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SECURITIES AND EXCHANGE COMMISSION
THE SECURITIES EXCHANGE ACT OF 1934
Delaware | 83-0479936 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
5301 S. Highway 16, Suite 200 | 57701 | |
Rapid City, SD | (Zip Code) | |
(Address of principal executive offices) |
(Registrant’s telephone number, including area code)
Common Stock, $.0001 par Value | The NASDAQ Stock Market | |
Title of each class | Name of each exchange on which registered |
None
(Title of class)
Yeso Noþ
Yeso Noþ
Large accelerated filero | Accelerated filerþ | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyþ |
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PART III | ||||||||
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PART IV | ||||||||
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EX-3.2 | ||||||||
EX-21.1 | ||||||||
EX-23.1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
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• | our ability to comply with the extensive and changing regulatory framework applicable to our industry, including Title IV, state laws and regulatory requirements and accrediting agency requirements; |
• | the ability of our students to obtain Title IV funds, state financial aid, and private financing; |
• | the pace of growth of our enrollment; |
• | our conversion of prospective students to enrolled students and our retention of active students; |
• | our ability to update and expand the content of existing programs and the development of new programs in a cost-effective manner or on a timely basis; |
• | the competitive environment in which we operate; |
• | our cash needs and expectations regarding cash flow from operations; |
• | our ability to manage and grow our business and execution of our business and growth strategies; |
• | our ability to maintain and expand existing commercial relationships with various corporations and U.S. Armed Forces and develop new commercial relationships; |
• | our ability to adjust to the changing economic conditions; |
• | our ability to use advances in technology that could enhance the online experience for our students; |
• | our ability to sell the condominium units we own, and the general condition of the real estate market, in Rapid City, South Dakota; |
• | our estimated future financial results or performance; |
• | our actual financial performance generally; and | ||
• | other factors discussed in this annual report under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Regulatory Matters.” |
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Item 1. | Business. |
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• | provide a caring and supportive learning environment; |
• | offer high quality instructional programs and services; and |
• | offer technical and professional career programs. |
• | the caring and supportive attitude by faculty toward students; |
• | the caring and supportive attitude by staff toward students; |
• | the quality of instruction in the major coursework; and |
• | the caring and supportive attitude by administration toward students. |
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Graduate Degrees | Associate Degrees | |
Master of Business Administration | Accounting | |
Master of Management | Applied Information Technology | |
Master of Science in Nursing | Applied Management | |
Business Administration | ||
Bachelor’s Degrees | Criminal Justice | |
Accounting | General Education Studies | |
Applied Management | Health Information Technology | |
Athletic Training | Health and Beauty Management | |
Business Administration with: | Information Technology | |
• Emphasis in Accounting | Medical Administrative Assistant | |
• Emphasis in Financial Management | Medical Assisting | |
• Emphasis in Human Resource Management | Medical Staff Services Management | |
• Emphasis in Information Systems | Network & Server Administration | |
• Emphasis in International Business | Network Administration | |
• Emphasis in Management | Server Administration | |
• Emphasis in Marketing | Nursing | |
• Emphasis in Pre-Law | Associate of Science Nursing Mobility | |
• Emphasis in Tourism and Hospitality Management | Program | |
Criminal Justice | Paralegal Studies | |
Health Care Management | Pharmacy Technician | |
Information Technology with: | Therapeutic Massage | |
• Emphasis in Internet Systems Development | Veterinary Technology | |
• Emphasis in Management Information Systems | ||
• Emphasis in Network Administration/Microsoft | Diplomas | |
• Emphasis in Network Management/Microsoft | Healthcare Coding | |
Applied Information Technology | Practical Nursing | |
Bachelor of Science in Nursing | Therapeutic Massage | |
Registered Nurse to Bachelor of Science in Nursing | Veterinary Assisting | |
Organizational Leadership | ||
Paralegal Studies |
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State | Address | Approximate Size | ||||||||||||
Colorado: | 8242 S. University Blvd., Suite 100 | 4,600 sq. ft. | ||||||||||||
Centennial, CO 80122-3178 | ||||||||||||||
1079 Space Center Dr. | 5,500 sq. ft | |||||||||||||
Colorado Springs, | �� | |||||||||||||
1915 Jamboree Dr., Suite 185 | 9,300 sq. ft. | |||||||||||||
Colorado Springs, CO 80920 | ||||||||||||||
1325 S. Colorado Blvd., Suite 100 | 17,900 sq. ft. | |||||||||||||
Denver, CO 80222-3308 | ||||||||||||||
Kansas: | 10310 Mastin St. | 25,500 sq. ft. | ||||||||||||
Overland Park, KS 66212-5451 | ||||||||||||||
7309 E. 21st St., Suite G-40 | 10,100 sq. ft. | |||||||||||||
Wichita, KS 67206-1179 | ||||||||||||||
8428 W. 13th St. N., Suite 120 | 6,600 sq. ft. | |||||||||||||
Wichita, KS 67212-2980 | ||||||||||||||
Minnesota: | 7801 Metro Parkway, Suite 200 | 20,400 sq. ft. | ||||||||||||
Bloomington, MN 55425-1536 | ||||||||||||||
6200 Shingle Creek Parkway, Suite 130 | 14,300 sq. ft. | |||||||||||||
Brooklyn Center, MN 55430-2131 | ||||||||||||||
1550 Highway 36 W | 14,800 sq. ft. | |||||||||||||
Roseville, MN 55113-4035 | ||||||||||||||
10901 Red Circle Dr., Suite 150 | 5,200 sq. ft. | |||||||||||||
Minnetonka, MN 55343-4545 | ||||||||||||||
513 W. Travelers Trail | 6,000 sq. ft. | |||||||||||||
Burnsville, MN 55337 | ||||||||||||||
Missouri: | 3620 Arrowhead Ave. | 18,300 sq. ft. | ||||||||||||
Independence, MO 64057-1791 | ||||||||||||||
7490 NW 87th St. | 16,700 sq. ft. | |||||||||||||
Kansas City, MO 64153-1934 | ||||||||||||||
401 N. Murray Rd. | 7,000 sq. ft. | |||||||||||||
Lee’s Summit, MO 64081-1425 | ||||||||||||||
1030 Wolfrum Rd. | 8,000 sq. ft. | |||||||||||||
Weldon Springs, MO 63304-7795 | ||||||||||||||
Nebraska: | 3604 Summit Plaza Dr. | 9,500 sq. ft. | ||||||||||||
Bellevue, NE 68123-1065 | ||||||||||||||
New Mexico: | 4775 Indian School Rd., NE, Suite 200 | 24,400 sq. ft. | ||||||||||||
Albuquerque, NM 87110-3976 | ||||||||||||||
1601 Rio Rancho Blvd., SE, Suite 200 | 3,800 sq. ft. | |||||||||||||
Rio Rancho, NM 87124-1093 | ||||||||||||||
Oklahoma: | 8040 S. Sheridan Rd. | 8,600 sq. ft. | ||||||||||||
Tulsa, OK 74133-8945 |
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State | Address | Approximate Size | ||||||||||||
South Dakota: | 1000 Ellsworth St., Suite 2400 | 6,700 sq. ft. | ||||||||||||
Ellsworth AFB, SD 57706-4943 | ||||||||||||||
5801 S. Corporate Place | 22,400 sq. ft. | |||||||||||||
Sioux Falls, SD 57108-5027 | ||||||||||||||
925 29th St. SE | 2,500 sq. ft. | |||||||||||||
Watertown, SD 57201-9123 | ||||||||||||||
Texas: | 13801 Burnet Rd., Suite 300 | 20,400 sq. ft. | ||||||||||||
Austin, TX 78727-1281 | ||||||||||||||
1101 Central Expressway S., Suite 100 | 4,400 sq. ft. | |||||||||||||
Allen, TX 75013-8062 | ||||||||||||||
475 State Highway 121 By-pass, Suite 150 | 5,500 sq. ft. | |||||||||||||
Lewisville, TX 75067-8193 | ||||||||||||||
18600 LBJ Freeway | 16,816 sq. ft. | |||||||||||||
Mesquite, TX 75150-5628 | ||||||||||||||
6800 Westgate Blvd., Suite 101 | 6,300 sq. ft. | |||||||||||||
Austin, TX 78745 |
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• | a minimum grade point average of 2.75 achieved for all undergraduate work; |
• | a minimum grade point average of 2.9 achieved for the last one-half of the credits earned toward a Bachelor’s degree; or |
• | a minimum grade point average of 3.0 in two or more graduate level courses taken at a regionally accredited institution of higher learning or recognized foreign equivalent. |
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May 31, 2011 | May 31, 2010 | |||||||||||||||
No. of | % of | No. of | % of | |||||||||||||
Students | Total | Students | Total | |||||||||||||
Graduate | 385 | 3.8 | % | 335 | 3.8 | % | ||||||||||
Undergraduate and Diploma | 9,630 | 96.2 | % | 8,423 | 96.2 | % | ||||||||||
Total | 10,015 | 100.0 | % | 8,758 | 100.0 | % | ||||||||||
May 31, 2011 | May 31, 2010 | |||||||||||||||
No. of | % of | No. of | % of | |||||||||||||
Students | Total | Students | Total | |||||||||||||
Online | 4,624 | 46.2 | % | 3,565 | 40.7 | % | ||||||||||
On-Campus | 3,751 | 37.4 | % | 3,742 | 42.7 | % | ||||||||||
Hybrid | 1,640 | 16.4 | % | 1,451 | 16.6 | % | ||||||||||
Total | 10,015 | 100.0 | % | 8,758 | 100.0 | % | ||||||||||
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• | Designated a university compliance officer; |
• | Created a university compliance committee made up of representatives of major internal departments and headed by the university compliance officer; |
• | Implemented a program to monitor compliance and, when gaps or violations occur, to develop responses to correct deficiencies in a timely manner; |
• | Established and communicated institutional principles designed to deter wrongdoing and to promote honest and ethical conduct; |
• | Developed communication policies and procedures; and | ||
• | Ensured the appropriate university department/governing body has identified appropriate disciplinary sanctions and has applied those sanctions when infractions occur. |
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• | Federal Title IV student financial assistance program compliance attestation examinations are conducted annually to determine compliance and to identify any deficiencies requiring correction; |
• | An audit of 401(k) retirement plans is conducted annually for compliance with applicable laws and fiduciary duties; and |
• | Annual financial statements and our internal controls over financial reporting are audited by an independent auditor. |
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• | whether the institution and the program were approved by the state in which the graduate seeks licensure, or by a professional association; |
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• | whether the program from which the student graduated meets all requirements for professional licensure in that state; |
• | whether the institution and the program are accredited and, if so, by what accrediting commissions; and |
• | whether the institution’s degrees are recognized by other states in which a student may seek to work. |
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Specialized or Programmatic Accreditation | Accrediting Body | |
Athletic Training (Rapid City, South Dakota campus) | Commission on Accreditation of Athletic Training Education — on probation(1) | |
Business Degree Programs (Associate of Applied Science, Bachelor of Science, Master of Management, Master of Business Administration degrees) | International Assembly for Collegiate Business Education | |
Medical Assisting (Albuquerque, New Mexico; Bloomington, Minnesota; Colorado Springs, Colorado; Denver, Colorado; Independence, Missouri; Overland Park; Kansas; Roseville, Minnesota; Sioux Falls; South Dakota campuses) | Commission on Accreditation of Allied Health Education Programs | |
Pharmacy Tech (Roseville, Minnesota; Sioux Falls, South Dakota campuses) | American Society of Health-System Pharmacists | |
Veterinary Technology (Rapid City, South Dakota campus) | Committee on Veterinary Technician Education and Activities | |
Practical Nursing Diploma (Overland Park, Kansas campus) | Kansas State Board of Nursing Approval | |
Associate of Science in Nursing Mobility (Overland Park, Kansas campus) | Kansas State Board of Nursing Approval |
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Specialized or Programmatic Accreditation | Accrediting Body | |
Associate of Science Nursing Program (Zona Rosa, Missouri campus) | Missouri Board of Nursing Approval | |
Associate of Science Nursing Program (Denver, Colorado campus) | Colorado Board of Nursing Approval | |
Bachelor of Science in Nursing Program (Bloomington, Minnesota campus) | Minnesota Board of Nursing | |
Bachelor of Science in Nursing Program (Rapid City, South Dakota; Sioux Falls, South Dakota campuses) | South Dakota Board of Nursing Interim Approval | |
Bachelor of Science in Nursing Program (Overland Park, Kansas campus) | Kansas State Board of Nursing Initial Approval | |
Online Registered Nurse to Bachelor of Science in Nursing Program (Distance Learning) | South Dakota Board of Nursing Approval | |
Associate of Science in Nursing Program (Zona Rosa, Missouri campus) | National League for Nursing Accreditation Commission Initial Approval | |
Online Registered Nurse to Bachelor of Science in Nursing Program (Distance Learning) | Commission on Collegiate Nursing Education Initial Accreditation | |
Master of Science in Nursing (Distance Learning) | Commission on Collegiate Nursing Education Initial Accreditation |
(1) | The university has requested a voluntary withdrawal of accreditation with CAATE effective August 31, 2012, for its athletic training program as this program will be discontinued. In that regard, the program remains on probation with additional evidence of compliance with certain standards to be submitted to CAATE by December 2011. |
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• | The state establishes the institution by name as an educational institution by charter, statute, constitutional provision or other action issued by an appropriate state agency or state entity, and the institution is authorized to operate educational programs beyond secondary education, including programs leading to a certificate or degree; |
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• | The institution complies with applicable state approval or licensure requirements, except that a state may exempt an institution from any such requirement based on (1) the institution’s accreditation by one or more accrediting agencies recognized by the Department of Education or (2) the institution being in operation for at least 20 years; and |
