x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Minnesota
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41-1717955
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Capella Tower
225 South Sixth Street, 9
th
Floor
Minneapolis, Minnesota
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55402
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(Address of principal executive offices)
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(Zip code)
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Common stock, $.01 par value
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Nasdaq Global Market
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Title of each class
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Name of each exchange on which registered
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Large accelerated filer
¨
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Accelerated filer
x
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Non-accelerated filer
¨
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Smaller reporting company
¨
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Page
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PART I
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Item 1
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Item 1A
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Item 1B
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Item 2
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Item 3
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Item 4
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PART II
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Item 5
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Item 6
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Item 7
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Item 7A
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Item 8
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Item 9
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Item 9A
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Item 9B
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PART III
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Item 10
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Item 11
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Item 12
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Item 13
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Item 14
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PART IV
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Item 15
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Item 1.
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Business
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•
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Capella University (the University) offers a variety of doctoral, master’s and bachelor’s programs in the following markets: public service leadership, behavioral health and human services, business management and technology, and education. We focus on master's and doctoral degrees, with approximately
75%
of our learners enrolled in a master’s or doctoral degree program. Our academic offerings combine competency-based curricula with the convenience and flexibility of an online learning format. We design our offerings to help working adult learners develop specific competencies they can employ in their workplace. We actively support and engage with our learners throughout their programs to enhance their prospects for successful program completion. We believe the relevance and convenience of our programs provide a quality educational experience for our learners. At
December 31, 2012
, we offered over
1,670
online courses and
43
academic programs with
148
specializations to over
36,000
learners.
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•
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Resource Development International (RDI) is an independent provider of United Kingdom (UK) university distance learning qualifications that markets, develops, and delivers these programs worldwide via its offices and partners across Asia, North America, Africa and Europe. RDI’s online distance learning offerings span from degree-entry programs to doctoral level programs and are offered in a variety of disciplines, including business, management, psychology, law, and computing. RDI enhances the Company’s market leadership through access to the fast-growing international higher education market, with a presence in the UK and certain other countries.
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Sophia Learning, LLC (Sophia) is a social teaching and learning platform that integrates education with technology. Sophia offers learning packets, which are small collections of academic content focused around delivering a specific subject by individual contributors. These learning packets enable educators to supplement their teaching methods with interactive tools. In 2012, Sophia launched the Pathways for College Credit program, which offers convenient online learning covering general education requirements for a fraction of the cost of a faculty-led college course. Sophia continues to expand its offering, which includes working with business enterprises.
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relevant, practical and accredited program offerings;
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reputation of the college or university and marketability of the degree;
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convenient, flexible and dependable access to programs and classes;
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regulatory approvals;
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qualified and experienced faculty;
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level of learner support;
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affordability of the program;
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relative marketing and selling effectiveness; and
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the time necessary to earn a degree.
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Focus on learner success by improving retention rates while maintaining high standards of academic quality and rigor,
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Maintain our ability to offer affordable degrees, where learners receive a high return on their investment,
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Expand our relationship-based marketing efforts,
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Further strengthen the alignment of our offering with employer needs, and
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Establish new growth platforms.
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Curricula.
We design the curricula for our programs around professional competencies desired for high performance in each field and at the appropriate degree level. The particular competencies are identified and validated through a variety of external sources and reviews. There are specific learning outcomes for each course as well as for the overall program, and we assess the learner’s achievement of the expected learning outcomes during his or her period of enrollment.
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Faculty.
We select our faculty based on their academic credentials as well as their teaching and practitioner experience. Our faculty members tend to be practitioners as well as scholars, bringing relevant, practical experience from their professional careers into the courseroom. As of
December 31, 2012
, approximately
86%
of our faculty members have a doctoral degree. We invest in the professional development of our faculty members through required training in online teaching techniques as well as events and discussions designed to foster sharing of best practices and a commitment to academic quality. We also communicate clear expectations regarding the quality of faculty and learner interactions, and monitor achievement of those expectations.
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Online course design.
We employ a comprehensive design framework to ensure that our online courses offer consistent learning experiences, high quality interactions, and the tools required for assessing learning outcomes. We regularly assess course outcomes data as well as learner assessments to identify opportunities for course enhancements and upgrades.
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Learner support.
We establish teams comprised of both academic and administrative personnel in areas including advising, academic support, financial aid counseling and administration, library and career counseling services to serve as important points of contact to learners throughout the duration of their studies. Most of our support services are accessible online, allowing users to access these services at a time and in a manner that is convenient to them. We believe that a committed support network is as important to maintaining learner motivation and commitment as the knowledge and engagement of our faculty.
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Public Service Leadership
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Doctor of Public Administration
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Master of Science in Human Services
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General Public Administration
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Gerontology
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Doctor of Philosophy in Human Services
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Multidisciplinary Human Services
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Multidisciplinary Human Services
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Social and Community Services
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Health Care Administration
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Master of Science in Nursing
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Nonprofit Management and Leadership
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Nurse Educator
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Social and Community Services
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Nurse Educator Bridge
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Doctor of Philosophy in Public Safety
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Diabetes Nursing
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Criminal Justice
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Gerontology Nursing
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Emergency Management
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Nursing Leadership and Administration
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Public Safety Leadership
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Master of Public Health
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Doctor of Health Administration
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General Public Health
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General Health Administration
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Health Management and Policy
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Health Care Leadership
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Social and Behavioral Sciences
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Health Policy and Advocacy
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Master of Science in Public Safety
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Doctor of Nursing Practice
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Criminal Justice
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Doctor of Public Health
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Emergency Management
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Epidemiology
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Public Safety Leadership
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Health Advocacy and Leadership
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Bachelor of Science in Business
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Master of Public Administration
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Health Care Management
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General Public Administration
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Bachelor of Science in Information Technology
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Master of Health Administration
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Health Informatics
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General Health Administration
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Bachelor of Science in Public Safety
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Health Care Operations
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Criminal Justice
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Health Policy
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Emergency Management
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Master of Nonprofit Management and Leadership
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Homeland Security
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Master of Business Administration
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Bachelor of Science in Nursing
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Health Care Management
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RN-to-BSN Completion
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Master of Science in Homeland Security
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Social and Behavioral Sciences
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Doctor of Philosophy in Counselor Education and Supervision
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Master of Science in Addiction Counseling
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General Counselor Education and Supervision
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General Addiction Counseling
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Doctor of Philosophy in Advanced Studies in Human Behavior
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Master of Science in Marriage and Family Therapy
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General Advanced Studies in Human Behavior
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General Marriage and Family Therapy
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Doctor of Psychology
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Master of Science in Mental Health Counseling
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Clinical Psychology
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General Mental Health Counseling
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Doctor of Philosophy in Psychology
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Master of Science in Studies in Human Behavior
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General Psychology
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General Studies in Human Behavior
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Addiction Psychology
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Master of Science in Psychology
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Industrial/Organizational Psychology
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Child and Adolescent Development
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Educational Psychology
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Clinical Psychology
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Doctor of Philosophy in School Psychology
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Counseling Psychology
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Doctor of Social Work
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General Psychology
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General Social Work
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Sport Psychology
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Master of Science in Career Counseling
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Educational Psychology
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General Career Counseling
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Evaluation, Research, and Measurement
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School Psychology
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Master of Science in School Counseling
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Bachelor of Science in Psychology
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General School Counseling
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General Psychology
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Business, Management, & Technology
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Doctor of Business Administration
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Master of Business Administration
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Business Intelligence
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Accounting
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Global Operations and Supply Chain Management
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Finance
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Strategy and Innovation
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Business Intelligence
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Finance
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Entrepreneurship
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Marketing
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General Business Administration
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Accounting
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Global Operations and Supply Chain Management
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Human Resource Management
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Human Resource Management
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Information Technology Management
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Information Technology Management
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Leadership
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Project Management
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Project Management
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Marketing
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Doctor of Philosophy in Business Management
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Master of Science in Information Technology
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Accounting
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Business Analysis
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General Business Management
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Enterprise Software Architecture
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Finance
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General Information Technology
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Human Resources Management
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Health Information Management
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Information Technology Management
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Information Assurance and Security
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Leadership
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Network Architecture
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Marketing
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Project Management
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Project Management
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Bachelor of Science in Business
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Doctor of Philosophy in Education
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Accounting
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Training and Performance Improvement
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Business Administration
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Doctor of Philosophy in Organization and Management
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Finance
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Management Education
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Human Resource Management
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Doctor of Philosophy in Information Technology
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Management and Leadership
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General Information Technology
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Marketing
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Information Assurance and Security
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Project Management
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Information Technology Education
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Retail Management
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Project Management
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Bachelor of Science in Information Technology
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Master of Science in Education
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General Information Technology
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Training and Performance Improvement
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Information Assurance and Security
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Master of Science in Human Resources Management
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Network Technology
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General Human Resources Management
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Project Management
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Master of Science in Leadership
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System Development
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General Leadership
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Master of Science in Psychology
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Industrial/Organizational Psychology
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Leadership Coaching Psychology
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Education
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Doctor of Education (EdD)
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Doctor of Philosophy in Education (PhD)
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Education Leadership and Management
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Curriculum and Instruction
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Reading and Literacy
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Instructional Design for Online Learning
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Reading and Literacy Bridge
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K-12 Studies in Education
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Education Specialist (EdS)
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Leadership in Educational Administration
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Curriculum and Instruction
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Special Education Leadership
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Leadership in Educational Administration
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Leadership for Higher Education
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Postsecondary and Adult Education
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Professional Studies in Education
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Master of Science in Education
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Master of Science in Higher Education
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Curriculum and Instruction
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Adult Education
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Early Childhood Education
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Enrollment Management
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English Language Learning and Teaching
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Integrative Studies
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K-12 Studies in Education
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Higher Education Leadership and Administration
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Leadership in Educational Administration
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Bachelor of Science in Psychology
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Reading and Literacy
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General Psychology
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Special Education Teaching
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Instructional Design for Online Learning
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•
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U.S. armed forces relationships and discount program
available to all members of the U.S. armed forces, including active duty members, veterans, National Guard members, reservists, civilian employees of the Department of Defense and immediate family members of active duty personnel.
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Corporate, healthcare and federal relationships
with more than 200 large and mid-size organizations.
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Educational relationships
that encourage graduates of nearly 300 community colleges to enroll in our undergraduate programs, and faculty and administrators to enroll in our graduate programs.
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authorized to offer its programs of instruction by the applicable state education agencies in the states in which it is physically located (in our case, Minnesota), and where its activities require an approval to operate;
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accredited by an accrediting agency recognized by the Secretary of the Department of Education; and
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certified as an eligible institution by the Department of Education.
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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 learner graduated meets all state requirements for professional licensure; and
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whether the institution and/or the specific program is accredited.
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comply with all applicable Title IV program regulations;
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have capable and sufficient personnel to administer the federal student financial aid programs;
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have acceptable methods of defining and measuring the satisfactory academic progress of its learners;
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not have cohort default debt rates above specified levels;
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have various procedures in place for safeguarding federal funds;
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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;
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provide financial aid counseling to its learners;
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refer to the Department of Education’s Office of Inspector General any credible information indicating that any applicant, learner, 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 the regulations; and
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not otherwise appear to lack administrative capability.
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require the repayment of Title IV funds;
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transfer the institution from the U.S. Department of Education’s advance system of receiving Title IV program funds to its reimbursement system, under which a school must disburse its own funds to learners and document the learners’ eligibility for Title IV program funds before receiving such funds from the U.S. Department of Education;
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place the institution on provisional certification status; or
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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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posting a letter of credit in an amount equal to at least 50% of the total Title IV program funds received by the institution during the institution’s most recently completed fiscal year;
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posting a letter of credit in an amount equal to at least 10% of such prior year’s Title IV program funds received by
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complying with additional Department of Education monitoring requirements and agreeing to receive Title IV program funds under an arrangement other than the Department of Education’s standard advance funding arrangement such as the “reimbursement” system of payment or cash monitoring.
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Item 1A.
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Risk Factors
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impose monetary fines or penalties;
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limit or terminate our operations or ability to grant degrees and diplomas;
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restrict or revoke our accreditation, licensure or other approvals to operate;
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limit, suspend or terminate our eligibility to participate in Title IV programs or state financial aid programs;
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require repayment of funds received under Title IV programs or state financial aid programs;
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require us to post a letter of credit with the U.S. Department of Education;
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subject us to heightened cash monitoring by the U.S. Department of Education;
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transfer us from the U.S. Department of Education's advance system of receiving Title IV program funds to its reimbursement system, under which a school must disburse its own funds to learners and document the learners' eligibility for Title IV program funds before receiving such funds from the U.S. Department of Education;
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subject us to other civil or criminal penalties; and/or
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subject us to other forms of censure.
