BRIDGEPOINT EDUCATION INC, 10-Q filed on 8/2/2011
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2011
Jul. 29, 2011
Entity Information [Line Items]
 
 
Entity Registrant Name
BRIDGEPOINT EDUCATION INC 
 
Entity Central Index Key
0001305323 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Accelerated Filer 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2011 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q2 
 
Amendment Flag
FALSE 
 
Entity Common Stock, Shares Outstanding
 
52,534,873 
Entity Well-known Seasoned Issuer
No 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Condensed Consolidated Balance Sheets (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 210,495 
$ 188,518 
Restricted cash
25 
25 
Marketable securities
78,032 
90,611 
Accounts receivable, net
78,685 
58,415 
Deferred income taxes
7,039 
7,039 
Prepaid expenses and other current assets
13,267 
12,650 
Total current assets
387,543 
357,258 
Property and equipment, net
75,500 
66,542 
Marketable securities
68,837 
20,000 
Goodwill and intangibles, net
5,209 
4,123 
Deferred income taxes
15,845 
15,845 
Other long-term assets
8,566 
7,457 
Total assets
561,500 
471,225 
Current liabilities:
 
 
Accounts payable
3,081 
5,076 
Accrued liabilities
47,618 
34,895 
Deferred revenue and student deposits
180,730 
173,576 
Total current liabilities
231,429 
213,547 
Rent liability
14,191 
10,910 
Other long-term liabilities
8,538 
8,527 
Total liabilities
254,158 
232,984 
Commitments and contingencies (see Note 12)
 
 
Preferred stock, $0.01 par value:
 
 
20,000 shares authorized; zero shares issued and outstanding at June 30, 2011, and December 31, 2010
0 
0 
Common stock, $0.01 par value:
 
 
300,000 shares authorized; 57,782 issued and 52,198 outstanding at June 30, 2011; 55,801 issued and 52,799 outstanding at December 31, 2010
578 
558 
Additional paid-in capital
120,902 
101,463 
Retained earnings
284,481 
178,413 
Treasury stock, 5,584 and 3,002 shares at cost at June 30, 2011, and December 31, 2010, respectively
(98,619)
(42,193)
Total stockholders' equity
307,342 
238,241 
Total liabilities and stockholders' equity
$ 561,500 
$ 471,225 
Condensed Consolidated Balance Sheets Parenthetical (USD $)
In Thousands, except Per Share data
Jun. 30, 2011
Dec. 31, 2010
Stockholders' equity:
 
 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
20,000 
20,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
300,000 
300,000 
Common stock, shares issued
57,782 
55,801 
Common stock, shares outstanding
52,198 
52,799 
Treasury stock, shares at cost
5,584 
3,002 
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Revenue
$ 239,880 
$ 173,840 
$ 469,313 
$ 329,907 
Costs and expenses:
 
 
 
 
Instructional costs and services
62,012 
43,257 
117,821 
82,693 
Marketing and promotional
62,188 
50,096 
121,154 
94,309 
General and administrative
33,131 
21,257 
61,677 
43,588 
Total costs and expenses
157,331 
114,610 
300,652 
220,590 
Operating income
82,549 
59,230 
168,661 
109,317 
Other income, net
(657)
(370)
(1,330)
(617)
Income before income taxes
83,206 
59,600 
169,991 
109,934 
Income tax expense
31,057 
24,330 
63,923 
44,841 
Net income
$ 52,149 
$ 35,270 
$ 106,068 
$ 65,093 
Earnings per common share:
 
 
 
 
Basic
$ 0.99 
$ 0.65 
$ 2 
$ 1.19 
Diluted
$ 0.90 
$ 0.58 
$ 1.82 
$ 1.07 
Weighted average number of common shares outstanding used in computing earnings per common share:
 
 
 
 
Basic
52,911 
54,608 
52,943 
54,490 
Diluted
57,939 
60,728 
58,253 
60,613 
Condensed Consolidated Statement of Stockholders' Equity (USD $)
In Thousands
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Treasury Stock
Balance at Dec. 31, 2010
$ 238,241 
$ 558 
$ 101,463 
$ 178,413 
$ (42,193)
Common Stock, Shares, Outstanding at Dec. 31, 2010
 
