BRIDGEPOINT EDUCATION INC, 10-K/A filed on 5/17/2013
Amended Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Mar. 8, 2013
Jun. 30, 2012
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-K/A 
 
 
Document Period End Date
Dec. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
true 
 
 
Amendment Description
Amended to reflect revision for bad debt 
 
 
Entity Common Stock, Shares Outstanding
 
54,108,715 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 388.9 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Current assets:
 
 
Cash and cash equivalents
$ 255,965 
$ 133,921 
Restricted cash
25 
Investments
136,967 
153,779 
Accounts receivable, net
67,927 
62,156 
Deferred income taxes
10,936 
5,429 
Prepaid expenses and other current assets
19,810 
17,199 
Total current assets
491,605 
372,509 
Property and equipment, net
95,966 
89,667 
Investments
121,738 
119,507 
Student loans receivable, net
15,143 
9,255 
Goodwill and intangibles, net
10,739 
7,037 
Deferred income taxes
13,266 
11,200 
Other long-term assets
2,330 
4,461 
Total assets
750,787 
613,636 
Current liabilities:
 
 
Accounts payable
4,588 
8,961 
Accrued liabilities
44,640 
40,205 
Deferred revenue and student deposits
175,057 
185,446 
Total current liabilities
224,285 
234,612 
Rent liability
25,173 
16,595 
Other long-term liabilities
9,759 
8,781 
Total liabilities
259,217 
259,988 
Commitments and contingencies (see Note 20)
   
   
Preferred stock, $0.01 par value:
 
 
20,000 shares authorized; zero shares issued and outstanding at both December 31, 2012, and December 31, 2011
Common stock, $0.01 par value:
 
 
300,000 shares authorized; 61,406 issued and 54,099 outstanding at December 31, 2012; 58,981 issued and 51,731 outstanding at December 31, 2011
614 
590 
Additional paid-in capital
151,709 
137,447 
Retained earnings
474,598 
351,177 
Accumulated other comprehensive gain (loss)
222 
(595)
Treasury stock, 7,307 shares at cost at December 31, 2012, and 7,250 shares at cost at December 31, 2011
(135,573)
(134,971)
Total stockholders' equity
491,570 
353,648 
Total liabilities and stockholders' equity
$ 750,787 
$ 613,636 
Consolidated Balance Sheets Parenthetical (USD $)
Dec. 31, 2012
Dec. 31, 2011
Stockholders' equity:
 
 
Preferred stock, par value per share
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
20,000 
20,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value per share
$ 0.01 
$ 0.01 
Common stock, shares authorized
300,000 
300,000 
Common stock, shares issued
61,406 
58,981 
Common stock, shares outstanding
54,099 
51,731 
Treasury stock, shares at cost
7,307 
7,250 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenue
$ 968,171 
$ 933,349 
$ 713,233 
Costs and expenses:
 
 
 
Instructional costs and services
362,523 
303,860 
218,597 
Admissions advisory and marketing
339,209 
297,619 
231,959 
General and administrative
70,975 
58,123 
46,256 
Total costs and expenses
772,707 
659,602 
496,812 
Operating income
195,464 
273,747 
216,421 
Other income, net
3,370 
2,768 
1,358 
Income before income taxes
198,834 
276,515 
217,779 
Income tax expense
75,413 
103,751 
90,199 
Net income
$ 123,421 
$ 172,764 
$ 127,580 
Earnings per common share:
 
 
 
Basic
$ 2.33 
$ 3.30 
$ 2.37 
Diluted
$ 2.21 
$ 3.02 
$ 2.14 
Weighted average number of common shares outstanding used in computing earnings per common share:
 
 
 
Basic (in shares)
52,947 
52,291 
53,724 
Diluted (in shares)
55,946 
57,133 
59,631 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Net income
$ 123,421 
$ 172,764 
$ 127,580 
Other comprehensive gain (loss), net of tax:
 
 
 
Unrealized gains (losses) on investments
817 
(595)
Comprehensive income
$ 124,238 
$ 172,169 
$ 127,580 
Consolidated Statement of Stockholders' Equity (USD $)
In Thousands, unless otherwise specified
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Gain/(Loss)
Treasury Stock
Balance at Dec. 31, 2009
$ 134,609 
$ 543 
$ 83,233 
$ 50,833 
$ 0 
$ 0 
Balance, shares at Dec. 31, 2009
 
54,266 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Stock-based compensation
7,939 
 
7,939 
 
 
 
Exercise of stock options, shares
1,181 
1,181 
 
 
 
 
Exercise of stock options
1,040 
11 
1,029 
 
 
 
Excess tax benefit of option exercises
6,966 
 
6,966 
 
 
 
Stock issued under employee stock purchase plan, shares
 
77 
 
 
 
 
Stock issued under employee stock purchase plan
1,107 
1,106 
 
 
 
Exercise of warrants, shares
 
277 
 
 
 
 
Exercise of warrants
1,193 
1,190 
 
 
 
Repurchase of common stock
(42,193)
 
 
 
 
(42,193)
Net income
127,580 
 
 
127,580 
 
 
Unrealized gains (losses) on investments
 
 
 
 
 
Balance at Dec. 31, 2010
238,241 
558 
101,463 
178,413 
(42,193)
Balance, shares at Dec. 31, 2010
 
55,801 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Stock-based compensation
10,595 
 
10,595 
 
 
 
Exercise of stock options, shares
3,070 
3,070 
 
 
 
 
Exercise of stock options
4,889 
31 
4,858 
 
 
 
Excess tax benefit of option exercises
19,096 
 
19,096 
 
 
 
Stock issued under employee stock purchase plan, shares
 
67 
 
 
 
 
Stock issued under employee stock purchase plan
1,330 
1,329 
 
 
 
Exercise of warrants, shares
 
43 
 
 
 
 
Exercise of warrants
106 
106 
 
 
 
Repurchase of common stock
(92,778)
 
 
 
 
(92,778)
Net income
172,764 
 
 
172,764 
 
 
Unrealized gains (losses) on investments
(595)
 
 
 
(595)
 
Balance at Dec. 31, 2011
353,648 
590 
137,447 
351,177 
(595)
(134,971)
Balance, shares at Dec. 31, 2011
 
58,981 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
Stock-based compensation
13,729 
 
13,729 
 
 
 
Exercise of stock options, shares
3,128 
 
 
 
 
 
Exercises of stock options, net, shares
 
2,212 
 
 
 
 
Exercise of stock options
2,257 
22 
2,235 
 
 
 
Tax withholdings related to net issuance of stock options
(10,418)
 
(10,418)
 
 
 
Excess tax benefit of option exercises
8,145 
 
8,145 
 
 
 
Stock issued under employee stock purchase plan, shares
 
99 
 
 
 
 
Stock issued under employee stock purchase plan
1,340 
1,339 
 
 
 
Stock issued under restricted stock plan, shares
 
33 
 
 
 
 
Stock issued under restricted stock plan
(313)
 
(313)
 
 
 
Exercise of warrants, shares
 
81 
 
 
 
 
Exercise of warrants
490 
489 
 
 
 
Tax withholdings related to net issuance of warrants
(944)
 
(944)
 
 
 
Repurchase of common stock
(602)
 
 
 
 
(602)
Net income
123,421 
 
 
123,421 
 
 
Unrealized gains (losses) on investments
817 
 
 
 
817 
 
Balance at Dec. 31, 2012
$ 491,570 
$ 614 
$ 151,709 
$ 474,598 
$ 222 
$ (135,573)
Balance, shares at Dec. 31, 2012
 
61,406 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities
 
 
 
Net income
$ 123,421 
$ 172,764 
$ 127,580 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for bad debts
73,696 
58,511 
39,631 
Depreciation and amortization
17,424 
12,743 
8,565 
Amortization of premium/discount
6,805 
3,969 
663 
Deferred income taxes
(9,972)
6,606 
(5,366)
Stock-based compensation
13,729 
10,595 
7,939 
Excess tax benefit of option exercises
(10,058)
(19,096)
(6,966)
Loss on disposal of fixed assets
1,153 
13 
73 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(81,577)
(60,817)
(54,101)
Prepaid expenses and other current assets
(1,056)
(2,104)
(2,665)
Student loans receivable
(3,778)
(7,947)
(2,444)
Other long-term assets
2,131 
253 
(1,964)
Accounts payable and accrued liabilities
12,100 
27,509 
18,530 
Deferred revenue and student deposits
(10,389)
11,870 
51,824 
Other liabilities
8,772 
5,882 
4,038 
Uncertain tax position
784 
57 
4,612 
Net cash provided by operating activities
143,185 
220,808 
189,949 
Cash flows from investing activities
 
 
 
Capital expenditures
(25,296)
(34,492)
(26,568)
Purchases of investments
(179,387)
(337,084)
(111,690)
Restricted cash
25 
Capitalized curriculum development costs
(5,262)
(3,521)
(1,214)
Sales and maturities of investments
186,911 
167,049 
45,000 
Net cash used in investing activities
(23,009)
(208,048)
(94,472)
Cash flows from financing activities
 
 
 
Proceeds from exercise of stock options
2,257 
4,889 
1,040 
Tax withholdings related to net issuance of stock options
(10,418)
Excess tax benefit of option exercises
10,058 
19,096 
6,966 
Proceeds from the issuance of stock under employee stock purchase plan
1,340 
1,330 
1,107 
Proceeds from the exercise of warrants
490 
106 
1,193 
Tax withholdings related to net issuance of warrants
(944)
Issuance of restricted stock
(313)
Payments on leases payable
(634)
Repurchase of common stock
(602)
(92,778)
(42,193)
Net cash provided by (used in) financing activities
1,868 
(67,357)
(32,521)
Net increase (decrease) in cash and cash equivalents
122,044 
(54,597)
62,956 
Cash and cash equivalents at beginning of period
133,921 
188,518 
125,562 
Cash and cash equivalents at end of period
255,965 
133,921 
188,518 
Supplemental disclosure of cash flow information
 
 
 
Cash paid for interest
130 
56 
57 
Cash paid for income taxes
65,075 
76,731 
88,883 
Supplemental disclosure of non-cash transactions:
 
 
 
Purchase of equipment included in accounts payable and accrued liabilities
$ 509 
$ 2,489 
$ 1,707 
Nature of Business
Nature of Business
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 online, as well as at their traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Bridgepoint Education, Inc. and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates.
Revision of Previously Issued Financial Statements
The Company identified an out of period adjustment for bad debt expense related to the aging of the Company's accounts receivable, which should have been recognized during the year ended December 31, 2012. The Company evaluated the cumulative impact of this on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, “Materiality.” The Company also evaluated the impact of correcting this through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to revise its previously issued financial statements to reflect the impact of this correction. Through this revision, the Company has increased and corrected bad debt expense by a total of $7.2 million (pre-tax) in the fiscal year ended December 31, 2012. Prior periods will be revised as filed in connection with the filing of the Company's Form 10-Q's in 2013.
The table below presents the impact of this revision on the Company's consolidated balance sheet data as of December 31, 2012, the consolidated statement of income data and consolidated cash flow data for the year ended December 31, 2012. There was no impact to the total cash flows from operating activities due to the revision. The following table is presented in thousands, except per share data:

As Reported
 
As Revised
 
As of December 31, 2012
Consolidated balance sheet data:
 
 
 
Accounts receivable, net
$
75,177

 
$
67,927

Deferred income taxes
$
8,228

 
$
10,936

Total current assets
$
496,147

 
$
491,605

Total assets
$
755,329

 
$
750,787

Retained earnings
$
479,140

 
$
474,598

Total stockholders’ equity
$
496,112

 
$
491,570

Total liabilities and stockholders’ equity
$
755,329

 
$
750,787

 
 
 
Year ended December 31, 2012
Consolidated statement of income data:
 
 
 
Instructional costs and services
$
355,273

 
$
362,523

Total costs and expenses
$
765,457

 
$
772,707

Operating income
$
202,714

 
$
195,464

Income before income taxes
$
206,084

 
$
198,834

Income tax expense
$
78,121

 
$
75,413

Net income
$
127,963

 
$
123,421

Earnings per share:
 
 
 
   Basic
$
2.42

 
$
2.33

   Diluted
$
2.29

 
$
2.21

Consolidated statement of cash flow data:
 
 
 
Net income
$
127,963

 
$
123,421

Provision for bad debts
$
66,446

 
$
73,696

Deferred income taxes
$
(7,264
)
 
$
(9,972
)

Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash and other short-term highly liquid investments that are readily convertible into known amounts of cash. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Restricted Cash
The Company had $25,000 in restricted cash as of December 31, 2011, related to a certificate of deposit pledged to the state of Washington for state licensure requirements. This requirement was lifted in the current year and as of December 31, 2012, the company had no restricted cash.
Investments
As of December 31, 2012, the Company held short and long-term investments which consisted of demand notes, corporate notes and bonds and certificates of deposit. The Company's investments are denominated in U.S. dollars, investment grade and readily marketable. The Company considers as current assets those investments which will mature or are likely to be sold in less than one year.
The Company has classified its investments as either available-for-sale or held-to-maturity. Available-for-sale securities are carried at fair value as determined by quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of comprehensive income and stockholders’ equity. Held-to-maturity securities are carried at amortized cost. Amortization of premiums, accretion of discounts, interest and realized gains and losses are included in other income, net.
The Company regularly monitors and evaluates the realizable value of its investments. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company would record a charge to other income, net in the consolidated statement of income.
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 investments are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate for similar types of instruments. During the years ended December 31, 2012 and 2011, there were no transfers in or out of any fair value level of measurement.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists of student accounts receivable, which represent amounts due for tuition, technology fees and other fees from currently enrolled and former students. Students generally fund their education through grants and/or loans under various Title IV programs, tuition assistance from military and corporate employers or personal funds.
Accounts receivable are stated at the amount management expects to collect from outstanding balances. For accounts receivable, an allowance for doubtful accounts is estimated by management based on (i) an assessment of individual accounts and student loans receivable over a specific aging and amount (and all other balances on a pooled basis based on historical collection experience), (ii) consideration of the nature of the receivable accounts and (iii) potential changes in the economic environment. The provision for bad debts is recorded within the instructional costs and services line in the consolidated statements of income.
Student Loans Receivable and Loan Loss Reserves
Student loans receivable consist of loans to qualified students and have a repayment period of 10 years from the date of graduation or withdrawal from the Company's institutions. The interest rate charged on student loans is a fixed rate of either 4.5% or 0.0% depending upon the repayment plan selected. If the student selects the rate of 0.0%, the student must pay $50 per month on the loan while enrolled in school and during the six month grace period (after graduation or withdrawal) before the repayment period begins. On the student loans that have below market interest rates, the Company imputes interest using the rate that would be used in a market transaction with similar terms. Interest income on student loans is recognized using the effective interest method and is recorded within other income in the consolidated statements of income. Revenue recognized related to students loans was immaterial during the years ended December 31, 2012, 2011 and 2010.
Student loans receivable are stated at the amount management expects to collect from outstanding balances. The Company determines whether a loan would be impaired if it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the individual loan agreement. This assessment is based on an analysis of several factors including current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including loan performance. For impaired loans, the Company would establish a specific loan loss reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral. The loan loss reserve is maintained at a level deemed adequate by management based on a periodic analysis of the individual loans.
Property and Equipment
Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
Buildings
39 years
Furniture, office equipment and software
3 - 7 years
Vehicles
5 years

Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed and a gain or loss is recorded in the consolidated statements of income. Repairs and maintenance costs are expensed in the period incurred.
Leases
Leases are evaluated and classified as operating or capital leases. Leased property and equipment meeting certain criteria are capitalized, and the present value of the related lease payments is recognized as a liability on the consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.
If the Company receives tenant allowances from the lessor for certain improvements made to the leased property, these allowances are capitalized as leasehold improvements and a long-term liability is established. The long-term liability is amortized on a straight-line basis over the corresponding lease term. The Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as a long-term liability.
Goodwill and Other Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually, in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant.
The Company adopted accounting guidance which simplifies how an entity tests goodwill for impairment. The Company first assesses qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company's assessment of goodwill during the fourth quarter of fiscal 2012 indicated that there were no significant negative qualitative indicators, and therefore, goodwill was not impaired. There have been no impairment losses recognized by the Company for any periods presented. If negative qualitative indicators had been noted above, the Company would then need to assess the fair value of its reporting units to determine whether they were in excess of the carrying values.
To evaluate the impairment of the indefinite-lived intangible assets, the Company assessed the fair value of the assets to determine whether they were in excess of the carrying values. Determining the fair value of indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain, and can include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, as well as determination of appropriate market comparables. The Company's assessment of indefinite-lived intangible assets during the fourth quarter of fiscal 2012 did not result in any impairment. There have been no impairment losses recognized by the Company for any periods presented.
The Company also has definite-lived intangible assets, which primarily consist of capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Impairment of Long-Lived Assets
The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results. There have been no triggering events that would indicate impairment, and as such, no impairment losses recognized by the Company for any periods presented.
Revenue and Deferred Revenue
The Company's revenue consists of tuition, technology fees, course digital materials and other miscellaneous fees. Tuition revenue is deferred and recognized on a straight-line basis over the applicable period of instruction net of scholarships and expected refunds, with the exception of an online student's first course, per degree level, at Ashford University. Effective in the fourth quarter of 2012, an online student's first course per degree level at Ashford University falls under a three-week conditional admission period in which the revenue is deferred until the student matriculates into the course.
The Company's institutions' online students generally enroll in a program that encompasses a series of five to six-week courses which are taken consecutively over the length of the program. With the exception of those students under conditional admission, the online students are billed on a payment period basis on the first day of class. The Company's institutions' campus-based students enroll in a program that encompasses a series of nine-week or 16-week courses. Campus-based students are billed at the beginning of each term.
If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled, the amount received in excess effectively represents a prepayment from the online student for up to four courses. At the end of each accounting period, the deferred revenue and student deposits and related account receivable balances are reduced to present amounts attributable to the current course.
For those students under conditional admission, the student is not obligated for payment until after their conditional admission period has lapsed, so there is no required refund. For all subsequent courses, the Company records a provision for expected refunds and reduces revenue for the amount that is expected to be subsequently refunded. Provisions for expected refunds have not been material to any period presented. If a student withdraws from a program prior to a specified date, a portion of such student's tuition is refunded.
The company recognized technology fees, which are one-time start up fees charged to each new online student, other than military, scholarship students or certain corporate reimbursement students. Technology fee revenue is recognized ratably over the average expected enrollment of a student. Ashford University has determined that, effective January 1, 2013, the institution will eliminate the one-time technology fee it currently charges students and replace it with a per course charge. Other miscellaneous fees include fees for course content and textbooks and other services, such as commencements, and are recognized upon delivery of the goods or when the related service is performed.
Income Taxes
The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates expected to be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the vesting period. The Company estimates the fair value of stock options on the grant date using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. The fair value of the Company's restricted stock units is based on the market price of its common stock on the date of grant.
The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates award forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company's equity plans require that option awards have an exercise price that equals or exceeds the closing price of the Company's common stock, as reported by the NYSE, on the date of grant.
Stock-based compensation expense for stock awards is recorded in the consolidated statement of income, net of estimated forfeitures, using the graded vesting method over the requisite service periods of the respective stock awards.
Instructional Costs and Services
Instructional costs and services consist primarily of costs related to the administration and delivery of the Company's educational programs. This expense category includes compensation for campus-based faculty and administrative personnel, costs associated with online faculty, curriculum and new program development costs, financial aid processing costs, technology license costs, bad debt expense and costs associated with other support groups that provide services directly to the students. Instructional costs and services also include an allocation of information technology, facility and depreciation costs.
Admissions Advisory and Marketing
Admissions advisory and marketing costs include compensation of personnel engaged in marketing and recruitment, as well as costs associated with purchasing leads and producing marketing materials. Such costs are generally affected by the cost of advertising media and leads, the efficiency of the Company's marketing and recruiting efforts, compensation for the Company's enrollment personnel and expenditures on advertising initiatives for new and existing academic programs. Admissions advisory and marketing costs also include an allocation of information technology, facility and depreciation costs.
Advertising costs, a subset of admissions advisory and marketing costs, consists primarily of marketing leads and other branding and promotional activities. These advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity. Advertising costs were $103.7 million, $84.0 million and $63.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.
General and Administrative
General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and an allocation of information technology, facility and depreciation costs.
Earnings Per Share
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the sum of (i) the weighted average number of common shares outstanding during the period and (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of the stock options and warrants and upon the settlement of restricted stock units.
Segment Information
The Company operates in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of both its campus-based and online students regardless of geography. The Company's chief operating decision maker, its CEO and President, manages the Company's operations as a whole, and no revenue, expense or operating income information is evaluated by the chief operating decision maker on any component level.
Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income. For the year ended December 31, 2012, such items consisted of unrealized gains and losses on investments.
The following table summarizes the components of other comprehensive gain (loss) and the related tax effects for the year ended December 31, 2012 and 2011. There were no items of comprehensive income for the year ended December 31, 2010.
 
