UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~December 31, 2012

¨	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33883

K12 Inc.

(Exact name of registrant as specified in its charter)


Delaware		95-4774688
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2300 Corporate Park Drive Herndon, VA		~~20171~~
(Address of principal executive offices)		20171 (Zip Code)

(703) 483-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨o No x

As of ~~May 1, 2012~~January 28, 2013, the Registrant had ~~36,445,790~~37,102,938 shares of ~~Common Stock,~~common stock, $0.0001 par value per share outstanding.

Table of Contents

K12 Inc.

Form 10-Q

For the Quarterly Period Ended ~~March~~December 31, 2012

Index

					Page
			~~Page~~ Number

PART I.	Financial Information			3	2
Item 1.	Financial Statements (Unaudited)			3	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			19	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			30	28
Item 4.	Controls and Procedures			31	28

PART II.	Other Information			32	29
Item 1.	Legal Proceedings			32	29
Item 1A.	Risk Factors			33	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			33	30
Item 3.	Defaults Upon Senior Securities			33	30
Item 4.	Mine Safety Disclosures			33	30
Item 5.	Other Information			33	30
Item 6.	Exhibits			33	31

Signatures		34	32

Table of Contents
PART I — FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited).
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

   March 31,
2012 June 30,
2011

December 31,

June 30,

   (In thousands, except
share and per share data)

2012

2012

(In thousands, except share and
per share data)

ASSETS

Current assets


Cash and cash equivalents
   $ 123,653    $ 193,099

$
143,192

$
144,652

Restricted cash and cash equivalents
   1,501    1,501

—

1,501

Accounts receivable, net of allowance of $2,891 and $1,777 at March 31, 2012 and June 30, 2011, respectively
   205,307    96,235
Accounts receivable, net of allowance of $2,970 and $1,624 at December 31, 2012 and June 30, 2012, respectively

223,312

160,922

Inventories, net
   27,525    30,554

29,470

37,853

Current portion of deferred tax asset
   4,969    7,175

12,363

16,140

Prepaid expenses
   14,428    10,424

19,833

11,173

Other current assets
   12,973    9,111

16,000

14,598



Total current assets
   390,356    348,099

444,170

386,839

Property and equipment, net
   61,385    46,625

63,134

55,903

Capitalized software development costs, net
   29,496    24,386
Capitalized software, net

39,639

34,709

Capitalized curriculum development costs, net
   56,962    55,619

62,926

60,345

Intangible assets, net
   37,912    38,291

34,437

36,736

Goodwill
   62,404    55,627

61,501

61,619

Investment in Web International
   10,000    10,000

10,000

10,000

Deposits and other assets
   3,219    3,448

2,902

2,684



Total assets
   $ 651,734    $ 582,095

$
718,709

$
648,835



LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

Current liabilities


Accounts payable
   $ 17,276    $ 21,176

$
20,121

$
23,951

Accrued liabilities
   16,252    14,126

22,218

13,802

Accrued compensation and benefits
   16,127    13,086

13,296

17,355

Deferred revenue
   46,558    21,907

59,249

25,410

Current portion of capital lease obligations
   16,571    11,914

19,799

15,950

Current portion of notes payable
   1,137    1,443


Current portion of note payable

1,138

1,145

Total current liabilities
   113,921    83,652

135,821

97,613

Deferred rent, net of current portion
   5,499    4,698

8,679

6,974

Capital lease obligations, net of current portion
   17,541    8,552

20,619

15,124

Notes payable, net of current portion
   1,162    2,299
Note payable, net of current portion

—

777

Deferred tax liability
   15,283    9,604

34,764

31,591

Other long term liabilities
   3,191    3,343

2,146

1,908



Total liabilities
   156,597    112,148

202,029

153,987



Commitments and contingencies


—

—

Redeemable noncontrolling interest
   17,200    17,200

17,200

17,200



Equity:


K12 Inc. stockholders’ equity


Common stock, par value $0.0001; 100,000,000 shares authorized; 36,389,121 and 35,927,452 shares issued and outstanding at March 31, 2012 and June 30, 2011, respectively
   4    4
Common stock, par value $0.0001; 100,000,000 shares authorized; 36,872,800 and 36,436,933 shares issued and outstanding at December 31, 2012 and June 30, 2012, respectively

4

4

Additional paid-in capital
   521,503    512,181

527,574

519,439

Series A Special Stock, par value $0.0001; 2,750,000 issued and outstanding at March 31, 2012 and June 30, 2011
   63,112    63,112
Accumulated other comprehensive income
   157    28
Series A Special Stock, par value $0.0001; 2,750,000 shares authorized, issued and outstanding at December 31, 2012 and June 30, 2012

63,112

63,112

Accumulated other comprehensive (loss) income

(50
)
100

Accumulated deficit
   (110,961 ) (126,704 )

(95,293
)
(109,161
)


Total K12 Inc. stockholders’ equity
   473,815    448,621

495,347

473,494

Noncontrolling interest
   4,122    4,126

4,133

4,154



Total equity
   477,937    452,747

499,480

477,648



Total liabilities, redeemable noncontrolling interest and equity
   $ 651,734    $ 582,095

$
718,709

$
648,835



See accompanying ~~summary of accounting policies and~~ notes to unaudited condensed consolidated financial statements.
2

Table of Contents
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   Three Months Ended Nine Months Ended
   March 31, March 31,

Three Months Ended

Six Months Ended

   2012 2011 2012 2011

December 31,

December 31,

   (In thousands, except share and per share data)

2012

2011

2012

2011

(In thousands, except share and per share data)

Revenues
   $ 178,175    $ 130,293    $ 538,005    $ 394,167

$
206,028

$
166,500

$
427,124

$
359,830



Cost and expenses


Instructional costs and services
   105,955    77,727    314,410    229,004

122,799

98,909

241,446

200,016

Selling, administrative, and other operating expenses
   53,619    36,763    175,836    122,438

61,379

52,925

150,998

130,656

Product development expenses
   7,012    4,972    20,810    12,318

5,578

7,574

9,746

13,798



Total costs and expenses
   166,586    119,462    511,056    363,760

189,756

159,408

402,190

344,470



Income from operations
   11,589    10,831    26,949    30,407

16,272

7,092

24,934

15,360

Interest expense, net
   (265 ) (307 ) (722 ) (970 )

(272
)
(236
)
(501
)
(457
)


Income before income tax expense and noncontrolling interest
   11,324    10,524    26,227    29,437

16,000

6,856

24,433

14,903

Income tax expense
   (4,638 ) (5,260 ) (11,311 ) (14,310 )

(6,680
)
(2,976
)
(10,569
)
(6,673
)


Net income – K12 Inc.
   6,686    5,264    14,916    15,127
Add net loss attributable to noncontrolling interest
   291    335    827    509


Net income

9,320

3,880

13,864

8,230

Adjust net loss attributable to noncontrolling interest

191

285

4

536

Net income attributable to common stockholders, including Series A stockholders
   $ 6,977    $ 5,599    $ 15,743    $ 15,636

$
9,511

$
4,165

$
13,868

$
8,766



Net income attributable to common stockholders per share, excluding Series A stockholders:


Basic
   $ 0.18    $ 0.17    $ 0.41    $ 0.47

$
0.24

$
0.11

$
0.36

$
0.23



Diluted
   $ 0.18    $ 0.16    $ 0.41    $ 0.46

$
0.24

$
0.11

$
0.36

$
0.23



Weighted average shares used in computing per share amounts:


Basic
   35,876,629    30,958,807    35,753,156    30,620,330

36,118,519

35,755,685

36,073,885

35,692,761



Diluted
   35,913,576    31,758,313    36,023,023    31,327,544

36,118,519

35,976,779

36,073,885

36,009,878



See accompanying ~~summary of accounting policies and~~ notes to unaudited condensed consolidated financial statements.
3

Table of Contents
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~EQUITY (DEFICIT)~~
COMPREHENSIVE INCOME (LOSS)

Three Months Ended
December 31,

Six Months Ended
December 31,

2012

2011

2012

2011

(In thousands)

Net income

$
9,320

$
3,880

$
13,864

$
8,230

Other comprehensive income, net of tax

Foreign currency translation adjustment

164

24

(150
)
106

Total other comprehensive income, net of tax

9,484

3,904

13,714

8,336

Comprehensive (loss) income attributable to noncontrolling interest

191

285

4

536

Comprehensive income attributable to common stockholders, including Series A stockholders

$
9,675

$
4,189

$
13,718

$
8,872

K12 Inc Stockholders
Common Stock Common Stock -
Series A Additional
Paid-in Accumulated
Other
Comprehensive Accumulated Noncontrolling
Shares Amount Shares Amount Capital Income Deficit Interest Total
(In thousands, except share data)
Balance, June 30, 2011
35,927,452    $ 4    2,750,000    $ 63,112    $ 512,181    $ 28    $ (126,704 ) $ 4,126    $ 452,747
Net income (loss) (1)
15,743    (4 ) 15,739
Foreign currency translation adjustments
129    129

Comprehensive Income
15,868
Stock based compensation expense
7,339    7,339
Exercise of stock options
205,732    3,123    3,123
Excess tax benefit from stock-based compensation
1,289    1,289
Issuance of restricted stock awards
348,940    —      —
Forfeiture of restricted stock awards
(40,129 ) —      —
Accretion of redeemable noncontrolling interests to estimated redemption value
(825 ) (825 )
Retirement of restricted stock for tax withholding
(52,874 ) (1,291 ) (1,291 )
Registration expenses for shares issued in private placement
—      —      —      —      (313 ) —      —      —      (313 )

Balance, March 31, 2012
36,389,121    $ 4    2,750,000    $ 63,112    $ 521,503    $ 157    $ (110,961 ) $ 4,122    $ 477,937

~~(1)~~ Net income (loss) attributable to noncontrolling interests excludes $(0.8) million due to the redeemable noncontrolling interest related to Middlebury Interactive Languages, which is reported outside of permanent equity in the unaudited condensed consolidated balance sheets.
See accompanying ~~summary of accounting policies and~~ notes to unaudited condensed consolidated financial statements.
4

Table of Contents
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

K12 Inc Stockholders

Common Stock

Common Stock -
Series A

Additional
Paid-in

Accumulated
Other
Comprehensive

Accumulated

Noncontrolling

(In thousands, except share data)

Shares

Amount

Shares

Amount

Capital

Income (Loss)

Deficit

Interest

Total

Balance, June 30, 2012

36,436,933

$
4

2,750,000

$
63,112

$
519,439

$
100

$
(109,161
)
$
4,154

$
477,648

Net income (loss) (1)

13,868

(21
)
13,847

Other comprehensive loss

(150
)

(150
)
Stock based compensation expense

5,780

5,780

Exercise of stock options

69,989

—

607

607

Excess tax benefit from stock-based compensation

2,532

2,532

Issuance of restricted stock awards

404,073

—

—

Accretion of redeemable noncontrolling interests to estimated redemption value

17

17

Retirement of restricted stock for tax withholding

(38,195
)
—

—

—

(801
)
—

—

—

(801
)
Balance, December 31, 2012

36,872,800

$
4

2,750,000

$
63,112

$
527,574

$
(50
)
$
(95,293
)
$
4,133

$
499,480

(1)          Net income (loss) attributable to noncontrolling interests excludes $0.1 million due to the redeemable noncontrolling interest related to Middlebury Interactive Languages, which is reported outside of permanent equity in the accompanying unaudited condensed consolidated balance sheets.
See accompanying notes to unaudited condensed consolidated financial statements.
5

Table of Contents
K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   Nine Months Ended
March 31,

Six Months Ended December 31,

   2012 2011

2012

2011

   (In thousands)

(In thousands)

Cash flows from operating activities


Net income
   $ 14,916    $ 15,127

$
13,864

$
8,230

Adjustments to reconcile net income to net cash (used in)/provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization expense
   42,312    30,463

31,894

27,668

Stock based compensation expense
   7,339    7,453

5,780

4,724

Excess tax benefit from stock based compensation
   (1,289 ) (5,443 )

(2,532
)
(1,232
)
Deferred income taxes
   9,571    13,329

9,482

6,433

Provision for doubtful accounts
   480    569

784

329

Provision for inventory obsolescence
   464    729

200

9

Provision for student computer shrinkage and obsolescence
   427    182

502

393

Changes in assets and liabilities:


Accounts receivable
   (109,128 ) (52,728 )

(63,338
)
(100,765
)
Inventories
   2,565    7,235

8,183

10,341

Prepaid expenses
   (4,004 ) 545

(8,630
)
(3,400
)
Other current assets
   (3,635 ) (1,994 )

(1,402
)
(5,199
)
Deposits and other assets
   229    (105 )

(217
)
151

Accounts payable
   (3,901 ) (4,150 )

(3,838
)
(928
)
Accrued liabilities
   2,124    1,516

8,403

2,885

Accrued compensation and benefits
   3,040    (4,377 )

(4,058
)
575

Deferred revenue
   24,310    14,478

33,529

29,906

Cash invested in restricted cash and cash equivalents
   —      1,712
Release of restricted cash

1,501

—

Deferred rent and other long term liabilities
   650    2,483

1,945

413



Net cash (used in)/provided by operating activities
   (13,530 ) 27,024


Net cash provided by (used in) operating activities

32,052

(19,467
)
Cash flows from investing activities


Purchase of property, equipment and software development costs
   (22,478 ) (20,295 )
Purchase of property and equipment

(4,524
)
(6,276
)
Capitalized software development costs

(11,633
)
(8,626
)
Capitalized curriculum development costs
   (10,341 ) (11,728 )

(9,628
)
(6,469
)
Purchase of AEC, net of cash acquired of $3,841
   —      (24,544 )
Cash advanced for AEC performance escrow
   —      (6,825 )
Cash returned from AEC performance escrow
   —      6,825
Cash paid for investment in Web
   —      (10,000 )
Cash paid for other investment
   —      (2,040 )
Purchase of Kaplan/Insight Assets
   (12,641 ) —


Purchase of acquired entity

—

(12,641
)
Net cash used in investing activities
   (45,460 ) (68,607 )

(25,785
)
(34,012
)


Cash flows from financing activities


Repayments on capital lease obligations
   (11,950 ) (11,113 )

(9,851
)
(7,884
)
Repayments on notes payable
   (1,443 ) (1,251 )
Borrowings from line of credit
   —      15,000
Repayments under line of credit
   —      (15,000 )
Repayments on note payable

(785
)
(1,069
)
Proceeds from exercise of stock options
   3,123    8,252

607

2,760

Excess tax benefit from stock based compensation
   1,289    5,443

2,532

1,232

Repurchase of restricted stock for income tax withholding
   (1,291 ) (1,595 )

(801
)
(580
)
Payment of stock registration expense
   (313 ) —

—

(313
)


Net cash (used in)/provided by financing activities
   (10,585 ) (264 )


Net cash used in financing activities

(8,298
)
(5,854
)
Effect of foreign exchange rate changes on cash and cash equivalents
   129    176

571

106



Net change in cash and cash equivalents
   (69,446 ) (41,671 )

(1,460
)
(59,227
)
Cash and cash equivalents, beginning of period
   193,099    81,751

144,652

193,099



Cash and cash equivalents, end of period
   $ 123,653    $ 40,080

$
143,192

$
133,872



See accompanying ~~summary of accounting policies and~~ notes to unaudited condensed consolidated financial statements.
6

Table of Contents
K12 ~~Inc.~~Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1. ~~Description of the Business~~
1.Description of the Business
K¹²K12 Inc., and its subsidiaries ((“K¹²” or the ~~Company),~~“Company”) is a technology-based education company. The Company offers proprietary curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade, ~~or K-12.~~(“K-12”). The Company’s mission is to maximize a child’s potential by providing access to an engaging and effective education, regardless of geographic location or socio-economic background. Since the Company’s inception, ~~we have~~the Company has invested approximately ~~$275~~$330 million to develop and to a lesser extent, acquire curriculum and online learning platforms that promote mastery of core concepts and skills for students of all abilities. This learning system combines ~~our~~the Company’s curriculum and offerings with an individualized learning approach well-suited for virtual and blended public ~~schools, hybrid~~ schools, school district online programs, public charter schools and private schools that utilize varying degrees of online and traditional classroom instruction, and other educational applications. In contracting with a virtual or ~~hybrid~~blended public school, the Company typically provides students with access to theK¹² online curriculum, offline learning kits and the use of a personal computer ~~as required or needed, and we also provide~~in certain cases, in addition to providing management services. The Company provides management services to ~~these schools. The Company offers foreign language courses and camps with Middlebury Interactive Languages, our joint venture with Middlebury College. We also operate three online private schools: K~~¹² International Academy, Keystone School and the George Washington University Online High School. In addition, we own a brick and mortar private school, the International School of Berne (IS Berne) located in Berne, Switzerland, and currently own a 20% interest in The Web International Education Group, Ltd., a company providing English instruction to young adults in China. Through Capital Education LLC, we provide online services to post-secondary institutions. During fiscal year 2012, the Company managespublic schools in 2933 states and the District of Columbia. ~~The Company sells access to its online curriculum and offline learning kits directly to individual consumers as well. We provide services through our institutional sales to customers in all 50 states.~~

2. ~~Basis of Presentation~~
In addition, the Company works closely with a growing number of public schools, school districts, private schools and public charter schools enabling them to offer their students an array of solutions, including full-time virtual programs, semester course and supplemental solutions. In addition to curriculum, systems and programs, the Company provides teacher training, teaching services and other support services.
2.Basis of Presentation
The accompanying condensed consolidated balance sheet as of ~~March~~December 31, 2012, the condensed consolidated statements of operations for the three ~~months~~ and ~~nine~~six months ended ~~March~~December 31, 2012 and 2011, the condensed consolidated statements of cash flows for the ~~nine~~six months ended ~~March~~December 31, 2012 and 2011, the condensed consolidated statement of comprehensive income (loss) and the condensed consolidated statement of equity (deficit) for the ~~nine~~six months ended ~~March~~December 31, 2012 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position as of ~~March~~December 31, 2012, the results of operations for the three and ~~nine~~six months ended ~~March~~December 31, 2012 and 2011, cash flows for the ~~nine~~six months ended ~~March~~December 31, 2012 and 2011, the condensed consolidated statements of comprehensive income (loss) for the three and six months ended December 31, 2012 and 2011, and the condensed consolidated statement of equity (deficit) for the ~~nine~~six months ended ~~March~~December 31, 2012. The results of the three and ~~nine~~six month ~~period~~periods ended ~~March~~December 31, 2012 are not necessarily indicative of the results to be expected for the year ending June 30, ~~2012~~2013 or for any other interim period or for any other future fiscal year. The consolidated balance sheet as of June 30, ~~2011~~2012 has been derived from the audited consolidated financial statements at that date.
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended ~~(“Exchange~~(the “Exchange Act”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of ~~our~~the Company’s condensed consolidated results of operations, financial position and cash flows. Preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes. Actual results could differ from those estimates. This quarterly report on Form 10-Q should be read in conjunction with the financial statements and the notes thereto included in the Company’s ~~latest~~ annual ~~reports~~report on Form ~~10K~~10-K filed with the Securities and Exchange Commission (the “SEC”) on ~~October 7, 2011 and Form 10-K/A filed on December 8, 2011,~~September 12, 2012, which contains the Company’s audited financial statements for the fiscal year ended June 30, ~~2011.~~
2012.
3. ~~Summary of Significant Accounting Policies~~
7

