x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
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o
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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
(State or other jurisdiction of
incorporation or organization)
|
|
41-1717955
(I.R.S. Employer
Identification No.)
|
|
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Capella Tower
225 South Sixth Street, 9
th
Floor
Minneapolis, Minnesota
(Address of principal executive offices)
|
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55402
(Zip Code)
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Large accelerated filer
|
o
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Accelerated filer
|
x
|
|
|
|
|
Non-accelerated filer
|
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
o
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|
Page
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PART I – FINANCIAL INFORMATION
|
|
|
|
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Item 1
|
||
Item 2
|
||
Item 3
|
||
Item 4
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||
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PART II – OTHER INFORMATION
|
|
|
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Item 1
|
||
Item 1A
|
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Item 2
|
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Item 3
|
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Item 4
|
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Item 5
|
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Item 6
|
||
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As of March 31, 2014
|
|
As of December 31, 2013
|
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
93,555
|
|
|
$
|
124,097
|
|
Marketable securities, current
|
27,257
|
|
|
18,342
|
|
||
Accounts receivable, net of allowance of $6,155 at March 31, 2014 and $7,091 at December 31, 2013
|
15,494
|
|
|
16,919
|
|
||
Prepaid expenses and other current assets
|
8,744
|
|
|
10,548
|
|
||
Deferred income taxes
|
2,868
|
|
|
2,846
|
|
||
Total current assets
|
147,918
|
|
|
172,752
|
|
||
Marketable securities, non-current
|
40,476
|
|
|
17,740
|
|
||
Property and equipment, net
|
39,383
|
|
|
39,993
|
|
||
Goodwill
|
17,042
|
|
|
16,969
|
|
||
Intangibles, net
|
2,377
|
|
|
2,795
|
|
||
Other assets
|
1,063
|
|
|
—
|
|
||
Total assets
|
$
|
248,259
|
|
|
$
|
250,249
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
6,773
|
|
|
$
|
7,939
|
|
Accrued liabilities
|
29,465
|
|
|
33,164
|
|
||
Dividends payable
|
4,380
|
|
|
4,346
|
|
||
Deferred revenue
|
11,614
|
|
|
10,736
|
|
||
Total current liabilities
|
52,232
|
|
|
56,185
|
|
||
Deferred rent
|
3,072
|
|
|
3,221
|
|
||
Other liabilities
|
2,703
|
|
|
2,541
|
|
||
Deferred income taxes
|
5,786
|
|
|
6,283
|
|
||
Total liabilities
|
63,793
|
|
|
68,230
|
|
||
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 12,315 at March 31, 2014 and 12,361 at December 31, 2013
|
123
|
|
|
124
|
|
||
Additional paid-in capital
|
105,907
|
|
|
104,546
|
|
||
Accumulated other comprehensive loss
|
(417
|
)
|
|
(114
|
)
|
||
Retained earnings
|
78,853
|
|
|
77,463
|
|
||
Total shareholders’ equity
|
184,466
|
|
|
182,019
|
|
||
Total liabilities and shareholders’ equity
|
$
|
248,259
|
|
|
$
|
250,249