December 31, 2012
(in thousands)
Before-Tax Amount
 
Tax Effect
 
Net-of-Tax Amount
Unrealized gains on investments
$
1,300

 
$
(483
)
 
$
817

 
 
 
 
 
 
 
December 31, 2011
(in thousands)
Before-Tax Amount
 
Tax Effect
 
Net-of-Tax Amount
Unrealized losses on investments
$
(946
)
 
$
351

 
$
(595
)

Recently Adopted Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, which amends Accounting Standards Codification Topic 820, Fair Value Measurement. The amended guidance changes the wording used to describe many requirements under GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The guidance provided in ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The Company adopted ASU 2011-04, effective January 1, 2012, and such adoption did not have a material effect on the Company's financial statements.
In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, which amends Accounting Standards Codification Topic 350, Testing Indefinite-Lived Intangible Assets for Impairment. The amended standard reduces the cost and complexity of testing indefinite-lived intangible assets, other than goodwill, for impairment by allowing companies to perform a qualitative assessment to determine whether further impairment testing is necessary, similar in approach to the goodwill impairment test. The guidance provided in ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company adopted ASU 2012-02, effective January 1, 2013, and we do not believe that such adoption will have a material effect on our consolidated financial statements.
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends Accounting Standards Codification Topic 220, Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component in a single note or on the face of the financial statements. The guidance provided in ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02, effective January 1, 2013, and we do not believe that such adoption will have a material effect on our consolidated financial statements.
Reclassification
Reclassification
Reclassification
Effective in the fourth quarter of 2012, the Company made changes in the presentation of its operating expenses. The Company determined that these changes would better reflect industry practices and would provide more meaningful information as well as increased transparency to its operations. The Company believes that the reclassification better represents the operational changes and the business initiatives that have been implemented. The Company has reclassified prior periods to conform to the new presentation.
The following table depicts the Company's operating expenses as previously reported as well as currently reclassified on its consolidated statements of income for each of the fiscal years ended December 31, 2011 and 2010 (in thousands):
 
December 31, 2011
 
December 31, 2010
 
As Reported
 
As Reclassified
 
As Reported
 
As Reclassified
Instructional costs and services
$
259,138

 
$
303,860

 
$
187,399

 
$
218,597

Admissions advisory and marketing
267,354

 
297,619

 
211,550

 
231,959

General and administrative
133,110

 
58,123

 
97,863

 
46,256

Total costs
$
659,602

 
$
659,602

 
$
496,812

 
$
496,812


These reclassifications had no effect on previously reported total operating expenses or retained earnings.
Investments
Investments
Investments
The following table summarizes the fair value information of short and long-term investments as of December 31, 2012 and 2011, respectively (in thousands):
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Demand notes
$

 
$
415

 
$

 
$
415

Corporate notes and bonds

 
148,801

 

 
148,801

Total
$

 
$
149,216

 
$

 
$
149,216

 
December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
Demand notes
$

 
$
28,700

 
$

 
$
28,700

Corporate notes and bonds

 
165,097

 

 
165,097

Total
$

 
$
193,797

 
$

 
$
193,797


The above tables do not include amounts related to investments classified as other investments, such as certificates of deposit, which are carried at amortized cost. The amortized cost of such investments approximated fair value at each balance sheet date. The assumptions used in these fair value estimates are considered as other observable inputs and are therefore categorized as Level 2 measurements under the accounting guidance. The balances of such other investments were $109.5 million and $79.5 million as of December 31, 2012, and December 31, 2011, respectively. The balances of total short-term and long-term investments combined were $258.7 million and $273.3 million, as of December 31, 2012, and December 31, 2011, respectively.
The following table summarizes the differences between amortized cost and fair value of short and long-term investments as of December 31, 2012 and 2011, respectively (in thousands):
 
December 31, 2012
 
 
 
 
 
Gross unrealized
 
 
 
Maturities in Years
 
Amortized Cost
 
Gain
 
Loss
 
Fair Value
Short-term
 
 
 
 
 
 
 
 
 
Demand notes
1 year or less
 
$
415

 
$

 
$

 
$
415

Corporate notes and bonds
1 year or less
 
126,806

 
282

 
(25
)
 
127,063

Long-term
 
 
 
 
 
 
 
 
 
Corporate notes and bonds
3 years or less
 
21,641

 
117

 
(20
)
 
21,738

Total
 
 
$
148,862

 
$
399

 
$
(45
)
 
$
149,216

 
December 31, 2011
 
 
 
 
 
Gross unrealized
 
 
 
Maturities in Years
 
Amortized Cost
 
Gain
 
Loss
 
Fair Value
Short-term
 
 
 
 
 
 
 
 
 
Demand notes
1 year or less
 
$
28,700

 
$

 
$

 
$
28,700

Corporate notes and bonds
1 year or less
 
125,868

 
12

 
(801
)
 
125,079

Long-term
 
 
 
 
 
 
 
 
 
Corporate notes and bonds
3 years or less
 
40,174

 
38

 
(194
)
 
40,018

Total
 
 
$
194,742

 
$
50

 
$
(995
)
 
$
193,797


As of December 31, 2012, six of the Company's investments have been in an unrealized loss position for less than 12 months. There are no investments that were in an unrealized loss position for greater than 12 months. There was no impairment considered other-than-temporary as it is more likely than not the Company will hold the securities until maturity or a recovery of the cost basis. The Company accumulates unrealized gains and losses on the available-for-sale debt securities, net of tax, in accumulated other comprehensive gain (loss) in the stockholders’ equity section of the Company's balance sheets. As of December 31, 2011, twenty-four of the Company's investments were in an unrealized loss position for less than 12 months. There were no investments that were in an unrealized loss position for greater than 12 months.
Receivables
Receivables
Receivables
Accounts receivable, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Accounts receivable
$
114,635

 
$
97,783

Less allowance for doubtful accounts
46,708

 
35,627

Accounts receivable, net
$
67,927

 
$
62,156

Student loans receivable, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Student loans receivable
$
17,450

 
$
11,593

Less allowance for doubtful accounts
2,307

 
2,338

Student loans receivable, net
$
15,143

 
$
9,255


As of December 31, 2012 and 2011, there was an immaterial amount of current student loans receivable included within accounts receivable. Student loans receivable is presented net of any related discount, and the balances approximated fair value at each balance sheet date. The Company estimated the fair value of the student loans receivable by discounting the future cash flows using current rates for similar arrangements. The assumptions used in this estimate are considered unobservable inputs and are therefore categorized as Level 3 measurements under the accounting guidance.
The following table presents the changes in the allowance for doubtful accounts for both accounts receivable and student loans receivable for the periods indicated (in thousands):
 
Beginning
Balance
 
Charged to
Expense
 
Deductions(1)
 
Ending
Balance
Allowance for doubtful accounts receivable:
 
 
 
 
 
 
 
For the year ended December 31, 2012
$
35,627

 
$
73,581

 
$
(62,500
)
 
$
46,708

For the year ended December 31, 2011
28,090

 
57,077

 
(49,540
)
 
35,627

For the year ended December 31, 2010
16,171

 
38,918

 
(26,999
)
 
28,090

 
 
 
 
 
 
 
 
Allowance for doubtful student loans receivable:
 
 
 
 
 
 
 
For the year ended December 31, 2012
$
2,338

 
$
115

 
$
(146
)
 
$
2,307

For the year ended December 31, 2011
904

 
1,434

 

 
2,338

For the year ended December 31, 2010
191

 
713

 

 
904

(1)
Deductions represent accounts written off, net of recoveries.
The Company monitors the credit quality of its student loans receivable using credit scores, aging history and delinquency trending. The loan reserve methodology is reviewed on a quarterly basis. Delinquency is the main factor of determining if a loan is impaired. If a loan were determined to be impaired, interest would no longer accrue. As of as December 31, 2012, no loans have been impaired, and certain loans had been placed on non-accrual status, representing an immaterial amount.
Prepaid Expense and Other Current Assets
Prepaid Expenses and Other Current Assets
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Prepaid expenses
$
9,367

 
$
5,588

Prepaid licenses
5,864

 
4,583

Prepaid income taxes

 
2,874

Prepaid insurance
1,134

 
1,206

Interest receivable
2,221

 
1,876

Other current assets
1,224

 
1,072

Total prepaid expenses and other current assets
$
19,810

 
$
17,199

Property and Equipment, Net
Property and Equipment, Net
Property and Equipment, Net
Property and equipment, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Land
$
7,091

 
$
7,091

Buildings
25,430

 
18,947

Furniture, office equipment and software
85,709

 
74,793

Leasehold improvements
23,756

 
19,051

Vehicles
147

 
92

Total property and equipment
142,133

 
119,974

Less accumulated depreciation and amortization
(46,167
)
 
(30,307
)
Total property and equipment, net
$
95,966

 
$
89,667


Depreciation and amortization expense associated with property and equipment, including assets under capital lease, totaled $15.9 million, $12.1 million and $8.3 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Goodwill and Intangibles, Net
Goodwill and Intangibles, Net
Goodwill and Intangibles, Net
Goodwill and intangibles, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Goodwill and indefinite-lived intangibles
$
3,424

 
$
3,404

 
 
 
 
Definite-lived intangible assets
$
9,978

 
$
4,735

Less accumulated amortization
(2,663
)
 
(1,102
)
Definite-lived intangible assets, net
7,315

 
3,633

 
 
 
 
Total goodwill and intangibles, net
$
10,739

 
$
7,037


For the years ended December 31, 2012, 2011, and 2010, amortization expense was $1.6 million, $0.6 million, and $0.3 million respectively. The Company estimates that amortization expense will be approximately $5.3 million over the three succeeding fiscal years.
Accrued Liabilities
Accrued Liabilities
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Accrued salaries and wages
$
11,585

 
$
13,107

Accrued bonus
1,603

 
3,067

Accrued vacation
8,993

 
7,492

Accrued expenses
15,924

 
16,539

Accrued income taxes payable
6,535

 

Total accrued liabilities
$
44,640

 
$
40,205

Deferred Revenue and Student Deposits
Deferred Revenue and Student Deposits
Deferred Revenue and Student Deposits
Deferred revenue and student deposits consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Deferred revenue
$
44,967

 
$
48,831

Student deposits
130,090

 
136,615

Total deferred revenue and student deposits
$
175,057

 
$
185,446

Credit Facilities
Credit Facilities
Credit Facilities
January 2010 Credit Facility
Through April 12, 2012, the Company maintained a $50 million revolving line of credit with Comerica Bank (“Comerica”) pursuant to a Credit Agreement, Revolving Credit Note and Security Agreement (collectively, the “Prior Loan Documents”). Under the Prior Loan Documents, Comerica agreed to make loans to the Company and issue letters of credit on the Company's behalf, subject to the related terms and conditions. Amounts subject to letters of credit issued under the Prior Loan Documents were treated as limitations on available borrowings under the line of credit. Interest would accrue on amounts outstanding under the line of credit, and was to be paid monthly. Principal was to be paid on the maturity date of the line of credit. As security for the performance of the Company's obligations under the Prior Loan Documents, the Company granted Comerica a first priority security interest in substantially all of the Company's assets, including its real property.
April 2012 Credit Facility
On April 13, 2012, the Company entered into a $50 million revolving line of credit (“New Facility”) pursuant to an Amended and Restated Revolving Credit Agreement (“Revolving Credit Agreement”) with the lenders signatory thereto and Comerica, as administrative agent for the lenders. The Revolving Credit Agreement amended, restated and superseded the Prior Loan Documents. At the Company's option, the Company may increase the size of the New Facility up to $100 million (in certain minimum increments), subject to the terms and conditions of the Revolving Credit Agreement. Additionally, the Company may request swing-line advances under the New Facility up to $3 million in the aggregate.
Under the Revolving Credit Agreement and the documents executed in connection therewith (collectively, the “New Facility Loan Documents”), the lenders have 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 New Facility Loan Documents. The New Facility has a term of three years and matures on April 13, 2015. Interest and fees accruing under the New Facility are payable quarterly in arrears and principal is payable at maturity. The Company may terminate the New Facility upon five days notice, without premium or penalty, other than customary breakage fees.
For any advance under the New Facility, interest will accrue at either the “Base Rate” or the “Eurodollar-based Rate,” at the Company's option. The Base Rate means, for any day, 0.5% plus the greatest of: (1) the prime rate for such day, (2) the Federal Funds Effective Rate in effect on such day, plus 1.0%, and (3) the daily adjusting LIBOR rate, plus 1.0%. The Eurodollar-based Rate means, for any day, 1.5% plus the quotient of (1) the LIBOR Rate, divided by (2) a percentage equal to 100% minus the maximum rate on such date at which the Agent is required to maintain reserves on “Eurocurrency Liabilities” as defined in Regulation D of the Board of Governors of the Federal Reserve System. For any advance under the swing line, interest will accrue at either the Base Rate or, if made available to the Company by the swing line lender, at the lender's option, a different rate quoted by such lender. For any letter of credit issued on the Company's behalf under the New Facility, the Company is required to pay a fee of 1.50% of the undrawn amount of such letter of credit plus a letter of credit facing fee. The Company is also required to pay a facility fee of 0.25% of the aggregate commitment then in effect under the New Facility, whether used or unused.
The New Facility Loan Documents contain other customary affirmative, negative and financial maintenance covenants, representations and warranties, events of default, and remedies upon an event of default, including the acceleration of debt and the right to foreclose on the collateral securing the New Facility. The Company was in compliance with all financial covenants in the Loan Documents as of December 31, 2012 and 2011.
As security for the performance of the Company's obligations under the New Facility Loan Documents, the Company granted the lenders a first priority security interest in substantially all of the Company's assets, including its real property.
As of December 31, 2012, and up through the date of filing, the Company had no borrowings outstanding under the line of credit. As of December 31, 2012, the Company used the availability under the line of credit to issue letters of credit aggregating $5.1 million.
Surety Bond Facility
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. As of December 31, 2012, the Company's total available surety bond facility was $12.0 million and the surety had issued bonds under the facility totaling $8.6 million on the Company's behalf.
Lease Obligations
Lease Obligations
Lease Obligations
Operating leases
The Company leases certain office facilities and office equipment under non-cancelable lease arrangements that expire at various dates through 2023. The office leases contain certain renewal options. Rent expense under non-cancelable operating lease arrangements is accounted for on a straight-line basis and totaled $36.8 million, $31.7 million and $27.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.
The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2012 (in thousands):
Year Ended December 31,
 
 
2013
$
35,495

2014
36,962

2015
37,226

2016
38,205

2017
38,295

Thereafter
79,391

Total minimum payments
$
265,574

Earnings Per Share
Earnings Per Share
Earnings Per Share
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period.
Diluted earnings per common share is calculated by dividing net income available to common stockholders 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 securities for the periods presented may include incremental shares of common stock issuable upon the exercise of options and warrants and upon the settlement of restricted stock units.
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):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Numerator:
 
 
 
 
 
Net income
$
123,421

 
$
172,764

 
$
127,580

Denominator:
 
 
 
 
 
Weighted average number of common shares outstanding
52,947

 
52,291

 
53,724

Effect of dilutive options and restricted stock units
2,762

 
4,572

 
5,581

Effect of dilutive warrants
237

 
270

 
326

Diluted weighted average number of common shares outstanding
55,946

 
57,133

 
59,631

Earnings per common share:
 
 
 
 
 
Basic earnings per common share
$
2.33

 
$
3.30

 
$
2.37

Diluted earnings per common share
2.21

 
3.02

 
2.14


For the periods indicated, the computation of dilutive common shares outstanding excludes certain stock options to purchase shares of common stock for the periods indicated because their effect was anti-dilutive.
 
Year Ended December 31,
(in thousands)
2012
 
2011
 
2010
Options
2,524

 
1,332

 
548

Stock-Based Compensation
Stock-Based Compensation
Stock-Based Compensation
Stock Options
The Company grants stock options from its 2009 Stock Incentive Plan (“2009 Plan”). The compensation committee of the Company's board of directors, or the full board of directors, determines eligibility, vesting schedules and exercise prices for awards granted under the 2009 Plan. Options granted under the 2009 Plan typically have a maximum contractual term of 10 years, subject to continuing service to the Company. Options are generally granted with a four-year vesting requirement, under which the option holder must continue providing service to the Company at each vesting period. All options granted in 2012, 2011 and 2010, were awarded pursuant to the 2009 Plan. Under the 2009 Plan, the number of authorized shares is subject to automatic increase, without the need for further approval by the Company's board of directors and stockholders each January 1, through and including January 1, 2019, pursuant to a formula contained in the plan.
Before the adoption of the 2009 Plan, the Company awarded options pursuant to the Company's Amended and Restated 2005 Stock Incentive Plan (“2005 Plan”). Effective upon the closing of the Company's initial public offering, the 2005 Plan was terminated and no further options may be issued under that plan, provided that all options then outstanding under the 2005 Plan will continue to remain outstanding pursuant to the terms of the 2005 Plan and applicable award agreements.
The following table presents a summary of the stock option activity in 2012, 2011 and 2010 (in thousands, except for exercise prices and contractual terms):
 
Options
Outstanding
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic Value
December 31, 2009
10,573

 
$
3.06

 
6.84
 
$
126,590

Granted
1,051

 
19.25

 
 
 
 
Exercised
(1,181
)
 
0.88

 
 
 
 
Forfeitures and expired
(248
)
 
12.20

 
 
 
 
December 31, 2010
10,195

 
4.76

 
5.47
 
147,545

Granted
1,294

 
17.41

 
 
 
 
Exercised
(3,070
)
 
1.59

 
 
 
 
Forfeitures and expired
(139
)
 
17.65

 
 
 
 
December 31, 2011
8,280

 
7.70

 
5.90
 
127,308

Granted
1,595

 
22.59

 
 
 
 
Exercised
(3,128
)
 
0.72

 
 
 
 
Forfeitures and expired
(335
)
 
19.79

 
 
 
 
December 31, 2012
6,412

 
$
14.17

 
7.21
 
$
9,010

Vested and expected to vest at December 31, 2012
6,283

 
$
14.04

 
7.18
 
$
9,002

Exercisable at December 31, 2012
3,709

 
$
10.12

 
6.22
 
$
8,897


The Company has reserved 8.6 million shares of common stock for issuance upon the exercise of stock options and settlement of restricted stock units (“RSUs”) (including outstanding stock awards) under the Company's equity incentive plans as of December 31, 2012. Shares issued from option exercises and settlements of RSUs are drawn from the authorized but unissued shares of common stock. During the year ended December 31, 2012, there were 3.1 million stock options exercised with an intrinsic value of $45.2 million. The actual tax benefit realized from these exercises was $10.1 million. The Company also recognized a tax benefit shortfall of $1.9 million related to stock options exercised and restricted stock vesting at values lower than the related compensation expense, and stock options that expired unexercised during the year. During the year ended December 31, 2011, there were 3.1 million stock options exercised, with an intrinsic value of $58.4 million. The actual tax benefit realized from these exercises was $19.1 million. During the year ended December 31, 2010, there were 1.2 million stock options exercised, with an intrinsic value of $18.2 million. The actual tax benefit realized from these exercises was $7.1 million.
During the year ended December 31, 2012 and 2011, approximately 53,000 and 6,000 stock options expired.
The fair value of each option award granted during the years ended December 31, 2012, 2011 and 2010, was estimated on the date of grant using the Black-Scholes option pricing model. The Company's determination of the fair value of share-based awards is affected by the Company's common stock price as well as assumptions regarding a number of complex and subjective variables. Below is a summary of the assumptions used for the options granted in the years indicated:
 
2012
 
2011
 
2010
Weighted average exercise price per share
$
22.59

 
$
17.41

 
$
19.25

Risk-free interest rate
1.2
%
 
2.5
%
 
2.3
%
Expected dividend yield

 

 

Expected volatility
54.6
%
 
52.7
%
 
45.7
%
Expected life (in years)
5.67

 
6.12

 
6.16

Forfeiture rate
4.0
%
 
4.0
%
 
3.0
%
Weighted average grant date fair value per share
$
11.26

 
$
9.07

 
$
8.84


The risk-free interest rate is based on the currently available rate on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option converted into a continuously compounded rate. The dividend yield reflects the fact that the Company has never declared or paid any cash dividends on its common stock and does not currently anticipate paying cash dividends in the future. The volatility of the Company's common stock is based upon a blended rate of the Company's historical volatility and that of publicly-traded securities of a peer group of comparable companies in the Company's industry. The peer group volatility supplements the Company's historical volatility in order to calculate a volatility that approximates the expected term used in the Black-Scholes option pricing model. In evaluating comparability, the Company considered factors such as industry, stage of life cycle and size. The Company now has enough historical option exercise information to be able to accurately compute an expected term for use as an assumption in the Black-Scholes option pricing model, and as such, its computation of expected term was calculated using its own historical data.
The Company recorded $13.7 million, $10.6 million and $7.9 million of compensation expense related to equity awards, and any modifications thereof, for the years ended December 31, 2012, 2011 and 2010, respectively. The related income tax benefit was $5.1 million, $3.9 million and $3.1 million for the years ended December 31, 2012, 2011 and 2010, respectively.
As of December 31, 2012, 2011 and 2010, there was $12.9 million, $10.6 million and $9.6 million, respectively, of unrecognized compensation costs related to unvested options.
The Company records stock-based compensation expense over the vesting term using the graded-vesting method. At December 31, 2012, the unrecognized compensation costs of stock options are expected to be recognized over a weighted average period of 1.2 years.
Restricted Stock Units
In 2011, the Company began granting RSUs under the 2009 Plan. 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 using the graded-vesting method.
A summary of the Company’s RSU activity and related information is as follows:
 
Restricted Stock Units
 
Weighted Average
Grant Date
Fair Value
Balance at December 31, 2010

 
$

Awarded
56,855

 
23.97

Vested

 

Canceled

 

Balance at December 31, 2011
56,855

 
23.97

Awarded
362,199

 
9.72

Vested
(56,855
)
 
23.97

Canceled

 