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Regulations requiring certain disclosures to students related to gainful employment.
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Regulations removing certain “safe harbors” that previously defined the limits of the prohibition on the payment of incentive compensation to persons involved in enrollment and financial aid functions, and regulations prohibiting revenue sharing arrangements between education services providers and institutions that participate in Title IV programs;
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Regulations requiring institutions that participate in Title IV programs to be authorized to operate by the appropriate postsecondary regulatory authority in each state where the institution has a physical presence;
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Regulations defining for the first time the standards to measure “preparation for gainful employment,” instituting consequences of failing the standards, and requiring reporting of certain data to the Department of Education (such regulations were vacated by the U.S. District Court for the District of Columbia in 2012); and
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Regulations expanding the definition of misrepresentation and the sanctions that the Department may impose for engaging in a substantial misrepresentation (such regulations were partially remanded and vacated in 2012).
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Regulations relating to institutional eligibility under the Higher Education Act and the Secretary's recognition of accrediting agencies; and
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Regulations regarding institution and lender requirements relating to education loans under the Higher Education Act.
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Tie access to federal aid to meeting minimum student outcome thresholds;
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Prohibit institutions from funding marketing, advertising and recruiting activities with federal financial aid dollars;
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Improve cohort default rate tracking by expanding the default reporting rate period beyond 3 years;
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Require that proprietary colleges receive at least 15 percent of revenues from sources other than federal funds; and
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Use criteria beyond accreditation and state authorization for determining institutions' access to federal financial aid.
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require the repayment of Title IV funds;
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transfer the institution from the “advance” system of payment of Title IV funds to cash monitoring status or to the “reimbursement” system of payment;
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place the institution on provisional certification status; or
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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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Upgrading our learning and data platforms;
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Adopting new tools to better support learners' education financing decisions, such as our Responsible Borrowing Calculator, which is designed to help learners calculate the amount of learner borrowing necessary to achieve their educational objectives and to motivate them to not incur unnecessary student loan debt;
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Transitioning our marketing approaches to more effectively identify learners who have the ability to succeed in our educational programs, including reduced emphasis on the utilization of third parties for lead generation;
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Requiring all bachelor's learners who enroll in Capella University without transfer credits to complete an academic readiness pre-assessment;
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Revising the training, development and evaluation metrics for our faculty to better support learner success initiatives;
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Increasing our efforts to prevent non-legitimate learners from enrolling at Capella University, particularly at the undergraduate level; and
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Better aligning our enrollment, admissions and other employees to our learners' success by redefining roles and responsibilities, resetting individual objectives and measures and implementing new compensation structures.
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the emergence of more successful competitors;
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factors related to our marketing, including the costs of Internet advertising and broad-based branding campaigns;
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performance problems with our online systems;
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failure to maintain accreditation;
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learner dissatisfaction with our services and programs, including with our customer service and responsiveness;
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adverse publicity regarding us, our competitors, or online or for-profit education in general;
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price reductions by competitors that we are unwilling or unable to match;
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a decline in the acceptance of online education or our degree offerings by learners or current and prospective employers;
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increased regulation of online education, including in states in which we do not have a physical presence;
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a decrease in the perceived or actual economic benefits that learners derive from our programs;
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litigation or regulatory investigations that may damage our reputation;
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difficulties in executing on our strategy as a preferred provider to employers for the vertical markets we serve; and
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building and leveraging our presence in social media and mobile-device services.
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Inability to successfully integrate the acquired operations, including the information technology systems, into our institutions and maintain uniform standards, controls, policies and procedures;
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Inability to successfully operate and grow the acquired businesses;
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Distraction of management's attention from normal business operations;
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Challenges retaining the key employees of the acquired operation;
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Operating, market or other challenges causing operating results to be less than projected;
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Expenses associated with the acquisition;
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Challenges relating to conforming non-compliant financial reporting procedures to those required of a subsidiary of a U.S. reporting company, including procedures required by the Sarbanes-Oxley Act; and
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Unidentified issues not discovered in our due diligence process, including commitments and/or contingencies.
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Complexity of operations across borders;
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Compliance with foreign legal and regulatory environments;
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Currency exchange rate fluctuations;
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Monetary policy risks, such as inflation, hyperinflation and deflation;
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Price controls or restrictions on exchange of foreign currencies;
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Potential political and economic instability in the countries in which we operate, including potential student uprisings;
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Expropriation of assets by local governments;
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Multiple and possibly overlapping and conflicting tax laws;
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Compliance with anti-corruption laws and regulations such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010;
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Potential unionization of employees under local labor laws and local labor laws that make it more expensive and complex to negotiate with, retain or terminate employees;
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Greater difficulty in utilizing and enforcing our intellectual property and contract rights;
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Failure to understand the local culture and market;
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Limitations on the repatriation of funds; and
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Increased acts of terrorism and war, epidemics and natural disasters in new geographic regions.
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Item 1B.
|
Unresolved Staff Comments
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Item 3.
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Legal Proceedings
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Item 5.
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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High
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Low
|
2012
|
|
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|
First Quarter (January 1, 2012 – March 31, 2012)
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$45.70
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$35.40
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Second Quarter (April 1, 2012 – June 30, 2012)
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$36.98
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$29.14
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Third Quarter (July 1, 2012 – September 30, 2012)
|
$37.00
|
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$25.81
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Fourth Quarter (October 1, 2012 – December 31, 2012)
|
$38.27
|
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$26.38
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2011
|
|
|
|
First Quarter (January 1, 2011 – March 31, 2011)
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$69.85
|
|
$46.82
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Second Quarter (April 1, 2011 – June 30, 2011)
|
$54.86
|
|
$41.64
|
Third Quarter (July 1, 2011 – September 30, 2011)
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$47.89
|
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$27.38
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Fourth Quarter (October 1, 2011 – December 31, 2011)
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$36.77
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$26.12
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Period
|
Total Number of Shares
Purchased
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
|
Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
|
||||||
10/1/2012 to 10/31/2012
|
136,851
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|
|
$
|
35.02
|
|
|
136,851
|
|
|
$
|
16,119,972
|
|
11/1/2012 to 11/30/2012
|
169,977
|
|
|
28.48
|
|
|
169,977
|
|
|
11,278,199
|
|
||
12/1/2012 to 12/31/2012
|
104,273
|
|
|
28.78
|
|
|
104,273
|
|
|
8,276,990
|
|
||
Total
|
411,101
|
|
|
30.74
|
|
|
411,101
|
|
|
8,276,990
|
|
(1)
|
The Company announced its current share repurchase program in July 2008. As of
December 31, 2012
, the Company's Board of Directors has authorized repurchases up to an aggregate amount of $235.7 million in value of common stock under the current program. The Board of Directors authorizes the Company to repurchase outstanding
|
Item 6.
|
Selected Financial Data
|
|
Year-Ended December 31,
|
||||||||||||||||||
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
|
(in thousands, except per share amounts)
|
||||||||||||||||||
Statements of Income:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
$
|
421,890
|
|
|
$
|
430,043
|
|
|
$
|
426,123
|
|
|
$
|
334,643
|
|
|
$
|
272,295
|
|
Operating income
|
$
|
59,383
|
|
|
$
|
80,102
|
|
|
$
|
95,001
|
|
|
$
|
63,922
|
|
|
$
|
40,102
|
|
Net income attributable to Capella Education Company
|
$
|
36,477
|
|
|
$
|
52,115
|
|
|
$
|
61,270
|
|
|
$
|
42,669
|
|
|
$
|
28,788
|
|
Diluted net income attributable to Capella Education Company per common share
|
$
|
2.76
|
|
|
$
|
3.40
|
|
|
$
|
3.64
|
|
|
$
|
2.51
|
|
|
$
|
1.66
|
|
Weighted average number of common shares outstanding, diluted
|
13,220
|
|
|
15,314
|
|
|
16,848
|
|
|
17,030
|
|
|
17,322
|
|
|
Year-Ended December 31,
|
||||||||||||||||||
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
Other Data:
|
(in thousands, except enrollments)
|
||||||||||||||||||
Depreciation and amortization
(a)
|
$
|
29,255
|
|
|
$
|
24,165
|
|
|
$
|
18,512
|
|
|
$
|
14,533
|
|
|
$
|
12,246
|
|
Net cash provided by operating activities
|
$
|
64,828
|
|
|
$
|
80,304
|
|
|
$
|
88,407
|
|
|
$
|
69,051
|
|
|
$
|
44,836
|
|
Capital expenditures
|
$
|
23,278
|
|
|
$
|
29,587
|
|
|
$
|
25,481
|
|
|
$
|
16,436
|
|
|
$
|
14,375
|
|
EBITDA
(b)
|
$
|
88,824
|
|
|
$
|
104,839
|
|
|
$
|
113,604
|
|
|
$
|
78,455
|
|
|
$
|
52,348
|
|
Free cash flow
(c)
|
$
|
41,550
|
|
|
$
|
50,717
|
|
|
$
|
62,926
|
|
|
$
|
52,615
|
|
|
$
|
30,461
|
|
Total enrollment
(d)
|
36,329
|
|
|
37,704
|
|
|
39,477
|
|
|
33,982
|
|
|
26,883
|
|
|
As of December 31,
|
||||||||||||||||||
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash, cash equivalents and marketable securities
|
$
|
115,499
|
|
|
$
|
127,044
|
|
|
$
|
193,234
|
|
|
$
|
172,075
|
|
|
$
|
123,597
|
|
Working capital
(e)
|
$
|
104,163
|
|
|
$
|
112,749
|
|
|
$
|
176,858
|
|
|
$
|
156,224
|
|
|
$
|
113,409
|
|
Total assets
|
$
|
212,888
|
|
|
$
|
235,473
|
|
|
$
|
262,558
|
|
|
$
|
231,500
|
|
|
$
|
179,556
|
|
Long term liabilities
|
$
|
18,945
|
|
|
$
|
23,215
|
|
|
$
|
12,159
|
|
|
$
|
9,942
|
|
|
$
|
7,921
|
|
Shareholders’ equity
|
$
|
152,102
|
|
|
$
|
162,599
|
|
|
$
|
208,586
|
|
|
$
|
184,266
|
|
|
$
|
140,837
|
|
(a)
|
Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets. Amortization includes amounts related to purchased software, capitalized website development costs, internally developed software, and acquired intangible assets.
|
(b)
|
EBITDA consists of net income attributable to Capella Education Company minus other income (expense), net plus income tax expense and plus depreciation and amortization. Other income (expense), net consists primarily of interest
|
•
|
as a measurement of operating performance, because it assists us in comparing our performance on a consistent basis, as it removes depreciation, amortization, interest and taxes; and
|
•
|
in presentations to the members of our board of directors to enable our board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with the results of other companies in our industry.
|
|
Year Ended December 31,
|
||||||||||||||||||
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Net income attributable to Capella Education Company
|
$
|
36,477
|
|
|
$
|
52,115
|
|
|
$
|
61,270
|
|
|
$
|
42,669
|
|
|
$
|
28,788
|
|
Other (income) expense, net
|
45
|
|
|
(1,811
|
)
|
|
(2,038
|
)
|
|
(2,384
|
)
|
|
(4,061
|
)
|
|||||
Income tax expense
|
23,047
|
|
|
30,370
|
|
|
35,860
|
|
|
23,637
|
|
|
15,375
|
|
|||||
Depreciation and amortization
|
29,255
|
|
|
24,165
|
|
|
18,512
|
|
|
14,533
|
|
|
12,246
|
|
|||||
EBITDA
|
$
|
88,824
|
|
|
$
|
104,839
|
|
|
$
|
113,604
|
|
|
$
|
78,455
|
|
|
$
|
52,348
|
|
(c)
|
Free cash flow is derived by deducting capital expenditures from cash flow from operating activities as presented in the statement of cash flows under GAAP. We use free cash flow as one measure to monitor and evaluate performance. However, free cash flow is not a recognized measurement under GAAP, and when analyzing our cash generating ability, investors should use free cash flow in addition to, and not as an alternative for, cash flow from operating activities as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of free cash flow may not be comparable to similarly titled measures of other companies.
|
•
|
as an indicator of the Company’s cash generating capabilities after considering investments in capital assets which are necessary to maintain and enhance existing operations. Cash flow from operating activities adds back non-cash depreciation expense to earnings and thereby does not reflect a charge for necessary capital expenditures; and
|
•
|
in presentations to the members of our board of directors to enable our board to have the same measurement basis of cash generating capabilities as is used by management to compare our current cash generating capabilities with corresponding prior periods and with the results of other companies in our industry.
|
|
Year Ended December 31,
|
||||||||||||||||||
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Net cash provided by operating activities
|
$
|
64,828
|
|
|
$
|
80,304
|
|
|
$
|
88,407
|
|
|
$
|
69,051
|
|
|
$
|
44,836
|
|
Capital expenditures
|
(23,278
|
)
|
|
(29,587
|
)
|
|
(25,481
|
)
|
|
(16,436
|
)
|
|
(14,375
|
)
|
|||||
Free cash flow
|
$
|
41,550
|
|
|
$
|
50,717
|
|
|
$
|
62,926
|
|
|
$
|
52,615
|
|
|
$
|
30,461
|
|
(d)
|
Total enrollment reflects the total number of learners registered in a course as of the last day of classes for such periods.
|
(e)
|
Working capital is calculated by subtracting total current liabilities from total current assets.
