UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, ~~2018~~2019

or

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-671

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)

(703) 345-6300

(Registrant’s telephone number, including area code)

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 Web site, 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~“small~~“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	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. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨. No ý.

Shares outstanding at April ~~27, 2018:~~26, 2019:

Class A Common Stock – 964,001 Shares

Class B Common Stock – ~~4,399,736~~4,350,929 Shares

GRAHAM HOLDINGS COMPANY

Index to Form 10-Q



PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	a. Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	1

	b. Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	2

	c. Condensed Consolidated Balance Sheets at March 31, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018	3

	d. Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	4

	e. Condensed Consolidated Statements of Changes in Common Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018	5

	f. Notes to Condensed Consolidated Financial Statements (Unaudited)	56

Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	2825

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3532

Item 4.	Controls and Procedures	3532

PART II. OTHER INFORMATION

Item ~~1A.~~	~~Risk Factors~~	36

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	36

~~Item~~ 6.	Exhibits	3733

Signatures		3834

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended March 31							Three Months Ended March 31

(in thousands, except per share amounts)	2018				2017			2019				2018
Operating Revenues	659,436				582,717			$	692,199			$	659,436
Operating Costs and Expenses
Operating	365,151				325,687			477,230				365,151
Selling, general and administrative	225,045				225,289			148,383				225,045
Depreciation of property, plant and equipment	14,642				14,652			13,523				14,642
Amortization of intangible assets	10,384				6,836			13,060				10,384
	615,222				572,464			652,196				615,222
Income from Operations	44,214				10,253			40,003				44,214
Equity in earnings of affiliates, net	2,579				649			1,679				2,579
Interest income	1,372				1,363			1,700				1,372
Interest expense	(8,071		)		(8,129		)	(7,425		)		(8,071		)
Non-operating pension and postretirement benefit income, net	21,386				18,801			19,928				21,386
Loss on marketable equity securities, net	(14,102		)		—
Gain (loss) on marketable equity securities, net								24,066				(14,102		)
Other income, net	9,187				849			29,351				9,187
Income Before Income Taxes	56,565				23,786			109,302				56,565
Provision for Income Taxes	13,600				2,700			27,600				13,600
Net Income	42,965				21,086			81,702				42,965
Net Income Attributable to Noncontrolling Interests	(74		)		—
Net Loss (Income) Attributable to Noncontrolling Interests								46				(74		)
Net Income Attributable to Graham Holdings Company Common Stockholders	$	42,891			$	21,086		$	81,748			$	42,891
Per Share Information Attributable to Graham Holdings Company Common Stockholders
Basic net income per common share	$	7.84			$	3.77		$	15.38			$	7.84
Basic average number of common shares outstanding	5,436				5,535			5,284				5,436
Diluted net income per common share	$	7.78			$	3.75		$	15.26			$	7.78
Diluted average number of common shares outstanding	5,473				5,569			5,326				5,473

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended March 31							Three Months Ended March 31
(in thousands)	2018				2017			2019				2018
Net Income	$	42,965			$	21,086		$	81,702			$	42,965
Other Comprehensive Income, Before Tax
Foreign currency translation adjustments:
Translation adjustments arising during the period	11,564				13,668			10,033				11,564
Unrealized gains on available-for-sale securities:
Unrealized gains for the period, net	—				9,558
Pension and other postretirement plans:
Amortization of net prior service cost included in net income	76				120
Amortization of net prior service (credit) cost included in net income								(1,347		)		76
Amortization of net actuarial gain included in net income	(1,367		)		(1,823		)	(548		)		(1,367		)
	(1,291		)		(1,703		)	(1,895		)		(1,291		)
Cash flow hedge gain (loss)	236				(124		)
Cash flow hedges (loss) gain								(467		)		236
Other Comprehensive Income, Before Tax	10,509				21,399			7,671				10,509
Income tax benefit (expense) related to items of other comprehensive income	303				(3,117		)
Income tax benefit related to items of other comprehensive income								619				303
Other Comprehensive Income, Net of Tax	10,812				18,282			8,290				10,812
Comprehensive Income	53,777				39,368			89,992				53,777
Comprehensive income attributable to noncontrolling interests	(74		)		—
Comprehensive loss (income) attributable to noncontrolling interests								46				(74		)
Total Comprehensive Income Attributable to Graham Holdings Company	$	53,703			$	39,368		$	90,038			$	53,703

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of							As of
(in thousands)	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
	(Unaudited)							(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	315,789			$	390,014		$	170,882			$	253,256
Restricted cash	12,396				17,552			20,243				10,859
Investments in marketable equity securities and other investments	491,449				557,153			527,942				514,581
Accounts receivable, net	540,593				620,319			551,617				582,280
Income taxes receivable	5,304				23,901			2,591				19,166
Inventories and contracts in progress	66,949				60,612			107,344				69,477
Other current assets	88,956				66,253			96,916				82,723
Total Current Assets	1,521,436				1,735,804			1,477,535				1,532,342
Property, Plant and Equipment, Net	258,694				259,358			319,408				293,085
Lease Right-of-Use Assets								382,050				—
Investments in Affiliates	131,887				128,590			140,127				143,813
Goodwill, Net	1,301,484				1,299,710			1,339,822				1,297,712
Indefinite-Lived Intangible Assets	103,916				102,195			128,557				99,052
Amortized Intangible Assets, Net	230,674				237,976			250,256				263,261
Prepaid Pension Cost	1,073,873				1,056,777			1,017,584				1,003,558
Deferred Income Taxes	15,367				15,367			12,605				13,388
Deferred Charges and Other Assets	123,627				102,046			129,290				117,830
Total Assets	$	4,760,958			$	4,937,823		$	5,197,234			$	4,764,041

Liabilities and Equity
Current Liabilities
Accounts payable and accrued liabilities	$	435,498			$	526,323		$	422,380			$	486,578
Deferred revenue	294,519				339,454			295,966				308,728
Income taxes payable	8,593				6,109			12,025				10,496
Current portion of lease liabilities								82,429				—
Current portion of long-term debt	406,654				6,726			9,568				6,360
Dividends declared	7,319				—			7,388				—
Total Current Liabilities	1,152,583				878,612			829,756				812,162
Postretirement Benefits Other Than Pensions	20,943				20,865
Accrued Compensation and Related Benefits	176,697				193,024			176,319				179,652
Other Liabilities	63,714				65,977			22,747				57,901
Deferred Income Taxes	356,018				362,701			327,124				322,421
Mandatorily Redeemable Noncontrolling Interest	10,331				10,331
Lease Liabilities								337,648				—
Long-Term Debt	91,079				486,561			500,238				470,777
Total Liabilities	1,871,365				2,018,071			2,193,832				1,842,913
Redeemable Noncontrolling Interest	4,680				4,607			3,866				4,346
Preferred Stock	—				—			—				—
Common Stockholders’ Equity
Common stock	20,000				20,000			20,000				20,000
Capital in excess of par value	372,836				370,700			376,639				378,837
Retained earnings	6,022,315				5,791,724			6,303,094				6,236,125
Accumulated other comprehensive income (loss), net of tax
Accumulated other comprehensive income, net of tax
Cumulative foreign currency translation adjustment	17,878				6,314			(19,237		)		(29,270		)
Unrealized gain on available-for-sale securities	—				194,889
Unrealized gain on pensions and other postretirement plans	333,593				334,536			231,452				232,836
Cash flow hedge	7				(184		)
Cash flow hedges								(96		)		263
Cost of Class B common stock held in treasury	(3,881,716		)		(3,802,834		)	(3,918,254		)		(3,922,009		)
Total Common Stockholders’ Equity								2,993,598				2,916,782
Noncontrolling Interest								5,938				—
Total Equity	2,884,913				2,915,145			2,999,536				2,916,782
Total Liabilities and Equity	$	4,760,958			$	4,937,823		$	5,197,234			$	4,764,041

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Three Months Ended March 31							Three Months Ended March 31
(in thousands)	2018				2017			2019				2018
Cash Flows from Operating Activities
Net Income	$	42,965			$	21,086		$	81,702			$	42,965
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	25,026				21,488			26,583				25,026
Amortization of lease right-of-use asset								20,353				—
Net pension benefit	(17,295		)		(14,688		)	(13,653		)		(17,295		)
Loss on marketable equity securities, net	14,102				—
(Gain) loss on marketable equity securities and cost method investments, net								(25,357		)		14,102
Stock-based compensation expense, net	2,111				2,866			1,611				2,111
(Gain) loss on disposition of businesses, property, plant and equipment and investments, net	(8,739		)		335
Gain on disposition of businesses, property, plant and equipment and investments, net								(29,204		)		(8,739		)
Foreign exchange gain	(177		)		(1,728		)	(514		)		(177		)
Equity in earnings of affiliates, net of distributions	(2,115		)		(649		)	1,021				(2,115		)
(Benefit) provision for deferred income taxes	(7,436		)		7,443
Provision (benefit) for deferred income taxes								5,892				(7,436		)
Change in operating assets and liabilities:
Accounts receivable, net	87,311				122,605			30,556				87,311
Inventories								(8,807		)		(5,429		)
Accounts payable and accrued liabilities	(85,955		)		(55,584		)	(84,663		)		(85,955		)
Deferred revenue	(8,783		)		4,603			(16,459		)		(8,783		)
Income taxes receivable	18,718				(6,490		)	17,964				18,718
Other assets and other liabilities, net	(41,186		)		(9,489		)	(45,327		)		(35,757		)
Other	404				103			380				404
Net Cash Provided by Operating Activities	18,951				91,901
Net Cash (Used in) Provided by Operating Activities								(37,922		)		18,951
Cash Flows from Investing Activities
Investments in certain businesses, net of cash acquired								(83,721		)		(2,619		)
Net proceeds (payments) from disposition of businesses, property, plant and equipment and investments								34,718				(17,890		)
Purchases of property, plant and equipment								(28,252		)		(17,506		)
Proceeds from sales of marketable equity securities	49,635				—			17,162				49,635
Advance related to Kaplan University transaction	(20,000		)		—
Net (payments) proceeds from disposition of businesses, property, plant and equipment and investments	(17,890		)		1,748
Purchases of property, plant and equipment	(17,506		)		(15,664		)
Purchases of marketable equity securities								(7,499		)		—
Investments in equity affiliates, cost method and other investments	(4,552		)		(865		)	(3,401		)		(4,552		)
Investments in certain businesses, net of cash acquired	(2,619		)		(85,415		)
Return of investment in equity affiliate	1,402				200
Loan to related party and advance related to Kaplan University transaction								(3,500		)		(20,000		)
Return of investment in equity affiliates								615				1,402
Net Cash Used in Investing Activities	(11,530		)		(99,996		)	(73,878		)		(11,530		)
Cash Flows from Financing Activities
Common shares repurchased	(79,001		)		(395		)	—				(79,001		)
Issuance of borrowings								30,000				—
Net proceeds from vehicle floor plan payable								9,529				—
Dividends paid	(7,319		)		(7,102		)	(7,391		)		(7,319		)
Proceeds from exercise of stock options	144				—
Issuance of noncontrolling interest								6,000				—
Other	(4,797		)		(2,092		)	(1,104		)		(4,653		)
Net Cash Used in Financing Activities	(90,973		)		(9,589		)
Net Cash Provided by (Used in) Financing Activities								37,034				(90,973		)
Effect of Currency Exchange Rate Change	4,171				4,210			1,776				4,171
Net Decrease in Cash and Cash Equivalents and Restricted Cash	(79,381		)		(13,474		)	(72,990		)		(79,381		)
Beginning Cash and Cash Equivalents and Restricted Cash	407,566				670,816			264,115				407,566
Ending Cash and Cash Equivalents and Restricted Cash	$	328,185			$	657,342		$	191,125			$	328,185

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ EQUITY (UNAUDITED)



(in thousands)	Common Stock			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Noncontrolling Interest			Total Equity				Redeemable Noncontrolling Interest
As of December 31, 2018	$	20,000		$	378,837		$	6,236,125		$	203,829		$	(3,922,009	)	$	—		$	2,916,782			$	4,346
Net income for the period							81,702												81,702
Issuance of noncontrolling interest																6,000			6,000
Net loss attributable to noncontrolling interest							62									(62		)	—
Net income attributable to redeemable noncontrolling interests							(16		)										(16		)		16
Change in redemption value of redeemable noncontrolling interests				(54		)													(54		)		54
Dividends on common stock							(14,779		)										(14,779		)
Issuance of Class B common stock, net of restricted stock award forfeitures				(3,783		)							3,755						(28		)
Amortization of unearned stock compensation and stock option expense				1,639															1,639
Other comprehensive income, net of income taxes										8,290									8,290
Purchase of redeemable noncontrolling interest																			—				(550		)
As of March 31, 2019	$	20,000		$	376,639		$	6,303,094		$	212,119		$	(3,918,254	)	$	5,938		$	2,999,536			$	3,866

As of December 31, 2017	$	20,000		$	370,700		$	5,791,724		$	535,555		$	(3,802,834	)	$	—		$	2,915,145			$	4,607
Net income for the period							42,965												42,965
Net income attributable to redeemable noncontrolling interests							(73		)										(73		)		73
Dividends on common stock							(14,638		)										(14,638		)
Repurchase of Class B common stock													(79,001		)				(79,001		)
Issuance of Class B common stock, net of restricted stock award forfeitures				(189		)							119						(70		)
Amortization of unearned stock compensation and stock option expense				2,325															2,325
Other comprehensive income, net of income taxes										10,812									10,812
Cumulative effect of accounting change							201,812			(194,889		)							6,923
As of March 31, 2018	$	20,000		$	372,836		$	6,021,790		$	351,478		$	(3,881,716	)	$	—		$	2,884,388			$	4,680

See accompanying Notes to Condensed Consolidated Financial Statements.

GRAHAM HOLDINGS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION, BASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS

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 seven television broadcasting stations, several websites and print publications, and a marketing solutions provider. The Company’s other business operations include manufacturing, automotive dealerships and home health and hospice services.

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 2). The gain on the sale of the institutional assets of KU is included in other income, net, in the Condensed Consolidated Statement of Operations.

As a result of the transaction, Kaplan reorganized its higher education operations into the following two operating segments for the purpose of making operating decisions and assessing performance: Higher Education and Professional (U.S.) (see Note 16). The higher education segment comprises the historical KU for-profit postsecondary education business and the future non-academic operations support services provided to the new university, Purdue University Global. The Professional (U.S.) segment comprises the KU School of Professional and Continuing Education, which provides professional training and exam preparation for professional certifications and licensures.

