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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
[February 28, 2014]

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION


(Edgar Glimpses Via Acquire Media NewsEdge) This analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto.

OVERVIEW Graham Holdings Company is a diversified education and media company, with education as the largest business. Through its subsidiary Kaplan, Inc., the Company provides extensive worldwide education services for individuals, schools and businesses. The Company also operates principally in two areas of the media industry: cable and television broadcasting. The Company's business units are diverse and subject to different trends and risks.

The Company's education division is the largest operating division of the Company, accounting for about 62.4% of the Company's consolidated revenues in 2013. The Company has devoted significant resources and attention to this division for many years, given the attractiveness of investment opportunities and growth prospects during this time. In response to student demand levels, Kaplan has formulated and implemented restructuring plans at many of its businesses, resulting in significant costs in order to establish lower cost levels in future periods. Kaplan may develop additional restructuring plans as management continues to evaluate Kaplan's cost structure. Kaplan is organized into the following three operating segments: Kaplan Higher Education (KHE), Kaplan Test Preparation (KTP) and Kaplan International.

KHE is the largest segment of Kaplan, representing 50% of total Kaplan revenues in 2013. KHE's revenue declined in 2013, largely due to enrollment declines arising from generally lower demand, along with significant restructuring activities, including school closures. KHE's restructuring costs totaled $19.5 million in 2013. Operating income at KHE improved substantially due primarily to expense reductions from lower enrollments and restructuring activities.

Kaplan International reported revenue growth for 2013 due to enrollment growth in the pathways, English-language and Singapore higher education programs.

Kaplan International results improved in 2013 due to a reduction in operating losses in Australia from lower restructuring costs and continued strong results in Singapore, offset by lower earnings in professional training in the U.K.

Restructuring costs at Kaplan International totaled $5.8 million in 2013.

Operating results for KTP improved in 2013 due primarily to increased revenues.

Kaplan made one acquisition in 2013, three acquisitions in 2012 and five acquisitions in 2011. None of these was individually significant.

The cable division continues to grow its high-speed data subscribers and continues to make substantial capital investments. The division is focused on retention of its high-value subscribers and on churn reduction, as well as growth in commercial sales.

The Company's television broadcasting division reported a reduction in revenues and in operating income in 2013 due primarily to significant political and Olympics-related advertising included in 2012, offset in part by increased retransmission revenues.

With the recent Celtic Healthcare and Forney acquisitions, the Company has invested in new lines of business in 2012 and 2013.

The Company generates a significant amount of cash from its businesses that is used to support its operations, pay down debt and fund capital expenditures, share repurchases, dividends, acquisitions and other investments.

RESULTS OF OPERATIONS - 2013 COMPARED TO 2012 Net income attributable to common shares was $236.0 million ($32.05 per share) for the year ended December 31, 2013, compared to $131.2 million ($17.39 per share) for the year ended December 31, 2012. Net income includes $46.1 million ($6.27 per share) and $60.1 million ($8.17 per share) in income from discontinued operations for 2013 and 2012, respectively. Income from continuing operations attributable to common shares was $189.9 million ($25.78 per share) for 2013, compared to $71.1 million ($9.22 per share) for 2012.

On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses, including The Washington Post. Consequently, income from continuing operations excludes these sold businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.

39 -------------------------------------------------------------------------------- Items included in the Company's income from continuing operations for 2013 are listed below: • $36.4 million in severance and restructuring charges at the education division (after-tax impact of $25.3 million, or $3.46 per share); • a $3.3 million noncash intangible and other long-lived assets impairment charge at Kaplan (after-tax impact of $3.2 million, or $0.44 per share); • a $10.4 million write-down of a marketable equity security (after-tax impact of $6.7 million, or $0.91 per share); and • $13.4 million in non-operating unrealized foreign currency losses (after-tax impact of $8.6 million, or $1.17 per share).

Items included in the Company's income from continuing operations for 2012 are listed below: • $111.6 million noncash goodwill and other long-lived assets impairment charge at KTP (after-tax impact of $81.9 million, or $11.33 per share); • $45.2 million in severance and restructuring charges at the education division (after-tax impact of $32.9 million, or $4.53 per share); • an $18.0 million write-down of a marketable equity security (after-tax impact of $11.2 million, or $1.54 per share); • a $5.8 million gain on the sale of a cost method investment (after-tax impact of $3.7 million, or $0.48 per share); and • $3.1 million in non-operating unrealized foreign currency gains (after-tax impact of $2.0 million, or $0.27 per share).

Revenue for 2013 was $3,487.9 million, up 1% from $3,455.6 million in 2012. Revenues increased at the cable division and in other businesses, offset by declines at the television broadcasting and education divisions.

In 2013, education revenue decreased 1%, subscriber revenue increased 3%, advertising revenue decreased 9% and other revenue increased 50%. Revenue declines at Kaplan accounted for the decrease in education revenue. Subscriber revenue increased at the cable division. The decrease in advertising revenue is due to decreased television broadcasting revenue. The increase in other revenue is due to growth at SocialCode and Slate, and from the recent Celtic Healthcare and Forney acquisitions.

Operating costs and expenses for the year declined 4% to $3,142.3 million in 2013, from $3,276.4 million in 2012. Excluding the noncash goodwill and other-long lived assets impairment charge at Kaplan, overall costs at Kaplan still declined in 2013, and expenses were lower at the television broadcasting division. This was offset by increased costs at the cable division, along with higher expenses in other businesses.

Operating income for 2013 increased to $345.6 million, from $179.2 million in 2012. Operating results improved at the education and cable divisions, offset by a decline at the television broadcasting division.

DIVISION RESULTS Education Division. Education division revenue in 2013 totaled $2,177.5 million, a 1% decline from $2,196.5 million in 2012. Kaplan reported operating income of $51.3 million for 2013, compared to an operating loss of $105.4 million in 2012. Kaplan's 2013 operating results in comparison to 2012 benefited from strong improvement in KHE and KTP results, and a $111.6 million noncash goodwill and other long-lived assets impairment charge related to KTP, recorded in the fourth quarter of 2012, that did not recur.

In response to student demand levels, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in significant costs in 2013 and 2012, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $36.4 million in 2013 and $45.2 million in 2012. Kaplan continues to evaluate its cost structure and may develop additional restructuring plans in 2014.

40 --------------------------------------------------------------------------------A summary of Kaplan's operating results is as follows: Year Ended December 31 (in thousands) 2013 2012 % Change Revenue Higher education $ 1,080,908 $ 1,149,407 (6 ) Test preparation 293,201 284,252 3 Kaplan international 797,362 753,790 6 Kaplan corporate 7,990 15,039 (47 ) Intersegment elimination (1,953 ) (5,992 ) - $ 2,177,508 $ 2,196,496 (1 ) Operating Income (Loss) Higher education $ 71,584 $ 27,245 - Test preparation 4,118 (10,799 ) - Kaplan international 53,424 49,612 8 Kaplan corporate (64,948 ) (43,160 ) (50 ) Amortization of intangible assets (9,962 ) (17,719 ) 44 Impairment of goodwill and other long-lived assets (3,250 ) (111,593 ) 97 Intersegment elimination 335 1,046 - $ 51,301 $ (105,368 ) - 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.

In 2012, KHE began implementing plans to close or merge 13 ground campuses, consolidate other facilities and reduce its workforce. In connection with these and other plans, KHE incurred $19.5 million and $23.4 million in restructuring costs primarily from accelerated depreciation and severance and lease obligations in 2013 and 2012, respectively. At the end of 2013, the KHE campus closures or mergers had been largely completed, with two remaining campus closures to be completed in the first half of 2014.

In 2013, KHE revenue declined 6% due largely to declines in average enrollments, which reflect weaker market demand over the past year, and the impact of campuses closed or in the process of closing. Operating income increased significantly for 2013 due primarily to expense reductions associated with lower enrollments and recent restructuring efforts.

New student enrollments at KHE increased 4% in 2013 due to the positive impact of trial period modifications and process improvements, offset by the impact of campus closures. However, total students at December 31, 2013, were down 8% compared to December 31, 2012. Excluding campuses closed or planned for closure, total students at December 31, 2013, were down 5% compared to December 31, 2012.

The increase in new enrollments was offset by a reduction in the number of continuing students. A summary of student enrollments is as follows: Excluding Campuses Closing As of December 31 As of December 31 2013 2012 % Change 2013 2012 % Change Kaplan University 42,816 44,371 (4 ) 42,816 44,371 (4 ) Other Campuses 17,417 21,099 (17 ) 17,342 19,267 (10 ) 60,233 65,470 (8 ) 60,158 63,638 (5 ) Kaplan University and Other Campuses enrollments by certificate and degree programs, are as follows: As of December 31 2013 2012 Certificate 21.7 % 23.2 % Associate's 29.7 % 29.1 % Bachelor's 32.3 % 33.8 % Master's 16.3 % 13.9 % 100.0 % 100.0 % KTP includes Kaplan's standardized test preparation programs. KTP revenue increased 3% in 2013. Although total enrollment declined 3% for 2013, declines in revenue from graduate programs were offset by growth in medical and bar review programs and other products. KTP operating results improved in 2013 due to the increase in revenues and lower costs.

41 -------------------------------------------------------------------------------- In the fourth quarter of 2012, Kaplan recorded a $111.6 million noncash goodwill and other long-lived assets impairment charge in connection with KTP. This impairment charge was determined as part of the Company's 2012 annual goodwill and intangible assets impairment testing.

Kaplan International includes English-language programs and postsecondary education and professional training businesses largely outside the United States. Kaplan International revenue increased 6% in 2013 due to enrollment growth in the pathways, English-language and Singapore higher education programs.

Kaplan International operating income increased in 2013 due largely to a reduction in operating losses in Australia from lower restructuring costs, and improved results in Singapore. These increases were offset by reduced earnings in professional training and increased investment to support growth in English-language programs. Restructuring costs at Kaplan International totaled $5.8 million and $16.4 million in 2013 and 2012, respectively. These restructuring costs were largely in Australia and included lease obligations, accelerated depreciation and severance charges; the restructuring plan in Australia has now been completed.

In 2013, Kaplan recorded $3.3 million in noncash intangible and other long-lived assets impairment charges primarily in connection with one of the businesses in Kaplan International.

Kaplan corporate represents unallocated expenses of Kaplan, Inc.'s corporate office, other minor businesses and certain shared activities. In 2013, $11.0 million in restructuring costs was recorded in connection with charges related to office space managed by Kaplan corporate.

In 2012, $2.6 million in restructuring costs was included in amortization of intangible assets, largely from accelerated intangible asset amortization associated with changes to business operations in Australia.

Cable Division. Cable division revenue for 2013 increased 3% to $807.3 million, from $787.1 million in 2012. The revenue increase in 2013 is due to recent rate increases for a substantial portion of subscribers, growth in commercial sales and a reduction in promotional discounts. The increase was offset by a decline in video subscribers, as the cable division focuses its efforts on churn reduction and retention of its high-value subscribers.

Cable division operating income in 2013 increased 10% to $169.7 million, from $154.6 million in 2012, due primarily to increased revenues, partially offset by higher programming costs. Operating margin at the cable division was 21% in 2013 and 20% in 2012.

At December 31, 2013, Primary Service Units (PSUs) were down 4% from the prior year due primarily to a decline in video subscribers. A summary of PSUs is as follows: As of December 31 2013 2012 Video 538,894 593,615 High-speed data 472,631 459,235 Telephony 177,483 184,528 Total 1,189,008 1,237,378 PSUs include about 6,300 subscribers who receive free basic cable service, primarily local governments, schools and other organizations as required by various franchise agreements.

Below are details of the cable division's capital expenditures, presented in the NCTA Standard Reporting Categories: Year Ended December 31 (in thousands) 2013 2012 Customer premise equipment $ 34,087 $ 43,629 Commercial 5,265 4,549 Scalable infrastructure 24,609 24,048 Line extensions 6,350 5,997 Upgrade/rebuild 37,245 16,957 Support capital 52,690 55,345 Total $ 160,246 $ 150,525 Television Broadcasting Division. Revenue for the television broadcasting division decreased 6% to $374.6 million in 2013, from $399.7 million in 2012.

Television broadcasting division operating income for 2013 decreased 11% to $171.3 million, from $191.6 million in 2012.

The decline in revenue and operating income for 2013 is due to a $49.7 million decrease in political advertising revenue and $10.8 million in incremental summer Olympics-related advertising at the Company's NBC affiliates 42 -------------------------------------------------------------------------------- included in the third quarter of 2012. The decline in revenue and operating income was partially offset by increased retransmission revenues. Operating margin at the television broadcasting division was 46% in 2013 and 48% in 2012.

Competitive market position remained strong for the Company's television stations. KSAT in San Antonio and WJXT in Jacksonville ranked number one in the November 2013 ratings period, Monday through Friday, sign-on to sign-off; WDIV in Detroit and WKMG in Orlando ranked second, and WPLG in Miami and KPRC in Houston ranked second (Anglo stations).

Other Businesses. Other businesses includes the results of Social Code, a marketing solutions provider helping companies with marketing on social-media platforms; Celtic Healthcare, a provider of home health and hospice services in the northeastern and mid-Atlantic regions, acquired by the Company in November 2012; Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications, acquired by the Company in August 2013; and Trove, a digital team focused on emerging technologies and new product development. Also included are The Slate Group and FP Group, previously included as part of the Company's newspaper publishing division, which publish online and print magazines and websites.

The revenue increase of 77% in other businesses for 2013 is due to growth at SocialCode and Slate and revenue from the Company's recently acquired Celtic Healthcare and Forney businesses.

Corporate Office. Corporate office includes the expenses of the Company's corporate office, as well as a net pension credit. Corporate office also includes the current and historical pension and postretirement benefits expense for retirees of the newspaper publishing businesses that were sold since the associated assets and liabilities are being retained by the Company.

In November 2013, the Company announced that its headquarters building was to be sold for approximately $159 million. The sale is currently expected to close at the end of March 2014.

Equity in Earnings of Affiliates. The Company holds a 16.5% interest in Classified Ventures, LLC and interests in several other affiliates.

The Company's equity in earnings of affiliates, net, for 2013 was $13.2 million, compared to $14.1 million in 2012.

Other Non-Operating (Expense) Income. The Company recorded other non-operating expense, net, of $23.8 million in 2013, compared to $5.5 million in 2012.

The 2013 non-operating expense, net, included a $10.4 million write-down of a marketable equity security, $13.4 million in unrealized foreign currency losses and other items. The 2012 non-operating expense, net, included an $18.0 million write-down of a marketable equity security, offset by $6.6 million in net gains from cost method investments, $3.1 million in unrealized foreign currency gains and other items.

During 2013, on an overall basis, the fair value of the Company's marketable securities appreciated by $96.3 million.

Net Interest Expense. The Company incurred net interest expense of $33.8 million in 2013, compared to $32.6 million in 2012. At December 31, 2013, the Company had $450.8 million in borrowings outstanding at an average interest rate of 7.0%; at December 31, 2012, the Company had $696.7 million in borrowings outstanding at an average interest rate of 5.1%.

Provision for Income Taxes. The effective tax rate for income from continuing operations in 2013 was 36.5%. This effective tax rate benefited from lower state taxes, offset by $4.6 million in net state and non-U.S. valuation allowances provided against deferred income tax benefits where realization is doubtful.

The effective tax rate for income from continuing operations in 2012 was 53.6%.

This effective tax rate was adversely impacted by $12.8 million from nondeductible goodwill in connection with an impairment charge recorded in 2012, and $12.5 million in net state and non-U.S. valuation allowances provided against deferred income tax benefits where realization is doubtful, offset by tax benefits from lower rates in jurisdictions outside the United States.

Discontinued Operations. On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses. The publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites (Publishing Subsidiaries). Slate magazine, TheRoot.com and Foreign Policy were not part of the transaction and remain with the Company, as do the Trove and SocialCode businesses, the Company's interest in Classified Ventures and certain real estate assets, including the headquarters building in 43 -------------------------------------------------------------------------------- downtown Washington, DC. Consequently, income from continuing operations excludes these sold businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.

The Company sold all the issued and outstanding equity securities of the Publishing Subsidiaries for $250 million, subject to customary adjustments for cash, debt and working capital at closing. In 2013, a pre-tax gain of $157.5 million was recorded on the sale ($100.0 million after-tax gain).

In March 2013, the Company sold The Herald. Kaplan sold Kidum in August 2012, EduNeering in April 2012 and Kaplan Learning Technologies (KLT) in February 2012. In addition, the Company divested its interest in Avenue100 Media Solutions in July 2012. Consequently, income from continuing operations also excludes the operating results and related net gains on disposition of these businesses, which have been reclassified to discontinued operations, net of tax, for all periods presented.

RESULTS OF OPERATIONS - 2012 COMPARED TO 2011 Net income attributable to common shares was $131.2 million ($17.39 per share) for the year ended December 31, 2012, compared to $116.2 million ($14.70 per share) for the year ended December 31, 2011. Net income includes $60.1 million in income ($8.17 per share) and $34.2 million in losses ($4.33 per share) from discontinued operations for 2012 and 2011 respectively. Income from continuing operations attributable to common shares was $71.1 million ($9.22 per share) for 2012, compared to $150.5 million ($19.03 per share) for 2011. As a result of the Company's share repurchases, there were 6% fewer diluted average shares outstanding in 2012.

Items included in the Company's income from continuing operations for 2012 are listed below: • $111.6 million noncash goodwill and other long-lived assets impairment charge at KTP (after-tax impact of $81.9 million, or $11.33 per share); • $45.2 million in severance and restructuring charges at the education division (after-tax impact of $32.9 million, or $4.53 per share); • an $18.0 million write-down of a marketable equity security (after-tax impact of $11.2 million, or $1.54 per share); • a $5.8 million gain on the sale of a cost method investment (after-tax impact of $3.7 million, or $0.48 per share); and • $3.1 million in non-operating unrealized foreign currency gains (after-tax impact of $2.0 million, or $0.27 per share).

Items included in the Company's income from continuing operations for 2011 are listed below: • $28.9 million in severance and restructuring charges at the education division (after-tax impact of $17.9 million, or $2.26 per share); • a $9.2 million impairment charge at one of the Company's affiliates (after-tax impact of $5.7 million, or $0.72 per share); • a $53.8 million write-down of a marketable equity security (after-tax impact of $34.6 million, or $4.34 per share); and • $3.3 million in non-operating unrealized foreign currency losses (after-tax impact of $2.1 million, or $0.26 per share).

Revenue for 2012 was $3,455.6 million, down 2% from $3,526.0 million in 2011.

Revenues were down at the education division, partially offset by increases at the television broadcasting and cable divisions.

In 2012, education revenue decreased 9%, subscriber revenue increased 3%, advertising revenue increased 22% and other revenue increased 51%. Revenue declines at Kaplan accounted for the decrease in education revenue. Subscriber revenue increased at the cable division. The increase in advertising revenue is due to increased television broadcasting revenue. The increase in other revenue is due to higher sales at SocialCode and Slate, as well as from the newly acquired Celtic Healthcare.

Operating costs and expenses for the year increased 3% to $3,276.4 million in 2012, from $3,191.9 million in 2011. Excluding the noncash goodwill and other long-lived assets impairment charge at Kaplan, overall costs at Kaplan declined in 2012. This was offset by increased costs at the television broadcasting and cable divisions, along with higher expenses in other businesses.

Operating income for 2012 decreased to $179.2 million, from $334.1 million in 2011. Operating results declined at all of the Company's divisions, except for the television broadcasting division.

44 -------------------------------------------------------------------------------- Division Results Education Division. Education division revenue in 2012 totaled $2,196.5 million, a 9% decline from $2,404.5 million in 2011. Excluding revenue from acquired businesses, education division revenue declined 10% in 2012. Kaplan reported an operating loss of $105.4 million for 2012, compared to operating income of $96.3 million in 2011. Kaplan's 2012 operating results were adversely impacted by a significant decline in KHE results; a $111.6 million noncash goodwill and other long-lived assets impairment charge related to KTP; and $45.2 million in restructuring costs. These were offset by improved results at KTP and Kaplan International.

In response to student demand levels, Kaplan has formulated and implemented restructuring plans at its various businesses that have resulted in significant costs in 2012 and 2011, with the objective of establishing lower cost levels in future periods. Across all businesses, restructuring costs totaled $45.2 million in 2012 and $28.9 million in 2011.

A summary of Kaplan's operating results is as follows: Year Ended December 31 (in thousands) 2012 2011 % Change Revenue Higher education $ 1,149,407 $ 1,399,583 (18 ) Test preparation 284,252 303,093 (6 ) Kaplan international 753,790 690,226 9 Kaplan corporate 15,039 18,940 (21 ) Intersegment elimination (5,992 ) (7,383 ) - $ 2,196,496 $ 2,404,459 (9 ) Operating Income (Loss) Higher education $ 27,245 $ 148,915 (82 ) Test preparation (10,799 ) (28,498 ) 62 Kaplan international 49,612 46,498 7 Kaplan corporate (43,160 ) (50,092 ) 14 Amortization of intangible assets (17,719 ) (19,417 ) 9 Impairment of goodwill and other long-lived assets (111,593 ) - - Intersegment elimination 1,046 (1,120 ) - $ (105,368 ) $ 96,286 - Kaplan's Colloquy business moved from Kaplan International to Kaplan Corporate effective January 1, 2013. Operating results at the education division have been restated to reflect this change. Kaplan sold Kidum in August 2012, EduNeering in April 2012 and Kaplan Learning Technologies in February 2012. Consequently, the education division's operating results exclude these businesses.

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.

In September 2012, KHE announced a plan to consolidate its market presence at certain of its fixed-facility campuses. Under this plan, KHE has ceased new enrollments at nine ground campuses as it considers alternatives for these locations and is in the process of consolidating operations of four other campuses into existing, nearby locations. Revenues at these campuses represent approximately 4% of KHE's total revenues in 2012. In the fourth quarter of 2012, KHE also began implementing plans to consolidate facilities and reduce workforce at its online programs. In connection with these and other plans, KHE incurred $23.4 million in restructuring costs from accelerated depreciation, and severance and lease obligations in 2012.

In 2012, KHE revenue declined 18% due largely to declines in average enrollments that reflect weaker market demand over the past year. Operating income decreased 82% for 2012. These declines were due primarily to lower revenue, a decline in operating results from campuses planned for closure and significant restructuring costs noted above that exceed similar charges in 2011. Offsetting the declines were expense reductions associated with lower enrollments and recent restructuring efforts.

New student enrollments at Kaplan University and Other Campuses decreased 1% in 2012. Total students at December 31, 2012, were down 12% compared to December 31, 2011, as follows: As of December 31 2012 2011 % Change Kaplan University 44,371 50,190 (12 ) Other Campuses 21,099 24,360 (13 ) 65,470 74,550 (12 ) 45--------------------------------------------------------------------------------Kaplan University and Other Campuses enrollments by certificate and degree programs, were as follows: As of December 31 2012 2011 Certificate 23.2 % 23.6 % Associate's 29.1 % 30.3 % Bachelor's 33.8 % 34.6 % Master's 13.9 % 11.5 % 100.0 % 100.0 % KTP includes Kaplan's standardized test preparation and tutoring offerings. KTP revenue declined 6% in 2012. Enrollment increased 11% for 2012, driven by strength in pre-college, nursing and bar review programs. Enrollment increases were offset by competitive pricing pressure and a continued shift in demand to lower priced online test preparation offerings. The improvement in KTP operating results in 2012 is largely a result of lower operating expenses due to restructuring activities in prior years, including $12.5 million in total KTP restructuring costs recorded in 2011.

While overall results improved at KTP in 2012, Kaplan recorded a $111.6 million noncash goodwill and other long-lived assets impairment charge in connection with KTP in the fourth quarter of 2012. This impairment charge was determined as part of the Company's annual goodwill and intangible assets impairment testing, based on KTP operating losses for the past three years and a recent slowdown in enrollment growth. KTP produced positive cash flow from operations in 2012.

Kaplan International includes English-language programs, and postsecondary education and professional training businesses outside the United States. In May 2011, Kaplan Australia acquired Franklyn Scholar and Carrick Education Group, national providers of vocational training and higher education in Australia. In June 2011, Kaplan acquired Structuralia, a provider of e-learning for the engineering and infrastructure sector in Spain. Kaplan International revenue increased 9% in 2012. Excluding revenue from acquired businesses, Kaplan International revenue increased 4% in 2012 due to enrollment growth in the English-language and Singapore higher education programs.