Table of Contents
The Company operates in one operating and reportable business segment as a technology based education company providing proprietary curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade. The Chief Operating Decision Maker evaluates profitability based on consolidated results.
3.Summary of Significant Accounting Policies
Revenue Recognition
Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended public ~~schools, hybrid~~ schools, traditional schools, school districts, public charter schools, and private schools. In addition to providing the curriculum, books and materials, under ~~the virtual public school and hybrid school~~its contracts, ~~from which most of the Company’s revenue is derived,~~ the Company ~~usually is responsible for all aspects of the~~provides management ~~of those~~services to virtual and blended public schools, including monitoring academic achievement, recommendations related to teacher hiring and training and compensation of school personnel, financial management, enrollment processing and procurement of curriculum, equipment and required services. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments for schools that occur in the fourth fiscal quarter ~~that are~~and for the upcoming school year are recorded in deferred revenues.
Where itthe Company has ~~been~~ determined that ~~the Company~~it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenue received by the school from its state funding school district up to the expenses incurred in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) 605, –Revenue Recognition. For contracts ~~in which~~where the Company is not the primary obligor, the Company records revenue based on its net fees earned ~~per~~under the contractual agreement.
The Company generates revenues under contracts with virtual and ~~hybrid~~blended public schools which include multiple elements. These elements include providing ~~in accordance with the policy of the governing body of the managed school,~~ each ~~of a~~ school’s students with access to the Company’s online school and the ~~online~~ component of lessons; offline learning kits, which include books and materials ~~designed~~ to ~~complement and~~ supplement the online lessons; in certain cases may include the use of a personal computer ~~where required or needed~~ and associated reclamation services; internet access and technology support services; the services of a state-certified ~~teacher and; all~~teacher; and management and technology services required to operate a virtual public ~~school~~ or ~~hybrid~~blended school. In certain managed school contracts, ~~our~~ revenue is determined directly by per enrollment funding. ~~As our~~Revenue is generally recognized ratably over the period services are performed ~~we generally earn~~except for revenue on materials that is recognized upon shipment to students and ~~recognize revenues ratably over that period.~~the costs of materials are expensed.
The Company has determined that the elements of ~~our~~its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within ~~our~~the Company’s multiple-element contracts do not qualify for ~~treatment as~~ separate units of accounting. Accordingly, the Company accounts for revenues ~~received~~ under multiple element arrangements as a single unit of ~~accounting. We recognize~~accounting and recognizes the entire arrangement based upon the approximate rate at which ~~we incur~~it incurs the costs associated with each element.
Under the contracts ~~with schools~~ where the Company provides turnkey management services to schools, the Company has generally agreed to absorb any operating losses of the ~~schools in a given school year.~~schools. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public ~~schools or hybrid schools~~school as reflected on ~~their~~its respective financial ~~statements. The costs include~~statements, including Company charges to the schools. ~~The fact that a~~A school ~~has an~~ operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract ~~nor does it mean that K12 will lose money in that year, however,~~with the school. However, a school operating loss may reduce the Company’s ability to collect ~~invoices~~its fees in ~~full. Accordingly, the Company’s~~full and recognized revenues are reduced accordingly to reflect ~~this reduction.~~the expected cash collections from such schools. The Company amortizes the estimated school operating loss against ~~revenues~~its management fees based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. Management periodically reviews its estimates of full year school revenues and ~~full year school~~ operating expenses and amortizes the net impact of any changes to these estimates over the remainder of the fiscal year. Actual school operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school revenues and actual costs incurred in the calculation of school operating losses. ~~However,~~
The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenue under these agreements is recognized in accordance with ASC 605
8

Table of Contents
when all of the following conditions are met: there ~~are some situations where revenue estimates~~is persuasive evidence of an arrangement; delivery has occurred or services have been rendered; the amount of fees to be paid by the customer is fixed and determinable; and the collectability of the fee is probable. Revenue from the ~~prior year~~licensing of curriculum under subscription arrangements is recognized on a ratable basis over the subscription period. Revenue from the licensing of curriculum under non-cancelable perpetual arrangements is recognized when all revenue recognition criteria have been met. Revenue from professional consulting, training and support services are ~~adjusted during~~deferred and recognized ratably over the ~~next fiscal year related~~service period.
Other revenues are generated from individual customers who prepay and have access for 12 to ~~school audits.~~
24 months to Company-provided online curriculum. The Company recognizes these revenues pro rata over the maximum term of the customer contract. Revenues from associated offline learning kits are recognized upon shipment.
During the three months ended ~~March~~December 31, 2012, the Company had contracts with two schools that represented approximately 14% and ~~2011, no school accounted for more than 10%~~11% of revenues. During the three months ended December 31, 2011, the Company had contracts with two schools that each represented approximately 8% of revenues. The percentage of revenues for these two schools is not indicative of the percentage of revenues for the full year. Approximately ~~11%~~8% and ~~12%~~11% of accounts receivable was attributable to a contract with one school as of ~~March~~December 31, 2012 and June 30, 2012, respectively. During the six months ended December 31, 2012, the Company had contracts with two schools that represented approximately 14% and 10% of revenues. During the six months ended December 31, 2011, ~~respectively.~~the Company had contracts with two schools that each represented approximately 8% of revenues.
~~Consolidation~~Reclassifications
The Company has reclassified certain prior year enrollment related costs from instructional costs and services to selling administrative and other operating expenses to conform to the current year presentation. There was no effect on total costs and expenses, income from operations or net income from such reclassification.
Consolidation
The condensed consolidated financial statements include the accounts of the Company, its wholly-owned and affiliated companies that the Company owns, directly or indirectly, and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Inventories
Inventories consist primarily of ~~schoolbooks~~textbooks and curriculum materials, a majority of which are supplied to virtual public schools and ~~hybrid~~blended public schools and utilized directly by students. Inventories represent items that are purchased and held for sale and are recorded at the lower of cost (first-in, first-out method) or market value. Excess and obsolete inventory reserves are established based upon the evaluation of the quantity on hand relative to demand. The excess and obsolete inventory reserve was ~~$3.4~~$4.7 million and ~~$2.9~~$4.5 million ~~as of March~~at December 31, 2012 and June 30, 2012, respectively
Other Current Assets
Other current assets consist primarily of textbooks, curriculum materials and other supplies which are expected to be returned upon the completion of the school year. Materials not returned are expensed as part of instructional costs and services.
Property and Equipment
Property, equipment and capitalized software development costs are stated at cost less accumulated depreciation and amortization. Depreciation expense is calculated using the straight-line method over the estimated useful life of the asset (or the lesser of the term of the lease and the estimated useful life of the asset under capital lease). Amortization of assets capitalized under capital lease arrangements is included in depreciation expense. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the asset. The Company determines the lease term in accordance with ASC 840, Leases, as the fixed non-cancelable term of the lease plus all periods for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease, to be reasonably assured. Property and equipment are depreciated over the following useful lives:
9

Table of Contents
Useful Life
Student computers
3 years
Computer hardware
3 years
Computer software
3-5 years
Web site development costs
3 years
Office equipment
5 years
Furniture and fixtures
7 years
Leasehold improvements
3-12 years
Capitalized Software
The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with ASC 350, Intangibles — Goodwill and Other. The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization.
Capitalized software development additions totaled $11.6 million and $8.6 million for the six months ended December 31, 2012 and 2011, respectively. Amortization expense for the three months ended December 31, 2012 and 2011 was $3.4 million and $3.1 million, respectively. Amortization expense for the six months ended December 31, 2012 and 2011 was $6.7 million and $5.8 million, respectively.
Capitalized Curriculum Development Costs
The Company internally develops its own curriculum, which is primarily provided as online content and accessed via the Internet. The Company also creates textbooks and other materials that are complementary to online content.
The Company capitalizes curriculum development costs incurred during the development stage in accordance with ASC 350. The Company capitalizes curriculum development costs during the design and deployment phases of the project. Many of the Company’s new courses leverage off of proven delivery platforms and are primarily content, which has no technological hurdles. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs will be amortized is generally five years.
Total capitalized curriculum development additions were $9.6 million and $6.5 million for the six months ended December 31, 2012 and 2011, respectively. These amounts are recorded on the accompanying consolidated balance sheet net of amortization charges. Amortization is recorded in product development expenses on the accompanying condensed consolidated statements of operations. Amortization expense for the three months ended December 31, 2012 and 2011 was $3.6 million and $3.1 million, respectively. Amortization expense for the six months ended December 31, 2012 and 2011 was $7.1 million and $6.0 million, respectively.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.
Series A Special Stock
The Company issued 2,750,000 shares of Series A Special ~~stock~~Stock in connection with an acquisition. The holders of the Series A Special ~~stock~~Stock have the right to convert those shares into common stock on a one-for-one basis and ~~for~~ the right to vote on all matters presented to K12 stockholders, other than for the election and removal of directors, for which holders of the Series A Special ~~stock~~Stock have no voting rights.
10

Table of Contents
Noncontrolling Interest
Earnings or losses attributable to other stockholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s condensed consolidated statements of operations. Net ~~loss~~income attributable to noncontrolling interest reflects only ~~its~~the Company’s share of the after-tax earnings or losses of an affiliated company. Income taxes attributable to noncontrolling interest are determined using the applicable statutory tax rates in the jurisdictions where such operations are conducted. These rates vary from country to country. The Company’s condensed consolidated balance sheets reflect noncontrolling interest within the equity section of the condensed consolidated balance sheets rather than in the mezzanine section of the condensed consolidated balance sheets, except for redeemable noncontrolling interest. Noncontrolling interest is classified separately in the Company’s condensed consolidated statement of equity (deficit).
Redeemable Noncontrolling Interests
Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets ~~and outside of the Company’s control~~ are classified outside of permanent equity at redeemable value which approximates fair value. The redeemable noncontrolling interests will be adjusted to their fair value at each balance sheet date. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in-capital.
Goodwill and ~~Intangibles~~Intangible Assets
The Company records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. Finite-lived intangible assets acquired in business combinations subject to amortization are recorded at their fair ~~value in accordance with ASU Topic 350 –~~~~Intangibles – Goodwill and Other~~value. Finite-lived intangible assets~~and~~ include trade names, customer and ~~noncompete agreements.~~distributor relationships and developed technology. Such intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended December 31, 2012 and 2011 was $1.1 million and $0.9 million, respectively. Amortization expense for the six months ended December 31, 2012 and 2011 was $2.3 million and $1.8 million, respectively. Future amortization of intangible assets is $2.3 million, $3.1 million, $3.1 million, $3.0 million and $2.4 million in the fiscal years ending June 30, 2013 through June 30, 2017, respectively, and $20.4 million thereafter. As of December 31, 2012 and June 30, 2012, goodwill balances were recorded at $61.5 million and $61.6 million, respectively.
~~Under the amendments in ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of~~
The Company reviews its recorded finite-lived intangible assets for impairment whenever events or changes in circumstances ~~leads to a determination that it is more likely than not~~indicate that the ~~fair value~~carrying amount of ~~a reporting unit~~an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than ~~its carrying amount. If, after assessing the totality~~
of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the ~~reporting unit,~~asset, a loss is recognized for the difference between fair value and the carrying value of the asset.
ASC 350 prescribes a process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as ~~described~~well as when an event triggering impairment may have occurred. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in ~~paragraph 350-20-35-4 of Topic 350. If~~circumstances suggest the carrying amount ~~of a reporting unit exceeds its fair value, then the entity is required~~may not be fully recoverable. The Company has elected to perform ~~the second step~~its annual assessment on May 31st of ~~the goodwill impairment test to measure the amount of the impairment loss, if any, as described in paragraph 350-20-35-9.~~each year.
During the first ~~nine~~six months of ~~2012,~~fiscal year 2013, the Company’s goodwill ~~increased~~decreased by approximately ~~$6.7~~$0.1 million due to its acquisition of certain assets of Kaplan Virtual Education (KVE) and Insight Schools (Kaplan/Insight Assets) a subsidiary of Kaplan, Inc (see Note 10). The Company also recorded approximately $4.3 million in finite-lived intangiblesadjustments made related to the acquisition of certain ~~Kaplan/~~K-12 assets and Insight ~~Assets. The Company did not experience~~School management contracts of Kaplan Virtual Education (“KVE”), a ~~significant adverse change~~subsidiary of Kaplan Inc. (the “Kaplan/Insight Assets”) (see Note 10) in ~~its business climate and therefore does not believe a triggering event occurred that would require a detailed test of goodwill for impairment as of an interim date. Consequently,~~connection with the ~~first step~~finalization of the ~~goodwill impairment test was not performed during the interim periods. The Company intends to complete its annual goodwill impairment test as of May 31, 2012.~~purchase price allocation.
The following table represents goodwill additions during the ~~nine~~six months ended ~~March~~December 31, 2012:

($ in millions)
   Amount
Rollforward of Goodwill

Balance as of June 30, 2011
   $ 55.6
Acquisition of certain assets
   6.7
Other adjustments
   0.1


Balance as of March 31, 2012
   $ 62.4


Rollforward of Goodwill

Amount

($ in millions)

Balance as of June 30, 2012

$
61.6

Adjustments due to KVE and other foreign exchange translations

(0.1
)
Balance as of December 31, 2012

$
61.5

11

Table of Contents
The following table represents the balance of intangible assets as of ~~March~~December 31 ~~2012~~ and June 30, ~~2011:~~
~~Intangible Assets~~:2012:

   March 31, 2012    June 30, 2011
   Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Value    Gross
Carrying
Amount    Accumulated
Amortization Net
Carrying
Value
Trade names
   $ 24.0       $ (2.6 ) $ 21.4       $ 23.3       $ (1.6 ) $ 21.7
Customer and distributor relationships
   18.9       (3.4 ) 15.5       16.5       (1.3 ) 15.2
Developed technology
   1.5       (0.8 ) 0.7       1.5       (0.4 ) 1.1
Other
   0.5       (0.2 ) 0.3       0.5       (0.2 ) 0.3








   $ 44.9       $ (7.0 ) $ 37.9       $ 41.8       $ (3.5 ) $ 38.3








Intangible Assets

December 31, 2012

June 30, 2012

($ in millions)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Value

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Value

Trade names

$
24.0

$
(3.8
)
$
20.2

$
24.0

$
(3.1
)
$
20.9

Customer and distributor relationships

18.9

(5.4
)
13.5

18.9

(4.0
)
14.9

Developed technology

1.5

(1.1
)
0.4

1.5

(0.9
)
0.6

Other

0.5

(0.2
)
0.3

0.5

(0.2
)
0.3

$
44.9

$
(10.5
)
$
34.4

$
44.9

$
(8.2
)
$
36.7

Impairment of Long-Lived Assets
Long-lived assets include property, equipment, capitalized curriculum and software developed or obtained for internal use. In accordance with ASC 360, the Company reviews its recorded long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. There was no impairment charge for the ~~three and nine months~~period ended ~~March~~December 31, ~~2012 and the year ended June 30, 2011.~~2012.
Fair Value Measurements
ASC 820, Fair Value Measurements
~~ASC 820~~, defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction
between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
ASC 820 describes three levels of inputs that may be used to measure fair value:

~~Level 1:~~ ~~Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.~~
~~Level 2:~~ Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
~~Level 3:~~ Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.
Level 1:  Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.
Level 2:  Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3:  Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.
The carrying values reflected in ~~our~~the accompanying condensed consolidated balance sheets for cash and cash equivalents, ~~accounts receivable,~~receivables, inventory and ~~short and long term~~ debt approximate their fair values.
The redeemable noncontrolling interest is a result of the Company’s joint venture with Middlebury College to form Middlebury Interactive Languages. Under the agreement, Middlebury College has an irrevocable election to sell all (but not less than all) of its ~~Membership Interest~~membership interest to the Company ~~(“put right”)~~(put right). The fair value of the redeemable noncontrolling interest reflects management’s best estimate of the redemption ~~value~~ of the put right. ~~The Company has recorded its investment in Web International Education Group, Ltd. (Web) as an available for sale debt security in accordance with ASC 320~~~~Investments – Debt and Equity Securities~~~~because~~
12

Table of our ability to put the investment to other Web stockholders in return for the original $10 million purchase price plus interest. The fair value reflects management’s best estimate of the investment in Web.Contents
The following table summarizes certain ~~fair value~~ information at ~~June 30, 2011~~December 31, 2012 for assets and liabilities measured at fair value on a recurring basis:

Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

   Fair Value Measurements Using:

Assets

Input

Inputs

Description    Fair
Value    Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)    Significant
Other
Observable
Input
(Level 2)    Significant
Unobservable
Inputs
(Level 3)

Fair Value

(Level 1)

(Level 2)

(Level 3)

   (In thousands)

(In��thousands)

Redeemable Noncontrolling Interest in Middlebury Joint Venture
   $ 17,200       —         —         $ 17,200

$
17,200

$
—

$
—

$
17,200

Investment in Web International Education Group
   $ 10,000       —         —         $ 10,000








Investment in Web International Education Group, Ltd

10,000

—

—

10,000

Total
   $ 27,200       —         —         $ 27,200

$
27,200

$
—

$
—

$
27,200









The following table summarizes certain ~~fair value~~ information at ~~March 31,~~June 30, 2012 for assets and liabilities measured at fair value on a recurring ~~basis.~~
basis:

Fair Value Measurements Using:

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

   Fair Value Measurements Using:

Assets

Input

Inputs

Description    Fair
Value    Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)    Significant
Other
Observable
Input
(Level 2)    Significant
Unobservable
Inputs
(Level 3)

Fair Value

(Level 1)

(Level 2)

(Level 3)

   (In thousands)

(In thousands)

Redeemable Noncontrolling Interest in Middlebury Joint Venture
   $ 17,200       —         —         $ 17,200

$
17,200

$
—

$
—

$
17,200

Investment in Web International Education Group
   $ 10,000       —         —         $ 10,000








Investment in Web International Education Group, Ltd

10,000

—

—

10,000

Total
   $ 27,200       —         —         $ 27,200

$
27,200

$
—

$
—

$
27,200









The following table presents activity related to ~~our~~the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis:

Six Months Ended December 31, 2012

Purchases,

Fair Value

   Nine Months Ended March 31, 2012

Fair Value

Issuances,

Unrealized

December 31,

Description    Fair
Value
June 30,
2011    Purchases,
Issuances,
and
Settlements    Unrealized
Gains/
(Losses)    Fair
Value
March 31,
2012

June 30, 2012

and Settlements

Gains/(Losses)

2012

   (In thousands)

(In thousands)

Redeemable Noncontrolling Interest in Middlebury Joint Venture
   $ 17,200       —         —         $ 17,200

$
17,200

$
—

$
—

$
17,200

Investment in Web International Education Group
   $ 10,000       —         —         $ 10,000








Investment in Web International Education Group, Ltd

10,000

—

—

10,000

Total
   $ 27,200       —         —         $ 27,200

$
27,200

$
—

$
—

$
27,200









The fair value of the investment in Web International Education Group, Ltd. (“Web”) as of ~~March~~December 31, 2012 was estimated to be ~~$10~~$10.0 million. The fair value was measured based on the initial cost of the investment and Web’s ~~financial~~operating performance since the initial ~~investment. There~~investment as U.S. GAAP financial statements for Web are not available to more definitively determine fair value; there was no underlying change in its estimated market value. There have been no transfers in or out of Level 3 of the hierarchy for the period presented.
13

Table of Contents
The fair value of the ~~Redeemable Noncontrolling Interest~~redeemable noncontrolling interest in the Middlebury Joint Venture was measured in accordance with ASC 480,Distinguishing Liabilities from Equity, and was based upon a valuation from a ~~third party~~third-party valuation firm as of June 30, ~~2011.~~2012. As of ~~March~~December 31, 2012, the Company performed an internal analysis and determined there was no underlying change in the estimated fair market value. This analysis incorporated a number of assumptions and estimates including the financial results of the joint venture to date.
Net Income Per Common Share
The Company calculates net income per share in accordance with ASC ~~260.~~260, Earnings Per Share. Under ASC 260, basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted earnings per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock ~~options and restricted stock awards.~~options. The dilutive effect of stock options and restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted awards are not included in the computation of diluted ~~earnings per share~~EPS when they are antidilutive. Common stock outstanding reflected in ~~our~~the Company’s consolidated balance sheet includes restricted awards outstanding. Securities that may participate in undistributed earnings with common stock are considered
participating securities. Since the shares of Series A ~~Shares~~Special stock participate in all dividends and distributions declared or paid with respect to common stock of the Company (as if a holder of common stock), the shares of Series A ~~Shares~~Special stock meet the definition of a participating security under ASC 260~~Participating Securities and the Two-Class Method under FASB Statement No. 128~~.. All securities that meet the definition of a participating security, regardless of whether the securities are convertible, non-convertible or potential common stock securities, are included in the computation of both basic and diluted EPS (as a reduction of the numerator) using the two-class method. Under the two-class method, all undistributed earnings in a period are to be allocated to common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed.
The following schedule presents the calculation of basic and diluted net income per share:

