September 16, 2014 Volume XL, Issue VII & VIII Graham Holdings Company NYSE: GHC

Dow Jones Indus: 17,131.97 S&P 500: 1,998.98 Russell 2000: 1,150.97 Trigger: No Index Component: S&P 400 (as of 9/19/14) Type of Situation: Conglomerate Discount

Price: $ 730.88 Shares Outstanding (MM): 5.8 Fully Diluted (MM): 5.8 Average Daily Volume (MM): 0.02 Market Cap (MM): $ 4,084 Enterprise Value (MM): $ 4,546 Percentage Closely Held: Insiders 20% 52-Week High/Low: $ 745.11/568.04 5-Year High/Low: $ 745.11/320.88

Trailing Twelve Months Price/Earnings: 26.0x Overview Price/Stated Book Value: 1.5x Graham Holdings Company (―Graham,‖ ―GHC,‖ or ―the Company‖) is a self described education and Net Debt (MM): $ 90,836 media conglomerate operating largely independent Upside to Estimate of businesses in education, cable and broadcast Intrinsic Value: 73% segments, as well as smaller businesses in a wide variety of segments. The Company exhibits many of the Dividend: $ 10.20 traits that are typical of a holding company structure: a Yield: 1.4% disparate set of assets, a lack of sell side coverage, and an under-utilized balance sheet. Furthermore, as is Net Revenue Per Share: often the case in a holding company structure, recent FY 2013 $ 3,488 difficulties associated with one business have caused FY 2012 $ 3,456 investors to disregard strength in other businesses. In FY 2011 $ 3,526 our view, this has resulted in a sizable gap between

intrinsic value and the value that the market is currently Earnings Per Share: assigning shares. FY 2013 $ 32.18 FY 2012 $ 17.72 The for-profit education business, which is part of the Company’s Kaplan Education unit, has been a FY 2011 $ 14.70 lightning rod for criticism is recent years, and sub- Fiscal Year Ends: December 31 segment EBITD (amortization is not broken out by sub- Company Address: 1300 North 17th St. 17th Floor segment) has declined 41% to $115 million in 2013 Arlington, VA 22209 from $197 million in 2011 as the Company has Telephone: 703-345-6300 struggled to deal with increasing regulation, declining CEO/President: Don Graham enrollment, and negative headlines. However, in our view the Company has reacted well to the recent Clients of Boyar Asset Management, Inc. do not own shares of Graham struggles, and is likely to emerge as best in breed when Holdings, Inc. common stock. the regulatory environment is more settled. Additionally, Analysts employed by Boyar’s Intrinsic Value Research LLC do not own shares of GHC common stock. Kaplan operates a growing international business and a test prep business that are insulated from the current regulatory scrutiny. - 43 - Graham Holdings Company

While investors remain focused on the above mentioned problems, the cable and broadcast businesses continue to perform admirably, and in our view justify a higher share price on their own. The cable business (46% of EBITDA ex corporate and other) is focusing on raising below industry average ARPU by reducing spend on its video customers and shifting attention to more profitable high speed data customers, while the broadcast segment (21% of EBITDA ex corporate and other) is set to benefit from rising retransmission rates in coming years.

Furthermore, a series of recent transactions that saw the divestiture of noncore businesses (most notably the sale of the Washington Post) and real estate have left the Company flush with cash (more than $300 million or $50 per share of which does not yet appear on the balance sheet), putting CEO Don Graham in a position to grow intrinsic value through prudent capital allocation. Graham has long been a disciple of Warren Buffett, and has made clear his intentions to attempt to follow in his mentor’s footsteps by seeking to acquire family run companies that generate robust cash flow through sustainable competitive advantages.

At current prices, the Company trades at just 6.7x trailing EBITDA, and just 4.6x our projection for 2016E EBITDA. For investors that cannot get comfortable with the Company’s exposure to for-profit education, we note that the entire enterprise trades at just 8.3x combined trailing cable and broadcast EBITDA. We derive our estimate of intrinsic value based on a sum-of-the-parts value, which we believe to be conservative both in terms of multiples and projected growth. Based on these estimates, we believe GHC’s intrinsic value is $1,262 per share, representing upside of 73% from current levels. Further, we believe that this estimate of intrinsic value is likely to grow with time, as CEO Don Graham deploys the Company’s cash hoard.

Company History Until recently Graham Holdings was known as The Washington Post Company. The Washington Post newspaper was founded in 1877 and passed through the hands of four different owners before declaring bankruptcy in 1933. Established businessman but inexperienced newspaper man Eugene Meyer purchased the paper out of bankruptcy, expanded advertising sales and distribution, and later entrusted the paper to his son-in- law, Philip L. Graham, who incorporated the business in 1947. Philip Graham expanded into radio, television, and magazines, moving the business away from a pure play newspaper and toward a diversified media holding company. In 1963, Katharine Graham – daughter of Eugene Meyer and wife of Philip Graham – became president of the Company following the death of her husband. In 1971 the Company went public through an offering of Class B stock, while the Graham family retained voting control through shares of Class A stock. In 1973 Warren Buffett famously began accumulating shares at a market cap of approximately $80 million versus his estimate of intrinsic value of $400 million. After accumulating over 10% of shares outstanding and explaining his philosophy on investing – as well as life – to Katherine Graham, Buffett joined the Board of Directors in the fall of 1974. Thanks to Buffett’s influence, the Company began to aggressively repurchase stock, increasing per share value, causing the market to notice and re-rate shares.

The Company began to grow into its modern form in 1984 with the purchase of test preparation company Stanley H. Kaplan Educational Centers. In 1986, the Company bought cable systems serving 350,000 subscribers from Capital Cities/ABC for $350 million. Today the cable business is known as Cable ONE. In 1991, Katharine Graham’s son Don Graham was named CEO of the Company. Buffett’s relationship with Katharine Graham has been well documented in various accounts of his life. His proximity to the family made Buffett an important figure in Don Graham’s life, and to this day, Graham’s writings and speeches are filled with references to Buffett’s approach toward buybacks, value creation, long term owner orientation, business unit autonomy, and wisely deploying capital.

In 2007 the Washington Post Company began describing itself as an ―education and media company‖ to reflect the declining importance of its eponymous newspaper and the fact that the Kaplan division was responsible for nearly half of Company revenue. The declining importance of print media was further demonstrated through the 2010 ―sale‖ of weekly news magazine Newsweek for $1. Buffett and Don Graham remain close to this day, although Buffett formally resigned from the board in 2011. While reflecting on Buffett’s long term relationship with the Company, in the Company’s 2011 annual letter Graham commented, ―no important decision at The Post Company has been taken for all those years without asking for Warren’s input.‖ Perhaps more important, Graham further commented, ―he talked me out of a couple of ill-conceived acquisition ideas that would have created problems.‖

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Recent Developments – This is Not the Washington Post that Buffett Invested In We believe that investors currently view Graham Holdings as legacy Washington Post Corporation, rather than a diversified conglomerate focused on growing shareholder value through intelligent capital allocation. While it is too early to judge if management will grow into their self appointed role by compounding intrinsic value over time, we view their recent transactions as evidence that they are at least pointed in the right direction. Thus far acquisitions have been small in nature, but with $361 million in cash, and somewhere in the neighborhood of $300-$400 million more expected upon the completion of recently announced transactions (details below), we would not be surprised to see larger acquisitions in the near to intermediate term. A primary risk is that these acquisitions will be done at unattractive terms. We are hopeful that Graham’s many years of exposure to Buffett as well as the strong board of directors (more on this below) will be enough to keep him disciplined going forward.

