BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
Gross unrealized
|
|
|
|
Maturities
|
|
Amortized Cost
|
|
Gain
|
|
Loss
|
|
Fair Value
|
Short-term
|
|
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
1 year or less
|
|
18,113
|
|
|
—
|
|
|
(40
|
)
|
|
18,073
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
Corporate notes and bonds
|
3 years or less
|
|
22,887
|
|
|
—
|
|
|
(117
|
)
|
|
22,770
|
|
Certificates of deposit
|
3 years or less
|
|
25,000
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
Total
|
|
|
$
|
66,000
|
|
|
$
|
—
|
|
|
$
|
(157
|
)
|
|
$
|
65,843
|
|
The above table does not include
$1.3 million
of mutual funds for
December 31, 2015
, which are recorded as trading securities.
The Company records the changes in unrealized gains and losses on its investments arising during the period in the accumulated other comprehensive income line item on the Company’s condensed consolidated balance sheets. For each of the
three months ended
March 31, 2016
and
2015
, the Company recorded net unrealized gains of
$165,000
in accumulated other comprehensive income, net of
$138,000
of tax expense for the three months ended
March 31, 2015
. There was
no
tax effect on net unrealized gains for the
three months ended
March 31, 2016
.
There were no reclassifications out of accumulated other comprehensive income during the
three months ended
March 31, 2016
. During the three months ended
March 31, 2015
, the Company reclassified
$61,000
out of accumulated other comprehensive income, which was recognized in the other income, net, line item on the Company’s condensed consolidated statements of income (loss).
5. Accounts Receivable, Net
Accounts receivable, net, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Accounts receivable
|
$
|
53,636
|
|
|
$
|
34,205
|
|
Less allowance for doubtful accounts
|
(19,457
|
)
|
|
(10,114
|
)
|
Accounts receivable, net
|
$
|
34,179
|
|
|
$
|
24,091
|
|
As of
March 31, 2016
and
December 31, 2015
, there was an immaterial amount of accounts receivable with a payment due date of greater than one year.
The following table presents the changes in the allowance for doubtful accounts for accounts receivable for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Charged to
Expense
|
|
Deductions(1)
|
|
Ending
Balance
|
Allowance for doubtful accounts receivable:
|
|
|
|
|
|
|
|
For the three months ended March 31, 2016
|
$
|
(10,114
|
)
|
|
$
|
9,545
|
|
|
$
|
(202
|
)
|
|
$
|
(19,457
|
)
|
For the three months ended March 31, 2015
|
$
|
(27,567
|
)
|
|
$
|
8,459
|
|
|
$
|
(4,765
|
)
|
|
$
|
(31,261
|
)
|
|
|
(1)
|
Deductions represent accounts written off, net of recoveries.
|
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
6. Student Loans Receivable, Net
Student loans receivable, net, consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
Short-term:
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Student loans receivable (non-tuition related)
|
$
|
218
|
|
|
$
|
310
|
|
Student loans receivable (tuition related)
|
544
|
|
|
555
|
|
Current student loans receivable
|
762
|
|
|
865
|
|
Less allowance for doubtful accounts
|
(36
|
)
|
|
(90
|
)
|
Student loans receivable, net
|
$
|
726
|
|
|
$
|
775
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Student loans receivable (non-tuition related)
|
$
|
3,251
|
|
|
$
|
3,314
|
|
Student loans receivable (tuition related)
|
4,895
|
|
|
4,943
|
|
Non-current student loans receivable
|
8,146
|
|
|
8,257
|
|
Less allowance for doubtful accounts
|
(999
|
)
|
|
(863
|
)
|
Student loans receivable, net
|
$
|
7,147
|
|
|
$
|
7,394
|
|
Student loans receivable is presented net of any related discount, and the balances approximated fair value at each balance sheet date. The Company estimates the fair value of the student loans receivable by discounting the future cash flows using an interest rate of
4.5%
, which approximates the interest rates used in similar arrangements. The assumptions used in this estimate are considered unobservable inputs and are therefore categorized as Level 3 measurements under the accounting guidance.
Revenue recognized related to student loans was immaterial during each of the three months ended
March 31, 2016
and
2015
. The following table presents the changes in the allowance for doubtful accounts for student loans receivable (tuition related) for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
Charged to
Expense
|
|
Deductions(1)
|
|
Ending
Balance
|
Allowance for doubtful student loans receivable (tuition related):
|
|
|
|
|
|
|
|
For the three months ended March 31, 2016
|
$
|
(953
|
)
|
|
$
|
74
|
|
|
$
|
(8
|
)
|
|
$
|
(1,035
|
)
|
For the three months ended March 31, 2015
|
$
|
(1,495
|
)
|
|
$
|
(63
|
)
|
|
$
|
—
|
|
|
$
|
(1,432
|
)
|
|
|
(1)
|
Deductions represent accounts written off, net of recoveries.