Kaplan International operating income increased in 2012 due largely to strong results in Singapore, offset by combined losses from businesses acquired in 2011. These losses occurred primarily at certain businesses in Australia where Kaplan has been consolidating and restructuring its businesses to optimize operations. Restructuring costs at Kaplan International totaled $16.4 million in 2012. These restructuring costs were largely in Australia and included lease obligations, accelerated depreciation and severance charges.

Corporate represents unallocated expenses of Kaplan, Inc.'s corporate office, other minor businesses and certain shared activities.

In the fourth quarter of 2012, $2.6 million in restructuring costs is included in amortization of intangible assets, largely from accelerated intangible asset amortization associated with changes to business operations in Australia.

Cable Division. Cable division revenue for 2012 increased 4% to $787.1 million, from $760.2 million in 2011. The revenue results reflect continued growth of the division's Internet and telephone service revenues and rate increases for many subscribers in June 2012, offset by a decline in video subscribers.

Cable division operating income in 2012 decreased 1% to $154.6 million, from $156.8 million in 2011. The cable division's operating income for 2012 declined primarily due to increased programming and depreciation costs, offset partially by increased revenues. Operating margin at the cable division was 20% in 2012 and 21% in 2011.

At December 31, 2012, PSUs were down 1% from the prior year due to a decline in video subscribers, offset by growth in high-speed data and telephony subscribers. A summary of PSUs is as follows: As of December 31 2012 2011 Video 593,615 621,423 High-speed data 459,235 451,082 Telephony 184,528 179,989 Total 1,237,378 1,252,494 PSUs include about 6,000 subscribers who receive free video cable service, primarily local governments, schools and other organizations as required by various franchise agreements.

46 --------------------------------------------------------------------------------Below are details of the cable division's capital expenditures, presented in the NCTA Standard Reporting Categories: Year Ended December 31 (in thousands) 2012 2011 Customer premise equipment $ 43,629 $ 53,139 Commercial 4,549 3,487 Scalable infrastructure 24,048 34,748 Line extensions 5,997 6,318 Upgrade/rebuild 16,957 12,951 Support capital 55,345 32,582 Total $ 150,525 $ 143,225 Television Broadcasting Division. Revenue for the television broadcasting division increased 25% to $399.7 million in 2012, from $319.2 million in 2011.

Television broadcasting division operating income for 2012 increased 64% to $191.6 million, from $117.1 million in 2011.

The increase in revenue and operating income for 2012 reflects improved advertising demand across many product categories. These results include a $48.1 million increase in political advertising revenue in 2012; $10.8 million in incremental summer Olympics-related advertising at the Company's NBC affiliates in the third quarter of 2012; and increased retransmission revenues. Operating margin at the television broadcasting division was 48% in 2012 and 37% in 2011.

Competitive market position remained strong for the Company's television stations. WDIV in Detroit, KSAT in San Antonio and WJXT in Jacksonville ranked number one in the November 2012 ratings period, Monday through Friday, sign-on to sign-off; WPLG in Miami tied for the number one rank (Anglo stations), and KPRC in Houston and WKMG in Orlando ranked third.

Other Businesses. Other businesses includes the operating results of SocialCode, a marketing solutions provider helping companies with marketing on social-media platforms; Trove, a digital team focused on emerging technologies and new product development; and Celtic Healthcare, Inc., a provider of home health and hospice services in the northeastern and mid-Atlantic regions that was acquired by the Company in November 2012. Also included are The Slate Group and FP Group, previously included as part of the Company's newspaper publishing division.

Corporate Office. Corporate office includes the expenses of the Company's corporate office as well as a net pension credit.

Equity in Earnings of Affiliates. The Company holds a 16.5% interest in Classified Ventures, LLC and interests in several other affiliates. In the fourth quarter of 2012, the Company sold its 49% interest in Bowater Mersey Paper Company for a nominal amount; no gain or loss was recorded as the investment balance had previously been written down to zero. The Company's equity in earnings of affiliates, net, for 2012 was $14.1 million, compared to $5.9 million in 2011. In 2011, a $9.2 million impairment charge was recorded on the Company's interest in Bowater Mersey Paper Company.

Other Non-Operating (Expense) Income. The Company recorded other non-operating expense, net, of $5.5 million in 2012, compared to other non-operating expense, net, of $55.2 million in 2011.

The 2012 non-operating expense, net, included an $18.0 million write-down of a marketable equity security, offset by $6.6 million in net gains from cost method investments, $3.1 million in unrealized foreign currency gains and other items.

The 2011 non-operating expense, net, included a $53.8 million write-down of a marketable equity security, $3.3 million in unrealized foreign currency losses and other items.

During 2012, on an overall basis, the fair value of the Company's marketable securities appreciated by $32.5 million.

Net Interest Expense. The Company incurred net interest expense of $32.6 million in 2012, compared to $29.1 million in 2011. At December 31, 2012, the Company had $696.7 million in borrowings outstanding at an average interest rate of 5.1%; at December 31, 2011, the Company had $565.2 million in borrowings outstanding at an average interest rate of 5.7%.

Provision for Income Taxes. The effective tax rate for income from continuing operations in 2012 was 53.6%. This effective tax rate was adversely impacted by $12.8 million from nondeductible goodwill in connection with an impairment charge recorded in 2012, and $12.5 in net state and non-U.S. valuation allowances provided against deferred income tax benefits where realization is doubtful, offset by tax benefits from lower rates at jurisdictions outside the United States.

47 -------------------------------------------------------------------------------- The effective tax rate for income from continuing operations in 2011 was 40.8%.

This effective tax rate was adversely impacted by $17.8 million in valuation allowances provided against deferred income tax benefits where realization is doubtful, offset by tax benefits from lower rates at jurisdictions outside the United States.

Discontinued Operations. The Company completed the sale of the Publishing Subsidiaries in October 2013 and The Herald in March 2013. Kaplan sold Kidum in August 2012, EduNeering in April 2012, KLT in February 2012, Kaplan Compliance Solutions (KCS) in October 2011 and Kaplan Virtual Education (KVE) in July 2011.

In addition, the Company divested its interest in Avenue100 Media Solutions on July 31, 2012. Consequently, income from continuing operations excludes these businesses, which have been reclassified to discontinued operations, net of tax.

The sale of KLT resulted in a pre-tax loss of $3.1 million, which was recorded in the first quarter of 2012. The sale of EduNeering resulted in a pre-tax gain of $29.5 million, which was recorded in the second quarter of 2012. The sale of Kidum resulted in a pre-tax gain of $3.6 million, which was recorded in the third quarter of 2012.

In connection with each of the sales of the Company's stock in EduNeering and KLT, in the first quarter of 2012, the Company recorded $23.2 million of income tax benefits related to the excess of the outside stock tax basis over the net book value of the net assets disposed.

In connection with the disposal of Avenue100 Media Solutions, Inc., the Company recorded a pre-tax loss of $5.7 million in the third quarter of 2012. An income tax benefit of $44.5 million was also recorded in the third quarter of 2012 as the Company determined that Avenue100 Media Solutions, Inc. had no value. The income tax benefit was due to the Company's tax basis in the stock of Avenue100 exceeding its net book value as a result of goodwill and other intangible asset impairment charges recorded in prior years, for which no tax benefit was previously recorded.

FINANCIAL CONDITION: CAPITAL RESOURCES AND LIQUIDITY Acquisitions and Dispositions Acquisitions. The Company completed business acquisitions totaling approximately $23.8 million in 2013; $55.6 million in 2012; and $136.5 million including assumed debt of $5.5 million in 2011. The assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition.

During 2013, the Company acquired six businesses. On August 1, 2013, the Company completed its acquisition of Forney Corporation, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications. The operating results for Forney are included in other businesses. The Company also acquired four small businesses in other businesses and one small business in its education division. In the second quarter of 2013, Kaplan purchased the remaining 15% noncontrolling interest in Kaplan China; this additional interest was accounted for as an equity transaction. The purchase price allocations mostly comprise goodwill, other intangible assets and current assets.

During 2012, the Company completed five business acquisitions. In November 2012, the Company completed its acquisition of a controlling interest in Celtic Healthcare, Inc. (Celtic), a provider of home health care and hospice services in the northeastern and mid-Atlantic regions. The operating results of Celtic are included in other businesses. The fair value of the noncontrolling interest in Celtic was $5.9 million at the acquisition date, determined using a market approach. The minority shareholder has an option to put their shares to the Company from 2018 to 2022, and the Company has an option to buy the shares of the minority shareholder in 2022. The Company also acquired three small businesses in its education division and one small business in other businesses.

The purchase price allocations mostly comprised goodwill and other intangible assets.

During 2011, the Company completed five business acquisitions. Kaplan acquired three businesses in its Kaplan International division, one business in its KHE division and one business in its Kaplan Ventures division. These included the May 2011 acquisitions of Franklyn Scholar and Carrick Education Group, national providers of vocational training and higher education in Australia, and the June 2011 acquisition of Structuralia, a provider of e-learning for the engineering and infrastructure sector in Spain. The purchase price allocations for these acquisitions mostly comprised goodwill, other intangible assets and property, plant and equipment.

Dispositions. On October 1, 2013, the Company completed the sale of its Publishing Subsidiaries that together conducted most of the Company's publishing business and related services, including publishing The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites. Slate magazine, TheRoot.com and Foreign Policy were not part of the transaction and remain with the Company, as do the Trove and SocialCode businesses, the Company's interest in Classified Ventures and certain real estate assets, including the headquarters building in downtown Washington, DC.

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. The Herald was previously reported in the newspaper publishing division.

48 -------------------------------------------------------------------------------- The Company divested its interest in Avenue100 Media Solutions in July 2012, which was previously reported in other businesses. Kaplan completed the sales of Kidum in August 2012, EduNeering in April 2012, and KLT in February 2012, which were part of the Kaplan Ventures division.

Kaplan completed the sales of KVE in July 2011 and KCS in October 2011, which were part of Kaplan Ventures and KHE, respectively.

Consequently, the Company's income from continuing operations excludes results from these businesses, which have been reclassified to discontinued operations (see Note 3).

Capital expenditures. During 2013, the Company's capital expenditures totaled $224.1 million. The Company's capital expenditures for businesses included in continuing operations for 2013, 2012 and 2011 are disclosed in Note 19 to the Consolidated Financial Statements. The Company estimates that its capital expenditures will be in the range of $240 million to $265 million in 2014.

Investments in Marketable Equity Securities. At December 31, 2013, the fair value of the Company's investments in marketable equity securities was $487.2 million, which includes $444.2 million in Berkshire Hathaway Inc. Class A and B common stock and $43.0 million in the common stock of three publicly traded companies.

At December 31, 2013 and 2012, the unrealized gain related to the Company's Berkshire stock investment totaled $286.9 million and $177.6 million, respectively.

At the end of 2013 and 2012, the Company's investment in Strayer Education, Inc.

had been in an unrealized loss position for about six months. The Company evaluated this investment for other-than-temporary impairment based on various factors, including the duration and severity of the unrealized loss, the reason for the decline in value, the potential recovery period and the Company's ability and intent to hold the investment. Based on this evaluation, the Company concluded that the unrealized loss was other-than-temporary and recorded a $10.4 million and $18.0 million write-down of the investment in 2013 and 2012, respectively.

At the end of the first quarter of 2011, the Company's investment in Corinthian Colleges, Inc. had been in an unrealized loss position for over six months. The Company evaluated this investment for other-than-temporary impairment based on various factors, including the duration and severity of the unrealized loss, the reason for the decline in value, the potential recovery period and the Company's ability and intent to hold the investment. Based on this evaluation, the Company concluded that the unrealized loss was other-than-temporary and recorded a $30.7 million write-down of the investment. The investment continued to decline, and in the third quarter of 2011, the Company recorded an additional $23.1 million write-down of the investment.

Common Stock Repurchases and Dividend Rate. During 2013, 2012 and 2011, the Company purchased a total of 33,024, 301,231 and 644,948 shares, respectively, of its Class B common stock at a cost of approximately $17.7 million, $103.2 million and $248.1 million, respectively. In September 2011, the Board of Directors increased the authorization to repurchase a total of 750,000 shares of Class B common stock. The Company did not announce a ceiling price or a time limit for the purchases. The authorization included 43,573 shares that remained under the previous authorization. At December 31, 2013, the Company had remaining authorization from the Board of Directors to purchase up to 159,219 shares of Class B common stock. The annual dividend rate for 2014 was increased to $10.20 per share, up from $9.80 in 2012. In December 2012, the Company declared and paid an accelerated cash dividend totaling $9.80 per share of outstanding common stock, in lieu of regular quarterly dividends that the Company otherwise would have declared and paid in calendar year 2013.

Liquidity. During 2013, the Company's borrowings decreased by $245.9 million and the Company's cash and cash equivalents increased by $57.3 million.

At December 31, 2013, the Company has $569.7 million in cash and cash equivalents, compared to $512.4 million at December 31, 2012. Restricted cash at December 31, 2013, totaled $83.8 million, compared to $28.5 million at December 31, 2012. As of December 31, 2013 and 2012, the Company had money market investments of $431.8 million and $432.7 million, respectively, that are classified as cash, cash equivalents and restricted cash in the Company's Consolidated Financial Statements. At December 31, 2013, the Company has approximately $15.6 million in cash and cash equivalents in countries outside the U.S., which is not immediately available for use in operations or for distribution.

At December 31, 2013 and 2012, the Company had borrowings outstanding of $450.8 million and $696.7 million, respectively. The Company's borrowings at December 31, 2013, are mostly from $400.0 million of 7.25% unsecured notes due February 1, 2019, and AUD 50 million revolving credit borrowings; the interest on $400.0 million of 7.25% unsecured notes is payable semiannually on February 1 and August 1. The Company did not have any outstanding commercial paper borrowing or USD revolving credit borrowing as of December 31, 2013. The Company's borrowings at December 31, 2012, are mostly from $400.0 million of 7.25% unsecured notes due February 1, 2019, 49 -------------------------------------------------------------------------------- $240.1 million in USD revolving credit borrowings and AUD 50 million revolving credit borrowings. The Company fully repaid the $240 million USD revolving credit borrowing on January 11, 2013.

On June 17, 2011, the Company entered into a credit agreement (the Credit Agreement) providing for a U.S. $450 million, AUD 50 million four-year revolving credit facility (the Facility) with each of the lenders party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent, and J.P. Morgan Australia Limited as Australian Sub-Agent. The Credit Agreement provides for an option to increase the total U.S. dollar commitments up to an aggregate amount of U.S. $700 million. The Facility will expire on June 17, 2015, unless the Company and the banks agree to extend the term.

On September 7, 2011, the Company borrowed AUD 50 million under its revolving credit facility. On the same date, the Company entered into interest rate swap agreements with a total notional value of AUD 50 million and a maturity date of March 7, 2015. These interest rate swap agreements will pay the Company variable interest on the AUD 50 million notional amount at the three-month bank bill rate, and the Company will pay the counterparties a fixed rate of 4.5275%. These interest rate swap agreements were entered into to convert the variable rate Australian dollar borrowing under the revolving credit facility into a fixed rate borrowing. Based on the terms of the interest rate swap agreements and the underlying borrowing, these interest rate swap agreements were determined to be effective and thus qualify as a cash flow hedge. As such, any changes in the fair value of these interest rate swaps are recorded in other comprehensive income on the accompanying condensed consolidated balance sheets until earnings are affected by the variability of cash flows.

In September 2013, Standard & Poor's affirmed the Company's "BBB" long-term corporate debt rating and changed the outlook from Negative to Stable. In addition, S&P upgraded the Company's short-term corporate debt rating from "A-3" to "A-2." The Company's current credit ratings are as follows: Moody's Standard & Poor's Long-term Baa1 BBB Short-term Prime-2 A-2 During 2013 and 2012, the Company had average borrowings outstanding of approximately $471.4 million and $483.3 million, respectively, at average annual interest rates of approximately 6.7%. The Company incurred net interest expense of $33.8 million and $32.6 million, respectively, during 2013 and 2012.

At December 31, 2013 and 2012, the Company had working capital of $768.3 million and $327.5 million, respectively. The Company maintains working capital levels consistent with its underlying business requirements and consistently generates cash from operations in excess of required interest or principal payments.

The Company's net cash provided by operating activities, as reported in the Company's Consolidated Statements of Cash Flows, was $327.9 million in 2013, compared to $477.2 million in 2012. The decline is largely due to an increase in income tax payments in 2013 and expenses incurred related to the sale of the Publishing Subsidiaries.

In November 2013, the Company announced that its headquarters building was to be sold for approximately $159 million. The sale is currently expected to close at the end of March 2014.

The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds and, to a lesser extent, borrowings under its revolving credit facility. In management's opinion, the Company will have ample liquidity to meet its various cash needs in 2014.

The following reflects a summary of the Company's contractual obligations as of December 31, 2013: (in thousands) 2014 2015 2016 2017 2018 Thereafter Total Debt and interest $ 35,168 $ 79,750 $ 29,000 $ 29,000 $ 29,000 $ 414,500 $ 616,418 Programming purchase commitments (1) 180,825 108,804 90,723 15,969 5,888 - 402,209 Operating leases 119,129 106,041 99,167 88,119 73,520 411,466 897,442 Other purchase obligations (2) 118,187 56,704 32,505 10,392 4,050 4,005 225,843 Long-term liabilities (3) 7,052 6,484 6,284 6,107 5,848 39,693 71,468 Total $ 460,361 $ 357,783 $ 257,679 $ 149,587 $ 118,306 $ 869,664 $ 2,213,380 ___________________(1) Includes commitments for the Company's television broadcasting and cable businesses that are reflected in the Company's Consolidated Financial Statements and commitments to purchase programming to be produced in future years.

(2) Includes purchase obligations related to employment agreements, capital projects and other legally binding commitments. Other purchase orders made in the ordinary course of business are excluded from the table above. Any amounts for which the Company is liable under purchase orders are reflected in the Company's Consolidated Balance Sheets as accounts payable and accrued liabilities.

(3) Primarily made up of postretirement benefit obligations other than pensions.

The Company has other long-term liabilities excluded from the table above, including obligations for deferred compensation, long-term incentive plans and long-term deferred revenue.

Other. The Company does not have any off-balance-sheet arrangements or financing activities with special-purpose entities (SPEs). Transactions with related parties, as discussed in Note 4 to the Company's Consolidated Financial Statements, are in the ordinary course of business and are conducted on an arm's-length basis.

50 -------------------------------------------------------------------------------- CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and judgments that affect the amounts reported in the financial statements. On an ongoing basis, the Company evaluates its estimates and assumptions. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

An accounting policy is considered to be critical if it is important to the Company's financial condition and results and if it requires management's most difficult, subjective and complex judgments in its application. For a summary of all of the Company's significant accounting policies, see Note 2 to the Company's Consolidated Financial Statements.

Revenue Recognition, Trade Accounts Receivable and Allowance for Doubtful Accounts. Education tuition revenue is recognized ratably over the period of instruction as services are delivered to students, net of any refunds, corporate discounts, scholarships and employee tuition discounts.

At KTP and Kaplan International, estimates of average student course length are developed for each course, along with estimates for the anticipated level of student drops and refunds from test performance guarantees, and these estimates are evaluated on an ongoing basis and adjusted as necessary. As Kaplan's businesses and related course offerings have changed, including more online programs, the complexity and significance of management's estimates have increased.

KHE, through the Kaplan Commitment program, provides first-time students with a risk-free trial period. Under the program, KHE monitors academic progress and conducts assessments to help determine whether students are likely to be successful in their chosen course of study. Students who withdraw or are subject to dismissal during the risk-free trial period do not incur any significant financial obligation. The Company does not recognize revenues related to coursework until the students complete the risk-free period and decide to continue with their studies, at which time the fees become fixed or determinable.

The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company acts as a principal or an agent in the transaction. In certain cases, the Company is considered the agent, and the Company records revenue equal to the net amount retained when the fee is earned. In these cases, costs incurred with third-party suppliers are excluded from the Company's revenue. The Company assesses whether it or the third-party supplier is the primary obligor and evaluates the terms of its customer arrangements as part of this assessment. In addition, the Company considers other key indicators such as latitude in establishing price, inventory risk, nature of services performed, discretion in supplier selection and credit risk.

Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical trends and management's evaluation of the financial condition of the customer.

Goodwill and Other Intangible Assets. The Company has a significant amount of goodwill and indefinite-lived intangible assets that are reviewed at least annually for possible impairment.

As of December 31 (in millions) 2013 2012 Goodwill and indefinite-lived intangible assets $ 1,829.9 $ 1,857.6 Total assets $ 5,811.0 $ 5,105.1 Percentage of goodwill and indefinite-lived intangible assets to total assets 31 % 36 % The Company performs its annual goodwill and intangible assets impairment test as of November 30. Goodwill and other intangible assets are reviewed for possible impairment between annual tests if an event occurred or circumstances changed that would more likely than not reduce the fair value of the reporting unit or other intangible assets below its carrying value.

Goodwill The Company tests its goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. The Company initially performs an assessment of qualitative factors to determine if it is necessary to perform the two-step goodwill impairment test. The Company tests goodwill for impairment using the two-step process if, based on its assessment of the qualitative factors, it determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if it decides to bypass the qualitative assessment. The first step of the goodwill impairment test compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. This step is performed to identify potential impairment, which occurs when 51 -------------------------------------------------------------------------------- the carrying amount of the reporting unit exceeds its estimated fair value. The second step of the goodwill impairment test is only performed when there is a potential impairment and is performed to measure the amount of impairment loss at the reporting unit. During the second step, the Company allocates the estimated fair value of the reporting unit to all of the assets and liabilities of the unit (including any unrecognized intangible assets). The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. The amount of the goodwill impairment is the difference between the carrying value of the reporting unit's goodwill and the implied fair value determined during the second step.

The Company had 11 reporting units as of December 31, 2013. The reporting units with significant goodwill balances as of December 31, 2013, were as follows, representing 98% of the total goodwill of the Company: (in millions) Goodwill Education Higher education $ 409.0 Test preparation 49.9 Kaplan international 512.2 Cable 85.5 Television broadcasting 203.2 Total $ 1,259.8 As of November 30, 2013, in connection with the Company's annual impairment testing, the Company assessed the qualitative factors at the cable reporting unit and concluded it was not necessary to perform the two-step goodwill impairment process. The Company performed the two-step goodwill impairment process at the other reporting units.

The estimated fair value of the cable reporting unit exceeded its carrying value by a margin in excess of 100% as of November 30, 2011, the last date a quantitative review was performed. The Company's qualitative assessment indicated that it is not more likely than not that the estimated fair value of the reporting unit is less than its carrying amount, considering all factors, including the reporting unit's financial performance and conditions in the cable industry. The Company's policy requires the performance of a quantitative impairment review of the goodwill at least once every three years.

In connection with the Company's reporting units where the two-step goodwill impairment process was performed, the Company used a discounted cash flow model, and where appropriate, a market value approach was also utilized to supplement the discounted cash flow model to determine the estimated fair value of its reporting units. The Company made estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and market values to determine each reporting unit's estimated fair value. The methodology used to estimate the fair value of the Company's reporting units on November 30, 2013, was consistent with the one used during the 2012 annual goodwill impairment test.

The Company made changes to certain of its assumptions utilized in the discounted cash flow models for 2013 compared with the prior year to take into account changes in the economic environment, regulations and their impact on the Company's businesses. The key assumptions used by the Company were as follows: • Expected cash flows underlying the Company's business plans for the periods 2014 through 2018 were used. The expected cash flows took into account historical growth rates, the effect of the changed economic outlook at some of the Company's businesses, industry challenges and an estimate for the possible impact of any applicable regulations. Expected cash flows also reflected the anticipated savings from restructuring plans at certain education division's reporting units, and other initiatives.

• Cash flows beyond 2018 were projected to grow at a long-term growth rate, which the Company estimated between 1% and 3% for each reporting unit.

• The Company used a discount rate of 11.0% to 13.5% to risk adjust the cash flow projections in determining the estimated fair value.

The fair value of each of the reporting units exceeded its respective carrying value as of November 30, 2013.

