BUSINESS SEGMENTS

Basis of Presentation. The Company’s organizational structure is based on a number of factors that management uses to evaluate, view and run its business operations, which include, but are not limited to, customers, the nature of products and services and use of resources. The business segments disclosed in the Consolidated Financial Statements are based on this organizational structure and information reviewed by the Company’s management to evaluate the business segment results. The Company has four reportable segments: KHE, KTP, Kaplan International, and television broadcasting.

The Company evaluates segment performance based on operating income before amortization of intangible assets and impairment of goodwill and other long-lived assets. The accounting policies at the segments are the same as described in Note 2. In computing income from operations by segment, the effects of equity in earnings (losses) of affiliates, interest income, interest expense, other non-operating income and expense items and income taxes are not included. Intersegment sales are not material.

Identifiable assets by segment are those assets used in the Company’s operations in each business segment. The Prepaid Pension cost is not included in identifiable assets by segment. Investments in marketable equity securities are discussed in Note 5.

Education. Education products and services are provided by Kaplan, Inc. KHE includes Kaplan’s domestic postsecondary education businesses, made up of fixed-facility colleges and online postsecondary and career programs. KHE also includes the domestic professional training and other continuing education businesses. KTP includes Kaplan’s standardized test preparation and new economy skills training programs. Kaplan International includes professional training and postsecondary education businesses largely outside the United States, as well as English-language programs.

In the third quarter of 2014, Kaplan completed the sale of three of its schools in China that were previously included as part of Kaplan International. An additional school in China was sold in January 2015. The education division’s operating results exclude the sale of this business as it is included in discontinued operations, net of tax, for 2015.

In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in significant costs in the past three years, with the objective of establishing lower cost levels in future periods. Across all Kaplan businesses, restructuring costs of $10.0 million, $11.9 million and $44.4 million were recorded in 2017, 2016 and 2015, respectively, as follows:



	Year Ended December 31
(in thousands)	2017		2016		2015
Accelerated depreciation	$	339	$	1,815	$	17,956
Lease obligation losses	—		2,694		8,240
Severance and Special Incentive Program expense	6,992		5,902		17,968
Other	2,627		1,441		209
	$	9,958	$	11,852	$	44,373

KHE incurred restructuring costs of $1.8 million, $7.2 million and $12.9 million in 2017, 2016 and 2015, respectively, primarily from severance and Special Incentive Program expense, lease obligation losses and accelerated depreciation.

On February 12, 2015, Kaplan entered into a Purchase and Sale Agreement to sell substantially all of the assets of its KHE Campuses business, consisting of 38 nationally accredited ground campuses, and certain related assets, in exchange for a preferred equity interest in a vocational school company. The transaction closed on September 3, 2015. In addition, Kaplan recorded a $6.9 million other long-lived asset impairment charge in connection with its KHE Campuses business in the second quarter of 2015.

KTP incurred restructuring costs of $4.3 million in 2017 primarily from severance.

Kaplan International incurred restructuring costs of $3.8 million, $4.7 million and $1.3 million in 2017, 2016 and 2015, respectively. These restructuring costs were largely in the U.K. and Australia and included severance charges, lease obligations, and accelerated depreciation.

Kaplan Corporate incurred restructuring costs of $29.4 million in 2015 related to accelerated depreciation, severance and Special Incentive Program expense and lease obligations losses.

Total accrued restructuring costs at Kaplan were $8.5 million and $11.8 million at the end of 2017 and 2016, respectively.

Television Broadcasting. Television broadcasting operations are conducted through seven television stations serving the Detroit, Houston, San Antonio, Orlando, Jacksonville and Roanoke television markets. All stations are network-affiliated (except for WJXT in Jacksonville), with revenues derived primarily from sales of advertising time. In addition, the stations generate revenue from retransmission consent agreements for the right to carry their signals.

Other Businesses. Other businesses includes the following:

•

Hoover, a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications (acquired in April 2017); Dekko, a Garrett, IN-based manufacturer of electrical workspace solutions, architectural lighting, and electrical components and assemblies (acquired in November 2015); Joyce/Dayton Corp., a Dayton, OH-based manufacturer of screw jacks and other linear motion systems; and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications;


•	Graham Healthcare Group (GHG), made up of Celtic and Residential, providers of home health and hospice services; and


•	SocialCode, a marketing and insights company that manages digital advertising for leading brands; The Slate Group and Foreign Policy Group, which publish online and print magazines and websites; and two investment stage businesses, Panoply and Cybervista.

In November 2015, the Company announced that Trove, a digital innovation team that builds products and technologies in the news space, would largely be integrated into SocialCode.

Corporate Office. Corporate office includes the expenses of the Company’s corporate office, a net pension credit and certain continuing obligations related to prior business dispositions.

Geographical Information. The Company’s non-U.S. revenues in 2017, 2016 and 2015 totaled approximately $637 million, $624 million and $660 million, respectively, primarily from Kaplan’s operations outside the U.S. Additionally, revenues in 2017, 2016 and 2015 totaled approximately $320 million, $312 million, and $319 million, respectively, from Kaplan’s operations in the U.K. The Company’s long-lived assets in non-U.S. countries (excluding goodwill and other intangible assets), totaled approximately $89 million and $67 million at December 31, 2017 and 2016, respectively.