• | The state has a process, applicable to all institutions except federal and tribal institutions, to review and appropriately act on complaints concerning the institution and applicable state laws. |
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• | comply with all applicable Title IV program requirements; |
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• | have an adequate number of qualified personnel to administer Title IV programs; |
• | have acceptable standards for measuring the satisfactory academic progress of its students; |
• | not have student loan cohort default rates above specified levels; |
• | have various procedures in place for awarding, disbursing and safeguarding Title IV program funds and for maintaining required records; |
• | administer Title IV programs with adequate checks and balances in its system of internal controls; |
• | not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension; |
• | provide financial aid counseling to its students; |
• | refer to the Department of Education’s Office of Inspector General any credible information indicating that any student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct involving Title IV programs; |
• | submit all required reports and financial statements in a timely manner; and |
• | not otherwise appear to lack administrative capability. |
• | require the institution to repay Title IV funds its students previously received; |
• | transfer the institution from the advance method of payment of Title IV funds to heightened cash monitoring status or the reimbursement method of payment; |
• | place the institution on provisional certification status; or |
• | commence a proceeding to impose a fine or to limit, suspend or terminate the institution’s participation in Title IV programs. |
• | equity ratio, which measures the institution’s capital resources, financial viability and ability to borrow; | ||
• | primary reserve ratio, which measures the institution’s ability to support current operations from expendable resources; and |
• | net income ratio, which measures the institution’s ability to operate at a profit or within its means. |
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Item 1A. | Risk Factors. |
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• | The state establishes the institution by name as an educational institution by charter, statute, constitutional provision or other action issued by an appropriate state agency or state entity, and the institution is authorized to operate educational programs beyond secondary education, including programs leading to a certificate or degree; |
• | The institution complies with applicable state approval or licensure requirements, except that a state may exempt an institution from any such requirement based on (1) the institution’s accreditation by one or more accrediting agencies recognized by the Department of Education or (2) the institution being in operation for at least 20 years; and | ||
• | The state has a process, applicable to all institutions except federal and tribal institutions, to review and appropriately act on complaints concerning the institution and applicable state laws. |
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• | comply with all applicable Title IV program regulations; |
• | have capable and sufficient personnel to administer the federal student financial aid programs; |
• | not have student loan cohort default rates in excess of specified levels; |
• | have acceptable methods of defining and measuring the satisfactory academic progress of our students; |
• | have various procedures in place for safeguarding federal funds; |
• | not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension; |
• | provide financial aid counseling to our students; | ||
• | refer to the Department of Education’s Office of Inspector General any credible information indicating that any applicant, student, employee or agent of the institution has been engaged in any fraud or other illegal conduct involving Title IV programs; |
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• | submit in a timely manner all reports and financial statements required by Title IV regulations; and |
• | not otherwise appear to lack administrative capability. |
• | require the institution to repay Title IV program funds; |
• | transfer the institution from the “advance” system of payment of Title IV program funds to cash monitoring status or to the “reimbursement” system of payment; |
• | place the institution on provisional certification status; or |
• | commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs. |
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• | an institution could make up to two adjustments (upward or downward) to a covered employee’s salary or fixed hourly wage rate within any 12-month period without the adjustment being considered an incentive payment, provided that no adjustment is based solely on the number of students recruited, admitted, enrolled or awarded financial aid; |
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• | a covered employee could be compensated based upon students successfully completing their educational programs; and |
• | the incentive payment prohibition in the Higher Education Act did not apply to managerial and supervisory employees who do not directly manage or supervise employees who are directly involved in recruiting or admissions activities, or the awarding of Title IV funds. |
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• | the reduced availability of, or higher interest rates and other costs associated with, Title IV loan funds or other sources of financial aid; |
• | the emergence of more successful competitors; |
• | factors related to our marketing, including the costs and effectiveness of Internet advertising and broad-based branding campaigns and recruiting efforts; |
• | performance problems with our online systems; |
• | failure to maintain institutional and specialized accreditations; |
• | failure to obtain and maintain required state authorizations; |
• | the requirements of the education agencies that regulate us that restrict the initiation of new locations, new programs and modification of existing programs; | ||
• | the requirements of the education agencies that regulate us that restrict the ways schools can compensate their recruitment personnel; |
• | increased regulation of online education, including in states in which we do not have a physical presence; |
• | restrictions that may be imposed on graduates of online programs that seek certification or licensure in certain states; |
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• | student dissatisfaction with our services and programs; |
• | adverse publicity regarding us, our competitors, or online or for-profit education generally; |
• | price reductions by competitors that we are unwilling or unable to match; |
• | a decline in the acceptance of online education; |
• | an adverse economic or other development that affects job prospects in our core disciplines; |
• | a decrease in the perceived or actual economic benefits that students derive from our programs; |
• | litigation or regulatory investigations that may damage our reputation; and |
• | changes in the general economy, including employment. |
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Item 1B. | Unresolved Staff Comments. |
Item 2. | Properties. |
Item 3. | Legal Proceedings. |
Item 4. | [Reserved]. |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
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Fiscal 2010 | Fiscal 2011 | |||||||||||||||||||||||
Cash | Cash | |||||||||||||||||||||||
Dividends | Dividends | |||||||||||||||||||||||
Declared | High | Low | Declared | High | Low | |||||||||||||||||||
First Quarter | — | $ | 7.81 | $ | 7.55 | $ | 0.0275 | $ | 10.50 | $ | 4.88 | |||||||||||||
Second Quarter | — | $ | 7.90 | $ | 7.30 | $ | 0.03 | $ | 8.21 | $ | 4.57 | |||||||||||||
Third Quarter | $ | 0.0275 | $ | 11.00 | $ | 7.00 | $ | 0.03 | $ | 7.93 | $ | 6.27 | ||||||||||||
Fourth Quarter | $ | 0.1875 | 3 | $ | 10.10 | 1 | $ | 8.00 | 2 | $ | 0.03 | $ | 7.92 | $ | 6.52 |
1. | High bid price on the Over-the-Counter Bulletin Board for the fourth quarter, fiscal 2010. | |
2. | Low sales price as reported on Nasdaq Global Market for the fourth quarter, fiscal 2010. | |
3. | Includes a one-time special cash dividend of $0.16 per share paid to holders of common stock after the completion of our follow-on public offering on June 1, 2010. |
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Number of | ||||||||||||
securities | ||||||||||||
remaining | ||||||||||||
available for | ||||||||||||
future issuance | ||||||||||||
Number of | under | |||||||||||
securities to be | equity | |||||||||||
issued upon | compensation | |||||||||||
exercise of | plans | |||||||||||
outstanding | Weighted-average | (excluding | ||||||||||
options, | exercise price of | securities | ||||||||||
warrants | outstanding options, | reflected in | ||||||||||
Plan category | and rights | warrants and rights | column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders(1) | ||||||||||||
2009 Incentive Plan | 163,000 | $ | 6.31 | (2) | 1,137,000 | |||||||
163,000 | $ | 6.31 | (2) | 1,137,000 | ||||||||
(1) | See “National American University Holdings, Inc. 2009 Stock Option and Compensation Plan” described in “Notes to Consolidated Financial Statements—Note 9—Stockholders’ Equity” for further description of our equity compensation plan. | |
(2) | Represents the weighted-average exercise price of outstanding securities and is calculated by taking into account the 53,000 shares of common stock subject to outstanding restricted stock units that become issuable as those units vest, for no consideration. The weighted-average exercise price of outstanding securities excluding those 53,000 shares of common stock that can be exercised for no consideration is $9.35. |
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Item 6. | Selected Financial Data. |
Year Ended May 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | ||||||||||||||
(dollars in thousands, except per share data) | |||||||||||||||||
Income Statement | |||||||||||||||||
Total Revenues | $ | 106,808 | $ | 89,796 | $ | 62,584 | $ | 49,457 | |||||||||
Costs and Expenses: | |||||||||||||||||
Cost of educational services | 22,575 | 20,419 | 17,398 | 15,130 | |||||||||||||
Selling, general and administrative | 64,474 | 49,886 | 37,626 | 32,642 | |||||||||||||
Auxiliary expense | 2,888 | 2,076 | 1,595 | 1,523 | |||||||||||||
Cost of condominium sales | 381 | 761 | 558 | 122 | |||||||||||||
Loss on disposition of property and equipment | 82 | 29 | 3 | 5 | |||||||||||||
Total Costs and Expenses | 90,400 | 73,171 | 57,180 | 49,422 | |||||||||||||
Income from Operations | 16,408 | 16,625 | 5,404 | 35 | |||||||||||||
Other Income (Expense) | 271 | (101 | ) | (499 | ) | (649 | ) | ||||||||||
Income (Loss) before Income Taxes | 16,679 | 16,524 | 4,905 | (614 | ) | ||||||||||||
Income Tax Expense | (6,375 | ) | (6,485 | ) | (1,797 | ) | 231 | ||||||||||
Net Income (Loss) | 10,304 | 10,039 | 3,108 | (383 | ) | ||||||||||||
Net (Income) Loss attributable to non-controlling interest | (38 | ) | (4 | ) | 13 | (37 | ) | ||||||||||
Net Income (Loss) attributable to National American University Holdings, Inc. and subsidiaries | $ | 10,266 | $ | 10,035 | $ | 3,121 | $ | -420 | |||||||||
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Year Ended May 31, | ||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||
Income from operations per Class A Share | ||||||||||||||||
Basic | $ | 0 | $ | 95.25 | $ | 31.21 | $ | -4.20 | ||||||||
Diluted | 0 | 95.25 | 31.21 | -4.20 | ||||||||||||
Income from operations per Common Share | ||||||||||||||||
Basic | 0.39 | -0.04 | 0 | 0 | ||||||||||||
Diluted | 0.38 | -0.04 | 0 | 0 | ||||||||||||
Balance Sheet | ||||||||||||||||
Total Assets | $ | 77,938 | $ | 47,286 | $ | 28,865 | $ | 28,162 | ||||||||
Long-Term Obligations | $ | 7,075 | $ | 3,531 | $ | 10,972 | $ | 13,041 | ||||||||
Cash Dividends declared per Class A Share | $ | 0 | $ | 0.86 | $ | 2.00 | $ | 2.00 | ||||||||
Cash Dividends declared per Common Share | $ | 0.12 | $ | 0.22 | n/a | n/a |
Year Ended May 31, | |||||||||||||||||
2011 | 2010 | 2009 | 2008 | ||||||||||||||
(dollars in thousands, except per share data) | |||||||||||||||||
Weighted Average Shares | |||||||||||||||||
Basic EPS | |||||||||||||||||
Class A | — | 100,000 | 100,000 | 100,000 | |||||||||||||
Common | 26,236,783 | 3,103,847 | n/a | n/a | |||||||||||||
Diluted EPS | |||||||||||||||||
Class A | — | 100,000 | 100,000 | 100,000 | |||||||||||||
Common | 26,836,039 | 3,103,959 | n/a | n/a | |||||||||||||
Other Data (Unaudited) | |||||||||||||||||
Loss from Real Estate Operations Before Taxes | $ | (621 | ) | $ | (735 | ) | $ | (527 | ) | $ | (900 | ) | |||||
EBITDA1 | $ | 19,392 | $ | 19,163 | $ | 7,662 | $ | 2,241 | |||||||||
Student Headcount (for Spring quarter of the fiscal year)2 | 10,015 | 8,758 | 6,479 | 4,960 |
1 | Consists of income attributable to the Company, less income from non-controlling interest, plus income (loss) from non-controlling interest, minus interest income, plus interest expense, plus income taxes, plus depreciation and amortization. We use EBITDA as a measure of operating performance. However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies and is therefore limited as a comparative measure. Furthermore, as an analytical tool, EBITDA has additional limitations, including that (a) it is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments; (b) it does not reflect changes in, or cash requirements for, our working capital needs; and (c) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements, or future requirements for capital expenditures or contractual commitments. To compensate for these limitations, we evaluate our profitability by considering the economic effect of the excluded expense items independently as well as in connection with our analysis of cash flows from operations and through the use of other financial measures. |
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Year Ended May 31, | ||||||||||||||||
