You should read the following discussion together with the “Selected Financial Data,” “Forward-Looking Statements” and the consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors” and “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.
Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and (c) Transitional, which refers to businesses thatour campus operations which have been or are currently being taught out.
Our campuses, a majority of which serve major metropolitan markets, are located throughout the United States. Five of our campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. Our other campuses primarily attract students from their local communities and surrounding areas. All of our schools are either nationally or regionally accredited and are eligible to participate in federal financial aid programs.
Our revenues consist primarily of student tuition and fees derived from the programs we offer. Our revenues are reduced by scholarships granted to our students. We recognize revenues from tuition and one-time fees, such as application fees, ratably over the length of a program, including internships or externships that take place prior to graduation. We also earn revenues from our bookstores, dormitories, cafeterias and contract training services. These non-tuition revenues are recognized upon delivery of goods or as services are performed and represent less than 10% of our revenues.
Our revenues are directly dependent on the average number of students enrolled in our schools and the courses in which they are enrolled. Our average enrollment is impacted by the number of new students starting, re-entering, graduating and withdrawing from our schools. In addition, ourOur diploma/certificate programs range from 19 to 136 weeks, our associate’s degree programs range from 64 to 98 weeks, and students attend classes for different amounts of time per week depending on the school and program in which they are enrolled. Because we start new students every month, our total student population changes monthly. The number of students enrolling or re-entering our programs each month is driven by the demand for our programs, the effectiveness of our marketing and advertising, the availability of financial aid and other sources of funding, the number of recent high school graduates, the job market and seasonality. Our retention and graduation rates are influenced by the quality and commitment of our teachers and student services personnel, the effectiveness of our programs, the placement rate and success of our graduates and the availability of financial aid. Although similar courses have comparable tuition rates, the tuition rates vary among our numerous programs.
The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The largest of these programs are Title IV Programs which represented approximately 78% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students during both 20182019 and 2017.2018. The Higher Education Act of 1965, as amended (the “HEA”) requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 rule.
We extend credit for tuition and fees to many of our students that attend our campuses. Our credit risk is mitigated through the students’ participation in federally funded financial aid programs unless students withdraw prior to the receipt by us of Title IV Program funds for those students. Under Title IV Programs, the government funds a certain portion of a student’s tuition, with the remainder, referred to as “the gap,” financed by the students themselves under private party loans, including credit extended by us. The gap amount has continued to increase over the last several years as we have raised tuition on average for the last several years by 2-3% per year and restructured certain programs to reduce the amount of financial aid available to students, while funds received from Title IV Programs increased at lower rates.
The additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity. However, we believe that these risks are somewhat mitigated due to the following:
To the Stockholders and Board of Directors of Lincoln Educational Services Corporation
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,2019, of the Company and our report dated March 12, 2019,6, 2020, expressed an unqualified opinion on those consolidated financial statements.statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
F-10
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 20182019 AND 20172018 AND FOR THE THREE YEARS ENDED DECEMBER 31, 20182019
(In thousands, except share and per share amounts, schools, training sites, campuses and unless otherwise stated)
1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Business Activities— Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 22 schools in 14 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, and pharmacy technician, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and information technology. The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid.
The Company’s business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and (c) Transitional, which refers to businesses thatour campus operations which have been or are currently being taught out.closed prior to 2019.
On July 9, 2018, New England Institute of Technology at Palm Beach, Inc. (“NEIT”), a wholly-owned subsidiary of the Company, entered into a commercial contract (the “Sale Agreement”) with Elite Property Enterprise, LLC, pursuant to which NEIT agreed to sell to Elite Property Enterprise, LLC the real property owned by NEIT located at 1126 53rd Court North, Mangonia Park, Palm Beach County, Florida and the improvements and certain personal property located thereon (the “Mangonia Park Property”), for a cash purchase price of $2,550,000. On August 23, 2018, NEIT, consummated the sale of the Mangonia Park Property. At the closing, NEIT paid a real estate brokerage fee equal to 5% of the gross sales price and other customary closing costs and expenses. Pursuant to the provisions of the Company’s Credit Agreement with its lender, Sterling National Bank, the net cash proceeds of the sale of the Mangonia Park Property were deposited into an account with the lender to serve as additional security for loans and other financial accommodations provided to the Company and its subsidiaries under the credit facility. In December 2018, the funds were used to repay the outstanding principal balance of the loans outstanding under the credit facility and such repayment permanently reduced the revolving loan availability under the credit facility designated as Facility 1 under the Company’s Credit Agreement to $22.7 million.
Effective December 31, 2018, the Company completed the teach-out and ceased operation of its Lincoln College of New England (“LCNE”) campus at Southington, Connecticut. The decision to close the LCNE campus followed the previously reported placement of LCNE on probation by the college’s institutional accreditor, the New England Association of Schools and Colleges (“NEASC”). After evaluating alternative options, the Company concluded that teaching out and closing the campus was in the best interest of the Company and its students. Subsequent to formalizing the LCNE closure decision in August 2018, the Company partnered with Goodwin College, another NEASC- accredited institution in the region, to assist LCNE students to complete their programs of study. The majority of the LCNE students will continue their education at Goodwin College thereby limiting some of the Company’s closing costs. The revenue, net loss and ending population of LCNE, as of December 31, 2017, were $8.4 million, $1.6 million and 397 students, respectively. [The Company recorded closing cost associated with the closure of the LCNE campus in 2018 of approximately $1.6 million in connection with the termination of the LCNE campus lease, which is the net present value of the remaining obligation, to be paid in equal monthly installments through January 2020 and approximately $700,000 of severance payments. LCNE results, previously reported in the HOPS segment, are now included in the Transitional segment as of December 31, 2018.]
Liquidity—For the last several years, the Company and the proprietary school sector have faced deteriorating earnings. Government regulations have negatively impacted earnings by making it more difficult for potential students to obtain loans, which, when coupled with the overall economic environment, have discouraged potential students from enrolling in post-secondary schools. In light of these factors, the Company has incurred significant operating losses as a result of lower student population. Despite these challenges,However, over the last two years earnings have been improving and the Company had net income for the year ended December 31, 2019. As of December 31, 2019, the Company had a net cash balance of $4.6 million calculated as cash, cash equivalents and both short and long-term restricted cash less both short and long-term portion of the Company’s credit facility. The increase in cash position was primarily attributable to net proceeds of approximately $12.0 million obtained through the sale in November, 2019 of 12,700 shares of Series A Convertible Preferred Stock, no par value, the termination of our prior credit facility and the execution of a new senior secured credit facility with Sterling National Bank increasing available borrowings to $60 million from $47 million, and net income generated for the year ended December 31, 2019 of approximately $2.0 million. At December 31, 2019, the Company’s sources of cash primarily included cash and cash equivalents of $38.6 million (of which $15.0 million is restricted). In addition, the Company has availability to borrow additional funds under its credit facility for an additional $25.0 million. The Company is also continuing to take actions to improve cash flow by aligning its cost structure to its student population. The Company believes that itsthe likely sources of cash should be sufficient to fund operations for the next twelve months and thereafter for the foreseeable future. At December 31, 2018, the Company’s sources of cash primarily included cash and cash equivalents of $45.95 million (of which $28.4 million is restricted). Refer to Note 8 for more information on the Company’s revolving loan facility. The Company is also continuing to take actions to improve cash flow by aligning its cost structure to its student population.
Principles of Consolidation—The accompanying consolidated financial statements include the accounts of Lincoln Educational Services Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents—Cash and cash equivalents include all cash balances and highly liquid short-term investments, which contain original maturities within three months of purchase. Pursuant to the Department of Education’sDOE’s cash management requirements, the Company retains funds from financial aid programs under Title IV of the Higher Education Act in segregated cash management accounts. The segregated accounts do not require a restriction on use of the cash and, as such, these amounts are classified as cash and cash equivalents on the consolidated balance sheet.
Restricted Cash—Restricted cash consists of deposits maintained at financial institutions under a cash collateral agreement pursuant to the Company’s credit agreementfacility and cash collateral for letters of credit.credit as to 2018 under the Company’s prior credit facility. The amounts of $11.6$15.0 million and $32.8$11.6 million as of December 31, 20182019 and 2017,2018, respectively, of restricted cash are included in long-term assets in the consolidated balance sheets as the restrictions are greater than one year. Refer to Note 89 for more information on the Company’s revolving credit facility.
Accounts Receivable—The Company reports accounts receivable at net realizable value, which is equal to the gross receivable less an estimated allowance for uncollectible accounts. Noncurrent accounts receivable represent amounts due from graduates in excess of 12 months from the balance sheet date.
Allowance for Uncollectible Accounts—Based upon experience and judgment, an allowance is established for uncollectible accounts with respect to tuition receivables. In establishing the allowance for uncollectible accounts, the Company considers, among other things, current and expected economic conditions, a student'sstudent’s status (in-school or out-of-school), whether or not a student is currently making payments, and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students with delinquent obligations are reserved for based on our collection history.
Inventories—Inventories consist mainly of textbooks, computers, tools and supplies. Inventories are valued at the lower of cost or market on a first-in, first-out basis.
Property, Equipment and Facilities—Depreciation and Amortization—Property, equipment and facilities are stated at cost. Major renewals and improvements are capitalized, while repairs and maintenance are expensed when incurred. Upon the retirement, sale or other disposition of assets, costs and related accumulated depreciation are eliminated from the accounts and any gain or loss is reflected in operating income (loss) income.. For financial statement purposes, depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets, and amortization of leasehold improvements is computed over the lesser of the term of the lease or its estimated useful life.
Rent Expense—Rent expense related to operating leases where scheduled rent increases exist, is determined by expensing the total amount of rent due over the life of the operating lease on a straight-line basis. The difference between the rent paid under the terms of the lease and the rent expensed on a straight-line basis is included in accrued rent and other long-term liabilities on the accompanying consolidated balance sheets.
Advertising Costs—Costs related to advertising are expensed as incurred and approximated $29.8 million, $29.4 million $27.0 million and $28.0$27.0 million for the years ended December 31, 2019, 2018 2017 and 2016,2017, respectively. These amounts are included in selling, general and administrative expenses in the consolidated statements of operations.
Goodwill and Other Intangible Assets— The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, reductions in market value of the Company, and changes that restrict the activities of the acquired business, and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact these judgments in the future and require an adjustment to the recorded balances. The goodwill is allocated among nine reporting units within the Transportation and Skilled Trades Segment.
When we test goodwill balances for impairment, we estimatedetermine the fair value of each of our reporting units based on projected future operating resultsusing an equal weighting of the discounted cash flow model and cash flows,the market assumptions and/or comparative market multiple methods. Determiningapproach. The determination of fair value using the discounted cash flow model requires significant estimates and assumptions based on an evaluation of a number of factors, such as marketplace participants, relative market share, new student interest, student retention, future expansion or contraction expectations, amount and timingrelated to forecasts of future cash flowsrevenues, which is driven by student start growth, EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) margins, the long-term growth rate used in the calculation of the terminal value, and the discount rate appliedto apply against each reporting unit’s financial metrics. The determination of fair value using the market approach requires significant estimates and assumptions related to the cash flows. Projected future operating resultsselection of EBITDA multiples and cash flows used for valuation purposes do reflect improvements relative to recent historical periods with respect to, among other things, modest revenue growth and operating margins. the control premiums. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.
Although we believe our projected future operating results and cash flows and related estimates regarding fair values are based on reasonable assumptions, historically projected operating results and cash flows have not always been achieved. The failure of one of our reporting units to achieve projected operating results and cash flows in the near term or long term may reduce the estimated fair value of the reporting unit below its carrying value and result in the recognition of a goodwill impairment charge. Significant management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate future cash flows. Assumptions used in our impairment evaluations, such as forecasted growth rates and our cost of capital, are based on the best available market information and are consistent with our internal forecasts and operating plans. In addition to cash flow estimates, our valuations are sensitive to the rate used to discount cash flows and future growth assumptions.
At December 31, 2019, 2018 and 2017, we conducted our annual test for goodwill impairment and determined we did not have an impairment. At December 31, 2016, we conducted our annual test for goodwill impairment and determined we had an impairment of $9.9 million.
Impairment of Long-Lived Assets—The Company reviews the carrying value of its long-lived assets and identifiable intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company evaluates long-lived assets for impairment by examining estimated future cash flows using Level 3 inputs. These cash flows are evaluated by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If the Company determines that an asset’s carrying value is impaired, it will record a write-down of the carrying value of the asset and charge the impairment as an operating expense in the period in which the determination is made.
The Company concluded that for the years ended December 31, 2019, 2018 and 2017, there were no long-lived asset impairments.
The Company concluded that, for the year ended December 31, 2016, there was sufficient evidence to conclude that there was an impairment of certain long-lived assets which resulted in a pre-tax charge of $11.5 million.
Concentration of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company places its cash and cash equivalents with high credit quality financial institutions. The Company'sCompany’s cash balances with financial institutions typically exceed the Federal Deposit Insurance Corporation (“FDIC”) limit of $0.25 million. The Company'sCompany’s cash balances on deposit at December 31, 2018,2019, exceeded the balance insured by the FDIC Corporation (“FDIC”) by approximately $45.3$38.0 million. The Company has not experienced any losses to date on its invested cash.
The Company extends credit for tuition and fees to many of its students. The credit risk with respect to these accounts receivable is mitigated through the students'students’ participation in federally funded financial aid programs unless students withdraw prior to the receipt of federal funds for those students. In addition, the remaining tuition receivables are primarily comprised of smaller individual amounts due from students.
With respect to student receivables, the Company had no significant concentrations of credit risk as of December 31, 20182019 and 2017.2018.
Use of Estimates in the Preparation of Financial Statements—The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, the Company evaluates the estimates and assumptions, including those relatedused to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, revenue recognition, bad debts, impairments, fixed assets, income taxes, benefit plans and certain accruals. Actual results could differ from those estimates.
Stock-Based Compensation Plans—The Company measures the value of stock options on the grant date at fair value, using the Black-Scholes option valuation model. The Company amortizes the fair value of stock options, net of estimated forfeitures, utilizing straight-line amortization of compensation expense over the requisite service period of the grant.
