| Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
| Jun. 30, 2018 |
| Summary of Significant Accounting Policies | |
| Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to the allowance for doubtful accounts, inventory reserves, amortization periods, the allocation of purchase price to the fair value of net assets and liabilities acquired in business combinations, fair values used in asset impairment evaluations, valuation of long-lived assets, accrual for incurred but not reported (“IBNR”) claims, fair value of redeemable noncontrolling interest, fair value of lease exit liabilities, contingencies, income taxes and stock-based compensation expense. The Company bases its estimates on historical experience and various assumptions that it believes are reasonable under the circumstances. The results of the analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. |
| Revenue Recognition and Concentration of Revenues | Revenue Recognition and Concentration of Revenues
Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended schools, traditional public schools, school districts, 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 recommendations and hiring, teacher 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 revenue.
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 revenues received by the school from its state funding school district or from other sources up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”) . As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the years ended June 30, 2018, 2017 and 2016, were $314.8 million, $292.0 million and $294.7 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenues 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 typically 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, revenues are 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 under ASC 605-25, Multiple-Element Arrangements (“ASC 605-25”) . 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. Revenues from certain managed schools are 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 years ended June 30, 2017, 2016 and 2015, the Company’s aggregate funding estimates differed from actual reimbursements impacting total reported revenue by approximately (0.3)%, (0.1)%, and 0.4%, respectively.
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 revenues 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 service contract revenues, 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 revenues, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenues are 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 expenses 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.
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 years ended June 30, 2018, 2017 and 2016, the Company’s revenues included a reduction for these school operating losses of $66.7 million, $61.0 million, and $57.1 million, respectively.
The products and services delivered to the Company’s Institutional customers include curriculum and technology for full-time virtual and blended programs, as well as instruction, curriculum and associated materials, supplemental courses, and other educational services. Each of these elements qualifies as separate unit of accounting under ASC 605-25. Revenues related to instruction, curriculum and supplemental courses are recognized ratably over the period services are performed, while revenues from services and materials are recognized upon delivery.
The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenues under these agreements are recognized 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. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from the licensing of curriculum under non-cancelable perpetual arrangements are recognized when all revenue recognition criteria have been met. Revenues 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.
The Company accrues interest on its long-term receivables based on contracted terms.
During the years ended June 30, 2018, 2017 and 2016, approximately 85%, 83% and 82%, respectively, of the Company’s revenues were recognized from schools that contracted with the Company for Managed Public School Programs. During the years ended June 30, 2018 and 2017, the Company had no contracts that represented greater than 10% of total revenues. During the year ended June 30, 2016, the Company had one contract that represented greater than 10% of total revenues.
On June 9, 2016, Agora signed a new service agreement that extended through 2019 and included additional services including curriculum and certain technology services while the school board retained daily operational responsibilities. The agreement also called for payment terms of outstanding receivables to be paid over an approximate two-year period resulting in the reclassification of a portion to deposits and other assets on the consolidated balance sheets. The Company had outstanding receivables from Agora of $25.4 million and $29.5 million as of June 30, 2017 and 2016.
On May 17, 2018, the Company and Agora entered into a settlement and release agreement which called for payment terms of its outstanding receivable of $28.7 million at June 30, 2018 to be paid over a four-year period. In addition, the term of the service agreement was extended through June 30, 2022. The Company reclassified the long-term portion of $23.2 million to deposits and other assets on the consolidated balance sheets. |
| Shipping and Handling Costs | Shipping and Handling Costs
Shipping and handling costs are expensed when incurred and are classified as instructional costs and services in the accompanying consolidated statements of operations. Shipping and handling charges invoiced to a customer are included in revenues. |
| Research and Developments Costs | Research and Development Costs
All research and development costs, including patent application costs, are expensed as incurred. |
| Cash, Cash Equivalents and Restricted Cash | Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents generally consist of cash on hand and cash held in money market and demand deposit accounts. The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company periodically has cash balances which exceed federally insured limits.