   Three Months Ended March 31, Nine Months Ended March 31,

Three Months Ended
December 31,

Six Months Ended
December 31,

   2012 2011 2012 2011

2012

2011

2012

2011

   (In thousands except shares and per share data)

(In thousands except shares and per share data)

Basic earnings per share computation:


Net income – K12
   $ 6,977    $ 5,599    $ 15,743    $ 15,636
Net income — K12

$
9,511

$
4,165

$
13,868

$
8,766

Amount allocated to participating Series A stockholders
   $ (497 ) $ (457 ) $ (1,124 ) $ (1,241 )

$
(675
)
$
(297
)
$
(984
)
$
(627
)
Income available to common stockholders — basic

$
8,836

$
3,868

$
12,884

$
8,139

Weighted average common shares — basic

36,118,519

35,755,685

36,073,885

35,692,761

Basic net income per share

$
0.24

$
0.11

$
0.36

$
0.23

Dilutive earnings per share computation:

Net income — K12

$
9,511

$
4,165

$
13,868

$
8,766



Income available to common stockholders – basic
   $ 6,480    $ 5,142    $ 14,619    $ 14,395


Weighted average common shares – basic historical
   35,876,629    30,958,807    35,753,156    30,620,330


Basic net income per share
   $ 0.18    $ 0.17    $ 0.41    $ 0.47


Dilutive earnings per share computation:

Net income – K12
   $ 6,977    $ 5,599    $ 15,743    $ 15,636
Amount allocated to participating Series A stockholders
   $ (497 ) $ (457 ) $ (1,124 ) $ (1,241 )

$
(675
)
$
(297
)
$
(984
)
$
(627
)


Income available to common stockholders – diluted
   $ 6,480    $ 5,142    $ 14,619    $ 14,395


Income available to common stockholders — diluted

$
8,836

$
3,868

$
12,884

$
8,139

Share computation:


Weighted average common shares – basic historical
   35,876,629    30,958,807    35,753,156    30,620,330
Weighted average common shares — basic

36,118,519

35,755,685

36,073,885

35,692,761

Effect of dilutive stock options and restricted stock awards
   36,947    799,506    269,867    707,214

—

221,094

—

317,117



Weighted average common shares outstanding – diluted
   35,913,576    31,758,313    36,023,023    31,327,544


Weighted average common shares outstanding — diluted

36,118,519

35,976,779

36,073,885

36,009,878

Diluted net income per share
   $ 0.18    $ 0.16    $ 0.41    $ 0.46

$
0.24

$
0.11

$
0.36

$
0.23



14

Table of Contents
Recent Accounting Pronouncements
~~In December 2010, the FASB issued ASU 2010-28,~~~~When to Perform Step 2 of the Goodwill Impairment test for Reporting Units with Zero or Negative Carrying Amounts,~~which provides authoritative guidance on application of a goodwill impairment model when a reporting unit has a zero or negative carrying amount. When a reporting unit has a zero or negative carrying value, Step 2 of the goodwill impairment test should be performed if qualitative factors indicate that it is more likely than not goodwill impairment exists. The Company adopted the provisions of ASU 2010-28 as of July 1, 2011.
~~In December 2010, the FASB issued ASU 2010-29,~~~~Disclosure of Supplementary Pro Forma Information for Business Combination~~, which provides authoritative guidance on disclosure of supplementary pro forma information for business combinations. The new guidance requires that pro forma financial information should be prepared as if the business combination has occurred as of the beginning of the prior annual period. The Company adopted the provisions of ASU 2010-29 as of July 1, 2011.
In June 2011, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued ASU 2011-05,Presentation of Comprehensive Income, which provides authoritative guidance on disclosure requirements for comprehensive income. This accounting update ~~eliminates~~eliminated the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. Instead, the Company must report comprehensive income in either a single
continuous statement of comprehensive income which contains two sections, net income and other comprehensive income, or in two separate but consecutive statements. This guidance ~~will be~~became effective for the Company beginning on July 1, 2012. The ~~Company does not expect~~standard has been adopted and the ~~guidance to impact its financial condition and results~~presentation of ~~operations, as it only requires a change in the format of presentation.~~comprehensive income (loss) has changed.
In ~~September 2011,~~July 2012, the FASB issued ASU ~~2011-08,~~2012-02, Intangibles - Goodwill and Other (Topic 350): Testing ~~Goodwill~~Indefinite-Lived Intangible Assets for Impairment,, which provides authoritative guidance ~~to simplify how entities, both public and nonpublic, test goodwill~~on application of the impairment model for ~~impairment.~~indefinite-lived intangible assets. This accounting update permits an entity to ~~first~~ assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that ~~the fair value~~indefinite-lived intangible assets are impaired as part of ~~a reporting unit is less than~~ its ~~carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.~~annual assessment. This guidance ~~will be~~became effective for the Company beginning on July 1, ~~2012, with early~~2012. The adoption ~~permitted. The Company does~~of this standard did not ~~expect the guidance to~~have a material impact on its ~~consolidated~~ financial ~~statements.~~condition, results of operations or disclosures.

4. ~~Income Taxes~~
~~The Company accounts for income taxes in accordance with ASC 740,~~4.Income Taxes. Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.
The provision for income taxes is based on earnings reported in the ~~unaudited~~ condensed consolidated financial statements. A deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense or benefit is measured by the change in the deferred income tax asset or liability during the period. For the ~~quarter~~three months ended ~~March~~December 31, 2012 and 2011, the Company’s effective income tax rate was ~~41.0%~~41.8% and ~~50.0%~~43.4%, respectively. For the ~~nine~~six months ended ~~March~~December 31, 2012 and 2011, the Company’s effective ~~income~~ tax rate was ~~43.1%~~43.3% and ~~49.0%~~44.8%, respectively. The effective income tax rate differs from the statutory federal income tax rate of 35% primarily due to state income taxes, the impact of foreign operations, noncontrolling interests and certain expenses not deductible for income tax purposes.

5. ~~Long-term Obligations~~
5.     Long-term Obligations
Capital Leases
The Company incurs capital lease obligations for student computers under a lease line of credit with PNC Equipment Finance, LLC with annual lease availability limits. The current annual availability of $35 million expires in August 2013. As of ~~March~~December 31, 2012, ~~and June 30, 2011, computer equipment~~the aggregate outstanding balance under ~~capital leases were recorded~~the lease line of credit was $40.4 million. Borrowings bore interest at ~~a cost of $87.8 million and $61.2 million, respectively, and accumulated depreciation of $56.5 million and $43.7 million, respectively. Borrowings under lease lines had interest~~ rates ranging from 2.62% to ~~6.24%~~4.96% and included a 36-month payment term with a $1 purchase option at the end of the term. The Company has pledged the assets financed to secure the ~~amounts outstanding.~~
outstanding leases. The ~~Company’s current~~ lease line of credit ~~with PNC Equipment Finance, LLC (“PNC”) expires~~is subject to cross default compliance provisions in ~~August 2012.~~the Company’s line of credit agreement. The Company ~~expects to renew~~may extend its lease line of credit ~~prior to its expiration date.~~for additional periods, or consider alternative arrangements for financing student computers.
As of December 31, 2012 and June 30, 2012, computer equipment under capital lease was recorded at a cost of $101.1 million and $81.9 million, respectively, with accumulated depreciation of $64.6 million and $54.4 million, respectively.   The ~~interest rate on new advances under the PNC equipment lease line is set at the time the funds are advanced based upon interest rates in the Federal Reserve Statistical Release H.15.~~net carrying value of leased student computers as of December 31, 2012 and June 30, 2012 was $36.5 million and $27.5 million, respectively.
~~Notes~~Note Payable
The Company has purchased computer software licenses and maintenance services through an unsecured ~~notes~~note payable ~~arrangements~~arrangement with ~~various vendors~~a vendor at 2.8% interest ~~rates ranging up to 6.1%~~rate and a payment ~~terms~~term of three years. There are no covenants associated with ~~these notes~~this note payable ~~arrangements.~~arrangement. The balance of ~~notes~~the note payable at ~~March~~December 31 ~~2012~~ and June 30, ~~2011~~2012 was ~~$2.3~~$1.1 million and ~~$3.7~~$1.9 million, respectively.
15

Table of Contents
The following is a summary as of ~~March~~December 31, 2012 of the present value of the net minimum payments due on outstanding capital leases and ~~notes~~the note payable under the Company’s commitments:

Capital

Note

March 31,    Capital
Leases Notes
Payable Total
2012
   $ 17,327    $ 1,178    $ 18,505
December 31,

Leases

Payable

Total

($ in thousands)

2013
   $ 12,046    $ 1,178    $ 13,224

$
20,580

$
1,162

$
21,742

2014
   $ 5,837    —      $ 5,837

15,075

—

15,075

2015

6,121

—

6,121

Thereafter
   $ 50    —      $ 50

—

—

—



Total minimum payments

41,776

1,162

42,938

Total minimum payments
   $ 35,260    $ 2,356    $ 37,616
Less amount representing interest (imputed average capital lease interest rate of 3.7%)
   $ (1,148 ) $ (57 ) $ (1,205 )


Less amount representing interest (imputed weighted average capital lease interest rate of 2.9%)

(1,358
)
(24
)
(1,382
)

Net minimum payments
   $ 34,112    $ 2,299    $ 36,411

40,418

1,138

41,556

Less current portion
   $ (16,571 ) $ (1,137 ) $ (17,708 )

(19,799
)
(1,138
)
(20,937
)


Present value of minimum payments, less current portion
   $ 17,541    $ 1,162    $ 18,703

$
20,619

$
—

$
20,619



6. ~~Line of Credit~~
6.Line of Credit
The Company has a ~~$35~~$35.0 million unsecured line of credit that expires December 31, 2013 with PNC Bank, N.A., or PNC, for general corporate operating purposes. In December 2012, the Credit Agreement was amended to extend the maturity date until December 2013 and to release liens that ~~expires~~had previously secured the facility. Interest is charged, at the Company’s option, either at: (i) the higher of (a) the rate of interest announced by PNC from time to time as its “prime rate”, (b) the federal funds open rate plus 0.5% and (c) the Daily London Interbank Offered Rate (LIBOR) plus 1.0%; or (ii) the applicable London Interbank Offered Rate (LIBOR) divided by a number equal to 1.00, minus the maximum aggregate reserve requirement which is imposed on member banks of the Federal Reserve System against “Eurocurrency liabilities” plus 1.75%. The Credit Agreement includes a $5.0 million letter of credit facility. Issuance of letters of credit reduces the availability of permitted borrowings under the Credit Agreement.
The Credit Agreement contains a number of financial and other covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant liens or other security interests, make certain investments, become liable for contingent liabilities, make specified restricted payments, including dividends, dispose of assets or stock, including the stock of its subsidiaries, or make capital expenditures above specified limits and engage in ~~December 2012.~~other matters customarily restricted in senior credit facilities. The Company ~~expects~~must not exceed a maximum debt leverage ratio or fall below a minimum fixed charge coverage ratio. These covenants are subject to ~~renew its line of credit prior to its expiration date.~~certain qualifications and exceptions. As of ~~March~~December 31, 2012, ~~and June 30, 2011,~~the Company was in compliance with these covenants. As of December 31, 2012, no borrowings were outstanding on the line of credit and approximately $0.3 million was reserved for a letter of credit.

7. ~~Stock Option Plan~~
7.Stock Option Plan
Stock Options
Stock option activity during the ~~nine~~six months ended ~~March~~December 31, 2012 was as follows:

Weighted-

   Shares Weighted-
Average
Exercise
Price    Weighted-
Average
Remaining
Contractual
Life (Years)    Aggregate
Intrinsic
Value

Weighted-

Average

Outstanding, June 30, 2011
   2,765,729    $ 19.23

Average

Remaining

Aggregate

Exercise

Contractual

Intrinsic

Shares

Price

Life (Years)

Value

Outstanding, June 30, 2012

2,949,940

$
20.41

4.21

$
36,916

Granted
   233,986    $ 26.78

222,009

21.30

Exercised
   (205,732 ) $ 15.28

(69,989
)
8.64

Forfeited or canceled
   (66,841 ) $ 23.70

(322,790
)
29.58





Outstanding, March 31, 2012
   2,727,142    $ 20.07       4.11       $ 13,330
Outstanding, December 31, 2012

2,779,170

$
20.59

4.02

$
8,254







Stock options exercisable at March 31, 2012
   1,960,862    $ 19.09       3.41       $ 11,256






Stock options exercisable at December 31, 2012

1,912,034

$
18.20

3.51

$
6,943

The ~~total~~aggregate intrinsic value of options exercised during the ~~nine~~six months ended ~~March~~December 31, 2012 was ~~$3.4~~$0.8 million. The weighted-average grant date fair value of options granted was $10.50 during the ~~nine~~six months ended ~~March~~December 31, ~~2012 was $11.61.~~2012.
As of ~~March~~December 31, 2012, there was ~~$6.0~~$7.2 million of total unrecognized compensation expense related to unvested stock options granted. The cost is expected to be recognized over a weighted average period of ~~2.2~~2.8 years. During the three months ended ~~March~~December 31, 2012 and ~~March~~December 31, 2011, the Company recognized $1.0 million and ~~$1.2~~$1.1 million, respectively, of ~~stock based~~stock-based compensation expense related to stock options. ~~Stock based~~During the six months ended December 31, 2012 and December 31, 2011, the Company recognized $2.1 million and $2.2 million, respectively, of stock-based compensation expense related to stock ~~options that was recognized during the nine months ended March 31, 2012 and March 31, 2011, aggregated $3.2 million and $3.9 million, respectively.~~
options.
16

Table of Contents
Restricted Stock Awards
Restricted stock award activity during the ~~nine~~six months ended ~~March~~December 31, 2012 was as follows:

Weighted-

   Shares Weighted-
Average
Fair
Value

Average

Nonvested, June 30, 2011
   444,151    $ 23.62

Shares

Fair Value

Outstanding, June 30, 2012

591,637

$
25.12

Granted
   348,940    $ 26.28

404,073

21.40

Vested
   (176,629 ) $ 23.30

(136,325
)
21.44

Forfeited or canceled
   (48,239 ) $ 26.85

(12,697
)
25.62



Nonvested, March 31, 2012
   568,223    $ 25.08


Outstanding, December 31, 2012

846,688

$
23.57

As of ~~March~~December 31, 2012, there was ~~$9.7~~$12.6 million of total unrecognized compensation expense related to unvested restricted stock awards granted. The cost is expected to be recognized over a weighted average period of 2.1 years. The total fair value of shares vested during the ~~nine~~six months ended ~~March~~December 31, 2012 was ~~$4.1~~$2.9 million. During the three months ended ~~March~~December 31, 2012 and ~~March~~December 31, 2011, the Company recognized ~~$1.6~~$1.9 million and ~~$0.8~~$1.4 million, respectively, of ~~stock based~~stock-based compensation expense related to restricted stock awards. ~~Stock based~~During the six months ended December 31, 2012 and December 31, 2011, the Company recognized $3.7 million and $2.5 million, respectively, of stock-based compensation expense related to restricted ~~award that was recognized during~~stock awards.
8.Related Party Transactions
For the ~~nine~~six months ended ~~March 31, 2012 and March 31, 2011, aggregated $4.1 million and $3.6 million, respectively.~~
8. ~~Related Party~~
~~For the nine months ended March~~December 31, 2012, the Company purchased services ~~and assets~~ in the amount of ~~$0.6~~$0.1 million from Knowledge Universe Technologies ~~(KUT)~~(“KUT”) pursuant to a Transition Services Agreement related to the Company’s acquisition of KCDL, as well as other administrative services. KUT is an affiliate of Learning Group, LLC, a related party. ~~Additionally, KCDL has capital leases with an outstanding balance due to KCDL Holdings, Inc. in the amount of $0.2 million as of March 31, 2012.~~
During fiscal year 2012, in accordance with the ~~nine months ended March 31, 2012,~~original terms of the joint venture agreement, the Company loaned $3.0 million to its 60% owned joint venture, Middlebury Interactive ~~Language.~~Languages. The loan is repayable under terms and conditions specified in the loan agreement. The loan balance and related interest are eliminated since Middlebury Interactive ~~Language~~Languages is consolidated in the Company’s financial statements; however, repayment of the loan is dependent on the continued liquidity of Middlebury Interactive ~~Language.~~Languages.

