UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F/A
(Amendment No. 1)
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR | |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended Feburary 28, 2013. |
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OR | |
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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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OR | |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 001-34900
TAL Education Group |
(Exact name of Registrant as specified in its charter) |
N/A |
(Translation of Registrants name into English) |
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Cayman Islands |
(Jurisdiction of incorporation or organization) |
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12/F, Danling SOHO No. 6 Danling Street, Haidian District Beijing 100080 Peoples Republic of China |
(Address of principal executive offices) |
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Joseph Kauffman, Chief Financial Officer Telephone: +86-10-5292-6658 Email: ir@xueersi.com 12/F, Danling SOHO No. 6 Danling Street, Haidian District Beijing 100080 Peoples Republic of China |
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
American Depositary Shares, each representing two Class A common shares |
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The New York Stock Exchange |
* Not for trading, but only in connection with the listing on The New York Stock Exchange of American depositary shares (ADSs). Currently, each ADS represents two Class A common shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None |
(Title of Class) |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None |
(Title of Class) |
Indicate the number of outstanding shares of each of the Issuers classes of capital or common stock as of the close of the period covered by the annual report.
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As of February 28, 2013, 68,314,150 Class A common shares, par value US$0.001 per share and 87,806,000 Class B common shares, par value US$0.001 per share were outstanding. |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
o Yes x No
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.
x Yes o No
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).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has been to prepare the financial statements included in this filing:
U.S. GAAP x |
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International Financial Reporting Standards as issued |
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Other o |
If other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
o Yes o No
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 20-F for the fiscal year ended February 28, 2013, which was originally filed with the Securities and Exchange Commission on June 28, 2013 (the 2013 Form 20-F), is being filed solely for purposes of furnishing Interactive Data File disclosure as Exhibit 101 in accordance with Rule 405 of Regulation S-T. Exhibit 101 was not previously filed.
Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in any other item of the 2013 Form 20-F, or reflect any events that have occurred after the 2013 Form 20-F was originally filed.
Item 19. Exhibits
Exhibit Number |
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Description of Document |
101.INS* |
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XBRL Instance Document |
101.SCH* |
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XBRL Taxonomy Extension Schema Document |
101.CAL* |
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XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
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XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
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XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
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XBRL Taxonomy Extension Presentation Linkbase Document |
* Furnished with the Amendment No.1 to the Annual Report on Form 20-F. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused this Amendment No. 1 on Form 20-F/A to its Annual Report on Form 20-F for the fiscal year ended February 28 2013 to be signed on its behalf by the undersigned..
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TAL Educaton Group | |
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By: |
/s/ Joseph Kauffman |
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Name: |
Joseph Kauffman |
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Title: |
Chief Financial Officer |
Date: July 26, 2013
SHARE-BASED COMPENSATION (Details 2) (USD $)
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12 Months Ended | ||
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Feb. 28, 2013
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Feb. 29, 2012
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Feb. 28, 2011
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Share-based compensation | |||
Total share-based compensation | $ 8,283,900 | $ 7,901,243 | $ 5,306,472 |
Cost of revenues
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Share-based compensation | |||
Total share-based compensation | 105,756 | 417,984 | 521,387 |
Selling and marketing
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Share-based compensation | |||
Total share-based compensation | 1,814,748 | 1,497,266 | 975,114 |
General and administrative
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Share-based compensation | |||
Total share-based compensation | $ 6,363,396 | $ 5,985,993 | $ 3,809,971 |
PREPAID EXPENSES AND OTHER CURRENT ASSETS
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Feb. 28, 2013
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PREPAID EXPENSES AND OTHER CURRENT ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PREPAID EXPENSES AND OTHER CURRENT ASSETS | 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
(1) Advance payments were primarily for advertising and purchases of property and equipment.
(2) According to the Caishui [2001] No 156, Beijing Haidian School is entitled to enjoy the deed tax exemption on purchasing the buildings for educational services purpose. Deed tax refund receivable was recorded upon the confirmation and approval from related tax authority during the year ended February 28, 2013. |
SIGNIFICANT ACCOUNTING POLICIES (Details 3)
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12 Months Ended |
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Feb. 28, 2013
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Building | Minimum
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Property and equipment, net | |
Estimated useful lives | 35 years |
Building | Maximum
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Property and equipment, net | |
Estimated useful lives | 40 years |
Computer, network equipment and software
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Property and equipment, net | |
Estimated useful lives | 3 years |
Vehicles | Minimum
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Property and equipment, net | |
Estimated useful lives | 4 years |
Vehicles | Maximum
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Property and equipment, net | |
Estimated useful lives | 5 years |
Office equipment and furniture | Minimum
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Property and equipment, net | |
Estimated useful lives | 3 years |
Office equipment and furniture | Maximum
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Property and equipment, net | |
Estimated useful lives | 5 years |
INCOME TAXES
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Feb. 28, 2013
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INCOME TAXES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | 13. INCOME TAXES
Cayman Islands
The Company is a tax-exempted company incorporated in the Cayman Islands.
Hong Kong
Xueersi Hong Kong and Yidu Hong Kong were established in Hong Kong and are subject to Hong Kong Profits Tax on its activities conducted in Hong Kong. It is subject to Hong Kong profit tax at 16.5%. No provision for Hong Kong Profits tax has been made in the consolidated financial statements as it has no assessable income for the years ended February 28, 2011, February 29, 2012 and February 28, 2013.
PRC
Effective from January 1, 2008, a new Enterprise Income Tax Law, or (“the New EIT Law”), combined the previous income tax laws for foreign invested and domestic invested enterprises in the PRC by the adoption a unified tax rate of 25% for most enterprises with the following exceptions.
Certain qualified high and new technology enterprises that meet the definition of “high and new technology enterprise strongly supported by the state” (“HNTE”) could benefit from a preferential tax rate of 15%. Xueersi Education qualified as a HNTE under the New EIT Law effective from January 1, 2008 and was eligible for the re-examination of HNTE from January 1, 2011, therefore it was entitled to a preferential tax rate of 15% through the calendar year of 2013. In addition, since the entity is located in a high technology zone in Beijing and qualified as a high-tech company, it was entitled to a three-year exemption from EIT from calendar years 2006 through 2008 and a further reduction to 7.5% from calendar years 2009 through 2011. Xueersi Education was subject to an EIT rate of 15% in calendar year 2012 and 2013, and is expected to be subject to an EIT rate of 15% as long as it maintains its status as a HNTE.
TAL Beijing was qualified as a “Newly Established Software Enterprise” and therefore it was entitled to a two-year exemption from EIT from calendar year 2009 through 2010 and a further reduction to 12.5% from calendar years 2011 through 2013.
