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 |
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2017March 31, 2021
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | | | | | |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number 1-671001-06714
|
| |
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 ý☒. No ¨☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý☒. 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,” “small“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer Accelerated Filer | ý☒ | 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 ☒. No ý.
Shares outstanding at October 27, 2017:April 30, 2021:
Class A Common Stock – 964,001 Shares
Class B Common Stock – 4,567,8154,037,648 Shares
GRAHAM HOLDINGS COMPANY
Index to Form 10-Q
|
| | | | | | | |
PART I. FINANCIAL INFORMATION | |
| | |
Item 1. | Financial Statements | |
| | |
| a. Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2017 and 2016 | |
| | |
| b. Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2017 and 2016(Loss) | |
| | |
| c. Condensed Consolidated Balance Sheets at September 30, 2017 (Unaudited) and December 31, 2016 | |
| | |
| d. Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2017 and 2016 | |
| | |
| Condensed Consolidated Statements of Changes in Common Stockholders' Equity | |
| | |
| e. 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 (Loss) 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 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 September 30 | | Nine Months Ended September 30 | | | Three Months Ended March 31 |
| | | | Three Months Ended March 31 |
(in thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 | (in thousands, except per share amounts) | | 2021 | | 2020 |
Operating Revenues | | | | | | | |
| Operating Revenues | | |
Education | $ | 377,033 |
| | $ | 386,936 |
| | $ | 1,136,706 |
| | $ | 1,207,086 |
| |
Advertising | 69,495 |
| | 86,531 |
| | 207,143 |
| | 225,590 |
| |
Other | 210,697 |
| | 148,171 |
| | 572,180 |
| | 419,635 |
| |
Sales of services | | Sales of services | | $ | 483,669 | | | $ | 516,637 | |
Sales of goods | | Sales of goods | | 228,786 | | | 215,620 | |
| 657,225 |
| | 621,638 |
| | 1,916,029 |
| | 1,852,311 |
| | | 712,455 | | | 732,257 | |
Operating Costs and Expenses | | | | | | | | Operating Costs and Expenses | | | |
Operating | 352,635 |
| | 293,194 |
| | 1,011,553 |
| | 880,859 |
| |
Cost of services sold | | Cost of services sold | | 292,434 | | | 333,049 | |
Cost of goods sold | | Cost of goods sold | | 178,787 | | | 166,701 | |
Selling, general and administrative | 232,782 |
| | 237,694 |
| | 678,139 |
| | 709,344 |
| Selling, general and administrative | | 175,861 | | | 177,152 | |
Depreciation of property, plant and equipment | 16,002 |
| | 16,097 |
| | 46,525 |
| | 48,903 |
| Depreciation of property, plant and equipment | | 16,545 | | | 16,704 | |
Amortization of intangible assets | 10,923 |
| | 6,620 |
| | 28,290 |
| | 19,160 |
| Amortization of intangible assets | | 13,937 | | | 14,165 | |
Impairment of goodwill and other long-lived assets | 312 |
| | — |
| | 9,536 |
| | — |
| Impairment of goodwill and other long-lived assets | | 1,047 | | | 16,401 | |
| 612,654 |
| | 553,605 |
| | 1,774,043 |
| | 1,658,266 |
| | | 678,611 | | | 724,172 | |
Income from Operations | 44,571 |
| | 68,033 |
| | 141,986 |
| | 194,045 |
| Income from Operations | | 33,844 | | | 8,085 | |
Equity in (losses) earnings of affiliates, net | (532 | ) | | (1,008 | ) | | 1,448 |
| | (895 | ) | |
Equity in earnings (losses) of affiliates, net | | Equity in earnings (losses) of affiliates, net | | 13,428 | | | (1,547) | |
Interest income | 861 |
| | 740 |
| | 3,397 |
| | 2,052 |
| Interest income | | 890 | | | 1,151 | |
Interest expense | (8,619 | ) | | (8,614 | ) | | (25,783 | ) | | (24,533 | ) | Interest expense | | (8,448) | | | (7,678) | |
Other income (expense), net | 1,963 |
| | (18,225 | ) | | 6,881 |
| | 15,871 |
| |
Income Before Income Taxes | 38,244 |
| | 40,926 |
| | 127,929 |
| | 186,540 |
| |
Provision for Income Taxes | 13,400 |
| | 7,800 |
| | 40,000 |
| | 54,000 |
| |
Net Income | 24,844 |
| | 33,126 |
| | 87,929 |
| | 132,540 |
| |
Net Income Attributable to Noncontrolling Interests | (60 | ) | | — |
| | (63 | ) | | (868 | ) | |
Net Income Attributable to Graham Holdings Company Common Stockholders | $ | 24,784 |
| | $ | 33,126 |
| | $ | 87,866 |
| | $ | 131,672 |
| |
Non-operating pension and postretirement benefit income, net | | Non-operating pension and postretirement benefit income, net | | 28,787 | | | 18,403 | |
Gain (loss) on marketable equity securities, net | | Gain (loss) on marketable equity securities, net | | 79,214 | | | (100,393) | |
Other income, net | | Other income, net | | 6,320 | | | 2,688 | |
Income (Loss) Before Income Taxes | | Income (Loss) Before Income Taxes | | 154,035 | | | (79,291) | |
Provision for (Benefit from) Income Taxes | | Provision for (Benefit from) Income Taxes | | 41,400 | | | (45,400) | |
Net Income (Loss) | | Net Income (Loss) | | 112,635 | | | (33,891) | |
Net (Income) Loss Attributable to Noncontrolling Interests | | Net (Income) Loss Attributable to Noncontrolling Interests | | (185) | | | 646 | |
Net Income (Loss) Attributable to Graham Holdings Company Common Stockholders | | Net Income (Loss) Attributable to Graham Holdings Company Common Stockholders | | $ | 112,450 | | | $ | (33,245) | |
| Per Share Information Attributable to Graham Holdings Company Common Stockholders | |
| | |
| | |
| | |
| Per Share Information Attributable to Graham Holdings Company Common Stockholders | | | | |
Basic net income per common share | $ | 4.45 |
| | $ | 5.90 |
| | $ | 15.74 |
| | $ | 23.33 |
| |
Basic net income (loss) per common share | | Basic net income (loss) per common share | | $ | 22.49 | | | $ | (6.32) | |
Basic average number of common shares outstanding | 5,518 |
| | 5,544 |
| | 5,530 |
| | 5,570 |
| Basic average number of common shares outstanding | | 4,967 | | | 5,274 | |
Diluted net income per common share | $ | 4.42 |
| | $ | 5.87 |
| | $ | 15.64 |
| | $ | 23.21 |
| |
Diluted net income (loss) per common share | | Diluted net income (loss) per common share | | $ | 22.44 | | | $ | (6.32) | |
Diluted average number of common shares outstanding | 5,554 |
| | 5,574 |
| | 5,567 |
| | 5,600 |
| Diluted average number of common shares outstanding | | 4,977 | | | 5,274 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
(in thousands) | | | | | 2021 | | 2020 |
Net Income (Loss) | | | | | $ | 112,635 | | | $ | (33,891) | |
Other Comprehensive Loss, Before Tax | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Translation adjustments arising during the period | | | | | (486) | | | (37,376) | |
| | | | | | | |
| | | | | | | |
Pension and other postretirement plans: | | | | | | | |
Amortization of net prior service cost included in net income | | | | | 792 | | | 671 | |
Amortization of net actuarial (gain) loss included in net income | | | | | (2,429) | | | 220 | |
| | | | | | | |
| | | | | (1,637) | | | 891 | |
Cash flow hedges gain (loss) | | | | | 621 | | | (1,578) | |
Other Comprehensive Loss, Before Tax | | | | | (1,502) | | | (38,063) | |
Income tax benefit related to items of other comprehensive loss | | | | | 299 | | | 120 | |
Other Comprehensive Loss, Net of Tax | | | | | (1,203) | | | (37,943) | |
Comprehensive Income (Loss) | | | | | 111,432 | | | (71,834) | |
Comprehensive (income) loss attributable to noncontrolling interests | | | | | (185) | | | 646 | |
Total Comprehensive Income (Loss) Attributable to Graham Holdings Company | | | | | $ | 111,247 | | | $ | (71,188) | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Net Income | $ | 24,844 |
| | $ | 33,126 |
| | $ | 87,929 |
| | $ | 132,540 |
|
Other Comprehensive Income, Before Tax | | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Translation adjustments arising during the period | 11,470 |
| | (353 | ) | | 34,776 |
| | (1,629 | ) |
Unrealized gains on available-for-sale securities: | | | | | | | |
Unrealized gains for the period, net | 47,836 |
| | 12,154 |
| | 71,370 |
| | 7,190 |
|
Reclassification of realized gain on sale of available-for-sale securities included in net income | — |
| | — |
| | — |
| | (6,256 | ) |
| 47,836 |
| | 12,154 |
| | 71,370 |
| | 934 |
|
Pension and other postretirement plans: | | | | | | | |
Amortization of net prior service cost included in net income | 118 |
| | 105 |
| | 358 |
| | 314 |
|
Amortization of net actuarial (gain) loss included in net income | (1,567 | ) | | 289 |
| | (4,958 | ) | | 868 |
|
| (1,449 | ) | | 394 |
| | (4,600 | ) | | 1,182 |
|
Cash flow hedge (loss) gain | (72 | ) | | 49 |
| | (215 | ) | | 49 |
|
Other Comprehensive Income, Before Tax | 57,785 |
| | 12,244 |
| | 101,331 |
| | 536 |
|
Income tax expense related to items of other comprehensive income | (18,540 | ) | | (5,039 | ) | | (26,665 | ) | | (866 | ) |
Other Comprehensive Income (Loss), Net of Tax | 39,245 |
| | 7,205 |
| | 74,666 |
| | (330 | ) |
Comprehensive Income | 64,089 |
| | 40,331 |
| | 162,595 |
| | 132,210 |
|
Comprehensive income attributable to noncontrolling interests | (60 | ) | | — |
| | (63 | ) | | (868 | ) |
Total Comprehensive Income Attributable to Graham Holdings Company | $ | 64,029 |
| | $ | 40,331 |
| | $ | 162,532 |
| | $ | 131,342 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| As of |
(in thousands) | March 31, 2021 | | December 31, 2020 |
| (Unaudited) | | |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 350,135 | | | $ | 413,991 | |
Restricted cash | 22,484 | | | 9,063 | |
Investments in marketable equity securities and other investments | 715,580 | | | 587,582 | |
Accounts receivable, net | 515,220 | | | 537,156 | |
| | | |
Inventories and contracts in progress | 132,136 | | | 120,622 | |
Prepaid expenses | 85,119 | | | 75,523 | |
Income taxes receivable | 15,339 | | | 29,313 | |
Other current assets | 1,427 | | | 942 | |
| | | |
Total Current Assets | 1,837,440 | | | 1,774,192 | |
Property, Plant and Equipment, Net | 375,862 | | | 378,286 | |
Lease Right-of-Use Assets | 453,193 | | | 462,560 | |
Investments in Affiliates | 169,203 | | | 155,777 | |
Goodwill, Net | 1,485,137 | | | 1,484,750 | |
Indefinite-Lived Intangible Assets | 121,050 | | | 120,437 | |
Amortized Intangible Assets, Net | 190,041 | | | 204,646 | |
Prepaid Pension Cost | 1,730,625 | | | 1,708,305 | |
Deferred Income Taxes | 7,651 | | | 8,396 | |
Deferred Charges and Other Assets | 148,218 | | | 146,770 | |
| | | |
Total Assets | $ | 6,518,420 | | | $ | 6,444,119 | |
| | | |
Liabilities and Equity | | | |
Current Liabilities | | | |
Accounts payable and accrued liabilities | $ | 492,625 | | | $ | 520,236 | |
Deferred revenue | 331,678 | | | 331,021 | |
Income taxes payable | 6,891 | | | 5,140 | |
| | | |
| | | |
Current portion of lease liabilities | 84,749 | | | 86,797 | |
Current portion of long-term debt | 4,238 | | | 6,452 | |
Dividends declared | 7,553 | | | 0 | |
| | | |
| | | |
Total Current Liabilities | 927,734 | | | 949,646 | |
| | | |
Accrued Compensation and Related Benefits | 196,558 | | | 201,918 | |
Other Liabilities | 36,591 | | | 48,768 | |
Deferred Income Taxes | 549,418 | | | 521,274 | |
Mandatorily Redeemable Noncontrolling Interest | 10,272 | | | 9,240 | |
Lease Liabilities | 419,131 | | | 428,849 | |
Long-Term Debt | 506,091 | | | 506,103 | |
| | | |
Total Liabilities | 2,645,795 | | | 2,665,798 | |
| | | |
Redeemable Noncontrolling Interests | 7,786 | | | 11,928 | |
Preferred Stock | 0 | | | 0 | |
Common Stockholders’ Equity | | | |
Common stock | 20,000 | | | 20,000 | |
Capital in excess of par value | 385,257 | | | 388,159 | |
Retained earnings | 6,902,166 | | | 6,804,822 | |
Accumulated other comprehensive income, net of taxes | | | |
Cumulative foreign currency translation adjustment | 9,268 | | | 9,754 | |
| | | |
Unrealized gain on pensions and other postretirement plans | 594,093 | | | 595,287 | |
Cash flow hedges | (1,250) | | | (1,727) | |
Cost of Class B common stock held in treasury | (4,051,909) | | | (4,056,993) | |
Total Common Stockholders’ Equity | 3,857,625 | | | 3,759,302 | |
Noncontrolling Interests | 7,214 | | | 7,091 | |
Total Equity | 3,864,839 | | | 3,766,393 | |
Total Liabilities and Equity | $ | 6,518,420 | | | $ | 6,444,119 | |
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2017 | | December 31, 2016 |
| (Unaudited) | | |
Assets | | | |
Current Assets | | | |
Cash and cash equivalents | $ | 395,009 |
| | $ | 648,885 |
|
Restricted cash | 21,403 |
| | 21,931 |
|
Investments in marketable equity securities and other investments | 519,586 |
| | 448,241 |
|
Accounts receivable, net | 525,779 |
| | 615,101 |
|
Income taxes receivable | 28,108 |
| | 41,635 |
|
Inventories and contracts in progress | 62,531 |
| | 34,818 |
|
Other current assets | 65,443 |
| | 60,735 |
|
Total Current Assets | 1,617,859 |
| | 1,871,346 |
|
Property, Plant and Equipment, Net | 259,809 |
| | 233,664 |
|
Investments in Affiliates | 122,166 |
| | 58,806 |
|
Goodwill, Net | 1,299,226 |
| | 1,122,954 |
|
Indefinite-Lived Intangible Assets, Net | 109,901 |
| | 66,026 |
|
Amortized Intangible Assets, Net | 239,152 |
| | 107,939 |
|
Prepaid Pension Cost | 863,098 |
| | 881,593 |
|
Deferred Income Taxes | 15,820 |
| | 17,246 |
|
Deferred Charges and Other Assets | 92,884 |
| | 73,096 |
|
Total Assets | $ | 4,619,915 |
| | $ | 4,432,670 |
|
| | | |
Liabilities and Equity | |
| | |
|
Current Liabilities | |
| | |
|
Accounts payable and accrued liabilities | $ | 446,076 |
| | $ | 500,726 |
|
Deferred revenue | 353,367 |
| | 312,107 |
|
Current portion of long-term debt | 6,713 |
| | 6,128 |
|
Dividends declared | 7,025 |
| | — |
|
Total Current Liabilities | 813,181 |
| | 818,961 |
|
Postretirement Benefits Other Than Pensions | 22,929 |
| | 21,859 |
|
Accrued Compensation and Related Benefits | 198,907 |
| | 195,910 |
|
Other Liabilities | 67,589 |
| | 65,554 |
|
Deferred Income Taxes | 454,027 |
| | 379,092 |
|
Mandatorily Redeemable Noncontrolling Interest | 12,584 |
| | 12,584 |
|
Long-Term Debt | 486,242 |
| | 485,719 |
|
Total Liabilities | 2,055,459 |
| | 1,979,679 |
|
Redeemable Noncontrolling Interest | 3,779 |
| | 50 |
|
Preferred Stock | — |
| | — |
|
Common Stockholders’ Equity | |
| | |
|
Common stock | 20,000 |
| | 20,000 |
|
Capital in excess of par value | 368,505 |
| | 364,363 |
|
Retained earnings | 5,648,479 |
| | 5,588,942 |
|
Accumulated other comprehensive income (loss), net of tax | | | |
|
Cumulative foreign currency translation adjustment | 7,778 |
| | (26,998 | ) |
Unrealized gain on available-for-sale securities | 135,753 |
| | 92,931 |
|
Unrealized gain on pensions and other postretirement plans | 168,070 |
| | 170,830 |
|
Cash flow hedge | (449 | ) | | (277 | ) |
Cost of Class B common stock held in treasury | (3,787,459 | ) | | (3,756,850 | ) |
Total Equity | 2,560,677 |
| | 2,452,941 |
|
Total Liabilities and Equity | $ | 4,619,915 |
| | $ | 4,432,670 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | | | | | |
| Three Months Ended March 31 |
(in thousands) | 2021 | | 2020 |
Cash Flows from Operating Activities | | | |
Net Income (Loss) | $ | 112,635 | | | $ | (33,891) | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and goodwill and other long-lived asset impairments | 31,529 | | | 47,270 | |
Amortization of lease right-of-use asset | 18,594 | | | 23,749 | |
Net pension benefit | (24,501) | | | (13,784) | |
(Gain) loss on marketable equity securities and cost method investments, net | (81,937) | | | 100,393 | |
(Gain) loss on disposition and write-down of businesses, property, plant and equipment and investments, net | (240) | | | 2,761 | |
Provision for doubtful trade receivables | 1,126 | | | 2,429 | |
Stock-based compensation expense, net | 1,485 | | | 1,568 | |
Foreign exchange gain | (3) | | | (4,290) | |
Equity in (earnings) losses of affiliates, net of distributions | (11,241) | | | 1,547 | |
Provision for (benefit from) deferred income taxes | 29,311 | | | (21,550) | |
Change in operating assets and liabilities: | | | |
Accounts receivable, net | 25,196 | | | 100,732 | |
Inventories | (11,493) | | | (8,512) | |
Accounts payable and accrued liabilities | (29,965) | | | (97,476) | |
Deferred revenue | (6,655) | | | (12,790) | |
Income taxes receivable | 10,860 | | | (27,774) | |
Lease liabilities | (21,119) | | | (22,503) | |
Other assets and other liabilities, net | (20,881) | | | (24,980) | |
Other | 1,298 | | | (496) | |
Net Cash Provided by Operating Activities | 23,999 | | | 12,403 | |
Cash Flows from Investing Activities | | | |
Purchases of marketable equity securities | (48,036) | | | 0 | |
Purchases of property, plant and equipment | (13,113) | | | (25,235) | |
Investments in equity affiliates, cost method and other investments | (2,415) | | | (7,427) | |
Net proceeds from disposition of businesses, property, plant and equipment, and investments | 270 | | | 218 | |
| | | |
Proceeds from sales of marketable equity securities | 0 | | | 48,016 | |
| | | |
| | | |
| | | |
| | | |
Investments in certain businesses, net of cash acquired | 0 | | | (6,011) | |
Other | 4 | | | 0 | |
Net Cash (Used in) Provided by Investing Activities | (63,290) | | | 9,561 | |
Cash Flows from Financing Activities | | | |
Dividends paid | (7,553) | | | (7,703) | |
Purchase of noncontrolling interest | (3,508) | | | 0 | |
Proceeds from bank overdrafts | 3,212 | | | 9,062 | |
Net proceeds from vehicle floor plan payable | 2,462 | | | 2,478 | |
Net payments under revolving credit facilities | (2,223) | | | 0 | |
Deferred payments of acquisition | (1,340) | | | (2,423) | |
Repayments of borrowings | (1,034) | | | (847) | |
Common shares repurchased | 0 | | | (33,610) | |
| | | |
Proceeds from exercise of stock options | 0 | | | 5,335 | |
Issuance of borrowings | 0 | | | 1,023 | |
| | | |
Other | (145) | | | 0 | |
Net Cash Used in Financing Activities | (10,129) | | | (26,685) | |
Effect of Currency Exchange Rate Change | (1,015) | | | (7,684) | |
Net Decrease in Cash and Cash Equivalents and Restricted Cash | (50,435) | | | (12,405) | |
Beginning Cash and Cash Equivalents and Restricted Cash | 423,054 | | | 214,044 | |
Ending Cash and Cash Equivalents and Restricted Cash | $ | 372,619 | | | $ | 201,639 | |
|
| | | | | | | |
| Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 |
Cash Flows from Operating Activities | | | |
Net Income | $ | 87,929 |
| | $ | 132,540 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and goodwill and other long-lived asset impairment | 84,351 |
| | 68,063 |
|
Net pension benefit | (44,281 | ) | | (36,714 | ) |
Early retirement program expense | 932 |
| | — |
|
Stock-based compensation expense, net | 7,528 |
| | 10,319 |
|
Loss (gain) on disposition of businesses, property, plant and equipment, investments and other assets, net | 504 |
| | (62,132 | ) |
Foreign exchange (gain) loss | (6,608 | ) | | 33,324 |
|
Write-down of cost method investments | 200 |
| | 15,161 |
|
Equity in (earnings) losses of affiliates, net of distributions | (1,434 | ) | | 895 |
|
Provision (benefit) for deferred income taxes | 16,306 |
| | (17,281 | ) |
Change in operating assets and liabilities: | | | |
Accounts receivable, net | 106,230 |
| | 5,980 |
|
Accounts payable and accrued liabilities | (63,255 | ) | | (38,099 | ) |
Deferred revenue | 27,254 |
| | 28,014 |
|
Income taxes receivable | 14,477 |
| | 27,206 |
|
Other assets and other liabilities, net | (9,795 | ) | | (16,492 | ) |
Other | 519 |
| | 671 |
|
Net Cash Provided by Operating Activities | 220,857 |
| | 151,455 |
|
Cash Flows from Investing Activities | | | |
Investments in certain businesses, net of cash acquired | (299,938 | ) | | (242,472 | ) |
Investments in equity affiliates, cost method and other investments | (66,097 | ) | | (4,550 | ) |
Purchases of property, plant and equipment | (43,863 | ) | | (41,373 | ) |
Disbursement of loan to affiliate | (6,771 | ) | | (7,730 | ) |
Return of investment in equity affiliate | 3,527 |
| | — |
|
Net proceeds from disposition of businesses, property, plant and equipment, investments and other assets | 2,672 |
| | 36,777 |
|
Proceeds from sales of marketable equity securities | — |
| | 22,837 |
|
Purchases of marketable equity securities | — |
| | (48,265 | ) |
Net Cash Used in Investing Activities | (410,470 | ) | | (284,776 | ) |
Cash Flows from Financing Activities | | | |
Common shares repurchased | (35,394 | ) | | (90,328 | ) |
Dividends paid | (21,304 | ) | | (20,532 | ) |
Repayments of borrowings | (7,712 | ) | | — |
|
Deferred payments of acquisition and noncontrolling interest | (5,187 | ) | | — |
|
Issuance of borrowings | — |
| | 98,610 |
|
Purchase of noncontrolling interest | — |
| | (21,000 | ) |
Payments of financing costs | — |
| | (648 | ) |
Other | (4,962 | ) | | 16,608 |
|
Net Cash Used in Financing Activities | (74,559 | ) | | (17,290 | ) |
Effect of Currency Exchange Rate Change | 9,768 |
| | (3,147 | ) |
Net Decrease in Cash and Cash Equivalents and Restricted Cash | (254,404 | ) | | (153,758 | ) |
Beginning Cash and Cash Equivalents and Restricted Cash | 670,816 |
| | 774,952 |
|
Ending Cash and Cash Equivalents and Restricted Cash | $ | 416,412 |
| | $ | 621,194 |
|
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, 2020 | $ | 20,000 | | $ | 388,159 | | $ | 6,804,822 | | $ | 603,314 | | $ | (4,056,993) | | $ | 7,091 | | $ | 3,766,393 | | | $ | 11,928 | |
Net income for the period | | | 112,635 | | | | | 112,635 | | | |
Net income attributable to noncontrolling interests | | | (185) | | | | 185 | | 0 | | | |
| | | | | | | | | |
| | | | | | | | | |
Change in redemption value of redeemable noncontrolling interests | | 697 | | | | | 64 | | 761 | | | (634) | |
Distribution to noncontrolling interest | | | | | | (126) | | (126) | | | |
Dividends on common stock | | | (15,106) | | | | | (15,106) | | | |
| | | | | | | | | |
Issuance of Class B common stock, net of restricted stock forfeitures | | (5,188) | | | | 5,084 | | | (104) | | | |
Amortization of unearned stock compensation and stock option expense | | 1,589 | | | | | | 1,589 | | | |
Other comprehensive loss, net of income taxes | | | | (1,203) | | | | (1,203) | | | |
Purchase of redeemable noncontrolling interest | | | | | | | 0 | | | (3,508) | |
| | | | | | | | | |
As of March 31, 2021 | $ | 20,000 | | $ | 385,257 | | $ | 6,902,166 | | $ | 602,111 | | $ | (4,051,909) | | $ | 7,214 | | $ | 3,864,839 | | | $ | 7,786 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(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) | | 0 | | | |
| | | | | | | | | |
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 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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.States (U.S.). The Company’s media operations comprise the ownership and operation of seven7 television broadcasting stations, several websites and print publications, podcast content and a marketing solutions provider. The Company’s other business operations include manufacturing, automotive dealerships, restaurants and entertainment venues, custom framing services 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 and nine months ended September 30, 2017March 31, 2021 and 20162020 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, 2016.2020.
