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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, 2014
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.)
 
 
1150 15th Street, N.W. Washington, D.C.
20071
(Address of principal executive offices)
(Zip Code)
(202) 334-6000
(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 August 1, 2014:
Class A Common Stock – 1,169,073 Shares
Class B Common Stock – 4,624,280 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, 2014 and 2013
 
 
 
 
b. Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2014 and 2013
 
 
 
 
c. Condensed Consolidated Balance Sheets at June 30, 2014 (Unaudited) and December 31, 2013
 
 
 
 
d. Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2014 and 2013
 
 
 
 
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 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
Signatures




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
  
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
  
 
(in thousands, except per share amounts)
2014
 
2013
 
2014
 
2013
Operating Revenues
  
 
  
 
  
 
  
Education
$
547,181

 
$
548,230

 
$
1,073,355

 
$
1,076,045

Subscriber
187,723

 
192,273

 
378,851

 
379,063

Advertising
82,475

 
79,898

 
160,722

 
149,020

Other
61,249

 
50,103

 
106,261

 
86,968

  
878,628

 
870,504

 
1,719,189

 
1,691,096

Operating Costs and Expenses
 
 
  
 
 
 
  
Operating
398,279

 
394,841

 
777,348

 
771,386

Selling, general and administrative
322,714

 
319,170

 
648,351

 
653,394

Depreciation of property, plant and equipment
52,017

 
56,879

 
105,262

 
115,838

Amortization of intangible assets
3,360

 
3,313

 
6,441

 
7,030

Impairment of intangible assets
7,774

 

 
7,774

 

  
784,144

 
774,203

 
1,545,176

 
1,547,648

Income from Operations
94,484

 
96,301

 
174,013

 
143,448

Equity in earnings of affiliates, net
91,503

 
3,868

 
95,555

 
7,286

Interest income
641

 
522

 
1,240

 
1,032

Interest expense
(8,557
)
 
(9,048
)
 
(17,377
)
 
(18,008
)
Other income (expense), net
268,114

 
(12,858
)
 
401,387

 
(16,941
)
Income from Continuing Operations Before Income Taxes
446,185

 
78,785

 
654,818

 
116,817

Provision for Income Taxes
76,800

 
31,700

 
154,200

 
47,500

Income from Continuing Operations
369,385

 
47,085

 
500,618

 
69,317

Income (Loss) from Discontinued Operations, Net of Tax
380,465

 
(1,951
)
 
381,537

 
(18,924
)
Net Income
749,850

 
45,134

 
882,155

 
50,393

Net Loss (Income) Attributable to Noncontrolling Interests
499

 
(253
)
 
718

 
(350
)
Net Income Attributable to Graham Holdings Company
750,349

 
44,881

 
882,873

 
50,043

Redeemable Preferred Stock Dividends
(212
)
 
(206
)
 
(638
)
 
(650
)
Net Income Attributable to Graham Holdings Company Common Stockholders
$
750,137

 
$
44,675

 
$
882,235

 
$
49,393

Amounts Attributable to Graham Holdings Company Common Stockholders
  
 
  
 
  
 
  
Income from continuing operations
$
369,672

 
$
46,626

 
$
500,698

 
$
68,317

Income (loss) from discontinued operations, net of tax
380,465

 
(1,951
)
 
381,537

 
(18,924
)
Net income attributable to Graham Holdings Company common stockholders
$
750,137

 
$
44,675

 
$
882,235

 
$
49,393

Per Share Information Attributable to Graham Holdings Company Common Stockholders
  
 
  
 
  
 
  
Basic income per common share from continuing operations
$
49.68

 
$
6.28

 
$
67.35

 
$
9.21

Basic income (loss) per common share from discontinued operations
51.12

 
(0.26
)
 
51.30

 
(2.55
)
Basic net income per common share
$
100.80

 
$
6.02

 
$
118.65

 
$
6.66

Basic average number of common shares outstanding
7,284

 
7,229

 
7,280

 
7,228

Diluted income per common share from continuing operations
$
49.52

 
$
6.28

 
$
67.13

 
$
9.21

Diluted income (loss) per common share from discontinued operations
50.96

 
(0.26
)
 
51.13

 
(2.55
)
Diluted net income per common share
$
100.48

 
$
6.02

 
$
118.26

 
$
6.66

Diluted average number of common shares outstanding
7,363

 
7,283

 
7,361

 
7,276


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)
2014
 
2013
 
2014
 
2013
Net Income
$
749,850

 
$
45,134

 
$
882,155

 
$
50,393

Other Comprehensive (Loss) Income, Before Tax
  
 
  
 
 
 
  
Foreign currency translation adjustments:
  
 
  
 
 
 
  
Translation adjustments arising during the period
1,920

 
(3,509
)
 
2,666

 
(7,700
)
Unrealized gains on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gains for the period, net
8,667

 
31,423

 
36,405

 
80,501

Reclassification adjustment for realization of (gain) loss on exchange, sale or write-down of available-for-sale securities included in net income
(266,059
)
 
(333
)
 
(265,274
)
 
(884
)
  
(257,392
)
 
31,090

 
(228,869
)
 
79,617

Pension and other postretirement plans:
  
 
  
 
  
 
  
Amortization of net prior service credit included in net income
(102
)
 
(384
)
 
(204
)
 
(821
)
Amortization of net actuarial (gain) loss included in net income
(7,425
)
 
2,004

 
(14,607
)
 
4,321

Settlement gain included in net income

 

 

 
(3,471
)
  
(7,527
)
 
1,620

 
(14,811
)
 
29

Cash flow hedge gain
239

 
214

 
411

 
244

Other Comprehensive (Loss) Income, Before Tax
(262,760
)
 
29,415

 
(240,603
)
 
72,190

Income tax benefit (expense) related to items of other comprehensive (loss) income
105,874

 
(13,170
)
 
97,308

 
(31,957
)
Other Comprehensive (Loss) Income, Net of Tax
(156,886
)
 
16,245

 
(143,295
)
 
40,233

Comprehensive Income
592,964

 
61,379

 
738,860

 
90,626

Comprehensive loss (income) attributable to noncontrolling interests
499

 
(254
)
 
718

 
(372
)
Total Comprehensive Income Attributable to Graham Holdings Company
$
593,463

 
$
61,125

 
$
739,578

 
$
90,254


See accompanying Notes to Consolidated Financial Statements.

2



GRAHAM HOLDINGS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
 
As of
(in thousands)
June 30,
2014
 
December 31,
2013
  
(Unaudited)
 
  
Assets
  
 
  
Current Assets
  
 
  
Cash and cash equivalents
$
325,023

 
$
569,719

Restricted cash
36,083

 
83,769

Investments in marketable equity securities and other investments
248,952

 
522,318

Accounts receivable, net
404,989

 
428,653

Income taxes receivable

 
17,991

Deferred income taxes
31,689

 

Inventories and contracts in progress
8,922

 
2,924

Other current assets
79,928

 
77,013

Total Current Assets
1,135,586

 
1,702,387

Property, Plant and Equipment, Net
847,970

 
927,542

Investments in Affiliates
21,006

 
15,754

Goodwill, Net
1,348,708

 
1,288,622

Indefinite-Lived Intangible Assets, Net
535,378

 
541,278

Amortized Intangible Assets, Net
61,732

 
39,588

Prepaid Pension Cost
1,261,294

 
1,245,505

Deferred Charges and Other Assets
47,742

 
50,370

Noncurrent Assets Held for Sale
30,290

 

Total Assets
$
5,289,706

 
$
5,811,046

 
 
 
 
Liabilities and Equity
  

 
  

Current Liabilities
  

 
  

Accounts payable and accrued liabilities
$
429,560

 
$
505,699

Income taxes payable
52,591

 

Deferred income taxes

 
58,411

Deferred revenue
364,892

 
366,831

Dividends declared
14,983

 

Short-term borrowings
53,740

 
3,168

Total Current Liabilities
915,766

 
934,109

Postretirement Benefits Other Than Pensions
35,184

 
36,219

Accrued Compensation and Related Benefits
210,667

 
211,526

Other Liabilities
86,893

 
86,000

Deferred Income Taxes
795,339

 
778,735

Long-Term Debt
398,202

 
447,608

Total Liabilities
2,442,051

 
2,494,197

Redeemable Noncontrolling Interest
4,946

 
5,896

Redeemable Preferred Stock
10,510

 
10,665

Preferred Stock

 

Common Stockholders’ Equity
  

 
  

Common stock
20,000

 
20,000

Capital in excess of par value
291,464

 
288,129

Retained earnings
5,612,518

 
4,782,777

Accumulated other comprehensive income, net of tax
 
 
  

Cumulative foreign currency translation adjustment
27,679

 
25,013

Unrealized gain on available-for-sale securities
36,342

 
173,663

Unrealized gain on pensions and other postretirement plans
492,559

 
501,446

Cash flow hedge
(381
)
 
(628
)
Cost of Class B common stock held in treasury
(3,648,308
)
 
(2,490,333
)
Total Common Stockholders’ Equity
2,831,873

 
3,300,067

Noncontrolling Interests
326

 
221

Total Equity
2,832,199

 
3,300,288

Total Liabilities and Equity
$
5,289,706

 
$
5,811,046


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)
2014
 
2013
Cash Flows from Operating Activities
  
 
  
Net Income
$
882,155

 
$
50,393

Adjustments to reconcile net income to net cash provided by operating activities:
  
 
  
Depreciation of property, plant and equipment
106,822

 
129,848

Amortization of intangible assets
6,441

 
7,030

Intangible assets impairment charge
7,774

 

Net pension (benefit) expense
(34,433
)
 
8,582

Early retirement program expense
4,490

 
22,700

Foreign exchange (gain) loss
(7,946
)
 
17,236

Net (gain) loss on sales and disposition of businesses
(358,963
)
 
