Graham Holdings Company Reports 2020 and Fourth Quarter Earnings - Business Wire

ARLINGTON, Va.--(BUSINESS WIRE)--Graham Holdings Company (NYSE: GHC) today reported net income attributable to common shares of $300.4 million ($58.13 per share) for the year ended December 31, 2020, compared to $327.9 million ($61.21 per share) for the year ended December 31, 2019. For the fourth quarter of 2020, the Company reported net income attributable to common shares of $237.1 million ($47.34 per share), compared to $145.9 million ($27.25 per share) for the same period of 2019.

The COVID-19 pandemic and measures taken to prevent its spread, such as travel restrictions, shelter in place orders and mandatory closures, significantly impacted the Company's results for 2020, largely from reduced demand for the Company's products and services. This significant adverse impact is expected to continue into 2021. The Company's management has taken a variety of measures to reduce costs and to implement changes to business operations. The Company cannot predict the severity or duration of the pandemic, the extent to which demand for the Company's products and services will be adversely affected or the degree to which financial and operating results will be negatively impacted.

The results for 2020 and 2019 were affected by a number of items as described in the following paragraphs. Excluding these items, net income attributable to common shares was $158.1 million ($30.60 per share) for 2020, compared to $176.2 million ($32.89 per share) for 2019. Excluding these items, net income attributable to common shares was $57.0 million ($11.38 per share) for the fourth quarter of 2020, compared to $48.8 million ($9.13 per share) for the fourth quarter of 2019. (Refer to the Non-GAAP Financial Information schedule attached to this release for additional details.)

Items included in the Company's net income for 2020 are listed below, and fourth quarter activity, if any, is highlighted for each item:

• $27.9 million in goodwill and other long-lived asset impairment charges (after-tax impact of $20.2 million, or $3.92 per share); $0.3 million of these charges were recorded in the fourth quarter (after-tax impact of $0.2 million, or $0.05 per share);
• $16.1 million in restructuring charges at the education division (after-tax impact of $11.9 million, or $2.31 per share); $4.0 million of these charges were recorded in the fourth quarter (after-tax impact of $3.0 million, or $0.59 per share);
• $5.7 million in accelerated depreciation at other businesses (after-tax impact of $4.1 million, or $0.80 per share);
• a $2.9 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the Federal Communications Commission (FCC) (after-tax impact of $2.3 million, or $0.44 per share); $0.4 million of these gains were recorded in the fourth quarter (after-tax impact of $0.3 million, or $0.06 per share);
• $8.5 million in interest expense in the fourth quarter to adjust the fair value of the mandatorily redeemable noncontrolling interest ($1.64 per share);
• $11.5 million in expenses related to non-operating Separation Incentive Programs (SIP) at the education division and other businesses (after-tax impact of $8.5 million, or $1.64 per share);
• $60.8 million in net gains on marketable equity securities (after-tax impact of $44.7 million, or $8.64 per share); $61.9 million of gains were recorded in the fourth quarter (after-tax impact of $45.5 million, or $9.08 per share);
• a fourth quarter gain of $209.8 million on the sale of Megaphone (after-tax impact of $154.2 million, or $29.84 per share);
• Non-operating losses, net, of $1.5 million from impairments, sales and write-ups of cost and equity method investments (after-tax impact of $1.1 million, or $0.21 per share); $4.8 million of losses were recorded in the fourth quarter (after-tax impact of $3.5 million, or 0.70 per share);
• $2.2 million in non-operating foreign currency losses (after-tax impact of $1.6 million, or $0.31 per share); $3.0 million of losses were recorded in the fourth quarter (after-tax impact of $2.3 million, or $0.45 per share); and
•  $2.9 million in income tax expense related to stock compensation ($0.56 per share); $2.4 million of this expense was recorded in the fourth quarter ($0.48 per share).

Items included in the Company's net income for 2019 are listed below, and fourth quarter activity, if any, is highlighted for each item:

• a $17.1 million provision recorded at Kaplan International related to a Value Added Tax (VAT) receivable at UK Pathways (after-tax impact of $13.9 million, or $2.59 per share);
• an $11.8 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC (after-tax impact of $9.1 million, or $1.70 per share); $1.1 million of these gains were recorded in the fourth quarter (after-tax impact of $0.8 million, or $0.15 per share);
• a $7.8 million fourth quarter intangible asset impairment charge at the television broadcasting division (after-tax impact of $6.0 million, or $1.12 per share);
• a $91.7 million fourth quarter settlement gain related to a retiree annuity pension purchase (after-tax impact of $66.9 million, or $12.50 per share);
• $6.6 million in expenses related to a non-operating SIP at the education division (after-tax impact of $5.1 million, or $0.95 per share);
• $98.7 million in net gains on marketable equity securities (after-tax impact of $74.0 million, or $13.82 per share); $49.4 million of these gains were recorded in the fourth quarter (after-tax impact of $37.1 million, or $6.92 per share);
• non-operating gain of $5.1 million from write-ups of cost method investments (after-tax impact of $3.9 million, or $0.73 per share);
• $29.0 million gain from the sale of Gimlet Media (after-tax impact of $21.7 million, or $4.06 per share); 
• $1.1 million in non-operating foreign currency losses (after-tax impact of $0.8 million, or $0.15 per share); $2.4 million in losses were recorded in the fourth quarter (after-tax impact of $1.8 million, or $0.33 per share); and 
• $1.7 million in income tax expense related to stock compensation ($0.32 per share). 

Revenue for 2020 was $2,889.1 million, down 1% from $2,932.1 million in 2019, largely due to the impact of COVID-19. Revenues declined at education and manufacturing, partially offset by increases at television broadcasting, healthcare and other businesses. The Company reported operating income for 2020 of $100.4 million, compared to $144.5 million in 2019. Operating results declined at education, manufacturing and other businesses, partially offset by improvements at television broadcasting and healthcare.

