Washington Post 2015 Annual Report Download

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2015 ANNUAL REPORT

Table of contents

  • Page 1
    2015 ANNUAL REPORT

  • Page 2
    reVeNUe By priNCipaL operatioNS n eDUCatioN 74% n teLeViSioN BroaDCaStiNG 14% n otHer BUSiNeSSeS 12%

  • Page 3
    ..., except per share amounts) 2015 2014 Change Operating revenues Income (loss) from operations Net income (loss) attributable to common shares Diluted earnings (loss) per common share from continuing operations Diluted earnings (loss) per common share Dividends per common share Common stockholders...

  • Page 4
    ... tipped. dividend of $450 million to Graham Holdings as part of the spin-off transaction. n Andy Rosen returned as CEO of Kaplan. As Kaplan reshapes itself, I can think of no better leader to be at the helm. We completed the sale of our U.S. vocational campuses to Education Corporation of America...

  • Page 5
    ... (GMG). The average operating income margin for Graham Holdings (before impairments of goodwill and other long-lived assets and amortization of intangible assets) over the last 3 years has been 7.9%.(1) In 2015, we focused much effort on improving corporate cost structures, both within subsidiaries...

  • Page 6
    ... at Kaplan in 2015 was the return of Andy Rosen as CEO. Andy had spent much of the past 2 years as Chairman of Kaplan, as well as helping oversee several businesses from the Graham Holdings corporate office. It became clear that Kaplan needed to move to a more decentralized operating structure, to...

  • Page 7
    ... to turn the tIde at kaplan unIversIty Is to contInue to focus on successful outcomes for our students. terms of our pension investment management, with a 6.2% loss on plan assets. We think overfunding is a real resource for Graham Holdings; but, because of the uniqueness of the position, there are...

  • Page 8
    ... with us: Graham Holdings is honorable in all of its dealings; puts the quality of its products and the success of its customers ahead of its own short-term profits; keeps its word; is a determined but fair competitor and a trustworthy partner; and is an employer that values its employees, has shown...

  • Page 9
    ... you. How will we allocate capital? Post cable spin-off, we have become a much smaller company and have turned to the future. First and foremost, we'll look to build around our existing sectors: education, media, health care, and industrials. The financial quality of our businesses varies, as do the...

  • Page 10
    ... for our little company to acquire; but, when we find one that is mispriced in the public markets or that is a rare private market opportunity, we won't be afraid to take a small bite. Investing in start-ups is usually a pretty bad idea for Graham Holdings. In general, the failure rate is high; the...

  • Page 11
    ... Holdings to turn over in the market; at many other companies, this often happens in a matter of weeks or days. Our shareholders invest for years, not quarters, and that's how we manage the business. Timothy J. O'Shaughnessy President and Chief Executive Officer February 26, 2016 2015 ANNUAL REPORT...

  • Page 12

  • Page 13
    ...executive offices) 22209 (Zip Code) Registrant's Telephone Number, Including Area Code: (703) 345-6300 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class B Common Stock, par value $1.00 per share New York Stock Exchange...

  • Page 14
    GRAHAM HOLDINGS COMPANY 2015 FORM 10-K Item 1. Business ...Education ...Television Broadcasting ...Other Activities ...Competition ...Executive Officers ...Employees ...Forward-Looking Statements ...Available Information ...Item 1A. Risk Factors ...Item 1B. Unresolved Staff Comments ...Item 2. Item ...

  • Page 15
    INDEX TO FINANCIAL INFORMATION ...Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) ...Financial Statements: Management's Report on Internal Control Over Financial Reporting ...Report of Independent Registered Public Accounting Firm ...Consolidated ...

  • Page 16
    ... all of the assets of its KHE Campuses business to Education Corporation of America (ECA), consisting of 38 nationally accredited ground campuses and certain related assets, in exchange for a preferred equity interest in ECA. Kaplan's Bauder College campus in Atlanta 1 GRAHAM HOLDINGS COMPANY

  • Page 17
    ...Mount Washington College in New Hampshire were not part of this sale, however, these schools ceased enrollment in 2014 and 2015, respectively, and are expected to be fully closed in 2016, following the teach-out of current students. As a result, the KHE segment currently consists primarily of Kaplan...

  • Page 18
    ... 0.3% of KHE revenues. Direct student payments, funds received under various state and federal agency grant programs and corporate reimbursement under tuition assistance programs accounted for most of the remaining 2015 KHE revenues. The significant role of Title IV funding in the operations of KHE...

  • Page 19
    ... of taxpayer-funded grants and subsidies than community colleges, state schools and not-for-profit schools, KHE's schools are more dependent on tuition, and its students are more dependent on loans. Kaplan has dedicated resources to help students who are at risk of default. Kaplan personnel contact...

  • Page 20
    ... under the Federal Family Education Loan Program. The negotiated rulemaking committee began a series of meetings in January 2016 that are expected to conclude in the spring of 2016. The ED is expected to publish proposed regulations that would be subject to notice and public comment and to publish...

