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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)
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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
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o
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Accelerated filer
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x
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Non-accelerated filer
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o
(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Page
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PART I – FINANCIAL INFORMATION
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Item 1
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Item 2
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Item 3
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Item 4
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PART II – OTHER INFORMATION
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Item 1
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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 June 30, 2014
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As of December 31, 2013
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||||
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(Unaudited)
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||||
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ASSETS
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||||
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Current assets:
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||||
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Cash and cash equivalents
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$
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88,455
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$
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124,097
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Marketable securities, current
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35,528
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18,342
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Accounts receivable, net of allowance of $5,711 at June 30, 2014 and $7,091 at December 31, 2013
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14,617
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16,919
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Prepaid expenses and other current assets
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10,050
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10,548
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Deferred income taxes
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2,892
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2,846
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Total current assets
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151,542
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172,752
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Marketable securities, non-current
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34,881
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17,740
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Property and equipment, net
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39,249
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39,993
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Goodwill
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17,089
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16,969
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Intangibles, net
|
2,239
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2,795
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Other assets
|
1,063
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—
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Total assets
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$
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246,063
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$
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250,249
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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||||
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Current liabilities:
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||||
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Accounts payable
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$
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6,890
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$
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7,939
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Accrued liabilities
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28,048
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33,164
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Dividends payable
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4,353
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|
4,346
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Deferred revenue
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10,627
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10,736
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Total current liabilities
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49,918
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56,185
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Deferred rent
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2,716
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3,221
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Other liabilities
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2,974
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2,541
|
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Deferred income taxes
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5,729
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|
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6,283
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Total liabilities
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61,337
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68,230
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Shareholders’ equity:
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Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 12,278 at June 30, 2014 and 12,361 at December 31, 2013
|
123
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124
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Additional paid-in capital
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107,134
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104,546
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Accumulated other comprehensive loss
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(601
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)
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(114
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)
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Retained earnings
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78,070
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77,463
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Total shareholders’ equity
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184,726
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182,019
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Total liabilities and shareholders’ equity
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$
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246,063
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$
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250,249
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Three Months Ended June 30,
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Six Months Ended June 30,
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||||||||||||
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2014
|
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2013
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2014
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2013
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||||||||
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(Unaudited)
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||||||||||||||
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Revenues
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$
