727	5,694	43%	7.8	14%
CHGG	4,690	1,416	956	361	275	-15	-12	4,133	76%	-337.4	-1%
STRA	3,904	1,785	347	980	0	101	247	3,528	0%	14.3	6%
LAUR	3,851	7,092	3,972	3,324	608	1,239	1,549	4,855	18%	3.1	17%
SE	3,774	2,193	2,432	0	0	0	0	2,516			0%
GHC	3,672	5,213	2,170	2,794	0	321	523	3,982	0%	7.6	6%
UNF	3,295	1,981	372	1,764	655	170	324	2,946	37%	9.1	9%
YELP	2,701	1,083	337	968	910	61	111	2,539	94%	22.9	6%
ATGE	2,649	2,243	842	1,240	616	95	208	2,756	50%	13.2	4%
PINC	2,418	2,570	909	1,563	872	284	458	2,311	56%	5.0	11%

Document

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 September 30, 2019



☐	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 October 25, 2019:

Class A Common Stock – 964,001 Shares

Class B Common Stock – 4,350,385 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 and Nine Months Ended September 30, 2019 and 2018	1

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	2

	Condensed Consolidated Balance Sheets at September 30, 2019 (Unaudited) and December 31, 2018	3

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Changes in Common Stockholders' Equity (Unaudited) for the Three and Nine Months Ended September 30, 2019 and 2018	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

	Organization, Basis of Presentation and Recent Accounting Pronouncements	7
	Acquisitions and Dispositions of Businesses	8
	Investments	10
	Accounts Receivable	12
	Inventories, Contracts in Progress and Vehicle Floor Plan Payable	12
	Leases	12
	Goodwill and Other Intangible Assets	14
	Debt	15
	Fair Value Measurements	17
	Revenue From Contracts With Customers	18
	Earnings Per Share	19
	Pension and Postretirement Plans	19
	Other Non-Operating Income	21
	Accumulated Other Comprehensive Income (Loss)	22
	Contingencies and Regulatory Matters	23
	Business Segments	25

Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1A.	Risk Factors	41

Item 6.	Exhibits	43

Signatures		44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)



	Three Months Ended September 30						Nine Months Ended September 30
	Three Months Ended September 30						Nine Months Ended September 30
(in thousands, except per share amounts)	2019			2018			2019			2018
Operating Revenues	$	738,820		$	674,766		$	2,168,621		$	2,006,879
Operating Costs and Expenses
Operating	517,935			448,920			1,498,928			1,254,726
Selling, general and administrative	175,322			131,081			472,124			497,504
Depreciation of property, plant and equipment	15,351			13,648			42,758			41,909
Amortization of intangible assets	13,572			12,269			39,512			34,052
Impairment of long-lived assets	372			8,109			1,065			8,109
	722,552			614,027			2,054,387			1,836,300
Income from Operations	16,268			60,739			114,234			170,579
Equity in earnings of affiliates, net	4,683			9,537			7,829			13,047
Interest income	1,474			611			4,753			3,884
Interest expense	(6,776		)	(6,135		)	(22,587		)	(31,371		)
Debt extinguishment costs	—			—			—			(11,378		)
Non-operating pension and postretirement benefit income, net	19,556			22,214			51,737			66,641
Gain on marketable equity securities, net	17,404			44,962			49,261			28,306
Other income, net	5,556			3,142			36,135			14,662
Income Before Income Taxes	58,165			135,070			241,362			254,370
Provision for Income Taxes	15,200			10,000			59,500			39,700
Net Income	42,965			125,070			181,862			214,670
Net Loss (Income) Attributable to Noncontrolling Interests	180			(6		)	112			(149		)
Net Income Attributable to Graham Holdings Company Common Stockholders	$	43,145		$	125,064		$	181,974		$	214,521
Per Share Information Attributable to Graham Holdings Company Common Stockholders
Basic net income per common share	$	8.12		$	23.43		$	34.24		$	39.81
Basic average number of common shares outstanding	5,285			5,302			5,285			5,354
Diluted net income per common share	$	8.05		$	23.28		$	33.96		$	39.54
Diluted average number of common shares outstanding	5,329			5,337			5,328			5,390

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)