  • Page 21
    ... Kaplan to eliminate or limit enrollments in certain educational programs at some or all of its schools; may result in the loss of student access to Title IV programs; and has had a material adverse effect on KHE's revenues, operating income, cash flows and the estimated fair value of the reporting...

  • Page 22
    ... of its receipts attributable to Title IV funds, including modifying student payment options; emphasizing direct-pay and employer-paid education programs; encouraging students to evaluate carefully the amount of their Title IV borrowing; eliminating some programs; cashmatching; and developing and...

  • Page 23
    ... any credible information indicating that any applicant, student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct involving Title IV programs; Submit in a timely way all required reports and financial statements; and Not...

  • Page 24
    ... a material adverse effect on Kaplan's business and operations. U.S. Senate Committee Review. In the summer of 2010, the Chairman of the HELP Committee commenced an industry-wide review of for-profit higher education institutions. The institutions owned and operated by KHE 9 GRAHAM HOLDINGS COMPANY

  • Page 25
    ... an educational program, acquire another school or make any other significant change. In addition, there are four open program reviews at campuses that were part of the KHE Campuses business, including the ED's final reports on the program reviews at KHE's Broomall, PA, and Pittsburgh, PA, locations...

  • Page 26
    ... other NEST programs. Publishing. Kaplan Publishing focuses on print test preparation resources sold through retail channels. At the end of 2015, Kaplan Publishing had close to 300 products available in print and digital formats, including more than 100 digital products. 11 GRAHAM HOLDINGS COMPANY

  • Page 27
    ... Department (UKVI), KIC's university pathways business and Kaplan Financial Limited are required to hold or operate Tier 4 sponsorship licenses to permit international students to come to the U.K. to study the courses they deliver. All of KIC's UK English-language schools also have Tier 4 licenses...

  • Page 28
    ... to work in the U.K. without being sponsored, was closed to new applicants. In addition, sponsored students who do not attend an institution that qualifies as a Higher Educational Institution (HEI), which includes students attending Kaplan UK's colleges, are no longer permitted to work part time...

  • Page 29
    ... College and offers pathways and foundational education to approximately 1,200 students wishing to enter Murdoch University in Perth and the University of Adelaide, respectively. In 2015, Kaplan sold its Franklyn Scholar business that offered a wide range of custom-developed programs to corporate...

  • Page 30
    ...to comply with foreign regulations, and failure to do so could materially and adversely affect Kaplan's operating results. TELEVISION BROADCASTING Graham Media Group, Inc. (GMG), a subsidiary of the Company, owns five television stations, located in Houston, TX; Detroit, MI; Orlando, FL; San Antonio...

  • Page 31
    ... broadcast television stations in exchange for a share of the auction revenues. The FCC has adopted rules, and is expected to continue adopting rules, addressing, among other things, how the incentive auction process will work and how the FCC will conduct a "repacking," whereby the FCC will require...

  • Page 32
    ... television ownership rule, seeking comment on a possible waiver standard for smaller markets and proposing a modest relaxation of the newspaper/broadcast rule. The notice also addresses the FCC's radio ownership and radio/ television cross-ownership rules, and it asks whether the FCC should require...

  • Page 33
    ... of more than 24 million unique visitors per month and averaged more than 100 million page views per month across desktop and mobile platforms in 2015. The Slate Group also owns Panoply, an ad-supported podcast network that creates original audio programming in partnership with leading publishers...

  • Page 34
    ... group. Celtic Healthcare Celtic Healthcare, Inc. (Celtic) is a Medicare-certified provider of home health and hospice services headquartered in Mars, PA. Through its subsidiaries, Celtic is licensed to provide home health and hospice services throughout Pennsylvania, Maryland, Missouri and Illinois...

  • Page 35
    ... non-profit companies. Celtic and Residential compete primarily with privately owned and hospital-operated home health and hospice service providers. EXECUTIVE OFFICERS The executive officers of the Company, each of whom is elected annually by the Board of Directors, are as follows: Donald E. Graham...

  • Page 36
    ..., Human Resources, and Senior Director, Pension & Savings Plans. Jacob M. Maas, age 39, became Senior Vice President-Planning and Development of the Company in October 2015. Prior to joining the Company, he served as executive vice president of operations and head of corporate development at...

  • Page 37
    ... the reports, proxy statements and information statements and other information regarding issuers that file electronically with the SEC. Also, the public may read and copy any materials that the Company files with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549...

  • Page 38
    ... 3, 2015, Kaplan retained liability for pre-sale conduct of those schools. KHE schools also have been, and may in the future be, subject to complaints and lawsuits by present or former students or employees or other people related to compliance with statutory, common law and regulatory requirements...

  • Page 39
    ... to Receive Such Funds Could Have a Material Adverse Effect on Kaplan's Business and Operations During the Company's 2015 fiscal year, funds provided under the student financial aid programs created under Title IV accounted for approximately $628 million of the revenues of the schools in KHE. Any...

