Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Dec. 31, 2015 | Jan. 22, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | K12 INC | |
Entity Central Index Key | 1,157,408 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 39,004,035 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q2 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Dec. 31, 2015 | Jun. 30, 2015 |
Current assets | ||
Cash and cash equivalents | $ 171,277 | $ 195,852 |
Accounts receivable, net of allowance of $9,842 and $9,657 at December 31, 2015 and June 30, 2015, respectively | 229,589 | 188,246 |
Inventories, net | 17,858 | 29,571 |
Deferred tax asset | 4,661 | 8,989 |
Prepaid expenses | 21,239 | 11,428 |
Other current assets | 25,105 | 24,877 |
Total current assets | 469,729 | 458,963 |
Property and equipment, net | 28,661 | 34,407 |
Capitalized software, net | 66,360 | 62,683 |
Capitalized curriculum development costs, net | 57,311 | 58,696 |
Intangible assets, net | 19,964 | 21,195 |
Goodwill | 66,160 | 66,160 |
Deposits and other assets | 6,806 | 6,495 |
Total assets | 714,991 | 708,599 |
Current liabilities | ||
Current portion of capital lease obligations | 14,369 | 16,635 |
Accounts payable | 16,760 | 29,819 |
Accrued liabilities | 10,893 | 12,486 |
Accrued compensation and benefits | 17,301 | 26,790 |
Deferred revenue | 57,083 | 24,927 |
Total current liabilities | 116,406 | 110,657 |
Capital lease obligations, net of current portion | 10,059 | 13,022 |
Deferred rent, net of current portion | 7,179 | 7,692 |
Deferred tax liability | 27,529 | 22,456 |
Other long-term liabilities | 8,714 | 8,233 |
Total liabilities | $ 169,887 | $ 162,060 |
Commitments and contingencies | ||
Redeemable noncontrolling interest | $ 9,801 | $ 9,601 |
Stockholders' equity | ||
Common stock, par value $0.0001; 100,000,000 shares authorized; 42,423,963 and 41,837,894 shares issued and 38,921,365 and 38,335,296 shares outstanding at December 31, 2015 and June 30, 2015, respectively | 4 | 4 |
Additional paid-in capital | 665,807 | 663,461 |
Accumulated other comprehensive loss | (791) | (1,065) |
Accumulated deficit | (54,717) | (50,462) |
Treasury stock of 3,502,598 shares at cost at December 31, 2015 and June 30, 2015 | (75,000) | (75,000) |
Total stockholders' equity | 535,303 | 536,938 |
Total liabilities, redeemable noncontrolling interest and equity | $ 714,991 | $ 708,599 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Dec. 31, 2015 | Jun. 30, 2015 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowance | $ 9,842 | $ 9,657 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 42,423,963 | 41,837,894 |
Common stock, shares outstanding | 38,921,365 | 38,335,296 |
Treasury stock, shares | 3,502,598 | 3,502,598 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
Revenues | $ 208,811 | $ 231,304 | $ 430,041 | $ 468,017 |
Cost and expenses | ||||
Instructional costs and services | 129,616 | 145,029 | 268,619 | 291,872 |
Selling, administrative, and other operating expenses | 61,440 | 62,557 | 160,710 | 162,101 |
Product development expenses | 3,028 | 3,245 | 6,441 | 6,727 |
Total costs and expenses | 194,084 | 210,831 | 435,770 | 460,700 |
Total (loss) from operations | 14,727 | 20,473 | (5,729) | 7,317 |
Interest (expense) income, net | (190) | 151 | (495) | 182 |
Income (loss) before income tax expense and noncontrolling interest | 14,537 | 20,624 | (6,224) | 7,499 |
Income tax (expense) benefit | (6,653) | (8,663) | 1,444 | (2,125) |
Net income (loss) | 7,884 | 11,961 | (4,780) | 5,374 |
Adjust net loss attributable to noncontrolling interest | 654 | 370 | 525 | 183 |
Net income (loss) attributable to common stockholders | $ 8,538 | $ 12,331 | $ (4,255) | $ 5,557 |
Net income (loss) attributable to common stockholders per share | ||||
Basic and Diluted (in dollars per share) | $ 0.23 | $ 0.33 | $ (0.11) | $ 0.15 |
Weighted average shares used in computing per share amounts: | ||||
Basic (in shares) | 37,559,999 | 37,096,480 | 37,496,747 | 37,396,081 |
Diluted (in shares) | 37,680,879 | 37,160,829 | 37,496,747 | 37,599,930 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||
Net income (loss) | $ 7,884 | $ 11,961 | $ (4,780) | $ 5,374 |
Other comprehensive income (loss), net of tax | ||||
Foreign currency translation adjustment | 120 | (569) | 274 | (1,115) |
Total other comprehensive income (loss), net of tax | 8,004 | 11,392 | (4,506) | 4,259 |
Comprehensive loss attributable to noncontrolling interest | 654 | 370 | 525 | 183 |
Comprehensive income (loss) attributable to common stockholders | $ 8,658 | $ 11,762 | $ (3,981) | $ 4,442 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENT OF EQUITY - 6 months ended Dec. 31, 2015 - USD ($) $ in Thousands | Common Stock | Additional Paid-in Capital | Other Accumulated Comprehensive Income (Loss) | Accumulated Deficit | Treasury Stock | Total | |
Balance at Jun. 30, 2015 | $ 4 | $ 663,461 | $ (1,065) | $ (50,462) | $ (75,000) | $ 536,938 | |
Balance (in shares) at Jun. 30, 2015 | 41,837,894 | (3,502,598) | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Net Income | [1] | (4,255) | (4,255) | ||||
Foreign currency translation adjustment | 274 | 274 | |||||
Stock-based compensation expense | 9,541 | 9,541 | |||||
Exercise of stock options | 14 | 14 | |||||
Exercise of stock options (in shares) | 1,000 | ||||||
Excess tax from stock-based compensation | (4,143) | (4,143) | |||||
Issuance of restricted stock awards (in shares) | 810,179 | ||||||
Forfeiture of restricted stock awards (in shares) | (65,413) | ||||||
Accretion of redeemable noncontrolling interests to estimated redemption value | (726) | (726) | |||||
Retirement of restricted stock for tax withholding | (2,340) | (2,340) | |||||
Retirement of restricted stock for tax withholding (in shares) | (159,697) | ||||||
Balance at Dec. 31, 2015 | $ 4 | $ 665,807 | $ (791) | $ (54,717) | $ (75,000) | $ 535,303 | |
Balance (in shares) at Dec. 31, 2015 | 42,423,963 | (3,502,598) | |||||
[1] | Net loss excludes $0.5 million due to the redeemable noncontrolling interests related to Middlebury Interactive Languages and LearnBop, which are reported outside of permanent equity in the accompanying unaudited condensed consolidated balance sheets. |
CONDENSED CONSOLIDATED STATEME7
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Parenthetical) $ in Millions | 6 Months Ended |
Dec. 31, 2015USD ($) | |
CONDENSED CONSOLIDATED STATEMENT OF EQUITY | |
Redeemable noncontrolling interest related to Middlebury Interactive Languages and LearnBop | $ 0.5 |
CONDENSED CONSOLIDATED STATEME8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 6 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Cash flows from operating activities | ||
Net (loss) income | $ (4,780) | $ 5,374 |
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||
Depreciation and amortization expense | 33,035 | 34,509 |
Stock-based compensation expense | 9,541 | 8,969 |
Excess tax benefit from stock-based compensation | (6) | (7) |
Deferred income taxes | 5,745 | 5,203 |
Provision for doubtful accounts | 2,766 | 836 |
Provision for excess and obsolete inventory | 456 | 459 |
Provision for student computer shrinkage and obsolescence | (389) | (226) |
Expensed computer peripherals | 1,995 | |
Changes in assets and liabilities: | ||
Accounts receivable | (44,104) | (72,415) |
Inventories | 11,257 | 13,856 |
Prepaid expenses | (9,812) | (4,255) |
Other current assets | (228) | (3,558) |
Deposits and other assets | (42) | (466) |
Accounts payable | (13,059) | (14,377) |
Accrued liabilities | (2,063) | (10,683) |
Accrued compensation and benefits | (9,488) | 1,684 |
Deferred revenue | 32,156 | 39,630 |
Deferred rent and other liabilities | (31) | 2,476 |
Net cash provided by operating activities | 12,949 | 7,009 |
Cash flows from investing activities | ||
Purchase of property and equipment | (2,024) | (6,687) |
Capitalized software development costs | (16,925) | (17,093) |
Capitalized curriculum development costs | (6,867) | (7,267) |
Investment in LearnBop Inc. | (6,512) | |
Net cash used in investing activities | (25,816) | (37,559) |
Cash flows from financing activities | ||
Repayments on capital lease obligations | (9,370) | (11,487) |
Purchase of treasury stock | (26,452) | |
Proceeds from exercise of stock options | 14 | 161 |
Excess tax benefit from stock-based compensation | 6 | 7 |
Retirement of restricted stock for income tax withholding | (2,340) | (1,468) |
Net cash used in financing activities | (11,690) | (39,239) |
Effect of foreign exchange rate changes on cash and cash equivalents | (18) | (2,086) |
Net change in cash and cash equivalents | (24,575) | (71,875) |
Cash and cash equivalents, beginning of period | 195,852 | 196,109 |
Cash and cash equivalents, end of period | $ 171,277 | $ 124,234 |
Description of the Business
Description of the Business | 6 Months Ended |
Dec. 31, 2015 | |
Description of the Business | |
Description of the Business | 1. Description of the Business K12 Inc., together with its subsidiaries (“K 12 ” or the “Company”), is a technology-based education company. The Company offers proprietary curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade (“K-12”). The Company’s mission is to maximize a child’s potential by providing access to an engaging and effective education, regardless of geographic location or socio-economic background. The Company’s learning systems combine curriculum, instruction and related support services to create an individualized learning approach well-suited for virtual and blended public schools, school districts, charter schools and private schools that utilize varying degrees of online and traditional classroom instruction, and other educational applications. These unique set of products and services are provided primarily to three lines of business: Managed Public School Programs (curriculum and services sold to managed public schools in 33 states and the District of Columbia), Institutional (curriculum, technology and services provided to school districts, public schools and other educational institutions that the Company does not manage), and Private Pay Schools and Other (private schools for which the Company charges student tuition and makes direct consumer sales). The Company works closely as partners with a growing number of public schools, school districts, charter schools and private schools enabling them to offer their students an array of solutions, including full-time virtual programs, semester course and supplemental solutions. In addition to curriculum, systems and programs, the Company provides teacher training, teaching services and other support services. |
Basis of Presentation
Basis of Presentation | 6 Months Ended |
Dec. 31, 2015 | |
Basis of Presentation | |
Basis of Presentation | 2. Basis of Presentation The accompanying condensed consolidated balance sheet as of December 31, 2015, the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended December 31, 2015 and 2014, the condensed consolidated statements of cash flows for the six months ended December 31, 2015 and 2014, and the condensed consolidated statement of equity for the six months ended December 31, 2015 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations for the periods presented. The results for the six months ended December 31, 2015 are not necessarily indicative of the results to be expected for the year ending June 30, 2016, or for any other interim period or future fiscal year. The condensed consolidated balance sheet as of June 30, 2015 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, the Company does not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations for the periods presented. Preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes. Actual results could differ from those estimates. This quarterly report on Form 10-Q should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on August 4, 2015, which contains the Company’s audited financial statements for the fiscal year ended June 30, 2015. The Company operates in one operating and reportable business segment as a technology-based education company providing proprietary curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade. The Chief Operating Decision Maker evaluates profitability based only on consolidated results. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Dec. 31, 2015 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies Revenue Recognition Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended public schools, traditional schools, school districts, virtual charter schools, and private schools. In addition to providing the curriculum, books and materials, under most contracts, the Company provides management services and technology to virtual and blended public schools, including monitoring academic achievement, teacher hiring and training, compensation of school personnel, financial management, enrollment processing and development and procurement of curriculum, equipment and required services. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenues. Where the Company has determined that it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenue received by the school from its state funding school district up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition . As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the three months ended December 31, 2015 and 2014 were $72.3 million and $84.1 million, respectively, and for the six months ended December 31, 2015 and 2014 were $134.5 million and $152.8 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenue based on its net fees earned under the contractual agreement. The Company generates revenues under turnkey management contracts with virtual and blended public schools which include multiple elements. These elements include: · providing each of a school’s students with access to the Company’s online school and lessons; · offline learning kits, which include books and materials to supplement the online lessons, where required; · the use of a personal computer and associated reclamation services, where required; · internet access and technology support services; · instruction by a state-certified teacher, where required; and · management and technology services necessary to operate a virtual public or blended school. In certain managed school contracts, revenue is determined directly by per enrollment funding . The Company has determined that the elements of its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within the Company’s multiple-element contracts do not qualify as separate units of accounting. Accordingly, the Company accounts for revenues under multiple element arrangements as a single unit of accounting and recognizes the entire arrangement based upon the approximate rate at which it incurs the costs associated with each element. Revenue from certain managed schools is recognized ratably over the period services are performed. To determine the pro rata amount of revenues to recognize in a fiscal quarter, the Company estimates the total funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and revises as necessary, amortizing any adjustments to earned revenues over the remaining portion of the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. The Company’s schools reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates and for the reported three and six months ended December 31, 2015 and 2014. Under the contracts where the Company provides turnkey management services to schools, the Company has generally agreed to absorb any operating losses of the schools in a given school year. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school as reflected on its respective financial statements, including Company charges to the schools. To the extent a school does not receive funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenue and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are reduced accordingly to reflect the expected cash collections from such schools. The Company amortizes the estimated school operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. For turnkey revenue service contracts, a school operating loss may reduce the Company’s ability to collect its management fees in full though as noted it does not necessarily mean that the Company incurs a loss during the period with respect to its services to that school. The Company recognizes revenue, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenue is recognized based on the Company’s performance of services under the contract, which it believes is proportionate to its incurrence of costs. The Company incurs costs directly related to the delivery of services. Most of these costs are recognized throughout the year; however, certain costs related to upfront delivery of printed materials, workbooks, laboratory materials and other items are provided at the beginning of the school year and are recognized as expense when shipped. Each state or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company builds the funding estimates for each school, it is mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, student demographics, academic progress and historical completion, student location, funding caps and other state specified categorical program funding. The estimates the Company makes each period on a school-by-school basis takes into account the latest information available to it and considers material relevant information at the time of the estimate. Management periodically reviews its estimates of full-year school revenues and operating expenses and amortizes the net impact of any changes to these estimates over the remainder of the fiscal year. Actual school operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. For the three months ended December 31, 2015 and 2014, the Company’s revenue included a reduction for these school operating losses of $12.5 million and $15.1 million, respectively, and for the six months ended December 31, 2015 and 2014, were $26.6 million and $32.7 million, respectively. The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenue under these agreements is recognized in accordance with the ASC 605 when all of the following conditions are met: there is persuasive evidence of an arrangement; delivery has occurred or services have been rendered; the amount of fees to be paid by the customer is fixed and determinable; and the collectability of the fee is probable. Revenue from the licensing of curriculum under subscription arrangements is recognized on a ratable basis over the subscription period. Revenue from the licensing of curriculum under non-cancelable perpetual arrangements is recognized when all revenue recognition criteria have been met. Revenue from professional consulting, training and support services are deferred and recognized ratably over the service period. Other revenues are generated from individual customers who prepay and have access for one to two years to company-provided online curriculum. The Company recognizes these revenues pro rata over the maximum term of the customer contract. Revenues from associated offline learning kits are recognized upon shipment. During the three and six months ended December 31, 2015, the Company had a contract with one school that represented approximately 11% and 10% of revenue, respectively. During the three and six months ended December 31, 2014, the Company had a contract with a different school that represented approximately 14% and 13% of revenue, respectively. Approximately 3% and 9% of accounts receivable was attributable to each customer at December 31, 2015 and June 30, 2015. In fiscal year 2015, the Agora Cyber Charter School (“Agora”) renegotiated its service agreement and entered into a three-year contract with the Company to purchase the Company’s curriculum and certain technology services and the school board assumed daily operational responsibilities, including its charter renewal process and marketing and enrollment activities. The net impact of this contract change on revenues for the three and six months ended December 31, 2015 resulted in an approximate $26.7 million and $50.2 million, respectively, decrease as compared to the prior year. Reclassifications The Company has reclassified certain prior year income tax accounts on the unaudited condensed consolidated statements of cash flows to conform to the current year presentation. There was no effect on related income tax assets or liabilities, or the income statement from such reclassification. The reclassification had no effect on net cash flows. Consolidation The condensed consolidated financial statements include the accounts of the Company, its wholly-owned and affiliated companies that the Company owns, directly or indirectly, and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Inventories Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to virtual public schools and blended public schools and utilized directly by students. Inventories represent items that are purchased and held for sale, and are recorded at the lower of cost (first-in, first-out method) or market value. Excess and obsolete inventory reserves are established based upon the evaluation of the quantity on hand relative to demand. The excess and obsolete inventory reserves were $2.6 million and $2.2 million at December 31, 2015 and June 30, 2015, respectively. Other Current Assets Other current assets consist primarily of textbooks, curriculum materials and other supplies which are expected to be returned upon the completion of the school year. Materials not returned are expensed as part of instructional costs and services. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is calculated using the straight-line method over the estimated useful life of the asset (or the lesser of the term of the lease and the estimated useful life of the asset under capital lease). Amortization of assets capitalized under capital lease arrangements is included in depreciation expense. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the asset. The Company determines the lease term in accordance with ASC 840, Leases , as the fixed non-cancelable term of the lease plus all periods for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease, to be reasonably assured. Depreciation expense for the three and six months ended December 31, 2015 and 2014 was $5.1 million and $7.2 million, respectively, and $10.3 million and $14.6 million, respectively. Additionally, beginning in fiscal 2016, the Company no longer recovers peripheral equipment as it was determined to be uneconomical. Accordingly, the Company fully expenses peripherals upon shipment and the impact was immaterial. Property and equipment are depreciated over the following useful lives: Useful Life Student computers 3 years Computer hardware 3 years Computer software 3-5 years Web site development costs 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3-12 years The Company updates its estimate of unreturned computers based on an analysis of recent trends of returns and utilization rates. During the three and six months ended December 31, 2015, the Company wrote off $0.8 million and $1.5 million, respectively, related to the estimate which was recorded in depreciation expense. During the three and six months ended December 31, 2014, the Company wrote off $1.4 million and $2.7 million, respectively, related to the estimate which was recorded in depreciation expense. Capitalized Software Costs The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with ASC 350, Intangibles — Goodwill and Other . The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization. Capitalized software development additions totaled $16.9 million and $17.1 million for the six months ended December 31, 2015 and 2014, respectively. Amortization expense for the three and six months ended December 31, 2015 and 2014 was $6.8 million and $5.3 million, respectively, and $13.2 million and $10.1 million, respectively. Capitalized Curriculum Development Costs The Company internally develops curriculum, which is primarily provided as online content and accessed via the Internet. The Company also creates textbooks and other materials that are complementary to online content. The Company capitalizes curriculum development costs incurred during the application development stage in accordance with ASC 350. The Company capitalizes curriculum development costs during the design and deployment phases of the project. Many of the Company’s new courses leverage off of proven delivery platforms and are primarily content, which has no technological hurdles. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs will be amortized is generally five years. Total capitalized curriculum development additions were $6.9 million and $7.3 million for the six months ended December 31, 2015 and 2014, respectively. These amounts are recorded on the accompanying condensed consolidated balance sheets net of amortization charges. Amortization is recorded in product development expenses on the accompanying condensed consolidated statements of operations. Amortization expense for the three and six months ended December 31, 2015 and 2014 was $4.0 million and $4.5 million, respectively, and $8.3 million and $8.5 million, respectively. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes . Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Redeemable Noncontrolling Interests Earnings or losses attributable to other stockholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s condensed consolidated statements of operations. Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets are classified outside of permanent equity at redeemable value, which approximates fair value. However, if the redemption amount is other than fair value (e.g. fixed or variable), the redeemable noncontrolling interest is accounted for at the fixed or variable redeemable value. The redeemable noncontrolling interests are adjusted to their redeemable value at each balance sheet date. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital. Goodwill and Intangible Assets The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. Finite-lived intangible assets acquired in business combinations subject to amortization are recorded at their fair value. Finite-lived intangible assets include trade names, acquired customers and non-compete agreements. Such intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three and six months ended December 31, 2015 and 2014 was $0.6 million and $0.6 million, respectively, and $1.2 million and $1.3 million, respectively. Future amortization of intangible assets is $1.2 million, $1.9 million, $1.9 million, $1.9 million and $1.9 million in the fiscal years ending June 30, 2016 through June 30, 2020, respectively, and $10.7 million thereafter. At both December 31, 2015 and June 30, 2015, the goodwill balance was $66.2 million. At December 31, 2015, the Company’s stock market capitalization was below its net book value. However the Company continues to operate profitably and generate cash flow from operations, which is anticipated to continue in 2016 and beyond. At December 31, 2015, we didn’t believe the decline in market value was a triggering event; however, we will continue to monitor the market capitalization and assess the potential of a triggering event to the extent the decline is not other than temporary. ASC 350 prescribes a two-step process for impairment testing of goodwill and intangible assets with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows the Company to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on May 31st. The Step 0 analysis focused on a number of events and circumstances that may be considered when making this qualitative assessment. On July 31, 2014, the Company acquired a 51% majority interest in LearnBop Inc. (“LearnBop”), for $6.5 million in cash (see Note 11). The purchase price allocation for the acquisition was finalized in fiscal year 2015. The Company reviews its recorded finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. The following table represents the balance of intangible assets as of December 31, 2015 and June 30, 2015: Intangible Assets: December 31, 2015 June 30, 2015 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Trade names $ $ ) $ $ $ ) $ Customer and distributor relationships ) ) Developed technology ) — ) — Other ) ) $ $ ) $ $ $ ) $ Impairment of Long-Lived Assets Long-lived assets include property, equipment, capitalized curriculum and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment , management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. There was no such impairment charge for the three and six months ended December 31, 2015 and 2014. Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures , defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation. The carrying values reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, receivables and short and long term debt approximate their fair values. The redeemable noncontrolling interest includes the Company’s joint venture with Middlebury College to form Middlebury Interactive Languages (“MIL”). Under the agreement, Middlebury College has an irrevocable election to sell all of its membership interest to the Company (put right). The fair value of the redeemable noncontrolling interest reflects management’s best estimate of the redemption value of the put right. As discussed below, Middlebury College exercised its put right on May 4, 2015. The following table summarizes certain fair value information at December 31, 2015 and June 30, 2015 for assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Redeemable Noncontrolling Interest in Middlebury Joint Venture $ $ — $ — $ Total $ $ — $ — $ The following table summarizes the activity during the six months ended December 31, 2015 for assets and liabilities measured at fair value on a recurring basis: Six Months Ended December 31, 2015 Purchases, Fair Value Fair Value Issuances, Unrealized December 31, Description June 30, 2015 and Settlements Gains/(Losses) 2015 (In thousands) Redeemable Noncontrolling Interest in Middlebury Joint Venture $ $ — $ — $ Total $ $ — $ — $ The fair value of the redeemable noncontrolling interest in the Middlebury Joint Venture was accounted for in accordance with ASC 480-10-S99, Accounting for Redeemable Equity Instruments . The redeemable noncontrolling interests are redeemable outside of the Company’s control and are recorded outside of permanent equity. The fair value of the Middlebury Joint Venture was based upon a valuation from a third-party valuation firm as of June 30, 2015. In determining the fair value, the valuation incorporated a number of assumptions and estimates including an income-based valuation approach. As of June 30, 2015 the fair value of the redeemable noncontrolling interest in the Middlebury Joint Venture was estimated at $6.8 million. As of December 31, 2015, the Company performed an internal analysis and determined there was no underlying change in the estimated fair value of the redeemable noncontrolling interest in the Middlebury Joint Venture. On May 4, 2015, Middlebury College, under the joint venture agreement, exercised its right to require the Company to purchase all of its ownership interest in the joint venture at a mutually agreed upon fair market value or for a value to be determined by an independent valuation. At December 31, 2015, the Company was still in discussions with Middlebury to settle the terms under the put option. There has been no change in the fair value of the noncontrolling interest since June 30, 2015. The Company has the right to pay the redemption cost in cash, stock or a combination thereof, at the Company’s option, which form of consideration has not yet been determined. Net Income (Loss) Per Common Share The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share . Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflect the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options. The dilutive effect of stock options and restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive. Common stock outstanding reflected in the Company’s condensed consolidated balance sheets include restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities. Three Months Ended Six Months Ended December 31, December 31, Basic and dilutive income per share: 2015 2014 2015 2014 (In thousands except shares and (In thousands except shares and per share data) per share data) Net income (loss) attributable to common stockholders $ $ $ ) $ Weighted average common shares — basic Weighted average common shares — diluted Basic and Diluted net income (loss) per share $ $ $ ) $ For the three months ended December 31, 2015 and 2014, the dilutive shares totaled 120,880 and 64,349, respectively. The basic and diluted weighted average common shares were the same for the six months ended December 31, 2015 as the inclusion of dilutive securities would have been anti-dilutive. For the six months ended December 31, 2015 these anti-dilutive shares totaled 230,203. For the six months ended December 31, 2014, the dilutive shares totaled 203,849. At December 31, 2015, the Company had 42,423,963 shares issued and 38,921,365 shares outstanding. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes most existing revenue recognition guidance under US GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). On July 9, 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. Based on the Board’s decision, public organizations would apply the new revenue standard to annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to adopt this guidance early and does not believe that the adoption of this guidance will have a material impact on the Company’s financial statements and disclosures. In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05, “ Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees P |
Income Taxes
Income Taxes | 6 Months Ended |
Dec. 31, 2015 | |
Income Taxes | |
Income Taxes | 4. Income Taxes Income tax expense is based on income reported in the condensed consolidated financial statements. A deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense or benefit is measured by the change in the deferred income tax asset or liability during the period. For the three months ended December 31, 2015 and 2014, the Company’s effective income tax rate was 45.8% and 42.0%, respectively. For the six months ended December 31, 2015 and 2014, the Company’s effective income tax rate was 23.2% and 28.3%, respectively. The effective income tax rate differs from the statutory federal income tax rate primarily due to the effects of foreign operations, state taxes, tax credits, non-controlling interests, and current year permanent differences between book and tax treatment. |
Long-term Obligations
Long-term Obligations | 6 Months Ended |
Dec. 31, 2015 | |
Long-term Obligations | |
Long-term Obligations | 5. Long-term Obligations Capital Leases The Company incurs capital lease obligations for student computers under a separate lease line of credit with PNC Equipment Finance, LLC with annual borrowing limits. The Company had annual borrowing availability under the lease line of credit of $35.0 million as of December 31, 2015 and June 30, 2015, respectively. As of December 31, 2015 and June 30, 2015, the outstanding balance under the lease line of credit was $24.4 million and $29.7 million, respectively, with lease interest rates ranging from 1.95% to 3.08%. Individual leases under the lease line of credit include 36-month payment terms with a $1 purchase option at the end of each lease term. The Company has pledged the assets financed to secure the outstanding leases. The gross carrying value of leased student computers as of December 31, 2015 and June 30, 2015 was $40.2 million and $43.6 million, respectively. The net carrying value of leased student computers as of December 31, 2015 and June 30, 2015 was $11.4 million and $12.9 million, respectively. The Company incurs capital lease obligations for student computers under a lease line of credit with PNC Equipment Finance, LLC with annual lease availability limits. The Company had $35.0 million of availability for new leasing during the second quarter of fiscal year 2016. Interest rates in July 2015 on the new borrowings were based upon an initial rate of 2.34% modified by changes in the three year interest rate swaps rate as published in the Federal Reserve Statistical Release H.15, “Selected Interest Rates,” between June 25, 2014 and the Lease Commencement Date, as defined in the lease line of credit. This availability originally expired in July 2015, but was extended to July 2016. Interest rates on the new borrowings beginning in August 2015 under the extended agreement are based upon an initial rate of 1.88% modified by changes in the three year interest rate swaps rate as published in the Federal Reserve Statistical Release H.15, “Selected Interest Rates,” between April 29, 2015 and the Lease Commencement Date, as defined in the lease line of credit. The following is a summary as of December 31, 2015 of the present value of the net minimum payments due on outstanding capital leases under the Company’s commitments: Capital June 30, Leases ($ in thousands) 2016 $ 2017 2018 2019 Total minimum payments Less amount representing interest (imputed weighted average capital lease interest rate of 2.44%) ) Net minimum payments Less current portion ) Present value of minimum payments, less current portion $ |
Line of Credit
Line of Credit | 6 Months Ended |
Dec. 31, 2015 | |
Line of Credit. | |
Line of Credit | 6. Line of Credit On January 31, 2014, the Company executed a $100.0 million unsecured line of credit to be used for general corporate operating purposes with Bank of America, N.A. (“BOA”). The line has a five-year term, bears interest at the higher of the Bank’s prime rate plus 0.25%, or the Federal Funds Rates plus 0.75%, or the LIBOR rate plus 1.25%; and incorporates customary financial and other covenants, including but not limited to a maximum debt leverage and a minimum fixed charge coverage ratio. As of December 31, 2015 and June 30, 2015, the Company was in compliance with these covenants. During the six months ended December 31, 2015, there was no borrowing activity on this line of credit, and the Company had no borrowings outstanding on the line of credit as of December 31, 2015. The BOA credit agreement contains a number of financial and other covenants that, among other things; restrict the Company and its subsidiaries’ ability to incur additional indebtedness, grant liens or other security interests, make certain investments, make specified restricted payments including dividends, dispose of assets or stock including the stock of its subsidiaries, make capital expenditures above specified limits and engage in other matters customarily restricted in senior credit facilities. |
Equity Transactions
Equity Transactions | 6 Months Ended |
Dec. 31, 2015 | |
Equity Transactions | |