70

Net gain on disposition or write-downs of marketable equity securities and cost method investments
(266,423
)
 
(696
)
Equity in earnings of affiliates, net of certain distributions
(98,555
)
 
(7,277
)
Provision for deferred income taxes
3,880

 
263

Net (gain) loss on sale or write-down of property, plant and equipment
(119,086
)
 
377

Change in assets and liabilities:
 
 
 
Decrease in accounts receivable, net
32,429

 
29,608

Decrease in accounts payable and accrued liabilities
(89,443
)
 
(58,715
)
Decrease in deferred revenue
(6,219
)
 
(13,980
)
Increase in income taxes payable
70,580

 
14,430

Decrease (increase) in other assets and other liabilities, net
54,837

 
(3,348
)
Other
111

 
990

Net Cash Provided by Operating Activities
188,451

 
197,511

Cash Flows from Investing Activities
  
 
  
Investments in commercial paper
(199,830
)
 

Proceeds from maturities of commercial paper
99,893

 

Net proceeds from sales of businesses, property, plant and equipment and other assets
164,066

 
5,341

Investments in certain businesses, net of cash acquired
(130,767
)
 
(1,200
)
Net distribution from equity affiliate
93,481

 

Purchases of property, plant and equipment
(92,627
)
 
(87,652
)
Other
(7,589
)
 
(10,743
)
Net Cash Used in Investing Activities
(73,373
)
 
(94,254
)
Cash Flows from Financing Activities
  
 
  
Common shares repurchased, including the Berkshire Exchange transaction
(327,718
)
 
(4,196
)
Dividends paid
(38,148
)
 
(437
)
Repayment of short-term borrowing

 
(240,121
)
Purchase of shares from a noncontrolling interest

 
(3,115
)
Other
4,023

 
23,216

Net Cash Used in Financing Activities
(361,843
)
 
(224,653
)
Effect of Currency Exchange Rate Change
2,069

 
(4,468
)
Net Decrease in Cash and Cash Equivalents
(244,696
)
 
(125,864
)
Beginning Cash and Cash Equivalents
569,719

 
512,431

Ending Cash and Cash Equivalents
$
325,023

 
$
386,567


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).
On April 11, 2014, the Company announced that it had entered into an exchange agreement that would result in the disposal of WPLG, its Miami-based television station. On June 30, 2014, the Company completed the exchange. The operating results of WPLG have been presented in income (loss) from discontinued operations, net of tax, for all periods presented.
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, 2014 and 2013 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, 2013.
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.
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 April 2014, the Financial Accounting Standards Board (FASB) issued new guidance that modifies the requirements for reporting discontinued operations. The new guidance requires the reporting of the disposal of an entity or component of an entity as discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the entity’s operations and financial results. The new guidance also expands the disclosures for discontinued operations and requires new disclosures related to individually material disposals that do not meet the definition of a discontinued operation. This guidance is effective for interim and fiscal years beginning after December 15, 2014. Early adoption is permitted for disposals that have not been reported in financial statements previously issued or available for issuance. The Company is in the process of evaluating the impact of this new guidance on its condensed consolidated financial statements.
In May 2014, the 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

5



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 condensed consolidated financial statements, and believes such evaluation will extend over several future periods due to the significance of the changes to the Company's policies and business processes.
2. DISCONTINUED OPERATIONS
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.
On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses. The publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites (Publishing Subsidiaries).
In March 2013, the Company completed the sale of The Herald which resulted in a pre-tax loss of $0.1 million that was recorded in the first quarter of 2013.
The results of operations of WPLG, the Publishing Subsidiaries and The Herald are included in the Company’s 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.
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)
2014
 
2013
 
2014
 
2013
Operating revenues
$
20,907

 
$
151,347

 
$
37,181

 
$
293,321

Operating costs and expenses
(12,568
)
 
(154,598
)
 
(22,701
)
 
(322,675
)
Income (loss) from discontinued operations
8,339

 
(3,251
)
 
14,480

 
(29,354
)
Provision (benefit) from income taxes
2,913

 
(1,300
)
 
4,939

 
(10,476
)
Net Income (Loss) from Discontinued Operations
5,426

 
(1,951
)
 
9,541

 
(18,878
)
Gain (loss) on sales of discontinued operations
358,964

 

 
354,227

 
(70
)
Benefit from income taxes on sales of discontinued operations
(16,075
)
 

 
(17,769
)
 
(24
)
Income (Loss) from Discontinued Operations, Net of Tax
$
380,465

 
$
(1,951
)
 
$
381,537

 
$
(18,924
)
3. INVESTMENTS
Investments in marketable equity securities comprised the following:
  
As of
  
June 30,
2014
 
December 31,
2013
(in thousands)
 
Total cost
$
56,967

 
$
197,718

Net unrealized gains
60,569

 
289,438

Total Fair Value
$
117,536

 
$
487,156

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 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 the sale of these marketable securities were $5.8 million and net realized losses were $2.6 million.

6



There were no new investments in marketable equity securities during the first six months of 2014 and 2013. During the first six months of 2013, the proceeds from sales of marketable securities were $3.6 million, and net realized gains on such sales were $0.9 million.
As of June 30, 2014, the Company held investments in commercial paper totaling $99.9 million with original maturities of 91 to 180 days. These investments are included in Investments in marketable equity securities and other investments in the Condensed Consolidated Balance Sheets.
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.
On August 4, 2014, the Company and its partners entered into an agreement to sell their stake in Classified Ventures to Gannett Co., Inc. for a price that values Classified Ventures at $2.5 billion. Gannett currently owns a 27% share of Classified Ventures; the Company owns a 16.5% interest in Classified Ventures. The transaction is expected to close before the end of 2014, subject to regulatory review.
4. ACQUISITIONS, DISPOSITIONS AND EXCHANGES
Acquisitions.  In the first six months of 2014, the Company acquired six businesses 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 a preliminary basis. In the first six months of 2013, the Company acquired two small businesses included in other businesses; the purchase price allocation mostly comprised goodwill and other intangible 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. The operating results of VNA-TIP and Joyce are included in other businesses.
In the second quarter of 2013, Kaplan purchased the remaining 15% noncontrolling interest in Kaplan China; this additional interest was accounted for as an equity transaction.
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, leading providers of skilled home health care and hospice services in Michigan and Illinois. The operating results of Residential will be included in other businesses beginning in the third quarter of 2014.
Dispositions. On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses. The publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites (Publishing Subsidiaries).
In March 2013, the Company completed the sale of certain assets of The Herald, a daily and Sunday newspaper headquartered in Everett, WA.
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). As a result, income from continuing operations for the second quarter of 2014 includes a $266.7 million gain from the sale of the Berkshire Hathaway shares, and income from discontinued operations for the second quarter of 2014 includes a $375.0 million gain from the WPLG exchange.
The pre-tax gain of $266.7 million related to the disposition of the Berkshire shares was not subject to income tax as the Berkshire exchange transaction qualifies as a tax-free distribution. The lower effective tax rate for income from continuing operations for the first six months of 2014 of 23.5% primarily resulted from this tax-free transaction.
As discussed above, this exchange transaction includes significant noncash investing and financing activities. On the date of exchange, the fair value of the Berkshire Class A and B shares was $400.3 million and the fair value of WPLG was determined to be $438.0 million. In total, the Company recorded an increase in treasury stock of $1,165.4 million in the second quarter of 2014 in connection with the Berkshire exchange transaction.
Consequently, the Company’s income from continuing operations excludes these sold or exchanged businesses, which have been reclassified to discontinued operations, net of tax (see Note 2). 

7



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. 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, 2014 and 2013 was $3.4 million and $3.3 million, respectively. Amortization of intangible assets for the six months ended June 30, 2014 and 2013 was $6.4 million and $7.0 million, respectively. Amortization of intangible assets is estimated to be approximately $7 million for the remainder of 2014, $13 million in 2015, $12 million in 2016, $8 million in 2017, $8 million in 2018, $7 million in 2019 and $7 million thereafter.
In July 2014, the cable division sold wireless spectrum licenses that were purchased in 2006; an estimated pre-tax gain of $75 million will be reported in the third quarter of 2014 in connection with these sales. The licenses are classified as assets held for sale at June 30, 2014.
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, 2013
  
 
  
 
  
 
  
 
  
Goodwill
$
1,073,433

 
$
85,488

 
$
203,165

 
$
34,877

 
$
1,396,963

Accumulated impairment losses
(102,259
)
 

 

 
(6,082
)
 
(108,341
)
 
971,174

 
85,488

 
203,165

 
28,795

 
1,288,622

Acquisitions
14,901

 

 

 
67,889

 
82,790

Dispositions

 

 
(37,661
)
 

 
(37,661
)
Foreign currency exchange rate changes
14,957

 

 

 

 
14,957

Balance as of June 30, 2014
  

 
  

 
  

 
  

 
  

Goodwill
1,103,291

 
85,488

 
165,504

 
102,766

 
1,457,049

Accumulated impairment losses
(102,259
)
 

 

 
(6,082
)
 
(108,341
)
 
$
1,001,032

 
$
85,488

 
$
165,504

 
$
96,684

 
$
1,348,708

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, 2013
  
 
  
 
  
 
  
Goodwill
$
409,016

 
$
152,187

 
$
512,230

 
$
1,073,433

Accumulated impairment losses

 
(102,259
)
 

 
(102,259
)
 
409,016

 
49,928

 
512,230

 
971,174

Acquisitions
2,186

 
12,715

 

 
14,901

Foreign currency exchange rate changes
7

 

 
14,950

 
14,957

Balance as of June 30, 2014
  

 
  

 
  

 
  

Goodwill
411,209

 
164,902

 
527,180

 
1,103,291

Accumulated impairment losses

 
(102,259
)
 

 
(102,259
)
 
$
411,209

 
$
62,643

 
$
527,180

 
$
1,001,032

Other intangible assets consist of the following:
 