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
|
(Unaudited)
|
||||||
Revenues
|
$
|
105,596
|
|
|
$
|
105,242
|
|
Costs and expenses:
|
|
|
|
||||
Instructional costs and services
|
47,300
|
|
|
46,967
|
|
||
Marketing and promotional
|
25,761
|
|
|
25,501
|
|
||
Admissions advisory
|
6,927
|
|
|
6,771
|
|
||
General and administrative
|
10,465
|
|
|
10,828
|
|
||
Total costs and expenses
|
90,453
|
|
|
90,067
|
|
||
Operating income
|
15,143
|
|
|
15,175
|
|
||
Other expense, net
|
(342
|
)
|
|
(200
|
)
|
||
Income before income taxes
|
14,801
|
|
|
14,975
|
|
||
Income tax expense
|
5,984
|
|
|
6,220
|
|
||
Net income
|
$
|
8,817
|
|
|
$
|
8,755
|
|
Net income per common share:
|
|
|
|
||||
Basic
|
$
|
0.71
|
|
|
$
|
0.71
|
|
Diluted
|
$
|
0.70
|
|
|
$
|
0.70
|
|
Weighted average number of common shares outstanding:
|
|
|
|
||||
Basic
|
12,342
|
|
|
12,393
|
|
||
Diluted
|
12,612
|
|
|
12,478
|
|
||
Cash dividend declared per common share
|
$
|
0.35
|
|
|
$
|
—
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
|
(Unaudited)
|
||||||
Net income
|
$
|
8,817
|
|
|
$
|
8,755
|
|
Other comprehensive income (loss):
|
|
|
|
||||
Foreign currency translation gain (loss)
|
(276
|
)
|
|
111
|
|
||
Unrealized gains (losses) on available for sale securities, net of tax
|
(27
|
)
|
|
3
|
|
||
Comprehensive income
|
$
|
8,514
|
|
|
$
|
8,869
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
|
(Unaudited)
|
||||||
Operating activities
|
|
|
|
||||
Net income
|
$
|
8,817
|
|
|
$
|
8,755
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Provision for bad debts
|
3,509
|
|
|
3,721
|
|
||
Depreciation and amortization
|
6,168
|
|
|
7,130
|
|
||
Amortization of investment discount/premium
|
328
|
|
|
116
|
|
||
Impairment of property and equipment
|
160
|
|
|
77
|
|
||
Loss on disposal of property and equipment
|
64
|
|
|
—
|
|
||
Share-based compensation
|
1,447
|
|
|
1,582
|
|
||
Excess tax benefits from share-based compensation
|
(74
|
)
|
|
(4
|
)
|
||
Deferred income taxes
|
(482
|
)
|
|
(440
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(2,049
|
)
|
|
(4,517
|
)
|
||
Prepaid expenses and other current assets
|
(358
|
)
|
|
1,860
|
|
||
Accounts payable and accrued liabilities
|
(4,025
|
)
|
|
(233
|
)
|
||
Income taxes payable
|
1,347
|
|
|
424
|
|
||
Deferred rent
|
(149
|
)
|
|
(589
|
)
|
||
Deferred revenue
|
781
|
|
|
261
|
|
||
Net cash provided by operating activities
|
15,484
|
|
|
18,143
|
|
||
Investing activities
|
|
|
|
||||
Capital expenditures
|
(5,835
|
)
|
|
(5,600
|
)
|
||
Investment in partnership interest
|
(1,063
|
)
|
|
—
|
|
||
Purchases of marketable securities
|
(34,821
|
)
|
|
(6,582
|
)
|
||
Maturities of marketable securities
|
2,800
|
|
|
6,385
|
|
||
Net cash used in investing activities
|
(38,919
|
)
|
|
(5,797
|
)
|
||
Financing activities
|
|
|
|
||||
Excess tax benefits from share-based compensation
|
74
|
|
|
4
|
|
||
Net proceeds from exercise of stock options
|
358
|
|
|
71
|
|
||
Payment of dividends
|
(4,326
|
)
|
|
—
|
|
||
Repurchases of common stock
|
(3,203
|
)
|
|
(132
|
)
|
||
Net cash used in financing activities
|
(7,097
|
)
|
|
(57
|
)
|
||
Effect of foreign exchange rates on cash
|
(10
|
)
|
|
(25
|
)
|
||
Net increase (decrease) in cash and cash equivalents
|
(30,542
|
)
|
|
12,264
|
|
||
Cash and cash equivalents at beginning of period