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104,832
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$
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103,693
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$
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210,428
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$
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208,935
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Costs and expenses:
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|
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||||||||
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Instructional costs and services
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45,530
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44,900
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92,830
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91,867
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Marketing and promotional
|
23,113
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24,101
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48,874
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49,602
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Admissions advisory
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7,146
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6,727
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14,073
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13,498
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General and administrative
|
10,889
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10,500
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21,354
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21,328
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Lease amendment charges
|
2,690
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|
—
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|
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2,690
|
|
|
—
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|
||||
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Total costs and expenses
|
89,368
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|
|
86,228
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|
|
179,821
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|
|
176,295
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|
||||
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Operating income
|
15,464
|
|
|
17,465
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|
|
30,607
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|
|
32,640
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|
||||
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Other expense, net
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(171
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)
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|
(25
|
)
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|
(513
|
)
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|
(225
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)
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||||
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Income before income taxes
|
15,293
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|
|
17,440
|
|
|
30,094
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|
|
32,415
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|
||||
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Income tax expense
|
6,249
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|
|
7,018
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|
12,233
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|
|
13,238
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||||
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Net income
|
$
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9,044
|
|
|
$
|
10,422
|
|
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$
|
17,861
|
|
|
$
|
19,177
|
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|
Net income per common share:
|
|
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|
|
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|
||||||||
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Basic
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$
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0.74
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|
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$
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0.84
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|
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$
|
1.45
|
|
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$
|
1.55
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Diluted
|
$
|
0.72
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|
$
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0.83
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$
|
1.42
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|
$
|
1.54
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Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
||||||||
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Basic
|
12,293
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|
|
12,394
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|
|
12,317
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|
|
12,394
|
|
||||
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Diluted
|
12,518
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|
|
12,498
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|
|
12,564
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|
|
12,489
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|
||||
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Cash dividends declared per common share
|
$
|
0.35
|
|
|
$
|
—
|
|
|
$
|
0.70
|
|
|
$
|
—
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
|
(Unaudited)
|
||||||||||||||
|
Net income
|
$
|
9,044
|
|
|
$
|
10,422
|
|
|
$
|
17,861
|
|
|
$
|
19,177
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
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Foreign currency translation gain (loss)
|
(228
|
)
|
|
77
|
|
|
(504
|
)
|
|
188
|
|
||||
|
Unrealized gains (losses) on available for sale securities, net of tax
|
44
|
|
|
(24
|
)
|
|
17
|
|
|
(21
|
)
|
||||
|
Comprehensive income
|
$
|
8,860
|
|
|
$
|
10,475
|
|
|
$
|
17,374
|
|
|
$
|
19,344
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2014
|
|
2013
|
||||
|
|
(Unaudited)
|
||||||
|
Operating activities
|
|
|
|
||||
|
Net income
|
$
|
17,861
|
|
|
$
|
19,177
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
|
Provision for bad debts
|
6,900
|
|
|
7,060
|
|
||
|
Depreciation and amortization
|
12,056
|
|
|
13,596
|
|
||
|
Amortization of investment discount/premium
|
817
|
|
|
308
|
|
||
|
Impairment of property and equipment
|
277
|
|
|
229
|
|
||
|
Loss on disposal of property and equipment
|
70
|
|
|
39
|
|
||
|
Share-based compensation
|
2,758
|
|
|
2,606
|
|
||
|
Excess tax benefits from share-based compensation
|
(392
|
)
|
|
(66
|
)
|
||
|
Deferred income taxes
|
(574
|
)
|
|
(43
|
)
|
||
|
Payment of contingent consideration
|
(906
|
)
|
|
—
|
|
||
|
Changes in operating assets and liabilities:
|
|
|
|
||||
|
Accounts receivable
|
(4,550
|
)
|
|
(6,044
|
)
|
||
|
Prepaid expenses and other current assets
|
(235
|
)
|
|
820
|
|
||
|
Accounts payable and accrued liabilities
|
(60
|
)
|
|
6,189
|
|
||
|
Income taxes payable
|
605
|
|
|
(1,486
|
)
|
||
|
Deferred rent
|
(505
|
)
|
|
(713
|
)
|
||
|
Deferred revenue
|
(273
|
)
|
|
(116
|
)
|
||
|
Net cash provided by operating activities
|
33,849
|
|
|
41,556
|
|
||
|
Investing activities
|
|
|
|
||||
|
Capital expenditures
|
(10,814
|
)
|
|
(10,310
|
)
|
||
|
Investment in partnership interest
|
(1,063
|
)
|
|
—
|
|
||
|
Purchases of marketable securities
|
(42,093
|
)
|
|
(22,426
|
)
|
||
|
Maturities of marketable securities
|
6,975
|
|
|
7,135
|
|
||
|
Net cash used in investing activities
|
(46,995
|
)
|
|
(25,601
|
)
|
||
|
Financing activities
|
|
|
|
||||
|
Excess tax benefits from share-based compensation
|
392
|
|
|
66
|
|
||
|
Net proceeds from exercise of stock options
|
1,638
|
|
|
524
|
|
||
|
Payment of dividends
|
(8,659
|
)
|
|
—
|
|
||
|
Repurchases of common stock
|
(9,926
|
)
|
|
(2,137
|
)
|
||
|
Payment of contingent consideration
|
(5,945
|
)
|
|
—
|
|
||
|
Net cash used in financing activities
|
(22,500
|
)
|
|
(1,547
|
)
|
||
|
Effect of foreign exchange rates on cash
|
4
|
|
|
(47
|
)
|
||
|
Net increase (decrease) in cash and cash equivalents
