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EX-31.2 - EXHIBIT 31.2 - Graham Holdings Codex312.htm
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EX-32 - EXHIBIT 32 - Graham Holdings Codex32.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
 
ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2015
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 1-671
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)
 
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, or a smaller reporting company. See definitions of “large accelerated filer,” accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨.    No  ý.  
Shares outstanding at July 31, 2015:
Class A Common Stock – 964,001 Shares
Class B Common Stock – 4,876,593 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 Six Months Ended June 30, 2015 and 2014
 
 
 
 
b. Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2015 and 2014
 
 
 
 
c. Condensed Consolidated Balance Sheets at June 30, 2015 (Unaudited) and December 31, 2014
 
 
 
 
d. Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2015 and 2014
 
 
 
 
e. Notes to Condensed Consolidated Financial Statements (Unaudited)
 
 
 
Item 2.
Management’s Discussion and Analysis of Results of Operations and Financial Condition
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 6.
Exhibits
 
 
Signatures




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
  
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
  
 
(in thousands, except per share amounts)
2015
 
2014
 
2015
 
2014
Operating Revenues
  
 
  
 
  
 
  
Education
$
523,625

 
$
542,964

 
$
1,024,227

 
$
1,065,118

Subscriber
188,022

 
187,723

 
375,619

 
378,851

Advertising
77,457

 
82,475

 
151,484

 
160,722

Other
90,467

 
61,249

 
174,389

 
106,261

  
879,571

 
874,411

 
1,725,719

 
1,710,952

Operating Costs and Expenses
 
 
  
 
 
 
  
Operating
383,891

 
395,627

 
766,968

 
772,090

Selling, general and administrative
334,218

 
322,240

 
687,420

 
647,515

Depreciation of property, plant and equipment
61,014

 
51,989

 
119,559

 
105,206

Amortization of intangible assets
4,677

 
2,995

 
9,446

 
5,712

Impairment of long-lived assets
6,876

 

 
6,876

 

  
790,676

 
772,851

 
1,590,269

 
1,530,523

Income from Operations
88,895

 
101,560

 
135,450

 
180,429

Equity in (losses) earnings of affiliates, net
(353
)
 
91,503

 
(757
)
 
95,555

Interest income
338

 
641

 
897

 
1,240

Interest expense
(9,631
)
 
(8,557
)
 
(18,152
)
 
(17,377
)
Other income, net
11,678

 
268,114

 
10,573

 
401,387

Income from Continuing Operations Before Income Taxes
90,927

 
453,261

 
128,011

 
661,234

Provision for Income Taxes
32,500

 
78,600

 
47,000

 
156,000

Income from Continuing Operations
58,427

 
374,661

 
81,011

 
505,234

Income (Loss) from Discontinued Operations, Net of Tax

 
375,189

 
(784
)
 
376,921

Net Income
58,427

 
749,850

 
80,227

 
882,155

Net (Income) Loss Attributable to Noncontrolling Interests
(434
)
 
499

 
(1,208
)
 
718

Net Income Attributable to Graham Holdings Company
57,993

 
750,349

 
79,019

 
882,873

Redeemable Preferred Stock Dividends
(211
)
 
(212
)
 
(631
)
 
(638
)
Net Income Attributable to Graham Holdings Company Common Stockholders
$
57,782

 
$
750,137

 
$
78,388

 
$
882,235

Amounts Attributable to Graham Holdings Company Common Stockholders
  

 
  

 
  

 
  

Income from continuing operations
$
57,782

 
$
374,948

 
$
79,172

 
$
505,314

Income (loss) from discontinued operations, net of tax

 
375,189

 
(784
)
 
376,921

Net income attributable to Graham Holdings Company common stockholders
$
57,782

 
$
750,137

 
$
78,388

 
$
882,235

Per Share Information Attributable to Graham Holdings Company Common Stockholders
  

 
  

 
  

 
  

Basic income per common share from continuing operations
$
9.92

 
$
50.39

 
$
13.61

 
$
67.97

Basic income (loss) per common share from discontinued operations

 
50.41

 
(0.14
)
 
50.68

Basic net income per common share
$
9.92

 
$
100.80

 
$
13.47

 
$
118.65

Basic average number of common shares outstanding
5,720

 
7,284

 
5,712

 
7,280

Diluted income per common share from continuing operations
$
9.87

 
$
50.22

 
$
13.53

 
$
67.74

Diluted income (loss) per common share from discontinued operations

 
50.26

 
(0.13
)
 
50.52

Diluted net income per common share
$
9.87

 
$
100.48

 
$
13.40

 
$
118.26

Diluted average number of common shares outstanding
5,805

 
7,363

 
5,798

 
7,361


See accompanying Notes to Condensed Consolidated Financial Statements.

1



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
  
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
(in thousands)
2015
 
2014
 
2015
 
2014
Net Income
$
58,427

 
$
749,850

 
$
80,227

 
$
882,155

Other Comprehensive Loss, Before Tax
  
 
  
 
 
 
  
Foreign currency translation adjustments:
  
 
  
 
 
 
  
Translation adjustments arising during the period
5,249

 
1,920

 
(6,839
)
 
2,666

Adjustment for sales of businesses with foreign operations
(484
)
 

 
(525
)
 

  
4,765

 
1,920

 
(7,364
)
 
2,666

Unrealized (losses) gains on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized (losses) gains for the period, net
(11,455
)
 
8,667

 
(20,333
)
 
36,405

Reclassification adjustment for realization of (gain) loss on exchange, sale or write-down of available-for-sale securities included in net income

 
(266,059
)
 

 
(265,274
)
  
(11,455
)
 
(257,392
)
 
(20,333
)
 
(228,869
)
Pension and other postretirement plans:
  
 
  
 
  
 
  
Amortization of net prior service cost (credit) included in net income
70

 
(102
)
 
139

 
(204
)
Amortization of net actuarial loss (gain) included in net income
628

 
(7,425
)
 
1,257

 
(14,607
)
  
698

 
(7,527
)
 
1,396

 
(14,811
)
Cash flow hedge gain

 
239

 
179

 
411

Other Comprehensive Loss, Before Tax
(5,992
)
 
(262,760
)
 
(26,122
)
 
(240,603
)
Income tax benefit related to items of other comprehensive loss
4,303

 
105,874

 
7,505

 
97,308

Other Comprehensive Loss, Net of Tax
(1,689
)
 
(156,886
)
 
(18,617
)
 
(143,295
)
Comprehensive Income
56,738

 
592,964

 
61,610

 
738,860

Comprehensive (income) loss attributable to noncontrolling interests
(434
)
 
499

 
(1,208
)
 
718

Total Comprehensive Income Attributable to Graham Holdings Company
$
56,304

 
$
593,463

 
$
60,402

 
$
739,578


See accompanying Notes to Condensed Consolidated Financial Statements.

