BRIDGEPOINT EDUCATION INC, 10-K filed on 3/7/2012
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Mar. 2, 2012
Jun. 30, 2011
Entity Information [Line Items]
 
 
 
Entity Registrant Name
BRIDGEPOINT EDUCATION INC 
 
 
Entity Central Index Key
0001305323 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
52,081,490 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 432,600,000 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 133,921 
$ 188,518 
Restricted cash
25 
25 
Investments
153,779 
90,611 
Accounts receivable, net
62,156 
58,415 
Deferred income taxes
5,429 
7,039 
Prepaid expenses and other current assets
17,199 
12,650 
Total current assets
372,509 
357,258 
Property and equipment, net
89,667 
66,542 
Investments
119,507 
20,000 
Student loans receivable, net
9,255 
2,743 
Goodwill and intangibles, net
7,037 
4,123 
Deferred income taxes
11,200 
15,845 
Other long-term assets
4,461 
4,714 
Total assets
613,636 
471,225 
Current liabilities:
 
 
Accounts payable
8,961 
5,076 
Accrued liabilities
40,205 
34,895 
Deferred revenue and student deposits
185,446 
173,576 
Total current liabilities
234,612 
213,547 
Rent liability
16,595 
10,910 
Other long-term liabilities
8,781 
8,527 
Total liabilities
259,988 
232,984 
Commitments and contingencies (see Note 20)
   
   
Preferred stock, $0.01 par value:
 
 
20,000 shares authorized; zero shares issued and outstanding at December 31, 2011, and December 31, 2010
0 
0 
Common stock, $0.01 par value:
 
 
300,000 shares authorized; 58,981 issued and 51,731 outstanding at December 31, 2011; 55,801 issued and 52,799 outstanding at December 31, 2010
590 
558 
Additional paid-in capital
137,447 
101,463 
Retained earnings
351,177 
178,413 
Accumulated other comprehensive loss
(595)
0 
Treasury stock, 7,250 and 3,002 shares at cost at December 31, 2011, and December 31, 2010, respectively
(134,971)
(42,193)
Total stockholders' equity
353,648 
238,241 
Total liabilities and stockholders' equity
$ 613,636 
$ 471,225 
Consolidated Balance Sheets Parenthetical (USD $)
In Thousands, except Per Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Stockholders' equity:
 
 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
20,000 
20,000 
Preferred stock, shares issued
0 
0 
Preferred stock, shares outstanding
0 
0 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
300,000 
300,000 
Common stock, shares issued
58,981 
55,801 
Common stock, shares outstanding
51,731 
52,799 
Treasury stock, shares at cost
7,250 
3,002 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Revenue
$ 933,349 
$ 713,233 
$ 454,324 
Costs and expenses:
 
 
 
Instructional costs and services
259,138 
187,399 
120,089 
Marketing and promotional
267,354 
211,550 
145,721 
General and administrative
133,110 
97,863 
106,784 
Total costs and expenses
659,602 
496,812 
372,594 
Operating income
273,747 
216,421 
81,730 
Other income, net
2,768 
1,358 
510 
Income before income taxes
276,515 
217,779 
82,240 
Income tax expense
103,751 
90,199 
35,135 
Net income
172,764 
127,580 
47,105 
Accretion of preferred dividends
0 
0 
(645)
Net income available to common stockholders
$ 172,764 
$ 127,580 
$ 46,460 
Earnings per common share:
 
 
 
Basic
$ 3.30 
$ 2.37 
$ 0.85 
Diluted
$ 3.02 
$ 2.14 
$ 0.74 
Weighted average number of common shares outstanding used in computing earnings per common share:
 
 
 
Basic
52,291 
53,724 
39,349 
Diluted
57,133 
59,631 
45,181 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Net income
$ 172,764 
$ 127,580 
$ 47,105 
Other comprehensive loss (net of tax):
 
 
 
Unrealized losses on investments
(595)
0 
0 
Comprehensive income
$ 172,169 
$ 127,580 
$ 47,105 
Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (USD $)
In Thousands, unless otherwise specified
Total
Preferred Stock
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Treasury Stock
Balance at Dec. 31, 2008
$ 6,109 
$ 27,062 
$ 33 
$ 1,703 
$ 4,373 
$ 0 
$ 0 
Shares outstanding at Dec. 31, 2008
 
19,778 
3,335 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock-based compensation
35,943 
 
 
35,943 
 
 
 
Accretion of preferred dividends
(645)
645 
 
 
(645)
 
 
Stockholder settlement, shares
 
 
710 
 
 
 
 
Stockholder settlement
10,577 
 
7 
10,570 
 
 
 
Preferred stock conversion, shares
 
(19,778)
44,805 
 
 
 
 
Preferred stock conversion
0 
(27,707)
448 
(448)
 
 
 
Exercise of stock options, shares
 
 
948 
 
 
 
 
Exercise of stock options
344 
 
10 
334 
 
 
 
Excess tax benefit of option exercises
5,454 
 
 
5,454 
 
 
 
Stock issued under employee stock purchase plan, shares
 
 
42 
 
 
 
 
Stock issued under employee stock purchase plan
616 
 
1 
615 
 
 
 
Exercise of warrants, shares
 
 
926 
 
 
 
 
Exercise of warrants
1,002 
 
9 
993 
 
 
 
Stock issued in initial public offering, net of issuance costs of $8,646, shares
 
 
3,500 
 
 
 
 
Stock issued in initial public offering, net of issuance costs of $8,646
28,104 
 
35 
28,069 
 
 
 
Net income
47,105 
 
 
 
47,105 
 
 
Unrealized losses on investments, net of tax
0 
 
 
 
 
 
 
Balance at Dec. 31, 2009
134,609 
0 
543 
83,233 
50,833 
0 
0 
Shares outstanding at Dec. 31, 2009
 
0 
54,266 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock-based compensation
7,939 
 
 
7,939 
 
 
 
Exercise of stock options, shares
 
 
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 
1,106 
 
 
 
Exercise of warrants, shares
 
 
277 
 
 
 
 
Exercise of warrants
1,193 
 
3 
1,190 
 
 
 
Repurchase of common stock
(42,193)
 
 
 
 
 
(42,193)
Net income
127,580 
 
 
 
127,580 
 
 
Unrealized losses on investments, net of tax
0 
 
 
 
 
 
 
Balance at Dec. 31, 2010
238,241 
0 
558 
101,463 
178,413 
0 
(42,193)
Shares outstanding at Dec. 31, 2010
 
0 
55,801 
 
 
 
 
Increase (Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
 
 
Stock-based compensation
10,595 
 
 
10,595 
 
 
 
Exercise of stock options, shares
 
 
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 
1,329 
 
 
 
Exercise of warrants, shares
 
 
43 
 
 
 
 
Exercise of warrants
106 
 
0 
106 
 
 
 
Repurchase of common stock
(92,778)
 
 
 
 
 
(92,778)
Net income
172,764 
 
 
 