Yidu Huida was qualified as “Newly Established Software Enterprise” and therefore it was entitled to a two-year exemption from EIT from calendar years 2011 through 2012 and a further reduction to 12.5% from calendar years 2013 through 2015.
Provision (credit) for income tax consisted of the following:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Group’s deferred tax assets and liabilities were as follows:
As of February 28, 2013, tax loss carry-forward amounted to $2,019,412 and would expire by the end of calendar year 2018. The Company operates its business through its subsidiaries, its VIEs and their subsidiaries and schools. The Group does not file combined or consolidated tax returns, therefore, losses from individual subsidiaries or the VIEs and their subsidiaries and schools may not be used to offset other subsidiaries’ or VIEs’ earnings within the Group. Valuation allowance is considered on each individual subsidiary and VIE basis. A valuation allowance of $585,220 had been established as of February 28, 2013, in respect of certain deferred tax assets as it is considered more likely than not that the relevant deferred tax assets will not be realized in the foreseeable future.
Under U.S. GAAP, a deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting amounts over tax basis amounts, including those differences attributable to a more than 50% interest in a domestic subsidiary. However, recognition is not required in situations where the tax law provides a means by which the reported amount of that investment can be recovered tax-free and the enterprise expects that it will ultimately use that means. The Company has not recorded any such deferred tax liability attributable to the undistributed earnings of its financial interest in VIEs because it believes such excess earnings can be distributed in a manner that would not be subject to income tax.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Group has concluded that there are no significant uncertain tax positions requiring recognition in financial statements for the years ended February 28, 2011, February 29, 2012 and February 28, 2013. The Group did not incur any significant interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months. The Group has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods.
According to the PRC Tax Administration and Collection Law, the tax authority may require the taxpayer or the withholding agent to make delinquent tax payment within three years if the underpayment of taxes is resulted from the tax authority’s act or error. No late payment surcharge will be assessed under such circumstances. The statute of limitation will be three years if the underpayment of taxes is due to the computational errors made by the taxpayer or the withholding agent. Late payment surcharge will be assessed in such case. The statute of limitation will be extended to five years under special circumstances which are not clearly defined (but an underpayment of tax liability exceeding RMB 0.1 million is specifically listed as a ‘‘special circumstance’’). The statute of limitation for transfer pricing related issue is ten years. There is no statute of limitation in the case of tax evasion. Therefore, the Group is subject to examination by the PRC tax authorities based on the above.
Reconciliation between the provision for income taxes computed by applying the PRC EIT rates of 25% in fiscal year 2011, 2012 and 2013 to income before income taxes and the actual provision for income tax was as follows:
If Xueersi Education, Yidu Huida and TAL Beijing were not in a tax holiday period for the years ended February 28, 2011, February 29, 2012 and February 28, 2013, the increase in income tax expenses and net income per share amounts would be as follows:
New EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the New EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc, occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entities organized outside of the PRC within the Group should be treated as residents for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed a resident enterprise, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25% with the statute subject to the determination by PRC tax authorities.
If the Company were to be non-resident for PRC tax purpose, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding tax. In the case of dividends paid by PRC subsidiaries, the withholding tax would be 10%.
The Chinese tax authorities clarified that distributions made out of earnings prior to but distributed after January 1, 2008 will not be subject to withholding tax. The aggregate undistributed earnings of the Company’s subsidiaries, VIEs and VIEs’ subsidiaries and schools located in the PRC that are available for distribution are $79,515,168 and $118,059,578 as of February 29, 2012 and February 28, 2013, respectively. Upon distribution of such earnings, the Company will be subject to PRC taxes, the amount of which is impractical to estimate. The Company did not record any withholding tax on any of the aforementioned undistributed earnings because it intends to permanently reinvest all earnings in China and the aforementioned subsidiaries do not intend to declare dividends to the Company. |
FAIR VALUE (Details 2) (USD $)
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12 Months Ended | 1 Months Ended | 1 Months Ended | |
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Feb. 28, 2013
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Mar. 31, 2012
Century Mingde
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Feb. 28, 2013
Century Mingde
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Feb. 28, 2013
Third-party online platform
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Long-term investments | ||||
Long-term investment | $ 5,491,073 | $ 2,411,073 | $ 3,080,000 | |
Percentage of equity interest acquired | 6.00% | 16.85% | ||
Cash consideration | $ 2,411,073 | $ 3,080,000 | ||
Discount rate (as a percent) | 19.00% | |||
Number of preferred shares acquired | 2,200,000 |
SIGNIFICANT ACCOUNTING POLICIES (Details 6) (USD $)
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12 Months Ended | 6 Months Ended | 12 Months Ended | 6 Months Ended | 12 Months Ended | 31 Months Ended | 4 Months Ended | 12 Months Ended | |||||||||
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Feb. 28, 2013
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Feb. 29, 2012
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Feb. 28, 2011
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Feb. 28, 2013
Xueersi Education
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Feb. 28, 2013
TAL Beijing
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Dec. 31, 2012
TAL Beijing
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Dec. 31, 2011
TAL Beijing
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Dec. 31, 2010
TAL Beijing
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Feb. 28, 2013
Beijing Xintang Sichuang
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Feb. 28, 2013
Yidu Huida
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Dec. 31, 2012
Yidu Huida
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Feb. 28, 2013
Software products
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Feb. 28, 2013
Guidance books
Xueersi Education
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Dec. 31, 2012
Online education services
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Dec. 31, 2012
Inter-company technical services
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Feb. 28, 2013
Small scale VAT payer
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Feb. 28, 2013
General VAT payer
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Value added tax | |||||||||||||||||
VAT rate (as a percent) | 6.00% | 6.00% | 17.00% | 17.00% | 17.00% | 6.00% | 6.00% | 17.00% | 17.00% | 13.00% | 6.00% | 6.00% | 3.00% | 17.00% | |||
VAT refund rate (as a percent) | 14.00% | 14.00% | 14.00% | 14.00% | 14.00% | ||||||||||||
Business tax | |||||||||||||||||
Business tax and surcharges rate, minimum (as a percent) | 3.30% | ||||||||||||||||
Business tax and surcharges rate, maximum (as a percent) | 5.60% | ||||||||||||||||
Advertising costs | |||||||||||||||||
Total advertising costs | $ 2,502,489 | $ 2,718,675 | $ 271,484 | ||||||||||||||
Government subsidies | |||||||||||||||||
Government subsidies received | 793,007 | 213,270 | 148,537 | ||||||||||||||
Government subsidies recorded | 632,269 | 213,270 | 148,537 | ||||||||||||||
Foreign currency translation | |||||||||||||||||
Exchange gain (loss) | 938,116 | 4,211,173 | (80,480) | ||||||||||||||
Foreign Currency Risk | |||||||||||||||||
Aggregate amounts of cash and cash equivalents, term deposits and restricted cash denominated in RMB | $ 207,803,373 | $ 197,522,897 |
PROPERTY AND EQUIPMENT, NET
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Feb. 28, 2013
