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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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Emerging growth company
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o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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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, 2017
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As of December 31, 2016
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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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118,023
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$
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93,570
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Marketable securities, current
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42,940
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45,458
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Accounts receivable, net of allowance of $6,198 at June 30, 2017 and $6,682 at December 31, 2016
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20,676
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20,708
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Prepaid expenses and other current assets
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11,308
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17,877
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Total current assets
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192,947
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177,613
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Marketable securities, non-current
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18,583
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23,320
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Property and equipment, net
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35,793
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34,121
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Goodwill
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23,331
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23,310
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Intangibles, net
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8,827
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9,221
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Deferred income taxes
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—
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|
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1,853
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||
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Other assets
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7,821
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|
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7,875
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Total assets
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$
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287,302
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$
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277,313
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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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2,755
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$
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4,367
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Accrued liabilities
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24,300
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31,302
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Dividends payable
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4,978
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4,945
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Deferred revenue
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14,811
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12,398
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Total current liabilities
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46,844
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53,012
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Deferred rent
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12,957
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|
13,693
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Deferred income taxes
|
577
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—
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Other liabilities
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2,087
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|
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2,316
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Total liabilities
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62,465
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69,021
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Shareholders’ equity:
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||||
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Common stock, $0.01 par value: Authorized shares — 100,000, Issued and Outstanding shares — 11,672 at June 30, 2017 and 11,545 at December 31, 2016
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117
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115
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Additional paid-in capital
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125,806
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121,581
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Accumulated other comprehensive loss
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(3
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)
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(93
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)
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Retained earnings
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98,917
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86,689
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Total shareholders’ equity
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224,837
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208,292
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Total liabilities and shareholders’ equity
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$
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287,302
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$
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277,313
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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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2017
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2016
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2017
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2016
|
||||||||
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(Unaudited)
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||||||||||||||
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Revenues
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$
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109,584
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$
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106,725
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$
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221,372
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$
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212,173
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Costs and expenses:
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||||||||
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Instructional costs and services
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48,369
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45,502
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96,781
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90,813
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||||
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Marketing and promotional
|
27,308
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24,922
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54,833
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50,802
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Admissions advisory
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7,440
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7,285
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15,103
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14,708
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General and administrative
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11,096
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10,944
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21,683
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21,251
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Total costs and expenses
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94,213
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88,653
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188,400
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177,574
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Operating income
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15,371
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18,072
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32,972
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34,599
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Other income, net
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56
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42
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|
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163
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|
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33
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||||
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Income from continuing operations before income taxes
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15,427
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|
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18,114
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33,135
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|
|
34,632
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|
||||
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Income tax expense
|
4,672
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|
|
7,040
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|
11,209
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|
13,282
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|
||||
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Income from continuing operations
|
10,755
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|
|
11,074
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|
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21,926
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|
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21,350
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||||
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Income (loss) from discontinued operations, net of tax
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—
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|
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(1,379
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)
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|
95
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|
(2,357
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)
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||||
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Net income
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$
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10,755
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$
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9,695
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$
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22,021
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$
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18,993
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Basic net income (loss) per common share:
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|
||||||||
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Continuing operations
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$
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0.92
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$
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0.95
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|
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$
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1.89
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|
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$
|
1.82
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Discontinued operations
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—
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(0.12
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)
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|
0.01
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|
|
(0.20
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)
|
||||
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Basic net income per common share
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$
|
0.92
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|
$
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0.83
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$
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1.90
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$
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1.62
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Diluted net income (loss) per common share:
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|
|
|
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|
||||||||
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Continuing operations
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$
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0.90
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|
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$
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0.93
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$
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1.83
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|
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$
|
1.79
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Discontinued operations
|
—
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|
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(0.11
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)
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|
0.01
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|
|
(0.20
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)
|
||||
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Diluted net income per common share
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$
|
0.90
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|
|
$
|
0.82
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|
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$
|
1.84