The Company measures the value of service and performance-based restricted stock on the fair value of a share of common stock on the date of the grant. The Company amortizes the fair value of service-based restricted stock utilizing straight-line amortization of compensation expense over the requisite service period of the grant.
The Company amortizes the fair value of the performance-based restricted stock based on determination of the probable outcome of the performance condition. If the performance condition is expected to be met, then the Company amortizes the fair value of the number of shares expected to vest utilizing straight-line basis over the requisite performance period of the grant. However, if the associated performance condition is not expected to be met, then the Company does not recognize the stock-based compensation expense.
Income Taxes—The Company accounts for income taxes in accordance with ASCAccounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.
In accordance with ASC 740, the Company assesses our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets, the Company considered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact the Company’s valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. See information regarding the impact of the Tax Cuts and Jobs Act in Note 11.12.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 20182019 and 2017,2018, we did not record any interest and penalties expense associated with uncertain tax positions.
Derivative Instruments—The Company records the fair value of derivative instruments as either assets or liabilities on the balance sheet. The accounting for gains and losses resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.
All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash. The Company utilizes the change in variable cash flows method to evaluate hedge effectiveness quarterly. We record the fair value of the qualifying hedges in other long-term liabilities (for derivative liabilities) and other assets (for derivative assets). All unrealized gains and losses on derivatives that are designated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings. Changes in the fair value of these derivatives are recognized in other comprehensive income (loss). The Company classifies the cash flows from a cash flow hedge within the same category as the cash flows from the items being hedged.
The Company adopted Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, on January 1, 2019, which changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line item as the hedged item. The ASU also provides new alternatives for applying hedge accounting to additional hedging strategies, measuring the hedged item in fair value hedges of interest rate risk, reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method and reducing the risk of a material error correction if a company applies the shortcut method inappropriately. The adoption of ASU 2017-12 had no impact on the Company’s consolidated financial statements.
Start-up Costs—Costs related to the start of new campuses are expensed as incurred.
New Accounting Pronouncements
In August 2018,December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, Income Taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently assessing the effect that this ASU will have on its consolidated financial statements and related disclosures.
In July 2019, the FASB issued ASU No. 2019-07, “Codification Updates to SEC Sections,” to reflect the recently adopted amendments to the SEC final rules that were done to modernize and simplify certain reporting requirements for public companies, investment advisers and investment companies. This ASU is effective upon issuance and did not have a significant impact on the Company’s consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-14, “Compensation“Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.Plans”. This ASU adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We areThe Company is currently assessing the effect that this ASU will have on ourits consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("“ASU No. 2018-13"2018-13”), which eliminates, adds and modifies certain fair value measurement disclosure requirements of Accounting Standards Codification 820, Fair Value Measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company has decided not to early adopt the amendments. The adoption of ASU No. 2018-13 is not expected to have a material impact on the Company's consolidated financial statements.
In June 2018, FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting ("ASU No. 2018-07") intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. This ASU expands the scope of Topic 718, Compensation - Stock Compensation ("Topic 718"), to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The Company adopted ASU No. 2018-072018-13 on January 1, 2019. The adoption of the standard did not have a material impact on the Company's consolidated financial statements.2020. The Company will evaluate the impact of ASU No. 2018-07 for future awards to nonemployees subsequent to the effective date.
The FASB has issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718) — Scope of Modification Accounting.” ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award. The FASB adopted ASU 2017-09 to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to the modification of the terms and conditions of a share-based payment award. The amendments provide guidance on determining whichapply these changes to the terms and conditions of share-based payment award require an entity to apply modification accounting under Topic 718. ASU 2017-09 is effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. The Company adopted ASU 2017-09 on January 1, 2018. The adoption of ASU 2017-09 had no impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220)”. The updated guidance allows entities to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The updated guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted in any interim period and should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. The adoption of ASU No. 2018-02 is not expected to have a material impact on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment.” ASU 2017-04 provides amendments to Accounting Standards Code (“ASC”) 350, “Intangibles - Goodwill and Other,” which eliminate Step 2 from the goodwill impairment test. Entities should perform their goodwill impairment tests by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted the provisions of ASU 2017-04 as of April 1, 2017. As fair values for our operating units exceed their carrying values, there has been no impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business ("ASU No. 2017-01"). Under the amendments in this update, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs to be considered a business. In acquisitions where outputs are not present, FASB has developed more stringent criteria for sets of transferred assets and activities without outputs. The Company adopted ASU No. 2017-01 on January 1, 2018. There was no material impact associated with the adoption of the standard.
In November 2016, the FASB issued ASU 2016-18: “Statement of Cash Flows (Topic 230): Restricted Cash.” This guidance was issued to address the disparity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments will require that the statement of cash flows explain the change during the period in total cash, cash equivalents and restricted cash. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted the new standard effective January 1, 2018. The amendments were applied using a retrospective transition method to each period presented. The Company includes in its cash and cash-equivalent balances in the consolidated statements of cash flows those amounts that have been classified as restricted cash and restricted cash equivalents for each of the periods presented.
related disclosures.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” to address eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We adopted the new standard effective January 1, 2018. The adoption of ASU 2016-15 had no impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued a comprehensive new revenue recognition standard, ASU 2014-09, “Revenue from Contracts with Customers.” The amendments include ASU 2016-08, “Revenue from Contracts with Customers (Topic 606)—Principal versus Agent Considerations,” issued in March 2016, which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09, and ASU 2016-10, “Revenue from Contracts with Customers (Topic 606)—Identifying Performance Obligations and Licensing,” issued in April 2016, which amends the guidance in ASU No. 2014-09 related to identifying performance obligations. The new standard, which supersedes previously existing revenue recognition guidance, creates a five-step model for revenue recognition requiring companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model requires (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue at the time that each performance obligation is satisfied. The standard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective adoption.
We adopted the new standard effective January 1, 2018 using the modified retrospective approach. The Company’s revenue streams primarily consist of tuition and related services provided to students over the course of the program as well as other transactional revenue such as tools. Based on the Company's assessment, the analysis of the contract portfolio under ASU 2016-10 results in the revenue for the majority of the Company's student contracts being recognized over time which is consistent with the Company's previous revenue recognition model. For all student contracts, there is continuous transfer of control to the student and the number of performance obligations under ASU 2016-10 is consistent with those identified under the existing standard. The impact of the adoption of the new standard on revenue recognition for student contracts is immaterial on its consolidated financial statements. See additional information in Note 4.
In February 2016, the FASB issued ASU No. 2016-02, Leases ("ASU No. 2016-02"). This guidance amends the existing accounting considerations and treatments for leases through the creation of Topic 842, Leases, to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from such leases.
In July 2018, FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases ("(“ASU No. 2018-10”) to further clarify, correct and consolidate various areas previously discussed in ASU 2016-02. FASB also issued ASU No. 2018-11, Leases: Targeted Improvements ("(“ASU 2018-11"2018-11”) to provide entities another option for transition and lessors with a practical expedient. The transition option allows entities to not apply ASU No. 2016-02 in comparative periods in the financial statements in the year of adoption. The practical expedient offers lessors an option to not separate non-lease components from the associated lease components when certain criteria are met.
The amendments into ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and allow for modified retrospective adoption with early adoption permitted. The Company adopted the amendments on January 1, 2019 using the modified retrospective approach and elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC 840 to all leases that existed prior to the transition date. As a result, the Company did not reassess (1) whether existing or expired contracts contain leases, 2) lease classification for any existing or expired leases and 3) whether lease origination costs qualified as initial direct costs. The Company did not elect the practical expedient to use hindsight in determining a lease term and impairment of the ROU assets at the adoption date. Additionally, the Company did not separate lease components from non-lease components for the specified asset classes.
The Company established a corporate implementation team, which engages with cross-functional representatives from all its businesses. The Company utilized a bottom-up approach to analyze the impact of the standard on its lease contract portfolio by reviewing current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to lease arrangements. In addition, the Company identified and implemented the appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new standard.
The Company determines if an arrangement is a lease at inception. A ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the adoption date in determining the present value of lease payments. The implicit rate is to be applied when readily determinable. The operating lease ROU assets will also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments will be recognized on a straight-line basis over the lease term. Finance leases are to be included in property and equipment, other current liabilities, and other long-term liabilities within the consolidated balance sheets. Upon adoption of the new leasing standards, we expect to recognizethe Company recognized a lease liability between $46 million and $49of $42.3 million and a right-to-use asset between $42 million and $45of $37.9 million on our consolidated balance sheet. TheThere was no impact to retained earnings.
In June 2018, FASB issued ASU No. 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting” (“ASU No. 2018-07”), which intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. This ASU expands the scope of Topic 718, “Compensation - Stock Compensation” (“Topic 718”), to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The Company adopted ASU No. 2018-07 on January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220)”. The updated guidance allows entities to reclassify stranded income tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings in their consolidated financial statements. Under the Tax Act, deferred taxes were adjusted to reflect the reduction of the historical corporate income tax rate to the newly enacted corporate income tax rate, which left the tax effects on items within accumulated other comprehensive income stranded at an inappropriate tax rate. The updated guidance is expected to be immaterial.effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The Company adopted this ASU on January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements and related disclosures.
F-15In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that modified ASU 2016-13. ASU 2016-13 and the subsequent modifications are identified as Accounting Standards Codification (“ASC”) 326. The standard requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05 and ASU 2019-11 to provide additional guidance on the credit losses standard. In November 2019, FASB issued ASU No. 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”. This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the effect that this ASC will have on our consolidated financial statements and related disclosures.
2. | FINANCIAL AID AND REGULATORY COMPLIANCE |
Financial Aid
The Company’s schools and students participate in a variety of government-sponsored financial aid programs that assist students in paying the cost of their education. The largest source of such support is the federal programs of student financial assistance under Title IV of the Higher Education Act of 1965, as amended, commonly referred to as the Title IV Programs, which are administered by the U.S. Department of Education (the "DOE"“DOE”). During the years ended December 31, 2019, 2018 2017 and 2016,2017, approximately 78%, 78% and 79%78%, respectively, of net revenues on a cash basis were indirectly derived from funds distributed under Title IV Programs.
For the years ended December 31, 2019, 2018 2017 and 2016,2017, the Company calculated that no individual DOE reporting entity received more than 90% of its revenue, determined on a cash basis under DOE regulations, from the Title IV Program funds. The Company’s calculations may be subject to review by the DOE. Under DOE regulations, a proprietary institution that derives more than 90% of its total revenue from the Title IV Programs for two consecutive fiscal years becomes immediately ineligible to participate in the Title IV Programs and may not reapply for eligibility until the end of two fiscal years. An institution with revenues exceeding 90% for a single fiscal year, will be placed on provisional certification and may be subject to other enforcement measures. If one of the Company’s institutions violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued to disburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective date of the loss of eligibility.
Regulatory Compliance
To participate in Title IV Programs, a school must be authorized to offer its programs of instruction by relevant state education agencies, be accredited by an accrediting commission recognized by the DOE and be certified as an eligible institution by the DOE. For this reason, the schools are subject to extensive regulatory requirements imposed by all of these entities. After the schools receive the required certifications by the appropriate entities, the schools must demonstrate their compliance with the DOE regulations of the Title IV Programs on an ongoing basis. Included in these regulations is the requirement that the institution must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliance with these standards each year, based upon the institution’s annual audited financial statements, as well as following a change in ownership resulting in a change of control of the institution. The DOE calculates the institution'sinstitution’s composite score for financial responsibility based on its (i) equity ratio, which measures the institution'sinstitution’s capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution'sinstitution’s ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution'sinstitution’s ability to operate at a profit. This composite score can range from -1 to +3.
The composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight. If an institution’s composite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as “the zone.” Under the DOE regulations, institutions that are in the zone typically may be permitted by the DOE to continue to participate in the Title IV Programs by choosing one of two alternatives: 1)(1) the “Zone Alternative” under which thean institution is required to make disbursements to students under the Heightened Cash Monitoring 1 (HCM1)(“HCM1”) payment method and to notify the DOE within 10 days after the occurrence of certain oversight and financial events or 2)(2) submit a letter of credit to the DOE in an amount determined by the DOE and equal to at least 50 percent of the Title IV Program funds received by the institution during theits most recent fiscal year. The DOE permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal years. Under the HCM1 payment method, the institution is required to make Title IV Program disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from the DOE. As long as the student accounts are credited before the funding requests are initiated, thean institution is permitted to draw down funds through the DOE’s electronic system for grants management and payments for the amount of disbursements made to eligible students. Unlike the Heightened Cash Monitoring 2 (HCM2)(“HCM2”) used under circumstances where an institution’s composite score is below 1.0 and reimbursement payment methods, the HCM1 payment method typically does not require schools to submit documentation to the DOE and wait for DOE approval before drawing down Title IV Program funds. If a Company’s composite score is below 1.5 for three consecutive years an institution may be able to continue to operate under the Zone Alternative; however, this determination is made solely by the DOE. If an institution’s composite score drops below 1.0 in a given year or if its composite score remains between 1.0 and 1.4 for three or more consecutive years, it may be required to meet alternative requirements for continuing to participate in Title IV Programs by submitting a letter of credit, complying with monitoring requirements, disbursing Title IV Program funds under the HCM1, HCM2, or reimbursement payment methods, and complying with other requirements and conditions. Effective July 1, 2016, a school subject tounder HCM1, HCM2 or reimbursement payment methods must also pay any credit balances due to a student before drawing down funds for the amount of those disbursements from the DOE, even if the student or his or her parent provides written authorization for the school to hold the credit balance. The DOE permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal years; however, this determination is made solely by the DOE. If an institution’s composite score is between 1.0 and 1.4 after three or more consecutive years with a composite score below 1.5, it may be required to meet alternative requirements for continuing to participate in Title IV Programs by submitting a letter of credit, complying with monitoring requirements, disbursing Title IV Program funds under the HCM1, HCM2, or reimbursement payment methods, and complying with other requirements and conditions.
