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 4.

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 these businesses as they are included in discontinued operations, net of tax, for all periods presented.

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 $11.9 million, $44.4 million and $16.8 million were recorded in 2016, 2015 and 2014, respectively, as follows:



	Year Ended December 31
(in thousands)	2016		2015		2014
Accelerated depreciation	$	1,815	$	17,956	$	2,062
Lease obligation losses	2,694		8,240		1,750
Severance and Special Incentive Program expense	5,902		17,968		5,075
Software asset write-offs	—		—		7,689
Other	1,441		209		230
	$	11,852	$	44,373	$	16,806

KHE incurred restructuring costs of $7.2 million, $12.9 million and $6.5 million in 2016, 2015 and 2014, respectively, primarily from severance and Special Incentive Program expense, lease obligation losses and accelerated depreciation. These costs were incurred in connection with a plan announced in September 2012 for KHE to close or consolidate operations at 13 ground campuses, additional plans announced in 2014 to close five more campuses, along with plans to consolidate facilities and reduce its workforce, and the September 2015 sale of the KHE Campuses business.

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 and $13.6 million other long-lived asset impairment charge in connection with its KHE Campuses business, in the second quarter of 2015 and fourth quarter of 2014, respectively.

Kaplan International incurred restructuring costs of $4.7 million, $1.3 million and $0.2 million in 2016, 2015 and 2014, respectively. These restructuring costs were largely in the UK 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 $11.8 million and $24.2 million at the end of 2016 and 2015, respectively.

Television Broadcasting. Television broadcasting operations are conducted through five VHF television stations serving the Detroit, Houston, San Antonio, Orlando and Jacksonville television markets. All stations are network-affiliated (except for WJXT in Jacksonville), with revenues derived primarily from sales of advertising time.

Other Businesses. Other businesses includes the following:

•

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 (acquired in May 2014); 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 Healthcare (Celtic) and Residential Healthcare Group, Inc. (Residential, acquired in July 2014), providers of home health and hospice services; and


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

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 2016, 2015 and 2014 totaled approximately $624 million, $660 million and $712 million, respectively, primarily from Kaplan’s operations outside the U.S. Additionally, revenues in 2016, 2015 and 2014 totaled approximately $312 million, $319 million, and $351 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 $67 million and $59 million at December 31, 2016 and 2015, respectively.

Company information broken down by operating segment and education division:



	Year Ended December 31
(in thousands)	2016			2015			2014
Operating Revenues
Education	$	1,598,461		$	1,927,521		$	2,160,417
Television broadcasting	409,718			359,192			363,836
Other businesses	473,850			299,517			212,907
Corporate office	—			—			—
Intersegment elimination	(139		)	(116		)	(128		)
	$	2,481,890		$	2,586,114		$	2,737,032
Income (Loss) from Operations
Education	$	93,632		$	(223,456	)	$	65,463
Television broadcasting	200,470			164,927			187,833
Other businesses	(22,102		)	(13,667		)	(21,086		)
Corporate office	31,534			(8,629		)	510
	$	303,534		$	(80,825	)	$	232,720
Equity in (Losses) Earnings of Affiliates, Net	(7,937		)	(697		)	100,370
Interest Expense, Net	(32,297		)	(30,745		)	(33,397		)
Other (Expense) Income, Net	(12,642		)	(8,623		)	778,010
Income (Loss) from Continuing Operations before Income Taxes	$	250,658		$	(120,890	)	$	1,077,703
Depreciation of Property, Plant and Equipment
Education	$	41,187		$	61,177		$	61,737
Television broadcasting	9,942			9,551			8,409
Other businesses	12,375			6,168			3,931
Corporate office	1,116			1,010			836
	$	64,620		$	77,906		$	74,913
Amortization of Intangible Assets and Impairment of Goodwill and
Other Long-Lived Assets
Education	$	7,516		$	262,353		$	24,941
Television broadcasting	251			252			32
Other businesses	20,507			16,112			10,516
Corporate office	—			—			—
	$	28,274		$	278,717		$	35,489
Net Pension (Credit) Expense
Education	$	11,803		$	18,804		$	15,418
Television broadcasting	1,714			1,620			1,355
Other businesses	1,118			964			748
Corporate office	(81,732		)	(81,945		)	(82,301		)
	$	(67,097	)	$	(60,557	)	$	(64,780	)
Capital Expenditures
Education	$	26,497		$	42,220		$	33,528
Television broadcasting	27,453			9,998			11,295
Other businesses	16,047			9,504			5,110
Corporate office	715			311			7,074
	$	70,712		$	62,033		$	57,007

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



	As of December 31
(in thousands)	2016		2015
Identifiable Assets
Education	$	1,479,267	$	1,454,520
Television broadcasting	336,631		312,243
Other businesses	796,935		712,161
Corporate office	455,209		484,139
	$	3,068,042	$	2,963,063
Investments in Marketable Equity Securities	424,229		350,563
Investments in Affiliates	58,806		59,229
Prepaid Pension Cost	881,593		979,970
Total Assets	$	4,432,670	$	4,352,825

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



	Year Ended December 31
(in thousands)	2016			2015			2014
Operating Revenues
Higher education	$	617,047		$	849,625		$	1,010,058
Test preparation	286,556			301,607			304,662
Kaplan international	696,362			770,273			840,915
Kaplan corporate and other	214			6,502			6,094
Intersegment elimination	(1,718		)	(486		)	(1,312		)
	$	1,598,461		$	1,927,521		$	2,160,417
Income (Loss) from Operations
Higher education	$	66,632		$	55,572		$	83,069
Test preparation	9,599			16,798			(4,730		)
Kaplan international	48,398			53,661			69,153
Kaplan corporate and other	(30,968		)	(349,583		)	(82,034		)
Intersegment elimination	(29		)	96			5
	$	93,632		$	(223,456	)	$	65,463
Depreciation of Property, Plant and Equipment
Higher education	$	16,822		$	17,937		$	29,187
Test preparation	6,287			9,045			12,547
Kaplan international	17,523			17,811			19,297
Kaplan corporate and other	555			16,384			706
	$	41,187		$	61,177		$	61,737
Amortization of Intangible Assets	$	7,516		$	5,523		$	7,738
Impairment of Goodwill and Other Long-Lived Assets	$	—		$	256,830		$	17,203
Pension Expense
Higher education	$	7,620		$	10,849		$	10,514
Test preparation	3,072			3,101			2,888
Kaplan international	268			424			356
Kaplan corporate and other	843			4,430			1,660
	$	11,803		$	18,804		$	15,418
Capital Expenditures
Higher education	$	5,364		$	10,202		$	11,551
Test preparation	4,672			8,720			1,143
Kaplan international	16,252			22,673			20,802
Kaplan corporate and other	209			625			32
	$	26,497		$	42,220		$	33,528

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)	2016		2015
Identifiable Assets
Higher education	$	373,127	$	447,282
Test preparation	133,709		134,535
Kaplan international	950,922		826,475
Kaplan corporate and other	21,509		46,228
	$	1,479,267	$	1,454,520