Learn.
Advance.
Lead.
2012 Annual Report
Robert Hooker
B.A., Homeland Security (2012),
American Military University
1 AMERICAN PUBLIC EDUCATION, INC.
Since our founding, we have focused on preparing students for leadership.
Dr. Richard Schike
Vice President of Curriculum,
Instructional Technology
and Design
Constance St. Germain-Driscoll, Esq.
Vice President and Dean,
School of Public Service and Health
Dan Benjamin
Vice President and Dean,
School of Science and Technology
Dr. Jennifer Stephens-Helm
Vice President of Institutional
Research and Assessment
Dr. Linda Moynihan
Vice President and Dean,
School of Arts and Humanities
Dr. G. Wynne Berry
Vice President and Dean,
Program Development
Dr. Gwendolyn Hall
Senior Vice President and
Academic Operations Officer
American Public Education, Inc. (NASDAQ: APEI) is a leading provider of online higher education.
Through the American Public University System (APUS), we prepare students for service and
leadership by offering respected, affordable online programs that meet high academic standards.
APUS is regionally accredited and operates through American Military University (AMU) and
American Public University (APU).
In 2012, we educated more than 100,000 military and civilian students. We continued to promote
student success and improve distance-learning outcomes through our focus on teaching excellence,
and by working with non-profit foundations, associations and other academic institutions to
implement the best practices in higher education. While serving military and civilian communities,
we plan to expand our outreach to international students and leading corporations, as well as our
academic partnerships with other universities.
Dr. Donna Scribner
Vice President,
Faculty Management
Dr. Conrad Lotze
Vice President and Dean,
School of Education
Dr. Patricia Campbell
Associate Vice President and
Dean of Graduate Studies
Dr. Karan Powell
Executive Vice President
and Provost
Dr. Chris Reynolds
Associate Vice President
and Dean of Center for
Teaching and Learning
Dr. Elena Mastors
Vice President and Dean,
School of Security and Global Studies
Academic Leadership
American Public University System is led by a cohesive team of professionals dedicated to
academic quality and positive student outcomes. Through their efforts, the university has
earned a reputation for academic excellence. This success is built, in part, on our research and
collaborative efforts involving the broad academic community. Our leadership team possesses
a passion for innovation and higher learning that enhances our effectiveness and inspires faculty
and students to reach their goals. We believe that through creativity, innovation and active
engagement we contribute to improving our nation’s higher education system and advancing our
institutional mission—to prepare students for service and leadership in a diverse global society.
Dear Shareholders,
American Public Education, Inc. (APEI) has succeeded
While we take great pride in these achievements,
in building a respected institution of higher learning that
ultimately it is the success of our students and graduates
will stand the test of time. Since its founding, American
that makes our institution unique. In 2012, we conferred
Public University System (APUS) has evolved into a
over 7,600 degrees to our largest and most diverse
leading institution of online higher education, offering a
graduating class. There are now more than 27,000 AMU
broad curriculum serving an increasingly diverse body
and APU alumni worldwide. Many of them come back
of more than 100,000 students.
to us to further their education. Today, APUS is a vibrant
community of learners and alumni who are making
We are guided by our mission—to provide respected,
positive contributions to communities at home and
affordable, student-focused online programs that
around the globe.
Dr. Wallace E. Boston
prepare students for service and leadership in a diverse,
global society. At APUS, we continue to honor our
Quality, Affordability, Access
to our students. This electronic publishing project, which
military heritage through an ongoing emphasis on
Higher education is a national priority. The United States
was expanded and streamlined in 2012, enables our
educating the nation’s military and public service
alone is expected to require 22 million new workers
faculty to create advanced course materials and new
communities. Our student population has grown
increasingly diverse through civilian outreach efforts
that rely in part on our relationships with non-profit
with college degrees by 2018—and the nation faces
a projected shortfall of 3 million.1 In an economic
environment where the cost of higher education exceeds
digital textbooks that are uniquely tailored to the APUS
curriculum at a lower cost than traditional textbooks.
associations, leading corporations, community colleges
the reach of many students, and prospective students
We have an unyielding passion for supporting the
and other universities. This diversity, and these
have become increasingly discerning, APUS offers a
academic success of our students. In 2012, we
relationships, contribute to the success and richness
compelling value proposition—access to respected and
continued to explore ways to improve distance learning
of the learning experience at APUS.
affordable online degree programs. For undergraduates,
and student success. Currently, we have extensive
the combined cost of tuition, fees and books at APUS
pilot programs underway at APUS to evaluate and
Since our founding in 1991, we have earned a reputation
for best practices in online higher education, won
increasing recognition for academic excellence and
is roughly 19% lower than the average in-state cost of a
public university; for graduate students, it is 33% lower.2
Among the 10 leading providers of online education,
innovation, and established APUS as a distance-learning
leader. Today, according to the research and consulting
APUS is, on average, 42% lower for undergraduates
and 33% lower for graduate students.3
firm Eduventures, we are the second-largest, fully online
further enhance the student experience, student
outcomes and persistence. As a member of WCET
(WICHE Cooperative for Educational Technologies),
APUS has taken a lead role on a project aimed at
improving retention and student outcomes in distance
learning. We also work with foundations and non-profits,
provider of higher education in the United States. In
We are driven to develop innovative approaches to
such as the National Institute for Learning Outcomes
2013, U.S. News & World Report ranked APUS 22nd
keep higher education affordable. For example, our
Assessment, John Gardner’s Foundations for Excellence
among the nation’s 237 schools offering online bachelor’s
ePress initiative is an important new tool for lowering
Program and the Lumina Foundation, to find the most
degree programs, or in the top 10 percent overall.
our costs and making course materials more accessible
effective ways to improve learning and retention—so
2 AMERICAN PUBLIC EDUCATION, INC.
that more students enroll in college, stay in college
Our highly efficient delivery model and capacity for
established network of business customers in the
and achieve success.
innovation represent long-term competitive advantages.
United States and abroad.
In addition, our leadership in distance learning
In 2012, we continued with our focus on building new
makes APEI an attractive partner for both public and
APEI has built an efficient, asset-rich platform for
relationships. APUS now has more relationships with a
private universities to enhance their online technology
organic growth, as well as for addressing new and
range of corporations—from small government contrac-
and services.
tors to large Fortune 100 corporations—and with more
emerging growth opportunities in higher education.
With $114.9 million in cash and equivalents and
than 250 community colleges in all 50 states. We work
Going forward, APUS is positioned to expand its
no long-term debt, APEI exits 2012 with significant
closely with our corporate partners to understand their
curriculum in growing fields, such as nursing, computer
financial resources. We have developed a strategic plan
human resources needs and use their feedback to
security, engineering and health care. In 2013, we will
to leverage our strengths and expand internationally, to
enhance our curriculum, so our graduates are prepared
launch new academic programs, including a Bachelor
offer new degree programs in high-demand professional
to meet the immediate needs of a changing workplace.
of Science in Engineering, and further expand our
fields, to provide cost-effective and innovative education
In collaboration with community colleges, we have
outreach to international students. In addition, we will
hosting and support services, and to enter into new
developed systems that make the credit transfer
accelerate our focus on relationships as a cost-efficient
market segments.
process simpler and more straightforward. Importantly,
and powerful way to attract goal-oriented, college-ready
these relationships—as well as our relationships with
students to the university.
the public service and military communities—draw new
students to APUS who are prepared for college and
The global demand for higher education is growing.
A passion for learning and affordable access, and a
strong spirit of innovation—that’s what drives APEI
today and will take us into the future. Our success is
motivated to succeed. Our extensive network of
There were more than 4.1 million international higher
due in no small part to the efforts of the APUS faculty
relationships creates diversity, which enriches the
education students in 2010, a 10.8% increase over
and staff. In closing, I want to thank all of them for their
learning environment, strengthens APUS and positions
the previous year. International student enrollment in
outstanding work and our shareholders for their
us for success in a challenging global economy.
Looking Ahead
the United States increased 6% in 2011–2012 to a
record high of 764,495 international students.4 As an
agile innovator providing higher education to students
continued support.
Sincerely,
Our strong foundation in academic quality, teaching
worldwide, APEI is positioned to meet the growing
excellence and measuring student learning provides APEI
global demand for online higher education. In 2012,
with the essential building blocks for long-term success
we announced an investment in and relationship with
and for addressing new opportunities. We are continually
New Horizons Worldwide, Inc., a global independent IT
innovating—to improve processes, student services
training company with over 300 locations worldwide.
Dr. Wallace E. Boston
and learning technologies. These innovations help keep
We plan to work with select New Horizons’ international
President and Chief Executive Officer
costs down, lead to greater student satisfaction and
franchise centers to expand our outreach to international
success, and pave the way for future efficiencies.
students and build relationships with New Horizons’
1, 2, 3, 4 See page 132 for footnotes.
AMERICAN PUBLIC EDUCATION, INC. 3
Academic quality is
central to everything
we do.
Nationally recognized for best practices in online education
Through academic quality, growing diversity and a unique relationship-oriented approach,
American Military University (AMU) and American Public University (APU) provide learners
with the capacity to innovate, lead and ultimately advance the world’s cultural, social and
economic development.
Our diverse curriculum attracts a broad mix of students. It encompasses 87 online degree
programs that range from liberal arts, business and information technology to highly
specialized degrees in fields such as fire science, space studies, intelligence, retail
management, logistics management, and emergency and disaster management.
APUS offers a compelling option for today’s students—access to quality, affordable higher
education in an environment that promotes student engagement and success. We take
a consultative approach to enrolling and advising new students, and create awareness
through relationships and word-of-mouth referrals. This unique approach not only is
cost-effective but also enables a greater focus on academics and student support. To
measure our effectiveness, we use nationally benchmarked tests and surveys to assess
student outcomes, including the National Survey for Student Engagement (NSSE), ETS
Proficiency Profile and Major Field Tests.
The results: APUS students and graduates express high levels of satisfaction that translate
into strong referral and return rates—and growing recognition for academic quality and
best practices for APUS.
4 AMERICAN PUBLIC EDUCATION, INC.
Ranked #22
In its second annual qualitative ranking of top online
education degree programs, U.S. News & World Report
ranked APUS #22 out of 237 schools for 2013 offering online
bachelor’s degree programs, or in the top 10 percent overall.
“ I developed incredible
relationships with my
mentors and peers at APU.”
Alina Zater
B.S., Space Studies (2011),
American Public University
Alina Zater was drawn to APU’s Space Studies program by the quality of its faculty,
which includes former astronauts Wendy Lawrence and Dr. James Reilly. She also
wanted the flexibility and convenience APU provides so she could pursue her studies
while homeschooling her daughter and gaining hands-on experience through internships.
While pursuing her bachelor’s degree in Space Studies, Zater was selected by NASA
for an internship at the Johnson Space Center, where she received the distinguished
2011 Outstanding Intern of the Year Award. She also completed a second NASA
internship, at the Kennedy Space Center. Zater was the first APUS-sponsored intern
at the Kennedy Space Center, and she served as a NASA ambassador in 2012.
“ We have exceptional
training and mentoring
programs to help guide
our faculty.”
Tricia Keiter is a believer in the power of online education—and in the value of bringing
practical professional experience to the classroom. She maintained her practice as a
chiropractic physician and taught full time at another university before joining the
APUS faculty in 2004. “Bringing real-world scenarios to the classroom breathes life into
the curriculum and taps into the students’ interests,” she says. At APUS, Dr. Keiter has
led the way in developing rich content and career-relevant programs for the School of
Science and Technology—and championing student success. In 2012, those efforts
earned her the APUS Excellence in Teaching and Learning Award. “Ultimately,” she
says, “it’s all about being at our best and empowering our students.”
Tricia S. Keiter, D.C.
Associate Professor,
School of Science and Technology,
American Public University System
We are focused on
teaching excellence.
Dedicated to the success of our students
At APUS, our challenge is to prepare students for leadership and success in a changing
world. We meet that challenge by promoting academic rigor and fostering a vibrant,
engaged community of teachers and learners.
Dr. Karan Powell
Executive Vice President and Provost
Our faculty is made up of researchers, scholars and experts in their respective fields. In
2012 alone, they submitted or published more than 400 books and articles, received
more than 180 awards and presented at more than 1,000 conferences. The APUS faculty
includes former astronauts, former intelligence officials and scientists; professionals in
public health, environmental science, and emergency response and disaster manage-
ment; and leaders in industries such as retail, hospitality and transportation. They bring
real-life experience to the classroom, which enriches the curriculum and engages the
students. The average undergraduate class size at AMU and APU is 16 students, and we
limit the number of students in each class to 25. Smaller classes encourage greater
faculty-student interaction and student success.
“ At APUS, we have a diverse and committed faculty. We
encourage our faculty to be active in their respective
disciplines and remain involved in their professional
communities. This engagement brings current and real-world
perspectives to classroom instruction and helps build lasting
relationships with the communities we serve. We promote
teaching excellence by encouraging the faculty to work closely
with students—and by providing them with the tools they need
to support student success. For example, we’re enhancing
our education technology infrastructure with new software,
simulations and additional rich media—and using social
networks to enable faculty-to-faculty communication and
faculty-to-student communication. Through these efforts, we
are succeeding in creating a vibrant, active, collaborative
community of teachers and learners.”
AMERICAN PUBLIC EDUCATION, INC. 7
We engage with the
broader academic
community.
Setting high standards
APUS collaborates with the broad academic community—universities, community colleges,
non-profits, foundations and accrediting bodies—to set high standards for APUS, to promote
best practices and to improve online higher education.
APUS is involved in a wide range of research projects whose underlying aim is to improve
distance learning and student outcomes. Our partners in this effort include the Lumina
Foundation, Western Interstate Commission for Higher Education’s Cooperative for
Educational Technologies (WCET), National Institute for Learning Outcomes Assessment
and John Gardner’s Foundations of Excellence Program.
In 2012, we placed a greater emphasis on community college partnerships. We now have
relationships with over 250 community colleges. Through these relationships, we are able
to provide community college students with greater certainty about transfer credits. That
helps them make the transition to an affordable, respected four-year degree program—
and fulfills our larger social mission of expanding access to higher education.
8 AMERICAN PUBLIC EDUCATION, INC.
8 AMERICAN PUBLIC EDUCATION, INC.
Growing Recognition
In addition to regional accreditation, APUS has earned
specialty accreditations, such as Commission on Collegiate
Nursing Education (CCNE), Accreditation Council for
Business Schools and Programs, and Foundation for
Higher Education Accreditation (FFHEA), among others.
Sarah Myers
M.S., Environmental Policy
and Management (2012)
with a Concentration in
Environmental Sustainability,
American Military University
AMU alumna Sarah Myers put her higher education into practice. While pursuing her
master’s degree in Environmental Policy and Management, she built a 210-square-foot,
environmentally friendly “tiny house” with a seating area, kitchen and loft bedroom.
Fueled by a mobile solar panel and propane, the house is equipped with Energy Star®
appliances and recycled furnishings, and the building itself is mobile. Myers almost
single-handedly constructed the tiny house as part of her master’s thesis. She cites
two AMU courses—Elements of Sustainable Design and Advanced Green Logistics—as
her inspiration for the project. But, clearly, her determination, knowledge and
leadership skills made it happen.
APUS Commencement Ceremony, June 2012
Career advancement in today’s environment
requires preparation, knowledge and critical
thinking. At APUS, we work closely with a growing
list of corporate partners to keep our curriculum
on the leading edge in a rapidly changing
environment. So when our graduates advance
in their careers, they can be confident and
prepared to succeed.
10 AMERICAN PUBLIC EDUCATION, INC.
We build relationships
with corporate and public
service organizations.
Keeping our curriculum on the leading edge
At APUS, we establish substantive partnerships with corporations and public service
organizations that provide a deep, two-way flow of information and regular feedback.
These relationships not only keep our curriculum aligned with a changing workplace
and create opportunities for our students, but also bring motivated, college-ready
students who enrich the learning environment to APUS.
We work with CEOs, human resources professionals and chief academic officers to
understand the mission, operations and human capital needs of our corporate partners.
So our courses reflect the realities of the current workplace and our students graduate
prepared for real jobs in the real world. We also keep our courses relevant through active
Industry Advisory Councils, comprising professionals from a variety of fields who help us
identify and address evolving trends and integrate them into the APUS curriculum.
Today, APUS has a growing number of relationships. Examples in the public service
community include the International Association of Health and Hospital Safety
Professionals, the Society of Industrial Security Professionals and a number of state
police chief organizations. Our new corporate partners include ManTech International
Corporation and SAIC (Science Applications International Corporation). In addition, in
2012, we renewed our multiyear agreement with Walmart to offer academic courses
and degree programs to their U.S. associates through the Lifelong Learning Partnership.
Industry Advisory Councils
Industry Advisory Councils are made up of key influencers in
the private and public sectors. These councils play a crucial
role in our success and keep APUS on the leading edge.
Members of our advisory councils help guide curriculum
development in rapidly changing fields, such as homeland
security, transportation logistics and environmental sciences.
These crucial relationships help APUS build awareness, attract
new students, and develop content and programs that meet
the needs of a changing world and a changing workplace—so
our students are better prepared to lead and innovate.
AMERICAN PUBLIC EDUCATION, INC. 11
We excel at
innovation.
Using technology to support our mission
Since our founding, we have kept tuition affordable, enhanced student services
and supported student success through innovation and automation. Our industry-
leading initiatives range from pioneering research in predictive analytics and adaptive
learning to our proprietary information technology system, automated transfer credit
evaluation process, electronic course materials and other advancements in distance-
learning technology.
In addition to our patented Partnership at a Distance™ (PAD) system for administering
student services, APEI is pursuing patent protection on a number of other innovations
that support student achievement and streamline operations. In 2012, we launched an
online academic social network for APUS faculty and developed an innovative faculty
scheduling system to optimize course scheduling and faculty course load—giving our
faculty advanced tools to collaborate and be highly effective. We provide required texts
and course materials to most undergraduates through our book grant program. By
digitizing textbooks and classroom materials through ePress, our electronic publishing
initiative, APUS holds down the cost of books and gives students access to course
materials on multiple devices.