9. ~~Commitments and Contingencies~~
9.Commitments and Contingencies
Litigation
In the ordinary conduct of business, the Company is subject to lawsuits, arbitrations and administrative proceedings from time to time. The Company expenses legal costs as incurred.
IpLearn
On October 26, 2011, IpLearn, LLC (“IpLearn”) filed a complaint for patent infringement against the Company in the United States District Court for the District of Delaware,IpLearn, LLC v. K12 Inc., Case No. 1:11-1026-LPS, which it subsequently amended on November 18, 2011. IpLearn is a privately-held technology development and licensing company for web and computer-based learning technologies. In its complaint, IpLearn alleges that the Company has infringed three of its patents for various computer-aided learning methods and systems. On ~~January 10,~~July 2, 2012, the ~~Company filed its~~Court granted the Company’s motion to dismiss IpLearn’s ~~amended complaint. IpLearn responded on~~allegations of indirect patent infringement and allowed IpLearn’s allegations of direct patent infringement to proceed. On January ~~27, 2012,~~15, 2013, the court approved a stay of IpLearn’s claims alleging infringement of one of the three patents in the case involving technology licensed to K12 by a third party. The discovery process is currently in progress.
17

Table of Contents
Hoppaugh Complaint and ~~the Company replied on February 6, 2012.~~Related Matters
~~Hoppaugh Complaint~~
On January 30, 2012, a securities class-action lawsuit captionedDavidHoppaughet al. v. K12 ~~Inc~~Inc. .et. al., was filed against the Company and two of its officers in the United States District Court for the Eastern District of Virginia,~~Hoppaugh v. K12, Inc~~., Case No. ~~1:12-cv-00103-CMH-IDD.~~I:12-CV-00103-CMH-IDD. On May 18, 2012, the Court appointed the Arkansas Teacher Retirement System as lead plaintiff, and it filed an amended class action complaint (the “Amended Complaint”) on June 22, 2012. The plaintiff purports to represent a class of
persons who purchased or otherwise acquired K12 common stock between September 9, 2009 and December 16, 2011 (the “Class Period”), inclusive, and alleges violations by the defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The ~~Hoppaugh Complaint~~plaintiff alleges among other things that the defendants made false or misleading statements of material fact, or failed to disclose material facts, about (i) the Company’s ~~financial~~revenue and enrollment results during the ~~class period,~~Class Period, (ii) the academic performance of the virtual schools served by the Company, and (iii) certain school administrative practices and sales strategies related to enrollments. ~~On April 2, 2012, the Arkansas Teacher Retirement System filed a Motion for Appointment as Lead Plaintiff, which is pending.~~ The plaintiff seeks unspecified ~~monetary~~compensatory damages and other relief. On September 18, 2012, the Court denied Defendants’ motion on the pleadings to dismiss the action, and permitted the case to proceed to the next stage of litigation. The Company intends to continue to vigorously defend ~~vigorously~~ against the claims asserted in the ~~Hoppaugh~~Amended Complaint. Discovery is ongoing in this matter.
In addition to the ~~above-described~~above described stockholder class action, on March 21, 2012, a federal stockholder derivative action,Jared Staal v. Andrew H. Tisch, et. al.al., Case No. 1:I:12-cv-00365-SLR, putatively initiated on behalf of the Company, was filed in the United States District Court for the District of Delaware. By stipulation, all matters in this derivative action have been ~~stayed until motions~~stayed.
The Board of Directors received a stockholder demand letter, dated August 16, 2012, that asserted allegations against various directors, senior officers and employees of K12 similar to ~~dismiss~~those made in the ~~Hoppaugh Complaint are decided.~~previously disclosed securities class action and derivative lawsuits. The stockholder requested that the Board investigate and pursue claims related to breach of fiduciary duty on behalf of the Company. The Board has formed a demand evaluation committee, which has retained counsel to assist with its review of the demand. The Board will take appropriate action based on the committee’s recommendation. On October 19, 2012, the Board received a stockholder demand pursuant to 8 Del. C. § 220 (a “220 Demand”) from Oakland County Employees’ Retirement System to inspect certain categories of documents. The Board is considering the 220 Demand and will take appropriate action.
10.Investment and Acquisition

~~10.~~ ~~Business combination~~
Investment in Web International Education Group, Ltd.(Web)
On
In January 3, 2011, ~~K12 invested $10 million in Web International Education Group, Ltd. (Web). This investment gives~~ the Company invested $10.0 million to obtain a 20% minority interest in Web, ~~with the~~a provider of English language learning centers in cities throughout China. The Company’s option ~~by June 30, 2012 to: (i)~~to purchase no less than 51% of Web has been extended to February 28, 2013 (from July 1, 2012) and the ~~shares of Web, (ii)~~Company has the option to purchase all remaining equity interest ~~between January 1, 2013 and~~of Web through December 31, 2015, (iii) put the shares back to Web for the $10 million investment plus interest, or (iv) maintain the 20% minority interest. Web is a leader in English language training for learners of all ages throughout China with an extensive network of learning centers in cities throughout the country.2015. The Company ~~has~~ recorded its investment in Web as an available for sale debt security because of ~~our~~the ability to put the investment to other Web ~~stockholders~~shareholders in return for the original ~~$10~~$10.0 million ~~purchase price~~investment plus interest. ~~During the nine months ended March 31, 2012, there was~~There has been no change to the fair value of the Web investment based on ~~the initial cost of the investment and~~ Web’s financial performance since the initial ~~investment. The Company continues~~investment and Web’s ability to ~~evaluate whether it will exercise its option to purchase additional~~repay the investment plus interest ~~in Web.~~with cash.
~~International School of Berne~~
On April 1, 2011, the Company finalized its acquisition of the operations and substantially all assets of the International School of Berne (IS Berne) for 2 million Swiss francs ($2.2 million). IS Berne is a traditional school located in Berne, Switzerland serving students in grades Pre-K through 12. IS Berne is an International Baccalaureate school in its 50^th year of operation. The Company purchased the right to operate IS Berne and acquired substantially all of its assets excluding real estate. Slightly more than half of the purchase price has been allocated on a preliminary basis to goodwill.
Acquisition of Kaplan/Insight Assets from Kaplan Virtual Education and Insight Schools, Inc.
On July 1, 2011, the Company acquired ~~certain assets of Kaplan Virtual Education (Kaplan/~~the Kaplan/Insight ~~Assets)~~Assets for $12.6 million. The Kaplan/Insight Assets included contracts to serve nine virtual public charter ~~schools and private virtual high~~ schools throughout the United States that have been integrated into the Company’s existing operations. The acquisition of the Kaplan/Insight Assets had an immaterial proforma impact on the results of operations for the three and six months ended December 31, 2011. The majority of the purchase price ~~on a preliminary basis~~ has been allocated to goodwill and intangible assets for ~~$6.7~~$6.0 million and $4.3 million, respectively. The purchase price allocation was finalized as of September 30, 2012.
~~11.~~ ~~Supplemental Disclosure of Cash Flow Information~~

   (In thousands)
   Nine Months Ended
   March 31,
   2012 2011
Cash paid for interest
   $ 726    $ 680


Cash paid for taxes, net of refunds
   $ 84    $ 4,551


Supplemental disclosure of non-cash investing and financing activities:

New capital lease obligations
   $ 25,596    $ 15,613


Business Combinations:

— Current assets
   $ 1,049    $ 17,317


— Property and equipment
   $ 1,941    $ 12,879


— Capitalized curriculum development costs
   $ 100    $ 8,073


— Intangible assets
   $ 3,115    $ 27,310


— Goodwill
   $ 6,777    $ 51,727


— Other non-current assets
   $ —      $ 138


— Deferred tax liabilities
   $    $ (8,817 )


— Assumed liabilities
   $ —      $ (9,829 )


— Deferred revenue
   $ (342 ) $ (3,671 )


— Other noncurrent liabilities
   $ —      $ (1,931 )


— Contingent consideration
   $ —      $ (1,700 )


— Issuance of Series A Special Stock
   $ —      $ 63,112


18

Table of Contents
11.Supplemental Disclosure of Cash Flow Information

Six Months Ended

December 31,

2012

2011

(In thousands)

Cash paid for interest

$
515

$
471

Cash paid for taxes, net of refunds

$
430

$
50

Supplemental disclosure of non-cash investing and financing activities:

New capital lease obligations

$
19,195

$
19,454

Business Combinations:

– Current assets

$
—

$
823

– Property and equipment

$
—

$
1,310

– Capitalized curriculum development costs

$
—

$
100

– Intangible assets

$
—

$
3,115

– Goodwill

$
—

$
6,777

– Deferred tax liabilities

$
—

$
226

– Foreign currency translation adjustments

$
257

$
—

19

Table of Contents
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain statements in ~~this~~ Management’s Discussion and Analysis ~~(MD&A),~~or MD&A, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, ~~(the~~or the Securities ~~Act),~~Act, and Section 21E of the Securities Exchange Act of 1934, as amended ~~(the~~or the Exchange ~~Act).~~Act. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K ~~(Annual Report).~~for the fiscal year ended June 30, 2012, which we refer to as our Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
This MD&A is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. As used in this MD&A, the words, “we,” “our” and “us” refer to K12 Inc. and its consolidated subsidiaries. This MD&A should be read in conjunction with our condensed consolidated financial statements and related notes included in this report, as well as the consolidated financial statements and MD&A of our Annual Report. The following overview provides a summary of the sections included in our MD&A:
·Executive Summary — a general description of our business and key highlights of the three and six months ended December 31, 2012.

•
~~Executive Summary —~~~~a general description of our business and key highlights of the three and nine month periods ended March 31, 2012.~~
·Critical Accounting Policies and Estimates — a discussion of critical accounting policies requiring critical judgments and estimates.

•
~~Critical Accounting Policies and Estimates —~~~~a discussion of critical accounting policies requiring critical judgments and estimates.~~
·Results of Operations — an analysis of our results of operations in our condensed consolidated financial statements.

•
~~Results of Operations —~~~~an analysis of our results of operations in our condensed consolidated financial statements.~~
·Liquidity and Capital Resources — an analysis of cash flows, sources and uses of cash, commitments and contingencies, seasonality in the results of our operations and quantitative and qualitative disclosures about market risk.

•
~~Liquidity and Capital Resources —~~~~an analysis of cash flows, sources and uses of cash, commitments and contingencies, seasonality in the results of our operations, and quantitative and qualitative disclosures about market risk.~~
Executive Summary
We are a technology-based education company. We offer proprietary curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade, or K-12. Our mission is to maximize a child’s potential by providing access to an engaging and effective education, regardless of geographic location or socio-economic background. Since our inception, we have invested ~~approximately $275 million~~ to develop and, to a lesser extent, acquire curriculum and online learning platforms that promote mastery of core concepts and skills for students of all abilities. ~~This learning system combines our curriculum~~K12 provides a continuum of technology-based educational products and ~~offerings with an individualized learning approach well-suited for virtual~~solutions to districts, public schools, ~~hybrid~~private schools, ~~school district online programs,~~ public charter schools and ~~private schools~~families as we strive to transform the educational experience into one that ~~utilize varying degrees of online~~delivers individualized education on a highly scalable basis.
Virtual and traditional classroom instruction, and other educational applications. We offer foreign language courses and camps with Middlebury Interactive Languages (MIL), our joint venture with Middlebury College. We also operate three online private schools: K¹² International Academy, Keystone School and the George Washington University Online High School, as well as a brick and mortar private school, IS Berne. The Company currently has a 20% ownership interest in The Web International Education Group, Ltd. (Web) which provides English instruction to young adults in China. We also currently serve the post-secondary market through Capital Education LLC, a provider of online services to post-secondary institutions.
~~As with a traditional public school, a virtual public school or hybrid school must comply with state education regulations. The fundamental difference between traditional~~blended public schools and virtual public schools is that students attend virtual and hybrid public schools primarily over the Internet instead of traveling to a physical classroom. In their online learning environment, students receive assignments, complete lessons and obtain instruction from certified teachers with whom they interact online, telephonically, in virtual classroom environments and sometimes face-to-face. The majority of states have embraced virtual public schools or hybrid schools as a means to provide families with a publicly-funded alternative to a traditional classroom-based education. For parents who believe their child is not thriving and for whom relocating or attending a private school is not an option, virtual and hybrid public schools can provide a compelling choice. A hybrid school is a virtual public school that combines the benefits of face-to-face time for students and teachers in a traditional classroom setting along with the flexibility and individualized learning advantages of online instruction. From an education policy standpoint, virtual and hybrid public schools often represent a savings to taxpayers when compared with traditional public schools because they are generally funded at a lower per pupil level than the per pupil state average as reported by the U.S. Department of Education. Finally, because parents are generally not required to pay tuition to attend a public school, virtual and hybrid public schools make our learning system an attractive alternative within the public school system.
Our proprietary curriculum, online learning platform and varying levels of academic and management services, which can range from individual courses to complete turnkey online schools, are offered to our virtual public school, school district and private school partners. Virtual and hybrid public schools under ~~turnkey~~turn-key management contracts (Managed Public Schools) ~~account~~accounted for approximately ~~84%~~86% of our revenue ~~during~~in the ~~current fiscal year. For the 2011-12 school year, we manage~~six months ended December 31, 2012. We currently provide management services to public schools in 2933 states and the District of Columbia.
In ~~July 2010,~~addition to our Managed Public Schools, we serve an increasing number of schools and school districts enabling them to offer our course catalog to students either full-time or on an individual course basis. We have a
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growing sales team to focus on this sector and, through our ~~acquisition~~acquisitions of KC Distance Learning, ~~Inc. (KCDL),~~or KCDL, and The American Education Corporation, or AEC, in 2010, we increased the size and expertise of our sales team, added ~~iQ Academies~~a reseller network and now manage these programs in five states where we also manage other virtual public schools. These Managed Schools generally are able to enroll students on a statewide basis. From time-to-time, service agreements with certain Managed Schools may not be renewed by us or the customer, although students are usually able to migrate to other Managed Schools serving the particular state.
~~We currently serve over 2,000 school districts or individual schools in all 50 states.~~expanded our course portfolio. The services we provide to these schools and school districts are designed to assist them in launching their own ~~virtual school or hybrid~~online learning programs ~~and~~which vary according to the needs of the individual school ~~districts~~and school district and may include teacher training programs, administrator support and our ~~student account~~PEAK12 management system. With our services, schools and districts can offer programs that allow students to participate full-time, as their primary school, or part-time, supplementing their education with core courses, electives, or credit recovery options, remediation and supplemental content options. We ~~are serving a growing number of schools and~~continue to provide these services to school districts ~~enabling them to offer our course catalogue to students either full-time~~ or ~~on an~~ individual ~~course basis. We have established a dedicated sales team to focus on this sector~~schools in all 50 states and ~~through our acquisition~~the District of KCDL, specifically Aventa, in July 2010 and The American Education Corporation (AEC) in December 2010, we increased the size and expertise of our sales team, added a reseller network, and expanded our course portfolio.Columbia.
We ~~manage four~~also own and operate three online private schools where parents can enroll students on a tuition basis for ~~either~~ a full-time online education or individual courses to supplement their children’s traditional instruction. ~~In 2008, we launched the~~These include our K¹² International Academy, aan online private school that ~~we operate using our curriculum. This school is accredited and~~ enables us to offer students worldwide the same full-time education programs and curriculum that we provide to the virtual and ~~hybrid~~blended public schools, we manage, including the option to enroll in individual courses. This school is organized as a private international school and enrolled students can interact with their classmates from more than 85 countries. Through our acquisition of KCDL, we added The Keystone School, a private school that ~~has been serving students for over 37 years and~~ offers online and correspondence ~~courses. In January 2011, we launched~~courses, and the George Washington University Online High School, ~~(GWUOHS),~~ a program that offers ~~our~~a college preparatory ~~curriculum~~focus and is designed for high school students who are seeking a challenging academic ~~experience~~experience. In addition, we own and ~~aspire to attend top colleges and universities. In April 2011, we acquired the operations and substantially all the assets of~~operate the International School of Berne, ~~(IS Berne),~~or IS Berne, a traditional private school located in Berne, Switzerland and a recognized IB school serving students in grades Pre-K through 12.
We provide educational services to post-secondary institutions through our subsidiary, Capital Education. Programs are designed for colleges and universities seeking to build or expand their online presence. Our services include course development and distribution through a proprietary learning management platform, hosting and technical support, student advisory services and program administration.
We made a strategic investment for a 20% minority ownership interest in Web, a provider of English language training in China. This investment gives us the option by June 30, 2012 to: (i) purchase no less than 51% of Web before July 1, 2012, (ii) purchase all remaining equity interest between January 1, 2013 and December 31, 2015, (iii) put the shares back to Web for the $10 million investment plus interest, or (iv) maintain the 20% minority interest. Web serves learners of all ages including university students, government workers, and employees of international companies. Web currently has an extensive network of learning centers throughout China. Web education centers are outfitted with learning labs that use modern computer terminals and internet connections. Students can access our curriculum and other electronic learning resources from the Web centers. We are currently evaluating whether we will exercise our option to purchase additional interest in Web.
Across our educational programs, families come from a broad range of social, economic and academic backgrounds. They share the desire for individualized instruction so as to maximize their child’s potential. Examples include, but are not limited to, families with: (i) students seeking to learn faster or slower than they could in a “one size fits all” traditional classroom; (ii) safety, social and health concerns about their local school; (iii) students with disabilities who are underserved in traditional classrooms; (iv) students with geographic or travel constraints; and (v) student-athletes and performers who are not able to attend regularly scheduled classes. Our individualized learning approach allows students to optimize their academic performance and, therefore, their chances of achieving their goals.
For the ~~three~~six months ended ~~March~~December 31, 2012, ~~our total average enrollment was 147,728 students as compared~~revenues grew to 101,030 students for the same period in the prior year, a growth rate of 46.2%. Our enrollments include students in Managed Schools, students in programs offered by school districts (Institutional Business) and students in our Private Schools. Students served through our Institutional Business and Private School offerings may enroll in a single course. For better comparability, these students are converted to full-time equivalents (FTEs) on a four course basis. We currently exclude selected programs from our reported enrollment. For example, we do not include students in our consumer channel as we do not monitor the progress of these students in the same way as we do in other programs. We typically sell our A+ curriculum as a site license. As these schools are not limited in the number of students who may access our curriculum, we do not include these students in our enrollment totals. We also exclude students from Capital Education and our classroom pilots. As our business continues to evolve and diversify, we will be evaluating other metrics that may be more useful to investors.
~~For the three months ended March 31, 2012, we increased revenues to $178.2~~$427.1 million from ~~$130.3~~$359.8 million in the same period in the prior year, a growth rate of ~~36.8%~~18.7%. ~~The growth of revenue in~~Over the quarter reflects our organic revenue growth in our core Managed Schools business, increases in revenue from our Institutional Business and Private Schools, plus revenue from our acquisition of the International School of Berne on April 1, 2011, and the Kaplan/Insight asset acquisition on July 1, 2011, neither of which were included in our priorsame period, ~~results. Our~~ operating income increased to ~~$11.6~~$24.9 million from ~~$10.8~~$15.4 million, ~~in the same period in the prior year,~~ a ~~growth rate~~change of ~~7.4%. Net~~62.3%, and net income to common stockholders increased to ~~$6.7~~$13.9 million from $8.8 million, a change of 58.0%. These increases were primarily due to revenue growth between periods. We have reclassified certain prior year enrollment related costs from instructional costs and services to selling, administrative and other operating expenses to conform to the current year presentation. There was no effect on total costs and expenses, income from operations or net income ~~to stockholders of $5.3 million, an increase of 26.4%. The increase in net income was primarily attributable to~~from such reclassification.
Recent Acquisitions
During the ~~increase in operating income and lower income tax expense compared to the same period in the prior year.~~
In the last two years, we completed several strategic transactions to accelerate our growth, expand our course catalogue and service offerings and extend our distribution capabilities. With these initiatives and our recent acquisitions, we believe we have improved our growth potential and the long-term ability to scale our business and operations. See Note 10 “Business combination” in the accompanying unaudited condensed consolidated financial statements for additional information on our acquisitions and investments.
~~Acquisition of The American Education Corporation~~
In December 2010, we acquired the stock of The American Education Corporation (AEC) for a total cash purchase price of $35.2 million, including certain amounts held in escrow (which the Company received back) of $6.8 million and cash of $3.8 million, resulting in a net purchase price of approximately $24.6 million. AEC is a leading provider of research-based core curriculum instructional software for kindergarten through adult learners. The acquisition increased our portfolio of innovative, high quality instruction and curriculum used by school districts all over the country.
~~Investment in Web International Education Group, Ltd.~~
In January 2011, we invested $10 million in cash in Web International Education Group Ltd. (Web). This investment gives us a 20% minority interest in Web, with the option by June 30, 2012 to: (i) purchase no less than 51% of the shares of Web, (ii) purchase all remaining equity interest between January 1, 2013 and December 31, 2015, (iii) put the shares back to Web for the $10 million investment plus interest, or (iv) maintain the 20% minority interest. Web is a provider of English language training for learners of all ages throughout China with an extensive network of learning centers in cities throughout the country. We are currently evaluating whether we will exercise our option to purchase additional interest in Web.
~~Acquisition of International School of Berne~~
In April, 2011, we finalized our acquisition of the operations of the International School of Berne (IS Berne) for 2 million Swiss Francs ($2.2 million). IS Berne is a traditional private school located in Berne, Switzerland serving students in grades Pre-K through 12. IS Berne is an International Baccalaureate school in its 50th year of operation. We acquired substantially all of IS Berne’s assets, excluding real estate, and our purchase provided us with the right to operate the school.
~~Investment by Technology Crossover Ventures in K12 Inc.~~
In April 2011, we completed a private placement sale of 4 million shares of restricted Common Stock at a price of $31.46 per share to investment funds affiliated with Technology Crossover Ventures (TCV). The proceeds of $125.8 million were unrestricted and may be used for acquisitions, strategic investments and general corporate purposes. Under the terms of the transaction, our Board of Directors (Board) appointed a director nominated by TCV to the Board to hold office until the next annual meeting of stockholders and on December 22, 2011, the TCV nominee was elected by the stockholders at the Company’s annual meeting. Additionally, we granted TCV the right to participate on a pro-rata basis in any subsequent private offerings of Common Stock by the Company, subject to certain exclusions such as issuances in connection with acquisitions or employee equity plans. As provided by the terms of the transaction, we filed a resale registration statement with respect to these shares with the Securities and Exchange Commission on December 8, 2011 and the shelf-registration became effective on December 28, 2011.
~~Acquisition of Assets from Kaplan Virtual Education~~
~~In July 2011,~~periods presented, we completed the purchase of certain K-12 assets and Insight School management contracts ~~(Kaplan/Insight Assets)~~ of Kaplan Virtual Education, or KVE, a subsidiary of Kaplan, Inc. ~~The~~We refer to these assets as the Kaplan/Insight Assets, which included contracts to serve ~~online~~nine virtual public charter schools in eight states serving students in grades 6-12. The acquisition allows us to serve more students with multiple curriculum platforms ~~leverage the Insight School brand in certain schools to create a differentiated product offering for “at-risk” students~~ and ~~leverage~~ our existing virtual academy operations. ~~The Kaplan/Insight Assets have been integrated with our online charter school operations.~~
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions about future events that affect the amounts reported in ~~our~~the accompanying condensed consolidated financial statements and ~~accompanying~~ notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our condensed consolidated financial statements. Critical accounting policies are disclosed in our ~~year 2011 audited consolidated financial statements, which are included in our~~ Annual Report. ~~Other than those described in the condensed consolidated financial statements, there~~There have been no significant updates to ~~our~~the critical accounting policies disclosed in our Annual Report.
~~Financial Statement Overview~~Appointment of Executive Chairman
~~The Company has experienced a number~~
On January 7, 2013, our Board of changes that affect the comparability of period to period financial results. These changes include: the acquisition of KCDL on July 23, 2010; the acquisition of American Education Corporation (AEC) on December 1, 2010; the acquisitionDirectors appointed our Chairman of the ~~International School of Berne on April 1, 2011;~~Board, Nathaniel A. Davis, as our Executive Chairman. Following his appointment, Mr. Davis became a full-time employee who directly supervises our operations and financial performance. Our Chief Executive Officer, Ronald J. Packard, continues to supervise corporate development, business development, academic achievement, and nascent business ventures. In addition, the ~~acquisition of Kaplan Virtual Education~~Board appointed Jon Q. Reynolds as its Lead Independent Director. We believe these arrangements enhance our executive leadership team and ~~Insight Schools (Kaplan/Insight Assets), on July 1, 2011. The operating activities from these acquisitions are included~~organizational structure. Both Mr. Davis and Mr. Packard actively participate in our ~~third quarter~~internal control and ~~year~~quarterly disclosure activities.
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Results of Operations
As described in the Annual Report, we reclassified our three lines of business: Managed Public Schools (turn-key management services provided to ~~date financial results. The prior year to date results include KCDL for approximately eight months and AEC for four months.~~
The third quarter and year to date results include operating activities associated with investments to support our growth and business expansion that were not incurred during the prior year periods. These investments include our internal business support systems, a second data center to support operations, and expansion of ourpublic schools), Institutional Sales (educational products and services into new international, academic and institutional sales markets. Certain business support systems and a second data center were under development during prior periods and development costs were generally capitalized. The third quarter includes maintenance and license costs, depreciationprovided to school districts, public schools and other ~~operating costs associated with operating these assets. The operating costs associated with maintaining these systems will continue in future periods.~~
Our student enrollment has experienced a shift in the mix of students in our programs with an increased level of high school students as compared to prior periods. The shift occurred from organic growth in our Virtual Academies, expansion of our private schools, and our acquisition of Kaplan/Insight Assets, which only included students in grades 6-12. Our continued expansion into the institutional sales business and private school markets also shifts the mix of our revenue and associated costs of providing services, including additional sales personnel, third party distributor costs and third party royalty costs for our institutional sales business. We may continue to experience changes in our enrollment, revenue and cost mix as we continue expansion into markets different than our traditional Virtual Academy business. Our other nascent businesses have not yet reached scale and are creating negative pressure on margins.
We incurred transition and integration costs during the current year to date period associated with the acquisition of the Kaplan/Insight Assets and temporary teach out costs associated with private school students acquired in the acquisition. During the three months ended March 31, 2012, we have incurred additional legal costs defending various litigation against the Company. We believeeducational institutions that all the above factors, particularly the large infrastructure investments, mergers and the lower current year capitalization rate for various development projects, reduce the comparability of our operating results for the periods ended March 31, 2012 with the comparable 2011 periods.
~~Funding Overview~~
State education budgets remain under pressure due to the current economic environment, and public school funding levels, including for the online public schools that we manage, have been reduced in many states over the past few years and even mid-year adjustments have occurred. We routinely monitor state legislative activity and regulatory proceedings that might impact the funding received by the schools we serve and to the extent possible, factor potential outcomes into our business planning decisions. We have taken reserves during the current year in light of certain funding proposals and for individual school deficit allowances in several states. In addition, because of current economic pressures on state funding, some states are delaying their payments to public schools. We have experienced delays in receiving payments from our Managed Schools that are dependent on state funding before remitting payment to us. As a result of these deferred payments, we have experienced higher accounts receivable throughout the third quarter and year, which has negatively impacted our cash position and cash provided from operations. We currently expect to receive payment from certain states that have deferred payment in the early part of our 2013 fiscal year.
~~Results of Operations~~
~~Enrollment~~
Our reported total average enrollments include students in Managed Schools, students taking K12 curriculum or Aventa online programs offered by school districts (Institutional Business), and students in Private Schools. Students served through our Institutional Business and Private School offerings may enroll in a single course. For better comparability, these students are converted to full-time equivalents (FTEs) on a four course basis. We currently exclude selected programs from our reported enrollment. For example, we do not ~~include students in our~~manage), and International and Private Pay Schools (private schools for which we charge student tuition and make direct consumer channel as we do not monitor the progress of these students in the same way as we do in other programs. We typically sell our A+ curriculum (acquired with AEC) as a site license. As these schools are not limited in the number of students who may access our curriculum, we do not include these students in our enrollment totals. We also exclude students from post-secondary institutions served by Capital Education and our classroom pilots. As our business continues to evolve and diversify, we will be evaluating other metrics that may be more useful to investors.sales).
Total average enrollments for the three months ended March 31, 2012 increased to 147,728 or 46.2% as compared to 101,030 for the same period in the prior year. High school students comprised 44.8% of public school enrollment as compared to 26.1% in the same period in the prior year. Enrollments in Managed Schools for the three months ended March 31, 2012 increased 46.4% to 105,912 from 72,344 for the same period in the prior year. Managed Schools include virtual and hybrid public schools.
Managed Public Schools
Institutional Sales
International and Private Pay Schools
· Full-time virtual schools
· K12 curriculum
· Managed private schools
· Blended schools
· Aventa curriculum
—The Keystone School
—Flex schools
· A+ curriculum
—George Washington University Online High School
—Passport schools
· Middlebury joint venture
—K12 International Academy
—Discovery schools
· Pre-kindergarten
—International School of Berne
—Other blended schools
· Post-secondary
· Web International Education Group, Ltd. (via investment)
· Independent course sales (Consumer)
Enrollments in Institutional Business for the three months ended March 31, 2012 increased 49.4% to 31,367 from 21,002 for the same period in the prior year. Our Institutional Business provides curriculum and services to schools and school districts. For better comparability, enrollments reported are converted to full-time equivalents (FTEs) on a four course basis.Enrollment Data
Enrollments in Private Schools for the three months ended March 31, 2012 increased 36.0% to 10,449 from 7,684 for the same period in the prior year. Private schools include the K12 International Academy, Keystone, GWUOHS, and~~IS Berne. These private schools offer educational services on a full and part-time basis. For better comparability, enrollments reported are converted to full-time equivalents (FTEs) on a four course basis.~~
The following table sets forth average enrollment data ~~by distribution channel~~ for ~~each of~~students in Managed Public Schools and total enrollment data for students in the International and Private Pay Schools for the periods ~~indicated:~~indicated. These figures exclude enrollments from classroom pilot programs and consumer programs.

