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8-K
GRAHAM HOLDINGS CO filed this Form 8-K on 02/23/2018
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2016. Operating results declined at the education and television broadcasting divisions, offset by an increase in other businesses.
On April 27, 2017, certain Kaplan subsidiaries entered into a Contribution and Transfer Agreement (Transfer Agreement) to contribute Kaplan University (KU), its institutional assets and operations to a new, non-profit, public-benefit corporation affiliated with Purdue University (Purdue) in exchange for a Transition and Operations Support Agreement (TOSA) to provide key non-academic operations support to the new university for an initial term of 30 years with a buy-out option after six years. The transfer does not include any of the assets of Kaplan University School of Professional and Continuing Education (KU-PACE), 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.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education (ED), the Indiana Commission for Higher Education (ICHE) and the Higher Learning Commission (HLC), which is the regional accreditor of both Purdue and KU, and certain other state educational agencies and accreditors of programs. In the third quarter of 2017, ICHE granted its approval and the ED provided preliminary approval based on its review of a pre-acquisition application, subject to certain conditions. Kaplan is unable to predict with certainty when and if HLC approval will be obtained; however, a decision is not expected to be received until later in the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.
Division Results
Education
Education division revenue in 2017 totaled $1,516.8 million, down 5% from $1,598.5 million in 2016. For the fourth quarter of 2017, education division revenue totaled $380.6 million, down 3% from $391.2 million for the same period of 2016.
Kaplan reported operating income of $75.2 million for 2017, a 20% decrease from $93.6 million in 2016; Kaplan reported operating income for the fourth quarter of 2017 of $19.8 million, a 34% decrease from $29.9 million in the fourth quarter of 2016. In 2017, operating results declined at Kaplan Higher Education (KHE), partially offset by improved results at Kaplan Test Preparation (KTP) and Kaplan International.
In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in restructuring costs in 2017 and 2016, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $10.0 million in 2017 and $11.9 million in 2016. Restructuring costs totaled $7.2 million in the fourth quarter of 2017 and $7.0 million in the fourth quarter of 2016.
A summary of Kaplan’s operating results is as follows:
 
 
Three Months Ended
 
 
 
Twelve Months Ended
 
 
 
 
December 31
 
 
 
December 31
 
 
(in thousands)
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Higher education
 
$
130,291

 
$
144,916

 
(10
)
 
$
547,264

 
$
617,047

 
(11
)
Test preparation
 
60,320

 
62,454

 
(3
)
 
273,298

 
286,556

 
(5
)
Kaplan international
 
190,431

 
184,294

 
3

 
697,999

 
696,362

 

Kaplan corporate and other
 
174

 
24

 

 
294

 
214

 
37

Intersegment elimination
 
(641
)
 
(452
)
 

 
(2,079
)
 
(1,718
)
 

  
 
$
380,575

 
$
391,236

 
(3
)
 
$
1,516,776

 
$
1,598,461

 
(5
)
Operating Income (Loss)
 
 

 
 

 
 

 
 

 
 

 
 

Higher education
 
$
5,153

 
$
16,595

 
(69
)
 
$
44,277

 
$
66,632

 
(34
)
Test preparation
 
1,300

 
(3,715
)
 

 
11,507

 
9,599

 
20

Kaplan international
 
21,721

 
25,461

 
(15
)
 
50,730

 
48,398

 
5

Kaplan corporate and other
 
(7,167
)
 
(6,084
)
 
(18
)
 
(26,326
)
 
(23,452
)
 
(12
)
Amortization of intangible assets
 
(1,364
)
 
(2,358
)
 
42

 
(5,162
)
 
(7,516
)
 
31

Intersegment elimination
 
179

 
20

 

 
143

 
(29
)
 

 
 
$
19,822

 
$
29,919

 
(34
)
 
$
75,169

 
$
93,632

 
(20
)
KHE includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses.
In 2017 and the fourth quarter of 2017, KHE revenue declined 11% and 10%, respectively, due to declines in average enrollments at Kaplan University. KHE operating income declined in 2017 and the fourth quarter of 2017 due primarily to lower enrollment at Kaplan University, partially offset by lower restructuring costs. Restructuring

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