Washington Post Divestiture – Good Riddance In October 2013 the Company completely transformed itself by agreeing to the sale of the Washington Post and other newspaper division assets to Jeff Bezos (in a private capacity, not as part of AMZN) for $250 million. Subsequent to this sale, The Washington Post Co. was renamed Graham Holdings. At the time many commentators were shocked that Graham would part with an asset that was so closely intertwined with his family legacy and the American social fabric. For years prior, sell side analysts had pointed to the demise of the Post and newspapers in general and suggested that the Company would be better off monetizing this division and redeploying the proceeds into the Company’s higher margin and highly cash generative other major business lines.

Newspaper Publishing Segment: A Rapid Decline ($ millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Revenue 873 938 957 962 890 801 679 680 648 582 EBIT 134 143 125 63 66 -193 -164 -10 -18 -54 EBIT margin 15.4% 15.3% 13.1% 6.6% 7.5% -24.1% -24.1% -1.4% -2.8% -9.2% EBITDA 176 180 163 100 106 -127 -90 22 9 -28 EBITDA margin 20.2% 19.2% 17.0% 10.4% 11.9% -15.9% -13.2% 3.2% 1.4% -4.8% EBITDAP 196 184 164 157 116 -39 -14 64 34 14 EBITDAP margin 22.4% 19.6% 17.1% 16.3% 13.1% -4.9% -2.0% 9.4% 5.3% 2.5%

Prior to this transaction, newspaper assets had been changing hands at 3.5x-4.5x EBITDA, which implied a value for the Post around $60 million. The transaction price of $250 million reflects a valuation of 17x trailing segment EBITDAP.1 Clearly the Washington Post has intangible brand value well in excess of lesser known newspapers, and it is impossible to know what Bezos may have planned for the Post, but in our opinion a price of 17x EBITDAP suggests that this purchase was completed more for vanity reasons than anything else. A report that the deal was allegedly completed on a handshake with no negotiation at Allen & Co’s annual Sun Valley get-together seems to support this view. Regardless of the motivations of the buyer, it is comforting to see evidence of management acting rationally in the face of an excellent price for a much loved asset. Shortly after the sale of the newspaper, the Company announced that they had reached a deal to sell the former headquarters building for approximately $158 million to an unrelated party. This transaction closed in April 2014.

Berkshire Swap – Tax Efficient Massive Share Repurchase In April of 2014, the Company entered into a tax free asset swap with Berkshire Hathaway. Graham Holdings essentially repurchased 1.6 million shares of GHC stock (approximately 22% of shares outstanding) owned by Berkshire in exchange for the Company’s Miami based broadcast television station, ~2,100 shares of

1 EBITDAP refers to earnings before interest, tax, depreciation, amortization, and pension. On Buffett’s advice the Company invested its pension assets with Ruane Cunniff’s Sequoia Fund in the early 1970s. $10,000 invested in Sequoia in 1970 would be worth ~$3.9 million today, helping to explain the over-funded pension at GHC. Despite this overfunding the Company has historically assigned a pension charge to its operating divisions while taking a pension credit at the corporate level, presumably for tax reasons. - 45 - Graham Holdings Company

BRK/A, ~1,300 shares of BRK/B, and approximately $328 million in cash. In our view, this transaction is reflective of CEO Don Graham’s faith in his Company going forward. He has long been a student of Buffett and is well aware of the returns that Buffett has achieved in the past, as well as Buffet’s belief that Berkshire is likely to grow book value at around 8% per year going forward. This suggests that Graham believes his Company can increase its intrinsic value at a rate greater than 8% per year over mid to longer time periods.

Non-Core Asset Monetization In addition to the above mentioned major transactions, the Company has moved to monetize non-core assets in recent quarters. This includes the July 2014 sale of wireless spectrum licenses by the cable division for $99 million, an estimated pre-tax gain of $75 million, and moves tied to Classified Ventures, a formerly 16.5% owned joint venture. Classified Ventures was originally formed by AH Belo, Gannett, The McClatchy Company, Tribune Company and The Washington Post Company in order to participate in the shift of classified ads for apartments and cars from newspapers to the internet. In April of 2014 GHC received a $95M distribution from the sale of Apartments.com. In August of 2014 the Company announced they would sell their share in Classified Ventures to Gannett at a $2.5 billion total valuation, representing $412.5 million to GHC. As part of the consideration received, the Company will continue to receive a portion of advertising revenues generated by cars.com for five years. The transaction is expected to close before year end 2014.

In addition to this sale of digital properties, the Company has sold physical property. In September 2013 the Company agreed to the sale of a 7 acre parcel on the Old Town waterfront in Alexandria, VA, that includes 2 wharves and 600,000 square feet of warehouse space that formerly was used to hold raw newspaper. The property was assessed for $30 million, but purchased by developers seeking to build residences and a boutique hotel at an undisclosed price. The transaction is expected to close in 2015 contingent on the buyers obtaining land-use approvals. Given that a hotel at the center of a reviving water front seems like a higher and better use for the space than abandoned warehouse facilities it seems likely that the $30 million assessment will prove to be conservative.

Stand Alone Acquisitions In addition to the aforementioned major dispositions, the Company has acquired 16 businesses in the last 3 years. Many of these acquisitions have been small bolt-ons to the education segment. However, Graham has explicitly stated that he is seeking to emulate Warren Buffett’s model of acquiring businesses with a strong record of profitability run by people who are willing to sell the business, yet continue to run the business going forward. Notable recent stand alone acquisitions include:

 Residential Healthcare Group – Acquired July 2014 - Residential Healthcare Group is a provider of home health and hospice services in Michigan and Illinois.  Joyce/Dayton Corp – Acquired May 2014 - Joyce/Dayton is an Ohio based manufacturer of screw jacks and other linear motion equipment.  Forney – Acquired August 2013 - Forney is a global manufacturer of products and systems designed to monitor and control combustion processes in industrial applications including at utilities.  Celtic Healthcare – Acquired November 2012 - Celtic is a home health care provider active in the northeast and mid-Atlantic region.

While purchase price information has not been made available, these acquisitions have all been small as evidenced by the fact that they are reported in the ―other‖ segment which totaled $128.9 million and $17.8 million in revenue and EBITDA, respectively, in 2013. While the ―other‖ segment has not yet generated operating profit, revenue has tripled from ~$43 million in 2011 to ~$129 million in 2013.

Business Overview GHC operates 3 main segments, in addition to several smaller business lines collectively known as ―other,‖ which are currently EBITDA negative. Combined, the 3 main segments generated more than $3.4 billion in revenue and $630 million EBITDA in 2013. Each business has its own executive team and is designed to function independently from the home office with the exception of major capital allocation decisions. Details on the major segments follow.

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Graham Holdings Segment Summary ($MM) Cable 2011 2012 2013 Revenue $760 $787 $807 EBITDA $283 $284 $298 margin % 37.3% 36.1% 36.9% Broadcast Revenue $319 $400 $375 EBITDA $130 $205 $184 margin % 40.6% 51.2% 49.0% Education Revenue $2,404 $2,196 $2,178 EBITDA $199 $14 $151 margin % 8.3% 0.6% 6.9% Other Revenue $43 $73 $129 EBITDA ($14) ($29) ($18) margin % N/A N/A N/A

Cable Operations (23% of revenue, 46% of EBITDA ex corporate & other) The Company provides video, high speed data and voice services to approximately 700,000 subscribers in 19 states across the Midwest, West, and South through its Cable ONE subsidiary. Unlike most cable companies that are focused on areas with high population density, the average Cable ONE market has approximately 20,000 cable customer households. Approximately 48% of the houses passed by Cable ONE systems are subscribers to some form of service. Cable ONE is the 10th largest cable provider in the U.S. This business was acquired in 1986 from Capital Cities/ABC, and is currently managed by Thomas O. Might, who first joined the Washington Post Co. as an intern-assistant to Donald Graham in 1977. Might has been the CEO of the cable segment since 1994.