2011 | 2010 | 2009 | 2008 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Net Income (Loss) attributable to the Company | $ | 10,266 | $ | 10,035 | $ | 3,121 | $ | (420 | ) | |||||||
Income (Loss) attributable to non-controlling interest | 38 | 4 | (13 | ) | 37 | |||||||||||
Interest Income | (148 | ) | (206 | ) | (242 | ) | (282 | ) | ||||||||
Interest Expense | 0 | 525 | 834 | 1,023 | ||||||||||||
Income Taxes | 6,375 | 6,485 | 1,797 | (231 | ) | |||||||||||
Depreciation and Amortization | 2,861 | 2,320 | 2,165 | 2,114 | ||||||||||||
EBITDA | $ | 19,392 | $ | 19,163 | $ | 7,662 | $ | 2,241 |
2 | Student headcount is based on the headcount as of the last day of the university’s Spring term, which runs from March to May. |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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• | the number of students who are enrolled and who remain enrolled in courses throughout the term; |
• | the number of credit hours per student; |
• | the student’s degree and program mix; |
• | changes in tuition rates; |
• | the affiliates with which NAU is working as well as the number of students at the affiliates; and |
• | the amount of scholarships for which students qualify. |
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May 31, 2011 | May 31, 2010 | % Growth for | ||||||||||
(Spring ’11 Qtr) | (Spring ’10 Qtr) | same quarter | ||||||||||
Number of Students | Number of Students | over prior year | ||||||||||
Graduate | 385 | 335 | 14.9 | % | ||||||||
Undergraduate and Diploma | 9,630 | 8,423 | 14.3 | % | ||||||||
Total | 10,015 | 8,758 | 14.4 | % | ||||||||
On-Campus | 4,624 | 3,565 | 29.7 | % | ||||||||
Online | 3,751 | 3,742 | 0.2 | % | ||||||||
Hybrid | 1,640 | 1,451 | 13.0 | % | ||||||||
Total | 10,015 | 8,758 | 14.4 | % | ||||||||
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Year-Ended | Year-Ended | |||||||
May 31, 2011 | May 31, 2010 | |||||||
In percentages | In percentages | |||||||
Total revenues | 100.0 | % | 100.0 | % | ||||
Operating expenses: | ||||||||
Cost of educational services | 21.1 | 22.7 | ||||||
Selling, general and administrative | 60.4 | 55.6 | ||||||
Auxiliary expense | 2.6 | 2.4 | ||||||
Cost of condominiums sales | 0.4 | 0.8 | ||||||
Loss on disposition of property | 0.1 | 0.0 | ||||||
Total operating expenses | 84.6 | 81.5 | ||||||
Operating income | 15.4 | 18.5 | ||||||
Interest expense | (0.0 | ) | (0.6 | ) | ||||
Interest income | 0.1 | 0.2 | ||||||
Other income | 0.1 | 0.3 | ||||||
Income before income taxes | 15.6 | 18.4 | ||||||
Income tax expense | (6.0 | ) | (7.2 | ) | ||||
Net income attributable to non-controlling interest | 0 | 0 | ||||||
Net income attributable to the Company | 9.6 | 11.2 |
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Year-Ended | Year-Ended | |||||||
May 31, 2011 | May 31, 2010 | |||||||
In percentages | In percentages | |||||||
Total revenues | 100.0 | % | 100.0 | % | ||||
Operating expenses: | ||||||||
Cost of educational services | 21.4 | 23.2 | ||||||
Selling, general and administrative | 59.5 | 54.8 | ||||||
Auxiliary expense | 2.7 | 2.5 | ||||||
Loss on disposition of property | 0.1 | 0.0 | ||||||
Total operating expenses | 83.7 | 80.5 | ||||||
Operating income | 16.3 | 19.5 | ||||||
Interest expense | (0.0 | ) | (0.1 | ) | ||||
Interest income | 0.1 | 0.2 | ||||||
Income before non-controlling interest and taxes | 16.4 | 19.6 |
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Year-Ended | Year-Ended | |||||||
May 31, 2011 | May 31, 2010 | |||||||
In percentages | In percentages | |||||||
Total revenues | 100.0 | % | 100.0 | % | ||||
Operating expenses: | ||||||||
Selling, general and administrative | 125.2 | 89.1 | ||||||
Cost of condominium sales | 26.5 | 41.1 | ||||||
Total operating expenses | 151.7 | 130.2 | ||||||
Operating income (loss) | (51.7 | ) | (30.2 | ) | ||||
Interest expense | (0.0 | ) | (21.6 | ) | ||||
Interest income | 0.0 | 0.3 | ||||||
Other income | 8.5 | 11.8 | ||||||
Income (loss) before non-controlling interest and taxes | (43.2 | ) | (39.7 | ) |
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Year-Ended | Year-Ended | |||||||
May 31, 2010 | May 31, 2009 | |||||||
In percentages | In percentages | |||||||
Total revenues | 100.0 | % | 100.0 | % | ||||
Operating expenses: | ||||||||
Cost of educational services | 22.7 | 27.8 | ||||||
Selling, general and administrative | 55.6 | 60.1 | ||||||
Auxiliary expense | 2.4 | 2.6 | ||||||
Cost of condominium sales | 0.8 | 0.9 | ||||||
Total operating expenses | 81.5 | 91.4 | ||||||
Operating income | 18.5 | 8.6 | ||||||
Interest expense | (0.6 | ) | (1.3 | ) | ||||
Interest income | 0.2 | 0.4 | ||||||
Other income | 0.3 | 0.1 | ||||||
Income before income taxes | 18.4 | 7.8 | ||||||
Income tax expense | (7.2 | ) | (2.8 | ) | ||||
Net income attributable to non-controlling interest | 0 | 0 | ||||||
Net income attributable to the Company | 11.2 | 5.0 |
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Year-Ended | Year-Ended | |||||||
May 31, 2010 | May 31, 2009 | |||||||
In percentages | In percentages | |||||||
Total revenues | 100.0 | % | 100.0 | % | ||||
Operating expenses: | ||||||||
Cost of educational services | 23.2 | 28.6 | ||||||
Selling, general and administrative | 54.8 | 59.7 | ||||||
Auxiliary expense | 2.5 | 2.6 | ||||||
Total operating expenses | 80.5 | 90.9 | ||||||
Operating income | 19.5 | 9.1 | ||||||
Interest expense | (0.1 | ) | (0.6 | ) | ||||
Interest income | 0.2 | 0.4 | ||||||
Income before non-controlling interest and taxes | 19.6 | 8.9 |
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Year-Ended | Year-Ended | |||||||
May 31, 2010 | May 31, 2009 | |||||||
In percentages | In percentages | |||||||
Total revenues | 100.0 | % | 100.0 | % | ||||
Operating expenses: | ||||||||
Selling, general and administrative | 89.1 | 76.3 | ||||||
Cost of condominium sales | 41.1 | 33.3 | ||||||
Total operating expenses | 130.2 | 109.6 | ||||||
Operating income (loss) | (30.2 | ) | (9.6 | ) | ||||
Interest expense | (21.6 | ) | (27.4 | ) | ||||
Interest income | 0.3 | 0.0 | ||||||
Other income | 11.8 | 5.5 | ||||||
Income (loss) before non-controlling interest and taxes | (39.7 | ) | (31.5 | ) |
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Payments Due By Period (in thousands) | ||||||||||||||||||||
Total | Within 1 year | 1-3 Years | 3-5 Years | More than 5 years | ||||||||||||||||
Operating leases | $ | 41,312 | $ | 4,532 | $ | 8,665 | $ | 8,457 | $ | 19,658 |
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Item 7A. | Quantitative and Qualitative Disclosure About Risk. |
Item 8. | Financial Statements and Supplementary Data. |
Page | ||||
Annual Financial Statements: | ||||
84 | ||||
87 | ||||
88 | ||||
90 | ||||
91 | ||||
93 | ||||
Financial Statement Schedules | ||||
All schedules are omitted because they are not applicable or not required. | ||||
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National American University Holdings, Inc.and subsidiaries
Rapid City, South Dakota
Minneapolis, MN
August 5, 2011
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National American University Holdings, Inc.and subsidiaries
Rapid City, South Dakota
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Minneapolis, MN
August 5, 2011
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AND SUBSIDIARIES
2011 | 2010 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 25,716 | $ | 8,695 | ||||
Short term investments | 19,085 | 11,109 | ||||||
Student receivables — net of allowance of $223 and $203 at May 31, 2011 and 2010, respectively | 2,010 | 1,823 | ||||||
Other receivables | 425 | 952 | ||||||
Bookstore inventory | 1,057 | 920 | ||||||
Income tax receivable | 1,260 | 0 | ||||||
Deferred income taxes | 1,723 | 1,574 | ||||||
Prepaid and other current assets | 559 | 1,759 | ||||||
Total current assets | 51,835 | 26,832 | ||||||
Total Property and Equipment — Net | 21,265 | 15,881 | ||||||
OTHER ASSETS: | ||||||||
Condominium inventory | 2,664 | 3,046 | ||||||
Land held for future development | 312 | 312 | ||||||
Course development — net of accumulated amortization of $1,415 and $1,149 at May 31, 2011 and 2010, respectively | 956 | 768 | ||||||
Other | 906 | 447 | ||||||
4,838 | 4,573 | |||||||
TOTAL | $ | 77,938 | $ | 47,286 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | 4,430 | 4,315 | ||||||
Dividends payable | 831 | 11,116 | ||||||
Student accounts payable | 400 | 322 | ||||||
Deferred income | 294 | 305 | ||||||
Income tax payable | 0 | 231 | ||||||
Accrued and other liabilities | 6,403 | 6,109 | ||||||
Total current liabilities | 12,358 | 22,398 | ||||||
DEFERRED INCOME TAXES | 2,827 | 1,151 | ||||||
OTHER LONG-TERM LIABILITIES | 4,248 | 2,380 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $0.0001 par value (50,000,000 authorized; 27,546,499 issued and 26,546,499 outstanding as of May 31, 2011; 21,819,653 issued and outstanding as of May 31, 2010) | 3 | 2 | ||||||
Additional paid-in capital | 56,643 | 19,165 | ||||||
Retained earnings | 9,549 | 2,389 | ||||||
Treasury stock, at cost (1,000,000 shares at May 31, 2011;0 shares at May 31, 2010) | (7,505 | ) | 0 | |||||
Accumulated other comprehensive income | 72 | 96 | ||||||
Total National American University Holdings, Inc. stockholders’ equity | 58,762 | 21,652 | ||||||
Non-controlling interest | (257 | ) | (295 | ) | ||||
Total equity | 58,505 | 21,357 | ||||||
TOTAL | $ | 77,938 | $ | 47,286 | ||||
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AND SUBSIDIARIES
2011 | 2010 | 2009 | ||||||||||
REVENUE: | ||||||||||||
Academic revenue | $ | 99,216 | $ | 82,418 | $ | 56,874 | ||||||
Auxiliary revenue | 6,153 | 5,528 | 4,036 | |||||||||
Rental income — apartments | 990 | 918 | 890 | |||||||||
Condominium sales | 449 | 932 | 784 | |||||||||
Total revenue | 106,808 | 89,796 | 62,584 | |||||||||
OPERATING EXPENSES: | ||||||||||||
Cost of educational services | 22,575 | 20,419 | 17,398 | |||||||||
Selling, general and administrative | 64,474 | 49,886 | 37,626 | |||||||||
Auxiliary expense | 2,888 | 2,076 | 1,595 | |||||||||
Cost of condominium sales | 381 | 761 | 558 | |||||||||
Loss on disposition of property | 82 | 29 | 3 | |||||||||
Total operating expenses | 90,400 | 73,171 | 57,180 | |||||||||
OPERATING INCOME | 16,408 | 16,625 | 5,404 | |||||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest income | 148 | 206 | 242 | |||||||||
Interest expense | 0 | (525 | ) | (834 | ) | |||||||
Other income — net | 123 | 218 | 93 | |||||||||
Total other income (expense) | 271 | (101 | ) | (499 | ) | |||||||
INCOME BEFORE INCOME TAXES | 16,679 | 16,524 | 4,905 | |||||||||
INCOME TAX EXPENSE | (6,375 | ) | (6,485 | ) | (1,797 | ) | ||||||
NET INCOME | 10,304 | 10,039 | 3,108 | |||||||||
NET (INCOME) LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST | (38 | ) | (4 | ) | 13 | |||||||
NET INCOME ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. AND SUBSIDIARIES | 10,266 | 10,035 | 3,121 | |||||||||
OTHER COMPREHENSIVE (LOSS) INCOME — Unrealized (losses) gains on investments | (24 | ) | (13 | ) | 81 | |||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO NATIONAL AMERICAN UNIVERSITY HOLDINGS, INC. | $ | 10,242 | $ | 10,022 | $ | 3,202 | ||||||
The accompanying notes are an integral part of these consolidated financial statements. | (continued) |
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AND SUBSIDIARIES
FOR THE YEARS ENDED MAY 31, 2011, 2010 AND 2009
(In thousands except per share data)
2011 | 2010 | 2009 | ||||||||||
Basic EPS | ||||||||||||
Class A | ||||||||||||
Distributed earnings | $ | — | $ | 135.89 | $ | 2.00 | ||||||
Undistributed earnings | — | (40.64 | ) | 29.21 | ||||||||
Total | $ | — | $ | 95.25 | $ | 31.21 | ||||||
Common | ||||||||||||
Distributed earnings | $ | 0.12 | $ | 0.22 | $ | — | ||||||
Undistributed earnings | 0.27 | (0.26 | ) | — | ||||||||
Total | $ | 0.39 | $ | (0.04 | ) | $ | — | |||||
Diluted EPS | ||||||||||||
Class A | ||||||||||||
Distributed earnings | $ | — | $ | 135.89 | $ | 2.00 | ||||||
Undistributed earnings | — | (40.64 | ) | 29.21 | ||||||||
Total | $ | — | $ | 95.25 | $ | 31.21 | ||||||
Common | ||||||||||||
Distributed earnings | $ | 0.12 | $ | 0.22 | $ | — | ||||||
Undistributed earnings | 0.26 | (0.26 | ) | — | ||||||||
Total | $ | 0.38 | $ | (0.04 | ) | $ | — | |||||
Weighted Average Shares outstanding | ||||||||||||
Basic EPS | ||||||||||||
Class A | — | 100,000 | 100,000 | |||||||||
Common | 26,236,783 | 3,103,847 | n/a | |||||||||
Diluted EPS | ||||||||||||
Class A | — | 100,000 | 100,000 | |||||||||
Common | 26,836,039 | 3,103,959 | n/a |
The accompanying notes are an integral part of these consolidated financial statements. | (concluded) |
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AND SUBSIDIARIES
Equity attributable to National American University Holdings, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||
Accumulated | Equity | |||||||||||||||||||||||||||||||
Additional | other | attributable to | Total | |||||||||||||||||||||||||||||
Class A | Common | paid-in | Retained | comprehensive | Treasury | non-controlling | stockholders’ | |||||||||||||||||||||||||
common | stock | capital | earnings | income | stock | interest | equity | |||||||||||||||||||||||||
Balance — May 31, 2008 | $ | 0 | $ | 0 | $ | 385 | $ | 4,187 | $ | 28 | $ | (1,869 | ) | $ | (971 | ) | $ | 1,760 | ||||||||||||||
Dividends declared | 0 | 0 | 0 | (57 | ) | 0 | 0 | 0 | (57 | ) | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net income (loss) | 0 | 0 | 0 | 3,121 | 0 | 0 | (13 | ) | 3,108 | |||||||||||||||||||||||
Unrealized gain on investments | 0 | 0 | 0 | 0 | 81 | 0 | 0 | 81 | ||||||||||||||||||||||||
Balance — May 31, 2009 | $ | 0 | $ | 0 | $ | 385 | $ | 7,251 | $ | 109 | $ | (1,869 | ) | $ | (984 | ) | $ | 4,892 | ||||||||||||||
Recapitalization of Dlorah, Inc. | 0 | 1 | 22,508 | 0 | 0 | 0 | 0 | 22,509 | ||||||||||||||||||||||||
Retirement of treasury stock | 0 | 0 | (1,869 | ) | 0 | 0 | 1,869 | 0 | 0 | |||||||||||||||||||||||
Merger costs associated with reverse merger | 0 | 0 | (3,365 | ) | 0 | 0 | 0 | 0 | (3,365 | ) | ||||||||||||||||||||||
Contributed capital from non-controlling interest holders | 0 | 0 | 0 | 0 | 0 | 0 | 685 | 685 | ||||||||||||||||||||||||
Share based compensation expense | 0 | 0 | 1,507 | 0 | 0 | 0 | 0 | 1,507 | ||||||||||||||||||||||||
Conversion of Class A shares to common | 0 | 1 | (1 | ) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||
