Contingencies and Other Commitments

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Contingencies and Other Commitments

CONTINGENCIES AND OTHER COMMITMENTS

Litigation, Legal and Other Matters.  The Company and its subsidiaries are subject to complaints and administrative proceedings and are defendants in various civil lawsuits that have arisen in the ordinary course of their businesses, including contract disputes; actions alleging negligence, libel, defamation and invasion of privacy; trademark, copyright and patent infringement; violations of employment laws and applicable wage and hour laws; and statutory or common law claims involving current and former students and employees. Although the outcomes 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. However, based on currently available information, management believes it is reasonably possible that future losses from existing and threatened legal, regulatory and other proceedings in excess of the amounts recorded could reach approximately $15 million.

On September 3, 2015, Kaplan sold to Education Corporation of America (ECA) substantially all of the assets of the KHE Campuses. The transaction included the transfer of certain real estate leases that were guaranteed or purportedly guaranteed by Kaplan. ECA is currently in receivership, has terminated all of its higher education operations and has sold most, if not all, of its remaining assets (including New England College of Business). Additionally, the receiver has repudiated all of ECA’s real estate leases. Although ECA is required to indemnify Kaplan for any amounts Kaplan must pay due to ECA’s failure to fulfill its obligations under the real estate leases guaranteed by Kaplan, ECA’s current financial condition and the amount of secured and unsecured creditor claims outstanding against ECA make it unlikely that Kaplan will recover from ECA. In the second half of 2018, the

Company recorded an estimated $17.5 million in losses on guarantor lease obligations in connection with this transaction in other non-operating expense. The Company recorded an additional estimated $1.1 million and $1.0 million in non-operating expense in 2019 and 2020, respectively, consisting of legal fees and lease costs. The Company continues to monitor the status of these obligations. Kaplan also may be liable to the current owners of KU and the KHE schools, respectively, related to the pre-sale conduct of the schools. Additionally, the pre-sale conduct of the schools could be the subject of future compliance reviews or lawsuits that could result in monetary liabilities or fines or other sanctions.

Her Majesty’s Revenue and Customs (HMRC), a department of the U.K. government responsible for the collection of taxes, raised assessments against the Kaplan UK Pathways business for Value Added Tax (VAT) relating to 2017 and earlier years, which Kaplan has paid. In September 2017, in a case captioned Kaplan International Colleges UK Limited v. The Commissioners for Her Majesty’s Revenue and Customs, Kaplan challenged these assessments. The Company believed it had met all requirements under U.K. VAT law for a cost sharing group VAT exemption to apply and was entitled to recover the £18.6 million related to the assessments and subsequent payments that had been paid through December 31, 2019. Following a hearing held in January 2019 before the First Tier Tax Tribunal, European legal questions on the scope of the cost sharing VAT exemption were referred to the Court of Justice of the European Union. The Court of Justice ruled against Kaplan on November 18, 2020. In the third quarter of 2019, due to developments in the case, the Company recorded a full provision against a receivable to expense, of which £14.1 million related to years 2014 to 2018.

On January 10, 2020, Kaplan Bournemouth Limited received an improvement notice from Bournemouth, Christchurch and Poole Council, a local government authority, under section 11 of the U.K. Housing Act 2004 in relation to its leased student residence in Bournemouth, U.K. This notice followed the Council’s assessment that a category 1 fire hazard exists at the property and required certain remedial work to be undertaken at the property within a specified timetable. This work comprised a number of items, including the removal of aluminum composite material (ACM) cladding and high pressure laminate (HPL) cladding from the facade of the building. Kaplan Bournemouth Limited appealed the notice on January 31, 2020, to contest certain remedial requirements, although it did not contest the requirement for the removal of the ACM and HPL cladding. Kaplan and the Council have reached an agreement regarding the remedial works required. A revised improvement notice was issued by the Council on February 17, 2021. The appeal proceedings are in the process of being formally withdrawn by Kaplan. Remediation works are underway at this site.

Other Commitments. The Company’s broadcast subsidiaries are parties to certain agreements that commit them to purchase programming to be produced in future years. At December 31, 2020, such commitments amounted to approximately $21.8 million. If such programs are not produced, the Company’s commitment would expire without obligation.