2



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
As of
(in thousands)
June 30,
2015
 
December 31,
2014
  
(Unaudited)
 
  
Assets
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
1,219,334

 
$
772,751

Restricted cash
25,848

 
24,898

Investments in marketable equity securities and other investments
200,850

 
226,752

Accounts receivable, net
533,144

 
571,357

Deferred income taxes
8,416

 
934

Inventories and contracts in progress
12,019

 
11,309

Other current assets
94,424

 
81,462

Current assets held for sale (includes $0 and $1,235 of cash, respectively)
18,999

 
1,240

Total Current Assets
2,113,034

 
1,690,703

Property, Plant and Equipment, Net
819,343

 
860,829

Investments in Affiliates
50,898

 
19,811

Goodwill, Net
1,325,761

 
1,348,710

Indefinite-Lived Intangible Assets, Net
510,966

 
516,753

Amortized Intangible Assets, Net
86,820

 
96,947

Prepaid Pension Cost
1,175,521

 
1,152,488

Deferred Charges and Other Assets
72,539

 
65,258

Noncurrent Assets Held for Sale
27,058

 
820

Total Assets
$
6,181,940

 
$
5,752,319

 
 
 
 
Liabilities and Equity
  

 
  

Current Liabilities
  

 
  

Accounts payable and accrued liabilities
$
502,312

 
$
464,342

Income taxes payable
8,230

 
128,895

Deferred revenue
348,856

 
410,146

Dividends declared
15,669

 

Short-term borrowings
7,537

 
46,375

Current liabilities held for sale
21,140

 
1,034

Total Current Liabilities
903,744

 
1,050,792

Postretirement Benefits Other Than Pensions
38,325

 
37,962

Accrued Compensation and Related Benefits
239,804

 
244,082

Other Liabilities
74,958

 
91,789

Deferred Income Taxes
757,542

 
754,960

Long-Term Debt
947,219

 
399,545

Noncurrent Liabilities Held for Sale
7,849

 

Total Liabilities
2,969,441

 
2,579,130

Redeemable Noncontrolling Interest
23,129

 
21,904

Redeemable Preferred Stock
10,510

 
10,510

Preferred Stock

 

Common Stockholders’ Equity
  

 
  

Common stock
20,000

 
20,000

Capital in excess of par value
311,901

 
303,789

Retained earnings
6,040,539

 
6,008,506

Accumulated other comprehensive income, net of tax
 
 
  

Cumulative foreign currency translation adjustment
1,184

 
8,548

Unrealized gain on available-for-sale securities
39,931

 
52,130

Unrealized gain on pensions and other postretirement plans
393,748

 
392,910

Cash flow hedge

 
(108
)
Cost of Class B common stock held in treasury
(3,628,443
)
 
(3,645,476
)
Total Common Stockholders’ Equity
3,178,860

 
3,140,299

Noncontrolling Interests

 
476

Total Equity
3,178,860

 
3,140,775

Total Liabilities and Equity
$
6,181,940

 
$
5,752,319


See accompanying Notes to Condensed Consolidated Financial Statements.

3



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  
Six Months Ended 
 June 30
(in thousands)
2015
 
2014
Cash Flows from Operating Activities
  
 
  
Net Income
$
80,227

 
$
882,155

Adjustments to reconcile net income to net cash provided by operating activities:
  
 
  
Depreciation of property, plant and equipment
119,559

 
106,822

Amortization of intangible assets
9,446

 
6,441

Intangible and other long-lived assets impairment charges
6,876

 
7,774

Net pension benefit
(22,872
)
 
(34,433
)
Early retirement program expense

 
4,490

Stock-based compensation expense, net
13,843

 
6,100

Foreign exchange loss (gain)
3,219

 
(7,946
)
Net gain on sales and disposition of businesses
(8,158
)
 
(358,963
)
Net loss (gain) on disposition or write-downs of marketable equity securities and cost method investments
250

 
(266,423
)
Gain on sale of equity affiliate
(4,827
)
 

Equity in losses (earnings) of affiliates, net of certain distributions
948

 
(98,555
)
(Benefit) provision for deferred income taxes
(1,858
)
 
3,880

Net loss (gain) on sales or write-downs of property, plant and equipment
1,258

 
(119,086
)
Change in assets and liabilities:
 
 
 
(Increase) decrease in restricted cash
(1,635
)
 
47,686

Decrease in accounts receivable, net
26,950

 
32,429

Increase (decrease) in accounts payable and accrued liabilities
47,530

 
(69,916
)
Decrease in deferred revenue
(45,219
)
 
(6,219
)
(Decrease) increase in income taxes payable
(120,480
)
 
70,580

(Increase) decrease in other assets and other liabilities, net
(28,256
)
 
1,051

Other
489

 
111

Net Cash Provided by Operating Activities
77,290

 
207,978

Cash Flows from Investing Activities
  
 
  
Purchases of property, plant and equipment
(100,240
)
 
(112,154
)
Investments in equity affiliates and cost method investments
(16,834
)
 
(2,565
)
Net proceeds from sales of businesses, property, plant and equipment and other assets
3,019

 
164,066

Investments in commercial paper

 
(199,830
)
Investments in certain businesses, net of cash acquired

 
(130,767
)
Proceeds from maturities of commercial paper

 
99,893

Net distribution from equity affiliate

 
93,481

Other

 
(5,024
)
Net Cash Used in Investing Activities
(114,055
)
 
(92,900
)
Cash Flows from Financing Activities
  
 
  
Issuance of borrowings
550,000

 

Payments of financing costs
(9,865
)
 

Repayments of borrowings
(39,343
)
 
(1,305
)
Dividends paid
(31,316
)
 
(38,148
)
Proceeds from exercise of stock options
11,302

 
4,688

Common shares repurchased, including the Berkshire Exchange transaction

 
(327,718
)
Other
5,232

 
640

Net Cash Provided by (Used in) Financing Activities
486,010

 
(361,843
)
Effect of Currency Exchange Rate Change
(3,897
)
 
2,069

Net Increase (Decrease) in Cash and Cash Equivalents
445,348

 
(244,696
)
Beginning Cash and Cash Equivalents
773,986

 
569,719

Ending Cash and Cash Equivalents
$
1,219,334

 
$
325,023


See accompanying Notes to Condensed Consolidated Financial Statements.