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|
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$
|
1.59
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Weighted average number of common shares outstanding:
|
|
|
|
|
|
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|
||||||||
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Basic
|
11,644
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11,648
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11,602
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|
|
11,701
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|
||||
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Diluted
|
11,992
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|
|
11,872
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|
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11,965
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|
|
11,912
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|
||||
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Cash dividend declared per common share
|
$
|
0.41
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|
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$
|
0.39
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|
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$
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0.82
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|
|
$
|
0.78
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|
|
|
Three Months Ended June 30,
|
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Six Months Ended June 30,
|
||||||||||||
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|
2017
|
|
2016
|
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2017
|
|
2016
|
||||||||
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|
(Unaudited)
|
||||||||||||||
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Net income
|
$
|
10,755
|
|
|
$
|
9,695
|
|
|
$
|
22,021
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|
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$
|
18,993
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
||||||||
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Foreign currency translation gain (loss)
|
—
|
|
|
(41
|
)
|
|
3
|
|
|
88
|
|
||||
|
Unrealized gains on available for sale securities, net of tax
|
5
|
|
|
37
|
|
|
87
|
|
|
95
|
|
||||
|
Comprehensive income
|
$
|
10,760
|
|
|
$
|
9,691
|
|
|
$
|
22,111
|
|
|
$
|
19,176
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2017
|
|
2016
|
||||
|
Operating activities
|
(Unaudited)
|
||||||
|
Net income
|
$
|
22,021
|
|
|
$
|
18,993
|
|
|
Income (loss) from discontinued operations, net of tax
|
95
|
|
|
(2,357
|
)
|
||
|
Income from continuing operations
|
21,926
|
|
|
21,350
|
|
||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
|
Provision for bad debts
|
5,225
|
|
|
4,814
|
|
||
|
Depreciation and amortization
|
10,112
|
|
|
10,349
|
|
||
|
Amortization of investment discount/premium, net
|
855
|
|
|
1,113
|
|
||
|
Impairment of property and equipment
|
440
|
|
|
—
|
|
||
|
Loss on disposal of property and equipment
|
243
|
|
|
144
|
|
||
|
Share-based compensation
|
3,479
|
|
|
4,432
|
|
||
|
Excess tax benefits from stock-based compensation
|
—
|
|
|
(348
|
)
|
||
|
Deferred income taxes
|
2,443
|
|
|
(352
|
)
|
||
|
Changes in operating assets and liabilities
|
|
|
|
||||
|
Accounts receivable
|
(5,194
|
)
|
|
(5,713
|
)
|
||
|
Prepaid expenses and other current assets
|
294
|
|
|
(4,522
|
)
|
||
|
Accounts payable and accrued liabilities
|
(9,470
|
)
|
|
6,492
|
|
||
|
Income taxes payable
|
3,219
|
|
|
929
|
|
||
|
Deferred rent
|
(735
|
)
|
|
(472
|
)
|
||
|
Deferred revenue
|
2,413
|
|
|
4,603
|
|
||
|
Net cash provided by operating activities - continuing operations
|
35,250
|
|
|
42,819
|
|
||
|
Net cash provided by (used in) operating activities - discontinued operations
|
95
|
|
|
(476
|
)
|
||
|
Net cash provided by operating activities
|
35,345
|
|
|
42,343
|
|
||
|
Investing activities
|
|
|
|
||||
|
Acquisitions, net of cash acquired
|
—
|
|
|
(32,118
|
)
|
||
|
Capital expenditures
|
(12,116
|
)
|
|
(9,977
|
)
|
||
|
Investment in partnership interest
|
(354
|
)
|
|
(3,203
|
)
|
||
|
Purchases of marketable securities
|
(29,456
|
)
|
|
(12,737
|
)
|
||
|
Maturities of marketable securities
|
35,995
|
|
|
13,625
|
|
||
|
Net cash used in investing activities - continuing operations
|
(5,931
|
)
|
|
(44,410
|
)
|
||
|
Net cash provided by (used in) investing activities - discontinued operations
|
3,243
|
|
|
(74
|
)
|
||
|
Net cash used in investing activities
|
(2,688
|
)
|
|
(44,484
|
)
|
||
|
Financing activities
|
|
|
|
||||
|
Excess tax benefits from share-based compensation
|
—
|
|
|
348
|
|
||
|
Net payments related to share-based award activities
|
1,273
|
|
|
1,551
|
|
||
|
Payment of dividends
|
(9,479
|
)
|
|
(9,214
|
)
|
||
|
Repurchases of common stock
|
—
|
|
|
(15,012
|
)
|
||
|
Net cash used in financing activities - continuing operations
|
(8,206
|
)
|
|
(22,327
|
)
|
||
|
Effect of foreign exchange rates on cash
|
2
|
|
|
(9
|
)
|
||
|
Net increase (decrease) in cash and cash equivalents
|
24,453
|
|
|
(24,477
|
)
|
||
|
Cash and cash equivalents and cash of business held for sale at beginning of period
|
93,570
|
|
|
88,027
|
|
||
|
Cash and cash equivalents and cash of business held for sale at end of period
|
118,023
|
|
|
63,550
|
|
||
|
Less cash of business held for sale at end of period
|
—
|
|
|
(2,109
|
)
|
||
|
Cash and cash equivalents at end of period
|
$
|
118,023
|
|
|
$
|
61,441
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
||||
|
Income taxes paid
|
$
|
5,562
|
|
|
$
|
12,703
|
|
|
Non-cash investing and financing activities:
|
|
|
|
||||
|
Purchase of equipment included in accounts payable and accrued liabilities
|
$
|
741
|
|
|
$
|
342
|
|
|
Declaration of cash dividend to be paid
|
4,847
|
|
|
4,609
|
|
||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
Revenues
|
$
|
—
|
|
|
$
|
3,425
|
|
|
$
|
—
|
|
|
$
|
6,695
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
||||||||
|
Instructional costs and services
|
—
|
|
|
1,650
|
|
|
—
|
|
|
3,311
|
|
||||
|
Marketing and promotional
|
—
|
|
|
1,263
|
|
|
—
|
|
|
2,555
|
|
||||
|
Admissions advisory
|
—
|
|
|
240
|
|
|
—
|
|
|
513
|
|
||||
|
General and administrative
|
—
|
|
|
1,968
|
|
|
—
|
|
|
2,921
|
|
||||
|
Total costs and expenses
|
—
|
|
|
5,121
|
|
|
—
|
|
|
9,300
|
|
||||
|
Operating loss
|
—
|
|
|
(1,696
|
)
|
|
—
|
|
|
(2,605
|
)
|
||||
|
Gain on sale of Arden
|
—
|
|
|
—
|
|
|
149
|
|
|
—
|
|
||||
|
Other income (expense), net
|
—
|
|
|
35
|
|
|
—
|
|
|
(34
|
)
|
||||
|
Income (loss) before income taxes
|
—
|
|
|
(1,661
|
)
|
|
149
|
|
|
(2,639
|
)
|
||||
|
Income tax expense (benefit)
|
—
|
|
|
(282
|
)
|
|
54
|
|
|
(282
|
)
|
||||
|
Income (loss) from discontinued operations, net of tax
|
$
|
—
|
|
|
$
|
(1,379
|
)
|
|
$
|
95
|
|
|
$
|
(2,357
|
)
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
Numerator:
|
|
|
|
|
|
|
|
||||||||
|
Income from continuing operations
|
$
|
10,755
|
|
|
$
|
11,074
|
|
|
$
|
21,926
|
|
|
$
|
21,350
|
|
|
Income (loss) from discontinued operations, net of tax
|
—
|
|
|
(1,379
|
)
|
|
95
|
|
|
(2,357
|
)
|
||||
|
Net income
|
$
|
10,755
|
|
|
$
|
9,695
|
|
|
$
|
22,021
|
|
|
$
|
18,993
|
|
|
Denominator:
|
|
|
|
|
|
|
|
||||||||
|
Denominator for basic net income per common share— weighted average shares outstanding
|
11,644
|
|
|
11,648
|
|
|
11,602
|
|
|
11,701
|
|
||||
|
Effect of dilutive stock options, restricted stock, and market stock units
|
348
|
|
|
224
|
|
|
363
|
|
|
211
|
|
||||
|
Denominator for diluted net income per common share— weighted average shares outstanding
|
11,992
|
|
|
11,872
|
|
|
11,965
|
|
|
11,912
|
|
||||
|
Basic net income (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
|
Continuing operations
|
$
|
0.92
|
|
|
$
|
0.95
|
|
|
$
|
1.89
|
|
|
$
|
1.82
|
|
|
Discontinued operations
|
—
|
|
|
(0.12
|
)
|
|
0.01
|
|
|
(0.20
|
)
|
||||
|
Basic net income per common share
|
$
|
0.92
|
|
|
$
|
0.83
|
|
|
$
|
1.90
|
|
|
$
|
1.62
|
|
|
Diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
||||||||
|
Continuing operations
|
$
|
0.90
|
|
|
$
|
0.93
|
|
|
$
|
1.83
|
|
|
$
|
1.79
|
|
|
Discontinued operations
|
—
|
|
|
(0.11
|
)
|
|
0.01
|
|
|
(0.20
|
)
|
||||
|
Diluted net income per common share
|
$
|
0.90
|
|
|
$
|
0.82
|
|
|
$
|
1.84
|
|
|
$
|
1.59
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||
|
Anti-dilutive securities excluded from diluted earnings per share calculation, for both continuing and discontinued operations
|
121
|
|
|
415
|
|
|
106
|
|
|
451
|
|
|
|
As of June 30, 2017
|
||||||||||||||
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
|
Tax-exempt municipal securities
|
$
|
42,627
|
|
|
$
|
16
|
|
|
$
|
(30
|
)
|
|
$
|
42,613
|
|
|
Corporate debt securities
|
6,966
|
|
|
14
|
|
|
—
|
|
|
6,980
|
|
||||
|
Variable rate demand notes
|
11,930
|
|
|
—
|
|
|
—
|
|
|
11,930
|
|
||||
|
Total
|
$
|
61,523
|
|
|
$
|
30
|
|
|
$
|
(30
|
)
|
|
$
|
61,523
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
As of December 31, 2016
|
||||||||||||||
|
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
|
Tax-exempt municipal securities
|
$
|
63,113
|
|
|
$
|
2
|
|
|
$
|
(152
|
)
|
|
$
|
62,963
|
|
|
Corporate debt securities
|
5,804
|
|
|
13
|
|
|
(2
|
)
|
|
5,815
|
|
||||
|
Total
|
$
|
68,917
|
|
|
$
|
15
|
|
|
$
|
(154
|
)
|
|
$
|
68,778
|
|
|
|
As of June 30,
2017
|
|
As of December 31, 2016
|
||||
|
Due within one year
|
$
|
42,940
|
|
|
$
|
45,458
|
|
|
Due after one year through five years
|
18,583
|
|
|
23,320
|
|
||
|
Total
|
$
|
61,523
|
|
|
$
|
68,778
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
Maturities of marketable securities
|
$
|
25,455
|
|
|
$
|
3,065
|
|
|
$
|
35,995
|
|
|
$
|
13,625
|
|
|
Total
|
$
|
25,455
|
|
|
$
|
3,065
|
|
|
$
|
35,995
|
|
|
$
|
13,625
|
|
|
|
|
Fair Value Measurements as of June 30, 2017 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
|
|
$
|
28,976
|
|
|
$
|
28,976
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market
|
|
89,047
|
|
|
89,047
|
|
|
—
|
|
|
—
|
|
||||
|
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
|
Tax-exempt municipal securities
|
|
42,613
|
|
|
—
|
|
|
42,613
|
|
|
—
|
|
||||
|
Corporate debt securities
|
|
6,980
|
|
|
—
|
|
|
6,980
|
|
|
—
|
|
||||
|
Variable rate demand notes
|
|
11,930
|
|
|
—
|
|
|
11,930
|
|
|
—
|
|
||||
|
Total assets at fair value on a recurring basis
|
|
$
|
179,546
|
|
|
$
|
118,023
|
|
|
$
|
61,523
|
|
|
$
|
—
|
|
|
|
|
Fair Value Measurements as of December 31, 2016 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
|
|
$
|
24,658
|
|
|
$
|
24,658
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Money market
|
|
68,237
|
|
|
68,237
|
|
|
—
|
|
|
—
|
|
||||
|
Variable rate demand notes
|
|
675
|
|
|
—
|
|
|
675
|
|
|
—
|
|
||||
|
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
|
Tax-exempt municipal securities
|
|
62,963
|
|
|
—
|
|
|
62,963
|
|
|
—
|
|
||||
|
Corporate debt securities
|
|
5,815
|
|
|
—
|
|
|
5,815
|
|
|
—
|
|
||||
|
Total assets at fair value on a recurring basis
|
|
$
|
162,348
|
|
|
$
|
92,895
|
|
|
$
|
69,453
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
Balance, beginning of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Initial fair value of contingent consideration
|
|
—
|
|
|
1,500
|
|
|
—
|
|
|
1,500
|
|
||||
|
Balance, end of period
|
|
$
|
—
|
|
|
$
|
1,500
|
|
|
$
|
—
|
|
|
$
|
1,500
|
|
|
|
As of June 30, 2017
|
|
As of December 31, 2016
|
||||
|
Accrued compensation and benefits
|
$
|
6,745
|
|
|
$
|
12,976
|
|
|
Accrued instructional
|
3,686
|
|
|
3,811
|
|
||
|
Accrued vacation
|
2,358
|
|
|
1,111
|
|
||
|
Accrued invoices
|
9,349
|
|
|
11,252
|
|
||
|
Other
(1)
|
2,162
|
|
|
2,152
|
|
||
|
Total
|
$
|
24,300
|
|
|
$
|
31,302
|
|
|
2017
|
$
|
3,873
|
|
|
2018
|
6,712
|
|
|
|
2019
|
5,668
|
|
|
|
2020
|
5,233
|
|
|
|
2021
|
4,681
|
|
|
|
2022 and thereafter
|
32,879
|
|
|
|
Total
|
$
|
59,046
|
|
|
Board authorizations:
|
|
||
|
July 2008
|
$
|
60,000
|
|
|
August 2010
|
60,662
|
|
|
|
February 2011
|
65,000
|
|
|
|
December 2011
|
50,000
|
|
|
|
August 2013
|
50,000
|
|
|
|
December 2015
|
50,000
|
|
|
|
Total amount authorized
|
335,662
|
|
|
|
Total value of shares repurchased
|
305,231
|
|
|
|
Residual authorization
|
$
|
30,431
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2017
|
|
2016
|
||||
|
Shares repurchased
|
—
|
|
|
308
|
|
||
|
Total consideration, excluding commissions
|
$
|
—
|
|
|
$
|
15,000
|
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend per Share
|
|
Total Dividend Amount
|
||||
|
February 22, 2017
|
|
March 10, 2017
|
|
April 13, 2017
|
|
$
|
0.41
|
|
|
$
|
4,813
|
|
|
May 2, 2017
|
|
May 24, 2017
|
|
July 14, 2017
|
|
$
|
0.41
|
|
|
$
|
4,847
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
Instructional costs and services
|
$
|
240
|
|
|
$
|
163
|
|
|
$
|
428
|
|
|
$
|
371
|
|
|
Marketing and promotional
|
257
|
|
|
206
|
|
|
468
|
|
|
389
|
|
||||
|
Admissions advisory
|
12
|
|
|
14
|
|
|
25
|
|
|
27
|
|
||||
|
General and administrative
|
1,696
|
|
|
1,236
|
|
|
2,558
|
|
|
3,645
|
|
||||
|
Share-based compensation expense included in operating income
|
2,205
|
|
|
1,619
|
|
|
3,479
|
|
|
4,432
|
|
||||
|
Tax benefit from share-based compensation expense
|
864
|
|
|
611
|
|
|
1,350
|
|
|
1,674
|
|
||||
|
Share-based compensation expense, net of tax
|
$
|
1,341
|
|
|
$
|
1,008
|
|
|
$
|
2,129
|
|
|
$
|
2,758
|
|
|
|
Hackbright
|
|
DevMountain
|
||||
|
Cash and cash equivalents
|
$
|
499
|
|
|
$
|
336
|
|
|
Other assets
|
407
|
|
|
745
|
|
||
|
Intangibles:
|
|
|
|
||||
|
Trade Name
|
4,500
|
|
|
3,400
|
|
||
|
Customer Relationships
|
800
|
|
|
—
|
|
||
|
Course Content
|
900
|
|
|
200
|
|
||
|
Goodwill
|
12,659
|
|
|
10,672
|
|
||
|
Deferred tax asset (liability)
|
(988
|
)
|
|
12
|
|
||
|
Liabilities assumed
|
(788
|
)
|
|
(418
|
)
|
||
|
Total assets acquired and liabilities assumed, net
|
17,989
|
|
|
14,947
|
|
||
|
Less: Fair value of contingent consideration
|
—
|
|
|
—
|
|
||
|
Less: Cash acquired
|
(499
|
)
|
|
(336
|
)
|
||
|
Cash paid for acquisition, net of cash acquired
|
$
|
17,490
|
|
|
$
|
14,611
|
|
|
•
|
Intangible assets - The Company used income approaches to value the acquired intangibles. The trade names were valued using the relief-from-royalty method, which represents the benefit of owning these intangible assets rather than paying royalties for their use. Course content was valued using the differential income method, and the customer relationships were valued using the excess earnings method.
|
|
•
|
Deferred revenue - The Company estimated the fair value of deferred revenue using the cost build-up method, which represents the cost to deliver the services, plus a normal profit margin. Deferred revenue is included in liabilities assumed within the schedule of assets acquired and liabilities assumed above.
|
|
•
|
Contingent consideration liability - The fair value of the contingent consideration was determined using a discounted cash flow model encompassing significant unobservable inputs, including the discount rate and probability weighted cash flows over the performance period.
|
|
•
|
Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.
|
|
|
Foreign Currency Translation Loss
|
|
Unrealized Gain (Loss) on Marketable Securities
|
|
Accumulated Other Comprehensive Loss
(1)
|
||||||
|
Beginning balance, December 31, 2016
|
$
|
(6
|
)
|
|
$
|
(87
|
)
|
|
$
|
(93
|
)
|
|
Other comprehensive income (loss)
|
3
|
|
|
87
|
|
|
90
|
|
|||
|
Ending balance, June 30, 2017
|
$
|
(3
|
)
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
(1)
|
Accumulated other comprehensive loss is presented net of tax of
$52 thousand
as of
December 31, 2016
.