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Out of Period Adjustment – In the second quarter of 2016, the Company benefited from a favorable $5.6 million out of period adjustment to the provision for deferred income taxes related to the $248.6 million goodwill impairment at the KHE reporting unit in the third quarter of 2015. With respect to this error, the Company has concluded that it was not material to the Company’s financial position or results of operations for 2016 and the related interim periods, based on its consideration of quantitative and qualitative factors.
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.
Recently Adopted and Issued Accounting Pronouncements – In May 2014,The Company assessed certain accounting matters that generally require consideration of forecasted financial information, in context with the Financial Accounting Standards Board (FASB) issued comprehensive new guidance that supersedes all existing revenue recognition guidance. In August 2015, the FASB issued an amendmentinformation reasonably available to the guidance that defersCompany and the effective date by one year. The new guidance requires revenue to be recognized whenunknown future impacts of the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The new guidance also significantly expands the disclosure requirements for revenue recognition. The guidance is effective for interim and fiscal years beginning after December 15, 2017. Early adoption is permitted onlynovel coronavirus (COVID-19) pandemic as of annual reporting periods beginning after December 15, 2016.March 31, 2021 and through the date of this filing. The standard permits two implementation approaches, full retrospective, requiring retrospective application of the new guidance with a restatement of prior years, or modified retrospective, requiring prospective application of the new guidance with disclosure of results under the old guidance in the first year of adoption. The Company will adopt the new guidance on January 1, 2018 using the modified retrospective approach.
The Company is in the process of completing the evaluation of the impact of adopting the new guidance, as well as assessing the need for any potential changesaccounting matters assessed included, but were not limited to, the Company’s accounting policies and internal control structure. The evaluationcarrying value of contracts at the Company’s television broadcastinggoodwill and other businesses is substantially complete,long-lived assets, allowance for doubtful accounts, inventory valuation and based upon the results of the work performed to date, the Company does not expect the application of the new guidance to have a material impact to the Company’s Consolidated Statement of Operations or Balance Sheet, either at initial implementation or on an ongoing basis. The Company is continuing its evaluation of contracts at the education division and is not yet able to estimate the anticipated impact of these arrangements to the Company’s Consolidated Financial Statements. The Company expects adoption of the new guidance will result in a
change to its current treatment of certain commissions paid to employees and agents at the education division. The Company currently expenses such commissions as incurred. Under the new guidance, the Company expects to capitalize certain commission costs as an incremental cost of obtaining a contract and subsequently amortize the cost as the tuition services are delivered to students. The Company expects to complete its evaluation of the impact of the new guidance in the fourth quarter of 2017. The Company is also evaluating the new disclosures required by the guidance to determine additional information that will need to be disclosed.
In January 2016, the FASB issued new guidance that substantially revises the recognition, measurement and presentation of financial assets and financial liabilities. The new guidance, among other things, requires, (i) equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, with some exceptions, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) requires public business entities to use the exit price notion when measuring therelated reserves, fair value of financial instrumentsassets, valuation allowances for disclosure purposes, (iv) requires separate presentation of financialtax assets and financial liabilities by measurement category and form of financialrevenue recognition. Other than the other long-lived asset on the balance sheet or the accompanying notesimpairment charges (see Note 8), there were no other impacts to the Company’s condensed consolidated financial statements and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The guidance is effective for interim and fiscal years beginning after December 15, 2017. Early adoption is not permitted. The Company is in the processas of evaluating the impact of this new guidance on its Condensed Consolidated Financial Statements.
In February 2016, the FASB issued new guidance that requires, among other things, a lessee to recognize a right-of-use asset representing an entity’s right to use the underlying assetand for the lease termthree months ended March 31, 2021 resulting from our assessments. The Company’s assessments as of and a liability for lease payments on its balance sheet, regardless of classification of a lease as operating or financing. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and account for the lease similar to existing guidance for operating leases today. This new guidance supersedes all prior guidance. three months ended March 31, 2020 resulted in goodwill and indefinite-lived asset impairment charges (see Note 6 and Note 8). The guidance is effective for interim and fiscal years beginning after December 15, 2018. Early adoption is permitted. The standard requires lessees and lessors to recognize and measure leases at the beginningCompany’s future assessment of the earliest period presented using a modified retrospective approach. The Company ismagnitude and duration of COVID-19, as well as other factors, could result in the process of evaluating the impact of this new guidance on its Condensed Consolidated Financial Statements.
In March 2016, the FASB issued new guidance that simplifies the accounting for stock-based compensation. The new guidance (i) requires all excess tax benefits and tax deficiencies to be recognized in the income statement with the tax effects of vested or exercised awards treated as discrete items. Additionally, excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period, effectively eliminating the APIC pool, (ii) concludes excess tax benefits should be classified as an operating activity in the statement of cash flows, (iii) requires an entity to make an entity-wide accounting policy election to either estimate a forfeiture rate for awards or account for forfeitures as they occur, (iv) changes the threshold for equity classification for cash settlements of awards for withholding requirementsmaterial impacts to the maximum statutory tax rate in the applicable jurisdiction and (v) concludes cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity in the statement of cash flows. The guidance is effective for interim and fiscal years beginning after December 15, 2016. The Company adopted the new guidance as of January 1, 2017. As a result of adoption, the Company recognized a $5.9 million excess tax benefit as a discrete item in its tax provision related to the vesting of restricted stock awards in the first quarter of 2017. This tax benefit is classified as an operating activity on the Condensed Consolidated Statement of Cash Flows. Additionally, the Company elected to account for forfeitures of stock awards as they occur and not estimate a forfeiture rate. The Company does not expect the forfeiture rate election to have a material impact on its financial statements.
In November 2016, the FASB issued new guidance that clarifies how restricted cash and restricted cash equivalents should be presented in the statement of cash flows. The guidance requires the cash flow statement to show changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents, which eliminates the presentation of transfers between cash and cash equivalents and restricted cash and cash equivalents. The guidance is effective for interim and fiscal years beginning after December 15, 2017, with early adoption permitted. The Company adopted the new guidance retrospectively as of December 31, 2016. The prior period has been adjusted to reflect this adoption, as detailed below: |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2016 |
| As | | | | |
| Previously | | | | As |
(in thousands) | Reported | | Adjustment | | Adopted |
Cash Flows from Operating Activities | | | | | |
Increase in Restricted Cash | $ | (7,266 | ) | | $ | 7,266 |
| | $ | — |
|
Net Cash Provided by Operating Activities | 144,189 |
| | 7,266 |
| | 151,455 |
|
| | | | | |
Net Decrease in Cash and Cash Equivalents and Restricted Cash | (161,024 | ) | | 7,266 |
| | (153,758 | ) |
Cash and Cash Equivalents and Restricted Cash at Beginning of Period | 754,207 |
| | 20,745 |
| | 774,952 |
|
Cash and Cash Equivalents and Restricted Cash at End of Period | 593,183 |
| | 28,011 |
| | 621,194 |
|
In January 2017, the FASB issued new guidance which simplifies the subsequent measurement of goodwill. The new guidance eliminates Step 2 from the goodwill impairment test, which required entities to determine the implied fair value of goodwill as of the test date to measure a goodwill impairment charge. Instead, an entity should continue to test goodwill for impairment by comparing the fair value of a reporting unit with its carrying amount (Step 1), and an impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The guidance is effective for interim and fiscal years beginning after December 15, 2019, with early adoption permitted. The Company early adopted this guidance in the second quarter of 2017.
In March 2017, the FASB issued new guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost for defined benefit plans. The guidance requires an issuer to disaggregate the service cost component of net periodic pension and postretirement benefit cost from other components. Under the new guidance, service cost will be included in the same line item(s) as other compensation costs arising from services rendered by employees during the period, while the other components will be recognized after income from operations. The guidance is effective for interim and fiscal years beginning after December 15, 2017. The guidance must be applied retrospectively; however, a practical expedient is available which permits an employer to use amounts previously disclosed in its pension and postretirement plans footnote for the prior comparative periods. The Company will adopt the new standard in the first quarter of 2018, and expects the following changes to itsCompany’s condensed consolidated financial statements upon adoption, as detailed below: |
| | | | | | | | | | | |
| Income from Operations | | Non-operating pension and postretirement benefit income | | Income Before Income Taxes |
(in thousands) | | |
Three Months Ended September 30, 2017 | | | | | |
As Reported | $ | 44,571 |
| | $ | — |
| | $ | 38,244 |
|
Adjustment | (17,621 | ) | | 17,621 |
| | — |
|
Upon Adoption | 26,950 |
| | 17,621 |
| | 38,244 |
|
| | | | | |
Three Months Ended September 30, 2016 | | | | | |
As Reported | $ | 68,033 |
| | $ | — |
| | $ | 40,926 |
|
Adjustment | (15,705 | ) | | 15,705 |
| | — |
|
Upon Adoption | 52,328 |
| | 15,705 |
| | 40,926 |
|
| | | | | |
Nine Months Ended September 30, 2017 | | | | | |
As Reported | $ | 141,986 |
| | $ | — |
| | $ | 127,929 |
|
Adjustment | (55,042 | ) | | 55,042 |
| | — |
|
Upon Adoption | 86,944 |
| | 55,042 |
| | 127,929 |
|
| | | | | |
Nine Months Ended September 30, 2016 | | | | | |
As Reported | $ | 194,045 |
| | $ | — |
| | $ | 186,540 |
|
Adjustment | (46,966 | ) | | 46,966 |
| | — |
|
Upon Adoption | 147,079 |
| | 46,966 |
| | 186,540 |
|
| | | | | |
Twelve Months Ended December 31, 2016 | | | | | |
As Reported | $ | 303,534 |
| | $ | — |
| | $ | 250,658 |
|
Adjustment | (80,665 | ) | | 80,665 |
| | — |
|
Upon Adoption | 222,869 |
| | 80,665 |
| | 250,658 |
|
in future reporting periods.2. INVESTMENTS
As of September 30, 2017 and December 31, 2016, the Company had commercial paper and money market investments of $205.8 million and $485.1 million, respectively, that are classified as cash, cash equivalents and restricted cash in the Company’s Condensed Consolidated Balance Sheets.
Investments in marketable equity securities comprised the following: |
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
(in thousands) | |
Total cost | $ | 269,343 |
| | $ | 269,343 |
|
Gross unrealized gains | 226,256 |
| | 154,886 |
|
Total Fair Value | $ | 495,599 |
| | $ | 424,229 |
|
There were no purchases of marketable equity securities during the first nine months of 2017. The Company settled on $48.3 million of marketable equity securities purchases during the first nine months of 2016, of which $47.9 million was purchased in the first nine months of 2016.
There were no sales of marketable equity securities for the first nine months of 2017. The total proceeds from the sales of marketable equity securities for the first nine months of 2016 were $22.8 million, with realized gains of $6.3 million.
In September 2017, the Company acquired approximately 10% of Intersection Holdings, LLC, a company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces, which is accounted for as an investment in affiliate. As of September 30, 2017, the Company held interests in several affiliates; Residential Healthcare (Residential) held a 40% interest in Residential Home
Health Illinois, a 42.5% interest in Residential Hospice Illinois and a 40% interest in the joint venture formed between Residential and a Michigan hospital; and Celtic Healthcare (Celtic) held a 40% interest in the joint venture formed between Celtic Healthcare and Allegheny Health Network (AHN). For the three and nine months ended September 30, 2017, the Company recorded $4.5 million and $14.1 million, respectively, in revenue for services provided to the affiliates of Celtic and Residential.
Additionally, Kaplan International Holdings Limited (KIHL) held a 45% interest in a joint venture formed with York University. KIHL agreed to loan the joint venture £25 million, of which, £11.0 million was advanced in 2016 and £5.0 million was advanced in 2017. The loan will be repayable over 25 years at an interest rate of 7% and the loan is guaranteed by the University of York.
3. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
Acquisitions. In the first nine months of 2017,During 2020, the Company acquired six businesses, two3 businesses: 2 in its education division, two in its television broadcasting division and two1 in other businesses for $318.7$96.8 million in cash and contingent consideration,consideration. The assets and liabilities of the assumptioncompanies acquired were recorded at their estimated fair values at the date of $59.1 millionacquisition.
In the first three months of 2020, Kaplan acquired 2 small businesses; 1 in certain pensionits supplemental education division and postretirement obligations.1 in its international division.
At the end of June 2017, Graham Healthcare Group (GHG) acquired a 100% interest in Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider by purchasing all of its issued and outstanding shares. This acquisition expands GHG’s service area in Michigan. GHG is included in other businesses.
In April 2017,May 2020, the Company acquired 97.72%an additional interest in Framebridge, Inc. for cash and contingent consideration that resulted in the Company obtaining control of the issuedinvestee. Following the acquisition, the Company owns 93.4% of Framebridge. The Company previously accounted for Framebridge under the equity method, and outstanding sharesincluded it in Investments in Affiliates on the Condensed Consolidated Balance Sheet (see Note 3). The contingent consideration is primarily based on Framebridge achieving revenue milestones within a specific time
period. The fair value of Hoover Treated Wood Products, Inc.,the contingent consideration at the acquisition date was $50.6 million, determined using a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications for $206.8 million, net of cash acquired.Monte Carlo simulation. The fair value of the redeemable noncontrolling interest in HooverFramebridge was $3.7$6.0 million atas of the acquisition date, determined using a market approach. The minority shareholders haveshareholder has an option to put some20% of theirthe minority shares to the Companyannually starting in 2019 and the remaining shares starting in 2021.2024. The Company has an option to buy the shares of minority shareholders starting in 2027. This acquisition is consistent withexpected to provide benefits in the future by diversifying the Company’s ongoing strategy of investing in companies with a history of profitabilitybusiness operations and strong management. Hoover is included in other businesses.
In February 2017, Kaplan acquired a 100% interest in Genesis Training Institute, a Dubai-based provider of professional development training in the United Arab Emirates, by purchasing all of its issued and outstanding shares. Additionally, Kaplan acquired a 100% interest in Red Marker Pty Ltd, an Australia-based regulatory technology company by purchasing all of its outstanding shares. These acquisitions are expected to provide certain strategic benefits in the future.
On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire the assets of WCWJ, a CW affiliate television station in Jacksonville, FL and WSLS, an NBC affiliate television station in Roanoke, VA for cash and the assumption of certain pension obligations. The acquisition of WCWJ and WSLS will complement the other stations that GMG operates.
During 2016, the Company acquired five businesses, three businesses included in its education division and two businesses in other businesses. In January 2016, Kaplan acquired a 100% interest in Mander Portman Woodward, a leading provider of high-quality, bespoke education to UK and international students in London, Cambridge and Birmingham, by purchasing all of its issued and outstanding shares. In February 2016, Kaplan acquired a 100% interest in Osborne Books, an educational publisher of learning resources for accounting qualifications in the UK, by purchasing all of its issued and outstanding shares. The primary rationale for these acquisitions was based on several strategic benefits expected to be realized in the future. Both of these acquisitions are included in Kaplan International.
In September 2016, Group Dekko, Inc. (Dekko) acquired a 100% interest in Electri-Cable Assemblies (ECA), a Shelton, CT-based manufacturer of power, data and electrical solutions for the office furniture industry, by purchasing all of its issued and outstanding shares. Dekko’s primary reasons for the acquisition were to complement existing product offerings and provide opportunities for synergies across the businesses. Dekko is included in other businesses.
Acquisition-related costs of $3.5 million related to these 2017 acquisitions were expensed as incurred. The aggregate purchase price of the 2017 and 20162020 acquisitions was allocated as follows (2017based on a preliminary basis):acquisition date fair values to the following assets and liabilities: |
| | | | | | | |
| | Purchase Price Allocation |
| | As of |
(in thousands) | | September 30, 2017 | December 31, 2016 |
Accounts receivable | | $ | 12,502 |
| $ | 8,538 |
|
Inventory | | 25,253 |
| 878 |
|
Other current assets | | 593 |
| 1,420 |
|
Property, plant and equipment | | 30,961 |
| 3,940 |
|
Goodwill | | 143,433 |
| 184,118 |
|
Indefinite-lived intangible assets | | 41,600 |
| 53,110 |
|
Amortized intangible assets | | 158,907 |
| 28,267 |
|
Pension and other postretirement benefits liabilities | | (59,116 | ) | — |
|
Other liabilities | | (10,822 | ) | (21,892 | ) |
Deferred income taxes | | (34,875 | ) | (11,009 | ) |
Redeemable noncontrolling interest | | (3,666 | ) | — |
|
Aggregate purchase price, net of cash acquired | | $ | 304,770 |
| $ | 247,370 |
|
| | | | | | | | | |
| | | Purchase Price Allocation |
| | | Year Ended |
(in thousands) | | | December 31, 2020 |
Accounts receivable | | | $ | 745 | |
Inventory | | | 3,496 | |
Property, plant and equipment | | | 3,346 | |
Lease right-of-use assets | | | 6,580 | |
Goodwill | | | 73,951 | |
| | | |
Amortized intangible assets | | | 14,589 | |
Other assets | | | 975 | |
Deferred income taxes | | | 15,958 | |
| | | |
| | | |
Other liabilities | | | (14,917) | |
| | | |
Current and noncurrent lease liabilities | | | (6,593) | |
Redeemable noncontrolling interest | | | (6,005) | |
| | | |
Aggregate purchase price, net of cash acquired | | | $ | 92,125 | |
The 20172020 fair values recorded were based upon preliminary valuations and the estimates and assumptions used in such valuations are subject to change which could be significant, within the measurement period (up to one year from the acquisition date). 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 $11.0 million and $22.2$3.2 million of goodwill for income tax purposes for the acquisitions completed in 2017 and 2016, respectively.2020.
The acquired companies were consolidated into the Company’s financial statements starting on their respective acquisition dates. The Company’s Condensed Consolidated Statements of Operations include aggregate revenues and operating income for the companies acquired in 2017 of $64.9 million and $4.0 million, respectively, for the third quarter of 2017, and aggregate revenues and operating income of $133.8 million and $3.8 million, respectively, for the first nine months of 2017. The following unaudited pro forma financial information presents the Company’s results as if the 20172020 acquisitions had occurred at the beginning of 2016. The unaudited pro forma information also includes the 2016 acquisitions as if they occurred at the beginning of 2015:2019: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Operating revenues | $ | 657,225 |
| | $ | 696,767 |
| | $ | 1,979,784 |
| | $ | 2,058,571 |
|
Net income | 24,735 |
| | 36,250 |
| | 96,065 |
| | 137,967 |
|
| | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31 |
(in thousands) | | | | | | | 2020 |
Operating revenues | | | | | | | $ | 738,331 | |
Net loss | | | | | | | (40,396) | |
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 February 2017, GHGDecember 2020, the Company completed the sale of Celtic Healthcare of Maryland.
In January 2016, Kaplan completed the sale of Colloquy,Megaphone which was included in Kaplan Corporate and Other.other businesses.
Other. Other Transactions. In June 2016, Residential and a Michigan hospital formed a joint venture to provide home health services to patients in western Michigan. In connection with this transaction, Residential contributed its western Michigan home health operationsMarch 2021, Hoover’s minority shareholders put the remaining outstanding shares to the joint ventureCompany, which had a redemption value of $3.5 million. Following the redemption, the Company owns 100% of Hoover.
3. INVESTMENTS
Money Market Investments. As of March 31, 2021 and then sold 60%December 31, 2020, the Company had money market investments of $175.2 million and $268.8 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 newly formed venture to its Michigan hospital partner. Although Residential managesfollowing:
| | | | | | | | | | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
(in thousands) | |
Total cost | $ | 280,883 | | | $ | 232,847 | |
Gross unrealized gains | 419,469 | | | 340,255 | |
| | | |
Total Fair Value | $ | 700,352 | | | $ | 573,102 | |
At March 31, 2021 and December 31, 2020, the operationsCompany owned 44,430 shares and 28,000 shares, respectively, in Markel Corporation (Markel) valued at $50.6 million and $28.9 million, respectively. The Co-Chief Executive Officer of Markel, Mr. Thomas S. Gayner, is a member of the joint venture,Company’s Board of Directors. As of March 31, 2021, there was 0 marketable equity security holding that exceeded 5% of the Company’s total assets.
The Company purchased $48.0 million of marketable equity securities during the first three months of 2021. There were 0 purchases of marketable equity securities during the first three months of 2020.
There were 0 sales of marketable equity securities during the first three months of 2021. 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.
The net gain (loss) on marketable equity securities comprised the following:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
(in thousands) | | | | | 2021 | | 2020 |
Gain (loss) on marketable equity securities, net | | | | | $ | 79,214 | | | $ | (100,393) | |
Less: Net losses in earnings from marketable equity securities sold and donated | | | | | 0 | | | 8,774 | |
Net unrealized gains (losses) in earnings from marketable equity securities still held at the end of the period | | | | | $ | 79,214 | | | $ | (91,619) | |
Investments in Affiliates. As of March 31, 2021, the Company held an approximate 12% interest in Intersection Holdings, LLC, and in several other affiliates; Graham Healthcare Group (GHG) held a 40% interest in Residential holdsHome Health Illinois, a 42.5% interest in Residential Hospice Illinois, a 40% interest in the joint venture so the operating results offormed between GHG and a Michigan hospital, and a 40% interest in the joint venture formed between GHG and Allegheny Health Network (AHN). For each of the three months ended March 31, 2021 and 2020, the Company recorded $2.5 million in revenue for services provided to the affiliates of GHG.
The Company had $39.4 million and $26.1 million in its investment account that represents cumulative undistributed income in its investments in affiliates as of March 31, 2021 and December 31, 2020, respectively.
In the first quarter of 2020, the Company recorded impairment charges of $3.6 million on 2 of its investments in affiliates as a result of the challenging economic environment for these businesses, of which $2.7 million related to the Company’s investment in Framebridge. It is reasonably possible that further COVID-19 disruptions could result in additional impairment charges related to the Company’s investments in affiliates should the impact of COVID-19 not dissipate or have a worsening adverse impact on our affiliates in future periods. 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’ 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, 2021 does not capture the impact of the COVID-19 pandemic on the earnings or losses of the affiliates whose financial results are not consolidatedrecorded on a lag basis.
In May 2020, the Company made an additional investment in Framebridge (see Note 2) that resulted in the Company obtaining control of the investee. The results of operations, cash flows, assets and the pro rata operating resultsliabilities of Framebridge are included in the Company’s equity in earningscondensed consolidated financial statements of affiliates.
In June 2016, the Company purchasedfrom the outstanding 20% redeemable noncontrollingdate of the acquisition. Timothy J. O’Shaughnessy, President and Chief Executive Officer of Graham Holdings Company, was a personal investor in Framebridge and served as Chairman of the Board prior to the acquisition of the additional interest. The Company acquired Mr. O’Shaughnessy’s interest under the same terms as the other Framebridge investors.
Additionally, Kaplan International Holdings Limited (KIHL) held a 45% interest in Residential. Ata 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. The loan is repayable by December 2041.
Cost Method Investments. The Company held investments without readily determinable fair values in a number of equity securities that time,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 $38.6 million and $35.7 million as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, the Company recorded an increasegains of $2.7 million to redeemable noncontrolling interest of $3.0 million, with a corresponding decrease to capital in excess of par value, to reflectthose equity securities based on observable transactions. During the redemption value of the redeemable noncontrolling interest at $24.0 million. Following this transaction, Celtic and Residential combined their business operations to form GHG. The redeemable noncontrolling interest shareholders in Celtic exchanged their 20% interest in Celtic for a 10% mandatorily redeemable noncontrolling interest in the combined entity andthree months ended March 31, 2020, the Company recorded a $4.1impairment losses of $2.6 million net increase to the mandatorily redeemable noncontrolling interest to reflect the estimated fair valuethose equity securities.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the mandatorily redeemable noncontrolling interest. following:
| | | | | | | | | | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
(in thousands) | |
Receivables from contracts with customers, less estimated credit losses of $21,126 and $21,494 | $ | 495,443 | | | $ | 519,577 | |
Other receivables | 19,777 | | | 17,579 | |
| $ | 515,220 | | | $ | 537,156 | |
Credit loss expense was $1.1 million and $2.4 million for the three months ended March 31, 2021 and 2020, respectively.
