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Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2020
Accounting Policies [Abstract] |
Significant Accounting Policies | Significant Accounting Policies Financial Statement Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements. All information as of December 31, 2019 and March 31, 2019 and 2020, and for the three months ended March 31, 2019 and 2020 is unaudited but, in the opinion of management, contains all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations, and cash flows of the Company. The condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements at that date. Certain amounts in the prior period financial statements have been reclassified to conform to the current period's presentation. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full fiscal year. Below is a description of the nature of the costs included in the Company’s operating expense categories. Instructional and support costs ("I&SC") generally contain items of expense directly attributable to activities of the Strayer University and Capella University segments that support students and learners. This expense category includes salaries and benefits of faculty and academic administrators, as well as admissions and administrative personnel who support and serve student interests. Instructional and support costs also include course development costs and costs associated with delivering course content, including educational supplies, facilities, and all other physical plant and occupancy costs, with the exception of costs attributable to the corporate offices. Bad debt expense incurred on delinquent student account balances is also included in instructional and support costs. General and administration ("G&A") expenses include salaries and benefits of management and employees engaged in finance, human resources, legal, regulatory compliance, marketing and other corporate functions. Also included are the costs of advertising and production of marketing materials. General and administration expense also includes the facilities occupancy and other related costs attributable to such functions. Amortization of intangibles assets consists of amortization and depreciation expense related to intangible assets and software assets acquired through the Company's merger with Capella Education Company ("CEC"). Merger and integration costs include integration expenses associated with the Company's merger with CEC, and transaction expenses associated with potential future business combinations. New Accounting Standard for Credit Losses In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13" or "ASC 326"). ASU 2016-13 revises the accounting requirements related to the measurement of credit losses and requires organizations to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability. Assets must be presented in the financial statements at the net amount expected to be collected. During 2019, the FASB issued additional ASUs amending certain aspects of ASU 2016-13. On January 1, 2020, the Company adopted the new accounting standard and all of the related amendments using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new credit loss standard to its tuition receivables by recording a $3.3 million adjustment, net of tax, to the opening balance of retained earnings. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326. The comparative information has not been restated and continues to be reported under the accounting standards in effect in those reporting periods. The impact of adoption of ASC 326 on the Company's balance sheet was as follows (in thousands):
| As of January 1, 2020
| As Reported Under ASC 326 |  | Pre-ASC 326 Adoption |  | Impact of ASC 326 Adoption
Tuition receivable, net | $ | 46,952 |  |  | $ | 51,523 |  |  | $ | (4,571 | )
Deferred income tax liabilities | $ | 46,681 |  |  | $ | 47,942 |  |  | $ | (1,261 | )
Retained earnings | $ | 149,509 |  |  | $ | 152,819 |  |  | $ | (3,310 | )
The Company does not expect ASC 326 to have a significant impact on its financial condition or results of operations on an ongoing basis. Restricted Cash A significant portion of the Company’s revenues are funded by various federal and state government programs. The Company generally does not receive funds from these programs prior to the start of the corresponding academic term. The Company may be required to return certain funds for students who withdraw from the Universities during the academic term. The Company had approximately $0.3 million and $0.9 million of these unpaid obligations as of December 31, 2019 and March 31, 2020, respectively, which are recorded as restricted cash and included in other current assets in the unaudited condensed consolidated balance sheets. As part of commencing operations in Pennsylvania in 2003, the Company is required to maintain a “minimum protective endowment” of at least $0.5 million in an interest-bearing account as long as the Company operates its campuses in the state. The Company holds these funds in an interest-bearing account, which is included in other assets. The following table illustrates the reconciliation of cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statements of cash flows as of March 31, 2019 and 2020 (in thousands):
| As of March 31,
| 2019 |  | 2020
Cash and cash equivalents | $ | 352,387 |  |  | $ | 442,845 |
Restricted cash included in other current assets | 5 |  |  | 850 |
Restricted cash included in other assets | 500 |  |  | 500 |
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows | $ | 352,892 |  |  | $ | 444,195 |
Tuition Receivable and Allowance for Credit Losses The Company records tuition receivable and contract liabilities for its students upon the start of the academic term or program. Tuition receivables are not collateralized; however, credit risk is minimized as a result of the diverse nature of the Universities' student bases and through the participation of the majority of the students in federally funded financial aid programs. An allowance for credit losses is established based upon historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of estimated recoveries. These collection rates incorporate historical performance based on a student’s current enrollment status, likelihood of future enrollment, degree mix trends and changes in the overall economic environment. The Company periodically assesses its methodologies for estimating credit losses in consideration of actual experience. The Company’s tuition receivable and allowance for credit losses were as follows as of December 31, 2019 and March 31, 2020 (in thousands):
| December 31, 2019 |  | March 31, 2020
Tuition receivable | $ | 82,454 |  |  | $ | 79,429 |
Allowance for credit losses | (30,931 | ) |  | (38,094 | )
Tuition receivable, net | $ | 51,523 |  |  | $ | 41,335 |
Approximately $1.0 million and $3.1 million of tuition receivable are included in other assets as of December 31, 2019 and March 31, 2020, respectively, because these amounts are expected to be collected after 12 months. The following table illustrates changes in the Company’s allowance for credit losses for the three months ended March 31, 2019 and 2020 (in thousands). The provision for credit losses for the three months ended March 31, 2020 includes additional reserves to account for projected deterioration in collections performance in 2020 due to the COVID-19 pandemic.
