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Capital Stock, Stock Awards, and Stock Options
 12 Months Ended
Dec. 31, 2019
Capital Stock, Stock Awards, and Stock Options [Abstract]  
Capital Stock, Stock Awards And Stock Options
CAPITAL STOCK, STOCK AWARDS AND STOCK OPTIONS
Capital Stock.  Each share of Class A common stock and Class B common stock participates equally in dividends. The Class B stock has limited voting rights and as a class has the right to elect 30% of the Board of Directors; the Class A stock has unlimited voting rights, including the right to elect a majority of the Board of Directors.
During 2019, 2018, and 2017 the Company purchased a total of 3,392, 199,023, and 88,361 shares, respectively, of its Class B common stock at a cost of approximately $2.1 million, $118.0 million, and $50.8 million, respectively. On November 9, 2017, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock. The Company did not announce a ceiling price or time limit for the purchases. The authorization included 163,237 shares that remained under the previous authorization. At December 31, 2019, the Company had remaining authorization from the Board of Directors to purchase up to 270,263 shares of Class B common stock.
Stock Awards. In 2012, the Company adopted an incentive compensation plan (the 2012 Plan), which, among other provisions, authorizes the awarding of Class B common stock to key employees in the form of stock awards, stock options and other awards involving the actual transfer of shares. All stock awards, stock options and other awards involving the actual transfer of shares issued subsequent to the adoption of this plan are covered under this incentive compensation plan. Stock awards made under the 2012 Plan are primarily subject to the general restriction that stock awarded to a participant will be forfeited and revert to Company ownership if the participant’s
employment terminates before the end of a specified period of service to the Company. The number of Class B common shares authorized for issuance under the 2012 Plan is 772,588 shares. At December 31, 2019, there were 559,221 shares reserved for issuance under the 2012 incentive compensation plan. Of this number, 135,071 shares were subject to stock awards and stock options outstanding, and 424,150 shares were available for future awards.
Activity related to stock awards under the 2012 incentive compensation plan for the year ended December 31, 2019 was as follows:
 
Number of Shares
 
Average Grant-Date Fair Value
Beginning of year, unvested
32,200

 
$
747.18

Awarded
16,802

 
639.98

Vested
(15,987
)
 
898.85

Forfeited
(3,875
)
 
879.98

End of Year, unvested
29,140

 
584.50


For the share awards outstanding at December 31, 2019, the aforementioned restriction will lapse in 2020 for 250 shares, in 2021 for 12,975 shares and in 2023 for 15,915 shares. Stock-based compensation costs resulting from Company stock awards were $4.2 million, $4.4 million and $8.1 million in 2019, 2018 and 2017, respectively.
As of December 31, 2019, there was $9.4 million of total unrecognized compensation expense related to these awards. That cost is expected to be recognized on a straight-line basis over a weighted average period of 2.1 years.
Stock Options.  The Company’s 2003 employee stock option plan reserves 1,900,000 shares of the Company’s Class B common stock for options to be granted under the plan. The purchase price of the shares covered by an option cannot be less than the fair value on the grant date. Options generally vest over four years and have a maximum term of ten years. At December 31, 2019, there were 77,258 shares reserved for issuance under this stock option plan, which were all subject to options outstanding.
Stock options granted under the 2012 Plan cannot be less than the fair value on the grant date, generally vest over six years and have a maximum term of ten years. In 2017, a grant was issued that vests over six years.
Activity related to options outstanding for the year ended December 31, 2019 was as follows:
 
Number of Shares
 
Average Option Price
Beginning of year
184,932

 
$
566.55

Granted
—

 
—

Exercised
(1,743
)
 
276.18

Expired or forfeited
—

 
—

End of Year
183,189

 
569.31


Of the shares covered by options outstanding at the end of 2019, 160,728 are now exercisable; 17,334 will become exercisable in 2020; 4,459 will become exercisable in 2021; 333 will become exercisable in 2022; and 335 will become exercisable in 2023. For 2019, 2018 and 2017, the Company recorded expense of $2.0 million related to stock options each year. Information related to stock options outstanding and exercisable at December 31, 2019, is as follows:
 
 
Options Outstanding
 
Options Exercisable
Range of Exercise Prices
 
Shares Outstanding at 12/31/2019
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Weighted
Average
Exercise
Price
 
Shares Exercisable at 12/31/2019
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Weighted
Average
Exercise
Price
$244
 
1,931

 
2.9
 
$
243.85

 
1,931

 
2.9
 
$
243.85

325
 
77,258

 
1.1
 
325.26

 
77,258

 
1.1
 
325.26

719
 
77,258

 
4.8
 
719.15

 
64,381

 
4.8
 
719.15

805-872
 
26,742

 
6.0
 
865.02

 
17,158

 
5.9
 
865.77

 
 