 
 
As of June 30, 2014
 
As of December 31, 2013
(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
 
$
13,943

 
$
12,896

 
$
1,047

 
$
13,540

 
$
12,622

 
$
918

Student and customer relationships
2–10 years
 
93,064

 
43,827

 
49,237

 
72,050

 
45,718

 
26,332

Databases and technology
3–5 years
 
12,229

 
7,906

 
4,323

 
10,790

 
6,991

 
3,799

Trade names and trademarks
2–10 years
 
22,672

 
17,433

 
5,239

 
22,327

 
16,052

 
6,275

Other
1–25 years
 
9,891

 
8,005

 
1,886

 
9,836

 
7,572

 
2,264

  
  
 
$
151,799

 
$
90,067

 
$
61,732

 
$
128,543

 
$
88,955

 
$
39,588

Indefinite-Lived Intangible Assets
  
 
  
 
  

 
  

 
  
 
  

 
  

Franchise agreements
  
 
$
496,321

 
  

 
  

 
$
496,321

 
  

 
  

Wireless licenses
  
 

 
  

 
  

 
22,150

 
  

 
  

Licensure and accreditation
  
 
7,321

 
  

 
  

 
7,171

 
  

 
  

Other
  
 
31,736

 
  

 
  

 
15,636

 
  

 
  

 
  
 
$
535,378

 
 
 
 
 
$
541,278

 
 
 
 

8



6. DEBT
The Company’s borrowings consist of the following:
  
As of
  
June 30,
2014
 
December 31,
2013
(in thousands)
 
7.25% unsecured notes due February 1, 2019
$
398,101

 
$
397,893

AUD Revolving credit borrowing
47,070

 
44,625

Other indebtedness
6,771

 
8,258

Total Debt
451,942

 
450,776

Less: current portion
(53,740
)
 
(3,168
)
Total Long-Term Debt
$
398,202

 
$
447,608

The Company’s other indebtedness at June 30, 2014 and December 31, 2013 is at interest rates from 0% to 6% and matures from 2014 to 2017.
During the three months ended June 30, 2014 and 2013, the Company had average borrowings outstanding of approximately $452.5 million and $454.1 million, respectively, at average annual interest rates of approximately 7.0%. During the three months ended June 30, 2014 and 2013, the Company incurred net interest expense of $7.9 million and $8.5 million, respectively.
During the six months ended June 30, 2014 and 2013, the Company had average borrowings outstanding of approximately $451.8 million and $489.5 million, respectively, at average annual interest rates of approximately 7.0%. During the six months ended June 30, 2014 and 2013, the Company incurred net interest expense of $16.1 million and $17.0 million, respectively.
At June 30, 2014, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $470.1 million, compared with the carrying amount of $398.1 million. At December 31, 2013, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices, totaled $475.2 million, compared with the carrying amount of $397.9 million. The carrying value of the Company’s other unsecured debt at June 30, 2014 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, 2014
(in thousands)
Level 1
 
Level 2
 
Total
Assets
  
 
  
 
  
Money market investments (1) 
$

 
$
136,751

 
$
136,751

Marketable equity securities (2) 
117,536

 

 
117,536

Commercial paper (3)
124,927

 

 
124,927

Other current investments (4) 
8,215

 
23,265

 
31,480

Total Financial Assets
$
250,678

 
$
160,016

 
$
410,694

Liabilities
  
 
  
 
  
Deferred compensation plan liabilities (5) 
$

 
$
65,914

 
$
65,914

7.25% unsecured notes (6) 

 
470,080

 
470,080

AUD revolving credit borrowing (6) 

 
47,070

 
47,070

Interest rate swap (7) 

 
636

 
636

Total Financial Liabilities
$

 
$
583,700

 
$
583,700

____________
(1)
The Company’s money market investments are included in cash, cash equivalents and restricted cash.
(2)
The Company’s investments in marketable equity securities are classified as available-for-sale.
(3)
The Company's commercial paper investments with original maturities of 90 days or less are included in cash and cash equivalents; commercial paper investments with original maturities greater than 90 days, but less than one year, are included in investments in marketable equity securities and other investments.
(4)
Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits (with original maturities greater than 90 days, but less than one year).
(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.
(6)
See Note 6 for carrying amount of these notes and borrowing.

9



 
As of December 31, 2013
(in thousands)
Level 1
 
Level 2
 
Total
Assets
  
 
  
 
  
Money market investments (1) 
$

 
$
431,836

 
$
431,836

Marketable equity securities (2) 
487,156

 

 
487,156

Other current investments (3) 
11,826

 
23,336

 
35,162

Total Financial Assets
$
498,982

 
$
455,172

 
$
954,154

Liabilities
  
 
  
 
  
Deferred compensation plan liabilities (4) 
$

 
$
67,603

 
$
67,603

7.25% unsecured notes (5) 

 
475,224

 
475,224

AUD revolving credit borrowing (5) 

 
44,625

 
44,625

Interest rate swap (6) 

 
1,047

 
1,047

Total Financial Liabilities
$

 
$
588,499

 
$
588,499

____________
(1)
The Company’s money market investments are included in cash, cash equivalents and restricted cash.
(2)
The Company’s investments in marketable equity securities are classified as available-for-sale.
(3)
Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits (with original maturities greater than 90 days, but less than one year).
(4)
Includes Graham Holdings Company's Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company's Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits.
(5)
See Note 6 for carrying amount of these notes and borrowing.
(6)
Included in Other liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.
In the second quarter of 2014, the Company recorded an intangible asset impairment charge of $7.8 million (see Note 5). The remeasurement of the intangible assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value.
8. EARNINGS PER SHARE
The Company's unvested restricted stock awards contain nonforfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. The diluted earnings per share computed under the two-class method is lower than the diluted earnings per share computed under the treasury stock method, resulting in the presentation of the lower amount in diluted earnings per share. The computation of the earnings per share under the two-class method excludes the income attributable to the unvested restricted stock awards from the numerator and excludes the dilutive impact of those underlying shares from the denominator.
The following reflects the Company's 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)
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Numerator for basic earnings per share:
  
 
  
 
  
 
  
Income from continuing operations attributable to Graham Holdings Company common stockholders
$
369,672

 
$
46,626

 
$
500,698

 
$
68,317

Less: Dividends-common stock outstanding and unvested restricted shares
(14,819
)
 

 
(52,494
)
 

Undistributed earnings
354,853

 
46,626

 
448,204

 
68,317

Percent allocated to common stockholders
97.88
%
 
97.40
%
 
97.88
%
 
97.40
%
 
347,342

 
45,415

 
438,716

 
66,543

Add: Dividends-common stock outstanding
14,506

 

 
51,556

 

Numerator for basic earnings per share
$
361,848

 
$
45,415

 
$
490,272

 
$
66,543

Add: Additional undistributed earnings due to dilutive stock options
31

 
1

 
40

 
1

Numerator for diluted earnings per share
$
361,879

 
$
45,416

 
$
490,312

 
$
66,544

Denominator:
  

 
  

 
 
 
 
Denominator for basic earnings per share:


 


 


 


Weighted average shares outstanding
7,284

 
7,229

 
7,280

 
7,228

Add: Effect of dilutive stock options
24

 
4

 
24

 
3

Denominator for diluted earnings per share
7,308

 
7,233

 
7,304

 
7,231

Graham Holdings Company Common Stockholders:
  
 
  
 
  
 
  
Basic earnings per share from continuing operations
$
49.68

 
$
6.28

 
$
67.35

 
$
9.21

Diluted earnings per share from continuing operations
$
49.52

 
$
6.28

 
$
67.13

 
$
9.21


10



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)
2014
 
2013
 
2014
 
2013
Weighted average restricted stock
55

 
50

 
57

 
45

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, 2013 exclude the effects of 63,000 and 63,750 stock options outstanding, respectively, 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. The diluted earnings per share amounts for the three and six months ended June 30, 2013 exclude the effects of 51,300 restricted stock awards, as their inclusion would have been antidilutive.
In the three and six months ended June 30, 2014, the Company declared regular dividends totaling $2.55 and $7.65 per share, respectively. No dividends were paid in 2013.
9. PENSION AND POSTRETIREMENT PLANS
Defined Benefit Plans. The total (benefit) cost 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)
2014
 
2013
 
2014
 
2013
Service cost
$
6,976

 
$
12,710

 
$
14,513

 
$
26,075

Interest cost
12,894

 
14,243

 
25,976

 
28,534

Expected return on assets
(30,504
)
 
(25,467
)
 
(60,767
)
 
(51,789
)
Amortization of prior service cost
82

 
909

 
164

 
1,818

Recognized actuarial (gain) loss
(7,281
)
 
1,797

 
(14,319
)
 
3,944

Net Periodic (Benefit) Cost
(17,833
)
 
4,192

 
(34,433
)
 
8,582

Early retirement programs expense

 
8,442

 
4,490

 
22,700

Total (Benefit) Cost
$
(17,833
)
 
$
12,634

 
$
(29,943
)
 
$
31,282

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. For the three and six months ended June 30, 2013, the net periodic cost for the Company's pension plans, as reported above, includes costs of $6.8 million and $13.9 million, respectively, reported in discontinued operations. The early retirement programs expense for the three and six months ended June 30, 2013 is included 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 will be 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 will be recorded in the third quarter of 2014.
The Company announced a Voluntary Retirement Incentive Program in February 2013, which was offered to certain employees of the Washington Post newspaper. The total early retirement program expense for this program for the six months ended June 30, 2013 was $20.4 million. Of this amount, $12.0 million was recorded in the first quarter of 2013 and $8.4 million was recorded in the second quarter of 2013. In addition, the Washington Post newspaper recorded $2.3 million in special separation benefits for a group of employees in the first quarter of 2013. The early retirement program expense and special separation benefits for these programs were funded from the assets of the Company’s pension plan and are included in discontinued operations, net of tax.
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)
2014
 
