e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2010
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OR
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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|
For the transition period
from to
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Commission File Number:
001-33883
K12 Inc.
(Exact name of registrant as
specified in its charter)
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|
Delaware
(State or other jurisdiction
of
incorporation or organization)
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95-4774688
(IRS Employer
Identification No.)
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2300 Corporate Park Drive
Herndon, VA
(Address of principal executive
offices)
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20171
(Zip Code)
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(703) 483-7000
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
|
|
|
Large accelerated
filer o
Non-accelerated
filer o
(Do not check if a smaller
reporting company)
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|
Accelerated
filer þ
Smaller reporting
company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 6, 2010, the Registrant had 30,446,232 shares of
Common Stock, $0.0001 par value outstanding.
K12
Inc.
Form 10-Q
For the
Quarterly Period Ended March 31, 2010
Index
1
PART I
FINANCIAL INFORMATION
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|
Item 1.
|
Financial
Statements (Unaudited).
|
K12
INC.
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
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|
March 31,
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June 30,
|
|
|
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2010
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2009
|
|
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|
(In thousands, except share
|
|
|
|
and per share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
66,491
|
|
|
$
|
49,461
|
|
Restricted cash and cash equivalents
|
|
|
3,342
|
|
|
|
2,500
|
|
Accounts receivable, net of allowance of $1,908 and $1,555 at
March 31, 2010 and June 30, 2009, respectively
|
|
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93,413
|
|
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52,532
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|
Inventories, net
|
|
|
22,820
|
|
|
|
32,052
|
|
Current portion of deferred tax asset
|
|
|
4,855
|
|
|
|
3,888
|
|
Prepaid expenses
|
|
|
8,636
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|
|
|
7,810
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|
Other current assets
|
|
|
6,368
|
|
|
|
3,454
|
|
|
|
|
|
|
|
|
|
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Total current assets
|
|
|
205,925
|
|
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|
151,697
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|
Property and equipment, net
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|
43,183
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37,860
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Capitalized curriculum development costs, net
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37,166
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31,649
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Deferred tax asset, net of current portion
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|
4,116
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|
|
|
14,619
|
|
Goodwill
|
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|
1,825
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|
|
|
1,825
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|
Deposits and other assets
|
|
|
2,247
|
|
|
|
2,526
|
|
|
|
|
|
|
|
|
|
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Total assets
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|
$
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294,462
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|
|
$
|
240,176
|
|
|
|
|
|
|
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LIABILITIES AND EQUITY
|
Current liabilities
|
|
|
|
|
|
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Accounts payable
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|
$
|
12,108
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|
|
$
|
10,366
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|
Accrued liabilities
|
|
|
5,909
|
|
|
|
7,329
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|
Accrued compensation and benefits
|
|
|
9,942
|
|
|
|
8,291
|
|
Deferred revenue
|
|
|
15,202
|
|
|
|
3,389
|
|
Current portion of capital lease obligations
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|
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11,926
|
|
|
|
10,240
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Current portion of notes payable
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|
|
950
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|
|
|
1,034
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|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
56,037
|
|
|
|
40,649
|
|
Deferred rent, net of current portion
|
|
|
2,243
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|
|
|
1,699
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|
Capital lease obligations, net of current portion
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|
|
10,145
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|
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9,222
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Notes payable, net of current portion
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974
|
|
|
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1,906
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|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
69,399
|
|
|
|
53,476
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|
|
|
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|
|
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Commitments and contingencies
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|
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Equity:
|
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K12 Inc. stockholders equity
|
|
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Common stock, par value $0.0001; 100,000,000 shares authorized;
30,262,378 and 29,290,486 shares issued and outstanding at
March 31, 2010 and June 30, 2009, respectively
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3
|
|
|
|
3
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|
Additional paid-in capital
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|
359,043
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|
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343,304
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|
Accumulated deficit
|
|
|
(138,171
|
)
|
|
|
(161,021
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)
|
|
|
|
|
|
|
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|
Total K12 Inc. stockholders equity
|
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|
220,875
|
|
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|
182,286
|
|
Noncontrolling interest
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|
4,188
|
|
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4,414
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|
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Total equity
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|
225,063
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|
186,700
|
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|
|
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|
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Total liabilities and equity
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|
$
|
294,462
|
|
|
$
|
240,176
|
|
|
|
|
|
|
|
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|
See notes to unaudited condensed consolidated financial
statements.
2
K12
INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended
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Nine Months Ended
|
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March 31,
|
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March 31,
|
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2010
|
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|
2009
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|
2010
|
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|
2009
|
|
|
|
(In thousands, except share and per share data)
|
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|
Revenues
|
|
$
|
96,627
|
|
|
$
|
77,164
|
|
|
$
|
296,149
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|
|
$
|
243,407
|
|
|
|
|
|
|
|
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|
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Cost and expenses
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|
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|
|
|
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|
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|
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|
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|
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Instructional costs and services
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|
|
56,479
|
|
|
|
47,868
|
|
|
|
166,161
|
|
|
|
152,601
|
|
Selling, administrative, and other operating expenses
|
|
|
26,843
|
|
|
|
19,467
|
|
|
|
85,069
|
|
|
|
61,189
|
|
Product development expenses
|
|
|
2,924
|
|
|
|
2,415
|
|
|
|
7,577
|
|
|
|
7,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
86,246
|
|
|
|
69,750
|
|
|
|
258,807
|
|
|
|
220,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income from operations
|
|
|
10,381
|
|
|
|
7,414
|
|
|
|
37,342
|
|
|
|
22,602
|
|
Interest expense, net
|
|
|
(361
|
)
|
|
|
(361
|
)
|
|
|
(1,042
|
)
|
|
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and noncontrolling
interest
|
|
|
10,020
|
|
|
|
7,053
|
|
|
|
36,300
|
|
|
|
22,084
|
|
Income tax expense
|
|
|
(3,927
|
)
|
|
|
(3,490
|
)
|
|
|
(13,676
|
)
|
|
|
(9,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6,093
|
|
|
|
3,563
|
|
|
|
22,624
|
|
|
|
12,442
|
|
Add (less) net loss (net income) attributable to
noncontrolling interest
|
|
|
36
|
|
|
|
(16
|
)
|
|
|
226
|
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income K12 Inc.