183,189

 
3.4
 
569.31

 
160,728

 
3.2
 
539.76

At December 31, 2019, the intrinsic value for all options outstanding, exercisable and unvested was $25.0 million, $25.0 million and $0.0 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option. The market value of the Company’s stock was $638.99 at December 31, 2019. At December 31, 2019, there were 22,461 unvested options related to this
plan with an average exercise price of $780.81 and a weighted average remaining contractual term of 5.4 years. At December 31, 2018, there were 39,794 unvested options with an average exercise price of $770.29 and a weighted average remaining contractual term of 6.3 years.
As of December 31, 2019, total unrecognized stock-based compensation expense related to stock options was $2.3 million, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 1.4 years. There were 1,743 options exercised during 2019. The total intrinsic value of options exercised during 2019 was $0.6 million; a tax benefit from these stock option exercises of $0.2 million was realized. There were 588 options exercised during 2018. The total intrinsic value of options exercised during 2018 was $0.2 million; a tax benefit from these stock option exercises of $0.1 million was realized. There were 3,476 options exercised during 2017. The total intrinsic value of options exercised during 2017 was $0.7 million; a tax benefit from these option exercises of $0.3 million was realized.
During 2017, the Company granted 2,000 options at an exercise price above the fair market value of its common stock at the date of grant. The weighted average grant-date fair value of options granted during 2017 was $120.47. No options were granted during 2019 or 2018.
The fair value of options at date of grant was estimated using the Black-Scholes method utilizing the following assumptions:
 
2017
Expected life (years)
8
Interest rate
2.28%
Volatility
26.93%
Dividend yield
0.85%

The Company also maintains a stock option plan at Kaplan. Under the provisions of this plan, options are issued with an exercise price equal to the estimated fair value of Kaplan’s common stock, and options vest ratably over the number of years specified (generally four to five years) at the time of the grant. Upon exercise, an option holder may receive Kaplan shares or cash equal to the difference between the exercise price and the then fair value.
At December 31, 2019, a Kaplan senior manager holds 7,206 Kaplan restricted shares. The fair value of Kaplan’s common stock is determined by the Company’s compensation committee of the Board of Directors, and in January 2020, the committee set the fair value price at $1,400 per share. No options were awarded during 2019, 2018, or 2017; no options were exercised during 2019, 2018 or 2017; and no options were outstanding at December 31, 2019.
Kaplan recorded a stock compensation credit of $1.3 million in 2019, and expense of $0.5 million and $1.2 million in 2018 and 2017, respectively. At December 31, 2019, the Company’s accrual balance related to the Kaplan restricted shares totaled $10.1 million. There were no payouts in 2019, 2018 or 2017.
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 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 net income and share data used in the basic and diluted earnings per share computations using the two-class method:
 
Year Ended December 31
(in thousands, except per share amounts)
2019
 
2018
 
2017
Numerator:
 
 
 
 
 
Numerator for basic earnings per share:
 
 
 
 
 
Net income attributable to Graham Holdings Company common stockholders
$
327,855

 
$
271,206

 
$
302,044

Less: Dividends paid–common stock outstanding and unvested restricted shares
(29,553
)
 
(28,617
)
 
(28,329
)
Undistributed earnings
298,302

 
242,589

 
273,715

Percent allocated to common stockholders
99.45
%
 
99.39
%
 
99.06
%
 
296,665

 
241,115

 
271,150

Add: Dividends paid–common stock outstanding
29,387

 
28,423

 
28,060

Numerator for basic earnings per share
326,052

 
269,538

 
299,210

Add: Additional undistributed earnings due to dilutive stock options
13

 
10

 
17

Numerator for diluted earnings per share
$
326,065

 
$
269,548

 
$
299,227

Denominator:
 
 
 
 
 
Denominator for basic earnings per share:
 
 
 
 
 
Weighted average shares outstanding
5,285

 
5,333

 
5,516

Add: Effect of dilutive stock options
42

 
37

 
36

Denominator for diluted earnings per share
5,327

 
5,370

 
5,552

Graham Holdings Company Common Stockholders:
 

 
 

 
 

Basic earnings per share
$
61.70

 
$
50.55

 
$
54.24

Diluted earnings per share
$
61.21

 
$
50.20

 
$
53.89


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:
 
Year Ended December 31
(in thousands)
2019
 
2018
 
2017
Weighted average restricted stock
12

 
23

 
30


The 2019, 2018 and 2017 diluted earnings per share amounts exclude the effects of 104,000 stock options outstanding, as their inclusion would have been antidilutive due to a market condition. The 2018 and 2017 diluted earnings per share amounts also exclude the effects of 2,650 and 5,250 restricted stock awards, respectively, as their inclusion would have been antidilutive due to a performance condition.
In 2019, 2018 and 2017, the Company declared regular dividends totaling $5.56, $5.32 and $5.08 per share, respectively.