If an institution'sinstitution’s composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that an institution does not satisfy the DOE'sDOE’s financial responsibility standards, depending on its composite score and other factors, that institution may establish its financial responsibilityeligibility to participate in the Title IV Programs on an alternative basis by, among other things:
| ·● | Posting a letter of credit in an amount determined by the DOE equal to at least 50% of the total Title IV Program funds received by the institution during the institution'sinstitution’s most recently completed fiscal year; or |
| ·● | Posting a letter of credit in an amount determined by the DOE equal to at least 10% of such prior year'sthe Title IV Program funds received by the institution during its most recently completed fiscal year accepting provisional certification,certification; complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE'sDOE’s standard advance funding arrangement.arrangement |
For the 2018 fiscal year, the Company calculated its composite score to be 1.1. The score is subject to determination by the DOE once it receives and reviews the Company’s audited financial statements for the 2018 fiscal year. The DOE has evaluated the financial responsibility of our institutions on a consolidated basis. The Company hasWe have submitted to the DOE our audited financial statements for the 20172018 and 20162017 fiscal years reflecting a composite score of 1.1 and 1.5,1.1, respectively, based upon our calculations. The DOE determined in a January 13, 2020, letter that our institutions are “in the zone” based on our composite scores for the 2018 and 2017 fiscal years and that we are required to operate under the Zone Alternative requirements, including the requirement to make disbursements under the HCM1 payment method and to notify the DOE within 10 days of the occurrence of certain oversight and financial events. We also are required to submit to the DOE bi-weekly cash balance submissions outlining our available cash on hand, monthly actual and projected cash flow statements, and monthly student rosters.
For the 2019 fiscal year, we calculated our composite score to be 1.6. This score is subject to determination by the DOE based on its calculations.review of our consolidated audited financial statements for the 2019 fiscal year, but we believe it is likely that the DOE will determine that our institutions comply with the composite score requirement and no longer require us to operate under the Zone Alternative requirements after it makes its determination, although we cannot be certain how long it will take for the DOE to make its determination and it is possible that it may elect to retain following its determination some of the conditions and reporting requirements previously imposed on us.
An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have been disbursed to students who withdraw from their educational programs before completing them, and must return those unearned funds to the DOE or the applicable lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student has withdrawn.
If an institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the students in the audit or program review sample or if the regulatory auditor identifies a material weakness in the institution’s report on internal controls relating to the return of unearned Title IV Program funds, the institution may be required to post a letter of credit in favor of the DOE in an amount equal to 25% of the total amount of Title IV Program funds that should have been timely returned for students who withdrew in the institution'sinstitution’s previous fiscal year.
3. | WEIGHTED AVERAGE COMMON SHARESEARNINGS PER SHARE |
The weighted averageCompany presents basic and diluted earnings (loss) per share using the two-class method which requires all outstanding Series A Preferred Stock and unvested restricted stock that contain rights to non-forfeitable dividends and therefore participate in undistributed earnings with common shareholders be included in computing earnings per share. Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed earnings are then allocated to common stock and participating securities, based on their respective rights to receive dividends. Series A Preferred Stock and unvested restricted stock contain non-forfeitable rights to dividends on an if-converted basis and on the same basis as common shares, respectively, and are considered participating securities. Basic earnings (loss) per share has been computed by dividing net income (loss) allocated to common shareholders by the weighted-average number of common shares usedoutstanding.
The Series A Preferred Stock and unvested restricted stock are not included in the computation of basic earnings (loss) per share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted stock are not contractually obligated to compute basic and diluted income per share in our net losses. The two-class method was not applicable for the years ended December 31, 2018 and 2017 and 2016, respectively were as follows:was calculated using the treasury stock method. Dilutive potential common shares include outstanding stock options, unvested restricted stock and Series A Preferred Stock. The Company uses the more dilutive method of calculating the diluted earnings per share by applying the more dilutive of either (a) the treasury stock method, if-converted method, or (b) the two-class method in its diluted EPS calculation. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of restricted stock. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.
| | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Basic shares outstanding | | | 24,423,479 | | | | 23,906,395 | | | | 23,453,427 | |
Dilutive effect of stock options | | | - | | | | - | | | | - | |
Diluted shares outstanding | | | 24,423,479 | | | | 23,906,395 | | | | 23,453,427 | |
For the year ended December 31, 2019, diluted earnings per share was calculated using the two-class method because these amounts are more dilutive than applying the treasury stock method and if-converted methods which yielded antidilutive shares of 692,942 and 88,848 for Series A Preferred Stock and restricted shares, respectively, for the year ended December 31, 2019.
For the years ended December 31, 2018, 2017 and 2016,2017, options to acquire 50,422, 570,306, and 773,078570,306 shares, respectively, were excluded from the abovebelow table because the Company reported a net loss for the year and, therefore, their impact on reported loss per share would have been antidilutive. For the years ended December 31, 2019, 2018 2017 and 2016,2017, options to acquire 116,000, 139,000, 167,667, and 218,167167,667 shares, respectively, were excluded from the abovebelow table because they have an exercise price that is greater than the average market price of the Company’s common stock and, therefore, their impact on reported loss per share would have been antidilutive.
The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below:
| | Year Ended December 31, | |
(in thousands, except share data) | | 2019 | | | 2018 | | | 2017 | |
Numerator: | | | | | | | | | |
Net income (loss) | | $ | 2,015 | | | $ | (6,545 | ) | | $ | (11,484 | ) |
Less: preferred stock dividend | | | - | | | | - | | | | - | |
Less: allocation to preferred stockholders | | | (54 | ) | | | - | | | | - | |
Less: allocation to restricted stockholders | | | (38 | ) | | | - | | | | - | |
Net income (loss) allocated to common stockholders | | $ | 1,923 | | | $ | (6,545 | ) | | $ | (11,484 | ) |
| | | | | | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted average common shares outstanding | | | 24,554,033 | | | | 24,423,479 | | | | 23,906,395 | |
Basic earnings (loss) per share | | $ | 0.08 | | | $ | (0.27 | ) | | $ | (0.48 | ) |
| | | | | | | | | | | | |
Diluted earnings (loss) per share: | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | |
Weighted average number of: | | | | | | | | | | | | |
Common shares outstanding | | | 24,554,033 | | | | 24,423,479 | | | | 23,906,395 | |
Dilutive potential common shares outstanding: | | | | | | | | | | | | |
Series A Preferred Stocck | | | - | | | | - | | | | - | |
Unvested restricted stock | | | - | | | | - | | | | - | |
Stock options | | | - | | | | - | | | | - | |
Dilutive shares outstanding | | | 24,554,033 | | | | 24,423,479 | | | | 23,906,395 | |
Diluted earnings (loss) per share | | $ | 0.08 | | | $ | (0.27 | ) | | $ | (0.48 | ) |
Prior to adoption of ASU 2014-09
Revenues are derived primarily from programs taught at our schools. Tuition revenues, textbook sales and one-time fees, such as nonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program, which is the period of time from a student’s start date through his or her graduation date (including internships or externships, if any, occurring prior to graduation), and we complete the performance of teaching the student entitling us to the revenue. Other revenues, such as tool sales and contract training revenues, are recognized as goods are delivered or training completed. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.
We evaluate whether collectability of revenue is reasonably assured prior to the student commencing a program by attending class and reassess collectability of tuition and fees when a student withdraws from a course. We calculate the amount to be returned under Title IV Programs and its stated refund policy to determine eligible charges and, if there is a balance due from the student after this calculation, we expect payment from the student. We have a process to pursue uncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable. We continuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawn students is realizable. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements of income (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue on the day the student withdraws from one of our schools. We record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is not reasonably assured.
After adoption of ASU 2014-09
On January 1, 2018, we adopted the new standard on revenue recognition, ASU 2014-09, using the modified retrospective approach of ASU 2016-10. The adoption of the guidance in ASU 2014-09 as amended by ASU 2016-10 did not have a material impact on the measurement or recognition of revenue in any prior or current reporting periods and there was no adjustment to retained earnings. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to students in an amount that reflects the consideration to which the company expects to be entitled in exchange for such goods or services.
Substantially all of our revenues are considered to be revenues from contracts with students. The related accounts receivable balances are recorded in our balance sheets as student accounts receivable. We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition. We record revenue for students who withdraw from one of our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Unearned tuition represents contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if contract durations are less than one-year, or if we have the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date. We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.
Unearned tuition is the only significant contract asset or liability impacted by our adoption of ASU 2016-10. Unearned tuition in the amount of $22.5$23.4 million and $24.6$22.5 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of December 31, 20182019 and December 31, 2017,2018, respectively. The change in thethis contract liability balance during the year ended December 31, 20182019 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period. Revenue recognized for the year ended December 31, 20182019 that werewas included in the contract liability balance at the beginning of the year was $24.5$21.7 million.
The following table depicts the timing of revenue recognition:
| | Year ended December 31, 2019 | |
| | Transportation and Skilled Trades Segment | | | Healthcare and Other Professions Segment | | | Transitional Segment | | | Consolidated | |
Timing of Revenue Recognition | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 11,881 | | | $ | 4,521 | | | $ | - | | | $ | 16,402 | |
Services transferred over time | | | 181,841 | | | | 75,099 | | | | - | | | | 256,940 | |
Total revenues | | $ | 193,722 | | | $ | 79,620 | | | $ | - | | | $ | 273,342 | |
| | Year ended December 31, 2018 | |
| | Transportation and Skilled Trades Segment | | | Healthcare and Other Professions Segment | | | Transitional Segment | | | Consolidated | |
Timing of Revenue Recognition | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 10,351 | | | $ | 3,834 | | | $ | 72 | | | $ | 14,257 | |
Services transferred over time | | | 174,912 | | | | 68,301 | | | | 5,730 | | | | 248,943 | |
Total revenues | | $ | 185,263 | | | $ | 72,135 | | | $ | 5,802 | | | $ | 263,200 | |
| | Year ended December 31, 2017 | |
| | Transportation and Skilled Trades Segment | | | Healthcare and Other Professions Segment | | | Transitional Segment | | | Consolidated | |
Timing of Revenue Recognition | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 8,987 | | | $ | 2,860 | | | $ | 28 | | | $ | 11,875 | |
Services transferred over time | | | 172,341 | | | | 60,781 | | | | 16,856 | | | | 249,978 | |
Total revenues | | $ | 181,328 | | | $ | 63,641 | | | $ | 16,884 | | | $ | 261,853 | |
| | Year ended December 31, 2016 | | | Year ended December 31, 2017
| |
| | Transportation and Skilled Trades Segment | | | Healthcare and Other Professions Segment | | | Transitional Segment | | | Consolidated | | | Transportation and Skilled Trades Segment | | | Healthcare and Other Professions Segment |
|
| Transitional Segment |
|
| Consolidated | |
Timing of Revenue Recognition | | | | | | | | | | | | | | | | | | | | | | | | |
Services transferred at a point in time | | $ | 8,856 | | | $ | 2,765 | | | $ | 556 | | | $ | 12,177 | | | $ | 8,987 | | | $ | 2,860 | | | $ | 28 | | | $ | 11,875 | |
Services transferred over time | | | 173,421 | | | | 60,105 | | | | 39,856 | | | | 273,382 | | | | 172,341 | | | | 60,781 | | | | 16,856 | | | | 249,978 | |
Total revenues | | $ | 182,277 | | | $ | 62,870 | | | $ | 40,412 | | | $ | 285,559 | | | $ | 181,328 | | | $ | 63,641 | | | $ | 16,884 | | | $ | 261,853 | |
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU No. 2016-02”). This guidance amends the existing accounting considerations and treatments for leases through the creation of Topic 842, Leases, to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from such leases.
The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset and that it has the right to control the use of such asset in determining whether the contract contains a lease. An operating lease ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at commencement date based on the present value of lease payments over the lease term. As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the adoption date in determining the present value of lease payments. We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease. The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Our leases have remaining lease terms of one year to 11 years. Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.
The following table present the cumulative effect of the changes made to the condensed consolidated balance sheets as of January 1, 2019, as a result of the adoption of ASC Topic 842:
| | December 31, 2018 | | | ASC 842 | | | January 1, 2019 | |
| | | | | | | | | |
Operating lease right-of-use asset | | $ | - | | | $ | 37,993 | | | $ | 37,993 | |
Current portion of operating lease liability | | $ | - | | | $ | 8,999 | | | $ | 8,999 | |
Other short-term liabilities | | $ | 968 | | | $ | (968 | ) | | $ | - | |
Long-term portion of operating lease liability | | $ | - | | | $ | 33,372 | | | $ | 33,372 | |
Accrued rent | | $ | 3,410 | | | $ | (3,410 | ) | | $ | - | |
Our operating lease cost for the year ended December 31, 2019 was $14.5 million. Our variable lease cost for the year ended December 31, 2019 was $2.9 million. The net change in ROU asset amortization, operating lease liability amortization, and impact from re-measurements of $0.9 million is included in other assets in the condensed consolidated cash flows for the year ended December 31, 2019.
Supplemental cash flow information and non-cash activity related to our operating leases are as follows:
| | December 31, 2019 | |
Operating cash flow information: | | | |
Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 12,926 | |
Non-cash activity: | | | | |
Lease liabilities arising from obtaining right-of-use assets* | | $ | 63,911 | |
* Includes effect of adoption of ASU 2016-02 and related amendments and a new lease entered into on January 1, 2019 of $5.6 million.
