UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 20162018
Commission file number 1-6714
Graham Holdings Company
(Exact name of registrant as specified in its charter)
Delaware 53-0182885
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
  
1300 North 17th Street, Arlington, Virginia 22209
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (703) 345-6300
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class B Common Stock, par value
$1.00 per share
 New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý  No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨  No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý  No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitiondefinitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filerx
ý
Accelerated
filer
¨
Non-accelerated
filer
¨
Smaller reporting
company
¨
Emerging growth
company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨  No ý
Aggregate market value of the registrant’s common equity held by non-affiliates on June 30, 2016,29, 2018, based on the closing price for the Company’s Class B Common Stock on the New York Stock Exchange on such date: approximately $2,200,000,000.$2,500,000,000.
Shares of common stock outstanding at February 17, 2017:20, 2019:
Class A Common Stock –  964,001 shares
Class B Common Stock –  4,627,5854,353,623 shares
Documents partially incorporated by reference:
Definitive Proxy Statement for the registrant’s 20172019 Annual Meeting of Stockholders
(incorporated in Part III to the extent provided in Items 10, 11, 12, 13 and 14 hereof). 
 


GRAHAM HOLDINGS COMPANY 20162018 FORM 10-K
 
Item 1. Business
  Education
  Television Broadcasting
  Other Activities
  Competition
  Executive Officers
  Employees
  Forward-Looking Statements
  Available Information
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements withWith Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
INDEX TO EXHIBITS
SIGNATURES
INDEX TO FINANCIAL INFORMATION
Management’s Discussion and Analysis of Results of Operations and Financial Condition (Unaudited)
Financial Statements: 
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Three Years Ended December 31, 20162018
Consolidated Statements of Comprehensive Income (Loss) for the Three Years Ended December 31, 20162018
Consolidated Balance Sheets at December 31, 20162018 and 20152017
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 20162018
Consolidated Statements of Changes in Common Stockholders’ Equity for the Three Years Ended December 31, 20162018
Notes to Consolidated Financial Statements
Five-Year Summary of Selected Historical Financial Data (Unaudited)
INDEX TO EXHIBITS


PART I
Item 1. Business.
Graham Holdings Company (the Company) is primarily a diversified education and media company.company whose operations include educational services; television broadcasting; online, print and local TV news; home health and hospice care; and manufacturing. The Company’s Kaplan, Inc. (Kaplan) subsidiary provides a wide variety of educational services, both domestically and outside the United States. The Company’s media operations comprise the ownership and operation of television broadcasting (through the ownership and operation of seven television broadcast stations), plus Slate and Foreign Policy magazines.magazines; Panoply, a podcast technology and advertising company; and Pinna, an ad-free audio streaming service for children. The Company also owns home health and hospice providers, threefour industrial companies, two automotive dealerships and Social Code LLC, a marketing solutions provider.
Financial information concerning the principal segments of the Company’s business for the past three fiscal years is contained in Note 19 to the Company’s Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. Revenues for each segment are shown in Note 19 gross of intersegment sales. Consolidated revenues are reported net of intersegment sales, which did not exceed 0.1% of consolidated operating revenues.
The Company’s operations in geographic areas outside the U.S. consist primarily of Kaplan’s non-U.S. operations. During each of the fiscal years 2016, 20152018, 2017 and 2014,2016, these operations accounted for approximately 25%24%, 26%25% and 26%25%, respectively, of the Company’s consolidated revenues, and the identifiable assets attributable to non-U.S. operations represented approximately 20%23% and 18%21% of the Company’s consolidated assets at December 31, 20162018 and 2015,2017, respectively.
Education
Kaplan, Inc., a subsidiary of the Company, provides an extensive range of education and related services worldwide for students and professionals. Kaplan conducts its operations through threefour segments: Kaplan International, Kaplan Higher Education, Kaplan Test Preparation and Kaplan International.Professional (U.S.). In addition, the results of the Kaplan Corporate segment include results of Kaplan’s investment activities identifying and investing in high-growth-potential education technology companies.
The following table presents revenues for each of Kaplan’s segments:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
Kaplan International$719,982
 $697,999
 $696,362
Kaplan Higher Education$617,047
 $849,625
 $1,010,058
342,085
 431,425
 501,784
Kaplan Test Preparation286,556
 301,607
 304,662
256,102
 273,298
 286,556
Kaplan International696,362
 770,273
 840,915
Kaplan Professional (U.S.)134,187
 115,839
 115,263
Kaplan Corporate and Intersegment Eliminations(1,504) 6,016
 4,782
(1,341) (1,785) (1,504)
Total Kaplan Revenue$1,598,461
 $1,927,521
 $2,160,417
$1,451,015
 $1,516,776
 $1,598,461
Kaplan Higher Education
Kaplan Higher Education (KHE) currently consists of Kaplan University. Kaplan University provides a wide array of certificate, diploma and degree programs designed to meet the needs of students seeking to advance their education and career goals.
In 2015 Kaplan sold substantially all of the assets of its KHE Campuses business, which consisted of 38 nationally accredited ground campuses and certain related assets. Kaplan's Bauder College campus in Atlanta and Mount Washington College in New Hampshire were not part of this sale, however Kaplan ceased enrollment in its Bauder College campus and Mount Washington College campus in 2014 and 2015, respectively, and each school completed the teach-out of its students and closed during 2016. In 2016, Kaplan’s U.S.-based KHE division consisted primarily of Kaplan University.
Kaplan University.Kaplan University specializes in online education, is accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (HLC), a regional accreditor approved by the U.S. Secretary of Education, and holds other programmatic accreditations. Most of Kaplan University’s programs are offered online, while some are offered in a traditional classroom format at 15 locations in Iowa, Indiana, Maine, Maryland, Missouri, Nebraska and Wisconsin. Kaplan University also includes Concord Law School, a fully online law school. At year-end 2016, Kaplan University had approximately 32,000 students enrolled.
Also residing within Kaplan University is the School of Professional and Continuing Education (PACE). PACE offers a wide range of education solutions to assist professionals in advancing their careers by obtaining professional licenses, designations and certifications. This includes solutions for insurance, securities, mortgage and appraisal licensing exams and for advanced designations, such as CFA® and CPA exams. PACE serves approximately 3,700 business-to-business clients, including 125 Fortune 500 companies. In 2016, over 460,000 students used PACE’s exam preparation offerings.


Program Offerings and Enrollment
Kaplan University offers certificate and degree programs in a variety of subject areas. Among them are the following:
CertificateAssociate’sBachelor’sMaster’s
•   Arts and Sciences
•  Criminal Justice~
•   Education Studies*
•   Health Sciences
•   Information Systems and Technology*+
•   Legal and Paralegal Studies+
•   Nursing~+


~certificate/diploma
*graduate certificate
+post-baccalaureate certificate
•   Arts and Sciences
•   Business/Management
•   Criminal Justice
•   Fire Safety and Emergency Management
•   Health Sciences
•   Information Systems and Technology
•   Legal and Paralegal Studies
•   Nursing
•   Public Administration
•   Arts and Sciences
•   Business/Management
•   Criminal Justice
•   Fire Safety and Emergency Management
•   Health Sciences
•   Information Systems and Technology
•   Legal and Paralegal Studies
•   Nursing
•   Political Science and Public
    and Environmental Policy
•   Arts and Sciences
•   Business/Management
•   Criminal Justice
•   Health Sciences

•   Education Studies
•   Information Systems and Technology
•   Legal and Paralegal Studies

•   Nursing
•   Public and Environmental Policy
Kaplan Universitys higher education enrollments by certificate and degree programs are set forth below:
 At December 31
 2016 2015 2014
Certificate7.7% 4.4% 2.3%
Associates
18.1% 25.0% 29.6%
Bachelors
50.9% 48.4% 44.3%
Masters
23.3% 22.2% 23.8%
Total100.0% 100.0% 100.0%
Financial Aid Programs and Regulatory Environment
Funds provided under the U.S. Federal student financial aid programs that have been created under Title IV of the U.S. Federal Higher Education Act of 1965, as amended (Higher Education Act), historically have been responsible for a majority of KHE revenues. During 2016, funds received under Title IV programs accounted for approximately $437 million, or approximately 71%, of total KHE revenues, and 27% of Kaplan, Inc. revenues. The Company estimates that funds received from students borrowing under third-party private loan programs comprised less than 1% of KHE revenues. Direct student payments, funds received under various state and federal agency grant programs and corporate reimbursement under tuition assistance programs accounted for most of the remaining 2016 KHE revenues. The significant role of Title IV funding in the operations of KHE is expected to continue.
Title IV programs encompass various forms of student loans and non-repayable grants. In some cases, the U.S. Federal government subsidizes a portion of the student interest expense of Title IV loans. Subsidized loans and grants are only available to students who can demonstrate financial need. During 2016, approximately 87% of the $437 million of Title IV funds received by KHE came from student loans, and approximately 13% of such funds came from grants.
Title IV Eligibility and Compliance With Title IV Program Requirements.To maintain eligibility to participate in Title IV programs, a school must comply with extensive statutory and regulatory requirements relating to its financial aid management, educational programs, financial strength, administrative capability, compensation practices, facilities, recruiting practices, representations made to current and prospective students, and various other matters. In addition, the school must be licensed, or otherwise legally authorized, to offer postsecondary educational programs by the appropriate governmental body in the state or states in which it is physically located or is otherwise subject to state authorization requirements, be accredited by an accrediting agency recognized by the U.S. Department of Education (ED) and be certified to participate in the Title IV programs by the ED. Schools are required periodically to apply for renewal of their authorization, accreditation or certification with the applicable state governmental bodies, accrediting agencies and the ED. In accordance with ED regulations, our campuses are grouped into a main campus and additional campus locations. Kaplan University is assigned its own identification number, known as an OPEID number, for the purpose of determining compliance with certain Title IV requirements. No assurance can be given that Kaplan University or its individual programs will maintain their Title IV eligibility, accreditation and state authorization in the future or that the ED might not successfully assert that Kaplan University has previously failed to comply with Title IV requirements.
The ED may place a school on provisional certification status under certain circumstances, including, but not limited to, failure to satisfy certain standards of financial responsibility or administrative capability, or upon a change in


ownership resulting in a change of control. Provisional certification status carries fewer due process protections than full certification. As a result, the ED may withdraw an institution’s provisional certification more easily than if it is fully certified. In addition, the ED may subject an institution on provisional certification status to greater scrutiny in some instances, for example, when it applies for approval to add a new location or program or makes another substantive program change. Provisional certification does not otherwise limit access to Title IV program funds by students attending the institution. On December 17, 2015, Kaplan University, in connection with the renewal of its U.S. Department of Education Program Participation Agreement, received notice from the ED that it had been placed on provisional certification status until September 30, 2018, in relation to an open and ongoing ED program review. The ED has not notified Kaplan University of any negative findings. However, at this time we cannot predict the outcome of the program review. During the period of provisional certification, Kaplan University must obtain prior ED approval to open a new location, add an educational program, acquire another school or make any other significant change.
In addition, if the ED finds that a school has failed to comply with Title IV requirements or improperly disbursed or retained Title IV program funds, it may take one or more of a number of actions, including fining the school, requiring the school to repay Title IV program funds, limiting or terminating the school’s eligibility to participate in Title IV programs, initiating an emergency action to suspend the school’s participation in the Title IV programs without prior notice or opportunity for a hearing, transferring the school to a method of Title IV payment that would adversely affect the timing of the institution’s receipt of Title IV funds, requiring the submission of a letter of credit, denying or refusing to consider the school’s application for renewal of its certification to participate in the Title IV programs or for approval to add a new campus or educational program and referring the matter for possible civil or criminal investigation. There can be no assurance that the ED will not take any of these or other actions in the future, whether as a result of a lawsuit, program review or otherwise. This list is not exhaustive. There may be other actions the ED may take and other legal theories under which a school could be sued as a result of alleged irregularities in the administration of student financial aid. See Item 1A. Risk Factors, including Failure to Comply With Statutory and Regulatory Requirements Could Result in Loss of Access to U.S. Federal Student Loans and Grants Under Title IV, a Requirement to Pay Fines or Monetary Liabilities or Other Sanctions.
Student Default Rates.A school may lose its eligibility to participate in Title IV programs if student defaults on the repayment of Title IV loans exceed specified rates, referred to as “cohort default rates.” The ED calculates a cohort default rate for each OPEID number. If a schools cohort default rate exceeds 40% for any single year, it will lose its eligibility to participate in the Direct Loan programs for at least two fiscal years, effective 30 days after notification from the ED. If a schools cohort default rate equals or exceeds 30% for three consecutive years, it will lose its Title IV eligibility to participate in the Direct Loan and U.S. Federal Pell Grant programs effective 30 days after notification from the ED and will remain ineligible for at least two fiscal years. If a schools cohort default rate equals or exceeds 30% in two of the three most recent fiscal years for which rates have been issued by the ED, it may be placed on provisional certification by the ED and, under new regulations that take effect on July 1, 2017, may be required to submit a letter of credit to the ED.
The three-year cohort default rates for Kaplan University, the only OPEID unit that continued operations through the end of 2016, for the U.S. Federal fiscal years ending September 30, 2013, 2012 and 2011, were 12.4%, 12.9% and 20%, respectively.
Because Kaplan University receives a significantly lower level of taxpayer-funded grants and subsidies than community colleges, state schools and not-for-profit schools, Kaplan University is more dependent on tuition, and its students are more dependent on loans.
Kaplan has dedicated resources to help students who are at risk of default. Kaplan personnel contact students and provide assistance, which includes providing students with specific loan repayment information, lender contact information and debt counseling. Kaplan has also implemented a financial literacy and counseling program for current students and provides career counseling services. In addition, Kaplan implemented the Kaplan Commitment program in 2010, which provides first-time undergraduate students with a risk-free trial period. Students who withdraw or are subject to dismissal during the risk-free trial period do not incur any significant financial obligation. However, no assurances can be given that these resources or programs will enable Kaplan’s schools to maintain cohort default rates below the thresholds for sanctions.
Recent Federal Rulemaking
Borrower Defense to Repayment Regulations. On November 1, 2016, the ED issued final rules, effective July 1, 2017, that expand the bases on which borrowers may obtain a discharge of their federal financial aid loans and that establish a process for the ED to commence a separate proceeding against the institution to recover the discharged amounts.
The final rules amend existing procedures and standards for borrowers seeking the discharge of certain Title IV loans first disbursed prior to July 1, 2017, based on certain acts or omissions of the institution. The final rules also


expand the bases for borrowers to obtain discharges of certain Title IV loans first disbursed on or after July 1, 2017, including any substantial misrepresentations by the school or any of its representatives or individuals or entities with whom the institution has an agreement, certain breaches of contract and certain favorable judgments against the school. The final rules include procedures for borrowers to assert discharge claims as a group rather than individually and create extended and, in some cases, unlimited statutes of limitation for the submission of discharge claims. The final rules also establish procedures for the evaluation of claims, for minimal school participation in the process and for the ED to consolidate and present borrower claims during the process. If the borrower discharge claims are approved, the ED may discharge some or all of the loans and initiate a separate proceeding to recover any discharged loans from the institution.
In addition, the final rules also amend the ED’s financial responsibility regulations by, among other things, imposing two sets of triggers for determining whether the ED may require the institution to furnish the ED with a letter of credit or other form of acceptable financial protection and to accept other requirements the ED might impose. The first set of triggers includes the following:
a requirement to pay any debt or incur any liability arising from a final judgment in a judicial proceeding or from an administrative proceeding or determination, or from a settlement;
a lawsuit that has been pending for 120 days and that was brought by a federal or state authority for financial relief on claims related to making a Direct Loan for enrollment at the institution or the provision of educational services;
other lawsuits in which the institution’s summary judgment motion was denied or not filed;
an accrediting agency requirement to submit a teach-out plan in connection with closing one or more of the institution’s locations;
having one or more programs that could lose Title IV eligibility based on rates for next award year; and
certain withdrawals of owner’s equity from the institution.
An institution participating in Title IV programs must maintain a certain level of financial responsibility as reflected by a composite score that incorporates various financial data from annual financial statements submitted to the ED. If one of the above triggers occurs, the ED would recalculate the institution’s composite score by estimating the amount of actual and potential losses resulting from the triggering event and determining whether the recalculated composite score results in the institution failing the financial responsibility standards. The rules for estimating potential losses are broad. For example, the rules generally presume that potential losses from pending lawsuits equal the amount sought in the complaint or in any final demand letter.
The second set of triggers that could result in the ED imposing a letter of credit requirement and other conditions or requirements include the following:
the failure to comply for the most recently completed fiscal year with the 90/10 rule requiring less than 90% of an institution's receipts be derived from Title IV programs;
an SEC warning that it may suspend trading on the institution’s stock;
the failure to file certain reports with the SEC;
receipt of notice of noncompliance with exchange requirements;
notice that the institution’s stock is delisted;
cohort default rates of at least 30% for the institution’s two most recent rates;
certain significant fluctuations in Title IV funding;
certain citations for failure to comply with state agency requirements;
failure to comply with yet-to-be-developed ED financial stress tests;
high annual dropout rates;
probation, show cause or similar action by an institution’s accrediting agency;
certain violations of loan agreements;
expected or pending claims for borrower relief discharges; and
certain other events that the ED might identify as reasonably likely to have a material adverse effect on the financial condition, business or results of operations of the institution.


If the ED deems that the institution failed the financial responsibility standards based on one or more of the aforementioned events listed in the regulations or based on the institution’s failure to comply with other requirements in the financial responsibility regulations, the ED may permit the institution to continue participating in the Title IV programs under a provisional certification and would require the institution to submit a letter of credit or other form of financial protection, comply with certain student debt-to-income ratios under the ED's gainful employment rules discussed below and potentially accept other conditions or restrictions.
If the ED requires a letter of credit based on a trigger from either set of triggers, the rules require the letter of credit to equal 10% of the total amount of Title IV funds received by the institution during its most recently completed fiscal year plus any additional amount that the ED determines is necessary to fully cover any estimated losses. The ED also may place the institution on provisional certification, impose certain reporting requirements, place the institution on the heightened cash monitoring or reimbursement payment methods and impose other conditions or requirements. The ED may require the institution to maintain the letter of credit until the institution’s composite score is 1.0 or greater and the triggering events have been resolved or cease to exist.
The rules also require schools not meeting a loan “repayment rate” threshold calculation to provide an ED-prepared warning to current and prospective students and to include the warning on its website and in promotional materials and advertisements. The rules also include new provisions related to arbitration and class-action lawsuits, including prohibitions regarding an institution’s use of pre-dispute arbitration agreements and class-action waivers.
The regulations have a general effective date of July 1, 2017. The Company cannot predict how the ED will interpret and enforce the new borrower defense to repayment rules in the future or how these rules may impact Kaplan University’s participation in the Title IV programs; however, the new rules could have a material adverse effect on Kaplan’s business and results of operations, and the broad sweep of the rules may, in the future, require Kaplan to submit a letter of credit as indicated above.
Gainful Employment. Under the Higher Education Act, certain education programs, including all programs offered by Kaplan University, are required to lead to gainful employment in a recognized occupation in order to be eligible to participate in the Title IV programs. The ED has defined the phrase “gainful employment” to mean employment with earnings high enough to meet specific student debt-to-income ratios. The ED tied an education program's Title IV eligibility to whether the program meets that definition. These regulations are known as the "gainful employment" rules or “GE” rules. Under these regulations, the ED calculates two debt-to-earnings rates for each program subject to the GE regulations: an annual debt-to-earnings rate and a discretionary debt-to-earnings rate. The rates are calculated by comparing graduates' Title IV and private loan debt incurred to attend the program to their annual earnings and discretionary income as defined in the regulations. The rates for each program for each award year are calculated using income information obtained from the Social Security Administration, federal Title IV loan debt information gathered from its own records and private loan and institutional debt data provided by schools. Under the debt-to-earnings rates, a program passes the test if its annual debt-to-earnings rate does not exceed 8% or its discretionary debt-to-earnings rate does not exceed 20%. A program fails the test if its annual debt-to-earnings rate exceeds 12% and its discretionary debt to earnings rate exceeds 30%. A program is in a regulatory status called the “warning zone” if it does not pass or fail the test (i.e., either its annual debt-to-earnings rate is greater than 8%, but less than 12%, or its discretionary debt-to-earnings rate is greater than 20%, but less than 30%). If a program fails the test two times within three years, it will become ineligible to participate in the Title IV programs for a period of three years. If a program is either in the warning zone or fails the test for four consecutive years, it will also become ineligible to participate in Title IV programs for a period of three years. In addition, the regulation requires an institution to provide to current and prospective students prescribed warnings of any potential ineligibility of the program in any year for which the program could become ineligible based on the prior-year rates. Institutions with such programs also must wait to enroll prospective students into the failing program until three days after providing the warning to students. Such institutions also may be required to submit a letter of credit or other financial protection to the ED under the new borrower defense to repayment regulations that take effect on July 1, 2017.
Under the debt-to-earnings rates for Kaplan’s programs that were released in January 2017 for the 2014–2015 award year, which are the first rates to be issued under the GE rules, none of Kaplan University’s active programs currently accepting students failed the GE test. Kaplan University has five other programs that failed the GE test. Of these five programs, two have been discontinued, have no students and are no longer being offered, and the remaining three are still active but are not accepting new enrollments. The three active failing programs accounted for approximately $16.7 million in revenue in 2016. Kaplan University also has 16 programs in the warning zone status. Four of these programs are active and currently accepting students. These four programs accounted for approximately $71 million and $51.1 million in revenue for 2015 and for 2016, respectively. Of the remaining 12 programs in the warning zone, five have been discontinued, have no students and are no longer being offered, and seven of these programs are active but not currently accepting enrollments. The ED has stated, that it has the ability to combine, for future GE debt-to-earnings calculations, any new programs that it determines to be “substantially similar” to other current or past programs. Kaplan University started a number of new programs after the effective date of the GE rules. Kaplan believes that the new programs are not “substantially similar” under the GE rules to any other current or past programs. However, if the ED determines that these new programs are


substantially similar and combines the new programs with programs that are currently in the warning zone or that failed the GE test, eligibility of the new programs to participate in Title IV programs and revenues from such programs would be materially adversely affected.
The GE rules allow for an appeal of these rates if the institution can provide alternative earnings data for each appealed program showing an improvement in the GE rates and moving the program from fail to warning zone or from warning zone to pass. Kaplan University has appealed the rates for the 16 programs in the warning zone, including the four programs that are active and currently accepting students and the remaining 12 programs that are discontinued and not accepting students. Although none of five failing programs is active and accepting students, Kaplan University has appealed their rates as well. Kaplan University cannot predict the outcome of these appeals.
The regulations also include revised requirements for public disclosure of program information and certain outcomes (including graduation, placement and repayment rates, plus other consumer information); these new disclosure requirements were scheduled to take effect on January 1, 2017, but the effectiveness of the requirements have been delayed until April 3, 2017.
In addition, the regulations include a requirement that the institution certify to the ED that each program subject to the gainful employment regulations (i) be approved by an accrediting agency recognized by the ED, (ii) have programmatic accreditation if required by a governmental entity in a state in which the school is located or otherwise required to obtain state authorization under ED’s regulations and (iii) for each state in which the school is located or otherwise required to obtain state authorization under the ED’s regulations, meet applicable educational prerequisites for professional licensure or certification requirements in such state(s) so that graduates qualify to take any licensure or certification exam that is needed for such graduates to practice or find employment in such state(s) in an occupation that the program prepares graduates to enter. In addition, a school will be required to certify that any new Title IV-eligible education program it establishes is not “substantially similar” (as defined in the GE regulations) to a program that is ineligible under the regulations. This “certification” requirement has had a material negative impact on Kaplan University’s Concord Law School’s Juris Doctor program, which accounted for less than 1% of KHE’s 2016 revenue. Because it is completely online, that program does not have accreditation necessary to allow graduates to become licensed to practice law upon graduation and qualify to take the bar exam in any state other than California. Accordingly, because the ED has not provided guidance that narrows the rule as written, in 2015 Concord Law School was required to cease enrollments in multiple states. Changes in the state authorization law, discussed below, may extend the certification requirement to other states and further impact Concord and other Kaplan University programs.
Some of the data needed to compute debt-to-earnings rates and project their impact on Title IV program eligibility under the GE regulations are not accessible to the Company, including specific graduate earnings information that will be compiled by the Social Security Administration. In addition, the continuing eligibility of programs for Title IV funding may be affected by factors beyond Kaplan’s control, such as changes in the actual or deemed earnings level of its graduates, changes in student borrowing levels, increases in interest rates, changes in the U.S. Federal poverty income level relevant for calculating one of the proposed debt-to-earnings rates and other factors. As a result, the ultimate outcome of future GE rates and their impact on Kaplan’s operations are still uncertain. Kaplan is continuing efforts to mitigate any current and potential negative impact of the GE rules. These efforts include increasing career services support, implementing financial literacy counseling, creating program-specific tuition reductions and scholarships and revising the pricing model to implement a tuition cap for at-risk programs. Although Kaplan is taking these and other steps to address compliance with GE regulations, there is no assurance that these measures will be adequate to prevent a material number of programs from receiving debt-to-earnings rates that fail or are in the warning zone and to prevent a loss of Title IV eligibility. This has caused Kaplan to eliminate or limit enrollments in certain educational programs at some of its schools; may result in the loss of student access to Title IV programs; and has had and may continue to have a material adverse effect on KHEs revenues, operating income, and cash flows.
Incentive Compensation. Under the ED’s incentive compensation rules, an institution participating in Title IV programs may not provide any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV funds. Kaplan has taken steps to comply fully with these rules and the related guidance. Among the actions taken, Kaplan revised its compensation plans for admissions personnel and eliminated enrollment results as a component in the determination of compensation. Kaplan believes that this change in its approach to recruiting has adversely impacted, and will continue to adversely impact, its enrollment rates, operating costs, business and results of operation. Kaplan cannot predict how the ED will interpret and enforce all aspects of the revised incentive compensation rule in the future.
The 90/10 Rule. Under regulations referred to as the 90/10 rule, an institution would lose its eligibility to participate in Title IV programs for a period of at least two fiscal years if the institution derives more than 90% of its receipts from Title IV programs, as calculated on a cash basis in accordance with the Higher Education Act and applicable ED regulations, in each of two consecutive fiscal years. An institution with Title IV receipts exceeding 90% for a


single fiscal year would be placed on provisional certification and may be subject to other enforcement measures, including a potential requirement to submit to the ED a letter of credit under the borrower defense to repayment regulations that take effect on July 1, 2017. Kaplan University derived less than 77% and less than 79% of its receipts from Title IV programs in 2016 and 2015, respectively.
Kaplan University is taking various measures to reduce the percentage of its receipts attributable to Title IV funds, including modifying student payment options; emphasizing direct-pay and employer-paid education programs; encouraging students to evaluate carefully the amount of their Title IV borrowing; eliminating some programs; cash-matching; and developing and offering additional non-Title IV-eligible certificate preparation, professional development and continuing education programs. Kaplan has taken steps to ensure that revenue from programs acquired by Kaplan University is eligible to be counted in that campus’s 90/10 calculation. However, there can be no guarantee that the ED will not challenge the inclusion of revenue from any acquired program in Kaplan University’s 90/10 calculations or will not issue an interpretation of the 90/10 rule that would exclude such revenue from the calculation. There can be no guarantee that these measures will be adequate to prevent the 90/10 ratio at Kaplan University from exceeding 90% in the future. In addition, certain legislators have proposed amendments to the Higher Education Act that would lower the threshold percentage in the 90/10 rule to 85%, treat non-Title IV federal funds as Title IV funds in the 90/10 calculation and make other refinements to the calculation. If these proposals or similar laws or regulations are adopted, they would make it more difficult for Kaplan University’s institutions to comply with the 90/10 rule.
Change of Control. If an institution experiences a change of control under the standards of applicable state agencies, accrediting agencies or the ED, the institution must seek the approval of the relevant agencies. An institution that undergoes a change of control, which may include a change of control of the institution’s parent corporation or other owners, must be reviewed and recertified by the ED and obtain approvals from certain state agencies and accrediting bodies, in some cases prior to the change of control. The standards pertaining to a change of control are not uniform and are subject to interpretation by the respective agencies. Certifications obtained from the ED following a change in control are granted on a provisional basis that permits the institution to continue participating in Title IV programs, but provides fewer procedural protections than full certifications. As a result, the ED may withdraw an institution’s provisional certification more easily than if it is fully certified. In addition, the ED may subject an institution on provisional certification status to greater scrutiny in some instances, for example, when it applies for approval to add a new location or program or makes another substantive change.
Standards of Financial Responsibility. An institution participating in Title IV programs must maintain a certain level of financial responsibility as determined under the Higher Education Act and under ED regulations. The ED measures an institution’s financial responsibility by compiling a composite score, ranging from -0.1 to 3.0, pursuant to a formula that incorporates various financial data from annual financial statements submitted to the ED. An institution with a composite score of 1.5 or higher passes the composite test. An institution with a composite score of at least 1.0 and less than 1.5 is in the zone. If an institution’s composite score is in the zone and the institution complies with other financial responsibility standards, the ED typically permits the institution to continue participating in the Title IV programs under certain conditions, including imposing certain monitoring and reporting requirements, placing the institution on provisional certification and transferring the institution from the advance system of Title IV payment to a heightened cash-monitoring or reimbursement system of payment. An institution fails the composite score test with a score of less than 1.0. The ED may permit such institutions to continue participating in the Title IV programs under the aforementioned conditions and potentially other conditions, as well as a requirement to submit to the ED a letter of credit in an amount equal to at least 10% of the annual Title IV program funds received by the institution during its most recently completed fiscal year, although the ED could require a letter of credit based on a higher percentage of the institution’s annual Title IV program funds. The borrower defense to repayment regulations that take effect on July 1, 2017, expand the list of circumstances that could require an institution to provide the ED with a letter of credit or other form of acceptable financial protection. Moreover, the new borrower defense to repayment regulations may increase the required minimum letter of credit amount beyond 10% of annual Title IV funds to include additional amounts that the ED determines are needed to fully cover any estimated potential losses. If an institution is unable to submit a required letter of credit or to comply with ED imposed conditions, the institution could be subject to loss of Title IV eligibility, financial penalties and other conditions or sanctions. For the 2016 fiscal year, Kaplan University expects to have a composite score of 1.8, based on its own assessment using ED methodology. However, the ED will make its own determination once it receives and reviews Kaplan University’s audited financial statements for the 2016 fiscal year.


Administrative Capability. The Higher Education Act, as reauthorized, directs the ED to assess the administrative capability of each institution to participate in Title IV programs. The failure of an institution to satisfy any of the criteria used to assess administrative capability may cause the ED to determine that the institution lacks administrative capability and subject the institution to additional scrutiny, deny eligibility for Title IV programs or impose other sanctions. To meet the administrative capability standards, an institution must, among other things: 
Comply with all applicable Title IV program requirements;
Have an adequate number of qualified personnel to administer Title IV programs;
Have acceptable standards for measuring the satisfactory academic progress of its students;
Have procedures in place for awarding, disbursing and safeguarding Title IV funds and for maintaining required records;
Administer Title IV programs with adequate checks and balances in its system of internal control over financial reporting;
Not be, and not have any principal or affiliate who is, debarred or suspended from U.S. Federal contracting or engaging in activity that is cause for debarment or suspension;
Provide adequate financial aid counseling to its students;
Refer to the ED’s Office of the Inspector General any credible information indicating that any applicant, student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct involving Title IV programs;
Submit in a timely way all required reports and financial statements; and
Not otherwise appear to lack administrative capability.
Although Kaplan endeavors to comply with the administrative capability requirements, Kaplan cannot guarantee that it will continue to comply with the administrative capability requirements or that its interpretation or application of the relevant rules will be upheld by the ED or other agencies or upon judicial review.
State Authorization. Kaplan’s institutions and programs are subject to state-level regulation and oversight by state licensing agencies, whose approval is necessary to allow an institution to operate and grant degrees or diplomas in the state. State laws may establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. Institutions that participate in Title IV programs must be legally authorized to operate in the state in which the institution is physically located or is otherwise subject to state authorization requirements.
Some states have sought to assert jurisdiction over online educational institutions that offer education services to residents in the state or to institutions that advertise or recruit in the state, notwithstanding the lack of a physical location in the state. State regulatory requirements for online education vary among the states, are not well developed in many states, are imprecise or unclear in some states and are subject to change. If Kaplan University is found not to be in compliance with an applicable state regulation and a state seeks to restrict one or more of Kaplan University's business activities within its boundaries, Kaplan University may not be able to recruit or enroll students in that state and may have to cease providing services in that state.
The ED regulations that became effective on July 1, 2011, expanded the requirements for an institution to be considered legally authorized in the state in which it is physically located for Title IV purposes. In some cases, the regulations required states to revise their current requirements and/or to license schools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in the Title IV programs. If a state’s requirements are found not to be in compliance with these ED regulations or if Kaplan University's institutions do not receive state approvals where necessary, the institutions could be deemed to lack the state authorization necessary to participate in the Title IV programs and be subject to loss of Title IV eligibility, repayment obligations and other sanctions. Due to an exemption, Kaplan University’s home state of Iowa does not require Kaplan University to be registered in Iowa. However, to comply with the law, Kaplan University was granted affirmative registration in Iowa. Kaplan believes that all of Kaplan University’s campuses currently meet the ED requirements to be considered legally authorized to provide the programs they offer in the states in which the campuses are located. The ED has stated that it will not publish a list of states that meet, or fail to meet, the state authorization requirements, and it is uncertain how the ED will interpret these requirements in each state.
In addition, the ED regulations that took effect on July 1, 2011, required institutions offering postsecondary education to students through distance education in a state in which the institution is not physically located, or in which it is otherwise subject to state jurisdiction as determined by the state, to meet any applicable state requirements for it to be legally offering postsecondary distance education in that state. In June 2012, the U.S. Court of Appeals for the District of Columbia vacated the regulations with respect to distance education. Between February and May 2014, the ED convened a negotiated rulemaking committee to develop proposed regulations on a variety of topics that included state authorization for programs offered through distance education or correspondence education. The ED paused the negotiated rulemaking process without publishing new regulations


on this topic. On December 19, 2016, the ED issued final regulations regarding distance-education state authorization requirements that will require Kaplan University to be authorized in additional states, as well as regulations applicable to institutions with Title IV participating locations in a foreign country. The regulations are not scheduled to take effect until July 1, 2018. Specifically, the regulations will require an institution that offers postsecondary education through distance education in a state in which the institution is not physically located, or in which the state determines that the institution is otherwise subject to the state’s jurisdiction, to meet the state’s authorization requirements for offering postsecondary distance education in that state. The regulations also will require the institution to document that there is a state process for review and appropriate action on complaints from enrolled students in each such state. In addition, the regulations will require the institution to provide public disclosures regarding various matters, relating to its state authorization and to provide individualized disclosures to each prospective student regarding certain matters, including whether the student’s program fails to meet licensure or certification prerequisites in the state in which the student resides. The regulations in certain circumstances consider an institution to have met state authorization requirements in states that participate in a state authorization reciprocity agreement that covers the institution. If Kaplan is unable to obtain the required approvals for distance-education programs by the effective date of the new regulations, then Kaplan students residing in the state for which approval was not obtained may be unable to receive Title IV funds, which could have a material adverse effect on Kaplan’s business and operations. The implementation of this rule may further limit Concord’s ability to enroll students in its Juris Doctor program outside of California and may materially impact Concord’s revenue.
Congressional Reauthorization of Title IV Programs. All of the Title IV programs are subject to periodic legislative review and reauthorization. In addition, while Congress historically has not limited the amount of funding available for the various Title IV student loan programs, the availability of funding for the Title IV programs that provide for the payment of grants is primarily contingent upon the outcome of the annual U.S. Federal appropriations process. Congress also can make changes in the laws affecting Title IV programs in those annual appropriations bills and in other laws it enacts between Higher Education Act reauthorizations. The Higher Education Act was reauthorized through September 2014 and has continued to receive annual appropriations. The Senate Health, Education, Labor and Pensions Committee (HELP) and the House Education and the Workforce Committee have held a series of hearings on reauthorization of the Higher Education Act. Congress is expected to consider reauthorization of the Higher Education Act in 2017, but it is not known if or when Congress will make changes to that statute or to other laws affecting U.S. Federal student aid.
Whether as a result of changes in the laws and regulations governing Title IV programs, a reduction in Title IV program funding levels or a failure of schools within Kaplan University to maintain eligibility to participate in Title IV programs, a material reduction in the amount of Title IV financial assistance available to the students attending those schools could have a material adverse effect on Kaplan’s business and operations. In addition, any development that has the effect of making the terms on which Title IV financial assistance is made available materially less attractive could also have a material adverse effect on Kaplan’s business and operations.
Governmental Scrutiny and Enforcement. There has been increased attention by Congress on the role that for-profit educational institutions play in higher education, including their participation in Title IV programs and tuition assistance programs for military service members attending for-profit colleges. Beginning in June 2010, the HELP Committee held a series of hearings to examine the for-profit education sector and requested information from various for-profit institutions, including KHE institutions. In July 2012, the majority staff of the HELP Committee issued a final report to conclude the review. The final report included observations and recommendations for Federal policy related to increasing regulations on higher education.
Other committees of Congress have also held hearings to looking into, among other things, the standards and procedures of accrediting agencies, credit hours and program length and the portion of U.S. Federal student financial aid going to for-profit institutions. This increased activity, and other current and future activity, may result in legislation, further rulemaking and other governmental actions affecting Kaplan's participation in Title IV programs or the amount of student financial assistance for which Kaplan’s students are eligible. In addition, concerns generated by congressional or other activity, or negative media reports, may adversely affect enrollment in for-profit educational institutions.
The increased scrutiny of for-profit schools also has resulted in additional enforcement actions, investigations and lawsuits by the ED, other federal agencies, state Attorneys General and state licensing agencies. These actions and allegations have attracted significant negative media coverage. Recent enforcement actions have resulted in institutions being required to post substantial letters of credit, liabilities, restrictions and sanctions and, in some cases, have led to the loss of Title IV eligibility and closure of institutions. Allegations and enforcement actions against the overall postsecondary education sector may impact general public perceptions of private-sector educational institutions, including Kaplan, in a negative manner. Negative media coverage regarding other educational institutions or regarding Kaplan directly could damage Kaplan’s reputation, reduce student demand for Kaplan programs or lead to increased regulatory scrutiny and could negatively impact Kaplan’s operating results.


Kaplan cannot predict the extent to which these activities could result in further investigations, legislation or rulemaking affecting its participation in Title IV programs, other governmental actions and/or actions by state agencies or legislators or by accreditors. If any laws or regulations are adopted that significantly limit Kaplan’s participation in Title IV programs or the amount of student financial aid for which Kaplan’s students are eligible, or any actions are taken against Kaplan that result in material liabilities, sanctions, conditions or requirements, Kaplan’s results of operations and cash flows would be adversely and materially impacted.
Program Reviews, Audits and Investigations.  Kaplan’s schools are subject to audits or program compliance reviews by various external agencies, including the ED; its Office of the Inspector General; other federal agencies, including the Department of Defense and the Department of Veterans Affairs; and state and accrediting agencies. While program reviews may be undertaken for a variety of reasons, they are performed routinely as part of regulatory oversight of institutions that participate in Title IV or federal or state student funding programs. If the ED or another regulatory agency determines that an institution has improperly disbursed Title IV or other federal or state program funds or violated a provision of the Higher Education Act or other federal or state law or regulations, the affected institution may be required to repay funds to the ED or the appropriate federal or state agency or lender and may be assessed an administrative fine and be subject to other sanctions. Although Kaplan endeavors to comply with all U.S. Federal and state laws and regulations, Kaplan cannot guarantee that its interpretation of the relevant rules will be upheld by the ED or other agencies or upon judicial review.
On February 23, 2015, the ED began a review of Kaplan University. The review will assess Kaplan’s administration of its Title IV and Higher Education Act programs and will initially focus on the 2013 to 2014 and 2014 to 2015 award years. On December 17, 2015, Kaplan University received a notice from the ED that it had been placed on provisional certification status until September 30, 2018, in connection with the open and ongoing ED program review. The ED has not notified Kaplan University of any negative findings. However, at this time, Kaplan cannot predict the outcome of this review, when it will be completed or any liability or other limitations that the ED may place on Kaplan University as a result of this review. During the period of provisional certification, Kaplan University must obtain prior ED approval to open a new location, add an educational program, acquire another school or make any other significant change.
In addition, there are four open program reviews at campuses that were part of the KHE Campuses business prior to its sale in 2015 to Education Corporation of America (ECA), including the ED’s final reports on the program reviews at former KHE Hammond, IN; San Antonio, TX; Broomall, PA; and Pittsburgh, PA, locations. Kaplan retains responsibility for any financial obligation resulting from the ED program reviews at the KHE Campuses business that were open at the time of sale.
Institutional and Programmatic Accreditation.Accreditation is a process through which an institution submits itself to qualitative review by an organization of peer institutions. Pursuant to the Higher Education Act, the ED relies on accrediting agencies to determine whether the academic quality of an institution’s educational programs is sufficient to qualify the institution to participate in Title IV programs. As noted previously, to remain eligible to participate in Title IV programs, a school must maintain its institutional accreditation by an accrediting agency recognized by the ED. Kaplan’s schools are subject to reviews by the accrediting agencies that accredit them and their educational programs. Kaplan University’s regional accreditation by the HLC was required to be reaffirmed in 2016. As part of this process, in the second quarter of 2016, HLC conducted an on-site review of Kaplan University. In August 2016, the HLC reaffirmed Kaplan University's accreditation for a ten-year term through the 2025–2026 academic year.
Programmatic accreditation is the process through which specific programs are reviewed and approved by industry-specific and program-specific accrediting entities. Although programmatic accreditation is not generally necessary for Title IV eligibility, such accreditation may be required to allow students to sit for certain licensure exams or to work in a particular profession or career or to meet other requirements. Kaplan University programs maintain a variety of programmatic accreditations that it believes are appropriate to ensure the quality of the programs or to enable students to seek necessary credentials upon graduation.
Return of Title IV Funds.  ED regulations require schools participating in Title IV programs to calculate correctly and return on a timely basis unearned Title IV funds disbursed to students who withdraw from a program of study prior to completion. These funds must be returned in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under ED regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled in a school’s annual compliance audit, or in a program review or Office of the Inspector General (OIG) audit could result in a requirement that the school post a letter of credit in an amount equal to 25% of its prior-year returns of Title IV program funds. Currently, Kaplan University is not required to post a letter of credit. If unearned funds are not properly calculated and returned in a timely manner, an institution is subject to monetary liabilities, fines or other sanctions.


Test Preparation
In 2016, Kaplan Test Preparation (KTP) included test preparation businesses in pre-college, graduate, health and bar review, as well as new businesses in new economy skills training (NEST) and in career advising. KTP also published test preparation and other books through its Kaplan Publishing business. Each of these businesses is discussed below.
Test Preparation.KTP’s pre-college and graduate businesses prepare students for a broad range of college and graduate school admissions examinations, including the SAT, ACT, LSAT, GMAT, MCAT and GRE. KTP’s health business prepares students for medical and nursing licensure exams, including the USMLE and NCLEX. Kaplan Bar Review offers full-service bar review in 50 states and the District of Columbia, as well as review for the multistate portion of the bar exam nationwide.
KTP delivers courses at numerous venues throughout the U.S., Canada, Puerto Rico, Mexico and London. These courses are taught at more than 70 KTP-branded locations and at numerous other locations such as hotels, high schools and universities. KTP also offers courses online, typically in a live online classroom or a self-study format. Private tutoring services are provided in person in select markets and online throughout the U.S. In addition, KTP licenses material for certain of its courses to third parties and to a Kaplan affiliate, which, during 2016, delivered courses at 58 locations in 30 countries outside the U.S. KTP also offers college admissions examination preparation courses and materials directly to high schools and school districts.
During 2016, KTP enrolled over 350,000 students in its courses, including more than 160,000 enrolled in online programs.
New Economy Skills Training. In 2015, KTP entered the NEST market in New York, California and Illinois with two offerings. KTP has since added locations in Austin, TX, San Diego, CA, and Seattle, WA. The acquisition of Dev Bootcamp established KTP as a leader in software developer bootcamps, which are programs that provide students with job-ready computer coding skills. KTP also launched Metis, which offers data science and plans to offer marketing and other NEST programs.
Publishing.Kaplan Publishing focuses on print test preparation resources sold through retail channels. At the end of 2016, Kaplan Publishing had over 350 products available in print and digital formats, including more than 150 digital products.
Kaplan International
Kaplan International (KI) operates businesses in Europe, the U.S. and the Asia Pacific region. Each of these businesses is discussed below.
Europe. In Europe, Kaplan InternationalKI operates the following businesses, all of which are based in the U.K. and Ireland: Kaplan UK, KI Pathways, KI English, Mander Portman Woodward, Dublin Business School and a higher education institution and an online learning institution.Kaplan Open Learning.
The Kaplan UK business in Europe, through Kaplan Financial Limited, is a provider of training, test preparation services and degrees for accounting and financial services professionals, including those studying for ACCA, CIMA and ICAEW qualifications. In addition, Kaplan UK provides professional training. In 2016,2018, Kaplan UK provided courses to over 51,00050,000 students in accountancy and financial services. Kaplan UK is headquartered in London, England, and has 2221 training centers located throughout the U.K.
The KI Pathways business offers academic preparation programs especially designed for international students who wish to study in English-speaking countries. In 2016,2018, university preparation programs were being delivered in Australia, China, Japan, Nigeria,Myanmar, Singapore, the U.K. and the U.S., serving more than 13,000approximately 12,000 students in partnership with more than 40 universities.
The KI English business provides English-language training, academic preparation programs and test preparation for English English–proficiency exams, principally for students wishing to study and travel in English-speaking countries. KI English operates a total of 4037 English-language schools, with 2219 located in the U.K., Ireland, Australia, New


Zealand and Canada and 18 located in the U.S. During 2016,In 2018, KI English served approximately 47,00036,000 students for in-class English-language instruction provided by Kaplan.instruction.
In January 2016, Kaplan International acquired Mander Portman Woodward (MPW), is a U.K. independent sixth-form college that prepares domestic and international students for A-level examinations that control admission to U.K. universities. MPW operates three colleges in London, Cambridge and Birmingham.


Kaplan InternationalKI also operates Dublin Business School in Ireland, a higher education institution, and Kaplan Open Learning in the U.K., an online learning institution. At the end of 2016,2018, these institutions enrolled an aggregate of approximately 5,2006,000 students.
U.K. Immigration Regulations. Certain Kaplan InternationalKI businesses serve a significant number of international students; therefore, the ability to sponsor students from outside the European Economic Area (EEA) and Switzerland to come to the U.K. is critical to these businesses. Pursuant to regulations administered by the United Kingdom VisaVisas and Immigration Department (UKVI), the KI Pathways business and Kaplan Financial Limited areis required to hold or operate Tier 4 sponsorship licenses to permitfor international students to comebe permitted to enter the U.K. to study the courses they deliver. FourKI Pathways delivers. Two of the KI English schools also have Tier 4 licenses to enable them to teach international students, although in general, students studying the English language canmay generally choose to enter the U.K. on a student visitorshort-term study visa as opposed to a Tier 4 visa.
Each Tier 4 license holder is also required to ensure that it hashave passed the Basic Compliance Assessment (BCA) and holdshold Educational Oversight accreditation. Without these criteria being met, Kaplan International’sKI’s U.K. schools would not be permitted to issue a Confirmation of Acceptance for Acceptance of Studies (CAS) to potential incoming international students, which is a prerequisite to a student obtaining a Tier 4 student visa. The revised immigrationUKVI rules also require all private institutions to obtain Educational Oversight accreditation. Educational Oversightaccreditation, which requires a current and satisfactory full inspection, audit or review by the appropriate academic standards body. Failure to comply with these new rules has the potential to adversely impact the number of international students studying through Kaplan International.
For Kaplan UK, Kaplan Financial Limited currently holds Tier 4 license status under a Kaplan master license enabling it to sponsor international students. Kaplan UK met the UKVI requirements throughout 2016.
For the fifthseventh consecutive year, Kaplan InternationalKI has retained 100% in Tier 4 Educational Oversight with high grades across all colleges. Allcolleges, and all Tier 4 license renewals have been approved again with high scores in the core measurable requirements.
KI English completed consolidation of its Tier 4 licenses in June 2016 so that only fourhas two U.K. English-language schools remainlisted on the Kaplan Tier 4 master license. Each of these fourThe MPW schools also completed annual monitoring, achieving “exceeded expectations” from the Independent Schools Inspectorate (ISI). As noted above, students studying the English language can choose to enter the U.K. on a student visitor visa as opposed to aeach hold current Tier 4 visa.
The MPW schoolslicenses and have performed consistently well with good records in their Office for Standards in Education, Children’s Services and Skills (OFSTED) and ISIIndependent Schools Inspectorate (ISI) Educational Oversight inspections.
The MPW schools each hold currentHigher Education and Research Act 2017 (HERA) received Royal Assent on April 27, 2017. HERA undertook a significant reform of regulation of the higher education sector in the U.K., including the formation of a new regulator, the Office for Students (OfS). The 2018–2019 academic year is a transition year under the new regulatory framework. The OfS has published regulatory guidance, including the new Regulatory Framework for Higher Education in England. All of KI’s higher education businesses in the U.K. will need to successfully complete registration with the OfS in 2019 to ensure that they continue operating and retain their Tier 4 licenses.sponsor licenses or continue to receive government student loan funding. Pathways institutions registered with the OfS will be, for the first time, recognized as Higher Education Providers, with students of approved providers having many of the same Tier 4 privileges as students of universities in the U.K. effective August 1, 2019. No assurance can be given that each KI business required to register with the OfS will be successful in doing so. Failure to register with the OfS would result in the loss of a Tier 4 license and, where relevant, inability to accept students funded by U.K. domestic student loans. Failure of one or more institutions to successfully register with the OfS would have a material adverse effect on Kaplan Europe’s operating results.
Changes continue to be made to U.K. immigration rules. The UKVI continues to tighten the regulations around sponsoring students from outside the EEA and Switzerland. Changes over the past three years have included the introduction of a rule that restricts to five years the time a sponsored student can spend studying at or above degree level in the U.K. The post-study work visa, which permitted postgraduate students to work in the U.K. without being sponsored, was closed to new applicants. In addition, sponsored students who do not attend an institution that qualifies as a Higher Educational Institution (HEI), which includes students attending Kaplan UK colleges, are no longer permitted to work part time while studying. In 2013, the biggest change was the introduction of a new screening process called a “Credibility Check” for potential students. This interview process can affect the number of visa refusals Kaplan International’s businesses receive, which is a risk factor for loss of the relevant license. However, Kaplan International has not experienced a significant increase in visa refusals. Since the introduction of the Points-Based System in 2009, all Tier 4 students are subject to strict checks pre and post arrival, including verification that their qualifications are genuine, confirmation that the students maintain a good attendance record and that they can be contacted at all times, and verification that they have academic progression and that their visa is valid at all times while they are present in the U.K. Failure to meet these requirements obliges Kaplan International to withdraw sponsorship and report these students to the UKVI. In 2014, there were additional changes to the UKVI rules, including a significant tightening of the core measurable with respect to visa refusals. Effective November 1, 2014, no more than 10% of the students to whom a CAS is issued by a Tier 4 license sponsor can have their visa refused. Formerly, the limit was set at 20%. In 2015, the Tier 4 licenses for Kaplan Financial, KI Pathways’ London College and all of KI English colleges were consolidated into one single “master” license. If this license were lost, all of these colleges would lose the ability to sponsor international students. Furthermore, students applying to another education provider after completing their studies at these colleges are now required to return home to apply for a second visa. All of KI Pathways’ colleges dedicated to working with one university partner that held their own individual sponsor license before the introduction of the master license have retained their individual licenses. Academic service providers are required to have rigorous processes to verify all English-language test certificates. The introduction of revised immigration rules has negatively impacted Kaplan UK’s enrollment ratehistorically increased, and may continue to increase, KI’s operating costs in relation to students from outside the EEA and Switzerland.


U.K.
No assurance can be given that each Kaplan InternationalKI business in the U.K. will be able to maintain its Tier 4 BCA status and Educational Oversight accreditation.Oversight/OfS accreditation or registration. Maintenance of each of these approvals requires compliance with several core metrics that may be difficult to attain. Loss of either Tier 4 BCA status or Educational OversightOversight/OfS accreditation or registration would have a material adverse effect on KaplanKI Europe’s operating results.
Impact of Brexit. On June 23, 2016, the U.K. held a referendum in which voters approved a proposal that the U.K. leave the European Union (“EU”)(EU), commonly referred to as “Brexit.” The impact of Brexit on Kaplan International from BrexitKI will depend, in part, on the outcome of future negotiations regarding the terms of the U.K.’s withdrawal from the EU. The timingEU, possibly including any transition period or the outcome of any “no deal” exit. A “no deal” exit would occur if the U.K. government is not able to reach agreement with the EU on either transition arrangements or its future relationship with the EU upon exit. This risk increased following the rejection of the proposed transition arrangements by the U.K. Parliament on January 15, 2019. A U.K. exit on a “no deal” basis could adversely impact the value of the British pound as compared to other currencies or potentially have other adverse consequences and may have a materially adverse impact on KI’s results of operations. Uncertainty over the outcome of the negotiations and its impact on recruitmentthe possibility of a “no deal” exit may materially or significantly diminish interest in traveling to the U.K. for study. If the U.K. is no longer viewed as a favorable study destination, KI’s ability to recruit international students is uncertain. It is possiblewill be adversely impacted,


which would result in material adverse impacts to KI’s results of operations and cash flows. The U.K. government’s Immigration White Paper, issued in December 2018, clarified that EU nationals’ ability to enter the U.K. for long- or short-term study will changechange. EU national students seeking to study higher education courses will be broadly subject to similar rules as those that presently apply to non-EU international students (KI Pathways). EU national students seeking to study English-language courses will either require an Electronic Travel Authorization or that changes in laws affectinga short-term student visa (KI English). EU nationals could also applydo not currently require visas or face other administrative barriers to international students presently covered bystudy in the Tier 4 (KI Pathways) or student visitor visa regime (KI English).U.K. It is also expected that recruitment of staff from outside the U.K will become more difficult and that Kaplan may experience difficulties in attracting and retaining international staff in the U.K. It is unclear how international student recruitment agents and prospective international students will view the U.K. as a study destination after the introduction of these new requirements, the EU exit negotiations and the U.K.’s eventual departureexit from the EU. IfThe introduction of new visa and other administrative requirements, Brexit and the U.K. exit from the EU and related perceptionsperception of the U.K. as a less favorable study destination may have a significant negativematerially adverse impact on Kaplan’sKI’s ability to recruit international students, Kaplan’sKI’s results of operations and cash flows would be adversely and materially impacted.
In addition,flows. Additionally, if the U.K.’s new Prime Minister has expressed her desire to maintain rigorous immigration controls does not receive a determination of adequacy under the EU General Data Protection Regulation, then flows of personal data within KI or between KI and selectits clients, suppliers, business partners and affiliates may be substantially disrupted. The risks associated with Brexit may be mitigated, in part, by the “best” students for entry into the U.K. A government consultation, similar to the U.S. rulemaking process, on admitting the “brightest and best” students to U.K. universities in exchange for extra compliance and responsibilities will be undertaken early in 2017. It is possiblepossibility that this consultation could result in a material reduction in the numbervalue of Tier 4 visas being issued tothe British pound against other international students.
The U.K. Counter-Terrorism and Security Act 2015. The U.K. Counter-Terrorism and Security Act 2015 creates a statutory duty for specified public authorities to “have due regardcurrencies may attract greater numbers of students to the need to prevent people from being drawn into terrorism” (“Prevent duty”). The aim of this government policy is to prevent people from becoming terrorists or supporting terrorism. The private Further Education sector became subject to the new Prevent duty in July 2015 and is required to implement safeguards as proposed by the Home Office Prevent guidance.
Kaplan International has successfully implemented a Prevent Policy to satisfy the requirements of its duty across KI English and KI Pathways.Following inspections in July 2016 at three KI Pathways sites, KI Pathways received the highest grading “compliant” for its inspections and received best practice ratings in a number of areas for the private Further Education sector.U.K.
Asia Pacific.  In the Asia Pacific region, Kaplan operates businesses primarily in Singapore, Australia, New Zealand, Hong Kong and China.
In Singapore, Kaplan operates three business units: Kaplan Higher Education, Kaplan Financial and Kaplan Professional. During 2016,2018, the Higher Education and Financial divisions served more than 13,00014,000 students from Singapore and 5,0002,700 students from other countries throughout Asia and Western Europe. Kaplan Professional provided short courses to approximately 19,00055,000 professionals, managers, executives and businesspeople in 2016.2018.
Kaplan Singapore’s Higher Education business provides students with the opportunity to earn bachelor’sBachelor’s and postgraduate degrees in various fields on either a part-time or full-time basis. Kaplan Singapore’s students receive degrees from affiliated educational institutions in Australia and the U.K. In addition, this division offers pre-university and diploma programs.
Kaplan Singapore’s Financial business provides preparatory courses for professional qualifications in accountancy and finance, such as the Association of Chartered Certified Accountants (ACCA) and the Chartered Financial Analyst (CFA). Kaplan Singapore’s Professional business, which is an authorized Workforce Development Agency Continuing EducationSkillsFuture Singapore Approved Training (CET) Centre,Organization, provides professionals with various skills training through workforce skills qualifications courses to help them rejoin the workforce, shift to new careers or catch up with changes that occur in the workplace.
In November 2018, Kaplan Singapore Professional received a notice from SkillsFuture Singapore (SSG), a statutory board under the Singapore Ministry of Education, that SSG would terminate Kaplan Singapore Professional’s right to deliver workforce skills qualifications (WSQ) courses under the Leadership & People Management framework for six months from December 1, 2018, due to issues relating to a small number of contractors, and restrict Kaplan Singapore from applying to teach any new WSQ programs for six months from the date of the notice. Kaplan Singapore Professional has accepted the decision from SSG and enhanced its compliance controls for all other frameworks of WSQ courses.
In Australia, Kaplan delivers a broad range of financial services programs from certificate level through master’sMaster’s level, together with professional development offerings through Kaplan Professional, as well as higher education programs in business, accounting, hospitality and tourism and management through Kaplan Business School. In 2016,2018, these businesses provided courses to approximately 1,4002,300 students through face-to-face classroom programs (within Kaplan Business School) and to more than 33,000approximately 43,000 students through online or distance-learning programs offered by Kaplan Professional.
Kaplan Australia’s English-language business is part of KI English, which operates across sevenfive locations in Australia and one location in New Zealand, teaching more than 8,0006,000 students per year.in 2018. In 2018, the KI English School in Manly was sold to allow Kaplan to refocus its English-language training businesses on metropolitan areas in Australia. The Kaplan Australia Pathways business is also part of KI Pathways. It consists of Murdoch Institute of Technology and the University of Adelaide College (formerly Bradford College) and offersoffered face-to-face pathways and foundational education to approximately 1,000more than 1,300 students wishing to enter Murdoch University in Perth and the University of Adelaide, respectively.respectively, in 2018. The contract with Murdoch University to run the Murdoch Institute of Technology will expire in 2020, and Kaplan has decided not to exercise its right to negotiate an extension of its contract.
Kaplan Australia also owns Red Marker Pty Ltd., a machine learning and artificial intelligence-based provider of regulatory software. Its Artemis product detects potentially non-compliant content as it is being created, helping


advisers and licensees to identify and remediate compliance risks associated with the promotion of financial products or services.
In Hong Kong, Kaplan operates three main business units: Kaplan Financial, Kaplan Language Training and Kaplan Higher Education, serving more than 11,500approximately 13,000 students annually.
Kaplan Hong Kong’s Financial division delivers preparatory courses to approximately 9,60011,000 students and business executives wishing to takeearn professional qualifications in accountancy, including HKICPA, ACCA and CPA, and financial markets designations including CFA, LE, FRM and CAIA.other professional courses.
Hong Kong’s Language Training division offers both test preparation for overseas study and college applications, including TOEFL, IELTS, SAT and GMAT, to approximately 1,000 students.
Kaplan Hong KongKong’s Higher Education division offers both full-time and part-time programs to approximately 1,000 students studying for degrees from leading Western universities. Students earn doctorate, master’sDoctorate, Master’s and bachelor’sBachelor’s degrees in Hong Kong. Kaplan also offers a proprietary pre-college diploma program through Kaplan Business and Accountancy School.
In early 2015, Kaplan sold both its ACCA training programs business and four schools that deliver university preparation programs. Kaplan continues to retain franchise arrangements with third parties in China to deliver programs.
In 2014, Kaplan Holdings Limited (Hong Kong) signed a joint venture agreement with CITIC Press Corporation. Under the terms of the agreement, the parties have now incorporated a joint venture company, Kaplan CITIC Education Co. Limited, which is 49% owned by Kaplan Holdings Limited. The joint venture company is carrying out financialpublishing and distribution of Kaplan Financial training businessesproducts in China (including CFA, FRM and ACCA) and is expanding its business with other Kaplan divisions under an intellectual property license from Kaplan, including CFA, FRM and ACCA.Kaplan.
Each of Kaplan’s international businesses is subject to unique and often complex regulatory environments in the countries in which they operate. The degree of consistency in the application and interpretation of such regulations can vary significantly in certain jurisdictions, which can make compliance challenging. No assurance can be given that Kaplan will be able tosuccessfully comply with all applicable foreign regulations, and failure to do so could materially and adversely affect Kaplans operating results.
Kaplan Higher Education
Until March 22, 2018, Kaplan Higher Education (KHE) provided postsecondary education services to students through Kaplan University’s (KU) online and fixed-facility colleges. KU provided a wide array of certificate, diploma and degree programs designed to meet the needs of students seeking to advance their education and career goals.
On March 22, 2018, certain subsidiaries of Kaplan contributed the institutional assets and operations of KU to a new university: an Indiana non-profit, public-benefit corporation affiliated with Purdue University, known as Purdue University Global (Purdue Global). As part of the transfer to Purdue Global, KU transferred students, academic personnel, faculty and operations, property leases for KU’s campuses and learning centers and KHE-owned academic curricula and content related to KU courses. At the same time, KU and Purdue Global entered into a Transition and Operations Support Agreement (TOSA) pursuant to which KHE provides key non-academic operations support to Purdue Global. Kaplan received nominal cash consideration upon the transfer of the institutional assets and operations of KU.
The transfer of KU did not include any of the assets of the KU School of Professional and Continuing Education, which provides professional training and exam preparation for professional certifications and licensures, nor did it include the transfer of other Kaplan businesses.
KHE’s Third-Party Service Operations
KHE’s primary business operations are providing non-academic operations support services to Purdue Global pursuant to the TOSA and similar services to Purdue University and other institutions of higher education. Purdue Global operates largely online as an Indiana public university affiliated with Purdue University. The operations support activities that KHE provides to Purdue Global include technology support, help-desk functions, human resources support for transferred faculty and employees, admissions support, financial aid processing, marketing and advertising, back-office business functions, certain test preparation and domestic and international student recruiting services.
Pursuant to the TOSA, KHE is not entitled to receive any reimbursement of costs incurred in providing support functions, or any fee, unless and until Purdue Global has first covered all of its operating costs (subject to a cap). If Purdue Global achieves cost efficiencies in its operations, it may be entitled to an additional payment equal to 20% of such cost efficiencies (Purdue Efficiency Payment). In addition, during each of Purdue Global’s first five years, prior to any payment to KHE, Purdue Global is entitled to a priority payment of $10 million per year beyond costs. To the extent Purdue Global’s revenue is insufficient to pay the priority payment, KHE is required to advance an amount to Purdue Global to cover such insufficiency. Upon closing of the transaction, Kaplan paid to Purdue


Global an advance in the amount of $20 million, representing, and in lieu of, priority payments for Purdue Global’s fiscal years ending June 30, 2019 and June 30, 2020.  
To the extent that there is sufficient revenue to pay the Purdue Efficiency Payment, Purdue Global will be reimbursed for its operating costs (subject to a cap), and the priority payment to Purdue Global is paid. To the extent that there is remaining revenue, KHE will then receive reimbursement for its operating costs (subject to a limit) of providing the support activities. If KHE achieves cost efficiencies in its operations, then KHE may be entitled to an additional payment equal to 20% of such cost efficiencies (KHE Efficiency Payment). If there are sufficient revenues, KHE may also receive a fee equal to 12.5% of Purdue Global’s revenue. The fee will increase to 13% beginning with Purdue Global’s fiscal year ending June 30, 2023, through Purdue Global’s fiscal year ending June 30, 2027. Thereafter, the fee will return to 12.5%. Subject to certain limitations, a portion of the fee that is earned by KHE in one year may be carried over and instead paid to KHE in subsequent years. After the first five years of the TOSA, KHE and Purdue Global will be entitled to payments in a manner consistent with the structure described above, except that (i) Purdue Global will no longer be entitled to a priority payment and (ii) to the extent that there are sufficient revenues after payment of the KHE Efficiency Payment (if any), Purdue Global will be entitled to an annual payment equal to 10% of the remaining revenue after the KHE Efficiency Payment (if any) is paid, subject to certain other adjustments.
The TOSA has a 30-year initial term, which will automatically renew for five-year periods unless terminated. After the sixth year, Purdue Global has the right to terminate the agreement upon payment of a termination fee equal to 1.25 times Purdue Global’s revenue for the preceding 12-month period, which payment would be made pursuant to a 10-year note, and at the election of Purdue Global, it may receive for no additional consideration certain assets used by KHE to provide the support activities pursuant to the TOSA. At the end of the 30-year term, if Purdue Global does not renew the TOSA, Purdue Global will be obligated to make a final payment of 75% of its total revenue earned during the preceding 12-month period, which payment will be made pursuant to a 10-year note, and at the election of Purdue Global, it may receive for no additional consideration certain assets used by KHE to provide the support activities pursuant to the TOSA. Either party may terminate the TOSA at any time if Purdue Global generates (i) $25 million in cash operating losses for three consecutive years or (ii) aggregate cash operating losses greater than $75 million at any point during the initial term. Operating loss is defined as the amount of revenue Purdue Global generates minus the sum of (1) Purdue Global’s and KHE’s respective costs in performing academic and support functions and (2) the $10 million priority payment to Purdue Global in each of the first five years. Upon termination for any reason, Purdue Global will retain the assets that Kaplan contributed pursuant to the Transfer Agreement. Each party also has certain termination rights in connection with a material default or material breach of the TOSA by the other party.
Regulatory Environment
KHE no longer owns or operates KU or any other institution participating in student financial aid programs that have been created under Title IV of the U.S. Federal Higher Education Act of 1965 (Higher Education Act), as amended (Title IV). KHE is a service provider to Purdue Global and other Title IV participating institutions. As a service provider under the U.S. Department of Education (ED) regulations, KHE is required to comply with certain laws and regulations, including applicable statutory provisions of Title IV. KHE also provides financial aid services to Purdue Global, and as such, meets the definition of a “third-party servicer” contained in the Title IV regulations. By virtue of being a third-party servicer, KHE is also subject to applicable statutory provisions of Title IV and ED regulations that, among other things, require KHE to be jointly and severally liable with Purdue Global to the ED for any violation by Purdue Global of any Title IV statute or ED regulation or requirement. Pursuant to ED requirements, Purdue is responsible for any liability arising from the operation of the institution; however, pursuant to the agreement to transfer KU, KHE agreed to indemnify Purdue for certain pre-closing liabilities. KHE also is subject to other federal and state laws, including, but not limited to, information security requirements established by the Federal Trade Commission, as well as the applicable provisions of the Family Educational Rights and Privacy Act regarding the privacy of student records.
KHE’s failure to comply with these and other federal and state laws and regulations could result in adverse consequences to KHE’s business, including, for example:
The imposition on KHE of fines or repayment obligations for Title IV funds to the ED or the termination or limitation on KHE’s eligibility to provide services as a third-party servicer to Purdue Global or any other Title IV participating institution;
Adverse effects on KHE’s business and results of operations from a reduction or loss in KHE’s revenues under the TOSA or any other agreement with any Title IV participating institution if a client institution loses or has limits placed on its Title IV eligibility, accreditation, operations or state licensure, or is subject to fines, repayment obligations or other adverse actions due to non-compliance by KHE (or the institution) with Title IV, accreditor, federal or state agency requirements;


Liability under the TOSA or any other agreement with any Title IV participating institution for non-compliance with federal, state or accreditation requirements arising from KHE’s conduct; and
Liability for non-compliance with Title IV or other federal or state laws and regulations occurring prior to the transfer of KU to Purdue.
Incentive compensation. Under the ED’s incentive compensation rule, an institution participating in Title IV programs may not provide any commission, bonus or other incentive payment to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV funds if such payment is based directly or indirectly on success in securing enrollments or financial aid. KHE is a third party providing bundled services to Title IV participating institutions that include recruiting and, in the case of Purdue Global, financial aid services. As such, KHE is also subject to the incentive compensation rules and cannot provide any commission, bonus or other incentive payment to any covered employees, subcontractors or other parties engaged in certain student recruiting, admission or financial aid activities based on success in securing enrollments or financial aid. In addition, tuition revenue sharing payments to KHE under the TOSA (as well as any other agreement with any Title IV participating institution) must comply with revenue sharing guidance provided by the ED related to bundled services agreements. See Item 1A. Risk Factors, Failure to Comply With the ED’s Title IV Incentive Compensation Rule Could Subject Kaplan to Liabilities, Sanctions and Fines for more information.
Misrepresentations. A Title IV participating institution is required to comply with the ED regulations related to misrepresentations and with related federal and state laws. These laws and regulations are broad in scope and may extend to statements by servicers, such as KHE, that provide marketing or certain other services to such institutions. The laws and regulations may also apply to KHE’s employees and agents, with respect to statements addressing the nature of an institution’s programs, financial charges or the employability of its graduates. KHE provides certain marketing and other services to Title IV participating institutions. A violation of misrepresentation regulations or other federal or state laws and regulations applicable to the services KHE provides to its client institutions arising out of statements by KHE, its employees or agents could require KHE or its clients to pay the costs associated with indemnifying its client institutions from applicable losses. Additionally, failure to comply with these and other federal and state laws and regulations could result in the imposition on KHE of fines or federal student aid repayment obligations to the ED or the termination or limitation on KHE’s eligibility to provide services as a third-party servicer to Purdue Global or any other Title IV participating institution.
Compliance reviews and litigation. As a third-party servicer providing financial aid services to a Title IV participating institution, KHE is subject to reviews, audits, investigations and other compliance reviews conducted by various regulatory agencies and auditors, including, among others, the ED, the ED’s Office of the Inspector General, accrediting bodies and state and various other federal agencies. These compliance reviews can result in findings of non-compliance with statutory and regulatory requirements that can, in turn, result in the imposition of fines, liabilities, civil or criminal penalties or other sanctions against KHE. KHE will be required, if it enters into contracts to provide financial aid services to more than one Title IV participating institution, to arrange for an independent auditor to conduct an annual Title IV compliance audit of KHE’s compliance with applicable ED requirements.
On February 23, 2015, the ED began a program review assessing KU’s administration of its Title IV and Higher Education Act programs during the 2013-2014 and 2014-2015 award years. In 2018, Kaplan contributed the institutional assets and operations of KU to Purdue Global, and the university became Purdue Global, under the ownership and control of Purdue University. However, Kaplan retains liability for any financial obligations the ED might impose under this program review and that are the result of actions taken during the time that Kaplan owned the institution. On September 28, 2018, the ED issued a Preliminary Program Report (Preliminary Report). This Preliminary Report is not final, and the ED may change the findings in the final report. None of the initial findings in the Preliminary Report carries material financial liability. Although the program review technically covers only the 2013–2015 award years, the ED included a review of the treatment of student financial aid refunds for students who withdrew from a program prior to completion in 2017–2018. KHE cannot predict the outcome of this review, when it will be completed, whether any final findings of non-compliance with financial aid program or other requirements will impact KHE’s operations, or what liability or other limitations the ED might place on KHE or Purdue Global as a result of this review.
There are also two open program reviews at campuses that were part of the KHE Campuses business prior to its sale in 2015 to Education Corporation of America. The ED’s final reports on the program reviews at former KHE Broomall, PA, and Pittsburgh, PA, locations are pending. KHE retains responsibility for any financial obligations resulting from these program reviews.
Prior to the transfer to Purdue Global of the institutional assets and operations of KU, on September 3, 2015, Kaplan sold to Education Corporation of America (ECA) substantially all of the assets of KHE’s nationally accredited on-ground Title IV eligible schools (KHE Campuses). As part of the transaction, similar to the transfer of KU, Kaplan retained liability for the pre-sale conduct of the KHE schools. Although Kaplan no longer owns KU or the KHE Campuses, Kaplan may be liable to the current owners of KU and the KHE Campuses, respectively, for the pre-sale


conduct of the schools. Kaplan may also have liabilities in connection with certain real estate leases that were guaranteed by Kaplan.
Compliance by client institutions with Title IV program requirements and other federal, state and accreditation requirements.KHE currently provides services to education institutions that are heavily regulated by federal and state laws and regulations and subject to extensive accrediting body requirements. Presently, a substantial portion of KHE’s revenues are attributable to service fees it receives under the TOSA, which are dependent upon revenues generated by Purdue Global and dependent upon Purdue Global’s eligibility to participate in the Title IV federal student aid program. To maintain Title IV eligibility, Purdue Global and KHE’s other client institutions must be certified by the ED as eligible institutions, maintain authorizations by applicable state education agencies and be accredited by an accrediting commission recognized by the ED. Purdue Global and KHE’s other client institutions must also comply with the extensive statutory and regulatory requirements of the Higher Education Act and other state and federal laws and accrediting standards relating to their financial aid management, educational programs, financial strength, disbursement and return of Title IV funds, facilities, recruiting practices, representations made by the school and various other matters. Additionally, Purdue Global and other client institutions are subject to laws and regulations that, among other things, limit student default rates on the repayment of Title IV loans; permit borrower defenses to repayment of Title IV loans based on certain conduct of the institution; establish gainful employment requirements, including certain debt-to-earnings metrics; establish specific measures of financial responsibility and administrative capability; and require state authorization and institutional and programmatic accreditation. If Purdue Global or other client institutions lose or have limits placed on their Title IV eligibility, accreditation or state licensure, or if they are subject to fines, repayment obligations or other adverse actions due to their or KHE’s non-compliance with Title IV regulations, accreditor or state agency requirements or other state or federal laws, KHE’s financial results of operations could be adversely affected. In addition, any legislative, regulatory or other development that has the effect of materially reducing the amount of Title IV financial assistance or other federal, state or private financial assistance available to the students of KHE’s client institutions could have a material adverse effect on KHE’s business and results of operations.
Kaplan Test Preparation
In 2018, Kaplan Test Preparation (KTP) included test preparation, data science education and training and healthcare simulation businesses. Each of these businesses is discussed below. On February 28, 2018, Kaplan acquired the assets of i-Human Patients, Inc., a company that provides online, simulated patient interactions for use in training and assessing medical health professionals. On September 14, 2018, Kaplan acquired the test prep, study aid and foreign language assets of Barron’s Educational Series. The acquisition included the “Barron’s” name and approximately 650 titles covering all test prep and study aid assets, as well as foreign language, reference, business and law titles.
Test Preparation.KTP’s admissions businesses prepare students under the Kaplan Test Prep, Manhattan Prep and Barron’s Educational Series brands for a broad range of standardized, high-stakes tests, including the SAT, ACT, LSAT, GMAT, MCAT and GRE. KTP’s accredited businesses, operating under the Kaplan Prep & Achieve brand, prepare students for licensing exams required to enter certain professions, including nursing schools, medical schools and law schools. KTP also sells admissions consulting, tutoring and other advising services.
KTP delivers programs at numerous venues throughout the U.S., including Puerto Rico, as well as in Canada, Mexico and the U.K. Programs are taught at more than 70 Kaplan-branded locations and at numerous other locations, such as hotels, high schools and universities. KTP also offers courses and other programs online, typically in a live online classroom or a self-study format. Private tutoring services are provided in person in select markets and online. In addition, KTP licenses material for certain of its courses to third parties and to a Kaplan affiliate, which, during 2018, delivered courses at 68 locations in 30 countries outside the U.S. In 2018, KTP enrolled over 340,000 students in its courses and other programs, including more than 171,000 enrolled in online programs. Test Preparation includes Kaplan Publishing, which focuses on print test preparation resources sold through retail channels under the Kaplan Test Prep, Manhattan Prep and Barron’s Educational Series brands. At the end of 2018, Kaplan Publishing had approximately 1,100 titles in print and digital formats.
In total, KTP prepares students for more than 200 standardized tests, the large majority of which are U.S. focused.
Data science. KTP operates Metis, an accredited and licensed data science school and training company with locations in New York, California, Illinois and Washington. Metis operates 12-week data science boot camps in each of its locations and conducts trainings for corporations around the world.
Simulation. i-Human Patients provides online, simulated patient interactions for use in training and assessing medical health professionals and is typically purchased by medical and nursing schools.