Dividends declared | 0 | 0 | 0 | (14,897 | ) | 0 | 0 | 0 | (14,897 | ) | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 10,035 | 0 | 0 | 4 | 10,039 | ||||||||||||||||||||||||
Unrealized loss on investments | 0 | 0 | 0 | 0 | (13 | ) | 0 | 0 | (13 | ) | ||||||||||||||||||||||
Balance — May 31, 2010 | $ | 0 | $ | 2 | $ | 19,165 | $ | 2,389 | $ | 96 | $ | 0 | $ | (295 | ) | $ | 21,357 | |||||||||||||||
Issuance of 4,550,000 shares common stock net of issuance cost of $1,578 | 0 | 1 | 30,498 | 0 | 0 | 0 | 0 | 30,499 | ||||||||||||||||||||||||
Conversion of warrants to 1,068,687 shares common stock | 0 | 0 | 5,876 | 0 | 0 | 0 | 0 | 5,876 | ||||||||||||||||||||||||
Conversion of 215,366 warrants to 55,459 common shares | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
Purchase of 1,000,000 shares common stock for the treasury | 0 | 0 | 0 | 0 | 0 | (7,505 | ) | 0 | (7,505 | ) | ||||||||||||||||||||||
Share based compensation expense | 0 | 0 | 1,104 | 0 | 0 | 0 | 1,104 | |||||||||||||||||||||||||
Dividends declared | 0 | 0 | 0 | (3,106 | ) | 0 | 0 | 0 | (3,106 | ) | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net income | 0 | 0 | 0 | 10,266 | 0 | 0 | 38 | 10,304 | ||||||||||||||||||||||||
Unrealized loss on investments | 0 | 0 | 0 | 0 | (24 | ) | 0 | 0 | (24 | ) | ||||||||||||||||||||||
Balance — May 31, 2011 | $ | 0 | $ | 3 | $ | 56,643 | $ | 9,549 | $ | 72 | $ | (7,505 | ) | $ | (257 | ) | $ | 58,505 | ||||||||||||||
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AND SUBSIDIARIES
2011 | 2010 | 2009 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net income | $ | 10,304 | $ | 10,039 | $ | 3,108 | ||||||
Adjustments to reconcile net income to net cash flows provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,861 | 2,320 | 2,165 | |||||||||
(Gain) loss on disposition of property and equipment | 81 | (89 | ) | (110 | ) | |||||||
Provision for uncollectable tuition | 3,350 | 2,355 | 1,638 | |||||||||
Noncash compensation expense | 1,104 | 1,507 | 0 | |||||||||
Deferred income taxes | 1,540 | (453 | ) | 192 | ||||||||
Changes in assets and liabilities: | ||||||||||||
Accounts and other receivables | (3,010 | ) | (3,750 | ) | (1,670 | ) | ||||||
Student notes | (411 | ) | (17 | ) | 0 | |||||||
Bookstore inventory | (137 | ) | (316 | ) | (54 | ) | ||||||
Prepaid and other current assets | 262 | (1,179 | ) | 187 | ||||||||
Condominium inventories | 382 | 756 | 529 | |||||||||
Accounts payable | (665 | ) | 324 | (29 | ) | |||||||
Deferred income | (11 | ) | (62 | ) | 103 | |||||||
Other long-term liabilities | 1,324 | 758 | 103 | |||||||||
Income tax receivable/payable | (1,491 | ) | (320 | ) | 1,352 | |||||||
Accrued and other liabilities | 294 | 1,209 | 1,709 | |||||||||
Net cash flows provided by operating activities | 15,777 | 13,082 | 9,223 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Purchases of investments | (35,995 | ) | (16,397 | ) | (2,100 | ) | ||||||
Proceeds from sale of investments | 27,982 | 9,687 | 941 | |||||||||
Purchases of property and equipment | (6,659 | ) | (4,671 | ) | (815 | ) | ||||||
Proceeds from sale of property and equipment | 1 | 167 | 211 | |||||||||
Payments (issuance) of student notes | 0 | 0 | 22 | |||||||||
Course development | (454 | ) | (346 | ) | (220 | ) | ||||||
Construction of development property with line of credit borrowings | 0 | 0 | (452 | ) | ||||||||
Other | (48 | ) | (7 | ) | 1 | |||||||
Net cash flows used in investing activities | (15,173 | ) | (11,567 | ) | (2,412 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Borrowings on lines of credit | 0 | 0 | 2,650 | |||||||||
Repayments of lines of credit | 0 | (3,305 | ) | (5,796 | ) | |||||||
Repayments of long-term debt | 0 | (8,654 | ) | (2,660 | ) | |||||||
Construction of development property with line of credit borrowings | 0 | 0 | 452 | |||||||||
Contributed capital by non-controlling interest members | 0 | 685 | 0 | |||||||||
Cash paid for treasury stock | (7,505 | ) | 0 | 0 | ||||||||
Cash received for warrants | 5,876 | 0 | 0 | |||||||||
Issuance of common stock | 32,077 | 0 | 0 | |||||||||
Cash paid for stock issuance | (640 | ) | 0 | 0 | ||||||||
Cash received in reverse merger | 0 | 22,092 | 0 | |||||||||
Cash paid for merger costs | 0 | (3,365 | ) | 0 | ||||||||
Dividends paid | (13,391 | ) | (3,781 | ) | (57 | ) | ||||||
Net cash flows provided by (used in) financing activities | 16,417 | 3,672 | (5,411 | ) | ||||||||
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AND SUBSIDIARIES
FOR THE YEARS ENDED MAY 31, 2011, 2010 AND 2009
(In thousands except per share data)
2011 | 2010 | 2009 | ||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | $ | 17,021 | $ | 5,187 | $ | 1,400 | ||||||
CASH AND CASH EQUIVALENTS — Beginning of year | 8,695 | 3,508 | 2,108 | |||||||||
CASH AND CASH EQUIVALENTS — End of period | $ | 25,716 | $ | 8,695 | $ | 3,508 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the year for interest — net of $0, $0, and $38 capitalized during the years ended May 31, 2011, 2010 and 2009, respectively | $ | 0 | $ | 554 | $ | 848 | ||||||
Tenant improvements paid by lessor | $ | 1,271 | $ | 0 | $ | 0 | ||||||
Cash paid during the year for income taxes | $ | 6,308 | $ | 7,884 | $ | 254 | ||||||
Dividends declared, unpaid at May 31, 2011, 2010 and 2009 | $ | 831 | $ | 11,116 | $ | — | ||||||
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AND SUBSIDIARIES
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations –National American University Holdings, Inc., formerly known as Camden Learning Corporation (the “Company”), was incorporated in the State of Delaware on April 10, 2007. The Company was a special purpose acquisition company formed to serve as a vehicle for the acquisition of an operating business. On November 23, 2009, Dlorah, Inc., a South Dakota corporation (“Dlorah”), became a wholly-owned subsidiary of the Company (the “Transaction”), pursuant to an Agreement and Plan of Reorganization between the Company and Dlorah. In connection with the Transaction, the stockholders of Dlorah received approximately 77% of the equity of the Company, and Dlorah was deemed to be the acquirer for accounting purposes. The Transaction has been accounted for as a reverse merger accompanied by a recapitalization. As a result of the Transaction, the historical results of Dlorah became the historical results of the Company. The accompanying consolidated statements of operations for the year ended May 31, 2009, and stockholders’ equity and cash flows for the year ended May 31, 2009, have been updated to reflect the effects of the recapitalization on common stock, stockholders’ equity accounts and earnings per share. | ||
The Company’s common stock is listed on the Nasdaq Global Market. The Company owns and operates National American University (“NAU” or the “University”). NAU is a regionally accredited, proprietary, multi-campus institution of higher learning, offering Associate, Bachelor’s and Master’s degree programs in business-related disciplines, such as accounting, applied management, business administration and information technology, and in healthcare-related disciplines, such as nursing and healthcare management. Courses are offered through educational sites, as well as online via the Internet. Operations include educational sites located in Colorado, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, South Dakota and Texas, and distance learning operations and central administration offices located in Rapid City, South Dakota. A substantial portion of NAU’s academic income is dependent upon federal student financial aid programs, employer tuition assistance, online learning programs and contracts to provide instruction and course materials to other educational institutions. To maintain eligibility for financial aid programs, NAU must comply with Department of Education requirements, which include, among other items, the maintenance of certain financial ratios. | ||
The Company, through its Fairway Hills real estate division, also manages apartment units and develops and sells multi-family residential real estate in the Rapid City, South Dakota area. | ||
Approximately 93%, 92% and 91% of the Company’s total revenues for the years ended May 31, 2011, 2010 and 2009, respectively were derived from NAU’s academic revenue. |
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Principles of Consolidation — The Company’s fiscal year end is May 31. The Company consolidates the accounts of all wholly owned divisions, including NAU, the Fairway Hills Park and Recreational Association, the Park West Owners’ Association, the Vista Park Owners’ Association, and the Company’s interest in Fairway Hills Section III Partnership (the “Partnership”). The Partnership is 50% owned by the Company and 50% owned by individual family members, most of whom are also either direct or indirect stockholders of the Company. All material intercompany transactions and balances have been eliminated in consolidation. | ||
The Partnership is deemed to be a variable interest entity (“VIE”) under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810-10,Consolidation. An enterprise is required to consolidate a VIE if that enterprise is the primary beneficiary. An enterprise is considered the primary beneficiary if it has a variable interest that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. | ||
The Company has determined that the Partnership qualifies as a VIE and that the Company is the primary beneficiary of the Partnership. Accordingly, the Company consolidated assets, liabilities, and net income of the Partnership within its consolidated balance sheets and statements of operations. As of May 31, 2011 and 2010, the consolidated balance sheets include Partnership assets of $1,001 and $1,107, respectively, and Partnership liabilities of $59 and $64, respectively. The consolidated statements of operations included Partnership net (loss) income of $76, $8, and $(26) for the years ended May 31 2011, 2010 and 2009, respectively. | ||
Estimates — The preparation of financial statements in conformity with the United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. On an ongoing basis, the Company evaluates the estimates and assumptions, including those related to bad debts, income taxes, and certain accruals. Actual results could differ from those estimates. | ||
Cash and Cash Equivalents — The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash is held in bank accounts that periodically exceed insured limits; however, no losses have occurred, and the Company feels the risk of loss is not significant. | ||
Investments — The Company’s investments consist of government-backed bonds and certificates of deposit. These securities are classified as “available-for-sale.” Available-for-sale securities represent securities carried at fair value in the accompanying consolidated balance sheets. Unrealized gains and losses deemed to be temporary are reported net of taxes and included in accumulated other comprehensive income within stockholders’ equity. Realized gains and losses and declines in value deemed to be other-than-temporary on available-for-sale securities are included in other income – net in the accompanying consolidated statement of operations. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses on available-for-sale securities is determined on a specific identification basis. The net realized gains and losses on sales of investments totaled $0 for each of the years ended May 31, 2011 and 2010, and 2009. |
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The Company’s investments were comprised of the following at May 31(in thousands): |
2011 | 2010 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | Unrealized | |||||||||||||||||||||||||||||
Amortized | Holding | Holding | Fair | Amortized | Holding | Holding | Fair | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
U.S. Treasury debt securities | $ | 18,211 | $ | 115 | $ | — | $ | 18,326 | $ | 10,203 | $ | 145 | $ | — | $ | 10,348 | ||||||||||||||||
Certificates of deposit | 659 | — | — | 659 | 642 | 13 | — | 655 | ||||||||||||||||||||||||
Other debt securities | 101 | — | (1 | ) | 100 | 101 | 5 | — | 106 | |||||||||||||||||||||||
Total | $ | 18,971 | $ | 115 | $ | (1 | ) | $ | 19,085 | $ | 10,946 | $ | 163 | $ | — | $ | 11,109 | |||||||||||||||
Gross | Gross | Gross | ||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||
Amortized | Holding | Holding Losses | Holding Losses | Fair | ||||||||||||||||
Cost | Gains | < 1 Year | > 1 Year | Value | ||||||||||||||||
Less than one year | $ | 16,752 | $ | — | $ | (1 | ) | $ | — | $ | 16,751 | |||||||||
One to five years | 2,219 | 115 | — | — | 2,334 | |||||||||||||||
Total | $ | 18,971 | $ | 115 | $ | (1 | ) | $ | — | $ | 19,085 | |||||||||
Declines in the fair value of individual securities classified as available-for-sale below their amortized cost that are determined to be other than temporary result in write-downs of the individual securities to their fair value, with the resulting write-downs included in current earnings as realized losses. Unrealized losses that may occur are generally due to changes in interest rates and, as such, are considered by the Company to be temporary. Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investments in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. | ||
Student Accounts Receivable — Student accounts receivable are recorded at estimated net realizable value and are revised periodically based on estimated future collections. Interest and service charges are applied to all past due student accounts receivable; however, collections are first applied to principal balances until such time that the entire principal balance has been received. Student accounts are charged off only when reasonable collection means are exhausted. The University has determined that most accounts with an outstanding balance of 180 days after the start of the term are uncollectable. Bad debt expense is included in cost of educational services on the consolidated statements of operations. | ||
Other Receivables — Other receivables consist of institutional, which are amounts due from other educational institutions to which the University provides instruction and course materials, and are stated at net realizable value. |
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Bookstore Inventory — Inventories consist mainly of textbooks and supplies. Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. | ||
