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Delaware	1-6714	53-0182885
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1300 North 17th Street, Suite 1700 Arlington, Virginia	22209
(Address of principal executive offices)	(Zip Code)

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Exhibit No.		Description
99.1		Excerpts from the Preliminary Offering Memorandum
99.2		Press Release

 

 

Part I.

Business overview

 

Graham Holdings Company is a media and diversified education company whose operations include television broadcasting, educational services, online print and local TV news, manufacturing and home health and hospice care.

The Company’s media operations comprise the ownership and operation of television broadcasting (through the ownership and operation of seven television broadcast stations across designated market areas (“DMAs”); plus Slate and Foreign Policy magazines and Panoply, a podcast network). Kaplan, Inc. (“Kaplan”), a subsidiary of the Company, provides a wide variety of educational services, both domestically and outside the United States. The Company also owns home health and hospice providers, four manufacturing companies and Social Code LLC, a marketing solutions provider.

The Company’s operations in geographic areas outside the U.S. consist primarily of Kaplan’s non-U.S. operations. During the fiscal years 2017, 2016 and 2015, these operations accounted for approximately 25%, 25% and 26%, respectively, of the Company’s consolidated revenues, and the identifiable assets attributable to non-U.S. operations represented approximately 21% and 20% of the Company’s consolidated assets at December 31, 2017 and December 31, 2016, respectively.

 

For the fiscal year ended December 31, 2017, we generated $2,592 million of total revenues and $268 million of Adjusted EBITDA. For the twelve months ended March 31, 2018, we generated $2,669 million of total revenues and $306 million of Adjusted EBITDA. For the twelve months ended March 31, 2018, we generated $248 million of free cash flow, defined as Adjusted EBITDA less capital expenditures. The following charts illustrate revenue, Adjusted EBITDA and free cash flow for the twelve months ended March 31, 2018 for each of our television broadcasting, education and other business segments. See “Summary—Summary historical consolidated financial information” for reconciliations of Adjusted EBITDA and free cash flow to the nearest comparable GAAP measure.

 

 

 

 

Note: Adjusted EBITDA and free cash flow percentages exclude corporate and intersegment eliminations.

For all businesses in which we invest, we maintain a long-term view. We seek and will continue to seek underlying sector diversification across our businesses, because we view the diversity of our service offerings as the foundation for the Company’s business model:

 

 

We believe the following factors have been instrumental to our success:

Diversified business portfolio well positioned for the future

While GMG and Kaplan have been the primary drivers of the profits for the past several years, there has been a gradual shift as our other businesses have grown. Following the acquisition of Hoover Treated Wood Products, Inc. in April 2017, our other businesses became more meaningful contributors to operating income.

For the twelve months ended March 31, 2018, the television broadcasting business accounted for 16% of revenue and 49% of Adjusted EBITDA of the Company. During the same period, the education businesses generated 57% of revenue and 39% of Adjusted EBITDA. Our other businesses generated 27% of revenue and 12% of Adjusted EBITDA.

Attractive TV broadcast assets

Graham Media Group owns and operates seven television stations, each in a top-70 market, all of which are recognized as news leaders. Local, “Big 4” network-affiliated TV stations (such as NBC, CBS and ABC) are critically important to incumbent multichannel video programming distributors (“MVPD,” such as cable companies and satellite providers). More and more, MVPDs are offering consumers skinnier bundles and local TV is almost always included in such offerings. Five out of seven of Graham’s stations represent “Big 4” network affiliates. Three of these stations are NBC-affiliates with two additional stations affiliated with CBS and ABC. In the last year, GMG diversified its portfolio of assets further with the acquisition of two stations as a result of the Nexstar / Media General merger: WSLS (NBC—Roanoke, VA) and WCWJ (CW—Jacksonville, FL). Overall, four of GMG’s stations are ranked #1 during the key broadcasting periods of 6am, 6pm and late newscasts, among target demographic viewers ages 25 to 54.