|
124,097
|
|
|
93,220
|
|
||
Cash and cash equivalents at end of period
|
$
|
93,555
|
|
|
$
|
105,484
|
|
Supplemental disclosures of cash flow information
|
|
|
|
||||
Income taxes paid
|
$
|
5,342
|
|
|
$
|
6,243
|
|
Noncash transactions:
|
|
|
|
||||
Purchase of equipment included in accounts payable and accrued liabilities
|
$
|
311
|
|
|
$
|
210
|
|
Declaration of cash dividend to be paid
|
$
|
4,382
|
|
|
$
|
—
|
|
Repurchases of common stock included in accrued liabilities
|
$
|
318
|
|
|
$
|
—
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
Numerator:
|
|
|
|
||||
Net income
|
$
|
8,817
|
|
|
$
|
8,755
|
|
Denominator:
|
|
|
|
||||
Denominator for basic net income per common share— weighted average shares outstanding
|
12,342
|
|
|
12,393
|
|
||
Effect of dilutive stock options, restricted stock, and market stock units
|
270
|
|
|
85
|
|
||
Denominator for diluted net income per common share— weighted average shares outstanding
|
12,612
|
|
|
12,478
|
|
||
Basic net income per common share
|
$
|
0.71
|
|
|
$
|
0.71
|
|
Diluted net income per common share
|
$
|
0.70
|
|
|
$
|
0.70
|
|
|
As of March 31, 2014
|
||||||||||||||
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
Tax-exempt municipal securities
|
$
|
58,484
|
|
|
$
|
53
|
|
|
$
|
(52
|
)
|
|
$
|
58,485
|
|
Corporate debt securities
|
9,246
|
|
|
4
|
|
|
(2
|
)
|
|
9,248
|
|
||||
Total
|
$
|
67,730
|
|
|
$
|
57
|
|
|
$
|
(54
|
)
|
|
$
|
67,733
|
|
|
|
|
|
|
|
|
|
||||||||
|
As of December 31, 2013
|
||||||||||||||
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
Tax-exempt municipal securities
|
$
|
30,422
|
|
|
$
|
46
|
|
|
$
|
—
|
|
|
$
|
30,468
|
|
Corporate debt securities
|
5,615
|
|
|
3
|
|
|
(4
|
)
|
|
$
|
5,614
|
|
|||
Total
|
$
|
36,037
|
|
|
$
|
49
|
|
|
$
|
(4
|
)
|
|
$
|
36,082
|
|
|
As of March 31, 2014
|
|
As of December 31, 2013
|
||||
Due within one year
|
$
|
27,257
|
|
|
$
|
18,342
|
|
Due after one year through five years
|
40,476
|
|
|
17,740
|
|
||
Total
|
$
|
67,733
|
|
|
$
|
36,082
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
Maturities of marketable securities
|
$
|
2,800
|
|
|
$
|
6,385
|
|
Total
|
$
|
2,800
|
|
|
$
|
6,385
|
|
|
|
Fair Value Measurements as of March 31, 2014 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
|
|
$
|
46,606
|
|
|
$
|
46,606
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
44,069
|
|
|
44,069
|
|
|
—
|
|
|
—
|
|
||||
Variable rate demand notes
|
|
2,880
|
|
|
2,880
|
|
|
—
|
|
|
—
|
|
||||
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
Tax-exempt municipal securities
|
|
58,485
|
|
|
—
|
|
|
58,485
|
|
|
—
|
|
||||
Corporate debt securities
|
|
9,248
|
|
|
—
|
|
|
9,248
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis:
|
|
$
|
161,288
|
|
|
$
|
93,555
|
|
|
$
|
67,733
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Accrued liabilities:
|
|
|
|
|
|
|
|
|
||||||||
RDI contingent consideration
|
|
$
|
6,629
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,629
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
6,629
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,629
|
|
|
|
Fair Value Measurements as of December 31, 2013 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
|
|
$
|
47,796
|
|
|
$
|
47,796
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market funds
|
|
57,066
|
|
|
57,066