5. INVENTORIES, CONTRACTS IN PROGRESS AND VEHICLE FLOOR PLAN PAYABLE
Inventories and contracts in progress consist of the following:
| | | | | | | | | | | |
| As of |
| March 31, 2021 | | December 31, 2020 |
(in thousands) | |
Raw materials | $ | 46,177 | | | $ | 45,382 | |
Work-in-process | 14,534 | | | 10,402 | |
Finished goods | 71,254 | | | 64,061 | |
Contracts in progress | 171 | | | 777 | |
| $ | 132,136 | | | $ | 120,622 | |
The minority shareholders have an option to put their shares to the Company starting in 2020,finances new and are required to putused vehicle inventory through a percentage of their shares in 2022 and 2024,standardized floor plan facility (the “floor plan facility”) with the remaining shares required to be put by the minority shareholders in 2026.Truist Bank. The redemption value isvehicle floor plan facility bears interest at variable rates that are based on an EBITDA multiple, adjustedLIBOR plus 1.15% per annum. The weighted average interest rate for working capitalthe floor plan facility was 1.2% and 2.6% for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the aggregate capacity under the floor plan facility was $50 million, of which $28.4 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 items, computed annually, with no limit on the amount payable. The Company now owns 90% of GHG. Because the noncontrolling interest is now mandatorily redeemable by the Company by 2026, it is reported as a noncurrent liability at September 30, 2017.
Kaplan University Transaction. On April 27, 2017, certain Kaplan subsidiaries entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute Kaplan University (KU), its institutional assets and operations to a new, nonprofit, public-benefit corporation (New University) affiliated with Purdue University (Purdue) in exchange for a Transition and Operations Support Agreement (TOSA) to provide key non-academic operations support to New University for an initial term of 30 years with a buy-out option after six years. The transfer does not include any of the assetsrelevant dealership subsidiary, and contains a number of Kaplan University School of Professional and Continuing Education (KU-PACE), which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions,covenants, including, among others, regulatory approvalscovenants restricting the dealership subsidiary with 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, 2021.
The floor plan interest expense related to the vehicle floor plan arrangements is offset by amounts received from manufacturers in the U.S. Departmentform of Education (ED),floor plan assistance capitalized in inventory and recorded against cost of goods sold in the Indiana Commission for Higher Education (ICHE)Condensed Consolidated Statements of Operations when the associated inventory is sold. For the three months ended March 31, 2021 and Higher Learning Commissions (HLC), which is2020, the regional accreditorCompany recognized a reduction in cost of both Purduegoods sold of $0.6 million and KU, and certain other state educational agencies and accreditors of programs. In the third quarter of 2017, ICHE granted its approval and the ED provided preliminary approval based on its review of a pre-acquisition application, subject$0.4 million, respectively, related to certain conditions. Kaplan is unable to predict with certainty when and if HLC approval will be obtained; however, such approval is not expected to be received until the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.manufacturer floor plan assistance.
4.6. GOODWILL AND OTHER INTANGIBLE ASSETS
In the secondfirst quarter of 2017,2020, as a result of athe uncertainty and challenging operating environment created by the Forney reporting unit recorded a goodwill and other long-lived asset impairment charge of $9.2 million. TheCOVID-19 pandemic, the Company performed an interim review of the goodwill, indefinite-lived intangibles and other long-lived assets of the Clyde’s Restaurant Group (CRG) and automotive dealership reporting unitunits 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 to estimate the fair value.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 reporting unit’s 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 September 30, 2017March 31, 2021 and 20162020, was $10.9$13.9 million and $6.6 million, respectively. Amortization of intangible assets for the nine months ended September 30, 2017 and 2016 was $28.3 million and $19.2$14.2 million, respectively. Amortization of intangible assets is estimated to be approximately $10$38 million for the remainder of 2017,2021, $46 million in 2022, $38 million in 2018, $372023, $27 million in 2019, $332024, $21 million in 2020, $282025 and $20 million in 2021 and $93 million thereafter.
The changes in the carrying amount of goodwill, by segment, were as follows: | | (in thousands) | Education | | Television Broadcasting | | Other Businesses | | Total | (in thousands) | Education | | Television Broadcasting | | Manufacturing | | Healthcare | | Other Businesses | | Total |
Balance as of December 31, 2016 | | | | | | | | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | | | | | | |
Goodwill | $ | 1,111,003 |
| | $ | 168,345 |
| | $ | 202,141 |
| | $ | 1,481,489 |
| Goodwill | $ | 1,183,379 | | | $ | 190,815 | | | $ | 234,993 | | | $ | 98,421 | | | $ | 130,472 | | | $ | 1,838,080 | |
Accumulated impairment losses | (350,850 | ) | | — |
| | (7,685 | ) | | (358,535 | ) | Accumulated impairment losses | (331,151) | | | 0 | | | (7,616) | | | 0 | | | (14,563) | | | (353,330) | |
| 760,153 |
| | 168,345 |
| | 194,456 |
| | 1,122,954 |
| | 852,228 | | | 190,815 | | | 227,377 | | | 98,421 | | | 115,909 | | | 1,484,750 | |
Acquisitions | 18,986 |
| | 24,256 |
| | 100,191 |
| | 143,433 |
| |
Impairment | — |
| | — |
| | (7,616 | ) | | (7,616 | ) | |
Dispositions | — |
| | — |
| | (412 | ) | | (412 | ) | |
| Foreign currency exchange rate changes | 40,867 |
| | — |
| | — |
| | 40,867 |
| Foreign currency exchange rate changes | 387 | | | 0 | | | 0 | | | 0 | | | 0 | | | 387 | |
Balance as of September 30, 2017 | |
| | |
| | |
| | |
| |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | | | | | | | |
Goodwill | 1,170,856 |
| | 192,601 |
| | 301,920 |
| | 1,665,377 |
| Goodwill | 1,183,766 | | | 190,815 | | | 234,993 | | | 98,421 | | | 130,472 | | | 1,838,467 | |
Accumulated impairment losses | (350,850 | ) | | — |
| | (15,301 | ) | | (366,151 | ) | Accumulated impairment losses | (331,151) | | | 0 | | | (7,616) | | | 0 | | | (14,563) | | | (353,330) | |
| $ | 820,006 |
| | $ | 192,601 |
| | $ | 286,619 |
| | $ | 1,299,226 |
| | $ | 852,615 | | | $ | 190,815 | | | $ | 227,377 | | | $ | 98,421 | | | $ | 115,909 | | | $ | 1,485,137 | |
The changes in carrying amount of goodwill at the Company’s education division were as follows: | | (in thousands) | Higher Education | | Test Preparation | | Kaplan International | | Total | (in thousands) | Kaplan International | | Higher Education | | | Supplemental Education | | Total |
Balance as of December 31, 2016 | | | | | | | | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | | | | | | |
Goodwill | $ | 389,720 |
| | $ | 166,098 |
| | $ | 555,185 |
| | $ | 1,111,003 |
| Goodwill | $ | 634,749 | | | $ | 174,564 | | | | $ | 374,066 | | | $ | 1,183,379 | |
Accumulated impairment losses | (248,591 | ) | | (102,259 | ) | | — |
| | (350,850 | ) | Accumulated impairment losses | 0 | | | (111,324) | | | | (219,827) | | | (331,151) | |
| 141,129 |
| | 63,839 |
| | 555,185 |
| | 760,153 |
| | 634,749 | | | 63,240 | | | | 154,239 | | | 852,228 | |
Acquisitions | — |
| | — |
| | 18,986 |
| | 18,986 |
| |
| Foreign currency exchange rate changes | 154 |
| | — |
| | 40,713 |
| | 40,867 |
| Foreign currency exchange rate changes | 361 | | | 0 | | | | 26 | | | 387 | |
Balance as of September 30, 2017 | |
| | |
| | |
| | |
| |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | | | | | | | |
Goodwill | 389,874 |
| | 166,098 |
| | 614,884 |
| | 1,170,856 |
| Goodwill | 635,110 | | | 174,564 | | | | 374,092 | | | 1,183,766 | |
Accumulated impairment losses | (248,591 | ) | | (102,259 | ) | | — |
| | (350,850 | ) | Accumulated impairment losses | 0 | | | (111,324) | | | | (219,827) | | | (331,151) | |
| $ | 141,283 |
| | $ | 63,839 |
| | $ | 614,884 |
| | $ | 820,006 |
| | $ | 635,110 | | | $ | 63,240 | | | | $ | 154,265 | | | $ | 852,615 | |
Other intangible assets consist of the following: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of September 30, 2017 | | As of December 31, 2016 |
(in thousands) | Useful Life Range | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized Intangible Assets | | | | | | | | | | | | | |
Student and customer relationships | 1–10 years (1) | | $ | 224,872 |
| | $ | 74,304 |
| | $ | 150,568 |
| | $ | 129,616 |
| | $ | 55,863 |
| | $ | 73,753 |
|
Trade names and trademarks | 2–10 years | | 58,917 |
| | 33,143 |
| | 25,774 |
| | 55,240 |
| | 29,670 |
| | 25,570 |
|
Network affiliation agreements | 15 years | | 42,600 |
| | 2,067 |
| | 40,533 |
| | — |
| | — |
| | — |
|
Databases and technology | 3–6 years (1) | | 19,583 |
| | 4,173 |
| | 15,410 |
| | 5,601 |
| | 4,368 |
| | 1,233 |
|
Noncompete agreements | 2–5 years | | 2,080 |
| | 1,549 |
| | 531 |
| | 1,730 |
| | 1,404 |
| | 326 |
|
Other | 1–8 years | | 13,430 |
| | 7,094 |
| | 6,336 |
| | 12,030 |
| | 4,973 |
| | 7,057 |
|
| | | $ | 361,482 |
| | $ | 122,330 |
| | $ | 239,152 |
| | $ | 204,217 |
| | $ | 96,278 |
| | $ | 107,939 |
|
Indefinite-Lived Intangible Assets | | | | | |
| | |
| | | | |
| | |
|
Trade names and trademarks | | | $ | 82,651 |
| | |
| | |
| | $ | 65,192 |
| | |
| | |
|
FCC licenses | | | 26,600 |
| | | | | | — |
| | | | |
Licensure and accreditation | | | 650 |
| | |
| | |
| | 834 |
| | |
| | |
|
| | | $ | 109,901 |
| | | | | | $ | 66,026 |
| | | | |
____________ | |
(1) | As of December 31, 2016, the student and customer relationships’ minimum useful life was 2 years and the databases and technology’s maximum useful life was 5 years. |
5. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2021 | | As of December 31, 2020 |
(in thousands) | Useful Life Range | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Amortized Intangible Assets | | | | | | | | | | | | | |
Student and customer relationships | 2–10 years | | $ | 293,481 | | | $ | 185,781 | | | $ | 107,700 | | | $ | 294,077 | | | $ | 178,075 | | | $ | 116,002 | |
Trade names and trademarks | 2–10 years | | 109,485 | | | 57,667 | | | 51,818 | | | 109,809 | | | 54,766 | | | 55,043 | |
Network affiliation agreements | 10 years | | 17,400 | | | 7,322 | | | 10,078 | | | 17,400 | | | 6,888 | | | 10,512 | |
Databases and technology | 3–6 years | | 34,747 | | | 21,572 | | | 13,175 | | | 34,864 | | | 19,924 | | | 14,940 | |
Noncompete agreements | 2–5 years | | 1,000 | | | 963 | | | 37 | | | 1,000 | | | 937 | | | 63 | |
Other | 1–8 years | | 24,800 | | | 17,567 | | | 7,233 | | | 24,800 | | | 16,714 | | | 8,086 | |
| | | $ | 480,913 | | | $ | 290,872 | | | $ | 190,041 | | | $ | 481,950 | | | $ | 277,304 | | | $ | 204,646 | |
Indefinite-Lived Intangible Assets | | | | | | | | | | | | | |
Trade names and trademarks | | | $ | 88,042 | | | | | | | $ | 87,429 | | | | | |
Franchise agreements | | | 21,858 | | | | | | | 21,858 | | | | | |
FCC licenses | | | 11,000 | | | | | | | 11,000 | | | | | |
Licensure and accreditation | | | 150 | | | | | | | 150 | | | | | |
| | | $ | 121,050 | | | | | | | $ | 120,437 | | | | | |
7. DEBT
The Company’s borrowings consist of the following: | | | As of | | As of |
| September 30, 2017 | | December 31, 2016 | | March 31, 2021 | | December 31, 2020 |
(in thousands) | | (in thousands) | |
7.25% unsecured notes due February 1, 2019 (1) | $ | 399,393 |
| | $ | 399,052 |
| |
UK Credit facility (2) | 93,450 |
| | 91,316 |
| |
5.75% unsecured notes due June 1, 2026 (1) | | 5.75% unsecured notes due June 1, 2026 (1) | $ | 396,289 | | | $ | 396,112 | |
Revolving credit facility | | Revolving credit facility | 75,621 | | | 74,686 | |
| Commercial note | | Commercial note | 24,500 | | | 25,250 | |
Pinnacle Bank term loan | | Pinnacle Bank term loan | 10,411 | | | 10,692 | |
Pinnacle Bank line of credit | | Pinnacle Bank line of credit | 73 | | | 2,295 | |
Other indebtedness | 112 |
| | 1,479 |
| Other indebtedness | 3,435 | | | 3,520 | |
Total Debt | $ | 492,955 |
| | $ | 491,847 |
| Total Debt | $ | 510,329 | | | $ | 512,555 | |
Less: current portion | (6,713 | ) | | (6,128 | ) | Less: current portion | (4,238) | | | (6,452) | |
Total Long-Term Debt | $ | 486,242 |
| | $ | 485,719 |
| Total Long-Term Debt | $ | 506,091 | | | $ | 506,103 | |
____________
| |
(1) | The carrying value is net of $0.1 million of unamortized debt issuance costs as of September 30, 2017 and December 31, 2016, respectively. |
| |
(2) | The carrying value is net of $0.4 million and $0.5 million of unamortized debt issuance costs as of September 30, 2017 and December 31, 2016, respectively. |
(1) The carrying value is net of $3.7 million and $3.9 million of unamortized debt issuance costs as of March 31, 2021 and December 31, 2020, respectively.
The outstanding balance on the Company’s revolving credit facility was £55 million as of March 31, 2021 with interest payable at the 3 month GBP LIBOR plus 1.50%. The Company’s other indebtedness at September 30, 2017March 31, 2021 and December 31, 2020 is at an interest raterates of 2%0% to 16% and matures in 2025.between 2023 and 2030.
On July 14, 2016, Kaplan entered into a Facility Agreement (the Kaplan Credit Agreement) among Kaplan International Holdings Limited, as borrower, the lenders party thereto, HSBC BANK PLC as Facility Agent, and other agents party thereto. The Kaplan Credit Agreement provides for a four-year credit facility in an aggregate principal amount of £75 million. Borrowings bear interest at a rate per annum of LIBOR plus an applicable interest rate margin between 1.25% and 1.75%, in each case determined on a quarterly basis by reference to a pricing grid
based upon the Company’s total leverage ratio. The Kaplan Credit Agreement requires that 6.66% of the amount of the loan be repaid on the first three anniversaries of funding, with the remaining balance due on July 1, 2020. The Kaplan Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a leverage ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Kaplan Credit Agreement. As of September 30, 2017, the Company is in compliance with all financial covenants.covenants as of March 31, 2021.
On July 25, 2016, Kaplan borrowed £75 million under the Kaplan Credit Agreement. On the same date, Kaplan entered into an interest rate swap agreement with a total notional value of £75 million and a maturity date of July 1, 2020. The interest rate swap agreement will pay Kaplan variable interest on the £75 million notional amount at the three-month LIBOR, and Kaplan will pay the counterparties a fixed rate of 0.51%, effectively resulting in a total fixed interest rate of 2.01% on the outstanding borrowings at the current applicable margin of 1.50%. The interest rate swap agreement was entered into to convert the variable rate British pound borrowing under the Kaplan Credit Agreement into a fixed rate borrowing. The Company provided a guarantee on any borrowings under the Kaplan Credit Agreement. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap agreement was determined to be effective, and thus qualifies as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.
During the three months ended September 30, 2017March 31, 2021 and 2016,2020, the Company had average borrowings outstanding of approximately $492.4 million and $473.7 million, respectively, at average annual interest rates of approximately 6.3% and 6.2%, respectively. During the three months ended September 30, 2017 and 2016, the Company incurred net interest expense of $7.8 million and $7.9 million, respectively.
During the nine months ended September 30, 2017 and 2016, the Company had average borrowings outstanding of approximately $493.5$512.1 million and $429.4$511.4 million, respectively, at average annual interest rates of approximately 6.3%5.0% and 6.9%5.1%, respectively. During the ninethree months ended September 30, 2017March 31, 2021 and 2016,2020, the Company incurred net interest expense of $22.4$7.6 million and $22.5$6.5 million, respectively.
During the three months ended March 31, 2021, the Company recorded interest expense of $1.1 million to adjust the fair value of the mandatorily redeemable noncontrolling interest. The fair value of the mandatorily redeemable noncontrolling interest was based on the fair value of the underlying subsidiaries owned by GHC One, after taking into account any debt and other noncontrolling interests of its subsidiary investments. The fair value of the owned subsidiaries is determined by reference to either a discounted cash flow or EBITDA multiple, which approximates fair value (Level 3 fair value assessment).
At September 30, 2017,March 31, 2021 and December 31, 2020, the fair value of the Company’s 7.25%5.75% unsecured notes, based on quoted market prices (Level 2 fair value assessment), totaled $424.1$418.4 million and $421.7 million, respectively, compared with the carrying amount of $399.4 million. At December 31, 2016, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices (Level 2 fair value assessment), totaled $438.7$396.3 million compared with the carrying amount of $399.1 million.and $396.1 million, respectively. The carrying value of the Company’s other unsecured debt at September 30, 2017March 31, 2021 and December 31, 2020 approximates fair value.
6.8. FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows: | | | As of September 30, 2017 | | As of March 31, 2021 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | Assets | | | | | |
Money market investments (1) | $ | — |
| | $ | 205,845 |
| | $ | — |
| | $ | 205,845 |
| Money market investments (1) | $ | 0 | | | $ | 175,200 | | | $ | 0 | | | $ | 175,200 | |
Marketable equity securities (3) | 495,599 |
| | — |
| | — |
| | 495,599 |
| |
Other current investments (4) | 9,948 |
| | 14,039 |
| | — |
| | 23,987 |
| |
Marketable equity securities (2) | | Marketable equity securities (2) | 700,352 | | | 0 | | | 0 | | | 700,352 | |
Other current investments (3) | | Other current investments (3) | 10,121 | | | 5,107 | | | 0 | | | 15,228 | |
Total Financial Assets | $ | 505,547 |
| | $ | 219,884 |
| | $ | — |
| | $ | 725,431 |
| Total Financial Assets | $ | 710,473 | | | $ | 180,307 | | | $ | 0 | | | $ | 890,780 | |
Liabilities | | | | | | | | Liabilities | | | | | |
Deferred compensation plan liabilities (5) | $ | — |
| | $ | 43,575 |
| | $ | — |
| | $ | 43,575 |
| |
Deferred compensation plan liabilities (4) | | Deferred compensation plan liabilities (4) | $ | 0 | | | $ | 29,442 | | | $ | 0 | | | $ | 29,442 | |
Contingent consideration liabilities (5) | | Contingent consideration liabilities (5) | 0 | | | 0 | | | 35,822 | | | 35,822 | |
Interest rate swap (6) | — |
| | 595 |
| | — |
| | 595 |
| Interest rate swap (6) | 0 | | | 1,720 | | | 0 | | | 1,720 | |
Mandatorily redeemable noncontrolling interest (7) | — |
| | — |
| | 12,584 |
| | 12,584 |
| Mandatorily redeemable noncontrolling interest (7) | 0 | | | 0 | | | 10,272 | | | 10,272 | |
Total Financial Liabilities | $ | — |
| | $ | 44,170 |
| | $ | 12,584 |
| | $ | 56,754 |
| Total Financial Liabilities | $ | 0 | | | $ | 31,162 | | | $ | 46,094 | | | $ | 77,256 | |
|
| | | As of December 31, 2016 | | As of December 31, 2020 |
(in thousands) | Level 1 | | Level 2 | | Level 3 | | Total | (in thousands) | Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | | Assets | | | | |
| | |
Money market investments (1) | $ | — |
| | $ | 435,258 |
| | $ | — |
| | $ | 435,258 |
| Money market investments (1) | $ | 0 | | | $ | 268,841 | | | $ | 0 | | | $ | 268,841 | |
Commercial paper (2) | 49,882 |
| | — |
| | — |
| | 49,882 |
| |
Marketable equity securities (3) | 424,229 |
| | — |
| | — |
| | 424,229 |
| |
Other current investments (4) | 6,957 |
| | 17,055 |
| | — |
| | 24,012 |
| |
| Marketable equity securities (2) | | Marketable equity securities (2) | 573,102 | | | 0 | | | 0 | | | 573,102 | |
Other current investments (3) | | Other current investments (3) | 10,397 | | | 4,083 | | | 0 | | | 14,480 | |
| Total Financial Assets | $ | 481,068 |
| | $ | 452,313 |
| | $ | — |
| | $ | 933,381 |
| Total Financial Assets | $ | 583,499 | | | $ | 272,924 | | | $ | 0 | | | $ | 856,423 | |
Liabilities | | | | | | | | Liabilities | | | | |
| | |
Deferred compensation plan liabilities (5) | $ | — |
| | $ | 46,300 |
| | $ | — |
| | $ | 46,300 |
| |
Deferred compensation plan liabilities (4) | | Deferred compensation plan liabilities (4) | $ | 0 | | | $ | 31,178 | | | $ | 0 | | | $ | 31,178 | |
Contingent consideration liabilities (5) | | Contingent consideration liabilities (5) | 0 | | | 0 | | | 37,174 | | | 37,174 | |
Interest rate swap (6) | — |
| | 365 |
| | — |
| | 365 |
| Interest rate swap (6) | 0 | | | 2,342 | | | 0 | | | 2,342 | |
Foreign exchange swap (8) | | Foreign exchange swap (8) | 0 | | | 259 | | | 0 | | | 259 | |
Mandatorily redeemable noncontrolling interest (7) | — |
| | — |
| | 12,584 |
| | 12,584 |
| Mandatorily redeemable noncontrolling interest (7) | 0 | | | 0 | | | 9,240 | | | 9,240 | |
Total Financial Liabilities | $ | — |
| | $ | 46,665 |
| | $ | 12,584 |
| | $ | 59,249 |
| Total Financial Liabilities | $ | 0 | | | $ | 33,779 | | | $ | 46,414 | | | $ | 80,193 | |
____________
| | | | | |
(1) | The Company’s money market investments are included in cash and cash equivalents and restricted cash and the value considers the liquidity of the counterparty. |
| |
(2) | The Company’s commercial paper investments with original maturities of three months or less are included in cash and cash equivalents. |
| |
(3) | The Company’s investments in marketable equity securities are classified as available-for-sale. |
| held in common shares of U.S. and Canadian corporations that are actively traded on U.S. and Canadian stock exchanges. Price quotes for these shares are readily available. |
(4)(3) | Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits. These investments are valued using a market approach based on the quoted market prices of the security or inputs that include quoted market prices for similar instruments and are classified as either Level 1 or Level 2 in the valuationfair value hierarchy. |
| |
(5)(4) | Includes Graham Holdings Company’s Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company’s Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits. These plans measure the market value of a participant’s balance in a notional investment account that is comprised primarily of mutual funds, which are based on observable market prices. However, since the deferred compensation obligations are not exchanged in an active market, they are classified as Level 2 in the fair value hierarchy. Realized and unrealized gains (losses) on deferred compensation are included in operating income. |
(5) | Included in Accounts payable and accrued liabilities and Other Liabilities. The Company determined the fair value of the contingent consideration liabilities using a Monte Carlo simulation as of the acquisition dates, which included using estimated financial projections for the acquired businesses. |
(6) | Included in Other Liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates. |
| |
(7) | The fair value of the mandatorily redeemable noncontrolling interest is based on anthe fair value of the underlying subsidiaries owned by GHC One, after taking into account any debt and other noncontrolling interests of its subsidiary investments. The fair value of the owned subsidiaries is determined by reference to either a discounted cash flow or EBITDA multiple, adjusted for working capital and other items, which approximates fair value. |
(8) | Included in Accounts payable and accrued liabilities, and valued based on a valuation model that calculates the differential between the contract price and the market-based forward rate. |
In
The following table provides a reconciliation of changes in the second quarter of 2017,Company’s financial liabilities measured at fair value on a recurring basis, using Level 3 inputs:
| | | | | | | | | | | |
(in thousands) | Contingent consideration liabilities | | Mandatorily redeemable noncontrolling interest |
As of December 31, 2020 | $ | 37,174 | | | $ | 9,240 | |
| | | |
Changes in fair value | $ | 0 | | | $ | 1,051 | |
Accretion of value included in net income | $ | 606 | | | $ | 0 | |
Settlements or distributions | $ | (1,849) | | | $ | (19) | |
Foreign currency exchange rate changes | $ | (109) | | | $ | 0 | |
As of March 31, 2021 | $ | 35,822 | | | $ | 10,272 | |
During the three months ended March 31, 2021, the Company recorded a goodwill and other long-lived asset impairment chargecharges of $9.2$1.0 million. During the three months ended March 31, 2020, the Company recorded goodwill and indefinite-lived intangible asset impairment charges of $16.4 million. The remeasurement of the goodwill and other long-lived assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the reporting unit, indefinite-lived intangible assets, and other long-lived assets. A market value approach was also utilized to supplement the discounted cash flow model. The Company made estimates and assumptions regarding future cash flows, royalty rates, discount rates, market values, and long-term growth rates.