   Three Months Ending    Growth Nine Months Ending    Growth
   March 31,    2012 / 2011 March 31,    2012 / 2011
   2012    2011    Change    Change % 2012    2011    Change    Change %
K12 Average Enrollment

Managed Public Schools
   105,912       72,344       33,568       46.4 % 105,109       72,332       32,777       45.3 %
Institutional Business
   31,367       21,002       10,365       49.4 % 29,981       19,674       10,307       52.4 %
Private Schools
   10,449       7,684       2,765       36.0 % 10,125       7,650       2,475       32.4 %














Total Average Enrollment
   147,728       101,030       46,698       46.2 % 145,215       99,656       45,559       45.7 %














Three Months Ended December 31,

Six Months Ended December 31,

2012

2011

Change

Change %

2012

2011

Change

Change %

Managed Public Schools

Average Student Enrollments

119,132

104,836

14,296

13.6%

119,831

105,293

14,538

13.8%

International and Private Pay Schools

Total Student Enrollments

4,403

3,971

432

10.9%

17,399

16,386

1,013

6.2%

Total Semester Course Enrollments

12,138

11,959

179

1.5%

48,170

46,651

1,519

3.3%

Revenue by Business Lines
Revenue is captured by business line based on the underlying customer contractual agreement. Periodically, a customer may change business line classification. For example, a district who purchases a single course (Institutional Sales customer) may decide to implement a full-time virtual school program managed by K12 (Managed Public Schools customer). Changes in business line classification occur at the time the contractual agreement is modified. The following represents our revenue for our three lines of business for the three and six months ended December 31, 2012 and 2011.

Three Months Ended
December 31,

Change
2012 / 2011

Six Months Ended
December 31,

Change
2012 / 2011

($ in thousands)

2012

2011

$

%

2012

2011

$

%

Managed Public Schools

$
177,541

$
140,645

$
36,896

26.2

$
365,302

$
300,095

$
65,207

21.7

Institutional Sales

18,089

16,662

1,427

8.6

40,061

40,143

(82
)
(0.2
)
International and Private Pay Schools

10,398

9,193

1,205

13.1

21,761

19,592

2,169

11.1

Total

$
206,028

$
166,500

$
39,528

23.7
%
$
427,124

$
359,830

$
67,294

18.7
%
22

Table of Contents
The following table sets forth statements of operations data for each of the periods indicated:

Three Months Ended

Six Months Ended

   Three Months Ended
March 31, Nine Months Ended
March 31,

December 31,

December 31,

   2012 2011 2012 2011

2012

2011

2012

2011

($ in thousands)

Revenues
   $ 178,175    $ 130,293    $ 538,005    $ 394,167

$
206,028

$
166,500

$
427,124

$
359,830

Cost and expenses



Cost and expenses

Instructional costs and services
   105,955    77,727    314,410    229,004

122,799

98,909

241,446

200,016

Selling, administrative, and other operating expenses
   53,619    36,763    175,836    122,438

61,379

52,925

150,998

130,656

Product development expenses
   7,012    4,972    20,810    12,318

5,578

7,574

9,746

13,798



Total costs and expenses
   166,586    119,462    511,056    363,760

189,756

159,408

402,190

344,470



Income from operations
   11,589    10,831    26,949    30,407

16,272

7,092

24,934

15,360

Interest expense, net
   (265 ) (307 ) (722 ) (970 )

(272
)
(236
)
(501
)
(457
)


Income before income taxes and noncontrolling interest
   11,324    10,524    26,227    29,437

16,000

6,856

24,433

14,903

Income tax expense
   (4,638 ) (5,260 ) (11,311 ) (14,310 )

(6,680
)
(2,976
)
(10,569
)
(6,673
)


Net income
   $ 6,686    $ 5,264    $ 14,916    $ 15,127

9,320

3,880

13,864

8,230

Add net loss attributable to noncontrolling interest
   291    335    827    509


Adjust net loss attributable to noncontrolling interest

191

285

4

536

Net Income — K12 Inc.
   $ 6,977    $ 5,599    $ 15,743    $ 15,636

$
9,511

$
4,165

$
13,868

$
8,766



23

Table of Contents
The following table sets forth statements of operations data as a percentage of revenues for each of the periods indicated:

00000000 00000000 00000000 00000000
   Three Months Ended
March 31, Nine Months Ended
March 31,

Three Months Ended

Six Months Ended

   2012 2011 2012 2011

December 31,

December 31,

2012

2011

2012

2011

Revenues
   100.0 % 100.0 % 100.0 % 100.0 %

100.0
%
100.0
%
100.0
%
100.0
%


Cost and expenses


Instructional costs and services
   59.5    59.7    58.4    58.1

59.6

59.4

56.5

55.6

Selling, administrative, and other operating expenses
   30.1    28.2    32.7    31.1

29.8

31.8

35.4

36.3

Product development expenses
   3.9    3.8    3.9    3.1

2.7

4.5

2.3

3.8



Total costs and expenses
   93.5    91.7    95.0    92.3

92.1

95.7

94.2

95.7



Income from operations
   6.5    8.3    5.0    7.7

7.9

4.3

5.8

4.3

Interest expense, net
   (0.2 ) (0.2 ) (0.1 ) (0.2 )

(0.1
)
(0.2
)
(0.1
)
(0.1
)


Income before income taxes and noncontrolling interest
   6.3    8.1    4.9    7.5

7.8

4.1

5.7

4.2

Income tax expense
   (2.6 ) (4.0 ) (2.1 ) (3.6 )

(3.3
)
(1.8
)
(2.5
)
(1.9
)