|
|
|
—
|
|
|
—
|
|
||||
Variable rate demand notes
|
|
19,235
|
|
|
19,235
|
|
|
—
|
|
|
—
|
|
||||
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
Tax-exempt municipal securities
|
|
30,468
|
|
|
—
|
|
|
30,468
|
|
|
—
|
|
||||
Corporate debt securities
|
|
$
|
5,614
|
|
|
—
|
|
|
5,614
|
|
|
—
|
|
|||
Total assets at fair value on a recurring basis:
|
|
$
|
160,179
|
|
|
$
|
124,097
|
|
|
$
|
36,082
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||||
Other liabilities:
|
|
|
|
|
|
|
|
|
||||||||
RDI contingent consideration
|
|
$
|
6,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,304
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
6,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,304
|
|
Unobservable Inputs
|
|
Range
|
Weighted average cost of capital
|
|
5%
|
Timing of cash flows
|
|
0 - 1 month
|
Probability of TDAP achievement
|
|
100%
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
Balance, beginning of period
|
$
|
6,304
|
|
|
$
|
6,252
|
|
Increase in RDI contingent consideration liability
|
325
|
|
|
54
|
|
||
Balance, end of period
|
$
|
6,629
|
|
|
$
|
6,306
|
|
|
As of March 31, 2014
|
|
As of December 31, 2013
|
||||
Accrued compensation and benefits
|
$
|
5,645
|
|
|
$
|
10,333
|
|
Accrued instructional
|
4,650
|
|
|
5,043
|
|
||
Accrued vacation
|
1,595
|
|
|
1,040
|
|
||
Accrued invoices
|
7,178
|
|
|
7,240
|
|
||
RDI contingent consideration
|
6,629
|
|
|
6,304
|
|
||
Other
|
3,768
|
|
|
3,204
|
|
||
Total
|
$
|
29,465
|
|
|
$
|
33,164
|
|
2014
|
$
|
5,029
|
|
2015
|
6,805
|
|
|
2016
|
6,695
|
|
|
2017
|
6,692
|
|
|
2018
|
5,596
|
|
|
2019 and thereafter
|
—
|
|
|
Total
|
$
|
30,817
|
|
Board authorizations:
|
|
||
July 2008
|
$
|
60,000
|
|
August 2010
|
60,662
|
|
|
February 2011
|
65,000
|
|
|
December 2011
|
50,000
|
|
|
August 2013
|
50,000
|
|
|
Total amount authorized
|
285,662
|
|
|
Total value of shares repurchased
|
239,862
|
|
|
Residual authorization
|
$
|
45,800
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
Shares repurchased
|
56
|
|
|
4
|
|
||
Total consideration, excluding commissions
|
$
|
3,519
|
|
|
$
|
132
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend per Share
|
|
Total Dividend Amount
|
||||
February 20, 2014
|
|
March 26, 2014
|
|
April 10, 2014
|
|
$
|
0.35
|
|
|
$
|
4,382
|
|
|
Three Months Ended March 31,
|
||||||
|
2014
|
|
2013
|
||||
Instructional costs and services
|
$
|
248
|
|
|
$
|
467
|
|
Marketing and promotional
|
93
|
|
|
149
|
|
||
Admissions advisory
|
14
|
|
|
16
|
|
||
General and administrative
|
1,092
|
|
|
950
|
|
||
Share-based compensation expense included in operating income
|
1,447
|
|
|
1,582
|
|
||
Tax benefit from share-based compensation expense
|
514
|
|
|
585
|
|
||
Share-based compensation expense, net of tax
|
$
|
933
|
|
|
$
|
997
|
|
|
Foreign Currency Translation Loss
|
|
Unrealized Gain (Loss) on Marketable Securities
|
|
Accumulated Other Comprehensive Loss
(1)
|
||||||
Beginning balance, December 31, 2013
|
$
|
(142
|
)
|
|
$
|
28
|
|
|
$
|
(114
|
)
|
Current period change
|
(276
|
)
|
|
(27
|
)
|
|
(303
|
)
|
|||
Ending balance, March 31, 2014
|
$
|
(418
|
)
|
|
$
|
1
|
|
|
$
|
(417
|
)
|
(1)
|
Accumulated other comprehensive loss is presented net of tax of
$1 thousand
and
$17 thousand
as of
March 31, 2014
and
December 31, 2013
, respectively.