|
|
$
|
6,129
|
|
|
$
|
3,547
|
|
|
$
|
22,850
|
|
|
$
|
12,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.12
|
|
|
$
|
0.77
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.12
|
|
|
$
|
0.76
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing per share amounts
(see page 7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
29,951,327
|
|
|
|
28,863,137
|
|
|
|
29,658,076
|
|
|
|
28,664,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
30,352,974
|
|
|
|
29,466,247
|
|
|
|
30,023,341
|
|
|
|
29,613,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
3
K12
INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K12 Inc. Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
|
|
(In thousands, except share data)
|
|
|
Nine months ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
29,290,486
|
|
|
$
|
3
|
|
|
$
|
343,304
|
|
|
$
|
(161,021
|
)
|
|
$
|
4,414
|
|
|
$
|
186,700
|
|
Exercise of stock options
|
|
|
777,748
|
|
|
|
|
|
|
|
6,938
|
|
|
|
|
|
|
|
|
|
|
|
6,938
|
|
Issuance of restricted stock awards
|
|
|
200,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of restricted stock awards
|
|
|
(20,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock warrants
|
|
|
6,173
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Exercise of stock warrants on cashless provision
|
|
|
7,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,547
|
|
|
|
|
|
|
|
|
|
|
|
4,547
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
4,204
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,850
|
|
|
|
(226
|
)
|
|
|
22,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
|
30,262,378
|
|
|
$
|
3
|
|
|
$
|
359,043
|
|
|
$
|
(138,171
|
)
|
|
$
|
4,188
|
|
|
$
|
225,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
4
K12
INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
22,624
|
|
|
$
|
12,442
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
18,365
|
|
|
|
14,914
|
|
Stock based compensation expense
|
|
|
4,547
|
|
|
|
2,000
|
|
Excess tax benefit from stock-based compensation
|
|
|
(4,204
|
)
|
|
|
(7,090
|
)
|
Deferred income taxes
|
|
|
13,741
|
|
|
|
9,526
|
|
Provision for doubtful accounts
|
|
|
353
|
|
|
|
(402
|
)
|
Provision for inventory obsolescence
|
|
|
558
|
|
|
|
35
|
|
(Reduction of) provision for student computer shrinkage and
obsolescence
|
|
|
(217
|
)
|
|
|
195
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(41,234
|
)
|
|
|
(44,760
|
)
|
Inventories
|
|
|
8,673
|
|
|
|
(2,659
|
)
|
Prepaid expenses
|
|
|
(826
|
)
|
|
|
(901
|
)
|
Other current assets
|
|
|
(2,914
|
)
|
|
|
(1,858
|
)
|
Deposits and other assets
|
|
|
262
|
|
|
|
(733
|
)
|
Accounts payable
|
|
|
1,741
|
|
|
|
54
|
|
Accrued liabilities
|
|
|
(1,419
|
)
|
|
|
5,283
|
|
Accrued compensation and benefits
|
|
|
1,651
|
|
|
|
(4,996
|
)
|
Deferred revenue
|
|
|
11,813
|
|
|
|
10,365
|
|
Deferred rent
|
|
|
544
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
34,058
|
|
|
|
(8,555
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(7,487
|
)
|
|
|
(10,605
|
)
|
Purchase of domain name
|
|
|
|
|
|
|
(16
|
)
|
Capitalized curriculum development costs
|
|
|
(9,305
|
)
|
|
|
(10,695
|
)
|
Cash invested in restricted cash
|
|
|
(842
|
)
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,634
|
)
|
|
|
(22,316
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Repayments on capital lease obligations
|
|
|
(9,575
|
)
|
|
|
(6,358
|
)
|
Proceeds from notes payable
|
|
|
|
|
|
|
3,130
|
|
Repayments on notes payable
|
|
|
(1,011
|
)
|
|
|
(383
|
)
|
Proceeds from noncontrolling interest contribution
|
|
|
|
|
|
|
5,000
|
|
Proceeds from exercise of stock options
|
|
|
6,938
|
|
|
|
7,147
|
|
Proceeds from exercise of stock warrants
|
|
|
50
|
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
4,204
|
|
|
|
7,090
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
606
|
|
|
|
15,626
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
17,030
|
|
|
|
(15,245
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
49,461
|
|
|
|
71,682
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
66,491
|
|
|
$
|
56,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
5
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial Statements
|
|
1.
|
Description
of the Business
|
K12 Inc. and its subsidiaries (K12 or the Company) sell online
curriculum and educational books and materials designed for
students in grades K-12 and provide management and technology
services to virtual public schools. The K12 proprietary
curriculum is research-based and combines content with
innovative technology to allow students to receive an
outstanding education regardless of geographic location or
socio-economic background. In contracting with a virtual public
school, the Company typically provides students with access to
the K12 online curriculum, offline learning kits, and use of a
personal computer. As of March 31, 2010, the Company served
schools in 25 states and the District of Columbia. The
Company expanded into four new states in fiscal year 2010:
Wyoming, Oklahoma, Alaska and Virginia. In addition, the Company
sells access to its online curriculum and offline learning kits
directly to individual consumers.
The accompanying condensed consolidated balance sheet as of
March 31, 2010, the condensed consolidated statements of
operations for the three and nine months ended March 31,
2010 and 2009, the condensed consolidated statements of cash
flows for the nine months ended March 31, 2010 and 2009,
and the condensed consolidated statements of equity for the nine
months ended March 31, 2010 are unaudited. The unaudited
interim financial statements have been prepared on the same
basis as the annual financial statements and in the opinion of
management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the
Companys financial position as March 31, 2010, the
results of operations for the three and nine months ended
March 31, 2010 and 2009, the results of cash flows for the
nine months ended March 31, 2010 and 2009 and the condensed
consolidated statements of equity for the nine months ended
March 31, 2010. The results of the three and nine month
periods ended March 31, 2010 are not necessarily indicative
of the results to be expected for the year ending June 30,
2010 or for any other interim period or for any other future
fiscal year. The consolidated balance sheet as of June 30,
2009 has been derived from the audited consolidated financial
statements at that date.
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of
America (GAAP) for interim financial information and
with the instructions to
Form 10-Q
and
Rule 10-01
of
Regulation S-X
of the Securities Exchange Act of 1934, as amended
(Exchange Act). Accordingly, they do not include all
of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, these
statements include all adjustments (consisting of normal
recurring adjustments) considered necessary to present a fair
statement of our consolidated results of operations, financial
position and cash flows. Preparation of the Companys
financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported
amounts in the financial statements and footnotes. Actual
results could differ from those estimates. This quarterly report
on
Form 10-Q
should be read in conjunction with the financial statements and
the notes thereto included in the Companys latest annual
report on
Form 10-K
filed on September 14, 2009, which contains the
Companys audited financial statements for the fiscal year
ended June 30, 2009.
|
|
3.
|
Summary
of Significant Accounting Policies
|
Restricted
Cash and Cash Equivalents
Restricted cash consists of cash held in escrow pursuant to an
agreement with a virtual public school that the Company manages
and a purchase agreement with an inventory supplier. The Company
established an escrow account each for the benefit of the
schools sponsoring school district in the event a future
claim is made and for the benefit of one of the Companys
inventory suppliers upon delivery of materials purchased on
behalf of the Company.
6
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
Consolidation
The condensed consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and
affiliated companies in which the Company owns, directly or
indirectly, or otherwise controls 50% or more of the outstanding
voting interests. All significant intercompany transactions and
balances have been eliminated in consolidation.
Noncontrolling
Interest
Earnings or losses attributable to other stockholders of a
consolidated affiliated company are classified separately as
noncontrolling interest in the Companys
condensed consolidated statements of operations. Noncontrolling
interest reflects only its share of the after-tax earnings or
losses of an affiliated company. Income taxes attributable to
noncontrolling interest are determined using the applicable
statutory tax rates in the jurisdictions where such operations
are conducted. These rates vary from country to country. The
Companys condensed consolidated balance sheet reflects
noncontrolling interest within the equity section of the
condensed consolidated balance sheet rather than in the
mezzanine section of the condensed consolidated balance sheet.