Winner of the Sloan Consortium’s Ralph E. Gomory Award for Quality Online Education and
two-time recipient of Sloan’s Effective Practice Award, APUS continues to be recognized as
a leader and innovator in online higher education. For example, AMU was the recipient of
the Council of College and Military Educators (CCME) 2012 Institutional Award. Dr. Phil Ice,
Vice President of Research and Development at APUS, was honored by the United States
Distance Learning Association for outstanding leadership in distance learning. The APUS
Library Online Course Guide Project Group also earned the IMS Global Award for Innovation
from the Instructional Management System’s (IMS) Global Learning Consortium.
12 AMERICAN PUBLIC EDUCATION, INC.
Building for the Future
In September 2012, APUS celebrated the opening of a new,
energy-efficient administrative building (pictured above)
located in the Charles Town-Ranson Corridor of West Virginia.
The 105,000-square-foot facility is powered by the state’s
largest solar array and built according to LEED Gold standards.
Since relocating APUS headquarters to Charles Town in 2002,
APUS has invested more than $47 million in new construction
and building renovation projects in the Charles Town
community, including a LEED-certified Academic Center,
completed in 2010. In 2012, APUS was honored by the
Preservation Alliance of West Virginia for our historic
preservation efforts.
Environmental Stewardship
A charter signatory to the American College and University
Presidents Climate Commitment (ACUPCC), American Public
University System (APUS) is committed to achieving carbon-
neutrality by 2050. In addition to several green building and
renewable energy initiatives, our environmental programs
include paperless practices, the use of environmentally
friendly products, and recycling and transportation programs.
Pictured: The university’s new solar array, in Charles Town,
West Virginia, powers 15 charging stations for use by
employees and guests.
AMERICAN PUBLIC EDUCATION, INC. 13
Executive Leadership
From left to right:
Dr. Sharon van Wyk, Dr. Karan H. Powell, Mr. Harry T. Wilkins,
CPA, Dr. Wallace E. Boston, Mr. Peter W. Gibbons, Dr. Gwendolyn
M. Hall, Mr. Richard W. Sunderland, Jr., CPA, Ms. Carol S. Gilbert
Dr. Wallace E. Boston*
President and Chief Executive Officer;
Member, Board of Trustees;
Member, Board of Directors
Mr. Harry T. Wilkins, CPA*
Executive Vice President and Chief Financial Officer
Dr. Karan H. Powell*
Executive Vice President and Provost
Ms. Carol S. Gilbert*
Executive Vice President of Programs and Marketing
Dr. Sharon van Wyk*
Executive Vice President and Chief Operations Officer
Mr. Peter W. Gibbons*
Senior Vice President and Chief Administrative Officer
Dr. Gwendolyn M. Hall
Senior Vice President and Academic Operations Officer
Mr. Michael P. Miotto (not pictured)
Senior Vice President and Chief Information Officer
Mr. Richard W. Sunderland, Jr., CPA
Senior Vice President, Finance
* Denotes executive officers for purposes of the Securities Exchange Act.
14 AMERICAN PUBLIC EDUCATION, INC.
Office of the President
From left to right:
Mr. Thomas Beckett, Ms. Lynn Wright, Dr. Jennifer
Stephens-Helm, Dr. Wallace E. Boston, Dr. John Hough,
Dr. Russell Kitchner, Dr. Philip Ice
Dr. Wallace E. Boston
President and Chief Executive Officer
Mr. Thomas Beckett
Vice President, Legal Affairs
Mr. Philip McNair (not pictured)
Executive Director, Foundation
Dr. Jennifer Stephens-Helm
Vice President, Institutional Research and Assessment
Dr. John Hough
Ms. Lynn Wright
Vice President, Community College Outreach
Vice President, Institutional Accreditation
Dr. Philip Ice
Vice President, Research and Development
Dr. Russell Kitchner
Vice President, Regulatory and Government Relations
AMERICAN PUBLIC EDUCATION, INC. 15
Finance, Information Technology
and Human Resources
From left to right:
Ms. Amy Panzarella, Ms. Tracy Woods, Mr. Richard W. Sunderland, Jr., Mr. Mike White, Ms. Amy Weber, Mr. Gary
Spoales, Ms. Claudine Stubblefield, Mr. Chris Symanoskie, Mr. Harry T. Wilkins, Dr. Sharon van Wyk
Mr. Harry T. Wilkins, CPA
Executive Vice President and
Chief Financial Officer
Dr. Sharon van Wyk
Executive Vice President and
Chief Operations Officer
Mr. Peter W. Gibbons (not pictured)
Senior Vice President and
Chief Administrative Officer
Mr. Michael P. Miotto (not pictured)
Senior Vice President and
Chief Information Officer
Mr. Richard W. Sunderland, Jr., CPA
Senior Vice President, Finance
Ms. Amy Panzarella
Vice President, Human Resources
Mr. Gary Spoales
Vice President,
Financial Services Operations
Ms. Claudine Stubblefield
Vice President, Controller
Mr. Chris Symanoskie
Vice President, Investor Relations
Ms. Amy Weber
Vice President, Internal Audit
Mr. Mike White
Vice President,
Tax, Budgeting and Payroll
Ms. Tracy Woods
Vice President,
Technology Operations and Services
16 AMERICAN PUBLIC EDUCATION, INC.
Marketing, Enrollment
and Student Services
From left to right:
Mr. Mike Harbert, Ms. Caroline Simpson, Ms. Elizabeth LaGuardia Cooper,
Ms. Carol S. Gilbert, Dr. Sharon van Wyk, Ms. Terry Grant
Ms. Carol S. Gilbert
Executive Vice President of Programs and Marketing
Dr. Sharon van Wyk
Executive Vice President and Chief Operations Officer
Ms. Elizabeth LaGuardia Cooper
Vice President, Marketing
Ms. Terry Grant
Vice President, Enrollment Management and Student Support
Mr. Mike Harbert
Vice President, Strategic Markets and Relationships
Ms. Caroline Simpson
Vice President, Student Services
Mr. Jim Sweizer (not pictured)
Vice President, Military Relations
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
Commission File Number: 001-33810
American Public Education, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
111 West Congress Street
Charles Town, West Virginia 25414
(Address, including zip code, of principal executive offices)
01-0724376
(I.R.S. Employer Identification No.)
(304) 724-3700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par Value
Title of each class
The NASDAQ Stock Market
Name of each exchange on which registered
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes [ ] No [X]
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its cor-
porate Website, if any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of regis-
trant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
The total number of shares of common stock outstanding as of February 25, 2013, was 17,802,678.
The aggregate market value of the registrant’s common stock held by nonaffiliates computed by
reference to the price at which the common equity was last sold as of June 30, 2012, the last
business day of the registrant’s most recently completed second fiscal quarter, was approximately
$536 million. For purposes of this calculation, shares of common stock held by stockholders
whose ownership exceeds 10 percent of the common stock outstanding at June 30, 2012, the
Registrant’s chief executive officer, the Registrant’s chief financial officer, and the Registrant’s
directors were excluded. Exclusion of such shares held by any person should not be construed to
indicate that the person possesses the power, direct or indirect, to direct or cause the direction of
the management or policies of the Registrant, or that the person is controlled by or under common
control with the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Definitive Proxy Statement for its 2013 Annual Meeting of
Stockholders (which is expected to be filed with the Commission within 120 days after the end
of the registrant’s 2012 fiscal year) are incorporated by reference into Part III of this Report.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 17
INDEX
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedule
18 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report, including the sections entitled “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and
“Business,” contains forward-looking statements. We may, in some cases, use words
such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,”
“should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey
uncertainty of future events or outcomes to identify these forward-looking state-
ments. Forward-looking statements in this annual report include statements about:
• our ability to comply with the extensive regulatory framework applicable to our
industry, including Title IV of the Higher Education Act of 1965, as amended,
and the regulations thereunder, as well as state law and regulations and
accrediting agency requirements;
• the pace of growth of our enrollment;
• our conversion of prospective students to enrolled students and our retention
of active students;
• our ability to update and expand the content of existing programs and the
development of new programs in a cost-effective manner or on a timely basis;
• our maintenance and expansion of our relationships with the United States Armed
Forces and various organizations and the development of new relationships;
• the competitive environment in which we operate;
• our cash needs and expectations regarding cash flow from operations;
• our ability to maintain and develop our technology infrastructure, and the ability
of our proprietary systems to support a larger student body;
• our ability to manage and grow our business and execution of our business and
growth strategies; and
• our financial performance generally.
Although we believe that the expectations reflected in the forward-looking state -
ments are reasonable, we cannot guarantee future results, levels of activity,
performance, or achievements. There are a number of important factors that could
cause actual results to differ materially from the results anticipated by these
forward-looking statements, which apply only as of the date of this annual report.
These important factors include those that we discuss in Item 1A “Risk Factors,”
Item 7 “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and elsewhere. You should read these factors and the other cau-
tionary statements made in this annual report as being applicable to all related
forward-looking statements wherever they appear in this annual report. If one or
more of these factors materialize, or if any underlying assumptions prove incorrect,
our actual results, performance, or achievements may vary materially from any
future results, performance, or achievements expressed or implied by these forward-
looking statements. We undertake no obligation to publicly update any forward-looking
statements after the date of this annual report, whether as a result of new informa-
tion, future events, or otherwise, except as required by law.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 19
PART I
ITEM 1. BUSINESS
Company Overview
American Public Education, Inc. is a provider of exclusively online postsecondary
education with an emphasis on serving the needs of the military and public service
communities. We operate through two universities: American Military University, or
AMU, and American Public University, or APU. Together, AMU and APU constitute the
American Public University System, or APUS. Our universities share a common fac-
ulty and curriculum, which includes 87 degree programs and 69 certificate programs
in disciplines related to national security, military studies, intelligence, homeland
security, criminal justice, technology, business administration, education, nursing,
and liberal arts. We currently serve approximately 127,000 students living in all 50
states and the District of Columbia in the United States, as well as in various inter-
national locations. Our university system is regionally accredited.
From 2010 to 2012, our total revenue increased from $198.2 million to $313.5 mil-
lion, which represents a compound annual growth rate of 26%. Our net registrations
increased 18% and 32% in 2012 and 2011, respectively, over the prior periods. We
believe our growth is attributable to: (i) high student satisfaction and referral rates;
(ii) regional accreditation; (iii) increasing acceptance of distance learning within
our targeted markets; and (iv) the variety and affordability of our programs. As our
revenue base grows, we expect our growth rate percentages to continue to decline.
However, we expect actual dollar revenue growth to increase. Net income improved
to $42.3 million in 2012 from $29.9 million in 2010.
Approximately 57% of our students serve in the United States military on active duty.
The remainder of our students are generally civilians, many with careers in public
service, such as federal, national, and local law-enforcement personnel or other first
responders, or they are civilians who are military-affiliated professionals, such as vet-
erans, reservists, or National Guard members. Our programs are generally designed
to prepare individuals for productive contributions to their professions and society,
as well as to potentially advance their current professions or prepare for their next
career. Our online method of instruction is well-suited to our students, many of
whom serve in positions requiring extended and irregular schedules, are on-call for
rapid response missions, participate in extended deployments and exercises, travel
or relocate frequently, and have limited financial resources. Our satisfied students
have been a significant source of referrals for us, which we believe has led to lower
marketing costs among certain of our student populations.
20 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
As of December 31, 2012, we had approximately 430 full-time and over 1,570
adjunct faculty. Nearly all of our faculty members have advanced degrees and many
of them have leadership experience in their fields. Our adjunct faculty also includes
professors who teach at leading national and state universities. We believe quality
faculty members are attracted to us because of the high percentage of military and
public service professionals in our student body who can immediately apply lessons
learned in our classroom to their daily work. In addition, our faculty members are
attracted to the flexible nature of teaching online and the numerous support services
we provide to them. Our faculty is organized into several departments under the
leadership of a Provost who reports to our President and is under the supervision of
a nine-member Board of Trustees.
We have invested significant capital and resources in developing proprietary infor-
mation systems and processes to support what we refer to as Partnership At a
Distance™, or PAD. PAD is the patented approach to how we interact with our stu-
dents. At its center is a dynamic information system enabling us to recognize that
every student is unique and to provide individualized support at appropriate times
from pre-enrollment through and beyond graduation, including student advising,
administrative support, and community networking. By avoiding a one-size-fits-all
approach, the system provides the flexibility to maintain a highly-engaged partner-
ship with our learners based on their preferences. PAD has allowed us to scale and
improve the quality of our academic offerings and student support.
Our systems and processes also help us measure and manage the activities of our
faculty, student support personnel, and prospective and active students, allowing
us to continuously improve our academic quality, student support services, and
marketing efficiency. We believe these proprietary systems and processes will sup-
port a much larger institution and provide us important competitive and cost advan-
tages. However, we also believe that we need to continue to invest in our systems
and new technologies in order to stay competitive and relevant to adult learners.
History
We were founded as American Military University in 1991 and began offering courses
in January 1993. Our founder, a retired Marine officer, established American Military
University as a distance learning graduate-level institution, specializing in a military
studies curriculum for military officers seeking an advanced degree relevant to their
profession. Following initial national accreditation by the Accrediting Commission of
the Distance Education and Training Council, or DETC, in 1995, American Military
University began offering undergraduate programs primarily directed to members of
the armed forces in January 1996. American Military University gradually broadened
its military studies curriculum over the next three years to include defense manage-
ment, civil war studies, intelligence, and unconventional warfare, and later expanded
into military-related disciplines, such as criminal justice, emergency management,
national security, and homeland security. Over time, American Military University
diversified its educational offerings into the liberal arts in response to demand by
military students for post-military career preparation. With its expanded program
offerings, American Military University began to attract the greater public service
community, primarily police, fire, emergency management personnel, and national
security professionals. In 2002, we reorganized the operations of American Military
University into our current university system and began operating through two uni-
versities, AMU and APU. The purpose of the reorganization was, in part, to establish
an institution brand, APU, that would appeal to non-military markets, including public
service professionals such as teachers.
Our university system achieved regional accreditation in May 2006 with The Higher
Learning Commission of the North Central Association of Colleges and Schools
(Higher Learning Commission). In July 2011, The Higher Learning Commission
reaffirmed accreditation of APUS for online courses and programs without any other
stipulations on its affiliation status. Our next comprehensive evaluation is scheduled
for the 2020-2021 academic year, with an interim progress report on development of
university system-wide coordination and improvement of graduate studies due in July
2015. In 2012, we received approval from The Higher Learning Commission to offer
a new degree program in Electrical Engineering.
Since the founding of American Military University, we have gradually transitioned
from a military focus to a broader focus on the military, public services, and civilian
communities. We expect the percentage of our students that are not eligible for
tuition assistance programs of the Department of Defense, or DoD, to continue to
increase, particularly as a result of our eligibility to participate in Title IV programs.
Furthermore, because our students who use the DoD tuition assistance programs
generally take fewer courses at one time than our other students, they represent a
smaller percentage of our net enrollment than they do of our total student body. In
2012, we announced plans that may expand our focus to include international stu-
dents through a new investment in, and relationship with, New Horizons Worldwide,
Inc., a global independent I.T. training company.
Market Overview
Within the postsecondary education market, we believe that there is significant
opportunity for growth in online programs. We believe that increasing requirements for
workers to have job mobility and critical skills, combined with the growing acceptance
of online learning from employers and the flexibility associated with online learning,
should attract more students, both traditional and adult, to distance learning.
There are more than 2.2 million active and reserve military professionals in the
United States Armed Forces. Historically, approximately 300,000 new service mem-
bers are enlisted or commissioned to replace retiring and separating members each
year. However, this number is likely to decrease if, as proposed, the military down-
sizes forces incrementally. We believe that the unpredictable and demanding work
schedules of military personnel and their geographic distribution make online learn-
ing and asynchronous teaching particularly attractive to them. Military leaders and
policies promote voluntary education programs as a means for service members to
gain the knowledge and skills that will improve their military performance as well as
prepare them for a career following their military service. Academic achievement can
also result in increased rank and pay for service members. The United States Armed
Forces recognize academic achievement through awarding promotion points for
academic credits, specifying education level eligibility requirements for assignments,
promotions, and service schools, and entering remarks on performance appraisals.
Active duty and reserve component military personnel are eligible for tuition assis-
tance through the DoD’s Uniform Tuition Assistance Program. DoD policy allows for
payment of 100% of a military student’s tuition costs, up to $250 per semester
credit hour and a maximum benefit of $4,500 per fiscal year. Our undergraduate
tuition per course is designed so that the tuition assistance paid by the service
branches covers the cost of our courses for service members up to the annual
maximum benefit. Eligible military students may also use their benefits under the
Montgomery GI Bill or the Post-9/11 Veterans Educational Assistance Act of 2008,
or the Post-9/11 GI Bill, as amended, to pay for tuition costs above the DoD limits
through the GI Bills’ Top-Up feature, which is administered by the U.S. Department of
Veterans Affairs. Most military veterans are eligible to use their GI Bill entitlements
to continue their education after retirement or separation. The DoD announced in
October 2011 that, while it will maintain the current levels of tuition assistance in
the near term, it plans to consider changes as part of a holistic review of the military
compensation package. See “Regulation of Our Business—Nature of Federal, State
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 21
and Private Financial Support for Postsecondary Education” below for more informa-
tion on tuition assistance.
Over the last several years, a number of our competitors have expanded their
outreach and marketing efforts to the active-duty and reserve component military
and veteran population. We believe this is related to a growing desire among for-
profit institutions to seek new sources of revenue outside of Title IV programs,
which is driven by concerns with a compliance obligation under the Higher Education
Opportunity Act, commonly referred to as the “90/10 Rule,” which prohibits pro-
prietary institutions from deriving from Title IV funds, on a cash accounting basis
(except for certain institutional loans) for any fiscal year, more than 90% of its
revenues (as computed for 90/10 Rule purposes). We believe that for-profit schools
seek to attract military students in order to comply with the 90/10 Rule, as DoD
tuition assistance and veterans education benefits currently do not count towards
the 90% limit. See “Regulation of Our Business—Regulation of Title IV Financial Aid
Programs—The ‘90/10 Rule’” below for more information on the 90/10 Rule, includ-
ing recent proposals to count DoD tuition assistance and veterans education bene-
fits toward the 90% limit.