Equity Transactions | 7. Equity Transactions Our 2007 Equity Incentive Award Plan (the Plan) was designed to attract, retain and motivate key employees. Awards granted under the Plan may be settled in shares of the Company’s common stock or cash, in the case of performance share units (“PSUs”). At the beginning of each year, the Plan provides that the number of shares available for issuance automatically increases subject to the Board of Directors approval. During the six months ended December 31, 2015, the Company’s Board of Directors authorized 1,533,412 additional shares for issuance pursuant to the 2007 Plan’s evergreen provision. Through December 31, 2015, the remaining aggregate number of shares of the Company’s common stock authorized for future issuance under the Plan was 3,679,549. Through December 31, 2015, there were 5,033,228 shares of the Company’s common stock that were issued and remain outstanding as a result of equity awards granted under the Plan. Stock Options Stock option activity during the six months ended December 31, 2015 was as follows: Weighted- Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Shares Price Life (Years) (in thousands) Outstanding, June 30, 2015 $ $ Granted Exercised ) Forfeited or canceled ) Outstanding, December 31, 2015 $ $ — Stock options exercisable at December 31, 2015 $ $ — The aggregate intrinsic value of options exercised during the six months ended December 31, 2015 and 2014 was zero and $0.3 million, respectively. The weighted-average grant date fair value of options granted during the six months ended December 31, 2015 and 2014 was $6.18 and $7.20, respectively. As of December 31, 2015, there was $5.4 million of total unrecognized compensation expense related to unvested stock options granted. The cost is expected to be recognized over a weighted average period of 2.9 years. During the three months ended December 31, 2015 and 2014, the Company recognized $1.0 million and $0.9 million, respectively, of stock-based compensation expense related to stock options. During the six months ended December 31, 2015 and 2014, the Company recognized $2.0 million and $2.0 million, respectively, of stock-based compensation expense related to stock options. Restricted Stock Awards Restricted stock award activity during the six months ended December 31, 2015 was as follows: Weighted Average Grant Date Shares Fair Value Nonvested, June 30, 2015 $ Granted Vested ) Forfeited or canceled ) Nonvested, December 31, 2015 $ During the six months ended December 31, 2015, 111,690 new performance-based restricted stock awards were granted and 236,362 were nonvested at December 31, 2015. During the six months ended December 31, 2015, 131,104 performance-based awards vested. Vesting of the performance-based restricted stock awards is contingent on the achievement of certain financial performance goals and service vesting conditions. The remaining 698,489 awards granted during the six months ended December 31, 2015 were only service-based awards. The remaining 1,319,022 nonvested awards as of December 31, 2015 were only service-based awards. During the six months ended December 31, 2015, 303,782 service-based awards vested. As of December 31, 2015, there was $16.3 million of total unrecognized compensation expense related to unvested restricted stock awards granted. The cost is expected to be recognized over a weighted average period of 2.0 years. The total fair value of shares vested during the six months ended December 31, 2015 and 2014 was $5.4 million and $4.2 million, respectively. During the three months ended December 31, 2015 and 2014, the Company recognized $4.0 million and $3.8 million, respectively, of stock-based compensation expense related to restricted stock awards. During the six months ended December 31, 2015 and 2014, the Company recognized $7.6 million and $6.9 million, respectively, of stock-based compensation expense related to restricted stock awards. Performance Share Units During September 2015, the Company granted a total of 999,000 PSUs to certain senior executives, having a weighted average grant date fair value of $13.45 per share. The PSUs were granted pursuant to the terms of the Plan and vest upon achievement of certain performance criteria and continuation of service over a two to three-year period. The level of performance will determine the number of PSUs earned as measured against threshold, target and stretch achievement levels. Each PSU represents the right to receive one share of the Company’s common stock, or at the option of the Company, an equivalent amount of cash, and are classified as an equity award in accordance with Accounting Standards Codification 718 — Stock Compensation . If performance criteria exceed targets, then additional PSU’s up to 499,500 could be earned by the participants. In addition to the performance conditions, there is a service vesting condition which stipulates that thirty percent of the earned award will vest quarterly beginning November 15, 2017 and seventy percent of the earned award will vest on August 15, 2018, in both cases dependent upon continuing service by the grantee as an employee of the Company, unless the grantee is eligible for earlier vesting upon a change in control and qualifying termination, as defined by the PSU agreement. For equity performance awards, including the PSU’s, subject to graded vesting schedules for which vesting is based on achievement of a performance metric in addition to grantee service, stock-based compensation expense is recognized on an accelerated basis by treating each vesting tranche as if it was a separate grant. Performance Share Unit activity during the six months ended December 31, 2015 was as follows: Weighted Average Grant Date Shares Fair Value Nonvested, June 30, 2015 — $ — Granted Vested — Forfeited or canceled ) Nonvested, December 31, 2015 $ As of December 31, 2015, there was $11.5 million of total unrecognized compensation expense related to unvested performance share units granted. |
Related Party Transactions
Related Party Transactions | 6 Months Ended |
Dec. 31, 2015 | |
Related Party Transactions | |
Related Party Transactions | 8. Related Party Transactions At December 31, 2015 and June 30, 2015, the Company had loaned a total of $4.0 million to its 60% owned joint venture Middlebury Interactive Languages LLC (“MIL”) in accordance with the terms of the original joint venture agreement. The loan was repayable under terms and conditions specified in the loan agreement. The loan balance and related interest are eliminated since MIL is consolidated in the Company’s financial statements; however, repayment of the loan is dependent on the continued liquidity of MIL. On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to a managed school partner. The note bears interest at a fixed rate of 5.25% per year and has a term of five years. Monthly principal and interest payments began in October 2013 with a final balloon payment of $1.8 million at the term of the loan. The Mortgage is primarily secured by the underlying property. The borrower has defaulted on the loan payment and we are in the foreclosure process. Also see Note 10. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Dec. 31, 2015 | |
Commitments and Contingencies. | |
Commitments and Contingencies | 9. Commitments and Contingencies Litigation In the ordinary conduct of the Company’s business, the Company is subject to lawsuits, arbitrations and administrative proceedings from time to time. The Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on the Company’s business, financial condition, liquidity or results of operations. The Company expenses legal costs as incurred. On September 24, 2015, the Company, in connection with an industry-wide investigation styled “In the Matter of the Investigation of: For-Profit Virtual Schools,” received a civil investigative subpoena for specified documents and responses to interrogatories from the Attorney General of the State of California, Bureau of Children’s Justice. The Company is cooperating with the investigation and responding to the subpoena. At this stage, the Company is not aware of any material adverse effect this industry-wide investigation would have on the results of its operations and financial condition. Consulting Agreement On August 3, 2015, Mr. Timothy L. Murray, then President and Chief Operating Officer of K12 Inc. (the “Company”), notified the Company of his intent to resign, which became effective on September 15, 2015. The Company and Mr. Murray entered into a Consulting Agreement, effective September 16, 2015, whereby Mr. Murray provided transition and other consulting services for a term of up to six months and payment of $43,985 per month for services rendered. The Consulting Agreement terminated on December 31, 2015. Employment Agreements The Company has entered into employment agreements with certain executive officers that provide for severance payments and, in some cases other benefits, upon certain terminations of employment. Except for the agreements with the Company’s CEO that has a three year term, all other agreements provide for employment on an “at-will” basis. If the employee is terminated for “good reason” or without cause, the employee is entitled to salary continuation, and in some cases benefit continuation, for varying periods depending on the agreement. Off-Balance Sheet Arrangements The Company provided guarantees of approximately $8.1 million related to lease commitments on the buildings for certain of the Company’s Flex schools. The Company contractually guarantees that certain schools under the Company’s management will not have annual operating deficits and the Company’s management fees from these schools may be reduced accordingly to cover any school operating deficits. Other than these lease and operating deficit guarantees, the Company did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. |
Investments
Investments | 6 Months Ended |
Dec. 31, 2015 | |
Investments | |
Investments | 10. Investments Investment in Web International Education Group, Ltd. In January 2011, the Company invested $10.0 million to obtain a 20% minority interest in Web International Group, Ltd. (“Web”), a provider of English language learning centers in cities throughout China. From January 2011 through May 2013, the Company recorded its investment in Web as an available for sale debt security because of the ability to put the investment to other Web shareholders in return for the original $10.0 million investment plus interest. The Company’s option to purchase no less than 51% of Web expired on March 31, 2013 and on May 6, 2013, the Company exercised its right to put its investment back to Web for return of its original $10.0 million investment plus interest of 8%, which Web was contractually required to pay by May 31, 2014, as amended. The Company reclassified this $10.0 million investment, recording it in other current assets. The receivable is due and the Company accrued interest up through December 31, 2014. However, given the difficulties in expatriating money from China, and the resulting administrative hurdles related to collecting this receivable, starting January 1, 2015, the Company discontinued the accrual of interest. Furthermore, during the fourth quarter of 2015, and upon further negotiation with Web, the Company wrote off the full amount of accrued interest totaling $3.2 million. At December 31, 2015, the Web investment was included in other current assets. The Company and Web continue to mutually work toward a mechanism for collection of the principal. During the three months ended December 31, 2015 and 2014, the Company recorded interest income of zero and $0.2 million, respectively, associated with Web. During the six months ended December 31, 2015 and 2014, the Company recorded interest income of zero and $0.4 million, respectively, associated with Web. Investment in School Mortgage On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to the Maurice J. Moyer Academic Institute (“Moyer”). The note bears interest at a fixed rate of 5.25% per year and has a term of five years. Monthly principal and interest payments were scheduled to be made beginning October 2013 with a final balloon payment of $1.8 million at the term of the loan. The Mortgage is primarily secured by the underlying property. The Mortgage and ancillary documents include customary affirmative and financial covenants for secured transactions of this type. The Company has recorded this as a held to maturity investment and the current amounts are included in other current assets while the non-current amounts are included in deposits and other assets on the consolidated balance sheets. During June 2015, the Company engaged a third party valuation firm to conduct an appraisal of the property to assess market value at June 30, 2015. The appraisal concluded a market value in excess of the note carrying value. As of December 31, 2015, there are no indications that these factors have changed. During the six months ended December 31, 2015, Moyer defaulted on the loan agreement for non-payment of principal and interest, the school’s closure, and other contractual defaults. The Company continues to exercise its rights under the existing arrangement, including pursuing foreclosure and receivership. During the three months ended December 31, 2015, Moyer has filed a counterclaim against the Company asserting breach of contract and alleging that the breach caused it to default on the loan agreement. The Company believes that this breach of contract counterclaim is without merit. |
Redeemable Noncontrolling Inter
Redeemable Noncontrolling Interest | 6 Months Ended |