Net income
   3.7 % 4.1 % 2.8 % 3.9 %

4.5

2.3

3.2

2.3

Add net loss attributable to noncontrolling interest
   0.2    0.2    0.1    0.1


Adjust net loss attributable to noncontrolling interest

0.1

0.2

—

0.1

Net income — K12 Inc.
   3.9 % 4.3 % 2.9 % 4.0 %

4.6
%
2.5
%
3.2
%
2.4
%


We have included below a discussion of our operating results and significant items which explain the material changes in our operating results during the three and nine months ended March 31, 2012 as compared to the same periods in the prior year.
Comparison of the Three Months Ended ~~March~~December 31, 2012 and Three Months Ended ~~March~~December 31, 2011
Revenues.  Our revenues for the three months ended ~~March~~December 31, 2012 were ~~$178.2~~$206.0 million, representing an increase of ~~$47.9~~$39.5 million, or ~~36.8%~~23.7%, as compared to revenues of ~~$130.3~~$166.5 million for the same period in the prior year. ~~This increase~~Without the impact of negative revenue adjustments made in the prior year period for state funding reductions, our revenue growth would have been 18.1%. Managed Public Schools revenue increased $36.9 million year over year, primarily as a result of organic growth in existing states. The growth in Managed Public Schools revenue was ~~primarily attributable to 46.2%~~driven by a 13.6% growth in average student enrollments, an increase in average revenue per student due to improved revenue capture and a decrease in the number of unfunded enrollments. Our International and Private Pay Schools revenue increased $1.2 million, or 13.1%, due to a 10.9% increase in total student enrollments and a 1.5% increase in ~~all K12 programs from organic growth and acquisitions. Our acquisitions contributed approximately $9.3 million revenue growth~~total semester course enrollments during the three ~~ending March~~months ended December 31, 2012 ~~compared to the prior year period. Managed~~
~~Schools revenues increased by $37.7 million to $151.8 million during the third quarter~~ as compared to the ~~prior year.~~three months ended December 31, 2011, and the contribution derived from a shift in the mix of enrollments to higher priced programs, including an increase in full-time enrollments.   Revenue in our Institutional ~~Business revenues increased~~Sales grew by ~~$4.5~~$1.4 million to $14.4 million during the third quarter as compared to the prior year. Private Schools and other revenues increased by $5.7 million to $12.0 million during the third quarter as compared to the prior year.from continued expansion into additional school districts.
Instructional costs and services expenses.  Instructional costs and services expenses for the three months ended ~~March~~December 31, 2012 were ~~$106.0~~$122.8 million, representing an increase of ~~$28.3~~$23.9 million, or ~~36.4%~~24.2%, ~~as compared to instructional costs and services expenses of $77.7~~from $98.9 million for the ~~same period~~three months ended December 31, 2011. Instructional costs increased as a result of an increase in the ~~prior year.~~number of enrollments. Instructional costs and services expenses ~~decreased slightly as a percentage~~were 59.6% of revenue during the ~~periods. The increase includes expenses to operate and manage schools including~~three months ended December 31, 2012, consistent with 59.4% for the Insight Schools acquired from KVE and newly launched schools. In addition, costs to supply curriculum, books, educational materials and computers to students increased $6.8 million associated with our increased enrollments.three months ended December 31, 2011.
Selling, administrative, and other operating expenses.  Selling, administrative, and other operating expenses for the three months ended ~~March~~December 31, 2012 were ~~$53.6~~$61.4 million, representing an increase of ~~$16.8~~$8.5 million, or ~~45.7%~~16.1%, as compared to ~~selling, administrative and other operating expenses of $36.8~~$52.9 million for the ~~same period in~~three months ended December 31, 2011. The current year increase was primarily associated with increased sales and administrative personnel and associated benefit costs as compared to the prior year. The primary drivers of this increase were: personnel costs, including salaries, benefits and incentive compensation; marketing; professional fees including student support center costs, the implementation costs of internal business support systems, legal costs associated with ongoing litigation and license and maintenance costs associated with internal infrastructure; and depreciation and amortization expenses.year period. As a percentage of revenues, selling, administrative, and other operating expenses ~~increased~~decreased to ~~30.1%~~29.8% from 31.8% for the three months ended ~~March~~December 31, ~~2012 as compared to 28.2% for the same period in the prior year, primarily associated with the items identified above.~~2012.
Product development expenses.  Product development expenses include costs related to new products and to information technology systems. ~~For~~Product development expenses for the three months ended ~~March~~December 31, 2012 ~~product development expenses~~ were ~~$7.0~~$5.6 million, representing ~~an increase~~a decrease of $2.0 million, or ~~40.0%~~26.3%, as compared to ~~$5.0~~$7.6 million for the same period in the prior year. The increase is primarily due to the increase in internal software development projects and other non-capitalizable work, which decreased the Company’s capitalization rate. This increase was offset by decreased amortization costs for the period. Due to timing and nature of the projects, the capitalization rate during the period was lower than historical levels, resulting in higher current period expense.three months ended December 31, 2011. As a percentage of revenues, product development expenses ~~increased slightly~~decreased to ~~3.9%~~ 2.7%
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for the three months ended ~~March~~December 31, 2012 as compared to ~~3.8% for the same period in the prior year primarily due to the items identified above.~~
~~Interest expense, net.~~ ~~Net interest expense for the three months ended March 31, 2012 was $0.3 million as compared to net interest expense of $0.3 million for the same period in the prior year.~~
~~Income taxes.~~ Income tax expense for the three months ended March 31, 2012 was $4.6 million, or 41.0% of income before income taxes, as compared to an income tax expense of $5.3 million, or 50.0% of income before taxes,4.5% for the same period in the prior year. The decrease ~~in the tax rate is~~was primarily due to an increase in the number of development projects that qualified for cost capitalization than in the prior year period and a decrease in ~~non-deductible transaction costs and other non-deductible expenses~~the amount of systems development expense in connection with the implementation phase of our enterprise resource planning, or ERP, system.
Interest expense, net.  Net interest expense for the three months ended December 31, 2012 was $0.3 million, relatively unchanged from the same period in the ~~current period.~~prior year. Net interest expense is primarily associated with interest on our student computer leases.
Income taxes.  Income tax expense for the three months ended December 31, 2012 was $6.7 million, or 41.8% of income before taxes, as compared to $3.0 million, or 43.4% of income before taxes for the three months ended December 31, 2011. Our effective tax rate decreased between periods primarily because of the positive impact of international operations and a change in nondeductible expenses.
Noncontrolling interest. ~~Noncontrolling~~  Net loss attributable to noncontrolling interest for the three months ended ~~March~~December 31, 2012 was ~~$0.3~~$0.2 million as compared to net loss attributable to noncontrolling interest of $0.3 million for the same period in the prior year. Noncontrolling interest reflects the after-tax ~~losses~~income attributable to ~~stockholders~~minority interest owners in our joint venture ~~in the Middle East and Middlebury Interactive Languages.~~investments.
Comparison of the ~~Nine~~Six Months Ended ~~March~~December 31, 2012 and ~~Nine~~Six Months Ended ~~March~~December 31, 2011
Revenues.  Our revenues for the ~~nine~~six months ended ~~March~~December 31, 2012 were ~~$538.0~~$427.1 million, representing an increase of ~~$143.8~~$67.3 million, or ~~36.5%~~18.7%, as compared to revenues of ~~$394.2~~$359.8 million for the same period in the prior year. ~~This~~Without the impact of negative revenue adjustments made in the prior year period for state funding reductions, our revenue growth would have been 16.1%. Managed Public Schools revenue increased 21.7% year over year, primarily as a result of organic growth in existing states. The growth in Managed Public Schools revenue was driven by a 13.8% increase ~~was primarily~~in average student enrollments and an increase in average revenue per student due to ~~organic~~improved revenue capture and a decrease in the number of unfunded enrollments. International and Private Pay Schools revenue increased $2.2 million, or 11.1%, due to a 6.2% increase in total student enrollments and a 3.3% increase in total semester course enrollments at December 31, 2012 compared to December 31, 2011, and the contribution derived from a shift in the mix of enrollments to higher priced programs, including an increase in full-time enrollments. Revenue growth year over year in our ~~core schools business and enrollment growth. Managed Schools revenues increased~~Institutional Sales was partially offset by ~~$105.5 million to $451.5 million during the nine months as~~a decrease in perpetual license sales compared to the prior year. Institutional Business revenues increased by $20.8 million to $49.7 million during the nine months as compared to the prior year. Private Schools and other revenues increased by $17.5 million to $36.8 million during the nine months as compared to the prior year.year period.
Instructional costs and services expenses.  Instructional costs and services expenses for the ~~nine~~six months ended ~~March~~December 31, 2012 were ~~$314.4~~$241.4 million, representing an increase of ~~$85.4~~$41.4 million, or ~~37.3%~~20.7%, from $200.0 million for the six months ended December 31, 2011. Instructional costs increased as ~~compared to instructional~~a result of revenue growth during the period. Instructional costs and services expenses were 56.5% of ~~$229.0 million~~revenue during the six months ended December 31, 2012, an increase from 55.6% for the ~~same period in the prior year. This~~six months ended December 31, 2011. The increase was primarily attributable to an increase in expenses to operate and manage schools including the Insight Schools acquired from KVE and newly launched schools. In addition, costs to supply curriculum, books, educational materials and computers to students increased $14.7 million due to our enrollment growth. Asas a percentage of ~~revenues, instructional costs and services expenses remained relatively consistent at 58.4% compared~~revenue was associated primarily with ~~58.1% for the nine month periods ended March 31, 2012 and 2011, respectively.~~advance hiring of teachers in early fiscal 2013.
Selling, administrative, and other operating expenses.  Selling, administrative, and other operating expenses for the ~~nine~~six months ended ~~March~~December 31, 2012 were ~~$175.8~~$151.0 million, representing an increase of ~~$53.4~~$20.3 million, or ~~43.6%~~15.5%, as compared to ~~selling, administrative and other operating expenses of $122.4~~$130.7 million for the same period in the prior year. This increase was primarily attributable to increases in: personnel costs, including salaries, benefits and incentive compensation; marketing and student enrollment counseling; third party commissions related to the Company’s institutional sales; accounting and internal and external audit fees related to the Company’s public filing and tax returns; investment in the institutional sales organization and distribution network; professional fees which included costs associated with the internal business support systems, transaction costs, and legal costs associated with ongoing litigation, and license and maintenance costs associated with internal infrastructure; and depreciation and amortization expense. As a percentage of revenues,six months ended December 31, 2011. While selling, administrative and other operating expenses increased from period to ~~32.7%~~period associated with increased marketing to support our growth, sales and administrative personnel and related benefit costs, including stock compensation, our selling, administrative, and other operating expenses as a percentage of revenues decreased to 35.4% from 36.3% for the ~~nine~~six months ended ~~March~~December 31, ~~2012~~2012. This decrease as ~~compared~~a percentage of revenue was attributable in part to ~~31.1% for the same period~~higher professional fees incurred in the prior ~~year.~~year period associated with our ERP and CRM implementations, integration of the acquired Kaplan/Insight Assets, and accounting and audit fees related to the delayed filing of our Form 10-K and a registration statement.
Product development expenses. Product development expenses for the nine months ended March 31, 2012, were $20.8 million, representing an increase of $8.5 million, or 69.1%, as compared to $12.3 million for the same period in the prior year.  Product development expenses include costs related to new products and to information technology systems. ~~The increase is primarily due~~Product development expenses for the six months ended December 31, 2012 were $9.7 million, representing a decrease of $4.1 million, or 29.7%, as compared to $13.8 million for the increase of preliminary design work related to internal software development projects. Due to timing and nature of the projects, the capitalization rate during the period was lower than historical levels.six months ended December 31, 2011. As a percentage of revenues, product development expenses ~~increased~~decreased to ~~3.9%~~ 2.3%
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for the ~~nine~~six months ended ~~March~~December 31, 2012 as compared to ~~3.1% for the same period in the prior year primarily due to the items identified above.~~
~~Interest expense, net.~~ ~~Net interest expense for the nine months ended March 31, 2012 was $0.7 million as compared to net interest expense of $1.0 million~~3.8% for the same period in the prior year. The decrease ~~in net interest expense is~~was primarily due to ~~lower average~~an increase in the number of development projects that qualified for cost capitalization than in the prior year period, and a decrease in the amount of systems development expense in connection with the implementation phase of our ERP system.
Interest expense, net.  Net interest ~~rates on capital lease obligations.~~
~~Income taxes.~~ ~~Income tax~~ expense for the ~~nine~~six months ended ~~March~~December 31, 2012 was ~~$11.3~~$0.5 million, ~~or 43.1% of income before income taxes, as compared to an income tax expense of $14.3 million, or 48.6% of income before taxes for~~unchanged from the same period in the prior year. ~~The decrease~~Net interest expense is primarily associated with interest on our student computer leases.
Income taxes.  Income tax expense for the six months ended December 31, 2012 was $10.6 million, or 43.3% of income before taxes, as compared to $6.7 million, or 44.8% of income before taxes for the six months ended December 31, 2011. Our tax rate decreased slightly between periods because of the impact of foreign operations in the prior year period and a change in nondeductible expenses incurred during the current year period. We expect our tax rate ~~is primarily due~~ to a decrease ~~in non-deductible transaction costs~~during the remainder of our 2013 fiscal year to reflect the retroactive renewal of Research and ~~other non-deductible expenses in~~Development Credits with the ~~nine month period.~~January 2013 passage of the American Taxpayer Relief Act of 2012 by the United States Congress and the full year impact of our international operations.
Noncontrolling interest. ~~Noncontrolling~~  Net income attributable to noncontrolling interest for the ~~nine~~six months ended ~~March~~December 31, 2012 was ~~$0.8 million~~negligible as compared to net loss attributable to noncontrolling interest of $0.5 million for the same period in the prior year. Noncontrolling interest reflects the after-tax ~~losses~~loss attributable to ~~stockholders~~minority interest owners in our joint venture ~~in the Middle East~~investments and ~~Middlebury Interactive Languages.~~may fluctuate from period to period.
Liquidity and Capital Resources
As of ~~March~~December 31, 2012, ~~and June 30, 2011,~~ we had net working capital, or current assets minus current liabilities, of $308.3 million. Our working capital includes cash and cash equivalents of ~~$123.7~~$143.2 million, ~~and $193.1~~including $5.1 million respectively, excluding restricted cash. The decrease of $69.4 million was primarily due to an increase in accounts receivable from our Managed Schools. Because of current economic pressures on certain states’ funding, some states have delayed their payments to public schools,
and as a public school, we have experienced delays in receiving payments from some of our Managed Schools that are dependent on state funding before remitting payment to us. As a result, we have experienced higher accounts receivable throughout the current fiscal year than during prior fiscal years, which, in conjunction with an increase in capital expenditures, contributed to a reduction in our cash position. The buildup of accounts receivable has also contributed to a reduction in our cash provided from operations during the current fiscal year. In addition, we used cash to acquire the Kaplan/Insight Assets and invest in capital expenditures and product development. We also provided working capital to operate the acquired Kaplan/Insight schools and launches of new schools. We financed our capital expenditures during the nine months ended March 31, 2012 primarily with cash and capital lease financing. As of March 31, 2012 and June 30, 2011, our cash balance included $6.7 million and $6.6 million, respectively, associated with our ~~consolidated~~two joint ~~ventures.~~
~~In addition to our cash~~ventures, and ~~line of credit availability, we had~~ accounts receivable of ~~$205.3 million and $96.2 million as of March 31, 2012 and June 30, 2011, respectively.~~$223.3 million. Our ~~accounts receivable provide an additional~~working capital provides a significant source of liquidity ~~as cash payments are collected from customers in the~~for our normal ~~course of business.~~operating needs. Our accounts receivable balance fluctuates throughout the fiscal year based on the timing of customer billings and ~~collections. Accounts receivable typically are at the~~collections and tends to be highest ~~levels~~ in ~~the~~our first fiscal quarter as we begin billing for ~~students~~students. In addition, our cash and ~~at the lowest levels during the fourth quarter as we receive final payments from the states. Our~~accounts receivable were significantly in excess of our accounts payable and short-term accrued expenses also impact our liquidity as cash payments are made to vendors in the normal course of business. Our accounts payable balance fluctuates throughout the year based on the timing of expenses incurred and tend to be highest in the first quarter as we prepare for the school year and students.liabilities at December 31, 2012.
We have a ~~$35~~$35.0 million unsecured line of credit that expires December 31, 2013 with PNC Bank, N.A., or PNC, for general corporate operating purposes, which we refer to as the Credit Agreement. The Credit Agreement provides the ability, if required, to fund operations until cash is received from the schools. In December 2012, the Credit Agreement was amended and the maturity date was extended to December 2013 and to release liens that ~~expires December 2012.~~had previously secured the facility. Interest is charged, at our option, either at: (i) the higher of (a) the rate of interest announced by PNC from time to time as its “prime rate”, (b) the federal funds open rate plus 0.5% and (c) the Daily London Interbank Offered Rate (LIBOR) plus 1.0%; or (ii) the applicable London Interbank Offered Rate (LIBOR) divided by a number equal to 1.00, minus the maximum aggregate reserve requirement which is imposed on member banks of the Federal Reserve System against “Eurocurrency liabilities” plus 1.75%. The Credit Agreement includes a $5.0 million letter of credit facility. Issuance of letters of credit reduces the availability of permitted borrowings under the Credit Agreement.
The Credit Agreement contains a number of financial and other covenants that, among other things, restrict our and our subsidiaries’ abilities to incur additional indebtedness, grant liens or other security interests, make certain investments, become liable for contingent liabilities, make specified restricted payments, including dividends, dispose of assets or stock, including the stock of our subsidiaries, or make capital expenditures above specified limits and engage in other matters customarily restricted in senior credit facilities. We must not exceed a maximum debt leverage ratio or fall below a minimum fixed charge coverage ratio. These covenants are subject to certain qualifications and exceptions. As of ~~March~~December 31, 2012, we were in compliance with these covenants. As of December 31, 2012, no borrowings were outstanding on the line of credit and approximately $0.3 million was reserved for a letter of credit. ~~We intend to renew our line~~
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Table of ~~credit prior to its expiration in December 2012.~~Contents
We ~~have amended our equipment~~incur capital lease obligations for student computers under a lease line of credit with PNC Equipment Finance, LLC ~~to increase~~with annual lease availability limits. The current annual availability of $35 million expires in August 2013. As of December 31, 2012, the ~~amount available for new purchases of student computers to $27.0 million through August 2012. The interest rate on~~aggregate outstanding balance under the ~~borrowings is set at the time of borrowing based upon interest rates in the Federal Reserve Statistical Release H.15. We intend to renew our equipment~~ lease line of credit ~~for future student computer financing prior~~was $40.4 million. Borrowings bore interest at rates ranging from 2.62% to ~~its expiration in August 2012 or to pursue other methods of financing student computers in future periods.~~
~~For the nine months ended March 31, 2012, we entered into capital leases totaling $25.6 million to finance the purchase of student computers~~4.96% and ~~other equipment at an interest rate of approximately 2.76% bringing the total lease balance outstanding at March 31, 2012 to $34.1 million. These leases include~~included a 36-month payment term with a ~~bargain~~$1 purchase option at the end of the term. ~~Accordingly, we include this equipment in property and equipment and the related liability in capital lease obligations. In addition, we~~We have pledged the assets financed ~~with the equipment lease line~~ to secure the ~~amounts outstanding.~~outstanding leases. Our lease line of credit is subject to cross default compliance provisions in our line of credit agreement. We may extend our lease line of credit for additional periods, or consider alternative arrangements for financing student computers.
Our cash requirements consist primarily of day-to-day operating expenses, capital expenditures and contractual obligations with respect to facility leases, capital equipment leases and other operating leases. We lease all of our office facilities. We expect to make future payments on existing leases from cash generated from operations. We believe that the combination of funds ~~currently available and funds~~ to be generated from operations, net working capital on hand and access to our line of credit will be adequate to finance our ongoing operations for the foreseeable future. In addition, to a lesser degree, we continue to explore acquisitions, strategic investments and joint ventures related to our business that we may acquire using cash, stock, debt, contribution of assets or a combination thereof.   Should we exercise our option to ~~make an~~purchase additional ~~investment~~equity interests in Web, we ~~anticipate making~~expect to fund the ~~investment~~purchase using ~~our~~ available cash balances or ~~common stock or~~borrowings under our ~~available line-of-credit.~~existing line of credit.
~~Redemption Right of Middlebury College~~
In the formation of our joint venture with Middlebury College (Middlebury), at any time after the fifth (5th) anniversary of the agreement, Middlebury may give written notice of its irrevocable election to sell all (but not less than all) of its Membership Interest to us (put right). Given the put right is redeemable outside of our control, it is recorded outside of permanent equity at its estimated redemption value. The purchase price for Middlebury’s Membership Interest shall be its fair market value and we may, in our sole
discretion, pay the purchase price in cash or shares of our common stock. We will record the redemption value of the redeemable noncontrolling interest on each balance sheet date in accordance with EITF Topic D-98 and any changes to the redemption value should be recognized as adjustments to retained earnings, or in the absence of retained earnings, by adjustment to additional paid-in capital. As of March 31, 2012, the redeemable noncontrolling interest was $17.2 million. The agreement also includes a provision whereby, if certain milestones are not met related to expanding the business by June 2014, Middlebury will have the option to repurchase certain contributed assets at their fair market value.
Operating Activities
Net cash ~~(used in)/~~provided by operating activities for the ~~nine~~six months ended ~~March~~December 31, 2012 ~~and 2011~~ was ~~$(13.5)~~$32.1 million ~~and $27.0~~compared to net cash used in operations of $19.5 million ~~respectively. Cash~~for the six months ended December 31, 2011. The $51.6 million improvement in cash flow from operations ~~reflects the timing of~~between periods was attributable to higher net income and depreciation, increased cash collections from ~~services provided and payment of operating costs to fund the continued growth and expansion of our business. The decrease in cash from operations was the result of increases in~~ accounts receivable ~~prepaid expenses~~ and ~~other current assets, and decreases~~less investment in accounts payable; offset by deferred revenue, depreciation expense, deferred taxes, accrued expenses and inventory. We have experienced delays in receiving payments of our accounts receivables from certain Managed Schools that are dependent on state funding before remitting payment to us. As a result, we have experienced higher accounts receivable throughoutworking capital during the ~~current fiscal year~~six months ended December 31, 2012 than during the prior year period. These cash collections relate to accounts receivable that increased during our 2012 fiscal year ~~which has negatively impacted~~from state funding delays to certain of our ~~cash flows from operations.~~
~~Accounts receivable balances tend to be at~~managed public schools. Also, the ~~highest levels in~~six months ended December 31, 2011 included the first quarter as we begin billing for students. Deferred revenues are primarily a result of invoicing upfront fees, not cash payments. Deferred revenues increased primarily due to growth in enrollments and institutional sales. Deferred revenue balances tend to be highest in the first quarter, when the majority of students enroll, and are generally amortized over the courseeffects of the ~~fiscal year.~~
~~The increase in accrued expenses is primarily due~~build-up of working capital attributable to the timing of payments to vendors and service providers for strategic marketing, student recruiting expenses, professional services, and equipment purchases. The decrease in inventories is primarily due to materials shipped to students, partially offset by purchases. Depreciation expense increased as a resultacquisition of the ~~Company’s continued investment in infrastructure to support current and future growth, including capital expenditures.~~Kaplan/Insight Assets.
Investing Activities
Net cash used in investing activities for the ~~nine~~six months ended ~~March~~December 31, 2012 ~~and 2011~~ was ~~$45.5~~$25.8 million ~~and $68.6 million, respectively.~~
~~Net~~compared to net cash used in investing activities of $34.0 million for the ~~nine~~six months ended ~~March~~December 31, ~~2012 was primarily due to purchases~~2011, a decrease of ~~property and equipment, including capitalized software,~~$8.2 million. The six months ended December 31, 2011 included the payment of ~~$22.5~~$12.6 million for the purchase of the Kaplan/Insight Assets, ~~of $12.6~~which is the primary reason for the net decrease between periods. This decrease was offset by a net increase in capital expenditures approximating $4.4 million for capitalized software and ~~investment in capitalized~~ curriculum development ~~of $10.3 million, primarily related to the production of high school courses~~ and ~~middle school math courses.~~
Net cash used in investing activities for the nine months ended March 31, 2011 was primarily due to acquisition activities including the acquisition of AEC for $24.5 million (net of $3.8 million acquired cash and refunded escrow amounts), a $10 million investment of a 20% interest in Web International, and approximately $2.0 million for our acquisition of the International School of Berne, which formally closed on April 1, 2011. In association with the AEC acquisition, we deposited $6.8 million into a performance escrow with payment dependent on AEC achieving specified financial targets, and we were repaid the full $6.8 million during the period. In addition, investing activities included purchases ofother property and equipment, including capitalized software of $20.3 million, including $5.7 million for license and implementation of an enterprise software application, $2.2 million for expansion of our corporate offices, and $1.5 million for equipment in the build out of our second data center; investment in capitalized curriculum development of $11.7 million, primarily related to the production of high school courses, middle school math courses, and language courses.
equipment.
In addition to the investing activities above, for the nine months ended March 31, 2012 and 2011, we financed through capital leases, purchases of student computers and other equipment in the amount of $25.6 million and $15.6 million, respectively.
Financing Activities
Net cash used in financing activities for the ~~nine~~six months ended ~~March~~December 31, 2012 ~~and 2011~~ was ~~$10.6~~$8.3 million ~~and $0.3 million, respectively.~~
~~For the nine months ended March 31, 2012,~~compared to net cash used in financing activities ~~was primarily due to~~of $5.9 million during the six months ended December 31, 2011. Our primary use of cash in financing activities is for the payment of capital lease obligations incurred for the acquisition of student computers. Our cash payments onfor capital leases ~~and notes payable~~increased approximately $2.0 million between periods resulting from increased purchases of ~~$13.4~~student computers financed under capital leases. The six months ended December 31, 2011 included approximately $2.2 million ~~and the repurchase of restricted stock for income tax withholding of $1.3 million, partially offset by~~more in proceeds from the exercise of stock options ~~of $3.1 million and~~than the ~~related tax benefit of $1.2 million.~~
~~For the nine~~six months ended ~~March~~December 31, ~~2011,~~2012. The timing of cash from the exercise of options impacts our net cash used in financing activities was primarily due to repayments of capital lease and notes payable obligations of $12.4 million and withholding tax payments on vesting of restricted stock awards of $1.6 million, offset by proceeds from the exercise of stock options of $8.3 million, and the excess tax benefit from stock-based compensation of $5.4 million. During the period, we borrowed $15 million under our line of credit for the acquisition of AEC and subsequently repaid the amount with cash provided by operations. As of March 31, 2011, there were no borrowings outstanding on our $35 million line of credit.activities.
Off Balance Sheet Arrangements, Contractual Obligations and Commitments
~~During the nine months ended March 31, 2012, we~~
We have provided ~~a guarantee~~guarantees of approximately ~~$6.7~~$10.9 million related to ~~a 10-year~~long-term lease ~~commitment~~commitments on the ~~building~~buildings for certain of our Flex schools. We contractually guarantee that certain schools under our management will not have annual operating deficits and our management fees from these schools may be reduced accordingly to cover any school operating deficits. Other than these lease and operating deficit guarantees, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a ~~newly managed hybrid school. There were no other changes to~~current or future effect on our ~~guarantee and obligations from those disclosed in our fiscal year 2011 audited consolidated~~ financial ~~statements.~~
Our contractual obligations consist primarily of leases for office space, capital leases for equipment and other operating leases. The total amount due under contractual obligations increased during the nine months ended March 31, 2012 primarily due to approximately $25.6 million for capital leases related to student computers, net of payments.
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condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
At ~~March~~December 31, 2012 and June 30, ~~2011,~~2012, we had cash and cash equivalents totaling ~~$123.7~~$143.2 million and ~~$193.1~~$144.7 million, respectively. Our excess cash has been invested primarily in U.S. Treasury money market funds although we may also invest in money market accounts, government securities, corporate debt securities and similar investments. Future interest and investment income is subject to the impact of interest rate changes and we may be subject to changes in the fair value of our investment portfolio as a result of changes in interest rates. At ~~March~~December 31, 2012, a 1% gross increase in interest rates earned on cash would result in ~~$1.2~~a $1.4 million annualized increase in interest income.
Our short-term debt obligations under our revolving credit facility are subject to interest rate exposure; however, as we had no outstanding balance on this facility during the ~~nine~~six months ended ~~March~~December 31, 2012, fluctuations in interest rates had no impact on our interest expense.
Foreign Currency Exchange Risk
We currently operate in several foreign countries, but we do not transact a material amount of business in a foreign ~~currency. Therefore,~~currency and therefore fluctuations in exchange rates will not have a material impact on our financial statements. However, we are pursuing additional opportunities in international markets and expect our international presence to grow. If we enter into any material transactions in a foreign currency or
establish or acquire any subsidiaries that measure and record their financial condition and results of operation in a foreign currency, we will be exposed to currency transaction risk and/or currency translation risk. Exchange rates between U.S. dollars and many foreign currencies have fluctuated significantly over the last few years and may continue to do so in the future. Accordingly, we may decide in the future to undertake hedging strategies to minimize the effect of currency fluctuations on our financial condition and results of operations.
Item 4.   Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule ~~13a-15(e)~~13a-15(f) of the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Executive Chairman, Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.
As described in Item 9A of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, a material weakness in our internal control over financial reporting was identified. The material weakness related to project management of a new enterprise-wide financial system (“ERP”) and affected the timeliness of our year-end close. Management assessed the processes surrounding the project management of the ERP implementation and determined that the ERP system implementation plan was insufficiently comprehensive which caused delays and ultimately prevented the year-end close from being completed in a timely manner. Rule 12b-2 and Rule 1-02 of Regulation S-X define a material weakness as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2011, our disclosure controls and procedures were not effective at a reasonable assurance level.
We carried out an evaluation, required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act, under the supervision and with the participation of management, including our Executive Chairman, Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this review, our Executive Chairman, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ~~not~~ effective as of ~~March 31, 2012 as the material weakness identified as of June 30, 2011 still exists.~~
~~Changes in Internal Control over Financial Reporting~~
As a result of management’s evaluation of our internal control over financial reporting, management identified a material weakness in our internal control. Specifically, management concluded that a material weakness relating to project management of a new enterprise-wide financial system (“ERP”) and the resulting effects on the timeliness of our year-end and quarterly close process existed in our internal control over financial reporting.
Management has assessed the processes surrounding the project management of the ERP implementation and determined that the ERP system implementation plan was insufficiently comprehensive which caused delays and ultimately prevented the year-end close from being completed in a timely manner. To address implementation challenges, external resources and Company information technology and accounting staff have been engaged in intensive quality control and checking of the new ERP system, including the interfaces with the multiple accounting systems inherited with our recent acquisitions to perform the year
end close and ensure accurate financial reporting. The Company has completed its initial implementation and anticipates future enhancements and updates to the new ERP system. The Company will thoroughly review and improve its system implementation plans and related processes that impact future internal business support systems, enhancements and updates.
This control deficiency could have resulted in a material misstatement to the interim consolidated financial statements that would not be prevented or detected as of the initial filing date deadline. Accordingly, management determined that this control deficiency constituted a material weakness as of MarchDecember 31, 2012.
~~During the nine months ended March 31, 2012, in connection with the evaluation required by paragraph (d)~~
28