172,764 
 
 
Unrealized losses on investments, net of tax
(595)
 
 
 
 
(595)
 
Balance at Dec. 31, 2011
$ 353,648 
$ 0 
$ 590 
$ 137,447 
$ 351,177 
$ (595)
$ (134,971)
Shares outstanding at Dec. 31, 2011
 
0 
58,981 
 
 
 
 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities
 
 
 
Net income
$ 172,764 
$ 127,580 
$ 47,105 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for bad debts
58,511 
39,631 
23,205 
Depreciation and amortization
12,743 
8,565 
5,890 
Amortization of premium/discount
3,969 
663 
(66)
Deferred income taxes
6,606 
(5,366)
(12,418)
Stock-based compensation
10,595 
7,939 
35,943 
Excess tax benefit of option exercises
(19,096)
(6,966)
(5,454)
Stockholder settlement (non-cash portion)
0 
0 
10,577 
Loss on disposal of fixed assets
13 
73 
38 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(60,817)
(54,101)
(37,300)
Prepaid expenses and other current assets
(2,104)
(2,665)
(2,520)
Student loans receivable
(7,947)
(2,444)
(1,202)
Other long-term assets
253 
(1,964)
(1,373)
Accounts payable and accrued liabilities
27,509 
18,530 
10,906 
Deferred revenue and student deposits
11,870 
51,824 
54,327 
Other liabilities
5,882 
4,038 
2,917 
Uncertain tax position
57 
4,612 
1,152 
Net cash provided by operating activities
220,808 
189,949 
131,727 
Cash flows from investing activities
 
 
 
Capital expenditures
(34,492)
(26,568)
(24,249)
Purchases of investments
(337,084)
(111,690)
(44,922)
Restricted cash
0 
0 
641 
Business acquisition
0 
0 
(1,500)
Capitalized curriculum development costs
(3,521)
(1,214)
0 
Maturities of investments
167,049 
45,000 
0 
Net cash used in investing activities
(208,048)
(94,472)
(70,030)
Cash flows from financing activities
 
 
 
Proceeds from issuance of common stock, net of issuance costs of $8,646
0 
0 
28,104 
Proceeds from the exercise of stock options
4,889 
1,040 
344 
Excess tax benefit of option exercises
19,096 
6,966 
5,454 
Proceeds from the issuance of stock under employee stock purchase plan
1,330 
1,107 
616 
Proceeds from the exercise of warrants
106 
1,193 
1,002 
Payments on leases payable
0 
(634)
(197)
Payments on conversion of preferred stock
0 
0 
(27,707)
Repurchase of common stock
(92,778)
(42,193)
0 
Payments of notes payable
0 
0 
(234)
Net cash (used in) provided by financing activities
(67,357)
(32,521)
7,382 
Net (decrease) increase in cash and cash equivalents
(54,597)
62,956 
69,079 
Cash and cash equivalents at beginning of period
188,518 
125,562 
56,483 
Cash and cash equivalents at end of period
133,921 
188,518 
125,562 
Supplemental disclosure of non-cash transactions:
 
 
 
Cash paid for interest
56 
57 
201 
Cash paid for income taxes
76,731 
88,883 
38,457 
Supplemental disclosure of non-cash transactions:
 
 
 
Purchase of property and equipment through capital lease obligations
0 
0 
381 
Non-cash purchase of property and equipment
$ 2,489 
$ 1,707 
$ 749 
Consolidated Statements of Cash Flows Parenthetical (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Issuance costs incurred in initial public offering
$ 0 
$ 0 
$ 8,646 
Nature of Business
Nature of Business Disclosure [Text Block]
Nature of Business
Bridgepoint Education, Inc. (together with its subsidiaries, the "Company"), incorporated in 1999, is a provider of postsecondary education services. Its wholly-owned subsidiaries, Ashford University and the University of the Rockies, are regionally accredited academic institutions that offer associate's, bachelor's, master's and doctoral programs 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 Disclosure [Text Block]
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.
Reclassifications
Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.
Reverse Stock Split
On March 31, 2009, the Company's board of directors approved a 1-for-4.5 reverse stock split of the Company's common stock, par value $0.01 per share, which was effective as of that date. As a result of the reverse stock split, every 4.5 shares of the Company's common stock were combined into one share of common stock and any fractional shares created by the reverse stock split were rounded down to the nearest whole share. The Company did not reduce the number of shares it is authorized to issue or change the par value of the common stock. The reverse stock split affected all shares of the Company's common stock, as well as options and warrants to purchase shares of the Company's common stock, that were outstanding immediately prior to the effective date of the reverse stock split. Common stock, additional paid-in capital, retained earnings (accumulated deficit) and share and per share data for prior periods have been retroactively restated to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented.
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.
Cash and Cash Equivalents
The Company invests cash in excess of current operating requirements in money market accounts, demand notes, corporate notes and bonds and certificates of deposit. 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 both December 31, 2011 and 2010. The amount at December 31, 2011 and 2010, related to a certificate of deposit pledged to the state of Washington for state licensure requirements.
Investments
As of December 31, 2011, 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 highly liquid. 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, 2011 and 2010, there were no transfers in or out of any fair value level of measurement.
Receivables 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.
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, 2011, 2010 and 2009.
Accounts and student loans receivable are stated at the amount management expects to collect from outstanding balances. 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.
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. In 2011, the Company adopted accounting guidance which simplifies how an entity tests goodwill for impairment. It provides an option to first assess qualitative factors 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 2011 indicated that there were no negative qualitative indicators, such as deterioration in general economic conditions or negative company financial performance, and therefore, goodwill was not impaired. There have been no impairment losses recognized by the Company for any periods presented.
To evaluate the impairment of goodwill and indefinite-lived intangible assets, these assets are allocated to the carrying value of their respective reporting unit. 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. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are unpredictable and inherently uncertain, and can include such items as revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions and determination of appropriate market comparables.
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 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. The Company's 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, and the Company's campus-based students enroll in a program that encompasses a series of nine-week or 16-week courses. Online students are billed on a payment period basis on the first day of class. 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 term.
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.
Technology fees are one-time start up fees charged to each new online student, other than military, scholarship students and students affiliated with certain corporate reimbursement programs. Technology fee revenue is recognized ratably over the average expected enrollment of a student. 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, bad debt expense, financial aid processing costs, technology license costs and costs associated with other support groups that provide services directly to the students. Instructional costs and services also include an allocation of facility and depreciation costs.
Marketing and Promotional Costs
Marketing and promotional 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. Marketing and promotional costs also include an allocation of facility and depreciation costs.
Advertising costs, a subset of marketing and promotional 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 $84.0 million, $63.0 million and $40.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.
General and Administrative
General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, information technology, compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and an allocation of 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. The numerator of diluted earnings per share is calculated by starting with income allocated to common shares and adding back income attributable to shares of redeemable convertible preferred stock, if applicable, to the extent such shares are dilutive. Potential common shares consist of incremental shares of common stock issuable upon the exercise of the stock options and warrants, upon conversion of preferred stock 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, 2011, such items consisted of unrealized gains and losses on investments.
The following table summarizes the components of other comprehensive loss and the related tax effects for the year ended December 31, 2011. There were no items of comprehensive income for the years ended December 31, 2010 or 2009.
 