 

According to S&P Global Market Intelligence, the U.S. TV Broadcasting segment is expected to grow at a compounded annual growth rate (“CAGR”) of approximately 4% over the four-year period between 2016 and 2020. The main drivers attributed to such growth are retransmission trends and the ongoing shift towards the digital ecosystem. Gross retransmissions are expected to grow at a CAGR of approximately 9% from 2016 through 2020, followed by digital growth on a CAGR basis of approximately 7% over the same period. Gross retransmissions are expected to grow their share of the TV broadcasting industry revenue from 6% in 2010 to approximately 32% in 2020. Digital revenue is expected to comprise 8% of industry revenue by 2020 as compared to 5% in 2010. Growing retransmission revenue is improving the risk profile of our broadcasting business given visibility and the contractual nature of this revenue stream and has historically helped drive free cash flow.

Prudent management of our Education division

We maintain an ongoing focus on portfolio rationalization and actively manage the Kaplan business within the changing landscape of the education industry. As an example, while for-profit sector enrollments have declined in the last several years, online non-profit and public institution enrollments have grown during the same period. As enrollments have gone up, many higher education markets remain underpenetrated, particularly in developing countries. The prudent management of our education assets as well as Kaplan’s geographic reach allows us to tap into the growth potential in the markets we serve. One example is the transaction between Kaplan University (“KU”) and Purdue University (“Purdue”). Purdue, which is one of the nation’s elite public universities (ranked #18 by US News & World Report), is also amongst the most innovative in addressing issues of access and affordability. As part of the transaction, Kaplan contributed its institutional assets to enable Purdue to further its mission of expanding access, as a land-grant institution. Kaplan will support Purdue

University Global, Inc. (“Purdue Global”), the renamed, adult-learner-focused academic institution through a long-term transition and operations support agreement. The transaction reduces Kaplan’s operating leverage and risk profile while allowing for upside potential and the ability to benefit from current industry trends.

Expansion of our manufacturing businesses

Our Manufacturing division includes four businesses:

Group Dekko Inc., a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies (acquired in 2015 and expanded in 2016 with the acquisition of Electri-Cable Assemblies); Joyce/Dayton Corp., a manufacturer of screw jacks and other linear motion systems; Forney Corporation, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications; and Hoover Treated Wood Products, Inc., a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications that the Company acquired in April 2017. While we suspect the growth rates will moderate following the Hoover acquisition, we believe these businesses will provide meaningful contributions over the long-term.

 

 

Successful track record of accretive acquisitions

We continually emphasize our focus on making disciplined, accretive acquisitions to further build our portfolio of businesses. This approach provides value for our business through diversification and greater stability in earnings and growth prospects. We have seen success with this approach, such as with the acquisitions of Hoover Treated Wood Products, Group Dekko Inc., Joyce/Dayton Corp., the TV stations of WSLS and WCWJ, alongside several others. These are all established businesses that we understand, have a record of profitability and are well-managed by teams that desire to remain with the business. Many of these accretive acquisitions over the years have been funded by cash flow from our operations which have allowed us to maintain conservative leverage levels, as shown below.

Conservative capital structure with strong financial stewardship

Our free cash flow is driven by strong levels of Adjusted EBITDA and managing our capital expenditures. We have a history of managing leverage ratios (on a total debt to Adjusted EBITDA basis) below 2.0x and, as of March 31, 2018, our leverage stands at 1.6x on a total debt to Adjusted EBITDA basis. We also maintain significant levels of liquidity, comprised of $820 million of cash and cash equivalents, restricted cash, marketable securities and other investments as of March 31, 2018. We also possess up to $200 million of

 

 

undrawn capacity under our senior credit facility, with the potential to increase our undrawn capacity to $300 million under the proposed new credit facility (see “Recent developments” below). Additionally, we maintain an overfunded status on our pension plan and the prepaid pension costs as of March 31, 2018 were approximately $1.1 billion.