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PROPERTY AND EQUIPMENT, NET | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT, NET | 7. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following:
For the years ended February 28, 2011, February 29, 2012 and February 28, 2013, depreciation expenses were $2,790,061, $5,203,847, and $7,023,754, respectively. |
SHARE-BASED COMPENSATION (Tables)
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12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Feb. 28, 2013
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SHARE-BASED COMPENSATION. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of share-based compensation |
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Summary of activities of non-vested shares granted under the 2010 Share Incentive Plan |
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DISTRIBUTION TO SHAREHOLDERS (Details) (USD $)
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0 Months Ended | 12 Months Ended | |||
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Dec. 27, 2012
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Sep. 29, 2010
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Feb. 28, 2013
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Feb. 28, 2011
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Oct. 19, 2012
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DISTRIBUTION TO SHAREHOLDERS | |||||
Cash dividend declared | $ 30,000,000 | ||||
Cash dividend declared (in dollars per share) | $ 0.25 | ||||
Cash dividend paid | $ 39,030,038 | $ 39,030,038 | $ 30,000,000 |
DISCONTINUED OPERATIONS (Details) (USD $)
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12 Months Ended | ||
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Feb. 28, 2013
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Feb. 29, 2012
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Feb. 28, 2011
item
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Discontinued operations | |||
Impairment loss for the goodwill | $ 0 | $ 139,660 | $ 128,522 |
Number of businesses for which intangible assets and goodwill impairment loss recognized | 2 | ||
Number of business liquidated | 2 | ||
Summarized operating results of discontinued operations | |||
Benefits for income taxes | 0 | 0 | 81,391 |
Net loss | (334,395) | ||
Qianjiang School and Jianli School
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Discontinued operations | |||
Impairment loss for the goodwill | 128,522 | ||
Impairment loss for the intangible assets | 53,122 | ||
Amount of remaining assets associated with discontinued operations | 0 | ||
Amount of remaining liabilities associated with discontinued operations | 0 | ||
Summarized operating results of discontinued operations | |||
Net revenues | 169,304 | ||
Pre-tax loss | (415,786) | ||
Benefits for income taxes | 81,391 | ||
Net loss | $ (334,395) |
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)
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Feb. 28, 2013
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Schedule of prepaid expenses and other current assets |
(1) Advance payments were primarily for advertising and purchases of property and equipment.
(2) According to the Caishui [2001] No 156, Beijing Haidian School is entitled to enjoy the deed tax exemption on purchasing the buildings for educational services purpose. Deed tax refund receivable was recorded upon the confirmation and approval from related tax authority during the year ended February 28, 2013. |
COMMITMENTS AND CONTINGENCIES
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COMMITMENTS AND CONTINGENCIES. | |||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | 16. COMMITMENTS AND CONTINGENCIES
Lease commitment
The Group leases certain office premises under non-cancellable leases, the term of which are ten years or less and are renewable upon negotiation. Rental expenses under operating leases for the years ended February 28, 2011, February 29, 2012 and February 28, 2013 were $15,457,321, $26,212,907 and $32,846,710, respectively.
Future minimum payments under non-cancellable operating leases as of February 28, 2013 were as follows:
Contingencies
As of February 28, 2013, the Group is in the process of preparing filings and applying for permits for certain learning centers. Since the contingent liability related to not meeting the filing requirements cannot be reasonably estimated, the Group does not record any liabilities. |
NET INCOME PER SHARE
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Feb. 28, 2013
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NET INCOME PER SHARE | 15. NET INCOME PER SHARE
(i) Our common shares are divided into Class A common shares and Class B common shares. Holders of our Class A common shares and Class B common shares have the same dividend rights. And therefore we have not presented earnings per share for each separate class. |
NET INCOME PER SHARE (Tables)
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Feb. 28, 2013
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Schedule of net income per share |
(i) Our common shares are divided into Class A common shares and Class B common shares. Holders of our Class A common shares and Class B common shares have the same dividend rights. And therefore we have not presented earnings per share for each separate class. |
SIGNIFICANT ACCOUNTING POLICIES (Policies)
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SIGNIFICANT ACCOUNTING POLICIES | |||||||||||||||||||||||||||||
Basis of presentation | Basis of presentation
The consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). |
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Basis of consolidation | Basis of consolidation
The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries, which are accounted for under the voting interest model, and its VIEs,VIEs’ subsidiaries and schools consolidated under the variable interest entity consolidation model. All inter-company transactions and balances have been eliminated upon consolidation. |
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Consolidation of Variable Interest Entities | Consolidation of Variable Interest Entities
The Company through TAL Education Technology (Beijing) (“TAL Beijing”), a wholly owned foreign enterprise, has executed a series of contractual agreements with its VIEs, the VIEs’ subsidiaries and schools and the VIEs’ nominee shareholders. For a description of these contractual arrangements, see “Note 1 Organization and Principal Activities—The Contractual Arrangements.” These contractual agreements do not provide TAL Beijing with an equity interest in legal form in the VIEs. As the Company holds no legal form of equity ownership in the VIEs, the Company applied the variable interest entity consolidation model as set forth in Accounting Standards Codification 810, Consolidation, (“ASC 810”) instead of the voting interest model of consolidation.
By design, the contractual agreements provide TAL Beijing with a right to receive benefits equal to substantially all of the net income of these entities, and thus under ASC 810 these agreements are considered variable interests. Subsequent to identifying any variable interests, any party holding such variable interests must determine if the entity in which the interest is held is a variable interest entity and subsequently which reporting entity is the primary beneficiary of, and should therefore consolidate, the variable interest entity. Among other reasons, an entity is considered a variable interest entity if the holders of the equity investment at risk in the entity, as a group, lack any one of the following characteristics of a controlling financial interest:
• The power, through voting rights or similar rights, to direct the activities of the entity that most significantly impact the entity’s economic performance
• The obligation to absorb the entity’s expected losses, or
• The right to receive the entity’s expected residual returns
A reporting entity is considered to be the primary beneficiary, and thus the accounting parent, of a variable interest entity if it possesses both: (a) the power to direct the activities that most significantly impact the economic performance of the variable interest entity and (b) the obligation to absorb losses and/or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. As a result of the contractual arrangements, the nominee shareholders of the VIEs lack the characteristics of a controlling financial interest in the VIEs and therefore the VIEs are considered to be variable interest entities under ASC 810. The contractual arrangements, by design, transfer each of the three characteristics of a controlling financial interest from the VIEs’ nominee shareholders to TAL Beijing. The contractual arrangements also cause TAL Beijing to be the primary beneficiary of the VIEs, and accordingly TAL Beijing consolidates their operations.