|
For the non-tuition related student loans receivable, the Company monitors the credit quality of the borrower using credit scores, aging history of the loan and delinquency trending. The loan reserve methodology is reviewed on a quarterly basis. Delinquency is the main factor in determining if a loan is impaired. If a loan were determined to be impaired, interest would no longer accrue. For the three months ended
March 31, 2016
,
$0.1 million
of student loans were impaired. As of
March 31, 2016
,
$0.6 million
of student loans had been placed on non-accrual status.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
As of
March 31, 2016
, the repayment status of gross student loans receivable was as follows (in thousands):
|
|
|
|
|
120 days and less
|
$
|
10,030
|
|
From 121 - 270 days
|
824
|
|
Greater than 270 days
|
824
|
|
Total gross student loans receivable
|
11,678
|
|
Less: Amounts reserved or impaired
|
(1,664
|
)
|
Less: Discount on student loans receivable
|
(2,141
|
)
|
Total student loans receivable, net
|
$
|
7,873
|
|
7. Other Significant Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Prepaid expenses
|
$
|
7,186
|
|
|
$
|
7,005
|
|
Prepaid licenses
|
4,807
|
|
|
5,221
|
|
Income tax receivable
|
25,709
|
|
|
20,169
|
|
Prepaid insurance
|
1,309
|
|
|
1,619
|
|
Interest receivable
|
378
|
|
|
299
|
|
Insurance recoverable
|
1,124
|
|
|
16,659
|
|
Other current assets
|
1,514
|
|
|
1,220
|
|
Total prepaid expenses and other current assets
|
$
|
42,027
|
|
|
$
|
52,192
|
|
Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Furniture and office equipment
|
$
|
63,614
|
|
|
$
|
63,354
|
|
Software
|
12,616
|
|
|
12,605
|
|
Leasehold improvements
|
11,136
|
|
|
11,136
|
|
Vehicles
|
22
|
|
|
22
|
|
Total property and equipment
|
87,388
|
|
|
87,117
|
|
Less accumulated depreciation and amortization
|
(67,820
|
)
|
|
(65,375
|
)
|
Total property and equipment, net
|
$
|
19,568
|
|
|
$
|
21,742
|
|
For the
three months ended
March 31, 2016
and
2015
, depreciation expense was
$2.4 million
and
$3.9 million
, respectively.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Goodwill and Intangibles, Net
Goodwill and intangibles, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
Definite-lived intangible assets:
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Capitalized curriculum costs
|
$
|
20,551
|
|
|
$
|
(14,928
|
)
|
|
$
|
5,623
|
|
Purchased intangible assets
|
15,850
|
|
|
(3,830
|
)
|
|
12,020
|
|
Total definite-lived intangible assets
|
$
|
36,401
|
|
|
$
|
(18,758
|
)
|
|
$
|
17,643
|
|
Goodwill and indefinite-lived intangibles
|
|
|
|
|
2,567
|
|
Total goodwill and intangibles, net
|
|
|
|
|
$
|
20,210
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Definite-lived intangible assets:
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Capitalized curriculum costs
|
$
|
20,323
|
|
|
$
|
(13,954
|
)
|
|
$
|
6,369
|
|
Purchased intangible assets
|
15,850
|
|
|
(3,521
|
)
|
|
12,329
|
|
Total definite-lived intangible assets
|
$
|
36,173
|
|
|
$
|
(17,475
|
)
|
|
$
|
18,698
|
|
Goodwill and indefinite-lived intangibles
|
|
|
|
|
2,567
|
|
Total goodwill and intangibles, net
|
|
|
|
|
$
|
21,265
|
|
For the
three months ended
March 31, 2016
and
2015
, amortization expense was
$1.3 million
and
$1.5 million
, respectively.
The following table summarizes the estimated remaining amortization expense as of each fiscal year ended below (in thousands):
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
$
|
3,397
|
|
2017
|
3,256
|
|
2018
|
2,180
|
|
2019
|
1,408
|
|
2020
|
1,234
|
|
Thereafter
|
6,168
|
|
Total future amortization expense
|
$
|
17,643
|
|
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Accounts payable
|
$
|
945
|
|
|
$
|
4,762
|
|
Accrued salaries and wages
|
7,780
|
|
|
10,476
|
|
Accrued bonus
|
2,783
|
|
|
4,295
|
|
Accrued vacation
|
9,894
|
|
|
9,628
|
|
Accrued litigation and fees
|
14,402
|
|
|
720
|
|
Accrued expenses
|
19,258
|
|
|
17,243
|
|
Rent liability
|
12,483
|
|
|
13,406
|
|
Accrued insurance liability
|
3,265
|
|
|
18,666
|
|
Total accounts payable and accrued liabilities
|
$
|
70,810
|
|
|
$
|
79,196
|
|
Deferred Revenue and Student Deposits
Deferred
revenue
and student
deposits consist of
the following
(in
thousands):
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Deferred revenue
|
$
|
32,710
|
|
|
$
|
23,311
|
|
Student deposits
|
49,669
|
|
|
65,445
|
|
Total deferred revenue and student deposits
|
$
|
82,379
|
|
|
$
|
88,756
|
|
Other Long-Term Liabilities
Other long-term liabilities consist of
the following
(in
thousands):
|
|
|
|
|
|
|
|
|
|
As of
March 31, 2016
|
|
As of
December 31, 2015
|
Uncertain tax positions
|
$
|
7,907
|
|
|
$
|
7,870
|
|
Legal settlements
|
132
|
|
|
178
|
|
Student transfer agreement costs
|
1,633
|
|
|
—
|
|
Other long-term liabilities
|
5,302
|
|
|
6,998
|
|
Total other long-term liabilities
|
$
|
14,974
|
|
|
$
|
15,046
|
|
8
.
Credit Facilities
The Company has issued letters of credit that are collateralized with cash in the aggregate amount of
$6.7 million
, which is included as restricted cash as of
March 31, 2016
.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. The Company has entered into a surety bond facility with an insurance company to provide such bonds when required. As of
March 31, 2016
, the Company’s total available surety bond facility was
$12.0 million
and the surety had issued bonds totaling
$3.7 million
on the Company’s behalf under such facility.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
9. Lease Obligations
Operating leases
The Company leases certain office facilities and office equipment under non-cancelable lease arrangements that expire at various dates through 2023. The office leases contain certain renewal options. Rent expense under non-cancelable operating lease arrangements is accounted for on a straight-line basis and totaled
$5.7 million
and
$7.6 million
for the three months ended
March 31, 2016
and
2015
, respectively.
The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at
March 31, 2016
(in thousands):
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2016
|
$
|
27,356
|
|
2017
|
36,127
|
|
2018
|
31,445
|
|
2019
|
20,876
|
|
2020
|
9,546
|
|
Thereafter
|
7,148
|
|
Total minimum payments
|
$
|
132,498
|
|
10. Loss Per Share
Basic loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period.
Diluted loss per share is calculated by dividing net income available to common stockholders by the sum of (i) the weighted average number of common shares outstanding for the period and (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented may include incremental shares of common stock issuable upon the exercise of stock options and the settlement of restricted stock units (“RSUs”) and performance stock units (“PSUs”).