In 2012, the Company recorded a goodwill and other long-lived asset impairment charge of $111.6 million at the KTP reporting unit. The remaining goodwill balance at the KTP reporting unit as of December 31, 2013, totaled $49.9 million. The estimated fair value of the KTP reporting unit exceeded its carrying value by a margin in excess of 50%. The estimated fair value of the Company's other reporting units with significant goodwill balances also exceeded their respective carrying values by a margin in excess of 50%. It is possible that impairment charges could occur in the future, given the inherent variability in projecting future operating performance.

52 -------------------------------------------------------------------------------- Indefinite-Lived Intangible Assets The Company initially assess qualitative factors to determine if it is more likely than not that the fair value of its indefinite-lived intangible assets is less than its carrying value. The Company compares the fair value of the indefinite-lived intangible asset with its carrying value if the qualitative factors indicate it is more likely than not that the fair value of the asset is less than its carrying value or if it decides to bypass the qualitative assessment. The Company records an impairment loss if the carrying value of the indefinite-lived intangible assets exceeds the fair value of the assets for the difference in the values. The Company uses a discounted cash flow model, and in certain cases, a market value approach is also utilized to supplement the discounted cash flow model to determine the estimated fair value of the indefinite-lived intangible assets. The Company makes estimates and assumptions regarding future cash flows, discount rates, long-term growth rates and other market values to determine the estimated fair value of the indefinite-lived intangible assets.

The Company's intangible assets with an indefinite life are principally from franchise agreements at its cable division. These franchise agreements result from agreements the Company has with state and local governments that allow the Company to contract and operate a cable business within a specified geographic area. The Company expects its cable franchise agreements to provide the Company with substantial benefit for a period that extends beyond the foreseeable horizon, and the Company's cable division historically has obtained renewals and extensions of such agreements for nominal costs and without material modifications to the agreements. The franchise agreements represent 92% of the $541.3 million of indefinite-lived intangible assets of the Company as of December 31, 2013. The Company grouped the recorded values of its various cable franchise agreements into regional cable systems or units of account.

As of November 30, 2013, the Company performed a qualitative analysis to test the franchise agreements for impairment. The estimated fair value of the Company's franchise agreements exceeded their respective carrying values by a margin in excess of 50% as of November 30, 2011, the last date a quantitative review was performed. The Company's qualitative assessment indicated that it is not more likely than not that the estimated fair value of the franchise rights are less than its carrying amount considering all factors, including the review of prior year assumptions, the cable division's financial performance and conditions in the cable industry.

The key assumptions used by the Company to determine the fair value of its franchise agreements as of November 30, 2011, the date of its last annual quantitative impairment review, were as follows: • Expected cash flows underlying the Company's business plans for the periods 2012 through 2021 were used, with the assumption that the only assets the unbuilt start-up cable systems possess are the various franchise agreements.

The expected cash flows took into account the estimated initial capital investment in the system region's physical plant and related start-up costs, revenues, operating margins and growth rates. These cash flows and growth rates were based on forecasts and long-term business plans and take into account numerous factors, including historical experience, anticipated economic conditions, changes in the cable systems' cost structures, homes in each region's service area, number of subscribers based on penetration of homes passed by the systems and expected revenues per subscriber.

• Cash flows beyond 2021 were projected to grow at a long-term growth rate, which the Company estimated by considering historical market growth trends, anticipated cable system performance and expected market conditions.

• The Company used a discount rate of 8% to risk adjust the cash flow projections in determining the estimated fair value.

There is always a possibility that impairment charges could occur in the future, given changes in the cable market and the U.S. economic environment, as well as the inherent variability in projecting future operating performance.

Pension Costs. The Company sponsors a defined benefit pension plan for eligible employees in the U.S. Excluding curtailment gain, settlement loss and special termination benefits, the Company's net pension cost including amounts for discontinued operations was $1.9 million and $16.0 million for 2013 and 2012, respectively, and the net pension credit was $4.7 million for 2011. The Company's pension benefit obligation and related costs are actuarially determined and are impacted significantly by the Company's assumptions related to future events, including the discount rate, expected return on plan assets and rate of compensation increases. The Company evaluates these critical assumptions at least annually, and periodically evaluates other assumptions involving demographic factors, such as retirement age, mortality and turnover, and updates them to reflect its experience and expectations for the future.

Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.

The Company assumed a 6.5% expected return on plan assets for year 2013, which is consistent with the expected return assumption for years 2012 and 2011. The Company's actual return on plan assets was 36.2% in 2013, 53 -------------------------------------------------------------------------------- 18.5% in 2012 and 14.7% in 2011. The 10-year and 20-year actual returns on plan assets were 10.1% and 12.7%, respectively.

Accumulated and projected benefit obligations are measured as the present value of future cash payments. The Company discounts those cash payments using the weighted average of market-observed yields for high-quality fixed-income securities with maturities that correspond to the payment of benefits. Lower discount rates increase present values and increase subsequent-year pension costs; higher discount rates decrease present values and decrease subsequent-year pension costs. The Company's discount rate at December 31, 2013, 2012 and 2011, was 4.8%, 4.0% and 4.7%, respectively, reflecting market interest rates.

Changes in key assumptions for the Company's pension plan would have the following effects on the 2013 pension cost, excluding curtailment gain, settlement loss and special termination benefits: • Expected return on assets - A 1% increase or decrease to the Company's assumed expected return on plan assets would have decreased or increased the pension cost by approximately $16 million.

• Discount rate - A 1% decrease to the Company's assumed discount rate would have increased the pension cost by approximately $17 million. A 1% increase to the Company's assumed discount rate would have decreased the pension cost by approximately $4 million.

The Company's net pension cost (credit) includes an expected return on plan assets component, calculated using the expected return on plan assets assumption applied to a market-related value of plan assets. The market-related value of plan assets is determined using a five-year average market value method, which recognizes realized and unrealized appreciation and depreciation in market values over a five-year period. The value resulting from applying this method is adjusted, if necessary, such that it cannot be less than 80% or more than 120% of the market value of plan assets as of the relevant measurement date. As a result, year-to-year increases or decreases in the market-related value of plan assets impact the return on plan assets component of pension cost (credit) for the year.

At the end of each year, differences between the actual return on plan assets and the expected return on plan assets are combined with other differences in actual versus expected experience to form a net unamortized actuarial gain or loss in accumulated other comprehensive income. Only those net actuarial gains or losses in excess of the deferred realized and unrealized appreciation and depreciation are potentially subject to amortization.

The types of items that generate actuarial gains and losses that may be subject to amortization in net periodic pension cost (credit) include the following: • Asset returns that are more or less than the expected return on plan assets for the year; • Actual participant demographic experience different from assumed (retirements, terminations and deaths during the year); • Actual salary increases different from assumed; and • Any changes in assumptions that are made to better reflect anticipated experience of the plan or to reflect current market conditions on the measurement date (discount rate, longevity increases, changes in expected participant behavior and expected return on plan assets).

Amortization of the unrecognized actuarial gain or loss is included as a component of expense for a year if the magnitude of the net unamortized gain or loss in accumulated other comprehensive income exceeds 10% of the greater of the benefit obligation or the market-related value of assets (10% corridor). The amortization component is equal to that excess divided by the average remaining service period of active employees expected to receive benefits under the plan.

At the end of 2010, the Company had no net unamortized actuarial gains or losses in accumulated other comprehensive income potentially subject to amortization that were outside the 10% corridor, and, therefore, no amortized gain or loss amounts were included in the pension credit in 2011. During 2011, there was a decrease in the discount rate, offset by pension asset gains that resulted in net unamortized actuarial losses in accumulated other comprehensive income subject to amortization outside the corridor, and, therefore, an amortized loss amount of $9.0 million is included in the pension cost for 2012. During 2012, there were pension asset gains offset by a further decrease in the discount rate that resulted in net unamortized actuarial losses in accumulated other comprehensive income subject to amortization outside the corridor, and, therefore, an amortized loss amount of $5.6 million is included in the pension cost for the first nine months of 2013. As a result of the sale of the newspaper publishing businesses, the Company remeasured the accumulated and projected benefit obligation as of October 1, 2013, and recorded a curtailment gain and settlement loss. During the first nine months of 2013, there were significant pension asset gains and an increase in the discount rate, which resulted in net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the corridor as of the remeasurement date, and therefore, an amortized gain amount of $2.8 million is included in the pension cost for the last three months of 2013. Overall, the Company recorded an amortized loss amount of $2.8 million for 2013.

54 -------------------------------------------------------------------------------- During the last three months of 2013, there were additional pension asset gains.

Primarily as a result of the actual return on plan assets exceeding the estimated return for 2013, the Company currently estimates that there will be net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the corridor, and, therefore, an amortized gain amount of $28.2 million is included in the estimated pension cost for 2014.

Overall, the Company estimates that it will record a net pension credit of approximately $65.0 million in 2014.

Note 14 to the Company's Consolidated Financial Statements provides additional details surrounding pension costs and related assumptions.

Income Tax Valuation Allowances. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of assets and liabilities. In evaluating its ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. These assumptions require significant judgment about forecasts of future taxable income.

As of December 31, 2013, the Company had state income tax net operating loss carryforwards of $597.1 million, which will expire at various dates from 2014 through 2032. Also at December 31, 2013, the Company had $112.1 million of non-U.S. income tax loss carryforwards, of which $101.3 million may be carried forward indefinitely; $3.5 million of losses that, if unutilized, will expire in varying amounts through 2018; and $7.3 million of losses that, if unutilized, will start to expire after 2018. At December 31, 2013, the Company has established approximately $72.8 million in valuation allowances against deferred state tax assets, net of U.S. Federal income taxes, and non-U.S. deferred tax assets, as the Company believes that it is more likely than not that the benefit from certain state and non-U.S. net operating loss carryforwards and other deferred tax assets will not be realized. The Company has established valuation allowances against state income tax benefits recognized, without considering potentially offsetting deferred tax liabilities established with respect to prepaid pension cost and goodwill. Prepaid pension cost and goodwill have not been considered a source of future taxable income for realizing deferred tax benefits recognized since these temporary differences are not likely to reverse in the foreseeable future. The valuation allowances established against state and non-U.S. income tax benefits recorded may increase or decrease within the next 12 months, based on operating results, the market value of investment holdings or business and tax planning strategies; as a result, the Company is unable to estimate the potential tax impact, given the uncertain operating and market environment. The Company will be monitoring future operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against state and non-U.S. deferred tax assets should be increased or decreased, as future circumstances warrant.

Recent Accounting Pronouncements. See Note 2 to the Company's Consolidated Financial Statements for a discussion of recent accounting pronouncements.

55 -------------------------------------------------------------------------------- MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of Graham Holdings Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company's management assessed the effectiveness of internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992. Management has concluded that, as of December 31, 2013, the Company's internal control over financial reporting was effective based on these criteria.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2013, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.

56 -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Graham Holdings Company: In our opinion, the consolidated financial statements referred to under Item 15 (1) on page 36 and listed in the index on page 38 present fairly, in all material respects, the financial position of Graham Holdings Company and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP McLean, Virginia February 27, 2014 57 -------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 (in thousands, except per share amounts) 2013 2012 2011 Operating Revenues Education $ 2,177,508 $ 2,196,496 $ 2,404,459 Subscriber 755,662 732,370 710,253 Advertising 366,316 400,800 327,877 Other 188,378 125,904 83,408 3,487,864 3,455,570 3,525,997 Operating Costs and Expenses Operating 1,564,911 1,566,257 1,562,615 Selling, general and administrative 1,327,322 1,333,516 1,383,660 Depreciation of property, plant and equipment 233,218 244,078 223,403 Amortization of intangible assets 13,598 20,946 22,201 Impairment of goodwill and other long-lived assets 3,250 111,593 - 3,142,299 3,276,390 3,191,879 Income from Operations 345,565 179,180 334,118 Equity in earnings of affiliates, net 13,215 14,086 5,949 Interest income 2,264 3,393 4,147 Interest expense (36,067 ) (35,944 ) (33,226 ) Other expense, net (23,751 ) (5,456 ) (55,200 ) Income from Continuing Operations Before Income Taxes 301,226 155,259 255,788 Provision for Income Taxes 110,000 83,200 104,400 Income from Continuing Operations 191,226 72,059 151,388 Income (Loss) from Discontinued Operations, Net of Tax 46,119 60,128 (34,231 ) Net Income 237,345 132,187 117,157 Net Income Attributable to Noncontrolling Interests (480 ) (74 ) (7 ) Net Income Attributable to Graham Holdings Company 236,865 132,113 117,150 Redeemable Preferred Stock Dividends (855 ) (895 ) (917 ) Net Income Attributable to Graham Holdings Company Common Stockholders $ 236,010 $ 131,218 $ 116,233 Amounts Attributable to Graham Holdings Company Common Stockholders Income from continuing operations $ 189,891 $ 71,090 $ 150,464 Income (loss) from discontinued operations, net of tax 46,119 60,128 (34,231 ) Net income attributable to Graham Holdings Company common stockholders $ 236,010 $ 131,218 $ 116,233 Per Share Information Attributable to Graham Holdings Company Common Stockholders Basic income per common share from continuing operations $ 25.83 $ 9.22 $ 19.03 Basic income (loss) per common share from discontinued operations 6.27 8.17 (4.33 ) Basic net income per common share $ 32.10 $ 17.39 $ 14.70 Basic average number of common shares outstanding 7,238 7,360 7,826 Diluted income per common share from continuing operations $ 25.78 $ 9.22 $ 19.03 Diluted income (loss) per common share from discontinued operations 6.27 8.17 (4.33 ) Diluted net income per common share $ 32.05 $ 17.39 $ 14.70 Diluted average number of common shares outstanding 7,333 7,404 7,905 See accompanying Notes to Consolidated Financial Statements.

58 -------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31 (in thousands) 2013 2012 2011 Net Income $ 237,345 $ 132,187 $ 117,157 Other Comprehensive Income (Loss), Before Tax Foreign currency translation adjustments: Translation adjustments arising during the year (1,059 ) 5,622 (21,375 ) Adjustment for sales of businesses with foreign operations - (888 ) - (1,059 ) 4,734 (21,375 ) Unrealized gains (losses) on available-for-sale securities: Unrealized gains (losses) for the year 95,629 33,098 (37,708 ) Reclassification adjustment for write-down on available-for-sale securities, net of gain, included in net income 9,554 17,226 53,793 105,183 50,324 16,085 Pension and other postretirement plans: Actuarial gain (loss) 762,806 82,470 (16,048 ) Amortization of net actuarial loss (gain) included in net income 3,096 9,368 (510 ) Amortization of net prior service credit included in net income (1,383 ) (1,859 ) (3,925 ) Curtailments and settlements (124,051 ) - - Foreign affiliate pension adjustments - - 2,088 Other adjustments - (745 ) - 640,468 89,234 (18,395 ) Cash flow hedge gain (loss) 520 (1,581 ) 14 Other Comprehensive Income (Loss), Before Tax 745,112 142,711 (23,671 ) Income tax (expense) benefit related to items of other comprehensive income (loss) (298,472 ) (55,186 ) 6,861 Other Comprehensive Income (Loss), Net of Tax 446,640 87,525 (16,810 ) Comprehensive Income 683,985 219,712 100,347 Comprehensive income attributable to noncontrolling interests (503 ) (103 ) (126 ) Total Comprehensive Income Attributable to Graham Holdings Company $ 683,482 $ 219,609 $ 100,221 See accompanying Notes to Consolidated Financial Statements.

59 -------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY CONSOLIDATED BALANCE SHEETS As of December 31 (In thousands, except share amounts) 2013 2012 Assets Current Assets Cash $ 569,719 $ 512,431 Restricted cash 83,769 28,538 Investments in marketable equity securities and other investments 522,318 418,938 Accounts receivable, net 428,653 399,204 Income taxes receivable 17,991 - Deferred income taxes - 3,974 Inventories and contracts in progress 2,924 7,985 Other current assets 77,013 82,692 Total Current Assets 1,702,387 1,453,762 Property, Plant and Equipment, Net 927,542 1,081,237 Investments in Affiliates 15,754 15,535 Goodwill, Net 1,288,622 1,317,915 Indefinite-Lived Intangible Assets, Net 541,278 539,728 Amortized Intangible Assets, Net 39,588 45,577 Prepaid Pension Cost 1,245,505 604,823 Deferred Charges and Other Assets 50,370 46,492 Total Assets $ 5,811,046 $ 5,105,069 Liabilities and Equity Current Liabilities Accounts payable and accrued liabilities $ 505,699 $ 486,396 Income taxes payable - 726 Deferred income taxes 58,411 - Deferred revenue 366,831 395,837 Short-term borrowings 3,168 243,327 Total Current Liabilities 934,109 1,126,286 Postretirement Benefits Other Than Pensions 36,219 59,949 Accrued Compensation and Related Benefits 211,526 216,280 Other Liabilities 86,000 109,774 Deferred Income Taxes 778,735 529,427 Long-Term Debt 447,608 453,384 Total Liabilities 2,494,197 2,495,100 Commitments and Contingencies (Notes 17 and 18) Redeemable Noncontrolling Interest 5,896 12,655 Redeemable Preferred Stock, Series A, $1 par value, with a redemption and liquidation value of $1,000 per share; 23,000 shares authorized; 10,665 and 11,096 shares issued and outstanding 10,665 11,096 Preferred Stock, $1 par value; 977,000 shares authorized, none issued - - Common Stockholders' Equity Common stock Class A Common stock, $1 par value; 7,000,000 shares authorized; 1,169,073 and 1,219,383 shares issued and outstanding 1,169 1,219 Class B Common stock, $1 par value; 40,000,000 shares authorized; 18,830,927 and 18,780,617 shares issued; 6,218,051 and 6,208,118 shares outstanding 18,831 18,781 Capital in excess of par value 288,129 240,746 Retained earnings 4,782,777 4,546,775 Accumulated other comprehensive income, net of taxes Cumulative foreign currency translation adjustment 25,013 26,072 Unrealized gain on available-for-sale securities 173,663 110,553 Unrealized gain on pensions and other postretirement plans 501,446 117,169 Cash flow hedge (628 ) (940 ) Cost of 12,612,876 and 12,572,499 shares of Class B common stock held in treasury (2,490,333 ) (2,474,347 ) Total Common Stockholders' Equity 3,300,067 2,586,028 Noncontrolling interests 221 190 Total Equity 3,300,288 2,586,218 Total Liabilities and Equity $ 5,811,046 $ 5,105,069 See accompanying Notes to Consolidated Financial Statements.

60 -------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In thousands) 2013 2012 2011 Cash Flows from Operating Activities Net Income $ 237,345 $ 132,187 $ 117,157 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment 251,262 269,992 255,975 Amortization of intangible assets 13,598 21,444 30,333 Goodwill and other long-lived asset impairment charges 3,250 111,593 11,923 Net pension expense (benefit) 1,927 16,044 (4,726 ) Early retirement program expense 22,700 8,508 634 Stock-based compensation expense, net 25,163 14,662 11,789 Foreign exchange loss (gain) 13,382 (3,132 ) 3,263 Net gain on sales and disposition of businesses (157,449 ) (23,759 ) (2,975 ) Net loss on sales or write-downs of marketable equity securities and cost method investments 11,325 10,925 53,375 Equity in losses (earnings) of affiliates, including impairment charges, net of distributions 1,661 (1,148 ) 5,492 Provision (benefit) for deferred income taxes 11,595 (64,383 ) 42,265 Net loss on sales of property, plant and equipment 4,746 1,896 9,712 Change in assets and liabilities: (Increase) decrease in accounts receivable, net (81,989 ) (14,846 ) 27,895 Decrease (increase) in inventories 851 (1,871 ) (1,587 ) Increase (decrease) in accounts payable and accrued liabilities 37,926 (34,224 ) (126,771 ) (Decrease) increase in deferred revenue (3,434 ) 24,482 (9,186 ) (Increase) in income taxes receivable and increase in income taxes payable (18,352 ) 11,936 16,002 Increase in other assets and other liabilities, net (51,740 ) (5,367 ) (49,537 ) Other 4,097 2,275 2,258 Net Cash Provided by Operating Activities 327,864 477,214 393,291 Cash Flows from Investing Activities Net proceeds from sales of businesses, property, plant and equipment and other assets 248,105 76,863 49,157 Purchases of property, plant and equipment (224,093 ) (217,995 ) (216,381 ) Purchases of marketable equity securities and other investments (28,073 ) (48,031 ) (8,165 ) Investments in certain businesses, net of cash acquired (20,027 ) (40,339 ) (83,699 ) Other (1,313 ) 1,459 (1,640 ) Net Cash Used in Investing Activities (25,401 ) (228,043 ) (260,728 ) Cash Flows from Financing Activities (Repayment) issuance of short-term borrowing, net (240,121 ) 130,450 109,671 Common shares repurchased (4,196 ) (103,196 ) (248,055 ) Dividends paid (863 ) (147,327 ) (75,493 ) Issuance of debt - - 52,476 Other 1,750 (1,772 ) (25,560 ) Net Cash Used in Financing Activities (243,430 ) (121,845 ) (186,961 ) Effect of Currency Exchange Rate Change (1,745 ) 4,006 (2,243 ) Net Increase (Decrease) in Cash and Cash Equivalents 57,288 131,332 (56,641 ) Cash and Cash Equivalents at Beginning of Year 512,431 381,099 437,740 Cash and Cash Equivalents at End of Year $ 569,719 $ 512,431 $ 381,099 Supplemental Cash Flow Information Cash paid during the year for: Income taxes $ 144,500 $ 50,531 $ 38,500 Interest $ 35,500 $ 35,500 $ 32,650 See accompanying Notes to Consolidated Financial Statements.

61 -------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY Unrealized Cumulative Unrealized Gain (Loss) Foreign Gain on on Pensions Class A Class B Capital in Currency Available- and Other Cash Common Common Excess of Retained Translation for-sale Postretirement Flow Treasury Noncontrolling (in thousands) Stock Stock Par Value Earnings Adjustment Securities Plans Hedge Stock Interest As of January 2, 2011 $ 1,241 $ 18,759 $ 249,719 $ 4,520,332 $ 37,606 $ 70,707 $ 73,826 $ - $ (2,157,826 ) $ - Net income for the year 117,157 Net loss attributable to redeemable noncontrolling interest (7 ) Dividends paid on common stock (74,576 ) Dividends paid on redeemable preferred stock (917 ) Repurchase of Class B common stock (248,055 ) Issuance of Class B common stock, net of restricted stock award forfeitures (8,040 ) 7,692 Amortization of unearned stock compensation and stock option expense 11,789 Change in foreign currency translation adjustment (net of taxes) (16,268 ) Change in unrealized gain on available-for-sale securities (net of taxes) 9,651 Adjustment for pensions and other postretirement plans (net of taxes) (10,201 ) Conversion of Class A common stock to Class B common stock (12 ) 12 Taxes arising from employee stock plans (701 ) Cash flow hedge 8 As of December 31, 2011 1,229 18,771 252,767 4,561,989 21,338 80,358 63,625 8 (2,398,189 ) - Net income for the year 132,187 Acquisitions and noncontrolling interest 191 Net income attributable to noncontrolling interests (51 ) 51 Net income attributable to redeemable noncontrolling interests (23 ) Distribution to noncontrolling interests (52 ) Dividends paid on common stock (146,432 ) Dividends paid on redeemable preferred stock (895 ) Repurchase of Class B common stock (103,196 ) Issuance of Class B common stock, net of restricted stock award forfeitures (27,423 ) 27,038 Amortization of unearned stock compensation and stock option expense 14,662 Change in foreign currency translation adjustment (net of tax) 4,734 Change in unrealized gain on available-for-sale securities (net of taxes) 30,195 Adjustment for pensions and other postretirement plans (net of taxes) 53,544 Conversion of Class A common stock to Class B common stock (10 ) 10 Taxes arising from employee stock plans 740 Cash flow hedge (948 ) As of December 31, 2012 1,219 18,781 240,746 4,546,775 26,072 110,553 117,169 (940 ) (2,474,347 ) 190 Net income for the year 237,345 Acquisitions and noncontrolling interest 3,932 Net income attributable to noncontrolling interests (479 ) 479 Net income attributable to redeemable noncontrolling interests (1 ) Distribution to noncontrolling interests (448 ) Dividends paid on redeemable preferred stock (863 ) Repurchase of Class B common stock (17,709 ) Issuance of Class B common stock, net of restricted stock award forfeitures (4,271 ) 1,723 Amortization of unearned stock compensation and stock option expense 46,908 Change in foreign currency translation adjustment (net of tax) (1,059 ) Change in unrealized gain on available-for-sale securities (net of taxes) 63,110 Adjustment for pensions and other postretirement plans (net of taxes) 384,277 Conversion of Class A common stock to Class B common stock (50 ) 50 Taxes arising from employee stock plans 814 Cash flow hedge 312 As of December 31, 2013 $ 1,169 $ 18,831 $ 288,129 $ 4,782,777 $ 25,013 $ 173,663 $ 501,446 $ (628 ) $ (2,490,333 ) $ 221 See accompanying Notes to Consolidated Financial Statements.