Determining whether TAL Beijing is the primary beneficiary requires a careful evaluation of the facts and circumstances, including whether the contractual agreements are substantive under the applicable legal and financial reporting frameworks, i.e. PRC law and US GAAP. The Company continually reviews its corporate governance arrangements to ensure that the contractual agreements are indeed substantive.
The Company has determined that the contractual agreements are in fact valid and legally enforceable. Such arrangements were entered into in order to comply with the underlying legal and/or regulatory restrictions that govern the ownership of a direct equity interest in the VIEs. In the opinion of our PRC counsel, Tian Yuan Law Firm, the contracts are legally enforceable under PRC law. See “Note 1 Organization and Principal Activities—The Contractual Arrangements.”
The Company has considered the existence of related party relationships, e.g. ownership of an equity interest in the Company and the VIEs, and the effect that might have on the enforceability of the contractual agreements and in turn whether they are substantive. The Company believes there are no barriers to exercise our rights under the contracts and therefore they are substantive and appropriately considered in our consolidation analysis in accordance with ASC 810. In assessing the shareholdings of certain individual parties in the Company and in the VIEs, specifically Mr. Bangxin Zhang, the Company acknowledges that from November 23, 2011, Mr. Bangxin Zhang, a majority nominee shareholder in the VIEs, also held a majority voting interest in the Company, which he obtained through no actions of the Company or Mr. Bangxin Zhang.
On June 24, 2013, the Company and Mr. Bangxin Zhang executed a deed of undertaking (“Deed”). The Deed requires Mr. Bangxin Zhang, to the extent he has a majority voting interest in the Company to abstain from 1) exercising his majority voting rights in any vote pertaining to the appointment or removal of a director and 2) any matters related to the Deed.
Although the contractual arrangements between TAL Beijing and the VIEs were designed to provide TAL Beijing with the characteristics of a controlling financial interest regardless of the respective shareholdings of Mr. Bangxin Zhang, during the period between November 23, 2011 and June 24, 2013, Mr. Bangxin Zhang’s majority voting interest in the Company, when combined with his status as a majority nominee shareholder in the VIEs, could have constrained the ability of the Company to exercise its rights under the contractual agreements. This is due to the fact that Mr. Bangxin Zhang’s majority voting interest in the Company provided him with the legal ability to control the composition of a majority of the board of directors and therefore may have provided him with the legal ability to affect whether or not the Company could exercise the rights contained in the contractual agreements. Mr. Bangxin Zhang did not exercise this power at any time during the period in which he held a majority voting interest in the Company and during such period, in fact, there was no change in the composition of the board of directors or in the day-to-day operations of the Company.
Upon execution of the Deed, at all times that Mr. Bangxin Zhang holds an otherwise majority voting interest in the Company, Mr. Bangxin Zhang is constrained from exercising a more than 49 percent voting interest in any vote pertaining to the appointment, removal, or replacement of a director and cannot requisition a meeting for this purpose, or cast any vote on any matter related to the Deed. This prevents Mr. Bangxin Zhang from controlling the rights of the Company as it relates to the contractual agreements, and accordingly, the Company retains the characteristics of a controlling financial interest in the VIEs and should consolidate them as the VIEs’ primary beneficiary.
Please see Note 1 for the presentation of abbreviated financial information of the Company with and without the VIEs, after elimination of intercompany activity. |
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Use of estimates | Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenue, costs, and expenses, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Significant accounting estimates reflected in the Group’s consolidated financial statements include the forfeiture rate for share-based compensation, valuation allowance for deferred tax assets, the useful lives of property and equipment and intangible assets, impairment of available-for-sale securities, intangible assets, long-lived assets, goodwill and long term investments, fair value assessment of long-term investments and consolidation of variable interest entities. |
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Cash and cash equivalents | Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid investments, which are unrestricted as to withdrawal or use, or have remaining maturities of three months or less when purchased. |
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Term deposits | Term deposits
Term deposits consist of deposits placed with financial institutions with original maturities of greater than three months and less than one year. If the term deposits are withdrawn before maturity date, the Company will subject to a significant penalty for early redemption. |
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Restricted cash | Restricted cash
The Group’s restricted cash is related to deposits required by PRC government authorities for establishing new schools and subsidiaries. |
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Available-for-sale securities | Available-for-sale securities
Available-for-sale securities are carried at their fair value. Unrealized gains and losses excluded from the changes in fair value are included in accumulated other comprehensive income.
The Group reviews its available-for-sale securities for other-than-temporary impairment in accordance with authoritative guidance based on the specific identification method. The Group considers available quantitative and qualitative evidence in evaluating the potential impairment of its available-for-sale securities. If the cost of an investment exceeds the investment’s fair value, the Group considers, among other factors, general market conditions, expected future performance of the investees, the duration and the extent to which the fair value of the investment is less than the cost, and the Group’s intent and ability to hold the investment. Other-than-temporary impairments below costs are recognized as a loss in the consolidated statements of operations. |
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Property and equipment, net | Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives:
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Acquired intangible assets, net | Acquired intangible assets, net
Acquired intangible assets other than goodwill consist of domain names, partnership agreement, trade name, student base, non-compete agreement, copy rights and education license, and are carried at cost, less accumulated amortization and impairment. Amortization of finite-lived intangible assets is computed using the straight-line method over the estimated useful lives. Student base is amortized using the estimated attrition pattern and graduation rates of the acquired schools. The amortization periods by major intangible asset classes are as follows:
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Impairment of long-lived assets | Impairment of long-lived assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets. |
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Impairment of goodwill | Impairment of goodwill
Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired.
The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill. In September 2011, the FASB issued an authoritative pronouncement related to testing goodwill for impairment. The guidance permits the Company to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Absent from any impairment indicators, the Group performs its annual impairment test on the last day of each fiscal year.
For the year ended February 28, 2013, the Group did not choose to perform the assessment of qualitative factors for goodwill impairment and performed its annual impairment test using a two-step approach. The first step compares the fair value of a reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the second step is not required. If the fair value of the reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any, by comparing the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit, with the excess purchase price over the amounts assigned to assets and liabilities representing the implied fair value of goodwill. The Group performs its annual goodwill impairment test on the last day of each fiscal year. |
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Revenue recognition | Revenue recognition
Revenue is recognized when earned and is reported net of business tax.
The primary sources of the Group’s revenues are as follows:
(a) Educational programs and services
The educational programs and services primarily consist of after-school group tutoring, after-school one-on-one tutoring and training courses for preschool children. Tuition revenue is generally collected in advance and is initially recorded as deferred revenue. Tuition revenue is recognized proportionately as the tutoring sessions are delivered. The revenue for educational programs and services for the years ended February 28, 2011, February 29, 2012 and February 28, 2013 are $108,341,605, $171,331,866 and $218,006,411, respectively.