	Three Months Ended September 30						Nine Months Ended September 30
(in thousands)	2019			2018			2019			2018
Net Income	$	42,965		$	125,070		$	181,862		$	214,670
Other Comprehensive Loss, Before Tax
Foreign currency translation adjustments:
Translation adjustments arising during the period	(16,684		)	(2,844		)	(17,755		)	(22,447		)
Pension and other postretirement plans:
Amortization of net prior service (credit) cost included in net income	(932		)	69			(3,210		)	215
Amortization of net actuarial gain included in net income	(511		)	(3,295		)	(1,534		)	(7,956		)
	(1,443		)	(3,226		)	(4,744		)	(7,741		)
Cash flow hedges (loss) gain	(477		)	(6		)	(904		)	601
Other Comprehensive Loss, Before Tax	(18,604		)	(6,076		)	(23,403		)	(29,587		)
Income tax benefit related to items of other comprehensive loss	518			874			1,512			1,976
Other Comprehensive Loss, Net of Tax	(18,086		)	(5,202		)	(21,891		)	(27,611		)
Comprehensive Income	24,879			119,868			159,971			187,059
Comprehensive loss (income) attributable to noncontrolling interests	180			(6		)	112			(149		)
Total Comprehensive Income Attributable to Graham Holdings Company	$	25,059		$	119,862		$	160,083		$	186,910

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS



	As of
(in thousands)	September 30, 2019			December 31, 2018
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	142,264		$	253,256
Restricted cash	15,143			10,859
Investments in marketable equity securities and other investments	554,211			514,581
Accounts receivable, net	612,141			582,280
Income taxes receivable	9,440			19,166
Inventories and contracts in progress	113,196			69,477
Other current assets	87,863			82,723
Total Current Assets	1,534,258			1,532,342
Property, Plant and Equipment, Net	370,882			293,085
Lease Right-of-Use Assets	503,830			—
Investments in Affiliates	163,986			143,813
Goodwill, Net	1,345,393			1,297,712
Indefinite-Lived Intangible Assets	144,477			99,052
Amortized Intangible Assets, Net	245,393			263,261
Prepaid Pension Cost	1,038,676			1,003,558
Deferred Income Taxes	11,400			13,388
Deferred Charges and Other Assets	129,451			117,830
Total Assets	$	5,487,746		$	4,764,041

Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities	$	477,522		$	486,578
Deferred revenue	337,573			308,728
Income taxes payable	6,668			10,496
Current portion of lease liabilities	78,114			—
Current portion of long-term debt	81,697			6,360
Dividends declared	7,387			—
Total Current Liabilities	988,961			812,162
Accrued Compensation and Related Benefits	177,116			179,652
Other Liabilities	27,398			57,901
Deferred Income Taxes	348,054			322,421
Lease Liabilities	462,868			—
Long-Term Debt	420,535			470,777
Total Liabilities	2,424,932			1,842,913
Redeemable Noncontrolling Interest	3,903			4,346
Preferred Stock	—			—
Common Stockholders’ Equity
Common stock	20,000			20,000
Capital in excess of par value	379,923			378,837
Retained earnings	6,388,546			6,236,125
Accumulated other comprehensive income, net of tax
Cumulative foreign currency translation adjustment	(47,025		)	(29,270		)
Unrealized gain on pensions and other postretirement plans	229,373			232,836
Cash flow hedges	(410		)	263
Cost of Class B common stock held in treasury	(3,918,397		)	(3,922,009		)
Total Common Stockholders’ Equity	3,052,010			2,916,782
Noncontrolling Interest	6,901			—
Total Equity	3,058,911			2,916,782
Total Liabilities and Equity	$	5,487,746		$	4,764,041