2013
 
2014
 
2013
Service cost
$
373

 
$
430

 
$
746

 
$
859

Interest cost
1,086

 
1,023

 
2,171

 
2,046

Amortization of prior service cost
11

 
13

 
23

 
27

Recognized actuarial loss
375

 
711

 
750

 
1,422

Net Periodic Cost
$
1,845

 
$
2,177

 
$
3,690

 
$
4,354


11



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. For the three and six months ended June 30, 2013, the net periodic cost for the Company's SERP, as reported above, includes costs of $0.3 million and $0.6 million, respectively, reported in discontinued operations.
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,
2014
 
December 31,
2013
  
 
U.S. equities
59
%
 
58
%
U.S. fixed income
11
%
 
12
%
International equities
30
%
 
30
%
  
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, 2014, the managers can invest no more than 24% of the assets in international stocks, 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, 2014. 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, 2014 and December 31, 2013, the pension plan held common stock in one investment that exceeded 10% of total plan assets. This investment was valued at $410.5 million and $382.1 million at June 30, 2014 and December 31, 2013, respectively, or approximately 17% and 16%, respectively, of total plan assets. Assets also included $222.5 million and $208.4 million of Berkshire Hathaway common stock at June 30, 2014 and December 31, 2013, respectively. At June 30, 2014 and December 31, 2013, the pension plan held investments in one foreign country that exceeded 10% of total plan assets. These investments were valued at $429.3 million and $398.9 million at June 30, 2014 and December 31, 2013, respectively, or approximately 18% and 17%, respectively, of total plan assets.
Other Postretirement Plans. The total cost (benefit) arising from the Company’s other postretirement 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)
2014
 
2013
 
2014
 
2013
Service cost
$
375

 
$
728

 
$
750

 
$
1,455

Interest cost
362

 
507

 
724

 
1,017

Amortization of prior service credit
(195
)
 
(1,306
)
 
(391
)
 
(2,666
)
Recognized actuarial gain
(519
)
 
(504
)
 
(1,038
)
 
(1,045
)
Net Periodic Cost (Benefit)
23

 
(575
)
 
45

 
(1,239
)
Settlement gain

 

 

 
(3,471
)
Total Cost (Benefit)
$
23

 
$
(575
)
 
$
45

 
$
(4,710
)
For the three and six months ended June 30, 2013, the net periodic benefit, as reported above, includes a benefit of $0.8 million and $1.4 million, respectively, included in discontinued operations. As part of the sale of The Herald, changes were made with respect to its postretirement medical plan, resulting in a $3.5 million settlement gain that is included in discontinued operations, net of tax, for the first quarter of 2013.

12



10. OTHER NON-OPERATING INCOME (EXPENSE)
A summary of non-operating income (expense) is as follows:
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
(in thousands)
2014
 
2013
 
2014
 
2013
Gain on Berkshire marketable equity securities exchange
$
266,733

 
$

 
$
266,733

 
$

Gain on sale of headquarters building

 

 
127,670

 

Foreign currency gain (loss), net
2,909

 
(12,622
)
 
7,946

 
(17,236
)
(Losses) gains on sales or write-downs of marketable equity securities
(2,259
)
 
337

 
(3,044
)
 
879

Other, net
731

 
(573
)
 
2,082

 
(584
)
Total Other Non-Operating Income (Expense)
$
268,114

 
$
(12,858
)
 
$
401,387

 
$
(16,941
)
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 approximately $158 million. In connection with the sale, the Company recorded a $127.7 million pre-tax gain in the first quarter of 2014. The headquarters building is used primarily by The Washington Post newspaper, which was sold by the Company in October 2013.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
The other comprehensive (loss) income consists of the following components:
 
Three Months Ended June 30
  
2014
 
2013
  
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
$
1,920

 
$

 
$
1,920

 
$
(3,509
)
 
$

 
$
(3,509
)
Unrealized gains on available-for-sale securities:
  
 
  
 
  
 
  
 
  
 
  
Unrealized gains for the period, net
8,667

 
(3,466
)
 
5,201

 
31,423

 
(12,569
)
 
18,854

Reclassification adjustment for realization of (gain) loss on exchange, sale or write-down of available-for-sale securities included in net income
(266,059
)
 
106,424

 
(159,635
)
 
(333
)
 
133

 
(200
)
  
(257,392
)
 
102,958

 
(154,434
)
 
31,090

 
(12,436
)
 
18,654

Pension and other postretirement plans:
  
 
  
 
  
 
  
 
  
 
  
Amortization of net prior service credit included in net income
(102
)
 
41

 
(61
)
 
(384
)
 
153

 
(231
)
Amortization of net actuarial (gain) loss included in net income
(7,425
)
 
2,970

 
(4,455
)
 
2,004

 
(801
)
 
1,203

 
(7,527
)
 
3,011

 
(4,516
)
 
1,620

 
(648
)
 
972

Cash flow hedge:
  
 
  
 
  
 
  
 
  
 
  
Gain for the period
239

 
(95
)
 
144

 
214

 
(86
)
 
128

Other Comprehensive (Loss) Income
$
(262,760
)
 
$
105,874

 
$
(156,886
)
 
$
29,415

 
$
(13,170
)
 
$
16,245


13



  
Six Months Ended June 30
  
2014
 
2013
  
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
$
2,666

 
$

 
$
2,666

 
$
(7,700
)
 
$

 
$
(7,700
)
Unrealized gains on available-for-sale securities:
 
 
  
 
  
 
  
 
  
 
  
Unrealized gains for the period, net
36,405

 
(14,562
)
 
21,843

 
80,501

 
(32,200
)
 
48,301

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
)
 
(884
)
 
353

 
(531
)
  
(228,869
)
 
91,548

 
(137,321
)
 
79,617

 
(31,847
)
 
47,770

Pension and other postretirement plans:
  
 
  
 
  
 
  
 
  
 
  
Amortization of net prior service credit included in net income
(204
)
 
81

 
(123
)
 
(821
)
 
328

 
(493
)
Amortization of net actuarial (gain) loss included in net income
(14,607
)
 
5,843

 
(8,764
)
 
4,321

 
(1,728
)
 
2,593

Settlement gain included in net income

 

 

 
(3,471
)
 
1,388

 
(2,083
)
  
(14,811
)
 
5,924

 
(8,887
)
 
29

 
(12
)
 
17

Cash flow hedge:
 
 
  
 
  
 
  
 
  
 
  
Gain for the period
411

 
(164
)
 
247

 
244

 
(98
)
 
146

Other Comprehensive (Loss) Income
$
(240,603
)
 
$
97,308

 
$
(143,295
)
 
$
72,190

 
$
(31,957
)
 
$
40,233

The accumulated balances related to each component of other comprehensive income are as follows:
(in thousands, net of taxes)
Cumulative
Foreign
Currency
Translation
Adjustment
 
Unrealized Gain
on Available-for-
Sale Securities
 
Unrealized Gain
on Pensions
and Other
Postretirement
Plans
 
Cash Flow
Hedge
 
Accumulated
Other
Comprehensive
Income
Balance as of December 31, 2013
$
25,013

 
$
173,663

 
$
501,446

 
$
(628
)
 
$
699,494

Other comprehensive income (loss) before reclassifications
2,666

 
21,843

 

 
(10
)
 
24,499

Net amount reclassified from accumulated other comprehensive income

 
(159,164
)
 
(8,887
)
 
257

 
(167,794
)
Other comprehensive income, net of tax
2,666

 
(137,321
)
 
(8,887
)
 
247

 
(143,295
)
Balance as of June 30, 2014
$
27,679

 
$
36,342

 
$
492,559

 
$
(381
)
 
$
556,199

The amounts and line items of reclassifications out of Accumulated Other Comprehensive Income are as follows:
  
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
 
Affected Line Item in the Condensed Consolidated Statement of Operations
  
 
 
(in thousands)
2014
 
2013
 
2014
 
2013
 
Unrealized Gains on Available-for-sale Securities:
 
 
  
 
  
 
  
 
  
Realized (gain) loss for the period
$
(266,059
)
 
$
(333
)
 
$
(265,274
)
 
$
(884
)
 
Other income (expense), net
  
106,424

 
133

 
106,110

 
353

 
(1)
  
(159,635
)
 
(200
)
 
(159,164
)
 
(531
)
 
Net of Tax
Pension and Other Postretirement Plans:
  
 
  
 
 
 
  
 
  
Amortization of net prior service credit
(102
)
 
(384
)
 
(204
)
 
(821
)
 
(2)
Amortization of net actuarial (gain) loss
(7,425
)
 
2,004

 
(14,607
)
 
4,321

 
(2)
Settlement gain

 

 

 
(3,471
)
 
(2)
  
(7,527
)
 
1,620

 
(14,811
)
 
29

 
Before tax
  
3,011

 
(648
)
 
5,924

 
(12
)
 
Provision for Income Taxes
  
(4,516
)
 
972

 
(8,887
)
 
17

 
Net of Tax
Cash Flow Hedge
 
 
 
 
 
 
  
 
  
  
216

 
197

 
428

 
383

 
Interest expense
  
(86
)
 
(79
)
 
(171
)
 
(153
)
 
Provision for Income Taxes
  
130

 
118

 
257

 
230

 
Net of Tax
Total reclassification for the period
$
(164,021
)
 
$
890

 
$
(167,794
)
 
$
(284
)
 
Net of Tax
____________
(1)
Benefits of $0.9 million and $1.2 million were recorded in Provision for Income Taxes related to the realized loss for the three and six months ended June 30, 2014, respectively. The remaining $107.3 million for the three and six months ended June 30, 2014, relates to the reversal of income taxes previously recorded on the unrealized gain of the Company’s investment in Berkshire Hathaway Inc. marketable equity securities as part of the Berkshire exchange transaction (see Note 4). The amounts for the three and six months ended June 30, 2013 were recorded in Provision for Income Taxes.
(2)
These accumulated other comprehensive income components are included in the computation of net periodic pension and postretirement plan cost (see Note 9).

