Restatement and Revision of Previously Issued Unaudited Financial Statements

Restatement of 2013 Unaudited Financial Statements. In February 2014, we commenced a review of the accounting for a variable interest that we held in the PEAKS Trust, a VIE. We engaged significant internal and external resources to perform the Supplemental Procedures. As a result of the review and the Supplemental Procedures, on June 18, 2014, the Audit Committee of our Board of Directors determined that we should have consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013. February 28, 2013 was the first date that we had the substantive unilateral right to remove the servicer of the PEAKS Trust Student Loans, as described further below.

We had previously concluded that we were not required to consolidate the PEAKS Trust in our consolidated financial statements, because we believed we did not have the power to direct the activities of the PEAKS Trust that most significantly impact its economic performance and, therefore, believed we were not the primary beneficiary of the PEAKS Trust. We determined that the activities of the PEAKS Trust that most significantly impact its economic performance involve the servicing of the PEAKS Trust Student Loans. We determined that February 28, 2013 was the first date that we could have exercised our right to terminate the servicing agreement that governs the servicing activities of the PEAKS Trust Student Loans (the “PEAKS Servicing Agreement”), due to the failure of the entity that performs those servicing activities for the PEAKS Trust Student Loans on behalf of the PEAKS Trust to meet certain performance criteria specified in the PEAKS Servicing Agreement. As a result of this analysis, we concluded that we became the primary beneficiary of the PEAKS Trust on February 28, 2013, which was the first date that we had the power to direct the activities of the PEAKS Trust that most significantly impact the economic performance of the PEAKS Trust.

As a result of our determination that we should have consolidated the PEAKS Trust in our consolidated financial statements beginning on February 28, 2013, we concluded that we needed to restate the unaudited condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for each of the fiscal quarters ended March 31, 2013, June 30, 2013 and September 30, 2013, and that those previously-issued financial statements should no longer be relied upon. See Note 8 – Variable Interest Entities, for a further discussion of the Consolidation.

In addition, we corrected certain unrelated, immaterial errors as part of the restatement of the unaudited condensed consolidated financial statements in this Amended Filing. These immaterial errors related to:

•

the reassessment of the recognition of revenue with respect to students who withdrew from a program of study in the three months ended March 31, 2013, which resulted in adjustments to the amount of revenue, the provision for doubtful accounts (which is included in student services and administrative expenses) and accounts receivable, net recorded in that period;

•

the calculation of the contingent loss for a risk sharing agreement (the “2009 RSA”) that we entered into on February 20, 2009 with an unaffiliated entity (the “2009 Entity”) in connection with other agreements to create a program that made private education loans available to our students to help pay the students’ cost of education that financial aid from federal, state and other sources did not cover (the “2009 Loan Program”), which resulted in adjustments to the loss from loan program guarantees and other liabilities as of and for the three months ended March 31, 2013;

•

the classification of the 2009 RSA contingent liability, which resulted in an increase to other current liabilities and a decrease to other liabilities as of March 31, 2013;

•

the classification of funds held for students from federal student financial aid programs under Title IV (“Title IV Programs”) of the Higher Education Act of 1965, as amended (the “HEA”) that result in a credit balance on a student’s account, which resulted in an increase to restricted cash and a decrease to cash and cash equivalents as of March 31, 2013; and

•

the classification of an offset against a note receivable, which resulted in adjustments to increase other current liabilities and prepaid expenses and other current assets as of March 31, 2013.

Our restated condensed consolidated financial statements as of and for the three months ended March 31, 2013 reflect the correction of those errors in the period in which they arose. The amounts related to the correction of these immaterial errors are shown in the Other Adjustments column in the tables below.

Our Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Shareholders’ Equity as of March 31, 2013, December 31, 2012 and March 31, 2012 also reflect the cumulative corrections related to:

•

the reassessment of the recognition of revenue with respect to students who withdrew from a program of study in prior periods;

•

the contingent loss for the 2009 RSA;

•

the reclassification of funds held for students from Title IV Programs that result in a credit balance on a student’s account as restricted cash; and

•

the reclassification of amounts related to the vesting of restricted stock units (“RSUs”) from retained earnings to capital surplus in prior periods.

The amounts related to the correction of these immaterial errors are shown in the Other Adjustments column in the tables below.

In addition, we reclassified legal and other investigation costs, which were previously recorded in cost of educational services and in student services and administrative expenses, to a separate line in our Condensed Consolidated Statement of Income for the three months ended March 31, 2013. The amount of that reclassification is shown in the Reclassifications column in the applicable table below.