Generally, for small-class courses consisting of more than seven classes per course, the Group offers refunds for any remaining classes to students who decide to withdraw from a course, provided the course is less than two-thirds completed at the time of withdrawal.
The refund is equal to and limited to the amount related to the undelivered classes. After two-thirds of a small-class course is delivered, no refund will be provided. For small-class courses with less than seven classes, no refund will be provided after the commencement of the courses. For preschool courses, the Group offers refunds of 60% of courses fees received to students that withdraw from a course, provided the course is less than one-third completed at the time of withdrawal. After one-third of the course is completed, no refund will be provided. For personalized premium services, a student can withdraw at any time and receive a refund equal to and limited to the amount related to the undelivered classes. The refund is recorded as a reduction of the related deferred revenue and has no impact on the recognized revenue. Historically, the Group has not experienced material refunds on the recognized revenue, and as such, no accrual for estimated refunds is deemed necessary.
The Group sends out coupons to attract both existing and prospective students to enroll in its courses. The coupon has fixed dollar amounts and can only be used against future courses. The coupon is accounted for as a reduction of revenue when the relevant revenue is recognized in the consolidated statements of operations.
(b) Online education services
The online education services provided by the Group to its customers include audio-video course content. The revenue for online education services for the year ended February 28, 2011, February 29, 2012 and February 28, 2013 are $1,967,882, $5,736,664 and $6,962,012, respectively.
Customers enroll for online courses through the use of prepaid study cards or payment to the Group’s on-line accounts. The proceeds collected from the online course education are initially recorded as deferred revenue. Revenues are recognized on a straight line basis over the subscription period from the date in which the students activate the courses to the date in which the subscribed courses end. Refunds are provided to the students who decide to withdraw from the subscribed courses within the course offer period, which generally ranges from one month to six months, and a proportional refund is based on the percentage of untaken courses to the total courses offered. Historically, the Group has not experienced material refunds on the recognized revenue, and as such, no accrual for estimated refunds is deemed necessary.
(c) Educational materials and others
The Group sells educational materials to students at the Group’s service centers. Revenue is recognized after a service contract is signed, the price is fixed or determinable, educational materials are delivered and collection of the receivables is reasonably assured. The revenue for educational materials and others for the year ended February 28, 2011, February 29, 2012 and February 28, 2013 are $278,812, $451,142 and $962,672, respectively. |
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Share-based compensation | Share-based compensation
Share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument issued and recognized as compensation expense net of a forfeiture rate on a straight-line basis, over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
The estimate of forfeiture rate will be adjusted over the requisite service period to the extent that actual forfeiture rate differs, or is expected to differ, from such estimates. Changes in estimated forfeiture rate will be recognized through a cumulative catch-up adjustment in the period of change. |
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Value added tax | Value added tax
Pursuant to the PRC tax laws, in case of any product sales, generally the Value added tax (“VAT”) rate is 3% of the gross sales for small scale VAT payer and 17% of the gross sales for general VAT payer. TAL Beijing and Xueersi Education are deemed as general VAT payer since January 2010 and August 2010 respectively for the sales of guidance materials and the intercompany sales of self-developed software. For general VAT payer, VAT on sales is calculated at 17% on revenue from product sales and paid after deducting input VAT on purchases. The net VAT balance between input VAT and output VAT is reflected in the accounts under other taxes payable.
In July 2012, the Ministry of Finance and the State Administration of Taxation jointly issued a circular regarding the pilot collection of VAT in lieu of business tax in certain areas and industries in the PRC. Implementation of such VAT pilot program was phased into Beijing, Jiangsu, Anhui, Fujian, Guangdong, Tianjin, Zhejiang, and Hubei between September and December 2012. The Group’s online education services and inter-company technical services which were previously subject to business tax are therefore subject to VAT at the rate of 6% of revenue for general VAT payer and hence Beijing Xintang Sichuang, TAL Beijing, Xueersi Education and Yidu Huida are deemed as general VAT payer at the rate of 6% since the policy was effective as of September 2012.
For certain software related products that are qualified as “software products” by PRC tax authorities; the Group can pay VAT at 17% first and then receive 14% refund after it is paid. The Group records VAT refund receivables on accrual basis.
For the calendar years 2010, 2011 and 2012, TAL Beijing filed its VAT return at a rate of 17% and enjoyed a 14% VAT refund. For the calendar year 2012, Yidu Huida filed its VAT return at a rate of 17% and enjoyed a 14% VAT refund. From August 2010, Xueersi Education filed its VAT return at the rate of 13% for the book sales that enjoyed a preferential tax rate. |
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Business tax | Business tax
The Company’s PRC subsidiaries, VIEs and VIEs’ subsidiaries and schools are subject to business tax and surcharges at a rate of 3.3% to 5.6% on revenues related to certain types of services. The net revenues are presented net of those taxes incurred. |
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Operating leases | Operating leases
Leases where substantially all the rewards and risks of the ownership of the assets remain with the leasing companies are accounted for as operating leases. Payments made for the operating leases are charged to the consolidated statements of operations on a straight-line basis over the shorter of the lease term or estimated useful life, and have been included in the operating expenses in the consolidated statements of operations. |
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Advertising costs | Advertising costs
The Group expenses advertising costs as incurred. Total advertising costs incurred were $271,484, $2,718,675, and $2,502,489 for the years ended February 28, 2011, February 29, 2012 and February 28, 2013, respectively, and have been included in selling and marketing expenses in the consolidated statements of operations. |
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Government subsidies | Government subsidies
The Group reports government subsidies as other operating income when received from local government authority with no limitation on the use of the subsidies. The Group receives government subsidies related to government sponsored projects and records such government subsidies as a liability when it is received and records it as other operating income when there is no further performance obligation.
Government subsidies received totaled $148,537, $213,270 and $793,007 for the years ended February 28, 2011, February 29, 2012, and February 28, 2013, respectively. The Group recorded $148,537, $213,270 and $632,269 government subsidies as other operating income for the years ended February 28, 2011, February 29, 2012, and February 28, 2013, respectively. |
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Foreign currency translation | Foreign currency translation
The functional and reporting currency of the Company is the United States dollar. The functional currency of the Company’s PRC subsidiaries, VIEs and VIEs’ subsidiaries and schools in the PRC is Renminbi (“RMB”).
Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are re-measured into the applicable functional currencies at historical exchange rates. Transactions in currencies other than the applicable functional currencies during the year are converted into the functional currencies at the applicable rates of exchange prevailing at the transaction dates. Transaction gains and losses are recognized in the consolidated statements of operations. For the years ended February 28, 2011, February 29, 2012 and February 28, 2013 the Group recorded an exchange loss of $80,480, and gains of $4,211,173, $938,116 respectively in other income in the consolidated statements of operations.