4



GRAHAM HOLDINGS COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
1. ORGANIZATION, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS
Graham Holdings Company (the Company), is a diversified education and media company. The Company’s Kaplan subsidiary provides a wide variety of educational services, both domestically and outside the United States. The Company’s media operations comprise the ownership and operation of cable systems and television broadcasting (through the ownership and operation of five television broadcast stations). The Company's other business operations include home health and hospice services and manufacturing.
On July 1, 2015, the Company completed the spin-off of its wholly owned subsidiary, Cable One, Inc. (Cable ONE), by way of a distribution of all the issued and outstanding shares of Cable ONE common stock, on a pro rata basis, to the Company's stockholders. The Company will reflect Cable ONE's historical financial results for the periods prior to the spin-off as discontinued operations in its consolidated financial statements beginning in the third quarter of 2015.
On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement with Education Corporation of America (ECA) to sell substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses and certain related assets, in exchange for a preferred equity interest in ECA. The transaction is contingent upon certain regulatory and accrediting agency approvals and is expected to close in the third quarter of 2015.
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 presentation 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 six months ended June 30, 2015 and 2014 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, 2014.
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.
Certain amounts in previously issued financial statements have been reclassified to conform to the current year presentation, which includes the reclassification of the results of operations of certain businesses as discontinued operations for all periods presented.
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.
Revision of Prior Period Amounts During the preparation of the 2014 financial statements, the Company concluded that its Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2014, that was previously included in the Company's quarterly reports, should be revised to correct the impact of accounts payable and accrued expenses related to capital expenditures. The Company revised its Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2014 to properly eliminate noncash capital expenditures. The result of this correction for the six months ended June 30, 2014, was an increase in net cash used in investing activities of $19.5 million, with an offsetting increase recorded to net cash provided by operating activities during the same period.

5



Management has concluded that this error is not material to the previously issued Condensed Consolidated Financial Statements, and, as a result, the Company has revised the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2014. There was no impact on the previously reported total cash and cash equivalents, Condensed Consolidated Balance Sheet or Condensed Consolidated Statement of Operations.
As detailed below, these revisions impacted the following consolidated cash flow items:
 
Six Months Ended June 30, 2014
 
As
 
 
 
 
 
Previously
 
 
 
As
(in thousands)
Reported
 
Revision
 
Revised
Cash Flows from Operating Activities
  
 
  
 
  
Decrease in Accounts Payable and Accrued Liabilities
$
(89,443
)
 
$
19,527

 
$
(69,916
)
Net Cash Provided by Operating Activities
188,451

 
19,527

 
207,978

 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
Purchases of Property, Plant and Equipment
$
(92,627
)
 
$
(19,527
)
 
$
(112,154
)
Net Cash Used in Investing Activities
(73,373
)
 
(19,527
)
 
(92,900
)
Assets Held for Sale – An asset or business is classified as held for sale when (i) management commits to a plan to sell the asset or business; (ii) the asset or business is available for immediate sale in its present condition; (iii) the asset or business is actively marketed for sale at a reasonable price; (iv) the sale is expected to be completed within one year; and (v) it is unlikely significant changes to the plan will be made or that the plan will be withdrawn. The assets and related liabilities are aggregated and reported separately in the Company’s condensed consolidated balance sheet.
Recently Adopted and Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued comprehensive new guidance that supersedes all existing revenue recognition guidance. The new guidance requires revenue to be recognized when 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. This guidance is effective for interim and fiscal years beginning after December 15, 2016. Early adoption is not permitted. The standard permits two implementation approaches, one requiring retrospective application of the new guidance with a restatement of prior years and one requiring prospective application of the new guidance with disclosure of results under the old guidance. The Company is in the process of evaluating the impact of this new guidance on its Consolidated Financial Statements and believes such evaluation will extend over several future periods because of the significance of the changes to the Company’s policies and business processes.
In August 2014, the FASB issued new guidance that requires management to assess the Company’s ability to continue as a going concern and to provide related disclosures in certain circumstances. This guidance is effective for interim and fiscal years ending after December 15, 2016, with early adoption permitted. The Company does not expect this guidance to have an impact on its Consolidated Financial Statements.
2. DISCONTINUED OPERATIONS
In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International. An additional school in China was sold by Kaplan in January of 2015 which resulted in a pre-tax loss of $0.7 million.
On June 30, 2014, the Company and Berkshire Hathaway Inc. completed a transaction, as described in Note 4, in which Berkshire acquired a wholly-owned subsidiary of the Company that included, among other things, WPLG, a Miami-based television station; a $375.0 million gain from the WPLG sale was recorded in the second quarter of 2014.
The results of operations of the schools in China and WPLG are included in the Company’s Condensed Consolidated Statements of Operations as Income (Loss) from Discontinued Operations, Net of Tax, for all periods presented. The Company did not reclassify its Statements of Cash Flows or prior Condensed Consolidated Balance Sheets to reflect the various discontinued operations.

6



In the first quarter of 2014, an after-tax adjustment of $3.0 million was made to reduce the $100.0 million after-tax gain on the sale of the Publishing Subsidiaries previously reported in the fourth quarter of 2013, as a result of changes in estimates related to liabilities retained as part of the sale.
The summarized income (loss) from discontinued operations, net of tax, is presented below:
  
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
  
 
(in thousands)
2015
 
2014
 
2015
 
2014
Operating revenues
$

 
$
25,125

 
$

 
$
45,419

Operating costs and expenses

 
(23,862
)
 

 
(37,355
)
Income from discontinued operations

 
1,263

 

 
8,064

Provision from income taxes

 
1,113

 

 
3,139

Net Income from Discontinued Operations

 
150

 

 
4,925

Gain (loss) on sales of discontinued operations

 
358,964

 
(732
)
 
354,227

(Benefit) expense from income taxes on sales of discontinued operations

 
(16,075
)
 
52

 
(17,769
)
Income (Loss) from Discontinued Operations, Net of Tax
$

 
$
375,189

 
$
(784
)
 
$
376,921

3. INVESTMENTS
As of June 30, 2015 and December 31, 2014, the Company had commercial paper and money market investments of $1,040.2 million and $594.3 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
  
June 30,
2015
 
December 31,
2014
(in thousands)
 