 

Experienced management team and long-term ownership

We have an experienced and talented senior management team, with strong international expertise from a wide variety of industry-leading global companies. Our executive officers have been with us for an average of 19 years and have led our transformation into a diversified holding company with over $2.6 billion in revenues for the twelve month period ended March 31, 2018. In addition to a dedicated management team, we also benefit from a supportive ownership base which has spearheaded the strategy of the company since our inception. The Company has been majority family-owned since Eugene Meyer acquired The Washington Post in 1933. Today, the Graham family collectively controls the Company through their ownership of the unlisted Class A common stock that selects 70% of our board of directors. Our Chief Executive Officer, Tim O’Shaughnessy, the son-in-law of Donald Graham, was named Chief Executive Officer of the Company in November 2015. Prior to being appointed Chief Executive Officer, Tim was appointed President of the Company in November 2014 and has over 10 years of industry experience. Donald Graham has been with the Company for over 45 years, and he is currently the Chairman of the Board, a position he has held since 1993. In addition, we have strong regional and local management teams within each business with a deep understanding of the local markets that are focused on meeting the needs of various stakeholders including students, communities, regulators and business leaders.

Segment overview

Television broadcasting

 

 

 

The following table sets forth certain information with respect to each of the Company’s television stations:

 

Station, location and year commercial operation commenced	National market ranking(a)	Applicable ranking(b)		Primary network affiliation	Expiration date of FCC license	Expiration date of network agreement	Total commercial stations in DMA(c)
KPRC, Houston, TX, 1949	7th	1st		NBC	Aug. 1, 2022	Dec. 31, 2019	14
WDIV, Detroit, MI, 1947	14th	1st		NBC	Oct. 1, 2021	Dec. 31, 2019	8
WKMG, Orlando, FL, 1954	18th	2nd		CBS	Feb. 1, 2021	April 6, 2019	12
KSAT, San Antonio, TX, 1957	31st	1st		ABC	Aug. 1, 2022	Dec. 31, 2021	11
WJXT, Jacksonville, FL, 1947	42nd	1st		None	Feb. 1, 2021	—	7
WCWJ, Jacksonville, FL, 1966	42nd	2nd	(d)	CW	Feb. 1, 2021	Aug. 31, 2021	7
WSLS, Roanoke, VA, 1952	70th	3rd		NBC	Oct. 1, 2020	Dec. 31, 2019	7

 

(a)

Source: 2017/2018 Local Television Market Universe Estimates, The Nielson Company, September 2017, based on television homes in DMA (see note (c) below).

(b)

Based on an average of November 2017 ratings in the key 6 a.m., 6 p.m. and late newscasts among target demographic viewers ages 25 to 54.

(c)

Full-power commercial TV stations, DMA is a market designation of The Nielsen Company that defines each television market exclusive of another, based on measured viewing patterns.

(d)

Ranking in syndicated programming in daytime and early fringe.

Other financial data*:

 

	Year ended December 31,				Three months ended March 31,				Twelve months ended March 31,
(in millions)	2017		2016		2015		2018		2017		2018
Adjusted EBITDA(9)	$268		$336		$223		$ 74		$ 37		$306
Education	125		156		121		34		22		138
International	67		66		72		24		11		80
Higher Education	31		60		55		5		7		29
Test Preparation	20		19		29		2		(1	)	22
Professional (U.S.)	32		32		29		10		11		31
Corporate & other	(23	)	(20	)	(65	)	(7	)	(7	)	(24	)
Broadcast	160		215		179		46		30		175
Manufacturing	55		32		15		17		8		64
Healthcare	11		12		16		1		2		10
SocialCode	(2	)	(11	)	—		3		(4	)	1
Other businesses	(29	)	(22	)	(21	)	(8	)	(8	)	(28	)
Corporate & other	(52	)	(46	)	(86	)	(12	)	(14	)	(51	)
Free cash flow(10)	211		266		161		59		22		248
Education	98						27		17		108
Broadcast	143						41		22		162
Manufacturing	47						14		8		53
Healthcare	8						1		2		7
SocialCode	(3	)					(3	)	(4	)	(2	)
Other businesses	(30	)					(8	)	(8	)	(29	)
Corporate & other	(52	)					(12	)	(14	)	(51	)
*     Subject to rounding.

