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GRAHAM HOLDINGS CO filed this Form DEF 14A on 03/23/2017
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(this target excludes budgeted restructuring costs, and other operating losses related to business sales and closures) weighted at 80% and Kaplan’s enterprise revenue target of $1,731.6 million weighted at 20%. The potential payouts for the Kaplan component of Mr. Rosen’s bonus amount range from 0% to 200% of target, with the maximum potential payout available in the event 150% of the operating income target is attained and the revenue target is met. Due to continued operating environment challenges in the U.S. higher education industry, Kaplan completed a number of unplanned restructuring activities in 2016 with the objective and result of significantly reducing its expenses to be more in line with current revenue levels. Given the impact and importance of these restructuring charges and discontinued operations, in calculating the 75% of Mr. Rosen’s bonus based on Kaplan’s enterprise operating income and enterprise revenue, the Committee excluded these restructuring charges and discontinued operations as they are not tied to Kaplan’s continuing operations. In addition, in calculating the 75% of Mr. Rosen’s bonus based on Kaplan’s enterprise operating income and enterprise value, the Committee included a net $16 million pre-tax gain on the sale of a historically loss-making business. On this basis, Kaplan achieved adjusted enterprise operating income of $131.8 million versus a target of $156.2 million, or 84% achievement, which resulted in payout of the portion of Mr. Rosen’s bonus attributable to Kaplan’s enterprise operating income of 68% of target. Kaplan enterprise revenue totaled $1,637.4 million versus a target of $1,731.6 million, or 95% achievement, which resulted in payout of the portion of Mr. Rosen’s bonus attributable to Kaplan’s enterprise revenue of 73% of target. Thus, the total percentage achievement of the Kaplan portion of Mr. Rosen’s bonus totaled 69% of target, or $836,030.

The original diluted earnings per share goal for 2016 was $32.21. In setting the original goal, the Committee established a formula for bonus purposes that included adjustments for certain items, to the extent that actual amounts varied from those in the 2016 annual budget. Specifically, these adjustments included additions for foreign exchange losses and a Kaplan stock compensation expense variance; these were offset by credits for a pension budget variance, gains from business dispositions and net earnings from an unbudgeted acquisition.

In calculating the Company’s achievement of 2016 diluted earnings per share for purposes of making its final bonus determinations for the named executive officers, the Committee also exercised its discretion to exclude certain unusual and unbudgeted items, in addition to the adjustments included in the diluted earnings per share formula. Specifically, the adjustments included additions for write-downs on cost and equity method investments, a portion of the gain on sale of a business, Long Term Incentive Plan (“LTIP”) expense variance from budget at SocialCode and Panoply, unbudgeted restructuring charges at Kaplan, unbudgeted transaction-related costs at the broadcasting division and Graham Healthcare Group, unbudgeted interest expense and unbudgeted intangible and long-lived asset impairment charges. These additions were offset by deductions for net gains on the sale of land and marketable equity securities and a portion of favorable income tax adjustments. The Committee adjusted for these items as they do not relate to the regular operating results that are customarily considered by the Committee in determining bonus amounts, however in the case of the gain on sale of a business, the Committee did not adjust for the favorable outcome of the transaction for the Company. The exhibit to the Company’s Form 8-K filed on February 24, 2017, detailed most of these items, as does page 42 of the Company’s Annual Report on Form 10-K, filed on February 24, 2017. These items collectively amounted to $1.28 in diluted earnings per share net deductions.

Taking into account these adjustments, the Company’s 2016 diluted earnings per share, as adjusted for purposes of the bonus determination, was $34.18 (compared to reported diluted earnings per share of $29.80), resulting in the Company’s achievement of 106.1% of its earnings per share goal for 2016. As a result, the annual bonus payout was approximately 115% of target, based on the established annual formula.

Restricted Stock

To align the interests of the Company’s shareholders and management and to ensure that the full potential of an executive’s compensation package cannot be realized unless stock appreciation occurs over a number of years, the 2012 ICP also provides for grants of restricted stock of the Company. To determine the number of shares to be granted, the Committee considers on an individual basis the estimated value of shares already held, the level of contribution the employee has previously made and the potential of the employee to bring additional value to the Company. The shares generally cliff vest at the conclusion of a four-year vesting period and accelerate vesting only at the discretion of the Committee. The named executive officers generally receive grants of restricted stock every other year. The grants made in January 2015 will vest in January 2019. In addition, in connection with the Cable ONE spin-off in 2015, a distribution of Cable ONE, Inc. shares was made with respect to outstanding shares of restricted stock, subject to the same vesting terms and conditions as such shares of Company restricted stock. For additional information regarding such distributions, see the Outstanding Equity Awards at Fiscal Year-End table.