Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Jun. 30, 2017 | Jul. 31, 2017 | Dec. 31, 2016 | |
Document and Entity Information | |||
Entity Registrant Name | K12 INC | ||
Entity Central Index Key | 1,157,408 | ||
Document Type | 10-K | ||
Document Period End Date | Jun. 30, 2017 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --06-30 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Accelerated Filer | ||
Entity Public Float | $ 483,320,529 | ||
Entity Common Stock, Shares Outstanding | 40,771,548 | ||
Document Fiscal Year Focus | 2,017 | ||
Document Fiscal Period Focus | FY |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Jun. 30, 2017 | Jun. 30, 2016 |
Current assets | ||
Cash and cash equivalents | $ 230,864 | $ 213,989 |
Accounts receivable, net of allowance of $14,791 and $10,813 at June 30, 2017 and June 30, 2016 respectively | 192,205 | 169,554 |
Inventories, net | 30,503 | 30,631 |
Prepaid expenses | 8,006 | 9,634 |
Other current assets | 12,004 | 22,047 |
Total current assets | 473,582 | 445,855 |
Property and equipment, net | 26,297 | 28,447 |
Capitalized software, net | 62,695 | 70,055 |
Capitalized curriculum development costs, net | 59,213 | 63,367 |
Intangible assets, net | 20,226 | 23,102 |
Goodwill | 87,214 | 87,285 |
Deposits and other assets | 6,057 | 15,944 |
Total assets | 735,284 | 734,055 |
Current liabilities | ||
Current portion of capital lease obligations | 11,880 | 13,210 |
Accounts payable | 30,052 | 25,919 |
Accrued liabilities | 21,622 | 26,877 |
Accrued compensation and benefits | 29,367 | 31,042 |
Deferred revenue | 24,830 | 25,964 |
Total current liabilities | 117,751 | 123,012 |
Capital lease obligations, net of current portion | 10,025 | 9,922 |
Deferred rent, net of current portion | 4,157 | 6,661 |
Deferred tax liability | 16,726 | 18,458 |
Other long-term liabilities | 11,579 | 9,780 |
Total liabilities | 160,238 | 167,833 |
Commitments and contingencies | ||
Redeemable noncontrolling interest | 700 | 7,502 |
Stockholders’ equity | ||
Common stock, par value $0.0001; 100,000,000 shares authorized; 44,325,772 and 43,184,068 shares issued and 40,823,174 and 39,681,470 shares outstanding at June 30, 2017 and 2016 respectively | 4 | 4 |
Additional paid-in capital | 690,488 | 675,436 |
Accumulated other comprehensive income | (170) | (293) |
Accumulated deficit | (40,976) | (41,427) |
Treasury stock of 3,502,598 shares at cost at June 30, 2017 and 2016 | (75,000) | (75,000) |
Total stockholders’ equity | 574,346 | 558,720 |
Total liabilities, redeemable noncontrolling interest and equity | $ 735,284 | $ 734,055 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2017 | Jun. 30, 2016 |
CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowance | $ 14,791 | $ 10,813 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 44,325,772 | 43,184,068 |
Common stock, shares outstanding | 40,823,174 | 39,681,470 |
Treasury stock, shares | 3,502,598 | 3,502,598 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||
Revenues | $ 215,758 | $ 222,533 | $ 221,090 | $ 229,138 | $ 221,319 | $ 221,340 | $ 208,811 | $ 221,230 | $ 888,519 | $ 872,700 | $ 948,294 |
Cost and expenses | |||||||||||
Instructional costs and services | 139,244 | 136,431 | 137,542 | 144,099 | 143,136 | 134,755 | 129,616 | 139,003 | 557,316 | 546,510 | 607,756 |
Selling, administrative, and other operating expenses | 68,791 | 69,828 | 62,352 | 104,646 | 76,606 | 64,888 | 61,440 | 99,270 | 305,617 | 302,205 | 307,730 |
Product development expenses | 3,011 | 3,511 | 2,873 | 3,062 | 1,067 | 2,563 | 3,028 | 3,413 | 12,457 | 10,071 | 14,381 |
Total costs and expenses | 211,046 | 209,770 | 202,767 | 251,807 | 220,809 | 202,206 | 194,084 | 241,686 | 875,390 | 858,786 | 929,867 |
Income from operations | 4,712 | 12,763 | 18,323 | (22,669) | 510 | 19,134 | 14,727 | (20,456) | 13,129 | 13,914 | 18,427 |
Impairment of investment in Web International Education Group, Ltd | (10,000) | (10,000) | (3,200) | ||||||||
Interest income (expense), net | 561 | 641 | 264 | 342 | (21) | (101) | (190) | (305) | 1,808 | (617) | (91) |
Income before income taxes and noncontrolling interest | (4,727) | 13,404 | 18,587 | (22,327) | 489 | 19,033 | 14,537 | (20,761) | 4,937 | 13,297 | 15,136 |
Income tax expense | (1,876) | (4,522) | (7,688) | 8,690 | (822) | (5,368) | (6,653) | 8,097 | (5,396) | (4,746) | (5,810) |
Net income (loss) | (6,603) | 8,882 | 10,899 | (13,637) | (333) | 13,665 | 7,884 | (12,664) | (459) | 8,551 | 9,326 |
Add net loss attributable to noncontrolling interest | 120 | 233 | 753 | (196) | (649) | 608 | 654 | (129) | 910 | 484 | 1,662 |
Net income attributable to common stockholders | $ (6,483) | $ 9,115 | $ 11,652 | $ (13,833) | $ (982) | $ 14,273 | $ 8,538 | $ (12,793) | $ 451 | $ 9,035 | $ 10,988 |
Net income attributable to common stockholders per share | |||||||||||
Basic (in dollars per share) | $ (0.17) | $ 0.24 | $ 0.31 | $ (0.36) | $ (0.03) | $ 0.38 | $ 0.23 | $ (0.34) | $ 0.01 | $ 0.24 | $ 0.29 |
Diluted (in dollars per share) | $ (0.17) | $ 0.23 | $ 0.30 | $ (0.36) | $ (0.03) | $ 0.37 | $ 0.23 | $ (0.34) | $ 0.01 | $ 0.23 | $ 0.29 |
Weighted average shares used in computing per share amounts: | |||||||||||
Basic (in shares) | 38,757,312 | 38,376,984 | 38,104,909 | 37,938,705 | 37,768,812 | 37,692,826 | 37,559,999 | 37,433,493 | 38,298,581 | 37,613,782 | 37,330,569 |
Diluted (in shares) | 38,757,312 | 39,328,127 | 39,007,276 | 37,938,705 | 37,768,812 | 38,999,871 | 37,680,876 | 37,433,493 | 39,500,934 | 38,850,388 | 37,625,425 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||
Net income (loss) | $ (459) | $ 8,551 | $ 9,326 |
Other comprehensive income, net of tax | |||
Foreign currency translation adjustment | 123 | 772 | (953) |
Total other comprehensive income (loss), net of tax | (336) | 9,323 | 8,373 |
Comprehensive loss attributable to noncontrolling interest | 910 | 484 | 1,662 |
Comprehensive income attributable to common stockholders | $ 574 | $ 9,807 | $ 10,035 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Treasury Stock | Total | |
Balance at Jun. 30, 2014 | $ 4 | $ 639,036 | $ (112) | $ (61,450) | $ (48,548) | $ 528,930 | |
Balance (in shares) at Jun. 30, 2014 | 41,144,062 | (2,195,196) | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Net income | [1] | 10,988 | 10,988 | ||||
Foreign currency translation adjustment | (953) | (953) | |||||
Purchase of Treasury Stock | $ (26,452) | $ (26,452) | |||||
Purchase of treasury stock (in shares) | (1,307,402) | (1,307,402) | |||||
Stock-based compensation expense | 21,299 | $ 21,299 | |||||
Exercise of stock options | 553 | 553 | |||||
Exercise of stock options (in shares) | 99,935 | ||||||
Excess tax expense from stock-based compensation | (2,793) | (2,793) | |||||
Issuance of restricted stock awards (in shares) | 822,698 | ||||||
Forfeiture of restricted stock awards (in shares) | (66,480) | ||||||
Adjustments to redeemable noncontrolling interests to estimated redemption value | 8,038 | 8,038 | |||||
Retirement of restricted stock for tax withholding | (2,672) | (2,672) | |||||
Retirement of restricted stock for tax withholding (in shares) | (162,321) | ||||||
Balance at Jun. 30, 2015 | $ 4 | 663,461 | (1,065) | (50,462) | $ (75,000) | 536,938 | |
Balance (in shares) at Jun. 30, 2015 | 41,837,894 | (3,502,598) | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Net income | [1] | 9,035 | 9,035 | ||||
Foreign currency translation adjustment | 772 | $ 772 | |||||
Purchase of treasury stock (in shares) | (3,502,598) | ||||||
Stock-based compensation expense | 18,616 | $ 18,616 | |||||
Exercise of stock options | 14 | 14 | |||||
Exercise of stock options (in shares) | 1,000 | ||||||
Excess tax expense from stock-based compensation | (4,876) | (4,876) | |||||
Issuance of restricted stock awards (in shares) | 1,704,843 | ||||||
Forfeiture of restricted stock awards (in shares) | (95,980) | ||||||
Adjustments to redeemable noncontrolling interests to estimated redemption value | 1,615 | 1,615 | |||||
Retirement of restricted stock for tax withholding | (3,394) | (3,394) | |||||
Retirement of restricted stock for tax withholding (in shares) | (263,689) | ||||||
Balance at Jun. 30, 2016 | 558,720 | ||||||
Balance at Jun. 30, 2016 | $ 4 | 675,436 | (293) | (41,427) | $ (75,000) | 558,720 | |
Balance (in shares) at Jun. 30, 2016 | 43,184,068 | (3,502,598) | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Net income | 451 | 451 | |||||
Foreign currency translation adjustment | 123 | $ 123 | |||||
Purchase of treasury stock (in shares) | (3,502,598) | ||||||
Stock-based compensation expense | 22,598 | $ 22,598 | |||||
Exercise of stock options | 6,953 | 6,953 | |||||
Exercise of stock options (in shares) | 425,180 | ||||||
Excess tax expense from stock-based compensation | (5,063) | (5,063) | |||||
Issuance of restricted stock awards (in shares) | 1,268,311 | ||||||
Forfeiture of restricted stock awards (in shares) | (175,008) | ||||||
Adjustments to redeemable noncontrolling interests to estimated redemption value | (3,245) | (3,245) | |||||
Retirement of restricted stock for tax withholding | (6,191) | (6,191) | |||||
Retirement of restricted stock for tax withholding (in shares) | (376,779) | ||||||
Balance at Jun. 30, 2017 | 574,346 | ||||||
Balance at Jun. 30, 2017 | $ 4 | $ 690,488 | $ (170) | $ (40,976) | $ (75,000) | $ 574,346 | |
Balance (in shares) at Jun. 30, 2017 | 44,325,772 | (3,502,598) | |||||
[1] | Net income attributable to noncontrolling interest excludes $0.9 million, $0.5 million and $1.7 million for the years ended June 30, 2017, 2016 and 2015, respectively, due to the redeemable noncontrolling interest related to Middlebury Interactive Languages and LearnBop, which is reported outside of permanent equity in the consolidated balance sheets (See Note 10 - “Redeemable Noncontrolling Interest”). |
CONSOLIDATED STATEMENTS OF STO7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Millions | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
CONDENSED CONSOLIDATED STATEMENT OF EQUITY | |||
Redeemable noncontrolling interest related to Middlebury Interactive Languages and LearnBop | $ 0.9 | $ 0.5 | $ 1.7 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Cash flows from operating activities | |||
Net income (loss) | $ (459) | $ 8,551 | $ 9,326 |
Adjustments to reconcile net income to net cash provided by operating activities | |||
Depreciation and amortization expense | 74,280 | 68,225 | 80,282 |
Stock-based compensation expense | 22,598 | 18,616 | 21,299 |
Excess tax benefit from stock-based compensation | (291) | (6) | (118) |
Deferred income taxes | (7,065) | (3,818) | (3,094) |
Provision for doubtful accounts | 4,512 | 4,610 | 9,300 |
Provision for excess and obsolete inventory | 475 | 691 | 1,406 |
Provision for student computer shrinkage and obsolescence | 246 | (459) | (430) |
Impairment loss on other assets | 586 | 200 | |
Expensed computer peripherals | 3,525 | 2,625 | 3,519 |
Impairment of investment in Web International Education Group, Ltd | 10,000 | 3,200 | |
Other | (255) | ||
Changes in assets and liabilities: | |||
Accounts receivable | (27,745) | 14,463 | (1,892) |
Inventories | (348) | (1,751) | 2,853 |
Prepaid expenses | 1,628 | 1,860 | (4,073) |
Other current assets | 43 | 2,830 | (2,579) |
Deposits and other assets | 10,020 | (8,910) | (1,440) |
Accounts payable | 5,317 | (3,900) | (1,192) |
Accrued liabilities | (4,963) | 15,497 | (7,854) |
Accrued compensation and benefits | (1,674) | 4,255 | 9,389 |
Deferred revenue | (1,135) | 636 | 621 |
Deferred rent and other liabilities | (567) | (2,437) | 1,562 |
Net cash provided by operating activities | 88,728 | 121,778 | 120,085 |
Cash flows from investing activities | |||
Purchases of property and equipment | (2,174) | (5,008) | (9,928) |
Capitalized software development costs | (26,918) | (36,265) | (33,755) |
Capitalized curriculum development costs | (19,132) | (21,627) | (18,057) |
Purchase of noncontrolling interest | (9,134) | ||
Sale of trade name | 89 | ||
Acquisition of LearnBop, Inc. | (6,512) | ||
Acquisition of LTS Education Systems, net of cash acquired | 71 | (19,953) | |
Net cash used in investing activities | (57,198) | (82,853) | (68,252) |
Cash flows from financing activities | |||
Repayments on capital lease obligations | (15,697) | (17,402) | (21,939) |
Purchase of treasury stock | (26,452) | ||
Proceeds from exercise of stock options | 6,953 | 14 | 553 |
Excess tax benefit from stock-based compensation | 291 | 6 | 118 |
Repurchase of restricted stock for income tax withholding | (6,191) | (3,394) | (2,672) |
Net cash used in financing activities | (14,644) | (20,776) | (50,392) |
Effect of foreign exchange rate changes on cash and cash equivalents | (11) | (12) | (1,698) |
Net change in cash and cash equivalents | 16,875 | 18,137 | (257) |
Cash and cash equivalents, beginning of period | 213,989 | 195,852 | 196,109 |
Cash and cash equivalents, end of period | $ 230,864 | $ 213,989 | $ 195,852 |
Description of the Business
Description of the Business | 12 Months Ended |
Jun. 30, 2017 | |
Description of the Business | |
Description of the Business | 1. Description of the Business K12 Inc., together with its subsidiaries (“K12” or the “Company”), is a technology-based education company. The Company offers online curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade, or K-12. The Company’s learning systems combine curriculum, instruction and related support services to create an individualized learning approach well-suited for virtual and blended public schools, school districts, charter schools and private schools that utilize varying degrees of online and traditional classroom instruction, and other educational applications. These products and services are provided primarily to three lines of business: Managed Public School Programs (curriculum and services sold to 77 managed public schools in a majority of states throughout the United States), Institutional (curriculum, technology and services provided to school districts, public schools and other educational institutions that the Company does not manage), and Private Pay Schools and Other (private schools for which the Company charges student tuition and makes direct consumer sales). The Company works closely as a partner with public schools, school districts, charter schools and private schools, enabling them to offer their students an array of solutions, including full-time virtual programs, semester courses and supplemental solutions. In addition to curriculum, systems and programs, the Company provides teacher training, teaching services, and other academic and technology support services. |
Basis of Presentation
Basis of Presentation | 12 Months Ended |
Jun. 30, 2017 | |
Basis of Presentation | |
Basis of Presentation | 2. Basis of Presentation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company operates in one operating and reportable business segment as a technology‑based education company providing online 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. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 12 Months Ended |
Jun. 30, 2017 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to allowance for doubtful accounts, inventory reserves, amortization periods, the allocation of purchase price to the fair value of net assets and liabilities acquired in business combinations, fair values used in asset impairment evaluations, valuation of long-lived assets, accrual for incurred but not reported (“IBNR”) claims, fair value of redeemable noncontrolling interest, fair value of lease exit liabilities, contingencies, income taxes and stock-based compensation expense. The Company bases its estimates on historical experience and various assumptions that it believes are reasonable under the circumstances. The results of the analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Revenue Recognition and Concentration of Revenues Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended charter schools, traditional public schools, school districts, and private schools. In addition to providing the curriculum, books and materials, under most contracts, the Company provides management services and technology to virtual and blended public schools, including monitoring academic achievement, teacher hiring and training, compensation of school personnel, financial management, enrollment processing and development 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 of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenue. Where the Company has determined that it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenues received by the school from its state funding school district up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”) . As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the years ended June 30, 2017, 2016 and 2015, were $292.0 million, $294.7 million and $338.2 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenues based on its net fees earned under the contractual agreement. The Company generates revenues under turnkey management contracts with virtual and blended public schools which include multiple elements. These elements include: · providing each of a school’s students with access to the Company’s online school and lessons; · offline learning kits, which include books and materials to supplement the online lessons, where required; · the use of a personal computer and associated reclamation services, where required; · internet access and technology support services; · instruction by a state-certified teacher, where required; and · management and technology services necessary to operate a virtual public or blended school. In certain managed school contracts, revenues are determined directly by per enrollment funding. The Company has determined that the elements of its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within the Company’s multiple-element contracts do not qualify as separate units of accounting. Accordingly, the Company accounts for revenues under multiple element arrangements as a single unit of accounting and recognizes the entire arrangement based upon the approximate rate at which it incurs the costs associated with each element. Revenues from certain managed schools are recognized ratably over the period services are performed. To determine the pro rata amount of revenues to recognize in a fiscal quarter, the Company estimates the total funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels, which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and revises as necessary, amortizing any adjustments to earned revenues over the remaining portion of the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s 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 funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. The Company’s schools’ reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates and for the years ended June 30, 2016, 2015 and 2014, the Company’s aggregate funding estimates differed from actual reimbursements impacting total reported revenue by approximately (0.1)%, 0.4%, and (0.1)%, respectively. Under the contracts 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. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school as reflected on its respective financial statements, including Company charges to the schools. To the extent a school does not receive funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenues and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are reduced accordingly to reflect the expected cash collections from such schools. The Company amortizes the estimated school operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. For turnkey service contract revenues, a school operating loss may reduce the Company’s ability to collect its management fees in full, though as noted it does not necessarily mean that the Company incurs a loss during the period with respect to its services to that school. The Company recognizes revenues, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenues are recognized based on the Company’s performance of services under the contract, which it believes is proportionate to its incurrence of costs. The Company incurs costs directly related to the delivery of services. Most of these costs are recognized throughout the year; however, certain costs related to upfront delivery of printed materials, workbooks, laboratory materials and other items are provided at the beginning of the school year and are recognized as expenses when shipped. Each state or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company builds the funding estimates for each school, it is mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, student demographics, academic progress and historical completion, student location, funding caps and other state specified categorical program funding. Management periodically reviews its estimates of full-year school revenues and 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 funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. For the years ended June 30, 2017, 2016 and 2015, the Company’s revenues included a reduction for these school operating losses of $61.0 million, $57.1 million, and $65.2 million, respectively. The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenues under these agreements are recognized when all of the following conditions are met: there 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. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from the licensing of curriculum under non-cancelable perpetual arrangements are recognized when all revenue recognition criteria have been met. Revenues from professional consulting, training and support services are deferred and recognized ratably over the service period. Other revenues are generated from individual customers who prepay and have access for one to two years 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. The Company accrues interest on its long-term receivables based on contracted terms. During the years ended June 30, 2017, 2016 and 2015, approximately 83%, 82% and 86%, respectively, of the Company’s revenues were recognized from schools that contracted with the Company for Managed Public School Programs. During the year ended June 30, 2017, the Company had no such contracts that represented 10% of total revenues. During the years ended June 30, 2016 and 2015, the Company had one contract that represented approximately 10% and 14% of total revenues, respectively. Approximately 9% of accounts receivable was attributable to that one contract as of June 30, 2016. In fiscal year 2015, Agora renegotiated its service agreement and entered into a three year contract with the Company to purchase its curriculum and certain technology services, while the school board assumed daily operational responsibilities, including its charter renewal process and marketing and enrollment activities. This assumption of responsibilities caused the classification of Agora to change from a Managed Public School Program to a non-managed school within the Institutional business. The net impact of this event on the fiscal year 2016 revenues attributable to the loss of the management component of the Agora contract was approximately $111 million. On June 9, 2016, Agora signed a new service agreement that extends through 2019 and included additional services including curriculum and certain technology services while the school board retained daily operational responsibilities. The agreement also calls for payment terms of outstanding receivables to be paid over an approximate two-year period resulting in the reclassification of a portion to deposits and other assets on the consolidated balance sheets. The Company had outstanding receivables from Agora of $25.4 million and $29.5 million as of June 30, 2017 and 2016. Shipping and Handling Costs Shipping and handling costs are expensed when incurred and are classified as instructional costs and services in the accompanying consolidated statements of operations. Shipping and handling charges invoiced to a customer are included in revenues. Research and Development Costs All research and development costs, including patent application costs, are expensed as incurred. Cash and Cash Equivalents Cash and cash equivalents generally consist of cash on hand and cash held in money market and demand deposit accounts. The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company periodically has cash balances which exceed federally insured limits. Allowance for Doubtful Accounts The Company maintains an allowance for uncollectible accounts primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company analyzes accounts receivable, historical percentages of uncollectible accounts, and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. The Company writes-off accounts receivable based on the age of the receivable and the facts and circumstances surrounding the customer and reasons for non-payment. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Actual write-offs might exceed the recorded allowance. Inventories Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to virtual public schools and 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. Provisions for excess and obsolete inventory are established based upon the evaluation of the quantity on hand relative to demand. During the years ended June 30, 2016 and 2015, the Company increased the provision for excess and obsolete inventory by $0.7 million and $1.4 million primarily related to inventory in excess of anticipated demand and the decision to discontinue certain products. The Company decreased the provision during the year ended June 30, 2017 by $0.3 million. The excess and obsolete inventory reserve at June 30, 2017 and 2016, was $2.3 million and $2.6 million, 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 and equipment 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 (“ASC 840”) , 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. Beginning in fiscal year 2016, the Company no longer recovers peripheral equipment as it was determined to be uneconomical. Accordingly, the Company fully expenses peripheral equipment upon shipment as a component of instructional costs and services. These expenses totaled $3.5 million and $2.6 million for the years ended June 30, 2017 and 2016, respectively. In addition, during the year ended June 30, 2015, the Company wrote down $6.5 million of property and equipment primarily related to computer peripherals and other fixed assets shipped to students, and for which no reclamation will be processed. There were no other material write-downs for the years ended June 30, 2017 and 2016. Property and equipment are depreciated over the following useful lives: Useful Life Student and state testing computers 3 - 5 years Computer hardware 3 years Computer software 3 - 5 years Web site development 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3 - 12 years The Company makes an estimate of unreturned student computers based on an analysis of recent trends of returns. In addition during the fiscal year 2017, the Company accelerated depreciation on property and equipment associated with the operating leases that were exited during the three months ended March 31, 2017 (see Note 12, “Restructuring and Severance”). The Company recorded accelerated depreciation of $3.5 million, $2.8 million and $5.0 million for the years ended June 30, 2017, 2016 and 2015, respectively, related to the leases exited and for unreturned student computers. 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 (“ASC 350”) . 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 $26.9 million, $36.3 million and $33.8 million for the years ended June 30, 2017, 2016 and 2015, respectively. The Company wrote down approximately $0.5 million and $4.8 million, respectively, of capitalized software projects after determining the assets either had no future use or are being sunset for the years ended June 30, 2016 and 2015. This write-down was included in selling, administrative and other operating expenses. There were no material write-downs of capitalized software projects for the year ended June 30, 2017. Amortization expense for the years ended June 30, 2017, 2016 and 2015, was $33.0 million, $28.9 million and $26.8 million, respectively. Capitalized Curriculum Development Costs The Company internally develops 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 application 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 are amortized is generally five years. Total capitalized curriculum development additions were $19.1 million, $21.6 million and $18.1 million for the years ended June 30, 2017, 2016 and 2015, respectively. These amounts are recorded on the accompanying consolidated balance sheets, net of amortization and impairment charges. Amortization charges are recorded in instructional costs and services on the accompanying consolidated statements of operations. Amortization expense for the years ended June 30, 2017, 2016 and 2015 was $19.9 million, $17.0 million and $20.1 million, respectively. The Company wrote down approximately $2.6 million of capitalized curriculum development costs due to an assessment of recoverability of certain curriculum during the year ended June 30, 2015. There were no material write‑downs of capitalized curriculum development costs for the years ended June 30, 2017 and 2016. Redeemable Noncontrolling Interests Earnings or losses attributable to minority shareholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s consolidated statements of operations. Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets are classified outside of permanent equity at redeemable value, which approximates fair value. If the redemption amount is other than fair value (e.g. fixed or variable), the redeemable noncontrolling interest is accounted for at the fixed or variable redeemable value. The redeemable noncontrolling interests are adjusted to their redeemable 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 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. Finite‑lived intangible assets include trade names, acquired customers and non‑compete agreements. Such intangible assets are amortized on a straight‑line basis over their estimated useful lives. Amortization expense for the years ended June 30, 2017, 2016 and 2015 was $2.9 million, $2.7 million and $2.6 million, respectively. Future amortization of intangible assets is $2.9 million, $2.8 million, $2.7 million, $2.3 million and $2.2 million in the years ended June 30, 2018 through June 30, 2022, respectively and $7.1 million thereafter. As of June 30, 2017 and 2016, the goodwill balance was $87.2 million and $87.3 million, respectively. The reduction in goodwill was the result of an adjustment to the purchase price consideration related to the Company’s acquisition of LTS Education Systems, Inc. (see Note 13, “Acquisitions and Investments”). The Company reviews its recorded finite-lived intangible 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 were no such events during the year ended June 30, 2017. 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 circumstances suggest the carrying amount may not be fully recoverable. Examples of such events or circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the Company’s business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period. ASC 350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process is referred to as “Step 0”. The Company performs its annual assessment on May 31 st . Under the two-step process, the first step tests for potential impairment by comparing the fair value of reporting units with reporting units’ net asset values. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, then goodwill is not impaired and no further testing is required. If the fair value of reporting unit is below the reporting unit’s carrying value, then the second step is required to measure the amount of potential impairment. The second step requires an assignment of the reporting unit’s fair value to the reporting unit’s assets and liabilities, using the initial acquisition accounting guidance related to business combinations, to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared with the carrying amount of the reporting unit’s goodwill to determine the goodwill impairment loss to be recognized, if any. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded. The Company has determined it has one reporting unit. In the prior fiscal year, the Company had two reporting units, which included Middlebury. The Middlebury reporting unit was merged into the K12 reporting unit during the fourth quarter of fiscal year 2017. As a result of the Company’s purchase of the remaining 40% interest in the joint venture, Middlebury Interactive Language (“MIL”) (see Note 10, “Redeemable Noncontrolling Interest”), the Company began a process of integration. This integration included the accounting function, as well as the operations and management of remaining MIL employees. MIL no longer had a separate segment manager that reviewed results and reported into the Chief Operating Decision Maker (the “CODM”). During the year ended June 30, 2017, the Company performed “Step 0” of the impairment test and determined that there were no facts and circumstances that indicated that the fair value of the reporting unit may be less than its carrying amount and as a result, the Company determined that no impairment was required. During the year ended June 30, 2016, the Company performed step one of the two-step impairment test. The estimated fair value of the K12 reporting unit exceeded its carrying value by approximately 9.8% and the Middlebury reporting unit exceeded its fair value by approximately 29.8%. Based on the goodwill impairment analysis results, the Company determined that no impairment was required. On July 31, 2014, the Company acquired a 51% majority interest in LearnBop, Inc. for $6.5 million in cash. On April 21, 2016, The Company acquired 100% interest in LTS Education Systems (“LTS”), for $23.1 million in cash and contingent consideration, see Note 13, “Acquisitions and Investments.” The following table represents goodwill additions/reductions during the years ended June 30, 2017, 2016 and 2015: ($ in millions) Amount Goodwill Balance as of June 30, 2014 $ 58.1 Acquisition of LearnBop 8.1 Balance as of June 30, 2015 $ 66.2 Acquisition of LTS 21.1 Balance as of June 30, 2016 $ 87.3 Adjustment to purchase price of LTS (0.1) Balance as of June 30, 2017 $ 87.2 Intangible Assets : June 30, 2017 June 30, 2016 ($ in millions) Gross Accumulated Net Gross Accumulated Net Trade names $ 17.6 $ (7.6) $ 10.0 $ 17.6 $ (6.9) $ 10.7 Customer and distributor relationships 20.1 (12.0) 8.1 20.1 (10.6) 9.5 Developed technology 2.9 (1.7) 1.2 2.9 (1.2) 1.7 Other 1.4 (0.5) 0.9 1.4 (0.2) 1.2 Total $ 42.0 $ (21.8) $ 20.2 $ 42.0 $ (18.9) $ 23.1 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, Property, Plant and Equipment (“ASC 360”) , management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. 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 such impairment charge for the years ended June 30, 2017, 2016 and 2015. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) . 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. Sales Taxes Sales tax collected from customers is excluded from revenues. Collected but unremitted sales tax is included as part of accrued liabilities in the accompanying consolidated balance sheets. Revenues do not include sales tax as the Company considers itself a pass‑through conduit for collecting and remitting sales tax. Stock‑Based Compensation The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options is determined using the Black-Scholes option-pricing model and the fair value of restricted stock awards is based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value of the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to, the Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected exercise behavior. Additionally, the Company has estimated forfeitures for share-based awards at the dates of grant based on historical experience, adjusted for future expectation. The forfeiture estimate is revised as necessary if actual forfeitures differ from these estimates. Advertising and Marketing Costs Advertising and marketing costs consist primarily of internet advertising, online marketing, direct mail, print media and television commercials and are expensed when incurred. Advertising costs totaled $36.8 million, $31.2 million and $29.6 million for the years ended June 30, 2017, 2016 and 2015, respectively, and are included within s elling, administrative, and other operating expenses in the consolidated statements of operations . Net Income Per Common Share The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) 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 net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock 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 cap |
Property and Equipment and Capi
Property and Equipment and Capitalized Software | 12 Months Ended |
Jun. 30, 2017 | |
Property and Equipment and Capitalized Software | |
Property and Equipment and Capitalized Software | 4. Property and Equipment and Capitalized Software Property and equipment consist of the following at: June 30, 2017 2016 (In thousands) Student computers $ 32,867 $ 34,143 Computer software 26,314 25,434 Computer hardware 15,927 16,233 Leasehold improvements 10,094 12,048 State testing computers 6,274 5,837 Furniture and fixtures 4,533 5,870 Office equipment 1,488 1,538 Web site development costs 263 1,115 97,760 102,218 Less accumulated depreciation and amortization (71,463) (73,771) $ 26,297 $ 28,447 The Company recorded depreciation expense related to property and equipment reflected in selling, administrative and other operating expenses of $6.7 million, $6.4 million and $6.0 million during the years ended June 30, 2017, 2016 and 2015, respectively. Depreciation expense of $11.2 million, $12.6 million and $27.5 million related to computers leased to students is reflected in instructional costs and services during the years ended June 30, 2017, 2016 and 2015, respectively. There were no significant write-downs of capitalized software projects during the years ended June 30, 2017 or 2016. During the year ended June 30, 2015, the Company wrote down approximately $4.8 million of capitalized software projects after determining the assets either have no future use or are being sunset. Amortization expense of $0.6 million, $0.5 million and $0.9 million related to student software costs is reflected in instructional costs and services during the years ended June 30, 2017, 2016 and 2015, respectively. In the course of its normal operations, the Company incurs maintenance and repair expenses, which are expensed as incurred and amounted to $11.7 million, $11.6 million and $11.2 million for the years ended June 30, 2017, 2016 and 2015, respectively. Capitalized software consists of the following at: June 30, 2017 2016 (In thousands) Capitalized software costs $ 193,252 $ 176,374 Less accumulated depreciation and amortization (130,557) (106,319) $ 62,695 $ 70,055 The Company recorded amortization expense of $25.1 million, $23.4 million and $19.4 million related to capitalized software development reflected in instructional costs and services and $7.9 million, $5.5 million and $7.4 million reflected in selling, administrative and other operating expenses during the years ended June 30, 2017, 2016 and 2015, respectively. Capitalized curriculum consists of the following at: June 30, 2017 2016 (In thousands) Capitalized curriculum $ 171,736 $ 156,471 Less accumulated depreciation and amortization (112,523) (93,104) $ 59,213 $ 63,367 The Company recorded amortization expense of $19.9 million, $17.0 million and $20.1 million related to capitalized curriculum development reflected in instructional costs and services during the years ended June 30, 2017, 2016 and 2015, respectively. |
Income Taxes
Income Taxes | 12 Months Ended |
Jun. 30, 2017 | |
Income Taxes | |
Income Taxes | 5. Income Taxes The provision for income taxes is based on earnings reported in the 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 year. Deferred tax assets and liabilities result primarily from temporary differences in book versus tax basis accounting. Deferred tax assets and liabilities consist of the following: June 30, 2017 2016 (In thousands) Deferred tax assets (liabilities): Net operating loss carryforward $ 8,033 $ 5,464 Reserves 7,400 5,892 Accrued expenses 10,695 11,494 Stock compensation expense 11,449 11,735 Other assets 1,720 2,628 Deferred rent 3,299 1,922 Deferred revenue 401 — Federal tax credits 20 20 State tax credits 390 841 Total deferred tax assets 43,407 39,996 Deferred tax liabilities Capitalized curriculum development (15,323) (13,821) Capitalized software and website development costs (23,288) (25,435) Property and equipment (2,649) (1,931) Investment in Middlebury Interactive Languages — (20) Returned materials (4,559) (4,883) Deferred revenue — (128) Purchased intangibles (7,161) (7,897) Total deferred tax liabilities (52,980) (54,115) Net deferred tax liability before valuation allowance (9,573) (14,119) Valuation Allowance (7,153) (4,339) Net deferred tax liability $ (16,726) $ (18,458) Reported as: Long-term deferred tax liabilities (16,726) (18,458) Net deferred tax liability $ (16,726) $ (18,458) The Company maintained a valuation allowance on net noncurrent deferred tax assets of $7.2 million and $4.3 million as of June 30, 2017 and 2016, respectively, predominantly related to foreign income tax net operating losses ("NOL") and operating losses related to its tax non-consolidating entity. The Company does not believe it is more likely than not that it will utilize these deferred tax assets. The Company has not provided for U.S. deferred income taxes on undistributed foreign earnings because such earnings are considered to be indefinitely reinvested. Undistributed earnings of certain consolidated foreign subsidiaries at June 30, 2017 amounted to $22.8 million. If such earnings were not indefinitely reinvested, a U.S. deferred income tax liability of approximately $9.1 million would have been required. At June 30, 2017, the Company had available federal and state NOL carryforwards of $1.6 million and $0.2 million, respectively, net of valuation allowances. The federal NOLs, if unused, expire in 2020 and the state NOLs expire on various dates. For the years ended June 30, 2017 and 2016, the Company has evaluated whether a change in the Company's ownership of outstanding classes of stock as defined in Internal Revenue Code Section 382 could prohibit or limit the Company's ability to utilize its NOLs. The Company has concluded it is more likely than not that the Company will be able to fully utilize its NOLs subject to the Section 382 limitation. The related components of the income tax expense for the years ended June 30, 2017, 2016 and 2015 were as follows: Year Ended June 30, 2017 2016 2015 (In thousands) Current: Federal $ 8,756 $ 4,651 $ 6,490 State 3,153 1,152 1,964 Foreign 552 2,761 450 Total current 12,461 8,564 8,904 Deferred: Federal (6,505) (1,648) (2,291) State (560) (97) (1,635) Foreign — (2,073) 832 Total deferred (7,065) (3,818) (3,094) Total income tax expense $ 5,396 $ 4,746 $ 5,810 The provision for income taxes can be reconciled to the income tax that would result from applying the statutory rate to the net income before income taxes as follows: Year Ended June 30, 2017 2016 2015 U.S. federal tax at statutory rates 35.0 % % % Permanent items 7.1 4.8 2.3 Lobbying 7.2 5.3 5.0 State taxes, net of federal benefit 19.5 3.8 1.8 Research and development tax credits (8.2) (8.1) (1.7) Domestic production activities deduction (22.9) (5.2) (6.5) Change in valuation allowance 53.3 2.9 5.2 Effects of foreign operations 2.6 (0.9) (13.6) Reserve for unrecognized tax benefits 3.3 (6.3) 6.1 Noncontrolling Interests 12.5 4.2 5.5 Other (0.1) 0.2 (0.7) Provision for income taxes % % % The effective income tax rates during the years ended June 30, 2017, 2016 and 2015 were 109.3%, 35.7%, and 38.4%, respectively. The increase in the effective tax rate for the year ended June 30, 2017 was primarily due to the Web impairment which resulted in substantial foreign losses with no tax benefit due to the full valuation allowance against these losses. Tax Uncertainties The Company follows the provisions of ASC 740-10 which applies to all tax positions related to income taxes. ASC 740-10 provides a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. ASC 740-10 clarifies accounting for income taxes by prescribing a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. If the probability for sustaining a tax position is greater than 50%, then the tax position is warranted and recognition should be at the highest amount which would be expected to be realized upon ultimate settlement. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense. As of June 30, 2017, 2016 and 2015, the Company had $0.1 million, $0.1 million and $0.2 million in accrued interest and penalties, respectively. The unrecognized tax benefits for the years ended June 30, 2017, 2016 and 2015 were as follows: Year Ended June 30, 2017 2016 2015 (In thousands) Balance at beginning of the year $ 2,224 $ 3,558 $ 2,555 Additions for prior year tax positions 951 351 137 Additions for current year tax positions 241 290 989 Reductions for prior year tax positions (1,156) (1,975) (123) Balance at end of the year $ 2,260 $ 2,224 $ 3,558 If recognized, all of the $2.3 million balance of unrecognized tax benefits would affect the effective tax rate. We do not anticipate a significant increase or decrease in unrecognized tax benefits in the next twelve months. The Company remains subject to audit by the Internal Revenue Service for federal tax purposes for tax years after June 30, 2013. Certain state and foreign tax jurisdictions are also either currently under audit or remain open under the statute of limitations for the tax years after June 30, 2011. |
Lease Commitments
Lease Commitments | 12 Months Ended |
Jun. 30, 2017 | |
Lease Commitments | |
Lease Commitments | 6. Lease Commitments Capital Leases The Company incurs capital lease obligations for student computers under a non-revolving lease line of credit with PNC Equipment Finance, LLC. As of June 30, 2017 and 2016, the outstanding balance of capital leases under the current and former lease lines of credit (as discussed in more detail below) was $21.9 million and $23.1 million, respectively, with lease interest rates ranging from 1.95% to 2.71%. Individual leases under the lease lines of credit include 36‑month payment terms with a $1 purchase option at the end of each lease term. The Company has pledged the assets financed to secure the outstanding leases. The gross carrying value of leased student computers as of June 30, 2017 and 2016 was $39.1 million and $39.9 million, respectively. The accumulated depreciation of leased student computers as of June 30, 2017 and 2016 was $25.1 million and $25.9 million, respectively. The Company executed a second extension to its $35.0 million non-revolving lease line of credit during the third quarter of fiscal year 2017 to extend the maturity date to August 15, 2018, and had remaining availability under the new lease line of $31.9 million as of June 30, 2017. The Company had $11.3 million of remaining availability under the previous non-revolving $35.0 million lease line of credit as of June 30, 2016. Interest on unpaid principal under the new line of credit is at a fluctuating rate of LIBOR plus 1.2%. The following is a summary as of June 30, 2017 of the present value of the net minimum lease payments on capital leases under the Company’s commitments: As of June 30, Capital Leases (in thousands) 2018 $ 12,235 2019 7,819 2020 2,376 Total minimum payments 22,430 Less amount representing interest (imputed weighted average capital lease interest rate of 2.28%) (525) Net minimum payments 21,905 Less current portion (11,880) Present value of minimum payments, less current portion $ 10,025 Operating Leases The Company has fixed non‑cancelable operating leases with terms expiring through 2022 for office space leases. Office leases generally contain renewal options and certain leases provide for scheduled rate increases over the lease terms. Rent expense was $6.3 million, $7.8 million and $8.1 million for the years ended June 30, 2017, 2016 and 2015, respectively. Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more are as follows: Year Ended ($ in thousands) June 30, 2018 $ 9,208 2019 9,138 2020 7,860 2021 7,351 2022 6,196 Thereafter 150 Total future minimum lease payments $ 39,903 |
Line of Credit
Line of Credit | 12 Months Ended |
Jun. 30, 2017 | |
Line of Credit | |