Weighted-average remaining lease term and discount rate for our operating leases is as follows:
| | Year Ended December 31, 2019 | |
| | | |
Weighted-average remaining lease term | | 6.22 years | |
Weighted-average discount rate | | | 12.86 | % |
Maturities of lease liabilities by fiscal year for our operating leases as of December 31, 2019 are as follows:
Year ending December 31, | | | |
2020 | | | 15,412 | |
2021 | | | 13,600 | |
2022 | | | 11,607 | |
2023 | | | 9,988 | |
2024 | | | 8,749 | |
Thereafter | | | 20,008 | |
Total lease payments | | | 79,364 | |
Less: imputed interest | | | (24,204 | ) |
Present value of lease liabilities | | $ | 55,160 | |
As of December 31, 2018, minimum lease payments under non-cancelable operating leases by period were expected to be as follows:
2019 | | $ | 16,939 | |
2020 | | | 14,183 | |
2021 | | | 10,708 | |
2022 | | | 8,180 | |
2023 | | | 5,811 | |
Thereafter | | | 17,610 | |
| | $ | 73,431 | |
Changes in the carrying amount of goodwill during the years ended December 31, 20182019 and 20172018 are as follows:
| | Gross Goodwill Balance | | | Accumulated Impairment Losses | | | Net Goodwill Balance | | | Gross Goodwill Balance | | | Accumulated Impairment Losses | | | Net Goodwill Balance | |
Balance as of January 1, 2017 | | $ | 117,176 | | | $ | 102,640 | | | $ | 14,536 | | |
Adjustments | | | - | | | | - | | | | - | | |
Balance as of December 31, 2017 | | | 117,176 | | | | 102,640 | | | | 14,536 | | |
Balance as of January 1, 2018 | | | $ | 117,176 | | | $ | 102,640 | | | $ | 14,536 | |
Adjustments | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
Balance as of December 31, 2018 | | $ | 117,176 | | | $ | 102,640 | | | $ | 14,536 | | | 117,176 | | | 102,640 | | | 14,536 | |
Adjustments | | | | - | | | | - | | | | - | |
Balance as of December 31, 2019 | | | $ | 117,176 | | | $ | 102,640 | | | $ | 14,536 | |
As of December 31, 20182019 and 2017,2018, the goodwill balance of $14.5 million is related to the Transportation and Skilled Trades segment.
6.7. | PROPERTY, EQUIPMENT AND FACILITIES |
Property, equipment and facilities consist of the following:
| | Useful life (years) | | | At December 31, | | | Useful life (years) | | At December 31, | |
| | | | | 2018 | | | 2017 | | | | | 2019 | | 2018 | |
Land | | | - | | | $ | 6,969 | | | $ | 6,969 | | | | - | | | $ | 6,969 | | | $ | 6,969 | |
Buildings and improvements | | | 1-25 | | | | 128,431 | | | | 127,027 | | | | 1-25 | | | | 131,739 | | | | 128,431 | |
Equipment, furniture and fixtures | | | 1-7 | | | | 83,766 | | | | 81,772 | | | | 1-7 | | | | 81,900 | | | | 83,766 | |
Vehicles | | | 3 | | | | 916 | | | | 883 | | | | 3 | | | | 825 | | | | 916 | |
Construction in progress | | | - | | | | 319 | | | | 161 | | | | - | | | | 320 | | | | 319 | |
| | | | | | | 220,401 | | | | 216,812 | | | | | | | | 221,753 | | | | 220,401 | |
Less accumulated depreciation and amortization | | | | | | | (171,109 | ) | | | (163,946 | ) | | | | | | | (172,408 | ) | | | (171,109 | ) |
| | | | | | $ | 49,292 | | | $ | 52,866 | | | | | | | $ | 49,345 | | | $ | 49,292 | |
Depreciation and amortization expense of property, equipment and facilities was $8.1 million, $8.4 million $8.7 million and $11.0$8.7 million for the years ended December 31, 2019, 2018 and 2017, and 2016, respectively.
As discussed in Note 1, the Company sold its property in Mangonia Park Palm Beach County, Florida and associated assets.
Accrued expenses consist of the following:
| | At December 31, | | | At December 31, | |
| | 2018 | | | 2017 | | | 2019 | | | 2018 | |
Accrued compensation and benefits | | $ | 4,337 | | | $ | 3,114 | | | $ | 3,785 | | | $ | 4,337 | |
Accrued rent and real estate taxes | | | 3,057 | | | | 3,151 | | | 1,763 | | | 3,057 | |
Other accrued expenses | | | 3,211 | | | | 5,506 | | | | 2,321 | | | | 3,211 | |
| | $ | 10,605 | | | $ | 11,771 | | | $ | 7,869 | | | $ | 10,605 | |
Long-term debt consistconsists of the following:
| | At December 31, | | | At December 31, | |
| | 2018 | | | 2017 | | | 2019 | | | 2018 | |
Credit agreement | | $ | 49,301 | | | $ | 53,400 | | | $ | 34,833 | | | $ | 49,301 | |
Deferred financing fees | | | (532 | ) | | | (807 | ) | | | (805 | ) | | | (532 | ) |
| | | 48,769 | | | | 52,593 | | | 34,028 | | | 48,769 | |
Less current maturities | | | (15,000 | ) | | | - | | | | (2,000 | ) | | | (15,000 | ) |
| | $ | 33,769 | | | $ | 52,593 | | | $ | 32,028 | | | $ | 33,769 | |
$60 Million Credit Facility with Sterling National Bank
On March 31, 2017,November 14, 2019, the Company entered into a new senior secured credit agreement (the “2019 Credit Agreement”) with its lender, Sterling National Bank (the “Lender”), pursuant to which the Company obtained a securednew credit facility in the aggregate principal amount of up to $60 million (the “Credit“2019 Credit Facility”) from Sterling National Bank (the “Bank”) pursuant to a. The 2019 Credit Agreement dated March 31, 2017 among the Company,Facility replaces the Company’s subsidiariesexisting facility with the Lender and, the Bank, which was subsequently amendedamong other things, increases aggregate borrowing from $47 million to $60 million.
The 2019 Credit Facility is comprised of four facilities: a $20 million senior secured term loan maturing on November 29, 2017, February 23, 2018, July 11, 2018 and, most recently, on March 6, 2019 (as amended, the “Credit Agreement”). Prior to the most recent amendment of the Credit AgreementDecember 1, 2024 (the “Fourth Amendment”“Term Loan”), the financial accommodations available towith monthly interest and principal payments based on 120-month amortization with the Borrowers underoutstanding balance due on the Credit Agreement consistedmaturity date; a $10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter monthly payments of (a)interest and principal based on 120-month amortization and all balances due on the maturity date; a $25$15 million senior secured committed revolving loan facility designated as “Facility 1”, (b) a $25 million revolving loan facility (includingline of credit providing a sublimit amountof up to $10 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of $10 million) designated as “Facility 2”interest only; and (c) a $15 million revolvingsenior secured non-restoring line of credit loan designated as “Facility 3”.
Pursuant to the terms of the Fourth Amendment and upon its effectiveness, Facility 1 was converted into a term loan (the “Term Loan”) in the original principal amount of $22.7 million (such amount being the entire unpaid principal and accrued interest outstanding under Facility 1 as of the effective date of the Fourth Amendment), which matures on March 31, 2024 (the “Term Loan Maturity Date”). The Fourth Amendment provides for the repayment of the Term Loan in monthly installments as follows: (a) on April 1, 2019 and on the same day of each month thereafter through and including June 30, 2019, accrued interest only; (b) on July 1, 2019 and on the same day of each month thereafter through and including December 31, 2019, the principal amount of $10.2 million plus accrued interest; (c)maturing on January 1, 2020 and on the same day of each month thereafter through and including June 30, 2020, accrued interest only; (d) on July 1, 2020 and on the same day of each month thereafter through and including December 31, 2020, the principal amount of $0.6 million plus accrued interest; (e) on January 1, 2021 and on the same day of each month thereafter through and including June 30, 2021, accrued interest only; (f) on July 1, 2021 and on the same day of each month thereafter through and including December 31, 2021 the principal amount(the “Line of $0.4 million plus accrued interest; (g) on January 1, 2022 and on the same day of each month thereafter through and including June 30, 2022, accrued interest only; (h) on July 1, 2022 and on the same day of each month thereafter through and including December 31, 2022, the principal amount of $0.4 million plus accrued interest; (i) on January 1, 2023 and on the same day of each month thereafter through and including June 30, 2023, accrued interest only; (j) on July 1, 2023 and on the same day of each month thereafter through and including December 31, 2023, the principal amount of $0.4 million plus accrued interest; (k) on January 1, 2024 and on the same day of each month thereafter through and including the Term Loan Maturity Date, accrued interest only; and (l) on the Term Loan Maturity Date, the remaining outstanding principal amount of the Term Loan, together with accrued interest, will be due and payable. In the event of a sale of any campus, school or business of the Borrowers permitted under the Credit Agreement, 25% of the net proceeds of any such sale must be used to pay down the outstanding principal amount of the Term Loan in inverse order of maturity.
The Fourth Amendment changed the maturity date of Facility 2 from May 31, 2020 to April 30, 2020. The maturity date for Facility 3 is May 31, 2019.
Under the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans and all draws under Facility 3 must be secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through the proceeds of the Term Loan or other available cash of the Company. Notwithstanding such requirement, pursuant to the terms of the Fourth Amendment, a $2.5 million revolving loan was advanced under Facility 2 at the closing of the Fourth Amendment on March 6, 2019 without any requirement for cash collateral and, in the Bank’s sole discretion, an additional $2.5 million of revolving loans may be advanced under Facility 2 without any requirement for cash collateral, consisting of (a) a $1.25 million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for the fiscal quarter ending March 31, 2019 and (b) a $1.25 million revolving loan within 15 days after the Bank’s receipt of the Company’s financial statements for the fiscal quarter ending June 30, 2019. The $2.5 million revolving loan advanced under Facility 2 at the closing of the Fourth Amendment and the additional $2.5 million of revolving loans that may be advanced under Facility 2 in the discretion of the Bank, in each case without any requirement for cash collateral, must be repaid on November 1, 2019 and, prior to their repayment, the Borrowers are required to make monthly payments of accrued interest only on such revolving loans.
The Term Loan bears interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans outstanding under Facility 1 prior to its conversion to a term loan also bore interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans advanced under Facility 2 that are cash collateralized will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%. Pursuant to the Fourth Amendment, revolving loans advanced under Facility 2 that are not secured by cash collateral will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%. Revolving loans under Facility 3 bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%Loan”).
Under the terms of the Fourth Amendment, the Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears.
The Fourth Amendment provides that in the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Borrowers may be required to enter into a hedging contract in form and content satisfactory to the Bank.
The Fourth Amendment requires the Borrowers to give the Bank the first opportunity to provide any and all traditional banking services required by the Borrowers, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Borrowers and the Bank, in accordance with the terms set forth in the Fourth Amendment. In the event that loans provided under the Credit Agreement are repaid through replacement financing, the Fourth Amendment requires that the Borrowers pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaid and the face amount of all letters of credit replaced in connection with the replacement financing; provided, however, that no exit fee will be required in the event the Bank or the Bank’s affiliate arranges or provides the replacement financing or the payoff of the applicable loans occurs after March 5, 2021.
In connection with the effectiveness of the Fourth Amendment, the Borrowers paid to the Bank a one-time modification fee in the amount of $50,000.
Pursuant to the Credit Agreement, in December 2018, the net proceeds of the sale of the Mangonia Park Property, which were held in a non-interest bearing cash collateral account at and by the Bank as additional collateral for the loans outstanding under the Credit Agreement, were applied to the outstanding principal balance of revolving loans outstanding under Facility 1 and, as a result of such repayment, the revolving loan availability under Facility 1 was permanently reduced to $22.7 million.
The2019 Credit Facility is secured by a first priority lien in favor of the BankLender on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on four parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.
At the closing of the 2019 Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which was $19.7 million after deduction of the Lender’s origination fee in the amount of $0.3 million and other Lender fees and reimbursements to the Lender that are customary for facilities of this type. The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses.
Pursuant to the terms of the 2019 Credit Agreement, letters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan. Borrowings under the Line of Credit Loan are to be secured by cash collateral.
Borrowing under the Delayed Draw Term Loan is available during the period commencing on the closing date of the 2019 Credit Facility and ending on May 31, 2021. Any amounts not borrowed during this period will not be available to the Company.
Accrued interest on each loan under the 2019 Credit Facility will be payable monthly in arrears. The Term Loan and the Delayed Draw Term Loan will bear interest at a floating interest rate based on the then one month London Interbank Offered Rate (“LIBOR”) plus 3.50%. At the closing of the 2019 Credit Facility, the Company drew $25 million under Facility 1,entered into a swap transaction with the Lender for 100% of the principal balance of the Term Loan, which was usedmatures on the same date as the Term Loan. pursuant to repaya swap agreement between the Company and the Lender. At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Lender for 100% of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Lender or the Lender’s affiliate. The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of .25% if there is no swap agreement.
Revolving Loans bear interest at a floating interest rated based on the then LIBOR plus an indicative spread determined by the Company’s previous credit facility andleverage as defined in the 2019 Credit Agreement or, if the borrowing of a Revolving Loan is to pay transaction costs associatedbe repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’s prime rate plus .50% with closinga floor of 4.0%. Line of Credit Loans will bear interest at a floating interest rated based on the Credit Facility.
Lender’s prime rate of interest. Revolving Loans are subject to a LIBOR interest rate floor of .00%.
Each issuance of a letterLetters of credit under Facility 2 will requirebe charged an annual fee equal to (i) an applicable margin determined by the paymentleverage ratio of a letter of credit feethe Company less (ii) .25%, paid quarterly in arrears, in addition to the Bank equal to a rate per annum of 1.75% on the daily amount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears.Lender’s customary fees for issuance, amendment and other standard fees. Letters of credit totaling $6.2$4 million that were outstanding under a $9.5 million letter ofthe existing credit facility previously provided to the Company by the Bank, which letter of credit facility was set to mature on April 1, 2017, are treated as letters of credit under Facility 2.
the Revolving Loan.The
Under the terms of the 2019 Credit Agreement, require the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to maintain, on depositcompensate the Lender for any swap breakage or other costs incurred in one or more non-interest bearing accounts, a minimum of $5 million in quarterly average aggregate balances, which, if not maintained, results in aconnection with such prepayment. The Lender receives an unused facility fee of $12,5000.50% per annum payable toquarterly in arrears on the Bank for that quarter.unused portions of the Revolving Loan and the Line of Credit Loan.
In addition to the foregoing, the 2019 Credit Agreement contains customary representations, warranties and affirmative and negative covenants including(including financial covenants that (i) restrict capital expenditures, tested on a fiscal year end basis; (i) prohibit the incurrence of a net loss commencing on December 31, 2019; and(ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum adjusted EBITDA tested quarterly on a rolling twelve month basis. The Fourth Amendment (i) modifies the minimum adjusted EBITDA required; (ii) eliminates the requirement for a minimum funded debt to adjusted EBITDA ratio;fixed charge coverage ratio and (iii) requires(v) require the maintenance of a maximum funded debt to adjusted EBITDA ratio testedminimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, will result in the assessment of a rolling twelve month basis. The Credit Agreement containsquarterly fee of $12,500), as well as events of default customary for facilities of this type.