December 31, 2011
(in thousands)
Before-Tax Amount
 
Tax Benefit
 
Net-of-Tax Amount
Unrealized losses on investments
$
(946
)
 
$
351

 
$
(595
)
Recently Adopted Accounting Pronouncements
In October 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2009-13, which amends Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition. This update changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. ASU 2009-13 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company adopted ASU 2009-13 effective January 1, 2011, and such adoption did not have a material effect on the Company's financial statements.
In October 2009, the FASB issued ASU 2009-14, which amends ASC Topic 985, Software-Certain Revenue Arrangements That Include Software Elements. This update changes the accounting model for revenue arrangements that include both tangible products and software elements. ASU 2009-14 is effective for revenue arrangements entered into in fiscal years beginning on or after June 15, 2010. The Company adopted ASU 2009-14 effective January 1, 2011, and such adoption did not have a material effect on the Company's financial statements.
In December 2010, the FASB issued ASU 2010-28, which amends ASC Topic 350, Intangibles-Goodwill and Other. This update amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The amendments in the update are effective for fiscal years beginning on or after December 15, 2010. The Company adopted ASU 2010-28 effective January 1, 2011, and such adoption did not have a material effect on the Company's financial statements.
In December 2010, the FASB issued ASU 2010-29, which amends ASC Topic 805, Business Combinations, which clarifies that, when presenting comparative financial statements, SEC registrants should disclose revenue and earnings of the combined entity as though any current period business combinations had occurred as of the beginning of the comparable prior annual reporting period only. The update also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010, with early adoption permitted. The Company adopted ASU 2010-29 effective January 1, 2011, and such adoption did not have a material effect on the Company's financial statements.
In June 2011, the FASB, issued ASU 2011-05, which amends ASC Topic 220, Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The ASU does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This ASU is effective for interim and annual periods beginning after December 15, 2011. The Company adopted ASU 2011-05 effective December 31, 2011, and such adoption did not have a material effect on the Company's financial statements.
In September 2011, the FASB issued ASU 2011-08, which amends ASC Topic 350, Intangibles-Goodwill and Other, to allow entities to use a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If after performing the qualitative assessment an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step goodwill impairment test. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The Company adopted ASU 2011-08 effective September 30, 2011, and such adoption did not have a material effect on the Company’s financial statements.
In December 2011, the FASB issued ASU 2011-12, which amends ASC Topic 220, Comprehensive Income, to defer certain aspects of ASU 2011-05. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted this guidance, along with ASU 2011-05, on December 31, 2011, and such adoption did not have a material impact on the Company’s financial statements.
Investments
Investments Disclosure [Text Block]
Investments
The following table summarizes the fair value information of short and long-term investments as of December 31, 2011 and 2010, respectively (in thousands):
 
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

 
December 31, 2010
 
Level 1
 
Level 2
 
Level 3
 
Total
Demand notes
$
—

 
$
5,028

 
$
—

 
$
5,028

Corporate notes and bonds
—

 
35,352

 
—

 
35,352

Bond fund
10,000

 
—

 
—

 
10,000

Municipal bonds
—

 
40,231

 
—

 
40,231

Total
$
10,000

 
$
80,611

 
$
—

 
$
90,611

The above tables do not include those amounts related to investments classified as held-to-maturity, as such investments are carried at amortized cost. The balances of these investments were $79.5 million and $20.0 million as of December 31, 2011 and 2010, respectively.
The following table summarizes the differences between amortized cost and fair value of short and long-term investments as of December 31, 2011 and 2010, respectively (in thousands):
 
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

 
December 31, 2010
 
 
 
 
 
Gross unrealized
 
 
 
Maturities in Years
 
Amortized Cost
 
Gain
 
Loss
 
Fair Value
Short-term
 
 
 
 
 
 
 
 
 
Demand notes
1 year or less
 
$
5,028

 
$
—

 
$
—

 
$
5,028

Corporate notes and bonds
1 year or less
 
35,352

 
—

 
—

 
35,352

Municipal bonds
1 year or less
 
40,231

 
—

 
—

 
40,231

Bond fund
1 year or less
 
10,000

 
—

 
—

 
10,000

Total
 
 
$
90,611

 
$
—

 
$
—

 
$
90,611

As of December 31, 2011, 24 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 loss in the stockholders’ equity section of the Company's balance sheets. As of December 31, 2010, the amortized cost of the Company's investments approximated the fair value.
Receivables
Receivables Disclosure [Text Block]
Receivables
Accounts receivable, net, consist of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Accounts receivable
$
97,783

 
$
86,505

Less allowance for doubtful accounts
(35,627
)
 
(28,090
)
Accounts receivable, net
$
62,156

 
$
58,415

Student loans receivable, net, consist of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Student loans receivable
$
11,593

 
$
3,647

Less allowance for doubtful accounts
(2,338
)
 
(904
)
Student loans receivable, net
$
9,255

 
$
2,743

As of December 31, 2011 and 2010, there was an immaterial amount of current student loans receivable included within accounts receivable.
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, 2011
$
28,090

 
$
57,077

 
$
(49,540
)
 
$
35,627

For the year ended December 31, 2010
16,171

 
38,918

 
(26,999
)
 
28,090

For the year ended December 31, 2009
18,246

 
23,014

 
(25,089
)
 
16,171

 
 
 
 
 
 
 
 
Allowance for doubtful student loans receivable:
 
 
 
 
 
 
 
For the year ended December 31, 2011
$
904

 
$
1,434

 
$
—

 
$
2,338

For the year ended December 31, 2010
191

 
713

 
—

 
904

For the year ended December 31, 2009
—

 
191

 
—

 
191

(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, 2011, no loans have been impaired or placed on non-accrual status.
Prepaid Expenses and Other Current Assets
Prepaid Expenses and Other Current Assets Disclosure [Text Block]
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Prepaid expenses
$
5,588

 
$
4,730

Prepaid licenses
4,583

 
1,080

Prepaid income taxes
2,874

 
3,526

Prepaid insurance
1,206

 
999

Other current assets
2,948

 
2,315

Total prepaid expenses and other current assets
$
17,199

 
$
12,650

Property and Equipment, Net
Property and Equipment, Net Disclosure [Text Block]
Property and Equipment, Net
Property and equipment, net, consist of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Land
$
7,091

 
$
7,091

Buildings
18,947

 
13,886

Furniture, office equipment and software
74,793

 
47,600

Leasehold improvements
19,051

 
16,094

Vehicles
92

 
53

Total property and equipment
119,974

 
84,724

Less accumulated depreciation and amortization
(30,307
)
 