55,801 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Stock-based compensation
4,796 
 
4,796 
 
 
Exercise of stock options
 
1,906 
 
 
 
Exercise of stock options
3,577 
20 
3,557 
 
 
Excess tax benefit of option exercises
10,365 
 
10,365 
 
 
Stock issued under employee stock purchase plan
 
36 
 
 
 
Stock issued under employee stock purchase plan
642 
 
642 
 
 
Exercise of warrants
 
39 
 
 
 
Exercise of warrants
79 
0 
79 
 
 
Repurchase of common stock
(56,426)
 
 
 
(56,426)
Net income
106,068 
 
 
106,068 
 
Balance at Jun. 30, 2011
$ 307,342 
$ 578 
$ 120,902 
$ 284,481 
$ (98,619)
Common Stock, Shares, Outstanding at Jun. 30, 2011
 
57,782 
 
 
 
Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
Cash flows from operating activities
 
 
Net income
$ 106,068 
$ 65,093 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Provision for bad debts
23,614 
16,262 
Depreciation and amortization
5,572 
3,776 
Amortization of premium/discount
1,380 
(12)
Deferred income taxes
0 
(13)
Stock-based compensation
4,796 
3,681 
Excess tax benefit of option exercises
(10,365)
(757)
Loss on disposal of fixed assets
11 
0 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(43,884)
(54,547)
Prepaid expenses and other current assets
360 
(3,131)
Other long-term assets
(1,109)
(934)
Accounts payable and accrued liabilities
19,276 
7,899 
Deferred revenue and student deposits
7,154 
3,458 
Other liabilities
3,292 
4,638 
Net cash provided by operating activities
116,165 
45,413 
Cash flows from investing activities
 
 
Capital expenditures
(12,477)
(12,060)
Purchases of marketable securities
(114,115)
(5,009)
Capitalized curriculum development costs
(1,333)
(259)
Maturities of marketable securities
75,500 
30,000 
Net cash (used in) provided by investing activities
(52,425)
12,672 
Cash flows from financing activities
 
 
Proceeds from the exercise of stock options
3,577 
411 
Excess tax benefit of option exercises
10,365 
757 
Proceeds from the issuance of stock under employee stock purchase plan
642 
501 
Proceeds from the exercise of warrants
79 
1,188 
Repurchase of common stock
(56,426)
0 
Payments of capital lease obligations
0 
(634)
Net cash (used in) provided by financing activities
(41,763)
2,223 
Net increase in cash and cash equivalents
21,977 
60,308 
Cash and Cash Equivalents at beginning of period
188,518 
125,562 
Cash and Cash Equivalents at end of period
210,495 
185,870 
Supplemental disclosure of non-cash transactions:
 
 
Purchase of equipment included in accounts payable and accrued liabilities
$ 3,524 
$ 810 
Nature of Business
Nature of Operations [Text Block]
Nature of Business
Bridgepoint Education, Inc. (together with its subsidiaries, the "Company"), incorporated in 1999, is a provider of postsecondary education services. Its wholly-owned subsidiaries, Ashford University and the University of the Rockies, are regionally accredited academic institutions that offer associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. These institutions deliver programs online, as well as at their traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado.
Summary of Significant Accounting Policies
Significant Accounting Policies [Text Block]
Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Bridgepoint Education, Inc. and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010, which was filed with the Securities and Exchange Commission ("SEC") on March 2, 2011. In the opinion of management, these financial statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company's condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.
Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data were derived from audited financial statements, but do not include all disclosures required by GAAP.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.
Earnings Per Share
Earnings Per Share [Text Block]
Earnings Per Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net income by the sum of (i) the weighted average number of common shares outstanding for the period and (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive.
Potentially dilutive common shares for the three and six months ended June 30, 2011, consisted of incremental shares of common stock issuable upon the exercise of options and warrants and upon the settlement of restricted stock units. Potentially dilutive common shares for the three and six months ended June 30, 2010, consisted of incremental shares of common stock issuable upon the exercise of options and warrants.
The following table sets forth the computation of basic and diluted earnings per common share for the periods indicated (in thousands, except per share data):
 
Three Months Ended

June 30,
 
Six Months Ended

June 30,
 
2011
 
2010
 
2011
 
2010
Numerator:
 
 
 