For translating the results of the PRC subsidiaries into the functional currency of the Company, assets and liabilities are translated from each subsidiary’s functional currency to the reporting currency at the exchange rate on the balance sheet date. Equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the consolidated statements of changes in equity and comprehensive income. |
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Foreign Currency Risk | Foreign Currency Risk
The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. Cash and cash equivalents, term deposits and restricted cash of the Group included aggregate amounts of US$197,522,897 and US$207,803,373 as of February 29, 2012 and February 28, 2013, respectively, which were denominated in RMB. |
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Income taxes | Income taxes
Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net of operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws and regulations applicable to the Group as enacted by the relevant tax authorities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on the characteristics of the underlying assets and liabilities.
The impact of an uncertain income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authorities. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. |
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Comprehensive income | Comprehensive income
Comprehensive income includes net income, unrealized gain or loss on available-for-sale securities, and foreign currency translation adjustments. The consolidated financial statements have been adjusted for the retrospective application of the authoritative guidance regarding presentation of comprehensive income, which was adopted by the Group on March 1, 2012. |
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Concentration of credit risk | Concentration of credit risk
Financial instruments that potentially expose the Group to significant concentration of credit risk consist primarily of cash and cash equivalents, term deposits and restricted cash. The Group places its cash and cash equivalents, term deposits and restricted cash in financial institutions with high credit ratings. |
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Financial instruments | Financial instruments
The Group’s financial instruments consist primarily of cash and cash equivalents, term deposits, restricted cash, available-for-sale securities, accounts payables and income tax payable. The fair value of cash and cash equivalents, term deposits, restricted cash, and accounts payables approximate their carrying amounts reported in the consolidated balance sheets due to the short-term maturity of these instruments. All highly liquid short-term investments purchased with original maturity of three months or less at the date of acquisition are included in cash and cash equivalents. |
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Net income per share | Net income per share
Basic net income per share is computed by dividing net income attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the year. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised into common shares. Common share equivalents are excluded from the computation of the diluted net income per share in years when their effect would be anti-dilutive. |
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Long-term investments | Long-term investments
The Group accounts for its investments in Beijing Century Mingde Education Technology Co., Ltd (“Century Mingde”) and a third-party online education platform using fair value method. The Group carries these investments at fair value and recognizes any fair value changes into the consolidated statements of operations. . The Group accounts for its investment in Beijing Haidian Holiday Culture Training School (“Holiday School”) using the cost method as the Group does not have the ability to exercise significant influence over operating and financial policies of the investee. This investment is carried at cost and adjusted for other than-temporary declines in fair value of the investment and distributions of earnings. This investment was fully impaired for the year ended February 29, 2012. The impairment on long-term investment is discussed in Note 5. |
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Fair value | Fair value
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Fair value of available-for-sale securities and long-term investments is discussed in Note 12. |
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Recent accounting pronouncements adopted | Recentaccounting pronouncements adopted
In May 2011, the Financial Accounting Standards Board (‘‘FASB’’) issued an authoritative pronouncement on fair value measurement. The guidance is the result of joint efforts by the FASB and International Accounting Standards Board to develop a single, converged fair value framework. The guidance is largely consistent with existing fair value measurement principles in US GAAP. The guidance expands the existing disclosure requirements for fair value measurements and makes other amendments, mainly including:
· Highest-and-best-use and valuation-premise concepts for nonfinancial assets - the guidance indicate that the highest-and-best-use and valuation-premise concepts only apply to measuring the fair value of nonfinancial assets.
· Application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk - the guidance permits an exception to fair value measurement principles for financial assets and financial liabilities (and derivatives) with offsetting positions in market risks or counterparty credit risk when several criteria are met. When the criteria are met, an entity can measure the fair value of the net risk position.
· Premiums or discounts in fair value measure - the guidance provides that premiums or discounts that reflect size as a characteristic of the reporting entity’s holding (specifically, a blockage factor that adjusts the quoted price of an asset or a liability because the market’s normal daily trading volume is not sufficient to absorb the quantity held by the entity) rather than as a characteristic of the asset or liability (for example, a control premium when measuring the fair value of a controlling interest) are not permitted in a fair value measurement.
· Fair value of an instrument classified in a reporting entity’s stockholders’ equity - the guidance prescribes a model for measuring the fair value of an instrument classified in stockholders ‘ equity; this model is consistent with the guidance on measuring the fair value of liabilities.
· Disclosures about fair value measurements - the guidance expands disclosure requirements, particularly for Level 3 inputs. Required disclosures include:
· For fair value measurements categorized in Level 3 of the fair value hierarchy: (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) a description of the valuation process in place (e.g., how the entity decides its valuation policies and procedures, as well as changes in its analyses of fair value measurements, from period to period), and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs.
· The level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed.
The guidance is to be applied prospectively and is effective for interim and annual periods beginning after December 15, 2011, for public entities. Early application by public entities is not permitted. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.
In June 2011, the FASB issued an authoritative pronouncement to allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. These amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively. For public entities, the amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. In December 2011, the FASB issued an authoritative pronouncement, deferral of the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income in accounting standards update. This guidance allows the FASB to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the update pronouncement issued in June 2011. The Group adopted this guidance on March 1, 2012 and has presented two separate but consecutive statements since that date.
In September 2011, the FASB issued an authoritative pronouncement related to testing goodwill for impairment. The guidance is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is ‘‘more likely than not’’ that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this pronouncement did not have a significant effect on the Company’s consolidated financial statements, as it chose to directly perform the two-step goodwill impairment test for fiscal year 2013.
In July 2012, the FASB issued an authoritative pronouncement related to testing indefinite-lived intangible assets, other than goodwill, for impairment. Under the guidance, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before calculating the fair value of the asset. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not (i.e., a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset. The guidance does not revise the requirement to test indefinite-lived intangible assets annually for impairment. In addition, the guidance does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods. The guidance was effective for annual and interim impairment tests performed for fiscal year beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.
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INTANGIBLE ASSETS, NET (Tables)
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Feb. 28, 2013
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INTANGIBLE ASSETS, NET | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intangible assets, net |
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SHARE-BASED COMPENSATION
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Feb. 28, 2013
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SHARE-BASED COMPENSATION. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION | 20. SHARE-BASED COMPENSATION
In June 2010, the Company adopted the 2010 Share Incentive Plan. The plans permit the grant of options to purchase the Class A common shares, share appreciation rights, restricted shares, restricted share units, dividend equivalent rights and other instruments as deemed appropriate by the administrator under the plans. The maximum aggregate number of Class A common shares that may be issued pursuant to all awards under the stock incentive plan is 18,750,000 shares.