|
•
|
Capella University (the University) is a regionally accredited university that offers 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 that 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.
|
•
|
Capella Learning Solutions (CLS) is a subsidiary created in 2013 that provides online training solutions and services to corporate partners which are delivered through Capella's online learning platform.
|
•
|
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. While certain initiatives could affect our growth and profitability in the near-term, we believe these efforts are in the best interest of our learners and over the long-term will improve learner success and lifetime revenue, which, in turn, positions us for more sustainable long-term growth. These initiatives include 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 and implementing programs such as assessments and orientations 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 timely and clear information to our learners, faculty, advisors and staff to help learners persist and successfully complete their programs;
|
•
|
Optimizing 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. Such efforts include assessments and required orientation programs for substantially all new learners.
|
•
|
PhD Completion
. In addition, we are focused on improving the success of our learners later in their programs at the doctoral level. We are using our analytics capabilities to understand factors impacting learner success during the comprehensive exam and dissertation portion of our PhD programs. We will use this information to further identify barriers and develop solutions supporting our learners’ success. We are implementing a plan designed to provide targeted help and guidance for our current learners in the dissertation phase to complete their program or provide other options, including changing their course of study or withdrawing from their program. We are further improving processes and our support infrastructure to increase success particularly during the dissertation portion of the program for current and future learners.
|
•
|
New enrollment and persistence.
New enrollment is an important indicator of revenue growth and Company profitability. Overall, new enrollments grew approximately 2.6 percent in the first quarter of 2014 compared to 7.8 percent in the same period in 2013. New enrollment is calculated from the last day a new learner can drop a course without financial penalty. New enrollment growth in 2014 was led by our master's programs. Although new enrollment growth is an important metric, the combination of new enrollment and persistence are key drivers for total enrollment and revenue performance. We are building a sustainable business model focused on total enrollment growth.
|
•
|
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 their 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 and professional organizations,
|
•
|
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.
|
•
|
Establishing new growth platforms.
We seek to drive long-term growth that is an extension of our core competencies into new and expanded markets. This may result in increased new business development costs focused on researching, identifying, and cultivating these new market opportunities.
|
•
|
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.
|
•
|
Current
market and regulatory environment.
The market conditions remain challenging and competition is strong; however, we continue to focus on attracting the right learners and learner success. We believe our initiatives to improve learner success through innovation will position us to continue to be a leader in the online postsecondary education market. Additionally, we are working to even more closely align with employers. Developments in the federal regulatory environment impact us as well, including the upcoming reauthorization of the Higher Education Act of 1965, as amended, and the current Department of Education rulemaking processes. Many states have also become more active in regulating on-line education, especially regarding approval to operate requirements, and enforcement of consumer protection laws by state attorneys general, especially with proprietary institutions. While we have a strong track record of regulatory compliance, such actions, even if not directed at Capella University, may make our operating environment more challenging.
|
•
|
Lease amendment.
On April 3, 2014, the Company accepted notice to activate an amendment to our current lease for our premises at 225 South Sixth Street in Minneapolis, Minnesota. Pursuant to the amendment, on or before July 3, 2014, we will return 54,940 square feet of our currently leased space of 426,165 square feet. We anticipate recording a charge of approximately $2.5 million during the quarter ending June 30, 2014, in connection with this amendment. We anticipate expense savings of approximately $7.0 million through October 31, 2018, with approximately $0.8 million of those savings expected in the second half of 2014.
|
•
|
Recent legislation.