Total cost
$
106,909

 
$
106,909

Net unrealized gains
66,551

 
86,884

Total Fair Value
$
173,460

 
$
193,793

There were no new investments in marketable equity securities during the first six months of 2015 and 2014. There were no sales of marketable equity securities in the first six months of 2015. In the first quarter of 2014, the Company recorded a $0.5 million write-down of the Company's investment in Corinthian Colleges, Inc., a publicly traded company. In the second quarter of 2014, the Company sold its remaining investment in Corinthian Colleges, Inc. During the first six months of 2014, the proceeds from sales of these marketable securities were $5.8 million and net realized losses were $2.6 million.
On June 30, 2014, the Company completed a transaction with Berkshire Hathaway, as described in Note 4, that included the exchange of 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by the Company; a $266.7 million gain was recorded.
In the second quarter of 2015, the Company acquired an approximate 20% in HomeHero, a company that created and manages an online senior home care marketplace, which is accounted for as an investment in affiliate. As of June 30, 2015, the Company also held a 40% interest in Residential Home Health Illinois, a 42.5% interest in Residential Hospice Illinois, a 40% interest in the joint venture formed between Celtic Healthcare and Allegheny Health Network (AHN) and interests in several other affiliates (see Note 4).
On April 1, 2014, the Company received a gross cash distribution of $95.0 million from Classified Ventures' sale of apartments.com. In connection with this sale, the Company recorded a pre-tax gain of $90.9 million in the second quarter of 2014.
4. ACQUISITIONS, DISPOSITIONS, EXCHANGES AND OTHER
Cable ONE Spin-Off. On July 1, 2015, the Company completed the spin-off of Cable ONE, by way of a distribution of all the issued and outstanding shares of Cable ONE common stock, on a pro rata basis, to the Company's stockholders. Cable ONE is now an independent, publicly traded company. The transaction was structured as a tax-free spin-off of Cable ONE for U.S. Federal income tax purposes. Following the spin-off, the Company does not beneficially own any shares of Cable ONE common stock and will not consolidate the financial results of Cable ONE for the purposes of its own reporting for periods after June 30, 2015. The Company will reflect Cable ONE's historical financial results for the periods prior to the spin-off as discontinued operations in its condensed consolidated financial statements beginning in the third quarter of 2015.

7



Prior to the spin-off, Cable ONE distributed $450 million in cash to the Company using the proceeds from their issuance of unsecured notes of $450 million (see Note 6) in June 2015. Also, in connection with the spin-off, the Company modified the terms of 10,830 restricted stock awards in the second quarter of 2015 affecting 21 Cable ONE employees. The modification resulted in the acceleration of the vesting period of 6,324 restricted stock awards and the forfeiture of 4,506 restricted stock awards. The Company recorded incremental stock compensation expense, net of forfeitures, in the second quarter of 2015 amounting to $3.7 million, which is included in selling, general and administrative expense in the condensed consolidated statement of operations and within the Cable segment operating results.
The spin-off resulted in a modification of some of the Company’s outstanding restricted stock awards and stock options due to the equity restructuring on July 1, 2015. The holders of restricted stock awards received Cable ONE restricted common stock, on a pro rata basis, as part of the distribution, while the stock options were modified to add an antidilution provision. The modification of the stock awards resulted in an estimated incremental stock compensation expense of $3.0 million that will be recognized over the remaining service periods of the unvested restricted stock awards through the end of 2018. The modification of some of the stock options resulted in an estimated incremental stock compensation expense of $23.5 million, of which $18.8 million related to fully vested stock options that will be recognized as a one-time expense in the third quarter of 2015, with the remaining $4.7 million recognized over the remaining service periods of the unvested stock options through the end of 2018.
As a result of the spin-off, the Company remeasured the accumulated and projected benefit obligation of the pension and SERP as of July 1, 2015, and the Company expects to record a curtailment and settlement gain in the third quarter of 2015.
Acquisitions.  In the first six months of 2015, the Company did not make any acquisitions. In the first six months of 2014, the Company acquired six business included in other businesses and in its education division totaling $133.5 million; the purchase price allocation comprised goodwill, other intangible assets, property, plant and equipment, and other current assets.
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 acquisition of Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems. On July 3, 2014, the Company completed its acquisition of an 80% interest in Residential Healthcare Group, Inc., the parent company of Residential Home Health and Residential Hospice, providers of skilled home health care and hospice services in Michigan and Illinois. Residential Healthcare Group, Inc. has a 40% ownership interest in Residential Home Health Illinois and a 42.5% ownership interest in Residential Hospice Illinois, which are accounted for as investments in affiliates. The operating results of these businesses are included in other businesses.
Dispositions. In the second quarter of 2015, the Company sold The Root, a component of Slate, and Kaplan sold two small businesses, Structuralia, which was part of Kaplan International, and Fire and EMS Training, which was part of Kaplan Higher Education. As a result of these sales, the Company reported gains in other non-operating income (see Note 10). In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International. In January 2015, Kaplan completed the sale of an additional school in China.
On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement with Education Corporation of America (ECA) to sell substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses and certain related assets, in exchange for a preferred equity interest in ECA. KHE Campuses schools that have been closed or are in the process of closing are not included in the sale transaction. The transaction is contingent upon certain regulatory and accrediting agency approvals and is expected to close in the third quarter of 2015. The KHE Campuses business disposal group is reported in assets held for sale at June 30, 2015. The revenue and operating losses related to schools that are being sold as part of the ECA transaction are as follows:
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
(in thousands)
 
2015
 
2014
 
2015
 
2014
Revenue
 
$
63,036

 
$
67,205

 
$
124,123

 
$
136,263

Operating loss
 
(4,287
)
 
(4,531
)
 
(7,301
)
 
(7,507
)

8



The carrying amounts of the major classes of assets and liabilities held for sale at June 30, 2015 are as follows:
 