Line of Credit | 7. Line of Credit On January 31, 2014, the Company executed a $100.0 million unsecured line of credit to be used for general corporate operating purposes with Bank of America, N.A. (“BOA”). The line has a five-year term, bears interest at the higher of the Bank’s prime rate plus 0.25%, or the Federal Funds Rates plus 0.75%, or LIBOR plus 1.25%; and incorporates customary financial and other covenants, including but not limited to a maximum debt leverage and a minimum fixed charge coverage ratio. As of June 30, 2017 and 2016, the Company was in compliance with these covenants. During the years ended June 30, 2017 and 2016, there was no borrowing activity on this line of credit, and the Company had no borrowings outstanding on the line of credit as of June 30, 2017 and 2016. The BOA credit agreement contains a number of financial and other covenants that, among other things; restrict the Company and its subsidiaries’ ability to incur additional indebtedness, grant liens or other security interests, make certain investments, make specified restricted payments including dividends, dispose of assets or stock including the stock of its subsidiaries, make capital expenditures above specified limits and engage in other matters customarily restricted in senior credit facilities. |
Equity Transactions
Equity Transactions | 12 Months Ended |
Jun. 30, 2017 | |
Equity Transactions | |
Equity Transactions | 8. Equity Transactions The Company’s Fourth Amended and Restated Certificate of Incorporation authorizes the Company to issue 100,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. No Preferred Stock was issued or outstanding as of June 30, 2017 or 2016. Common Stock Repurchases On November 4, 2013, the Board of Directors authorized the repurchase of up to $75.0 million of the Company’s outstanding common stock over a two year period. Any purchases under the buyback are dependent upon business and market conditions and other factors. The stock purchases are made from time to time and may be made through a variety of methods including open market purchases and trading plans that may be adopted in accordance with the Rule 10b-18 of the Exchange Act. For fiscal year ended June 30, 2015, the Company paid approximately $26.5 million in cash to repurchase 1,307,402 shares of common stock at an average price of $20.23 per share. As of June 30, 2017 and 2016, total shares purchased under the plan were 3,502,598, at an average cost of $21.41 per share, and there were no shares remaining to be repurchased under the plan. No stock purchases were made during the year ended June 30, 2017 and 2016. |
Equity Incentive Plan
Equity Incentive Plan | 12 Months Ended |
Jun. 30, 2017 | |
Equity Incentive Plan | |
Equity Incentive Plan | 9. Equity Incentive Plan On December 15, 2016 (the “Effective Date”), the Company’s stockholders approved the 2016 Incentive Award Plan (the “Plan”). The Plan is designed to motivate high levels of performance and align the interests of the Company’s employees, directors and consultants with the long-term interests of its stockholders by linking compensation to Company performance while building the long-term value of the Company. Awards granted under the Plan may include stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. Under the Plan, the following types of shares go back into the pool of shares available for issuance: · unissued shares related to forfeited or cancelled restricted stock and stock options from Plan awards and Prior Plan awards (that were outstanding as of the Effective Date), and; · shares tendered to satisfy the tax withholding obligation related to the vesting of restricted stock (but not stock options). Unlike the Company’s 2007 Equity Incentive Award Plan (the “Prior Plan”), the Plan has no evergreen provision to increase the shares available for issuance; any new shares would require stockholder approval. The Prior Plan was set to expire in October 2017; however, with the approval of the Plan, the Company will no longer award equity from the Prior Plan. At June 30, 2017, the remaining aggregate number of shares of the Company’s common stock authorized for future issuance under the Plan was 4,384,718. At June 30, 2017, there were 4,541,177 shares of the Company’s common stock that remain outstanding under the Plan and Prior Plan. Each stock option is exercisable pursuant to the vesting schedule set forth in the stock option agreement granting such stock option, generally over four years. No stock option shall be exercisable after the expiration of its option term. The Company has granted stock options under the Prior Plan and the Company has also granted stock options to executive officers under stand-alone agreements outside the Prior Plan. Compensation expense for all equity-based compensation awards is based on the grant-date fair value estimated in accordance with the provisions of ASC 718. The Company recognizes these compensation costs on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The Company uses the Black-Scholes option pricing model method to calculate the fair value of stock options. The use of option valuation models requires the input by management of highly subjective assumptions, including the expected stock price volatility, the expected life of the option term and forfeiture rate. These assumptions are utilized by the Company in determining the estimated fair value of stock options. The fair value of the Company’s service and performance based stock options was estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions: Year Ended June 30, 2016 2015 Dividend yield 0.00% Expected volatility 48% to 51% Risk-free interest rate 1.27% to 1.71% Expected life of the option term (in years) 4.97 to 5.11 Forfeiture rate 12% to 28% There were no grants of stock options during the year ended June 30, 2017. The fair value of the options granted for the years ended June 30, 2016 and 2015 was $3.2 million and $4.4 million, respectively. This amount will be expensed over the required service period. Dividend yield —The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future. Expected volatility —Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Risk‑free interest rate —The assumed risk free rate used is a zero coupon U.S. Treasury security with a maturity that approximates the expected term of the option. Expected life of the option term —The period of time that the options granted are expected to remain unexercised. Options granted during the year have a maximum term of eight years. The Company estimates the expected life of the option term based on an average life between the dates that options become fully vested and the maximum life of options granted. Forfeiture rate — The estimated percentage of options granted that is expected to be forfeited or canceled before becoming fully vested. The Company uses a forfeiture rate based on historical forfeitures of different classification levels of employees in the Company. Stock option activity including stand‑alone agreements during the years ended June 30, 2017, 2016 and 2015 is as follows: Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Shares Price Life (Years) Value Outstanding, June 30, 2014 2,578,401 $ 21.44 4.57 $ 42,754 Granted 617,985 16.12 Exercised (99,935) 5.68 Forfeited or canceled (181,858) 29.85 Outstanding, June 30, 2015 2,914,593 $ 20.33 4.05 $ 88,200 Granted 243,112 13.43 Exercised (1,000) 13.66 Forfeited or canceled (806,530) 18.55 Outstanding, June 30, 2016 2,350,175 $ 20.20 3.94 $ 46,573 Granted — — Exercised (425,180) 16.35 Forfeited or canceled (568,467) 23.12 Outstanding, June 30, 2017 1,356,528 $ 20.19 4.46 $ 1,481,585 Stock options exercisable at June 30, 2017 1,055,783 $ 21.46 4.10 $ 621,708 The aggregate intrinsic value in the table above represents the total pre‑tax intrinsic value (the difference between the Company’s closing stock price on the last day of the year and the exercise price, multiplied by the number of in‑the‑money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2017. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s stock. The total intrinsic value of options exercised for the years ended June 30, 2017, 2016 and 2015 was $1.3 million, zero and $0.3 million, respectively. As of June 30, 2017, there was $2.1 million of total unrecognized compensation expense related to nonvested stock options granted. The cost is expected to be recognized over a weighted average period of 1.7 years. During the years ended June 30, 2017, 2016 and 2015, the Company recognized $2.0 million, $3.7 million and $5.5 million, respectively, of stock-based compensation expense related to stock options. Included in expense for the years ended June 30, 2017, 2016 and 2015 is zero, $0.4 million and zero, respectively, associated with accelerated vesting of option awards for executives and other employees. Restricted Stock Awards The Company has approved grants of restricted stock awards (“RSA”) pursuant to the Plan and Prior Plan. Under the Plan and Prior Plan, employees, outside directors and independent contractors are able to participate in the Company’s future performance through the awards of restricted stock. Each RSA vests pursuant to the vesting schedule set forth in the restricted stock agreement granting such RSAs, generally over three years. Under the Plan and Prior Plan, there have been no awards of restricted stock to independent contractors. Restricted stock award activity during the years ended June 30, 2017, 2016 and 2015 was as follows: Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2014 979,595 $ 22.97 Granted 822,698 17.54 Vested (490,309) 15.63 Canceled (66,480) 22.46 Nonvested, June 30, 2015 1,245,504 $ 22.30 Granted 1,704,843 10.13 Vested (722,577) 22.24 Canceled (95,980) 20.25 Nonvested, June 30, 2016 2,131,790 $ 12.46 Granted 1,268,311 12.70 Vested (1,084,046) 12.94 Canceled (175,008) 12.69 Nonvested, June 30, 2017 2,141,047 $ 12.34 Performance Based Restricted Stock Awards (included above) During the year ended June 30, 2017, 333,489 new performance based restricted stock awards were granted and 467,131 remain nonvested at June 30, 2017. During the year ended June 30, 2017, 99,155 performance based restricted stock awards vested. Vesting of the performance based restricted stock awards is contingent on the achievement of certain financial performance goals and service vesting conditions. Equity Incentive Market Based Restricted Stock Awards (included above) During the year ended June 30, 2017, 58,000 new equity incentive market based restricted stock awards were granted with a weighted average grant date fair value of $4.99 per share. The awards were granted pursuant to the Prior Plan and 20% of the shares granted vest immediately upon achievement of specified average closing prices of the Company’s stock for 30 consecutive days following the public release of fiscal year 2017 earnings and the remaining 80% vest ratably in semi-annual intervals until the three year anniversary from grant date. Additionally, vesting is dependent upon continuing service by the grantee as an employee of the Company at each vest date, unless the grantee is eligible for earlier vesting. The fair value was determined using a Monte Carlo simulation model incorporating the following factors: stock price on the grant date of $11.50, risk free rate of return of 0.6%, and expected volatility of approximately 50%. During the year ended June 30, 2017, 71,796, 118,750, and 144,738 of previously issued market based awards vested upon on the attainment of the average stock price performance target of $13, $16 and $19 per share, respectively, for 30 consecutive days. As of June 30, 2017, 307,075 equity incentive market based restricted stock awards remain nonvested. Service Based Restricted Stock Awards (included above) During the year ended June 30, 2017, 876,822 new service based restricted stock awards were granted and 1,366,841 remain nonvested at June 30, 2017. During the year ended June 30, 2017, 649,607 service based restricted stock awards vested. Summary of All Restricted Stock Awards As of June 30, 2017, there was $13.8 million of total unrecognized compensation expense related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted average period of 1.4 years. The fair value of restricted stock awards granted for the years ended June 30, 2017 and 2016 was $16.0 million and $14.5 million, respectively. The total fair value of shares vested for the years ended June 30, 2017 and 2016 was $17.5 million and $8.2 million, respectively. During the years ended June 30, 2017, 2016 and 2015, the Company recognized $16.8 million, $14.8 million and $15.8 million, respectively, of stock-based compensation expense related to restricted stock awards. Included in the expense for the years ended June 30, 2017, 2016 and 2015, is $1.0 million, $0.4 million and $2.5 million associated with accelerated vesting of equity awards to executives and other employees. Performance Share Units (“PSU”) During the years ended June 30, 2017 and 2016, the Company granted 52,000 and 1,154,602 PSUs, respectively to certain senior executives, having a weighted average grant date fair value of $18.97 and $12.92 per share, respectively. The PSUs vest upon achievement of certain performance criteria associated with a Board-approved Long Term Incentive Plan (“LTIP”) and continuation of employee service over a two to three year period. The level of performance will determine the number of PSUs earned as measured against threshold, target and stretch achievement levels of the LTIP. Each PSU represents the right to receive one share of the Company’s common stock, or at the option of the Company, an equivalent amount of cash, and are classified as an equity award in accordance with ASC 718. If actual performance exceeds the target criteria for a full award, then additional PSUs up to 521,801 could be earned by the participants. In addition to the LTIP performance conditions, there is a service vesting condition which stipulates that thirty percent of the earned award (“Tranche #1) will vest quarterly beginning November 15, 2017 and seventy percent of the earned award (“Tranche #2) will vest on August 15, 2018, in both cases dependent upon continuing service by the grantee as an employee of the Company, unless the grantee is eligible for earlier vesting upon a change in control and qualifying termination, as defined by the PSU agreement. For equity performance awards, including the PSUs, subject to graduated vesting schedules for which vesting is based on achievement of a performance metric in addition to grantee service, stock-based compensation expense is recognized on an accelerated basis by treating each vesting tranche as if it was a separate grant. For the year ended June 30, 2017, the Company determined the achievement of the performance condition was probable on Tranche #1. Achievement is believed to be probable at the highest level which equals 150% of the target award. Therefore, during the fourth quarter of fiscal 2017, the Company recorded $3.8 million of expense for the period of grant date (September 2015) through June 2017. The Company determined the achievement of the performance conditions associated with Tranche #2 was not probable, therefore no expense was recorded during the year ended June 30, 2017. As of June 30, 2017, there was $1.6 million of total unrecognized compensation expense related to nonvested PSUs for which probable achievement is assumed. During the years ended June 30, 2017, 2016 and 2015, the Company recognized $3.8 million, zero and zero, respectively, of stock-based compensation expense related to PSUs. Performance share unit activity during the years ended June 30, 2017 and 2016 was as follows: Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2015 — $ — Granted 1,154,602 12.92 Vested — — Canceled (65,000) 13.45 Nonvested, June 30, 2016 1,089,602 $ 12.91 Granted 52,000 18.97 Vested — — Canceled (98,000) 13.45 Nonvested, June 30, 2017 1,043,602 $ 13.16 |
Redeemable Noncontrolling Inter
Redeemable Noncontrolling Interest | 12 Months Ended |
Jun. 30, 2017 | |
Redeemable Noncontrolling Interest | |
Redeemable Noncontrolling Interest | 10. Redeemable Noncontrolling Interest Investment in LearnBop, Inc. On July 31, 2014, the Company acquired a majority interest in LearnBop, Inc. (“LearnBop”), for $6.5 million in cash in return for a 51% interest in LearnBop. The purpose of the acquisition was to complement the Company’s K-12 math curriculum as LearnBop has developed an adaptive math curriculum learning software. As part of this transaction, the non-controlling shareholders have a non-transferable put right, which is exercisable between July 31, 2018 and December 31, 2018 for the remaining minority interest. The price of the put right will be determined based on the trailing twelve month revenue and contribution margin as defined in the Stockholders’ Agreement between the Company and LearnBop. Additionally, the Company has a non-transferable call option for the remaining minority interest at a price of $3.0 million, which becomes exercisable January 1, 2019 or thereafter. Acquisition costs incurred by the Company related to this transaction included in selling, administrative and other operating expenses were $0.1 million during the year ended June 30, 2015. The purchase price of $6.5 million was allocated to the underlying assets and liabilities based on their estimated fair value at the date of acquisition. The Company recorded goodwill of $8.1 million, which will be non-deductible for tax purposes. Recognition of goodwill is largely attributed to the value paid for LearnBop’s capabilities in providing adaptive learning software for math curriculum to K-12 students. The Company has not disclosed current period or pro-forma revenue and earnings attributable to LearnBop as they are immaterial. The Company finalized its allocation of the purchase price of LearnBop as of June 30, 2015. The purchase price was allocated as follows: LearnBop (in millions): As of July 31, 2014 Amount Current assets $ 0.1 Capitalized software 0.9 Goodwill 8.1 Current liabilities (0.1) Redeemable noncontrolling interest (2.5) Fair value of total consideration transferred $ 6.5 Given the provision of the put rights, the redeemable noncontrolling interests are redeemable outside of the Company’s control and are recorded outside of permanent equity at their redemption value in accordance with ASC 480‑10‑S99, Accounting for Redeemable Equity Instruments. The Company will adjust the redeemable noncontrolling interests to redemption value on each balance sheet date with changes in redemption value recognized as an adjustment to retained earnings, or in the absence of retained earnings, by adjustment to additional paid-in-capital. The noncontrolling interest is redeemable at other than fair value as the redemption value is determined based on a specified formula. The noncontrolling interest becomes redeemable after the passage of time, and therefore the Company records the carrying amount of the noncontrolling interest at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss, or (ii) the redemption value. According to ASC 480-10-S99, to the extent that the noncontrolling interest holder has the contractual right to receive an amount upon share redemption that is other than fair value of such shares, only the portion of the periodic adjustment to the instrument’s carrying amount that reflects redemption in excess of fair value is treated like a dividend for earnings per share computation purposes. No adjustment to the earnings per share computation was necessary as estimated fair value of the noncontrolling interest is greater than the redemption value. Middlebury College Joint Venture In May 2010, the Company entered into an agreement to establish a joint venture with Middlebury College (“Middlebury”) to form Middlebury Interactive Languages LLC (“MIL”). The venture creates and distributes innovative, online language courses under the trademark Middlebury and other marks. The joint venture agreement provided Middlebury with the right at any time after the fifth (5th) anniversary of forming the joint venture, to irrevocably elect to sell all of its membership interest to the Company (put right) at the fair market value of Middlebury’s membership interest. Additionally, Middlebury had an option to repurchase the camp programs at fair market value along with other contractual rights as certain milestones associated with its Language Academy summer camp programs were not met. On May 4, 2015, Middlebury exercised its right to require the Company to purchase all of its ownership interest in the joint venture, and on December 27, 2016, the Company consummated the acquisition of the remaining 40% noncontrolling interest for $9.1 million in cash. The following is a summary of the activity of the redeemable noncontrolling interest at June 30, 2017 and 2016: (In thousands) Value Balance of redeemable noncontrolling interest at June 30, 2015 $ 9,601 Net loss (484) Adjustment to redemption value (1,615) Balance of redeemable noncontrolling interest at June 30, 2016 $ 7,502 Net loss (910) Adjustment to redemption value 3,245 Purchase of noncontrolling interest (9,137) Balance of redeemable noncontrolling interest at June 30, 2017 $ 700 |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
Jun. 30, 2017 | |
Commitments and Contingencies | |