 
 
 
 
Net income
$
52,149


 
$
35,270


 
$
106,068


 
$
65,093


Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding
52,911


 
54,608


 
52,943


 
54,490


Effect of dilutive options
4,756


 
5,814


 
5,031


 
5,754


Effect of dilutive warrants
272


 
306


 
279


 
369


Diluted weighted average number of common shares outstanding
57,939


 
60,728


 
58,253


 
60,613


Earnings per common share:
 
 
 
 
 
 
 
Basic earnings per common share
$
0.99


 
$
0.65


 
$
2.00


 
$
1.19


Diluted earnings per common share
$
0.90


 
$
0.58


 
$
1.82


 
$
1.07


For the periods indicated below, the computation of dilutive common shares outstanding excludes certain options to purchase shares of common stock and certain restricted stock units because their effect was anti-dilutive.
 
Three Months Ended

June 30,
 
Six Months Ended

June 30,
(in thousands)
2011
 
2010
 
2011
 
2010
Options
1,630


 
296


 
1,085


 
183


Restricted stock units
2


 
—


 
1


 
—


Significant Balance Sheet Accounts
Supplemental Balance Sheet Disclosures [Text Block]
Significant Balance Sheet Accounts
Accounts Receivable, Net
Accounts receivable, net, consist of the following (in thousands):
 
As of

June 30, 2011
 
As of

December 31, 2010
Accounts receivable
$
105,317


 
$
86,505


Less allowance for doubtful accounts
(26,632
)
 
(28,090
)
Accounts receivable, net
$
78,685


 
$
58,415


The following table presents the changes in the allowance for doubtful accounts for the periods indicated (in thousands):
 
Beginning
Balance
 
Charged to
Expense
 
Deductions(1)
 
Ending
Balance
For the six months ended June 30, 2011
$
(28,090
)
 
23,614


 
(25,072
)
 
$
(26,632
)
For the six months ended June 30, 2010
$
(16,171
)
 
16,262


 
(9,669
)
 
$
(22,764
)
(1)
Deductions represent accounts written off, net of recoveries.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
As of

June 30, 2011
 
As of

December 31, 2010
Prepaid expenses
$
6,496


 
$
4,730


Prepaid licenses
1,047


 
1,080


Prepaid income taxes
—


 
3,526


Prepaid insurance
3,439


 
999


Other current assets
2,285


 
2,315


Total prepaid expenses and other current assets
$
13,267


 
$
12,650


Property and Equipment, Net
Property and equipment, net, consist of the following (in thousands):
 
As of

June 30, 2011
 
As of

December 31, 2010
Land
$
7,091


 
$
7,091


Buildings
14,988


 
13,886


Furniture, office equipment and software
59,438


 
47,600


Leasehold improvements
17,389


 
16,094


Vehicles
92


 
53


Total property and equipment
98,998


 
84,724


Less accumulated depreciation and amortization
(23,498
)
 
(18,182
)
Total property and equipment, net
$
75,500


 
$
66,542


Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
 
As of

June 30, 2011
 
As of

December 31, 2010
Accrued salaries and wages
$
11,709


 
$
10,457


Accrued bonus
1,672


 
5,069


Accrued vacation
6,305


 
4,962


Accrued expenses
19,556


 
14,407


Accrued income taxes payable
8,376


 
—


Total accrued liabilities
$
47,618


 
$
34,895


Deferred Revenue and Student Deposits
Deferred revenue and student deposits consist of the following (in thousands):
 
As of

June 30, 2011
 
As of

December 31, 2010
Deferred revenue
$
58,189


 
$
41,681


Student deposits
122,541


 
131,895


Total deferred revenue and student deposits
$
180,730


 
$
173,576


Fair Value Measurements
Fair Value Disclosures [Text Block]
Fair Value Measurements
The Company uses the three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either observable directly or indirectly, through market corroboration, for substantially the full term of the financial instrument; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company's Level 2 marketable securities are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate for similar types of instruments. During the three and six months ended June 30, 2011, there were no transfers in or out of any fair value level of measurement.
The following table summarizes the fair value information of short and long-term marketable securities as of June 30, 2011 (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Demand notes
$
—