Kaplan Professional (U.S.)
Kaplan Professional (U.S.) (KP) helps professionals obtain certifications, licensures, and designations that enable them to advance their careers. KP partners with organizations to solve their talent management challenges through customized corporate learning and development solutions. Through live and online instruction, KP provides test preparation, licensing and continuing education, as well as leadership and professional development programs to businesses and individuals in the accounting, insurance, securities, real estate, financial services, wealth management, engineering and architecture industries.
KP serves approximately 3,500 business-to-business clients, including 166 Fortune 500 companies. In 2018, more than 480,000 students used KP’s exam preparation offerings.
On May 4, 2018, KP acquired Professional Publications, Inc. (PPI), an independent publisher of professional licensing exam review materials and recognized leader in engineering, surveying, architecture and interior design licensure exam review products. PPI delivers courses and produces print and online materials for the Fundamentals of Engineering and various Professional Engineering exams in fields such as chemical, civil, electrical, mechanical and structural engineering.
On July 12, 2018, KP acquired the College for Financial Planning (CFFP). CFFP offers financial education and training to individuals seeking professional credentials, including the CERTIFIED FINANCIAL PLANNER™ (CFP®) mark, through comprehensive programs that lead to licensing, certification or graduate-level study. The acquisition complements KP’s existing CFP® certification education offerings and will add new professional designations and degrees to the KP portfolio. CFFP is accredited by the Higher Learning Commission (HLC).
Television Broadcasting
Graham Media Group, Inc. (GMG), a subsidiary of the Company, owns seven television stations located in Houston, TX; Detroit, MI; Orlando, FL; San Antonio, TX; Jacksonville, FL; and Roanoke, VA; and Jacksonville, FL,VA, as well as SocialNewsDesk, a provider of social-media management tools designed to connect newsrooms with their users. The following table sets forth certain information with respect to each of the Company’s television stations:
Station, Location and
Year Commercial
Operation Commenced
 
National
Market
Ranking (a)
 
Primary
Network
Affiliation
 
Expiration
Date of FCC
License
 
Expiration Date
of Network
Agreement
 
Total Commercial
Stations
in DMA (b)
KPRC, Houston, TX, 1949 8th7th NBC Aug. 1, 2022 Dec. 31, 2019 14
WDIV, Detroit, MI, 1947 13th14th NBC Oct. 1, 2021 Dec. 31, 2019 8
WKMG, Orlando, FL, 1954 18th CBS Feb. 1, 2021 April 6, 2019 12
11
KSAT, San Antonio, TX, 1957 31st ABC Aug. 1, 2022 Dec. 31, 2021 12
10
WJXT, Jacksonville, FL, 1947 47th42nd None Feb. 1, 2021  7
WCWJ, Jacksonville, FL, 1966 47th42nd CW Feb. 1, 2021 Aug. 31, 2021 7
WSLS, Roanoke, VA, 1952 67th68th NBC Oct. 1 2020 Dec. 31, 2019 7
 _________________________________________________________________________________
(a) Source: 2016/2017 DMA2018/2019 Local Television Market Rankings, Nielsen Media Research, fall 2016,Universe Estimates, The Nielson Company, September 2018, based on television homes in DMA (see note
(b) below).
(b) Full-power commercial TV stations, Designated Market Area (DMA) is a market designation of A.C.The Nielsen Company that defines each television market exclusive of another, based on measured viewing patterns.
In January 2017, GMG acquired WCWJ, a CW affiliate television station in Jacksonville, FL, and WSLS, an NBC affiliate television station in Roanoke, VA. GMG operates both stations under the network affiliations in effect prior to their acquisition.
Revenue from broadcasting operations is derived primarily from the sale of advertising time to local, regional and national advertisers. In 2016,2018, advertising revenue accounted for 70.6%68.5% of the total for GMG’s operations. Advertising revenue is sensitive to a number of factors, some specific to a particular station or market and others more general in nature. These factors include a station’s audience share and market ranking; seasonal fluctuations in demand for air time; annual or biannual events, such as sporting events and political elections; and broader economic trends, among others.


Regulation of Broadcasting and Related Matters
GMG’s television broadcasting operations are subject to the jurisdiction of the U.S. Federal Communications Commission (FCC) under the U.S. Federal Communications Act of 1934, as amended (the Communications Act). Each GMG television station holds an FCC license that is renewable upon application for an eight-year period.
Digital Television (DTV) and Spectrum Issues. Each GMG station (and each full-power television station nationwide) now broadcasts only in digital format, which allows transmission of HDTV programming and multiple channels of standard-definition television programming (multicasting) and subchannels of programming designed for reception by mobile devices (mobile DTV). This year, parties petitioned the FCC to begin a rulemaking proceeding to allow permissive use of the standard beyond digital TV, called Next Generation TV or ATSC 3.0. GMG has filed comments voicing its support for bringing Next Generation TV to consumers as soon as possible.


Television stations may receive interference from a variety of sources, including interference from other broadcast stations, that is below a threshold established by the FCC. That interference could limit viewers’ ability to receive television stations’ signals. The amount of interference to stations could increase in the future because of the FCC’s decision to allow electronic devices, known as “white space” devices, to operate in the television frequency band on an unlicensed basis on channels not used by nearby television stations.
Congress has authorizedIn November 2017, the reallocationFCC voted to adopt rules authorizing broadcast television stations to voluntarily transition to a new technical standard, called Next Generation TV or ATSC 3.0. The new standard is designed to allow broadcasters to provide consumers with better sound and picture quality; hyper-localized programming, including news and weather; enhanced emergency alerts and improved mobile reception. The standard also allows for the use of targeted advertising and more efficient use of spectrum, potentially allowing for use by wireless broadband providers, including substantial amounts of spectrum currentlymore multicast streams to be aired on the same six-megahertz channel. ATSC 3.0 is not backwards compatible with existing television equipment, and the FCC’s recently adopted rules require full-power television stations that transition to the new standard to continue broadcasting a signal in the television broadcast band. To implement this reallocation, Congress authorized, andexisting DTV standard until the FCC conducted,phases out the requirement in a future order. A transitioning station’s DTV-formatted content must be substantially similar to the programming aired on its ATSC 3.0 channel for at least five years.
In April 2017, the FCC announced the completion of an incentive auction in which certain broadcast television stations maybid to relinquish spectrum or move to a different spectrum band in exchange for a share of the revenues obtained by auctioning the reallocated broadcast spectrum. Each stagespectrum for use by wirelessbroadband providers. None of the auction is composed of two separate but interdependent phases: a reverse auction, which will determine the price at which participating broadcasters will voluntarily relinquish their spectrum usage rights, and a forward auction, which will determine the price companies are willing to pay for flexible use wireless licenses. On January 18, 2017, the FCC announced thatGMG’s stations won the incentive auction would close in stage four because the forward auction had raised enough money to pay television stations’ reverse-phase bids, fully fund the $1.75 billion broadcaster repacking fund mandated by Congressauction. However, certain GMG stations—specifically, WDIV, WSLS, WCWJ and meet certain other criteria. On February 14, 2017, the FCC announced that all remaining incentive auction bidding is scheduled to conclude by March 30, 2017.
Certain GMG stations WJXT—will be required to move to new channel allotments so as to free up a nationwide block of spectrum for wireless broadband use. The FCC has adopted rules requiring this “repacking” of broadcast television stations to new channels to be completed within 39 months after the incentive auction closes,closed, with earlier deadlines set for particular stations in order to stagger the transition to new channels. ThoseThe scheduled transition deadlines for GMG’s repacked stations required to move to a new channel (other than stations moving channels to satisfy a successful auction bid) will be eligible to seek reimbursement for repacking-relating costs.are as follows:
WSLS: September 6, 2019
WCWJ and WJXT: January 17, 2020
WDIV: March 13, 2020
The repacking and incentive auction processes could have an adverse effect on GMG. For example, athe repacking could result in GMGof GMG’s stationshaving smaller service areas and/or receiving more neighboring stations may result in increased interference to the GMG stations’ signals or otherwise affect the stations’ over-the-air coverage. Although GMG’s repacked stations are eligible to seek reimbursementfor repacking-related costs, theinterference than they do currently. Stations moving to new channels also could incur significant expense. The initial legislation authorizing the incentive auction requires that stations be compensatedprovided only $1.75 billion in total for all such reimbursements. In March 2018, Congress allocated an additional $1 billion for the repack, including funds that could be used toward reimbursing expenses for “repacked” low-power television (LPTV) stations and TV translators.
From late 2017 through April 2018, the FCC issued a series of movingPublic Notices announcing the reimbursement estimates for all entities eligible for reimbursement, after such estimates were reviewed and adjusted by the FCC’s reimbursement fund administrator and then further adjusted to reflect the additional congressional appropriation. To date, each repacked commercial television station, including each of the repacked GMG stations, has been allocated a new channel from spectrum auction proceeds, from a $1.75 billion reimbursement amount equal to approximately 92.5% of the station’s estimated repacking costs, as verified by the FCC’s fund administrator. Receipt of the allocation funds is subject to FCC approval of particular requests for reimbursement of actual costs fullyfundincurred..
The FCC adopted rulemaking in August 2018 addressing a number of issues, including the amount of funds that should be made available for reimbursements for LPTV and TV translator stations. This proceeding is still ongoing, so the Company cannot predict what effect a repacking will have on the GMG stations coverage or whetherextent to which the GMG stations will be fully compensated for any non-full-power television expenses that they incur in connection with athe repacking.
Since January 12, 2016, the deadline for stations to submit initial applications to participate in the incentive auction, all broadcast television licensees that were eligible to participate in the auction have been subject to an FCC-imposed “quiet period,” which prohibits licensees from directly or indirectly communicating with each other or with forward auction applicants regarding their own or any other licensee’s auction bids or bidding strategies. This quiet period was partially lifted on February 6, 2017 enabling broadcasters who participated in the incentive auction to once again speak freely among themselves and negotiate freely to buy or sell their stations.
Carriage of Local Broadcast Signals.Congress has established, and periodically has extended or otherwise modified, various statutory copyright licensing regimes governing the local and distant carriage of broadcast television signals on cable and satellite systems. The Company cannot predict whether or how Congress may maintain or modify these regimes in the future, nor what net effect such decisions would have on the Company’s broadcast operations or on the Company overall.
The Communications Act and the FCC rules allow a commercial television broadcast station, under certain circumstances, to insist on mandatory carriage of its signal on cable systems serving the station’s market area (must carry). Alternatively, stations may elect, at three-year intervals, to forego must-carry rights and allow their signals to be carried by cable systems only pursuant to a “retransmission consent” agreement. Commercial television stations also may elect either mandatory carriage or retransmission consent with respect to the carriage of their signals on direct broadcast satellite (DBS) systems that choose to provide “local-into-local” service (i.e., to distribute the signals of local television stations to viewers in the local market area). Stations that elect retransmission


consent may negotiate for compensation from cable or DBS systems in exchange for the right to carry their signals. Each of GMG’s television stations has elected retransmission consent for both cable and DBS operators, and each is being carried on all of the major cable and DBS systems serving each station’s respective local market pursuant to retransmission consent agreements.


Under The FCC has considered proposals to alter its rules governing retransmission consent negotiations, network non-duplication and syndicated exclusivity. For example, pursuant tothe STELA Reauthorization Act (STELAR), enacted in December 2014, Congress directed the FCC to undertake certain rulemakings concerning retransmission consent issues. For example, the FCC adopted rules required by STELAR prohibiting same-market television broadcast stations from coordinating or jointly negotiating for retransmission consent unless such stations are under common control. The FCC had also commenced a rulemaking required by STELARcontrol, and it considered, though ultimately did not adopt, changes to review the FCCs “totality of the circumstances” testits “good faith” standards for good faith retransmission consent negotiations, but the FCC ultimately declined to adopt additional rules governing these negotiations. In addition, the FCC in March 2014 solicited comments on a proposal to eliminate its network non-duplication and syndicated exclusivity rules, which rules restrict the ability of cable operators, direct broadcast satellite systems and other distributors classified by the FCC as multichannel video programming distributors (MVPDs) to import the signals of out-of-market television stations with duplicating programming during retransmission consent disputes or otherwise. The FCC has not acted on that proposal to date. If Congress or the FCC were to enact further changes to the retransmission consent and/or exclusivity rules, such changes could materially affect the GMG stations’ bargaining leverageposition in future retransmission consent negotiations.
In addition, under STELAR, the statutory copyright license for satellite carriage of distant broadcast television signals was extended through December 31, 2019. The Company cannot predict whether this distant signal copyright will be extended again, nor can it predict whether or how Congress may otherwise change the communications or copyright regimes. The net effect that changes to these regimes would have on the Company’s broadcast operations, or on the Company overall, cannot be predicted.
Ownership Limits.  The Communications Act and the FCCs rules limit the number and types of media outlets in which a single person or entity may have an attributable interest. Among otherIn November 2017, the FCC voted to eliminate certain of these restrictions and modify others. For instance, the FCCs local television ownership rule voted to eliminate a standard known as the “Eight Voices Test,” which generally prohibits one company from owningprohibited two television stations in the same market unless there would remain at least eight independently owned full-power commercial television stations in the same market from combining ownership if the transaction would result in fewer than eight independently owned stations remaining in the market. This change to the local televisionownership (or “duopoly”)rule means that the ownership rules generallywill permit a party to own up to two commercial television stations in a market and at leastso long as one of the commonly owned stations is not among the top-four ranked television stations in that market.The FCC voted to retain the existing prohibition on transactions that would result in common ownership among the top-four ranked stations in the same market, subject to potential exceptions to the prohibition based on public interest showings made on a case-by-case basis. In addition, the FCC voted to eliminate the newspaper/broadcast cross-ownership rule, which had prohibited a single entity from owning a full-power broadcast station and a daily print newspaper in the same local market, and the television/radio cross-ownership rule, which imposed specific limits on the ability to own television and radio stations in the same market (in addition to the separate limits on the number of television or radio stations a party could own in the market). The FCC also restricts so-called “cross-ownership” of newspapers and broadcast stations withinvoted to eliminate a market. The FCC is required by statute to review these and certain other media ownership rules every four years. In an August 2016 Order concluding its most recent review, portions of which are being challenged in court and are on reconsideration before the FCC, the FCC decided to retain its existing limitations on television ownership and cross-ownership without significant changes. The Order also readopted rulesrule making certain television Joint Sales Agreementsjoint sales agreements (JSAs) attributable in calculating compliance with the ownership limits, though any such JSAs in effect as of March 31, 2014, may remain in place and be transferred to future owners of the relevant stations through September 30, 2025.limits. The FCC also will continue to require public disclosure of certain shared services agreements (SSAs) though these agreements willare not be considered attributable. The changes adopted in the FCC’s rule changes, if upheld, could limitNovember 2017 order have been challenged in court. In addition, in December 2018, the FCC initiated a statutorily mandated Quadrennial Review of its broadcast ownership rules to determine whether they continue to serve the public interest. GMG’s ability to enter into certain transactions in the future and/or require GMG to publicly disclose more information about its operations.may be affected by the outcome of the court challenges as well as the FCC’s Quadrennial Review proceeding.
In In addition,, by statute, a single person or entity may have an attributable interest in an unlimited number of television stations nationwide, as long as the aggregate audience reach of such stations does not exceed 39% of nationwide television households and as long as the such interest complies with the FCCs FCC’s other ownership restrictions. In a SeptemberThe FCC in 2016 Order, the FCC eliminated the 50% “Ultra High Frequency (UHF) discount,” under which stations broadcasting on UHF channels are credited with only half the number of households in their market for purposes of calculating compliance with the 39% cap. This Order has been challenged bothHowever, the FCC reversed that decision in court andearly 2017, concluding that the UHF discount should not be altered except in connection with a petition for reconsideration beforebroader review of the FCC.national ownership cap. The FCC’s Order, ifreinstatement of the UHF discount was upheld could affect GMG’s ability to enter into certain transactionsby the D.C. Circuit in the future.summer of 2018.
In a December 2017 rulemaking, the FCC initiated a new proceeding to seek comments regarding its authority to modify or eliminate the national ownership cap, as well as the potential elimination of the UHF discount. The FCC has received comments on its rulemaking but has not yet implemented final rules.
Programming.  Six of GMG’s seven stations are affiliated with one or more of the national television networks that provide a substantial amount of programming to their television station affiliates. The expiration dates of GMG’s affiliation agreements are set forth at the beginning of this Television Broadcasting section. WJXT, one of GMG’s Jacksonville station, WJXT,stations, has operated as an independent station since 2002. In addition, each of the GMG stations receives programming from syndicators and other third-party programming providers. GMG’s performance depends, in part, on the quality and availability of third-party programming, and any substantial decline in the quality or availability of this programming could materially affect GMG’s operations.the ability of GMG and its competitors to enter into certain transactions in the future.
Public Interest Obligations.  To satisfy FCC requirements, stations generally are expected to air a specified number of hours of programming intended to serve the educational and informational needs of children and to complete reports on a quarterly basis concerning children’s programming. The FCC has initiated a rulemaking to


determine whether certain of these requirements should be modified to provide broadcasters more flexibility in meeting the public interest obligations. In addition, the FCC requires stations to limit the amount of advertising that appears during certain children’s programs.
The FCC has other regulations and policies to ensure that broadcast licensees operate in the public interest, including rules requiring the disclosure of certain information and documents in an online public inspection file; rules requiring the closed-captioning of programming to assist television viewing by the hearing impaired; video description rules to assist television viewing by the visually impaired; rules concerning the captioning of video programming distributed via the Internet; and rules concerning the volume of commercials. Compliance with these rules imposes additional costs on the GMG stations that could affect GMG’s operations.


However, the FCC has taken some measures to reduce burdens related to keeping physical copies of licenses posted and submitting paper copies of contracts, for example. The FCC also has an open proceeding to determine whether to remove other filing requirements.
Political Advertising.  The FCC regulates the sale of advertising by GMG’s stations to candidates for public office and imposes other obligations regarding the broadcast of political announcements more generally. The application of these regulations may limit the advertising revenues of GMG’s television stations during the periods preceding elections.
Broadcast Indecency.  The FCC’s policies prohibit the broadcast of indecent and profane material during certain hours of the day, and the FCC regularly imposesmay impose monetary forfeitures when it determines that a television station has violated that policy. Broadcasters have repeatedly challenged these rules in court, arguing, among other things, that the FCC has failed to justify its indecency decisions adequately, that the FCC’s policy is too subjective to guide broadcasters’ programming decisions and that its enforcement approach otherwise violates the First Amendment. In June 2012, the U.S. Supreme Court held that certain fines against broadcasters for “fleeting expletives” were unconstitutional because the FCC failed to provide advance notice to broadcasters of what the FCC deemed to be indecent, but it also upheld the FCC’s authority to regulate broadcast decency. The Company cannot predict how GMG’s stations may be affected by the FCC’s current or future interpretation and enforcement of its indecency policies.
Other Matters.The FCC is conducting proceedings concerning various matters in addition to those described in this section. The outcome of these proceedings and other matters described in this section could adversely affect the profitability of GMG’s television broadcasting operations.
Other Activities
Hoover Treated Wood Products, Inc.
Hoover Treated Wood Products, Inc. (Hoover) is a supplier of pressure impregnated kiln-dried lumber and plywood products for fire-retardant and preservative applications. Hoover, founded in 1955 and acquired by the Company in 2017, is headquartered in Thomson, GA. It operates nine facilities across the country and services a stocking distributor network of more than 100 locations spanning the U.S. and Canada. Hoover is constructing a 10th facility that is expected to commence operations in the second quarter of 2019.
Group Dekko Inc.
Group Dekko Inc. (Dekko) is an electrical solutions company that focuses on innovative power charging and data systems; industrial and commercial indoor lighting solutions; and the manufacture of electrical components and assemblies for medical equipment, transportation, industrial and appliance products. Dekko, founded in 1952, is headquartered in Garrett, IN, and operates 13 facilities in five states and Mexico. Dekko acquired Furnlite in July 2018.
Joyce/Dayton Corp.
Joyce/Dayton Corp. (Joyce/Dayton) is a leading manufacturer of screw jacks, linear actuators and related linear motion products and lifting systems in North America. Joyce/Dayton provides its lifting and positioning products to customers across a diverse range of industrial end markets, including renewable energy, metals and metalworking, oil and gas, satellite antennae and material handling sectors.
Forney Corporation
Forney Corporation (Forney) is a global supplier of burners, igniters, dampers and controls for combustion processes in electric utility and industrial applications. Forney is headquartered in Addison, TX, and its manufacturing plant is in Monterrey, Mexico. Forney’s customers include power plants and industrial systems around the world.


Graham Healthcare Group
Graham Healthcare Group (GHG) provides home health, hospice and palliative services to more than 50,000 patients annually. GHG operates 10 home care, seven hospice and two palliative care operating units in Michigan, Illinois and Pennsylvania. Six of GHG’s 19 operating units are operated through joint ventures with health systems and physician groups. The remainder are wholly owned and operated under the “Residential” brand name. Home health services include a wide range of health and social services delivered at home to recovering, disabled and chronically or terminally ill persons in need of medical, nursing, social or therapeutic treatment and/or assistance with the essential activities of daily living. Hospice care focuses on relieving symptoms and supporting patients with a life expectancy of six months or less. Hospice care involves an interdisciplinary approach to the provision of medical care, pain management and emotional and spiritual support, with an emphasis on comfort, not curing. Hospice services can be provided in the patient’s home, as well as in freestanding hospice facilities, hospitals, nursing homes and other long-term-care facilities. Palliative care is a specialized form of medicine provided by nurse practitioners that aims to enhance the quality of life of patients and their families who are faced with serious illness. It focuses on increasing comfort through prevention and treatment of distressing symptoms. In addition to expert symptom management, palliative care focuses on clear communication, advance planning and coordination of care. Each GHG operating unit offers care coordination, healthcare solutions and clinical expertise. All home health and hospice operations are Medicare certified and accredited by the Accreditation Commission for Health Care (ACHC), or are in the process of being ACHC accredited. GHG derives 90% of its revenues for home health and hospice services from Medicare. The remaining sources of revenue are from Medicaid, commercial insurance and private payers.
SocialCode LLC
Social Code LLC (SocialCode) is a marketing and insights company that manages digital advertising for global brands and early stage companies. It delivers software and service to transform consumer and performance data into planning, content, media activation and measurement to maximize ROI. SocialCode works across platforms such as Facebook, Instagram, Amazon, Google, Twitter, Pinterest, Snapchat and YouTube.
The Slate Group LLC
The Slate Group LLC (The Slate Group)(Slate) publishes Slate, an online magazine. Slate features articles and podcasts analyzing news, politics and contemporary culture and adds new material on a daily basis. Content is supplied by the magazine’s own editorial staff, as well as by independent contributors. As measured by The Slate Group, Slate had an average of more than 2518 million unique visitors per month and averaged more than 10073 million page views per month across desktop and mobile platforms in 2016. The Slate Group also owns Panoply Media, an ad-supported podcast network that creates original audio programming in partnership with leading publishers and thinkers. In addition to producing and marketing podcasts, Panoply Media also licenses a proprietary SAAS platform that provides content management services to podcasters.In 2016, Panoply Media opened a London office.2018. The Slate Group owns an interest in E2J2 SAS, a company incorporated in France that produces two French-language news magazine websites at slate.fr and slateafrique.com. The Slate Group provides content, technology and branding support.
Panoply Media
Panoply Media (Panoply) provides podcast technology for publishers and advertisers through the Megaphone platform and Megaphone Targeted Marketplace (MTM). Megaphone is a proprietary software as a service (SaaS) platform that provides hosting and dynamic advertising insertion designed to connect publishers with tools to publish, monetize and measure their audio content. MTM is an advertising marketplace that provides advertisers with the ability to target more than 60,000 audience segments across diverse audiences based on a listener’s location, interests, demographic profile and purchase behaviors.
Pinna
Pinna is an audio-first children’s media company offering an on-demand subscription service that delivers curated audio programming for children, all in one place, including podcasts, audio shows, audiobooks and music. The service offers children an ad-free, screen-free way to play and listen. Pinna creates and produces award-winning, original shows and partners with best-in-class brands and top creative talent to deliver age-appropriate, high-quality, highly entertaining audio experiences for 3- to 8-year-olds.
The FP Group
The FP Group produces Foreign Policy magazine and the ForeignPolicy.com website, which cover developments in national security, international politics, global economics and related issues. The site features blogs, unique news content and specialized channels and newsletters focusing on regions and topics of interest. The FP Group provides insight and analysis into global affairs for government, military, business, media and academic leaders. FP Events also produces a growing range of live programs, bringing together government, military, business and investment leaders to discuss important regional and topical developments and their implications.
SocialCode
Social Code LLC (SocialCode) is a marketing and insights company that manages digital advertising for leading brands. It delivers a complete technology and service solution that transforms consumer data into planning, media activation and measurement across digital media platforms like Facebook, Instagram, Twitter, Pinterest, Snapchat and YouTube.
Graham Healthcare Group
The Graham Healthcare Group (GHG) provides home health and hospice services in six states. In June 2016, the Company's two healthcare providers, Celtic Healthcare, Inc. (Celtic) and Residential Healthcare Group (Residential), combined their business operations into one entity. Celtic is a Medicare-certified provider of home health and hospice services headquartered in Mars, PA. Through its subsidiaries, Celtic is licensed to provide home health and hospice services throughout Pennsylvania, Maryland and Illinois. These services include skilled nursing, physical therapy, occupational therapy, speech therapy, social work, nutrition, chaplain and aid services. In addition, Celtic provides virtual care services to patients throughout its service territories. Celtic derives 75.1% of its revenue from Medicare; the remaining sources of revenue are Medicaid, commercial insurance and private payers. Residential is headquartered in Troy, MI, and provides care to patients across Michigan and in the western suburbs of Chicago, IL. Services and support are offered in a variety of settings, including patients’ homes, nursing facilities and hospitals. Residential’s Home Health operation is Medicare-certified and ACHC-accredited. It has developed a number of innovative, evidence-based clinical programs to reduce avoidable hospital readmissions, particularly for


chronically ill seniors. Service offerings include in-home nursing and therapy. Residential’s Hospice subsidiary is ACHC-accredited. It provides patients with a full spectrum of hospice care to maintain their personal dignity, safety and quality of life. Residential derives 92% of its revenue from Medicare; the remaining sources of revenue are Medicaid, commercial insurance and private payers.CyberVista LLC
Forney Corporation
Forney Corporation (Forney)CyberVista LLC (CyberVista) is a global supplier of burners, igniters, dampers and controls for combustion processes in electric utility and industrial applications. Forney iscybersecurity training company headquartered in Addison, TX,Arlington, VA. Its training solutions span cyber protection, operations, cloud and its manufacturing plant is in Monterrey, Mexico. Forney’s customershardware/software. Its Resolve executive training suite helps large company boards and executives prepare for and mitigate cyber threats. Customers include power plantsFortune 500 firms, leading cybersecurity providers and industrial systems around the world.
Joyce/Dayton Corp.
Joyce/Dayton Corp. (Joyce/Dayton) is a leading manufacturer of screw jacks, linear actuators and related linear motion products and lifting systems in North America. Joyce/Dayton provides its lifting and positioning products to customers across a diverse range of industrial end markets, including renewable energy, metals and metalworking, oil and gas, satellite antennae and material handling sectors.
Group Dekko
Group Dekko Inc. (Dekko) is an electrical solutions company that focuses on innovative power charging and data systems, industrial and commercial indoor lighting solutions and the manufacture of electrical components and assemblies for medical equipment, transportation, industrial and appliance products. Dekko, founded in 1952, is headquartered in Garrett, IN, and operates nine facilities in four states and Mexico. Dekko acquired Electri-Cable Assemblies in September 2016.
CyberVista
The Company launched CyberVista LLC in 2015. CyberVista develops cybersecurity training and workforce development education programs.federal agencies.
Competition
Kaplan
Kaplan’s businesses operate in fragmented and competitive markets. Each of Kaplan University competes with both facilities-based and other distance-learning providers of similar educational services, including not-for-profit colleges and universities and for-profit businesses. PACEInternational’s (KI) businesses competes in each of its professional lines with other companies that provide preparation for exams required for professional licenses, certifications and designations. KTP competes with a variety of regional and national test preparation businesses, with individual tutors and with in-school preparation for standardized tests. Overseas, each of Kaplan’s businesses competesdisaggregated markets with other for-profit institutions and companies (ranging in size from large for-profit universities to small competitors offering English-language courses) and, in certain instances, with government-supported schools and institutions that provide similar training and educational programs. Students choose among providers based onCompetitive factors vary by business and include program offerings, ranking of university partners, convenience, quality of instruction, reputation, placement rates, student services and cost. KI derives its competitive advantage from, among other things, delivering high-quality education and training experiences to students, having name brand recognition across multiple markets, developing strong relationships with corporate clients and recruitment partners and offering competitive pricing. Kaplan Higher Education (KHE) competes with companies that provide technology solutions, administrative support, curriculum development, overall online program development and analytics for colleges and universities, as well as support for corporate, employer and employee education programs.The market for KHE products and services is dynamic and rapidly evolving, and several competitors offer a mix of some of the same products and services or seek to move into KHE’s markets. Competitive factors in KHE’s markets include the ability to deliver a wide range of educational services and programs to clients across all levels of programs and administrative functions; cost effectiveness; expertise in marketing, recruitment and program delivery; student outcomes and satisfaction; the ability to invest in start-up and scaling initiatives; reputation; and compliance with laws and ability to navigate complex regulatory requirements. KHE’s ability to effectively compete will depend in large part on its successful delivery and navigation of these factors. While the competitive landscape is expanding, KHE’s resources, capabilities and experience are key differentiators in the market. Kaplan Test Preparation (KTP) competes with a wide range of national, regional, local, online and location-based competitors. Competitors vary by test, with many competitors focused on preparing students for a single high-stakes test. For its curricular and assessment services, KTP has a number of national competitors, including, for example, ATI/Ascend Learning and HESI/Elsevier. Competitive factors vary by product line, and include price, features, modality, schedule and reputation. Although KTP faces intense competition and shifting consumer preferences, particularly with respect to online test prep, KTP remains a leading name in test prep due, in part, to its technical expertise and capabilities, quality of instructors, content and curricula and longevity in the industry. Kaplan Professional (U.S.) (KP) offers a broad portfolio of products, many within highly regulated and mature industries, including securities, insurance, real estate and wealth management, where competition includes a wide variety of national, regional and local companies seeking the same market share and resulting in deep price discounting and commoditization of offerings.
Graham Media Group
GMG competes for audiences and advertising revenues with television and radio stations, cable systems and video services offered by telephone companies serving the same or nearby areas; with DBS services; and, to a lesser degree, with other media, such as newspapers and magazines. Cable systems operate in substantially all of the areas served by the Company’s television stations, where they compete for television viewers by importing out-of-market television signals; by distributing pay-cable, advertiser-supported and other programming that is originated for cable systems; and by offering movies and other programming on a pay-per-view basis. In addition, DBS services provide nationwide distribution of television programming, including pay-per-view programming and programming packages unique to DBS, using digital transmission technologies. The Moreover, to the extent that competing television stations in theCompany’s television markets transition to ATSC 3.0, such stations may also become subjectpose an increased competitive challenge to the Company’s stations, such as by offering an increased competition from low-power television stations, wireless cable services and satellite master antenna systems, which can carry pay-cable and similar program material.number of multicast channels and/or by offering advanced features.
Competition also continues to increase from established and emerging online distribution platforms. Movies and television programming increasingly are available on an on-demand basis through a variety of online platforms, which include free access on the websites of the major TV networks, ad-supported viewing on platforms such as Hulu and subscription-based access through services such as Netflix. In addition, online-only subscription services offering live television are beingservices have been launched both by traditional pay-TV competitors (such as DISH and DirecTV) and new entrants (such as Sony). Competition The Company has entered into agreements for some of its stations to be distributed via certain of these services, typically through opt-in agreements negotiated by the stations’ affiliated networks. Participation in these services has given the Company’s stations access to new distribution platforms. At the same time, competitionfrom these various platforms could adversely affect the viewership of the Company’s


television stations via traditional platforms and/or the Company’s strategic position in negotiations with pay-TV services. In addition, the networks’ increased role in negotiating online distribution arrangements for their affiliated stations may have broader effects on the overall network-affiliate relationship, which the Company cannot predict.

Hoover

Hoover’s predominant product line is fire-retardant treated wood products for building interior applications that are specified by architects in accordance with building code requirements for multi-family residential, commercial and institutional nonresidential buildings. Hoover’s fire-retardant product lines are sold through a stocking distributor network of more than 100 locations spanning the U.S. and Canada. Hoover’s competitors are licensees of other chemical suppliers to the wood treating industry who compete with Hoover’s stocking distributors on a local basis. The primary areas of competition are product availability and price, although brand loyalty due to product quality is significant. Wood products are commodities with volatile market pricing; however, Hoover’s reputation for quality products and its unique distribution model, which provides superior product availability, enable Hoover to maintain a leading position across the continent.
Dekko
Dekko has three distinct product families that compete in fragmented, competitive global markets: power and data distribution for office and furniture products; lighting solutions; and electrical harness manufacturing. These products are sold through dealer and distribution channels and OEM customers—focused primarily on the North American market. While all markets and products are price sensitive, technology, engineering solutions, quality and delivery performance are critical in purchase decisions. Dekko’s multiple long-term relationships, high-quality manufacturing facilities, engineering support and reputation as a solutions provider, in addition to being a product supplier, all contribute to sustaining its competitive advantages.
Graham Healthcare Group
The home health and hospice industries are extremely competitive and fragmented, consisting of both for-profit and non-profit companies. CelticAccording to the Medicare Payment Advisory Commission’s March 2018 report, there are approximately 12,000 Medicare-certified home health providers and Residential competeapproximately 4,500 hospice providers in the United States. GHG markets its services to physicians, discharge planners and social workers at hospitals, nursing homes, senior living communities and physician offices through a direct sales model. GHG differentiates its offering based on response time, clinical programming, clinical outcomes and patient satisfaction. Throughout the three states in which it operates, GHG competes primarily with privately-ownedboth privately owned and hospital-operated home health and hospice service providers.
SocialCode
The business of managed digital advertising is highly competitive. Public multinational advertising agencies may exacerbate price competition in an attempt to protect existing relationships with advertising clients in traditional media formats such as television. Public and private advertising technology companies, digital media agencies and newer market entrants such as consulting firms also compete on price, service and technology offerings. SocialCode seeks to maintain a competitive advantage and maximize its clients’ return on advertising budgets by utilizing a combination of the deep expertise of its employees, who manage media spending on the largest digital platforms; a proprietary software (SaaS) as a service platform, allowing clients to make better use of first-party and third-party data to increase advertising effectiveness; and a full-service creative team with a nuanced understanding of digital media.
Panoply
Panoply provides podcast technology for publishers and advertisers through the Megaphone platform and Megaphone Targeted Marketplace (MTM). Megaphone, a proprietary SaaS platform, provides hosting and dynamic advertising insertion for publishers. Megaphone operates in a small but competitive market and competes primarily on the basis of product performance, price and service. Megaphone’s differentiators include an intuitive user experience, dynamic advertising insertion, advertising operations tools, customer service and proprietary audience-targeting technology. MTM operates in the nascent market for targeted advertising in podcasting and is the pioneer of this technology. MTM’s proprietary dynamic advertising insertion technology combined with data from the Nielsen Marketing Cloud platform allows brand advertisers to target more than 60,000 segments based on demographics, interests, behavioral traits and purchase intent.


Pinna
Pinna is currently the only ad-free, audio on-demand streaming service designed just for children that offers multiple audio formats in one space that complies with the Children’s Online Privacy Protection Act (COPPA). The market for children’s subscription digital media entertainment is large. It includes media subscription services for families, subscription services for children, online learning/gaming destinations, audiobooks and podcasts for children, gaming subscriptions and free digital content. Key differentiators for Pinna include its access to multiple formats and its offering of curated best-in-class brands and original shows all in one ad-free COPPA compliant-place.
Executive Officers
The executive officers of the Company, each of whom is elected annually by the Board of Directors, are as follows:
Donald E. Graham, age 71,73, has been Chairman of the Board of the Company since September 1993 and served as Chief Executive Officer of the Company from May 1991 until November 2015. Mr. Graham served as President of the Company from May 1991 until September 1993 and prior to that had been a Vice President of the Company for more than five years. Mr. Graham also served as Publisher of theThe Washington Post (the Post) from 1979 until September 2000 and as Chairman of the Post from September 2000 to February 2008.
Timothy J. O’Shaughnessy, age 35,37, became Chief Executive Officer in November 2015. From November 2014 until November 2015, he served as President of the Company. He was elected to the Board of Directors in November 2014. From 2007 to August 2014, Mr. O’Shaughnessy served as chief executive officer of LivingSocial, an e-commerce and marketing company that he co-founded in 2007. Mr. O’Shaughnessy is the son-in-law of Donald E. Graham, Chairman of the Company.
Andrew S. Rosen, age 58, became Executive Vice President of the Company in April 2014. He became Chairman of Kaplan, Inc. in November 2008 and served as Chief Executive Officer of Kaplan, Inc. from November 2008 to April 2014 and from August 2015 to the present. Mr. Rosen has spent nearly 33 years at the Company and its affiliates. He joined the Company in 1986 as a staff attorney with the Post and later served as assistant counsel at Newsweek. He moved to Kaplan in 1992 and held numerous leadership positions there before being named Chairman and Chief Executive Officer of Kaplan, Inc.
Hal S. Jones,Wallace R. Cooney, age 64,56, became Senior Vice President–Finance and Chief Financial Officer of the Company in January 2009 and Senior Vice President–Finance ofApril 2017. Mr. Cooney served as the Company in November 2008. In December 2016, the Company announced Mr. Jones’ retirement effective March 31, 2017. Prior to becoming Senior Vice President–Finance, Mr. Jones had been Chief Executive Officer of Kaplan Professional, responsible for Kaplan’s professional businesses in financial services, real estate, technology and engineering in the U.S. and the U.K. Mr. Jones has spent 26 years at the Company and Kaplan, serving in a variety of senior management positions with a focus on finance, auditing and accounting.
Wallace R. Cooney, age 54, becameCompany’s Vice President–Finance and Chief Accounting Officer of the Company in Junesince 2008. As previously announced, Mr. Cooney will succeed Mr. Jones as Chief Financial Officer effective April 1, 2017. Mr. CooneyHe joined the Company in 2001 as Controller.
Marcel A. Snyman, age 44, became Vice President and Chief Accounting Officer of the Company on January 18, 2018. Mr. Snyman served as Controller andof the Company since January 2016, prior to that had been with Gannett Co., Inc.which he served as Assistant Controller beginning in April 2014 and Price Waterhouse LLP.Director of Accounting Policy beginning in July 2008.
Denise Demeter, age 56,58, became Vice President–Chief Human Resources Officer of the Company in September 2014. Ms. Demeter joined the Company in 1986 and has served in a variety of roles, including Vice President, President–Human Resources and Senior Director, Director–Pension & Savings Plans.
Jacob M. Maas, age 40,42, became Senior Vice President–Planning and Development of the Company in October 2015. Prior to joining the Company, he served as executive vice president of operations and head of corporate development at LivingSocial, an e-commerce and marketing company that he joined as chief financial officer in 2008.
Nicole M. Maddrey, age 52,54, became Senior Vice President, General Counsel and Secretary of the Company in April 2015. Ms. Maddrey joined the Company in 2007 as Associate General Counsel.
Andrew S. Rosen, age 56, became Executive Vice President of the Company and Chairman of Kaplan, Inc. in April 2014 and Chief Executive Officer of Kaplan, Inc. in August 2015. Mr. Rosen has spent 31 years at the Company and its affiliates. He joined the Company in 1986 as a staff attorney with the Post and later served as assistant counsel at Newsweek. He moved to Kaplan in 1992 and held numerous leadership positions there before being named CEO in November 2008.
Employees
The Company and its subsidiaries employ approximately 11,30011,100 people on a full-time basis.
Worldwide, Kaplan employs approximately 6,9796,200 people on a full-time basis. Kaplan also employs substantial numbers of part-time employees who serve in instructional and administrative capacities. Kaplan’s part-time workforce iscomprises approximately 8,922 employees.6,500 individuals. Collectively, in the U.S., U.K. and Canada, 15871 Kaplan employees are represented by a union. Kaplan believes there are represented employees in the United Kingdom and Australia, where union membership is not disclosed to the employer.
GMG has approximately 859967 full-time employees, of whom about 10892 are represented by a union. Of the six collective-bargaining agreements covering union-represented employees, two have expired andall are being renegotiated. Threecurrently under contract. One collective-bargaining agreementsagreement will expire in 2017.2019.
The

Slate Group, including has approximately 123 full-time employees. In January 2018, employees of Slate voted to elect the Writers Guild of America East (WGAE) to serve as their representative. As a result, 52 eligible Slate editorial employees are represented by the WGAE for purposes of collective bargaining.
Panoply has approximately 17157 full-time employees. None of Panoply’s employees none of whom is represented by a union.


Graham Healthcare Group has approximately 1,229 full-time employees, of which Celtic has approximately 599 full-time employees and Residential has approximately 630Pinna currently employs 12 full-time employees, none of whom is represented by a union.
GHG has approximately 1,142 full-time employees. None of these employees is represented by a union.
Forney has approximately 167140 full-time employees, of whom 6155 are represented by a union.
Joyce/Dayton has approximately 145147 full-time employees, none of whom is represented by a union.
SocialCode has approximately 304300 full-time employees, none of whom is represented by a union.
Dekko has approximately 1,3441,457 full-time employees, none of whom is represented by a union.
Hoover has approximately 379 full-time employees, of whom 27 are represented by a union.
The FP Group and CyberVista each employemploys fewer than 10050 people. Approximately 1710 FP Group employees are represented by a union.
The parent Company has approximately 6473 full-time employees, none of whom is represented by a union.
Forward-Looking Statements
All public statements made by the Company and its representatives that are not statements of historical fact, including certain statements in this Annual Report on Form 10-K and elsewhere in the Company’s 20162018 Annual Report to Stockholders, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include comments about expectations related to acquisitions or dispositions or related business activities, including the TOSA, the Company’s business strategies and objectives, the prospects for growth in the Company’s various business operations and the Company’s future financial performance. As with any projection or forecast, forward-looking statements are subject to various risks and uncertainties, including the risks and uncertainties described in Item 1A of this Annual Report on Form 10-K, that could cause actual results or events to differ materially from those anticipated in such statements. Accordingly, undue reliance should not be placed on any forward-looking statement made by or on behalf of the Company. The Company assumes no obligation to update any forward-looking statement after the date on which such statement is made, even if new information subsequently becomes available.
Available Information
The Company’s Internet address is www.ghco.com. The Company makes available free of charge through its website its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, definitive proxy statements on Schedule 14A and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) as soon as reasonably practicable after such documents are electronically filed with the Securities and Exchange Commission (SEC). In addition, the Company’s Certificate of Incorporation, its Corporate Governance Guidelines, the Charters of the Audit and Compensation Committees of the Company’s Board of Directors and the codes of conduct adopted by the Company and referred to in Item 10 of this Annual Report on Form 10-K are all available on the Company’s website; printed copies of such documents may be obtained by any stockholder upon written request to the Secretary, Graham Holdings Company at 1300 North 17th Street, Arlington, VA 22209. The contents of the Company’s website are not incorporated by reference into this Form 10-K and shall not be deemed “filed” under the Exchange Act.
The SEC website, www.sec.gov, contains the reports, proxy statements and information statements and other information regarding issuers that file electronically with the SEC. Also, the public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Item 1A. Risk Factors.
The Company faces a number of significant risks and uncertainties in connection with its operations. The most significant of these are described below. These risks and uncertainties may not be the only ones facing the Company. Additional risks and uncertainties not presently known, or currently deemed immaterial, may adversely affect the Company in the future. In addition to the other information included in this Annual Report on Form 10-K, investors should carefully consider the following risk factors. If any of the events or developments described below occurs, it could have a material adverse effect on the Company’s business, financial condition or results of operations.


Failure to Comply With Statutory and Regulatory Requirements as a Service Provider to Title IV Participating Institutions Could Result in Loss of Access to U.S. Federal Student Loans and Grants Under Title IV, a Requirement to Pay Fines or Monetary Liabilities or Subject Kaplan to Other SanctionsMaterial Adverse Consequences.
To maintainKHE is a third-party service provider to Title IV eligibility, each group of schools combined into an OPEID unit mustparticipating institutions, including Purdue Global. As a result, KHE is required to comply with certain laws and regulations in connection with the extensiveprovision of these services. KHE also provides financial aid services to Purdue Global, and as such, meets the definition of a “third-party servicer” contained in Title IV regulations. By virtue of being a third-party servicer, KHE is also subject to applicable statutory provisions of Title IV and regulatoryED regulations that, among other things, require KHE to be jointly and severally liable with Purdue Global to the ED for any violation by Purdue Global of any Title IV statute or ED regulation or requirement. Separately, if KHE provides financial aid services to more than one Title IV participating institution, it will be required to arrange for an independent auditor to conduct an annual Title IV compliance audit of Kaplan’s compliance with applicable ED requirements. KHE also is subject to other federal and state laws, including, but not limited to, information security requirements established by the Federal Trade Commission, as well as the applicable provisions of the Higher EducationFamily Educational Rights and Privacy Act and other laws and accrediting standards relatingregarding the privacy of student records.


to its financial aid management, educational programs, financial strength, facilities, recruiting practices, representations made by the school and various other matters. Failure to comply with these requirementsand other federal and state laws and regulations could result in adverse consequences, including, for example:
The imposition on KHE of fines or repayment obligations for Title IV funds to the lossED, or the termination or limitation of theKaplan’s eligibility of Kaplan University to participate inprovide services as a third-party servicer to Purdue Global or any other Title IV programs;participating institution if KHE fails to comply with statutory or regulatory requirements applicable to such service providers;
Adverse effects on Kaplan’s business and operations from a requirement to pay finesreduction or to repayloss in KHE’s revenues under the TOSA or any other agreement with any Title IV program funds;participating institution if a denialclient institution loses or refusal by the ED to consider a school’s application for renewal of its certification to participate in the Title IV programs or for approval to add a new campus or educational program; a requirement to submit a letter of credit; the placement of the institution on the heightened cash-monitoring or reimbursement method of payment; the placement of the institution on provisional certification; the imposition of civil or criminal penalties; or other sanctions. On December 17, 2015, Kaplan University received notice from the ED that it had beenhas limits placed on provisional certification status until September 30, 2018. During the period of provisional certification, Kaplan University must obtain prior ED approval to open a new location, add an educational program, acquire another school or make any other significant change. Provisional certification status carries fewer due process protections than full certification. As a result, the ED may withdraw an institution’s provisional certification more easily than if it is fully certified. Provisional certification does not otherwise limit access to Title IV program funds by students attending the institution.
No assurance can be given that Kaplan University programs currently participating in Title IV programs will maintain theirits Title IV eligibility, accreditation, andoperations or state authorization inlicensure, or is subject to fines, repayment obligations or other adverse actions due to non-compliance by KHE (or the future or that the ED might not successfully assert that one or more of such programs have previously failed to complyinstitution) with Title IV, requirements. The loss ofaccreditor, federal or state agency requirements;
Liability under the TOSA or any other agreement with any Title IV eligibilityparticipating institution for non-compliance with federal, state or accreditation requirements arising from conduct by Kaplan University would have a material adverse effect on Kaplan’s operating results.Kaplan; and
Program Reviews, Audits, Investigations and Other ReviewsLiability for non-compliance with Title IV or other federal or state requirements occurring prior to the transfer of KHE Schools Could Result in Findings of KU to Purdue.
Failure to Comply With Statutory and Regulatory Requirements
Kaplan University is subject to program reviews, audits, investigations and other compliance reviews conducted by various regulatory agencies and auditors, including, among others, the ED, the ED’s Office of the Inspector General, accrediting bodies and state and various other federal agencies, as well as annual audits by an independent certified public accountant of each OPEID unit’s compliance with Title IV statutory and regulatory requirements. These compliance reviews can result in findings of noncompliance with statutory and regulatory requirements that can, in turn, result in proceedings to impose fines, liabilities, civil or criminal penalties or other sanctions against the school, including loss or limitation of its eligibility to participate in Title IV programs or in other federal or state financial assistance programs. Certain former KHE schools are the subject of ongoing compliance reviews and lawsuits related to their compliance with statutory and regulatory requirements and may be subject to future compliance reviews or lawsuits. Although substantially all of the assets of KHE on-ground schools were sold on September 3, 2015, Kaplan retained liability for the pre-sale conduct of those schools, and there are outstanding program reviews at four of these former schools.
KHE schools have been, and may in the future be, subject to complaints and lawsuits by present or former students or employees or other people related to compliance with statutory, common law and regulatory requirements that, if successful, could result in monetary liabilities or fines or other sanctions.
Reductions in the Amount of Funds Available to Students, Including Under Title IV Programs, in KHE Schools, Changes in the Terms on Which Such Funds Are Made Available or Loss or Limitation of Eligibility to Receive Such FundsIncentive Compensation Rule Could Have a Material Adverse Effect on Kaplan’s Business and Operations
During the Company’s 2016 fiscal year, funds provided under the student financial aid programs created under Title IV accounted for approximately $437 million of the revenues of the schools in KHE. Any legislative, regulatory or other development that has the effect of materially reducing the amount of Title IV financial assistance or other funds available to the students of those schools would have a material adverse effect on Kaplan’s business and operations. In addition, any development that has the effect of making the terms on which Title IV financial assistance or other funds are available to students of those schools materially less attractive could have a material adverse effect on Kaplan’s business and operations.
ED Rules Regarding Borrower Defense to Repayment Could Have a Material Adverse Effect on Kaplan's Business and Operations
On November 1, 2016, the ED issued final rules effective July 1, 2017, that expand the bases on which borrowers may obtain ED discharge of their federal financial aid loans and establish a process for the ED to commence a separate proceeding against the institution to recover the discharged amounts. The rules permit loan discharges based on substantial misrepresentations, breaches of contract, or favorable judgments against the school; in some cases, by classes of students as well as individual students. In addition, the final rules amend the ED’s financial responsibility regulations by, among other things, imposing two sets of triggers for determining whether the ED may require the institution to furnish the ED with a letter of credit or other form of acceptable financial protection and to accept other requirements the ED might impose. The rules also require schools not meeting a loan “repayment rate” threshold calculation to provide an ED-prepared warning to current and prospective students and to include the warning on its website and in promotional materials and advertisements. The rules also include new provisions related to arbitration and class action lawsuits, including prohibitions regarding an institution’s use of pre-dispute


arbitration agreements and class action waivers. The Company cannot predict how the ED will interpret and enforce the new borrower defense to repayment rules, however, the new rules could have a material adverse effect on Kaplan’s business and results of operations.
Regulatory Changes Could Have a Material Adverse Effect on Kaplan’s Business and Operations
The implementation of new Title IV and other regulations have required and will requireSubject Kaplan to change its practices to comply with new requirements. These changes have increasedLiabilities, Sanctions and will continue to increase its administrative costs and overall risk. Changes to its practices or Kaplan’s inability to comply with the final regulations could have a material adverse effect on Kaplan’s business and results of operations. Moreover, the ED or other U.S. or international regulatory bodies could implement new regulations or amend existing regulations in a manner that could have a material adverse effect on Kaplan’s business and results of operations.
Changes to the Regulations Regarding Incentive Compensation Make It Difficult for Kaplan to Attract Students and Retain Qualified Personnel and Add Compliance RiskFines.
Under the ED’s incentive compensation rule, an institution participating in the Title IV programs may not provide any commission, bonus or other incentive payment to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV funds if such payment is based directly or indirectly on success in securing enrollments or financial aid. On July 1, 2011, regulations went into effect that amendedKHE is a third party providing bundled services to Title IV participating institutions, including recruiting and, in the case of Purdue Global, financial aid services. As such, KHE is also subject to the incentive compensation rules and cannot provide any commission, bonus or other incentive payment to any covered employees, subcontractors or other parties engaged in certain student recruiting, admission or financial aid activities based on success in securing enrollments or financial aid. In addition, Purdue Global’s tuition revenue sharing payments to KHE under the TOSA (as well as any other agreement with any Title IV participating institution) must comply with revenue sharing guidance provided by the ED related to bundled services agreements. KHE cannot predict how the ED or a federal court will interpret, revise or enforce all aspects of the incentive compensation rule by reducingor the scoperevenue sharing guidance in the future or how it would be applied to KHE’s agreements. Any revisions or changes in interpretation or enforcement could require KHE and its client institutions to change their practices or the tuition revenue sharing payment terms of permissible payments under the ruleKHE’s agreements with such client institutions and expanding the scope of payments and employees subject to the rule. KHE modified some of its compensation practices ascould have a result of the revisions to the incentive compensation rule. Due to a lack of clear guidance from the ED, there is no assurance that these modifications will in all cases be found to be in compliance with the ED’s interpretation of the regulations. Additionally, these changes to compensation arrangements make it difficult to attract students and to provide adequate incentives to promote superior job performance and retain qualified personnel. The Company believes that this change inmaterial adverse effect on Kaplan’s approach to recruiting has adversely impacted, and will continue to adversely impact, Kaplan’s enrollment rates, operating costs, business and results of operations. The Company cannot predict howAdditionally, failure to comply with the ED will interpret and enforce all aspects of the revised incentive compensation rule could result in the future,litigation or enforcement actions against KHE or its clients and any changescould result in this regardliabilities, fines or other sanctions against KHE or its clients, which could have a material adverse effect on Kaplan’s business and results of operations.
Failure to Comply With the ED’s Title IV Misrepresentation Regulations Could Subject Kaplan to Liabilities, Sanctions and Fines.
A Title IV participating institution is required to comply with the ED Rules Regarding Gainful Employment Have Hadregulations related to misrepresentations and with related federal and state laws. These laws and regulations are broad in scope and may extend to statements by servicers, such as KHE, that provide marketing or certain other services to such institutions. These laws and regulations may also apply to KHE’s employees and agents, with respect to statements addressing the nature of an institution’s programs, financial charges or the employability of its graduates. KHE provides certain marketing and


other services to Title IV participating institutions. A violation of misrepresentation regulations or other federal or state laws and regulations applicable to the services KHE provides to its client institutions arising out of statements by KHE, its employees or agents could require KHE or its clients to pay fines or other monetary penalties, result in the termination of KHE’s agreements with client institutions or require KHE to pay the costs associated with indemnifying its client institutions from applicable losses. Additionally, failure to comply with these or other federal and state laws and regulations could result in the imposition on KHE of fines or federal student aid repayment obligations to the ED or the termination or limitation of KHE’s eligibility to provide services as a third-party servicer to Purdue Global or any other Title IV participating institution.
Compliance Reviews, Program Review, Audits and Investigations Could ContinueResult in Findings of Non- Compliance With Statutory and Regulatory Requirements and Result in Liabilities, Sanctions and Fines.
As a third-party servicer providing financial aid services to Have a Material Adverse Effect on Kaplan’s BusinessTitle IV participating institution, KHE is subject to reviews, audits, investigations and Operationsother compliance reviews conducted by various regulatory agencies and auditors, including, among others, the ED, the ED’s Office of the Inspector General, accrediting bodies and state and various other federal agencies. These compliance reviews can result in findings of non-compliance with statutory and regulatory requirements that can, in turn, result in proceedings to impose fines, liabilities, civil or criminal penalties or other sanctions against KHE. KHE will be required, if it enters into contracts to provide financial aid services to more than one Title IV participating institution, to arrange for an independent auditor to conduct an annual Title IV compliance audit of KHE’s compliance with applicable ED requirements.
UnderOn February 23, 2015, the ED began a program review assessing KU’s administration of its Title IV and Higher Education Act programs during the 2013–2014 and 2014–2015 award years. In 2018, Kaplan contributed the institutional assets and operations of KU to Purdue Global, and the university became Purdue Global, under the ownership and control of Purdue University. However, Kaplan retains liability for any financial obligations the ED might impose under this program review and that are the result of actions taken during the time that Kaplan owned the institution. On September 28, 2018, the ED issued a Preliminary Program Report (Preliminary Report). This Preliminary Report is not final, and the ED may change the findings in the final report. None of the initial findings in the Preliminary Report carries material financial liability. Although the program review technically covers only the 2013–2015 award years, the ED included a review of the treatment of student financial aid refunds for students who withdrew from a program prior to completion in 2017–2018. KHE cannot predict the outcome of this review, when it will be completed, whether any final findings of non-compliance with financial aid program or other requirements will impact KHE’s operations, or what liability or other limitations the ED might place on KHE or Purdue Global as a result of this review.
There are also two open program reviews at campuses that were part of the KHE Campuses business prior to its sale in 2015 to ECA. The ED’s final reports on the program reviews at former KHE Broomall, PA, and Pittsburgh, PA, locations are pending. KHE retains responsibility for any financial obligations resulting from these program reviews.
Prior to the transfer of the institutional assets and operations of KU to Purdue Global, on September 3, 2015, Kaplan sold substantially all of the assets of the KHE Campuses. As part of the transaction, similar to the transfer of KU, Kaplan retained liability for the pre-sale conduct of the KHE schools. Kaplan may also have liabilities under certain lease obligations. Although Kaplan no longer owns KU or the KHE Campuses, Kaplan may be liable to the current owners of KU and the KHE Campuses, respectively, for the pre-sale conduct of the schools.
Non-Compliance With Regulations by KHE’s Client Institutions May Adversely Impact Kaplan’s Results of Operations.
KHE currently provides services to higher education programs, including all programs offeredinstitutions that are heavily regulated by Kaplan University,federal and state laws and regulations and by accrediting body requirements. Presently, a substantial portion of KHE’s revenues are requiredattributable to lead to gainful employment in a recognized occupation in order to be eligibleservice fees it receives under its agreement with Purdue Global, which are dependent upon revenues generated by Purdue Global and upon Purdue Global’s eligibility to participate in the Title IV programs. The ED has defined the phrase “gainful employment” to mean employment with earnings high enough to meet specificfederal student debt-to-income ratios. The ED tied an education program’said program. To maintain Title IV eligibility, to whether the program meets that definition. These regulations are known as the “gainful employment” rules or “GE” rules. Under these regulations,Purdue Global and KHE’s other client institutions must be certified by the ED calculates two debt-to-earnings rates for eachas eligible institutions, maintain authorizations by applicable state education agencies and be accredited by an accrediting commission recognized by the ED. Purdue Global and KHE’s other client institutions must also comply with the extensive statutory and regulatory requirements of the Higher Education Act and other state and federal laws and accrediting standards relating to their financial aid management, educational programs, financial strength, disbursement and return of Title IV funds, facilities, recruiting practices, representations made by the school and various other matters. If the ED finds that Purdue Global or any other KHE client institution has failed to comply with Title IV requirements or improperly disbursed or retained Title IV program subject to the GE regulations: an annual debt-to-earnings rate and a discretionary debt-to-earnings rate. Under the debt-to-earnings rates for Kaplan’s programs that were released in January 2017 for the 2014–2015 award year, which are the first rates to be issued under the GE rules, nonefunds, it may take one or more of Kaplan University’s active programs currently accepting students failed the GE test. Kaplan University has five other programs that failed the GE test. Of these five programs, two have been discontinued, have no students and are no longer being offered, and the remaining three are still active but are not accepting new enrollments. The three active failing programs accounted for approximately $16.7 million in revenue in 2016. Kaplan University also has 16 programs in the warning zone status. Four of these programs are active and currently accepting students. These four programs accounted for approximately $71 million and $51.1 million in revenue for 2015 and for 2016, respectively. Of the remaining 12 programs in the warning zone, five have been discontinued, have no students and are no longer being offered, and seven of these programs are active but not currently accepting enrollments. The ED has stated that it has the ability to combine, for future GE debt-to-earnings calculations, any new programs that it determines to be “substantially similar” to other current or past programs. Kaplan University started a number of new programs afteractions, including fining the effective date ofschool, requiring the GE rules. Ifschool to repay Title IV program funds, limiting or terminating the ED determines that these new programs are substantially similar and combines the new programs with programs that are currently in the warning zone or that failed the GE test,school’s eligibility of the new programs to participate in Title IV programs, and revenues from such programs would be materially adversely affected.
The GE rules allow forinitiating an appeal of these rates ifemergency action to suspend the institution can provide alternative earnings data for each appealed program showing an improvementschool’s participation in the GE rates and movingTitle IV programs without prior notice or opportunity for a hearing, transferring the program from failschool to warning zone or from warning zone to pass. Kaplan University has appealeda method of Title IV payment that would adversely affect the rates fortiming of the 16 programs in the warning zone, including the four programs that are active and currently accepting students and the remaining 12 programs that are discontinued and not accepting students. Although noneinstitution’s receipt of five failing programs are active and accepting students, Kaplan University has appealed their rates as well. Kaplan University cannot predict the outcome of these appeals.
The ultimate outcome of future GE rates and their impact on Kaplan’s operations can not be predicted. The GE rules have caused Kaplan to eliminate or limit enrollments in certain educational programs at some of its schools;Title IV funds,


may resultrequiring the submission of a letter of credit, denying or refusing to consider the school’s application for renewal of its certification to participate in the loss of student access to Title IV programs;programs or for approval to add a new campus or educational program and has had and may continue toreferring the matter for possible civil or criminal investigation. There can be no assurance that the ED will not take any of these or other actions in the future, whether as a result of lawsuits, program reviews or otherwise.
In turn, any of the aforementioned consequences could have a material adverse effect on Kaplan’s operating results even though such institution’s compliance is affected by circumstances beyond Kaplan’s control, including, for example:
a reduction or loss in KHE’s revenues operating income and cash flows.under the TOSA or other client agreements if Purdue Global or any other KHE client institution loses or has limits placed on its Title IV eligibility, accreditation or state licensure;
The regulations also contain requirements relateda reduction or loss in KHE’s revenues under the TOSA or other client agreements if Purdue Global or any other client institution is subject to public disclosurefines, repayment obligations or other adverse actions due to non-compliance by Purdue Global (or Kaplan) with Title IV, accreditor or state agency requirements;
the imposition on KHE of program information and outcomes, reporting datafines or repayment obligations to the ED includingor the debt-to-earnings rates, and certification requirements. On October 9, 2015,termination or limitation on KHE’s eligibility to provide services to Purdue Global or other Title IV participating institutions if findings of non-compliance by Purdue Global or such other institution result in a determination that Kaplan University received a letter from the ED indicating that it had failed to report datacomply with statutory or regulatory requirements applicable to service providers; and
liability under the TOSA or other client agreements for non-compliance with federal, state or accreditation requirements arising from KHE’s conduct.
•    Kaplan May Fail to Realize the Anticipated Benefits of the Purdue Global Transaction.
Kaplan’s ability to realize the anticipated benefits of the Purdue Global transaction will depend in part on its ability to successfully and efficiently provide services to Purdue Global. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the services can be provided in the manner and at the cost Kaplan anticipated and whether Purdue Global is able to realize anticipated student enrollment levels. If Kaplan is unable to effectively execute its post-transaction strategy, it may take longer than anticipated to achieve the benefits of the transaction or it may not realize those benefits at all.
•    Regulatory Changes and Developments Could Negatively Impact Kaplan’s Results of Operations.
Any legislative, regulatory or other development that has the effect of materially reducing the amount of Title IV financial assistance or other federal, state or private financial assistance available to the students of Purdue Global or any other client institution could have a material adverse effect on Kaplan’s business and results of operations. In addition, any development that has the effect of making the terms on which Title IV financial assistance or other financial assistance funds are available to Purdue Global’s or other client institutions’ students materially less attractive could have a material adverse effect on Kaplan’s business and results of operations.
The laws, regulations and other requirements applicable to KHE or any KHE client institutions are subject to change and to interpretation. In addition, there are other factors related to Purdue Global’s and other client institutions’ compliance with federal, state and accrediting agency requirements—many of which are largely outside of Kaplan’s control—that could have a material adverse effect on Purdue Global’s and other client institutions’ revenues and, in turn, on Kaplan’s operating results including, for example:
Reduction in Title IV or other federal, state or private financial assistance: KHE receives revenue based on its agreements with client institutions and, particularly, from Purdue Global revenue under the TOSA. Purdue Global is expected to derive a significant numberpercentage of programs that were listed as active in the ED’s system. The letter stated that until this issue is resolved, Kaplan University cannot start any new programs, and failure to resolve the issue could result in material administrative actions. There is no assurance that the ED will accept Kaplan’s corrected data, will not find additional issues, or will not take further action against Kaplan University.
Congressional Examination of For-Profit Education and Other Governmental Scrutiny by the ED and Other Federal and State Regulators Could Lead to Legislation or Other Governmental Action That May Materially and Adversely Affect Kaplan’s Business and Operations
There has been increased attention by Congress on the role that for-profit educational institutions play in higher education, including theirits tuition revenues from its participation in Title IV programs. Any legislative, regulatory or other development that materially reduces the amount of Title IV, federal, state or private financial assistance available to the students of Purdue Global and other client institutions could have a material adverse effect on Kaplan’s business and results of operations. In addition, any development that makes the terms of such financial assistance less attractive could have a material adverse effect on Kaplan’s business and results of operations.
Compliance reviews and litigation: Institutions participating in the Title IV programs, including Purdue Global and tuition assistance programs for military service members attending for-profit colleges. Beginning in June 2010,other client institutions, are subject to program reviews, audits, investigations and other compliance reviews conducted by various regulatory agencies and auditors, including, among others, the HELP Committee held a series of hearings to examineED, the for-profit education sector and requested information from various for-profit institutions, including KHE institutions. In July 2012, the majority staffED’s Office of the HELP Committee issued a final report to conclude the review. The final report included observationsInspector General, accrediting bodies and recommendations for Federal policy.
Other committeesstate and various other federal agencies, as well as annual audits by an independent certified public accountant of Congress have also held hearings into, among other things, the standards and procedures of accrediting agencies, credit hours and program length and the portion of U.S. Federal student financial aid going to for-profit institutions. Several legislators have requested the U.S. Government Accountability Office to review and make recommendations regarding, among other things, student recruitment practices; educational quality; student outcomes; the sufficiency of integrity safeguards against waste, fraud and abuse incompliance with Title IV programs;statutory and the percentageregulatory requirements. Purdue Global and other client institutions also may be subject to various lawsuits and claims related to a variety of proprietary institutions’ revenue coming frommatters, including, but not limited to, alleged violations of federal and state laws and accrediting agency requirements. These compliance reviews and litigation matters could extend to activities conducted by KHE on behalf of Purdue Global or other client institutions and to KHE itself as a third-party servicer subject to Title IV regulations.