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



	Nine Months Ended September 30
(in thousands)	2019			2018
Cash Flows from Operating Activities
Net Income	$	181,862		$	214,670
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and impairment of long-lived assets	83,335			84,070
Amortization of lease right-of-use asset	61,797			—
Net pension benefit and special separation benefit expense	(33,061		)	(55,458		)
Gain on marketable equity securities and cost method investments, net	(54,341		)	(36,793		)
Gain on disposition of businesses, property, plant and equipment and investments, net	(28,871		)	(13,379		)
Provision for doubtful trade and other receivables	21,532			7,858
Debt extinguishment costs	—			10,563
Stock-based compensation expense, net	4,752			5,172
Foreign exchange (gain) loss	(1,284		)	2,205
Write-down of cost method investments	—			2,500
Equity in earnings of affiliates, net of distributions	(3,882		)	(10,294		)
Provision (benefit) for deferred income taxes	26,310			(10,867		)
Change in operating assets and liabilities:
Accounts receivable, net	(47,308		)	47,342
Inventories	(11,969		)	(10,913		)
Accounts payable and accrued liabilities	(60,708		)	(95,100		)
Deferred revenue	24,920			38,148
Income taxes receivable	5,526			23,073
Other assets and other liabilities, net	(96,913		)	(12,844		)
Other	587			1,905
Net Cash Provided by Operating Activities	72,284			191,858
Cash Flows from Investing Activities
Investments in certain businesses, net of cash acquired	(162,060		)	(111,451		)
Purchases of property, plant and equipment	(75,712		)	(58,850		)
Net proceeds (payments) from disposition of businesses, property, plant and equipment and investments	53,785			(13,483		)
Investments in equity affiliates, cost method and other investments	(25,836		)	(10,679		)
Proceeds from sales of marketable equity securities	17,586			66,741
Purchases of marketable equity securities	(7,499		)	—
Loan to related party and advance related to Kaplan University transaction	(3,500		)	(28,061		)
Return of investment in equity affiliates	786			4,521
Net Cash Used in Investing Activities	(202,450		)	(151,262		)
Cash Flows from Financing Activities
Common shares repurchased	—			(110,848		)
Issuance of borrowings	30,000			400,000
Net borrowing under revolving credit facility	5,000			—
Net proceeds from vehicle floor plan payable	15,106			—
Dividends paid	(22,167		)	(21,564		)
Issuance of noncontrolling interest	6,536			—
Purchase of noncontrolling interest	(550		)	(16,500		)
Repayments of borrowings and early redemption premium	(7,901		)	(417,112		)
Payments of debt financing costs	(33		)	(6,490		)
Other	(356		)	5,303
Net Cash Provided by (Used in) Financing Activities	25,635			(167,211		)
Effect of Currency Exchange Rate Change	(2,177		)	(4,216		)
Net Decrease in Cash and Cash Equivalents and Restricted Cash	(106,708		)	(130,831		)
Beginning Cash and Cash Equivalents and Restricted Cash	264,115			407,566
Ending Cash and Cash Equivalents and Restricted Cash	$	157,407		$	276,735

See accompanying Notes to Condensed Consolidated Financial Statements.

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, 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
Net income for the period						57,195												57,195
Net income attributable to noncontrolling interest						(104		)							104			—
Net income attributable to redeemable noncontrolling interests						(10		)										(10		)	10
Dividends on common stock						(7,388		)										(7,388		)
Amortization of unearned stock compensation and stock option expense			1,616															1,616
Other comprehensive loss, net of income taxes									(12,095		)							(12,095		)
As of June 30, 2019	$	20,000	$	378,255		$	6,352,787		$	200,024		$	(3,918,254	)	$	6,042		$	3,038,854		$	3,876
Net income for the period						42,965												42,965
Issuance of noncontrolling interest															536			536
Net loss attributable to noncontrolling interest						207									(207		)	—
Acquisition of noncontrolling interest															530			530
Net income attributable to redeemable noncontrolling interests						(27		)										(27		)	27
Dividends on common stock						(7,386		)										(7,386		)
Issuance of Class B common stock, net of restricted stock award forfeitures			(1		)							(143		)				(144		)
Amortization of unearned stock compensation and stock option expense			1,669															1,669
Other comprehensive loss, net of income taxes									(18,086		)							(18,086		)
As of September 30, 2019	$	20,000	$	379,923		$	6,388,546		$	181,938		$	(3,918,397	)	$	6,901		$	3,058,911		$	3,903