Property and Equipment — Property and equipment are stated at cost. Renewals and improvements are capitalized, while repairs and maintenance are expensed when incurred. Upon the retirement, sale or disposition of assets, costs and related accumulated depreciation are eliminated from the accounts and any gain or loss is reflected in operating income. For financial statement purposes, depreciation is computed using the straight-line method over the following estimated useful lives: |
Years | ||||
Buildings and building improvements | 19–40 | |||
Land improvements | 10–20 | |||
Furniture, vehicles, and equipment | 5–15 |
For tax purposes, depreciation is computed using the straight-line and accelerated methods. | ||
Property and equipment — net consists of the following as of May 31 (in thousands): |
2011 | 2010 | |||||||
Land | $ | 718 | $ | 718 | ||||
Land improvements | 374 | 374 | ||||||
Buildings and building improvements | 22,259 | 18,300 | ||||||
Furniture, vehicles, and equipment | 19,018 | 17,316 | ||||||
Total gross property and equipment | 42,369 | 36,708 | ||||||
Less accumulated depreciation | (21,104 | ) | (20,827 | ) | ||||
Total net property and equipment | $ | 21,265 | $ | 15,881 | ||||
Capitalized Course Development Costs — The University internally develops curriculum and electronic instructional materials for certain courses. The curriculum is primarily developed by employees and contractors. The curriculum is integral to the learning system. Customers do not acquire the curriculum or future rights to it. | ||
The Company capitalizes course development costs. Costs that qualify for capitalization are external direct costs, payroll, and payroll-related costs. Costs related to general and administrative functions are not capitalizable and are expensed as incurred. Capitalization ends at such time that the course and/or material is available for general use by faculty and students. After becoming available for general use, the costs are amortized on a course-by-course basis over a period of three to five years. After the amortization period commences, the cost of maintenance and support is expensed as incurred. If it is determined that the curriculum will not be used, the capitalized curriculum costs are written off and expensed in the period of this determination. | ||
Impairment of Long-Lived Assets — Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be held for sale are carried at the lower of carrying value or fair value, less cost to sell. The Company had no impairments in 2011, 2010, or 2009. |
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Condominium Inventory — Condominium inventory is stated at cost (including capitalized interest). Condominium construction costs are accumulated on a specific identification basis. Under the specific identification basis, cost of revenues includes all applicable land acquisition, land development and specific construction costs (including direct and indirect costs) of each condominium paid to third parties. Land acquisition, land development and condominium construction costs do not include employee related benefit costs. The specific construction and allocated land costs of each condominium, including models, are included in direct construction. Allocated land acquisition and development costs are estimated based on the total costs expected in a project. Direct construction also includes amounts paid through the closing date of the condominium for construction materials and contractor costs. Condominium inventory is recorded as a long term asset due to the normal operating cycle being greater than one year. | ||
Deferred Income Taxes — Deferred income taxes are provided using the asset and liability method whereby deferred tax assets and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. | ||
Non-Controlling Interest — The non-controlling interest presented on the consolidated statements of operations represents the individual owners’ share of the Partnership’s income or loss. The consolidated balance sheet amount “Non-controlling interest” represents the individual owners’ share of the Partnership obligations in excess of Partnership assets. The Company has determined the non-controlling owners to have a legal obligation to fund such deficits and believes it is fully collectable at May 31, 2011. | ||
Financial Instruments — As of May 31, 2011 and 2010, the Company’s financial instruments consisted of cash equivalents and investments. The difference between the carrying value of these financial instruments and their fair value was not material as of May 31, 2011 and 2010. | ||
Academic Revenue Recognition — Academic revenue represents tuition revenue and the revenue generated through affiliate relationships. Tuition revenue and affiliate revenue is recorded ratably over the length of respective courses. Academic revenue also includes certain fees and charges assessed at the start of each term. The portion of tuition and registration fees payments received but not earned is recorded as student accounts payable and reflected as a current liability on the accompanying consolidated balance sheets, as such amount represents revenue that the Company expects to earn within the next year. Academic revenue is reported net of adjustments for refunds and scholarships. If a student withdraws prior to the completion of the academic term, students are refunded the portion of tuition and registration fees already paid, that pursuant to the Company’s refund policy and applicable federal and state law and accrediting agency standards, the Company is not entitled to. Refunds and scholarships are recorded during the respective terms. | ||
Auxiliary Revenue — Auxiliary revenue represents revenues from the University’s food service, bookstore, and dormitory operations. Revenue is recognized as items are sold and services are performed. |
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Rental Income — Rental income is primarily obtained from tenants of three apartment complexes under short-term operating leases. Tenants are required to pay rent on a monthly basis. Rent not paid by the end of the month is considered past due, while rent paid in advance is included in deferred income on the accompanying consolidated balance sheets. If a tenant becomes 60 days past due, eviction procedures are started. | ||
Rental Expense — The University accounts for rent expense under its long-term operating leases using the straight-line method. Certain of the University’s operating leases contain rent escalator provisions. Accordingly, a $4,248 and $2,380, deferred rent and tenant improvement liability at May 31, 2011 and 2010, respectively, is recorded in other long-term liabilities on the accompanying consolidated balance sheets. | ||
Advertising — The University follows the policy of expensing the cost of advertising as incurred. Advertising costs of $10,521, $7,614 and $6,151 for 2011, 2010 and 2009, respectively, are included in selling, general, and administrative expenses on the accompanying consolidated statements of operations. | ||
Business Expansion and Development — The University continues to commit resources to the development of new branch campuses and new programs, as well as the expansion of existing programs into new markets. During the year ended May 31, 2011, the University continued to develop a campus in Austin, Texas; additional hybrid learning centers in Centennial, Colorado; Colorado Springs, Colorado; Wichita, Kansas; Burnsville, Minnesota; Minnetonka, Minnesota; Lee’s Summit, Missouri; Bellevue, Nebraska; Tulsa, Oklahoma; Allen, Texas; Lewisville, Texas; Mesquite, Texas; South Austin, Texas and continued to develop and expand the nursing and distance learning programs. Business expansion and development costs include salaries, marketing and advertising, and other third-party expenses incurred to support such development and expansion. The amounts are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations and totaled $14,326, $6,529 and $3,241 in 2011, 2010 and 2009, respectively. |
2. | EARNINGS PER SHARE |
Basic earnings per share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the applicable period. Diluted earnings per share reflect the potential dilution that could occur assuming vesting, conversion or exercise of all dilutive unexercised options, warrants and restricted stock. As described in Note 9, the Company had one class of common stock outstanding as of May 31, 2011. The class A stock was converted to common stock on May 27, 2010; and, due to the limited number of days between the conversion and the end of the year, the Company utilized the two class method to calculate and report earnings per share for each class of stock for 2010. For purposes of calculating basic and diluted earnings per share, undistributed earnings are allocated to the Class A stock and common stock based on the proportion of weighted average outstanding shares of each class of stock for the year ending May 31, 2010. During 2009, only one class of common stock was outstanding and there were no dilutive securities outstanding. |
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The following is a reconciliation of the numerator and denominator for the basic and diluted EPS computations: |
For the year ended | ||||||||||||
May 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Numerator: | ||||||||||||
Net Income attributable to National American Universtiy Holdings, Inc. | $ | 10,266,272 | $ | 10,035,000 | $ | 3,121,000 | ||||||
Distributed Earnings (DE) | 3,106,138 | 14,900,751 | 200,000 | |||||||||
Undistributed Earnings (UE) | 7,160,134 | (4,865,751 | ) | 2,921,000 | ||||||||
UE attributable to Class A | — | (4,063,868 | ) | 2,921,000 | ||||||||
UE attributable to Common | 7,160,134 | (801,883 | ) | — | ||||||||
DE attributable to Class A | — | 13,588,792 | 200,000 | |||||||||
DE attributable to Common | 3,106,138 | 1,311,959 | — | |||||||||
Denominator: | ||||||||||||
Class A Shares | — | 100,000 | 100,000 | |||||||||
Weighted average shares outstanding used to compute basic net income per common share | 26,236,783 | 3,103,847 | — | |||||||||
Incremental shares issuable upon the assumed exercise of restricted shares | — | 112 | — | |||||||||
Incremental shares issuable upon the assumed exercise of warrants | 599,256 | — | — | |||||||||
Common shares used to compute diluted net income per share | 26,836,039 | 3,103,959 | — | |||||||||
Basic net income per Class A share | 0 | 95.25 | 31.21 | |||||||||
Basic net income per common share | 0.39 | (0.04 | ) | — | ||||||||
Diluted net income per Class A share | 0 | 95.25 | 31.21 | |||||||||
Diluted net income per common share | 0.38 | (0.04 | ) | — |
Outstanding options of 121,750 were not included in the computation of diluted net income per common share in 2011 because their effect would be antidilutive. |
Outstanding warrants of 2,800,000 were not included in the computation of diluted net income per common share in 2010 because their effect would be antidilutive. |
3. | RECENTLY ADOPTED AND NEW ACCOUNTING PRONOUNCEMENTS |
In June 2009, the FASB issued a new standard to update FASB ASC Topic 810,Consolidation. This standard is intended to improve financial reporting by enterprises involved with variable interest entities. This standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within the first annual reporting period, and for interim and annual reporting periods thereafter. This standard was adopted by the Company on June 1, 2010 and had no impact on its consolidated financial statements. |
In January 2010, the FASB issued Accounting Standards Update 2010-06Fair Value Measurement and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.This guidance provides for the following new required disclosures related to fair value measurements: 1) the amounts of and reasons for significant transfers in and out of level one and level two inputs and 2) separate presentation of purchases, sales, issuances, and settlements on a gross basis rather than as one net number for level three reconciliations. The guidance also clarifies existing disclosures as follows: 1) provide fair value measurement disclosures for each class of assets and liabilities and 2) provide disclosures about the valuation techniques and inputs used for both recurring and nonrecurring level two or level three inputs. The new disclosures and clarifications of existing disclosures were effective for the Company’s fourth quarter ended May 31, 2010. Disclosures about purchases, sales, issuances, and settlements in the roll forward of activity for level three fair value measurements were effective for the Company’s first quarter ending August 31, 2011. The Company has adopted this standard, but it did not have a material effect on the Company’s consolidated financial statements. |
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In May 2011, the FASB issued ASC Update 2011-04Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The new guidance is intended to create a consistent definition of fair value and common requirements for measurement of and disclosure about fiar value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments provide clarification on the application of certain existing fair value measurement guidance and enhance disclosure requirements, including the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy and expanded qualitative and qualitative for fair value measurements that are estimated using significant unobservable (Level 3) inputs. The Company will adopt this standard for the year ending May 31, 2012, although it is not expected to have a material effect on the Company’s consolidated financial statements. |
In June 2011, the FASB issued ASC Update 2011-05Comprehensive Income (Topic 220): Presentation of Comprehensive Income.ASC Update 2011-05 amends current U.S. GAAP to increase the prominence of items reported in comprehensive income and to move toward convergence with IFRS by requiring that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASC Update 2011-05 does not change the items reported in comprehensive income or earnings per share calculations, but does change presentation of comprehensive income within the financial statements. This standard will be effective for the Company’s fiscal quarter ended August 31, 2012 with retrospective application required. As this standard impacts presentation requirements only, the adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements. |