Restricted cash consists of amounts held in escrow related to the Company’s settlement agreement with Agora. The restricted cash is included in deposits and other assets on the consolidated balance sheet. |
| Allowance for Doubtful Accounts | Allowance for Doubtful Accounts
The Company maintains an allowance for uncollectible accounts primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company analyzes accounts receivable, historical percentages of uncollectible accounts, and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. The Company writes-off accounts receivable based on the age of the receivable and the facts and circumstances surrounding the customer and reasons for non-payment. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Actual write-offs might exceed the recorded allowance. |
| 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 net realizable value. The provision for excess and obsolete inventory is established based upon the evaluation of the quantity on hand relative to demand.
During the years ended June 30, 2018 and 2016, the Company increased the provision for excess and obsolete inventory by $1.2 million and $0.7 million, respectively, primarily related to inventory in excess of anticipated demand and the decision to discontinue certain products. The Company decreased the provision during the year ended June 30, 2017 by $0.3 million. The excess and obsolete inventory reserve was $3.5 million and $2.3 million at June 30, 2018 and 2017, 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 and amortization 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 (“ASC 840”) , 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.
Property and equipment are depreciated over the following useful lives:
Useful Life
Student and state testing computers
3 - 5 years
Computer hardware
3 years
Computer software
3 - 5 years
Web site development
3 years
Office equipment
5 years
Furniture and fixtures
7 years
Leasehold improvements
3 - 12 years
The Company makes an estimate of unreturned student computers based on an analysis of recent trends of returns. In addition, during fiscal year 2017, the Company accelerated depreciation on property and equipment associated with the operating leases that were exited during that period (see Note 12, “Restructuring”). The Company recorded accelerated depreciation of $2.1 million, $3.5 million and $2.8 million for the years ended June 30, 2018, 2017 and 2016, respectively, related to the leases exited and unreturned student computers.
The Company fully expenses computer peripheral equipment (e.g. keyboards, mouses) upon shipment as recovery has been determined to be uneconomical. These expenses totaled $3.4 million, $3.5 million and $2.6 million for the years ended June 30, 2018, 2017 and 2016, respectively, and are recorded as instructional costs and services. |
| Capitalized Software | 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 (“ASC 350”) . 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 additions totaled $24.5 million, $26.9 million and $36.3 million for the years ended June 30, 2018, 2017 and 2016, respectively. The Company wrote down approximately $0.5 million of capitalized software projects for the year ended June 30, 2016 after determining the assets either had no future use or are being sunset. This write-down was included in selling, administrative and other operating expenses. There were no material write-downs of capitalized software projects for the years ended June 30, 2018 and 2017.
During the three months ended September 30, 2017, the Company recorded an out of period adjustment related to the capitalization of software and curriculum development. The adjustment increased capitalized software development costs and capitalized curriculum development costs by $2.3 million and $0.6 million, respectively, and increased net income by $1.4 million for the year. The Company assessed the materiality of these errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of its previously issued financial statements. |
| 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. 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 are amortized is generally five years.
Total capitalized curriculum development additions were $9.9 million, $19.1 million and $21.6 million for the years ended June 30, 2018, 2017 and 2016, respectively. These amounts are recorded on the accompanying consolidated balance sheets, net of amortization charges. There were no material write‑downs of capitalized curriculum development costs for the years ended June 30, 2018, 2017 and 2016.
As mentioned above, capitalized curriculum development additions included an out of period adjustment of $0.6 million. |
| Redeemable Noncontrolling Interests | Redeemable Noncontrolling Interests
Earnings or losses attributable to minority shareholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s 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. 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 the 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 years ended June 30, 2018, 2017 and 2016 was $3.0 million, $2.9 million and $2.7 million, respectively. Future amortization of intangible assets is expected to be $3.0 million, $2.9 million, $2.4 million, $2.2 million and $2.0 million in the fiscal years ending June 30, 2019 through June 30, 2023, respectively and $5.2 million thereafter. As of June 30, 2018 and 2017, the goodwill balance was $90.2 million and $87.2 million, respectively. The increase in goodwill was the result of the acquisition of Big Universe, Inc.