Our results in any quarter may not indicate the results we may achieve in any sub-
sequent quarter or full year. Our revenues and operating results normally fluctuate
as a result of seasonal or other variations in our enrollments. Student population
varies as a result of new enrollments, graduations, student attrition, the success of
our marketing programs and other reasons that we cannot always anticipate. While
our number of enrolled students has grown in each sequential quarter over the past
three years, the number of enrolled students has been proportionally greatest in the
fourth quarter of each respective year. We expect quarterly fluctuations in operating
results to continue as a result of seasonal enrollment patterns.
We believe that civilian students, including those in national security, homeland
security, and public safety professions, represent a large market for online educa-
tion. As with their military counterparts, civilian working adult students have unique
program requirements as well as unpredictable and demanding work schedules that
often prevent them from attending traditional universities. In addition, we believe
academic programs in fields such as nursing, education and liberal arts are also
attractive programs to certain prospective students. We also believe that interna-
tional students represent a large and growing market for quality online education,
particularly at institutions with affordable tuition levels.
The growing acceptance of online education has led to an increasing number of tra-
ditional universities offering online programs. While this increase represents growing
competition for our institution, we also believe that it represents the opportunity to
partner with and/or provide education hosting and other student services to universi-
ties, other institutions of higher learning, and to corporations.
Competitive Strengths
We believe that we have the following competitive strengths:
Online Higher Education and a Diverse Array of Programs—We have designed our
courses and programs specifically for online delivery, and we recruit and train faculty
exclusively for online instruction. Because our students are located in more than 98
countries around the globe, we focus our instruction on asynchronous, interactive
instruction that provides students the flexibility to study and interact during the hours
of the day or days of the week that suit their terms and schedules. APUS offers 87
degree programs in fields ranging from homeland security, space studies, and emer-
gency and disaster management to liberal arts and education.
Commitment to Academic Excellence—Our academic programs are overseen by
our Board of Trustees, which counts as members two former college presidents,
active accreditation peer evaluators, a former Commandant of the Marine Corps, and
a former Department of the Army Inspector General. We are committed to continu-
ously improving our academic programs and services, as evidenced by the level of
attention and resources that we apply to instruction and educational support.
Affordable Tuition—Our combined tuition, fees, and books are less for undergrad-
uate and graduate students than the average in-state cost at a public university.
Tuition was established at a competitive rate whereby DoD tuition assistance pro-
grams fully cover the cost of undergraduate course tuition and over 75% of the cost
of graduate course tuition. We have not increased our undergraduate tuition rate of
$250 per credit hour since 2000.
Effective Student Support Systems and Data Driven Decision-Making—Through
PAD, students may access our admission, orientation, course registrations, tuition
payments, book requests, grades, transcripts, degree progress, and various other
services online 24/7. We also have created management tools based on the data
from PAD that help us to improve continuously our academic quality, student support
services, and marketing efficiency.
22 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Growth Strategies
We believe our growth in student enrollment and revenue has consistently been
driven by high student satisfaction and referral rates, and by increasing acceptance
of distance learning within our targeted markets. Between 2010 and 2011, we grew
our revenue 31% from $198.2 million to $260.4 million. Our revenues increased by
20% to $313.5 million for the year ended December 31, 2012. As our revenue base
grows, we expect our growth rate percentages to continue to decline. To expand our
business, we plan to employ the following strategies:
Continue Serving the Military Market—We have focused on the needs of the mil-
itary community since our founding. The combination of our online model, focused
curriculum, and outreach to the military has enabled us to gain market share from
more established schools, many of which are traditional brick and mortar schools
that have served this market for longer periods.
Broaden Our Acceptance in the Public Service and Civilian Markets—We design
our curriculum to be relevant to federal, state, and local law enforcement, first
responders, and other public service professionals. We believe that the affordability,
quality, and diversity of our academic program offerings, including our liberal arts
degrees, are attractive options for civilian students.
Add New Degree Programs—Over the long term, we plan to expand our degree offer-
ings to meet our students’ needs and marketplace demands with a focus on new
programs in fields exhibiting higher than average growth. In addition, we are currently
preparing our institution academically and culturally to potentially offer doctoral pro-
grams within the next few years.
Pursue and Expand Strategic Partnerships—We believe that articulation agree-
ments and partnerships with institutions of higher learning, corporations, profes-
sional associations, and other organizations are important to our enrollment growth
and to expanding access to higher education.
Provide Education Hosting and Support Services—We have recently begun to offer
hosting and support services to traditional universities and other institutions of
higher learning to support online offerings. We believe the growth of online programs
at traditional universities, combined with the attractiveness of our distance learning
platform, represents an attractive business opportunity to provide such services to
smaller universities as a low-cost, high-quality provider of online education.
Explore International Opportunities—We are developing partnerships and other
initiatives aimed at expanding international access to our affordable online programs
that will further increase the diversity of our student population, enhance the learn-
ing environment, and diversify our tuition funding sources. In addition, we plan to pur-
sue other relationships, partnerships, and business opportunities that may expand
our international reach, including the development of new international relationships,
corporate training programs, and non-degree certifications.
To assist us in achieving elements of our growth strategy or to further develop our
business capabilities, we will continue to consider and may pursue strategic invest-
ments and acquisitions. For example, on September 30, 2012, we made a $6.8 mil-
lion or approximately 19.9% investment in preferred stock of NWHW Holdings, Inc.,
which in turn acquired New Horizons Worldwide, Inc., or New Horizons. In connection
with this investment in NWHW Holdings, Inc., we also extended $6.0 million in credit
to New Horizons in exchange for a subordinated note. New Horizons is a global IT
training company operating over 300 locations around the world through franchise
arrangements in 45 states and 70 countries. In connection with the investment,
we are entitled to certain rights, including right to representation on the board of
directors of NWHW Holdings. Future strategic investments or acquisitions could
include investments in, partnerships or joint ventures with, or the acquisition of other
schools, service providers or education technology related companies, among other
types of entities.
Accreditation
American Public University System is accredited by The Higher Learning Commission
and is a member of the North Central Association of Colleges and Schools (www.
ncahlc.org). The Higher Learning Commission accredits degree-granting institu-
tions located in a 19-state region, including West Virginia, and is recognized by the
U.S. Department of Education. The Higher Learning Commission initially granted
us candidacy status in February 2004. We received accreditation from The Higher
Learning Commission in May 2006. In July 2011, The Higher Learning Commission
reaffirmed accreditation of APUS for online courses and programs without any other
stipulations on its affiliation status. Our next comprehensive evaluation is sched-
uled for the 2020-2021 academic year, with an interim progress report on develop-
ment of university system-wide coordination and improvement of graduate studies
due in July 2015. We were also accredited by the Accrediting Commission of the
Distance Education and Training Council, or DETC, until April 30, 2012, when we
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 23
voluntarily withdrew our accreditation. We have always identified The Higher Learning
Commission as our primary accreditor for Title IV purposes. Therefore, our with-
drawal of DETC accreditation did not affect our Title IV participation.
In addition to our university-wide accreditation with the Higher Learning Commission,
our Associate of Arts in Business Administration, Bachelor of Business Administration,
Bachelor of Arts in Marketing, and Master of Business Administration programs have
a specialized accreditation from the Accreditation Council for Business Schools and
Programs and our Bachelor of Science in Nursing has specialized accreditation from
the Commission on Collegiate Nursing Education. In addition, we have obtained pro-
fessional recognition for our Emergency and Disaster Management program from the
Foundation for Higher Education Accreditation, for our Management program from the
Society of Human Resources, for our Sports and Health Sciences program from the
American Sport Education Program, and for our Child and Family Development program
from the National Council on Family Relations. Maintaining our specialized accredita-
tions and professional recognitions and obtaining other specialized accreditations and
professional recognitions will continue to become a more important part of our market-
ing and outreach efforts to prospective students.
Curriculum and Scheduling
We offer 156 degree and certificate programs. Academic terms begin on the first
Monday of each month, with over 2,200 classes in over 1,000 unique courses in
either eight- or 16-week formats. Semesters and academic years are established to
manage requirements for participation in Title IV programs and to assist students
who are utilizing Title IV programs in meeting eligibility requirements.
24 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
PROGRAMS
Master of Arts
Master of Business Administration
Master of Education
Master of Public Administration
Master of Public Health
Master of Science
Bachelor of Arts
Bachelor of Business Administration
Bachelor of Science
Associate of Arts
Associate of Science
Certificates
Graduate
Undergraduate
TOTAL
NUMBER
17
1
3
1
1
6
24
1
12
13
8
87
34
35
156
At the graduate level, we offer degree programs in the following disciplines:
• Masters of Arts in:
• Criminal Justice
• Emergency Management and Disaster Management
• History
• Homeland Security
• Humanities
• Intelligence Studies
• International Relations and Conflict Resolution
• Legal Studies
• Management
• Military History
• Military Studies
• National Security Studies
• Political Science
• Psychology
• Reverse Logistics Management
• Security Management
• Transportation Management and Logistics
• Master of Business Administration
• Master of Education in:
• Administration and Supervision
• Guidance Counseling
• Teaching
• Master of Public Administration
• Master of Public Health
• Master of Science in:
• Accounting
• Environmental Policy and Management
• Information Technology
• Space Studies
• Sports and Health Sciences
• Sports Management
At the undergraduate level, we offer degree programs in the following disciplines:
• Bachelor of Arts in:
• Child and Family Development
• Criminal Justice
• Emergency and Disaster Management
• English
• General Studies
• History
• Homeland Security
• Hospitality Management
• Intelligence Studies
• International Relations
• Management
• Marketing
• Middle Eastern Studies
• Military History
• Military Management and Program Acquisition
• Philosophy
• Political Science
• Psychology
• Religion
• Retail Management
• Reverse Logistics Management
• Security Management
• Sociology
• Transportation and Logistics Management
• Bachelor of Business Administration
• Bachelor of Science in:
• Accounting
• Criminal Justice
• Environmental Studies
• Fire Science Management
• Information System Security
• Information Technology
• Information Technology Management
• Legal Studies
• Nursing
• Public Health
• Space Studies
• Sports and Health Sciences
• Associate of Arts in:
• Business Administration
• Communication
• Counter-Terrorism Studies
• Criminal Justice
• Early Childhood Care and Education
• General Studies
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 25
• History
• Hospitality
• Management
• Military History
• Real Estate Studies
• Retail Management
• Weapons of Mass Destruction Preparedness
• Associate of Science in:
• Accounting
• Computer Applications
• Database Application Development
• Explosive Ordnance Disposal
• Fire Science
• Paralegal Studies
• Public Health
• Web Publishing
Our certificate programs generally consist of a minimum of 18 semester hours of
required courses focusing on a particular component of the broader degree program.
Students may earn discrete certificates or earn certificates in combination with work
toward a degree program.
Lead Generation and Student Recruitment
We have traditionally focused on a relationship-based marketing strategy striving to
build long term, mutually beneficial relationships with organizations and individuals
in the military and public service communities. Beginning in late 2010, we began to
expand our efforts to attract civilian students by creating greater awareness of our
APU brand. We believe that people in the military and public service communities
tend to be tightly knit affinity groups, which greatly facilitates personal referrals from
influential members as well as from current students and alumni to prospective
students. Using this approach has enabled us to achieve student acquisition costs
that we believe are substantially less than the industry average. We have also sup-
plemented our relationship-based marketing with multi-faceted interactive marketing
campaigns (organic search, pay-per-click and banner advertising, and participation in
online social communities, among other methods) to help build brand awareness and
26 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
drive inquiries, and beginning in 2011 and through 2012, we began utilizing a greater
percentage of traditional media advertising. Our experience is that the students that
these new forms of marketing attract do not perform as well as the students that our
relationship-based strategy has historically attracted. As we continue to grow, we will
need to continue to focus on and improve the utilization of marketing channels that
will support our growth by attracting a greater proportion of students that we believe
will be successful in the long-term.
The changes to our marketing approach related to our expansion in non-military
markets are the primary drivers of the increases in our student acquisition costs
that we have experienced. As we continue to grow in size and diversity, our student
acquisition costs may continue to increase and we may have a harder time attracting
students that perform well over the long term.
Admissions
Our universities welcome qualified individuals to apply for admission at any time
through an online application process. The current qualifications for most of
our undergraduate programs are a high school diploma or General Education
Development certificate. Graduate applicants must hold a baccalaureate degree
from an accredited U.S. institution or an equivalent foreign institution.
Prospective students apply directly online. Upon completing the online applica-
tion and orientation, students are issued a student ID number and password and
are provided information for submitting the necessary documentation to finalize
their admission and apply for evaluation of credits that they would like to transfer.
Students are also informed how to register for their initial course(s), arrange for
tuition payment and navigate the online student environment. Prospective students
who have questions during the admissions process may obtain assistance through
our online resources and can contact the Admissions Department through our online
resources or by telephone.
Tuition, Books and Fees
We believe that our ability to provide affordable programs is one of our competitive
strengths. We have maintained our undergraduate tuition costs to be lower than
public, in-state rates on average and in line with DoD tuition ceilings. Undergraduate
tuition is $250 per semester credit hour, or $750 per three-credit course. Since
2000, we have not raised undergraduate tuition rates per semester credit hour. If
we were to implement a tuition increase, or if the DoD were to lower the amount
of tuition assistance per semester credit hour, military students eligible for the
U.S. Department of Veterans Affairs’ GI Bill may apply that entitlement to cover
the difference through the Top-Up feature. A full 121-semester hour undergraduate
degree may be earned for $30,250, plus applicable fees. Eligible undergraduate
students receive their textbooks at no cost to them through our book grant program,
which represents a potential average student savings over the course of a degree of
approximately $4,800 when compared to four-year colleges according to The College
Board Study, Annual Trends in College Pricing report from 2012.
Many students transfer in a significant amount of prior credit earned, which also
reduces the cost and time of earning their degrees.
Graduate tuition is currently $325 per semester hour, or $975 per three-semester
credit hour course. For military students, the service branch pays $750 of the tuition
costs per course, and students have the option of paying the remainder out of
pocket or applying their GI Bill entitlements to cover the cost above $750. At these
tuition rates, students may earn a graduate degree for less than $12,000 in tuition
costs for most of our programs.
We do not charge an admission fee, nor do we charge fees for services such as regis-
tration, course drops, and similar events that trigger fees at many other institutions.
In addition, as a fully online institution of higher learning, there are no resident fees,
such as for parking, food service, student union, and recreation. While we charge a fee
for transfer credit evaluation for non-active duty military students and civilian students,
unlike transfer credit fees at many institutions, the fee is a one-time, flat fee that
does not increase as more credits are transferred. A technology fee of $50 per course
was also implemented for course registrations beginning after September 1, 2012.
However, APUS provides a grant to cover the fee for active duty military, national guard
and reserve personnel, and for anyone using DoD tuition assistance benefits. The
grant also covers the fee for students using veterans education benefits.
In addition to military and veterans benefits, we offer a variety of federal and non-
federal aid programs to assist students with their education costs. Net course reg-
istrations by students using federal student aid programs under Title IV constituted
36.2% of our net registrations in 2012, and we expect that the ability to participate
in these programs is important to our growth. The following aid sources are available
from military, federal, state, agency, and local organizations to help students meet
their education goals:
Military and Veterans Student Aid
• Training Funds
• Tuition Assistance
• Veterans Administration Benefits (Montgomery G.I. Bill or Post 9/11GI Bill)
Other Federal Student Aid, Including Title IV Programs
• Federal Pell Grant
• Federal Subsidized Stafford Loan
• Federal Unsubsidized Stafford Loan
• Federal PLUS Loan
• Federal Graduate PLUS Loan
• Teacher Education Assistance for College and Higher Education (TEACH) Grant
Non-Federal Student Aid
• Employer Voucher
• Private Loans
• Undergraduate Book Grant
See the discussion under “Regulation of Our Business” below for more information
about military and veterans benefits and federal student aid, including the discus-
sions of potential changes to these programs under “Regulation of Our Business—
Nature of Federal, State and Private Financial Support for Postsecondary Education—
Tuition Assistance” and “Regulation of Our Business—Regulation of Title IV Financial
Aid Programs—The ‘90/10 Rule’”.
Enrollment and Student Body
Our active student body consists of approximately 127,000 students, most of whom
hold full-time employment. Active students are defined as those who have completed
a course in the past 12 months, or are currently enrolled or registered for an upcom-
ing course. We disenroll students who fail to register for and complete at least one
course in a calendar year, although they may later apply for re-admission and active
status. Students on extended military deployments may apply for a program hold,
which keeps them active until they return and are able to resume their studies.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 27
Faculty
As of December 31, 2012, our faculty consists of approximately 2,000 members
with relevant teaching and practitioner experience. Approximately 430 members
were designated as full-time faculty, and more than 1,570 members were serving
as adjunct faculty. A significant majority of our graduate faculty hold a doctorate in
the relevant field, while virtually all undergraduate faculty have earned a graduate
degree. Exceptions have been granted for a limited number of faculty that may not
meet the degree standards, but evidence significant experience and achievement in
the subject area that they teach.
We establish full-time and adjunct positions based on program and course enroll-
ment. Many full-time faculty began their career with us as adjunct members. As
enrollment increases, we expect to establish additional full-time positions as well as
additional adjunct positions.
We attract faculty through referrals by current faculty members, advertisements
in education and trade association journals, and our Internet presence. Program
Managers and Department Chairs review applications and conduct interviews. We
check references prior to offering positions to new faculty and, upon selection, we
require each new faculty member to complete an orientation and training program
that leads to their certification and assignment. Many of our faculty members have
relevant experience at leading universities and within military and governmental
institutions. We believe that the composition of our student body and course curric-
ulum is particularly attractive to potential faculty members because of the oppor-
tunity to teach relevant material to students that are involved on a daily basis in
implementing what is being taught. In turn, we believe that our well-regarded faculty,
including many former and current practitioners in their fields, attracts new students
with interest in these fields.