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Capella University (the University) is a regionally accredited university offering a variety of undergraduate and graduate degree programs primarily for working adults.
|
•
|
Resource Development International Limited (RDI) is an independent provider of United Kingdom (UK) university distance learning qualifications and markets, develops and delivers these programs worldwide via its offices and partners across Asia, North America, Africa and Europe.
|
•
|
Sophia Learning, LLC (Sophia) is a social teaching and learning platform that integrates education with technology.
|
•
|
Initiatives to improve learner success
. As we continue to position Capella to drive sustainable growth, we are focused on improving learner success rates particularly in the first four quarters of enrollment, while maintaining a high standard of academic quality and rigor. We have implemented various measures likely to affect our growth and profitability, at least in the near term, including the following:
|
•
|
Investing in our actionable analytics capabilities to further leverage data, refine our models and accurately predict the likelihood of a prospective and new learner persisting to critical thresholds of success in the learner's first four quarters of enrollment;
|
•
|
Piloting programs to create personalized pathways for different learner groups which focus on transitioning learners into the online environment, creating a supportive community, and providing a proactive support structure;
|
•
|
Providing clear information near-real-time to our learners, faculty, advisors and staff to help learners persist and successfully complete their programs;
|
•
|
Transitioning our marketing approaches to increase emphasis on attracting learners who are more likely to persist in our programs;
|
•
|
Promoting affordability and encouraging learners to remain enrolled by offering learner success grants to new learners who meet admissions requirements, enroll, and apply within certain timeframes; and,
|
•
|
Diversifying outside of Capella University by creating innovative new learning technologies that have potential to increase affordability, and better serve the life-long learning needs of working adult professionals and therefore increase learner success.
|
•
|
Comprehensive marketing strategy.
Our strategic shift from a demand driven strategy towards a comprehensive marketing strategy which is focused on building relationships with prospective learners early in the decision cycle reinforces our commitment to quality inquiries by:
|
•
|
Introducing prospective learners to Capella through channels such as mass media and strategic relationships with employers,
|
•
|
Connecting with prospective learners by generating and nurturing inquiries through direct media such as natural search, our website, and display media, and
|
•
|
Engaging with prospective learners by developing meaningful relationships such as through social media or direct engagement.
|
•
|
Current
market and regulatory environment.
The market continues to present challenging conditions and competition is strong; however, we remain focused on attracting the right learners and learner success. We believe our initiatives to improve learner success through innovation will position us to be a leader in the online postsecondary education market and to more closely align with employers. In addition, many states have become more active in regulating on-line education and enforcing consumer protection laws, especially with proprietary institutions. While we have a strong track record of regulatory compliance, such actions, even if not directed at Capella University, serve to make our operating environment more challenging.
|
•
|
Establishing new growth platforms.
We seek to drive long-term growth that is an extension of our core competencies into new markets. We are pursuing this extension through a small business development team that is exploring early stage opportunities. This may result in increased new business development costs focused on researching, identifying, and cultivating these new opportunities.
|
•
|
New enrollment growth.
Overall, new enrollments grew approximately 0.5 percent in 2012 compared to a decline of approximately 32 percent in 2011. New enrollment growth in the second half of 2012 was led by our master's and certificate programs. The certificate programs were designed with the intent of offering an additional credential
|
•
|
Redesign of programs and specializations
. In our continued efforts to drive affordability and speed to competency, we are focused on maximizing efficiencies in our existing programs while delivering the same learning outcomes. Our curriculum is based on competency mappings, which we are able to leverage as we redesign existing offerings. We believe these types of redesigns have the potential to increase persistence rates, learner success, and affordability.
|
•
|
U.S. Pending Legislation and Congressional Hearings.
In recent years, there has been increased focus by members of the U.S. Congress on the role that proprietary educational institutions play in higher education. Congressional hearings and roundtable discussions have been held, and more are expected to be held in the future, regarding various aspects of the education industry including federal financial aid and military education funding that may result in regulatory changes that affect our business. We have voluntarily provided substantial amounts of information about our business at the request of various Congressional committees and individual members, and we intend to continue being responsive to Congress in this regard.
In September 2010, the HELP Committee held a third hearing and Sen. Harkin's staff released its initial report entitled, “The Return on the Federal Investment in For-Profit Education: Debt Without a Diploma.” After additional hearings and roundtable discussions and review of the information provided by proprietary institutions, Senator Harkin's staff released its final report in July 2012 entitled, “For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success.” The final report was not adopted by the full committee and the minority committee staff criticized it for relying on discredited sources and refusing to examine similar concerns in the non-profit education sector. Nonetheless, the report may be influential as Congress begins the process of reauthorizing the Higher Education Act, which currently expires in September 2013. The report advocates significant changes in the requirements governing participation by for profit educational institutions in Title IV student financial aid programs, including the following:
|
•
|
Tie access to federal aid to meeting minimum student outcome thresholds;
|
•
|
Prohibit institutions from funding marketing, advertising and recruiting activities with federal financial aid dollars;
|
•
|
Improve cohort default rate tracking by expanding the default reporting rate period beyond 3 years;
|
•
|
Require that proprietary colleges receive at least 15 percent of revenues from sources other than federal funds; and
|
•
|
Use criteria beyond accreditation and state authorization for determining institutions' access to federal financial aid.
|
•
|
Recent legislation.
The Budget Control Act of 2011 (BCA; P.L. 112-25) eliminated the availability of Subsidized Stafford Loans to graduate and professional students for periods of instruction beginning on or after July 1, 2012;
|
•
|
The Improving Transparency of Education Opportunities for Veterans Act of 2012.
This veterans' education initiative was signed into law on January 10, 2013. The purpose of the bill is to require the Department of Veterans Affairs (VA) to develop a comprehensive policy to improve outreach and transparency for veterans and member of the Armed Forces with respect to higher education. The details of this policy will be developed through rulemaking. Additional provisions include:
|
•
|
Creation of a centralized mechanism for tracking and publishing feedback from students and state authorizing agencies on the quality of instruction, recruiting practices and post-graduation employment.
|
•
|
A description of the different types of accreditation available to institutions and an explanation of Federal Financial Aid.
|
•
|
For each institution, the VA will list the tax status, accreditation type, state approving agency information, if the institution participates in Title IV, tuition and fees, median debt, the cohort default rate, enrollment/graduation/retention rate, transfer credit policies, and support services available.
|
•
|
The bill also contains an incentive compensation provision as it relates to VA tuition benefits. The VA will not approve courses or programs for VA tuition benefits if a school participates in incentive compensation practices.
|
•
|
Rulemaking by the U.S. Department of Education.
In 2010, the DOE issued new Title IV program integrity rules that address numerous topics. The most significant to our business are the following:
|
•
|
Adoption of a definition of “gainful employment” for purposes of the requirement for Title IV student financial aid that a program of study offered by a proprietary institution prepare learners for gainful employment in a recognized occupation;
|
•
|
Implementation of standards for state authorization of institutions of higher education;
|
•
|
Implementation of standards around the new program approval section of gainful employment; and
|
•
|
Expansion of the definition of misrepresentation, relating to the Department's authority to suspend or terminate an institution's participation in Title IV programs if the institution engages in substantial misrepresentation about the nature of its educational program, its financial charges, or the employability of its graduates, and expansion of the sanctions that the Department may impose for engaging in a substantial misrepresentation.
|
•
|
Minnesota Office of Higher Education Student Debt Information Request.
The Minnesota Office of Higher Education (MOHE) is developing state level metrics related to Average Student Loan Debt. The data request was sent to all schools located within the state. The final report will be published by institution and sector (public 2-year, public 4-year, private not-for-profit, and private for-profit) covering average educational loan debt (excluding PLUS loans) of degree recipients by award level for 2009-2010. The student loan debt is debt from all sources (federal, state, institution, private) known to the institution. We are working with MOHE on this request. The date for the report to be published has not been determined.
|
•
|
Student Loan Cohort Default Rates
. To remain eligible to participate in Title IV programs, an educational institution's student loan cohort default rates must remain below certain specified levels. Under current regulations, an educational institution will lose its eligibility to participate in Title IV programs if its two-year measuring period student loan cohort default rate equals or exceeds 25% for three consecutive cohort years, or 40% for any given year. Capella University's two-year cohort default rates for the 2010 and 2009 cohorts are 7.0% and 6.6%, respectively.
|
•
|
Instructional costs and service
s
- We previously reported a portion of our admissions advisory function and an allocation of human resources costs in instructional costs and services on the Consolidated Statements of Income. We have disaggregated and are presenting separately admissions advisory, which is discussed in more detail below; and are including all human resources costs in general and administrative expenses. Consolidated instructional costs and services now primarily consists of compensation and costs related to the delivery and administration of our educational programs and includes costs related to faculty, learner support services, financial aid, the development of courses and programs and other related costs, associated asset impairment charges, and now includes bad debt expense. Also included are expenses related to an allocation of facility, depreciation and amortization, and information technology costs that are attributable to providing educational services to our learners.
|
•
|
Marketing and promotional
- We previously reported a portion of our admissions advisory function and an allocation of human resources costs in marketing and promotional on the Consolidated Statements of Income. We have disaggregated and are presenting separately admissions advisory, which is discussed in more detail below; and are including all human resources costs in general and administrative expenses. This category now primarily consists of costs related to marketing activities to build Capella's brand, increase awareness and consideration in prospective learners, and generate inquiries for enrollment. These marketing activities include costs for advertising, participation in seminars and trade shows, compensation for marketing personnel and development of key marketing relationships with corporate, healthcare, armed forces, government and educational organizations. Marketing and promotional expenses also includes associated asset impairment charges, and an allocation of facility, depreciation and amortization, and information technology costs that are attributable to marketing and promotional efforts. Our marketing and promotional expenses are generally affected by the cost of advertising media, the efficiency of our marketing efforts, salaries and benefits for our sales personnel, brand spending, and the number of advertising initiatives for new and existing academic programs.
|
•
|
Admissions advisory
- We previously reported costs related to our admissions advisory personnel in the instructional costs and services and marketing and promotional categories of the Consolidated Statements of Income. Effective during the fourth quarter of fiscal year 2012, we began separately stating these costs on the Consolidated Statements of Income. We believe the disaggregation of admissions advisory expenses better represents our operations. This category primarily consists of costs related to compensation for admissions personnel (for example, enrollment services and registrar's office) as well as other costs directly related to the admissions advisory function. Admissions advisory expenses also include associated asset impairment charges, and an allocation of facility, depreciation and amortization, and information technology costs that are attributable to admissions advisory efforts.
|
•
|
General and administrative
- We previously reported bad debt expense and an allocation of human resources costs in the general and administrative category of the Consolidated Statements of Income. We are now presenting bad debt expense in instructional costs and services, and including all human resources costs in general and administrative expenses. General and administrative primarily consists of costs related to corporate costs, legal and professional fees and other related costs such as salaries and benefits of employees engaged in corporate management, new business development, finance, compliance and other corporate functions. General and administrative expenses also include associated asset impairment charges, and an allocation of facility, depreciation and amortization, and information technology costs attributable to such functions.