Balance at December 31, 2012
362,199

 
$
9.72


As of December 31, 2012 and 2011, there was $2.6 million and $0.7 million, respectively, of unrecognized compensation costs related to unvested RSUs. The unrecognized compensation costs of RSUs are expected to be recognized over a weighted average period of 1.2 years.
During the year ended December 31, 2012, 56,855 RSU's vested and were released. No RSUs vested during the year ended December 31, 2011. No RSUs were granted prior to 2011.
Warrants
Warrants
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 years ended December 31, 2012, 2011 and 2010. During the years ended December 31, 2012, 2011 and 2010, approximately 174,000, 43,000 and 277,000 warrants to purchase shares of common stock were exercised, respectively. As of December 31, 2012 and 2011, all outstanding warrants were exercisable. The following table summarizes information with respect to all warrants outstanding as of December 31, 2012 and 2011 (in thousands, except exercise prices):
Exercise Price
 
December 31,
2012
 
December 31,
2011
 
Expiration
Date
$1.125
41

 
43

 
2013
$2.250
55

 
55

 
2013
$2.835

 
172

 
2013
$2.925
19

 
19

 
2013
$9.000
3

 
3

 
2013
Total
118

 
292

 
 
Stock Repurchase Program
Stock Repurchase Program
Stock Repurchase Programs
The Company's Board of Directors has authorized us to repurchase outstanding shares of our common stock from time to time in the open market through block trades or otherwise depending on market conditions and other considerations, pursuant to the applicable Securities and Exchange Commission Rules. The Company's policy is to retain these repurchased shares as treasury shares and not to retire them. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant.
In July 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”), and in May 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”). Both of these repurchase programs were authorized with the intention of creating additional value for stockholders. Under the repurchase programs, the Company was authorized to purchase shares from time to time in the open market, through block trades or otherwise.
As of December 31, 2011, the Company repurchased a total of 7.3 million shares at a weighted average cost of $18.62, for a total cost of $135.0 million. As of December 31, 2011, the Company substantially completed both of the above authorized repurchase programs.
On April 30, 2012, 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 repurchase program was authorized with the intention of creating additional value for stockholders. Under the repurchase program, the Company is authorized to purchase shares from time to time in the open market, through block trades or otherwise. No shares have been repurchased to date under this program.
In December 2012, we repurchased 0.1 million shares of our common stock from certain senior executives in the amount of $0.6 million. The repurchase was approved by our board of directors following its approval and recommendation by the compensation committee and the audit committee. The shares were repurchased at a price equal to the closing price of our common stock on the New York Stock Exchange on the day the repurchase was approved by our board of directors. No shares were sold into the market in connection with the share repurchase. The repurchase related to tax withholding requirements on stock options exercised and are not part of the repurchase programs described above.
Income Taxes
Income Taxes
Income Taxes
The Company uses the asset and liability method to account for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in tax and deductions in future years.
The components of income tax expense are as follows (in thousands):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
Federal
$
77,720

 
$
88,513

 
$
76,649

State
7,665

 
8,632

 
18,916

 
85,385

 
97,145

 
95,565

Deferred:
 
 
 
 
 
Federal
(9,246
)
 
6,997

 
(5,485
)
State
(726
)
 
(391
)
 
119

 
(9,972
)
 
6,606

 
(5,366
)
Total
$
75,413

 
$
103,751

 
$
90,199


Deferred tax assets and liabilities are comprised of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Deferred tax assets:
 
 
 
Net operating loss
$
258

 
$
694

Fixed assets
233

 
221

Bad debt
7,479

 
1,853

Vacation accrual
2,815

 
2,057

Stock-based compensation
13,299

 
17,175

Deferred rent
9,404

 
6,151

State tax
2,541

 
2,678

Bonus accrual
599

 
492

Unearned interest
731

 

Unrealized loss on investments

 
351

Other
386

 
234

Total deferred tax assets
37,745

 
31,906

Valuation allowance

 

Net deferred tax assets
37,745

 
31,906

Deferred tax liabilities:
 
 
 
Fixed assets and intangibles
(13,411
)
 
(15,277
)
Unrealized gain on investments
(132
)
 

Total deferred tax liabilities
(13,543
)
 
(15,277
)
Total net deferred tax assets
$
24,202

 
$
16,629


The current year change in net deferred tax assets of $7.6 million is comprised of net deferred expense of $10.0 million recorded through income tax expense, offset by the $1.9 million tax benefit shortfall recorded to additional paid in capital, and the $0.5 million tax effect of unrealized gain on investments recorded through other comprehensive income.
Deferred taxes are reflected in the balance sheet as follows (in thousands):
 
As of December 31,
 
2012
 
2011
Current deferred tax assets
$
10,936

 
$
5,429

Current deferred tax liabilities

 

Noncurrent deferred tax assets
13,266

 
11,200

Noncurrent deferred tax liabilities

 

Total
$
24,202

 
$
16,629


The Company periodically assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible profits. Based on the Company's history of earnings, the Company concluded that it is more likely than not that the Company will fully utilize the deferred tax assets. Accordingly, the Company has not provided any valuation allowance against the deferred tax assets.
At December 31, 2012, the Company had federal net operating loss carry forwards of $0.7 million, which are available to offset future taxable income. The federal net operating loss carry forwards will begin to expire in 2022. Pursuant to Internal Code Section 382, use of the net operating loss carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has performed a Section 382 analysis and has determined that there is no material effect on the net operating loss carryforwards.
A reconciliation of the income tax expense computed using the U.S. federal statutory tax rate of 35% and the Company's provision for income taxes follows (in thousands):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Computed expected federal tax expense
$
69,592

35.0
%
 
$
96,780

35.0
 %
 
$
76,223

35.0
%
State taxes, net of federal benefit
4,700

2.4

 
5,434

2.0

 
10,238

4.7

Permanent differences
1,074

0.5

 
1,601

0.6

 
335

0.1

Uncertain tax positions
31


 
(192
)
(0.1
)
 
3,401

1.6

Other
16


 
128


 
2


Income tax expense
$
75,413

37.9
%
 
$
103,751

37.5
 %
 
$
90,199

41.4
%

The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with the taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
The accrual for uncertain tax positions can result in a difference between the estimated benefit recorded in the Company's financial statements and the benefit taken or expected to be taken in the Company's income tax returns. This difference is generally referred to as an “unrecognized tax benefit.”
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits at December 31, 2010
$
8,057

Gross increases-tax positions in prior period

Gross decreases-tax positions in prior period
82

Gross increases-current period tax positions
95

Settlements

Lapse of statute of limitations

Unrecognized tax benefits at December 31, 2011
8,070

Gross increases-tax positions in prior period
965

Gross decreases-tax positions in prior period

Gross increases-current period tax positions
231

Settlements

Lapse of statute of limitations

Unrecognized tax benefits at December 31, 2012
$
9,266


Included in the amount of unrecognized tax benefits at both December 31, 2012 and 2011 is $6.6 million and $5.8 million, respectively, of tax benefits that, if recognized, would affect the Company's effective tax rate. Also included in the balance of unrecognized tax benefits at both December 31, 2012 and 2011 is $2.7 million and $2.3 million, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2012 and 2011, the Company had approximately $1.7 million and $1.4 million, respectively, of accrued interest, before any tax benefit, related to uncertain tax positions.
The tax years 2002-2012 are open to examination by major taxing jurisdictions to which the Company is subject. The California Franchise Tax Board is auditing the Company's 2008 and 2009 California income tax returns. The Company does not expect any significant adjustments resulting from this audit. It is reasonably possible that the amount of the unrecognized tax benefit will change during the next 12 months, however the Company does not expect the potential change to have a material effect on the results of operations or financial position in the next year.
The Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense.
Regulatory
Regulatory
Regulatory
The Company and its institutions are 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 U.S. Department of Education (“Department”) subject the Company and its institutions to significant regulatory scrutiny on the basis of numerous standards that schools 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 compliance with the Higher Education Act and the Department's extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to the Department on an ongoing basis. As of December 31, 2012, 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. Loss of accreditation would denigrate the value of our institutions' educational programs and would cause them to lose their eligibility to participate in Title IV programs, which would have a material adverse effect on enrollment, revenues, financial condition, cash flows and results of operations.
Ashford University and University of the Rockies are both regionally accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (“HLC”). In September 2010, Ashford University announced that it had initiated the process of seeking accreditation from the Accrediting Commission for Senior Colleges and Universities of the Western Association of Schools and Colleges (“WASC”).
Notification from HLC regarding Jurisdiction over Ashford University.
On June 25, 2012, HLC informed Ashford University that the institution must demonstrate, no later than December 1, 2012, that it has a substantial presence in the 19-state north central region and accordingly is within HLC's jurisdiction under new requirements which became effective on July 1, 2012. Following Ashford University's receipt of this letter, the institution met with representatives of HLC regarding the timing and components of becoming compliant with the commission's jurisdictional requirements in light of the institution's plans to reapply for initial accreditation with WASC.
Subsequent to these discussions, on July 27, 2012, Ashford University received a letter from HLC that stated Ashford University would be required to provide the commission with an implementation plan on or before December 1, 2012, that demonstrates how the institution will comply with the commission's policy on substantial presence in the event that a migration to WASC either will not occur or is significantly delayed. The implementation plan was provided to HLC as requested.
On February 27, 2013, Ashford University received a letter from HLC stating that on February 21, 2013 the university was placed on Notice due to its current non-compliance with HLC's substantial presence policy and concerns regarding its future ability to remain in compliance with certain accreditation criteria, particularly the revised criteria that became effective on January 1, 2013. Specifically, HLC noted that its action in placing the university on Notice was related in part to the alignment of the university mission with its instructional model, governance of the university independent from its corporate parent, sufficiency of faculty, assessment of student learning and use of data to improve graduation and retention rates, and shared governance structures involving faculty and administration. Ashford University remains accredited. In its letter, HLC reported its determination that Ashford University is not currently in compliance with HLC's substantial presence policy and set forth procedures and a timeline for evaluating the university's implementation of its previously reviewed plan with respect to substantial presence in the event Ashford University does not gain accreditation from WASC. If WASC accreditation is not approved, Ashford University will be required to exercise the implementation plan, and the institution must initiate the move of its core operations to the 19-state north central region immediately after the anticipated June 2013 WASC decision.
On or before July 10, 2013, Ashford University must provide a monitoring report to HLC stating whether the university has gained accreditation from WASC. If the university has not by such time been accredited by WASC, the university will also be required to host a focused evaluation no later than October 1, 2013, to evaluate, among other things, whether the university has completed specific steps, following its implementation plan, to establish presence in HLC's region as required pursuant to HLC's jurisdictional requirements. In addition, Ashford University will be required to host a focused evaluation on or before December 15, 2013 to examine retention, graduation and the university's progress in resolving the identified issues. In its letter, HLC states that HLC's Board of Trustees (the "HLC Board") will consider information provided in the monitoring report and in the October 2013 focused evaluation, if it is required, and the December 2013 focused evaluation at its meeting in February 2014 and take action as appropriate. HLC may remove the university from Notice, or in the event the identified concerns, including satisfaction of HLC's jurisdictional requirements, have not been satisfactorily addressed, place the university on probation or take other action, which could include a show-cause order or withdrawal of accreditation.
Denial of Initial Accreditation for Ashford University.
On July 5, 2012, Ashford University received official notice that WASC acted (1) to deny initial accreditation to the institution because it had not yet demonstrated substantial compliance with certain of the WASC Standards for Accreditation and (2) to permit the institution to reapply for accreditation with a single special visit to occur as early as spring 2013. On October 11, 2012, Ashford University reapplied for accreditation. Under WASC rules, the reapplication must demonstrate that Ashford University has satisfactorily addressed the report's conclusions and has come into compliance with the WASC Standards of Accreditation. A site visit by WASC is expected to begin on April 2, 2013, and the Company anticipates the WASC commission's consideration of the institution's reapplication at its June 2013 meeting.
Notification from HLC regarding placement of Ashford University on Notice.
On July 12, 2012, Ashford University received a letter from HLC stating that (1) Ashford University had been placed on special monitoring because of the decision by WASC to deny the institution initial accreditation and also because of certain non-financial data provided by the institution that indicated a need for further commission review (see “Higher Learning Commission Notification regarding Ashford University Non-Financial Indicator Conditions” below), and (2) the institution would be required to provide a report to HLC no later than August 10, 2012 regarding its fulfillment of the commission's Criteria for Accreditation and Core Components, including the Minimum Expectations. Submission of the report would be followed by an advisory visit.
The letter specifically required the report to include: (1) evidence that Ashford University meets HLC's Criteria for Accreditation relating to the role and autonomy of the institution's governing board and its relationship with Bridgepoint Education, Inc., including the role of faculty in overseeing academic policies and the integrity and continuity of academic programs; (2) evidence that Ashford University's resource allocations are sufficiently aligned with educational purposes and objectives in the areas of student completion and retention, the sufficiency of full-time faculty and model for faculty development, and plans for increasing enrollments; and (3) evidence demonstrating that Ashford University has an effective system for assessing and monitoring student learning and assuring academic vigor.
Following Ashford University's receipt of the letter, the institution met with representatives of HLC to discuss the timing of the advisory visit and the report demonstrating the institution's compliance with HLC's accreditation criteria. Subsequent to these discussions, on July 27, 2012, Ashford University received a letter from HLC that stated Ashford University would be permitted to provide the report demonstrating compliance with the commission's Criteria for Accreditation and Core Components in two phases. The first phase was provided on September 3, 2012, and the second phase was provided on September 21, 2012. The advisory visit occurred the week of October 22, 2012.
On February 27, 2013, Ashford University received a letter from HLC stating that on February 21, 2013 the university was placed on Notice due to its current non-compliance with HLC's substantial presence policy and concerns regarding its future ability to remain in compliance with certain accreditation criteria, particularly the revised criteria that became effective on January 1, 2013. Specifically, HLC noted that its action in placing the university on Notice related to the alignment of the university mission with its instructional model, governance of the university independent from its corporate parent, sufficiency of faculty, assessment of student learning and use of data to improve graduation and retention rates, and shared governance structures involving faculty and administration.
HLC determined that Ashford University is not currently in compliance with HLC's substantial presence policy and set forth procedures and a timeline for evaluating the university's implementation of its previously reviewed plan with respect to substantial presence in the event Ashford University does not gain accreditation from WASC.
Ashford University remains accredited. Notice is a commission sanction indicating that an institution is pursuing a course of action that, if continued, could lead it to be out of compliance with one or more criteria for accreditation. At its February 2014 meeting, the HLC Board will consider information and take action as appropriate. HLC may remove the university from Notice or, in the event the identified concerns have not been satisfactorily addressed, place the university on probation or take other action, which could include a show-cause order or withdrawal of accreditation.
HLC Notification regarding Ashford University Non-Financial Indicator Conditions.
On July 13, 2012, HLC notified Ashford University that it had been identified for further inquiry based on certain non-financial data the institution provided in its 2012 Institutional Annual Report. Under HLC's Institutional Update process, all accredited and candidate institutions are required to provide certain financial and non-financial data to the commission annually; HLC then screens the non-financial data for seven indicator conditions and requests an institutional report from institutions that meet certain of these conditions. The purpose of the screening process is to identify institutions that may be at risk of not meeting certain of HLC's Criteria for Accreditation.
Ashford University was identified for further inquiry because it met three of the indicator conditions: (1) the number of degrees awarded increased 40% or more compared to the prior year; (2) the number of full-time faculty increased 25% or more compared to the prior year; and (3) the ratio of full-time faculty to the number of degree programs was less than one in the period reported. As Ashford University was already under review through the HLC special monitoring process and was required to provide a written report and host an advisory visit, as outlined in the letter received from the commission on July 12, 2012, Ashford University addressed these non-financial indicators and related Core Components in the report it submitted on September 3, 2012 as part of the special monitoring process. Ashford University was placed on Notice by HLC on February 21, 2013. The Notice process and timeline are described in the section above entitled “Notification from Higher Learning Commission regarding placement of Ashford University on Notice.”
HLC Notification regarding University of the Rockies Non-Financial Indicator Conditions.
On July 24, 2012, HLC notified University of the Rockies that it had been identified for further inquiry based on certain non-financial data the institution provided in its 2012 Institutional Annual Report. University of the Rockies was identified for further inquiry because it met two of the indicator conditions: (1) the number of degrees awarded increased 40% or more compared to the prior year; and (2) the number of full-time faculty increased 25% or more compared to the prior year. Accordingly, HLC requested that University of the Rockies provide a report to HLC demonstrating the institution's ability to continue meeting the Core Components in light of the conditions at the institution that led to the indicators being identified. This report was provided on August 29, 2012, and the institution has not received an update regarding the inquiry since that date. The HLC staff will review the report, may request additional information if necessary, and will determine whether the report requires further review by a panel; if so, the panel will review the report and recommend whether the HLC Board should accept the report, require further monitoring through a subsequent report or focused visit, or recommend action such as placing the institution on sanction.
Notification from U.S. Department of Education regarding on-site program review of University of the Rockies.
On July 25, 2012, the Department notified University of the Rockies that it had scheduled an on-site program review. This review occurred from August 20, 2012 through August 24, 2012. The review is intended to assess the institution's administration of Title IV programs and initially will cover the 2010-2011 and 2011-2012 award years, but may be expanded if deemed appropriate by the Department.
Request for information from Ashford University by Iowa College Student Aid Commission.
On September 22, 2012, the Iowa College Student Aid Commission requested that Ashford University provide the commission with certain information and documentation related to, among other matters, the denial of Ashford University's application for WASC accreditation, the university's compliance with HLC criteria and policies, a teach-out plan in the event that Ashford University is unsuccessful in obtaining a WASC accreditation and is sanctioned by HLC, and information relating to admissions employees, receipt of financial aid, availability of books, credit balance authorizations, and academic and financial support and advisement services to students. The commission requested that Ashford University provide the requested information by November 12, 2012 and make an in-person presentation during the commission's meeting on November 16, 2012. The Company made the presentation and the commission has not requested additional information.
The “90/10” Rule
Under the Higher Education Act, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenues (calculated in accordance with applicable Department regulations) from Title IV program funds for two consecutive fiscal years. This rule is commonly referred to as the “90/10 rule.” Any institution that violates the 90/10 rule for two consecutive fiscal years becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single year will be placed on provisional certification and may be subject to other enforcement measures.
For the years ended December 31, 2012, December 31, 2011 and December 31, 2010, Ashford University derived 86.4%, 86.8% and 85.0%, respectively, and the University of the Rockies derived 87.3%, 85.0% and 85.9%, respectively, of their respective revenues (calculated in accordance with applicable Department regulations) from Title IV funds.
Cohort Default Rate
For each federal fiscal year, the Department calculates a rate of student defaults for each educational institution which is known as a “cohort default rate.” An institution may lose its eligibility to participate in the Direct Loan and Pell programs if, for each of the three most recent federal fiscal years for which information is available, 25% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year. In addition, an institution may lose its eligibility to participate in Direct Loan programs if its cohort default rate exceeds 40% in the most recent federal fiscal year for which default rates have been calculated by the Department. Ashford University's cohort default rates for the 2010, 2009 and 2008 federal fiscal years, were 10.2%, 15.3% and 13.3%, respectively. The cohort default rates for the University of the Rockies for the 2010, 2009 and 2008 federal fiscal years, were 4.0%, 3.3% and 2.5%, respectively.
Return of Title IV Funds
An institution participating in Title IV programs must correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must return those unearned funds in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. Under Department regulations, failure to make timely returns of Title IV program funds for 5% or more of students sampled on the institution's annual compliance audit in either of its two most recently completed fiscal years can result in the institution having to post a letter of credit in an amount equal to 25% of its required Title IV returns during its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution is also subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs. For the years ended December 31, 2012 and 2011, the Company's institutions did not exceed the 5% threshold for late refunds sampled.
Financial Responsibility
The Department calculates an institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. An institution that does not meet the Department's minimum composite score may demonstrate its financial responsibility by posting a letter of credit in favor of the Department and possibly accepting other conditions on its participation in the Title IV programs.
For the fiscal year ended December 31, 2011, both Ashford University and University of the Rockies calculated a composite score of 3.0, in each case satisfying the composite score requirement of the Department's financial responsibility test, which institutions must satisfy in order to participate in Title IV programs. The Company expects the composite scores for Ashford University and University of the Rockies both to remain at 3.0 for the year ended December 31, 2012. However, this is subject to determination by the Department once it receives and reviews the Company's audited financial statements for the year ended December 31, 2012.
Retirement Plans
Retirement Plans
Retirement Plans
The Company maintains an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the savings plan, participating employees may contribute a portion of their pre-tax earnings up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make matching contributions into the savings plan in its sole discretion. The Company's total expense related to the 401(k) plan was $3.3 million, $2.2 million and $1.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.
Commitments and Contingencies
Commitments and Contingencies
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. 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. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.
Compliance Audit by the Department's Office of the Inspector General (“OIG”)
In January 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 audit covered Ashford University's administration of Title IV program funds, including compliance with regulations governing institutional and student eligibility, awards and disbursements of Title IV program funds, verification of awards and returns of unearned funds during that period, and its compensation of financial aid and recruiting personnel during the period May 10, 2005 through June 30, 2009.
The final audit report contained audit findings, in each case for the period July 1, 2006 through June 30, 2007, which are applicable to award year 2006-2007. Each finding was accompanied by one or more recommendations to the Department's Office of Federal Student Aid (“FSA”). If the FSA were to determine to assess a monetary liability or commence other administrative action, Ashford University would have an opportunity to contest the assessment or proposed action through administrative proceedings, with the right to seek review of any final administrative action in the federal courts.
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. 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 cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
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 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 cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
North Carolina Attorney General Investigation of Ashford University
In September 2011, Ashford University received from the Attorney General of the State of North Carolina (“NC Attorney General”) an Investigative Demand relating to the NC Attorney General's investigation of whether the university's business practices complied with North Carolina consumer protection law. Pursuant to the Investigative Demand, the NC Attorney General has requested from Ashford University documents and detailed information for the time period January 1, 2008 to present. Ashford University is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
California Attorney General Investigation of For-Profit Educational Institutions
In January 2013, the Company received from the Attorney General of the State of California (“CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General's investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General has requested documents and detailed information for the time period March 1, 2009 to present. The Company is evaluating the Investigative Subpoena and intends to comply with the Attorney General's request. The Company cannot predict the eventual scope, duration or outcome of the investigation at this time.
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 and was captioned Stevens v. Bridgepoint Education, Inc. The complaint generally alleged that the plaintiffs and similarly situated employees were improperly denied certain wage and hour protections under California law.
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, and was captioned Moore v. Ashford University, LLC. The complaint generally alleged that the plaintiff and similarly situated employees were improperly denied certain wage and hour protections under California law.
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 was captioned Sanchez v. Bridgepoint Education, Inc. The complaint generally alleged that the plaintiff and similarly situated employees were improperly denied certain wage and hour protections under California law.
In October 2011, the above named cases were consolidated because they involved common questions of fact and law, with Stevens v. Bridgepoint Education, Inc. designated as the lead case.
In April 2012, the Company entered into a settlement agreement with the plaintiffs of the above named cases to settle the claims on a class-wide basis. Under the terms of the settlement agreement, the Company agreed to pay an amount to settle the plaintiffs' claims, plus any related payroll taxes. The Company accrued a $10.8 million expense in connection with the settlement agreement during the year ending December 31, 2012. On August 24, 2012, the Court granted final approval of the class action settlement and entered a final judgment in accordance with the terms of the settlement agreement. This settlement was paid out prior to December 31, 2012.
Securities Class Action
On July 13, 2012, a securities class action complaint was filed in the U.S. District Court for the Southern District of California by Donald K. Franke naming the Company, Andrew Clark, Daniel Devine and Jane McAuliffe as defendants for allegedly making false and materially misleading statements regarding the Company's business and financial results, specifically the concealment of accreditation problems at Ashford University. The complaint asserts a putative class period stemming from May 3, 2011 to July 6, 2012. A substantially similar complaint was also filed in the same court by Luke Sacharczyk on July 17, 2012 making similar allegations against the Company, Andrew Clark and Daniel Devine. The Sacharczyk complaint asserts a putative class period stemming from May 3, 2011 to July 12, 2012. Finally, on July 26, 2012, another purported securities class action complaint was filed in the same court by David Stein against the same defendants based upon the same general set of allegations and class period. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seek unspecified monetary relief, interest, and attorneys’ fees.
On October 22, 2012, the Sacharczyk and Stein actions were consolidated with the Franke action and the Court appointed the City of Atlanta General Employees Pension Fund and the Teamsters Local 677 Health Services & Insurance Plan as lead plaintiffs. A consolidated complaint was filed on December 21, 2012. The Company intends to vigorously defend against the consolidated action and filed a motion to dismiss on February 19, 2013.
Shareholder Derivative Action
On July 24, 2012, a shareholder derivative complaint was filed in California Superior Court by Alonzo Martinez. In the complaint, the plaintiff asserts a derivative claim on the Company's behalf against certain of its current and former officers and directors. The complaint is entitled Martinez v. Clark, et al., and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The complaint seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys' fees. On September 28, 2012, a substantially similar shareholder derivative complaint was filed in California Superior Court by David Adolph-Laroche. In the complaint, the plaintiff asserts a derivative claim on the Company's behalf against certain of its current and former officers and directors. The complaint is entitled Adolph-Laroche v. Clark, et al, and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched.
On October 11, 2012, the Adolph-Laroche action was consolidated with the Clark action and the case is now entitled In re Bridgepoint, Inc. Shareholder Derivative Action. A consolidate complaint was filed on December 18, 2012. The defendants filed a motion to stay the case while the underlying securities class action is pending. A hearing on the motion to stay is scheduled for April 5, 2013.
Guzman v. Bridgepoint Education, Inc.
In January 2011, Betty Guzman filed a class action lawsuit against the Company, Ashford University and University of the Rockies in the U.S. District Court for the Southern District of California. The complaint is entitled Guzman v. Bridgepoint Education, Inc., et al, and alleges that the defendants engaged in misrepresentation and other unlawful behavior in their efforts to recruit and retain students. The complaint asserts a putative class period of March 1, 2005 through the present. In March 2011, the defendants filed a motion to dismiss the complaint, which was granted by the Court with leave to amend in October 2011.
In January 2012, the plaintiff filed a first amended complaint asserting similar claims and the same class period, and the defendants filed another motion to dismiss. In May 2012, the Court granted the University of the Rockies' motion to dismiss and granted in part and denied in part the motion to dismiss filed by the Company and Ashford University. The Court also granted the plaintiff leave to file a second amended complaint. In August 2012, the plaintiff filed a second amended complaint asserting similar claims and the same class period. The second amended complaint seeks unspecified monetary relief, disgorgement of all profits, various other equitable relief, and attorneys' fees. The defendants filed a motion to strike portions of the second amended complaint, which was granted in part and denied in part. The lawsuit is proceeding to discovery.
The Company believes the lawsuit is without merit and intends to vigorously defend against it. However, because of the many questions of fact and law that may arise, the outcome of this legal proceeding is uncertain at this point. Based on the information available to the Company at present, it cannot reasonably estimate a range of loss for this action and accordingly has not accrued any liability associated with this action.
Qui Tam Complaints
In December 2012, the Company received notice that the U.S. Department of Justice had declined to intervene in a qui tam complaint filed in the U.S. District Court for the Southern District of California by Ryan Ferguson and Mark T. Pacheco under the Federal False Claims Act on March 10, 2011 and unsealed on December 26, 2012. The case is entitled United States of America, ex rel., Ryan Ferguson and Mark T. Pacheco v. Bridgepoint Education, Inc., Ashford University and University of the Rockies. The qui tam complaint alleges, among other things, that since March 10, 2005, the Company caused its institutions, Ashford University and University of the Rockies, to violate the Federal False Claims Act by falsely certifying to the U.S. Department of Education that the institutions were in compliance with various regulations governing the Title IV programs, including those that require compliance with federal rules regarding the payment of incentive compensation to enrollment personnel, student disclosures, and misrepresentation in connection with the institutions' participation in the Title IV programs.
In January 2013, the Company received notice that the U.S. Department of Justice had declined to intervene in a qui tam complaint filed in the U.S. District Court for the Southern District of California by James Carter and Roger Lengyel under the Federal False Claims Act on July 2, 2010 and unsealed on January 2, 2013. The case is entitled United States of America, ex rel., James Carter and Roger Lengyel v. Bridgepoint Education, Inc., Ashford University. The qui tam complaint alleges, among other things, that since March 2005, the Company and Ashford University have violated the Federal False Claims Act by falsely certifying to the U.S. Department of Education that Ashford University was in compliance with federal rules regarding the payment of incentive compensation to enrollment personnel in connection with the institution's participation in Title IV programs.
Each of the complaints seek significant damages, penalties and other relief. The Company is currently evaluating the complaints and intends to vigorously defend against the allegations set forth in each complaint.
Employee Class Actions
On October 24, 2012, a class action complaint was filed in California Superior Court by former employee Marla Montano naming the Company and Ashford University as defendants. The case is entitled Marla Montano v. Bridgepoint Education and Ashford University. The complaint asserts a putative class consisting of former employees who were terminated in January 2012 and July 2012 as a result of a mass layoff, relocation or termination and alleges that the defendants failed to comply with the notice and payment provisions of the California WARN Act. A substantially similar complaint, entitled Dilts v. Bridgepoint Education and Ashford University, was also filed in the same court on the same day by Austin Dilts making similar allegations and asserting the same putative class. The complaints seek back pay, the cost of benefits, penalties and interest on behalf of the putative class members, as well as other equitable relief and attorneys' fees.
The Company and Ashford University are currently evaluating these actions and intend to vigorously defend against them. On January 25, 2013, the Company filed motions to compel binding arbitration with the court, which are currently pending.
Concentration of Risk
Concentration of Risk
Concentration of Risk
Concentration of Revenue
In 2012, Ashford University derived 86.4% and the University of the Rockies derived 87.3% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department regulations) from Title IV programs. See Note 18, “Regulatory-The “90/10” Rule.” Title IV programs are subject to political and budgetary considerations and are subject to extensive and complex regulations. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potentially adverse actions including a suspension, limitation, or termination proceeding, which could have a material adverse effect on the Company's enrollments, revenues and results of operations.
Students obtain access to federal student financial aid through a Department prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their expected length of study. Students typically apply the funds received from the federal financial aid programs first to pay their tuition and fees. Any remaining funds are distributed directly to the student.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents accounts in financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company performs ongoing evaluations of these institutions to limit its concentrations risk exposure.
Concentration of Sources of Supply
The Company is dependent on a third party provider for its online platform, which includes a learning management system, which stores, manages and delivers course content, enables assignment uploading, provides interactive communication between students and faculty and supplies online assessment tools. The partial or complete loss of this source may have an adverse effect on enrollments, revenues and results of operations.
Quarterly Results of Operations (Unaudited)
Quarterly Results of Operations (Unaudited)
Quarterly Results of Operations (Unaudited)
The following tables set forth unaudited results of operations and certain operating data for each quarter during 2012 and 2011. The Company believes that the information reflects all adjustments necessary to present fairly the information below. Basic and diluted earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per common share information may not equal annual basic and diluted earnings per common share.
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
(In thousands, except per share data)
2012
 