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
|
Revenues
|
|
|
|
|
|
|
|
||||||||
|
Post-Secondary
|
$
|
106,974
|
|
|
$
|
105,789
|
|
|
$
|
216,455
|
|
|
$
|
211,216
|
|
|
Job-Ready Skills
|
2,610
|
|
|
936
|
|
|
4,917
|
|
|
957
|
|
||||
|
Consolidated Revenues
|
$
|
109,584
|
|
|
$
|
106,725
|
|
|
$
|
221,372
|
|
|
$
|
212,173
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
||||||||
|
Post-Secondary
|
$
|
17,754
|
|
|
$
|
21,566
|
|
|
$
|
38,005
|
|
|
$
|
39,285
|
|
|
Job-Ready Skills
|
(2,383
|
)
|
|
(3,494
|
)
|
|
(5,033
|
)
|
|
(4,686
|
)
|
||||
|
Consolidated operating income
|
15,371
|
|
|
18,072
|
|
|
32,972
|
|
|
34,599
|
|
||||
|
Other income, net
|
56
|
|
|
42
|
|
|
163
|
|
|
33
|
|
||||
|
Income from continuing operations before income taxes
|
$
|
15,427
|
|
|
$
|
18,114
|
|
|
$
|
33,135
|
|
|
$
|
34,632
|
|
|
•
|
Capella University (the University) offers a variety of doctoral, master’s and bachelor’s programs, primarily for working adults, in the following markets: public service leadership, nursing and health sciences, social and behavioral sciences, business and technology, education, and undergraduate studies. We focus on master's and doctoral degrees, with 71% of our learners enrolled in a master’s or doctoral degree program. Our academic offerings are built with competency-based curricula and are delivered in an online format that is convenient and flexible. We design our offerings to help working adult learners develop specific competencies they can employ in their workplace. We actively support and engage with our learners throughout their programs to enhance their prospects for successful program completion. We believe the relevance of our programs, combined with a focus on working adult professionals and offering the most direct path to learners' professional and academic goals, sets Capella University apart in the education space. At
June 30, 2017
, we offered over 1,940 online courses and 52 academic programs with 149 specializations to nearly 38,000 learners.
|
|
•
|
Sophia Learning, LLC (Sophia) is an innovative learning company which leverages technology to support self-paced learning, including courses eligible for transfer into credit at over 2,000 colleges and universities.
|
|
•
|
Capella Learning Solutions, LLC (CLS) provides online non-degree, high-demand, job-ready skills, training solutions and services to individuals and corporate partners, primarily through RightSkill. RightSkill provides job
|
|
•
|
Hackbright Academy, Inc. (Hackbright) is a leading software engineering school for women with a mission to close the gender gap in the high-demand software engineering space. Hackbright’s primary offering is an intensive 12-week accelerated software development program for women, together with placement services and coaching. This program is a live, in-person educational experience held in Hackbright’s San Francisco locations. Hackbright also partners with employers to facilitate alumnae transition from program completion into the workplace.
|
|
•
|
DevMountain, LLC (DevMountain) is a leading software development school with a mission to be the most impactful coding school in the country by offering affordable, high-quality, leading-edge software coding education. DevMountain primarily offers Web Development, iOS Development, and UX Design programs in a 12- week immersive experience. Learners engage in DevMountain courses in-person, at DevMountain’s classrooms in Provo and Salt Lake City, Utah, Dallas, Texas, and Phoenix, Arizona.
|
|
•
|
Innovation.
We operate in a very competitive market environment, and we have demonstrated that we can effectively compete and differentiate in our market. Our long-term success will depend on our ability to continue innovating around our competency-based learning capacities to develop new academic and business models. We will need to balance investments that may put pressure on near-term operating income performance with our goal to achieve operating performance improvements and deliver short and long-term shareholder value.
|
|
•
|
Capella University total enrollment.
Total enrollment at Capella University is a key driver for the Company’s revenue growth as well as operating performance. To achieve total enrollment growth, Capella University must attract new learners and maintain and/or improve learner persistence. While new enrollment is an early indicator of future growth, early cohort persistence is an indicator of the sustainability of growth. These metrics should be viewed over multiple quarters since quarterly volatility is common. We have consistently improved early cohort persistence over a period of approximately five years, and these persistence improvements carry into later periods. In the second quarter of 2017, end-of-period total enrollment declined by 1.7 percent compared to total enrollment growth of 2.4 percent in the same period in 2016.
|
|
•
|
Capella University new enrollment.
In the second quarter of 2017, Capella University new enrollment, calculated from the last day a new learner can drop a course without financial penalty, declined by 9.6 percent year-over-year compared to new enrollment growth of 2.5 percent in the same period in 2016 as a result of quarterly volatility inherent in the highly competitive and dynamic market environment in which we operate in addition to marketing execution challenges related to our ongoing efforts to optimize our marketing investment.
|
|
•
|
Persistence/learner success.
Compared to the same period in the prior year, Capella University early cohort persistence improved by approximately three percent in the second quarter of 2017. Early cohort persistence measures the four-quarter weighted moving average new cohort persistence rate during a learner's first four
|
|
•
|
Investing in our actionable analytics capabilities to further leverage data, refine our models, and accurately predict the likelihood of prospective, new, and current learners persisting to critical thresholds of success and to help provide individualized paths to improve a learner's opportunity to succeed;
|
|
•
|
Providing timely and clear information to our learners, faculty, advisors and staff to help learners persist and successfully complete their programs;
|
|
•
|
Redesigning programs to improve academic quality, remove unintended barriers that can disrupt learner progression, and deliver operational process efficiencies;
|
|
•
|
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;
|
|
•
|
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 scholarships 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 which have potential to increase affordability and better serve the life-long learning needs of working adult professionals and therefore increase learner success.
|
|
•
|
Doctoral enrollment
. During the second quarter of 2017, year-over-year doctoral total enrollment for Capella University declined by 7.0 percent. A return to doctoral total enrollment growth will depend on both sustained new enrollment growth over several quarters as well as continuing learner success efforts at the doctoral level. As part of our doctoral learner success initiative, we are focusing on learners who are not making sufficient and timely academic progress in the comprehensive and dissertation phases of their programs. In our doctoral offering, market demand for professional doctorate programs is currently stronger than for PhD programs. We are supporting doctoral growth by focusing on redesigning our program offerings, improving affordability, and expanding our doctoral portfolio, including creating new professional doctorate programs. The doctoral learner success initiatives and the continued pressure on doctoral enrollment growth are expected to negatively impact our operating performance, including in the near-term.
|
|
•
|
Marketing strategy.
During the course of the past few years, we have made significant strides in shifting from a demand driven strategy towards a comprehensive marketing strategy which is focused on building relationships with prospective learners early in their decision cycle. In addition, we are developing opportunities in the employer channel to build brand awareness and differentiation. With our vision of providing the most direct path between learning and employment and our dedication to serving the Job-Ready Skills market, we are changing the conversation with employers and are working to further strengthen and articulate our differentiation.
|
|
•
|
Introducing prospective learners to Capella with a differentiated message in 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 and increasingly personalized relationships such as through social media, via mobile devices, or by way of direct engagement.
|
|
•
|
Offering a platform of capabilities which range from Capella University’s post-secondary degrees to shorter programs in the job-ready skills software engineering and coding area to targeted skill building programs with our RightSkill offerings;
|
|
•
|
Developing new programs such as Capella University’s Workforce Edge, where an employee can earn a degree with little to no out-of-pocket costs when she or he leverages employer tuition reimbursement. This program enables employers to attract, support, and retain more productive employees utilizing a competency-based learning solution; and
|
|
•
|
Leveraging Capella University’s state of the art, competency-based direct assessment programs to offer employers innovative solutions that fit their learning objectives and their budgets and which provide reporting tools to track participants' competency development.
|
|
•
|
Establishing new growth platforms.
We seek to drive long-term growth that is an extension of our core competencies into new and expanded markets. One of our key growth platforms is FlexPath. FlexPath is a learning model that decouples from the credit-hour requirements and allows learners to complete coursework at their own pace through the demonstration of specific competencies. Capella University was the first institution with approval from the Higher Learning Commission and the Department of Education to offer and provide Title IV funding for direct assessment programs at both the Bachelor's and Master's degree levels. These approvals allow learners enrolled in FlexPath to apply for federal financial aid. Only a few other universities received approvals by their accreditor and the Department of Education to offer similar programs. Approval processes for this innovative new model are stringent, and the Department of Education has indicated that direct assessment program specializations will also require specific approval by the Higher Learning Commission and the Department of Education to offer Title IV. This adds another step in the approval process with both the Department of Education and the Higher Learning Commission.
|
|
•
|
Master of Health Administration;
|
|
•
|
Business Intelligence, Business Management, Entrepreneurship, Management Consulting, and Health Administration graduate-level certificates;
|
|
•
|
Master of Science in Nursing;
|
|
•
|
Master of Education.
|
|
•
|
CLS offerings.
In 2013, the Company introduced the first set of CLS offerings - online training solutions and services to corporate partners. In 2015, CLS focused its offerings on non-degree, high-demand, job-ready skills and training solutions and services to individuals and corporate partners. We continue our efforts to develop a scalable business model at CLS, primarily through our relationship with CareerBuilder and our RightSkill program offerings.
|
|
•
|
Business Acquisitions.
On
April 22, 2016
, the Company acquired
100 percent
of the share capital of Sutter Studios, Inc. d/b/a Hackbright Academy (Hackbright) for approximately
$18.0 million
in cash. Hackbright is a leading software engineering school for women, with a mission to increase female representation in the technology sector. Hackbright, headquartered in San Francisco, offers in-person, immersive 12-week full-time educational programs in software engineering as well as part-time programs.
|
|
•
|
Coding schools performance.
In January 2017, Hackbright added a second location in San Francisco, and in May 2017, DevMountain received approval to begin operating in Phoenix, Arizona with courses scheduled to begin in August. Since the dates of acquisition, we have made investments in both businesses to position them for scalable growth and will continue to make additional investments for the foreseeable future. Although both acquisitions have had a positive impact on our revenue growth, Hackbright and DevMountain have been dilutive to our earnings since the acquisition dates and are expected to be dilutive to our earnings throughout the remainder of 2017 and into 2018. If this trend continues and operating improvements are not realized, some or all of the goodwill and indefinite-lived intangible assets associated with the Coding Schools reporting unit could become impaired in the future. We believe the fair value of the Coding Schools reporting unit remains in excess of the carrying value and that the fair value of indefinite-lived intangible assets remains in excess of the carrying value as of June 30, 2017. Management will assess goodwill and indefinite-lived intangible assets for impairment in the fourth quarter of 2017 or earlier if circumstances dictate.
|
|
•
|
Redesign of programs and specializations
. We continue to evaluate our existing offerings for opportunities to drive affordability and speed to competency, enhance learner success, meet employer needs, maintain programmatic approvals and fulfill evolving regulatory standards. Utilizing our competency-based curriculum mapping, we are focused on maximizing efficiencies in our existing programs, resulting in improved learning and career outcomes.
|
|
•
|
Current
market and regulatory environment.