Basis of Presentation – The accompanying condensed consolidated financial statements have been prepared in accordance with: (i) generally accepted accounting principles in the United States of America (GAAP) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities and Exchange Act of 1934, as amended, for financial statements required to be filed with the Securities and Exchange Commission (SEC). They include the assets, liabilities, results of operations and cash flows of the Company, including its domestic and foreign subsidiaries that are more than 50% owned or otherwise controlled by the Company. As permitted under such rules, certain notes and other financial information normally required by GAAP have been condensed or omitted. Management believes the accompanying condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. The Company’s results of operations for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 may not be indicative of the Company’s future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Use of Estimates in the Preparation of the Condensed Consolidated Financial Statements – The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported herein. 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.

Recently Adopted and Issued Accounting Pronouncements – In ~~May 2014,~~February 2016, 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. The standard permits two implementation approaches, full retrospective, requiring retrospective application of the new guidance with a restatement of prior years, or modified retrospective, requiring prospective application of the new guidance with disclosure of results under the old guidance in the first year of adoption. The Company adopted the new guidance on January 1, 2018 using the modified retrospective approach for contracts not completed as of the adoption date.

Upon adoption of the new guidance, the Company recorded a net increase to the opening balance of retained earnings of $7.4 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 Condensed Consolidated Balance Sheet as a result of adopting the new guidance was as follows:~~

(in thousands) Balance as of December 31, 2017 Adjustments Balance as of January 1, 2018
Assets
Accounts receivable, net $ 620,319
$ 2,142
$ 622,461
Inventories and contracts in progress 60,612
903
61,515
Other current assets 66,253
6,343
72,596
Liabilities
Accounts payable and accrued liabilities $ 526,323
$ 88
$ 526,411
Deferred revenue 339,454
(346 ) 339,108
Deferred income taxes 362,701
2,197
364,898
Equity
Retained earnings $ 5,791,724
$ 7,449
$ 5,799,173

Under the modified retrospective method of adoption, the Company is required to disclose the impact the adoption of the revenue guidance had on its Condensed Consolidated Statement of Operations. If the company continued to follow its accounting policies under the previous guidance, revenue recognized would be $1.3 million lower and expenses would be $3.0 million higher. This is primarily due to the net impact of the change in the timing of the recognition of revenue and costs to obtain a 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.

The Company adopted this guidance in the first quarter of 2018 and recorded a cumulative adjustment of $194.9 million to retained earnings on its Condensed 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, 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’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 ~~requires~~provides 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 presented using a modified retrospective approach. The Company is in the process of evaluating the impact of this new guidance on its Condensed Consolidated Financial Statements; however, the recognition of right-of-use assets and lease liabilities is expected to have a material effect on its Condensed Consolidated Balance Sheet.

In March 2017, the FASB issued new guidance that changes the presentation of net periodic pension cost and net periodic postretirement benefit cost for 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.presented. Under the ~~new guidance, service cost will be included in the same line item(s)~~effective date method, lessees and lessors are required to recognize and measure leases as ~~other compensation costs arising from services rendered by employees during~~of the period while the other components will be recognized after income from operations. The guidance is effective for interim and fiscal years beginning after December 15, 2017. The guidance must be applied retrospectively; however, a practical expedient is available which permits an employer to use amounts previously disclosed in its pension and postretirement plans footnote for the prior comparative periods.

of adoption. The Company adopted the new ~~standard in~~guidance on January 1, 2019 using the ~~first quarter~~effective date method.

The Company elected the available package of ~~2018. In combination with the presentation change to net periodic pension cost and net periodic postretirement benefit cost,~~transition practical expedients, which allowed the Company ~~allocated~~to use its ~~costs associated with fringe benefits between operating expenses~~historical assessments of whether contracts are or contain leases, lease classification and ~~selling, general~~initial direct costs. Additionally, the Company elected the transition practical expedient to use hindsight to determine the lease term. Upon adoption of the new guidance, the Company recognized right-of-use assets of $369.3 million and ~~administrative expenses. Previously, costs related to fringe benefits were generally classified as selling, general and administrative expenses.~~ lease liabilities of $418.3 million.

The ~~amounts in the previously issued financial statements have been reclassified to conform with the presentation in the condensed consolidated financial statements for the first quarter of 2018. The~~cumulative effect of ~~these~~the changes to the Company’s Condensed Consolidated ~~Statement~~Balance Sheets as a result of ~~Operations for~~adopting the ~~first quarter of 2017 is~~new guidance was as follows:

As Previously Reported Adjustment Upon Adoption
(in thousands)
Three Months Ended March 31, 2017
Operating expenses $ 300,666
$ 25,021
$ 325,687
Selling, general and administrative expenses 231,509
(6,220 ) 225,289
Income from Operations 29,054
(18,801 ) 10,253
Non-operating pension and postretirement benefit income, net —
18,801
18,801
Income Before Income Taxes 23,786
—
23,786



	Balance as of December 31, 2018			Adjustments			Balance as of January 1, 2019
Assets
Other current assets	$	82,723		$	(5,595	)	$	77,128
Lease Right-of-Use Assets	—			369,333			369,333
Liabilities
Accounts payable and accrued liabilities	$	486,578		$	(14,029	)	$	472,549
Current portion of lease liabilities	—			86,747			86,747
Other Liabilities	57,901			(40,500		)	17,401
Lease Liabilities	—			331,520			331,520

2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

Acquisitions. On January 31, 2019, the Company acquired an interest in two automotive dealerships for cash and the assumption of floor plan payables (see Note 5). In connection with the ~~first three months~~acquisition, the automotive 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 (see Note 8). The Company has a 90% interest in the automotive subsidiary. The Company also entered into a management services agreement with an entity affiliated with Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships. Mr. Ourisman and his team will operate and manage the dealerships. In addition, the Company advanced $3.5 million to the minority shareholder, an entity controlled by Mr. Ourisman, at an interest rate of 6% per annum. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and is included in other businesses.

During 2018, the Company acquired eight businesses, five in its education division, one in its healthcare division and two in other businesses for $121.1 million in cash and contingent consideration. The assets and liabilities of the companies acquired were 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 ~~leader in~~provider of cloud-based, interactive patient encounter simulations for medical and nursing professionals and educators, and another small business in ~~its~~ test preparation and international, ~~division, respectively, for $3.2 million.~~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, Graham Healthcare Group (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.

Acquisition-related costs for acquisitions that closed during the first three months of 2018 were $0.1 million and were expensed as incurred. The aggregate purchase price ~~allocation mostly comprised goodwill~~of the 2018 acquisitions was allocated as follows, based on acquisition date fair values to the following assets and ~~other intangible assets.~~ liabilities:



		Purchase Price Allocation
		Year Ended
(in thousands)		December 31, 2018
Accounts receivable		$	2,344
Inventory		1,268
Property, plant and equipment		1,518
Goodwill		41,840
Amortized intangible assets		78,427
Other assets		5,198
Other liabilities		(7,678		)
Deferred income taxes		(4,900		)
Aggregate purchase price, net of cash acquired		$	118,017

The fair values recorded were based upon ~~preliminary valuations and the estimates and assumptions used in such valuations are subject to change within the measurement period (up to one year from the acquisition date).~~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.

During 2017, the Company acquired six businesses, two in its education division, two in its television broadcasting division and two 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.

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, Graham Healthcare Group (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 other businesses.

Acquisition-related costs for acquisitions that closed during the first quarter of 2018 were $0.1 million and were expensed as incurred. Acquisition-related costs for acquisitions that closed during the first quarter of 2017 were $1.1 million and were expensed as incurred. The aggregate purchase price of these 2017 acquisitions was allocated as follows, based on acquisition date fair values to the following assets and liabilities:

Purchase Price Allocation
As of
(in thousands) December 31, 2017
Accounts receivable $ 12,502
Inventory 25,253
Property, plant and equipment 29,921
Goodwill 143,149
Indefinite-lived intangible assets 33,800
Amortized intangible assets 170,658
Other assets 1,880
Pension and other postretirement benefits liabilities (59,116 )
Other liabilities (12,177 )
Deferred income taxes (37,289 )
Redeemable noncontrolling interest (3,666 )
Aggregate purchase price, net of cash acquired $ 304,915

The Company expects to deduct ~~$0.9 million of goodwill for income tax purposes for the acquisitions completed during the first three months of 2018. The Company expects to deduct $11.0~~$32.3 million of goodwill for income tax purposes for the acquisitions completed in ~~2017.~~2018.

The acquired companies were consolidated into the Company’s financial statements starting on their respective acquisition dates. The ~~Company’s Condensed Consolidated Statements of Operations include aggregate revenues and operating losses for the companies acquired in 2018 of $0.3 million and $0.1 million, respectively. The~~ following unaudited pro forma financial information presents the Company’s results as if the ~~2018~~current year acquisitions had occurred at the beginning of ~~2017.~~2018. The unaudited pro forma information also includes the ~~2017~~2018 acquisitions as if they occurred at the beginning of ~~2016:~~2017:


	Three Months Ended March 31							Three Months Ended March 31
(in thousands)	2018				2017			2019				2018
Operating revenues	$	659,970			$	642,425		$	705,393			$	728,632
Net income	43,075				24,267			82,127				44,854

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.

Kaplan University Transaction. On ~~April 27, 2017, certain subsidiaries of Kaplan entered into a Contribution and Transfer Agreement to contribute~~March 22, 2018, the ~~institutional assets and operations of~~Company closed on the 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 a Transition(KU) transaction and ~~Operations Support Agreement (TOSA) pursuant to which Kaplan will provide key non-academic operations support to the new university.~~

The new university will operate almost exclusively 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

will provide to Purdue University Global will include 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 will 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 percent 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 percent of such cost efficiencies (Kaplan Efficiency Payment). If there are sufficient revenues, Kaplan may also receive a fee equal to 12.5 percent of Purdue University Global’s revenue. The fee will increase to 13 percent 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 percent 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 percent 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~~ recorded a pre-tax gain of $4.3 million in the first quarter of 2018. For financial reporting purposes, Kaplan may receive payment of additional consideration ~~for~~related to the sale of the institutional assets as part of ~~the~~its fee to the extent there are sufficient revenues available after paying all amounts required by the ~~TOSA.~~Transition and Operations Support Agreement (TOSA). The Company did not recognize any contingent consideration as part of the initial disposition. In the first quarter of 2019, the Company recorded a $0.2 million contingent consideration gain related to the disposition.

The revenue and operating income related to the KU business disposed of are as follows:


	Three Months Ended March 31
(in thousands)	2018				2017			Three Months Ended March 31, 2018
Revenue	$	91,526			$	110,874		$	91,526
Operating income	213				4,009			213

Sale of Businesses. In February 2018, Kaplan completed the sale of a small business which was included in Test Preparation. In ~~February 2017, GHG completed the sale of Celtic Healthcare of Maryland. In the fourth quarter of 2017,~~September 2018, Kaplan Australia completed the sale of a small business which was included in Kaplan International. As a result of these sales, the Company reported gains ~~(losses)~~ in other non-operating income (see Note 13).

Other Transactions. In March 2019, a Hoover minority shareholder put some of his shares to the ~~fourth quarter~~Company, which had a redemption value of ~~2017, Kaplan entered into an arrangement~~$0.6 million. Following the redemption, the Company owns 98.01% of Hoover. In June 2018, the Company incurred $6.2 million of interest expense related to ~~acquire~~ the ~~College for Financial Planning.~~mandatorily redeemable noncontrolling interest redemption settlement at GHG. The ~~acquisition is subject to regulatory approval from the Higher Learning Commission (HLC), which is not expected before June~~mandatorily redeemable noncontrolling interest was redeemed and paid in July 2018.

3. INVESTMENTS

Money Market Investments. As of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had money market investments of ~~$111.8~~$65.0 million and ~~$217.6~~$75.5 million, respectively, that are classified as cash and cash equivalents ~~and restricted cash~~ in the Company’s Condensed Consolidated Balance Sheets.

Investments in Marketable Equity Securities.Investments in marketable equity securities ~~comprised~~consist of the following:


	As of							As of
	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
(in thousands)	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
Total cost	$	247,321			$	269,343		$	282,349			$	282,563
Gross unrealized gains	224,382				266,972			227,958				216,111
Gross unrealized losses								—				(2,284		)
Total Fair Value	$	471,703			$	536,315		$	510,307			$	496,390

The Company purchased $7.5 million of marketable equity securities during the first three months of 2019. There were no purchases of marketable equity securities during the first three months of ~~2018 and 2017.~~2018.

During the first three months of 2019, the gross cumulative realized gains from the sales of marketable equity securities were $9.7 million. The total proceeds from such sales were $17.2 million. During the first three months of 2018, the gross cumulative realized gains from the sales of marketable equity securities were $28.5 million. The ~~losses recognized in earnings from these marketable equity securities sold were $2.6 million for the first three months of 2018. The~~ total proceeds from such sales were $50.5 million, of which $0.9 million settled in April 2018. ~~There were no sales of~~

The gain (loss) on marketable equity securities ~~for~~comprised the ~~first three months of 2017.~~following:

~~For the first three months of 2018, the net unrealized losses on equity securities still held at the end of the period were $11.5 million.~~



	Three Months Ended March 31
(in thousands)	2019				2018
Gain (loss) on marketable equity securities, net	$	24,066			$	(14,102	)
Less: Net (gains) losses in earnings from marketable equity securities sold and donated	(2,982		)		2,611
Net unrealized gains (losses) in earnings from marketable equity securities still held at the end of the period	$	21,084			$	(11,491	)

Investments in Affiliates. As of March 31, ~~2018,~~2019, the Company held an approximate 11% interest in Intersection Holdings, LLC, and in several other affiliates; GHG held a 40% interest in Residential Home Health Illinois, a 42.5% interest in Residential Hospice Illinois, a 40% interest in the joint venture formed between GHG and a Michigan hospital, and a 40% interest in the joint venture formed between GHG and Allegheny Health Network (AHN). For the three months ended March 31, ~~2018~~2019, and ~~2017,~~2018, the Company recorded ~~$3.7~~$2.3 million and ~~$4.6~~$3.7 million, respectively, in revenue for services provided to the affiliates of GHG.

In February 2019, the Company sold its interest in Gimlet Media. In connection with this sale, the Company recorded a gain of $29.0 million in the first quarter of 2019. The total proceeds from the sale were $33.5 million.

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 ~~£16.0~~£16 million was advanced as of December 31, 2017. ~~There was no~~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 ~~in the first three months of 2018.~~to £22 million. The loan ~~will be~~is repayable over 25 years at an interest rate of 7% and the loan is guaranteed by the University of York.

Cost Method Investments.The Company held investments without readily determinable fair values in a number of equity securities that are accounted for as cost method ~~investments.~~investments, which are recorded at cost, less impairment, and adjusted for observable price changes for identical or similar investments of the same issuer. The carrying ~~amount~~value of these investments was ~~$19.9~~$34.4 million and $30.6 million as of March 31, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively.

4. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:


	As of							As of
	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
(in thousands)	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
Receivables from contracts with customers, less doubtful accounts of $22,477 and $22,975	$	499,202			$	600,215
Receivables from contracts with customers, less doubtful accounts of $14,152 and $14,775								$	503,753			$	538,021
Other receivables	41,391				20,104			47,864				44,259
	$	540,593			$	620,319		$	551,617			$	582,280

Bad debt expense was $0.2 million and $5.8 million for ~~each of~~ the three months ended March 31, 2019 and 2018, ~~and 2017.~~respectively.


5.	INVENTORIES, ~~AND~~ CONTRACTS IN PROGRESS AND VEHICLE FLOOR PLAN PAYABLE

Inventories and contracts in progress consist of the following:


	As of							As of
	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
(in thousands)	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
Raw materials	$	33,007			$	30,429		$	35,178			$	37,248
Work-in-process	11,338				10,258			11,901				11,633
Finished goods	18,290				18,851			58,520				17,861
Contracts in progress	4,314				1,074			1,745				2,735
	$	66,949			$	60,612		$	107,344			$	69,477

The Company finances all new vehicle inventory through a standardized floor plan facility (the “floor plan facility”) with SunTrust Bank. The new vehicle floor plan facility bears interest at variable rates that are based on LIBOR plus 1.15% per annum. The weighted average interest rate for the floor plan facility was 3.5% for the three months ended March 31, 2019. As of March 31, 2019, the aggregate capacity under the floor plan facility was $40 million, of which $35.3 million had been utilized, and is included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet. Changes in the vehicle floor plan payable are reported as cash flows from financing activities in the Condensed Consolidated Statements of Cash Flows.

The floor plan facility is collateralized by vehicle inventory and other assets of the relevant dealership subsidiary, and contains a number of covenants, including, among others, covenants restricting the dealership subsidiary with respect to the creation of liens and changes in ownership, officers and key management personnel. The Company was in compliance with all of these restrictive covenants as of March 31, 2019.

The floor plan interest expense related to the new vehicle floor plan arrangements is offset by amounts received from manufacturers in the form of floor plan assistance capitalized in inventory and recorded against operating expense in the Condensed Consolidated Statements of Operations when the associated inventory is sold. For the three months ended March 31, 2019, the Company recognized a reduction in operating expense of $0.4 million related to manufacturer floor plan assistance.

6. LEASES

The Company has operating leases for substantially all of its educational facilities, corporate offices and other facilities used in conducting its business, as well as certain equipment. The Company determines if an arrangement is a lease at inception.

Operating leases are included in lease right-of-use (“ROU”) assets, current portion of lease liabilities, and lease liabilities on the Company’s Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. ROU assets also include any initial direct costs, prepaid lease payments and lease incentives received, when applicable. As most of the Company’s leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on December 31, 2018 for operating leases that commenced prior to that date.

The Company’s lease terms may include options to extend or terminate the lease by one to ten years or more when it is reasonably certain that the option will be exercised. Leases with a term of twelve months or less are not recorded on the balance sheet; however, lease expense for these leases is recognized on a straight-line basis. The Company has elected the practical expedient to not separate lease components from nonlease components. As such, lease

expense includes these nonlease components, when applicable. Fixed lease expense is recognized on a straight-line basis over the lease term. Variable lease expense is recognized when incurred. The Company’s lease agreements do not contain any significant residual value guarantees or restrictive covenants. In some instances, the Company subleases its leased real estate facilities to third parties. The Company does not have significant financing leases.

The components of lease expense were as follows:



(in thousands)	Three Months Ended March 31, 2019
Operating lease cost	$	25,010
Short-term and month-to-month lease cost	4,813
Variable lease cost	4,356
Sublease income	(4,652		)
Total net lease cost	$	29,527

In connection with the sale of the KHE Campuses business, the Company is the guarantor of several leases for which it has established ROU assets and lease liabilities (see Note 15). Any lease cost or sublease income related to these leases is recorded in other non-operating income. The total net lease cost related to these leases was $0.3 million for the three months ended March 31, 2019.

Supplemental information related to leases was as follows:



(in thousands)	Three Months Ended March 31, 2019
Cash Flow Information:
Operating cash flows from operating leases (payments)	$	25,840
Right-of-use assets obtained in exchange for new operating lease liabilities (noncash)	30,410

	As of March 31, 2019
Balance Sheet Information:
Lease right-of-use assets	$	382,050

Current lease liabilities	$	82,429
Noncurrent lease liabilities	337,648
Total lease liabilities	$	420,077

Weighted average remaining lease term (years)	6.8
Weighted average discount rate	3.9		%

Maturities of lease liabilities were as follows:



(in thousands)	March 31, 2019
2019	$	73,800
2020	89,643
2021	72,055
2022	57,865
2023	49,787
Thereafter	137,671
Total payments	480,821
Less: Imputed interest	(60,744		)
Total	$	420,077

As of March 31, 2019, the Company has entered into operating leases, including educational and other facilities, that have not yet commenced that have minimum lease payments of $27.4 million. These operating leases will commence in fiscal years 2019 and 2020 with lease terms of 2 to 20 years.

Disclosure related to periods prior to the adoption of new lease accounting guidance

At December 31, 2018, future minimum rental payments under noncancelable operating leases approximate the following:



(in thousands)	December 31, 2018
2019	$	101,009
2020	84,945
2021	72,031
2022	53,709
2023	47,091
Thereafter	115,948
	$	474,733

Minimum payments have not been reduced by minimum sublease rentals of $66.0 million due in the future under noncancelable subleases.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

The Company reorganized its operations in the first quarter of 2018 into the following six operating segments for the purpose of making operating decisions and assessing performance: Higher Education, Professional (U.S.), Test Preparation, Kaplan International, Television Broadcasting and Healthcare (see Note 16). The reorganization changed the composition of the reporting units within the education division, and resulted in the reassignment of the assets and liabilities to the reporting units affected. The goodwill was allocated to the affected reporting units using the relative fair value approach. As a result of the reassignment and allocation, the Company performed an interim review of the carrying value of goodwill at the education division for possible impairment on both a pre and post-reorganization basis. No impairment of goodwill was indicated at the pre- and post-reorganization reporting units.

Amortization of intangible assets for the three months ended March 31, 2019 and 2018 ~~and 2017~~ was ~~$10.4~~$13.1 million and ~~$6.8~~$10.4 million, respectively. Amortization of intangible assets is estimated to be approximately ~~$31~~$38 million for the remainder of ~~2018, $40~~2019, $48 million in ~~2019,~~2020, $43 million in 2021, $37 million in ~~2020, $31~~2022, $30 million in ~~2021, $25 million in 2022~~2023 and ~~$67~~$54 million thereafter.

The changes in the carrying amount of goodwill, by segment, were as follows:


(in thousands)	Education				Television Broadcasting				Healthcare				Other Businesses				Total			Education				Television Broadcasting				Healthcare				Other Businesses				Total
Balance as of December 31, 2017
Balance as of December 31, 2018
Goodwill	$	1,171,812			$	190,815			$	69,409			$	233,825			$	1,665,861		$	1,128,699			$	190,815			$	69,626			$	255,024			$	1,644,164
Accumulated impairment losses	(350,850		)		—				—				(15,301		)		(366,151		)	(331,151		)		—				—				(15,301		)		(346,452		)
	820,962				190,815				69,409				218,524				1,299,710			797,548				190,815				69,626				239,723				1,297,712
Acquisitions	963				—				—				—				963			—				—				—				33,062				33,062
Dispositions	(11,191		)		—				—				—				(11,191		)
Foreign currency exchange rate changes	12,002				—				—				—				12,002			9,048				—				—				—				9,048
Balance as of March 31, 2018
Balance as of March 31, 2019
Goodwill	1,153,887				190,815				69,409				233,825				1,647,936			1,137,747				190,815				69,626				288,086				1,686,274
Accumulated impairment losses	(331,151		)		—				—				(15,301		)		(346,452		)	(331,151		)		—				—				(15,301		)		(346,452		)
	$	822,736			$	190,815			$	69,409			$	218,524			$	1,301,484		$	806,596			$	190,815			$	69,626			$	272,785			$	1,339,822

The changes in carrying amount of goodwill at the Company’s education division were as follows:


(in thousands)	Kaplan International				Higher Education				Test Preparation				Professional (U.S.)				Total			Kaplan International				Higher Education				Test Preparation				Professional (U.S.)				Total
Balance as of December 31, 2017
Balance as of December 31, 2018
Goodwill	$	615,861			$	389,853			$	166,098			$	—			$	1,171,812		$	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		)
	615,861				141,262				63,839				—				820,962			583,424				63,240				64,661				86,223				797,548
Reallocation, net (Note 16)	—				(66,791		)		—				66,791				—
Acquisitions	26				—				937				—				963
Dispositions	—				(11,191		)		—				—				(11,191		)
Foreign currency exchange rate changes	12,047				(40		)		—				(5		)		12,002			9,019				—				—				29				9,048
Balance as of March 31, 2018
Balance as of March 31, 2019
Goodwill	627,934				174,564				167,035				184,354				1,153,887			592,443				174,564				166,920				203,820				1,137,747
Accumulated impairment losses	—				(111,324		)		(102,259		)		(117,568		)		(331,151		)	—				(111,324		)		(102,259		)		(117,568		)		(331,151		)
	$	627,934			$	63,240			$	64,776			$	66,786			$	822,736		$	592,443			$	63,240			$	64,661			$	86,252			$	806,596

Other intangible assets consist of the following:

As of March 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
Amortized Intangible Assets
Student and customer relationships 2–10 years (1) $ 261,022
$ 91,658
$ 169,364
$ 260,464
$ 83,690
$ 176,774
Trade names and trademarks 2–10 years 50,858
26,917
23,941
50,286
25,596
24,690
Network affiliation agreements 10 years 17,400
2,103
15,297
17,400
1,668
15,732
Databases and technology 3–6 years 21,988
5,929
16,059
19,563
5,008
14,555
Noncompete agreements 2–5 years 1,105
580
525
930
467
463
Other 1–8 years 13,430
7,942
5,488
13,430
7,668
5,762
      $ 365,803
$ 135,129
$ 230,674
$ 362,073
$ 124,097
$ 237,976
Indefinite-Lived Intangible Assets



Trade names and trademarks    $ 84,966


$ 82,745


FCC licenses 18,800
18,800

Licensure and accreditation    150


650


   $ 103,916
$ 102,195

~~____________~~


~~(1)~~	~~As of December 31, 2017, the student and customer relationships’ minimum useful life was 1 year.~~



			As of March 31, 2019												As of December 31, 2018
(in thousands)	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 relationships	2–10 years		$	283,114			$	123,154			$	159,960			$	282,761			$	114,429			$	168,332
Trade names and trademarks	2–10 years		87,464				42,136				45,328				87,285				39,825				47,460
Network affiliation agreements	10 years		17,400				3,843				13,557				17,400				3,408				13,992
Databases and technology	3–6 years		27,059				9,702				17,357				27,041				8,471				18,570
Noncompete agreements	2–5 years		1,094				869				225				1,088				838				250
Other	1–8 years		24,530				10,701				13,829				24,530				9,873				14,657
			$	440,661			$	190,405			$	250,256			$	440,105			$	176,844			$	263,261
Indefinite-Lived Intangible Assets
Trade names and trademarks			$	81,607											$	80,102
Franchise agreements			28,000												—
FCC licenses			18,800												18,800
Licensure and accreditation			150												150
			$	128,557											$	99,052

7.8. DEBT

The Company’s borrowings consist of the following:


	As of							As of
	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
(in thousands)	March 31, 2018				December 31, 2017			March 31, 2019				December 31, 2018
7.25% unsecured notes due February 1, 2019	$	399,621			$	399,507
UK Credit facility ⁽¹⁾	98,006				93,671
5.75% unsecured notes due June 1, 2026 ⁽¹⁾								$	394,852			$	394,675
U.K. Credit facility ⁽²⁾								85,111				82,366
Commerical note								29,750				—
Other indebtedness	106				109			93				96
Total Debt	$	497,733			$	493,287		$	509,806			$	477,137
Less: current portion	(406,654		)		(6,726		)	(9,568		)		(6,360		)
Total Long-Term Debt	$	91,079			$	486,561		$	500,238			$	470,777

____________


(1)	The carrying value is net of ~~$0.4~~$5.1 million and $5.3 million of unamortized debt issuance costs as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


(2)	The carrying value is net of $0.2 million of unamortized debt issuance costs as of March 31, 2019 and December 31, 2018, respectively.

~~The Company's 7.25% unsecured notes due on February 1, 2019 are now classified as current liabilities at March 31, 2018.~~

The Company’s other indebtedness at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 is at an interest rate of 2% and matures in 2026.

On January 31, 2019, the Company’s automotive subsidiary entered into a Commercial Note with SunTrust Bank in an aggregate principal amount of $30 million. The Commercial Note is payable over a 10-year period in monthly installments of $0.25 million, plus accrued and unpaid interest, due on the first of each month, with a final payment on January 31, 2029. The Commercial Note bears interest at LIBOR plus an applicable interest rate of 1.75% or 2% per annum, in each case determined on a quarterly basis based upon the automotive subsidiary’s Adjusted Leverage Ratio. The Commercial Note contains terms and conditions, including remedies in the event of a default by the automotive subsidiary. On the same date, the Company’s automotive subsidiary entered into an interest rate swap agreement with a total notional value of $30 million and a maturity date of January 31, 2029. The interest rate swap agreement will pay the automotive subsidiary variable interest on the $30 million notional amount at the one-month LIBOR, and the automotive subsidiary will pay counterparties a fixed rate of 2.7%, effectively resulting in a total fixed interest rate of 4.7% on the outstanding borrowings at the current applicable margin of 2.0%. The interest rate swap agreement was entered into to convert the variable rate borrowing under the Commercial Note into a fixed rate borrowing. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap 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 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. The Company is in compliance with all financial covenants as of March 31, 2019.

During the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, the Company had average borrowings outstanding of approximately ~~$496.5~~$494.4 million and ~~$493.0~~$496.5 million, respectively, at average annual interest rates of approximately

~~6.2%~~ 5.1% and ~~6.3%~~6.2%, respectively. During the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, the Company incurred net interest expense of ~~$6.7~~$5.7 million and ~~$6.8~~$6.7 million,, respectively.

At March 31, ~~2018,~~2019, the fair value of the Company’s ~~7.25%~~5.75% unsecured notes, based on quoted market prices (Level 2 fair value assessment), totaled ~~$412.2~~$421.0 million, compared with the carrying amount of ~~$399.6~~$394.9 million. At December 31, ~~2017,~~2018, the fair value of the Company’s ~~7.25%~~5.75% unsecured notes, based on quoted market prices (Level 2 fair value assessment), totaled ~~$414.7~~$406.7 million, compared with the carrying amount of ~~$399.5~~$394.7 million. The carrying value of the Company’s other unsecured debt at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 approximates fair value.