 
 
 
 
 
 
Revenue
$
250,437

 
$
256,302

 
$
252,076

 
$
209,356

Operating income
50,629

 
68,782

 
47,109

 
28,944

Net income
31,971

 
43,258

 
29,820

 
18,372

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.61

 
$
0.82

 
$
0.56

 
$
0.34

Diluted
0.57

 
0.77

 
0.53

 
0.33

 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
(In thousands, except per share data)
2011
 
 
 
 
 
 
 
Revenue
$
229,432

 
$
239,880

 
$
242,771

 
$
221,266

Operating income
86,112

 
82,549

 
69,773

 
35,313

Net income
53,919

 
52,149

 
43,811

 
22,885

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
1.02

 
$
0.99

 
$
0.85

 
$
0.44

Diluted
0.92

 
0.90

 
0.78

 
0.41


Effective in the fourth quarter of 2012, the Company made changes in the presentation of its operating expenses. The Company determined that these changes would better reflect industry practices and would provide more meaningful information as well as increased transparency to its operations. The Company believes its expenses as reclassified better represent the operational changes and the business initiatives that have been implemented. The Company has reclassified prior periods to conform to the new presentation.
Additionally, we identified an out of period adjustment for bad debt expense related to the aging of our accounts receivable, which should have been recognized during the year ended December 31, 2012. We evaluated the cumulative impact of this on prior periods and concluded to revise our previously issued financial statements to reflect the impact of this correction. Through this revision, we increased and corrected bad debt expense by a total of $7.2 million (pre-tax) in the fiscal year ended December 31, 2012. The amounts in the tables above are reflective of this revision and its impact on the Company's consolidated statement of income data for the quarterly periods during the year ended December 31, 2012. For additional information, see also Note 2, “Summary of Significant Accounting Policies - Revision of Previously Issued Financial Statements.”
The following table depicts the Company's operating expenses as previously reported, as well as currently reclassified and revised, on its condensed consolidated statements of income for each of the three months periods noted below (in thousands):
 
March 31, 2012
 
June 30,
2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (as reported)
$
68,475

 
$
65,395

 
$
75,699

 
$
105,875

   Impact of reclassification
14,025

 
13,130

 
12,674

 

Instructional costs and services (as reclassified)
82,500

 
78,525

 
88,373

 
105,875

   Impact of bad debt revision
1,724

 
6,754

 
2,613

 
(3,841
)
Instructional costs and services (as reclassified and revised)
84,224

 
85,279

 
90,986

 
102,034

 
 
 
 
 
 
 
 
Admissions advisory and marketing (as reported)
80,063

 
78,608

 
90,291

 
65,239

   Impact of reclassification
9,979

 
8,586

 
6,443

 

Admissions advisory and marketing (as reclassified)
90,042

 
87,194

 
96,734

 
65,239

 
 
 
 
 
 
 
 
General and administrative (as reported)
49,546

 
36,763

 
36,364

 
13,139

   Impact of reclassification
(24,004
)
 
(21,716
)
 
(19,117
)
 

General and administrative (as reclassified)
25,542

 
15,047

 
17,247

 
13,139

 
 
 
 
 
 
 
 
     Total costs and expenses (as reclassified and revised)
$
199,808

 
$
187,520

 
$
204,967

 
$
180,412


The table below represents the impact of the revision on the Company's consolidated balance sheet data as of December 31, 2012, the consolidated statement of income data and consolidated cash flow data for the year ended December 31, 2012, as well as the impact on the quarterly periods during the year ended December 31, 2012. There was no impact to the total cash flows from operating activities in any of the periods presented due to the revision. The following table is presented in thousands, except per share data:

As Reported
 
As Revised
 
As Reported
 
As Revised
 
As Reported
 
As Revised
 
As Reported
 
As Revised
Consolidated balance sheet data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Accounts receivable, net
$
92,853

 
$
91,129

 
$
99,617

 
$
91,139

 
$
111,010

 
$
99,919

 
$
75,177

 
$
67,927

Deferred income taxes
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
8,228

 
$
10,936

Total current assets
$
442,893

 
$
441,169

 
$
468,242

 
$
459,764

 
$
463,606

 
$
452,515

 
$
496,147

 
$
491,605

Total assets
$
684,171

 
$
682,447

 
$
731,597

 
$
723,119

 
$
747,190

 
$
736,099

 
$
755,329

 
$
750,787

Accrued liabilities
$
67,409

 
$
66,755

 
$
57,858

 
$
54,650

 
$
56,609

 
$
52,313

 
N/A

 
N/A

Total current liabilities
$
261,229

 
$
260,575

 
$
251,220

 
$
248,012

 
$
236,121

 
$
231,925

 
N/A

 
N/A

Total liabilities
$
289,950

 
$
289,296

 
$
282,541

 
$
279,333

 
$
269,761

 
$
265,565

 
N/A

 
N/A

Retained earnings
$
384,218

 
$
383,148

 
$
431,676

 
$
426,406

 
$
463,121

 
$
456,226

 
$
479,140

 
$
474,598

Total stockholders’ equity
$
394,221

 
$
393,151

 
$
449,056

 
$
443,786

 
$
477,429

 
$
470,534

 
$
496,112

 
$
491,570

Total liabilities and stockholders’ equity
$
684,171

 
$
682,447

 
$
731,597

 
$
723,119

 
$
747,190

 
$
736,099

 
$
755,329

 
$
750,787

 
Three Months Ended
Consolidated statement of income data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (1)
$
82,500

 
$
84,224

 
$
78,525

 
$
85,279

 
$
88,373

 
$
90,986

 
$
105,875

 
$
102,034

Total costs and expenses
$
198,084

 
$
199,808

 
$
180,766

 
$
187,520

 
$
202,354

 
$
204,967

 
$
184,253

 
$
180,412

Operating income
$
52,353

 
$
50,629

 
$
75,536

 
$
68,782

 
$
49,722

 
$
47,109

 
$
25,103

 
$
28,944

Income before income taxes
$
53,036

 
$
51,312

 
$
76,390

 
$
69,636

 
$
50,677

 
$
48,064

 
$
25,980

 
$
29,822

Income tax expense
$
19,995

 
$
19,341

 
$
28,932

 
$
26,378

 
$
19,232

 
$
18,244

 
$
9,962

 
$
11,450

Net income
$
33,041

 
$
31,971

 
$
47,458

 
$
43,258

 
$
31,445

 
$
29,820

 
$
16,019

 
$
18,372

Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
$
0.64

 
$
0.61

 
$
0.90

 
$
0.82

 
$
0.59

 
$
0.56

 
$
0.30

 
$
0.34

   Diluted
$
0.59

 
$
0.57

 
$
0.84

 
$
0.77

 
$
0.56

 
$
0.53

 
$
0.29

 
$
0.33

 
Year to Date Period Ended
Consolidated statement of income data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (1)
$
82,500

 
$
84,224

 
$
161,025

 
$
169,503

 
$
249,398

 
$
260,489

 
$
355,273

 
$
362,523

Total costs and expenses
$
198,084

 
$
199,808

 
$
378,850

 
$
387,328

 
$
581,204

 
$
592,295

 
$
765,457

 
$
772,707

Operating income
$
52,353

 
$
50,629

 
$
127,889

 
$
119,411

 
$
177,611

 
$
166,520

 
$
202,714

 
$
195,464

Income before income taxes
$
53,036

 
$
51,312

 
$
129,426

 
$
120,948

 
$
180,103

 
$
169,012

 
$
206,084

 
$
198,834

Income tax expense
$
19,995

 
$
19,341

 
$
48,927

 
$
45,719

 
$
68,159

 
$
63,963

 
$
78,121

 
$
75,413

Net income
$
33,041

 
$
31,971

 
$
80,499

 
$
75,229

 
$
111,944

 
$
105,049

 
$
127,963

 
$
123,421

Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
$
0.64

 
$
0.61

 
$
1.54

 
$
1.44

 
$
2.13

 
$
2.00

 
$
2.42

 
$
2.33

   Diluted
$
0.59

 
$
0.57

 
$
1.43

 
$
1.34

 
$
2.00

 
$
1.87

 
$
2.29

 
$
2.21

Consolidated statement of cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
33,041

 
$
31,971

 
$
80,499

 
$
75,229

 
$
111,944

 
$
105,049

 
$
127,963

 
$
123,421

Provision for bad debts
$
14,945

 
$
16,669

 
$
24,923

 
$
33,401

 
$
41,327

 
$
52,418

 
$
66,446

 
$
73,696

Deferred income taxes
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
(7,264
)
 
$
(9,972
)
Accounts payable and accrued liabilities
$
27,505

 
$
26,851

 
$
21,700

 
$
18,492

 
$
23,559

 
$
19,363

 
N/A

 
N/A


(1) The amounts in the “As Reported” column for instructional costs and services above reflect reclassified amounts for each respective period.
Subsequent Events
Subsequent Events
Subsequent Events
California Attorney General Investigation of For-Profit Educational Institutions
On January 10, 2013, the Company received from the Attorney General of the State of California (“CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General's investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General has requested documents and detailed information for the time period March 1, 2009, to present. The Company is evaluating the Investigative Subpoena and intends to comply with the CA Attorney General's request. The Company cannot predict the eventual scope, duration or outcome of the investigation at this time.
Notification from HLC regarding accreditation status for Ashford University
On February 27, 2013, Ashford University received a letter from HLC stating that on February 21, 2013 the university was placed on Notice due to concerns about its capacity to meet newly revised criteria for accreditation that became effective January 2013 and its current non-compliance with HLC's substantial presence policy. For additional information, see Note 18, “Regulatory."
Summary of Significant Accounting Policies (Policies)
Principles of Consolidation
The consolidated financial statements include the accounts of Bridgepoint Education, Inc. and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates.
Revision of Previously Issued Financial Statements
The Company identified an out of period adjustment for bad debt expense related to the aging of the Company's accounts receivable, which should have been recognized during the year ended December 31, 2012. The Company evaluated the cumulative impact of this on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, “Materiality.” The Company also evaluated the impact of correcting this through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to revise its previously issued financial statements to reflect the impact of this correction. Through this revision, the Company has increased and corrected bad debt expense by a total of $7.2 million (pre-tax) in the fiscal year ended December 31, 2012. Prior periods will be revised as filed in connection with the filing of the Company's Form 10-Q's in 2013.
The table below presents the impact of this revision on the Company's consolidated balance sheet data as of December 31, 2012, the consolidated statement of income data and consolidated cash flow data for the year ended December 31, 2012. There was no impact to the total cash flows from operating activities due to the revision. The following table is presented in thousands, except per share data:

As Reported
 
As Revised
 
As of December 31, 2012
Consolidated balance sheet data:
 
 
 
Accounts receivable, net
$
75,177

 
$
67,927

Deferred income taxes
$
8,228

 
$
10,936

Total current assets
$
496,147

 
$
491,605

Total assets
$
755,329

 
$
750,787

Retained earnings
$
479,140

 
$
474,598

Total stockholders’ equity
$
496,112

 
$
491,570

Total liabilities and stockholders’ equity
$
755,329

 
$
750,787

 
 
 
Year ended December 31, 2012
Consolidated statement of income data:
 
 
 
Instructional costs and services
$
355,273

 
$
362,523

Total costs and expenses
$
765,457

 
$
772,707

Operating income
$
202,714

 
$
195,464

Income before income taxes
$
206,084

 
$
198,834

Income tax expense
$
78,121

 
$
75,413

Net income
$
127,963

 
$
123,421

Earnings per share:
 
 
 
   Basic
$
2.42

 
$
2.33

   Diluted
$
2.29

 
$
2.21

Consolidated statement of cash flow data:
 
 
 
Net income
$
127,963

 
$
123,421

Provision for bad debts
$
66,446

 
$
73,696

Deferred income taxes
$
(7,264
)
 
$
(9,972
)
The table below represents the impact of the revision on the Company's consolidated balance sheet data as of December 31, 2012, the consolidated statement of income data and consolidated cash flow data for the year ended December 31, 2012, as well as the impact on the quarterly periods during the year ended December 31, 2012. There was no impact to the total cash flows from operating activities in any of the periods presented due to the revision. The following table is presented in thousands, except per share data:

As Reported
 
As Revised
 
As Reported
 
As Revised
 
As Reported
 
As Revised
 
As Reported
 
As Revised
Consolidated balance sheet data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Accounts receivable, net
$
92,853

 
$
91,129

 
$
99,617

 
$
91,139

 
$
111,010

 
$
99,919

 
$
75,177

 
$
67,927

Deferred income taxes
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
8,228

 
$
10,936

Total current assets
$
442,893

 
$
441,169

 
$
468,242

 
$
459,764

 
$
463,606

 
$
452,515

 
$
496,147

 
$
491,605

Total assets
$
684,171

 
$
682,447

 
$
731,597

 
$
723,119

 
$
747,190

 
$
736,099

 
$
755,329

 
$
750,787

Accrued liabilities
$
67,409

 
$
66,755

 
$
57,858

 
$
54,650

 
$
56,609

 
$
52,313

 
N/A

 
N/A

Total current liabilities
$
261,229

 
$
260,575

 
$
251,220

 
$
248,012

 
$
236,121

 
$
231,925

 
N/A

 
N/A

Total liabilities
$
289,950

 
$
289,296

 
$
282,541

 
$
279,333

 
$
269,761

 
$
265,565

 
N/A

 
N/A

Retained earnings
$
384,218

 
$
383,148

 
$
431,676

 
$
426,406

 
$
463,121

 
$
456,226

 
$
479,140

 
$
474,598

Total stockholders’ equity
$
394,221

 
$
393,151

 
$
449,056

 
$
443,786

 
$
477,429

 
$
470,534

 
$
496,112

 
$
491,570

Total liabilities and stockholders’ equity
$
684,171

 
$
682,447

 
$
731,597

 
$
723,119

 
$
747,190

 
$
736,099

 
$
755,329

 
$
750,787

 
Three Months Ended
Consolidated statement of income data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (1)
$
82,500

 
$
84,224

 
$
78,525

 
$
85,279

 
$
88,373

 
$
90,986

 
$
105,875

 
$
102,034

Total costs and expenses
$
198,084

 
$
199,808

 
$
180,766

 
$
187,520

 
$
202,354

 
$
204,967

 
$
184,253

 
$
180,412

Operating income
$
52,353

 
$
50,629

 
$
75,536

 
$
68,782

 
$
49,722

 
$
47,109

 
$
25,103

 
$
28,944

Income before income taxes
$
53,036

 
$
51,312

 
$
76,390

 
$
69,636

 
$
50,677

 
$
48,064

 
$
25,980

 
$
29,822

Income tax expense
$
19,995

 
$
19,341

 
$
28,932

 
$
26,378

 
$
19,232

 
$
18,244

 
$
9,962

 
$
11,450

Net income
$
33,041

 
$
31,971

 
$
47,458

 
$
43,258

 
$
31,445

 
$
29,820

 
$
16,019

 
$
18,372

Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
$
0.64

 
$
0.61

 
$
0.90

 
$
0.82

 
$
0.59

 
$
0.56

 
$
0.30

 
$
0.34

   Diluted
$
0.59

 
$
0.57

 
$
0.84

 
$
0.77

 
$
0.56

 
$
0.53

 
$
0.29

 
$
0.33

 
Year to Date Period Ended
Consolidated statement of income data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (1)
$
82,500

 
$
84,224

 
$
161,025

 
$
169,503

 
$
249,398

 
$
260,489

 
$
355,273

 
$
362,523

Total costs and expenses
$
198,084

 
$
199,808

 
$
378,850

 
$
387,328

 
$
581,204

 
$
592,295

 
$
765,457

 
$
772,707

Operating income
$
52,353

 
$
50,629

 
$
127,889

 
$
119,411

 
$
177,611

 
$
166,520

 
$
202,714

 
$
195,464

Income before income taxes
$
53,036

 
$
51,312

 
$
129,426

 
$
120,948

 
$
180,103

 
$
169,012

 
$
206,084

 
$
198,834

Income tax expense
$
19,995

 
$
19,341

 
$
48,927

 
$
45,719

 
$
68,159

 
$
63,963

 
$
78,121

 
$
75,413

Net income
$
33,041

 
$
31,971

 
$
80,499

 
$
75,229

 
$
111,944

 
$
105,049

 
$
127,963

 
$
123,421

Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
$
0.64

 
$
0.61

 
$
1.54

 
$
1.44

 
$
2.13

 
$
2.00

 
$
2.42

 
$
2.33

   Diluted
$
0.59

 
$
0.57

 
$
1.43

 
$
1.34

 
$
2.00

 
$
1.87

 
$
2.29

 
$
2.21

Consolidated statement of cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
33,041

 
$
31,971

 
$
80,499

 
$
75,229

 
$
111,944

 
$
105,049

 
$
127,963

 
$
123,421

Provision for bad debts
$
14,945

 
$
16,669

 
$
24,923

 
$
33,401

 
$
41,327

 
$
52,418

 
$
66,446

 
$
73,696

Deferred income taxes
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
(7,264
)
 
$
(9,972
)
Accounts payable and accrued liabilities
$
27,505

 
$
26,851

 
$
21,700

 
$
18,492

 
$
23,559

 
$
19,363

 
N/A

 
N/A

Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash and other short-term highly liquid investments that are readily convertible into known amounts of cash. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Restricted Cash
The Company had $25,000 in restricted cash as of December 31, 2011, related to a certificate of deposit pledged to the state of Washington for state licensure requirements. This requirement was lifted in the current year and as of December 31, 2012, the company had no restricted cash.
Investments
As of December 31, 2012, the Company held short and long-term investments which consisted of demand notes, corporate notes and bonds and certificates of deposit. The Company's investments are denominated in U.S. dollars, investment grade and readily marketable. The Company considers as current assets those investments which will mature or are likely to be sold in less than one year.
The Company has classified its investments as either available-for-sale or held-to-maturity. Available-for-sale securities are carried at fair value as determined by quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of comprehensive income and stockholders’ equity. Held-to-maturity securities are carried at amortized cost. Amortization of premiums, accretion of discounts, interest and realized gains and losses are included in other income, net.
The Company regularly monitors and evaluates the realizable value of its investments. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company would record a charge to other income, net in the consolidated statement of income.
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 investments are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate for similar types of instruments. During the years ended December 31, 2012 and 2011, there were no transfers in or out of any fair value level of measurement.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists of student accounts receivable, which represent amounts due for tuition, technology fees and other fees from currently enrolled and former students. Students generally fund their education through grants and/or loans under various Title IV programs, tuition assistance from military and corporate employers or personal funds.
Accounts receivable are stated at the amount management expects to collect from outstanding balances. For accounts receivable, an allowance for doubtful accounts is estimated by management based on (i) an assessment of individual accounts and student loans receivable over a specific aging and amount (and all other balances on a pooled basis based on historical collection experience), (ii) consideration of the nature of the receivable accounts and (iii) potential changes in the economic environment. The provision for bad debts is recorded within the instructional costs and services line in the consolidated statements of income.
Student Loans Receivable and Loan Loss Reserves
Student loans receivable consist of loans to qualified students and have a repayment period of 10 years from the date of graduation or withdrawal from the Company's institutions. The interest rate charged on student loans is a fixed rate of either 4.5% or 0.0% depending upon the repayment plan selected. If the student selects the rate of 0.0%, the student must pay $50 per month on the loan while enrolled in school and during the six month grace period (after graduation or withdrawal) before the repayment period begins. On the student loans that have below market interest rates, the Company imputes interest using the rate that would be used in a market transaction with similar terms. Interest income on student loans is recognized using the effective interest method and is recorded within other income in the consolidated statements of income. Revenue recognized related to students loans was immaterial during the years ended December 31, 2012, 2011 and 2010.
Student loans receivable are stated at the amount management expects to collect from outstanding balances. The Company determines whether a loan would be impaired if it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the individual loan agreement. This assessment is based on an analysis of several factors including current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including loan performance. For impaired loans, the Company would establish a specific loan loss reserve for the difference between the recorded investment in the loan and the present value of the expected future cash flows or the estimated fair value of the collateral. The loan loss reserve is maintained at a level deemed adequate by management based on a periodic analysis of the individual loans.
Property and Equipment
Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
Buildings
39 years
Furniture, office equipment and software
3 - 7 years
Vehicles
5 years

Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed and a gain or loss is recorded in the consolidated statements of income. Repairs and maintenance costs are expensed in the period incurred.
Leases
Leases are evaluated and classified as operating or capital leases. Leased property and equipment meeting certain criteria are capitalized, and the present value of the related lease payments is recognized as a liability on the consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.
If the Company receives tenant allowances from the lessor for certain improvements made to the leased property, these allowances are capitalized as leasehold improvements and a long-term liability is established. The long-term liability is amortized on a straight-line basis over the corresponding lease term. The Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as a long-term liability.
Goodwill and Other Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually, in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant.
The Company adopted accounting guidance which simplifies how an entity tests goodwill for impairment. The Company first assesses qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company's assessment of goodwill during the fourth quarter of fiscal 2012 indicated that there were no significant negative qualitative indicators, and therefore, goodwill was not impaired. There have been no impairment losses recognized by the Company for any periods presented. If negative qualitative indicators had been noted above, the Company would then need to assess the fair value of its reporting units to determine whether they were in excess of the carrying values.
To evaluate the impairment of the indefinite-lived intangible assets, the Company assessed the fair value of the assets to determine whether they were in excess of the carrying values. Determining the fair value of indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain, and can include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, as well as determination of appropriate market comparables. The Company's assessment of indefinite-lived intangible assets during the fourth quarter of fiscal 2012 did not result in any impairment. There have been no impairment losses recognized by the Company for any periods presented.
The Company also has definite-lived intangible assets, which primarily consist of capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Impairment of Long-Lived Assets
The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results. There have been no triggering events that would indicate impairment, and as such, no impairment losses recognized by the Company for any periods presented.
Revenue and Deferred Revenue
The Company's revenue consists of tuition, technology fees, course digital materials and other miscellaneous fees. Tuition revenue is deferred and recognized on a straight-line basis over the applicable period of instruction net of scholarships and expected refunds, with the exception of an online student's first course, per degree level, at Ashford University. Effective in the fourth quarter of 2012, an online student's first course per degree level at Ashford University falls under a three-week conditional admission period in which the revenue is deferred until the student matriculates into the course.
The Company's institutions' online students generally enroll in a program that encompasses a series of five to six-week courses which are taken consecutively over the length of the program. With the exception of those students under conditional admission, the online students are billed on a payment period basis on the first day of class. The Company's institutions' campus-based students enroll in a program that encompasses a series of nine-week or 16-week courses. Campus-based students are billed at the beginning of each term.
If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled, the amount received in excess effectively represents a prepayment from the online student for up to four courses. At the end of each accounting period, the deferred revenue and student deposits and related account receivable balances are reduced to present amounts attributable to the current course.
For those students under conditional admission, the student is not obligated for payment until after their conditional admission period has lapsed, so there is no required refund. For all subsequent courses, the Company records a provision for expected refunds and reduces revenue for the amount that is expected to be subsequently refunded. Provisions for expected refunds have not been material to any period presented. If a student withdraws from a program prior to a specified date, a portion of such student's tuition is refunded.
The company recognized technology fees, which are one-time start up fees charged to each new online student, other than military, scholarship students or certain corporate reimbursement students. Technology fee revenue is recognized ratably over the average expected enrollment of a student. Ashford University has determined that, effective January 1, 2013, the institution will eliminate the one-time technology fee it currently charges students and replace it with a per course charge. Other miscellaneous fees include fees for course content and textbooks and other services, such as commencements, and are recognized upon delivery of the goods or when the related service is performed.
Income Taxes
The Company accounts for its income taxes using the liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates expected to be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not that the Company will not realize those tax assets through future operations.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the vesting period. The Company estimates the fair value of stock options on the grant date using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. The fair value of the Company's restricted stock units is based on the market price of its common stock on the date of grant.
The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates award forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company's equity plans require that option awards have an exercise price that equals or exceeds the closing price of the Company's common stock, as reported by the NYSE, on the date of grant.
Stock-based compensation expense for stock awards is recorded in the consolidated statement of income, net of estimated forfeitures, using the graded vesting method over the requisite service periods of the respective stock awards.
Instructional Costs and Services
Instructional costs and services consist primarily of costs related to the administration and delivery of the Company's educational programs. This expense category includes compensation for campus-based faculty and administrative personnel, costs associated with online faculty, curriculum and new program development costs, financial aid processing costs, technology license costs, bad debt expense and costs associated with other support groups that provide services directly to the students. Instructional costs and services also include an allocation of information technology, facility and depreciation costs.
Admissions Advisory and Marketing
Admissions advisory and marketing costs include compensation of personnel engaged in marketing and recruitment, as well as costs associated with purchasing leads and producing marketing materials. Such costs are generally affected by the cost of advertising media and leads, the efficiency of the Company's marketing and recruiting efforts, compensation for the Company's enrollment personnel and expenditures on advertising initiatives for new and existing academic programs. Admissions advisory and marketing costs also include an allocation of information technology, facility and depreciation costs.
Advertising costs, a subset of admissions advisory and marketing costs, consists primarily of marketing leads and other branding and promotional activities. These advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity. Advertising costs were $103.7 million, $84.0 million and $63.0 million for the years ended December 31, 2012, 2011 and 2010, respectively.
General and Administrative
General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and an allocation of information technology, facility and depreciation costs.
Earnings Per Share
Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the sum of (i) the weighted average number of common shares outstanding during the period and (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of the stock options and warrants and upon the settlement of restricted stock units.
Segment Information
The Company operates in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of both its campus-based and online students regardless of geography. The Company's chief operating decision maker, its CEO and President, manages the Company's operations as a whole, and no revenue, expense or operating income information is evaluated by the chief operating decision maker on any component level.
Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income. For the year ended December 31, 2012, such items consisted of unrealized gains and losses on investments.
Recently Adopted Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-04, which amends Accounting Standards Codification Topic 820, Fair Value Measurement. The amended guidance changes the wording used to describe many requirements under GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The guidance provided in ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The Company adopted ASU 2011-04, effective January 1, 2012, and such adoption did not have a material effect on the Company's financial statements.
In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, which amends Accounting Standards Codification Topic 350, Testing Indefinite-Lived Intangible Assets for Impairment. The amended standard reduces the cost and complexity of testing indefinite-lived intangible assets, other than goodwill, for impairment by allowing companies to perform a qualitative assessment to determine whether further impairment testing is necessary, similar in approach to the goodwill impairment test. The guidance provided in ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company adopted ASU 2012-02, effective January 1, 2013, and we do not believe that such adoption will have a material effect on our consolidated financial statements.
In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which amends Accounting Standards Codification Topic 220, Comprehensive Income. Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of AOCI by component in a single note or on the face of the financial statements. The guidance provided in ASU 2013-02 is effective for interim and annual reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02, effective January 1, 2013, and we do not believe that such adoption will have a material effect on our consolidated financial statements.
Summary of Significant Accounting Policies (Tables)
Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
Buildings
39 years
Furniture, office equipment and software
3 - 7 years
Vehicles
5 years
Property and equipment, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Land
$
7,091

 
$
7,091

Buildings
25,430

 
18,947

Furniture, office equipment and software
85,709

 
74,793

Leasehold improvements
23,756

 
19,051

Vehicles
147

 
92

Total property and equipment
142,133

 
119,974

Less accumulated depreciation and amortization
(46,167
)
 
(30,307
)
Total property and equipment, net
$
95,966

 
$
89,667

The following table summarizes the components of other comprehensive gain (loss) and the related tax effects for the year ended December 31, 2012 and 2011. There were no items of comprehensive income for the year ended December 31, 2010.
 
December 31, 2012
(in thousands)
Before-Tax Amount
 
Tax Effect
 
Net-of-Tax Amount
Unrealized gains on investments
$
1,300

 
$
(483
)
 
$
817

 
 
 
 
 
 
 
December 31, 2011
(in thousands)
Before-Tax Amount
 
Tax Effect
 
Net-of-Tax Amount
Unrealized losses on investments
$
(946
)
 
$
351

 
$
(595
)
Reclassification (Tables)
Reclassification
The following table depicts the Company's operating expenses as previously reported as well as currently reclassified on its consolidated statements of income for each of the fiscal years ended December 31, 2011 and 2010 (in thousands):
 
December 31, 2011
 
December 31, 2010
 
As Reported
 
As Reclassified
 
As Reported
 
As Reclassified
Instructional costs and services
$
259,138

 
$
303,860

 
$
187,399

 
$
218,597

Admissions advisory and marketing
267,354

 
297,619

 
211,550

 
231,959

General and administrative
133,110

 
58,123

 
97,863

 
46,256

Total costs
$
659,602

 
$
659,602

 
$
496,812

 
$
496,812

Investments (Tables)
The following table summarizes the fair value information of short and long-term investments as of December 31, 2012 and 2011, respectively (in thousands):
 
December 31, 2012
 
Level 1
 
Level 2
 
Level 3
 
Total
Demand notes
$

 
$
415

 
$

 
$
415

Corporate notes and bonds

 
148,801

 

 
148,801

Total
$

 
$
149,216

 
$

 
$
149,216

 
December 31, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
Demand notes
$

 
$
28,700

 
$

 
$
28,700

Corporate notes and bonds

 
165,097

 

 
165,097

Total
$

 
$
193,797

 
$

 
$
193,797

The following table summarizes the differences between amortized cost and fair value of short and long-term investments as of December 31, 2012 and 2011, respectively (in thousands):
 
December 31, 2012
 
 
 
 
 
Gross unrealized
 
 
 
Maturities in Years
 
Amortized Cost
 
Gain
 
Loss
 
Fair Value
Short-term
 
 
 
 
 
 
 
 
 
Demand notes
1 year or less
 
$
415

 
$

 
$

 
$
415

Corporate notes and bonds
1 year or less
 
126,806

 
282

 
(25
)
 
127,063

Long-term
 
 
 
 
 
 
 
 
 
Corporate notes and bonds
3 years or less
 
21,641

 
117

 
(20
)
 
21,738

Total
 
 
$
148,862

 
$
399

 
$
(45
)
 
$
149,216

 
December 31, 2011
 
 
 
 
 
Gross unrealized
 
 
 
Maturities in Years
 
Amortized Cost
 
Gain
 
Loss
 
Fair Value
Short-term
 
 
 
 
 
 
 
 
 
Demand notes
1 year or less
 
$
28,700

 
$

 
$

 
$
28,700

Corporate notes and bonds
1 year or less
 
125,868

 
12

 
(801
)
 
125,079

Long-term
 
 
 
 
 
 
 
 
 
Corporate notes and bonds
3 years or less
 
40,174

 
38

 
(194
)
 
40,018

Total
 
 
$
194,742

 
$
50

 
$
(995
)
 
$
193,797

Receivables (Tables)
Accounts receivable, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Accounts receivable
$
114,635

 
$
97,783

Less allowance for doubtful accounts
46,708

 
35,627

Accounts receivable, net
$
67,927

 
$
62,156

Student loans receivable, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Student loans receivable
$
17,450

 
$
11,593

Less allowance for doubtful accounts
2,307

 
2,338

Student loans receivable, net
$
15,143

 
$
9,255

The following table presents the changes in the allowance for doubtful accounts for both accounts receivable and student loans receivable for the periods indicated (in thousands):
 
Beginning
Balance
 
Charged to
Expense
 
Deductions(1)
 
Ending
Balance
Allowance for doubtful accounts receivable:
 
 
 
 
 
 
 
For the year ended December 31, 2012
$
35,627

 
$
73,581

 
$
(62,500
)
 
$
46,708

For the year ended December 31, 2011
28,090

 
57,077

 
(49,540
)
 
35,627

For the year ended December 31, 2010
16,171

 
38,918

 
(26,999
)
 
28,090

 
 
 
 
 
 
 
 
Allowance for doubtful student loans receivable:
 
 
 
 
 
 
 
For the year ended December 31, 2012
$
2,338

 
$
115

 
$
(146
)
 
$
2,307

For the year ended December 31, 2011
904

 
1,434

 

 
2,338

For the year ended December 31, 2010
191

 
713

 

 
904

(1)
Deductions represent accounts written off, net of recoveries.
Prepaid Expense and Other Current Assets (Tables)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Prepaid expenses
$
9,367

 
$
5,588

Prepaid licenses
5,864

 
4,583

Prepaid income taxes

 
2,874

Prepaid insurance
1,134

 
1,206

Interest receivable
2,221

 
1,876

Other current assets
1,224

 
1,072

Total prepaid expenses and other current assets
$
19,810

 
$
17,199

Property and Equipment, Net (Tables)
Property and Equipment
Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
Buildings
39 years
Furniture, office equipment and software
3 - 7 years
Vehicles
5 years
Property and equipment, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Land
$
7,091

 
$
7,091

Buildings
25,430

 
18,947

Furniture, office equipment and software
85,709

 
74,793

Leasehold improvements
23,756

 
19,051

Vehicles
147

 
92

Total property and equipment
142,133

 
119,974

Less accumulated depreciation and amortization
(46,167
)
 
(30,307
)
Total property and equipment, net
$
95,966

 
$
89,667

Goodwill and Intangibles, Net (Tables)
Goodwill and Intangibles, Net
Goodwill and intangibles, net, consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Goodwill and indefinite-lived intangibles
$
3,424

 
$
3,404

 
 
 
 
Definite-lived intangible assets
$
9,978

 
$
4,735

Less accumulated amortization
(2,663
)
 
(1,102
)
Definite-lived intangible assets, net
7,315

 
3,633

 
 
 
 
Total goodwill and intangibles, net
$
10,739

 
$
7,037

Accrued Liabilities (Tables)
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Accrued salaries and wages
$
11,585

 
$
13,107

Accrued bonus
1,603

 
3,067

Accrued vacation
8,993

 
7,492

Accrued expenses
15,924

 
16,539

Accrued income taxes payable
6,535

 

Total accrued liabilities
$
44,640

 
$
40,205

Deferred Revenue and Student Deposits (Tables)
Deferred Revenue and Student Deposits
Deferred revenue and student deposits consist of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Deferred revenue
$
44,967

 
$
48,831

Student deposits
130,090

 
136,615

Total deferred revenue and student deposits
$
175,057

 
$
185,446

Lease Obligations (Tables)
Future Minimum Rental Payments Under Non-Cancelable Operating Leases
The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2012 (in thousands):
Year Ended December 31,
 
 
2013
$
35,495

2014
36,962

2015
37,226

2016
38,205

2017
38,295

Thereafter
79,391

Total minimum payments
$
265,574

Earnings Per Share (Tables)
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):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Numerator:
 
 
 
 
 
Net income
$
123,421

 
$
172,764

 
$
127,580

Denominator:
 
 
 
 
 
Weighted average number of common shares outstanding
52,947

 
52,291

 
53,724

Effect of dilutive options and restricted stock units
2,762

 
4,572

 
5,581

Effect of dilutive warrants
237

 
270

 
326

Diluted weighted average number of common shares outstanding
55,946

 
57,133

 
59,631

Earnings per common share:
 
 
 
 
 
Basic earnings per common share
$
2.33

 
$
3.30

 
$
2.37

Diluted earnings per common share
2.21

 
3.02

 
2.14

For the periods indicated, the computation of dilutive common shares outstanding excludes certain stock options to purchase shares of common stock for the periods indicated because their effect was anti-dilutive.
 