14



12. CONTINGENCIES
Litigation and Legal Matters.  The Company and its subsidiaries are involved in various legal proceedings that arise in the ordinary course of its business. Although the outcomes of the legal claims and proceedings against the Company cannot be predicted with certainty, based on currently available information, management believes that there are no existing claims or proceedings that are likely to have a material effect on the Company's business, financial condition, results of operations or cash flows. Also, based on currently available information, management is of the opinion that the exposure to future material losses from existing legal proceedings is not reasonably possible, or that future material losses in excess of the amounts accrued are not reasonably possible.
ED Program Reviews.  The U.S. Department of Education (ED) undertakes program reviews at Title IV participating institutions. Currently, there are three open program reviews, including Broomall, PA, as the Company is awaiting the ED’s final program review report. The Company does not expect the final program review reports to have a material impact on KHE; however, the results of these open reviews and their impact on Kaplan’s operations are uncertain.
The 90/10 Rule.  Under regulations referred to as the 90/10 rule, a KHE school would lose its eligibility to participate in Title IV programs for a period of at least two fiscal years if the institution derives more than 90% of its receipts from Title IV programs, as calculated on a cash basis in accordance with the Higher Education Act and applicable ED regulations, in each of two consecutive fiscal years. An institution with Title IV receipts exceeding 90% for a single fiscal year would be placed on provisional certification and may be subject to other enforcement measures. The 90/10 rule calculations are performed for each OPEID unit. KHE is taking various measures to reduce the percentage of its receipts attributable to Title IV funds, including modifying student payment options; emphasizing direct-pay and employer-paid education programs; encouraging students to carefully evaluate the amount of their Title IV borrowing; eliminating some programs; cash-matching; and developing and offering additional non-Title IV-eligible certificate preparation, professional development and continuing education programs. Absent the adoption of the changes mentioned above, and if current trends continue, management estimates that in 2014, three of the KHE Campuses’ OPEID units, representing approximately 1.7% of KHE’s 2013 revenues, could have a 90/10 ratio over 90%. As noted above, Kaplan is taking steps to address compliance with the 90/10 rule; however, there can be no guarantee that these measures will be adequate to prevent the 90/10 ratio at some of the schools from exceeding 90% in the future.
13. BUSINESS SEGMENTS
The Company has six reportable segments: Kaplan Higher Education, Kaplan Test Preparation, Kaplan International, cable, television broadcasting and other businesses.
Television Broadcasting. In June 2014, the Company completed the sale of WPLG, a television station serving the Miami market. WPLG results are included in discontinued operations, net of tax, for all periods presented. The television broadcasting segment operating results have been restated to reflect this change.

15



The following table summarizes financial information related to each of the Company’s business segments:
 
Three Months Ended
 
Six Months Ended
  
June 30
 
June 30
(in thousands)
2014
 
2013
 
2014
 
2013
Operating Revenues
 
 
 
 
 
 
 
Education
$
547,181

 
$
548,230

 
$
1,073,355

 
$
1,076,045

Cable
200,829

 
204,550

 
404,750

 
404,688

Television broadcasting
88,297

 
80,228

 
173,948

 
149,130

Other businesses
42,351

 
37,572

 
67,264

 
61,386

Corporate office

 

 

 

Intersegment elimination
(30
)
 
(76
)
 
(128
)
 
(153
)
  
$
878,628

 
$
870,504

 
$
1,719,189

 
$
1,691,096

Income (Loss) From Operations
 
 
 
 
 
 
 
Education
$
10,561

 
$
23,726

 
$
13,083

 
$
19,670

Cable
46,780

 
44,710

 
87,942

 
81,323

Television broadcasting
44,088

 
39,235

 
88,474

 
68,346

Other businesses
(6,995
)
 
(5,968
)
 
(17,742
)
 
(14,510
)
Corporate office
50

 
(5,402
)
 
2,256

 
(11,381
)
  
$
94,484

 
$
96,301

 
$
174,013

 
$
143,448

Equity in Earnings of Affiliates, Net
91,503

 
3,868

 
95,555

 
7,286

Interest Expense, Net
(7,916
)
 
(8,526
)
 
(16,137
)
 
(16,976
)
Other Income (Expense), Net
268,114

 
(12,858
)
 
401,387

 
(16,941
)
Income from Continuing Operations Before Income Taxes
$
446,185

 
$
78,785

 
$
654,818

 
$
116,817

Depreciation of Property, Plant and Equipment
 
 
 
 
 
 
 
Education
$
15,400

 
$
20,064

 
$
31,844

 
$
42,652

Cable
33,788

 
33,964

 
67,575

 
67,697

Television broadcasting
2,039

 
2,214

 
4,033

 
4,423

Other businesses
780

 
577

 
1,300

 
1,006

Corporate office
10

 
60

 
510

 
60

  
$
52,017

 
$
56,879

 
$
105,262

 
$
115,838

Amortization and Impairment of Intangible Assets
 
 
 
 
 
 
 
Education
$
9,937

 
$
2,363

 
$
12,225

 
$
4,881

Cable
59

 
57

 
94

 
107

Television broadcasting

 

 

 

Other businesses
1,138

 
893

 
1,896

 
2,042

Corporate office

 

 

 

  
$
11,134

 
$
3,313

 
$
14,215

 
$
7,030

Net Pension (Credit) Expense
 
 
 
 
 
 
 
Education
$
3,566

 
$
4,231

 
$
7,709

 
$
8,337

Cable
888

 
913

 
1,752

 
1,795

Television broadcasting
358

 
1,250

 
678

 
2,594

Other businesses
202

 
134

 
366

 
250

Corporate office
(22,933
)
 
(9,129
)
 
(40,612
)
 
(18,250
)
  
$
(17,919
)
 
$
(2,601
)
 
$
(30,107
)
 
$
(5,274
)
Asset information for the Company’s business segments are as follows:
  
  
As of
(in thousands)
June 30,
2014
 
December 31,
2013
Identifiable Assets
  
 
  
Education
$
1,743,192

 
$
1,921,037

Cable television
1,184,320

 
1,215,320

Television broadcasting
310,948

 
383,251

Other businesses
311,147

 
171,539

Corporate office
309,973

 
371,484

  
$
3,859,580

 
$
4,062,631

Investments in Marketable Equity Securities
117,536

 
487,156

Investments in Affiliates
21,006

 
15,754

Prepaid Pension Cost
1,261,294

 
1,245,505

Assets Held for Sale
30,290

 

Total Assets
$
5,289,706

 
$
5,811,046


16



The Company’s education division comprises the following operating segments:
  
Three Months Ended
 
Six Months Ended
  
June 30
 
June 30
(in thousands)
2014
 
2013
 
2014
 
2013
Operating Revenues
  
 
  
 
  
 
  
Higher education
$
251,936

 
$
273,092

 
$
505,715

 
$
544,952

Test preparation
81,098

 
85,690

 
148,902

 
154,633

Kaplan international
213,262

 
187,968

 
416,129

 
372,781

Kaplan corporate and other
1,385

 
1,669

 
3,399

 
4,273

Intersegment elimination
(500
)
 
(189
)
 
(790
)
 
(594
)
  
$
547,181

 
$
548,230

 
$
1,073,355

 
$
1,076,045

Income (Loss) from Operations
 
 
  

 
  

 
  

Higher education
$
20,952

 
$
22,534

 
$
34,096

 
$
27,635

Test preparation
(3,904
)
 
7,831

 
(10,532
)
 
3,486

Kaplan international
17,960

 
6,490

 
28,842

 
12,887

Kaplan corporate and other
(24,539
)
 
(13,223
)
 
(39,459
)
 
(24,563
)
Intersegment elimination
92

 
94

 
136

 
225

  
$
10,561

 
$
23,726

 
$
13,083

 
$
19,670

Depreciation of Property, Plant and Equipment
  

 
  

 
  

 
  

Higher education
$
7,080

 
$
10,741

 
$
14,820

 
$
24,180

Test preparation
3,072

 
4,866

 
6,856

 
9,624

Kaplan international
4,944

 
4,116

 
9,652

 
8,112

Kaplan corporate and other
304

 
341

 
516

 
736

  
$
15,400

 
$
20,064

 
$
31,844

 
$
42,652

Amortization of Intangible Assets
$
2,163

 
$
2,363

 
$
4,451

 
$
4,881

Impairment of Intangible Assets
$
7,774

 
$

 
$
7,774

 
$

Pension Expense
  

 
  

 
  

 
  

Higher education
$
2,629

 
$
2,807

 
$
5,257

 
$
5,614

Test preparation
722

 
641

 
1,444

 
1,281

Kaplan international
89

 
87

 
178

 
174

Kaplan corporate and other
126

 
696

 
830

 
1,268

  
$
3,566

 
$
4,231

 
$
7,709

 
$
8,337

Identifiable assets for the Company’s education division consist of the following:
  
As of
(in thousands)
June 30,
2014
 
December 31,
2013
Identifiable assets
  
 
  
Higher education
$
633,040

 
$
859,208

Test preparation
178,361

 
173,435

Kaplan international
888,559

 
864,507

Kaplan corporate and other
43,232

 
23,887

  
$
1,743,192

 
$
1,921,037


Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition.
This analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto.
Results of Operations
The Company reported income from continuing operations attributable to common shares of $369.7 million ($49.52 per share) for the second quarter of 2014, compared to $46.6 million ($6.28 per share) for the second quarter of 2013. Net income attributable to common shares was $750.1 million ($100.48 per share) for the second quarter ended June 30, 2014, compared to $44.7 million ($6.02 per share) for the second quarter of last year. Net income includes $380.5 million ($50.96 per share) in income and $2.0 million ($0.26 per share) in losses from discontinued operations for the second quarter of 2014 and 2013, respectively. (Refer to “Discontinued Operations” discussion below.)
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