8.

9. FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:


	As of March 31, 2018															As of March 31, 2019
(in thousands)	Level 1				Level 2				Level 3				Total			Level 1				Level 2				Total
Assets
Money market investments ⁽¹⁾	$	—			$	111,752			$	—			$	111,752		$	—			$	65,000			$	65,000
Marketable equity securities ⁽²⁾	471,703				—				—				471,703			510,307				—				510,307
Other current investments ⁽³⁾	12,715				7,031				—				19,746			10,608				7,027				17,635
Interest rate swap ⁽⁴⁾	—				11				—				11			—				190				190
Total Financial Assets	$	484,418			$	118,794			$	—			$	603,212		$	520,915			$	72,217			$	593,132
Liabilities
Deferred compensation plan liabilities ⁽⁵⁾	$	—			$	36,373			$	—			$	36,373		$	—			$	31,738			$	31,738
Mandatorily redeemable noncontrolling interest ⁽⁷⁾	—				—				10,331				10,331
Interest rate swap ⁽⁶⁾																—				275				275
Total Financial Liabilities	$	—			$	36,373			$	10,331			$	46,704		$	—			$	32,013			$	32,013


	As of December 31, 2017															As of December 31, 2018
(in thousands)	Level 1				Level 2				Level 3				Total			Level 1				Level 2				Total
Assets
Money market investments ⁽¹⁾	$	—			$	217,628			$	—			$	217,628		$	—			$	75,500			$	75,500
Marketable equity securities ⁽²⁾	536,315				—				—				536,315			496,390				—				496,390
Other current investments ⁽³⁾	9,831				11,007				—				20,838			11,203				6,988				18,191
Interest rate swap⁽⁴⁾																—				369				369
Total Financial Assets	$	546,146			$	228,635			$	—			$	774,781		$	507,593			$	82,857			$	590,450
Liabilities
Deferred compensation plan liabilities ⁽⁵⁾	$	—			$	43,414			$	—			$	43,414		$	—			$	36,080			$	36,080
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 and Cash Equivalents ~~and Restricted Cash~~ and the value considers the liquidity of the counterparty.


(2)	The Company’s investments in marketable equity securities are held in common shares of U.S. corporations that are actively traded on U.S. stock exchanges. Price quotes for these shares are readily available. ~~Investments in marketable securities were classified as available-for-sale in 2017 prior to the adoption of the new accounting guidance (see Note 1).~~


(3)	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 ~~valuation~~fair 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.~~

~~9. INCOME TAXES~~

The Tax Cuts and Jobs Act (the Tax Act) was enacted in December 2017, making significant changes to the Internal Revenue Code. The SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. SAB 118 allows the registrant to record provisional amounts during a measurement period not to extend

beyond one year of the enactment date. The ultimate impact may materially differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. In accordance with SAB 118, the Company has calculated a reasonable estimate of the impact of the Tax Act and recorded a provisional amount in its financial statements based on its understanding of the Tax Act and guidance available as of the date of this filing. The Company expects to complete its analysis within the measurement period in accordance with SAB 118.

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 Company estimates that it will 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.

Further, the Tax Act provides a 100% dividends received deduction for distributions from non-U.S. subsidiaries after December 31, 2017, subject to certain holding period requirements. 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 not yet decided whether to elect to record the GILTI tax regime as either a deferred tax accounting item or as a periodic tax expense. The company estimated the 2018 annual GILTI tax expense and included this current period GILTI tax provision estimate when determining the first quarter 2018 tax provision.

The valuation allowances established against deferred state income tax assets may increase or decrease within the next 12 months, based on operating results or the market value of investment holdings. The Company will be monitoring future 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 anticipates that the education division may release valuation allowances against state deferred tax assets of approximately $22.7 million within the next 12 months, as the education division may generate positive operating results that would support the realization of these deferred tax assets.

10. REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition. The ~~following table presents the~~ Company’s ~~revenues~~revenue disaggregated by revenue source was as follows:



	Three Months Ended March 31
(in thousands)	2019				2018
Education Revenue
Kaplan international	$	185,756			$	183,582
Higher education	82,780				99,830
Test preparation	61,150				59,151
Professional (U.S.)	41,214				33,356
Kaplan corporate and other	2,302				285
Intersegment elimination	(748		)		(705		)
	372,454				375,499
Television broadcasting	108,223				108,802
Manufacturing	115,157				117,406
Healthcare	37,728				37,621
SocialCode	13,447				13,299
Other	45,230				6,833
Intersegment elimination	(40		)		(24		)
Total Revenue	$	692,199			$	659,436

The Company generated 75% and 74% of its revenue from U.S. domestic sales for the three months ended March 31, 2019 and March 31, 2018, ~~and 2017:~~

Three Months Ended
March 31
(in thousands) 2018 2017
Education Revenue
Higher education $ 99,830
$ 111,111
Professional (U.S.) 33,356
33,199
Test preparation 59,151
64,568
Kaplan international 183,582
164,562
Kaplan corporate and other 285
14
Intersegment elimination (705 ) (557 )
375,499
372,897
Television broadcasting 108,802
91,496
Manufacturing 117,406
61,898
Healthcare 37,621
36,899
SocialCode 13,299
12,574
Other 6,833
6,953
Intersegment elimination (24 ) —
Total Revenue $ 659,436
$ 582,717

respectively. The ~~Company generated 74% of its revenues from U.S. domestic sales~~remaining 25% and 26% of revenue for the three months ended March 31, 2019 and March 31, 2018, respectively, was generated from non-U.S. sales.

InFor the ~~first quarter of~~three months ended March 31, 2019 and March 31, 2018, the Company recognized 76% and 81%, respectively, of its ~~revenues~~revenue over time as control of the services and goods transferred to the customer. The remaining 24% and 19%, respectively, of ~~revenues were~~revenue was recognized at a point in time, when the customer obtained control of the promised goods. ~~The determination of the method by which the Company measures its progress towards the satisfaction of its performance obligations requires judgment and is described below for each revenue stream.~~

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.~~ Education revenue is primarily derived from postsecondary education services, 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.

~~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. On March 22, 2018, Kaplan contributed the institutional assets and operations of KU to Purdue University Global (see Note 2). Subsequent to the transaction, KHE provides non-academic operations support services to Purdue University Global pursuant to the TOSA.

Higher education contracts consist either of one performance obligation that is a combination of distinct promises to a student, or two performance obligations if the student also enrolls in the Kaplan Tuition Cap. The Kaplan Tuition Cap establishes a maximum amount of tuition that KHE may charge students for higher education services. This effectively offers the student a discount on future higher education services, if exercised, and is accounted for as a material right. The transaction price of a higher education contract is stated in the contract and known at the time of contract inception, therefore no variable consideration exists. A portion of the transaction price is allocated to the material right, if applicable, based on the expected value method.

Higher education services revenue is recognized ratably over the instruction period. The Company generally uses the time elapsed method, an input measure, as it best depicts the simultaneous consumption and delivery of higher education services.

KHE provides first-time undergraduate students with a risk-free trial period through the Kaplan Commitment. The Company defers recognizing revenue related to services provided during the Kaplan Commitment timeframe as KHE does not have an enforceable right to payment during the trial period and therefore a valid contract does not exist.

KHE’s refund policy may permit students who do not complete a course to be eligible for a refund for the portion of the course they did not attend. The amount of the refund differs by school, program and state, as some states require different policies. Refunds generally result in a reduction of deferred revenue during the period that the student drops or withdraws from a class.

~~Kaplan Professional (U.S.) (KP):~~ KP provides professional training and exam preparation for professional certifications and licensures to students. KP contracts include promises for professional education services and course materials. Generally KP 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. KP 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. KP 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 at the point in time when control transfers to the student, generally when the products are delivered to the student.

~~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 access. At KTP, an estimate of average access period is developed for each course, and this estimate is evaluated on an ongoing basis and adjusted as necessary. KTP 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.

Revenue allocated to remaining performance obligations represents deferred revenue amounts that will be recognized as revenue in future periods. As of March 31, 2018, KTP’s deferred revenue balance related to certain medical and nursing qualifications with an original contract length greater than twelve months was $7.0 million. KTP expects to recognize 80% of this revenue over the next twelve months and the remainder thereafter.

~~Kaplan International (KI)~~. KI provides higher education, professional education, and test preparation services and materials to students primarily in the United Kingdom, Singapore, and Australia. Some KI contracts consist of one performance obligation that is a combination of indistinct promises to the student while other KI contracts include multiple performance obligations as the promises in the contract are both capable of being distinct and distinct within the context of the contract. One KI 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. KI 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. KI 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.

~~Television Broadcasting Revenues.~~ ~~Television broadcasting revenues at Graham Media Group (GMG) are primarily comprised of television and internet advertising revenues, and retransmission revenues.~~

~~Television Advertising Revenues~~. GMG accounts for the series of advertisements included in television advertising contracts as one performance obligation. GMG recognizes advertising revenue, net of agency commissions, 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 sixty days of revenue recognition.

~~Retransmission Revenues~~. Retransmission revenue represents compensation paid by cable, satellite and other multichannel video programming distributors (MVPDs) to retransmit GMG’s stations’ broadcasts in its designated market area. 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 sixty days of revenue recognition.

~~Manufacturing Revenues.~~ 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 c

ontract. 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 revenues are recognized ratably over the manufacturing period, if the product created for the customer does not 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 towards 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 29% of the manufacturing revenues recognized in the first quarter of 2018.

Other manufacturing revenues are 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 customer, even though the customer does not have physical possession of the goods. 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 ninety days of delivery.~~

The Company evaluated the terms of the warranties and guarantees offered by its manufacturing businesses and determined that these should not be accounted for as a separate performance obligation as a distinct service is not identified.

~~Healthcare Revenues.~~ 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 Company expects to receive in exchange for providing these services. As the transaction price for healthcare services is known at the time of contract inception, no variable consideration exists. Healthcare revenues are recognized ratably over the period of care. 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 sixty 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 Revenues~~. 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.

~~SocialCode Revenues.~~ 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 media acquisition costs, over time as media management services are delivered to the customer. Generally, SocialCode recognizes revenue using the right 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 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 forty-five days of revenue recognition.

SocialCode evaluates whether it is the principal (i.e. presents revenues on a gross basis) or agent (i.e. presents revenues on a net basis) in its contracts. SocialCode presents revenues 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 Revenues.~~ Other revenues primarily include advertising and circulation revenues from Slate, Panoply and Foreign Policy. The Company accounts for other advertising revenues consistently with the advertising revenue streams addressed above. Circulation revenues consist of fees that provide customers access to online and print publications. The Company recognizes circulation revenues 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.

~~Accounting 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.

~~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 the amount to which the Company has the right to invoice the customer for services performed and (iii) contracts for which the consideration received is a usage-based royalty promised in exchange for a license of intellectual property.

~~With the exception of the education division, the Company expenses costs to obtain a contract as incurred as all contracts are less than one year.~~

Deferred Revenue. The Company records deferred revenue when cash payments are received or due in advance of the Company’s performance, including amounts which are refundable. The following table presents the change in the ~~Company's~~Company’s deferred revenue ~~balance during~~balance:



	As of
	March 31, 2019				December 31, 2018			%
(in thousands)	March 31, 2019				December 31, 2018			Change
Deferred revenue	$	299,068			$	311,214		(4)

During the ~~period~~three months ended March 31, ~~2018:~~

As of
March 31,
2018 January 1,
2018 %
(in thousands) Change
Deferred revenue $ 298,543
$ 342,640
(13)

~~The majority of~~2019, the ~~change in the deferred revenue balance is~~Company recognized $163.7 million related ~~to the KU Transaction. During the first three months of 2018, $159.3 million of revenue was recognized relating~~ to the Company’s deferred revenue balance as of ~~January 1,~~December 31, 2018.

Revenue allocated to remaining performance obligations represents deferred revenue amounts that will be recognized as revenue in future periods. As of March 31, 2019, KTP’s deferred revenue balance related to certain medical and nursing qualifications with an original contract length greater than twelve months was $5.7 million. KTP expects to recognize 78% of this revenue over the next twelve months and the remainder thereafter.

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 practical expedient to expense sales commissions as incurred in instances where the amortization period is one year or less. The amortization period is defined in the guidance as the contract term, inclusive of any expected contract renewal

periods. The Company has elected to apply this practical expedient to all contracts except for contracts in its education division. In the education division costs to obtain a contract are amortized over the applicable amortization period except for cases in which commissions paid on initial contracts and renewals are commensurate. The Company amortizes these costs to obtain a contract on a straight line basis over the amortization period. These expenses are included as operating expenses in the Company’s Condensed Consolidated Statement of Operations.

The following table presents changes in the Company’s costs to obtain a contract ~~asset during the period ended March 31, 2018:~~asset:


(in thousands)	Balance at Beginning of Period				Costs associated with new contracts				Less: Costs amortized during the period				Other				Balance at End of Period			Balance at Beginning of Period				Costs associated with new contracts				Less: Costs amortized during the period				Other				Balance at End of Period
2018	$	19,178			$	11,575			$	(11,013	)		$	329			$	20,069
2019																				$	21,311			$	11,071			$	(11,936	)		$	466			$	20,912

The majority of other activity is related to currency translation adjustments during the ~~period~~three months ended March 31, ~~2018.~~2019.

11. EARNINGS PER SHARE

The Company’s unvested restricted stock awards contain nonforfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. The diluted earnings per share computed under the two-class method is lower than the diluted earnings per share computed under the treasury stock method, resulting in the presentation of the lower amount in diluted earnings per share. The computation of the earnings per share under the two-class method excludes the income attributable to the unvested restricted stock awards from the numerator and excludes the dilutive impact of those underlying shares from the denominator.