On August 9, 2013, Congress passed legislation that ties interest rates on Title IV loans to the rate paid on US Treasury bonds. Interest rates are set every July 1 for loans taken out from July 1 to June 30 of the following year. For the current award year, the rate decreased as compared to the rates previously in effect.
|
•
|
Gainful Employment.
The Department of Education published a Notice of Proposed Rulemaking on March 25, 2014. The proposed rule applies to all Gainful Employment (GE) programs, which include non-degree programs at public and private non-profit institutions, and all programs offered by for-profit institutions. The proposed rule is similar to the draft language last discussed at the third negotiated rulemaking committee session in December 2013. The rule establishes two “accountability metrics” that GE programs must satisfy in order to remain eligible for Title IV federal student aid, specifically debt to earnings (DTE) ratios and programmatic cohort default rate (pCDR) thresholds. Unlike the accountability metrics in the Department of Education’s previous GE rule, the accountability metrics under the Department of Education's current proposal operate independently from one another. Consequently, in order for a GE program to maintain its Title IV eligibility under the proposed rule, it must satisfy both the DTE and pCDR requirements. The proposed rule also requires institutions to provide certifications regarding a GE program’s satisfaction of programmatic accreditation and state licensure requirements. Additionally, the proposed rule includes requirements for the reporting of student and program data by institutions to the Department of Education, and expands the disclosure requirements that have been in effect since July 1, 2011. The rule further makes other conforming and technical revisions to the Title IV program participation agreement and related regulations.
|
•
|
Current negotiated rulemaking.
On November 20, 2013, the Department of Education announced another round of negotiated rulemaking to focus on the following issues: cash management of funds provided under the Title IV Federal Student Aid programs, including the use of debit cards and the handling of title IV credit balances; state authorization for programs offered through distance education or correspondence education; state authorization for foreign locations of institutions located in a State; clock to credit hour conversion; definition of “adverse credit” for borrowers in the Federal Direct PLUS Loan Program; and application of the repeat coursework provisions to graduate and undergraduate programs. Negotiations took place February 19 through 21, March 26 through 28, and April 23 through 25, 2014. An additional session was scheduled by the Department for May 19 through 20 of 2014 to examine the remaining issues and take a consensus vote on the entire rule making package.
|
•
|
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 2011-2012. 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 2011 and 2010 cohorts are 10.2% and 7.0%, respectively. This increase is primarily due to the overall economic environment, and an increased percentage of Capella University learners enrolled in a bachelor's program, who generally have a higher default rate compared to graduate learners.
|
|
Three Months Ended March 31,
|
||||||||||||||||||||||
|
$ (in thousands, unaudited)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
2014
|
|
2013
|
|
2014 vs. 2013
|
|
2014
|
|
2013
|
|
2014 vs. 2013
|
||||||||||||
Revenues
|
$
|
105,596
|
|
|
$
|
105,242
|
|
|
$
|
354
|
|
|
0.3
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
0.0
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Instructional costs and services
|
47,300
|
|
|
46,967
|
|
|
333
|
|
|
0.7
|
|
|
44.8
|
|
|
44.6
|
|
|
0.2
|
|
|||
Marketing and promotional
|
25,761
|
|
|
25,501
|
|
|
260
|
|
|
1.0
|
|
|
24.4
|
|
|
24.2
|
|
|
0.2
|
|
|||
Admissions advisory
|
6,927
|
|
|
6,771
|
|
|
156
|
|
|
2.3
|
|
|
6.6
|
|
|
6.4
|
|
|
0.2
|
|
|||
General and administrative
|
10,465
|
|
|
10,828
|
|
|
(363
|
)
|
|
(3.4
|
)
|
|
9.9
|
|
|
10.3
|
|
|
(0.4
|
)
|
|||
Total costs and expenses
|
90,453
|
|
|
90,067
|
|
|
386
|
|
|
0.4
|
|
|
85.7
|
|
|
85.6
|
|
|
0.1
|
|
|||
Operating income
|
15,143
|
|
|
15,175
|
|
|
(32
|
)
|
|
(0.2
|
)
|
|
14.3
|
|
|
14.4
|
|
|
(0.1
|
)
|
|||
Other expense, net
|
(342
|
)
|
|
(200
|
)
|
|
(142
|
)
|
|
71.0
|
|
|
(0.3
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
|||
Income before income taxes
|
14,801
|
|
|
14,975
|
|
|
(174
|
)
|
|
(1.2
|
)
|
|
14.0
|
|
|
14.2
|
|
|
(0.2
|
)
|
|||
Income tax expense
|
5,984
|
|
|
6,220
|
|
|
(236
|
)
|
|
(3.8
|
)
|
|
5.7
|
|
|
5.9
|
|
|
(0.2
|
)
|
|||
Effective tax rate
|
40.4
|
%
|
|
41.5
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