Cable ONE Coverage

Source: Company documents, ghco.com

Television Broadcast (11% of revenue, 21% of EBITDA ex corporate & other) Following the recent divestiture of their Miami station to Berkshire Hathaway, GHC operates 5 broadcast television stations through its Graham Media Group (formerly Post-Newsweek Stations) subsidiary. The stations are located in the attractive urban markets of Houston, Detroit, Orlando, San Antonio, and Jacksonville, FL and are largely affiliated with national television networks. The Company first entered the broadcast business

- 47 - Graham Holdings Company through the 1950 purchase of Washington, D.C.’s CBS affiliated station, and is presently managed by Emily Barr, an industry veteran who had spent much of her career with Capital Cities Communications and Disney owned stations before taking on her current role in 2012.

Graham Media Group Stations Year Commercial Local Market Primary Network Network Agreement Station Location Operation Started Ranking* Affiliation Expiration Date KPRC, Houston, TX 1949 2 NBC Dec. 31, 2016 WDIV, Detroit, MI 1947 2 NBC Dec. 31, 2016 WKMG, Orlando, FL 1954 2 CBS Apr. 6, 2015 KSAT, San Antonio, TX 1957 1 ABC Dec. 31, 2015 WJXT, Jacksonville, FL 1947 1 None n/a *Sign-on to sign-off, Monday-Friday

Education (62% of revenue, 33% of EBITDA ex corporate & other) The Company operates its Kaplan, Inc. education subsidiary through 3 sub-segments that combined reached more than 1.2 million students in 2013. Additionally, a Kaplan Corporate subsidiary develops online educational programs in conjunction with university partners under the Colloquy brand, and seeks to identify high growth potential educational technology companies as potential investments. The Kaplan subsidiary, which was originally solely focused on test prep, was founded by Stanley Kaplan in 1938, and purchased by the Company in 1984. The business is currently run by Andy Rosen, who is considered to be somewhat of an expert on the state of American higher education following the publishing of his recent book Change.edu: Rebooting for the New Talent Economy, which details issues surrounding the continued development of the American education system. Details on the 3 major educational sub-segments follow.

Kaplan Sub-segment Revenue Breakdown ($ in millions) 2011 2012 2013 Kaplan Higher Education Revenue $1,400 $1,149 $1,081 EBITD 197 86 115 EBITD margin % 14.1% 7.5% 10.7% Kaplan Test Preparation Revenue $303 $284 $293 EBITD (13) 9 23 EBITD margin % -4.3% 3.1% 8.0% Kaplan International Revenue $690 $754 $797 EBITD 63 71 70 EBITD margin % 9.2% 9.4% 8.7% Kaplan Corporate and Intersegment Eliminations Revenue $12 $9 $6 EBITD (66) (171) (68) EBITD margin % N/A N/A N/A Totals Revenue $2,404 $2,196 $2,178 EBITD 181 (5) 141 Amortization 19 18 10 EBITDA 201 12 151 EBITDA margin % 8.3% 0.6% 6.9%

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Kaplan Higher Education (KHE) (50% of Education Segment Revenue, 57% of pre corporate Segment EBITD) KHE is comprised of Kaplan University and KHE Campuses, and is the portion of the business that is thought of as ―for-profit education‖ in the United States. Kaplan entered this market through the 2000 purchase of Quest Education Corporation for $165 million. Today, Kaplan University is an accredited organization focused on online education serving students interested in pursuing Associate’s, Bachelor’s, and Master’s degrees, as well as Certificate programs. As of year-end 2013, Kaplan University had approximately 36,500 online students, as well as 6,400 students enrolled in classroom-based programs. The average student is 34 years old, and is seeking to further his/her skill set to advance his/her career. In the Company’s opinion, its competition for attracting students is community colleges and local state colleges. Kaplan University also contains the School of Professional and Continuing Education (PACE) which seeks to assist professionals interested in furthering their careers by obtaining advanced licenses or designations such as CFA or CPA. PACE serves more than 3,100 business-to-business clients and provided education to approximately 482,000 students in 2013.

KHE Campuses is focused on classroom based education and as of year-end 2013 served 17,400 students at 46 schools. The Company is in the midst of consolidating this sub-segment and is essentially running off operations at most locations.

Breakdown of KHE Student Degree Goals 2011 2012 2013 Certificate 23.6% 23.2% 21.7% Associate's 30.3% 29.1% 29.7% Bachelor's 34.6% 33.8% 32.3% Master's 11.5% 13.9% 16.3% Total 100.0% 100.0% 100.0%

Test Preparation (13% of Education Segment Revenue, 12% of pre corporate segment EBITD) Kaplan Test Preparation (KTP) is focused on preparing students for a broad range of college and graduate school admissions exams such as the SAT, GMAT, and LSAT, as well as preparing law students for the bar exam and medical professionals for licensing exams. In 2013 approximately 415,000 students enrolled in test preparation courses, with 170,000 of them online. Test preparation also encompasses the publishing unit which sells printed test preparation resources through retail channels.

Kaplan International (37% of Education Segment Revenue, 31% of pre corporate segment EBITD) Kaplan International is split between a European and an Asia-Pacific division. The European division is divided between Kaplan UK, which is largely focused on accounting and financial services coursework, and Kaplan International Colleges, which is largely focused on English language skills for students hoping to attend an English language college, or students preparing for English language exams.

The Asia-Pacific division operates 3 units focused on helping students earn degrees through affiliated universities in Australia and the UK, prepare for professional qualification exams in financial fields, learn English, and earn diplomas or certificates from Kaplan branded institutions.

Other (4% of revenue, negative EBITDA contributor) In addition to the previously mentioned major business lines, the Company operates a series of lesser businesses. Of note are:  SocialCode, a social media marketing company.  The Slate Group, which publishes online magazine Slate, which averages more than 20 million unique visitors a month.  The FP Group, which produces Foreign Policy magazine and maintains the ForeignPolicy.com website.  Trove (formerly WaPo Labs), an online streaming news aggregator.

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 Celtic Healthcare, a home health and hospice service provider.  Forney Corporation, a global supplier of combustion control and monitoring products used in utility and other industrial applications.

Thus far there has been extremely limited disclosure regarding these businesses. We suspect the negative segment EBITDA is attached to digital properties such as SocialCode and The Slate Group, while the recent acquisitions of the more traditional healthcare and industrial businesses are cash flow positive and profitable.

Operating Performance Outlook Bright Following Newspaper Divestiture Since 1991 when Don Graham took over as CEO, the stock price of GHC has lagged the S&P 500 significantly, while moving from ~$217.50 to $730 (a compound rate of approximately 5%), excluding a cumulative $159 in dividends. This record is clearly not a reason for excitement. However, in the case of GHC, the long term record must be viewed in context. In our opinion, in the longer term Don Graham’s track record has been hindered by an emotional connection to the newspaper business, and in the more recent past, by problems attached to the education business, which may well prove to be temporary (more on this below). We believe that many investors are unable to look past this unenviable long term track record, which is part of the reason shares offer an interesting opportunity today. Whether Don Graham should be held accountable for his inability to separate himself from the newspaper business sooner is of course debatable, but the fact remains that in its current form, GHC is a collection of valuable operating businesses, a large cash hoard, and an over- funded pension unhindered by a declining legacy business. Further, Graham and his family own approximately 20% of the Company through super-voting Class A shares, and he is thus clearly incentivized to capitalize on recent divestitures by redeploying cash into attractive future opportunities. In our view this constitutes reason to optimistically believe that the future will look better than the past.