As of December 31, 2018,2019, the Company is in compliance with all covenants.
had $34.8 million outstanding under the 2019 Credit Facility; offset by $0.8 million of deferred finance fees. In January 2020, the Company repaid the $15.0 million outstanding on the Line of Credit Loan which was fully cash collateralized. As of December 31, 2018, the Company had $49.3 million outstanding under the Credit Facility;its prior credit facility, offset by $0.5 million of deferred finance fees. As of December 31, 2017, the Company had $53.4 million outstanding under the Credit Facility, offset by $0.8$0.5 million of deferred finance fees, which were written-off. As of December 31, 20182019 and December 31, 2017,2018, letters of credit in the aggregate outstanding principal amount of $1.8$4.0 million and $7.2$1.8 million, respectively, were outstanding under the Credit Facility. For the three months ended
On March 31, 2019,2017, the Company is requiredobtained a secured credit facility from the Lender pursuant to increase its letters ofa credit by $2.8 million related to state bond requirements which requiresagreement dated March 31, 2017 among the Company, to increase its restricted cashthe Company’s subsidiaries and the Lender, which was subsequently amended on each of November 29, 2017, February 23, 2018, July 11, 2018 and March 6, 2019. This credit facility was subsequently terminated on November 14, 2019 at which time the outstanding balance by $2.8 million.was $22.1 million at an incurred interest rate of 7.85%.
Scheduled maturities of long-term debt at December 31, 20182019 are as follows:
Year ending December 31, | | | |
2019 | | $ | 15,000 | * |
2020 | | | 33,769
| |
2021 | | | - | |
2022 | | | - | |
2023 | | | - | |
Thereafter | | | - | |
| | $ | 48,769 | |
* Includes deferred finance fees of $0.5 million.
Year ending December 31, | | | |
2020 | | $ | 2,000 | |
2021 | | | 17,000 | |
2022 | | | 2,000 | |
2023 | | | 2,000 | |
2024 | | | 11,833 | |
| | $ | 34,833 | |
9.10. | STOCKHOLDERS'STOCKHOLDERS’ EQUITY |
Common Stock
Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval. The Company has not declared or paid any cash dividends on our common stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015. The Company has no current intentions to resume the payment of cash dividends in the foreseeable future.
Preferred Stock
On November 14, 2019, the Company raised gross proceeds of $12.7 million from the sale of 12,700 shares of its newly designated Series A 9.6% Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”). The Series A Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation. The liquidation preference associated with the Series A Preferred Stock was $1,000 per share at December 31, 2019. The Company incurred issuance cost of $0.7 million as part of this transaction.
The description below provides a summary of certain material terms of the Series A Preferred Stock pursuant to the Securities Purchase Agreement and set forth in the Certificate of Amendment (the “Charter Amendment”) affecting the Series A Preferred Stock:
Securities Purchase Agreement.
The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreements dated as of November 14, 2019 (the “SPA”) among the Company, Juniper Targeted Opportunity Fund, L.P. and Junior Targeted Opportunities, L.P. (together, “Juniper Purchasers”) Talanta Investment, Inc. (“Talanta”, together with Juniper Purchasers, the “Investors”). Among other things, the SPA includes covenants relating to the appointment of a director to the Company’s Board of Directors to be selected solely by the holders of the Series A Preferred Stock.
Dividends. Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% is to be paid, in advance, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30 with September 30, 2020 as the first dividend payment date. The Company, at its option, may pay dividends in cash or dividends will accrue and thereby increase the number of shares issuable upon conversion of the Series A Preferred Stock. The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock (b) by 2% per annum but in no event above 14% per annum should the Company fail to perform certain obligations under the Charter Amendment. The Series A Preferred Stock is not currently redeemable and it is not probable it will become redeemable in the future. As a result, the Company is not required to re-measure the Series A Preferred Stock and does not accrete changes in the redemption value. As of December 31, 2019, undeclared accrued dividends are approximately $0.2 million.
Series A Preferred Stock Holders Right to Convert into common stock. Each share of Series A Preferred Stock, at any time, is convertible into a number of shares of common stock equal to (“Convertible Formula”) the quotient of (i) the sum of (A) $1,000 (subject to adjustment as provided in the Charter Amendment) plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the Series A Conversion Price (as defined and adjusted in the Charter Amendment) as of the applicable Conversion Date (as defined in the Charter Amendment). The initial Conversion Price is $2.36. At all times, however, the number of Conversion Shares that can be issued to any Series A Preferred Stock Holder may not result in such holder and its affiliates owning more than 19.99% of the total number of shares of common stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior shareholder approval is obtained or no longer required by the rules of the principal stock exchange on which the Company’s common stock trade.
Mandatory Conversion. If, at any time following November 14, 2022 the volume weighted average price of the Company’s common stock equals or exceeds 2.25 times the Conversion Price for a period of 20 consecutive trading days and on each such trading day at least 20,000 shares of common stock was traded, the Company may, at its option and subject to the Hard Cap, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically converted into shares of common stock at the then applicable convertible Formula at the Company’s discretion.
Redemption. Beginning November 14, 2024, the Company may redeem all or any of the Series A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the sum of $1,000 (subject to adjustment as provided in the Charter Amendment) plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as determined in the Charter Amendment) without regard to the Hard Cap.
Change of Control. In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a “Liquidation” (as defined in the Charter Amendment), the Series A Preferred Stockholders shall be entitled to receive the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements are met, in which case the Series A Preferred Stock will be converted into common stock in connection with such stock merger. The Company has classified the Series A Preferred Stock as mezzanine equity on the Consolidated Balance Sheet based upon the terms of a change of control which could be outside the Company’s control.
Voting. Holders of shares of Series A Preferred Stock will be entitled to vote with the holders of shares of common stock and not as a separate class, at any annual or special meeting of shareholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap. In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of common stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness and (iii) creating a subsidiary other than a wholly-owned subsidiary.
Additional Provisions. The Series A Preferred Stock is perpetual and therefore does not have a maturity date. The conversion price of the Series A Preferred Stock is subject to anti-dilution protections if the Company affects a stock split, stock dividend, subdivision, reclassification or combination of its common stock and certain other economically dilutive events.
Registration Rights Agreement. The Company also is a party to a Registration Rights Agreement (“RRA”) with the investors of the Series A Preferred Stock. The RRA provides for unlimited demand registration rights, of which there can be two underwritten offerings each for at least $5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares.
Restricted Stock
The Company has two stock incentive plans: a Long-Term Incentive Plan (the “LTIP”) and a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”).
Under the LTIP, certain employees received awards of restricted shares of common stock based on service and performance. The number of shares granted to each employee is based on the fair market value of a share of common stock on the date of grant.
On February 28, 2019, restricted shares were granted to certain employees of the Company, which shares ratably vest over three years. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.
On February 23, 2018, restricted shares of common stock of the Company were granted to certain employees of the Company, which shares vested immediately. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares; however, the recipient can only sell or otherwise transfer the shares after the expiration of a specified period of time ranging from 120 to 240 days following the date of grant.
On May 13, 2016 and January 16, 2017, performance-based restricted shares were granted to certain employees of the Company, which vest on March 15, 2017 and March 15, 2018 based upon the attainment of a financial metric during each fiscal year ending December 31, 2016 and 2017. These shares were fully vested as of March 31, 2018 and are held without restriction.
On June 2, 2014 and December 18, 2014, performance-based restricted shares were granted to certain employees of the Company, which vest over three years based upon the attainment of (i) a specified operating income margin during any one or more of the fiscal years in the period beginning January 1, 2015 and ending December 31, 2017 and (ii) the attainment of earnings before interest, taxes, depreciation and amortization targets during each of the fiscal years ended December 31, 2015 through 2017. There is no restriction on the right to vote or the right to receive dividends with respect to any of these restricted shares.
Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock on the date of the Company’s annual meeting of shareholders. The number of shares granted to each non-employee director is based on the fair market value of a share of common stock on that date. There is no restriction on the right to vote or the right to receive dividends with respect to any of the restricted shares.
In 2019, 2018 2017 and 2016,2017, the Company completed a net share settlement for 5,518, 207,642 189,420 and 71,805189,420 restricted shares and stock options exercised, respectively, on behalf of certain employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP or exercise of the stock options. The net share settlement was in connection with income taxes incurred on restricted shares or stock option exercises that vested and were transferred to the employee during 2019, 2018 2017 and/or 2016,2017, creating taxable income for the employee. At the employees’ request, the Company will pay these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares or shares acquired upon the exercise of stock options to the Company. These transactions resulted in a decrease of approximately $0.4less than $0.1 million, $0.4 million and $0.2$0.4 million in 2019, 2018 2017 and 2016,2017, respectively, to equity as the cash payment of the taxes effectively was a repurchase of the restricted shares or shares acquired through the exercise of stock options granted in previous years.
The following is a summary of transactions pertaining to restricted stock:
| | Shares | | | Weighted Average Grant Date Fair Value Per Share | | | Shares | | Weighted Average Grant Date Fair Value Per Share | |
Nonvested restricted stock outstanding at December 31, 2016 | | | 1,143,599 | | | $ | 1.89 | | |
Granted | | | 181,208 | | | | 2.58 | | |
Cancelled | | | (52,398 | ) | | | 5.63 | | |
Vested | | | (664,415 | ) | | | 1.77 | | |
Nonvested restricted stock outstanding at December 31, 2017 | | | 607,994 | | | | 1.90 | | | | 607,994 | | | $ | 1.90 | |
| | | | | | | | | |
Granted | | | 135,568 | | | | 1.60 | | | | 135,568 | | | | 1.60 | |
Cancelled | | | - | | | | - | | | | - | | | | - | |
Vested | | | (707,654 | ) | | | 1.82 | | | | (707,654 | ) | | | 1.82 | |
Nonvested restricted stock outstanding at December 31, 2018 | | | 35,908 | | | | 2.23 | | | | 35,908 | | | | 2.23 | |
Granted | | | | 598,982 | | | | 3.15 | |
Cancelled | | | | (3,546 | ) | | | 3.17 | |
Vested | | | | (35,908 | ) | | | 2.23 | |
Nonvested restricted stock outstanding at December 31, 2019 | | | | 595,436 | | | | 3.15 | |
The restricted stock expense for each of the years ended December 31, 2019, 2018 and 2017 and 2016 was $0.7 million, $0.5 million $1.2 million and $1.4$1.2 million, respectively. The unrecognized restricted stock expense as of December 31, 2019 and 2018 and 2017 was less than $0.1$1.2 million and $0.3$0.1 million, respectively. As of December 31, 2018,2019, unrecognized restricted stock expense will be expensed over the weighted-average period of approximately 512 months. As of December 31, 2018,2019, outstanding restricted shares under the LTIP had an aggregate intrinsic value of $0.1$1.6 million. For the year ended December 31, 2017, 52,398 shares were cancelled as the performance criteria was not met.
Stock Options
During 2019, 2018 2017 and 20162017 there were no new stock option grants. The following is a summary of transactions pertaining to the option plans:
| | Shares | | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value | | | Shares | | Weighted Average Exercise Price Per Share | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value | |
Outstanding January 1, 2016 | | | 246,167 | | | $ | 12.52 | | 3.98 years | | $ | - | | |
Cancelled | | | (28,000 | ) | | | 15.76 | | | | | - | | |
| | | | | | | | | | | | | | |
Outstanding December 31, 2016 | | | 218,167 | | | | 12.11 | | 3.33 years | | | - | | |
Outstanding January 1, 2017 | | | | 218,167 | | | $ | 12.11 | | 3.33 years | | $ | - | |
Cancelled | | | (50,500 | ) | | | 12.09 | | | | | - | | | | (50,500 | ) | | | 12.09 | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding December 31, 2017 | | | 167,667 | | | | 12.11 | | 2.97 years | | | - | | | | 167,667 | | | | 12.11 | | 2.97 years | | | - | |
Cancelled | | | (28,667 | ) | | | 11.98 | | | | | | | | | (28,667 | ) | | | 11.98 | | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Outstanding December 31, 2018 | | | 139,000 | | | | 12.14 | | 2.53 years | | | - | | | | 139,000 | | | | 12.14 | | 2.53 years | | | - | |
Cancelled | | | | (23,000 | ) | | | 20.15 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Vested as of December 31, 2018 | | | 139,000 | | | | 12.14 | | 2.53 years | | | - | | |
Outstanding December 31, 2019 | | | | 116,000 | | | | 10.56 | | 1.83 years | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exercisable as of December 31, 2018 | | | 139,000 | | | | 12.14 | | 2.53 years | | | - | | |
Vested as of December 31, 2019 | | | | 116,000 | | | | 10.56 | | 1.83 years | | | - | |
| | | | | | | | | | | | | | |
Exercisable as of December 31, 2019 | | | | 116,000 | | | | 10.56 | | 1.83 years | | | - | |
As of December 31, 2018,2019, there are no unrecognized pre-tax compensation expense for unvested stock option awards.