  • Page 40
    ... form later in 2016 or in early 2017. The regulations also contain requirements related to public disclosure of program information and outcomes, reporting data to the ED, including the debt-to-earnings rates, and certification requirements. On October 9, 2015, Kaplan University received a letter...

  • Page 41
    ... certification by the ED. The loss of Title IV eligibility by Kaplan University due to cohort default rates that exceed specified rates would have a material adverse effect on Kaplan's operating results. • Title IV Revenues in Excess of U.S. Federally Set Percentage Could Lead to Loss of...

  • Page 42
    ... adverse effect on Kaplan's business and operations. In addition, the ED may resume the negotiated rulemaking process in the future to publish new rules to require institutions offering postsecondary education to students through distance education in a state in which the 27 GRAHAM HOLDINGS COMPANY

  • Page 43
    ... adverse effect on Kaplan's business and operations. • Failure to Correctly Calculate or Timely Return Title IV Funds for Students Who Withdraw Prior to Completing Programs Could Result in a Requirement to Post a Letter of Credit or Other Sanctions ED regulations require schools participating in...

  • Page 44
    ... navigating local customs and practices, preparing for potential political and economic instability and adapting to currency exchange rate fluctuations. Failure to effectively manage these risks could have a material adverse effect on Kaplan's operating results. 29 GRAHAM HOLDINGS COMPANY

  • Page 45
    ... media outlets, the profitability of the Company's television broadcasting business will suffer. • Increased Competition Resulting From Technological Innovations in News, Information and Video Programming Distribution Systems Could Adversely Affect the Company's Operating Results The continuing...

  • Page 46
    ... natural disasters and network and telecommunications failures. Any such computer system error or failure could result in a significant outage that materially disrupts Kaplan's online and on-ground operations and could have a material adverse effect on Kaplan's business. 31 GRAHAM HOLDINGS COMPANY

  • Page 47
    ...results of operations. • Failure to Successfully Assimilate Acquired Businesses Could Negatively Affect the Company's Business The Company's Kaplan subsidiary has historically been an active acquirer of businesses that provide educational services. Kaplan completed one acquisition in 2015 and two...

  • Page 48
    ... contract for sale and is expected to close in 2016. Directly or through its subsidiaries, Kaplan owns a total of four properties: a 30,000-square-foot, six-story building located at 131 West 56th Street in New York City, used by KIC North America as an education center primarily for international...

  • Page 49
    ...; Mt. Carmel, IL; Mt. Vernon, IL; and Fenton, MO. Celtic also leases space for a hospice inpatient unit in Wilkes-Barre, PA. Celtic also owns a total of five properties located in Carlinville, IL; Centralia, IL; Murphysboro, IL; and Benton, IL. Residential's Michigan headquarters offices are located...

  • Page 50
    .... The total amount of all required payments by Broomall under the agreements was $1.6 million. Pursuant to the comprehensive settlement agreement, the U.S. Attorney inquiry has been closed, the False Claims Act complaint (United States of America ex rel. David Goodstein v. Kaplan, Inc. et al.) was...

  • Page 51
    ...Square campus closed in 2012. Kaplan Higher Education Corporation cooperated with the Massachusetts Attorney General and provided the requested information, as well as additional information requested in 2012 and 2013. In October 2014, the Attorney General's office sent Kaplan a "notice of intention...

  • Page 52
    ...record of the Company's Class B Common Stock. Dividend Information Both classes of the Company's Common Stock participate equally as to dividends. Total dividends paid during 2015 were $9.10 with three quarterly dividends paid at a rate of $2.65 per share and one dividend paid at a rate of $1.15 per...

  • Page 53
    ... include information relating to restricted stock grants awarded under the Graham Holdings Company's Incentive Compensation Plan, which plan has been approved by the stockholders of the Company. At December 31, 2015, there were 26,475 shares of restricted stock outstanding under the 2012-2016 Award...

  • Page 54
    ... YEAR TOTAL RETURN $250 $200 $150 $100 $50 $0 2010 2011 2012 2013 2014 2015 Graham Holdings Company S&P 500 Index Peer Group December 31 2010 2011 2012 2013 2014 2015 Graham Holdings Company ...S&P 500 Index ...New Education Peer Group ...Item 6. Selected Financial Data. 100.00 100...

  • Page 55
    ... operations, which are subject to foreign exchange rate risk. Equity Price Risk. The Company has common stock investments in several publicly traded companies (as discussed in Note 4 to the Company's Consolidated Financial Statements) that are subject to market price volatility. The fair value...

  • Page 56
    ... codes of conduct applicable to the officers and persons referred to above by posting the required information on its website. In addition to the certifications of the Company's Chief Executive Officer and Chief Financial Officer filed as exhibits to this Annual Report on Form 10-K, on June 10, 2015...