Graham Holdings vs. SP500 1990-present (actual prices)

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A Team of All Star Capital Allocators We acknowledge that putting faith in Don Graham’s ability to effectively allocate capital going forward does require somewhat of a leap of faith, given that his past track record as reflected by share price is less than stellar. However, we are encouraged by the talent he has surrounded himself with on his board of directors, not to mention his on-going relationship with Warren Buffett. Notable board members with undeniable value focused credibility include Christopher C. Davis of the Davis Funds (Chair of the finance committee), Tom Gayner of Markel (member of the finance committee), and Ronald L. Olson from the law firm Munger, Tolles & Olson

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(member of the executive committee). In our view, the presence of these seasoned value investors at the very least diminishes the likelihood of a large value destroying acquisition, even if the risk that cash is not effectively deployed remains. At current levels, this risk is further diminished by the Company’s strong record of buybacks. When the Company first went public in 1971 there were 20 million shares outstanding. After four decades of opportunistic repurchases, the count has been reduced to 5.8 million shares (A and B shares combined). This includes the impact of $369 million in repurchases between 2011 and 2013, as well as the recent exchange transaction with Berkshire Hathaway.

Broadcast and Cable: Cash Cows Regular readers know that we at AAF have long been fans of cable and broadcast properties. Recent deal activity in both spaces is a clear indicator that we are not alone in recognizing the worth of these unique assets. While for the moment it seems unlikely the Company would be a seller of these assets, Graham has indicated he believes there is a price for everything, and if he saw an opportunity that he believed was a better long term investment than existing holdings he would seek to monetize existing assets in order to fund better assets. We temper this statement by noting that the tax implications of any sale would be grave due to the extremely low tax basis associated with these assets. We thus think some sort of creative asset swap with benign tax implications would be more likely than an outright sale.

Broadcast Television: Industry Leading Margins Set to Benefit from Retrans Revenue Potential The broadcast television segment, which represented 11% of total revenue and 22% of total EBITDA in 2013 will be a slimmed down version of its former self following the previously mentioned exchange transaction with Berkshire Hathaway (revenue and EBITDA adjusted to $308 from $375 million and $154 from $184 million, respectively). The remaining five stations continue to be located in attractive urban markets and boast industry leading EBITDA margins (47.1% in adjusted 2013, down from 49.4% in adjusted 2012 due to reduced political and Olympic advertising spend).

Industry Leading Margins GHC (thousands) Broadcast SBGI NXST MEG GTN Revenue $374,605 $1,363,131 $502,330 $269,912 $346,298 EBITDA $183,743 $546,319 $202,406 $70,961 $108,312 EBITDA margin 49.0% 40.1% 40.3% 26.3% 31.3%

The Company provides only limited disclosure in terms of revenue splits, but in 2013 advertising sales represented a full 86% of segment sales (down from 90% in 2011), which indicates that retransmission fees could have been at most 14% of revenue. In practice, this number was likely significantly below 14% due to other ancillary revenue contributors. According to SNL Kagan, retrans fees are likely to represent 23% of broadcast station revenue by 2018, representing clear upside to the Company. To date the Company has lagged peers in accelerating retransmission fees due to legacy contracts that were signed before the recent explosive growth in retrans fees. However, this lag in retrans revenue is already beginning to catch up, as evidenced by non-advertisement related revenue of $52 million in 2013 versus $32 million in 2011, and a stated $9.3 million increase in retrans revenue through the first 6 months of 2014. There is reason to believe that this recent jump is only the first step in a multi year growth trajectory. According to SNL Kagan, total U.S. retransmission fees are expected to reach $7.6 billion by 2019, versus $3.3 billion in 2013.

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Explosive Growth in Retransmission Consent Fees

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Source: SNL Kagan

Despite these rosy projections, as the recent developments in the Media General/LIN Media tie up demonstrate, it is unclear how these fees will be split between broadcast stations and networks. In short, CBS Corp. stripped an Indianapolis broadcast station of its affiliation following a disagreement on the amount of retransmission fees that the affiliate should deliver to the broadcast network (reverse retrans). A similar drama played out in 2011 between FOX and Nexstar Broadcasting. Notably, FOX and Nexstar repaired their relationship after anti-trust concerns focused on the new FOX affiliates’ parent, who also controlled other broadcast network affiliates in the same geography. The FCC has not stringently enforced these anti-trust concerns in recent years, as evidenced by the wave of consolidation amongst broadcasters, but in theory the law as currently written should somewhat hinder the ability of network broadcasters to jump from affiliate to affiliate in a local geography.

Although it is unknowable how the reverse retrans battle will develop with any level of certainty, currently SNL Kagan estimates that the major broadcast networks (FOX, NBC, ABC, CBS) take ~45% of the fees that local broadcast affiliates receive, and estimates that this number will reach 50% by 2019. Not surprisingly, CBS has recently commented that they believe the appropriate split is ―generally higher than the 50% number.‖ In our view, despite the fact that the broadcast networks seem to have the upper hand at the negotiating table, it is in their best interest to not squeeze every last reverse retrans dollar out of their affiliates. Further, we think a substantial margin of safety exists to believe that the net effect of a bigger retrans pie (projected CAGR of 15%) and higher reverse retrans fees (projected CAGR of 2%) will benefit the broadcast stations. This theory will be put to the test in 2015 when 2 of GHC’s stations are set to renegotiate their affiliate relationships and again in 2016 when the remaining 2 affiliated stations renegotiate their respective agreements.

Ahead of these negotiations however, it should be noted that GHC has proven in the past that they are not afraid to walk away from affiliate relationships. The Jacksonville station, which is currently independent, was a CBS affiliate until 2002. The Company ended the relationship when CBS demanded that the station enter into a reverse compensation agreement, essentially paying CBS for the right to air CBS programming. The station did suffer in prime time following the split, but thrived elsewhere, becoming the number one ranked ―sign-on to sign-off‖ station in the market while showing a raft of syndicated programming, local news, and college sports.

It is also worth noting that it is possible that the broadcast networks gain some protection from the threat of reverse retrans through legislative action. As stated by Congressman Sonny Callahan (R-Alabama) during the 1992 debate that led to the adoption of retransmission laws, ―This right of retransmission consent is a local right. This is not as some allege, a network bailout for Dan Rather or Jay Leno.‖ It seems clear that as it was initially conceived retrans was meant to protect local news and information in the form of payments to the local broadcast stations. Over time those payments have increasingly wound up in the pockets of the major broadcast networks. At the moment there does not seem to be a legislative push to address this evolution, but with the increasing cost of programming it is possible that this issue moves to the forefront.

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In any case, the likely increase in net retrans fees in coming years gives us comfort as the future of television ad spending remains uncertain in the face of shifting media consumption patterns. This past summer saw the first decline in upfront television ad spending since 2009, with spending falling 6% to $18.1 billion according to estimates from Media Dynamics. It is impossible to gauge what impact this reduction in upfront spending may have on broadcasters’ top line at this juncture, as advertisers may simply be waiting to commit to spending until closer to when ads will actually run. It should be noted that 2014 ad revenue will benefit from increased political spending vs. 2013 (up $6.9 million through 6 months at GHC), and the February 2014 Winter Olympics added $9.5 million in incremental advertising spend versus 2013.

Cable ONE: An Attractive Business with Upside Potential The Company’s Cable ONE segment, which represented 23% of total revenue and 49% of total EBITDA, is somewhat unique in the cable world. While the large cable companies have traditionally battled it out in high population density urban areas, Cable ONE has been content to service rural areas throughout the West, Southwest and Southern United States. Cable ONE passes 1,449,971 homes and provides at least one service to 48% of them (Penetration rates: Video 34%, High Speed Data 33%, Digital Voice 12%). According to Company estimates, the average Cable ONE service area contains only 20,000 cable enabled households. This rural strategy has the positive effect of reducing the likelihood of new entrants in Cable ONE geographies, while simultaneously likely reducing potential ARPU opportunities.