InDuring the third quarter of 2016,three months ended March 31, 2021, the Company recorded an impairment chargegains of $15.0$2.7 million to equity securities that are accounted for as cost method investments based on observable transactions for identical or similar investments of the same issuer. During the three months ended March 31, 2020, the Company recorded impairment losses of $2.6 million to equity securities that are accounted for as cost method investments.
During the three months ended March 31, 2020, the Company recorded impairment charges of $3.6 million on 2 of its preferredinvestments in affiliates.
9. INCOME TAXES
On July 1, 2015 (the Distribution Date), the Company completed the spin-off of Cable ONE as an independent, publicly traded company. The transaction was structured as a tax-free spin-off of Cable ONE to the stockholders of the Company. Since July 1, 2015, Cable One has been an independent public company trading on the New York Stock Exchange under the symbol “CABO”. In connection with the Coronavirus Aid, Relief and Economic Security (CARES) Act, Cable One has the ability to carryback its 2019 taxable losses to the tax period from January 1, 2015 to June 30, 2015, the period in which Cable One was included in the Company’s 2015 tax return. As a result, the Company amended its 2015 tax returns in order to accommodate Cable One's request to carryback its 2019 taxable losses. The Company expects that this action will have no impact on the results or the financial position of the Company. To reflect the expected refund due to Cable One, the Company has included an estimated $15.9 million current income tax receivable and a corresponding current liability to Cable One on its balance sheet as of March 31, 2021.
The Company's effective tax rate for the first three months of 2021 was 26.9%. The Company’s effective tax rate for the first three months of 2020 was 57.3%, which was generally based on the Company’s estimated effective tax rate for fiscal year 2020. The Company’s estimated tax rate for 2020 included the adverse impacts of the COVID-19 pandemic and losses on marketable equity interestsecurities on the Company’s estimated pre-tax income for 2020, resulting in a vocational school company duesignificantly higher overall estimated tax rate, as permanent differences and increased valuation allowances have a larger impact on the overall estimated effective tax rate.
10. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company generated 77% and 74% of its revenue from U.S. domestic sales for the three months ended March 31, 2021 and March 31, 2020, respectively. The remaining 23% and 26% of revenue was generated from non-U.S. sales for the three months ended March 31, 2021 and March 31, 2020, respectively.
For the three months ended March 31, 2021, the Company recognized 70% of its revenue over time as control of the services and goods transferred to the customer, and the remaining 30% at a point in time, when the customer obtained control of the promised goods. For the three months ended March 31, 2020, the Company recognized 73% of its revenue over time, and the remaining 27% at a point in time.
Contract Assets. As of March 31, 2021, the Company recognized a contract asset of $10.0 million related to a declinecontract at a Kaplan International business, which is included in business conditions.Deferred Charges and Other Assets. The measurementCompany expects to recognize an additional $7.8 million related to this performance obligation over the next twelve months. As of December 31, 2020, the contract asset was $8.7 million.
Deferred Revenue. The Company records deferred revenue when cash payments are received or due in advance of the preferred equity interest is classifiedCompany’s performance, including amounts which are refundable. The following table presents the change in the Company’s deferred revenue balance:
| | | | | | | | | | | | | | |
| As of | |
| March 31, 2021 | | December 31, 2020 | % |
(in thousands) | | Change |
Deferred revenue | $ | 336,440 | | | $ | 343,322 | | (2) |
In April 2020, GHG received $31.5 million under the expanded Medicare Accelerated and Advanced Payment Program modified by the CARES Act as a Level 3 fair value assessment dueresult of COVID-19. The amount is included in the current and noncurrent deferred revenue balances on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. The Department of Health and Human Services will recoup this advance beginning 365 days after the payment was issued, and the deferred revenue will be reduced by a portion of the amount of revenue recognized for claims submitted for services provided after the recoupment period begins.
The majority of the change in deferred revenue balance is related to the significancecyclical nature of unobservable inputs developedservices in the determinationeducation segment. During the three months ended March 31, 2021, the Company recognized $145.1 million related to the Company’s deferred revenue balance as of December 31, 2020.
Revenue allocated to remaining performance obligations represents deferred revenue amounts that will be recognized as revenue in future periods. As of March 31, 2021, the fair value. deferred revenue balance related to certain medical and nursing qualifications with an original contract length greater than twelve months at Kaplan Supplemental Education was $7.3 million. Kaplan Supplemental Education expects to recognize 64% of this revenue over the next twelve months and the remainder thereafter.
Costs to Obtain a Contract. The Company usedfollowing table presents changes in the Company’s costs to obtain a discounted cash flow model to determinecontract asset:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Balance at Beginning of Period | | Costs associated with new contracts | | Less: Costs amortized during the period | | Other | | Balance at End of Period |
2021 | $ | 24,363 | | | $ | 11,833 | | | $ | (13,298) | | | $ | (95) | | | $ | 22,803 | |
| | | | | | | | | |
| | | | | | | | | |
Other activity includes currency translation adjustments for the estimated fair value of the preferred equity interest and made estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine the estimated fair value.
three months ended March 31, 2021.
7.11. EARNINGS (LOSS) PER SHARE
The Company’s unvested restricted stock awards contain nonforfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. The diluted earnings per share computed under the two-class method is lower than the diluted earnings per share computed under the treasury stock method, resulting in the presentation of the lower amount in diluted earnings per share. The computation of the earnings per share under the two-class method excludes the income attributable to the unvested restricted stock awards from the numerator and excludes the dilutive impact of those underlying shares from the denominator.
The following reflects the Company’s net income
(loss) and share data used in the basic and diluted earnings
(loss) per share computations using the two-class method:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Numerator for basic earnings per share: | | | | | | | |
Net income attributable to Graham Holdings Company common stockholders | $ | 24,784 |
| | $ | 33,126 |
| | $ | 87,866 |
| | $ | 131,672 |
|
Less: Dividends paid-common stock outstanding and unvested restricted shares | (7,047 | ) | | (6,796 | ) | | (28,329 | ) | | (27,329 | ) |
Undistributed earnings | 17,737 |
| | 26,330 |
| | 59,537 |
| | 104,343 |
|
Percent allocated to common stockholders | 99.07 | % | | 98.70 | % | | 99.07 | % | | 98.70 | % |
| 17,572 |
| | 25,987 |
| | 58,981 |
| | 102,987 |
|
Add: Dividends paid-common stock outstanding | 6,981 |
| | 6,708 |
| | 28,066 |
| | 26,976 |
|
Numerator for basic earnings per share | $ | 24,553 |
| | $ | 32,695 |
| | $ | 87,047 |
| | $ | 129,963 |
|
Add: Additional undistributed earnings due to dilutive stock options | 1 |
| | 2 |
| | 4 |
| | 7 |
|
Numerator for diluted earnings per share | $ | 24,554 |
| | $ | 32,697 |
| | $ | 87,051 |
| | $ | 129,970 |
|
Denominator: | |
| | |
| | | | |
Denominator for basic earnings per share: |
|
| |
|
| |
|
| |
|
|
Weighted average shares outstanding | 5,518 |
| | 5,544 |
| | 5,530 |
| | 5,570 |
|
Add: Effect of dilutive stock options | 36 |
| | 30 |
| | 37 |
| | 30 |
|
Denominator for diluted earnings per share | 5,554 |
| | 5,574 |
| | 5,567 |
| | 5,600 |
|
Graham Holdings Company Common Stockholders: | | | | | | | |
Basic earnings per share | $ | 4.45 |
| | $ | 5.90 |
| | $ | 15.74 |
| | $ | 23.33 |
|
Diluted earnings per share | $ | 4.42 |
| | $ | 5.87 |
| | $ | 15.64 |
| | $ | 23.21 |
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
(in thousands, except per share amounts) | | | | | 2021 | | 2020 |
Numerator: | | | | | | | |
Numerator for basic earnings (loss) per share: | | | | | | | |
Net income (loss) attributable to Graham Holdings Company common stockholders | | | | | $ | 112,450 | | | $ | (33,245) | |
Less: Dividends paid-common stock outstanding and unvested restricted shares | | | | | (15,106) | | | (15,289) | |
Undistributed earnings (loss) | | | | | 97,344 | | | (48,534) | |
Percent allocated to common stockholders (1) | | | | | 99.33 | % | | 100.00 | % |
| | | | | 96,693 | | | (48,534) | |
Add: Dividends paid-common stock outstanding | | | | | 15,005 | | | 15,205 | |
Numerator for basic earnings (loss) per share | | | | | $ | 111,698 | | | $ | (33,329) | |
Add: Additional undistributed earnings due to dilutive stock options | | | | | 1 | | | 0 | |
Numerator for diluted earnings (loss) per share | | | | | $ | 111,699 | | | $ | (33,329) | |
Denominator: | | | | | | | |
Denominator for basic earnings (loss) per share: | | | | | | | |
Weighted average shares outstanding | | | | | 4,967 | | | 5,274 | |
Add: Effect of dilutive stock options | | | | | 10 | | | 0 | |
Denominator for diluted earnings (loss) per share | | | | | 4,977 | | | 5,274 | |
Graham Holdings Company Common Stockholders: | | | | | | | |
Basic earnings (loss) per share | | | | | $ | 22.49 | | | $ | (6.32) | |
Diluted earnings (loss) per share | | | | | $ | 22.44 | | | $ | (6.32) | |
_______
(1) Percent of undistributed losses allocated to common stockholders was 100% in the first three months of 2020 as participating securities are not contractually obligated to share in losses.
Diluted earnings
(loss) per share excludes the following weighted average potential common shares, as the effect would be antidilutive, as computed under the treasury stock method:
| | | Three Months Ended September 30 | | Nine Months Ended September 30 | | | Three Months Ended March 31 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 | (in thousands) | | 2021 | | 2020 |
Weighted average restricted stock | 30 |
| | 42 |
| | 29 |
| | 40 |
| Weighted average restricted stock | | 9 | | | 12 | |
Weighted average stock options | | Weighted average stock options | | 0 | | | 27 | |
The diluted earnings (loss) per share amounts for the three and nine months ended September 30, 2017March 31, 2021 and September 30, 2016March 31, 2020 exclude the effects of 104,000 and 102,000 stock options outstanding, as their inclusion would have been antidilutive due to a market condition. The diluted earnings per share amounts for the three and nine months ended September 30, 2017 and September 30, 2016 exclude the effects of 5,250 and 6,100 restricted stock awards, respectively, as their inclusion would have been antidilutive due to a performance condition.
In the three and nine months ended September 30, 2017,March 31, 2021 and March 31, 2020, the Company declared regular dividends totaling $1.27$3.02 and $5.08$2.90 per common share, respectively. In the three and nine months ended September 30, 2016, the Company declared regular dividends totaling $1.21 and $4.84 per common share, respectively.
8.12. PENSION AND POSTRETIREMENT PLANS
Defined Benefit Plans. The total benefit arising from the Company’s defined benefit pension plans consists of the following components:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
(in thousands) | | | | | 2021 | | 2020 |
Service cost | | | | | $ | 5,602 | | | $ | 5,783 | |
Interest cost | | | | | 6,654 | | | 8,169 | |
Expected return on assets | | | | | (34,576) | | | (28,444) | |
Amortization of prior service cost | | | | | 711 | | | 708 | |
Recognized actuarial gain | | | | | (2,892) | | | 0 | |
Net Periodic Benefit | | | | | $ | (24,501) | | | $ | (13,784) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 4,591 |
| | $ | 5,040 |
| | $ | 14,096 |
| | $ | 15,422 |
|
Interest cost | 11,980 |
| | 12,845 |
| | 35,945 |
| | 38,763 |
|
Expected return on assets | (30,338 | ) | | (30,348 | ) | | (91,078 | ) | | (91,122 | ) |
Amortization of prior service cost | 42 |
| | 74 |
| | 128 |
| | 223 |
|
Recognized actuarial gain | (1,039 | ) | | — |
| | (3,372 | ) | | — |
|
Net Periodic Benefit | (14,764 | ) | | (12,389 | ) | | (44,281 | ) | | (36,714 | ) |
Special separation benefit expense | 932 |
| | — |
| | 932 |
| | — |
|
Total Benefit | $ | (13,832 | ) | | $ | (12,389 | ) | | $ | (43,349 | ) | | $ | (36,714 | ) |
In the third quarter of 2017, the Company recorded $0.9 million related to a Separation Incentive Program for certain Forney employees, which will be funded from the assets of the Company's pension plan.
The total cost arising from the Company’s Supplemental Executive Retirement Plan (SERP) consists of the following components: | | | Three Months Ended September 30 | | Nine Months Ended September 30 | | | Three Months Ended March 31 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 | (in thousands) | | 2021 | | 2020 |
Service cost | $ | 214 |
| | $ | 246 |
| | $ | 643 |
| | $ | 738 |
| Service cost | | $ | 255 | | | $ | 238 | |
Interest cost | 1,059 |
| | 1,096 |
| | 3,175 |
| | 3,288 |
| Interest cost | | 736 | | | 919 | |
Amortization of prior service cost | 114 |
| | 114 |
| | 342 |
| | 342 |
| Amortization of prior service cost | | 83 | | | 83 | |
Recognized actuarial loss | 444 |
| | 665 |
| | 1,331 |
| | 1,995 |
| Recognized actuarial loss | | 1,482 | | | 1,317 | |
Net Periodic Cost | $ | 1,831 |
| | $ | 2,121 |
| | $ | 5,491 |
| | $ | 6,363 |
| Net Periodic Cost | | $ | 2,556 | | | $ | 2,557 | |
|
Defined Benefit Plan Assets. The Company’s defined benefit pension obligations are funded by a portfolio made up of a private investment fund, a U.S. stock index fund, and a relatively small number of stocks and high-quality fixed-income securities that are held by a third-party trustee. The assets of the Company’s pension planplans were allocated as follows: | | | As of | | As of |
| September 30, 2017 | | December 31, 2016 | | March 31, 2021 | | December 31, 2020 |
| | | |
U.S. equities | 51 | % | | 53 | % | U.S. equities | 61 | % | | 58 | % |
Private investment fund | | Private investment fund | 17 | % | | 18 | % |
U.S. stock index fund | 32 | % | | 30 | % | U.S. stock index fund | 9 | % | | 9 | % |
International equities | | International equities | 8 | % | | 8 | % |
U.S. fixed income | 11 | % | | 11 | % | U.S. fixed income | 5 | % | | 7 | % |
International equities | 6 | % | | 6 | % | |
| 100 | % | | 100 | % | | 100 | % | | 100 | % |
The Company manages approximately 45%40% of the pension assets internally, of which the majority is invested in a U.S. stock indexprivate investment fund with the remaining investments in Berkshire Hathaway stock, a U.S. stock index fund and short-term fixed incomefixed-income securities. The remaining 55%60% of plan assets are managed by two2 investment companies. The goal forof the investmentsinvestment managers is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both investment managers may invest in a combination of equity and fixed-income securities and cash. The managers are not permitted to invest in securities of the Company or in alternative investments. One investment manager cannot invest more than 15% of the assets at the time of purchase in the stock of Alphabet and Berkshire Hathaway, and no more than 30% of the assets it manages in specified international exchanges at the time the investment is made. The other investment managersmanager cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway, orand no more than 15% of the assets it manages in specified international exchanges at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities. Excluding the exceptions noted above, the investment managers cannot invest more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval from the Plan administrator. As of September 30, 2017, the investment managers can invest no more than 23% of the assets they manage in specified international exchanges, at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities.
In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.
The Company evaluated its defined benefit pension plan asset portfolio for the existence of significant concentrations (defined as greater than 10% of plan assets) of credit risk as of September 30, 2017.March 31, 2021. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type
of industry, foreign country and individual fund. At September 30, 2017 and DecemberMarch 31, 2016,2021, the pension plan held investments in one1 common stock and one U.S. stock index1 private investment fund that exceeded 10% of total plan assets. These investments wereassets, valued at $1,057.5$885.3 million, and $978.8 million at September 30, 2017 andor approximately 30% of total plan assets. At December 31, 2016, respectively,2020, the pension plan held investments in 1 common stock and 1 private investment fund that exceeded 10% of total plan assets, valued at $850.6 million, or approximately 47% and 48%, respectively,30% of total plan assets.
Other Postretirement Plans. The total cost arising from the Company’s other postretirement plans consists of the following components:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
(in thousands) | | | | | 2021 | | 2020 |
| | | | | | | |
Interest cost | | | | | $ | 36 | | | $ | 62 | |
Amortization of prior service credit | | | | | (2) | | | (120) | |
Recognized actuarial gain | | | | | (1,019) | | | (1,097) | |
Net Periodic Benefit | | | | | $ | (985) | | | $ | (1,155) | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 257 |
| | $ | 346 |
| | $ | 771 |
| | $ | 1,039 |
|
Interest cost | 195 |
| | 308 |
| | 584 |
| | 923 |
|
Amortization of prior service credit | (38 | ) | | (83 | ) | | (112 | ) | | (251 | ) |
Recognized actuarial gain | (972 | ) | | (376 | ) | | (2,917 | ) | | (1,127 | ) |
Net Periodic (Benefit) Cost | $ | (558 | ) | | $ | 195 |
| | $ | (1,674 | ) | | $ | 584 |
|
9.13. OTHER NON-OPERATING INCOME (EXPENSE)
A summary of non-operating income (expense) is as follows: |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Foreign currency gain (loss), net | $ | 1,414 |
| | $ | (3,797 | ) | | $ | 6,608 |
| | $ | (33,324 | ) |
(Loss) gain on sales of businesses | — |
| | — |
| | (342 | ) | | 18,931 |
|
Loss on write-downs of cost method investments | (200 | ) | | (15,000 | ) | | (200 | ) | | (15,161 | ) |
Gain on sale of land | — |
| | — |
| | — |
| | 34,072 |
|
Gain on sales of marketable equity securities (see Note 2) | — |
| | — |
| | — |
| | 6,256 |
|
Gain on the formation of a joint venture | — |
| | — |
| | — |
| | 3,232 |
|
Other, net | 749 |
| | 572 |
| | 815 |
| | 1,865 |
|
Total Other Non-Operating Income (Expense) | $ | 1,963 |
| | $ | (18,225 | ) | | $ | 6,881 |
| | $ | 15,871 |
|
In the third quarter of 2016, the Company recorded an impairment of $15.0 million to the preferred equity interest in a vocational school company.
In the second quarter of 2016, the Company sold the remaining portion of the Robinson Terminal real estate retained from the sale of the Publishing Subsidiaries, for a gain of $34.1 million.
In June 2016, Residential contributed assets to a joint venture entered into with a Michigan hospital in exchange for a 40% equity interest and other assets, resulting in a $3.2 million gain (see Note 3). The Company used an income and market approach to value the equity interest. The measurement of the equity interest in the joint venture is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 |
(in thousands) | | | | | 2021 | | 2020 |
Gain on a cost method investment | | | | | $ | 2,723 | | | $ | 0 | |
Gain on sale of businesses | | | | | 802 | | | 107 | |
Gain on sale of cost method investments | | | | | 94 | | | 518 | |
Foreign currency gain, net | | | | | 3 | | | 4,290 | |
| | | | | | | |
Impairment of cost method investments | | | | | 0 | | | (2,577) | |
Loss on sale of an equity affiliate | | | | | 0 | | | (103) | |
| | | | | | | |
Other gain, net | | | | | 2,698 | | | 453 | |
Total Other Non-Operating Income | | | | | $ | 6,320 | | | $ | 2,688 | |
In the first quarter of 2016, Kaplan sold Colloquy, which was a part of Kaplan corporate and other, for2021, the Company recorded a gain of $18.9 million.
$2.7 million resulting from observable price changes in the fair value of an equity security accounted for under the cost method.
In the first quarter of 2020, the Company recorded impairment losses of $2.6 million to equity securities that are accounted for as cost method investments.
10.