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. There were no such events during the year ended June 30, 2018.
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. Examples of such events or circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the Company’s business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period.
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 based on one reporting unit. ASC 350 also allows preparers 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”. The Company performs its annual assessment on May 31 st . Under the two-step process, the first step tests for potential impairment by comparing the fair value of reporting units with reporting units’ net asset values. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, then goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is below the reporting unit’s carrying value, then the second step is required to measure the amount of potential impairment. The second step requires an assignment of the reporting unit’s fair value to the reporting unit’s assets and liabilities, using the initial acquisition accounting guidance related to business combinations, to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared with the carrying amount of the reporting unit’s goodwill to determine the goodwill impairment loss to be recognized, if any. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded.
During the year ended June 30, 2018, the Company performed “Step 0” of the impairment test and determined that there were no facts or circumstances that indicated that the fair value of the reporting unit may be less than its carrying amount, and as a result, the Company determined that no impairment was required.
On April 21, 2016, the Company acquired 100% interest in LTS Education Systems (“LTS”) for $23.1 million in cash and contingent consideration, see Note 13, “Acquisitions and Investments.” On October 2, 2017, the Company acquired 100% interest in Big Universe, Inc. for $3.3 million in cash and contingent consideration.
The following table represents goodwill additions/reductions resulting from the acquisitions mentioned above during the years ended June 30, 2018, 2017 and 2016:
($ in millions)
Amount
Goodwill
Balance as of June 30, 2015
$
66.2
Acquisition of LTS
21.1
Balance as of June 30, 2016
$
87.3
Adjustment to purchase price of LTS
(0.1)
Balance as of June 30, 2017
$
87.2
Acquisition of Big Universe, Inc.
3.0
Balance as of June 30, 2018
$
90.2
The following table represents the balance of the Company’s intangible assets as of June 30, 2018 and 2017:
June 30, 2018
June 30, 2017
($ in millions)
Gross
Accumulated
Net
Gross
Accumulated
Net
Trade names
$
17.6
$
(8.5)
$
9.1
$
17.6
$
(7.6)
$
10.0
Customer and distributor relationships
20.5
(13.4)
7.1
20.1
(12.0)
8.1
Developed technology
3.2
(2.2)
1.0
2.9
(1.7)
1.2
Other
1.4
(0.6)
0.8
1.4
(0.5)
0.9
Total
$
42.7
$
(24.7)
$
18.0
$
42.0
$
(21.8)
$
20.2 |
| 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 (“ASC 360”) , 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 year ended June 30, 2018. |
| Income Taxes | Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) . 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. |
| Sales Taxes | Sales Taxes
Sales tax collected from customers is excluded from revenues. Collected but unremitted sales tax is included as part of accrued liabilities in the accompanying consolidated balance sheets. Revenues do not include sales tax as the Company considers itself a pass‑through conduit for collecting and remitting sales tax. |
| Stock-Based Compensation | Stock‑Based Compensation
The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options is determined using the Black-Scholes option pricing model and the fair value of restricted stock awards is based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value of the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to, the Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected exercise behavior. As part of its adoption of Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016‑09”) as of July 1, 2017, the Company made an accounting policy election to recognize forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. |
| Advertising and Marketing Costs | Advertising and Marketing Costs
Advertising and marketing costs consist primarily of internet advertising, online marketing, direct mail, print media and television commercials and are expensed when incurred. Advertising costs totaled $37.5 million, $36.8 million and $31.2 million for the years ended June 30, 2018, 2017 and 2016, respectively, and are included within s elling, administrative, and other operating expenses in the consolidated statements of operations . |
| Net Income Per Common Share | Net Income Per Common Share
The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). 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”) reflects 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 as income tax expense 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 consolidated balance sheets includes restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities.