Fighting Rising Content Costs & Potential Consolidation? Rising content costs (largely due to sports programming and retrans fees) and competition from over the top competitors have acted as margin headwinds across the board for cable video providers in recent quarters. These rising content costs come at a time when smaller cable providers are attempting to convert their legacy analog systems to digital before the government mandated September 1, 2015 deadline. Small players in the cable world such as Cable ONE are particularly exposed to these rising costs as they lack the clout to aggressively negotiate lower content fees on their own. As such, Cable ONE is a member of a consortium known as the National Cable Television Cooperative, which is made up of mainly rural cable providers, and provides a larger platform for content pricing negotiations. CEO Graham has been vocal in his opposition to rising content costs, and this issue came to a head in June of 2014 as Cable ONE and approximately 60 other rural cable providers elected to drop Viacom (VIAB) owned channels such as MTV and Comedy Central. This battle over content costs and distribution is likely in its early stages, and we would not be surprised to see continued skirmishes in the rural markets in the years to come. More interesting however, is the possibility of consolidation in rural markets. At roughly 700,000 customers, Cable ONE is the largest member of the National Cable Television Cooperative, which comprises over 950 small cable companies and 26 million subscribers. We would not be surprised if some of these small companies sought to sell themselves given the current dual threat environment, and we believe Cable ONE is a natural acquirer as these small players likely would not move the needle for industry behemoths.

Improving Customer Mix and ARPU Upside In addition to protecting margins through pushing back on content costs, like other cable companies, Cable ONE has been increasingly focusing on more profitable high speed internet customers (subscribers up 4% 2Q 2014 vs. 2Q 2013) and business customers (8.9% of total segment revenue 1H 2014 vs. 7.5% 1H 2013). This push has included steps to refine its customer acquisition strategy in order to weed out less profitable video customers and expand margins. From the year end 2011 level of 621,423 video subscribers, video subscriber count is down 21% to 490,309. This has been accomplished by the Company eliminating its door-to-door cable sales force in 2013, which had previously been responsible for approximately 9% of new customer acquisitions. Despite this seemingly high success rate, historically there had been a high correlation between customers recruited through door-to-door sales and default rates, equating to a low lifetime value for these customers. The Company has further slowed new customer growth and widened margins by implementing credit checks for all prospective customers. This has resulted in fewer total customers, but also reduced customer churn, reduced bad debt expense, and reduced installation costs as the Company has reduced the amount of installs that are completed only to be reversed a short time later. The net result is a more profitable business over a smaller customer base. For the first six months of 2014, revenue of $405 million was flat year-over-year, while operating expenses declined 2%, and operating income increased 8% to $88 million from $81 million in the first six months of 2013. On a full-year basis, 2013 combined revenue rose 6% from 2011 levels, while video

- 53 - Graham Holdings Company subscribers declined a cumulative 13%, digital voice customers declined 1%, and high speed data customers increased nearly 5% over 2011 levels.

Cable ONE Customer Mix Shift 2011 2012 2013 6M 2013 6M 2014 Video Subscribers 621,423 593,615 538,894 575,762 490,309 growth – -4.5% -9.2% – -14.8% High Speed Data 451,082 459,235 472,631 464,292 482,725 growth – 1.8% 2.9% – 4.0% Digital Voice 179,989 184,528 177,483 185,380 168,695 growth – 2.5% -3.8% – -9.0% Total PSUs 1,252,494 1,237,378 1,189,008 1,225,434 1,141,729 growth – -1.2% -3.9% – -6.8% Total Customers N/A N/A N/A N/A 698,699

Despite these steps to widen EBITDA margins, segment free cash flow will be temporarily impaired through 2015 as the Company seeks to upgrade its services to a fully digital platform. As of January, 2014 this project was approximately 20% complete, and management has indicated full completion is expected by the Fall of 2015. Management has done a good job of communicating this coming spend to shareholders, and believes that subsequent to completion Cable ONE will resume its historical position as the lowest cap-ex-per-subscriber company in the cable business. In our view, it is likely that the Cable segment will continue to expand margins through selective content agreements, disciplined operational control, and a continued shift toward broadband and business customers. To further illustrate the opportunity, we note that average monthly revenue per user (ARPU) of $96 is well below comps. The above mentioned changes are already having an impact as ARPU through 6 months of 2014 is up 2% from a year earlier despite the sharp drop in video subscribers. Given the limited disclosure and different nature of rural customers versus more urban customers it is difficult to estimate how much higher ARPU can go, but it seems clear that upside exists. Importantly, this higher revenue per user will come with the higher margins associated with high speed data, which is devoid of the programming costs that hurt video margins. Further opportunity lies in the form of increased advertising revenue as the digital system will be more VOD friendly, and the possibility of providing home security services, although it is not clear how much demand exists for these services in the Company’s rural geographies. Additionally, the Company has lower penetration rates than major competitors, but at this time it seems clear that the Company is sacrificing quantity in order to focus on quality. However, lower penetration rates may look attractive to potential acquirers who see an opportunity to expand the customer base.

Average Revenue Per User: Potential Upside (thousands) GHC CVC TWC CHTR Revenue $803,316 $5,576,011 $20,714,000 $7,682,000 Total Customers 699 3,188 15,024 5,900 Monthly ARPU $95.81 $145.76 $114.89 $108.50 Note: GHC revenue data is most recent quarter annualized. Other revenue figures are adjusted to remove contributions from other business lines.

For-Profit Education: A Lightening Rod for Criticism In our view, the negative attention surrounding the for-profit education sector is the primary contributor to the Company’s current status as an out of favor equity. However, we believe that much of this is misplaced. First, regardless of how negative the ultimate outcome in the for-profit education battle may be, the value of the cable and broadcast assets to an acquirer alone likely justify a higher price for the stock. Second, the Kaplan business is multifaceted, and only a portion of the overall businesses is currently in question (it is not possible to accurately identify exactly what portion is at risk – KHE represents 50% of segment revenue and 55% of pre-

- 54 - Graham Holdings Company corporate EBITD, but not all of KHE is at risk). For context, consider that of the approximately 1.2 million students served by Kaplan in 2013, less than 5% of them attended a program that is currently being scrutinized. Furthermore, we believe that the Company has appropriately responded to recent criticisms and past failures by doing everything possible to hold its self out as an exemplar of proper conduct in the space. Below we offer a brief commentary on the regulatory environment and the steps the Company is taking to deal with current scrutiny.

Brief Overview of Regulatory Concerns and Recent Trends in For-Profit Education The vast majority of revenue at for-profit schools comes in the form of federal student aid, with total revenue mix only being limited by the ―90/10 rule,‖ which mandates that schools collect at least 10% of their revenue from non-federal sources. According to the Department of Education, for-profit educational institutions represent ~13% of all post secondary school enrollment in the United States, but approximately 50% of all federal student loan defaults. Only 32% of these students actually graduate, and 22% default on their loans within 3 years, versus 13% at public colleges. As the federal government has essentially been underwriting these bad loans, a severe backlash toward for-profit educational institutions and increased regulation began circa 2009. Criticism that these schools recruited students through aggressive marketing and falsified job placement data led to implementation of ―gainful employment‖ criteria which must be met by students and graduates of a school in order for the school to remain eligible for federal funding. In their current form these rules stipulate that loan payments for a typical student must be less than 20% of discretionary or 8% of total income, and loan default rates must be below 30%. Failure to comply can lead to a loss of federal funding, as was recently the case with Corinthian Colleges, which essentially shuttered the school. Additional criticism has focused on aggressive marketing techniques, which historically seemed designed to maximize revenue by enticing under-qualified students to seek federal assistance. In fact, according to a 2009 Senate report, for-profit education companies spent $4.2 billion (23% of revenue) on marketing and admissions staffing compared to $3.2 billion (17% of revenue) on instruction. The fact that in some cases admissions officers were paid commissions based on the revenue they generated through admissions further encouraged abuse of the federal loan system.