Legislative and other U.S. Federal funding sources.regulatory change: Congress is expected to consider reauthorization ofperiodically revises the Higher Education Act in 2017, but the Company cannot predict if or when this process will be completed. This increased activity, and other currentlaws and future activity,enacts new laws governing the Title IV programs and annually determines the funding level for each Title IV program and may resultmake changes in legislation, further rulemakingthe laws at any time. The ED also may issue new regulations and other governmental actions affecting Kaplan’s participation inguidance or change its interpretation of new regulations at any time. Any action by Congress or the ED that significantly reduces funding for Title IV programs or the amountability of student financial assistance for which Kaplan’s students are eligible. In addition, concerns generated by congressionalPurdue Global or other activity,client institutions to receive funding through these programs could reduce Purdue Global’s or negative media reports,other client institutions’ enrollments and tuition revenues and, in turn, the revenues KHE receives under the TOSA or other agreements. Any action by Congress or the ED that impacts the ability of Purdue Global or other client institutions to contract with KHE to provide bundled services in exchange for a share of tuition revenue could require KHE to modify the TOSA, other agreements and its practices and could impact the revenues KHE may adversely affect enrollmentreceive under such agreements. Congress, the ED and other federal and state regulators may create new laws or take actions that may require Purdue Global, other client institutions or KHE to modify practices in for-profit educational institutions.ways that could have a material adverse effect on Kaplan’s business and results of operations.
Increased regulatory scrutiny of postsecondary education and service providers:The increased scrutiny of for-profitonline schools alsothat offer programs similar to those offered by Purdue Global or other client institutions has resulted, and may continue to result, in additional enforcement actions, investigations and lawsuits by the ED, other federal agencies, state Attorneys General and state licensing agencies. These actions and allegations have attracted significant negative media coverage. Recent enforcement actions have resulted in institutions being required to post substantial letters of credit, liabilities, restrictions and sanctions and, in some cases, have led to the loss of Title IV eligibility and closure of institutions. AllegationsThis increased activity and enforcement actions against the overall postsecondary education sectorsother current and future activity may impact general public perceptions of private-sector educational institutions, including Kaplan, in a negative manner. Negative media coverage regarding other educational institutions or regarding Kaplan directly could damage Kaplan’s reputation, reduce student demand for Kaplan programs or lead to increased regulatory scrutiny and could negatively impact Kaplan’s operating results.
Kaplan cannot predict the extent to which these activities could result in further investigations, legislation, or rulemaking affecting its participation in Title IV programs,and other governmental actions and/affecting the amount of student financial assistance for which Purdue Global’s or actions by state agenciesother client institutions’ students are eligible, or legislators or by accreditors. If any laws or regulations are adopted that significantly limit Kaplan’s participation in Title IV programs or the amount of student financial aid for which Kaplan’s students are eligible, Kaplan’s results of operations and cash flows would be adversely and materially impacted.
The Kaplan Commitment Is Expected to Continue to Impact Operating Results
In the fourth quarter of 2010, KHE phased in a program called the Kaplan Commitment. Under this program, new undergraduate students of Kaplan University enroll in classes for several weeks and assess whether their educational experience meets their needs and expectations before they incur any significant financial obligation. Students who choose to withdraw from the program during the risk-free period do not have to pay for the coursework. The Kaplan Commitment program and related initiatives have negatively impacted, and could continue to negatively impact, the future operations of KHE, including student enrollments and retention, tuition revenues, operating income and cash flow.
Student Loan Defaults Could Result in Loss of Eligibility to Participate in Title IV Programs
A school may lose its eligibility to participate in Title IV programs if student defaults on the repayment of Title IV loans exceed specified rates, referred to as “cohort default rates.” The ED calculates a cohort default rate for each OPEID number. Kaplan University has one OPEID number. The schools in an OPEID number whose cohort default rate exceeds 40% for any single year lose their eligibility to participate in the Direct Loan programs for at least two


fiscal years, effective 30 days after notification from the ED. The schools in an OPEID number whose cohort default rate equals or exceeds 30% for three consecutive years lose their Title IV eligibility to participate in the Direct Loan and U.S. Federal Pell Grant programs effective 30 days after notification from the ED and for at least two fiscal years. The schools in an OPEID number whose cohort default rate equals or exceeds 30% in two of the three most recent fiscal years for which rates have been issued by the ED may be placed on provisional certification by the ED and could be required by the ED to submit a letter of credit under the borrower defense to repayment regulations. The loss of Title IV eligibility by Kaplan University due to cohort default rates that exceed specified rates would have a material adverse effect on Kaplan’s operating results.
Title IV Revenues in Excess of U.S. Federally Set Percentage Could Lead to Loss of Eligibility to Participate in Title IV Programs 
Under regulations referred to as the 90/10 rule, an institution could lose its eligibility to participate in Title IV programs if it derives more than 90% of its receipts from Title IV programs, as calculated on a cash basis in accordance with the Higher Education Act and applicable ED regulations, in each of two consecutive fiscal years. Any institution with Title IV receipts exceeding 90% for a single fiscal year would be placed on provisional certification and may be subject to other enforcement measures, including a potential requirement to submit to the ED a letter of credit under the borrower defense to repayment regulations that take effect on July 1, 2017. The enactment of the U.S. Federal Ensuring Continued Access to Student Loans Act of 2008 increased student loan limits and the maximum amount of Pell Grants, which resulted in an increase in the percentage of Kaplan University’s receipts from Title IV programs. These increases, and any future increases or changes in the 90/10 calculation formula or any ED interpretation of what revenue may be included in the calculation, make it more difficult for institutions to comply with the 90/10 rule.
Kaplan has taken steps to ensure that revenue from programs acquired by Kaplan University is eligible to be counted in that campuss 90/10 calculation. However, there can be no guarantee that the ED will not challenge the inclusion of revenue from any acquired program in Kaplan University’s 90/10 calculations or will not issue an interpretation of the 90/10 rule that would exclude such revenue from the calculation. There can be no guarantee that these measures will be adequate to prevent the 90/10 ratio at Kaplan University from exceeding 90% in the future.
In addition, certain legislators have proposed amendments to the Higher Education Act that would lower the threshold percentage in the 90/10 rule to 85%, treat non-Title IV federal funds as Title IV funds in the 90/10 calculation and make other refinements to the calculation. If these proposals or similar laws or regulations are adopted, they would make it more difficult for Kaplan University to comply with the 90/10 rule.
The loss of Title IV eligibility by Kaplan University due to a violation of the 90/10 rule would have a material adverse effect on Kaplan’s operating results.
Failure to Maintain Institutional Accreditation Could Lead to Loss of Ability to Participate in Title IV Programs
Kaplan University’s online university and all of its ground campuses are institutionally accredited by a regional accreditor recognized by the ED. Accreditation by an accrediting agency recognized by the ED is required for an institution to become and remain eligible to participate in Title IV programs. Kaplan University’s institutional accreditor conducts reviews from time to time for a variety of reasons. Failure to resolve any concerns that may arise during such reviews could result in a loss of accreditation at the school. The loss of accreditation would, among other things, render the affected school and programs ineligible to participate in Title IV programs and would have a material adverse effect on Kaplan’s business and operations.
Failure to Maintain Programmatic Accreditation Could Lead to Loss of Ability to Provide Certain Education Programs and Failure to Obtain Programmatic Accreditation May Lead to Declines in Enrollments in Unaccredited Programs  
Programmatic accreditation is the process through which specific programs are reviewed and approved by industry-specificand program-specific accrediting entities. Although programmatic accreditation is not generally necessary for Title IV eligibility, such accreditation may be required to allow students to sit for certain licensure exams or to work in a particular profession or career. Failure to obtain or maintain such programmatic accreditation may lead schools to discontinue programs that would not provide appropriate outcomes without that accreditation or may lead to a decline in enrollments inprograms because of a perceived or real reduction in program value.
Failure to Maintain State Authorizations Could Cause Loss of Ability to Operate and to Participate in Title IV Programs in Some States
Kaplan’s institutions and programs are subject to state-level regulation and oversight by state licensing agencies, whose approval is necessary to allow an institution to operate and grant degrees or diplomas in the state. Institutions that participate in Title IV programs must be legally authorized to operate in the state in which the institution is physically located. The loss of such authorization would preclude the institution from offering


postsecondary education and render students ineligible to participate in Title IV programs. Loss of authorization at campus locations or, in states that require it, for Kaplan University’s online programs would have a material adverse effect on Kaplan University’s business and operations.
Some states have sought to assert jurisdiction over online education institutions that offer education services to residents in the state or to institutions that advertise or recruit in the state, notwithstanding the lack of a physical location in the state. State regulatory requirements for online education vary among the states, are not well developed in many states, are imprecise or unclear in some states and are subject to change. If Kaplan University is found not to be in compliance with an applicable state regulation and a state seeks to restrict one or more of Kaplan University’s business activities within its boundaries, Kaplan University may not be able to recruit or enroll students in that state and may have to cease providing services and recruiting in that state.
ED regulations that went into effect on July 1, 2011, expanded the requirements for an institution to be considered legally authorized in the state in which it is physically located for Title IV purposes. In some cases, the regulations require states to revise their current requirements and/or to license schools in order for institutions to be deemed legally authorized in those states and, in turn, to participate in the Title IV programs. If the states do not amend their requirements where necessary and if schools do not receive approvals where necessary that comply with these requirements, the institution could be deemed to lack the state authorization necessary to participate in the Title IV programs, which would have a material adverse effect on Kaplan’s business and operations.
On December 19, 2016, the ED issued final regulations regarding distance-education state authorization requirements that would require Kaplan University to be authorized in additional states, as well as regulations applicable to institutions with Title IV participating locations in a foreign country. Specifically, the regulations will require an institution that offers postsecondary education through distance education in a state in which the institution is not physically located, or in which the state determines that the institution is otherwise subject to the state’s jurisdiction, to meet the state’s authorization requirements for offering postsecondary distance education in that state. The regulations also will require the institution to document that there is a state process for review and appropriate action on complaints from enrolled students in each such state. In addition, the regulations will require the institution to provide public disclosures regarding various matters relating to its state authorization and to provide individualized disclosures to each prospective student regarding certain matters, including whether the student’s program does not meet licensure or certification prerequisites in the state in which the student resides. The regulations in certain circumstances consider an institution to be authorized in states that participate in a state authorization reciprocity agreement that covers the institution. The regulations are not scheduled to take effect until July 1, 2018. If Kaplan is unable to obtain the required approvals for distance-education programs by the effective date of the new regulations, then Kaplan students residing in the state for which approval was not obtained may be unable to receive Title IV funds, which could have a material adverse effect on Kaplan’s business and operations. Additionally, these rules may impact Concord’s ability to enroll students into its Juris Doctor program outside of California.
Failure to Correctly Calculate or Timely Return Title IV Funds for Students Who Withdraw Prior to Completing Programs Could Result in a Requirement to Post a Letter of Credit or Other Sanctions
ED regulations require schools participating in Title IV programs to calculate correctly and return on a timely basis unearned Title IV funds disbursed to students who withdraw from a program of study prior to completion. These funds must be returned in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under ED regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled in a school’s annual compliance audit, or in a program review or OIG audit, could result in a requirement that the school post a letter of credit in an amount equal to 25% of its prior-year returns of Title IV program funds. If unearned funds are not properly calculated and returned in a timely manner, an institution may be subject to monetary liabilities, fines or other sanctions by the ED that could have a material adverse effect on Kaplan’s results of operations.
Failure to Demonstrate Financial Responsibility Could Result in a Requirement to Submit Letters of Credit to the ED, Loss of Eligibility to Participate in Title IV Programs or Other Sanctions
An institution participating in Title IV programs must maintain a certain level of financial responsibility as determined under the Higher Education Act and under ED regulations. The ED measures an institution’s financial responsibility by compiling a composite score, ranging from -0.1 to 3.0, pursuant to a formula that incorporates various financial data from annual financial statements submitted to the ED. An institution with a composite score of 1.5 or higher passes the composite test. An institution with a composite score of at least 1.0 and less than 1.5 is in the zone. If an institution’s composite score is in the zone and the institution complies with other financial responsibility standards, the ED typically permits the institution to continue participating in the Title IV programs under certain conditions, including imposing certain monitoring and reporting requirements, placing the institution on provisional certification and transferring the institution from the advance system of Title IV payment to a heightened cash-monitoring or reimbursement system of payment. An institution fails the composite score test with a score of less than 1.0. The ED may permit such institutions to continue participating in the Title IV programs under the aforementioned


conditions and potentially other conditions, as well as a requirementthird-party servicer to submit to the ED a letter of credit in an amount equal to at least 10% of the annual Title IV program funds received by the institution during its most recently completed fiscal year, although the ED could require a letter of credit based on a higher percentage of the institution’s annual Title IV program funds. The borrower defense to repayment regulations that take effect on July 1, 2017, expand the list of circumstances that could require an institution to provide the ED with a letter of creditPurdue Global or such other form of acceptable financial protection. Moreover, the new borrower defense to repayment regulations may increase the required minimum letter of credit amount beyond 10% of annual Title IV funds to include additional amounts that the ED determines are needed to fully cover any estimated potential losses. If an institution is unable to submit a required letter of credit or to comply with ED imposed conditions, the institution could be subject to loss of Title IV eligibility, financial penalties and other conditions or sanctions. For the 2016 fiscal year, Kaplan University expects to have a composite score of 1.8, based on its own assessment using ED methodology. However, the ED will make its own determination once it receives and reviews Kaplan University’s audited financial statements for the 2016 fiscal year.
If Kaplan University fails to meet the composite score standard or any of the other financial responsibility standards, it may be required to post a letter of credit in favor of the ED and possibly may be subject to other sanctions, including limitation or termination of its participation in Title IV programs. A requirement to post a letter of credit or the imposition of any one or more other sanctions by the ED could have a material adverse effect on Kaplan’s results of operations.
Failure to Demonstrate Administrative Capability Could Result in Loss of Eligibility to Participate in Title IV Programs or Other Sanctions
ED regulations specify extensive criteria that an institution must satisfy to establish that it has the required “administrative capability” to participate in Title IV programs. These criteria include, but are not limited to, requirements relating to the institution’s compliance with all applicable Title IV requirements; the institution’s administration of Title IV programs; the institution’s compliance with certain reporting, disclosure and record-keeping obligations; and the institution’s ability to maintain cohort default rates below prescribed thresholds. Failure to comply with these criteria could result in the loss or limitation of the eligibility of Kaplan University to participate in the Title IV programs, a requirement to pay fines or to repay Title IV program funds, a denial or refusal by the ED to consider a school’s application for renewal of its certification to participate in the Title IV programs, civil or criminal penalties or other sanctions. Any one or more of these actions by the ED could have a material adverse effect on Kaplan’s results of operations.
Failure to Obtain Regulatory Approval of Transactions Involving a Change of Control May Result in the Loss of the Ability to Operate Schools or to Participate in U.S. Federal Student Financial Aid Programs
If Kaplan University experiences a change of control under the standards of applicable state agencies, accrediting agencies or the ED, it must seek the approval of the relevant agencies. An institution that undergoes a change of control, which may include a change of control of the institutionclient institutions’.s parent corporation or other owners, must be reviewed and recertified by the ED and obtain approvals from certain state agencies and accrediting bodies, in some cases prior to the change of control. The failure of Kaplan University to reestablish its state authorization, accreditation or ED certification following a change of control as defined by the applicable agency could result in a suspension of operating authority or suspension or loss of U.S. Federal student financial aid funding, which could have a material adverse effect on Kaplan University’s student population and revenue.
Actions of Other Postsecondary Education Institutions and Related Media Coverage May Negatively Influence the Regulatory Environment and Kaplan’s Reputation
The HELP Committee hearings and various state Attorneys General’s actions, along with other recent investigations and lawsuits, have included allegations against various for-profit schools of, among other things, deceptive trade practices, false claims against the U.S. and noncompliance with state and ED regulations. These allegations have attracted significant negative media coverage. Allegations against private-sector postsecondary education institutions have impacted and may continue to impact general public perceptions of private-sector educational institutions, including Kaplan, in a negative manner. Negative media coverage regarding other educational institutions or regarding Kaplan directly could damage Kaplan’s reputation, reduce student demand for Kaplan programs or lead to increased regulatory scrutiny and could negatively impact Kaplan’s operating results.
Changes in the Extent to Which Standardized Tests Are Used in the Admissions Process by Colleges or Graduate Schools Could Reduce Demand for KTP OfferingsOfferings.
A substantial portion of Kaplan’s revenue is generated by KTP. The source of this income is fees charged for courses that prepare students for a broad range of admissions examinations that are required for admission to colleges and graduate schools. Historically, colleges and graduate schools have required standardized tests as part of the admissions process. There has been some movement away from this historical reliance on standardized admissions tests among a small number of colleges that have adopted “test-optional” admissions policies. Any


significant reduction in the use of standardized tests in the college or graduate school admissions process could have an adverse effect on Kaplan’s operating results.
Changes in the Extent to Which Licensing and Proficiency Examinations Are Used to Qualify Individuals to Pursue Certain Careers Could Reduce Demand for Kaplan OfferingsKaplan’s Offerings.
A substantial portion of PACEKP and Kaplan International’sKI’s revenue comes from preparing individuals for licensing or technical proficiency examinations in various fields. Any significant relaxation or elimination of licensing or technical proficiency requirements in those fields served by PACEKP and Kaplan International’sKI’s businesses could negatively impact Kaplan’s operating results.
Difficulties of Managing Foreign Operations Could Negatively Affect Kaplan’s BusinessBusiness.
Kaplan has operations and investments in a growing number of foreign countries, including Australia, Canada, China, Colombia, France, Germany,Hong Kong, India, Ireland, Japan, Mexico,Myanmar, New Zealand, Nigeria, Saudi Arabia, Singapore, the U.K. and Venezuela. Kaplan also conducts business in the Middle East.United Arab Emirates. Operating in foreign countries presents a number of inherent risks, including the difficulties of complying with unfamiliar laws and regulations, effectively managing and staffing foreign operations, successfully navigating local customs and practices, preparing for potential political and economic instability and adapting to currency exchange rate fluctuations. Failure to effectively manage these risks could have a material adverse effect on Kaplan’s operating results.
Changes in International Regulatory and Physical Environments and Failure to Comply With Regulations Applicable to International Operations Could Negatively Affect International Student Enrollments
A substantial portion of Kaplan International’s revenue comes from programs that prepare international students to study and travel in English-speaking countries, principally the U.S., the U.K., Australia and Singapore. Kaplan International’s ability to enroll students in these programs is directly dependent on its ability to comply with complex regulatory environments. For example, on June 23, 2016, the U.K. held a referendum in which voters approved a proposal that the U.K. leave the EU, commonly referred to as “Brexit.” As a result of the referendum, there has been a sharp decline in the value of the British pound sterling as compared to the U.S. dollar and other currencies. In the longer term, the impact on Kaplan International from Brexit will depend, in part, on the outcome of future negotiations regarding the terms of the U.K.’s withdrawal from the EU. The timing of the negotiations and its impact on recruitment of international students is uncertain. The outcome may disrupt the free movement of students and employees. It is possible that EU nationals’ ability to enter the U.K. for long- or short-term study will change or that changes in laws affecting EU nationals could also apply to international students presently covered by the Tier 4 (KI Pathways) or student visitor visa regime (KI English). It is also unclear how international student recruitment agents and prospective international students will view the U.K. as a study destination after the EU exit negotiations and the U.K.’s eventual departure from the EU. If the U.K. exit from the EU and related perceptions of the U.K. as a study destination have a significant negative impact on Kaplan’s ability to recruit international students, Kaplan’s results of operations and cash flows would be adversely and materially impacted.
On January 27, 2017, President Trump signed an executive order barring citizens from Syria, Iraq, Iran, Yemen, Libya, Somalia, and Sudan from entering the U.S. for 90 days and also suspended the admission of all refugees for 120 days. Although the ultimate enforcement and implementation of this or any subsequent order cannot be predicted, negative perceptions regarding travel to the U.S. could have a material adverse impact on Kaplan’s business.Business.
Any significant changes to the regulatory environment or other factors, including geopolitical instability, imposition of international sanctions or a natural disaster or pandemic in either the students’ countries of origin or the countries toin which they desire to study, could negatively affect Kaplan’s ability to attract and retain students which could have a negative impactand negatively affect Kaplan’s operating results.
Failure In addition, any significant changes to Comply With Regulations Applicable to International Operations Could Negatively Impact Kaplan’s Businessvisa policies or the tax environment in a country in which KI operates could negatively affect its operating results.
Kaplan is subject to a wide range of regulations relating to its international operations. These include domestic laws with extra-territorial reach, such as the U.S. Foreign Corrupt Practices Act,Act; international laws, with extra-territorial reach, such as the U.K. Bribery Act,Act; as well as the local regulatory schemesregimes of the countries in which Kaplan operates. These regulations


change frequently. Compliance with these regulations requires utmost vigilance. Failure to comply can result in the imposition of significant penalties or revocation of Kaplan’s authority to operate in the applicable jurisdiction, each of which could have a material adverse effect on Kaplan’s operating results.
KI’s operations, institutions and programs in the United States may be subject to state-level regulation and oversight by state regulatory agencies, whose approval or exemption from approval is necessary to allow an institution to operate in the state. These agencies may establish standards for instruction, qualifications of faculty, location and nature of facilities, financial policies and responsibility and other operational matters. Institutions that seek to admit international students are required to be federally certified and legally authorized to operate in the state in which the institution is physically located in order to be allowed to issue the relevant documentation to permit international students to obtain a visa.
A substantial portion of KI’s revenue comes from programs that prepare international students to study and travel in English-speaking countries, principally the U.S., the U.K., Australia and Singapore. KI’s ability to enroll students in these programs is directly dependent on its ability to comply with complex regulatory environments. For example, on June 23, 2016, the U.K. held a referendum in which voters approved a proposal that the U.K. leave the European Union (EU), commonly referred to as “Brexit.” The impact of Brexit on KI will depend, in part, on the outcome of future negotiations regarding the terms of the U.K.’s withdrawal from the EU, possibly including any transition period or the outcome of any “no deal” exit. A “no deal” exit would occur if the U.K. government is not able to reach agreement with the EU on either transition arrangements or its future relationship with the EU upon exit. This risk increased following the rejection of the proposed transition arrangements by the U.K. Parliament on January 15, 2019. A U.K. exit on a “no deal” basis could adversely impact the value of the British pound as compared to other currencies or potentially have other adverse consequences and may have a materially adverse impact on KI’s results of operations. Uncertainty over the outcome of the negotiations and the possibility of a “no deal” exit may materially or significantly diminish interest in traveling to the U.K. for study. If the U.K. is no longer viewed as a favorable study destination, KI’s ability to recruit international students will be adversely impacted, which would result in material adverse impacts to KI’s results of operations and cash flows. The U.K. government’s Immigration White Paper, issued in December 2018, clarified that EU nationals’ ability to enter the U.K. for long- or short-term study will change. EU national students seeking to study higher education courses will be broadly subject to similar rules as those that presently apply to non-EU international students (KI Pathways). EU national students seeking to study English-language courses will either require an Electronic Travel Authorization or a short-term student visa (KI English). EU nationals do not currently require visas or face other administrative barriers to study in the U.K. It is also expected that recruitment of staff from outside the U.K will become more difficult and that Kaplan may experience difficulties in attracting and retaining international staff in the U.K. It is unclear how international student recruitment agents and prospective international students will view the U.K. as a study destination after the introduction of these new requirements, the EU exit negotiations and the U.K.’s eventual exit from the EU. The introduction of new visa and other administrative requirements, Brexit and the perception of the U.K. as a less favorable study destination may have a materially adverse impact on KI’s ability to recruit international students, KI’s results of operations and cash flows. Additionally, if the U.K does not receive a determination of adequacy under the EU General Data Protection Regulation, then flows of personal data within KI or between KI and its clients, suppliers, business partners and affiliates may be substantially disrupted.
Changes to levels of direct and indirect government funding for international education programs would also materially impact the success of KI’s operations. For example, if government funding for vocational education in Singapore were to be reduced or the training requirements materially changed, this could produce a material adverse effect on Kaplan’s operating results. Similarly, if access to student loan or other funding were to be lost for KI operations that admit students who are entitled to receive the benefit of this funding, this could also produce a material adverse effect on Kaplan’s operating results.
In January 2017, President Trump signed an executive order barring citizens from Syria, Iraq, Iran, Yemen, Libya, Somalia and Sudan from entering the U.S. for a certain period of time. Although the countries that were the subject of the order were subsequently modified, the order has been the subject of significant international press interest. Negative perceptions regarding travel to the U.S. could have a significant negative impact on KI’s ability to recruit international students, and Kaplan’s business could be adversely and materially impacted.
In December 2017, the Australian government established a Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry. The Commission’s investigations have uncovered, among other things, widespread issues around fee misuse, adviser misconduct, conflicted remuneration and errant breach reporting. These findings are expected to result in new legislation that would further increase the compliance burden on affected firms, that may in the short term adversely impact spending on training and Kl’s business in Australia.


Liability Under Real Estate Lease Guaranties for Certain Real Estate Leases That Were Assigned to Education Corporation of America Could Have a Material Adverse Effect on the Company’s Results.
On September 3, 2015, Kaplan sold to ECA substantially all of the assets of KHE Campuses. The transaction included the transfer of certain real estate leases that were guaranteed by Kaplan. As part of the transaction, Kaplan retained liability for, among other things, obligations arising under certain lease guarantees. ECA is currently in receivership and has terminated all of its higher education operations other than the New England College of Business (NECB). The receiver has repudiated all of ECA’s real estate leases not connected to NECB. Although ECA is required to indemnify Kaplan for any amounts Kaplan must pay due to ECA’s failure to fulfill its obligations under real estate leases guaranteed by Kaplan, ECA’s financial situation and the existence of secured and unsecured creditors make it unlikely that Kaplan will recover from ECA. If Kaplan is not successful in mitigating these liabilities, the Company’s results could be materially adversely impacted. In the second half of 2018, the Company recorded an estimated $17.5 million in losses on guarantor lease obligations in connection with this transaction in other non-operating expense.
Changes in U.K. Tax Laws Could Have a Material Adverse Effect on KI.
Her Majesty’s Revenue and Customs (HMRC), a department of the U.K. government responsible for the collection of taxes, has raised assessments against the Kaplan UK Pathways business for Value Added Tax (VAT) relating to 2017 and earlier years, which have been paid by Kaplan. In September 2017, in a case captioned Kaplan International Colleges UK Limited v. The Commissioners for Her Majesty’s Revenue and Custom, Kaplan challenged these assessments. The Company believes it has met all requirements under U.K. VAT law and expects to recover the £15.4 million receivable related to the assessments and subsequent payments that have been paid. Following a hearing held in January 2019, before the First Tier Tax Tribunal, all issues related to EU law in the case were referred to the Court of Justice of the European Union.
In March 2018, HMRC issued new VAT guidance indicating a change of policy in relation to certain aspects of a cost sharing exemption that could impact the U.K. Pathways business adversely if this guidance were to become law. As of December 31, 2018, this guidance had not yet been incorporated into U.K. law. If Kaplan is not successful in preserving a valid exemption under U.K. VAT law, the U.K. Pathways business would incur additional VAT expense in the future, which may materially adversely impact its financial results. In a separate matter, there is presently a legal case awaiting judgment at the Supreme Court in the U.K. that may impact U.K. Pathways’ ability to receive the benefit of an exemption from charging its students VAT on tuition fees. The case may reverse or amend existing law and guidance that permits private providers to qualify as a “college of a university” and, therefore, receive the benefit of an exemption from charging its students VAT on tuition fees. If the case restricts which businesses are capable of constituting “colleges of a university” and entitled to exemption, KI Pathways Colleges’ financial results may be materially adversely impacted if they are not able to meet any new requirements.
Changing Perceptions About the Effectiveness of Television Broadcasting in Delivering Advertising May Adversely Affect the Profitability of Television BroadcastingBroadcasting.
Historically, television broadcasting has been viewed as a cost-effective method of delivering various forms of advertising. There can be no guarantee that this historical perception will guide future decisions by advertisers. To the extent that advertisers shift advertising expenditures away from television to other media outlets, the profitability of the Company’s television broadcasting business will suffer.

could be adversely affected.

Increased Competition Resulting From Technological Innovations in News, Information and Video Programming Distribution Systems and Changing Consumer Behavior Could Adversely Affect the Company’s Operating ResultsResults.
The continuing growth and technological expansion of Internet-based services has increased competitive pressure on the Company’s media businesses. Examples of such developments include online delivery of programming, technologies that enable users to fast-forward or skip advertisements and devices that allow users to consume content on demand and in remote locations, while avoiding traditional commercial advertisements or subscription payments. Changing consumer behavior may also put pressure on the Company’s media businesses to change traditional distribution methods. Anticipating and adapting to changes in technology and consumer behavior on a timely basis will affect the Company’s media businesses’ ability to continue to increase their revenue. The development and deployment of new technologies and changing consumer behavior have the potential to negatively and significantly affect the Company’s media businesses in ways that cannot now be reliably predicted and that may have a material adverse effect on the Company’s operating results.


Changes in the Nature and Extent of Government Regulations Could Adversely Affect the Company’s Television Broadcasting Business and Other BusinessesBusinesses.
The Company’s television broadcasting business operates in a highly regulated environment. Complying with applicable regulations has significantly increased, and may continue to increase, the costs and has reduced the revenues of the business. Changes in regulations have the potential to negatively impact the television broadcasting business, not only by increasing compliance costs and reducing revenues through restrictions on certain types of advertising, limitations on pricing flexibility or other means, but also by possibly creating more favorable regulatory environments for the providers of competing services. In addition, changes to the FCC’s rules governing broadcast ownership may affect the Company’s ability to expand its television broadcasting business and/or may enable the Company’s competitors to improve their market positions through consolidation. More generally, all of the Company’s businesses could have their profitability or their competitive positions adversely affected by significant changes in applicable regulations.
Transitionto the New Technical Standard for Broadcast Television Stations May Alter the Competitive Environment in the Company’s Stations’ Markets or Cause the Company to Incur Increased Costs.
The Company cannot predict how the market will react to the new broadcast television station technical standard, ATSC 3.0, as voluntary transition to the new standard has only recently been approved. ATSC 3.0-capable consumer devices are not yet widely available in the United States. Many station groups are beginning to test ATSC 3.0 under experimental authority. Notably, there is a large consortium led by the Pearl Media Group (of which GMG is a member) that is leading test trials in the Phoenix market. Competing stations that transition to ATSC 3.0 may increase competition for the Company’s stations and/or create competitive pressure for the Company’s stations to launch ATSC 3.0 streams. Any transition to ATSC 3.0 may cause the Company to incur substantial costs. In the event the Company transitions any or all of its stations to ATSC 3.0, there can be no guarantee that the Company would successfully earn sufficient additional revenues to offset such costs. More generally, the deployment of ATSC 3.0 may have other material effects on the Company’s media businesses that cannot now be reliably predicted and that may have a material adverse effect on the Company’s operating results.
Potential Liability for Intellectual Property Infringement Could Adversely Affect the Company’s Businesses Businesses.
The Company periodically receives claims from third parties alleging that the Company’s businesses infringe on the intellectual property rights of others. It is likely that the Company will continue to be subject to similar claims, particularly as they relate to its media businesses. Other parts of the Company’s business could also be subject to such claims. Addressing intellectual product claims is a time-consuming and expensive endeavor, regardless of the merits of the claims. In order to resolve such a claim,claims, the Company could determine the needmay have to change its method of doing business, enter into a licensing agreementagreements or incur substantial monetary liability. It is also possible that one of the Company’s businesses could be enjoined from using the intellectual property at issue, causing it to significantly alter its operations. Although the Company cannot predict the impact at this time, if any such claim is successful, the outcome would likely affect the business utilizing the intellectual property at issue and could have a material adverse effect on that business’s operating results or prospects.
System Disruptions and Security Threats to the Company’s Information Technology Infrastructure Could Have a Material Adverse Effect on Its Businesses and Results of Operations.
The Company relies extensively on information technology systems, networks and services, including Internet sites, data hosting and processing facilities and tools and other hardware, software and technical platforms, some of which are managed, hosted, provided and/or used by third parties or their vendors, to assist in conducting the Company’s business.
The Company’s systems and the third-party systems on which it relies are subject to damage or interruption from a number of causes, including power outages; computer and telecommunications failures; computer viruses; security breaches; cyberattacks, including the use of ransomware; catastrophic events such as fires, floods, earthquakes, tornadoes or hurricanes; acts of war or terrorism; and design or usage errors by our employees, contractors or third-party service providers. Although the Company and the third-party service providers seek to maintain their respective systems effectively and to successfully address the risk of compromise of the integrity, security and consistent operations of these systems, such efforts may not be successful. As a result, the Company or its service providers could experience errors, interruptions, delays or cessations of service in key portions of the Company’s information technology infrastructure, which could significantly disrupt its operations and be costly, time consuming and resource intensive to remedy. To the extent such vulnerabilities require remediation, such remedial measures could require significant resources and may not be implemented before such vulnerabilities are exploited. As the cybersecurity landscape evolves, the Company may also find it necessary to make significant further investments to protect data and infrastructure. Any of these events could have a material adverse effect on the Company’s businesses and results of operations.


Failure to Comply With Privacy Laws or Regulations Could Have an Adverse Effect on the Company’s BusinessBusinesses.
Various federal, state and international laws and regulations govern the collection, use, retention, sharing and security of consumer data. This area of the law is evolving, and interpretations of applicable laws and regulations differ. Legislative activity in the privacy area may result in new laws that are relevant to the Company’s operations, for example,including the use of consumer data for marketing or advertising, andthat could result in exposure to material liability. For example, new general data privacy regulations adopted by the European Union known as the General Data Protection Regulation (GDPR). Complying, became effective in May 2018. These regulations require companies to meet requirements regarding the handling of personal data, including its use, protection and transfer and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to meet the GDPR could result in fines of up to 4% of the Company’s annual global revenues. In addition, in 2018, California adopted a new privacy law, scheduled to go into effect on January 1, 2020, that borrows heavily from the GDPR. Compliance with the enhanced obligations imposed by the GDPR may result in significant costs to the Company's business and require the Company to amend certain of its business practices.other applicable international and U.S. privacy laws can be costly and time consuming. Claims of failure to comply with the Company’s privacy policies or applicable laws or regulations could form the basis of governmental or private-party actions against the Company and could result in significant penalties. Such claims and actions could cause damage to the Company’s reputation and could have an adverse effect on the Company’s business.businesses.
Extensive Regulation of the Health CareHealthcare Industry Could Adversely Affect the Company’s Health CareHealthcare Businesses and Results of OperationsOperations.
The home health and hospice industries are subject to extensive federal, state and local laws, with regulations affecting a wide range of matters, including licensure and certification, quality of services, qualifications of personnel, confidentiality and security of medical records, relationships with physicians and other referral sources, operating policies and procedures, and billing and coding practices. These laws and regulations change frequently, and the manner in which they will be interpreted is subject to change in ways that may not be predicted. Currently, there
Effective January 1, 2020, the Center for Medicare and Medicaid Services (CMS) is significant uncertainty regarding the future of the Patient Protection and Affordable Care Act of 2010, as well as other regulations affectingproposing to overhaul the home health prospective payment system. Specifically, CMS is moving forward with a new payment model that will decrease reimbursement for cases with high therapy utilization and hospice industries. increase billing costs by significantly increasing billing requirements. In addition, CMS has implemented a rigorous system of claim reviews to identify improper home health billing and limit fraudulent claims. Pre-claim review disrupts the current healthcare delivery model and results in additional home health operational costs for chart reviews, preparation and response to CMS.
Reimbursement for services by third-party payers, including Medicare, Medicaid and private health insurance providers, continues to decline, while authorization, audit and compliance requirements continue to add to the cost of providing those services. In 2018, an anticipated extensive overhaul of Medicare reimbursement for the home health benefit was delayed, but is likely to be revisited in the future.
Managed-care organizations, hospitals, physician practices and other third-party payers continue to consolidate in response to the evolving regulatory environment, thereby enhancing their ability to influence the delivery of health carehealthcare services and decreasing the number of organizations serving patients. This consolidation could adversely impact Graham Healthcare Group’s businesses if they are unable to maintain their ability to participate in established networks. Changes
GHG also is subject to periodic and routine reviews, audits and investigations by federal and state government agencies and private payers, and these audits could result in existingnegative findings that adversely impact the business. CMS increasingly uses third-party, for-profit contractors to conduct these reviews, many of whom share in the amounts that CMS denies. These reviews, audits and investigations consume significant staff and financial resources and may take years to resolve.
Failure to Comply With Environmental, Health, Safety and Other Laws Applicable to The Company’s Manufacturing Operations Could Negatively Impact the Companys Business.
The Company’s manufacturing operations are subject to extensive federal, state and local laws orand regulations in their interpretationrelating to the environment, as well as health and enforcement,workplace safety, including those set forth by the Occupational Safety and Health Administration (OSHA) and the enactment of newEnvironmental Protection Agency (EPA) and state and local regulatory authorities in the U.S. Such laws orand regulations affect manufacturing operations and require compliance with various environmental registrations, licenses, permits, inspections and other approvals. The Company incurs substantial costs to comply with these regulations, and any failure to comply may expose the Company to civil, criminal and administrative fees, fines, penalties and interruptions in operations that could have a material adverse effectimpact on the Company’s health care businesses’ operations.results of operations, financial position or cash flows.


System Disruptions and Security ThreatsThe Company May Be Subject to the Company’s Technology InfrastructureLiability Claims That Could Have a Material Adverse Effect on Its Businesses
Kaplan’s reputation and ability to attract and retain students is highly dependent on the performance and reliability of its information technology platforms with respect to its online and campus-based education offerings. Kaplan’s delivery of these programs could be negatively affected due to events beyond its control, including natural disasters and network and telecommunications failures. Any such computer system error or failure could result in a significant outage that materially disrupts Kaplan’s online and on-ground operations and could have a material adverse effect on Kaplan’s business.Business.
The Company’s computer networksmanufacturing operations are subject to hazards inherent in manufacturing and production-related facilities. An accident involving these operations or equipment may also be vulnerableresult in losses due to unauthorized access, computer hackers, computer viruses and other security threats. Despitepersonal injury; loss of life; damage or destruction of property, equipment or the Company's efforts to prevent security breaches,environment; or a suspension of operations. Insurance may not protect the Company against liability for certain kinds of events, including unauthorized access to student and patient data and personally identifiable information, its systems may still be vulnerable to these threats. A user who circumvents security measures could misappropriate proprietary informationevents involving pollution or cause disruptions or malfunctions in operations.against losses resulting from business interruption. Any of these events could have a material adverse effect ondamages caused by the Company’s business and resultsoperations that are not covered by insurance, or are in excess of operations.policy limits, could materially adversely affect the Company’s result of operations, financial position or cash flows
Failure to Successfully AssimilateIntegrate Acquired Businesses Could Negatively Affect the Company’s BusinessBusiness.
The Company’s Kaplan subsidiary has historically been an active acquirer of businesses that provide educational services. Kaplan completed three acquisitions in 2016 and expects to continue to acquire businesses from time to time, as do the Company and its other subsidiaries. Acquisitions involve various inherent risks and uncertainties, including difficulties in efficiently integrating the service offerings, accounting and other administrative systems of an acquired business; the challenges of assimilating and retaining key personnel; the consequences of diverting the attention of senior management from existing operations; the possibility that an acquired business does not meet or exceed the financial projections that supported the purchase price; and the possible failure of the due diligence process to identify significant business risks or undisclosed liabilities associated with the acquired business. A failure to effectively manage growth and integrate acquired businesses could have a material adverse effect on the Companys operating results.
•    Changes in Business Conditions May Cause Goodwill and Other Intangible Assets to Become ImpairedImpaired.
Goodwill generally represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired in a business combination. Goodwill is not amortized and remains on the Company’s balance sheet indefinitely unless there is an impairment or a sale of a portion of the business. Goodwill is subject to an impairment test on an annual basis and when circumstances indicate that an impairment is more likely than not. Such circumstances include an adverse change in the business climate for one of the Company’s businesses or a decision to dispose of a business or a significant portion of a business. The Company’s businesses each face uncertainty in their business environment due to a variety of factors. The Company may experience unforeseen circumstances that adversely affect the value of the Company’s goodwill or intangible assets and trigger an evaluation of the amount of the recorded goodwill and intangible assets. There also exists a reasonable possibility that changes to the discounted cash flow model used to perform the quantitative goodwill impairment review, including a decrease in the assumed projected cash flows or long-term growth rate, or an increase in the discount rate assumption, could result in an impairment charge. Future write-offs of goodwill or other intangible assets as a result of an impairment in the business could materially adversely affect the Company’s results of operations and financial condition.
The Spin-Off of Cable ONE Could Result in Significant Tax Liability to the Company and its StockholdersIts Stockholders.
In connection with the Company'sCompany’s spin-off of Cable ONE, it received a written opinion of counsel to the effect that the distribution of Cable ONE common stock in the spin-off (Distribution) should qualify for non-recognition of gain and loss under Section 355 of the Internal Revenue Code.
The opinion assumed that the spin-off was completed according to the terms of the transaction documents for the spin-off and relied on the facts as stated in those documents and a number of other documents. The opinion cannot be relied on if any of these assumptions or statements is incorrect, incomplete or inaccurate in any material respect. The opinion of counsel is not binding on the Internal Revenue Service or the courts, and there can be no assurance that the Internal Revenue Service or a court will not take a contrary position.
If the Distribution were determined not to qualify for non-recognition of gain and loss, the Company'sCompany, its stockholders could be subject to tax. In this case, each U.S. stockholder who received shares of Cable ONE common stock in the Distribution, would generallyor both, could be treated as receiving a distribution in an amount equalsubject to the fair market value of the Cable ONE common stock received in the Distribution, which would generally result in (1) a taxable dividend to the holder to the extent of the holder’s pro rata share of our current and accumulated earnings and profits; (2) a reduction in the holder’s tax basis (but not below zero) in the Company's common stock to the extent the amount received exceeds the holder’s share of our earnings and profits; and (3) a taxable gain from the exchange of the Company's common stock to the extent the amount received exceeds the sum of the holder’s share of the Company's earnings and profits and the holder’s tax basis in the Company's common stock.


In addition, Section 355(e) of the Internal Revenue Code generally creates a presumption that the Distribution would be taxable to the Company, but not to the Company's stockholders, if the Company, Cable ONE or any of the Company's respective stockholders were to engage in transactions that result in a 50% or greater change by vote or value in the ownership of the Company's stock or the stock of Cable ONE during the four-year period beginning on the date that begins two years before the date of the Distribution, unless it were established that such transactions and the Distribution were not part of a plan or series of related transactions giving effect to such a change in ownership. If the Distribution were taxable to the Company due to such a 50% or greater change in ownership, the Company would recognize a gain equal to the excess of the fair market value of the Cable ONE common stock distributed to the Company's stockholders in the Distribution over the Company's tax basis in the Cable ONE common stock.tax. Any such tax liability could be material.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
The Company leases space for its corporate offices in Arlington, VA. The space consists of 33,815 square feet of office space, and the lease expires in 2024, subject to an option of the Company to extend.
Directly or through its subsidiaries, Kaplan owns a total of four properties: a 30,000-square-foot,26,000-square-foot, six-story building located at 131 West 56th Street in New York City, used by KI English North Americathe Kaplan Test Preparation division as an education center primarily for internationalmedical students; a redeveloped 47,410-square-foot, four-story brick building in Lincoln, NE,


used by Kaplan University;Purdue Global; a 4,000-square-foot office condominium in Chapel Hill, NC, utilized by KTP; and a 15,000-square-foot, three-story building in Berkeley, CA, used by KTP and KIC North America. KI has also entered into a 135-year lease of land in Liverpool, U.K., and is in the process of constructing college and dormitory space totaling 138,000 square feet that is scheduled to open in August 2019.
In the U.S., Kaplan, Inc. and KHE lease corporate offices, together with a data center, call center and employee-training facilities, in two 97,000-square-foot buildings located on adjacent lots in Fort Lauderdale, FL. Both of those leases will expire in 2018.2024. Kaplan, Inc. and KHE share corporate office space in a 22,000-square-foot23,364-square-foot office building in Alpharetta, GA, under a lease that expires in 2021. KHE leases 62,500 square feet of corporate office space in Chicago, IL, under a lease that will expire in 2022 (of which approximately 21,000 square feet have been subleased through the remainder of the term). KHE also separately leases 76,500 square feet of office space in Chicago, IL; however, the location has been entirely subleased through the remainder of the lease term. In addition, KHE also separately leases two corporate offices, totaling 64,128 square feet, in La Crosse, WI, under leases that will expire in 2022; a two-story, 124,500-square-foot building in Orlando, FL, that is used as an additional support center (of which approximately 48,00094,000 square feet have been subleased to a third party)parties), pursuant to a lease that will expire in 2021; and 88,80085,600 square feet of corporate office space in Plantation, FL (which has been entirely subleased to a third party), for a term that expires in 2021. Kaplan, Inc. and KTP have signed a sublease for 84,50085,600 square feet in New York (expiring in MayFebruary 2021). Kaplan, Inc. and KTP also separately lease 159,540 square feet in New York; however, the location has been entirely subleased to two different partiesa third party through the remainder of the lease term. KTP has an additional 63 leases comprising approximately 190,119 square feet of office and instructional space. KTP also delivers classes at schools, colleges, hotels and other premises for which Kaplan is not a leaseholder. KP leases two corporate offices, totaling 64,128 square feet, in La Crosse, WI, under leases that will expire in 2022.
In addition, the KI English business maintains more than 5019 leases in the U.S., comprising an aggregate of approximately 1.7 millionmore than 250,000 square feet of instructionaloffice and dormitoryinstructional space.
Overseas, Dublin Business School’s facilities in Dublin, Ireland, are located in five buildings, aggregating approximately 74,000 square feet of space, that are rented under leases expiring between 20172024 and 2029. Kaplan Publishing has an office and distribution warehouse in Wokingham, Berkshire, U.K., of 27,000 square feet, under a lease expiring in 2026.2027. Kaplan Financial’s largest leaseholds are office and instructional spaces in London, U.K., of 33,000 square feet (expiring in 2033) and 50,200 square feet (comprising two leases) obtained in January 2015 and expiring in 2030; office and instructional space in Birmingham, U.K., of 23,60019,220 square feet (expiring in 2017)2027); office and instructional space in Manchester, U.K., of 26,90015,900 square feet (comprising five separate leases, one lease of 11,244 square feet expiring in March 2017 and the remaining four separate leases, of 15,656 square feet expiring in 2022); office and instructional space in Wales, U.K., of 34,000 square feet (notice to terminate this lease has been served, to expire in December 2016); office and instructional space in Singapore, of 162,000 square feet (comprising five separate leases, expiring between 20162019 and 2021); and office and instructional space in Hong Kong, of 30,850 square feet.
Palace House in London, which was previouslyU.K., is primarily occupied by Kaplan Law School,the KI Pathways business with 20,200 square feet of space in London, U.K. (comprising fourseveral separate leases, expiring in 2017)2032). The KI Pathways business has also entered into a separate lease agreement under which it will agree to take further additional leases in Palace House (also expiring in 2032) totaling approximately 22,281 square feet, now that certain work has been completed in the building. Once the additional leases are complete, the Palace House leases will total approximately 44,078 square feet.
Kaplan has a lease expiring in 2026 for education space in Nottingham, U.K., is now primarily occupied by the KIC Pathways business.totaling 16,455 square feet. In addition, Kaplan has entered into two separate leases in Glasgow, Scotland, for 58,000 square feet and 22,400 square feet, respectively, of dormitory space that was constructed and opened to students in 2012. These leases expire in 2032. In addition, Kaplan leases approximately 143,000 square feet of dormitory space as the main tenant of a student residential building in Nottingham, U.K. Kaplan has further entered into a lease agreement for a residential college in Bournemouth, England, which comprises approximately 175,000 square feet. Kaplan has entered into an agreement for a lease in Brighton, U.K., for dormitory space totaling 128,779 square feet. This lease, once granted, is anticipated to expire in 2040, subject to possible permitted delays, which could extend the expiry date to 2041 or 2042. Kaplan has further entered into a conditional agreement for a lease in Bath, U.K., of newly constructed dormitory and education space totaling 151,353 square feet once conditions are met and construction has been completed. Kaplan believes that it is unlikely that the conditions precedent for the lease to be granted will be met. If granted, the term of the lease will be 21 years and seven days. In Australia, Kaplan leases one location in Melbourne, with an aggregate of approximately 23,00076,000 square feet; fourthree locations in Sydney, of approximately 13,00048,000 square feet; one location in Brisbane, of 39,000 square feet; two locations in Cairns, of 7,000approximately 22,000 square feet; and twothree locations in Adelaide, of 24,750approximately 44,750 square


feet. These leases expire at various times, from 20172019 through 2022. The University of Adelaide College (formerly Bradford College), in Adelaide, Australia, leases one location, with an aggregate of 38,890approximately 22,184 square feet; and Murdoch Institute of Technology is housed in one location on the Murdoch University campus, under a license agreement offor 3,750 square feet. In New Zealand, Kaplan leases one locationtwo locations (within the same campus) of approximately 10,300 square feet. These leases expirefeet, one of which expires in 2018 and 2021. All other Kaplan facilities in the U.S. and overseas (including administrative offices and instructional locations) occupy leased premises that are for less space than those listed above.


The offices of the Company’s broadcasting operations are located in leased space in Chicago, IL. The operations of each of the Company’s television stations are owned by subsidiaries of the Company, as are the related tower sites (except in Houston, Orlando and Jacksonville, where the tower sites are 50% owned).
Celtic’s headquartersThe corporate office of GHG is located in leased office space in Mars, PA. This lease expiresTroy, MI. GHG also leases a small office in 2017. In addition to its headquarters, CelticNashville, TN. GHG leases 13 small office spaces in its various service territories: Carlisle, PA; Mechanicsburg, PA; Williamsport, PA; Harrisburg, PA; Kingston, PA; Milford, PA; Stroudsburg, PA; Rockville, MD; Owings Mills, MD;New Castle, PA; Warrendale, PA; Shiloh, IL; Marion, IL; Mt. Carmel,Glen Carbon, IL; Troy, MI; Grand Rapids, MI; Lansing, MI; Lapeer, MI; and Mt. Vernon,Downer’s Grove, IL. Additionally, CelticIn addition, GHG leases space for a hospice inpatient unit in Wilkes-Barre, PA. CelticPA, and nursing offices at Edward and Elmhurst hospitals in northern Illinois. GHG also owns a total of four properties located in Carlinville, IL; Centralia, IL; Murphysboro, IL; and Benton, IL.
Residential’s Michigan headquarters offices are located inhas leased space in Troy, MI. Residential also leases office space in Grand Rapids, MI, andMars, PA, which expires in Lansing, MI. In Illinois, Residential’s main office is located2022. GMG also owns property in Downer’s Grove,Benton, IL.
Forney has 20,000 square feet of corporate office space in Addison, TX. ThatTX, under a lease began in April 2014 andthat expires in 2024. Forney’s manufacturing facility is located in Monterrey, Mexico, in a building that contains 85,169 square feet of office and manufacturing space under a lease that expires in 2020. Forney leases a 3,000-square-foot distribution center in Laredo, TX, under a lease that expires in May 2019. Forney also leases sales offices in Shanghai, Beijing and Singapore; the combined office space is less than 3,000 square feet, and the leases are renewable annually.China.
Joyce/Dayton owns three properties: its corporate headquarters in Kettering, OH, and manufacturing facilities in Portland, IN, and Clayton, OH. It also leases a manufacturing facility in West Hartford,Newington, CT.
Dekko owns sevenfive U.S. properties: a 200,600-square-foot headquarters office and manufacturing building in Garrett, IN; a 65,950-square-foot77,200-square-foot manufacturing building in Avilla, IN; 64,500 square feet of manufacturing and warehouse space in Ardmore, AL; 61,750 square feet of warehouse space in El Paso, TX; and a 22,500-square-foot new product development center in LaOtto, IN. In addition, Dekko owns 126,000two buildings in Juarez, Mexico, one of which is 132,150 square feet of manufacturing and office space in Juarez, Mexico.and the other is 65,111 square feet of manufacturing and office space. In the U.S., GroupDekko leases 46,370 square feet of manufacturing and warehouse space in North Webster, IN, under a lease that expires in 2016;2019; a 30,000-square-foot warehouse building in Kendallville, IN, pursuant tounder a month-to-month lease;lease expiring in 2098; and a data/training facility in Kendallville, IN, under a lease expiring in 2020. Dekko also separately leases two office condominiums in Chicago, IL, and Grand Rapids, MI. Both of those leases will expire in 2018. Electri-Cable Assemblies leases 33,208 square feet of manufacturing and warehouse space in Shelton, CT, under a lease that expires in 2021 and 24,324 square feet of manufacturing and warehouse space in Shelton, CT, under a lease that expires in 2020. Furnlite leases 80,400 square feet of manufacturing and warehouse space in Fallston, NC, under a lease that expires in 2023.
Hoover owns nine U.S. properties: a 29-acre site in Thomson, GA; a 35-acre site in Pine Bluff, AR; a 60-acre site in Milford, VA; a 15-acre site in Detroit, MI; a 14-acre site in Bakersfield, CA; a 17-acre site in Oxford, PA; a 15-acre site in Halifax, NC; an 11-acre site in Belington, WV; and a 65-acre site in Havana, Fl. In addition, Hoover leases a 10-acre site in Winston, OR, on a long-term lease with renewal terms available through December 31, 2044. Hoover’s corporate, sales and accounting office, and research, engineering and development offices are also located on the Thomson, GA, campus.
The Slate Group leases office space in Brooklyn, NY, and Washington, DC.
SocialCode leases office space in Washington, DC; New York, NY; San Francisco, CA; Los Angeles, CA; Cleveland, OH; and Chicago, IL.Austin, TX.
Item 3. Legal Proceedings.
On February 6, 2008, a purported class-action lawsuit was filed in the U.S. District Court for the Central District of California by purchasers of BAR/BRI bar review courses, from July 2006 onward, alleging antitrust claims against Kaplan and West Publishing Corporation, BAR/BRI’s former owner. On April 10, 2008, the court granted defendants’ motion to dismiss, a decision that was reversed by the Ninth Circuit Court of Appeals on November 7, 2011. The Ninth Circuit also referred the matter to a mediator for the purpose of exploring a settlement. In the fourth quarter of 2012, the parties reached a comprehensive agreement to settle the matter. The settlement was approved by the District Court in September 2013 and will be administered following2013. In the resolutionfourth quarter of appeals relating to attorney fees.
On or about January 17, 2008, an Assistant U.S. Attorney in2017, the Civil Division of the U.S. Attorney’s Office for the Eastern District of Pennsylvania contacted KHE’s former Broomall campus and made inquiries about the Surgical Technology program, including the program’s eligibility for Title IV U.S. Federal financial aid, the program’s student loan defaults, licensing and accreditation. Kaplan respondedNinth Circuit remanded to the information requestsDistrict Court, which, once again, set attorneys’ fees on January 11, 2018. Distribution of settlement funds was made in December 2018, and fully cooperated with the inquiry. The ED also conducted a program review at the Broomall campus, and Kaplan likewise cooperated with the program review. On July 22, 2011, the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced that it had entered into a comprehensive settlement agreement with Kaplan that resolved the U.S. Attorney’s


inquiry, provided for the conclusion of the ED’s program review and also settled a previously sealed U.S. Federal False Claims Act (False Claims Act) complaint that had been filed by a former employee of the CHI-Broomall campus. The total amount of all required payments by Broomall under the agreements was $1.6 million. Pursuant to the comprehensive settlement agreement, the U.S. Attorney inquiryclaims administration process has been closed, the False Claims Act complaint (United States of Americaex rel.David Goodsteinv.Kaplan, Inc.et al.) was dismissed with prejudice and the ED will issue a final program review determination. However, to date, the ED has not issued the final report. At this time, Kaplan cannot predict the contents of the pending final program review determination or the ultimate impact the proceedings may have on Kaplan.completed.
During 2014, certain Kaplan subsidiaries were subject to two other unsealed cases filed by former employees that include, among other allegations, claims under the False Claims Act relating to eligibility for Title IV funding. The U.S. Governmentgovernment declined to intervene in all cases, and, as previously reported, court decisions either dismissed the cases in their entirety or narrowed the scope of their allegations. The two cases areremaining case is captionedUnited States of Americaex rel.Carlos Urquilla-Diazet al. v. Kaplan Universityet al. (unsealed March 25, 2008) andUnited States of Americaex rel.Charles Jajdelskiv. Kaplan Higher Education Corp. et al. (unsealed January 6, 2009).
On August 17, 2011, the U.S. District Court for the Southern District of Florida issued a series of rulings in the Diaz case, which included three separate complaints: Diaz, Wilcox and Gillespie. The court dismissed the Wilcox complaint in its entirety; dismissed all False Claims Act allegations in the Diaz complaint, leaving only an individual employment claim; and dismissed in part the Gillespie complaint, thereby limiting the scope and time frame of its False Claims Act allegations regarding compliance with the U.S. Federal Rehabilitation Act. On October 31, 2012, the court


entered summary judgment in favor of the Company as to the sole remaining employment claim in the Diaz complaint. On July 16, 2013, the court likewise entered summary judgment in favor of the Company on all remaining claims in the Gillespie complaint. Diaz and Gillespie each appealed to the U.S. Court of Appeals for the Eleventh Judicial Circuit. Arguments on both appeals were heard on February 3, 2015. On March 11, 2015, the appellate court issued a decision affirming the lower court’s dismissal of all of Gillespies claims, however Gillespie continues to file challenges to the appellate decision.Gillespie’s claims. The appellate court also dismissed three of the four Diaz claims, but reversed and remanded on DiazsDiaz’s claim that incentive compensation for admissions representatives was improperly based solely on enrollment counts. Kaplan filed an answer to DiazsDiaz’s amended complaint on September 11, 2015. Kaplan filed a motion to dismiss Diaz'sDiaz’s claims, and a hearing was held on December 17, 2015. On March 24, 2016, the Court denied the motion to dismiss. Discovery in the case closed in January 2017. Kaplan filed a motion for summary judgment on February 21, 2017. A trial, if needed,Summary judgment was granted in full and entered on July 13, 2017. Diaz filed a notice of appeal in September 2017 and filed his initial brief. Kaplan filed a response brief in the third quarter 2018. The matter is schedulednot likely to be decided until mid-2019.
On October 19, 2018, a lawsuit was filed against KHE and other unrelated parties in El Paso, TX, County District Court alleging liability for July 10, 2017.
default on a real property lease by Education Corporation of America (ECA). On July 7, 2011,November 19, 2018, this matter was removed to the U.S. District Court for the Western District of Nevada dismissedTexas. KHE’s responsive pleading was filed in January 2019. On September 3, 2015, Kaplan sold to ECA substantially all of the Jajdelski complaint in its entirety and entered a final judgment in favorassets of Kaplan. On February 13, 2013, the U.S. Circuit Court for the Ninth Judicial Circuit affirmed the dismissal in part and reversed the dismissal on one allegation under the False Claims Act relating to eligibility forKHE nationally accredited on-ground Title IV funding based on claimseligible schools (KHE Campuses). The transaction included the transfer of false attendance. The surviving claim was remanded to the District Court, where Kaplan was again granted summary judgment on March 9, 2015. Plaintiff has appealed this judgment and briefing is complete. Despite the salecertain real estate leases that were guaranteed by Kaplan. As part of the nationally accreditedtransaction, Kaplan Higher Education Campuses business, Kaplan retainsretained liability for, these claims.
among other things, obligations arising under certain lease guarantees. On December 22, 2014, a former student representative filed a purported class-ECA is currently in receivership and collective-action lawsuit inhas terminated all of its higher education operations other than the U.S. District CourtNew England College of Business (NECB). The receiver has repudiated all of ECA’s real estate leases not connected to NECB. Although ECA is required to indemnify Kaplan for the Northern District of Illinois, in which she asserts claimsany amounts Kaplan must pay due to ECA’s failure to fulfill its obligations under the Illinois Minimum Wage Lawreal estate leases guaranteed by Kaplan, ECA’s financial situation and the Fair Labor Standards Act (FLSA) (Sharon Freeman v. Kaplan, Inc.). The plaintiff alleges that sheexistence of secured and other law students who were student representatives, on their respective law school campuses, of Kaplan’s bar exam preparation business should have been classified as employees and paid minimum wage. The parties reached an agreement to settle this matter, and in June, the settlement was approved by the District Court.
On February 7, 2011, KHE received a Civil Investigative Demand from the Office of the Attorney General of the State of Illinois. The demand primarily sought information pertaining to Kaplan University’s online students who are residents of Illinois. KHE has cooperated with the Illinois Attorney General and provided the requested information. Although the matter is not technically closed and KHE may receive further requests for information from the Illinois Attorney General, there has been no such further correspondence over the past five years to date. The Company cannot predict the outcome of this inquiry.
On July 20, 2011, KHE received a subpoena from the Office of the Attorney General of the State of Delaware. The demand primarily sought information pertaining to Kaplan University’s online students and Kaplan Higher Education Campuses’ former students who are residents of Delaware. KHE has cooperated with the Delaware Attorney General and provided the information requested in the subpoena. Although the matter is not technically closed and KHE may receive further requests for information from the Delaware Attorney General, there has been no such further correspondence over the past five years to date. The Company cannot predict the outcome of this inquiry.
On January 16, 2012, prior to Kaplan’s sale of the Kidum Group in Israel, the Kidum Group received notice of a putative class-action complaint against the Kidum Group’s Wall Street Institute business, alleging violations of Israeli consumer protection law in connection with certain enrollment and refund policies. Kaplan has continuing


obligations to the purchaser under the terms of the agreement of sale. In January 2016, Israel’s Central District Court issued a ruling allowing the case to proceed as a class action. Plaintiffs filed an amended claim on May 3, 2016, in order to comply with the court’s class certification order. Kidum filed its statement of defense to the amended claim on September 15, 2016, and plaintiffs filed their reply on November 15, 2016. A pre-trial hearing was held on November 20, 2016, and discovery began in January. At this time, the Company cannot predict the outcome of this matter.
On September 30, 2016, a purported class-action lawsuit was filed against KHE and Education Corporation of America d/b/a Brightwood College, in Alameda County Superior Court, in Oakland, CA, by Donna Hillman alleging violations of California wage and hour laws as they apply to “adjunct” or part-time faculty. The complaint seeks a declaratory judgmentunsecured creditors make it unlikely that Kaplan violated the California Labor Code and an award of damages for allegedly unpaid wages, penalties under the California Labor Code, interest and attorney’s fees. A response and general denial was filed on November 2, 2016. KHE moved to transfer the venue to Sacramento, CA. Mediation has been set for March 7, 2017. At this time, the Company cannot predict the outcome of this matter.will recover from ECA.
On March 28, 2016, a purported class-action lawsuit was filed in the U.S. District Court for the Northern District of Illinois by Erin Fries, a physical therapist formerly employed by Residential, against Residential Home Health, LLC, Residential Home Health Illinois, LLC, and David Curtis. The complaint alleges violations of the FLSAFair Labor Standards Act and the Illinois minimum wage law. The complaint seeks damages, attorney’s fees and costs. At this time, the Company cannot predict the outcome of this matter.
In August 2017, the Pennsylvania Department of Health cited Celtic Healthcare of Westmoreland, LLC for being out of compliance with four conditions of the Medicare Conditions of Participation between August 7, 2017, and September 6, 2017. Celtic Healthcare of Westmoreland, LLC d/b/a Allegheny Health Network Healthcare@Home Home Health (“AHN H@H Home Health”) is a wholly owned subsidiary of a joint venture between West Penn Allegheny Health System, Inc. and Celtic Healthcare, Inc. In light of this 31-day period of non-compliance, the Department of Health issued a provisional license for AHN H@H Home Health. Following a re-survey investigation by the Pennsylvania Department of Health, on January 12, 2018, the Department of Health removed the provisional license assigned to AHN H@H Home Health and restored its unrestricted license. The Pennsylvania Department of Health will alert the Centers for Medicare and Medicaid Services (CMS) about this matter. CMS has the authority to impose civil monetary penalties of up to $10,000 per day or per instance for non-compliance. At this time, the Company cannot predict the outcome of this matter.
Her Majesty’s Revenue and Customs (HMRC), a department of the U.K. government responsible for the collection of taxes, has raised assessments against the Kaplan U.K. Pathways business for Value Added Tax (VAT) relating to 2017 and earlier years, which have been paid by Kaplan. In September 2017, in a case captioned Kaplan International Colleges UK Limited v. The Commissioners for Her Majesty’s Revenue and Customs, Kaplan challenged these assessments. The Company believes it has met all requirements under U.K. VAT law and expects to recover the £15.4 million receivable related to the assessments and subsequent payments that have been paid. Following a hearing held in January 2019, before the First Tier Tax Tribunal, all issues related to EU law in the case were referred to the Court of Justice of the European Union.
The Company and its subsidiaries are also subject to complaints and administrative proceedings and are defendants in various other civil lawsuits that have arisen in the ordinary course of their businesses, including contract disputes; actions alleging negligence, libel, defamation, invasion of privacy; trademark, copyright and patent infringement; False Claims Act violations; violations of employment laws and applicable wage and hour laws; and statutory or common law claims involving current and former students and employees. While it is not possible to predict the outcomes of these lawsuits, in the opinion of management, their ultimate dispositions should not have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.


PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Holders
The Company’s Class B Common Stock is traded on the New York Stock Exchange under the symbol “GHC.” The Company’s Class A Common Stock is not publicly traded.
The high and low sales prices of the Company’s Class B Common Stock are listed below (amounts for the first half of 2015 were revised to reflect the Cable ONE spin-off).
 2016 2015
QuarterHigh Low High Low
January–March$532
 $425
 $664
 $505
April–June520
 452
 676
 575
July–September527
 474
 724
 565
October–December548
 441
 608
 469
At January 31, 2017,2019, there were 27 holders of record of the Company’s Class A Common Stock and 455392 holders of record of the Company’s Class B Common Stock.
Dividend Information
Both classes of the Company’s Common Stock participate equally as to dividends. Total dividends paid during 2016 were $4.84. Total dividends paid during 2015 were $9.10, with three quarterly dividends paid at a rate of $2.65 per share and one dividend paid at a rate of $1.15 per share. The quarterly dividend rate was adjusted as a result of the spin-off of Cable ONE.


Securities Authorized for Issuance Under Equity Compensation Plans
The following table and the footnote thereto set forth certain information as of December 31, 2016,2018, concerning compensation plans of the Company under which equity securities of the Company are authorized to be issued.
Number of Securities
to Be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
 Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Number of Securities
to Be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
 
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
 Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Plan Category(a) (b) (c)(a) (b) (c)
Equity compensation plans approved by security holders186,996 $559.62 184,932 $566.55 
Equity compensation plans not approved by security holders    
Total186,996 $559.62 184,932 $566.55 
____________
This table does not include information relating to restricted stock grants awarded under the Graham Holdings Company’s Incentive Compensation Plan, which plan has been approved by the stockholders of the Company. At December 31, 2016,2018, there were 25,325 shares of restricted stock outstanding under the 2012–2016 Award Cycle and 19,10015,850 shares of restricted stock outstanding under the 2015–2018 Award Cycle and 13,250 shares of restricted stock outstanding under the 2017–2020 Award Cycle that had been awarded to employees of the Company and its subsidiaries under that Plan. In addition, the Company has from time to time awarded special discretionary grants of restricted stock to employees of the Company and its subsidiaries. At December 31, 2016,2018, there were a total of 22,8003,100 shares of restricted stock outstanding under special discretionary grants approved by the Compensation Committee of the Board of Directors. At December 31, 2016,2018, a total of 446,170437,077 shares of restricted stock and stock options were available for future awards.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the quarter ended December 31, 2016,2018, the Company purchased shares of its Class B Common Stock as set forth in the following table:
Period
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plan*
 Maximum Number of Shares That May Yet Be Purchased Under the Plan*
Total Number
of Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of Shares
Purchased as Part of
Publicly Announced Plan*
 Maximum Number of Shares That May Yet Be Purchased Under the Plan*
2016 
2018       
October4,021 $474.50 4,021 260,83811,570
 $579.44
 11,570
 274,455
November36,562 457.10 36,562 224,276800
 596.31
 800
 273,655
December   224,276
 
 
 273,655
Total40,583 $458.82 40,583 12,370
 $580.53
 12,370
  
____________
*On May 14, 2015,November 9, 2017, the Company’s Board of Directors authorized the Company to purchase, on the open market or otherwise, up to 500,000 shares of its Class B Common Stock. This authorization included the 163,237 shares that remained under the previous authorization. There is no expiration date for that authorization. All purchases made during the quarter ended December 31, 2016,2018, were open market transactions.
Performance Graph
The following graph is a comparison of the yearly percentage change in the Company’s cumulative total shareholder return with the cumulative total return of the Standard & Poor’s 500 Stock Index and a custom peer group index comprised of a composite group of education and television broadcasting companies. Given changes in our mix of operating divisions as a result of acquisitions and dispositions, the Company is changing its custom peer group index this year to include companies that operate in its two largest businesses. The Standard & Poor’s 500 Stock Index is comprised of 500 U.S. companies in the industrial, transportation, utilities and financial industries and is weighted by market capitalization. The custom peer group of composite companies includes Adtalem Global Education Inc., Chegg, Inc., E.W. Scripps Company, Grand Canyon Education Inc., Meredith Corporation, New Oriental Education & Technology Group Inc., Pearson plc, Tegna Inc. and Tribune Media Company. In prior years, the Company used a custom peer group of education companies, includesincluding Adtalem Global Education Inc., American Public Education, Inc., Apollo Education Group Inc., Bridgepoint Education, Inc., Capella Education Co., DeVry Education Group Inc., Grand Canyon Education Inc., National American University Holdings, Inc. and Strayer Education, Inc. The Company is using a custom peer index of education companies because the Company is a diversified education and media company. Its largest business is Kaplan, Inc., a leading global provider of educational services to individuals, schools and businesses. The graph reflects the investment of $100


on December 31, 2011,2013, in the Company’s Class B Common Stock, the Standard & Poor’s 500 Stock Index, the custom peer group of composite companies and the custom peer group index of education companies. For purposes of this graph, it has been assumed that dividends were reinvested on the date paid in the case of the Company, and on a quarterly basis in the case of the Standard & Poor’s 500 Index, the custom peer group index of composite companies, and the custom peer group index of education companies.


stockgraph2018composite.jpg
December 312011 2012 2013 2014 2015 2016
Graham Holdings Company100.00
 102.29
 185.79
 245.53
 230.17
 245.41
S&P 500 Index100.00
 116.00
 153.57
 174.60
 177.01
 198.18
New Education Peer Group100.00
 55.19
 79.22
 92.95
 49.36
 68.92
____________
ITT Educational Services Inc. is no longer included in the New Education Peer Group due to its removal from the NYSE in 2016.
December 312013 2014 2015 2016 2017 2018
Graham Holdings Company100.00
 132.20
 124.23
 132.48
 145.79
 168.80
S&P 500 Index100.00
 113.69
 115.26
 129.05
 157.22
 150.33
Composite Peer Group100.00
 91.93
 73.21
 80.79
 114.50
 106.19
Education Peer Group100.00
 114.14
 76.33
 107.82
 137.50
 152.09
Item 6. Selected Financial Data.
See the information for the years 20122014 through 20162018 contained in the table titled “Five-Year Summary of Selected Historical Financial Data,” which is included in this Annual Report on Form 10-K and listed in the index to financial information on page 4037 hereof (with only the information for such years to be deemed filed as part of this Annual Report on Form 10-K).
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
See the information contained under the heading “Management’s Discussion and Analysis of Results of Operations and Financial Condition,” which is included in this Annual Report on Form 10-K and listed in the index to financial information on page 4037 hereof.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risk in the normal course of its business due primarily to its ownership of marketable equity securities, which are subject to equity price risk; to its borrowing and cash-management activities, which are subject to interest rate risk; and to its non-U.S. business operations, which are subject to foreign exchange rate risk.
Equity Price Risk. The Company has common stock investments in several publicly traded companies (as discussed in Note 4 to the Company’s Consolidated Financial Statements) that are subject to market price volatility. The fair value of these common stock investments totaled $424.2$496.4 million at December 31, 2016.2018.


Interest Rate Risk. The Company’s long-term debt primarily consists of $400 million principal amount of 7.25%5.75% unsecured notes due FebruaryJune 1, 20192026 (the Notes). At December 31, 2016,2018, the aggregate fair value of the Notes, based upon quoted market prices, was $438.7$406.7 million. An increase in the market rate of interest applicable to the Notes would not increase the Company’s interest expense with respect to the Notes since the rate of interest the Company is required to pay on the Notes is fixed, but such an increase in rates would affect the fair value of the Notes. Assuming, hypothetically, that the market interest rate applicable to the Notes was 100 basis points higher than the Notes’ stated interest rate of 7.25%5.75%, the fair value of the Notes at December 31, 2016,2018, would have been approximately $392.5$382.1 million. Conversely, if the market interest rate applicable to the Notes was 100 basis points lower than the Notes’ stated interest rate, the fair value of the Notes at such date would have been approximately $407.7$418.9 million.
On July 25, 2016, Kaplan borrowed £75 million under the Kaplan Credit Agreement. On the same date, Kaplan entered into an interest rate swap agreement with a total notional value of £75 million and a maturity date of July 1, 2020. The interest rate swap agreement will pay Kaplan variable interest on the £75 million notional amount at the three-month LIBOR, and Kaplan will pay the counterparties a fixed rate of 0.51%, effectively resulting in a total fixed interest rate of 2.01% on the outstanding borrowings at the current applicable margin of 1.50%. The interest rate swap agreement was entered into to convert the variable rate British pound borrowing under the Kaplan Credit Agreement into a fixed rate borrowing. The Company provided a guarantee on any borrowings under the Kaplan Credit Agreement. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap agreement was determined to be effective, and thus qualifies as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.
Foreign Exchange Rate Risk. The Company is exposed to foreign exchange rate risk primarily at its Kaplan international operations, and the primary exposure relates to the exchange rate between the U.S. dollar and the British pound, the Australian dollar, and the AustralianSingapore dollar. This exposure includes British pound and Australian dollar denominated intercompany loans on U.S.-based Kaplan entities with a functionalIn 2018, the Company reported foreign currency in U.S. dollars.losses of $3.8 million. In 2017, the Company reported foreign currency gains of $3.3 million. In 2016, the Company reported unrealized foreign currency losses of $39.9 million, largely as a result of the decline in the British pound currency in 2016; this includes a realized $16.5 million loss related to a British pound intercompany advance made in the first quarter of 2016 related to Kaplan'sKaplan’s U.K. acquisitions that has been repaid. In the third quarter of 2016, certain intercompany loans were capitalized and other intercompany loans were designated as long-term investments. In 2015, the Company reported unrealized foreign currency losses of $15.6 million. In 2014, the Company reported unrealized foreign currency losses of $11.1 million.
If the values of the British pound, and the Australian dollar, and Singapore dollar relative to the U.S. dollar had been 10% lower than the values that prevailed during 2016,2018, the Company’s pre-tax income for 20162018 would have been approximately $21$9 million lower. Conversely, if such values had been 10% higher, the Company’s reported pre-tax income for 20162018 would have been approximately $21$9 million higher.
Item 8. Financial Statements and Supplementary Data.
See the Company’s Consolidated Financial Statements at December 31, 2016,2018, and for the periods then ended, together with the report of PricewaterhouseCoopers LLP thereon and the information contained in Note 20 to said Consolidated Financial Statements titled “Summary of Quarterly Operating Results and Comprehensive Income (Unaudited),” which are included in this Annual Report on Form 10-K and listed in the index to financial information on page 4037 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed by the Company’s management, with the participation of the Company’s Chief Executive Officer (the Company’s principal executive officer) and the Company’s Senior Vice President–Finance (the Company’s principal financial officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of December 31, 2016.2018. Based on that evaluation, the Company’s Chief Executive Officer and Senior Vice President–Finance have concluded that the Company’s disclosure controls and procedures, as designed and implemented, are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Senior Vice President–Finance, in a manner that allows timely decisions regarding required disclosure.


Management’s Report on Internal Control Over Financial Reporting
Management’s reportManagement of Graham Holdings Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The Company’s management assessed the effectiveness of internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Management has concluded that as of December 31, 2018, the Company’s internal control over financial reporting was effective based on page 61 is incorporated hereinthese criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, has been audited by reference.PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2016,2018, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information contained under the heading “Executive Officers” in Item 1 hereof and the information contained under the headings “Nominees for Election by Class A Shareholders,” “Nominees for Election by Class B Shareholders,” “Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for the Company’s 20172019 Annual Meeting of Stockholders is incorporated herein by reference thereto.
The Company has adopted codes of conduct that constitute “codes of ethics” as that term is defined in paragraph (b) of Item 406 of Regulation S-K and that apply to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller and to any persons performing similar functions. Such codes of conduct are posted on the Company’s website, the address of which isghco.com,and the Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K with respect to certain amendments to, and waivers of the requirements of, the provisions of such codes of conduct applicable to the officers and persons referred to above by posting the required information on its website.
In addition to the certifications of the Company’s Chief Executive Officer and Chief Financial Officer filed as exhibits to this Annual Report on Form 10-K, on May 24, 2016,9, 2018, the Company’s Chief Executive Officer submitted to the New York Stock Exchange the annual certification regarding compliance with the NYSE’s corporate governance listing standards required by Section 303A.12(a) of the NYSE Listed Company Manual.
Item 11. Executive Compensation.
The information contained under the headings “Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation” and “Compensation Committee Report” in the definitive Proxy Statement for the Company’s 20172019 Annual Meeting of Stockholders is incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information contained under the heading “Stock Holdings of Certain Beneficial Owners and Management” in the definitive Proxy Statement for the Company’s 20172019 Annual Meeting of Stockholders is incorporated herein by reference thereto.


Item 13. Certain Relationships and Related Transactions and Director Independence.
The information contained under the headings “Transactions With Related Persons, Promoters and Certain Control Persons” and “Controlled Company” in the definitive Proxy Statement for the Company’s 20172019 Annual Meeting of Stockholders is incorporated herein by reference thereto.
Item 14. Principal Accounting Fees and Services.
The information contained under the heading “Audit Committee Report” in the definitive Proxy Statement for the Company’s 20172019 Annual Meeting of Stockholders is incorporated herein by reference thereto.


PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this report:
1.     Financial Statements. As listed in the index to financial information on page 4037 hereof.
2.     Exhibits.  As listed in the index to exhibits on page 11634 hereof.
Item 16. Form 10-K Summary.
Not applicable.


INDEX TO EXHIBITS
Exhibit NumberDescription
2.1
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
21
23
24
31.1
31.2
32


Exhibit NumberDescription
101
The following financial information from Graham Holdings Company Annual Report on Form 10-K for the year ended December 31, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016; (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016; (iii) Consolidated Balance Sheets as of December 31, 2018 and 2017; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; (v) Consolidated Statements of Changes in Common Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

*A management contract or compensatory plan or arrangement required to be included as an exhibit hereto pursuant to Item 15(b) of Form 10-K.
**Graham Holdings Company hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule to such agreement to the SEC upon request.
+ Select portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 24, 2017.25, 2019.
 
  GRAHAM HOLDINGS COMPANY
  (Registrant)
   
 By/s/ Hal S. JonesWallace R. Cooney
  Hal S. JonesWallace R. Cooney
  Senior Vice President–Finance
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 24, 2017:25, 2019:
 
Timothy J. O’Shaughnessy
President, Chief Executive Officer
 (Principal Executive Officer) and
Director
 
 
Hal S. JonesWallace R. Cooney
Senior Vice President–Finance
(Principal Financial Officer)
 
 
Wallace R. CooneyMarcel A. Snyman
Principal Accounting Officer
 
 
Donald E. GrahamChairman of the Board 
Lee C. BollingerDirector 
Christopher C. DavisDirector 
Thomas S. GaynerDirector 
Anne M. MulcahyJack A. MarkellDirector 
Ronald L. OlsonAnne M. MulcahyDirector 
Larry D. ThompsonDirector 
G. Richard Wagoner, Jr.Director 
Katharine WeymouthDirector 
 
 By/s/ Hal S. JonesWallace R. Cooney
  Hal S. JonesWallace R. Cooney
  Attorney-in-Fact
 
An original power of attorney authorizing Timothy J. O’Shaughnessy, Hal S. Jones, Wallace R. Cooney and Nicole M. Maddrey, and each of them, to sign all reports required to be filed by the Registrant pursuant to the Securities Exchange Act of 1934 on behalf of the above-named directors and officers has been filed with the Securities and Exchange Commission.


INDEX TO FINANCIAL INFORMATION

GRAHAM HOLDINGS COMPANY
 
 Management’s Discussion and Analysis of Results of Operations and Financial Condition (Unaudited)
  
 Financial Statements: 
  
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
  
Consolidated Statements of Operations for the Three Years Ended December 31, 20162018
  
Consolidated Statements of Comprehensive Income (Loss) for the Three Years Ended December 31, 20162018
  
Consolidated Balance Sheets at December 31, 20162018 and 20152017
  
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 20162018
  
Consolidated Statements of Changes in Common Stockholders’ Equity for the Three Years Ended December 31, 20162018
  
Notes to Consolidated Financial Statements
  
 Five-Year Summary of Selected Historical Financial Data (Unaudited)

All schedules have been omitted either because they are not applicable or because the required information is included in the Consolidated Financial Statements or the notes thereto referred to above.


MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto.
OVERVIEW
Graham Holdings Company (the Company) is a diversified education and media company whose operations include educational services; television broadcasting; online, print and local TV news; social-media advertising services; home health and hospice care; and manufacturing. Education is the largest business, and through its subsidiary Kaplan, Inc., the Company provides extensive worldwide education services for individuals, schools and businesses. The Company’s second largest business is television broadcasting. Since November 2012, the Company has completed several acquisitions in home health services and manufacturing. The Company’s business units are diverse and subject to different trends and risks.
The Company’s education division is the largest operating division of the Company, accounting for 64%54% of the Company’s consolidated revenues in 2016.2018. The Company has devoted significant resources and attention to this division for many years, given its geographic and product diversity; the investment opportunities and growth prospects during this time; and challenges related to government regulation. In recent years, Kaplan has formulated and implemented restructuring plans at most of its businesses, resulting in significant costs in order to establish lower cost levels in future periods. Kaplan is organized into the following threefour operating segments: Kaplan International, Kaplan Higher Education (KHE), Kaplan Test Preparation (KTP) and Professional (U.S.).
Kaplan International.International reported revenue increases for 2018 due to growth in Pathways enrollments. Kaplan International operating results improved in 2018 due largely to improved results at English-language, Pathways and UK Professional.
KHE represents 39%Prior to the Kaplan University (KU) Transaction closing on March 22, 2018, Higher Education included Kaplan’s domestic postsecondary education business, made up of total Kaplan revenues in 2016. fixed-facility colleges and online postsecondary and career programs. Following the KU Transaction closing, the Higher Education division includes the results as a service provider to higher education institutions.
KHE’s revenue declined in 2016,2018, largely due to the sale of the KHE Campuses business in 2015Kaplan University and other school closures, and declines infewer average enrollments at Kaplan University. Operating income atprior to the sale. KHE increasedrecorded $16.8 million of service fee with Purdue Global in 2016 due largelyits Higher Education operating results in 2018, based on an assessment of its collectability under the Transition and Operations Support Agreement (TOSA). Each quarter, the Company assesses the collectability of the service fee with Purdue Global to reduced losses atmake a determination as to whether to record all or part of the KHE Campuses business, lower restructuring costs of $7.2 millionservice fee and whether to make adjustments to service fee amounts recognized in 2016 compared to $12.9 million in 2015, and improved results at the domestic professional and other continuing education businesses.earlier periods.
KTP revenues and operating income were downdeclined in 2016. Revenues declined2018 due to decreased enrollments.reduced demand for classroom-based offerings and the disposition of Dev Bootcamp. Operating results declinedimproved due primarily to KTP's increased investment indecreased losses from the new economy skills training programsprograms.
Professional (U.S.) revenues and a change in enrollment mix.
Kaplan International reported revenue declines for 2016 due to the adverse impact of exchange rates and weakness in English-language and Pathways programs. Kaplan International operating results were downup in 20162018, due primarily to declinestwo acquisitions that closed in the English-languageMay and Pathways programs’ results and restructuring costs. Both the revenue and operating income declines were partially offset by growth from 2016 acquisitions.July of 2018.
Kaplan made five acquisitions in 2018; two acquisitions in 2017; and three acquisitionsacquisition in 2016, including Mander Portman Woodward, a leading provider of high-quality bespoke education to UKthe United Kingdom (U.K.) and international students in London, Cambridge and Birmingham; one acquisition in 2015; and three acquisitions in 2014.Birmingham.
The Company’s television broadcasting division reported higher revenues and operating income as 2016 included significantin 2018, due to increases in political advertising revenue, retransmission revenue, and winter Olympics-related advertising.advertising revenue at the Company’s NBC stations. In recent years, the television broadcasting division has consistently generated significantly higher operating income amounts and operating income margins than the education division and other businesses.
With the recent Celtic Healthcare, Residential Healthcare, Forney, Joyce/Daytonhealthcare and Dekkomanufacturing acquisitions and growththe recent acquisition at SocialCode, the Company has invested in new lines of business from late 2012 through 2016.2018. The Company also has three investment stage businesses - Panoply, Pinna and CyberVista.
The Company generates a significant amount of cash from its businesses that is used to support its operations, pay down debt and fund capital expenditures, share repurchases, dividends, acquisitions and other investments.