The following schedule presents the calculation of basic and diluted net income per share:
Year Ended June 30,
2018
2017
2016
(In thousands except share and per share data)
Basic net income per share computation:
Net income attributable to common stockholders
$
27,620
$
451
$
9,035
Weighted average common shares — basic
39,282,674
38,298,581
37,613,782
Basic net income per share
$
0.70
$
0.01
$
0.24
Diluted net income per share computation:
Net income attributable to common stockholders
$
27,620
$
451
$
9,035
Share computation:
Weighted average common shares — basic
39,282,674
38,298,581
37,613,782
Effect of dilutive stock options and restricted stock awards
1,355,070
1,202,353
1,236,606
Weighted average common shares — diluted
40,637,744
39,500,934
38,850,388
Diluted net income per share
$
0.68
$
0.01
$
0.23
For the years ended June 30, 2018, 2017 and 2016, shares issuable in connection with stock options and restricted stock of 1,026,472, 1,965,283 and 2,548,762 respectively, were excluded from the diluted income per common share calculation because the effect would have been antidilutive. As of June 30, 2018, the Company had 44,902,567 shares of common stock issued and 39,567,824 shares outstanding. |
| Fair Value Measurements | Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), 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 instrument’s valuation.
The carrying values reflected in the accompanying consolidated balance sheets for cash and cash equivalents, receivables, and short and long term debt approximate their fair values.
The held for sale asset and contingent consideration is discussed in more detail in Note 14, “Acquisitions and Investments.” The lease exit liability is discussed in more detail in Note 12, “Restructuring.”
The following table summarizes certain fair value information at June 30, 2018 for assets and liabilities measured at fair value on a nonrecurring 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)
Lease exit liability
$
2,758
$
—
$
—
$
2,758
The following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a nonrecurring 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)
Held for sale asset
$
1,200
$
—
$
—
$
1,200
Lease exit liability
4,841
—
—
4,841
The following table summarizes certain fair value information at June 30, 2018 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)
Contingent consideration associated with acquisitions
$
1,345
$
—
$
—
$
1,345
The following table summarizes certain fair value information at June 30, 2017 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)
Contingent consideration associated with acquisitions
$
2,806
$
—
$
—
$
2,806
The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2018.
Year Ended June 30, 2018
Purchases,
Fair Value
Issuances,
Unrealized
Fair Value
Description
June 30, 2017
and Settlements
Gains (Losses)
June 30, 2018
(In thousands)
Contingent consideration associated with acquisitions
$
2,806
$
(1,319)
$
(142)
$
1,345
The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2017.
Year Ended June 30, 2017
Purchases,
Fair Value
Issuances,
Unrealized
Fair Value
Description
June 30, 2016
and Settlements
Gains (Losses)
June 30, 2017
(In thousands)
Redeemable noncontrolling interest in Middlebury Interactive Learning
$
6,801
$
(9,134)
$
2,333
$
—
Contingent consideration associated with acquisitions
2,947
—
(141)
2,806
Total
$
9,748
$
(9,134)
$
2,192
$
2,806
The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2016.
Year Ended June 30, 2016
Purchases,
Fair Value
Issuances,
Unrealized
Fair Value
Description
June 30, 2015
and Settlements
Gains (Losses)
June 30, 2016
(In thousands)
Redeemable noncontrolling interest in Middlebury Interactive Learning
$
6,801
$
—
$
—
$
6,801
Contingent consideration associated with acquisitions
—
2,942
5
2,947
Total
$
6,801
$
2,942
$
5
$
9,748 |
| Reclassification | Reclassification
Certain previous year amounts have been reclassified to conform with current year presentations, as related to the statement of cash flows. |
| Recent Accounting Pronouncements | Recent Accounting Pronouncements
Accounting Standards Adopted
In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016‑09”) . This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies and an accounting policy election for forfeitures. As part of the new standard:
·
Excess tax benefits or deficiencies arising from share-based awards will be reflected in the consolidated statements of operations as income tax expense rather than within stockholders’ equity. The adoption of this standard may result in volatility within a company’s results of operations, primarily due to changes in the stock price.
