Graham Holdings Co (GHC) FY 2024 MD&A

OVERVIEW

Graham Holdings Company (the Company) is a diversified holding company whose operations include educational services, television broadcasting, manufacturing, healthcare and automotive dealerships. The Company has seven reportable segments and a group of companies that make up Other Businesses. The Company’s business units are diverse and subject to different trends and risks.

Education is the largest operating division of the Company, making up 35% of the Company’s consolidated revenues in 2024. Through its subsidiary Kaplan, Inc., the Company provides extensive worldwide education services for individuals, schools and businesses. The Company has devoted significant resources and attention to this division for many years, given its geographic and product diversity, the investment opportunities and growth prospects during this time, and challenges related to government regulation. Kaplan is organized into the following three operating segments: Kaplan International (KI), Kaplan Higher Education (KHE) and Supplemental Education.

KI reported revenue and operating income growth for 2024 due largely to increases at Pathways, Australia, UK Professional and Singapore. KHE revenue declined due to reduced reimbursable expenses from Purdue University Global (Purdue Global), partially offset by an increase in the fees from Purdue Global and growth in other higher education programs. KHE operating results improved in 2024 due to an increase in the Purdue Global fee recorded, partially offset by an increase in higher education development costs. Supplemental Education revenues declined slightly in 2024, while operating results improved due largely to cost reductions from lower headcount, partially offset by increased employee healthcare and pension expense.

From an operating income standpoint, television broadcasting is the Company’s largest business. The Company’s television broadcasting division reported higher revenues and operating income in 2024, due largely to a significant increase in political advertising revenue from the 2024 election cycle, partially offset by a decline in local advertising revenue. Retransmission revenues, net of network fee expense, trended down modestly in 2024 with this trend expected to continue in the future due largely to adverse subscriber trends from cord cutting. In recent years, the television broadcasting division has consistently generated significantly higher operating income amounts and operating income margins than the education division and the Company’s other reporting segments.

The Company’s manufacturing division has provided meaningful operating cash flow over the last few years, although revenues and operating results at Hoover and Dekko have been adversely impacted by lower product demand. Graham Healthcare Group (GHG) has grown substantially over the last few years and provided meaningful operating cash flow from internal growth and acquisitions. In recent years, GHG has expanded from its home health and hospice operations into new lines of business. The largest of these is CSI Pharmacy Holding Company, LLC (CSI), which provides nursing care and prescription services for patients receiving in-home infusion treatments. CSI reported significant revenue growth and substantially higher operating results in 2024 from an expansion of infusion treatment offerings and patient service areas in 2024. Automotive revenues grew in 2024 due largely to the Toyota of Richmond acquisition, while operating results declined modestly.

The Company’s other businesses include several investment stage businesses as well as investments into new lines of business over the last few years. In total, there are eleven operating business units that make up this group in three categories: retail, media and specialty. The largest of these businesses from a revenue standpoint is Clyde’s Restaurant Group (CRG), followed by the combined three former Leaf businesses, and then Framebridge, a custom framing service company. In 2024, CRG and Slate each reported positive operating income, while the other businesses each reported operating losses, which were significant at the combined three former Leaf businesses and Framebridge.

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

Net income attributable to common shares was $724.6 million ($163.40 per share) for the year ended December 31, 2024, compared to $205.3 million ($43.82 per share) for the year ended December 31, 2023.

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Items included in the Company’s net income for 2024 are listed below:

•$49.8 million in goodwill and other long-lived asset impairment charges (after-tax impact of $39.4 million, or $8.89 per share);

•a $653.4 million fourth quarter settlement gain related to a retiree annuity pension purchase (after-tax impact of $486.1 million, or $109.62 per share);

•$21.0 million in non-operating expenses related to a Voluntary Retirement Incentive Program (VRIP) at the television broadcasting division and the corporate office, and Separation Incentive Programs (SIPs) at Kaplan, manufacturing and other businesses (after-tax impact of $15.6 million, or $3.52 per share);

•$119.3 million in interest expense to adjust the fair value of the mandatorily redeemable noncontrolling interest (after-tax impact of $113.7 million, or $25.65 per share);

•$181.3 million in net gains on marketable equity securities (after-tax impact of $134.9 million, or $30.41 per share);

•$3.5 million in net losses of affiliates whose operations are not managed by the Company (after-tax impact of $2.6 million, or $0.59 per share);

•a non-operating gain of $7.2 million from the sale of certain businesses and websites (after-tax impact of $5.3 million, or $1.19 per share); and

•a net non-operating loss of $16.7 million from the impairments and valuation adjustments of equity and cost method investments (after-tax impact of $12.4 million, or $2.80 per share).

Items included in the Company’s net income for 2023 are listed below:

•a $7.0 million net credit related to fair value changes in contingent consideration from prior acquisitions (after-tax impact of $6.5 million, or $1.38 per share);

•$99.1 million in goodwill and other long-lived asset impairment charges (after-tax impact of $88.9 million, or $18.97 per share);

•$9.9 million in expenses related to non-operating SIPs at other businesses and the education and television broadcasting divisions (after-tax impact of $7.3 million, or $1.57 per share);

•$138.1 million in net gains on marketable equity securities (after-tax impact of $102.7 million, or $21.93 per share);

•$16.0 million in net losses of affiliates whose operations are not managed by the Company (after-tax impact of $11.9 million, or $2.53 per share);

•a non-operating gain of $10.0 million on the sale of Pinna (after-tax impact of $7.4 million, or $1.59 per share);

•non-operating gains, net, of $3.4 million from write-ups, sales and impairments of cost method investments (after-tax impact of $2.5 million, or $0.54 per share);

•a $4.6 million credit to interest expense resulting from gains realized related to the termination of interest rate swaps (after-tax impact of $3.3 million, or $0.72 per share); and

•$10.1 million in interest expense to adjust the fair value of the mandatorily redeemable noncontrolling interest (after-tax impact of $9.6 million, or $2.05 per share).