We believe that the quality of our faculty is critical to our success because our most
frequent interaction with our students is through our faculty members. We regularly
review the performance of our faculty by monitoring the amount of online contact
that faculty have with students, reviewing student feedback, and evaluating the
learning outcomes achieved by students, among other measures. If we determine
that a faculty member is not performing at the level that we require, we work with
the faculty member to improve performance, including through assigning the faculty
member a mentor. If the faculty member’s performance does not improve, we will no
longer allow that faculty member to teach. We do not provide our faculty with tenure.
Partnership At a Distance
We have established proprietary information systems and processes to support what
we refer to as Partnership At a Distance™, or PAD. PAD is the patented approach
to how we interact with our students. At its center is a dynamic information system
enabling us to recognize that every student is unique and to provide individualized
support at appropriate times from pre-enrollment through and beyond graduation—
including student advising, administrative support, or community networking. By
avoiding a one-size-fits-all approach, the system provides us with the flexibility to
maintain a highly-engaged partnership with our learners based on their preferences.
PAD has allowed us to scale and improve the quality of our academic offerings and
student support. We believe PAD enables us to cost-effectively manage and admin-
ister monthly starts that exceed 2,200 classes in over 1,000 unique courses and
serve approximately 127,000 students taught by over 2,000 faculty members.
We obtained patent protection on PAD in February 2011. American Public University
System is pursuing patent protection on several innovations that enhance and sup-
port student’s academic achievement and streamline university operations.
Other Technology Systems and Management
We believe that we have established a functional, secure and reliable technology sys-
tem to help us fulfill our mission. We continue to invest in technology systems and
enhancements to support this system and our growth. Our IT infrastructure consists
of two data centers: one in Virginia, and one at a co-location facility in Texas. Our
technology environment is managed internally. Student access is provided through
redundant data carriers in both data centers.
In 2010, we chose the Sakai Collaboration and Learning Environment (“Sakai CLE”),
an open-source Learning Management System, to replace Educator™, our prior
Learning Management System, as the foundational software for our online class-
room. As of 2010, more than 350 educational institutions around the world were
reportedly using Sakai CLE to support teaching, learning, research, and collabora-
tion. We completed the implementation of Sakai CLE in the fall of 2011. Shortly after
the completion of the migration, we experienced periods of unplanned downtime in
our online classroom during periods of peak utilization. We believe that in mid-Oc-
tober 2011 we identified the cause of this downtime and took appropriate steps
to mitigate the problem. Since these changes were made, the Sakai CLE has been
stable and available to students and faculty with peak utilization in excess of those
seen in October, 2011.
28 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Competition
There are more than 4,000 U.S. colleges and universities serving traditional col-
lege-age students and adult students. Competition is highly fragmented and varies by
geography, program offerings, delivery method, ownership, quality level, and selectiv-
ity of admissions. No one institution has a significant share of the total postsecond-
ary market. Within our primary military market, there are more than 1,000 institutions
that serve military students and receive tuition assistance funds. Our primary compet-
itors for military students are other institutions offering online bachelor’s and mas-
ter’s degrees and traditional colleges and universities located near military installa-
tions. We believe that for-profit schools may increasingly be seeking to attract military
students for various reasons, including because these schools may see it as helpful
in their efforts to comply with the 90/10 Rule, as currently DoD tuition assistance
and veterans education benefits do not count towards the 90% limit. See “Regulation
of Our Business—Regulation of Title IV Financial Aid Programs—The ‘90/10 Rule’”
below for more information on the 90/10 Rule, including recent proposals to count
DoD tuition assistance and veterans education benefits toward the 90% limit.
We compete with not-for-profit public and private two-year and four-year colleges as
well as other for-profit schools, particularly those that offer online learning programs.
Public and private colleges and universities, as well as other for-profit schools, offer
programs similar to those that we offer. Public institutions receive substantial govern-
ment subsidies, and public and private institutions have access to government and
foundation grants, tax-deductible contributions, and other financial resources generally
not available to for-profit schools. Accordingly, public and private institutions may have
instructional and support resources that are superior to those in the for-profit sector.
In addition, some of our competitors, including both traditional colleges and univer-
sities and other for-profit schools, have substantially greater name recognition and
financial and other resources than we have, which may enable them to compete more
effectively for potential students. We are also continuing to see increasing differenti-
ation between the way in which our competitors are delivering online offerings, which
impacts the ability to attract students, facilitate access to education and provide
convenience to learners. We believe that in the future many online students will be
attracted to institutions in part because of the technology that the institutions offer
and the way in which that technology facilitates access to education and learning.
In addition, we face new competition from various emerging non-traditional, credit-bear-
ing and non-credit-bearing education programs provided by proprietary, not-for-profit
and public providers, including massively open online courses (MOOCs) offered world-
wide without charge by traditional educational institutions and other direct-to-consumer
education services, as well as other offerings at low costs to students.
The primary competitive factors for institutions targeting working adult students
include: specific degree program offerings; affordability, including tuition and fees
and rates of increase; convenience and flexibility, including availability of online
courses and the use of education related technology; reputation and academic qual-
ity; and marketing effectiveness.
Intellectual Property
We exercise rights associated with patents, copyrights, trademarks, service marks,
domain names, agreements, and registrations to protect our intellectual property.
Course syllabi are our property, may be used in current and future courses as
needed to facilitate instruction, and may be modified to meet evolving course or
curriculum requirements. Intellectual property of individual faculty members, such
as weekly notes or lectures, remains the property of the faculty member, and is
reserved specifically for use only by the faculty member who owns it, unless he/she
grants permission for use by others.
We have secured rights to trademarks for various names and terms used in our busi-
ness, including “American Public University System,” “American Military University,”
“American Public University,” “Ready When You Are.,” “RESPECTED. AFFORDABLE.
ONLINE.” and the term “Partnership At a Distance.” We believe these trademarks
and brand names are important to how prospective students identify us and are
central to a number of our marketing efforts. We also own rights to more than 200
Internet domain names pertaining to APUS, AMU, APU and other unique descriptors.
The Patent and Trademark Office issued APUS a patent for our proprietary student
information and service system, PAD, in February 2011. American Public University
System is also pursuing patents on several innovations that we believe enhance and
support students’ academic achievement and streamline university operations.
Employees
As of December 31, 2012, we had approximately 2,000 members of faculty and a
professional staff of approximately 950 non-faculty employees administering our
academic, technology, service, and business operations. Most of our non-faculty
employees work in either our headquarters in Charles Town, West Virginia, or in our
administrative offices in Manassas, Virginia.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 29
None of our employees are parties to any collective bargaining arrangement. We
believe that we have good relationships with our employees.
EXECUTIVE OFFICERS OF AMERICAN PUBLIC EDUCATION, INC.
The table below shows information about our executive officers:
NAME
AGE
POSITION
Dr. Wallace E. Boston
Harry T. Wilkins
Carol S. Gilbert
Dr. Karan Powell
Dr. Sharon van Wyk
Peter W. Gibbons
58
56
54
59
53
60
President, Chief Executive Officer and Director
Executive Vice President, Chief Financial Officer
Executive Vice President, Marketing
Executive Vice President, Provost
Executive Vice President, Chief Operations Officer
Senior Vice President, Chief Administrative Officer
Wallace E. Boston, EdD joined us in September 2002 as Chief Financial Officer
and, since June 2004, has served as President, Chief Executive Officer, and a
member of our board of directors. From August 2001 to April 2002, Dr. Boston
served as Chief Financial Officer of Sun Healthcare Group. From July 1998 to
May 2001, Dr. Boston served as Chief Operating Officer and then President of
NeighborCare Pharmacies. From February 1993 to May 1998, Dr. Boston served
as Vice President of Finance and later, Senior Vice President of Acquisitions
and Development of Manor Healthcare Corporation, now Manor Care, Inc. From
November 1985 to December 1992, Dr. Boston served as Chief Financial Officer
of Meridian Healthcare.
Harry T. Wilkins, CPA joined us in February 2007 as Executive Vice President and
Chief Financial Officer. From December 2004 to February 2007, Mr. Wilkins served
as a member of our board of directors, and from January 2005 to February 2007, he
served on the Board of Trustees of American Public University System. Since 2002,
Mr. Wilkins has also served as a founding partner of Grandizio, Wilkins, Little &
Matthews, LLP, a Baltimore-based CPA firm that specializes in consulting for post-
secondary education clients. From May 1992 to August 2001, Mr. Wilkins served as
Chief Financial Officer of Strayer Education, Inc. From November 1984 to April 1992,
Mr. Wilkins served as Director at Wooden & Benson, an accounting firm specializ-
ing in audits of education companies. From January 1979 to November 1984, Mr.
Wilkins served as a senior consultant with Deloitte, Haskins and Sells, now Deloitte
& Touche.
Carol S. Gilbert joined us in May 2004 as Vice President, Programs and Marketing,
was promoted to Senior Vice President, Marketing in January 2005 and was
promoted to Executive Vice President, Marketing in January 2009. From August
1998 to October 2003, Ms. Gilbert served as Brand Vice President at Marriott
International where she led the strategic planning efforts for the SpringHill Suites’
brand and directed business and marketing strategies for the Fairfield Inn brand,
including the launch of the Fairfield Inn & Suites brand extension. From April 1996
to October 1997, Ms. Gilbert served as Vice President and Director of Choice
Hotels International (formerly owned by Manor Care, Inc.). From February 1991 to
April 1996, Ms. Gilbert served as Senior Director, Marketing Strategy of Manor
HealthCare Corporation, now Manor Care, Inc.
Karan Powell, Ph.D. joined the Company in April 2004 as Interim Chancellor after
serving on the Board of Trustees for two years. From October 2005 to December
2005, Dr. Powell served as the Dean of the School of Business, Management and
Graduate studies. From January 2006 to July 2008, Dr. Powell served as Vice
President and Academic Dean. In July 2008, Dr. Powell was promoted to Senior
Vice President and served as Senior Vice President and Academic Dean until July
2011. Dr. Powell was promoted to Executive Vice President and Provost in August
2011. In 2010, Dr. Powell was invited to be a board member of Higher Education
Resource Services (HERS). From 2011 to 2012, Dr. Powell served as Chair of the
40th Anniversary Committee, and in 2012, was appointed as Program Committee
Chair. Between 1988 and 2007, Dr. Powell served at Georgetown University in vari-
ous roles, including Director of Professional Development in the School of Continuing
Education, Director of Organization Development Programs, and Director of IRS
Executive Development Program. While at Georgetown University, Dr. Powell also
served as an Executive Instructor at the School of Business.
Sharon van Wyk, Ph.D. joined the Company in August 2009 as Executive Vice
President, Chief Operations Officer. From March 2006 to April 2008, Dr. van Wyk
served as Vice President of Process Excellence, Infrastructure & Online Customer
Support at Intuit Inc. From 2001 to 2006, Dr. van Wyk served as Vice President
of Process Excellence and New Market Development for Genworth Financial. From
1996 to 2001, Dr. van Wyk served as Manager, Global Risk Management and Six
Sigma for GE Capital. From 1988 to 1996, Dr. van Wyk served as Associate Partner,
Change Management for Accenture Consulting. Dr. van Wyk was an adjunct profes-
sor for the Executive MBA program at the University of Connecticut Business School
30 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
and possesses several process improvement certifications including Master Black
Belt and Six Sigma Instructor.
Peter W. Gibbons joined us in October 2002 as Vice President, Student Services
and became Senior Vice President, Chief Operating Officer in January 2005. In May
2007, Mr. Gibbons’ title was changed to Senior Vice President, Chief Administrative
Officer. From June 2000 to October 2002, Mr. Gibbons served as Vice President,
Human Resources for Sitel Corporation. From May 1975 to June 2000, Mr. Gibbons
served as a field artillery officer in the United States Army and during his 25 years
of service before retiring, Mr. Gibbons commanded soldiers in combat, held senior
staff positions at the Department of Army, and taught at the United States Military
Academy for three years.
Available Information
Our Company’s Internet address is www.americanpubliceducation.com. We make
available, free of charge through our website, our annual reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments
to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act, soon
after they are electronically filed with the SEC. In addition to visiting our website, you
may read and copy public reports we file with the SEC at the SEC’s Public Reference
Room at 100 F. Street, NE, Washington DC 20549, or at www.sec.gov. You may
obtain information on the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330.
REGULATION OF OUR BUSINESS
We are subject to extensive regulation by (1) state regulatory bodies, (2) accrediting
agencies recognized by the U.S. Secretary of Education, (3) the federal government
through the U.S. Department of Education and under the Higher Education Act of
1965, as amended, or the Higher Education Act, the Department of Veterans Affairs,
and the Department of Defense. The regulations, standards and policies of these
agencies cover the vast majority of our operations, including our educational pro-
grams, facilities, instructional and administrative staff, administrative procedures,
marketing, recruiting, financial operations and financial condition.
As an institution of higher education that grants degrees, diplomas and certificates,
we are required to be authorized by appropriate state education authorities. In
addition, in certain states as a condition of continued authorization to grant degrees
and in order to participate in various federal programs, including tuition assistance
programs of the United States Armed Forces, an institution must be accredited by
an accrediting agency recognized by the Secretary of Education. Accreditation is a
non-governmental process through which an institution submits to qualitative review
by an organization of peer institutions, based on the standards of the accrediting
agency and the stated aims and purposes of the institution. The Higher Education
Act requires accrediting agencies recognized by the Secretary of Education to review
and monitor many aspects of an institution’s operations and to take appropriate
action when the institution fails to comply with the accrediting agency’s standards.
Our operations are also subject to regulation due to our participation in federal stu-
dent financial aid programs under Title IV of the Higher Education Act, which we refer
to in this annual report as Title IV programs. Title IV programs, which are adminis-
tered by the Department of Education, include loans with below market interest rates
that are made directly to students by the Department of Education. Title IV programs
also include several grant programs for students with the greatest economic need
as determined in accordance with the Higher Education Act and Department of
Education regulations. To participate in Title IV programs, a school must receive and
maintain authorization by the appropriate state education agencies, be accredited by
an accrediting agency recognized by the Secretary of Education, and be certified as
an eligible institution by the Department of Education.
State Education Licensure
We are currently authorized to offer our programs by the West Virginia Higher
Education Policy Commission, the regulatory agency governing postsecondary
education in the State of West Virginia, where we are headquartered. We are also
authorized to operate as an out-of-state institution by the State Council of Higher
Education for Virginia. We are authorized in Virginia because we have administrative
offices there, which requires state authorization under Virginia laws.
At present, we enroll students from each of the 50 states, as well as the District
of Columbia. We have sought and received confirmation that our operations do not
require state licensure or authorization, or we have been notified that we are exempt
from licensure or authorization requirements in 32 states. The university and its
representatives are licensed or authorized to operate or to conduct activities in
the remaining 18 states and the District of Columbia (Alabama, Arkansas, Florida,
Georgia, Illinois, Kansas, Louisiana, Maryland, Minnesota, Montana, Nevada, New
Mexico, Pennsylvania, Virginia, Washington, West Virginia, Wisconsin and Wyoming).
In some cases, state licensure or authorization may impose limitations on certain
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 31
activities and may impose particular requirements with respect to certain programs.
To date, such state-specific limitations and requirements have not had a material
effect on our operations.
New program initiatives, such as our teacher education programs, that include “on
the ground” components (e.g., student teaching, professional internships, etc.) that
may be described as instructional activities, will be viewed by some state regulatory
agencies as constituting a physical presence for regulatory purposes. As those pro-
grams expand, there is a high probability that we will need to seek formal authoriza-
tion to operate in some states where historically we were not required to do so. The
extent of this expansion in regulatory requirements, and the associated costs, are
not known at this time, but we anticipate they may be significant. Furthermore, there
may be some states where it takes a significant amount of time to meet the applica-
ble regulatory requirements with respect to a new program initiative, or where we are
not able to do so at all.
The increasing popularity and use of the Internet and other online services for the
delivery of education has led to the adoption of new laws and regulatory practices in
the United States and foreign countries and to new interpretations of existing laws
and regulations. For instance, in some states we are required to seek licensure or
authorization because our recruiters meet with prospective students in the state. In
other states, the state education agency requires licensure or authorization because,
for example, we enroll students or employ faculty who reside in the state. We are
currently subject to extensive regulations by the states in which we are authorized or
licensed to operate. State laws typically establish standards for instruction, qualifica-
tions of faculty, administrative procedures, marketing, recruiting, financial operations
and other operational matters. State laws and regulations may limit our ability to
offer educational programs and to award degrees. Some states may also prescribe
financial regulations that are different from those of the Department of Education,
and may require the posting of surety bonds. If we fail to comply with state licens-
ing requirements, we may lose our state licensure or authorizations. We believe
that under current law the only state authorization or licensure necessary for us to
participate in the tuition assistance programs of the United States Armed Forces is
our authorization from the West Virginia Higher Education Policy Commission. We
believe the same is true for the Title IV programs. As described elsewhere in this
annual report, the Department of Education promulgated a regulation to require insti-
tutions that offer postsecondary education through distance education to students
in a state in which the institution is not physically located or in which it is otherwise
subject to the state’s jurisdiction to meet the state’s requirements for postsec-
ondary distance education providers, but a federal court vacated that regulation.
Failure to comply with the requirements of the West Virginia Higher Education Policy
Commission could result in our losing authorization from the West Virginia Higher
Education Policy Commission, eligibility to participate in Title IV programs, or our abil-
ity to offer certain programs, any of which may force us to cease operations. Failure
to comply with authorization or licensure requirements in other states could restrict
our ability to recruit or enroll students in those states.
On October 29, 2010, the Department of Education published final regulations that
address certain institutional eligibility issues, including state authorization. The final
regulations, which generally took effect July 1, 2011, specify new rules regarding the
type of state approvals that are acceptable for an institution to demonstrate that it
is authorized by the state where it is located to offer educational programs beyond
the secondary level. In addition, in order for an institution to be legally authorized
under the final regulations, the relevant state must have a process to review and
take appropriate action on complaints concerning postsecondary institutions. If the
Department of Education determines that an institution does not have the required
state authorization to provide an educational program beyond secondary education
in the state in which the institution is physically located, the institution will be ineligi-
ble to participate in the Title IV programs. The institution must be able to document
to the Department of Education, upon request, the state’s approval.