Company information broken down by operating segment and education division:



	Year Ended December 31
(in thousands)	2017			2016			2015
Operating Revenues
Education	$	1,516,776		$	1,598,461		$	1,927,521
Television broadcasting	409,916			409,718			359,192
Other businesses	665,205			473,850			299,517
Corporate office	—			—			—
Intersegment elimination	(51		)	(139		)	(116		)
	$	2,591,846		$	2,481,890		$	2,586,114
Income (Loss) from Operations
Education	$	75,169		$	93,632		$	(223,456	)
Television broadcasting	137,203			200,470			164,927
Other businesses	(22,764		)	(22,102		)	(13,667		)
Corporate office	19,494			31,534			(8,629		)
	$	209,102		$	303,534		$	(80,825	)
Equity in Losses of Affiliates, Net	(3,249		)	(7,937		)	(697		)
Interest Expense, Net	(27,305		)	(32,297		)	(30,745		)
Other Income (Expense), Net	4,241			(12,642		)	(8,623		)
Income (Loss) from Continuing Operations before Income Taxes	$	182,789		$	250,658		$	(120,890	)
Depreciation of Property, Plant and Equipment
Education	$	32,906		$	41,187		$	61,177
Television broadcasting	12,179			9,942			9,551
Other businesses	16,306			12,375			6,168
Corporate office	1,118			1,116			1,010
	$	62,509		$	64,620		$	77,906
Amortization of Intangible Assets and Impairment of Goodwill and
Other Long-Lived Assets
Education	$	5,162		$	7,516		$	262,353
Television broadcasting	6,349			251			252
Other businesses	39,290			20,507			16,112
Corporate office	—			—			—
	$	50,801		$	28,274		$	278,717
Net Pension (Credit) Expense
Education	$	10,613		$	11,803		$	18,804
Television broadcasting	1,942			1,714			1,620
Other businesses	2,722			1,118			964
Corporate office	(72,491		)	(81,732		)	(81,945		)
	$	(57,214	)	$	(67,097	)	$	(60,557	)
Capital Expenditures
Education	$	27,520		$	26,497		$	42,220
Television broadcasting	16,802			27,453			9,998
Other businesses	12,758			16,047			9,504
Corporate office	—			715			311
	$	57,080		$	70,712		$	62,033

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



	As of December 31
(in thousands)	2017		2016
Identifiable Assets
Education	$	1,592,097	$	1,479,267
Television broadcasting	455,884		336,631
Other businesses	985,255		796,935
Corporate office	182,905		455,209
	$	3,216,141	$	3,068,042
Investments in Marketable Equity Securities	536,315		424,229
Investments in Affiliates	128,590		58,806
Prepaid Pension Cost	1,056,777		881,593
Total Assets	$	4,937,823	$	4,432,670

The Company’s education division comprises the following operating segments:



	Year Ended December 31
(in thousands)	2017			2016			2015
Operating Revenues
Higher education	$	547,264		$	617,047		$	849,625
Test preparation	273,298			286,556			301,607
Kaplan international	697,999			696,362			770,273
Kaplan corporate and other	294			214			6,502
Intersegment elimination	(2,079		)	(1,718		)	(486		)
	$	1,516,776		$	1,598,461		$	1,927,521
Income (Loss) from Operations
Higher education	$	44,277		$	66,632		$	55,572
Test preparation	11,507			9,599			16,798
Kaplan international	50,730			48,398			53,661
Kaplan corporate and other	(31,488		)	(30,968		)	(349,583		)
Intersegment elimination	143			(29		)	96
	$	75,169		$	93,632		$	(223,456	)
Depreciation of Property, Plant and Equipment
Higher education	$	12,158		$	16,822		$	17,937
Test preparation	5,286			6,287			9,045
Kaplan international	14,892			17,523			17,811
Kaplan corporate and other	570			555			16,384
	$	32,906		$	41,187		$	61,177
Amortization of Intangible Assets	$	5,162		$	7,516		$	5,523
Impairment of Goodwill and Other Long-Lived Assets	$	—		$	—		$	256,830
Pension Expense
Higher education	$	6,182		$	7,620		$	10,849
Test preparation	2,755			3,072			3,101
Kaplan international	1,157			268			424
Kaplan corporate and other	519			843			4,430
	$	10,613		$	11,803		$	18,804
Capital Expenditures
Higher education	$	4,633		$	5,364		$	10,202
Test preparation	1,038			4,672			8,720
Kaplan international	21,667			16,252			22,673
Kaplan corporate and other	182			209			625
	$	27,520		$	26,497		$	42,220

In the third quarter of 2015, a favorable $3.0 million out of period revenue adjustment was included at the test preparation segment that related to prior periods from 2011 through the second quarter of 2015. With respect to this error, the Company has concluded that it was not material to the Company’s financial position or results of operations for 2015 and prior years and the related interim periods, based on its consideration of quantitative and qualitative factors.

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



	As of December 31
(in thousands)	2017		2016
Identifiable Assets
Higher education	$	323,616	$	373,127
Test preparation	130,938		133,709
Kaplan international	1,115,919		950,922
Kaplan corporate and other	21,624		21,509
	$	1,592,097	$	1,479,267