|
(35,642
|
)
|
|
14,361
|
|
||
|
Cash and cash equivalents at beginning of period
|
124,097
|
|
|
93,220
|
|
||
|
Cash and cash equivalents at end of period
|
$
|
88,455
|
|
|
$
|
107,581
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
||||
|
Income taxes paid
|
$
|
12,539
|
|
|
$
|
14,770
|
|
|
Noncash transactions:
|
|
|
|
||||
|
Purchase of equipment included in accounts payable and accrued liabilities
|
$
|
1,988
|
|
|
$
|
207
|
|
|
Declaration of cash dividend to be paid
|
$
|
4,354
|
|
|
$
|
—
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Numerator:
|
|
|
|
|
|
|
|
||||||||
|
Net income
|
$
|
9,044
|
|
|
$
|
10,422
|
|
|
$
|
17,861
|
|
|
$
|
19,177
|
|
|
Denominator:
|
|
|
|
|
|
|
|
||||||||
|
Denominator for basic net income per common share— weighted average shares outstanding
|
12,293
|
|
|
12,394
|
|
|
12,317
|
|
|
12,394
|
|
||||
|
Effect of dilutive stock options, restricted stock, and market stock units
|
225
|
|
|
104
|
|
|
247
|
|
|
95
|
|
||||
|
Denominator for diluted net income per common share— weighted average shares outstanding
|
12,518
|
|
|
12,498
|
|
|
12,564
|
|
|
12,489
|
|
||||
|
Basic net income per common share
|
$
|
0.74
|
|
|
$
|
0.84
|
|
|
$
|
1.45
|
|
|
$
|
1.55
|
|
|
Diluted net income per common share
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
1.42
|
|
|
$
|
1.54
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||
|
Anti-dilutive securities excluded from diluted earnings per share calculation
|
239
|
|
|
718
|
|
|
204
|
|
|
692
|
|
|
|
As of June 30, 2014
|
||||||||||||||
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
|
Tax-exempt municipal securities
|
$
|
60,853
|
|
|
$
|
70
|
|
|
$
|
(6
|
)
|
|
$
|
60,917
|
|
|
Corporate debt securities
|
9,485
|
|
|
7
|
|
|
—
|
|
|
9,492
|
|
||||
|
Total
|
$
|
70,338
|
|
|
$
|
77
|
|
|
$
|
(6
|
)
|
|
$
|
70,409
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
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 June 30, 2014
|
|
As of December 31, 2013
|
||||
|
Due within one year
|
$
|
35,528
|
|
|
$
|
18,342
|
|
|
Due after one year through five years
|
34,881
|
|
|
17,740
|
|
||
|
Total
|
$
|
70,409
|
|
|
$
|
36,082
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Maturities of marketable securities
|
$
|
4,175
|
|
|
$
|
750
|
|
|
$
|
6,975
|
|
|
$
|
7,135
|
|
|
Total
|
$
|
4,175
|
|
|
$
|
750
|
|
|
$
|
6,975
|
|
|
$
|
7,135
|
|
|
|
|
Fair Value Measurements as of June 30, 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
|
|
$
|
56,668
|
|
|
$
|
56,668
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market funds
|
|
28,907
|
|
|
28,907
|
|
|
—
|
|
|
—
|
|
||||
|
Variable rate demand notes
|
|
2,880
|
|
|
2,880
|
|
|
—
|
|
|
—
|
|
||||
|
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
|
Tax-exempt municipal securities
|
|
60,917
|
|
|
—
|
|
|
60,917
|
|
|
—
|
|
||||
|
Corporate debt securities
|
|
9,492
|
|
|
—
|
|
|
9,492
|
|
|
—
|
|
||||
|
Total assets at fair value on a recurring basis:
|
|
$
|
158,864
|
|
|
$
|
88,455
|
|
|
$
|
70,409
|
|
|
$
|
—
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
||||||||
|
Accrued liabilities:
|
|
|
|
|
|
|
|
|
||||||||
|
RDI contingent consideration
|
|
$
|
6,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,304
|
|
|
Total liabilities at fair value on a recurring basis:
|
|
$
|
6,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,304
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Balance, beginning of period
|
$
|
6,629
|
|
|
$
|
6,306
|
|
|
$
|
6,304
|
|
|
$
|
6,252
|
|
|
Increase (decrease) in RDI contingent consideration liability
|
222
|
|
|
(120
|
)
|
|
547
|
|
|
(66
|
)
|
||||
|
Payment of RDI contingent consideration liability
|
(6,851
|
)
|
|
—
|
|
|
(6,851
|
)
|
|
—
|
|
||||
|
Balance, end of period
|
$
|
—
|
|
|
$
|
6,186
|
|
|
$
|
—
|
|
|
$
|
6,186
|
|
|
|
As of June 30, 2014
|
|
As of December 31, 2013
|
||||
|
Accrued compensation and benefits
|
$
|
9,113
|
|
|
$
|
10,333
|
|
|
Accrued instructional
|
5,166
|
|
|
5,043
|
|
||
|
Accrued vacation
|
1,974
|
|
|
1,040
|
|
||
|
Accrued invoices
|
6,206
|
|
|
7,240
|
|
||
|
RDI contingent consideration
|
—
|
|
|
6,304
|
|
||
|
Lease amendment
|
2,885
|
|
|
—
|
|
||
|
Other
|
2,704
|
|
|
3,204
|
|
||
|
Total
|
$
|
28,048
|
|
|
$
|
33,164
|
|
|
2014
|
$
|
3,499
|
|
|
2015
(1)
|
8,146
|
|
|
|
2016
|
6,185
|
|
|
|
2017
|
6,009
|
|
|
|
2018
|
4,878
|
|
|
|
2019 and thereafter
|
—
|
|
|
|
Total
|
$
|
28,717
|
|
|
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
|
246,262
|
|
|
|
Residual authorization
|
$
|
39,400
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2014
|
|
2013
|
||||
|
Shares repurchased
|
166
|
|
|
55
|
|
||
|
Total consideration, excluding commissions
|
$
|
9,919
|
|
|
$
|
2,135
|
|
|
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
|
|
|
May 6, 2014
|
|
June 11, 2014
|
|
July 10, 2014
|
|
$
|
0.35
|
|
|
$
|
4,354
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
Instructional costs and services
|
$
|
60
|
|
|
$
|
294
|
|
|
$
|
308
|
|
|
$
|
761
|
|
|
Marketing and promotional
|
(46
|
)
|
|
94
|
|
|
47
|
|
|
243
|
|
||||
|
Admissions advisory
|
16
|
|
|
10
|
|
|
30
|
|
|
26
|
|
||||
|
General and administrative
|
1,281
|
|
|
626
|
|
|
2,373
|
|
|
1,576
|
|
||||
|
Share-based compensation expense included in operating income
|
1,311
|
|
|
1,024
|
|
|
2,758
|
|
|
2,606
|
|
||||
|
Tax benefit from share-based compensation expense
|
325
|
|
|
379
|
|
|
839
|
|
|
964
|
|
||||
|
Share-based compensation expense, net of tax
|
$
|
986
|
|
|
$
|
645
|
|
|
$
|
1,919
|
|
|
$
|
1,642
|
|
|
|
Foreign Currency Translation Loss
|
|
Unrealized Gain on Marketable Securities
|
|
Accumulated Other Comprehensive Loss
(1)
|
||||||
|
Beginning balance, December 31, 2013
|
$
|
(142
|
)
|
|
$
|
28
|
|
|
$
|
(114
|
)
|
|
Current period change
|
(504
|
)
|
|
17
|
|
|
(487
|
)
|
|||
|
Ending balance, June 30, 2014
|
$
|
(646
|
)
|
|
$
|
45
|
|
|
$
|
(601
|
)
|
|
(1)
|
Accumulated other comprehensive loss is presented net of tax of
$26 thousand
and
$17 thousand
as of
June 30, 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 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:
|
|
•
|
Optimizing and enhancing 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, implementing, and optimizing 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 persist by offering learner success grants to new learners who meet admissions requirements, enroll, apply within certain timeframes, and stay continuously enrolled; 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.
|
|
•
|
PhD Completion
. 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 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.
|
|
•
|
New enrollment and persistence.
New enrollment is an important indicator of revenue growth and Company profitability. Overall, new enrollments grew approximately 11 percent in the second quarter of 2014 compared to 12.7 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 online 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, we accepted notice to activate an amendment to our current lease for our premises at 225 South Sixth Street in Minneapolis, MN. Pursuant to the amendment, in June 2014, we returned 54,940 square feet of our previously leased space of 426,165 square feet. Employees located in this area were relocated to other areas within our remaining space. We recorded a charge of approximately $2.6 million during the three months ended June 30, 2014 in connection with this amendment, which is included within the lease amendment charge line item of the consolidated statements of income. 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.
|
|
•
|
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 19-21, March 26-28, and April 23-25, 2014. An additional session took place May 19-20, 2014 to examine the remaining issues and take a consensus vote on the entire rule making package. The Committee did not reach consensus at this session, and the development of the draft rule shifted back to the Department of Education.
|
|
•
|
Program Participation Agreement.
Capella University's Program Participation Agreement (PPA) with the Department of Education expired on June 30, 2014. The University applied for reapproval (recertification) in March 2014, and as of July 1, 2014 it is operating on a Month to Month Fully Certified approval status. The Department of Education’s School Participation Division has informed us that it does not foresee any problems with approving the institutional PPA as Fully Certified once the Department of Education's Direct Assessment Work Group acts upon pending FlexPath programs for Title IV eligibility.