Commitments and Contingencies | 11. Commitments and Contingencies Litigation In the ordinary conduct of the Company’s business, the Company is subject to lawsuits, arbitrations and administrative proceedings from time to time. The Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on the Company’s business, financial condition, liquidity or results of operations. On September 24, 2015, in connection with an industry-wide investigation styled “In the Matter of the Investigation of For-Profit Virtual Schools,” the Company received a civil investigative subpoena for specified documents and responses to interrogatories from the Attorney General of the State of California, Bureau of Children’s Justice (“BCJ”). On July 8, 2016, K12 and the California Virtual Academy (“CAVA”) charter schools (“CAVA Schools”) entered into: (i) a Settlement Agreement and Release of a previously sealed Qui Tam lawsuit alleging false attendance reporting; (ii) a Stipulation for Entry of Final Judgment (“Stipulation”) in connection with the BCJ’s investigation as it pertained to us; and (iii) a Final Judgment enjoining us from engaging in certain business practices in California, and requiring that the Company and CAVA Schools undertake certain Conduct Provisions. The Settlement Agreement and Release provides for us to pay the State of California $2.5 million, and the Qui Tam plaintiff $0.1 million to settle the attendance reporting claims and in which we and the CAVA Schools deny any and all liability and wrongdoing. The Stipulation specifies that the Attorney General, the Company and the CAVA Schools have concluded the BCJ investigation and agreed to implement the Conduct Provisions of the Final Judgment “without admissions of findings of fact or law or wrongdoing, misconduct or illegal acts by K12 or the CAVA Schools, or any facts alleged in the [Attorney General’s] Complaint.” The Final Judgement provides for the Company to pay the State of California $6.0 million “to defray the costs of this action and to fund the investigation and prosecution of enforcement cases to protect the rights of children,” and further includes a release of all legal claims that could be brought by the Attorney General involving the covered conduct. The Conduct Provisions of the Final Judgment require the Company to continue to improve its business practices and compliance programs as they generally relate to the operations and promotional activities of K12 and the CAVA Schools. The proceeding settlement costs were offset by insurance reimbursable administrative costs of approximately $1.5 million reflected in selling, administrative and other operating expenses. The resulting charge of $7.1 million was recorded in selling, administrative and other operating expenses for the year ended June 30, 2016. On July 20, 2016, a securities class action lawsuit captioned Babulal Tarapara v. K12 Inc. et al was filed against the Company, two of its officers and one of its former officers in the United States District Court for the Northern District of California, Case No. 3:16-cv-04069 (“Tarapara Case”). The plaintiff purports to represent a class of persons who purchased or otherwise acquired the Company’s common stock between November 7, 2013 and October 27, 2015, inclusive, and alleges violations by the Company and the individual defendants of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated under the Exchange Act, and violations by the individual defendants of Section 20(a) of the Exchange Act. The complaint sought unspecified monetary damages and other relief. Additionally, on September 15, 2016, a second securities class action lawsuit captioned Gil Tuinenburg v. K12 Inc. et al was filed against the Company, two of its officers and one of its former officers in the United States District Court for the Northern District of California, Case No. 3:16-cv-05305 (“Tuinenburg Case”). On October 6, 2016, the Court consolidated the Tarapara Case and the Tuinenburg Case, appointed Babul Tarapara and Mark Beadle as lead plaintiffs, and recaptioned the matter as In Re K12 Inc. Securities Litigation . On December 2, 2016, the lead plaintiffs filed an amended complaint against the Company. The amended complaint named an additional former officer as a defendant and specified a class period start date of October 10, 2013. The amended complaint alleges materially false or misleading statements and omissions regarding the decision of the Agora Cyber Charter School not to renew its managed public school agreement with the Company, student academic and Scantron results, and other statements regarding student academic performance and K12’s academic services and offerings. On January 30, 2017, the Company filed its motion to dismiss the amended complaint. The lead plaintiffs filed an opposition to the motion to dismiss the amended complaint on March 1, 2017. On March 31, 2017, the Company filed its response to the lead plaintiffs’ opposition to the motion to dismiss. A hearing on the motion to dismiss the amended complaint was held on April 19, 2017 and a decision is pending. The Company intends to continue to defend vigorously against each and every allegation and claim set forth in the amended complaint. Employment Agreements The Company has entered into employment agreements with certain executive officers that provide for severance payments and, in some cases other benefits, upon certain terminations of employment. Except for the agreements with the Company’s Executive Chairman and Chief Executive Officer that have two and three year terms, respectively, all other agreements provide for employment on an “at-will” basis. If the employee resigns for “good reason” or is terminated without cause, the employee is entitled to salary continuation, and in some cases benefit continuation, for varying periods depending on the agreement. Off‑Balance Sheet Arrangements As of June 30, 2017, the Company provided guarantees of approximately $0.9 million related to lease commitments on the buildings for certain of the Company’s schools. Previously, the Company had guaranteed two leases which are excluded from the number above, and discussed in more detail below. During the year ended June 30, 2017, the lessee on one of the leases in which the Company served as guarantor defaulted, and under the terms of the guarantee, the obligation was assigned to the Company. Since the default occurred, the Company has taken steps to exit this facility and entered into an agreement to sublet the space. Additionally, during the year ended June 30, 2017, the Company entered into a lease buyout agreement with the landlord on another guaranteed space to exit the lease early under the terms of the original lease (see Note 12, “Restructuring and Severance”). In addition, the Company contractually guarantees that certain schools under the Company’s management will not have annual operating deficits and the Company’s management fees from these schools may be reduced accordingly to cover any school operating deficits. Other than these lease and operating deficit guarantees, the Company did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. |
Restructuring and Severance
Restructuring and Severance | 12 Months Ended |
Jun. 30, 2017 | |
Restructuring and Severance | |
Restructuring and Severance | 12. Restructuring and Severance In the third and fourth quarters of fiscal year 2017, the Company exited three facilities (which included the subleased facility above) that are currently under an operating lease, entered into a lease buyout agreement (discussed above) and reduced its workforce through involuntary terminations. The Company consolidated its corporate workforce by exiting its space in a building as well as two other facilities that were no longer being utilized. The workforce reduction was executed after an internal management review of resources required to meet the future business plans of the Company. The present value of the remaining lease payments was calculated using a credit adjusted risk-free rate and estimated sublease rentals for each lease. The Company recorded an impairment of $5.3 million for the three leases. The current portion of the liability of $1.6 million, is included in accrued liabilities and the long-term portion of $3.7 million, is included in other long-term liabilities on the consolidated balance sheet. In addition to the lease impairment, the Company accelerated the useful life of each lease’s property and equipment to the cease-use date and recorded accelerated depreciation of $1.4 million. The Company also wrote off the deferred rent and the liability for tenant improvements associated with each lease which resulted in income of $1.9 million. The $4.8 million net impact of these actions is recorded in s elling, administrative, and other operating expenses in the consolidated statements of operations. Additionally, the lease buyout was $0.7 million and is included in instructional costs and services in the consolidated statements of operations. There were no similar charges recorded during the years ended June 30, 2016 or 2015. The Company reduced its workforce during the year ended June 30, 2017 and recorded salary-related severance of $3.4 million. During the years ended June 30, 2016 and 2015, the Company recorded salary-related severance of $1.7 million and $1.5 million, respectively. |
Acquisitions and Investments
Acquisitions and Investments | 12 Months Ended |
Jun. 30, 2017 | |
Acquisitions and Investments | |
Acquisitions and Investments | 13. Acquisitions and Investments Investment in Web International Education Group Ltd. (“Web”) In January 2011, the Company invested $10.0 million to obtain a 20% minority interest in Web International Education Group, Ltd. (“Web”), a provider of English language learning centers in cities throughout China. The Company’s option to purchase no less than 51% of Web expired on March 31, 2013 and on May 6, 2013, the Company exercised its right to put its investment back to Web for return of its original $10.0 million investment plus interest of 8%, which Web was contractually required to pay by May 31, 2014, as amended. The Company reclassified this $10.0 million investment, recording it in other current assets. The Company accrued interest up through December 31, 2014. Given the difficulties in expatriating money from China, the Company discontinued the accrual of interest and wrote off the interest accrued during fiscal year 2015. During the fourth quarter of fiscal 2017, the Company entered into a contract with a third-party investor to sell its investment in Web, however, the agreement was terminated subsequent to year end due to nonperformance. Accordingly, at June 30, 2017, the Company recorded an impairment of $10.0 million in the consolidated statement of operations. The Company continues to work with Web, and to the extent it collects in a subsequent period, the Company will record the amount collected in other income in the period received. Investment in School Mortgage On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to a managed school partner (“Partner”). The note bore interest at a fixed rate of 5.25% per year with a five year maturity and it was secured by the underlying property. During fiscal year 2016, the borrower defaulted on the loan payment, and in March 2017, the Company received the deed of ownership to the property. As of March 31, 2017, the Company decided to dispose of the property and classified it as an asset held for sale, and included it in other current assets on the consolidated balance sheet. During the third quarter of fiscal year 2017, management approved a plan to sell, and began actively marketing the property. The Company reduced the property’s estimated carrying value to $1.2 million, resulting in an impairment loss of $0.6 million, which was included in selling, administrative and other operating expenses on the consolidated statements of operations. As of June 30, 2017, the Company continues to market the property and determined that there had been no change to its estimated carrying value. During the years ended June 30, 2016 and 2015, the Company conducted an appraisal of the property to assess its market value. At June 30, 2016, the estimated market value had declined below the note’s carrying value, resulting in an impairment loss of $0.2 million. There was no impairment loss during the year ended June 30, 2015. Acquisition of LearnBop, Inc. On July 31, 2014, the Company acquired a majority interest in LearnBop, Inc., for $6.5 million in cash in return for a 51% interest in LearnBop. The purpose of the acquisition is to complement the Company’s K-12 math curriculum as LearnBop has developed an adaptive math curriculum learning software. As part of this transaction, the non-controlling shareholders have a non-transferable put right, which is exercisable between July 31, 2018 and December 31, 2018 for the remaining minority interest. The price of the put right will be determined based on the trailing twelve month revenue and contribution margin as defined in the Stockholders’ Agreement between the Company and LearnBop. Additionally, the Company has a non-transferable call option for the remaining minority interest at a price of $3.0 million, which becomes exercisable January 1, 2019 or thereafter. Acquisition costs incurred by the Company related to this transaction included in selling, administrative and other operating expenses were $0.1 million. Acquisition of LTS Education Systems On April 21, 2016, the Company completed its acquisition of Disguise the Learning, Inc. dba LTS Education Systems (“LTS”), a provider of personalized, digital game–based online learning solutions. With its acquisition of LTS, the Company aims to expand its online courses offerings in math, reading, english language arts, science and history. The total purchase price consideration for this acquisition was $23.1 million, which consisted primarily of cash of $20.2 million and $2.9 million of contingent consideration (earn–out liability), of which $21.0 million was allocated to goodwill, $4.6 million to acquired intangible assets and $2.5 million to net liabilities assumed. The customer relationships and developed technology have estimated lives of seven and four years, respectively; while the other intangible assets have estimated lives ranging from two to five years. The goodwill is not deductible for income tax purposes. Acquisition costs incurred by the Company related to this transaction included in selling, administrative and other operating expenses were $0.4 million. The acquisition of LTS was not significant to the Company’s results of operations. During the year ended June 30, 2017, the Company made its final adjustments to the purchase price of LTS which included a $0.1 million escrow refund resulting from the final working capital adjustment which was recorded as a reduction to goodwill. The following table summarizes the fair values of considerations paid and identifiable assets acquired and liabilities assumed for LTS as of the date of acquisition, after the Company’s final purchase price adjustments (in millions): Acquisition consideration: June 30, 2017 Cash $ 20.2 Fair value of contingent consideration (earn-out liability) 2.9 Total consideration transferred $ 23.1 Identifiable assets acquired and liabilities assumed: Customer relationships $ 1.9 Developed technology 1.7 Other intangible assets 1.0 Goodwill 21.0 Deferred tax (2.6) Other net assets 0.1 The contingent consideration included in the table above represents the fair value of additional consideration payable to the seller, estimated using a discounted cash flow method. Consideration is to be distributed on the eighteen month and thirty month anniversaries of the closing date, and is contingent on the future performance of two key contracts. Each contract is to be assessed independently with an aggregate potential payment of $3.0 million. Performance metrics are based on the year-over-year maintenance of a total aggregate contract value in excess of 51%, with a greater than 90% success rate ensuring full payment. |
Related Party Transactions
Related Party Transactions | 12 Months Ended |
Jun. 30, 2017 | |
Related Party Transactions | |
Related Party Transactions | 14. Related Party Transactions At June 30, 2017 and 2016, the Company had loaned a total of $4.0 million to MIL in accordance with the terms of the original joint venture agreement. The loan was repayable under terms and conditions specified in the loan agreement. The loan balance and related interest are eliminated since MIL is consolidated in the Company’s financial statements. On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to a managed school partner. The note bore interest at a fixed rate of 5.25% per year with a five year maturity date and it was secured by the underlying property. During fiscal year 2016, the borrower defaulted on the loan payment, and in March 2017, the Company received the deed of ownership to the property. See Note 13, “Acquisitions and Investments – Investment in School Mortgage.” During the years ended June 30, 2017 and 2016, the Company contributed $0.5 million and $0.7 million, respectively to The Foundation for Blended and Online Learning (“Foundation”). The Foundation is a related party as an executive officer of the Company serves on the Board of the Foundation. No contributions were made during the year ended June 30, 2015. |
Employee Benefits
Employee Benefits | 12 Months Ended |
Jun. 30, 2017 | |
Employee Benefits | |
Employee Benefits | 15. Employee Benefits The Company maintains a 401(k) salary deferral plan (the “401(k) Plan”) for its employees. Employees who have been employed for at least 30 days may voluntarily contribute to the 401(k) Plan on a pretax basis, up to the maximum allowed by the Internal Revenue Service. The 401(k) Plan provides for a matching Company contribution of 25% of the first 4% of each participant’s compensation. The Company expensed $1.6 million, $1.5 million and $1.8 million during the years ended June 30, 2017, 2016 and 2015, respectively under the 401(k) Plan. |
Supplemental Disclosure of Cash
Supplemental Disclosure of Cash Flow Information | 12 Months Ended |
Jun. 30, 2017 | |
Supplemental Disclosure of Cash Flow Information | |
Supplemental Disclosure of Cash Flow Information | 16. Supplemental Disclosure of Cash Flow Information Year Ended June 30, 2017 2016 2015 Cash paid for interest $ 750 $ 790 $ 1,051 Cash paid for taxes $ 8,052 $ 1,125 $ 19,390 Supplemental disclosure of non-cash financing activities: Property and equipment financed by capital lease obligations, including student peripherals $ 14,469 $ 10,878 $ 14,654 Business combinations: Current assets $ — $ 419 $ 27 Intangible assets — 4,600 — Capitalized software development costs — — 940 Goodwill — 21,054 8,101 Assumed liabilities — (5,780) (50) Deferred revenue — (400) (23) |
Common Stock Repurchases
Common Stock Repurchases | 12 Months Ended |
Jun. 30, 2017 | |
Common Stock Repurchases | |
Common Stock Repurchases | 17. Common Stock Repurchases On November 4, 2013, the Board of Directors authorized the repurchase of up to $75.0 million of the Company’s outstanding common stock over a two year period. Any purchases under the buyback are dependent upon business and market conditions and other factors. The stock purchases are made from time to time and may be made through a variety of methods including open market purchases and trading plans that may be adopted in accordance with the Rule 10b‑18 of the Exchange Act. There were no stock repurchases during the years ended June 30, 2017 and 2016. |
Quarterly Results of Operations
Quarterly Results of Operations (Unaudited) | 12 Months Ended |
Jun. 30, 2017 | |
Quarterly Results of Operations (Unaudited) | |
Quarterly Results of Operations (Unaudited) | 18. Quarterly Results of Operations (Unaudited) The unaudited consolidated interim financial information presented should be read in conjunction with other information included in the Company’s consolidated financial statements. The following unaudited consolidated financial information reflects all adjustments necessary for the fair presentation of the results of interim periods. The following tables set forth selected unaudited quarterly financial information for each of the Company’s last eight quarters. Fiscal 2017 Jun 30, Mar 31, Dec 31, Sep 30, 2017 (1) 2017 2016 2016 (In thousands) Consolidated Quarterly Statements of Operations Revenues $ 215,758 $ 222,533 $ 221,090 $ 229,138 Cost and expenses Instructional costs and services 139,244 136,431 137,542 144,099 Selling, administrative and other operating expenses 68,791 69,828 62,352 104,646 Product development expenses 3,011 3,511 2,873 3,062 Total costs and expenses 211,046 209,770 202,767 251,807 Income (loss) from operations 4,712 12,763 18,323 (22,669) Impairment of investment in Web International Education Group, Ltd. (10,000) — — — Interest income (expense), net 561 641 264 342 Income (loss) before income taxes and noncontrolling interest (4,727) 13,404 18,587 (22,327) Income tax benefit (expense) (1,876) (4,522) (7,688) 8,690 Net income (loss) (6,603) 8,882 10,899 (13,637) Add net (income) loss attributable to noncontrolling interest 120 233 753 (196) Net income (loss) attributable to common stockholders $ (6,483) $ 9,115 $ 11,652 $ (13,833) Net income (loss) attributable to common stockholders per share: Basic $ (0.17) $ 0.24 $ 0.31 $ (0.36) Diluted $ (0.17) $ 0.23 $ 0.30 $ (0.36) Weighted average shares used in computing per share amounts: Basic 38,757,312 38,376,984 38,104,909 37,938,705 Diluted 38,757,312 39,328,127 39,007,276 37,938,705 Fiscal 2016 Jun 30, Mar 31, Dec 31, Sep 30, 2016 2016 2015 2015 (In thousands) Consolidated Quarterly Statements of Operations Revenues $ 221,319 $ 221,340 $ 208,811 $ 221,230 Cost and expenses Instructional costs and services 143,136 134,755 129,616 139,003 Selling, administrative and other operating expenses 76,606 64,888 61,440 99,270 Product development expenses 1,067 2,563 3,028 3,413 Total costs and expenses 220,809 202,206 194,084 241,686 Income (loss) from operations 510 19,134 14,727 (20,456) Interest income (expense), net (21) (101) (190) (305) Income (loss) before income taxes and noncontrolling interest 489 19,033 14,537 (20,761) Income tax benefit (expense) (822) (5,368) (6,653) 8,097 Net income (loss) (333) 13,665 7,884 (12,664) Add net (income) loss attributable to noncontrolling interest (649) 608 654 (129) Net income (loss) attributable to common stockholders $ (982) $ 14,273 $ 8,538 $ (12,793) Net income (loss) attributable to common stockholders per share: Basic $ (0.03) $ 0.38 $ 0.23 $ (0.34) Diluted $ (0.03) $ 0.37 $ 0.23 $ (0.34) Weighted average shares used in computing per share amounts: Basic 37,768,812 37,692,826 37,559,999 37,433,493 Diluted 37,768,812 38,999,871 37,680,876 37,433,493 |
SCHEDULE II VALUATION AND QUALI
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS | 12 Months Ended |
Jun. 30, 2017 | |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | |
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS | SCHEDULE II K12 INC. VALUATION AND QUALIFYING ACCOUNTS Years Ending June 30, 2017, 2016 and 2015 1. ALLOWANCE FOR DOUBTFUL ACCOUNTS Additions Balance at Charged to Deductions Beginning Cost and from Balance at of Period Expenses Allowance End of Period June 30, 2017 $ 10,813,394 4,512,899 535,122 $ 14,791,171 June 30, 2016 $ 9,657,092 4,609,720 3,453,418 $ 10,813,394 June 30, 2015 $ 3,459,928 9,299,766 3,102,602 $ 9,657,092 2. INVENTORY RESERVES Balance at Charged to Deductions, Beginning Cost and Shrinkage and Balance at of Period Expenses Obsolescence End of Period June 30, 2017 $ 2,642,547 475,218 807,456 $ 2,310,309 June 30, 2016 $ 2,192,234 691,407 241,094 $ 2,642,547 June 30, 2015 $ 9,056,142 1,405,988 8,269,896 $ 2,192,234 3. COMPUTER RESERVE (1) Additions Balance at Charged to Deductions, Beginning Cost and Shrinkage and Balance at of Period Expenses Obsolescence End of Period June 30, 2017 $ 573,444 595,876 350,278 $ 819,042 June 30, 2016 $ 1,032,253 89,064 547,873 $ 573,444 June 30, 2015 $ 1,462,424 379,030 809,201 $ 1,032,253 (1) A reserve account is maintained against potential obsolescence of, and damage beyond economic repair to, computers provided to the Company’s students. The reserve is calculated based upon several factors including historical percentages, the net book value and the remaining useful life. During fiscal years 2017, 2016 and 2015, certain computers were written off against the reserve. 4. INCOME TAX VALUATION ALLOWANCE Additions to Deductions in Balance at Net Deferred Net Deferred Beginning Tax Asset Tax Asset Balance at of Period Allowance Allowance End of Period June 30, 2017 $ 4,338,653 3,296,617 482,410 $ 7,152,860 June 30, 2016 $ 2,791,033 1,594,174 46,554 $ 4,338,653 June 30, 2015 $ 1,968,482 1,352,231 529,680 $ 2,791,033 |
Summary of Significant Accoun28
Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Jun. 30, 2017 | |
Summary of Significant Accounting Policies | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to allowance for doubtful accounts, inventory reserves, amortization periods, the allocation of purchase price to the fair value of net assets and liabilities acquired in business combinations, fair values used in asset impairment evaluations, valuation of long-lived assets, accrual for incurred but not reported (“IBNR”) claims, fair value of redeemable noncontrolling interest, fair value of lease exit liabilities, contingencies, income taxes and stock-based compensation expense. The Company bases its estimates on historical experience and various assumptions that it believes are reasonable under the circumstances. The results of the analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. |