  • Page 57
    ... Principal Accounting Fees and Services. The information contained under the heading "Audit Committee Report" in the definitive Proxy Statement for the Company's 2016 Annual Meeting of Stockholders is incorporated herein by reference thereto. PART IV Item 15. Exhibits, Financial Statement Schedules...

  • Page 58
    SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on February 26, 2016. GRAHAM HOLDINGS COMPANY (Registrant) By /s/ Hal S. Jones ...

  • Page 59
    ... TO FINANCIAL INFORMATION GRAHAM HOLDINGS COMPANY Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) ...Financial Statements: Management's Report on Internal Control Over Financial Reporting ...Report of Independent Registered Public Accounting Firm...

  • Page 60
    ... in 2015. Kaplan International reported revenue declines for 2015 due to the adverse impact of exchange rates and weakness in English-language programs, offset by growth in Australia professional and Singapore higher education programs. Kaplan International operating results were down in 2015 due...

  • Page 61
    ... tax-free Berkshire exchange transaction that closed on June 30, 2014, the Company acquired 1,620,190 shares of its Class B common stock, resulting in 13% fewer diluted shares outstanding in 2015 compared to 2014. Items included in the Company's income from continuing operations for 2015 are listed...

  • Page 62
    ... A and Class B common stock of Graham Holdings outstanding on the June 15, 2015, record date. The historical operating results of the Company's cable division are included in discontinued operations, net of tax, for all periods presented. On February 12, 2015, Kaplan entered into a Purchase and Sale...

  • Page 63
    ...Washington College and Bauder College, as follows: (in thousands) Year Ended December 31 2015 2014 Revenue ...Operating loss ... $178,734 $ (38,830) $299,109 $ (28,549) In 2015, KHE revenue declined 16% due to the campus sales and closings, and declines in average enrollments at Kaplan University...

  • Page 64
    ... of foreign exchange rates. On a constant currency basis, Kaplan International revenue remained flat in 2015 due to enrollment declines in English-language programs, partially offset by growth in Australia professional and Singapore higher education programs. Kaplan International operating income...

  • Page 65
    ...total Celtic revenues in 2014. In the second quarter of 2015, the Company sold The Root, an online magazine; the related gain on disposition is included in other non-operating expense, net. Corporate Office. Corporate office includes the expenses of the Company's corporate office, the pension credit...

  • Page 66
    ... and the corporate office headquarters move to Arlington, VA, partially offset by 2015 costs related to the Group Dekko acquisition. Equity in (Losses) Earnings of Affiliates. At December 31, 2015, the Company held a 40% interest in a Celtic joint venture and Residential Home Health Illinois, a 42...

  • Page 67
    ... sold by Kaplan in January 2015. In the second quarter of 2014, the Company closed on the Berkshire exchange transaction, which included the disposition of WPLG, the Company's Miami-based television station. As a result of these transactions, income from continuing operations excludes the operating...

  • Page 68
    ... was structured as a tax-free spin-off of Cable ONE to the stockholders of the Company as one share of Cable ONE common stock was distributed for every share of Class A and Class B common stock of Graham Holdings outstanding on the June 15, 2015, record date. The historical operating results...

  • Page 69
    ...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...

  • Page 70
    ... costs was recorded in connection with charges related to office space managed by Kaplan corporate. Television Broadcasting Division. Revenue for the television broadcasting division increased 18% to $363.8 million in 2014, from $308.3 million in 2013; operating income for 2014 was up 29% to $187...

  • Page 71
    ... 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 innovation team...

  • Page 72
    ... to acquisitions, the Berkshire exchange transaction and the cable spin-off, and incremental costs associated with the corporate office headquarters move to Arlington, VA. Equity in Earnings of Affiliates. At September 30, 2014, the Company held a 16.5% interest in Classified Ventures, LLC (CV) and...

  • Page 73
    ..., primarily in accountancy, which is included in Higher Education. During 2014, the Company acquired nine businesses. On April 1, 2014, Celtic Healthcare acquired VNA-TIP Healthcare, a provider of home health and hospice services in Missouri and Illinois. On May 30, 2014, the Company completed its...

  • Page 74
    ...Hathaway shares, and income from discontinued operations for the second quarter of 2014 includes a $375.0 million gain from the WPLG exchange. Other. In January 2015, Celtic and Allegheny Health Network closed on the formation of a joint venture to combine each other's home health and hospice assets...

  • Page 75
    ... by the Company's Board of Directors. In January and February of 2016, the Company has acquired an additional 168,698 shares of its Class B common stock at a cost of approximately $80.8 million, most of which were purchased pursuant to a 10b5-1 plan. The annual dividend rate for 2016 is $4.84...

  • Page 76
    ... downgraded the Company's long-term credit ratings from "Baa3" to "Ba1" and the short-term rating from "Prime-3" to "NP". On July 1, 2015, related to the Cable ONE spin-off, S&P lowered its corporate credit rating from "BBB" to "BB+" and its short-term rating from "A-2" to 61 GRAHAM HOLDINGS COMPANY

  • Page 77
    ...1,620,190 shares of Graham Holdings Class B common stock owned by Berkshire Hathaway (Berkshire exchange transaction). In July 2014, the cable division sold its wireless spectrum licenses for $98.8 million. On October 1, 2014, the Company and the remaining partners completed the sale of their entire...