Revenue for 2024 was $4,790.9 million, up 9% from $4,414.9 million in 2023. Revenues increased at education, television broadcasting, healthcare and automotive, partially offset by declines at manufacturing and other businesses. Operating costs and expenses for the year increased to $4,575.4 million in 2024, from $4,345.5 million in 2023. Expenses in 2024 increased at education, healthcare and automotive, partially offset by a decrease at television broadcasting, manufacturing and other businesses. The Company reported operating income for 2024 of $215.5 million, compared to $69.4 million in 2023. Excluding goodwill and other long-lived asset impairment charges, the improvement in operating results is due to increases at education, television broadcasting and healthcare, partially offset by declines at manufacturing and automotive.

Division Results

Education

Education division revenue in 2024 totaled $1,691.8 million, up 7% from $1,587.6 million in 2023. Kaplan reported operating income of $100.8 million for 2024, a decrease from $104.5 million in 2023. Excluding long-lived asset impairment charges, operating results improved significantly in 2024.

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A summary of Kaplan’s operating results is as follows:

Kaplan International includes postsecondary education, professional training and language training businesses largely outside the United States. Kaplan International revenue increased 11% in 2024 (9% on a constant currency basis). The increase in 2024 is due largely to growth at Pathways, Australia, UK Professional and Singapore. Kaplan International reported operating income of $101.7 million in 2024, compared to $87.5 million in 2023. The increase is due largely to improved results at Australia, UK Professional, Pathways and Singapore, partially offset by a decline at Languages and increased incentive compensation costs. In the fourth quarter of 2024, revenue and operating results were down at Australia due to lower new student enrollments at Kaplan Business School resulting from changes in student visa policies.

Higher Education includes the results of Kaplan as a service provider to higher education institutions. Higher Education revenue decreased 1% in 2024 due to reduced reimbursable expenses from Purdue Global, partially offset by an increase in the fees from Purdue Global and growth in other higher education programs. Enrollments at Purdue Global, the largest institutional client, increased 5% for 2024 compared with the end of 2023. In 2024 and 2023, Kaplan recorded a portion of the fee with Purdue Global. The Company will continue to assess the fee it records from Purdue Global on a quarterly basis to make a determination as to whether to record all or part of the fee in the future and whether to make adjustments to fee amounts recognized in earlier periods. During 2024 and 2023, Kaplan recorded $54.5 million and $50.3 million, respectively, in fees from Purdue Global in its Higher Education operating results. Higher Education results improved in 2024 due to an increase in the Purdue Global fee recorded, partially offset by an increase in higher education development costs.

Supplemental Education includes Kaplan’s standardized test preparation programs and domestic professional and other continuing education businesses. Supplemental Education revenue declined slightly in 2024, driven mostly by softness in Medical Licensure test preparation, wealth management and Real Estate, offset in part by growth in Insurance, CFA, Legal assessment services, Architecture and Engineering and MCAT test preparation. Operating results improved in 2024 due largely to cost reductions from lower headcount, partially offset by increased employee healthcare and pension expense.

In 2024, Kaplan offered SIPs to certain employees, primarily at Supplemental Education; $2.8 million in related non-operating pension expense was recorded.

Kaplan corporate and other represents unallocated expenses of Kaplan, Inc.’s corporate office, other minor businesses and certain shared activities. Overall, Kaplan corporate and other expenses increased in 2024 due to increased employee benefit and incentive compensation costs.

In the fourth quarter of 2024, Kaplan recorded an intangible asset impairment charge of $22.9 million related to Mander Portman Woodward (MPW), which is part of Kaplan International.

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Television Broadcasting

A summary of television broadcasting’s operating results is as follows:

Graham Media Group, Inc. (GMG) owns seven television stations located in Houston, TX; Detroit, MI; Orlando, FL; San Antonio, TX; Jacksonville, FL; and Roanoke, VA, as well as SocialNewsDesk, a provider of social media management tools designed to connect newsrooms with their users. Revenue at the television broadcasting division increased 13% to $535.7 million in 2024, from $472.4 million in 2023. The revenue increase is due to a $90.5 million increase in political advertising revenue, increases from summer Olympics-related advertising revenue at the Company’s NBC stations and an increase in digital advertising revenue, partially offset by a decline in local advertising revenue due to lower demand and fewer available advertising spots, and an $8.0 million decrease in retransmission revenues. Operating income for 2024 was up 50% to $201.2 million, from $133.9 million in 2023, due to higher revenues, cost reductions from lower headcount, and lower network fees; partially offset by increased pension expense. While per subscriber rates from cable, satellite and OTT providers have grown, overall cable and satellite subscribers are down due to cord cutting, resulting in retransmission revenue net of network fees in 2024 to decline modestly compared with 2023, and this trend is expected to continue in the future. Operating margin at the television broadcasting division was 38% in 2024 and 28% in 2023.

In the second quarter of 2024, GMG offered a VRIP to certain employees; $14.3 million in related non-operating pension expense was recorded.

GMG’s media hubs continued to strengthen their position as top contenders for local news in their respective markets. In traditional broadcasting, KSAT in San Antonio and WJXT in Jacksonville led their respective markets with top-rated newscasts at 6 am, 6 pm, and late evening, particularly excelling in the important 25-54 audience segment. Throughout 2024, KPRC in Houston ranked solidly in second place for evening news, led late news broadcasts, and finished third in the mornings. WDIV in Detroit dominated the 6 pm and 11 pm slots, while securing second place at 6 am. WKMG in Orlando posted strong results at 6 am, ranking second, while its 11 pm newscast placed third and its 6 pm broadcast came in fourth. In Roanoke, WSLS finished third in the 6 am, 6 pm, and 11 pm timeslots. On the digital side, GMG’s streaming platforms saw consistent growth in live stream viewership and total hours watched, while Insider membership registrations continued to climb. GMG’s local media websites also retained their positions as the leading digital platforms in their markets.

Manufacturing

A summary of manufacturing’s operating results is as follows:

Manufacturing includes four businesses: Hoover, a supplier of pressure impregnated kiln-dried lumber and plywood products for fire retardant and preservative applications; Dekko, a manufacturer of electrical workspace solutions, architectural lighting and electrical components and assemblies; Joyce/Dayton, a manufacturer of screw jacks and other linear motion systems; and Forney, a global supplier of products and systems that control and monitor combustion processes in electric utility and industrial applications.