The environment remains very competitive. We believe our initiatives to improve learner success and innovation in our academic and business model, as well as our efforts to increase productivity and achieve scale where possible, will position us to continue to be a leader in the online postsecondary education market. Additionally, we are working even more closely to align with employers. Developments in the federal regulatory environment impact us as well, including the Gainful Employment (GE) rules, Borrower Defense to Repayment rules, and the reauthorization of the Higher Education Act of 1965, as amended. 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, with a focus on proprietary institutions. While we have a strong track record of regulatory compliance, such actions, even if not directed at Capella University, may result in unforeseen consequences and may make our operating environment
|
|
•
|
Adoption of ASU No. 2016-09 Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting
. During the first quarter of 2017, we adopted new accounting guidance related to share-based compensation. Among other changes, the new guidance requires that entities record the impact of income taxes arising from share-based compensation when awards vest, or are exercised, within earnings as part of income tax expense rather than as part of additional paid-in capital (APIC). The adoption of this guidance will result in volatility within our results of operations, primarily due to changes in our stock price. Through the second quarter of 2017, the adoption of the new guidance decreased our income tax expense by approximately to $1.6 million as a result of income tax benefits arising from stock option exercises. Income tax expense in future periods could be positively or negatively impacted based on the timing of stock option exercises and restricted stock vesting as well as the relationship of our stock price to the fair value of our share-based awards on the exercise or vesting dates.
|
|
•
|
Lease amendments.
On August 5, 2016, we entered into an amendment of our lease with Minneapolis 225 Holdings, LLC pursuant to which we renewed and extended our existing lease for premises at 225 South Sixth Street in Minneapolis, Minnesota through October 31, 2028. Renewal terms under the amended lease agreement include a reduction in the area of leased space which we occupy of approximately 64,000 square feet and provide for lease incentives of approximately $13.6 million. The lease incentives, which were paid to us in cash by the lessor, are included within deferred rent on the Consolidated Balance Sheet and will be recognized ratably as a reduction of rent expense over the term of the lease. The agreement allows the Company to extend the lease for up to two additional five-year terms.
|
|
•
|
U.S. Legislation and Congressional Activity.
It is unclear when Congress will reauthorize the Higher Education Act (HEA) which governs federal financial assistance for higher education. When reauthorization of HEA is considered, it will create opportunity to expand innovation in the delivery of higher education. As with any new legislation, there is also a risk of unintended consequences from new laws and regulatory requirements. Capella maintains strong relationships with policymakers and a reputation for quality. We will work to be a constructive voice in any dialogue on innovation in higher education.
|
|
•
|
Gainful Employment (GE) and Department of Education.
The final Gainful Employment rule went into effect on July 1, 2015. It applies to all GE programs, which include non-degree programs at public and private non-profit institutions, and all programs offered by proprietary institutions. The rule establishes a “debt-to-earnings” (DTE) ratio that GE programs must satisfy over the course of annual measurement periods to remain eligible for Title IV federal student aid. A program is determined to “pass” in a given year if the calculation shows that the graduates who received loans have annual loan payments less than 8% of total earnings OR less than 20% of discretionary earnings. A program is determined to “fail” in a given year if the calculation shows that graduates who received loans have annual loan payments greater than 12% of total earnings AND greater than 30% of discretionary earnings. A program is determined to be in the “Zone” in a given year if the program does not “pass,” AND if the calculation shows that graduates who received loans have annual loan payments between 8% and 12% of total earnings OR between 20% and 30% of discretionary earnings.
|
|
•
|
Audit Activity.
An institution must demonstrate compliance with the HEA and related regulations to the Department of Education on an ongoing basis and is subject to periodic compliance audits. The Department of Education, Office of Inspector General (OIG) conducted a compliance audit of Capella University for the period July 1, 2002 through June 30, 2007. In March 2008, OIG issued its final report to the Office of Federal Student Aid (FSA), which is responsible for primary oversight of Title IV funding programs. In April 2008, the University responded to FSA with respect to the OIG final report. In June 2012, FSA issued a Final Audit Determination ("2012 FAD"), which the Company understood formally concluded the audit. In the 2012 FAD, FSA determined no further action was required on any of the OIG audit findings, other than continuing adherence to certain actions already undertaken. FSA did not require the University to refund any money or pay any fines or penalties. On February 6, 2017, the University received a Final Audit Determination (“2017 FAD”) related to the same 2008 OIG final report. The 2017 FAD is substantially similar to the 2012 FAD, and includes the same findings; however, unlike the 2012 FAD, the 2017 FAD purports to require the Company to pay additional amounts. On March 22, 2017, the Company appealed the 2017 FAD to the Secretary of the Department of Education, seeking further review and confirmation that the 2012 FAD closed the matter. On April 21, 2017 the Department of Education's Administrative Actions and Appeals Service Group ("AAASG") issued correspondence declaring that the Department of Education agreed to withdraw the 2017 FAD and the associated liabilities set forth therein and agreed to let the 2012 FAD stand as final. AAASG declared the appeal fully resolved.
|
|
•
|
Current negotiated rulemaking.
On October 12, 2016 the Department of Education published final rules related to teacher preparation and the Teacher Education Assistance for College and Higher Education (TEACH) grant requirements for distance education programs. The regulations clarified that institutions that do not have initial teacher licensure programs have no obligation to report anything to any state under the new requirements. The final rules clarified that TEACH Grant funds are specifically available to students enrolled in graduate degree programs (which do not lead to initial teacher licensure) for teachers and others in high-need education fields. Capella University ended its participation in the TEACH Grant Program effective in October 2016. The published final rules were to be effective July 1, 2017; however, in early 2017, the United States Congress invoked the
|
|
•
|
State or Federal court or administrative tribunal judgment against a school related to the loan or the educational services for which the loan was made;
|
|
•
|
Breach of contract; or
|
|
•
|
Substantial misrepresentation by the school.
|
|
•
|
State Authorization Reciprocity Agreement (SARA).
SARA is a nationwide state regulatory initiative intended to make distance education courses more accessible to learners across state lines and make it easier for states to regulate and institutions to participate in interstate distance education. On January 27, 2015, Minnesota joined SARA, and on March 6, 2015, Capella University was approved as an institutional participant in SARA. There are currently 47 SARA member states.
|
|
•
|
Minnesota Office of Higher Education (MOHE).
Capella University is registered as a private institution with the MOHE pursuant to the Minnesota Private and Out-of-State Public Postsecondary Education Act ("the Act"). Minnesota Statute sections 136A.61-131A.71 as required for most post-secondary private institutions that grant degrees at the associate level or above in Minnesota, and as required by the Higher Education Act to participate in Title IV programs. MOHE is the designated “portal agency” that oversees institutions headquartered in Minnesota that participate in SARA. As the portal agency, MOHE’s responsibilities include coordinating SARA matters for Minnesota and acting as the principal point of contact for resolution of student complaints. On October 13, 2016, Capella University received a request for information from MOHE related to its doctoral programs and complaints filed by doctoral students. According to the request, MOHE is completing program reviews of all online doctoral programs for institutions registered in Minnesota in an effort to better understand the context, background, and issues related to doctoral student complaints. The Company has provided data and information in response to MOHE’s request.
|
|
•
|
Program Participation Agreement.
The Department of Education approved Capella University's Program Participation Agreement (PPA) in August 2014. Capella University is fully certified by the Department of Education to participate in Title IV programs through June 30, 2020.
|
|
•
|
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 three-year measuring period student loan cohort default rate equals or exceeds 30% for three consecutive cohort years, or 40% for any given year. Capella University's three-year cohort default rates for the 2013 and 2012 cohorts are 6.5% and 8.9%, respectively. The latest decrease is in part due to our learner success initiatives and our efforts to help our learners make informed financial decisions both during and after the time they are at Capella University, including educating learners about repayment options. The average three-year cohort default rates for proprietary institutions nationally were 15.0% and 15.8% in cohort years 2013 and 2012, respectively. The average three-year cohort default rates for all institutions nationally were 11.3% and 11.8% in cohort years 2013 and 2012, respectively.
|
|
•
|