(18,182
)
Total property and equipment, net
$
89,667

 
$
66,542

Depreciation and amortization expense associated with property and equipment, including assets under capital lease, totaled $12.1 million, $8.3 million and $5.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Accrued Liabilities
Accrued Liabilities Disclosure [Text Block]
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Accrued salaries and wages
$
13,107

 
$
10,457

Accrued bonus
3,067

 
5,069

Accrued vacation
7,492

 
4,962

Accrued expenses
16,539

 
14,407

Total accrued liabilities
$
40,205

 
$
34,895

Deferred Revenue and Student Deposits
Deferred Revenue and Student Deposits Disclosure [Text Block]
Deferred Revenue and Student Deposits
Deferred revenue and student deposits consist of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Deferred revenue
$
48,831

 
$
41,681

Student deposits
136,615

 
131,895

Total deferred revenue and student deposits
$
185,446

 
$
173,576

Notes Payable and Long-Term Debt
Notes Payable and Long-Term Debt Disclosure [Text Block]
Notes Payable and Long-Term Debt
In January 2010, the Company entered into a $50 million revolving line of credit with Comerica Bank ("Comerica") pursuant to a Credit Agreement, Revolving Credit Note and Security Agreement (collectively, the "Loan Documents"). Under the Loan Documents, Comerica has agreed to make loans to the Company and issue letters of credit on the Company's behalf, subject to the terms and conditions of the Loan Documents. Amounts subject to letters of credit issued under the Loan Documents are treated as limitations on available borrowings under the line of credit. Interest is paid monthly under the line of credit, and principal is paid on the maturity date of the line of credit. The line of credit initially had a two-year term and matures on January 29, 2012. Interest accrues on amounts outstanding under the line of credit, at the Company's option, at either (1) Comerica's prime reference rate + 0.00% or (2) one month, two month or three month LIBOR + 2.25%. As security for the performance of the Company's obligations under the Loan Documents, the Company granted Comerica a first priority security interest in substantially all of the Company's assets, including its real property. On January 25, 2012, the Company entered into a Fifth Amendment to the Loan Documents with Comerica Bank pursuant to which the maturity date of the line of credit was extended to March 31, 2012.
The Loan Documents contain financial covenants requiring the Company's educational institutions to maintain Title IV eligibility (see Note 17, "Regulatory") as well as the Company's maintenance of specified adjusted quick ratios, minimum profitability, minimum cash balances and U.S. Department of Education ("Department") financial responsibility composite scores. The Loan Documents contain other customary affirmative and negative covenants (including cash controls, financial reporting covenants and prohibitions on acquisitions, dividends, stock redemptions and other cash expenditures over a specified amount without Comerica's reasonable consent), representations and warranties and events of default (including the occurrence of a "material adverse effect," as defined in the Loan Documents). The Company was in compliance with all financial covenants in the Loan Documents as of December 31, 2011 and 2010.
As of December 31, 2011, the Company used the availability under the line of credit to issue letters of credit aggregating $5.1 million. The Company had no borrowings outstanding under the line of credit as of December 31, 2011.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. As of December 31, 2011, the Company's total available surety bond facility was $12.0 million and the surety had issued bonds under the facility totaling $9.7 million on the Company's behalf.
Lease Obligations
Lease Obligations Disclosure [Text Block]
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 $31.7 million, $27.2 million and $20.6 million for the years ended December 31, 2011, 2010 and 2009, respectively.
The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2011 (in thousands):
Year Ending December 31,
 
 
2012
$
29,186

2013
35,444

2014
36,911

2015
37,256

2016
38,235

Thereafter
117,885

Total minimum payments
$
294,917

Earnings Per Share
Earnings Per Share Disclosure [Text Block]
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. In certain prior periods, the Company calculated basic earnings per common share using the two-class method. Under the two-class method, net income is allocated between common shares and other participating securities based on their participating rights.
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 may include options, restricted stock units, warrants and shares of redeemable convertible preferred stock. The numerator of diluted earnings per common share is calculated by starting with income allocated to common shares and adding back income attributable to shares of redeemable convertible preferred stock, if applicable, to the extent such an adjustment would be dilutive.
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,
 
2011
 
2010
 
2009
Numerator:
 
 
 
 
 
Net income
$
172,764

 
$
127,580

 
$
47,105

     Effect of accretion of preferred dividends
—

 
—

 
(645
)
     Net income available to common stockholders
$
172,764

 
$
127,580

 
$
46,460

Denominator:
 
 
 
 
 
Weighted average number of common shares outstanding
52,291

 
53,724

 
39,349

Effect of dilutive options and restricted stock units
4,572

 
5,581

 
5,119

Effect of dilutive warrants
270

 
326

 
713

Diluted weighted average number of common shares outstanding
57,133

 
59,631

 
45,181

Earnings per common share:
 
 
 
 
 
Basic earnings per common share
$
3.30

 
$
2.37

 
$
0.85

Diluted earnings per common share
3.02

 
2.14

 
0.74

The computation of dilutive common shares outstanding excludes the following securities:
(a)
Redeemable convertible preferred stock:
For 2009, the computation of dilutive common shares outstanding excludes 15.4 million common shares that were issuable upon the optional conversion of the redeemable convertible preferred stock (including any common shares that were issuable, at the election of the holder, in payment of the accreted value of the redeemable convertible preferred stock) because the effect of applying the if-converted method would be anti-dilutive.
(b)
Options:
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)
2011
 
2010
 
2009
Options
1,332

 
548

 
11

In 2009, the Company calculated basic earnings per common share using the two-class method to reflect the participation rights of each class and series of stock. Basic net income is computed for common stock outstanding during the period by dividing net income allocated to the participation rights of each class by the weighted average number of common shares outstanding during the period. After 2009, due to the conversion of preferred stock, the Company did not use the two-class method as there were no other participation rights outstanding other than common stock.
The following presents the net income allocated to each class of capital stock in the calculation of basic earnings per common share for the year ended December 31, 2009 (in thousands):
 