Noncontrolling interest reflected separately within equity is
classified separately in the Companys condensed statements
of equity. Net income in the Companys condensed
consolidated statements of cash flows reflects the consolidated
earnings of the Company.
Retrospective
Implementation of New Accounting Standards
The condensed consolidated financial statements and footnotes
reflect adjustments required for the retrospective application
of a new accounting pronouncement that became effective for the
Company on July 1, 2009. ASC
Section 810-10-65,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51,
requires reclassification of the Companys minority
interest to a new noncontrolling interest component of total
equity and that the noncontrolling interest in the
Companys operating results be presented as an allocation
of the Companys operating results.
Fair
Value Measurements
The carrying values reflected in our consolidated balance sheets
for cash and cash equivalents, receivables, inventory and short
and long term debt approximate their fair values.
Net
Income Per Common Share
Basic earnings per share is computed by dividing net income
available to common stockholders by the weighted average number
of shares of common stock outstanding during the period. The
weighted average number of shares of common stock outstanding
includes vested restricted stock awards. Diluted earnings per
share reflects the potential dilution that could occur assuming
conversion or exercise of all dilutive unexercised stock
options, unvested restricted stock awards and warrants. The
dilutive effect of stock options, restricted stock awards, and
warrants 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 and restricted stock awards become deductible for income
tax purposes are all assumed to be used to repurchase shares of
the Companys common stock. Stock options and restricted
stock awards are not included in the computation of diluted
earnings per share when they are antidilutive. Common stock
outstanding reflected in our condensed consolidated balance
sheet includes restricted stock awards outstanding.
7
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
The following schedule presents the calculation of basic and
diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
(In thousands, except
|
|
(In thousands, except
|
|
|
share and per share data)
|
|
share and per share data)
|
|
Net income available to common shareholders basic
and diluted
|
|
$
|
6,129
|
|
|
$
|
3,547
|
|
|
$
|
22,850
|
|
|
$
|
12,981
|
|
Weighted average common shares outstanding basic
|
|
|
29,951,327
|
|
|
|
28,863,137
|
|
|
|
29,658,076
|
|
|
|
28,664,900
|
|
Weighted average common shares outstanding diluted
|
|
|
30,352,974
|
|
|
|
29,466,247
|
|
|
|
30,023,341
|
|
|
|
29,613,784
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.12
|
|
|
$
|
0.77
|
|
|
$
|
0.45
|
|
Diluted
|
|
$
|
0.20
|
|
|
$
|
0.12
|
|
|
$
|
0.76
|
|
|
$
|
0.44
|
|
Recent
Accounting Pronouncements
In August 2009, the FASB issued Accounting Standards Update
(ASU)
2009-05,
Fair Value Measurements and Disclosures, Measuring
Liabilities at FairValue (ASU
2009-05).
ASU 2009-05
provides amendments to FASB
ASC 820-10,
Fair Value Measurements and Disclosures
Overall, for the fair value measurement of liabilities. This
update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is
not available, an entity is required to measure fair value using
a valuation technique that uses a quoted price of the identical
liability when traded as an asset, a quoted price for similar
liabilities or similar liabilities when traded as an asset, or
another valuation technique that is consistent with the
principles of FASB ASC 820. This ASU is effective for the
first period (including interim periods) beginning after
issuance (second quarter of the Companys fiscal year
2010). The Company adopted this ASU as of October 1, 2009.
The adoption did not have a material effect on the consolidated
financial statements.
In October 2009, the FASB issued ASU
2009-13,
Multiple-Deliverable Arrangements, a consensus of the FASB
Emerging Issues Task Force (ASC Topic 605) which
addresses how to separate deliverables and how to measure and
allocate arrangement consideration. This guidance requires
vendors to develop the best estimate of selling price for each
deliverable and to allocate arrangement consideration using this
selling price. The guidance is effective prospectively for
revenue arrangements entered into or materially modified in
annual periods beginning after June 15, 2010. The Company
is currently evaluating the impact of adoption on our
consolidated financial statements.
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements. This
update requires the disclosure of transfers between Level 1
and Level 2 of the fair value measurement hierarchy and to
provide a gross presentation of the activities within the
Level 3 rollforward. The disclosure requirements are
effective for interim and annual reporting periods beginning
after December 15, 2009, and are effective for us on
January 1, 2010, except for the requirement to present the
Level 3 rollforward on a gross basis, which is effective
for fiscal years beginning after December 15, 2010, and is
effective for us on July 1, 2011. The Companys
partial adoption on January 1, 2010 did not have a material
impact on our fair value measurement disclosures. The Company is
currently evaluating the impact that the full adoption, with
respect to the Level 3 rollforward, will have on our fair
value measurement disclosures.
8
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
The provision for income taxes is based on earnings reported in
the condensed consolidated financial statements. A deferred
income tax asset or liability is determined by applying
currently enacted tax laws and rates to the expected reversal of
the cumulative temporary differences between the carrying value
of assets and liabilities for financial statement and income tax
purposes. Deferred income tax expense is measured by the change
in the deferred income tax asset or liability during the year.
Capital
Leases
As of March 31, 2010, computer equipment and software under
capital leases are recorded at a cost of $40.0 million and
accumulated depreciation of $20.8 million. The Company has
an equipment lease line of credit that expires on
August 31, 2010 for new purchases on this line of credit.
The interest rate on new purchases under the equipment lease
line typically is set quarterly. Borrowings under the equipment
lease line have interest rates ranging from 5.0% to 8.8% and
include a
36-month
payment term with a $1 purchase option at the end of the term.
The Company has pledged the assets financed with the equipment
lease line to secure the amounts outstanding. The Company is a
party to a guaranty agreement with the lessor to guarantee the
obligations under this equipment lease and financing agreement.
Notes
Payable
The Company has purchased computer software licenses and
maintenance services through notes payable arrangements with
various vendors at interest rates ranging up to 6.1% and payment
terms of three years. The balance of notes payable at
March 31, 2010 was $1.9 million.
The following is a summary as of March 31, 2010 of the
present value of the net minimum payments on capital leases and
notes payable under the Companys commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Notes
|
|
|
|
|
March 31,
|
|
Leases
|
|
|
Payable
|
|
|
Total
|
|
|
2011
|
|
$
|
12,831
|
|
|
$
|
1,023
|
|
|
$
|
13,854
|
|
2012
|
|
|
8,050
|
|
|
|
1,004
|
|
|
|
9,054
|
|
2013
|
|
|
2,450
|
|
|
|
|
|
|
|
2,450
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum payments
|
|
|
23,331
|
|
|
|
2,027
|
|
|
|
25,358
|
|
Less amount representing interest (imputed capital lease
interest rate of 6.6%)
|
|
|
(1,260
|
)
|
|
|
(103
|
)
|
|
|
(1,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net minimum payments
|
|
|
22,071
|
|
|
|
1,924
|
|
|
|
23,995
|
|
Less current portion
|
|
|
(11,926
|
)
|
|
|
(950
|
)
|
|
|
(12,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum payments, less current portion
|
|
$
|
10,145
|
|
|
$
|
974
|
|
|
$
|
11,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In September 2009, the credit agreement with PNC Bank
(Credit Agreement), which was due to expire in
December 2009, was renewed for an additional three-year period
expiring in December 2012. The Credit Agreement was renewed
under substantially the same terms and increased the borrowing
limit to $35 million. As of March 31, 2010, there was
no outstanding balance on the working capital line of credit.
