Commitments and Contingencies | 6 Months Ended |
Mar. 31, 2014 |
Commitments and Contingencies | ' |
Commitments and Contingencies |
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Operating Leases |
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Since 1991, certain of our properties have been leased from entities controlled by John C. White, a member of our Board of Directors. We have leased two of our Phoenix properties under one lease from City Park LLC, a successor in interest of 2844 West Deer Valley LLC and in which the John C. and Cynthia L. White 1989 Family Trust holds a 25% interest, since April 1994. During the three months ended March 31, 2014, City Park LLC sold the properties to an unrelated third party. Our existing lease remains in effect through December 31, 2022. |
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Executive Employment Agreements |
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Effective April 8, 2014, we entered into new employment agreements with two of our key executives and into an amended employment agreement with another key executive that provide for certain payments and benefits upon specified terminations of employment as defined within each agreement. Each agreement provides payments and benefits for termination for reasons other than cause and resignation for good reason, without or following a change in control. The new employment agreements also provide for payments for certain terminations following Company non-renewal of the agreement, for payments and benefits upon termination due to death or disability and require future stock unit awards, if any, to provide for continued vesting for 12 months after a qualifying retirement as defined within the agreements. There have been no grants of stock unit awards with retirement provisions. The range of the aggregate commitment upon termination of employment under these agreements and existing equity award agreements is approximately $2.7 million to $9.7 million. |
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Legal |
In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitration, investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current or former students, routine employment matters, business disputes and regulatory demands. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we would accrue a liability for the loss. When a loss is not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim. Because we cannot predict with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory proceedings or claims) asserted against us, such current pending legal proceedings to which we are a party may have a material adverse effect on our business, cash flows, results of operations or financial condition. |
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In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written testimony regarding a broad range of our business from September 2006 to the present. We responded timely to the request, as well as to follow-up requests for additional information made in December 2012 and February 2013. At this time, we cannot predict the eventual scope, duration, outcome or associated costs of this request and accordingly we have not recorded any liability in the accompanying condensed consolidated financial statements. |
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As previously disclosed, in October 2012 and January 2013, the ACCSC requested certain documentation related to a preliminary investigation by the United States Department of Justice (“DOJ”) of certain previously disclosed claims under the False Claims Act (31 U.S.C. § 3729, et seq.) (the “FCA Claims”). Pursuant to applicable law and the United States’ request, we were not able to provide the information requested at that time and notified ACCSC as such. In October 2013, we informed the ACCSC of the declination of intervention and closing of investigation by the DOJ into the FCA Claims, as well as the settlement of such claims with a former employee, and the final agency closing of a related Department of Labor suit. In addition, at the ACCSC’s request, in November 2013, we provided the ACCSC with certain documentation relating to the resolution of these claims. On March 19, 2014, we received notification from the ACCSC that it voted to accept our response and closed their inquiry. |
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Proprietary Loan Program |
In order to provide funding for students who are not able to fully finance the cost of their education under traditional governmental financial aid programs, commercial loan programs or other alternative sources, we established a private loan program with a bank. |
Under terms of the proprietary loan program, the bank originates loans for our students who meet our specific credit criteria with the related proceeds used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and assume all of the related credit risk. The loans bear interest at market rates; however, principal and interest payments are not required until six months after the student completes or withdraws from his or her program. After the deferral period, monthly principal and interest payments are required over the related term of the loan. |
The bank provides these services in exchange for a fee at a percentage of the principal balance of each loan and related fees. Under the terms of the related agreement, we transfer funds for loan purchases to a deposit account with the bank in advance of the bank funding the loan which secures our related loan purchase obligation. Such funds are classified as restricted cash in our condensed consolidated balance sheet. |
In substance, we provide the students who participate in this program with extended payment terms for a portion of their tuition and as a result, we account for the underlying transactions in accordance with our tuition revenue recognition policy. However, due to the nature of the program coupled with the extended payment terms required under the student loan agreements, collectability is not reasonably assured. Accordingly, we recognize tuition and loan origination fees financed by the loan and any related interest income required under the loan when such amounts are collected. All related expenses incurred with the bank or other service providers are expensed as incurred and were approximately $0.4 million and $0.8 million for the three months and six months ended March 31, 2014, respectively, and $0.5 million and $1.1 million for the three months and six months ended March 31, 2013, respectively. Since loan collectability is not reasonably assured, the loans and related deferred tuition revenue are not recognized in our condensed consolidated balance sheets. |
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The following table summarizes the impact of the proprietary loan program on our tuition revenue and interest income during the period as well as on a cumulative basis at the end of each period in our condensed consolidated income statements. Tuition revenue and interest income excluded represents amounts which would have been recognized during the period had collectability of the related amounts been assured. Amounts collected and recognized represent actual cash receipts during the period and amounts written-off represent amounts which have been turned over to third party collectors. |
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| | Three Months Ended March 31, | | Six Months Ended March 31, | | Inception |
| | 2014 | | 2013 | | 2014 | | 2013 | | to date |
Tuition and interest income excluded | | $ | 7,252 | | | $ | 6,095 | | | $ | 14,253 | | | $ | 12,832 | | | $ | 84,112 | |
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Amounts collected and recognized | | (846 | ) | | (568 | ) | | (1,546 | ) | | (1,018 | ) | | (6,568 | ) |
Amounts written off | | (2,468 | ) | | (1,469 | ) | | (4,263 | ) | | (2,456 | ) | | (25,258 | ) |
Net amount excluded during the period | | $ | 3,938 | | | $ | 4,058 | | | $ | 8,444 | | | $ | 9,358 | | | $ | 52,286 | |
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At March 31, 2014, we had committed to provide loans to our students for approximately $97.3 million since inception. |
The following table summarizes the activity related to the balances outstanding under our proprietary loan program, including loans outstanding, interest and origination fees, which are not reflected in our condensed consolidated balance sheets: |
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| | Six Months Ended March 31, | | | | | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | | | | | |
Balance at beginning of period | | $ | 59,767 | | | $ | 42,880 | | | | | | | | | | | | | |
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Loans extended | | 16,125 | | | 14,336 | | | | | | | | | | | | | |
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Interest accrued | | 1,427 | | | 1,860 | | | | | | | | | | | | | |
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Amounts collected and recognized | | (1,546 | ) | | (1,018 | ) | | | | | | | | | | | | |
Amounts written off | | (4,263 | ) | | (2,456 | ) | | | | | | | | | | | | |
Balance at end of period | | $ | 71,510 | | | $ | 55,602 | | | | | | | | | | | | | |
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