|
|
Year-Ended December 31,
|
||||||||||||||
|
2011
|
|
2010
|
||||||||||||
|
As Reported
|
|
As Reclassified
|
|
As Reported
|
|
As Reclassified
|
||||||||
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
Instructional costs and services
|
$
|
171,809
|
|
|
$
|
173,404
|
|
|
$
|
164,231
|
|
|
$
|
164,309
|
|
Marketing and promotional
|
132,032
|
|
|
103,973
|
|
|
120,427
|
|
|
86,400
|
|
||||
Admissions advisory
|
—
|
|
|
31,607
|
|
|
—
|
|
|
37,205
|
|
||||
General and administrative
|
42,933
|
|
|
37,790
|
|
|
46,464
|
|
|
43,208
|
|
||||
Reduction of workforce
|
3,167
|
|
|
3,167
|
|
|
—
|
|
|
—
|
|
||||
Total costs and expenses
|
$
|
349,941
|
|
|
$
|
349,941
|
|
|
$
|
331,122
|
|
|
$
|
331,122
|
|
|
Year-Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Expected life (in years)
(1)
|
4.39
|
|
|
4.40
|
|
|
4.42
|
|
|||
Expected volatility
(2)
|
48.83
|
%
|
|
43.10
|
%
|
|
41.80
|
%
|
|||
Risk-free interest rate
(3)
|
0.73
|
%
|
|
2.00
|
%
|
|
1.56
|
%
|
|||
Dividend yield
(4)
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|||
Weighted-average fair value of options granted
|
$
|
16.23
|
|
|
$
|
19.07
|
|
|
$
|
32.13
|
|
(1)
|
The expected life of our options granted during the years ended December 31,
2012
,
2011
, and
2010
is based upon our historical stock option activity.
|
(2)
|
The expected volatility assumption for the years ended December 31,
2012
,
2011
, and
2010
is based upon our own historical stock price and the expected life of the options.
|
(3)
|
The risk-free interest rate assumption is based upon the U.S. Treasury zero coupon yield curve on the grant date for a maturity similar to the expected life of the options.
|
(4)
|
The dividend yield assumption is based on our history and expectation of regular dividend payments. We have not historically and currently do not pay dividends.
|
|
Year-Ended December 31,
|
||||||||||||||||||||||
|
$ (in thousands)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
2012
|
|
2011
|
|
2012 vs. 2011
|
|
2012
|
|
2011
|
|
2012 vs. 2011
|
||||||||||||
Revenues
|
$
|
421,890
|
|
|
$
|
430,043
|
|
|
$
|
(8,153
|
)
|
|
(1.9
|
)%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
—
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Instructional costs and services
|
191,947
|
|
|
173,404
|
|
|
18,543
|
|
|
10.7
|
|
|
45.5
|
|
|
40.3
|
|
|
5.2
|
|
|||
Marketing and promotional
|
100,809
|
|
|
103,973
|
|
|
(3,164
|
)
|
|
(3.0
|
)
|
|
23.9
|
|
|
24.2
|
|
|
(0.3
|
)
|
|||
Admissions advisory
|
30,151
|
|
|
31,607
|
|
|
(1,456
|
)
|
|
(4.6
|
)
|
|
7.1
|
|
|
7.3
|
|
|
(0.2
|
)
|
|||
General and administrative
|
39,600
|
|
|
37,790
|
|
|
1,810
|
|
|
4.8
|
|
|
9.4
|
|
|
8.8
|
|
|
0.6
|
|
|||
Reduction of workforce
|
—
|
|
|
3,167
|
|
|
(3,167
|
)
|
|
(100.0
|
)
|
|
—
|
|
|
0.7
|
|
|
(0.7
|
)
|
|||
Total costs and expenses
|
362,507
|
|
|
349,941
|
|
|
12,566
|
|
|
3.6
|
|
|
85.9
|
|
|
81.4
|
|
|
4.6
|
|
|||
Operating income
|
59,383
|
|
|
80,102
|
|
|
(20,719
|
)
|
|
(25.9
|
)
|
|
14.1
|
|
|
18.6
|
|
|
(4.5
|
)
|
|||
Other income (expense), net
|
(45
|
)
|
|
1,811
|
|
|
(1,856
|
)
|
|
(102.5
|
)
|
|
—
|
|
|
0.4
|
|
|
(0.4
|
)
|
|||
Income before income taxes
|
59,338
|
|
|
81,913
|
|
|
(22,575
|
)
|
|
(27.6
|
)
|
|
14.1
|
|
|
19.0
|
|
|
(4.9
|
)
|
|||
Income tax expense
|
23,047
|
|
|
30,370
|
|
|
(7,323
|
)
|
|
(24.1
|
)
|
|
5.5
|
|
|
7.1
|
|
|
(1.6
|
)
|
|||
Effective tax rate
|
38.8
|
%
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
36,291
|
|
|
51,543
|
|
|
(15,252
|
)
|
|
(29.6
|
)
|
|
8.6
|
|
|
11.9
|
|
|
(3.3
|
)
|
|||
Net loss attributable to noncontrolling interest
|
186
|
|
|
572
|
|
|
(386
|
)
|
|
|
|
|
—
|
|
|
0.2
|
|
|
(0.2
|
)
|
|||
Net income attributable to Capella Education Company
|
$
|
36,477
|
|
|
$
|
52,115
|
|
|
$
|
(15,638
|
)
|
|
(30.0
|
)%
|
|
8.6
|
%
|
|
12.1
|
%
|
|
(3.5
|
)%
|
|
Year-Ended December 31,
|
||||||||||||||||||||||
|
$ (in thousands)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
2011
|
|
2010
|
|
2011 vs. 2010
|
|
2011
|
|
2010
|
|
2011 vs. 2010
|
||||||||||||
Revenues
|
$
|
430,043
|
|
|
$
|
426,123
|
|
|
$
|
3,920
|
|
|
0.9
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
—
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Instructional costs and services
|
173,404
|
|
|
164,309
|
|
|
9,095
|
|
|
5.5
|
|
|
40.3
|
|
|
38.6
|
|
|
1.7
|
|
|||
Marketing and promotional
|
103,973
|
|
|
86,400
|
|
|
17,573
|
|
|
20.3
|
|
|
24.2
|
|
|
20.3
|
|
|
3.9
|
|
|||
Admissions advisory
|
31,607
|
|
|
37,205
|
|
|
(5,598
|
)
|
|
(15.0
|
)
|
|
7.3
|
|
|
8.7
|
|
|
(1.4
|
)
|
|||
General and administrative
|
37,790
|
|
|
43,208
|
|
|
(5,418
|
)
|
|
(12.5
|
)
|
|
8.8
|
|
|
10.1
|
|
|
(1.3
|
)
|
|||
Reduction of workforce
|
3,167
|
|
|
—
|
|
|
3,167
|
|
|
100.0
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
|||
Total costs and expenses
|
349,941
|
|
|
331,122
|
|
|
18,819
|
|
|
5.7
|
|
|
81.4
|
|
|
77.7
|
|
|
3.7
|
|
|||
Operating income
|
80,102
|
|
|
95,001
|
|
|
(14,899
|
)
|
|
(15.7
|
)
|
|
18.6
|
|
|
22.3
|
|
|
(3.7
|
)
|
|||
Other income, net
|
1,811
|
|
|
2,038
|
|
|
(227
|
)
|
|
(11.1
|
)
|
|
0.4
|
|
|
0.5
|
|
|
(0.1
|
)
|
|||
Income before income taxes
|
81,913
|
|
|
97,039
|
|
|
(15,126
|
)
|
|
(15.6
|
)
|
|
19.0
|
|
|
22.8
|
|
|
(3.8
|
)
|
|||
Income tax expense
|
30,370
|
|
|
35,860
|
|
|
(5,490
|
)
|
|
(15.3
|
)
|
|
7.1
|
|
|
8.4
|
|
|
(1.3
|
)
|
|||
Effective tax rate
|
37.1
|
%
|
|
37.0
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
51,543
|
|
|
61,179
|
|
|
(9,636
|
)
|
|
(15.8
|
)
|
|
11.9
|
|
|
14.4
|
|
|
(2.5
|
)
|
|||
Net loss attributable to noncontrolling interest
|
572
|
|
|
91
|
|
|
481
|
|
|
|
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|||
Net income attributable to Capella Education Company
|
$
|
52,115
|
|
|
$
|
61,270
|
|
|
$
|
(9,155
|
)
|
|
(15.0
|
)
|
|
12.1
|
%
|
|
14.4
|
%
|
|
(2.3
|
)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
||||||||||
|
(in thousands, except enrollment and per share data)
|
||||||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
$
|
109,400
|
|
|
$
|
106,180
|
|
|
$
|
99,309
|
|
|
$
|
107,001
|
|
|
$
|
421,890
|
|
Operating income
|
17,937
|
|
|
18,056
|
|
|
8,283
|
|
|
15,107
|
|
|
59,383
|
|
|||||
Net income attributable to Capella Education Company
|
11,293
|
|
|
11,412
|
|
|
5,123
|
|
|
8,649
|
|
|
36,477
|
|
|||||
Net income attributable to Capella Education Company per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
0.39
|
|
|
$
|
0.69
|
|
|
$
|
2.77
|
|
Diluted
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
0.39
|
|
|
$
|
0.68
|
|
|
$
|
2.76
|
|
Total enrollment
|
37,553
|
|
|
36,336
|
|
|
34,989
|
|
|
36,329
|
|
|
36,329
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
2011
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
$
|
111,354
|
|
|
$
|
106,400
|
|
|
$
|
102,306
|
|
|
$
|
109,983
|
|
|
$
|
430,043
|
|
Operating income
|
22,467
|
|
|
23,903
|
|
|
14,857
|
|
|
18,875
|
|
|
80,102
|
|
|||||
Net income attributable to Capella Education Company
|
14,609
|
|
|
15,515
|
|
|
9,934
|
|
|
12,057
|
|
|
52,115
|
|
|||||
Net income attributable to Capella Education Company per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
0.90
|
|
|
$
|
1.00
|
|
|
$
|
0.66
|
|
|
$
|
0.85
|
|
|
$
|
3.42
|
|
Diluted
|
$
|
0.90
|
|
|
$
|
0.99
|
|
|
$
|
0.66
|
|
|
$
|
0.85
|
|
|
$
|
3.40
|
|
Total enrollment
|
39,904
|
|
|
38,072
|
|
|
35,755
|
|
|
37,704
|
|
|
37,704
|
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
||||||||||
Operating leases
(a)
|
$
|
37,521
|
|
|
$
|
6,458
|
|
|
$
|
12,542
|
|
|
$
|
12,949
|
|
|
$
|
5,572
|
|
Purchase obligations
(b)
|
11,409
|
|
|
8,296
|
|
|
2,167
|
|
|
946
|
|
|
—
|
|
|||||
Total contractual obligations
|
$
|
48,930
|
|
|
$
|
14,754
|
|
|
$
|
14,709
|
|
|
$
|
13,895
|
|
|
$
|
5,572
|
|
(a)
|
Minimum lease commitments for our headquarters, RDI’s office space, miscellaneous office equipment and software license agreements.
