Business Segments

12 Months Ended

Dec. 31, 2019

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 changed the presentation of its segments in the third quarter of 2019 into the following eight reportable segments: Kaplan International, Kaplan Higher Education, Kaplan Test Preparation, Kaplan Professional (U.S.), Television Broadcasting, Manufacturing, Healthcare, and SocialCode.

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

Identifiable assets by segment are those assets used in the Company’s operations in each business segment. The Prepaid Pension cost is not included in identifiable assets by segment. Investments in marketable equity securities are discussed in Note 4.

Education. Education products and services are provided by Kaplan, Inc. Kaplan International includes professional training and postsecondary education businesses largely outside the U.S., as well as English-language programs. Prior to the KU Transaction closing on March 22, 2018, KHE included Kaplan’s domestic postsecondary education business, made up of fixed-facility colleges and online postsecondary and career programs. Following the KU Transaction closing, KHE includes the results as a service provider to higher education institutions. KTP includes Kaplan’s standardized test preparation and new economy skills training programs. Professional (U.S.) includes the domestic professional training and other continuing education businesses.

As of December 31, 2019, KHE had a total outstanding accounts receivable balance of $68.4 million from Purdue Global related to amounts due for reimbursements for services and a deferred fee. In addition, KHE has an $18.6 million long-term receivable balance due from Purdue Global at December 31, 2019, related to the advance of $20.0 million during the initial KU Transaction.

In recent years, Kaplan has formulated and implemented restructuring plans at its various businesses. There were no significant restructuring costs in 2019 and 2018. Across all Kaplan businesses, restructuring costs of $9.1 million were recorded in 2017 as follows:



	Year Ended
(in thousands)	December 31, 2017
Accelerated depreciation	$	339
Severance	6,099
Other	2,627
	$	9,065

Kaplan International incurred restructuring costs of $2.9 million in 2017. These restructuring costs were largely in the U.K. and Australia and included severance charges and accelerated depreciation. KHE incurred restructuring costs of $1.4 million in 2017 primarily from severance and accelerated depreciation. KTP incurred restructuring costs of $4.3 million in 2017 primarily from severance. Total accrued restructuring costs at Kaplan were $1.3 million and $4.6 million at the end of 2019 and 2018, 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.

Manufacturing. Manufacturing operations include 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; 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.

Healthcare. Graham Healthcare Group provides home health, hospice and palliative services.

SocialCode. SocialCode is a provider of marketing solutions managing data, creative, media and marketplaces to accelerate client growth.

Other Businesses. Other businesses includes the following:


•	Three automotive dealerships, including Lexus of Rockville and Honda of Tysons Corner, which were acquired on January 31, 2019 and Jeep of Bethesda, which opened in December 2019.


•	Clyde’s Restaurant Group (acquired on July 31, 2019) owns and operates thirteen restaurants and entertainment venues in the Washington, DC metropolitan area.


•	The Slate Group and Foreign Policy Group, which publish online and print magazines and websites; and three investment stage businesses, Megaphone, Pinna and Cybervista.

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

Geographical Information. The Company’s non-U.S. revenues in 2019, 2018 and 2017 totaled approximately $691 million, $657 million and $637 million, respectively, primarily from Kaplan’s operations outside the U.S. Additionally, revenues in 2019, 2018 and 2017 totaled approximately $384 million, $345 million, and $320 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 $431 million and $124 million at December 31, 2019 and 2018, respectively.

Company information broken down by operating segment and education division:



	Year Ended December 31
(in thousands)	2019			2018			2017
Operating Revenues
Education	$	1,451,750		$	1,451,015		$	1,516,776
Television broadcasting	463,464			505,549			409,916
Manufacturing	449,053			487,619			414,193
Healthcare	161,768			149,275			154,202
SocialCode	62,754			58,728			62,077
Other businesses	344,092			43,880			34,733
Corporate office	—			—			—
Intersegment elimination	(782		)	(100		)	(51		)
	$	2,932,099		$	2,695,966		$	2,591,846
Income (Loss) from Operations
Education	$	48,072		$	97,136		$	77,687
Television broadcasting	152,668			210,533			139,258
Manufacturing	20,467			28,851			14,947
Healthcare	7,908			(8,401		)	(2,569		)
SocialCode	(3,283		)	(1,081		)	(3,674		)
Other businesses	(30,129		)	(28,016		)	(30,536		)
Corporate office	(51,157		)	(52,861		)	(58,710		)
	$	144,546		$	246,161		$	136,403
Equity in Earnings (Losses) of Affiliates, Net	11,664			14,473			(3,249		)
Interest Expense, Net	(23,628		)	(32,549		)	(27,305		)
Debt Extinguishment Costs	—			(11,378		)	—
Non-Operating Pension and Postretirement Benefit Income, Net	162,798			120,541			72,699
Gain (Loss) on Marketable Equity Securities, net	98,668			(15,843		)	—
Other Income, Net	32,431			2,103			4,241
Income Before Income Taxes	$	426,479		$	323,508		$	182,789
Depreciation of Property, Plant and Equipment
Education	$	25,655		$	28,099		$	32,906
Television broadcasting	12,817			13,204			12,179
Manufacturing	10,036			9,515			9,173
Healthcare	2,314			2,577			4,583
SocialCode	1,017			797			1,004
Other businesses	6,539			1,523			1,546
Corporate office	875			1,007			1,118
	$	59,253		$	56,722		$	62,509
Amortization of Intangible Assets and Impairment of Goodwill and
Other Long-Lived Assets
Education	$	15,608		$	9,362		$	5,162
Television broadcasting	13,408			5,632			6,349
Manufacturing	26,342			24,746			31,052
Healthcare	6,411			14,855			7,905
SocialCode	626			928			333
Other businesses	—			—			—
Corporate office	—			—			—
	$	62,395		$	55,523		$	50,801
Pension Service Cost
Education	$	10,385		$	8,753		$	9,720
Television broadcasting	3,025			2,188			1,942
Manufacturing	80			72			79
Healthcare	492			573			665
SocialCode	877			723			593
Other businesses	763			578			453
Corporate office	4,800			5,334			5,235
	$	20,422		$	18,221		$	18,687
Capital Expenditures
Education	$	57,246		$	54,159		$	27,520
Television broadcasting	19,362			27,013			16,802
Manufacturing	11,218			14,806			8,012
Healthcare	2,303			1,741			2,987
SocialCode	643			113			756
Other businesses	3,060			235			1,003
Corporate office	115			—			—
	$	93,947		$	98,067		$	57,080

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



	As of December 31
(in thousands)	2019		2018
Identifiable Assets
Education	$	2,032,425	$	1,568,747
Television broadcasting	463,689		452,853
Manufacturing	564,251		593,111
Healthcare	160,033		108,596
SocialCode	221,746		213,394
Other businesses	345,649		20,608
Corporate office	103,764		162,971
	$	3,891,557	$	3,120,280
Investments in Marketable Equity Securities	585,080		496,390
Investments in Affiliates	162,249		143,813
Prepaid Pension Cost	1,292,350		1,003,558
Total Assets	$	5,931,236	$	4,764,041

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



	Year Ended December 31
(in thousands)	2019			2018			2017
Operating Revenues
Kaplan international	$	750,245		$	719,982		$	697,999
Higher education	305,672			342,085			431,425
Test preparation	243,917			256,102			273,298
Professional (U.S.)	144,897			134,187			115,839
Kaplan corporate and other	9,480			1,142			294
Intersegment elimination	(2,461		)	(2,483		)	(2,079		)
	$	1,451,750		$	1,451,015		$	1,516,776
Income (Loss) from Operations
Kaplan international	$	42,129		$	70,315		$	51,623
Higher education	13,960			15,217			16,719
Test preparation	7,399			19,096			11,507
Professional (U.S.)	27,088			28,608			27,558
Kaplan corporate and other	(42,499		)	(36,064		)	(29,863		)
Intersegment elimination	(5		)	(36		)	143
	$	48,072		$	97,136		$	77,687
Depreciation of Property, Plant and Equipment
Kaplan international	$	15,394		$	15,755		$	14,892
Higher education	2,883			4,826			9,117
Test preparation	3,284			3,941			5,286
Professional (U.S.)	3,848			3,096			3,041
Kaplan corporate and other	246			481			570
	$	25,655		$	28,099		$	32,906
Amortization of Intangible Assets	$	14,915		$	9,362		$	5,162
Impairment of Long-Lived Assets	$	693		$	—		$	—
Pension Service Cost
Kaplan international	$	454		$	298		$	264
Higher education	4,535			4,310			5,269
Test preparation	3,378			2,611			2,755
Professional (U.S.)	1,356			1,162			913
Kaplan corporate and other	662			372			519
	$	10,385		$	8,753		$	9,720
Capital Expenditures
Kaplan international	$	48,362		$	44,469		$	21,667
Higher education	3,463			4,045			2,158
Test preparation	1,527			681			1,038
Professional (U.S.)	3,835			4,845			2,475
Kaplan corporate and other	59			119			182
	$	57,246		$	54,159		$	27,520

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



	As of December 31
(in thousands)	2019		2018
Identifiable Assets
Kaplan international	$	1,455,122	$	1,101,040
Higher education	196,761		126,752
Test preparation	151,655		145,308
Professional (U.S.)	160,799		166,916
Kaplan corporate and other	68,088		28,731
	$	2,032,425	$	1,568,747