Year Ended December 31,
(in thousands)
2012
 
2011
 
2010
Options
2,524

 
1,332

 
548

Stock-Based Compensation (Tables)
The following table presents a summary of the stock option activity in 2012, 2011 and 2010 (in thousands, except for exercise prices and contractual terms):
 
Options
Outstanding
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic Value
December 31, 2009
10,573

 
$
3.06

 
6.84
 
$
126,590

Granted
1,051

 
19.25

 
 
 
 
Exercised
(1,181
)
 
0.88

 
 
 
 
Forfeitures and expired
(248
)
 
12.20

 
 
 
 
December 31, 2010
10,195

 
4.76

 
5.47
 
147,545

Granted
1,294

 
17.41

 
 
 
 
Exercised
(3,070
)
 
1.59

 
 
 
 
Forfeitures and expired
(139
)
 
17.65

 
 
 
 
December 31, 2011
8,280

 
7.70

 
5.90
 
127,308

Granted
1,595

 
22.59

 
 
 
 
Exercised
(3,128
)
 
0.72

 
 
 
 
Forfeitures and expired
(335
)
 
19.79

 
 
 
 
December 31, 2012
6,412

 
$
14.17

 
7.21
 
$
9,010

Vested and expected to vest at December 31, 2012
6,283

 
$
14.04

 
7.18
 
$
9,002

Exercisable at December 31, 2012
3,709

 
$
10.12

 
6.22
 
$
8,897

Below is a summary of the assumptions used for the options granted in the years indicated:
 
2012
 
2011
 
2010
Weighted average exercise price per share
$
22.59

 
$
17.41

 
$
19.25

Risk-free interest rate
1.2
%
 
2.5
%
 
2.3
%
Expected dividend yield

 

 

Expected volatility
54.6
%
 
52.7
%
 
45.7
%
Expected life (in years)
5.67

 
6.12

 
6.16

Forfeiture rate
4.0
%
 
4.0
%
 
3.0
%
Weighted average grant date fair value per share
$
11.26

 
$
9.07

 
$
8.84

A summary of the Company’s RSU activity and related information is as follows:
 
Restricted Stock Units
 
Weighted Average
Grant Date
Fair Value
Balance at December 31, 2010

 
$

Awarded
56,855

 
23.97

Vested

 

Canceled

 

Balance at December 31, 2011
56,855

 
23.97

Awarded
362,199

 
9.72

Vested
(56,855
)
 
23.97

Canceled

 

Balance at December 31, 2012
362,199

 
$
9.72

Warrants (Tables)
Schedule of Warrants Outstanding
The following table summarizes information with respect to all warrants outstanding as of December 31, 2012 and 2011 (in thousands, except exercise prices):
Exercise Price
 
December 31,
2012
 
December 31,
2011
 
Expiration
Date
$1.125
41

 
43

 
2013
$2.250
55

 
55

 
2013
$2.835

 
172

 
2013
$2.925
19

 
19

 
2013
$9.000
3

 
3

 
2013
Total
118

 
292

 
 
Income Taxes (Tables)
The components of income tax expense are as follows (in thousands):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Current:
 
 
 
 
 
Federal
$
77,720

 
$
88,513

 
$
76,649

State
7,665

 
8,632

 
18,916

 
85,385

 
97,145

 
95,565

Deferred:
 
 
 
 
 
Federal
(9,246
)
 
6,997

 
(5,485
)
State
(726
)
 
(391
)
 
119

 
(9,972
)
 
6,606

 
(5,366
)
Total
$
75,413

 
$
103,751

 
$
90,199

Deferred taxes are reflected in the balance sheet as follows (in thousands):
 
As of December 31,
 
2012
 
2011
Current deferred tax assets
$
10,936

 
$
5,429

Current deferred tax liabilities

 

Noncurrent deferred tax assets
13,266

 
11,200

Noncurrent deferred tax liabilities

 

Total
$
24,202

 
$
16,629

Deferred tax assets and liabilities are comprised of the following (in thousands):
 
As of December 31,
 
2012
 
2011
Deferred tax assets:
 
 
 
Net operating loss
$
258

 
$
694

Fixed assets
233

 
221

Bad debt
7,479

 
1,853

Vacation accrual
2,815

 
2,057

Stock-based compensation
13,299

 
17,175

Deferred rent
9,404

 
6,151

State tax
2,541

 
2,678

Bonus accrual
599

 
492

Unearned interest
731

 

Unrealized loss on investments

 
351

Other
386

 
234

Total deferred tax assets
37,745

 
31,906

Valuation allowance

 

Net deferred tax assets
37,745

 
31,906

Deferred tax liabilities:
 
 
 
Fixed assets and intangibles
(13,411
)
 
(15,277
)
Unrealized gain on investments
(132
)
 

Total deferred tax liabilities
(13,543
)
 
(15,277
)
Total net deferred tax assets
$
24,202

 
$
16,629

A reconciliation of the income tax expense computed using the U.S. federal statutory tax rate of 35% and the Company's provision for income taxes follows (in thousands):
 
Year Ended December 31,
 
2012
 
2011
 
2010
Computed expected federal tax expense
$
69,592

35.0
%
 
$
96,780

35.0
 %
 
$
76,223

35.0
%
State taxes, net of federal benefit
4,700

2.4

 
5,434

2.0

 
10,238

4.7

Permanent differences
1,074

0.5

 
1,601

0.6

 
335

0.1

Uncertain tax positions
31


 
(192
)
(0.1
)
 
3,401

1.6

Other
16


 
128


 
2


Income tax expense
$
75,413

37.9
%
 
$
103,751

37.5
 %
 
$
90,199

41.4
%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits at December 31, 2010
$
8,057

Gross increases-tax positions in prior period

Gross decreases-tax positions in prior period
82

Gross increases-current period tax positions
95

Settlements

Lapse of statute of limitations

Unrecognized tax benefits at December 31, 2011
8,070

Gross increases-tax positions in prior period
965

Gross decreases-tax positions in prior period

Gross increases-current period tax positions
231

Settlements

Lapse of statute of limitations

Unrecognized tax benefits at December 31, 2012
$
9,266

Quarterly Results of Operations (Unaudited) (Tables)
3 Months Ended 12 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Quarterly Financial Information Disclosure [Abstract]
 
 
Schedule of Quarterly Financial Information
 
Reclassification
 
Revision of Previously Issued Financial Statements
 
The following tables set forth unaudited results of operations and certain operating data for each quarter during 2012 and 2011. The Company believes that the information reflects all adjustments necessary to present fairly the information below. Basic and diluted earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per common share information may not equal annual basic and diluted earnings per common share.
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
(In thousands, except per share data)
2012
 
 
 
 
 
 
 
Revenue
$
250,437

 
$
256,302

 
$
252,076

 
$
209,356

Operating income
50,629

 
68,782

 
47,109

 
28,944

Net income
31,971

 
43,258

 
29,820

 
18,372

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.61

 
$
0.82

 
$
0.56

 
$
0.34

Diluted
0.57

 
0.77

 
0.53

 
0.33

 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
(In thousands, except per share data)
2011
 
 
 
 
 
 
 
Revenue
$
229,432

 
$
239,880

 
$
242,771

 
$
221,266

Operating income
86,112

 
82,549

 
69,773

 
35,313

Net income
53,919

 
52,149

 
43,811

 
22,885

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
1.02

 
$
0.99

 
$
0.85

 
$
0.44

Diluted
0.92

 
0.90

 
0.78

 
0.41

The following table depicts the Company's operating expenses as previously reported, as well as currently reclassified and revised, on its condensed consolidated statements of income for each of the three months periods noted below (in thousands):
 
March 31, 2012
 
June 30,
2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (as reported)
$
68,475

 
$
65,395

 
$
75,699

 
$
105,875

   Impact of reclassification
14,025

 
13,130

 
12,674

 

Instructional costs and services (as reclassified)
82,500

 
78,525

 
88,373

 
105,875

   Impact of bad debt revision
1,724

 
6,754

 
2,613

 
(3,841
)
Instructional costs and services (as reclassified and revised)
84,224

 
85,279

 
90,986

 
102,034

 
 
 
 
 
 
 
 
Admissions advisory and marketing (as reported)
80,063

 
78,608

 
90,291

 
65,239

   Impact of reclassification
9,979

 
8,586

 
6,443

 

Admissions advisory and marketing (as reclassified)
90,042

 
87,194

 
96,734

 
65,239

 
 
 
 
 
 
 
 
General and administrative (as reported)
49,546

 
36,763

 
36,364

 
13,139

   Impact of reclassification
(24,004
)
 
(21,716
)
 
(19,117
)
 

General and administrative (as reclassified)
25,542

 
15,047

 
17,247

 
13,139

 
 
 
 
 
 
 
 
     Total costs and expenses (as reclassified and revised)
$
199,808

 
$
187,520

 
$
204,967

 
$
180,412

Revision of Previously Issued Financial Statements
The Company identified an out of period adjustment for bad debt expense related to the aging of the Company's accounts receivable, which should have been recognized during the year ended December 31, 2012. The Company evaluated the cumulative impact of this on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, “Materiality.” The Company also evaluated the impact of correcting this through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” to revise its previously issued financial statements to reflect the impact of this correction. Through this revision, the Company has increased and corrected bad debt expense by a total of $7.2 million (pre-tax) in the fiscal year ended December 31, 2012. Prior periods will be revised as filed in connection with the filing of the Company's Form 10-Q's in 2013.
The table below presents the impact of this revision on the Company's consolidated balance sheet data as of December 31, 2012, the consolidated statement of income data and consolidated cash flow data for the year ended December 31, 2012. There was no impact to the total cash flows from operating activities due to the revision. The following table is presented in thousands, except per share data:

As Reported
 
As Revised
 
As of December 31, 2012
Consolidated balance sheet data:
 
 
 
Accounts receivable, net
$
75,177

 
$
67,927

Deferred income taxes
$
8,228

 
$
10,936

Total current assets
$
496,147

 
$
491,605

Total assets
$
755,329

 
$
750,787

Retained earnings
$
479,140

 
$
474,598

Total stockholders’ equity
$
496,112

 
$
491,570

Total liabilities and stockholders’ equity
$
755,329

 
$
750,787

 
 
 
Year ended December 31, 2012
Consolidated statement of income data:
 
 
 
Instructional costs and services
$
355,273

 
$
362,523

Total costs and expenses
$
765,457

 
$
772,707

Operating income
$
202,714

 
$
195,464

Income before income taxes
$
206,084

 
$
198,834

Income tax expense
$
78,121

 
$
75,413

Net income
$
127,963

 
$
123,421

Earnings per share:
 
 
 
   Basic
$
2.42

 
$
2.33

   Diluted
$
2.29

 
$
2.21

Consolidated statement of cash flow data:
 
 
 
Net income
$
127,963

 
$
123,421

Provision for bad debts
$
66,446

 
$
73,696

Deferred income taxes
$
(7,264
)
 
$
(9,972
)
The table below represents the impact of the revision on the Company's consolidated balance sheet data as of December 31, 2012, the consolidated statement of income data and consolidated cash flow data for the year ended December 31, 2012, as well as the impact on the quarterly periods during the year ended December 31, 2012. There was no impact to the total cash flows from operating activities in any of the periods presented due to the revision. The following table is presented in thousands, except per share data:

As Reported
 
As Revised
 
As Reported
 
As Revised
 
As Reported
 
As Revised
 
As Reported
 
As Revised
Consolidated balance sheet data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Accounts receivable, net
$
92,853

 
$
91,129

 
$
99,617

 
$
91,139

 
$
111,010

 
$
99,919

 
$
75,177

 
$
67,927

Deferred income taxes
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
8,228

 
$
10,936

Total current assets
$
442,893

 
$
441,169

 
$
468,242

 
$
459,764

 
$
463,606

 
$
452,515

 
$
496,147

 
$
491,605

Total assets
$
684,171

 
$
682,447

 
$
731,597

 
$
723,119

 
$
747,190

 
$
736,099

 
$
755,329

 
$
750,787

Accrued liabilities
$
67,409

 
$
66,755

 
$
57,858

 
$
54,650

 
$
56,609

 
$
52,313

 
N/A

 
N/A

Total current liabilities
$
261,229

 
$
260,575

 
$
251,220

 
$
248,012

 
$
236,121

 
$
231,925

 
N/A

 
N/A

Total liabilities
$
289,950

 
$
289,296

 
$
282,541

 
$
279,333

 
$
269,761

 
$
265,565

 
N/A

 
N/A

Retained earnings
$
384,218

 
$
383,148

 
$
431,676

 
$
426,406

 
$
463,121

 
$
456,226

 
$
479,140

 
$
474,598

Total stockholders’ equity
$
394,221

 
$
393,151

 
$
449,056

 
$
443,786

 
$
477,429

 
$
470,534

 
$
496,112

 
$
491,570

Total liabilities and stockholders’ equity
$
684,171

 
$
682,447

 
$
731,597

 
$
723,119

 
$
747,190

 
$
736,099

 
$
755,329

 
$
750,787

 
Three Months Ended
Consolidated statement of income data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (1)
$
82,500

 
$
84,224

 
$
78,525

 
$
85,279

 
$
88,373

 
$
90,986

 
$
105,875

 
$
102,034

Total costs and expenses
$
198,084

 
$
199,808

 
$
180,766

 
$
187,520

 
$
202,354

 
$
204,967

 
$
184,253

 
$
180,412

Operating income
$
52,353

 
$
50,629

 
$
75,536

 
$
68,782

 
$
49,722

 
$
47,109

 
$
25,103

 
$
28,944

Income before income taxes
$
53,036

 
$
51,312

 
$
76,390

 
$
69,636

 
$
50,677

 
$
48,064

 
$
25,980

 
$
29,822

Income tax expense
$
19,995

 
$
19,341

 
$
28,932

 
$
26,378

 
$
19,232

 
$
18,244

 
$
9,962

 
$
11,450

Net income
$
33,041

 
$
31,971

 
$
47,458

 
$
43,258

 
$
31,445

 
$
29,820

 
$
16,019

 
$
18,372

Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
$
0.64

 
$
0.61

 
$
0.90

 
$
0.82

 
$
0.59

 
$
0.56

 
$
0.30

 
$
0.34

   Diluted
$
0.59

 
$
0.57

 
$
0.84

 
$
0.77

 
$
0.56

 
$
0.53

 
$
0.29

 
$
0.33

 
Year to Date Period Ended
Consolidated statement of income data:
March 31, 2012
 
June 30, 2012
 
September 30, 2012
 
December 31, 2012
Instructional costs and services (1)
$
82,500

 
$
84,224

 
$
161,025

 
$
169,503

 
$
249,398

 
$
260,489

 
$
355,273

 
$
362,523

Total costs and expenses
$
198,084

 
$
199,808

 
$
378,850

 
$
387,328

 
$
581,204

 
$
592,295

 
$
765,457

 
$
772,707

Operating income
$
52,353

 
$
50,629

 
$
127,889

 
$
119,411

 
$
177,611

 
$
166,520

 
$
202,714

 
$
195,464

Income before income taxes
$
53,036

 
$
51,312

 
$
129,426

 
$
120,948

 
$
180,103

 
$
169,012

 
$
206,084

 
$
198,834

Income tax expense
$
19,995

 
$
19,341

 
$
48,927

 
$
45,719

 
$
68,159

 
$
63,963

 
$
78,121

 
$
75,413

Net income
$
33,041

 
$
31,971

 
$
80,499

 
$
75,229

 
$
111,944

 
$
105,049

 
$
127,963

 
$
123,421

Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
$
0.64

 
$
0.61

 
$
1.54

 
$
1.44

 
$
2.13

 
$
2.00

 
$
2.42

 
$
2.33

   Diluted
$
0.59

 
$
0.57

 
$
1.43

 
$
1.34

 
$
2.00

 
$
1.87

 
$
2.29

 
$
2.21

Consolidated statement of cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
33,041

 
$
31,971

 
$
80,499

 
$
75,229

 
$
111,944

 
$
105,049

 
$
127,963

 
$
123,421

Provision for bad debts
$
14,945

 
$
16,669

 
$
24,923

 
$
33,401

 
$
41,327

 
$
52,418

 
$
66,446

 
$
73,696

Deferred income taxes
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
N/A

 
$
(7,264
)
 
$
(9,972
)
Accounts payable and accrued liabilities
$
27,505

 
$
26,851

 
$
21,700

 
$
18,492

 
$
23,559

 
$
19,363

 
N/A

 
N/A

Summary of Significant Accounting Policies (Narrative) (Details) (USD $)
12 Months Ended
Dec. 31, 2012
segment
Dec. 31, 2011
Dec. 31, 2010
Accounting Policies [Abstract]
 
 
 
Restricted cash
$ 0 
$ 25,000 
 
Advertising costs
$ 103,700,000 
$ 84,000,000 
$ 63,000,000 
Number of reportable segments
 
 
Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Accounting Changes) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Accounts receivable, net
$ 67,927 
$ 99,919 
$ 91,139 
$ 91,129 
 
 
 
 
$ 91,139 
$ 99,919 
$ 67,927 
 
 
 
Current deferred tax assets
10,936 
 
 
 
5,429 
 
 
 
 
 
10,936 
5,429 
 
 
Total current assets
491,605 
452,515 
459,764 
441,169 
372,509 
 
 
 
459,764 
452,515 
491,605 
372,509 
 
 
Total assets
750,787 
736,099 
723,119 
682,447 
613,636 
 
 
 
723,119 
736,099 
750,787 
613,636 
 
 
Accrued liabilities
44,640 
52,313 
54,650 
66,755 
40,205 
 
 
 
54,650 
52,313 
44,640 
40,205 
 
 
Total current liabilities
224,285 
231,925 
248,012 
260,575 
234,612 
 
 
 
248,012 
231,925 
224,285 
234,612 
 
 
Total liabilities
259,217 
265,565 
279,333 
289,296 
259,988 
 
 
 
279,333 
265,565 
259,217 
259,988 
 
 
Retained earnings
474,598 
456,226 
426,406 
383,148 
351,177 
 
 
 
426,406 
456,226 
474,598 
351,177 
 
 
Total stockholders’ equity
491,570 
470,534 
443,786 
393,151 
353,648 
 
 
 
443,786 
470,534 
491,570 
353,648 
238,241 
134,609 
Total liabilities and stockholders’ equity
750,787 
736,099 
723,119 
682,447 
613,636 
 
 
 
723,119 
736,099 
750,787 
613,636 
 
 
Instructional costs and services
102,034 
90,986 
85,279 
84,224 
 
 
 
 
169,503 
260,489 
362,523 
303,860 
218,597 
 
Total costs and expenses
180,412 
204,967 
187,520 
199,808 
 
 
 
 
387,328 
592,295 
772,707 
659,602 
496,812 
 
Operating income
28,944 
47,109 
68,782 
50,629 
35,313 
69,773 
82,549 
86,112 
119,411 
166,520 
195,464 
273,747 
216,421 
 
Income tax expense
11,450 
18,244 
26,378 
19,341 
 
 
 
 
45,719 
63,963 
75,413 
103,751 
90,199 
 
Basic
$ 0.34 
$ 0.56 
$ 0.82 
$ 0.61 
$ 0.44 
$ 0.85 
$ 0.99 
$ 1.02 
$ 1.44 
$ 2.00 
$ 2.33 
$ 3.30 
$ 2.37 
 
Income before income taxes
29,822 
48,064 
69,636 
51,312 
 
 
 
 
120,948 
169,012 
198,834 
 
 
 
Diluted
$ 0.33 
$ 0.53 
$ 0.77 
$ 0.57 
$ 0.41 
$ 0.78 
$ 0.90 
$ 0.92 
$ 1.34 
$ 1.87 
$ 2.21 
$ 3.02 
$ 2.14 
 