  • Page 78
    .... Education tuition revenue is recognized ratably over the period of instruction as services are delivered to students, net of any refunds, corporate discounts, scholarships and employee tuition discounts. At KTP and Kaplan International, estimates of average student course length are developed for...

  • Page 79
    ... 2015, the Company performed an interim review of the carrying value of goodwill and other intangible assets at its KHE reporting unit for possible impairment, as a result of continued declines in student enrollments at KHE and the challenging industry operating environment. The Company used a 2015...

  • Page 80
    ... businesses. The key assumptions used by the Company were as follows: • Expected cash flows underlying the Company's business plans for the periods 2016 through 2020 were used. The expected cash flows took into account historical growth rates, the effect of the changed 65 GRAHAM HOLDINGS COMPANY

  • Page 81
    ... plan assets was (6.2%) in 2015, 7.4% in 2014 and 36.2% in 2013. The 10-year and 20-year actual returns on plan assets on an annual basis were 8.8% and 10.9%, respectively. Accumulated and projected benefit obligations are measured as the present value of future cash payments. The Company discounts...

  • Page 82
    ...the pension cost for the last three months of 2013. Overall, the Company recorded an amortized loss amount of $2.8 million for 2013. During the last three months of 2013, there were additional pension asset gains. As a result of the pension asset gains in 2013, the Company had net 67 GRAHAM HOLDINGS...

  • Page 83
    ... months of 2015. As a result of the Cable ONE spin-off and KHE Campuses sale, the Company remeasured the accumulated and projected benefit obligation as of July 1, 2015 and September 3, 2015, respectively, and recorded a curtailment gain. During the first six months of 2015, there were pension asset...

  • Page 84
    ... based on these criteria. The effectiveness of the Company's internal control over financial reporting as of December 31, 2015, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein. 69 GRAHAM HOLDINGS COMPANY

  • Page 85
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Graham Holdings Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, cash flows and changes in common ...

  • Page 86
    GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) 2015 Year Ended December 31 2014 2013 Operating Revenues Education ...Advertising ...Other ... $1,927,405 279,924 378,785 2,586,114 $2,160,417 308,214 268,401 2,737,032 1,261,753 1,132,157 74,913...

  • Page 87
    GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) 2015 Year Ended December 31 2014 2013 Net (Loss) Income ...Other Comprehensive (Loss) Income, Before Tax Foreign currency translation adjustments: Translation adjustments arising during the year ...Adjustment for...

  • Page 88
    ..., 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 ...Cost of 14,196,146 and 14,201,211 shares of Class B common stock held in treasury ...Total Common...

  • Page 89
    GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Cash Flows from Operating Activities Net (Loss) Income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment ...Amortization of intangible assets ...

  • Page 90
    ...) ...Conversion of Class A common stock to Class B common stock ...Spin-Off of Cable ONE ...Taxes arising from employee stock plans ...Cash flow hedge ...As of December 31, 2015 ... $19,036 $356,887 $5,447,677 See accompanying Notes to Consolidated Financial Statements. 75 GRAHAM HOLDINGS COMPANY

  • Page 91
    ...(KTP) and Kaplan International. Media - The Company's diversified media operations comprise television broadcasting, several websites and print publications, and a marketing solutions provider. Television broadcasting. The Company owns five VHF television stations located in Houston, TX; Detroit, MI...

  • Page 92
    ... that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their 77 GRAHAM HOLDINGS COMPANY

  • Page 93
    ... flow models. Fair Value of Financial Instruments. The carrying amounts reported in the Company's Consolidated Financial Statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the current portion of deferred revenue and the current...

  • Page 94
    ... in the Company's Consolidated Statements of Operations. Fair value estimates are based on a review of the investees' product development activities, historical financial results and projected discounted cash flows. The Company includes cost method investments in deferred charges and other assets in...

  • Page 95
    ... Facebook, Twitter, Instagram and Pinterest. Donald E. Graham, the Chairman of the Company's Board, was a member of the Board of Directors of Facebook, Inc. in 2013, 2014, and through June 10, 2015. SocialCode's revenues are reported on a net basis; therefore, the Company's Statements of Operations...

  • Page 96
    ... using the current rate method, whereby operating results are converted at the average rate of exchange for the period, and assets and liabilities are converted at the closing rates on the period end date. Gains and losses on translation of these accounts are accumulated and reported as a separate...

  • Page 97
    ... plans. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Redeemable Noncontrolling Interests. The Company's redeemable noncontrolling interests represent the noncontrolling interests in Celtic Healthcare...

  • Page 98
    ... was structured as a tax-free spin-off of Cable ONE to the stockholders of the Company as one share of Cable ONE common stock was distributed for every share of Class A and Class B common stock of Graham Holdings outstanding on the June 15, 2015, record date. Cable ONE is now an independent public...