The following table presents a summary of options outstanding at December 31, 2018:2019:
| | | | At December 31, 2018 | | | | | At December 31, 2019 | |
| | | | Stock Options Outstanding | | | Stock Options Exercisable | | | | | Stock Options Outstanding | | | Stock Options Exercisable | |
Range of Exercise Prices | Range of Exercise Prices | | | Shares | | | Contractual Weighted Average life (years) | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | | Range of Exercise Prices | | | Shares | | | Contractual Weighted Average life (years) | | | Weighted Average Exercise Price | | | Shares | | | Weighted Average Exercise Price | |
$ | 4.00-$13.99 | | | | 91,000 | | | | 3.17 | | | $ | 7.79 | | | | 91,000 | | | $ | 7.79 | | 7.79 | | | 91,000 | | | 2.17 | | | $ | 7.79 | | | 91,000 | | | $ | 7.79 | |
$ | 14.00-$19.99 | | | | 17,000 | | | | 0.84 | | | | 19.98 | | | | 17,000 | | | | 19.98 | | 20.62 | | | | 25,000 | | | 0.59 | | | 20.62 | | | | 25,000 | | | 20.62 | |
$ | 20.00-$25.00 | | | | 31,000 | | | | 1.59 | | | | 20.62 | | | | 31,000 | | | | 20.62 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | 139,000 | | | | 2.53 | | | | 12.14 | | | | 139,000 | | | | 12.14 | | | | | | 116,000 | | | 1.83 | | | 10.56 | | | | 116,000 | | | 10.56 | |
The Company sponsors a noncontributory defined benefit pension plan covering substantially all of the Company'sCompany’s union employees. Benefits are provided based on employees'employees’ years of service and earnings. This plan was frozen on December 31, 1994 for non-union employees.
The following table sets forth the plan'splan’s funded status and amounts recognized in the consolidated financial statements:
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | |
CHANGES IN BENEFIT OBLIGATIONS: | | | | | | | | | | | | | | | | | | |
Benefit obligation-beginning of year | | $ | 23,492 | | | $ | 22,916 | | | $ | 23,341 | | | $ | 21,105 | | | $ | 23,492 | | | $ | 22,916 | |
Service cost | | | 28 | | | | 29 | | | | 28 | | | 33 | | | 28 | | | 29 | |
Interest cost | | | 755 | | | | 840 | | | | 888 | | | 812 | | | 755 | | | 840 | |
Actuarial (gain) loss | | | (1,951 | ) | | | 721 | | | | (255 | ) | |
Actuarial loss (gain) | | | 2,103 | | | (1,951 | ) | | 721 | |
Benefits paid | | | (1,219 | ) | | | (1,014 | ) | | | (1,086 | ) | | | (1,221 | ) | | | (1,219 | ) | | | (1,014 | ) |
Benefit obligation at end of year | | | 21,105 | | | | 23,492 | | | | 22,916 | | | | 22,832 | | | | 21,105 | | | | 23,492 | |
| | | | | | | | | | | | | | | | | | | | | |
CHANGE IN PLAN ASSETS: | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets-beginning of year | | | 19,055 | | | | 17,548 | | | | 17,792 | | | 16,835 | | | 19,055 | | | 17,548 | |
Actual return on plan assets | | | (1,000 | ) | | | 2,521 | | | | 842 | | | 3,203 | | | (1,000 | ) | | 2,521 | |
Benefits paid | | | (1,220 | ) | | | (1,014 | ) | | | (1,086 | ) | | | (1,221 | ) | | | (1,220 | ) | | | (1,014 | ) |
Fair value of plan assets-end of year | | | 16,835 | | | | 19,055 | | | | 17,548 | | | | 18,817 | | | | 16,835 | | | | 19,055 | |
| | | | | | | | | | | | | | | | | | | | | |
BENEFIT OBLIGATION IN EXCESS OF FAIR VALUE FUNDED STATUS: | | $ | (4,270 | ) | | $ | (4,437 | ) | | $ | (5,368 | ) | | $ | (4,015 | ) | | $ | (4,270 | ) | | $ | (4,437 | ) |
For the year ended December 31, 2018,2019, the actuarial gainloss of $1.9$2.1 million was due to the increasedecrease in the discount rate from 3.36%4.01% to 4.01%2.93%.
Amounts recognized in the consolidated balance sheets consist of:
| | At December 31, | |
| | 2018 | | | 2017 | | | 2016 | |
Noncurrent liabilities | | $ | (4,270 | ) | | $ | (4,437 | ) | | $ | (5,368 | ) |
| | At December 31, | |
| | 2019 | | | 2018 | |
Noncurrent liabilities | | $ | (4,015 | ) | | $ | (4,270 | ) |
Amounts recognized in accumulated other comprehensive loss consist of:
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | |
Accumulated loss | | $ | (6,428 | ) | | $ | (6,876 | ) | | $ | (8,467 | ) | | $ | (5,648 | ) | | $ | (6,428 | ) | | $ | (6,876 | ) |
Deferred income taxes | | | 2,366 | | | | 2,366 | | | | 2,366 | | | | 2,366 | | | | 2,366 | | | | 2,366 | |
Accumulated other comprehensive loss | | $ | (4,062 | ) | | $ | (4,510 | ) | | $ | (6,101 | ) | | $ | (3,282 | ) | | $ | (4,062 | ) | | $ | (4,510 | ) |
The accumulated benefit obligation was $21.1$22.8 million and $23.5$21.1 million at December 31, 20182019 and 2017,2018, respectively.
The following table provides the components of net periodic cost for the plan:
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | |
COMPONENTS OF NET PERIODIC BENEFIT COST | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 28 | | | $ | 29 | | | $ | 28 | | | $ | 33 | | | $ | 28 | | | $ | 29 | |
Interest cost | | | 755 | | | | 840 | | | | 888 | | | 812 | | | 755 | | | 840 | |
Expected return on plan assets | | | (1,104 | ) | | | (1,058 | ) | | | (1,118 | ) | | (1,011 | ) | | (1,104 | ) | | (1,058 | ) |
Recognized net actuarial loss | | | 601 | | | | 850 | | | | 991 | | | | 691 | | | | 601 | | | | 850 | |
Net periodic benefit cost | | $ | 280 | | | $ | 661 | | | $ | 789 | | | $ | 525 | | | $ | 280 | | | $ | 661 | |
The estimated net loss transition obligation and prior service cost for the plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year is $0.6 million.
The following tables present plan assets using the fair value hierarchy as of December 31, 20182019 and 2017.2018. The fair value hierarchy has three levels based on the reliability of inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using observable prices that are based on inputs not quoted in active markets but observable by market data, while Level 3 includes the fair values estimated using significant non-observable inputs. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
| | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | | | | |
| | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total | |
Equity securities | | $ | 5,428 | | | $ | - | | | $ | - | | | $ | 5,428 | | | $ | 6,259 | | | $ | - | | | $ | - | | | $ | 6,259 | |
Fixed income | | | 5,852 | | | | - | | | | - | | | | 5,852 | | | 6,313 | | | - | | | - | | | 6,313 | |
International equities | | | 3,734 | | | | - | | | | - | | | | 3,734 | | | 4,165 | | | - | | | - | | | 4,165 | |
Real estate | | | 795 | | | | - | | | | - | | | | 795 | | | 964 | | | - | | | - | | | 964 | |
Cash and equivalents | | | 1,026 | | | | - | | | | - | | | | 1,026 | | | | 1,116 | | | | - | | | | - | | | | 1,116 | |
Balance at December 31, 2018 | | $ | 16,835 | | | $ | - | | | $ | - | | | $ | 16,835 | | |
Balance at December 31, 2019 | | | $ | 18,817 | | | $ | - | | | $ | - | | | $ | 18,817 | |
| | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | | | | |
| | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total | |
Equity securities | | $ | 6,856 | | | $ | - | | | $ | - | | | $ | 6,856 | | | $ | 5,428 | | | $ | - | | | $ | - | | | $ | 5,428 | |
Fixed income | | | 6,818 | | | | - | | | | - | | | | 6,818 | | | 5,852 | | | - | | | - | | | 5,852 | |
International equities | | | 3,490 | | | | - | | | | - | | | | 3,490 | | | 3,734 | | | - | | | - | | | 3,734 | |
Real estate | | | 1,133 | | | | - | | | | - | | | | 1,133 | | | 795 | | | - | | | - | | | 795 | |
Cash and equivalents | | | 758 | | | | - | | | | - | | | | 758 | | | | 1,026 | | | | - | | | | - | | | | 1,026 | |
Balance at December 31, 2017 | | $ | 19,055 | | | $ | - | | | $ | - | | | $ | 19,055 | | |
Balance at December 31, 2018 | | | $ | 16,835 | | | $ | - | | | $ | - | | | $ | 16,835 | |
Fair value of total plan assets by major asset category as of December 31:
| | 2018 | | | 2017 | | | 2019 | | | 2018 | |
Equity securities | | | 32 | % | | | 36 | % | | 33 | % | | 32 | % |
Fixed income | | | 35 | % | | | 36 | % | | 34 | % | | 35 | % |
International equities | | | 22 | % | | | 18 | % | | 22 | % | | 22 | % |
Real estate | | | 5 | % | | | 6 | % | | 5 | % | | 5 | % |
Cash and equivalents | | | 6 | % | | | 4 | % | | | 6 | % | | | 6 | % |
Total | | | 100 | % | | | 100 | % | | 100 | % | | 100 | % |
Weighted-average assumptions used to determine benefit obligations as of December 31:
| | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
Discount rate | | | 4.01 | % | | | 3.36 | % | | | 3.81 | % | | 2.93 | % | | 4.01 | % |
Rate of compensation increase | | | 2.50 | % | | | 2.50 | % | | | 2.50 | % | | 2.75 | % | | 2.50 | % |
Weighted-average assumptions used to determine net periodic pension cost for years ended December 31:
| | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | |
Discount rate | | | 4.01 | % | | | 3.36 | % | | | 3.81 | % | | 2.93 | % | | 4.01 | % | | 3.36 | % |
Rate of compensation increase | | | 2.50 | % | | | 2.50 | % | | | 2.50 | % | | 2.75 | % | | 2.50 | % | | 2.50 | % |
Long-term rate of return | | | 6.25 | % | | | 6.00 | % | | | 6.25 | % | | 5.75 | % | | 6.25 | % | | 6.00 | % |
As this plan was frozen to non-union employees on December 31, 1994, the difference between the projected benefit obligation and accumulated benefit obligation is not significant in any year.
The Company invests plan assets based on a total return on investment approach, pursuant to which the plan assets include a diversified blend of equity and fixed income investments toward a goal of maximizing the long-term rate of return without assuming an unreasonable level of investment risk. The Company determines the level of risk based on an analysis of plan liabilities, the extent to which the value of the plan assets satisfies the plan liabilities and the plan'splan’s financial condition. The investment policy includes target allocations ranging from 30% to 70% for equity investments, 20% to 60% for fixed income investments and 0% to 10% for cash equivalents. The equity portion of the plan assets represents growth and value stocks of small, medium and large companies. The Company measures and monitors the investment risk of the plan assets both on a quarterly basis and annually when the Company assesses plan liabilities.
The Company uses a building block approach to estimate the long-term rate of return on plan assets. This approach is based on the capital markets assumption that the greater the volatility, the greater the return over the long term. An analysis of the historical performance of equity and fixed income investments, together with current market factors such as the inflation and interest rates, are used to help make the assumptions necessary to estimate a long-term rate of return on plan assets. Once this estimate is made, the Company reviews the portfolio of plan assets and makes adjustments thereto that the Company believes are necessary to reflect a diversified blend of equity and fixed income investments that is capable of achieving the estimated long-term rate of return without assuming an unreasonable level of investment risk. The Company also compares the portfolio of plan assets to those of other pension plans to help assess the suitability and appropriateness of the plan'splan’s investments.
The Company does not expect to make contributions to the plan in 2019.2020. However after considering the funded status of the plan, movements in the discount rate, investment performance and related tax consequences, the Company may choose to make additional contributions to the plan in any given year.
The total amount of the Company’s contributions paid under its pension plan was zero for each of the years ended December 31, 20182019 and 2017,2018, respectively.
Information about the expected benefit payments for the plan is as follows:
Year Ending December 31, | | | | | | |
2019 | | $ | 1,335 | | |
2020 | | | 1,347 | | | $ | 1,318 | |
2021 | | | 1,350 | | | 1,325 | |
2022 | | | 1,368 | | | 1,346 | |
2023 | | | 1,382 | | | 1,371 | |
Years 2024-2028 | | | 6,859 | | |
2024 | | | 1,384 | |
Years 2025-2029 | | | 6,757 | |
The Company has a 401(k) defined contribution plan for all eligible employees. Employees may contribute up to 25% of their compensation into the plan. The Company may contribute up to an additional 30% of the employee'semployee’s contributed amount up to 6% of compensation. For the years ended December 31, 2019, 2018 and 2017, and 2016, the Company'sCompany’s expense for the 401(k) plan amounted to $0.1 million, $0.1 million and $0.7$0.1 million, respectively.
Components of the provision for income taxes were as follows:
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | |
Current: | | | | | | | | | | | | | | | | | | |
Federal | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
State | | | 200 | | | | 150 | | | | 200 | | | | 115 | | | | 200 | | | | 150 | |
Total | | | 200 | | | | 150 | | | | 200 | | | | 115 | | | | 200 | | | | 150 | |
| | | | | | | | | | | | | | | | | | | | | |
Deferred: | | | | | | | | | | | | | | | | | | | | | |
Federal | | | - | | | | (424 | ) | | | - | | | 120 | | | - | | | (424 | ) |
State | | | - | | | | - | | | | - | | | | 33 | | | | - | | | | - | |
Total | | | - | | | | (424 | ) | | | - | | | | 153 | | | | - | | | | (424 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Total (benefit) provision | | $ | 200 | | | $ | (274 | ) | | $ | 200 | | |
Total provision (benefit) | | | $ | 268 | | | $ | 200 | | | $ | (274 | ) |
Effective Tax rate
The reconciliation of the effective tax rate to the U.S. Statutory Federal Income tax rate was:
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2018 | | | 2017 | | | 2016 | | | | | | 2019 | | 2018 | | 2017 | | | |
Loss before taxes | | $ | (6,345 | ) | | | | | $ | (11,758 | ) | | | | | $ | (28,104 | ) | | | | |
Income (loss) before taxes | | | $ | 2,283 | | | | | $ | (6,345 | ) | | | | $ | (11,758 | ) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expected tax benefit | | $ | (1,332 | ) | | | 21.0 | % | | $ | (4,115 | ) | | | 35.0 | % | | $ | (9,836 | ) | | | 35.0 | % | |
Expected tax (benefit) | | | $ | 479 | | | | 21.0 | % | | $ | (1,332 | ) | | | 21.0 | % | | $ | (4,115 | ) | | | 35.0 | % |
State tax benefit (net of federal) | | | 200 | | | | (3.2 | ) | | | 150 | | | | (1.3 | ) | | | 200 | | | | (0.7 | ) | | | 148 | | | | 6.5 | | | | 200 | | | | (3.2 | ) | | | 150 | | | | (1.3 | ) |
Valuation allowance | | | 1,230 | | | | (19.4 | ) | | | (13,920 | ) | | | 118.4 | | | | 9,726 | | | | (34.6 | ) | | | (428 | ) | | | (18.8 | ) | | | 1,230 | | | | (19.4 | ) | | | (13,920 | ) | | | 118.4 | |
Federal tax reform - deferred rate change | | | 49 | | | | (0.8 | ) | | | 17,671 | | | | (150.3 | ) | | | - | | | | - | | | | - | | | | - | | | | 49 | | | | (0.8 | ) | | | 17,671 | | | | (150.3 | ) |
Other | | | 53 | | | | (0.8 | ) | | | (60 | ) | | | 0.5 | | | | 110 | | | | (0.4 | ) | | | 69 | | | | 3.0 | | | | 53 | | | | (0.8 | ) | | | (60 | ) | | | 0.5 | |
Total | | $ | 200 | | | | (3.2 | %) | | $ | (274 | ) | | | 2.3 | % | | $ | 200 | | | | (0.7 | %) | | $ | 268 | | | | 11.7 | % | | $ | 200 | | | | (3.2 | %) | | $ | (274 | ) | | | 2.3 | % |
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws that took effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax (AMT); (3) a new limitation on deductible interest expense; (4) the repeal of the domestic production activity deduction; (5) limitations on the deductibility of certain executive compensation; and (6) limitation on net operating losses (NOLs) generated after December 31, 2017, to 80% of taxable income.In addition, certain changes were made to the bonus depreciation rules that impacted fiscal year 2017.