|
(b)
|
Purchase obligations include commitments for marketing related and service contracts.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
•
|
Adjustments resulting from the translation of assets and liabilities of the foreign subsidiaries into U.S. dollars using exchange rates in effect at the balance sheet dates. These translation adjustments are recorded in accumulated other comprehensive income (loss);
|
•
|
Earnings volatility translation of income and expense items of the foreign subsidiaries using an average monthly exchange rate for the respective periods, and;
|
•
|
Gains and losses resulting from foreign exchange rate changes related to intercompany receivables and payables that
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
Page
|
|
As of December 31,
|
||||||
|
2012
|
|
2011
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
93,220
|
|
|
$
|
61,977
|
|
Marketable securities
|
22,279
|
|
|
65,067
|
|
||
Accounts receivable, net of allowance of $6,231 at December 31, 2012 and $5,789 at December 31, 2011
|
15,900
|
|
|
18,239
|
|
||
Prepaid expenses and other current assets
|
11,124
|
|
|
12,493
|
|
||
Deferred income taxes
|
3,481
|
|
|
3,452
|
|
||
Total current assets
|
146,004
|
|
|
161,228
|
|
||
Property and equipment, net
|
45,240
|
|
|
50,713
|
|
||
Goodwill
|
16,970
|
|
|
16,980
|
|
||
Intangibles, net
|
4,674
|
|
|
6,552
|
|
||
Total assets
|
$
|
212,888
|
|
|
$
|
235,473
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
5,798
|
|
|
$
|
8,977
|
|
Accrued liabilities
|
26,392
|
|
|
29,306
|
|
||
Income taxes payable
|
—
|
|
|
2,427
|
|
||
Deferred revenue
|
9,651
|
|
|
7,769
|
|
||
Total current liabilities
|
41,841
|
|
|
48,479
|
|
||
Deferred rent
|
4,150
|
|
|
4,215
|
|
||
Other liabilities
|
6,425
|
|
|
6,425
|
|
||
Deferred income taxes
|
8,370
|
|
|
12,575
|
|
||
Total liabilities
|
60,786
|
|
|
71,694
|
|
||
|
|
|
|
||||
Redeemable noncontrolling interest
|
—
|
|
|
1,180
|
|
||
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 12,393 at December 31, 2012 and 13,882 at December 31, 2011
|
124
|
|
|
139
|
|
||
Additional paid-in capital
|
97,716
|
|
|
103,900
|
|
||
Accumulated other comprehensive income (loss)
|
(22
|
)
|
|
307
|
|
||
Retained earnings
|
54,284
|
|
|
58,253
|
|
||
Total shareholders’ equity
|
152,102
|
|
|
162,599
|
|
||
Total liabilities and shareholders’ equity
|
$
|
212,888
|
|
|
$
|
235,473
|
|
|
Year Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Revenues
|
$
|
421,890
|
|
|
$
|
430,043
|
|
|
$
|
426,123
|
|
Costs and expenses:
|
|
|
|
|
|
||||||
Instructional costs and services
|
191,947
|
|
|
173,404
|
|
|
164,309
|
|
|||
Marketing and promotional
|
100,809
|
|
|
103,973
|
|
|
86,400
|
|
|||
Admissions advisory
|
30,151
|
|
|
31,607
|
|
|
37,205
|
|
|||
General and administrative
|
39,600
|
|
|
37,790
|
|
|
43,208
|
|
|||
Reduction of workforce
|
—
|
|
|
3,167
|
|
|
—
|
|
|||
Total costs and expenses
|
362,507
|
|
|
349,941
|
|
|
331,122
|
|
|||
Operating income
|
59,383
|
|
|
80,102
|
|
|
95,001
|
|
|||
Other income (expense), net
|
(45
|
)
|
|
1,811
|
|
|
2,038
|
|
|||
Income before income taxes
|
59,338
|
|
|
81,913
|
|
|
97,039
|
|
|||
Income tax expense
|
23,047
|
|
|
30,370
|
|
|
35,860
|
|
|||
Net income
|
36,291
|
|
|
51,543
|
|
|
61,179
|
|
|||
Net loss attributable to noncontrolling interest
|
186
|
|
|
572
|
|
|
91
|
|
|||
Net income attributable to Capella Education Company
|
$
|
36,477
|
|
|
$
|
52,115
|
|
|
$
|
61,270
|
|
Net income attributable to Capella Education Company per common share:
|
|
|
|
|
|
||||||
Basic
|
$
|
2.77
|
|
|
$
|
3.42
|
|
|
$
|
3.68
|
|
Diluted
|
$
|
2.76
|
|
|
$
|
3.40
|
|
|
$
|
3.64
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
13,156
|
|
|
15,241
|
|
|
16,648
|
|
|||
Diluted
|
13,220
|
|
|
15,314
|
|
|
16,848
|
|
|
Year Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Net income
|
$
|
36,291
|
|
|
$
|
51,543
|
|
|
$
|
61,179
|
|
Net loss attributable to noncontrolling interest
|
186
|
|
|
572
|
|
|
91
|
|
|||
Net income attributable to Capella Education Company
|
36,477
|
|
|
52,115
|
|
|
61,270
|
|
|||
Other comprehensive income (loss):
|
|
|
|
|
|
||||||
Foreign currency translation gain (loss)
|
(54
|
)
|
|
22
|
|
|
—
|
|
|||
Unrealized losses on available for sale securities, net of tax
|
(275
|
)
|
|
(473
|
)
|
|
(575
|
)
|
|||
Comprehensive income attributable to Capella Education Company
|
$
|
36,148
|
|
|
$
|
51,664
|
|
|
$
|
60,695
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Total Shareholders’ Equity
|
||||||||||||||
|
Shares
|
|
Amount
|
|
|
|
|
||||||||||||||||
Balance at December 31, 2009
|
16,763
|
|
|
$
|
168
|
|
|
$
|
151,445
|
|
|
$
|
1,333
|
|
|
$
|
31,320
|
|
|
$
|
184,266
|
|
|
Exercise of stock options
|
257
|
|
|
2
|
|
|
6,840
|
|
|
—
|
|
|
—
|
|
|
6,842
|
|
||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
3,698
|
|
|
—
|
|
|
—
|
|
|
3,698
|
|
||||||
Tax benefits realized from share-based compensation arrangements
|
—
|
|
|
—
|
|
|
4,325
|
|
|
—
|
|
|
—
|
|
|
4,325
|
|
||||||
Issuance of restricted stock, net
|
7
|
|
|
—
|
|
|
(119
|
)
|
|
—
|
|
—
|
|
—
|
|
|
(119
|
)
|
|||||
Noncontrolling interest contributions
|
—
|
|
|
—
|
|
|
(1,346
|
)
|
|
—
|
|
|
—
|
|
|
(1,346
|
)
|
||||||
Repurchase of common stock
|
(721
|
)
|
|
(7
|
)
|
|
(49,768
|
)
|
|
—
|
|
|
—
|
|
|
(49,775
|
)
|
||||||
Net income attributable to Capella Education Company
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61,270
|
|
|
61,270
|
|
||||||
Unrealized losses on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(575
|
)
|
|
—
|
|
|
(575
|
)
|
||||||
Balance at December 31, 2010
|
16,306
|
|
|
$
|
163
|
|
|
$
|
115,075
|
|
|
$
|
758
|
|
|
$
|
92,590
|
|
|
$
|
208,586
|
|
|
Exercise of stock options
|
64
|
|
|
1
|
|
|
1,633
|
|
|
—
|
|
|
—
|
|
|
1,634
|
|
||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
4,883
|
|
|
—
|
|
|
—
|
|
|
4,883
|
|
||||||
Tax shortfall realized from share-based compensation arrangements
|
—
|
|
|
—
|
|
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
||||||
Issuance of restricted stock, net
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Accretion of noncontrolling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(729
|
)
|
|
(729
|
)
|
||||||
Repurchase of common stock
|
(2,498
|
)
|
|
(25
|
)
|
|
(17,627
|
)
|
|
—
|
|
|
(85,723
|
)
|
|
(103,375
|
)
|
||||||
Net income attributable to Capella Education Company
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,115
|
|
|
52,115
|
|
||||||
Unrealized losses on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(473
|
)
|
|
—
|
|
|
(473
|
)
|
||||||
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
22
|
|
||||||
Balance at December 31, 2011
|
13,882
|
|
|
$
|
139
|
|
|
$
|
103,900
|
|
|
$
|
307
|
|
|
$
|
58,253
|
|
|
$
|
162,599
|
|
|
Exercise of stock options
|
34
|
|
|
—
|
|
|
628
|
|
|
—
|
|
|
—
|
|
|
628
|
|
||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
4,880
|
|
|
—
|
|
|
—
|
|
|
4,880
|
|
||||||
Tax shortfall realized from share-based compensation arrangements
|
—
|
|
|
—
|
|
|
(598
|
)
|
|
—
|
|
|
—
|
|
|
(598
|
)
|
||||||
Issuance of restricted stock, net
|
20
|
|
|
—
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
||||||
Accretion and acquisition of noncontrolling interest, net of tax
|
—
|
|
|
—
|
|
|
486
|
|
|
—
|
|
|
(582
|
)
|
|
(96
|
)
|
||||||
Repurchase of common stock
|
(1,543
|
)
|
|
(15
|
)
|
|
(11,539
|
)
|
|
—
|
|
|
(39,864
|
)
|
|
(51,418
|
)
|
||||||
Net income attributable to Capella Education Company
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,477
|
|
|
36,477
|
|
||||||
Unrealized losses on marketable securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(275
|
)
|
|
—
|
|
|
(275
|
)
|
||||||
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(54
|
)
|
|
—
|
|
|
(54
|
)
|
||||||
Balance at December 31, 2012
|
12,393
|
|
|
$
|
124
|
|
|
$
|
97,716
|
|
|
$
|
(22
|
)
|
|
$
|
54,284
|
|
|
$
|
152,102
|
|
|
Year Ended December, 31
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Operating activities
|
|
|
|
|
|
||||||
Net income
|
$
|
36,291
|
|
|
$
|
51,543
|
|
|
$
|
61,179
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Provision for bad debts
|
17,310
|
|
|
10,565
|
|
|
8,744
|
|
|||
Depreciation and amortization
|
29,255
|
|
|
24,165
|
|
|
18,512
|
|
|||
Amortization of investment discount/premium
|
692
|
|
|
2,049
|
|
|
2,180
|
|
|||
Impairment of property and equipment
|
1,150
|
|
|
35
|
|
|
19
|
|
|||
Loss (gain) on disposal of property and equipment
|
81
|
|
|
(30
|
)
|
|
—
|
|
|||
Share-based compensation
|
4,880
|
|
|
4,883
|
|
|
3,698
|
|
|||
Excess tax benefit from share-based compensation
|
(69
|
)
|
|
(248
|
)
|
|
(4,251
|
)
|
|||
Deferred income taxes
|
(3,584
|
)
|
|
2,516
|
|
|
1,354
|
|
|||
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed:
|
|
|
|
|
|
||||||
Accounts receivable
|
(14,979
|
)
|
|
(13,789
|
)
|
|
(9,733
|
)
|
|||
Prepaid expenses and other current assets
|
2,586
|
|
|
(3,424
|
)
|
|
(1,635
|
)
|
|||
Accounts payable and accrued liabilities
|
(6,296
|
)
|
|
(612
|
)
|
|
4,787
|
|
|||
Income tax payable
|
(4,306
|
)
|
|
1,559
|
|
|
5,030
|
|
|||
Deferred rent
|
(65
|
)
|
|
750
|
|
|
514
|
|
|||
Deferred revenue
|
1,882
|
|
|
342
|
|
|
(1,991
|
)
|
|||
Net cash provided by operating activities
|
64,828
|
|
|
80,304
|
|
|
88,407
|
|
|||
Investing activities
|
|
|
|
|
|
||||||
Capital expenditures
|
(23,278
|
)
|
|
(29,587
|
)
|
|
(25,481
|
)
|
|||
Proceeds from the sale of property and equipment
|
303
|
|
|
—
|
|
|
—
|
|
|||
Payment for acquisition, net of cash acquired
|
—
|
|
|
(12,640
|
)
|
|
—
|
|
|||
Acquisition of noncontrolling interest
|
(1,576
|
)
|
|
—
|
|
|
—
|
|
|||
Purchases of marketable securities
|
(13,887
|
)
|
|
(3,500
|
)
|
|
(60,211
|
)
|
|||
Sales and maturities of marketable securities
|
55,545
|
|
|
51,442
|
|
|
10,978
|
|
|||
Net cash provided by (used in) investing activities
|
17,107
|
|
|
5,715
|
|
|
(74,714
|
)
|
|||
Financing activities
|
|
|
|
|
|
||||||
Excess tax benefit from share-based compensation
|
69
|
|
|
248
|
|
|
4,251
|
|
|||
Net proceeds from exercise of stock options
|
628
|
|
|
1,634
|
|
|
6,842
|
|
|||
Repurchases of common stock
|
(51,418
|
)
|
|
(103,375
|
)
|
|
(49,775
|
)
|
|||
Net cash used in financing activities
|
(50,721
|
)
|
|
(101,493
|
)
|
|
(38,682
|
)
|
|||
Effect of foreign exchange rates on cash
|
29
|
|
|
35
|
|
|
—
|
|
|||
Net increase (decrease) in cash and cash equivalents
|
31,243
|
|
|
(15,439
|
)
|
|
(24,989
|
)
|
|||
Cash and cash equivalents at beginning of year
|
61,977
|
|
|
77,416
|
|
|
102,405
|
|
|||
Cash and cash equivalents at end of year
|
$
|
93,220
|
|
|
$
|
61,977
|
|
|
$
|
77,416
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
||||||
Income taxes paid
|
$
|
30,947
|
|
|
$
|
26,340
|
|
|
$
|
29,563
|
|
Noncash transactions:
|
|
|
|
|
|
||||||
Purchase of equipment included in accounts payable and accrued liabilities
|
$
|
472
|
|
|
$
|
348
|
|
|
$
|
1,110
|
|
Noncontrolling interest contributions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,346
|
|
•
|
Instructional costs and service
s
- The Company previously reported a portion of its admissions advisory function and an allocation of human resources costs in instructional costs and services on the Consolidated Statements of Income. It has disaggregated and is presenting separately admissions advisory, which is discussed in more detail below; and is including all human resources costs in general and administrative expenses. Consolidated instructional costs and services now primarily consists of compensation and costs related to the delivery and administration of the Company's educational programs and includes costs related to faculty, learner support services, financial aid, the development of courses and programs and other related costs, associated asset impairment charges, and now includes bad debt expense. Also included are expenses related to an allocation of facility, depreciation and amortization, and information technology costs that are attributable to providing educational services to learners.