9
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
Stock
Options
Stock option activity during the nine months ended
March 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Outstanding, June 30, 2009
|
|
|
4,094,208
|
|
|
$
|
14.59
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
739,500
|
|
|
|
17.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(777,748
|
)
|
|
|
8.92
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(173,169
|
)
|
|
|
17.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2010
|
|
|
3,882,791
|
|
|
$
|
16.17
|
|
|
|
5.12
|
|
|
$
|
23,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at March 31, 2010
|
|
|
1,800,758
|
|
|
$
|
12.33
|
|
|
|
4.30
|
|
|
$
|
17,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the three
months ended March 31, 2010 was $2.4 million.
The following table summarizes the option grant activity for the
nine months ended March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Options
|
|
|
Weighted-Average
|
|
|
Grant-Date
|
|
|
Intrinsic
|
|
Grant Date
|
|
Granted
|
|
|
Exercise Price
|
|
|
Fair Value
|
|
|
Value
|
|
|
July 2009
|
|
|
709,700
|
|
|
$
|
17.46
|
|
|
$
|
8.22
|
|
|
$
|
|
|
October 2009
|
|
|
15,950
|
|
|
$
|
17.03
|
|
|
$
|
7.91
|
|
|
$
|
|
|
January 2010
|
|
|
13,850
|
|
|
$
|
20.00
|
|
|
$
|
9.33
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
739,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, there was $8.7 million of total
unrecognized compensation expense related to unvested stock
options granted. The cost is expected to be recognized over a
weighted average period of 2.87 years. The total fair value
of shares vested during the nine months ended March 31,
2010 was $10.7 million. During the nine months ended
March 31, 2010, the Company recognized $4.0 million of
stock based compensation expense related to stock options.
Restricted
Stock Awards
Restricted stock award activity during the nine months ended
March 31, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Outstanding, June 30, 2009
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
200,946
|
|
|
|
17.63
|
|
Vested
|
|
|
(16,007
|
)
|
|
|
17.46
|
|
Canceled
|
|
|
(20,540
|
)
|
|
|
17.46
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2010
|
|
|
164,399
|
|
|
$
|
17.67
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, there was $2.3 million of total
unrecognized compensation expense related to unvested restricted
stock awards granted. The cost is expected to be recognized over
a weighted average period of 2.35 years. The total fair
value of shares vested during the nine months ended
March 31, 2010 was $0.3 million. During the nine
months ended March 31, 2010, the Company recognized
$0.5 million of stock based compensation expense related to
restricted stock awards.
10
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
As of March 31, 2010 and June 30, 2009, there were
zero and 20,050 outstanding warrants, respectively, to purchase
an equivalent number of shares of common stock. These warrants
were issued in March 2003 at a price of $8.16 per share in
conjunction with promissory notes issued by the Company for
funds borrowed from existing shareholders. These warrants were
due to expire in December 2009 and as of December 31, 2009,
the remaining shareholders exercised all of their outstanding
stock purchase warrants for a net issuance of 13,738 shares
of common stock after 6,312 warrants were relinquished through a
cashless exercise.
Warrant activity during the nine months ended March 31,
2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
|
Outstanding, June 30, 2009
|
|
|
20,050
|
|
|
$
|
8.16
|
|
|
|
0.70
|
|
|
$
|
268
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,050
|
)
|
|
|
8.16
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Commitments
and Contingencies
|
Litigation
In the ordinary conduct of business, the Company is subject to
lawsuits, arbitrations and administrative proceedings from time
to time. The Company expenses legal costs as incurred. There are
currently no claims or actions pending or threatened against the
Company.
During the third quarter of 2010, the Company did not experience
a significant adverse change in its business climate and
therefore does not believe a triggering event occurred that
would require a detailed test of goodwill for impairment as of
an interim date. Consequently, the first step of the goodwill
impairment test will not be performed during the third quarter
of 2010. The Company will complete its annual goodwill
impairment test as of May 31, 2010.
|
|
11.
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash paid for interest
|
|
$
|
989
|
|
|
$
|
967
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
654
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
New capital lease obligations
|
|
$
|
12,184
|
|
|
$
|
16,013
|
|
|
|
|
|
|
|
|
|
|
In April 2010, a subsidiary of the Company entered into an
agreement to establish a joint venture with Middlebury College
to form a new entity named Middlebury Interactive Languages LLC.
The Companys investment into this joint venture consisted
of cash and contributed assets, including substantially all of
its foreign
11
K12
Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
languages subsidiary, in return for a 60% ownership interest.
Middlebury Colleges investment in the joint venture
consisted of cash and contributed assets, including a license to
use its trademark and a foreign language instruction summer
camps business, in return for a 40% ownership interest. The
purpose of the joint venture is to create and distribute
innovative, high-quality online language courses under the
trademark Middlebury and other marks.
The Company evaluated all events or transactions that occurred
after March 31, 2010 through the date the Company issued
these condensed consolidated financial statements and determined
there were no material events or transactions during this period.
12
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Certain statements in Managements Discussion and
Analysis (MD&A), other than purely historical
information, including estimates, projections, statements
relating to our business plans, objectives, and expected
operating results, and the assumptions upon which those
statements are based, are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995, Section 27A of the Securities Act of 1933, as
amended (the Securities Act), and Section 21E
of the Securities Exchange Act of 1934, as amended (the
Exchange Act). These forward-looking statements
generally are identified by the words believe,
project, expect, anticipate,
estimate, intend, strategy,
plan, may, should,
will, would, will be,
will continue, will likely result, and
similar expressions. Historical results may not indicate future
performance. Our forward-looking statements reflect our current
views about future events, are based on assumptions and are
subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those
contemplated by these statements. Factors that may cause
differences between actual results and those contemplated by
forward-looking statements include, but are not limited to,
those discussed in Risk Factors in Part I,
Item 1A, of our Annual Report on
Form 10-K
(Annual Report), including any updates found in
Part II, Item 1A, Risk Factors, of this
quarterly report. We undertake no obligation to publicly update
or revise any forward-looking statements, including any changes
that might result from any facts, events, or circumstances after
the date hereof that may bear upon forward-looking statements.
Furthermore, we cannot guarantee future results, events, levels
of activity, performance, or achievements.