The following table sets forth the computation of basic and diluted loss per share for the periods indicated (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
Net loss
|
$
|
(10,112
|
)
|
|
$
|
(371
|
)
|
Denominator:
|
|
|
|
Weighted average number of common shares outstanding
|
45,933
|
|
|
45,428
|
|
Effect of dilutive options and stock units
|
—
|
|
|
—
|
|
Diluted weighted average number of common shares outstanding
|
45,933
|
|
|
45,428
|
|
Loss per share:
|
|
|
|
Basic loss per share
|
$
|
(0.22
|
)
|
|
$
|
(0.01
|
)
|
Diluted loss per share
|
$
|
(0.22
|
)
|
|
$
|
(0.01
|
)
|
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
The following table sets forth the number of stock options, RSUs and PSUs, as applicable, excluded from the computation of diluted common shares outstanding for the periods indicated below because their effect was anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Stock options
|
4,510
|
|
|
4,889
|
|
RSUs and PSUs
|
921
|
|
|
558
|
|
11. Stock-Based Compensation
The Company recorded
$2.3 million
and
$2.2 million
of stock-based compensation expense for the three months ended
March 31, 2016
and
2015
, respectively. The related income tax benefit was
$0.9 million
and
$0.8 million
for the
three months ended
March 31, 2016
and
2015
, respectively.
During the
three months ended
March 31, 2016
, the Company granted
0.4 million
RSUs at a grant date fair value of
$10.59
and
0.4 million
RSUs vested. During the
three months ended
March 31, 2015
, the Company granted
0.8 million
RSUs at a grant date fair value of
$9.43
and
0.3 million
RSUs vested.
During the
three months ended
March 31, 2016
, the Company did not grant any PSUs and
no
PSUs vested. During the
three months ended
March 31, 2015
, the Company granted
0.6 million
PSUs at a weighted average grant date fair value of
$8.18
and
no
PSUs vested.
During the
three months ended
March 31, 2016
, the Company granted
0.4 million
stock options at a grant date fair value of
$4.99
and
0.2 million
stock options were exercised. During the
three months ended
March 31, 2015
, the Company granted
0.4 million
stock options and
0.1 million
stock options were exercised.
As of
March 31, 2016
, there was unrecognized compensation cost of
$15.2 million
related to unvested stock options, RSUs and PSUs.
12. Income Taxes
The Company recognizes deferred tax assets if realization of such assets is more likely than not. In order to make this determination, the Company evaluates factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss, and the ability to carryback certain operating losses to refund taxes paid in prior years. The cumulative loss incurred over the three-year period ended March 31, 2016 constituted significant negative objective evidence against the Company’s ability to realize a benefit from its federal deferred tax assets. Such objective evidence limited the ability of the Company to consider in its evaluation other subjective evidence such as the Company’s projections for future growth. On the basis of its evaluation, the Company determined that its deferred tax assets were not more likely than not to be realized and that a full valuation allowance against its deferred tax assets should continue to be maintained as of March 31, 2016.
The Company determines the interim income tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to income before income taxes for the period. In determining the full year estimate, the Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.
The Company’s effective income tax rate for the three months ended March 31, 2016 was
35.2%
, which included a discrete tax benefit of
$5.2 million
associated with a legal accrual.
At each of
March 31, 2016
and
December 31, 2015
, the Company had
$20.6 million
of gross unrecognized tax benefits, of which
$13.4 million
would impact the effective income tax rate if recognized. The Company’s continuing practice is to recognize interest and penalties related to uncertain tax positions in the income tax expense line item on the Company’s
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
condensed consolidated statements of income (loss). Accrued interest and penalties related to uncertain tax positions was
$2.0 million
as of both March 31, 2016 and December 31, 2015.
It is reasonably possible that the total amount of the unrecognized tax benefit will change during the next 12 months. However, the Company does not expect any potential change to have a material effect on the Company’s results of operations or financial position in the next year.
The tax years 2008 through 2015 are open to examination by major taxing jurisdictions to which the Company is subject. The Company is currently under audit by the California Franchise Tax Board for the years 2008 through 2012. In connection with the California Franchise Tax Board audit, in 2014 the Company filed a refund claim for years 2008 through 2010 for approximately
$12.6 million
. However, the Company will not recognize benefit in its financial statements related to the refund claim until the final resolution of the audit examination.
The Company is also subject to various other state audits. With respect to all open audits, the Company does not expect any significant adjustments to amounts already reserved.
13. Regulatory
The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (the “Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (the “Department”) subject the Company to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the Higher Education Act.
Ashford University is regionally accredited by WASC Senior College and University Commission (“WSCUC”) and University of the Rockies is regionally accredited by the Higher Learning Commission (“HLC”).
Department of Education Program Review of Ashford University
On July 31, 2014, the Company and Ashford University received notification from the Department that it intended to conduct a program review of Ashford University’s administration of federal student financial aid programs (“Title IV programs”) in which the university participates. The review commenced on August 25, 2014, and covers federal financial aid years 2012-2013 and 2013-2014, as well as compliance with the Jeanne Clery Disclosure of Campus Security Policy and Campus Crime Statistics Act (the “Clery Act”), the Drug-Free Schools and Communities Act and related regulations. Ashford University was provided with the Department’s program review report and has responded to such initial report. Following consideration of the university’s response, the Department will issue a Final Program Review Determination letter.
WSCUC Grant of Initial Accreditation of Ashford University
In July 2013, WSCUC granted Initial Accreditation to Ashford University for five years, until July 15, 2018. In December 2013, Ashford University effected its transition to WSCUC accreditation and designated its San Diego, California facilities as its main campus and its Clinton, Iowa campus as an additional location. As part of a continuing monitoring process, Ashford University hosted a visiting team from WSCUC in a special visit in April 2015. In July 2015, Ashford University received an Action Letter from WSCUC outlining the findings arising out of its team’s special visit. The Action Letter stated that the WSCUC visiting team found substantial evidence that Ashford University continues to make sustained progress in all six areas recommended by WSCUC in 2013.