  • Page 99
    ... Company's corporate office segment results and in selling, general and administrative in the Company's Consolidated Statements of Operations. As a result of the spin-off, Cable ONE assumed the liability related to their employees participating in the Company's Supplemental Executive Retirement Plan...

  • Page 100
    ... of 2014. On October 1, 2013, the Company completed the sale of its newspaper publishing businesses for $250.0 million. The publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times, El...

  • Page 101
    ...At December 31, 2015 and 2014, the Company owned 28,000 shares in Markel Corporation (Markel) valued at $24.7 million and $19.1 million, respectively. The Co-Chief Executive Officer of Markel, Mr. Thomas S. Gayner, is a member of the Company's Board of Directors. The Company invested $146.2 million...

  • Page 102
    ... doubtful accounts ...2013 Allowance for doubtful accounts ...Allowance for advertising rate adjustments and discounts ... $32,598 $33,834 $33,612 1,850 $35,462 $39,982 $47,356 $57,245 - $57,245 $(44,726) $27,854 $(48,592) $32,598 $(57,023) $33,834 (1,850) - $(58,873) $33,834 Accounts payable and...

  • Page 103
    ... million in 2014; and $23.8 million in 2013. The assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition. During 2015, the Company acquired two businesses. On November 13, 2015, the Company acquired a 100% interest in Group Dekko...

  • Page 104
    ... necessarily indicative of the Company's consolidated results of operations in future periods. During 2014, the Company acquired nine businesses. On April 1, 2014, Celtic Healthcare acquired VNA-TIP Healthcare, a provider of home health and hospice services in Missouri and Illinois. On May 30, 2014...

  • Page 105
    ... and related services, including publishing The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times, El Tiempo Latino and related websites. In March 2013, the Company completed the sale of The Herald, a daily and Sunday...

  • Page 106
    ... of total Celtic revenues in 2014. The Company's income from continuing operations excludes Cable ONE, the sold Kaplan China schools, WPLG, the Publishing Subsidiaries and The Herald, which have been reclassified to discontinued operations (see Note 3). 8. GOODWILL AND OTHER INTANGIBLE ASSETS In the...

  • Page 107
    ... as follows: (in thousands) Education Cable Television Broadcasting Other Businesses Total As of December 31, 2013 Goodwill ...Accumulated impairment losses ...Acquisitions ...Dispositions ...Reclassification to discontinued operations ...Foreign currency exchange rate changes ...As of December 31...

  • Page 108
    ... 31, 2014. 9. INCOME TAXES (Loss) income from continuing operations before income taxes consists of the following: (in thousands) Year Ended December 31 2015 2014 2013 U.S...Non-U.S... $(142,705) $1,025,101 21,815 52,602 $(120,890) $1,077,703 $ 91,538 13,693 $105,231 93 GRAHAM HOLDINGS COMPANY

  • Page 109
    ... reclassified from previously reported income from operations and reported separately as income from discontinued operations, net of tax. Tax expense of $27.8 million, $82.4 million, and $97.9 million were recorded in discontinued operations in 2015, 2014 and 2013, respectively. 2015 FORM 10-K 94

  • Page 110
    ... loss carryforwards ...Other ...Deferred Tax Assets ...Valuation allowances ...Deferred Tax Assets, Net ...Property, plant and equipment ...Prepaid pension cost ...Unrealized gain on available-for-sale securities ...Goodwill and other intangible assets ...Deferred Tax Liabilities ...Deferred Income...

  • Page 111
    ... loss carryfowards, as a result of Kaplan Australia selling the stock of Franklyn Scholar in 2015 that may be carried forward indefinitely and are available to offset future Australian capital gains. The Company recorded a $10.1 million non-U.S. deferred income tax asset, and has established a full...

  • Page 112
    ... established against deferred state income tax assets are recorded at the parent company and the education division and may increase or decrease within the next 12 months, based on operating results or the market value of investment holdings. As a result, the Company is unable to estimate the...

  • Page 113
    ... mainly relate to state income tax filing positions applicable to the 2014 tax period. In making these determinations, the Company presumes that taxing authorities pursuing examinations of the Company's compliance with tax law filing requirements will have full knowledge of all relevant information...

  • Page 114
    ...basis and bear interest at the Company's option, either at (a) a fluctuating interest rate equal to the highest of Wells Fargo's prime rate, 0.50 percent above the Federal funds rate or the one-month Eurodollar rate plus 1%, or (b) the Eurodollar rate for the applicable interest period as defined in...

  • Page 115
    ... are classified as available-for-sale. Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits. Includes Graham Holdings Company's Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company's Supplemental Executive Retirement Plan...

  • Page 116
    ... and revert to Company ownership if the conditions are not met. As a result of the Cable ONE spin-off, the number of Class B common stock authorized for issuance under the 2012 Plan was increased from 500,000 shares to 772,588 shares. The individual award limit under the 2012 Plan was also increased...