Dec. 31, 2015 | |
Redeemable Noncontrolling Interest | |
Redeemable Noncontrolling Interest | 11. Redeemable Noncontrolling Interest Investment in LearnBop Inc. On July 31, 2014, the Company acquired a majority interest in LearnBop Inc. (“LearnBop”), for $6.5 million in cash in return for a 51% interest in LearnBop. The purpose of the acquisition was to complement the Company’s K-12 math curriculum as LearnBop has developed an adaptive math curriculum learning software. As part of this transaction, the non-controlling shareholders have a non-transferable put option, which is exercisable between July 31, 2018 and December 31, 2018 for the remaining minority interest. The price of the put option will be determined based on the trailing twelve month revenue and contribution margin as defined in the Stockholders’ Agreement between the Company and LearnBop. Additionally, the Company has a non-transferable call option for the remaining minority interest at a price of $3.0 million, which becomes exercisable January 1, 2019 or thereafter. Acquisition costs incurred by the Company related to this transaction included in selling, administrative and other operating expenses were $0.1 million. The purchase price of $6.5 million was allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The Company recorded goodwill of $8.1 million, which will be non-deductible for tax purposes. Recognition of goodwill is largely attributed to the value paid for LearnBop’s capabilities in providing adaptive learning software for math curriculum to K-12 students. The Company has not disclosed current period or pro-forma revenue and earnings attributable to LearnBop as they are immaterial. The Company finalized its allocation of the purchase price of LearnBop as of June 30, 2015. The purchase price was allocated as follows: As of July 31, 2014 Amount Current assets $ Capitalized Software Goodwill Current liabilities ) Redeemable noncontrolling interest ) Fair value of total consideration transferred $ Given the provision of the put rights, the redeemable noncontrolling interests are redeemable outside of the Company’s control and are recorded outside of permanent equity at their redemption value in accordance with ASC 480-10-S99, Accounting for Redeemable Equity Instruments. The Company will adjust the redeemable noncontrolling interests to redemption value on each balance sheet date with changes in redemption value recognized as an adjustment to retained earnings, or in the absence of retained earnings, by adjustment to additional paid-in-capital. The noncontrolling interest is redeemable at other than fair value as the redemption value is determined based on a specified formula. The noncontrolling interest becomes redeemable after the passage of time, and therefore the Company records the carrying amount of the noncontrolling interest at the greater of 1) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss, or 2) the redemption value. According to ASC 480-10-S99, to the extent that the noncontrolling interest holder has the contractual right to receive an amount upon share redemption that is other than fair value of such shares, only the portion of the periodic adjustment to the instrument’s carrying amount that reflects redemption in excess of fair value is treated like a dividend for earnings per share computation purposes. No adjustment to the earnings per share computation was necessary as estimated fair value of the noncontrolling interest is greater than the redemption value. Middlebury College Joint Venture In May 2010, the Company entered into an agreement to establish a joint venture with Middlebury College (“Middlebury”) to form Middlebury Interactive Languages LLC (“MIL”). The venture creates and distributes innovative, online language courses under the trademark Middlebury and other marks. The joint venture agreement provided Middlebury with the right at any time after the fifth (5th) anniversary of forming the joint venture, to irrevocably elect to sell all of its membership interest to the Company (put right) at the fair market value of Middlebury’s membership interest. Additionally, Middlebury had an option to repurchase the camp programs at fair market value along with other contractual rights as certain milestones associated with its Language Academy summer camp programs were not met. On May 4, 2015, Middlebury exercised its right to require the Company to purchase all of its ownership interest in the joint venture but it has not exercised its option to repurchase the camps programs. The redeemable noncontrolling interests are redeemable outside of the Company’s control. Because of this the Company records the redemption fair value outside of permanent equity in accordance with ASC 480-10-S99 . The Company adjusts the redeemable noncontrolling interests to redemption value on each balance sheet date with changes in redemption values recognized as an adjustment to retained earnings, or in the absence of retained earnings, by adjustment to additional paid-in-capital. At December 31, 2015, the Company was still in discussions with Middlebury to settle the terms under the put option. There has been no change in the fair value of the noncontrolling interest since June 30, 2015. The Company has the right to pay the redemption cost in cash, stock or a combination thereof, at the Company’s option, which form of consideration has not yet been determined. |
Supplemental Disclosure of Cash
Supplemental Disclosure of Cash Flow Information | 6 Months Ended |
Dec. 31, 2015 | |
Supplemental Disclosure of Cash Flow Information | |
Supplemental Disclosure of Cash Flow Information | 12. Supplemental Disclosure of Cash Flow Information Six Months Ended December 31, 2015 2014 (In thousands) Cash paid for interest $ $ Cash paid for taxes, net of refunds $ $ Supplemental disclosure of non-cash financing activities: New capital lease obligations $ $ Supplemental disclosure of non-cash investing activities: Business Combinations: — Current assets $ — $ — Property and equipment $ — $ — Intangible assets $ — $ — Goodwill $ — $ — Assumed liabilities $ — $ ) — Deferred revenue $ — $ ) |
Common Stock Repurchases
Common Stock Repurchases | 6 Months Ended |
Dec. 31, 2015 | |
Common Stock Repurchases | |
Common Stock Repurchases | 13. Common Stock Repurchases On November 4, 2013, the Board of Directors authorized the repurchase of up to $75 million of the Company’s outstanding common stock over a two year period. The stock purchases under the buyback were dependent upon business and market conditions and other factors. The stock purchases were made from time to time and may be made through a variety of methods including open market purchases and in accordance with the SEC’s Rule 10b5-1. There were no shares purchased during the six months ended December 31, 2015. There were 1,307,402 shares of common stock at an average price of $20.23 per share purchased during the six months ended December 31, 2014. As of December 31, 2015 total shares purchased under the plan were 3,502,598, at an average cost of $21.41 per share, and there were no shares remaining to be repurchased under the plan. |
Summary of Significant Accoun22
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Dec. 31, 2015 | |
Summary of Significant Accounting Policies | |
Revenue Recognition | Revenue Recognition Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended public schools, traditional schools, school districts, virtual charter schools, and private schools. In addition to providing the curriculum, books and materials, under most contracts, the Company provides management services and technology to virtual and blended public schools, including monitoring academic achievement, teacher hiring and training, compensation of school personnel, financial management, enrollment processing and development and procurement of curriculum, equipment and required services. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenues. Where the Company has determined that it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenue received by the school from its state funding school district up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition . As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the three months ended December 31, 2015 and 2014 were $72.3 million and $84.1 million, respectively, and for the six months ended December 31, 2015 and 2014 were $134.5 million and $152.8 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenue based on its net fees earned under the contractual agreement. The Company generates revenues under turnkey management contracts with virtual and blended public schools which include multiple elements. These elements include: · providing each of a school’s students with access to the Company’s online school and lessons; · offline learning kits, which include books and materials to supplement the online lessons, where required; · the use of a personal computer and associated reclamation services, where required; · internet access and technology support services; · instruction by a state-certified teacher, where required; and · management and technology services necessary to operate a virtual public or blended school. In certain managed school contracts, revenue is determined directly by per enrollment funding. The Company has determined that the elements of its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within the Company’s multiple-element contracts do not qualify as separate units of accounting. Accordingly, the Company accounts for revenues under multiple element arrangements as a single unit of accounting and recognizes the entire arrangement based upon the approximate rate at which it incurs the costs associated with each element. Revenue from certain managed schools is recognized ratably over the period services are performed. To determine the pro rata amount of revenues to recognize in a fiscal quarter, the Company estimates the total funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and revises as necessary, amortizing any adjustments to earned revenues over the remaining portion of the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. The Company’s schools reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates and for the reported three and six months ended December 31, 2015 and 2014. Under the contracts where the Company provides turnkey management services to schools, the Company has generally agreed to absorb any operating losses of the schools in a given school year. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school as reflected on its respective financial statements, including Company charges to the schools. To the extent a school does not receive funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenue and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are reduced accordingly to reflect the expected cash collections from such schools. The Company amortizes the estimated school operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. For turnkey revenue service contracts, a school operating loss may reduce the Company’s ability to collect its management fees in full though as noted it does not necessarily mean that the Company incurs a loss during the period with respect to its services to that school. The Company recognizes revenue, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenue is recognized based on the Company’s performance of services under the contract, which it believes is proportionate to its incurrence of costs. The Company incurs costs directly related to the delivery of services. Most of these costs are recognized throughout the year; however, certain costs related to upfront delivery of printed materials, workbooks, laboratory materials and other items are provided at the beginning of the school year and are recognized as expense when shipped. Each state or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company builds the funding estimates for each school, it is mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, student demographics, academic progress and historical completion, student location, funding caps and other state specified categorical program funding. The estimates the Company makes each period on a school-by-school basis takes into account the latest information available to it and considers material relevant information at the time of the estimate. Management periodically reviews its estimates of full-year school revenues and operating expenses and amortizes the net impact of any changes to these estimates over the remainder of the fiscal year. Actual school operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. For the three months ended December 31, 2015 and 2014, the Company’s revenue included a reduction for these school operating losses of $12.5 million and $15.1 million, respectively, and for the six months ended December 31, 2015 and 2014, were $26.6 million and $32.7 million, respectively. The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenue under these agreements is recognized in accordance with the ASC 605 when all of the following conditions are met: there is persuasive evidence of an arrangement; delivery has occurred or services have been rendered; the amount of fees to be paid by the customer is fixed and determinable; and the collectability of the fee is probable. Revenue from the licensing of curriculum under subscription arrangements is recognized on a ratable basis over the subscription period. Revenue from the licensing of curriculum under non-cancelable perpetual arrangements is recognized when all revenue recognition criteria have been met. Revenue from professional consulting, training and support services are deferred and recognized ratably over the service period. Other revenues are generated from individual customers who prepay and have access for one to two years to company-provided online curriculum. The Company recognizes these revenues pro rata over the maximum term of the customer contract. Revenues from associated offline learning kits are recognized upon shipment. During the three and six months ended December 31, 2015, the Company had a contract with one school that represented approximately 11% and 10% of revenue, respectively. During the three and six months ended December 31, 2014, the Company had a contract with a different school that represented approximately 14% and 13% of revenue, respectively. Approximately 3% and 9% of accounts receivable was attributable to each customer at December 31, 2015 and June 30, 2015. In fiscal year 2015, the Agora Cyber Charter School (“Agora”) renegotiated its service agreement and entered into a three-year contract with the Company to purchase the Company’s curriculum and certain technology services and the school board assumed daily operational responsibilities, including its charter renewal process and marketing and enrollment activities. The net impact of this contract change on revenues for the three and six months ended December 31, 2015 resulted in an approximate $26.7 million and $50.2 million, respectively, decrease as compared to the prior year. |