|
•
|
Marketing and promotional
- The Company previously reported a portion of its admissions advisory function and an allocation of human resources costs in marketing and promotional on the Consolidated Statements of Income. It has disaggregated and is presenting separately admissions advisory, which is discussed in more detail below; and is including all human resources costs in general and administrative expenses. This category now primarily consists of costs related to marketing activities to build Capella's brand, increase awareness and consideration in prospective learners, and generate inquiries for enrollment. These marketing activities include costs for advertising, participation in seminars and trade shows, compensation for marketing personnel and development of key marketing relationships with corporate, healthcare, armed forces, government and educational organizations. Marketing and promotional expenses also includes associated asset impairment charges, and an allocation of facility, depreciation and amortization, and information technology costs that are attributable to marketing and promotional efforts. The Company's marketing and promotional expenses are generally affected by the cost of advertising media, the efficiency of our marketing efforts, salaries and benefits for our sales personnel, brand spending, and the number of advertising initiatives for new and existing academic programs.
|
•
|
Admissions advisory
- The Company previously reported costs related to its admissions advisory personnel in the instructional costs and services and marketing and promotional categories of the Consolidated Statements of Income. Effective during the fourth quarter of fiscal year 2012, it began separately stating these costs on the Consolidated Statements of Income. The Company believes the disaggregation of admissions advisory expenses better represents its operations. This category primarily consists of costs related to compensation for admissions personnel (for example, enrollment services and registrar's office) as well as other costs directly related to the admissions advisory function. Admissions advisory expenses also include an allocation of facility, depreciation and amortization, and information technology costs, and any asset impairment charges that are attributable to admissions advisory efforts.
|
•
|
General and administrative
- The Company previously reported bad debt expense and an allocation of human resources costs in the general and administrative category of the Consolidated Statements of Income. It is now
|
|
Year-Ended December 31,
|
||||||||||||||
|
2011
|
|
2010
|
||||||||||||
|
As Reported
|
|
As Reclassified
|
|
As Reported
|
|
As Reclassified
|
||||||||
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
Instructional costs and services
|
$
|
171,809
|
|
|
$
|
173,404
|
|
|
$
|
164,231
|
|
|
$
|
164,309
|
|
Marketing and promotional
|
132,032
|
|
|
103,973
|
|
|
120,427
|
|
|
86,400
|
|
||||
Admissions advisory
|
—
|
|
|
31,607
|
|
|
—
|
|
|
37,205
|
|
||||
General and administrative
|
42,933
|
|
|
37,790
|
|
|
46,464
|
|
|
43,208
|
|
||||
Reduction of workforce
|
3,167
|
|
|
3,167
|
|
|
—
|
|
|
—
|
|
||||
Total costs and expenses
|
$
|
349,941
|
|
|
$
|
349,941
|
|
|
$
|
331,122
|
|
|
$
|
331,122
|
|
•
|
Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
|
•
|
Level 2 – Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and 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 and liabilities; and
|
•
|
Level 3
– Unobservable inputs that are supported by little or no market activity that are significant to the fair value of assets or liabilities.
|
Computer equipment
|
3 to 7 years
|
Furniture and office equipment
|
5 to 7 years
|
Computer software
|
3 to 7 years
|
|
Year Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Numerator:
|
|
|
|
|
|
||||||
Net income attributable to Capella Education Company
|
$
|
36,477
|
|
|
$
|
52,115
|
|
|
$
|
61,270
|
|
Denominator:
|
|
|
|
|
|
||||||
Denominator for basic net income attributable to Capella Education Company per common share - weighted average shares outstanding
|
13,156
|
|
|
15,241
|
|
|
16,648
|
|
|||
Effect of dilutive stock options and restricted stock
|
64
|
|
|
73
|
|
|
200
|
|
|||
Denominator for diluted net income attributable to Capella Education Company per common share - weighted average shares outstanding
|
13,220
|
|
|
15,314
|
|
|
16,848
|
|
|||
Basic net income attributable to Capella Education Company per common share
|
$
|
2.77
|
|
|
$
|
3.42
|
|
|
$
|
3.68
|
|
Diluted net income attributable to Capella Education Company per common share
|
$
|
2.76
|
|
|
$
|
3.40
|
|
|
$
|
3.64
|
|
|
As of December 31, 2012
|
||||||||||||||
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
(Losses)
|
|
Estimated
Fair Value
|
||||||||
Tax-exempt municipal securities
|
$
|
22,263
|
|
|
$
|
25
|
|
|
$
|
(9
|
)
|
|
$
|
22,279
|
|
Total
|
$
|
22,263
|
|
|
$
|
25
|
|
|
$
|
(9
|
)
|
|
$
|
22,279
|
|
|
|
|
|
|
|
|
|
||||||||
|
As of December 31, 2011
|
||||||||||||||
|
Amortized Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
(Losses)
|
|
Estimated
Fair Value
|
||||||||
Tax-exempt municipal securities
|
$
|
64,613
|
|
|
$
|
454
|
|
|
$
|
—
|
|
|
$
|
65,067
|
|
Total
|
$
|
64,613
|
|
|
$
|
454
|
|
|
$
|
—
|
|
|
$
|
65,067
|
|
|
As of December 31, 2012
|
|
As of December 31, 2011
|
||||
Due within one year
|
$
|
7,929
|
|
|
$
|
54,151
|
|
Due after one year through five years
|
14,350
|
|
|
10,916
|
|
||
Total
|
$
|
22,279
|
|
|
$
|
65,067
|
|
|
Years Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Sales and maturities of tax-exempt marketable securities
|
$
|
55,545
|
|
|
$
|
51,442
|
|
|
$
|
10,978
|
|
Total
|
$
|
55,545
|
|
|
$
|
51,442
|
|
|
$
|
10,978
|
|
|
|
Fair Value Measurements as of December 31, 2012 Using
|
||||||||||||||
Description
|
|
Fair Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
||||||||
Cash
|
|
$
|
21,122
|
|
|
$
|
21,122
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
643
|
|
|
643
|
|
|
—
|
|
|
—
|
|
||||
Variable rate demand notes
|
|
71,455
|
|
|
71,455
|
|
|
—
|
|
|
—
|
|
||||
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
Tax-exempt municipal securities
|
|
22,279
|
|
|
—
|
|
|
22,279
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis:
|
|
$
|
115,499
|
|
|
$
|
93,220
|
|
|
$
|
22,279
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Other liabilities:
|
|
|
|
|
|
|
|
|
||||||||
RDI contingent consideration
|
|
$
|
6,252
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,252
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
6,252
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,252
|
|
|
|
Fair Value Measurements as of December 31, 2011 Using
|
||||||||||||||
Description
|
|
Fair Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
||||||||
Cash
|
|
$
|
17,101
|
|
|
$
|
17,101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
27,551
|
|
|
27,551
|
|
|
—
|
|
|
—
|
|
||||
Variable rate demand notes
|
|
17,325
|
|
|
17,325
|
|
|
—
|
|
|
—
|
|
||||
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
Tax-exempt municipal securities
|
|
65,067
|
|
|
—
|
|
|
65,067
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis:
|
|
$
|
127,044
|
|
|
$
|
61,977
|
|
|
$
|
65,067
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Other liabilities:
|
|
|
|
|
|
|
|
|
||||||||
RDI contingent consideration
|
|
$
|
5,945
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,945
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
5,945
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,945
|
|
Unobservable Inputs
|
|
Range
|
Weighted average cost of capital
|
|
5%
|
Timing of cash flows
|
|
0 - 30 months
|
Probability of TDAP achievement
|
|
100%
|
Balance, December 31, 2011
|
|
$
|
5,945
|
|
Increases in the fair value of the RDI contingent consideration liability
|
|
307
|
|
|
Balance, December 31, 2012
|
|
$
|
6,252
|
|
|
As of December 31,
|
||||||
|
2012
|
|
2011
|
||||
Computer software
|
$
|
117,780
|
|
|
$
|
100,257
|
|
Computer equipment
|
40,120
|
|
|
35,883
|
|
||
Furniture and office equipment
|
13,261
|
|
|
13,206
|
|
||
Leasehold improvements
|
987
|
|
|
1,310
|
|
||
|
172,148
|
|
|
150,656
|
|
||
Less accumulated depreciation and amortization
|
(126,908
|
)
|
|
(99,943
|
)
|
||
Property and equipment, net
|
$
|
45,240
|
|
|
$
|
50,713
|
|
Balance as of December 31, 2010
|
$
|
—
|
|
Acquisition of RDI
|
16,987
|
|
|
Effects of foreign currency exchange rates
|
(7
|
)
|
|
Balance as of December 31, 2011
|
16,980
|
|
|
Effects of foreign currency exchange rates
|
(10
|
)
|
|
Balance as of December 31, 2012
|
$
|
16,970
|
|
|
Student Relationships
|
|
Validation Partner Relationships
|
|
Trademark and Trade Name
|
|
Learning Model
|
|
Internally Developed Software
|
|
Total
|
||||||||||||
Net Carrying Amount as of December 31, 2010
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Acquisition of RDI
|
3,100
|
|
|
2,300
|
|
|
700
|
|
|
700
|
|
|
300
|
|
|
7,100
|
|
||||||
Accumulated Amortization
|
(362
|
)
|
|
(96
|
)
|
|
(20
|
)
|
|
(41
|
)
|
|
(29
|
)
|
|
(548
|
)
|
||||||
Net Carrying Amount as of December 31, 2011
|
2,738
|
|
|
2,204
|
|
|
680
|
|
|
659
|
|
|
271
|
|
|
6,552
|
|
||||||
Accumulated Amortization
|
(1,240
|
)
|
|
(328
|
)
|
|
(70
|
)
|
|
(140
|
)
|
|
(100
|
)
|
|
(1,878
|
)
|
||||||
Net Carrying Amount as of December 31, 2012
|
$
|
1,498
|
|
|
$
|
1,876
|
|
|
$
|
610
|
|
|
$
|
519
|
|
|
$
|
171
|
|
|
$
|
4,674
|
|
2013
|
$
|
1,878
|
|
2014
|
868
|
|
|
2015
|
539
|
|
|
2016
|
498
|
|
|
2017
|
399
|
|
|
2018 and thereafter
|
492
|
|
|
Total
|
$
|
4,674
|
|
|
As of December 31, 2012
|
|
As of December 31, 2011
|
||||
Accrued compensation and benefits
|
$
|
9,165
|
|
|
$
|
8,978
|
|
Accrued instructional
|
6,172
|
|
|
7,291
|
|
||
Accrued vacation
|
1,112
|
|
|
994
|
|
||
Other
|
9,943
|
|
|
12,043
|
|
||
Total
|
$
|
26,392
|
|
|
$
|
29,306
|
|
Balance, December 31, 2010
|
|
$
|
—
|
|
February 2011 reduction in workforce
|
|
1,862
|
|
|
November 2011 reduction in workforce