4. | DEPARTMENT OF EDUCATION REQUIREMENTS |
The University extends unsecured credit to a portion of the students who are enrolled throughout the campuses for tuition and other educational costs. A substantial portion of credit extended to students is repaid through the students’ participation in various federal financial aid programs authorized by Title IV Higher Education Act of 1965, as amended (HEA). The University is required under 34 CFR 600.5(d) to maintain at least 10% of its revenues from non-Title IV HEA program funds. The University believes they are in compliance with this requirement for the years ended May 31, 2011, 2010 and 2009, as shown in the underlying calculation: |
Title IV HEA funds received | 78,388,040 | 58,250,685 | 39,877,405 | |||||||||||||||||||||
Academic revenue | 99,393,334 | =78.87 | % | 76,545,809 | =76.10 | % | 55,733,845 | =71.55 | % | |||||||||||||||
(cash basis) |
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To participate in Title IV Programs, a school must be authorized to offer its programs of instruction by relevant state education agencies, be accredited by an accrediting commission recognized by the Department of Education (DOE), and be certified as an eligible institution by the DOE. For this reason, the schools are subject to extensive regulatory requirements imposed by all of these entities. After the schools receive the required certifications by the appropriate entities, the schools must demonstrate their compliance with the DOE regulations of the Title IV Programs on an ongoing basis. Included in these regulations is the requirement that the Company must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliance with these standards each year, based upon the institution’s annual audited financial statements, as well as following a change in ownership of the institution. Under regulations which took effect July 1, 1998, the DOE calculates the institution’s composite score for financial responsibility based on its (i) equity ratio, which measures the institution’s capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution’s ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution’s ability to operate at a profit. This composite score can range from -1 to +3. |
An institution that does not meet the DOE’s minimum composite score requirements of 1.5 may establish its financial responsibility by posting a letter of credit or complying with additional monitoring procedures as defined by the DOE. Based on the consolidated financial statements for the 2011, 2010 and 2009 fiscal years, the University’s calculations result in a composite score of 3.0, 2.4, and 1.6, respectively. Therefore the University currently meets the minimum composite score requirement as most recently required by the DOE. |
5. | LINES OF CREDIT |
The University maintains a $3,000 line of credit with Wells Fargo Bank that matures in June 2011. Advances under the line bear interest at a variable rate based on prime and are secured by checking, savings, and investment accounts held by Wells Fargo Bank. No advances had been made on this line of credit at May 31, 2011 or 2010. |
The University also maintained a $2,000 revolving line of credit with Great Western Bank that matured in September 2010. Advances under the line beared interest at a variable rate based on prime (5% at May 31, 2010) and were secured by substantially all assets of the University and the personal guarantee of a Company shareholder. No advances had been made on this line of credit at May 31, 2010. | ||
During 2009, the Company utilized a line of credit with Great Western Bank to fund the construction of a new building (see Note 13). The line of credit was paid in full and closed during the year ended May 31, 2010. |
6. | LEASES |
The University leases building facilities for branch operations and equipment for classroom operations under operating leases with various terms and conditions. Total rent expense for the years ended May 31, 2011, 2010 and 2009, was $4,481, $3,752 and $3,506, respectively. |
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Future minimum lease payments on noncancelable operating leases for the five years ending May 31 are as follows (in thousands): |
2012 | $ | 4,532 | ||
2013 | 4,329 | |||
2014 | 4,336 | |||
2015 | 4,301 | |||
2016 | 4,156 | |||
Thereafter | 19,658 |
7. | INCOME TAXES |
Components of the provision for income taxes for the years ended May 31, 2011, 2010 and 2009, were as follows (in thousands): |
2011 | 2010 | 2009 | ||||||||||
Current tax expense: | ||||||||||||
Federal | $ | 4,189 | $ | 6,116 | $ | 1,562 | ||||||
State | 647 | 780 | 43 | |||||||||
4,836 | 6,896 | 1,605 | ||||||||||
Deferred tax expense (benefit): | ||||||||||||
Federal | 1,434 | (382 | ) | 162 | ||||||||
State | 105 | (29 | ) | 30 | ||||||||
1,539 | (411 | ) | 192 | |||||||||
Total tax expense | $ | 6,375 | $ | 6,485 | $ | 1,797 | ||||||
The effective tax rate varies from the statutory federal income tax rate for the following reasons: |
2011 | 2010 | 2009 | ||||||||||
Statutory | 34.0 | % | 34.0 | % | 34.0 | % | ||||||
State income taxes — net of federal benefit | 3.2 | 3.0 | 1.5 | |||||||||
Permanent differences and other | 1.0 | 2.3 | 1.1 | |||||||||
Effective income tax rate | 38.2 | % | 39.3 | % | 36.6 | % | ||||||
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Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred assets (liabilities) as of May 31 were as follows (in thousands): |
2011 | 2010 | |||||||
Deferred income tax assets: | ||||||||
Account receivable allowances | $ | 104 | $ | 96 | ||||
Bad debt write-offs | 1,056 | 594 | ||||||
Other | 133 | 0 | ||||||
Accrued salaries | 760 | 1,226 | ||||||
Start up costs | 382 | 411 | ||||||
Deferred rent | 1,550 | 869 | ||||||
Total deferred income tax assets | 3,985 | 3,196 | ||||||
Deferred income tax liabilities: | ||||||||
Fixed assets and course development | (4,838 | ) | (2,482 | ) | ||||
Prepaid expenses | (209 | ) | (236 | ) | ||||
Other | (42 | ) | (55 | ) | ||||
Total deferred income tax liabilities | (5,089 | ) | (2,773 | ) | ||||
Net deferred income tax assets (liabilities) | $ | (1,104 | ) | $ | 423 | |||
The Company follows guidance of ASC Topic 740,Income Taxes, formerly FIN No. 48,Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,which requires that income tax positions must be more likely than not to be sustained based solely on their technical merits in order to be recognized. The Company has recorded no liability for uncertain tax positions. The Company has elected to record interest and penalties from unrecognized tax benefits in the tax provision. |
The Company files income tax returns in the U.S. federal jurisdiction and various states. Because of closure of an Internal Revenue Service examination, the Company is no longer subject to U.S. federal income tax examinations for years before 2007 and, generally, is no longer subject to state and local income tax examinations by tax authorities for years before 2005. |
The Company was selected for an Internal Revenue Service examination covering its 2009 tax return which is based on the fiscal year ended May 31, 2010. The examination is in progress, and management has no estimate of any tax liability that may occur as a result of this examination. |
8. | EMPLOYEE COMPENSATION PLANS |
Employee Benefit Plan Payable— The Company sponsors a 401(k) plan for its University employees, which provides for a discretionary match, net of forfeitures, of up to 5%. The University uses certain consistently applied operating ratios to determine contributions. The University’s contributions were $555, $447 and $364 for the years ended May 31, 2011, 2010 and 2009, respectively. |
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Compensation Plans— The Company had entered into an employment agreement dated January 3, 2005, as amended to date, with Robert Buckingham, a former executive officer of the Company. The agreement required, among other things, an annual incentive payment of 10% of the Company’s annual income as defined in the agreement, which was paid out annually. For the years ended May 31, 2010 and 2009, the Company recorded $793 and $709, respectively, as an expense in selling, general, and administrative expenses in the accompanying consolidated statements of operations. Furthermore, the agreement provided for a deferred compensation payment payable upon retirement or death equal to one year’s salary. |
On March 19, 2010, the Company entered into a Termination of Employment Agreement and Release Agreement (the “Termination Agreement”). Under the Termination Agreement, the parties terminated the Employment Agreement, which contained the terms and conditions of Mr. Buckingham’s employment with the Company as an executive officer of the Company, and which was filed as an exhibit to the Company’s Current Report on Form 8-K on November 30, 2009. |
The Company has also entered into employment agreements with Dr. Ronald Shape, Chief Executive Officer and Chief Financial Officer, and Dr. Jerry Gallentine, President, that require, among other things, an annual incentive payment as defined in the agreements. The incentive payments are paid in installments each year, are recorded in selling, general and administrative expenses and accrued other liabilities in the accompanying consolidated financial statements, and total $634, $749 and $338 for 2011, 2010 and 2009, respectively. |
On May 2, 2011, the Company approved a Chief Executive Officer Compensation Plan and a Cabinet Level Officer Compensation Plan, in connection with establishing the overall compensation levels for the executive management team of the Company for the 2012 fiscal year. Each compensation plan has a base salary component, quarterly achievement award component and an annual achievement award component as defined in the agreements. |
9. | STOCKHOLDERS’ EQUITY |
The authorized capital stock for the Company is 51,000,000, consisting of (i) 50,000,000 shares of Common Stock, par value $0.0001 and (ii) 1,000,000 shares of preferred stock, par value $0.0001, and (iii) 100,000 shares of class A common stock, par value $0.0001. All shares of class A common stock were converted to common stock during the year ended May 31, 2010 at a rate of 157.3 shares of common stock for each share of class A common stock. |
Of the authorized shares, 26,546,499 shares of Common Stock were outstanding as of May 31, 2011. No shares of preferred stock were outstanding. On January 31, 2011, the Company’s Board of Directors authorized the repurchase of up to an additional 1,000,000 shares, not to exceed $10,000, of the Company’s outstanding common stock in open market or privately negotiated transactions. The Board determined, among other things, that the repurchase program would offset dilution from the exercise of existing warrants to purchase shares of common stock. During the third quarter fiscal 2011, the Company repurchased 1,000,000 shares for $7,505. As of March 31, 2011, there were zero remaining shares authorized to be repurchased. |
During the year ended May 31, 2010, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission for the offer and sale of up to 7,000,000 shares of its common stock (half coming from selling stockholders), plus 1,050,000 shares to cover over-allotment. The sale of 7,000,000 shares closed on June 1, 2010, and the sale of the 1,050,000 over-allotment shares closed on June 5, 2010. |
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Also, in connection with the Transaction, the former Dlorah stockholders were issued, in the aggregate, warrants to purchase up to 2,800,000 shares of common stock at $5.50 per share that will expire if not converted by November 23, 2011. These warrants contain a cashless exercise feature. During February 2011, portions of these warrants were converted to 1,068,387 shares of common stock for total consideration of $5,876. In addition, 215,366 warrants were converted into 55,459 shares of stock in April and May via the cashless exercise feature. The remaining warrants have not been exercised as of May 31, 2011. |
Share-Based Compensation |
In December 2009, the Company adopted the 2009 Stock Option and Compensation Plan (the “Plan”) pursuant to which the Company may grant restricted stock awards, restricted stock units and stock options to aid in recruiting and retaining employees, officers, directors and other consultants. Restricted stock awards accrue dividends that are paid when the shares vest. Restricted stock units awards do not accrue dividends prior to vesting. Grants are issued at prices determined by the compensation committee, generally equal to the closing price of the stock on the date of the grant, vest over various terms (generally three years), and expire ten years from the date of the grant. The Plan allows vesting based upon performance criteria; all current restricted shares grants outstanding are performance based vesting and all current stock option awards outstanding are time-based vesting instruments. Certain option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the Plan). The fair value of stock options granted is calculated using the Black-Scholes option pricing model. Share options issued under the Plan may be incentive stock options or nonqualified stock options. At May 31, 2011, all stock options issued have been nonqualified stock options. A total of 1,300,000 shares were authorized by the Plan. Shares forfeited or canceled are eligible for reissuance under the Plan. At May 31, 2011, 904,202 shares of Common Stock remain available for issuance under the Plan. |
The Company granted restricted stock awards in November 2009, December 2009, March 2010, and April 2010. The fair value of restricted stock awards was calculated using the Company’s stock price as of the associated grant date and the expense is accrued ratably over the vesting period of the award. The amounts recognized in compensation expense were $607, $1,507 and $0, respectively for the years ended May 31, 2011, 2010 and 2009. Federal and state payroll taxes totaling $275, $600, and $0 related to these awards were also included in compensation expense for the years ended May 31, 2011, 2010, and 2009, respectively. As of May 31, 2011 there was $220 of total unrecognized compensation cost related to the restricted stock awards that will be recognized over a period extending to May 31, 2012. |