62 -------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION AND NATURE OF OPERATIONS Graham Holdings Company (the Company), formerly The Washington Post Company, is a diversified education and media company. The Company's Kaplan subsidiary provides a wide variety of educational services, both domestically and outside the United States. The Company's media operations comprise the ownership and operation of cable systems and television broadcasting (through the ownership and operation of six television broadcast stations).

On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses, including The Washington Post. The operating results of these businesses have been presented in income (loss) from discontinued operations, net of tax, for all periods presented.

Education-Kaplan, Inc. provides an extensive range of educational services for students and professionals. Kaplan's various businesses comprise three categories: Higher Education, Test Preparation and Kaplan International.

Media-The Company's diversified media operations comprise cable operations, television broadcasting, and several websites and print publications.

Cable. Cable ONE provides cable services that include video, high-speed data and telephone service in the midwestern, western and southern states of the United States.

Television broadcasting. The Company owns six VHF television stations located in Houston, TX; Detroit, MI; Miami, FL; Orlando, FL; San Antonio, TX; and Jacksonville, FL. Other than the Company's Jacksonville station, WJXT, the Company's television stations are affiliated with one of the major national networks.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation. The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States and include the assets, liabilities, results of operations and cash flows of the Company and its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications. Certain amounts in previously issued financial statements have been reclassified to conform with the 2013 presentation, which includes the reclassification of the results of operations of certain businesses as discontinued operations for all periods presented.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the financial statements. Management bases its estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. On an ongoing basis, the Company evaluates its estimates and assumptions.

Business Combinations. The purchase price of an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the cost of an acquired entity over the net of the amounts assigned to the assets acquired and liabilities assumed is recognized as goodwill. The net assets and results of operations of an acquired entity are included in the Company's Consolidated Financial Statements from the acquisition date.

Cash and Cash Equivalents. Cash and cash equivalents consist of cash on hand, short-term investments with original maturities of three months or less and investments in money market funds with weighted average maturities of three months or less.

Restricted Cash. Restricted cash represents amounts held for students that were received from U.S. Federal and state governments under various aid grant and loan programs, such as Title IV of the U.S. Federal Higher Education Act of 1965 (Higher Education Act), as amended, that the Company is required to maintain pursuant to U.S. Department of Education (ED) and other regulations. Restricted cash also includes (i) certain funds that the Company may be required to return if a student who receives Title IV program funds withdraws from a program and (ii) funds required to be held by non-U.S. higher education institutions for prepaid tuition.

63 -------------------------------------------------------------------------------- Concentration of Credit Risk. Cash and cash equivalents are maintained with several financial institutions domestically and internationally. Deposits held with banks may exceed the amount of insurance provided on such deposits.

Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with investment-grade credit ratings. The Company routinely assesses the financial strength of significant customers, and this assessment, combined with the large number and geographical diversity of its customers, limits the Company's concentration of risk with respect to trade accounts receivable.

Allowance for Doubtful Accounts. Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical trends and management's evaluation of the financial condition of the customer.

Investments in Marketable Equity Securities. The Company's investments in marketable equity securities are classified as available-for-sale and, therefore, are recorded at fair value in the Consolidated Financial Statements, with the change in fair value during the period excluded from earnings and recorded net of income taxes as a separate component of other comprehensive income. If the fair value of a marketable equity security declines below its cost basis and the decline is considered other than temporary, the Company will record a write-down, which is included in earnings. The Company uses the average cost method to determine the basis of the securities sold or reclassified out of other comprehensive income.

Fair Value Measurements. Fair value measurements are determined based on the assumptions that a market participant would use in pricing an asset or liability based on a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) observable inputs, such as quoted prices in active markets (Level 1); (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measure. The Company's assessment of the significance of a particular input to the fair value measurements requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the total fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are primarily valued by reference to quoted prices of similar assets or liabilities in active markets, adjusted for any terms specific to that asset or liability.

The Company measures certain assets-including goodwill; intangible assets; property, plant and equipment; cost and equity-method investments-at fair value on a nonrecurring basis when they are deemed to be impaired. The fair value of these assets is determined with valuation techniques using the best information available and may include quoted market prices, market comparables and discounted cash flow models.

Fair Value of Financial Instruments. The carrying amounts reported in the Company's Consolidated Financial Statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the current portion of deferred revenue and the current portion of debt approximate fair value because of the short-term nature of these financial instruments. The fair value of long-term debt is determined based on a number of observable inputs, including the current market activity of the Company's publicly traded notes, trends in investor demands and market values of comparable publicly traded debt. The fair value of the interest rate hedge is determined based on a number of observable inputs, including time to maturity and market interest rates.

Inventories and Contracts in Progress. Inventories and contracts in progress are stated at the lower of cost or realizable values and are based on the first-in, first-out (FIFO) method.

Property, Plant and Equipment. Property, plant and equipment is recorded at cost and includes interest capitalized in connection with major long-term construction projects. Replacements and major improvements are capitalized; maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the property, plant and equipment: 3 to 20 years for machinery and equipment; 20 to 50 years for buildings. The costs of leasehold improvements are amortized over the lesser of their useful lives or the terms of the respective leases.

The cable division capitalizes costs associated with the construction of cable transmission and distribution facilities and new cable service installations.

Costs include all direct labor and materials, as well as certain indirect costs.

The cost of subsequent disconnects and reconnects are expensed as they are incurred.

Evaluation of Long-Lived Assets. The recoverability of long-lived assets and finite-lived intangible assets is assessed whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. A long-lived asset is considered to not be recoverable when the undiscounted estimated future cash flows are less than the asset's recorded value. An impairment charge is measured based on estimated fair market value, determined primarily using estimated future cash flows on a discounted basis. Losses on long-lived 64 -------------------------------------------------------------------------------- assets to be disposed of are determined in a similar manner, but the fair market value would be reduced for estimated costs to dispose.

Goodwill and Other Intangible Assets. Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company's intangible assets with an indefinite life are principally from franchise agreements at its cable division, as the Company expects its cable franchise agreements to provide the Company with substantial benefit for a period that extends beyond the foreseeable horizon, and the Company's cable division historically has obtained renewals and extensions of such agreements for nominal costs and without any material modifications to the agreements.

Amortized intangible assets are primarily student and customer relationships and trade names and trademarks, with amortization periods up to 10 years.

The Company reviews goodwill and indefinite-lived intangible assets at least annually, as of November 30, for possible impairment. Goodwill and indefinite-lived intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit or indefinite-lived intangible asset below its carrying value. The Company tests its goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. In reviewing the carrying value of indefinite-lived intangible assets at the cable division, the Company aggregates its cable systems on a regional basis. The Company initially assesses qualitative factors to determine if it is necessary to perform the two-step goodwill impairment review or indefinite-lived intangible asset quantitative impairment review. The Company reviews the goodwill for impairment using the two-step process and the indefinite-lived intangible assets using the quantitative process if, based on its assessment of the qualitative factors, it determines that it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, or if it decides to bypass the qualitative assessment. The Company reviews the carrying value of goodwill and indefinite-lived intangible assets utilizing a discounted cash flow model, and, where appropriate, a market value approach is also utilized to supplement the discounted cash flow model. The Company makes assumptions regarding estimated future cash flows, discount rates, long-term growth rates and market values to determine each reporting unit's and indefinite-lived intangible asset's estimated fair value. If these estimates or related assumptions change in the future, the Company may be required to record impairment charges.

Investments in Affiliates. The Company uses the equity method of accounting for its investments in and earnings or losses of affiliates that it does not control, but over which it exerts significant influence. The Company considers whether the fair values of any of its equity method investments have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considered any such decline to be other than temporary (based on various factors, including historical financial results, product development activities and the overall health of the affiliate's industry), a write-down would be recorded to estimated fair value.

Cost Method Investments. The Company uses the cost method of accounting for its minority investments in nonpublic companies where it does not have significant influence over the operations and management of the investee. Investments are recorded at the lower of cost or fair value as estimated by management. Charges recorded to write down cost method investments to their estimated fair value and gross realized gains or losses upon the sale of cost method investments are included in other (expense) income, net, in the Company's Consolidated Financial Statements. Fair value estimates are based on a review of the investees' product development activities, historical financial results and projected discounted cash flows.

Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, the fees are fixed or determinable, the product or service has been delivered and collectability is reasonably assured. The Company considers the terms of each arrangement to determine the appropriate accounting treatment.

Education revenues. Tuition revenue is recognized ratably over the period of instruction as services are delivered to students, net of any refunds, corporate discounts, scholarships and employee tuition discounts. At Kaplan's Test Preparation (KTP) and International divisions, estimates of average student course length are developed for each course, and these estimates are evaluated on an ongoing basis and adjusted as necessary. Online access revenue is recognized ratably over the period of access. Course material revenue is recognized over the same period as the tuition or online access, if related, or when the products are delivered, if not related. Other revenues, such as student support services, are recognized when the services are provided.

Kaplan Higher Education (KHE), through the Kaplan Commitment program, provides first-time students with a risk-free trial period. Under the program, KHE monitors academic progress and conducts assessments to help determine whether students are likely to be successful in their chosen course of study. Students who withdraw or are subject to dismissal during the risk-free trial period do not incur any significant financial obligation. The Company does not recognize revenues related to coursework until the students complete the risk-free period and decide to continue with their studies, at which time the fees become fixed or determinable.

65 -------------------------------------------------------------------------------- Cable revenues. Cable revenues are primarily derived from subscriber fees for video, high-speed Internet and phone services, and from advertising. Cable subscriber revenue is recognized monthly as services are delivered. Advertising revenue is recognized when the commercials or programs are aired.

Television broadcasting revenues. Advertising revenues are recognized, net of agency commissions, when the underlying advertisement is broadcast.

Retransmission revenues are recognized over the term of the agreement based on monthly subscriber counts and contractual rates.

Revenue presentation. The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company acts as a principal or an agent in the transaction. In certain cases, the Company is considered the agent, and the Company records revenue equal to the net amount retained when the fee is earned. In these cases, costs incurred with third-party suppliers are excluded from the Company's revenue. The Company assesses whether it or the third-party supplier is the primary obligor and evaluates the terms of its customer arrangements as part of this assessment. In addition, the Company considers other key indicators such as latitude in establishing price, inventory risk, nature of services performed, discretion in supplier selection and credit risk.

Deferred revenue. Amounts received from customers in advance of revenue recognition are deferred as liabilities. Deferred revenue to be earned after one year is included in other noncurrent liabilities in the Company's Consolidated Financial Statements.

Leases. The Company leases substantially all of its educational facilities and enters into various other lease agreements in conducting its business. At the inception of each lease, the Company evaluates the lease agreement to determine whether the lease is an operating or capital lease. Additionally, many of the Company's lease agreements contain renewal options, tenant improvement allowances, rent holidays and/or rent escalation clauses. When such items are included in a lease agreement, the Company records a deferred rent asset or liability in the Consolidated Financial Statements and records these items in rent expense evenly over the terms of the lease.

The Company is also required to make additional payments under operating lease terms for taxes, insurance and other operating expenses incurred during the operating lease period; such items are expensed as incurred. Rental deposits are included as other assets in the Consolidated Financial Statements for lease agreements that require payments in advance or deposits held for security that are refundable, less any damages, at the end of the respective lease.

Pensions and Other Postretirement Benefits. The Company maintains various pension and incentive savings plans. Substantially all of the Company's employees are covered by these plans. The Company also provides health care and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.

The Company recognizes the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. The Company measures changes in the funded status of its plans using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate, the long-term rate of asset return and rate of compensation increase. The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.

Self-Insurance. The Company uses a combination of insurance and self-insurance for a number of risks, including claims related to employee health care and dental care, disability benefits, workers' compensation, general liability, property damage and business interruption. Liabilities associated with these plans are estimated based on, among other things, the Company's historical claims experience, severity factors and other actuarial assumptions. The expected loss accruals are based on estimates, and while the Company believes that the amounts accrued are adequate, the ultimate loss may differ from the amounts provided.

Income Taxes. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent that it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations; this evaluation is made on an ongoing basis. In the event the Company were to determine that it was able to realize net deferred income tax assets in the future in excess of their net 66 -------------------------------------------------------------------------------- recorded amount, the Company would record an adjustment to the valuation allowance, which would reduce the provision for income taxes.

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company records a liability for the difference between the benefit recognized and measured for financial statement purposes and the tax position taken or expected to be taken on the Company's tax return. Changes in the estimate are recorded in the period in which such determination is made.

Foreign Currency Translation. Income and expense accounts of the Company's non-United States operations where the local currency is the functional currency are translated into United States (U.S.) dollars using the current rate method, whereby operating results are converted at the average rate of exchange for the period, and assets and liabilities are converted at the closing rates on the period end date. Gains and losses on translation of these accounts are accumulated and reported as a separate component of equity and other comprehensive income. Gains and losses on foreign currency transactions, including foreign currency denominated intercompany loans on entities with a functional currency in U.S. dollars, are recognized in the Consolidated Statements of Operations.

Equity-Based Compensation. The Company measures compensation expense for awards settled in shares based on the grant date fair value of the award. The Company measures compensation expense for awards settled in cash, or that may be settled in cash, based on the fair value at each reporting date. The Company recognizes the expense over the requisite service period, which is generally the vesting period of the award.

Earnings Per Share. Basic earnings per share is calculated under the two-class method. The Company treats restricted stock as a participating security due to its nonforfeitable right to dividends. Under the two-class method, the Company allocates to the participating securities their portion of dividends declared and undistributed earnings to the extent the participating securities may share in the earnings as if all earnings for the period had been distributed. Basic earnings per share is calculated by dividing the income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated similarly except that the weighted average number of common shares outstanding during the period includes the dilutive effect of the assumed exercise of options and restricted stock issuable under the Company's stock plans. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method.

Comprehensive Income. Comprehensive income consists of net income, foreign currency translation adjustments, the change in unrealized gains (losses) on investments in marketable equity securities, net changes in cash flow hedge and pension and other postretirement plan adjustments.

Discontinued Operations. A business is classified as a discontinued operation when (i) the operations and cash flows of the business can be clearly distinguished and have been or will be eliminated from the Company's ongoing operations; (ii) the business has either been disposed of or is classified as held for sale; and (iii) the Company will not have any significant continuing involvement in the operations of the business after the disposal transaction.

The results of discontinued operations (as well as the gain or loss on the disposal) are aggregated and separately presented in the Company's Consolidated Statements of Operations, net of income taxes.

Recently Adopted and Issued Accounting Pronouncements. In February 2013, the Financial Accounting Standards Board (FASB) issued final guidance on the presentation of reclassifications out of other comprehensive income to net income. The amendment requires an entity to provide information about the amounts reclassified out of other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in a footnote, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income only if the amount reclassified is required by GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide details about those amounts. This amendment is effective for interim and fiscal years beginning after December 15, 2012. The adoption of the amendment in the first quarter of 2013 is reflected in the Company's Notes to Consolidated Financial Statements.

3. DISCONTINUED OPERATIONS On October 1, 2013, the Company completed the sale of most of its newspaper publishing businesses. The publishing businesses sold include The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites (Publishing Subsidiaries). Slate magazine, TheRoot.com and Foreign Policy were not part of the transaction and remain with the Company, as do the Trove and SocialCode businesses, the Company's interest in Classified Ventures and certain real estate assets, including the headquarters building in downtown Washington, DC.

67 -------------------------------------------------------------------------------- The Company sold all of the issued and outstanding equity securities of the Publishing Subsidiaries for $250 million, subject to customary adjustments for cash, debt and working capital at closing. A pre-tax gain of $157.5 million was recorded on the sale (after-tax gain of $100.0 million). This gain amount includes net curtailment and settlement gains from the Company's pension and postretirement plans of $56.6 million. The net loss from discontinued operations also included early retirement program expense of $22.7 million and $8.5 million in 2013 and 2012, respectively, and stock compensation expense of $20.7 million in 2013 as a result of modifications to restricted stock awards and stock options.

In March 2013, the Company sold The Herald. Kaplan sold Kidum in August 2012, EduNeering in April 2012 and Kaplan Learning Technologies (KLT) in February 2012. In addition, the Company divested its interest in Avenue100 Media Solutions in July 2012.

The sale of The Herald resulted in a pre-tax loss of $0.1 million that was recorded in the first quarter of 2013.

The sale of KLT resulted in a pre-tax loss of $3.1 million, which was recorded in the first quarter of 2012. The sale of EduNeering resulted in a pre-tax gain of $29.5 million, which was recorded in the second quarter of 2012. The sale of Kidum resulted in a pre-tax gain of $3.6 million, which was recorded in the third quarter of 2012.

In connection with each of the sales of the Company's stock in EduNeering and KLT, in the first quarter of 2012, the Company recorded $23.2 million of income tax benefits related to the excess of the outside stock tax basis over the net book value of the net assets disposed.

In connection with the disposal of Avenue100 Media Solutions, Inc., the Company recorded a pre-tax loss of $5.7 million in the third quarter of 2012. An income tax benefit of $44.5 million was also recorded in the third quarter of 2012 as the Company determined that Avenue100 Media Solutions, Inc. had no value. The income tax benefit was due to the Company's tax basis in the stock of Avenue100 exceeding its net book value as a result of goodwill and other intangible asset impairment charges recorded in prior years, for which no tax benefit was previously recorded.

In October 2011, Kaplan completed the sale of Kaplan Compliance Solutions (KCS) and recorded an after-tax gain on the transaction of $1.5 million. In July 2011, Kaplan completed the sale of Kaplan Virtual Education (KVE) and recorded an after-tax loss on the transaction of $1.2 million.

The results of operations of the Publishing Subsidiaries, The Herald, Kidum, Avenue100, Kaplan EduNeering, KLT, KCS and KVE for 2013, 2012 and 2011, where applicable, are included in the Company's Consolidated Statements of Operations as Income (Loss) from Discontinued Operations, Net of Tax. All corresponding prior period operating results presented in the Company's Consolidated Financial Statements and the accompanying notes have been reclassified to reflect the discontinued operations presented. The Company did not reclassify its Consolidated Statements of Cash Flows or prior year Consolidated Balance Sheet to reflect the discontinued operations.

The summarized income (loss) from discontinued operations, net of tax, is presented below: Year Ended December 31 (in thousands) 2013 2012 2011 Operating revenues $ 382,705 $ 597,425 $ 723,605 Operating costs and expenses (465,605 ) (639,315 ) (769,129 ) Loss from discontinued operations (82,900 ) (41,890 ) (45,524 ) Benefit from income taxes (29,059 ) (13,668 ) (10,934 ) Net Loss from Discontinued Operations (53,841 ) (28,222 ) (34,590 ) Gain on sales and disposition of discontinued operations 157,449 23,759 2,975 Provision (benefit) for income taxes on sales and disposition of discontinued operations 57,489 (64,591 ) 2,616 Income (Loss) from Discontinued Operations, Net of Tax $ 46,119 $ 60,128 $ (34,231 ) 4. INVESTMENTS Investments in Marketable Equity Securities. Investments in marketable equity securities consist of the following: As of December 31 (in thousands) 2013 2012 Total cost $ 197,718 $ 195,832 Net unrealized gains 289,438 184,255 Total Fair Value $ 487,156 $ 380,087 At December 31, 2013 and 2012, the Company owned 2,214 shares of Berkshire Hathaway Inc. (Berkshire) Class A common stock and 424,250 shares of Berkshire Class B common stock, respectively. The Company's ownership of Berkshire accounted for $444.2 million, or 91%, and $334.9 million, or 88%, of the total fair value of the Company's investments in marketable equity securities at December 31, 2013 and 2012, respectively.

68 -------------------------------------------------------------------------------- Berkshire is a holding company owning subsidiaries engaged in a number of diverse business activities. Berkshire also owns approximately 23% of the common stock of the Company. The chairman, chief executive officer and largest shareholder of Berkshire, Mr. Warren Buffett, was a member of the Company's Board of Directors until May 2011, at which time Mr. Buffett retired from the Company's Board. The Company's investment in Berkshire common stock is less than 1% of the consolidated equity of Berkshire. At December 31, 2013 and 2012, the unrealized gain related to the Company's Berkshire stock investment totaled $286.9 million and $177.6 million, respectively.

At the end of 2013 and 2012, the Company's investment in Strayer Education, Inc.

had been in an unrealized loss position for about six months. The Company evaluated this investment for other-than-temporary impairment based on various factors, including the duration and severity of the unrealized loss, the reason for the decline in value, the potential recovery period and the Company's ability and intent to hold the investment. Based on this evaluation, the Company concluded that the unrealized loss was other-than-temporary and recorded a $10.4 million and $18.0 million write-down of the investment in 2013 and 2012, respectively.

At the end of the first quarter of 2011, the Company's investment in Corinthian Colleges, Inc. had been in an unrealized loss position for over six months. The Company evaluated this investment for other-than-temporary impairment based on various factors, including the duration and severity of the unrealized loss, the reason for the decline in value, the potential recovery period and the Company's ability and intent to hold the investment. Based on this evaluation, the Company concluded that the unrealized loss was other-than-temporary and recorded a $30.7 million write-down of the investment. The investment continued to decline, and in the third quarter of 2011, the Company recorded an additional $23.1 million write-down of the investment.

The Company invested $15.0 million and $45.0 million in marketable equity securities during 2013 and 2012. There were no new investments of marketable equity securities in 2011. During 2013 and 2012, proceeds from sales of marketable equity securities were $3.6 million and $2.0 million, respectively, and net realized gains on such sales were $0.9 million and $0.5 million, respectively. There were no sales of marketable equity securities during 2011.

Investments in Affiliates. At the end of 2013, the Company held a 16.5% interest in Classified Ventures, LLC, which owns and operates several leading businesses in the online classified advertising space and interests in several other investments.

In the third quarter of 2011, the Company recorded impairment charges of $9.2 million on the Company's interest in Bowater Mersey Paper Company Limited as a result of the challenging economic environment for newsprint producers. During the fourth quarter of 2012, the Company sold its 49% interest in the common stock of Bowater Mersey Paper Company Limited for a nominal amount; no loss was recorded as the investment had previously been written down to zero.

5. ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts receivable consist of the following: As of December 31 (in thousands) 2013 2012 Trade accounts receivable, less estimated returns, doubtful accounts and allowances of $33,834 and $35,462 $ 398,014 $ 379,355 Other accounts receivable 30,639 19,849 $ 428,653 $ 399,204 The changes in allowance for doubtful accounts and returns and allowance for advertising rate adjustments and discounts were as follows: Additions - Balance Balance at Charged to at Beginning Costs and End of (in thousands) of Period Expenses Deductions Period 2013 Allowance for doubtful accounts and returns $ 33,612 $ 57,245 $ (57,023 ) $ 33,834 Allowance for advertising rate adjustments and discounts 1,850 - (1,850 ) - $ 35,462 $ 57,245 $ (58,873 ) $ 33,834 2012 Allowance for doubtful accounts and returns $ 48,199 $ 55,605 $ (70,192 ) $ 33,612 Allowance for advertising rate adjustments and discounts 2,026 15,088 (15,264 ) 1,850 $ 50,225 $ 70,693 $ (85,456 ) $ 35,462 2011 Allowance for doubtful accounts and returns $ 67,007 $ 61,327 $ (80,135 ) $ 48,199 Allowance for advertising rate adjustments and discounts 3,174 11,868 (13,016 ) 2,026 $ 70,181 $ 73,195 $ (93,151 ) $ 50,225 69--------------------------------------------------------------------------------Accounts payable and accrued liabilities consist of the following: As of December 31 (in thousands) 2013 2012 Accounts payable and accrued liabilities $ 343,620 $ 310,294 Accrued compensation and related benefits 162,079 176,102 $ 505,699 $ 486,396 6. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: As of December 31 (in thousands) 2013 2012 Land $ 32,618 $ 42,992 Buildings 299,652 364,844 Machinery, equipment and fixtures 2,289,966 2,617,344 Leasehold improvements 294,548 314,555 Construction in progress 94,615 66,734 3,011,399 3,406,469 Less accumulated depreciation (2,083,857 ) (2,325,232 ) $ 927,542 $ 1,081,237 Depreciation expense was $233.2 million, $244.1 million and $223.4 million in 2013, 2012 and 2011, respectively.