  • Page 117
    ...Consolidated Statement of Operations for 2013. For the share awards outstanding at December 31, 2015, the aforementioned restriction will lapse in 2016 for 10,675 shares, in 2017 for 29,850 shares, in 2018 for 14,450 shares and in 2019 for 26,500 shares. Also, in early 2016, the Company issued stock...

  • Page 118
    ... included in the Company's corporate office segment results and in selling, general and administrative in the Consolidated Statements of Operations. In connection with the sale of the Publishing Subsidiaries in 2013, the Company modified the terms of 4,500 stock options affecting six employees. The...

  • Page 119
    ... at the date of grant. All options granted during 2013 were at an exercise price equal to the fair market value of the Company's common stock at the date of grant. The weighted average grant-date fair value of options granted during 2015, 2014 and 2013 was $155.00, $178.95 and $91.74, respectively...

  • Page 120
    ... 31, 2015, a Kaplan senior manager holds 7,206 Kaplan restricted shares. The fair value of Kaplan's common stock is determined by the Company's compensation committee of the Board of Directors, and in January 2016, the committee set the fair value price at $1,240 per share. During 2015 and 2013...

  • Page 121
    ... the two-class method: Year Ended December 31 2015 2014 2013 (in thousands, except per share amounts) Numerator: Numerator for basic (loss) earnings per share: (Loss) income from continuing operations attributable to Graham Holdings Company common stockholders ...Less: Dividends paid-common stock...

  • Page 122
    ... certain Corporate employees, which is being funded from the assets of the Company's pension plan. In the third quarter of 2015, the Company recorded $3.7 million related to a Special Incentive Program for certain Kaplan employees, which is being funded from the assets of the Company's pension plan...

  • Page 123
    ... 2013 early retirement program and special separation benefit expenses are included in income from discontinued operations, net of tax. The following table sets forth obligation, asset and funding information for the Company's defined benefit pension plans: Pension Plans As of December 31 2015 2014...

  • Page 124
    ...of December 31 2015 2014 Discount rate ...Rate of compensation increase ... 4.3% 4.0% 4.0% 4.0% 4.3% 4.0% 4.0% 4.0% The Company made no contributions to its pension plans in 2015, 2014 and 2013, and the Company does not expect to make any contributions in 2016. The Company made contributions to...

  • Page 125
    ...Company's defined benefit pension plans, including the portion included in discontinued operations, consists of the following components: Pension Plans Year Ended December 31 2015 2014 2013...61,032) $ 20,692 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income ...

  • Page 126
    ... 31 2015 2014 2013 Discount rate (1) Expected return on plan assets Rate of compensation increase 4.4%/4.0% 6.5% 4.0% 4.8% 6.5% 4.0% 4.0% 6.5% 4.0% 4.4%/4.0% - 4.0% 4.8% - 4.0% 4.0% - 4.0% (1) As a result of the spin-off of Cable ONE and the sale of the KHE Campuses business, the Company...

  • Page 127
    ... The Company's defined benefit pension obligations are funded by a portfolio made up of a relatively small number of stocks and high-quality fixed-income securities that are held by a thirdparty trustee. The assets of the Company's pension plans were allocated as follows: As of December 31 2015 2014...

  • Page 128
    ... these shares are readily available. These investments are classified as Level 1 in the valuation hierarchy. Other Postretirement Plans. The following table sets forth obligation, asset and funding information for the Company's other postretirement plans: Postretirement Plans As of December 31 2015...

  • Page 129
    ... the postretirement benefit obligation at December 31, 2015, was 9.18% for post-age 65, decreasing to 4.5% in the year 2024 and thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of one percentage point in the...

  • Page 130
    ... the gain on sale of Publishing Subsidiaries, which is also reported in discontinued operations. The costs for the Company's postretirement plans are actuarially determined. The discount rates utilized to determine periodic cost for the years ended December 31, 2015, 2014 and 2013, were 3.25%, 3.80...

  • Page 131
    ... withdrew from the Western Conference Teamsters Pension Trust Fund as a result of the sale of its business. The Company's total contributions to all multiemployer pension plans amounted to $0.1 million in each year for 2015, 2014 and 2013. Savings Plans. The Company recorded expense associated with...

  • Page 132
    ... due to the significance of unobservable inputs developed in the determination of the fair value. On October 1, 2014, the Company and the remaining partners completed the sale of their entire stakes in Classified Ventures. Total proceeds to the Company, net of transaction costs, were $408.5 million...

  • Page 133
    ... operations ...Unrealized gains on available-for-sale securities: Unrealized gains for the year ...Reclassification adjustment for realization of (gain) loss on exchange, sale or write-down of available-for-sale securities included in net income ...Pension and other postretirement plans: Actuarial...