Manufacturing revenues decreased 12% in 2024 due to lower revenues at Hoover, Dekko and Joyce, partially offset by increased revenues at Forney. The revenue decline at Hoover is due largely to a decrease in overall product demand, particularly for multi-family housing. Revenues declined at Dekko due to lower product demand. Overall, Hoover results included wood gains on inventory sales in 2024 and 2023, with gains in 2024 much lower than the prior year. Manufacturing operating results improved in 2024 due to a $47.8 million goodwill impairment charge at Dekko in 2023. Excluding the impairment charge at Dekko, manufacturing results were down in 2024, due to significant declines at Hoover and Dekko, along with declines at Joyce and Forney.

In the third and fourth quarters of 2024, Dekko offered SIPs to certain employees; $0.2 million in related non-operating pension expense was recorded.

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Healthcare

A summary of healthcare’s operating results is as follows:

GHG provides home health and hospice services in seven states. GHG also provides nursing care and prescription services for patients receiving in-home infusion treatments through its 87.5% interest in CSI, and other healthcare services through Clarus (provides call management SaaS-based solution for physician groups and hospitals), Impact Medical (an Allergy, Asthma and Immunology physician practice), Skin Clique (a concierge provider of aesthetics products and services) and Surpass Behavioral Health (provides therapy for autism patients). Healthcare revenues increased 33% in 2024, largely due to significant growth at CSI from an expansion of infusion treatment offerings and patient service areas; revenues also grew in home health and hospice services and at the other healthcare businesses.

The increase in GHG operating results in 2024 is due to substantially higher earnings at CSI from significant revenue growth, along with improved results in home health and at Surpass Behavioral Health, partly offset by increased pension expense. In January 2022, GHG implemented a pension credit retention program offering a pension credit up to $50,000 per employee, cliff vested after three years of continuous employment for certain existing employees and new employees. Effective April 1, 2024, this program is no longer being offered to new employees.

The Company also holds interests in four home health and hospice joint ventures managed by GHG, whose results are included in equity in earnings of affiliates in the Company’s Consolidated Statements of Operations. In 2024 and 2023, the Company recorded equity in earnings of $13.7 million and $9.9 million, respectively, from these joint ventures.

Automotive

A summary of automotive’s operating results is as follows:

Automotive includes eight automotive dealerships in the Washington, D.C. metropolitan area and Richmond, VA: Ourisman Lexus of Rockville, Ourisman Honda of Tysons Corner, Ourisman Jeep Bethesda, Ourisman Ford of Manassas, Toyota of Woodbridge, Ourisman Chrysler-Dodge-Jeep-Ram (CDJR) of Woodbridge and Ourisman Toyota of Richmond, which was acquired on September 27, 2023. The automotive group was awarded a Kia Open Point dealership in Bethesda, MD which commenced operations at the end of December 2023. Christopher J. Ourisman, a member of the Ourisman Automotive Group family of dealerships, and his team of industry professionals operates and manages the dealerships; the Company holds a 90% stake.

Revenues for 2024 increased 11% due to the Toyota of Richmond acquisition and the addition of the Kia dealership, as well as sales growth for services and parts, partially offset by a decline in new and used vehicle sales and a decline in sales of finance and insurance products offerings. Operating results for 2024 declined modestly due to lower sales and overall gross margins on new vehicles, a decline in finance and insurance product sales, and lower overall gross profit on used vehicles; partially offset by earnings from the Toyota of Richmond acquisition and higher overall gross profit on services and parts.

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Other Businesses

A summary of revenue by category for other businesses:

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Overall, revenue from other businesses declined 4% in 2024. Retail revenue declined largely due to significantly lower revenue at Society6, partially offset by revenue growth at Framebridge and Saatchi Art. Media revenue declined due to lower revenue at WGB, Code3 and Foreign Policy, partially offset by revenue growth at Slate and City Cast. Specialty revenue increased due to revenue growth at CRG, Decile and Supporting Cast. Excluding the former Leaf businesses, revenues from other businesses increased in 2024.

Overall, operating results at other businesses improved in 2024 due largely to $26.3 million in goodwill and intangible asset impairment charges at WGB in 2024 compared to $50.2 million in goodwill impairment charges at WGB in 2023. Excluding these impairment charges and increased pension expense, operating losses in 2024 were modestly lower than the prior year.

Leaf Group

On June 14, 2021, the Company acquired Leaf Group Ltd. (Leaf), a consumer internet company, headquartered in Santa Monica, CA, that builds enduring, creator-driven brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness (Well+Good and Livestrong.com), and home, art and design (Saatchi Art and Society6).

In the second quarter of 2023, the Company restructured Leaf into three stand-alone businesses: Society6 (formerly included in Leaf Marketplace), Saatchi Art (formerly included in Leaf Marketplace) and WGB (formerly Leaf Media). The transition process for this restructuring has involved various cost reduction initiatives, including elimination of shared services costs and functions; transitioning financial and human resources systems; and rationalizing physical facilities and data centers. In the first and second quarters of 2023, Leaf offered a SIP to reduce the number of employees; $2.9 million and $3.9 million in related non-operating pension expense was recorded in the first and second quarters of 2023, respectively. Each of Society6, Saatchi Art and WGB has continued with the transition and cost reduction process, which was largely complete at the end of the second quarter of 2024. In the third quarter of 2024, the Company offered an additional SIP at Society6, Saatchi Art and WGB; $0.5 million in related non-operating pension expense was recorded. In the fourth quarter of 2024, the Company offered an additional SIP at WGB; $0.2 million in related non-operating pension expense was recorded.

Revenues at Society6 and WGB declined substantially in 2024. Revenue declines at Society6 are due to declines in traffic, largely driven by a significant decrease in advertising spend, as well as softer demand in the home decor category. Revenue declines at WGB are due to reduced traffic and the soft digital advertising market for programmatic. Revenues at Saatchi Art grew in 2024. Overall, the former Leaf businesses reported significant operating losses for 2024 and 2023.

As a result of the substantial digital advertising revenue declines and continued significant operating losses at WGB, the Company recorded a $50.2 million goodwill impairment charge in the third quarter of 2023. In the second quarter of 2024, the Company recorded an additional $26.3 million in goodwill and intangible asset impairment charges at WGB. Excluding these impairment charges, losses were down modestly in 2024.