|
|
1,305
|
|
|
Payments
|
|
(2,200
|
)
|
|
Balance, December 31, 2011
|
|
967
|
|
|
Payments
|
|
(967
|
)
|
|
Balance, December 31, 2012
|
|
$
|
—
|
|
2013
|
$
|
6,458
|
|
2014
|
6,302
|
|
|
2015
|
6,240
|
|
|
2016
|
6,401
|
|
|
2017
|
6,548
|
|
|
2018 and thereafter
|
5,572
|
|
|
Total
|
$
|
37,521
|
|
Board authorizations:
|
|
||
July 2008
|
$
|
60,000
|
|
August 2010
|
60,662
|
|
|
February 2011
|
65,000
|
|
|
December 2011
|
50,000
|
|
|
Total amount authorized
|
235,662
|
|
|
Total value of shares repurchased
|
227,385
|
|
|
Residual authorization
|
$
|
8,277
|
|
|
Year-Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Instructional costs and services
|
$
|
1,433
|
|
|
$
|
1,249
|
|
|
$
|
1,109
|
|
Marketing and promotional
|
468
|
|
|
581
|
|
|
420
|
|
|||
Admissions advisory
|
48
|
|
|
38
|
|
|
32
|
|
|||
General and administrative
|
2,931
|
|
|
3,015
|
|
|
2,137
|
|
|||
Share-based compensation expense included in operating income
|
4,880
|
|
|
4,883
|
|
|
3,698
|
|
|||
Tax benefit from share-based compensation expense
|
1,818
|
|
|
1,810
|
|
|
1,393
|
|
|||
Share-based compensation expense, net of tax
|
$
|
3,062
|
|
|
$
|
3,073
|
|
|
$
|
2,305
|
|
|
Plan Options Outstanding
|
|
|
||||||
|
Incentive
|
|
Non-Qualified
|
|
Weighted-Average Exercise Price per Share
|
||||
|
(in thousands, except per share and contractual term data)
|
||||||||
Service-Based Stock Options
|
|
|
|
|
|
||||
Balance, December 31, 2011
|
54
|
|
|
561
|
|
|
$
|
54.02
|
|
Granted
|
—
|
|
|
125
|
|
|
40.48
|
|
|
Exercised
|
(21
|
)
|
|
(13
|
)
|
|
18.63
|
|
|
Forfeited or expired
|
(1
|
)
|
|
(91
|
)
|
|
60.69
|
|
|
Balance, December 31, 2012
|
32
|
|
|
582
|
|
|
52.21
|
|
|
Number of Shares
|
|
Weighted-Average Grant Date Fair Value per Share
|
|||
|
(in thousands, except per share data)
|
|||||
Restricted Stock Units
|
|
|
|
|||
Balance, December 31, 2011
|
92
|
|
|
$
|
62.53
|
|
Granted
|
69
|
|
|
37.04
|
|
|
Vested
|
(21
|
)
|
|
55.76
|
|
|
Canceled
|
(16
|
)
|
|
52.93
|
|
|
Balance, December 31, 2012
|
124
|
|
|
49.48
|
|
|
Number of Shares
|
|
Weighted-Average Exercise or Purchase Price per Share
|
|
Weighted-Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|||||
|
(in thousands, except per share and contractual term data)
|
|||||||||||
Service-Based Stock Options
|
|
|
|
|
|
|
|
|||||
Balance, December 31, 2012
|
614
|
|
|
$
|
52.21
|
|
|
4.66
|
|
$
|
460
|
|
Vested and expected to vest, December 31, 2012
|
599
|
|
|
$
|
52.34
|
|
|
4.60
|
|
$
|
460
|
|
Exercisable, December 31, 2012
|
322
|
|
|
$
|
52.61
|
|
|
2.87
|
|
$
|
460
|
|
Restricted Stock Units
|
|
|
|
|
|
|
|
|||||
Balance, December 31, 2012
|
124
|
|
|
—
|
|
|
1.35
|
|
$
|
3,509
|
|
|
Vested and expected to vest, December 31, 2012
|
117
|
|
|
—
|
|
|
1.33
|
|
$
|
3,303
|
|
|
Year-Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Proceeds from stock options exercised
|
$
|
628
|
|
|
$
|
1,634
|
|
|
$
|
6,842
|
|
Intrinsic value of stock options exercised
|
515
|
|
|
1,493
|
|
|
14,612
|
|
|||
Tax benefits (shortfall) realized from share-based compensation arrangements
|
(598
|
)
|
|
(64
|
)
|
|
4,325
|
|
|
Year-Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Expected life (in years)
(1)
|
4.39
|
|
|
4.40
|
|
|
4.42
|
|
|||
Expected volatility
(2)
|
48.83
|
%
|
|
43.10
|
%
|
|
41.80
|
%
|
|||
Risk-free interest rate
(3)
|
0.73
|
%
|
|
2.00
|
%
|
|
1.56
|
%
|
|||
Dividend yield
(4)
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|||
Weighted-average fair value of options granted
|
$
|
16.23
|
|
|
$
|
19.07
|
|
|
$
|
32.13
|
|
(1)
|
The Company’s expected life on options granted during the years ended
December 31, 2012
,
2011
and
2010
is based upon its historical stock option activity.
|
(2)
|
The expected volatility assumption for the years ended
December 31, 2012
,
2011
and
2010
is based upon the Company’s historical stock price and the expected life of the options.
|
(3)
|
The risk-free interest rate assumption is based upon the U.S. Treasury zero coupon yield curve on the grant date for a maturity similar to the expected life of the options.
|
(4)
|
The dividend yield assumption is based on the Company’s history and expectation of regular dividend payments. The Company has not historically and currently does not pay dividends.
|
|
Year-Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Current income tax expense:
|
|
|
|
|
|
||||||
Federal
|
$
|
25,182
|
|
|
$
|
26,232
|
|
|
$
|
32,172
|
|
State
|
1,445
|
|
|
1,638
|
|
|
2,334
|
|
|||
Foreign
|
4
|
|
|
6
|
|
|
—
|
|
|||
Deferred income tax expense:
|
|
|
|
|
|
||||||
Federal
|
(2,533
|
)
|
|
3,317
|
|
|
1,325
|
|
|||
State
|
(185
|
)
|
|
3
|
|
|
29
|
|
|||
Foreign
|
(866
|
)
|
|
(826
|
)
|
|
—
|
|
|||
Income tax expense
|
$
|
23,047
|
|
|
$
|
30,370
|
|
|
$
|
35,860
|
|
|
Year-Ended December 31,
|
|||||||
|
2012
|
|
2011
|
|
2010
|
|||
Statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes
|
2.3
|
|
|
2.5
|
|
|
2.5
|
|
Foreign taxes
|
1.0
|
|
|
0.3
|
|
|
—
|
|
Valuation allowance
|
1.1
|
|
|
—
|
|
|
—
|
|
Tax-exempt interest
|
(0.5
|
)
|
|
(0.8
|
)
|
|
(0.8
|
)
|
Other
|
(0.1
|
)
|
|
0.1
|
|
|
0.3
|
|
Effective income tax rate
|
38.8
|
%
|
|
37.1
|
%
|
|
37.0
|
%
|
|
Year-Ended December 31,
|
||||||
|
2012
|
|
2011
|
||||
Deferred income tax assets:
|
|
|
|
||||
Net operating loss carryforwards
|
1,926
|
|
|
$
|
928
|
|
|
Allowance for doubtful accounts
|
3,060
|
|
|
2,221
|
|
||
Accrued liabilities
|
3,200
|
|
|
4,033
|
|
||
Share-based compensation
|
4,596
|
|
|
3,642
|
|
||
Other
|
22
|
|
|
34
|
|
||
Deferred income tax assets
|
12,804
|
|
|
10,858
|
|
||
Deferred income tax liabilities:
|
|
|
|
||||
Prepaid expenses
|
(1,269
|
)
|
|
(1,208
|
)
|
||
Accumulated other comprehensive income
|
(6
|
)
|
|
(169
|
)
|
||
Property and equipment
|
(14,538
|
)
|
|
(16,095
|
)
|
||
Joint venture investment
|
—
|
|
|
(863
|
)
|
||
Other
|
(97
|
)
|
|
—
|
|
||
Intangible assets
|
(1,083
|
)
|
|
(1,646
|
)
|
||
Deferred income tax liabilities
|
(16,993
|
)
|
|
(19,981
|
)
|
||
Net deferred tax liability before valuation allowance
|
(4,189
|
)
|
|
(9,123
|
)
|
||
Valuation allowance
|
(700
|
)
|
|
—
|
|
||
Net deferred tax liability
|
$
|
(4,889
|
)
|
|
$
|
(9,123
|
)
|
|
Year-Ended December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Balance at January 1
|
$
|
425
|
|
|
$
|
727
|
|
|
$
|
388
|
|
Additions for tax positions of current year
|
6
|
|
|
—
|
|
|
—
|
|
|||
Additions for tax positions of prior years
|
14
|
|
|
—
|
|
|
565
|
|
|||
Reductions for tax positions of prior years
|
—
|
|
|
(47
|
)
|
|
(92
|
)
|
|||
Settlements
|
2
|
|
|
(207
|
)
|
|
—
|
|
|||
Reductions due to lapse of the applicable statute of limitations
|
(372
|
)
|
|
(48
|
)
|
|
(134
|
)
|
|||
Balance at December 31
|
$
|
75
|
|
|
$
|
425
|
|
|
$
|
727
|
|
|
As of December 31,
|
||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||
Foreign currency translation
|
$
|
(32
|
)
|
|
$
|
22
|
|
|
$
|
—
|
|
Unrealized gains on marketable securities
|
10
|
|
|
285
|
|
|
758
|
|
|||
Accumulated other comprehensive (loss) income
(1)
|
$
|
(22
|
)
|
|
$
|
307
|
|
|
$
|
758
|
|
(1)
|
Accumulated other comprehensive (loss) income is net of
$6 thousand
,
$0.2 million
, and
$0.5 million
of taxes as of
December 31, 2012
,
2011
, and
2010
, respectively. The decrease in unrealized gains on marketable securities in
2012
compared to
2011
is primarily due to the decrease in Company’s average balance of marketable securities in
2012
.
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
||||||||||
|
(in thousands, except per share data)
|
||||||||||||||||||
2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
$
|
109,400
|
|
|
$
|
106,180
|
|
|
$
|
99,309
|
|
|
$
|
107,001
|
|
|
$
|
421,890
|
|
Operating Income
|
17,937
|
|
|
18,056
|
|
|
8,283
|
|
|
15,107
|
|
|
59,383
|
|
|||||
Net income attributable to Capella Education Company
|
11,293
|
|
|
11,412
|
|
|
5,123
|
|
|
8,649
|
|
|
36,477
|
|
|||||
Net income attributable to Capella Education Company per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
0.39
|
|
|
$
|
0.69
|
|
|
$
|
2.77
|
|
Diluted
|
$
|
0.82
|
|
|
$
|
0.85
|
|
|
$
|
0.39
|
|
|
$
|
0.68
|
|
|
$
|
2.76
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
2011
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenues
|
$
|
111,354
|
|
|
$
|
106,400
|
|
|
$
|
102,306
|
|
|
$
|
109,983
|
|
|
$
|
430,043
|
|
Operating Income
|
22,467
|
|
|
23,903
|
|
|
14,857
|
|
|
18,875
|
|
|
80,102
|
|
|||||
Net income attributable to Capella Education Company
|
14,609
|
|
|
15,515
|
|
|
9,934
|
|
|
12,057
|
|
|
52,115
|
|
|||||
Net income attributable to Capella Education Company per common share:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
0.90
|
|
|
$
|
1.00
|
|
|
$
|
0.66
|
|
|
$
|
0.85
|
|
|
$
|
3.42
|
|
Diluted
|
$
|
0.90
|
|
|
$
|
0.99
|
|
|
$
|
0.66
|
|
|
$
|
0.85
|
|
|
$
|
3.40
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
/s/ ERNST & YOUNG LLP
|
Item 9B.
|
Other Information
|
Item 10.
|
Directors, Executive Officers, and Corporate Governance
|
Name
|
Age
|
Position
|
Sally B. Chial
|
52
|
Senior Vice President, Human Resources
|
J. Kevin Gilligan
|
58
|
Chief Executive Officer
|
Scott Kinney
|
51
|
President, Capella University
|
Steven L. Polacek
|
53
|
Senior Vice President and Chief Financial Officer
|
Gregory W. Thom
|
56
|
Senior Vice President, General Counsel and Secretary
|
Item 11.
|
Executive Compensation
|
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 Schedule
|
(a)
|
Documents filed as Part of this Annual Report on Form 10-K:
|
1.
|
Consolidated Financial Statements:
|
2.
|
Financial Statement Schedules:
|
(b)
|
Exhibits
|
Exhibit Number
|
Description
|
Method of Filing
|
2.1
|
Agreement, dated July 15, 2011, by and among John Holden and Others and Capella Education Company for the sale and purchase of the entire issued share capital of Resource Development International Limited (excluding schedules and exhibits, which we agree to furnish supplementally to the Securities and Exchange Commission upon request).