A reconciliation of previously reported amounts to the restated, corrected and reclassified amounts is set forth in the tables below. Amounts shown in the Consolidation of PEAKS Trust column include the PEAKS Trust and the amounts that were eliminated from our financial statements as a result of the Consolidation.

The following table sets forth the effect of the Consolidation and correction of errors on the affected line items on our Condensed Consolidated Balance Sheet as of March 31, 2013:


	As of March 31, 2013
	As Previously Reported		Consolidation of PEAKS Trust			Other Adjustments			As Restated
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents	$	210,012	$	0		$	(3,374	)	$	206,638
Restricted cash		719		2,600			3,374			6,693
Accounts receivable, net		104,077		0			2,231			106,308
PEAKS Trust student loans, less allowance for loan losses		0		7,282			0			7,282
Deferred income taxes		29,513		41,788			0			71,301
Prepaid expenses and other current assets		18,651		0			538			19,189
Total current assets		362,972		51,670			2,769			417,411
PEAKS Trust student loans, excluding current portion, less allowance for loan losses		0		105,007			0			105,007
Deferred income taxes		56,858		(13,324	)		1,490			45,024
Other assets		39,033		(7,312	)^(a)		0			31,721
Total assets		642,986		136,041			4,259			783,286
Current portion of PEAKS Trust senior debt		0		103,356			0			103,356
Other current liabilities		34,807		(12,275	)^(a)		29,653	^(b)		52,185
Total current liabilities		234,573		91,081			29,653			355,307
PEAKS Trust senior debt, excluding current portion		0		123,660			0			123,660
Other liabilities		100,138		(30,129	)^(a)		(24,375	) ^(b)		45,634
Total liabilities		484,711		184,312			5,578			674,601
Capital surplus		204,219		0			(9,590	)		194,629
Retained earnings		990,202		(48,571	)		8,571			950,202
Total shareholders’ equity		158,275		(48,571	)		(1,019	)		108,685
Total liabilities and shareholders’ equity		642,986		136,041			4,259			783,286

^(a)	Includes amounts that were eliminated from our consolidated financial statements as a result of the Consolidation, primarily the contingent liability and estimated recoveries associated with payments made under the PEAKS Guarantee.

^(b)	These amounts represent the increase to the contingent loss associated with the 2009 RSA and the reclassification, from long-term to current, that portion expected to be paid within 12 months of March 31, 2013.

The following table sets forth the effect of the Consolidation, correction of errors and reclassifications in our Condensed Consolidated Statement of Income for the three months ended March 31, 2013:


	Three Months Ended March 31, 2013
	As Previously Reported			Consolidation of PEAKS Trust			Other Adjustments			Reclassifications			As Restated
Condensed Consolidated Statement of Income Data:
Revenue	$	287,711		$	1,360		$	(4,009	)	$	0		$	285,062
Costs and expenses:
Cost of educational services		125,221			0			0			(1,045	)		124,176
Student services and administrative expenses		106,282			519			(4,625	)		(455	)		101,721
Legal and other investigation costs		0			0			0			1,500			1,500
Loss related to loan program guarantees		3,464			0			339			0			3,803

Total costs and expenses		234,967			519			(4,286	)		0			231,200

Operating income		52,744			841			277			0			53,862
(Loss) on consolidation of PEAKS Trust		0			(73,248	)								(73,248	)
Interest income		34			0			0			0			34
Interest (expense)		(1,152	)		(2,422	)		0			0			(3,574	)

Income (loss) before provision for income taxes		51,626			(74,829	)		277			0			(22,926	)
Provision (benefit) for income taxes		20,496			(26,258	)		107			0			(5,655	)

Net income (loss)	$	31,130		$	(48,571	)	$	170		$	0		$	(17,271	)

Earnings (loss) per share:
Basic	$	1.33											$	(0.74	)
Diluted	$	1.33											$	(0.74	)
Weighted average shares outstanding:
Basic		23,397												23,397
Diluted		23,481												23,397

The following table sets forth the effect of the Consolidation and correction of errors on the affected line items in our Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2013:


	Three Months Ended March 31, 2013
	As Previously Reported		Consolidation of PEAKS Trust			Other Adjustments		As Restated
Condensed Consolidated Statement of Comprehensive Income Data:
Net income (loss)	$	31,130	$	(48,571	)	$	170	$	(17,271	)
Comprehensive income (loss)		31,225		(48,571	)		170		(17,176	)