 

 

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$136				$223				$(158	)			$44				$10
Depreciation			63				65				78				15				15
Amortization & impairments			51				28				279				10				7
Pension expense			19				20				24				5				5
Adjusted EBITDA			$268				$336				$223				$74				$37

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$78				$95				$(218	)			$23				$9
Depreciation			33				41				61				8				9
Amortization & impairments			5				8				262				1				1
Pension expense			10				12				15				3				3
Adjusted EBITDA			$125				$156				$121				$34				$22

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$52				$48				$54				$20				$8
Depreciation			15				18				18				4				4
Amortization & impairments			—				—				—				—				—
Pension expense			—				—				—				—				—
Adjusted EBITDA			$67				$66				$72				$24				$11

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$17				$39				$30				$1				$2
Depreciation			9				14				15				2				3
Amortization & impairments			—				—				—				—				—
Pension expense			5				7				10				1				2
Adjusted EBITDA			$31				$60				$55				$5				$7

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$12				$10				$17				$1				$(3	)
Depreciation			5				6				9				1				1
Amortization & impairments			—				—				—				—				—
Pension expense			3				3				3				1				1
Adjusted EBITDA			$20				$19				$29				$2				$(1	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$28				$27				$26				$9				$10
Depreciation			3				3				3				1				1
Amortization & impairments			—				—				—				—				—
Pension expense			1				1				1				—				—
Adjusted EBITDA			$32				$2				$29				$10				$11

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$(30	)			$(29	)			$(344	)			$(9	)			$(8	)
Depreciation			1				1				16				—				—
Amortization & impairments			5				8				262				1				1
Pension expense			1				1				1				—				—
Adjusted EBITDA			$(23	)			$(20	)			$(65	)			$(7	)			$(7	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$139				$203				$167				$41				$26
Depreciation			12				10				10				3				3
Amortization & impairments			6				—				—				1				1
Pension expense			2				2				2				—				—
Adjusted EBITDA			$160				$215				$179				$46				$30

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$15				$13				$6				$9				$4
Depreciation			9				7				2				2				2
Amortization & impairments			31				12				6				6				3
Pension expense			—				—				—				—				—
Adjusted EBITDA			$55				$32				$15				$17				$8

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$(3	)			$3				$6				$(1	)			$(1	)
Depreciation			5				3				3				1				1
Amortization & impairments			8				7				7				2				2
Pension expense			1				—				—				—				—
Adjusted EBITDA			$11				$12				$16				$1				$2

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$(4	)			$(12	)			$(1	)			$(4	)			$(5	)
Depreciation			1				1				—				—				—
Amortization & impairments			—				—				—				—				—
Pension expense			1				1				—				—				—
Adjusted EBITDA			$(2	)			$(11	)			—				$(3	)			$(4	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$(31	)			$(25	)			$(26	)			$(9	)			$(9	)
Depreciation			2				1				1				—				—
Amortization & impairments			—				2				3				—				—
Pension expense			—				—				1				—				—
Adjusted EBITDA			$(29	)			$(22	)			$(21	)			$(8	)			$(8	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Operating income			$(59	)			$(53	)			$(94	)			$(14	)			$(15	)
Depreciation			1				1				1				—				—
Amortization & impairments			—				—				—				—				—
Pension expense			5				6				7				1				1
Adjusted EBITDA			$(52	)			$(46	)			$(86	)			$(12	)			$(14	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$268				$336				$223				$74				$37
Capital expenditures			57				71				62				16				15
Free cash flow			$211				$266				$161				$59				$22

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$125				$156				$121				$34				$22
Capital expenditures			28												7				5
Free cash flow			$98												$27				$17

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$160				$215				$179				$46				$30
Capital expenditures			17												5				9
Free cash flow			$143												$41				$22

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$55				$32				$15				$17				$8
Capital expenditures			8												3				1
Free cash flow			$47												$14				$8

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$11				$12				$16				$1				$2
Capital expenditures			3												—				—
Free cash flow			$8												$1				$2

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$(2	)			$(11	)			$0				$(3	)			$(4	)
Capital expenditures			1												—				—
Free cash flow			$(3	)											$(3	)			$(4	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$(29	)			$(22	)			$(21	)			$(8	)			$(8	)
Capital expenditures			1												—				—
Free cash flow			$(30	)											$(8	)			$(8	)

		Year ended December 31,												Three months ended March 31,
(in millions)		2017				2016				2015				2018				2017
Adjusted EBITDA(a)			$(52	)			$(46	)			$(86	)			$(12	)			$(14	)
Capital expenditures			—												—				—
Free cash flow			$(52	)											$(12	)			$(14	)