14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The other comprehensive incomeloss consists of the following components: |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 |
| 2017 | | 2016 |
| Before-Tax | | Income | | After-Tax | | Before-Tax | | Income | | After-Tax |
(in thousands) | Amount | | Tax | | Amount | | Amount | | Tax | | Amount |
Foreign currency translation adjustments: | | | | | | | | | | | |
Translation adjustments arising during the period | $ | 11,470 |
| | $ | — |
| | $ | 11,470 |
| | $ | (353 | ) | | $ | — |
| | $ | (353 | ) |
Unrealized gains on available-for-sale securities: | | | | | | | | | | | |
Unrealized gains for the period, net | 47,836 |
| | (19,134 | ) | | 28,702 |
| | 12,154 |
| | (4,862 | ) | | 7,292 |
|
Pension and other postretirement plans: | | | | | | | | | | | |
Amortization of net prior service cost included in net income | 118 |
| | (47 | ) | | 71 |
| | 105 |
| | (41 | ) | | 64 |
|
Amortization of net actuarial (gain) loss included in net income | (1,567 | ) | | 627 |
| | (940 | ) | | 289 |
| | (116 | ) | | 173 |
|
| (1,449 | ) | | 580 |
| | (869 | ) | | 394 |
| | (157 | ) | | 237 |
|
Cash flow hedge: | | | | | | | | | | | |
(Loss) gain for the period | (72 | ) | | 14 |
| | (58 | ) | | 49 |
| | (20 | ) | | 29 |
|
Other Comprehensive Income | $ | 57,785 |
| | $ | (18,540 | ) | | $ | 39,245 |
| | $ | 12,244 |
| | $ | (5,039 | ) | | $ | 7,205 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30 |
| 2017 | | 2016 |
| Before-Tax | | Income | | After-Tax | | Before-Tax | | Income | | After-Tax |
(in thousands) | Amount | | Tax | | Amount | | Amount | | Tax | | Amount |
Foreign currency translation adjustments: | | | | | | | | | | | |
Translation adjustments arising during the period | $ | 34,776 |
| | $ | — |
| | $ | 34,776 |
| | $ | (1,629 | ) | | $ | — |
| | $ | (1,629 | ) |
Unrealized gains on available-for-sale securities: | | | | | | | | | | | |
Unrealized gains for the period, net | 71,370 |
| | (28,548 | ) | | 42,822 |
| | 7,190 |
| | (2,876 | ) | | 4,314 |
|
Reclassification of realized gain on sale of available-for-sale securities included in net income | — |
| | — |
| | — |
| | (6,256 | ) | | 2,502 |
| | (3,754 | ) |
| 71,370 |
| | (28,548 | ) | | 42,822 |
| | 934 |
| | (374 | ) | | 560 |
|
Pension and other postretirement plans: | | | | | | | | | | | |
Amortization of net prior service cost included in net income | 358 |
| | (143 | ) | | 215 |
| | 314 |
| | (125 | ) | | 189 |
|
Amortization of net actuarial (gain) loss included in net income | (4,958 | ) | | 1,983 |
| | (2,975 | ) | | 868 |
| | (347 | ) | | 521 |
|
| (4,600 | ) | | 1,840 |
| | (2,760 | ) | | 1,182 |
| | (472 | ) | | 710 |
|
Cash flow hedge: | | | | | | | | | | | |
(Loss) gain for the period | (215 | ) | | 43 |
| | (172 | ) | | 49 |
| | (20 | ) | | 29 |
|
Other Comprehensive Income | $ | 101,331 |
| | $ | (26,665 | ) | | $ | 74,666 |
| | $ | 536 |
| | $ | (866 | ) | | $ | (330 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31 |
| 2021 | | 2020 |
| Before-Tax | | Income | | After-Tax | | Before-Tax | | Income | | After-Tax |
(in thousands) | Amount | | Tax | | Amount | | Amount | | Tax | | Amount |
Foreign currency translation adjustments: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Translation adjustments arising during the period | $ | (486) | | | $ | 0 | | | $ | (486) | | | $ | (37,376) | | | $ | 0 | | | $ | (37,376) | |
Pension and other postretirement plans: | | | | | | | | | | | |
Amortization of net prior service cost included in net income | 792 | | | (213) | | | 579 | | | 671 | | | (181) | | | 490 | |
Amortization of net actuarial (gain) loss included in net income | (2,429) | | | 656 | | | (1,773) | | | 220 | | | (60) | | | 160 | |
| | | | | | | | | | | |
| (1,637) | | | 443 | | | (1,194) | | | 891 | | | (241) | | | 650 | |
Cash flow hedges: | | | | | | | | | | | |
Gain (loss) for the period | 621 | | | (144) | | | 477 | | | (1,578) | | | 361 | | | (1,217) | |
Other Comprehensive Loss | $ | (1,502) | | | $ | 299 | | | $ | (1,203) | | | $ | (38,063) | | | $ | 120 | | | $ | (37,943) | |
The accumulated balances related to each component of other comprehensive income (loss) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, net of taxes) | Cumulative Foreign Currency Translation Adjustment | | | | Unrealized Gain on Pensions and Other Postretirement Plans | | Cash Flow Hedges | | Accumulated Other Comprehensive Income |
Balance as of December 31, 2020 | $ | 9,754 | | | | | $ | 595,287 | | | $ | (1,727) | | | $ | 603,314 | |
| | | | | | | | | |
Other comprehensive (loss) income before reclassifications | (486) | | | | | 0 | | | 323 | | | (163) | |
Net amount reclassified from accumulated other comprehensive income (loss) | 0 | | | | | (1,194) | | | 154 | | | (1,040) | |
Other comprehensive (loss) income, net of tax | (486) | | | | | (1,194) | | | 477 | | | (1,203) | |
Balance as of March 31, 2021 | $ | 9,268 | | | | | $ | 594,093 | | | $ | (1,250) | | | $ | 602,111 | |
|
| | | | | | | | | | | | | | | | | | | |
(in thousands, net of taxes) | Cumulative Foreign Currency Translation Adjustment | | Unrealized Gain on Available-for- Sale Securities | | Unrealized Gain on Pensions and Other Postretirement Plans | | Cash Flow Hedge | | Accumulated Other Comprehensive Income |
Balance as of December 31, 2016 | $ | (26,998 | ) | | $ | 92,931 |
| | $ | 170,830 |
| | $ | (277 | ) | | $ | 236,486 |
|
Other comprehensive income (loss) before reclassifications | 34,776 |
| | 42,822 |
| | — |
| | (270 | ) | | 77,328 |
|
Net amount reclassified from accumulated other comprehensive income (loss) | — |
| | — |
| | (2,760 | ) | | 98 |
| | (2,662 | ) |
Other comprehensive income (loss), net of tax | 34,776 |
| | 42,822 |
| | (2,760 | ) | | (172 | ) | | 74,666 |
|
Balance as of September 30, 2017 | $ | 7,778 |
| | $ | 135,753 |
| | $ | 168,070 |
| | $ | (449 | ) | | $ | 311,152 |
|
The amounts and line items of reclassifications out of Accumulated Other Comprehensive Income (Loss) are as follows: |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | Affected Line Item in the Condensed Consolidated Statement of Operations |
| | |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 | |
Unrealized Gains on Available-for-sale Securities: | | | | | | | | | |
Realized gain for the period | $ | — |
| | $ | — |
| | $ | — |
| | $ | (6,256 | ) | | Other income (expense), net |
| — |
| | — |
| | — |
| | 2,502 |
| | Provision for Income Taxes |
| — |
| | — |
| | — |
| | (3,754 | ) | | Net of Tax |
Pension and Other Postretirement Plans: | | | | | | | | | |
Amortization of net prior service cost | 118 |
| | 105 |
| | 358 |
| | 314 |
| | (1) |
Amortization of net actuarial (gain) loss | (1,567 | ) | | 289 |
| | (4,958 | ) | | 868 |
| | (1) |
| (1,449 | ) | | 394 |
| | (4,600 | ) | | 1,182 |
| | Before tax |
| 580 |
| | (157 | ) | | 1,840 |
| | (472 | ) | | Provision for Income Taxes |
| (869 | ) | | 237 |
| | (2,760 | ) | | 710 |
| | Net of Tax |
Cash Flow Hedge | | | | | | | | | |
| 51 |
| | (3 | ) | | 123 |
| | (3 | ) | | Interest expense |
| (11 | ) | | 1 |
| | (25 | ) | | 1 |
| | Provision for Income Taxes |
| 40 |
| | (2 | ) | | 98 |
| | (2 | ) | | Net of Tax |
Total reclassification for the period | $ | (829 | ) | | $ | 235 |
| | $ | (2,662 | ) | | $ | (3,046 | ) | | Net of Tax |
____________ | |
(1) | These accumulated other comprehensive income components are included in the computation of net periodic pension and postretirement plan cost (see Note 8). |
11. | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31 | | Affected Line Item in the Condensed Consolidated Statements of Operations |
| | |
(in thousands) | | | | | 2021 | | 2020 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Pension and Other Postretirement Plans: | | | | | | | | | |
Amortization of net prior service cost | | | | | $ | 792 | | | $ | 671 | | | (1) |
Amortization of net actuarial (gain) loss | | | | | (2,429) | | | 220 | | | (1) |
| | | | | | | | | |
| | | | | (1,637) | | | 891 | | | Before tax |
| | | | | 443 | | | (241) | | | Provision for (Benefit from) Income Taxes |
| | | | | (1,194) | | | 650 | | | Net of Tax |
Cash Flow Hedges | | | | | | | | | |
| | | | | 154 | | | 29 | | | Interest expense |
| | | | | 0 | | | 7 | | | Provision for (Benefit from) Income Taxes |
| | | | | 154 | | | 36 | | | Net of Tax |
Total reclassification for the period | | | | | $ | (1,040) | | | $ | 686 | | | Net of Tax |
____________
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension and postretirement plan cost (see Note 12) and are included in non-operating pension and postretirement benefit income in the Company’s Condensed Consolidated Statements of Operations.
15. CONTINGENCIES
Litigation, Legal and Other Matters.Matters. The Company and its subsidiaries are involvedsubject to complaints and administrative proceedings and are defendants in various legal, regulatory and other proceedingscivil lawsuits that arisehave arisen in the ordinary course of its business.their businesses, including contract disputes; actions alleging negligence, libel, defamation and invasion of privacy; trademark, copyright and patent infringement; violations of employment laws and applicable wage and hour laws; and statutory or common law claims involving current and former students and employees. Although the outcomes of thesethe legal claims and proceedings against the Company cannot be predicted with certainty, based on currently available information, management believes that there are no0 existing claims or proceedings (asserted or unasserted) that are likely to have a material effect on the Company’s business, financial condition, results of operations or cash flows. However, based on currently available information, management believes it is reasonably possible that future losses from existing and threatened legal, regulatory and other proceedings in excess of the amounts recorded could reach approximately $25$10 million.
Kaplan subsidiaries were subject to two unsealed cases filed by former employees that include, among other allegations, claims under the False Claims Act relating to eligibility for Title IV funding. The U.S. Government declined to intervene in all cases, and, as previously reported, court decisions either dismissed the cases in their entirety or narrowed the scope of their allegations. The two cases are captioned: United States of America ex rel. Carlos Urquilla-Diaz et al. v. Kaplan University et al. (“Diaz”, unsealed March 25, 2008) and United States of America ex rel. Charles Jajdelski v. Kaplan Higher Education Corp. et al. (“Jajdelski”, unsealed January 6, 2009).
On August 17, 2011, the U.S. District Court for the Southern District of Florida issued a series of rulings in the Diaz case, which actually included three separate complainants: Diaz, Wilcox and Gillespie. The court dismissed the Wilcox complaint in its entirety; dismissed all False Claims Act allegations in the Diaz complaint, leaving only an individual employment claim; and dismissed in part the Gillespie complaint limiting the scope and time frame of its False Claims Act allegations regarding compliance with the U.S. Federal Rehabilitation Act. On July 16, 2013, the court entered summary judgment in favor of the Company on all remaining claims in the Gillespie complaint and on March 11, 2015, the U.S. Court of Appeals for the Eleventh Judicial Circuit affirmed that dismissal ending the Gillespie claims in Kaplan’s favor. On October 31, 2012, the court entered summary judgment in favor of the Company as to the sole remaining employment claim in the Diaz complaint. And, on March 11, 2015, the appellate court affirmed the summary judgment on all issues in the Diaz case except the court reversed and remanded Diaz’s claim that incentive compensation for admissions representatives was improperly based solely on enrollments in violation of the Title IV regulations. On July 13, 2017, the District Court again granted summary judgment on this final issue in the Diaz case in Kaplan’s favor, ending the case at the U.S. District Court level; the plaintiff has filed a notice of appeal.
On July 7, 2011, the U.S. District Court for the District of Nevada dismissed the Jajdelski complaint in its entirety and entered a final judgment in favor of Kaplan. On February 13, 2013, the U.S. Circuit Court for the Ninth Judicial Circuit affirmed the dismissal in part and reversed the dismissal on one allegation under the False Claims Act relating to eligibility for Title IV funding based on claims of false attendance. The surviving claim was remanded to the District Court, where Kaplan was again granted summary judgment on March 9, 2015. Plaintiff has appealed this judgment and briefing is complete. In March 2017, the Appellate Court denied the appeal and ruled fully in
Kaplan’s favor and Jajdelski filed a motion to re-hear the matter. On May 12, 2017, the Court of Appeals issued its Mandate ending the case and relinquishing jurisdiction.
Despite the sale of the nationally accredited Kaplan Higher Education Campuses business, Kaplan retains liability for these claims.
Her Majesty's Revenue and Customs (HMRC), a department of the UK government responsible for the collection of taxes, has raised assessments against the Kaplan UK Pathways business for VAT relating to 2017 and earlier years, which have been paid by Kaplan. Kaplan has challenged these assessments and the case is currently on appeal to a tax tribunal with a hearing expected in 2018. The Company believes it has met all requirements under UK VAT law and expects to recover the receivable related to the assessments that have been paid.
Department of Education (ED) Program Reviews. ED has undertaken program reviews at various KHE locations. Currently, there are three open program reviews, two of which are at campuses that were formerly a part of the KHE Campuses business, including the ED’s final reports on the program reviews at former KHE Broomall, PA, and Pittsburgh, PA, locations. Kaplan retains responsibility for any financial obligation resulting from the ED program reviews at the KHE Campuses business that were open at the time of sale.
On February 23, 2015, the ED began a review of Kaplan University. The review will assess Kaplan’s administration of its Title IV, HEA programs and will initially focus on the 2013 to 2014 and 2014 to 2015 award years. On December 17, 2015, Kaplan University received a notice from the ED that it had been placed on provisional certification status until September 30, 2018, in connection with the open and ongoing ED program review. The ED has not notified Kaplan University of any negative findings. However, at this time, Kaplan cannot predict the outcome of this review, when it will be completed or any liability or other limitations that the ED may place on Kaplan University as a result of this review. During the period of provisional certification, Kaplan University must obtain prior ED approval to open a new location, add an educational program, acquire another school or make any other significant change.
The Company does not expect the open program reviews to have a material impact on KHE; however, the results of open program reviews and their impact on Kaplan’s operations are uncertain.
Other. In October 2017, Kaplan received a citation from the California Bureau for Private Postsecondary Education (BPPE) that non-employees may not be used to recruit students for its English-language programs operating in California. Kaplan currently operates seven English-language schools in California and non-employee agents are used extensively for student recruitment. Kaplan intends to appeal the citation, but there can be no guarantee that Kaplan will prevail on this matter.
12.16. BUSINESS SEGMENTS
The Company has four6 reportable segments: Kaplan International, Kaplan Higher Education, Kaplan Test Preparation, Kaplan InternationalSupplemental Education, Television Broadcasting, Manufacturing and television broadcasting.Healthcare.
The following table summarizestables summarize the financial information related to each of the Company’s business segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Three months ended | | |
| | | | | | | | | March 31 | | |
(in thousands) | | | | | | | | | | | | | 2021 | | 2020 | | | | |
Operating Revenues | | | | | | | | | | | | | | | | | | | |
Education | | | | | | | | | | | | | $ | 329,317 | | | $ | 356,378 | | | | | |
Television broadcasting | | | | | | | | | | | | | 113,625 | | | 115,448 | | | | | |
Manufacturing | | | | | | | | | | | | | 115,960 | | | 113,458 | | | | | |
Healthcare | | | | | | | | | | | | | 50,043 | | | 45,994 | | | | | |
Other businesses | | | | | | | | | | | | | 104,039 | | | 101,282 | | | | | |
Corporate office | | | | | | | | | | | | | 0 | | | 0 | | | | | |
Intersegment elimination | | | | | | | | | | | | | (529) | | | (303) | | | | | |
| | | | | | | | | | | | | $ | 712,455 | | | $ | 732,257 | | | | | |
Income (Loss) from Operations before Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets |
| | | | | | | | | | | |
|
|
| | | | |
Education | | | | | | | | | | | | | $ | 24,148 | | | $ | 8,893 | | | | | |
Television broadcasting | | | | | | | | | | | | | 34,337 | | | 37,136 | | | | | |
Manufacturing | | | | | | | | | | | | | 15,894 | | | 13,638 | | | | | |
Healthcare | | | | | | | | | | | | | 7,921 | | | 4,479 | | | | | |
Other businesses | | | | | | | | | | | | | (18,692) | | | (16,923) | | | | | |
Corporate office | | | | | | | | | | | | | (14,780) | | | (8,572) | | | | | |
| | | | | | | | | | | | | $ | 48,828 | | | $ | 38,651 | | | | | |
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets | | | | | | | | | | | | | | | | | | | |
Education | | | | | | | | | | | | | $ | 5,212 | | | $ | 4,201 | | | | | |
Television broadcasting | | | | | | | | | | | | | 1,359 | | | 1,360 | | | | | |
Manufacturing | | | | | | | | | | | | | 6,987 | | | 7,137 | | | | | |
Healthcare | | | | | | | | | | | | | 781 | | | 1,310 | | | | | |
Other businesses | | | | | | | | | | | | | 645 | | | 16,558 | | | | | |
Corporate office | | | | | | | | | | | | | 0 | | | 0 | | | | | |
| | | | | | | | | | | | | $ | 14,984 | | | $ | 30,566 | | | | | |
Income (Loss) from Operations | | | | | | | | | | | | | | | | | | | |
Education | | | | | | | | | | | | | $ | 18,936 | | | $ | 4,692 | | | | | |
Television broadcasting | | | | | | | | | | | | | 32,978 | | | 35,776 | | | | | |
Manufacturing | | | | | | | | | | | | | 8,907 | | | 6,501 | | | | | |
Healthcare | | | | | | | | | | | | | 7,140 | | | 3,169 | | | | | |
Other businesses | | | | | | | | | | | | | (19,337) | | | (33,481) | | | | | |
Corporate office | | | | | | | | | | | | | (14,780) | | | (8,572) | | | | | |
| | | | | | | | | | | | | $ | 33,844 | | | $ | 8,085 | | | | | |
Equity in Earnings (Losses) of Affiliates, Net | | | | | | | | | | | | | 13,428 | | | (1,547) | | | | | |
Interest Expense, Net | | | | | | | | | | | | | (7,558) | | | (6,527) | | | | | |
Non-Operating Pension and Postretirement Benefit Income, Net | | | | | | | | | | | | | 28,787 | | | 18,403 | | | | | |
Gain (Loss) on Marketable Equity Securities, Net | | | | | | | | | | | | | 79,214 | | | (100,393) | | | | | |
Other Income, Net | | | | | | | | | | | | | 6,320 | | | 2,688 | | | | | |
Income (Loss) Before Income Taxes | | | | | | | | | | | | | $ | 154,035 | | | $ | (79,291) | | | | | |
Depreciation of Property, Plant and Equipment | | | | | | | | | | | | | | | | | | | |
Education | | | | | | | | | | | | | $ | 7,780 | | | $ | 7,329 | | | | | |
Television broadcasting | | | | | | | | | | | | | 3,473 | | | 3,343 | | | | | |
Manufacturing | | | | | | | | | | | | | 2,517 | | | 2,527 | | | | | |
Healthcare | | | | | | | | | | | | | 317 | | | 540 | | | | | |
Other businesses | | | | | | | | | | | | | 2,290 | | | 2,790 | | | | | |
Corporate office | | | | | | | | | | | | | 168 | | | 175 | | | | | |
| | | | | | | | | | | | | $ | 16,545 | | | $ | 16,704 | | | | | |
Pension Service Cost | | | | | | | | | | | | | | | | | | | |
Education | | | | | | | | | | | | | $ | 2,283 | | | $ | 2,585 | | | | | |
Television broadcasting | | | | | | | | | | | | | 835 | | | 796 | | | | | |
Manufacturing | | | | | | | | | | | | | 395 | | | 394 | | | | | |
Healthcare | | | | | | | | | | | | | 172 | | | 159 | | | | | |
Other businesses | | | | | | | | | | | | | 369 | | | 463 | | | | | |
Corporate office | | | | | | | | | | | | | 1,548 | | | 1,386 | | | | | |
| | | | | | | | | | | | | $ | 5,602 | | | $ | 5,783 | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Operating Revenues | | | | | | | |
Education | $ | 376,805 |
| | $ | 386,936 |
| | $ | 1,136,201 |
| | $ | 1,207,225 |
|
Television broadcasting | 101,295 |
| | 112,389 |
| | 298,893 |
| | 300,927 |
|
Other businesses | 179,125 |
| | 122,313 |
| | 480,935 |
| | 344,298 |
|
Corporate office | — |
| | — |
| | — |
| | — |
|
Intersegment elimination | — |
| | — |
| | — |
| | (139 | ) |
| $ | 657,225 |
| | $ | 621,638 |
| | $ | 1,916,029 |
| | $ | 1,852,311 |
|
Income (Loss) from Operations | | | | | | | |
Education | $ | 13,391 |
| | $ | 16,333 |
| | $ | 55,347 |
| | $ | 63,713 |
|
Television broadcasting | 32,948 |
| | 59,159 |
| | 98,181 |
| | 144,594 |
|
Other businesses | (7,033 | ) | | (10,801 | ) | | (26,515 | ) | | (21,593 | ) |
Corporate office | 5,265 |
| | 3,342 |
| | 14,973 |
| | 7,331 |
|
| $ | 44,571 |
| | $ | 68,033 |
| | $ | 141,986 |
| | $ | 194,045 |
|
Equity in Earnings (Losses) of Affiliates, Net | (532 | ) | | (1,008 | ) | | 1,448 |
| | (895 | ) |
Interest Expense, Net | (7,758 | ) | | (7,874 | ) | | (22,386 | ) | | (22,481 | ) |
Other Income (Expense), Net | 1,963 |
| | (18,225 | ) | | 6,881 |
| | 15,871 |
|
Income Before Income Taxes | $ | 38,244 |
| | $ | 40,926 |
| | $ | 127,929 |
| | $ | 186,540 |
|
Depreciation of Property, Plant and Equipment | | | | | | | |
Education | $ | 8,085 |
| | $ | 9,977 |
| | $ | 24,994 |
| | $ | 31,322 |
|
Television broadcasting | 3,118 |
| | 2,540 |
| | 8,703 |
| | 7,367 |
|
Other businesses | 4,520 |
| | 3,289 |
| | 11,968 |
| | 9,389 |
|
Corporate office | 279 |
| | 291 |
| | 860 |
| | 825 |
|
| $ | 16,002 |
| | $ | 16,097 |
| | $ | 46,525 |
| | $ | 48,903 |
|
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets | | | | | |
| | |
|
Education | $ | 1,355 |
| | $ | 1,773 |
| | $ | 3,798 |
| | $ | 5,158 |
|
Television broadcasting | 1,071 |
| | 63 |
| | 2,943 |
| | 189 |
|
Other businesses | 8,809 |
| | 4,784 |
| | 31,085 |
| | 13,813 |
|
Corporate office | — |
| | — |
| | — |
| | — |
|
| $ | 11,235 |
| | $ | 6,620 |
| | $ | 37,826 |
| | $ | 19,160 |
|
Net Pension (Credit) Expense | | | | | |
| | |
|
Education | $ | 2,430 |
| | $ | 2,838 |
| | $ | 7,289 |
| | $ | 8,965 |
|
Television broadcasting | 485 |
| | 428 |
| | 1,457 |
| | 1,285 |
|
Other businesses | 1,375 |
| | 279 |
| | 2,273 |
| | 839 |
|
Corporate office | (18,122 | ) | | (15,934 | ) | | (54,368 | ) | | (47,803 | ) |
| $ | (13,832 | ) | | $ | (12,389 | ) | | $ | (43,349 | ) | | $ | (36,714 | ) |
Asset information for the Company’s business segments areis as follows:
| | | As of | | As of |
(in thousands) | September 30, 2017 | | December 31, 2016 | (in thousands) | March 31, 2021 | | December 31, 2020 |
Identifiable Assets | | | | Identifiable Assets | | | |
Education | $ | 1,615,116 |
| | $ | 1,479,267 |
| Education | $ | 1,901,257 | | | $ | 1,975,104 | |
Television broadcasting | 447,702 |
| | 336,631 |
| Television broadcasting | 450,403 | | | 453,988 | |
Manufacturing | | Manufacturing | 557,631 | | | 551,611 | |
Healthcare | | Healthcare | 160,033 | | | 160,654 | |
Other businesses | 918,684 |
| | 796,935 |
| Other businesses | 506,936 | | | 517,533 | |
Corporate office | 157,550 |
| | 455,209 |
| Corporate office | 341,980 | | | 348,045 | |
| $ | 3,139,052 |
| | $ | 3,068,042 |
| | $ | 3,918,240 | | | $ | 4,006,935 | |
Investments in Marketable Equity Securities | 495,599 |
| | 424,229 |
| Investments in Marketable Equity Securities | 700,352 | | | 573,102 | |
Investments in Affiliates | 122,166 |
| | 58,806 |
| Investments in Affiliates | 169,203 | | | 155,777 | |
Prepaid Pension Cost | 863,098 |
| | 881,593 |
| Prepaid Pension Cost | 1,730,625 | | | 1,708,305 | |
Total Assets | $ | 4,619,915 |
| | $ | 4,432,670 |
| Total Assets | $ | 6,518,420 | | | $ | 6,444,119 | |
The Company’s education division comprises the following operating segments:
| | | | | | | | | | | | | | | | | | |
| | | Three months ended | |
| | | March 31 | |
(in thousands) | | | | | 2021 | | 2020 | |
Operating Revenues | | | | | | | | |
Kaplan international | | | | | $ | 171,895 | | | $ | 199,615 | | |
Higher education | | | | | 75,686 | | | 73,537 | | |
| | | | | | | | |
| | | | | | | | |
Supplemental education | | | | | 79,655 | | | 81,288 | | |
Kaplan corporate and other | | | | | 3,363 | | | 3,205 | | |
Intersegment elimination | | | | | (1,282) | | | (1,267) | | |
| | | | | $ | 329,317 | | | $ | 356,378 | | |
| | | | | | | | |
Income (Loss) From Operations before Amortization of Intangible Assets and Impairment of Long-Lived Assets | | | | | | | | |
Kaplan international | | | | | $ | 10,207 | | | $ | 18,980 | | |
Higher education | | | | | 6,253 | | | (2,020) | | |
| | | | | | | | |
| | | | | | | | |
Supplemental education | | | | | 12,497 | | | (6,550) | | |
Kaplan corporate and other | | | | | (4,907) | | | (1,522) | | |
Intersegment elimination | | | | | 98 | | | 5 | | |
| | | | | $ | 24,148 | | | $ | 8,893 | | |
Amortization of Intangible Assets | | | | | $ | 4,165 | | | $ | 4,201 | | |
Impairment of Long-Lived Assets | | | | | $ | 1,047 | | | $ | 0 | | |
| | | | | | | | |
Income (Loss) from Operations | | | | | | | | |
Kaplan international | | | | | $ | 10,207 | | | $ | 18,980 | | |
Higher education | | | | | 6,253 | | | (2,020) | | |
| | | | | | | | |
| | | | | | | | |
Supplemental education | | | | | 12,497 | | | (6,550) | | |
Kaplan corporate and other | | | | | (10,119) | | | (5,723) | | |
Intersegment elimination | | | | | 98 | | | 5 | | |
| | | | | $ | 18,936 | | | $ | 4,692 | | |
Depreciation of Property, Plant and Equipment | | | | | | | | |
Kaplan international | | | | | $ | 5,252 | | | $ | 4,578 | | |
Higher education | | | | | 852 | | | 723 | | |
| | | | | | | | |
| | | | | | | | |
Supplemental education | | | | | 1,576 | | | 1,939 | | |
Kaplan corporate and other | | | | | 100 | | | 89 | | |
| | | | | $ | 7,780 | | | $ | 7,329 | | |
| | | | | | | | |
Pension Service Cost | | | | | | | | |
Kaplan international | | | | | $ | 71 | | | $ | 112 | | |
Higher education | | | | | 1,083 | | | 1,070 | | |
| | | | | | | | |
| | | | | | | | |
Supplemental education | | | | | 931 | | | 1,085 | | |
Kaplan corporate and other | | | | | 198 | | | 318 | | |
| | | | | $ | 2,283 | | | $ | 2,585 | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30 | | September 30 |
(in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
Operating Revenues | | | | | | | |
Higher education | $ | 133,459 |
| | $ | 148,602 |
| | $ | 416,973 |
| | $ | 472,131 |
|
Test preparation | 72,680 |
| | 78,291 |
| | 212,978 |
| | 224,102 |
|
Kaplan international | 171,259 |
| | 160,456 |
| | 507,568 |
| | 512,068 |
|
Kaplan corporate and other | 49 |
| | 47 |
| | 120 |
| | 190 |
|
Intersegment elimination | (642 | ) | | (460 | ) | | (1,438 | ) | | (1,266 | ) |
| $ | 376,805 |
| | $ | 386,936 |
| | $ | 1,136,201 |
| | $ | 1,207,225 |
|
Income (Loss) from Operations | | | |
| | |
| | |
|
Higher education | $ | 8,809 |
| | $ | 11,494 |
| | $ | 39,124 |
| | $ | 50,037 |
|
Test preparation | 7,330 |
| | 8,588 |
| | 10,207 |
| | 13,314 |
|
Kaplan international | 5,348 |
| | 1,561 |
| | 29,009 |
| | 22,937 |
|
Kaplan corporate and other | (8,037 | ) | | (5,310 | ) | | (22,957 | ) | | (22,526 | ) |
Intersegment elimination | (59 | ) | | — |
| | (36 | ) | | (49 | ) |
| $ | 13,391 |
| | $ | 16,333 |
| | $ | 55,347 |
| | $ | 63,713 |
|
Depreciation of Property, Plant and Equipment | |
| | |
| | |
| | |
|
Higher education | $ | 2,768 |
| | $ | 4,157 |
| | $ | 9,448 |
| | $ | 12,325 |
|
Test preparation | 1,407 |
| | 1,441 |
| | 4,080 |
| | 4,837 |
|
Kaplan international | 3,780 |
| | 4,360 |
| | 11,071 |
| | 13,739 |
|
Kaplan corporate and other | 130 |
| | 19 |
| | 395 |
| | 421 |
|
| $ | 8,085 |
| | $ | 9,977 |
| | $ | 24,994 |
| | $ | 31,322 |
|
Amortization of Intangible Assets | $ | 1,355 |
| | $ | 1,773 |
| | $ | 3,798 |
| | $ | 5,158 |
|
Pension Expense | |
| | |
| | |
| | |
|
Higher education | $ | 548 |
| | $ | 1,905 |
| | $ | 4,636 |
| | $ | 5,715 |
|
Test preparation | 244 |
| | 768 |
| | 2,066 |
| | 2,304 |
|
Kaplan international | 24 |
| | 67 |
| | 198 |
| | 201 |
|
Kaplan corporate and other | 1,614 |
| | 98 |
| | 389 |
| | 745 |
|
| $ | 2,430 |
| | $ | 2,838 |
| | $ | 7,289 |
| | $ | 8,965 |
|
Asset information for the Company’s education division is as follows:
| | | | | | | | | | | |
| As of |
| | | |
(in thousands) | March 31, 2021 | | December 31, 2020 |
Identifiable Assets | | | |
Kaplan international | $ | 1,387,772 | | | $ | 1,455,722 | |
Higher education | 188,602 | | | 187,123 | |
| | | |
| | | |
Supplemental education | 265,408 | | | 274,687 | |
Kaplan corporate and other | 59,475 | | | 57,572 | |
| $ | 1,901,257 | | | $ | 1,975,104 | |
|
| | | | | | | |
| As of |
(in thousands) | September 30, 2017 | | December 31, 2016 |
Identifiable assets | | | |
Higher education | $ | 349,756 |
| | $ | 373,127 |
|
Test preparation | 135,442 |
| | 133,709 |
|
Kaplan international | 1,110,596 |
| | 950,922 |
|
Kaplan corporate and other | 19,322 |
| | 21,509 |
|
| $ | 1,615,116 |
| | $ | 1,479,267 |
|
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition.
This analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto.
Results of Operations
The Company reported net income attributable to common shares of $24.8$112.5 million ($4.4222.44 per share) for the thirdfirst quarter of 2017,2021, compared to $33.1a loss of $33.2 million ($5.876.32 per share) for the thirdfirst quarter of 2016.2020.
The COVID-19 pandemic and measures taken to prevent its spread, such as travel restrictions, shelter in place orders and mandatory closures, significantly impacted the Company’s results for 2020 and the first three months of 2021, largely from reduced demand for the Company’s products and services. This significant adverse impact is expected to continue for several of the Company’s businesses for the remainder of 2021. The Company’s management has taken a variety of measures to reduce costs and implement changes to business operations. The Company cannot predict the severity or duration of the pandemic, the extent to which demand for the Company’s products and services will be adversely affected or the degree to which financial and operating results will be negatively impacted.
Items included in the Company’s net income before income taxes for the thirdfirst quarter of 2017:2021:
•a $0.6 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC;
•$1.479.2 million in net gains on marketable equity securities;
•$10.3 million in net earnings of affiliates whose operations are not managed by the Company;
•a non-operating foreign currency gains (after-tax impactgain of $0.9$2.7 million or $0.16 per share).from the write-up of a cost method investment; and
•$1.1 million in interest expense to adjust the fair value of the mandatorily redeemable noncontrolling interest.
Items included in the Company’s netloss before income taxes for the thirdfirst quarter of 2016:2020:
•$16.4 million in goodwill and intangible asset impairment charges;
•a $15.0$0.3 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC;
•$100.4 million in net losses on marketable equity securities;
•$0.6 million in net losses of affiliates whose operations are not managed by the Company;
•non-operating expenselosses of $6.1 million from the write-downimpairments of a cost method investment (after-tax impact of $9.6 million, or $1.70 per share);
and equity method investments; and•$3.84.3 million in non-operating foreign currency losses (after-tax impact of $2.4 million, or $0.43 per share); and
a net nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations ($1.47 per share).
gains.Revenue for the thirdfirst quarter of 20172021 was $657.2$712.5 million, up 6%down 3% from $621.6$732.3 million in the thirdfirst quarter of 2016.2020. Revenues increased in other businesses, offset by a declinedeclined at the education and television broadcasting, divisions.partially offset by increases at manufacturing, healthcare and other businesses. The Company reported operating income of $44.6$33.8 million for the third quarter of 2017, compared to $68.0 million for the third quarter of 2016. The operating income decline is driven by lower earnings at the television broadcasting and education divisions, offset by an increase in other businesses.
On April 27, 2017, certain Kaplan subsidiaries entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute Kaplan University (KU), its institutional assets and operations to a new, nonprofit, public-benefit corporation (New University) affiliated with Purdue University (Purdue) in exchange for a Transition and Operations Support Agreement (TOSA) to provide key non-academic operations support to New University for an initial term of 30 years with a buy-out option after six years. The transfer does not include any of the assets of Kaplan University School of Professional and Continuing Education (KU-PACE), which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education (ED), the Indiana Commission for Higher Education (ICHE) and Higher Learning Commissions (HLC), which is the regional accreditor of both Purdue and KU, and certain other state educational agencies and accreditors of programs. In the third quarter of 2017, ICHE granted its approval and the ED provided preliminary approval based on its review of a pre-acquisition application, subject to certain conditions. Kaplan is unable to predict with certainty when and if HLC approval will be obtained; however, such approval is not expected to be received until the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.
For the first nine months of 2017, the Company reported income attributable to common shares of $87.9 million ($15.64 per share),2021, compared to $131.7 million ($23.21 per share) for the first nine months of 2016.
Items included in the Company’s net income for the first nine months of 2017:
a $9.2 million goodwill and other long-lived asset impairment charge in other businesses (after-tax impact of $5.8 million, or $1.03 per share);
$6.6 million in non-operating foreign currency gains (after-tax impact of $4.2 million, or $0.74 per share); and
$5.9 million in income tax benefits related to stock compensation ($1.06 per share).
Items included in the Company’s net income for the first nine months of 2016:
a $40.3 million non-operating gain from the sales of land and marketable equity securities (after-tax impact of $25.0 million, or $4.42 per share);
a $22.2 million non-operating gain arising from the sale of a business and the formation of a joint venture (after-tax impact of $13.6 million, or $2.37 per share);
a $15.0 million non-operating expense from the write-down of a cost method investment (after-tax impact of $9.6 million, or $1.70 per share);
$33.3 million in non-operating foreign currency losses (after-tax impact of $21.3 million, or $3.76 per share);
a net nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations ($1.47 per share); and
a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015 ($1.00 per share).
Revenue for the first nine months of 2017 was $1,916.0 million, up 3% from $1,852.3 million in the first nine months of 2016. Revenues increased in other businesses, offset by a decline at the education and television broadcasting divisions. The Company reported operating income of $142.0$8.1 million for the first nine monthsquarter of 2017, compared2020. The operating income increase is driven by improved results in education, manufacturing, healthcare and other businesses, partially offset by declines in television broadcasting.
On April 5, 2021, the Company announced it had entered into an agreement to $194.0 million for first nine monthsacquire all outstanding shares of 2016. Operating results declinedcommon stock of Leaf Group Ltd. (NYSE:LEAF) at $8.50 per share in an all cash transaction valued at approximately $323 million. Leaf Group, headquartered in Santa Monica, CA, is a consumer internet company that builds enduring, creator-driven brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness (Well+Good, Livestrong.com and MyPlate App), and home, art and design (Saatchi Art, Society6 and Hunker). The transaction is expected to close in June or July of 2021 and is subject to approval of the educationLeaf Group shareholders, regulatory approval and television broadcasting divisions and inthe satisfaction of other businesses.closing conditions.
Division Results
Education
Education division revenue totaled $376.8$329.3 million for the thirdfirst quarter of 2017,2021, down 3%8% from $386.9$356.4 million for the same period of 2016.2020. Kaplan reported operating income of $13.4 million for the third quarter of 2017, compared to $16.3 million for the third quarter of 2016.
For the first nine months of 2017, education division revenue totaled $1,136.2 million, down 6% from $1,207.2 million for the same period of 2016. Kaplan reported operating income of $55.3$18.9 million for the first nine monthsquarter of 2017,2021, compared to $63.7operating income of $4.7 million for the first nine monthsquarter of 2016.2020.
The COVID-19 pandemic adversely impacted Kaplan’s operating results beginning in February 2020 and continuing through the first quarter of 2021.
Kaplan serves a significant number of students who travel to other countries to study a second language, prepare for licensure, or pursue a higher education degree. Government-imposed travel restrictions and school closures arising from COVID-19 had a negative impact on the ability of international students to travel and attend Kaplan’s programs, particularly Kaplan International’s Language programs. In recent years,addition, most licensing bodies and administrators of standardized exams postponed or canceled scheduled examinations due to COVID-19, resulting in a significant number of students deciding to defer their studies, negatively impacting Kaplan’s exam preparation education businesses. Overall, this is expected to continue to adversely impact Kaplan's revenues and operating results for the remainder of 2021, particularly at Kaplan has formulatedInternational Languages.
To help mitigate the adverse impact of COVID-19, Kaplan implemented a number of significant cost reduction and implemented restructuring plans atactivities across its various businesses that have resulted in 2020. Related to these restructuring activities, Kaplan recorded $1.0 million in lease impairment charges in the first quarter of 2021 and $2.1 million in lease restructuring costs with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $2.7 million and $4.9 million for the first nine monthsquarter of 20172020. Kaplan management is continuing to monitor the ongoing COVID-19 disruptions and 2016, respectively. Additionalchanges in its operating environment and may develop and implement further restructuring costs are expected to be incurredactivities in 2021.
In 2020, Kaplan also accelerated the development and promotion of various online programs and solutions, rapidly transitioned most of its classroom-based programs online and addressed the individual needs of its students and partners, substantially reducing the disruption from COVID-19 while simultaneously adding important new product offerings and operating capabilities. Further, in the fourth quarter of 2017. 2020, Kaplan combined its three primary divisions based in the United States (Kaplan Test Prep, Kaplan Professional, and Kaplan Higher Education) into one business known as Kaplan North America (KNA). This combination is designed to enhance Kaplan’s competitiveness by better leveraging its diversified academic and professional portfolio, as well as its relationship with students, universities and businesses. For financial reporting purposes, KNA is reported in two segments: Higher Education and Supplemental Education (combining Kaplan Test Prep and Kaplan Professional (U.S.) into one reporting segment).
A summary of Kaplan’s operating results is as follows: | | | Three Months Ended | | | | Nine Months Ended | | | | | Three Months Ended | |
| September 30 | | | | September 30 | | | | | March 31 | | |
(in thousands) | 2017 | | 2016 | | % Change | | 2017 | | 2016 | | % Change | (in thousands) | | 2021 | | 2020 | | % Change |
Revenue | | | | | | | | | | | | Revenue | | | | | | |
Kaplan international | | Kaplan international | | $ | 171,895 | | | $ | 199,615 | | | (14) | |
Higher education | $ | 133,459 |
| | $ | 148,602 |
| | (10 | ) | | $ | 416,973 |
| | $ | 472,131 |
| | (12 | ) | Higher education | | 75,686 | | | 73,537 | | | 3 | |
Test preparation | 72,680 |
| | 78,291 |
| | (7 | ) | | 212,978 |
| | 224,102 |
| | (5 | ) | |
Kaplan international | 171,259 |
| | 160,456 |
| | 7 |
| | 507,568 |
| | 512,068 |
| | (1 | ) | |
| Supplemental education | | Supplemental education | | 79,655 | | | 81,288 | | | (2) | |
Kaplan corporate and other | 49 |
| | 47 |
| | 4 |
| | 120 |
| | 190 |
| | (37 | ) | Kaplan corporate and other | | 3,363 | | | 3,205 | | | 5 | |
Intersegment elimination | (642 | ) | | (460 | ) | | — |
| | (1,438 | ) | | (1,266 | ) | | — |
| Intersegment elimination | | (1,282) | | | (1,267) | | | — | |
| $ | 376,805 |
| | $ | 386,936 |
| | (3 | ) | | $ | 1,136,201 |
| | $ | 1,207,225 |
| | (6 | ) | | | $ | 329,317 | | | $ | 356,378 | | | (8) | |
Operating Income (Loss) | |
| | |
| | |
| | |
| | |
| | |
| Operating Income (Loss) | | | | | | |
Kaplan international | | Kaplan international | | $ | 10,207 | | | $ | 18,980 | | | (46) | |
Higher education | $ | 8,809 |
| | $ | 11,494 |
| | (23 | ) | | $ | 39,124 |
| | $ | 50,037 |
| | (22 | ) | Higher education | | 6,253 | | | (2,020) | | | — | |
Test preparation | 7,330 |
| | 8,588 |
| | (15 | ) | | 10,207 |
| | 13,314 |
| | (23 | ) | |
Kaplan international | 5,348 |
| | 1,561 |
| | — |
| | 29,009 |
| | 22,937 |
| | 26 |
| |
| Supplemental education | | Supplemental education | | 12,497 | | | (6,550) | | | — | |
Kaplan corporate and other | (6,682 | ) | | (3,537 | ) | | (89 | ) | | (19,159 | ) | | (17,368 | ) | | (10 | ) | Kaplan corporate and other | | (4,907) | | | (1,522) | | | — | |
Amortization of intangible assets | (1,355 | ) | | (1,773 | ) | | 24 |
| | (3,798 | ) | | (5,158 | ) | | 26 |
| Amortization of intangible assets | | (4,165) | | | (4,201) | | | 1 | |
Impairment of long-lived assets | | Impairment of long-lived assets | | (1,047) | | | — | | | — | |
Intersegment elimination | (59 | ) | | — |
| | — |
| | (36 | ) | | (49 | ) | | — |
| Intersegment elimination | | 98 | | | 5 | | | — | |
| $ | 13,391 |
| | $ | 16,333 |
| | (18 | ) | | $ | 55,347 |
| | $ | 63,713 |
| | (13 | ) | | | $ | 18,936 | | | $ | 4,692 | | | — | |
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 and other continuing education businesses.
In the third quarter and first nine months of 2017, KHE revenue was down 10% and 12%, respectively, due to declines in average enrollments at Kaplan University. KHE operating results declined in the first nine months of 2017 due primarily to lower enrollment at Kaplan University.
New higher education student enrollments at Kaplan University declined 8% in the third quarter of 2017 and 4% for the first nine months of 2017; total students at Kaplan University were 30,461 at September 30, 2017, down 12% from September 30, 2016.
Kaplan University enrollments at September 30, 2017 and 2016, by degree and certificate programs, are as follows: |
| | | | | | |
| | As of September 30 |
| | 2017 | | 2016 |
Certificate | | 10.0 | % | | 7.7 | % |
Associate’s | | 16.8 | % | | 19.5 | % |
Bachelor’s | | 50.1 | % | | 51.0 | % |
Master’s | | 23.1 | % | | 21.8 | % |
| | 100.0 | % | | 100.0 | % |
Kaplan Test Preparation (KTP) includes Kaplan’s standardized test preparation programs. KTP revenue declined 7% and 5% for the third quarter and first nine months of 2017, respectively. Enrollments, excluding the new economy skills training offerings, were flat for both the third quarter and the first nine months of 2017; however, unit prices were generally lower. In comparison to 2016, KTP operating results were down 15% and 23% in the third quarter and first nine months of 2017, respectively, due to lower revenues and increased losses from the new economy skills training programs. Operating losses for the new economy skills training programs were $11.2 million and $9.8 million for the first nine months of 2017 and 2016, respectively, including $1.3 million in restructuring costs in the third quarter of 2017. In July 2017, Kaplan announced that Dev Bootcamp, which makes up the majority of KTP’s new economy skills training programs, will be closing operations by the end of 2017.
Kaplan International includes English-language programs, and postsecondary education, professional training and professionallanguage training businesses largely outside the United States. Kaplan International revenue increased 7% for the third quarter and decreased 1%14% for the first nine monthsquarter of 2017, respectively. On2021 (20% on a constant currency basis,basis) due largely to COVID-19 disruptions at Languages. Kaplan International reported operating income of $10.2 million in the first quarter of 2021, compared to $19.0 million in the first quarter of 2020. The decline in operating results in the first three months of 2021 is due primarily to $13 million in losses incurred at
Languages from significant COVID-19 disruptions. Due to the continuation of travel restrictions imposed as a result of COVID-19, Kaplan expects the disruption of its Languages business operating environment to continue in 2021.
Higher Education includes the results of Kaplan as a service provider to higher education institutions. In the first quarter of 2021, Higher Education revenue grew 3%, due to an increase in the Purdue Global fee recorded and revenue from new university agreements. For the first quarter of 2021, Kaplan recorded a portion of the fee with Purdue Global based on an assessment of its collectability under the TOSA; no fee with Purdue Global was recorded in the first quarter of 2020. Purdue Global experienced increased 6% for the third quarter and 3%enrollment for the first ninethree months of 2017, respectively, primarily2021, which resulted in improved Higher Education results. The Company will continue to assess the collectability of the fee with Purdue Global on a quarterly basis to make a determination as to whether to record all or part of the fee in the future and whether to make adjustments to fee amounts recognized in earlier periods. The first quarter 2020 operating loss at Higher Education includes $2.0 million in lease restructuring costs.
As of March 31, 2021, Kaplan had a total outstanding accounts receivable balance of $88.6 million from Purdue Global related to amounts due for reimbursements for services, fees earned and a deferred fee. Included in this total, Kaplan has a $19.0 million long-term receivable balance due from Purdue Global at March 31, 2021, related to the advance of $20 million during the initial KU Transaction.
Supplemental Education includes Kaplan’s standardized test preparation programs and domestic professional and other continuing education businesses. Supplemental Education revenue declined 2% for the first quarter of 2021, due to growtha decline in Pathways enrollments and favorable timing of class startsretail comprehensive test preparation demand, offset in the third quarter of 2017. Operating income increased 26%part by product-life extensions in the first nine monthsquarter of 2017,2020 related to the postponement of various standardized test and certification exam dates due largely to COVID-19, as well as growth in real estate and insurance programs. Operating results improved Pathways results, partially offset by a decline in Singapore. Restructuring costs at Kaplan International totaled $0.9 million2021 due to savings from restructuring activities implemented in 2020 and $3.2 million forthe adverse revenue impact from product-life extensions in the first nine monthsquarter of 2017 and 2016, respectively.2020.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities. Overall, Kaplan corporate and other expenses increased in the first three months of 2021 due to higher incentive compensation costs.
Television Broadcasting
On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire WCWJ, a CW affiliate television station in Jacksonville, FL and WSLS, an NBC affiliate television station in Roanoke, VA for $60 million in cash and the assumption of certain pension obligations. The Company continues to operate both stations under their current network affiliations.
In the third quarter of 2017, the Company's televisions stations in Texas and Florida ran extensive news programming coverage of hurricanes Harvey and Irma; this adversely impacted revenues by an estimated $2.1 million and resulted in $0.6 million in additional expenses during the third quarter of 2017. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | |
| | | | | March 31 | | |
(in thousands) | | | | | | | 2021 | | 2020 | | % Change |
Revenue | | | | | | | $ | 113,625 | | | $ | 115,448 | | | (2) | |
Operating Income | | | | | | | 32,978 | | | 35,776 | | | (8) | |
Revenue at the television broadcasting division decreased 10%2% to $101.3$113.6 million in the thirdfirst quarter of 2017,2021, from $112.4$115.4 million in the same period of 2016. Excluding2020. The revenue from the two newly acquired stations, revenue declined 15%decrease is due to $13.1a $10.3 million in third quarter 2016 incremental summer Olympics-related advertising revenue at the Company's NBC affiliates, an $8.1 million decreasedecline in political advertising revenue, lower network revenuepartially offset by a $4.1 million increase in retransmission revenues and increased local and national advertising revenues, which were adversely impacted in 2020 by reduced demand related to the adverse impactCOVID-19 pandemic. In the first quarter of 2021 and 2020, the television broadcasting division recorded $0.6 million and $0.3 million, respectively, in reductions to operating expenses related to property, plant and equipment gains due to new equipment received at no cost in connection with the spectrum repacking mandate of the hurricanes, offset by $6.0 million in higher retransmission revenues. As previously disclosed, the Company’s NBC affiliates in Houston and Detroit are operating under a new contract with NBC effective January 1, 2017 that has resulted in a significant increase in network fees in 2017, compared to 2016.FCC. Operating income for the thirdfirst quarter of 20172021 decreased 44%8% to $32.9$33.0 million, from $59.2$35.8 million in the same period of 20162020, due to lowerreduced revenues and the significantly higher network fees.
Revenue atIn March 2021, the Company’s television broadcasting division decreased 1% to $298.9 millionstations located in the first nine monthsOrlando, FL and Jacksonville, FL received approval of 2017, from $300.9 million in the same period of 2016. Excluding revenue from the two newly acquired stations, revenue declined 7% due to $13.1 million in third quarter 2016 incremental summer Olympic-related advertising revenue at the Company's NBC affiliates, a $13.4 million decrease in political advertising revenue, lower network revenue and the adverse impact of the hurricanes, offset by $14.7 million in higher retransmission revenues. Operating incometheir FCC license renewals through February 1, 2029.
Manufacturing
for the first nine months of 2017 decreased 32% to $98.2 million from $144.6 million in the same period of 2016, due to lower revenues and the significantly higher network fees.
