Graham Holdings Company — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023. This annual filing also reports fourth-quarter results. Graham Holdings is a diversified holding company spanning education, television broadcasting, manufacturing, healthcare, automotive and other businesses.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $4.415 billion | $3.924 billion |
| Operating income | $69.4 million | $83.9 million |
| Net income attributable to common stockholders | $205.3 million | $67.1 million |
| Diluted EPS | $43.82 | $13.79 |
| Cash from operations | $259.9 million | $235.6 million |
| Cash and cash equivalents at year-end | $169.9 million | $169.3 million |
| Total debt at year-end | $811.8 million | $726.4 million |
| Working capital at year-end | $619.6 million | $534.1 million |
Revenue increased 12%, but operating income fell about 17%; consolidated operating margin was approximately 1.6% versus 2.1%. Net income rose sharply, while results included substantial non-operating gains and pension income. The company recorded $138.1 million in net gains on marketable equity securities and $133.8 million in non-operating pension and postretirement benefit income; it also recorded $99.1 million in goodwill and other long-lived asset impairments. These items make reported net income less indicative of underlying operating trends.
Operating cash flow exceeded cash capital expenditures of $93.4 million. Investing activities used $153.0 million and financing activities used $99.8 million. At year-end, the company had $690.2 million of marketable equity securities and $6.9 million of other current investments. Its $300 million revolving credit facility had $97.9 million drawn, leaving $202.1 million available. Approximately $138 million of cash was held outside the U.S.; management says a significant portion of foreign cash is not readily available for U.S. operations. Debt includes $400 million principal of 5.75% notes due June 2026 and new variable-rate term loans; a swap fixes the rate on the $75.2 million automotive real estate loan at 6.42%.
Material changes versus FY2022
- Education: Revenue rose 11% to $1.588 billion and operating income increased to $104.5 million from $82.9 million. International growth and a higher Purdue Global fee contributed. Supplemental Education revenue fell 3%, reflecting weaker graduate and pre-college test-prep demand; lower headcount helped results.
- Television broadcasting: Revenue declined 12% to $472.4 million and operating income fell 34% to $133.9 million, primarily because political advertising was $57.8 million lower than in the 2022 election year. Retransmission revenue, net of network fees, declined modestly.
- Manufacturing: Revenue fell 8% to $447.9 million. The segment recorded a $47.8 million Dekko goodwill impairment amid sustained weakness in commercial-office electrical demand and reported a $16.8 million operating loss.
- Healthcare: Revenue increased 41% to $459.5 million and operating income rose to $23.8 million, supported by CSI Pharmacy growth, acquisitions and home health and hospice expansion.
- Automotive: Revenue rose 47% to $1.080 billion, largely from dealership acquisitions and sales growth; operating income increased 13% to $39.3 million. The company acquired Toyota of Richmond and opened a Kia dealership in 2023.
- Other businesses: Revenue declined 11% to $369.7 million. A $50.2 million WGB goodwill impairment followed digital-advertising declines and operating losses. Former Leaf businesses continued to report significant losses, although lower 2022 impairment charges made reported other-business operating losses smaller year over year.
Outlook, risks and unusual items
- Management expects sufficient resources for business requirements over the next 12 months, including working capital, capital spending, interest, acquisitions, dividends and repurchases. It estimated 2024 capital expenditures of $95–$105 million and expected a 2024 annual dividend rate of $6.88 per share. No consolidated revenue or earnings guidance is provided in the supplied filing text.
- Management estimated a 2024 net pension credit of approximately $118 million. Pension accounting assumptions and asset performance materially affect reported non-operating results.
- Key risks include education regulation and international student visa policies; Purdue Global’s provisional Title IV certification, which the filing says ran through June 30, 2024; possible borrower-defense claims relating to previously owned schools; Medicare reimbursement and healthcare staffing; broadcast advertising and cord-cutting trends; manufacturing demand and labor availability; and further impairments at WGB or Framebridge.
- The Department of Education had sought discharge of approximately $35 million of loans relating to former Kaplan University students, excluding interest. In January 2024, Kaplan was notified of additional borrower-defense applications; the total amount and potential exposure were not clear. Kaplan says it intends to defend against any reimbursement claims.
- The filing reports that previously issued 2022 balance-sheet and 2021–2022 cash-flow amounts were revised for misclassifications and other errors management determined were not material; the revisions did not affect previously reported statements of operations. Investors should distinguish these revisions from any broader characterization of a restatement.
- Graham Holdings recorded $193.2 million of cash share repurchases in 2023 and paid $31.0 million in dividends. The company’s Class A shareholders retain majority voting control; Class B shares have limited voting rights.
Most important facts for investors to verify
- Reconcile reported net income and EPS to recurring operating performance, particularly the marketable-security gains, pension credit and impairment charges.
- Track Purdue Global fee recognition, collectability, Title IV certification status and any developments in borrower-defense claims or potential recoupment.
- Assess whether WGB and Framebridge can stabilize revenue and losses, and whether their valuations remain supportable given impairment-test sensitivity.
- Monitor debt, variable-rate exposure and liquidity, including availability of the revolving facility and access to cash held outside the U.S.; note the significant marketable-equity portfolio concentration, including $401.2 million in Berkshire Hathaway shares.
- Check whether broadcasting’s political-advertising comparison and retransmission trends, healthcare reimbursement and staffing, and manufacturing demand develop as management describes.
- Review the filing’s nonmaterial prior-period accounting revisions and the related quarterly cash-flow adjustments; PwC issued an unqualified opinion on the financial statements and reported effective internal control, excluding the recently acquired Toyota of Richmond dealership from its control audit.