Clyde’s Restaurant Group

CRG owns and operates 14 restaurants and entertainment venues in the Washington, D.C. metropolitan area, including Old Ebbitt Grill and The Hamilton. In July 2024, CRG opened Rye Street Tavern, a new restaurant in Baltimore, MD. In November 2024, CRG opened Cordelia Fishbar, a new restaurant in Washington, D.C. Revenue increased in 2024 due to the new restaurant openings and modest price increases. CRG reported an operating profit in 2024 and 2023. Overall, operating results declined in 2024; excluding pre-opening expenses incurred for new restaurants, operating results improved.

CRG plans to open a new restaurant in Reston, VA in 2026.

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Framebridge

Framebridge is a custom framing service company, headquartered in Washington, D.C., with 32 retail locations and two manufacturing facilities in Kentucky and Virginia. Framebridge opened 10 new stores in 2024 and continues to actively explore opportunities for further store expansion. Revenues increased in 2024 due to an increase in retail revenue from same-store sales growth and operating additional retail stores compared to 2023, as well as higher online revenues, particularly during the holiday season. Framebridge is an investment stage business and reported significant operating losses in 2024 and 2023. Excluding increased pension expense, operating losses at Framebridge in 2024 were similar to losses in 2023.

In the first and second quarters of 2024, Framebridge offered a SIP; $1.4 million in related non-operating pension expense was recorded.

Other

Other businesses also include Code3, a performance marketing agency focused on driving performance for brands through three core elements of digital success: media, creative and commerce; Slate and Foreign Policy, which publish online and print magazines and websites; and three investment stage businesses, Decile, City Cast and Supporting Cast. Slate, City Cast, Supporting Cast and Decile reported revenue growth in 2024, while Code3 and Foreign Policy reported a revenue decline. Losses from City Cast, Decile, Code3, Supporting Cast and Foreign Policy in 2024 adversely affected operating results, while Slate reported an operating profit. Operating results in 2024 improved at Code3, with declines at Foreign Policy and increased losses at City Cast.

Other businesses also included Pinna, which was sold in June 2023 when the Company entered into a merger agreement with Realm of Possibility, Inc. (Realm), a provider of audio entertainment services, to merge Pinna with Realm in return for a noncontrolling financial interest in the merged entity. In connection with the merger, the Company recorded a $10.0 million non-cash, non-operating gain related to the transaction. The Company’s investment in Realm is reported as an equity method investment.

In 2024, the Company offered SIPs to certain employees at Code3, Decile and Slate to reduce the number of employees; $1.1 million in related non-operating pension expense was recorded.

In the first and second quarters of 2023, Code3 offered a SIP to reduce the number of employees; $1.9 million in related non-operating pension expense was recorded.

Corporate Office

Corporate office includes the expenses of the Company’s corporate office, certain continuing obligations related to prior business dispositions, and a net credit recorded in 2023 from fair value changes in contingent consideration related to the Framebridge acquisition.

Employee Benefit Plan Changes

Effective January 1, 2024, the Company’s defined benefit pension plan was amended to provide many of the current employees who are current plan participants with an increased pension benefit, and to provide certain current employees from several business units with a new pension benefit offering. The increased and new pension benefits are funded by the assets of the Company’s pension plan. As a result of these changes, the Company’s matching contribution to certain of its 401(k) Savings Plans was eliminated.

Equity in Losses of Affiliates

At December 31, 2024, the Company held an approximate 18% interest in Intersection Holdings, LLC (Intersection), a company that provides digital marketing and advertising services and products for cities, transit systems, airports, and other public and private spaces; and a 41.4% interest in Realm on a fully diluted basis. The Company also holds interests in several other affiliates, including a number of home health and hospice joint ventures managed by GHG and two joint ventures managed by Kaplan. Overall, the Company recorded equity in losses of affiliates of $3.3 million for 2024, compared to $5.2 million for 2023. These amounts include $3.5 million and $16.0 million in net losses for 2024 and 2023, respectively, from affiliates whose operations are not managed by the Company. The 2024 amount also includes a $14.4 million impairment loss on the Company’s investment in N2K Networks.

Net Interest Expense and Related Balances

The Company incurred net interest expense of $176.3 million in 2024, compared to $56.2 million in 2023. The Company recorded net interest expense of $119.3 million and $10.1 million in 2024 and 2023, respectively, to adjust the fair value of the mandatorily redeemable noncontrolling interest at GHG. The significant adjustment recorded in 2024 is largely related to a substantial increase in the estimated fair value of CSI.

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In September 2023, the automotive subsidiary of the Company entered into a credit agreement with Truist Bank to finance the acquisition of the Toyota of Richmond dealership and to repay the outstanding balance of the automotive subsidiary commercial notes that were maturing in 2031 and 2032. The related interest rate swaps were also terminated, resulting in a realized gain of $4.6 million recorded as a credit to interest expense during the third quarter of 2023.

Excluding these adjustments, the increase in net interest expense relates primarily to higher average debt balances, higher interest rates on the Company’s variable debt, and increased floor plan interest expense.

At December 31, 2024, the Company had $748.2 million in borrowings outstanding at an average interest rate of 6.0%, and cash, marketable equity securities and other investments of $1,156.6 million. At December 31, 2024, the Company had $62.8 million outstanding on its $300 million revolving credit facility. At December 31, 2023, the Company had $811.8 million in borrowings outstanding at an average interest rate of 6.4%, and cash, marketable equity securities and other investments of $898.9 million.

Non-Operating Pension and Postretirement Benefit Income, Net

The Company recorded net non-operating pension and postretirement benefit income of $794.9 million in 2024, compared to $133.8 million in 2023.

In the fourth quarter of 2024, the Company recorded a pre-tax, noncash settlement gain of $653.4 million in connection with the purchase of an irrevocable group annuity contract from an insurance company.

Also in the fourth quarter of 2024, the Company recorded $0.5 million in expenses related to non-operating SIPs at Kaplan, manufacturing and other businesses. In the third quarter of 2024, the Company recorded $3.7 million in expenses related to non-operating SIPs at Kaplan, manufacturing and other businesses. In the second quarter of 2024, the Company recorded $14.8 million in expenses related to a VRIP at the television broadcasting division and the corporate office and $1.6 million in expenses related to non-operating SIPs at other businesses. In the first quarter of 2024, the Company recorded $0.4 million in expenses related to a non-operating SIP at other businesses. The SIPs and VRIP were funded by the assets of the Company’s pension plan.