  • Page 134
    ...Currency Translation Adjustment Unrealized Gain on Pensions and Other Postretirement Plans (in thousands, net of taxes) Unrealized Gain on Available-for-Sale Securities Cash Flow Hedge Accumulated Other Comprehensive Income As of December 31, 2013...December 31, 2015 ... $ ...GRAHAM HOLDINGS COMPANY

  • Page 135
    ... in the computation of net periodic pension and postretirement plan cost (see Note 14). 17. LEASES AND OTHER COMMITMENTS The Company leases real property under operating agreements. Many of the leases contain renewal options and escalation clauses that require payments of additional rent to the...

  • Page 136
    ...former Broomall campus and made inquiries about the Surgical Technology program, including the program's eligibility for Title IV U.S. Federal financial aid, the program's student loan defaults, licensing and accreditation. Kaplan responded to the information requests and 121 GRAHAM HOLDINGS COMPANY

  • Page 137
    ... judgment on March 9, 2015. Plaintiff has appealed this judgment and briefing is ongoing. Despite the sale of the nationally accredited Kaplan Higher Education Campuses business, Kaplan retains liability for these claims. On December 22, 2014, a former student representative filed a purported class...

  • Page 138
    ...Square campus closed in 2012. Kaplan Higher Education Corporation cooperated with the Massachusetts Attorney General and provided the requested information, as well as additional information requested in 2012 and 2013. In October 2014, the Attorney General's office sent Kaplan a "notice of intention...

  • Page 139
    ... evaluate, view and run its business operations, which include, but are not limited to, customers, the nature of products and services and use of resources. The business segments disclosed in the Consolidated Financial Statements are based on this organizational structure and information reviewed by...

  • Page 140
    ... announced in 2014 to close five more campuses, along with plans to consolidate facilities and reduce its workforce, and the September 2015 sale of the KHE Campuses business. On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement with Education Corporation of America (ECA) to sell...

  • Page 141
    ...office, a net pension credit and certain continuing obligations related to prior business dispositions. Geographical Information. The Company's non-U.S. revenues in 2015, 2014 and 2013 totaled approximately $660 million, $712 million and $658 million, respectively, primarily from Kaplan's operations...

  • Page 142
    Company information broken down by operating segment and education division: (in thousands) Operating Revenues Education ...Television broadcasting ...Other businesses ...Corporate office ...Intersegment elimination ...(Loss) Income from Operations Education ...Television broadcasting ...Other ...

  • Page 143
    ... Long-Lived Assets ...Pension Expense ...Higher education ...Test preparation ...Kaplan international ...Kaplan corporate and other ...Capital Expenditures Higher education ...Test preparation ...Kaplan international ...Kaplan corporate and other ...Year Ended December 31 2015 2014 2013 $ 849,625...

  • Page 144
    ...31, 2015, is as follows: (in thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Operating Revenues Education ...$500... be equal to the annual amounts reported in the Consolidated Statements of Operations due to rounding. 129 GRAHAM HOLDINGS COMPANY

  • Page 145
    ...$240,005 The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Operations due to rounding and the reduction in shares outstanding as a result of the Berkshire exchange transaction that closed on June 30, 2014. 2015 FORM 10-K 130

  • Page 146
    ... from the Classified Ventures' sale of apartments.com ...• Gain of $266.7 million from the Berkshire exchange transaction ...• Gain of $81.8 million on the sale of the corporate headquarters building ...• Losses, net, of $7.1 million for non-operating unrealized foreign currency (losses) gains...

  • Page 147
    ...in thousands, except per share amounts) 2015 2014 2013 2012 2011 Results of Operations Operating revenues ...(Loss) income from operations ...(Loss) income from continuing operations ...Net (loss) income attributable to Graham Holdings Company ...common stockholders ...Per Share Amounts Basic (loss...

  • Page 148
    ... education division Impairment charge at one of the Company's affiliates of $5.7 million ($0.72 per share) Write-down of a marketable equity security of $34.6 million ($4.34 per share) Losses, net, of $2.1 million ($0.26 per share) from non-operating unrealized foreign currency losses 2011 133...

  • Page 149
    ... Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 1, 2015). Graham Holdings Company 2012 Incentive Compensation Plan, as amended and restated effective November 29, 2013, as adjusted to reflect the spin-off of Cable ONE.* Washington Post Company...

  • Page 150
    ... principal operations include educational services, television broadcasting, and online, print and local TV news. The Company also owns a social marketing solutions company, health care providers and manufacturing companies. Graham Holdings Company ghco.com Education Kaplan Kaplan.com Kaplan Higher...

  • Page 151
    ... are accessible from the Company's website, ghco.com. COmmOn STOCk pRiCES anD DiViDEnDS Graham Holdings Company Class B common stock is traded on the New York Stock Exchange under the symbol GHC. Class A common stock is not traded publicly. STOCk TRanSFER aGEnT anD REGiSTRaR High and low sales...

  • Page 152
    GRAHAM HOLDINGS 1300 NORTH 17TH STREET SUITE 1700 ARLINGTON, VA 22209 703 345 6300 GHCO.COM