The following reflects the Company’s net income and share data used in the basic and diluted earnings per share computations using the two-class method:


	Three Months Ended March 31							Three Months Ended March 31
(in thousands, except per share amounts)	2018				2017			2019				2018
Numerator:
Numerator for basic earnings per share:
Net income attributable to Graham Holdings Company common stockholders	$	42,891			$	21,086		$	81,748			$	42,891
Less: Dividends paid-common stock outstanding and unvested restricted shares	(14,638		)		(14,202		)	(14,779		)		(14,638		)
Undistributed earnings	28,253				6,884			66,969				28,253
Percent allocated to common stockholders	99.30		%		99.04		%	99.43		%		99.30		%
	28,057				6,818			66,588				28,057
Add: Dividends paid-common stock outstanding	14,539				14,066			14,695				14,539
Numerator for basic earnings per share	$	42,596			$	20,884		$	81,283			$	42,596
Add: Additional undistributed earnings due to dilutive stock options	1				—			3				1
Numerator for diluted earnings per share	$	42,597			$	20,884		$	81,286			$	42,597
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding	5,436				5,535			5,284				5,436
Add: Effect of dilutive stock options	37				34			42				37
Denominator for diluted earnings per share	5,473				5,569			5,326				5,473
Graham Holdings Company Common Stockholders:
Basic earnings per share	$	7.84			$	3.77		$	15.38			$	7.84
Diluted earnings per share	$	7.78			$	3.75		$	15.26			$	7.78

Diluted earnings per share excludes the following weighted average potential common shares, as the effect would be antidilutive, as computed under the treasury stock method:


	Three Months Ended March 31					Three Months Ended March 31
(in thousands)	2018			2017		2019			2018
Weighted average restricted stock	28			28		10			28

The diluted earnings per share amounts for the three months ended March 31, ~~2018~~2019 and March 31, ~~2017~~2018 exclude the effects of 104,000 ~~and 102,000~~ stock options outstanding, as their inclusion would have been antidilutive due to a market condition. The diluted earnings per share amounts for the three months ended March 31, 2018 ~~and~~

~~March 31, 2017~~ exclude the effects of 5,250 ~~and 5,450~~ restricted stock awards ~~respectively,~~ as their inclusion would have been antidilutive due to a performance condition.

In the three months ended March 31, ~~2018,~~2019 and March 31, ~~2017,~~2018, the Company declared regular dividends totaling ~~$2.66~~$2.78 and ~~$2.54~~$2.66 per common share, respectively.

12. PENSION AND POSTRETIREMENT PLANS

In the first quarter of 2018, the Company adopted new guidance which requires the presentation of service cost in the same line item as other compensation costs arising from services by employees during the period, while the other components of the net periodic benefit are recognized in non-operating pension and postretirement benefit income in the Company's Condensed Consolidated Statement of Operations.

On March 22, 2018, the Company eliminated the accrual of pension benefits for certain 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 March 22, 2018, and the Company recorded a curtailment gain in the first quarter of 2018. The new measurement basis was used for the recognition of the ~~Company's~~Company’s pension benefit following the remeasurement. The curtailment gain on the Kaplan University transaction is included in the gain on the Kaplan University transaction and reported in Other income, net on the Condensed Consolidated Statement of Operations.

Defined Benefit Plans. The total benefit arising from the Company’s defined benefit pension plans consists of the following components:


	Three Months Ended March 31							Three Months Ended March 31
(in thousands)	2018				2017			2019				2018
Service cost	$	4,940			$	4,914		$	5,221			$	4,940
Interest cost	11,255				11,986			11,592				11,255
Expected return on assets	(32,486		)		(30,337		)	(30,838		)		(32,486		)
Amortization of prior service cost	42				43			409				42
Recognized actuarial gain	(1,046		)		(1,294		)	(37		)		(1,046		)
Net Periodic Benefit	(17,295		)		(14,688		)	(13,653		)		(17,295		)
Curtailment gain	(806		)		—			—				(806		)
Total Benefit	$	(18,101	)		$	(14,688	)	$	(13,653	)		$	(18,101	)

The total cost arising from the Company’s Supplemental Executive Retirement Plan (SERP) consists of the following components:


	Three Months Ended March 31							Three Months Ended March 31
(in thousands)	2018				2017			2019				2018
Service cost	$	205			$	214		$	214			$	205
Interest cost	966				1,058			1,078				966
Amortization of prior service cost	78				114			85				78
Recognized actuarial loss	601				444			579				601
Net Periodic Cost	$	1,850			$	1,830		$	1,956			$	1,850

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 plan were allocated as follows:


	As of					As of
	March 31, 2018			December 31, 2017		March 31, 2019			December 31, 2018
	March 31, 2018			December 31, 2017		March 31, 2019			December 31, 2018
U.S. equities	49	%		53	%	53	%		53	%
U.S. stock index fund	30	%		30	%	28	%		28	%
U.S. fixed income	12	%		11	%	13	%		13	%
International equities	9	%		6	%	6	%		6	%
	100	%		100	%	100	%		100	%

The Company manages approximately 45% 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 fixed income securities. The remaining 55% of plan assets are managed by two investment companies. The goal for the investments 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. One investment manager cannot invest more than 15% of the assets at the time of purchase in the stock of Alphabet and Berkshire Hathaway, no more than 25% of the assets it manages in specified international exchanges at the time the investment is made, and no less than 5% of the assets could be invested in fixed-income securities. The other investment ~~managers~~manager cannot invest more than 20% of the assets at the time of purchase in the

stock of Berkshire Hathaway, orno more than 15% of the assets it manages 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. Excluding the exceptions noted above, the investment managers cannot invest 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 from the Plan administrator. As of March 31, 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 March 31, ~~2018.~~2019. 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 March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the pension plan held investments in one common stock and one U.S. stock index fund that exceeded 10% of total plan assets. These

investments were valued at ~~$1,052.8~~$1,001.3 million and ~~$1,079.3~~$945.6 million at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, or approximately ~~45%~~43% and ~~46%~~45%, respectively, of total plan assets.

Other Postretirement Plans. The total cost arising from the Company’s other postretirement plans consists of the following components:


	Three Months Ended March 31							Three Months Ended March 31
(in thousands)	2018				2017			2019				2018
Service cost	$	268			$	257		$	—			$	268
Interest cost	170				195			72				170
Amortization of prior service credit	(44		)		(37		)	(1,841		)		(44		)
Recognized actuarial gain	(922		)		(973		)	(1,090		)		(922		)
Net Periodic Benefit	$	(528	)		$	(558	)	$	(2,859	)		$	(528	)

13. OTHER NON-OPERATING INCOME

A summary of non-operating income is as follows:


		Three Months Ended March 31							Three Months Ended March 31
(in thousands)		2018				2017			2019				2018
Gain (loss) on sales of businesses		$	5,907			$	(342	)
Gain on sale of an equity affiliate									$	28,994			$	—
Foreign currency gain, net									514				177
Gain on sales of businesses									189				5,907
Gain on sale of a cost method investment		2,845				—			—				2,845
Foreign currency gain, net		177				1,728
Other, net		258				(537		)	(346		)		258
Total Other Non-Operating Income		$	9,187			$	849		$	29,351			$	9,187

In the first quarter of 2019, the Company recorded a $29.0 million gain on the sale of the Company’s interest in Gimlet Media.

In the first quarter of 2018, the Company recorded a $5.9 million gain on the sale of two businesses in the education division, including a gain of $4.3 million on the Kaplan University transaction (see Note 2).

14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The other comprehensive income consists of the following components:


	Three Months Ended March 31																							Three Months Ended March 31
	2018												2017											2019												2018
	Before-Tax				Income				After-Tax				Before-Tax				Income				After-Tax			Before-Tax				Income				After-Tax				Before-Tax				Income				After-Tax
(in thousands)	Amount				Tax				Amount				Amount				Tax				Amount			Amount				Tax				Amount				Amount				Tax				Amount
Foreign currency translation adjustments:
Translation adjustments arising during the period	$	11,564			$	—			$	11,564			$	13,668			$	—			$	13,668		$	10,033			$	—			$	10,033			$	11,564			$	—			$	11,564
Unrealized gains on available-for-sale securities:
Unrealized gains for the period, net	—				—				—				9,558				(3,823		)		5,735
Pension and other postretirement plans:
Amortization of net prior service cost included in net income	76				(21		)		55				120				(48		)		72
Amortization of net prior service (credit) cost included in net income																								(1,347		)		364				(983		)		76				(21		)		55
Amortization of net actuarial gain included in net income	(1,367		)		369				(998		)		(1,823		)		729				(1,094		)	(548		)		147				(401		)		(1,367		)		369				(998		)
	(1,291		)		348				(943		)		(1,703		)		681				(1,022		)	(1,895		)		511				(1,384		)		(1,291		)		348				(943		)
Cash flow hedge:
Gain (loss) for the period	236				(45		)		191				(124		)		25				(99		)
Cash flow hedges:
(Loss) gain for the period																								(467		)		108				(359		)		236				(45		)		191
Other Comprehensive Income	$	10,509			$	303			$	10,812			$	21,399			$	(3,117	)		$	18,282		$	7,671			$	619			$	8,290			$	10,509			$	303			$	10,812

The accumulated balances related to each component of other comprehensive income (loss) 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
Balance as of December 31, 2017 $ 6,314
$ 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 income before reclassifications 11,564
—
—
189
11,753
Net amount reclassified from accumulated other comprehensive income (loss) —
—
(943 ) 2
(941 )
Other comprehensive income (loss), net of tax 11,564
—
(943 ) 191
10,812
Balance as of March 31, 2018 $ 17,878
$ —
$ 333,593
$ 7
$ 351,478



(in thousands, net of taxes)	Cumulative Foreign Currency Translation Adjustment				Unrealized Gain on Pensions and Other Postretirement Plans				Cash Flow Hedges				Accumulated Other Comprehensive Income
Balance as of December 31, 2018	$	(29,270	)		$	232,836			$	263			$	203,829
Other comprehensive income (loss) before reclassifications	10,033				—				(305		)		9,728
Net amount reclassified from accumulated other comprehensive income (loss)	—				(1,384		)		(54		)		(1,438		)
Other comprehensive income (loss), net of tax	10,033				(1,384		)		(359		)		8,290
Balance as of March 31, 2019	$	(19,237	)		$	231,452			$	(96	)		$	212,119

The amounts and line items of reclassifications out of Accumulated Other Comprehensive Income (Loss) are as follows:


	Three Months Ended March 31								Affected Line Item in the Condensed Consolidated Statement of Operations	Three Months Ended March 31								Affected Line Item in the Condensed Consolidated Statements of Operations
	Three Months Ended March 31									Three Months Ended March 31
(in thousands)	2018				2017					2019				2018
Pension and Other Postretirement Plans:
Amortization of net prior service cost	$	76			$	120			(1)
Amortization of net prior service (credit) cost										$	(1,347	)		$	76			(1)
Amortization of net actuarial gain	(1,367		)		(1,823		)		(1)	(548		)		(1,367		)		(1)
	(1,291		)		(1,703		)		Before tax	(1,895		)		(1,291		)		Before tax
	348				681				Provision for Income Taxes	511				348				Provision for Income Taxes
	(943		)		(1,022		)		Net of Tax	(1,384		)		(943		)		Net of Tax
Cash Flow Hedge
Cash Flow Hedges
	3				31				Interest expense	(69		)		3				Interest expense
	(1		)		(6		)		Provision for Income Taxes	15				(1		)		Provision for Income Taxes
	2				25				Net of Tax	(54		)		2				Net of Tax
Total reclassification for the period	$	(941	)		$	(997	)		Net of Tax	$	(1,438	)		$	(941	)		Net of Tax

____________


(1)	These accumulated other comprehensive income components are components of net periodic pension and postretirement plan cost (see Note 12) and are included in non-operating pension and postretirement benefit income in the ~~Company's~~Company’s Condensed Consolidated Statements of Operations.

15. 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 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. However, based on currently available information, management believes it is reasonably possible that future losses from existing and threatened legal, regulatory and other proceedings in excess of the amounts recorded could reach approximately ~~$30~~$45 million.

During 2014, certain Kaplan subsidiaries were subject to 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. government 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 remaining case is captioned United States of America ex rel. Carlos Urquilla-Diaz et al. v. Kaplan University et al. (unsealed March 25, 2008). 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 Gillespie’s claims. The appellate court

also dismissed three of the four Diaz claims, but reversed and remanded on Diaz’s claim that incentive compensation for admissions representatives was improperly based solely on enrollment counts. Kaplan filed an answer to Diaz’s amended complaint on September 11, 2015. Kaplan filed a motion to dismiss Diaz’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. 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. In April 2019, the Circuit Court of Appeals affirmed the District Court’s summary judgment in full.

On September 3, 2015, Kaplan sold to ECA substantially all of the assets of KHE nationally accredited on-ground Title IV eligible schools (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. 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. The Company continues to monitor the status of these obligations and there was no significant change to estimated losses in the first quarter of 2019.

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 ~~2018~~2017 and earlier years, which have been paid by Kaplan. In September 2017, in a case captioned Kaplan ~~has~~International Colleges UK Limited v. The Commissioners for Her Majesty’s Revenue and Customs, Kaplan challenged these ~~assessments and the case is currently on appeal to a tax tribunal with a hearing expected later in 2018 or 2019.~~assessments. The Company believes it has met all requirements under U.K. VAT law and expects to recover the ~~£12.0~~£16.1 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 ~~£12.0~~£16.1 million will be recorded to operating expense in the Company’s condensed consolidated statement 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 U.K. Pathways business adversely if this guidance were to become law. As of March 31, 2019, this guidance had not 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.

Department of Education (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 (KU). The review will assess Kaplan’s~~assessing KU’s administration of its Title IV and Higher Education Act programs during the 2013-2014 and ~~will initially focus on~~2014-2015 award years. In 2018, Kaplan contributed the ~~2013~~institutional assets and operations of KU to ~~2014~~Purdue 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, KU received a notice from~~years, 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 KU of any negative findings. However, at this time, Kaplan~~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 ~~any~~other requirements will impact KHE’s operations, or what liability or other limitations ~~that~~ the ED ~~may~~might place on KUKHE or Purdue Global as a result of this review.

~~In addition, there~~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 (ECA), and we await the~~ECA. The ED’s final reports on the program reviews at former KHE Broomall, ~~PA;~~PA, and Pittsburgh, PA, ~~locations. Kaplan~~locations are pending. KHE retains responsibility for any financial ~~obligation~~obligations resulting from ~~the ED~~these program ~~reviews at KU University and 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.

16. BUSINESS SEGMENTS

The Company ~~reorganized its operations in the first quarter of 2018 into the following~~has six reportable ~~segments for the purpose of making operating decisions and assessing performance:~~segments: Kaplan International, Kaplan Higher Education, Kaplan ~~Professional (U.S.), Kaplan~~ Test Preparation, Kaplan ~~International,~~Professional (U.S.), Television Broadcasting and Healthcare.

As a result of the Kaplan University transaction, Kaplan reorganized its higher education operations into the following two operating segments: Higher Education and Professional (U.S.). The higher education segment comprises the historical KU for-profit postsecondary education business and the future non-academic operations support services provided to the new university, Purdue University Global. The Professional (U.S.) segment comprises the KU School of Professional and Continuing Education, which provides professional training and exam preparation for professional certifications and licensures.

The business segments disclosed in the condensed consolidated financial statements are based on this new organizational structure and information reviewed by the Company's management to evaluate the business segment results. Segment operating results for the first quarter of 2017 have been restated to reflect this organizational change. Additionally, the Company includes the comparative results of the Company's segments for each quarter in fiscal year 2017 as well as fiscal years 2017 and 2016.