WSCUC also performs Mid-Cycle Reviews of its accredited institutions near the midpoint of their periods of accreditation, as required by the Department. The purpose of the Mid-Cycle Review is to identify problems with an institution’s or program’s continued compliance with agency standards while taking into account institutional or program strengths and stability. The Mid-Cycle Review report, which is expected to be submitted by Ashford University to WSCUC in May 2016, will focus particularly on student achievement, including indicators of educational effectiveness, retention and graduation data.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Licensure by California BPPE
To be eligible to participate in Title IV programs, an institution must be legally authorized to offer its educational programs by the states in which it is physically located. Effective July 2011, the Department established new requirements to determine if an institution is considered to be legally authorized by a state. In connection with its transition to WSCUC accreditation, Ashford University designated its San Diego, California facilities as its main campus for Title IV purposes and submitted an Application for Approval to Operate an Accredited Institution to the State of California, Department of Consumer Affairs, Bureau for Private Postsecondary Education (“BPPE”) on September 10, 2013.
In April 2014, the application was granted, and the university was approved by BPPE to operate in California until July 15, 2018. As a result, Ashford University is no longer exempt from certain laws and regulations applicable to private, post-secondary educational institutions. These laws and regulations entail certain California reporting requirements including, but not limited to, graduation, employment and licensing data, certain changes of ownership and control, faculty and programs, and student refund policies, as well as the triggering of other state and federal student employment data reporting and disclosure requirements.
Negotiated Rulemaking and Other Executive Action
Three negotiated rulemaking sessions held between January and March of 2014 resulted in draft regulations to enact changes to the Clery Act required by the enactment of the Violence Against Women Act (“VAWA”). The Department published final regulations in the Federal Register on October 20, 2014, which became effective on July 1, 2015. Among other things, VAWA requires institutions to compile statistics for additional incidents to those currently required by the Clery Act and include certain policies, procedures and programs pertaining to these incidents in annual security reports.
The Department held Program Integrity and Improvement negotiated rulemaking sessions between February and May of 2014 that focused on topics including, but not limited to, cash management of Title IV program funds, state authorization for programs offering distance or correspondence education, credit and clock hour conversions, the retaking of coursework, and the definition of “adverse credit” for PLUS loan borrowers. No consensus resulted from the rulemaking sessions. As a result, the Department had discretion to propose Program Integrity regulations in these areas. In August 2014, the Department published a Notice of Proposed Rulemaking proposing new regulations regarding the federal Direct PLUS loan program. The final regulations became effective on July 1, 2015 and update the standards for determining if a potential parent or student borrower has an adverse credit history for purposes of eligibility for a PLUS loan. Specifically, the regulations revise the definition of “adverse credit history” and require that parents and students who have an adverse credit history, but who are approved for a PLUS loan on the basis of extenuating circumstances or who obtain an endorser for the PLUS loan, must receive loan counseling before receiving the loan.
On September 3, 2014, the Department published a notice in the Federal Register to announce its intention to establish a negotiated rulemaking committee to prepare proposed regulations for the William D. Ford “Federal Direct Loan Program” authorized by the Higher Education Act. Two public hearings were held in October and November 2014. On December 19, 2014, the Department published a notice to announce its intention to establish the committee to (i) prepare proposed regulations to establish a new Pay as Your Earn repayment plan for those not covered by the existing Federal Direct Loan Program and (ii) establish procedures for Federal Family Education Loan Program (“FFEL Program”) loan holders to use to identify U.S. military service members who may be eligible for a lower interest rate on their FFEL Program loans. The committee met in February, March and April of 2015. On July 9, 2015, the Department published a Notice of Proposed Rulemaking proposing to amend the regulations governing the Federal Direct Loan Program, and on October 30, 2015, the regulations were amended to create a new income-contingent repayment plan in accordance with President Obama’s initiative to allow more Federal Direct Loan Program borrowers to cap their loan payments at 10% of their monthly income. Changes were also made to the FFEL Program and Federal Direct Loan Program regulations to streamline and enhance existing processes and provide additional support to struggling borrowers. The amended regulations also expand the circumstances in which an institution may challenge or appeal a draft or final cohort default rate based on the institution’s participation rate index.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
On October 30, 2014, the Obama administration announced that the Department would lead an effort to formalize an interagency task force to conduct oversight of for-profit institutions of higher education, especially regarding alleged unfair, deceptive, and abusive policies and practices. The task force has been formed and includes the Departments of Justice, Treasury and Veterans Affairs, as well as the Consumer Financial Protection Bureau, the Federal Trade Commission, the SEC and state Attorneys General. The stated purpose of the task force is to “coordinate...activities and promote information sharing to protect students from unfair, deceptive and abusive policies and practices.”
On March 24, 2015, the Department’s Office of Inspector General (the “OIG”) issued a final audit report titled “Federal Student Aid’s Oversight of Schools’ Compliance with the Incentive Compensation Ban.” In its report, the OIG concluded that the Department’s Office of Federal Student Aid (the “FSA”) failed to (i) revise its enforcement procedures and guidance after the Department eliminated the incentive compensation safe harbors in 2010, (ii) develop procedures and guidance on appropriate enforcement action and (iii) properly resolve incentive compensation ban findings. In response to the report, the OIG and the FSA agreed on corrective action that may increase scrutiny and enforcement action related to the payment of incentive compensation.
On May 18, 2015, the Department published a Notice of Proposed Rulemaking to amend cash management regulations related to Title IV program funds. The proposed regulations address student access to Title IV program funds, financial account fees and the opening of financial accounts. The proposed regulations also clarify how the Department treats previously passed coursework for Title IV eligibility purposes and streamline the requirements for converting clock hours to credit hours.