Higher Learning Commission.
The Higher Learning Commission, Capella University’s accrediting body, is continuously developing new standards and approval processes under which it evaluates programs and institutions. Consistent with that approach, the Higher Learning Commission announced policy changes which include giving the Commission more discretion to designate institutions to be in "financial distress” or under "government investigation.” On August 31, 2016, the Commission adopted the policy changes. Receipt of these designations could impact future accreditation status and eligibility for Title IV aid under the Department of Education’s new “financial responsibility” triggers. While the Company believes its strong reputation and compliance record will continue to place it in favorable standing under the new policy, there is sufficient breadth and discretion within the policy such that government investigation, litigation, or financial or other circumstances could result in an impact to our business from the application of the policies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
||||||||||||||||||||||
|
|
(Unaudited)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
$ in thousands
|
2017
|
|
2016
|
|
2017 vs. 2016
|
|
2017
|
|
2016
|
|
2017 vs. 2016
|
||||||||||||
|
Revenues
|
$
|
109,584
|
|
|
$
|
106,725
|
|
|
$
|
2,859
|
|
|
2.7
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
0.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Instructional costs and services
|
48,369
|
|
|
45,502
|
|
|
2,867
|
|
|
6.3
|
|
|
44.1
|
|
|
42.6
|
|
|
1.5
|
|
|||
|
Marketing and promotional
|
27,308
|
|
|
24,922
|
|
|
2,386
|
|
|
9.6
|
|
|
24.9
|
|
|
23.4
|
|
|
1.5
|
|
|||
|
Admissions advisory
|
7,440
|
|
|
7,285
|
|
|
155
|
|
|
2.1
|
|
|
6.8
|
|
|
6.8
|
|
|
—
|
|
|||
|
General and administrative
|
11,096
|
|
|
10,944
|
|
|
152
|
|
|
1.4
|
|
|
10.1
|
|
|
10.3
|
|
|
(0.2
|
)
|
|||
|
Total costs and expenses
|
94,213
|
|
|
88,653
|
|
|
5,560
|
|
|
6.3
|
|
|
86.0
|
|
|
83.1
|
|
|
2.9
|
|
|||
|
Operating income
|
15,371
|
|
|
18,072
|
|
|
(2,701
|
)
|
|
(14.9
|
)
|
|
14.0
|
|
|
16.9
|
|
|
(2.9
|
)
|
|||
|
Other income, net
|
56
|
|
|
42
|
|
|
14
|
|
|
*
|
|
0.1
|
|
|
0.1
|
|
|
—
|
|
||||
|
Income from continuing operations before income taxes
|
15,427
|
|
|
18,114
|
|
|
(2,687
|
)
|
|
(14.8
|
)
|
|
14.1
|
|
|
17.0
|
|
|
(2.9
|
)
|
|||
|
Income tax expense
|
4,672
|
|
|
7,040
|
|
|
(2,368
|
)
|
|
(33.6
|
)
|
|
4.3
|
|
|
6.6
|
|
|
(2.3
|
)
|
|||
|
Effective tax rate
|
30.3
|
%
|
|
38.9
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Income from continuing operations
|
10,755
|
|
|
11,074
|
|
|
(319
|
)
|
|
(2.9
|
)
|
|
9.8
|
|
|
10.4
|
|
|
(0.6
|
)
|
|||
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(1,379
|
)
|
|
1,379
|
|
|
*
|
|
—
|
|
|
(1.3
|
)
|
|
1.3
|
|
||||
|
Net income
|
$
|
10,755
|
|
|
$
|
9,695
|
|
|
$
|
1,060
|
|
|
10.9
|
%
|
|
9.8
|
%
|
|
9.1
|
%
|
|
0.7
|
%
|
|
|
June 30,
|
|
|
|||||
|
Capella University Enrollment by Degree
(a)
:
|
2017
|
|
2016
|
|
% Change
|
|||
|
Doctoral
|
9,052
|
|
|
9,729
|
|
|
(7.0
|
)%
|
|
Master's
|
17,714
|
|
|
17,706
|
|
|
—
|
%
|
|
Bachelor's
|
9,760
|
|
|
9,798
|
|
|
(0.4
|
)%
|
|
Other
|
1,062
|
|
|
998
|
|
|
6.4
|
%
|
|
Total
|
37,588
|
|
|
38,231
|
|
|
(1.7
|
)%
|
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||
|
|
(Unaudited)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
|
$ in thousands
|
2017
|
|
2016
|
|
2017 vs. 2016
|
|
2017
|
|
2016
|
|
2017 vs. 2016
|
||||||||||||
|
Revenues
|
$
|
221,372
|
|
|
$
|
212,173
|
|
|
$
|
9,199
|
|
|
4.3
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
0.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Instructional costs and services
|
96,781
|
|
|
90,813
|
|
|
5,968
|
|
|
6.6
|
|
|
43.7
|
|
|
42.8
|
|
|
0.9
|
|
|||
|
Marketing and promotional
|
54,833
|
|
|
50,802
|
|
|
4,031
|
|
|
7.9
|
|
|
24.8
|
|
|
23.9
|
|
|
0.9
|
|
|||
|
Admissions advisory
|
15,103
|
|
|
14,708
|
|
|
395
|
|
|
2.7
|
|
|
6.8
|
|
|
6.9
|
|
|
(0.1
|
)
|
|||
|
General and administrative
|
21,683
|
|
|
21,251
|
|
|
432
|
|
|
2.0
|
|
|
9.8
|
|
|
10.0
|
|
|
(0.2
|
)
|
|||
|
Total costs and expenses
|
188,400
|
|
|
177,574
|
|
|
10,826
|
|
|
6.1
|
|
|
85.1
|
|
|
83.7
|
|
|
1.4
|
|
|||
|
Operating income
|
32,972
|
|
|
34,599
|
|
|
(1,627
|
)
|
|
(4.7
|
)
|
|
14.9
|
|
|
16.3
|
|
|
(1.4
|
)
|
|||
|
Other income, net
|
163
|
|
|
33
|
|
|
130
|
|
|
*
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
||||
|
Income from continuing operations before income taxes
|
33,135
|
|
|
34,632
|
|
|
(1,497
|
)
|
|
(4.3
|
)
|
|
15.0
|
|
|
16.3
|
|
|
(1.3
|
)
|
|||
|
Income tax expense
|
11,209
|
|
|
13,282
|
|
|
(2,073
|
)
|
|
(15.6
|
)
|
|
5.1
|
|
|
6.3
|
|
|
(1.2
|
)
|
|||
|
Effective tax rate
|
33.8
|
%
|
|
38.4
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Income from continuing operations
|
21,926
|
|
|
21,350
|
|
|
576
|
|
|
2.7
|
|
|
9.9
|
|
|
10.1
|
|
|
(0.2
|
)
|
|||
|
Income (loss) from discontinued operations, net of tax
|
95
|
|
|
(2,357
|
)
|
|
2,452
|
|
|
*
|
|
—
|
|
|
(1.1
|
)
|
|
1.1
|
|
||||
|
Net income
|
$
|
22,021
|
|
|
$
|
18,993
|
|
|
$
|
3,028
|
|
|
15.9
|
%
|
|
9.9
|
%
|
|
9.0
|
%
|
|
0.9
|
%
|
|
|
June 30,
|
|
|
|||||
|
Capella University Enrollment by Degree
(a)
:
|
2017
|
|
2016
|
|
% Change
|
|||
|
Doctoral
|
9,052
|
|
|
9,729
|
|
|
(7.0
|
)%
|
|
Master's
|
17,714
|
|
|
17,706
|
|
|
—
|
%
|
|
Bachelor's
|
9,760
|
|
|
9,798
|
|
|
(0.4
|
)%
|
|
Other
|
1,062
|
|
|
998
|
|
|
6.4
|
%
|
|
Total
|
37,588
|
|
|
38,231
|
|
|
(1.7
|
)%
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||
|
|
(Unaudited)
|
|
$ Change
|
|
% Change
|
|
(Unaudited)
|
|
$ Change
|
|
% Change
|
||||||||||||||||||
|
$ in thousands
|
2017
|
|
2016
|
|
2017 vs. 2016
|
|
2017
|
|
2016
|
|
2017 vs. 2016
|
||||||||||||||||||
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Post-Secondary
|
$
|
106,974
|
|
|
$
|
105,789
|
|
|
$
|
1,185
|
|
|
1.1
|
%
|
|
$
|
216,455
|
|
|
$
|
211,216
|
|
|
$
|
5,239
|
|
|
2.5
|
%
|
|
Job-Ready Skills
|
2,610
|
|
|
936
|
|
|
1,674
|
|
|
*
|
|
4,917
|
|
|
957
|
|
|
3,960
|
|
|
*
|
||||||||
|
Consolidated revenues
|
109,584
|
|
|
106,725
|
|
|
2,859
|
|
|
2.7
|
|
|
$
|
221,372
|
|
|
$
|
212,173
|
|
|
$
|
9,199
|
|
|
4.3
|
%
|
|||
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
Post-Secondary
|
$
|
17,754
|
|
|
$
|
21,566
|
|
|
$
|
(3,812
|
)
|
|
(17.7
|
)%
|
|
$
|
38,005
|
|
|
$
|
39,285
|
|
|
$
|
(1,280
|
)
|
|
(3.3
|
)%
|
|
Job-Ready Skills
|
(2,383
|
)
|
|
(3,494
|
)
|
|
1,111
|
|
|
(31.8
|
)
|
|
(5,033
|
)
|
|
(4,686
|
)
|
|
(347
|
)
|
|
7.4
|
|
||||||
|
Consolidated operating income
|
15,371
|
|
|
18,072
|
|
|
(2,701
|
)
|
|
(14.9
|
)
|
|
32,972
|
|
|
34,599
|
|
|
(1,627
|
)
|
|
(4.7
|
)
|
||||||
|
Other income, net
|
56
|
|
|
42
|
|
|
14
|
|
|
*
|
|
163
|
|
|
33
|
|
|
130
|
|
|
*
|
||||||||
|
Income from continuing operations before income taxes
|
$
|
15,427
|
|
|
$
|
18,114
|
|
|
$
|
(2,687
|
)
|
|
(14.8
|
)%
|
|
$
|
33,135
|
|
|
$
|
34,632
|
|
|
$
|
(1,497
|
)
|
|
(4.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
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 20, 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 20, 2006.
|
|
|
|
|
|
|
|
10.1
|
|
Capella Education Company Deferred Compensation Plan as of June 1, 2017.
|
|
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 25, 2017
|
|
J. Kevin Gilligan
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
|
|
/s/ Steven L. Polacek
|
|
July 25, 2017
|
|
Steven L. Polacek
Senior Vice President and Chief Financial Officer
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
1.1
|
Plan
|
|
1.2
|
Effective Dates
|
|
1.3
|
Amounts Not Subject to Code Section 409A
|
|
2.1
|
Account
|
|
2.2
|
Administrator
|
|
2.3
|
Adoption Agreement
|
|
2.4
|
Beneficiary
|
|
2.5
|
Board or Board of Directors
|
|
2.6
|
Bonus
|
|
2.7
|
Change in Control
|
|
2.8
|
Code
|
|
2.9
|
Compensation
|
|
2.10
|
Director
|
|
2.11
|
Disability
|
|
2.12
|
Eligible Employee
|
|
2.13
|
Employer
|
|
2.14
|
ERISA
|
|
2.15
|
Identification Date
|
|
2.16
|
Key Employee
|
|
2.17
|
Participant
|
|
2.18
|
Plan
|
|
2.19
|
Plan Sponsor
|
|
2.20
|
Plan Year
|
|
2.21
|
Related Employer
|
|
2.22
|
Retirement
|
|
2.23
|
Separation from Service
|
|
2.24
|
Unforeseeable Emergency
|
|
2.25
|
Valuation Date
|
|
2.26
|
Years of Service
|
|
3.1
|
Participation
|
|
3.2
|
Termination of Participation
|
|
4.1
|
Deferral Agreement
|
|
4.2
|
Amount of Deferral
|
|
4.3
|
Timing of Election to Defer
|
|
4.4
|
Election of Payment Schedule and Form of Payment
|
|
5.1
|
Matching Contributions
|
|
5.2
|
Other Contributions
|
|
6.1
|
Establishment of Account
|
|
6.2
|
Credits to Account
|
|
7.1
|
Investment Options
|
|
7.2
|
Adjustment of Accounts
|
|
8.1
|
Vesting
|
|
8.2
|
Death
|
|
8.3
|
Disability
|
|
9.1
|
Amount of Benefits
|
|
9.2
|
Method and Timing of Distributions
|
|
9.3
|
Unforeseeable Emergency
|
|
9.4
|
Payment Election Overrides
|
|
9.5
|
Cashouts of Amounts Not Exceeding Stated Limit
|
|
9.6
|
Required Delay in Payment to Key Employees
|
|
9.7
|
Change in Control
|
|
9.8
|
Permissible Delays in Payment
|
|
9.9
|
Permitted Acceleration of Payment
|
|
10.1
|
Amendment by Plan Sponsor
|
|
10.2
|
Plan Termination Following Change in Control or Corporate Dissolution
|
|
10.3
|
Other Plan Terminations
|
|
11.1
|
Establishment of Trust
|
|
11.2
|
Rabbi Trust
|
|
11.3
|
Investment of Trust Funds
|
|
12.1
|
Powers and Responsibilities of the Administrator
|
|
12.2
|
Claims and Review Procedures
|
|
12.3
|
Plan Administrative Costs
|
|
13.1
|
Unsecured General Creditor of the Employer
|
|
13.2
|
Employer’s Liability
|
|
13.3
|
Limitation of Rights
|
|
13.4
|
Anti-Assignment
|
|
13.5
|
Facility of Payment
|
|
13.6
|
Notices
|
|
13.7
|
Tax Withholding
|
|
13.8
|
Indemnification
|
|
13.9
|
Successors
|
|
13.10
|
Disclaimer
|
|
13.11
|
Governing Law
|
|
1.1
|
Plan.
The Plan will be referred to by the name specified in the Adoption Agreement.
|
|
1.2
|
Effective Dates.
|
|
(a)
|
Original Effective Date.
The Original Effective Date is the date as of which the Plan was initially adopted.
|
|
(b)
|
Amendment Effective Date.
The Amendment Effective Date is the date specified in the Adoption Agreement as of which the Plan is amended and restated. Except to the extent otherwise provided herein or in the Adoption Agreement, the Plan shall apply to amounts deferred and benefit payments made on or after the Amendment Effective Date.
|
|
(c)
|
Special Effective Date.