Kaplan: Not Immune from Industry Wide Problems, but Management Has Ended Past Abuse “It takes twenty years to build a reputation, and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

It seems clear that in recent years, abuse of the federal funding system has been rampant in the for-profit education sector. Specific allegations against Kaplan have included that the Company knowingly engaged in ―guerilla registration‖ where advisors enrolled students in classes without their knowledge so that the school could collect revenue in the form of federal loans. Additionally, a 2010 undercover investigation at a Florida school revealed admissions counselors lying about accreditation, coaching students during admission exams, and forcing students to sign enrollment contracts before speaking with financial aid representatives.

In our view, it is unlikely that corporate management was aware of these past problems at Kaplan. Not only does the Company rely on a decentralized management structure, but as a Buffett devotee it seems unlikely that Don Graham would have willfully allowed the reputation of his business and family to be associated with such blatant abuse. This is especially likely because while the Kaplan business was purchased before Don Graham was in a leadership role, the portion of the business in question (KHE – formerly Quest Education) is the largest transaction that has taken place under his watch (2000). When the above mentioned allegations came to light the Company moved aggressively to remedy them, and in our opinion instituted best-in-class controls to ensure that such abuses would not be repeated. Notably, Kaplan has instituted a policy that allows students to withdraw and receive a full refund up until after the first set of exams. Furthermore, during this time period Kaplan instructors evaluate the students and seek to determine if the program is the right fit. If they feel as if the students will be unable to keep up with the class work, the student will be removed. These policies clearly inhibit revenue collection. When asked about past abuses and these current policies at a 2012 UBS conference, Graham replied, ―that [is] how seriously we took the criticism [of the for-profit education business]. We do not want to run an institution that abuses students. We do not want to run an institution that does anything but educates them in the best quality manner we can do.” He further spoke on the importance of

- 55 - Graham Holdings Company reputation, essentially noting that while these measures cost shareholders tens of millions of dollars, they are worth it.

Despite Recent Decline, For-Profit Ed Remains Highly Cash Generative While this sub-segment still faces considerable uncertainty and criticism, the Company takes the stance that the increasingly strict regulatory environment serves to punish potential students more than anyone else, as they are prevented from accessing a means to better themselves. Rather than opining on the validity of this argument, we choose to focus on the financials. Despite a fairly severe drop off over the last 2 years, the KHE sub-segment remains highly profitable. 2013 EBITDAP was $139 million, down approximately 33% from 2011 levels. Through the first 6 months of 2014, KHE sub-segment revenue is down 7% year-over-year due to fewer campuses (13 have been closed since 2012, 5 more closures are underway), declining enrollment (active students down 2% year-over-year, down 7% from 3/31/14, new student enrollment up 5% year-over-year, down 9% in Q2), and lower average tuition. Despite this revenue decline, operating income increased 23% to $34 million from $27.6 million as the Company moved to control costs in the face of continued uncertainty, and as restructuring and impairment charges rolled off. It is certainly possible that enrollment and performance continue to slide, although the regulatory mania seen around 2010 has subsided to an extent. Furthermore, Kaplan’s move to allow students to back out of their program should in theory make their offerings more attractive versus competitors, and thus attract more students. It is also worth noting that cap ex will be significantly lower than depreciation going forward as they have downsized their physical footprint and shelved any plans to grow it until the regulatory environment is more certain.

Test Prep and International Remain Well Positioned In recent years the vast amount of ink spilled on the Company has been focused on ―Kaplan‖ as a bad actor in the for-profit education sector. However, the for-profit sub segment is but one piece of the pie. The other two businesses, test prep and international (combined represent 50% of revenue) remain cash generative despite their own non-regulatory related problems. Kaplan Test Prep saw enrollment increase 2% through the first 6 months of 2014, but saw revenue decline 4% due to a rise in popularity of low cost online alternatives to test preparation. The Company has countered this trend in recent years by exiting leases for physical classrooms and transitioning to a more online focused hybrid model. In our view, despite increasing competition online, the Company should be able to defend its market share through brand recognition and an outsized marketing budget tied to its scale as well as corporate backing. Margins will likely remain pressured in the near term as the Company continues to adjust its model to a lower cost online focused presence, which will ultimately result in a leaner operating model, and in theory, wider margins.

Kaplan International has seen revenue increase 12% through the first 6 months of 2014 as enrollment grew across various platforms and operating income more than doubled from year-ago levels as results improved and restructuring costs tied to Australian operations rolled off. The Company has been an active acquirer of bolt-on international education companies in recent years (11 acquisitions over the last 3 years for undisclosed amounts), and we expect this trend to continue. While to date international operations have not had to deal with regulatory duress as the American operations have, we note that certain segments of the international business – such as trade schools in Australia – are potentially exposed to reform in the future. However, we view demand for English language classes as a defensive niche, and believe that on the whole this sub-segment is relatively well positioned.

Balance Sheet & Hidden Assets The Company is conservatively financed, with $610 million of cash and investments and $452 million of debt as of the June 2014 quarter. We note that this cash level does not reflect the pending sale of the Alexandria Waterfront property (assessed for $30 million), the closing of the Classified Ventures transaction (approximately $413 million pre-tax) or the July 2014 sale of wireless spectrum licenses ($90 million pre-tax). The debt is composed of a $47 million revolver attached to the Australian education business and $398 million in the form of 7.25% unsecured notes due in February 2019, as well as approximately $7 million in ―other‖ debt. Additionally, the Company has access to an unused $700 million USD revolver. In sum, the Company is significantly under-levered compared to peers in the cable and broadcast space. When asked about the potential for increasing leverage at the Company, Don Graham has commented that in general he is averse to leverage, but for the right opportunity he would take on significant leverage in order to complete a transaction. Given that cable and broadcast peers frequently operate with debt/EBITDA ratios in the 4x-7x range, in theory

- 56 - Graham Holdings Company the Company could access north of $2 billion without trouble based on its 2013 cable and broadcast EBITDA of $482 million. When one figures that education segment EBITDA is leveragable to some extent despite recent uncertainty and that if necessary the Company could stretch coverage ratios, it is not difficult to believe that in an extreme (but in our view unlikely) scenario the Company could access north of $4 billion, an amount approximating the Company’s current enterprise value.

In addition to an overcapitalized balance sheet, GHC holds several ―hidden assets.‖ It is worth repeating that the Company has recently made a strong push to monetize other non-core assets, and we would not be surprised to see this trend continue. A brief description of notable non-core assets follows.

 Real Estate – In addition to the recently monetized real estate assets that had been tied to the Washington Post, the Company has monetized properties formerly tied to the Everett, WA based Daily Herald that had an assessed value of $8.2 million (sale price undisclosed). Additional properties that could be potentially monetized are listed below. We further note that the Company owns 50% interest in the tower sites tied to the Houston, Orlando, and Jacksonville broadcast stations, as well as 100% interest in Detroit and San Antonio. In our view, the properties attached to the Cable and Broadcast segments are unlikely to be monetized at any time in the near future. The Kaplan properties however may come for sale as the education business continues to evolve.