For the fourth quarter of 2020, revenue was $787.0 million, up 3% from $763.5 million in 2019 largely due to the significant political advertising revenue at television broadcasting and increases at manufacturing and healthcare, partially offset by declines at the education division and other businesses. The Company reported operating income of $46.2 million in the fourth quarter of 2020, compared to $30.3 million in 2019. Operating results improved at television broadcasting and healthcare, partially offset by declines at education, manufacturing and other businesses.

Division Results

Education

Education division revenue in 2020 totaled $1,305.7 million, down 10% from $1,451.8 million in 2019. For the fourth quarter of 2020, education division revenue totaled $313.7 million, down 11% from $354.2 million for the same period of 2019.

Kaplan reported operating income of $11.6 million for 2020, a 76% decrease from $48.1 million in 2019; Kaplan reported an operating loss for the fourth quarter of 2020 of $8.7 million, compared to operating income of $3.3 million in the fourth quarter of 2019.

The COVID-19 pandemic adversely impacted Kaplan's operating results for 2020. The impact began in February and continued through the remainder of 2020.

Kaplan serves a large number of students who travel to other countries to study a second language, prepare for licensure, or pursue a higher education degree. Government-imposed travel restrictions and school closures arising from COVID-19 had a significant negative impact on the ability of international students to travel and attend Kaplan's programs, particularly Kaplan International's Language programs. In addition, most licensing bodies and administrators of standardized exams postponed or canceled scheduled examinations due to COVID-19, resulting in a significant number of students deciding to defer their studies, negatively impacting Kaplan's exam preparation education businesses. Overall, this is expected to continue to adversely impact Kaplan's revenues and operating results in 2021, particularly at Kaplan International Languages.

To help mitigate the adverse impact of COVID-19, Kaplan implemented a number of cost reduction and restructuring activities across its businesses.

Related to these restructuring activities, for 2020, Kaplan recorded $13.5 million in lease restructuring costs (including $3.6 million of accelerated depreciation expense) and $6.2 million in severance restructuring costs. Kaplan also recorded $12.3 million in lease impairment charges in connection with these plans in 2020 (including $2.2 million in property, plant and equipment write-downs). Further, Kaplan recorded $12.8 million in non-operating pension expense in 2020 related to workforce reductions completed in the second and third quarters. For the fourth quarter, Kaplan recorded $1.0 million in lease restructuring costs (including $0.2 million in accelerated depreciation expense), $3.1 million in severance restructuring costs, and $0.3 million in lease impairment charges.

Kaplan management is continuing to monitor the ongoing COVID-19 disruptions and changes in its operating environment and may develop and implement further restructuring activities in 2021.

Kaplan also accelerated the development and promotion of various online programs and solutions, rapidly transitioned most of its classroom-based programs online and addressed the individual needs of its students and partners, substantially reducing the disruption from COVID-19 while simultaneously adding important new product offerings and operating capabilities. Further, in the fourth quarter of 2020, Kaplan combined its three primary divisions based in the United States (Kaplan Test Prep, Kaplan Professional, and Kaplan Higher Education) into one business known as Kaplan North America (KNA). This combination is designed to enhance Kaplan's competitiveness by better leveraging its diversified academic and professional portfolio, as well as its relationships with students, universities and businesses. For financial reporting purposes, KNA will be reported in two segments: Higher Education and Supplemental Education (combining Kaplan Test Prep and Kaplan Professional (U.S.) into one reporting segment).

A summary of Kaplan's operating results is as follows:

		Three Months Ended											Twelve Months Ended
		December 31											December 31
(in thousands)		2020				2019				% Change			2020				2019				% Change
Revenue
Kaplan international		$	165,796			$	197,740			(16)			$	653,892			$	750,245			(13)
Higher education		72,264				67,892				6			316,095				305,672				3
Supplemental education		73,446				87,100				(16)			327,087				388,814				(16)
Kaplan corporate and other		3,205				2,359				36			12,643				9,480				33
Intersegment elimination		(1,018)				(877)				—			(4,004)				(2,461)				—
		$	313,693			$	354,214			(11)			$	1,305,713			$	1,451,750			(10)
Operating Income (Loss)
Kaplan international		$	(6,008)			$	6,533			—			$	15,248			$	42,129			(64)
Higher education		2,481				4,147				(40)			24,364				13,960				75
Supplemental education		6,856				4,750				44			19,705				34,487				(43)
Kaplan corporate and other		(7,295)				(8,067)				10			(18,266)				(26,891)				32
Amortization of intangible assets		(4,367)				(4,027)				(8)			(17,174)				(14,915)				(15)
Impairment of long-lived assets		(342)				—				—			(12,278)				(693)				—
Intersegment elimination		—				(3)				—			5				(5)				—
		$	(8,675)			$	3,333			—			$	11,604			$	48,072			(76)

Kaplan International includes postsecondary education, professional training and language training businesses largely outside the United States. Kaplan International revenue decreased 13% in 2020 (12% on a constant currency basis) due to COVID-19 disruptions at Languages, and to a lesser extent at U.S. and Australia Pathways and UK Professional. These revenue disruptions were offset in part by growth at UK Pathways and Australia. Revenue decreased 16% in the fourth quarter of 2020 (19% on a constant currency basis) for the same COVID-19 factors that impacted the full year. The decline in Kaplan International operating income is mostly attributable to $55 million in losses incurred at Languages due to significant COVID-19 disruptions, and to a much lesser extent, to COVID-19 disruptions at U.S. and Austr...