December 31, 2009
 
Weighted Avg
Shares
 
Income
Allocation
Common stock
39,349

 
$
33,408

Redeemable convertible preferred stock
15,373

 
13,052

Total
 
 
$
46,460

The numerator of diluted earnings per common share equals the numerator of basic earnings per common share plus an adjustment for income attributable to the participation rights of redeemable convertible preferred stock, to the extent such an adjustment would be dilutive.
For the applicable periods presented, the numerator for diluted earnings per share was not adjusted from the basic earnings per share calculation for the impact of redeemable convertible preferred stock because all potential common shares of redeemable convertible preferred stock were anti-dilutive.
The denominator of diluted earnings per common share includes the incremental potential common shares issuable upon the following events, to the extent the effect was dilutive:
(i)
Exercise of stock options and warrants;
(ii)
Through the closing of the Company's initial public offering, the optional conversion of all outstanding shares of redeemable convertible preferred stock, with each share of redeemable convertible preferred stock being converted into 2.265380093 shares of common stock; and
(iii)
Through the closing of the Company's initial public offering, the issuance of shares of common stock at fair value in payment of the accreted value of the redeemable convertible preferred stock to the holders of redeemable convertible preferred stock.
Redeemable Convertable Preferred Stock
Redeemable Convertible Preferred Stock Disclosure [Text Block]
Redeemable Convertible Preferred Stock
The following discussion reflects the terms of the redeemable convertible preferred stock set forth in the Company's Fourth Amended and Restated Certificate of Incorporation which was filed with the Delaware Secretary of State on July 29, 2005. All shares of redeemable convertible preferred stock (Series A Convertible Preferred Stock) were optionally converted into common stock immediately prior to the closing of the Company's initial public offering on April 20, 2009, on which date the Company filed with the Delaware Secretary of State its Fifth Amended and Restated Certificate of Incorporation which eliminated the redeemable convertible preferred stock, among other things.
The redeemable convertible preferred stock ranked senior to all common stock. The holders of redeemable convertible preferred stock were not entitled to any dividends except if the Company declared, set aside or paid any dividend on the common stock (other than dividends payable solely in additional shares of common stock), in which case holders of the redeemable convertible preferred stock could participate in any such dividends on a per share as-converted basis. Such dividends were payable when and as declared by the Company's board of directors. No preferred stock dividends were declared during the years ended December 31, 2011, 2010 and 2009. See “Preferred Dividends” below for payments upon liquidation, dissolution or winding up of the Company and payments upon optional conversion.
Optional Conversion Feature
Each issued and outstanding share of redeemable convertible preferred stock was entitled to a number of votes equal to the number of shares of common stock into which it convertible with respect to matters presented to the stockholders of the Company for their action or consideration.
Each share of redeemable convertible preferred stock was convertible, at the option of the holder, at any time, into 2.265380093 shares of common stock. As of December 31, 2011 and 2010, there were no outstanding shares of redeemable convertible preferred stock.
Upon an optional conversion, the holder was entitled to receive shares of common stock as discussed above and also the payments discussed below under “Preferred Dividends-Payments upon optional conversion.” The right of the holders of redeemable convertible preferred stock to elect to receive both shares of common stock and the accreted value under the optional conversion feature resulted in fair value in excess of the invested amount, which resulted in a beneficial conversion feature to such holders. This beneficial conversion feature was recorded as a 'deemed dividend' on the date of the issuance of the redeemable convertible preferred stock because there was no stated redemption date (maturity date) and the optional conversion feature was immediately exercisable. This beneficial conversion feature was measured as the excess of the fair value of the common shares into which the shares of redeemable convertible preferred stock were convertible over the accounting conversion price. The Company has not issued any new shares of redeemable convertible preferred stock since 2005. Prior to 2006, the Company recorded $14.1 million of deemed dividends related to the beneficial conversion feature associated with redeemable convertible preferred stock.
Preferred Dividends
(a)
Payments upon liquidation, dissolution or winding up of the Company:
Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of redeemable convertible preferred stock were entitled to receive an amount equal to the sum of (i) the “accreted value” of the shares of redeemable convertible preferred stock plus (ii) any dividends declared but unpaid on the shares of redeemable convertible preferred stock. The term “accreted value” was defined as an amount equal to the sum of (i) the “stated value” for a share of redeemable convertible preferred stock plus (ii) 8% per year of the stated value, compounding annually and commencing on the date of issuance of such share. The term “stated value” was defined as $1.00 per share, subject to appropriate adjustment in the event of any stock dividend, stock split, stock distribution or combination with respect to the redeemable convertible preferred stock. The amount by which the accreted value exceeded the stated value for any share of redeemable convertible preferred stock was referred to as the “accreted dividend” for such share. At the option of the holder, the accreted value could have been paid in cash or shares of common stock valued at current fair market value.
With respect to the payment of amounts described in the preceding paragraph, each of the following events was deemed to be a “liquidation, dissolution or winding up” of the Company: (i) the consolidation with or into another corporation in which the stockholders of record of the Company owned less than 50% of the voting securities of the surviving corporation; (ii) the sale of substantially all the assets of the Company; (iii) the sale of securities of the Company representing more than 50% of the voting securities (other than a qualified public offering); and (iv) a sale to Warburg Pincus or their successors or assigns.
(b)
Payments upon optional conversion:
Upon an optional conversion of shares of redeemable convertible preferred stock, the holder of such shares was entitled to receive (in addition to the common stock acquirable upon conversion of such shares) an amount equal to (i) the accreted value of such shares plus (ii) any dividends declared but unpaid on such shares. At the option of the holder, the accreted value could have been paid in cash or shares of common stock valued at current fair market value.
On April 20, 2009, the Company used the proceeds from its initial public offering to pay the accreted value (carrying value) of the redeemable convertible preferred stock in connection with the optional conversion of all shares of redeemable convertible preferred stock into common stock and the election by all holders of redeemable convertible preferred stock to receive the payment of the accreted value of the redeemable convertible preferred stock in cash, in each case as of the closing of the offering. The accreted value at the time of payment was $27.7 million, of which $7.9 million was accreted dividends.
Stock-Based Compensation
Stock-Based Compensation Disclosure [Text Block]
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 2011, 2010 and 2009, 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 2011, 2010 and 2009 (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
Balance at December 31, 2008
8,828

 
$
0.37

 
6.33

 
$
122,220

Granted
2,814

 
10.64

 
 
 
 
Exercised
(948
)
 
0.36

 
 
 
 
Forfeitures
(121
)
 
4.35

 
 
 
 
Balance at December 31, 2009
10,573

 
3.06

 
6.84

 
126,590

Granted
1,051

 
19.25

 
 
 
 
Exercised
(1,181
)
 
0.88

 
 
 
 
Forfeitures
(248
)
 
12.20

 
 
 
 
Balance at December 31, 2010
10,195

 
4.76

 
5.47

 
147,545

Granted
1,294

 
17.41

 
 
 
 
Exercised
(3,070
)
 
1.59

 
 
 
 
Forfeitures
(139
)
 
17.65

 
 
 
 
Balance at December 31, 2011
8,280

 
$
7.70

 
5.90

 
$
127,308

Vested and expected to vest at December 31, 2011
8,155

 
$
7.56

 
5.89

 
$
126,483

Exercisable at December 31, 2011
5,649

 
$
3.98

 
4.69

 
$
107,686

The Company has reserved 11.8 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, 2011. 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, 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, 2009, there were 0.9 million stock options exercised, with an intrinsic value of $14.7 million. The actual tax benefit realized from these exercises was $5.8 million.
During the year ended December 31, 2011 and 2010, approximately 6,000 and 4,000 stock options expired.
The fair value of each option award granted during the years ended December 31, 2011, 2010 and 2009, 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:
 