A Special Effective Date may apply to any given provision if so specified in Appendix A of the Adoption Agreement. A Special Effective Date will control over the Original Effective Date or Amendment Effective Date, whichever is applicable, with respect to such provision of the Plan.
|
|
1.3
|
Amounts Not Subject to Code Section 409A
|
|
2.1
|
“Account”
means an account established for the purpose of recording amounts credited on behalf of a Participant and any income, expenses, gains, losses or distributions included thereon. The Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant or to the Participant’s Beneficiary pursuant to the Plan.
|
|
2.2
|
“Administrator”
means the person or persons designated by the Plan Sponsor in Section 1.05 of the Adoption Agreement to be responsible for the administration of the Plan. If no Administrator is designated in the Adoption Agreement, the Administrator is the Plan Sponsor.
|
|
2.3
|
“Adoption Agreement”
means the agreement adopted by the Plan Sponsor that establishes the Plan.
|
|
2.4
|
“Beneficiary”
means the persons, trusts, estates or other entities entitled under Section 8.2 to receive benefits under the Plan upon the death of a Participant.
|
|
2.5
|
“Board” or “Board of Directors”
means the Board of Directors of the Plan Sponsor.
|
|
2.6
|
“Bonus”
means an amount of incentive remuneration payable by the Employer to a Participant.
|
|
2.7
|
“Change in Control”
means the occurrence of an event involving the Plan Sponsor that is described in Section 9.7.
|
|
2.8
|
“Code”
means the Internal Revenue Code of 1986, as amended.
|
|
2.9
|
“Compensation”
has the meaning specified in Section 3.01 of the Adoption Agreement.
|
|
2.10
|
“Director”
means a non-employee member of the Board who has been designated by the Employer as eligible to participate in the Plan.
|
|
2.11
|
“Disability”
means a determination by the Administrator that the Participant is either (a) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (b) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of not less than twelve months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Employer. A Participant will be considered to have incurred a Disability if he is determined to be totally disabled by the Social Security Administration or the Railroad Retirement Board.
|
|
2.12
|
“Eligible Employee”
means an employee of the Employer who satisfies the requirements in Section 2.01 of the Adoption Agreement.
|
|
2.13
|
“Employer”
means the Plan Sponsor and any other entity which is authorized by the Plan Sponsor to participate in and, in fact, does adopt the Plan.
|
|
2.14
|
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.
|
|
2.15
|
“Identification Date”
means the date as of which Key Employees are determined which is specified in Section 1.06 of the Adoption Agreement.
|
|
2.16
|
“Key Employee”
means an employee who satisfies the conditions set forth in Section 9.6.
|
|
2.17
|
“Participant”
means an Eligible Employee or Director who commences participation in the Plan in accordance with Article 3.
|
|
2.18
|
“Plan”
means the unfunded plan of deferred compensation set forth herein, including the Adoption Agreement and any trust agreement, as adopted by the Plan Sponsor and as amended from time to time.
|
|
2.19
|
“Plan Sponsor”
means the entity identified in Section 1.03 of the Adoption Agreement or any successor by merger, consolidation or otherwise.
|
|
2.20
|
“Plan Year”
means the period identified in Section 1.02 of the Adoption Agreement.
|
|
2.21
|
“Related Employer”
means the Employer and (a) any corporation that is a member of a controlled group of corporations as defined in Code Section 414(b) that includes the Employer and (b) any trade or business
|
|
2.22
|
“Retirement”
has the meaning specified in 6.01(f) of the Adoption Agreement.
|
|
2.23
|
“Separation from Service”
means the date that the Participant dies, retires or otherwise has a termination of employment with respect to all entities comprising the Related Employer. A Separation from Service does not occur if the Participant is on military leave, sick leave or other bona fide leave of absence if the period of leave does not exceed six months or such longer period during which the Participant’s right to re-employment is provided by statute or contract. If the period of leave exceeds six months and the Participant’s right to re-employment is not provided either by statute or contract, a Separation from Service will be deemed to have occurred on the first day following the six-month period. If the period of leave is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months, where the impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a 29 month period of absence may be substituted for the six month period.
|
|
2.24
|
“Unforeseeable Emergency”
means a severe financial hardship of the Participant resulting from an illness or accident of the Participant, the Participant’s spouse, the Participant’s Beneficiary, or the Participant’s dependent (as defined in Code Section 152, without regard to Code section 152(b)(1), (b)(2) and (d)(1)(B); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
|
|
2.25
|
“Valuation Date”
means each business day of the Plan Year that the New York Stock Exchange is open.
|
|
2.26
|
“Years of Service”
means each one year period for which the Participant receives service credit in accordance with the provisions of Section 7.01(d) of the Adoption Agreement.
|
|
3.1
|
Participation.
The Participants in the Plan shall be those Directors and employees of the Employer who satisfy the requirements of Section 2.01 of the Adoption Agreement.
|
|
3.2
|
Termination of Participation.
The Administrator may terminate a Participant’s participation in the Plan in a manner consistent with Code Section 409A. If the Employer terminates a Participant’s participation before the Participant experiences a Separation from Service the Participant’s vested Accounts shall be paid in accordance with the provisions of Article 9.
|
|
4.1
|
Deferral Agreement.
If permitted by the Plan Sponsor in accordance with Section 4.01 of the Adoption Agreement, each Eligible Employee and Director may elect to defer his Compensation within the meaning of Section 3.01 of the Adoption Agreement by executing in writing or electronically, a deferral agreement in accordance with rules and procedures established by the Administrator and the provisions of this Article 4.
|
|
4.2
|
Amount of Deferral.
An Eligible Employee or Director may elect to defer Compensation in any amount permitted by Section 4.01(a) of the Adoption Agreement.
|
|
4.3
|
Timing of Election to Defer.
Each Eligible Employee or Director who desires to defer Compensation otherwise payable during a Plan Year must execute a deferral agreement within the period preceding the Plan Year specified by the Administrator. Each Eligible Employee who desires to defer Compensation that is a Bonus must execute a deferral agreement within the period preceding the Plan Year during which the Bonus is earned that is specified by the Administrator, except that if the Bonus can be treated as performance based compensation as described in Code Section 409A(a)(4)(B)(iii), the deferral agreement may be executed within the period specified by the Administrator, which period, in no event, shall end after the date which is six months prior to the end of the period during which the Bonus is earned, provided the Participant has performed services continuously from the later of the beginning of the performance period or the date the performance criteria are established through the date the Participant executed the deferral agreement and provided further that the compensation has not yet become ‘readily ascertainable’ within the meaning of Reg. Sec 1.409A-2(a)(8). In addition, if the Compensation qualifies as ‘fiscal year compensation’ within the meaning of Reg. Sec.
|
|
4.4
|
Election of Payment Schedule and Form of Payment.
|
|
5.1
|
Matching Contributions.
If elected by the Plan Sponsor in Section 5.01(a) of the Adoption Agreement, the Employer will credit the Participant’s Account with a matching contribution determined in accordance with the formula specified in Section 5.01(a) of the Adoption Agreement. The matching contribution will be treated as allocated to the Participant’s Account at the time specified in Section 5.01(a)(iii) of the Adoption Agreement.
|
|
5.2
|
Other Contributions.
If elected by the Plan Sponsor in Section 5.01(b) of the Adoption Agreement, the Employer will credit the Participant’s Account with a contribution determined in accordance with the formula or method specified in Section 5.01(b) of the Adoption Agreement. The contribution will be treated as allocated to the Participant’s Account at the time specified in Section 5.01(b)(iii) of the Adoption Agreement.
|
|
6.1
|
Establishment of Account.
For accounting and computational purposes only, the Administrator will establish and maintain an Account on behalf of each Participant which will reflect the credits made pursuant to Section 6.2, distributions or withdrawals, along with the earnings, expenses, gains and losses allocated thereto, attributable to the hypothetical investments made with the amounts in the Account as provided in Article 7. The Administrator will establish and maintain such other records and accounts, as it decides in its discretion to be reasonably required or appropriate to discharge its duties under the Plan.
|
|
6.2
|
Credits to Account.
A Participant’s Account will be credited for each Plan Year with the amount of his elective deferrals under Section 4.1 at the time the amount subject to the deferral election would otherwise have been payable to the Participant and the amount of Employer contributions treated as allocated on his behalf under Article 5.
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7.1
|
Investment Options.
The amount credited to each Account shall be treated as invested in the investment options designated for this purpose by the Administrator.
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7.2
|
Adjustment of Accounts.
The amount credited to each Account shall be adjusted for hypothetical investment earnings, expenses, gains or losses in an amount equal to the earnings, expenses, gains or losses attributable to the investment options selected by the party designated in Section 9.01 of the Adoption Agreement from among the investment options provided in Section 7.1. If permitted by Section 9.01 of the Adoption Agreement, a Participant (or the Participant’s Beneficiary after the death of the Participant) may, in accordance with rules and procedures established by the Administrator, select the investments from among the options provided in Section 7.1 to be used for the purpose of calculating future hypothetical investment adjustments to the Account or to future credits to the Account under Section 6.2 effective as of the Valuation Date coincident with or next following notice to the Administrator. Each Account shall be adjusted as of each Valuation Date to reflect: (a) the hypothetical earnings, expenses, gains and losses described above; (b) amounts credited pursuant to Section 6.2; and (c) distributions or withdrawals. In addition, each Account may be adjusted for its allocable share of the hypothetical costs and expenses associated with the maintenance of the hypothetical investments provided in Section 7.1.
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8.1
|
Vesting.
A Participant, at all times, has a 100% nonforfeitable interest in the amounts credited to his Account attributable to his elective deferrals made in accordance with Section 4.1.
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8.2
|
Death.
The Plan Sponsor may elect to accelerate vesting upon the death of the Participant in accordance with Section 7.01(c) of the Adoption Agreement and/or to accelerate distributions upon Death in accordance with Section 6.01(b) or Section 6.01(d) of the Adoption Agreement. If the Plan Sponsor does not elect to accelerate distributions upon death in accordance with Section 6.01(b) or Section 6.01(d) of the Adoption Agreement, the vested amount credited to the Participant’s Account will be paid in accordance with the provisions of Article 9.
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8.3
|
Disability.
If the Plan Sponsor has elected to accelerate vesting upon the occurrence of a Disability in accordance with Section 7.01(c) of the Adoption Agreement and/or to permit distributions upon Disability in accordance with Section 6.01(b) or Section 6.01(d) of the Adoption Agreement, the determination of whether a Participant has incurred a Disability shall be made by the Administrator in its sole discretion in a manner consistent with the requirements of Code Section 409A.
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9.1
|
Amount of Benefits.
The vested amount credited to a Participant’s Account as determined under Articles 6, 7 and 8 shall determine and constitute the basis for the value of benefits payable to the Participant under the Plan.
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9.2
|
Method and Timing of Distributions.
Except as otherwise provided in this Article 9, distributions under the Plan shall be made in accordance with the elections made or deemed made by the Participant under Article 4. Subject to the provisions of Section 9.6 requiring a six month delay for certain distributions to Key Employees, distributions following a payment event shall commence at the time specified in Section 6.01(a) of the Adoption Agreement. If permitted by Section 6.01(g) of the Adoption Agreement, a Participant may elect, at least twelve months before a scheduled distribution event, to delay the payment date for a minimum period of sixty months from the originally scheduled date of payment, provided the election does not take effect for at least twelve months from the date on which the election is made. The distribution election change must be made in accordance with procedures and rules established by the Administrator. The Participant may, at the same time the date of payment is deferred, change the form of payment but such change in the form of payment may not effect an acceleration of payment in violation of Code Section 409A or the provisions of Reg. Sec. 1.409A-2(b). For purposes of this Section 9.2, a series of installment payments is always treated as a single payment and not as a series of separate payments.