As described below in “Regulation of Title IV Financial Aid Programs—Distance
Learning,” the final regulations also established a new rule related to state authori-
zation and distance education. Under the rule, if an institution offers postsecondary
education through distance education to students in a state in which the institution
is not physically located or in which it is otherwise subject to the state’s jurisdiction
as determined by the state, the institution must meet the state’s requirements for
postsecondary distance education providers. In July 2011, the U.S. District Court
for the District of Columbia vacated the distance education state authorization rule.
The Department of Education has appealed that ruling. See “Regulation of Title IV
Financial Aid Programs—Distance Learning,” below, for more information.
Certain states may be required to adopt new laws or regulations to comply with the
new state authorization requirements in order to enable institutions in those states to
continue to participate in Title IV programs. The new rules related to distance education
32 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
may also lead some states to adopt new laws and regulatory practices affecting the
delivery of distance education to students located in those states. For example, more
states may require that online education institutions be licensed in their state despite
having no physical location or other presence in that state or may increase require-
ments applicable to institutions already required to be licensed. In addition, changes in
our business or changes in the nature or amount of our contact with or presence within
a particular state could lead states that do not currently require us to be licensed or
authorized to require such licensure or authorization in the future. In addition to the con-
cerns expressed above, new laws, regulations or interpretations related to doing busi-
ness over the Internet could increase our cost of doing business and affect our ability to
recruit students in particular states, which could, in turn, negatively affect enrollments
and revenues and have a material adverse effect on our business.
Accreditation
We received institutional accreditation in 2006 from The Higher Learning Commission
of the North Central Association of Colleges and Schools, a regional accrediting
agency recognized by the Secretary of Education. In December 2008, The Higher
Learning Commission approved expansion of our mission to include liberal arts bach-
elors degrees. As part of the regularly scheduled evaluation process, we submitted a
self-study in January 2011 and underwent an on-site reaccreditation visit in February
2011. In July 2011, the Higher Learning Commission reaffirmed our accreditation
status. Our next comprehensive evaluation is scheduled for the 2020-2021 academic
year, with an interim progress report on development of university system-wide coordi-
nation and improvement of graduate studies due in July 2015. We were also accred-
ited by the Accrediting Commission of the Distance Education and Training Council, or
DETC, until April 30, 2012, when we voluntarily withdrew our accreditation.
Accreditation is a non-governmental system for recognizing educational institutions and
their programs for student performance, governance, integrity, educational quality, fac-
ulty, physical resources, administrative capability and resources, and financial stability.
In the United States, this recognition comes primarily through private voluntary associ-
ations that accredit institutions or programs of higher education. To be recognized by
the Secretary of Education, accrediting agencies must adopt specific standards and
procedures for their review of educational institutions or programs. Accrediting agencies
establish criteria for accreditation, conduct peer-review evaluations of institutions and
programs, and publicly designate those institutions that meet their criteria. Accredited
schools are subject to periodic review by accrediting agencies to determine whether
such schools maintain the performance, integrity, and quality required for accreditation.
The Higher Learning Commission is the same accrediting agency that accredits such
universities as The University of Chicago, Northwestern University, West Virginia
University, and other degree-granting public and private colleges and universities
in its region (including Arkansas, Arizona, Colorado, Iowa, Illinois, Indiana, Kansas,
Michigan, Minnesota, Missouri, North Dakota, Nebraska, Ohio, Oklahoma, New
Mexico, South Dakota, West Virginia, Wisconsin and Wyoming).
Accreditation by The Higher Learning Commission is an important attribute of our uni-
versity. Colleges and universities depend, in part, on accreditation in evaluating trans-
fers of credit and applications to graduate schools. Employers rely on the accredited
status of institutions when evaluating a candidate’s credentials, and students and
corporate and government sponsors under tuition reimbursement programs look to
accreditation for assurance that an institution maintains quality educational stan-
dards. Moreover, institutional accreditation by an accrediting agency recognized by
the Secretary of Education is necessary for eligibility to participate in tuition assis-
tance programs of the United States Armed Forces and Title IV programs.
In November and December 2009, the Department of Education’s Office of the
Inspector General, or OIG, issued reports criticizing three accrediting agencies,
including The Higher Learning Commission, for failing to define both program length
and credit hours. OIG explained that such failures could result in inflated credit
hours, improper designation of full-time student status, and over-awarding of Title IV
funds. OIG, in an unusual action, recommended that the Department of Education
consider limiting, suspending, or terminating The Higher Learning Commission’s
recognition as an accrediting agency for purposes of determining institutional eligi-
bility to participate in Title IV programs. In response, Department of Education staff
conducted a special review of The Higher Learning Commission. According to a staff
report submitted to the National Advisory Committee on Institutional Quality and
Integrity, or NACIQI (the panel charged with advising the Department of Education on
whether to recognize accrediting agencies for federal purposes, including Title IV pur-
poses), as a result of the special review, the Department of Education required The
Higher Learning Commission to develop a corrective action plan that, among other
things, required modification of its substantive change policies and implementation
of specific procedures to address changes in ownership. In August 2010, The Higher
Learning Commission submitted its response to the Department of Education’s
special review.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 33
In December 2010, NACIQI reviewed The Higher Learning Commission’s status as
a recognized accrediting agency based on the August 2010 response to the special
review and a December 2008 interim report, the latter of which responded to a
NACIQI review (unrelated to the OIG report) that occurred in 2007. NACIQI voted to
continue The Higher Learning Commission’s recognition as an accrediting agency but
also ordered the agency to submit an additional compliance report in one year. At its
December 2011 meeting, NACIQI characterized The Higher Learning Commission’s
report as “informal” and noted that no vote was to be taken on it.
As explained elsewhere in this annual report, on October 29, 2010, the Department
of Education published final regulations that, in part, seek to address OIG’s concerns
regarding measurement of credit hours. In November 2011, The Higher Learning
Commission revised its policies to address the Department of Education’s new reg-
ulations regarding credit hours. If The Higher Learning Commission were to lose its
ability to serve as an accrediting agency for Title IV programs, we may lose our ability
to participate in Title IV programs. NACIQI is next scheduled to review the Higher
Learning Commission for recognition purposes on June 6–7, 2013. The Higher
Learning Commission received further scrutiny in March 2011 during a hearing of the
Senate Health Education Labor and Pension, or HELP Committee, focused on accred-
itation of proprietary institutions.
We believe that regional accreditation has been important in our outreach to mili-
tary personnel, who we believe are often counseled that regional accreditation is
an important consideration when selecting a postsecondary institution. Similarly,
obtaining regional accreditation has allowed us to reach additional service members
by joining portions of the Servicemembers Opportunity Colleges degree network sys-
tem, a Department of Defense, or DoD, program that promotes its member institu-
tions to military professionals and that was previously closed to us.
In addition to institutional accreditation, certain specialized accrediting agencies
accredit specific programs at our university. Accreditation of a program by a spe-
cialized accrediting agency signifies that the program meets the standards of that
agency. We have the following specialized accreditations:
• Accreditation Council for Business Schools and Programs accredits our Associate
of Arts in Business Administration, Bachelor of Business Administration, Bachelor
of Arts in Marketing, Master of Business Administration.
• Commission on Collegiate Nursing Education accredits our Bachelor of Science
in Nursing.
In addition, we have obtained professional recognition for our Emergency and Disaster
Management program from the Foundation for Higher Education Accreditation, for
our Management program from the Society of Human Resources, for our Sports and
Health Sciences program by the American Sport Education Program, and for our Child
and Family Development program by the National Council on Family Relations.
If we fail to satisfy the standards of these specialized accrediting agencies, we could
lose the specialized accreditation for the affected programs, which could result in
materially reduced student enrollments in those programs and prevent our students
from seeking and obtaining appropriate licensure in their fields.
Nature of Federal, State and Private Financial Support
for Postsecondary Education
Our students finance their education through a combination of individual resources,
tuition assistance programs of the United States Armed Forces administered
by the Department of Defense, or DoD, education benefits administered by the
Department of Veterans Affairs, private loans, corporate reimbursement programs,
and Title IV programs. Participation in these programs adds to the regulation of
our operations.
Tuition Assistance. Service members of the United States Armed Forces are eligible
to receive tuition assistance from their branch of service through the Uniform Tuition
Assistance Program of the DoD. Service members may use this tuition assistance
to pursue postsecondary degrees at postsecondary institutions that are accredited
by accrediting agencies that are recognized by the Secretary of Education. For our
undergraduate programs we have established tuition rates per semester credit hour
that can be 100% covered by DoD tuition assistance funds to undergraduate mil-
itary students to attend our institution provided that the student does not exceed
the annual limits per student. Each branch of the armed forces has established its
own rules for DoD tuition assistance programs. Pursuant to these rules, in order
for a service member to use his or her tuition assistance funds at American Public
University System, or APUS, we need to maintain our state licensure and our regional
accreditation and the service member must maintain satisfactory academic progress
and must also progress in a timely manner toward completion of his or her degree,
among other requirements.
34 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
To the extent that tuition assistance programs do not cover the full cost of tuition
for service members, service members may also use their benefits under the
Montgomery GI Bill or the Post-9/11 Veterans Educational Assistance Act of 2008,
or the Post-9/11 GI Bill, as amended, through the GI Bills’ Top-Up feature. The U.S.
Department of Veterans Affairs, or VA, administers the GI Bills. Pursuant to federal
law related to those programs, we are approved for education of veterans and mem-
bers of the selective reserve and their dependents by the state approving agencies
in Virginia and West Virginia. On April 16, 2012, the Department of Veterans Affairs
began an on-site program review of our programs. The on-site review was concluded
on April 20, 2012, and we have not yet received a formal report from the Department
of Veterans Affairs.
If we lost our eligibility to receive tuition assistance from the United States Armed
Forces, or if the amount of tuition assistance per service member is reduced, mili-
tary service members would need to seek alternative funds. While they may be able
to use their education benefits under the Montgomery GI Bill or Post-9/11 GI Bill in
lieu of DoD tuition assistance funds, we believe that option would not be attractive
to these students. As a result, the inability to participate in DoD tuition assistance
programs, and any reduction in the funding for DoD tuition assistance programs,
could have a material adverse effect on our operations.
In 2010, both the U.S. Congress and DoD increased their focus on DoD tuition assis-
tance that is used for distance education and programs at proprietary institutions.
In August 2010, DoD issued proposed regulations that would increase oversight of
educational programs offered to active duty service members. Related to this effort,
DOD drafted a Memorandum of Understanding, or MOU, to articulate the commitment
that institutions providing education services must make in order to receive DOD
tuition assistance program funds. On March 15, 2011, DoD circulated the MOU and
requested that institutions execute it before January 1, 2012. The draft MOU met
with substantial criticism, including from the American Council on Education and 52
U.S. Senators. Despite this, some institutions executed the MOU before the deadline,
including us. In response to the criticisms received, DoD revised the regulations and
the MOU. The final regulations and MOU, published December 7, 2012 and effective
January 7, 2013, require all institutions to sign an MOU, by March 1, 2013. Institutions
that have executed an MOU with DOD can retain their current MOU or choose to exe-
cute the new MOU. The MOU outlines certain commitments and agreements between
the institution and DoD prior to accepting funds under the tuition assistance program.
For example, the MOU requires institutions to participate in the DoD Third Party
Assessment to ensure compliance with the MOU and that service members are
provided quality voluntary education opportunities that meet their needs. The Third
Party Assessment of American Military University was conducted in June 2012
with a revised report submitted in October 2012. The report stated that based
on the assessment team’s findings, American Military University and American
Public University System are in full compliance with the DoD voluntary Education
Partnership MOU.
The MOU does not require institutions to become members of the Servicemembers
Opportunity Colleges degree network system like us, but all institutions must
disclose certain information (such as transfer credit policies) and provide certain
resources for service members (such as designating a person or office to serve
as a point of contact for service members inquiring about academic counseling,
financial aid counseling, and student support services). In addition, as part of DoD’s
efforts to eliminate aggressive marketing aimed at service members, institutions
that execute the MOU must not provide any commission, bonus, or other incentive
payment based directly or indirectly on securing enrollments or federal financial aid
(including tuition assistance funds) to any persons or entities engaged in any student
recruiting, admission activities, or making decisions regarding the award of student
financial assistance.
We have executed the MOU originally circulated on March 15, 2011. The DoD may
draft and circulate a revised MOU and require that institutions execute the agree-
ment in order to receive DoD tuition assistance program funds. The requirement
to enter into an MOU, and the related increased focus by the DoD on relationships
and oversight of educational providers, could lead to changes in the nature of our
relationships with military bases and educational service officers (including pos-
sibly needing to enter into separate installation MOUs and obtain permission to
counsel students in person on the installation), which could be adverse in nature.
Furthermore, installations may impose additional requirements. For example, at least
one installation has banned educational providers from directly counseling potential
students on the installation, and additional installations may determine to institute
similar bans.
In September 2010, the U.S. House of Representatives Armed Services Committee’s
Subcommittee on Oversight and Investigations held a hearing entitled “A Question
of Quality and Value: Department of Defense Oversight of Tuition Assistance Used
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 35
for Distance Learning and For-Profit Colleges.” Both DoD officials and Subcommittee
members expressed concern about DoD’s oversight of distance education programs,
especially those offered by proprietary institutions. Similarly, in December 2010,
the Senate Health Education Labor & Pensions Committee, or HELP Committee,
released a report entitled “Benefitting Whom For-Profit Education Companies
and the Growth of Military Educational Benefits,” which raised questions about
the growing share of DoD tuition assistance and Post-9/11 Veterans Educational
Assistance Act of 2008 benefits received by proprietary institutions. In March 2011,
the Government Accountability Office, or GAO, published a report entitled “DoD
Education Benefits: Increased Oversight of Tuition Assistance Program is Needed,”
which offered several recommendations for improving accountability within the tui-
tion assistance program. In September 2011, the Senate Subcommittee on Federal
Financial Management, Government Information, Federal Services, and International
Security held a hearing focused on the classification of military education benefits
under the “90/10 Rule,” which requires institutions receiving Title IV aid to derive
at least 10 percent of their revenue from non-Title IV program sources. Some of
the panelists suggested that the classification of military benefits as a non-Title IV
program revenue source has led some for-profit institutions to recruit aggressively
and sometimes illegally members of the military in order to ensure compliance with
the 90/10 Rule. Senator Harkin, Chairman of the Senate Committee on Health,
Education, Labor & Pensions spoke on the Senate floor on May 19, 2011 and
hosted a press conference on September 22, 2011 to encourage reformation of
the 90/10 Rule. See the discussion below under “Regulation of Title IV Financial
Aid Programs—The “90/10 Rule” for further discussion of proposed changes to the
manner in which the 90/10 Rule is calculated. At this time, we cannot predict the
extent to which, or whether, the congressional hearings and report, or advocacy from
other organizations or parts of the government, will affect DoD’s current rulemaking
or result in legislation or other regulations that would limit or condition the partic-
ipation of proprietary institutions or distance education programs in DoD tuition
assistance programs. In October 2011, the Marine Corps announced, and later
rescinded, new tuition assistance rules that cut the maximum benefit for its service
members from $4,500 per year to $875 per year and reduced the tuition assistance
from $250 per credit hour to $175 per credit hour. Although undergraduate tuition
assistance levels have been restored to their prior levels with retroactive benefits
to affected service members, the Marine Corps has warned that the current levels
of funding are not sustainable. The Marine Corps did reduce graduate level tuition
assistance from $350 per credit hour to $250 per credit hour, which is consistent
with the current tuition assistance payments from the other military services. We
anticipate that the other services will also consider potential changes to the tuition
assistance program.
In addition, in October 2011, DoD announced that while it will maintain the current
levels of tuition assistance in the near term, it plans to consider changes as part of
a holistic review of the military compensation package. We believe modifications to
the tuition assistance program may include a reduced per undergraduate credit tui-
tion benefit (currently $250), a decrease in the annual cap (currently $4,500), and/
or a requirement that service members pay out-of-pocket for a portion of their tuition,
among other possible changes.
If tuition assistance payments are reduced, we believe that most service members
would be eligible and able to finance out-of-pocket tuition costs resulting from this
shortfall using their “Top Up” benefits under the GI Bills, which allow service mem-
bers to use a portion of their GI Bill benefits while still on active duty. However, we
do not know whether in the long-term service members would be willing to use the
Top-Up option, or whether the increased administrative process in using the Top-Up
option or covering the shortfall through other funding sources would lead to service
members deciding not to enroll or enrolling at a slower rate.
On April 18, 2012, Senators Kay Hagan and Tom Harkin introduced legislation, titled
the Protecting Financial Aid for Students and Taxpayers Act, that would prohibit
colleges and universities from using funds from Title IV programs, military tuition
assistance, veterans education benefits programs, and other federal educational
assistance funds to pay for marketing, advertising, and recruiting. On June 14, 2012,
the Senate Appropriations Committee reported a 2013 fiscal year appropriations bill
that included language from the Protecting Financial Aid for Students and Taxpayers
Act bill. Both the appropriations bill and the Protecting Financial Aid for Students and
Taxpayers Act bill expired when the 112th Congress ended on January 3, 2013. Were
similar legislation introduced in the 113th Congress and became law, it would signifi-
cantly affect our ability to identify and attract prospective students.
We are unable to estimate the effect of future expected changes to the tuition
assistance programs or whether the services would impose other criteria in addition
to the level of reimbursement that would impact enrollments from service members.
We are also unable to estimate the response that our competitors would take to
reduced tuition assistance payments or the willingness of service members to use
36 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
the Top-Up option available under the veterans education benefits programs. In
this regard, our competitors, particularly those with larger student populations or a
smaller concentration of students from the military, may be better situated to lower
the cost of tuition to service members.
If we are no longer able to receive tuition assistance payments or the tuition assis-
tance program is reduced or eliminated, our enrollments and revenues could be
significantly reduced, which would result in a material adverse effect on our results
of operations and financial condition.