2011
 
2010
 
2009
Weighted average exercise price per share
$
17.41

 
$
19.25

 
$
10.64

Risk-free interest rate
2.5
%
 
2.3
%
 
1.9
%
Expected dividend yield
—

 
—

 
—

Expected volatility
52.7
%
 
45.7
%
 
48.0
%
Expected life (in years)
6.12

 
6.16

 
6.25

Forfeiture rate
4.0
%
 
3.0
%
 
3.0
%
Weighted average grant date fair value per share
$
9.07

 
$
8.84

 
$
5.14

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. Based on the limited historical data regarding the volatility of the Company's common stock, expected volatility 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. Based on the lack of historical data, the expected life of the Company's options is calculated using the simplified method, which is the mid-point between the vesting term of the options and the contractual term. 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 Company recorded $10.6 million, $7.9 million and $35.9 million of compensation expense related to equity awards and any modifications thereof for the years ended December 31, 2011, 2010 and 2009, respectively. The related income tax benefit was $3.9 million, $3.1 million and $14.2 million for the years ended December 31, 2011, 2010 and 2009, respectively.
As of December 31, 2011, 2010 and 2009, there was $10.6 million, $9.6 million and $8.8 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, 2011, 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.
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 and released
—

 
—

Canceled
—

 
—

Balance at December 31, 2011
56,855

 
$
23.97

As of December 31, 2011, there was $0.7 million of unrecognized compensation cost related to unvested RSUs. The unrecognized compensation costs of RSUs are expected to be recognized over a weighted average period of 0.5 years.
No RSUs vested during the year ended December 31, 2011. No RSUs were granted prior to 2011.
Acceleration of Exit Options
In March 2009, the Company's board of directors amended the exit vested options (“exit options”) for certain members of the Company's management team (10 individuals) to add an additional vesting condition so that the number of shares underlying the options that would not have vested upon the closing of the Company's initial public offering, under the original terms of the options, would vest in full upon the closing of such offering. This additional vesting condition constituted a modification. Accordingly, to the extent the exit option vested under the original vesting conditions, the original grant date fair value was recorded on the vesting date; and to the extent each exit option vested under the additional vesting condition, the modification date fair value was recorded on the vesting date.
The compensation expense that was recorded for the exit options during the second quarter of 2009 was $30.4 million in the aggregate ($0.1 million related to the portion of the exit options vesting under the original vesting conditions and $30.3 million related to the portion of the exit options vesting under the additional vesting condition), which was based upon the sale by Warburg Pincus of 20.8% of its ownership of the Company's common stock (as-converted) in the Company's initial public offering. The incremental compensation cost resulting from the modification was $30.0 million. The compensation expense was calculated using the Black-Scholes option pricing model, including a fair value of common stock of $14.91, an exercise price of either $0.07 or $0.13 based on the respective exit options, an estimated life of three years, a zero dividend yield, volatility of 65% and a risk free interest rate of 1.28%. This compensation expense was recorded in accordance with where the related optionee's regular compensation is recorded.
Warrants
Warrants Disclosure [Table Text Block]
Warrants
The Company has previously 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, 2011, 2010 and 2009. During the years ended December 31, 2011, 2010 and 2009, approximately 43,000, 0.3 million and 1.0 million warrants to purchase shares of common stock were exercised, respectively. As of December 31, 2011 and 2010, all outstanding warrants were exercisable. The following table summarizes information with respect to all warrants outstanding as of December 31, 2011 and 2010 (in thousands, except exercise prices):
Exercise Price
 
December 31,
2011
 
December 31,
2010
 
Expiration
Date
$1.125
43

 
51

 
2013
$2.250
55

 
87

 
2013
$2.835
172

 
172

 
2013
$2.925
19

 
19

 
2013
$9.000
3

 
6

 
2013
Total
292

 
335

 
 
Stock Repurchase Programs
Stock Repurchase Programs Disclosure [Text Block]
Stock Repurchase Programs
On July 30, 2010, the Company's board of directors authorized the repurchase of up to $60.0 million of the Company's outstanding shares of common stock over the following 12 months (the "2010 Repurchase Program"). On May 2, 2011, the Company's board of directors authorized the repurchase of up to an additional $75.0 million of the Company's outstanding shares of common stock over the following 12 months (the "2011 Repurchase Program"). The repurchase programs were authorized by the Company's board of directors 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. The 2011 Repurchase Program was in addition to, and not in replacement of, the $60.0 million authorized under the 2010 Repurchase Program.
During the year ended December 31, 2011, the Company repurchased 4.2 million shares of common stock at a weighted average purchase price of $21.84 per share, for a total cost of $92.8 million. 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 authorized repurchase programs.
Income Taxes
Income Taxes Disclosure [Text Block]
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,
 
2011
 
2010
 
2009
Current:
 
 
 
 
 
Federal
$
88,513

 
$
76,649

 
$
38,771

State
8,632

 
18,916

 
8,782

 
97,145

 
95,565

 
47,553

Deferred:
 
 
 
 
 
Federal
6,997

 
(5,485
)
 
(9,532
)
State
(391
)
 
119

 
(2,886
)
 
6,606

 
(5,366
)
 
(12,418
)
Total
$
103,751

 
$
90,199

 
$
35,135

Deferred tax assets and liabilities are comprised of the following (in thousands):
 
As of December 31,
 
2011
 
2010
Deferred tax assets:
 
 
 
Net operating loss
$
694

 
$
788

Fixed assets
221

 
139

Bad debt
1,853

 
889

Vacation accrual
2,057

 
1,364

Stock-based compensation
17,175

 
15,859

Deferred rent
6,151

 
4,033

State tax
2,678

 
5,671

Unrealized loss on investments
351

 
—

Other
726

 
964

Total deferred tax assets
31,906

 
29,707

Valuation allowance
—

 
—

Net deferred tax assets
31,906

 
29,707

Deferred tax liabilities:
 
 
 
Fixed assets and intangibles
(15,277
)
 
(6,823
)
Total net deferred tax assets
$
16,629

 
$
22,884

Deferred taxes are reflected in the balance sheet as follows (in thousands):
 
As of December 31,
 
2011
 
2010
Current deferred tax assets
$
5,429

 
$
7,039

Current deferred tax liabilities
—

 
—

Noncurrent deferred tax assets
11,200

 
15,845

Noncurrent deferred tax liabilities
—

 
—

Total
$
16,629

 
$
22,884

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, 2011, the Company had federal net operating loss carry forwards of $0.8 million and state net operating loss carry forwards of $7.2 million, which are available to offset future taxable income. The federal net operating loss carry forwards will begin to expire in 2022. The state net operating loss carry forwards will begin to expire in 2019. 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,
 
2011
 
2010
 
2009
Computed expected federal tax expense
$
96,780

35.0
 %
 
$
76,223

35.0
%
 
$
28,784

35.0
%
State taxes, net of federal benefit
5,434

2.0

 
10,238

4.7

 
3,117

3.8

Permanent differences
1,601

0.6

 
335

0.1

 
439

0.5

Uncertain tax positions
(192
)
(0.1
)
 