The following table sets forth the effect of the Consolidation and correction of errors on the affected line items in our Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013:


	Three Months Ended March 31, 2013
	As Previously Reported			Consolidation of PEAKS Trust			Other Adjustments			As Restated
Condensed Consolidated Statement of Cash Flows Data:
Net income (loss)	$	31,130		$	(48,571	)	$	170		$	(17,271	)
Provision for doubtful accounts		19,885			0			(4,580	)		15,305
Deferred income taxes		13,211			(28,464	)		(131	)		(15,384	)
Accretion of discount on PEAKS Trust student loans		0			(1,360	)		0			(1,360	)
Accretion of discount on PEAKS Trust senior debt		0			652			0			652
Loss on consolidation of PEAKS Trust		0			73,248			0			73,248
Restricted cash		(118	)		(896	)		(498	)		(1,512	)
Accounts receivable		(46,649	)		0			3,964			(42,685	)
PEAKS Trust student loans		0			1,187			0			1,187
Other operating assets and liabilities		(10,693	)		5,360			(577	)		(5,910	)
Net cash flows from operating activities		(43,418	)		0			(497	)		(43,915	)

The following table sets forth the effect of the Consolidation and correction of errors on the affected line items in our Condensed Consolidated Statement of Shareholders’ Equity for the three months ended March 31, 2013:


	Three Months Ended March 31, 2013
	As Previously Reported		Consolidation of PEAKS Trust			Other Adjustments			As Restated
Condensed Consolidated Statement of Shareholders’ Equity Data:
Net income (loss)	$	31,130	$	(48,571	)	$	170		$	(17,271	)
Balance as of March 31, 2013		158,275		(48,571	)		(1,019	)		108,685

Revision of 2012 Financial Statements. In connection with the performance of the Supplemental Procedures, we also identified corrections to our 2012 financial statements related to:

•

the recognition of revenue with respect to students who withdrew from a program of study; and

•

the calculation of the contingent loss for the 2009 RSA.

We evaluated the cumulative impact of those items on prior periods under the guidance in ASC 250, “Accounting Changes and Error Corrections” (“ASC 250”), relating to SEC Staff Accounting Bulletin (“SAB”) No. 99, “Materiality.” We also evaluated the impact of correcting those items through an adjustment to our financial statements for the three months ended March 31, 2013 and fiscal year ended December 31, 2013. We concluded, based on the guidance in ASC 250 relating to SAB No. 108, “Considering the Effects of Prior Year Misstatement when Quantifying Misstatements in Current Year Financial Statements,” that the correction of those items in our 2012 fiscal year would not be material, but would be material if corrected out-of-period in our 2013 fiscal year. As a result, we have revised our unaudited condensed consolidated financial statements as of and for the three months and year to date ended March 31, 2012, June 30, 2012 and September 30, 2012 and our audited consolidated financial statements as of and for the fiscal year ended December 31, 2012 to reflect the correction of those items that should have been recognized in those periods. The amounts of the corrections as of March 31, 2012 and December 31, 2012 and for the three months ended March 31, 2012 are shown in the Revisions column in the tables below.

Our revised Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Shareholders’ Equity as of March 31, 2012 and December 31, 2012 also reflect the correction of the classification of amounts related to the vesting of RSUs from retained earnings to capital surplus. The amounts of these corrections related to our Condensed Consolidated Balance Sheets were not material and are shown in the Revisions column in the tables below. The December 31, 2011 amounts presented on our Condensed Consolidated Statement of Shareholders’ Equity reflect an adjustment to increase retained earnings by $5,366 and decrease capital surplus by $5,366 for the cumulative effect of the classification of the vesting of RSUs. We also increased retained earnings as of December 31, 2011 in our Condensed Consolidated Statement of Shareholders’ Equity by $306 for the cumulative effect of the adjustments for the recognition of revenue with respect to students who withdrew from a program of study in prior periods.

We corrected the classification of funds held for students from Title IV Programs that result in a credit balance on a student’s account, to include those amounts in restricted cash on our Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2012. The amounts of these corrections were not material and are shown in the Revisions column in the tables below.

We also corrected the classification of losses related to loan program guarantees, which were previously recorded as reductions to revenue in our Condensed Consolidated Statement of Income for the three months ended March 31, 2012, to report those amounts on a separate line. The amount of that correction is shown in the Revisions column in the table below.