This MD&A is intended to assist in understanding and
assessing the trends and significant changes in our results of
operations and financial condition. As used in this MD&A,
the words, we, our and us
refer to K12 Inc. and its consolidated subsidiaries. This
MD&A should be read in conjunction with our condensed
consolidated financial statements and related notes included in
this report, as well as the consolidated financial statements
and MD&A of our Annual Report. The following overview
provides a summary of the sections included in our MD&A:
|
|
|
|
|
Executive Summary a general description of
our business and key highlights of the current period.
|
|
|
|
Critical Accounting Policies and Estimates a
discussion of critical accounting policies requiring critical
judgments and estimates.
|
|
|
|
Results of Operations an analysis of our
results of operations in our consolidated financial statements.
|
|
|
|
Liquidity and Capital Resources an analysis
of cash flows, sources and uses of cash, commitments and
contingencies, seasonality in the results of our operations, the
impact of inflation, and quantitative and qualitative
disclosures about market risk.
|
Executive
Summary
We are a technology-based education company. We offer
proprietary curriculum and educational services created for
online delivery to students in kindergarten through
12th grade, or K-12. Our mission is to maximize a
childs potential by providing access to an engaging and
effective education, regardless of geographic location or
socio-economic background. Since our inception, we have invested
more than $170 million to develop curriculum and an online
learning platform that promotes mastery of core concepts and
skills for students of all abilities. This learning system
combines a cognitive research-based curriculum with an
individualized learning approach well suited for virtual schools
and other educational applications.
We deliver our learning system to students primarily through
virtual public schools. We offer virtual public schools our
proprietary curriculum, online learning platform and academic
and management services, through long-term contracts. Academic
and management services can range from targeted programs to
complete turnkey solutions. As of March 31, 2010,
substantially all of our enrollments were served through virtual
public schools located in 25 states and the District of
Columbia, including four new states approved for fiscal year
2010. For the three months ended March 31, 2010 versus the
same period in the prior year, we increased enrollments in the
virtual public schools we serve to 67,560 students from 56,022
students, an increase of 20.6%. Additionally, for the three
months ended March 31, 2010 versus the same period in the
prior year, we increased revenues to $96.6 million from
$77.2 million, an increase of 25.2%.
13
For the three months ended March 31, 2010, approximately
85.5% of our enrollments were associated with virtual public
schools to which we provide turnkey management services as
compared to 85.7% for the same period in the prior year. We are
responsible for the complete management of these schools and
therefore, we recognize as revenues the funds received by each
school, up to the level of costs incurred by the school. These
costs are substantial, as they include the cost of teacher
compensation and other ancillary school expenses. Accordingly,
enrollments in these schools generate substantially more
revenues than enrollments in other schools where we provide
limited or no management services. For schools where we do not
provide turnkey management services, our revenues are limited to
direct invoices and are independent of the total funds received
by the school from a state or district.
Parents can also purchase our curriculum and online learning
platform directly to facilitate or supplement their
childrens education. Additionally, we have piloted our
curriculum in brick and mortar classrooms with promising
academic results. We also believe there is additional widespread
applicability for our learning system internationally. We
operate the K12 International Academy, an online private school
which serves students in the U.S. and throughout the world.
The school utilizes the same K12 curriculum, systems, and
teaching practices as the virtual public schools we serve. The
school is accredited by Southern Association of Colleges and
Schools (SACS), AdvancED, and is recognized by the Commonwealth
of Virginia as a degree granting institution of secondary
learning.
Executive
Management
We recently added two new executives to our senior management
team. On May 5, 2010, Harry T. Hawks commenced his
employment with the Company and will be appointed by the
Companys Board of Directors as Executive Vice President
and Chief Financial Officer at its regularly scheduled Board
meeting on May 20, 2010. Previously, Mr. Hawks served
as Executive Vice President and Chief Financial Officer at
Hearst Television Inc. On March 22, 2010, Robert L. Moon
joined the Company as Chief Information Officer. Mr. Moon
previously served as Chief Information Officer at LeapFrog
Enterprises Inc. and ViewSonic Corporation.
Formulation
of Joint Venture
In April 2010, one of our subsidiaries entered into an agreement
to establish a joint venture with Middlebury College to form a
new entity named Middlebury Interactive Languages LLC. Our
investment into this joint venture consisted of cash and
contributed assets, including substantially all of our foreign
languages subsidiary, in return for a 60% ownership interest.
Middlebury Colleges investment in the joint venture
consisted of cash and contributed assets, including a license to
use its trademark and a foreign language instruction summer
camps business, in return for a 40% ownership interest. The
purpose of the joint venture is to create and distribute
innovative, high-quality online language courses under the
trademark Middlebury and other marks.
Discussion
of Seasonality
Our revenues and operating results normally fluctuate as a
result of seasonal variations in our business, principally due
to the number of months that the virtual public schools we serve
are fully operational and changes in the number of enrollments.
We usually experience a seasonal increase in enrollments during
August and September, prior to the beginning of our academic
year. The seasonal increase is the sum of new enrollments less
withdrawals. Students also enroll and withdraw to a lesser
extent during the school year. While school administrative
offices are generally open year round, a school typically serves
students during a ten-month academic year. A schools
academic year will typically start in August or September, our
first fiscal quarter, and finish in May or June, our fourth
fiscal quarter. Consequently, our first and fourth fiscal
quarters may have fewer than three months of full school
operations when compared to the second and third fiscal quarters.
In the first fiscal quarter, we ship and recognize revenues for
materials to students for the beginning of the school year. This
generally results in higher revenues from the shipment of
materials in the first quarter versus other quarters. In the
first and fourth fiscal quarters, online curriculum and computer
revenues are generally lower as these revenues are primarily
earned during the school academic year which may provide for
only one or two months of
14
these revenues in these quarters versus the second and third
fiscal quarters. The combined effect of these factors results in
higher revenues in the first fiscal quarter than in the
subsequent quarters.
Operating expenses are also seasonal. Instructional costs and
services expenses increase in the first fiscal quarter primarily
due to the costs incurred to ship student materials at the
beginning of the school year. Instructional costs may increase
significantly
quarter-to-quarter
as school operating expenses increase in schools where we offer
our complete turnkey solution. For example, enrollment growth
will generally require additional teaching staff, thereby
increasing salary and benefits expense. School events may be
seasonal (e.g. professional development, grant-funded programs,
proctored exam related expenses, and community events),
impacting the quarterly change in our instructional costs. The
majority of our recruiting and selling expenses are incurred in
the first and fourth fiscal quarters, as our primary enrollment
season is July through September. A significant portion of our
overhead expenses does not vary with the school year or
enrollment season.
Developments
in Education Funding
Our annual revenue growth is impacted by changes in state or
district per enrollment funding levels, which are generally set
through the relevant states budgetary process. Due to the
recession, many states have reduced per enrollment funding for
public education affecting many of the virtual public schools we
serve. While the American Recovery and Reinvestment Act of 2009
(ARRA) has provided additional funds to states, it
has not fully offset the state funding reductions. Thus, the net
impact to funding was negative in many states and had a negative
effect on our revenue and income for our third quarter and
year-to-date
results. Our
year-to-date
financial results through March 31, 2010 reflect our
estimates of annual school revenues and expenses, including ARRA
funds, state funding reductions and expense reductions that we
undertook in order to mitigate the impact of the funding
reductions that have occurred. At this time, many states still
have budget issues and the specific level of federal funding for
the coming years is not yet known so it is possible we could
experience lower per enrollment funding in the future.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP
requires us to make estimates and assumptions about future
events that affect the amounts reported in our consolidated
financial statements and accompanying notes. Future events and
their effects cannot be determined with certainty. Therefore,
the determination of estimates requires the exercise of
judgment. Actual results could differ from those estimates, and
any such differences may be material to our consolidated
financial statements. Critical accounting policies are disclosed
in our fiscal year 2009 audited consolidated financial
statements, which are included in our Annual Report. Other than
those described in the condensed consolidated financials, there
have been no significant updates to our critical accounting
policies from those disclosed in our Annual Report.