In the fourth quarter of 2023, the Company recorded $0.2 million in expenses related to a non-operating SIP at the television broadcasting division. In the second quarter of 2023, the Company recorded $5.5 million in expenses related to non-operating SIPs at other businesses and the education and television broadcasting divisions. In the first quarter of 2023, the Company recorded $4.1 million in expenses related to non-operating SIPs at other businesses. The SIPs were funded by the assets of the Company’s pension plan.

Gain on Marketable Equity Securities, Net

The Company recognized $181.3 million in net gains on marketable equity securities in 2024 compared to $138.1 million in 2023.

Other Non-Operating Income

The Company recorded total other non-operating income, net, of $12.5 million in 2024, compared to $19.1 million in 2023. The 2024 amounts included gains of $7.2 million on the sales of certain businesses and websites; $5.4 million in foreign currency gains; $0.9 million in gains related to the sale of businesses and contingent consideration, and other items; partially offset by $1.5 million in net fair value decreases on cost method investments and $0.7 million impairment on cost method investments. The 2023 amounts included a non-cash gain of $10.0 million on the sale of Pinna; $5.6 million in gains related to sales of businesses and contingent consideration; a $3.1 million increase in the fair value of cost method investments; a $1.0 million gain on sales of cost method investments, and other items; partially offset by $1.1 million in foreign currency losses and a $0.5 million impairment on a cost method investment.

Provision for Income Taxes

The Company’s effective tax rates for 2024 and 2023 were 28.5% and 29.2%, respectively. The Company’s effective tax rates in 2024 and 2023 were unfavorably impacted by permanent differences related to the goodwill and intangible asset impairment charges and the interest expense recorded to adjust the fair value of the mandatorily redeemable noncontrolling interest at GHG. Excluding the impact of these items, the overall income tax rates for 2024 and 2023 were 25.8% and 24.0%, respectively.

Earnings Per Share

The calculation of diluted earnings per share for the 2024 was based on 4,404,807 weighted average shares outstanding, compared to 4,653,626 for 2023. At December 31, 2024, there were 4,332,307 shares outstanding.

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FINANCIAL CONDITION: LIQUIDITY AND CAPITAL RESOURCES

The Company considers the following when assessing its liquidity and capital resources:

Cash generated by operations is the Company’s primary source of liquidity. The Company maintains investments in a portfolio of marketable equity securities, which is considered when assessing the Company’s sources of liquidity. An additional source of liquidity includes the undrawn portion of the Company’s $300 million revolving credit facility, amounting to $237.2 million at December 31, 2024 and the undrawn $50.0 million delayed draw term loan at the automotive subsidiary.

During 2024, the Company’s cash and cash equivalents increased by $91.0 million, due to cash generated from operations and the net proceeds from the sale and purchase of marketable equity securities, which were partially offset by share repurchases, payment of borrowings, capital expenditures and dividend payments. In 2024, the Company’s borrowings decreased by $63.6 million, primarily due to repayments under the revolving credit facility, term loan and commercial notes at the automotive subsidiary.

As of December 31, 2024 and 2023, the Company had money market investments of $3.9 million and $5.6 million, respectively, that were included in cash and cash equivalents. At December 31, 2024, the Company held approximately $170 million in cash and cash equivalents in businesses domiciled outside the U.S., of which approximately $8 million is not available for immediate use in operations or for distribution. Additionally, Kaplan’s business operations outside the U.S. retain cash balances to support ongoing working capital requirements, capital expenditures, and regulatory requirements. As a result, the Company considers a significant portion of the cash and cash equivalents balance held outside the U.S. as not readily available for use in U.S. operations.

At December 31, 2024, the fair value of the Company’s investments in marketable equity securities was $852.4 million, which includes investments in the common stock of four publicly traded companies. The Company purchased $5.0 million of marketable equity securities during 2024 and sold marketable equity securities that generated proceeds of $23.5 million. At December 31, 2024, the net unrealized gain related to the Company’s investments totaled $625.3 million.

In May 2024, the Company entered into a convertible promissory note agreement to loan N2K Networks $2.0 million. The convertible promissory note bears interest at a rate of 12% per annum and, subject to conversion provisions, all unpaid interest and principal are due by May 2027.

In April 2023, the Company entered into a term note agreement to loan Intersection $30.0 million at an interest rate of 9% per annum. The principal and interest on the note are payable in monthly installments over five years with the final payment due by May 2028. The outstanding balance on this loan was $25.7 million as of December 31, 2024.

The Company had working capital of $898.8 million and $619.6 million at December 31, 2024 and 2023, 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.

At December 31, 2024 and 2023, the Company had borrowings outstanding of $748.2 million and $811.8 million, respectively. The Company’s borrowings at December 31, 2024 were mostly from $400.0 million of 5.75% unsecured notes due June 1, 2026, $62.8 million in outstanding borrowings under the Company’s revolving credit facility, a term loan of $140.1 million, and real estate and capital term loans of $127.6 million at the automotive subsidiary. The Company’s borrowings at December 31, 2023 were mostly from $400.0 million of 5.75% unsecured notes due June 1, 2026, $97.9 million in outstanding borrowings under the Company’s revolving credit facility, a term loan of $147.5 million, and real estate and capital term loans of $137.6 million at the automotive subsidiary. The interest on the $400.0 million of 5.75% unsecured notes is payable semi-annually on June 1 and December 1.

During 2024 and 2023, the Company had average borrowings outstanding of approximately $804.7 million and $745.0 million, respectively, at average annual interest rates of approximately 6.3% and 6.1%, respectively. The Company incurred net interest expense of $176.3 million and $56.2 million, respectively, during 2024 and 2023. Included in the 2024 and 2023 interest expense is $119.3 million and $10.1 million, respectively, to adjust the fair value of the mandatorily redeemable noncontrolling interest (see Note 11).

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On September 26, 2023, the Company’s automotive subsidiary entered into a credit agreement with Truist Bank to finance the acquisition of the Toyota of Richmond dealership and to repay the outstanding balances of the commercial notes maturing in 2031 and 2032. The related interest rate swap agreements maturing in 2031 and 2032 were also terminated resulting in realized gains of $4.6 million that reduced interest expense during the third quarter of 2023.