 

Part II

Risks related to our business

Failure to comply with statutory and regulatory requirements in Kaplan’s service to Purdue Global or any other Title IV participating institution could result in monetary liabilities or subject Kaplan to other material negative consequences

On April 27, 2017, certain Kaplan subsidiaries entered into the Transfer Agreement to contribute the institutional assets and operations of KU to a new, non-profit, public-benefit corporation affiliated with Purdue University. At the same time, Kaplan and Purdue entered into the TOSA, whereby Kaplan, through its Kaplan Higher Education unit, provides key non-academic operations support to Purdue Global for a renewable 30-year term. The closing of the transactions contemplated by the Transfer Agreement took place on March 22, 2018. Consequently, Kaplan no longer owns KU or any other institution of higher education participating in Title IV federal student aid programs.

Kaplan is a service provider to Purdue Global under the TOSA and is acting as a Third-Party Servicer as defined by U.S. Department of Education (“ED”) regulations. As a result, Kaplan is required to comply with certain laws and regulations in connection with the provision of services to Purdue Global under the TOSA, including applicable statutory provisions of Title IV of the Federal Higher Education Act of 1965, as amended (the “Higher Education Act”). In addition, as required by ED regulations, Kaplan agreed in the TOSA to be jointly and severally liable with Purdue Global to the ED for any violation by Kaplan of any Title IV regulation or requirement.

Failure to comply with these and other federal and state laws and regulations could result in consequences including, for example:

 

 

Any one of these consequences could have a material adverse effect on Kaplan’s results of operations.

Failure to comply with the ED’s Title IV incentive compensation rule could subject Kaplan to liabilities, sanctions, and fines.

Under the ED’s incentive compensation rule, an institution participating in the Title IV programs may not provide any commission, bonus, or other incentive payment to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV funds if such payment is based directly or indirectly on success in securing enrollments or financial aid. Kaplan is a third-party providing bundled services to a Title IV participating institution that include recruiting and financial aid services. As such Kaplan is also subject to the incentive compensation rules and cannot provide any commission, bonus or other incentive payment to any covered employees, subcontractors, or other parties engaged in certain student recruiting, admission, or financial aid activities based on success in securing enrollments or financial aid. In addition, Purdue Global’s tuition revenue sharing payments to Kaplan under the TOSA must comply with revenue sharing guidance provided by the ED related to bundled services agreements such as, potentially, the TOSA. The Company cannot predict how the ED or a federal court will interpret and enforce all aspects of the incentive compensation rule or the revenue sharing guidance in the future or how it would be applied to the TOSA or may be changed by the ED, regulation, or legislation. Any changes in interpretation and enforcement could require Purdue Global and Kaplan to change their practices or the tuition revenue sharing payment terms of the TOSA and could have a material adverse effect on Kaplan’s business and results of operations. Additionally, failure to comply with the incentive compensation rule could result in litigation or enforcement actions against Purdue Global or Kaplan and could result in liabilities, fines, or other sanctions against Purdue Global or Kaplan, which could have a material adverse effect on Kaplan’s business and results of operations.

Failure to comply with the ED’s Title IV misrepresentation regulations could subject Kaplan to liabilities, sanctions, and fines.

An institution is required to comply with the ED regulations related to misrepresentations, and with related federal and state laws. These laws and regulations are broad in scope and may extend to statements by servicers, such as Kaplan, that provide marketing services to Title IV participating institutions. The laws and regulations also likely apply to the servicer’s employees, subcontractors, and agents, with respect to the nature of an institution’s programs, financial charges, or the employability of its graduates. Under the TOSA Kaplan provides certain marketing services to Purdue Global. A violation of these regulations or other federal or state laws and regulations applicable to the services Kaplan provides to Purdue Global under the TOSA or to other future client institutions and arising out of statements by Kaplan or one of Kaplan’s employees, subcontractors or agents could require Kaplan or its client to pay fines or other monetary penalties, result in the termination or limitation on Kaplan’s ability to service Title IV participating institutions, result in termination of the TOSA or other agreement with future clients, or require Kaplan to pay the costs associated with indemnifying Purdue Global or potential future clients from losses resulting from enforcement actions or claims related to these laws and regulations.