Results
of Operations
The following table sets forth average enrollment data for each
of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Total Enrollments
|
|
|
67,560
|
|
|
|
56,022
|
|
|
|
67,755
|
|
|
|
55,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Enrollments as percentage of total enrollments
|
|
|
85.5
|
%
|
|
|
85.7
|
%
|
|
|
85.3
|
%
|
|
|
85.5
|
%
|
Non-managed Enrollments as a percentage of total enrollments
|
|
|
14.5
|
%
|
|
|
14.3
|
%
|
|
|
14.7
|
%
|
|
|
14.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total enrollments
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High School enrollments as a percentage of total
|
|
|
22.0
|
%
|
|
|
18.6
|
%
|
|
|
22.1
|
%
|
|
|
19.0
|
%
|
K-8 enrollments as a percentage of total enrollments
|
|
|
78.0
|
%
|
|
|
81.4
|
%
|
|
|
77.9
|
%
|
|
|
81.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total enrollments
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The following table sets forth statements of operations data for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Nine Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Revenues
|
|
$
|
96,627
|
|
|
$
|
77,164
|
|
|
$
|
296,149
|
|
|
$
|
243,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instructional costs and services
|
|
|
56,479
|
|
|
|
47,868
|
|
|
|
166,161
|
|
|
|
152,601
|
|
Selling, administrative, and other operating expenses
|
|
|
26,843
|
|
|
|
19,467
|
|
|
|
85,069
|
|
|
|
61,189
|
|
Product development expenses
|
|
|
2,924
|
|
|
|
2,415
|
|
|
|
7,577
|
|
|
|
7,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
86,246
|
|
|
|
69,750
|
|
|
|
258,807
|
|
|
|
220,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10,381
|
|
|
|
7,414
|
|
|
|
37,342
|
|
|
|
22,602
|
|
Interest expense, net
|
|
|
(361
|
)
|
|
|
(361
|
)
|
|
|
(1,042
|
)
|
|
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and non controlling interest
|
|
|
10,020
|
|
|
|
7,053
|
|
|
|
36,300
|
|
|
|
22,084
|
|
Income tax expense
|
|
|
(3,927
|
)
|
|
|
(3,490
|
)
|
|
|
(13,676
|
)
|
|
|
(9,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,093
|
|
|
$
|
3,563
|
|
|
$
|
22,624
|
|
|
$
|
12,442
|
|
Add (less) net loss (income) attributable to noncontrolling
interests
|
|
$
|
36
|
|
|
$
|
(16
|
)
|
|
$
|
226
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income K12 Inc.
|
|
$
|
6,129
|
|
|
$
|
3,547
|
|
|
$
|
22,850
|
|
|
$
|
12,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth statements of operations data as
a percentage of revenues for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Nine Months Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instructional costs and services
|
|
|
58.5
|
|
|
|
62.1
|
|
|
|
56.1
|
|
|
|
62.7
|
|
Selling, administrative, and other operating expenses
|
|
|
27.8
|
|
|
|
25.2
|
|
|
|
28.7
|
|
|
|
25.1
|
|
Product development expenses
|
|
|
3.0
|
|
|
|
3.1
|
|
|
|
2.6
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
89.3
|
|
|
|
90.4
|
|
|
|
87.4
|
|
|
|
90.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
10.7
|
|
|
|
9.6
|
|
|
|
12.6
|
|
|
|
9.3
|
|
Interest expense, net
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
|
|
(0.3
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and non controlling interest
|
|
|
10.4
|
|
|
|
9.1
|
|
|
|
12.3
|
|
|
|
9.1
|
|
Income tax expense
|
|
|
(4.1
|
)
|
|
|
(4.5
|
)
|
|
|
(4.6
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
6.3
|
%
|
|
|
4.6
|
%
|
|
|
7.7
|
%
|
|
|
5.1
|
%
|
Add (less) net loss (income) attributable to noncontrolling
interests
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income K12 Inc.
|
|
|
6.3
|
%
|
|
|
4.6
|
%
|
|
|
7.8
|
%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have included below a discussion of our operating results and
significant items which explain the material changes in our
operating results during the last three and nine months ended
March 31, 2010 as compared to the same periods in the prior
year.
16
Comparison
of the Three Months Ended March 31, 2010 and Three Months
Ended March 31, 2009
Revenues. Our revenues for the three months
ended March 31, 2010 were $96.6 million, representing
an increase of $19.5 million, or 25.2%, as compared to
revenues of $77.2 million for the same period in the prior
year. Average enrollments increased 20.6% to 67,560 for the
three months ended March 31, 2010 from 56,022 for the same
period in the prior year. The increase in enrollments was
primarily attributable to 18.8% enrollment growth in existing
states. New school openings in Alaska, Oklahoma, Virginia, and
Wyoming contributed approximately 1.8% to enrollment growth. In
new and existing states combined, high school enrollments
contributed approximately 7.9% to overall enrollment growth and
K-8 enrollments contributed approximately 12.7% to overall
enrollment growth. For the three months ended March 31,
2010, high school enrollments increased 42.6% as compared to the
same period in the prior year. Additionally, high school
enrollments constituted approximately 22.0% of our enrollments
for the three months ended March 31, 2010 as compared to
18.6% for the same period in the prior year. K-8 enrollments
increased 15.6% for the three month period ended March 31,
2010 as compared to the same period in the prior year.
Additionally, K-8 enrollments constituted approximately 78.0% of
our enrollments for the three months ended March 31, 2010
as compared to 81.4% for the same period in the prior year. Also
contributing to the growth in revenues was an increase in grant
funding at schools where we provide turnkey management services.
Instructional costs and services
expenses. Instructional costs and services
expenses for the three months ended March 31, 2010 were
$56.5 million, representing an increase of
$8.6 million, or 17.9% as compared to instructional costs
and services expenses of $47.9 million for the same period
in the prior year. This increase was primarily attributable to a
$8.4 million increase in expenses to operate and manage the
schools, in addition to a $0.2 million increase in costs to
supply curriculum, books, educational materials and computers to
students, including depreciation and amortization. As a
percentage of revenues, instructional costs and services
expenses decreased to 58.5% for the three months ended
March 31, 2010, as compared to 62.1% for the same period in
the prior year. This decrease as a percentage of revenues was
primarily attributable to the lower fulfillment costs for
materials and computers, increased productivity at the schools
we serve, and leverage of fixed school infrastructure costs.
This decrease in expenses was partially offset by an increase in
the percentage of high school enrollments relative to total
enrollments from 18.6% to 22.0%, as high school enrollments have
higher costs as a percentage of revenues due to increased
teacher and related services costs.