Other Businesses
A summary of Other Businesses’ operating results is as follows: |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended | | |
| | September 30 | | % | | September 30 | | % |
(in thousands) | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Operating Revenues | | | | | | | | | | | | |
Manufacturing | | $ | 115,594 |
| | $ | 62,207 |
| | 86 |
| | $ | 298,164 |
| | $ | 176,908 |
| | 69 |
|
Healthcare | | 40,473 |
| | 37,690 |
| | 7 |
| | 115,592 |
| | 110,068 |
| | 5 |
|
SocialCode | | 14,497 |
| | 15,180 |
| | (4 | ) | | 41,926 |
| | 38,961 |
| | 8 |
|
Other | | 8,561 |
| | 7,236 |
| | 18 |
| | 25,253 |
| | 18,361 |
| | 38 |
|
| | $ | 179,125 |
| | $ | 122,313 |
| | 46 |
| | $ | 480,935 |
| | $ | 344,298 |
| | 40 |
|
Operating Expenses | | |
| | |
| | |
| | |
| | |
| | |
|
Manufacturing | | $ | 109,813 |
| | $ | 58,430 |
| | 88 |
| | $ | 292,893 |
| | $ | 169,145 |
| | 73 |
|
Healthcare | | 39,553 |
| | 36,383 |
| | 9 |
| | 115,214 |
| | 107,288 |
| | 7 |
|
SocialCode | | 20,745 |
| | 26,017 |
| | (20 | ) | | 50,078 |
| | 54,223 |
| | (8 | ) |
Other | | 16,047 |
| | 12,284 |
| | 31 |
| | 49,265 |
| | 35,235 |
| | 40 |
|
| | $ | 186,158 |
| | $ | 133,114 |
| | 40 |
| | $ | 507,450 |
| | $ | 365,891 |
| | 39 |
|
Operating Income (Loss) | | |
| | |
| | | | |
| | |
| | |
Manufacturing | | $ | 5,781 |
| | $ | 3,777 |
| | 53 |
| | $ | 5,271 |
| | $ | 7,763 |
| | (32 | ) |
Healthcare | | 920 |
| | 1,307 |
| | (30 | ) | | 378 |
| | 2,780 |
| | (86 | ) |
SocialCode | | (6,248 | ) | | (10,837 | ) | | 42 |
| | (8,152 | ) | | (15,262 | ) | | 47 |
|
Other | | (7,486 | ) | | (5,048 | ) | | (48 | ) | | (24,012 | ) | | (16,874 | ) | | (42 | ) |
| | $ | (7,033 | ) | | $ | (10,801 | ) | | 35 |
| | $ | (26,515 | ) | | $ | (21,593 | ) | | (23 | ) |
Depreciation | | |
| | | | | | |
| | |
| | |
Manufacturing | | $ | 2,717 |
| | $ | 1,809 |
| | 50 |
| | $ | 6,629 |
| | $ | 5,588 |
| | 19 |
|
Healthcare | | 1,166 |
| | 686 |
| | 70 |
| | 3,429 |
| | 2,090 |
| | 64 |
|
SocialCode | | 256 |
| | 241 |
| | 6 |
| | 753 |
| | 683 |
| | 10 |
|
Other | | 381 |
| | 553 |
| | (31 | ) | | 1,157 |
| | 1,028 |
| | 13 |
|
| | $ | 4,520 |
| | $ | 3,289 |
| | 37 |
| | $ | 11,968 |
| | $ | 9,389 |
| | 27 |
|
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets | | |
| | | | | | |
| | |
| | |
Manufacturing | | $ | 6,306 |
| | $ | 3,089 |
| | — |
| | $ | 25,117 |
| | $ | 8,722 |
| | — |
|
Healthcare | | 2,420 |
| | 1,674 |
| | 45 |
| | 5,718 |
| | 5,028 |
| | 14 |
|
SocialCode | | 83 |
| | — |
| | — |
| | 250 |
| | — |
| | — |
|
Other | | — |
| | 21 |
| | — |
| | — |
| | 63 |
| | — |
|
| | $ | 8,809 |
| | $ | 4,784 |
| | 84 |
| | $ | 31,085 |
| | $ | 13,813 |
| | — |
|
Pension Expense | | |
| | |
| | | | |
| | |
| | |
Manufacturing | | $ | 947 |
| | $ | 24 |
| | — |
| | $ | 994 |
| | $ | 62 |
| | — |
|
Healthcare | | 166 |
| | — |
| | — |
| | 498 |
| | — |
| | — |
|
SocialCode | | 149 |
| | 135 |
| | 10 |
| | 445 |
| | 406 |
| | 10 |
|
Other | | 113 |
| | 120 |
| | (6 | ) | | 336 |
| | 371 |
| | (9 | ) |
| | $ | 1,375 |
| | $ | 279 |
| | — |
| | $ | 2,273 |
| | $ | 839 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | |
| | | | | March 31 | | |
(in thousands) | | | | | | | 2021 | | 2020 | | % Change |
Revenue | | | | | | | $ | 115,960 | | | $ | 113,458 | | | 2 | |
Operating Income | | | | | | | 8,907 | | | 6,501 | | | 37 | |
Manufacturing includes four businesses: Hoover, a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications; Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton, Corp., a manufacturer of screw jacks and other linear motion systems; and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications;applications.
Manufacturing revenues increased 2% in the first quarter of 2021. The revenue growth is due primarily to increased revenues at Hoover from significantly higher wood prices but lower product demand, partially offset by lower
revenues at Dekko due to a significant reduction in product demand, particularly in the commercial office electrical products, hospitality, transportation and industrial sectors. Manufacturing operating results improved in the first quarter of 2021 due to significantly higher results at Hoover Treated Wood Products, Inc.,from substantial gains on inventory sales, partially offset by a suppliersignificant decline in Dekko results from lower revenues. Since the onset of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications that the Company acquiredCOVID-19 pandemic in April 2017. In September 2016, Dekko acquired Electri-Cable Assemblies (ECA), a manufacturer of power, data and electrical solutions for the office furniture industry.
In the second quarterhalf of 2017, the Company recorded a $9.2 million goodwill and other long-lived asset impairment chargeMarch 2020, lower product demand at Forney, due to lower than expected revenues resulting from sluggish overall demand for its energy products. Excluding this impairment charge,Dekko has adversely impacted manufacturing revenues and operating income increased in the first nine months of 2017 dueand this is expected to the Hoover acquisition and growth and improved results at Dekko, including the ECA acquisition, offset by a decline in results at Forney, which included $1.2 million in expense related to a separation incentive program implemented in the third quarter of 2017 that will be mostly funded from the assets of the Company's pension plan.continue throughout 2021.
Healthcare
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | |
| | | | | March 31 | | |
(in thousands) | | | | | | | 2021 | | 2020 | | % Change |
Revenue | | | | | | | $ | 50,043 | | | $ | 45,994 | | | 9 | |
Operating Income | | | | | | | 7,140 | | | 3,169 | | | — | |
The Graham Healthcare Group (GHG) provides home health and hospice services in three states. In June 2016, the Company acquired the outstanding 20% redeemable noncontrollingGHG provides other healthcare services, including nursing care and prescription services for patients receiving in-home infusion treatments through its 75% interest in ResidentialCSI Pharmacy Holdings Company, LLC (CSI). Healthcare (Residential). Alsorevenues increased 9% for the first quarter of 2021, due to growth at CSI and home health services. The increase in June 2016, Celtic Healthcare (Celtic)GHG operating results in the first quarter of 2021 is due to improved results from home health services and Residential combined their business operationsCSI. In the second half of March 2020, GHG home health patient volumes declined, due primarily to the curtailment of elective procedures by health systems due to the COVID-19 pandemic.
Other Businesses
Automotive
Automotive includes three automotive dealerships in the Washington, D.C. metropolitan area: Lexus of Rockville, Honda of Tysons Corner, and Ourisman Jeep of Bethesda. Revenues for the first quarter of 2021 increased due to sales growth at each of the three dealerships, due partly to significantly reduced demand for sales and service in the first quarter of 2020 at the onset of the COVID-19 pandemic in March 2020. As a result of the pandemic and the Company nowrelated recessionary conditions, the Company’s automotive dealerships recorded a $6.7 million intangible asset impairment charge in the first quarter of 2020. Operating earnings for the first quarter of 2021 improved from a loss in the prior year due to increased sales, in addition to the impairment charge recorded in the first quarter of 2020.
Clyde’s Restaurant Group (CRG)
Clyde’s Restaurant Group (CRG) owns 90%and operates eleven restaurants and entertainment venues in the Washington, D.C. metropolitan area, including Old Ebbitt Grill and The Hamilton. As a result of the combined entity.COVID-19 pandemic, CRG temporarily closed all of its restaurants and venues in the second half of March 2020 through mid-June 2020, pursuant to government orders, maintaining limited operations for outdoor dining, delivery and pickup. CRG recorded a $9.7 million goodwill and intangible assets impairment charge in the first quarter of 2020. In December 2020, CRG temporarily closed its restaurant dining rooms in Maryland and the District of Columbia for the second time, reopening again for limited indoor dining service in mid-February 2021.
Overall, CRG incurred significant operating losses in each of the first quarters of 2021 and 2020 due to limited revenues and costs incurred to maintain its facilities and support its employees, and CRG is uncertain as to the timing and other details regarding a full reopening. While CRG revenues have been adversely impacted as a result of the pandemic, such revenues improved steadily in each of the first three months of 2021. CRG continues to develop and implement initiatives to increase sales and reduce costs to mitigate the impact of COVID-19. The company incurred approximately $2.0 million in expense in conjunction with these transactionspandemic is expected to continue to adversely impact CRG revenues and operating results in the second quarter of 2016.2021.
Framebridge
On May 15, 2020, the Company acquired Framebridge, Inc., a custom framing service company, headquartered in Washington, DC, with two retail locations in the DC metropolitan area and a manufacturing facility in Richmond, KY. At the end of June 2017, GHG acquired Hometown Home Healththe first quarter of 2021, Framebridge had six retail locations in the Washington, DC, Brooklyn, NY and Hospice, a Lapeer, MI-based healthcare services provider. HealthcareAtlanta, GA areas and two manufacturing facilities in Kentucky. Framebridge revenues increased 5% in the first nine months of 2017, while operating results were down, due largely to increased bad debt expense and higher information systems and other integration costs.
In June 2016, Residential and a Michigan hospital formed a joint venture to provide home health services to West Michigan patients. Residential manages the operations of the joint venture and holds a 40% interest. The pro rata operating results of the joint venture are included in the Company’s equity in earnings of affiliates. In connection with this June 2016 transaction, the Company recorded a pre-tax gain of $3.2 million in the second quarter of 2016 that is included in other non-operating income.
SocialCode is a provider of marketing solutions on social, mobile and video platforms. SocialCode revenue declined 4% in2021 were up substantially from the third quarter of 2017 due to lower digital advertising spend from its clients in the retail and consumer packaged goods sectors. SocialCode revenue increased 8% for the first nine months of 2017, due to growth in digital advertising service revenues. SocialCodeprior year. As an investment stage business, Framebridge reported operating losses of $6.2 million and $8.2 million in the thirdfirst quarter 2021.
Code3
Code3 is a performance marketing agency focused on driving performance for brands through three core elements of digital success: media, creative and commerce. Code3 revenue declined in the first nine monthsquarter of 2017, compared2021, due to continued sluggish marketing spending by some advertising clients as a result of the recessionary environment from
the COVID-19 pandemic, offset by increased commerce and creative revenues. Code3 reported operating losses of $10.8 million and $15.3 million in the thirdfirst quarter of 2021 and the first nine monthsquarter of 2016. SocialCode's operating results2020. Code3 implemented a restructuring plan in 2020 that included incentive accruals of $5.1 million and $1.2 million relatedinitiatives to SocialCode’s phantom equity plansreduce Code3’s cost structure.
Megaphone
Megaphone was sold by the Company to Spotify in the third quarter and first nine months of 2017, respectively; whereas 2016 results included incentive accruals of $11.3 million and $12.0 million related to phantom equity plans for the relevant periods. As of September 30, 2017, the accrual balance related to these plans is $23.2 million.December 2020.
Other
Other businesses also include Slate and Foreign Policy, which publish online and print magazines and websites; and twothree investment stage businesses, PanoplyCybervista, Decile and CyberVista.Pinna. All of these businesses reported revenue increases in the first three months of 2021. Losses from each of these five businesses in the first ninethree months of 20172021 adversely affected operating results.
Overall, for the first quarter of 2021, operating revenues for other businesses increased due largely to increases at the automotive dealerships and from the Framebridge acquisition, partially offset by declines at CRG and Code3, and due to the sale of Megaphone in December 2020. Operating results improved in the first quarter of 2021 primarily due to the goodwill and other long-lived asset impairment charges recorded in the first quarter of 2020 at the automotive dealerships and CRG. Corporate Office
Corporate office includes the expenses of the Company’s corporate office the pension credit for the Company’s traditional defined benefit plan and certain continuing obligations related to prior business dispositions. The total pension credit for the Company’s traditional defined benefit plan was $54.6 million and $48.1 millionCorporate office expenses increased in the first ninethree months of 2017 and 2016, respectively.2021 due primarily to higher compensation costs.
Without the pension credit, corporate office expenses declined slightly in the first nine months of 2017.
Equity in Earnings (Losses) of Affiliates
At September 30, 2017,March 31, 2021, the Company held interestsan approximate 12% interest in a number of home health and hospice joint ventures, and interests in several other affiliates. In September 2017, the Company acquired approximately 10% of Intersection Holdings, LLC, whicha company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces. The Company recorded equityalso holds interests in lossesseveral other affiliates, including a number of affiliates of $0.5 million forhome health and hospice joint ventures managed by GHG and two joint ventures managed by Kaplan. Overall, the third quarter of 2017, compared to $1.0 million for the third quarter of 2016. The Company recorded equity in earnings of affiliates of $1.4$13.4 million for the first nine monthsquarter of 2017,2021, compared to equity in losses of affiliates of $0.9$1.5 million for the first nine monthsquarter of 2016.
Other Non-Operating Income (Expense)
2020. These amounts include $10.3 million in net earnings for the first quarter of 2021 and $0.6 million in net losses for the first quarter of 2020 from affiliates whose operations are not managed by the Company; this includes losses from the Company’s investment in Intersection in the first quarter of 2021. The Company recorded total$3.6 million in write-downs in equity in earnings of affiliates related to two of its investments in the first quarter of 2020.
The recessionary environment resulting from the COVID-19 pandemic adversely impacted the underlying businesses of Intersection Holdings, LLC due to lower marketing spending by advertising clients. The decline in revenues adversely impacted the operating results and liquidity of the business since the onset of the COVID-19 pandemic. The Company concluded that these events are not indicative of an other non-operating income, net,than temporary decline in the value of $2.0its investment to an amount less than its carrying value. Given the uncertain economic impact of the COVID-19 pandemic, it is possible that an other than temporary impairment charge could occur in the future should Intersection Holdings, LLC fail to execute on its operating and financing strategy to address the decline in revenues and operating results. Further, the Company recorded a $5.4 million loss in equity earnings related to Intersection in the first quarter of 2021 and expects to record additional losses for the third quarterremainder of 2017, compared to other non-operating expense, net, of $18.2 million for the third quarter of 2016. The 2017 amounts included $1.4 million in foreign currency gains and other items. The 2016 amounts included a $15.0 million write-down of a cost method investment and $3.8 million in foreign currency losses, partially offset by other items.2021.
The Company recorded total other non-operating income, net, of $6.9 million for the first nine months of 2017, compared to $15.9 million for the first nine months of 2016. The 2017 amounts included $6.6 million in foreign currency gains and other items. The 2016 amounts included a $34.1 million gain on the sale of land; an $18.9 million gain on the sale of a business; a $6.3 million gain on the sale of marketable equity securities; a $3.2 million gain on the Residential joint venture transaction and other items, partially offset by $33.3 million in foreign currency losses and $15.2 million in cost method investment write-downs.
Net Interest Expense and Related Balances
The Company incurred net interest expense of $7.8 million and $22.4$7.6 million for the thirdfirst quarter and first nine months of 2017,2021, compared to $7.9 million and $22.5$6.5 million for the thirdfirst quarter andof 2020. The Company recorded interest expense of $1.1 million to adjust the fair value of the mandatorily redeemable noncontrolling interest at GHG in the first nine monthsquarter of 2016. 2021.
At September 30, 2017,March 31, 2021, the Company had $493.0$510.3 million in borrowings outstanding at an average interest rate of 6.3%5.1% and cash, marketable equity securities and other investments of $936.0$1,088.2 million. At March 31, 2021, the Company had £55 million ($75.6 million) outstanding on its $300 million revolving credit facility. In management’s opinion, the Company will have sufficient financial resources to meet its business requirements in the next twelve months, including working capital requirements, capital expenditures, interest payments and dividends.
Non-operating Pension and Postretirement Benefit Income, net
The Company recorded net non-operating pension and postretirement benefit income of $28.8 million for the first quarter of 2021, compared to $18.4 million for the first quarter of 2020, respectively.
Gain (Loss) on Marketable Equity Securities, net
Overall, the Company recognized $79.2 million in net gains on marketable equity securities in the first quarter of 2021, compared to $100.4 million in net losses on marketable equity securities in the first quarter of 2020.
Other Non-Operating Income
The Company recorded total other non-operating income, net, of $6.3 million for the first quarter of 2021, compared to $2.7 million for the first quarter of 2020. The 2021 amounts included a $2.7 million fair value increase on a cost method investment and other items. The 2020 amounts included $4.3 million in foreign currency gains and other items; partially offset by $2.6 million in impairments on cost method investments.
Provision for (Benefit from) Income Taxes
The Company’s effective tax rate for the first ninethree months of 20172021 was 31.3%, compared to 28.9% for the first nine months of 2016. The low effective tax rate in the first nine months of 2017 is due to a $5.9 million income tax benefit related to the vesting of restricted stock awards. In the first quarter of 2017, the Company adopted a new accounting standard that requires all excess income tax benefits and deficiencies from stock compensation to be recorded as discrete items in the provision for income taxes. Excluding this $5.9 million benefit, the overall income tax rate for the first nine months of 2017 was 35.9%26.9%.
In the third quarter of 2016, a net nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations was recorded. In the second quarter of 2016, the Company benefited from a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015. Excluding these adjustments, theThe Company’s effective tax rate for the first ninethree months of 20162020 was 36.4%.
57.3%, which was generally based on the Company’s estimated effective tax rate for fiscal year 2020. The Company isCompany’s estimated tax rate for 2020 included the adverse impacts of the COVID-19 pandemic and losses on marketable equity securities on the Company’s estimated pre-tax income for 2020, resulting in the process of finalizing an international legal restructuring plan in the fourth quarter of 2017 that maya significantly higher overall estimated tax rate, as permanent differences and increased valuation allowances have ana larger impact on the Company'soverall estimated effective tax provision in the fourth quarter of 2017 related to deferred taxes provided on undistributed earnings of investments in non-U.S. subsidiaries. rate.
Earnings (Losses) Per Share
The calculation of diluted earnings per share for the thirdfirst quarter and first nine months of 20172021 was based on 5,554,458 and 5,566,8744,977,340 weighted average shares outstanding, compared to 5,573,982 and 5,599,8985,273,651 for the thirdfirst quarter and first nine months of 2016.2020. At September 30, 2017,March 31, 2021, there were 5,531,8165,001,649 shares outstanding. On May 14, 2015,September 10, 2020, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock; the Company has remaining authorization for 163,237364,151 shares as of September 30, 2017.March 31, 2021.
Kaplan University Transaction
On April 27, 2017, certain Kaplan subsidiaries entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute Kaplan University (KU), its institutional assets and operations to a new, nonprofit, public-benefit corporation (New University) affiliated with Purdue University (Purdue) in exchange for a Transition and Operations Support Agreement (TOSA) to provide key non-academic operations support to New University for an initial term of 30 years with a buy-out option after six years.
Subject to the terms and conditions of the Transfer Agreement, KU, which specializes in online education and is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (HLC), will transfer certain assets of its Title IV-authorized and accredited academic institution to New University. New University will operate as a new Indiana public university, as authorized by the Indiana legislature, affiliated with Purdue University and focused on expanding access to education for non-traditional adult learners.
New University will initially consist of the seven schools and colleges that now comprise KU (excluding the Kaplan University School of Professional and Continuing Education (KU-PACE)), which together offer more than 100 diploma, certificate, associate, bachelor, masters and doctoral degree programs, as well as 15 campus and learning center locations. Current online and campus KU students, approximately 30,000, will transfer to New University. Current full-time and adjunct faculty and staff at KU, approximately 3,000 employees, will also transfer to New University. New University will be governed by its own board of trustees that will fully control all of the functions of New University, the members of which will be appointed by Purdue. Upon approval by its accreditor, New University will have its own institutional accreditation and maintain its own faculty and administrative operations.
In addition, as part of the transfer of KU’s academic institution, students, academic personnel, faculty and operations, and property leases for KU’s campuses and learning centers, KU also will transfer Kaplan-owned academic curriculum and content related to KU courses (collectively and including such specific assets as described in the Transfer Agreement, the “Institutional Assets”). The transfer does not include any of the assets of KU-PACE, which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International.
Kaplan will receive nominal cash consideration upon transfer of KU’s Institutional Assets. In exchange for KU’s Institutional Assets, upon closing of the transactions contemplated by the Transfer Agreement, the parties will enter
into the TOSA. Under the TOSA, Kaplan will provide operations support activities to New University including, but not limited to, technology support, help-desk functions, human resources support for transferred faculty and employees, admissions support, financial aid administration, marketing and advertising, back-office business functions, international student recruiting and certain test preparation services.
Pursuant to the TOSA, Kaplan is not entitled to receive any reimbursement of costs incurred in providing support functions, or any fee, unless and until New University has first covered all of its operating costs. In addition, during each of New University’s first five years, prior to any payment to Kaplan, New University is entitled to a priority payment of $10 million per year beyond costs, which will be paid out of New University’s revenue. To the extent New University’s revenue is insufficient to pay the $10 million per year priority payment, Kaplan is required to advance an amount to New University to cover such insufficiency. In addition, if New University achieves cost savings in its budgeted operating costs, then New University may be entitled to a payment equal to 20 percent of such savings (the “Efficiency Payment”). To the extent that there are sufficient revenues to pay the Efficiency Payment, pay the priority payment and to reimburse New University for its direct expenses, Kaplan will receive reimbursement for Kaplan’s costs of providing the support activities in addition to a fee equal to 12.5 percent of New University’s revenue.
The TOSA has a 30-year initial term, which will automatically renew for five-year periods unless terminated. After the sixth year, New University has the right to terminate the agreement upon payment of a termination fee equal to 1.25 times New University’s revenue for the preceding 12-month period (the “Buy-out Fee”), which payment would be made pursuant to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA. At the end of the 30-year term, if New University does not renew the TOSA, New University would be obligated to make a final payment of six times the fees paid or payable during the preceding 12-month period, which payment would be made pursuant to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA.
Either party may terminate the TOSA at any time if New University generates (i) $25 million in cash operating losses for three consecutive years or (ii) aggregate cash operating losses greater than $75 million at any point during the initial term. Operating loss is defined as the amount of revenue New University generates minus the sum of (1) New University’s and Kaplan’s respective costs in performing academic and support functions and (2) the $10 million priority payment to New University in each of the first five years. Upon termination for any reason, New University would retain the assets that Kaplan contributed pursuant to the Transfer Agreement. Each party also has certain termination rights in connection with a material default or material breach of the TOSA by the other party.
Kaplan, on the one hand, and Purdue, on the other hand, will indemnify each other for damages arising from the indemnifying party’s breaches of its representations and warranties and covenants under the Transfer Agreement as well as for damages arising from certain specified liabilities, subject to certain limitations set forth in the Transfer Agreement.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education (ED), the Indiana Commission for Higher Education (ICHE) and Higher Learning Commissions (HLC), which is the regional accreditor of both Purdue and KU, and certain other state educational agencies and accreditors of programs. In the third quarter of 2017, ICHE granted its approval and the ED provided preliminary approval based on its review of a pre-acquisition application, subject to certain conditions. Kaplan is unable to predict with certainty when and if HLC approval will be obtained; however, such approval is not expected to be received until the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.
Kaplan Higher Education (KHE) Regulatory Matters
Gainful Employment. On June 15, 2017, the Department of Education (ED) announced its intention to negotiate issues related to gainful employment. On July 5, 2017, the ED released in the Federal Register an announcement that the Department will allow additional time, until July 1, 2018, for institutions to comply with certain disclosure requirements in the GE regulations. The Department also extended the deadline for all programs to file supporting documents for their alternate earnings appeals to February 1, 2018.
Borrower Defense to Repayment Regulations.The final rule was scheduled to be effective July 1, 2017. However, prior to the effective date, on June 14, 2017, the ED delayed implementation of a large portion of the rule.