 
$
25,171


 
$
—


 
$
25,171


Corporate notes and bonds
—


 
82,098


 
—


 
82,098


Bond fund
10,111


 
—


 
—


 
10,111


Certificates of deposit
—


 
29,489


 
—


 
29,489


Total
$
10,111


 
$
136,758


 
$
—


 
$
146,869


Notes Payable and Long-Term Debt
Debt Disclosure [Text Block]
Notes Payable and Long-Term Debt
In January 2010, the Company entered into a $50 million revolving line of credit with Comerica Bank ("Comerica") pursuant to a Credit Agreement, Revolving Credit Note and Security Agreement (collectively, the "Loan Documents"). Under the Loan Documents, Comerica has agreed to make loans to the Company and issue letters of credit on the Company's behalf, subject to the terms and conditions of the Loan Documents. Amounts subject to letters of credit issued under the Loan Documents are treated as limitations on available borrowings under the line of credit. Interest is paid monthly under the line of credit, and principal is paid on the maturity date of the line of credit. The line of credit has a two-year term and matures on January 29, 2012. Interest accrues on amounts outstanding under the line of credit, at the Company's option, at either (1) Comerica's prime reference rate + 0.00% or (2) one month, two month or three month LIBOR + 2.25%. As security for the performance of the Company's obligations under the Loan Documents, the Company granted Comerica a first priority security interest in substantially all of the Company's assets, including its real property.
The Loan Documents contain financial covenants requiring the Company's educational institutions to maintain Title IV eligibility (see Note 11, "Regulatory") as well as the Company's maintenance of specified adjusted quick ratios, minimum profitability, minimum cash balances and U.S. Department of Education ("Department") financial responsibility composite scores. The Loan Documents contain other customary affirmative and negative covenants (including cash controls, financial reporting covenants and prohibitions on acquisitions, dividends, stock redemptions and other cash expenditures over a specified amount without Comerica's reasonable consent), representations and warranties and events of default (including the occurrence of a "material adverse effect," as defined in the Loan Documents). The Company was in compliance with all financial covenants in the Loan Documents as of June 30, 2011.
As of June 30, 2011, the Company used the availability under the line of credit to issue letters of credit aggregating $4.0 million. The Company had no borrowings outstanding under the line of credit as of June 30, 2011.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. In May 2009, the Company entered into a surety bond facility with an insurance company to provide such bonds when applicable. As of June 30, 2011, the total available surety bond facility was $5.0 million and the Company had issued surety bonds totaling $3.3 million.
Stock-Based Compensation
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Stock-Based Compensation
The Company recorded $3.0 million and $1.7 million of stock-based compensation expense for the three months ended June 30, 2011 and 2010, respectively, and $4.8 million and $3.7 million for the six months ended June 30, 2011 and 2010, respectively. The related income tax benefit was $1.1 million and $0.7 million for the three months ended June 30, 2011 and 2010, respectively, and $1.8 million and $1.5 million for the six months ended June 30, 2011 and 2010, respectively.
The Company granted options to purchase 45,000 shares of common stock during the three months ended June 30, 2011. During the three months ended June 30, 2011, options to purchase 1.3 million shares of common stock were exercised with an aggregate intrinsic value of $22.5 million.
The following weighted average assumptions were used to value the options granted during the three months ended June 30, 2011, pursuant to the Black-Scholes option pricing model:
Exercise price per share
$
20.21