|
|
•
|
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 June 30,
|
||||||||||||||||||||||
|
|
$ (in thousands, unaudited)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
|
2014
|
|
2013
|
|
2014 vs. 2013
|
|
2014
|
|
2013
|
|
2014 vs. 2013
|
||||||||||||
|
Revenues
|
$
|
104,832
|
|
|
$
|
103,693
|
|
|
$
|
1,139
|
|
|
1.1
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
0.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Instructional costs and services
|
45,530
|
|
|
44,900
|
|
|
630
|
|
|
1.4
|
|
|
43.4
|
|
|
43.3
|
|
|
0.1
|
|
|||
|
Marketing and promotional
|
23,113
|
|
|
24,101
|
|
|
(988
|
)
|
|
(4.1
|
)
|
|
22.0
|
|
|
23.3
|
|
|
(1.3
|
)
|
|||
|
Admissions advisory
|
7,146
|
|
|
6,727
|
|
|
419
|
|
|
6.2
|
|
|
6.8
|
|
|
6.5
|
|
|
0.3
|
|
|||
|
General and administrative
|
10,889
|
|
|
10,500
|
|
|
389
|
|
|
3.7
|
|
|
10.4
|
|
|
10.1
|
|
|
0.3
|
|
|||
|
Lease amendment charges
|
2,690
|
|
|
—
|
|
|
2,690
|
|
|
100.0
|
|
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|||
|
Total costs and expenses
|
89,368
|
|
|
86,228
|
|
|
3,140
|
|
|
3.6
|
|
|
85.2
|
|
|
83.2
|
|
|
2.0
|
|
|||
|
Operating income
|
15,464
|
|
|
17,465
|
|
|
(2,001
|
)
|
|
(11.5
|
)
|
|
14.8
|
|
|
16.8
|
|
|
(2.0
|
)
|
|||
|
Other expense, net
|
(171
|
)
|
|
(25
|
)
|
|
(146
|
)
|
|
584.0
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|||
|
Income before income taxes
|
15,293
|
|
|
17,440
|
|
|
(2,147
|
)
|
|
(12.3
|
)
|
|
14.6
|
|
|
16.8
|
|
|
(2.2
|
)
|
|||
|
Income tax expense
|
6,249
|
|
|
7,018
|
|
|
(769
|
)
|
|
(11.0
|
)
|
|
6.0
|
|
|
6.8
|
|
|
(0.8
|
)
|
|||
|
Effective tax rate
|
40.9
|
%
|
|
40.2
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income
|
$
|
9,044
|
|
|
$
|
10,422
|
|
|
$
|
(1,378
|
)
|
|
(13.2
|
)%
|
|
8.6
|
%
|
|
10.0
|
%
|
|
(1.4
|
)%
|
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||
|
|
$ (in thousands, unaudited)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
|
2014
|
|
2013
|
|
2014 vs. 2013
|
|
2014
|
|
2013
|
|
2014 vs. 2013
|
||||||||||||
|
Revenues
|
$
|
210,428
|
|
|
$
|
208,935
|
|
|
$
|
1,493
|
|
|
0.7
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
0.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Instructional costs and services
|
92,830
|
|
|
91,867
|
|
|
963
|
|
|
1.0
|
|
|
44.1
|
|
|
44.0
|
|
|
0.1
|
|
|||
|
Marketing and promotional
|
48,874
|
|
|
49,602
|
|
|
(728
|
)
|
|
(1.5
|
)
|
|
23.2
|
|
|
23.7
|
|
|
(0.5
|
)
|
|||
|
Admissions advisory
|
14,073
|
|
|
13,498
|
|
|
575
|
|
|
4.3
|
|
|
6.7
|
|
|
6.5
|
|
|
0.2
|
|
|||
|
General and administrative
|
21,354
|
|
|
21,328
|
|
|
26
|
|
|
0.1
|
|
|
10.1
|
|
|
10.2
|
|
|
(0.1
|
)
|
|||
|
Lease amendment charges
|
2,690
|
|
|
—
|
|
|
2,690
|
|
|
100.0
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
|||
|
Total costs and expenses
|
179,821
|
|
|
176,295
|
|
|
3,526
|
|
|
2.0
|
|
|
85.4
|
|
|
84.4
|
|
|
1.0
|
|
|||
|
Operating income
|
30,607
|
|
|
32,640
|
|
|
(2,033
|
)
|
|
(6.2
|
)
|
|
14.6
|
|
|
15.6
|
|
|
(1.0
|
)
|
|||
|
Other expense, net
|
(513
|
)
|
|
(225
|
)
|
|
(288
|
)
|
|
128.0
|
|
|
(0.3
|
)
|
|
(0.1
|
)
|
|
(0.2
|
)
|
|||
|
Income before income taxes
|
30,094
|
|
|
32,415
|
|
|
(2,321
|
)
|
|
(7.2
|
)
|
|
14.3
|
|
|
15.5
|
|
|
(1.2
|
)
|
|||
|
Income tax expense
|
12,233
|
|
|
13,238
|
|
|
(1,005
|
)
|
|
(7.6
|
)
|
|
5.8
|
|
|
6.3
|
|
|
(0.5
|
)
|
|||
|
Effective tax rate
|
40.6
|
%
|
|
40.8
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Net income
|
$
|
17,861
|
|
|
$
|
19,177
|
|
|
$
|
(1,316
|
)
|
|
(6.9
|
)%
|
|
8.5
|
%
|
|
9.2
|
%
|
|
(0.7
|
)%
|
|
•
|
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
|
||||||
|
4/1/2014 to 4/30/2014
|
28,355
|
|
|
$
|
58.25
|
|
|
28,355
|
|
|
$
|
44,147,780
|
|
|
5/1/2014 to 5/31/2014
|
60,105
|
|
|
58.95
|
|
|
60,105
|
|
|
40,604,405
|
|
||
|
6/1/2014 to 6/30/2014
|
21,575
|
|
|
55.84
|
|
|
21,575
|
|
|
39,399,583
|
|
||
|
Total
|
110,035
|
|
|
58.16
|
|
|
110,035
|
|
|
39,399,583
|
|
||
|
(1)
|
The Company announced its current share repurchase program in July 2008. As of
June 30, 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
|
|
Capella Education Company 2014 Equity Incentive Plan
|
|
Incorporated by reference to Exhibit A to the Company’s Definitive Proxy Statement for its 2014 annual meeting of shareholders filed with the SEC on March 24, 2014 (File No. 1-33140).
|
|
|
|
|
|
|
|
10.2
|
|
Form of Restricted Stock Unit Award Agreement (Director) under the Capella Education Company 2014 Equity Incentive Plan
|
|
Filed electronically.
|
|
|
|
|
|
|
|
10.3
|
|
Form of Restricted Stock Unit Award Agreement (Section (16(b) Officer) under the Capella Education Company 2014 Equity Incentive Plan
|
|
Filed electronically.