17



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). As a result, income from continuing operations for the second quarter of 2014 includes a $266.7 million gain from the exchange of the Berkshire Hathaway shares, and income from discontinued operations for the second quarter of 2014 includes a $375.0 million gain from the WPLG exchange. Also, income from continuing operations excludes the operating results of WPLG, which have been reclassified to discontinued operations, net of tax, for all periods presented.
Items included in the Company’s income from continuing operations for the second quarter of 2014 are listed below:
$10.5 million in restructuring charges and software asset write-offs at the education division (after-tax impact of $6.7 million, or $0.90 per share);
a $7.8 million noncash intangible asset impairment charge at the education division (after-tax impact of $5.0 million, or $0.67 per share);
$90.9 million gain from the Classified Ventures’ sale of apartments.com (after-tax impact of $58.2 million, or $7.80 per share);
$266.7 million gain from the Berkshire exchange transaction (after-tax impact of $266.7 million, or $35.73 per share); and
$2.9 million in non-operating unrealized foreign currency gains (after-tax impact of $1.9 million, or $0.25 per share).  
Items included in the Company’s income from continuing operations for the second quarter of 2013 are listed below:
$4.9 million in restructuring charges at the education division (after-tax impact of $3.9 million, or $0.54 per share); and
$12.6 million in non-operating unrealized foreign currency losses (after-tax impact of $8.1 million, or $1.11 per share).
Revenue for the second quarter of 2014 was $878.6 million, up 1% from $870.5 million in the second quarter of 2013. The Company reported operating income of $94.5 million in the second quarter of 2014, compared to $96.3 million in the second quarter of 2013. Revenues increased at the television broadcasting division and in other businesses, declined at the cable division and were flat at the education division. Operating results were down in the second quarter of 2014 due to declines at the education division and in other businesses, offset by improvements at the television broadcasting and cable divisions.
For the first six months of 2014, the Company reported income from continuing operations attributable to common shares of $500.7 million ($67.13 per share), compared to $68.3 million ($9.21 per share) for the first six months of 2013. Net income attributable to common shares was $882.2 million ($118.26 per share) for the first six months of 2013, compared to $49.4 million ($6.66 per share) for the same period of 2013. Net income includes $381.5 million ($51.13 per share) in income and $18.9 million ($2.55 per share) in losses from discontinued operations for the first six months of 2014 and 2013, respectively. (Refer to “Discontinued Operations” discussion below.)
Items included in the Company’s income from continuing operations for the first six months of 2014 are listed below:
$15.0 million in early retirement program expense, restructuring charges and software asset write-offs at the education division and the corporate office (after-tax impact of $9.6 million, or $1.29 per share);
a $7.8 million noncash intangible asset impairment charge at the education division (after-tax impact of $5.0 million, or $0.67 per share);
$90.9 million gain from the Classified Ventures’ sale of apartments.com (after-tax impact of $58.2 million, or $7.80 per share);
$266.7 million gain from the Berkshire exchange transaction (after-tax impact of $266.7 million, or $35.73 per share);
$127.7 million gain on the sale of the corporate headquarters building (after-tax impact of $81.8 million, or $11.13 per share); and
$7.9 million in non-operating unrealized foreign currency gains (after-tax impact of $5.1 million, or $0.69 per share).

18



Items included in the Company’s income from continuing operations for the first six months of 2013 are listed below:
$14.3 million in restructuring charges at the education division (after-tax impact of $10.1 million, or $1.39 per share); and
$17.2 million in non-operating unrealized foreign currency losses (after-tax impact of $11.0 million, or $1.52 per share).
Revenue for the first six months of 2014 was $1,719.2 million, up 2% from $1,691.1 million in the first six months of 2013. Revenues increased at the television broadcasting division and in other businesses, while revenues at the education and cable divisions were flat. The Company reported operating income of $174.0 million for the first six months of 2014, compared to $143.4 million for the first six months of 2013. Operating results improved at the television broadcasting and cable divisions, offset by a decline at the education division and in other businesses.
Division Results
Education  
Education division revenue totaled $547.2 million for the second quarter of 2014, essentially flat compared with revenue of $548.2 million for the second quarter of 2013. Kaplan reported second quarter 2014 operating income of $10.6 million, compared to $23.7 million in the second quarter of 2013. Restructuring costs and software asset write-offs totaled $10.5 million and $4.9 million for the second quarter of 2014 and 2013, respectively. Operating results for the second quarter of 2014 also include a $7.8 million intangible asset impairment charge related to the Kaplan China operations.
For the first six months of 2014, education division revenue totaled $1,073.4 million, essentially flat compared with revenue of $1,076.0 million for the same period of 2013. Kaplan reported operating income of $13.1 million for the first six months of 2014, compared to operating income of $19.7 million for the first six months of 2013. Restructuring costs and software asset write-offs totaled $10.5 million and $14.3 million for the first six months of 2014 and 2013, respectively. Operating results for the first six months of 2014 also include a $7.8 million intangible asset impairment charge related to the Kaplan China operations.
A summary of Kaplan’s operating results for the second quarter and first six months of 2014 compared to 2013 is as follows:
 
Three Months Ended
 
 
 
Six Months Ended
 
 
  
June 30
 
  
 
June 30
 
  
(in thousands)
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
Revenue
  
 
  
 
  
 
  
 
  
 
  
Higher education
$
251,936

 
$
273,092

 
(8
)
 
$
505,715

 
$
544,952

 
(7
)
Test preparation
81,098

 
85,690

 
(5
)
 
148,902

 
154,633

 
(4
)
Kaplan international
213,262

 
187,968

 
13

 
416,129

 
372,781

 
12

Kaplan corporate and other
1,385

 
1,669

 
(17
)
 
3,399

 
4,273

 
(20
)
Intersegment elimination
(500
)
 
(189
)
 

 
(790
)
 
(594
)
 

  
$
547,181

 
$
548,230

 
0

 
$
1,073,355

 
$
1,076,045

 
0

Operating Income (Loss)
  

 
  

 
  

 
  

 
  

 
  

Higher education
$
20,952

 
$
22,534

 
(7
)
 
$
34,096

 
$
27,635

 
23

Test preparation
(3,904
)
 
7,831

 

 
(10,532
)
 
3,486

 

Kaplan international
17,960

 
6,490

 

 
28,842

 
12,887

 

Kaplan corporate and other
(14,602
)
 
(10,860
)
 
(34
)
 
(27,234
)
 
(19,682
)
 
(38
)
Amortization of intangible assets
(2,163
)
 
(2,363
)
 
8

 
(4,451
)
 
(4,881
)
 
9

Impairment of intangible assets
(7,774
)
 

 

 
(7,774
)
 

 

Intersegment elimination
92

 
94

 

 
136

 
225

 

  
$
10,561

 
$
23,726

 
(55
)
 
$
13,083

 
$
19,670

 
(33
)
Kaplan Higher Education (KHE) includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.
In 2012, KHE began implementing plans to close or merge 13 ground campuses, consolidate other facilities and reduce its workforce. The last two of these campus closures were completed in the second quarter of 2014. In April 2014, KHE announced plans to close two additional ground campuses, and in July 2014, KHE announced plans to close an additional three campuses; KHE will teach out the current students and the campus closures will be completed by the end of 2015. In July 2014, KHE also announced plans to further reduce its workforce. In connection with these and other plans, KHE incurred $2.5 million in restructuring costs for the second quarter and first six months of 2014 and $2.6 million and $11.6 million in restructuring costs in the second quarter and first six

19



months of 2013, respectively. For the second quarter of 2014, these costs included severance ($2.0 million), accelerated depreciation ($0.3 million), lease obligation losses ($0.1 million) and other items ($0.1 million). For the second quarter of 2013, these costs included accelerated depreciation ($1.4 million), severance ($0.6 million) and lease obligation losses ($0.6 million). For the first six months of 2013, these costs included accelerated depreciation ($5.0 million), severance ($1.4 million), lease obligation losses ($4.3 million) and other items ($0.9 million).
In the second quarter and first six months of 2014, KHE revenue declined 8% and 7%, respectively, due largely to declines in average enrollments that reflect weaker market demand over the past year, lower average tuition and the impact of closed campuses. KHE operating income declined in the second quarter due largely to revenue declines, partially offset by expense reductions associated with lower enrollments and recent restructuring efforts. KHE operating income increased in the first six months of 2014 due largely to expense reductions associated with lower enrollments and recent restructuring efforts, as well as higher restructuring costs recorded in 2013.
New student enrollments at KHE declined 9% in the second quarter of 2014 due to lower demand across KHE and the impact of closed campuses. New student enrollments increased 5% for the first six months of 2014 due to growth at Kaplan University in the first quarter of 2014, offset in part by declines at KHE campuses.
Total students at June 30, 2014, were down 2% compared to June 30, 2013, and declined 7% compared to March 31, 2014. Excluding campuses closed or planned for closure, total students at June 30, 2014, were down 1% compared to June 30, 2013 and down 7% compared to March 31, 2014. A summary of student enrollments is as follows:
 
 
 
 
 
 
 
 
Excluding Campuses Closing
  
 
As of
 
As of
  
 
June 30,
2014
 
March 31,
2014
 
June 30,
2013
 
June 30,
2014
 
March 31,
2014
 
June 30,
2013
 
 
 
 
 
 
Kaplan University
 
44,515

 
47,109

 
43,601

 
44,515

 
47,109

 
43,601

Other Campuses
 
16,508

 
18,842

 
18,591

 
15,221

 
16,997

 
16,623

  
 
61,023

 
65,951

 
62,192

 
59,736

 
64,106

 
60,224

Kaplan University and Other Campuses enrollments at June 30, 2014 and 2013, by degree and certificate programs, are as follows:
  