As of
(in thousands)
June 30, 2015
Restricted cash
$
685

Accounts receivable, net
13,308

Other current assets
5,006

Current Assets Held for Sale
$
18,999

Property, plant and equipment, net
$
12,101

Goodwill, net
7,526

Indefinite-lived intangible assets
5,787

Amortized intangible assets, net
951

Deferred charges and other assets
693

Noncurrent Assets Held for Sale
$
27,058

Accounts payable and accrued liabilities
$
11,139

Deferred revenue
10,001

Current Liabilities Held for Sale
$
21,140

Other liabilities
$
7,849

Noncurrent Liabilities Held for Sale
$
7,849

In the second quarter of 2015, Kaplan recorded a $6.9 million long-lived assets impairment charge in connection with the KHE Campuses business, of which $4.7 million was an unfavorable out of period expense adjustment related to the first 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 the first or second quarter of 2015, based on its consideration of quantitative and qualitative factors.
Exchanges. On June 30, 2014, the Company and Berkshire Hathaway Inc. completed a previously announced transaction in which Berkshire acquired a wholly-owned subsidiary of the Company that included, among other things, WPLG, a Miami-based television station, 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by Graham Holdings and $327.7 million in cash, in exchange for 1,620,190 shares of Graham Holdings Class B common stock owned by Berkshire Hathaway (Berkshire exchange transaction).
Other. In January 2015, Celtic and AHN closed on the formation of a joint venture to combine each other’s home health and hospice assets in the western Pennsylvania region. Although Celtic manages the operations of the joint venture, Celtic 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. Celtic’s revenues from the western Pennsylvania region that are now part of the joint venture made up 29% of total Celtic revenues in 2014.
The Company’s income from continuing operations excludes the sold Kaplan China schools and WPLG, which have been reclassified to discontinued operations, net of tax (see Note 2). 
5. GOODWILL AND OTHER INTANGIBLE ASSETS
In the second quarter of 2014, as a result of regulatory changes impacting Kaplan's operations in China, Kaplan recorded an intangible asset impairment charge of $7.8 million, reported in discontinued operations. The Company estimated the fair value of the student and customer relationships using an income approach.
Amortization of intangible assets for the three months ended June 30, 2015 and 2014 was $4.7 million and $3.0 million, respectively. Amortization of intangible assets for the six months ended June 30, 2015 and 2014 was $9.4 million and $5.7 million, respectively. Amortization of intangible assets is estimated to be approximately $9 million for the remainder of 2015, $17 million in 2016, $14 million in 2017, $13 million in 2018, $12 million in 2019 and $22 million thereafter.

9



The changes in the carrying amount of goodwill, by segment, were as follows:
(in thousands)
Education
 
Cable
 
Television
Broadcasting
 
Other
Businesses
 
Total
Balance as of December 31, 2014
  
 
  
 
  
 
  
 
  
Goodwill
$
1,057,226

 
$
85,488

 
$
168,345

 
$
145,992

 
$
1,457,051

Accumulated impairment losses
(102,259
)
 

 

 
(6,082
)
 
(108,341
)
 
954,967

 
85,488

 
168,345

 
139,910

 
1,348,710

Measurement period adjustment

 

 

 
4,570

 
4,570

Dispositions
(1,298
)
 

 

 
(7,819
)
 
(9,117
)
Reclassification to assets held for sale
(7,526
)
 

 

 

 
(7,526
)
Foreign currency exchange rate changes
(10,876
)
 

 

 

 
(10,876
)
Balance as of June 30, 2015
  

 
  

 
  

 
  

 
  

Goodwill
1,037,526

 
85,488

 
168,345

 
142,743

 
1,434,102

Accumulated impairment losses
(102,259
)
 

 

 
(6,082
)
 
(108,341
)
 
$
935,267

 
$
85,488

 
$
168,345

 
$
136,661

 
$
1,325,761

The Company recorded a $4.6 million measurement period adjustment in the second quarter of 2015 upon the finalization of the purchase accounting related to deferred income taxes in connection with the acquisition of Residential Healthcare, Inc. The balance sheet as of December 31, 2014 has not been revised for the measurement period adjustment as the Company believes it is not material to the Company's financial position.
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
Balance as of December 31, 2014
  
 
  
 
  
 
  
Goodwill
$
409,884

 
$
166,098

 
$
481,244

 
$
1,057,226

Accumulated impairment losses

 
(102,259
)
 

 
(102,259
)
 
409,884

 
63,839

 
481,244

 
954,967

Dispositions
(559
)
 

 
(739
)
 
(1,298
)
Reclassification to assets held for sale
(7,526
)
 

 

 
(7,526
)
Foreign currency exchange rate changes
(124
)
 

 
(10,752
)
 
(10,876
)
Balance as of June 30, 2015
  

 
  

 
  

 
  

Goodwill
401,675

 
166,098

 
469,753

 
1,037,526

Accumulated impairment losses

 
(102,259
)
 

 
(102,259
)
 
$
401,675

 
$
63,839

 
$
469,753

 
$
935,267

Other intangible assets consist of the following:
 
 
 
As of June 30, 2015
 
As of December 31, 2014
(in thousands)
Useful Life
Range
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Amortized Intangible Assets
  
 
  
 
  
 
  
 
  
 
  
 
  
Noncompete agreements
2–5 years
 
$
1,681

 
$
1,151

 
$
530

 
$
2,500

 
$
1,590

 
$
910

Student and customer relationships
2–10 years
 
101,259

 
49,320

 
51,939

 
104,685

 
47,539

 
57,146

Databases and technology
3–5 years
 
10,518

 
9,204

 
1,314

 
10,501

 
8,827

 
1,674

Trade names and trademarks
2–10 years
 
53,655

 
21,742

 
31,913

 
55,452

 
19,724

 
35,728

Other
1–25 years
 
6,316

 
5,192

 
1,124

 
8,969

 
7,480

 
1,489

  
  
 
$
173,429

 
$
86,609

 
$
86,820

 
$
182,107

 
$
85,160

 
$
96,947

Indefinite-Lived Intangible Assets
  
 
  
 
  

 
  

 
  
 
  

 
  

Franchise agreements
  
 
$
496,321

 
  

 
  

 
$
496,321

 
  

 
  

Licensure and accreditation
  
 
994

 
  

 
  

 
6,781

 
  

 
  

Other
  
 
13,651

 
  

 
  

 
13,651

 
  

 
  

 
  
 
$
510,966

 
 
 
 
 
$
516,753

 
 
 
 

10



6. DEBT
The Company’s borrowings consist of the following:
  
As of
  
June 30,
2015
 
December 31,
2014
(in thousands)
 
7.25% unsecured notes due February 1, 2019
$
398,515

 
$
398,308

Cable ONE 5.75% unsecured notes due June 15, 2022
450,000

 

Cable ONE term loan
100,000

 

AUD Revolving credit borrowing

 
40,927

Other indebtedness
6,241

 
6,685

Total Debt
954,756

 
445,920

Less: current portion
(7,537
)
 