|
|
|
|
|
|
|
|
10.4
|
|
Form of Non-Statutory Stock Option Award Agreement (Section (16(b) Officer) under the Capella Education Company 2014 Equity Incentive Plan
|
|
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
|
|
July 29, 2014
|
|
J. Kevin Gilligan
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
|
|
/s/ Steven L. Polacek
|
|
July 29, 2014
|
|
Steven L. Polacek
Senior Vice President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
1.
|
Grant of Restricted Stock Units
. You have been granted, subject to the terms and conditions in this Agreement and the Plan, an Award of the number of Units specified on the cover page of this Agreement, each representing the right to receive one Share of the Company’s common stock. The Units granted to you will be credited to an account in your name maintained by the ECompany. This account shall be unfunded and maintained for book-keeping purposes only, with the Units simply representing an unfunded and unsecured obligation of the Company.
|
|
2.
|
Restrictions on Units
. Neither this Award nor the Units subject to this Award may be sold, assigned, transferred, exchanged or encumbered other than (i) a transfer upon your death in accordance with your will, by the laws of descent and distribution or pursuant to a beneficiary designation submitted in accordance with Section 6(d) of the Plan, or (ii) pursuant to a qualified domestic relations order. Following any such transfer, this Award shall continue to be subject to the same terms and conditions that were applicable to this Award immediately prior to its transfer. Any attempted transfer in violation of this Section 2 shall be of no effect and shall result in the forfeiture of all Units. The Units and your right to receive Shares in settlement of the Units under this Agreement shall be subject to forfeiture as provided in Section 4 until satisfaction of the vesting conditions set forth in Section 3.
|
|
3.
|
Vesting of Units
.
|
|
4.
|
Effect of Termination of Service
. Except as otherwise provided in Section 3(b) of this Agreement, if you cease to be a Service Provider prior to any Vesting Date(s) specified on the cover page of this Agreement, you will forfeit all unvested Units.
|
|
5.
|
Dividend Equivalents
. In the event the Company shall pay cash dividends on its Shares on or after the date of this Agreement, the Company shall credit, as of the dividend record date, an amount of cash dividend equivalents to your account. The amount of the dividend equivalents credited shall be determined by multiplying the number of Units credited to your account as of the dividend record date pursuant to this Agreement times the dollar amount of the cash dividend per Share. Your right to receive such accrued dividend equivalents shall vest, and the amount of the accrued dividend equivalents shall be paid in cash, to the same extent and at the same time as the underlying Units to which the dividend equivalents relate, as provided in Sections 3 and 6 of this Agreement. No interest shall accrue on any unpaid dividend equivalents. Any dividend equivalents accrued on Units that are forfeited in accordance with this Agreement shall also be forfeited.
|
|
6.
|
Settlement and Payment of Units
. After any Units vest pursuant to Section 3, the Company shall cause to be issued and delivered to you (or your permitted transferee) one Share in payment and settlement of each vested Unit (i) as soon as administratively practicable (but no later than the later of (a) the end of the calendar year in which the Units vest, or (b) the 15
th
day of the third calendar month after the date the Units vest, and you will have no power to affect such timing)
|
|
7.
|
No Shareholder Rights
. The Units subject to this Award do not entitle you (or any permitted transferee) to any rights of a shareholder of the Company’s common stock. You will not have any of the rights of a shareholder of the Company in connection with the grant of Units subject to this Agreement unless and until Shares are issued to you upon settlement of the Units as provided in Section 6.
|
|
8.
|
Discontinuance of Service
. This Agreement does not give you a right to continued Service with the Company or any Affiliate, and the Company or any such Affiliate may terminate your Service at any time and otherwise deal with you without regard to the effect it may have upon you under this Agreement.
|
|
9.
|
Governing Plan Document
. This Agreement and Award are subject to all the provisions of the Plan, and to all interpretations, rules and regulations which may, from time to time, be adopted and promulgated by the Board pursuant to the Plan. If there is any conflict or inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.
|
|
10.
|
Choice of Law
. This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without regard to its conflicts or choice of law principles).
|
|
11.
|
Binding Effect
. This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the successors and assigns of the Company.
|
|
12.
|
Notices
. Every notice or other communication relating to this Agreement shall be in writing and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided. Unless and until some other address is so designated, all notices or communications by you to the Company shall be mailed or delivered to the Company at its office at 225 South Sixth Street, 9
th
Floor, Minneapolis, MN 55402, fax 612.977.7050, and all notices or communications by the Company to you may be given to you personally or may be mailed to you at the address indicated in the Company's records as your most recent mailing address.
|
|
13.
|
Section 409A of the Code
. The provisions of this Agreement shall be interpreted and construed in a manner intended to comply with Section 409A of the Code.
|
|
•
|
Any election to defer the settlement of RSUs granted to me pursuant to this Deferral Election Form means that my RSUs will not be settled upon the vesting date(s) set forth in the award agreement, which is the default settlement date if I do not make an election to defer hereunder;
|
|
•
|
Any such election will be irrevocable as of December 31, _____; and
|
|
•
|
My vested RSUs will be settled in a single lump sum payment on the settlement date I have chosen.
|
|
Name of Participant:**[_______________________]
|
||
|
Number of Units:**[_______]
|
Grant Date:__________, 20__
|
|
|
Vesting and Exercise Schedule:
|
||
|
Dates
|
Number of Units That Vest
|
|
|
1.
|
Grant of Restricted Stock Units
. You have been granted, subject to the terms and conditions in this Agreement and the Plan, an Award of the number of Units specified on the cover page of this Agreement, each representing the right to receive one Share of the Company’s common stock. The Units granted to you will be credited to an account in your name maintained by the Company. This account shall be unfunded and maintained for book-keeping purposes only, with the Units simply representing an unfunded and unsecured obligation of the Company.
|
|
2.
|
Restrictions on Units
. Neither this Award nor the Units subject to this Award may be sold, assigned, transferred, exchanged or encumbered other than (i) a transfer upon your death in accordance with your will, by the laws of descent and distribution or pursuant to a beneficiary designation submitted in accordance with Section 6(d) of the Plan, or (ii) pursuant to a qualified domestic relations order. Following any such transfer, this Award shall continue to be subject to the same terms and conditions that were applicable to this Award immediately prior to its transfer. Any attempted transfer in violation of this Section 2 shall be of no effect and shall result in the forfeiture of all Units. The Units and your right to receive Shares in settlement of the Units under this Agreement shall be subject to forfeiture as provided in Section 4 until satisfaction of the vesting conditions set forth in Section 3.