| For the three months ended March 31,
| 2019 |  | 2020
Allowance for credit losses, beginning of period | $ | 28,457 |  |  | $ | 30,931 |
Impact of adopting ASC 326 | — |  |  | 4,571 |
Additions charged to expense | 12,320 |  |  | 11,171 |
Write-offs, net of recoveries | (11,390 | ) |  | (8,579 | )
Allowance for credit losses, end of period | $ | 29,387 |  |  | $ | 38,094 |
Goodwill and Intangible Assets Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed in a business combination. Indefinite-lived intangible assets, which include trade names, are recorded at fair value on their acquisition date. An indefinite life was assigned to the trade names because they have the continued ability to generate cash flows indefinitely. Goodwill and the indefinite-lived intangible assets are assessed at least annually for impairment during the fourth quarter, or more frequently if events occur or circumstances change between annual tests that would more likely than not reduce the fair value of the respective reporting unit or indefinite-lived intangible asset below its carrying amount. The Company identifies its reporting units by assessing whether the components of its operating segments constitute businesses for which discrete financial information is available and management regularly reviews the operating results of those components. Finite-lived intangible assets that are acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset. Finite-lived intangible assets consist of student relationships. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets. Authorized Stock The Company has authorized 32,000,000 shares of common stock, par value $0.01, of which 21,964,809 and 22,213,587 shares were issued and outstanding as of December 31, 2019 and March 31, 2020, respectively. The Company also has authorized 8,000,000 shares of preferred stock, none of which is issued or outstanding. Before any preferred stock may be issued in the future, the Board of Directors would need to establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, and the terms or conditions of the redemption of the preferred stock. In February 2020, the Company’s Board of Directors declared a regular, quarterly cash dividend of $0.60 per share of common stock. The dividend was paid on March 16, 2020. Net Income Per Share Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the periods. Diluted earnings per share reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options, restricted stock, and restricted stock units. The dilutive effect of stock awards was determined using the treasury stock method. Under the treasury stock method, all of the following are assumed to be used to repurchase shares of the Company’s common stock: (1) the proceeds received from the exercise of stock options, and (2) the amount of compensation cost associated with the stock awards for future service not yet recognized by the Company. Stock options are not included in the computation of diluted earnings per share when the stock option exercise price of an individual grant exceeds the average market price for the period. Set forth below is a reconciliation of shares used to calculate basic and diluted earnings per share for the three months ended March 31, 2019 and 2020 (in thousands):
| For the three months ended March 31,
| 2019 |  | 2020
Weighted average shares outstanding used to compute basic earnings per share | 21,499 |  |  | 21,810 |
Incremental shares issuable upon the assumed exercise of stock options | 92 |  |  | 21 |
Unvested restricted stock and restricted stock units | 459 |  |  | 240 |
Shares used to compute diluted earnings per share | 22,050 |  |  | 22,071 |
During the three months ended March 31, 2019 and 2020, the Company had approximately 59,000 and 3,000 shares of restricted stock, respectively, excluded from the diluted earnings per share calculation because the effect would have been antidilutive. Comprehensive Income Comprehensive income includes net income and all changes in the Company’s equity during a period from non-owner sources, which for the Company consists of unrealized gains and losses on available-for-sale marketable securities, net of tax. As of December 31, 2019 and March 31, 2020, the balance of accumulated other comprehensive income was $233,000, net of tax of $90,000 and $253,000, net of tax of $98,000, respectively. There were no reclassifications out of accumulated other comprehensive income to net income for the three months ended March 31, 2020. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period reported. The most significant management estimates include allowances for credit losses, useful lives of property and equipment and intangible assets, incremental borrowing rates, potential sublease income and vacancy periods, accrued expenses, forfeiture rates and the likelihood of achieving performance criteria for stock-based awards, value of free courses earned by students that will be redeemed in the future, valuation of goodwill and intangible assets, and the provision for income taxes. Actual results could differ from those estimates. Recently Issued Accounting Standards Not Yet Adopted ASUs recently issued by the FASB but not yet effective are not expected to have a material effect on the Company’s consolidated financial statements.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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