During the quarter ended August 31, 2010, the company granted restricted stock units (“RSUs”) that vested May 31, 2011 based on the performance metric of earnings before interest and taxes margin of 18% for the Company. The amount recognized in compensation expense was $293 for the year ended May 31, 2011. As of May 31, 2011 the total expense associated with RSUs issued has been recognized. There were no RSUs issued or outstanding for the years ended May 31, 2010 and 2009. |
A summary of restricted shares activity under the Plan as of May 31, 2011, and changes during the years ended May 31, 2011 and 2010 is presented below: |
Weighted Average | ||||||||
Grant Date Fair | ||||||||
Restricted Shares | Shares | Value | ||||||
Outstanding at June 1, 2009 | — | $ | 0.00 | |||||
Granted | 308,548 | 8.95 | ||||||
Vested | (110,715 | ) | 10.22 | |||||
Forfeited | (87,500 | ) | 7.75 | |||||
Outstanding at May 31, 2010 | 110,333 | $ | 8.64 | |||||
Granted | 53,000 | 5.52 | ||||||
Vested | (109,167 | ) | 7.14 | |||||
Forfeited | — | — | ||||||
Outstanding at May 31, 2011 | 54,166 | $ | 8.62 | |||||
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The Company accounts for stock option-based compensation by estimating the fair value of options granted using a Black-Scholes option valuation model. The Company recognizes the expense for grants of stock options on a straight-line basis in the statement of operations as operating expense based on their fair value over the requisite service period. |
Stock options issued during the year ended May 31, 2011 totaled 121,750 comprised of two grants of 110,000 shares and 11,750 shares having exercise prices of $9.35 and $7.49, respectively. There were no stock options issued or outstanding for the years ended May 31, 2010 and 2009. For stock options issued during the year ended May 31, 2011, the following assumptions were used to determine fair value: |
For the year ended | ||||
Assumptions used: | May 31, 2011 | |||
Expected term (in years) | 5.75 | |||
Expected volatility | 45.59% | |||
Weighted average risk-free interest rate | 0.46% | |||
Risk free interest rate | 0.13%-0.50% | |||
Weighted average expected dividend | 1.24% | |||
Weighted average expected dividend range | 1.20%-1.60% | |||
Weighted average fair value per share | $3.44 |
Expected volatilities are based on historic volatilities from traded shares of a selected publicly traded peer group. The Company has no historical data to estimate forfeitures. The expected term of options granted is the safe harbor period approved by the Securities and Exchange Commission using the vesting period and the contract life as factors. The risk-free rate for periods matching the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. |
A summary of option activity under the Plan as of May 31, 2011, and changes during the year then ended is presented below: |
Weighted | Weighted Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual Life | Intrinsic | ||||||||||||||
2011 | Shares | Price | (Years) | Value | ||||||||||||
Outstanding at June 1, 2010 | — | $ | — | — | ||||||||||||
Granted | 121,750 | 9.17 | ||||||||||||||
Exercised | — | — | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Outstanding at May 31, 2011 | 121,750 | $ | 9.17 | 9.1 | $ | — | ||||||||||
Exercisable at May 31, 2011 | — | $ | — | — | $ | — | ||||||||||
The company recorded compensation expense for the year ended May 31, 2011 of $204 for the estimated fair value of options issued; there were no stock options issued or outstanding for the years ended May 31, 2010 and 2009. As of May 31, 2011 there was $215 of total unrecognized compensation cost related to unvested stock option based compensation arrangements granted under the Plan. The unamortized cost is expected to be recognized over a weighted-average period of 1.0 year as of May 31, 2011. |
The Company plans to issue new shares as settlement of options exercised. There were no options exercised during the year ended May 31, 2011. |
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Dividends |
The holders of class A common stock were entitled to a quarterly dividend equal to $0.11 per quarter (for a total of $0.44 per year) per share of the common stock into which such class A common stock was convertible, paid when and if declared by the board of directors in accordance with the merger agreement for the Transaction. If a dividend was paid on the class A common stock, a dividend equal to one-fourth of the per share amount of any class A common stock dividend paid also had to be paid to holders of common stock. A dividend totaling $1,896 was declared on November 30, 2009, and $1,868 was paid in January and February 2010 with the difference related to restricted shares which will be payable once the restrictions lapse. A dividend totaling $1,896 was declared on January 27, 2010 and $1,868 was paid in March 2010 with the difference related to restricted shares which will be payable once the restrictions lapse. On May 10, 2010, the Company announced that on April 26, 2010, its Board of Directors declared, subject to the satisfaction of the condition set forth below, a one-time special cash dividend in the amount of $0.1609694 per share on each share of the Company’s common stock and in the amount of $0.6438774 per share on each share of the Company’s common stock issuable upon conversion of the class A common stock. This special dividend totaled $11,116 of which $11,108 was paid on June 4, 2010 with the difference related to restricted shares which will be payable once the restrictions lapse. Therefore, all the dividends in accordance with the merger agreement for the Transaction have been declared. In August 2010, the Company declared a dividend totaling $0.0275 per share which was paid on October 8, 2010. In October 2010, the Company declared a dividend totaling $.03 per share which was paid on January 7, 2011. On January 31, 2011, the Company declared a dividend totaling $0.03 per share which was paid on April 8, 2011. On May 2, 2011, the Company declared a dividend totaling $.03 per share on all shares of common stock outstanding and of record as of the close of business on June 30, 2011, to be paid on July 8, 2011. |
10. | COMMITMENTS AND CONTINGENCIES |
From time to time, the Company is a party to various claims, proceedings, or lawsuits relating to the conduct of its business. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably to the Company, management believes, based on facts presently known, that the outcome of such legal proceedings and claims will not have a material adverse effect on the Company’s consolidated financial position, cash flows or future results of operations. |
The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. On an ongoing basis, the Company evaluates the results of internal compliance monitoring activities and those of applicable regulatory agencies and, when appropriate, records liabilities to provide for the estimated costs of any necessary remediation. There are no current outstanding regulatory actions, but the Company cannot predict the outcome of future program reviews and any unfavorable outcomes could have a material adverse effect on the results of the Company’s results of operations, cash flows, and financial position. |
During the quarter ended August 31, 2010, the Company received a request for information from the U.S. Senate Committee on Health, Education, Labor and Pensions relating to the Committee’s ongoing hearings relating to for-profit colleges receiving Title IV student financial aid. The Company incurred a total of $2.2 million in additional legal fees for this request. |
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11. | SELF-INSURED HEALTH INSURANCE |
The Company maintains a self-insured health insurance plan for employees. Under this plan, the Company pays a monthly fee to its administrator, as well as claims submitted by their participants. As there generally is a lag between the time a claim is incurred by a participant and the time the claim is submitted, the Company has recorded a liability for outstanding claims of approximately $271 and $311 at May 31, 2011 and 2010, respectively. Such liability is reported with accrued liabilities in the accompanying consolidated balance sheets. At May 31, 2011, the Company’s maximum aggregate risk was approximately $2,440. The maximum specific risk per participant is $50 per year, although total risk for all participants will not exceed the noted maximum aggregate risk for the year. |
12. | RELATED-PARTY TRANSACTIONS |
The Company is required under 34 CFR668.23(d) to disclose all related-party transactions (as defined within the regulation) regardless of materiality to the financial statements. Rent totaling $1.0 per month was paid to related parties for home office space under month-to-month leases in 2009, and $0.5 per month was paid in 2010. All other related-party transactions are intercompany amounts that are eliminated in consolidation. |
13. | CONDOMINIUM PROJECT |
During 2008, the Company broke ground on a new building that will contain 24 condominium units to be sold to the general public that was completed in 2009. These condominium units are accounted for within condominium inventories within the consolidated balance sheets, and the sales of the condominium units are recorded within condominium sales within the consolidated statements of operations. Nine units have been sold as of May 31, 2011. |
In addition, five units of an existing 48-unit apartment building have been sold as condominiums, with the remaining units available for sale or lease. These condominium units are accounted for within net property and equipment within the consolidated balance sheets, and the sales of the condominium units are recorded within other income — net within the consolidated statements of operations. |
14. | FAIR VALUE MEASUREMENTS |
Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that are included in each category at May 31, 2011 and 2010: |
Level 1— Quoted prices in active markets for identical assets or liabilities. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted market prices. |
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Level 2 —Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The type of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts or priced with models using observable inputs. Level 2 assets consist of certificates of deposit that are valued at cost, which approximates fair value. |
Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: |
• | Determine which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and |
• | Determining whether a market is considered active requires management judgment. |
Level 3 —Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The type of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation. The Company does not have any Level 3 assets or liabilities. |
In accordance with the fair value hierarchy, the following table shows the fair value as of May 31, 2011 and 2010, of those financial assets that are measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine their fair market value. No other financial assets or liabilities are measured at fair value on a recurring or nonrecurring basis at May 31, 2011 or 2010. |
Quoted | ||||||||||||||||
Prices in | ||||||||||||||||
Active | Other | |||||||||||||||
Markets | Observable | Unobservable | ||||||||||||||
(in thousands) | (Level 1) | Inputs (Level 2) | Inputs (Level 3) | Fair Value | ||||||||||||
May 31, 2011 | ||||||||||||||||
Investments | ||||||||||||||||
Cd’s and money market accounts | $ | 1,640 | $ | 417 | $ | — | $ | 2,057 | ||||||||
US treasury bills and notes | 18,427 | — | — | 18,427 | ||||||||||||
Total assets at fair value | $ | 20,067 | $ | 417 | $ | — | $ | 20,484 | ||||||||
May 31, 2010 | ||||||||||||||||
Investments | ||||||||||||||||
Cd’s and money market accounts | $ | 1,547 | $ | 411 | $ | — | $ | 1,958 | ||||||||
US treasury bills and notes | 10,456 | — | — | 10,456 | ||||||||||||
Total assets at fair value | $ | 12,003 | $ | 411 | $ | — | $ | 12,414 | ||||||||
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Following is a summary of the valuation techniques for assets and liabilities recorded in our Consolidated Balance Sheets at fair value on a recurring basis: |
Cd’s and money market accounts:Investment which have closing prices readily available from an active market are used as being representative of fair value. NAU classifies these investments as Level 1. Market prices for certain Cd’s are obtained from quoted prices for similar assets. NAU classifies these investments as Level 2. |
U.S. treasury bills and notes:Closing prices are readily available from active markets and are used as being representative of fair value. NAU classifies these investments as level 1. |
15. | COMPLETED MERGER |
In August 2009, the Company, then known as Camden Learning Corporation, and Dlorah entered into an Agreement and Plan of Reorganization, under which the Company agreed to purchase all of the ownership interests in Dlorah for cash and stock. |
In connection with the approval of the Transaction, the Company’s stockholders adopted an amendment to its amended and restated articles of incorporation (i) to change the Company’s corporate name to “National American University Holdings, Inc.”, (ii) to create a new class of common stock to be designated as Class A Common Stock, par value $0.0001 per share (the “Class A Stock”), (iii) to increase the Company’s authorized capital stock from 21,000,000 shares consisting of 20,000,000 shares of common stock, par value $0.0001 per share (the “Common Stock”), and 1,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”), to 51,100,000 shares, consisting of 50,000,000 shares of Common Stock, 100,000 shares of Class A Stock, and 1,000,000 shares of Preferred Stock, and (iv) to remove the provisions related to the Company’s status as a blank check company, including, among other things, the classification of the board of directors, and to make the Company’s corporate existence perpetual. Furthermore, the Company’s stockholders adopted the 2009 Stock Option and Compensation Plan (the “Incentive Plan”) pursuant to which the Company reserved 1,300,000 shares of Common Stock for issuance pursuant to the Incentive Plan. |