Title IV Programs. The federal government provides a substantial part of its support
for postsecondary education through Title IV programs, in the form of grants and
loans to students who can use those funds at any institution that has been certified
by the Department of Education to participate in Title IV programs. Title IV program
aid is primarily awarded on the basis of financial need, generally defined as the
difference between the cost of attending the institution and the amount a student
can reasonably contribute to that cost. All recipients of Title IV program funds must
maintain satisfactory academic progress and must also progress in a timely manner
toward completion of their program of study. In addition, each school must ensure
that Title IV program funds are properly accounted for and disbursed in the correct
amounts to eligible students.
We were first certified to participate in Title IV programs in September 2006. The
Department of Education has approved us to participate in the following Title IV
programs (described below): (1) the Federal Family Education Loan Program, or the
FFEL Program, (2) William D. Ford Federal Direct Loan Program, or the Direct Loan
Program, (3) the Federal Pell Grant program, (4) campus-based programs, and (5)
Teacher Education Assistance for College and Higher Education Grant Program, or
the TEACH Grant Program.
(1) FFEL Program. On March 30, 2010, President Obama signed the Healthcare and
Education Affordability Reconciliation Act of 2010. The legislation, which is known
for its overhaul of the healthcare system, eliminated the FFEL Program. Under the
FFEL Program, banks and other lending institutions made loans to students and
parents of dependent students. As of July 1, 2010, those lending institutions are no
longer able to act as lenders of federal student loans, and no new loans could be
originated through the FFEL Program. Instead, institutions were required to transi-
tion to the Direct Loan Program by July 1, 2010 in order to continue to participate
in the major federal loan programs. This deadline did not affect American Public
University System, or APUS, as we had ceased to participate actively in the Direct
Loan Program as of December 31, 2009. The FFEL Program includes the Federal
Stafford Loan Program, the Federal PLUS Program (which, beginning on July 1, 2006,
provided for loans to graduate and professional students as well as parents of
dependent undergraduate students), and the Federal Consolidation Loan Program. If
a student defaults on a loan, payment is guaranteed by a federally recognized guar-
anty agency, which is then reimbursed by the Department of Education. Students
who demonstrate financial need may qualify for a subsidized Stafford loan. With a
subsidized Stafford loan, the federal government will pay the interest on the loan
while the student is in school and during any approved periods of deferment, until
the student’s obligation to repay the loan begins. Unsubsidized Stafford loans are
available to students who do not qualify for a subsidized Stafford loan or, in some
cases, in addition to a subsidized Stafford loan.
(2) Direct Loan Program. Under the Direct Loan Program, the Department of
Education makes loans directly to students rather than guaranteeing loans made by
lending institutions. The Direct Loan Program includes the Direct Subsidized Loan,
the Direct Unsubsidized Loan, the Direct PLUS Loan (including loans to graduate and
professional students), and the Direct Consolidation Loan. The terms and conditions
of the Direct Subsidized Loan, the Direct Unsubsidized Loan, the Direct PLUS Loan,
and the Direct Consolidation Loan are generally comparable to those of the Federal
Stafford Subsidized Loan, the Federal Stafford Unsubsidized Loan, the Federal PLUS
Loan, and the Federal Consolidation Loan, respectively. As of June 1, 2009, APUS
has originated all new loans for students and their parents through the Direct Loan
Program. The Budget Control Act of 2011, signed into law on August 2, 2011, elimi-
nated Direct Subsidized Loans for graduate and professional students, as of July 1,
2012. The terms and conditions of subsidized loans originated prior to July 1, 2012
are unaffected by the law.
(3) Federal Grant Programs. Grants under the Federal Pell Grant program are avail-
able to eligible students based on financial need and other factors. An institution
that is certified for Pell Grant purposes is considered to be certified for the Academic
Competitiveness Grant, or the ACG Grant, Program and National Science and
Mathematics Access to Retain Talent Grant, or the SMART Grant, Program, if it has at
least one academic program that is ACG Grant/SMART Grant-eligible. However, authori-
zation for the ACG Grant Program and SMART Grant Program expired as of July 1, 2011.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 37
(4) Campus-Based Programs. The “campus-based” Title IV programs include the
Federal Supplemental Education Opportunity Grant program, the Federal Work-Study
program and the Federal Perkins Loan program. We do not actively participate in any
campus-based program.
(5) Teacher Education Assistance for College and Higher Education (TEACH) Grant
Program. The TEACH Grant Program provides up to $4,000 a year in grant assis-
tance to undergraduate, post-baccalaureate, and graduate students who agree to
serve for at least four years as full-time “highly qualified” teachers in high-need fields
in public or not-for-profit private elementary or secondary schools that serve students
from low-income families.
In August 2011, President Obama signed the Budget Control Act of 2011, which pro-
vided for both an increase in the federal government’s borrowing authority and reduc-
tions in spending. The Budget Control Act of 2011 eliminated the in-school interest
exemption for graduate student loans beginning July 1, 2012. The cost of borrowing
will increase for graduate students who defer payment of interest while enrolled,
which could adversely impact our enrollments. Also, under the Budget Control Act
of 2011, Congress must develop legislation to achieve further deficit reduction,
and the outcome of this process is uncertain. Unless Congress takes further
action, automatic, across-the-board reductions in federal spending (also known as
“sequestration”) will begin on March 1, 2013. The Budget Control Act of 2011 and
the Statutory Pay-As-You-Go Act of 2010 each provide for the possibility of seques-
tration as a budgetary enforcement tool. On January 2, 2013, Congress enacted the
American Taxpayer Relief Act of 2012, which delayed potential sequestration under
the Budget Control Act of 2011 until March 1, 2013. If sequestration is triggered by
either the Budget Control Act of 2011 or the Statutory Pay-As-You-Go Act of 2010,
funding for Title IV programs would be affected. Pell Grants would be exempt from
cuts through fiscal year 2013, but could be subject to sequestration in fiscal year
2014 and beyond. Most other federal student aid programs would be subject to
across-the-board cuts to discretionary programs at a rate of approximately 8.2%.
Origination fees for Stafford loans and PLUS loans would increase approximately
7.6%, to approximately 1.076% and 4.034% of the total loan, respectively. Cuts to
the Department of Education’s Federal Student Aid Administration budget could lead
to delays in student eligibility determinations and delays in processing and origina-
tion of federal student loans. The House Committee on the Budget released a report
in January 2013 stating that programs administered by the Department of Veterans
Affairs will be exempt from sequestration, however, there are no such assurances
with respect to the tuition assistance programs of the Department of Defense.
Although the Pell Grant program and programs administered by the Department of
Veterans Affairs currently are exempt from the sequestration process, other federal
programs and services that could affect our business could be included. Any action
by Congress that significantly reduces Title IV program funding, whether through
across-the-board funding cuts or otherwise, or materially impacts our eligibility or our
students’ eligibility to participate in Title IV programs would have a material adverse
effect on our enrollment, financial condition, results of operations, and cash flows.
On September 17, 2012, the Department of Education updated waivers and modi-
fications of provisions governing the Title IV programs for the benefit of individuals
who are performing qualifying military service (or individuals who are affected by a
disaster, war or other military operation or national emergency) under the authority
of the Higher Education Relief Opportunities for Students Act of 2003, or HEROES
Act. The Department of Education acted to bring provisions into compliance with
statutes and regulations enacted and promulgated after these provisions were
originally published.
Private Lenders. In certain circumstances, our students may access alternative
loan programs. Alternative loans are intended to cover the difference between what
the student receives from all financial aid sources and the full cost of the student’s
education. Students can apply to a number of different lenders for this funding at
current market interest rates.
Since its creation in 2011, the Consumer Financial Protection Bureau, or CFPB, has
taken steps to regulate student loans. In 2012, it issued two reports identifying
concerns about the student loan market and published nearly 2,000 complaints
from borrowers of private student loans. In December 2012, CFPB issued proce-
dures describing how it will conduct examinations of financial institutions that make
educational loans to determine their compliance with existing laws and regulations.
The procedures are designed to assess whether a lender engages in accurate and
non-discriminatory advertising and marketing, provides proper and clear disclosures,
supplies accurate account information to borrowers, and has adequate channels
to receive customer questions and complaints. In January 2013, CFPB encouraged
institutions of higher education, students, and others to provide information by
March 18, 2013 about the financial products and services currently offered to stu-
dents, and comments on how current and future arrangements between institutions
38 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
of higher education and financial institutions could be structured in order to promote
positive financial decision-making among consumers.
Congress is considering bills that would affect private loans to students. On January
23, 2013, Senator Durbin introduced the Know Before You Owe Private Student
Loan Act of 2013, which would require institutions to certify to a private loan lender
a student’s cost of attendance and estimated federal financial assistance before a
loan may be issued to such student. The Act would also require institutions to coun-
sel students about their loan options, including discussion of differences between
federal loans and private loans. Private loan lenders would be required to provide
students with quarterly account updates on the balance and interest accrued.
On January 23, 2013, Senator Durbin also introduced the Fairness for Struggling
Students Act of 2013, which would allow private student loans to be dischargeable
in bankruptcy. We do not know what steps Congress may take in response to these
actions and whether such actions (if any) will have an adverse effect on our business
or results of operations.
Additional Sources of Financial Support. In addition to the programs stated above,
eligible students may participate in several other financial aid programs or receive
support from other governmental and private sources. For example, some of our
students who are veterans use their benefits under the GI Bills to cover their tui-
tion. Certain of our students are also eligible to receive funds from other education
assistance programs administered by the Department of Veterans Affairs. Pursuant
to federal law providing benefits for veterans and reservists, we are approved for
education of veterans and members of the selective reserve and their dependents
by the state approving agencies in Virginia and West Virginia. Finally, some of our
students finance their own education or receive full or partial tuition reimbursement
from their employers.
The Post-9/11 GI Bill expanded education benefits for veterans who have served
on active duty since September 11, 2001, including reservists and members of
the National Guard. As originally passed, the Post-9/11 GI Bill provided that eligible
veterans could receive benefits for tuition purposes up to the cost of in-state tuition
at the most expensive public institution of higher education in the state where the
veteran was enrolled. In addition, veterans who were enrolled in classroom-based
programs or “blended programs” (programs that combine classroom learning and
distance learning) could receive monthly housing stipends, while veterans enrolled in
wholly distance-based programs were not entitled to a monthly housing stipend. The
provisions regarding education benefits for post-9/11 veterans took effect August 1,
2009. The Post-9/11 GI Bill also increased the amount of education benefits avail-
able to eligible veterans under pre-existing Montgomery GI Bill. The legislation also
authorized expansion of service members’ ability to transfer veterans’ education
benefits to family members.
On January 4, 2011, President Obama signed the Post-9/11 Veterans Educational
Assistance Improvements Act of 2010, or Improvements Act, which amends the
Post-9/11 GI Bill in several pertinent respects. The Improvements Act alters the way
benefits related to tuition and fees are calculated. For nonpublic U.S. institutions,
the Improvements Act bases the benefits related to tuition and fees on the net cost
to the student (after accounting for state and federal aid, scholarships, institutional
aid, fee waivers, and similar assistance) rather than the charges established by the
institution, and it replaces the state-dependent benefit cap with a single national cap
of $17,500. In addition, veterans pursuing a program of education solely through dis-
tance learning on a more than half-time basis are eligible to receive up to 50% of the
national average of the basic housing allowance available to service members who
are at military pay grade E-5 and have dependents. Most Improvements Act changes
took effect on August 1 or October 1, 2011, though changes to rules regarding
eligibility for benefits were effective immediately or retroactively to the effective date
of the Post-9/11 GI Bill. The Improvements Act did not change the Post-9/11 GI Bill’s
provision that allows veterans to receive up to $1,000 per academic year for books,
supplies, equipment, and other education costs.
Regulation of Title IV Financial Aid Programs
To be eligible to participate in Title IV programs, an institution must comply with spe-
cific standards and procedures set forth in the Higher Education Act and the regula-
tions issued thereunder by the Department of Education. An institution must, among
other things, be licensed or authorized to offer its educational programs by the state
within which it is physically located (in our case, West Virginia) and maintain institu-
tional accreditation by a recognized accrediting agency. In May 2008, we were fully
recertified to participate in Title IV programs after having completed an initial period
of participation during which we were provisionally certified. In August 2008, we
were deemed to have undergone a change in ownership and control requiring review
by the Department of Education in order to reestablish our eligibility and continue
participation in Title IV programs. In connection with this review, we submitted to
the Department of Education a change in ownership application that included the
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 39
submission of required documentation, including a letter from The Higher Learning
Commission indicating that it had approved the change. On October 2, 2008, we
received a letter from the Department of Education approving the change in owner-
ship and control and granting us provisional certification until September 30, 2010.
On July 2, 2010, we received a letter from the Department of Education notifying
us that we are fully recertified to participate in Title IV programs through December
31, 2014, and that we are no longer provisionally certified. See “Eligibility and
Certification Procedure” and “Regulatory Actions and Restrictions on Operations”
below for more information.
The substantial amount of federal funds disbursed through Title IV programs, the
large number of students and institutions participating in these programs and alle-
gations of fraud and abuse by certain for-profit institutions have caused Congress
to initiate a congressional investigation into for-profit institutions and to require the
Department of Education to exercise considerable regulatory oversight over for-profit
institutions of higher learning. Accrediting agencies and state education agencies
also have responsibilities for overseeing compliance of institutions with Title IV pro-
gram requirements. As a result, our institution is subject to extensive oversight and
review. In 2011, extensive new and amended Department of Education regulations
went into effect. The Department of Education has initiated a new rulemaking to
address the federal student loan programs and teacher preparation programs, and
Congress recently enacted legislation that may lead to new Department of Education
regulations. The Department periodically revises its regulations and changes its
interpretations of existing laws and regulations. For all these reasons, we cannot
predict with certainty how the Title IV program requirements will be applied in all
circumstances. See “Recent Congressional Action,” “Recent Regulatory Changes,”
and “Pending Regulatory Changes” below for more information.
Significant factors relating to Title IV programs that could adversely affect us include
the following:
Recent Congressional Action. As explained below, in recent years, Congress has
enacted a number of substantial changes to Title IV programs, both in terms of the
structure of the programs themselves and the requirements imposed upon institutions
participating in those programs. Congress has also initiated an examination of the for-
profit postsecondary education sector that could result in legislation or additional regula-
tions that could materially affect our business. In addition, on an annual basis, Congress
makes budgetary and appropriations decisions that could materially affect our business.
Congress reauthorizes the Higher Education Act approximately every five to six
years. On August 14, 2008, the Higher Education Opportunity Act, or HEOA, the
most recent reauthorization of the Higher Education Act, was enacted. HEOA provi-
sions are effective upon enactment, unless otherwise specified in the law. Selected
HEOA provisions are described in relevant parts of this annual report. HEOA includes
numerous new and revised requirements for higher education institutions and thus
increases substantially regulatory burdens imposed on such institutions under the
Higher Education Act.
During 2009, the Department of Education developed regulations to implement
HEOA changes to the Higher Education Act. The Department of Education published
final regulations in October 2009. Those regulations took effect July 1, 2010. If our
efforts to comply with HEOA’s provisions are inconsistent with how the Department
of Education interprets those provisions, we may be found to be in noncompliance
with such provisions and the Department of Education could impose monetary penal-
ties, place limitations on our operations, and/or condition or terminate our eligibility
to receive Title IV program funds.
On March 30, 2010, President Obama signed the Healthcare and Education
Affordability Reconciliation Act of 2010, or Reconciliation Act. The Reconciliation Act,
which is widely known for its overhaul of the healthcare system, amended the Higher
Education Act to eliminate the FFEL Program. As of July 1, 2010, private banks could
no longer act as lenders of federal student loans, and no new Stafford, PLUS, or
consolidation loans could be disbursed through the FFEL Program. Instead, institu-
tions were required to transition to the Direct Loan Program by July 1, 2010 in order
to continue to participate in the major federal loan programs. This deadline did not
affect APUS, as we had ceased to participate actively in the Direct Loan Program as
of December 31, 2009.
As discussed above, on August 2, 2011, President Obama signed The Budget
Control Act of 2011, which among other things, eliminated Direct Subsidized Loans
for graduate and professional students, as of July 1, 2012. The terms and condi-
tions of subsidized loans originated prior to July 1, 2012 are unaffected by the law.
On December 23, 2011, President Obama signed the Consolidated Appropriations
Act of 2012. The law includes a number of provisions that significantly affect Title
IV programs. For example, it reduces the income threshold at which students are
assigned “an automatic zero expected family contribution” for purposes of awarding
40 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
financial aid for the 2012-2013 award year. Under the Act, students who do not have
a high school diploma or a recognized equivalent (e.g., GED) or do not meet an appli-
cable home school requirement and who first enroll in a program of study on or after
July 1, 2012 will not be eligible to receive Title IV aid. The Act also set the maximum
Pell Grant award for 2012-2013 at $5,500 and made several changes to the Federal
Pell Grant program, including establishing that, beginning with the 2012-2013 award
year, students may not receive a Pell Grant if they are not eligible for at least 10
percent of the maximum Pell Grant award for the academic year, and reducing the
duration of a student’s Pell Grant eligibility to 12 semesters from 18 semesters. The
Act temporarily eliminates the interest subsidy provided for Direct Subsidized Loans
during the six-month grace period immediately following termination of enrollment.
On January 10, 2013 President Obama signed the Improving Transparency of
Education Opportunities for Veterans Act. This law is designed to help GI Bill bene-
ficiaries choose the school that best meets their educational needs by mandating
that these beneficiaries receive certain information about available educational
resources. It requires the Department of Veterans Affairs to establish a comprehen-
sive policy for providing information to veterans and members of the Armed Forces
regarding higher education and training programs, including a centralized mecha-
nism to publish feedback from students and state approving agencies about each
institution’s quality of instruction, recruiting practices, and placement of graduates.
The law permits institutions to verify the feedback and address any issues that they
might identify with such feedback before it is published.