RESULTS OF OPERATIONS — 20162018 COMPARED TO 20152017
Income from continuing operationsNet income attributable to common shares was $271.2 million ($50.20 per share) for the year ended December 31, 2018, compared to $302.0 million ($53.89 per share) for the year ended December 31, 2017. The Company’s results for 2017 include a significant net deferred income tax benefit related to the Tax Cuts and Jobs Act legislation enacted in December 2017.
Items included in the Company’s net income for 2018 are listed below:
a $7.9 million intangible asset impairment charge at the healthcare business (after-tax impact of $5.8 million, or $1.08 per share);
a $3.9 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the Federal Communications Commission (FCC) (after-tax impact of $3.0 million, or $0.55 per share);
$6.2 million in interest expense related to the settlement of a mandatorily redeemable noncontrolling interest ($1.14 per share);
$11.4 million in debt extinguishment costs (after-tax impact of $8.6 million, or $1.60 per share);
a $30.3 million settlement gain related to a bulk lump sum pension offering and curtailment gain related to changes in the Company’s postretirement healthcare benefit plan (after-tax amount of $22.2 million, or $4.11 per share);
$15.8 million in net losses on marketable equity securities (after-tax impact of $12.6 million, or $2.33 per share);
non-operating gain, net, of $6.7 million from sales, write-ups and impairments of cost method and equity method investments, and related to sales of land and businesses, including guarantor lease obligations (after-tax impact of $5.7 million, or $1.03 per share);
a $4.3 million gain on the Kaplan University Transaction (after-tax impact of $1.8 million or $0.33 per share);
$3.8 million in non-operating foreign currency losses (after-tax impact of $2.9 million, or $0.54 per share);
a nonrecurring discrete $17.8 million deferred state tax benefit related to the release of valuation allowances ($3.31 per share); and
$1.8 million in income tax benefits related to stock compensation ($0.33 per share).
Items included in the Company’s net income for 2017 are listed below:
$10.0 million in restructuring and non-operating Separation Incentive Program charges at the education division (after-tax impact of $6.3 million, or $1.12 per share);
a $9.2 million goodwill and other long-lived asset impairment charge at one of the manufacturing businesses (after-tax impact of $5.8 million, or $1.03 per share);
$3.3 million in non-operating foreign currency gains (after-tax impact of $2.1 million or $0.37 per share);
$177.5 millionin net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act in December 2017 ($31.68 per share); and
$5.9 million in income tax benefits related to stock compensation ($1.06 per share).
Revenue for 2018 was $2,696.0 million, up 4% from $2,591.8 million in 2017. Revenues increased at the television broadcasting and manufacturing divisions, offset by a decline at the education division. Operating costs and expenses for the year decreased slightly to $2,449.8 million in 2018, from $2,455.4 million in 2017. Expenses in 2018 decreased at the education division, offset by increases at the manufacturing and television broadcasting divisions. The Company reported operating income for 2018 of $246.2 million, an increase of 80%, from $136.4 million in 2017. Operating results improved at most of the Company’s divisions in 2018.
On April 27, 2017, certain subsidiaries of Kaplan, Inc. (Kaplan), a subsidiary of Graham Holdings Company entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute the institutional assets and operations of Kaplan University (KU) to an Indiana non-profit, public-benefit corporation that is a subsidiary affiliated with Purdue University (Purdue). The closing of the transactions contemplated by the Transfer Agreement occurred on March 22, 2018. At the same time, the parties entered into a TOSA pursuant to which Kaplan provides key non-academic operations support to the new university. The new university operates largely online as an Indiana public university affiliated with Purdue under the name Purdue University Global (Purdue Global).


Division Results
Education Division.  Education division revenue in 2018 totaled $1,451.0 million, down 4% from $1,516.8 million in 2017.
Kaplan reported operating income of $97.1 million for 2018, a 25% increase from $77.7 million in 2017. In 2018, operating results increased at Kaplan International, Kaplan Test Preparation and Kaplan Professional (U.S.), partially offset by decreased results at Higher Education.
In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in restructuring costs, with the objective of establishing lower cost levels in future periods. There were no significant restructuring charges during 2018. Across all businesses, restructuring costs totaled $9.1 million in 2017.
As a result of the KU Transaction that closed on March 22, 2018, the Company has revised the financial reporting for its education division to provide operating results for Higher Education and Professional (U.S.).
A summary of Kaplan’s operating results is as follows:
 Year Ended December 31  
(in thousands)2018 2017 % Change
Revenue     
Kaplan international$719,982
 $697,999
 3
Higher education342,085
 431,425
 (21)
Test preparation256,102
 273,298
 (6)
Professional (U.S.)134,187
 115,839
 16
Kaplan corporate and other1,142
 294
 
Intersegment elimination(2,483) (2,079) 
 $1,451,015
 $1,516,776
 (4)
Operating Income (Loss) 
  
  
Kaplan international$70,315
 $51,623
 36
Higher education15,217
 16,719
 (9)
Test preparation19,096
 11,507
 66
Professional (U.S.)28,608
 27,558
 4
Kaplan corporate and other(26,702) (24,701) (8)
Amortization of intangible assets(9,362) (5,162) (81)
Intersegment elimination(36) 143
 
 $97,136
 $77,687
 25
Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased 3% in 2018, and on a constant currency basis, revenue increased 1%, primarily due to growth in Pathways enrollments. Kaplan International operating income increased 36% in 2018, due largely to improved results at English-language, Pathways and UK Professional.Restructuring costs at Kaplan International totaled $2.9 million in 2017.
Prior to the KU Transaction closing on March 22, 2018, Higher Education included Kaplan’s domestic postsecondary education business, made up of fixed-facility colleges and online postsecondary and career programs. Following the KU Transaction closing, the Higher Education division includes the results as a service provider to higher education institutions.
In 2018, Higher Education revenue declined 21% due largely to the sale of KU on March 22, 2018 and fewer average enrollments at KU prior to the sale. The Company recorded $16.8 million of service fee with Purdue Global in its Higher Education operating results in 2018, based on an assessment of its collectability under the TOSA. Each quarter, the Company assesses the collectability of the service fee with Purdue Global to make a determination as to whether to record all or part of the service fee and whether to make adjustments to service fee amounts recognized in earlier periods. Restructuring costs at Higher Education were $1.4 million for 2017.
KTP includes Kaplan’s standardized test preparation programs. In September 2018, KTP acquired the test preparation and study guide assets of Barron’s Educational Series, a New York-based education publishing company. KTP revenue declined 6% in 2018 due to reduced demand for classroom-based offerings, and the disposition of Dev Bootcamp, which made up the majority of KTP’s new economy skills training programs, offset in part by growth in online-based programs. KTP operating results improved in 2018 due primarily to decreased losses from the new economy skills training programs. Operating losses for the new economy skills training programs were $3.6 million and $16.7 million for 2018 and 2017, respectively, including restructuring costs incurred in connection with the closing of Dev Bootcamp that was completed in the second half of 2017. Excluding losses from the new economy skills training programs, KTP operating results were down in 2018, due primarily to revenue declines for classroom-based offerings.


Kaplan Professional (U.S.) includes the domestic professional and other continuing education businesses. In 2018, Kaplan Professional (U.S.) revenue was up 16% due primarily to the May 2018 acquisition of Professional Publications, Inc. (PPI), an independent publisher of professional licensing exam review materials that provides engineering, surveying, architecture, and interior design licensure exam review products, and the July 2018 acquisition of College for Financial Planning (CFFP), a provider of financial education and training to individuals through programs of study for professionals pursuing a career in Financial Planning. Kaplan Professional (U.S.) operating results improved 4% in 2018, due mostly to income from PPI and CFFP, offset by increased spending on sales, marketing and technology.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities.
Television Broadcasting Division. Revenue at the television broadcasting division increased 23% to $505.5 millionin 2018, from $409.9 million in 2017. The revenue increase is due to a $64.9 million increase in political advertising revenue,$38.0 million in higher retransmission revenues, $8.6 million in 2018 incremental winter Olympics-related advertising revenue at the Company’s NBC stations, and the adverse impact from hurricanes Harvey and Irma in the third quarter of 2017. Operating income for 2018 was up 51% to $210.5 million, from $139.3 million in 2017, due to higher revenues.
In 2018, the television broadcasting division recorded $3.9 million in reductions to operating expenses related to non-cash property, plant and equipment gains due to new equipment received at no cost in connection with the spectrum repacking mandate of the FCC.
Operating margin at the television broadcasting division was 42% in 2018 and 34% in 2017.
The Company’s television stations continue to deliver competitive audience ratings and are well-positioned in their markets. On average for the year, KPRC in Houston, KSAT in San Antonio and WJXT in Jacksonville ranked number one in the key 6am, 6pm and late newscasts among the critical 25 to 54 demographic. WDIV in Detroit ended the year as a solid number one at 6pm and 11pm and number two in the mornings. WKMG in Orlando and WSLS in Roanoke ranked third in their respective markets, while WCWJ in Jacksonville successfully found a niche with their strong syndicated programming lineup in daytime and early fringe.
Healthcare.  Graham Healthcare Group (GHG) provides home health and hospice services in three states. At the end of June 2017, GHG acquired Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider. Healthcare revenues declined3% in 2018, primarily due to a new management services agreement (MSA) with one of GHG’s joint ventures that was effective in the third quarter of 2018. In the third quarter of 2018, GHG recorded a $7.9 million intangible asset impairment charge related to the Celtic trademark, which was phased out in the second half of 2018. The decline in GHG operating results in 2018 is due to the intangible asset impairment charge and a decline in results from the MSA with one of GHG’s joint ventures, offset by lower bad debt expense and overall cost reductions.


Other Businesses. A summary of Other Businesses’ operating results for 2018 compared to 2017 is as follows:
   Year Ended December 31 %
(in thousands) 2018 2017 Change
Operating Revenues         
Manufacturing $487,619
 $414,193
 18
SocialCode 58,728
 62,077
 (5)
Other 43,880
 34,733
 26
   $590,227
 $511,003
 16
Operating Expenses   
   
   
Manufacturing $458,768
 $399,246
 15
SocialCode 59,809
 65,751
 (9)
Other 71,896
 65,269
 10
   $590,473
 $530,266
 11
Operating Income (Loss)   
   
   
Manufacturing $28,851
 $14,947
 93
SocialCode (1,081) (3,674) 71
Other (28,016) (30,536) 8
   $(246) $(19,263) 99
Depreciation      
Manufacturing $9,515
 $9,173
 4
SocialCode 797
 1,004
 (21)
Other 1,523
 1,546
 (1)
   $11,835
 $11,723
 1
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets      
Manufacturing $24,746
 $31,052
 (20)
SocialCode 928
 333
 
Other 
 
 
   $25,674
 $31,385
 (18)
Pension Expense   
   
   
Manufacturing $72
 $79
 (9)
SocialCode 723
 593
 22
Other 578
 453
 28
   $1,373
 $1,125
 22
Manufacturing includes four businesses: Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton Corp., a manufacturer of screw jacks and other linear motion systems; Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications; and Hoover Treated Wood Products, Inc., a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications that the Company acquired in April 2017. In July 2018, Dekko acquired Furnlite, Inc., a Fallston, NC-based manufacturer of power and data solutions for the hospitality and residential furniture industries.
Manufacturing revenues and operating income increased in 2018 due largely to the Hoover acquisition. Also, in the second quarter of 2017, the Company recorded a $9.2 million goodwill and other long-lived asset impairment charge at Forney, due to lower than expected revenues resulting from sluggish overall demand for its energy products. While Hoover holds inventory for relatively short periods, wood prices declined on a consistent basis in the second half of 2018, resulting in losses on inventory sales.
SocialCode is a provider of marketing solutions on social, mobile and video platforms. In the third quarter of 2018, SocialCode acquired Marketplace Strategy, a Cleveland-based Amazon sales acceleration agency. SocialCode revenue decreased 5% in 2018, resulting from declines in digital advertising service revenues, partly due to a transition from agency-based clients to direct-relationship clients.SocialCode reported an operating loss of $1.1 million in 2018 compared to$3.7 million in 2017. SocialCode’s operating results included a credit of $7.1 million related to phantom equity plans in 2018; whereas 2017 results included expense of $1.4 million related to phantom equity plans in 2017. Excluding the amounts related to phantom equity plans for the relevant periods, SocialCode results are down in 2018, largely due to revenue declines. As of December 31, 2018, the accrual balance related to these plans was $0.4 million.
Other businesses include Slate and Foreign Policy, which publish online and print magazines and websites; and three investment stage businesses, Panoply, Pinna and CyberVista. Revenues increased 26% in 2018 largely due to growth at Panoply. Losses from each of these businesses in 2018 adversely affected operating results.


Corporate Office. Corporate office includes the expenses of the Company’s corporate office and certain continuing obligations related to prior business dispositions.
Equity in Earnings (Losses) of Affiliates. At December 31, 2018, the Company held interests in a number of home health and hospice joint ventures, and interests in several other affiliates. During 2017, the Company acquired an approximate 11% interest in Intersection Holdings, LLC, a company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces.In the third quarter of 2018, the Company recorded $7.9 million in gains in earnings of affiliates related to two of its investments. In total, the Company recorded equity in earnings of affiliates of $14.5 million for2018, compared to losses of $3.2 million in 2017.
Net Interest Expense, Debt Extinguishment Costs and Related Balances. On May 30, 2018, the Company issued $400 million of 5.75% unsecured eight-year fixed-rate notes due June 1, 2026. Interest is payable semi-annually on June 1 and December 1. On June 29, 2018, the Company used the net proceeds from the sale of the notes and other cash to repay $400 million of 7.25% notes that were due February 1, 2019. The Company incurred $11.4 million in debt extinguishment costs related to the early termination of the 7.25% notes.
The Company incurred net interest expense of $32.5 million in 2018, compared to $27.3 million in 2017. The Company incurred $6.2 million in interest expense related to the mandatorily redeemable noncontrolling interest at GHG settled in the second quarter of 2018.
At December 31, 2018, the Company had $477.1 million in borrowings outstanding at an average interest rate of 5.1%, and cash, marketable securities and other investments of $778.7 million. At December 31, 2017, the Company had $493.3 million in borrowings outstanding at an average interest rate of 6.3%, and cash, marketable securities and other investments of $964.7 million.
Non-Operating Pension and Postretirement Benefit Income, Net. In the first quarter of 2018, the Company adopted new accounting guidance that changes the income statement classification of net periodic pension and postretirement pension cost. Under the new guidance, service cost is included in operating income, while the other components (including expected return on assets) are included in non-operating income. The new guidance was required to be applied retroactively, with prior period financial information revised to reflect the reclassification. From a segment reporting perspective, this change had a significant impact on Corporate office reporting, with minimal impact on the television broadcasting and Kaplan corporate reporting.
In the fourth quarter of 2018, the Company recorded a $26.9 million gain related to a bulk lump sum pension program offering. Also in the fourth quarter of 2018, the Company made changes to its postretirement healthcare benefit plan, resulting in a $3.4 million curtailment gain. In total, the Company recorded net non-operating pension and postretirement benefit income of $120.5 million in 2018, compared to $72.7 million in 2017.
Loss on Marketable Equity Securities, Net. In the first quarter of 2018, the Company adopted new guidance that requires changes in the fair value of marketable equity securities to be included in non-operating income (expense) on a prospective basis. Overall, the Company recognized $15.8 millionin net losses on marketable equity securities in 2018.
Other Non-Operating Income (Expense). The Company recorded total other non-operating income, net, of $2.1 million in 2018, compared to $4.2 millionin 2017. The 2018 non-operating income, net, included $11.7 million in fair value increases on cost method investments; $8.2 million in net gains related to sales of businesses and contingent consideration; a$2.8 milliongain on sale of a cost method investment; a $2.5 million gain on sale of land and other items, partially offset by $17.5 millionin losses on guarantor lease obligations in connection with the 2015 sale of the KHE Campuses businesses; $3.8 million in foreign currency losses; and $2.7 millionin impairments on cost method investments. The 2017 non-operating income, net, included $3.3 million in foreign currency gains and other items.
Provision for (Benefit From) Income Taxes. The Company’s effective tax rate for 2018 was 16.1%. In the third quarter of 2018, the Company recorded a $17.8 million deferred state tax benefit related to the release of valuation allowances. Excluding this $17.8 million benefit and a $1.8 million income tax benefit related to stock compensation, the overall income tax rate for 2018 was 22.2%. The Tax Cuts and Jobs Act was enacted in December 2017, which included lowering the federal corporate income tax rate from 35% to 21%.
The Company reported an income tax benefit of $119.7 million for 2017, which was significantly impacted by the enactment of the Tax Cuts and Jobs Act in December 2017. Overall, the Company recorded a $177.5 million net deferred tax benefit in the fourth quarter of 2017 as a result of enactment of this legislation, due largely to the revaluation of the Company’s U.S. deferred tax assets and liabilities to the lower federal tax rate and a significant reduction in the amount of deferred taxes previously provided on undistributed earnings of investments in non-U.S. subsidiaries. In the first quarter of 2017, the Company recorded a $5.9 million income tax benefit related to the vesting of restricted stock awards in connection with the adoption of a new accounting standard that requires all


excess income tax benefits and deficiencies from stock compensation to be recorded as discrete items in the provision for income taxes. Excluding the effect of these items, the effective tax rate for 2017 was 34.9%.
Adoption of Revenue Recognition Standard. On January 1, 2018, the Company adopted the new revenue recognition guidance using the modified retrospective approach. In connection with the KU Transaction, Kaplan recognized $4.5 million in service fee revenue and operating income in the third quarter of 2018. Under the previous guidance, this would not have been recognized, as a determination would not have been made until the end of Purdue Global’s fiscal year (June 30, 2019). If the company applied the accounting policies under the previous guidance for all other revenue streams, revenue and operating expenses would have been $1.7 million and $0.6 million lower, respectively, for 2018.
RESULTS OF OPERATIONS — 2017 COMPARED TO 2016
Net income attributable to common shares was $302.0 million ($53.89 per share) for the year ended December 31, 2017, compared to $168.6 million ($29.80 per share) for the year ended December 31, 2016, compared2016. The Company’s results for 2017 include a significant net deferred income tax benefit related to a net loss of $143.5 million ($25.23 per share) for the year endedTax Cuts and Jobs Act legislation enacted in December 31, 2015. Net loss attributable to common shares was $101.3 million ($17.87 per share) for the year ended December 31, 2015, including $42.2 million ($7.36 per share) in income from discontinued operations.

2017.

Items included in the Company’s net income from continuing operationsfor 2017 are listed below:
$10.0 million in restructuring and non-operating Separation Incentive Program charges at the education division (after-tax impact of $6.3 million, or $1.12 per share);
a $9.2 million goodwill and other long-lived asset impairment charge at one of the manufacturing businesses (after-tax impact of $5.8 million, or $1.03 per share);
$3.3 million in non-operating foreign currency gains (after-tax impact of $2.1 million, or $0.37 per share);
$177.5 million in net deferred tax benefits related to the enactment of the Tax Cuts and Jobs Act in December 2017 ($31.68 per share); and
$5.9 million in income tax benefits related to stock compensation ($1.06 per share).
Items included in the Company’s net income for 2016 are listed below:
$11.9 million in restructuring charges at the education division (after-tax impact of $7.7 million, or $1.36 per share);
an $18.0$18.0 million non-operating gain related to a bulk lump sum pension program offering (after-tax impact of $10.8$10.8 million,, or $1.92$1.92 per share);
$11.9 million in restructuring charges at the education division (after-tax impact of $7.7 million, or $1.36 per share);
$32.216.8 million in net non-operating gaingains from the sales of landassets and marketablewrite-downs of cost and equity securitiesmethod investments (after-tax impact of $20.0$9.5 million, or $3.52$1.62 per share);
a $22.2 million non-operating gain arising from the sale of a business and the formation of a joint venture (after-tax impact of $13.6 million, or $2.37 per share);
$37.6 million in non-operating expenses from the write-down of cost method investments and investments in affiliates (after-tax impact of $24.1 million, or $4.27 per share);
$39.9 million in non-operating foreign currency losses (after-tax impact of $25.5$25.5 million,, or $4.51$4.51 per share)share);
and
a net nonrecurring $8.3$13.9 million deferred tax benefit related to Kaplan's international operationsKaplan ($1.472.47 per share); and.
Revenue for 2017 was $2,591.8 million, up 4% from $2,481.9 million in 2016. Revenues increased in other businesses, offset by a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015 ($1.00 per share). 
Items included in the Company’s income from continuing operations for 2015 are listed below:
$259.7 million goodwill and long-lived assets impairment chargesdecline at the education division and other businesses (after-tax impact of $225.2 million, or $38.96 per share);
$45.8 million in restructuring charges at the education division, corporate office and other businesses (after-tax impact of $28.9 million, or $4.97 per share);
$24.9 million in expense related to the modification of stock option awards in conjunction with the Cable ONE spin-off and the modification of restricted stock awards (after-tax impact of $15.3 million, or $2.64 per share);
$12.5 million in net non-operating losses arising from the sales of five businesses and an investment, and on the formation of a joint venture (after-tax impact of $15.7 million, or $2.82 per share);
$21.4 million gain on the sale of land (after-tax impact of $13.2 million, or $2.27 per share); and
$15.6 million in non-operating unrealized foreign currency losses (after-tax impact of $9.7 million, or $1.67 per share).
Revenue for 2016 was $2,481.9 million, down 4% from $2,586.1 million in 2015. Revenues declined at the education division, offset by an increase at the television broadcasting division and in other businesses.
In 2016, education revenue was down by 17%, advertising revenue increased 11% and other revenue increased 51%. The revenue declines at Kaplan account for the reported education revenue. The growth in advertising revenue is due to increased television broadcasting revenue. The increase in other revenues is due primarily to the inclusion of revenues from businesses acquired in 2016 and 2015.
division. Operating costs and expenses for the year decreased 18%increased 9% to $2,178.4$2,455.4 million in 2016,2017, from $2,666.9$2,259.0 million in 2015.2016. Expenses were lower at the education divisionhigher due to goodwill and other long-lived assets impairment charges recorded in 2015, partially offset by increased spending on digital initiatives and network fees at the television broadcasting division in 2016,2017, and increased expenses at other businesses as a result of businesses acquiredthe Hoover acquisition, partially offset by lower expenses at the education division due to overall declines in 2016 and 2015.
business activity. The Company reported operating income for 20162017 of $303.5$136.4 million, compared with an operating lossa decrease of $80.839%, from $222.9 million in 2015.2016. Operating results improveddeclined at the television broadcasting, education and television broadcasting divisions, offset by a decline in other businesses.healthcare divisions.
Division Results
Education Division. Education division revenue in 20162017 totaled $1,516.8 million, down 5% from $1,598.5 million down 17% from $1,927.5 million in 2015. 2016. Kaplan reported operating income of $93.6$77.7 million for 2016, compared to2017, an operating loss of $223.518% decrease from $95.3 million in 2015. Kaplan’s 20152016. In 2017, operating results include goodwill and intangible assets impairment charges of$256.8 million. In 2016, operating resultsdeclined at Kaplan Higher Education (KHE) were up and costs at Kaplan corporate and other declined,KHE, partially offset by declinesimproved results at KTP, Kaplan Test Preparation (KTP)International and Kaplan International.Professional (U.S.).


In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in restructuring costs in 20162017 and 2015,2016, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $9.1 million in 2017 and $11.9 million in 2016 and $44.4 million in 2015.2016.


A summary of Kaplan’s operating results is as follows:
Year Ended December 31  Year Ended December 31  
(in thousands)2016 2015 % Change2017 2016 % Change
Revenue          
Kaplan international$697,999
 $696,362
 
Higher education$617,047
 $849,625
 (27)431,425
 501,784
 (14)
Test preparation286,556
 301,607
 (5)273,298
 286,556
 (5)
Kaplan international696,362
 770,273
 (10)
Professional (U.S.)115,839
 115,263
 
Kaplan corporate and other214
 6,502
 (97)294
 214
 37
Intersegment elimination(1,718) (486) 
(2,079) (1,718) 
$1,598,461
 $1,927,521
 (17)$1,516,776
 $1,598,461
 (5)
Operating Income (Loss) 
  
  
 
  
  
Kaplan international$51,623
 $48,398
 7
Higher education$66,632
 $55,572
 20
16,719
 39,196
 (57)
Test preparation9,599
 16,798
 (43)11,507
 9,599
 20
Kaplan international48,398
 53,661
 (10)
Professional (U.S.)27,558
 27,436
 
Kaplan corporate and other(23,452) (87,230) 73
(24,701) (21,763) (13)
Amortization of intangible assets(7,516) (5,523) (36)(5,162) (7,516) 31
Impairment of goodwill and other long-lived assets
 (256,830) 
Intersegment elimination(29) 96
 
143
 (29) 
$93,632
 $(223,456) 
$77,687
 $95,321
 (18)
Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased slightly in 2017, and on a constant currency basis, revenue increased 2%, primarily due to growth in Pathways enrollments. Kaplan International operating income increased 7% in 2017, due largely to improved Pathways program results, partially offset by a decline in Singapore. Restructuring costs at Kaplan International totaled $2.9 million and $4.7 million in 2017 and 2016, respectively.
KHE includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.
On September 3, 2015, Kaplan completed the sale of substantially all of the remaining assets of its KHE Campuses business. In connection with these and other plans, KHE incurred $7.2 million and $12.9 million in restructuring costs in 2016 and 2015, respectively.
As a result of continued declines in student enrollments at KHE and the challenging industry operating environment, Kaplan completed an interim impairment review of KHE's remaining long-lived assets in the third quarter of 2015 that resulted in a $248.6 million goodwill impairment charge. This goodwill impairment charge followed a $6.9 million long-lived asset impairment charge that was recorded in the second quarter of 2015 in connection with the KHE Campuses business.
KHE results, excluding the impairment charge, include revenue and operating losses (including restructuring charges) related to all KHE Campuses, those sold or closed, including Mount Washington College and Bauder College, as follows:
  Year Ended
  December 31
(in thousands) 2016 2015
Revenue $1,681
 $178,734
Operating loss $(2,438) $(38,830)
In 2016,2017, KHE revenue declined 27%14% due to the campus sales and closings, and declines in average enrollments at Kaplan University, offset by increased revenues at the domestic professional and other continuing education businesses.University. KHE operating income improveddeclined in 20162017 due primarily to reduced losses at the KHE Campuses business and lower restructuring costs, lower marketing expendituresenrollment at Kaplan University, and improved results at the domestic professional and other continuing education businesses, partially offset by lower enrollmentrestructuring costs. Restructuring costs at Kaplan University.KHE were $1.4 million for 2017, compared to $7.1 million for 2016.
New higher education student enrollments at Kaplan University declined 22%4% in 20162017 due to lower demand across Kaplan University programs. Total students at Kaplan University were 32,16728,718 at December 31, 2016,2017, down 19%11% from December 31, 2015.2016.


Kaplan University higher education student enrollments by certificate and degree programs are as follows:
As of December 31As of December 31
2016 20152017 2016
Certificate7.7% 4.4%9.5% 7.7%
Associate’s18.1% 25.0%16.5% 18.1%
Bachelor’s50.9% 48.4%50.9% 50.9%
Master’s23.3% 22.2%23.1% 23.3%
100.0% 100.0%100.0% 100.0%
Kaplan Test Preparation (KTP)KTP includes Kaplan’s standardized test preparation and new economy skills training programs. KTP revenue declined 5% in 2016.2017. Enrollments, excluding the new economy skills training offerings, were down 3%up 4% in 2016.2017; however, unit prices were generally lower. In comparison to 2015,2016, KTP operating results declinedimproved in 20162017 due primarily to investment in new economy skills training programs and lower revenues from a change in the enrollment mix to lower priced programs.operating cost efficiencies. Operating losses for the new economy skills training programs were $13.0$16.7 million and $8.5$13.0 millionfor2017 and 2016, and 2015, respectively.respectively, including restructuring costs incurred in connection with the closing of Dev Bootcamp that was completed in the second half of 2017. Dev Bootcamp made up the majority of KTP’s new economy skills training programs.
Kaplan InternationalProfessional (U.S.) includes English-language programs and postsecondary education andthe domestic professional training businesses largely outside the United States. In the first quarter of 2016, Kaplan acquired Mander Portman Woodward, a leading provider of high-quality, bespokeand other continuing education to UKbusinesses. Professional (U.S.) revenues and international students in London, Cambridge and Birmingham; and Osborne Books, an education publisher of learning resources for accounting qualifications in the UK.
Kaplan International revenue declined 10% in 2016, of which 6% is due to currency fluctuations. The remaining decrease is due to enrollment declines in English-language and Pathways programs. Revenue growth from the 2016 acquisitions was largely offset by revenue declines due to prior year dispositions.

Kaplan International operating income decreased 10% in 2016, due largely2017 were flat compared to the reduced English-language and Pathways results and increased restructuring costs, partially offset by operating income from newly acquired businesses. The impact of currency fluctuations on comparative operating results was insignificant for 2016. Restructuring costs at Kaplan International totaled $4.7 million and $1.3 million in 2016 and 2015, respectively.2016.
Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities. In 2015, Kaplan corporate recorded $29.4 million in restructuring costs. In 2016, Kaplan corporate expenses also declined due to the benefits from restructuring activities and a reduction in incentive compensation expense. Also, 2015 spending for the replacement of its human resources system did not recur in 2016.

In addition to the impairment charges of $255.5 million related to KHE recorded in the second and third quarters of 2015, Kaplan recorded an additional $1.4 million in noncash intangible and other long-lived assets impairment charges in the fourth quarter of 2015, related to businesses at KTP and Kaplan International.
In the first quarter of 2016, Kaplan sold Colloquy, which was part of Kaplan corporate and other, for a gain of $18.9 million that is included in other non-operating income.
In addition to the sale of the KHE Campuses business in 2015, Kaplan also sold a small business that was part of KHE, and two businesses that were part of Kaplan International. The net loss on the sale of these businesses totaled $24.9 million and is included in other non-operating expense.

Television Broadcasting Division. Revenue at the television broadcasting division increased 14% to $409.7 million, from $359.2 million in 2015; operating income for 2016 was up 22% to $200.5 million, from $164.9 million in the same period of 2015. The revenue increase is due to a $23.9 millionincrease in political advertising revenue, $18.5 million more in retransmission revenues, and $13.1 million in incremental summer Olympics-related advertising revenue at the Company's NBC affiliates. The increase in operating income is due to the revenue increase, offset by higher spending on digital initiatives and increased network fees.
Operating margin at the television broadcasting division was 49% in 2016 and 46% in 2015.
Competitive market position remained strong for the Company’s television stations. For target demographic viewers age 25 to 54 for the key 6am, 6pm and late night newscasts, KSAT in San Antonio, WJXT in Jacksonville and KRPC in Houston ranked number one in the November 2016 ratings period; WDIV in Detroit ranked second; and WKMG in Orlando tied for second.
In May 2016,On January 17, 2017, the Company announced that it had reached anclosed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire WCWJ, a CW affiliate television station in Jacksonville, FL, and WSLS, an NBC affiliate television station in Roanoke, VA, for $60 million in cash and the assumption of certain pension obligations.


The Company will continuecontinues to operate both stations under their current network affiliations. This transaction was completed on January 17, 2017.
The Company'sRevenue at the television broadcasting division increased slightly to $409.9 million in 2017, from $409.7 million in 2016. Excluding revenue from the two newly acquired stations, revenue declined 6% due to a $28.7 million decrease in political advertising revenue, $13.1 million in 2016 incremental summer Olympics-related advertising revenue at the Company’s NBC affiliates, lower network revenue and the adverse impact from hurricanes Harvey and Irma in the third quarter of 2017, partially offset by $20.7 million in increased retransmission revenues. As previously disclosed, the Company’s NBC affiliates in Houston and Detroit are operating under a new contract with NBC effective January 1, 2017. The new contract will result2017 that has resulted in a significant increase in network fees in 2017, compared to 2016. Operating income for 2017 was down 31% to $139.3 million, from $202.9 million in 2016 due to lower revenues, the significantly higher network fees and increased amortization of intangibles expense.
Operating margin at the television broadcasting division was 34% in 2017 and 50% in 2016.
The Company’s television station ratings remained strong across our markets. On average in the November 2017 ratings period, KPRC in Houston, WDIV in Detroit, KSAT in San Antonio and WJXT in Jacksonville ranked number one in the key 6am, 6pm and late newscasts among target demographic viewers age 25 to 54; WKMG in Orlando ranked number two and WSLS in Roanoke ranked third in key newscasts. WCWJ in Jacksonville demonstrated success with its syndicated programming in daytime and early fringe, ranking number two.
Other Businesses.Healthcare. A summary of Other Businesses' operating results for 2016 compared to 2015 is as follows:
   Year Ended December 31 %
(in thousands) 2016 2015 Change
Operating Revenues         
Manufacturing $241,604
 $92,255
 
Healthcare 146,962
 135,550
 8
SocialCode 58,851
 45,829
 28
Other 26,433
 25,883
 2
   $473,850
 $299,517
 58
Operating Expenses   
   
   
Manufacturing $228,887
 $85,839
 
Healthcare 144,163
 129,317
 11
SocialCode 71,258
 46,375
 54
Other 51,644
 51,653
 
   $495,952
 $313,184
 58
Operating Income (Loss)   
   
   
Manufacturing $12,717
 $6,416
 98
Healthcare 2,799
 6,233
 (55)
SocialCode (12,407) (546) 
Other (25,211) (25,770) 2
   $(22,102) $(13,667) (62)
Depreciation      
Manufacturing $7,251
 $1,868
 
Healthcare 2,805
 2,836
 (1)
SocialCode 929
 402
 
Other 1,390
 1,062
 31
   $12,375
 $6,168
 
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets      
Manufacturing $12,119
 $6,319
 92
Healthcare 6,701
 6,875
 (3)
SocialCode 
 
 
Other 1,687
 2,918
 (42)
   $20,507
 $16,112
 27
Pension Expense   
   
   
Manufacturing $86
 $73
 18
Healthcare 
 
 
SocialCode 541
 270
 
Other 491
 621
 (21)
   $1,118
 $964
 16
Manufacturing includes three businesses: Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies acquired in November 2015; Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems; and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications.
Manufacturing revenues and operating income increased in 2016 due primarily to the Dekko acquisition. Also, in September 2016, Dekko acquired Electri-Cable Assemblies (ECA), a Shelton, CT-based manufacturer of power, data and electrical solutions for the office furniture industry.
The Graham Healthcare Group (GHG) provides home health and hospice services in sixthree states. In June 2016, the Company acquired the outstanding 20% redeemable noncontrolling interest in Residential Healthcare (Residential). Also in June 2016, Celtic Healthcare (Celtic) and Residential combined their business operations and the Company now owns 90% of the combined entity, known as GHG.entity. The Company incurred approximately $2.0 million in expenses in conjunction with these transactions in the second quarter of 2016. At the end of June 2017, GHG acquired Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider. Healthcare revenues increased 8%5% in 2016 due primarily to patient growth for both home health and hospice. Operating2017, while operating results were down, in 2016,due largely due to theincreased bad debt expenses incurred related to the transactions in the second quarter of 2016 and an increase inhigher information systems and other integration costs.


In June 2016, Residential and a Michigan hospital formed a joint venture to provide home health services to West Michigan patients. ResidentialGHG manages the operations of the joint venture and holds a 40% interest. The pro rata operating results of the joint venture are included in the Company'sCompany’s equity in earnings of affiliates. In connection with this transaction, the Company recorded a pre-tax gain of $3.2 million in the second quarter of 2016 that is included in other non-operating income.income (expense), net.


Other Businesses. A summary of Other Businesses’ operating results for 2017 compared to 2016 is as follows:
   Year Ended December 31 %
(in thousands) 2017 2016 Change
Operating Revenues         
Manufacturing $414,193
 $241,604
 71
SocialCode 62,077
 58,851
 5
Other 34,733
 26,433
 31
   $511,003
 $326,888
 56
Operating Expenses   
   
   
Manufacturing $399,246
 $228,887
 74
SocialCode 65,751
 71,258
 (8)
Other 65,269
 51,644
 26
   $530,266
 $351,789
 51
Operating Income (Loss)   
   
   
Manufacturing $14,947
 $12,717
 18
SocialCode (3,674) (12,407) 70
Other (30,536) (25,211) (21)
   $(19,263) $(24,901) 23
Depreciation      
Manufacturing $9,173
 $7,251
 27
SocialCode 1,004
 929
 8
Other 1,546
 1,390
 11
   $11,723
 $9,570
 22
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets      
Manufacturing $31,052
 $12,119
 
SocialCode 333
 
 
Other 
 1,687
 
   $31,385
 $13,806
 
Pension Service Cost   
   
   
Manufacturing $79
 $86
 (8)
SocialCode 593
 541
 10
Other 453
 491
 (8)
   $1,125
 $1,118
 1
Manufacturing includes four businesses: Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton Corp., a manufacturer of screw jacks and other linear motion systems; Forney, a supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications; and Hoover Treated Wood Products, Inc., a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications that the Company acquired in April 2017. In September 2016, Dekko acquired Electri-Cable Assemblies, a manufacturer of power, data and electrical solutions for the office furniture industry.
In January 2015, Celtic and Allegheny Health Network formed a joint venture to combine each other's home health and hospice assets in the western Pennsylvania region. Celtic manages the operationssecond quarter of the joint venture for a fee and holds a 40% interest. The pro rata operating results of the joint venture are included in the Company's equity in earnings of affiliates. In connection with this transaction,2017, the Company recorded a noncash pre-tax gain of $6.0$9.2 million goodwill and other long-lived asset impairment charge at Forney, due to lower than expected revenues resulting from sluggish overall demand for its energy products. Excluding this impairment charge, manufacturing revenues and operating income increased in 2017 due to the first quarter of 2015 that is includedHoover acquisition and growth and improved results at Dekko, including the Electri-Cable Assemblies acquisition, offset by a decline in other non-operating income.results at Forney.
SocialCode is a provider of marketing solutions on social, mobile and video platforms. SocialCode revenuesrevenue increased 28%5% in 2016,2017, due to continued growth in digital advertising service revenues. SocialCode reported an operating lossesloss of $3.7 million in 2017 compared to $12.4 million in 2016; these2016. SocialCode’s operating results includeincluded incentive accruals of $1.4 million related to phantom equity plans in 2017; whereas 2016 results included incentive accruals of $12.8 million related to phantom equity appreciation plans. The expense amount related to these plans for 2015 was $2.0 million. As of December 31, 2016,2017, the accrual balance related to these plans is $22.0was $15.1 million.
Other businesses also includesinclude Slate and Foreign Policy, which publish online and print magazines and websites; and two investment stage businesses, Panoply and CyberVista. Losses from each of these businesses in 20162017 adversely affected operating results. In addition, Slate recorded a goodwill impairment charge of $1.6 million in the fourth quarter of 2016.
In November 2015, the Company announced that Trove, a digital innovation team, would largely be integrated into SocialCode and that Trove’s existing offerings would be discontinued. In connection with this action, the Company recorded a $2.8 million goodwill impairment charge at Trove in the fourth quarter of 2015, along with $0.5 million in severance costs.
In the second quarter of 2015, the Company sold The Root, an online magazine; the related gain on disposition is included in other non-operating expense, net.
Corporate Office.Corporate office includes the expenses of the Company’s corporate office the pension credit for the Company’s traditional defined benefit plan and certain continuing obligations related to prior business dispositions. In the fourth quarter of 2016, the Company recorded an $18.0 million gain related to a bulk lump sum pension program offering.
In the fourth quarter of 2015, the Company recorded $6.0 million in incremental stock compensation expense due to the modification of restricted stock awards and implemented a Special Incentive Program that resulted in expense of $0.9 million, which was funded from the assets of the Company’s pension plan. In the third quarter of 2015, the Company recorded $18.8 million in incremental stock option expense, due to stock option modifications that resulted from the Cable ONE spin-off.
Excluding the pension gain and other pension incentive expense, the total pension credit for the Company's traditional defined benefit plan was $64.1 million and $83.2 million for 2016 and 2015, respectively.
Excluding the pension credit and incremental stock compensation expense in 2015, corporateCorporate office expenses declinedincreased in 20162017 due primarily to lower compensationhigher professional services costs.


Equity in (Losses) EarningsLosses of Affiliates. At December 31, 2016,2017 the Company held interests in a number of home health and hospice joint ventures, and interests in several other affiliates. During 2017, the Company acquired approximately 11% of Intersection Holdings, LLC, a company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces. The companyCompany recorded equity in losses of affiliates of $3.2 million for 2017, compared to $7.9 million for 2016, compared to $0.7 million in 2015.2016. In the fourth quarter of 2016, the Company recorded an $8.4 million write-down on its investment in HomeHero, a company that managed an online senior home care marketplace.
Net Interest Expense. The Company incurred net interest expense of $27.3 million in 2017, compared to $32.3 million in 2016. At December 31, 2017, the Company had $493.3 million in borrowings outstanding at an average interest rate of 6.3%; at December 31, 2016, the Company had $491.8 million in borrowings outstanding at an average interest rate of 6.3%.
Non-Operating Pension and Postretirement Benefit Income, Net. In the first quarter of 2018, the Company adopted new accounting guidance that changes the income statement classification of net periodic pension and postretirement pension cost. Under the new guidance, service cost is included in operating income, while the other components (including expected return on assets) are included in non-operating income. The new guidance was required to be applied retrospectively, with prior period financial information revised to reflect the reclassification. From a segment reporting perspective, this change had a significant impact on Corporate office reporting, with minimal impact on the television broadcasting, Kaplan corporate and other businesses reporting.
The Company recorded net non-operating pension and postretirement benefit income of $72.7 million and $80.7 million for 2017 and 2016, respectively. In the fourth quarter of 2016, the Company recorded an $18.0 million gain related to a bulk lump sum pension program offering.
Other Non-Operating Income (Expense) Income.. The Company recorded total other non-operating income, net, of $4.2 million in 2017, compared to non-operating expense, net, of $12.6 million in 2016, compared to $8.62016.
The 2017 non-operating income, net, included $3.3 million in 2015.
foreign currency gains and other items. The 2016 non-operating expense, net, included $39.9 million in foreign currency losses; $29.4 million in cost method investment write-downs; and $1.8 million in net losses on the sales of marketable securities, partially offset by a $34.1 million gain on the sale of land; an $18.9 million gain on the sale of a business; a $3.2 million gain on the Residential joint venture transaction and other items. The 2015 non-operating expense, net, included $23.3 million in losses from the sales of businesses, $15.6 million in unrealized foreign currency losses and other items, offset by a $21.4 million gain on the sale of land from Robinson Terminal, a $6.0 million gain on the formation of a Celtic joint venture and a $4.8 million increase to the gain from the 2014 sale of Classified Ventures.


Net Interest Expense. The Company incurred net interest expense of $32.3 million in 2016, compared to $30.7 million in 2015. At December 31, 2016, the Company had $491.8 million in borrowings outstanding at an average interest rate of 6.3%; at December 31, 2015, the Company had $399.8 million in borrowings outstanding at an average interest rate of 7.2%.
In July 2016, a Kaplan UK company entered into a four-year loan agreement for a £75 million borrowing. The overall effective interest rate is 2.01%, taking into account an interest rate swap agreement the Company entered into on the same date as the borrowing.
(Benefit from) Provision for Income Taxes. The Company'sCompany reported an income tax benefit of $119.7 million for 2017, which was significantly impacted by the enactment of the Tax Cuts and Jobs Act in December 2017. Overall, the Company recorded a $177.5 million net deferred tax benefit in the fourth quarter of 2017 as a result of enactment of this legislation, due largely to the revaluation of the Company’s U.S. deferred tax assets and liabilities to the lower federal tax rate and a significant reduction in the amount of deferred taxes previously provided on undistributed earnings of investments in non-U.S. subsidiaries. In the first quarter of 2017, the Company recorded a $5.9 million income tax benefit related to the vesting of restricted stock awards in connection with the adoption of a new accounting standard that requires all excess income tax benefits and deficiencies from stock compensation to be recorded as discrete items in the provision for income taxes. Excluding the effect of these items, the effective tax rate for 2017 was 34.9%.
The Company’s effective tax rate for 2016 was 32.4%. In the third quarter of 2016, a net nonrecurring $8.3 million deferred tax benefit related to Kaplan'sKaplan’s international operations was recorded. In the second quarter of 2016, the Company benefited from a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015. Excluding the effect of these items, the effective tax rate in 2016 was 37.9%.
The Company recorded a tax provision on the pre-tax loss from continuing operations in 2015, as a large portion of the goodwill impairment charges and the goodwill included in the loss on the KHE Campuses sale were permanent differences not deductible for income tax purposes. Excluding the effect of these permanent differences, the effective tax rate for continuing operations in 2015 was 38.1%.
Discontinued Operations. In 2015, the Company completed the spin-off of Cable ONE as an independent, publicly traded company and the sale of a school in China that was previously part of Kaplan International.
As a result of these transactions, income from continuing operations excludes the operating results and related loss, if any, on dispositions of these businesses, which have been reclassified to discontinued operations, net of tax, in 2015.
RESULTS OF OPERATIONS — 2015 COMPARED TO 2014
Net loss attributable to common shares was $101.3 million ($17.87 per share) for the year ended December 31, 2015, compared to net income attributable to common shares of $1,293.0 million ($195.03 per share) for the year ended December 31, 2014. Net (loss) income includes $42.2 million ($7.36 per share) and $527.9 million ($79.63 per share) in income from discontinued operations for 2015 and 2014, respectively. Loss from continuing operations attributable to common shares was $143.5 million ($25.23 per share) for 2015, compared to income of $765.1 million ($115.40 per share) for 2014.
In connection with the tax-free Berkshire exchange transaction that closed on June 30, 2014, the Company acquired 1,620,190 shares of its Class B common stock, resulting in 13% fewer diluted shares outstanding in 2015 compared to 2014.
Items included in the Company’s income from continuing operations for 2015 are listed below:  
$259.7 million goodwill and long-lived assets impairment charges at the education division and other businesses (after-tax impact of $225.2 million, or $38.96 per share);
$45.8 million in restructuring charges at the education division, corporate office and other businesses (after-tax impact of $28.9 million, or $4.97 per share);
$24.9 million in expense related to the modification of stock option awards in conjunction with the Cable ONE spin-off and the modification of restricted stock awards (after-tax impact of $15.3 million, or $2.64 per share);
$12.5 million in net non-operating losses arising from the sales of five businesses and an investment, and on the formation of a joint venture (after-tax impact of $15.7 million, or $2.82 per share);
$21.4 million gain on the sale of land (after-tax impact of $13.2 million, or $2.27 per share); and
$15.6 million in non-operating unrealized foreign currency losses (after-tax impact of $9.7 million, or $1.67 per share. 


Items included in the Company’s income from continuing operations for 2014 are listed below:
$31.6 million in restructuring charges and early retirement program expense and related charges at the education division and the corporate office (after-tax impact of $20.2 million, or $3.05 per share);
$17.3 million noncash intangible and other long-lived assets impairment charges at Kaplan and other businesses (after-tax impact of $11.2 million, or $1.69 per share);
$396.6 million gain from the sale of Classified Ventures (after-tax impact of $249.8 million, or $37.68 per share);
$90.9 million gain from the Classified Ventures’ sale of apartments.com (after-tax impact of $58.2 million, or $8.78 per share);
$266.7 million gain from the tax-free Berkshire exchange transaction (after-tax impact of $266.7 million, or $40.23 per share);
$127.7 million gain on the sale of the corporate headquarters building (after-tax impact of $81.8 million, or $12.34 per share); and
$11.1 million in non-operating unrealized foreign currency losses (after-tax impact of $7.1 million, or $1.08 per share).
Revenue for 2015 was $2,586.1 million, down 6% from $2,737.0 million in 2014. Revenues declined at the education division and were down slightly at the television broadcasting division, offset by an increase in other businesses.
In 2015, education revenue was down by 11%, advertising revenue decreased 9% and other revenue increased 41%. The revenue declines at Kaplan account for the reported education revenue. The decline in advertising revenue is due to decreased television broadcasting revenue. The increase in other revenues is due primarily to the inclusion of revenues from businesses acquired in 2015 and 2014.
Operating costs and expenses for the year increased 6% to $2,666.9 million in 2015, from $2,504.3 million in 2014. Expenses were higher at the education division due to goodwill and other long-lived assets impairment charges recorded in 2015; increased spending on digital initiatives and network fees at the television broadcasting division in 2015; and increased expenses at other businesses as a result of businesses acquired in 2015 and 2014.
The Company reported an operating loss for 2015 of $80.8 million, compared with operating income of $232.7 million in 2014. Operating results were down at the education and television broadcasting divisions, offset by improvement in other businesses.
On July 1, 2015, the Company completed the spin-off of Cable ONE as an independent, publicly traded company. The transaction was structured as a tax-free spin-off of Cable ONE to the stockholders of the Company as one share of Cable ONE common stock was distributed for every share of Class A and Class B common stock of Graham Holdings outstanding on the June 15, 2015, record date. The historical operating results of the Company’s cable division are included in discontinued operations, net of tax, for all periods presented.
On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement to sell substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses, and certain related assets, in exchange for a preferred equity interest in a vocational school company. The transaction closed on September 3, 2015.
On June 30, 2014, the Company and Berkshire Hathaway Inc. completed a transaction in which Berkshire acquired a wholly owned subsidiary of the Company that included, among other things, WPLG, a Miami-based television station, 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by Graham Holdings and $327.7 million in cash, in exchange for 1,620,190 shares of Graham Holdings Class B common stock owned by Berkshire Hathaway (Berkshire exchange transaction). As a result, income from continuing operations for 2014 includes a $266.7 million gain from the exchange of the Berkshire Hathaway shares, and income from discontinued operations for 2014 includes a $375.0 million gain from the WPLG exchange.
Division Results
Education Division. Education division revenue in 2015 totaled $1,927.5 million, down 11% from revenue of $2,160.4 million in 2014. Kaplan reported an operating loss of $223.5 million for 2015, compared to operating income of $65.5 million in 2014. Kaplan’s 2015 operating results include goodwill and intangible assets impairment charges of $256.8 million in comparison to a $17.2 million charge in 2014. In 2015, operating results at Kaplan Higher Education and Kaplan International were down, partially offset by improved results at Kaplan Test Preparation.


In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in significant costs in 2015 and 2014, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $44.4 million in 2015 and $16.8 million in 2014.
A summary of Kaplan’s operating results is as follows:
 Year Ended December 31  
(in thousands)2015 2014 % Change
Revenue     
Higher education$849,625
 $1,010,058
 (16)
Test preparation301,607
 304,662
 (1)
Kaplan international770,273
 840,915
 (8)
Kaplan corporate and other6,502
 6,094
 7
Intersegment elimination(486) (1,312) 
 $1,927,521
 $2,160,417
 (11)
Operating Income (Loss) 
  
  
Higher education$55,572
 $83,069
 (33)
Test preparation16,798
 (4,730) 
Kaplan international53,661
 69,153
 (22)
Kaplan corporate and other(87,230) (57,093) (53)
Amortization of intangible assets(5,523) (7,738) 29
Impairment of intangible and other long-lived assets(256,830) (17,203) 
Intersegment elimination96
 5
 
 $(223,456) $65,463
 
KHE includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.
Since 2012, KHE has continued to close campuses, consolidate facilities and reduce its workforce. On September 3, 2015, Kaplan completed the sale of substantially all of the remaining assets of its KHE Campuses business. In connection with these and other plans, KHE incurred $12.9 million and $6.5 million in restructuring costs in 2015 and 2014, respectively.
As a result of continued declines in student enrollments at KHE and the challenging industry operating environment, Kaplan completed an interim impairment review of KHE’s remaining long-lived assets in the third quarter of 2015 that resulted in a $248.6 million goodwill impairment charge. This goodwill impairment charge followed long-lived asset impairment charges of $6.9 million and $13.6 million that were recorded in the second quarter of 2015 and fourth quarter of 2014, respectively, in connection with the KHE Campuses business.
KHE results include revenue and operating losses (including restructuring charges) related to all KHE Campuses, those sold or closed, including Mount Washington College and Bauder College, as follows:
  Year Ended
  December 31
(in thousands) 2015 2014
Revenue $178,734
 $299,109
Operating income (loss) $(38,830) $(28,549)
In 2015, KHE revenue declined 16%due to the campus sales and closings, and declines in average enrollments at Kaplan University, reflecting weaker market demand. The KHE operating income decline in 2015 is due to increased losses at the KHE Campuses business, the revenue declines and increased restructuring costs. In 2015, the decline was partially offset by improved results at the domestic professional training and other continuing education businesses.
New higher education student enrollments at Kaplan University declined 14% in 2015 due to lower demand across Kaplan University programs.


Total higher education students at Kaplan University at December 31, 2015, were down 6% compared to December 31, 2014. A summary of higher education student enrollments is as follows:
 As of December 31
 2015 2014
Kaplan University39,848
 42,469
Kaplan University higher education student enrollments by certificate and degree programs are as follows:
 As of December 31
 2015 2014
Certificate4.4% 2.3%
Associate’s25.0% 29.6%
Bachelor’s48.4% 44.3%
Master’s22.2% 23.8%
 100.0% 100.0%
KTP includes Kaplan’s standardized test preparation programs. KTP revenue declined 1% in 2015. Excluding revenues from acquired businesses, KTP revenue declined 3% in 2015. Enrollments, excluding the new economy skills training offerings, were down 12% in 2015 due primarily to declines in graduate and pre-college programs; however, unit prices were generally higher. In comparison to 2014, KTP operating results improved in 2015 due to a reduction in operating expenses and the inclusion of a $7.7 million software asset write-off in the second quarter of 2014 that did not recur in 2015.
Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue declined 8% in 2015 due to the adverse impact of foreign exchange rates. On a constant currency basis, Kaplan International revenue remained flat in 2015 due to enrollment declines in English-language programs, partially offset by growth in Australia professional and Singapore higher education programs.
Kaplan International operating income decreased 22% in 2015 due to the declines in English-language programs’ results. Restructuring costs at Kaplan International totaled $1.3 million and $0.2 million in 2015 and 2014, respectively.
Kaplan corporate represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities. In 2015, Kaplan corporate recorded $29.4 million in restructuring costs compared to $1.4 million in 2014.
In addition to the impairment charges of $255.5 million related to KHE recorded in the second and third quarters of 2015, Kaplan recorded an additional $1.4 million in noncash intangible and other long-lived assets impairment charges in the fourth quarter of 2015, related to businesses at KTP and Kaplan International. In 2014, Kaplan recorded $17.2 million in noncash intangible and other long-lived assets impairment charges in connection with businesses at KHE, KTP and Kaplan International.
In addition to the sale of the KHE Campuses business in 2015, Kaplan also sold a small business that was part of KHE and two businesses that were part of Kaplan International. The net loss on the sale of these businesses totaled $24.9 million that is included in other non-operating expense.
Television Broadcasting Division. Revenue for the television broadcasting division decreased 1% to $359.2 million in 2015, from $363.8 million in 2014; operating income for 2015 was down 12% to $164.9 million, from $187.8 million in 2014. The decrease in revenue is due to a $27.7 million decrease in political advertising revenue and $9.5 million in incremental winter Olympics-related advertising revenue at the Company’s NBC affiliates in 2014, offset by $16.1 million in increased retransmission revenues, revenues from the Super Bowl at the Company’s NBC affiliates in February 2015 and an increase in advertising revenue in several key sectors. The decline in operating income is due to the revenue decline and an increase in spending on digital initiatives and increased network fees.
Operating margin at the television broadcasting division was 46% in 2015 and 52% in 2014.
Competitive market position remained strong for the Company’s television stations. KSAT in San Antonio and WJXT in Jacksonville ranked number one in the November 2015 ratings period, Monday through Friday, sign-on to sign-off; KPRC finished in a three-way tie for first place; WDIV in Detroit ranked second; and WKMG in Orlando ranked third.


Other Businesses.Other businesses includes the following:
- Celtic Healthcare (Celtic) and Residential Healthcare Group, Inc. (Residential, acquired in July 2014), providers of home health and hospice services;
- Dekko, a Garrett, IN-based manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies (acquired in November 2015); Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems (acquired in May 2014); and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications; and
- SocialCode, a marketing solutions provider helping companies with marketing on social-media platforms; and The Slate Group and Foreign Policy Group, which publish online and print magazines and websites.
In November 2015, the Company announced that Trove, a digital innovation team, would largely be integrated into SocialCode and that Trove’s existing offerings would be discontinued. In connection with this action, the Company recorded a $2.8 million goodwill impairment charge at Trove in the fourth quarter of 2015, along with $0.5 million in severance costs.
The increase in revenues for 2015 is due primarily to the inclusion of revenues from the businesses acquired in 2015 and 2014. The improvement in operating results in 2015 reflects the contribution of the acquired businesses, as well as improved results at Celtic and SocialCode.
In January 2015, Celtic and Allegheny Health Network formed a joint venture to combine each other’s home health and hospice assets in the western Pennsylvania region. Celtic manages the operations of the joint venture for a fee and holds a 40% interest. The pro rata operating results of the joint venture are included in the Company’s equity in earnings of affiliates. In connection with this transaction, the Company recorded a noncash pre-tax gain of $6.0 million in the first quarter of 2015 that is included in other non-operating expense. Celtic’s revenues from the western Pennsylvania region that are now part of the joint venture made up 29% of total Celtic revenues in 2014.
In the second quarter of 2015, the Company sold The Root, an online magazine; the related gain on disposition is included in other non-operating expense, net.
Corporate Office. Corporate office includes the expenses of the Company’s corporate office, the pension credit for the Company’s traditional defined benefit plan and certain continuing obligations related to prior business dispositions. In the fourth quarter of 2015, the Company recorded $6.0 million in incremental stock compensation expense due to the modification of restricted stock awards and implemented a Special Incentive Program that resulted in expense of $0.9 million, which is being funded from the assets of the Company’s pension plan. In the third quarter of 2015, the Company recorded $18.8 million in incremental stock option expense, due to stock option modifications that resulted from the Cable ONE spin-off. In the first quarter of 2014, the corporate office implemented a Separation Incentive Program that resulted in expense of $4.5 million, which was funded from the assets of the Company’s pension plan. In the third quarter of 2014, the Company recorded $10.3 million in early retirement program expense and other related charges, a portion of which was funded from the assets of the Company’s pension plan.
Excluding early retirement program and other pension incentive program expense, the total pension credit for the Company’s traditional defined benefit plan was $83.2 million and $91.2 million for 2015 and 2014, respectively.
Excluding the $24.9 million in incremental stock compensation expense in 2015, the pension credit, early retirement program and other pension incentive program expense and other related charges in 2015 and 2014, corporate office expense declined in 2015. The decline is from lower compensation costs and 2014 costs related to certain acquisitions, the Berkshire exchange transaction and the corporate office headquarters move to Arlington, VA, partially offset by 2015 costs related to the Dekko acquisition.
Equity in (Losses) Earnings of Affiliates. At December 31, 2015, the Company held a 40% interest in a Celtic joint venture and Residential Home Health Illinois, a 42.5% interest in Residential Hospice Illinois, and interests in several other affiliates. In the second quarter of 2015, the Company acquired an approximate 20% interest in HomeHero, a company that created and manages an online senior home care marketplace. At September 30, 2014, the Company held a 16.5% interest in Classified Ventures, LLC (CV) and interests in several other affiliates. On October 1, 2014, the Company and the remaining partners in CV completed the sale of their entire stakes in CV.
The Company’s equity in losses of affiliates, net, for 2015 was $0.7 million, compared to income of $100.4 million in 2014. The 2014 results include a pre-tax gain of $90.9 million from Classified Ventures’ sale of apartments.com in the second quarter of 2014.
Other Non-Operating (Expense) Income. The Company recorded other non-operating expense, net, of $8.6 million in 2015, compared to income of $778.0 million in 2014.


The 2015 non-operating expense, net, included $23.3 million in losses from the sales of businesses, $15.6 million in unrealized foreign currency losses and other items, offset by a $21.4 million gain on the sale of land from Robinson Terminal, $6.0 million gain on the formation of a Celtic joint venture and a $4.8 million increase to the CV gain. The 2014 non-operating income, net, included a pre-tax gain of $396.6 million on the sale of Classified Ventures, the pre-tax gain of $266.7 million in connection with the Company’s exchange of Berkshire shares, a pre-tax gain of $127.7 million on the sale of the headquarters building, $11.1 million in unrealized foreign currency losses and other items.
Net Interest Expense. The Company incurred net interest expense of $30.7 million in 2015, compared to $33.4 million in 2014. At December 31, 2015, the Company had $399.8 million in borrowings outstanding at an average interest rate of 7.2%; at December 31, 2014, the Company had $445.9 million in borrowings outstanding at an average interest rate of 7.1%.
Provision for Income Taxes. The Company recorded a tax provision on the pre-tax loss from continuing operations in 2015, as a large portion of the goodwill impairment charges and the goodwill included in the loss on the KHE Campuses sale are permanent differences not deductible for income tax purposes. Excluding the effect of these permanent differences, the effective tax rate for continuing operations in 2015 was 38.1%, compared to an effective tax rate of 29.0% in 2014. The lower effective tax rate in 2014 largely relates to the Berkshire exchange transaction. The pre-tax gain of $266.7 million related to the disposition of the Berkshire shares was not subject to income tax as the exchange qualified as a tax-free transaction.
Discontinued Operations. On July 1, 2015, the Company completed the spin-off of Cable ONE as an independent, publicly traded company.
In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously part of Kaplan International. An additional school was sold by Kaplan in January 2015.
In the second quarter of 2014, the Company closed on the Berkshire exchange transaction, which included the disposition of WPLG, the Company’s Miami-based television station.
As a result of these transactions, income from continuing operations excludes the operating results and related net gain on dispositions of these businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.
FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY
Acquisitions and Dispositions of Businesses and Other Transactions
Acquisitions. On January 31, 2019, the Company acquired a 90% interest in two auto dealerships. In May 2016, Graham Media Groupaddition to a cash payment, a subsidiary of the Company borrowed $30 million to finance the acquisition and entered into an interest rate swap to fix the interest rate on the debt at 4.7% per annum. The Company is required to repay the loan over a 10-year period by making monthly installment payments. The Company also entered into a management services agreement with Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships, to acquireoperate and manage the acquired dealerships.
During 2018, the Company acquired eight businesses, five in its education division, one in its healthcare division and two television stationsin other businesses for $60$121.1 million in cash and the assumption of certain pension obligations. This transaction closed on January 17, 2017.
The Company completed business acquisitions totaling approximately $258.0 million in 2016; $163.3 million in 2015; and $210.2 million in 2014.contingent consideration. The assets and liabilities of the companies acquired have beenwere recorded at their estimated fair values at the date of acquisition.


In January and February 2018, Kaplan acquired the assets of i-Human Patients, Inc., a provider of cloud-based, interactive patient encounter simulations for medical and nursing professionals and educators, and another small business in test preparation and international, respectively. These acquisitions are expected to provide strategic benefits in the future.
In May 2018, Kaplan acquired a 100% interest in PPI, an independent publisher of professional licensing exam review materials and engineering, surveying, architecture, and interior design licensure exam review, by purchasing all of its issued and outstanding shares. This acquisition is expected to provide certain strategic benefits in the future. This acquisition is included in Professional (U.S.).
On July 12, 2018, Kaplan acquired 100% of the issued and outstanding shares of CFFP, a provider of financial education and training to individuals pursuing the Certified Financial Planner certification, a Master of Science in Personal Financial Planning, or a Master of Science in Finance. The acquisition is expected to expand Kaplan’s financial education product offerings and is included in Professional (U.S.).
On July 31, 2018, Dekko acquired 100% of the issued and outstanding shares of Furnlite, Inc., a Fallston, NC-based manufacturer of power and data solutions for the hospitality and residential furniture industries. Dekko’s primary reasons for the acquisition are to complement existing product offerings and to provide potential synergies across the businesses. The acquisition is included in other businesses.
In August 2018, SocialCode acquired 100% of the membership interests of Marketplace Strategy (MPS), a Cleveland-based digital marketing agency that provides strategy consulting, optimization services, advertising management and creative solutions on online marketplaces including Amazon. SocialCode’s primary reason for the acquisition is to expand its platform offerings. The acquisition is included in other businesses.
In September 2018, GHG acquired the assets of a small business and Kaplan acquired the test preparation and study guide assets of Barron’s Educational Series, a New York-based education publishing company. The acquisitions are expected to complement the healthcare and test preparation services currently offered by GHG and Kaplan, respectively. GHG is included in the healthcare division. The Barron’s Educational Series acquisition is included in test preparation.
During 2017, the Company acquired six businesses, two in its education division, two in its television broadcasting division, one in its healthcare division and one in other businesses for $318.9 million in cash and contingent consideration, and the assumption of $59.1 million in certain pension and postretirement obligations. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition.
On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire the assets of WCWJ, a CW affiliate television station in Jacksonville, FL, and WSLS, an NBC affiliate television station in Roanoke, VA, for cash and the assumption of certain pension obligations. The acquisition of WCWJ and WSLS will complement the other stations that GMG operates. Both of these acquisitions are included in television broadcasting.
In February 2017, Kaplan acquired a 100% interest in Genesis Training Institute, a Dubai-based provider of professional development training in the United Arab Emirates, by purchasing all of its issued and outstanding shares. Additionally, Kaplan acquired a 100% interest in Red Marker Pty Ltd., an Australia-based regulatory technology company by purchasing all of its outstanding shares. These acquisitions are expected to provide certain strategic benefits in the future. Both of these acquisitions are included in Kaplan International.
In April 2017, the Company acquired 97.72% of the issued and outstanding shares of Hoover Treated Wood Products, Inc., a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications for $206.8 million, net of cash acquired. The fair value of the redeemable noncontrolling interest in Hoover was $3.7 million at the acquisition date, determined using a market approach. The minority shareholders have an option to put some of their shares to the Company starting in 2019 and the remaining shares starting in 2021. The Company has an option to buy the shares of minority shareholders starting in 2027. This acquisition is consistent with the Company’s ongoing strategy of investing in companies with a history of profitability and strong management. Hoover is included in other businesses.
At the end of June 2017, GHG acquired a 100% interest in Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider by purchasing all of its issued and outstanding shares. This acquisition expands GHG’s service area in Michigan. GHG is included in healthcare.
During 2016, the Company acquired five businesses, three businesses included in its education division and two businesses in other businesses.businesses for $258.0 million. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition. In January 2016, Kaplan acquired a 100% interest in Mander Portman Woodward, a leading provider of high-quality, bespoke education to UKUnited Kingdom (U.K.) and international students in London, Cambridge and Birmingham, by purchasing all of its issued and outstanding


shares. In February 2016, Kaplan acquired a 100% interest in Osborne Books, an educational publisher of learning resources for accounting qualifications in the UK,U.K., by purchasing all of its issued and outstanding shares. The primary reason for these acquisitions iswas based on several strategic benefits expected to be realized in the future. Both of these acquisitions are included in Kaplan International.
In September 2016, Dekko acquired a 100% interest in Electri-Cable Assemblies, (ECA), a Shelton, CT-based manufacturer of power, data and electrical solutions for the office furniture industry, by purchasing all of its issued and outstanding shares. Dekko’s primary reasons for the acquisition were to complement existing product offerings and provide opportunities for synergies across the businesses. This acquisition is included in other businesses.
During 2015,Kaplan University Transaction. On April 27, 2017, certain subsidiaries of Kaplan entered into a Contribution and Transfer Agreement to contribute the Company acquired two businesses. On November 13, 2015, the Company acquiredinstitutional assets and operations of Kaplan University to an Indiana non-profit, public-benefit corporation that is a 100% interest in Dekko, a Garrett, IN-based manufacturer of electrical solutions for applications across three business lines: workspace power solutions, architectural lighting and electrical components and assemblies, by purchasing allsubsidiary affiliated with Purdue University. The closing of the issued and outstanding shares. Dekko is included in other businesses. On Decembertransactions contemplated by the Transfer Agreement occurred on March 22, 2015,2018. At the same time, the parties entered into the TOSA pursuant to which Kaplan acquired a 100% interest in SmartPros, a provider of accredited professional education and training, primarily in accountancy,provides key non-academic operations support to the new university. See information contained under the heading “Education”, which is included in Higher Education.Item 1 of this Annual Report on Form 10-K for more information about this transaction.


During 2014,As a result of the KU Transaction, the Company acquired nine businesses. On April 1, 2014, Celtic Healthcare acquiredrecorded a 100% interestpre-tax gain of $4.3 million in VNA-TIP Healthcare, a providerthe first quarter of home health and hospice services in Missouri and Illinois. On May 30, 2014,2018. For financial reporting purposes, Kaplan may receive payment of additional consideration for the Company completed its acquisitionsale of a 100% interest in Joyce/Dayton Corp., a Dayton, OH-based manufacturerthe institutional assets as part of screw jacks and other linear motion systems. On July 3, 2014, the Company completed its acquisition of an 80% interest in Residential Healthcare Group, Inc.,fee to the parent company of Residential Home Health and Residential Hospice, providers of skilled home health care and hospice services in Michigan and Illinois. Residential Healthcare Group, Inc. has a 40% ownership interest in Residential Home Health Illinois and a 42.5% ownership interest in Residential Hospice Illinois, whichextent there are accounted for as investments in affiliates. The operating results of these businesses are included in other businesses.sufficient revenues available after paying all amounts required by the TOSA. The Company also acquired three small businesses in its education division, one small business in its broadcasting division and two small businesses in other businesses.
Spin-Off. On July 1, 2015, the Company completed the spin-off of Cable ONE, by way ofrecorded a distribution of all the issued and outstanding shares of Cable ONE common stock, on a pro rata basis,$1.9 million contingent consideration gain related to the Company’s stockholders.disposition in the year ended December 31, 2018, and did not adjust the contingent consideration in the fourth quarter of 2018.
Sale of Businesses. In February 2018, Kaplan completed the sale of a small business which was included in Test Preparation. In September 2018, Kaplan Australia completed the sale of a small business which was included in Kaplan International. In February 2017, GHG completed the sale of Celtic Healthcare of Maryland. In the fourth quarter of 2017, Kaplan Australia completed the sale of a small business, which was included in Kaplan International. In January 2016, Kaplan completed the sale of Colloquy, which was included in Kaplan Corporate and Other.
On September 3, 2015, Kaplan completed the sale of substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses and certain related assets, in exchange for a preferred equity interest in a vocational school company. KHE Campuses schools that were closed or were in the process of closing were not included in the sale transaction.
In the third quarter of 2015, Kaplan sold Franklyn Scholar, which was part of Kaplan International. In the second quarter of 2015, the Company sold The Root, a component of Slate, and Kaplan sold two small businesses, Structuralia, which was part of Kaplan International, and Fire and EMS Training, which was part of Kaplan Higher Education. As a result of these sales, the Company reported net lossesgains (losses) in other non-operating (expense) income.
Other Transactions. In February 2019, the Company sold its interest in Gimlet Media; the Company will report a gain in the first quarter of 2019.
In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International. In January 2015, Kaplan completed the sale of an additional school in China.
Exchanges. On June 30, 2014,2018, the Company incurred $6.2 million of interest expense related to the mandatorily redeemable noncontrolling interest redemption settlement at GHG. The mandatorily redeemable noncontrolling interest was redeemed and Berkshire Hathaway Inc. completed a previously announced transactionpaid in which Berkshire acquired a wholly owned subsidiary of the Company that included, among other things, WPLG, a Miami-based television station, 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by Graham Holdings and $327.7 million in cash, in exchange for 1,620,190 shares of Graham Holdings Class B common stock owned by Berkshire Hathaway (Berkshire exchange transaction). As a result, income from continuing operations for the second quarter of 2014 includes a $266.7 million gain from the sale of the Berkshire Hathaway shares, and income from discontinued operations for the second quarter of 2014 includes a $375.0 million gain from the WPLG exchange.July 2018.
Other. In June 2016, Residential Healthcare (Residential) and a Michigan hospital formed a joint venture to provide home health services to patients in western Michigan. In connection with this transaction, Residential contributed its western Michigan home health operations to the joint venture and then sold 60% of the newly formed venture to its Michigan hospital partner. Although Residential manages the operations of the joint venture, Residential holds a 40% interest in the joint venture, so the operating results of the joint venture are not consolidated, and the pro rata operating results are included in the Company'sCompany’s equity in earnings of affiliates.
In June 2016, the Company purchased the outstanding 20% redeemable noncontrolling interest in Residential. At that time, the Company recorded an increase to redeemable noncontrolling interest of $3.0 million, with a corresponding decrease to capital in excess of par value, to reflect the redemption value of the redeemable noncontrolling interest at $24.0 million. Following this transaction, Celtic Healthcare (Celtic) and Residential combined their business operations to form Graham Healthcare Group (GHG).GHG. The redeemable noncontrolling interest shareholders in Celtic exchanged their 20% interest in Celtic for a 10% mandatorily redeemable noncontrolling interest in the combined entity, and the Company recorded a $4.1 million net increase to the mandatorily redeemable noncontrolling interest to reflect the estimated fair value of the mandatorily redeemable noncontrolling interest. The minority shareholders have an option to put their shares to the Company starting in 2020 and are required to put a percentage of their shares in 2022 and 2024, with the remaining shares required to be put by the minority shareholders in 2026. The redemption value is based on an EBITDA multiple, adjusted for working capital and other items, computed annually, with no limit on the amount payable. The Company now owns 90% of GHG. Because the noncontrolling interest is now mandatorily redeemable by the Company by 2026, it is reported as a noncurrent liability at December 31, 2016.
In January 2015, Celtic and Allegheny Health Network closed on the formation of a joint venture to combine each other’s home health and hospice assets in the western Pennsylvania region. Although Celtic manages the operations of the joint venture, Celtic holds a 40% interest in the joint venture, so the operating results of the joint


venture are not consolidated, and the pro rata operating results are included in the Company’s equity in earnings of affiliates. Celtic’s revenues from the western Pennsylvania region that are now part of the joint venture made up 29% of total Celtic revenues in 2014.
The Company’s income from continuing operations excludes Cable ONE, the sold Kaplan China schools and WPLG, which have been reclassified to discontinued operations.
Capital Expenditures. During 2016,2018, the Company’s capital expenditures totaled $70.7$98.1 million. The Company’s capital expenditures for businesses included in continuing operations for2018, 2017 and 2016 2015 and 2014 are disclosed in Note 19 to the Consolidated Financial Statements. These amounts include assets acquired during the year, whereas the amounts reflected in the Company’s Statements of Cash Flows are based on cash payments made during the relevant periods. The Company estimates that its capital expenditures will be in the range of $50$95 million to $60$105 million in 2017.2019. This includes amounts for constructing an academic and student residential facility in connection with Kaplan’s Pathways program in Liverpool, U.K. This also includes capital expenditures in connection with spectrum repacking at the Company’s television stations in Detroit, MI, Jacksonville, FL, and Roanoke, VA, as mandated by the FCC; these expenditures are expected to be largely reimbursed to the Company by the FCC.


