Washington Post 2014 Annual Report Download - page 103

facilities, recruiting practices and various other matters. In addition,
the school must be licensed, or otherwise legally authorized, to offer
postsecondary educational programs by the appropriate
governmental body in the state or states in which it is physically
located or is otherwise subject to state authorization requirements,
be accredited by an accrediting agency recognized by the ED and
be certified to participate in the Title IV programs by the ED.
Schools are required periodically to apply for renewal of their
authorization, accreditation or certification with the applicable state
governmental bodies, accrediting agencies and the ED. In
accordance with ED regulations, some KHE schools operate
individually while others are combined into groups of two or more
schools for the purpose of determining compliance with certain
Title IV requirements, and each school or school group is assigned
its own identification number, known as an OPEID number. As a
result, as of the end of 2014 the schools in KHE have a total of 25
OPEID numbers. Failure to comply with the requirements of the
Higher Education Act or related regulations could result in the
restriction or loss of the ability to participate in Title IV programs and
subject the Company to financial penalties and refunds. No
assurance can be given that the Kaplan schools, or individual
programs within schools, will maintain their Title IV eligibility,
accreditation and state authorization in the future or that the ED
might not successfully assert that one or more of such schools have
previously failed to comply with Title IV requirements.
Financial aid and assistance programs are subject to political and
governmental budgetary considerations. There is no assurance that
such funding will be maintained at current levels. Extensive and
complex regulations in the U.S. govern all of the government
financial assistance programs in which students participate.
For the years ended December 31, 2014, 2013 and 2012,
approximately $806 million, $819 million and $882 million,
respectively, of the Company’s education division revenue was derived
from financial aid received by students under Title IV programs.
Management believes that the Company’s education division schools
that participate in Title IV programs are in material compliance with
standards set forth in the Higher Education Act and related regulations.
ED Program Reviews. The ED has undertaken program reviews at
various KHE locations. Currently, there are four pending program
reviews, including the ED’s final reports on the program reviews at
KHE’s Broomall, PA, and Pittsburgh, PA, locations.
On January 22, 2015, the ED announced that it will conduct a
program review of Kaplan University, beginning on February 23,
2015. On February 19, 2015 the ED notified KHE that it will
conduct a program review at KHE’s San Antonio, TX location,
beginning in March 2015. The reviews will assess Kaplan’s
administration of its Title IV, HEA programs and will initially focus on
the 2013 to 2014 and 2014 to 2015 award years. Kaplan
cannot at this time predict the outcome of this review, when it will
be completed or any liability or limitations that the ED may place on
Kaplan University or KHE San Antonio as a result of these reviews.
The Company does not expect the open program reviews to have a
material impact on KHE; however, the results of open program
reviews and their impact on Kaplan’s operations are uncertain.
The 90/10 Rule. Under regulations referred to as the 90/10 rule,
a KHE school would lose its eligibility to participate in Title IV
programs for a period of at least two fiscal years if the institution
derives more than 90% of its receipts from Title IV programs, as
calculated on a cash basis in accordance with the Higher
Education Act and applicable ED regulations, in each of two
consecutive fiscal years. An institution with Title IV receipts
exceeding 90% for a single fiscal year would be placed on
provisional certification and may be subject to other enforcement
measures. The 90/10 rule calculations are performed for each
OPEID unit. The largest OPEID reporting unit in KHE in terms of
revenue is Kaplan University, which accounted for approximately
73% of the Title IV funds received by the division in 2014. In
2014, Kaplan University derived less than 81% of its receipts from
the Title IV programs, and other OPEID units derived between 65%
and 91% of their receipts from Title IV programs. Kaplan’s
Cleveland ground campus is the only OPEID that received more
than 90% of its receipts in 2014 from Title IV programs, which was
due in part to the announced closure of the school. Kaplan expects
that all courses in progress at the Cleveland location will be
completed by the end of the first quarter of 2015, at which time all
operations at the campus will cease. In 2013, Kaplan University
derived less than 81% of its receipts from Title IV programs, and
other OPEID units derived between 69% and 89% of their receipts
from Title IV programs.
A majority of KHE students are enrolled in certificate and associate’s
degree programs. Revenue from certificate and associate’s degree
programs is composed of a higher percentage of Title IV funds than
is the case for revenue from KHE’s bachelor’s and other degree
programs. KHE is taking various measures to reduce the percentage
of its receipts attributable to Title IV funds, including modifying
student payment options; emphasizing direct-pay and employer-
paid education programs; encouraging students to evaluate
carefully the amount of their Title IV borrowing; eliminating some
programs; cash-matching; and developing and offering additional
non-Title IV-eligible certificate preparation, professional development
and continuing education programs. Kaplan has taken steps to
ensure that revenue from programs acquired by a KHE campus is
eligible to be counted in that campus’ 90/10 calculation.
However, there can be no guarantee that the ED will not challenge
the inclusion of revenue from any acquired program in KHE’s
90/10 calculations or will not issue an interpretation of the 90/10
rule that would exclude such revenue from the calculation. Absent
the adoption of the changes mentioned above, and if current trends
continue, management estimates that in 2015, three of the KHE
Campuses’ OPEID units, representing approximately 2.6% of KHE’s
2014 revenues, could have a 90/10 ratio over 90%. As noted
above, Kaplan is taking steps to address compliance with the
90/10 rule; however, there can be no guarantee that these
measures will be adequate to prevent the 90/10 ratio at some or
all schools from exceeding 90% in the future.
19. 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
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