3,401

1.6

 
2,660

3.2

Other
128

—

 
2

—

 
135

0.2

Income tax expense
$
103,751

37.5
 %
 
$
90,199

41.4
%
 
$
35,135

42.7
%
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, 2009
$
3,773

Gross increases-tax positions in prior period
109

Gross decreases-tax positions in prior period
—

Gross increases-current period tax positions
4,175

Settlements
—

Lapse of statute of limitations
—

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

Included in the amount of unrecognized tax benefits at both December 31, 2011 and 2010 is $5.8 million 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, 2011 and 2010 is $2.3 million 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, 2011 and 2010, the Company had approximately $1.4 million and $1.5 million, respectively, of accrued interest, before any tax benefit, related to uncertain tax positions.
The tax years 2002-2011 are open to examination by major taxing jurisdictions to which the Company is subject. The Internal Revenue Service audit of the Company's 2008 income tax return closed in March 2011 with no significant adjustments. The California Franchise Tax Board commenced an audit of the Company's 2008 and 2009 California income tax returns in October 2011. The Company does not expect any significant adjustments resulting from this audit, nor does the Company expect any significant increases or decreases in unrecognized tax benefits for uncertain tax positions taken in previous years within the next twelve months.
The Company's continuing practice is to recognize interest and penalties related to income tax matters in income tax expense.
Regulatory
Regulatory Disclosure [Text Block]
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 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, 2011, management believes the Company's institutions are in compliance with applicable Department regulations in all material respects.
The Higher Education Act requires accrediting agencies to review many aspects of an institution's operations in order to ensure that the education offered is of sufficiently high quality to achieve satisfactory outcomes and that the institution is complying with accrediting standards. Failure to demonstrate compliance with accrediting standards may result in the imposition of probation, the requirements to provide periodic reports, the loss of accreditation or other penalties if deficiencies are not remediated.
Because the Company operates in a highly regulated industry, it, like other industry participants, may be subject from time to time to audits, investigations, claims of noncompliance or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions or common law causes of action.
The “90/10” Rule
Pursuant to a provision of the Higher Education Act, as reauthorized in August 2008, a for-profit institution loses its eligibility to participate in Title IV programs if the institution derives more than 90% of its revenue (calculated in accordance with applicable statutory provisions and Department regulations) from Title IV funds for two consecutive fiscal years, commencing with the institution's first fiscal year that ends after the new law's effective date of August 14, 2008. This rule is commonly referred to as the “90/10 rule.” Any institution that violates the 90/10 rule 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.
In May 2008, the Ensuring Continued Access to Student Loans Act (“ECASLA”) increased the annual loan limits on federal unsubsidized student loans by $2,000 for the majority of the Company's students enrolled in associates and bachelors degree programs, and also increased the aggregate loan limits (over the course of a student's education) on total federal student loans for certain students. This increase in student loan limits, together with increases in Pell grants, has increased the amount of Title IV program funds used by students to satisfy tuition, fees and other costs, which has increased the proportion of the Company's institutions revenue deemed to be from Title IV programs. The Higher Education Opportunity Act provides temporary relief from the impact of these loan limit increases by allowing any amounts received between July 1, 2008 and July 1, 2011 that are attributable to the increased annual loan limits to be excluded from the 90/10 rule calculation. The implementing regulations for this temporary relief and other aspects of the 90/10 rule were published in final form on October 29, 2009. The effective date of the new regulations was July 1, 2010. Ashford University has not elected to exclude amounts attributable to the increased annual loan limits from its 90/10 calculation.
For the years ended December 31, 2011, 2010 and 2009, Ashford University derived 86.8%, 85.0% and 85.5%, respectively, and the University of the Rockies derived 85.0%, 85.9% and 84.6%, respectively, of their respective revenue (calculated in accordance with applicable statutory provisions and 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, FFEL 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 the Direct Loan and FFEL 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 2009, 2008 and 2007 federal fiscal years, were 15.3%, 13.3% and 13.3%, respectively. The cohort default rates for the University of the Rockies for the 2009, 2008 and 2007 federal fiscal years, were 3.3%, 2.5% and 0%, 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, 2011 and 2010, 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, 2010, 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.
Related Party Transactions
Related Party Transactions Disclosure [Text Block]
Related Party Transactions
November 2003 Loan from Warburg Pincus to the Company's CEO and President
In November 2003, Warburg Pincus loaned $75,000 to Andrew Clark the Company's CEO and President to finance Mr. Clark's purchase of 75,000 shares of redeemable convertible preferred stock from the Company. In connection with such loan, Mr. Clark entered into a Secured Recourse Promissory Note and Pledge Agreement with Warburg Pincus which provided that the principal amount due under the note would accrue simple interest at a rate of 8% per year until November 26, 2005, the maturity date, after which time interest would accrue at a penalty rate of 16% per year, compounded monthly. The loan was secured by 75,000 shares of Series A Convertible Preferred Stock held by Mr. Clark. Mr. Clark repaid the loan in full on March 10, 2009, at which time the amount due under the note was $146,740 (including accrued interest of $71,740).
Retirement Plans
Retirement Plans Disclosure [Text Block]
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 $2.2 million, $1.2 million and $0.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.
Commitments and Contingencies
Commitments and Contingencies Disclosure [Text Block]
Commitments and Contingencies
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. As of December 31, 2011, the Company was not a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material adverse effect on the Company's business, financial condition, results of operations or cash flows. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. 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")
On January 21, 2011, Ashford University received a final audit report from the OIG regarding the compliance audit commenced in May 2008 and covering the period July 1, 2006 through June 30, 2007. The 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"). The findings and recommendations of the final audit report represent the opinions of the OIG, and the issuance of final audit determinations and corrective action to be taken, if any, will be made by the FSA.
Ashford University expects that the FSA will consider the findings and recommendations in the final audit report and engage in a dialog with the university prior to determining what if any action to take and issuing a Final Audit Determination Letter concluding the audit. The OIG has requested that Ashford University provide a response to the FSA regarding the final audit report, if any, within 30 days of the final audit report's issuance, to which the Company has responded in a timely manner. If the FSA were to determine to assess a monetary liability or commence an action under Subpart G, 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. Although the Company believes Ashford University operates in substantial compliance with Department regulations that are applicable to the areas under review, the Company cannot predict the ultimate findings, potential liabilities or remedial actions, if any, that the FSA may include in the Final Audit Determination Letter, or the result of any administrative proceedings, including Subpart G proceedings, that may arise out of the Final Audit Determination Letter.
Rosendahl v. Bridgepoint Education, Inc.
In January 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company, Ashford University and University of the Rockies as defendants. The complaint was filed in the U.S. District Court for the Southern District of California on January 11, 2011, and is captioned Rosendahl v. Bridgepoint Education, Inc. The complaint generally alleges that the Company and the other defendants engaged in improper, fraudulent and illegal behavior in their efforts to recruit and retain students. The Company believes the lawsuit is without merit and intends to vigorously defend against it.
Iowa Attorney General Civil Investigation of Ashford University
In February 2011, Ashford University received from the Attorney General of the State of Iowa (“Iowa Attorney General”) a Civil Investigative Demand and Notice of Intent to Proceed (“CID”) relating to the Iowa Attorney General's investigation of whether certain of the university's business practices comply with Iowa consumer laws. The CID contains no specific allegations of wrongdoing. Pursuant to the CID, the Iowa Attorney General has requested documents and detailed information for the time period January 1, 2008 to present. Ashford University is responding to the CID and intends to comply with the Iowa Attorney General's request.
Stevens v. Bridgepoint Education, Inc.
In February 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company, Ashford University, LLC, and certain employees as defendants. The complaint was filed in the Superior Court of the State of California in San Diego on February 17, 2011, and is captioned Stevens v. Bridgepoint Education, Inc. The complaint generally alleges that the plaintiffs and similarly situated employees were improperly denied certain wage and hour protections under California law. The Company believes the lawsuit is without merit and is vigorously defending against it.
In April 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company and Ashford University, LLC, as defendants. The complaint was filed in the Superior Court of the State of California in San Diego on April 25, 2011, and is captioned Moore v. Ashford University, LLC. The complaint generally alleges that the plaintiff and similarly situated employees were improperly denied certain wage and hour protections under California law. The Company believes the lawsuit is without merit and intends to vigorously defend against it.
In May 2011, the Company received a copy of a complaint filed as a class action lawsuit naming the Company as a defendant. The complaint was filed in the Superior Court of the State of California in San Diego on May 6, 2011, and is captioned Sanchez v. Bridgepoint Education, Inc. The complaint generally alleges that the plaintiff and similarly situated employees were improperly denied certain wage and hour protections under California law. The Company believes the lawsuit is without merit and intends to vigorously defend against it.
In October 2011, an order was issued by a judge in the Superior Court of the State of California, San Diego, to consolidate the cases entitled Stevens v. Bridgepoint Education, Inc., Moore v. Ashford University, LLC and Sanchez v. Bridgepoint Education, Inc., which involve common questions of fact and law. The order designated Stevens v. Bridgepoint Education, Inc. as the lead case.
New York Attorney General Investigation of Bridgepoint Education, Inc.
In May 2011, the Company received from the Attorney General of the State of New York (“NY Attorney General”) a Subpoena Duces Tecum (“Subpoena”) relating to the NY Attorney General's investigation of whether the Company and its academic institutions have complied with certain New York state consumer protection, securities and finance laws. Pursuant to the Subpoena, the NY Attorney General has requested from the Company and its academic institutions documents and detailed information for the time period March 17, 2005, to present. The Company is responding to the Subpoena and intends to comply with the NY Attorney General's request.
North Carolina Attorney General Investigation of Bridgepoint Education, Inc.
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.  The university is evaluating the Investigative Demand and intends to comply with the NC Attorney General's request.
Stockholder Dispute
Stockholder Dispute Disclosure [Text Block]
Stockholder Dispute
In February 2009, certain holders of common stock and warrants to purchase common stock asserted various claims against the Company, its directors and officers and Warburg Pincus regarding amendments to the Company's certificate of incorporation made in connection with financings in 2005 and certain stock options granted by the Company to its employees. The claimants represented 90% of the holders of common stock and 59% of the shares of common stock subject to warrants outstanding, in each case as of July 27, 2005. In March 2009, the Company reached a settlement with the claimants regarding these claims and recorded a total expense of $11.1 million related to the settlement during the three months ended March 31, 2009, of which $10.6 million was a non-cash expense. After settling with the claimants, the Company notified the other holders of common stock and other holders of warrants to purchase shares of common stock, in each case as of July 27, 2005, regarding these claims, the settlement terms and their ability to participate in the settlement. In April 2009, the Company reached settlement with the holders of 100% of the common stock and 100% of the shares subject to warrants outstanding, in each case as of July 27, 2005, at which time the Company ceased to be a potential obligor related to the claims asserted by these security holders. The settlement resulted in the issuance of an aggregate of 710,097 shares of common stock, with a total value of $10.6 million, and cash payments totaling $433,000 which were paid in April 2009.
Concentration of Risk
Concentration of Risk Disclosure [Text Block]
Concentration of Risk
Concentration of Revenue
In 2011, Ashford University derived 86.8% and the University of the Rockies derived 85.0% of their respective revenues (in each case calculated on a cash basis in accordance with applicable Department regulations) from Title IV programs. See Note 17, “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 a material adverse effect on the Company's enrollments, revenues and results of operations.
Quaterly Results of Operations (Unaudited)
Quarterly Results of Operations (Unaudited) Disclosure [Text Block]
Quarterly Results of Operations (Unaudited)
The following tables set forth unaudited results of operations and certain operating data for each quarter during 2011 and 2010. The Company believes that the information reflects all adjustments, which include only normal and recurring 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 enrollment and 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