(46,375
)
Total Long-Term Debt
$
947,219

 
$
399,545

The Company’s other indebtedness at June 30, 2015 is at interest rates from 3.8% to 6% and matures from 2015 to 2017. The Company’s other indebtedness at December 31, 2014 is at interest rates from 0% to 6% and matures from 2015 to 2017.
On June 17, 2015, Cable ONE issued $450 million in unsecured seven-year fixed-rate notes due on June 15, 2022 (the Notes). The Notes have a coupon rate of 5.75% per annum, payable semiannually on June 15 and December 15, beginning December 15, 2015. Cable ONE subsequently used the net proceeds from the sale of the Notes and other cash on hand to pay a special one-time cash dividend to the Company of $450 million in connection with the Cable ONE spin-off. Under the terms of the Notes, unless Cable ONE has exercised its right to redeem the Notes, Cable ONE is required to offer to repurchase the Notes in cash at 101% of the principal amount, plus accrued and unpaid interest, upon the occurrence of a Change of Control.
On June 30, 2015, Cable ONE entered into a Credit Agreement (the Cable ONE Credit Agreement) among Cable ONE, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents party thereto. The Cable ONE Credit Agreement provides for a five-year revolving credit facility in an aggregate principal amount of $200 million (the Revolving Credit Facility) and a five-year term loan facility in an aggregate principal amount of $100 million (the Term Loan Facility and, together with the Revolving Credit Facility, the Senior Credit Facilities). Concurrent with its entry into the Cable ONE Credit Agreement, Cable ONE borrowed the full amount of the Term Loan Facility. Borrowings under the Senior Credit Facilities will bear interest, at Cable ONE’s option, at a rate per annum determined by reference to either LIBOR or an adjusted base rate, in each case plus an applicable interest rate margin. The applicable interest rate margin with respect to LIBOR borrowings will be a rate per annum between 1.50% and 2.25% and the applicable interest rate margin with respect to adjusted base rate borrowings will be a rate per annum between 0.50% and 1.25%, in each case determined on a quarterly basis by reference to a pricing grid based upon Cable ONE’s total net leverage ratio. Borrowings under the Senior Credit Facilities will initially bear interest at LIBOR plus 1.50% per annum or at the adjusted base rate plus 0.50%. In addition, Cable ONE will be required to pay commitment fees on any unused portion of the Revolving Credit Facility at a rate between 0.25% per annum and 0.40% per annum, determined by reference to the pricing grid. The Senior Credit Facilities may be prepaid at any time without premium. The Term Loan Facility will amortize in equal quarterly installments at a rate of 2.5% per annum in the first year after funding, 5.0% per annum in the second year after funding, 7.5% per annum in the third year after funding, 10.0% per annum in the fourth year after funding and 15.0% per annum in the fifth year after funding, with the outstanding balance of the Term Loan Facility to be paid on the fifth anniversary of funding.
With the Cable ONE spin-off effective on July 1, 2015, the Cable ONE debt is no longer an obligation of the Company.
On June 17, 2015, the Company terminated its U.S. $450 million, AUD 50 million four-year revolving credit facility dated June 17, 2011. No borrowings were outstanding under the 2011 Credit Agreement at the time of termination. On June 29, 2015, the Company entered into a credit agreement (the Credit Agreement) providing for a new U.S. $200 million five-year revolving credit facility (the Facility) with each of the lenders party thereto, Wells Fargo Bank, National Association as Administrative Agent (Wells Fargo), JPMorgan Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, National Association, as Documentation Agent (the Credit Agreement). The Company is required to pay a commitment fee on a quarterly basis, based on the Company's leverage ratio, of between 0.15% and 0.25% of the amount of the Facility. Any borrowings are made on an unsecured 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 the Credit Agreement which is generally a periodic rate equal to LIBOR, in each case plus an applicable margin that depends on the Company’s consolidated debt to consolidated adjusted EBITDA (as determined pursuant to the Credit Agreement, “leverage ratio”). The Company may draw on the Facility

11



for general corporate purposes. The Facility will expire on July 1, 2020, unless the Company and the banks agree to extend the term. Any outstanding borrowings must be repaid on or prior to the final termination date. The 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 Credit Agreement.
On March 9, 2015, the Company repaid the AUD 50 million borrowed under its revolving credit facility. On the same day, the AUD 50 million interest rate swap agreements matured.
During the three months ended June 30, 2015 and 2014, the Company had average borrowings outstanding of approximately $454.4 million and $452.5 million, respectively, at average annual interest rates of approximately 6.8% and 7.0%, respectively. During the three months ended June 30, 2015 and 2014, the Company incurred net interest expense of $9.3 million and $7.9 million, respectively.
During the six months ended June 30, 2015 and 2014, the Company had average borrowings outstanding of approximately $450.2 million and $451.8 million, respectively, at average annual interest rates of approximately 7.0%. During the six months ended June 30, 2015 and 2014, the Company incurred net interest expense of $17.3 million and $16.1 million, respectively.
At June 30, 2015, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $447.0 million, compared with the carrying amount of $398.5 million. At December 31, 2014, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $450.3 million, compared with the carrying amount of $398.3 million. At June 30, 2015, the estimated fair value of Cable ONE's 5.75% unsecured notes and term loan were the same as the carrying amounts of $450.0 million and $100.0 million, respectively, due to the close proximity to the debt instruments’ issuance date. The carrying value of the Company’s other unsecured debt at June 30, 2015 approximates fair value.
7. FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:
 
As of June 30, 2015
(in thousands)
Level 1
 
Level 2
 
Total
Assets
  
 
  
 
  
Money market investments (1) 
$

 
$
690,452

 
$
690,452

Commercial paper (2)
349,794

 

 
349,794

Marketable equity securities (3) 
173,460

 

 
173,460

Other current investments (4) 
11,311

 
16,079

 
27,390

Total Financial Assets
$
534,565

 
$
706,531

 
$
1,241,096

Liabilities
  
 
  
 
  
Deferred compensation plan liabilities (5) 
$

 
$
69,280

 
$
69,280

7.25% unsecured notes (6) 

 
447,000

 
447,000

Cable ONE 5.75% unsecured notes (6)

 
450,000

 
450,000

Cable ONE term loan (6)

 
100,000

 
100,000

Total Financial Liabilities
$

 
$
1,066,280

 
$
1,066,280

____________
(1)
The Company’s money market investments are included in cash, cash equivalents and restricted cash.
(2)
The Company's commercial paper investments with original maturities of 90 days or less are included in cash and cash equivalents.
(3)
The Company’s investments in marketable equity securities are classified as available-for-sale.
(4)
Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits.
(5)
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.
(6)
See Note 6 for carrying amount of these notes and borrowing. The fair value of long-term debt is determined based on a number of observable inputs, including the current market activity of the Company’s publicly traded notes, trends in investor demands and market values of comparable publicly traded debt.