Revenue Recognition and Concentration of Revenues | Revenue Recognition and Concentration of Revenues Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended charter schools, traditional public schools, school districts, and private schools. In addition to providing the curriculum, books and materials, under most contracts, the Company provides management services and technology to virtual and blended public schools, including monitoring academic achievement, teacher hiring and training, compensation of school personnel, financial management, enrollment processing and development 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 of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenue. Where the Company has determined that it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenues received by the school from its state funding school district up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”) . As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the years ended June 30, 2017, 2016 and 2015, were $292.0 million, $294.7 million and $338.2 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenues based on its net fees earned under the contractual agreement. The Company generates revenues under turnkey management contracts with virtual and blended public schools which include multiple elements. These elements include: · providing each of a school’s students with access to the Company’s online school and lessons; · offline learning kits, which include books and materials to supplement the online lessons, where required; · the use of a personal computer and associated reclamation services, where required; · internet access and technology support services; · instruction by a state-certified teacher, where required; and · management and technology services necessary to operate a virtual public or blended school. In certain managed school contracts, revenues are determined directly by per enrollment funding. The Company has determined that the elements of its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within the Company’s multiple-element contracts do not qualify as separate units of accounting. Accordingly, the Company accounts for revenues under multiple element arrangements as a single unit of accounting and recognizes the entire arrangement based upon the approximate rate at which it incurs the costs associated with each element. Revenues from certain managed schools are recognized ratably over the period services are performed. To determine the pro rata amount of revenues to recognize in a fiscal quarter, the Company estimates the total funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels, which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and revises as necessary, amortizing any adjustments to earned revenues over the remaining portion of the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s 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 funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. The Company’s schools’ reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates and for the years ended June 30, 2016, 2015 and 2014, the Company’s aggregate funding estimates differed from actual reimbursements impacting total reported revenue by approximately (0.1)%, 0.4%, and (0.1)%, respectively. Under the contracts 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. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school as reflected on its respective financial statements, including Company charges to the schools. To the extent a school does not receive funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenues and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are reduced accordingly to reflect the expected cash collections from such schools. The Company amortizes the estimated school operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. For turnkey service contract revenues, a school operating loss may reduce the Company’s ability to collect its management fees in full, though as noted it does not necessarily mean that the Company incurs a loss during the period with respect to its services to that school. The Company recognizes revenues, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenues are recognized based on the Company’s performance of services under the contract, which it believes is proportionate to its incurrence of costs. The Company incurs costs directly related to the delivery of services. Most of these costs are recognized throughout the year; however, certain costs related to upfront delivery of printed materials, workbooks, laboratory materials and other items are provided at the beginning of the school year and are recognized as expenses when shipped. Each state or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company builds the funding estimates for each school, it is mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, student demographics, academic progress and historical completion, student location, funding caps and other state specified categorical program funding. Management periodically reviews its estimates of full-year school revenues and 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 funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. For the years ended June 30, 2017, 2016 and 2015, the Company’s revenues included a reduction for these school operating losses of $61.0 million, $57.1 million, and $65.2 million, respectively. The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenues under these agreements are recognized when all of the following conditions are met: there 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. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from the licensing of curriculum under non-cancelable perpetual arrangements are recognized when all revenue recognition criteria have been met. Revenues from professional consulting, training and support services are deferred and recognized ratably over the service period. Other revenues are generated from individual customers who prepay and have access for one to two years 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. The Company accrues interest on its long-term receivables based on contracted terms. During the years ended June 30, 2017, 2016 and 2015, approximately 83%, 82% and 86%, respectively, of the Company’s revenues were recognized from schools that contracted with the Company for Managed Public School Programs. During the year ended June 30, 2017, the Company had no such contracts that represented 10% of total revenues. During the years ended June 30, 2016 and 2015, the Company had one contract that represented approximately 10% and 14% of total revenues, respectively. Approximately 9% of accounts receivable was attributable to that one contract as of June 30, 2016. In fiscal year 2015, Agora renegotiated its service agreement and entered into a three year contract with the Company to purchase its curriculum and certain technology services, while the school board assumed daily operational responsibilities, including its charter renewal process and marketing and enrollment activities. This assumption of responsibilities caused the classification of Agora to change from a Managed Public School Program to a non-managed school within the Institutional business. The net impact of this event on the fiscal year 2016 revenues attributable to the loss of the management component of the Agora contract was approximately $111 million. On June 9, 2016, Agora signed a new service agreement that extends through 2019 and included additional services including curriculum and certain technology services while the school board retained daily operational responsibilities. The agreement also calls for payment terms of outstanding receivables to be paid over an approximate two-year period resulting in the reclassification of a portion to deposits and other assets on the consolidated balance sheets. The Company had outstanding receivables from Agora of $25.4 million and $29.5 million as of June 30, 2017 and 2016. |
Shipping and Handling Costs | Shipping and Handling Costs Shipping and handling costs are expensed when incurred and are classified as instructional costs and services in the accompanying consolidated statements of operations. Shipping and handling charges invoiced to a customer are included in revenues. |
Research and Developments Costs | Research and Development Costs All research and development costs, including patent application costs, are expensed as incurred. |
Cash and Cash Equivalents | Cash and Cash Equivalents Cash and cash equivalents generally consist of cash on hand and cash held in money market and demand deposit accounts. The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The Company periodically has cash balances which exceed federally insured limits. |
Allowance for Doubtful Accounts | Allowance for Doubtful Accounts The Company maintains an allowance for uncollectible accounts primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company analyzes accounts receivable, historical percentages of uncollectible accounts, and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. The Company writes-off accounts receivable based on the age of the receivable and the facts and circumstances surrounding the customer and reasons for non-payment. The Company records an allowance for estimated uncollectible accounts in an amount approximating anticipated losses. Actual write-offs might exceed the recorded allowance. |
Inventories | Inventories Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to virtual public schools and 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. Provisions for excess and obsolete inventory are established based upon the evaluation of the quantity on hand relative to demand. During the years ended June 30, 2016 and 2015, the Company increased the provision for excess and obsolete inventory by $0.7 million and $1.4 million primarily related to inventory in excess of anticipated demand and the decision to discontinue certain products. The Company decreased the provision during the year ended June 30, 2017 by $0.3 million. The excess and obsolete inventory reserve at June 30, 2017 and 2016, was $2.3 million and $2.6 million, respectively. |
Other Current Assets | 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 and Equipment Property and equipment 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 (“ASC 840”) , 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. Beginning in fiscal year 2016, the Company no longer recovers peripheral equipment as it was determined to be uneconomical. Accordingly, the Company fully expenses peripheral equipment upon shipment as a component of instructional costs and services. These expenses totaled $3.5 million and $2.6 million for the years ended June 30, 2017 and 2016, respectively. In addition, during the year ended June 30, 2015, the Company wrote down $6.5 million of property and equipment primarily related to computer peripherals and other fixed assets shipped to students, and for which no reclamation will be processed. There were no other material write-downs for the years ended June 30, 2017 and 2016. Property and equipment are depreciated over the following useful lives: Useful Life Student and state testing computers 3 - 5 years Computer hardware 3 years Computer software 3 - 5 years Web site development 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3 - 12 years The Company makes an estimate of unreturned student computers based on an analysis of recent trends of returns. In addition during the fiscal year 2017, the Company accelerated depreciation on property and equipment associated with the operating leases that were exited during the three months ended March 31, 2017 (see Note 12, “Restructuring and Severance”). The Company recorded accelerated depreciation of $3.5 million, $2.8 million and $5.0 million for the years ended June 30, 2017, 2016 and 2015, respectively, related to the leases exited and for unreturned student computers. |
Capitalized Software | 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 (“ASC 350”) . 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 $26.9 million, $36.3 million and $33.8 million for the years ended June 30, 2017, 2016 and 2015, respectively. The Company wrote down approximately $0.5 million and $4.8 million, respectively, of capitalized software projects after determining the assets either had no future use or are being sunset for the years ended June 30, 2016 and 2015. This write-down was included in selling, administrative and other operating expenses. There were no material write-downs of capitalized software projects for the year ended June 30, 2017. Amortization expense for the years ended June 30, 2017, 2016 and 2015, was $33.0 million, $28.9 million and $26.8 million, respectively. |
Capitalized Curriculum Development Costs | Capitalized Curriculum Development Costs The Company internally develops 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 application 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 are amortized is generally five years. Total capitalized curriculum development additions were $19.1 million, $21.6 million and $18.1 million for the years ended June 30, 2017, 2016 and 2015, respectively. These amounts are recorded on the accompanying consolidated balance sheets, net of amortization and impairment charges. Amortization charges are recorded in instructional costs and services on the accompanying consolidated statements of operations. Amortization expense for the years ended June 30, 2017, 2016 and 2015 was $19.9 million, $17.0 million and $20.1 million, respectively. The Company wrote down approximately $2.6 million of capitalized curriculum development costs due to an assessment of recoverability of certain curriculum during the year ended June 30, 2015. There were no material write‑downs of capitalized curriculum development costs for the years ended June 30, 2017 and 2016. |
Redeemable Noncontrolling Interests | Redeemable Noncontrolling Interests Earnings or losses attributable to minority shareholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s consolidated statements of operations. Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets are classified outside of permanent equity at redeemable value, which approximates fair value. If the redemption amount is other than fair value (e.g. fixed or variable), the redeemable noncontrolling interest is accounted for at the fixed or variable redeemable value. The redeemable noncontrolling interests are adjusted to their redeemable 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 Intangible Assets | Goodwill and 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. Finite‑lived intangible assets include trade names, acquired customers and non‑compete agreements. Such intangible assets are amortized on a straight‑line basis over their estimated useful lives. Amortization expense for the years ended June 30, 2017, 2016 and 2015 was $2.9 million, $2.7 million and $2.6 million, respectively. Future amortization of intangible assets is $2.9 million, $2.8 million, $2.7 million, $2.3 million and $2.2 million in the years ended June 30, 2018 through June 30, 2022, respectively and $7.1 million thereafter. As of June 30, 2017 and 2016, the goodwill balance was $87.2 million and $87.3 million, respectively. The reduction in goodwill was the result of an adjustment to the purchase price consideration related to the Company’s acquisition of LTS Education Systems, Inc. (see Note 13, “Acquisitions and Investments”). The Company reviews its recorded finite-lived intangible 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 were no such events during the year ended June 30, 2017. 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 circumstances suggest the carrying amount may not be fully recoverable. Examples of such events or circumstances include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of acquired assets or the strategy for the Company’s business, significant negative industry or economic trends, and/or a significant decline in the Company’s stock price for a sustained period. ASC 350 prescribes a two-step process for impairment testing of goodwill and intangibles with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process is referred to as “Step 0”. The Company performs its annual assessment on May 31 st . Under the two-step process, the first step tests for potential impairment by comparing the fair value of reporting units with reporting units’ net asset values. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, then goodwill is not impaired and no further testing is required. If the fair value of reporting unit is below the reporting unit’s carrying value, then the second step is required to measure the amount of potential impairment. The second step requires an assignment of the reporting unit’s fair value to the reporting unit’s assets and liabilities, using the initial acquisition accounting guidance related to business combinations, to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the reporting unit’s goodwill is then compared with the carrying amount of the reporting unit’s goodwill to determine the goodwill impairment loss to be recognized, if any. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded. The Company has determined it has one reporting unit. In the prior fiscal year, the Company had two reporting units, which included Middlebury. The Middlebury reporting unit was merged into the K12 reporting unit during the fourth quarter of fiscal year 2017. As a result of the Company’s purchase of the remaining 40% interest in the joint venture, Middlebury Interactive Language (“MIL”) (see Note 10, “Redeemable Noncontrolling Interest”), the Company began a process of integration. This integration included the accounting function, as well as the operations and management of remaining MIL employees. MIL no longer had a separate segment manager that reviewed results and reported into the Chief Operating Decision Maker (the “CODM”). During the year ended June 30, 2017, the Company performed “Step 0” of the impairment test and determined that there were no facts and circumstances that indicated that the fair value of the reporting unit may be less than its carrying amount and as a result, the Company determined that no impairment was required. During the year ended June 30, 2016, the Company performed step one of the two-step impairment test. The estimated fair value of the K12 reporting unit exceeded its carrying value by approximately 9.8% and the Middlebury reporting unit exceeded its fair value by approximately 29.8%. Based on the goodwill impairment analysis results, the Company determined that no impairment was required. On July 31, 2014, the Company acquired a 51% majority interest in LearnBop, Inc. for $6.5 million in cash. On April 21, 2016, The Company acquired 100% interest in LTS Education Systems (“LTS”), for $23.1 million in cash and contingent consideration, see Note 13, “Acquisitions and Investments.” The following table represents goodwill additions/reductions during the years ended June 30, 2017, 2016 and 2015: ($ in millions) Amount Goodwill Balance as of June 30, 2014 $ 58.1 Acquisition of LearnBop 8.1 Balance as of June 30, 2015 $ 66.2 Acquisition of LTS 21.1 Balance as of June 30, 2016 $ 87.3 Adjustment to purchase price of LTS (0.1) Balance as of June 30, 2017 $ 87.2 Intangible Assets : June 30, 2017 June 30, 2016 ($ in millions) Gross Accumulated Net Gross Accumulated Net Trade names $ 17.6 $ (7.6) $ 10.0 $ 17.6 $ (6.9) $ 10.7 Customer and distributor relationships 20.1 (12.0) 8.1 20.1 (10.6) 9.5 Developed technology 2.9 (1.7) 1.2 2.9 (1.2) 1.7 Other 1.4 (0.5) 0.9 1.4 (0.2) 1.2 Total $ 42.0 $ (21.8) $ 20.2 $ 42.0 $ (18.9) $ 23.1 |
Impairment of Long-Lived Assets | 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, Property, Plant and Equipment (“ASC 360”) , management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. 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 such impairment charge for the years ended June 30, 2017, 2016 and 2015. |
Income Taxes | Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) . 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. |
Sales Taxes | Sales Taxes Sales tax collected from customers is excluded from revenues. Collected but unremitted sales tax is included as part of accrued liabilities in the accompanying consolidated balance sheets. Revenues do not include sales tax as the Company considers itself a pass‑through conduit for collecting and remitting sales tax. |
Stock-Based Compensation | Stock‑Based Compensation The Company estimates the fair value of share-based awards on the date of grant. The fair value of stock options is determined using the Black-Scholes option-pricing model and the fair value of restricted stock awards is based on the closing price of the Company’s common stock on the date of grant. The determination of the fair value of the Company’s stock option awards and restricted stock awards is based on a variety of factors including, but not limited to, the Company’s common stock price, expected stock price volatility over the expected life of awards, and actual and projected exercise behavior. Additionally, the Company has estimated forfeitures for share-based awards at the dates of grant based on historical experience, adjusted for future expectation. The forfeiture estimate is revised as necessary if actual forfeitures differ from these estimates. |
Advertising and Marketing Costs | Advertising and Marketing Costs Advertising and marketing costs consist primarily of internet advertising, online marketing, direct mail, print media and television commercials and are expensed when incurred. Advertising costs totaled $36.8 million, $31.2 million and $29.6 million for the years ended June 30, 2017, 2016 and 2015, respectively, and are included within s elling, administrative, and other operating expenses in the consolidated statements of operations . |
Net Income Per Common Share | Net Income Per Common Share The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) 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 net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock 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 stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive. Common stock outstanding reflected in the Company’s condensed consolidated balance sheets includes restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities. The following schedule presents the calculation of basic and diluted net income per share: Year Ended June 30, 2017 2016 2015 (In thousands except share and per share data) Basic net income per share computation: Net income attributable to common stockholders $ 451 $ 9,035 $ 10,988 Weighted average common shares — basic 38,298,581 37,613,782 37,330,569 Basic net income per share $ 0.01 $ 0.24 $ 0.29 Diluted net income per share computation: Net income attributable to common stockholders $ 451 $ 9,035 $ 10,988 Share computation: Weighted average common shares — basic 38,298,581 37,613,782 37,330,569 Effect of dilutive stock options and restricted stock awards 1,202,353 1,236,606 294,856 Weighted average common shares — diluted 39,500,934 38,850,388 37,625,425 Diluted net income per share $ 0.01 $ 0.23 $ 0.29 As of June 30, 2017, 2016 and 2015, shares of common stock issuable in connection with stock options and restricted stock of 1,965,283 , 2,548,762 and 2,784,593 respectively, were not included in the diluted income per common share calculation because the effect would have been antidilutive. As of June 30, 2017, the Company had 44,325,772 shares of common stock issued and 40,823,174 shares outstanding. |
Fair Value Measurements | Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures (“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 instrument’s valuation. The carrying values reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, receivables, and short and long term debt approximate their fair values. The following table summarizes certain fair value information at June 30, 2017 and liabilities measured at fair value on a nonrecurring basis. Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,200 $ — $ — $ 1,200 Lease exit liability 4,841 — — 4,841 Total $ 6,041 $ — $ — $ 6,041 The following table summarizes certain fair value information at June 30, 2016 for assets and liabilities measured at fair value on a nonrecurring basis. Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,786 $ — $ — $ 1,786 Total $ 1,786 $ — $ — $ 1,786 The held for sale asset is discussed in more detail in Note 13, “Acquisitions and Investments.” The lease exit liability is discussed in more detail in Note 12, “Restructuring and Severance.” The following table summarizes certain fair value information at June 30, 2017 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 Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisition of LTS Education Systems $ 2,806 $ — $ — $ 2,806 Total $ 2,806 $ — $ — $ 2,806 The following table summarizes certain fair value information at June 30, 2016 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 Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Redeemable noncontrolling interest in Middlebury Interactive Learning $ 6,801 $ — $ — $ 6,801 Contingent consideration associated with acquisition of LTS Education Systems 2,947 — — 2,947 Total $ 9,748 $ — $ — $ 9,748 The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2017. Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2016 and Settlements Gains (Losses) June 30, 2017 (In thousands) Redeemable Noncontrolling Interest in Middlebury Interactive Learning $ 6,801 $ (9,134) $ 2,333 $ — Contingent consideration associated with acquisition of LTS Education Systems 2,947 — (141) 2,806 Total $ 9,748 $ (9,134) $ 2,192 $ 2,806 The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2016. Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2015 and Settlements Gains (Losses) June 30, 2016 (In thousands) Redeemable Noncontrolling Interest in Middlebury Interactive Learning $ 6,801 $ — $ — $ 6,801 Contingent consideration associated with acquisition of LTS Education Systems — 2,942 5 2,947 Total $ 6,801 $ 2,942 $ 5 $ 9,748 The redeemable noncontrolling interest included the Company’s joint venture with Middlebury College. Under the agreement, Middlebury College had an irrevocable election to sell all of its membership interest to the Company (put right). On May 4, 2015, Middlebury College, under the joint venture agreement, exercised its right to require the Company to purchase all of its ownership interest in the joint venture. On December 27, 2016, the Company consummated the acquisition of the remaining 40% noncontrolling interest for $9.1 million in cash. The fair value of the redeemable noncontrolling interest in MIL was accounted for in accordance with ASC 480-10-S99, Accounting for Redeemable Equity Instruments . The redeemable noncontrolling interest was redeemable outside of the Company’s control and was recorded outside of stockholders’ equity. The contingent consideration is discussed in more detail in Note 13, “Acquisitions and Investments.” |