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9.3
|
Unforeseeable Emergency.
A Participant may request a distribution due to an Unforeseeable Emergency if the Plan Sponsor has elected to permit Unforeseeable Emergency withdrawals under Section 8.01(a) of the Adoption Agreement. The request must be in writing and must be submitted to the Administrator along with evidence that the circumstances constitute an Unforeseeable Emergency. The Administrator has the discretion to require whatever evidence it deems necessary to determine whether a distribution is warranted, and may require the Participant to certify that the need cannot be met from other sources reasonably available to the Participant. Whether a Participant has incurred an Unforeseeable Emergency will be determined by the Administrator on the basis of the relevant facts and circumstances in its sole discretion, but, in no event, will an Unforeseeable Emergency be deemed to exist if the hardship can be relieved: (a) through reimbursement or compensation by insurance or otherwise, (b) by liquidation of the Participant’s assets to the extent such liquidation would not itself cause severe financial hardship, or (c) by cessation of deferrals under the Plan. A distribution due to an Unforeseeable Emergency must be limited to the amount reasonably necessary to satisfy the emergency need and may include any amounts necessary to pay any federal, state, foreign or local income taxes and penalties reasonably anticipated to result from the distribution. The distribution will be made in the form of a single lump sum cash payment. If permitted by Section 8.01(b) of the Adoption Agreement, a Participant’s deferral elections for the remainder of the Plan Year will be cancelled upon a withdrawal due to an Unforeseeable Emergency. If the payment of all or any portion of the Participant’s vested Account is being delayed in accordance with Section 9.6 at the time he experiences an Unforeseeable Emergency, the amount being delayed shall not be subject to the provisions of this Section 9.3 until the expiration of the six month period of delay required by section 9.6.
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9.4
|
Payment Election Overrides.
If the Plan Sponsor has elected one or more payment election overrides in accordance with Section 6.01(d) of the Adoption Agreement, the following provisions apply. Upon the occurrence of the first event selected by the Plan Sponsor, the remaining vested amount credited to the Participant’s Account shall be paid in the form designated to the Participant or his Beneficiary regardless of whether the Participant had made different elections of time and /or form of payment or whether the Participant was receiving installment payments at the time of the event.
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9.5
|
Cashouts Of Amounts Not Exceeding Stated Limit.
If the vested amount credited to the Participant’s Account does not exceed the limit established for this purpose by the Plan Sponsor in Section 6.01(e) of the Adoption Agreement at the time he incurs a Separation from Service for any reason, the Employer shall distribute such amount to the Participant at the time specified in Section 6.01(a) of the Adoption Agreement in a single lump sum cash payment following such Separation from Service regardless of whether the Participant had made different elections of time or form of payment as to the vested amount credited to his Account or whether the Participant was receiving installments at the time of such termination. A Participant’s Account, for purposes of this Section 9.5, shall include any amounts described in Section 1.3.
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9.6
|
Required Delay in Payment to Key Employees
. Except as otherwise provided in this Section 9.6, a distribution made on account of Separation from Service (or Retirement, if applicable) to a Participant who is a Key Employee as of the date of his Separation from Service (or Retirement, if applicable) shall not be made before the date which is six months after the Separation from Service (or Retirement, if applicable).
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9.7
|
Change in Control.
If the Plan Sponsor has elected to permit distributions upon a Change in Control, the following provisions shall apply. A distribution made upon a Change in Control will be made at the time specified in Section 6.01(a) of the Adoption Agreement in the form elected by the Participant in accordance with the procedures described in Article 4. Alternatively, if the Plan Sponsor has elected in accordance with Section 11.02 of the Adoption Agreement to require distributions upon a Change in Control, the Participant’s remaining vested Account shall be paid to the Participant or the Participant’s Beneficiary at the time specified in Section 6.01(a) of the Adoption Agreement as a single lump sum payment. A Change in Control, for purposes of the Plan, will occur upon a change in the ownership of the Plan Sponsor, a change in the effective control of the Plan Sponsor or a change in the ownership of a substantial portion of the assets of the Plan Sponsor, but only if elected by the Plan Sponsor in Section 11.03 of the Adoption Agreement. The Plan Sponsor, for this purpose, includes any corporation identified in this Section 9.7. All distributions made in accordance with this Section 9.7 are subject to the provisions of Section 9.6.
If a Participant continues to make deferrals in accordance with Article 4 after he has received a distribution due to a Change in Control, the residual amount payable to the Participant shall be paid at the time and in the form specified in the elections he makes in accordance with Article 4 or upon his death or Disability as provided in Article 8. Whether a Change in Control has occurred will be determined by the Administrator in accordance with the rules and definitions set forth in this Section 9.7. A distribution to the Participant will be treated as occurring upon a Change in Control if the Plan Sponsor terminates the Plan in accordance with Section 10.2 and distributes the Participant’s benefits within twelve months of a Change in Control as provided in Section 10.3. |
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(a
|
Relevant Corporations.
To constitute a Change in Control for purposes of the Plan, the event must relate to (i) the corporation for whom the Participant is performing services at the time of the Change in Control, (ii) the corporation that is liable for the payment of the Participant’s benefits under the Plan (or all corporations liable if more than one corporation is liable) but only if either the deferred compensation is attributable to the performance of services by the Participant for such corporation (or corporations) or there is a bona fide business purpose for such corporation (or corporations) to be liable for such payment and, in either case, no significant purpose of making such corporation (or corporations) liable for such payment is the avoidance of federal income tax, or (iii) a corporation that is a majority shareholder of a corporation identified in (i) or (ii), or any corporation in a chain of corporations in which each corporation is a majority shareholder of another corporation in the chain, ending in a corporation identified in (i) or (ii). A majority shareholder is defined as a shareholder owning more than fifty percent (50%) of the total fair market value and voting power of such corporation.
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(b
|
Stock Ownership.
Code Section 318(a) applies for purposes of determining stock ownership. Stock underlying a vested option is considered owned by the individual who owns the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). If, however, a vested option is exercisable for stock that is not substantially vested (as defined by Treasury Regulation Section 1.83-3(b) and (j)) the stock underlying the option is not treated as owned by the individual who holds the option.
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(c
|
Change in the Ownership of a Corporation.
A change in the ownership of a corporation occurs on the date that any one person or more than one person acting as a group, acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of such corporation. If any one person or more than one person acting as a group is considered to own more than fifty percent (50%) of the total fair market value or total voting power of the stock of a corporation, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the corporation (or to cause a change in the effective control of the corporation as discussed below in Section 9.7(d)). An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the corporation acquires its stock in exchange for property will be treated as an acquisition of stock. Section 9.7(c) applies only when there is a transfer of stock of a corporation (or issuance of stock of a corporation) and stock in such corporation remains outstanding after the transaction. For purposes of this Section 9.7(c), persons will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time or as a result of a public offering. Persons will, however, be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only with respect to ownership in that corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.
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(d
|
Change in the effective control of a corporation.
A change in the effective control of a corporation occurs on the date that either (i) any one person, or more than one person acting as a group, acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the corporation possessing thirty percent (30%) or more of the total voting power of the stock of such corporation, or (ii) a majority of members of the corporation’s board of directors is replaced during any twelve month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors prior to the date of the appointment or election, provided that for purposes of this paragraph (ii), the term corporation refers solely to the relevant corporation identified in Section 9.7(a) for which no other corporation is a majority shareholder for purposes of Section 9.7(a). In the absence of an event described in Section 9.7(d)(i) or (ii), a change in the effective control of a corporation will not have occurred. A change in effective control may also occur in any transaction in which either of the two corporations involved in the transaction has a change in the ownership of such corporation as described in Section 9.7(c) or a change in the ownership of a substantial portion of the assets of such corporation as described in Section 9.7(e). If any one person, or more than one person acting as a group, is considered to effectively control a corporation within the meaning of this Section 9.7(d), the acquisition of additional control of the corporation by the same person or persons is not considered to cause a change in the effective control of the corporation or to cause a change in the ownership of the corporation within the meaning of Section 9.7(c). For purposes of this Section 9.7(d), persons will or will not be considered to be acting as a group in accordance with rules similar to those set forth in Section 9.7(c) with the following exception. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation only with respect to the ownership in that corporation prior to the transaction giving rise to the change and not with respect to the ownership interest in the other corporation.
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(e
|
Change in the ownership of a substantial portion of a corporation’s assets.
A change in the ownership of a substantial portion of a corporation’s assets occurs on the date that any one person, or more than one person acting as a group (as determined in accordance with rules similar to those set forth in Section 9.7(d)), acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the corporation immediately prior to such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of the corporation or the value of the assets being disposed of determined without regard to any liabilities associated with such assets. There is no Change in Control event under this Section 9.7(e) when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. A transfer of assets by a corporation is not treated as a change in ownership of such assets if the assets are transferred to (i) a shareholder of the corporation (immediately before the asset transfer) in exchange for or with respect to its stock, (ii) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the corporation, (iii) a person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the corporation, or (iv) an entity, at least fifty (50%) of the total value or voting power of which is owned, directly or indirectly, by a person described in Section 9.7(e)(iii). For purposes of the foregoing, and except as otherwise provided, a person’s status is determined immediately after the transfer of assets.
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9.8
|
Permissible Delays in Payment.
Distributions may be delayed beyond the date payment would otherwise occur in accordance with the provisions of Articles 8 and 9 in any of the following circumstances as long as the Employer treats all payments to similarly situated Participants on a reasonably consistent basis.
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(a
|
The Employer may delay payment if it reasonably anticipates that its deduction with respect to such payment would be limited or eliminated by the application of Code Section 162(m). Payment must be made during the Participant’s first taxable year in which the Employer reasonably anticipates, or should reasonably anticipate, that if the payment is made during such year the deduction of such payment will not be barred by the application of Code Section 162(m) or during the period beginning with the Participant’s Separation from Service and ending on the later of the last day of the Employer’s taxable year in which the Participant separates from service or the 15th day of the third month following the Participant’s Separation from Service. If a scheduled payment to a Participant is delayed in accordance with this Section 9.8(a), all scheduled payments to the Participant that could be delayed in accordance with this Section 9.8(a) will also be delayed.
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(b
|
The Employer may also delay payment if it reasonably anticipates that the making of the payment will violate federal securities laws or other applicable laws provided payment is made at the earliest date on which the Employer reasonably anticipates that the making of the payment will not cause such violation.
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(c
|
The Employer reserves the right to amend the Plan to provide for a delay in payment upon such other events and conditions as the Secretary of the Treasury may prescribe in generally applicable guidance published in the Internal Revenue Bulletin.
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9.9
|
Permitted Acceleration of Payment
.
The Employer may permit acceleration of the time or schedule of any payment or amount scheduled to be paid pursuant to a payment under the Plan provided such acceleration would be permitted by the provisions of Reg. Sec. 1.409A-3(j)(4), including the following events:
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|
(a)
|
Domestic Relations Order.
A payment may be accelerated if such payment is made to an alternate payee pursuant to and following the receipt and qualification of a domestic relations order as defined in Code Section 414(p).
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(b)
|
Compliance with Ethics Agreements and Legal Requirements.
A payment may be accelerated as may be necessary to comply with ethics agreements with the Federal government or as may be reasonably necessary to avoid the violation of Federal, state, local or foreign ethics law or conflicts of laws, in accordance with the requirements of Code Section 409A.