12



 
As of December 31, 2014
(in thousands)
Level 1
 
Level 2
 
Total
Assets
  
 
  
 
  
Money market investments (1) 
$

 
$
368,131

 
$
368,131

Commercial paper (2)
226,197

 

 
226,197

Marketable equity securities (3) 
193,793

 

 
193,793

Other current investments (4) 
11,788

 
21,171

 
32,959

Total Financial Assets
$
431,778

 
$
389,302

 
$
821,080

Liabilities
  
 
  
 
  
Deferred compensation plan liabilities (5) 
$

 
$
70,661

 
$
70,661

7.25% unsecured notes (6) 

 
450,344

 
450,344

AUD revolving credit borrowing (6) 

 
40,927

 
40,927

Interest rate swap (7) 

 
179

 
179

Total Financial Liabilities
$

 
$
562,111

 
$
562,111

____________
(1)
The Company’s money market investments are included in cash, cash equivalents and restricted cash.
(2)
The Company's commercial paper investments with original maturities of 90 days or less are included in cash and cash equivalents.
(3)
The Company’s investments in marketable equity securities are classified as available-for-sale.
(4)
Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits.
(5)
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.
(6)
See Note 6 for carrying amount of these notes and borrowing. The fair value of long-term debt is determined based on a number of observable inputs, including the current market activity of the Company’s publicly traded notes, trends in investor demands and market values of comparable publicly traded debt.
(7)
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.
In the second quarter of 2015, the Company recorded a long-lived asset impairment charge of $6.9 million. In the second quarter of 2014, the Company recorded an intangible asset impairment charge of $7.8 million, reported in discontinued operations (see Note 5). The remeasurements of these long-lived and intangible assets are classified as Level 3 fair value assessments due to the significance of unobservable inputs developed in the determination of the fair values.
8. EARNINGS PER SHARE
On June 30, 2014, the Company acquired 1,620,190 of its Class B common stock owned by Berkshire Hathaway, as described in Note 4.
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.

13



The following reflects the Company's income from continuing operations and share data used in the basic and diluted earnings per share computations using the two-class method:
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
(in thousands, except per share amounts)
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Numerator for basic earnings per share:
  
 
  
 
  
 
  
Income from continuing operations attributable to Graham Holdings Company common stockholders
$
57,782

 
$
374,948

 
$
79,172

 
$
505,314

Less: Dividends-common stock outstanding and unvested restricted shares
(15,484
)
 
(14,819
)
 
(46,354
)
 
(52,494
)
Undistributed earnings
42,298

 
360,129

 
32,818

 
452,820

Percent allocated to common stockholders
98.18
%
 
97.88
%
 
98.18
%
 
97.88
%
 
41,527

 
352,507

 
32,220

 
443,236

Add: Dividends-common stock outstanding
15,201

 
14,506

 
45,506

 
51,556

Numerator for basic earnings per share
$
56,728

 
$
367,013

 
$
77,726

 
$
494,792

Add: Additional undistributed earnings due to dilutive stock options
4

 
31

 
3

 
40

Numerator for diluted earnings per share
$
56,732

 
$
367,044

 
$
77,729

 
$
494,832

Denominator:
  

 
  

 
 
 
 
Denominator for basic earnings per share:


 


 


 


Weighted average shares outstanding
5,720

 
7,284

 
5,712

 
7,280

Add: Effect of dilutive stock options
30

 
24

 
32

 
24

Denominator for diluted earnings per share
5,750

 
7,308

 
5,744

 
7,304

Graham Holdings Company Common Stockholders:
  
 
  
 
  
 
  
Basic earnings per share from continuing operations
$
9.92

 
$
50.39

 
$
13.61

 
$
67.97

Diluted earnings per share from continuing operations
$
9.87

 
$
50.22

 
$
13.53

 
$
67.74

Diluted earnings 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 
 June 30
 
Six Months Ended 
 June 30
(in thousands)
2015
 
2014
 
2015
 
2014
Weighted average restricted stock
55

 
55

 
54

 
57

The diluted earnings per share amounts for the three and six months ended June 30, 2015 exclude the effects of 50,000 stock options outstanding as their inclusion would have been antidilutive. The diluted earnings per share amounts for the three and six months ended June 30, 2014 exclude the effects of 5,000 stock options outstanding as their inclusion would have been antidilutive. The diluted earnings per share amounts for the three and six months ended June 30, 2015 exclude the effects of 5,850 restricted stock awards as their inclusion would have been antidilutive. The diluted earnings per share amounts for the three and six months ended June 30, 2014 exclude the effects of 5,550 restricted stock awards, as their inclusion would have been antidilutive.
In the three and six months ended June 30, 2015 the Company declared regular dividends totaling $2.65 and $7.95, respectively. In the three and six months ended June 30, 2014, the Company declared regular dividends totaling $2.55 and $7.65, respectively.
9. PENSION AND POSTRETIREMENT PLANS
Defined Benefit Plans. The total benefit arising from the Company’s defined benefit pension plans, including a portion included in discontinued operations, consists of the following components:
  
Three Months Ended June 30
 
Six Months Ended June 30
(in thousands)
2015
 
2014
 
2015
 
2014
Service cost
$
7,251

 
$
6,976

 
$
14,503

 
$
14,513

Interest cost
12,781

 
12,894

 
25,561

 
25,976

Expected return on assets
(31,553
)
 
(30,504
)
 
(63,098
)
 
(60,767
)
Amortization of prior service cost
81

 
82

 
162

 
164

Recognized actuarial gain

 
(7,281
)
 

 
(14,319
)
Net Periodic Benefit
(11,440
)
 
(17,833
)
 
(22,872
)
 
(34,433
)
Early retirement programs expense

 

 

 
4,490

Total Benefit
$
(11,440
)
 
$
(17,833
)
 
$
(22,872
)
 
$
(29,943
)

14



For the three and six months ended June 30, 2014, the net periodic benefit for the Company's pension plans, as reported above, includes costs of $0.1 million and $0.2 million, respectively, reported in discontinued operations.
In the first quarter of 2014, the Company recorded $4.5 million related to a Separation Incentive Program for certain Corporate employees, which is being funded from the assets of the Company's pension plan. In June 2014, the Company announced that a Voluntary Retirement Incentive Program was offered to certain Corporate employees; the related expense was recorded in the third quarter of 2014.
The total cost arising from the Company’s Supplemental Executive Retirement Plan (SERP), including a portion included in discontinued operations, consists of the following components:
  
Three Months Ended June 30
 
Six Months Ended June 30
(in thousands)
2015
 
2014
 
2015
 
2014
Service cost
$
509

 
$
373

 
$
1,018

 
$
746

Interest cost
1,135

 
1,086

 
2,270

 
2,171

Amortization of prior service cost
114

 
11

 
228

 
23

Recognized actuarial loss
877

 
375

 
1,755

 
750

Net Periodic Cost
$
2,635

 
$
1,845

 
$
5,271

 
$
3,690

For the three and six months ended June 30, 2014, the net periodic cost for the Company's SERP, as reported above, includes costs of $0.1 million and $0.2 million, respectively, reported in discontinued operations.
Cable ONE Spin-Off. On July 1, 2015, as part of the spin-off, Cable ONE assumed the liability related to their employees participating in the Company's SERP, and the Company eliminated the accrual of pension benefits for all Cable ONE employees related to their future service. As a result, the Company remeasured the accumulated and projected benefit obligation of the pension and SERP as of July 1, 2015, and the Company expects to record a curtailment and settlement gain in the third quarter of 2015. The new measurement basis will be used for the recognition of the Company's pension and SERP (credit) cost beginning in the third quarter of 2015.
Defined Benefit Plan Assets. 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 third-party trustee. The assets of the Company’s pension plan were allocated as follows:
  