Reclassifications | Reclassifications The Company has reclassified certain prior year income tax accounts on the unaudited condensed consolidated statements of cash flows to conform to the current year presentation. There was no effect on related income tax assets or liabilities, or the income statement from such reclassification. The reclassification had no effect on net cash flows. |
Consolidation | Consolidation The condensed consolidated financial statements include the accounts of the Company, its wholly-owned and affiliated companies that the Company owns, directly or indirectly, and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. |
Inventories | Inventories Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to virtual public schools and blended public schools and utilized directly by students. Inventories represent items that are purchased and held for sale, and are recorded at the lower of cost (first-in, first-out method) or market value. Excess and obsolete inventory reserves are established based upon the evaluation of the quantity on hand relative to demand. The excess and obsolete inventory reserves were $2.6 million and $2.2 million at December 31, 2015 and June 30, 2015, respectively. |
Other Current Assets | Other Current Assets Other current assets consist primarily of textbooks, curriculum materials and other supplies which are expected to be returned upon the completion of the school year. Materials not returned are expensed as part of instructional costs and services. |
Property and Equipment | Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is calculated using the straight-line method over the estimated useful life of the asset (or the lesser of the term of the lease and the estimated useful life of the asset under capital lease). Amortization of assets capitalized under capital lease arrangements is included in depreciation expense. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the asset. The Company determines the lease term in accordance with ASC 840, Leases , as the fixed non-cancelable term of the lease plus all periods for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease, to be reasonably assured. Depreciation expense for the three and six months ended December 31, 2015 and 2014 was $5.1 million and $7.2 million, respectively, and $10.3 million and $14.6 million, respectively. Additionally, beginning in fiscal 2016, the Company no longer recovers peripheral equipment as it was determined to be uneconomical. Accordingly, the Company fully expenses peripherals upon shipment and the impact was immaterial. Property and equipment are depreciated over the following useful lives: Useful Life Student computers 3 years Computer hardware 3 years Computer software 3-5 years Web site development costs 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3-12 years The Company updates its estimate of unreturned computers based on an analysis of recent trends of returns and utilization rates. During the three and six months ended December 31, 2015, the Company wrote off $0.8 million and $1.5 million, respectively, related to the estimate which was recorded in depreciation expense. During the three and six months ended December 31, 2014, the Company wrote off $1.4 million and $2.7 million, respectively, related to the estimate which was recorded in depreciation expense. |
Capitalized Software Costs | Capitalized Software Costs The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with ASC 350, Intangibles — Goodwill and Other . The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization. Capitalized software development additions totaled $16.9 million and $17.1 million for the six months ended December 31, 2015 and 2014, respectively. Amortization expense for the three and six months ended December 31, 2015 and 2014 was $6.8 million and $5.3 million, respectively, and $13.2 million and $10.1 million, respectively. |
Capitalized Curriculum Development Costs | Capitalized Curriculum Development Costs The Company internally develops curriculum, which is primarily provided as online content and accessed via the Internet. The Company also creates textbooks and other materials that are complementary to online content. The Company capitalizes curriculum development costs incurred during the application development stage in accordance with ASC 350. The Company capitalizes curriculum development costs during the design and deployment phases of the project. Many of the Company’s new courses leverage off of proven delivery platforms and are primarily content, which has no technological hurdles. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs will be amortized is generally five years. Total capitalized curriculum development additions were $6.9 million and $7.3 million for the six months ended December 31, 2015 and 2014, respectively. These amounts are recorded on the accompanying condensed consolidated balance sheets net of amortization charges. Amortization is recorded in product development expenses on the accompanying condensed consolidated statements of operations. Amortization expense for the three and six months ended December 31, 2015 and 2014 was $4.0 million and $4.5 million, respectively, and $8.3 million and $8.5 million, respectively. |
Income Taxes | Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes . Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. |
Redeemable Noncontrolling Interests | Redeemable Noncontrolling Interests Earnings or losses attributable to other stockholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s condensed consolidated statements of operations. Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets are classified outside of permanent equity at redeemable value, which approximates fair value. However, if the redemption amount is other than fair value (e.g. fixed or variable), the redeemable noncontrolling interest is accounted for at the fixed or variable redeemable value. The redeemable noncontrolling interests are adjusted to their redeemable value at each balance sheet date. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. Finite-lived intangible assets acquired in business combinations subject to amortization are recorded at their fair value. Finite-lived intangible assets include trade names, acquired customers and non-compete agreements. Such intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three and six months ended December 31, 2015 and 2014 was $0.6 million and $0.6 million, respectively, and $1.2 million and $1.3 million, respectively. Future amortization of intangible assets is $1.2 million, $1.9 million, $1.9 million, $1.9 million and $1.9 million in the fiscal years ending June 30, 2016 through June 30, 2020, respectively, and $10.7 million thereafter. At both December 31, 2015 and June 30, 2015, the goodwill balance was $66.2 million. At December 31, 2015, the Company’s stock market capitalization was below its net book value. However the Company continues to operate profitably and generate cash flow from operations, which is anticipated to continue in 2016 and beyond. At December 31, 2015, we didn’t believe the decline in market value was a triggering event; however, we will continue to monitor the market capitalization and assess the potential of a triggering event to the extent the decline is not other than temporary. ASC 350 prescribes a two-step process for impairment testing of goodwill and intangible assets with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows the Company to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. The Company has elected to perform its annual assessment on May 31st. The Step 0 analysis focused on a number of events and circumstances that may be considered when making this qualitative assessment. On July 31, 2014, the Company acquired a 51% majority interest in LearnBop Inc. (“LearnBop”), for $6.5 million in cash (see Note 11). The purchase price allocation for the acquisition was finalized in fiscal year 2015. The Company reviews its recorded finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. The following table represents the balance of intangible assets as of December 31, 2015 and June 30, 2015: Intangible Assets: December 31, 2015 June 30, 2015 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Trade names $ $ ) $ $ $ ) $ Customer and distributor relationships ) ) Developed technology ) — ) — Other ) ) $ $ ) $ $ $ ) $ |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets Long-lived assets include property, equipment, capitalized curriculum and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment , management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. There was no such impairment charge for the three and six months ended December 31, 2015 and 2014. |
Fair Value Measurements | Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures , defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation. The carrying values reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, receivables and short and long term debt approximate their fair values. The redeemable noncontrolling interest includes the Company’s joint venture with Middlebury College to form Middlebury Interactive Languages (“MIL”). Under the agreement, Middlebury College has an irrevocable election to sell all of its membership interest to the Company (put right). The fair value of the redeemable noncontrolling interest reflects management’s best estimate of the redemption value of the put right. As discussed below, Middlebury College exercised its put right on May 4, 2015. The following table summarizes certain fair value information at December 31, 2015 and June 30, 2015 for assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Redeemable Noncontrolling Interest in Middlebury Joint Venture $ $ — $ — $ Total $ $ — $ — $ The following table summarizes the activity during the six months ended December 31, 2015 for assets and liabilities measured at fair value on a recurring basis: Six Months Ended December 31, 2015 Purchases, Fair Value Fair Value Issuances, Unrealized December 31, Description June 30, 2015 and Settlements Gains/(Losses) 2015 (In thousands) Redeemable Noncontrolling Interest in Middlebury Joint Venture $ $ — $ — $ Total $ $ — $ — $ The fair value of the redeemable noncontrolling interest in the Middlebury Joint Venture was accounted for in accordance with ASC 480-10-S99, Accounting for Redeemable Equity Instruments . The redeemable noncontrolling interests are redeemable outside of the Company’s control and are recorded outside of permanent equity. The fair value of the Middlebury Joint Venture was based upon a valuation from a third-party valuation firm as of June 30, 2015. In determining the fair value, the valuation incorporated a number of assumptions and estimates including an income-based valuation approach. As of June 30, 2015 the fair value of the redeemable noncontrolling interest in the Middlebury Joint Venture was estimated at $6.8 million. As of December 31, 2015, the Company performed an internal analysis and determined there was no underlying change in the estimated fair value of the redeemable noncontrolling interest in the Middlebury Joint Venture. On May 4, 2015, Middlebury College, under the joint venture agreement, exercised its right to require the Company to purchase all of its ownership interest in the joint venture at a mutually agreed upon fair market value or for a value to be determined by an independent valuation. At December 31, 2015, the Company was still in discussions with Middlebury to settle the terms under the put option. There has been no change in the fair value of the noncontrolling interest since June 30, 2015. The Company has the right to pay the redemption cost in cash, stock or a combination thereof, at the Company’s option, which form of consideration has not yet been determined. |