On June 8, 2015, the Department held a press conference and released a document entitled “Fact Sheet: Protecting Students from Abusive Career Colleges” in which the Department announced processes that will be established to assist students who may have been the victims of fraud in gaining relief under the “defense to repayment” provisions of the Federal Direct Loan Program regulations. Rarely used in the past, the defense to repayment provisions allow a student to assert as a defense against repayment of federal Direct Loans any commission of fraud or other violation of applicable state law by the school related to such loans or the educational services paid for. The processes outlined by the Department on June 8 include (i) extending debt relief eligibility to groups of students where possible, (ii) providing loan forbearance and pausing payments while claims are being resolved, (iii) appointing a Special Master dedicated to borrower defense issues for students who believe they have a defense to repayment, (iv) establishing a streamlined process and (v) building a better system for debt relief for the future. The Department noted that building a better system for debt relief would involve developing new regulations to clarify and streamline loan forgiveness under the defense to repayment provisions, while maintaining or enhancing current consumer protection standards and strengthening provisions that hold schools accountable for actions that result in loan discharges.
On August 20, 2015, the Department announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations for the Federal Student Aid programs authorized under Title IV of the Higher Education Act. The Department held two public hearings in September 2015 at which interested parties commented on the topics suggested by the Department and suggested additional topics that should be considered for action by the negotiating committee. The Department also accepted written comments and suggestions. The Department convened a committee to develop proposed regulations for determining which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment, and the consequences of the assertion of such borrower defenses for borrowers, institutions and the Department. Specifically, the Department addressed (i) the procedures to be used for a borrower to establish a defense to repayment, (ii) the criteria the Department will use to identify acts or omissions of an institution that constitute defenses to repayment, (iii) the standards and procedures the Department will use to determine the liability of the institution for amounts based on borrower defenses and (iv) the effect of borrower defenses on institutional capability assessments. The committee met in January, February and March of 2016 and was unable to reach a consensus. Therefore, the Department has discretion to draft a proposed rule and has announced its intent to do so, with the goal of a final rule by November 1, 2016 and an effective date of July 1, 2017.
On February 8, 2016, the Department announced the creation of a Student Aid Enforcement Unit to respond more quickly and efficiently to allegations of illegal actions by higher education institutions. In April 2016, the Department drafted a set of standards clarifying the information accreditors must submit, including the format in which information should be submitted, when notifying federal officials about actions taken against schools they accredit. The Department will accept public comments on the proposed standards through June 6, 2016.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
On April 22, 2016, the Department issued a Dear Colleague Letter to federally recognized accrediting agencies regarding the flexibility those agencies have in differentiating their reviews of institutions and programs. The Department’s letter encourages accrediting agencies to use that flexibility to focus monitoring and resources on student achievement and problematic institutions or programs. The Department also encourages regional accreditors, such as WSCUC and HLC, to consider adding the use of quantitative measures, in addition to the qualitative measures of student achievement already utilized, in reviewing institutions’ processes for evaluating and validating student learning, and to consider licensing and placement rates in its accreditation of institutions that offer applied, professional and occupational programs.
Substantial misrepresentation
The Higher Education Act prohibits an institution participating in Title IV programs from engaging in substantial misrepresentation of the nature of its educational programs, financial charges or graduate employability. Under the Department’s rules, a “misrepresentation” is any false, erroneous or misleading statement an institution, one of its representatives or any ineligible institution, organization or person with whom the institution has an agreement to provide educational programs or marketing, advertising, recruiting, or admissions services makes directly to a student or prospective student or any member of the public, or to an accrediting agency, a state agency or the Department. The Department’s rules define a “substantial misrepresentation” as any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.
On December 10, 2015, Ashford University received a request for information from the Multi-Regional and Foreign School Participation Division of the FSA for (i) advertising and marketing materials provided to prospective students regarding the transferability of certain credit, (ii) documents produced in response to the Consumer Financial Protection Bureau’s (the “CFPB”) August 10, 2015 Civil Investigative Demand related to the CFPB’s investigation to determine whether for-profit post-secondary education companies or other unnamed persons have engaged in or are engaging in unlawful acts or practices related to the advertising, marketing or origination of private student loans, (iii) certain documents produced in response to subpoenas and interrogatories issued by the California Attorney General and (iv) records created between 2009 and 2012 related to the disbursement of certain Title IV funds. The FSA is investigating representations made by Ashford University to potential and enrolled students, and has asked the Company and Ashford University to assist in its assessment of Ashford University’s compliance with the prohibition on substantial misrepresentations. The Company and Ashford University intend to provide the FSA with their full cooperation with a view toward demonstrating the compliant nature of their practices.
If the Department determines that one of the Company’s institutions has engaged in substantial misrepresentation, the Department may (i) attempt to revoke the institution’s program participation agreement if the institution is provisionally certified, (ii) impose limitations on the institution’s participation in Title IV programs if the institution is provisionally certified, (iii) deny applications from the institution for approval of new programs or locations or other matters or (iv) initiate proceedings to fine the institution or limit, suspend or terminate its eligibility to participate in Title IV programs. Because Ashford University is provisionally certified, it could be subject to the actions set forth in clauses (i) and (ii) above in addition to any other actions taken by the Department if it were determined that Ashford University has engaged in substantial misrepresentation.
Administrative capability
The Department specifies extensive criteria by which an institution must establish that it has the requisite administrative capability to participate in Title IV programs. To meet the administrative capability standards, an institution must, among other things, (i) comply with all applicable Title IV program requirements (ii) have an adequate number of qualified personnel to administer Title IV programs, (iii) have acceptable standards for measuring the satisfactory academic progress of its students, (iv) have procedures in place for awarding, disbursing and safeguarding Title IV funds and for maintaining required records, (v) administer Title IV programs with adequate checks and balances in its system of internal control over financial reporting, (vi) not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension, (vii) provide financial aid counseling to its students, (viii) refer to the OIG any credible information indicating that any student, parent, employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal conduct involving Title IV programs, (ix) timely submit all required reports and financial statements and (x) not otherwise appear to lack administrative capability.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Ashford University and University of the Rockies were notified by the Department that it did not believe the institutions fully responded to the disclosures of data required by the Gainful Employment regulations, that this was an indication of a serious lack of administrative capability, and that as a result the Department would not make any decisions regarding the addition of any new programs or additional locations until the reporting requirements were met. The Department informed the Company that failure to fully comply in all Gainful Employment data reporting requirements could result in the referral of the errant institution to the Department’s Administrative Actions and Appeals Service Group for consideration of an administrative action against that institution, including a fine, the limitation, suspension or termination of institutional eligibility to participate in Title IV programs, or revocation of the institution’s program participation agreement (if provisional). The Company worked with the Department to address their concerns with respect to the reporting of the Company’s institutions under the Gainful Employment regulations. The Department has since approved two new programs for Ashford University, and the Company does not anticipate any actions against its institutions related to this notification.
