May 2, 2014 Last Updated 8:40 am

Graham Holdings, former owner of The Washington Post, reports higher earnings

Revenue for the first quarter of 2014 was $840.6 million, up 2% from $820.6 million in the first quarter of 2013

Press Release:

WASHINGTON, DC – May 2, 2104 — Graham Holdings Company (NYSE: GHC) today reported income from continuing operations attributable to common shares of $131.0 million ($17.65 per share) for the first quarter of 2014, compared to $21.7 million ($2.92 per share) for the first quarter of 2013. Net income attributable to common shares was $132.1 million ($17.79 per share) for the first quarter ended March 31, 2014, compared to $4.7 million ($0.64 per share) for the first quarter of last year. Net income includes $1.1 million ($0.14 per share) in income and $17.0 million ($2.28 per share) in losses from discontinued operations for the first quarter of 2014 and 2013, respectively. (Refer to “Discontinued Operations” discussion below.)

On April 11, 2014, the Company and Berkshire Hathaway Inc. announced that they have signed an agreement for Berkshire to acquire a wholly-owned subsidiary of the Company that includes, among other things, WPLG, the Company’s Miami-based television station. The transaction is expected to close in the second or third quarter of 2014. As a result, income from continuing operations excludes WPLG, which has been reclassified to discontinued operations, net of tax, for all periods presented.

The results for the first quarter of 2014 and 2013 were affected by a number of items as described in the following paragraphs. Excluding these items, income from continuing operations attributable to common shares was $48.8 million ($6.47 per share) for the first quarter of 2014, compared to $30.8 million ($4.18 per share) for the first quarter of 2013. (Refer to the Non-GAAP Financial Information schedule at the end of this release for additional details.)

Items included in the Company’s income from continuing operations for the first quarter of 2014:

  • $4.5 million in early retirement program expense at the corporate office (after-tax impact of $2.9 million, or $0.39 per share);
  • $127.7 million gain on the sale of the corporate headquarters building (after-tax impact of $81.8 million, or $11.13 per share); and
  • $5.0 million in non-operating unrealized foreign currency gains (after-tax impact of $3.2 million, or $0.44 per share).

Items included in the Company’s income from continuing operations for the first quarter of 2013:

  • $9.4 million in severance and restructuring charges at the education division (after-tax impact of $6.1 million, or $0.85 per share); and
  • $4.6 million in non-operating unrealized foreign currency losses (after-tax impact of $3.0 million, or $0.41 per share).

Revenue for the first quarter of 2014 was $840.6 million, up 2% from $820.6 million in the first quarter of 2013. The Company reported operating income of $79.5 million in the first quarter of 2014, compared to $47.1 million in the first quarter of 2013. Revenues increased at the television broadcasting and cable divisions, while revenues at the education division were flat. Operating results improved in the first quarter at the television broadcasting, cable and education divisions.

Division Results

Education

Education division revenue totaled $526.2 million for the first quarter of 2014, essentially flat compared with revenue of $527.8 million for the first quarter of 2013. Kaplan reported first quarter 2014 operating income of $2.5 million, compared to an operating loss of $4.1 million in the first quarter of 2013. Operating results for the first quarter of 2013 include restructuring costs of $9.4 million.

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

In 2012, KHE began implementing plans to close or merge 13 ground campuses, consolidate other facilities and reduce its workforce. In connection with these and other plans, KHE incurred $9.1 million in restructuring costs in the first quarter of 2013, including accelerated depreciation ($3.6 million), severance ($0.9 million), lease obligation losses ($3.7 million) and other items ($0.9 million). At the end of 2013, the KHE campus closures or mergers had been largely completed, though two campuses remain to be closed in the first half of 2014. In April 2014, KHE announced plans to close two additional ground campuses that will be completed by the end of 2015.

In the first quarter of 2014, KHE revenue declined 7% due largely to declines in average enrollments that reflect weaker market demand over the past year, lower average tuition and the impact of closed campuses. KHE operating income increased in the first quarter of 2014 due largely to expense reductions associated with lower enrollments and recent restructuring efforts, as well as significant restructuring costs recorded in the first quarter of 2013.

New student enrollments at KHE increased 7% in the first quarter of 2014 due to growth at Kaplan University, offset by the impact of closed campuses.

Total students at March 31, 2014, were down 2% compared to March 31, 2013, but increased 9% compared to December 31, 2013. Excluding campuses closed or planned for closure, total students at March 31, 2014, were down 1% compared to March 31, 2013, but up 10% compared to December 31, 2013.

Cable

Cable division revenue increased 2% in the first quarter of 2014 to $203.9 million, from $200.1 million for the first quarter of 2013. The revenue increase for the first three months of 2014 is due to growth of the division’s Internet and commercial sales revenues, recent rate increases for many subscribers and a reduction in promotional discounts. The increase was partially offset by a 2% decline in total customers and a 4% decline in total PSUs, as the cable division continues to increase its focus on high-value customers and decrease its focus on marginal customers.

Cable division operating income grew 12% in the first quarter of 2014 to $41.2 million, from $36.6 million in the first quarter of 2013. The division’s operating income improved in the first three months of 2014 due to increased revenues and tight cost controls that resulted in a small reduction in overall operating costs.

At March 31, 2014, total customers were down 2% and Primary Service Units (PSUs) were down 4% due to a decline in video subscribers.

Television Broadcasting

Revenue at the television broadcasting division increased 24% to $85.7 million in the first quarter of 2014, from $68.9 million in the same period of 2013; operating income for the first quarter of 2014 was up 52% to $44.4 million, from $29.1 million in the same period of 2013. The increase in revenue and operating income is due to a $3.1 million increase in political advertising revenue, $9.5 million in incremental winter Olympics-related advertising revenue at the Company’s NBC affiliates and $4.7 million in increased retransmission revenues.

As discussed above, the television broadcasting operating results exclude WPLG, the Company’s Miami-based television station, which has been reclassified to discontinued operations for all periods presented.

Other Businesses

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

In April 2014, Celtic Healthcare acquired the assets of VNA-TIP Healthcare of Bridgeton, MO. This acquisition will expand Celtic’s home health and hospice service areas from Pennsylvania and Maryland to the Missouri and Illinois region.

GH-Q12014

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