Net Income (Loss) Per Common Share | Net Income (Loss) Per Common Share The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share . Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflect the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options. The dilutive effect of stock options and restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive. Common stock outstanding reflected in the Company’s condensed consolidated balance sheets include restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities. Three Months Ended Six Months Ended December 31, December 31, Basic and dilutive income per share: 2015 2014 2015 2014 (In thousands except shares and (In thousands except shares and per share data) per share data) Net income (loss) attributable to common stockholders $ $ $ ) $ Weighted average common shares — basic Weighted average common shares — diluted Basic and Diluted net income (loss) per share $ $ $ ) $ For the three months ended December 31, 2015 and 2014, the dilutive shares totaled 120,880 and 64,349, respectively. The basic and diluted weighted average common shares were the same for the six months ended December 31, 2015 as the inclusion of dilutive securities would have been anti-dilutive. For the six months ended December 31, 2015 these anti-dilutive shares totaled 230,203. For the six months ended December 31, 2014, the dilutive shares totaled 203,849. At December 31, 2015, the Company had 42,423,963 shares issued and 38,921,365 shares outstanding. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes most existing revenue recognition guidance under US GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). On July 9, 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. Based on the Board’s decision, public organizations would apply the new revenue standard to annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) (“ASU 2014-15”). ASU 2014-15 addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect to adopt this guidance early and does not believe that the adoption of this guidance will have a material impact on the Company’s financial statements and disclosures. In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-05, “ Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”). ASU 2015-05 provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the entity should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. ASU 2015-05 does not change the accounting for service contracts. ASU 2015-05 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the impact of this guidance. |
Summary of Significant Accoun23
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Dec. 31, 2015 | |
Summary of Significant Accounting Policies | |
Schedule of useful lives of property and equipment | Useful Life Student computers 3 years Computer hardware 3 years Computer software 3-5 years Web site development costs 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3-12 years |
Schedule of intangible assets | December 31, 2015 June 30, 2015 ($ in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Trade names $ $ ) $ $ $ ) $ Customer and distributor relationships ) ) Developed technology ) — ) — Other ) ) $ $ ) $ $ $ ) $ |
Schedule of assets and liabilities measured at fair value on a recurring basis | The following table summarizes certain fair value information at December 31, 2015 and June 30, 2015 for assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Redeemable Noncontrolling Interest in Middlebury Joint Venture $ $ — $ — $ Total $ $ — $ — $ The following table summarizes the activity during the six months ended December 31, 2015 for assets and liabilities measured at fair value on a recurring basis: Six Months Ended December 31, 2015 Purchases, Fair Value Fair Value Issuances, Unrealized December 31, Description June 30, 2015 and Settlements Gains/(Losses) 2015 (In thousands) Redeemable Noncontrolling Interest in Middlebury Joint Venture $ $ — $ — $ Total $ $ — $ — $ |
Schedule of calculation of basic and diluted net loss per share | Three Months Ended Six Months Ended December 31, December 31, Basic and dilutive income per share: 2015 2014 2015 2014 (In thousands except shares and (In thousands except shares and per share data) per share data) Net income (loss) attributable to common stockholders $ $ $ ) $ Weighted average common shares — basic Weighted average common shares — diluted Basic and Diluted net income (loss) per share $ $ $ ) $ |
Long-term Obligations (Tables)
Long-term Obligations (Tables) | 6 Months Ended |
Dec. 31, 2015 | |
Long-term Obligations | |
Summary of present value of the net minimum payments due on outstanding capital leases | The following is a summary as of December 31, 2015 of the present value of the net minimum payments due on outstanding capital leases under the Company’s commitments: Capital June 30, Leases ($ in thousands) 2016 $ 2017 2018 2019 Total minimum payments Less amount representing interest (imputed weighted average capital lease interest rate of 2.44%) ) Net minimum payments Less current portion ) Present value of minimum payments, less current portion $ |
Equity Transactions (Tables)
Equity Transactions (Tables) | 6 Months Ended |
Dec. 31, 2015 | |
Equity Transactions | |
Schedule of stock option activity | Weighted- Weighted- Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Shares Price Life (Years) (in thousands) Outstanding, June 30, 2015 $ $ Granted Exercised ) Forfeited or canceled ) Outstanding, December 31, 2015 $ $ — Stock options exercisable at December 31, 2015 $ $ — |
Schedule of restricted stock award activity | Weighted Average Grant Date Shares Fair Value Nonvested, June 30, 2015 $ Granted Vested ) Forfeited or canceled ) Nonvested, December 31, 2015 $ |
Schedule of performance share units award activity | Weighted Average Grant Date Shares Fair Value Nonvested, June 30, 2015 — $ — Granted Vested — Forfeited or canceled ) Nonvested, December 31, 2015 $ |
Redeemable Noncontrolling Int26
Redeemable Noncontrolling Interest (Tables) | 6 Months Ended |
Dec. 31, 2015 | |
Redeemable Noncontrolling Interest | |
Schedule of purchase price allocation for LearmBop | The Company finalized its allocation of the purchase price of LearnBop as of June 30, 2015. The purchase price was allocated as follows: As of July 31, 2014 Amount Current assets $ Capitalized Software Goodwill Current liabilities ) Redeemable noncontrolling interest ) Fair value of total consideration transferred $ |
Supplemental Disclosure of Ca27
Supplemental Disclosure of Cash Flow Information (Tables) | 6 Months Ended |
Dec. 31, 2015 | |
Supplemental Disclosure of Cash Flow Information | |
Schedule of supplemental disclosure of cash flow information | Six Months Ended December 31, 2015 2014 (In thousands) Cash paid for interest $ $ Cash paid for taxes, net of refunds $ $ Supplemental disclosure of non-cash financing activities: New capital lease obligations $ $ Supplemental disclosure of non-cash investing activities: Business Combinations: — Current assets $ — $ — Property and equipment $ — $ — Intangible assets $ — $ — Goodwill $ — $ — Assumed liabilities $ — $ ) — Deferred revenue $ — $ ) |
Description of the Business (De
Description of the Business (Details) | 6 Months Ended |
Dec. 31, 2015item | |
Description of the Business | |
Number of states in which Company has Managed Public School Programs | 33 |
Basis of Presentation (Details)
Basis of Presentation (Details) | 6 Months Ended |
Dec. 31, 2015segment | |
Basis of Presentation | |
Number of operating segments | 1 |
Number of reportable business segments | 1 |
Summary of Significant Accoun30
Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
Revenue recognition | ||||
Amounts recorded as revenues and school operating expenses | $ 72.3 | $ 84.1 | $ 134.5 | $ 152.8 |
Reduction in school operating losses included in the entity's revenue | $ 12.5 | $ 15.1 | $ 26.6 | $ 32.7 |
Minimum | ||||
Revenue recognition | ||||
Duration of contracts providing access to curriculum via the entity's Web site | 1 year | |||
Maximum | ||||
Revenue recognition | ||||
Duration of contracts providing access to curriculum via the entity's Web site | 2 years |
Summary of Significant Accoun31
Summary of Significant Accounting Policies (Details 2) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Jun. 30, 2015 | |
Inventories | |||||
Excess and obsolete inventory reserve | $ 2.6 | $ 2.6 | $ 2.2 | ||
Accounts Receivable | Customer Concentration Risk | |||||
Concentration of revenues | |||||
Concentration risk (as a percent) | 3.00% | 9.00% | |||
Customer A | Revenue | Customer Concentration Risk | |||||
Concentration of revenues | |||||
Concentration risk (as a percent) | 11.00% | 10.00% | |||
Customer B | Revenue | Customer Concentration Risk | |||||
Concentration of revenues | |||||
Concentration risk (as a percent) | 14.00% | 13.00% | |||
Agora | |||||
Concentration of revenues | |||||
Period of contract entered to provide academic curriculum | 3 years | ||||
Decrease in revenue as impact of transition | $ 26.7 | $ 50.2 |
Summary of Significant Accoun32
Summary of Significant Accounting Policies (Details 3) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
Property and equipment | ||||
Depreciation expense | $ 5,100 | $ 7,200 | $ 10,300 | $ 14,600 |
Capitalized Curriculum Development Costs | ||||
Estimated useful life of the software | 5 years | |||
Capitalized curriculum development additions | $ 6,867 | 7,267 | ||
Amortization expense | 4,000 | 4,500 | $ 8,300 | 8,500 |
Student computers | ||||
Property and equipment | ||||
Useful Life | 3 years | |||
Accelerated Depreciation | 800 | 1,400 | $ 1,500 | 2,700 |
Computer hardware | ||||
Property and equipment | ||||
Useful Life | 3 years | |||
Computer software | Minimum | ||||
Property and equipment | ||||
Useful Life | 3 years | |||
Computer software | Maximum | ||||
Property and equipment | ||||
Useful Life | 5 years | |||
Web site development costs | ||||
Property and equipment | ||||
Useful Life | 3 years | |||
Office equipment | ||||
Property and equipment | ||||
Useful Life | 5 years | |||
Furniture and fixtures | ||||
Property and equipment | ||||
Useful Life | 7 years | |||
Leasehold improvements | Minimum | ||||
Property and equipment | ||||
Useful Life | 3 years | |||
Leasehold improvements | Maximum | ||||
Property and equipment | ||||
Useful Life | 12 years | |||
Capitalized software | ||||
Property and equipment | ||||
Useful Life | 3 years | |||
Capitalized software development additions | $ 16,900 | 17,100 | ||
Amortization expense | $ 6,800 | $ 5,300 | $ 13,200 | $ 10,100 |
Summary of Significant Accoun33
Summary of Significant Accounting Policies (Details 4) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Jun. 30, 2015 | |
Intangible Assets: | |||||
Amortization expense | $ 600 | $ 600 | $ 1,200 | $ 1,300 | |
Goodwill | 66,160 | 66,160 | $ 66,160 | ||
Gross Carrying Amount | 37,400 | 37,400 | 37,400 | ||
Accumulated Amortization | (17,400) | (17,400) | (16,200) | ||
Net Carrying Value | 20,000 | 20,000 | 21,200 | ||
Asset Impairment Charges | 0 | $ 0 | 0 | $ 0 | |
Future amortization of intangible assets | |||||
2,016 | 1,200 | 1,200 | |||
2,017 | 1,900 | 1,900 | |||
2,018 | 1,900 | 1,900 | |||
2,019 | 1,900 | 1,900 | |||
2,020 | 1,900 | 1,900 | |||
Thereafter | 10,700 | 10,700 | |||
Trade names | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 17,500 | 17,500 | 17,500 | ||
Accumulated Amortization | (6,200) | (6,200) | (5,700) | ||
Net Carrying Value | 11,300 | 11,300 | 11,800 | ||
Customer and distributor relationships | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 18,200 | 18,200 | 18,200 | ||
Accumulated Amortization | (9,800) | (9,800) | (9,100) | ||
Net Carrying Value | 8,400 | 8,400 | 9,100 | ||
Developed technology | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 1,200 | 1,200 | 1,200 | ||
Accumulated Amortization | (1,200) | (1,200) | (1,200) | ||
Other | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 500 | 500 | 500 | ||
Accumulated Amortization | (200) | (200) | (200) | ||
Net Carrying Value | $ 300 | $ 300 | $ 300 |
Summary of Significant Accoun34
Summary of Significant Accounting Policies (Details 5) - LearnBop $ in Millions | Jul. 31, 2014USD ($) |
Goodwill movements | |
Ownership percentage | 51.00% |
Cash purchase price | $ 6.5 |
Summary of Significant Accoun35
Summary of Significant Accounting Policies (Details 7) - Measured on a recurring basis - USD ($) $ in Thousands | Dec. 31, 2015 | Jun. 30, 2015 |
Fair value | ||
Assets and liabilities measured at fair value on a recurring basis | ||
Total | $ 6,801 | $ 6,801 |