7. ACQUISITIONS AND DISPOSITIONS Acquisitions. The Company completed business acquisitions totaling approximately $23.8 million in 2013; $55.6 million in 2012; and $136.5 million including assumed debt of $5.5 million in 2011. The assets and liabilities of the companies acquired have been recorded at their estimated fair values at the date of acquisition.

During 2013, the Company acquired six businesses. On August 1, 2013, the Company completed its acquisition of Forney Corporation, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications. The operating results for Forney are included in other businesses. The Company also acquired four small businesses in other businesses and one small business in its education division. In the second quarter of 2013, Kaplan purchased the remaining 15% noncontrolling interest in Kaplan China; this additional interest was accounted for as an equity transaction. The purchase price allocations mostly comprise goodwill, other intangible assets and current assets.

During 2012, the Company completed five business acquisitions. In November 2012, the Company completed its acquisition of a controlling interest in Celtic Healthcare, Inc. (Celtic), a provider of home health care and hospice services in the northeastern and mid-Atlantic regions. The operating results of Celtic are included in other businesses. The fair value of the noncontrolling interest in Celtic was $5.9 million at the acquisition date, determined using a market approach. The minority shareholder has an option to put their shares to the Company from 2018 to 2022, and the Company has an option to buy the shares of the minority shareholder in 2022. The Company also acquired three small businesses in its education division and one small business in other businesses.

The purchase price allocations mostly comprised goodwill and other intangible assets.

During 2011, the Company completed five business acquisitions. Kaplan acquired three businesses in its Kaplan International division, one business in its KHE division and one business in its Kaplan Ventures division. These included the May 2011 acquisitions of Franklyn Scholar and Carrick Education Group, national providers of vocational training and higher education in Australia, and the June 2011 acquisition of Structuralia, a provider of e-learning for the engineering and infrastructure sector in Spain. The purchase price allocations for these acquisitions mostly comprised goodwill, other intangible assets and property, plant and equipment.

Dispositions. On October 1, 2013, the Company completed the sale of its Publishing Subsidiaries that together conducted most of the Company's publishing business and related services, including publishing The Washington Post, Express, The Gazette Newspapers, Southern Maryland Newspapers, Greater Washington Publishing, Fairfax County Times and El Tiempo Latino and related websites. Slate magazine, TheRoot.com and Foreign Policy were not part of the transaction and remain with the Company, as do the Trove and SocialCode businesses, the Company's interest in Classified Ventures and certain real estate assets, including the headquarters building in downtown Washington, DC.

In March 2013, the Company completed the sale of The Herald, a daily and Sunday newspaper headquartered in Everett, WA. The Herald was previously reported in the newspaper publishing division.

70 -------------------------------------------------------------------------------- The Company divested its interest in Avenue100 Media Solutions in July 2012, which was previously reported in other businesses. Kaplan completed the sales of Kidum in August 2012, EduNeering in April 2012, and KLT in February 2012, which were part of the Kaplan Ventures division.

Kaplan completed the sales of KVE in July 2011 and KCS in October 2011, which were part of Kaplan Ventures and KHE, respectively.

Consequently, the Company's income from continuing operations excludes results from these businesses, which have been reclassified to discontinued operations (see Note 3).

8. GOODWILL AND OTHER INTANGIBLE ASSETS In 2013, as a result of operating losses and restructuring activities at one of the Kaplan International businesses, Kaplan recorded an intangible and other long-lived assets impairment charge of $3.3 million. The Company estimated the fair value of the student and customer relationships and database and technology intangible assets using the excess earnings method, and the fair value of the trade name and trademarks intangible assets using the relief from royalty method.

As part of the Company's annual impairment review in 2012, the KTP reporting unit failed the step one goodwill impairment test, and, therefore, a step two analysis was performed. As a result of the step two analysis, the Company recorded a goodwill and other long-lived asset impairment charge of $111.6 million. The Company estimated the fair value utilizing a discounted cash flow model, supported by a market approach. The impairment charge was the result of a slowdown in enrollment growth at KTP, operating losses for the preceding three years and other factors. A substantial portion of the impairment charge was due to the amount of unrecognized intangible assets identified in the step two analysis.

Amortization of intangible assets for the years ended December 31, 2013, 2012 and 2011, was $13.6 million, $20.9 million and $22.2 million, respectively.

Amortization of intangible assets is estimated to be approximately $11 million in 2014, $9 million in 2015, $8 million in 2016, $5 million in 2017, $4 million in 2018 and $3 million thereafter.

The changes in the carrying amount of goodwill, by segment, were as follows: Newspaper Television Other (in thousands) Education Cable Publishing Broadcasting Businesses Total As of December 31, 2011 Goodwill $ 1,116,615 $ 85,488 $ 81,183 $ 203,165 $ 100,152 $ 1,586,603 Accumulated impairment losses (8,492 ) - (65,772 ) - (97,342 ) (171,606 ) 1,108,123 85,488 15,411 203,165 2,810 1,414,997 Acquisitions 7,364 - - - 16,242 23,606 Impairment (102,259 ) - - - - (102,259 ) Dispositions (29,000 ) - - - - (29,000 ) Foreign currency exchange rate changes and other 10,571 - - - - 10,571 As of December 31, 2012 Goodwill 1,097,058 85,488 81,183 203,165 19,052 1,485,946 Accumulated impairment losses (102,259 ) - (65,772 ) - - (168,031 ) 994,799 85,488 15,411 203,165 19,052 1,317,915 Reallocation, net - - (1,809 ) - 1,809 - Acquisitions - - - - 7,934 7,934 Dispositions - - (13,602 ) - - (13,602 ) Foreign currency exchange rate changes and other (23,625 ) - - - - (23,625 ) As of December 31, 2013 Goodwill 1,073,433 85,488 - 203,165 34,877 1,396,963 Accumulated impairment losses (102,259 ) - - - (6,082 ) (108,341 ) $ 971,174 $ 85,488 $ - $ 203,165 $ 28,795 $ 1,288,622 71-------------------------------------------------------------------------------- The changes in carrying amount of goodwill at the Company's education division were as follows: Higher Test Kaplan Kaplan (in thousands) Education Preparation International Ventures Total As of December 31, 2011 Goodwill $ 409,128 $ 152,187 $ 515,936 $ 39,364 $ 1,116,615 Accumulated impairment losses - - - (8,492 ) (8,492 ) 409,128 152,187 515,936 30,872 1,108,123 Acquisitions - - 7,364 - 7,364 Impairment Losses - (102,259 ) - - (102,259 ) Dispositions - - - (29,000 ) (29,000 ) Foreign currency exchange rate changes and other 56 - 12,387 (1,872 ) 10,571 As of December 31, 2012 Goodwill 409,184 152,187 535,687 - 1,097,058 Accumulated impairment losses - (102,259 ) - - (102,259 ) 409,184 49,928 535,687 - 994,799 Foreign currency exchange rate changes and other (168 ) - (23,457 ) - (23,625 ) As of December 31, 2013 Goodwill 409,016 152,187 512,230 - 1,073,433 Accumulated impairment losses - (102,259 ) - - (102,259 ) $ 409,016 $ 49,928 $ 512,230 $ - $ 971,174 Other intangible assets consist of the following: As of December 31, 2013 As of December 31, 2012 Useful Gross Net Gross Net Life Carrying Accumulated Carrying Carrying Accumulated Carrying (in thousands) Range Amount Amortization Amount Amount Amortization Amount Amortized Intangible Assets Noncompete agreements 2-5 years $ 13,540 $ 12,622 $ 918 $ 14,008 $ 12,546 $ 1,462 Student and customer relationships 2-10 years 72,050 45,718 26,332 73,693 40,787 32,906 Databases and technology 3-5 years 10,790 6,991 3,799 6,457 5,707 750 Trade names and trademarks 2-10 years 22,327 16,052 6,275 26,634 18,185 8,449 Other 1-25 years 9,836 7,572 2,264 8,849 6,839 2,010 $ 128,543 $ 88,955 $ 39,588 $ 129,641 $ 84,064 $ 45,577 Indefinite-Lived Intangible Assets Franchise agreements $ 496,321 $ 496,321 Wireless licenses 22,150 22,150 Licensure and accreditation 7,171 7,371 Other 15,636 13,886 $ 541,278 $ 539,728 9. INCOME TAXES Income from continuing operations before income taxes consists of the following: Year Ended December 31 (in thousands) 2013 2012 2011 U.S. $ 287,221 $ 137,743 $ 243,913 Non-U.S. 14,005 17,516 11,875 $ 301,226 $ 155,259 $ 255,788 The provision for income taxes on income from continuing operations consists of the following: (in thousands) Current Deferred Total Year Ended December 31, 2013 U.S. Federal $ 78,375 $ 22,438 $ 100,813 State and Local 10,514 (9,808 ) 706 Non-U.S. 10,051 (1,570 ) 8,481 $ 98,940 $ 11,060 $ 110,000 Year Ended December 31, 2012 U.S. Federal $ 111,024 $ (48,685 ) $ 62,339 State and Local 14,062 (5,135 ) 8,927 Non-U.S. 12,631 (697 ) 11,934 $ 137,717 $ (54,517 ) $ 83,200 Year Ended December 31, 2011 U.S. Federal $ 42,950 $ 26,732 $ 69,682 State and Local 15,937 10,475 26,412 Non-U.S. 9,129 (823 ) 8,306 $ 68,016 $ 36,384 $ 104,400 72--------------------------------------------------------------------------------The provision for income taxes on continuing operations exceeds the amount of income tax determined by applying the U.S. Federal statutory rate of 35% to income from continuing operations before taxes as a result of the following: Year Ended December 31 (in thousands) 2013 2012 2011 U.S. Federal taxes at statutory rate $ 105,429 $ 54,341 $ 89,526 State and local taxes, net of U.S. Federal tax 3,097 9,247 4,143 Valuation allowances against state tax benefits, net of U.S. Federal tax (2,638 ) (3,443 ) 9,748 Tax provided on non-U.S. subsidiary earnings and distributions at more (less) than the expected U.S. Federal statutory tax rate 694 (7,320 ) (6,882 ) Valuation allowances against non-U.S. income tax benefits 7,233 15,966 8,072 Goodwill impairment - 12,776 - U.S. Federal Manufacturing Deduction tax (benefit) expense (5,218 ) (3,323 ) 1,365 Other, net 1,403 4,956 (1,572 ) Provision for Income Taxes $ 110,000 $ 83,200 $ 104,400 During 2013, 2012 and 2011, in addition to the income tax provision for continuing operations presented above, the Company also recorded tax expense or benefits on discontinued operations. Losses from discontinued operations and gains or losses on sales and dispositions of discontinued operations have been reclassified from previously reported income from operations and reported separately as loss from discontinued operations, net of tax. Tax expense of $28.4 million and tax benefits of $78.3 million and $8.3 million with respect to discontinued operations were recorded in 2013, 2012 and 2011, respectively.

Deferred income taxes consist of the following: As of December 31 (in thousands) 2013 2012 Accrued postretirement benefits $ 15,408 $ 25,287 Other benefit obligations 101,923 123,306 Accounts receivable 24,911 31,073 State income tax loss carryforwards 30,036 34,578 U.S. Federal income tax loss carryforwards 2,613 2,857 U.S. Federal capital loss carryforwards - 10,837 U.S. Federal foreign income tax credit carryforwards 8,265 6,781 Non-U.S. income tax loss carryforwards 32,600 27,039 Other 61,753 58,133 Deferred Tax Assets 277,509 319,891 Valuation allowances (72,767 ) (78,109 ) Deferred Tax Assets, Net $ 204,742 $ 241,782 Property, plant and equipment 134,627 175,025 Prepaid pension cost 497,727 241,846Unrealized gain on available-for-sale securities 115,785 73,712 Goodwill and other intangible assets 293,749 276,652 Deferred Tax Liabilities $ 1,041,888 $ 767,235 Deferred Income Tax Liabilities, Net $ 837,146 $ 525,453 The Company has $597.1 million of state income tax loss carryforwards available to offset future state taxable income. State income tax loss carryforwards, if unutilized, will start to expire approximately as follows: (in millions) 2014 $ 5.3 2015 5.4 2016 5.7 2017 2.5 2018 4.5 2019 and after 573.7 Total $ 597.1 The Company has recorded at December 31, 2013, $30.0 million in deferred state income tax assets, net of U.S. Federal income tax, with respect to these state income tax loss carryforwards. The Company has established a full valuation allowance, reducing the net recorded amount of deferred tax assets with respect to state tax loss carryforwards, since the Company has determined that it is more likely than not that the state tax losses may not be fully utilized in the future to reduce state taxable income.

73 -------------------------------------------------------------------------------- The Company has $7.4 million of U.S. Federal income tax loss carryforwards obtained as a result of prior stock acquisitions. U.S. Federal income tax loss carryforwards are expected to be fully utilized as follows: (in millions) 2014 $ 0.7 2015 0.7 2016 0.7 2017 0.7 2018 0.7 2019 and after 3.9 Total $ 7.4 The Company has established at December 31, 2013, $2.6 million in U.S. Federal deferred tax assets with respect to these U.S. Federal income tax loss carryforwards.

For U.S. Federal income tax purposes, the Company has $8.3 million of foreign tax credits available to be credited against future U.S. Federal income tax liabilities. These U.S. Federal foreign tax credits are expected to be fully utilized in the future; $6.8 million and $1.5 million will expire at the end of 2022 and 2023, respectively, if not utilized. The Company has established at December 31, 2013, $8.3 million of U.S. Federal deferred tax assets with respect to these U.S. Federal foreign tax credit carryforwards.

The Company has $112.1 million of non-U.S. income tax loss carryforwards, as a result of operating losses and prior stock acquisitions that are available to offset future non-U.S. taxable income and has recorded, with respect to these losses, $32.6 million in non-U.S. deferred income tax assets. The Company has established $31.4 million in valuation allowances against the deferred tax assets recorded for the portion of non-U.S. tax losses that may not be fully utilized to reduce future non-U.S. taxable income. The $112.1 million of non-U.S. income tax loss carryforwards consist of $101.3 million in losses that may be carried forward indefinitely; $3.5 million of losses that, if unutilized, will expire in varying amounts through 2018; and $7.3 million of losses that, if unutilized, will start to expire after 2018.

Deferred tax valuation allowances and changes in deferred tax valuation allowances were as follows: Balance at Beginning of Tax Expense and Balance at (in thousands) Period Revaluation Deductions End of Period Year ended December 31, 2013 $ 78,109 $ (5,342 ) - $ 72,767 December 31, 2012 $ 59,179 $ 18,930 - $ 78,109 December 31, 2011 $ 41,359 $ 17,820 - $ 59,179 The Company has established $35.6 million in valuation allowances against deferred state tax assets recognized, net of U.S. Federal tax. As stated above, approximately $30.0 million of the valuation allowances, net of U.S. Federal income tax, relate to state income tax loss carryforwards. The Company has established valuation allowances against state income tax assets recognized, without considering potentially offsetting deferred tax liabilities established with respect to prepaid pension cost and goodwill. Prepaid pension cost and goodwill have not been considered a source of future taxable income for realizing deferred tax assets recognized since these temporary differences are not likely to reverse in the foreseeable future. The valuation allowances established against state income tax assets are recorded at the parent company and the education division and may increase or decrease within the next 12 months, based on operating results or the market value of investment holdings.

As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating and market environment. The Company will be monitoring future operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against deferred state tax assets should be increased or decreased, as future circumstances warrant.

The Company has not established valuation allowances against any U.S. Federal deferred tax assets.

The Company has established $37.2 million in valuation allowances against non-U.S. deferred tax assets, and, as stated above, $31.4 million of the non-U.S. valuation allowances relate to non-U.S. income tax loss carryforwards.

Deferred U.S. Federal and state income taxes are recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries to the extent taxable dividend income would be recognized if such earnings were distributed.

Deferred income taxes recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries are recorded net of foreign tax credits with respect to such undistributed earnings estimated to be creditable against future U.S. Federal tax liabilities. At December 31, 2013 and 2012, net U.S.

Federal and state deferred income tax liabilities of about $7.7 million and $1.7 million, respectively, were recorded with respect to undistributed earnings of investments in non-U.S. subsidiaries based on the year-end position.

74 -------------------------------------------------------------------------------- Deferred U.S. Federal and state income taxes have not been recorded for the full book value and tax basis differences related to investments in non-U.S.

subsidiaries because such investments are expected to be indefinitely held. The book value exceeded the tax basis of investments in non-U.S. subsidiaries by approximately $66.8 million and $64.2 million at December 31, 2013 and 2012, respectively; these differences would result in approximately $5.9 million and $14.7 million of net additional U.S. Federal and state deferred tax liabilities, net of foreign tax credits related to undistributed earnings and estimated to be creditable against future U.S. Federal tax liabilities, at December 31, 2013 and 2012, respectively. If investments in non-U.S. subsidiaries were held for sale instead of expected to be held indefinitely, additional U.S. Federal and state deferred tax liabilities would be required to be recorded, and such deferred tax liabilities, if recorded, may exceed the above estimates.

The Company does not currently anticipate that within the next 12 months there will be any events requiring the establishment of any valuation allowances against U.S. Federal net deferred tax assets. The valuation allowances established against non-U.S. deferred tax assets are recorded at the education division, as this is the only division with significant non-U.S operating activities, and these are largely related to the education division's operations in Australia. These valuation allowances may increase or decrease within the next 12 months, based on operating results. As a result, the Company is unable to estimate the potential tax impact, given the uncertain operating environment.

The Company will be monitoring future education division operating results and projected future operating results on a quarterly basis to determine whether the valuation allowances provided against non-U.S. deferred tax assets should be increased or decreased, as future circumstances warrant.

The Company has recorded a $10.5 million U.S. Federal income tax receivable at December 31, 2013, with respect to capital loss and foreign tax credit carrybacks to the 2010 tax year.

The Company files income tax returns with the U.S. Federal government and in various state, local and non-U.S. governmental jurisdictions, with the consolidated U.S. Federal tax return filing considered the only major tax jurisdiction. The statute of limitations has expired on all consolidated U.S.

Federal corporate income tax returns filed through 2009, and the Internal Revenue Service is not currently examining any of the post-2009 returns filed by the Company.

The Company endeavors to comply with tax laws and regulations where it does business, but cannot guarantee that, if challenged, the Company's interpretation of all relevant tax laws and regulations will prevail and that all tax benefits recorded in the financial statements will ultimately be recognized in full. The Company has taken reasonable efforts to address uncertain tax positions and has determined that there are no material transactions and no material tax positions taken by the Company that would fail to meet the more-likely-than-not threshold for recognizing transactions or tax positions in the financial statements.

Accordingly, the Company has not recorded a reserve for uncertain tax positions in the financial statements, and the Company does not expect any significant tax increase or decrease to occur within the next 12 months with respect to any transactions or tax positions taken and reflected in the financial statements.

In making these determinations, the Company presumes that taxing authorities pursuing examinations of the Company's compliance with tax law filing requirements will have full knowledge of all relevant information, and, if necessary, the Company will pursue resolution of disputed tax positions by appeals or litigation.

10. DEBT The Company's borrowings consist of the following: As of December 31 (in thousands) 2013 2012 7.25% unsecured notes due February 1, 2019 $ 397,893 $ 397,479 USD Revolving credit borrowing - 240,121 AUD Revolving credit borrowing 44,625 51,915 Other indebtedness 8,258 7,196 Total Debt 450,776 696,711 Less: current portion (3,168 ) (243,327 ) Total Long-Term Debt $ 447,608 $ 453,384 The Company did not borrow funds under its USD revolving credit facility in 2013. On December 20, 2012, the Company borrowed $240 million under its revolving credit facility at an interest rate of 1.5107%; this was fully repaid on January 11, 2013. The Company's other indebtedness at December 31, 2013, is at interest rates of 0% to 6% and matures between 2014 and 2017.

In January 2009, the Company issued $400 million in unsecured ten-year fixed-rate notes due February 1, 2019 (the Notes). The Notes have a coupon rate of 7.25% per annum, payable semiannually on February 1 and August 1. Under the terms of the Notes, unless the Company has exercised its right to redeem the Notes, the Company is required to offer to repurchase the Notes in cash at 101% of the principal amount, plus accrued and unpaid interest, upon the occurrence of both a Change of Control and Below Investment Grade Rating Events as described in the Prospectus Supplement of January 27, 2009.

75 -------------------------------------------------------------------------------- On June 17, 2011, the Company entered into a credit agreement (the Credit Agreement) providing for a U.S. $450 million, AUD 50 million four-year revolving credit facility (the Facility) with each of the lenders party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent, and J.P. Morgan Australia Limited as Australian Sub-Agent. The Facility consists of two tranches: (a) U.S. $450 million and (b) AUD 50 million (subject, at the Company's option, to conversion of the unused Australian dollar commitments into U.S. dollar commitments at a specified exchange rate). The Credit Agreement provides for an option to increase the total U.S. dollar commitments up to an aggregate amount of U.S.

$700 million. The Company is required to pay a facility fee on a quarterly basis, based on the Company's long-term debt ratings, of between 0.08% and 0.20% of the amount of the Facility. Any borrowings are made on an unsecured basis and bear interest at (a) for U.S. dollar borrowings, at the Company's option, either (i) a fluctuating interest rate equal to the highest of JPMorgan's prime rate, 0.5% above the Federal funds rate or the one-month eurodollar rate plus 1%, or (ii) the eurodollar rate for the applicable interest period; or (b) for Australian dollar borrowings, the bank bill rate, in each case plus an applicable margin that depends on the Company's long-term debt ratings. The Facility will expire on June 17, 2015, unless the Company and the banks agree to extend the term. Any outstanding borrowings must be repaid on or prior to the final termination date. The Credit Agreement contains terms and conditions, including remedies in the event of a default by the Company, typical of facilities of this type and, among other things, requires the Company to maintain at least $1.5 billion of consolidated stockholders' equity.

On September 7, 2011, the Company borrowed AUD 50 million under its revolving credit facility. On the same date, the Company entered into interest rate swap agreements with a total notional value of AUD 50 million and a maturity date of March 7, 2015. These interest rate swap agreements will pay the Company variable interest on the AUD 50 million notional amount at the three-month bank bill rate, and the Company will pay the counterparties a fixed rate of 4.5275%. These interest rate swap agreements were entered into to convert the variable rate Australian dollar borrowing under the revolving credit facility into a fixed rate borrowing. Based on the terms of the interest rate swap agreements and the underlying borrowing, these interest rate swap agreements were determined to be effective and thus qualify as a cash flow hedge. As such, any changes in the fair value of these interest rate swaps are recorded in other comprehensive income on the accompanying condensed consolidated balance sheets until earnings are affected by the variability of cash flows.

During 2013 and 2012, the Company had average borrowings outstanding of approximately $471.4 million and $483.3 million, respectively, at average annual interest rates of approximately 6.7%. The Company incurred net interest expense of $33.8 million, $32.6 million and $29.1 million during 2013, 2012 and 2011, respectively. At December 31, 2013 and 2012, the fair value of the Company's 7.25% unsecured notes, based on quoted market prices, totaled $475.2 million and $481.4 million, respectively, compared with the carrying amount of $397.9 million and $397.5 million. The carrying value of the Company's other unsecured debt at December 31, 2013, approximates fair value.

11. FAIR VALUE MEASUREMENTS The Company's financial assets and liabilities measured at fair value on a recurring basis were as follows: As of December 31, 2013 (in thousands) Level 1 Level 2 Total Assets Money market investments (1) $ - $ 431,836 $ 431,836 Marketable equity securities (2) 487,156 - 487,156 Other current investments (3) 11,826 23,336 35,162 Total Financial Assets $ 498,982 $ 455,172 $ 954,154 LiabilitiesDeferred compensation plan liabilities (4) $ - $ 67,603 $ 67,603 7.25% unsecured notes (5) - 475,224 475,224 AUD revolving credit borrowing (5) - 44,625 44,625 Interest rate swap (6) - 1,047 1,047 Total Financial Liabilities $ - $ 588,499 $ 588,499 ____________(1) The Company's money market investments are included in cash, cash equivalents and restricted cash.