Investments in Marketable Equity Securities. At December 31, 2016,2018, the fair value of the Company’s investments in marketable equity securities was $424.2$496.4 million, which includes investments in the common stock of six publicly traded companies. At December 31, 2016,2018, the net unrealized gain related to the Company’s investments totaled $154.9$213.8 million.
On June 30, 2014, the Company completed a transaction with Berkshire that included the exchange of 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by the Company; a $266.7 million gain was recorded.
Common Stock Repurchases and Dividend Rate. During 20162018, 2017, and 2015,2016, the Company purchased a total of 229,498199,023, 88,361, and 46,226229,498 shares, respectively, of its Class B common stock at a cost of approximately $118.0 million, $50.8 million, and $108.9 million, and $23.0 million, respectively. As part of the exchange transaction with Berkshire Hathaway in 2014, the Company acquired 1,620,190 shares of its Class B common stock at a cost of approximately $1,165.4 million. On May 14, 2015,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 includes 159,219included 163,237 shares that remained under the previous authorization. At December 31, 2016,2018, the Company had remaining authorization from the Board of Directors to purchase up to 224,276273,655 shares of Class B common stock. Shares acquired as part of the exchange transaction received separate authorization by the Company’s Board of Directors.
The annual dividend rate for 20172019 is $5.085.56 per share, compared to $4.84$5.32 and $9.10$5.08 in 20162018 and 2015,2017, respectively. The annual dividend rate was adjusted in the third quarter of 2015 as a result of the spin-off of Cable ONE.
Liquidity. During 2016,2018, the Company’s cash and cash equivalents decreased by $105.3$136.8 million due largely to significant acquisitions, investments, and repurchases of common shares. During 2018, the Company’s borrowings increaseddecreased by $92.0 million.$16.2 million due to repayments, additional unamortized debt issuance costs, and foreign currency fluctuations.
At December 31, 2016,2018, the Company has $648.9$253.3 million in cash and cash equivalents, compared to $754.2$390.0 million at December 31, 2015.2017. Restricted cash at December 31, 2016,2018, totaled $21.9$10.9 million, compared to $20.7$17.6 million at December 31, 2015.2017. As of December 31, 20162018 and 2015,2017, the Company had commercial paper and money market investments of $485.1$75.5 million and $433.0$217.6 million, respectively, that are classified as cash, cash equivalents and restricted cash in the Company’s Consolidated Financial Statements. At December 31, 2016,2018, the Company hasheld approximately $3.7$152 million in cash and cash equivalents in countriesbusinesses domiciled outside the U.S., of which approximately $6 million is not immediately available for immediate use in operations or for distribution. Additionally, Kaplan’s business operations outside the U.S. retain cash balances to support ongoing working capital requirements, capital expenditures, and regulatory requirements. As a result, the Company considers a significant portion of the cash and cash equivalents balance held outside the U.S. as not readily available for use in U.S. operations.
At December 31, 20162018 and 2015,2017, the Company had borrowings outstanding of $491.8$477.1 million and $399.8$493.3 million, respectively. The Company’s borrowings at December 31, 2016, are2018 were mostly from $400.0 million of 5.75% unsecured notes due June 1, 2026, and £65 million in outstanding borrowings under the Kaplan Credit Agreement; the interest on $400.0 million of 5.75% unsecured notes is payable semiannually on June 1 and December 1. The Company’s borrowings at December 31, 2017 were mostly from $400.0 million of 7.25% unsecured notes due February 1, 2019, and £75£70 million in outstanding borrowings under the Kaplan Credit Agreement; the interest on $400.0 million of 7.25% unsecured notes is payable semiannually on February 1 and August 1. The Company’s borrowings at December 31, 2015, were mostly from $400.0 million of 7.25% unsecured notes due February 1, 2019.Agreement. The Company did not have any outstanding commercial paper borrowing or USD revolving credit borrowing as of December 31, 20162018 and 2015. 2017.
On March 9, 2015,May 30, 2018, the Company repaidissued $400 million senior unsecured fixed-rate notes due June 1, 2026 (the Notes). The Notes are guaranteed, jointly and severally, on a senior unsecured basis, by certain of the AUD 50 million debt.Company’s existing and future domestic subsidiaries, as described in the terms of the indenture, dated as of May 30, 2018 (the Indenture). The Notes have a coupon rate of 5.75% per annum, payable semi-annually on June 1 and December 1. The Company retiredmay redeem the Series A redeemable preferred stock with a cash payment of $10.5 millionNotes in October 2015.whole or in part at any time at the respective redemption prices described in the Indenture.
On June 17, 2015,29, 2018, the Company terminated its U.S. $450used the net proceeds from the sale of the Notes, together with cash on hand, to redeem the $400 million AUD 50of 7.25% notes due February 1, 2019. The Company incurred $11.4 million four-year revolving credit facility dated June 17, 2011. No borrowings were outstanding underin debt extinguishment costs in relation to the 2011 Credit Agreement atearly termination of the time7.25% notes.
In combination with the issuance of termination. On June 29, 2015,the Notes, the Company and certain of the Company’s domestic subsidiaries named therein as guarantors entered into aan amended and restated credit agreement (the Credit Agreement) providing for a U.S. $200$300 million five-year revolving credit facility (the Revolving Credit Facility) with each of the lenders party thereto, certain of the Company’s foreign subsidiaries from time to time party thereto as foreign borrowers, Wells Fargo Bank, National AssociationN.A., as Administrative Agent (Wells Fargo), JPMorgan Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, National Association,N.A. and Bank of America, N.A. as Documentation Agents (the Amended and Restated Credit Agreement), which amends and restates the Company’s existing Five Year Credit Agreement, dated as of June 29, 2015, among the Company, certain of its domestic subsidiaries as guarantors, the several lenders from time to time party thereto, Wells Fargo Bank, N.A., as Administrative Agent and JPMorgan Chase Bank, N.A., as Syndication Agent (the Existing Credit Agreement). The Amended and Restated Credit Agreement amends the Existing Credit Agreement to (i) extend the maturity of the Revolving Credit Facility to May 30, 2023, unless the Company and the lenders agree to further extend the term, (ii) increase the aggregate principal amount of the Revolving Credit Facility to U.S. $300 million, consisting of a U.S. Dollar tranche of U.S. $200 million for borrowings in U.S. Dollars and a multicurrency tranche equivalent to U.S. $100 million for borrowings in U.S. Dollars and certain foreign currencies,


(iii) provide for borrowings under the Revolving Credit Facility in U.S. Dollars and certain other foreign currencies specified in the Amended and Restated Credit Agreement, (iv) permit certain foreign subsidiaries of the Company to be added to the Amended and Restated Credit Agreement as foreign borrowers thereunder and (v) effect certain other modifications to the Existing Credit Agreement.
Under the Amended and Restated Credit Agreement, the Company is required to pay a commitment fee on a quarterly basis, based on the Company’s leverage ratio, of between 0.15% and 0.25% of the amount of the average daily unused portion of the Revolving Credit Facility. Any borrowings under the Amended and Restated Credit Agreement are made on an unsecured basis and bear interest at the Company’s option, either at (a) a fluctuating interest rate equal to the highest of Wells Fargo’s prime rate, 0.500.5 percent above the Federal funds rate or the one-month Eurodollar rate plus 1%, or (b) the Eurodollar rate for the


applicable currency and interest period as defined in the Amended and Restated Credit Agreement, which is generally a periodic rate equal to LIBOR, CDOR, BBSY or SOR, as applicable, in the case of each caseof clauses (a) and (b) plus an applicable margin that depends on the Company’s consolidated debt to consolidated adjusted EBITDA (as determined pursuant to the Amended and Restated Credit Agreement, “leverage ratio”)Total Net Leverage Ratio). The Company and its foreign subsidiaries may draw on the Revolving Credit Facility for general corporate purposes. The Facility will expire on July 1, 2020, unless the Company and the banks agree to extend the term. Any outstanding borrowings must be repaid on or prior to the final termination date. The Amended and Restated Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a leverage ratioTotal Net Leverage Ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Amended and Restated Credit Agreement.
On July 14, 2016, Kaplan entered into a credit agreement (the Kaplan Credit Agreement) among Kaplan International Holdings Limited, as borrower, the lenders party thereto, HSBC BANK PLC as Facility Agent, and other agents party thereto. The Kaplan Credit Agreement provides for a four-year credit facility in an aggregate principal amount of £75 million. Borrowings bear interest at a rate per annum of LIBOR plus an applicable interest rate margin between 1.25% and 1.75%, in each case determined on a quarterly basis by reference to a pricing grid based upon the Company'sCompany’s total leverage ratio. The Kaplan Credit Agreement requires that 6.66% of the outstanding aggregate amount of the loan be repaid on the first three anniversaries of funding, with the remaining balance due on July 1, 2020. The Kaplan Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a leverage ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Kaplan Credit Agreement.
On July 25, 2016, Kaplan borrowed £75 million under the Kaplan Credit Agreement. On the same date, Kaplan entered into an interest rate swap agreement with a total notional value of £75 million and a maturity date of July 1, 2020. The interest rate swap agreement will pay Kaplan variable interest on the £75 million notional amount at the three-month LIBOR, and Kaplan will pay the counterparties a fixed rate of 0.51%, effectively resulting in a total fixed interest rate of 2.01% on the outstanding borrowings at the current applicable margin of 1.50%. The interest rate swap agreement was entered into to convert the variable rate British pound borrowing under the Kaplan Credit Agreement into a fixed rate borrowing. The Company provided a guarantee on any borrowings under the Kaplan Credit Agreement. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap agreement was determined to be effective and thus qualifies as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.
On June 24, 2015, due to the pending Cable ONE spin-off,May 21, 2018, Moody’s downgradedaffirmed the Company’s long-term credit ratings, but revised the outlook from “Baa3”Negative to “Ba1” and the short-term rating from “Prime-3” to “NP”. On July 1, 2015, related to the Cable ONE spin-off, S&P lowered its corporate credit rating from “BBB” to “BB+” and its short-term rating from “A-2” to “B”. In addition, S&P removed the ratings from Credit Watch. In the third quarter of 2015, the Company decided to no longer have the rating agencies provide a short-term rating on the Company.Stable.
The Company’s current credit ratings are as follows:
 Moody’s Standard & Poor’s
Long-termBa1 BB+
During 20162018 and 2015,2017, the Company had average borrowings outstanding of approximately $443.9$517.2 million and $428.0$493.2 million, respectively, at average annual interest rates of approximately 6.7%5.6% and 7.1%6.3%, respectively. The Company incurred net interest expense of $32.332.5 million and $30.7$27.3 million, respectively, during 20162018 and 2015.2017.
At December 31, 20162018 and 2015,2017, the Company had working capital of $1,052.4$720.2 million and $1,135.6$857.2 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments.
The Company’s net cash provided by operating activities, as reported in the Company’s Consolidated Statements of Cash Flows, was $261.3$287.0 million in 2016,2018, compared to $70.7$268.1 million in 2015. The growth is largely due to significant income tax payments made in the first quarter of 2015.
In 2015, the Company received a $447.1 million net distribution from Cable ONE as a result of the spin-off.
In December 2015, the Company sold one property located along the Potomac River in Alexandria, VA, for approximately $22.9 million. A second property in Alexandria was sold in the second quarter of 2016, for approximately $30.8 million, of which $17.5 million will be received in 2019.2017.
In July 2016, Kaplan International Holdings Limited (KIHL) entered into an agreement with University of York International Pathway College LLP (York International College) to loan York International College £25 million over


the next 18 months, to construct an academic building in the UKU.K. to be used by theYork International College. York International College is a limited liability partnership joint venture between Kaplan York Limited (a subsidiary of Kaplan International Colleges UKU.K. Limited) and a subsidiary of the University of York, that operates a pathways college.college; KIHL holds a 45% interest in the joint venture. The loan will be repayable over 25 years at an interest rate of 7%, and the loan is guaranteed by the University of York. While there is no strict requirement to make annual principal and interest payments, interest will be rolled up and accrue interest at 7% if no such payments are made. The loan becomes due and payable if the partnership agreement with KIHL is terminated. In the second halfAs of 2016,December 31, 2017, KIHL advanced approximately £11.0£16 million to York International College. In the second quarter of 2018, KIHL advanced a final amount of £6 million in additional funding to the joint venture under this agreement, bringing the total amount advanced to £22 million.
The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds and, to a lesser extent, borrowings under its revolving credit facility. In management’s opinion, the Company will have ample liquidity to meet its various cash needs in 2017.2019.
The following reflects a summary of the Company’s contractual obligations as of December 31, 2016:2018:
(in thousands)2017 2018 2019 2020 2021 Thereafter Total2019 2020 2021 2022 2023 Thereafter Total
Debt and interest$36,899
 $36,777
 $423,523
 $73,779
 $33
 $134
 $571,145
$30,957
 $100,028
 $23,014
 $23,015
 $23,015
 $457,531
 $657,560
Operating leases87,626
 84,525
 73,899
 65,592
 50,416
 146,857
 508,915
101,009
 84,945
 72,031
 53,709
 47,091
 115,948
 474,733
Programming purchase commitments (1)
8,607
 5,091
 1,254
 922
 192
 303
 16,369
9,116
 6,041
 452
 297
 157
 
 16,063
Other purchase obligations (2)
48,777
 22,356
 14,101
 5,799
 4,101
 150
 95,284
72,245
 28,154
 13,347
 4,844
 2,034
 1,424
 122,048
Long-term liabilities (3)
4,881
 4,626
 4,481
 4,503
 4,427
 29,613
 52,531
3,692
 3,497
 3,297
 3,211
 3,013
 16,986
 33,696
Total$186,790
 $153,375
 $517,258
 $150,595
 $59,169
 $177,057
 $1,244,244
$217,019
 $222,665
 $112,141
 $85,076
 $75,310
 $591,889
 $1,304,100
___________________
(1)Includes commitments for the Company’s television broadcasting business that are reflected in the Company’s Consolidated Financial Statements and commitments to purchase programming to be produced in future years.
(2)Includes purchase obligations related to employment agreements, capital projects and other legally binding commitments. Other purchase orders made in the ordinary course of business are excluded from the table above. Any amounts for which the Company is liable under purchase orders are reflected in the Company’s Consolidated Balance Sheets as accounts payable and accrued liabilities.
(3)Primarily made up of multiemployer pension plan withdrawal obligations and postretirement benefit obligations other than pensions. The Company has other long-term liabilities excluded from the table above, including obligations for deferred compensation, long-term incentive plans and long-term deferred revenue.

The table above does not include the Company's commitment to loan an additional £14.0 to York International College.
Other. The Company does not have any off-balance-sheet arrangements or financing activities with special-purpose entities (SPEs).
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the amounts reported in the financial statements. On an ongoing basis, the Company evaluates its estimates and assumptions. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
An accounting policy is considered to be critical if it is important to the Company’s financial condition and results and if it requires management’s most difficult, subjective and complex judgments in its application. For a summary of all of the Company’s significant accounting policies, see Note 2 to the Company’s Consolidated Financial Statements.
Revenue Recognition, Trade Accounts Receivable and Allowance for Doubtful Accounts. Education tuition revenue is recognized ratably over the period of instruction asprimarily derived from postsecondary education services, are delivered to students,professional education and test preparation services. Revenue, net of any refunds, corporate discounts, scholarships and employee tuition discounts.discounts is recognized ratably over the instruction period or access period for higher education, professional education and test preparation services.
At KTPKaplan International and Kaplan International,KTP, estimates of average student course length are developed for each course, along with estimates for the anticipated level of student drops and refunds from test performance guarantees, and these estimates are evaluated on an ongoing basis and adjusted as necessary. As Kaplan’s businesses and related course offerings have changed, including more online programs, the complexity and significance of management’s estimates have increased.
KHE through the Kaplan Commitment program, provides first-time undergraduate students withnon-academic operations support services to Purdue University Global pursuant to a risk-free trial period. Under the program,Transition and Operations Support Agreement (TOSA), which includes technology support, help-desk functions, human resources support for faculty and employees, admissions support, financial aid administration, marketing and advertising, back-office business functions, and certain student recruitment services. KHE monitors academic progressis not entitled to receive any reimbursement of costs incurred in providing support services, or any service fee, unless and conducts assessmentsuntil Purdue University Global has first covered all of its operating costs (subject to help determine whether students are likely to be successful in their chosen course of study. Students who withdraw or are subject to dismissal during the risk-free trial period do not incur any significant financial obligation. The Company does not recognize revenues related to coursework until the students complete the risk-free period and decide to continue with their studies, at which time the fees become fixed or determinable.a cap), received payment for cost


efficiencies, if any, and during the first five years of the TOSA receive a priority payment of $10 million per year in addition to the operating cost reimbursements and cost efficiency payments. KHE will receive reimbursement for its operating costs of providing the support services after payment of Purdue University Global’s operating costs, cost efficiency payments, and priority payment. If there are sufficient revenues, KHE may be entitled to a cost efficiency payment, if any, and an additional service fee equal to 12.5% of Purdue University Global’s revenue. Subject to certain limitations, a portion of the service fee that is earned by KHE in one year may be carried over to subsequent years for payment to Kaplan.
The support services fee and reimbursement for KHE support costs are entirely dependent on the availability of cash at the end of Purdue University Global’s fiscal year (June 30), and therefore, all consideration in the contract is variable. The Company uses significant judgment to forecast the operating results of Purdue University Global, the availability of cash at the end of each fiscal year, and the consideration it expects to receive from Purdue University Global annually. Key assumptions used in the forecast model include student census and degree enrollment data, Purdue University Global and KHE expenses, changes to working capital, contractually stipulated minimum payments, and lead conversion rates. The forecast is updated as uncertainties are resolved. The Company reviews and updates the assumptions regularly, as a significant change in one or more of these estimates could affect revenue recognized. Changes to the estimated variable consideration were not material for the year ended December 31, 2018.
The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company acts as a principal or an agent in the transaction. In certain cases, the Company is considered the agent, and the Company records revenue equal to the net amount retained when the fee is earned. In these cases, costs incurred with third-party suppliers areis excluded from the Company’s revenue. The Company assesses whether it obtained control of the specified goods or services before they are transferred to the third-party supplier is the primary obligor and evaluates the terms of its customer arrangements as part of this assessment. In addition, the Company considers other key indicators such as latitudethe party primarily responsible for fulfillment, inventory risk and discretion in establishing price, inventory risk, nature of services performed, discretion in supplier selection and credit risk.price.
Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical collection experience and management’s evaluation of the financial condition of the customer. The Company generally considers an account past due or delinquent when a student or customer misses a scheduled payment. The Company writes off accounts receivable balances deemed uncollectible against the allowance for doubtful accounts following the passage of a certain period of time, or generally when the account is turned over for collection to an outside collection agency.
Goodwill and Other Intangible Assets. The Company has a significant amount of goodwill and indefinite-lived intangible assets that are reviewed at least annually for possible impairment.
As of December 31As of December 31
(in millions)2016 20152018 2017
Goodwill and indefinite-lived intangible assets$1,189.0
 $1,039.4
$1,396.8
 $1,401.9
Total assets$4,432.7
 $4,352.8
$4,764.0
 $4,937.8
Percentage of goodwill and indefinite-lived intangible assets to total assets27% 24%29% 28%
The Company performs its annual goodwill and intangible assets impairment test as of November 30. Goodwill and other intangible assets are reviewed for possible impairment between annual tests if an event occurred or circumstances changed that would more likely than not reduce the fair value of the reporting unit or other intangible assets below its carrying value.
Goodwill
The Company tests its goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. The Company initially performs an assessment of qualitative factors to determine if it is necessary to perform the two-stepa quantitative goodwill impairment test. The Company quantitatively tests goodwill for impairment using the two-step process if, based on its assessment of the qualitative factors, it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if it decides to bypass the qualitative assessment. The first step of thequantitative goodwill impairment test compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. This stepAn impairment charge is performed to identify potential impairment,recognized for the amount by which occurs when the carrying amount of the reporting unit exceeds its estimated fair value. The second step of the goodwill impairment test is only performed when there is a potential impairment and is performed to measure the amount of impairment loss at the reporting unit. During the second step, the Company allocates the estimated fair value of the reporting unit to all of the assets and liabilities of the unit (including any unrecognized intangible assets). The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The amount of the goodwill impairment is the difference between the carrying value of the reporting unit’s goodwill and the implied fair value determined during the second step.value.


The Company had 1315 reporting units as of December 31, 2016.2018. The reporting units with significant goodwill balances as of December 31, 2016,2018, were as follows, representing 83%89% of the total goodwill of the Company:
(in millions)GoodwillGoodwill
Education  
Kaplan international$583.4
Higher education$141.1
63.2
Test preparation63.8
64.7
Kaplan international555.2
Professional (U.S.)86.2
Television broadcasting168.3
190.8
Healthcare69.6
Hoover91.3
Total$928.4
$1,149.2
As of November 30, 2016,2018, in connection with the Company’s annual impairment testing, the Company decided to perform the two-stepquantitative goodwill impairment process at all of the reporting units. The Company’s policy requires the performance of a quantitative impairment review of the goodwill at least once every three years. The Company used a discounted cash flow model, and, where appropriate, a market value approach was also utilized to supplement the discounted cash flow model to determine the estimated fair value of its reporting units. The Company made estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine each reporting unit’s estimated fair value. The methodology used to estimate the fair


value of the Company’s reporting units on November 30, 2016,2018, was consistent with the one used during the 20152017 annual goodwill impairment test.
The Company made changes to certain of its assumptions utilized in the discounted cash flow models for 20162018 compared with the prior year to take into account changes in the economic environment, regulations and their impact on the Company’s businesses. The key assumptions used by the Company were as follows:
Expected cash flows underlying the Company’s business plans for the periods 20172019 through 20212023 were used. The expected cash flows took into account historical growth rates, the effect of the changed economic outlook at some of the Company’s businesses, industry challenges and an estimate for the possible impact of any applicable regulations. Expected cash flows also reflected the anticipated savings from restructuring plans at certain of the education division’s reporting units, and other initiatives.
Cash flows beyond 20212023 were projected to grow at a long-term growth rate, which the Company estimated between 1%1.5% and 3% for each reporting unit.
The Company used a discount rate of 9.5% to 20.0%21.5% to risk adjust the cash flow projections in determining the estimated fair value.
The fair value of each of the reporting units exceeded its respective carrying value as of November 30, 2016.2018.
In 2015, the Company reported a goodwill impairment charge of $248.6 million at the KHE reporting unit. The remaining goodwill balance at the KHE reporting unit as of December 31, 2016 totaled $141.1 million. The estimated fair value of three reporting units at the KHE reporting unitmanufacturing businesses exceeded itstheir respective carrying valuevalues by a margin less than 25% following a decrease in excesstheir estimated fair values compared with the prior year. The total goodwill at these three reporting units was $223.9 million as of 25%. December 31, 2018, or 17% of the total goodwill of the Company. There exists a reasonable possibility that a decrease in the assumed projected cash flows or long-term growth rate, or an increase in the discount rate assumption used in the discounted cash flow model of these reporting units, could result in an impairment charge.
The estimated fair value of the Company’s other reporting units with significant goodwill balances exceeded their respective carrying values by a margin in excess of 25%. It is possible that impairment charges could occur in the future, given changes in market conditions and the inherent variability in projecting future operating performance.
The estimated fair value of two reporting units included in the Other Businesses category with total goodwill balances less than $70.0 million exceeded their respective carrying values by close margins. There exists a reasonable possibility that a decrease in the assumed projected cash flows or long-term growth rate, or an increase in the discount rate assumption used in the discounted cash flow models of these reporting units, could result in an impairment charge.
Indefinite-Lived Intangible Assets
The Company initially assesses qualitative factors to determine if it is more likely than not that the fair value of its indefinite-lived intangible assets is less than its carrying value. The Company compares the fair value of the indefinite-lived intangible asset with its carrying value if the qualitative factors indicate it is more likely than not that the fair value of the asset is less than its carrying value or if it decides to bypass the qualitative assessment. The Company records an impairment loss if the carrying value of the indefinite-lived intangible assets exceeds the fair value of the assets for the difference in the values. The Company uses a discounted cash flow model, and, in certain cases, a market value approach is also utilized to supplement the discounted cash flow model to determine the estimated fair value of the indefinite-lived intangible assets. The Company makes estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and other market values to determine the estimated fair value of the indefinite-lived intangible assets. The Company’s policy requires the performance of a quantitative impairment review of the indefinite-lived intangible assets at least once every three years.


The Company’s intangible assets with an indefinite life are principally from trade names licensure and accreditation.FCC licenses. The fair value of each indefinite-lived intangible asset exceeded its respective carrying value as of November 30, 2016.2018. There is always a possibility that impairment charges could occur in the future, given the inherent variability in projecting future operating performance.
Pension Costs. The Company sponsors a defined benefit pension plan for eligible employees in the U.S. Excluding curtailment gain,gains, settlement gaingains and special termination benefits, the Company’s net pension credit including amounts for discontinued operations was $74.0 million, $59.0 million and $49.1 million $63.3 millionfor 2018, 2017 and $69.4 million for 2016, 2015 and 2014, respectively. The Company’s pension benefit obligation and related credits are actuarially determined and are impacted significantly by the Company’s assumptions related to future events, including the discount rate, expected return on plan assets and rate of compensation increases. The Company evaluates these critical assumptions at least annually and, periodically, evaluates other assumptions involving demographic factors, such as retirement age, mortality and turnover, and updates them to reflect its experience and expectations for the future. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
The Company assumed a 6.5%6.25% expected return on plan assets for year 2016,2018 and 2017, which is consistent withwas a change from the 6.5% expected return assumption for years 2015 and 2014.2016. The Company’s actual (loss) return on plan assets was (2.5)% in 2018, 19.2% in 2017 and (2.0)% in 2016, (6.2)% in 2015 and 7.4% in 2014.2016. The 10-year and 20-year actual returns on plan assets on an annual basis were 7.5%11.6% and 9.7%7.2%, respectively.


Accumulated and projected benefit obligations are measured as the present value of future cash payments. The Company discounts those cash payments using the weighted average of market-observed yields for high-quality fixed-income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and generally increase subsequent-year pension costs; higher discount rates decrease present values and decrease subsequent-year pension costs. The Company’s discount rate at December 31, 2018, 2017 and 2016, 2015was 4.3%, 3.6% and 2014, was 4.1%, 4.3% and 4.0%, respectively, reflecting market interest rates.
Changes in key assumptions for the Company’s pension plan would have had the following effects on the 20162018 pension credit, excluding curtailment gains, settlement gaingains and special termination benefits:
Expected return on assets – A 1% increase or decrease to the Company’s assumed expected return on plan assets would have increased or decreased the pension credit by approximately $18.7$20.8 million.
Discount rate – A 1% decrease to the Company’s assumed discount rate would have increaseddecreased the pension credit by approximately $4.3$2.4 million. A 1% increase to the Company’s assumed discount rate would have increaseddecreased the pension credit by approximately $10.0$24.6 million.
The Company’s net pension credit includes an expected return on plan assets component, calculated using the expected return on plan assets assumption applied to a market-related value of plan assets. The market-related value of plan assets is determined using a five-year average market value method, which recognizes realized and unrealized appreciation and depreciation in market values over a five-year period. The value resulting from applying this method is adjusted, if necessary, such that it cannot be less than 80% or more than 120% of the market value of plan assets as of the relevant measurement date. As a result, year-to-year increases or decreases in the market-related value of plan assets impact the return on plan assets component of pension credit for the year.
At the end of each year, differences between the actual return on plan assets and the expected return on plan assets are combined with other differences in actual versus expected experience to form a net unamortized actuarial gain or loss in accumulated other comprehensive income. Only those net actuarial gains or losses in excess of the deferred realized and unrealized appreciation and depreciation are potentially subject to amortization.
The types of items that generate actuarial gains and losses that may be subject to amortization in net periodic pension (credit) cost include the following:
Asset returns that are more or less than the expected return on plan assets for the year;
Actual participant demographic experience different from assumed (retirements, terminations and deaths during the year);
Actual salary increases different from assumed; and
Any changes in assumptions that are made to better reflect anticipated experience of the plan or to reflect current market conditions on the measurement date (discount rate, longevity increases, changes in expected participant behavior and expected return on plan assets).
Amortization of the unrecognized actuarial gain or loss is included as a component of pension credit for a year if the magnitude of the net unamortized gain or loss in accumulated other comprehensive income exceeds 10% of the


greater of the benefit obligation or the market-related value of assets (10% corridor). The amortization component is equal to that excess divided by the average remaining service period of active employees expected to receive benefits under the plan. At the end of 2013,2015, the Company had net unamortized actuarial gains in accumulated other comprehensive income potentially subject to amortization that were outside the 10% corridor that resulted in amortized gains of $28.9 million being included in the pension credit for 2014.
During 2014, there was a decrease in the discount rate offset by pension asset gains that resulted in no net unamortized actuarial gains or losses in accumulated other comprehensive income subject to amortization outside the 10% corridor, and therefore, no amortized gain or loss amounts were included in the pension credit in the first six months of 2015. As a result of the Cable ONE spin-off and KHE Campuses sale, the Company remeasured the accumulated and projected benefit obligation as of July 1, 2015 and September 3, 2015, respectively, and recorded a curtailment gain. During the first six months of 2015, there were pension asset gains and an increase in the discount rate, which resulted in net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the corridor, and therefore, an amortized gain of $11.9 million is included in the pension credit for the last six months of 2015. During the last four months of 2015, there were significant pension asset losses that resulted in no net unamortized actuarial gains or losses in accumulated other comprehensive income subject to amortization outside the 10% corridor, and therefore, no amortized gain or loss amounts were included in the pension credit for 2016.
During 2016, there was a decrease in the discount rate and pension asset losses;losses that resulted in unamortized gains in accumulated other comprehensive income subject to amortization outside the corridor, and therefore, an amortized gain of $4.4 million was included in the pension credit for 2017.
During 2017, there were pension asset gains offset by a further decrease in the discount rate that resulted in unamortized gains in accumulated other comprehensive income subject to amortization outside the corridor, and therefore, an amortized gain of $1.0 million was included in the pension credit for the first three months of 2018.
As a result of the Kaplan University transaction, the Company remeasured the accumulated and projected benefit obligations as of March 22, 2018, and recorded a curtailment gain. During the first three months there was an increase in the discount rate offset by pension assets losses that resulted in net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the corridor, and therefore, an amortized gain of $9.0 million was included in the pension credit for the last nine months of 2018. During the last nine months of 2018, there were significant pension asset losses offset by a further increase in the discount rate; however, the Company currently estimates that there will be net unamortized gains in accumulated other comprehensive income subject to


amortization outside the corridor, and therefore, an amortized gain amount of $5.2$0.2 million is included in the estimated pension credit for 2017.2019.
Overall, the Company estimates that it will record a net pension credit of approximately $59$54 million in 2017, which incorporates a reduction in the assumed rate of return assumption to 6.25%.2019.
Note 14 to the Company’s Consolidated Financial Statements provides additional details surrounding pension costs and related assumptions.
Accounting for Income Tax Taxes. 
Valuation Allowances. Allowances
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of assets and liabilities. In evaluating its ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. These assumptions require significant judgment about forecasts of future taxable income.
As of December 31, 2016,2018, the Company had state income tax net operating loss carryforwards of $455.6$698.9 million, which will expire at various dates from 2017 through 2035.future dates. Also at December 31, 2016,2018, the Company had $69.3$58.1 million of non-U.S. income tax loss carryforwards, of which $60.3$46.8 million may be carried forward indefinitely; $4.8$8.4 million of losses that, if unutilized, will expire in varying amounts through 2021;2023; and $4.2$2.9 million of losses that, if unutilized, will start to expire after 2021.2023. At December 31, 2016,2018, the Company has established approximately $41.3$33.1 million in valuation allowances against deferred state tax assets, net of U.S. Federal income taxes, and non-U.S. deferred tax assets, as the Company believes that it is more likely than not that the benefit from certain state and non-U.S. net operating loss carryforwards and other deferred tax assets will not be realized. The Company has established valuation allowances against state income tax benefits recognized, without considering potentially offsetting deferred tax liabilities established with respect to prepaid pension cost and goodwill. Prepaid pension cost and goodwill have not been considered a source of future taxable income for realizing deferred tax benefits recognized since these temporary differences are not likely to reverse in the foreseeable future. The valuation allowances established against state and non-U.S. income tax benefits recorded may increase or decrease within the next 12 months, based on operating results, the market value of investment holdings or business and tax planning strategies; as a result, the Company is unable to estimate the potential tax impact, given the uncertain operating and market environment. The Company will be monitoring future operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against state and non-U.S. deferred tax assets should be increased or decreased, as future circumstances warrant. The Company’s education division released valuation allowances against state deferred tax assets of $20.0 million during 2018, as the education division recently generated positive operating results that support the realization of these deferred tax assets.
Uncertain Tax Positions
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related to appeals or litigation processes based on the technical merits. The Company records a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on the


Company’s tax return. Changes in the estimate are recorded in the period in which such termination is made. The Company expects that a $2.5 million state tax benefit, net of $0.5 million federal tax expense, will reduce the effective tax rate in the future if recognized.
The Company classifies interest and penalties related to uncertain tax positions as a component of interest and other expenses, respectively. As of December 31, 2018, the Company has accrued $0.6 million of interest related to the unrecognized tax benefits. The Company has not accrued any penalties related to the unrecognized tax benefits.
Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017, making significant changes to the Internal Revenue Code. In accordance with SEC Staff Accounting Bulletin No. 118 (SAB 118), the Company finalized its analysis of the Tax Act and no material adjustments were made to previously recorded provision amounts in the Consolidated Financial Statements for the year ended December 31, 2018.
Recent Accounting Pronouncements. See Note 2 to the Company’s Consolidated Financial Statements for a discussion of recent accounting pronouncements.


MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Graham Holdings Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management assessed the effectiveness of internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Management has concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was effective based on these criteria.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
ShareholdersStockholders of Graham Holdings Company:Company
Opinions on the Financial Statements and Internal Control over Financial Reporting
In our opinion,We have audited the accompanying consolidated balance sheets of Graham Holdings Company and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income cash flows and(loss), changes in common stockholders’ equity present fairly in all material respects, the financial position of Graham Holdings Company and its subsidiaries at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20162018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,2018, based on criteria established inInternal Control-IntegratedControl - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations ofCOSO.
Change in Accounting Principles
As discussed in Note 2 to the Treadway Commission (COSO). consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers and the manner in which it accounts for pension and postretirement benefit costs in 2018.
Basis for Opinions
The Company’sCompany's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company has changed the manner in which it presents restricted cash in the statementDefinition and Limitations of cash flows in 2016.Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable


assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
February 24, 201725, 2019

We have served as the Company’s auditor since 1946.




GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31
(in thousands, except per share amounts)2016 2015 2014
Operating Revenues     
Education$1,598,347
 $1,927,405
 $2,160,417
Advertising311,078
 279,924
 308,214
Other572,465
 378,785
 268,401
 2,481,890
 2,586,114
 2,737,032
Operating Costs and Expenses     
Operating1,180,945
 1,206,153
 1,261,753
Selling, general and administrative904,517
 1,104,163
 1,132,157
Depreciation of property, plant and equipment64,620
 77,906
 74,913
Amortization of intangible assets26,671
 19,017
 18,187
Impairment of goodwill and other long-lived assets1,603
 259,700
 17,302
 2,178,356
 2,666,939
 2,504,312
Income (Loss) from Operations303,534
 (80,825) 232,720
Equity in (losses) earnings of affiliates, net(7,937) (697) 100,370
Interest income3,093
 1,909
 2,136
Interest expense(35,390) (32,654) (35,533)
Other (expense) income, net(12,642) (8,623) 778,010
Income (Loss) from Continuing Operations Before Income Taxes250,658
 (120,890) 1,077,703
Provision for Income Taxes81,200
 20,500
 312,300
Income (Loss) from Continuing Operations169,458
 (141,390) 765,403
Income from Discontinued Operations, Net of Tax
 42,170
 527,857
Net Income (Loss)169,458
 (99,220) 1,293,260
Net (Income) Loss Attributable to Noncontrolling Interests(868) (1,435) 583
Net Income (Loss) Attributable to Graham Holdings Company168,590
 (100,655) 1,293,843
Redeemable Preferred Stock Dividends
 (631) (847)
Net Income (Loss) Attributable to Graham Holdings Company Common Stockholders$168,590
 $(101,286) $1,292,996
Amounts Attributable to Graham Holdings Company Common Stockholders     
Income (loss) from continuing operations$168,590
 $(143,456) $765,139
Income from discontinued operations, net of tax
 42,170
 527,857
Net income (loss) attributable to Graham Holdings Company common stockholders$168,590
 $(101,286) $1,292,996
Per Share Information Attributable to Graham Holdings Company Common Stockholders     
Basic income (loss) per common share from continuing operations$29.95
 $(25.23) $115.88
Basic income per common share from discontinued operations
 7.36
 79.93
Basic net income (loss) per common share$29.95
 $(17.87) $195.81
Basic average number of common shares outstanding5,559
 5,727
 6,470
Diluted income (loss) per common share from continuing operations$29.80
 $(25.23) $115.40
Diluted income per common share from discontinued operations
 7.36
 79.63
Diluted net income (loss) per common share$29.80
 $(17.87) $195.03
Diluted average number of common shares outstanding5,589
 5,727
 6,559
 Year Ended December 31
(in thousands, except per share amounts)2018 2017 2016
Operating Revenues$2,695,966
 $2,591,846
 $2,481,890
Operating Costs and Expenses     
Operating1,687,432
 1,454,343
 1,270,030
Selling, general and administrative650,128
 887,790
 896,097
Depreciation of property, plant and equipment56,722
 62,509
 64,620
Amortization of intangible assets47,414
 41,187
 26,671
Impairment of goodwill and other long-lived assets8,109
 9,614
 1,603
 2,449,805
 2,455,443
 2,259,021
Income from Operations246,161
 136,403
 222,869
Equity in earnings (losses) of affiliates, net14,473
 (3,249) (7,937)
Interest income5,353
 6,581
 3,093
Interest expense(37,902) (33,886) (35,390)
Debt extinguishment costs(11,378) 
 
Non-operating pension and postretirement benefit income, net120,541
 72,699
 80,665
Loss on marketable equity securities, net(15,843) 
 
Other income (expense), net2,103
 4,241
 (12,642)
Income Before Income Taxes323,508
 182,789
 250,658
Provision for (Benefit from) Income Taxes52,100
 (119,700) 81,200
Net Income271,408
 302,489
 169,458
Net Income Attributable to Noncontrolling Interests(202) (445) (868)
Net Income Attributable to Graham Holdings Company Common Stockholders$271,206
 $302,044
 $168,590
Per Share Information Attributable to Graham Holdings Company Common Stockholders     
Basic net income per common share$50.55
 $54.24
 $29.95
Basic average number of common shares outstanding5,333
 5,516
 5,559
Diluted net income per common share$50.20
 $53.89
 $29.80
Diluted average number of common shares outstanding5,370
 5,552
 5,589
See accompanying Notes to Consolidated Financial Statements.


GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year Ended December 31
(in thousands)2016 2015 2014
Net Income (Loss)$169,458
 $(99,220) $1,293,260
Other Comprehensive Loss, Before Tax     
Foreign currency translation adjustments:     
Translation adjustments arising during the year(22,149) (18,898) (16,061)
Adjustment for sales of businesses with foreign operations
 5,501
 (404)
 (22,149) (13,397) (16,465)
Unrealized gains on available-for-sale securities:     
Unrealized gains for the year55,507
 10,620
 62,719
Reclassification adjustment for realization of loss (gain) on exchange, sale or write-down of available-for-sale securities included in net income1,879
 (4) (265,274)
 57,386
 10,616
 (202,555)
Pension and other postretirement plans:     
Actuarial loss(133,915) (211,054) (149,482)
Prior service cost
 
 (1,600)
Amortization of net actuarial loss (gain) included in net income1,157
 (9,906) (29,412)
Amortization of net prior service cost (credit) included in net income419
 275
 (407)
Curtailments and settlements included in net income(17,993) 51
 8
Curtailments and settlements included in distribution to Cable ONE
 834
 
 (150,332) (219,800) (180,893)
Cash flow hedge (loss) gain(334) 179
 867
Other Comprehensive Loss, Before Tax(115,429) (222,402) (399,046)
Income tax benefit related to items of other comprehensive loss37,235
 83,602
 153,032
Other Comprehensive Loss, Net of Tax(78,194) (138,800) (246,014)
Comprehensive Income (Loss)91,264
 (238,020) 1,047,246
Comprehensive (income) loss attributable to noncontrolling interests(868) (1,435) 583
Total Comprehensive Income (Loss) Attributable to Graham Holdings Company$90,396
 $(239,455) $1,047,829
 Year Ended December 31
(in thousands)2018 2017 2016
Net Income$271,408
 $302,489
 $169,458
Other Comprehensive (Loss) Income, Before Tax     
Foreign currency translation adjustments:     
Translation adjustments arising during the year(35,584) 33,175
 (22,149)
Adjustment for sales of businesses with foreign operations
 137
 
 (35,584) 33,312
 (22,149)
Unrealized gains on available-for-sale securities:     
Unrealized gains for the year
 112,086
 55,507
Reclassification adjustment for realization of loss on sale of available-for-sale securities included in net income
 
 1,879
 
 112,086
 57,386
Pension and other postretirement plans:     
Actuarial (loss) gain(101,013) 179,674
 (133,915)
Prior service credit (cost)4,262
 (75) 
Amortization of net actuarial (gain) loss included in net income(11,349) (6,527) 1,157
Amortization of net prior service (credit) cost included in net income(947) 477
 419
Curtailments and settlements included in net income(30,267) 
 (17,993)
 (139,314) 173,549
 (150,332)
Cash flow hedge gain (loss)551
 112
 (334)
Other Comprehensive (Loss) Income, Before Tax(174,347) 319,059
 (115,429)
Income tax benefit (expense) related to items of other comprehensive (loss) income37,510
 (90,923) 37,235
Other Comprehensive (Loss) Income, Net of Tax(136,837) 228,136
 (78,194)
Comprehensive Income134,571
 530,625
 91,264
Comprehensive income attributable to noncontrolling interests(202) (445) (868)
Total Comprehensive Income Attributable to Graham Holdings Company$134,369
 $530,180
 $90,396
See accompanying Notes to Consolidated Financial Statements.


GRAHAM HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31As of December 31
(In thousands, except share amounts)2016 20152018 2017
Assets      
Current Assets      
Cash and cash equivalents$648,885
 $754,207
$253,256
 $390,014
Restricted cash21,931
 20,745
10,859
 17,552
Investments in marketable equity securities and other investments448,241
 379,445
514,581
 557,153
Accounts receivable, net615,101
 572,435
582,280
 620,319
Income taxes receivable41,635
 48,383
19,166
 23,901
Inventories and contracts in progress34,818
 32,068
69,477
 60,612
Other current assets60,735
 53,439
82,723
 66,253
Total Current Assets1,871,346
 1,860,722
1,532,342
 1,735,804
Property, Plant and Equipment, Net233,664
 231,123
293,085
 259,358
Investments in Affiliates58,806
 59,229
143,813
 128,590
Goodwill, Net1,122,954
 1,017,513
1,297,712
 1,299,710
Indefinite-Lived Intangible Assets, Net66,026
 21,885
Indefinite-Lived Intangible Assets99,052
 102,195
Amortized Intangible Assets, Net107,939
 107,191
263,261
 237,976
Prepaid Pension Cost881,593
 979,970
1,003,558
 1,056,777
Deferred Income Taxes17,246
 
13,388
 15,367
Deferred Charges and Other Assets73,096
 75,192
117,830
 102,046
Total Assets$4,432,670
 $4,352,825
$4,764,041
 $4,937,823
Liabilities and Equity 
  
 
  
Current Liabilities 
  
 
  
Accounts payable and accrued liabilities$500,726
 $428,014
$486,578
 $526,323
Deferred revenue312,107
 297,135
308,728
 339,454
Income taxes payable10,496
 6,109
Current portion of long-term debt6,128
 
6,360
 6,726
Total Current Liabilities818,961
 725,149
812,162
 878,612
Postretirement Benefits Other Than Pensions21,859
 33,947
Accrued Compensation and Related Benefits195,910
 203,280
179,652
 213,889
Other Liabilities65,554
 70,678
57,901
 65,977
Deferred Income Taxes379,092
 403,316
322,421
 362,701
Mandatorily Redeemable Noncontrolling Interest12,584
 

 10,331
Long-Term Debt485,719
 399,800
470,777
 486,561
Total Liabilities1,979,679
 1,836,170
1,842,913
 2,018,071
Commitments and Contingencies (Notes 17 and 18)


 



 

Redeemable Noncontrolling Interests50
 25,957
4,346
 4,607
Preferred Stock, $1 par value; 977,000 shares authorized, none issued

 

 
Common Stockholders’ Equity 
  
 
  
Common stock 
  
 
  
Class A Common stock, $1 par value; 7,000,000 shares authorized; 964,001 shares issued and outstanding964
 964
964
 964
Class B Common stock, $1 par value; 40,000,000 shares authorized; 19,035,999 shares issued; 4,612,435 and 4,839,853 shares outstanding19,036
 19,036
Class B Common stock, $1 par value; 40,000,000 shares authorized; 19,035,999 shares issued; 4,336,958 and 4,540,493 shares outstanding19,036
 19,036
Capital in excess of par value364,363
 356,887
378,837
 370,700
Retained earnings5,588,942
 5,447,677
6,236,125
 5,791,724
Accumulated other comprehensive income, net of taxes 
  
 
  
Cumulative foreign currency translation adjustment(26,998) (4,849)(29,270) 6,314
Unrealized gain on available-for-sale securities92,931
 58,500

 194,889
Unrealized gain on pensions and other postretirement plans170,830
 261,029
232,836
 334,536
Cash flow hedge(277) 
263
 (184)
Cost of 14,423,564 and 14,196,146 shares of Class B common stock held in treasury(3,756,850) (3,648,546)
Cost of 14,699,041 and 14,495,506 shares of Class B common stock held in treasury(3,922,009) (3,802,834)
Total Equity2,452,941
 2,490,698
2,916,782
 2,915,145
Total Liabilities and Equity$4,432,670
 $4,352,825
$4,764,041
 $4,937,823
See accompanying Notes to Consolidated Financial Statements.


GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31Year Ended December 31
(In thousands)2016 2015 20142018 2017 2016
Cash Flows from Operating Activities          
Net Income (Loss)$169,458
 $(99,220) $1,293,260
Net Income$271,408
 $302,489
 $169,458
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation, amortization and goodwill and other long-lived asset impairment92,894
 428,437
 249,457
112,245
 113,310
 92,894
Net pension benefit(67,097) (65,433) (69,406)(100,948) (59,039) (67,097)
Early retirement and special separation benefit program expense
 4,606
 8,374

 1,825
 
Loss on marketable equity securities and cost method investments, net4,180
 
 
Stock-based compensation expense, net13,418
 48,033
 17,577
6,412
 10,169
 13,418
Foreign exchange loss39,890
 15,564
 11,129
Debt extinguishment costs10,563
 
 
Foreign exchange loss (gain)3,844
 (3,310) 39,890
Net (gain) loss on sales and disposition of businesses(22,163) 18,095
 (351,133)(8,157) 569
 (22,163)
Net loss (gain) on dispositions, sales or write-downs of marketable equity securities and cost method investments30,449
 1,378
 (263,595)
Gain on sale of an equity affiliate
 (4,827) (396,553)
Equity in losses (earnings) of affiliates, net of distributions8,859
 1,118
 (96,517)
Provision for deferred income taxes10,070
 4,060
 49,143
Net (gain) loss on dispositions, sales or write-downs of marketable equity securities and cost method investments(148) 200
 30,449
Equity in (earnings) losses of affiliates, net of distributions(10,606) 3,646
 8,859
(Benefit from) provision for deferred income taxes(7,123) (146,452) 10,070
Net (gain) loss on sales or write-downs of property, plant and equipment(32,362) (18,265) (119,399)(1,642) 413
 (32,362)
Net gain on sale of intangible assets
 
 (75,249)
Change in operating assets and liabilities:     
     
Accounts receivable, net(47,892) (87,165) (96,844)59,847
 11,086
 (47,892)
Inventories(2,422) (1,778) (2,413)(7,351) (541) (2,422)
Accounts payable and accrued liabilities58,147
 62,901
 (39,199)(44,892) 19,380
 58,147
Deferred revenue16,552
 (51,825) 37,291
14,801
 13,903
 16,552
Income taxes receivable/payable5,115
 (174,326) 146,692
9,405
 24,739
 5,115
Other assets and other liabilities, net(12,265) (11,972) 8,791
(26,973) (25,469) (12,265)
Other605
 1,270
 2,093
2,154
 1,137
 605
Net Cash Provided by Operating Activities261,256
 70,651
 313,499
287,019
 268,055
 261,256
Cash Flows from Investing Activities          
Investments in certain businesses, net of cash acquired(245,084) (159,320) (206,035)(111,546) (299,938) (245,084)
Purchases of property, plant and equipment(66,612) (136,859) (237,292)(98,192) (60,358) (66,612)
Net proceeds from sales of businesses, property, plant and equipment and other assets69,192
 41,683
 644,342
Proceeds from sales of marketable equity securities66,741
 
 29,702
Purchases of marketable equity securities(48,265) (145,807) (49,998)(42,659) 
 (48,265)
Investments in equity affiliates and cost method investments(6,273) (25,340) (10,283)
Investments in commercial paper
 
 (249,795)
Proceeds from maturities of commercial paper
 
 249,795
Net distribution from equity affiliate
 
 93,481
Disbursement of loan to affiliate(14,244) 
 
Advance related to Kaplan University transaction and loan to affiliate(28,061) (6,771) (14,244)
Investments in equity affiliates, cost method and other investments(11,702) (82,944) (6,273)
Net (payments) proceeds from sales of businesses, property, plant and equipment and other assets(10,344) 3,265
 39,490
Return of investment in equity affiliates4,799
 4,727
 
Net Cash Used in Investing Activities(230,964) (442,019) (311,286)
Cash Flows from Financing Activities     
Repayments of borrowings and early redemption premium(417,159) (7,715) 
Issuance of borrowings400,000
 
 98,610
Common shares repurchased(118,030) (50,770) (108,948)
Dividends paid(28,617) (28,329) (27,325)
Purchase of noncontrolling interest and deferred payment of acquisition(16,500) (5,187) (21,000)
Payments of financing costs(6,501) 
 (648)
(Repayments of) proceeds from bank overdrafts(5,717) (9,505) 14,429
Other
 73
 (5,200)165
 1,400
 1,805
Net Cash (Used in) Provided by Investing Activities(311,286) (425,570) 229,015
Cash Flows from Financing Activities     
Common shares repurchased, including the Berkshire Exchange transaction(108,948) (22,979) (327,718)
Issuance of borrowings98,610
 550,000
 
Cash distributed to Cable ONE in spin-off
 (94,115) 
Dividends paid(27,325) (53,721) (68,114)
Purchase of noncontrolling interest(21,000) 
 
Repayments of borrowings
 (44,815) (1,538)
Proceeds from exercise of stock options1,247
 15,312
 7,462
Excess tax benefit on share-based payment awards558
 11,828
 1,901
Redemption of redeemable preferred stock
 (10,510) 
Payments of financing costs(648) (9,944) 
Other14,429
 1,095
 (609)
Net Cash (Used in) Provided by Financing Activities(43,077) 342,151
 (388,616)
Net Cash Used in Financing Activities(192,359) (100,106) (43,077)
Effect of Currency Exchange Rate Change(11,029) (11,164) (8,502)(7,147) 10,820
 (11,029)
Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash(104,136) (23,932) 145,396
Net Decrease in Cash and Cash Equivalents and Restricted Cash(143,451) (263,250) (104,136)
Cash and Cash Equivalents and Restricted Cash at Beginning of Year774,952
 798,884
 653,488
407,566
 670,816
 774,952
Cash and Cash Equivalents and Restricted Cash at End of Year$670,816
 $774,952
 $798,884
$264,115
 $407,566
 $670,816
Supplemental Cash Flow Information          
Cash paid during the year for:          
Income taxes$65,000
 $209,000
 $188,000
$54,000
 $4,000
 $65,000
Interest$30,000
 $33,000
 $35,000
$42,000
 $33,000
 $30,000
See accompanying Notes to Consolidated Financial Statements.


GRAHAM HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY
(in thousands)
Class A
Common
Stock
Class B
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated Other Comprehensive Income
Treasury
Stock
Noncontrolling
Interest
Total Equity Redeemable Noncontrolling Interest
Class A
Common
Stock
Class B
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated Other Comprehensive Income
Treasury
Stock
Total Equity Redeemable Noncontrolling Interest
As of December 31, 2013$1,169
$18,831
$288,129
$4,782,777
$699,494
$(2,490,333)$221
$3,300,288
 $5,896
Net income for the year
 
1,293,260
   1,293,260
  
Acquisition of redeemable noncontrolling interest    
 17,108
Net income attributable to noncontrolling interests  
(497)  497

  
Net loss attributable to redeemable noncontrolling interests 1,080
 1,080
 (1,080)
Distribution to noncontrolling interests (242)(242)  
Dividends paid on common stock (67,267)   (67,267)  
Dividends paid on redeemable preferred stock (847)  (847)  
Repurchase of Class B common stock    (1,165,427) (1,165,427)  
Issuance of Class B common stock, net of restricted stock award forfeitures (3,186)  10,284
 7,098
  
Amortization of unearned stock compensation and stock option expense 18,291
   18,291
  
Other comprehensive loss, net of income taxes (246,014) (246,014)  
Conversion of Class A common stock to Class B common stock(194)194
   
  
Taxes arising from employee stock plans 555
   555
  
Other 
 (20)
As of December 31, 2014975
19,025
303,789
6,008,506
453,480
(3,645,476)476
3,140,775
 21,904
Net loss for the year    (99,220)  (99,220)  
Contribution of noncontrolling interest to a joint venture  
  (476)(476)  
Net income attributable to redeemable noncontrolling interests (1,435) (1,435) 1,435
Change in redemption value of redeemable noncontrolling interests (2,601) (2,601) 2,601
Dividends paid on common stock (53,090)  (53,090)  
Dividends paid on redeemable preferred stock    (631)  (631)  
Repurchase of Class B common stock     (22,979) (22,979)  
Issuance of Class B common stock, net of restricted stock award forfeitures (13,244)  19,909
 6,665
  
Amortization of unearned stock compensation and stock option expense 57,115
   57,115
  
Other comprehensive loss, net of income taxes (139,658) (139,658)  
Conversion of Class A common stock to Class B common stock(11)11
   
  
Spin-Off of Cable ONE 7,285
(406,453)858
 (398,310)  
Taxes arising from employee stock plans 4,543
   4,543
  
Other 
 17
As of December 31, 2015964
19,036
356,887
5,447,677
314,680
(3,648,546)
2,490,698
 25,957
$964
$19,036
$356,887
$5,447,677
$314,680
$(3,648,546)$2,490,698
 $25,957
Net income for the year 169,458
  169,458
    
169,458
  169,458
  
Net income attributable to redeemable noncontrolling interests (868)  (868) 868
 (868) (868) 868
Change in redemption value of redeemable noncontrolling interests (3,026)    (3,026) 3,026
 (3,026) (3,026) 3,026
Dividends paid on common stock    (27,325)  (27,325)   (27,325)  (27,325)  
Repurchase of Class B common stock     (108,948) (108,948)      (108,948)(108,948)  
Issuance of Class B common stock, net of restricted stock award forfeitures (697)  644
 (53)   (697)  644
(53)  
Amortization of unearned stock compensation and stock option expense 14,717
   14,717
   14,717
   14,717
  
Other comprehensive loss, net of income taxes (78,194) (78,194)   (78,194) (78,194)  
Taxes arising from employee stock plans 558
   558
   558
   558
  
Purchase of redeemable noncontrolling interest 
 (24,031) 
 (24,031)
Exchange of redeemable noncontrolling interest (4,076) (4,076) (5,770) (4,076) (4,076) (5,770)
As of December 31, 2016$964
$19,036
$364,363
$5,588,942
$236,486
$(3,756,850)$
$2,452,941
 $50
964
19,036
364,363
5,588,942
236,486
(3,756,850)2,452,941
 50
Net income for the year    302,489
  302,489
  
Acquisition of redeemable noncontrolling interest    
 3,666
Net income attributable to redeemable noncontrolling interests (445) (445) 445
Change in redemption value of redeemable noncontrolling interests (446) (446) 446
Dividends paid on common stock (28,329)  (28,329)  
Repurchase of Class B common stock     (50,770)(50,770)  
Issuance of Class B common stock, net of restricted stock award forfeitures (4,401)  4,786
385
  
Amortization of unearned stock compensation and stock option expense 11,184
   11,184
  
Other comprehensive income, net of income taxes 228,136
 228,136
  
Reclassification of stranded tax effects as a result of tax reform (70,933)70,933
 
  
As of December 31, 2017964
19,036
370,700
5,791,724
535,555
(3,802,834)2,915,145
 4,607
Net income for the year 271,408
  271,408
  
Net income attributable to redeemable noncontrolling interests (202)  (202) 202
Change in redemption value of redeemable noncontrolling interests 413
 413
 (413)
Dividends paid on common stock    (28,617)  (28,617)  
Repurchase of Class B common stock     (118,030)(118,030)  
Issuance of Class B common stock, net of restricted stock award forfeitures (340)  (1,145)(1,485)  
Amortization of unearned stock compensation and stock option expense 8,064
   8,064
  
Other comprehensive loss, net of income taxes (136,837) (136,837)  
Cumulative effect of accounting change 
 
 
201,812
(194,889) 6,923
  
Other  
 
 (50)
As of December 31, 2018$964
$19,036
$378,837
$6,236,125
$203,829
$(3,922,009)$2,916,782
 $4,346
See accompanying Notes to Consolidated Financial Statements.


GRAHAM HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION AND NATURE OF OPERATIONS
Graham Holdings Company (the Company), is a diversified education and media company. The Company’s Kaplan subsidiary provides a wide variety of educational services, both domestically and outside the United States. The Company’s media operations comprise the ownership and operation of fiveseven television broadcasting stations.
On March 22, 2018, Kaplan completed the sale of the institutional assets and operations of Kaplan University (KU) to an Indiana non-profit, public benefit corporation that is a subsidiary affiliated with Purdue University (Purdue) (see Note 3). The gain on the KU transaction is included in other income (expense), net, in the Consolidated Statement of Operations.
Education—Kaplan, Inc. provides an extensive range of educational services for students and professionals. Kaplan’s various businesses comprise threefour categories: Kaplan International, Higher Education (KHE), Test Preparation (KTP) and Kaplan International.Professional (U.S.).
Media—The Company’s diversified media operations comprise television broadcasting, several websites and print publications, and a marketing solutions provider.
Television broadcasting. As of December 31, 2016,2018, the Company owned five VHFseven television stations located in Houston, TX; Detroit, MI; Orlando, FL; San Antonio, TX; Roanoke, VA; and two stations in Jacksonville, FL. Other than the Company’s Jacksonville station, WJXT, the Company’s televisionAll stations are affiliated with one of the major national networks.
On January 17, 2017, Graham Media Group (GMG), a subsidiary of the Company, acquired WCWJ, the CW affiliate television stationnetwork-affiliated except for WJXT in Jacksonville, FL, and WSLS, the NBC affiliate television station in Roanoke, VA. Both stations will continue to operate under their previous network affiliations.FL.
Other—The Company’s other business operations include home health and hospice services and manufacturing.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States and include the assets, liabilities, results of operations and cash flows of the Company and its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications.  Certain amounts in previously issued financial statements have been reclassified to conform with the 2016 presentation.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.
Business Combinations. The purchase price of an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the cost of an acquired entity over the net of the amounts assigned to the assets acquired and liabilities assumed is recognized as goodwill. The net assets and results of operations of an acquired entity are included in the Company’s Consolidated Financial Statements from the acquisition date.
Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand, short-term investments with original maturities of three months or less and investments in money market funds with weighted average maturities of three months or less.
Restricted Cash. Restricted cash represents amounts held for students that were received from U.S. Federal and state governments under various aid grant and loan programs, such as Title IV of the U.S. Federal Higher Education Act of 1965 (Higher Education Act), as amended, that the Company is required to maintainbe held by non-U.S. higher education institutions for prepaid tuition pursuant to U.S. Department of Education (ED) and otherforeign government regulations. FederalThese regulations stipulate that the Company has a fiduciary responsibility to segregate Federal funds from all othercertain funds to ensure thethese funds are only used for the benefit of eligible students. The regulations further indicate that funds received under Federal aid programs are held in trust for the intended student beneficiary and the ED, and as trustee of these funds, the Company may not use the funds for any other purpose until the funds are applied to eligible student charges, which occurs within three days of the receipt of the funds. Restricted cash also includes (i) certain funds that the Company may be required to return if a student who receives Title IV program funds withdraws from a program and (ii) funds required to be held by non-U.S. higher education institutions for prepaid tuition.


Concentration of Credit Risk. Cash and cash equivalents are maintained with several financial institutions domestically and internationally. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with investment-grade credit ratings. The Company routinely assesses the financial strength of significant customers, and this assessment, combined with the large number and geographical diversity of its customers, limits the Company’s concentration of risk with respect to trade accounts receivable.


Allowance for Doubtful Accounts. Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical collection experience and management’s evaluation of the financial condition of the customer. The Company generally considers an account past due or delinquent when a student or customer misses a scheduled payment. The Company writes off accounts receivable balances deemed uncollectible against the allowance for doubtful accounts following the passage of a certain period of time, or generally when the account is turned over for collection to an outside collection agency.
Investments in Marketable Equity Securities. The Company’sCompany measures its investments in marketable equity securities are classified as available-for-sale and, therefore, are recorded at fair value in the Consolidated Financial Statements, with the changechanges in fair value duringrecognized in earnings. The Company elected the period excluded from earnings and recorded net of income taxes as a separate component of other comprehensive income.measurement alternative to measure cost method investments that do not have readily determinable fair value at cost less impairment, adjusted by observable price changes with any fair value changes recognized in earnings. If the fair value of a marketablean equity security declines below its cost basis and the decline is considered other than temporary, the Company will record a write-down, which is included in earnings. The Company uses the average cost method to determine the basis of the securities sold or reclassified outsold.
Prior to 2018, the Company’s investments in marketable equity securities were classified as available-for-sale and, therefore, were recorded at fair value in the Consolidated Financial Statements, with the change in fair value during the period excluded from earnings and recorded net of income taxes as a separate component of other comprehensive income. Additionally, the Company used the cost method of accounting for its minority investments in nonpublic companies where it did not have significant influence over the operations and management of the investee. Investments were recorded at the lower of cost or fair value as estimated by management. Charges recorded to write down cost method investments to their estimated fair value and gross realized gains or losses upon the sale of cost method investments were included in other income (expense), net, in the Company’s Consolidated Statements of Operations. Fair value estimates were based on a review of the investees’ product development activities, historical financial results and projected discounted cash flows. The Company includes cost method investments in deferred charges and other assets in the Company’s Consolidated Balance Sheets.
Fair Value Measurements. Fair value measurements are determined based on the assumptions that a market participant would use in pricing an asset or liability based on a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) observable inputs, such as quoted prices in active markets (Level 1); (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company’s assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
For assets that are measured using quoted prices in active markets, the total fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.
The Company measures certain assets—including goodwill; intangible assets; property, plant and equipment; cost and equity-method investments—at fair value on a nonrecurring basis when they are deemed to be impaired. The fair value of these assets is determined with valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow models.
Fair Value of Financial Instruments. The carrying amounts reported in the Company’s Consolidated Financial Statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the current portion of deferred revenue and the current portion of debt approximate fair value because of the short-term nature of these financial instruments. The fair value of long-term debt is determined based on a number of observable inputs, including the current market activity of the Company’s publicly traded notes, trends in investor demands and market values of comparable publicly traded debt. The fair value of the interest rate hedge is determined based on a number of observable inputs, including time to maturity and market interest rates.
Inventories and Contracts in Progress. Inventories and contracts in progress are stated at the lower of cost or net realizable values and are based on the first-in, first-out (FIFO) method. Inventory costs include direct material, direct and indirect labor, and applicable manufacturing overhead. The Company allocates manufacturing overhead based on normal production capacity and recognizes unabsorbed manufacturing costs in earnings. The provision for excess and obsolete inventory is based on management’s evaluation of inventories on hand relative to historical usage, estimated future usage and technological developments.
Property, Plant and Equipment. Property, plant and equipment is recorded at cost and includes interest capitalized in connection with major long-term construction projects. Replacements and major improvements are


capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the property, plant and equipment: 3 to 20 years for machinery and equipment; 20 to 50 years for buildings. The costs of leasehold improvements are amortized over the lesser of their useful lives or the terms of the respective leases.


Evaluation of Long-Lived Assets. The recoverability of long-lived assets and finite-lived intangible assets is assessed whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. A long-lived asset is considered to not be recoverable when the undiscounted estimated future cash flows are less than the asset’s recorded value. An impairment charge is measured based on estimated fair market value, determined primarily using estimated future cash flows on a discounted basis. Losses on long-lived assets to be disposed of are determined in a similar manner, but the fair market value would be reduced for estimated costs to dispose.
Goodwill and Other Intangible Assets. Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company’s intangible assets with an indefinite life are principally from trade names and trademarks, licenses and accreditation.FCC licenses. Amortized intangible assets are primarily student and customer relationships and trade names and trademarks, with amortization periods up to 10 years. Costs associated with renewing or extending intangible assets are insignificant and expensed as incurred.
The Company reviews goodwill and indefinite-lived intangible assets at least annually, as of November 30, for possible impairment. Goodwill and indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or indefinite-lived intangible asset below its carrying value. The Company tests its goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. The Company initially assesses qualitative factors to determine if it is necessary to perform the two-step goodwill impairment review or indefinite-lived intangible asset quantitative impairment review. The Company reviews the goodwill and indefinite-lived assets for impairment using the two-step process and the indefinite-lived intangible assets using the quantitative process if, based on its assessment of the qualitative factors, it determines that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, or if it decides to bypass the qualitative assessment. The Company reviews the carrying value of goodwill and indefinite-lived intangible assets utilizing a discounted cash flow model, and, where appropriate, a market value approach is also utilized to supplement the discounted cash flow model. The Company makes assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market values to determine the estimated fair value of each reporting unit and indefinite-lived intangible asset. If these estimates or related assumptions change in the future, the Company may be required to record impairment charges.
Investments in Affiliates. The Company uses the equity method of accounting for its investments in and earnings or losses of affiliates that it does not control, but over which it exerts significant influence. The Company considers whether the fair values of any of its equity method investments have declined below their carrying values whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary (based on various factors, including historical financial results, product development activities and the overall health of the affiliate’s industry), a write-down would be recorded to estimated fair value.
Cost Method Investments. The Company uses the cost method of accounting for its minority investments in nonpublic companies where it does not have significant influence over the operations and management of the investee. Investments are recorded at the lower of cost or fair value as estimated by management. Charges recorded to write down cost method investments to their estimated fair value and gross realized gains or losses upon the sale of cost method investments are included in other (expense) income, net, in the Company’s Consolidated Statements of Operations. Fair value estimates are based on a review of the investees’ product development activities, historical financial results and projected discounted cash flows. The Company includes cost method investments in deferred charges and other assets in the Company’s Consolidated Balance Sheets.
Revenue Recognition. Revenue isPrior to the adoption of the new revenue guidance on January 1, 2018, the Company recognized revenue when persuasive evidence of an arrangement exists,existed, the fees arewere fixed or determinable, the product or service hashad been delivered and collectability is reasonablywas assured. The Company considersconsidered the terms of each arrangement to determine the appropriate accounting treatment.
Subsequent to the adoption of the new guidance, the Company identifies a contract for revenue recognition when there is approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and the collectability of consideration is probable. The Company evaluates each contract to determine the number of distinct performance obligations in the contract, which requires the use of judgment.
Education revenues. Revenue. Education revenue is primarily derived from postsecondary education, professional education and test preparation services provided both domestically and abroad. Generally, tuition and other fees are paid upfront and recorded in deferred revenue in advance of the date when education services are provided to the student. In some instances, installment billing is available to students, which reduces the amount of cash consideration received in advance of performing the service. The contractual terms and conditions associated with installment billing indicate that the student is liable for the total contract price; therefore, mitigating the Company’s exposure to losses associated with nonpayment. The Company determined the installment billing does not represent a significant financing component.
Kaplan International. Kaplan International provides higher education, professional education, and test preparation services and materials to students primarily in the United Kingdom, Singapore, and Australia. Some Kaplan


International contracts consist of one performance obligation that is a combination of indistinct promises to the student, while other Kaplan International contracts include multiple performance obligations as the promises in the contract are capable of being both distinct and distinct within the context of the contract. One Kaplan International business offers an option whereby students receive future services at a discount that is accounted for as a material right.
The transaction price is stated in the contract and known at the time of contract inception; therefore, no variable consideration exists. Revenue is allocated to each performance obligation based on its standalone selling price. Any discounts within the contract are allocated across all performance obligations unless observable evidence exists that the discount relates to a specific performance obligation or obligations in the contract. Kaplan International generally determines standalone selling prices based on prices charged to students.
Revenue is recognized ratably over the instruction period or access period for higher education, professional education and test preparation services. Kaplan International generally uses the time elapsed method, an input measure, as it best depicts the simultaneous consumption and delivery of these services. Course materials determined to be a separate performance obligation are recognized at the point in time when control transfers to the student, generally when the products are delivered to the student.
Higher Education (KHE). In the first quarter of 2018, KHE provided postsecondary education services to students through KU’s online programs and fixed-facility colleges.
These contracts consisted either of one performance obligation that is a combination of distinct promises to a student, or two performance obligations if the student also enrolled in the Kaplan Tuition Cap, which established a maximum amount of tuition that KHE may charge students for higher education services. The Kaplan Tuition Cap was accounted for as a material right. The transaction price of a higher education contract was stated in the contract and known at the time of contract inception; therefore, no variable consideration existed. A portion of the transaction price was allocated to the material right, if applicable, based on the expected value method.
Higher education services revenue was recognized ratably over the instruction period. The Company used the time elapsed method, an input measure, as it best depicts the simultaneous consumption and delivery of higher education services.
On March 22, 2018, Kaplan contributed the institutional assets and operations of KU to Purdue University Global (see Note 3). Subsequent to the transaction, KHE provides non-academic operations support services to Purdue University Global pursuant to a Transition and Operations Support Agreement (TOSA). This contract has a 30-year term and consists of one performance obligation, which represents a series of daily promises to provide support services to Purdue University Global. The transaction price is entirely made up of variable consideration related to the reimbursement of KHE support costs and the KHE fee. The TOSA outlines a payment structure, which dictates how cash will be distributed at the end of Purdue University Global’s fiscal year, which is the 30th of June. The collectability of the KHE support costs and KHE fee is entirely dependent on the availability of cash at the end of the fiscal year. This variable consideration is constrained based on fiscal year forecasts prepared for Purdue University Global. The forecasts are updated throughout the fiscal year until the uncertainty is ultimately resolved, which is at the end of each Purdue University Global fiscal year. As KHE’s performance obligation is made up of a series, the variable consideration is allocated to the distinct service period to which it relates, which is the Purdue University Global fiscal year.
Support services revenue is recognized over time based on the expenses incurred to date and the percentage of expected reimbursement. KHE fee revenue is also recognized over time based on the amount of Purdue University Global revenue recognized to date and the percentage of fee expected to be collected for the fiscal year. The Company used these input measures as Purdue University Global simultaneously receives and consumes the benefits of the services provided by KHE.
Kaplan Test Preparation (KTP). KTP offers test preparation services and materials to students related to pre-college, graduate, health and bar review products. Generally KTP contracts include promises for test preparation services and course materials. As each promise is both capable of being distinct and distinct in the context of the contract, each promise is accounted for as a separate performance obligation. As the transaction price is stated in the contract and known at the time of contract inception, no variable consideration exists. Revenue is allocated to each performance obligation based on its standalone selling price. KTP generally determines standalone selling prices based on prices charged to students. Any discounts within the contract are allocated across all performance obligations unless observable evidence exists that the discount relates to a specific performance obligation or obligations in the contract.
Test preparation services revenue is recognized ratably over the period of instruction as services are delivered to students, net of any refunds, corporate discounts, scholarships and employee tuition discounts.access. At KTP, and International divisions, estimatesan estimate of average student course length areaccess period is developed for each course, and these estimates arethis estimate is evaluated on an ongoing basis and adjusted as necessary. OnlineKTP generally uses the time elapsed method, an input measure, as it best depicts the simultaneous


consumption and availability of access to test preparation services. Revenue associated with distinct course materials is recognized at the point in time when control transfers to the student, generally when the products are delivered to the student.
KTP offers a guarantee on certain courses that gives students the ability to repeat a course if they are not satisfied with their exam score. The Company accounts for this guarantee as a separate performance obligation.
Professional (U.S.): Professional (U.S.) provides professional training and exam preparation for professional certifications and licensures to students. Professional (U.S.) contracts include promises for professional education services and course materials. Generally, Professional (U.S.) revenue contracts consist of multiple performance obligations as each distinct promise is both capable of being distinct and distinct in the context of the contract. The transaction price is stated in the contract and known at the time of contract inception, therefore no variable consideration exists. Revenue is allocated to each performance obligation based on its standalone selling price. Professional (U.S.) generally determines standalone selling prices based on the prices charged to students. Any discounts within the contract are allocated across all performance obligations unless observable evidence exists that the discount relates to a specific performance obligation or obligations in the contract.
Professional education services revenue is recognized ratably over the period of access. Course material revenueProfessional (U.S.) generally uses the time elapsed method, an input measure, as it best depicts the simultaneous consumption and availability of access to professional education services. Revenue associated with distinct course materials is recognized overat the same period aspoint in time when control transfers to the tuition or online access, if related, orstudent, generally when the products are delivered to the student.
Television Broadcasting Revenue. Television broadcasting revenue at Graham Media Group (GMG) is primarily comprised of television and internet advertising revenue, and retransmission revenue.
Television Advertising Revenue. GMG accounts for the series of advertisements included in television advertising contracts as one performance obligation and recognizes advertising revenue over time. The Company elected the right to invoice practical expedient, an output method, as GMG has the right to consideration that equals the value provided to the customer for advertisements delivered to date. As a result of the election to use the right to invoice practical expedient, GMG does not determine the transaction price or allocate any variable consideration at contract inception. Rather, GMG recognizes revenue commensurate with the amount to which GMG has the right to invoice the customer. Payment is typically received in arrears within 60 days of revenue recognition.
Retransmission Revenue. Retransmission revenue represents compensation paid by cable, satellite and other multichannel video programming distributors (MVPDs) to retransmit GMG’s stations’ broadcasts in their designated market areas. The retransmission rights granted to MVPDs are accounted for as a license of functional intellectual property as the retransmitted broadcast provides significant standalone functionality. As such, each retransmission contract with an MVPD includes one performance obligation for each station’s retransmission license. GMG recognizes revenue using the usage-based royalty method, in which revenue is recognized in the month the broadcast is retransmitted based on the number of MVPD subscribers and the applicable per user rate identified in the retransmission contract. Payment is typically received in arrears within 60 days of revenue recognition.
Manufacturing Revenue. Manufacturing revenue consists primarily of product sales generated by four businesses: Hoover, Dekko, Joyce and Forney. The Company has determined that each item ordered by the customer is a distinct performance obligation as it has standalone value and is distinct within the context of the contract. For arrangements with multiple performance obligations, the Company initially allocates the transaction price to each obligation based on its standalone selling price, which is the retail price charged to customers. Any discounts within the contract are allocated across all performance obligations unless observable evidence exists that the discount relates to a specific performance obligation or obligations in the contract.
The Company sells some products and services with a right of return. This right of return constitutes variable consideration and is constrained from revenue recognition on a portfolio basis, using the expected value method until the refund period expires.
The Company recognizes revenue when or as control transfers to the customer. Some manufacturing revenue is recognized ratably over the manufacturing period, if the product created for the customer does not related. have an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. The determination of the method by which the Company measures its progress toward the satisfaction of its performance obligations requires judgment. The Company measures its progress for these products using the units delivered method, an output measure. These arrangements represented 27% of the manufacturing revenue recognized for the year ended December 31, 2018.
Other revenues, such as student support services,manufacturing revenue is recognized at the point in time when control transfers to the customer, generally when the products are shipped. Some customers have a bill and hold arrangement with the Company. Revenue for bill and hold arrangements is recognized when control transfers to the services are provided.
KHE, throughcustomer, even though the Kaplan Commitment program, provides first-time undergraduate students with a risk-free trial period. Under the program, KHE monitors academic progress and conducts assessments to help determine whether students are likely to be successful in their chosen course of study. Students who withdraw or are subject to dismissal during the risk-free trial period do not incur any significant financial obligation. The Companycustomer does not recognize revenues related to coursework until the students complete the risk-free period and decide to continue with their studies, at which time the fees become fixed or determinable.