Fair value | Middlebury Interactive Languages LLC | ||
Assets and liabilities measured at fair value on a recurring basis | ||
Redeemable Noncontrolling Interest Fair Value | 6,801 | $ 6,801 |
Significant Unobservable Inputs (Level 3) | ||
Assets and liabilities measured at fair value on a recurring basis | ||
Total | 6,801 | |
Significant Unobservable Inputs (Level 3) | Middlebury Interactive Languages LLC | ||
Assets and liabilities measured at fair value on a recurring basis | ||
Redeemable Noncontrolling Interest Fair Value | $ 6,801 |
Summary of Significant Accoun36
Summary of Significant Accounting Policies (Details 8) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | Jun. 30, 2015 | |
Basic and dilutive loss per share computation: | |||||
Net loss attributable to common stockholders | $ 8,538 | $ 12,331 | $ (4,255) | $ 5,557 | |
Weighted average common shares-basic | 37,559,999 | 37,096,480 | 37,496,747 | 37,396,081 | |
Weighted average common shares, diluted | 37,680,879 | 37,160,829 | 37,496,747 | 37,599,930 | |
Basic and diluted net income per share (in dollars per share) | $ 0.23 | $ 0.33 | $ (0.11) | $ 0.15 | |
Dilutive shares | 120,880 | 64,349 | 203,849 | ||
Anti-dilutive shares | 230,203 | ||||
Additional disclosures | |||||
Common stock, shares issued | 42,423,963 | 42,423,963 | 41,837,894 | ||
Common stock, shares outstanding | 38,921,365 | 38,921,365 | 38,335,296 |
Income Taxes (Details)
Income Taxes (Details) | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
Reconciliation to income tax at the statutory rate: | ||||
Effective income tax rate (as a percent) | 45.80% | 42.00% | 23.20% | 28.30% |
Long-term Obligations (Details)
Long-term Obligations (Details) - USD ($) | 6 Months Ended | |||
Dec. 31, 2015 | Aug. 31, 2015 | Jul. 31, 2015 | Jun. 30, 2015 | |
New lease line of credit | ||||
Long-term obligations | ||||
Maximum borrowing capacity | $ 35,000,000 | |||
Interest rate (as a percent) | 1.88% | 2.34% | ||
Computer hardware | ||||
Long-term obligations | ||||
Gross carrying value of leased computers | 40,200,000 | $ 43,600,000 | ||
Net carrying value of leased student computers | 11,400,000 | 12,900,000 | ||
Computer hardware | Line of Credit | ||||
Long-term obligations | ||||
Maximum borrowing capacity | 35,000,000 | 35,000,000 | ||
Line of credit, amount outstanding | $ 24,400,000 | $ 29,700,000 | ||
Interest rate, minimum (as a percent) | 1.95% | |||
Interest rate, maximum (as a percent) | 3.08% | |||
Payment terms of equipment lease line of credit | 36 months | |||
Purchase option at the end of payment terms | $ 1 |
Long-term Obligations (Details
Long-term Obligations (Details 2) - USD ($) $ in Thousands | Dec. 31, 2015 | Jun. 30, 2015 |
Minimum lease payments on capital leases | ||
Less current portion | $ (14,369) | $ (16,635) |
Present value of minimum payments, less current portion | 10,059 | $ 13,022 |
PNC Equipment Finance LLC Lease Line of Credit | ||
Minimum lease payments on capital leases | ||
2,016 | 8,164 | |
2,017 | 11,152 | |
2,018 | 4,932 | |
2,019 | 756 | |
Total minimum payments | 25,004 | |
Less amount representing interest (imputed weighted average capital lease interest rate of 2.44%) | (576) | |
Net minimum payments | 24,428 | |
Less current portion | (14,369) | |
Present value of minimum payments, less current portion | $ 10,059 |
Line of Credit (Details)
Line of Credit (Details) - Line of Credit - USD ($) $ in Thousands | Jan. 31, 2014 | Dec. 31, 2015 |
Line of credit | ||
Maximum borrowing capacity | $ 100,000 | |
Term of debt | 5 years | |
Line of credit, amount outstanding | $ 0 | |
Prime Rate | ||
Line of credit | ||
Interest rate base | prime rate | |
Interest rate spread added to base rate (as a percent) | 0.25% | |
Federal Funds Rate | ||
Line of credit | ||
Interest rate base | Federal Funds Rates | |
Interest rate spread added to base rate (as a percent) | 0.75% | |
LIBOR | ||
Line of credit | ||
Interest rate base | LIBOR | |
Interest rate spread added to base rate (as a percent) | 1.25% |
Equity Transactions (Details)
Equity Transactions (Details) - USD ($) $ / shares in Units, $ in Thousands | 6 Months Ended | 12 Months Ended |
Dec. 31, 2015 | Jun. 30, 2015 | |
Employee and Non Employees Stock Option | ||
Shares | ||
Outstanding at the beginning of the period (in shares) | 2,914,593 | |
Granted (in shares) | 243,112 | |
Exercised (in shares) | (1,000) | |
Forfeited or canceled (in shares) | (647,861) | |
Outstanding at the end of the period (in shares) | 2,508,844 | 2,914,593 |
Weighted Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ 20.33 | |
Granted (in dollars per share) | 13.43 | |
Exercised (in dollars per share) | 13.66 | |
Forfeited or canceled (in dollars per share) | 18.17 | |
Outstanding at the end of the period (in dollars per share) | $ 20.20 | $ 20.33 |
Additional information | ||
Weighted Average Remaining Contractual Life | 4 years 5 months 1 day | 4 years 18 days |
Aggregate Intrinsic Value | $ 88 | |
Stock options exercisable (in Shares) | 1,634,019 | |
Stock options exercisable, Weighted Average Exercise Price (in dollars per share) | $ 21.91 | |
Stock options exercisable, Average Remaining Contractual Life | 3 years 29 days | |
Stock option plan 2007 | ||
Stock option activity | ||
Additional shares available for issuance | 1,533,412 | |
Shares reserved for issuance | 3,679,549 | |
Shares | ||
Outstanding at the end of the period (in shares) | 5,033,228 |
Equity Transactions (Details 2)
Equity Transactions (Details 2) - Employee and Non Employees Stock Option - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 6 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 | |
Stock option plan | ||||
Intrinsic value of options exercised | $ 0 | $ 0.3 | ||
Weighted-average grant date fair value of options granted (in dollars per share) | $ 6.18 | $ 7.20 | ||
Unrecognized compensation | $ 5.4 | $ 5.4 | ||
Weighted average period for recognition of total unrecognized compensation expense related to unvested stock options granted | 2 years 10 months 24 days | |||
Stock based compensation expense | $ 1 | $ 0.9 | $ 2 | $ 2 |
Equity Transactions (Details 3)
Equity Transactions (Details 3) - Restricted Stock | 6 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Shares | |
Nonvested at the beginning of the period (in shares) | 1,245,504 |
Granted (in shares) | 810,179 |
Vested (in shares) | (434,886) |
Forfeited or canceled (in shares) | (65,413) |
Nonvested at the end of the period (in shares) | 1,555,384 |
Weighted-Average Fair Value | |
Nonvested at the beginning of the period (in dollars per share) | $ / shares | $ 22.30 |
Granted (in dollars per share) | $ / shares | 13.88 |
Vested (in dollars per share) | $ / shares | 24.16 |
Forfeited or canceled (in dollars per share) | $ / shares | 22.55 |
Nonvested at the end of the period (in dollars per share) | $ / shares | $ 17.26 |
Vesting Based On Performance And Service | |
Shares | |
Granted (in shares) | 111,690 |
Vested (in shares) | (131,104) |
Nonvested at the end of the period (in shares) | 236,362 |
Service based awards | |
Shares | |
Granted (in shares) | 698,489 |
Vested (in shares) | (303,782) |
Nonvested at the end of the period (in shares) | 1,319,022 |
Equity Transactions (Details 4)
Equity Transactions (Details 4) - Restricted Stock - USD ($) $ in Millions | 6 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Stock option plan | ||
Unrecognized compensation | $ 16.3 | |
Weighted average period for recognition of total unrecognized compensation expense related to unvested restricted stock awards granted | 2 years | |
Stock based compensation expense | $ 4 | $ 3.8 |
Chief Executive Officer and other Employees | ||
Stock option plan | ||
Fair value of share-based compensation awards vested in period | 5.4 | 4.2 |
Stock based compensation expense | $ 7.6 | $ 6.9 |
Equity Transactions (Details 5)
Equity Transactions (Details 5) - Performance Share Units $ / shares in Units, $ in Millions | 6 Months Ended |
Dec. 31, 2015USD ($)$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Granted (in shares) | 999,000 |
Forfeited or canceled (in shares) | (30,000) |
Nonvested at the end of the period (in shares) | 969,000 |
Granted (in dollars per share) | $ / shares | $ 13.45 |
Forfeited or canceled (in dollars per share) | $ / shares | 13.45 |
Nonvested at the end of the period (in dollars per share) | $ / shares | $ 13.45 |
Option holders right (per option) | 1 |
Unrecognized compensation expense | $ | $ 11.5 |
Minimum | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting period | 2 years |
Maximum | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting period | 3 years |
Additional grants (in shares) | 499,500 |
Quarterly period beginning November 15, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Earned award vesting percentage | 30.00% |
Period after August 15, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Earned award vesting percentage | 70.00% |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) $ in Millions | Sep. 11, 2013 | Dec. 31, 2015 | Jun. 30, 2015 |
School Mortgage | |||
Related Party Transactions | |||
Issuance of a mortgage note | $ 2.1 | ||
Interest on investment (as a percent) | 5.25% | ||
Note receivable term | 5 years | ||
Final payment due at term of loan | $ 1.8 | ||
Corporate Joint Venture | |||
Related Party Transactions | |||
Amount of loan advanced | $ 4 | $ 4 | |
Ownership interest in joint venture (as a percent) | 60.00% | 60.00% |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) | Aug. 03, 2015 | Dec. 31, 2015 |
Buildings of Flex schools | ||
Commitments and contingencies | ||
Guarantees related to lease commitments | $ 8,100,000 | |
Employment agreement with CEO | ||
Commitments and contingencies | ||
Term of agreement with CEO | 3 years | |
Mr. Timothy L. Murray | ||
Commitments and contingencies | ||
Fees per month for transition and other consulting service | $ 43,985 | |
Mr. Timothy L. Murray | Maximum | ||
Commitments and contingencies | ||
Period of transition and other consulting service | 6 months |
Investments (Details)
Investments (Details) - USD ($) $ in Millions | Sep. 11, 2013 | May. 06, 2013 | Jan. 31, 2011 | Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2015 | Dec. 31, 2014 |
Web International Education Group, Ltd.(Web) | |||||||
Investments | |||||||
Investment in Web | $ 10 | ||||||
Ownership percentage | 20.00% | ||||||
Interest on investment (as a percent) | 8.00% | ||||||
Interest receivable written off | $ 3.2 | $ 3.2 | |||||
Interest income on investment | $ 0 | $ 0.2 | $ 0 | $ 0.4 | |||
Web International Education Group, Ltd.(Web) | Other current assets | |||||||
Investments | |||||||
Investment reclassified | $ 10 | ||||||
Web International Education Group, Ltd.(Web) | Minimum | |||||||
Investments | |||||||
Option to purchase investment interest in investee (as a percent) | 51.00% | ||||||
School Mortgage | |||||||
Investments | |||||||
Interest on investment (as a percent) | 5.25% | ||||||
Issuance of a mortgage note | $ 2.1 | ||||||
Note receivable term | 5 years | ||||||
Final payment due at term of loan | $ 1.8 |
Redeemable Noncontrolling Int49
Redeemable Noncontrolling Interest (Details) - USD ($) $ in Thousands | Jul. 31, 2014 | Jul. 31, 2014 | Dec. 31, 2015 | Jun. 30, 2015 |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Goodwill | $ 66,160 | $ 66,160 | ||
LearnBop | ||||
Cash purchase price | $ 6,500 | |||
Ownership percentage | 51.00% | 51.00% | ||
Period for determination of put option | 12 months | |||
Amount of non-transferable call option remaining minority interest which becomes exercisable January 1, 2019 or thereafter | $ 3,000 | |||
Acquisition costs | 100 | $ 100 | ||
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Net [Abstract] | ||||
Current assets | 100 | 100 | ||
Capitalized Software | 900 | 900 | ||
Goodwill | 8,100 | 8,100 | ||
Current liabilities | (100) | (100) | ||
Redeemable noncontrolling interest | $ (2,500) | (2,500) | ||
Fair value of total consideration transferred | $ 6,500 |
Supplemental Disclosure of Ca50
Supplemental Disclosure of Cash Flow Information (Details) - USD ($) $ in Thousands | 6 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Supplemental Disclosure of Cash Flow Information | ||
Cash paid for interest | $ 420 | $ 428 |
Cash paid for taxes, net of refunds | 787 | 8,188 |
Supplemental disclosure of non-cash financing activities: | ||
New capital lease obligations | $ 4,140 | 6,912 |
Business Combinations: | ||
Current assets | 27 | |
Property and equipment | 350 | |
Intangible assets | 27 | |
Goodwill | 8,982 | |
Assumed liabilities | (50) | |
Deferred revenue | $ (23) |
Common Stock Repurchases (Detai
Common Stock Repurchases (Details) - USD ($) | Nov. 04, 2013 | Dec. 31, 2015 | Dec. 31, 2014 |
Authorized share repurchased amount | |||
Share repurchase term | 2 years | ||
Common stock repurchase (in shares) | 3,502,598 | 1,307,402 | |
Common stock repurchase, average price (in dollars per share) | $ 21.41 | $ 20.23 | |
Common stock amount yet to be repurchased under the plan | $ 0 | ||
Maximum | |||
Authorized share repurchased amount | |||
Authorized share repurchased amount | $ 75,000,000 |