On December 20, 2024, Moody’s affirmed the Company’s credit rating and maintained the outlook as Stable. On April 2, 2024, Standard & Poor’s affirmed the Company’s credit rating and maintained the outlook as Stable.

The Company’s current credit ratings are as follows:

The Company expects to fund its estimated capital needs primarily through existing cash balances and internally generated funds, and, as needed, from borrowings under its revolving credit facility. As of December 31, 2024, the Company had $62.8 million outstanding under the $300 million revolving credit facility. In management’s opinion, the Company will have sufficient financial resources to meet its business requirements in the next 12 months, including working capital requirements, capital expenditures, interest payments, potential acquisitions and strategic investments, dividends and stock repurchases.

In summary, the Company’s cash flows for each period were as follows:

Operating Activities. Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. The Company’s net cash flow provided by operating activities were as follows:

Net cash provided by operating activities consists primarily of cash receipts from customers, less disbursements for costs, benefits, income taxes, interest and other expenses.

For 2024 compared to 2023, the increase in net cash provided by operating activities is primarily due to changes in operating assets and liabilities, partially offset by lower net income, net of non-cash adjustments. Changes in operating assets and liabilities were driven by a significant increase in the value of the mandatorily redeemable noncontrolling interest and lower purchases of inventory. The change in non-cash activities is largely the result of a significant increase in the provision for deferred income taxes, partially offset by fluctuations in the share prices of the Company’s investments in marketable equity securities with larger gains in 2024 compared to 2023.

For 2023 compared to 2022, the increase in net cash provided by operating activities is primarily due to changes in operating assets and liabilities, partially offset by lower net income, net of non-cash adjustments. Changes in operating assets and liabilities were primarily driven by increases in accounts payable and accrued liabilities. The change in non-cash activities is largely the result of fluctuations in the share prices of the Company’s investments in marketable equity securities with gains in 2023 compared to losses in 2022.

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Investing Activities. The Company’s net cash flow used in investing activities were as follows:

Capital Expenditures. The amounts reflected in the Company’s Statements of Cash Flows are based on cash payments made during the relevant periods, whereas the Company’s capital expenditures for 2024, 2023 and 2022 disclosed in Note 19 to the Consolidated Financial Statements include assets acquired during the year. The Company estimates that its capital expenditures will be in the range of $90 million to $100 million in 2025.

Net Proceeds from Sales of Marketable Equity Securities. During 2024, 2023 and 2022, the Company sold marketable securities that generated proceeds of $23.5 million, $62.0 million and $102.0 million, respectively. The Company purchased $5.0 million, $4.6 million, and $42.1 million, of which $1.5 million was settled in January 2023, of marketable equity securities during 2024, 2023 and 2022, respectively.

Investment in Equity Affiliates. During 2023, the Company made additional investments in Intersection and Realm. During 2022, GHG invested an additional $18.5 million in two affiliates to fund their acquisition of an interest in a health system in Illinois and the Company also made an additional investment of $5.0 million in N2K Networks, the new parent entity formed through the CyberVista transaction.

Acquisitions. During 2024, the Company acquired two small businesses. During 2023, the Company acquired five businesses: one in automotive, three small businesses in healthcare and one in other businesses for $83.3 million in cash and contingent consideration and the assumption of floor plan payables. In September 2023, the Company’s automotive subsidiary acquired a Toyota automotive dealership, including the real property for the dealership operations. In addition to a cash payment and the assumption of $2.2 million in floor plan payables, the automotive subsidiary borrowed $37.0 million to finance the acquisition. During 2022, the Company acquired seven businesses: five in healthcare and two in automotive, for $143.2 million in cash and contingent consideration and the assumption of floor plan payables. GHG acquired two small businesses in August 2022, a 100% interest in a multi-state provider of Applied Behavioral Analysis clinics (Surpass Behavioral Health) in July 2022, and two small businesses in May 2022. In July 2022, the Company’s automotive subsidiary acquired two automotive dealerships, including the real property for the dealership operations. In addition to a cash payment and the assumption of $10.9 million in floor plan payables, the automotive subsidiary borrowed $77.4 million to finance the acquisition.

Loan to Related Party. In May 2024, the Company entered into a convertible promissory note agreement to loan N2K Networks $2.0 million. The convertible promissory note bears interest at a rate of 12% per annum and, subject to conversion provisions, all unpaid interest and principal are due by May 2027. In April 2023, the Company entered into a term note agreement to loan Intersection $30.0 million at an interest rate of 9% per annum. The principal and interest on the note are payable in monthly installments over five years with the final payment due by May 2028. The outstanding balance on this loan was $25.7 million as of December 31, 2024.

Financing Activities. The Company’s net cash flow used in financing activities were as follows:

Common Stock Repurchases. During 2024, 2023, and 2022, the Company purchased a total of 152,948, 325,134, and 121,761 shares, respectively, of its Class B common stock at a cost of approximately $115.2 million, $195.0 million, and $71.4 million, respectively, including commissions and accrued excise tax of $1.1 million and $1.8 million for 2024 and 2023 purchases, respectively. On September 12, 2024, the Board of Directors authorized the Company to acquire up to 500,000 shares of its Class B common stock. The Company did not announce a ceiling

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price or time limit for the purchases. At December 31, 2024, the Company had remaining authorization from the Board of Directors to purchase up to 466,460 shares of Class B common stock.

Borrowings and Vehicle Floor Plan Payable. In 2024, the Company repaid amounts borrowed under the $300 million revolving credit facility, term loan and commercial notes at the automotive subsidiary. In September 2023, the Company’s automotive subsidiary entered into a credit agreement with Truist Bank which includes (i) a $75.2 million real estate term loan, (ii) a $65.0 million capital term loan, (iii) a $50.0 million delayed draw term loan, and (iv) establishment of a revolving floor plan credit facility. The automotive subsidiary used the net proceeds from the real estate and capital term loans to acquire an automotive dealership, including the real property for the dealership operations, and to repay the outstanding balances of the commercial notes maturing in 2031 and 2032. On July 28, 2023, the Company entered into a $150 million term loan and used the proceeds to repay the U.S. dollar borrowings of the $300 million revolving credit facility. In July 2022, the Company’s automotive subsidiary amended its commercial note to, among other things, increase the aggregate loan amount to $71.6 million and entered into three commercial notes in an aggregate amount of $27.2 million. The additional borrowings were used to acquire two automotive dealerships, including the real property for the dealership operations. In 2024, 2023, and 2022, the Company used vehicle floor plan financing to fund the purchase of new, used and service loaner vehicles at its automotive subsidiary. The (repayments of) proceeds from the vehicle floor plan payable fluctuates with changes in the amount of vehicle inventory held by the automotive dealerships.