Reclassification | Reclassification Certain previous year amounts have been reclassified to conform with current year presentations, as related to the reporting of new line items in the statements of operations and statement of cash flows. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Standards Adopted In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement (“ASU 2015-05”) , which provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the entity should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. ASU 2015-05 does not change the accounting for service contracts. ASU 2015-05 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted this guidance during the first quarter ended September 30, 2016 prospectively to all arrangements entered into or materially modified after June 30, 2016. As a result of the adoption, during the year ended June 30, 2017, the Company expensed approximately $2.2 million of professional services fees that would have been capitalized previously. These costs are included in the product development expenses in the condensed consolidated statements of operations. In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”) , which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The Company adopted this amended standard in the first quarter ended September 30, 2016. The standard did not have a significant impact on the Company’s consolidated condensed financial statements. Accounting Standards Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) , which supersedes most existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). On July 9, 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. Based on the Board’s decision, public organizations would apply the new revenue standard to annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements which includes performing a detailed review of each of its revenue streams and comparing historical accounting policies and practices to the new standard. The Company will provide expanded disclosures pertaining to revenue recognition in our annual and quarterly filings beginning in the first quarter of fiscal 2019. The Company expects to complete its assessment of the cumulative effect of adopting ASU 2014-09 as well as the expected impact of adoption during fiscal 2018. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) . The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating this guidance, as well as the effect on its consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016‑09”) . This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies and an accounting policy election for forfeitures. As part of the new guidance: · Excess tax benefits or deficiencies arising from share-based awards will be reflected within the consolidated statements of operations as a component of income tax expense rather than as a component of stockholders’ equity. The adoption of this guidance may result in volatility within a company’s results of operations, primarily due to changes in the stock price. · Excess tax benefits will be presented as an operating activity on the statement of cash flows rather than as a financing activity. · A forfeiture election will be made to either estimate forfeitures (similar to today’s requirement) or recognizing actual forfeitures as they occur. Entities will apply the forfeiture election provision using a modified retrospective transition approach, with a cumulative effect adjustment recorded to retained earnings as of the beginning of the period of adoption. · Statutory tax withholding requirements for employers who withhold shares upon settlement of an award on behalf of an employee to cover tax obligations are broadened to allow for a range of withholding from the minimum to the maximum statutory allowable amounts. The Company will adopt this guidance during the first quarter of fiscal 2018. As part of its adoption of ASU 2016‑09, the Company will make an accounting policy election to change the way in which it accounts for forfeitures of share-based awards. Specifically, beginning in the first quarter of fiscal 2018, the Company will recognize forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. The Company expects that the change in accounting policy will result in an adjustment to retained earnings as of July 1, 2017. The Company will determine the method of adoption for the remaining provisions during the first quarter of fiscal 2018. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016‑13”) related to the methodology for recognizing credit losses. The new guidance revises the accounting requirements related to the measurement of credit losses and will require organizations to measure all expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts about collectability. Assets must be presented in the financial statements at the net amount expected to be collected. This ASU will be effective for the Company in the first quarter of fiscal 2021, and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) (“ASU 2016-15”) related to the classification of certain cash receipts and cash payments on the statement of cash flows. This ASU will be effective for the Company beginning in the first quarter of fiscal 2019 on a retrospective basis, and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated statements of cash flows. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017‑04”) . This amendment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating this guidance, as well as the effect on its consolidated financial statements. |
Summary of Significant Accoun29
Summary of Significant Accounting Policy (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Summary of Significant Accounting Policies | |
Schedule of useful lives of property and equipment | Useful Life Student and state testing computers 3 - 5 years Computer hardware 3 years Computer software 3 - 5 years Web site development 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3 - 12 years |
Schedule of goodwill activity | ($ in millions) Amount Goodwill Balance as of June 30, 2014 $ 58.1 Acquisition of LearnBop 8.1 Balance as of June 30, 2015 $ 66.2 Acquisition of LTS 21.1 Balance as of June 30, 2016 $ 87.3 Adjustment to purchase price of LTS (0.1) Balance as of June 30, 2017 $ 87.2 |
Schedule of intangible assets | June 30, 2017 June 30, 2016 ($ in millions) Gross Accumulated Net Gross Accumulated Net Trade names $ 17.6 $ (7.6) $ 10.0 $ 17.6 $ (6.9) $ 10.7 Customer and distributor relationships 20.1 (12.0) 8.1 20.1 (10.6) 9.5 Developed technology 2.9 (1.7) 1.2 2.9 (1.2) 1.7 Other 1.4 (0.5) 0.9 1.4 (0.2) 1.2 Total $ 42.0 $ (21.8) $ 20.2 $ 42.0 $ (18.9) $ 23.1 |
Schedule of calculation of basic and diluted net income (loss) per share | Year Ended June 30, 2017 2016 2015 (In thousands except share and per share data) Basic net income per share computation: Net income attributable to common stockholders $ 451 $ 9,035 $ 10,988 Weighted average common shares — basic 38,298,581 37,613,782 37,330,569 Basic net income per share $ 0.01 $ 0.24 $ 0.29 Diluted net income per share computation: Net income attributable to common stockholders $ 451 $ 9,035 $ 10,988 Share computation: Weighted average common shares — basic 38,298,581 37,613,782 37,330,569 Effect of dilutive stock options and restricted stock awards 1,202,353 1,236,606 294,856 Weighted average common shares — diluted 39,500,934 38,850,388 37,625,425 Diluted net income per share $ 0.01 $ 0.23 $ 0.29 |
Schedule of assets and liabilities measured at fair value on a nonrecurring basis | The following table summarizes certain fair value information at June 30, 2017 and liabilities measured at fair value on a nonrecurring basis. Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,200 $ — $ — $ 1,200 Lease exit liability 4,841 — — 4,841 Total $ 6,041 $ — $ — $ 6,041 The following table summarizes certain fair value information at June 30, 2016 for assets and liabilities measured at fair value on a nonrecurring basis. Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,786 $ — $ — $ 1,786 Total $ 1,786 $ — $ — $ 1,786 |
Schedule of 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 Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisition of LTS Education Systems $ 2,806 $ — $ — $ 2,806 Total $ 2,806 $ — $ — $ 2,806 The following table summarizes certain fair value information at June 30, 2016 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 Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Redeemable noncontrolling interest in Middlebury Interactive Learning $ 6,801 $ — $ — $ 6,801 Contingent consideration associated with acquisition of LTS Education Systems 2,947 — — 2,947 Total $ 9,748 $ — $ — $ 9,748 |
Schedule of activity related to fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2017. Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2016 and Settlements Gains (Losses) June 30, 2017 (In thousands) Redeemable Noncontrolling Interest in Middlebury Interactive Learning $ 6,801 $ (9,134) $ 2,333 $ — Contingent consideration associated with acquisition of LTS Education Systems 2,947 — (141) 2,806 Total $ 9,748 $ (9,134) $ 2,192 $ 2,806 The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the year ended June 30, 2016. Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2015 and Settlements Gains (Losses) June 30, 2016 (In thousands) Redeemable Noncontrolling Interest in Middlebury Interactive Learning $ 6,801 $ — $ — $ 6,801 Contingent consideration associated with acquisition of LTS Education Systems — 2,942 5 2,947 Total $ 6,801 $ 2,942 $ 5 $ 9,748 |
Property and Equipment and Ca30
Property and Equipment and Capitalized Software (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Property and Equipment and Capitalized Software | |
Schedule of property and equipment | June 30, 2017 2016 (In thousands) Student computers $ 32,867 $ 34,143 Computer software 26,314 25,434 Computer hardware 15,927 16,233 Leasehold improvements 10,094 12,048 State testing computers 6,274 5,837 Furniture and fixtures 4,533 5,870 Office equipment 1,488 1,538 Web site development costs 263 1,115 97,760 102,218 Less accumulated depreciation and amortization (71,463) (73,771) $ 26,297 $ 28,447 |
Schedule of capitalized software | June 30, 2017 2016 (In thousands) Capitalized software costs $ 193,252 $ 176,374 Less accumulated depreciation and amortization (130,557) (106,319) $ 62,695 $ 70,055 |
Schedule of capitalized curriculum | June 30, 2017 2016 (In thousands) Capitalized curriculum $ 171,736 $ 156,471 Less accumulated depreciation and amortization (112,523) (93,104) $ 59,213 $ 63,367 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Income Taxes | |
Schedule of deferred tax assets and liabilities | June 30, 2017 2016 (In thousands) Deferred tax assets (liabilities): Net operating loss carryforward $ 8,033 $ 5,464 Reserves 7,400 5,892 Accrued expenses 10,695 11,494 Stock compensation expense 11,449 11,735 Other assets 1,720 2,628 Deferred rent 3,299 1,922 Deferred revenue 401 — Federal tax credits 20 20 State tax credits 390 841 Total deferred tax assets 43,407 39,996 Deferred tax liabilities Capitalized curriculum development (15,323) (13,821) Capitalized software and website development costs (23,288) (25,435) Property and equipment (2,649) (1,931) Investment in Middlebury Interactive Languages — (20) Returned materials (4,559) (4,883) Deferred revenue — (128) Purchased intangibles (7,161) (7,897) Total deferred tax liabilities (52,980) (54,115) Net deferred tax liability before valuation allowance (9,573) (14,119) Valuation Allowance (7,153) (4,339) Net deferred tax liability $ (16,726) $ (18,458) Reported as: Long-term deferred tax liabilities (16,726) (18,458) Net deferred tax liability $ (16,726) $ (18,458) |
Schedule of related components of the income tax expense | Year Ended June 30, 2017 2016 2015 (In thousands) Current: Federal $ 8,756 $ 4,651 $ 6,490 State 3,153 1,152 1,964 Foreign 552 2,761 450 Total current 12,461 8,564 8,904 Deferred: Federal (6,505) (1,648) (2,291) State (560) (97) (1,635) Foreign — (2,073) 832 Total deferred (7,065) (3,818) (3,094) Total income tax expense $ 5,396 $ 4,746 $ 5,810 |
Schedule of reconciliation of provision for income taxes to the income tax from applying the statutory rate | Year Ended June 30, 2017 2016 2015 U.S. federal tax at statutory rates 35.0 % % % Permanent items 7.1 4.8 2.3 Lobbying 7.2 5.3 5.0 State taxes, net of federal benefit 19.5 3.8 1.8 Research and development tax credits (8.2) (8.1) (1.7) Domestic production activities deduction (22.9) (5.2) (6.5) Change in valuation allowance 53.3 2.9 5.2 Effects of foreign operations 2.6 (0.9) (13.6) Reserve for unrecognized tax benefits 3.3 (6.3) 6.1 Noncontrolling Interests 12.5 4.2 5.5 Other (0.1) 0.2 (0.7) Provision for income taxes % % % |
Schedule of adjusted research and development credit carryforward | Year Ended June 30, 2017 2016 2015 (In thousands) Balance at beginning of the year $ 2,224 $ 3,558 $ 2,555 Additions for prior year tax positions 951 351 137 Additions for current year tax positions 241 290 989 Reductions for prior year tax positions (1,156) (1,975) (123) Balance at end of the year $ 2,260 $ 2,224 $ 3,558 |
Lease Commitments (Tables)
Lease Commitments (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Lease Commitments | |
Summary of the present value of the net minimum lease payments due on capital leases | As of June 30, Capital Leases (in thousands) 2018 $ 12,235 2019 7,819 2020 2,376 Total minimum payments 22,430 Less amount representing interest (imputed weighted average capital lease interest rate of 2.28%) (525) Net minimum payments 21,905 Less current portion (11,880) Present value of minimum payments, less current portion $ 10,025 |
Schedule of future minimum lease payments under non-cancelable operating leases | Year Ended ($ in thousands) June 30, 2018 $ 9,208 2019 9,138 2020 7,860 2021 7,351 2022 6,196 Thereafter 150 Total future minimum lease payments $ 39,903 |
Equity Incentive Plan (Tables)
Equity Incentive Plan (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Equity Incentive Plan | |
Schedule of assumptions used for valuation of stock options | Year Ended June 30, 2016 2015 Dividend yield 0.00% Expected volatility 48% to 51% Risk-free interest rate 1.27% to 1.71% Expected life of the option term (in years) 4.97 to 5.11 Forfeiture rate 12% to 28% |
Schedule of stock option activity | Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Shares Price Life (Years) Value Outstanding, June 30, 2014 2,578,401 $ 21.44 4.57 $ 42,754 Granted 617,985 16.12 Exercised (99,935) 5.68 Forfeited or canceled (181,858) 29.85 Outstanding, June 30, 2015 2,914,593 $ 20.33 4.05 $ 88,200 Granted 243,112 13.43 Exercised (1,000) 13.66 Forfeited or canceled (806,530) 18.55 Outstanding, June 30, 2016 2,350,175 $ 20.20 3.94 $ 46,573 Granted — — Exercised (425,180) 16.35 Forfeited or canceled (568,467) 23.12 Outstanding, June 30, 2017 1,356,528 $ 20.19 4.46 $ 1,481,585 Stock options exercisable at June 30, 2017 1,055,783 $ 21.46 4.10 $ 621,708 |
Schedule of restricted stock award activity | Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2014 979,595 $ 22.97 Granted 822,698 17.54 Vested (490,309) 15.63 Canceled (66,480) 22.46 Nonvested, June 30, 2015 1,245,504 $ 22.30 Granted 1,704,843 10.13 Vested (722,577) 22.24 Canceled (95,980) 20.25 Nonvested, June 30, 2016 2,131,790 $ 12.46 Granted 1,268,311 12.70 Vested (1,084,046) 12.94 Canceled (175,008) 12.69 Nonvested, June 30, 2017 2,141,047 $ 12.34 |
Schedule of performance share units award activity | Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2015 — $ — Granted 1,154,602 12.92 Vested — — Canceled (65,000) 13.45 Nonvested, June 30, 2016 1,089,602 $ 12.91 Granted 52,000 18.97 Vested — — Canceled (98,000) 13.45 Nonvested, June 30, 2017 1,043,602 $ 13.16 |
Redeemable Noncontrolling Int34
Redeemable Noncontrolling Interest (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Redeemable Noncontrolling Interest | |
Summary of the activity of the redeemable noncontrolling interest | (In thousands) Value Balance of redeemable noncontrolling interest at June 30, 2015 $ 9,601 Net loss (484) Adjustment to redemption value (1,615) Balance of redeemable noncontrolling interest at June 30, 2016 $ 7,502 Net loss (910) Adjustment to redemption value 3,245 Purchase of noncontrolling interest (9,137) Balance of redeemable noncontrolling interest at June 30, 2017 $ 700 |
LearnBop | |
Redeemable Noncontrolling Interest | |
Schedule of purchase price allocation | The Company finalized its allocation of the purchase price of LearnBop as of June 30, 2015. The purchase price was allocated as follows: LearnBop (in millions): As of July 31, 2014 Amount Current assets $ 0.1 Capitalized software 0.9 Goodwill 8.1 Current liabilities (0.1) Redeemable noncontrolling interest (2.5) Fair value of total consideration transferred $ 6.5 |
Acquisitions and Investments (T
Acquisitions and Investments (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
LTS | |
Acquisitions | |
Schedule estimated fair value of consideration paid and identifiable assets acquired and liabilities assumed | The following table summarizes the fair values of considerations paid and identifiable assets acquired and liabilities assumed for LTS as of the date of acquisition, after the Company’s final purchase price adjustments (in millions): Acquisition consideration: June 30, 2017 Cash $ 20.2 Fair value of contingent consideration (earn-out liability) 2.9 Total consideration transferred $ 23.1 Identifiable assets acquired and liabilities assumed: Customer relationships $ 1.9 Developed technology 1.7 Other intangible assets 1.0 Goodwill 21.0 Deferred tax (2.6) Other net assets 0.1 |
Supplemental Disclosure of Ca36
Supplemental Disclosure of Cash Flow Information (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Supplemental Disclosure of Cash Flow Information | |
Schedule of supplemental disclosure of cash flow information | Year Ended June 30, 2017 2016 2015 Cash paid for interest $ 750 $ 790 $ 1,051 Cash paid for taxes $ 8,052 $ 1,125 $ 19,390 Supplemental disclosure of non-cash financing activities: Property and equipment financed by capital lease obligations, including student peripherals $ 14,469 $ 10,878 $ 14,654 Business combinations: Current assets $ — $ 419 $ 27 Intangible assets — 4,600 — Capitalized software development costs — — 940 Goodwill — 21,054 8,101 Assumed liabilities — (5,780) (50) Deferred revenue — (400) (23) |
Quarterly Results of Operatio37
Quarterly Results of Operations (Tables) | 12 Months Ended |
Jun. 30, 2017 | |
Quarterly Results of Operations (Unaudited) | |
Schedule of selected unaudited quarterly financial information | Fiscal 2017 Jun 30, Mar 31, Dec 31, Sep 30, 2017 (1) 2017 2016 2016 (In thousands) Consolidated Quarterly Statements of Operations Revenues $ 215,758 $ 222,533 $ 221,090 $ 229,138 Cost and expenses Instructional costs and services 139,244 136,431 137,542 144,099 Selling, administrative and other operating expenses 68,791 69,828 62,352 104,646 Product development expenses 3,011 3,511 2,873 3,062 Total costs and expenses 211,046 209,770 202,767 251,807 Income (loss) from operations 4,712 12,763 18,323 (22,669) Impairment of investment in Web International Education Group, Ltd. (10,000) — — — Interest income (expense), net 561 641 264 342 Income (loss) before income taxes and noncontrolling interest (4,727) 13,404 18,587 (22,327) Income tax benefit (expense) (1,876) (4,522) (7,688) 8,690 Net income (loss) (6,603) 8,882 10,899 (13,637) Add net (income) loss attributable to noncontrolling interest 120 233 753 (196) Net income (loss) attributable to common stockholders $ (6,483) $ 9,115 $ 11,652 $ (13,833) Net income (loss) attributable to common stockholders per share: Basic $ (0.17) $ 0.24 $ 0.31 $ (0.36) Diluted $ (0.17) $ 0.23 $ 0.30 $ (0.36) Weighted average shares used in computing per share amounts: Basic 38,757,312 38,376,984 38,104,909 37,938,705 Diluted 38,757,312 39,328,127 39,007,276 37,938,705 Fiscal 2016 Jun 30, Mar 31, Dec 31, Sep 30, 2016 2016 2015 2015 (In thousands) Consolidated Quarterly Statements of Operations Revenues $ 221,319 $ 221,340 $ 208,811 $ 221,230 Cost and expenses Instructional costs and services 143,136 134,755 129,616 139,003 Selling, administrative and other operating expenses 76,606 64,888 61,440 99,270 Product development expenses 1,067 2,563 3,028 3,413 Total costs and expenses 220,809 202,206 194,084 241,686 Income (loss) from operations 510 19,134 14,727 (20,456) Interest income (expense), net (21) (101) (190) (305) Income (loss) before income taxes and noncontrolling interest 489 19,033 14,537 (20,761) Income tax benefit (expense) (822) (5,368) (6,653) 8,097 Net income (loss) (333) 13,665 7,884 (12,664) Add net (income) loss attributable to noncontrolling interest (649) 608 654 (129) Net income (loss) attributable to common stockholders $ (982) $ 14,273 $ 8,538 $ (12,793) Net income (loss) attributable to common stockholders per share: Basic $ (0.03) $ 0.38 $ 0.23 $ (0.34) Diluted $ (0.03) $ 0.37 $ 0.23 $ (0.34) Weighted average shares used in computing per share amounts: Basic 37,768,812 37,692,826 37,559,999 37,433,493 Diluted 37,768,812 38,999,871 37,680,876 37,433,493 |
Description of the Business (De
Description of the Business (Details) | 12 Months Ended |
Jun. 30, 2017item | |
Description of the Business | |
Number of lines of business | 3 |
Number of managed public schools that curriculum and services are sold to | 77 |
Basis of Presentation (Details)
Basis of Presentation (Details) | 12 Months Ended |
Jun. 30, 2017segment | |
Basis of Presentation | |
Number of operating segments | 1 |
Number of reportable business segments | 1 |
Summary of Significant Accoun40
Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2014 | |
Revenue recognition | ||||
Amounts recorded as revenues and school operating expenses | $ 292 | $ 294.7 | $ 338.2 | |
Percentage of impact on total revenue | (0.10%) | 0.40% | (0.10%) | |
Reduction in school operating losses included in the entity's revenue | $ 61 | $ 57.1 | $ 65.2 | |
Minimum | ||||
Revenue recognition | ||||
Duration of contracts providing access to curriculum via the entity's Web site | 1 year | |||
Maximum | ||||
Revenue recognition | ||||
Duration of contracts providing access to curriculum via the entity's Web site | 2 years |
Summary of Significant Accoun41
Summary of Significant Accounting Policies - Concentration Risk (Details) $ in Thousands | Jun. 09, 2016 | Jun. 30, 2017USD ($)contract | Jun. 30, 2016USD ($)contract | Jun. 30, 2015USD ($)contract |
Concentration of revenues | ||||
Accounts receivable | $ 192,205 | $ 169,554 | ||
Inventories | ||||
Increase (decrease) in provision for excess and obsolete inventory | (300) | 700 | $ 1,400 | |
Excess and obsolete inventory reserve | $ 2,300 | $ 2,600 | ||
Revenue | Customer Concentration Risk | ||||
Concentration of revenues | ||||
Number of customers with concentration | contract | 0 | 1 | 1 | |
Customer A | Revenue | Customer Concentration Risk | ||||
Concentration of revenues | ||||
Concentration risk (as a percent) | 10.00% | 10.00% | 14.00% | |
Customer A | Accounts Receivable | Customer Concentration Risk | ||||
Concentration of revenues | ||||
Concentration risk (as a percent) | 9.00% | |||
Agora | ||||
Concentration of revenues | ||||
Purchase and service agreement term | 3 years | |||