 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
(In thousands, except enrollment and per share data)
2010
 
 
 
 
 
 
 
Revenue
$
156,067

 
$
173,840

 
$
190,911

 
$
192,415

Operating income
50,088

 
59,230

 
62,426

 
44,677

Net income
29,823

 
35,270

 
36,138

 
26,349

Earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.55

 
$
0.65

 
$
0.68

 
$
0.50

Diluted
0.49

 
0.58

 
0.61

 
0.45

Subsequent Events
Subsequent Events Disclosure [Text Block]
Subsequent Events
Amendment to Loan Documents
On January 25, 2012, the Company entered into a Fifth Amendment to the Loan Documents with Comerica Bank pursuant to which the maturity date of the $50 million revolving line of credit was extended to March 31, 2012. For more information about this revolving line of credit, see Note 9, "Notes Payable and Long-Term Debt."
Termination of Lease
On February 17, 2012, the Company entered into a Lease Termination Agreement and Release (“Termination Agreement”) with Sunroad Centrum Office I, L.P. (“Sunroad”), pursuant to which the parties agreed to terminate the Standard Form Modified Gross Office Lease (“Lease”) dated November 10, 2010, between the Company and Sunroad. 
The Lease provided that Sunroad would construct an eight-story building in the Sunroad Centrum Project in San Diego, California, in which the Company would lease approximately 193,000 rentable square feet of space for an initial term of 12 years and for total base rent payments of $99.7 million for such initial term.  The new building would be located adjacent to an 11-story building in which the Company currently leases approximately 274,000 rentable square feet of space from Sunroad under a separate lease.  The parties mutually agreed to terminate the Lease in accordance with the Termination Agreement.
Under the Termination Agreement, the parties agreed that (1) no rent payments or any other monetary obligations on the Company's behalf have accrued under the Lease, (2) there will be no termination payment due by either party related to the Termination Agreement, and (3) Sunroad will return in full the security deposit and certain initial payment amounts that the Company previously delivered under the Lease.  Additionally, each party provided the other party with a general release of claims related to the Lease.