As of June 30
  
2014
 
2013
Certificate
21.1
%
 
21.7
%
Associate’s
30.2
%
 
30.5
%
Bachelor’s
32.2
%
 
33.1
%
Master’s
16.5
%
 
14.7
%
  
100.0
%
 
100.0
%
Kaplan Test Preparation (KTP) includes Kaplan’s standardized test preparation programs. KTP revenue declined 5% and 4% for the second quarter and first six months of 2014, respectively. Enrollment increased 3% and 2% for the second quarter and first six months of 2014, respectively, due to growth in health and bar review programs, offset by declines in graduate and pre-college programs. KTP recorded a $7.7 million software asset write-off in the second quarter of 2014 as a decision was made to consolidate certain learning management systems. KTP operating results declined in the first six months of 2014 due to this software asset write-off and an increase in program length for MCAT courses that extends revenue recognition periods.  
Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased 13% and 12% in the second quarter and first six months of 2014, respectively, due to enrollment growth in the pathways programs, English-language and Singapore higher education programs. Kaplan International operating income improved in the second quarter and first six months of 2014 due to improved earnings in the pathways and English-language programs, as well as improved results from operations in Australia. In the second quarter and first six months of 2013, restructuring costs in Australia totaled $2.3 million and $2.6 million, respectively, largely made up of severance costs.
Kaplan corporate represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities. Corporate expense increased in the first six months of 2014 due to higher compensation expense and costs associated with new business development activities.
Kaplan continues to evaluate its cost structure and will likely develop additional restructuring plans in 2014 and incur additional costs.

20



Cable
Cable division revenue declined 2% in the second quarter of 2014 to $200.8 million, from $204.6 million for the second quarter of 2013, due to 4% fewer customers and 7% fewer Primary Service Units (PSUs). For the first six months of 2014, revenue of $404.8 million was flat with the prior year. Operating expenses in the second quarter declined 4%, from $159.8 million to $154.0 million due to fewer customers and significantly reduced programming costs. Operating expenses declined 2% in the first six months of 2014 to $316.8 million. Cable division operating income grew 5% in the second quarter of 2014 to $46.8 million, from $44.7 million in the second quarter of 2013; for the first six months of 2014, operating income increased 8% to $87.9 million, from $81.3 million in the first six months of 2013.
The cable division continues its focus on higher value and higher margin lines of business and customers, in particular high-speed data (subscribers up 4% over the second quarter of last year). Also, business sales comprised 8.9% of total revenue for the first six months of 2014, compared with 7.5% of total revenue for the first six months of 2013. Due to rapidly rising programming costs and shrinking margins, video sales now have less value and emphasis (subscribers down 15% over the second quarter of last year) and programming costs have been reduced significantly. Effective April 1, 2014, the cable division elected not to renew its contract for 15 Viacom networks for a six-year term.
PSUs include about 6,000 subscribers who receive free basic cable service, primarily local governments, schools, and other organizations as required by various franchise agreements. A summary of PSUs and total customers is as follows:
  
As of June 30
  
2014
 
2013
Video
490,309

 
575,762

High-speed data
482,725

 
464,292

Telephony
168,695

 
185,380

Total Primary Service Units (PSUs)
1,141,729

 
1,225,434

Total Customers
698,699

 
725,525


In July 2014, the cable division sold wireless spectrum licenses for approximately $99 million; an estimated pre-tax gain of $75 million will be reported in the third quarter of 2014 in connection with these sales. The licenses had been purchased in the 2006 AWS Auction.
Television Broadcasting
Revenue at the television broadcasting division increased 10% to $88.3 million in the second quarter of 2014, from $80.2 million in the same period of 2013; operating income for the second quarter of 2014 was up 12% to $44.1 million, from $39.2 million in the same period of 2013. The increase in revenue and operating income in the second quarter of 2014 is due to a $3.8 million increase in political advertising revenue and $4.6 million in increased retransmission revenues.
For the first six months of 2014, revenue increased 17% to $173.9 million, from $149.1 million in the same period of 2013; operating income for the first six months of 2014 increased 29% to $88.5 million, from $68.3 million in the same period of 2013. The increase in revenue and operating income is due to a $6.9 million increase in political advertising revenue, $9.5 million in incremental winter Olympics-related advertising revenue at the Company’s NBC affiliates and $9.3 million in increased retransmission revenues.
As discussed above, the television broadcasting operating results exclude WPLG, the Company’s Miami-based television station, which has been reclassified to discontinued operations for all periods presented.
Other Businesses
Other businesses includes the operating results of The Slate Group and Foreign Policy Group, which publish online and print magazines and websites; SocialCode, a marketing solutions provider helping companies with marketing on social-media platforms; Celtic Healthcare, a provider of home health and hospice services; Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications, acquired by the Company in August 2013; and Trove, a digital innovation team that builds products and technologies in the news space.
In April 2014, Celtic Healthcare acquired the assets of VNA-TIP Healthcare of Bridgeton, MO. This acquisition has expanded Celtic's home health and hospice service areas from Pennsylvania and Maryland to the Missouri and Illinois regions. The operating results of VNA-TIP are included in Other Businesses from the date of acquisition in the second quarter of 2014.

21



On May 30, 2014, the Company acquired Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems. The operating results of Joyce/Dayton are included in Other Businesses from the date of acquisition in the second quarter of 2014.
On July 3, 2014, the Company acquired a majority interest in Residential Healthcare Group, Inc. (Residential), the parent company of Residential Home Health and Residential Hospice, leading providers of skilled home health care and hospice services in Michigan and Illinois. The operating results of Residential will be included in Other Businesses from the date of acquisition in the third quarter of 2014.
Corporate Office
Corporate office includes the expenses of the Company’s corporate office, the pension credit for the Company’s traditional defined benefit plan and certain continuing obligations related to prior business dispositions. In the first quarter of 2014, the corporate office implemented a Separation Incentive Program that resulted in early retirement program expense of $4.5 million, which will be funded from the assets of the Company’s pension plan. Excluding early retirement program expense, the total pension credit for the Company’s traditional defined benefit plan was $45.4 million and $18.9 million in the first six months of 2014 and 2013, respectively.
Excluding the pension credit, corporate office expenses increased in the first six months of 2014 due primarily to higher compensation costs and expenses related to certain acquisitions.
Near the end of June 2014, the Company offered a Voluntary Retirement Incentive Plan (VRIP) to certain corporate office employees. The VRIP acceptance period ends in August, and the expense of the VRIP will be recognized in the third quarter of 2014.
Equity in Earnings (Losses) of Affiliates
The Company holds a 16.5% interest in Classified Ventures, LLC and interests in several other affiliates.
The Company’s equity in earnings of affiliates, net, was $91.5 million for the second quarter of 2014, compared to $3.9 million for the second quarter of 2013. For the first six months of 2014, the Company’s equity in earnings of affiliates, net, totaled $95.6 million, compared to $7.3 million for the same period of 2013.
The 2014 results include the pre-tax gain of $90.9 million from Classified Ventures’ sale of apartments.com in the second quarter of 2014.
On August 4, 2014, the Company and its partners entered into an agreement to sell their stake in Classified Ventures to Gannett Co., Inc. for a price that values Classified Ventures at $2.5 billion. Gannett currently owns a 27% share of Classified Ventures; Graham Holdings owns a 16.5% interest in Classified Ventures. The transaction is expected to close before the end of 2014, subject to regulatory review.
Other Non-Operating Income (Expense)
The Company recorded total other non-operating income, net, of $268.1 million for the second quarter of 2014, compared to expense of $12.9 million for the second quarter of 2013. The second quarter 2014 non-operating income, net, included a pre-tax gain of $266.7 million in connection with the Company’s exchange of Berkshire shares. Second quarter 2014 non-operating income, net, also included $2.9 million in unrealized foreign currency gains and other items. The second quarter 2013 non-operating expense, net, included $12.6 million in unrealized foreign currency losses and other items.
The Company recorded non-operating income, net, of $401.4 million for the first six months of 2014, compared to other non-operating expense, net, of $16.9 million for the same period of the prior year. The 2014 amounts included the pre-tax gain of $266.7 million in connection with the Company's exchange of Berkshire shares, a pre-tax gain of $127.7 million on the sale of the headquarters building, $7.9 million in unrealized foreign currency gains and other items. The 2013 non-operating income, net, included $17.2 million in unrealized foreign currency losses and other items.
Net Interest Expense 
The Company incurred net interest expense of $7.9 million and $16.1 million for the second quarter and first six months of 2014, respectively, compared to $8.5 million and $17.0 million for the same periods of 2013. At June 30, 2014, the Company had $451.9 million in borrowings outstanding at an average interest rate of 7.0%.
Provision for Income Taxes
The effective tax rate for income from continuing operations for the first six months of 2014 was 23.5%, compared to 40.7% for the first six months of 2013. The lower effective tax rate in 2014 relates to the Berkshire exchange