Failure to comply with these and other federal and state laws and regulations could result in the imposition on Kaplan of fines or federal student aid repayment obligations to the ED or the termination or limitation on Kaplan’s eligibility to provide services as a Third-Party Servicer to Purdue Global or any other Title IV participating institution.

Compliance reviews, program review, audits, investigations and failure to remediate material weaknesses in internal control over financial reporting could result in findings of non-compliance with statutory and regulatory requirements and result in liabilities, sanctions, and fines.

As a Third-Party Servicer providing services to a Title IV participating institution, Kaplan is subject to reviews, audits, investigations and other compliance reviews conducted by various regulatory agencies and auditors, including, among others, the ED, the ED’s Office of the Inspector General, accrediting bodies, and state and various other federal agencies. These compliance reviews can result in findings of non-compliance with statutory and regulatory requirements that can, in turn, result in proceedings to impose fines, liabilities, civil or criminal penalties or other sanctions against Kaplan. Kaplan will be required, if it enters into contracts with other Title IV participating institutions, to arrange for an independent auditor to conduct an annual Title IV compliance audit of Kaplan’s compliance with applicable ED requirements.

In addition to the sale of the institutional assets and operations of KU to Purdue Global, Kaplan sold substantially all of the assets of KHE nationally accredited on-ground schools on September 3, 2015 in a transaction that did not involve the assets of KU. As part of the transaction, similar to the sale of KU, Kaplan retained liability for the pre-sale conduct of the KHE schools. Although Kaplan no longer owns KU or the KHE schools, Kaplan may be liable to the current owners of the KU and the KHE schools, respectively, for the pre-sale conduct of the schools. Additionally, Kaplan may be subject to future compliance reviews or lawsuits that could result in monetary liabilities or fines or other sanctions.

On February 23, 2015, the ED began a review of KU. The review will assess Kaplan’s administration of its Title IV and Higher Education Act programs and will initially focus on the 2013 to 2014 and 2014 to 2015 award years. The ED has not notified Kaplan of any negative findings. However, at this time, Kaplan cannot predict the outcome of this review, when it will be completed or any liability or other limitations that the ED may place on Kaplan as a result of this review. Kaplan retains responsibility for any financial obligation resulting from this ED program review.

There are also two open program reviews at campuses that were part of the KHE Campuses business prior to its sale in 2015 to Education Corporation of America, and the ED’s final reports on the program reviews at former KHE Broomall, PA, and Pittsburgh, PA, locations are pending. Kaplan retains responsibility for any financial obligation resulting from the ED program reviews at the KHE Campuses business that were open at the time of sale.

In addition, the ED is currently conducting a review of KU’s prior compliance with ED regulations regarding the return of Title IV funds for withdrawn students. Kaplan recently determined that a KU procedural change implemented with respect to student financial aid refunds may not have been in accordance with the ED regulation governing return of financial aid for students who withdraw from a program prior to completion. Consequently, $8.4 million in estimated unreturned funds from prior periods was recorded in Kaplan’s fourth quarter 2017 results; this estimated refund liability is included in current liabilities on the Company’s consolidated balance sheet at December 31, 2017. The Company determined that this procedural change was implemented without sufficient management review and approval and accordingly determined that its internal control over financial reporting was not effective as a result of this material weakness. No restatement of prior period financial statements and no change in previously reported financial results were required due to the immateriality of the adjustment for the periods presented, and Kaplan self-reported this matter to the ED and is in the process of returning funds deemed necessary. The Company’s management is currently in the process of implementing remediation measures and will monitor the effectiveness of these remediation measures and will make any changes and take such other actions that it deems appropriate given the circumstances.

This matter is under review by the ED and Kaplan’s yearly financial aid compliance auditor (a process required for all schools yearly under Title IV). The ED has requested additional relevant data and other information. As a

result of this issue the ED may require additional refunds or impose monetary or other sanctions on Kaplan. Kaplan cannot predict the final outcome of the ED’s review.

Although the Company expects the above described remediation to be completed during 2018, there can be no assurance that management’s remediation measures will be sufficient to remedy the material weakness or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports.