We cannot predict with certainty whether or when Congress might act to amend
further the Higher Education Act. For most programs subject to the Act, the Act
provides funding authorization for programs until the end of fiscal 2014, and the
General Education Provisions Act will automatically extend these authorizations
to fiscal year 2015. We note, however, that the last time the Higher Education Act
was renewed, Congress did not succeed in doing so until it was five years past its
statutory renewal date. Given the significant budgetary and other issues facing the
current Congress, as well as the political climate, there is no reason to believe that
the Higher Education Act will be renewed during the 113th Congress. The elimination
of additional Title IV programs, material changes in the requirements for participa-
tion in such programs, or the substitution of materially different programs could
increase our costs of compliance and could reduce the ability of certain students to
finance their education at our institution. Beginning in June 2010, the Senate HELP
Committee held a series of hearings related to for-profit postsecondary education
institutions. Also in June, the House Education and Labor Committee held a hearing
to examine accreditors’ standards and procedures pertinent to higher education
institutions’ policies on credit hours and program length, including those of The
Higher Learning Commission. During each of the hearings, some committee mem-
bers raised concerns about the growing proportion of federal student financial aid
going to for-profit schools. On August 4, 2010, the Senate HELP Committee held a
hearing to examine the student recruitment experience at for-profit postsecondary
education institutions, and on September 30, 2010, the Senate HELP Committee
held a hearing on the federal investment in for-profit education and the resulting stu-
dent outcomes. The Senate HELP Committee held additional hearings in 2011. On
March 10, 2011, the Committee held a hearing to present a case study of another
for-profit postsecondary education institution, its educational services, and the
role of accreditor, state, and federal oversight. On June 7, 2011, the Senate HELP
Committee held a hearing on financial outcomes of students at for-profit colleges.
At a number of hearings, committee members have expressed concern about the
amount of student loan debt taken on by students at for-profit institutions. On July
11, 2011, the HELP Committee hosted a roundtable discussion of policy solutions
for improving for-profit postsecondary education.
On June 21, 2010, the chairmen of the House and Senate education committees,
along with other members of Congress, asked the General Accountability Office, or
GAO to review various aspects of the for profit education sector, including recruit-
ment practices, educational quality, student outcomes, the sufficiency of integrity
safeguards against waste, fraud and abuse in Title IV programs, and the degree to
which for-profit schools’ revenue is comprised of Title IV and other federal funding
sources. On August 4, 2010, the GAO released a report based on a three-month
undercover investigation of recruiting practices at for-profit schools. The report
concluded that employees at a non-random sample of 15 for-profit schools (which
did not include APUS) made deceptive statements to students about accreditation,
graduation rates, job placement, program costs, or financial aid. On November
30, 2010, the GAO issued a revised version of that report that corrected or fur-
ther explained a number of the instances of allegedly deceptive conduct. The GAO
reported that the revisions were made because additional information came to
light and explained that the revisions do not alter any of its findings or the overall
message of the report. On October 31, 2011, the GAO released a second report fol-
lowing additional undercover investigation related to enrollment, cost, financial aid,
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 41
course structure, substandard student performance, withdrawal, and exit counsel-
ing. The report concluded that while some of the 15 unidentified for-profit schools
investigated appeared to follow existing policies, others did not. Although the report
identified a number of deficiencies in specific instances, it made no recommenda-
tions. On December 7, 2011, the GAO released a report that attempted to compare
the quality of education provided by for-profit, not-for-profit, and public institutions
based upon multiple outcome measures including graduation rates, pass rates on
licensing exams, employment outcomes, and student loan default rates. The report
found that students at for-profit institutions had higher graduation rates for certifi-
cate programs, similar graduation rates for associate’s degree programs, and lower
graduation rates for bachelor’s degree programs than students at not-for-profit and
public institutions. It also found that a higher proportion of bachelor’s degree recipi-
ents from for-profit institutions took out loans than did degree recipients from other
institutions and that some evidence exists that students at for-profit institutions
default on their student loans at higher rates. On nine of the 10 licensing exams
reviewed, graduates of for-profit institutions had lower pass rates than students
from not-for-profit and public institutions.
On August 5, 2010, we were among 30 for-profit schools to receive a letter from
Senator Tom Harkin, Chairman of the HELP Committee, requesting documents as
part of a review of matters related to for-profit postsecondary education institutions
whose students receive federal student financial aid. The document request sought
information on loan default rates; institutional spending; program costs; student out-
comes, such as completion and placement rates; and recruiting practices, such as
use of third-party lead generators. During a September 30, 2010 HELP Committee
hearing, Senator Harkin released a report entitled “The Return on Federal Investment
in For-Profit Education: Debt Without a Diploma.” The report, which was based in part
on the analysis of documents received from some of the for-profit schools without
identifying any specific institutions, focused on for-profit schools’ increasing profits,
the growing proportion of federal funds flowing to for-profit schools, and the high
debt levels amassed by some for-profit school students. On July 30, 2012, the HELP
Committee issued a final report entitled “For Profit Higher Education: The Failure to
Safeguard the Federal Investment and Ensure Student Success,” which summarized
the results of its investigations. While the report acknowledged that for-profit educa-
tion institutions have a role to play in American society given insufficient capacity at
not-for-profit and public education institutions, it made specific policy suggestions for
future legislation that could affect proprietary institutions, including:
• tying access to federal aid to meeting minimum student outcome thresholds;
• prohibiting institutions from funding marketing, advertising and recruiting activi-
ties with federal financial aid dollars;
• improving cohort default rate tracking by expanding the default reporting rate
period beyond three years;
• requiring that proprietary colleges receive at least 15 percent of revenues from
sources other than federal funds; and
• using criteria beyond accreditation and state authorization for determining insti-
tutions’ access to federal financial aid.
The report was not adopted by the full committee, and the minority members
released their own report criticizing the majority’s investigation in many aspects,
including that it did not include a review of all institutions of higher education.
Despite the fact that the full committee did not adopt the report, Congress may con-
sider the report as it begins the process of reauthorizing the Higher Education Act.
We incurred significant legal and other costs in responding to the congressional
inquiry. We cannot predict the extent to which, or whether, Congress’s examination
could lead to new legislation or Department of Education regulations that would limit
or condition participation of for-profit schools in Title IV programs.
In addition, on an annual basis, Congress reviews and determines appropriations for
Title IV programs through the budget and appropriations process. A reduction in federal
funding levels of such programs could reduce the ability of certain students to finance
their education. These changes, in turn, could lead to lower enrollments, require us to
increase our reliance upon alternative sources of student financial aid and impact our
growth plans. The loss of or a significant reduction in Title IV program funds available
to our students could reduce our enrollment and revenue and possibly have a material
adverse effect on our business and plans for growth. In addition, the legislation and
implementing regulations applicable to our operations have been subject to frequent
revisions, many of which have increased the level of scrutiny to which for-profit postsec-
ondary education institutions are subjected and have raised applicable standards. If we
were not to continue to comply with legislation and implementing regulations applicable
to our operations, such noncompliance might impair our ability to participate in Title IV
programs, offer educational programs or continue to operate. Certain of the statutory
and regulatory requirements applicable to us are described below.
42 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Recent Regulatory Changes. In 2009-2010, the Department of Education conducted
negotiated rulemaking to develop regulations to address matters related to the integ-
rity of Title IV programs. Negotiated rulemaking is a process required by the Higher
Education Act to allow affected constituencies to share with the Department of
Education their views on regulatory issues before the Department issues proposed
regulations. The negotiated rulemaking addressed, among other topics, institutional
eligibility issues (such as state authorization for postsecondary education institu-
tions), definitional issues (such as the definition of “gainful employment in a recog-
nized occupation” and “credit hour” for certain eligibility and other purposes), stu-
dent eligibility issues (including the validity of high school diplomas), and other Title
IV provisions (such as incentive payments and misrepresentation). The negotiated
rulemaking committee failed to reach consensus on the entire regulatory package
that was the subject of negotiation. Accordingly, the Department of Education was
not required to use any language that was developed during negotiations, including
language on which the negotiators reached tentative agreement.
On June 18, 2010, the Department of Education issued a notice of proposed
rulemaking, or NPRM, with respect to many of the issues subject to the negotiated
rulemaking process, other than the metrics for determining compliance with the gain-
ful employment requirement. On July 26, 2010, the Department of Education issued
an NPRM regarding various elements of the gainful employment requirement, specifi-
cally the information that must be disclosed to prospective students, the information
that must be reported to the Department of Education, and the metrics that will
be used to determine compliance with the requirement. On October 29, 2010, the
Department of Education issued final regulations for those proposed in the June 18
NPRM, as well as final regulations regarding gainful employment programs, including
disclosure and reporting requirements for programs that must prepare for gainful
employment and procedures under which an institution must apply for approval to
offer an educational program that prepares students for gainful employment in a rec-
ognized occupation. The October 29 final regulations were effective July 1, 2011. On
June 13, 2011, the Department of Education published final regulations on metrics
for gainful employment programs effective July 1, 2012.
On January 21, 2011, the Association of Private Sector Colleges and Universities, or
APSCU, filed a lawsuit in the U.S. District Court for the District of Columbia challeng-
ing the October 29, 2010 final regulations on program integrity related to the state
authorization, incentive compensation, and misrepresentation requirements on the
grounds that such regulations exceeded the Department of Education’s statutory and
constitutional authority. The District Court vacated the section of the regulations that
requires an institution that offers postsecondary education through distance educa-
tion to students in a state in which the institution is not physically located or in which
it is otherwise subject to the state’s jurisdiction to meet the state’s requirements
for postsecondary distance education providers. The District Court let stand the
remainder of the state authorization regulation as well as the regulations related to
incentive compensation and misrepresentation. On June 5, 2012, the U.S. Court of
Appeals for the District of Columbia upheld the lower court’s ruling vacating the state
authorization of online programs requirement and vacated portions of the substantial
misrepresentation regulation that it found to exceed the Higher Education Act’s lim-
its. On July 27, 2012, the Department of Education issued a Dear Colleague Letter
cautioning education institutions to remain in compliance with all applicable state
laws and regulations related to distance education. The Department of Education
has not announced its next steps, but it may engage in the future in a negotiated
rulemaking to address distance education and state authorization.
Gainful Employment. To be eligible for Title IV funding, certain academic programs,
including all degree and non-degree programs at proprietary institutions of higher
education (other than, in limited circumstances that apply to APUS, certain liberal
arts programs), must prepare students for gainful employment in a recognized occu-
pation. The disclosure and reporting requirements and metrics for compliance are
described below.
(a) Disclosure: Beginning July 1, 2011, for the most recently completed award
year, all institutions must disclose to prospective students, with respect to
each of their gainful employment programs, occupations that the program pre-
pares students to enter, total cost of the program, on-time graduation rate, job
placement rate, if applicable, and the median loan debt of program completers.
Institutions must update such information within a reasonable period of time
after the information becomes available.
(b) Reporting: With respect to each gainful employment program, institutions
must annually report to the Department of Education information regarding
each enrolled student, including the amount of debt incurred under private
loans and institutional finance plans, matriculation information, and end of year
enrollment information. Information related to award year 2010-2011 (the most
recently completed award year) as well as prior award years (2006-07 through
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 43
2009-2010) must have been reported by November 15, 2011. Institutions
must report information for subsequent award years no earlier than September
30 of the calendar year in which the award year ends but no later than the
date established by the Department of Education through notice in the Federal
Register. If an institution is unable to supply all or some of the required infor-
mation, it must provide an explanation to the Department of Education.
(c) Metrics: An academic program is considered to prepare students for gainful
employment if it meets at least one of the following three metrics:
not be greater than 12% of the greater of their average or median annual
earnings. The debt-to-actual earnings ratio examines students in their third
or fourth year after graduation, calculated on a federal fiscal year basis. The
earnings used will generally be based on information received by the U.S.
Department of Education from the Social Security Administration, subject
under certain circumstances to the use of the 25th percentile of Bureau of
Labor Statistics income data for specific “standard of occupational classifi-
cation” codes for fiscal years 2012 through 2014.
1. Annual loan repayment rate. This metric measures the rate at which the
federal student loan debt incurred by the applicable cohort of borrowers to
attend the program is being repaid. Generally, the annual loan repayment
rate for an academic program is the percentage of federal student loans
incurred to fund the costs of a program that are in satisfactory repayment
three to four years after entering repayment. Rates are calculated on a fed-
eral fiscal year basis. The repayment rate must be at least 35%. Institutions
have an opportunity to challenge the repayment rate data.
2. Discretionary income ratio. This metric compares (i) the annual repayment
required on student loan debt attributable to tuition and fees by students who
completed the program to (ii) their discretionary income. The median annual
loan payment amount (calculated as described below) for the applicable
cohort of students may not be higher than 30% of the greater of their average
or median discretionary income. Discretionary income is the annual earnings
of a program completer minus 150% of the U.S. Department of Health and
Human Services, or HHS, poverty guideline for a single person in the continen-
tal United States. The debt-to-discretionary income ratio examines students
in their third or fourth year after graduation, calculated on a federal fiscal year
basis. The earnings used will generally be based on information received by
the U.S. Department of Education from the Social Security Administration,
subject under certain circumstances to the use of the 25th percentile of
Bureau of Labor Statistics income data for specific “standard of occupational
classification” codes for fiscal years 2012 through 2014.
3. Annual earnings ratio. This metric compares (i) the annual repayment
required on student loan debt attributable to tuition and fees by students
who completed the program to (ii) their actual annual earnings. The median
annual loan payment amount for the applicable cohort of students may
Starting in 2012, the Department of Education began to calculate the three met-
rics for each gainful employment program for each federal fiscal year, running from
October 1 to September 30. An academic program that satisfied any one metric
is considered to be preparing students for gainful employment. If an academic
program fails all three metrics, the institution will have the opportunity to improve
the performance of that program. After one failure, the institution must disclose to
enrolled and prospective students the amount by which the program missed minimal
acceptable performance and the program’s plan for improvement. After two failures
within three years, the institution must inform prospective and current students in
the failing program that their debt may be unaffordable, that the program may lose
eligibility, and what transfer options exist. After three failures within four years, the
academic program loses eligibility to participate in Title IV programs for at least
three years, although the program may be continued without federal student aid.
These gainful employment standards are effective beginning July 1, 2012, and the
Department of Education will begin calculating debt measures for fiscal year 2012
(October 1, 2011 to September 30, 2012). Institutions will be notified of failing
programs based on that data. The earliest a program could lose eligibility under
the gainful employment rule will be fiscal year 2015, based on its 2012, 2013 and
2014 performance under the above metrics. Eligibility losses in 2015 will be limited
to the lowest five percent of all programs among all institutions. On June 21, 2012,
the Department of Education released data to institutions showing the calculation of
gainful employment metrics based on data reported for federal fiscal years 2007 and
2008. The Department of Education released this information to the public on June
26, 2012. The released rates were for informational purposes only and are available
from the Department of Education’s website.
In addition, final regulations issued October 29, 2010 require institutions to notify
the Department of Education at least 90 days before the commencement of a new
44 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
educational program that prepares students for gainful employment in recognized
occupations if the program has a Classification of Instructional Programs, or CIP,
code under the taxonomy of instructional program classifications and descriptions
developed by the National Center for Education Statistics that is different from
any other program offered by the institution, the program has the same CIP code
as another program offered by the institution but leads to a different degree or
certificate, or the institution’s accrediting agency determines the program to be
an additional program. This notification must include information on the market
need for the program, any performed wage analysis, any external program review
and approval, and a demonstration of accreditation. The institution may proceed
to offer the program, unless the Department alerts the institution at least 30 days
before the first day of class that approval is required because the Department has
identified concerns about the institution’s financial responsibility or capacity, the
institution’s process or decision to add the new program, or certain other issues. If
the Department of Education denies approval, the institution may not provide Title
IV aid to students enrolled in that program. If the Department of Education denies
approval, the institution may respond to the Department’s stated reasons for
denial and request reconsideration. The final regulations were generally effective
July 1, 2011. According to the Department, these notice and application proce-
dures for new programs were intended to remain in place until the Department
issued a new rule to implement performance-based standards for approving
new programs using gainful employment measures. On September 27, 2011 the
Department of Education issued an NPRM in which it proposed, among other
changes, to define a smaller group of gainful employment programs for which an
institution must obtain approval from the Department, including only programs that
are the same as or substantially similar to programs performing poorly under the
gainful employment metrics. The September 27 NPRM also included some addi-
tional procedural clarifications.
If our efforts to comply with the new and impending regulations are inconsistent with
how the Department of Education interprets those regulations, either due to insuffi-
cient time to implement the necessary changes, uncertainty about the meaning of
the rules, or otherwise, we may be found to be in noncompliance with such regu-
lations and the Department of Education could impose monetary penalties, place
limitations on our operations, and/or condition or terminate our eligibility to receive
Title IV program funds. However, we cannot predict with certainty the effect the new
and impending regulatory provisions will have on our business.
On July 20, 2011, APSCU filed a lawsuit in the U.S. District Court for the District of
Columbia challenging the Department of Education’s October 29, 2010 and June 13,
2011 final regulations on gainful employment. The lawsuit challenges the report-
ing and disclosure regulations, the metrics used to calculate gainful employment,
and the new program approval regulations. APSCU alleges that the regulations
represent overreaching by the Department of Education, conflict with congressional
intent, and were developed through a flawed administrative process that violated
the Administrative Procedure Act, the Higher Education Act, and the Constitution.
On June 30, 2012, the U.S. District Court for the District of Columbia struck down
the debt measures and certain related requirements; the court ruled one day before
the debt measure regulations would have gone into effect. The court held that
the Department of Education interpreted reasonably its statutory authority when
it promulgated the gainful employment regulations but arbitrarily chose the debt
repayment rate percentage. The court’s ruling did not affect the gainful employment
regulations related to certain disclosures to prospective students, such as on-time
graduation rates and tuition and fees. The Department of Education required institu-
tions to make such disclosures by July 1, 2011, and to update such disclosures for
the 2011-2012 award year by January 31, 2013.