On July 26, 2010, before its initial public offering, the Company granted 5,419,500 nonvested shares under this share incentive plan to executive officers and employees. The estimated fair value of the ordinary share on the grant date was $4.05 per share which was determined based on a valuation performed by American Appraisal China Limited. The market approach was used and the Company considered the estimated initial public offering price and applied a discount for the lack of marketability to reflect the fact that there was no ready public market for common shares before its IPO. These nonvested shares vest as follows: (1) 100% of 945,100 nonvested shares vest on the first anniversary of the date of grant, (2) 831,400 nonvested shares vest in two equal batches on each of the next two anniversaries of the date of grant, and (3) 3,643,000 nonvested shares vest in four equal batches on each of the next four anniversaries of the date of grant.
On February 19, 2011, the Company entered into an amendment with one officer to change the original 4 years’ vesting period to 1 year for his 70,000 nonvested shares. This modification did not result in any incremental expense and the remaining unrecognized compensation expense of $243,111 for this officer is recognized over the remaining service period.
On April 8, 2011, the Company granted 409,300 nonvested shares to employees and independent directors. These nonvested shares vests as follows: (1) 337,300 nonvested shares vest proportionally over the period beginning July 2011 through January 2015, and (2) 72,000 nonvested shares vest in three equal batches on October 19 of each year for three years subsequent to the date of grant.
In June 2011, the Company entered into an amendment with one of independent directors to change the vesting date for his 12,000 nonvested shares from the original date of October 19, 2011 to June 13, 2011. Additionally, on August 17, 2011, the Company modified the vesting period of another officer’s 52,500 nonvested shares, which were set to vest in three equal batches on July 27 for each of the next three years under its original terms, by stating it will all vest on August 22, 2012. Both of the modifications did not result in any incremental compensation cost and the remaining unrecognized compensation cost of $170,410 for these two persons is recognized over the remaining service period.
On June 13, 2011, the Company granted 136,000 nonvested shares to the independent directors. These nonvested shares vests as follows: (1) 120,000 nonvested shares vest in three equal batches on each of the next three anniversaries of the date of grant, and (2) 16,000 will vest in two equal batches on each of the next two anniversaries of the date of grant.
On July 26, 2011, the Company granted 40,800 nonvested shares to employees. For each of the next succeeding four anniversaries of the date of grant, 12,000, 10,200, 10,200 and 8,400 nonvested shares vest, respectively.
On March 1, 2012, the Company granted 6,845,800 nonvested shares to employees. These nonvested shares vest as follows: (1) for the first 6,821,800 nonvested shares, 512,800, 777,600, 777,600, 777,600, 777,600, 777,600, 579,600, 579,600, 537,800, 496,000, 228,000 vests on January 26 of each year from 2012 to 2023, and (2) for the remaining 24,000 nonvested shares, 12,000, 6,000 and 6,000 vest on July 26 of each year from 2012 to 2014, respectively.
On October 19, 2012, the Company’s Board of Directors approved to amend the vesting date of certain awards from January 26, 2013 to November 26, 2012 with all other terms and conditions set forth in the original award agreement remaining the same.
The total compensation expense is recognized on a straight-line basis over the respective vesting periods. The Group recorded a related compensation expense of $5,306,472, $7,901,243, and $8,283,900 for the year ended February 28, 2011, February 29, 2012 and February 28, 2013, respectively.
Table below shows the summary of share based compensation:
The activities of non-vested shares granted under the 2010 Share Incentive Plan are summarized as follows:
As of February 28, 2013, the unrecognized compensation expense related to the non-vested share awards amounted to $26,697,018, which will be recognized over a weighted-average period of 3.7 years. The total fair value of non-vested shares that vested during the years ended February 28, 2011, February 29, 2012 and February 28, 2013 was $nil, $9,756,934 and $8,523,961,respectively. |
LONG-TERM PREPAYMENTS (Details) (USD $)
|
1 Months Ended | 12 Months Ended | 3 Months Ended |
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Feb. 28, 2013
|
Feb. 29, 2012
item
|
Jun. 30, 2012
Copyrights
|
|
LONG-TERM PREPAYMENTS | |||
Prepaid for teaching materials development | $ 1,099,547 | ||
Prepaid for acquisition of license | 823,934 | ||
Total | 1,923,481 | ||
Number of agreements signed by the Group with McGraw-Hill Hong Kong Limited | 2 | ||
Number of sets of English teaching materials to be developed by McGraw-Hill Hong Kong Limited | 2 | ||
Total amount of the agreements to develop English teaching materials | 1,648,532 | ||
Prepayment amount recorded as restricted cash | 229,772 | ||
Prepayment was fully written off | $ 594,162 | ||
Long-term prepayments | |||
Amortized period | 5 years |
GOODWILL (Details) (USD $)
|
12 Months Ended | ||
---|---|---|---|
Feb. 28, 2013
|
Feb. 29, 2012
|
Feb. 28, 2011
item
|
|
Goodwill | |||
Beginning balance | $ 2,073,091 | $ 2,047,189 | |
Exchange difference | 6,369 | 25,902 | |
Ending balance | 2,079,460 | 2,073,091 | 2,047,189 |
Accumulated goodwill impairment | |||
Beginning balance | (1,524,266) | (1,384,606) | |
Charge for the year | 0 | (139,660) | (128,522) |
Ending balance | (1,524,266) | (1,524,266) | (1,384,606) |
Goodwill, net | 555,194 | 548,825 | |
Number of business liquidated | 2 | ||
Qianjiang and Jianli School
|
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Accumulated goodwill impairment | |||
Charge for the year | $ (128,522) | ||
Number of acquired schools for which goodwill impairment loss recognized | 2 | ||
Number of business liquidated | 2 |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)
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12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Feb. 28, 2013
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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of accrued expenses and other current liabilities |
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INCOME TAXES (Details)
|
12 Months Ended | 36 Months Ended | 12 Months Ended | 24 Months Ended | 36 Months Ended | 24 Months Ended | 36 Months Ended | 12 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Feb. 28, 2013
USD ($)
|
Feb. 28, 2013
CNY
|
Feb. 29, 2012
USD ($)
|
Feb. 28, 2011
USD ($)
|
Dec. 31, 2013
Xueersi Education
HNTE
|
Dec. 31, 2011