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(c)
|
De Minimis Amounts.
A payment will be accelerated if (i) the amount of the payment is not greater than the applicable dollar amount under Code Section 402(g)(1)(B), (ii) at the time the payment is made the amount constitutes the Participant’s entire interest under the Plan and all other plans that are aggregated with the Plan under Reg. Sec. 1.409A-1(c)(2).
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(d)
|
FICA Tax.
A payment may be accelerated to the extent required to pay the Federal Insurance Contributions Act tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2) of the Code with respect to compensation deferred under the Plan (the “FICA Amount”). Additionally, a payment may be accelerated to pay the income tax on wages imposed under Code Section 3401 of the Code on the FICA Amount and to pay the additional income tax at source on wages attributable to the pyramiding Code Section 3401 wages and taxes. The total payment under this subsection (d) may not exceed the aggregate of the FICA Amount and the income tax withholding related to the FICA Amount.
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(e)
|
Section 409A Additional Tax.
A payment may be accelerated if the Plan fails to meet the requirements of Code Section 409A; provided that such payment may not exceed the amount required to be included in income as a result of the failure to comply with the requirements of Code Section 409A.
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|
(f)
|
Offset.
A payment may be accelerated in the Employer’s discretion as satisfaction of a debt of the Participant to the Employer, where such debt is incurred in the ordinary course of the service relationship between the Participant and the Employer, the entire amount of the reduction in any of the Employer’s taxable years does not exceed $5,000, and the reduction is made at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant.
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(g)
|
Other Events.
A payment may be accelerated in the Administrator’s discretion in connection with such other events and conditions as permitted by Code Section 409A.
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10.1
|
Amendment by Plan Sponsor.
The Plan Sponsor reserves the right to amend the Plan (for itself and each Employer) through action of the Compensation Committee of its Board of Directors. In addition, the CEO together with the Chief Human Resources Officer (CHRO), may also amend the Plan (for the Company and each Employer) for any amendments that are determined by both individuals, in their joint discretion, to be administrative in nature or necessary or advisable to conform to the Plan to any legal or regulatory changes or guidance . No amendment can directly or indirectly deprive any current or former Participant or Beneficiary of all or any portion of his Account which had accrued and vested prior to the amendment.
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10.2
|
Plan Termination Following Change in Control or Corporate Dissolution.
If so elected by the Plan Sponsor in 11.01 of the Adoption Agreement, the Plan Sponsor reserves the right to terminate the Plan and distribute all amounts credited to all Participant Accounts within the 30 days preceding or the twelve months following a Change in Control as determined in accordance with the rules set forth in Section 9.7. For this purpose, the Plan will be treated as terminated only if all agreements, methods, programs and other arrangements sponsored by the Related Employer immediately after the Change in Control which are treated as a single plan under Reg. Sec. 1.409A-1(c)(2) are also terminated so that all participants under the Plan and all similar arrangements are required to receive all amounts deferred under the terminated arrangements within twelve months of the date the Plan Sponsor irrevocably takes all necessary action to terminate the arrangements. In addition, the Plan Sponsor reserves the right to terminate the Plan within twelve months of a corporate dissolution taxed under Code Section 331 or with the approval of a bankruptcy court pursuant to 11 U. S. C. Section 503(b)(1)(A) provided that amounts deferred under the Plan are included in the gross incomes of Participants in the latest of (a) the calendar year in which the termination and liquidation occurs, (b) the first calendar year in which the amount is no longer subject to a substantial risk of forfeiture, or (c) the first calendar year in which payment is administratively practicable.
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|
10.3
|
Other Plan Terminations.
The Plan Sponsor retains the discretion to terminate the Plan if (a) all arrangements sponsored by the Plan Sponsor that would be aggregated with any terminated arrangement under Code Section 409A and Reg. Sec. 1.409A-1(c)(2) are terminated, (b) no payments other than payments that would be payable under the terms of the arrangements if the termination had not occurred are made within twelve months of the termination of the arrangements, (c) all payments are
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|
11.1
|
Establishment of Trust.
The Plan Sponsor may but is not required to establish a trust to hold amounts which the Plan Sponsor may contribute from time to time to correspond to some or all amounts credited to Participants under Section 6.2. In the event that the Plan Sponsor wishes to establish a trust to provide a source of funds for the payment of Plan benefits, any such trust shall be constructed to constitute an unfunded arrangement that does not affect the status of the Plan as an unfunded plan for purposes of Title I of ERISA and the Code. If the Plan Sponsor elects to establish a trust in accordance with Section 10.01 of the Adoption Agreement, the provisions of Sections 11.2 and 11.3 shall become operative.
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|
11.2
|
Rabbi Trust.
Any trust established by the Plan Sponsor shall be between the Plan Sponsor and a trustee pursuant to a separate written agreement under which assets are held, administered and managed, subject to the claims of the Plan Sponsor’s creditors in the event of the Plan Sponsor’s insolvency. The trust is intended to be treated as a rabbi trust in accordance with existing guidance of the Internal Revenue Service, and the establishment of the trust shall not cause the Participant to realize current income on amounts contributed thereto. The Plan Sponsor must notify the trustee in the event of a bankruptcy or insolvency.
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11.3
|
Investment of Trust Funds.
Any amounts contributed to the trust by the Plan Sponsor shall be invested by the trustee in accordance with the provisions of the trust and the instructions of the Administrator. Trust investments need not reflect the hypothetical investments selected by Participants under Section 7.1 for the purpose of adjusting Accounts and the earnings or investment results of the trust need not affect the hypothetical investment adjustments to Participant Accounts under the Plan.
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|
12.1
|
Powers and Responsibilities of the Administrator.
The Administrator has the full power and the full responsibility to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The Administrator’s powers and responsibilities include, but are not limited to, the following:
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|
(a)
|
To make and enforce such rules and procedures as it deems necessary or proper for the efficient administration of the Plan;
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|
(b)
|
To interpret the Plan, its interpretation thereof to be final, except as provided in Section 12.2, on all persons claiming benefits under the Plan;
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|
(c)
|
To decide all questions concerning the Plan and the eligibility of any person to participate in the Plan;
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|
(d)
|
To administer the claims and review procedures specified in Section 12.2;
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|
(e)
|
To compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the provisions of the Plan;
|
|
(f)
|
To determine the person or persons to whom such benefits will be paid;
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|
(g)
|
To authorize the payment of benefits;
|
|
(h)
|
To comply with the reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA;
|
|
(i)
|
To appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan;
|
|
(j)
|
By written instrument, to allocate and delegate its responsibilities, including the formation of an Administrative Committee to administer the Plan.
|
|
12.2
|
Claims and Review Procedures.
|
|
(a)
|
Claims Procedure.
|
|
(b)
|
Review Procedure.
|
|
(c)
|
Exhaustion of Claims Procedures and Right to Bring Legal Claim
No action at law or equity shall be brought more than one (1) year after the Administrator’s affirmation of a denial of a claim, or, if earlier, more than four (4) years after the facts or events giving rising to the claimant’s allegation(s) or claim(s) first occurred. |
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12.3
|
Plan Administrative Costs.
All reasonable costs and expenses (including legal, accounting, and employee communication fees) incurred by the Administrator in administering the Plan shall be paid by the Plan to the extent not paid by the Employer.
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|
13.1
|
Unsecured General Creditor of the Employer.
Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of the Employer. For purposes of the payment of benefits under the Plan, any and all of the Employer’s assets shall be, and shall remain, the general, unpledged, unrestricted assets of the Employer. Each Employer's obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
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13.2
|
Employer’s Liability
.
Each Employer’s liability for the payment of benefits under the Plan shall be defined only by the Plan and by the deferral agreements entered into between a Participant and the Employer. An Employer shall have no obligation or liability to a Participant under the Plan except as provided by the Plan and a deferral agreement or agreements. An Employer shall have no liability to Participants employed by other Employers.
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13.3
|
Limitation of Rights
.
Neither the establishment of the Plan, nor any amendment thereof, nor the creation of any fund or account, nor the payment of any benefits, will be construed as giving to the Participant or any other person any legal or equitable right against the Employer, the Plan or the Administrator, except as provided herein; and in no event will the terms of employment or service of the Participant be modified or in any way affected hereby.
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|
13.4
|
Anti-Assignment
.
Except as may be necessary to fulfill a domestic relations order within the meaning of Code Section 414(p), none of the benefits or rights of a Participant or any Beneficiary of a Participant shall be subject to the claim of any creditor. In particular, to the fullest extent permitted by law, all such benefits and rights shall be free from attachment, garnishment, or any other legal or equitable process available to any creditor of the Participant and his or her Beneficiary. Neither the Participant nor his or her Beneficiary shall have the right to alienate, anticipate, commute, pledge, encumber, or assign any of the payments which he or she may expect to receive, contingently or otherwise, under the Plan, except the right to designate a Beneficiary to receive death benefits provided hereunder. Notwithstanding the preceding, the benefit payable from a Participant’s Account may be reduced, at the discretion of the administrator, to satisfy any debt or liability to the Employer.
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|
13.5
|
Facility of Payment
.
If the Administrator determines, on the basis of medical reports or other evidence satisfactory to the Administrator, that the recipient of
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|
13.6
|
Notices.
Any notice or other communication to the Employer or Administrator in connection with the Plan shall be deemed delivered in writing if addressed to the Plan Sponsor at the address specified in Section 1.03 of the Adoption Agreement and if either actually delivered at said address or, in the case or a letter, 5 business days shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered or certified.
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|
13.7
|
Tax Withholding
.
If the Employer concludes that tax is owing with respect to any deferral or payment hereunder, the Employer shall withhold such amounts from any payments due the Participant or from amounts deferred, as permitted by law, or otherwise make appropriate arrangements with the Participant or his Beneficiary for satisfaction of such obligation. Tax, for purposes of this Section 13.7 means any federal, state, local or any other governmental income tax, employment or payroll tax, excise tax, or any other tax or assessment owing with respect to amounts deferred, any earnings thereon, and any payments made to Participants under the Plan.
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|
13.8
|
Indemnification.
(a) Each Indemnitee (as defined in Section 13.8(e)) shall be indemnified and held harmless by the Employer for all actions taken by him and for all failures to take action (regardless of the date of any such action or failure to take action), to the fullest extent permitted by the law of the jurisdiction in which the Employer is incorporated, against all expense, liability, and loss (including, without limitation, attorneys' fees, judgments, fines, taxes, penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Indemnitee in connection with any Proceeding (as defined in Subsection (e)). No indemnification pursuant to this Section shall be made, however, in any case where (1) the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness or (2) there is a settlement to which the Employer does not consent.
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13.9
|
Successors
.
The provisions of the Plan shall bind and inure to the benefit of the Plan Sponsor, the Employer and their successors and assigns and the Participant and the Participant’s designated Beneficiaries.
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13.10
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Disclaimer.
It is the Plan Sponsor’s intention that the Plan comply with the requirements of Code Section 409A. Neither the Plan Sponsor nor the Employer shall have any liability to any Participant should any provision of the Plan fail to satisfy the requirements of Code Section 409A.
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13.11
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Governing Law
.
The Plan will be construed, administered and enforced according to the laws of the State specified by the Plan Sponsor in Section 12.01 of the Adoption Agreement.
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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 25, 2017
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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 25, 2017
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