Risk-free interest rate
2.2
%
Expected dividend yield
—


Expected volatility
52.4
%
Expected life (in years)
6.1


Grant date fair value per share
$
10.40


As of June 30, 2011, there was $14.9 million of unrecognized compensation cost related to unvested options.
During the three months ended June 30, 2011, the Company awarded 56,855 restricted stock units ("RSUs") under the Company's Amended and Restated 2009 Stock Incentive Plan at a weighted average stock price of $23.97, for a total value granted of $1.4 million. As of June 30, 2011, there was $1.4 million of unrecognized compensation cost related to unvested RSUs. No RSUs vested during the three months ended June 30, 2011.
Each RSU represents a future issuance of one share of common stock contingent upon the recipient's continued service to the Company through the vesting date. Upon the vesting date, RSUs are automatically settled for shares of the Company's common stock unless the applicable award agreement provides for delayed settlement. If, prior to the vesting date, the employee's status as a full-time employee is terminated, then the RSU is automatically cancelled on the employment termination date. The fair value of an RSU is calculated based on the market value of the common stock on the grant date and is amortized over the applicable vesting period.
Warrants
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]
Warrants
The Company has issued warrants to purchase common stock to various employees, consultants, licensors and lenders. Each warrant represents the right to purchase one share of common stock. No warrants were issued during the three months ended June 30, 2011. During the three months ended June 30, 2011, warrants to purchase 29,000 shares of common stock were exercised. As of June 30, 2011, and December 31, 2010, all outstanding warrants were exercisable. The following table summarizes information with respect to all warrants outstanding as of June 30, 2011, and December 31, 2010 (in thousands, except exercise prices):
Exercise Price
 
June 30,

2011
 
December 31,

2010
 
Expiration
Date
$1.125
 
43


 
51


 
2013
$2.250
 
56


 
87


 
2013
$2.835
 
172


 
172


 
2013
$2.925
 
19


 
19


 
2013
$9.000
 
6


 
6


 
2013
Total
 
296


 
335


 
 