Net income
18,372 
29,820 
43,258 
31,971 
22,885 
43,811 
52,149 
53,919 
75,229 
105,049 
123,421 
172,764 
127,580 
 
Provision for bad debts
73,696 
 
 
16,669 
 
 
 
 
33,401 
52,418 
73,696 
58,511 
39,631 
 
Deferred income taxes
 
 
 
 
 
 
 
 
 
 
(9,972)
6,606 
(5,366)
 
Accounts payable and accrued liabilities
 
 
 
26,851 
 
 
 
 
18,492 
19,363 
12,100 
27,509 
18,530 
 
As Reported
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
75,177 
111,010 
99,617 
92,853 
 
 
 
 
99,617 
111,010 
75,177 
 
 
 
Current deferred tax assets
8,228 
 
 
 
 
 
 
 
 
 
8,228 
 
 
 
Total current assets
496,147 
463,606 
468,242 
442,893 
 
 
 
 
468,242 
463,606 
496,147 
 
 
 
Total assets
755,329 
747,190 
731,597 
684,171 
 
 
 
 
731,597 
747,190 
755,329 
 
 
 
Accrued liabilities
 
56,609 
57,858 
67,409 
 
 
 
 
57,858 
56,609 
 
 
 
 
Total current liabilities
 
236,121 
251,220 
261,229 
 
 
 
 
251,220 
236,121 
 
 
 
 
Total liabilities
 
269,761 
282,541 
289,950 
 
 
 
 
282,541 
269,761 
 
 
 
 
Retained earnings
479,140 
463,121 
431,676 
384,218 
 
 
 
 
431,676 
463,121 
479,140 
 
 
 
Total stockholders’ equity
496,112 
477,429 
449,056 
394,221 
 
 
 
 
449,056 
477,429 
496,112 
 
 
 
Total liabilities and stockholders’ equity
755,329 
747,190 
731,597 
684,171 
 
 
 
 
731,597 
747,190 
755,329 
 
 
 
Instructional costs and services
105,875 
88,373 
78,525 
82,500 
 
 
 
 
 
 
355,273 
259,138 
187,399 
 
Total costs and expenses
184,253 
202,354 
180,766 
198,084 
 
 
 
 
378,850 
581,204 
765,457 
659,602 
496,812 
 
Operating income
25,103 
49,722 
75,536 
52,353 
 
 
 
 
127,889 
177,611 
202,714 
 
 
 
Income tax expense
9,962 
19,232 
28,932 
19,995 
 
 
 
 
48,927 
68,159 
78,121 
 
 
 
Basic
$ 0.30 
$ 0.59 
$ 0.90 
$ 0.64 
 
 
 
 
$ 1.54 
$ 2.13 
$ 2.42 
 
 
 
Income before income taxes
25,980 
50,677 
76,390 
53,036 
 
 
 
 
129,426 
180,103 
206,084 
 
 
 
Diluted
$ 0.29 
$ 0.56 
$ 0.84 
$ 0.59 
 
 
 
 
$ 1.43 
$ 2.00 
$ 2.29 
 
 
 
Net income
16,019 
31,445 
47,458 
33,041 
 
 
 
 
80,499 
111,944 
127,963 
 
 
 
Provision for bad debts
66,446 
 
 
14,945 
 
 
 
 
24,923 
41,327 
 
 
 
 
Deferred income taxes
 
 
 
 
 
 
 
 
 
 
(7,264)
 
 
 
Accounts payable and accrued liabilities
 
 
 
27,505 
 
 
 
 
21,700 
23,559 
 
 
 
 
Restatement Adjustment |
As Reported
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Instructional costs and services
 
88,373 
78,525 
82,500 
 
 
 
 
161,025 
249,398 
 
 
 
 
Adjustment to Reflect Changes to Aging of Accounts Receivable |
Restatement Adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for bad debts
$ (3,841)
$ 2,613 
$ 6,754 
$ 1,724 
 
 
 
 
 
 
$ 7,200 
 
 
 
Summary of Significant Accounting Policies (Receivables) (Details) (USD $)
3 Months Ended 12 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
 
 
Student loans receivable, repayment term following graduation or withdrawal
 
10 years 
Student loans receivable, grace period following graduation or withdrawal
 
6 months 
Repayment Plan One
 
 
Accounts, Notes, Loans and Financing Receivable [Line Items]
 
 
Student loans receivable, interest rate
 
4.50% 
Repayment Plan Two
 
 
Accounts, Notes, Loans and Financing Receivable [Line Items]
 
 
Student loans receivable, interest rate
 
0.00% 
Student loans receivable, monthly payment during school and grace period
$ 50 
 
Summary of Significant Accounting Policies (Property and Equipment) (Details)
12 Months Ended
Dec. 31, 2012
Buildings
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, estimated useful lives
39 years 
Furniture, Office Equipment and Software |
Minimum
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, estimated useful lives
3 years 
Furniture, Office Equipment and Software |
Maximum
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, estimated useful lives
7 years 
Vehicles
 
Property, Plant and Equipment [Line Items]
 
Property and equipment, estimated useful lives
5 years 
Summary of Significant Accounting Policies (Revenue and Deferred Revenue) (Details)
12 Months Ended
Dec. 31, 2012
disbursement
Deferred Revenue Arrangement [Line Items]
 
Conditional admission period
P3W 
Number of disbursement periods for financial aid
Online
 
Deferred Revenue Arrangement [Line Items]
 
Length of educational course, short
P5W 
Length of educational course, long
P6W 
Campus-based
 
Deferred Revenue Arrangement [Line Items]
 
Length of educational course, short
P9W 
Length of educational course, long
P16W 
Maximum
 
Deferred Revenue Arrangement [Line Items]
 
Number of courses covered by each disbursement
Summary of Significant Accounting Policies (Comprehensive Loss) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Accounting Policies [Abstract]
 
 
Unrealized losses on investments, before-tax amount
$ 1,300 
$ (946)
Unrealized losses on investments, tax benefit
(483)
351 
Unrealized losses on investments, net-of-tax amount
$ 817 
$ (595)
Reclassification (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
 
 
 
 
 
 
 
 
 
Instructional costs and services
$ 102,034 
$ 90,986 
$ 85,279 
$ 84,224 
$ 169,503 
$ 260,489 
$ 362,523 
$ 303,860 
$ 218,597 
Admissions advisory and marketing
65,239 
96,734 
87,194 
90,042 
 
 
339,209 
297,619 
231,959 
General and administrative
13,139 
17,247 
15,047 
25,542 
 
 
70,975 
58,123 
46,256 
Total costs and expenses
180,412 
204,967 
187,520 
199,808 
387,328 
592,295 
772,707 
659,602 
496,812 
As Reported
 
 
 
 
 
 
 
 
 
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
 
 
 
 
 
 
 
 
 
Instructional costs and services
105,875 
88,373 
78,525 
82,500 
 
 
355,273 
259,138 
187,399 
Admissions advisory and marketing
 
 
 
 
 
 
 
267,354 
211,550 
General and administrative
 
 
 
 
 
 
 
133,110 
97,863 
Total costs and expenses
$ 184,253 
$ 202,354 
$ 180,766 
$ 198,084 
$ 378,850 
$ 581,204 
$ 765,457 
$ 659,602 
$ 496,812 
Investments (Fair Value Information) (Details) (USD $)
Dec. 31, 2012
Dec. 31, 2011
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
$ 149,216,000 
$ 193,797,000 
Other investments and securities, at cost
109,500,000 
79,500,000 
Investments
258,700,000 
273,300,000 
Level 1
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
Level 2
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
149,216,000 
193,797,000 
Level 3
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
Demand Notes
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
415,000 
28,700,000 
Demand Notes |
Level 1
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
Demand Notes |
Level 2
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
415,000 
28,700,000 
Demand Notes |
Level 3
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
Corporate Notes and Bonds
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
148,801,000 
165,097,000 
Corporate Notes and Bonds |
Level 1
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
Corporate Notes and Bonds |
Level 2
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
148,801,000 
165,097,000 
Corporate Notes and Bonds |
Level 3
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Available-for-sale securities
$ 0 
$ 0 
Investments (Differences Between Amortized Cost and Fair Value of Investments) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized cost
$ 148,862 
$ 194,742 
Gross unrealized gain
399 
50 
Gross unrealized loss
(45)
(995)
Fair value
149,216 
193,797 
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year
24 
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year
Demand Notes
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized cost
415 
28,700 
Gross unrealized gain
Gross unrealized loss
Fair value
415 
28,700 
Corporate Notes and Bonds, Short-term
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized cost
126,806 
125,868 
Gross unrealized gain
282 
12 
Gross unrealized loss
(25)
(801)
Fair value
127,063 
125,079 
Corporate Notes and Bonds, Long-term
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Amortized cost
21,641 
40,174 
Gross unrealized gain
117 
38 
Gross unrealized loss
(20)
(194)
Fair value
$ 21,738 
$ 40,018 
Corporate Notes and Bonds, Long-term |
Maximum
 
 
Schedule of Available-for-sale Securities [Line Items]
 
 
Maturities in years
3 years 
3 years 
Receivables (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Accounts Receivable, Net
 
 
Accounts receivable
$ 114,635 
$ 97,783 
Less allowance for doubtful accounts
46,708 
35,627 
Accounts receivable
67,927 
62,156 
Student Loans Receivable, Net
 
 
Student loans receivable
17,450 
11,593 
Less allowance for doubtful accounts
2,307 
2,338 
Student loans receivable, net
$ 15,143 
$ 9,255 
Receivables (Valuation Accounts) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Allowance for Doubtful Accounts Receivable
 
 
 
Movement in Valuation Allowances and Reserves [Roll Forward]
 
 
 
Beginning Balance
$ 35,627 
$ 28,090 
$ 16,171 
Charged to Expense
73,581 
57,077 
38,918 
Deductions
(62,500)1
(49,540)1
(26,999)1
Ending Balance
46,708 
35,627 
28,090 
Allowance for Doubtful Student Loans Receivable
 
 
 
Movement in Valuation Allowances and Reserves [Roll Forward]
 
 
 
Beginning Balance
2,338 
904 
191 
Charged to Expense
115 
1,434 
713 
Deductions
(146)1
1
1
Ending Balance
$ 2,307 
$ 2,338 
$ 904 
Prepaid Expense and Other Current Assets (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
 
 
Prepaid expenses
$ 9,367 
$ 5,588 
Prepaid licenses
5,864 
4,583 
Prepaid income taxes
2,874 
Prepaid insurance
1,134 
1,206 
Interest receivable
2,221 
1,876 
Other current assets
1,224 
1,072 
Total prepaid expenses and other current assets
$ 19,810 
$ 17,199 
Property and Equipment, Net (Details) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, gross
$ 142,133,000 
$ 119,974,000 
 
Less accumulated depreciation and amortization
(46,167,000)
(30,307,000)
 
Total property and equipment, net
95,966,000 
89,667,000 
 
Depreciation and amortization associated with property and equipment, including assets under capital lease
15,900,000 
12,100,000 
8,300,000 
Land
 
 
 
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, gross
7,091,000 
7,091,000 
 
Buildings
 
 
 
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, gross
25,430,000 
18,947,000 
 
Furniture, Office Equipment and Software
 
 
 
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, gross
85,709,000 
74,793,000 
 
Leasehold Improvements
 
 
 
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, gross
23,756,000 
19,051,000 
 
Vehicles
 
 
 
Property, Plant and Equipment [Line Items]
 
 
 
Property and equipment, gross
$ 147,000 
$ 92,000 
 
Goodwill and Intangibles, Net (Details) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Goodwill and Intangible Assets Disclosure [Abstract]
 
 
 
Goodwill and indefinite-lived intangibles
$ 3,424,000 
$ 3,404,000 
 
Definite-lived intangible assets
9,978,000 
4,735,000 
 
Less accumulated amortization
(2,663,000)
(1,102,000)
 
Definite-lived intangible assets, net
7,315,000 
3,633,000 
 
Total goodwill and intangibles, net
10,739,000 
7,037,000 
 
Amortization expense
1,600,000 
600,000 
300,000 
Total amortization expense over the next three years
$ 5,300,000 
 
 
Accrued Liabilities (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Accrued Liabilities [Abstract]
 
 
 
 
 
Accrued salaries and wages
$ 11,585 
 
 
 
$ 13,107 
Accrued bonus
1,603 
 
 
 
3,067 
Accrued vacation
8,993 
 
 
 
7,492 
Accrued expenses
15,924 
 
 
 
16,539 
Accrued income taxes payable
6,535 
 
 
 
Total accrued liabilities
$ 44,640 
$ 52,313 
$ 54,650 
$ 66,755 
$ 40,205 
Deferred Revenue and Student Deposits (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Deferred Revenue [Abstract]
 
 
Deferred revenue
$ 44,967 
$ 48,831 
Student deposits
130,090 
136,615 
Total deferred revenue and student deposits
$ 175,057 
$ 185,446 
Credit Facilities (Details) (USD $)
0 Months Ended 12 Months Ended 0 Months Ended
Dec. 31, 2012
Dec. 31, 2012
January 2010 Credit Facility
Sep. 30, 2012
January 2010 Credit Facility
Apr. 13, 2012
April 2012 Credit Facility
Dec. 31, 2012
April 2012 Credit Facility
Apr. 13, 2012
Base Rate
April 2012 Credit Facility
Apr. 13, 2012
Eurodollar-based Rate
April 2012 Credit Facility
Apr. 13, 2012
Federal Funds Rate
Base Rate
April 2012 Credit Facility
Apr. 13, 2012
Daily Adjusting LIBOR
Base Rate
April 2012 Credit Facility
Line of Credit Facility [Line Items]
 
 
 
 
 
 
 
 
 
Revolving line of credit, maximum borrowing capacity
 
 
$ 50,000,000 
$ 100,000,000 
 
 
 
 
 
Revolving line of credit, current borrowing capacity
 
 
 
50,000,000 
 
 
 
 
 
Revolving line of credit, maximum swing-line advances
 
 
 
3,000,000 
 
 
 
 
 
Revolving line of credit, term
 
 
 
three years 
 
 
 
 
 
Revolving line of credit, notice required for termination
 
 
 
 
5 days 
 
 
 
 
Revolving line of credit, fixed portion of interest rate
 
 
 
 
 
0.50% 
1.50% 
 
 
Revolving line of credit, variable portion of interest rate, addition to reference rate
 
 
 
 
 
 
 
1.00% 
1.00% 
Commitment fee, percentage on undrawn amount of letter of credit
 
 
 
1.50% 
 
 
 
 
 
Revolving line of credit, facility fee, percentage
 
 
 
0.25% 
 
 
 
 
 
Revolving line of credit, amount outstanding
 
 
 
 
 
 
 
 
Revolving line of credit, amount outstanding
 
5,100,000 
 
 
 
 
 
 
 
Surety Bond Facility [Abstract]
 
 
 
 
 
 
 
 
 
Surety bond facility, available amount
12,000,000 
 
 
 
 
 
 
 
 
Surety bond facility, issued amount
$ 8,600,000 
 
 
 
 
 
 
 
 
Lease Obligations (Details) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Leases [Abstract]
 
 
 
Rent expense under non-cancelable operting lease arrangements
$ 36,800,000 
$ 31,700,000 
$ 27,200,000 
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
 
 
 
2013
35,495,000 
 
 
2014
36,962,000 
 
 
2015
37,226,000 
 
 
2016
38,205,000 
 
 
2017
38,295,000 
 
 
Thereafter
79,391,000 
 
 
Total minimum payments
$ 265,574,000 
 
 
Earnings Per Share (Basic and Diluted) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Numerator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$ 18,372 
$ 29,820 
$ 43,258 
$ 31,971 
$ 22,885 
$ 43,811 
$ 52,149 
$ 53,919 
$ 75,229 
$ 105,049 
$ 123,421 
$ 172,764 
$ 127,580 
Denominator:
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding (in shares)
 
 
 
 
 
 
 
 
 
 
52,947 
52,291 
53,724 
Effect of dilutive options and restricted stock units (in shares)
 
 
 
 
 
 
 
 
 
 
2,762 
4,572 
5,581 
Effect of dilutive warrants (in shares)
 
 
 
 
 
 
 
 
 
 
237 
270 
326 
Diluted weighted average number of common shares outstanding (in shares)
 
 
 
 
 
 
 
 
 
 
55,946 
57,133 
59,631 
Earnings per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share (in USD per share)
$ 0.34 
$ 0.56 
$ 0.82 
$ 0.61 
$ 0.44 
$ 0.85 
$ 0.99 
$ 1.02 
$ 1.44 
$ 2.00 
$ 2.33 
$ 3.30 
$ 2.37 
Diluted earnings per share (in USD per share)
$ 0.33 
$ 0.53 
$ 0.77 
$ 0.57 
$ 0.41 
$ 0.78 
$ 0.90 
$ 0.92 
$ 1.34 
$ 1.87 
$ 2.21 
$ 3.02 
$ 2.14 
Earnings Per Share (Anti-Dilutive Securities) (Details) (Stock Options)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Stock Options
 
 
 
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
 
 
 
Options
2,524 
1,332 
548 
Stock-Based Compensation (Narrative) (Details) (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Number of common shares reserved for issuance upon exercise of stock options and settlement of RSUs
8,600,000 
 
 
Exercise of stock options, shares
3,128,000 
3,070,000 
1,181,000 
Intrinsic value of exercised options
$ 45.2 
$ 58.4 
$ 18.2 
Tax benefit realized from exercise of stock options
10.1 
19.1 
7.1 
Tax benefit shortfall related to share-based compensation activity
1.9 
 
 
Option expirations in period
53,000 
6,000 
 
Stock-based compensation expense
13.7 
10.6 
7.9 
Income tax benefit of stock-based compensation expense
5.1 
3.9 
3.1 
Shares of common stock represented by each RSU
 
 
Stock Options
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Award expiration period
10 years 
 
 
Award vesting period
4 years 
 
 
Unrecognized compensation cost
12.9 
10.6 
9.6 
Unrecognized compensation cost, period for recognition
1 year 2 months 12 days 
 
 
Restricted Stock Units (RSUs)
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Unrecognized compensation cost
$ 2.6 
$ 0.7 
 
Unrecognized compensation cost, period for recognition
1 year 2 months 12 days 
 
 
Number vested and released in period
56,855 
 
Stock-Based Compensation (Stock Option Activity) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
 
 
 
 
Balance, beginning of period
8,280 
10,195 
10,573 
 
Granted
1,595 
1,294 
1,051 
 
Exercised
(3,128)
(3,070)
(1,181)
 
Forfeitures and expired
(335)
(139)
(248)
 
Balance, end of period
6,412 
8,280 
10,195 
10,573 
Vested and expected to vest at December 31, 2012
6,283 
 
 
 
Exercisable at December 31, 2012
3,709 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Roll Forward]
 
 
 
 
Balance, beginning of period, weighted-average exercise price (in USD per share)
$ 7.70 
$ 4.76 
$ 3.06 
 
Granted, weighted-average exercise price (in USD per share)
$ 22.59 
$ 17.41 
$ 19.25 
 
Exercised, weighted-average exercise price (in USD per share)
$ 0.72 
$ 1.59 
$ 0.88 
 
Forfeitures, weighted-average exercise price (in USD per share)
$ 19.79 
$ 17.65 
$ 12.20 
 
Balance, end of period, weighted-average exercise price (in USD per share)
$ 14.17 
$ 7.70 
$ 4.76 
$ 3.06 
Vested and expected to vest at December 31, 2012
$ 14.04 
 
 
 
Exercisable at December 31, 2012
$ 10.12 
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
 
 
 
 
Balance, weighted-average remaining contractual term
7 years 2 months 16 days 
5 years 10 months 24 days 
5 years 5 months 19 days 
6 years 10 months 2 days 
Vested and expected to vest at December 31, 2012, weighted-average remaining contractual term
7 years 2 months 5 days 
 
 
 
Exercisable at December 31, 2012, weighted-average remaining contractual term
6 years 2 months 19 days 
 
 
 
Balance, aggregate intrinsic value
$ 9,010 
$ 127,308 
$ 147,545 
$ 126,590 
Vested and expected to vest at December 31, 2012, aggregate intrinsic value
9,002 
 
 
 
Exercisable at December 31, 2012, aggregate intrinsic value
$ 8,897 
 
 
 
Stock-Based Compensation (Option Valuation Assumptions) (Details)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Weighted average exercise price per share (in USD per share)
$ 22.59 
$ 17.41 
$ 19.25 
Weighted average grant date fair value per share (in USD per share)
$ 11.26 
$ 9.07 
$ 8.84 
Stock Options
 
 
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
 
 
Risk-free interest rate
1.20% 
2.50% 
2.30% 
Expected dividend yield
0.00% 
0.00% 
0.00% 
Expected volatility
54.60% 
52.70% 
45.70% 
Expected life (in years)
5 years 8 months 1 day 
6 years 1 month 13 days 
6 years 1 month 28 days 
Forfeiture rate
4.00% 
4.00% 
3.00% 
Stock-Based Compensation (Restricted Stock Unit Activity) (Details) (Restricted Stock Units (RSUs), USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Restricted Stock Units (RSUs)
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
 
 
Balance, beginning of period
56,855 
Awarded
362,199 
56,855 
Vested and released
(56,855)
Canceled
Balance, end of period
362,199 
56,855 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
 
 
Balance, beginning of period, weighted average grant date fair value (in USD per share)
$ 23.97 
$ 0.00 
Awarded, weighted average grant date fair value (in USD per share)
$ 9.72 
$ 23.97 
Vested and released, weighted average grant date fair value (in USD per share)
$ 23.97 
$ 0.00 
Canceled, weighted average grant date fair value (in USD per share)
$ 0.00 
$ 0.00 
Balance, end of period, weighted average grant date fair value (in USD per share)
$ 9.72 
$ 23.97 
Warrants (Details)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Class of Warrant or Right [Line Items]
 