Our provision for income taxes was $0.2$0.3 million, or (3.2%)11.7% of pretax loss,income, for the year ended December 31, 2018,2019, compared to a benefit for income taxes of $0.3$0.2 million, or 2.3%3.2% of pretax loss, in the prior year comparable period. No federal or state income tax benefit was recognized for the current period loss due to the recognition of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.
The deferred tax provision benefit in the prior year was due to recognition of $ 0.4 million of valuation allowance for the AMT credits. The tax expense in prior year included an adjustment to measure net deferred tax assets at the new U.S. tax rate of 21%. The expense was offset with a corresponding release of valuation allowance.
In accordance with Staff Accounting Bulletin 118 ("SAB 118"), we completed our analysis of the Tax Act resulting in no material adjustments from the provisional amounts recorded during the prior year. The Tax Act did not have a material impact on our financial statements because we are under a full valuation allowance.
Deferred Taxes and Valuation Allowance
The components of the non-current deferred tax assets/(liabilities)/assets were as follows:
| | At December 31, | | | At December 31, | |
| | 2018 | | | 2017 | | | 2019 | | | 2018 | |
Gross noncurrent deferred tax assets (liabilities) | | | | | | | |
Gross noncurrent deferred tax (liabilities) assets | | | | | | | |
Allowance for bad debts | | $ | 4,828 | | | $ | 3,792 | | | $ | 5,461 | | | $ | 4,828 | |
Accrued rent | | | 1,833 | | | | 1,723 | | | - | | | 1,833 | |
Accrued benefits | | | - | | | | 105 | | |
Stock-based compensation | | | 18 | | | | 387 | | | 178 | | | 18 | |
Lease liability | | | 14,822 | | | - | |
Right-of-use asset | | | (13,156 | ) | | - | |
163J interest limitation | | | 19 | | | | - | | | - | | | 19 | |
Depreciation | | | 16,259 | | | | 15,520 | | | 10,981 | | | 16,259 | |
Goodwill | | | (98 | ) | | | 594 | | | (766 | ) | | (98 | ) |
Other intangibles | | | 211 | | | | 291 | | | 135 | | | 211 | |
Pension plan liabilities | | | 1,163 | | | | 1,221 | | | 1,286 | | | 1,163 | |
Net operating loss carryforwards | | | 17,927 | | | | 17,367 | | | 18,261 | | | 17,927 | |
AMT credit | | | 424 | | | | 424 | | | | - | | | | 424 | |
Gross noncurrent deferred tax assets, net | | | 42,584 | | | | 41,424 | | | 37,202 | | | 42,584 | |
Less valuation allowance | | | (42,160 | ) | | | (41,000 | ) | | | (37,355 | ) | | | (42,160 | ) |
Noncurrent deferred tax assets, net | | $ | 424 | | | $ | 424 | | |
Noncurrent deferred tax (liabilities) assets, net | | | $ | (153 | ) | | $ | 424 | |
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence was the cumulative losses incurred by the Company in recent years.
On the basis of this evaluation the Company believes it is not more likely than not that it will realize its deferred tax assets except the deferred tax assets for AMT credits which can be realized to offset regular tax liability or refunded. As a result, as of December 31, 20182019 and 2017,2018, the Company has recorded a valuation allowance of $42.2$37.4 million and $41.0$42.2 million, respectively, against its net deferred tax assets. With respect to AMT credit, deferred tax asset,the Company has recorded a $0.4 million receivable since it is expected that 50% will be refunded as a result of filing the Company’s 2018 federal corporate income tax return and the remaining 50% will be refunded upon the filings of Company's 2018the Company’s future federal Corporatecorporate income tax return is filed.returns.
As of December 31, 2018,2019, the Company has net operating loss (“NOL”) carryforwards of $60.3$66.7 million. Of the $60.3$66.7 million NOL carryforwards, $52.7$58.5 million will start expiring in 2029 and ending in 2038 if unused. The net operating losses of $7.6$8.2 million generated in current year2018 can be carried over indefinitely under the Tax Act. Utilization of the NOL carryforwards may be subject to a substantial limitation due to ownership change limitations that may occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholdersshareholders or public groups.
groups.
As of December 31, 2019, 2018 2017 and 2016,2017, the Company no longer has any liability for uncertain tax positions. The Company recognizes accrued interest and penalties related to uncertain tax positions in income tax expense.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states. The Company is no longer subject to U.S. federal income tax examinations for years before 20152016 and, generally, is no longer subject to state and local income tax examinations by tax authorities for years before 2014.2016 with few exceptions.
The carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities, which are not measured at fair value on the Consolidated Balance Sheets, are listed in the table below:
| | December 31, 2018 | | |
| | Carrying | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | | | | | December 31, 2019 | |
| | Amount | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | | | Carrying Amount | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total | |
Financial Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 17,571 | | | $ | 17,571 | | | $ | - | | | $ | - | | | $ | 17,571 | | | $ | 23,644 | | | $ | 23,644 | | | $ | - | | | $ | - | | | $ | 23,644 | |
Restricted cash | | | 28,375 | | | | 28,375 | | | | - | | | | - | | | | 28,375 | | | 15,000 | | | 15,000 | | | - | | | - | | | 15,000 | |
| | | | | | | | | | | | | | | | |
Prepaid expenses and other current assets | | | 2,461 | | | | - | | | | 2,461 | | | | - | | | | 2,461 | | | 4,190 | | | - | | | 4,190 | | | - | | | 4,190 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued expenses | | $ | 10,605 | | | $ | - | | | $ | 10,605 | | | $ | - | | | $ | 10,605 | | | $ | 7,869 | | | $ | - | | | $ | 7,869 | | | $ | - | | | $ | 7,869 | |
Other short term liabilities | | | 2,324 | | | | - | | | | 2,324 | | | | - | | | | 2,324 | | | 199 | | | - | | | 199 | | | - | | | 199 | |
Derivative qualifying as cash flow hedge | | | 174 | | | - | | | 174 | | | - | | | 174 | |
Credit facility | | | 48,769 | | | | - | | | | 43,096 | | | | - | | | | 43,096 | | | 34,028 | | | - | | | 34,028 | | | - | | | 34,028 | |
| | December 31, 2017 | | |
| | Carrying | | | Quoted Prices in Active Markets for Identical Assets | | | Significant Other Observable Inputs | | | Significant Unobservable Inputs | | | | | | December 31, 2018 | |
| | Amount | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | | | Carrying Amount | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total | |
Financial Assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 14,563 | | | $ | 14,563 | | | $ | - | | | $ | - | | | $ | 14,563 | | | $ | 17,571 | | | $ | 17,571 | | | $ | - | | | $ | - | | | $ | 17,571 | |
Restricted cash | | | 39,991 | | | | 39,991 | | | | - | | | | - | | | | 39,991 | | | 28,375 | | | 28,375 | | | - | | | - | | | 28,375 | |
| | | | | | | | | | | | | | | | |
Prepaid expenses and other current assets | | | 2,352 | | | | - | | | | 2,352 | | | | - | | | | 2,352 | | | 2,461 | | | - | | | 2,461 | | | - | | | 2,461 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued expenses | | $ | 11,771 | | | $ | - | | | $ | 11,771 | | | $ | - | | | $ | 11,771 | | | $ | 10,605 | | | $ | - | | | $ | 10,605 | | | $ | - | | | $ | 10,605 | |
Other short term liabilities | | | 558 | | | | - | | | | 558 | | | | - | | | | 558 | | | 2,324 | | | - | | | 2,324 | | | - | | | 2,324 | |
Credit facility | | | 52,593 | | | | - | | | | 47,200 | | | | - | | | | 47,200 | | | 48,769 | | | - | | | 43,096 | | | - | | | 43,096 | |
We estimate that the carrying value of the Credit Facility approximates the fair value due to the fact that the Credit Facility was entered into in close proximity to December 31, 2019.
For the year ended December 31, 2018 we estimated the fair value of Facility 1 and Facility 2 of the revolving credit facility based on a present value analysis utilizing aggregate market yields obtained from independent pricing sources for similar financial instruments. The carrying value for Facility 3 of the revolving credit facility approximatesapproximated fair value due to the fact that the borrowings were made in close proximity to December 31, 2017.2018.
The carrying amounts reported on the Consolidated Balance Sheets for Cash and cash equivalents, Restricted cash and Noncurrent restricted cash approximate fair value because they are highly liquid.
The carrying amounts reported on the Consolidated Balance Sheets for Prepaid expenses and Other current assets, Accrued expenses and Other short term liabilities approximate fair value due to the short-term nature of these items.
Qualifying Hedge Derivative
On November 14, 2019, the Company entered into an interest rate swap for the Term Loan with a notional amount of $20M which expires on December 1, 2024. The loan has a 10-year straight line amortization. A principal amount of $0.2 million is paid monthly. This interest rate swap converts the floating interest rate Term Loan to a fixed rate, plus a borrowing spread. The interest rate is variable based on LIBOR plus 3.50% and the Company’s fixed rate is 5.36%. The Company designated this interest rate swap as a cash flow hedge.
The Company entered into this interest rate swap to hedge exposure resulting from the interest rate risk. The purpose of this hedge is to reduce the variability of the interest rate based on LIBOR. The Company manages these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes.
The interest rate swap had a notional amount of $19.8 million and a fair value of $0.1 million as of December 31, 2019. The Company derivative liability is measured at fair value using observable market inputs such as interest rates and our own credit risk as well as an evaluation of our counterparty’s credit risk. Based on these inputs the derivative liability is classified within Level 2 of the valuation hierarchy.
The interest expense recorded as a result of the interest rate swap was $0.1 million as of December 31, 2019. The loss recognized in accumulated other comprehensive income (loss) and the derivative liability which was recorded in other long-term liabilities was $0.1 million as of December 31, 2019.
The for-profit education industry has been impacted by numerous regulatory changes, a changing economy and an onslaught of negative media attention. As a result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over ten locations and exited its online business. In 2017, the Company completed the teach-out of its Center City Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; West Palm Beach, Florida; Brockton, Massachusetts; and Lowell, Massachusetts schools. All of these schools were previously included in our HOPS segment and as of December 31, 2017, they have all been closed.
In August 2018, the Company decided to cease operations, effective December 31, 2018, of its Lincoln College of New England (“LCNE”) campus at Southington, Connecticut. LCNE results, which was previously reported in the HOPS segment, is now included in the Transitional segment as of December 31, 2018. The Company completed the teach-out and exited the LCNE campus on December 31, 2018.
In the past, we offered any combination of programs at any campus. We have shifted our focus to program offerings that create greater differentiation among campuses and promote attainment of excellence to attract more students and gain market share. Also, strategically, we began offering continuing education training to select employers who hire our graduates and this is best achieved at campuses focused on the applicable profession.
As a result of the regulatory environment, market forces and our strategic decisions, we now operate our business in three reportable segments: (a) the Transportation and Skilled Trades segment; (b) the Healthcare and Other Professions segment; and (c) the Transitional segment. Our reportable segments have been determined based on a method by which we now evaluate performance and allocate resources. Each reportable segment represents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs. These segments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan. Each of the Company’s schools is a reporting unit and an operating segment. Our operating segments are described below.
Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).
Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).
Transitional – The Transitional segment refers to campuses that are being taught-out andour campus operations which have been closed and operations that are being phased out.prior to 2019. The schools in the Transitional segment employemployed a gradual teach-out process that enablesenabled the schools to continue to operate to allow their current students to complete their course of study. These schools are no longer enrolling new students.
The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors into consideration, including the campus’s geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with the goals of attracting more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment. Campuses classified in the Transitional segment have been subject to this process and have been strategically identified for closure. As of December 31, 2019, no campuses have been categorized in the Transitional segment.
We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate activity.
For all prior periods presented, the Company reclassified its Marietta, Georgia campus from the HOPS segment to the Transportation and Skilled Trades segment. This reclassification occurred to address how the Company evaluates performance and allocates resources and was approved by the Company’s Board of Directors.