Income Taxes
Income Tax Disclosure [Text Block]
Income Taxes
The Company's current estimated annual effective income tax rate that has been applied to normal, recurring operations for the six months ended June 30, 2011, was 37.4%. The Company's effective income tax rate was 37.6% for the six months ended June 30, 2011. The effective rate for the six months ended June 30, 2011, differed from the Company's estimated annual effective tax rate due to the impact of discrete items on the Company's income before the provision for income taxes, particularly interest accrued on unrecognized tax benefits.
At both June 30, 2011, and December 31, 2010, the Company had $8.1 million of gross unrecognized tax benefits, of which $5.8 million would impact the effective income tax rate if recognized.
The Company is subject to U.S. federal income tax and multiple state tax jurisdictions. The 2002 through 2010 tax years remain open to examination by major taxing jurisdictions to which the Company is subject. The Internal Revenue Service commenced an audit of the Company's 2008 federal income tax return in November 2010. The audit closed in March 2011 with no significant adjustments.
The Company's continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties related to uncertain tax positions as of June 30, 2011, and December 31, 2010, was $1.2 million and $1.5 million, respectively.
Share Repurchase Program
Schedule of Treasury Stock by Class [Table Text Block]
Share Repurchase Program
On July 30, 2010, the Company's board of directors authorized the repurchase of up to $60.0 million of the Company's outstanding shares of common stock over the following 12 months (the "2010 Repurchase Program"). On May 2, 2011, the Company's board of directors authorized the repurchase of up to an additional $75.0 million of the Company's outstanding shares of common stock over the following 12 months (the "2011 Repurchase Program"). Under the 2011 Repurchase Program, which was announced on May 3, 2011, the Company may purchase shares from time to time in the open market, through block trades or otherwise. This share repurchase authorization is in addition to, and not in replacement of, the $60.0 million authorized under the 2010 Repurchase Program.
Under the Company's repurchase programs, the timing and extent of any repurchases depends upon market conditions, the trading price of the Company's shares and other factors, and subject to the restrictions relating to volume, price and timing under applicable law. The share repurchase programs may be suspended at any time or from time to time by the Company.
During the three months ended June 30, 2011, the Company repurchased 1.9 million shares of common stock at a weighted average purchase price of $23.15 per share, for a total cost of $43.7 million. As of June 30, 2011, the Company repurchased a total of 5.6 million shares at a weighted average cost of $17.66, for a total cost of $98.6 million. Approximately $36.4 million remained authorized and available under the 2011 Repurchase Program at June 30, 2011; no amounts were available under the 2010 Repurchase Program as of June 30, 2011.
Regulatory
Institutional Disclosure [Text Block]
Regulatory
The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended ("Higher Education Act"), and the regulations promulgated thereunder by the Department subject the Company to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the Higher Education Act.
To participate in Title IV programs, an institution must be authorized to offer its programs of instruction by the relevant agency of the state in which it is physically located, accredited by an accrediting agency recognized by the Department and certified as eligible by the Department. The Department will certify an institution to participate in Title IV programs only after the institution has demonstrated administrative capability, financial responsibility and that it satisfies the various institutional eligibility requirements for certification. A certified institution is subject to review of its ongoing compliance with regulatory requirements by independent auditors, by the Department's Office of Inspector General and the Department's Office of Federal Student Aid. For information regarding the OIG's recently completed compliance audit of Ashford University, see Note 22, "Subsequent Events," in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 2, 2011. As of June 30, 2011, management believes the Company's institutions are in compliance with applicable Department regulations in all material respects.
The Higher Education Act requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the education offered is of sufficiently high quality to achieve satisfactory outcomes and that the institution is complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.
Because the Company operates in a highly regulated industry, it, like other industry participants, may be subject from time to time to audits, investigations, claims of noncompliance or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action.
Commitments and Contingencies
Commitments and Contingencies Disclosure [Text Block]
Commitments and Contingencies
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. As of June 30, 2011, the Company was not a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material.
OIG Compliance Audit of Ashford University
On January 21, 2011, Ashford University received a final audit report from the OIG regarding the compliance audit commenced in May 2008 and covering the period July 1, 2006 through June 30, 2007. The final audit report contained findings of noncompliance and recommendations for certain administrative remedies. For additional information, see Note 22, "Subsequent Events," in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on March 2, 2011.
Rosendahl v. Bridgepoint Education, Inc.
In January 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company, Ashford University and University of the Rockies as defendants. The complaint was filed in the U.S. District Court for the Southern District of California on January 11, 2011, and is captioned Rosendahl v. Bridgepoint Education, Inc. The complaint generally alleges that the Company and the other defendants engaged in improper, fraudulent and illegal behavior in their efforts to recruit and retain students. The Company believes the lawsuit is without merit and intends to vigorously defend against it.
Iowa Attorney General Civil Investigation of Ashford University
In February 2011, Ashford University received from the Attorney General of the State of Iowa (“Iowa Attorney General”) a Civil Investigative Demand and Notice of Intent to Proceed (“CID”) relating to the Iowa Attorney General's investigation of whether certain of the university's business practices comply with Iowa consumer laws. The CID contains no specific allegations of wrongdoing. Pursuant to the CID, the Iowa Attorney General has requested documents and detailed information for the time period January 1, 2008 to present. Ashford University is responding to the CID and intends to comply with the Iowa Attorney General's request.
Stevens v. Bridgepoint Education, Inc.
In February 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company, Ashford University, LLC, and certain employees as defendants. The complaint was filed in the Superior Court of the State of California in San Diego on February 17, 2011, and is captioned Stevens v. Bridgepoint Education, Inc. The complaint generally alleges that the plaintiffs and similarly situated employees were improperly denied certain wage and hour protections under California law. The Company believes the lawsuit is without merit and intends to vigorously defend against it.
Moore v. Ashford University, LLC
In April 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company and Ashford University, LLC, as defendants. The complaint was filed in the Superior Court of the State of California in San Diego on April 25, 2011, and is captioned Moore v. Ashford University, LLC. The complaint generally alleges that the plaintiff and similarly situated employees were improperly denied certain wage and hour protections under California law. The Company believes the lawsuit is without merit and intends to vigorously defend against it.
New York Attorney General Investigation of Bridgepoint Education, Inc.
In May 2011, the Company received from the Attorney General of the State of New York (“NY Attorney General”) a Subpoena Duces Tecum (“Subpoena”) relating to the NY Attorney General's investigation of whether the Company and its academic institutions have complied with certain New York state consumer protection, securities and finance laws. Pursuant to the Subpoena, the NY Attorney General has requested from the Company and its academic institutions documents and detailed information for the time period March 17, 2005, to present. The Company is responding to the Subpoena and intends to comply with the NY Attorney General's request.
Sanchez v. Bridgepoint Education, Inc.
In May 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company as a defendant. The complaint was filed in the Superior Court of the State of California in San Diego on May 6, 2011, and is captioned Sanchez v. Bridgepoint Education, Inc. The complaint generally alleges that the plaintiff and similarly situated employees were improperly denied certain wage and hour protections under California law. The Company believes the lawsuit is without merit and intends to vigorously defend against it.