22



transaction. The pre-tax gain of $266.7 million related to the disposition of the Berkshire shares was not subject to income tax as the exchange transaction qualifies as a tax-free distribution. The higher effective tax rate in 2013 resulted mostly from losses in Australia for which no tax benefit was recorded.
Discontinued Operations
On June 30, 2014, the Company and Berkshire Hathaway Inc. completed the Berkshire exchange transaction discussed above. A gain of $375.0 million was recorded in discontinued operations in connection with the disposition of WPLG, a Miami-based television station. This gain is not subject to income tax. Also as a result of the exchange transaction, income from continuing operations excludes WPLG, which has been reclassified to discontinued operations, net of tax, for all periods presented.
Earnings (Loss) Per Share
The calculation of diluted earnings per share for the second quarter and first six months of 2014 was based on 7,363,492 and 7,361,441 weighted average shares outstanding, respectively, compared to 7,283,116 and 7,276,421 for the second quarter and first six months of 2013. At June 30, 2014, there were 5,792,628 shares outstanding after the Company acquired 1,620,190 shares in the Berkshire exchange transaction. The Company had remaining authorization from the Board of Directors to purchase up to 159,219 shares of Class B common stock. The earnings per share computations for the second quarter and first six months of 2014 are largely unaffected by the common shares repurchased as part of the Berkshire exchange transaction, as the transaction closed on June 30, 2014.
Kaplan Higher Education (KHE) Regulatory Matters
The Department of Education (ED) convened a negotiated rulemaking committee in September 2013 to consider a new gainful employment rule that is expected to go into effect in July 2015. On March 25, 2014, the ED released a final draft regulation. The new proposed regulation requires that each educational program meet certain debt-to-earnings ratios and a programmatic level loan cohort default rate metric. Programs that fail one of these proposed metrics multiple years in a row would become ineligible for Title IV aid. The proposed rule also includes revised requirements for program approval, public disclosure on certain outcomes (graduation, placement, repayment rates, and other consumer information) and a “certification” requirement that each program is included in the school’s accreditation grant and has programmatic level accreditation if required for licensure in the occupation. A new final regulation published on or before November 1, 2014, generally would have an effective date of July 1, 2015, although the ultimate effective date is unknown at this time. The Company cannot predict the ultimate timing or substance of gainful employment regulations, nor can the Company fully predict the impact on Kaplan programs or institutions. Moreover, some of the data needed to compute program eligibility under the final draft regulation are not readily accessible; graduate incomes would be compiled by the Social Security Administration. In addition, the continuing eligibility of programs for Title IV funding may be affected by factors beyond Kaplan’s control, such as changes in the actual or deemed income level of its graduates, changes in student borrowing levels, increases in interest rates, changes in the U.S. Federal poverty income level relevant for calculating one of the proposed metrics and other factors. As a result, the ultimate outcome of gainful employment regulation and its impact on Kaplan’s operations is uncertain. The proposed regulation could cause Kaplan to eliminate or limit enrollments in certain educational programs at some or all of its schools, could result in the loss of student access to Title IV programs and could have a material adverse impact on KHE revenues, operating income and cash flows.
Financial Condition: Capital Resources and Liquidity
Acquisitions, Dispositions and Exchanges
Acquisitions.  In the first six months of 2014, the Company acquired six businesses 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 a preliminary basis. In the first six months of 2013, the Company acquired two small businesses included in other businesses; the purchase price allocation mostly comprised goodwill and other intangible 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. The operating results of VNA-TIP and Joyce are included in other businesses.
In the second quarter of 2013, Kaplan purchased the remaining 15% noncontrolling interest in Kaplan China; this additional interest was accounted for as an equity transaction.
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, leading providers of skilled home health

23



care and hospice services in Michigan and Illinois. The operating results of Residential will be included in other businesses beginning in the third quarter of 2014.
Dispositions. On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses. The publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites (Publishing Subsidiaries).
In March 2013, the Company completed the sale of certain assets of The Herald, a daily and Sunday newspaper headquartered in Everett, WA.
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). As a result, income from continuing operations for the second quarter of 2014 includes a $266.7 million gain from the sale of the Berkshire Hathaway shares, and income from discontinued operations for the second quarter of 2014 includes a $375.0 million gain from the WPLG exchange.
Consequently, the Company’s income from continuing operations excludes these sold or exchanged businesses, which have been reclassified to discontinued operations, net of tax.
Capital Expenditures
During the first six months of 2014, the Company’s capital expenditures totaled $92.6 million. The Company estimates that its capital expenditures will be in the range of $225 million to $250 million in 2014.
Liquidity
At June 30, 2014, the Company had cash and cash equivalents, restricted cash and investments in marketable securities and other investments totaling $610.1 million, compared with $1,175.8 million at December 31, 2013. The decrease is from the Berkshire exchange transaction and other investing and financing activities, offset by asset sales and cash flows from operating activities.
The Company’s total debt outstanding of $451.9 million at June 30, 2014 included $398.1 million of 7.25% unsecured notes due February 1, 2019, $47.1 million of AUD 50 million borrowing and $6.8 million in other debt. The $47.1 million of AUD 50 million is classified as a current liability at June 30, 2014.
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 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).
On March 27, 2014, the Company completed the sale of its headquarters building for approximately $158.0 million. On April 1, 2014, the Company received a gross cash distribution of $95.0 million from Classified Ventures' sale of apartments.com. In July 2014, the cable division sold its wireless spectrum licenses for approximately $99 million.
On August 4, 2014, the Company and its partners entered into an agreement to sell their stake in Classified Ventures to Gannett Co., Inc. for a price that values Classified Ventures at $2.5 billion. Gannett currently owns a 27% share of Classified Ventures; the Company owns a 16.5% interest in Classified Ventures. The transaction is expected to close before the end of 2014, subject to regulatory review.
As of June 30, 2014, the Company held investments in commercial paper totaling $99.9 million with original maturities over 90 days. The Company did not have any investments in commercial paper at December 31, 2013. For the six months of 2014, these investments are presented in the Company's Condensed Consolidated Statements of Cash Flows as net cash used in investing activities.
In June 2011, the Company entered into a credit agreement (the Credit Agreement) providing for a U.S. $450 million, AUD 50 million four year revolving credit facility (the Facility), with each of the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent (JP Morgan), and J.P. Morgan Australia Limited, as Australian Sub-Agent. The Facility will expire on June 17, 2015, unless the Company and the banks agree to extend the term.
In September 2013, Standard and Poor’s affirmed the Company's “BBB” long-term corporate debt rating and changed the outlook from Negative to Stable. In addition, S&P upgraded the Company’s short-term corporate debt rating from “A-3” to “A-2”. On March 12, 2014, Moody's placed the Company's senior unsecured rating and its

24



Prime-2 commercial paper rating on review for downgrade. On June 26, 2014, Moody's downgraded the Company's long-term credit ratings by two levels from Baa1 to Baa3 and the short-term rating by one level from Prime-2 to Prime 3 and changed the outlook to stable. The Company’s current credit ratings are as follows:
 
Moody’s
 
Standard
& Poor’s
Long-term
Baa3
 
BBB
Short-term
Prime-3
 
A-2
At June 30, 2014 and December 31, 2013, the Company had working capital of $219.8 million and $768.3 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments. The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds and to a lesser extent borrowings supported by the Company's Credit Agreement. In management’s opinion, the Company will have sufficient liquidity to meet its various cash needs throughout 2014.
There were no significant changes to the Company’s contractual obligations or other commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Forward-Looking Statements
This report contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk in the normal course of its business due primarily to its ownership of marketable equity securities, which are subject to equity price risk; to its borrowing and cash-management activities, which are subject to interest rate risk; and to its foreign business operations, which are subject to foreign exchange rate risk. The Company’s market risk disclosures set forth in its 2013 Annual Report filed on Form 10-K have not otherwise changed significantly.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal executive officer) and the Company’s Senior Vice President-Finance (the Company’s principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of June 30, 2014. Based on that evaluation, the Company’s Chief Executive Officer and Senior Vice President-Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Senior Vice President-Finance, in a manner that allows timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

25



PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the quarter ended June 30, 2014, the Company purchased shares of its Class B Common Stock as set forth in the following table:
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plan*
 
Maximum Number of Shares that May Yet Be Purchased Under the Plan*
Apr. 1 - Apr. 30, 2014
 

 
$

 

 
159,219

May. 1 - May. 31, 2014
 

 

 

 
159,219

Jun. 1 - Jun. 30, 2014
 
1,620,190

 
719.32

 

 
159,219

 
 
1,620,190

 
$
719.32

 

 
 
* On September 8, 2011, the Company’s Board of Directors authorized the Company to purchase, on the open market or otherwise, up to 750,000 shares of its Class B Common Stock. There is no expiration date for that authorization. All purchases made during the quarter ended June 30, 2014 were acquired as part of the exchange transaction with Berkshire Hathaway, which received separate authorization by the Company's Board of Directors.

26



Item 6. Exhibits.
Exhibit
Number 
Description 
 
 
3.1
Restated Certificate of Incorporation of the Company dated November 13, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003).
 
 
3.2
Certificate of Amendment, effective November 29, 2013, to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s current Report on Form 8-K dated November 29, 2013).
 
 
3.3
Certificate of Designation for the Company’s Series A Preferred Stock dated September 22, 2003 (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company’s Current Report on Form 8-K dated September 22, 2003).
 
 
3.4
By-Laws of the Company as amended and restated through November 29, 2013 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated November 29, 2013).
 
 
4.1
Second Supplemental Indenture dated January 30, 2009, between the Company and The Bank of New York Mellon Trust Company, N.A., as successor to The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 30, 2009).
 
 
4.2
Four Year Credit Agreement, dated as of June 17, 2011, among the Company, JPMorgan Chase Bank, N.A., J.P. Morgan Australia Limited, Wells Fargo Bank, N.A., The Royal Bank of Scotland PLC, HSBC Bank USA, National Association, The Bank of New York Mellon, PNC Bank, National Association, Bank of America, N.A., Citibank, N.A. and The Northern Trust Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 17, 2011).
 
 
31.1
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
 
 
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
 
 
32
Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer.
 
 
101
The following financial information from Graham Holdings Company Quarterly Report on Form 10-Q for the period ended June 30, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013, (ii) Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2014 and 2013, (iii) Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.


27



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
GRAHAM HOLDINGS COMPANY
 
 
(Registrant)
 
 
 
Date: August 5, 2014
 
/s/ Donald E. Graham 
 
 
Donald E. Graham,
Chairman & Chief Executive Officer
(Principal Executive Officer)
 
 
 
Date: August 5, 2014
 
/s/ Hal S. Jones
 
 
Hal S. Jones,
Senior Vice President-Finance
(Principal Financial Officer)

28