|
Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 15, 2011.
|
3.1
|
Amended and Restated Articles of Incorporation.
|
Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 11, 2006.
|
3.2
|
Second Amended and Restated By-Laws.
|
Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on December 10, 2008.
|
4.1
|
Specimen of common stock certificate.
|
Incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 19, 2006.
|
10.1*
|
Capella Education Company 2005 Stock Incentive Plan as amended.
|
Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 filed with the SEC on June 3, 2005.
|
10.2*
|
Forms of Option Agreements for the Capella Education Company 2005 Stock Incentive Plan.
|
Incorporated by reference to Exhibit 10.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed with the SEC on August 29, 2006.
|
10.3*
|
Form of Restricted Stock Agreement for the Capella Education Company 2005 Stock Incentive Plan
|
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007.
|
10.4*
|
Form of Restricted Stock Unit Agreement (Employee) under the Capella Education Company 2005 Stock Incentive Plan
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 15, 2009.
|
10.5*
|
Form of Restricted Stock Unit Agreement (Non-Employee Director) under the Capella Education Company 2005 Stock Incentive Plan
|
Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 29, 2009.
|
Exhibit Number
|
Description
|
Method of Filing
|
10.24*
|
Capella Education Company Incentive Bonus Plan
|
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
|
10.25
|
Credit Agreement dated September 30, 2011, among Capella Education Company, identified therein as the Borrower; Bank of America, N.A. as Administrative Agent; Merrill Lynch, Pierce, Fenner & Smith as the lead Arranger; and certain other lenders (the “Credit Agreement”).
|
Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
|
10.26*
|
Form of Restricted Stock Unit Agreement (Director) (for use commencing in 2012) for the Capella Education Company 2005 Stock Incentive Plan
|
Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
|
10.27*
|
Form of Restricted Stock Unit Agreement (16(b) Officer) (for use commencing in 2012) for the Capella Education Company 2005 Stock Incentive Plan
|
Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
|
10.28*
|
Form of Non-Statutory Stock Option Agreement (16(b) Officer) (for use commencing in 2012) for the Capella Education Company 2005 Stock Incentive Plan
|
Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
|
10.29*
|
Capella Education Company Incentive Bonus Plan, as amended
|
Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
|
10.30*
|
2013 Form of Non-Statutory Option Agreement (Section 16(b) Officers)
|
Filed electronically.
|
21
|
Subsidiaries of the Registrant.
|
Filed electronically.
|
23
|
Consent of Ernst & Young LLP.
|
Filed electronically.
|
31.1
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
Filed electronically.
|
31.2
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
Filed electronically.
|
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.
|
Filed electronically.
|
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.
|
Filed electronically.
|
EX-101.INS
|
XBRL Instance Document
(1)
|
Filed electronically.
|
EX-101.SCH
|
XBRL Taxonomy Extension Schema Document
(1)
|
Filed electronically.
|
EX-101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
(1)
|
Filed electronically.
|
EX-101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
(1)
|
XBRL Taxonomy Extension Definition Linkbase Document
(1)
|
EX-101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document
(1)
|
Filed electronically.
|
EX-101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
|
Filed electronically.
|
*
|
Management contract or compensatory plan or arrangement.
|
(1)
|
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that
|
|
Beginning Balance
|
Acquisition
|
Additions Charged to Expense
|
Deductions
(a)
|
Ending Balance
|
||||||||||
|
(In thousands)
|
||||||||||||||
Allowance for doubtful accounts for the years ended:
|
|
|
|
|
|
||||||||||
December 31, 2012
|
$
|
5,789
|
|
$
|
—
|
|
$
|
17,310
|
|
$
|
(16,868
|
)
|
$
|
6,231
|
|
December 31, 2011
|
$
|
3,783
|
|
$
|
776
|
|
$
|
10,565
|
|
$
|
(9,335
|
)
|
$
|
5,789
|
|
December 31, 2010
|
$
|
2,362
|
|
$
|
—
|
|
$
|
8,744
|
|
$
|
(7,323
|
)
|
$
|
3,783
|
|
|
Beginning Balance
|
Acquisition
|
Additions Charged to Expense
(b)
|
Deductions
|
Ending Balance
|
||||||||||
|
(In thousands)
|
||||||||||||||
Valuation allowance for the year ended:
|
|
|
|
|
|
||||||||||
December 31, 2012
|
$
|
—
|
|
$
|
—
|
|
$
|
700
|
|
$
|
—
|
|
$
|
700
|
|
(a)
|
Allowance for doubtful accounts deductions include write-offs of accounts receivable.
|
(b)
|
Valuation allowance addition includes establishment of valuation allowance on foreign net deferred tax assets primarily related to net operating losses.
|
|
|
CAPELLA EDUCATION COMPANY
|
|
|
(Registrant)
|
Date:
|
February 21, 2013
|
/
S
/ J. K
EVIN
G
ILLIGAN
|
|
|
J. Kevin Gilligan
|
|
|
Chairman and Chief Executive Officer
|
SIGNATURES
|
|
TITLE
|
|
DATE
|
|
|
|
|
|
/s/ J. KEVIN GILLIGAN
|
|
Chairman and
Chief Executive Officer
(Principal Executive Officer)
|
|
February 21, 2013
|
J. Kevin Gilligan
|
|
|
|
|
|
|
|
|
|
/s/ STEVEN L. POLACEK
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
February 21, 2013
|
Steven L. Polacek
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL A. LINTON
|
|
Director
|
|
February 21, 2013
|
Michael A. Linton
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL L. LOMAX
|
|
Director
|
|
February 21, 2013
|
Michael L. Lomax
|
|
|
|
|
|
|
|
|
|
/s/ JODY G. MILLER
|
|
Director
|
|
February 21, 2013
|
Jody G. Miller
|
|
|
|
|
|
|
|
|
|
/s/ HILARY PENNINGTON
|
|
Director
|
|
February 21, 2013
|
Hilary Pennington
|
|
|
|
|
|
|
|
|
|
/s/ STEPHEN G. SHANK
|
|
Director
|
|
February 21, 2013
|
Stephen G. Shank
|
|
|
|
|
|
|
|
|
|
/s/ ANDREW M. SLAVITT
|
|
Director
|
|
February 21, 2013
|
Andrew M. Slavitt
|
|
|
|
|
|
|
|
|
|
/s/ DAVID W. SMITH
|
|
Director
|
|
February 21, 2013
|
David W. Smith
|
|
|
|
|
|
|
|
|
|
/s/ JEFFREY W. TAYLOR
|
|
Director
|
|
February 21, 2013
|
Jeffrey W. Taylor
|
|
|
|
|
|
|
|
|
|
/s/ DARRELL R. TUKUA
|
|
Director
|
|
February 21, 2013
|
Darrell R. Tukua
|
|
|
|
1.
|
Grant
. The Optionee is granted this Option to purchase the number of Shares specified at the beginning of this Agreement.
|
2.
|
Exercise Price
. The price to the Optionee of each Share subject to this Option shall be the exercise price specified at the beginning of this Agreement (which price shall not be less than the Fair Market Value (as defined in Section 2(o) of the Plan) as of the date of grant.
|
3.
|
Non-Statutory Stock Option
. This Option is
not
intended to be an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
4.
|
Exercise Schedule
. This Option shall vest and become exercisable as to the number of Shares and on the dates specified in the exercise schedule at the beginning of this Agreement. The exercise schedule shall be cumulative; thus, to the extent this Option has not already been exercised and has not expired, terminated or been cancelled, the Optionee or the person otherwise entitled to exercise this Option as provided herein may at any time, and from time to time, purchase all or any portion of the Shares then purchasable under the exercise schedule.
|
5.
|
Expiration
. This Option shall expire at the close of NASDAQ stock market trading, or any national securities exchange on which the shares of common stock are then listed, on the earliest of:
|
6.
|
Procedure to Exercise Option
.
|
7.
|
Employment Requirement
. This Option may be exercised only while the Optionee remains employed with the Company or a parent or subsidiary thereof, and only if the Optionee has been continuously so employed since the date of this Agreement;
provided that
:
|
8.
|
Acceleration of Option
.
|
10.
|
Transferability
. While the Optionee is alive, only the Optionee, his/her legal representative or a transferee who receives this Option in a permitted transfer (as described below in this Section 10) may exercise this Option. This Option may not be assigned or transferred other than to a Successor in the event of the Optionee's death or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder; provided, however, that the Optionee may transfer this Option to a member or members of his or her immediate family (i.e., his or her children, grandchildren and spouse) or to one or more trusts for the benefit of such family members or partnerships in which such family members are the only partners, if the Optionee does not receive any consideration for the transfer. This Option shall continue to be subject to the same terms and conditions that were applicable to this Option immediately prior to its transfer and may be exercised by such transferee as and to the extent that this Option has become exercisable and has not terminated in accordance with the provisions of the Plan and this Agreement. For purposes of any provision of the Plan or this Agreement relating to notice to the Optionee or to vesting or termination of this Option upon the death, disability or termination of employment of the Optionee, the references to “optionee” shall mean the original grantee of this Option and not any transferee.
|
11.
|
Assignment of the Company's Obligations
. In the event of a merger of the Company with or into another corporation or limited liability company, or the sale of substantially all of the assets of the Company, then the successor entity, or a parent or subsidiary of the successor entity, may assume this Option or substitute an equivalent option.
|
12.
|
No Shareholder Rights Before Exercise
. No person shall have any of the rights of a shareholder of the Company with respect to any Share subject to this Option until the Share actually is issued to him/her upon exercise of this Option.
|
13.
|
Discretionary Adjustment
. In the event of a Fundamental Change, recapitalization, reclassification, stock dividend, stock split, stock combination or other relevant change, the Committee (or if the Company does not survive any such transaction, a comparable committee of the board of directors of the surviving corporation) may in its sole discretion make such adjustment as it determines to be appropriate as to the number and kind of securities subject to and reserved under the Plan and, in order to prevent dilution or enlargement of rights of the Optionee, the number and kind of securities issuable upon exercise of this Option and the exercise price hereof.
|
14.
|
Tax Withholding
. Delivery of Shares upon exercise of this Option shall be subject to any required withholding taxes. As a condition precedent to receiving Shares upon exercise of this Option, the Optionee may be required to pay to the Company, in accordance with the provisions of Section 14 of the Plan, an amount equal to the amount of any required withholdings.
|
15.
|
Interpretation of This Agreement
. All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Optionee. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.
|
16.
|
Discontinuance of Employment
. This Agreement shall not give the Optionee a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Optionee may terminate his/her employment at any time and otherwise deal with the Optionee without regard to the effect it may have upon him/her under this Agreement.
|
17.
|
Forfeiture Events
.
|
18.
|
Incentive Compensation Recoupment
. This Award is subject to the Company's Policy Regarding Executive Compensation Recoupment, as adopted by the Board of Directors on February 23, 2011.
|
19.
|
Option Subject to Plan, Articles of Incorporation and By‑Laws
. The Optionee acknowledges that this Option and the exercise thereof is subject to the Plan, the Articles of Incorporation, as amended from time to time, and the By‑Laws, as amended from time to time, of the Company, and any applicable federal or state laws, rules or regulations.
|
20.
|
Obligation to Reserve Sufficient Shares
. The Company shall at all times during the term of this Option reserve and keep available a sufficient number of Shares to satisfy this Agreement.
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21.
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Binding Effect
. This Agreement shall be binding in all respects on the heirs, representatives, successors and assigns of the Optionee.
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22.
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Choice of Law
. This Agreement is entered into under the laws of the State of Minnesota and shall be construed and interpreted thereunder (without regard to its conflict of law principles).
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Subsidiary
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State or Other Jurisdiction of Incorporation
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Capella University, Inc.
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Minnesota
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1.
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I have reviewed this annual report on Form 10-K of Capella Education Company;
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2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ J. Kevin Gilligan
|
|
J. Kevin Gilligan
|
|
Chief Executive Officer
|
|
1.
|
I have reviewed this annual report on Form 10-K of Capella Education Company;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Steven L. Polacek
|
|
Steven L. Polacek
|
|
Senior Vice President and Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ J. Kevin Gilligan
|
|
J. Kevin Gilligan
|
|
Chief Executive Officer
|
|
February 21, 2013
|
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Steven L. Polacek
|
|
Steven L. Polacek
|
|
Senior Vice President and Chief Financial Officer
|
|
February 21, 2013
|
|