8,817
|
|
|
$
|
8,755
|
|
|
$
|
62
|
|
|
0.7
|
%
|
|
8.3
|
%
|
|
8.3
|
%
|
|
—
|
%
|
•
|
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;
|
•
|
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 are not of a long-term investment nature, as well as gains and losses from foreign currency transactions. These items are recorded in other expense, net in the consolidated statements of income.
|
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
|
||||||
1/1/2014 to 1/31/2014
|
11,875
|
|
|
$
|
65.72
|
|
|
11,875
|
|
|
$
|
48,538,406
|
|
2/1/2014 to 2/28/2014
|
17,874
|
|
|
62.37
|
|
|
17,874
|
|
|
47,423,628
|
|
||
3/1/2014 to 3/31/2014
|
26,420
|
|
|
61.47
|
|
|
26,420
|
|
|
45,799,539
|
|
||
Total
|
56,169
|
|
|
62.66
|
|
|
56,169
|
|
|
45,799,539
|
|
(1)
|
The Company announced its current share repurchase program in July 2008. As of
March 31, 2014
, the Company's Board of Directors has authorized repurchases up to an aggregate amount of
$285.7 million
in value of common stock under the current program. The Board of Directors authorizes the Company to repurchase outstanding shares of common stock, from time to time, depending on market conditions and other considerations. There is no expiration date on the repurchase authorizations and repurchases occur at the Company's discretion.
|
Number
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
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
|
|
Sixth Amendment to Lease, dated as of March 24, 2014 by and between the Registrant and Minneapolis 225 Holdings, Inc.
|
|
Filed electronically.
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed electronically.
|
|
|
|
|
|
31.2
|
|
Certification of 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)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
(1)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
|
|
Filed electronically.
|
(1)
|
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q 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 section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
|
CAPELLA EDUCATION COMPANY
|
|
/s/ J. Kevin Gilligan
|
April 29, 2014
|
J. Kevin Gilligan
Chief Executive Officer
|
(Principal Executive Officer)
|
|
/s/ Steven L. Polacek
|
April 29, 2014
|
Steven L. Polacek
Senior Vice President and Chief Financial Officer
|
(Principal Financial and Accounting Officer)
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q 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/ J. Kevin Gilligan
|
|
J. Kevin Gilligan
|
|
Chief Executive Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q 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;
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4.
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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:
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a)
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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;
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b)
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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)
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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
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d)
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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.
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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):
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a)
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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
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b)
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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/ Steven L. Polacek
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Steven L. Polacek
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Senior Vice President and Chief Financial Officer
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(1)
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ J. Kevin Gilligan
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J. Kevin Gilligan
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Chief Executive Officer
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April 29, 2014
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(1)
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Steven L. Polacek
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Steven L. Polacek
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Senior Vice President and Chief Financial Officer
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April 29, 2014
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