KHE’s refund policy may permit students who do not complete a course to be eligible for a refund for the portionhave physical possession of the course they didgoods. Control transfers when the bill-and-hold arrangement has been requested from the customer, the product is identified as belonging to the customer and is ready for physical transfer, and the product cannot be directed for use by anyone but the customer.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 90 days of delivery.
The Company evaluated the terms of the warranties and guarantees offered by its manufacturing businesses and determined that these should not attend.be accounted for as a separate performance obligation as a distinct service is not identified.
Healthcare Revenue. The Company contracts with patients to provide home health or hospice services. Payment is typically received from third-party payors such as Medicare, Medicaid, and private insurers. The payor is a third party to the contract that stipulates the transaction price of the contract. The Company identifies the patient as the party who benefits from its healthcare services and as such, the patient is its customer.
The Company determined that healthcare services contracts generally have one performance obligation to provide healthcare services to patients. The transaction price reflects the amount of revenue the refund differs by school, program and state, as some states require different policies. Refunds generally resultCompany expects to receive in a reduction in deferred revenue duringexchange for providing these services. As the period that a student drops or withdraws from a class becausetransaction price for healthcare services is known at the associated tuitiontime of contract inception, no variable consideration exists. Healthcare revenue is recognized dailyratably over the period of instructioncare. The Company generally uses the time-elapsed method, an input measure as it best depicts the simultaneous delivery and consumption of healthcare services.
Payment is received from third-party payors within 60 days after a claim is filed, or in some cases in two installments, one during the contract and one after the services have been provided. Medicare is the most common third-party payor.
Home health revenue contracts may be modified to account for changes in the patient’s plan of care. The Company identifies contract modifications when the modification changes the existing enforceable rights and obligations. As modifications to the plan of care modify the original performance obligation, the Company accounts for the contract modification as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
Other Revenue. The Company recognizes revenue associated with management services it provides to its affiliates. The Company accounts for the management services provided as one performance obligation and recognizes revenue over time as the services are delivered. The Company uses the right to invoice practical expedient, an output method, as the Company’s right to revenue corresponds directly with the value delivered to the affiliate. As a result of the election to use the right to invoice practical expedient, the Company does not determine the transaction price or allocate any variable consideration at contract inception. Rather, the Company recognizes revenue commensurate with the amount to which it has the right to invoice the affiliate, which is based on contractually identified percentages. Payment is received monthly in arrears.
Television broadcasting revenues. SocialCode RevenueAdvertising revenues are recognized,. SocialCode generates media management revenue in exchange for providing social media marketing solutions to its clients. The Company determined that SocialCode contracts generally have one performance obligation made up of a series of promises to manage the client’s media spend on advertising platforms for the duration of the contract period.
SocialCode recognizes revenue, net of agency commissions, whenmedia acquisition costs, over time as media management services are delivered to the underlying advertisement is broadcast. Retransmission revenues are recognized overcustomer. Generally, SocialCode recognizes revenue using the termright to invoice practical expedient, an output method, as SocialCode’s right to revenue corresponds directly with the value delivered to its customer. As a result of the agreement based on monthly subscriber counts and contractual rates.election to use the right to invoice practical expedient, SocialCode does not determine the transaction price or allocate any variable consideration at contract inception. Rather, SocialCode recognizes revenue commensurate with the amount to which it has the right to invoice the customer which is a function of the cost of social media placement plus a management fee, less any applicable discounts. Payment is typically received within 100 days of revenue recognition.
Revenue presentation. The determination ofSocialCode evaluates whether it is the principal (i.e. presents revenue should be reported on a gross basis) or agent (i.e. presents revenue on a net basisbasis) in its contracts. SocialCode presents revenue for media management services, net of media acquisition costs, as an agent, as SocialCode does not control the media before placement on social media platforms.
Other Revenue. Other revenue primarily includes advertising and circulation revenue from Slate, Panoply and Foreign Policy. The Company accounts for other advertising revenues consistently with the advertising revenue streams addressed above. Circulation revenue consists of fees that provide customers access to online and print publications. The Company recognizes circulation revenue ratably over the subscription period beginning on the


date that the publication is made available to the customer. Circulation revenue contracts are generally annual or monthly subscription contracts that are paid in advance of delivery of performance obligations.
Revenue Policy Elections. The Company has elected to account for shipping and handling activities that occur after the customer has obtained control of the good as a fulfillment cost rather than as an additional promised service. Therefore, revenue for these performance obligations is recognized when control of the good transfers to the customer, which is when the good is ready for shipment. The Company accrues the related shipping and handling costs over the period when revenue is recognized.
The Company has elected to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer.
Revenue Practical Expedients. The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, (ii) contracts for which the amount of revenue recognized is based on an assessment of whetherthe amount to which the Company actshas the right to invoice the customer for services performed, (iii) contracts for which the consideration received is a usage-based royalty promised in exchange for a license of intellectual property and (iv) contracts for which variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.
Costs to Obtain a Contract. The Company incurs costs to obtain a contract that are both incremental and expected to be recovered as the costs would not have been incurred if the contract was not obtained and the revenue from the contract exceeds the associated cost. The revenue guidance provides a principalpractical expedient to expense sales commissions as incurred in instances where the amortization period is one year or an agentless. The amortization period is defined in the transaction. In certain cases,guidance as the Company is considered the agent, and the Company records revenue equal to the net amount retained when the fee is earned. In these cases, costs incurred with third-party suppliers are excluded from the Company’s revenue.contract term, inclusive of any expected contract renewal periods. The Company assesses whether it orhas elected to apply this practical expedient to all contracts except for contracts in its education division. In the third-party supplier iseducation division, costs to obtain a contract are amortized over the primary obligorapplicable amortization period except for cases in which commissions paid on initial contracts and evaluates the terms of its customer arrangements as part of this assessment. In addition, therenewals are commensurate. The Company considers other key indicators such as latitude in establishing price, inventory risk, nature of services performed, discretion in supplier selection and credit risk.
SocialCode LLC (SocialCode),amortizes these costs to obtain a wholly owned subsidiary, is a marketing and insights company that manages digital advertising for leading brands on digital media platforms like Facebook, Twitter, Instagram, Snapchat, Pinterest and YouTube. Donald E. Graham, the Chairman of the Company’s Board, was a member of the Board of Directors of Facebook, Inc. in 2014 and through June 10, 2015. SocialCode’s revenues are reportedcontract on a net basis; therefore,straight line basis over the Company’s Statements of Operations exclude the media acquisition costs incurred related to the relevant advertising platforms.
Deferred revenue.  Amounts received from customers in advance of revenue recognitionamortization period. These expenses are deferredincluded as liabilities. Deferred revenue to be earned after one year is included in other noncurrent liabilitiesoperating expenses in the Company’s Consolidated Balance Sheets.Statements of Operations.
Leases. The Company leases substantially all of its educational facilities and enters into various other lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine whether the lease is an operating or capital lease. Additionally, many of the Company’s lease agreements contain renewal options, tenant improvement allowances, rent holidays and/or rent escalation clauses. When such items are included in a lease agreement, the Company records a deferred rent asset or liability in the Consolidated Financial Statements and records these items in rent expense evenly over the terms of the lease.
The Company is also required to make additional payments under operating lease terms for taxes, insurance and other operating expenses incurred during the operating lease period; such items are expensed as incurred. Rental deposits are included as other assets in the Company’s Consolidated Balance Sheets for lease agreements that require payments in advance or deposits held for security that are refundable, less any damages, at the end of the respective lease.
Pensions and Other Postretirement Benefits. The Company maintains various pension and incentive savings plans. Most of the Company’s employees are covered by these plans. The Company also provides health carehealthcare and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.
The Company recognizes the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its Consolidated Balance Sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. The Company measures changes in the funded status of its plans using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate, the expected return on plan assets and the rate of compensation increase. The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.
Self-Insurance. The Company uses a combination of insurance and self-insurance for a number of risks, including claims related to employee health carehealthcare and dental care, disability benefits, workers’ compensation, general liability, property damage and business interruption. Liabilities associated with these plans are estimated based on, among other things, the Company’s historical claims experience, severity factors and other actuarial assumptions. The expected loss accruals are based on estimates, and, while the Company believes that the amounts accrued are adequate, the ultimate loss may differ from the amounts provided.
Income Taxes. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been


included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in


effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent that it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations; this evaluation is made on an ongoing basis. In the event the Company were to determine that it was able to realize net deferred income tax assets in the future in excess of their net recorded amount, the Company would record an adjustment to the valuation allowance, which would reduce the provision for income taxes.
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company records a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on the Company’s tax return. Changes in the estimate are recorded in the period in which such determination is made.
Foreign Currency Translation. Income and expense accounts of the Company’s non-United States operations where the local currency is the functional currency are translated into United States (U.S.) dollars using the current rate method, whereby operating results are converted at the average rate of exchange for the period, and assets and liabilities are converted at the closing rates on the period end date. Gains and losses on translation of these accounts are accumulated and reported as a separate component of equity and other comprehensive income. Gains and losses on foreign currency transactions, including foreign currency denominated intercompany loans on entities with a functional currency in U.S. dollars, are recognized in the Consolidated Statements of Operations.
Equity-Based Compensation. The Company measures compensation expense for awards settled in shares based on the grant date fair value of the award. The Company measures compensation expense for awards settled in cash, or that may be settled in cash, based on the fair value at each reporting date. The Company recognizes the expense over the requisite service period, which is generally the vesting period of the award.
Earnings Per Share. Basic earnings per share is calculated under the two-class method. The Company treats restricted stock as a participating security due to its nonforfeitable right to dividends. Under the two-class method, the Company allocates to the participating securities their portion of dividends declared and undistributed earnings to the extent the participating securities may share in the earnings as if all earnings for the period had been distributed. Basic earnings per share is calculated by dividing the income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated similarly except that the weighted average number of common shares outstanding during the period includes the dilutive effect of the assumed exercise of options and restricted stock issuable under the Company’s stock plans. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.
Mandatorily Redeemable Noncontrolling Interest.  The Company’s mandatorily redeemable noncontrolling interest representsrepresented the noncontrolling interest in Graham Healthcare Group (GHG), which iswas 90% owned. The minority shareholders havehad an option to put their shares to the Company starting in 2020 and arewere required to put a percentage of their shares in 2022 and 2024, with the remaining shares required to be put by the minority shareholders in 2026. Since the noncontrolling interest iswas mandatorily redeemable by the Company by 2026, it iswas reported as a noncurrent liability at December 31, 2016,2017 in the Consolidated Balance Sheets. The Company presentspresented this liability at fair value, which iswas computed annually as the current redemption value. Changes in the redemption value arewere recorded as interest expense or income in the Company’s Consolidated Statements of Operations. The mandatorily redeemable noncontrolling interest was redeemed and paid in July 2018 (see Note 3).
Redeemable Noncontrolling Interest.  The Company’s redeemable noncontrolling interest represents the noncontrolling interest in Hoover, which is 97.72% owned. The minority shareholders have an option to put some of their shares to the Company starting in 2019 and the remaining shares starting in 2021. The Company has an option to buy the shares of minority shareholders starting in 2027. The Company presents the redeemable noncontrolling interest at the greater of its carrying amount or redemption value at the end of each reporting period in the Consolidated Balance Sheets. Changes in the redemption value are recorded to capital in excess of par value in the Company’s Consolidated Balance Sheets.
Comprehensive Income. Comprehensive income consists of net income, foreign currency translation adjustments, the change in unrealized gains (losses) on investments in marketable equity securities, net changes in cash flow hedge, and pension and other postretirement plan adjustments.
Discontinued Operations. A disposal of a component is reported as discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. The results of discontinued operations (as well as the gain or loss on the disposal) are aggregated and separately presented in the Company’s Consolidated Statements of Operations, net of income taxes.

Recently Adopted and Issued Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (FASB) issued comprehensive new guidance that supersedes all existing revenue recognition guidance. In August 2015, the FASB issued an amendment to the guidance that defers the effective date by one year. The new guidance requires revenue to be recognized when the Company transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those


goods or services. The new guidance also significantly expands the disclosure requirements for revenue recognition. The guidance is effective for interim and fiscal years beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016. The standard permits two implementation approaches, onefull retrospective, requiring retrospective application of the new guidance with a restatement of prior years, and oneor modified retrospective, requiring prospective application of the new guidance with disclosure of results under the old guidance.guidance in the first year of adoption. The Company is inadopted the process of evaluating the impact of this new guidance on its Consolidated Financial Statements and believes such evaluation will extend over several future periods becauseJanuary 1, 2018, using the modified retrospective approach for contracts not completed as of the significanceadoption date.
Upon adoption of the new guidance, the Company recorded a net increase to the opening balance of retained earnings of $6.9 million. This adjustment was driven by changes in the timing of recognition of both revenues and expenses. A change in revenue recognition at a manufacturing business resulted in the acceleration of revenue and associated expenses as revenue is now recognized over time versus at a point in time. A change in the contract term at an education business resulted in a different revenue recognition pattern from previous recognition. Finally, the Company’s treatment of certain commissions paid to employees and agents at its education division changed. The Company previously expensed such commissions as incurred. Upon adoption of the new guidance, the Company capitalizes certain commission costs as an incremental cost of obtaining a contract and, subsequently, amortizes the cost as the tuition services are delivered to students.
The cumulative effect of the changes to the Company’s policies and business processes.
In August 2014,Consolidated Balance Sheets as a result of adopting the FASB issued new guidance that requires managementwas as follows:
(in thousands)Balance as of December 31, 2017AdjustmentsBalance as of January 1, 2018
Assets   
Accounts receivable, net$620,319
$2,142
$622,461
Inventories and contracts in progress60,612
246
60,858
Other current assets66,253
6,343
72,596
Liabilities   
Accounts payable and accrued liabilities$526,323
$88
$526,411
Deferred revenue339,454
(346)339,108
Deferred income taxes362,701
2,066
364,767
Equity   
Retained earnings$5,791,724
$6,923
$5,798,647
Under the modified retrospective method of adoption, the Company is required to assessdisclose the Company’s ability to continue as a going concern and to provide related disclosures in certain circumstances. Thisimpact the adoption of the revenue guidance is effective for interim and fiscal years ending after December 15, 2016. The Company adopted the guidance as of December 31, 2016. The guidance did not have an impacthad on its Consolidated Financial Statements.
In April 2015,Statements of Operations. Under the FASB issued newprevious guidance, that simplifiesKU’s fee revenue with Purdue University Global is not fixed and determinable until the presentationend of debt issuance costs. The newPurdue University Global’s fiscal year (see Note 3). As a result, the Company would report $4.5 million less revenue and operating income. If the Company continued to follow its accounting policies under the previous guidance requires that debt issuance costsfor all other revenue streams, revenue and expenses would be reported$1.7 million and $0.6 million lower, respectively, for the year ended December 31, 2018. This is primarily due to the net impact of the change in the balance sheet astiming of the recognition of revenue and costs to obtain a direct deduction from the gross amount of debt instead of classified as a deferred asset. The guidance is effective for interim and fiscal years beginning after December 15, 2015. The Company adopted the new guidance retrospectively as of January 1, 2016. Therefore, prior periods have been adjusted to reflect this guidance which resulted in the reclassification of $0.1 million of unamortized debt issuance costs related to the Company’s 7.25% unsecured notes from deferred charges and other assets to long-term debt within its Consolidated Balance Sheet as of December 31, 2015.contract.
In January 2016, the FASB issued new guidance that substantially revises the recognition, measurement and presentation of financial assets and financial liabilities. The new guidance, among other things, requires (i) equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, with some exceptions; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iv) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and (v) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The guidance is effective for interim and fiscal years beginning after December 15, 2017. Early adoption is not permitted.
The Company isadopted this guidance in the processfirst quarter of evaluating the impact2018 and recorded a cumulative adjustment of $194.9 million to retained earnings on its Consolidated Balance Sheet related to unrealized gains of available-for-sale


securities, net of tax, previously classified within accumulated other comprehensive income. Results for reporting periods beginning after January 1, 2018 are presented under this new guidance on its Consolidated Financial Statements.with any changes in fair value recognized in net income. In addition, the Company elected the measurement alternative to measure cost method investments that do not have a readily determinable fair value at cost less impairment, adjusted by observable price changes with any fair value changes recognized in net income.
In February 2016, the FASB issued new guidance that requires, among other things, a lessee to recognize a right-of-use asset representing an entity'sentity’s right to use the underlying asset for the lease term and a liability for lease payments on its balance sheet, regardless of classification of a lease as operating or financing. For leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities and account for the lease similar to existing guidance for operating leases today. This new guidance supersedes all prior guidance. The guidance is effective for interim and fiscal years beginning after December 15, 2018. Early adoption is permitted. The standard requiresprovides two methods of adoption under the modified retrospective approach. Under the comparative date method, lessees and lessors are required to recognize and measure leases atas of the beginning of the earliest period presentedpresented. Under the effective date method, lessees and lessors are required to recognize and measure leases as of the period of adoption. The Company will adopt the new guidance using the effective date method on January 1, 2019.
The Company expects to elect the available package of transition practical expedients, and the use of hindsight to determine the lease term. Additionally, the Company expects to elect the short-term lease recognition exemption, and the practical expedient not to separate non-lease components from the lease components to which they relate. The guidance will have a modified retrospective approach.material impact on the Company’s Consolidated Balance Sheet, but will not impact the Company’s results of operations. The most significant impact will be the recognition of right-of-use assets and lease liabilities for operating leases.
The Company has substantially completed its evaluation of the impact of adopting the new guidance, as well as its assessment of the need for any changes to the Company’s accounting policies and internal control structure. As a result, the Company will implement new processes and internal controls to enable the preparation of financial information on adoption. The Company is infinalizing its evaluation of new disclosures required by the process of evaluating the impact of this new guidance on its Consolidated Financial Statements.to determine additional information that will need to be disclosed, including weighted average remaining lease term, and weighted average remaining discount rate.
In March 2016,2017, the FASB issued new guidance that simplifieschanges the accountingpresentation of net periodic pension cost and net periodic postretirement benefit cost for stock-based compensation.defined benefit plans. The guidance requires an issuer to disaggregate the service cost component of net periodic pension and postretirement benefit cost from other components. Under the new guidance, (i) requires all excess tax benefits and tax deficiencies toservice cost will be recognizedincluded in the income statement withsame line item(s) as other compensation costs arising from services rendered by employees during the tax effects of vested or exercised awards treated as discrete items. Additionally, excess tax benefitsperiod, while the other components will be recognized regardless of whether the benefit reduces taxes payable in the current period, effectively eliminating the APIC pool; (ii) concludes excess tax benefits should be classified as an operating activity in the statement of cash flows; (iii) requires an entity to make an entity-wide accounting policy election to either estimate a forfeiture rate for awards or account for forfeitures as they occur; (iv) changes the threshold for equity classification for cash settlements of awards for withholding requirements to the maximum statutory tax rate in the applicable jurisdiction; and (v) concludes cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity in the statement of cash flows.after income from operations. The guidance is effective for interim and fiscal years beginning after December 15, 2016. Early adoption2017. The guidance must be applied retrospectively; however, a practical expedient is permitted. available which permits an employer to use amounts previously disclosed in its pension and postretirement plans footnote for the prior comparative periods.
The Company isadopted the new standard in the processfirst quarter of evaluating2018. In combination with the impactpresentation change to net periodic pension cost and net periodic postretirement benefit cost, the Company allocated its costs associated with fringe benefits between operating expenses and selling, general and administrative expenses. Previously, costs related to fringe benefits were generally classified as selling, general and administrative expenses. The amounts in the previously issued financial statements have been reclassified to conform to the reclassified presentation. The effect of this new guidance on itsthese changes to the Consolidated Financial Statements.Statements of Operations for 2017 and 2016 is as follows:
(in thousands)As Previously Reported Adjustment Upon Adoption
Year Ended December 31, 2017     
Operating expenses$1,359,842
 $94,501
 $1,454,343
Selling, general and administrative expenses909,592
 (21,802) 887,790
Income from Operations209,102
 (72,699) 136,403
Non-operating pension and postretirement benefit income, net
 72,699
 72,699
Income Before Income Taxes182,789
 
 182,789
      
Year Ended December 31, 2016     
Operating expenses$1,180,945
 $89,085
 $1,270,030
Selling, general and administrative expenses904,517
 (8,420) 896,097
Income from Operations303,534
 (80,665) 222,869
Non-operating pension and postretirement benefit income, net
 80,665
 80,665
Income Before Income Taxes250,658
 
 250,658


In November 2016,August 2018, the FASB issued new guidance that clarifies how restricted cashmodified the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The new guidance, among other things, removed the following disclosure requirements: (i) the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, and restricted cash equivalents should be presented(ii) the effects of a one-percentage-point change in assumed health care cost trend rates on the statement(a) aggregate of cash flows.the service and interest cost components of net periodic benefit costs, and (b) benefit obligation for postretirement health care benefits. The guidance requiresalso added the following disclosure requirements: (i) the weighted-average interest crediting rates for cash flow statementbalance plans with promised interest crediting rates, and (ii) an explanation of the reasons for significant gains and losses related to show changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents, which eliminatesbenefit obligation for the presentation of transfers between cash and cash equivalents and restricted cash and cash equivalents. Theperiod. This guidance is effective for interim and fiscal years beginningending after December 15, 2017,2020, with early adoption permitted. The Company adopted the newthis guidance retrospectively as of December 31, 2016. Prior periods have been adjusted to reflect this adoption, as detailed below:
 Year Ended December 31, 2015 Year Ended December 31, 2014
 As     As    
 Previously   As Previously   As
(in thousands)Reported Adjustment Adopted Reported Adjustment Adopted
Cash Flows from Operating Activities                 
Decrease in Restricted Cash$4,153
 (4,153) $
 $58,871
 (58,871) $
Net Cash Provided by Operating Activities74,804
 (4,153) 70,651
 372,370
 (58,871) 313,499
            
Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash(19,779) (4,153) (23,932) 204,267
 (58,871) 145,396
Cash and Cash Equivalents and Restricted Cash at Beginning of Year773,986
 24,898
 798,884
 569,719
 83,769
 653,488
Cash and Cash Equivalents and Restricted Cash at End of Year754,207

20,745

774,952
 773,986
 24,898
 798,884
In January 2017, the FASB issued new guidance which simplifies the subsequent measurement of goodwill. The new guidance eliminates Step 2 from the goodwill impairment test, which required entities to determine the implied fair value of goodwill as of the test date to measure a goodwill impairment charge. Instead, an entity should continue to test goodwill for impairment by comparing the fair value of a reporting unit with its carrying amount (Step 1), and an impairment charge will be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value. The guidance is effective for interim and fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is in the processfourth quarter of evaluating the impact of this new guidance on its Consolidated Financial Statements.2018.
Other new pronouncements issued but not effective until after December 31, 2016,2018, are not expected to have a material impact on the Company’s Consolidated Financial Statements.
3.DISCONTINUED OPERATIONS
Cable ONE Spin-Off. On July 1, 2015 (the Distribution Date), the Company completed the spin-off of Cable ONE as an independent, publicly traded company. The transaction was structured as a tax-free spin-off of Cable ONE to the stockholders of the Company as one share of Cable ONE common stock was distributed for every share of Class A and Class B common stock of Graham Holdings outstanding on the June 15, 2015, record date. Cable ONE is now an independent public company trading on the New York Stock Exchange under the symbol “CABO”. After the spin-off, the Company does not beneficially own any shares of Cable ONE common stock.
The results of operations of Cable ONE are included in the Company’s Consolidated Statements of Operations as income from discontinued operations, net of tax, for all periods presented.
In order to implement the spin-off, the Company entered into certain agreements with Cable ONE to give effect to the legal and structural separation and to allocate various assets, liabilities and obligations between the Company and Cable ONE. In addition to executing the spin-off in the manner provided in the agreements, Cable ONE distributed $450 million in cash to the Company in June 2015 using the proceeds from their issuance of unsecured notes of $450 million. Also, in connection with the spin-off, the Company modified the terms of 10,830 restricted stock awards in the second quarter of 2015 affecting 21 Cable ONE employees. The modification resulted in the acceleration of the vesting period of 6,324 restricted stock awards and the forfeiture of 4,506 restricted stock awards. The Company recorded incremental stock compensation expense, net of forfeitures, in the second quarter of 2015 amounting to $3.7 million, which is reflected as discontinued operations in the Company’s Consolidated Financial Statements.
The spin-off resulted in a modification of some of the Company’s outstanding restricted stock awards and stock options due to the equity restructuring on July 1, 2015. The holders of restricted stock awards received Cable ONE restricted common stock, on a pro rata basis, as part of the distribution, while the stock options were modified to add an antidilution provision. The modification of the restricted stock awards resulted in an estimated incremental stock compensation expense of $3.0 million that is being recognized over the remaining service periods of the unvested restricted stock awards through the end of 2018. The modification of some of the stock options resulted in


an incremental stock compensation expense of $23.5 million, of which $18.8 million related to fully vested stock options was recognized as a one-time expense in the third quarter of 2015, with the remaining $4.7 million to be recognized over the remaining service periods of the unvested stock options through the end of 2018. The $18.8 million expense is included in the Company’s corporate office segment results and in selling, general and administrative in the Company’s Consolidated Statements of Operations.
As a result of the spin-off, Cable ONE assumed the liability related to their employees participating in the Company’s Supplemental Executive Retirement Plan (SERP), and the Company eliminated the accrual of pension benefits for all Cable ONE employees related to their future service. As a result, the Company remeasured the accumulated and projected benefit obligation of the pension and SERP as of July 1, 2015. A pension curtailment gain of $2.2 million was recorded in the third quarter of 2015 in income from discontinued operations, net of tax.
On July 1, 2015, the Company divested the following assets and liabilities which net to $406.5 million, or $312.3 million net of cash retained by Cable ONE on the Distribution Date:
  As of
(in thousands) July 1, 2015
Cash and cash equivalents $94,115
Accounts receivable, net 29,778
Other current assets 14,182
Total current assets 138,075
Property, plant and equipment, net 612,812
Goodwill, net 85,488
Indefinite-lived intangible assets, net 496,321
Amortized intangible assets, net 510
Deferred charges and other assets 22,541
Total Assets $1,355,747
   
Accounts payable and accrued liabilities $70,920
Income taxes payable 2,962
Deferred revenue 21,883
Short-term borrowings 2,500
Total current liabilities 98,265
Accrued compensation and related benefits 24,227
Other liabilities 57
Deferred income taxes 279,245
Long-term debt 547,500
Total Liabilities $949,294
   
Net assets divested in the Spin-Off $406,453
Cash flows from Cable ONE for the years ended December 31, 2015 and 2014 are combined with the cash flows from operations within each of the categories presented. Cash flows from Cable ONE are as follows:
 Year Ended December 31
(in thousands)2015 2014
Net Cash Provided by Operating Activities$109,772
 $251,506
Net Cash Used in Investing Activities(74,416) (78,405)
Spin-Off Costs: One-time spin-off transaction, financing and related costs of $7.4 million and $3.5 million in 2015 and 2014, respectively, are included in discontinued operations, net of tax.
Other Discontinued Operations. In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International that resulted in a pre-tax loss of $3.1 million. An additional school in China was sold by Kaplan in January 2015 that resulted in a pre-tax loss of $0.7 million.
On June 30, 2014, the Company and Berkshire Hathaway Inc. (Berkshire) completed a transaction, as described in Note 7, in which Berkshire acquired a wholly owned subsidiary of the Company that included, among other things, WPLG, a Miami-based television station; a $375.0 million gain from the WPLG sale was recorded in the second quarter of 2014.
The results of operations of Cable ONE, the schools in China and WPLG for 2015 and 2014, where applicable, are included in the Company’s Consolidated Statements of Operations as income from discontinued operations, net of tax. All corresponding prior period operating results presented in the Company’s Consolidated Financial Statements


and the accompanying notes have been reclassified to reflect the discontinued operations presented. The Company did not reclassify its Consolidated Statements of Cash Flows to reflect the discontinued operations.
The summarized income from discontinued operations, net of tax, is presented below:
 Year Ended December 31
(in thousands)2015 2014
Operating revenues$397,404
 $845,114
Operating costs and expenses(325,379) (660,180)
Operating income72,025
 184,934
Non-operating (expense) income(1,288) 74,196
Income from discontinued operations70,737
 259,130
Provision for income taxes27,783
 98,207
Net Income from Discontinued Operations42,954
 160,923
(Loss) gain on dispositions of discontinued operations(732) 351,133
Provision (benefit) for income taxes on dispositions of discontinued operations52
 (15,801)
Income from Discontinued Operations, Net of Tax$42,170
 $527,857
4.INVESTMENTS
Commercial Paper and Money Market Investments. As of December 31, 2016 and 2015, the Company had commercial paper and money market investments of $485.1 million and $433.0 million, respectively, that are classified as cash, cash equivalents and restricted cash in the Company’s Consolidated Balance Sheets.
Investments in Marketable Equity Securities.Investments in marketable equity securities consist of the following:
 As of December 31
(in thousands)2016 2015
Total cost$269,343
 $253,062
Gross unrealized gains154,886
 97,741
Gross unrealized losses
 (240)
Total Fair Value$424,229
 $350,563
At December 31, 2016, and 2015, the Company owned 28,000 shares in Markel Corporation (Markel) valued at $25.3 million and $24.7 million, respectively. The Co-Chief Executive Officer of Markel, Mr. Thomas S. Gayner, is a member of the Company’s Board of Directors.
The Company settled on $48.3 million of marketable equity securities during 2016, of which $47.9 million was purchased during the year. The Company invested in $146.2 million and $50.0 million in marketable equity securities during 2015 and 2014, respectively. During 2016, proceeds from sales of marketable equity securities were $29.7 million, resulting in gross realized losses of $8.1 million and gross realized gains of $6.2 million. During 2014, proceeds from sales of marketable equity securities were $5.8 million and net realized losses on such sales were $2.6 million.
On June 30, 2014, the Company completed a transaction with Berkshire, as described in Note 7, that included the exchange of 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by the Company; a $266.7 million gain was recorded.
Investments in Affiliates.As of December 31, 2016, the Company held an approximate 20% interest in HomeHero and interests in several other affiliates; Residential Healthcare (Residential) held a 40% interest in Residential Home Health Illinois, a 42.5% interest in Residential Hospice Illinois, and a 40% interest in the joint venture formed between Residential and a Michigan hospital; and Celtic Healthcare (Celtic) held a 40% interest in the joint venture formed between Celtic Healthcare and Allegheny Health Network (AHN) (see Note 7). For the year ended December 31, 2016, the Company recorded $14.9 million in revenue for services provided to the affiliates of Celtic and Residential.
Additionally, Kaplan International Holdings Limited (KIHL) held a 45% interest in a joint venture formed with York University. In July 2016, Kaplan International Holdings Limited (KIHL) entered into an agreement with University of York International Pathway College LLP (York International College) to loan the LLP £25 million over the next eighteen months, to construct an academic building in the UK to be used by the College. York International College is a limited liability partnership joint venture between Kaplan York Limited (a subsidiary of Kaplan International Colleges UK Limited) and a subsidiary of the University of York, that operates a pathways college. The loan will be repayable over 25 years at an interest rate of 7% and the loan is guaranteed by the University of York. While there is no strict requirement to make annual principal and interest payments, interest will be rolled up and accrue interest


at 7% if no such payments are made. The loan becomes due and payable if the partnership agreement with Kaplan is terminated. In the second half of 2016, KIHL advanced approximately £11.0 million to York International College.
As a result of the challenging industry operating environment and operating losses, in the fourth quarter of 2016, the Company recorded an $8.4 million write-down on its investment in HomeHero, a company that managed an online senior home care marketplace.
On April 1, 2014, the Company received a gross cash distribution of $95.0 million from Classified Ventures' sale of apartments.com. In connection with this sale, the Company recorded a pre-tax gain of $90.9 million in the second quarter of 2014. On September 30, 2014, the Company held a 16.5% interest in Classified Ventures. On October 1, 2014, the Company and the remaining partners completed the sale of their entire stakes in Classified Ventures. Total proceeds to the Company, net of transaction costs, were $408.5 million, of which $16.5 million was held in escrow until received in the fourth quarter of 2015. The Company recorded a pre-tax gain of $396.6 million in connection with the sale in the fourth quarter of 2014.
5.ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts receivable consist of the following:
 As of December 31
(in thousands)2016 2015
Trade accounts receivable, less doubtful accounts   
of $26,723 and $27,854$591,854
 $553,780
Other receivables23,247
 18,655
 $615,101
 $572,435
The changes in allowance for doubtful accounts was as follows:
(in thousands)
Balance at
Beginning
of Period
 
Additions –
Charged to
Costs and
Expenses
 Deductions 
Balance
at
End of
Period
2016$27,854
 $29,718
 $(30,849) $26,723
2015$32,598
 $39,982
 $(44,726) $27,854
2014$33,834
 $47,356
 $(48,592) $32,598
Accounts payable and accrued liabilities consist of the following:
 As of December 31
(in thousands)2016 2015
Accounts payable and accrued liabilities$352,356
 $285,321
Accrued compensation and related benefits148,370
 142,693
 $500,726
 $428,014
Cash overdrafts of $15.5 million and $1.1 million are included in accounts payable and accrued liabilities at December 31, 2016 and 2015, respectively.
6.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
 As of December 31
(in thousands)2016 2015
Land$10,410
 $10,410
Buildings88,256
 83,642
Machinery, equipment and fixtures433,652
 438,388
Leasehold improvements209,612
 205,018
Construction in progress36,728
 13,517
 778,658
 750,975
Less accumulated depreciation(544,994) (519,852)
 $233,664
 $231,123
Depreciation expense was $64.6 million, $77.9 million and $74.9 million in 2016, 2015 and 2014, respectively.
The Company capitalized $0.4 millionof interest related to the construction of a building in 2016. No interest expense was capitalized in 2015 and 2014.


In the second quarter of 2015, as a result of the sale of Kaplan’s KHE Campuses business, Kaplan recorded a $6.9 million impairment charge. In 2014, as a result of restructuring activities at KHE Campuses, Kaplan recorded an impairment charge of $13.6 million. The Company estimated the fair value of the property, plant and equipment using a market approach.
7.ACQUISITIONS AND DISPOSITIONS OF BUSINESSES
Acquisitions. On January 31, 2019, the Company acquired a 90% interest in two auto dealerships. In May 2016, Graham Media Groupaddition to a cash payment, a subsidiary of the Company borrowed $30 million to finance the acquisition and entered into an interest rate swap to fix the interest rate on the debt at 4.7% per annum. The Company is required to repay the loan over a 10-year period by making monthly installment payments. The Company also entered into a management services agreement with an entity to acquireoperate and manage the acquired dealerships. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and will be included in other businesses.
During 2018, the Company acquired eight businesses, five in its education division, one in its healthcare division and two television stationsin other businesses for $60$121.1 million in cash and the assumption of certain pension obligations. This transaction closed on January 17, 2017.
The Company completed business acquisitions totaling approximately $258.0 million in 2016; $163.3 million in 2015; and $210.2 million in 2014.contingent consideration. The assets and liabilities of the companies acquired have beenwere recorded at their estimated fair values at the date of acquisition.
In January and February 2018, Kaplan acquired the assets of i-Human Patients, Inc., a provider of cloud-based, interactive patient encounter simulations for medical and nursing professionals and educators, and another small business in test preparation and international, respectively. These acquisitions are expected to provide strategic benefits in the future.
In May 2018, Kaplan acquired a 100% interest in Professional Publications, Inc. (PPI), an independent publisher of professional licensing exam review materials and engineering, surveying, architecture, and interior design licensure exam review, by purchasing all of its issued and outstanding shares. This acquisition is expected to provide certain strategic benefits in the future. This acquisition is included in Professional (U.S.).
On July 12, 2018, Kaplan acquired 100% of the issued and outstanding shares of the College for Financial Planning (CFFP), a provider of financial education and training to individuals pursuing the Certified Financial Planner certification, a Master of Science in Personal Financial Planning, or a Master of Science in Finance. The acquisition is expected to expand Kaplan’s financial education product offerings and is included in Professional (U.S.).
On July 31, 2018, Dekko acquired 100% of the issued and outstanding shares of Furnlite, Inc., a Fallston, NC-based manufacturer of power and data solutions for the hospitality and residential furniture industries. Dekko’s primary reasons for the acquisition are to complement existing product offerings and to provide potential synergies across the businesses. The acquisition is included in other businesses.
In August 2018, SocialCode acquired 100% of the membership interests of Marketplace Strategy (MPS), a Cleveland-based digital marketing agency that provides strategy consulting, optimization services, advertising management and creative solutions on online marketplaces including Amazon. SocialCode’s primary reason for the acquisition is to expand its platform offerings. The acquisition is included in other businesses.
In September 2018, GHG acquired the assets of a small business and Kaplan acquired the test preparation and study guide assets of Barron’s Educational Series, a New York-based education publishing company. The acquisitions are expected to complement the healthcare and test preparation services currently offered by GHG and Kaplan, respectively. GHG is included in the healthcare division. The Barron’s Educational Series acquisition is included in test preparation.
During 2017, the Company acquired six businesses, two in its education division, two in its television broadcasting division, one in its healthcare division and one in other businesses for $318.9 million in cash and contingent consideration, and the assumption of $59.1 million in certain pension and postretirement obligations. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition.


On January 17, 2017, the Company closed on its agreement with Nexstar Broadcasting Group, Inc. and Media General, Inc. to acquire the assets of WCWJ, a CW affiliate television station in Jacksonville, FL, and WSLS, an NBC affiliate television station in Roanoke, VA, for cash and the assumption of certain pension obligations. The acquisition of WCWJ and WSLS will complement the other stations that GMG operates. Both of these acquisitions are included in television broadcasting.
In February 2017, Kaplan acquired a 100% interest in Genesis Training Institute, a Dubai-based provider of professional development training in the United Arab Emirates, by purchasing all of its issued and outstanding shares. Additionally, Kaplan acquired a 100% interest in Red Marker Pty Ltd., an Australia-based regulatory technology company by purchasing all of its outstanding shares. These acquisitions are expected to provide certain strategic benefits in the future. Both of these acquisitions are included in Kaplan International.
In April 2017, the Company acquired 97.72% of the issued and outstanding shares of Hoover Treated Wood Products, Inc., a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications for $206.8 million, net of cash acquired. The fair value of the redeemable noncontrolling interest in Hoover was $3.7 million at the acquisition date, determined using a market approach. The minority shareholders have an option to put some of their shares to the Company starting in 2019 and the remaining shares starting in 2021. The Company has an option to buy the shares of minority shareholders starting in 2027. This acquisition is consistent with the Company’s ongoing strategy of investing in companies with a history of profitability and strong management. Hoover is included in other businesses.
At the end of June 2017, GHG acquired a 100% interest in Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider by purchasing all of its issued and outstanding shares. This acquisition expands GHG’s service area in Michigan. GHG is included in healthcare.
During 2016, the Company acquired five businesses, three businesses included in its education division and two businesses in other businesses.businesses for $258.0 million. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition. In January 2016, Kaplan acquired a 100% interest in Mander Portman Woodward, a leading provider of high-quality, bespoke education to UKUnited Kingdom (U.K.) and international students in London, Cambridge and Birmingham, by purchasing all of its issued and outstanding shares. In February 2016, Kaplan acquired a 100% interest in Osborne Books, an educational publisher of learning resources for accounting qualifications in the UK,U.K., by purchasing all of its issued and outstanding shares. The primary reason for these acquisitions iswas based on several strategic benefits expected to be realized in the future. Both of these acquisitions are included in Kaplan International.
In September 2016, Group Dekko Inc. (Dekko) acquired a 100% interest in Electri-Cable Assemblies, (ECA), a Shelton, CT-based manufacturer of power, data and electrical solutions for the office furniture industry, by purchasing all of its issued and outstanding shares. Dekko’s primary reasons for the acquisition were to complement existing product offerings and provide opportunities for synergies across the businesses. This acquisition is included in other businesses.
During 2015, the Company acquired two businesses. On November 13, 2015, the Company acquired a 100% interest in Dekko, a Garrett, IN-based manufacturer of electrical solutions for applications across three business lines: workspace power solutions, architectural lighting and electrical components and assemblies, by purchasing all of the issued and outstanding shares. Dekko is included in other businesses. On December 22, 2015, Kaplan acquired a 100% interest in SmartPros, a provider of accredited professional education and training, primarily in accountancy, which is included in Higher Education.
During 2014, the Company acquired nine businesses. On April 1, 2014, Celtic Healthcare acquired a 100% interest in VNA-TIP Healthcare, a provider of home health and hospice services in Missouri and Illinois. On May 30, 2014, the Company completed its acquisition of a 100% interest in Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems. On July 3, 2014, the Company completed its acquisition of an 80% interest in Residential Healthcare Group, Inc., the parent company of Residential Home Health and Residential Hospice, providers of skilled home health care and hospice services in Michigan and Illinois. Residential Healthcare Group, Inc. has a 40% ownership interest in Residential Home Health Illinois and a 42.5% ownership interest in Residential Hospice Illinois, which are accounted for as investments in affiliates. The fair value of the redeemable noncontrolling interest in Residential Healthcare Group, Inc. was $17.1 million at the acquisition date, determined using a market approach. The minority shareholders had an option to put their shares to the Company starting in 2017, and the Company had an option to buy the shares of some minority shareholders in 2020 and those of the remaining minority shareholders in 2024. The operating results of these businesses are included in other businesses. The Company also acquired three small businesses in its education division, one small business in its broadcasting division and two small businesses in other businesses.


Acquisition-related costs for acquisitions that closed during 2018, 2017 and 2016 were $1.5 million, $4.1 million and expensed as incurred. Acquisition-related costs were not significant for 2015$1.5 million, respectively, and 2014 and were expensed as incurred. The aggregate purchase price of these acquisitions was allocated as follows, based on acquisition date fair values to the following assets and liabilities (excluding measurement period adjustments recorded in subsequent years):
 Purchase Price Allocation Purchase Price Allocation
 Year Ended December 31 Year Ended December 31
(in thousands) 2016 2015 2014 2018 2017 2016
Accounts receivable $8,538
 $30,537
 $15,912
 $2,344
 $12,502
 $8,538
Other assets 2,298
 21,806
 16,495
Inventory 1,268
 25,253
 878
Property, plant and equipment 3,940
 28,872
 12,834
 1,518
 29,921
 3,940
Goodwill 184,118
 76,156
 128,919
 41,840
 143,149
 184,118
Indefinite-lived intangible assets 53,110
 7,400
 12,051
 
 33,800
 53,110
Amortized intangible assets 28,267
 31,900
 73,766
 78,427
 170,658
 28,267
Deferred income taxes and other liabilities (32,901) (36,892) (36,834)
Other assets 5,198
 1,880
 1,420
Pension and other postretirement benefits liabilities 
 (59,116) 
Other liabilities (7,678) (12,177) (21,892)
Deferred income taxes (4,900) (37,289) (11,009)
Redeemable noncontrolling interest 
 
 (17,108) 
 (3,666) 
Aggregate purchase price, net of cash received $247,370
 $159,779
 $206,035
Aggregate purchase price, net of cash acquired $118,017
 $304,915
 $247,370
The fair values recorded were based upon valuations. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recorded due to these acquisitions is attributable to the assembled workforces of the acquired companies and expected synergies.


The Company expects to deduct $22.2$32.3 million, $11.0 million and $20.0$22.2 million of goodwill for income tax purposes for the acquisitions completed in 2018, 2017 and 2016, and 2015, respectively.
In 2016, the Company recorded adjustments to the deferred taxes included in the preliminary accounting of Dekko and SmartPros acquired in the fourth quarter of 2015. These adjustments resulted in a $20.0 million decrease to goodwill.
The acquired companies were consolidated into the Company’s financial statements starting on their respective acquisition dates. The Company’s Consolidated Statements of Operations include aggregate revenuesrevenue and operating incomeloss of $28.8 million and $2.9 million for the companies acquired in 2016 of $47.6 million and $7.2 million, respectively, for 2016.year ended December 31, 2018, respectively. The following unaudited pro forma financial information presents the Company’s results as if the current year acquisitions had occurred at the beginning of 2015.2017. The unaudited pro forma information also includes the 20152017 acquisitions as if they occurred at the beginning of 2014:2016 and the 2016 acquisitions as if they had occurred at the beginning of 2015:
Year Ended December 31Year Ended December 31
(in thousands)2016 20152018 2017 2016
Operating revenues$2,498,753
 $2,804,663
$2,735,879
 $2,725,046
 $2,570,416
Net income (loss)$172,738
 $(84,209)
Net income273,688
 311,397
 175,021
These pro forma results were based on estimates and assumptions, which the Company believes are reasonable, and include the historical results of operations of the acquired companies and adjustments for depreciation and amortization of identified assets and the effect of pre-acquisition transaction related expenses incurred by the Company and the acquired entities. The pro forma information does not include efficiencies, cost reductions and synergies expected to result from the acquisitions. They are not the results that would have been realized had these entities been part of the Company during the periods presented and are not necessarily indicative of the Company’s consolidated results of operations in future periods.
Spin-Off.Kaplan University Transaction. On July 1, 2015,April 27, 2017, certain subsidiaries of Kaplan entered into a Contribution and Transfer Agreement to contribute the institutional assets and operations of Kaplan University to an Indiana non-profit, public-benefit corporation that is a subsidiary affiliated with Purdue University. The closing of the transactions contemplated by the Transfer Agreement occurred on March 22, 2018. At the same time, the parties entered into the TOSA pursuant to which Kaplan provides key non-academic operations support to the new university.
The new university operates largely online as a new Indiana public university affiliated with Purdue under the name Purdue University Global. As part of the transfer to Purdue University Global, KU transferred students, academic personnel, faculty and operations, property leases for KU’s campuses and learning centers, Kaplan-owned academic curricula and content related to KU courses. The operations support activities that Kaplan provides to Purdue University Global includes technology support, help-desk functions, human resources support for transferred faculty and employees, admissions support, financial aid administration, marketing and advertising, back-office business functions, certain test preparation and domestic and international student recruiting services.
The transfer of KU does not include any of the assets of the KU School of Professional and Continuing Education, which provides professional training and exam preparation for professional certifications and licensures, nor does it include the transfer of other Kaplan businesses such as Kaplan Test Preparation and Kaplan International. Those entities, programs and business lines remain part of Kaplan. Kaplan received nominal cash consideration upon transfer of the institutional assets.
Pursuant to the TOSA, Kaplan is not entitled to receive any reimbursement of costs incurred in providing support functions, or any fee, unless and until Purdue University Global has first covered all of its operating costs (subject to a cap). If Purdue University Global achieves cost efficiencies in its operations, then Purdue University Global may be entitled to an additional payment equal to 20% of such cost efficiencies (Purdue Efficiency Payment). In addition, during each of Purdue University Global’s first five years, prior to any payment to Kaplan, Purdue University Global is entitled to a priority payment of $10 million per year beyond costs. To the extent Purdue University Global’s revenue is insufficient to pay the $10 million per year priority payment, Kaplan is required to advance an amount to Purdue University Global to cover such insufficiency. At closing, Kaplan paid to Purdue University Global an advance in the amount of $20 million, representing, and in lieu of, priority payments for Purdue University Global’s fiscal years ending June 30, 2019 and June 30, 2020.
To the extent that there are sufficient revenues to pay the Purdue Efficiency Payment, Purdue University Global is reimbursed for its operating costs (subject to a cap) and the priority payment to Purdue University Global is paid. To the extent there is remaining revenue, Kaplan will then receive reimbursement for its operating costs (subject to a cap) of providing the support activities. If Kaplan achieves cost efficiencies in its operations, then Kaplan may be entitled to an additional payment equal to 20% of such cost efficiencies (Kaplan Efficiency Payment). If there are sufficient revenues, Kaplan may also receive a fee equal to 12.5% of Purdue University Global’s revenue. The fee will increase to 13% beginning with Purdue University Global’s fiscal year ending June 30, 2023 and continuing through Purdue University Global’s fiscal year ending June 30, 2027, and then the fee will return to 12.5% thereafter. Subject to certain limitations, a portion of the fee that is earned by Kaplan in one year may be carried over and instead paid to Kaplan in subsequent years.


After the first five years of the TOSA, Kaplan and Purdue University Global will be entitled to payments in a manner consistent with the structure described above, except that (i) Purdue University Global will no longer be entitled to a priority payment and (ii) to the extent that there are sufficient revenues after payment of the Kaplan Efficiency Payment (if any), Purdue University Global will be entitled to an annual payment equal to 10% of the remaining revenue after the Kaplan Efficiency Payment (if any) is paid and subject to certain other adjustments. The TOSA has a 30-year initial term, which will automatically renew for five-year periods unless terminated. After the sixth year, Purdue University Global has the right to terminate the agreement upon payment of a termination fee equal to 1.25 times Purdue University Global’s revenue for the preceding 12-month period, which payment would be made pursuant to a 10-year note, and at the election of Purdue University Global, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA. At the end of the 30-year term, if Purdue University Global does not renew the TOSA, Purdue University Global will be obligated to make a final payment of 75% of its total revenue earned during the preceding 12-month period, which payment will be made pursuant to a 10-year note, and at the election of Purdue University Global, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA.
Either party may terminate the TOSA at any time if Purdue University Global generates (i) $25 million in cash operating losses for three consecutive years or (ii) aggregate cash operating losses greater than $75 million at any point during the initial term. Operating loss is defined as the amount of revenue Purdue University Global generates minus the sum of (1) Purdue University Global’s and Kaplan’s respective costs in performing academic and support functions and (2) the $10 million priority payment to Purdue University Global in each of the first five years. Upon termination for any reason, Purdue University Global will retain the assets that Kaplan contributed pursuant to the Transfer Agreement. Each party also has certain termination rights in connection with a material default or material breach of the TOSA by the other party.
Pursuant to the U.S. Department of Education (ED) requirements, Purdue assumes responsibility for any liability arising from the operation of the institution. This assumption will not limit Kaplan’s obligation to indemnify Purdue for pre-closing liabilities under the Transfer Agreement. As a result of the transfer of KU, Kaplan will no longer own or operate KU or any other institution participating in student financial aid programs that have been created under Title IV of the U.S. Federal Higher Education Act of 1965, as amended. Consequently, Kaplan is no longer responsible for operating KU. However, pursuant to the TOSA, Kaplan will be performing functions that fall within the ED’s definition of a third-party servicer and will, therefore, assume certain regulatory responsibilities that require approval by the ED. The third-party servicer arrangement between Kaplan and Purdue University Global is also subject to information security requirements established by the Federal Trade Commission as well as all aspects of the Family Educational Rights and Privacy Act. As a third-party servicer, Kaplan may be required to undergo an annual compliance audit of its administration of the Title IV functions or services that it performs.
As a result of the KU Transaction, the Company completedrecorded a pre-tax gain of $4.3 million in the spin-offfirst quarter of Cable ONE, by way2018. For financial reporting purposes, Kaplan may receive payment of a distributionadditional consideration for the sale of all the issued and outstanding sharesinstitutional assets as part of Cable ONE common stock, on a pro rata basis,the fee to the Company’s stockholders (see Note 3).extent there are sufficient revenues available after paying all amounts required by the TOSA. The Company recorded a $1.9 million contingent consideration gain related to the disposition in the year ended December 31, 2018, and did not adjust the contingent consideration in the fourth quarter of 2018.
The revenue and operating income related to the KU business disposed of is as follows:
  Year Ended December 31
(in thousands) 2018 2017 2016
Revenue $91,526
 $430,645
 $500,914
Operating income 213
 17,869
 39,498
Sale of Businesses. In February 2018, Kaplan completed the sale of a small business which was included in Test Preparation. In September 2018, Kaplan Australia completed the sale of a small business which was included in Kaplan International. In February 2017, GHG completed the sale of Celtic Healthcare of Maryland. In the fourth quarter of 2017, Kaplan Australia completed the sale of a small business, which was included in Kaplan International. In January 2016, Kaplan completed the sale of Colloquy, which was included in Kaplan Corporate and Other.
On September 3, 2015, Kaplan completed the sale of substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses and certain related assets, in exchange for a preferred equity interest in a vocational school company. KHE Campuses schools that were closed or were in the process of closing were not included in the sale transaction.


The revenue and operating losses related to schools that were sold as part of the KHE Campuses sale are as follows:
 Year Ended December 31
(in thousands)2015 2014
Revenue$167,093
 $268,895
Operating income (loss)(6,264) (7,748)
In the second quarter of 2015, Kaplan also recorded a $6.9 million long-lived assets impairment charge in connection with the KHE Campuses business (this amount is included in the above table).
In the third quarter of 2015, Kaplan sold Franklyn Scholar, which was part of Kaplan International. In the second quarter of 2015, the Company sold The Root, a component of Slate, and Kaplan sold two small businesses, Structuralia, which was part of Kaplan International, and Fire and EMS Training, which was part of Kaplan Higher Education. As a result of these sales, the Company reported net lossesgains (losses) in other non-operating (expense) income (see Note 15).
In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International. In January 2015, Kaplan completed the sale of an additional school in China.
Exchanges.Other Transactions. OnIn June 30, 2014,2018, the Company and Berkshire Hathaway Inc. completed a previously announced transaction in which Berkshire acquired a wholly owned subsidiaryincurred $6.2 million of the Company that included, among other things, WPLG, a Miami-based television station, 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by Graham Holdings and $327.7 million in cash, in exchange for 1,620,190 shares of Graham Holdings Class B common stock owned by Berkshire Hathaway (Berkshire exchange transaction). As a result, income from continuing operations for the second quarter of 2014 includes a $266.7 million gain from the sale of the Berkshire Hathaway shares, and income from discontinued operations for the second quarter of 2014 includes a $375.0 million gain from the WPLG exchange.
The pre-tax gain of $266.7 millioninterest expense related to the disposition of the Berkshire sharesmandatorily redeemable noncontrolling interest redemption settlement at GHG. The mandatorily redeemable noncontrolling interest was not subject to income tax as the Berkshire exchange transaction qualifies as a tax-free distribution.redeemed and paid in July 2018.
As discussed above, this exchange transaction includes significant noncash investing and financing activities. On the date of exchange, the fair value of the Berkshire Class A and B shares was $400.3 million, and the fair value of WPLG was determined to be $438.0 million. In total, the Company recorded an increase in treasury stock of $1,165.4 million in the second quarter of 2014 in connection with the Berkshire exchange transaction.
Other. In June 2016, Residential Healthcare (Residential) and a Michigan hospital formed a joint venture to provide home health services to patients in western Michigan. In connection with this transaction, Residential contributed its western Michigan home health operations to the joint venture and then sold 60% of the newly formed venture to its


Michigan hospital partner. Although Residential manages the operations of the joint venture, Residential holds a 40% interest in the joint venture, so the operating results of the joint venture are not consolidated, and the pro rata operating results are included in the Company'sCompany’s equity in earnings of affiliates.
In June 2016, the Company purchased the outstanding 20% redeemable noncontrolling interest in Residential. At that time, the Company recorded an increase to redeemable noncontrolling interest of $3.0 million, with a corresponding decrease to capital in excess of par value, to reflect the redemption value of the redeemable noncontrolling interest at $24.0 million. Following this transaction, Celtic Healthcare (Celtic) and Residential combined their business operations to form Graham Healthcare Group (GHG).GHG. The redeemable noncontrolling interest shareholders in Celtic exchanged their 20% interest in Celtic for a 10% mandatorily redeemable noncontrolling interest in the combined entity, and the Company recorded a $4.1 million net increase to the mandatorily redeemable noncontrolling interest to reflect the estimated fair value of the mandatorily redeemable noncontrolling interest. The minority shareholders have an option to put their shares to
4.INVESTMENTS
Money Market Investments. As of December 31, 2018 and 2017, the Company startinghad money market investments of $75.5 million and $217.6 million, respectively, that are classified as cash, cash equivalents and restricted cash in 2020the Company’s Consolidated Balance Sheets.
Investments in Marketable Equity Securities.Investments in marketable equity securities consist of the following:
 As of December 31
(in thousands)2018 2017
Total cost$282,563
 $269,343
Gross unrealized gains216,111
 266,972
Gross unrealized losses(2,284) 
Total Fair Value$496,390
 $536,315
At December 31, 2018 and are required to put a percentage of their2017, the Company owned 28,000 shares in 2022Markel Corporation (Markel) valued at $29.1 million and 2024, with$31.9 million, respectively. The Co-Chief Executive Officer of Markel, Mr. Thomas S. Gayner, is a member of the remaining shares required to be put by the minority shareholders in 2026. The redemption value is based on an EBITDA multiple, adjusted for working capital and other items, computed annually, with no limit on the amount payable. Company’s Board of Directors.
The Company now owns 90%purchased $42.7 million of GHG. Becausemarketable equity securities during 2018. There were no purchases during 2017. The Company settled on $48.3 million of marketable equity securities during 2016, of which $47.9 million was purchased during the noncontrolling interest is now mandatorily redeemable byyear.
During 2018, the gross cumulative realized gains from the sales of marketable equity securities were $37.3 million. The total proceeds from such sales were $66.7 million. There were no sales of marketable equity securities during 2017. During 2016, proceeds from sales of marketable equity securities were $29.7 million, resulting in gross realized losses of $8.1 million and gross realized gains of $6.2 million.
The net loss on marketable equity securities comprised the following:
 Year ended
(in thousands)December 31, 2018
Loss on marketable equity securities, net$(15,843)
Plus: Net losses in earnings from marketable equity securities sold4,271
Net unrealized losses in earnings from marketable equity securities still held at the end of the year$(11,572)
Investments in Affiliates. As of December 31, 2018, the Company by 2026, it is reported asheld an approximate 11% interest in Intersection Holdings, LLC, and in several other affiliates; GHG held a noncurrent liability at December 31, 2016.
In January 2015, Celtic and Allegheny40% interest in Residential Home Health Network closed on the formation ofIllinois, a joint venture to combine each other’s home health and hospice assets42.5% interest in the western Pennsylvania region. Although Celtic manages the operations of the joint venture, Celtic holdsResidential Hospice Illinois, a 40% interest in the joint venture so the operating results offormed between GHG and a Michigan hospital, and a 40% interest in the joint venture are not consolidated,formed between GHG and Allegheny Health Network (AHN). For the year ended December 31, 2018 and 2017, the Company recorded $12.1 million and $18.3 million, respectively, in revenue for services provided to the affiliates of GHG.
Additionally, Kaplan International Holdings Limited (KIHL) held a 45% interest in a joint venture formed with York University. KIHL agreed to loan the joint venture £25 million, of which £16 million was advanced as of December 31, 2017. In the second quarter of 2018, KIHL advanced a final amount of £6 million in additional funding to the joint venture under this agreement, bringing the total amount advanced to £22 million. The loan is repayable over 25 years at an interest rate of 7% and the pro rataloan is guaranteed by the University of York.
As a result of operating results are includedlosses, in the Company’sfourth quarter of 2017, the Company recorded a $2.8 million write-down on its investment in an affiliate. As a result of the challenging industry operating environment and operating losses, in the


fourth quarter of 2016, the Company recorded an $8.4 million write-down on its investment in HomeHero, a company that managed an online senior home care marketplace. In the third quarter of 2018, the Company recorded a $2.1 million gain in equity in earnings of affiliates. Celtic’s revenuesaffiliates following the receipt of a final distribution from HomeHero upon its liquidation. Also in the western Pennsylvania regionthird quarter of 2018, the Company recorded a $5.8 million gain in equity in earnings of affiliates due to a funding event that increased the estimated liquidation value of the Company’s investment in one of its affiliates.
In February 2019, the Company sold its interest in Gimlet Media; the Company will report a gain in the first quarter of 2019.
Cost Method Investments. The Company held investments without readily determinable fair values in a number of equity securities that are now partaccounted for as cost method investments, which are recorded at cost, less impairment, and adjusted for observable price changes for identical or similar investments of the joint venture made up 29%same issuer. The carrying value of total Celtic revenuesthese investments was $30.6 million and $19.9 million as of December 31, 2018 and 2017, respectively. During 2018, the Company recorded gains of $11.7 million to those equity securities based on observable transactions and impairment losses of $2.7 million.
5.    ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts receivable consist of the following:
 As of December 31
(in thousands)2018 2017
Receivables from contracts with customers, less doubtful accounts of $14,775 and $22,975$538,021
 $600,215
Other receivables44,259
 20,104
 $582,280
 $620,319
The changes in 2014.allowance for doubtful accounts was as follows:
(in thousands)
Balance at
Beginning of Period
 
Additions –
Charged to
Costs and
Expenses
 Deductions 
Balance
at
End of
Period
2018$22,975
 $10,209
 $(18,409) $14,775
2017$26,723
 $33,830
 $(37,578) $22,975
2016$27,854
 $29,718
 $(30,849) $26,723
Accounts payable and accrued liabilities consist of the following:
 As of December 31
(in thousands)2018 2017
Accounts payable and accrued liabilities$337,123
 $385,927
Accrued compensation and related benefits149,455
 140,396
 $486,578
 $526,323
Cash overdrafts of $0.3 million and $6.0 million are included in accounts payable and accrued liabilities at December 31, 2018 and 2017, respectively.
6.INVENTORIES AND CONTRACTS IN PROGRESS
Inventories and contracts in progress consist of the following:
 As of December 31
(in thousands)2018 2017
Raw materials$37,248
 $30,429
Work-in-process11,633
 10,258
Finished goods17,861
 18,851
Contracts in progress2,735
 1,074
 $69,477
 $60,612


7.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
 As of December 31
(in thousands)2018 2017
Land$15,965
 $16,190
Buildings108,683
 107,932
Machinery, equipment and fixtures382,064
 387,914
Leasehold improvements206,170
 215,445
Construction in progress68,064
 16,649
 780,946
 744,130
Less accumulated depreciation(487,861) (484,772)
 $293,085
 $259,358
Depreciation expense was $56.7 million, $62.5 million and $64.6 million in 2018, 2017 and 2016, respectively.
The Company’s income from continuing operations excludes Cable ONE,Company capitalized $0.8 million, $0.3 million, and$0.4 million of interest related to the sold Kaplan China schoolsconstruction of buildings in 2018, 2017and2016, respectively.
In the third quarter of 2018, GHG recorded an impairment charge of $0.2 million. In the second quarter of 2017, as a result of a challenging operating environment, Forney recorded a $0.6 million impairment charge. In the third quarter of 2017, GHG recorded an impairment charge of $0.4 million. The Company estimated the fair value of the property, plant and WPLG, which have been reclassified to discontinued operations (see Note 3).equipment using a market approach. Forney is included in other businesses.
8.GOODWILL AND OTHER INTANGIBLE ASSETS
In the third quarter of 2018, Healthcare recorded an intangible asset impairment charge of $7.9 million following the decision to discontinue the use of the Celtic trade name. The fair value of the intangible asset was estimated using an income approach.
In the second quarter of 2017, as a result of a challenging operating environment, the Forney reporting unit recorded a goodwill and intangible asset impairment charge of $8.6 million. The Company performed an interim review of the goodwill and other long-lived assets of the reporting unit by utilizing a discounted cash flow model to estimate the fair value. The carrying value of the reporting unit exceeded the estimated fair value, resulting in a goodwill impairment charge for the amount by which the carrying value exceeded the reporting unit’s estimated fair value. Forney is included in other businesses.
In the fourth quarter of 2016, as a result of the challenging industry operating environment and operating losses, one of the businesses in the other businesses segment recorded a goodwill impairment charge of $1.6 million.
In the third quarter of 2015, as a result of continued declines in student enrollments at KHE and the challenging industry operating environment, the Company performed an interim impairment review of its goodwill and long-lived assets at the KHE reporting unit. The KHE reporting unit failed the step one goodwill impairment test. As a result of the step two analysis, the Company recorded a $248.6 million goodwill impairment charge. The Company estimated the fair value of the KHE reporting unit utilizing a discounted cash flow model, supported by a market approach. A substantial portion of the impairment charge is due to the amount of unrecognized intangible assets identified in the step two analysis.
In addition, in the fourth quarter of 2015, Kaplan recorded intangible asset impairment charges of $0.9 million related to one of the Kaplan International businesses and $0.5 million related to a KTP business. The fair values of these intangible assets were estimated using an income approach. In November 2015, the Company announced that Trove, a digital innovation team included in other businesses, would largely be integrated into SocialCode and that Trove’s existing offerings would be discontinued. In connection with this action, the Company recorded a $2.8 million goodwill impairment charge in the fourth quarter of 2015.
In 2014, as a result of regulatory changes impacting Kaplan’s operations in China, Kaplan recorded an intangible asset impairment charge of $7.8 million, reported in discontinued operations. The Company estimated the fair value of the student and customer relationships using an income approach. In addition, Kaplan recorded intangible asset impairment charges of $1.8 million related to a KTP business, $1.1 million related to one of the Kaplan International businesses and $0.7 million related to KHE. The fair value of these intangible assets were estimated using an income approach. One of the businesses in the other businesses segment recorded an intangible asset impairment charge of $0.1 million.
Amortization of intangible assets for the years ended December 31, 2018, 2017 and 2016, 2015 and 2014, was $26.7$47.4 million, $19.0$41.2 million and $18.2$26.7 million, respectively. Amortization of intangible assets is estimated to be approximately $24 million in 2017, $21 million in 2018, $20$52 million in 2019, $16$49 million in 2020, $12$43 million in 2021, $37 million in 2022, $29 million in 2023 and $15$53 million thereafter.
In July 2014, the cable division sold wireless spectrum licenses that were purchased in 2006; a pre-tax non-operating gain of $75.2 million was recorded in the third quarter of 2014 in connection with these sales. As a result of the Cable ONE spin-off, this gain is now reported in discontinued operations.


The changes in the carrying amount of goodwill, by segment, were as follows:
(in thousands)Education Cable 
Television
Broadcasting
 
Other
Businesses
 TotalEducation 
Television
Broadcasting
 Healthcare 
Other
Businesses
 Total
As of December 31, 2014         
As of December 31, 2016         
Goodwill$1,057,226
 $85,488
 $168,345
 $145,992
 $1,457,051
$1,111,003
 $168,345
 $59,640
 $142,501
 $1,481,489
Accumulated impairment losses(102,259) 
 
 (6,082) (108,341)(350,850) 
 
 (7,685) (358,535)
954,967
 85,488
 168,345
 139,910
 1,348,710
760,153
 168,345
 59,640
 134,816
 1,122,954
Measurement period adjustment
 
 
 4,570
 4,570
Acquisitions11,515
 
 
 60,071
 71,586
19,174
 22,470
 10,181
 91,324
 143,149
Impairment(248,591) 
 
 (2,810) (251,401)
 
 
 (7,616) (7,616)
Dispositions(33,502) (85,488) 
 (7,819) (126,809)
 
 (412) 
 (412)
Foreign currency exchange rate changes(29,143) 
 
 
 (29,143)41,635
 
 
 
 41,635
As of December 31, 2015 
  
  
  
  
As of December 31, 2017 
  
    
  
Goodwill1,006,096
 
 168,345
 202,814
 1,377,255
1,171,812
 190,815
 69,409
 233,825
 1,665,861
Accumulated impairment losses(350,850) 
 
 (8,892) (359,742)(350,850) 
 
 (15,301) (366,151)
655,246
 
 168,345
 193,922
 1,017,513
820,962
 190,815
 69,409
 218,524
 1,299,710
Measurement period adjustment(2,781) 
 
 (17,243) (20,024)
Acquisitions161,938
 
 
 22,180
 184,118
20,424
 
 217
 21,199
 41,840
Impairment
 
 
 (1,603) (1,603)
Dispositions
 
 
 (2,800) (2,800)(11,191) 
 
 
 (11,191)
Foreign currency exchange rate changes(54,250) 
 
 
 (54,250)(32,647) 
 
 
 (32,647)
As of December 31, 2016         
As of December 31, 2018         
Goodwill1,111,003
 
 168,345
 202,141
 1,481,489
1,128,699
 190,815
 69,626
 255,024
 1,644,164
Accumulated impairment losses(350,850) 
 
 (7,685) (358,535)(331,151) 
 
 (15,301) (346,452)
$760,153
 $
 $168,345
 $194,456
 $1,122,954
$797,548
 $190,815
 $69,626
 $239,723
 $1,297,712
The changes in carrying amount of goodwill at the Company’s education division were as follows:
(in thousands)
Higher
Education
 
Test
Preparation
 
Kaplan
International
 Total
Kaplan
International
 
Higher
Education
 
Test
Preparation
 Professional (U.S.) Total
As of December 31, 2014       
As of December 31, 2016         
Goodwill$409,884
 $166,098
 $481,244
 $1,057,226
$555,185
 $205,494
 $166,098
 $184,226
 $1,111,003
Accumulated impairment losses
 (102,259) 
 (102,259)
 (131,023) (102,259) (117,568) (350,850)
409,884
 63,839
 481,244
 954,967
555,185
 74,471
 63,839
 66,658
 760,153
Acquisitions11,515
 
 
 11,515
19,174
 
 
 
 19,174
Impairment(248,591) 
 
 (248,591)
Dispositions(28,738) 
 (4,764) (33,502)
Foreign currency exchange rate changes(204) 
 (28,939) (29,143)41,502
 
 
 133
 41,635
As of December 31, 2015       
As of December 31, 2017         
Goodwill392,457
 166,098
 447,541
 1,006,096
615,861
 205,494
 166,098
 184,359
 1,171,812
Accumulated impairment losses(248,591) (102,259) 
 (350,850)
 (131,023) (102,259) (117,568) (350,850)
143,866
 63,839
 447,541
 655,246
615,861
 74,471
 63,839
 66,791
 820,962
Measurement period adjustment(2,781) 
 
 (2,781)
Acquisitions
 
 161,938
 161,938
62
 
 822
 19,540
 20,424
Dispositions
 (11,191) 
 
 (11,191)
Foreign currency exchange rate changes44
 
 (54,294) (54,250)(32,499) (40) 
 (108) (32,647)
As of December 31, 2016 
  
  
  
As of December 31, 2018 
  
  
    
Goodwill389,720
 166,098
 555,185
 1,111,003
583,424
 174,564
 166,920
 203,791
 1,128,699
Accumulated impairment losses(248,591) (102,259) 
 (350,850)
 (111,324) (102,259) (117,568) (331,151)
$141,129
 $63,839
 $555,185
 $760,153
$583,424
 $63,240
 $64,661
 $86,223
 $797,548


Other intangible assets consist of the following:
  As of December 31, 2016 As of December 31, 2015  As of December 31, 2018 As of December 31, 2017
(in thousands)
Useful
Life
Range
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net
Carrying
Amount
Useful
Life
Range
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net
Carrying
Amount
Amortized Intangible Assets                          
Student and customer relationships2–10 years $129,616
 $55,863
 $73,753
 $108,806
 $40,280
 $68,526
2–10 years (1) $282,761
 $114,429
 $168,332
 $260,464
 $83,690
 $176,774
Trade names and trademarks2–10 years 55,240
 29,670
 25,570
 53,848
 23,941
 29,907
2–10 years 87,285
 39,825
 47,460
 50,286
 25,596
 24,690
Network affiliation agreements10 years 17,400
 3,408
 13,992
 17,400
 1,668
 15,732
Databases and technology3–5 years 5,601
 4,368
 1,233
 4,617
 4,114
 503
3–6 years 27,041
 8,471
 18,570
 19,563
 5,008
 14,555
Noncompete agreements2–5 years 1,730
 1,404
 326
 1,381
 1,012
 369
2–5 years 1,088
 838
 250
 930
 467
 463
Other1–8 years 12,030
 4,973
 7,057
 10,095
 2,209
 7,886
1–8 years 24,530
 9,873
 14,657
 13,430
 7,668
 5,762
  $204,217
 $96,278
 $107,939
 $178,747
 $71,556
 $107,191
  $440,105
 $176,844
 $263,261
 $362,073
 $124,097
 $237,976
Indefinite-Lived Intangible Assets     
  
    
  
     
  
    
  
Trade names and trademarks  $65,192
  
  
 $21,051
      $80,102
  
  
 $82,745
    
FCC licenses 18,800
     18,800
    
Licensure and accreditation  834
  
  
 834
  
  
  150
  
  
 650
  
  
  $66,026
  
  
 $21,885
  
  
  $99,052
  
  
 $102,195
  
  
____________
(1)As of December 31, 2017, the student and customer relationships’ minimum useful life was 1 year.
9.INCOME TAXES
Income (loss) from continuing operations before income taxes consists of the following:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
U.S.$227,457
 $(142,705) $1,025,101
$257,312
 $134,276
 $227,457
Non-U.S.23,201
 21,815
 52,602
66,196
 48,513
 23,201
$250,658
 $(120,890) $1,077,703
$323,508
 $182,789
 $250,658
The provision for (benefit from) income taxes on income from continuing operations consists of the following:
(in thousands)Current Deferred TotalCurrent Deferred Total
Year Ended December 31, 2018     
U.S. Federal$46,059
 $16,718
 $62,777
State and Local2,240
 (23,809) (21,569)
Non-U.S.10,924
 (32) 10,892
$59,223
 $(7,123) $52,100
Year Ended December 31, 2017     
U.S. Federal$10,743
 $(153,217) $(142,474)
State and Local5,930
 3,306
 9,236
Non-U.S.10,079
 3,459
 13,538
$26,752
 $(146,452) $(119,700)
Year Ended December 31, 2016          
U.S. Federal$56,342
 $33,959
 $90,301
$56,342
 $33,959
 $90,301
State and Local6,325
 (5,164) 1,161
6,325
 (5,164) 1,161
Non-U.S.8,463
 (18,725) (10,262)8,463
 (18,725) (10,262)
$71,130
 $10,070
 $81,200
$71,130
 $10,070
 $81,200
Year Ended December 31, 2015     
U.S. Federal$5,728
 $20,890
 $26,618
State and Local402
 (10,749) (10,347)
Non-U.S.2,441
 1,788
 4,229
$8,571
 $11,929
 $20,500
Year Ended December 31, 2014     
U.S. Federal$215,450
 $38,684
 $254,134
State and Local23,737
 27,257
 50,994
Non-U.S.10,485
 (3,313) 7,172
$249,672
 $62,628
 $312,300


The provision for income taxes on continuing operations differs from the amount of income tax determined by applying the U.S. Federal statutory rate of 21% in 2018, and 35% in 2017 and 2016, to the income (loss) from continuing operations before taxes, as a result of the following:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
U.S. Federal taxes at statutory rate$87,731
 $(42,311) $377,196
U.S. Federal taxes at statutory rate (see above)$67,937
 $63,976
 $87,731
State and local taxes, net of U.S. Federal tax(2,965) (3,441) 38,106
(1,279) 6,949
 (2,965)
Valuation allowances against state tax benefits, net of U.S. Federal tax3,196
 (3,285) (4,960)(15,767) (946) 3,196
Tax-free stock transactions
 
 (91,540)
Tax provided on non-U.S. subsidiary earnings and distributions1,993
 2,688
 2,186
Stock-based compensation(1,731) (6,023) 
Valuation allowances against other non-U.S. income tax benefits(12,688) 431
 (2,477)1,322
 (1,935) (12,688)
Goodwill impairments and dispositions(5,631) 63,889
 

 
 (5,631)
U.S. Federal Manufacturing Deduction tax benefits(6,012) (625) (6,789)
 (1,329) (6,012)
Write-off of deferred taxes related to intercompany loans10,965
 
 

 
 10,965
Deferred tax impact of U.S. Federal tax rate reduction to 21%, net of state tax impact
 (153,336) 
Deferred tax benefit on unremitted non-U.S. subsidiary earnings related to the Tax Act
 (28,324) 
Other, net4,611
 3,154
 578
1,618
 1,268
 6,604
Provision for Income Taxes$81,200
 $20,500
 $312,300
Provision for (Benefit from) Income Taxes$52,100
 $(119,700) $81,200
The Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017, making significant changes to the Internal Revenue Code. In accordance with SEC Staff Accounting Bulletin No. 118 (SAB 118) the Company finalized its analysis of the Tax Act and no material adjustments were made in the Consolidated Financial Statements for the year ended December 31, 2018 with respect to provisional amounts previously recorded.
Changes as a result of the Tax Act include, but are not limited to, a reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018; the imposition of a one-time transition tax on historic earnings of certain non-U.S. subsidiaries that were previously tax deferred; and the imposition of new U.S. taxes on certain non-U.S. earnings. The U.S. Federal corporate income tax rate change resulted in a one-time, non-cash benefit and corresponding reduction of the Company’s U.S. Federal deferred tax liabilities, net of the state tax impact, of $153.3 million, which was recorded in the fourth quarter of 2017, the period in which the legislation was enacted. The Company did not incur, and did not record, any liability with respect to the one-time U.S. transition tax imposed by the Tax Act on unremitted non-U.S. subsidiary earnings. The Company estimates that unremitted non-U.S. subsidiary earnings, when distributed, will not be subject to tax except to the extent non-U.S. withholding taxes are imposed. Accordingly, the Company recorded net deferred tax benefits and a corresponding reduction in deferred tax liabilities of $28.3 million in the fourth quarter of 2017, with respect to unremitted non-U.S. subsidiary earnings. Approximately $1.7 million of deferred tax liabilities remained recorded on the books at December 31, 2018, with respect to future non-U.S. withholding taxes the Company estimated may be imposed on future cash distributions.
During 2016, certain intercompany loans were capitalized and other intercompany loans were designated as long-term investments, resulting in the write-off of $11.0 million in U.S. deferred tax assets. Also, the Company benefited from a favorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015.
During 2015 and 2014, in addition to the income tax provision for continuing operations presented above, the Company also recorded tax expense or benefits on discontinued operations. Income from discontinued operations and net (loss) gain on dispositions of discontinued operations have been reclassified from previously reported income from operations and reported separately as income from discontinued operations, net of tax. Tax expense of $27.8 million and $82.4 million were recorded in discontinued operations in 2015 and 2014, respectively. 