14
. Commitments and Contingencies
Litigation
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with authoritative guidance, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated with no best estimate in the range, the Company records the minimum estimated liability. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.
Compliance Audit by the Department’s Office of the Inspector General
In January 2011, Ashford University received a final audit report from the OIG regarding the compliance audit commenced in May 2008 and covering the period July 1, 2006 through June 30, 2007. The audit covered Ashford University’s administration of Title IV program funds, including compliance with regulations governing institutional and student eligibility, awards and disbursements of Title IV program funds, verification of awards and returns of unearned funds during that period, and its compensation of financial aid and recruiting personnel during the period May 10, 2005 through June 30, 2009.
The final audit report contained audit findings, in each case for the period July 1, 2006 through June 30, 2007, which are applicable to award year 2006-2007. Each finding was accompanied by one or more recommendations to the FSA. Ashford University provided the FSA a detailed response to the OIG’s final audit report in February 2011. In June 2011, in connection with two of the six findings, the FSA requested that Ashford University conduct a file review of the return to Title IV fund calculations for all Title IV recipients who withdrew from distance education programs during the 2006-2007 award year. The institution cooperated with the request and supplied the information within the time frame required. If the FSA were to determine to assess a monetary liability or commence other administrative action, Ashford University would have an opportunity to contest the assessment or proposed action through administrative proceedings, with the right to seek review of any final administrative action in the federal courts.
The outcome of this audit is uncertain at this point because of the many questions of fact and law that may arise. At present, the Company cannot reasonably estimate a range of loss for this action based on the information available to the Company. Accordingly, the Company has not accrued any liability associated with this matter.
Iowa Attorney General Civil Investigation of Ashford University
In February 2011, Ashford University received from the Attorney General of the State of Iowa (the “Iowa Attorney General”) a Civil Investigative Demand and Notice of Intent to Proceed (the “CID”) relating to the Iowa Attorney General’s investigation of whether certain of the university’s business practices comply with Iowa consumer laws. Pursuant to the CID, the Iowa Attorney General requested documents and detailed information for the time period January 1, 2008 to present. On
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
numerous occasions, representatives from the Company and Ashford University met with the Iowa Attorney General to discuss the status of the investigation and the Iowa Attorney General’s allegations against the Company that had been communicated to the Company in June 2013. As a result of these meetings, on May 15, 2014, the Iowa Attorney General, the Company and Ashford University entered into an Assurance of Voluntary Compliance (the “AVC”) in full resolution of the CID and the Iowa Attorney General’s allegations. The AVC, in which the Company and Ashford University do not admit any liability, contains several components including injunctive relief, nonmonetary remedies and a payment to the Iowa Attorney General to be used for restitution to Iowa consumers, costs and fees. The AVC also provides for the appointment of a settlement administrator for a period of three years to review the Company’s and Ashford University’s compliance with the terms of the AVC. The Company had originally accrued
$9.0 million
in 2013 related to this matter, which represented its best estimate of the total restitution, cost of non-monetary remedies and future legal costs. The remaining accrual is
$0.7 million
as of
March 31, 2016
.
New York Attorney General Investigation of Bridgepoint Education, Inc.
In May 2011, the Company received from the Attorney General of the State of New York (the “NY Attorney General”) a subpoena relating to the NY Attorney General’s investigation of whether the Company and its academic institutions have complied with certain New York state consumer protection, securities and finance laws. Pursuant to the subpoena, the NY Attorney General has requested from the Company and its academic institutions documents and detailed information for the time period March 17, 2005 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
North Carolina Attorney General Investigation of Ashford University
In September 2011, Ashford University received from the Attorney General of the State of North Carolina (the “NC Attorney General”) an Investigative Demand relating to the NC Attorney General’s investigation of whether the university’s business practices complied with North Carolina consumer protection laws. Pursuant to the Investigative Demand, the NC Attorney General has requested from Ashford University documents and detailed information for the time period January 1, 2008 to present. Ashford University is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
California Attorney General Investigation of For-Profit Educational Institutions and Consumer Financial Protection Bureau Subpoena of Bridgepoint Education, Inc. and Ashford University
In January 2013, the Company received from the Attorney General of the State of California (the “CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General’s investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General requested documents and detailed information for the time period March 1, 2009 to present. On July 24, 2013, the CA Attorney General filed a petition to enforce certain categories of the Investigative Subpoena related to recorded calls and electronic marketing data. On September 25, 2013, the Company reached an agreement with the CA Attorney General to produce certain categories of the documents requested in the petition and stipulated to continue the hearing on the petition to enforce from October 3, 2013 to January 9, 2014. On January 13, 2014 and June 19, 2014, the Company received additional Investigative Subpoenas from the CA Attorney General each requesting additional documents and information for the time period March 1, 2009 through the current date.
On August 10, 2015, the Company and Ashford University received from the CFPB Civil Investigative Demands related to the CFPB’s investigation to determine whether for-profit post-secondary-education companies or other unnamed persons have engaged in or are engaging in unlawful acts or practices related to the advertising, marketing or origination of private student loans. The Company and Ashford University provided documents and other information to the CFPB and the CFPB attended several meetings with representatives from the Company and the CA Attorney General’s office to discuss the status of both investigations, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices.
All of the parties met again in March and April of 2016 to discuss the status of the investigations and explore a potential joint resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and the CFPB. The Company currently estimates that a reasonable range of loss for this matter is between
$13.9 million
and
$30.0
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
million
. The Company has accrued
$13.9 million
related to this matter, which represents its current best estimate of the cost of resolution of this matter.