(2) The Company's investments in marketable equity securities are classified as available-for-sale.

(3) Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits (with original maturities greater than 90 days, but less than one year).

(4) Includes Graham Holdings Company's Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company's Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits.

(5) See Note 10 for carrying amount of these notes and borrowing.

(6) Included in Other liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.

76-------------------------------------------------------------------------------- As of December 31, 2012 (in thousands) Level 1 Level 2 Total Assets Money market investments (1) $ - $ 432,670 $ 432,670 Marketable equity securities (2) 380,087 - 380,087 Other current investments (3) 14,134 24,717 38,851 Total Financial Assets $ 394,221 $ 457,387 $ 851,608 LiabilitiesDeferred compensation plan liabilities (4) $ - $ 62,297 $ 62,297 7.25% unsecured notes (5) - 481,424 481,424 AUD revolving credit borrowing (5) - 51,915 51,915 Interest rate swap (6) - 1,567 1,567 Total Financial Liabilities $ - $ 597,203 $ 597,203 ____________(1) The Company's money market investments are included in cash, cash equivalents and restricted cash.

(2) The Company's investments in marketable equity securities are classified as available-for-sale.

(3) Includes U.S. Government Securities, corporate bonds, mutual funds and time deposits (with original maturities greater than 90 days, but less than one year).

(4) Includes Graham Holdings Company's Deferred Compensation Plan and supplemental savings plan benefits under the Graham Holdings Company's Supplemental Executive Retirement Plan, which are included in accrued compensation and related benefits.

(5) See Note 10 for carrying amount of these notes and borrowing.

(6) Included in Other liabilities. The Company utilized a market approach model using the notional amount of the interest rate swap multiplied by the observable inputs of time to maturity and market interest rates.

For the year ended December 31, 2013, the Company recorded an intangible and other long-lived assets impairment charge of $3.3 million. For the year ended December 31, 2012, the Company recorded a goodwill and other long-lived assets impairment charge of $111.6 million (see Notes 2 and 8). The remeasurement of the goodwill and other long-lived assets is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed in the determination of the fair value.

12. REDEEMABLE PREFERRED STOCK The Series A preferred stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share; it is redeemable by the Company at any time on or after October 1, 2015, at a redemption price of $1,000 per share.

In addition, the holders of such stock have a right to require the Company to purchase their shares at the redemption price during an annual 60-day election period. Dividends on the Series A preferred stock are payable four times a year at the annual rate of $80.00 per share and in preference to any dividends on the Company's common stock. The Series A preferred stock is not convertible into any other security of the Company, and the holders thereof have no voting rights except with respect to any proposed changes in the preferences and special rights of such stock.

13. CAPITAL STOCK, STOCK AWARDS AND STOCK OPTIONS Capital Stock. Each share of Class A common stock and Class B common stock participates equally in dividends. The Class B stock has limited voting rights and as a class has the right to elect 30% of the Board of Directors; the Class A stock has unlimited voting rights, including the right to elect a majority of the Board of Directors. In 2013 and 2012, the Company's Class A shareholders converted 50,310, or 4%, and 10,000, or 1%, respectively, of the Class A shares of the Company to an equal number of Class B shares. The conversions had no impact on the voting rights of the Class A and Class B common stock.

During 2013, 2012 and 2011, the Company purchased a total of 33,024, 301,231 and 644,948 shares, respectively, of its Class B common stock at a cost of approximately $17.7 million, $103.2 million and $248.1 million, respectively. In September 2011, the Board of Directors increased the authorization to repurchase a total of 750,000 shares of Class B common stock. The Company did not announce a ceiling price or a time limit for the purchases. The authorization included 43,573 shares that remained under the previous authorization. At December 31, 2013, the Company had remaining authorization from the Board of Directors to purchase up to 159,219 shares of Class B common stock.

Stock Awards. In 2001, the Company adopted an incentive compensation plan, which, among other provisions, authorizes the awarding of Class B common stock to key employees. Stock awards made under this incentive compensation plan are primarily subject to the general restriction that stock awarded to a participant will be forfeited and revert to Company ownership if the participant's employment terminates before the end of a specified period of service to the Company. Some of the awards are also subject to performance and market conditions and will be forfeited and revert to Company ownership if the conditions are not met. At December 31, 2013, there were 43,950 shares reserved for issuance under this incentive compensation plan, which were all subject to awards outstanding.

In 2012, the Company adopted a new incentive compensation plan (the 2012 Plan), which, among other provisions, authorizes the awarding of Class B common stock to key employees in the form of stock awards, stock options and 77 -------------------------------------------------------------------------------- other awards involving the actual transfer of shares. All stock awards, stock options and other awards involving the actual transfer of shares issued subsequent to the adoption of this plan are covered under this new incentive compensation plan. Stock awards made under the 2012 incentive compensation plan are primarily subject to the general restriction that stock awarded to a participant will be forfeited and revert to Company ownership if the participant's employment terminates before the end of a specified period of service to the Company. Some of the awards are also subject to performance and market conditions and will be forfeited and revert to Company ownership if the conditions are not met. At December 31, 2013, there were 471,800 shares reserved for issuance under the 2012 incentive compensation plan. Of this number, 91,029 shares were subject to stock awards and stock options outstanding and 380,771 shares were available for future awards.

Activity related to stock awards under these incentive compensation plans was as follows: Year Ended December 31 2013 2012 2011 Average Average Average Number of Grant-Date Fair Number of Grant-Date Fair Number of Grant-Date Fair Shares Value Shares Value Shares Value Beginning of year, unvested 207,917 $ 350.21 77,319 $ 424.45 48,359 $ 498.95 Awarded 70,165 562.29 145,348 321.56 44,030 432.09 Vested (71,585 ) 515.09 (7,134 ) 499.06 (13,132 ) 722.67 Forfeited (92,018 ) 300.86 (7,616 ) 417.79 (1,938 ) 436.31 End of Year, Unvested 114,479 424.65 207,917 350.21 77,319 424.45 In connection with the sale of the Publishing Subsidiaries, the Company modified the terms of 86,824 share awards affecting 102 employees. The modification resulted in the acceleration of the vesting period for 45,374 share awards, the elimination of a market condition and vesting terms of 15,000 share awards, and the forfeiture of 26,450 share awards; the effect of which are reflected in the above activity. The Company also offered some employees with 26,124 share awards the option to settle their awards in cash resulting in a modification of these awards from equity awards to liability awards. The Company paid employees $13.1 million for the settlement of these liability awards. The Company recorded incremental stock compensation expense, net of forfeitures, amounting to $19.9 million, which is included in income (loss) from discontinued operations, net of tax, in the consolidated statement of operations.

For the share awards outstanding at December 31, 2013, the aforementioned restriction will lapse in 2014 for 10,250 shares, in 2015 for 32,453 shares, in 2016 for 21,515 shares and in 2017 for 50,261 shares. Also, in early 2014, the Company made stock awards of 750 shares. Stock-based compensation costs resulting from Company stock awards were $35.2 million, $11.4 million and $8.9 million in 2013, 2012 and 2011, respectively.

As of December 31, 2013, there was $29.6 million of total unrecognized compensation expense related to these awards. That cost is expected to be recognized on a straight-line basis over a weighted average period of 2.1 years.

Stock Options. The Company's 2003 employee stock option plan reserves 1,900,000 shares of the Company's Class B common stock for options to be granted under the plan. The purchase price of the shares covered by an option cannot be less than the fair value on the grant date. Options generally vest over four years and have a maximum term of 10 years. At December 31, 2013, there were 101,194 shares reserved for issuance under this stock option plan, which were all subject to options outstanding.

Stock options granted under the 2012 Plan cannot be less than the fair value on the grant date, and generally vest over four years and have a maximum term of 10 years.

Activity related to options outstanding was as follows: Year Ended December 31 2013 2012 2011 Number of Average Number of Average Number of Average Shares Option Price Shares Option Price Shares Option Price Beginning of year 125,694 $ 478.32 129,044 $ 494.95 87,919 $ 495.05 Granted 15,000 373.03 7,500 378.00 51,000 499.45 Exercised (14,500 ) 391.83 - - - - Expired or forfeited (4,500 ) 637.53 (10,850 ) 605.82 (9,875 ) 519.04 End of Year 121,694 469.76 125,694 478.32 129,044 494.95 In connection with the sale of the Publishing Subsidiaries, the Company modified the terms of 4,500 stock options affecting six employees. The modification resulted in the acceleration of the vesting period for 4,250 stock options and the forfeiture of 250 stock options. The Company recorded incremental stock option expense amounting to $0.8 78 -------------------------------------------------------------------------------- million, which is included in income (loss) from discontinued operations, net of tax, in the consolidated statement of operations.

Of the shares covered by options outstanding at the end of 2013, 73,194 are now exercisable; 21,500 will become exercisable in 2014; 17,875 will become exercisable in 2015; 5,375 will become exercisable in 2016; and 3,750 will become exercisable in 2017. For 2013, 2012 and 2011, the Company recorded expense of $3.5 million, $2.9 million and $2.7 million related to stock options, respectively. Information related to stock options outstanding and exercisable at December 31, 2013, is as follows: Options Outstanding Options Exercisable Weighted Weighted Average Weighted Average Weighted Shares Remaining Average Shares Remaining Average Outstanding Contractual Exercise Exercisable Contractual Exercise Range of Exercise Prices at 12/31/2013 Life (years) Price at 12/31/2013 Life (years) Price $369-396 44,000 7.6 $ 380.96 20,500 6.3 $ 384.82 419-439 17,694 5.4 421.75 17,694 5.4 421.75 503 50,000 7.2 502.58 25,000 7.2 502.58 652 2,000 4.4 651.91 2,000 4.4 651.91 730 5,000 2.9 729.67 5,000 2.9 729.67 954 3,000 1.0 953.50 3,000 1.0 953.50 121,694 6.7 469.76 73,194 5.9 488.13 At December 31, 2013, the intrinsic value for all options outstanding, exercisable and unvested was $24.8 million, $14.0 million and $10.7 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The market value of the Company's stock was $663.32 at December 31, 2013. At December 31, 2013, there were 48,500 unvested options related to this plan with an average exercise price of $442.02 and a weighted average remaining contractual term of 7.9 years. At December 31, 2012, there were 61,673 unvested options with an average exercise price of $460.24.

As of December 31, 2013, total unrecognized stock-based compensation expense related to stock options was $3.4 million, which is expected to be recognized on a straight-line basis over a weighted average period of approximately 1.9 years.

There were 14,500 options exercised during 2013. The total intrinsic value of options exercised during 2013 was $3.2 million; a tax benefit from these stock option exercises of $1.3 million was realized. No options were exercised during 2012 and 2011.

All options granted during 2013 and 2012 were at an exercise price equal to the fair market value of the Company's common stock at the date of grant. During 2011, the Company granted 50,000 options at an exercise price above the fair market value of its common stock at the date of grant. All other options granted during 2011 were at an exercise price equal to the fair market value of the Company's common stock at the date of grant. The weighted average grant-date fair value of options granted during 2013, 2012 and 2011 was $91.74, $91.71 and $110.67, respectively. Also, in early 2014, an additional 5,000 stock options were granted.

The fair value of options at date of grant was estimated using the Black-Scholes method utilizing the following assumptions: 2013 2012 2011 Expected life (years) 7 7 7 Interest rate 1.31% 1.04%-1.27% 1.49%-2.85% Volatility 31.80% 31.71%-31.80% 30.35%-31.24% Dividend yield 2.63% 2.54%-2.60% 2.11%-2.74% The Company also maintains a stock option plan at Kaplan. Under the provisions of this plan, options are issued with an exercise price equal to the estimated fair value of Kaplan's common stock, and options vest ratably over the number of years specified (generally four to five years) at the time of the grant. Upon exercise, an option holder may receive Kaplan shares or cash equal to the difference between the exercise price and the then fair value.

At December 31, 2013, a Kaplan senior manager holds 7,206 Kaplan restricted shares. The fair value of Kaplan's common stock is determined by the Company's compensation committee of the Board of Directors, and in January 2014, the committee set the fair value price at $1,150 per share. During 2013, 5,000 options were awarded to a Kaplan senior manager at a price of $973 per share which vest over a four-year period. No options were awarded during 2012 or 2011; no options were exercised during 2013 or 2012; and there were 5,000 options outstanding at December 31, 2013. In December 2011, a Kaplan senior manager exercised 2,000 Kaplan stock options at an option price of $652 per option.

Additionally, in January 2014, an additional 2,500 stock options were awarded.

79 -------------------------------------------------------------------------------- Kaplan recorded stock compensation expense of $2.9 million in 2013, and a stock compensation credit of $1.1 million and $1.3 million in 2012 and 2011, respectively. At December 31, 2013, the Company's accrual balance related to Kaplan stock-based compensation totaled $9.9 million. There were no payouts in 2013, 2012 or 2011. The total intrinsic value of options exercised during 2011 was $1.0 million.

Earnings Per Share. The Company's unvested restricted stock awards contain nonforfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. The diluted earnings per share computed under the two-class method is lower than the diluted earnings per share computed under the treasury stock method, resulting in the presentation of the lower amount in diluted earnings per share. The computation of the earnings per share under the two-class method excludes the income attributable to the unvested restricted stock awards from the numerator and excludes the dilutive impact of those underlying shares from the denominator.

The following reflects the Company's income from continuing operations and share data used in the basic and diluted earnings per share computations using the two-class method: Year Ended December 31 (in thousands, except per share amounts) 2013 2012 2011 Numerator: Numerator for basic earnings per share: Income from continuing operations attributable to Graham Holdings Company common stockholders $ 189,891 $ 71,090 $ 150,464 Less: Dividends paid-common stock outstanding and unvested restricted shares - (146,432 ) (74,575 ) Undistributed earnings (losses) 189,891 (75,342 ) 75,889 Percent allocated to common stockholders (1) 98.45 % 100.00 % 98.98 % 186,948 (75,342 ) 75,115 Add: Dividends paid-common stock outstanding - 143,175 73,831 Numerator for basic earnings per share 186,948 67,833 148,946 Add: Additional undistributed earnings due to dilutive stock options 5 - - Numerator for diluted earnings per share $ 186,953 $ 67,833 $ 148,946 Denominator: Denominator for basic earnings per share: Weighted average shares outstanding 7,238 7,360 7,826 Add: Effect of dilutive stock options 12 - - Denominator for diluted earnings per share 7,250 7,360 7,826 Graham Holdings Company Common Stockholders: Basic earnings per share from continuing operations $ 25.83 $ 9.22 $ 19.03 Diluted earnings per share from continuing operations $ 25.78 $ 9.22 $ 19.03 ____________ (1) Percent of undistributed losses allocated to common stockholders is 100% in 2012 as participating securities are not contractually obligated to share in losses.

Diluted earnings per share excludes the following weighted average potential common shares, as the effect would be antidilutive, as computed under the treasury stock method: Year Ended December 31 (in thousands) 2013 2012 2011 Weighted average restricted stock 83 44 79 The 2013, 2012 and 2011 diluted earnings per share amounts exclude the effects of 10,000, 124,694 and 115,294 stock options outstanding, respectively, as their inclusion would have been antidilutive. The 2013 and 2012 diluted earnings per share amounts also exclude the effects of 5,500 and 52,200 restricted stock awards, respectively, as their inclusion would have been antidilutive.

In 2012 and 2011, the Company declared regular dividends totaling $9.80 and $9.40 per share, respectively. In December 2012, the Company declared and paid an accelerated cash dividend totaling $9.80 per share, in lieu of regular quarterly dividends that the Company otherwise would have declared and paid in calendar year 2013.

14. PENSIONS AND OTHER POSTRETIREMENT PLANS The Company maintains various pension and incentive savings plans and contributed to multiemployer plans on behalf of certain union-represented employee groups. Most of the Company's employees are covered by these plans. The Company also provides health care and life insurance benefits to certain retired employees. These employees become eligible for benefits after meeting age and service requirements.

The Company uses a measurement date of December 31 for its pension and other postretirement benefit plans.

Sale of Publishing Subsidiaries. On October 1, 2013, as part of the sale of the Publishing Subsidiaries, the Purchaser assumed the liabilities related to active employees of the Company's defined benefit pension plan, Supplemental Executive Retirement Plan (SERP) and other postretirement plans. In addition to the assumed liabilities, the Company transferred pension plan assets of $318 million in accordance with the terms of the sale. As a result of the sale of the Publishing Subsidiaries, the Company remeasured the accumulated and projected benefit obligation of the pension, SERP and other postretirement plans as of October 1, 2013, and recorded curtailment and settlement gains (losses). The new measurement basis was used for the recognition of the pension and other postretirement plan cost (credit) recorded in the fourth quarter of 2013. The curtailment and settlement gains (losses) are included in the gain on the sale of the Publishing Subsidiaries, which is included in income (loss) from discontinued operations, net of tax. The Company excluded the historical pension expense for retirees from the reclassification of the Publishing Subsidiaries' results to discontinued operations, since the associated assets and liabilities will be retained by the Company.

Defined Benefit Plans. The Company's defined benefit pension plans consist of various pension plans and a SERP offered to certain executives of the Company.

Effective August 1, 2012, the Company's defined benefit pension plan was amended to provide most of the current participants with a new cash balance benefit. The cash balance benefit is funded from the assets of the Company's pension plans.

As a result of this benefit, the Company's matching contribution for its 401(k) Savings Plans was reduced.

In February 2013, the Company offered a Voluntary Retirement Incentive Program to certain employees of The Washington Post newspaper and recorded early retirement expense of $20.4 million. In addition, The Washington Post newspaper recorded $2.3 million in special separation benefits for a group of employees in the first quarter of 2013. The expense for these programs is funded from the assets of the Company's pension plans.

In 2012, the Company offered a Voluntary Retirement Incentive Program to certain employees of The Washington Post newspaper and recorded early retirement expense of $7.5 million. In addition, the Company offered a Voluntary Retirement Incentive Program to certain employees of Post-Newsweek Media and recorded early retirement expense of $1.0 million. The early retirement program expense for these programs is funded from the assets of the Company's pension plans.

80 -------------------------------------------------------------------------------- In 2011, the Company offered a Voluntary Retirement Incentive Program to certain employees of Robinson Terminal Warehouse Corporation and The Washington Post and recorded early retirement expense of $0.6 million. The early retirement program expense for these programs is funded from the assets of the Company's pension plans.

The early retirement program and special separation benefit expenses are included in income (loss) from discontinued operations, net of tax, for 2013, 2012 and 2011.

The following table sets forth obligation, asset and funding information for the Company's defined benefit pension plans: Pension Plans As of December 31 (in thousands) 2013 2012 Change in Benefit Obligation Benefit obligation at beginning of year $ 1,466,322 $ 1,279,315 Service cost 46,115 40,344 Interest cost 55,821 59,124 Amendments 22,700 8,508 Actuarial (gain) loss (156,385 ) 144,286 Benefits paid (81,162 ) (65,255 ) Curtailment (55,690 ) - Settlement (171,377 ) -Benefit Obligation at End of Year $ 1,126,344 $ 1,466,322 Change in Plan Assets Fair value of assets at beginning of year $ 2,071,145 $ 1,816,577 Actual return on plan assets 699,518 319,823 Benefits paid (81,162 ) (65,255 ) Settlement (317,652 ) - Fair Value of Assets at End of Year $ 2,371,849 $ 2,071,145 Funded Status $ 1,245,505 $ 604,823 SERP As of December 31 (in thousands) 2013 2012 Change in Benefit Obligation Benefit obligation at beginning of year $ 104,062 $ 92,863 Service cost 1,612 1,467 Interest cost 4,148 4,241 Actuarial (gain) loss (9,180 ) 8,428 Benefits paid and other (4,101 ) (2,937 ) Curtailment (2,059 ) - Settlement (3,313 ) -Benefit Obligation at End of Year $ 91,169 $ 104,062 Change in Plan Assets Fair value of assets at beginning of year $ - $ - Employer contributions and other 4,101 3,681 Benefits paid (4,101 ) (3,681 ) Fair Value of Assets at End of Year $ - $ - Funded Status $ (91,169 ) $ (104,062 ) The accumulated benefit obligation for the Company's pension plans at December 31, 2013 and 2012, was $1,091.1 million and $1,349.2 million, respectively. The accumulated benefit obligation for the Company's SERP at December 31, 2013 and 2012, was $89.3 million and $97.6 million, respectively.

The amounts recognized in the Company's Consolidated Balance Sheets for its defined benefit pension plans are as follows: Pension Plans SERP As of December 31 As of December 31 (in thousands) 2013 2012 2013 2012 Noncurrent asset $ 1,245,505 $ 604,823 - - Current liability - - (4,251 ) (4,368 ) Noncurrent liability - - (86,918 ) (99,694 ) Recognized Asset (Liability) $ 1,245,505 $ 604,823 $ (91,169 ) $ (104,062 ) 81 -------------------------------------------------------------------------------- Key assumptions utilized for determining the benefit obligation are as follows: Pension Plans SERP As of December 31 As of December 31 2013 2012 2013 2012 Discount rate 4.8 % 4.0 % 4.8 % 4.0 % Rate of compensation increase 4.0 % 4.0 % 4.0 % 4.0 % The Company made no contributions to its pension plans in 2013, 2012 and 2011, and the Company does not expect to make any contributions in 2014. The Company made contributions to its SERP of $4.1 million and $3.7 million for the years ended December 31, 2013 and 2012, respectively. As the plan is unfunded, the Company makes contributions to the SERP based on actual benefit payments.

At December 31, 2013, future estimated benefit payments, excluding charges for early retirement programs, are as follows: (in thousands) Pension Plans SERP 2014 $ 79,012 $ 5,010 2015 $ 76,105 $ 5,098 2016 $ 74,913 $ 5,426 2017 $ 74,794 $ 5,592 2018 $ 75,357 $ 5,879 2019-2023 $ 385,612 $ 31,610 82-------------------------------------------------------------------------------- The total cost (benefit) arising from the Company's defined benefit pension plans, including the portion included in discontinued operations, consists of the following components: Pension Plans Year Ended December 31 (in thousands) 2013 2012 2011 Service cost $ 46,115 40,344 $ 27,619 Interest cost 55,821 59,124 60,033 Expected return on assets (105,574 ) (96,132 ) (95,983 ) Amortization of prior service cost 2,809 3,695 3,605 Recognized actuarial loss 2,756 9,013 - Net Periodic Cost (Benefit) for the Year 1,927 16,044 (4,726 ) Curtailment (43,930 ) - - Settlement 39,995 - - Early retirement programs and special separation benefit expense 22,700 8,508 634 Total Cost (Benefit) for the Year $ 20,692 $ 24,552 $ (4,092 ) Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income Current year actuarial (gain) loss $ (750,328 ) $ (79,405 ) $ 7,046 Amortization of prior service cost (2,809 ) (3,695 ) (1,463 ) Recognized net actuarial loss (2,756 ) (9,013 ) - Curtailment and Settlement 94,520 - - Total Recognized in Other Comprehensive Income (Before Tax Effects) $ (661,373 ) $ (92,113 ) $ 5,583 Total Recognized in Total Cost (Benefit) and Other Comprehensive Income (Before Tax Effects) $ (640,681 ) $ (67,561 ) $ 1,491 SERP Year Ended December 31 (in thousands) 2013 2012 2011 Service cost $ 1,612 $ 1,467 $ 1,655 Interest cost 4,148 4,241 4,342 Plan amendment - - 369 Amortization of prior service cost 55 54 260 Recognized actuarial loss 2,481 1,833 1,411 Net Periodic Cost for the Year 8,296 7,595 8,037 Settlement (2,575 ) - - Total Cost for the Year $ 5,721 $ 7,595 $ 8,037 Other Changes in Benefit Obligations Recognized in Other Comprehensive Income Current year actuarial (gain) loss $ (9,180 ) $ 8,428 $ 9,059 Amortization of prior service cost (55 ) (54 ) (260 ) Recognized net actuarial loss (2,481 ) (1,833 ) (1,411 ) Curtailment and Settlement (2,798 ) - - Other adjustments - 745 -Total Recognized in Other Comprehensive Income (Before Tax Effects) $ (14,514 ) $ 7,286 $ 7,388 Total Recognized in Total Cost and Other Comprehensive Income (Before Tax Effects) $ (8,793 ) $ 14,881 $ 15,425 The net periodic cost (benefit) for the Company's pension plans, as reported above, includes pension cost of $19.5 million, $24.7 million and $18.7 million reported in discontinued operations for 2013, 2012 and 2011, respectively. The net periodic cost for the Company's SERP, as reported above, includes cost of $0.6 million, $0.6 million and $0.8 million reported in discontinued operations for 2013, 2012 and 2011, respectively. The early retirement programs and special separation benefit expenses are also included in discontinued operations for 2013, 2012 and 2011. The curtailments and settlements are included in the gain on sale of Publishing Subsidiaries, which is also reported in discontinued operations.