The Transaction closed on November 23, 2009, and on that date, Dlorah became a wholly owned subsidiary of the Company. The stockholders of Dlorah received shares and warrants representing approximately 77% of the Company’s issued capital shares. The acquisition was accounted for as a reverse merger accompanied by a recapitalization of the Company. Under this accounting method, Dlorah was considered the acquirer for accounting purposes because it obtained effective control of the Company as a result of the acquisition. This determination was primarily based on the following facts: Dlorah’s retention of a significant voting interest in the Company; Dlorah’s appointment of a majority of the members of the Company’s initial board of directors; Dlorah’s operations comprising the ongoing operations of the Company; and Dlorah’s senior management serving as the senior management of the Company. Under this method of accounting, the recognition and measurement provisions of the accounting guidance for business combinations do not apply and therefore, the Company did not recognize goodwill or other intangible assets. Instead, the Transaction has been treated as the equivalent of Dlorah issuing stock for the net monetary assets of the Company, primarily cash, which are stated at their carrying value. Because of the reverse merger, the historical results represent those of Dlorah. |
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At the time of the Transaction, all the issued and outstanding equity interests of Dlorah were automatically converted into the right to receive (i) 100,000 shares of Class A Stock, automatically convertible after two years (or earlier if elected by the stockholders, which was done in the fourth quarter of fiscal year 2010) into 15,730,000 shares of the Common Stock at a ratio of 157.3 shares of Common Stock for every one share of Class A Stock, (ii) 2,800,000 newly issued common stock purchase warrants (the “Warrants”) at a purchase price of $5.50 per share, and (iii) 250,000 shares of Restricted Common Stock that are not freely tradable until such time as the Common Stock trades at or above $8.00 per share for any 60 consecutive trading day period, provided that such shares shall be forfeited on the fifth anniversary of the date of issuance if such restriction has not been satisfied by then. This restriction lapsed on March 23, 2010. |
Additionally, the Company entered into an employment agreement with its chairman of the board of directors through December 2011, which was later terminated (see Note 8). |
16. | SEGMENT REPORTING |
Operating segments are defined as business areas or lines of an enterprise about which financial information is available and evaluated on a regular basis by the chief operating decision makers, or decision-making groups, in deciding how to allocate capital and other resources to such lines of business. |
The Company operates two operating and reportable segments: National American University (NAU) and other. The NAU segment contains the revenues and expenses associated with the university operations and the allocated portion of corporate overhead. The other segment contains everything else. These operating segments are divisions of the Company for which separate financial information is available and evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. |
General administrative costs of the Company are allocated to specific divisions of the Company. |
The majority of the Company’s revenue is derived from the NAU division, which provides undergraduate and graduate education programs. NAU derives its revenue primarily from student tuition. The other division operates multiple apartment and condominium complexes and derives its revenues primarily from condominium sales and rental income (in thousands). |
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2011 | 2010 | 2009 | ||||||||||||||||||||||||||||||||||
Consolidated | Consolidated | Consolidated | ||||||||||||||||||||||||||||||||||
NAU | Other | Total | NAU | Other | Total | NAU | Other | Total | ||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||||
Academic revenue | $ | 99,216 | $ | 0 | $ | 99,216 | $ | 82,418 | $ | 0 | $ | 82,418 | $ | 56,874 | $ | 0 | $ | 56,874 | ||||||||||||||||||
Auxiliary revenue | 6,153 | 0 | 6,153 | 5,528 | 0 | 5,528 | 4,036 | 0 | 4,036 | |||||||||||||||||||||||||||
Rental income — apartments | 0 | 990 | 990 | 0 | 918 | 918 | 0 | 890 | 890 | |||||||||||||||||||||||||||
Condominium sales | 0 | 449 | 449 | 0 | 932 | 932 | 0 | 784 | 784 | |||||||||||||||||||||||||||
Total revenue | 105,369 | 1,439 | 106,808 | 87,946 | 1,850 | 89,796 | 60,910 | 1,674 | 62,584 | |||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||
Cost of educational services | 22,575 | 0 | 22,575 | 20,419 | 0 | 20,419 | 17,398 | 0 | 17,398 | |||||||||||||||||||||||||||
Selling, general administrative | 62,672 | 1,802 | 64,474 | 48,238 | 1,648 | 49,886 | 36,349 | 1,277 | 37,626 | |||||||||||||||||||||||||||
Auxiliary expense | 2,888 | 0 | 2,888 | 2,076 | 0 | 2,076 | 1,595 | 0 | 1,595 | |||||||||||||||||||||||||||
Cost of condominium sales | 0 | 381 | 381 | 0 | 761 | 761 | 0 | 558 | 558 | |||||||||||||||||||||||||||
Loss of disposition of property | 82 | 0 | 82 | 29 | 0 | 29 | 3 | 0 | 3 | |||||||||||||||||||||||||||
Total operating expenses | 88,217 | 2,183 | 90,400 | 70,762 | 2,409 | 73,171 | 55,345 | 1,835 | 57,180 | |||||||||||||||||||||||||||
Income (loss) from operations | 17,152 | (744 | ) | 16,408 | 17,184 | (559 | ) | 16,625 | 5,565 | (161 | ) | 5,404 | ||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||
Interest income | 148 | 0 | 148 | 200 | 6 | 206 | 242 | 0 | 242 | |||||||||||||||||||||||||||
Interest expense | 0 | 0 | 0 | (125 | ) | (400 | ) | (525 | ) | (375 | ) | (459 | ) | (834 | ) | |||||||||||||||||||||
Other income — net | 0 | 123 | 123 | 0 | 218 | 218 | 0 | 93 | 93 | |||||||||||||||||||||||||||
Total other income(expense) | 148 | 123 | 271 | 75 | (176 | ) | (101 | ) | (133 | ) | (366 | ) | (499 | ) | ||||||||||||||||||||||
Income (loss) before taxes | $ | 17,300 | $ | (621 | ) | $ | 16,679 | $ | 17,259 | $ | (735 | ) | $ | 16,524 | $ | 5,432 | $ | (527 | ) | $ | 4,905 | |||||||||||||||
Total assets | $ | 60,215 | $ | 17,723 | $ | 77,938 | $ | 33,085 | $ | 14,201 | $ | 47,286 | $ | 20,620 | $ | 8,245 | $ | 28,865 | ||||||||||||||||||
Expenditures for long-lived assets | $ | 6,430 | $ | 229 | $ | 6,659 | $ | 3,385 | $ | 1,286 | $ | 4,671 | $ | 764 | $ | 503 | $ | 1,267 | ||||||||||||||||||
Depreciation and amortization | $ | 2,326 | $ | 535 | $ | 2,861 | $ | 1,811 | $ | 509 | $ | 2,320 | $ | 1,830 | $ | 335 | $ | 2,165 | ||||||||||||||||||
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17. | SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) |
The following table sets forth selected unaudited quarterly financial information for the last eight quarters. |
Quarter | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Fiscal Year Ended May 31, 2011 | ||||||||||||||||
Revenues | $ | 23,172 | $ | 27,840 | $ | 27,733 | $ | 28,063 | ||||||||
Income from operations | 2,102 | 4,554 | 6,254 | 3,498 | ||||||||||||
Net income | 1,348 | 2,757 | 3,879 | 2,320 | ||||||||||||
Net income attributable to NAUH and Subs | 1,340 | 2,746 | 3,867 | 2,313 | ||||||||||||
Net income per share (common): | ||||||||||||||||
Basic — undistributed | 0.02 | 0.07 | 0.12 | 0.06 | ||||||||||||
Diluted — undistributed | 0.02 | 0.07 | 0.11 | 0.06 | ||||||||||||
Fiscal Year Ended May 31, 2010 | ||||||||||||||||
Revenues | $ | 17,264 | $ | 23,437 | $ | 23,610 | $ | 25,485 | ||||||||
Income from operations | 2,252 | 6,299 | 4,743 | 3,331 | ||||||||||||
Net income | 1,250 | 3,697 | 3,002 | 2,090 | ||||||||||||
Net income attributable to NAUH and Subs | 1,259 | 3,704 | 2,972 | 2,100 | ||||||||||||
Net income per share (common): | ||||||||||||||||
Basic — undistributed | n/a | 0.11 | 0.05 | 0.42 | ||||||||||||
Diluted — undistributed | n/a | 0.10 | 0.05 | 0.42 |
The EPS data for the first quarter ended August 31, 2009 is not applicable as the Company was not a public company, and the Company’s earnings were only attributable to Class A shareholders. |
18. | SUBSEQUENT EVENTS |
We evaluated subsequent events after the balance sheet date of May 31, 2011, through the date the consolidated financial statements were issued. We did not identify any additional material events or transactions occurring during this subsequent event reporting period that required further recognition or disclosure in these consolidated financial statements. |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Item 9A. | Controls and Procedures |
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Item 9B. | Other Information |
Item 10. | Directors, Executive Officers and Corporate Governance. |
Item 11. | Executive Compensation. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Item 14. | Principal Accountant Fees and Services. |
Item 15. | Exhibits and Financial Statement Schedules |
Exhibit | |||
No. | Description | ||
2.1 | Agreement and Plan of Reorganization, dated August 7, 2009, by and among Camden Learning Corporation, Dlorah Subsidiary, Inc. and Dlorah, Inc. * | ||
2.2 | Amended and Restated Agreement and Plan of Reorganization, dated August 11, 2009, by and among Camden Learning Corporation, Dlorah Subsidiary, Inc. and Dlorah, Inc. * | ||
2.3 | Amendment No. 1 to the Amended and Restated Agreement and Plan of Reorganization, dated October 26, 2009, by and among Camden Learning Corporation, Dlorah Subsidiary, Inc., and Dlorah, Inc. ** | ||
3.1 | Second Amended and Restated Certificate of Incorporation*** | ||
3.2 | Amended Bylaws | ||
4.1 | Specimen Common Stock Certificate*** | ||
10.1 | Registration Rights Agreement, dated as of November 23, 2009, by and among Camden Learning Corporation and each of H. & E. Buckingham Limited Partnership and Robert D. Buckingham Living Trust. *** | ||
10.2 | Registration Rights Agreement, dated as of November 29, 2007, by and among Camden Learning Corporation and certain of the founding stockholders of Camden Learning Corporation. **** | ||
10.3 | Form of Restricted Stock Agreement under the registrant’s 2009 Stock Option and Compensation Plan.***** | ||
10.4 | National American University Holdings, Inc. 2009 Stock Option and Compensation Plan.*** | ||
10.5 | Employment Agreement between Dlorah, Inc. and Jerry L. Gallentine, amended and restated September 9, 2003, and further amended by the First Amendment to Employment Agreement, dated November 18, 2009. *** | ||
10.6 | Employment Agreement between Dlorah, Inc. and Ronald Shape, dated effective as of June 1, 2010.### |
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Exhibit | |||
No. | Description | ||
10.7 | Common Stock Purchase Warrant issued by Camden Learning Corporation to H. & E. Buckingham Limited Partnership on November 23, 2009 in the amount of 2,166,360 warrant shares. *** | ||
10.8 | Joinder to Registration Rights Agreement, dated as of January 12, 2010 between National American University Holdings, Inc. and T. Rowe Price Associates, Inc. on behalf of its investment advisory clients T. Rowe Price Small-Cap Value Fund, Inc. and T. Rowe Price U.S. Equities Trust.# | ||
10.9 | Joinder to Registration Rights Agreement, dated as of November 23, 2009 between Camden Learning Corporation and Ashford Capital Management Inc.# | ||
10.10 | Joinder to Registration Rights Agreement, dated as of November 23, 2009 between Camden Learning Corporation and Granite Point Capital, LP.# | ||
10.11 | Joinder to Registration Rights Agreement, dated as of November 23, 2009 between Camden Learning Corporation and Granite Point Capital Offshore Fund, Ltd.# | ||
10.12 | Restricted Stock Award Agreement, dated effective as of March 19, 2010, by and between National American University Holdings, Inc. and Dr. Ronald Shape.# | ||
10.13 | Joinder to Registration Rights Agreement, dated as of November 23, 2009 between Camden Learning Corporation and Silver Capital Fund, LLC## | ||
10.14 | Joinder to Registration Rights Agreement, dated as of November 23, 2009 between Camden Learning Corporation and Silver Capital Fund (Offshore), LTD## | ||
10.15 | Form of Director Indemnification Agreement****** | ||
10.16 | Chief Executive Officer Compensation Plan#### | ||
10.17 | Cabinet Level Officer Compensation Plan#### | ||
21.1 | Subsidiaries of the Registrant | ||
23.1 | Consent of Independent Registered Public Accounting Firm | ||
31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on August 11, 2009. | |
** | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on October 27, 2009. | |
*** | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on November 30, 2009. | |
**** | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on December 5, 2007. | |
***** | Incorporated by reference to National American University Holdings, Inc.’s Quarterly Report on Form 10-Q filed on January 12, 2010. | |
****** | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on May 11, 2010. |
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# | Incorporated by reference to National American University Holdings, Inc.’s Registration Statement on Form S-1 filed on March 23, 2010. | |
## | Incorporated by reference to National American University Holdings, Inc.’s Amendment No. 1 to Registration Statement on Form S-1/A filed on May 11, 2010. | |
### | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on December 23, 2010. | |
#### | Incorporated by reference to National American University Holdings, Inc.’s Current Report on Form 8-K filed on May 6, 2011. | |
##### | Incorporated by reference to National American University Holdings, Inc.’s Quarterly Report on Form 10-K filed on August 18, 2010. |
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National American University Holdings, Inc. | |||
By: | /s/ Ronald L. Shape | ||
Name: | Ronald L. Shape, Ed. D. | ||
Title: | Chief Executive Officer and Chief Financial Officer (principal executive officer, principal financial officer and principal accounting officer) |
Name | Title | |
/s/ Robert D. Buckingham | Chairman of the Board of Directors | |
/s/ Jerry L. Gallentine | President and Director | |
/s/ Therese Crane | Director | |
/s/ R. John Reynolds | Director | |
/s/ Thomas D. Saban | Director | |
/s/ David L. Warnock | Director | |
/s/ H. Edward Yelick | Director |
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