(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, 2017	$	20,000	$	370,700		$	5,791,724		$	535,555		$	(3,802,834	)	$	—	$	2,915,145		$	4,607
Net income for the period						42,965											42,965
Net income attributable to redeemable noncontrolling interests						(73		)									(73		)	73
Dividends on common stock						(14,638		)									(14,638		)
Repurchase of Class B common stock												(79,001		)			(79,001		)
Issuance of Class B common stock, net of restricted stock award forfeitures			(189		)							119					(70		)
Amortization of unearned stock compensation and stock option expense			2,325														2,325
Other comprehensive income, net of income taxes									10,812								10,812
Cumulative effect of accounting change						201,812			(194,889		)						6,923
As of March 31, 2018	$	20,000	$	372,836		$	6,021,790		$	351,478		$	(3,881,716	)	$	—	$	2,884,388		$	4,680
Net income for the period						46,635											46,635
Net income attributable to redeemable noncontrolling interests						(70		)									(70		)	70
Dividends on common stock						(6,949		)									(6,949		)
Repurchase of Class B common stock												(15,091		)			(15,091		)
Issuance of Class B common stock, net of restricted stock award forfeitures			(496		)							(494		)			(990		)
Amortization of unearned stock compensation and stock option expense			2,162														2,162
Other comprehensive loss, net of income taxes									(33,221		)						(33,221		)
As of June 30, 2018	$	20,000	$	374,502		$	6,061,406		$	318,257		$	(3,897,301	)	$	—	$	2,876,864		$	4,750
Net income for the period						125,070											125,070
Net income attributable to redeemable noncontrolling interests						(6		)									(6		)	6
Dividends on common stock

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	5	$3,672

10-Q	2019-10-30	Quarter: 2019-09-30
10-Q	2019-07-31	Quarter: 2019-06-30
10-Q	2019-05-01	Quarter: 2019-03-31
10-K	2019-02-25	Annual: 2018-12-31
10-Q	2018-10-31	Quarter: 2018-09-30
10-Q	2018-08-01	Quarter: 2018-06-30
10-Q	2018-05-02	Quarter: 2018-03-31
10-K	2018-02-23	Annual: 2017-12-31
10-Q	2017-11-01	Quarter: 2017-09-30
10-Q	2017-08-02	Quarter: 2017-06-30
10-Q	2017-05-03	Quarter: 2017-03-31
10-K	2017-02-24	Annual: 2016-12-31
10-Q	2016-11-02	Quarter: 2016-09-30
10-Q	2016-08-03	Quarter: 2016-06-30
10-Q	2016-05-04	Quarter: 2016-03-31
10-K	2016-02-26	Annual: 2015-12-31
10-Q	2015-11-05	Quarter: 2015-09-30
10-Q	2015-08-05	Quarter: 2015-06-30
10-Q	2015-05-11	Quarter: 2015-03-31
10-K	2015-02-27	Annual: 2014-12-31
10-Q	2014-11-05	Quarter: 2014-09-30
10-Q	2014-08-06	Quarter: 2014-06-30
10-Q	2014-05-07	Quarter: 2014-03-31
10-K	2014-02-28	Annual: 2013-12-31
10-Q	2013-11-06	Quarter: 2013-09-30
10-Q	2013-08-07	Quarter: 2013-06-30
10-Q	2013-05-07	Quarter: 2013-03-31
10-K	2013-02-28	Annual: 2012-12-31
10-Q	2012-11-07	Quarter: 2012-09-30
10-Q	2012-08-07	Quarter: 2012-06-30
10-Q	2012-05-09	Quarter: 2012-03-31
10-Q	2011-11-09	Quarter: 2011-10-02
10-Q	2011-08-11	Quarter: 2011-07-03
10-Q	2011-05-11	Quarter: 2011-04-03
10-K	2011-03-02	Annual: 2011-01-02
10-Q	2010-11-10	Quarter: 2010-10-03
10-Q	2010-08-11	Quarter: 2010-07-04
10-Q	2010-05-11	Quarter: 2010-04-04
10-K	2010-03-02	Annual: 2010-01-03

8-K	2019-10-30	Earnings, Exhibits
8-K	2019-07-31	Earnings, Exhibits
8-K	2019-05-02	Shareholder Vote
8-K	2019-05-01	Earnings, Exhibits
8-K	2019-02-25	Earnings, Exhibits
8-K	2018-10-31	Earnings, Exhibits
8-K	2018-08-01	Earnings, Exhibits
8-K	2018-05-24	Other Events, Exhibits
8-K	2018-05-24	Other Events, Exhibits
8-K	2018-05-21	Regulation FD, Other Events, Exhibits
8-K	2018-05-21	Other Events, Exhibits
8-K	2018-05-03	Shareholder Vote
8-K	2018-05-02	Earnings, Exhibits
8-K	2018-03-22	Enter Agreement
8-K	2018-03-05	Other Events
8-K	2018-02-23	Earnings, Exhibits
8-K	2018-01-18	Officers

EX-10.1	dex101.htm
EX-31.1	dex311.htm
EX-31.2	dex312.htm
EX-32	dex32.htm