Dividends. The annual dividend rate per share was $6.88, $6.60 and $6.32 in 2024, 2023 and 2022, respectively. The Company expects to pay a dividend of $7.20 per share in 2025.

Other. In 2024, 2023 and 2022, the Company paid $5.4 million, $5.3 million and $5.7 million, respectively, related to contingent consideration and deferred payments from prior acquisitions. In December 2023, the Company acquired some of the minority-owned shares of CSI for a total amount of $20.0 million. The Company paid cash of $5.0 million and entered into a promissory note with the minority owners for the remaining $15.0 million.

Contractual Obligations. The following reflects a summary of the Company’s contractual obligations as of December 31, 2024:

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Other.  The Company does not have any off-balance-sheet arrangements or financing activities with special-purpose entities.

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 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.

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Revenue Recognition, Trade Accounts Receivable and Allowance for Credit Losses. Education revenue is primarily derived from postsecondary education services, professional education and test preparation services. Revenue, net of any refunds, corporate discounts, scholarships and employee tuition discounts, is recognized ratably over the instruction period or access period for higher education and supplemental education services.

At Kaplan International and Kaplan Supplemental Education, 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 provides non-academic operations support services to Purdue Global pursuant to a TOSA, which includes technology support, helpdesk functions, human resources support for faculty and employees, admissions support, financial aid administration, advertising, back-office business functions, and certain student recruitment services. KHE is not entitled to receive any reimbursement of costs incurred in providing support services, or any fee, unless and until Purdue Global has first covered all of its academic costs (subject to a cap) and, if applicable, received payment for cost efficiencies. KHE will receive reimbursement for its operating costs of providing the support services after payment of Purdue Global’s operating costs and cost efficiency payments. If there are sufficient revenues, KHE may be entitled to a cost efficiency payment, if any, and an additional fee equal to 12.5% of Purdue Global’s revenue. Subject to certain limitations, a portion of the fee that is earned by KHE in one year may be carried over to subsequent years for payment to Kaplan.

The support fee and reimbursement for KHE support costs are entirely dependent on the availability of cash at the end of Purdue Global’s fiscal year (June 30), and therefore, all consideration in the contract is variable. The Company uses significant judgment to forecast the operating results of Purdue Global, the availability of cash at the end of each fiscal year, and the consideration it expects to receive from Purdue Global annually. Key assumptions used in the forecast model include student census and degree enrollment data, Purdue Global and KHE expenses, changes to working capital, contractually stipulated minimum payments, and lead conversion rates. The forecast is updated as uncertainties are resolved. The Company reviews and updates the assumptions regularly, as a significant change in one or more of these estimates could affect the revenue recognized. Changes to the estimated variable consideration were not material for the year ended December 31, 2024.

A Kaplan International business has a contract with an examination body through August 2029 comprised of two performance obligations, one to build and create a professional exam and another to manage the delivery of that exam to qualified candidates. The first obligation was completed in 2021. The second obligation began after the first obligation was completed and is expected to continue through the end of the contract term. Revenues are recognized for both of these obligations by allocating the transaction price based on forecasted financial results and the use of a market-based profit margin applied to costs incurred during the financial reporting period. This profit margin, determined at contract inception, is different for each obligation as a result of the different value created by each distinct obligation. The forecast, including key assumptions such as expected candidate volumes and related exam-management expenses, is updated as future uncertainties are resolved, which may result in changes to the transaction price. The Company reviews and updates the assumptions regularly, as a significant change in one or more of these estimates could affect revenue recognized. Changes to the estimated variable consideration were not material for the year ended December 31, 2024.

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 obtained control of the specified goods or services before they are transferred to the customer as part of this assessment. In addition, the Company considers other indicators such as the party primarily responsible for fulfillment, inventory risk and discretion in establishing price.

Accounts receivable have been reduced by an allowance that reflects the current expected credit losses associated with the receivables. This estimated allowance is based on historical write-offs, current macroeconomic conditions, reasonable and supportable forecasts of future economic conditions and management’s evaluation of the financial condition of the customer. The Company generally considers an account past due or delinquent when a student or customer misses a scheduled payment. The Company writes off accounts receivable balances deemed uncollectible against the allowance for credit losses following the passage of a certain period of time, or generally when the account is turned over for collection to an outside collection agency.

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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.

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 a quantitative goodwill impairment test. The Company quantitatively tests goodwill for impairment 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 quantitative goodwill impairment test compares the estimated fair value of a reporting unit with its carrying amount, including goodwill. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

The Company performed an interim impairment review of goodwill at the WGB reporting unit in the second quarter of 2024 due to substantial digital advertising revenue declines and continued significant operating losses. The Company recorded a $7.5 million goodwill impairment charge at the WGB reporting unit as a result of the interim impairment review. The Company estimated the fair value of the reporting unit by utilizing a discounted cash flow model. The carrying value of the reporting unit exceeded its indicated fair value by more than the goodwill balance, which resulted in a goodwill impairment charge for the remaining goodwill at the reporting unit. As a result of the impairment charge, no goodwill remains at the WGB reporting unit, which is included in other businesses.

The Company had 21 reporting units as of December 31, 2024. The reporting units with significant goodwill balances as of December 31, 2024, were as follows, representing 95% of the total goodwill of the Company:

As of November 30, 2024, in connection with the Company’s annual impairment testing, the Company decided to perform the quantitative goodwill impairment process at all of the reporting units. The Company’s policy requires the performance of a quantitative impairment review of the goodwill at least once every three years. 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, 2024, was consistent with the one used during the 2023 annual goodwill impairment test.