|
|
3.
|
Vesting of Units
.
|
|
4.
|
Effect of Termination of Service
. Except as otherwise provided in Section 3(b) of this Agreement, if you cease to be a Service Provider prior to any Vesting Date(s) specified on the cover page of this Agreement, you will forfeit all unvested Units.
|
|
5.
|
Dividend Equivalents
. In the event the Company shall pay cash dividends on its Shares on or after the date of this Agreement, the Company shall credit, as of the dividend record date, an amount of cash dividend equivalents to your account. The amount of the dividend equivalents credited shall be determined by multiplying the number of Units credited to your account as of the dividend record date pursuant to this Agreement times the dollar amount of the cash dividend per Share. Your right to receive such accrued dividend equivalents shall vest, and the amount of the accrued dividend equivalents shall be paid in cash, to the same extent and at the same time as the underlying Units to which the dividend equivalents relate, as provided in Sections 3 and 6 of this Agreement. No interest shall accrue on any unpaid dividend equivalents. Any dividend equivalents accrued on Units that are forfeited in accordance with this Agreement shall also be forfeited.
|
|
6.
|
Settlement and Payment of Units
. After any Units vest pursuant to Section 3, the Company shall, as soon as administratively practicable (but no later than the later of (i) the end of the calendar year in which the Units vest, or (ii) the 15
th
day of the third calendar month after the date the Units vest, and you will have no power to affect such timing), cause to be issued and delivered to you (or your permitted transferee) one Share in payment and settlement of each vested Unit. If the Units that vest and become payable include a fractional Unit, the Company will round the number of vested Units to the nearest whole Unit prior to delivery of Shares in settlement thereof. Delivery of the Shares shall be effected by the issuance of a stock certificate, by an appropriate entry in the stock register maintained by the Company’s transfer agent with a notice of issuance provided, or by the electronic delivery of the Shares to a designated brokerage account, and shall be subject to the tax withholding provisions of Section 7 of this Agreement and compliance with all applicable legal requirements, including compliance with the requirements of applicable federal and state securities laws, and shall be in complete satisfaction and settlement of such vested Units. The Company will pay any original issue or transfer taxes with respect to the issuance and delivery of the Shares to you, and all fees and expenses incurred by it in connection
|
|
7.
|
Tax Consequences and Withholding
. As a condition precedent to the delivery of Shares in settlement of the Units, you are required to make arrangements acceptable to the Company for payment of any federal, state, local or foreign withholding taxes that may be due as a result of the settlement of vested Units. You hereby authorize the Company (or any Affiliate) to withhold from payroll or other amounts payable to you any sums required to satisfy such withholding tax obligations, and otherwise agree to satisfy such obligations in accordance with the provisions of Section 14 of the Plan. If you wish to satisfy some or all of such withholding tax obligations by delivering Shares you already own or by having the Company retain a portion of the Shares that would otherwise be delivered to you in settlement of vested Units, you must make such a request which shall be subject to approval by the Committee. Delivery of Shares upon the vesting of Units is subject to the satisfaction of applicable withholding tax obligations.
|
|
8.
|
No Shareholder Rights
. The Units subject to this Award do not entitle you (or any permitted transferee) to any rights of a shareholder of the Company’s common stock. You will not have any of the rights of a shareholder of the Company in connection with the grant of Units subject to this Agreement unless and until Shares are issued to you upon settlement of the Units as provided in Section 6.
|
|
9.
|
Discontinuance of Service
. This Agreement does not give you a right to continued Service with the Company or any Affiliate, and the Company or any such Affiliate may terminate your Service at any time and otherwise deal with you without regard to the effect it may have upon you under this Agreement.
|
|
10.
|
Governing Plan Document
. This Agreement and Award are subject to all the provisions of the Plan, and to all interpretations, rules and regulations which may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict or inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.
|
|
11.
|
Choice of Law
. This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without regard to its conflicts or choice of law principles).
|
|
12.
|
Binding Effect
. This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the successors and assigns of the Company.
|
|
13.
|
Notices
. Every notice or other communication relating to this Agreement shall be in writing and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided. Unless and until some other address is so designated, all notices or communications by you to the Company shall be mailed or delivered to the Company at its office at 225 South Sixth Street, 9
th
Floor, Minneapolis, MN 55402, fax 612.977.7050, and all notices or communications by the Company to you may be given to you personally or may be mailed to you at the address indicated in the Company's records as your most recent mailing address.
|
|
14.
|
Forfeiture Events
.
|
|
(1)
|
perform services for any Competitive Business as employee, consultant, contractor or otherwise;
|
|
(2)
|
solicit or attempt to solicit any employee or independent contractor of the Company to cease working for the Company;
|
|
(3)
|
use or disclose to any person any Confidential Information for any purpose;
|
|
(4)
|
take any action that might divert any opportunity from the Company or any of its Affiliates, successors or assigns (the “Related Parties”) that is within the scope of the present or future operations or business of any Related Parties;
|
|
(5)
|
contact, call upon or solicit any customer of the Company, or attempt to divert or take away from the Company the business of any of its customers;
|
|
(6)
|
contact, call upon or solicit any prospective customer of the Company that you became aware of or were introduced to in the course of your duties for the Company, or otherwise divert or take away from the Company the business of any prospective customer of the Company; or
|
|
(7)
|
engage in any activity that is harmful to the interests of the Company, including, without limitation, any conduct during the term of your Service that violates the Company’s codes of conduct or other policies.
|
|
(b)
|
If the Company determines that you violated any provisions of Section 14(a) above during the Restricted Period, you agree that:
|
|
(1)
|
any Units that have not vested as of the date of such determination shall be immediately forfeited; and
|
|
(2)
|
you shall automatically forfeit any rights you may have with respect to the Units as of the date of such determination.
|
|
(c)
|
The foregoing remedies set forth in Section 14(b) shall not be the Company’s exclusive remedies. The Company reserves all other rights and remedies available to it at law or in equity.