The following table summarizes the ~~quarterly~~ financial information related to each of the Company’s business segments:


		Three Months Ended																				Three months ended
		March 31,				March 31,				June 30,				September 30,				December 31,				March 31
(in thousands)		2018				2017				2017				2017				2017				2019				2018
Operating Revenues
Education		$	375,499			$	372,897			$	386,499			$	376,805			$	380,575			$	372,454			$	375,499
Television broadcasting		108,802				91,496				106,102				101,295				111,023				108,223				108,802
Healthcare		37,621				36,899				38,220				40,473				38,610				37,728				37,621
Other businesses		137,538				81,425				145,266				138,652				145,660				173,834				137,538
Corporate office		—				—				—				—				—				—				—
Intersegment elimination		(24		)		—				—				—				(51		)		(40		)		(24		)
		$	659,436			$	582,717			$	676,087			$	657,225			$	675,817			$	692,199			$	659,436
Income (Loss) from Operations
Education		$	22,700			$	9,437			$	33,331			$	13,797			$	21,122			$	25,595			$	22,700
Television broadcasting		40,542				26,483				39,777				33,462				39,536				35,540				40,542
Healthcare		(1,391		)		(926		)		384				920				(2,947		)		2,329				(1,391		)
Other businesses		(3,695		)		(9,638		)		(9,302		)		(7,021		)		6,698				(9,237		)		(3,695		)
Corporate office		(13,942		)		(15,103		)		(14,449		)		(14,208		)		(14,950		)		(14,224		)		(13,942		)
		$	44,214			$	10,253			$	49,741			$	26,950			$	49,459			$	40,003			$	44,214
Equity in Earnings (Losses) of Affiliates, Net		2,579				649				1,331				(532		)		(4,697		)
Equity in Earnings of Affiliates, Net																						1,679				2,579
Interest Expense, Net		(6,699		)		(6,766		)		(7,862		)		(7,758		)		(4,919		)		(5,725		)		(6,699		)
Non-Operating Pension and Postretirement Benefit Income, Net		21,386				18,801				18,620				17,621				17,657				19,928				21,386
Loss on Marketable Equity Securities, Net		(14,102		)		—				—				—				—
Other Income (Expense), Net		9,187				849				4,069				1,963				(2,640		)
Gain (Loss) on Marketable Equity Securities, Net																						24,066				(14,102		)
Other Income, Net																						29,351				9,187
Income Before Income Taxes		$	56,565			$	23,786			$	65,899			$	38,244			$	54,860			$	109,302			$	56,565
Depreciation of Property, Plant and Equipment
Education		$	7,606			$	8,584			$	8,325			$	8,085			$	7,912			$	6,201			$	7,606
Television broadcasting		3,071				2,594				2,991				3,118				3,476				3,239				3,071
Healthcare		653				1,069				1,194				1,166				1,154				610				653
Other businesses		3,059				2,115				3,070				3,354				3,184				3,233				3,059
Corporate office		253				290				291				279				258				240				253
		$	14,642			$	14,652			$	15,871			$	16,002			$	15,984			$	13,523			$	14,642
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
Amortization of Intangible Assets
Education		$	1,149			$	1,120			$	1,323			$	1,355			$	1,364			$	3,567			$	1,149
Television broadcasting		1,408				902				970				1,071				3,406				1,408				1,408
Healthcare		1,808				1,654				1,644				2,420				2,187				1,398				1,808
Other businesses		6,019				3,160				15,818				6,389				6,018				6,687				6,019
Corporate office		—				—				—				—				—				—				—
		$	10,384			$	6,836			$	19,755			$	11,235			$	12,975			$	13,060			$	10,384
Pension Expense
Pension Service Cost
Education		$	2,664			$	2,706			$	2,153			$	2,430			$	2,431			$	2,664			$	2,664
Television broadcasting		493				493				479				485				485				731				493
Healthcare		122				166				166				166				167				183				122
Other businesses		289				317				249				277				282				474				289
Corporate office		1,372				1,232				1,544				1,233				1,226				1,169				1,372
		$	4,940			$	4,914			$	4,591			$	4,591			$	4,591			$	5,221			$	4,940

~~The following table summarizes annual financial information related to each of the Company's business segments:~~

(in thousands) 2017 2016
Operating Revenues
Education $ 1,516,776
$ 1,598,461
Television broadcasting 409,916
409,718
Healthcare 154,202
146,962
Other businesses 511,003
326,888
Corporate office —
—
Intersegment elimination (51 ) (139 )
   $ 2,591,846
$ 2,481,890
Income (Loss) from Operations
Education $ 77,687
$ 95,321
Television broadcasting 139,258
202,863
Healthcare (2,569 ) 2,799
Other businesses (19,263 ) (24,901 )
Corporate office (58,710 ) (53,213 )
   $ 136,403
$ 222,869
Equity in Losses of Affiliates, Net (3,249 ) (7,937 )
Interest Expense, Net (27,305 ) (32,297 )
Non-Operating Pension and Postretirement Benefit Income, Net 72,699
80,665
Other Income (Expense), Net 4,241
(12,642 )
Income Before Income Taxes $ 182,789
$ 250,658
Depreciation of Property, Plant and Equipment
Education $ 32,906
$ 41,187
Television broadcasting 12,179
9,942
Healthcare 4,583
2,805
Other businesses 11,723
9,570
Corporate office 1,118
1,116
   $ 62,509
$ 64,620
Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets
Education $ 5,162
$ 7,516
Television broadcasting 6,349
251
Healthcare 7,905
6,701
Other businesses 31,385
13,806
Corporate office —
—
   $ 50,801
$ 28,274
Pension Expense
Education $ 9,720
$ 11,803
Television broadcasting 1,942
1,714
Healthcare 665
—
Other businesses 1,125
1,118
Corporate office 5,235
5,826
   $ 18,687
$ 20,461

Asset information for the Company’s business segments are as follows:


	As of
	March 31,				December 31,			As of
(in thousands)	2018				2017			March 31, 2019				December 31, 2018
Identifiable Assets
Education	$	1,577,217			$	1,592,097		$	1,853,208			$	1,568,747
Television broadcasting	451,070				455,884			467,270				452,853
Healthcare	125,041				129,856			115,622				108,596
Other businesses	789,771				855,399			951,773				827,113
Corporate office	140,396				182,905			141,343				162,971
	$	3,083,495			$	3,216,141		$	3,529,216			$	3,120,280
Investments in Marketable Equity Securities	471,703				536,315			510,307				496,390
Investments in Affiliates	131,887				128,590			140,127				143,813
Prepaid Pension Cost	1,073,873				1,056,777			1,017,584				1,003,558
Total Assets	$	4,760,958			$	4,937,823		$	5,197,234			$	4,764,041

The ~~following table summaries the quarterly financial information related to the operating segments of the~~ Company’s education ~~division:~~division comprises the following operating segments:


		Three Months Ended																			Three months ended
		March 31,				March 31,				June 30,				September 30,				December 31,			March 31
(in thousands)		2018				2017				2017				2017				2017			2019				2018
Operating Revenues
Kaplan international		$	183,582			$	164,562			$	171,747			$	171,259			$	190,431		$	185,756			$	183,582
Higher education		99,830				111,111				111,840				105,210				103,264			82,780				99,830
Test preparation		59,151				64,568				75,730				72,680				60,320			61,150				59,151
Professional (U.S.)		33,356				33,199				27,364				28,249				27,027			41,214				33,356
Kaplan corporate and other		285				14				57				49				174			2,302				285
Intersegment elimination		(705		)		(557		)		(239		)		(642		)		(641		)	(748		)		(705		)
		$	375,499			$	372,897			$	386,499			$	376,805			$	380,575		$	372,454			$	375,499
Income (Loss) from Operations
Kaplan international		$	20,404			$	7,707			$	15,954			$	5,348			$	22,614		$	24,285			$	20,404
Higher education		1,355				2,446				13,140				1,493				(360		)	1,915				1,355
Test preparation		521				(2,864		)		5,741				7,330				1,300			(454		)		521
Professional (U.S.)		9,315				10,158				4,571				7,316				5,513			11,259				9,315
Kaplan corporate and other		(8,895		)		(8,063		)		(6,045		)		(7,631		)		(8,124		)	(11,404		)		(8,895		)
Intersegment elimination		—				53				(30		)		(59		)		179			(6		)		—
		$	22,700			$	9,437			$	33,331			$	13,797			$	21,122		$	25,595			$	22,700
Depreciation of Property, Plant and Equipment
Kaplan international		$	3,974			$	3,682			$	3,609			$	3,780			$	3,821		$	3,882			$	3,974
Higher education		1,858				2,648				2,484				2,010				1,975			597				1,858
Test preparation		978				1,341				1,332				1,407				1,206			805				978
Professional (U.S.)		642				783				765				758				735			865				642
Kaplan corporate and other		154				130				135				130				175			52				154
		$	7,606			$	8,584			$	8,325			$	8,085			$	7,912		$	6,201			$	7,606
Amortization of Intangible Assets		$	1,149			$	1,120			$	1,323			$	1,355			$	1,364		$	3,567			$	1,149
Pension Expense
Pension Service Cost
Kaplan international		$	83			$	87			$	87			$	24			$	66		$	117			$	83
Higher education		1,406				1,742				1,742				467				1,318			1,163				1,406
Test preparation		729				911				911				244				689			866				729
Professional (U.S.)		290				302				302				81				228			348				290
Kaplan corporate and other		156				(336		)		(889		)		1,614				130			170				156
		$	2,664			$	2,706			$	2,153			$	2,430			$	2,431		$	2,664			$	2,664

~~The following table summarizes annual financial information related to the reportable segments of the Company's education division segments:~~

(in thousands) 2017 2016
Operating Revenues
Kaplan international $ 697,999
$ 696,362
Higher education 431,425
501,784
Test preparation 273,298
286,556
Professional (U.S.) 115,839
115,263
Kaplan corporate and other 294
214
Intersegment elimination (2,079 ) (1,718 )
   $ 1,516,776
$ 1,598,461
Income (Loss) from Operations
Kaplan international $ 51,623
$ 48,398
Higher education 16,719
39,196
Test preparation 11,507
9,599
Professional (U.S.) 27,558
27,436
Kaplan corporate and other (29,863 ) (29,279 )
Intersegment elimination 143
(29 )
   $ 77,687
$ 95,321
Depreciation of Property, Plant and Equipment
Kaplan international $ 14,892
$ 17,523
Higher education 9,117
13,816
Test preparation 5,286
6,287
Professional (U.S.) 3,041
3,006
Kaplan corporate and other 570
555
   $ 32,906
$ 41,187
Amortization of Intangible Assets $ 5,162
$ 7,516
Pension Expense
Kaplan international $ 264
$ 268
Higher education 5,269
6,544
Test preparation 2,755
3,072
Professional (U.S.) 913
1,076
Kaplan corporate and other 519
843
   $ 9,720
$ 11,803

Asset information for the Company’s education division is as follows:


	As of
	March 31,				December 31,			As of
(in thousands)	2018				2017			March 31, 2019				December 31, 2018
Identifiable assets
Kaplan international	$	1,147,327			$	1,115,919		$	1,273,080			$	1,101,040
Higher education	172,215				231,986			182,909				126,752
Test preparation	140,793				130,938			159,620				145,308
Professional (U.S.)	90,812				91,630			170,395				166,916
Kaplan corporate and other	26,070				21,624			67,204				28,731
	$	1,577,217			$	1,592,097		$	1,853,208			$	1,568,747

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition.

This analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto.

Results of Operations

The Company reported net income attributable to common shares of $81.7 million ($15.26 per share) for the first quarter of 2019, compared to $42.9 million ($7.78 per share) for the first quarter of ~~2018, compared to $21.1 million ($3.75 per share)~~2018.

Items included in the Company’s net income for the first quarter of ~~2017.~~2019:

a $1.8 million reduction to operating expenses from property, plant and equipment gains in connection with the spectrum repacking mandate of the FCC (after-tax impact of $1.4 million, or $0.26 per share);

$24.1 million in net gains on marketable equity securities (after-tax impact of $18.0 million, or $3.37 per share);

$29.0 million gain from the sale of Gimlet Media (after-tax impact of $21.7 million, or $4.06 per share);

$0.5 million in non-operating foreign currency gains (after-tax impact of $0.4 million, or $0.07 per share); and

$1.7 million in income tax benefits related to stock compensation ($0.32 per share).

Items included in the Company’s net income for the first quarter of 2018:

a ~~$4.3~~$0.3 million ~~gain on~~ reduction to operating expenses from property, plant and equipment gains in connection with the ~~Kaplan University Transaction~~spectrum repacking mandate of the FCC (after-tax impact of ~~$1.8~~$0.2 million, or ~~$0.33~~$0.04 per share);

$14.1 million in net losses on marketable equity securities (after-tax impact of ~~$10.7~~$10.7 million, or ~~$1.94~~$1.94 per share);

non-operating gain, net, of $4.4 million from sales of a cost method investment and a business (after-tax impact of $3.6 million, or $0.65 per share);

a $4.3 million gain on the Kaplan University Transaction (after-tax impact of $1.8 million, or $0.33 per share);

$0.2 million in non-operating foreign currency gains (after-tax impact of ~~$0.1~~$0.1 million, or ~~$0.02~~$0.02 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 the first quarter of 2017:~~

~~$1.7 million~~ ~~in non-operating foreign currency gains (after-tax impact of~~ ~~$1.1 million, or~~ ~~$0.19~~ ~~per share); and~~

~~$5.9 million~~ ~~in income tax benefits related to stock compensation ($1.06~~ ~~per share).~~

Revenue for the first quarter of ~~2018~~2019 was ~~$659.4~~$692.2 million, up ~~13%~~5% from ~~$582.7~~$659.4 million in the first quarter of ~~2017. The revenue increase is due largely to growth~~2018. Revenues grew at other businesses, partially offset by declines at the education, television broadcasting, and manufacturing ~~businesses.~~divisions. The Company reported operating income of $40.0 million for the first quarter of 2019, compared to $44.2 million for the first quarter of ~~2018, compared to $10.3 million for the first quarter of 2017.~~2018. The operating income ~~increase~~decline is driven by ~~higher~~lower earnings atin the ~~education,~~ television broadcasting and manufacturing ~~businesses.~~

~~On April 27, 2017, certain subsidiaries of Kaplan, Inc. (Kaplan), a subsidiary of Graham Holdings Company entered into a Contribution~~divisions, partially offset by improvements in education 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 Transition and Operations Support Agreement (TOSA) pursuant to which Kaplan will provide key non-academic operations support to the new university. The new university will operate almost exclusively online as a new Indiana public university affiliated with Purdue under the name Purdue University Global (Purdue Global).healthcare division results.