The costs for the Company's defined benefit pension plans are actuarially determined. Below are the key assumptions utilized to determine periodic cost: Pension Plans SERP Year Ended December 31 Year Ended December 31 2013 2012 2011 2013 2012 2011 Discount rate 4.0 % 4.7 % 5.6 % 4.0 % 4.7 % 5.6 % Expected return on plan assets 6.5 % 6.5 % 6.5 % - - - Rate of compensation increase 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 4.0 % 83--------------------------------------------------------------------------------Accumulated other comprehensive income (AOCI) includes the following components of unrecognized net periodic cost for the defined benefit plans: Pension Plans SERP As of December 31 As of December 31 (in thousands) 2013 2012 2013 2012Unrecognized actuarial (gain) loss $ (840,273 ) $ (193,469 ) $ 19,266 33,725 Unrecognized prior service cost 1,362 15,931 136 191 Gross Amount (838,911 ) (177,538 ) 19,402 33,916 Deferred tax liability (asset) 335,564 71,015 (7,761 ) (13,566 ) Net Amount $ (503,347 ) $ (106,523 ) $ 11,641 $ 20,350 During 2014, the Company expects to recognize the following amortization components of net periodic cost for the defined benefit plans: 2014 (in thousands) Pension Plans SERP Actuarial (gain) loss recognition $ (28,154 ) $ 1,313 Prior service cost recognition $ 329 $ 47 Defined Benefit Plan Assets. The Company's defined benefit pension obligations are funded by a portfolio made up of a relatively small number of stocks and high-quality fixed-income securities that are held by a third-party trustee. The assets of the Company's pension plans were allocated as follows: As of December 31 2013 2012 U.S. equities 58 % 64 % U.S. fixed income 12 % 13 % International equities 30 % 23 % 100 % 100 % Essentially all of the assets are actively managed by two investment companies.

The goal of the investment managers is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both of these managers may invest in a combination of equity and fixed-income securities and cash. The managers are not permitted to invest in securities of the Company or in alternative investments. The investment managers cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway or more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval by the Plan administrator. As of December 31, 2013, the managers can invest no more than 24% of the assets in international stocks, at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities. None of the assets is managed internally by the Company.

In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.

The Company evaluated its defined benefit pension plan asset portfolio for the existence of significant concentrations (defined as greater than 10% of plan assets) of credit risk as of December 31, 2013. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country and individual fund. At December 31, 2013 and 2012, the pension plan held common stock in one investment that exceeded 10% of total plan assets. This investment was valued at $382.1 million and $223.1 million at December 31, 2013 and 2012, respectively, or approximately 16% and 11%, respectively, of total plan assets. Assets also included $208.4 million and $179.9 million of Berkshire Hathaway Class A and Class B common stock at December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, the pension plan held investments in one foreign country that exceeded 10% of total plan assets. These investments were valued at $398.9 million and $240.4 million at December 31, 2013 and 2012, respectively, or approximately 17% and 12%, respectively, of total plan assets.

84 -------------------------------------------------------------------------------- The Company's pension plan assets measured at fair value on a recurring basis were as follows: As of December 31, 2013 (in thousands) Level 1 Level 2 TotalCash equivalents and other short-term investments $ 196,757 $ 84,706 $ 281,463 Equity securities U.S. equities 1,383,738 - 1,383,738 International equities 699,649 - 699,649 Fixed-income securities Corporate debt securities - 5,147 5,147 Total Investments $ 2,280,144 $ 89,853 $ 2,369,997 Receivables 1,852 Total $ 2,371,849 As of December 31, 2012 (in thousands) Level 1 Level 2 TotalCash equivalents and other short-term investments $ 195,389 $ 62,922 $ 258,311 Equity securities U.S. equities 1,315,378 - 1,315,378 International equities 482,431 - 482,431 Fixed-income securities Corporate debt securities - 6,054 6,054 Other fixed income 2,501 313 2,814 Total Investments $ 1,995,699 $ 69,289 $ 2,064,988 Receivables 6,157 Total $ 2,071,145 Cash equivalents and other short-term investments. These investments are primarily held in U.S. Treasury securities and registered money market funds.

These investments are valued using a market approach based on the quoted market prices of the security or inputs that include quoted market prices for similar instruments, and are classified as either Level 1 or Level 2 in the valuation hierarchy.

U.S. equities. These investments are held in common and preferred stock of U.S.

corporations and American Depositary Receipts (ADRs) traded on U.S. exchanges.

Common and preferred shares and ADRs are traded actively on exchanges, and price quotes for these shares are readily available. These investments are classified as Level 1 in the valuation hierarchy.

International equities. These investments are held in common and preferred stock issued by non-U.S. corporations. Common and preferred shares are traded actively on exchanges, and price quotes for these shares are readily available.

These investments are classified as Level 1 in the valuation hierarchy.

Corporate debt securities. These investments consist of fixed-income securities issued by U.S. corporations and are valued using a bid evaluation process, with bid data provided by independent pricing sources. These investments are classified as Level 2 in the valuation hierarchy.

Other fixed income. These investments consist of fixed-income securities issued by the U.S. Treasury and in private placements and are valued using a quoted market price or bid evaluation process, with bid data provided by independent pricing sources. These investments are classified as Level 1 or Level 2 in the valuation hierarchy.

Other Postretirement Plans. The following table sets forth obligation, asset and funding information for the Company's other postretirement plans: Postretirement Plans As of December 31 (in thousands) 2013 2012 Change in Benefit Obligation Benefit obligation at beginning of year $ 63,868 $ 72,412 Service cost 2,488 3,113 Interest cost 1,848 2,735 Actuarial gain (3,298 ) (11,493 ) Curtailment (21,221 ) 438 Benefits paid, net of Medicare subsidy (3,671 ) (3,337 ) Benefit Obligation at End of Year $ 40,014 $ 63,868 Change in Plan Assets Fair value of assets at beginning of year $ - $ - Employer contributions 3,671 3,337 Benefits paid, net of Medicare subsidy (3,671 ) (3,337 ) Fair Value of Assets at End of Year $ - $ - Funded Status $ (40,014 ) $ (63,868 ) 85 --------------------------------------------------------------------------------The amounts recognized in the Company's Consolidated Balance Sheets for its other postretirement plans are as follows: Postretirement Plans As of December 31 (in thousands) 2013 2012 Current liability $ (3,795 ) $ (3,919 ) Noncurrent liability (36,219 ) (59,949 ) Recognized Liability $ (40,014 ) $ (63,868 ) In 2012, the Company offered a Voluntary Retirement Incentive Program to certain employees of The Washington Post newspaper and recorded early retirement expense of $0.4 million, which is included in discontinued operations.

The discount rates utilized for determining the benefit obligation at December 31, 2013 and 2012, for the postretirement plans were 3.80% and 3.30%, respectively. The assumed health care cost trend rate used in measuring the postretirement benefit obligation at December 31, 2013, was 7.75% for pre-age 65, decreasing to 5.0% in the year 2025 and thereafter. The assumed health care cost trend rate used in measuring the postretirement benefit obligation at December 31, 2013, was 23.4% for the post-age 65 Medicare Advantage Prescription Drug (MA-PD) plan, decreasing to 5.0% in the year 2023 and thereafter, and was 6.75% for the post-age 65 non MA-PD plan, decreasing to 5.0% in the year 2021 and thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A change of one percentage point in the assumed health care cost trend rates would have the following effects: 1% 1% (in thousands) Increase Decrease Benefit obligation at end of year $ 2,322 $ (2,123 ) Service cost plus interest cost $ 284 $ (252 ) The Company made contributions to its postretirement benefit plans of $3.7 million and $3.3 million for the years ended December 31, 2013 and 2012, respectively. As the plans are unfunded, the Company makes contributions to its postretirement plans based on actual benefit payments.

At December 31, 2013, future estimated benefit payments are as follows: Postretirement (in thousands) Plans 2014 $ 3,795 2015 $ 3,819 2016 $ 3,866 2017 $ 3,846 2018 $ 3,784 2019-2023 $ 18,195 The total (benefit) cost arising from the Company's other postretirement plans consists of the following components: Postretirement Plans Year Ended December 31 (in thousands) 2013 2012 2011 Service cost $ 2,488 $ 3,113 $ 2,872 Interest cost 1,848 2,735 3,063 Amortization of prior service credit (4,247 ) (5,608 ) (5,650 ) Recognized actuarial gain (2,141 ) (1,478 ) (1,921 ) Net Periodic Benefit (2,052 ) (1,238 ) (1,636 ) Curtailment (41,623 ) 438 - Settlement (11,927 ) - - Total Benefit for the Year $ (55,602 ) $ (800 ) $ (1,636 ) Other Changes in Benefit Obligations Recognized in Other Comprehensive Income Current year actuarial gain $ (3,298 ) $ (11,493 ) $ (55 ) Amortization of prior service credit 4,247 5,608 5,650 Recognized actuarial gain 2,141 1,478 1,921 Curtailment and settlement 32,329 - -Total Recognized in Other Comprehensive Income (Before Tax Effects) $ 35,419 $ (4,407 ) $ 7,516 Total Recognized in (Benefit) Cost and Other Comprehensive Income (Before Tax Effect) $ (20,183 ) $ (5,207 ) $ 5,880 86-------------------------------------------------------------------------------- The net periodic benefit, as reported above, includes a benefit of $2.9 million included in discontinued operations in each year for 2013, 2012 and 2011. The curtailment and settlement are included in the gain on sale of Publishing Subsidiaries, which is also reported in discontinued operations.

The costs for the Company's postretirement plans are actuarially determined. The discount rates utilized to determine periodic cost for the years ended December 31, 2013, 2012 and 2011, were 3.30%, 3.90% and 4.60%, respectively.

AOCI included the following components of unrecognized net periodic benefit for the postretirement plans: As of December 31 (in thousands) 2013 2012 Unrecognized actuarial gain $ (13,928 ) $ (25,525 ) Unrecognized prior service credit (2,306 ) (26,128 ) Gross Amount (16,234 ) (51,653 ) Deferred tax liability 6,494 20,661 Net Amount $ (9,740 ) $ (30,992 ) During 2014, the Company expects to recognize the following amortization components of net periodic cost for the other postretirement plans: (in thousands) 2014 Actuarial gain recognition $ (2,076 ) Prior service credit recognition $ (783 ) Multiemployer Pension Plans. The Company contributed to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that covered certain union-represented employees.

In March 2013, the Company recorded a $0.4 million charge as The Herald unilaterally withdrew from the Western Conference Teamsters Pension Trust Fund as a result of the sale of its business. In 2012, The Herald notified the GCIU Employer's Trust Fund of its unilateral withdrawal from the Plan effective November 30, 2012, and recorded a $0.9 million charge based on an estimate of the withdrawal liability. In 2011, The Herald notified the union and the CWA/ITU Negotiated Pension Plan of its unilateral withdrawal from the Plan effective December 18, 2011. In connection with this action, The Herald recorded a $2.4 million charge in 2011 based on an estimate of the withdrawal liability. Payment of the actual withdrawal liability will relieve the Company of further liability to the Plans, absent certain circumstances prescribed by law.

The Company's total contributions to all multiemployer pension plans amounted to $0.1 million in 2013, $0.2 million in 2012 and $0.4 million in 2011.

Savings Plans. The Company recorded expense associated with retirement benefits provided under incentive savings plans (primarily 401(k) plans) of approximately $9.0 million in 2013, $12.7 million in 2012 and $14.6 million in 2011.

15. OTHER NON-OPERATING (EXPENSE) INCOME A summary of non-operating (expense) income is as follows: Year Ended December 31 (in thousands) 2013 2012 2011 Foreign currency (losses) gains, net $ (13,382 ) $ 3,132 $ (3,263 ) Impairment write-down on a marketable equity security (10,438 ) (17,998 ) (53,793 ) (Losses) gains on sales or write-downs of cost method investments, net (1,761 ) 6,639 419 Other, net 1,830 2,771 1,437 Total Other Non-Operating (Expense) Income $ (23,751 ) $ (5,456 ) $ (55,200 ) 87--------------------------------------------------------------------------------16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The other comprehensive income (loss) consists of the following components: Year Ended December 31, 2013 Before-Tax Income After-Tax (in thousands) Amount Tax Amount Foreign currency translation adjustments: Translation adjustments arising during the year $ (1,059 ) - $ (1,059 ) Unrealized gains on available-for-sale securities: Unrealized gains for the year 95,629 (38,251 ) 57,378 Reclassification adjustment for write-down on available-for-sale securities, net of gain, included in net income 9,554 (3,822 ) 5,732 105,183 (42,073 ) 63,110 Pension and other postretirement plans: Actuarial gain 762,806 (305,123 ) 457,683 Amortization of net actuarial loss included in net income 3,096 (1,238 ) 1,858 Amortization of net prior service credit included in net income (1,383 ) 553 (830 ) Curtailments and settlements (124,051 ) 49,617 (74,434 ) 640,468 (256,191 ) 384,277 Cash flow hedge: Gain for the year 520 (208 ) 312 Other Comprehensive Income $ 745,112 $ (298,472 ) $ 446,640 Year Ended December 31, 2012 Before-Tax Income After-Tax (in thousands) Amount Tax Amount Foreign currency translation adjustments: Translation adjustments arising during the year $ 5,622 - $ 5,622 Adjustment for sales of businesses with foreign operations (888 ) - (888 ) 4,734 - 4,734 Unrealized gains on available-for-sale securities: Unrealized gains for the year 33,098 (13,239 ) 19,859 Reclassification adjustment for write-down on available-for-sale securities, net of gain, included in net income 17,226 (6,890 ) 10,336 50,324 (20,129 ) 30,195 Pension and other postretirement plans: Actuarial gain 82,470 (32,987 ) 49,483 Amortization of net actuarial loss included in net income 9,368 (3,746 ) 5,622 Amortization of net prior service credit included in net income (1,859 ) 744 (1,115 ) Other adjustments (745 ) 299 (446 ) 89,234 (35,690 ) 53,544 Cash flow hedge: Loss for the year (1,581 ) 633 (948 ) Other Comprehensive Income $ 142,711 $ (55,186 ) $ 87,525 Year Ended December 31, 2011 Before-Tax Income After-Tax (in thousands) Amount Tax Amount Foreign currency translation adjustments: Translation adjustments arising during the year $ (21,375 ) 5,107 $ (16,268 ) Unrealized gains on available-for-sale securities: Unrealized losses for the year (37,708 ) 15,084 (22,624 ) Reclassification adjustment for write-down on available-for-sale securities, net of gain, included in net income 53,793 (21,518 ) 32,275 16,085 (6,434 ) 9,651 Pension and other postretirement plans: Actuarial loss (16,048 ) 6,420 (9,628 ) Amortization of net actuarial gain included in net income (510 ) 204 (306 ) Amortization of net prior service credit included in net income (3,925 ) 1,570 (2,355 ) Foreign affiliate pension adjustments 2,088 - 2,088 (18,395 ) 8,194 (10,201 ) Cash flow hedge: Gain for the year 14 (6 ) 8 Other Comprehensive Loss $ (23,671 ) $ 6,861 $ (16,810 ) 88-------------------------------------------------------------------------------- The accumulated balances related to each component of other comprehensive income (loss) are as follows: Cumulative Unrealized Gain Foreign on Pensions Accumulated Currency Unrealized Gain and Other Other Translation on Available-for- Postretirement Cash Flow Comprehensive(in thousands, net of taxes) Adjustment Sale Securities Plans Hedge Income As of December 31, 2011 $ 21,338 $ 80,358 $ 63,625 $ 8 $ 165,329 Other comprehensive income (loss) before reclassifications 5,622 19,859 49,037 (1,132 ) 73,386 Net amount reclassified from accumulated other comprehensive income (888 ) 10,336 4,507 184 14,139 Net other comprehensive income (loss) 4,734 30,195 53,544 (948 ) 87,525 As of December 31, 2012 26,072 110,553 117,169 (940 ) 252,854 Other comprehensive income (loss) before reclassifications (1,059 ) 57,378 383,249 (178 ) 439,390 Net amount reclassified from accumulated other comprehensive income - 5,732 1,028 490 7,250 Net other comprehensive income (loss) (1,059 ) 63,110 384,277 312 446,640 As of December 31, 2013 $ 25,013 $ 173,663 $ 501,446 $ (628 ) $ 699,494 The amounts and line items of reclassifications out of Accumulated Other Comprehensive Income are as follows: Affected Line Item in Year Ended December 31 the Consolidated Statement of (in thousands) 2013 2012 2011 Operations Foreign Currency Translation Adjustments: Income (loss) from Adjustment for sales of businesses discontinued with foreign operations $ - $ (888 ) $ - operations, net of tax Unrealized Gains on Available-for-sale Securities: Write-downs on available-for-sale securities, net of gains 9,554 17,226 53,793 Other expense, net Provision for Income (3,822 ) (6,890 ) (21,518 ) Taxes 5,732 10,336 32,275 Net of Tax Pension and Other Postretirement Plans: Amortization of net actuarial loss (1) (gain) 3,096 9,368 (510 ) Amortization of net prior service (1) credit (1,383 ) (1,859 ) (3,925 ) 1,713 7,509 (4,435 ) Before tax (685 ) (3,002 ) 1,774 Income Taxes 1,028 4,507 (2,661 ) Net of Tax Cash Flow Hedge 816 306 (40 ) Interest expense Provision for Income (326 ) (122 ) 16 Taxes 490 184 (24 ) Net of Tax Total reclassification for the year $ 7,250 $ 14,139 $ 29,590 Net of Tax ____________ (1) These accumulated other comprehensive income components are included in the computation of net periodic pension and postretirement plan cost (see Note 14).

17. LEASES AND OTHER COMMITMENTS The Company leases real property under operating agreements. Many of the leases contain renewal options and escalation clauses that require payments of additional rent to the extent of increases in the related operating costs.

At December 31, 2013, future minimum rental payments under noncancelable operating leases approximate the following: (in thousands) 2014 $ 119,129 2015 106,041 2016 99,167 2017 88,119 2018 73,520 Thereafter 411,466 $ 897,442 Minimum payments have not been reduced by minimum sublease rentals of $29.9 million due in the future under noncancelable subleases.

Rent expense under operating leases, including a portion reported in discontinued operations, was approximately $118.5 million, $127.2 million and $127.8 million in 2013, 2012 and 2011, respectively. Sublease income was approximately $5.4 million, $4.4 million and $2.7 million in 2013, 2012 and 2011, respectively.

89 -------------------------------------------------------------------------------- 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, 2013, such commitments amounted to approximately $34.5 million. If such programs are not produced, the Company's commitment would expire without obligation.

18. CONTINGENCIES Litigation and Legal 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, invasion of privacy; trademark, copyright and patent infringement; U.S. False Claims Act (False Claims Act) violations; violations of 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. Also, based on currently available information, management is of the opinion that the exposure to future material losses from existing legal proceedings is not reasonably possible, or that future material losses in excess of the amounts accrued are not reasonably possible.

On February 6, 2008, a purported class-action lawsuit was filed in the U.S.

District Court for the Central District of California by purchasers of BAR/BRI bar review courses, from July 2006 onward, alleging antitrust claims against Kaplan and West Publishing Corporation, BAR/BRI's former owner. On April 10, 2008, the court granted defendants' motion to dismiss, a decision that was reversed by the Ninth Circuit Court of Appeals on November 7, 2011. The Ninth Circuit also referred the matter to a mediator for the purpose of exploring a settlement. In the fourth quarter of 2012, the parties reached a comprehensive agreement to settle the matter. The settlement was approved by the District Court in September 2013, and is expected to be administered in 2014.

On or about January 17, 2008, an Assistant U.S. Attorney in the Civil Division of the U.S. Attorney's Office for the Eastern District of Pennsylvania contacted KHE's Broomall campus and made inquiries about the Surgical Technology program, including the program's eligibility for Title IV U.S. Federal financial aid, the program's student loan defaults, licensing and accreditation. Kaplan responded to the information requests and fully cooperated with the inquiry. The ED also conducted a program review at the Broomall campus, and Kaplan likewise cooperated with the program review. On July 22, 2011, the U.S. Attorney's Office for the Eastern District of Pennsylvania announced that it had entered into a comprehensive settlement agreement with Kaplan that resolved the U.S. Attorney's inquiry, provided for the conclusion of the ED's program review and also settled a previously sealed False Claims Act complaint that had been filed by a former employee of the CHI-Broomall campus. The total amount of all required payments by Broomall under the agreements was $1.6 million. Pursuant to the comprehensive settlement agreement, the U.S. Attorney inquiry has been closed, the False Claims Act complaint (United States of America ex rel. David Goodstein v.

Kaplan, Inc. et al.) was dismissed with prejudice and the ED will issue a final program review determination. At this time, Kaplan cannot predict the contents of the pending final program review determination or the ultimate impact the proceedings may have on the Broomall campus or the KHE business generally.

During 2013, certain Kaplan subsidiaries were subject to two other unsealed cases filed by former employees that include, among other allegations, claims under the False Claims Act relating to eligibility for Title IV funding. The U.S. Government declined to intervene in all cases, and, as previously reported, court decisions either dismissed the cases in their entirety or narrowed the scope of their allegations. The two cases are captioned: United States of America ex rel. Carlos Urquilla-Diaz et al. v. Kaplan University et al.

(unsealed March 25, 2008) and United States of America ex rel. Charles Jajdelski v. Kaplan Higher Education Corp. et al. (unsealed January 6, 2009).

On August 17, 2011, the U.S. District Court for the Southern District of Florida issued a series of rulings in the Diaz case, which included three separate complaints: Diaz, Wilcox and Gillespie. The court dismissed the Wilcox complaint in its entirety; dismissed all False Claims Act allegations in the Diaz complaint, leaving only an individual employment claim; and dismissed in part the Gillespie complaint, thereby limiting the scope and time frame of its False Claims Act allegations regarding compliance with the U.S. Federal Rehabilitation Act. On October 31, 2012, the court entered summary judgment in favor of the Company as to the sole remaining employment claim in the Diaz complaint. On July 16, 2013, the court likewise entered summary judgment in favor of the Company on all remaining claims in the Gillespie complaint. As of December 2013, the Diaz and Gillespie rulings were on appeal to the U.S. Court of Appeals for the Eleventh Judicial Court, where the Company will seek affirmation of the judgments in its favor.

On July 7, 2011, the U.S. District Court for the District of Nevada dismissed the Jajdelski complaint in its entirety and entered a final judgment in favor of Kaplan. On February 13, 2013, the U.S. Circuit Court for the Ninth Judicial Circuit affirmed the dismissal in part and reversed the dismissal on one allegation under the False Claims Act relating to eligibility for Title IV funding based on claims of false attendance. As of December 2013, this case had been remanded to the District Court, where discovery is expected to take place in 2014 as to the remaining allegation in the complaint.

90 -------------------------------------------------------------------------------- On October 21, 2010, Kaplan Higher Education Corporation received a subpoena from the office of the Florida Attorney General. The subpoena sought information pertaining to the online and on-campus schools operated by KHE in and outside of Florida. KHE has cooperated with the Florida Attorney General and provided the information requested in the subpoena. Although KHE may receive further requests for information from the Florida Attorney General, there has been no such further correspondence to date. The Company cannot predict the outcome of this inquiry.

On December 21, 2010, the U.S. Equal Employment Opportunity Commission (EEOC) filed suit against Kaplan Higher Education Corporation in the U.S. District Court for the Northern District of Ohio alleging racial bias by Kaplan in requesting credit scores of job applicants seeking financial positions. In March 2011, the court granted in part the Company's motion to dismiss the complaint.

On January 28, 2013, the court entered summary judgment in favor of Kaplan Higher Education Corporation and against the EEOC, terminating the case in its entirety. The EEOC appealed the judgment to the U.S. Court of Appeals for the Sixth Judicial Circuit, and briefing on that appeal was completed in November 2013.