Decrease in revenue as impact of transition | $ 111,000 | |||
Time period for customer to repay outstanding receivables | 2 years | |||
Accounts receivable | $ 25,400 | $ 29,500 | ||
Managed Schools | Revenue | Customer Concentration Risk | ||||
Concentration of revenues | ||||
Concentration risk (as a percent) | 83.00% | 82.00% | 86.00% |
Summary of Significant Accoun42
Summary of Significant Accounting Policies - Property and Equipment (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Capitalized Curriculum Development Costs | |||
Estimated useful life of the software | 5 years | ||
Capitalized curriculum development costs | $ 19,132 | $ 21,627 | $ 18,057 |
Amortization expense | 19,900 | 17,000 | 20,100 |
Capitalized curriculum development costs write down | $ 0 | 0 | 2,600 |
Student and state testing computers | Minimum | |||
Property and equipment | |||
Useful Life | 3 years | ||
Student and state testing computers | Maximum | |||
Property and equipment | |||
Useful Life | 5 years | ||
Student and state testing computers | |||
Property and equipment | |||
Accelerated depreciation | $ 3,500 | 2,800 | 5,000 |
Computer hardware | |||
Property and equipment | |||
Useful Life | 3 years | ||
Equipment expense | $ 3,500 | 2,600 | |
Assets written-off | 6,500 | ||
Computer software | Minimum | |||
Property and equipment | |||
Useful Life | 3 years | ||
Computer software | Maximum | |||
Property and equipment | |||
Useful Life | 5 years | ||
Web site development costs | |||
Property and equipment | |||
Useful Life | 3 years | ||
Office equipment | |||
Property and equipment | |||
Useful Life | 5 years | ||
Furniture and fixtures | |||
Property and equipment | |||
Useful Life | 7 years | ||
Leasehold improvements | Minimum | |||
Property and equipment | |||
Useful Life | 3 years | ||
Leasehold improvements | Maximum | |||
Property and equipment | |||
Useful Life | 12 years | ||
Capitalized software | |||
Property and equipment | |||
Useful Life | 3 years | ||
Assets written-off | $ 0 | 500 | 4,800 |
Capitalized software development additions | 26,900 | 36,300 | 33,800 |
Amortization expense | $ 33,000 | $ 28,900 | $ 26,800 |
Summary of Significant Accoun43
Summary of Significant Accounting Policies - Intangibles and Goodwill (Details) $ in Thousands | Dec. 27, 2016USD ($) | Apr. 21, 2016USD ($) | Jun. 30, 2015USD ($) | Jul. 31, 2014USD ($) | Jun. 30, 2017USD ($)item | Jun. 30, 2016USD ($)item | Jun. 30, 2015USD ($) | Jun. 30, 2017USD ($) |
Intangible Assets: | ||||||||
Amortization expense | $ 2,900 | $ 2,700 | $ 2,600 | |||||
Number of reporting units | item | 1 | 2 | ||||||
Future amortization of intangible assets | ||||||||
2,017 | $ 2,900 | $ 2,900 | ||||||
2,018 | 2,800 | 2,800 | ||||||
2,019 | 2,700 | 2,700 | ||||||
2,020 | 2,300 | 2,300 | ||||||
2,021 | 2,200 | 2,200 | ||||||
Thereafter | 7,100 | 7,100 | ||||||
Rollforward of Goodwill | ||||||||
Balance at the beginning of the period | 87,285 | $ 66,200 | 58,100 | |||||
Acquisition | 8,100 | |||||||
Adjustments | (100) | |||||||
Balance at the end of the period | $ 66,200 | 87,214 | 87,285 | 66,200 | 87,214 | |||
Intangible Assets | ||||||||
Gross Carrying Amount | 42,000 | 42,000 | 42,000 | |||||
Accumulated Amortization | (21,800) | (18,900) | (21,800) | |||||
Net Carrying Value | $ 20,200 | $ 23,100 | $ 20,200 | |||||
K12 reporting unit | ||||||||
Intangible Assets: | ||||||||
Fair value in excess of carrying value (as a percent) | 9.80% | |||||||
Middlebury reporting unit | ||||||||
Intangible Assets: | ||||||||
Fair value in excess of carrying value (as a percent) | 29.80% | |||||||
Middlebury Interactive Languages LLC | ||||||||
Intangible Assets: | ||||||||
Ownership percentage acquired (as a percent) | 40.00% | 40.00% | 40.00% | |||||
Cash purchase price | $ 9,100 | |||||||
Trade names | ||||||||
Intangible Assets | ||||||||
Gross Carrying Amount | $ 17,600 | $ 17,600 | $ 17,600 | |||||
Accumulated Amortization | (7,600) | (6,900) | (7,600) | |||||
Net Carrying Value | 10,000 | 10,700 | 10,000 | |||||
Customer and distributor relationships | ||||||||
Intangible Assets | ||||||||
Gross Carrying Amount | 20,100 | 20,100 | 20,100 | |||||
Accumulated Amortization | (12,000) | (10,600) | (12,000) | |||||
Net Carrying Value | 8,100 | 9,500 | 8,100 | |||||
Developed technology | ||||||||
Intangible Assets | ||||||||
Gross Carrying Amount | 2,900 | 2,900 | 2,900 | |||||
Accumulated Amortization | (1,700) | (1,200) | (1,700) | |||||
Net Carrying Value | 1,200 | 1,700 | 1,200 | |||||
Other | ||||||||
Intangible Assets | ||||||||
Gross Carrying Amount | 1,400 | 1,400 | 1,400 | |||||
Accumulated Amortization | (500) | (200) | (500) | |||||
Net Carrying Value | 900 | 1,200 | 900 | |||||
LearnBop | ||||||||
Intangible Assets: | ||||||||
Ownership percentage acquired (as a percent) | 51.00% | |||||||
Cash purchase price | $ 6,500 | |||||||
Cash and contingent consideration paid | 6,500 | |||||||
Rollforward of Goodwill | ||||||||
Balance at the beginning of the period | 8,100 | |||||||
Acquisition | $ 21,100 | |||||||
Balance at the end of the period | $ 8,100 | $ 8,100 | ||||||
LTS | ||||||||
Intangible Assets: | ||||||||
Cash purchase price | $ 20,200 | 20,200 | ||||||
Ownership percentage | 100.00% | |||||||
Cash and contingent consideration paid | $ 23,100 | 23,100 | ||||||
Rollforward of Goodwill | ||||||||
Balance at the end of the period | $ 21,000 | $ 21,000 | $ 21,000 |
Summary of Significant Accoun44
Summary of Significant Accounting Policies - Advertising and Marketing Costs (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Advertising and Marketing Costs | |||
Advertising costs | $ 36.8 | $ 31.2 | $ 29.6 |
Summary of Significant Accoun45
Summary of Significant Accounting Policies - Net Income Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Basic and diluted income (loss) per share computation: | |||||||||||
Net income (loss) attributable to common stockholders | $ (6,483) | $ 9,115 | $ 11,652 | $ (13,833) | $ (982) | $ 14,273 | $ 8,538 | $ (12,793) | $ 451 | $ 9,035 | $ 10,988 |
Weighted average common shares—basic | 38,757,312 | 38,376,984 | 38,104,909 | 37,938,705 | 37,768,812 | 37,692,826 | 37,559,999 | 37,433,493 | 38,298,581 | 37,613,782 | 37,330,569 |
Basic net income (loss) per share (in dollars per share) | $ (0.17) | $ 0.24 | $ 0.31 | $ (0.36) | $ (0.03) | $ 0.38 | $ 0.23 | $ (0.34) | $ 0.01 | $ 0.24 | $ 0.29 |
Dilutive earnings per share computation: | |||||||||||
Net income attributable to common stockholders | $ (6,483) | $ 9,115 | $ 11,652 | $ (13,833) | $ (982) | $ 14,273 | $ 8,538 | $ (12,793) | $ 451 | $ 9,035 | $ 10,988 |
Additional disclosures | |||||||||||
Weighted average common shares—basic | 38,757,312 | 38,376,984 | 38,104,909 | 37,938,705 | 37,768,812 | 37,692,826 | 37,559,999 | 37,433,493 | 38,298,581 | 37,613,782 | 37,330,569 |
Effect of dilutive stock options and restricted stock awards (in shares) | 1,202,353 | 1,236,606 | 294,856 | ||||||||
Weighted average common shares—diluted | 38,757,312 | 39,328,127 | 39,007,276 | 37,938,705 | 37,768,812 | 38,999,871 | 37,680,876 | 37,433,493 | 39,500,934 | 38,850,388 | 37,625,425 |
Diluted net income (loss) per share | $ (0.17) | $ 0.23 | $ 0.30 | $ (0.36) | $ (0.03) | $ 0.37 | $ 0.23 | $ (0.34) | $ 0.01 | $ 0.23 | $ 0.29 |
Common stock, shares issued | 44,325,772 | 43,184,068 | 44,325,772 | 43,184,068 | |||||||
Common stock, shares outstanding | 40,823,174 | 39,681,470 | 40,823,174 | 39,681,470 | |||||||
Anti-dilutive shares | 1,965,283 | 2,548,762 | 2,784,593 |
Summary of Significant Accoun46
Summary of Significant Accounting Policies - Fair Value (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Mar. 31, 2017 | |
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Held for sale asset | $ 1,200 | ||
Noncontrolling Interests | |||
Cash paid | $ 9,134 | ||
Significant Unobservable Inputs (Level 3) | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Available-for-sale securities, Purchases, Issuances and Settlements | $ 2,942 | ||
Redeemable Noncontrolling Interest, Realized Gains/(Losses) | 5 | ||
Measured on a recurring basis | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Contingent consideration | 2,806 | 2,947 | |
Total | 2,806 | 9,748 | |
Measured on a recurring basis | Middlebury Interactive Languages LLC | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Redeemable Noncontrolling Interest Fair Value | 6,801 | ||
Measured on a recurring basis | Significant Unobservable Inputs (Level 3) | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Contingent consideration | 2,806 | 2,947 | |
Available-for-sale securities, Purchases, Issuances and Settlements | (9,134) | ||
Redeemable Noncontrolling Interest, Realized Gains/(Losses) | 2,192 | ||
Total | 2,806 | 9,748 | |
Measured on a recurring basis | Significant Unobservable Inputs (Level 3) | Middlebury Interactive Languages LLC | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Redeemable Noncontrolling Interest Fair Value | 6,801 | ||
Available-for-sale securities, Purchases, Issuances and Settlements | (9,134) | ||
Redeemable Noncontrolling Interest, Realized Gains/(Losses) | 2,333 | ||
Measured on a nonrecurring basis | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Held for sale asset | 1,200 | 1,786 | |
Lease exit liability | 4,841 | ||
Total | 6,041 | 1,786 | |
Measured on a nonrecurring basis | Significant Unobservable Inputs (Level 3) | |||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | |||
Held for sale asset | 1,200 | 1,786 | |
Lease exit liability | 4,841 | ||
Total | $ 6,041 | $ 1,786 |
Summary of Significant Accoun47
Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($) $ in Thousands | Dec. 27, 2016 | Apr. 21, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 |
Middlebury Interactive Languages LLC | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Ownership percentage acquired (as a percent) | 40.00% | 40.00% | 40.00% | ||
Cash purchase price | $ 9,100 | ||||
Significant Unobservable Inputs (Level 3) | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning balance | $ 9,748 | $ 6,801 | |||
Purchases, Issuances and Settlements | 2,942 | ||||
Unrealized Gains/(Losses) | 5 | ||||
Fair Value, ending balance | 9,748 | ||||
Significant Unobservable Inputs (Level 3) | Middlebury Interactive Languages LLC | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning balance | 6,801 | 6,801 | |||
Fair Value, ending balance | 6,801 | ||||
Measured on a recurring basis | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Total | 2,806 | 9,748 | $ 2,806 | ||
Measured on a recurring basis | Middlebury Interactive Languages LLC | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Redeemable Noncontrolling Interest Fair Value | 6,801 | ||||
Measured on a recurring basis | Significant Unobservable Inputs (Level 3) | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning balance | 9,748 | ||||
Purchases, Issuances and Settlements | (9,134) | ||||
Unrealized Gains/(Losses) | 2,192 | ||||
Fair Value, ending balance | 2,806 | 9,748 | 2,806 | ||
Total | 2,806 | 9,748 | 2,806 | ||
Measured on a recurring basis | Significant Unobservable Inputs (Level 3) | Middlebury Interactive Languages LLC | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning balance | 6,801 | ||||
Purchases, Issuances and Settlements | (9,134) | ||||
Unrealized Gains/(Losses) | 2,333 | ||||
Fair Value, ending balance | 6,801 | ||||
Redeemable Noncontrolling Interest Fair Value | 6,801 | ||||
LTS | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Cash purchase price | $ 20,200 | 20,200 | |||
LTS | Significant Unobservable Inputs (Level 3) | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning balance | 2,947 | ||||
Purchases, Issuances and Settlements | 2,942 | ||||
Unrealized Gains/(Losses) | 5 | ||||
Fair Value, ending balance | 2,947 | ||||
LTS | Measured on a recurring basis | Significant Unobservable Inputs (Level 3) | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning balance | 2,947 | ||||
Unrealized Gains/(Losses) | (141) | ||||
Fair Value, ending balance | $ 2,806 | $ 2,947 | $ 2,806 |
Summary of Significant Accoun48
Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Accounting Standards Adopted | |||||||||||
Product development expenses | $ 3,011 | $ 3,511 | $ 2,873 | $ 3,062 | $ 1,067 | $ 2,563 | $ 3,028 | $ 3,413 | $ 12,457 | $ 10,071 | $ 14,381 |
Accounting Standards Update 2015-05 | Adjustments for New Accounting Principle, Early Adoption | |||||||||||
Accounting Standards Adopted | |||||||||||
Product development expenses | $ 2,200 |
Property and Equipment and Ca49
Property and Equipment and Capitalized Software (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | $ 97,760 | $ 102,218 | |
Less accumulated depreciation and amortization | (71,463) | (73,771) | |
Property and equipment and capitalized software, Net | 26,297 | 28,447 | |
Capitalized software written down | $ 4,800 | ||
Maintenance and repair expenses | 11,700 | 11,600 | 11,200 |
Selling, administrative and other operating expenses | |||
Property and equipment and capitalized software | |||
Depreciation expense | 6,700 | 6,400 | 6,000 |
Student and state testing computers | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 32,867 | 34,143 | |
Student and state testing computers | Instructional costs and services | |||
Property and equipment and capitalized software | |||
Depreciation expense | 11,200 | 12,600 | 27,500 |
Amortization expense | 600 | 500 | 900 |
Computer software | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 26,314 | 25,434 | |
Computer hardware | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 15,927 | 16,233 | |
Assets written-off | 6,500 | ||
Leasehold improvements | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 10,094 | 12,048 | |
Office equipment | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 1,488 | 1,538 | |
Furniture and fixtures | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 4,533 | 5,870 | |
Web site development costs | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 263 | 1,115 | |
State testing computers | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 6,274 | 5,837 | |
Capitalized software | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 193,252 | 176,374 | |
Less accumulated depreciation and amortization | (130,557) | (106,319) | |
Property and equipment and capitalized software, Net | 62,695 | 70,055 | |
Assets written-off | 0 | 500 | 4,800 |
Capitalized software | Selling, administrative and other operating expenses | |||
Property and equipment and capitalized software | |||
Amortization expense | 7,900 | 5,500 | 7,400 |
Capitalized software | Instructional costs and services | |||
Property and equipment and capitalized software | |||
Amortization expense | 25,100 | 23,400 | 19,400 |
Capitalized curriculum | |||
Property and equipment and capitalized software | |||
Property and equipment and capitalized software, Gross | 171,736 | 156,471 | |
Less accumulated depreciation and amortization | (112,523) | (93,104) | |
Property and equipment and capitalized software, Net | 59,213 | 63,367 | |
Amortization expense | $ 19,900 | $ 17,000 | $ 20,100 |
Income Taxes - Deferred (Detail
Income Taxes - Deferred (Details) - USD ($) $ in Thousands | Jun. 30, 2017 | Jun. 30, 2016 |
Deferred tax assets (liabilities): | ||
Net operating loss carryforward | $ 8,033 | $ 5,464 |
Reserves | 7,400 | 5,892 |
Accrued expenses | 10,695 | 11,494 |
Stock compensation expense | 11,449 | 11,735 |
Other assets | 1,720 | 2,628 |
Deferred rent | 3,299 | 1,922 |
Deferred revenue | 401 | |
Federal tax credits | 20 | 20 |
State tax credits | 390 | 841 |
Total deferred tax assets | 43,407 | 39,996 |
Deferred tax liabilities: | ||
Capitalized curriculum development | (15,323) | (13,821) |
Capitalized software and website development costs | (23,288) | (25,435) |
Property and equipment | (2,649) | (1,931) |
Investment in Middlebury Interactive Languages | (20) | |
Returned materials | (4,559) | (4,883) |
Deferred revenue | (128) | |
Purchased intangibles | (7,161) | (7,897) |
Total deferred tax liabilities | (52,980) | (54,115) |
Net deferred tax liability before valuation allowance | (9,573) | (14,119) |
Valuation Allowance | (7,153) | (4,339) |
Net deferred tax liability | (16,726) | (18,458) |
Reported as: | ||
Long-term deferred tax liabilities | (16,726) | (18,458) |
Net deferred tax liability | (16,726) | $ (18,458) |
Undistributed earnings of consolidated foreign subsidiaries | 22,800 | |
U.S. deferred income tax liability attributable to undistributed earnings of consolidated foreign subsidiaries | $ 9,100 |
Income Taxes - Carryforward (De
Income Taxes - Carryforward (Details) $ in Millions | Jun. 30, 2017USD ($) |
Federal | |
Tax Carryforwards | |
NOL carryforward | $ 1.6 |
State | |
Tax Carryforwards | |
NOL carryforward | $ 0.2 |
Income Taxes - Other (Details)
Income Taxes - Other (Details) - USD ($) $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Current: | |||||||||||
Federal | $ 8,756 | $ 4,651 | $ 6,490 | ||||||||
State | 3,153 | 1,152 | 1,964 | ||||||||
Foreign | 552 | 2,761 | 450 | ||||||||
Total current | 12,461 | 8,564 | 8,904 | ||||||||
Deferred: | |||||||||||
Federal | (6,505) | (1,648) | (2,291) | ||||||||
State | (560) | (97) | (1,635) | ||||||||
Foreign | (2,073) | 832 | |||||||||
Total deferred | (7,065) | (3,818) | (3,094) | ||||||||
Total income tax expense | $ 1,876 | $ 4,522 | $ 7,688 | $ (8,690) | $ 822 | $ 5,368 | $ 6,653 | $ (8,097) | $ 5,396 | $ 4,746 | $ 5,810 |
Reconciliation to income tax at the statutory rate: | |||||||||||
U.S. Federal tax at statutory rates (as a percent) | 35.00% | 35.00% | 35.00% | ||||||||
Permanent items (as a percent) | 7.10% | 4.80% | 2.30% | ||||||||
Lobbying (as a percent) | 7.20% | 5.30% | 5.00% | ||||||||
State taxes, net of federal benefit (as a percent) | 19.50% | 3.80% | 1.80% | ||||||||
Research and development tax credits (as a percent) | (8.20%) | (8.10%) | (1.70%) | ||||||||
Domestic production activities deduction (as a percent) | (22.90%) | (5.20%) | (6.50%) | ||||||||
Change in valuation allowance (as a percent) | 53.30% | 2.90% | 5.20% | ||||||||
Effects of foreign operations (as a percent) | 2.60% | (0.90%) | (13.60%) | ||||||||
Reserve for unrecognized tax benefits (as a percent) | 3.30% | (6.30%) | 6.10% | ||||||||
Noncontrolling Interests (as a percent) | 12.50% | 4.20% | 5.50% | ||||||||
Other (as a percent) | (0.10%) | 0.20% | (0.70%) | ||||||||
Provision for income taxes | 109.30% | 35.70% | 38.40% |
Income Taxes - Tax Uncertanitie
Income Taxes - Tax Uncertanities (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Tax Uncertainties | |||
Interest and penalties accrued | $ 100 | $ 100 | $ 200 |
Balance at beginning of the year | 2,224 | 3,558 | 2,555 |
Additions for prior year tax returns | 951 | 351 | 137 |
Additions for current year tax positions | 241 | 290 | 989 |
Reductions for prior year tax positions | (1,156) | (1,975) | (123) |
Balance at end of the year | 2,260 | $ 2,224 | $ 3,558 |
Unrecognized tax benefits that would affect the effective tax rate | $ 2,300 |
Lease Commitments - Debt (Detai
Lease Commitments - Debt (Details) - USD ($) | 12 Months Ended | ||
Jun. 30, 2017 | Mar. 31, 2017 | Jun. 30, 2016 | |
Line of Credit | |||
Long-term obligations | |||
Maximum borrowing capacity | $ 35,000,000 | ||
Remaining borrowing availability | 11,300,000 | ||
Line Of Credit second extension | |||
Long-term obligations | |||
Maximum borrowing capacity | $ 35,000,000 | ||
Remaining borrowing availability | $ 31,900,000 | ||
Line Of Credit second extension | LIBOR | |||
Long-term obligations | |||
Interest rate spread added to base rate (as a percent) | 1.20% | ||
Computer hardware | Line of Credit | |||
Long-term obligations | |||
Line of credit, amount outstanding | $ 21,900,000 | 23,100,000 | |
Payment terms of equipment lease line of credit | 36 months | ||
Purchase option at the end of payment terms | $ 1 | ||
Gross carrying value of leased computers | 39,100,000 | 39,900,000 | |
Accumulated depreciation of leased student computers | $ 25,100,000 | $ 25,900,000 | |
Computer hardware | Line of Credit | Minimum | |||
Long-term obligations | |||
Interest rate (as a percent) | 1.95% | ||
Computer hardware | Line of Credit | Maximum | |||
Long-term obligations | |||
Interest rate (as a percent) | 2.71% |
Lease Commitments - Capital Lea
Lease Commitments - Capital Leases (Details) - USD ($) $ in Thousands | Jun. 30, 2017 | Jun. 30, 2016 |
Minimum lease payments on capital leases | ||
Less current portion | $ (11,880) | $ (13,210) |
Present value of minimum payments, less current portion | $ 10,025 | $ 9,922 |
Weighted average interest rate (as a percent) | 2.28% | |
PNC Equipment Finance LLC Lease Line of Credit | ||
Minimum lease payments on capital leases | ||
2,018 | $ 12,235 | |
2,019 | 7,819 | |
2,020 | 2,376 | |
Total minimum payments | 22,430 | |
Less amount representing interest (imputed weighted average capital lease interest rate of 2.25%) | (525) | |
Net minimum payments | 21,905 | |
Less current portion | (11,880) | |
Present value of minimum payments, less current portion | $ 10,025 |
Lease Commitments - Noncancelab
Lease Commitments - Noncancelable Operating Leases (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Operating leases | |||
Lease rent expense | $ 6,300 | $ 7,800 | $ 8,100 |
Future minimum lease payments under noncancelable operating leases | |||
2,018 | 9,208 | ||
2,019 | 9,138 | ||
2,020 | 7,860 | ||
2,021 | 7,351 | ||
2,022 | 6,196 | ||
Thereafter | 150 | ||
Total future minimum lease payments | $ 39,903 |
Line of Credit (Details)
Line of Credit (Details) - Line of Credit - USD ($) $ in Millions | Jan. 31, 2014 | Jun. 30, 2017 | Jun. 30, 2016 |
Line of credit | |||
Maximum borrowing capacity | $ 100 | ||
Term of debt | 5 years | ||
Borrowings from line of credit | $ 0 | $ 0 | |
Line of credit, amount outstanding | $ 0 | $ 0 | |
Prime Rate | |||
Line of credit | |||
Interest rate base | prime rate | ||
Interest rate spread added to base rate (as a percent) | 0.25% | ||
Federal Funds Rate | |||
Line of credit | |||
Interest rate base | Federal Funds Rates | ||
Interest rate spread added to base rate (as a percent) | 0.75% | ||
LIBOR | |||
Line of credit | |||
Interest rate base | LIBOR | ||
Interest rate spread added to base rate (as a percent) | 1.25% |
Equity Transactions - Stocks (D
Equity Transactions - Stocks (Details) - USD ($) $ / shares in Units, $ in Thousands | Nov. 04, 2013 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 |
Series A Special Stock | ||||
Authorized share repurchased amount | $ 75,000 | |||
Share repurchase term | 2 years | |||
Amount paid to repurchase common stock | $ 26,452 | |||
Common stock redeemed (in shares) | 3,502,598 | 3,502,598 | 1,307,402 | |
Common stock redeemed, average price (in dollars per share) | $ 21.41 | $ 21.41 | $ 20.23 | |
Common stock shares yet to be repurchased under the plan | 0 | 0 | ||
Common stock repurchased during the period | $ 0 | $ 0 | ||
Equity Transactions | ||||
Common stock authorized (in shares) | 100,000,000 | 100,000,000 | ||
Preferred stock authorized (in shares) | 10,000,000 | |||
Preferred stock issued (in shares) | 0 | 0 | ||
Preferred stock outstanding (in shares) | 0 | 0 | ||
Maximum | ||||
Series A Special Stock | ||||
Authorized share repurchased amount | $ 75,000 |
Equity Incentive Plan (Details)
Equity Incentive Plan (Details) - USD ($) $ in Millions | 12 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2014 | |
Assumptions used to determine fair value of stock options in the Black-Scholes option pricing model | ||||
Expected volatility, (as a percent) | 50.00% | |||
Risk-free interest rate (as a percent) | 0.60% | |||
Employee and Non Employees Stock Option | ||||
Equity Transactions | ||||
Options outstanding (in shares) | 1,356,528 | 2,350,175 | 2,914,593 | 2,578,401 |
Vesting period | 4 years | |||
Exercisable (in Shares) | 1,055,783 | |||
Assumptions used to determine fair value of stock options in the Black-Scholes option pricing model | ||||
Dividend yield (as a percent) | 0.00% | 0.00% | ||
Expected volatility, (as a percent) | 54.50% | |||
Expected volatility, low end of the range (as a percent) | 48.00% | |||
Expected volatility, high end of the range (as a percent) | 51.00% | |||
Risk-free interest rate (as a percent) | 1.00% | |||
Risk-free interest rate, low end of the range (as a percent) | 1.27% | |||
Risk-free interest rate, high end of the range (as a percent) | 1.71% | |||