Division Results

Education

Education division revenue totaled ~~$375.5~~$372.5 million for the first quarter of ~~2018, up~~2019, down 1% from ~~$372.9~~$375.5 million for the same period of ~~2017.~~2018. Kaplan reported operating income of $25.6 million for the first quarter of 2019, up 13% from $22.7 million for the first quarter of ~~2018, compared to $9.4 million for the first quarter of 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.).2018.

A summary of Kaplan’s operating results is as follows:


	Three Months Ended											Three Months Ended
	March 31											March 31
(in thousands)	2018				2017				% Change			2019				2018				% Change
Revenue
Kaplan international	$	183,582			$	164,562			12			$	185,756			$	183,582			1
Higher education	99,830				111,111				(10	)		82,780				99,830				(17	)
Test preparation	59,151				64,568				(8	)		61,150				59,151				3
Professional (U.S.)	33,356				33,199				—			41,214				33,356				24
Kaplan corporate and other	285				14				—			2,302				285				—
Intersegment elimination	(705		)		(557		)		—			(748		)		(705		)		—
	$	375,499			$	372,897			1			$	372,454			$	375,499			(1	)
Operating Income (Loss)
Kaplan international	$	20,404			$	7,707			—			$	24,285			$	20,404			19
Higher education	1,355				2,446				(45	)		1,915				1,355				41
Test preparation	521				(2,864		)		—			(454		)		521				—
Professional (U.S.)	9,315				10,158				(8	)		11,259				9,315				21
Kaplan corporate and other	(7,746		)		(6,943		)		(12	)		(7,837		)		(7,746		)		(1	)
Amortization of intangible assets	(1,149		)		(1,120		)		(3	)		(3,567		)		(1,149		)		—
Intersegment elimination	—				53				—			(6		)		—				—
	$	22,700			$	9,437			—			$	25,595			$	22,700			13

Kaplan International includes English-language programs, and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased ~~12%~~1% for the first ~~quarter; 3% on~~quarter of 2019. On a constant currency ~~basis.~~basis, revenue increased 7% for the first quarter of 2019. Operating income increased to $24.3 million in the first quarter of 2019, compared to $20.4 million in the first quarter of ~~2018, compared to $7.7 million in the first quarter of 2017~~2018. Revenue and operating income increased due to improved results at Pathways and UK Professional, ~~MPW and English-language.~~ offset by declines in Singapore.

Prior to the KU Transaction closing on March 22, 2018, Higher Education included Kaplan’s domestic postsecondary education businesses, 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 the first quarter of ~~2018,~~2019, Higher Education revenue was down ~~10% and operating results declined,~~17% due ~~largely~~ to the ~~sale~~KU Transaction. In the first quarter of KU2019, the Company recorded a portion of the service fee with Purdue Global based on ~~March 22, 2018~~an assessment of its collectability under the TOSA. The Company will continue to assess the collectability of the service fee with Purdue Global on a quarterly basis to make a determination as to whether to record all or part of the service fee in the future and ~~fewer average enrollments at KU prior~~whether to ~~the sale.~~make adjustments to service fee amounts recognized in earlier periods.

Kaplan Test Preparation (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 8%~~increased 3% for the first quarter of ~~2018~~2019 due to the ~~disposition~~Barron’s acquisition. Excluding revenue from the Barron’s acquisition, revenues were down 5% for the first quarter of ~~Dev Bootcamp, which made up the majority of KTP's new economy skills training programs, and soft enrollments~~2019, due to declines in ~~certain preparation~~demand for classroom-based offerings, offset in part by growth in online-based programs. ~~In comparison to 2017,~~ KTP operating results ~~improved~~declined in the first quarter of ~~2018,~~2019, due ~~mostly~~partly to ~~decreased~~increased losses from the new economy skills training programs. Operating losses for the new economy skills training programs were ~~$0.5~~$1.1 million and ~~$3.8~~$0.5 million for the first ~~three months~~quarter of 2019 and 2018, ~~and 2017,~~ respectively. ~~Dev Bootcamp was closed~~Excluding losses from the new economy skills training programs, KTP operating results were down in the ~~second half~~first quarter of ~~2017.~~2019, due primarily to revenue declines for classroom-based offerings.

Kaplan Professional (U.S.) includes the domestic professional and other continuing education businesses. In the first quarter of ~~2018,~~2019, Kaplan Professional (U.S.) revenue was ~~even with~~up 24% due mostly 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 increased 21% for the first quarter of ~~2017, while operating results declined 8%,~~2019 due mostly to ~~increased spending on sales~~earnings from PPI and ~~technology.~~CFFP.

Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities.

Television Broadcasting

Revenue at the television broadcasting division ~~increased 19%~~decreased 1% to ~~$108.8~~$108.2 million in the first quarter of ~~2018,~~2019, from ~~$91.5~~$108.8 million in the same period of ~~2017~~2018. The revenue decline is due ~~primarily~~ to $8.6 million in first quarter 2018 incremental winter Olympics-related advertising revenue at the ~~Company's~~Company’s NBC affiliates and ~~an $8.2~~a $1.6 million ~~increase~~decrease in political advertising revenue, offset by $9.7 million in higher retransmission revenues. Operating income for the first quarter of ~~2018 increased 53%~~2019 declined 12% to ~~$40.5~~$35.5 million, from ~~$26.5~~$40.5 million in the same period of ~~2017~~2018, due to ~~higher revenues. The Company's~~lower revenues and increased network fees.

In the first quarter of 2019 and 2018, the television broadcasting ~~stations operate under~~division recorded $1.8 million and $0.3 million, respectively, 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.

In March 2019, the Company’s television station in Orlando (WKMG) entered into a ~~retransmission contract~~new network affiliation agreement with ~~Comcast~~CBS that ~~was effective on~~covers the period April ~~1, 2017.~~7, 2019 through June 30, 2022.

Healthcare

The 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 ~~increased 2%~~were flat in the first ~~three months~~quarter of ~~2018, while~~2019. The improvement in GHG operating results ~~were down,~~in 2019 is due ~~largely~~ to ~~continued~~the absence of integration ~~costs.~~costs and other overall cost reduction in the first quarter of 2019.

Other Businesses

A summary of Other Businesses’ operating results is as follows:


		Three Months Ended										Three Months Ended
		March 31								%		March 31								%
(in thousands)		2018				2017				Change		2019				2018				Change
Operating Revenues
Manufacturing		$	117,406			$	61,898			90		$	115,157			$	117,406			(2	)
SocialCode		13,299				12,574				6		13,447				13,299				1
Other		6,833				6,953				(2	)	45,230				6,833				—
		$	137,538			$	81,425			69		$	173,834			$	137,538			26
Operating Expenses
Manufacturing		$	108,778			$	58,233			87		$	111,883			$	108,778			3
SocialCode		17,080				17,082				—		17,465				17,080				2
Other		15,375				15,748				(2	)	53,723				15,375				—
		$	141,233			$	91,063			55		$	183,071			$	141,233			30
Operating Income (Loss)
Manufacturing		$	8,628			$	3,665			—		$	3,274			$	8,628			(62	)
SocialCode		(3,781		)		(4,508		)		16		(4,018		)		(3,781		)		(6	)
Other		(8,542		)		(8,795		)		3		(8,493		)		(8,542		)		1
		$	(3,695	)		$	(9,638	)		62		$	(9,237	)		$	(3,695	)		—
Depreciation
Manufacturing		$	2,451			$	1,508			63		$	2,433			$	2,451			(1	)
SocialCode		233				246				(5	)	152				233				(35	)
Other		375				361				4		648				375				73
		$	3,059			$	2,115			45		$	3,233			$	3,059			6
Amortization of Intangible Assets
Manufacturing		$	5,936			$	3,077			93		$	6,530			$	5,936			10
SocialCode		83				83				—		157				83				89
Other		—				—				—		—				—				—
		$	6,019			$	3,160			90		$	6,687			$	6,019			11
Pension Expense
Manufacturing		$	17			$	25			(32	)	$	25			$	17			47
SocialCode		156				154				1		248				156				59
Other		116				138				(16	)	201				116				73
		$	289			$	317			(9	)	$	474			$	289			64

Manufacturing includes four businesses: Hoover, a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications; 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; and 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,~~applications. In July 2018, Dekko acquired Furnlite, Inc., a ~~supplier~~Fallston, NC-based manufacturer of ~~pressure impregnated kiln-dried lumber~~power and ~~plywood products~~data solutions for ~~fire retardant~~the hospitality and ~~preservative applications that the Company acquired in April 2017.~~residential furniture industry.

Manufacturing revenues ~~and operating income increased~~declined 2% in the first quarter of ~~2018~~2019 due ~~primarily~~ to a decline at Hoover from lower wood prices. Manufacturing operating income declined in the first quarter of 2019 due largely to increased labor and other operating costs at Hoover ~~acquisition.~~and Dekko, along with gains on inventory sales at Hoover in the first quarter of 2018.

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’s revenue increased 6%1% in the first quarter of ~~2018 due to growth in digital advertising service revenues.~~2019. SocialCode reported operating losses of $4.0 million in the first quarter of 2019, compared to $3.8 million in the first quarter of ~~2018, compared~~2018.

On January 31, 2019, the Company acquired two automotive dealerships, Lexus of Rockville and Honda of Tysons Corner, from Sonic Automotive. The Company also announced it had entered into an agreement with Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships. Mr. Ourisman and his team of industry professionals will operate and manage the dealerships. Graham Holdings Company holds a 90% stake. Revenues from other businesses increased due mostly to ~~$4.5 million in~~ the ~~first quarter of 2017.~~automotive dealership acquisition.

Other businesses ~~include~~also includes Slate and Foreign Policy, which publish online and print magazines and websites; and ~~two~~three investment stage businesses, ~~Panoply~~Megaphone, Pinna and CyberVista. Megaphone, Slate and CyberVista reported revenue increases in the first quarter of 2019. Losses from each of these five businesses in the first ~~quarter~~three months of ~~2018~~2019 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 March 31, ~~2018,~~2019, the Company held ~~interests~~an 11% interest in ~~a number of home health and hospice joint ventures, and interests in several other affiliates. In the second half of 2017, the Company acquired approximately 11% of~~ Intersection Holdings, LLC, ~~which~~a company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces. The Company also holds interests in a number of home health and hospice joint ventures, and several other affiliates. The Company recorded equity in earnings of affiliates of $1.7 million for the first quarter of 2019, compared to $2.6 million for the first quarter of ~~2018, compared to $0.6 million for the first quarter of 2017.~~2018.

Net Interest Expense and Related Balances

In connection with the auto dealership acquisition that closed on January 31, 2019, a subsidiary of the Company borrowed $30 million to finance a portion of the acquisition and entered into an interest rate swap to fix the interest rate on the debt at 4.7% per annum. The subsidiary is required to repay the loan over a 10-year period by making monthly installment payments.

On May 30, 2018, the Company issued 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 net interest expense of $5.7 million for the first quarter of 2019, compared to $6.7 million for the first quarter of ~~2018, compared to $6.8 million for the first quarter of 2017.~~ 2018.

At March 31, ~~2018,~~2019, the Company had ~~$497.7~~$509.8 million in borrowings outstanding at an average interest rate of ~~6.2%~~5.1% and cash, marketable equity securities and other investments of ~~$819.6~~$719.1 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 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 and Kaplan corporate reporting.

The Company recorded net non-operating pension and postretirement benefit income of $19.9 million for the first quarter of 2019, compared to $21.4 million for the first quarter of ~~2018, compared to $18.8 million for the first quarter of 2017.~~2018.

~~Loss~~Gain (Loss) on Marketable Equity Securities, net

InOverall, the Company recognized $24.1 million in net gains on marketable equity securities in first quarter of ~~2018, the Company adopted new guidance that requires changes in the fair value of marketable equity securities~~2019, compared to ~~be included in non-operating income (expense) on a prospective basis. Overall, the Company recognized~~ $14.1 million in net losses on marketable equity securities in the first quarter of 2018.

Other Non-Operating Income ~~(Expense)~~

The Company recorded total other non-operating income, net, of $29.4 million for the first quarter of 2019, compared to $9.2 million for the first quarter of ~~2018, compared to $0.8~~2018. The 2019 amounts included a $29.0 million ~~for~~gain on the ~~first quarter~~sale of ~~2017.~~the Company’s interest in Gimlet Media and $0.5 million in foreign currency gains, offset by other items. The 2018 amounts included a $5.9 million gain on sales of businesses; a $2.8 million gain on the sale of a cost method investment; $0.2 million in foreign currency gains; and ~~other items. The 2017 amounts included $1.7 million in foreign currency gains, partially offset by~~ other items.

Provision for Income Taxes

The Company’s effective tax rate for the first three months of 2019 and 2018 was ~~24.0%. The Tax Cuts~~25.3% and ~~Jobs Act was enacted in December 2017, which included lowering the federal corporate income tax rate from 35% to 21%.~~

The Company's effective tax rate for the first three months of 2017 was 11.4%. This low effective tax rate is due to a $5.9 million income tax benefit related to the vesting of restricted stock awards.24.0%, respectively. In the first quarter of ~~2017,~~2019 and 2018, the Company ~~adopted a new accounting standard that requires all excess~~recorded income tax benefits ~~and deficiencies from~~related to stock compensation ~~to be recorded as discrete items in the provision for income taxes. Excluding this $5.9~~of $1.7 million ~~benefit, the overall income tax rate for the first three months of 2017 was 36.3%.~~and $1.8 million, respectively.

Earnings Per Share

The calculation of diluted earnings per share for the first quarter of ~~2018~~2019 was based on ~~5,472,643~~5,326,448 weighted average shares outstanding, compared to ~~5,568,903~~5,472,643 for the first quarter of ~~2017.~~2018. At March 31, ~~2018,~~2019, there were ~~5,373,325~~5,314,930 shares outstanding. On November 9, 2017, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock; the Company has remaining authorization for ~~341,098~~273,655 shares as of March 31, ~~2018.~~

~~Adoption of Revenue Recognition Standard~~

On January 1, 2018, the Company adopted the new revenue recognition guidance using the modified retrospective approach. If the company applied the accounting policies under the previous guidance, revenue would have been $1.3 million lower and operating expenses would have been $3.0 million higher for the first quarter of 2018.2019.

Financial Condition: Capital Resources and Liquidity

Acquisitions and Dispositions of Businesses and ~~Exchanges~~Other Transactions

~~Acquisitions.~~ Acquisitions. On January 31, 2019, the Company acquired an interest in two automotive dealerships for cash and the assumption of floor plan payables. In connection with the acquisition, the automotive 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 has a 90% interest in the automotive subsidiary. The Company also entered into a management services agreement with an entity affiliated with Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships. Mr. Ourisman and his team will operate and manage the dealerships. In addition, the Company advanced $3.5 million to the minority shareholder, an entity controlled by Mr. Ourisman, at an interest rate of 6% per annum. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and is included in other businesses.