Non-compliance with regulations by Kaplan’s client institutions will adversely impact Kaplan’s results of operations.

Kaplan currently provides Third-Party Servicer services to one client institution, Purdue Global, which is heavily regulated by federal and state laws and regulations and by accrediting body requirements. A substantial portion of Kaplan’s revenues are attributable to revenues it receives under its agreement with Purdue (the TOSA) which are dependent upon revenues generated by Purdue Global and upon Purdue Global’s eligibility to participate in the Title IV federal student aid program. To maintain Title IV eligibility, Purdue Global must be certified by the ED as an eligible institution, maintain authorization by applicable state education agencies, and be accredited by an accrediting commission recognized by the ED. Purdue Global also must comply with the extensive statutory and regulatory requirements of the Higher Education Act and other state and federal laws and accrediting standards relating to its financial aid management, educational programs, financial strength, disbursement and return of Title IV funds, facilities, recruiting practices, representations made by the school, and various other matters. If Purdue Global loses or has limits placed on its Title IV eligibility, accreditation or state licensure, or if Purdue Global is subject to fines, repayment obligations, or other adverse actions due to its or Kaplan’s non-compliance with Title IV regulations, accreditor, or state agency requirements, or other state or federal laws Kaplan’s financial results of operations could be adversely effected.

There is no assurance that Purdue Global will comply with applicable laws, regulations and other requirements and maintain its Title IV eligibility, accreditation and state authorization in the future. This is also true of any future clients to whom Kaplan may provide services regulated by Title IV. Although an institution’s compliance may be affected by circumstances beyond Kaplan’s control, if Purdue Global or other client institutions fail to comply with applicable regulations and laws, including the following, Kaplan’s results of operations would be adversely impacted:

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Change in ownership approval: If an institution experiences a change of control under the standards of applicable state agencies, accrediting agencies or the ED, it must seek the approval of the relevant agencies. Purdue Global already has received certain pre-closing approvals required in connection with the transaction from HLC and certain other regulators as well as a Temporary Program Participation Agreement from the ED. However, Purdue Global is required to obtain final post-closing approvals from the ED and certain other state education agencies. We cannot provide any assurances regarding the timing or outcome of any pending applications for regulatory approvals from the ED or other education agencies. The failure of an institution to reestablish its state authorization, accreditation or ED certification following a change of control as defined by the applicable agency could result in a suspension of operating authority or suspension or loss of U.S. federal student financial aid funding, which could have a material adverse effect on Purdue Global’s student population and Kaplan’s revenue. It also is possible that, as a condition to granting these regulatory approvals, a regulatory authority may require changes to the agreement pursuant to which Kaplan will provide post-closing support services, and these changes may negatively impact Kaplan’s financial condition and results of operations.

Graham Holdings Company Announces Proposed $400 Million Private Offering of Senior Notes

ARLINGTON, Va.--(BUSINESS WIRE)--May 21, 2018--Graham Holdings Company (NYSE: GHC) (the “Company”) today announced that it intends to offer, subject to market and other conditions, $400 million in aggregate principal amount of its senior unsecured notes due 2026 (the “Notes”). The Notes will be guaranteed, jointly and severally, on a senior unsecured basis, by certain of the Company’s existing and future domestic subsidiaries.

If the offering is consummated, the Company intends to use the net proceeds from the offering, together with cash on hand, to redeem all $400 million aggregate principal amount of the Company’s existing 7.250% notes due 2019.

The Notes and related guarantees have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and the rules promulgated thereunder. The Notes and related guarantees will be offered only to qualified institutional buyers in the United States pursuant to Rule 144A of the Securities Act and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act.

This announcement does not constitute an offer to sell or a solicitation of an offer to buy any of the foregoing securities, nor shall there be any offer, solicitation or sale in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful.

Forward-Looking Statements

Certain statements in this announcement, including statements regarding the proposed offering of the Notes and the Company’s intended use for the proceeds of the offering, may contain 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. Such forward-looking statements only speak as of the date of this announcement, and the Company disclaims any obligation to update information contained in these forward-looking statements.

Source: Graham Holdings Company

Graham Holdings Company
Pinkie Mayfield

(703) 345-6450

Pinkie.Mayfield@ghco.com