Table of Rule 13a-15 or Rule 15d-15 under the Exchange Act, the effort to remediate the material weakness in our internal control over financial reporting has had a positive effect on our internal control over financial reporting. Management anticipates that these measures and other ongoing enhancements will continue to have a positive impact on our internal control over financial reporting in future periods. Notwithstanding such efforts, the material weakness related to project management of a new enterprise-wide financial system (“ERP”) and the resulting effects on the timeliness of our year-end close existed in our internal control over financial reporting described above will not be remediated until the new controls operate for a sufficient period of time and are tested to enable management to conclude that the controls are effective. Management will consider the design and operating effectiveness of these controls and intends to make additional changes that management determines to be appropriate.Contents
Part II. Other Information
Item 1.Legal Proceedings.
In the ordinary conduct of our business, we are subject to lawsuits, arbitrations and administrative proceedings from time to time.
IpLearn
On October 26, 2011, IpLearn, LLC (“IpLearn”) filed a complaint for patent infringement against the Company in the United States District Court for the District of Delaware,IpLearn, LLC v. K12 Inc., Case No. 1:11-1026-LPS, which it subsequently amended on November 18, 2011. IpLearn is a privately-held technology development and licensing company for web and computer-based learning technologies. In its complaint, IpLearn alleges that the Company has infringed three of its patents for various computer-aided learning methods and systems. On ~~January 10,~~July 2, 2012, the ~~Company filed its~~Court granted the Company’s motion to dismiss IpLearn’s ~~amended complaint. IpLearn responded on~~allegations of indirect patent infringement and allowed IpLearn’s allegations of direct patent infringement to proceed. On January ~~27, 2012,~~15, 2013, the court approved a stay of IpLearn’s claims alleging infringement of one of the three patents in the case involving technology licensed to K12 by a third party. The discovery process is currently in progress.
Hoppaugh Complaint and ~~the Company replied on February 6, 2012.~~Related Matters
~~Hoppaugh Complaint~~
On January 30, 2012, a securities class-action lawsuit captionedDavidHoppaughet al. v. K12 ~~Inc~~Inc. .et. al., was filed against the Company and two of its officers in the United States District Court for the Eastern District of Virginia,~~Hoppaugh v. K12, Inc~~., Case No. ~~1:12-cv-103-CMH-IDD~~I:12-CV-00103-CMH-IDD. On May 18, 2012, the Court appointed the Arkansas Teacher Retirement System as lead plaintiff, and it filed an amended class action complaint (the ~~“Hoppaugh~~“Amended Complaint”). on June 22, 2012. The plaintiff purports to represent a class of persons who purchased or otherwise acquired K12 common stock between September 9, 2009 and December 16, 2011 (the “Class Period”), inclusive, and alleges violations by the defendants of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. The ~~Hoppaugh Complaint~~plaintiff alleges among other things that the defendants made false or misleading statements of material fact, or failed to disclose material facts, about (i) the Company’s ~~financial~~revenue and enrollment results during the ~~class period,~~Class Period, (ii) the academic performance of the virtual schools served by the Company, and (iii) certain school administrative practices and sales strategies related to enrollments. The plaintiff seeks unspecified ~~monetary~~compensatory damages and other relief. On ~~April 2,~~September 18, 2012, the ~~Arkansas Teacher Retirement System filed a Motion for Appointment as Lead Plaintiff, which is pending.~~Court denied Defendants’ motion on the pleadings to dismiss the action, and permitted the case to proceed to the next stage of litigation. The Company intends to continue to vigorously defend ~~vigorously~~ against the claims asserted in the ~~Hoppaugh~~Amended Complaint. Discovery is ongoing in this matter.
In addition to the ~~above-described~~above described stockholder class action, on March 21, 2012, a federal stockholder derivative action,Jared Staal v. Andrew H. Tisch, et. al.al., Case No. 1:I:12-cv-00365-SLR, putatively initiated on behalf of the Company, was filed in the United States District Court for the District of Delaware. By stipulation, all matters in this derivative action have been ~~stayed until motions~~stayed.
The Board of Directors received a stockholder demand letter, dated August 16, 2012, that asserted allegations against various directors, senior officers and employees of K12 similar to ~~dismiss~~those made in the ~~Hoppaugh Complaint are decided.~~previously disclosed securities class action and derivative lawsuits. The stockholder requested that the Board investigate and pursue claims related to breach of fiduciary duty on behalf of the Company. The Board has formed a demand evaluation committee, which has retained counsel to assist with its review of the demand. The Board will take appropriate action based on the committee’s recommendation. On October 19, 2012, the Board received a stockholder demand pursuant to 8 Del. C. § 220 (a “220 Demand”) from Oakland County Employees’ Retirement System to inspect certain categories of documents. The Board is considering the 220 Demand and will take appropriate action.
29

Table of Contents
Item 1A.Risk Factors
There have been no material changes to the risk factors disclosed in “Risk Factors” in Part I, Item 1A, of our Annual ~~Report.~~Report on Form 10-K for the fiscal year ended June 30, 2012 as filed with the SEC on September 12, 2012.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
~~None.~~None.
Item 3.   Defaults Upon Senior Securities.
None.
Item 4.Mine Safety ~~Disclosures~~Disclosures.
~~Not Applicable~~
~~Item 5.~~ ~~Other Information.~~
None.
Item 5.   Other Information.
None.
30

Table of Contents
Item 6.Exhibits.
(a)Exhibits.

Number
~~(a)~~
~~Exhibits.~~
Description
~~Number~~
~~Description~~
10.1*
Sixth Amendment to Revolving Credit Agreement.
10.1*
10.2*≠
Amended and Restated Employment Agreement for ~~Timothy L. Murray~~Ronald J. Packard dated January 7, 2013.
10.3*≠
Employment Agreement for Nathaniel A. Davis effective as of January 7, 2013.
31.1*
Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*
Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*
31.3*
Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*
32.1*
Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2*
Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2*
32.3*
Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section 1350.
101*
101*
The following financial statement The following financial statements and footnotes from the K12 Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended ~~March~~December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations (unaudited), (iii) Condensed Consolidated Statement of Equity (Deficit) (unaudited), (iv) Condensed Consolidated Statement of Comprehensive Income (Loss), (v) Condensed Consolidated Statements of Cash Flows (unaudited), and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements (unaudited).

*
Filed herewith.
≠
Denotes management compensation plan or arrangement.
31

Table of Contents
SIGNATURES~~SIGNATURES~~
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
~~K12 INC.~~
K12 Inc.
Date: February 5, 2013
/s/ ~~RONALD J. PACKARD~~HARRY T. HAWKS
Harry T. Hawks
~~Name:~~
~~Ronald J. Packard~~
Chief Financial Officer
~~Title:~~
~~Chief Executive~~
(Principal Accounting Officer and Authorized Signatory)
~~Date: May 8, 2012~~

3432


	March 31, 2012			June 30, 2011			December 31,			June 30,
	(In thousands, except share and per share data)						2012			2012
							(In thousands, except share and per share data)
ASSETS

Current assets

Cash and cash equivalents	$	123,653		$	193,099		$	143,192		$	144,652

Restricted cash and cash equivalents		1,501			1,501		—			1,501
Accounts receivable, net of allowance of $2,891 and $1,777 at March 31, 2012 and June 30, 2011, respectively		205,307			96,235

Accounts receivable, net of allowance of $2,970 and $1,624 at December 31, 2012 and June 30, 2012, respectively							223,312			160,922
Inventories, net		27,525			30,554		29,470			37,853

Current portion of deferred tax asset		4,969			7,175		12,363			16,140

Prepaid expenses		14,428			10,424		19,833			11,173

Other current assets		12,973			9,111		16,000			14,598

Total current assets		390,356			348,099		444,170			386,839
Property and equipment, net		61,385			46,625		63,134			55,903
Capitalized software development costs, net		29,496			24,386
Capitalized software, net							39,639			34,709
Capitalized curriculum development costs, net		56,962			55,619		62,926			60,345
Intangible assets, net		37,912			38,291		34,437			36,736
Goodwill		62,404			55,627		61,501			61,619
Investment in Web International		10,000			10,000		10,000			10,000
Deposits and other assets		3,219			3,448		2,902			2,684

Total assets	$	651,734		$	582,095		$	718,709		$	648,835


LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current liabilities
Accounts payable	$	17,276		$	21,176		$	20,121		$	23,951
Accrued liabilities		16,252			14,126		22,218			13,802
Accrued compensation and benefits		16,127			13,086		13,296			17,355
Deferred revenue		46,558			21,907		59,249			25,410
Current portion of capital lease obligations		16,571			11,914		19,799			15,950
Current portion of notes payable		1,137			1,443

Current portion of note payable							1,138			1,145
Total current liabilities		113,921			83,652		135,821			97,613
Deferred rent, net of current portion		5,499			4,698		8,679			6,974
Capital lease obligations, net of current portion		17,541			8,552		20,619			15,124
Notes payable, net of current portion		1,162			2,299
Note payable, net of current portion							—			777
Deferred tax liability		15,283			9,604		34,764			31,591
Other long term liabilities		3,191			3,343		2,146			1,908

Total liabilities		156,597			112,148		202,029			153,987

Commitments and contingencies							—			—
Redeemable noncontrolling interest		17,200			17,200		17,200			17,200

Equity:
K12 Inc. stockholders’ equity
Common stock, par value $0.0001; 100,000,000 shares authorized; 36,389,121 and 35,927,452 shares issued and outstanding at March 31, 2012 and June 30, 2011, respectively		4			4

Common stock, par value $0.0001; 100,000,000 shares authorized; 36,872,800 and 36,436,933 shares issued and outstanding at December 31, 2012 and June 30, 2012, respectively							4			4
Additional paid-in capital		521,503			512,181		527,574			519,439
Series A Special Stock, par value $0.0001; 2,750,000 issued and outstanding at March 31, 2012 and June 30, 2011		63,112			63,112
Accumulated other comprehensive income		157			28

Series A Special Stock, par value $0.0001; 2,750,000 shares authorized, issued and outstanding at December 31, 2012 and June 30, 2012							63,112			63,112
Accumulated other comprehensive (loss) income							(50		)	100
Accumulated deficit		(110,961	)		(126,704	)	(95,293		)	(109,161		)

Total K12 Inc. stockholders’ equity		473,815			448,621		495,347			473,494

Noncontrolling interest		4,122			4,126		4,133			4,154

Total equity		477,937			452,747		499,480			477,648

Total liabilities, redeemable noncontrolling interest and equity	$	651,734		$	582,095		$	718,709		$	648,835


	Three Months Ended						Nine Months Ended
	March 31,						March 31,						Three Months Ended						Six Months Ended
	2012			2011			2012			2011			December 31,						December 31,
	(In thousands, except share and per share data)												2012			2011			2012			2011
													(In thousands, except share and per share data)
Revenues	$	178,175		$	130,293		$	538,005		$	394,167		$	206,028		$	166,500		$	427,124		$	359,830

Cost and expenses
Instructional costs and services		105,955			77,727			314,410			229,004		122,799			98,909			241,446			200,016
Selling, administrative, and other operating expenses		53,619			36,763			175,836			122,438		61,379			52,925			150,998			130,656
Product development expenses		7,012			4,972			20,810			12,318		5,578			7,574			9,746			13,798

Total costs and expenses		166,586			119,462			511,056			363,760		189,756			159,408			402,190			344,470

Income from operations		11,589			10,831			26,949			30,407		16,272			7,092			24,934			15,360
Interest expense, net		(265	)		(307	)		(722	)		(970	)	(272		)	(236		)	(501		)	(457		)

Income before income tax expense and noncontrolling interest		11,324			10,524			26,227			29,437		16,000			6,856			24,433			14,903
Income tax expense		(4,638	)		(5,260	)		(11,311	)		(14,310	)	(6,680		)	(2,976		)	(10,569		)	(6,673		)

Net income – K12 Inc.		6,686			5,264			14,916			15,127
Add net loss attributable to noncontrolling interest		291			335			827			509

Net income													9,320			3,880			13,864			8,230
Adjust net loss attributable to noncontrolling interest													191			285			4			536
Net income attributable to common stockholders, including Series A stockholders	$	6,977		$	5,599		$	15,743		$	15,636		$	9,511		$	4,165		$	13,868		$	8,766

Net income attributable to common stockholders per share, excluding Series A stockholders:
Basic	$	0.18		$	0.17		$	0.41		$	0.47		$	0.24		$	0.11		$	0.36		$	0.23

Diluted	$	0.18		$	0.16		$	0.41		$	0.46		$	0.24		$	0.11		$	0.36		$	0.23

Weighted average shares used in computing per share amounts:
Basic		35,876,629			30,958,807			35,753,156			30,620,330		36,118,519			35,755,685			36,073,885			35,692,761

Diluted		35,913,576			31,758,313			36,023,023			31,327,544		36,118,519			35,976,779			36,073,885			36,009,878

	Three Months Ended December 31,				Six Months Ended December 31,
	2012		2011		2012			2011
	(In thousands)
Net income	$	9,320	$	3,880	$	13,864		$	8,230

Other comprehensive income, net of tax

Foreign currency translation adjustment	164		24		(150		)	106

Total other comprehensive income, net of tax	9,484		3,904		13,714			8,336

Comprehensive (loss) income attributable to noncontrolling interest	191		285		4			536

Comprehensive income attributable to common stockholders, including Series A stockholders	$	9,675	$	4,189	$	13,718		$	8,872


	K12 Inc Stockholders
	Common Stock					Common Stock - Series A				Additional Paid-in			Accumulated Other Comprehensive		Accumulated			Noncontrolling
	Shares			Amount		Shares		Amount		Capital			Income		Deficit			Interest			Total
(In thousands, except share data)

Balance, June 30, 2011		35,927,452		$	4		2,750,000	$	63,112	$	512,181		$	28	$	(126,704	)	$	4,126		$	452,747

Net income (loss) (1)																15,743			(4	)		15,739
Foreign currency translation adjustments														129								129


Comprehensive Income																						15,868

Stock based compensation expense											7,339											7,339

Exercise of stock options		205,732									3,123											3,123
Excess tax benefit from stock-based compensation											1,289											1,289

Issuance of restricted stock awards		348,940									—											—
Forfeiture of restricted stock awards		(40,129	)								—											—
Accretion of redeemable noncontrolling interests to estimated redemption value											(825	)										(825	)
Retirement of restricted stock for tax withholding		(52,874	)								(1,291	)										(1,291	)

Registration expenses for shares issued in private placement		—			—		—		—		(313	)		—		—			—			(313	)


Balance, March 31, 2012		36,389,121		$	4		2,750,000	$	63,112	$	521,503		$	157	$	(110,961	)	$	4,122		$	477,937