In the summer of 2017, ED began the process to revise and replace the Borrower Defense regulation by holding public hearings and soliciting nominations for individuals to serve on a negotiated rulemaking committee that will meet this fall and winter to develop a new regulation. On October 24, 2017, ED issued an interim final rule, effective upon publication, delaying the effective date of the current regulation until July 1, 2018, citing a lawsuit from the California Association of Private Postsecondary Schools (CAPPS), which is pending, as well as the requirement in
the Higher Education Act that ED must give institutions time to make changes without disrupting the current award year. Also on October 24, 2017, ED issued a notice of proposed rulemaking (NPRM) seeking public comment on a proposal to further delay the effective date of the Borrower Defense regulation to July 1, 2019. ED explained that this further delay would prevent institutions having to make changes twice, once for the 2018 effective date, and again for the 2019 effective date, which is when the revised regulation is expected to take effect.
Financial Condition: Capital Resources and Liquidity
The Company considers the following when assessing its liquidity and capital resources: Acquisitions, Dispositions | | | | | | | | | | | |
| As of |
(In thousands) | March 31, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 350,135 | | | $ | 413,991 | |
Restricted cash | 22,484 | | | 9,063 | |
Investments in marketable equity securities and other investments | 715,580 | | | 587,582 | |
Total debt | 510,329 | | | 512,555 | |
Cash generated by operations is the Company’s primary source of liquidity. The Company maintains investments in a portfolio of marketable equity securities, which is considered when assessing the Company’s sources of liquidity. An additional source of liquidity includes the undrawn portion of the Company’s $300 million revolving credit facility, amounting to $224.4 million at March 31, 2021.
In March 2020, the U.S. government enacted legislation, including the Coronavirus Aid, Relief, and ExchangesEconomic Security Act (CARES Act) to provide stimulus in the form of financial aid to businesses affected by the COVID-19 pandemic. Under the CARES Act, employers may defer the payment of the employer share of FICA taxes due for the period beginning on March 27, 2020, and ending December 31, 2020. As of March 31, 2021, the Company has deferred $21.4 million of FICA payments under this program, of which 50% is due by December 31, 2021 and the remaining balance due by December 31, 2022.
Acquisitions. The CARES Act also included provisions to support healthcare providers in the form of grants and changes to Medicare and Medicaid payments. In April 2020, GHG applied for and received $31.5 million under the expanded Medicare Accelerated and Advanced Payment Program, modified by the CARES Act. The Department of Health and Human Services will recoup this advance beginning 365 days after the payment was issued, and the advance will be reduced by a portion of the amount of revenue recognized for claims submitted for services provided after the recoupment period begins.
Governments in other jurisdictions where the Company operates also provided relief to businesses affected by the COVID-19 pandemic in the form of job retention schemes, payroll assistance, deferral of income and other tax payments, and loans. As of March 31, 2021, Kaplan has recorded benefits totaling $1.6 million related to job retention and payroll schemes, mostly at Kaplan International. Additionally, Kaplan deferred VAT and other tax payments in Ireland amounting to $2.2 million as of March 31, 2021.
During the first three months of 2021, the Company’s cash and cash equivalents decreased by $63.9 million, due to the purchase of marketable equity securities, capital expenditures and payments of dividends, partially offset by cash generated from operations. In the first ninethree months of 2017,2021, the Company’s borrowings decreased by $2.2 million, due to repayments, which were partially offset by foreign currency translation adjustments.
As of March 31, 2021 and December 31, 2020, the Company acquired six businesses, twohad money market investments of $175.2 million and $268.8 million, respectively, that are included in its education division, two in its television broadcasting divisioncash and two in other businesses for $318.7cash equivalents. At March 31, 2021, the Company held approximately $68 million in cash and contingent consideration,cash equivalents in businesses domiciled outside the U.S., of which approximately $8 million is not available for immediate use in operations or for distribution. Additionally, Kaplan’s business operations outside the U.S. retain cash balances to support ongoing working capital requirements, capital expenditures, and the assumption of $59.1 million in certain pension and postretirement obligations.
At the end of June 2017, Graham Healthcare Group (GHG) acquiredregulatory requirements. As a 100% interest in Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider by purchasing all of its issued and outstanding shares. This acquisition expands GHG’s service area in Michigan. GHG is included in other businesses.
In April 2017,result, the Company acquired 97.72%considers a significant portion of the issued and outstanding shares of Hoover Treated Wood Products, Inc., a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications for $206.8 million, net of cash acquired. The fair value of the redeemable noncontrolling interest in Hoover was $3.7 million at the acquisition date, determined using a market approach. The minority shareholders have an option to put some of their shares to the Company starting in 2019 and the remaining shares starting in 2021. The Company has an option to buy the shares of minority shareholders starting in 2027. This acquisition is consistent with the Company’s ongoing strategy of investing in companies with a history of profitability and strong management. Hoover is included in other businesses.
In February 2017, Kaplan acquired a 100% interest in Genesis Training Institute, a Dubai-based provider of professional development training in the United Arab Emirates, by purchasing all of its issued and outstanding shares. Additionally, Kaplan acquired a 100% interest in Red Marker Pty Ltd, an Australia-based regulatory technology company by purchasing all of its outstanding shares. These acquisitions are expected to provide certain strategic benefits in the future.
On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire the assets of WCWJ, a CW affiliate television station in Jacksonville, FL and WSLS, an NBC affiliate television station in Roanoke, VA for cash and the assumption of certain pension obligations. The acquisition of WCWJ and WSLS will complement the other stations that GMG operates.
During 2016, the Company acquired five businesses, three businesses included in its education division and two businesses in other businesses. In January 2016, Kaplan acquired a 100% interest in Mander Portman Woodward, a leading provider of high-quality, bespoke education to UK and international students in London, Cambridge and Birmingham, by purchasing all of its issued and outstanding shares. In February 2016, Kaplan acquired a 100% interest in Osborne Books, an educational publisher of learning resources for accounting qualifications in the UK, by purchasing all of its issued and outstanding shares. The primary rationale for these acquisitions was based on several strategic benefits expected to be realized in the future. Both of these acquisitions are included in Kaplan International.
In September 2016, Group Dekko, Inc. (Dekko) acquired a 100% interest in Electri-Cable Assemblies (ECA), a Shelton, CT-based manufacturer of power, data and electrical solutions for the office furniture industry, by purchasing all of its issued and outstanding shares. Dekko’s primary reasons for the acquisition were to complement existing product offerings and provide opportunities for synergies across the businesses. Dekko is included in other businesses.
Sale of Businesses. In February 2017, GHG completed the sale of Celtic Healthcare of Maryland.
In January 2016, Kaplan completed the sale of Colloquy, which was included in Kaplan Corporate and Other.
Other. In June 2016, Residential and a Michigan hospital formed a joint venture to provide home health services to patients in western Michigan. In connection with this transaction, Residential contributed its western Michigan home health operations to the joint venture and then sold 60% of the newly formed venture to its Michigan hospital partner. Although Residential manages the operations of the joint venture, Residential holds a 40% interest in the joint venture, so the operating results of the joint venture are not consolidated and the pro rata operating results are included in the Company’s equity in earnings of affiliates.
In June 2016, the Company purchased the outstanding 20% redeemable noncontrolling interest in Residential. At that time, the Company recorded an increase to redeemable noncontrolling interest of $3.0 million, with a
corresponding decrease to capital in excess of par value, to reflect the redemption value of the redeemable noncontrolling interest at $24.0 million. Following this transaction, Celtic and Residential combined their business operations to form GHG. The redeemable noncontrolling interest shareholders in Celtic exchanged their 20% interest in Celtic for a 10% mandatorily redeemable noncontrolling interest in the combined entity and the Company recorded a $4.1 million net increase to the mandatorily redeemable noncontrolling interest to reflect the estimated fair value of the mandatorily redeemable noncontrolling interest. The minority shareholders have an option to put their shares to the Company starting in 2020, and are required to put a percentage of their shares in 2022 and 2024, with the remaining shares required to be put by the minority shareholders in 2026. The redemption value is based on an EBITDA multiple, adjusted for working capital and other items, computed annually, with no limit on the amount payable. The Company now owns 90% of GHG. Because the noncontrolling interest is now mandatorily redeemable by the Company by 2026, it is reported as a noncurrent liability at September 30, 2017.
Capital Expenditures
During the first nine months of 2017, the Company’s capital expenditures totaled $40.4 million. This amount includes assets acquired during the year, whereas the amounts reflected in the Company’s Condensed Statements of Cash Flows are based on cash payments made during the relevant periods. The Company estimates that its capital expenditures will be in the range of $60 million to $70 million in 2017.
Liquidity
The Company’s borrowings were $493.0 million and $491.8 million, at September 30, 2017 and December 31, 2016, respectively.
At September 30, 2017, the Company had cash and cash equivalents restricted cash and investmentsbalance held outside the U.S. as not readily available for use in marketable securities and other investments totaling $936.0 million, compared with $1,119.1 million at DecemberU.S. operations.
At March 31, 2016. The Company’s net cash provided by operating activities, as reported in the Company’s Condensed Consolidated Statements of Cash Flows, was $220.9 million for the first nine months of 2017, compared to $151.5 million for the first nine months of 2016. The increase is due to significant cash receipts from customers received in the first nine months of 2017 compared to 2016, offset by increased current year payments to vendors and a reduction in the income tax receivable in the prior year.
On June 29, 2015, the Company entered into a credit agreement (the Credit Agreement) providing for a U.S. $200 million five-year revolving credit facility (the Facility). The Company may draw on the Facility for general corporate purposes. The Facility will expire on July 1, 2020, unless the Company and the banks agree to extend the term. The Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type.
On July 14, 2016, Kaplan entered into a Facility Agreement (the Kaplan Credit Agreement) among Kaplan International Holdings Limited, as borrower, the lenders party thereto, HSBC BANK PLC as Facility Agent, and other agents party thereto. The Kaplan Credit Agreement provides for a four-year credit facility in an aggregate principal amount of £75 million. Borrowings bear interest at a rate per annum of LIBOR plus an applicable interest rate margin between 1.25% and 1.75%, in each case determined on a quarterly basis by reference to a pricing grid based upon the Company’s total leverage ratio. The Kaplan Credit Agreement requires that 6.66% of the amount of the loan be repaid on the first three anniversaries of funding, with the remaining balance due on July 1, 2020. The Kaplan Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a leverage ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Kaplan Credit Agreement.
On July 25, 2016, Kaplan borrowed £75 million under the Kaplan Credit Agreement. On the same date, Kaplan entered into an interest rate swap agreement with a total notional value of £75 million and a maturity date of July 1, 2020. The interest rate swap agreement will pay Kaplan variable interest on the £75 million notional amount at the three-month LIBOR, and Kaplan will pay the counterparties a fixed rate of 0.51%, effectively resulting in a total fixed interest rate of 2.01% on the outstanding borrowings at the current applicable margin of 1.5%. The interest rate swap agreement was entered into to convert the variable rate British pound borrowing under the Kaplan Credit Agreement into a fixed rate borrowing. The Company provided a guarantee on any borrowings under the Kaplan Credit Agreement. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap agreement was determined to be effective, and thus qualifies as a cash flow hedge. As such, changes in2021, the fair value of the interest rate swap are recordedCompany’s investments in other comprehensive income onmarketable equity securities was $700.4 million, which includes investments in the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variabilitycommon stock of cash flows.
Inseven publicly traded companies. The Company purchased $48.0 million of marketable equity securities during the first ninethree months of 2017,2021. There were no sales of marketable equity securities during the Company acquired an additional 61,039 sharesfirst three months of its Class B common stock at a cost of approximately $35.4 million.
On May 24, 2017, Moody’s affirmed2021. At March 31, 2021, the unrealized gain related to the Company’s credit ratings, but revised the outlook from Stable to Negative.investments totaled $419.5 million.
The Company’s current credit ratings are as follows: |
| | | |
| Moody’s | | Standard
& Poor’s
|
Long-term | Ba1 | | BB+ |
At September 30, 2017 and December 31, 2016, the Company had working capital of $804.7$909.7 million and $1,052.4$824.5 million at March 31, 2021 and December 31, 2020, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments.
At March 31, 2021 and December 31, 2020, the Company had borrowings outstanding of $510.3 million and $512.6 million, respectively. The Company’s borrowings at March 31, 2021 were mostly from $400.0 million of 5.75% unsecured notes due June 1, 2026, £55 million in outstanding borrowings under the Company’s revolving credit facility and a commercial note of $24.5 million at the Automotive subsidiary. The Company’s borrowings at December 31, 2020 were mostly from $400.0 million of 5.75% unsecured notes due June 1, 2026, £55 million in outstanding borrowings under the Kaplan Credit Agreement and a commercial note of $25.3 million at the Automotive subsidiary. The interest on $400.0 million of 5.75% unsecured notes is payable semiannually on June 1 and December 1.
During the three months ended March 31, 2021 and 2020, the Company had average borrowings outstanding of approximately $512.1 million and $511.4 million, respectively, at average annual interest rates of approximately 5.0% and 5.1%, respectively. During the three months ended March 31, 2021 and 2020, the Company incurred net interest expense of $7.6 million and $6.5 million, respectively. Included in the interest expense for the three months ended March 31, 2021 is an amount of $1.1 million to adjust the fair value of the mandatorily redeemable noncontrolling interest (See Note 7).
On April 27, 2021, Standard & Poor’s affirmed the Company’s credit rating and revised the outlook from Negative to Stable.
The Company’s current credit ratings are as follows:
| | | | | | | | | | | |
| Moody’s | | Standard & Poor’s |
Long-term | Ba1 | | BB |
Outlook | Negative | | Stable |
| | | |
The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds.funds and, to a lesser extent, borrowings under its revolving credit facility. As of March 31, 2021, the Company had $75.6 million outstanding under the $300 million revolving credit facility, which borrowing was used to repay the £60 million Kaplan U.K. credit facility that matured at the end of June 2020. In management’s opinion, the Company will have sufficient liquidityfinancial resources to meet its various cash needs withinbusiness requirements in the next 12 months.months, including working capital requirements, capital expenditures, interest payments, potential acquisitions and strategic investments, dividends and stock repurchases.
In July 2016, Kaplan International Holdings Limited (KIHL) entered into an agreementsummary, the Company’s cash flows for each period were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31 |
(In thousands) | 2021 | | 2020 |
Net cash provided by operating activities | $ | 23,999 | | | $ | 12,403 | |
Net cash (used in) provided by investing activities | (63,290) | | | 9,561 | |
Net cash used in financing activities | (10,129) | | | (26,685) | |
Effect of currency exchange rate change | (1,015) | | | (7,684) | |
Net decrease in cash and cash equivalents and restricted cash | $ | (50,435) | | | $ | (12,405) | |
Operating Activities. Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. The Company’s net cash flow provided by operating activities were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31 |
(In thousands) | 2021 | | 2020 |
Net Income | $ | 112,635 | | | $ | (33,891) | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and goodwill and other long-lived asset impairments | 31,529 | | | 47,270 | |
Amortization of lease right-of-use asset | 18,594 | | | 23,749 | |
Net pension benefit | (24,501) | | | (13,784) | |
Other non-cash activities | (60,201) | | | 82,362 | |
Change in operating assets and liabilities | (54,057) | | | (93,303) | |
Net Cash Provided by Operating Activities | $ | 23,999 | | | $ | 12,403 | |
Net cash provided by operating activities consists primarily of cash receipts from customers, less disbursements for costs, benefits, income taxes, interest and other expenses.
For the first three months of 2021 compared to the first three months of 2020, the increase in net cash provided by operating activities is primarily due to changes in operating assets and liabilities. Changes in operating assets and liabilities were driven by accounts payable and accrued liabilities and income tax receivables, partially offset by accounts receivable.
Investing Activities. The Company’s net cash flow (used in) provided by investing activities were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31 |
(In thousands) | 2021 | | 2020 |
Net (purchases of) proceeds from sales of marketable equity securities | $ | (48,036) | | | $ | 48,016 | |
Purchases of property, plant and equipment | (13,113) | | | (25,235) | |
Investments in equity affiliates, cost method and other investments | (2,415) | | | (7,427) | |
| | | |
Investments in certain businesses, net of cash acquired | — | | | (6,011) | |
Other | 274 | | | 218 | |
Net Cash (Used in) Provided by Investing Activities | $ | (63,290) | | | $ | 9,561 | |
Net (purchases of) proceeds from sale of investments. The Company purchased $48.0 million of marketable equity securities during the first three months of 2021. During the first three months of 2020, the Company sold marketable equity securities that generated proceeds of $48.0 million.
Capital Expenditures. Capital expenditures for the first three months of 2021 were lower than the first three months of 2020 primarily due to the postponement of noncritical capital expenditures to preserve cash resources in response to the COVID-19 pandemic. In addition, 2020 includes capital expenditures in connection with University of York International Pathway College LLP (York International College)spectrum repacking at the Company’s television stations in Detroit, MI, Jacksonville, FL, and Roanoke, VA, as mandated by the FCC; these expenditures are expected to loanbe largely reimbursed to the LLP approximately £25 million overCompany by the next eighteen months, to construct an academic buildingFCC. The amounts reflected in the UK to be used byCompany’s Condensed Consolidated Statements of Cash Flows are based on cash payments made during the College. York International College is a limited liability partnership joint venture between Kaplan York Limited (a subsidiaryrelevant periods, whereas the Company’s capital expenditures for the first three months of Kaplan International Colleges UK Limited) and a subsidiary2021 of $13.1 million include assets acquired during the University of York,quarter. The Company estimates that operates a pathways college. The loanits capital expenditures will be repayable over 25 years at an interestin the range of $55 million to $65 million in 2021.
Acquisitions. During the first three months of 2020, the Company acquired two small businesses in its education division.
Financing Activities. The Company’s net cash flow used in financing activities were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31 |
(In thousands) | 2021 | | 2020 |
Dividends paid | $ | (7,553) | | | $ | (7,703) | |
Net proceeds from vehicle floor plan payable | 2,462 | | | 2,478 | |
Net payments under revolving credit facility | (2,223) | | | — | |
Repayments of borrowings | (1,034) | | | (847) | |
Issuance of borrowings | — | | | 1,023 | |
Common shares repurchased | — | | | (33,610) | |
Other | (1,781) | | | 11,974 | |
Net Cash Used in Financing Activities | $ | (10,129) | | | $ | (26,685) | |
Dividends. The quarterly dividend rate per share was $1.51 and $1.45 for the first three months of 7%2021 and the loan is guaranteed by the University of York. While there is no strict requirement to make annual principal2020, respectively.
Vehicle Floor Plan Payable and interest payments, interest will be rolled up and accrue interest at 7% if no such payments are made. The loan becomes due and payable if the partnership agreement with Kaplan is terminated.Borrowings. In the second halffirst three months of 2016, KIHL advanced approximately £11.0 million to York International College. In the third quarter of 2017, KIHL advanced an additional £5.0 million to York International College.
In October 2017,2021 and 2020, the Company made additional commitments totaling $45.0 million for certain investments expectedused floor vehicle plan financing to close infund the next twelve months.purchase of new and used vehicles at its Automotive subsidiary.
Common Stock Repurchases. During the third quarterfirst three months of 2017, Kaplan renewed an office lease, committing an additional $20.12020, the Company purchased a total of 83,919 shares of its Class B common stock at a cost of approximately $33.6 million. On September 10, 2020, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock. The Company did not announce a ceiling price or time limit for the purchases. At March 31, 2021, the Company had remaining authorization from the Board of Directors to purchase up to 364,151 shares of Class B common stock.
Other. In March 2021, the Hoover’s minority shareholders put the remaining outstanding shares to the Company, which had a redemption value of $3.5 million. During the first three months of 2021, the Company increased the borrowings under its cash overdraft facilities by $3.2 million. During the first three months of 2020, the Company increased the borrowings under its cash overdraft by $9.1 million and received $5.3 million in rent payments through 2024. proceeds from the exercise of stock options.
There were no other significant changes to the Company’s contractual obligations or other commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Forward-Looking Statements
This report contains certain forward-lookingAll public statements made by the Company and its representatives that are based largelynot statements of historical fact, including certain statements in this report, in the Company’s Annual Report on Form 10-K and in the Company’s 2020 Annual Report to Stockholders, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to the duration and severity of the COVID-19 pandemic and its effects on the Company’s current expectations. Forward-lookingoperations, financial results, liquidity and cash flows. Other forward-looking statements include comments about expectations related to acquisitions or dispositions or related business activities, including the TOSA, the Company’s business strategies and objectives, anticipated results of license renewal applications, the prospects for growth in the Company’s various business operations and the Company’s future financial performance. As with any projection or forecast, forward-looking statements are subject to certainvarious risks and uncertainties, that could cause actual resultsincluding the risks and achievements to differ materially from those expresseduncertainties described 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 IItem 1A of the Company’s Annual Report on Form 10-K.10-K, that could cause actual results or events to differ materially from those anticipated in such statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by or on behalf of the Company. The Company assumes no obligation to update any forward-looking statement after the date on which such statement is made, even if new information subsequently becomes available.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk in the normal course of its business due primarily to its ownership of marketable equity securities, which are subject to equity price risk; to its borrowing and cash-management activities, which are subject to interest rate risk; and to its foreign business operations, which are subject to foreign exchange rate risk. The Company’s market risk disclosures set forth in its 20162020 Annual Report filed on Form 10-K have not otherwise changed significantly.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal(principal executive officer) and the Company’s Senior Vice President-Finance (the Company’s principalChief Financial Officer (principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of September 30, 2017.March 31, 2021. Based on that evaluation, the Company’s Chief Executive Officer and Senior Vice President-FinanceChief Financial Officer have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Senior Vice President-Finance,Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2017 March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the quarter ended September 30, 2017, the Company purchased shares of its Class B Common Stock as set forth in the following table: |
| | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plan* | | Maximum Number of Shares that May Yet Be Purchased Under the Plan* |
July | | — |
| | $ | — |
| | — |
| | 223,526 |
|
August | | 41,258 |
| | 586.17 |
| | 41,258 |
| | 182,268 |
|
September | | 19,031 |
| | 568.28 |
| | 19,031 |
| | 163,237 |
|
| | 60,289 |
| | $ | 580.52 |
| | 60,289 |
| | |
*On May 14, 2015 the Company’s Board of Directors authorized the Company to purchase, on the open market or otherwise, up to 500,000 shares of its Class B Common Stock. There is no expiration date for that authorization. All purchases made during the quarter ended September 30, 2017 were open market transactions.
| | | | | |
Exhibit Number | Description |
| |
Exhibit
Number 3.1 | Description
|
| |
2.1 | Contribution and Transfer Agreement, dated April 27, 2017, by and among Kaplan Higher Education, LLC, Iowa College Acquisition, LLC, Purdue University, and Purdue New U, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed April 27, 2017). * |
| |
3.1 | |
| |
3.2 | |
| |
3.3 | |
| |
4.1 | |
| |
4.2 | Five Year Credit Agreement,First Supplemental Indenture, dated as of June 29, 2015,March 24, 2020, among Graham Healthcare Group, Inc., a Delaware corporation, a subsidiary of the Company, and certainThe Bank of its domestic subsidiaries as guarantors, the several lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent and JPMorgan Chase Bank,New York Mellon Trust Company, N.A., as Syndication Agent.trustee (incorporated by reference to Exhibit 10.14.2 to the Company’s CurrentQuarterly Report on Form 8-K dated June 29, 2015)10-Q for the quarter ended March 31, 2020). |
| |
31.1 | |
| |
31.2 | |
| |
32 | |
| |
101101.INS | The following financial information from Graham Holdings Company Quarterly Report on Form 10-Q forInline XBRL Instance Document - the period ended September 30, 2017, formattedinstance document does not appear in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016, (ii) Condensed Consolidated Statements of Comprehensive Income forInteractive Data File because its XBRL tags are embedded within the Three and Nine Months Ended September 30, 2017 and 2016, (iii) Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016, and (v) Notes to Condensed Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed "furnished" and not "filed" or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed "furnished" and not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.Inline XBRL document |
| |
*101.SCH | Graham Holdings Company hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule to such agreement to the U.S. Securities and Exchange Commission upon request.Inline XBRL Taxonomy Extension Schema Document |
| |
**101.CAL | Furnished herewith.Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| |
104 | Cover Page Interactive Data File, formatted in Inline XBRL and included as Exhibit 101 |
* Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | | | | |
| | GRAHAM HOLDINGS COMPANY |
| | (Registrant) |
| | |
Date: November 1, 2017May 5, 2021 | | /s/ Timothy J. O’Shaughnessy |
| | Timothy J. O’Shaughnessy, President & Chief Executive Officer (Principal Executive Officer) |
| | |
Date: November 1, 2017May 5, 2021 | | /s/ Wallace R. Cooney |
| | Wallace R. Cooney, Senior Vice President-Finance
Chief Financial Officer (Principal Financial Officer)
|