During 2018, the Company acquired eight businesses, five in its education division, one in its healthcare division and two in other businesses for $121.1 million in cash and contingent consideration. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition.

In ~~the first three months of~~January and February 2018, Kaplan acquired the assets of i-Human Patients, Inc., a ~~leader in~~provider of cloud-based, interactive patient encounter simulations for medical and nursing professionals and educators, and another small business in ~~its~~ test preparation and international, ~~division, respectively, for $3.2 million.~~respectively. These acquisitions are expected to provide strategic benefits in the future.

During 2017, the Company acquired six businesses, two in its education division, two in its television broadcasting division and two 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.

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,~~May 2018, Kaplan acquired a 100% interest in ~~Genesis Training Institute, a Dubai-based provider~~Professional Publications, Inc. (PPI), an independent publisher of professional ~~development training in the United Arab Emirates, by purchasing all of its issued~~licensing exam review materials 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~~engineering, surveying, architecture, 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, Graham Healthcare Group (GHG) acquired a 100% interest in Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider~~interior design licensure exam review, by purchasing all of its issued and outstanding shares. This acquisition ~~expands GHG’s service area~~is expected to provide certain strategic benefits in ~~Michigan. GHG~~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, Graham Healthcare Group (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.

Kaplan University Transaction. On ~~April 27, 2017, certain subsidiaries of Kaplan entered into a Contribution and Transfer Agreement to contribute~~March 22, 2018, the ~~institutional assets and operations of~~Company closed on the 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 a Transition(KU) transaction and ~~Operations Support Agreement (TOSA) pursuant to which Kaplan will provide key non-academic operations support to the new university.~~

The new university will operate almost exclusively 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 will provide to Purdue University Global will include 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 will 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 percent 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 percent of such cost efficiencies (Kaplan Efficiency Payment). If there are sufficient revenues, Kaplan may also receive a fee equal to 12.5 percent of Purdue University Global’s revenue. The fee will increase to 13 percent 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 percent 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 percent 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~~ recorded a pre-tax gain of $4.3 million in the first quarter of 2018. For financial reporting purposes, Kaplan may receive payment of additional consideration ~~for~~related to the sale of the institutional assets as part of ~~the~~its fee to the extent there are sufficient revenues available after paying all amounts required by the ~~TOSA.~~Transition and Operations Support Agreement (TOSA). The Company did not recognize any contingent consideration as part of the initial disposition.

In the first quarter of 2019, the Company recorded a $0.2 million contingent consideration gain related to the disposition.

Sale of Businesses. In February 2018, Kaplan completed the sale of a small business which was included in Test Preparation. In ~~February 2017, GHG completed the sale of Celtic Healthcare of Maryland. In the fourth quarter of 2017,~~September 2018, Kaplan Australia completed the sale of a small business which was included in Kaplan International. As a result of these sales, the Company reported gains ~~(losses)~~ in other non-operating income.

Other Transactions. In March 2019, a Hoover minority shareholder put some of his shares to the ~~fourth quarter~~Company, which had a redemption value of ~~2017, Kaplan entered into an arrangement~~$0.6 million. Following the redemption, the Company owns 98.01% of Hoover. In June 2018, the Company incurred $6.2 million of interest expense related to ~~acquire~~ the ~~College for Financial Planning.~~mandatorily redeemable noncontrolling interest redemption settlement at GHG. The ~~acquisition is subject to regulatory approval from the Higher Learning Commission (HLC), which is not expected before June~~mandatorily redeemable noncontrolling interest was redeemed and paid in July 2018.

Capital Expenditures

During the first three months of ~~2018,~~2019, the Company’s capital expenditures totaled ~~$15.6~~$26.1 million. This amount includes assets acquired during the year, whereas the amounts reflected in the Company’s Condensed Consolidated 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 ~~$110~~$95 million to ~~$120~~$105 million in ~~2018.~~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.

Liquidity

The Company’s borrowings were ~~$497.7~~$509.8 million and ~~$493.3~~$477.1 million, at March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

At March 31, ~~2018,~~2019, the Company had cash and cash equivalents, restricted cash and investments in marketable securities and other investments totaling ~~$819.6~~$719.1 million, compared with ~~$964.7~~$778.7 million at December 31, ~~2017.~~ 2018. At March 31, 2019, the Company held approximately $92 million in cash and cash equivalents in businesses domiciled outside the U.S., of which approximately $8 million is not 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.

The Company’s net cash ~~provided~~used by operating activities, as reported in the Company’s Condensed Consolidated Statements of Cash Flows, was $37.9 million for the first three months of 2019, compared to net cash provided by operating activities of $19.0 million for the first three months of ~~2018, compared to $91.9 million for the first three months of 2017.~~2018. The decrease is due to changes in working capital, payroll timing and an increase in incentive compensation payments.

On January 31, 2019, the Company’s automotive subsidiary entered into a ~~reduction~~Commercial Note with SunTrust Bank in an aggregate principal amount of $30 million. The Commercial Note is payable over a 10-year period in monthly installments of $0.25 million, plus accrued and unpaid interest, due on the first of each month, with a final payment on January 31, 2029. The Commercial Note bears interest at LIBOR plus an applicable interest rate of 1.75% or 2.00% per annum, in each case determined on a quarterly basis based upon the automotive subsidiary’s Adjusted Leverage Ratio. The Commercial Note contains terms and conditions, including remedies in the event of a default by the automotive subsidiary. On the same date, the Company’s automotive subsidiary entered into an interest rate swap agreement with a total notional value of $30 million and a maturity date of January 31, 2029. The interest rate swap agreement will pay the automotive subsidiary variable interest on the $30 million notional amount at the one-month LIBOR, and the automotive subsidiary will pay counterparties a fixed rate of 2.7%, effectively resulting in a total fixed interest rate of 4.7% on the outstanding borrowings at the current applicable margin of 2.0%. The interest rate swap agreement was entered into to convert the variable rate borrowing under the Commercial Note into a fixed rate borrowing. Based on the terms of the interest rate swap agreement and the underlying borrowing, the interest rate swap was determined to be effective and thus qualifies as a cash ~~receipts from customers~~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.

The Company finances all new vehicle inventory through a standardized floor plan facility (the “floor plan facility”) with SunTrust Bank. The new vehicle floor plan facility bears interest at variable rates that are based on LIBOR plus 1.15% per annum. The weighted average interest rate for the floor plan facility was 3.5% for the three months ended March 31, 2019. As of March 31, 2019, the aggregate capacity under the floor plan facility was $40 million, of which $35.3 million had been utilized, and ~~increased payments~~is included in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheet.

The floor plan facility is collateralized by vehicle inventory and other assets of the relevant dealership subsidiary, and contains a number of covenants, including, among others, covenants restricting the dealership subsidiary with respect to ~~vendors.~~the creation of liens and changes in ownership, officers and key management personnel.

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, ~~2015,~~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 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, 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 ~~Facility will expire on July 1, 2020, unless the Company~~Amended and ~~the banks agree to extend the term. The~~Restated Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this ~~type.~~

~~In the first three months of 2018,~~type and requires the Company ~~acquired an additional 131,580 shares~~to maintain a Total Net Leverage Ratio of ~~its Class B common stock~~not greater than 3.5 to 1.0 and a consolidated interest coverage ratio of at ~~a cost~~least 3.5 to 1.0 based upon the ratio of ~~approximately $79.0 million.~~consolidated adjusted EBITDA to consolidated interest expense as determined pursuant to the Amended and Restated Credit Agreement.

On May ~~24, 2017,~~21, 2018, Moody’s affirmed the Company’s credit ratings, but revised the outlook from ~~Stable~~Negative to ~~Negative.~~Stable.

The Company’s current credit ratings are as follows:



	Moody’s		Standard & Poor’s
Long-term	Ba1		BB+

At March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had working capital of ~~$368.9~~$647.8 million and ~~$857.2~~$720.2 million, respectively. The decrease is due to the current classification of the $400.0 million notes outstanding due February 1, 2019; the Company is evaluating its long-term financing needs and in 2018 may refinance all or part of these notes. 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 expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds. In management’s opinion, the Company will have sufficient liquidity to meet its various cash needs within the next 12 months.

~~In July 2016, Kaplan International Holdings Limited (KIHL) entered into an agreement with University~~The Company adopted the new lease accounting guidance on January 1, 2019 and recognized right-of-use assets of ~~York International Pathway College LLP (York International College)~~$369.3 million and lease liabilities of $418.3 million. Please refer to loan the LLP approximately £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 subsidiaryNote 1 - Organization, Basis of ~~Kaplan International Colleges UK Limited)~~Presentation and ~~a subsidiary~~Recent Accounting Pronouncements and Note 6 - Leases for further discussion 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. As of December 31, 2017, KIHL advanced approximately £16.0 million to York International College. There was no additional funding advanced in the first three months of 2018.new lease accounting guidance.

There were no other significant changes to the Company’s contractual obligations or other commercial commitments from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

~~Critical Accounting Policies and Estimates~~

~~Revenue Recognition.~~ 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 is 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 customer as part of this assessment. In addition, the Company considers other indicators such as the party primarily responsible for fulfillment, inventory risk and discretion in establishing price.

Please refer to Note 1 - Organization, Basis of Presentation and Recent Accounting Pronouncements and Note 10 - Revenue From Contracts with Customers for further discussion of the new revenue recognition guidance.2018.

Forward-Looking Statements

This report contains certain forward-looking statements that are based largely on the Company’s current expectations. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results and achievements to differ materially from those expressed in the forward-looking statements. For more information about these forward-looking statements and related risks, please refer to the section titled “Forward-Looking Statements” in Part I of the Company’s Annual Report on Form 10-K.

Item 3. 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 foreign business operations, which are subject to foreign exchange rate risk. The Company’s market risk disclosures set forth in its ~~2017~~2018 Annual Report filed on Form 10-K have not otherwise changed significantly.

Item 4. Controls and Procedures.

(a) 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 Chief Financial Officer (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 March 31, ~~2018~~2019. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that ~~due to the material weakness in internal control over financial reporting described in Item 9A of our 2017 Form 10-K related to the processing of refunds of student financial aid,~~ the Company’s disclosure controls and procedures, ~~were not~~as designed and implemented, are effective ~~as of~~ ~~March 31, 2018~~.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 Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

(b) 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 March 31, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~(c) Material Weakness Remediation Efforts~~

As previously described in Item 9A of our 2017 Form 10-K, the Company is implementing remediation measures to address the control deficiency that led to the material weakness surrounding the processing of refunds of student financial aid. The remediation includes strengthening the review and approval process for changes to financial aid refund policies and procedures, as well as enhancing monitoring and compensating controls. The material weakness will not be considered remediated until the controls have operated effectively for a sufficient period of time. The Company anticipates that the remediation will be completed during 2018.

PART II. OTHER INFORMATION

~~Item 1A. Risk Factors.~~

The Company faces a number of significant risks and uncertainties in connection with its operations. 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.

~~Other than as subsequently discussed, there have been no material changes to the Risk Factors disclosed in our 2017 Form 10-K.~~

~~Kaplan may fail to realize the anticipated benefits of the Purdue Transaction~~

The closing of the Purdue Transaction occurred on March 22, 2018. Upon closing, Kaplan entered into a long-term services agreement to provide key non-academic operations support to Purdue University Global, including 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. Kaplan’s ability to realize the anticipated benefits of the Purdue Transaction will depend in part on its ability to successfully and efficiently provide these services to Purdue University 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 intends and whether Purdue University 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.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers~~

~~During the quarter ended~~ ~~March 31, 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*
January 2,102
$ 564.03
2,102
470,576
February —
—
—
470,576
March 129,478
600.99
129,478
341,098
131,580
$ 600.40
131,580

*On 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. There is no expiration date for that authorization. 107,575 shares acquired during the quarter ended~~ ~~March 31, 2018~~ ~~were not open market transactions. The remaining purchases made during the quarter ended~~ ~~March 31, 2018~~ ~~were open market transactions.~~

Item 6. Exhibits.



Exhibit Number	Description

~~2.1~~	Contribution and Transfer Agreement, dated April 27, 2017, by and among Kaplan Higher Education, LLC, Iowa College Acquisition, LLC, Purdue University, and Purdue New U, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K filed April 27, 2017). *

3.1	Restated 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).

3.2	Certificate 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 dated November 29, 2013).

3.3	By-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 dated November 29, 2013).

4.1	~~Second Supplemental~~Senior Notes Indenture dated ~~January~~as of May 30, ~~2009,~~2018, 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~~4.1 to the Company’s Current Report on Form 8-K dated ~~January 30, 2009)~~May 24, 2018).

4.2	Amended and Restated Five Year Credit Agreement, dated as of ~~June 29, 2015,~~May 30, 2018, among the Company, and the foreign borrowers from time to time party thereto, 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.~~Agent (incorporated by reference to Exhibit ~~10.1~~4.2 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K dated June 29, 2015).~~

~~10.1~~	Transition and Operations Support Agreement, dated March 22, 2018, by and among Kaplan Higher Education, LLC, Iowa College Acquisition, LLC, and Purdue University Global, Inc., with Purdue University as a party to the Transition and Operations Support Agreement solely10-Q for the ~~purposes of being bound by the Purdue Provisions (as defined therein) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 22,~~period ended June 30, 2018). **

31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

32	Section 1350 Certification of the Chief Executive Officer and the Chief Financial Officer. ***

101	The following financial information from Graham Holdings Company Quarterly Report on Form 10-Q for the period ended March 31, ~~2018,~~2019, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Statements of Operations for the Three Months Ended March 31, ~~2018~~2019 and ~~2017,~~2018, (ii) Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2018~~2019 and ~~2017,~~2018, (iii) Condensed Consolidated Balance Sheets as of March 31, ~~2018~~2019 and December 31, ~~2017,~~2018, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018, (v) Condensed Consolidated Statements of Changes in Common Shareholders’ Equity for the Three Months Ended March 31, 2019 and ~~2017,~~2018; and ~~(v)~~(vi) Notes to Condensed 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.


*	~~Graham Holdings Company hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule to such agreement to the U.S. Securities and Exchange Commission upon request.~~


**	~~Select portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.~~


~~***~~	Furnished herewith.

SIGNATURES

Pursuant to the requirements 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.



		GRAHAM HOLDINGS COMPANY
		(Registrant)

Date: May ~~2, 2018~~1, 2019		/s/ Timothy J. O’Shaughnessy
		Timothy J. O’Shaughnessy, President & Chief Executive Officer (Principal Executive Officer)

Date: May ~~2, 2018~~1, 2019		/s/ Wallace R. Cooney
		Wallace R. Cooney, Chief Financial Officer (Principal Financial Officer)

3834