Expected life of the option term (in years) | 5 years 1 month 10 days | |||
Forfeiture rate (as a percent) | 12.00% | |||
Forfeiture rate, minimum (as a percent) | 12.00% | |||
Forfeiture rate, maximum (as a percent) | 28.00% | |||
Fair value of share-based compensation awards granted in period | $ 0 | $ 3.2 | $ 4.4 | |
Reference rate for risk-free interest rate | zero | |||
Maximum term of award | 8 years | |||
Employee and Non Employees Stock Option | Minimum | ||||
Assumptions used to determine fair value of stock options in the Black-Scholes option pricing model | ||||
Expected life of the option term (in years) | 4 years 11 months 19 days | |||
Employee and Non Employees Stock Option | Maximum | ||||
Assumptions used to determine fair value of stock options in the Black-Scholes option pricing model | ||||
Expected life of the option term (in years) | 5 years 1 month 10 days | |||
Prior Plan | Employee and Non Employees Stock Option | ||||
Equity Transactions | ||||
Exercisable (in Shares) | 0 | |||
Plan | ||||
Equity Transactions | ||||
Shares reserved for issuance | 4,384,718 | |||
Plan and prior plan | ||||
Equity Transactions | ||||
Options outstanding (in shares) | 4,541,177 |
Equity Incentive Plan - Activit
Equity Incentive Plan - Activity (Details) - Employee and Non Employees Stock Option - USD ($) | 12 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | Jun. 30, 2014 | |
Shares | ||||
Outstanding at the beginning of the period (in shares) | 2,350,175 | 2,914,593 | 2,578,401 | |
Granted (in shares) | 243,112 | 617,985 | ||
Exercised (in shares) | (425,180) | (1,000) | (99,935) | |
Forfeited or canceled (in shares) | (568,467) | (806,530) | (181,858) | |
Outstanding at the end of the period (in shares) | 1,356,528 | 2,350,175 | 2,914,593 | 2,578,401 |
Weighted-Average Exercise Price | ||||
Outstanding at the beginning of the period (in dollars per share) | $ 20.20 | $ 20.33 | $ 21.44 | |
Granted (in dollars per share) | 13.43 | 16.12 | ||
Exercised (in dollars per share) | 16.35 | 13.66 | 5.68 | |
Forfeited or canceled (in dollars per share) | 23.12 | 18.55 | 29.85 | |
Outstanding at the end of the period (in dollars per share) | $ 20.19 | $ 20.20 | $ 20.33 | $ 21.44 |
Additional information | ||||
Weighted Average Remaining Contractual Life | 4 years 5 months 16 days | 3 years 11 months 9 days | 4 years 18 days | 4 years 6 months 26 days |
Aggregate Intrinsic Value | $ 1,481,585 | $ 46,573 | $ 88,200 | $ 42,754 |
Exercisable (in Shares) | 1,055,783 | |||
Stock options exercisable, Weighted Average Exercise Price (in dollars per share) | $ 21.46 | |||
Stock options exercisable, Average Remaining Contractual Life (Years) | 4 years 1 month 6 days | |||
Stock options exercisable, Aggregate Intrinsic Value | $ 621,708 |
Equity Incentive Plan - Relatio
Equity Incentive Plan - Relationship (Details) - Employee and Non Employees Stock Option - USD ($) $ in Millions | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Equity Transactions | |||
Intrinsic value of options exercised | $ 1.3 | $ 0 | $ 0.3 |
Unrecognized compensation | $ 2.1 | ||
Weighted average period for recognition of total unrecognized compensation expense related to unvested stock options granted | 1 year 8 months 12 days | ||
Stock based compensation expense | $ 2 | 3.7 | $ 5.5 |
Executives and other employees | |||
Equity Transactions | |||
Stock based compensation expense | $ 0.4 |
Equity Incentive Plan - Other (
Equity Incentive Plan - Other (Details) - USD ($) $ / shares in Units, $ in Millions | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Stock price | $ 11.50 | ||
Risk-free interest rate (as a percent) | 0.60% | ||
Expected volatility, (as a percent) | 50.00% | ||
Vesting Performance | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Nonvested at the end of the period (in shares) | 307,075 | ||
Number of consecutive days considered for the computation of average closing stock prices | 30 days | ||
Service based awards | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Granted (in shares) | 876,822 | ||
Vested (in shares) | 649,607 | ||
Nonvested at the end of the period (in shares) | 1,366,841 | ||
Equity Incentive Market Based Restricted Stock Awards | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Granted (in shares) | 58,000 | ||
Granted (in dollars per share) | $ 4.99 | ||
Equity Incentive Market Based Restricted Stock Awards | ProRata Vesting Immediately Upon Achievement Of Specified Average Closing Stock Prices | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Earned award vesting percentage | 20.00% | ||
Number of consecutive days considered for the computation of average closing stock prices | 30 days | ||
Equity Incentive Market Based Restricted Stock Awards | ProRata Vesting In Semi Annual Intervals Until The Applicable Anniversary Of Grant Date | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Earned award vesting percentage | 80.00% | ||
Period From Grant Date For Semiannual Intervals Of Vesting | 3 years | ||
Equity Incentive Market Based Restricted Stock Awards | Stock price performance target one | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Vested (in shares) | 71,796 | ||
Stock price | $ 13 | ||
Equity Incentive Market Based Restricted Stock Awards | Stock price performance target two | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Vested (in shares) | 118,750 | ||
Stock price | $ 16 | ||
Equity Incentive Market Based Restricted Stock Awards | Stock price performance target three | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Vested (in shares) | 144,738 | ||
Stock price | $ 19 | ||
Restricted Stock | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Nonvested at the beginning of the period (in shares) | 2,131,790 | 1,245,504 | 979,595 |
Granted (in shares) | 1,268,311 | 1,704,843 | 822,698 |
Vested (in shares) | 1,084,046 | 722,577 | 490,309 |
Nonvested at the end of the period (in shares) | 2,141,047 | 2,131,790 | 1,245,504 |
Granted (in dollars per share) | $ 12.70 | $ 10.13 | $ 17.54 |
Stock based compensation expense | $ 16.8 | $ 14.8 | $ 15.8 |
Fair value of share-based compensation awards granted in period | 16 | 14.5 | |
Fair value of share-based compensation awards vested in period | 17.5 | $ 8.2 | |
Unrecognized compensation | $ 13.8 | ||
Weighted average period for recognition of total unrecognized compensation expense related to unvested stock options granted | 1 year 4 months 24 days | ||
Performance Share Units | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Nonvested at the beginning of the period (in shares) | 1,089,602 | ||
Granted (in shares) | 52,000 | 1,154,602 | |
Nonvested at the end of the period (in shares) | 1,043,602 | 1,089,602 | |
Granted (in dollars per share) | $ 18.97 | $ 12.92 | |
Stock based compensation expense | $ 3.8 | $ 0 | $ 0 |
Unrecognized compensation | 1.6 | ||
Performance Share Units | Stock price performance target one | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Stock based compensation expense | $ 3.8 | ||
Earned award vesting percentage | 150.00% | ||
Performance Share Units | Stock price performance target two | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Stock based compensation expense | $ 0 | ||
New Chief Executive Officer And Executive Chairman | Restricted Stock | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Stock based compensation expense | $ 1 |
Equity Incentive Plan - Restric
Equity Incentive Plan - Restricted (Details) - Restricted Stock - USD ($) $ in Millions | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Equity Transactions | |||
Fair value of share-based compensation awards granted in period | $ 16 | $ 14.5 | |
Unrecognized compensation | $ 13.8 | ||
Weighted average period for recognition of total unrecognized compensation expense related to unvested restricted stock awards granted | 1 year 4 months 24 days | ||
Stock based compensation expense | $ 16.8 | 14.8 | $ 15.8 |
Executives and other employees | |||
Equity Transactions | |||
Stock based compensation expense | $ 0.4 | $ 2.5 |
Equity Incentive Plan - Vesting
Equity Incentive Plan - Vesting (Details) - $ / shares | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Restricted Stock | |||
Equity Transactions | |||
Vesting period | 3 years | ||
Shares | |||
Nonvested at the beginning of the period (in shares) | 2,131,790 | 1,245,504 | 979,595 |
Granted (in shares) | 1,268,311 | 1,704,843 | 822,698 |
Vested (in shares) | (1,084,046) | (722,577) | (490,309) |
Forfeited or canceled (in shares) | (175,008) | (95,980) | (66,480) |
Nonvested at the end of the period (in shares) | 2,141,047 | 2,131,790 | 1,245,504 |
Weighted-Average Grant Date Fair Value | |||
Nonvested at the beginning of the period (in dollars per share) | $ 12.46 | $ 22.30 | $ 22.97 |
Granted (in dollars per share) | 12.70 | 10.13 | 17.54 |
Vested (in dollars per share) | 12.94 | 22.24 | 15.63 |
Forfeited or canceled (in dollars per share) | 12.69 | 20.25 | 22.46 |
Nonvested at the end of the period (in dollars per share) | $ 12.34 | $ 12.46 | $ 22.30 |
Restricted Stock | Independent Contractors | |||
Shares | |||
Granted (in shares) | 0 | ||
Performance Share Units | |||
Shares | |||
Nonvested at the beginning of the period (in shares) | 1,089,602 | ||
Granted (in shares) | 52,000 | 1,154,602 | |
Forfeited or canceled (in shares) | (98,000) | (65,000) | |
Nonvested at the end of the period (in shares) | 1,043,602 | 1,089,602 | |
Weighted-Average Grant Date Fair Value | |||
Nonvested at the beginning of the period (in dollars per share) | $ 12.91 | ||
Granted (in dollars per share) | 18.97 | $ 12.92 | |
Forfeited or canceled (in dollars per share) | 13.45 | 13.45 | |
Nonvested at the end of the period (in dollars per share) | $ 13.16 | $ 12.91 | |
Option holders right (per option) | 1 | ||
Performance Share Units | Maximum | |||
Weighted-Average Grant Date Fair Value | |||
Additional grants (in shares) | 521,801 | ||
Vesting period | 3 years | ||
Performance Share Units | Minimum | |||
Weighted-Average Grant Date Fair Value | |||
Vesting period | 2 years | ||
Performance Share Units | Quarterly Period Beginning November 15, 2017 | |||
Weighted-Average Grant Date Fair Value | |||
Earned award vesting percentage | 30.00% | ||
Performance Share Units | Period After August 15, 2018 | |||
Weighted-Average Grant Date Fair Value | |||
Earned award vesting percentage | 70.00% | ||
Vesting Performance | Restricted Stock | |||
Shares | |||
Granted (in shares) | 333,489 | ||
Vested (in shares) | (99,155) | ||
Nonvested at the end of the period (in shares) | 467,131 |
Redeemable Noncontrolling Int65
Redeemable Noncontrolling Interest (Details) - USD ($) $ in Thousands | Dec. 27, 2016 | Jun. 30, 2015 | Jul. 31, 2014 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2014 |
Purchase price allocation for LearnBop | ||||||
Goodwill | $ 66,200 | $ 87,214 | $ 87,285 | $ 58,100 | ||
Summary of activity of the redeemable noncontrolling interest | ||||||
Balance of redeemable noncontrolling interest, beginning of period | 7,502 | 9,601 | ||||
Net loss | (910) | (484) | ||||
Adjustment to redemption value | 3,245 | (1,615) | ||||
Purchase of noncontrolling interest | (9,137) | |||||
Balance of redeemable noncontrolling interest, end of period | 9,601 | $ 700 | $ 7,502 | |||
LearnBop | ||||||
Cash purchase price | $ 6,500 | |||||
Ownership percentage acquired (as a percent) | 51.00% | |||||
Period for determination of put right | 12 months | |||||
Amount of non-transferable call option remaining minority interest which becomes exercisable January 1, 2019 or thereafter | $ 3,000 | |||||
Acquisition costs | $ 100 | |||||
Purchase price allocation for LearnBop | ||||||
Current assets | 100 | |||||
Capitalized software | 900 | |||||
Goodwill | 8,100 | |||||
Current liabilities | (100) | |||||
Redeemable noncontrolling interest | (2,500) | |||||
Fair value of total consideration transferred | $ 6,500 | |||||
Middlebury Interactive Languages LLC | ||||||
Cash purchase price | $ 9,100 | |||||
Ownership percentage acquired (as a percent) | 40.00% |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | Jul. 08, 2016USD ($) | Jun. 30, 2017USD ($)lease | Jun. 30, 2016USD ($)lease |
Commitments and contingencies | |||
Number of leases in which the Company served as guarantor | lease | 2 | ||
Number of leases in which the Company served as guarantor defaulted | lease | 1 | ||
Buildings of Flex schools | |||
Commitments and contingencies | |||
Guarantees related to lease commitments | $ 0.9 | ||
Attorney General inquiry | |||
Commitments and contingencies | |||
Settlement payment | $ 2.5 | ||
Amount paid to defray cost to taxpayers | 6 | ||
Insurance reimbursable | 1.5 | ||
Charges on settlement | $ 7.1 | ||
Qui Tam plaintiff | Attorney General inquiry | |||
Commitments and contingencies | |||
Settlement payment | $ 0.1 | ||
Executive Chairman | Employment agreement | |||
Commitments and contingencies | |||
Term of agreement | 2 years | ||
Chief Executive Officer | Employment agreement | |||
Commitments and contingencies | |||
Term of agreement | 3 years |
Restructuring and Severance (De
Restructuring and Severance (Details) $ in Millions | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2017USD ($)facility | Jun. 30, 2017USD ($) | Jun. 30, 2016USD ($) | Jun. 30, 2015USD ($) | |
Restructuring and Severance | ||||
Lease buyout | $ 0.7 | $ 0 | $ 0 | |
Severance costs | $ 3.4 | $ 1.7 | $ 1.5 | |
Facility closing | ||||
Restructuring and Severance | ||||
Number of facilities being exited | facility | 3 | |||
Number of facilities that are no longer being utilized | facility | 2 | |||
Exit costs | $ 5.3 | |||
Lease liability current | 1.6 | 1.6 | ||
Lease liability noncurrent | 3.7 | $ 3.7 | ||
Accelerated depreciation | 1.4 | |||
Deferred rent and tenant improvements written off | 1.9 | |||
Net impact of facility exit activity | $ 4.8 |
Acquisitions and Investments -
Acquisitions and Investments - Investments (Details) - USD ($) $ in Millions | Sep. 11, 2013 | May 06, 2013 | Jan. 31, 2011 | Jun. 30, 2017 | Mar. 31, 2017 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 |
Investments | ||||||||
Fair value of assets held for sale | $ 1.2 | |||||||
Impairment loss | $ 0 | $ 0.6 | ||||||
Web International Education Group, Ltd.(Web) | ||||||||
Investments | ||||||||
Investment | $ 10 | |||||||
Ownership percentage | 20.00% | |||||||
Option to purchase investment interest in investee (as a percent) | 51.00% | |||||||
Interest on investment (as a percent) | 8.00% | |||||||
Web International Education Group, Ltd.(Web) | Other current assets | ||||||||
Investments | ||||||||
Investment reclassified | $ 10 | $ 10 | ||||||
School Mortgage | ||||||||
Investments | ||||||||
Interest on investment (as a percent) | 5.25% | |||||||
Issuance of a mortgage note | $ 2.1 | |||||||
Note receivable term | 5 years | |||||||
Impairment loss on property | $ 0.2 | $ 0 |
Acquisitions and Investments 69
Acquisitions and Investments - Acquisitions (Details) $ in Thousands | Apr. 21, 2016USD ($)contract | Jun. 30, 2015USD ($) | Jul. 31, 2014USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2017USD ($) | Jun. 30, 2016USD ($) | Jun. 30, 2014USD ($) |
Identifiable assets acquired and liabilities assumed: | |||||||
Goodwill | $ 66,200 | $ 87,214 | $ 87,214 | $ 87,285 | $ 58,100 | ||
LearnBop | |||||||
Acquisitions | |||||||
Cash purchase price | $ 6,500 | ||||||
Ownership percentage acquired (as a percent) | 51.00% | ||||||
Period for determination of put right | 12 months | ||||||
Amount of non-transferable call option remaining minority interest which becomes exercisable January 1, 2019 or thereafter | $ 3,000 | ||||||
Acquisition costs | 100 | ||||||
Acquisition consideration: | |||||||
Cash | 6,500 | ||||||
Fair value of total consideration transferred | 6,500 | ||||||
Identifiable assets acquired and liabilities assumed: | |||||||
Goodwill | $ 8,100 | ||||||
Acquisition costs | $ 100 | ||||||
LTS | |||||||
Acquisitions | |||||||
Cash purchase price | $ 20,200 | 20,200 | |||||
Acquisition costs | 400 | ||||||
Acquisition consideration: | |||||||
Cash | 20,200 | 20,200 | |||||
Fair value of contingent consideration (earn-out liability) | 2,900 | 2,900 | |||||
Fair value of total consideration transferred | 23,100 | 23,100 | |||||
Identifiable assets acquired and liabilities assumed: | |||||||
Acquired intangible assets | 4,600 | 1,000 | 1,000 | ||||
Liabilities assumed | 2,500 | ||||||
Goodwill | 21,000 | 21,000 | 21,000 | ||||
Deferred tax | (2,600) | (2,600) | |||||
Other net assets | 100 | 100 | |||||
Acquisition costs | $ 400 | ||||||
Escrow refund | 100 | ||||||
LTS | Discounted cash flow method | |||||||
Identifiable assets acquired and liabilities assumed: | |||||||
First time periodfor distribution of additional consideration | 18 months | ||||||
Second time period for distribution of additional consideration | 30 months | ||||||
Number of key contracts | contract | 2 | ||||||
Aggregate potential payment | $ 3,000 | ||||||
LTS | Discounted cash flow method | Minimum | |||||||
Identifiable assets acquired and liabilities assumed: | |||||||
Aggregate total contract value (as a percent) | 51.00% | ||||||
Success rate (as a percent) | 90.00% | ||||||
LTS | Customer and distributor relationships | |||||||
Identifiable assets acquired and liabilities assumed: | |||||||
Acquired intangible assets | 1,900 | 1,900 | |||||
Useful life | 7 years | ||||||
LTS | Developed technology | |||||||
Identifiable assets acquired and liabilities assumed: | |||||||
Acquired intangible assets | $ 1,700 | $ 1,700 | |||||
Useful life | 4 years | ||||||
LTS | Other | Minimum | |||||||
Identifiable assets acquired and liabilities assumed: | |||||||
Useful life | 2 years | ||||||
LTS | Other | Maximum | |||||||
Identifiable assets acquired and liabilities assumed: | |||||||
Useful life | 5 years |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) $ in Millions | Sep. 11, 2013 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 |
School Mortgage | ||||
Related Party Transactions | ||||
Issuance of a mortgage note | $ 2.1 | |||
Interest on investment (as a percent) | 5.25% | |||
Note receivable term | 5 years | |||
Corporate Joint Venture | ||||
Related Party Transactions | ||||
Amount of loan advanced | $ 4 | $ 4 | ||
Foundation For Online and Blended Learning | ||||
Related Party Transactions | ||||
Contributions made to related party | $ 0.5 | $ 0.7 | $ 0 |
Employee Benefits (Details)
Employee Benefits (Details) - USD ($) $ in Millions | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Employee Benefits | |||
Minimum length of service for participation | 30 days | ||
Maximum annual contribution as percentage of compensation | 25.00% | ||
Company matching contribution percent | 4.00% | ||
401(k) Plan expense | $ 1.6 | $ 1.5 | $ 1.8 |
Supplemental Disclosure of Ca72
Supplemental Disclosure of Cash Flow Information (Details) - USD ($) $ in Thousands | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Supplemental Disclosure of Cash Flow Information | |||
Cash paid for interest | $ 750 | $ 790 | $ 1,051 |
Cash paid for taxes | 8,052 | 1,125 | 19,390 |
Supplemental disclosure of non cash investing and financing activities: | |||
Property and equipment financed by capital lease obligations, including student peripherals | $ 14,469 | 10,878 | 14,654 |
Business Combinations: | |||
Current assets | 419 | 27 | |
Intangible assets | 4,600 | ||
Capitalized software development costs | 940 | ||
Goodwill | 21,054 | 8,101 | |
Assumed liabilities | (5,780) | (50) | |
Deferred revenue | $ (400) | $ (23) |
Common Stock Repurchases (Detai
Common Stock Repurchases (Details) - USD ($) $ in Thousands | Nov. 04, 2013 | Jun. 30, 2015 |
Authorized share repurchased amount | ||
Authorized share repurchased amount | $ 75,000 | |
Share repurchase term | 2 years | |
Stock purchases | $ 26,452 | |
Maximum | ||
Authorized share repurchased amount | ||
Authorized share repurchased amount | $ 75,000 |
Quarterly Results of Operatio74
Quarterly Results of Operations (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 12 Months Ended | |||||||||
Jun. 30, 2017 | Mar. 31, 2017 | Dec. 31, 2016 | Sep. 30, 2016 | Jun. 30, 2016 | Mar. 31, 2016 | Dec. 31, 2015 | Sep. 30, 2015 | Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
Consolidated Quarterly Statements of Operations | |||||||||||
Revenues | $ 215,758 | $ 222,533 | $ 221,090 | $ 229,138 | $ 221,319 | $ 221,340 | $ 208,811 | $ 221,230 | $ 888,519 | $ 872,700 | $ 948,294 |
Instructional costs and services | 139,244 | 136,431 | 137,542 | 144,099 | 143,136 | 134,755 | 129,616 | 139,003 | 557,316 | 546,510 | 607,756 |
Selling, administrative, and other operating expenses | 68,791 | 69,828 | 62,352 | 104,646 | 76,606 | 64,888 | 61,440 | 99,270 | 305,617 | 302,205 | 307,730 |
Product development expenses | 3,011 | 3,511 | 2,873 | 3,062 | 1,067 | 2,563 | 3,028 | 3,413 | 12,457 | 10,071 | 14,381 |
Total costs and expenses | 211,046 | 209,770 | 202,767 | 251,807 | 220,809 | 202,206 | 194,084 | 241,686 | 875,390 | 858,786 | 929,867 |
Income from operations | 4,712 | 12,763 | 18,323 | (22,669) | 510 | 19,134 | 14,727 | (20,456) | 13,129 | 13,914 | 18,427 |
Impairment of investment in Web International Education Group, Ltd | (10,000) | (10,000) | (3,200) | ||||||||
Interest expense, net and other | 561 | 641 | 264 | 342 | (21) | (101) | (190) | (305) | 1,808 | (617) | (91) |
Income before income taxes and noncontrolling interest | (4,727) | 13,404 | 18,587 | (22,327) | 489 | 19,033 | 14,537 | (20,761) | 4,937 | 13,297 | 15,136 |
Income tax benefit (expense), net | (1,876) | (4,522) | (7,688) | 8,690 | (822) | (5,368) | (6,653) | 8,097 | (5,396) | (4,746) | (5,810) |
Net income (loss) | (6,603) | 8,882 | 10,899 | (13,637) | (333) | 13,665 | 7,884 | (12,664) | (459) | 8,551 | 9,326 |
Add net income (loss) attributable to noncontrolling interest | 120 | 233 | 753 | (196) | (649) | 608 | 654 | (129) | 910 | 484 | 1,662 |
Net income attributable to common stockholders | $ (6,483) | $ 9,115 | $ 11,652 | $ (13,833) | $ (982) | $ 14,273 | $ 8,538 | $ (12,793) | $ 451 | $ 9,035 | $ 10,988 |
Net income (loss) attributable to common stockholders per share: | |||||||||||
Basic (in dollars per share) | $ (0.17) | $ 0.24 | $ 0.31 | $ (0.36) | $ (0.03) | $ 0.38 | $ 0.23 | $ (0.34) | $ 0.01 | $ 0.24 | $ 0.29 |
Diluted (in dollars per share) | $ (0.17) | $ 0.23 | $ 0.30 | $ (0.36) | $ (0.03) | $ 0.37 | $ 0.23 | $ (0.34) | $ 0.01 | $ 0.23 | $ 0.29 |
Weighted average shares used in computing per share amounts: | |||||||||||
Basic (in shares) | 38,757,312 | 38,376,984 | 38,104,909 | 37,938,705 | 37,768,812 | 37,692,826 | 37,559,999 | 37,433,493 | 38,298,581 | 37,613,782 | 37,330,569 |
Diluted (in shares) | 38,757,312 | 39,328,127 | 39,007,276 | 37,938,705 | 37,768,812 | 38,999,871 | 37,680,876 | 37,433,493 | 39,500,934 | 38,850,388 | 37,625,425 |
SCHEDULE II - VALUATION AND QUA
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Details) - USD ($) | 12 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2015 | |
ALLOWANCE FOR DOUBTFUL ACCOUNTS | |||
Valuation and Qualifying Account Activity | |||
Balance at Beginning of Period | $ 10,813,394 | $ 9,657,092 | $ 3,459,928 |
Additions (Deductions) Charged to Cost and Expenses | 4,512,899 | 4,609,720 | 9,299,766 |
Deductions from Allowance | 535,122 | 3,453,418 | 3,102,602 |
Balance at End of Period | 14,791,171 | 10,813,394 | 9,657,092 |
INVENTORY RESERVE | |||
Valuation and Qualifying Account Activity | |||
Balance at Beginning of Period | 2,642,547 | 2,192,234 | 9,056,142 |
Additions (Deductions) Charged to Cost and Expenses | 475,218 | 691,407 | 1,405,988 |
Deductions from Allowance | 807,456 | 241,094 | 8,269,896 |
Balance at End of Period | 2,310,309 | 2,642,547 | 2,192,234 |
COMPUTER RESERVE | |||
Valuation and Qualifying Account Activity | |||
Balance at Beginning of Period | 573,444 | 1,032,253 | 1,462,424 |
Additions (Deductions) Charged to Cost and Expenses | 595,876 | 89,064 | 379,030 |
Deductions from Allowance | 350,278 | 547,873 | 809,201 |
Balance at End of Period | 819,042 | 573,444 | 1,032,253 |
INCOME TAX VALUATION ALLOWANCE | |||
Valuation and Qualifying Account Activity | |||
Balance at Beginning of Period | 4,338,653 | 2,791,033 | 1,968,482 |
Additions to Net Deferred Tax Asset Allowance | 3,296,617 | 1,594,174 | 1,352,231 |
Deductions from Allowance | 482,410 | 46,554 | 529,680 |
Balance at End of Period | $ 7,152,860 | $ 4,338,653 | $ 2,791,033 |