Xueersi Education
High-tech company
|
Dec. 31, 2008
Xueersi Education
High-tech company
|
Feb. 28, 2013
Hong Kong
USD ($)
|
Feb. 29, 2012
Hong Kong
USD ($)
|
Feb. 28, 2011
Hong Kong
USD ($)
|
Feb. 28, 2013
PRC
HNTE
|
Dec. 31, 2013
PRC
Xueersi Education
|
Dec. 31, 2012
PRC
Xueersi Education
|
Feb. 28, 2013
Xueersi Hong Kong
Hong Kong
|
Dec. 31, 2010
TAL Beijing
Newly established software enterprise
|
Dec. 31, 2013
TAL Beijing
Newly established software enterprise
|
Dec. 31, 2012
Yidu Huida
Newly established software enterprise
|
Dec. 31, 2015
Yidu Huida
Newly established software enterprise
|
Feb. 28, 2013
Yidu Hong Kong
Hong Kong
|
|
Income taxes | |||||||||||||||||||
Tax rate (as a percent) | 16.50% | 16.50% | |||||||||||||||||
Income tax rate (as a percent) | 25.00% | 25.00% | 25.00% | 25.00% | |||||||||||||||
Provision for profits tax | $ 4,101,092 | $ 4,156,450 | $ 2,628,090 | $ 0 | $ 0 | $ 0 | |||||||||||||
Assessable income | 37,541,158 | 28,470,103 | 27,003,635 | 0 | 0 | 0 | |||||||||||||
Preferential tax rate (as a percent) | 15.00% | 7.50% | 15.00% | 15.00% | 15.00% | 12.50% | 12.50% | ||||||||||||
Period for exemption from EIT | 3 years | 2 years | 2 years | ||||||||||||||||
Current | |||||||||||||||||||
PRC income tax expenses | 4,708,274 | 4,452,076 | 3,232,563 | ||||||||||||||||
Deferred | |||||||||||||||||||
PRC income tax expenses | (607,182) | (295,626) | (604,473) | ||||||||||||||||
Total | 4,101,092 | 4,156,450 | 2,628,090 | 0 | 0 | 0 | |||||||||||||
Current deferred tax assets: | |||||||||||||||||||
Accrued payroll | 2,229,548 | 1,730,992 | |||||||||||||||||
Unrealized loss on available-for-sale securities | 100,934 | 108,167 | |||||||||||||||||
Less: valuation allowance | (70,036) | (109,401) | |||||||||||||||||
Current deferred tax assets, net | 2,260,446 | 1,729,758 | |||||||||||||||||
Non-current deferred tax assets: | |||||||||||||||||||
Property and equipment | 262,039 | 197,248 | |||||||||||||||||
Intangible assets | 286,756 | 317,169 | |||||||||||||||||
Tax losses carry-forward deferred tax assets | 504,853 | 727,105 | |||||||||||||||||
Less: valuation allowance | (515,184) | (751,300) | |||||||||||||||||
Non-current deferred tax assets, net | 538,464 | 490,222 | |||||||||||||||||
Non-current deferred tax liabilities: | |||||||||||||||||||
Intangible assets | 36,845 | 45,881 | |||||||||||||||||
Accrued ADR income | 62,100 | 110,613 | |||||||||||||||||
Non-current deferred tax liabilities | 98,945 | 156,494 | |||||||||||||||||
Additional disclosures | |||||||||||||||||||
Tax loss carry-forward | 2,019,412 | ||||||||||||||||||
Valuation allowance | 585,220 | ||||||||||||||||||
Statute of limitations period for underpayment of income taxes due to computational errors | 3 years | 3 years | |||||||||||||||||
Late payment surcharge for underpayment of income taxes due to computational errors | 0 | ||||||||||||||||||
Statute of limitations period under special circumstances | 5 years | 5 years | |||||||||||||||||
Statute of limitations period for transfer pricing related adjustment | 10 years | 10 years | |||||||||||||||||
Maximum period to make delinquent tax payment to taxpayer or withholding agent, if underpayment of taxes is resulted from the tax authority's act or error | 3 years | 3 years | |||||||||||||||||
Threshold amount of an underpayment of tax liability for specifically listing it under special circumstance for statute of limitation | 100,000 |
COMMON SHARES
|
12 Months Ended |
---|---|
Feb. 28, 2013
|
|
COMMON SHARES | |
COMMON SHARES | 14. COMMON SHARES
The Company presently has two classes of common shares, namely, Class A and Class B common shares, following the issuance of Class A common shares upon the IPO in October 2010.
Holders of Class A common shares and Class B common shares have the same rights except for voting and conversion rights. In respect of matters requiring shareholders’ vote, each Class A common share is entitled to one vote, and each Class B common share is entitled to ten votes. Each Class B common share is convertible into one Class A common share at any time by the holder thereof. Class A common shares are not convertible into Class B common shares under any circumstances.
In January 2008, the Company issued 1,000 Class B common shares at par value of $0.001.
In January 2009, the Company issued 119,999,000 Class B additional common shares proportionally to the existing founding shareholders at par value. This issuance is considered as an issuance with nominal consideration and has been therefore treated in a manner akin to a stock split and the computations of basic and diluted net income per share were adjusted retroactively for all periods presented. The Class B common shares subscription receivable was fully paid by the founding shareholders in June 2010.
In October 2010, the Company issued 13,800,000 American Depository Shares (representing 27,600,000 Class A common shares in the IPO). The net proceeds from IPO are $127.0 million. At the same time, 5,000,000 Series A convertible redeemable preferred shares were automatically converted into 5,000,000 Class B common shares.
During the year ended February 29, 2012, 2,358,044 of non-vested shares granted to employees were vested and converted into 1,179,022 American Depository Shares (ADS) (representing 2,358,044 Class A common shares).
During the year ended February 29, 2012, 15,319,000 Class B common shares were converted into 15,319,000 Class A common shares.
During the year ended February 28, 2013, 21,875,000 Class B common shares were converted into 21,875,000 Class A common shares and 577,938 Class A common shares were cancelled upon the completion of the share repurchase.
During the year ended February 28, 2013, 1,740,044 of non-vested shares granted to employees were vested and converted into 870,022 American Depository Shares (ADS) (representing 1,740,044 Class A common shares). |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
|
12 Months Ended | ||
---|---|---|---|
Feb. 28, 2013
|
Feb. 29, 2012
|
Feb. 28, 2011
|
|
Property and equipment, net | |||
Purchase of property and equipment | $ 6,163,284 | $ 72,631,938 | $ 5,164,709 |
Building
|
|||
Property and equipment, net | |||
Purchase of property and equipment | $ 922,713 | $ 62,474,175 | $ 0 |
COMMITMENTS AND CONTINGENCIES (Details) (USD $)
|
12 Months Ended | ||
---|---|---|---|
Feb. 28, 2013
|
Feb. 29, 2012
|
Feb. 28, 2011
|
|
COMMITMENTS AND CONTINGENCIES. | |||
Maximum term of non-cancellable leases | 10 years | ||
Rental expense under operating leases | $ 32,846,710 | $ 26,212,907 | $ 15,457,321 |
Future minimum payments under non-cancellable operating leases | |||
February 2014 | 33,000,234 | ||
February 2015 | 24,952,401 | ||
February 2016 | 14,766,041 | ||
February 2017 | 7,780,280 | ||
February 2018 and after | 7,679,684 | ||
Total | $ 88,178,640 |
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