Massachusetts Attorney General Investigation of Bridgepoint Education, Inc. and Ashford University
On July 21, 2014, the Company and Ashford University received from the Attorney General of the State of Massachusetts (the “MA Attorney General”) a Civil Investigative Demand relating to the MA Attorney General’s investigation of for-profit educational institutions and whether the university’s business practices complied with Massachusetts consumer protection laws. Pursuant to the Civil Investigative Demand, the MA Attorney General has requested from the Company and Ashford University documents and information for the time period January 1, 2006 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
Securities & Exchange Commission Subpoena of Bridgepoint Education, Inc.
On July 22, 2014, the Company received from the SEC a subpoena relating to certain of the Company’s accounting practices, including revenue recognition, receivables and other matters relating to the Company’s previously disclosed intention to restate its financial statements for fiscal year ended December 31, 2013 and revise its financial statements for the years ended December 31, 2011 and 2012, and the prior revision of the Company’s financial statements for the fiscal year ended December 31, 2012. Pursuant to the subpoena, the SEC has requested from the Company documents and detailed information for the time period January 1, 2009 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time. As a result, the Company cannot reasonably estimate a range of loss for this action and accordingly has not accrued any liability associated with this action.
Securities Class Actions
Consolidated Securities Class Action
On July 13, 2012, a securities class action complaint was filed in the U.S. District Court for the Southern District of California by Donald K. Franke naming the Company, Andrew Clark, Daniel Devine and Jane McAuliffe as defendants for allegedly making false and materially misleading statements regarding the Company’s business and financial results, specifically the concealment of accreditation problems at Ashford University. The complaint asserts a putative class period stemming from May 3, 2011 to July 6, 2012. A substantially similar complaint was also filed in the same court by Luke Sacharczyk on July 17, 2012 making similar allegations against the Company, Andrew Clark and Daniel Devine. The Sacharczyk complaint asserts a putative class period stemming from May 3, 2011 to July 12, 2012. On July 26, 2012, another purported securities class action complaint was filed in the same court by David Stein against the same defendants based upon the same general set of allegations and class period. The complaints allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder and seek unspecified monetary relief, interest, and attorneys’ fees.
On October 22, 2012, the Sacharczyk and Stein actions were consolidated with the Franke action and the Court appointed the City of Atlanta General Employees’ Pension Fund and the Teamsters Local 677 Health Services & Insurance Plan as lead plaintiffs. A consolidated complaint was filed on December 21, 2012 and the Company filed a motion to dismiss on February 19, 2013. On September 13, 2013, the Court granted the motion to dismiss with leave to amend for alleged misrepresentations relating to Ashford University’s quality of education, the WSCUC accreditation process and the Company’s financial forecasts. The Court denied the motion to dismiss for alleged misrepresentations concerning Ashford University’s persistence rates.
Following the conclusion of discovery, the parties entered into an agreement to settle the litigation for
$15.5 million
, which was recorded by the Company during the third quarter of 2015 and funded by the Company’s insurance carriers in the first quarter of 2016. The settlement was granted preliminary approval by the Court on December 14, 2015, proceeded through the shareholder claims administration process, and was granted final approval by the Court on April 25, 2016.
Zamir v. Bridgepoint Education, Inc., et al.
On February 24, 2015, a securities class action complaint was filed in the U.S. District Court for the Southern District of California by Nelda Zamir naming the Company, Andrew Clark and Daniel Devine as defendants. The complaint asserts
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, claiming that the defendants made false and materially misleading statements and failed to disclose material adverse facts regarding the Company’s business, operations and prospects, specifically regarding the Company’s improper application of revenue recognition methodology to assess collectability of funds owed by students. The complaint asserts a putative class period stemming from August 7, 2012 to May 30, 2014 and seeks unspecified monetary relief, interest and attorneys’ fees. On July 15, 2015, the Court granted plaintiff’s motion for appointment as lead plaintiff and for appointment of lead counsel.
On September 18, 2015, the plaintiff filed a substantially similar amended complaint that asserts a putative class period stemming from March 12, 2013 to May 30, 2014. The amended complaint also names Patrick Hackett, Adarsh Sarma, Warburg Pincus & Co., Warburg Pincus LLC, Warburg Pincus Partners LLC, and Warburg Pincus Private Equity VIII, L.P. as additional defendants. On November 24, 2015, all defendants filed motions to dismiss, which are currently pending with the Court. The outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. Based on information available to the Company at present, it cannot reasonably estimate a range of loss for this action. Accordingly, the Company has not accrued any liability associated with this action.
Shareholder Derivative Actions
In re Bridgepoint, Inc. Shareholder Derivative Action
On July 24, 2012, a shareholder derivative complaint was filed in California Superior Court by Alonzo Martinez. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned
Martinez v. Clark, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys’ fees.
On September 28, 2012, a substantially similar shareholder derivative complaint was filed in California Superior Court by David Adolph-Laroche. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned
Adolph-Laroche v. Clark, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched.
On October 11, 2012, the Adolph-Laroche action was consolidated with the Martinez action and the case is now captioned
In re Bridgepoint, Inc. Shareholder Derivative Action
. A consolidated complaint was filed on December 18, 2012 and the defendants filed a motion to stay the case while the underlying securities class action is pending. The motion was granted by the Court on April 11, 2013. A status conference was held on October 10, 2013, during which the Court ordered the stay continued for the duration of discovery in the securities class action, but permitted the plaintiff to receive copies of any discovery responses served in the underlying securities class action.
Cannon v. Clark, et al.
On November 1, 2013, a shareholder derivative complaint was filed in the U.S. District Court for the Southern District of California by James Cannon. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current officers and directors. The complaint is captioned
Cannon v. Clark, et al
. and is substantially similar to the previously filed California State Court derivative action now captioned
In re Bridgepoint, Inc. Shareholder Derivative Action
. In the complaint, plaintiff generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys’ fees. Pursuant to a stipulation among the parties, on January 6, 2014, the Court ordered the case stayed during discovery in the underlying securities class action, but permitted the plaintiff to receive copies of any discovery responses served in the underlying securities class action.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
Di Giovanni v. Clark, et al.
, and
Craig-Johnston v. Clark, et al
.
