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SEC Filings

GRAHAM HOLDINGS CO filed this Form 10-Q on 08/02/2017
Entire Document

The TOSA has a 30-year initial term, which will automatically renew for five-year periods unless terminated. After the sixth year, New University has the right to terminate the agreement upon payment of a termination fee equal to 1.25 times New University’s revenue for the preceding 12-month period (the “Buy-out Fee”), which payment would be made pursuant to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA. At the end of the 30-year term, if New University does not renew the TOSA, New University would be obligated to make a final payment of six times the fees paid or payable during the preceding 12-month period, which payment would be made pursuant to a 10-year note, and at New University’s election, it may receive for no additional consideration certain assets used by Kaplan to provide the support activities pursuant to the TOSA.
Either party may terminate the TOSA at any time if New University generates (i) $25 million in cash operating losses for three consecutive years or (ii) aggregate cash operating losses greater than $75 million at any point during the initial term. Operating loss is defined as the amount of revenue New University generates minus the sum of (1) New University’s and Kaplan’s respective costs in performing academic and support functions and (2) the $10 million priority payment to New University in each of the first five years. Upon termination for any reason, New University would retain the assets that Kaplan contributed pursuant to the Transfer Agreement. Each party also has certain termination rights in connection with a material default or material breach of the TOSA by the other party.
Kaplan, on the one hand, and Purdue, on the other hand, will indemnify each other for damages arising from the indemnifying party’s breaches of its representations and warranties and covenants under the Transfer Agreement as well as for damages arising from certain specified liabilities, subject to certain limitations set forth in the Transfer Agreement.
Consummation of the transactions contemplated by the Transfer Agreement is subject to various closing conditions, including, among others, regulatory approvals from the U.S. Department of Education, the Indiana Commission for Higher Education and HLC, which is the regional accreditor of both Purdue and Kaplan University, and certain other state educational agencies and accreditors of programs. Kaplan is unable to predict with certainty when and if such approvals will be obtained; however, all approvals may not be received until the first quarter of 2018. If the transaction is not consummated by April 30, 2018, either party may terminate the Transfer Agreement.
Kaplan Higher Education (KHE) Regulatory Matters
Gainful Employment. On June 15, 2017, the Department of Education (ED) announced its intention to negotiate issues related to gainful employment. On July 5, 2017, the ED released in the Federal Register an announcement that the Department will allow additional time, until July 1, 2018, for institutions to comply with certain disclosure requirements in the GE regulations. The Department also extended the deadline for all programs to file supporting documents for their alternate earnings appeals, to a date not yet determined. The ED further indicated that it will issue a Federal Register notice specifically establishing new deadlines.
Borrower Defense to Repayment Regulations. The final rule was scheduled to be effective July 1, 2017. However, prior to the effective date, on June 14, 2017, the ED delayed implementation of a large portion of the rule.
Financial Condition: Capital Resources and Liquidity
Acquisitions, Dispositions and Exchanges
AcquisitionsIn the first six months of 2017, the Company acquired six businesses, two in its education division, two in its television broadcasting division and two in other businesses for $318.7 million in cash and contingent consideration, and the assumption of $59.1 million in certain pension and postretirement obligations.
At the end of June 2017, Graham Healthcare Group (GHG) acquired a 100% interest in Hometown Home Health and Hospice, a Lapeer, MI-based healthcare services provider by purchasing all of its issued and outstanding shares. This acquisition expands GHG’s service area in Michigan. GHG is included in other businesses.
In April 2017, the Company acquired 97.72% of the issued and outstanding shares of Hoover Treated Wood Products, Inc., a Thomson, GA-based supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications for $206.8 million, net of cash acquired. The fair value of the redeemable noncontrolling interest in Hoover was $3.7 million at the acquisition date, determined using a market approach. This acquisition is consistent with the Company’s ongoing strategy of investing in companies with a history of profitability and strong management. Hoover is included in other businesses.
In February 2017, Kaplan acquired a 100% interest in Genesis Training Institute, a Dubai-based provider of professional development training in the United Arab Emirates, by purchasing all of its issued and outstanding shares. Additionally, Kaplan acquired a 100% interest in Red Marker Pty Ltd, an Australia-based regulatory technology company by purchasing all of its outstanding shares. These acquisitions are expected to provide certain strategic benefits in the future.