Owned Properties

Subsidiary Address City State Sq Feet Other Use Kaplan 131 W. 56th Street New York NY 30,000 6 story International Students Kaplan 1821 K Street Lincoln NE 47,410 4 story Kaplan University Kaplan 308 W. Rosemary Street Chapel Hill NC 4,000 Condo Kaplan Test Prep Kaplan 150 Berkeley Square Berkeley CA 15,000 3 story Kaplan Test Prep Kaplan 1 Sundial Avenue Manchester NH 131,000 5 story Mount Washington College Kaplan 7833 Indianapolis Blvd. Hammond IN 25,000 1 Story Kaplan Career College Kaplan 2500 Dunstan Road Houston TX 45,000 3 story Texas School of Business Cable ONE 210 E. Earll Street Phoenix AZ 158,000 6 story Headquarters Cable ONE 1314 N. 3rd Street Phoenix AZ 58,000 3 story N/A Cable ONE 1313 N. 2nd Street Phoenix AZ 41,000 2 story unused Broadcast 550 W. Lafayette Blvd Detroit MI 113,250 N/A Main Office Broadcast 8181 Southwest Freeway Houston TX 70932 N/A Station Operations Broadcast 4466 N. John Young Pkwy Orlando FL 56,728 3 story Station Operations Broadcast 4 Broadcast Place Jacksonville FL N/A N/A Station Operations Broadcast 1408 N. St Mary's Street San Antonio TX N/A N/A Station Operations

 Pension Asset – While Buffett’s influence has surely been immeasurably valuable through the years, one quantifiable benefit was his suggestion that the Company entrust their pension assets to Ruane Cunniff: a decision that is largely responsible for a pension fund that is presently overfunded to the tune of $1.2 billion. Of course this is a restricted asset that would be subject to a 90% tax rate if it were moved out of the pension structure. However, it is valuable when considering acquisitions of Companies that have pension liabilities, as the existing overfunded pension could be applied to an underfunded target.  Social Code – Hidden within the ―Other‖ segment, Social Code is a marketing technology company focused on helping companies and brands grow their online presence through effective social- media marketing on platforms such as Facebook. Social Code has been growing fast, counts more than 30 Fortune 100 companies as clients, and according to Don Graham, ―has become meaningful in scale.‖ In our view it is difficult to value a business like this, even when full financials are provided.

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Without full financials, it is impossible to accurately apply a value to this business, but we do note that this is the sort of business that people get excited about, and it could conceivably be a meaningful contributor to total enterprise value in the not too distant future. Laura O’Shaughnessy, Don Graham’s daughter, is the current CEO of Social Code.

Valuation and Conclusion At current levels, Graham Holdings trades at 6.7x trailing EBITDA and 4.6x our estimate of 2016 EBITDA. If one were to credit the Company for its overfunded pension and saleable Kaplan real estate, the Company currently trades for an adjusted enterprise value of 5.3x trailing EBITDA and 3.5x our estimate of 2016 EBITDA. Further, for investors who are uncomfortable with the education business, we note that at current levels the entire Company trades at just 8.3x trailing broadcast and cable EBITDA. In our view, the broadcast and cable properties alone justify a higher valuation, meaning that buyers today are receiving the education business and collection of other small assets for free. While recent regulatory concerns tied to for-profit education justify caution on this front, in our view the test prep and international business remain undeniably strong properties, and scrutiny in the for-profit space will turn to clarity in the coming years. At the very least the education business is a free option on a highly cash generative business. We believe this uncertainty is largely responsible for the gap between current prices and our estimate of GHC’s intrinsic value, although we note that the holding company structure, high share price, and low trading volume play non economic roles as well.

In arriving at our estimate of intrinsic value we have used a sum of the parts approach as is typical for a holding company structure. We note that the Company is currently under-levered, cash heavy, and has been rapidly positioning itself to increase its intrinsic value through some combination of deploying capital via acquisition, repurchasing shares, and selling non-core assets. However, in our base case valuation we do not assume any recapitalization, large-scale return of capital via repurchases, or divestitures. Rather, we conservatively assume that the cable and broadcast businesses achieve modest operational improvements, the for-profit education business continues to decline, the test prep business stabilizes, and the international education and other businesses see low single-digit revenue growth through bolt-on acquisitions. Additional free cash flow is allowed to accumulate on the balance sheet, and we assume that owned securities (which are roughly half Berkshire Hathaway stock) grow at 3% per year.

We further note that until Don Graham puts some of the sizeable cash hoard to work in the form of accretive transactions the Company will likely remain subject to a wider than normal conglomerate discount, but believe the gap to intrinsic value to be wide enough for shareholders to benefit even in the absence of a transaction in the near future. Importantly, while we don’t model for this, Graham has an established track record of returning capital to shareholders via stock repurchases, which in our view would be accretive at current levels, and is the likely avenue for future capital allocation absent a meaningful transaction. We further note that while we believe the Company is more likely to be an acquirer rather than a seller at this point in time, the Company’s cable and broadcast properties likely represent attractive targets given recent deal-making in both arenas. In our view, both segments would demand multiples toward the high end of precedent transaction ranges (see appendix). We believe that an acquirer of the cable properties could meaningfully boost profitability based on the presently lower than industry average ARPU numbers and penetration rates. Further, an acquirer of the broadcast assets would likely be able to realize meaningful operating synergies. However, any transaction involving these assets would likely have to involve some sort of creative asset swap rather than an outright sale in order to mitigate the tax consequences that would be attached to the outright sale of two businesses that have been held for a long time, and thus have low tax bases.

Based on our projections, we estimate the Company’s intrinsic value to be $1,262 per share, representing 73% upside from current levels.

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GHC Estimate of Intrinsic Value Cable @ 8.0x 2016E EBITDA $2,650,867 Broadcast @ 10.0x average of 2015E & 2016E EBITDA 1,906,827 Kaplan Higher Ed @ 4x 2016E EBITDA 252,059 Kaplan Test Prep @ 6x 2016E EBITDA 113,648 Kaplan International @ 10x 2016E EBITDA 750,962 Other @ 1x E2016 Sales 140,747 Corporate Overhead @ 8x 2016E (192,000) Kaplan Real Estate @ Assessed Value 25,888 Pension Asset @ 60% 756,776 2016E Cash & Securities 1,437,035 2016E Total Debt (398,202) Preferred Stock (10,510)

Equity Value $7,434,098

2016E Diluted Shares Outstanding 5,893

Estimate of Intrinsic Value (per share) $1,262

Implied Upside to Intrinsic Value Estimate 73%

Overview of Key Valuation Assumptions CableONE We have applied an 8.0x multiple to our 2016 estimate of CableOne EBITDA, in line with recent transactions (see appendix). We note that this multiple is likely conservative as an acquirer would likely see opportunity in CableONE’s below average ARPU and penetration rates. We believe that a continued intentional decline in video subscribers and voice coupled with continued growth in high speed data customers will allow ARPU to reach $105 by 2016, still below peers. This improved mix will allow EBITDA margins to expand, but in the interest of conservatism we rely on historical margins when making our projections.

Television Broadcast We have applied a 10x multiple to the average of our 2015 and 2016 estimates of television broadcast EBITDA, which is intended to smooth the anticipated spike in 2016 revenues tied to elections and the Olympics. We base this multiple on recent transaction data amongst pure play broadcasters as well as industry comps (see appendix). We note that the high ranking stations in attractive urban markets and lagging retransmission revenue would likely attract a premium multiple in a transaction. We arrive at our EBITDA estimate by first adjusting historical numbers for the 2013 exchange offer that included the Miami station, and then projecting that advertising revenue remains flat through 2015 before increasing 20% in 2016: a number that is below past Olympic & political spikes. Further we model a 15% annual increase in retrans revenue through 2016. In arriving at this number we begin with SNL Kagan’s forecast of 15% retrans CAGR through 2019. We note that 15% likely understates the potential here as the Company has lagged competitors in capturing increasing retrans fees, however with the uncertainty surrounding the future of reverse retransmission fees we believe it is prudent to use 15% as a proxy for the net increase in retrans fees.

Education Kaplan Higher Education – We acknowledge the difficulty in arriving at a value for the for-profit education business given continued uncertainty. The following table illustrates potential values for the Kaplan Higher Education business, which includes the for-profit education business that has been under regulatory scrutiny. We include 2011 EBITDA for reference only as we do not think it is realistic to think that this number is re-attained in the near future, and we acknowledge that basing estimates off of 2013 actual numbers may be misleading as the business has been in decline. However, we think it is highly unlikely that the business will turn

- 59 - Graham Holdings Company out to be worth zero, but as Corinthian College’s recent experiences have shown, one never knows. As for multiples, for-profit ed comps trade in a wide range as no two business models are exactly alike. As mentioned previously, we do believe that the KHE segment is likely to emerge from the current scrutiny as best in breed, and thus deserving of the highest multiple, but it is not clear when the current cloud will dissipate. Based on our projections, we believe the for-profit education business can generate $63 million in EBITDA in 2016. In deriving this amount we assume declining enrollment and revenue, but a relatively benign margin impact as the Company has aggressively taken steps to reduce its physical and operational footprints, which in turn minimizes negative operating leverage effects.