As of
  
June 30,
2015
 
December 31,
2014
  
 
U.S. equities
49
%
 
59
%
U.S. fixed income
16
%
 
13
%
International equities
35
%
 
28
%
  
100
%
 
100
%
Essentially all of the assets are actively managed by two investment companies. The goal of the investment managers is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both of these 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. The investment managers cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway or 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 by the Plan administrator. As of June 30, 2015, the managers can invest no more than 24% of the assets 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. None of the assets is managed internally by the Company.
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 June 30, 2015. 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 June 30, 2015, the pension plan held common stock in one investment that exceeded 10% of total plan assets, valued at $723.1 million, or 27% of total plan assets. At December 31, 2014, the pension plan held common stock in two investments that exceeded 10% of total plan assets, valued at $730.6 million, or 30% of total plan assets. At June 30, 2015 and December 31, 2014, the pension plan held investments in one foreign country that exceeded 10% of total plan assets. These investments were

15



valued at $725.0 million and $468.0 million at June 30, 2015 and December 31, 2014, respectively, or approximately 27% and 19%, respectively, 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 June 30
 
Six Months Ended June 30
(in thousands)
2015
 
2014
 
2015
 
2014
Service cost
$
333

 
$
375

 
$
666

 
$
750

Interest cost
324

 
362

 
649

 
724

Amortization of prior service credit
(125
)
 
(195
)
 
(251
)
 
(391
)
Recognized actuarial gain
(249
)
 
(519
)
 
(498
)
 
(1,038
)
Net Periodic Cost
$
283

 
$
23

 
$
566

 
$
45

10. OTHER NON-OPERATING INCOME
A summary of non-operating income is as follows:
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
(in thousands)
2015
 
2014
 
2015
 
2014
Additional gain on sale of Classified Ventures
$
4,827

 
$

 
$
4,827

 
$

Foreign currency gain (loss), net
3,608

 
2,909

 
(3,219
)
 
7,946

Gain on sales of businesses
2,918

 

 
2,918

 

Gain on formation of joint venture

 

 
5,972

 

Gain on Berkshire marketable equity securities exchange

 
266,733

 

 
266,733

Gain on sale of headquarters building

 

 

 
127,670

Losses on sales or write-down of marketable equity securities

 
(2,259
)
 

 
(3,044
)
Other, net
325

 
731

 
75

 
2,082

Total Other Non-Operating Income
$
11,678

 
$
268,114

 
$
10,573

 
$
401,387

In the second quarter of 2015, the Company sold The Root and Kaplan sold two small businesses for a total gain of $2.9 million.
In the second quarter of 2015, the Company benefited from a favorable $4.8 million out of period adjustment to the gain on the sale of Classified Ventures related to the fourth quarter of 2014. 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 2015 and 2014 and the related interim periods, based on its consideration of quantitative and qualitative factors.
In January 2015, Celtic contributed assets to a joint venture entered into with AHN in exchange for a 40% equity interest, resulting in the Company recording a $6.0 million gain (see Note 4). 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.
On June 30, 2014, the Company completed a transaction with Berkshire Hathaway, as described in Note 4 that included the exchange of 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by the Company; a $266.7 million gain was recorded.
On March 27, 2014, the Company completed the sale of its headquarters building for $158 million. In connection with the sale, the Company recorded a $127.7 million pre-tax gain.

16



11. ACCUMULATED OTHER COMPREHENSIVE INCOME
The other comprehensive loss consists of the following components:
 
Three Months Ended June 30
  
2015
 
2014
  
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
$
5,249

 
$

 
$
5,249

 
$
1,920

 
$

 
$
1,920

Adjustment for sales of businesses with foreign operations
(484
)
 

 
(484
)
 

 

 

  
4,765

 

 
4,765

 
1,920

 

 
1,920

Unrealized (losses) gains on available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
Unrealized (losses) gains for the period, net
(11,455
)
 
4,582

 
(6,873
)
 
8,667

 
(3,466
)
 
5,201

Reclassification adjustment for realization of (gain) loss on exchange or sale of available-for-sale securities included in net income

 

 

 
(266,059
)
 
106,424

 
(159,635
)
  
(11,455
)
 
4,582

 
(6,873
)
 
(257,392
)
 
102,958

 
(154,434
)
Pension and other postretirement plans:
  
 
  
 
  
 
  
 
  
 
  
Amortization of net prior service cost (credit) included in net income
70

 
(28
)
 
42

 
(102
)
 
41

 
(61
)
Amortization of net actuarial loss (gain) included in net income
628

 
(251
)
 
377

 
(7,425
)
 
2,970

 
(4,455
)
 
698

 
(279
)
 
419

 
(7,527
)
 
3,011

 
(4,516
)
Cash flow hedge:
  
 
  
 
  
 
  
 
  
 
  
Gain for the period

 

 

 
239

 
(95
)
 
144

Other Comprehensive Loss
$
(5,992
)
 
$
4,303

 
$
(1,689
)
 
$
(262,760
)
 
$
105,874

 
$
(156,886
)
  
Six Months Ended June 30
  
2015
 
2014
  
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
$
(6,839
)
 
$

 
$
(6,839
)
 
$
2,666

 
$

 
$
2,666

Adjustment for sales of businesses with foreign operations
(525
)
 

 
(525
)
 

 

 

  
(7,364
)
 

 
(7,364
)
 
2,666

 

 
2,666

Unrealized (losses) gains on available-for-sale securities:
 
 
  
 
  
 
  
 
  
 
  
Unrealized (losses) gains for the period, net
(20,333
)
 
8,134

 
(12,199
)
 
36,405

 
(14,562
)
 
21,843

Reclassification adjustment for realization of (gain) loss on exchange, sale or write-down of available-for-sale securities included in net income

 

 

 
(265,274
)
 
106,110

 
(159,164
)
  
(20,333
)
 
8,134

 
(12,199
)
 
(228,869
)
 
91,548

 
(137,321
)
Pension and other postretirement plans:
  
 
  
 
  
 
  
 
  
 
  
Amortization of net prior service cost (credit) included in net income
139

 
(55
)
 
84

 
(204
)
 
81

 
(123
)
Amortization of net actuarial loss (gain) included in net income
1,257

 
(503
)
 
754

 
(14,607
)
 
5,843