Deferred income taxes consist of the following:
As of December 31As of December 31
(in thousands)2016 20152018 2017
Accrued postretirement benefits$9,444
 $13,763
Other benefit obligations120,792
 108,349
Employee benefit obligations$68,392
 $84,148
Accounts receivable10,780
 12,840
4,449
 5,481
State income tax loss carryforwards23,178
 19,550
34,107
 35,434
State capital loss carryforwards1,093
 
U.S. Federal income tax loss carryforwards6,212
 5,007
2,100
 2,857
U.S. Federal foreign income tax credit carryforwards1,921
 1,374
987
 2,522
Non-U.S. income tax loss carryforwards19,246
 26,921
15,868
 18,797
Non-U.S. capital loss carryforwards1,929
 10,055
3,609
 2,336
Other44,401
 44,858
14,657
 26,546
Deferred Tax Assets237,903
 242,717
145,262
 178,121
Valuation allowances(41,319) (69,545)(33,120) (48,742)
Deferred Tax Assets, Net$196,584
 $173,172
$112,142
 $129,379
Property, plant and equipment13,591
 17,465
Prepaid pension cost349,878
 386,916
269,412
 283,604
Unrealized gain on available-for-sale securities61,964
 39,010
51,242
 70,827
Goodwill and other intangible assets132,997
 133,097
88,798
 109,428
Property, plant and equipment9,997
 11,248
Non-U.S. withholding tax1,726
 1,606
Deferred Tax Liabilities$558,430
 $576,488
$421,175
 $476,713
Deferred Income Tax Liabilities, Net$361,846
 $403,316
$309,033
 $347,334
The Company has $455.6$698.9 million of state income tax net operating loss carryforwards available to offset future state taxable income. State income tax loss carryforwards, if unutilized, will start to expire approximately as follows:
(in millions)  
2017$7.3
20189.3
20192.8
$1.8
202018.3
15.5
202119.6
17.1
2022 and after398.3
20220.3
20235.0
2024 and after659.2
Total$455.6
$698.9
The Company has recorded at December 31, 2016, $23.22018, $34.1 million in deferred state income tax assets, net of U.S. Federal income tax, with respect to these state income tax loss carryforwards. The Company has established $21.0$17.9 million in valuation allowances against these deferred state income tax assets, since the Company has determined that it is more likely than not that some of these state tax losses may not be fully utilized in the future to reduce state taxable income. During 2018, the Company’s education division released valuation allowances recorded against state deferred tax assets, net of U.S. Federal tax, of approximately $20.0 million because the education division recently generated positive operating results that support the realization of these deferred tax assets.
The Company has $17.6$9.9 million of U.S. Federal income tax loss carryforwards obtained as a result of prior stock acquisitions. U.S. Federal income tax loss carryforwards are expected to be fully utilized as follows:
(in millions)  
2017$4.1
20183.6
20193.3
$3.3
20203.3
3.3
20211.1
1.1
2022 and after2.2
20220.9
20230.4
2024 and after0.9
Total$17.6
$9.9
The Company has established at December 31, 2016, $6.22018, $2.1 million in U.S. Federal deferred tax assets with respect to these U.S. Federal income tax loss carryforwards.
For U.S. Federal income tax purposes, the Company has $1.9$1.0 million of foreign tax credits available to be credited against future U.S. Federal income tax liabilities. These U.S. Federal foreign tax credits are expected to be fully utilized in the future; ifIf unutilized, $0.7 million of these foreign tax credits will start to expire in 2024, $0.7 million will expire in 2025, and $0.5 million will expire in 2026.2023. The Company has established at December 31, 2016, $1.92018, $1.0 million of U.S. Federal deferred tax assets with respect


to these U.S. Federal foreign tax credit carryforwards.carryforwards, and the Company has recorded a full valuation allowance against these deferred tax assets since the Company determined that it is more likely than not these foreign tax credit carryforwards may not be utilized in the future to reduce U.S. Federal income taxes.
The Company has $69.3$58.1 million of non-U.S. income tax loss carryforwards, as a result of operating losses and carryforwards obtained through prior stock acquisitions that are available to offset future non-U.S. taxable income and has recorded, with respect to these losses, $19.2$15.9 million in non-U.S. deferred income tax assets. The Company has established $4.9$6.1 million in valuation allowances against the deferred tax assets recorded for the portion of non-U.S. tax losses that may not be fully utilized to reduce future non-U.S. taxable income. The $69.3$58.1 million of non-U.S. income tax loss carryforwards consist of $60.3$46.8 million in losses that may be carried forward indefinitely; $4.8$8.4 million of losses that, if unutilized, will expire in varying amounts through 2021;2023; and $4.2$2.9 million of losses that, if unutilized, will start to expire after 2021.2023.
The Company has $6.4$12.0 million of non-U.S. capital loss carryfowardscarryforwards that may be carried forward indefinitely and are available to offset future non-U.S. capital gains. The Company recorded a $1.9$3.6 million non-U.S. deferred income tax asset for these non-U.S. capital loss carryforwards and has established a full valuation allowance against this non-U.S. deferred tax asset since the Company has determined that it is more likely than not that the capital loss carryforwards may not be fully utilized to reduce taxable income in the future.
Deferred tax valuation allowances and changes in deferred tax valuation allowances were as follows:
(in thousands)Balance at Beginning of Period Tax Expense and Revaluation Deductions Balance at End of PeriodBalance at Beginning of Period Tax Expense and Revaluation Deductions 
Balance at End of
Period
Year ended              
December 31, 2018$48,742
 $4,413
 $(20,035) $33,120
December 31, 2017$41,319
 $7,423
 $
 $48,742
December 31, 2016$69,545
 $4,709
 $(32,935) $41,319
$69,545
 $4,709
 $(32,935) $41,319
December 31, 2015$65,521
 $4,024
 $
 $69,545
December 31, 2014$72,767
 $889
 $(8,135) $65,521
The Company has established $31.8$22.2 million in valuation allowances against deferred state tax assets recognized, net of U.S. Federal tax. As stated above, approximately $21.0$17.9 million of the valuation allowances, net of U.S. Federal income tax, relate to state income tax loss carryforwards. The Company has established valuation allowances against deferred state income tax assets, without considering potentially offsetting deferred tax liabilities established with respect to prepaid pension cost and goodwill. Prepaid pension cost and goodwill have not been considered a source of future taxable income for realizing those state deferred tax assets recognized since these temporary differences are not likely to reverse in the foreseeable future.future, and at this time no material deferred tax assets recorded are impacted by the new indefinite net operating loss carryforward rules. The valuation allowances established against deferred state income tax assets are recorded at the parent company, the education division and other businesses and may increase or decrease within the next 12 months, based on operating results or the market value of investment holdings. As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating and market environment. The Company will be monitoring future operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against deferred state tax assets should be increased or decreased, as future circumstances warrant. The Company’s education division released valuation allowances against state deferred tax assets of $20.0 million during 2018, as the education division recently generated positive operating results that support the realization of these deferred tax assets.
The Company has established $9.5$9.9 million in valuation allowances against non-U.S. deferred tax assets, and, as stated above, $4.9$6.1 million of the non-U.S. valuation allowances relate to non-U.S. income tax loss carryforwards and $1.9$3.6 million relate to non-U.S. capital loss carryforwards.
Deferred U.S. Federal and state income taxes are recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries to the extent taxable dividend income would be recognized if such earnings were distributed. Deferred income taxes recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries are recorded net of foreign tax credits with respect to such undistributed earnings estimated to be creditable against future U.S. Federal tax liabilities. At December 31, 2016 and 2015, net U.S. Federal and state deferred income tax liabilities of about $23.8 million and $17.5 million, respectively, were recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries based on the year-end position.
Deferred U.S. Federal and state income taxes have not been recorded for the full book value and tax basis differences related to investments in non-U.S. subsidiaries because such investments are expected to be indefinitely held. The book value exceeded the tax basis of investments in non-U.S. subsidiaries by approximately $103.3 million and $71.8 million at December 31, 2016 and 2015, respectively; these differences would result in approximately $0.3 million of net additional U.S. Federal and state deferred tax liabilities, net of foreign tax credits related to undistributed earnings and estimated to be creditable against future U.S. Federal tax liabilities, at December 31, 2016, and would not result in any additional U.S. Federal and state deferred tax liabilities at December 31, 2015. If investments in non-U.S. subsidiaries were held for sale instead of expected to be held indefinitely, additional U.S. Federal and state deferred tax liabilities would be required to be recorded, and such deferred tax liabilities, if recorded, may exceed the above estimates.
The Company does not currently anticipate that within the next 12 months there will be any events requiring the establishment of any valuation allowances against U.S. Federal net deferred tax assets.
In the third quarter of 2016, the Company released $19.3 million of valuation allowance previously recorded on its operations in Australia, as the Company determined that it was more likely than not that the benefit of the net deferred tax assets would be realized, based on improved operating results that have recently generated positive ordinary income. The remaining valuation Valuation allowances established against non-U.S. deferred tax assets are recorded at the education division and other businesses. The remainingThese non-U.S. valuation allowances may increase or decrease within the next 12 months, based on operating results. As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating environment. The Company will be monitoring future education division and other businesses'businesses’ operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against non-U.S. deferred tax assets should be increased or decreased, as future circumstances warrant. In the third quarter of 2016, the Company released $19.3 million of valuation allowance previously recorded on its operations in Australia.
The Tax Act generally provides a 100% dividends received deduction for distributions from non-U.S. subsidiaries after December 31, 2017. The Tax Act establishes a new regime, the Global Intangible Low Taxed Income (GILTI) tax, that may currently subject to U.S. tax the operations of non-U.S. subsidiaries. The GILTI tax is imposed annually based on all current year non-U.S. operations starting January 1, 2018. The Company has elected to record the GILTI tax regime as a periodic tax expense for book purposes. Annually, the Company may elect to credit or deduct foreign taxes for U.S. Federal tax purposes. For the year ended December 31, 2018, the Company plans to elect to credit foreign taxes. The GILTI tax recorded, net of foreign taxes credited, for the year ended December 31, 2018 is not material.


The book value of investments in the stocks of non-U.S. subsidiaries exceeded the tax basis by approximately $226.1 million and $113.2 million at December 31, 2018 and 2017. If the investment in non-U.S. subsidiaries were held for sale instead of being held indefinitely, it is possible additional U.S. Federal and state tax liabilities may be recorded, but calculation of the tax due is not practicable.
The Company recorded a $10.5 milliondoes not currently anticipate that within the next 12 months there will be any events requiring the establishment of any valuation allowances against U.S. Federal incomenet deferred tax receivable with respectassets.
During 2017, the Internal Revenue Service (IRS) completed its examination of the Company’s 2013 tax return and the Company received a $9.7 million refund primarily related to capital loss carryforwardscarryforwards. The 2015 U.S. Federal tax return and subsequent years remain open to the 2013 tax year and is currently under examination by the Internal Revenue Service.IRS examination. The Company files income tax returns with the U.S. Federal government and in various state, local and non-U.S. governmental jurisdictions, with the consolidated U.S. Federal tax return filing considered the only major tax jurisdiction. The statute of limitations has expired on all consolidated U.S. Federal corporate income tax returns filed through 2012, though any carryforward adjustment to the 2013 tax year is still subject to examination.
The Company endeavors to comply with tax laws and regulations where it does business, but cannot guarantee that, if challenged, the Company’s interpretation of all relevant tax laws and regulations will prevail and that all tax benefits recorded in the financial statements will ultimately be recognized in full.


The following summarizes the Company’s unrecognized tax benefits, excluding interest and penalties, for the respective periods:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
Beginning unrecognized tax benefits$17,331
 $19,817
 $
$17,331
 $17,331
 $17,331
Increases related to current year tax positions
 
 19,817

 
 
Increases related to prior year tax positions
 
 
500
 
 
Decreases related to prior year tax positions
 (2,486) 
(12,187) 
 
Decreases related to settlement with tax authorities
 
 

 
 
Decreases due to lapse of applicable statutes of limitations
 
 
(3,161) 
 
Ending unrecognized tax benefits$17,331
 $17,331
 $19,817
$2,483
 $17,331
 $17,331
The unrecognized tax benefits mainly relate to state income tax filing positions applicable to the 2014 tax period. In making these determinations, the Company presumes that taxing authorities pursuing examinations of the Company’s compliance with tax law filing requirements will have full knowledge of all relevant information, and, if necessary, the Company will pursue resolution of disputed tax positions by appeals or litigation. Although the Company cannot predict the timing of resolution with tax authorities, the Company estimates that no portionsome of the unrecognized tax benefits will be reducedmay change in the next 12 months due to settlement with the tax authorities. The Company expects that a $5.1$2.5 million state tax benefit, net of $1.8$0.5 million federal tax expense, will reduce the effective tax rate in the future if the unrecognized tax benefits are recognized.
The Company classifies interest and penalties related to uncertain tax positions as a component of interest and other expenses, respectively. As of December 31, 2016,2018, the Company has accrued $0.7$0.6 million of interest related to the unrecognized tax benefits. The Company has not accrued any penalties related to the unrecognized tax benefits.
10.DEBT
The Company’s borrowings consist of the following:
As of December 31As of December 31
(in thousands)2016 20152018 2017
7.25% unsecured notes due February 1, 2019 (1)
$399,052
 $398,596
UK Credit facility (2)
91,316
 
5.75% unsecured notes due June 1, 2026 (1)
$394,675
 $
7.25% unsecured notes due February 1, 2019
 399,507
U.K. Credit facility (2)
82,366
 93,671
Other indebtedness1,479
 1,204
96
 109
Total Debt491,847
 399,800
477,137
 493,287
Less: current portion(6,128) 
(6,360) (6,726)
Total Long-Term Debt$485,719
 $399,800
$470,777
 $486,561
____________
(1)The carrying value is net of $0.1$5.3 million of unamortized debt issuance costs as of December 31, 2016 and 2015, respectively.2018.
(2)
The carrying value is net of $0.5$0.2 millionand$0.4 million of unamortized debt issuance costs as of December 31, 2016.2018 and 2017, respectively.
The Company did not borrow funds under its USD revolving credit facility in 20162018 or 2015.2017. The Company’s other indebtedness at December 31, 2016, is at interest rates of 2% to 6%2018 and matures between 2019 and 2025. The Company's other indebtedness at December 31, 2015,2017, is at an interest rate of 6%2% and matures in 2026.


On May 30, 2018, the Company issued $400 million senior unsecured fixed-rate notes due June 1, 2026 (the Notes). The Notes are guaranteed, jointly and severally, on a senior unsecured basis, by certain of the Company’s existing and future domestic subsidiaries, as described in the terms of the indenture, dated as of May 30, 2018 (the Indenture). The Notes have a coupon rate of 5.75% per annum, payable semi-annually on June 1 and December 1. The Company may redeem the Notes in whole or in part at any time at the respective redemption prices described in the Indenture.
On June 29, 2018, the Company used the net proceeds from the sale of the Notes, together with cash on hand, to redeem the $400 million of 7.25% notes due February 1, 2019. The Company incurred $11.4 million in debt extinguishment costs in relation to the early termination of the 7.25% notes.
In combination with the issuance of the Notes, the Company and certain of the Company’s domestic subsidiaries named therein as guarantors entered into an amended and restated credit agreement providing for a U.S. $300 million five-year revolving credit facility (the Revolving Credit Facility) with each of the lenders party thereto, certain of the Company’s foreign subsidiaries from time to time party thereto as foreign borrowers, Wells Fargo Bank, N.A., as Administrative Agent (Wells Fargo), JPMorgan Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, N.A. and Bank of America, N.A. as Documentation Agents (the Amended and Restated Credit Agreement), which amends and restates the Company’s existing Five Year Credit Agreement, dated as of June 29, 2015, among the Company, certain of its domestic subsidiaries as guarantors, the several lenders from time to time party thereto, Wells Fargo Bank, N.A., as Administrative Agent and JPMorgan Chase Bank, N.A., as Syndication Agent (the Existing Credit Agreement). The Amended and Restated Credit Agreement amends the Existing Credit Agreement to (i) extend the maturity of the Revolving Credit Facility to May 30, 2023, unless the Company and the lenders agree to further extend the term, (ii) increase the aggregate principal amount of the Revolving Credit Facility to U.S. $300 million, consisting of a U.S. Dollar tranche of U.S. $200 million for borrowings in U.S. Dollars and a multicurrency tranche equivalent to U.S. $100 million for borrowings in U.S. Dollars and certain foreign currencies, (iii) provide for borrowings under the Revolving Credit Facility in U.S. Dollars and certain other foreign currencies specified in the Amended and Restated Credit Agreement, (iv) permit certain foreign subsidiaries of the Company to be added to the Amended and Restated Credit Agreement as foreign borrowers thereunder and (v) effect certain other modifications to the Existing Credit Agreement.
Under the Amended and Restated Credit Agreement, the Company is required to pay a commitment fee on a quarterly basis, based on the Company’s leverage ratio, of between 0.15% and 0.25% of the amount of the average daily unused portion of the Revolving Credit Facility. Any borrowings under the Amended and Restated Credit Agreement are made on an unsecured basis and bear interest at the Company’s option, either at (a) a fluctuating interest rate equal to the highest of Wells Fargo’s prime rate, 0.5 percent above the Federal funds rate or the one-month Eurodollar rate plus 1%, or (b) the Eurodollar rate for the applicable currency and interest period as defined in the Amended and Restated Credit Agreement, which is generally a periodic rate equal to LIBOR, CDOR, BBSY or SOR, as applicable, in the case of each of clauses (a) and (b) plus an applicable margin that depends on the Company’s consolidated debt to consolidated adjusted EBITDA (as determined pursuant to the Amended and Restated Credit Agreement, Total Net Leverage Ratio). The Company and its foreign subsidiaries may draw on the Revolving Credit Facility for general corporate purposes. Any outstanding borrowings must be repaid on or prior to the final termination date. The Amended and Restated Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a Total Net Leverage Ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Amended and Restated Credit Agreement. As of December 31, 2018, the Company is in compliance with all financial covenants.
On July 14, 2016, Kaplan entered into a credit agreement (the Kaplan Credit Agreement) among Kaplan International Holdings Limited, as borrower, the lenders party thereto, HSBC BANK PLC as Facility Agent, and other agents party thereto. The Kaplan Credit Agreement provides for a four-year credit facility in an aggregate principal amount of £75 million. Borrowings bear interest at a rate per annum of LIBOR plus an applicable interest rate margin between 1.25% and 1.75%, in each case determined on a quarterly basis by reference to a pricing grid based upon the Company'sCompany’s total leverage ratio. The Kaplan Credit Agreement requires that 6.66% of the amount of the loan be repaid on the first three anniversaries of funding, with the remaining balance due on July 1, 2020. The Kaplan Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a leverage ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Kaplan Credit Agreement. As of December 31, 2016,2018, the Company is in compliance with all financial covenants.
On July 25, 2016, Kaplan borrowed £75 million under the Kaplan Credit Agreement. On the same date, Kaplan entered into an interest rate swap agreement with a total notional value of £75 million and a maturity date of July 1, 2020. The interest rate swap agreement will pay Kaplan variable interest on the £75 million notional amount at the


three-month LIBOR, and Kaplan will pay the counterparties a fixed rate of 0.51%, effectively resulting in a total fixed


interest rate of 2.01% on the outstanding borrowings at the current applicable margin of 1.50%. The interest rate swap agreement was entered into to convert the variable rate British pound borrowing under the Kaplan Credit Agreement into a fixed rate borrowing. The Company provided a guarantee on any borrowings under the Kaplan Credit Agreement. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap agreement was determined to be effective and thus qualifies as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying Condensed Consolidated Balance Sheets until earnings are affected by the variability of cash flows.
In January 2009, the Company issued $400 million in unsecured ten-year fixed-rate notes due February 1, 2019 (the Notes). The Notes have a coupon rate of 7.25% per annum, payable semiannually on February 1During 2018 and August 1. Under the terms of the Notes, unless the Company has exercised its right to redeem the Notes, the Company is required to offer to repurchase the Notes in cash at 101% of the principal amount, plus accrued and unpaid interest, upon the occurrence of both a Change of Control and Below Investment Grade Rating Events as described in the Prospectus Supplement of January 27, 2009.
In June 2015, Cable ONE issued $550 million in debt. With the Cable ONE spin-off effective on July 1, 2015, the Cable ONE debt is no longer an obligation of the Company.
On June 17, 2015, the Company terminated its U.S. $450 million, AUD 50 million four-year revolving credit facility dated June 17, 2011. No borrowings were outstanding under the 2011 Credit Agreement at the time of termination. On June 29, 2015, the Company entered into a credit agreement (the Credit Agreement) providing for a U.S. $200 million five-year revolving credit facility (the Facility) with each of the lenders party thereto, Wells Fargo Bank, National Association as Administrative Agent (Wells Fargo), JPMorgan Chase Bank, N.A., as Syndication Agent, and HSBC Bank USA, National Association, as Documentation Agent (the Credit Agreement). The Company is required to pay a commitment fee on a quarterly basis, based on the Company’s leverage ratio, of between 0.15% and 0.25% of the amount of the Facility. Any borrowings are made on an unsecured basis and bear interest at the Company’s option, either at (a) a fluctuating interest rate equal to the highest of Wells Fargo’s prime rate, 0.50 percent above the Federal funds rate or the one-month Eurodollar rate plus 1%, or (b) the Eurodollar rate for the applicable interest period as defined in the Credit Agreement, which is generally a periodic rate equal to LIBOR, in each case plus an applicable margin that depends on the Company’s consolidated debt to consolidated adjusted EBITDA (as determined pursuant to the Credit Agreement, “leverage ratio”). The Company may draw on the Facility for general corporate purposes. The Facility will expire on July 1, 2020, unless the Company and the banks agree to extend the term. Any outstanding borrowings must be repaid on or prior to the final termination date. The Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and requires the Company to maintain a leverage ratio of not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at least 3.5 to 1.0 based upon the ratio of consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Credit Agreement. As of December 31, 2016, the Company is in compliance with all financial covenants.
On September 7, 2011, the Company borrowed AUD50 million under its revolving credit facility. On the same date, the Company entered into interest rate swap agreements with a total notional value of AUD 50 million and a maturity date of March 7, 2015. These interest rate swap agreements paid the Company variable interest on the AUD 50 millionnotional amount at the three-month bank bill rate, and the Company paid the counterparties a fixed rate of 4.5275%. These interest rate swap agreements were entered into to convert the variable rate Australian dollar borrowing under the revolving credit facility into a fixed-rate borrowing. Based on the terms of the interest rate swap agreements and the underlying borrowing, these interest rate swap agreements were determined to be effective and thus qualified as a cash flow hedge. As such, any changes in the fair value of these interest rate swaps were recorded in other comprehensive income on the Consolidated Balance Sheets until earnings were affected by the variability of cash flows.On March 9, 2015, the Company repaid the AUD 50 million borrowed under its revolving credit facility. On the same day, the AUD 50 million interest rate swap agreements matured.
During 2016 and 2015,2017, the Company had average borrowings outstanding of approximately $443.9$517.2 million and $428.0$493.2 million, respectively, at average annual interest rates of approximately 6.7%5.6% and 7.1%6.3%, respectively. The Company incurred net interest expense of $32.5 million, $27.3 million and $32.3 million $30.7during 2018, 2017 and 2016, respectively.
In June 2018, the Company incurred $6.2 million and $33.4 million during 2016, 2015 and 2014, respectively. Included inof interest expense forrelated to the year ended December 31, 2016, is a $2.7 million charge to adjust the fair value of the Company's mandatorily redeemable noncontrolling interest redemption settlement at GHG (see Note 7)3). The fair value of the mandatorily redeemable noncontrolling interest is based on the redemption value resulting from a negotiated settlement. The Company recorded interest income of $2.3 million and interest expense of $2.7 million for the years ended December 31, 2017 and 2016, respectively, to adjust the fair value of the mandatorily redeemable noncontrolling interest (see Note 3). The fair value of the mandatorily redeemable noncontrolling interest was based on an EBITDA multiple, adjusted for working capital and other items, which approximates fair value (Level 3 fair value assessment).
At December 31, 2016 and 2015,2018, the fair value of the Company’s 5.75% unsecured notes, based on quoted market prices (Level 2 fair value assessment), totaled $406.7 million, compared with the carrying amount of $394.7 million. At December 31, 2017, the fair value of the Company’s 7.25% unsecured notes, based on quoted market prices (Level 2 fair value assessment), totaled $438.7$414.7 million, and $436.6 million, respectively, compared with the carrying amount of $399.1 million and $398.6$399.5 million. The carrying value of the Company’s other unsecured debt at December 31, 2016,2018, approximates fair value.


11.FAIR VALUE MEASUREMENTS
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:
As of December 31, 2016As of December 31, 2018
(in thousands)Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Total
Assets            
Money market investments(1)
$
 $435,258
 $
 $435,258
$
 $75,500
 $75,500
Commercial paper(2)
49,882
 
 
 49,882
Marketable equity securities(3)
424,229
 
 
 424,229
Other current investments(4)
6,957
 17,055
 
 24,012
Marketable equity securities(2)
496,390
 
 496,390
Other current investments(3)
11,203
 6,988
 18,191
Interest rate swap (4)

 369
 369
Total Financial Assets$481,068
 $452,313
 $
 $933,381
$507,593
 $82,857
 $590,450
Liabilities            
Deferred compensation plan liabilities(5)
$
 $46,300
 $
 $46,300
$
 $36,080
 $36,080
Interest rate swap(6)

 365
 
 365
Mandatorily redeemable noncontrolling interest(7)

 
 12,584
 12,584
Total Financial Liabilities$
 $46,665
 $12,584
 $59,249
As of December 31, 2015As of December 31, 2017
(in thousands)Level 1 Level 2 TotalLevel 1 Level 2 Level 3 Total
Assets               
Money market investments(1)
$
 $433,040
 $433,040
$
 $217,628
 $
 $217,628
Marketable equity securities(3)
350,563
 
 350,563
Other current investments(4)
12,822
 16,060
 28,882
Marketable equity securities (2)
536,315
 
 
 536,315
Other current investments (3)
9,831
 11,007
 
 20,838
Total Financial Assets$363,385
 $449,100
 $812,485
$546,146
 $228,635
 $
 $774,781
Liabilities               
Deferred compensation plan liabilities(5)
$
 $48,055
 $48,055
$
 $43,414
 $
 $43,414
Interest rate swap (6)

 244
 
 244
Mandatorily redeemable noncontrolling interest (7)

 
 10,331
 10,331
Total Financial Liabilities$
 $43,658
 $10,331
 $53,989
____________
(1)The Company’s money market investments are included in cash, cash equivalents and restricted cash.cash and the value considers the liquidity of the counterparty.
(2)The Company’s commercial paper investments with original maturitiesin marketable equity securities are held in common shares of three months or lessU.S. corporations that are includedactively traded on U.S. stock exchanges. Price quotes for these shares are readily available. Investments in cash and cash equivalents.marketable securities were classified as available-for-sale in 2017 prior to the adoption of the new accounting guidance (see Note 2).
(3)The Company’s investments in marketable equity securities are classified as available-for-sale.
(4)Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits. These investments are valued using a market approach based on the quoted market prices of the security or inputs that include quoted market prices for similar instruments and are classified as either Level 1 or Level 2 in the valuationfair value hierarchy.
(4)Included in Deferred Charges and Other Assets. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.
(5)Includes Graham Holdings Company’s Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company’s Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits. These plans measure the market value of a participant’s balance in a notional investment account that is comprised primarily of mutual funds, which are based on observable market prices. However, since the deferred compensation obligations are not exchanged in an active market, they are classified as Level 2 in the fair value hierarchy. Realized and unrealized gains (losses) on deferred compensation are included in operating income.
(6)Included in Other liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.
(7)The fair value of the mandatorily redeemable noncontrolling interest is based on an EBITDA multiple, adjusted for working capital and other items, which approximates fair value.
During the year ended December 31, 2018, the Company recorded gains of $11.7 million to equity securities that are accounted for as cost method investments based on observable transactions for identical or similar investments of the same issuer.
For the years ended December 31, 2018, 2017 and 2016, the Company recorded goodwill and other long-lived asset impairment charges of $8.1 million, $9.6 million and $1.6 million, respectively. The remeasurement of the goodwill and other long-lived assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the reporting unit. A market value approach was also utilized to supplement the discounted cash flow model. The Company made estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine the reporting unit’s estimated fair value.
For the year ended December 31, 2016, the Company recorded impairment charges totaling $27.0 million to its cost method investment relating to a preferred equity interest in a vocational school company due to a decline in business conditions. The measurement of the preferred equity interest is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the preferred equity interest and made estimates and assumptionassumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine the estimated fair value.
For the year ended December 31, 2016, the Company recorded goodwill impairment charges of $1.6 million. For the year ended December 31, 2015, the Company recorded goodwill and other long-lived assets impairment charges of $259.7 million. For the year ended December 31, 2014, the Company recorded an intangible and other long-lived assets impairment charge of $25.1 million, of which$7.8 million is reported in discontinued operations (see Notes 2 and 8). The remeasurement of the goodwill and other long-lived assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value. The Company used a discounted cash flow model to determine the estimated fair value of the reporting unit. A market value approach was also utilized to supplement the discounted cash flow model. The Company made estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine the reporting unit’s estimated fair value.


12.REDEEMABLE PREFERRED STOCKREVENUE FROM CONTRACTS WITH CUSTOMERS
On October 1, 2015,Revenue Recognition. The following table presents the Company’s revenue disaggregated by revenue source for the years ended December 31, 2018, 2017 and 2016:
 Year Ended December 31
(in thousands)2018 2017 2016
Education Revenue     
Kaplan international$719,982
 $697,999
 $696,362
Higher education342,085
 431,425
 501,784
Test preparation256,102
 273,298
 286,556
Professional (U.S.)134,187
 115,839
 115,263
Kaplan corporate and other1,142
 294
 214
Intersegment elimination(2,483) (2,079) (1,718)
 1,451,015
 1,516,776
 1,598,461
Television broadcasting505,549
 409,916
 409,718
Manufacturing487,619
 414,193
 241,604
Healthcare149,275
 154,202
 146,962
SocialCode58,728
 62,077
 58,851
Other43,880
 34,733
 26,433
Intersegment elimination(100) (51) (139)
Total Revenue$2,695,966
 $2,591,846
 $2,481,890
The Company generated 76% of its revenue from U.S. domestic sales for the year ended December 31, 2018. The remaining 24% of revenue was generated from non-U.S. sales.
For the year ended December 31, 2018, the Company redeemedrecognized 80% of its Series A preferred stock withrevenue over time as control of the services and goods transferred to the customer. The remaining 20% of revenue was recognized at a par valuepoint in time, when the customer obtained control of $1.00 per sharethe promised goods.
The determination of the method by which the Company measures its progress towards the satisfaction of its performance obligations requires judgment and a liquidation preferenceis described in the Summary of $1,000 per share. Significant Accounting Policies (Note 2).
Deferred Revenue. The 10,510 shares outstanding were redeemed at the redemption priceCompany records deferred revenue when cash payments are received or due in advance of $1,000 per share for $10.5 million. Prior to redemption, dividends on the Series A preferred stock were payable four times a year at the annual rate of $80.00 per share and in preference to any dividends on the Company’s common stock.performance, including amounts which are refundable. The Series A preferred stock was not convertible into any other securityfollowing table presents the change in the Company’s deferred revenue balance during the year ended December 31, 2018:
 As of 
 December 31,
2018
 January 1,
2018
%
(in thousands) Change
Deferred revenue$311,214
 $342,640
(9)
The majority of the change in the deferred revenue balance is related to the KU Transaction. During the year ended December 31, 2018, the Company recognized $259.2 million related to the Company’s deferred revenue balance as of January 1, 2018.
Revenue allocated to remaining performance obligations represents deferred revenue amounts that will be recognized as revenue in future periods. As of December 31, 2018, KTP’s deferred revenue balance related to certain medical and nursing qualifications with an original contract length greater than twelve months was $5.6 million. KTP expects to recognize 81% of this revenue over the next twelve months and the holders thereof had no voting rights except with respectremainder thereafter.
Costs to any proposedObtain a Contract. The following table presents changes in the preferences and special rightsCompany’s costs to obtain a contract asset during the year ended December 31, 2018:
(in thousands)
Balance at
Beginning
of Year
 Costs Associated with New Contracts Less: Costs Amortized during the Year Other 
Balance
at
End of
Year
2018$16,043
 $55,664
 $(49,284) $(1,112) $21,311
The majority of such stock.other activity is related to currency translation adjustments during the year ended December 31, 2018.


13.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. In 2015, the Company’s Class A shareholders converted 10,822, or 1%, of the Class A shares of the Company to an equal number of Class B shares. The conversions had no impact on the voting rights of the Class A and Class B common stock. There were no conversions in 2016.
During 20162018, 2017, and 2015,2016 the Company purchased a total of 229,498199,023, 88,361, and 46,226229,498 shares, respectively, of its Class B common stock at a cost of approximately $118.0 million, $50.8 million, and $108.9 million, and $23.0 million, respectively. As part of the exchange transaction with Berkshire in 2014, the Company acquired 1,620,190shares of its Class B common stock at a cost of approximately $1,165.4 million. On May 14, 2015,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 159,219163,237 shares that remained under the previous authorization. At December 31, 2016,2018, the Company had remaining authorization from the Board of Directors to purchase up to 224,276273,655 shares of Class B common stock. Shares acquired as part of the exchange transaction received separate authorization by the Company’s Board of Directors.
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. Some of the awards are also subject to performance conditions and will be forfeited and revert to Company ownership if the conditions are not met. As a result of the Cable ONE spin-off, theThe number of Class B common stockshares authorized for issuance under the 2012 Plan was increased from 500,000 shares tois 772,588 shares. The individual award limit under the 2012 Plan was also increased from 50,000 shares to 77,258 shares per calendar year.At December 31, 2016,2018, there were 617,326575,208 shares reserved for issuance under the 2012 incentive compensation plan. Of this number, 171,156138,131 shares were subject to stock awards and stock options outstanding, and 446,170437,077 shares were available for future awards.
Activity related to stock awards under the 2012 incentive compensation plan for the year ended December 31, 20162018 was as follows:
 Number of Shares Average Grant-Date Fair Value
Beginning of year, unvested81,475
 $637.70
Awarded1,291
 872.36
Vested(11,366) 565.79
Forfeited(4,175) 625.04
End of Year, Unvested67,225
 655.15
In connection with the spin-off of Cable ONE, the Company modified the terms of 10,830 restricted stock awards in the second quarter of 2015 affecting 21 Cable ONE employees. The modification resulted in the acceleration of the vesting period of 6,324 restricted stock awards and the forfeiture of 4,506 restricted stock awards. The Company recorded incremental stock compensation expense, net of forfeitures, in the second quarter of 2015 amounting to $3.7 million, which is reflected in discontinued operations in the Company’s consolidated financial statements. The spin-off also resulted in a modification of some of the Company’s outstanding restricted stock awards. The holders of restricted stock awards received Cable ONE restricted common stock, on a pro rata basis, as part of the distribution. The modification of the restricted stock awards resulted in an estimated incremental stock


compensation expense of $3.0 million that is being recognized over the remaining service periods of the unvested restricted stock awards through the end of 2018.
In the fourth quarter of 2015, the Company also modified the terms of an additional 9,800 restricted stock awards affecting one now former employee. The modification resulted in the acceleration of the vesting period of 9,412 restricted stock awards and the forfeiture of 388 restricted stock awards. As a result, the Company recorded incremental stock compensation expense, net of forfeitures, of $6.0 million.
 Number of Shares Average Grant-Date Fair Value
Beginning of year, unvested51,575
 $744.07
Awarded375
 875.40
Vested(14,275) 694.81
Forfeited(5,475) 863.21
End of Year, unvested32,200
 747.18
For the share awards outstanding at December 31, 2016,2018, the aforementioned restriction will lapse in 2017 for 28,200 shares, in 2018 for 14,225 shares, in 2019 for 24,55018,500 shares, and in 2020 for 250 shares and in 2021 for 13,450 shares. Also, in early 2017,2019, the Company issued stock awards of 15,15016,665 shares. Stock-based compensation costs resulting from Company stock awards were $4.4 million, $8.1 million and $11.0 million $25.3 millionin 2018, 2017 and $15.4 million in 2016, 2015 and 2014, respectively.
As of December 31, 2016,2018, there was $11.9$3.6 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 0.9 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 foursix years and have a maximum term of ten years. At December 31, 2016,2018, there were 83,06579,001 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 foursix years and have a maximum term of ten years. In 2015 and 2014, grants were2017, a grant was issued which vestthat vests over six years.


Activity related to options outstanding for the year ended December 31, 20162018 was as follows:
 Number of Shares Average Option Price
Beginning of year191,722
 $552.00
Granted
 
Exercised(4,726) 250.29
Expired or forfeited
 
End of Year186,996
 559.62
In connection with the spin-off of Cable ONE, the Company modified outstanding stock options to add an antidilution provision. This resulted in an incremental stock compensation expense of $23.5 million, of which $18.8 million related to fully vested stock options was recognized as a one-time expense in the third quarter of 2015, with the remaining $4.7 million to be recognized over the remaining service periods of the unvested stock options through the end of 2018. The $18.8 million expense is included in the Company’s corporate office segment results and in selling, general and administrative in the Consolidated Statements of Operations.
 Number of Shares Average Option Price
Beginning of year185,520
 $565.65
Granted
 
Exercised(588) 281.18
Expired or forfeited
 
End of Year184,932
 566.55
Of the shares covered by options outstanding at the end of 2016, 114,8722018, 145,138 are now exercisable; 17,000 will become exercisable in 2017; 17,000 will become exercisable in 2018; 17,00017,333 will become exercisable in 2019; 17,00017,334 will become exercisable in 2020; and 4,1244,459 will become exercisable in 2021.2021; 333 will become exercisable in 2022; and 335 will become exercisable in 2023. For 2016, 20152018, 2017 and 2014,2016, the Company recorded expense of $2.4$2.0 million, $22.9$2.0 million and $2.7$2.4 million related to stock options, respectively. Information related to stock options outstanding and exercisable at December 31, 2016,2018, is as follows:
 Options Outstanding Options Exercisable Options Outstanding Options Exercisable
Range of Exercise Prices Shares Outstanding at 12/31/2016 
Weighted
Average
Remaining
Contractual
Life (years)
 Weighted
Average
Exercise
Price
 Shares Exercisable at 12/31/2016 Weighted
Average
Remaining
Contractual
Life (years)
 Weighted
Average
Exercise
Price
 Shares Outstanding at 12/31/2018 
Weighted
Average
Remaining
Contractual
Life (years)
 Weighted
Average
Exercise
Price
 Shares Exercisable at 12/31/2018 Weighted
Average
Remaining
Contractual
Life (years)
 Weighted
Average
Exercise
Price
$244–284 4,648
 4.4 $261.18
 4,648
 4.4 $261.18
$244–276 3,674
 2.5 $259.19
 3,674
 2.5 $259.19
325 77,258
 4.1 325.26
 77,258
 4.1 325.26
 77,258
 2.1 325.26
 77,258
 2.1 325.26
422 3,090
 1.4 421.91
 3,090
 1.4 421.91
719 77,258
 7.8 719.15
 25,753
 7.8 719.15
 77,258
 5.8 719.15
 51,504
 5.8 719.15
805–872 24,742
 8.9 866.58
 4,123
 8.9 866.58
 26,742
 7.0 865.02
 12,702
 6.9 866.03
 186,996
 6.3 559.62
 114,872
 5.1 433.00
 184,932
 4.4 566.55
 145,138
 3.9 510.69
At December 31, 2016,2018, the intrinsic value for all options outstanding, exercisable and unvested was $15.9$25.8 million, $15.9$25.8 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 $511.95$640.58 at December 31, 2016.2018. At December 31, 2016,2018, there were 72,12439,794 unvested options related to this plan


with an average exercise price of $761.30$770.29 and a weighted average remaining contractual term of 8.16.3 years. At December 31, 2015,2017, there were 89,89657,126 unvested options with an average exercise price of $755.65$770.67 and a weighted average remaining contractual term of 9.17.2 years.
As of December 31, 2016,2018, total unrecognized stock-based compensation expense related to stock options was $8.2$4.4 million, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 4.22.3 years. 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 stock option exercises of $0.3 million was realized. There were 4,726 options exercised during 2016. The total intrinsic value of options exercised during 2016 was $1.2 million; a tax benefit from these stock option exercises of $0.5 million was realized. There were 40,527 options exercised during 2015. The total intrinsic value of options exercised during 2015 was $19.5 million; a tax benefit from these stock option exercises of $7.8 million was realized. There were 19,125 options exercised during 2014. The total intrinsic value of options exercised during 2014 was $6.7 million; a tax benefit from these option exercises of $2.7 million was realized.
During 2015 and 2014,2017, the Company granted 24,742 and 50,000 (adjusted to 77,258 post Cable ONE spin-off)2,000 options at an exercise price above the fair market value of its common stock at the date of grant, respectively. All other options granted during 2015 and 2014 were at an exercise price equal to the fair market value of the Company’s common stock at the date of grant. The weighted average grant-date fair value of options granted during 2015 and 20142017 was $155.00 and $178.95, respectively.$120.47. No options were granted during 2018 or 2016.
The fair value of options at date of grant was estimated using the Black-Scholes method utilizing the following assumptions:
 2015 2014
Expected life (years)7–8 7–8
Interest rate1.88%–2.17% 2.15%–2.45%
Volatility31.59%–32.69% 30.75%–32.10%
Dividend yield0.81%–1.18% 1.30%–1.54%
2017
Expected life (years)8
Interest rate2.28%
Volatility26.93%
Dividend yield0.85%
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, 2016,2018, 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 2017,


2019, the committee set the fair value price at $1,327$1,575 per share. During 2015, 2,500 options were awarded to a Kaplan senior manager at a price of $1,180 that would have vested over a four-year period. No options were awarded during 2016 and 2014;2018, 2017, or 2016; no options were exercised during 2016, 20152018, 2017 or 2014;2016; and due to 2015 forfeitures, there were no options were outstanding at December 31, 2016.2018.
Kaplan recorded stock compensation expense of $0.5 million, $1.2 million, and $0.6 million in 2018, 2017 and $0.9 million in 2016, and 2014, respectively, and a credit of $1.8 million in 2015.respectively. At December 31, 2016,2018, the Company’s accrual balance related to the Kaplan restricted shares totaled $9.6$11.3 million. There were no payouts in 2016, 20152018, 2017 or 2014.2016.
Earnings (Loss) 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 from continuing operations and share data used in the basic and diluted earnings (loss) per share computations using the two-class method:
 Year Ended December 31
(in thousands, except per share amounts)2016 2015 2014
Numerator:     
Numerator for basic earnings (loss) per share:     
Income (loss) from continuing operations attributable to Graham Holdings Company common stockholders$168,590
 $(143,456) $765,139
Less: Dividends paid–common stock outstanding and unvested restricted shares(27,325) (53,090) (67,267)
Undistributed earnings (losses)141,265
 (196,546) 697,872
Percent allocated to common stockholders (1)
98.79% 100.00% 97.98%
 139,562
 (196,546) 683,780
Add: Dividends paid–common stock outstanding26,962
 52,050
 66,012
Numerator for basic earnings (loss) per share166,524
 (144,496) 749,792
Add: Additional undistributed earnings due to dilutive stock options9
 
 64
Numerator for diluted earnings (loss) per share$166,533
 $(144,496) $749,856
Denominator:     
Denominator for basic earnings (loss) per share:     
Weighted average shares outstanding5,559
 5,727
 6,470
Add: Effect of dilutive stock options30
 
 27
Denominator for diluted earnings (loss) per share5,589
 5,727
 6,497
Graham Holdings Company Common Stockholders: 
  
  
Basic earnings (loss) per share from continuing operations$29.95
 $(25.23) $115.88
Diluted earnings (loss) per share from continuing operations$29.80
 $(25.23) $115.40
____________
(1)Percent of undistributed losses allocated to common stockholders is 100% in 2015 as participating securities are not contractually obligated to share in losses.
 Year Ended December 31
(in thousands, except per share amounts)2018 2017 2016
Numerator:     
Numerator for basic earnings per share:     
Net income attributable to Graham Holdings Company common stockholders$271,206
 $302,044
 $168,590
Less: Dividends paid–common stock outstanding and unvested restricted shares(28,617) (28,329) (27,325)
Undistributed earnings242,589
 273,715
 141,265
Percent allocated to common stockholders99.39% 99.06% 98.79%
 241,115
 271,150
 139,562
Add: Dividends paid–common stock outstanding28,423
 28,060
 26,962
Numerator for basic earnings per share269,538
 299,210
 166,524
Add: Additional undistributed earnings due to dilutive stock options10
 17
 9
Numerator for diluted earnings per share$269,548
 $299,227
 $166,533
Denominator:     
Denominator for basic earnings per share:     
Weighted average shares outstanding5,333
 5,516
 5,559
Add: Effect of dilutive stock options37
 36
 30
Denominator for diluted earnings per share5,370
 5,552
 5,589
Graham Holdings Company Common Stockholders: 
  
  
Basic earnings per share$50.55
 $54.24
 $29.95
Diluted earnings per share$50.20
 $53.89
 $29.80
Diluted earnings (loss) 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 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
Weighted average restricted stock40
 52
 62
23
 30
 40
Weighted average stock options
 39
 
The 2016, 20152018, 2017 and 20142016 diluted earnings (loss) per share amounts exclude the effects of 102,000, 102,000104,000, 104,000 and 52,000102,000 stock options outstanding, respectively, as their inclusion would have been antidilutive due to a market condition. The 2016, 20152018, 2017 and 20142016 diluted earnings (loss) per share amounts also exclude the effects of 5,450, 6,2502,650, 5,250 and 5,1755,450 restricted stock awards, respectively, as their inclusion would have been antidilutive due to a performance condition.
In 20162018, 20152017 and 2014,2016, the Company declared regular dividends totaling $4.84, $9.10$5.32, $5.08 and $10.20$4.84 per share, respectively.


14.PENSIONS AND OTHER POSTRETIREMENT PLANS
The Company maintains various pension and incentive savings plans and contributed to multiemployer plans on behalf of certain union-represented employee groups. Most of the Company’s employees are covered by these plans. The Company also provides health carehealthcare and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.
The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.
Cable ONE Spin-Off. On July 1, 2015,In the first quarter of 2018, the Company adopted new guidance which requires the presentation of service cost in the same line item as partother compensation costs arising from services by employees during the period, while the other components of the spin-off, Cable ONE assumed the liability related to their employees participatingnet periodic benefit are recognized in non-operating pension and postretirement benefit income in the Company’s SERP. The Company also eliminated the accrualConsolidated Statements of pension benefits for all Cable ONE employees related to their future service. As a result of the spin-off of Cable ONE, the Company remeasured the accumulated and projected benefit obligation of the pension plan and SERP as of July 1, 2015, and recorded curtailment and settlement gains. The new measurement basis was used for the recognition of the SERP cost recorded in the third quarter of 2015 and the pension benefit recorded for the first two months of the third quarter of 2015. The curtailment gain on the spin-off of Cable ONE is included in income from discontinued operations, net of tax. The settlement gain on the spin-off of Cable ONE is included in the SERP liability distributed to Cable ONE (see Note 3).Operations.


KHE Campuses Sale. On September 3, 2015,March 22, 2018, the Company eliminated the accrual of pension benefits for almost all of the KHE Campusescertain Kaplan University employees related to their future service. As a result, the Company remeasured the accumulated and projected benefit obligation of the pension plan as of September 3, 2015,March 22, 2018, and the Company recorded a curtailment gain in the thirdfirst quarter of 2015.2018. The new measurement basis was used for the recognition of the Company’s pension benefit beginning in September 2015.following the remeasurement. The curtailment gain on the sale of the KHE CampusesKaplan University transaction is included in the lossgain on the sale of the KHE CampusesKaplan University transaction and reported in Other income (expense), net on the Consolidated Statements of Operations.
On October 31, 2018, the Company made certain changes to the other (expense) income, netpostretirement plans, including changes in eligibility, cost sharing and surviving spouse coverage. As a result, the Company remeasured the accumulated and projected benefit obligation of the other postretirement plans as of October 31, 2018, and the Company recorded a curtailment gain in the Consolidated Statementfourth quarter of Operations.2018. The new measurement basis was used for the recognition of the Company’s other postretirement plans cost following the remeasurement.
Defined Benefit Plans. The Company’s defined benefit pension plans consist of various pension plans and a SERPSupplemental Executive Retirement Plan (SERP) offered to certain executives of the Company.
In the fourth quarter of 2018, the Company offered certain terminated participants with a vested pension benefit an opportunity to take their benefits in the form of a lump sum or an annuity. Most of the participants that elected a lump sum benefit under the program were paid in December 2018. Additional lump sum payments were paid in early 2019. The Company recorded a $26.9 million settlement gain related to the bulk lump sum pension program offering.
In the fourth quarter of 2017, the Company recorded $0.9 million related to a Separation Incentive Program for certain Kaplan employees, which was funded from the assets of the Company’s pension plan. In the third quarter of 2017, the Company recorded $0.9 million related to a Separation Incentive Program for certain Forney employees, which was funded from the assets of the Company’s pension plan.
In the fourth quarter of 2016, the Company offered certain terminated participants with a vested pension benefit an opportunity to take their benefits in the form of a lump sum or an annuity. Most of the participants that elected a lump sum benefit under the program were paid in December 2016. Additional lump sum payments are scheduled to bewere paid in early 2017. The Company recorded an $18.0 million settlement gain related to the bulk lump sum pension program offering.
In the fourth quarter of 2015, the Company recorded $0.9 million related to a Special Incentive Program for certain Corporate employees, which was funded from the assets of the Company’s pension plan. In the third quarter of 2015, the Company recorded $3.7 million related to a Special Incentive Program for certain Kaplan employees, which was funded from the assets of the Company’s pension plan.
In the first quarter of 2014, the Company recorded $4.5 million related to a Separation Incentive Program for certain Corporate employees, which was funded from the assets of the Company’s pension plan. In the third quarter of 2014, the Company recorded $3.9 million related to a Voluntary Retirement Incentive Program (VRIP) for certain Corporate employees, which was funded from the assets of the Company’s pension plan. In addition, the Company recorded a $2.4 million SERP charge related to the VRIP for certain Corporate employees.
The following table sets forth obligation, asset and funding information for the Company’s defined benefit pension plans:
 Pension Plans
 As of December 31
(in thousands)2018 2017
Change in Benefit Obligation   
Benefit obligation at beginning of year$1,286,694
 $1,160,897
Service cost18,221
 18,687
Interest cost46,787
 47,925
Amendments7,183
 75
Actuarial (gain) loss(81,851) 73,191
Acquisitions
 58,600
Benefits paid(63,852) (74,506)
Special termination benefits
 1,825
Curtailment(836) 
Settlement(95,777) 
Benefit Obligation at End of Year$1,116,569
 $1,286,694
Change in Plan Assets   
Fair value of assets at beginning of year$2,343,471
 $2,042,490
Actual return on plan assets(63,715) 375,487
Benefits paid(63,852) (74,506)
Settlement(95,777) 
Fair Value of Assets at End of Year$2,120,127
 $2,343,471
Funded Status$1,003,558
 $1,056,777
 SERP
 As of December 31
(in thousands)2018 2017
Change in Benefit Obligation   
Benefit obligation at beginning of year$110,082
 $106,526
Service cost819
 858
Interest cost3,865
 4,233
Amendments1,028
 
Actuarial (gain) loss(7,552) 4,041
Benefits paid(5,694) (5,576)
Benefit Obligation at End of Year$102,548
 $110,082
Change in Plan Assets   
Fair value of assets at beginning of year$
 $
Employer contributions5,694
 5,576
Benefits paid(5,694) (5,576)
Fair Value of Assets at End of Year$
 $
Funded Status$(102,548) $(110,082)
 Pension Plans
 As of December 31
(in thousands)2016 2015
Change in Benefit Obligation   
Benefit obligation at beginning of year$1,254,298
 $1,317,480
Service cost20,461
 26,294
Interest cost51,608
 52,613
Amendments
 4,606
Actuarial gain(32,203) (57,834)
Benefits paid(60,076) (85,542)
Curtailment
 (3,319)
Settlement(73,191) 
Benefit Obligation at End of Year$1,160,897
 $1,254,298
Change in Plan Assets   
Fair value of assets at beginning of year$2,234,268
 $2,469,968
Actual return on plan assets(58,511) (150,158)
Benefits paid(60,076) (85,542)
Settlement(73,191) 
Fair Value of Assets at End of Year$2,042,490
 $2,234,268
Funded Status$881,593
 $979,970


 SERP
 As of December 31
(in thousands)2016 2015
Change in Benefit Obligation   
Benefit obligation at beginning of year$105,004
 $116,083
Service cost985
 1,946
Interest cost4,384
 4,550
Actuarial loss (gain)1,120
 (6,544)
Benefits paid(4,967) (6,083)
Curtailment
 (4,948)
Benefit Obligation at End of Year$106,526
 $105,004
Change in Plan Assets   
Fair value of assets at beginning of year$
 $
Employer contributions4,967
 6,083
Benefits paid(4,967) (6,083)
Fair Value of Assets at End of Year$
 $
Funded Status$(106,526) $(105,004)
The change in the Company’s benefit obligation for the pension plans was primarily due to the settlement gain recognized related to the bulk lump sum pension program offering and an actuarial gain recognized as a result of an increase to the discount rate used to measure the benefit obligation. The change in the benefit obligation for the Company’s SERP was due to the recognition of an actuarial gain resulting from an increase to the discount rate used to measure the benefit obligation.
The accumulated benefit obligation for the Company’s pension plans at December 31, 20162018 and 2015,2017, was $1,137.9$1,097.3 million and $1,219.7$1,261.8 million, respectively. The accumulated benefit obligation for the Company’s SERP at December 31, 20162018 and 2015,2017, was $103.0$102.2 million and $102.5$108.0 million, respectively. The amounts recognized in the Company’s Consolidated Balance Sheets for its defined benefit pension plans are as follows:
Pension Plans SERPPension Plans SERP
As of December 31 As of December 31As of December 31 As of December 31
(in thousands)2016 2015 2016 20152018 2017 2018 2017
Noncurrent asset$881,593
 $979,970
 $
 $
$1,003,558
 $1,056,777
 $
 $
       
Current liability
 
 (5,580) (5,442)
 
 (6,321) (5,838)
Noncurrent liability
 
 (100,946) (99,562)
 
 (96,227) (104,244)
Recognized Asset (Liability)$881,593
 $979,970
 $(106,526) $(105,004)$1,003,558
 $1,056,777
 $(102,548) $(110,082)


Key assumptions utilized for determining the benefit obligation are as follows:
Pension Plans SERPPension Plans SERP
As of December 31 As of December 31As of December 31 As of December 31
2016 2015 2016 20152018 2017 2018 2017
Discount rate4.1% 4.3% 4.1% 4.3%4.3% 3.6% 4.3% 3.6%
Rate of compensation increaseGraded (5.00%–1.00%) 4.0% Graded (5.00%–1.00%) 4.0%
Rate of compensation increase – age graded5.0%–1.0% 5.0%–1.0% 5.0%–1.0% 5.0%–1.0%
Cash balance interest crediting rate3.50% with phase in to 4.30% in 2021 2.23% with phase in to 3.00% in 2020  
The Company made no contributions to its pension plans in 2016, 20152018 and 2014,2017, and the Company does not expect to make any contributions in 2017.2019. The Company made contributions to its SERP of $5.0$5.7 million and $6.1$5.6 million for the years ended December 31, 20162018 and 2015,2017, respectively. As the plan is unfunded, the Company makes contributions to the SERP based on actual benefit payments.
At December 31, 2016,2018, future estimated benefit payments, excluding charges for early retirement programs, are as follows:
(in thousands)Pension Plans SERPPension Plans SERP
2017$68,782
 $5,693
2018$69,704
 $5,820
2019$69,465
 $6,232
$76,245
 $6,456
2020$69,933
 $6,327
$76,715
 $6,743
2021$70,122
 $6,429
$75,956
 $6,946
2022–2026$350,228
 $34,061
2022$75,909
 $7,078
2023$75,389
 $7,149
2024–2028$367,130
 $35,656
The total (benefit) cost (benefit) arising from the Company’s defined benefit pension plans including the portion included in discontinued operations, consists of the following components:
 Pension Plans
 Year Ended December 31
(in thousands)2016 2015 2014
Service cost$20,461
 $26,294
 $27,792
Interest cost51,608
 52,613
 51,825
Expected return on assets(121,470) (130,571) (120,472)
Amortization of prior service cost297
 320
 329
Recognized actuarial gain
 (11,925) (28,880)
Net Periodic Benefit for the Year(49,104) (63,269) (69,406)
Curtailment
 (3,267) 
Settlement(17,993) 
 
Early retirement programs and special separation benefit expense
 4,606
 8,374
Total Benefit for the Year$(67,097) $(61,930) $(61,032)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income     
Current year actuarial loss$147,779
 $222,894
 $125,866
Amortization of prior service cost(297) (320) (329)
Recognized net actuarial gain
 11,925
 28,880
Curtailment and settlement17,993
 (51) (368)
Total Recognized in Other Comprehensive Income (Before Tax Effects)$165,475
 $234,448
 $154,049
Total Recognized in Total Benefit and Other Comprehensive Income (Before Tax Effects)$98,378
 $172,518
 $93,017
 SERP
 Year Ended December 31
(in thousands)2016 2015 2014
Service cost$985
 $1,946
 $1,493
Interest cost4,384
 4,550
 4,397
Amortization of prior service cost457
 457
 47
Recognized actuarial loss2,659
 3,015
 1,544
Net Periodic Cost for the Year8,485
 9,968
 7,481
Special separation benefit expense
 
 2,422
Total Cost for the Year$8,485
 $9,968
 $9,903
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income     
Current year actuarial loss (gain)$1,120
 $(6,544) $19,168
Current year prior service cost
 
 1,600
Amortization of prior service cost(457) (457) (47)
Recognized net actuarial loss(2,659) (3,015) (1,544)
Curtailment and settlement
 (834) 
Total Recognized in Other Comprehensive Income (Before Tax Effects)$(1,996) $(10,850) $19,177
Total Recognized in Total Cost and Other Comprehensive Income (Before Tax Effects)$6,489
 $(882) $29,080
The net periodic benefit for the Company’s pension plans, as reported above, includes pension cost of $1.9 million and $3.7 million reported in discontinued operations for 2015 and 2014, respectively. The net periodic cost for the Company’s SERP, as reported above, includes cost of $0.2 million and $0.5 million reported in discontinued operations for 2015 and 2014, respectively. The curtailment gain of $2.2 million related to the Cable ONE spin-off is also included in discontinued operations for 2015. The curtailment gain of $1.1 million related to the sale of the KHE Campuses business is included in other (expense) income, net.
 Pension Plans
 Year Ended December 31
(in thousands)2018 2017 2016
Service cost$18,221
 $18,687
 $20,461
Interest cost46,787
 47,925
 51,608
Expected return on assets(129,220) (121,411) (121,470)
Amortization of prior service cost150
 170
 297
Recognized actuarial gain(9,969) (4,410) 
Net Periodic Benefit for the Year(74,031) (59,039) (49,104)
Curtailment(806) 
 
Settlement(26,917) 
 (17,993)
Early retirement programs and special separation benefit expense
 1,825
 
Total Benefit for the Year$(101,754) $(57,214) $(67,097)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income     
Current year actuarial loss (gain)$111,084
 $(180,885) $147,779
Current year prior service cost7,183
 75
 
Amortization of prior service cost(150) (170) (297)
Recognized net actuarial gain9,969
 4,410
 
Curtailment and settlement26,887
 
 17,993
Total Recognized in Other Comprehensive Income (Before Tax Effects)$154,973
 $(176,570) $165,475
Total Recognized in Total Benefit and Other Comprehensive Income (Before Tax Effects)$53,219
 $(233,784) $98,378


 SERP
 Year Ended December 31
(in thousands)2018 2017 2016
Service cost$819
 $858
 $985
Interest cost3,865
 4,233
 4,384
Amortization of prior service cost311
 455
 457
Recognized actuarial loss2,403
 1,774
 2,659
Total Cost for the Year$7,398
 $7,320
 $8,485
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income     
Current year actuarial (gain) loss$(7,552) $4,041
 $1,120
Current year prior service cost1,028
 
 
Amortization of prior service cost(311) (455) (457)
Recognized net actuarial loss(2,403) (1,774) (2,659)
Total Recognized in Other Comprehensive Income (Before Tax Effects)$(9,238) $1,812
 $(1,996)
Total Recognized in Total Cost and Other Comprehensive Income (Before Tax Effects)$(1,840) $9,132
 $6,489
The costs for the Company’s defined benefit pension plans are actuarially determined. Below are the key assumptions utilized to determine periodic cost:
Pension Plans SERPPension Plans SERP
Year Ended December 31 Year Ended December 31Year Ended December 31 Year Ended December 31
2016 2015 2014 2016 2015 20142018 2017 2016 2018 2017 2016
Discount rate (1)
4.3% 4.4%/4.0% 4.8% 4.3% 4.4%/4.0% 4.8%4.0%/3.6% 4.1% 4.3% 3.6% 4.1% 4.3%
Expected return on plan assets6.5% 6.5% 6.5%   6.25% 6.25% 6.5%   
Rate of compensation increase4.0% 4.0% 4.0% 4.0% 4.0% 4.0%Age graded
(5.0%–1.0%)
 Age graded
(5.0%–1.0%)
 4.0% Age graded
(5.0%–1.0%)
 Age graded
(5.0%–1.0%)
 4.0%
Cash balance interest crediting rate2.23% with phase in to 3.00% in 2020 1.57% with phase in to 3.00% in 2020 1.41% with phase in to 3.00% in 2019   
____________
(1)As a result of the spin-off of Cable ONE and the sale of the KHE Campuses business,Kaplan University transaction, the Company remeasured the accumulated and projected benefit obligation of the pension plan as of July 1, 2015 and September 3, 2015, respectively. As a result of the spin-off of Cable ONE, the accumulated and projected benefit obligation of the SERP was remeasured as of July 1, 2015.March 22, 2018. The remeasurement changed the discount rate from 3.6% for the period January 1 to March 23, 2018 to 4.0% for the first six months to 4.4% for the second half of 2015.period after March 23, 2018.
Accumulated other comprehensive income (AOCI) includes the following components of unrecognized net periodic cost for the defined benefit plans:
 Pension Plans SERP
 As of December 31 As of December 31
(in thousands)2016 2015 2016 2015
Unrecognized actuarial (gain) loss$(285,304) $(451,076) $24,958
 $26,497
Unrecognized prior service cost365
 662
 775
 1,232
Gross Amount(284,939) (450,414) 25,733
 27,729
Deferred tax liability (asset)113,976
 180,166
 (10,293) (11,091)
Net Amount$(170,963) $(270,248) $15,440
 $16,638
During 2017, the Company expects to recognize the following amortization components of net periodic cost for the defined benefit plans:
 2017
(in thousands)Pension Plans SERP
Actuarial (gain) loss recognition$(5,161) $1,827
Prior service cost recognition$156
 $457
 Pension Plans SERP
 As of December 31 As of December 31
(in thousands)2018 2017 2018 2017
Unrecognized actuarial (gain) loss$(313,809) $(461,779) $17,270
 $27,225
Unrecognized prior service cost7,273
 270
 1,037
 320
Gross Amount(306,536) (461,509) 18,307
 27,545
Deferred tax liability (asset)82,765
 124,607
 (4,943) (7,437)
Net Amount$(223,771) $(336,902) $13,364
 $20,108
Defined Benefit Plan Assets. The Company’s defined benefit pension obligations are funded by a portfolio made up of a U.S. stock index fund, a relatively small number of stocks and high-quality fixed-income securities that are held by a third-party trustee. The assets of the Company’s pension plans were allocated as follows:
As of December 31As of December 31
2016 20152018 2017
U.S. equities53% 62%53% 53%
U.S. stock index fund30% %28% 30%
U.S. fixed income11% 13%13% 11%
International equities6% 25%6% 6%
100% 100%100% 100%
Beginning in the second quarter of 2016, theThe Company started managingmanages approximately 44%46% of the pension assets internally, of which the majority is invested in a U.S. stock index fund with the remaining investments in Berkshire Hathaway stock and short-term incomefixed-income securities. The remaining 56%54% of plan assets are still managed by two investment companies. The goal of the investment managers is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both investment managers may invest in a combination of equity and fixed-income securities and cash. The managers are not permitted to invest in securities of the Company or in alternative


investments. The investment managers cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway or more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval byfrom the Plan administrator. As of December 31, 2016,2018, the investment managers can invest no more than 23% of the assets they manage in specified international exchanges, at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities.
In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.


The Company evaluated its defined benefit pension plan asset portfolio for the existence of significant concentrations (defined as greater than 10% of plan assets) of credit risk as of December 31, 2016.2018. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country and individual fund. At December 31, 2016,2018 and 2017, the pension plan held investments in one common stock and one U.S. stock index fund that exceeded 10% of total plan assetsassets. These investments were valued at $978.8$945.6 million and $1,079.3 million at December 31, 2018 and 2017, respectively, or approximately 48% of total plan assets. At December 31, 2015, the pension plan held common stock in two investments that exceeded 10% of total plan assets, valued at $562.6 million, or 25% of total plan assets. At December 31, 2015, the pension plan held investments in one foreign country that exceeded 10% of total plan assets, valued at $332.4 million, or 15%45% and 46%, respectively, of total plan assets.
The Company’s pension plan assets measured at fair value on a recurring basis were as follows:
As of December 31, 2016As of December 31, 2018
(in thousands)Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
Cash equivalents and other short-term investments$61,438
 $162,010
 $
 $223,448
$2,068
 $269,544
 $
 $271,612
Equity securities              
U.S. equities1,074,528
 
 
 1,074,528
1,115,323
 
 
 1,115,323
International equities120,735
 
 
 120,735
131,912
 
 
 131,912
U.S. stock index fund
 
 622,865
 622,865

 
 601,395
 601,395
Total Investments$1,256,701
 $162,010
 $622,865
 $2,041,576
$1,249,303
 $269,544
 $601,395
 $2,120,242
Receivables      914
Payable for settlement of investments purchased, net      (115)
Total      $2,042,490
      $2,120,127
As of December 31, 2015As of December 31, 2017
(in thousands)Level 1 Level 2 TotalLevel 1 Level 2 Level 3 Total
Cash equivalents and other short-term investments$256,364
 $33,909
 $290,273
$73,877
 $181,638
 $
 $255,515
Equity securities            
U.S. equities1,378,158
 
 1,378,158
1,242,139
 
 
 1,242,139
International equities564,263
 
 564,263
138,640
 
 
 138,640
U.S. stock index fund
 
 706,202
 706,202
Total Investments$2,198,785
 $33,909
 $2,232,694
$1,454,656
 $181,638
 $706,202
 $2,342,496
Receivables    1,574
      975
Total    $2,234,268
      $2,343,471
Cash equivalents and other short-term investments.  These investments are primarily held in U.S. Treasury securities and registered money market funds. These investments are valued using a market approach based on the quoted market prices of the security or inputs that include quoted market prices for similar instruments and are classified as either Level 1 or Level 2 in the valuation hierarchy.
U.S. equities.  These investments are held in common and preferred stock of U.S. corporations and American Depositary Receipts (ADRs) traded on U.S. exchanges. Common and preferred shares and ADRs are traded actively on exchanges, and price quotes for these shares are readily available. These investments are classified as Level 1 in the valuation hierarchy.
International equities. These investments are held in common and preferred stock issued by non-U.S. corporations. Common and preferred shares are traded actively on exchanges, and price quotes for these shares are readily available. These investments are classified as Level 1 in the valuation hierarchy.
U.S. stock index fund. This fund consists of investments held in a diversified mix of securities (U.S. and international stocks, and fixed incomefixed-income securities) and a combination of other collective funds that together are designed to track the performance of the S&P 500 Index. The fund is valued using the net asset value (NAV) provided by the administrator of the fund and reviewed by the Company. The NAV is based on the value of the underlying assets owned by the fund, minus liabilities and divided by the number of units outstanding. The


investment in this fund may be redeemed daily, subjectedsubject to the restrictions of the fund. This investment is classified as Level 3 in the valuation hierarchy.


The following table provides a reconciliation of changes in pension assets measured at fair value on a recurring basis, using Level 3 inputs:
(in thousands)U.S. stock index fund
Balance at December 31, 2015$
Acquisitions574,000
Actual return on plan assets: 
Gains relating to assets still held at year-end48,865
Balance at December 31, 2016$622,865
 U.S. Stock Index Fund
 Year Ended December 31
(in thousands)2018 2017
Balance at Beginning of Year$706,202
 $622,865
Purchases, sales, and settlements, net(80,000) (50,000)
Actual return on plan assets:   
Gains relating to assets sold2,819
 6,796
(Losses) gains relating to assets still held at year-end(27,626) 126,541
Balance at End of Year$601,395
 $706,202
Other Postretirement Plans. The following table sets forth obligation, asset and funding information for the Company’s other postretirement plans:
Postretirement PlansPostretirement Plans
As of December 31As of December 31
(in thousands)2016 20152018 2017
Change in Benefit Obligation      
Benefit obligation at beginning of year$37,391
 $41,957
$22,785
 $24,171
Service cost1,386
 1,331
892
 1,028
Interest cost1,230
 1,299
620
 779
Amendments(12,473) 
Actuarial gain(14,984) (5,296)(2,519) (2,830)
Acquisitions
 516
Benefits paid, net of Medicare subsidy(852) (1,900)(782) (879)
Benefit Obligation at End of Year$24,171
 $37,391
$8,523
 $22,785
Change in Plan Assets      
Fair value of assets at beginning of year$
 $
$
 $
Employer contributions852
 1,900
782
 879
Benefits paid, net of Medicare subsidy(852) (1,900)(782) (879)
Fair Value of Assets at End of Year$
 $
$
 $
Funded Status$(24,171) $(37,391)$(8,523) $(22,785)
The change in the benefit obligation for the Company’s other postretirement plans was primarily due to the impact of amendments to the plans, including changes to eligibility, cost sharing and surviving spouse coverage, as well as the recognition of an actuarial gain resulting from an increase to the discount rate used to measure the benefit obligation.
The amounts recognized in the Company’s Consolidated Balance Sheets for its other postretirement plans are as follows:
Postretirement PlansPostretirement Plans
As of December 31As of December 31
(in thousands)2016 20152018 2017
Current liability$(2,312) $(3,444)$(1,399) $(1,920)
Noncurrent liability(21,859) (33,947)(7,124) (20,865)
Recognized Liability$(24,171) $(37,391)$(8,523) $(22,785)
The discount rates utilized for determining the benefit obligation at December 31, 20162018 and 2015,2017, for the postretirement plans were 3.31%3.69% and 3.45%3.11%, respectively. The assumed health carehealthcare cost trend rate used in measuring the postretirement benefit obligation at December 31, 2016,2018, was 7.15%7.41% for pre-age 65, decreasing to 4.5% in the year 20252026 and thereafter. The assumed health carehealthcare cost trend rate used in measuring the postretirement benefit obligation at December 31, 2016,2018, was 8.65%7.96% for post-age 65, decreasing to 4.5% in the year 20252026 and thereafter.
Assumed health care The assumed healthcare cost trend rates have a significant effect onrate used in measuring the amounts reportedpostretirement benefit obligation at December 31, 2018, was 12.74% for the health care plans. A change of one percentage pointMedicare Advantage, decreasing to 4.5% in the assumed health care cost trend rates would have the following effects:
 1% 1%
(in thousands)Increase Decrease
Benefit obligation at end of year$1,330
 $(1,220)
Service cost plus interest cost$165
 $(148)
year 2028 and thereafter.
The Company made contributions to its postretirement benefit plans of $0.9$0.8 million and $1.9$0.9 million for the years ended December 31, 20162018 and 2015,2017, respectively. As the plans are unfunded, the Company makes contributions to its postretirement plans based on actual benefit payments.


At December 31, 2016,2018, future estimated benefit payments are as follows:
(in thousands)
Postretirement
Plans
Postretirement
Plans
2017$2,312
2018$2,240
2019$2,199
$1,399
2020$2,319
$1,273
2021$2,277
$1,083
2022–2026$10,725
2022$1,015
2023$856
2024–2028$2,308
The total (benefit) cost arising from the Company’s other postretirement plans consists of the following components:
 Postretirement Plans
 Year Ended December 31
(in thousands)2016 2015 2014
Service cost$1,386
 $1,331
 $1,500
Interest cost1,230
 1,299
 1,448
Amortization of prior service credit(335) (502) (783)
Recognized actuarial gain(1,502) (996) (2,076)
Net Periodic Cost779
 1,132
 89
Curtailment
 
 (1,292)
Total Cost (Benefit) for the Year$779
 $1,132
 $(1,203)
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income     
Current year actuarial (gain) loss$(14,984) $(5,296) $4,448
Amortization of prior service credit335
 502
 783
Recognized actuarial gain1,502
 996
 2,076
Curtailment and settlement
 
 360
Total Recognized in Other Comprehensive Income (Before Tax Effects)$(13,147) $(3,798) $7,667
Total Recognized in (Benefit) Cost and Other Comprehensive Income (Before Tax Effects)$(12,368) $(2,666) $6,464
The Company recorded a curtailment gain of $1.3 million in the fourth quarter of 2014 in connection with the exchange of WPLG, and the Separation Incentive Program and VRIP offered to certain Corporate employees.
 Postretirement Plans
 Year Ended December 31
(in thousands)2018 2017 2016
Service cost$892
 $1,028
 $1,386
Interest cost620
 779
 1,230
Amortization of prior service credit(1,408) (148) (335)
Recognized actuarial gain(3,783) (3,891) (1,502)
Net Periodic (Benefit) Cost for the Year(3,679) (2,232) 779
Curtailment(3,380) 
 
Total (Benefit) Cost for the Year$(7,059) $(2,232) $779
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income     
Current year actuarial gain$(2,519) $(2,830) $(14,984)
Current year prior service credit(12,473) 
 
Amortization of prior service credit1,408
 148
 335
Recognized actuarial gain3,783
 3,891
 1,502
Curtailment and settlement3,380
 
 
Total Recognized in Other Comprehensive Income (Before Tax Effects)$(6,421) $1,209
 $(13,147)
Total Recognized in (Benefit) Cost and Other Comprehensive Income (Before Tax Effects)$(13,480) $(1,023) $(12,368)
The costs for the Company’s postretirement plans are actuarially determined. As a result of the changes to the postretirement plans, the Company remeasured the accumulated and projected benefit obligation of the postretirement plan as of October 31, 2018. The remeasurement changed the discount rate from 3.11% for the period January 1 through October 31, 2018 to 4.04% for the period November 1 to December 31, 2018. The discount rates utilized to determine periodic cost for the years ended December 31, 2017 and 2016, 2015were 3.31% and 2014, were 3.45%, 3.25% and 3.80%, respectively. AOCI included the following components of unrecognized net periodic benefit for the postretirement plans:
 As of December 31
(in thousands)2016 2015
Unrecognized actuarial gain$(25,186) $(11,704)
Unrecognized prior service credit(326) (661)
Gross Amount(25,512) (12,365)
Deferred tax liability10,205
 4,946
Net Amount$(15,307) $(7,419)
During 2017, the Company expects to recognize the following amortization components of net periodic cost for the other postretirement plans:
(in thousands)2017
Actuarial gain recognition$(3,953)
Prior service credit recognition$(291)
 As of December 31
(in thousands)2018 2017
Unrecognized actuarial gain$(22,861) $(24,125)
Unrecognized prior service credit(7,863) (178)
Gross Amount(30,724) (24,303)
Deferred tax liability8,295
 6,561
Net Amount$(22,429) $(17,742)
Multiemployer Pension Plans.  In 2016, 20152018, 2017 and 2014,2016, the Company contributed to one multiemployer defined benefit pension plan under the terms of a collective-bargaining agreement that covered certain union-represented employees. The Company’s total contributions to allthe multiemployer pension plansplan amounted to $0.1 million in each year for 2016, 20152018, 2017 and 2014.2016.
Savings Plans. The Company recorded expense associated with retirement benefits provided under incentive savings plans (primarily 401(k) plans) of approximately $8.6 million in 2018 and $7.5 million in 2016, $7.6 million in 2015 2017and $8.6 million in 2014.2016.