On December 9, 2013, two nearly identical shareholder derivative complaints were filed in the United States District Court for the Southern District of California. The complaints assert derivative claims on the Company’s behalf against the members of the Company’s board of directors as well as against Warburg Pincus & Co., Warburg Pincus LLC, Warburg Pincus Partners LLC, and Warburg Pincus Private Equity VIII, L.P. The two complaints are captioned
Di Giovanni v. Clark, et al.
and
Craig-Johnston v. Clark, et al
. The complaints generally allege that all of the defendants breached their fiduciary duties and were unjustly enriched and that the individual defendants wasted corporate assets in connection with the tender offer commenced by the Company on November 13, 2013. The lawsuits seek unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. On February 28, 2014, the defendants filed motions to dismiss, which were granted by the Court on October 17, 2014. The plaintiffs filed a notice of appeal on December 8, 2014 and the case is currently under appeal with the United States Court of Appeals for the Ninth Circuit.
Klein v. Clark, et al.
On January 9, 2014, a shareholder derivative complaint was filed in the Superior Court of the State of California in San Diego. The complaint asserts derivative claims on the Company’s behalf against the members of the Company’s board of directors as well as against Warburg Pincus & Co., Warburg Pincus LLC, Warburg Pincus Partners LLC, and Warburg Pincus Private Equity VIII, L.P. The complaint is captioned
Klein v. Clark, et al.
and generally alleges that all of the defendants breached their fiduciary duties and were unjustly enriched and that the individual defendants wasted corporate assets in connection with the tender offer commenced by the Company on November 13, 2013. The lawsuit seeks unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. On March 21, 2014, the Court granted the parties’ stipulation to stay the case until the motions to dismiss in the related federal derivative action were decided. On November 14, 2014, the Court dismissed the case but retained jurisdiction in the event the dismissal in the federal case is reversed on appeal by the United States Court of Appeals for the Ninth Circuit.
Reardon v. Clark, et al.
On March 18, 2015, a shareholder derivative complaint was filed in the Superior Court of the State of California in San Diego. The complaint asserts derivative claims on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned
Reardon v. Clark, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. Pursuant to a stipulation among the parties, on May 27, 2015, the Court ordered the case stayed during discovery in the underlying
Zamir
securities class action, but permitted the plaintiff to receive copies of any discovery conducted in the underlying
Zamir
securities class action.
Qui Tam Complaints
In December 2012, the Company received notice that the U.S. Department of Justice had declined to intervene in a
qui tam
complaint filed in the U.S. District Court for the Southern District of California by Ryan Ferguson and Mark T. Pacheco under the federal False Claims Act on March 10, 2011 and unsealed on December 26, 2012. The complaint is captioned
United States of America, ex rel., Ryan Ferguson and Mark T. Pacheco v. Bridgepoint Education, Inc., Ashford University and University of the Rockies
. The
qui tam
complaint alleges, among other things, that since March 10, 2005, the Company caused its institutions, Ashford University and University of the Rockies, to violate the federal False Claims Act by falsely certifying to the Department that the institutions were in compliance with various regulations governing Title IV programs, including those that require compliance with federal rules regarding the payment of incentive compensation to enrollment personnel, student disclosures, and misrepresentation in connection with the institutions’ participation in Title IV programs. The complaint seeks significant damages, penalties and other relief. On April 30, 2013, the relators petitioned the Court for voluntary dismissal of the complaint without prejudice. The U.S. Department of Justice filed a notice stipulating to the dismissal and the Court granted the dismissal on June 12, 2013.
BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
In January 2013, the Company received notice that the U.S. Department of Justice had declined to intervene in a
qui tam
complaint filed in the U.S. District Court for the Southern District of California by James Carter and Roger Lengyel under the federal False Claims Act on July 2, 2010 and unsealed on January 2, 2013. The complaint is captioned
United States of America, ex rel., James Carter and Roger Lengyel v. Bridgepoint Education, Inc., Ashford University
. The
qui tam
complaint alleges, among other things, that since March 2005, the Company and Ashford University have violated the federal False Claims Act by falsely certifying to the Department that Ashford University was in compliance with federal rules regarding the payment of incentive compensation to enrollment personnel in connection with the institution’s participation in Title IV programs. Pursuant to a stipulation between the parties, the relators filed an amended complaint on May 10, 2013. The amended complaint is substantially similar to the original complaint and seeks significant damages, penalties and other relief.
In March 2015, the Company filed a motion to dismiss the case pursuant to the public disclosure bar, which was granted without leave to amend by the Court on August 17, 2015. The relators filed a notice of appeal on September 15, 2015 and the case is currently under appeal with the United States Court of Appeals for the Ninth Circuit. During the pendency of the appeal, the parties agreed to settle the case for an immaterial amount and are in the process of finalizing a settlement agreement.
Cavazos v. Ashford University
On June 22, 2015, Diamond Cavazos filed a purported class action against Ashford University in the Superior Court of the State of California in San Diego. The complaint is captioned
Diamond Cavazos v. Ashford University, LLC
and generally alleges various wage and hour claims under California law for failure to pay overtime, failure to pay minimum wages and failure to provide rest and meal breaks. The lawsuit seeks back pay, the cost of benefits, penalties and interest on behalf of the putative class members, as well as other equitable relief and attorneys’ fees. Before responding to the complaint, the parties entered into an agreement to settle the case for an immaterial amount and the Court dismissed the case without prejudice on January 15, 2016.
Coleman et al. v. Ashford University
On June 4, 2015, Brandy Coleman and a group of seven other former employees filed a purported class action against Ashford University in the Superior Court of the State of California in San Diego. The complaint is captioned
Brandy Coleman v. Ashford University, LLC
and generally alleges violations of the California WARN Act for back pay and benefits associated with the termination of the plaintiffs’ employment in May 2015. The lawsuit seeks unpaid wages, penalties and interest on behalf of the putative class members, as well as other equitable relief and attorneys’ fees. Before responding to the complaint, the parties entered into an agreement to settle the case for an immaterial amount and the Court dismissed the case without prejudice on January 29, 2016.