	K12 Inc Stockholders
	Common Stock				Common Stock - Series A			Additional Paid-in			Accumulated Other Comprehensive			Accumulated			Noncontrolling
(In thousands, except share data)	Shares		Amount		Shares	Amount		Capital			Income (Loss)			Deficit			Interest			Total

Balance, June 30, 2012	36,436,933		$	4	2,750,000	$	63,112	$	519,439		$	100		$	(109,161	)	$	4,154		$	477,648
Net income (loss) (1)														13,868			(21		)	13,847
Other comprehensive loss											(150		)							(150		)
Stock based compensation expense								5,780												5,780
Exercise of stock options	69,989		—					607												607
Excess tax benefit from stock-based compensation								2,532												2,532
Issuance of restricted stock awards	404,073		—																	—
Accretion of redeemable noncontrolling interests to estimated redemption value								17												17
Retirement of restricted stock for tax withholding	(38,195	)	—		—	—		(801		)	—			—			—			(801		)
Balance, December 31, 2012	36,872,800		$	4	2,750,000	$	63,112	$	527,574		$	(50	)	$	(95,293	)	$	4,133		$	499,480


	Nine Months Ended March 31,						Six Months Ended December 31,
	2012			2011			2012			2011
	(In thousands)						(In thousands)
Cash flows from operating activities
Net income	$	14,916		$	15,127		$	13,864		$	8,230
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense		42,312			30,463		31,894			27,668
Stock based compensation expense		7,339			7,453		5,780			4,724
Excess tax benefit from stock based compensation		(1,289	)		(5,443	)	(2,532		)	(1,232		)
Deferred income taxes		9,571			13,329		9,482			6,433
Provision for doubtful accounts		480			569		784			329
Provision for inventory obsolescence		464			729		200			9
Provision for student computer shrinkage and obsolescence		427			182		502			393
Changes in assets and liabilities:
Accounts receivable		(109,128	)		(52,728	)	(63,338		)	(100,765		)
Inventories		2,565			7,235		8,183			10,341
Prepaid expenses		(4,004	)		545		(8,630		)	(3,400		)
Other current assets		(3,635	)		(1,994	)	(1,402		)	(5,199		)
Deposits and other assets		229			(105	)	(217		)	151
Accounts payable		(3,901	)		(4,150	)	(3,838		)	(928		)
Accrued liabilities		2,124			1,516		8,403			2,885
Accrued compensation and benefits		3,040			(4,377	)	(4,058		)	575
Deferred revenue		24,310			14,478		33,529			29,906
Cash invested in restricted cash and cash equivalents		—			1,712
Release of restricted cash							1,501			—
Deferred rent and other long term liabilities		650			2,483		1,945			413

Net cash (used in)/provided by operating activities		(13,530	)		27,024

Net cash provided by (used in) operating activities							32,052			(19,467		)
Cash flows from investing activities
Purchase of property, equipment and software development costs		(22,478	)		(20,295	)
Purchase of property and equipment							(4,524		)	(6,276		)
Capitalized software development costs							(11,633		)	(8,626		)
Capitalized curriculum development costs		(10,341	)		(11,728	)	(9,628		)	(6,469		)
Purchase of AEC, net of cash acquired of $3,841		—			(24,544	)
Cash advanced for AEC performance escrow		—			(6,825	)
Cash returned from AEC performance escrow		—			6,825
Cash paid for investment in Web		—			(10,000	)
Cash paid for other investment		—			(2,040	)
Purchase of Kaplan/Insight Assets		(12,641	)		—

Purchase of acquired entity							—			(12,641		)
Net cash used in investing activities		(45,460	)		(68,607	)	(25,785		)	(34,012		)

Cash flows from financing activities
Repayments on capital lease obligations		(11,950	)		(11,113	)	(9,851		)	(7,884		)
Repayments on notes payable		(1,443	)		(1,251	)
Borrowings from line of credit		—			15,000
Repayments under line of credit		—			(15,000	)
Repayments on note payable							(785		)	(1,069		)
Proceeds from exercise of stock options		3,123			8,252		607			2,760
Excess tax benefit from stock based compensation		1,289			5,443		2,532			1,232
Repurchase of restricted stock for income tax withholding		(1,291	)		(1,595	)	(801		)	(580		)
Payment of stock registration expense		(313	)		—		—			(313		)

Net cash (used in)/provided by financing activities		(10,585	)		(264	)

Net cash used in financing activities							(8,298		)	(5,854		)
Effect of foreign exchange rate changes on cash and cash equivalents		129			176		571			106

Net change in cash and cash equivalents		(69,446	)		(41,671	)	(1,460		)	(59,227		)
Cash and cash equivalents, beginning of period		193,099			81,751		144,652			193,099

Cash and cash equivalents, end of period	$	123,653		$	40,080		$	143,192		$	133,872

		Useful Life
Student computers		3 years
Computer hardware		3 years
Computer software		3-5 years
Web site development costs		3 years
Office equipment		5 years
Furniture and fixtures		7 years
Leasehold improvements		3-12 years


($ in millions)	Amount
Rollforward of Goodwill
Balance as of June 30, 2011	$	55.6
Acquisition of certain assets		6.7
Other adjustments		0.1

Balance as of March 31, 2012	$	62.4

Rollforward of Goodwill	Amount
	($ in millions)
Balance as of June 30, 2012	$	61.6
Adjustments due to KVE and other foreign exchange translations	(0.1		)
Balance as of December 31, 2012	$	61.5


	March 31, 2012							June 30, 2011
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Trade names	$	24.0	$	(2.6	)	$	21.4	$	23.3	$	(1.6	)	$	21.7
Customer and distributor relationships		18.9		(3.4	)		15.5		16.5		(1.3	)		15.2
Developed technology		1.5		(0.8	)		0.7		1.5		(0.4	)		1.1
Other		0.5		(0.2	)		0.3		0.5		(0.2	)		0.3

	$	44.9	$	(7.0	)	$	37.9	$	41.8	$	(3.5	)	$	38.3

	December 31, 2012							June 30, 2012
($ in millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Trade names	$	24.0	$	(3.8	)	$	20.2	$	24.0	$	(3.1	)	$	20.9
Customer and distributor relationships	18.9		(5.4		)	13.5		18.9		(4.0		)	14.9
Developed technology	1.5		(1.1		)	0.4		1.5		(0.9		)	0.6
Other	0.5		(0.2		)	0.3		0.5		(0.2		)	0.3
	$	44.9	$	(10.5	)	$	34.4	$	44.9	$	(8.2	)	$	36.7


~~Level 1:~~		~~Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.~~

~~Level 2:~~		Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

~~Level 3:~~		Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

									Fair Value Measurements Using:
											Quoted Prices
											in Active		Significant
											Markets for		Other		Significant
											Identical		Observable		Unobservable
	Fair Value Measurements Using:										Assets		Input		Inputs
Description	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Input (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)								(In��thousands)
Redeemable Noncontrolling Interest in Middlebury Joint Venture	$	17,200		—		—	$	17,200	$	17,200	$	—	$	—	$	17,200
Investment in Web International Education Group	$	10,000		—		—	$	10,000

Investment in Web International Education Group, Ltd									10,000		—		—		10,000
Total	$	27,200		—		—	$	27,200	$	27,200	$	—	$	—	$	27,200

									Six Months Ended December 31, 2012
											Purchases,				Fair Value
	Nine Months Ended March 31, 2012								Fair Value		Issuances,		Unrealized		December 31,
Description	Fair Value June 30, 2011		Purchases, Issuances, and Settlements		Unrealized Gains/ (Losses)		Fair Value March 31, 2012		June 30, 2012		and Settlements		Gains/(Losses)		2012
	(In thousands)								(In thousands)
Redeemable Noncontrolling Interest in Middlebury Joint Venture	$	17,200		—		—	$	17,200	$	17,200	$	—	$	—	$	17,200
Investment in Web International Education Group	$	10,000		—		—	$	10,000

Investment in Web International Education Group, Ltd									10,000		—		—		10,000

Total	$	27,200		—		—	$	27,200	$	27,200	$	—	$	—	$	27,200


	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended December 31,						Six Months Ended December 31,
	2012			2011			2012			2011			2012			2011			2012			2011
	(In thousands except shares and per share data)												(In thousands except shares and per share data)
Basic earnings per share computation:
Net income – K12	$	6,977		$	5,599		$	15,743		$	15,636
Net income — K12													$	9,511		$	4,165		$	13,868		$	8,766

Amount allocated to participating Series A stockholders	$	(497	)	$	(457	)	$	(1,124	)	$	(1,241	)	$	(675	)	$	(297	)	$	(984	)	$	(627	)
Income available to common stockholders — basic													$	8,836		$	3,868		$	12,884		$	8,139
Weighted average common shares — basic													36,118,519			35,755,685			36,073,885			35,692,761
Basic net income per share													$	0.24		$	0.11		$	0.36		$	0.23
Dilutive earnings per share computation:
Net income — K12													$	9,511		$	4,165		$	13,868		$	8,766

Income available to common stockholders – basic	$	6,480		$	5,142		$	14,619		$	14,395

Weighted average common shares – basic historical		35,876,629			30,958,807			35,753,156			30,620,330

Basic net income per share	$	0.18		$	0.17		$	0.41		$	0.47

Dilutive earnings per share computation:
Net income – K12	$	6,977		$	5,599		$	15,743		$	15,636
Amount allocated to participating Series A stockholders	$	(497	)	$	(457	)	$	(1,124	)	$	(1,241	)	$	(675	)	$	(297	)	$	(984	)	$	(627	)

Income available to common stockholders – diluted	$	6,480		$	5,142		$	14,619		$	14,395

Income available to common stockholders — diluted													$	8,836		$	3,868		$	12,884		$	8,139
Share computation:
Weighted average common shares – basic historical		35,876,629			30,958,807			35,753,156			30,620,330
Weighted average common shares — basic													36,118,519			35,755,685			36,073,885			35,692,761
Effect of dilutive stock options and restricted stock awards		36,947			799,506			269,867			707,214		—			221,094			—			317,117

Weighted average common shares outstanding – diluted		35,913,576			31,758,313			36,023,023			31,327,544

Weighted average common shares outstanding — diluted													36,118,519			35,976,779			36,073,885			36,009,878
Diluted net income per share	$	0.18		$	0.16		$	0.41		$	0.46		$	0.24		$	0.11		$	0.36		$	0.23

										Capital			Note
March 31,	Capital Leases			Notes Payable			Total
2012	$	17,327		$	1,178		$	18,505
December 31,										Leases			Payable			Total
										($ in thousands)

2013	$	12,046		$	1,178		$	13,224		$	20,580		$	1,162		$	21,742
2014	$	5,837			—		$	5,837		15,075			—			15,075
2015										6,121			—			6,121
Thereafter	$	50			—		$	50		—			—			—

Total minimum payments										41,776			1,162			42,938

Total minimum payments	$	35,260		$	2,356		$	37,616
Less amount representing interest (imputed average capital lease interest rate of 3.7%)	$	(1,148	)	$	(57	)	$	(1,205	)

Less amount representing interest (imputed weighted average capital lease interest rate of 2.9%)										(1,358		)	(24		)	(1,382		)

Net minimum payments	$	34,112		$	2,299		$	36,411		40,418			1,138			41,556
Less current portion	$	(16,571	)	$	(1,137	)	$	(17,708	)	(19,799		)	(1,138		)	(20,937		)


Present value of minimum payments, less current portion	$	17,541		$	1,162		$	18,703		$	20,619		$	—		$	20,619

														Weighted-
	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value				Weighted-		Average
Outstanding, June 30, 2011		2,765,729		$	19.23
												Average		Remaining	Aggregate
												Exercise		Contractual	Intrinsic
										Shares		Price		Life (Years)	Value

Outstanding, June 30, 2012										2,949,940		$	20.41	4.21	$	36,916
Granted		233,986		$	26.78					222,009		21.30
Exercised		(205,732	)	$	15.28					(69,989	)	8.64
Forfeited or canceled		(66,841	)	$	23.70					(322,790	)	29.58

Outstanding, March 31, 2012		2,727,142		$	20.07		4.11	$	13,330
Outstanding, December 31, 2012										2,779,170		$	20.59	4.02	$	8,254


Stock options exercisable at March 31, 2012		1,960,862		$	19.09		3.41	$	11,256

Stock options exercisable at December 31, 2012										1,912,034		$	18.20	3.51	$	6,943

								Weighted-
	Shares			Weighted- Average Fair Value				Average
Nonvested, June 30, 2011		444,151		$	23.62
						Shares		Fair Value

Outstanding, June 30, 2012						591,637		$	25.12
Granted		348,940		$	26.28	404,073		21.40
Vested		(176,629	)	$	23.30	(136,325	)	21.44
Forfeited or canceled		(48,239	)	$	26.85	(12,697	)	25.62

Nonvested, March 31, 2012		568,223		$	25.08

Outstanding, December 31, 2012						846,688		$	23.57

Managed Public Schools	Institutional Sales	International and Private Pay Schools
· Full-time virtual schools	· K12 curriculum	· Managed private schools
· Blended schools	· Aventa curriculum	—The Keystone School
—Flex schools	· A+ curriculum	—George Washington University Online High School
—Passport schools	· Middlebury joint venture	—K12 International Academy
—Discovery schools	· Pre-kindergarten	—International School of Berne
—Other blended schools	· Post-secondary	· Web International Education Group, Ltd. (via investment)
		· Independent course sales (Consumer)


	Three Months Ending				Growth					Nine Months Ending				Growth
	March 31,				2012 / 2011					March 31,				2012 / 2011
	2012		2011		Change		Change %			2012		2011		Change		Change %

K12 Average Enrollment
Managed Public Schools		105,912		72,344		33,568		46.4	%		105,109		72,332		32,777		45.3	%
Institutional Business		31,367		21,002		10,365		49.4	%		29,981		19,674		10,307		52.4	%
Private Schools		10,449		7,684		2,765		36.0	%		10,125		7,650		2,475		32.4	%

Total Average Enrollment		147,728		101,030		46,698		46.2	%		145,215		99,656		45,559		45.7	%

	Three Months Ended December 31,				Six Months Ended December 31,
	2012	2011	Change	Change %	2012	2011	Change	Change %

Managed Public Schools
Average Student Enrollments	119,132	104,836	14,296	13.6%	119,831	105,293	14,538	13.8%
International and Private Pay Schools
Total Student Enrollments	4,403	3,971	432	10.9%	17,399	16,386	1,013	6.2%
Total Semester Course Enrollments	12,138	11,959	179	1.5%	48,170	46,651	1,519	3.3%

	Three Months Ended December 31,				Change 2012 / 2011				Six Months Ended December 31,				Change 2012 / 2011
($ in thousands)	2012		2011		$		%		2012		2011		$			%
Managed Public Schools	$	177,541	$	140,645	$	36,896	26.2		$	365,302	$	300,095	$	65,207		21.7
Institutional Sales	18,089		16,662		1,427		8.6		40,061		40,143		(82		)	(0.2	)
International and Private Pay Schools	10,398		9,193		1,205		13.1		21,761		19,592		2,169			11.1
Total	$	206,028	$	166,500	$	39,528	23.7	%	$	427,124	$	359,830	$	67,294		18.7	%

													Three Months Ended						Six Months Ended
	Three Months Ended March 31,						Nine Months Ended March 31,						December 31,						December 31,
	2012			2011			2012			2011			2012			2011			2012			2011
													($ in thousands)
Revenues	$	178,175		$	130,293		$	538,005		$	394,167		$	206,028		$	166,500		$	427,124		$	359,830
Cost and expenses


Cost and expenses
Instructional costs and services		105,955			77,727			314,410			229,004		122,799			98,909			241,446			200,016
Selling, administrative, and other operating expenses		53,619			36,763			175,836			122,438		61,379			52,925			150,998			130,656
Product development expenses		7,012			4,972			20,810			12,318		5,578			7,574			9,746			13,798


Total costs and expenses		166,586			119,462			511,056			363,760		189,756			159,408			402,190			344,470


Income from operations		11,589			10,831			26,949			30,407		16,272			7,092			24,934			15,360
Interest expense, net		(265	)		(307	)		(722	)		(970	)	(272		)	(236		)	(501		)	(457		)


Income before income taxes and noncontrolling interest		11,324			10,524			26,227			29,437		16,000			6,856			24,433			14,903
Income tax expense		(4,638	)		(5,260	)		(11,311	)		(14,310	)	(6,680		)	(2,976		)	(10,569		)	(6,673		)


Net income	$	6,686		$	5,264		$	14,916		$	15,127		9,320			3,880			13,864			8,230
Add net loss attributable to noncontrolling interest		291			335			827			509

Adjust net loss attributable to noncontrolling interest													191			285			4			536

Net Income — K12 Inc.	$	6,977		$	5,599		$	15,743		$	15,636		$	9,511		$	4,165		$	13,868		$	8,766

		00000000			00000000			00000000			00000000
	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended				Six Months Ended
	2012			2011			2012			2011			December 31,				December 31,
													2012		2011		2012		2011
Revenues		100.0	%		100.0	%		100.0	%		100.0	%	100.0	%	100.0	%	100.0	%	100.0	%


Cost and expenses
Instructional costs and services		59.5			59.7			58.4			58.1		59.6		59.4		56.5		55.6
Selling, administrative, and other operating expenses		30.1			28.2			32.7			31.1		29.8		31.8		35.4		36.3
Product development expenses		3.9			3.8			3.9			3.1		2.7		4.5		2.3		3.8


Total costs and expenses		93.5			91.7			95.0			92.3		92.1		95.7		94.2		95.7


Income from operations		6.5			8.3			5.0			7.7		7.9		4.3		5.8		4.3
Interest expense, net		(0.2	)		(0.2	)		(0.1	)		(0.2	)	(0.1	)	(0.2	)	(0.1	)	(0.1	)


Income before income taxes and noncontrolling interest		6.3			8.1			4.9			7.5		7.8		4.1		5.7		4.2
Income tax expense		(2.6	)		(4.0	)		(2.1	)		(3.6	)	(3.3	)	(1.8	)	(2.5	)	(1.9	)


Net income		3.7	%		4.1	%		2.8	%		3.9	%	4.5		2.3		3.2		2.3
Add net loss attributable to noncontrolling interest		0.2			0.2			0.1			0.1

Adjust net loss attributable to noncontrolling interest													0.1		0.2		—		0.1

Net income — K12 Inc.		3.9	%		4.3	%		2.9	%		4.0	%	4.6	%	2.5	%	3.2	%	2.4	%


~~Number~~		~~Description~~
10.1*		Sixth Amendment to Revolving Credit Agreement.
10.1* 10.2*≠		Amended and Restated Employment Agreement for ~~Timothy L. Murray~~Ronald J. Packard dated January 7, 2013.
10.3*≠		Employment Agreement for Nathaniel A. Davis effective as of January 7, 2013.
31.1*		Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2*		Certification of Principal Executive Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2* 31.3*		Certification of Principal Financial Officer Required Under Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*
32.1*		Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2*		Certification of Principal Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
32.2* 32.3*		Certification of Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended and 18 U.S.C. Section 1350.
101*
101*		The following financial statement The following financial statements and footnotes from the K12 Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended ~~March~~December 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (unaudited), (ii) Condensed Consolidated Statements of Operations (unaudited), (iii) Condensed Consolidated Statement of Equity (Deficit) (unaudited), (iv) Condensed Consolidated Statement of Comprehensive Income (Loss), (v) Condensed Consolidated Statements of Cash Flows (unaudited), and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements (unaudited).

*		Filed herewith.
≠		Denotes management compensation plan or arrangement.

		K12 Inc.


Date: February 5, 2013
		/s/ ~~RONALD J. PACKARD~~HARRY T. HAWKS
		Harry T. Hawks
~~Name:~~		~~Ronald J. Packard~~ Chief Financial Officer

~~Title:~~		~~Chief Executive~~ (Principal Accounting Officer and Authorized Signatory)

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