15.OTHER NON-OPERATING INCOME (EXPENSE) INCOME
A summary of non-operating income (expense) income is as follows:
 Year Ended December 31
(in thousands)2016 2015 2014
Gain on sale of property, plant and equipment$34,072
 $21,379
 $127,670
Foreign currency losses, net(39,890) (15,564) (11,129)
Net losses on sales or write-downs of cost method investments(28,571) (1,124) (94)
Net gain (losses) on sales of businesses18,931
 (23,335) 
Gain on formation of a joint venture3,232
 5,972
 
Gain on sale of Classified Ventures
 4,827
 396,553
Gain on Berkshire marketable equity securities exchange
 
 266,733
Net losses on sales or write-down of marketable equity securities(1,791) (14) (3,044)
Other, net1,375
 (764) 1,321
Total Other Non-Operating (Expense) Income$(12,642) $(8,623) $778,010
 Year Ended December 31
(in thousands)2018 2017 2016
Loss on guarantor obligations$(17,518) $
 $
Net gain on cost method investments11,663
 
 
Net gain (loss) on sales of businesses8,157
 (569) 18,931
Foreign currency (loss) gain, net(3,844) 3,310
 (39,890)
Gain on sale of cost method investments2,845
 16
 794
Impairment of cost method investments(2,697) (200) (29,365)
Net gain on sale of property, plant and equipment2,539
 
 34,072
Gain on formation of a joint venture
 
 3,232
Net losses on sales or write-down of marketable equity securities
 
 (1,791)
Other, net958
 1,684
 1,375
Total Other Non-Operating Income (Expense)$2,103
 $4,241
 $(12,642)
In 2018, the Company recorded a $17.5 million loss in guarantor lease obligations in connection with the sale of the KHE Campuses business.
In the third quarter of 2018, the Company recorded an $8.5 million gain resulting from observable price changes in the fair value of equity securities accounted for under the cost method. In the fourth quarter of 2018, an additional $3.2 million gain was recorded.
In 2018, the Company recorded an $8.2 million gain on the sale of three businesses in the education division, including a gain of $4.3 million on the Kaplan University transaction and$1.9 million in contingent consideration gains related to the sale of a business (see Note 3).
In the third quarter of 2016, the Company recorded an impairment of $15.0 million to the preferred equity interest in a vocational school company. In the fourth quarter of 2016, an additional $12.0 million impairment was recorded.
In the second quarter of 2016, the Company sold the remaining portion of the Robinson Terminal real estate retained from the sale of the Publishing Subsidiaries, for a gain of $34.1 million.
In June 2016, ResidentialGHG contributed assets to a joint venture entered into with a Michigan hospital in exchange for a 40% equity interest and other assets, resulting in a $3.2 million gain (see Note 7)3). The Company used an income and market approach to value the equity interest. The measurement of the equity interest in the joint venture is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value.
In the first quarter of 2016, Kaplan sold Colloquy, which was part of Kaplan corporate and other, for a gain of $18.9 million.
In the fourth quarter of 2015, the Company sold a portion of the Robinson Terminal real estate remaining from the sale of the Publishing Subsidiaries, for a gain of $21.4 million.
In the third quarter of 2015, Kaplan sold the KHE Campuses business, and Franklyn Scholar, which was part of Kaplan International, for a total loss of $26.3 million.
In the second quarter of 2015, the Company sold The Root and Kaplan sold two small businesses for a total gain of $2.9 million.
In the second quarter of 2015, the Company benefited from a favorable $4.8 million out of period adjustment to the gain on the sale of Classified Ventures related to the fourth quarter of 2014. With respect to this error, the Company has concluded that it was not material to the Company’s financial position or results of operations for 2015 and 2014 and the related interim periods, based on its consideration of quantitative and qualitative factors.
In January 2015, Celtic contributed assets to a joint venture entered into with AHN in exchange for a 40% equity interest, resulting in the Company recording a $6.0 million gain (see Note 7). The Company used an income and market approach to value the equity interest. The measurement of the equity interest in the joint venture is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value.
On October 1, 2014, the Company and the remaining partners completed the sale of their entire stakes in Classified Ventures. Total proceeds to the Company, net of transaction costs, were $408.5 million, of which $16.5 million was held in escrow until October 1, 2015. The Company recorded a pre-tax gain of $396.6 million on the sale of its interest in Classified Ventures in the fourth quarter of 2014.
On June 30, 2014, the Company completed a transaction with Berkshire Hathaway, as described in Note 7, that included the exchange of 2,107 Class A Berkshire shares and 1,278 Class B Berkshire shares owned by the Company; a $266.7 million gain was recorded.
On March 27, 2014, the Company completed the sale of its headquarters building for $158 million. In connection with the sale, the Company recorded a $127.7 million pre-tax gain.


16.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The other comprehensive loss(loss) income consists of the following components:
 Year Ended December 31, 2016
 Before-Tax Income After-Tax
(in thousands)Amount Tax Amount
Foreign currency translation adjustments:     
Translation adjustments arising during the year$(22,149) $
 $(22,149)
Unrealized gains on available-for-sale securities:     
Unrealized gains for the year55,507
 (22,203) 33,304
Reclassification adjustment for net realized loss on sale of available-for-sale securities included in net income1,879
 (752) 1,127
 57,386
 (22,955) 34,431
Pension and other postretirement plans:     
Actuarial loss(133,915) 53,566
 (80,349)
Amortization of net actuarial loss included in net income1,157
 (463) 694
Amortization of net prior service cost included in net income419
 (167) 252
Curtailments and settlements included in net income(17,993) 7,197
 (10,796)
 (150,332) 60,133
 (90,199)
Cash flow hedge:     
Loss for the year(334) 57
 (277)
Other Comprehensive Loss$(115,429) $37,235
 $(78,194)
Year Ended December 31, 2015Year Ended December 31, 2018
Before-Tax Income After-TaxBefore-Tax Income After-Tax
(in thousands)Amount Tax AmountAmount Tax Amount
Foreign currency translation adjustments:          
Translation adjustments arising during the year$(18,898) $
 $(18,898)$(35,584) $
 $(35,584)
Adjustment for sales of businesses with foreign operations5,501
 
 5,501
(13,397) 
 (13,397)
Unrealized gains on available-for-sale securities:     
Unrealized gains for the year10,620
 (4,248) 6,372
Reclassification adjustment for realized gain on sale of available-for-sale securities included in net income(4) 2
 (2)
10,616
 (4,246) 6,370
Pension and other postretirement plans:          
Actuarial loss(211,054) 84,421
 (126,633)(101,013) 27,273
 (73,740)
Prior service credit4,262
 (1,151) 3,111
Amortization of net actuarial gain included in net income(9,906) 3,962
 (5,944)(11,349) 3,064
 (8,285)
Amortization of net prior service cost included in net income275
 (110) 165
Amortization of net prior service credit included in net income(947) 256
 (691)
Curtailments and settlements included in net income51
 (21) 30
(30,267) 8,172
 (22,095)
Curtailments and settlements included in distribution to Cable ONE834
 (333) 501
(219,800) 87,919
 (131,881)(139,314) 37,614
 (101,700)
Cash flow hedge:          
Gain for the year179
 (71) 108
551
 (104) 447
Other Comprehensive Loss$(222,402) $83,602
 $(138,800)$(174,347) $37,510
 $(136,837)


Year Ended December 31, 2014Year Ended December 31, 2017
Before-Tax Income After-TaxBefore-Tax Income After-Tax
(in thousands)Amount Tax AmountAmount Tax Amount
Foreign currency translation adjustments:          
Translation adjustments arising during the year$(16,061) $
 $(16,061)$33,175
 $
 $33,175
Adjustment for sales of businesses with foreign operations(404) 
 (404)
Adjustment for sale of a business with foreign operations137
 
 137
(16,465) 
 (16,465)33,312
 
 33,312
Unrealized gains on available-for-sale securities:          
Unrealized gains for the year62,719
 (25,088) 37,631
112,086
 (44,834) 67,252
Reclassification adjustment for realization of (gain) loss on exchange, sale or write-down of available-for-sale securities included in net income(265,274) 106,110
 (159,164)
(202,555) 81,022
 (121,533)
Pension and other postretirement plans:          
Actuarial loss(149,482) 59,792
 (89,690)
Actuarial gain179,674
 (48,511) 131,163
Prior service cost(1,600) 640
 (960)(75) 20
 (55)
Amortization of net actuarial gain included in net income(29,412) 11,765
 (17,647)(6,527) 2,612
 (3,915)
Amortization of net prior service credit included in net income(407) 163
 (244)
Curtailments and settlements8
 (3) 5
Amortization of net prior service cost included in net income477
 (191) 286
(180,893) 72,357
 (108,536)173,549
 (46,070) 127,479
Cash flow hedge:          
Gain for the year867
 (347) 520
112
 (19) 93
Other Comprehensive Loss$(399,046) $153,032
 $(246,014)
Other Comprehensive Income$319,059
 $(90,923) $228,136
 Year Ended December 31, 2016
 Before-Tax Income After-Tax
(in thousands)Amount Tax Amount
Foreign currency translation adjustments:     
Translation adjustments arising during the year$(22,149) $
 $(22,149)
Unrealized gains on available-for-sale securities:     
Unrealized gains for the year55,507
 (22,203) 33,304
Reclassification adjustment for realization of loss on sale of available-for-sale securities included in net income1,879
 (752) 1,127
 57,386
 (22,955) 34,431
Pension and other postretirement plans:     
Actuarial loss(133,915) 53,566
 (80,349)
Amortization of net actuarial loss included in net income1,157
 (463) 694
Amortization of net prior service cost included in net income419
 (167) 252
Curtailments and settlements included in net income(17,993) 7,197
 (10,796)
 (150,332) 60,133
 (90,199)
Cash flow hedge:     
Loss for the year(334) 57
 (277)
Other Comprehensive Loss$(115,429) $37,235
 $(78,194)


The accumulated balances related to each component of other comprehensive income (loss) income are as follows:
(in thousands, net of taxes)
Cumulative
Foreign
Currency
Translation
Adjustment
 
Unrealized Gain
on Available-for-
Sale Securities
 
Unrealized Gain
on Pensions
and Other
Postretirement
Plans
 
Cash Flow
Hedge
 
Accumulated
Other
Comprehensive
Income
As of December 31, 2014$8,548
 $52,130
 $392,910
 $(108) $453,480
Other comprehensive (loss) income before reclassifications(18,898) 6,372
 (126,132) 29
 (138,629)
Net amount reclassified from accumulated other comprehensive income5,501
 (2) (5,749) 79
 (171)
Net other comprehensive (loss) income(13,397) 6,370
 (131,881) 108
 (138,800)
As of December 31, 2015(4,849) 58,500
 261,029
 
 314,680
Other comprehensive (loss) income before reclassifications(22,149) 33,304
 (80,349) (290) (69,484)
Net amount reclassified from accumulated other comprehensive income
 1,127
 (9,850) 13
 (8,710)
Net other comprehensive (loss) income(22,149) 34,431
 (90,199) (277) (78,194)
As of December 31, 2016$(26,998) $92,931
 $170,830
 $(277) $236,486



(in thousands, net of taxes)
Cumulative
Foreign
Currency
Translation
Adjustment
 Unrealized Gain on Available-for-Sale Securities 
Unrealized Gain
on Pensions
and Other
Postretirement
Plans
 
Cash Flow
Hedge
 
Accumulated
Other
Comprehensive
Income
As of December 31, 2016$(26,998) $92,931
 $170,830
 $(277) $236,486
Other comprehensive income (loss) before reclassifications33,175
 67,252
 131,108
 (29) 231,506
Net amount reclassified from accumulated other comprehensive income137
 
 (3,629) 122
 (3,370)
Net other comprehensive income33,312
 67,252
 127,479
 93
 228,136
Reclassification of stranded tax effects to retained earnings as a result of tax reform
 34,706
 36,227
 
 70,933
As of December 31, 20176,314
 194,889
 334,536
 (184) 535,555
Reclassification of unrealized gains on available-for-sale securities to retained earnings as a result of adoption of new guidance
 (194,889) 
 
 (194,889)
Other comprehensive (loss) income before reclassifications(35,584) 
 (70,629) 579
 (105,634)
Net amount reclassified from accumulated other comprehensive income
 
 (31,071) (132) (31,203)
Net other comprehensive (loss) income(35,584) 
 (101,700) 447
 (136,837)
As of December 31, 2018$(29,270) $
 $232,836
 $263
 $203,829
The amounts and line items of reclassifications out of Accumulated Other Comprehensive Income are as follows:
Year Ended December 31 Affected Line Item in the Consolidated Statement of OperationsYear Ended December 31 Affected Line Item in the Consolidated Statements of Operations
(in thousands)2016 2015 2014 2018 2017 2016 
Foreign Currency Translation Adjustments:            
Adjustment for sales of businesses with foreign operations$
 $5,501
 $(404) (1)$
 $137
 $
 Other income (expense), net
Unrealized Gains on Available-for-Sale Securities:            
Realized loss (gain) for the year1,879
 (4) (265,274) Other (expense) income, net
Realized loss for the year
 
 1,879
 Other income (expense), net
(752) 2
 106,110
 (2)
 
 (752) Provision for (benefit from) income taxes
1,127
 (2) (159,164) Net of tax
 
 1,127
 Net of tax
Pension and Other Postretirement Plans:            
Amortization of net actuarial loss (gain)1,157
 (9,906) (29,412) (3)
Amortization of net prior service cost (credit)419
 275
 (407) (3)
Curtailment (gains) losses(17,993) 51
 
 (3)
Amortization of net actuarial (gain) loss(11,349) (6,527) 1,157
 (1)
Amortization of net prior service (credit) cost(947) 477
 419
 (1)
Curtailment and settlement gains(30,267) 
 (17,993) (1)
(16,417) (9,580) (29,819) Before tax(42,563) (6,050) (16,417) Before tax
6,567
 3,831
 11,928
 Provision for income taxes11,492
 2,421
 6,567
 Provision for (benefit from) income taxes
(9,850) (5,749) (17,891) Net of tax(31,071) (3,629) (9,850) Net of tax
Cash Flow Hedge            
16
 132
 847
 Interest expense(163) 152
 16
 Interest expense
(3) (53) (339) Provision for income taxes31
 (30) (3) Provision for (benefit from) income taxes
13
 79
 508
 Net of tax(132) 122
 13
 Net of tax
Total reclassification for the year$(8,710) $(171) $(176,951) Net of tax$(31,203) $(3,370) $(8,710) Net of tax
____________
(1)The amount for 2015 was recorded in other (expense) income, net and the amount for 2014 was recorded in income from discontinued operations, net of tax.
(2)The amounts for 2016 and 2015 were recorded in Provision for Income Taxes. Benefits of $1.2 million were recorded in Provision for Income Taxes related to the realized loss for the year ended December 31, 2014. The remaining $107.3 million for the year relates to the reversal of income taxes previously recorded on the unrealized gain of the Company’s investment in Berkshire Hathaway Inc. marketable securities as part of the Berkshire exchange transaction, which qualified as a tax-free distribution under IRC Section 355 and 361 (see Note 7).
(3)These accumulated other comprehensive income components are included in the computation of net periodic pension and postretirement plan cost (see Note 14). and are included in non-operating pension and postretirement benefit income in the Company’s Consolidated Statements of Operations.


17.LEASES AND OTHER COMMITMENTS
The Company leases real property under operating agreements. Many of the leases contain renewal options and escalation clauses that require payments of additional rent to the extent of increases in the related operating costs.
At December 31, 2016,2018, future minimum rental payments under noncancelable operating leases approximate the following:
(in thousands)  
2017$87,626
201884,525
201973,899
$101,009
202065,592
84,945
202150,416
72,031
202253,709
202347,091
Thereafter146,857
115,948
$508,915
$474,733
Minimum payments have not been reduced by minimum sublease rentals of $93.0$66.0 million due in the future under noncancelable subleases.
Rent expense under operating leases including a portion reported in discontinued operations, was approximately $83.4 million, $81.1 million and $86.9 million $102.6 millionin 2018, 2017 and $105.5 million in 2016, 2015 and 2014, respectively. Sublease income was approximately $15.6 million, $14.8 million and $14.3 million $6.7 millionin 2018, 2017 and $5.4 million in 2016, 2015 and 2014, respectively.
In connection with the sale of the KHE Campuses business, Kaplan is secondarily liable on a number of leases that were transferred to the buyer; the leases run through 2024 with commitments totaling approximately $51.3 million at December 31, 2016.
The Company’s broadcast subsidiaries are parties to certain agreements that commit them to purchase programming to be produced in future years. At December 31, 2016,2018, such commitments amounted to approximately $16.4$16.1 million. If such programs are not produced, the Company’s commitment would expire without obligation.


18.CONTINGENCIES
Litigation, Legal and Other Matters.  The Company and its subsidiaries are subject to complaints and administrative proceedings and are defendants in various civil lawsuits that have arisen in the ordinary course of their businesses, including contract disputes; actions alleging negligence, libel, defamation, invasion of privacy; trademark, copyright and patent infringement; U.S. False Claims Act (False Claims Act) violations; violations of employment laws and applicable wage and hour laws; and statutory or common law claims involving current and former students and employees. Although the outcomes of the legal claims and proceedings against the Company cannot be predicted with certainty, based on currently available information, management believes that there are no existing claims or proceedings that are likely to have a material effect on the Company’s business, financial condition, results of operations or cash flows. Also,However, based on currently available information, management believes it is of the opinionreasonably possible that the exposure to future material losses from existing and threatened legal, regulatory and administrativeother proceedings is not reasonably possible, or that future material losses in excess of the amounts accrued are not reasonably possible.recorded could reach approximately $45 million.
On February 6, 2008, a purported class-action lawsuit was filed in the U.S. District Court for the Central District of California by purchasers of BAR/BRI bar review courses, from July 2006 onward, alleging antitrust claims against Kaplan and West Publishing Corporation, BAR/BRI’s former owner. On April 10, 2008, the court granted defendants’ motion to dismiss, a decision that was reversed by the Ninth Circuit Court of Appeals on November 7, 2011. The Ninth Circuit also referred the matter to a mediator for the purpose of exploring a settlement. In the fourth quarter of 2012, the parties reached a comprehensive agreement to settle the matter. The settlement was approved by the District Court in September 2013 and will be administered following2013. In the resolutionfourth quarter of appeals relating to attorney fees.
On or about January 17, 2008, an Assistant U.S. Attorney in2017, the Civil Division of the U.S. Attorney’s Office for the Eastern District of Pennsylvania contacted KHE’s former Broomall campus and made inquiries about the Surgical Technology program, including the program’s eligibility for Title IV U.S. Federal financial aid, the program’s student loan defaults, licensing and accreditation. Kaplan respondedNinth Circuit remanded to the information requestsDistrict Court, which, once again, set attorneys’ fees on January 11, 2018. Distribution of settlement funds was made in December 2018 and fully cooperated with the inquiry. The ED also conducted a program review at the Broomall campus, and Kaplan likewise cooperated with the program review. On July 22, 2011, the U.S. Attorney’s Office for the Eastern District of Pennsylvania announced that it had entered into a comprehensive settlement agreement with Kaplan that resolved the U.S. Attorney’s inquiry, provided for the conclusion of the ED’s program review and also settled a previously sealed U.S. Federal False Claims Act (False Claims Act) complaint that had been filed by a former employee of the CHI-Broomall campus. The total amount of all required payments by Broomall under the agreements was $1.6 million. Pursuant to the comprehensive settlement agreement, the U.S. Attorney inquiryclaims administration process has been closed, the False Claims Act complaint (United States of Americaex rel.David Goodsteinv.Kaplan, Inc.et al.) was dismissed with prejudice and the ED will issue a final program review determination. However, to date, the ED has not issued the final report. At this time, Kaplan cannot predict the contents of the pending final program review determination or the ultimate impact the proceedings may have on Kaplan.completed.
During 2014, certain Kaplan subsidiaries were subject to two other unsealed cases filed by former employees that include, among other allegations, claims under the False Claims Act relating to eligibility for Title IV funding. The U.S. Governmentgovernment declined to intervene in all cases, and, as previously reported, court decisions either dismissed the cases in their entirety or narrowed the scope of their allegations. The two cases are captioned:remaining case is captioned United States of Americaex rel.Carlos Urquilla-Diazet al. v. Kaplan Universityet al. (unsealed March 25, 2008) andUnited States of Americaex rel.Charles Jajdelskiv. Kaplan Higher Education Corp. et al. (unsealed January 6, 2009).
On August 17, 2011, the U.S. District Court for the Southern District of Florida issued a series of rulings in the Diaz case, which included three separate complaints: Diaz, Wilcox and Gillespie. The court dismissed the Wilcox complaint in its entirety; dismissed all False Claims Act allegations in the Diaz complaint, leaving only an individual employment claim; and dismissed in part the Gillespie complaint, thereby limiting the scope and time frame of its False Claims Act allegations regarding compliance with the U.S. Federal Rehabilitation Act. On October 31, 2012, the court entered summary judgment in favor of the Company as to the sole remaining employment claim in the Diaz complaint. On July 16, 2013, the court likewise entered summary judgment in favor of the Company on all remaining claims in the Gillespie complaint. Diaz and Gillespie each appealed to the U.S. Court of Appeals for the


Eleventh Judicial Circuit. Arguments on both appeals were heard on February 3, 2015. On March 11, 2015, the appellate court issued a decision affirming the lower court’s dismissal of all of Gillespies claims, however Gillespie continues to file challenges to the appellate decision.Gillespie’s claims. The appellate court also dismissed three of the four Diaz claims, but reversed and remanded on DiazsDiaz’s claim that incentive compensation for admissions representatives was improperly based solely on enrollment counts. Kaplan filed an answer to DiazsDiaz’s amended complaint on September 11, 2015. Kaplan filed a motion to dismiss Diaz'sDiaz’s claims, and a hearing was held on December 17, 2015. On March 24, 2016, the Court denied the motion to dismiss. Discovery in the case closed in January 2017. Kaplan filed a motion for summary judgment on February 21, 2017. A trial, if needed,Summary judgment was granted in full and entered on July 13, 2017. Diaz filed a notice of appeal in September 2017 and filed his initial brief. Kaplan filed a response brief in the third quarter of 2018. The matter is schedulednot likely to be decided until mid-2019.
On October 19, 2018, a lawsuit was filed against KHE and other unrelated parties in El Paso, TX, County District Court alleging liability for July 10, 2017.
default on a real property lease by Education Corporation of America. On July 7, 2011,November 19, 2018, this matter was removed to the U.S. District Court for the Western District of Nevada dismissedTexas. KHE’s responsive pleading was filed in January 2019. On September 3, 2015, Kaplan sold to ECA substantially all of the Jajdelski complaint in its entirety and entered a final judgment in favorassets of Kaplan. On February 13, 2013, the U.S. Circuit Court for the Ninth Judicial


Circuit affirmed the dismissal in part and reversed the dismissal on one allegation under the False Claims Act relating to eligibility forKHE nationally accredited on-ground Title IV funding based on claimseligible schools (KHE Campuses). The transaction included the transfer of false attendance. The surviving claim was remanded to the District Court, where Kaplan was again granted summary judgment on March 9, 2015. Plaintiff has appealed this judgment and briefing is complete. Despite the salecertain real estate leases that were guaranteed by Kaplan. As part of the nationally accreditedtransaction, Kaplan Higher Education Campuses business, Kaplan retainsretained liability for, these claims.
among other things, obligations arising under certain lease guarantees. On December 22, 2014, a former student representative filed a purported class-ECA is currently in receivership and collective-action lawsuit inhas terminated all of its higher education operations other than the U.S. District CourtNew England College of Business (NECB). The receiver has repudiated all of ECA’s real estate leases not connected to NECB. Although ECA is required to indemnify Kaplan for the Northern District of Illinois, in which she asserts claimsany amounts Kaplan must pay due to ECA’s failure to fulfill its obligations under the Illinois Minimum Wage Lawreal estate leases guaranteed by Kaplan, ECA’s financial situation and the Fair Labor Standards Act (Sharon Freeman v.existence of secured and unsecured creditors make it unlikely that Kaplan Inc.). The plaintiff alleges that she and other law students who were student representatives,will recover from ECA. In the second half of 2018, the Company recorded an estimated $17.5 million in losses on their respective law school campuses, of Kaplan’s bar exam preparation business should have been classified as employees and paid minimum wage. The parties reached an agreement to settle this matter and in June the settlement was approved by the District Court.
On February 7, 2011, KHE received a Civil Investigative Demand from the Office of the Attorney General of the State of Illinois. The demand primarily sought information pertaining to Kaplan University’s online students who are residents of Illinois. KHE has cooperated with the Illinois Attorney General and provided the requested information. Although the matter is not technically closed and KHE may receive further requests for information from the Illinois Attorney General, there has been no such further correspondence over the past five years to date. The Company cannot predict the outcome of this inquiry.
On July 20, 2011, KHE received a subpoena from the Office of the Attorney General of the State of Delaware. The demand primarily sought information pertaining to Kaplan University’s online students and Kaplan Higher Education Campuses’ former students who are residents of Delaware. KHE has cooperated with the Delaware Attorney General and provided the information requested in the subpoena. Although the matter is not technically closed and KHE may receive further requests for information from the Delaware Attorney General, there has been no such further correspondence over the past five years to date. The Company cannot predict the outcome of this inquiry.
On January 16, 2012, prior to Kaplan’s sale of the Kidum Group in Israel, the Kidum Group received notice of a putative class action complaint against the Kidum Group’s Wall Street Institute business, alleging violations of Israeli consumer protection lawguarantor lease obligations in connection with certain enrollment and refund policies. Kaplan has continuing obligations to the purchaser under the terms of the agreement of sale. In January 2016, Israel’s Central District Court issued a ruling allowing the case to proceed as a class action. Plaintiffs filed an amended claim on May 3, 2016this transaction in order to comply with the court’s class certification order. Kidum filed its statement of defense to the amended claim on September 15, 2016, and plaintiffs filed their reply on November 15, 2016. A pre-trial hearing was held on November 20, 2016 and discovery began in January. At this time, the Company cannot predict the outcome of this matter.
On September 30, 2016, a purported class-action lawsuit was filed against KHE and Education Corporation of America d/b/a Brightwood College, in Alameda County Superior Court, in Oakland, CA, by Donna Hillman alleging violations of California wage and hour laws as they apply to “adjunct” or part-time faculty. The complaint seeks a declaratory judgment that Kaplan violated the California Labor Code and an award of damages for allegedly unpaid wages, penalties under the California Labor Code, interest and attorney’s fees. A response and general denial was filed on November 2, 2016. KHE moved to transfer the venue to Sacramento, CA. Mediation has been set for March 7, 2017. At this time, the Company cannot predict the outcome of this matter.other non-operating expense.
On March 28, 2016, a purported class-action lawsuit was filed in the U.S. District Court for the Northern District of Illinois by Erin Fries, a physical therapist formerly employed by Residential, against Residential Home Health, LLC, Residential Home Health Illinois, LLC, and David Curtis. The complaint alleges violations of the FLSAFair Labor Standards Act and the Illinois minimum wage law. The complaint seeks damages, attorney’s fees and costs. At this time, the Company cannot predict the outcome of this matter. In August 2017, the Pennsylvania Department of Health cited Celtic Healthcare of Westmoreland, LLC for being out of compliance with four conditions of the Medicare Conditions of Participation between August 7, 2017, and September 6, 2017. Celtic Healthcare of Westmoreland, LLC d/b/a Allegheny Health Network Healthcare@Home Home Health (AHN H@H Home Health) is a wholly owned subsidiary of a joint venture between West Penn Allegheny Health System, Inc. and Celtic Healthcare, Inc. In light of this 31-day period of non-compliance, the Department of Health issued a provisional license for AHN H@H Home Health. Following a re-survey investigation by the Pennsylvania Department of Health, on January 12, 2018, the Department of Health removed the provisional license assigned to AHN H@H Home Health and restored its unrestricted license. The Pennsylvania Department of Health will alert the Centers for Medicare and Medicaid Services (CMS) about this matter. CMS has the authority to impose civil monetary penalties of up to $10,000 per day or per instance for non-compliance. At this time, the Company cannot predict the outcome of this matter.
Student Financial Aid.Her Majesty’s Revenue and Customs (HMRC), a department of the U.K. government responsible for the collection of taxes, has raised assessments against the Kaplan U.K. Pathways business for Value Added Tax (VAT) relating to 2017 and earlier years, which have been paid by Kaplan. In September 2017, in a case captioned Kaplan International Colleges UK Limited v.The Commissioners for Her Majesty’s Revenue and Customs, Kaplan challenged these assessments. The Company believes it has met all requirements under U.K. VAT law and expects to recover the £15.4 million receivable related to the assessments and subsequent payments that have been paid. Following a hearing held in January 2019, before the First Tier Tax Tribunal, all issues related to EU law in the case were referred to the Court of Justice of the European Union. If the Company does not prevail in this case, a pre-tax charge of £15.4 million will be recorded to operating expense in the Company’s higher education division derivesstatement of operations.
In March 2018, HMRC issued new VAT guidance indicating a change of policy in relation to certain aspects of a cost sharing exemption that could impact the majorityU.K. Pathways business adversely if this guidance were to become law. As of December 31, 2018, this guidance had not yet been incorporated into U.K. law. If Kaplan is not successful in preserving a valid exemption under U.K. VAT law, the U.K. Pathways business would incur additional VAT expense in the future. In a separate matter, there is presently a legal case awaiting judgment at the Supreme Court in the U.K. that may impact U.K. Pathways’ ability to receive the benefit of an exemption from charging its revenuesstudents VAT on tuition fees. The case may reverse or amend existing law and guidance that permits private providers to qualify as a “college of a university” and therefore, receive the benefit of an exemption from U.S. Federalcharging its students VAT on tuition fees. If the case restricts which businesses are capable of constituting “colleges of a university” and entitled to exemption, KI Pathways Colleges’ financial results may be adversely impacted if they are not able to meet any new requirements.


KHE Regulatory Environment. KHE no longer owns or operates KU or any other institution participating in student financial aid received by its studentsprograms that have been created under Title IV programs administered byof the ED pursuant to theU.S. Federal Higher Education Act (HEA)of 1965 (Higher Education Act), as amended. To maintain eligibilityamended (Title IV). KHE is a service provider to participate inPurdue Global and other Title IV programs,participating institutions. As a school mustservice provider under the U.S. Department of Education (ED) regulations, KHE is required to comply with extensivecertain laws and regulations, including applicable statutory and regulatory requirements relating to itsprovisions of Title IV. KHE also provides financial aid management, educational programs, financial strength, administrative capability, compensation practices, facilities, recruiting practices, representations madeservices to currentPurdue Global, and prospective students, and various other matters. In addition,as such, meets the school must be licensed, or otherwise legally authorized, to offer postsecondary educational programs by the appropriate governmental body in the state or states in which it is physically located or is otherwise subject to state authorization requirements, be accredited by an accrediting agency recognized by the ED and be certified to participatedefinition of a “third-party servicer” contained in the Title IV programs by the ED. Schools are required periodicallyregulations. By virtue of being a third-party servicer, KHE is also subject to apply for renewalapplicable statutory provisions of their authorization, accreditation or certification with the applicable state governmental bodies, accrediting agencies and the ED. Kaplan University is assigned its own identification number, known as an OPEID number, for the purpose of determining compliance with certain Title IV requirements. Failureand ED regulations that, among other things, require KHE to complybe jointly and severally liable with Purdue Global to the ED for any violation by Purdue Global of any Title IV statute or ED regulation or requirement. Pursuant to ED requirements, Purdue is responsible for any liability arising from the operation of the Higher Education Act or related regulations could result ininstitution; however, pursuant to the restriction or loss of the abilityagreement to participate in Title IV


programs and subject the Companytransfer KU, KHE agreed to financial penalties and refunds. No assurance can be given that Kaplan University or its individual programs will maintain their Title IV eligibility, accreditation and state authorization in the future or that the ED might not successfully assert that Kaplan University has previously failed to comply with Title IV requirements.
Financial aid and assistance programs are subject to political and governmental budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations in the U.S. govern all of the government financial assistance programs in which students participate.
For the years ended December 31, 2016, 2015 and 2014, approximately $437 million, $628 million and $806 million, respectively, of the Company’s education division revenue was derived from financial aid received by students under Title IV programs. Management believes that the Company’s education division schools that participate in Title IV programs are in material compliance with standards set forth in the Higher Education Act and related regulations.indemnify Purdue for certain pre-closing liabilities.
ED Program Reviews. The ED has undertaken program reviews at various KHE locations.
On February 23, 2015, the ED began a program review of Kaplan University. The review will assess Kaplan’sassessing KU’s administration of its Title IV and Higher Education Act programs during the 2013-2014 and will initially focus on2014-2015 award years. In 2018, Kaplan contributed the 2013institutional assets and operations of KU to 2014Purdue Global, and 2014 to the university became Purdue Global, under the ownership and control of Purdue University. However, Kaplan retains liability for any financial obligations the ED might impose under this program review and that are the result of actions taken during the time that Kaplan owned the institution. On September 28, 2018, the ED issued a Preliminary Program Report (Preliminary Report). This Preliminary Report is not final, and the ED may change the findings in the final report. None of the initial findings in the Preliminary Report carries material financial liability. Although the program review technically covers only the 2013–2015 award years. On December 17, 2015, Kaplan University received a notice fromyears, the ED that it had been placed on provisional certification status until September 30, 2018,included a review of the treatment of student financial aid refunds for students who withdrew from a program prior to completion in connection with the open and ongoing ED program review. The ED has not notified Kaplan University of any negative findings. However, at this time, Kaplan2017–2018. KHE cannot predict the outcome of this review, when it will be completed, whether any final findings of non-compliance with financial aid program or anyother requirements will impact KHE’s operations, or what liability or other limitations that the ED maymight place on Kaplan UniversityKHE or Purdue Global as a result of this review. During the period of provisional certification, Kaplan University must obtain prior ED approval to open a new location, add an educational program, acquire another school or make any other significant change.
In addition, thereThere are fouralso two open program reviews at campuses that were part of the KHE Campuses business prior to its sale in 2015 to Education Corporation of America (ECA), including theECA. The ED’s final reports on the program reviews at former KHE Hammond, IN, San Antonio, TX, Broomall, PA, and Pittsburgh, PA, locations. Kaplanlocations are pending. KHE retains responsibility for any financial obligationobligations resulting from the EDthese program reviews at the KHE Campuses business that were open at the time of sale.reviews.
The Company does not expect the open program reviews to have a material impact on KHE; however, the results of open program reviews and their impact on Kaplan’s operations are uncertain.
The 90/10 Rule.  Under regulations referred to as the 90/10 rule, an institution would lose its eligibility to participate in Title IV programs for a period of at least two fiscal years if the institution derives more than 90% of its receipts from Title IV programs, as calculated on a cash basis in accordance with the Higher Education Act and applicable ED regulations, in each of two consecutive fiscal years. An institution with Title IV receipts exceeding 90% for a single fiscal year would be placed on provisional certification and may be subject to other enforcement measures. Kaplan University derived less than 77% and less than 79% of its receipts from Title IV programs in 2016 and 2015, respectively.
19.BUSINESS SEGMENTS
Basis of Presentation. The Company’s organizational structure is based on a number of factors that management uses to evaluate, view and run its business operations, which include, but are not limited to, customers, the nature of products and services and use of resources. The business segments disclosed in the Consolidated Financial Statements are based on this organizational structure and information reviewed by the Company’s management to evaluate the business segment results. The Company has foursix reportable segments: Kaplan International, KHE, KTP, Kaplan International,Professional (U.S.), television broadcasting and television broadcasting.healthcare.
The Company evaluates segment performance based on operating income before amortization of intangible assets and impairment of goodwill and other long-lived assets. The accounting policies at the segments are the same as described in Note 2. In computing income from operations by segment, the effects of equity in earnings (losses) of affiliates, interest income, interest expense, non-operating pension and postretirement benefit income, other non-operating income and expense items and income taxes are not included. Intersegment sales are not material.
Identifiable assets by segment are those assets used in the Company’s operations in each business segment. The Prepaid Pension cost is not included in identifiable assets by segment. Investments in marketable equity securities are discussed in Note 4.  
Education. Education products and services are provided by Kaplan, Inc. KHE includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses. KTP


includes Kaplan’s standardized test preparation and new economy skills training programs. Kaplan International includes professional training and postsecondary education businesses largely outside the United States, as well as English-language programs. Prior to the KU Transaction closing on March 22, 2018, KHE included Kaplan’s domestic postsecondary education business, made up of fixed-facility colleges and online postsecondary and career programs. Following the KU Transaction closing, KHE includes the results as a service provider to higher education institutions. KTP includes Kaplan’s standardized test preparation and new economy skills training programs. Professional (U.S.) includes the domestic professional training and other continuing education businesses.
In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International. An additional school in China was sold in January 2015. The education division’s operating results exclude these businesses as they are included in discontinued operations, net of tax, for all periods presented.

In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted inbusinesses. There were no significant restructuring costs in the past three years, with the objective of establishing lower cost levels in future periods.2018. Across all Kaplan businesses, restructuring costs of $11.9 million, $44.4$9.1 million and $16.8$11.9 million were recorded in 2016, 20152017 and 2014,2016, respectively, as follows:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142017 2016
Accelerated depreciation$1,815
 $17,956
 $2,062
$339
 $1,815
Lease obligation losses2,694
 8,240
 1,750

 2,694
Severance and Special Incentive Program expense5,902
 17,968
 5,075
Software asset write-offs
 
 7,689
Severance6,099
 5,902
Other1,441
 209
 230
2,627
 1,441
$11,852
 $44,373
 $16,806
$9,065
 $11,852
KHE incurred restructuring costs of $7.2 million, $12.9 million and $6.5 million in 2016, 2015 and 2014, respectively, primarily from severance and Special Incentive Program expense, lease obligation losses and accelerated depreciation. These costs were incurred in connection with a plan announced in September 2012 for KHE to close or consolidate operations at 13 ground campuses, additional plans announced in 2014 to close five more campuses, along with plans to consolidate facilities and reduce its workforce, and the September 2015 sale of the KHE Campuses business.
On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement to sell substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses, and certain related assets, in exchange for a preferred equity interest in a vocational school company. The transaction closed on September 3, 2015. In addition, Kaplan recorded a $6.9 million and $13.6 million other long-lived asset impairment charge in connection with its KHE Campuses business, in the second quarter of 2015 and fourth quarter of 2014, respectively.
Kaplan International incurred restructuring costs of $2.9 millionand $4.7 million $1.3 millionin 2017 and $0.2 million in 2016, 2015 and 2014, respectively. These restructuring costs were largely in the UKU.K. and Australia and included severance charges, lease obligations, and accelerated depreciation.
Kaplan CorporateKHE incurred restructuring costs of $29.4$1.4 million and $7.1 million in 2015 related to2017 and 2016, respectively, primarily from severance, lease obligation losses and accelerated depreciation, severance and Special Incentive Program expense and lease obligations losses.depreciation.
KTP incurred restructuring costs of $4.3 million in 2017 primarily from severance.
Total accrued restructuring costs at Kaplan were $11.8$4.6 million and $24.2$8.5 million at the end of 20162018 and 2015,2017, respectively.
Television Broadcasting. Television broadcasting operations are conducted through five VHFseven television stations serving the Detroit, Houston, San Antonio, Orlando, Jacksonville and JacksonvilleRoanoke television markets. All stations are network-affiliated (except for WJXT in Jacksonville), with revenues derived primarily from sales of advertising time. In addition, the stations generate revenue from retransmission consent agreements for the right to carry their signals.
Healthcare. Graham Healthcare Group provides home health and hospice services.
Other Businesses. Other businesses includes the following:
Hoover, a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications (acquired in April 2017); Dekko, a Garrett, IN-based manufacturer of electrical workspace solutions, architectural lighting, and electrical components and assemblies (acquired in November 2015);assemblies; Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems (acquired in May 2014);systems; and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications;
Graham Healthcare Group (GHG), made up of Celtic Healthcare (Celtic) and Residential Healthcare Group, Inc. (Residential, acquired in July 2014), providers of home health and hospice services; and
SocialCode, a marketing and insights company that manages digital advertising for leading brands; and The Slate Group and Foreign Policy Group, which publish online and print magazines and websites.


In November 2015, the Company announced that Trove, a digital innovation team that builds productswebsites; and technologies in the news space, would largely be integrated into SocialCode.three investment stage businesses, Panoply, Pinna and CyberVista.
Corporate Office. Corporate office includes the expenses of the Company’s corporate office, a net pension credit and certain continuing obligations related to prior business dispositions.
Geographical Information. The Company’s non-U.S. revenues in 2016, 20152018, 2017 and 20142016 totaled approximately $624$657 million, $660$637 million and $712$624 million, respectively, primarily from Kaplan’s operations outside the U.S. Additionally, revenues in 2016, 20152018, 2017 and 20142016 totaled approximately $312$345 million, $319$320 million, and $351$312 million, respectively, from Kaplan’s operations in the U.K. The Company’s long-lived assets in non-U.S. countries (excluding goodwill and other intangible assets), totaled approximately $67$124 million and $59$89 million at December 31, 20162018 and 2015,2017, respectively.


Company information broken down by operating segment and education division:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
Operating Revenues          
Education$1,598,461
 $1,927,521
 $2,160,417
$1,451,015
 $1,516,776
 $1,598,461
Television broadcasting409,718
 359,192
 363,836
505,549
 409,916
 409,718
Healthcare149,275
 154,202
 146,962
Other businesses473,850
 299,517
 212,907
590,227
 511,003
 326,888
Corporate office
 
 

 
 
Intersegment elimination(139) (116) (128)(100) (51) (139)
$2,481,890
 $2,586,114
 $2,737,032
$2,695,966
 $2,591,846
 $2,481,890
Income (Loss) from Operations          
Education$93,632
 $(223,456) $65,463
$97,136
 $77,687
 $95,321
Television broadcasting200,470
 164,927
 187,833
210,533
 139,258
 202,863
Healthcare(8,401) (2,569) 2,799
Other businesses(22,102) (13,667) (21,086)(246) (19,263) (24,901)
Corporate office31,534
 (8,629) 510
(52,861) (58,710) (53,213)
$303,534
 $(80,825) $232,720
$246,161
 $136,403
 $222,869
Equity in (Losses) Earnings of Affiliates, Net(7,937) (697) 100,370
Equity in Earnings (Losses) of Affiliates, Net14,473
 (3,249) (7,937)
Interest Expense, Net(32,297) (30,745) (33,397)(32,549) (27,305) (32,297)
Other (Expense) Income, Net(12,642) (8,623) 778,010
Income (Loss) from Continuing Operations before Income Taxes$250,658
 $(120,890) $1,077,703
Debt Extinguishment Costs(11,378) 
 
Non-Operating Pension and Postretirement Benefit Income, Net120,541
 72,699
 80,665
Loss on Marketable Equity Securities, net(15,843) 
 
Other Income (Expense), Net2,103
 4,241
 (12,642)
Income Before Income Taxes$323,508
 $182,789
 $250,658
Depreciation of Property, Plant and Equipment          
Education$41,187
 $61,177
 $61,737
$28,099
 $32,906
 $41,187
Television broadcasting9,942
 9,551
 8,409
13,204
 12,179
 9,942
Healthcare2,577
 4,583
 2,805
Other businesses12,375
 6,168
 3,931
11,835
 11,723
 9,570
Corporate office1,116
 1,010
 836
1,007
 1,118
 1,116
$64,620
 $77,906
 $74,913
$56,722
 $62,509
 $64,620
Amortization of Intangible Assets and Impairment of Goodwill and          
Other Long-Lived Assets           
Education$7,516
 $262,353
 $24,941
$9,362
 $5,162
 $7,516
Television broadcasting251
 252
 32
5,632
 6,349
 251
Healthcare14,855
 7,905
 6,701
Other businesses20,507
 16,112
 10,516
25,674
 31,385
 13,806
Corporate office
 
 

 
 
$28,274
 $278,717
 $35,489
$55,523
 $50,801
 $28,274
Net Pension (Credit) Expense     
Pension Service Cost     
Education$11,803
 $18,804
 $15,418
$8,753
 $9,720
 $11,803
Television broadcasting1,714
 1,620
 1,355
2,188
 1,942
 1,714
Healthcare573
 665
 
Other businesses1,118
 964
 748
1,373
 1,125
 1,118
Corporate office(81,732) (81,945) (82,301)5,334
 5,235
 5,826
$(67,097) $(60,557) $(64,780)$18,221
 $18,687
 $20,461
Capital Expenditures          
Education$26,497
 $42,220
 $33,528
$54,159
 $27,520
 $26,497
Television broadcasting27,453
 9,998
 11,295
27,013
 16,802
 27,453
Healthcare1,741
 2,987
 2,954
Other businesses16,047
 9,504
 5,110
15,154
 9,771
 13,093
Corporate office715
 311
 7,074

 
 715
$70,712
 $62,033
 $57,007
$98,067
 $57,080
 $70,712


Asset information for the Company’s business segments is as follows:
As of December 31As of December 31
(in thousands)2016 20152018 2017
Identifiable Assets      
Education$1,479,267
 $1,454,520
$1,568,747
 $1,592,097
Television broadcasting336,631
 312,243
452,853
 455,884
Healthcare108,596
 129,856
Other businesses796,935
 712,161
827,113
 855,399
Corporate office455,209
 484,139
162,971
 182,905
$3,068,042
 $2,963,063
$3,120,280
 $3,216,141
Investments in Marketable Equity Securities424,229
 350,563
496,390
 536,315
Investments in Affiliates58,806
 59,229
143,813
 128,590
Prepaid Pension Cost881,593
 979,970
1,003,558
 1,056,777
Total Assets$4,432,670
 $4,352,825
$4,764,041
 $4,937,823
The Company’s education division comprises the following operating segments:
Year Ended December 31Year Ended December 31
(in thousands)2016 2015 20142018 2017 2016
Operating Revenues          
Kaplan international$719,982
 $697,999
 $696,362
Higher education$617,047
 $849,625
 $1,010,058
342,085
 431,425
 501,784
Test preparation286,556
 301,607
 304,662
256,102
 273,298
 286,556
Kaplan international696,362
 770,273
 840,915
Professional (U.S.)134,187
 115,839
 115,263
Kaplan corporate and other214
 6,502
 6,094
1,142
 294
 214
Intersegment elimination(1,718) (486) (1,312)(2,483) (2,079) (1,718)
$1,598,461
 $1,927,521
 $2,160,417
$1,451,015
 $1,516,776
 $1,598,461
Income (Loss) from Operations      
  
  
Kaplan international$70,315
 $51,623
 $48,398
Higher education$66,632
 $55,572
 $83,069
15,217
 16,719
 39,196
Test preparation9,599
 16,798
 (4,730)19,096
 11,507
 9,599
Kaplan international48,398
 53,661
 69,153
Professional (U.S.)28,608
 27,558
 27,436
Kaplan corporate and other(30,968) (349,583) (82,034)(36,064) (29,863) (29,279)
Intersegment elimination(29) 96
 5
(36) 143
 (29)
$93,632
 $(223,456) $65,463
$97,136
 $77,687
 $95,321
Depreciation of Property, Plant and Equipment          
Kaplan international$15,755
 $14,892
 $17,523
Higher education$16,822
 $17,937
 $29,187
4,826
 9,117
 13,816
Test preparation6,287
 9,045
 12,547
3,941
 5,286
 6,287
Kaplan international17,523
 17,811
 19,297
Professional (U.S.)3,096
 3,041
 3,006
Kaplan corporate and other555
 16,384
 706
481
 570
 555
$41,187
 $61,177
 $61,737
$28,099
 $32,906
 $41,187
Amortization of Intangible Assets$7,516
 $5,523
 $7,738
$9,362
 $5,162
 $7,516
Impairment of Goodwill and Other Long-Lived Assets$
 $256,830
 $17,203
Pension Expense     
Pension Service Cost     
Kaplan international$298
 $264
 $268
Higher education$7,620
 $10,849
 $10,514
4,310
 5,269
 6,544
Test preparation3,072
 3,101
 2,888
2,611
 2,755
 3,072
Kaplan international268
 424
 356
Professional (U.S.)1,162
 913
 1,076
Kaplan corporate and other843
 4,430
 1,660
372
 519
 843
$11,803
 $18,804
 $15,418
$8,753
 $9,720
 $11,803
Capital Expenditures      
  
  
Kaplan international$44,469
 $21,667
 $16,252
Higher education$5,364
 $10,202
 $11,551
4,045
 2,158
��3,140
Test preparation4,672
 8,720
 1,143
681
 1,038
 4,672
Kaplan international16,252
 22,673
 20,802
Professional (U.S.)4,845
 2,475
 2,224
Kaplan corporate and other209
 625
 32
119
 182
 209
$26,497
 $42,220
 $33,528
$54,159
 $27,520
 $26,497
In the third quarter of 2015, a favorable $3.0 million out of period revenue adjustment was included at the test preparation segment that related to prior periods from 2011 through the second quarter of 2015. With respect to this error, the Company has concluded that it was not material to the Company’s financial position or results of operations for 2015 and prior years and the related interim periods, based on its consideration of quantitative and qualitative factors.

Asset information for the Company’s education division is as follows:
As of December 31As of December 31
(in thousands)2016 20152018 2017
Identifiable Assets      
Kaplan international$1,101,040
 $1,115,919
Higher education$373,127
 $447,282
126,752
 231,986
Test preparation133,709
 134,535
145,308
 130,938
Kaplan international950,922
 826,475
Professional (U.S.)166,916
 91,630
Kaplan corporate and other21,509
 46,228
28,731
 21,624
$1,479,267
 $1,454,520
$1,568,747
 $1,592,097


20.SUMMARY OF QUARTERLY OPERATING RESULTS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Quarterly results of operations and comprehensive income (loss) for the year ended December 31, 2016,2018, is as follows:
(in thousands, except per share amounts)
First
Quarter
 Second Quarter 
Third
Quarter
 
Fourth
Quarter
First
Quarter
 Second Quarter 
Third
Quarter
 
Fourth
Quarter
Operating Revenues       $659,436
 $672,677
 $674,766
 $689,087
Education$401,006
 $419,144
 $386,936
 $391,261
Advertising68,158
 70,901
 86,531
 85,488
Other132,576
 138,888
 148,171
 152,830
601,740
 628,933
 621,638
 629,579
Operating Costs and Expenses              
Operating291,632
 296,033
 293,194
 300,086
365,151
 440,655
 448,920
 432,706
Selling, general and administrative235,213
 236,437
 237,694
 195,173
225,045
 141,378
 131,081
 152,624
Depreciation of property, plant and equipment16,761
 16,045
 16,097
 15,717
14,642
 13,619
 13,648
 14,813
Amortization of intangible assets6,262
 6,278
 6,620
 7,511
10,384
 11,399
 12,269
 13,362
Impairment of goodwill
 
 
 1,603
Impairment of goodwill and other long-lived assets
 
 8,109
 
549,868
 554,793
 553,605
 520,090
615,222
 607,051
 614,027
 613,505
Income from Operations51,872
 74,140
 68,033
 109,489
44,214
 65,626
 60,739
 75,582
Equity in earnings (losses) of affiliates, net1,004
 (891) (1,008) (7,042)
Equity in earnings of affiliates, net2,579
 931
 9,537
 1,426
Interest income591
 721
 740
 1,041
1,372
 1,901
 611
 1,469
Interest expense(7,948) (7,971) (8,614) (10,857)(8,071) (17,165) (6,135) (6,531)
Debt extinguishment costs
 (11,378) 
 
Non-operating pension and postretirement benefit income, net21,386
 23,041
 22,214
 53,900
(Loss) gain on marketable equity securities, net(14,102) (2,554) 44,962
 (44,149)
Other income (expense), net15,096
 19,000
 (18,225) (28,513)9,187
 2,333
 3,142
 (12,559)
Income from Operations Before Income Taxes60,615
 84,999
 40,926
 64,118
Income Before Income Taxes56,565
 62,735
 135,070
 69,138
Provision for Income Taxes22,400
 23,800
 7,800
 27,200
13,600
 16,100
 10,000
 12,400
Net Income38,215
 61,199
 33,126
 36,918
42,965
 46,635
 125,070
 56,738
Net Income Attributable to Noncontrolling Interests(435) (433) 
 
(74) (69) (6) (53)
Net Income Attributable to Graham Holdings Company Common Stockholders$37,780
 $60,766
 $33,126
 $36,918
$42,891
 $46,566
 $125,064
 $56,685
Quarterly Comprehensive Income (Loss)$53,703
 $13,345
 $119,862
 $(52,541)
              
Per Share Information Attributable to Graham Holdings Company Common Stockholders              
Basic net income per common share$6.63
 $10.82
 $5.90
 $6.60
$7.84
 $8.69
 $23.43
 $10.69
Basic average number of common shares outstanding5,436
 5,325
 5,302
 5,270
Diluted net income per common share$6.59
 $10.76
 $5.87
 $6.57
$7.78
 $8.63
 $23.28
 $10.61
Basic average number of common shares outstanding5,623
 5,544
 5,544
 5,527
Diluted average number of common shares outstanding5,652
 5,574
 5,574
 5,556
5,473
 5,362
 5,337
 5,309
2016 Quarterly comprehensive income (loss)$41,015
 $49,996
 $40,331
 $(40,946)
The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Operations due to rounding.


Quarterly results of operations and comprehensive income for the year ended December 31, 2015,2017, is as follows:
(in thousands, except per share amounts)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Operating Revenues       
Education$500,602
 $523,625
 $481,687
 $421,491
Advertising66,454
 70,137
 68,898
 74,435
Other80,369
 87,128
 90,847
 120,441
 647,425
 680,890
 641,432
 616,367
Operating Costs and Expenses       
Operating309,223
 311,121
 302,029
 283,780
Selling, general and administrative302,405
 276,412
 285,563
 239,783
Depreciation of property, plant and equipment22,197
 25,609
 14,460
 15,640
Amortization of intangible assets4,738
 4,647
 4,512
 5,120
Impairment of goodwill and other long-lived assets
 6,876
 248,591
 4,233
 638,563
 624,665
 855,155
 548,556
Income (Loss) from Operations8,862
 56,225
 (213,723) 67,811
Equity in (losses) earnings of affiliates, net(404) (353) 95
 (35)
Interest income559
 323
 481
 546
Interest expense(8,501) (8,348) (7,830) (7,975)
Other (expense) income, net(1,105) 11,678
 (40,458) 21,262
(Loss) Income from Continuing Operations Before Income Taxes(589) 59,525
 (261,435) 81,609
Provision (Benefit) for Income Taxes900
 19,600
 (30,500) 30,500
(Loss) Income from Continuing Operations(1,489) 39,925
 (230,935) 51,109
Income from Discontinued Operations, Net of Tax23,289
 18,502
 379
 
Net Income (Loss)21,800
 58,427
 (230,556) 51,109
Net (Income) Loss Attributable to Noncontrolling Interests(774) (434) (287) 60
Net Income (Loss) Attributable to Graham Holdings Company21,026
 57,993
 (230,843) 51,169
Redeemable Preferred Stock Dividends(420) (211) 
 
Net Income (Loss) Attributable to Graham Holdings Company Common Stockholders$20,606
 $57,782
 $(230,843) $51,169
        
Amounts Attributable to Graham Holdings Company Common Stockholders 
  
  
  
(Loss) income from continuing operations$(2,683) $39,280
 $(231,222) $51,169
Income from discontinued operations, net of tax23,289
 18,502
 379
 
Net income (loss) attributable to Graham Holdings Company common stockholders$20,606
 $57,782
 $(230,843) $51,169
        
Per Share Information Attributable to Graham Holdings Company Common Stockholders       
Basic (loss) income per common share from continuing operations$(0.58) $6.74
 $(40.32) $8.78
Basic income per common share from discontinued operations4.09
 3.18
 0.07
 
Basic net income (loss) per common share$3.51
 $9.92
 $(40.25) $8.78
        
Diluted (loss) income per common share from continuing operations$(0.58) $6.71
 $(40.32) $8.72
Diluted income per common share from discontinued operations4.06
 3.16
 0.07
 
Diluted net income (loss) per common share$3.48
 $9.87
 $(40.25) $8.72
Basic average number of common shares outstanding5,704
 5,720
 5,738
 5,746
Diluted average number of common shares outstanding5,791
 5,805
 5,837
 5,834
2015 Quarterly comprehensive income (loss)$4,098
 $56,304
 $(235,556) $(64,301)
(in thousands, except per share amounts)
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Operating Revenues$582,717
 $676,087
 $657,225
 $675,817
Operating Costs and Expenses       
Operating325,687
 381,747
 374,987
 371,922
Selling, general and administrative225,289
 208,973
 228,051
 225,477
Depreciation of property, plant and equipment14,652
 15,871
 16,002
 15,984
Amortization of intangible assets6,836
 10,531
 10,923
 12,897
Impairment of goodwill and other long-lived assets
 9,224
 312
 78
 572,464
 626,346
 630,275
 626,358
Income from Operations10,253
 49,741
 26,950
 49,459
Equity in earnings (losses) of affiliates, net649
 1,331
 (532) (4,697)
Interest income1,363
 1,173
 861
 3,184
Interest expense(8,129) (9,035) (8,619) (8,103)
Non-operating pension and postretirement benefit income, net18,801
 18,620
 17,621
 17,657
Other income (expense), net849
 4,069
 1,963
 (2,640)
Income Before Income Taxes23,786
 65,899
 38,244
 54,860
Provision for (Benefit From) Income Taxes2,700
 23,900
 13,400
 (159,700)
Net Income21,086
 41,999
 24,844
 214,560
Net Income Attributable to Noncontrolling Interests
 (3) (60) (382)
Net Income Attributable to Graham Holdings Company Common Stockholders$21,086
 $41,996
 $24,784
 $214,178
Quarterly Comprehensive Income$39,368
 $59,135
 $64,029
 $367,648
        
Per Share Information Attributable to Graham Holdings Company Common Stockholders       
Basic net income per common share$3.77
 $7.51
 $4.45
 $38.76
Basic average number of common shares outstanding5,535
 5,539
 5,518
 5,473
Diluted net income per common share$3.75
 $7.46
 $4.42
 $38.52
Diluted average number of common shares outstanding5,569
 5,577
 5,554
 5,509
The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Operations due to rounding.

In the fourth quarter of 2017, an unfavorable $2.8 million net out of period expense adjustment was included that related to prior periods from the third quarter of 2016 through the third quarter of 2017. With respect to this error, the Company has concluded that it was not material to the Company’s financial position or results of operations for 2017 and 2016 and related interim periods, based on its consideration of quantitative and qualitative factors.


Quarterly impact from certain items in 20162018 and 20152017 (after-tax and diluted EPS amounts):
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
2016       
20182018       
ŸSettlement gain of $10.8 million related to a bulk lump sum pension offering      $1.92
Intangible asset impairment charge of $5.8 million at the healthcare business    $(1.08)  
ŸCharges of $7.7 million related to restructuring at the education division ($1.2 million, $0.9 million, $1.1 million and $4.5 million in the first, second, third and fourth quarters, respectively)$(0.21) $(0.15) $(0.19) $(0.81)A $3.0 million reduction to operating expenses from property, plant, and equipment gains in connection with the spectrum repacking mandate of the FCC ($0.2 million, $0.6 million, $0.8 million and $1.4 million in the first, second, third and fourth quarters, respectively)$0.04
 $0.11
 $0.14
 $0.26
ŸNon-operating gain, net, of $20.0 million from the sales of land and marketable equity securities ($1.1 million gain, $23.9 million gain and $5.0 million loss in the first, second and fourth quarters, respectively)$0.19
 $4.23
   $(0.90)Interest expense of $6.2 million related to the settlement of a mandatorily redeemable noncontrolling interest  $(1.14)    
ŸNon-operating gain of $13.6 million arising from the sale of a business and the formation of a joint venture ($11.9 million and $1.7 million in the first and second quarters, respectively)$2.08
 $0.29
    Debt extinguishment costs of $8.6 million  $(1.60)    
ŸNon-operating expense of $24.1 million from the write-down of cost method investments and investments in affiliates ($9.6 million and $14.5 million in the third and fourth quarters, respectively)    $(1.70) $(2.57)A $22.2 million settlement gain related to a bulk lump sum pension offering and curtailment gain related to changes in the Company’s postretirement healthcare benefit plan      $4.11
ŸLosses, net, of $25.5 million for non-operating foreign currency losses ($3.4 million, $15.4 million, $2.4 million and $4.2 million in the first, second, third and fourth quarters, respectively)$(0.60) $(2.73) $(0.43) $(0.75)Losses, net, of $12.6 million on marketable equity securities ($10.7 million loss, $1.9 million loss, $33.6 million gain, and $33.6 million loss in the first, second, third and fourth quarters, respectively)$(1.94) $(0.36) $6.26
 $(6.28)
ŸNet nonrecurring $8.3 million deferred tax benefit related to Kaplan's international operations    $1.47
  Non-operating gain, net, of $5.7 million from sales, write-ups and impairments of cost method and equity method investments, and related to sales of land and businesses, including losses on guarantor lease obligations ($3.6 million gain, $1.8 million gain, $8.0 million gain, and $7.7 million loss in the first, second, third and fourth quarters, respectively)$0.65
 $0.34
 $1.48
 $(1.43)
ŸFavorable $5.6 million out of period deferred tax adjustment related to the KHE goodwill impairment recorded in the third quarter of 2015  $1.00
    Gain of $1.8 million on the Kaplan University Transaction$0.33
      
ŸLosses, net, of $2.9 million for non-operating foreign currency (losses) gains ($0.1 million gain, $1.7 million loss, $0.1 million loss, and $1.2 million loss in the first, second, third and fourth quarters, respectively)$0.02
 $(0.32) $(0.02) $(0.23)
ŸA nonrecurring discrete $17.8 million deferred state tax benefit related to the release of valuation allowances    $3.31
  
ŸIncome tax benefit of $1.8 million related to stock compensation$0.33
      
2015       
ŸGoodwill and long-lived assets impairment charges of $225.2 million at Kaplan and other businesses ($4.4 million, $217.1 million and $3.7 million in the second, third and fourth quarters, respectively)  $(0.75) $(37.85) $(0.63)
ŸCharges of $28.9 million related to restructuring at the education division, corporate office and other businesses ($6.8 million, $10.7 million, $5.8 million and $5.5 million in the first, second, third and fourth quarters, respectively)$(1.17) $(1.82) $(1.00) $(0.96)
ŸCharges of $15.3 million related to the modification of stock option awards in conjunction with the Cable ONE spin-off and the modification of restricted stock awards ($11.6 million and $3.7 million in the third and fourth quarters, respectively)    $(1.99) $(0.63)
ŸNon-operating losses, net, of $15.7 million arising from the sales of five businesses and an investment, and on the formation of a joint venture ($3.6 million gain, $5.0 million gain and $24.3 million loss in the first, second and third quarters, respectively)$0.50
 $0.85
 $(4.16)  
ŸGain of $13.2 million from the sale of land      $2.27
ŸLosses, net, of $9.7 million for non-operating unrealized foreign currency (losses) gains ($4.4 million loss, $2.3 million gain, $8.0 million loss and $0.4 million gain in the first, second, third and fourth quarters, respectively)$(0.75) $0.39
 $(1.37) $0.07




2017       
ŸCharges of $6.3 million related to restructuring and non-operating Separation Incentive Program charges at the education division ($0.3 million, $0.4 million, $1.1 million and $4.5 million in the first, second, third and fourth quarters, respectively)$(0.05) $(0.06) $(0.20) $(0.81)
ŸGoodwill and long-lived assets impairment charges of $5.8 million at other businesses  $(1.03)    
ŸGains, net, of $2.1 million for non-operating foreign currency gains (losses) ($1.1 million gain, $2.2 million gain, $0.9 million gain and $2.1 million loss in the first, second, third and fourth quarters, respectively)$0.19
 $0.39
 $0.16
 $(0.37)
ŸNet deferred tax benefits of $177.5 million related to the Tax Act      $31.68
ŸIncome tax benefit of $5.9 million related to stock compensation$1.06
      


GRAHAM HOLDINGS COMPANY
FIVE-YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
See Notes to Consolidated Financial Statements for the summary of significant accounting policies and additional information relative to the years 2014–2016 and refer to Note 3 for discussion of discontinued operations.2016–2018.
(in thousands, except per share amounts)2016 2015 2014 2013 20122018 2017 2016 2015 2014
Results of Operations                  
Operating revenues$2,481,890
 $2,586,114
 $2,737,032
 $2,600,602
 $2,585,469
$2,695,966
 $2,591,846
 $2,481,890
 $2,586,114
 $2,737,032
Income (loss) from operations303,534
 (80,825) 232,720
 149,434
 (5,967)246,161
 136,403
 222,869
 (158,140) 149,402
Income (loss) from continuing operations169,458
 (141,390) 765,403
 64,731
 (48,513)271,408
 302,489
 169,458
 (141,390) 765,403
Net income (loss) attributable to Graham Holdings Company
common stockholders
168,590
 (101,286) 1,292,996
 236,010
 131,218
271,206
 302,044
 168,590
 (101,286) 1,292,996
Per Share Amounts                  
Basic earnings (loss) per common share attributable to Graham Holdings Company common stockholders                  
Income (loss) from continuing operations$29.95
 $(25.23) $115.88
 $8.62
 $(7.17)$50.55
 $54.24
 $29.95
 $(25.23) $115.88
Net income (loss)29.95
 (17.87) 195.81
 32.10
 17.39
50.55
 54.24
 29.95
 (17.87) 195.81
Diluted earnings (loss) per common share attributable to Graham Holdings Company common stockholders                  
Income (loss) from continuing operations$29.80
 $(25.23) $115.40
 $8.61
 $(7.17)$50.20
 $53.89
 $29.80
 $(25.23) $115.40
Net income (loss)29.80
 (17.87) 195.03
 32.05
 17.39
50.20
 53.89
 29.80
 (17.87) 195.03
Weighted average shares outstanding:                  
Basic5,559
 5,727
 6,470
 7,238
 7,360
5,333
 5,516
 5,559
 5,727
 6,470
Diluted5,589
 5,727
 6,559
 7,333
 7,404
5,370
 5,552
 5,589
 5,727
 6,559
Cash dividends per common share$4.84
 $9.10
 $10.20
 $
 $19.60
$5.32
 $5.08
 $4.84
 $9.10
 $10.20
Graham Holdings Company common stockholders’ equity per common share$439.88
 $429.15
 $541.54
 $446.73
 $348.17
$550.24
 $529.59
 $439.88
 $429.15
 $541.54
Financial Position                  
Working capital$1,052,385
 $1,135,573
 $639,911
 $768,278
 $327,476
$720,180
 $857,192
 $1,052,385
 $1,135,573
 $639,911
Total assets4,432,670
 4,352,825
 5,752,319
 5,811,046
 5,015,069
4,764,041
 4,937,823
 4,432,670
 4,352,825
 5,752,319
Long-term debt485,719
 399,800
 399,545
 447,608
 453,384
470,777
 486,561
 485,719
 399,800
 399,545
Graham Holdings Company common stockholders’ equity2,452,941
 2,490,698
 3,140,299
 3,300,067
 2,586,028
2,916,782
 2,915,145
 2,452,941
 2,490,698
 3,140,299
Impact from certain items included in income from continuing operations (after-tax and diluted EPS amounts): 
2018
Intangible asset impairment charge of $5.8 million ($1.08 per share) at the healthcare business
• Reduction to operating expenses of $3.0 million ($0.55 per share) from property, plant, and equipment gains in connection with the spectrum repacking mandate of the FCC
• Interest expense of $6.2 million ($1.14 per share) related to the settlement of a mandatorily redeemable noncontrolling interest
• Debt extinguishment costs of $8.6 million ($1.60 per share)
• Non-operating settlement and curtailment gain of $22.2 million ($4.11 per share) related to a bulk lump sum pension offering and changes in the Company’s postretirement healthcare benefit plan
• Losses, net, of $12.6 million ($2.33 per share) on marketable equity securities
• Non-operating gain, net, of $5.7 million ($1.03 per share) from sales, write-ups and impairments of cost method and equity method investments, and related to sales of land and businesses, including losses on guarantor lease obligations
• Gain of $1.8 million ($0.33 per share) on the Kaplan University Transaction
• Losses, net, of $2.9 million ($0.54 per share) from non-operating foreign currency losses
• Nonrecurring discrete deferred state tax benefit of $17.8 million ($3.31 per share) related to the release of valuation allowances
• Income tax benefit of $1.8 million ($0.33 per share) related to stock compensation
2017
Charges of $6.3 million ($1.12 per share) related to restructuring and non-operating Separation Incentive Program charges at the education division
Goodwill and other long-lived assets impairment charges of $5.8 million ($1.03 per share) in other businesses
Gains, net, of $2.1 million ($0.37 per share) from non-operating foreign currency gains
Net deferred tax benefits of $177.5 million ($31.68 per share) related to the Tax Act
Income tax benefit of $5.9 million ($1.06 per share) related to stock compensation
2016
SettlementCharges of $7.7 million ($1.36 per share) related to restructuring at the education division
Non-operating settlement gain of $10.8 million ($1.92 per share) related to a bulk lump sum pension offering
Charges of $7.7 million ($1.36 per share) related to restructuring at the education division
$20.0 million ($3.52 per share) net non-operating gain from the sales of land and marketable equity securities
$13.6 million ($2.37 per share) non-operating gain arising from the sale of a business and the formation of a joint venture
$24.1 million ($4.27 per share) non-operating expense from the write-down of cost method investments and investments in affiliates
Losses, net, of $25.5 million ($4.51 per share) from non-operating foreign currency losses
Net nonrecurring $8.3 million ($1.47 per share) deferred tax benefit related to Kaplan'sKaplan’s international operations
Favorable $5.6 million ($1.00 per share) out of period deferred tax adjustment related to the KHE goodwill impairment from 2015


2015
Goodwill and other long-lived assets impairment charges of $225.2 million ($38.96 per share) at the education division and other business
Charges of $28.9 million ($4.97 per share) related to restructuring and non-operating Special Incentive Program charges at the education division, corporate office and other businesses
$15.3 million ($2.64 per share) in expense related to the modification of stock option awards and restricted stock awards
Net non-operating losses of $15.7 million ($2.82 per share) arising from the sales of five businesses and an investment, and on the formation of a joint venture
$13.2 million ($2.27 per share) gain on the sale of land
Losses, net, of $9.7 million ($1.67 per share) from non-operating unrealized foreign currency losses
2014
Charges of $20.2 million ($3.05 per share) related to restructuring and non-operating early retirement program expense and related charges at the education division and corporate office
Intangible and other long-lived assets impairment charge of $11.2 million ($1.69 per share) at the education division and other business
Gain from the sale of Classified Ventures of $249.8 million ($37.68 per share)
$58.2 million ($($8.78 per share) gain from the Classified Ventures’ sale of apartments.com
Gain from the Berkshire exchange transaction of $266.7 million ($40.23 per share)
$81.8 million ($12.34 per share) gain on the sale of the corporate headquarters building
Losses, net, of $7.1 million ($1.08 per share) from non-operating unrealized foreign currency losses
2013
Charges of $25.3 million ($3.46 per share) related to severance and restructuring at the education division
Intangible assets impairment charge of $3.2 million ($0.44 per share) at the education division
Write-down of a marketable equity security of $6.7 million ($0.91 per share)
Losses, net, of $8.6 million ($1.17 per share) from non-operating unrealized foreign currency losses
2012
Goodwill and other long-lived assets impairment charge of $81.9 million ($11.33 per share) at KTP
Charges of $32.9 million ($4.53 per share) related to severance and restructuring at the education division
Write-down of a marketable equity security of $11.2 million ($1.54 per share)
$3.7 million ($0.48 per share) gain on sale of cost method investment
Gains, net, of $2.0 million ($0.27 per share) from non-operating unrealized foreign currency gains


INDEX TO EXHIBITS

Exhibit NumberDescription
3.1Restated Certificate of Incorporation of the Company dated November 13, 2003 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2003).
3.2Certificate of Amendment, effective November 29, 2013, to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed November 29, 2013).
3.3By-Laws of the Company as amended and restated through November 29, 2013 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed November 29, 2013).
4.1Second Supplemental Indenture dated January 30, 2009, between the Company and The Bank of New York Mellon Trust Company, N.A., as successor to The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 30, 2009).
4.2Five-Year Credit Agreement, dated as of June 29, 2015, among the Company, and certain of its domestic subsidiaries as guarantors, the several lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent and JPMorgan Chase Bank, N.A., as Syndication Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 1, 2015).
10.1Graham Holdings Company 2012 Incentive Compensation Plan, as amended and restated effective November 29, 2013, as adjusted to reflect the spin-off of Cable ONE. (incorporated by reference to Exhibit 10.1 to Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015)*
10.2Washington Post Company Stock Option Plan as amended and restated effective May 31, 2003 (incorporated by reference to Exhibit 10.1 to The Washington Post Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2003).*
10.3Graham Holdings Company Supplemental Executive Retirement Plan as amended and restated effective December 10, 2013 (incorporated by reference to Exhibit 10.3 to Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013).*
10.4Amendment No. 1 to Graham Holdings Company Supplemental Executive Retirement Plan, effective March 31, 2014 (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014).*
10.5Graham Holdings Company Deferred Compensation Plan as amended and restated effective January 1, 2014 (incorporated by reference to Exhibit 10.4 to Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013).*
10.6Letter Agreement between the Company and Timothy J. O’Shaughnessy, dated October 20, 2014 (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014).*
10.7Letter Agreement between the Company and Hal S. Jones, dated July 16, 2014 (incorporated by reference to the Company’s Current Report on Form 8-K filed July 16, 2014).*
10.8Letter Agreement between the Company and Andrew S. Rosen, dated April 7, 2014 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).*
10.9Tax Matters Agreement, dated as of June 16, 2015 by and between the Company and Cable One, Inc. (incorporated by reference to the Company's Current Report on Form 8-K filed June 17, 2015).
21List of subsidiaries of the Company.
23Consent of independent registered public accounting firm.
24Power of attorney dated February 24, 2017.
31.1Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.
31.2Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.
32Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer.
101
The following financial information from Graham Holdings Company Annual Report on Form 10-K for the year ended December 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014; (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014; (iii) Consolidated Balance Sheets as of December 31, 2016 and 2015; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014; (v) Consolidated Statements of Changes in Common Shareholders’ Equity for the years ended December 31, 2016, 2015 and 2014; and (vi) Notes to Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed “furnished” and not “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, are deemed “furnished” and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections.

*A management contract or compensatory plan or arrangement required to be included as an exhibit hereto pursuant to Item 15(b) of Form 10-K.

116