|
|
(d)
|
The Company may exercise its right to provide notice of its determination and forfeiture of Units within ninety days after discovery of such an occurrence but in no event later than fifteen months after your termination of Service.
|
|
(e)
|
For purposes of this Section 14, the following terms shall have the meanings set forth below:
|
|
(1)
|
“Competitive Business” shall mean any person, corporation, not-for-profit organization, or other entity that provides, develops, sells, or markets on-line credit-granting educational products or services in any country in which the Company did business or had customers at any time during the last 12 months of your Service. In the case of an organization that provides, develops, sells, or markets on-line credit-granting educational products or services within or from a distinct, separate division or unit of the organization (the “On-Line Unit”) and also provides, develops, sells, or markets credit-granting educational products or services through other means within other distinct, separate divisions or units, the term “Competitive Business” shall be limited to the On-Line Unit, and shall not apply to the organization as a whole.
|
|
(2)
|
“Confidential Information” means information proprietary to the Company and not generally known (including trade secret information) about the Company’s customers, products, services, personnel, pricing, sales strategy, technology, methods, processes, research, development, finances, systems, techniques, accounting, purchasing, and business strategies. All information disclosed to you or to which you obtain access, whether originated by you or by others, during the period of your Service, shall be presumed to be Confidential Information if it is treated by the Company as being Confidential Information or if you have a reasonable basis to believe it to be Confidential Information.
|
|
15.
|
Incentive Compensation Recoupment
. This Award is subject to the Company’s Policy Regarding Executive Compensation Recoupment, as adopted by the Board on February 23, 2011.
|
|
16.
|
Section 409A of the Code
. The provisions of this Agreement shall be interpreted and construed in a manner intended to comply with Section 409A of the Code.
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Name of Optionee:**[_______________________]
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No. of Shares Covered:**[_______]
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Grant Date:__________, 20__
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Exercise Price Per Share:$**[______]
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Expiration Date:__________, 20__
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Vesting and Exercise Schedule:
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Dates
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Number of Shares as to Which
Option Becomes Vested and Exercisable
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1.
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Non-Qualified Stock Option
. This Option is
not
intended to be an “incentive stock option” within the meaning of Section 422 of the Code and will be interpreted accordingly.
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2.
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Vesting and Exercisability of Option
.
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(a)
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Scheduled Vesting
. This Option will vest and become exercisable as to the number of Shares and on the dates specified in the Vesting and Exercise Schedule on the cover page to this Agreement, so long as your Service to the Company and its Affiliates does not end. The Vesting and Exercise Schedule is cumulative, meaning that to the extent the Option has not already been exercised and has not expired, terminated or been cancelled, you or the person otherwise entitled to exercise the Option as provided in this Agreement may at any time purchase all or any portion of the Shares that may then be purchased under that Schedule.
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(b)
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Accelerated or Continued Vesting
. Vesting and exercisability of this Option (i) will be accelerated as provided in Section 6(e) of the Plan if your Service terminates due to your death or Disability prior to the expiration of the Option; (ii) will continue as provided in Section 6(e) of the Plan if your Service terminates due to your Retirement prior to the expiration of the Option; and (iii) will or may be accelerated in connection with a Change of Control under the circumstances and to the extent described in Sections 12(b) and 12(c) of the Plan, or at the discretion of the Committee in accordance with Section 3(b)(2) of the Plan.
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3.
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Expiration
. This Option will expire and will no longer be exercisable at 4:00 p.m. Central Time on the earliest of:
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(a)
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the Expiration Date specified on the cover page of this Agreement;
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(b)
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the last day of any applicable period specified in Section 6(e), Section 12(b) or Section 12(c) of the Plan following your termination of Service during which this Option may be exercised;
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(c)
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the date (if any) fixed for termination or cancellation of this Option pursuant to Sections 12(b) or 12(c) of the Plan;
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(d)
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the date of your termination of Service for Cause; or
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(e)
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the date of any determination made by the Company pursuant to Section 16(b) of this Agreement.
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4.
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Service Requirement
. Except as otherwise provided in Section 3(b) of this Agreement, this Option may be exercised only while you continue to provide Service to the Company or any Affiliate, and only if you have continuously provided such Service since the Grant Date.
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5.
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Exercise of Option
. Subject to Section 4, the vested and exercisable portion of this Option may be exercised by delivering written or electronic notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company’s Corporate Secretary or the party designated by such officer (which written or electronic notice will be in such form as may be provided by the Company and shall state the number of Shares to be purchased, the manner in which the exercise price will be paid and the manner in which the Shares to be acquired are to be delivered, and must be signed or otherwise authenticated by the person exercising this Option), or by such other means as the Committee may approve. If the person exercising this Option is not you, he/she also must submit appropriate proof of his/her right to exercise this Option.
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6.
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Payment of Exercise Price
. When you submit your notice of exercise, you must include payment of the exercise price of the Shares being purchased through one or a combination of the following methods:
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(c)
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by delivery (either actually or by attestation) to the Company or its designated agent of unencumbered Shares having an aggregate Fair Market Value on the date of exercise equal to the purchase price of the Shares for which the Option is being exercised; or
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(d)
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by directing the Company to withhold a number of Shares otherwise issuable to you upon such exercise having an aggregate Fair Market Value on the date of exercise equal to the purchase price of the Shares for which the Option is being exercised.
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7.
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Withholding Taxes
. You may not exercise this Option in whole or in part unless you make arrangements acceptable to the Company for payment of any federal, state, local or foreign withholding taxes that may be due as a result of the exercise of this Option. You hereby authorize the Company (or any Affiliate) to withhold from payroll or other amounts payable to you any sums required to satisfy such withholding tax obligations, and otherwise agree to satisfy such obligations in accordance with the provisions of Section 14 of the Plan. If you wish to satisfy some or all of such withholding tax obligations by delivering Shares you already own or by having the Company retain a portion of the Shares being acquired upon exercise of the Option, you must make such a request which shall be subject to approval by the Committee. Delivery of Shares upon exercise of this Option is subject to the satisfaction of applicable withholding tax obligations.
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8.