Selling, administrative, and other operating
expenses. Selling, administrative, and other
operating expenses for the three months ended March 31,
2010 were $26.8 million, representing an increase of
$7.4 million, or 37.9%, as compared to selling,
administrative and other operating expenses of
$19.5 million for the same period in the prior year. This
increase is primarily attributable to increases in personnel
costs including benefits, student recruiting costs, and other
professional services. As a percentage of revenues, selling,
administrative, and other operating expenses increased to 27.8%
for the three months ended March 31, 2010 as compared to
25.2% for the same period in the prior year primarily due to
increases in personnel costs including the expansion of our
institutional sales force, student recruiting, and professional
services.
Product development expenses. Product
development expenses for the three months ended March 31,
2010 were $2.9 million, representing an increase of
$0.5 million, or 21.1 percent as compared to product
development expenses of $2.4 million for the same period in
the prior year. As a percentage of revenues, product development
expenses decreased to 3.0% for the three months ended
March 31, 2010 as compared to 3.1% for the same period in
the prior year as we were able to leverage these costs over a
larger revenue base.
Interest expense, net. Net interest expense
for the three months ended March 31, 2010 and 2009 were
$0.4 million for both periods. Interest expense was
relatively stable as capital lease obligations were relatively
unchanged for the three months ended March 31, 2010 as
compared to same period in the prior year.
Income taxes. Income tax expense for the three
months ended March 31, 2010 was $3.9 million, or 39.2%
of income before income taxes, as compared to an income tax
expense of $3.5 million, or 49.5% of income before taxes,
for the same period in the prior year. The decrease in the tax
rate is primarily due to state tax credits in the three months
ended March 31, 2010 and a timing difference in the
treatment of the deferred tax asset allowance related to stock
compensation expense in the three months ended March 31,
2009.
17
Noncontrolling interest. Noncontrolling
interest for the three months ended March 31, 2010 and 2009
was diminutive. Noncontrolling interest reflects losses
attributable to shareholders in our joint venture in the Middle
East.
Comparison
of the Nine Months Ended March 31, 2010 and Nine Months
Ended March 31, 2009
Revenues. Our revenues for the nine months
ended March 31, 2010 were $296.1 million, representing
an increase of $52.7 million, or 21.7%, as compared to
revenues of $243.4 million for the same period in the prior
year. Average enrollments increased 21.8% to 67,755 for the nine
months ended March 31, 2010 from 55,647 for the same period
in the prior year. The increase in enrollments was primarily
attributable to 20.0% enrollment growth in existing states. New
school openings in Alaska, Oklahoma, Virginia, and Wyoming
contributed approximately 1.8% to enrollment growth. In new and
existing states combined, high school enrollments contributed
approximately 7.9% to overall enrollment growth and K-8
enrollments contributed approximately 13.9% to overall
enrollment growth. For the nine months ended March 31,
2010, high school enrollments increased 41.7% as compared to the
same period in the prior year. Additionally, high school
enrollments constituted approximately 22.1% of our enrollments
for the nine months ended March 31, 2010 as compared to
19.0% for the same period in the prior year. K-8 enrollments
increased 17.6% for the nine months ended March 31, 2010 as
compared to the same period in the prior year. Additionally, K-8
enrollments constituted approximately 77.9% of our enrollments
for the nine months ended March 31, 2010 as compared to
81.0% for the same period in the prior year. Also contributing
to the growth in revenues was an increase in grant funding at
schools where we provide turnkey management services.
Instructional costs and services
expenses. Instructional costs and services
expenses for the nine months ended March 31, 2010 were
$166.2 million, representing an increase of
$13.6 million, or 8.9% as compared to instructional costs
and services of $152.6 million for the same period in the
prior year. This increase was primarily attributable to a
$16.0 million increase in expenses to operate and manage
the schools, partially offset by a $2.4 million decrease in
costs to supply curriculum, books, educational materials and
computers to students, including depreciation and amortization.
As a percentage of revenues, instructional costs decreased to
56.1% for the nine months ended March 31, 2010, as compared
to 62.7% for the same period in the prior year. This decrease as
a percentage of revenues was primarily attributable to the lower
fulfillment costs for materials and computers, increased
productivity at the schools we serve, and leverage of fixed
school infrastructure costs. This decrease in expenses was
partially offset by an increase in the percentage of high school
enrollments relative to total enrollments from 19.0% to 22.1%,
as high school enrollments have higher costs as a percentage of
revenues due to increased teacher and related services costs.
Selling, administrative, and other operating
expenses. Selling, administrative, and other
operating expenses for the nine months ended March 31, 2010
were $85.1 million, representing an increase of
$23.9 million, or 39.0%, as compared to selling,
administrative and other operating expenses of
$61.2 million for the same period in the prior year. This
increase is primarily attributable to increases in personnel
costs including benefits and stock compensation expense, student
recruiting costs, professional services, and litigation
settlement costs. As a percentage of revenues, selling,
administrative, and other operating expenses increased to 28.7%
for the nine months ended March 31, 2010 as compared to
25.1% for the same period in the prior year primarily due to
increases in personnel costs including the expansion of our
institutional sales force, student recruiting, and professional
services.
Product development expenses. Product
development expenses for the nine months ended March 31,
2010 were $7.6 million, representing an increase of
$0.6 million, or 8.0%, as compared to product development
expenses of $7.0 million for the same period in the prior
year. As a percentage of revenues, product development expenses
decreased to 2.6% for the nine months ended March 31, 2010
as compared to 2.9% for the same period in the prior year as we
were able to leverage these costs over a larger revenue base.
Interest expense, net. Net interest expense
for the nine months ended March 31, 2010 was
$1.0 million, as compared to a net interest expense of
$0.5 million for the same period in the prior year. Net
interest expense increased primarily due to lower interest
income as a result of a decline in interest rates for the nine
months ended March 31, 2010 as compared to same period in
the prior year.
Income taxes. Income tax expense for the nine
months ended March 31, 2010 was $13.7 million, or
37.7% of income before income taxes, as compared to an income
tax expense of $9.6 million, or 43.7% of income before
taxes, for the same period in the prior year. The decrease in
rate is primarily attributable to tax credits recognized in
18
the nine months ended March 31, 2010 for research and
development activities in the current and prior periods. Without
these credits, income tax expense for the nine months ended
March 31, 2010 would have been $14.9 million or 41.1%
of income before taxes.
Noncontrolling interest. Noncontrolling
interest for the nine months ended March 31, 2010 was
$0.2 million, as compared to noncontrolling interest of
$0.5 million for the same period in the prior year.
Noncontrolling interest reflects losses attributable to
shareholders in our joint venture in the Middle East.
Liquidity
and Capital Resources
As of March 31, 2010 and June 30, 2009, we had cash
and cash equivalents of $66.5 million and
$49.5 million, respectively. We financed our capital
expenditures during the nine months ended March 31, 2010
primarily through cash flow from operations and capital lease
financing.
Our cash requirements consist primarily of
day-to-day
operating expenses, capital expenditures and contractual
obligations with respect to facility leases, capital equipment
leases and other operating leases. We expect capital
expenditures for additional courses, new releases of existing
courses and internal systems enhancements to remain relatively
stable for fiscal year 2010 as compared to the prior year and
expenditures for computers to support virtual school enrollments
to increase proportionately with enrollment growth. We expect to
be able to fund these capital expenditures with cash on hand,
cash generated from operations and capital lease financing. We
lease all of our office facilities. We expect to make future
payments on existing leases from cash generated from operations.
