Graham Holdings Company — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Graham Holdings is a diversified holding company operating in education, television broadcasting, manufacturing, healthcare, automotive, and other businesses.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $3,924.5 million | $3,186.0 million |
| Operating income | $83.9 million | $77.4 million |
| Net income attributable to Graham Holdings common stockholders | $67.1 million; diluted EPS $13.79 | $352.1 million; diluted EPS $70.45 |
| Net cash from operating activities | $235.6 million | $202.4 million |
| Cash and cash equivalents | $169.3 million | $145.9 million |
| Total debt | $726.4 million | $667.5 million |
| Working capital | $534.1 million | $680.8 million |
Revenue increased 23%, reflecting growth across divisions, including acquisitions and political advertising. Operating income rose modestly; operating margin was approximately 2.1%. The reported earnings comparison was heavily affected by volatile investment gains and losses, pension items, and impairment charges.
Cash, marketable securities, and other investments totaled $812.8 million at year-end. The $300 million revolving credit facility had $200.2 million drawn, leaving $99.8 million available. The company reported $400 million of 5.75% unsecured notes due June 2026 and stated it was in compliance with debt covenants. Moody’s and S&P ratings were Ba1 and BB, respectively, both with Stable outlooks.
Segments and changes versus 2021
| Business | 2022 revenue | 2022 operating income | Notable year-over-year change |
|---|---|---|---|
| Education | $1,427.9 million | $82.9 million | Revenue +5%; operating income increased from $50.6 million. International recovery improved results; Supplemental Education declined. |
| Television broadcasting | $535.7 million | $201.9 million | Revenue +8% and operating income +35%, mainly from election-cycle political advertising; operating margin was 38% versus 30%. |
| Manufacturing | $486.6 million | $33.7 million | Revenue +6%; returned to operating profit from a 2021 loss, partly because 2021 included significant impairment charges. |
| Healthcare | $326.0 million | $15.3 million | Revenue +46%, mainly from acquisitions and growth at CSI Pharmacy; operating income fell 43%, including new pension-program expense and acquired-business losses. |
| Automotive | $734.2 million | $34.6 million | Growth reflected dealership acquisitions, including two Woodbridge dealerships in July 2022, and higher selling prices. |
| Other businesses | $416.1 million | Operating loss $228.4 million | Loss widened substantially, primarily due to Leaf impairment and increased losses at several businesses. |
Cash flow, capital allocation, and unusual items
- Operating cash flow increased to $235.6 million. Investing activities used $184.1 million and financing activities used $18.1 million; cash and restricted cash increased $31.6 million.
- 2022 investing included $130.1 million for acquisitions, net of cash acquired, and $82.7 million of cash capital expenditures. Management estimated 2023 capital expenditures of $85–$95 million.
- The company repurchased $71.4 million of Class B shares and paid $30.7 million in dividends in 2022. It expected a 2023 dividend of $6.60 per share, compared with $6.32 in 2022.
- Leaf impairment charges were $129.0 million in the fourth quarter. The company cited weaker digital-advertising outlook and reduced consumer demand for art and related goods; further impairments remain possible.
- Net losses on marketable equity securities were $139.6 million in 2022, compared with net gains of $243.1 million in 2021. Non-operating pension and postretirement benefit income was $197.9 million, compared with $109.2 million.
- The effective tax rate was 42.1%, versus 21.4% in 2021; management said the 2022 rate was adversely affected by impairment-related permanent differences and interest expense tied to a redeemable noncontrolling interest.
Outlook, risks, and contingencies
Management said it expects sufficient resources for the next 12 months and plans to fund capital needs primarily with cash and internally generated funds, supplemented as needed by its revolving facility. The filing does not provide consolidated earnings or revenue guidance. Management estimated a 2023 pension credit of approximately $109 million.
- Education regulation and litigation: Kaplan faces potential liability related to borrower-defense applications involving former schools. The filing reports 1,449 applications seeking discharge of approximately $35 million in loans. A court-approved Sweet v. Cardona settlement is expected to cover those applications, but the Department of Education may still pursue recoupment from Kaplan. Purdue Global’s provisional Title IV certification runs through June 30, 2024; regulatory changes effective July 1, 2023 could also affect its arrangements with Kaplan.
- Other legal matters: Management believed no existing claims were likely to have a material effect, but estimated reasonably possible future losses from existing and threatened proceedings in excess of recorded amounts could reach approximately $15 million.
- Business risks: Key exposures include student enrollment and travel restrictions, education regulation, cord-cutting and retransmission economics, advertising competition, healthcare reimbursement and staffing, vehicle supply and demand, macroeconomic pressure on Leaf, and cybersecurity and privacy risks.
- Concentration and valuation: The company held $609.9 million of marketable equity securities, including a $347.0 million Berkshire Hathaway position. Pension assets declined to $2.53 billion from $3.39 billion, with a reported 2022 investment return of negative 23.4%.
Most important facts for investors to verify
- Whether Leaf stabilizes or continues to decline, and whether additional impairment charges are needed.
- The collection and future recognition of Kaplan’s Purdue Global fees, Purdue Global’s Title IV status, and any Department of Education recoupment related to borrower-defense claims.
- How much of 2022 earnings and cash flow is repeatable after separating operating performance from securities marks, pension credits, impairment, and acquisition effects.
- Debt, borrowing costs, facility availability, and the effect of variable-rate exposure as the company integrates acquisitions.
- Whether political-advertising-driven broadcasting results and acquired-business growth can be sustained as cord-cutting and other market pressures continue.