For-Profit Education Enterprise Value Matrix For-Profit Ed EBITD Multiple Range $MM 2x 3x 4x 5x 6x

$0.0 $0 $0 $0 $0 $0

$50.0 $100 $150 $200 $250 $300 $100.0 $200 $300 $400 $500 $600 $115.5* $231 $347 $462 $578 $693

$150.0 $300 $450 $600 $750 $900

Profit Ed Profit EBITD -

PotentialFuture $200.0 $400 $600 $800 $1,000 $1,200 For $197.3** $395 $592 $789 $987 $1,184 * 2013 actual EBITD ** 2011 actual EBITD

Kaplan Test Prep – While the test prep business has not been without challenges in recent years, these challenges lie firmly outside of the regulatory arena. Rather, these challenges have been tied to low-price online competition, and in 2010 the Company began a restructuring effort designed to reduce the number of leased test centers and migrate students to online or hybrid offerings. It is unclear how the market for test prep products will evolve in the future, but as the largest global player with a well known brand, Kaplan should be well positioned. We thus apply a multiple of 6x our estimate of 2016 EBITDA. We arrive at our EBITDA estimate by noting that the number of students that attend classes in physical classrooms has remained constant in recent years while Kaplan has been slipping in terms of online registrants. We believe these trends will largely continue and that Kaplan will have difficulty maintaining pricing integrity.

Kaplan International – Kaplan International has been steadily increasing its revenue capabilities through a series of tuck-in acquisitions in recent years and increasing demand for English language training. In our view, this segment will continue to benefit from the rise of the global middle class. However, upfront spending on expansion initiatives as well as a restructuring of certain Australian segments have been a margin headwind. It seems as if these challenges are now in the past. While thus far this segment has not faced regulatory scrutiny the way for-profit educational institutions have in the United States, there are certain similarities in the way that the business is structured, and these could prove to be problematic at some point in the future. However, publicly traded comparable foreign education companies frequently trade at low double-digit EBITDA multiples. We thus apply a multiple of 10x our estimate of 2016 EBITDA for the international business.

Other – With extremely limited disclosure, we rely on a simple estimate of 1x sales for the Other segment. We note that some businesses, such as the recently purchased home health care operators typically trade below this level, while others such as the digital media properties typically trade well above this level.

Real Estate – We limit our valuation of Company owned real estate to include only those properties which we reasonably believe may be sold in the near- to mid-term, namely the properties attached to Kaplan. The Company has shown a preference for owning the real estate attached to its businesses and we see no reason to believe that will change in the near term given the Company’s more than adequate liquidity and limited additional buying power that would come from any sale of the properties tied to the cable and broadcast

- 60 - Graham Holdings Company divisions. As for the Kaplan properties, we view the Chapel Hill and Berkeley properties as candidates for sale as the KTP business continues to evolve into more of an online offering, but suspect that the remaining properties are unlikely to be sold unless business declines to the point of no return, which we believe to be unlikely. Nevertheless, owned real estate does represent recoverability should the business continue to decline and we thus include what we believe to be a conservative estimate of the value of Kaplan owned buildings based on recent tax assessments where available. Of particular interest is the Manhattan property, which despite its assessed value of $7.8 million is likely worth north of $20 million. Air rights attached to this property may prove to be worth in excess of an additional $10 million.

Kaplan Owned Properties

Address City State Sq Feet Other Use Assessed Value 131 W. 56th St. New York NY 30,000 6 stories International Students $7,856,000 1821 K Street Lincoln NE 47,410 4 stories Kaplan University 3,383,600 308 W. Rosemary St. Chapel Hill NC 4,000 Condo Kaplan Test Prep 469,806 150 Berkeley Square Berkeley CA 15,000 3 stories Kaplan Test Prep 2,542,366 1 Sundial Avenue Manchester NH 131,000 5 story Mount Washington College 4,962,500 7833 Indianapolis Blvd. Hammond IN 25,000 1 Story Kaplan Career College N/A 2500 Dunstan Road Houston TX 45,000 3 story Texas School of Business 6,674,169 Total: $25,888,441

Risks In our view, the primary risk attached to an investment in GHC is failure of management to execute a prudent and profitable capital allocation strategy, and thus close the perceived gap with intrinsic value. Despite Don Graham’s ability to parrot Buffett and his maxims, to date his track record does not reflect an ability to implement them successfully. Due to the dual share structure, investors will have little redress if this continues to be the case. It should also be mentioned that it was recently announced that GHC would be eliminated from the S&P 500 and added to the S&P 400 as of September 19th. Although clearly a non-economic development, this demotion will likely result in net selling pressure. Other risks include the shifting relationships between retrans and reverse retrans revenues, broadcast versus other media advertising spend, and continued regulatory scrutiny of for-profit education. In our view, the risk attached to for-profit education regulation is more than priced in at current levels, and even if this entire segment were to be deemed worthless, the Company could still be considered undervalued.

Analyst Certification Asset Analysis Focus certifies that the views expressed in this report accurately reflect the personal views of our analysts about the subject securities and issuers mentioned. We also certify that no part of our analysts’ compensation was, is, or will be, directly or indirectly, related to the specific views expressed in this report.

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GHC Appendix

Precedent Cable Transactions Forward Date Target Acquirer EV/EBITDA 6/14/2010 Bresnan Cablevision 7.6x 11/15/2010 Mediacom Management Buyout 7.3x 8/14/2011 Insight Time Warner Cable 7.3x 6/1/2012 Wave Oak Hill 7.4x 7/18/2012 Atlantic Cogeco 8.3x 7/18/212 Suddenlink BC/CPPIB 8.0x 2/27/2013 Bresnan Charter 8.0x Average: 7.7x Source: Charter Investor Presentation January 2014

Precedent Broadcaster Consolidation Transaction Data ($MM) Target Target EV Paid EBITDA EV/EBITDA LIN Media $2,568 $188.9 13.6x Belo Corp 2,215 235.6 9.4x Young Broadcasting 685 65.2 10.5x Allbritton Communications 985 92.1 10.7x Communications Corp of America, White Knight Broadcasting 270 35.1 7.7x Fisher Communications 355 28.6 12.4x Barrington Broadcasting 370 47.4 7.8x Cox Enterprises 115.4 18.6 6.2x Average: 9.8x

Pureplay Broadcast Comps ($MM) FY '13 EBITDA Company EBITDA EV EV/EBITDA margin NXST 167 2,410 14.4 33.2% GTN 120 1,400 11.7 34.7% SBGI 410 5,540 13.5 30.1% GHC 184 49.0%

International Education Comps ($MM) Company EV/EBITDA EDU 15.6 FEU (Phillipines) 16.1 SYS (Malaysia) 26.3 NVT (Australia) 13.8

- 62 - Graham Holdings Company

GRAHAM HOLDINGS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) June 30, 2014 ASSETS (Unaudited) Dec. 31, 2013 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 Deferred income taxes (2014), Income taxes receivable (2013) 31,689 17,991 Other current assets and Inventories and contracts in progress 88,850 79,937 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 and Noncurrent Assets Held for Sale 78,035 50,370 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 (2014), Deferred income taxes (2013) 52,591 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 and Redeemable Preferred Stock 15,456 16,561 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

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- 64 - Cisco Systems, Inc.

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