Based on our current operating and capital expenditure
forecasts, we believe that the combination of funds currently
available and funds to be generated from operations will be
adequate to finance our ongoing operations for the foreseeable
future. In addition, we have begun to explore acquisitions,
strategic investments, and joint ventures related to our
business that we may acquire using cash, stock, debt or a
combination thereof.
Operating
Activities
Net cash provided by operating activities for the nine months
ended March 31, 2010 was $34.1 million compared to net
cash used by operating activities for the nine months ended
March 31, 2009 of $8.6 million.
The increase in accounts receivable was primarily attributable
to our growth in revenues. Accounts receivable balances tend to
be at the highest levels in the first quarter as we begin
billing for students. Deferred revenues are primarily a result
of invoicing up front fees, not cash payments. Deferred revenue
balances tend to be highest in the first quarter, when the
majority of students enroll, and are generally amortized over
the course of the fiscal year. The decrease in cash used in
inventories is primarily due to lower purchases in the nine
months ended March 31, 2010 as compared to the same period
in the prior year as we are benefiting from improved inventory
efficiencies through our purchasing activities and fulfillment
operations. The increase in cash provided by accrued
compensation and benefits is primarily due to an increase in
accrued incentive compensation, vacation and benefits. The
increase in cash used in accrued liabilities is partially due to
higher accrued liabilities for one-time items in the nine months
ended March 31, 2009.
Investing
Activities
Net cash used in investing activities for the nine months ended
March 31, 2010 and 2009 was $17.6 million and
$22.3 million, respectively.
Net cash used in investing activities for the nine months ended
March 31, 2010 was primarily due to investment in
capitalized curriculum of $9.3 million, primarily related
to the production of high school courses, elementary school math
courses, and remedial reading; investment of $7.5 million
in property and equipment, including internally developed and
purchased software, and cash placed in escrow of
$0.8 million.
Net cash used in investing activities for the nine months ended
March 31, 2009 was primarily due to investment in
capitalized curriculum of $10.7 million, primarily related
to the production of high school courses and elementary school
math courses, investment of $10.6 million in property and
equipment, including internally developed and purchased
software, and cash placed in escrow of $1.0 million.
19
In addition, we financed through capital leases purchases of
computers and software primarily for use by students in the
amount of $12.2 million for the nine months ended
March 31, 2010 as compared to financed purchases of
$16.0 million for the same period in the prior year.
Financing
Activities
Net cash provided by financing activities for the nine months
ended March 31, 2010 and 2009 was $0.6 million and
$15.6 million, respectively.
For the nine months ended March 31, 2010, net cash provided
by financing activities was primarily due to the exercise of
stock options of $6.9 million and the excess tax benefit
from stock-based compensation of $4.2 million, partially
offset by payments on capital leases and notes payable of
$10.6 million. As of March 31, 2010, there were no
borrowings outstanding on our $35 million line of credit.
For the nine months ended March 31, 2009, net cash provided
by financing activities was primarily due to the proceeds from
the exercise of stock options of $7.1 million, proceeds
received from the minority interest contribution of
$5.0 million, proceeds from notes payable of
$3.1 million, and the excess tax benefit from stock
compensation expense of $7.1 million. These amounts were
partially offset by payments on capital leases and notes payable
totaling $6.7 million.
Off
Balance Sheet Arrangements, Contractual Obligations and
Commitments
There were no substantial changes to our guarantee and
indemnification obligations in the nine months ended
March 31, 2010 from those disclosed in our fiscal year 2009
audited consolidated financial statements.
Our contractual obligations consist primarily of leases for
office space, capital leases for equipment and other operating
leases. The total amount due under contractual obligations
increased during the nine months ended March 31, 2010
primarily due to approximately $2.6 million for capital
leases related to student computers, net of payments.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Risk
At March 31, 2010 and June 30, 2009, we had cash and
cash equivalents totaling $66.5 million and
$49.5 million, respectively. Our excess cash has been
invested primarily in U.S. Treasury money market funds
although we may also invest in money market accounts, government
securities, corporate debt securities and similar investments.
Future interest and investment income is subject to the impact
of interest rate changes and we may be subject to changes in the
fair value of our investment portfolio as a result of changes in
interest rates.
Our short-term debt obligations under our revolving credit
facility are subject to interest rate exposure; however, as we
had no outstanding balance on this facility during the nine
months ended March 31, 2010, fluctuations in interest rates
had no impact on our interest expense.
Foreign
Currency Exchange Risk
We currently operate in foreign countries, but we do not
transact a material amount of business in a foreign currency and
therefore fluctuations in exchange rates will not have a
material impact on our financial statements. However, we
continue to pursue opportunities in international markets. If we
enter into any material transactions in a foreign currency or
establish or acquire any subsidiaries that measure and record
their financial condition and results of operation in a foreign
currency, we will be exposed to currency transaction risk
and/or
currency translation risk. Exchange rates between
U.S. dollars and many foreign currencies have fluctuated
significantly over the last few years and may continue to do so
in the future. Accordingly, we may decide in the future to
undertake hedging strategies to minimize the effect of currency
fluctuations on our financial condition and results of
operations.
20
|
|
Item 4.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rule 13a-15(f)
of the Exchange Act) that are designed to ensure that
information required to be disclosed in our Exchange Act reports
is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms and that such information is
accumulated and communicated to our management, including our
Chief Executive Officer and Acting Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to
apply its judgment in evaluating the cost benefit relationship
of possible controls and procedures.
We carried out an evaluation, required by paragraph (b) of
Rule 13a-15
or
Rule 15d-15
under the Exchange Act, under the supervision and with the
participation of management, including our Chief Executive
Officer and Acting Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures (as defined in
Rule 13a-15(e)
or
Rule 15d-15(e)
of the Exchange Act) as of the end of the period covered by this
report. Based on this review, our Chief Executive Officer and
Acting Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2010.
Internal
Control over Financial Reporting
During the three months ended March 31, 2010, there were no
changes in our internal control over financial reporting
identified in connection with the evaluation required by
paragraph (d) of
Rule 13a-15
or
Rule 15-d-15
under the Exchange Act that occurred during the
registrants last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Part II.
Other Information
|
|
Item 1.
|
Legal
Proceedings.
|
None.
There have been no material changes to the risk factors
disclosed in Risk Factors in Part I,
Item 1A, of our Annual Report.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None.
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
|
|
Item 5.
|
Other
Information.
|
None.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are
filed as part of this report and such Exhibit Index is
incorporated herein by reference.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
K12 INC.
Ronald J. Packard
Chief Executive Officer
Date: May 10, 2010
22
EXHIBIT INDEX
|
|
|
Number
|
|
Description
|
|
10.1*
|
|
Employment Agreement of Harry T. Hawks
|
31.1*
|
|
Certification of Principal Executive Officer Required Under
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.
|
31.2*
|
|
Certification of Principal Financial Officer Required Under
Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.
|
32*
|
|
Certification of Principal Executive Officer and Principal
Financial Officer Required Under
Rule 13a-14(b)
of the Securities Exchange Act of 1934, as amended, and
18 U.S.C. Section 1350.
|
23