The following tables set forth the effect of the revisions on the affected line items on our Condensed Consolidated Balance Sheets as of the dates indicated.


	As of March 31, 2012
	As Previously Reported		Revisions			As Revised
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents	$	178,476	$	(6,506	)	$	171,970
Restricted cash		1,123		6,506			7,629
Accounts receivable, net		54,411		1,064			55,475
Total current assets		379,214		1,064			380,278
Deferred income taxes		34,081		482			34,563
Total assets		661,304		1,546			662,850
Other current liabilities		50,920		9,721			60,641
Total current liabilities		322,054		9,721			331,775
Other liabilities		72,629		(8,055	)		64,574
Total liabilities		569,683		1,666			571,349
Capital surplus		194,027		(7,765	)		186,262
Retained earnings		884,230		7,645			891,875
Total shareholders’ equity		91,621		(120	)		91,501
Total liabilities and shareholders’ equity		661,304		1,546			662,850


	As of December 31, 2012
	As Previously Reported		Revisions			As Revised
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents	$	246,342	$	(2,877	)	$	243,465
Restricted cash		601		2,877			3,478
Accounts receivable, net		77,313		1,615			78,928
Total current assets		384,965		1,615			386,580
Deferred income taxes		56,112		1,359			57,471
Total assets		672,230		2,974			675,204
Other current liabilities		86,722		20,074			106,796
Total current liabilities		306,949		20,074			327,023
Other liabilities		98,327		(15,911	)		82,416
Total liabilities		545,276		4,163			549,439
Capital surplus		206,703		(9,590	)		197,113
Retained earnings		959,072		8,401			967,473
Total shareholders’ equity		126,954		(1,189	)		125,765
Total liabilities and shareholders’ equity		672,230		2,974			675,204

The following table sets forth the effect of the revisions on the affected line items in our Condensed Consolidated Statement of Income for the three months ended March 31, 2012.


	Three Months Ended March 31, 2012
	As Previously Reported		Revisions			As Revised
Condensed Consolidated Statement of Income Data:
Revenue	$	341,794	$	(2,585	)	$	339,209
Student services and administrative expenses		106,266		(4,947	)		101,319
Loss related to loan program guarantees		0		3,054			3,054
Total costs and expenses		241,207		(1,893	)		239,314
Income before provision for income taxes		100,721		(692	)		100,029
Provision for income taxes		39,650		(266	)		39,384
Net income (loss)		61,071		(426	)		60,645
Earnings per share:
Basic	$	2.40				$	2.39
Diluted	$	2.38				$	2.37

The following table sets forth the effect of the revisions on the affected line items in our Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2012.


	Three Months Ended March 31, 2012
	As Previously Reported		Revisions			As Revised
Condensed Consolidated Statement of Comprehensive Income Data:
Net income (loss)	$	61,071	$	(426	)	$	60,645
Comprehensive income		61,234		(426	)		60,808

The following table sets forth the effect of the revisions on the affected line items in our Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2012.


	Three Months Ended March 31, 2012
	As Previously Reported			Revisions			As Revised
Condensed Consolidated Statement of Cash Flows Data:
Net income (loss)	$	61,071		$	(426	)	$	60,645
Provision for doubtful accounts		15,601			(4,947	)		10,654
Deferred income taxes		(3,742	)		(482	)		(4,224	)
Restricted cash		1,005			(1,362	)		(357	)
Accounts receivable		(21,906	)		4,385			(17,521	)
Other operating assets and liabilities		22,166			1,470			23,636
Net cash flows from operating activities		37,346			(1,362	)		35,984

The revisions had an effect on capital surplus, retained earnings and total shareholders’ equity as of March 31, 2012 and December 31, 2012, as reported in our Condensed Consolidated Statements of Shareholders’ Equity, and that effect is shown in the Condensed Consolidated Balance Sheet Data tables above. The revisions had an effect on net income for the three months ended March 31, 2012 and nine months ended December 31, 2012, as reported in our Condensed Consolidated Statements of Shareholders’ Equity. The effect of the revisions on net income for the three months ended March 31, 2012, as reported in our Condensed Consolidated Statements of Shareholders’ Equity, is shown in the Condensed Consolidated Statement of Income Data table above. Net income for the nine months ended December 31, 2012, as reported in our Condensed Consolidated Statements of Shareholders’ Equity, decreased $1,069 as a result of the revisions.