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The Company made changes to certain of its assumptions utilized in the discounted cash flow models for 2024 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 2025 through 2029 were used. The Company used expected cash flows for the periods 2025 through 2031 and 2025 through 2034 for the Framebridge and Hoover reporting units, respectively. The expected cash flows took into account historical growth rates, the effect of the changed economic outlook at the Company’s businesses, industry challenges and an estimate for the possible impact of any applicable regulations.

•Cash flows beyond the forecasted years, where applicable, were projected to grow at a long-term growth rate, which the Company estimated between 1.5% and 3% for each reporting unit.

•The Company used a discount rate of 8.5% to 20.5% 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, 2024.

The estimated fair value of the Framebridge reporting unit exceeded its carrying values by a margin of less than 35%. The total goodwill at the Framebridge reporting unit was $60.9 million as of December 31, 2024, or 4% of the total goodwill of the Company. There exists a reasonable possibility that a decrease in the assumed projected cash flows or long-term growth rate, or an increase in the discount rate assumption used in the discounted cash flow model of this reporting unit, could result in a possible impairment charge.

The estimated fair value of the Company’s other reporting units with significant goodwill balances exceeded their respective carrying values by a margin in excess of 35%. It is possible that impairment charges could occur in the future, as changes in market conditions and the inherent variability in projecting future operating performance could result in adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with fair value estimates and could lead to additional future impairments, which could be material.

Indefinite-Lived Intangible Assets

The Company’s intangible assets with an indefinite life are principally from franchise rights, trade names and FCC licenses. The Company initially assesses 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 policy requires the performance of a quantitative impairment review of the indefinite-lived intangible assets at least once every three years.

In conjunction with the Company’s annual impairment review, as a result of reduced enrollments at MPW and the recent U.K. government elimination of the Value Added Tax (VAT) exemption on private school tuition coupled with an overall downward trend in enrollments at sixth-form colleges leading to uncertainty regarding future enrollments, the Company recorded an indefinite-lived intangible asset impairment charge of $22.9 million at MPW. The Company estimated the fair value of the trade name by utilizing the relief from royalty method under a discounted cash flow model. The carrying value of the MPW trademark indefinite-lived intangible asset exceeded its estimated fair value, resulting in an indefinite-lived intangible asset impairment charge for the excess amount. MPW is included in Kaplan International.

With the exception of the MPW trademark indefinite-lived intangible asset, the fair value of all the indefinite-lived intangible assets exceeded their respective carrying values as of November 30, 2024. The estimated fair values of indefinite-lived intangible assets with a total carrying value of $17.0 million exceeded their carrying value by a margin of less than 10%. There exists a reasonable possibility that impairment charges could occur in the future, as changes in market conditions and the inherent variability in projecting future operating performance could result in adverse changes in projections for future operating results or other key assumptions, such as projected revenue, profit margin, capital expenditures or cash flows associated with fair value estimates and could lead to future impairments, which could be material.

Pension Costs.  The Company sponsors a defined benefit pension plan for eligible employees in the U.S. Excluding curtailment gains, settlement gains and special termination benefits, the Company’s net pension credit

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was $107.7 million, $111.3 million and $170.2 million for 2024, 2023 and 2022, respectively. The Company’s pension benefit obligation and related credits are actuarially determined and are significantly impacted 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 6.25% expected return on plan assets for 2024, 2023 and 2022. The Company’s actual return (loss) on plan assets was 19.1% in 2024, 23.2% in 2023 and (23.4%) in 2022. The 10-year and 20-year actual returns on plan assets on an annual basis were 8.8% and 9.6%, 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 generally 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, 2024, 2023 and 2022, was 5.8%, 5.2% and 5.5%, respectively, reflecting market interest rates.

Changes in key assumptions for the Company’s pension plan would have had the following effects on the 2024 pension credit, excluding curtailment gains, settlement gains 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 increased or decreased the pension credit by approximately $26.5 million.

•    Discount rate – A 1% decrease to the Company’s assumed discount rate would have decreased the pension credit by approximately $7.2 million. A 1% increase to the Company’s assumed discount rate would have increased the pension credit by approximately $5.7 million.

The Company’s net pension 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 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 (credit) cost 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 the 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 pension credit 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 2021, the Company had net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the 10% corridor, and therefore, an amortized gain of $68.7 million was included in the pension credit for 2022.

During 2022, there were significant pension asset losses partially offset by an increase in the discount rate that resulted in net unamortized actuarial gains in accumulated other comprehensive income subject to amortization

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outside the 10% corridor, and therefore, an amortized gain of $39.8 million was included in the pension credit for 2023.

During 2023, there were significant pension asset gains partially offset by a decrease in the discount rate that resulted in net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the 10% corridor, and therefore, an amortized gain of $37.9 million was included in the pension credit for the first nine and a half months of 2024.

As a result of the irrevocable group annuity purchase, the Company remeasured the accumulated and projected benefit obligations as of October 17, 2024, and recorded a settlement gain. During the first nine and a half months, there were significant pension asset gains offset by the $653.4 million settlement gain following the purchase of the irrevocable group annuity contract that resulted in no net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the 10% corridor, and therefore, no amortized gain amount was included in the pension credit for the last two and a half months of 2024. During the last two and a half months of 2024, there was an increase in the discount rate; however, the Company currently estimates that there will be no net unamortized actuarial gains in accumulated other comprehensive income subject to amortization outside the 10% corridor, and therefore, no amortized gain amount is included in the estimated pension credit for 2025.

Overall, the Company estimates that it will record a net pension credit of approximately $95.1 million in 2025.

Note 15 to the Company’s Consolidated Financial Statements provides additional details surrounding pension costs and related assumptions.

Accounting for Income Taxes.

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, 2024, the Company had state income tax net operating loss carryforwards of $1,163.4 million, which will expire at various future dates. Also at December 31, 2024, the Company had $84.1 million of non-U.S. income tax loss carryforwards, of which $36.2 million may be carried forward indefinitely; $41.7 million of losses that, if unutilized, will expire in varying amounts through 2029; and $6.2 million of losses that, if unutilized, will start to expire after 2029. At December 31, 2024, the Company has established approximately $74.8 million in total valuation allowances, primarily 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. In most instances, 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. However, certain deferred state tax assets have an indefinite life. As a result, the Company has considered deferred tax liabilities for prepaid pension cost and goodwill as a source of future taxable income for realizing those deferred state tax assets with indefinite lives. 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 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 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.

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