Contingencies

6 Months Ended

Jul. 03, 2011

Contingencies

Contingencies

Note 10: Contingencies

Litigation and Legal Matters.

The Company is involved in various legal proceedings that arise in the ordinary course of its business. Although the outcome 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.

Also, based on currently available information, management is of the opinion that the exposure to future material losses from existing legal proceedings is not reasonably possible, or that future material losses in excess of the amounts accrued are not reasonably possible.

On July 22, 2011, Kaplan Higher Education finalized a comprehensive agreement to terminate the pending inquiries and related matters involving the Surgical Technology program previously offered at its CHI-Broomall campus in Broomall, Pennsylvania. The Surgical Technology program at CHI-Broomall ceased enrolling students in 2008. The agreement: (a) concludes the inquiry by the Assistant U.S. Attorney in the Civil Division of the U.S. Attorney's Office for the Eastern District of Pennsylvania into the Surgical Technology program previously offered at the CHI-Broomall campus; (b)concludes, but for the issuance of a final determination, the program review by the U.S. Department of Education into that Surgical Technology program and the CHI-Broomall campus; and (c) fully resolves and dismisses with prejudice a previously-sealed federal False Claims Act complaint relating to that Surgical Technology program, which had been filed by a former employee. The agreement terminates each of these matters without any admission of wrongdoing. The total amount of all required payments by CHI-Broomall under the agreement is $1.6 million. On July 22, 2011, the U.S. Attorney's Office for the Eastern District of Pennsylvania filed a motion in the U.S. District Court for the Eastern District of Pennsylvania, in the previously-sealed case captioned United States ex rel. Goodstein v. Kaplan, Inc. et al. (No. 07-1491), seeking to unseal the case docket, along with a notice of intervention in the case solely for the purpose of resolving and dismissing the case pursuant to the agreement described above.

On July 20, 2011, the Company received a subpoena from the office of the Delaware Attorney General, seeking information about Delaware residents who attended Kaplan Higher Education schools from 2006 to 2010. Kaplan intends to cooperate with the Delaware Attorney General in connection with the subpoena and any further actions that may occur.

DOE Program Reviews. The U.S. Department of Education (DOE) has undertaken Program Reviews at various Kaplan Higher Education (KHE) campus locations and at Kaplan University. Currently, there are six pending Program Reviews, including two that are scheduled to take place before the end of the third quarter of 2011. Therefore, the results of these open reviews and their impact on Kaplan's operations are uncertain.

Texas Workforce Commission Notification. On July 18, 2011, the Texas Workforce Commission (TWC) notified KHE that 10 programs at 9 Texas campuses have been placed on "conditional approval" status due to unsatisfactory placement rates. These campuses will be required to report placement rates from September 1, 2010 through August 31, 2011 for these programs to the TWC on December 1, 2011; programs for which the placement rate falls below 60% may be subject to a hold on accepting new enrollments, which most likely would take effect in the first quarter of 2012. There are approximately 550 students enrolled in these programs.

Other. The UK Border Agency issued revised immigration rules which became operational on April 21, 2011. Students from outside the European Economic Area (EEA) and Switzerland who were issued a Confirmation of Acceptance for Studies (CAS) after July 4, 2011 will be given permission to work part-time during their studies only if they attend an institution which qualifies as a "Higher Education Institution" (HEI). Many of the Kaplan UK international students currently work part-time. Kaplan UK is not in receipt of public funding for the courses upon which international students study and, therefore, does not qualify as an HEI. Also, certain Kaplan UK schools have gained, applied for or are in the process of applying for Highly Trusted Sponsor status (HTS). Without HTS, these schools cannot issue CASs to potential incoming international students starting in April 2012. These rules have the potential to adversely impact the number of international students studying at Kaplan UK.