Summary financial information by reporting segment is as follows:
| | For the Year Ended December 31, | | | For the Year Ended December 31, | |
| | Revenue | | | Operating (Loss) Income | | | Revenue | | | Operating Income (Loss) | |
| | 2018 | | | % of Total | | | 2017 | | | % of Total | | | 2016 | | | % of Total | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | % of Total | | | 2018 | | | % of Total | | | 2017 | | | % of Total | | | 2019 | | | 2018 | | | 2017 | |
Transportation and Skilled Trades | | $ | 185,263 | | | | 70.4 | % | | $ | 181,328 | | | | 69.2 | % | | $ | 182,276 | | | | 63.8 | % | | $ | 17,661 | | | $ | 17,795 | | | $ | 21,578 | | | $ | 193,722 | | | 70.9 | % | | $ | 185,263 | | | 70.4 | % | | $ | 181,328 | | | 69.2 | % | | $ | 21,979 | | | $ | 17,661 | | | $ | 17,795 | |
Healthcare and Other Professions | | | 72,135 | | | | 27.4 | % | | | 63,641 | | | | 24.3 | % | | | 62,870 | | | | 22.0 | % | | | 6,469 | | | | 3,937 | | | | (9,392 | ) | | 79,620 | | | 29.1 | % | | 72,135 | | | 27.4 | % | | 63,641 | | | 24.3 | % | | 7,588 | | | 6,469 | | | 3,937 | |
Transitional | | | 5,802 | | | | 2.3 | % | | | 16,884 | | | | 6.4 | % | | | 40,413 | | | | 14.2 | % | | | (5,994 | ) | | | (6,926 | ) | | | (16,995 | ) | | - | | | 0.0 | % | | 5,802 | | | 2.3 | % | | 16,884 | | | 6.4 | % | | - | | | (5,994 | ) | | (6,926 | ) |
Corporate | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | - | | | | 0.0 | % | | | (22,090 | ) | | | (19,522 | ) | | | (24,105 | ) | | | - | | | 0.0 | % | | | - | | | 0.0 | % | | | - | | | 0.0 | % | | | (24,329 | ) | | | (22,090 | ) | | | (19,522 | ) |
Total | | $ | 263,200 | | | | 100 | % | | $ | 261,853 | | | | 100 | % | | $ | 285,559 | | | | 100 | % | | $ | (3,954 | ) | | $ | (4,716 | ) | | $ | (28,914 | ) | | $ | 273,342 | | | | 100 | % | | $ | 263,200 | | | | 100 | % | | $ | 261,853 | | | | 100 | % | | $ | 5,238 | | | $ | (3,954 | ) | | $ | (4,716 | ) |
| | Total Assets | | | Total Assets | |
| | December 31, 2018 | | | December 31, 2017 | | | December 31, 2019 | | | December 31, 2018 | |
Transportation and Skilled Trades | | $ | 92,070 | | | $ | 81,751 | | | $ | 121,611 | | | $ | 92,070 | |
Healthcare and Other Professions | | | 14,078 | | | | 8,297 | | | 27,945 | | | 14,078 | |
Transitional | | | 527 | | | | 4,812 | | | - | | | 527 | |
Corporate | | | 39,363 | | | | 60,353 | | | | 45,207 | | | | 39,363 | |
Total | | $ | 146,038 | | | $ | 155,213 | | | $ | 194,763 | | | $ | 146,038 | |
14.15. | COMMITMENTS AND CONTINGENCIES |
Lease Commitments—The Company leases office premises, educational facilities and various equipment for varying periods through the year 2030 at basic annual rentals (excluding taxes, insurance, and other expenses under certain leases) as follows:
Year Ending December 31, | | Operating Leases | |
2019 | | $ | 16,939 | |
2020 | | | 14,183 | |
2021 | | | 10,708 | |
2022 | | | 8,180 | |
2023 | | | 5,811 | |
Thereafter | | | 17,610 | |
| | $ | 73,431 | |
Rent expense, included in operating expenses in the accompanying consolidated statements of operations for the three years ended December 31, 2018, 2017 and 2016 is $17.8 million, $17.4 million and $20.7 million, respectively.
Litigation and Regulatory Matters— In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material effect on our business, financial condition, results of operations or cash flows.
As previously reported, on July 6, 2018, the Company received an administrative subpoena from the Office of the Attorney General of the State of New Jersey (“NJ OAG”). Pursuant to the subpoena, the NJ OAG requested certain documents and detailed information relating to the November 21, 2012 Civil Investigative Demand letter addressed to the Company by the Massachusetts Office of the Attorney General (“MOAG”) that resulted in a previously reported Final Judgment by Consent between the Company and the MOAG dated July 13, 2015. The Company responded to this request and, by letter dated April 11, 2019, the NJ OAG issued a supplemental subpoena requesting additional information for the time period from April 11, 2014 to the present. The Company submitted its response to the supplemental subpoena. Subsequently, by email dated August 20, 2019, the NJ OAG requested additional records of the Company from the years 2012 and 2013. The Company has responded to the NJ OAG’s most recent record request and is continuing to cooperate with the NJ OAG.
Also, on February 12, 2019, the Company received a notification from the State of Colorado Department of Law (“CDOL”) advising that it was initiating a compliance examination of one of its subsidiaries, Lincoln Technical Institute, Inc. The examination sought to review a fixed number of company transactions seeking information responsive to its examination. The Company submitted its response and , on December 5, 2019, received notifications from the CDOL that it had completed its examination with no violations reported.
Student Loans—At December 31, 2018,2019, the Company had outstanding net loan commitments to its students to assist them in financing their education of approximately $46.2$54.7 million, net of interest.
Vendor Relationship—The Company is party to an agreement with Matco Tools (“Matco”), which expires on July 31, 2019. The Company has agreed to grant Matco exclusive access to 12 campuses and its students and instructors. This exclusivity includes but is not limited to, all other tool manufacturers and/or tool distributors, by whatever means, during the term of the agreement. Under the agreement, the Company will be provided, on an advance commission basis, credits which are redeemable in branded tools, tools storage, equipment, and diagnostics products over the term of the contract.
Executive Employment Agreements—The Company entered into employment contracts with key executives that provide for continued salary payments if the executives are terminated for reasons other than cause, as defined in the agreements. The future employment contract commitments for such employees were approximately $3.1$4.1 million at December 31, 2018.2019.
Change in Control Agreements—In the event of a change of control several key executives will receive continued salary payments based on their employment agreements.
Surety Bonds—Each of the Company’s campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant degrees, diplomas or certificates to its students. The campuses are subject to extensive, ongoing regulation by each of these states. In addition, the Company’s campuses are required to be authorized by the applicable state education agencies of certain other states in which the campuses recruit students. The Company is required to post surety bonds on behalf of its campuses and education representatives with multiple states to maintain authorization to conduct its business. At December 31, 2018,2019, the Company has posted surety bonds in the total amount of approximately $12.7$12.8 million.
The Company has an agreement with Matco Tools, whereby Matco will provide to the Company, on an advance commission basis, credits in Matco-branded tools, tool storage, equipment, and diagnostics products. The chief executive officer of the parent company of Matco iswas considered an immediate family member of one of the Company’s board members.Board members, however as of December 2018, that individual is no longer considered an immediate family member. The amount of the Company’s purchases from this third party werewas $1.8 million and $2.4 million for the year ended December 31, 2018 and 2017, respectively.2018. Management believes that its agreement with Matco is an arm’s length transaction and on similar terms as would have been obtained from unaffiliated third parties.
16.17. | UNAUDITED QUARTERLY FINANCIAL INFORMATION |
The following tables have been updated to reflect changes in discontinued operations. Quarterly financial information for 20182019 and 20172018 is as follows:
| | Quarter | | | Quarter | |
2018 | | First | | | Second | | | Third | | | Fourth | | |
2019 | | | First | | | Second | | | Third | | | Fourth | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 61,889 | | | $ | 61,120 | | | $ | 70,078 | | | $ | 70,113 | | | $ | 63,263 | | | $ | 63,569 | | | $ | 72,594 | | | $ | 73,915 | |
Net (loss) income | | | (6,874 | ) | | | (4,104 | ) | | | (600 | ) | | | 5,033 | | | (5,467 | ) | | (3,064 | ) | | 1,340 | | | 9,206 | |
Basic | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) earnings per share | | $ | (0.28 | ) | | $ | (0.17 | ) | | $ | (0.02 | ) | | $ | 0.21 | | | $ | (0.22 | ) | | $ | (0.12 | ) | | $ | 0.05 | | | $ | 0.33 | |
Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) earnings per share | | $ | (0.28 | ) | | $ | (0.17 | ) | | $ | (0.02 | ) | | $ | 0.20 | | | $ | (0.22 | ) | | $ | (0.12 | ) | | $ | 0.05 | | | $ | 0.33 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 24,138 | | | | 24,486 | | | | 24,533 | | | | 24,533 | | | 24,534 | | | 24,555 | | | 24,563 | | | 24,563 | |
Diluted | | | 24,138 | | | | 24,486 | | | | 24,533 | | | | 24,562 | | | 24,534 | | | 24,555 | | | 24,608 | | | 24,563 | |
| | Quarter | | | Quarter | |
2017 | | First | | | Second | | | Third | | | Fourth | | |
2018 | | | First | | | Second | | | Third | | | Fourth | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenue | | $ | 65,279 | | | $ | 61,865 | | | $ | 67,308 | | | $ | 67,401 | | | $ | 61,889 | | | $ | 61,120 | | | $ | 70,078 | | | $ | 70,113 | |
Net (loss) income | | | (10,929 | ) | | | (6,771 | ) | | | (1,490 | ) | | | 7,707 | | | (6,874 | ) | | (4,104 | ) | | (600 | ) | | 5,033 | |
Basic | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) earnings per share | | $ | (0.46 | ) | | $ | (0.28 | ) | | $ | (0.06 | ) | | $ | 0.32 | | | $ | (0.28 | ) | | $ | (0.17 | ) | | $ | (0.02 | ) | | $ | 0.21 | |
Diluted | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss) earnings per share | | $ | (0.46 | ) | | $ | (0.28 | ) | | $ | (0.06 | ) | | $ | 0.31 | | | $ | (0.28 | ) | | $ | (0.17 | ) | | $ | (0.02 | ) | | $ | 0.20 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 23,609 | | | | 23,962 | | | | 24,024 | | | | 24,025 | | | 24,138 | | | 24,486 | | | 24,533 | | | 24,533 | |
Diluted | | | 23,609 | | | | 23,962 | | | | 24,024 | | | | 24,590 | | | 24,138 | | | 24,486 | | | 24,533 | | | 24,562 | |
LINCOLN EDUCATIONAL SERVICES CORPORATION
Schedule II—Valuation and Qualifying Accounts
(in thousands)
Description | | Balance at Beginning of Period | | | Charged to Expense | | | Accounts Written-off | | | Balance at End of Period | | | Balance at Beginning of Period | | Charged to Expense | | Accounts Written-off | | Balance at End of Period | |
Allowance accounts for the year ended: | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 Student receivable allowance | | | $ | 16,993 | | | $ | 20,847 | | | $ | (17,473 | ) | | $ | 20,367 | |
December 31, 2018 Student receivable allowance | | $ | 13,784 | | | $ | 17,705 | | | $ | (14,496 | ) | | $ | 16,993 | | | $ | 13,784 | | | $ | 17,705 | | | $ | (14,496 | ) | | $ | 16,993 | |
December 31, 2017 Student receivable allowance | | $ | 14,794 | | | $ | 13,720 | | | $ | (14,730 | ) | | $ | 13,784 | | | $ | 14,794 | | | $ | 13,720 | | | $ | (14,730 | ) | | $ | 13,784 | |
December 31, 2016 Student receivable allowance | | $ | 14,074 | | | $ | 14,592 | | | $ | (13,872 | ) | | $ | 14,794 | | |
Exhibit Index |
Exhibit
Number
| Description
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| Purchase and Sale Agreement, dated March 14, 2017, between New England Institute of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017 (incorporated by reference to the Company’s Form 8-K filed August 16, 2017). |
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| Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005).
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| Bylaws of the Company, as amended on March 8, 2019 |
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| Specimen Stock Certificate evidencing shares of common stock (Incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 21, 2005). |
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| Credit Agreement, dated as of March 31, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed April 6, 2017). |
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| Credit Agreement, dated as of April 28, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed May 4, 2017). |
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| First Amendment to Credit Agreement, dated as of November 29, 2017, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed December 1, 2017) |
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| Second Amendment to Credit Agreement, dated as of February 23, 2018, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed February 26, 2018) |
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| Third Amendment to Credit Agreement, dated as of July 11, 2018, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (Incorporated by reference to the Company’s Form 8-K filed July 13, 2018).
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| Fourth Amendment to Credit Agreement, dated as of March 6, 2019, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank |
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| Commercial Contract, dated as of July 9, 2018, between New England Institute of Technology at Palm Beach, Inc. and Elite Property Enterprise, LLC (Incorporated by reference to the Company’s Form 8-K filed July 13, 2018).
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| Employment Agreement, dated as of November 8, 2017, between the Company and Scott M. Shaw (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017). |
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| Employment Agreement, dated as of November 7, 2018, between the Company and Scott M. Shaw (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 9, 2018).
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| Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017).
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| Employment Agreement, dated as of November 7, 2018, between the Company and Brian K. Meyers (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 9, 2018). |
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| Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 13, 2017). |
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| Change in Control Agreement, dated as of November 7, 2018, between the Company and Stephen M. Buchenot (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November 9, 2018). |
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| Lincoln Educational Services Corporation Amended and Restated 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Form 8-K filed May 6, 2013). |
| Lincoln Educational Services Corporation Amended and Restated 2005 Non-Employee Directors Restricted Stock Plan (Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 333-211213) filed May 6, 2016). |
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| Lincoln Educational Services Corporation 2005 Deferred Compensation Plan (Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-123644) filed March 29, 2005). |
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| Form of Stock Option Agreement under our 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007). |
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| Form of Restricted Stock Agreement under our 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012). |
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| Form of Performance-Based Restricted Stock Award Agreement under our Amended & Restated 2005 Long-Term Incentive Plan (Incorporated by reference to the Company’s Form 8-K filed May 5, 2011). |
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| Subsidiaries of the Company. |
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| Consent of Independent Registered Public Accounting Firm. |
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| Power of Attorney (included on the Signatures page of the Company's Annual Report on Form 10-K filed March 13, 2019).
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| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101** | The following financial statements from Lincoln Educational Services Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL: (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) Consolidated Statement of Changes in Stockholders’ Equity and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. |
** | As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 |
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