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Delivery of Shares
. As soon as practicable after the Company receives the exercise notice and payment of the exercise price provided for above, and determines that all conditions to exercise, including Section 7 of this Agreement, have been satisfied, it will arrange for the issuance and delivery of the Shares being purchased. Delivery of the Shares shall be effected by the issuance of a stock certificate, by an appropriate entry in the stock register maintained by the Company’s transfer agent with a notice of issuance provided, or by the electronic delivery of the Shares to a designated brokerage account. The Company will pay any original issue or transfer taxes with respect to the issuance and delivery of the Shares to you, and all fees and expenses incurred by it in connection therewith. All Shares so issued will be fully paid and nonassessable. Notwithstanding anything to the contrary in this Agreement, the Company will not be required to issue or deliver any Shares prior to the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation as the Company may determine to be necessary or desirable.
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9.
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Transfer of Option
. During your lifetime, only you (or your guardian or legal representative in the event of legal incapacity) may exercise this Option except in the case of a transfer described in the next sentence. You may not assign or transfer this Option other than (i) a transfer upon your death in accordance with your will, by the laws of descent and distribution or pursuant to a beneficiary designation submitted in accordance with Section 6(d) of the Plan, (ii) pursuant to a qualified domestic relations order, or (iii) by gift to any “family member” (as defined in General Instruction A(5) to Form S-8 under the Securities Act of 1933) of yours. Following any such 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 permitted 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.
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10.
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No Shareholder Rights Before Exercise
. Neither you nor any permitted transferee of this Option will have any of the rights of a shareholder of the Company with respect to any Shares subject to this Option unless and until Shares are issued and delivered to you upon exercise of the Option as provided in Section 8.
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11.
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Discontinuance of Service
. This Agreement does not give you a right to continued Service with the Company or any Affiliate, and the Company or any such Affiliate may terminate your Service at any time and otherwise deal with you without regard to the effect it may have upon you under this Agreement.
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12.
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Governing Plan Document
. This Agreement and Option are subject to all the provisions of the Plan, and to all interpretations, rules and regulations which may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any conflict or inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.
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13.
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Choice of Law
. This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without regard to its conflicts or choice of law principles).
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14.
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Binding Effect
. This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the successors and assigns of the Company.
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15.
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Notices
. Every notice or other communication relating to this Agreement shall be in writing and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided. Unless and until some other address is so designated, all notices or communications by you to the Company shall be mailed or delivered to the Company at its office at 225 South Sixth Street, 9
th
Floor, Minneapolis, MN 55402, fax 612.977.7050, and all notices or communications by the Company to you may be given to you personally or may be mailed to you at the address indicated in the Company's records as your most recent mailing address.
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16.
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Forfeiture Events
.
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(1)
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perform services for any Competitive Business as employee, consultant, contractor or otherwise;
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(2)
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solicit or attempt to solicit any employee or independent contractor of the Company to cease working for the Company;
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(3)
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use or disclose to any person any Confidential Information for any purpose;
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(4)
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take any action that might divert any opportunity from the Company or any of its Affiliates, successors or assigns (the “Related Parties”) that is within the scope of the present or future operations or business of any Related Parties;
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(5)
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contact, call upon or solicit any customer of the Company, or attempt to divert or take away from the Company the business of any of its customers;
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(6)
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contact, call upon or solicit any prospective customer of the Company that you became aware of or were introduced to in the course of your duties for the Company, or otherwise divert or take away from the Company the business of any prospective customer of the Company; or
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(7)
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engage in any activity that is harmful to the interests of the Company, including, without limitation, any conduct during the term of your Service that violates the Company’s codes of conduct or other policies.
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(b)
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If the Company determines that you violated any provisions of Section 16(a) above during the Restricted Period, you agree that:
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(1)
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any portion of the Option (whether or not vested) that has not been exercised as of the date of such determination shall be immediately forfeited;
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(2)
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you shall automatically forfeit any rights you may have with respect to the Option as of the date of such determination; and
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(3)
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if you exercised all or any part of the Option within the six-month period immediately preceding termination of your Service (or following the date of any such violation), upon the Company’s demand, you shall immediately deliver to it Shares with a Fair Market Value (determined on the date of such demand) equal to the gain realized by you upon such exercise.
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(c)
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The foregoing remedies set forth in Section 16(b) shall not be the Company’s exclusive remedies. The Company reserves all other rights and remedies available to it at law or in equity.
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(d)
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The Company may exercise its right to demand forfeiture within ninety days after discovery of such an occurrence but in no event later than fifteen months after your termination of Service.
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(e)
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For purposes of this Section 16, the following terms shall have the meanings set forth below:
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(1)
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“Competitive Business” shall mean any person, corporation, not-for-profit organization, or other entity that provides, develops, sells, or markets on-line credit-granting educational products or services in any country in which the Company did business or had customers at any time during the last 12 months of your Service. In the case of an organization that provides, develops, sells, or markets on-line credit-granting educational products or services within or from a distinct, separate division or unit of the organization (the “On-Line Unit”) and also provides, develops, sells, or markets credit-granting educational products or services through other means within other distinct, separate divisions or units, the term “Competitive Business” shall be limited to the On-Line Unit, and shall not apply to the organization as a whole.
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(2)
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“Confidential Information” means information proprietary to the Company and not generally known (including trade secret information) about the Company’s customers, products, services, personnel, pricing, sales strategy, technology, methods, processes, research, development, finances, systems, techniques, accounting, purchasing, and business strategies. All information disclosed to you or to which you obtain access, whether originated by you or by others, during the period of your Service, shall be presumed to be Confidential Information if it is treated by the Company as being Confidential Information or if you have a reasonable basis to believe it to be Confidential Information.
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17.
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Incentive Compensation Recoupment
. This Award is subject to the Company’s Policy Regarding Executive Compensation Recoupment, as adopted by the Board on February 23, 2011.
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1.
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I have reviewed this quarterly report on Form 10-Q of Capella Education Company;
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2.
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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.
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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/ J. Kevin Gilligan
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J. Kevin Gilligan
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Chief Executive Officer
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1.
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I have reviewed this quarterly report on Form 10-Q of Capella Education Company;
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2.
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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.
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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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July 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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July 29, 2014
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