On February 7, 2011, Kaplan Higher Education Corporation received a Civil Investigative Demand from the Office of the Attorney General of the State of Illinois. The demand primarily sought information pertaining to Kaplan University's online students who are residents of Illinois. KHE has cooperated with the Illinois Attorney General and provided the requested information.

Although KHE may receive further requests for information from the Illinois Attorney General, there has been no such further correspondence to date. The Company cannot predict the outcome of this inquiry.

On April 30, 2011, Kaplan Higher Education Corporation received a Civil Investigative Demand from the Office of the Attorney General of the State of Massachusetts. The demand primarily sought information pertaining to KHE Campuses' students who are residents of Massachusetts. KHE has cooperated with the Massachusetts Attorney General and provided the requested information, as well as additional information requested in 2012 and 2013. The Company cannot predict the outcome of this inquiry.

On July 20, 2011, Kaplan Higher Education Corporation received a subpoena from the Office of the Attorney General of the State of Delaware. The demand primarily sought information pertaining to Kaplan University's online students and KHE Campuses' students who are residents of Delaware. KHE has cooperated with the Delaware Attorney General and provided the information requested in the subpoena. Although KHE may receive further requests for information from the Delaware Attorney General, there has been no such further correspondence to date. The Company cannot predict the outcome of this inquiry.

Student Financial Aid. The Company's education division derives the majority of its revenues from U.S. Federal financial aid received by its students under Title IV programs administered by the ED pursuant to the Higher Education Act, as amended. To maintain eligibility to participate in Title IV programs, a school must comply with extensive statutory and regulatory requirements relating to its financial aid management, educational programs, financial strength, administrative capability, compensation practices, 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 2013, 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, 2013, 2012 and 2011, approximately $819 million, $882 million and $1,110 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.

91 -------------------------------------------------------------------------------- ED Program Reviews. The ED has undertaken program reviews at various KHE locations. Currently, there are three pending program reviews, including the ED's final report on the program review at KHE's Broomall, PA, location.

In May 2012, the ED issued a preliminary report containing several findings that required Kaplan University to conduct additional file reviews and submit additional data. In January 2013, Kaplan submitted a response to the ED's data request. In December 2013, the ED issued its Final Program Review Report determining that Kaplan University was required to repay a nominal sum.

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 69% of the Title IV funds received by the division in 2013. In 2013, Kaplan University derived less than 81% of its receipts from the Title IV programs, and other OPEID units derived between 69% and 89% of their receipts from Title IV programs. In 2012, Kaplan University derived less than 80% of its receipts from Title IV programs, and other OPEID units derived between 71% and 88% 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 carefully evaluate 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, some of which programs were acquired by certain KHE campuses in 2013 from other Kaplan businesses. 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 recently 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 2014, three of the KHE Campuses' OPEID units, representing approximately 1.7% of KHE's 2013 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 of the 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 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 six reportable segments: KHE, KTP, Kaplan International, cable, television broadcasting and other businesses.

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 postsecondary education businesses, made up of fixed-facility colleges, as well as online postsecondary and career programs. KHE also includes the domestic professional training businesses. KTP includes Kaplan's standardized test preparation programs. Kaplan International includes professional training and postsecondary education businesses outside the United States, as well as English-language programs.

92 -------------------------------------------------------------------------------- Kaplan's Colloquy business moved from Kaplan International to Kaplan Corporate effective January 1, 2013. Segment operating results of the education division have been restated to reflect this change.

Kaplan sold Kidum in August 2012, EduNeering in April 2012, KLT in February 2012, KCS in October 2011 and KVE in July 2011; therefore, the education division's operating results exclude these businesses.

In response to student demand levels, 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 $36.4 million, $45.2 million and $28.9 million were recorded in 2013, 2012 and 2011, respectively, as follows: Year Ended December 31 (in thousands) 2013 2012 2011 Accelerated depreciation $ 16,856 $ 17,230 $ 3,965 Lease obligation losses 9,351 9,794 7,570 Severance 6,289 14,349 17,205Accelerated amortization of intangible assets - 2,595 - Other 3,862 1,274 205 $ 36,358 $ 45,242 $ 28,945 KHE incurred restructuring costs of $19.5 million, $23.4 million and $13.2 million in 2013, 2012 and 2011, respectively, primarily from accelerated depreciation and severance and lease obligations. In 2013 and 2012, these costs were incurred in connection with a plan announced in September 2012 for KHE to close or consolidate operations at 13 ground campuses, along with plans to consolidate facilities and reduce workforce at its online programs. The 2011 costs were primarily severance costs from workforce reduction programs.

Kaplan International incurred restructuring costs of $5.8 million, $16.4 million and $1.0 million in 2013, 2012 and 2011, respectively. These restructuring costs were largely in Australia, where Kaplan is consolidating and restructuring its businesses, and included lease obligations, accelerated depreciation and severance charges.

In 2010, KTP began implementing a plan to reorganize its business consistent with the migration of students to Kaplan's online and hybrid test preparation offerings, reducing the number of leased test preparation centers. In 2011, implementation of the plan was completed and $12.5 million in lease and severance obligations and accelerated depreciation was recorded.

Total accrued restructuring costs at Kaplan were $17.6 million at the end of each of 2013 and 2012.

In the second quarter of 2012, Kaplan International results benefited from a favorable $3.9 million out of period expense adjustment related to certain items in 2011 and 2010. With respect to this out of period expense adjustment, the Company has concluded that it was not material to the Company's financial position or results of operations for 2013, 2012 and 2011 and the related interim periods, based on its consideration of quantitative and qualitative factors.

Cable. Cable operations consist of cable systems offering video, Internet, phone and other services to subscribers in midwestern, western and southern states. The principal source of revenue is monthly subscription fees charged for services.

Television Broadcasting. Television broadcasting operations are conducted through six VHF television stations serving the Detroit, Houston, Miami, 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 results of Social Code, a marketing solutions provider helping companies with marketing on social-media platforms; Celtic Healthcare, a provider of home health and hospice services in the northeastern and mid-Atlantic regions, acquired by the Company in November 2012; Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications, acquired by the Company in August 2013; and Trove, a digital team focused on emerging technologies and new product development. Also included are The Slate Group and FP Group, previously included as part of the Company's newspaper publishing division, which publish online and print magazines and websites.

Corporate Office. Corporate office includes the expenses of the Company's corporate office and a net pension credit.

Geographical Information. The Company's non-U.S. revenues in 2013, 2012 and 2011 totaled approximately $672 million, $644 million and $594 million, respectively, primarily from Kaplan's operations outside the U.S. The Company's long-lived assets in non-U.S. countries (excluding goodwill and other intangible assets), totaled approximately $66 million and $58 million at December 31, 2013 and 2012, respectively.

93 -------------------------------------------------------------------------------- Company information broken down by operating segment and education division: Year Ended December 31 (in thousands) 2013 2012 2011 Operating Revenues Education $ 2,177,508 $ 2,196,496 $ 2,404,459 Cable 807,309 787,117 760,221 Television broadcasting 374,605 399,691 319,206 Other businesses 128,803 72,837 42,891 Corporate office - - - Intersegment elimination (361 ) (571 ) (780 ) $ 3,487,864 $ 3,455,570 $ 3,525,997 Income (Loss) from Operations Education $ 51,301 $ (105,368 ) $ 96,286 Cable 169,735 154,581 156,844 Television broadcasting 171,276 191,642 117,089 Other businesses (23,468 ) (33,010 ) (16,771 ) Corporate office (23,279 ) (28,665 ) (19,330 ) $ 345,565 $ 179,180 $ 334,118 Equity in Earnings of Affiliates, Net 13,215 14,086 5,949 Interest Expense, Net (33,803 ) (32,551 ) (29,079 ) Other Expense, Net (23,751 ) (5,456 ) (55,200 ) Income from Continuing Operations before Income Taxes $ 301,226 $ 155,259 $ 255,788 Depreciation of Property, Plant and Equipment Education $ 89,764 $ 101,183 $ 83,735 Cable 128,184 129,107 126,302 Television broadcasting 12,467 13,018 12,448 Other businesses 2,177 770 674 Corporate office 626 - 244 $ 233,218 $ 244,078 $ 223,403 Amortization of Intangible Assets and Impairment of Goodwill and Other Long-Lived Assets Education $ 13,212 $ 129,312 $ 19,417 Cable 220 211 267 Television broadcasting - - - Other businesses 3,416 3,016 2,517 Corporate office - - - $ 16,848 $ 132,539 $ 22,201 Net Pension (Credit) Expense Education $ 16,538 $ 11,584 $ 6,345 Cable 3,708 2,540 1,924 Television broadcasting 3,381 4,970 1,669 Other businesses 610 169 132 Corporate office (41,836 ) (27,871 ) (33,289 ) $ (17,599 ) $ (8,608 ) $ (23,219 ) Capital Expenditures Education $ 45,550 $ 51,241 $ 51,871 Cable 160,246 150,525 143,225 Television broadcasting 12,702 6,401 6,415 Other businesses 2,005 1,451 1,013 Corporate office 309 - - $ 220,812 $ 209,618 $ 202,524 Asset information for the Company's business segments is as follows: As of December 31 (in thousands) 2013 2012 Identifiable Assets Education $ 1,921,037 $ 1,988,015 Cable 1,215,320 1,187,603 Television broadcasting 383,251 374,075 Other businesses 171,539 88,393 Corporate office 371,484 466,538 $ 4,062,631 $ 4,104,624 Investments in Marketable Equity Securities 487,156 380,087 Investments in Affiliates 15,754 15,535 Prepaid Pension Cost 1,245,505 604,823 Total Assets $ 5,811,046 $ 5,105,069 94-------------------------------------------------------------------------------- The Company's education division comprises the following operating segments: Year Ended December 31 (in thousands) 2013 2012 2011 Operating Revenues Higher education $ 1,080,908 $ 1,149,407 $ 1,399,583 Test preparation 293,201 284,252 303,093 Kaplan international 797,362 753,790 690,226 Kaplan corporate and other 7,990 15,039 18,940 Intersegment elimination (1,953 ) (5,992 ) (7,383 ) $ 2,177,508 $ 2,196,496 $ 2,404,459 Income (Loss) from Operations Higher education $ 71,584 $ 27,245 $ 148,915 Test preparation 4,118 (10,799 ) (28,498 ) Kaplan international 53,424 49,612 46,498 Kaplan corporate and other (78,160 ) (172,472 ) (69,509 ) Intersegment elimination 335 1,046 (1,120 ) $ 51,301 $ (105,368 ) $ 96,286 Depreciation of Property, Plant and Equipment Higher education $ 43,892 $ 58,514 $ 48,379 Test preparation 19,194 19,718 15,489 Kaplan international 16,296 21,149 16,746 Kaplan corporate and other 10,382 1,802 3,121 $ 89,764 $ 101,183 $ 83,735 Amortization of Intangible Assets $ 9,962 $ 17,719 $ 19,417 Impairment of Goodwill and Other Long-Lived Assets $ 3,250 $ 111,593 $ - Pension Expense Higher education $ 11,714 $ 7,943 $ 4,249 Test preparation 2,674 2,007 1,288 Kaplan international 363 189 142 Kaplan corporate and other 1,787 1,445 666 $ 16,538 $ 11,584 $ 6,345 Capital Expenditures Higher education $ 10,879 $ 26,406 $ 19,735 Test preparation 7,008 8,211 17,266 Kaplan international 27,601 16,864 16,304 Kaplan corporate and other 62 (240 ) (1,434 ) $ 45,550 $ 51,241 $ 51,871 Asset information for the Company's education division is as follows: As of December 31 (in thousands) 2013 2012 Identifiable Assets Higher education $ 859,208 $ 949,260 Test preparation 173,435 197,672 Kaplan international 864,507 818,613 Kaplan corporate and other 23,887 22,470 $ 1,921,037 $ 1,988,015 95--------------------------------------------------------------------------------20. SUMMARY OF QUARTERLY OPERATING RESULTS AND COMPREHENSIVE INCOME (UNAUDITED) Quarterly results of operations and comprehensive income for the year ended December 31, 2013, is as follows: First Third Fourth (in thousands, except per share amounts) Quarter Second Quarter Quarter (1) Quarter Operating Revenues Education $ 527,815 $ 548,230 $ 546,452 $ 555,011 Subscriber 186,790 192,273 190,302 186,297 Advertising 82,994 96,670 84,444 102,208 Other 39,241 52,423 51,331 45,383 836,840 889,596 872,529 888,899 Operating Costs and Expenses Operating 381,965 400,515 400,939 381,492 Selling, general and administrative 337,865 323,182 331,247 335,028 Depreciation of property, plant and equipment 59,895 57,816 55,633 59,874 Amortization of intangible assets 3,717 3,313 2,837 3,731 Impairment of intangibles and other long-lived assets - - - 3,250 783,442 784,826 790,656 783,375 Income from Operations 53,398 104,770 81,873 105,524 Equity in earnings of affiliates, net 3,418 3,868 5,892 37 Interest income 510 522 642 590 Interest expense (8,960 ) (9,048 ) (9,221 ) (8,838 ) Other (expense) income, net (4,083 ) (12,858 ) 8,110 (14,920 ) Income from Continuing Operations Before Income Taxes 44,283 87,254 87,296 82,393 Provision for Income Taxes 17,800 34,500 31,000 26,700 Income from Continuing Operations 26,483 52,754 56,296 55,693 (Loss) Income from Discontinued Operations, Net of Tax (21,224 ) (7,620 ) (25,872 ) 100,835 Net Income 5,259 45,134 30,424 156,528 Net Income Attributable to Noncontrolling Interests (97 ) (253 ) (75 ) (55 ) Net Income Attributable to Graham Holdings Company 5,162 44,881 30,349 156,473 Redeemable Preferred Stock Dividends (444 ) (206 ) (205 ) - Net Income Attributable to Graham Holdings Company Common Stockholders $ 4,718 $ 44,675 $ 30,144 $ 156,473 Amounts Attributable to Graham Holdings Company Common Stockholders Income from continuing operations $ 25,942 $ 52,295 $ 56,016 $ 55,638 (Loss) income from discontinued operations, net of tax (21,224 ) (7,620 ) (25,872 ) 100,835 Net income attributable to Graham Holdings Company common stockholders $ 4,718 $ 44,675 $ 30,144 $ 156,473 Per Share Information Attributable to Graham Holdings Company Common Stockholders Basic income per common share from continuing operations $ 3.50 $ 7.05 $ 7.55 $ 7.54 Basic (loss) income per common share from discontinued operations (2.86 ) (1.03 ) (3.48 ) 13.66 Basic net income per common share $ 0.64 $ 6.02 $ 4.07 $ 21.20 Diluted income per common share from continuing operations $ 3.50 $ 7.05 $ 7.53 $ 7.52 Diluted (loss) income per common share from discontinued operations (2.86 ) (1.03 ) (3.48 ) 13.62 Diluted net income per common share $ 0.64 $ 6.02 $ 4.05 $ 21.14 Basic average number of common shares outstanding 7,227 7,229 7,231 7,266 Diluted average number of common shares outstanding 7,266 7,283 7,337 7,347 2013 Quarterly comprehensive income $ 29,129 $ 61,125 $ 37,533 $ 555,695 (1) Other revenue and operating expenses of $29.9 million from the third quarter of 2013 have been revised to correctly present revenue on a net basis for certain third quarter contracts that were previously reported on a gross basis.

The amounts did not impact net income, and the Company concluded that the amounts were not material to the Company's consolidated financial statements.

The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Operations due to rounding.

96 --------------------------------------------------------------------------------Quarterly results of operations and comprehensive income for the year ended December 31, 2012, is as follows: First Second Third Fourth (in thousands, except per share amount) Quarter Quarter Quarter Quarter Operating Revenues Education $ 546,685 $ 551,774 $ 551,696 $ 546,341 Subscriber 178,022 182,639 185,326 186,383 Advertising 82,600 94,649 105,855 117,696 Other 20,305 25,368 34,760 45,471 827,612 854,430 877,637 895,891 Operating Costs and Expenses Operating 382,106 387,167 407,364 389,620 Selling, general and administrative 347,841 335,054 314,359 336,262 Depreciation of property, plant and equipment 56,165 56,594 57,588 73,731 Amortization of intangible assets 3,839 4,407 5,090 7,610 Impairment of goodwill and other long-lived assets - - - 111,593 789,951 783,222 784,401 918,816 Income (Loss) from Operations 37,661 71,208 93,236 (22,925 ) Equity in earnings of affiliates, net 3,888 3,314 4,099 2,785 Interest income 1,069 775 648 901 Interest expense (9,163 ) (8,979 ) (8,738 ) (9,064 ) Other income (expense), net 8,588 (635 ) 4,163 (17,572 ) Income (Loss) from Continuing Operations Before Income Taxes 42,043 65,683 93,408 (45,875 ) Provision for Income Taxes 17,200 23,900 37,000 5,100 Income (Loss) from Continuing Operations 24,843 41,783 56,408 (50,975 ) Income from Discontinued Operations, Net of Tax 6,725 10,264 37,539 5,600 Net Income (Loss) 31,568 52,047 93,947 (45,375 ) Net (Income) Loss Attributable to Noncontrolling Interests (70 ) (11 ) 71 (64 ) Net Income (Loss) Attributable to Graham Holdings Company 31,498 52,036 94,018 (45,439 ) Redeemable Preferred Stock Dividends (451 ) (222 ) (222 ) - Net Income (Loss) Attributable to Graham Holdings Company Common Stockholders $ 31,047 $ 51,814 $ 93,796 $ (45,439 ) Amounts Attributable to Graham Holdings Company Common Stockholders Income (loss) from continuing operations $ 24,322 $ 41,550 $ 56,257 $ (51,039 ) Income from discontinued operations, net of tax 6,725 10,264 37,539 5,600 Net income (loss) attributable to Graham Holdings Company common stockholders $ 31,047 $ 51,814 $ 93,796 $ (45,439 ) Per Share Information Attributable to Graham Holdings Company Common Stockholders Basic income (loss) per common share from continuing operations $ 3.17 $ 5.48 $ 7.58 $ (7.35 ) Basic income per common share from discontinued operations 0.90 1.36 5.06 0.78 Basic net income (loss) per common share $ 4.07 $ 6.84 $ 12.64 $ (6.57 ) Diluted income (loss) per common share from continuing operations $ 3.17 $ 5.48 $ 7.58 $ (7.35 ) Diluted income per common share from discontinued operations 0.90 1.36 5.06 0.78 Diluted net income (loss) per common share $ 4.07 $ 6.84 $ 12.64 $ (6.57 ) Basic average number of common shares outstanding 7,514 7,431 7,272 7,223 Diluted average number of common shares outstanding 7,615 7,545 7,376 7,223 2012 Quarterly comprehensive income $ 59,907 $ 47,085 $ 95,760 $ 16,857 The sum of the four quarters may not necessarily be equal to the annual amounts reported in the Consolidated Statements of Operations due to rounding.

97 -------------------------------------------------------------------------------- Quarterly impact from certain items in 2013 and 2012 (after-tax and diluted EPS amounts): First Second Third Fourth Quarter Quarter Quarter Quarter 2013 Ÿ Charges of $25.3 million in connection with severance and restructuring at the education division ($6.1 million, $3.9 million, $3.1 million and $12.2 million in the first, second, third and fourth quarters, respectively) $ (0.85 ) $ (0.54 ) $ (0.42 ) $ (1.66 ) Ÿ Intangible and other long-lived assets impairment charge of $3.2 million at Kaplan $ (0.44 ) Ÿ Write-down of marketable equity security of $6.7 million $ (0.91 ) Ÿ Losses, net, of $8.6 million for non-operating unrealized foreign currency (losses) gains ($3.0 million loss, $8.1 million loss, $5.0 million gain and $2.6 million loss in the first, second, third and fourth quarters, respectively) $ (0.41 ) $ (1.11 ) $ 0.69 $ (0.35 ) 2012 Ÿ Goodwill and other long-lived assets impairment charge of $81.9 million at Kaplan Test Preparation $ (11.33 ) Ÿ Charges of $32.9 million in connection with severance and restructuring at the education division ($3.1 million, $2.7 million and $27.1 million in the second, third and fourth quarters, respectively) $ (0.41 ) $ (0.37 ) $ (3.75 ) Ÿ Write-down of a marketable equity security of $11.2 million $ (1.54 ) Ÿ Gain on sale of cost method investment of $3.7 million $ 0.48 Ÿ Gains, net, of $2.0 million for non-operating unrealized foreign currency gains (losses) ($1.7 million gain, $1.6 million loss and $1.9 million gain in the first, second and third quarters, respectively) $ 0.22 $ (0.21 ) $ 0.26 98-------------------------------------------------------------------------------- GRAHAM HOLDINGS COMPANY FIVE-YEAR SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA See Notes to Consolidated Financial Statements for the summary of significant accounting policies and additional information relative to the years 2011-2013 and refer to Note 3 for discussion of discontinued operations.

(in thousands, except per share amounts) 2013 2012 2011 2010 2009 Results of Operations Operating revenues $ 3,487,864 $ 3,455,570 $ 3,525,997 $ 3,935,725 $ 3,563,349 Income from operations 345,565 179,180 334,118 601,577 453,010 Income from continuing operations 191,226 72,059 151,388 354,933 263,819 Net income attributable to Graham Holdings Company common stockholders 236,010 131,218 116,233 277,192 91,846 Per Share Amounts Basic earnings per common share attributable to Graham Holdings Company common stockholders Income from continuing operations $ 25.83 $ 9.22 $ 19.03 $ 39.67 $ 28.15 Net income 32.10 17.39 14.70 31.06 9.78 Diluted earnings per common share attributable to Graham Holdings Company common stockholders Income from continuing operations $ 25.78 $ 9.22 $ 19.03 $ 39.65 $ 28.15 Net income 32.05 17.39 14.70 31.04 9.78 Weighted average shares outstanding: Basic 7,238 7,360 7,826 8,869 9,332 Diluted 7,333 7,404 7,905 8,931 9,392 Cash dividends per common share $ - $ 19.60 $ 9.40 $ 9.00 $ 8.60 Graham Holdings Company common stockholders' equity per common share $ 446.73 $ 348.17 $ 342.76 $ 343.47 $ 317.21 Financial Position Working capital $ 768,278 $ 327,476 $ 250,069 $ 353,621 $ 398,481 Total assets 5,811,046 5,105,069 5,016,986 5,158,367 5,186,206 Long-term debt 447,608 453,384 452,229 396,650 396,236 Graham Holdings Company common stockholders' equity 3,300,067 2,586,028 2,601,896 2,814,364 2,939,550 Impact from certain items included in income from continuing operations (after-tax and diluted EPS amounts): 2013 • charges of $25.3 million ($3.46 per share) related to severance and restructuring at the education division • goodwill and other long-lived assets impairment charge of $3.2 million ($0.44 per share) at the education division • write-down of a marketable equity security of $6.7 million ($0.91 per share) • losses, net, of $8.6 million ($1.17 per share) from non-operating unrealized foreign currency losses 2012 • goodwill and other long-lived assets impairment charge of $81.9 million ($11.33 per share) at KTP • charges of $32.9 million ($4.53 per share) related to severance and restructuring at the education division • write-down of a marketable equity security of $11.2 million ($1.54 per share) • $3.7 million ($0.48 per share) gain on sale of cost method investment • gains, net, of $2.0 million ($0.27 per share) from non-operating unrealized foreign currency gains 2011 • charges of $17.9 million ($2.26 per share) related to severance and restructuring at the education division • impairment charge at one of the Company's affiliates of $5.7 million ($0.72 per share) • write-down of a marketable equity security of $34.6 million ($4.34 per share) • losses, net, of $2.1 million ($0.26 per share) from non-operating unrealized foreign currency losses 2010 • charges of $24.2 million ($2.83 per share) related to severance and restructuring • gains, net, of $4.2 million ($0.47 per share) from non-operating unrealized foreign currency gains 2009 • charges of $20.6 million ($2.19 per share) in connection with the restructuring of Kaplan's Score and Test Preparation operations • impairment charges of $18.8 million ($2.00 per share) at two of the Company's equity affiliates • gains, net, of $10.3 million ($1.10 per share) from non-operating unrealized foreign currency gains 99--------------------------------------------------------------------------------

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