 
 
Warrant purchase rights
 
 
Warrants exercised during period
174,000 
43,000 
277,000 
Warrants outstanding
118,000 
292,000 
 
$1.125 Exercise Price
 
 
 
Class of Warrant or Right [Line Items]
 
 
 
Warrants outstanding
41,000 
43,000 
 
Exercise price of warrants
1.125 
 
 
$2.250 Exercise Price
 
 
 
Class of Warrant or Right [Line Items]
 
 
 
Warrants outstanding
55,000 
55,000 
 
Exercise price of warrants
2.250 
 
 
$2.835 Exercise Price
 
 
 
Class of Warrant or Right [Line Items]
 
 
 
Warrants outstanding
172,000 
 
Exercise price of warrants
2.835 
 
 
$2.925 Exercise Price
 
 
 
Class of Warrant or Right [Line Items]
 
 
 
Warrants outstanding
19,000 
19,000 
 
Exercise price of warrants
2.925 
 
 
$9.000 Exercise Price
 
 
 
Class of Warrant or Right [Line Items]
 
 
 
Warrants outstanding
3,000 
3,000 
 
Exercise price of warrants
9.000 
 
 
Stock Repurchase Program (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
12 Months Ended 18 Months Ended 1 Months Ended 0 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2011
Jul. 31, 2010
2010 Repurchase Program
May 31, 2011
2011 Repurchase Program
Apr. 30, 2012
2012 Repurchase Program
Equity, Class of Treasury Stock [Line Items]
 
 
 
 
 
 
 
Stock repurchase program, authorized amount
 
 
 
 
$ 60,000,000 
$ 75,000,000 
$ 75,000,000 
Stock repurchase program, period in force
 
 
 
 
12 months 
12 months 
12 months 
Shares repurchased
0.1 
 
 
7.3 
 
 
 
Shares repurchased, weighted average cost per share
 
 
 
$ 18.62 
 
 
 
Shares repurchased, total cost
602,000 
92,778,000 
42,193,000 
135,000,000 
 
 
 
Repurchase of common stock
$ 602,000 
$ 92,778,000 
$ 42,193,000 
 
 
 
 
Income Taxes (Narrative) (Details) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Tax Disclosure [Abstract]
 
 
 
Change in net deferred tax assets
$ 7,600,000 
 
 
Change in net deferred tax expense
10,000,000 
 
 
Tax benefit shortfall recorded to additional paid in capital
1,900,000 
 
 
Tax effect of unrealized gain on investments
500,000 
 
 
Effective income tax rate
37.90% 
37.50% 
41.40% 
Gross unrecognized tax benefits
9,266,000 
8,070,000 
8,057,000 
Gross unrecognized tax benefits that would impact effective tax rate if recognized
6,600,000 
5,800,000 
 
Unrecognized tax benefits that would result in adjustments to other tax accounts
2,700,000 
2,300,000 
 
Accrued interest and penalties related to uncertain tax positions
$ 1,700,000 
$ 1,400,000 
 
Income Taxes (Components of Income Tax Expense) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Current:
 
 
 
 
 
 
 
 
 
Federal
 
 
 
 
 
 
$ 77,720 
$ 88,513 
$ 76,649 
State
 
 
 
 
 
 
7,665 
8,632 
18,916 
Current income tax expense (benefit)
 
 
 
 
 
 
85,385 
97,145 
95,565 
Deferred:
 
 
 
 
 
 
 
 
 
Federal
 
 
 
 
 
 
(9,246)
6,997 
(5,485)
State
 
 
 
 
 
 
(726)
(391)
119 
Deferred income tax expense (benefit)
 
 
 
 
 
 
(9,972)
6,606 
(5,366)
Total
$ 11,450 
$ 18,244 
$ 26,378 
$ 19,341 
$ 45,719 
$ 63,963 
$ 75,413 
$ 103,751 
$ 90,199 
Income Taxes (Deferred Tax Assets and Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Deferred tax assets:
 
 
Net operating loss
$ 258 
$ 694 
Fixed assets
233 
221 
Bad debt
7,479 
1,853 
Vacation accrual
2,815 
2,057 
Stock-based compensation
13,299 
17,175 
Deferred rent
9,404 
6,151 
State tax
2,541 
2,678 
Bonus accrual
599 
492 
Unearned interest
731 
Unrealized loss on investments
351 
Other
386 
234 
Total deferred tax assets
37,745 
31,906 
Valuation allowance
Net deferred tax assets
37,745 
31,906 
Deferred tax liabilities:
 
 
Fixed assets and intangibles
(13,411)
(15,277)
Unrealized gain on investments
(132)
Total deferred tax liabilities
(13,543)
(15,277)
Total net deferred tax assets
$ 24,202 
$ 16,629 
Income Taxes (Balance Sheet Location of Deferred Tax Assets and Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Income Tax Disclosure [Abstract]
 
 
Current deferred tax assets
$ 10,936 
$ 5,429 
Current deferred tax liabilities
Noncurrent deferred tax assets
13,266 
11,200 
Noncurrent deferred tax liabilities
Total net deferred tax assets
$ 24,202 
$ 16,629 
Income Taxes (Operating Loss Carryforwards) (Details) (Internal Revenue Service (IRS) [Member], USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Internal Revenue Service (IRS) [Member]
 
Operating Loss Carryforwards [Line Items]
 
Net operating loss carryforwards
$ 0.7 
Income Taxes (Income Tax Reconciliation) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Income Tax Reconciliation, Amount:
 
 
 
 
 
 
 
 
 
Computed expected federal tax expense
 
 
 
 
 
 
$ 69,592 
$ 96,780 
$ 76,223 
State taxes, net of federal benefit
 
 
 
 
 
 
4,700 
5,434 
10,238 
Permanent differences
 
 
 
 
 
 
1,074 
1,601 
335 
Uncertain tax positions
 
 
 
 
 
 
31 
(192)
3,401 
Other
 
 
 
 
 
 
16 
128 
Total
$ 11,450 
$ 18,244 
$ 26,378 
$ 19,341 
$ 45,719 
$ 63,963 
$ 75,413 
$ 103,751 
$ 90,199 
Income Tax Reconciliation, Percent:
 
 
 
 
 
 
 
 
 
Computed expected federal tax expense
 
 
 
 
 
 
35.00% 
35.00% 
35.00% 
State taxes, net of federal benefit
 
 
 
 
 
 
2.40% 
2.00% 
4.70% 
Permanent differences
 
 
 
 
 
 
0.50% 
0.60% 
0.10% 
Uncertain tax positions
 
 
 
 
 
 
0.00% 
(0.10%)
1.60% 
Other
 
 
 
 
 
 
0.00% 
0.00% 
0.00% 
Income tax expense
 
 
 
 
 
 
37.90% 
37.50% 
41.40% 
Income Taxes (Unrecognized Tax Benefits) (Details) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
 
 
Unrecognized tax benefits, beginning of period
$ 8,070 
$ 8,057 
Gross increases-tax positions in prior period
965 
Gross decreases-tax positions in prior period
82 
Gross increases-current period tax positions
231 
95 
Settlements
Lapse of statute of limitations
Unrecognized tax benefits, end of period
$ 9,266 
$ 8,070 
Regulatory (Details)
12 Months Ended
Dec. 31, 2012
condition
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Dec. 31, 2008
Higher Learning Commission Information:
 
 
 
 
 
Number of states in north central region governed by Higher Learning Commission
19 
 
 
 
 
Number of indicator conditions monitored by Higher Learning Commission
 
 
 
 
Indicator condition, maximum increase in number of degrees awarded compared to prior year, percentage
40.00% 
 
 
 
 
Indicator condition, maximum increase in number of full-time faculty compared to prior year, percentage
25.00% 
 
 
 
 
Indicator condition, minimum ratio of full-time faculty to number of degree programs
 
 
 
 
The 90-10 Rule:
 
 
 
 
 
Title IV eligibility, maximum allowable percentage of revenue from Title IV programs over two consecutive years
90.00% 
 
 
 
 
Title IV eligibility, minimum term of ineligibility once noncompliant
2 years 
 
 
 
 
Title IV eligibility, maximum allowable percentage of revenue from Title IV programs in any single year
90.00% 
 
 
 
 
Cohort Default Rate:
 
 
 
 
 
Maximum allowable cohort default rate over 3-year period
25.00% 
 
 
 
 
Maximum allowable cohort default rate in any single year
40.00% 
 
 
 
 
Return of Title IV Funds:
 
 
 
 
 
Deadline for return of unearned funds after student withdrawal
45 days 
 
 
 
 
Unearned Title IV funds, trigger for letter of credit requirement, noncompliance of return of funds, maximum allowable percentage in either of last two annual audits
5.00% 
 
 
 
 
Unearned Title IV funds, noncompliance of return of funds, required letter of credit as percentage of required returns
25.00% 
 
 
 
 
Unearned Title IV funds, actual percentage of noncompliance with return of funds requirement (less than 5%)
5.00% 
5.00% 
 
 
 
Ashford University
 
 
 
 
 
Higher Learning Commission Information:
 
 
 
 
 
Number of indicator conditions met
 
 
 
 
The 90-10 Rule:
 
 
 
 
 
Actual percentage of revenue from Title IV programs
86.40% 
86.80% 
85.00% 
 
 
Cohort Default Rate:
 
 
 
 
 
Actual cohort default rate
 
 
10.20% 
15.30% 
13.30% 
Return of Title IV Funds:
 
 
 
 
 
Composite score
 
3.0 
 
 
 
Estimated composite score
3.0 
 
 
 
 
University of the Rockies
 
 
 
 
 
Higher Learning Commission Information:
 
 
 
 
 
Number of indicator conditions met
 
 
 
 
The 90-10 Rule:
 
 
 
 
 
Actual percentage of revenue from Title IV programs
87.30% 
85.00% 
85.90% 
 
 
Cohort Default Rate:
 
 
 
 
 
Actual cohort default rate
 
 
4.00% 
3.30% 
2.50% 
Return of Title IV Funds:
 
 
 
 
 
Composite score
 
3.0 
 
 
 
Estimated composite score
3.0 
 
 
 
 
Retirement Plans (Details) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Compensation and Retirement Disclosure [Abstract]
 
 
 
Expense related to 401(k) plan
$ 3.3 
$ 2.2 
$ 1.2 
Commitments and Contingencies (Details) (USD $)
In Millions, unless otherwise specified
Dec. 31, 2012
Commitments and Contingencies Disclosure [Abstract]
 
Loss contingency, estimate of possible loss
$ 10.8 
Concentration of Risk (Details) (USD $)
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Concentration Risk [Line Items]
 
 
 
Cash and cash equivalents, FDIC insurance limit
$ 250,000 
 
 
Ashford University
 
 
 
Concentration Risk [Line Items]
 
 
 
Actual percentage of revenue from Title IV programs
86.40% 
86.80% 
85.00% 
University of the Rockies
 
 
 
Concentration Risk [Line Items]
 
 
 
Actual percentage of revenue from Title IV programs
87.30% 
85.00% 
85.90% 
Quarterly Results of Operations (Unaudited) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 30, 2011
Jun. 30, 2011
Mar. 31, 2011
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated balance sheet data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
$ 67,927 
$ 99,919 
$ 91,139 
$ 91,129 
 
 
 
 
$ 91,139 
$ 99,919 
$ 67,927 
 
 
 
Deferred income taxes
10,936 
 
 
 
5,429 
 
 
 
 
 
10,936 
5,429 
 
 
Total current assets
491,605 
452,515 
459,764 
441,169 
372,509 
 
 
 
459,764 
452,515 
491,605 
372,509 
 
 
Total assets
750,787 
736,099 
723,119 
682,447 
613,636 
 
 
 
723,119 
736,099 
750,787 
613,636 
 
 
Accrued liabilities
44,640 
52,313 
54,650 
66,755 
40,205 
 
 
 
54,650 
52,313 
44,640 
40,205 
 
 
Total current liabilities
224,285 
231,925 
248,012 
260,575 
234,612 
 
 
 
248,012 
231,925 
224,285 
234,612 
 
 
Total liabilities
259,217 
265,565 
279,333 
289,296 
259,988 
 
 
 
279,333 
265,565 
259,217 
259,988 
 
 
Retained earnings
474,598 
456,226 
426,406 
383,148 
351,177 
 
 
 
426,406 
456,226 
474,598 
351,177 
 
 
Total stockholders’ equity
491,570 
470,534 
443,786 
393,151 
353,648 
 
 
 
443,786 
470,534 
491,570 
353,648 
238,241 
134,609 
Total liabilities and stockholders’ equity
750,787 
736,099 
723,119 
682,447 
613,636 
 
 
 
723,119 
736,099 
750,787 
613,636 
 
 
Consolidated statement of income data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Instructional costs and services
102,034 
90,986 
85,279 
84,224 
 
 
 
 
169,503 
260,489 
362,523 
303,860 
218,597 
 
Total costs and expenses
180,412 
204,967 
187,520 
199,808 
 
 
 
 
387,328 
592,295 
772,707 
659,602 
496,812 
 
Operating income
28,944 
47,109 
68,782 
50,629 
35,313 
69,773 
82,549 
86,112 
119,411 
166,520 
195,464 
273,747 
216,421 
 
Income before income taxes
29,822 
48,064 
69,636 
51,312 
 
 
 
 
120,948 
169,012 
198,834 
 
 
 
Income tax expense
11,450 
18,244 
26,378 
19,341 
 
 
 
 
45,719 
63,963 
75,413 
103,751 
90,199 
 
Net income
18,372 
29,820 
43,258 
31,971 
22,885 
43,811 
52,149 
53,919 
75,229 
105,049 
123,421 
172,764 
127,580 
 
Revenue
209,356 
252,076 
256,302 
250,437 
221,266 
242,771 
239,880 
229,432 
 
 
968,171 
933,349 
713,233 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$ 0.34 
$ 0.56 
$ 0.82 
$ 0.61 
$ 0.44 
$ 0.85 
$ 0.99 
$ 1.02 
$ 1.44 
$ 2.00 
$ 2.33 
$ 3.30 
$ 2.37 
 
Diluted
$ 0.33 
$ 0.53 
$ 0.77 
$ 0.57 
$ 0.41 
$ 0.78 
$ 0.90 
$ 0.92 
$ 1.34 
$ 1.87 
$ 2.21 
$ 3.02 
$ 2.14 
 
Consolidated statement of cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
18,372 
29,820 
43,258 
31,971 
22,885 
43,811 
52,149 
53,919 
75,229 
105,049 
123,421 
172,764 
127,580 
 
Provision for bad debts
73,696 
 
 
16,669 
 
 
 
 
33,401 
52,418 
73,696 
58,511 
39,631 
 
Deferred income taxes
 
 
 
 
 
 
 
 
 
 
(9,972)
6,606 
(5,366)
 
Accounts payable and accrued liabilities
 
 
 
26,851 
 
 
 
 
18,492 
19,363 
12,100 
27,509 
18,530 
 
As Reported
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated balance sheet data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts receivable, net
75,177 
111,010 
99,617 
92,853 
 
 
 
 
99,617 
111,010 
75,177 
 
 
 
Deferred income taxes
8,228 
 
 
 
 
 
 
 
 
 
8,228 
 
 
 
Total current assets
496,147 
463,606 
468,242 
442,893 
 
 
 
 
468,242 
463,606 
496,147 
 
 
 
Total assets
755,329 
747,190 
731,597 
684,171 
 
 
 
 
731,597 
747,190 
755,329 
 
 
 
Accrued liabilities
 
56,609 
57,858 
67,409 
 
 
 
 
57,858 
56,609 
 
 
 
 
Total current liabilities
 
236,121 
251,220 
261,229 
 
 
 
 
251,220 
236,121 
 
 
 
 
Total liabilities
 
269,761 
282,541 
289,950 
 
 
 
 
282,541 
269,761 
 
 
 
 
Retained earnings
479,140 
463,121 
431,676 
384,218 
 
 
 
 
431,676 
463,121 
479,140 
 
 
 
Total stockholders’ equity
496,112 
477,429 
449,056 
394,221 
 
 
 
 
449,056 
477,429 
496,112 
 
 
 
Total liabilities and stockholders’ equity
755,329 
747,190 
731,597 
684,171 
 
 
 
 
731,597 
747,190 
755,329 
 
 
 
Consolidated statement of income data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Instructional costs and services
105,875 
88,373 
78,525 
82,500 
 
 
 
 
 
 
355,273 
259,138 
187,399 
 
Total costs and expenses
184,253 
202,354 
180,766 
198,084 
 
 
 
 
378,850 
581,204 
765,457 
659,602 
496,812 
 
Operating income
25,103 
49,722 
75,536 
52,353 
 
 
 
 
127,889 
177,611 
202,714 
 
 
 
Income before income taxes
25,980 
50,677 
76,390 
53,036 
 
 
 
 
129,426 
180,103 
206,084 
 
 
 
Income tax expense
9,962 
19,232 
28,932 
19,995 
 
 
 
 
48,927 
68,159 
78,121 
 
 
 
Net income
16,019 
31,445 
47,458 
33,041 
 
 
 
 
80,499 
111,944 
127,963 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$ 0.30 
$ 0.59 
$ 0.90 
$ 0.64 
 
 
 
 
$ 1.54 
$ 2.13 
$ 2.42 
 
 
 
Diluted
$ 0.29 
$ 0.56 
$ 0.84 
$ 0.59 
 
 
 
 
$ 1.43 
$ 2.00 
$ 2.29 
 
 
 
Consolidated statement of cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
16,019 
31,445 
47,458 
33,041 
 
 
 
 
80,499 
111,944 
127,963 
 
 
 
Provision for bad debts
66,446 
 
 
14,945 
 
 
 
 
24,923 
41,327 
 
 
 
 
Deferred income taxes
 
 
 
 
 
 
 
 
 
 
(7,264)
 
 
 
Accounts payable and accrued liabilities
 
 
 
27,505 
 
 
 
 
21,700 
23,559 
 
 
 
 
Adjustment to Reflect Changes to Aging of Accounts Receivable |
Restatement Adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated statement of cash flow data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for bad debts
(3,841)
2,613 
6,754 
1,724 
 
 
 
 
 
 
7,200 
 
 
 
Restatement Adjustment |
As Reported
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated statement of income data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Instructional costs and services
 
$ 88,373 
$ 78,525 
$ 82,500 
 
 
 
 
$ 161,025 
$ 249,398 
 
 
 
 
Quarterly Results of Operations (Unaudited) (Reclassification) (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended 9 Months Ended 12 Months Ended
Dec. 31, 2012
Sep. 30, 2012
Jun. 30, 2012
Mar. 31, 2012
Jun. 30, 2012
Sep. 30, 2012
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Quantifying Misstatement in Current Year Financial Statements [Line Items]
 
 
 
 
 
 
 
 
 
Instructional costs and services
$ 102,034 
$ 90,986 
$ 85,279 
$ 84,224 
$ 169,503 
$ 260,489 
$ 362,523 
$ 303,860 
$ 218,597 
Provision for bad debts
73,696 
 
 
16,669 
33,401 
52,418 
73,696 
58,511 
39,631 
Admissions advisory and marketing
65,239 
96,734 
87,194 
90,042 
 
 
339,209 
297,619 
231,959 
General and administrative
13,139 
17,247 
15,047 
25,542 
 
 
70,975 
58,123 
46,256 
Total costs and expenses
180,412 
204,967 
187,520 
199,808 
387,328 
592,295 
772,707 
659,602 
496,812 
As Originally Reported
 
 
 
 
 
 
 
 
 
Quantifying Misstatement in Current Year Financial Statements [Line Items]
 
 
 
 
 
 
 
 
 
Instructional costs and services
105,875 
75,699 
65,395 
68,475 
 
 
 
 
 
Admissions advisory and marketing
65,239 
90,291 
78,608 
80,063 
 
 
 
 
 
General and administrative
13,139 
36,364 
36,763 
49,546 
 
 
 
 
 
Original Restatement Adjustment
 
 
 
 
 
 
 
 
 
Quantifying Misstatement in Current Year Financial Statements [Line Items]
 
 
 
 
 
 
 
 
 
Instructional costs and services
12,674 
13,130 
14,025 
 
 
 
 
 
Admissions advisory and marketing
6,443 
8,586 
9,979 
 
 
 
 
 
General and administrative
(19,117)
(21,716)
(24,004)
 
 
 
 
 
As Reported
 
 
 
 
 
 
 
 
 
Quantifying Misstatement in Current Year Financial Statements [Line Items]
 
 
 
 
 
 
 
 
 
Instructional costs and services
105,875 
88,373 
78,525 
82,500 
 
 
355,273 
259,138 
187,399 
Provision for bad debts
66,446 
 
 
14,945 
24,923 
41,327 
 
 
 
Admissions advisory and marketing
 
 
 
 
 
 
 
267,354 
211,550 
General and administrative
 
 
 
 
 
 
 
133,110 
97,863 
Total costs and expenses
184,253 
202,354 
180,766 
198,084 
378,850 
581,204 
765,457 
659,602 
496,812 
Adjustment to Reflect Changes to Aging of Accounts Receivable |
Restatement Adjustment
 
 
 
 
 
 
 
 
 
Quantifying Misstatement in Current Year Financial Statements [Line Items]
 
 
 
 
 
 
 
 
 
Provision for bad debts
$ (3,841)
$ 2,613 
$ 6,754 
$ 1,724 
 
 
$ 7,200