·
Excess tax benefits will be presented as an operating activity on the statement of cash flows rather than as a financing activity.
·
A forfeiture election will be made to either estimate forfeitures (similar to today’s requirement) or recognize actual forfeitures as they occur. Entities will apply the forfeiture election provision using a modified retrospective transition approach, with a cumulative effect adjustment recorded to retained earnings as of the beginning of the period of adoption.
·
Statutory tax withholding requirements for employers who withhold shares upon settlement of an award on behalf of an employee to cover tax obligations are broadened to allow for a range of withholding from the minimum to the maximum statutory allowable amounts.
The Company adopted this standard during the first quarter of fiscal year 2018. As part of its adoption of ASU 2016‑09, the Company made an accounting policy election to change the way in which it accounts for forfeitures of share-based awards. Specifically, beginning in the first quarter of fiscal year 2018, the Company recognizes forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. The change in accounting policy resulted in an adjustment to decrease retained earnings and increase additional paid-in capital as of July 1, 2017 by $0.1 million.
The Company has adopted the remaining provisions as follows:
·
Excess tax benefits arising from share-based awards are reflected within the consolidated statements of operations as income tax expense; adopted prospectively;
·
Excess tax benefits are presented as an operating activity on the statement of cash flows; adopted prospectively; and
·
Employees are now permitted to elect to withhold shares beyond the minimum statutory tax withholding requirements at the time the award is settled; adopted prospectively.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows – Restricted Cash (“ASU 2016-18”) . The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Adoption is required on a retrospective basis for all periods presented. The Company early adopted this standard during the fourth quarter of fiscal year 2018 with no impact on any prior periods. A reconciliation of cash, cash equivalents and restricted cash as presented on the statement of cash flows, to the balance sheet line items can be found at the bottom of the consolidated statements of cash flows.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) , which supersedes most existing revenue recognition guidance under 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 GAAP. The standard is effective for the Company’s next fiscal year beginning July 1, 2018, 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).
The Company is currently evaluating the impact this standard will have on its consolidated financial statements which includes performing a detailed review of each of its revenue streams and comparing historical accounting policies and practices to the new standard. The majority of the Company’s business is based on contracts where annual revenue is recognized within each fiscal year, mirroring the school year. The Company expects revenue recognition will remain largely unchanged under the new standard on a full year basis, however, there may be some shifting of revenue between quarters.
The Company will adopt this standard during the first quarter of fiscal year 2019 using the modified retrospective approach with an adjustment to retained earnings as of July 1, 2018. The Company is in the process of quantifying the impact. The key impacts of this new standard to the Company will be as follows:
·
All revenues from the Company’s lines of businesses will be recognized over the service period, including:
o
Revenues that had been previously recognized over a 10-month school year;
o
Revenues from materials, supplies and professional services that had been previously recognized upon delivery; and
o
Revenues in which the Company is the primary obligor, and were recognized when expenses were incurred.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) . The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating this standard, as well as the effect on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016‑13”) related to the methodology for recognizing credit losses. The new standard revises the accounting requirements related to the measurement of credit losses and will require organizations to measure all expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts about collectability. Assets must be presented in the financial statements at the net amount expected to be collected. This ASU will be effective for the Company in the first quarter of fiscal year 2021, and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”) related to the classification of certain cash receipts and cash payments on the statement of cash flows. This ASU will be effective for the Company beginning in the first quarter of fiscal year 2019 on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017‑04”) . This amendment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating this standard, as well as the effect on its consolidated financial statements. |