On July 6, 2012, the U.S. Department of Education issued an announcement
acknowledging that the Court had vacated the debt measures that would have
gone into effect on July 1, 2012. The announcement stated that institutions are
not required to comply with related regulations addressing reporting requirements
and adding new gainful employment programs. Pending a final ruling in this case,
the Department of Education has advised schools to follow the rules on addi-
tional programs that immediately preceded the gainful employment rules. The ver-
sion once again in effect provides that approval of new programs is not required if
the additional program prepares students for gainful employment in the same or
related occupation as an educational program that has previously been desig-
nated as eligible and is at least eight semester hours, 12 quarter hours, or 600
clock hours.
On July 30, 2012, Department of Education filed a motion with the U.S. District
Court for the District of Columbia to alter or amend the judgment. The Department of
Education argued in its motion that even though it would not be permitted to sanc-
tion education institutions for failure to meet the debt measure thresholds, (i) educa-
tion institutions should disclose information to the Department of Education that will
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 45
allow the Department of Education to calculate the debt measures and (ii) education
institutions should include the results of the debt measure calculations in their dis-
closures to prospective students. On September 24, 2012, the U.S. District Court for
the District of Columbia requested a supplemental briefing by the parties address-
ing, in brief, (i) the scope of the Department of Education’s statutory authorization
to maintain a database of information about student borrowers and (ii) the authority
on which the Department of Education relied to argue that it could require education
institutions to provide information to the Department of Education for purposes of
calculating the debt measures and then require education institutions to disclose the
results of those debt measure calculations. The parties filed supplemental briefs in
November 2012, and the U.S. District Court for the District of Columbia is expected
to render a decision in 2013. The Department of Education could impose regulations
in the future that would penalize us (including making us ineligible to receive Title
IV funds) if our students fail to achieve certain debt repayment, debt-to-income, or
debt-to-discretionary income ratios.
Eligibility and Certification Procedures. Each institution must apply periodically to
the Department of Education for continued certification to participate in Title IV pro-
grams. Such recertification generally is required every six years, but may be required
earlier, including when an institution undergoes a change of control. An institution
may come under the Department of Education’s review when it expands its activities
in certain ways, such as opening an additional location, adding a new program, or, in
certain cases, when it modifies academic credentials that it offers. The Department
of Education may place an institution on provisional certification status if it finds that
the institution does not fully satisfy all of the eligibility and certification standards and
in certain other circumstances, such as when an institution is certified for the first
time or undergoes a change in ownership resulting in a change in control. During the
period of provisional certification, the institution must comply with any additional con-
ditions included in its program participation agreement. In addition, the Department
of Education may more closely review an institution that is provisionally certified if
it applies for approval to open a new location, add an educational program, acquire
another school or make any other significant change. If the Department of Education
determines that a provisionally certified institution is unable to meet its responsibili-
ties under its program participation agreement, it may seek to revoke the institution’s
certification to participate in Title IV programs with fewer due process protections for
the institution than if it were fully certified. Students attending provisionally certified
institutions remain eligible to receive Title IV program funds.
Distance Learning. We offer all of our existing degree, diploma and certificate
programs from our headquarters in Charles Town, West Virginia via internet-based
telecommunications. Under HEOA, an accreditor that evaluates institutions offering
distance education must require such institutions to have processes through which
the institution establishes that a student who registers for a distance education pro-
gram is the same student who participates in and receives credit for the program.
Under the final Department of Education regulations published on October 29,
2010, if an institution offers postsecondary education through distance education
to students in a state in which the institution is not physically located or in which it
is otherwise subject to state jurisdiction as determined by the state, the institution
must meet any state requirements for it to offer legally postsecondary distance
education in that state. The institution must be able to document state approval for
distance education if requested by the Department of Education. In addition, states
must have a process to review and take appropriate action on complaints concerning
postsecondary institutions. These new rules were to become effective July 1, 2011,
although the Department of Education indicated in an April 20, 2011 guidance letter
that it would not initiate any action to establish repayment liabilities or limit student
eligibility for distance education activities undertaken before July 1, 2014, provided
the institution is making a good faith effort to identify and obtain necessary state
authorization before that date.
On July 12, 2011, however, the U.S. District Court for the District of Columbia
vacated the portion of the Department of Education’s state authorization regulation
that requires online education providers to obtain any required authorizations from
all states in which their students reside, finding that the Department of Education
had failed to provide sufficient notice and opportunity for comment on the require-
ment. On June 5, 2012, the U.S. Court of Appeals for the District of Columbia
affirmed the district court’s July 12, 2011 ruling. On July 27, 2012, the Department
of Education issued a Dear Colleague Letter cautioning education institutions to
remain in compliance with all applicable state laws and regulations related to dis-
tance education. The Department of Education has not announced its next steps,
but it may engage in the future in a negotiated rulemaking to address distance edu-
cation and state authorization. Should the federal distance education requirements
published in October 2010 be enforced in the future, and if we fail to obtain required
state authorization to provide postsecondary distance education in a specific state,
we could lose our ability to award Title IV aid to students in that state.
46 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Administrative Capability. Current Department of Education regulations specify
extensive criteria by which an institution must establish that it has the requisite
“administrative capability” to participate in Title IV programs. Failure to satisfy any of
the standards may lead the Department of Education to find the institution ineligible
to participate in Title IV programs or to place the institution on provisional certifica-
tion as a condition of its participation. To meet the administrative capability stan-
dards, an institution must, among other things:
• comply with all applicable Title IV program regulations;
• have capable and sufficient personnel to administer Title IV programs;
• have acceptable methods of defining and measuring the satisfactory academic
progress of its students;
First, the final rules make a number of changes related to defining and measuring
the satisfactory academic progress of students. Among other changes, the new
rules require that an institution must evaluate satisfactory academic progress (1)
at the end of each payment period if the length of the educational program is one
academic year or less or (2) for all other educational programs, at the end of each
payment period or at least annually to correspond to the end of a payment period.
Second, the new regulations add an administrative capability standard related to the
existing requirement that students must have a high school diploma or its recog-
nized equivalent in order to be eligible for Title IV aid. Under the new administrative
capability standard, institutions must develop and follow procedures for evaluating
the validity of a student’s high school diploma if the institution or the Secretary of
Education has reason to believe that the student’s diploma is not valid.
• not have cohort default rates above specified levels;
• have various procedures in place for safeguarding federal funds;
• not be, and not have any principal or affiliate who is, debarred or suspended
from federal contracting or engaging in activity that is cause for debarment
or suspension;
• provide financial aid counseling to its students;
• refer to the Department of Education’s Office of Inspector General any credible
information indicating that any applicant, student, employee or agent of the
institution has been engaged in any fraud or other illegal conduct involving Title
IV programs;
• submit in a timely manner all reports and financial statements required by
the regulations;
• report annually to the Secretary of Education on any reasonable reimburse-
ments paid or provided by a private education lender or group of lenders to
any employee who is employed in the institution’s financial aid office or who
otherwise has responsibilities with respect to education loans;
• develop and apply an adequate system to identify and resolve discrepant infor-
mation with respect to a student’s application for Title IV aid; and
• not otherwise appear to lack administrative capability.
The Department of Education’s final regulations published on October 29, 2010
amend the Department’s administrative capability standards in two respects.
If an institution fails to satisfy any administrative capability criteria or any other
Department of Education regulation, the Department of Education may:
• require the repayment of Title IV funds;
• transfer the institution from the “advance” system of payment of Title IV funds
to cash monitoring status or to the “reimbursement” system of payment;
• place the institution on provisional certification status; or
• commence a proceeding to impose a fine or to limit, suspend, or terminate the
participation of the institution in Title IV programs.
If we are found not to have satisfied the Department of Education’s “administrative
capability” requirements, we could lose, or be limited in our access to, Title IV pro-
gram funding.
Third-Party Servicers. Department of Education regulations permit an institution to
enter into a written contract with a third-party servicer for the administration of any
aspect of the institution’s participation in Title IV programs. The third-party servicer
must, among other obligations, comply with Title IV requirements and be jointly and
severally liable with the institution to the Secretary of Education for any violation by
the servicer of any Title IV provision. An institution must report to the Department
of Education new contracts with or any significant modifications to contracts with
third-party servicers as well as other matters related to third-party servicers. If any
third-party servicer that we engage does not comply with applicable statute and reg-
ulations including the Higher Education Act, we may be liable for its actions, and we
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 47
could lose our eligibility to participate in Title IV programs. We recently determined
to terminate our relationship with Global Financial Aid Services, Inc., which had
assisted us with administration of our participation in Title IV programs since we
began to participate in those programs in 2006, and to administer our participation
in Title IV programs internally, using third-party software.
Financial Responsibility. The Higher Education Act and Department of Education
regulations establish extensive standards of financial responsibility that institutions
such as ours must satisfy in order to participate in Title IV programs. These stan-
dards generally require that an institution provide the resources necessary to comply
with Title IV program requirements and meet all of its financial obligations, including
required refunds and any repayments to the Department of Education for liabilities
incurred in programs administered by the Department of Education.
The Department of Education evaluates institutions on an annual basis for com-
pliance with specified financial responsibility standards. Generally, the standards
require an institution to receive an unqualified opinion from its accountants on its
audited financial statements, maintain sufficient cash reserves to satisfy refund
requirements, meet all of its financial obligations, and remain current on its debt
payments. The financial responsibility standards include a complex formula that
uses line items from the institution’s audited financial statements. The formula
focuses on three financial ratios: (1) equity ratio (which measures the institution’s
capital resources, financial viability, and ability to borrow); (2) primary reserve ratio
(which measures the institution’s viability and liquidity); and (3) net income ratio
(which measures the institution’s profitability or ability to operate within its means).
An institution’s financial ratios must yield a composite score of at least 1.5 for the
institution to be deemed financially responsible without the need for further federal
oversight. The Department of Education may also apply such measures of financial
responsibility to the operating company and ownership entities of an eligible insti-
tution. At the request of the Department of Education, we supply our consolidated
financial statements to the Department of Education for purposes of calculating
the composite score. We have applied the financial responsibility standards to
our consolidated financial statements as of and for the year ended December 31,
2012, and calculated a composite score of 3.0 out of a maximum score of 3.0.
We therefore believe that we meet the Department of Education’s composite score
standards. If the Department of Education were to determine that we did not meet
the financial responsibility standards due to a failure to meet the composite score or
other factors, we may be able to establish financial responsibility on an alternative
basis by, among other things:
• posting a letter of credit in an amount equal to at least 50% of the total Title IV
program funds received by us during our most recently completed fiscal year;
• posting a letter of credit in an amount equal to at least 10% of such prior year’s
Title IV program funds received by us, accepting provisional certification, com-
plying with additional Department of Education monitoring requirements and
agreeing to receive Title IV program funds under an arrangement other than the
Department of Education’s standard advance payment arrangement such as
the “reimbursement” system of payment or cash monitoring; or
• complying with additional Department of Education monitoring requirements
and agreeing to receive Title IV program funds under an arrangement other
than the Department of Education’s standard advance payment arrangement
such as the “reimbursement” system of payment or cash monitoring.
Failure to meet the Department of Education’s “financial responsibility” require-
ments, because we do not meet the Department of Education’s minimum composite
score to establish financial responsibility or are unable to establish financial respon-
sibility on an alternative basis or fail to meet other financial responsibility require-
ments, would cause us to lose access to Title IV program funding.
Title IV Return of Funds. Under the Department of Education’s return of funds regu-
lations, when a student withdraws, an institution must return unearned funds to the
Department of Education in a timely manner. An institution must first determine the
amount of Title IV program funds that a student “earned.” If the student withdraws
during the first 60% of any period of enrollment or payment period, the amount of
Title IV program funds that the student earned is equal to a pro rata portion of the
funds for which the student would otherwise be eligible. If the student withdraws
after the 60% threshold, then the student has earned 100% of the Title IV program
funds. The Department of Education’s final regulations published on October 29,
2010 establish several new rules for determining when a student is considered
withdrawn. Those rules went into effect July 1, 2011, and the Department of
Education provided interpretive guidance in a July 20, 2011 “Dear Colleague Letter.”
Under the final regulations, an institution generally must treat a student in a module
(defined as a course or courses that do not span the entire length of the payment
period or enrollment period) as withdrawn if the student does not complete all the
48 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
instructional time that the student was scheduled to complete prior to withdrawing.
We offer standard term-based modules and therefore must comply with the new rule.
In addition, in certain circumstances, we use a student’s last day of attendance at
an academically related activity as the student’s withdrawal date for Title IV pur-
poses. Under the final regulations, institutions that use the last day of attendance at
an academically related activity must determine the relevant date based on accurate
institutional records (not a student’s certificate of attendance). For online classes,
“academic attendance” means engaging in an academically related activity, such as
participating in class through an online discussion or initiating contact with a faculty
member to ask a question; simply logging into an online class does not constitute
“academic attendance” for purposes of the return of funds requirements.
The institution must return to the appropriate Title IV programs, in a specified order,
the lesser of (i) the unearned Title IV program funds or (ii) the institutional charges
incurred by the student for the period multiplied by the percentage of unearned Title
IV program funds. An institution must return the funds no later than 45 days after
the date of the institution’s determination that a student withdrew. If such payments
are not timely made, an institution may be subject to adverse action, including being
required to submit a letter of credit equal to 25% of the refunds the institution should
have made in its most recently completed fiscal year. Under Department of Education
regulations, late returns of Title IV program funds for 5% or more of students sampled
in the institution’s annual compliance audit constitutes material noncompliance.
The “90/10 Rule.” A requirement of the Higher Education Act, commonly referred to
as the “90/10 Rule,” applies only to “proprietary institutions of higher education,”
which includes us. As discussed above, under the Higher Education Act, a propri-
etary institution is prohibited from deriving from Title IV funds, on a cash accounting
basis (except for certain institutional loans) for any fiscal year, more than 90% of its
revenues (as computed for 90/10 Rule purposes). Prior to the adoption of HEOA, an
institution that violated the rule became ineligible to participate in Title IV programs
as of the first day of the fiscal year following the fiscal year in which its Title IV reve-
nue exceeded 90% of its revenues, and it was unable to apply to regain its eligibility
until the next fiscal year.
HEOA changed the 90/10 Rule from an eligibility requirement to a compliance
obligation that is part of an institution’s program participation agreement with
the Department of Education. Accordingly, HEOA generally lessens the severity of
noncompliance with the 90/10 Rule, although repeated noncompliance will result
in loss of eligibility to participate in Title IV programs. Under the terms of HEOA, a
proprietary institution of higher education that violates the 90/10 Rule for any fiscal
year will be placed on provisional status for two fiscal years. Proprietary institutions
of higher education that violate the 90/10 Rule for two consecutive fiscal years will
become ineligible to participate in Title IV programs for at least two fiscal years and
will be required to demonstrate compliance with Title IV eligibility and certification
requirements for at least two fiscal years prior to resuming Title IV program partic-
ipation. HEOA requires the Secretary of Education to disclose on its website any
proprietary institution of higher education that fails to meet the 90/10 requirement
and to report annually to Congress the relevant ratios for each proprietary institution
of higher education. HEOA generally codifies the formula for 90/10 Rule calculations
as set forth in preceding Department of Education regulations, but also expands on
the Department of Education’s formula in certain respects, including by broadening
the categories of funds that may be counted as non-Title IV revenue for 90/10 Rule
purposes. HEOA’s changes to the 90/10 Rule took effect upon enactment, which
occurred on August 14, 2008.
The Department of Education issued final regulations implementing the 90/10 Rule
and certain other HEOA provisions on October 29, 2009. The final regulations were
effective July 1, 2010. The regulations generally track the HEOA provisions, but clar-
ify the treatment of certain types of revenue. The regulations require institutions to
report in their annual financial statement audits not only the percentage of revenues
derived from Title IV funds during the fiscal year, but also the dollar amount of the
numerator and denominator of the 90/10 calculation and specified categories of
revenue. The regulations shorten from 90 to 45 days the time period within which
institutions must notify the Secretary of Education after the end of a fiscal year in
which the institution failed to meet the 90/10 requirement.
Using the formula in effect prior to enactment of HEOA, we derived approximately
19% of our cash-basis revenues from eligible programs in 2008 compared to 14% in
2007 and 1% in 2006. Using the HEOA formula, we derived approximately 19%, 26%
and 42% of our cash-basis revenues from Title IV program funds in 2009, 2010 and
2011, respectively. Our percentage of cash-based revenues from Title IV program
funds has increased as our population of students using Title IV program funds has
increased. The population of our students using these funds is growing at a faster
rate than students who use other sources of revenues, and we will continue to moni-
tor compliance with the 90/10 Rule.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 49
In addition, certain members of Congress have stated that Congress should revise
the 90/10 Rule to count DoD tuition assistance and veterans education benefits
toward the 90% limit. For example, members of Congress raised this idea both
in the September 2010 hearing before the House Armed Services Committee’s
Subcommittee on Oversight and Investigations reviewing DoD’s oversight of distance
education and for-profit institutions and in a December 2010 HELP Committee report
examining the growing share of DoD tuition assistance and Post-9/11 GI Bill benefits
flowing to for-profit institutions. Because we receive a substantial portion of our reve-
nues from DoD tuition assistance and veterans educational benefits, such a change
would significantly increase our risk of violating the 90/10 Rule. In January 2012,
Senators Harkin and Durbin introduced a bill to modify the 90/10 Rule by reducing
the threshold to 85% and counting the Title IV programs, the DoD tuition assistance
program, and veterans education benefits programs as sources from which an
institution may derive no more than 85% of its revenue. In February 2012, compan-
ion bills were introduced in the U.S. Senate and U.S. House of Representatives that
would modify the 90/10 Rule to count DoD tuition assistance and veterans educa-
tion benefits toward the 90% limit, along with Title IV programs. On May 29, 2012,
attorneys general for 21 states called on Congress to enact this type of legislation.
We cannot predict the likelihood that Congress will amend the 90/10 Rule to count
DoD tuition assistance and veterans’ education benefits toward the 90% limit or
to lower the ratio to 85/15. If the calculation for purposes of the 90/10 Rule is
changed so that DoD tuition assistance and/or veterans’ education benefits are
counted toward a 90% or 85% limit, our percentage of revenues that would count
toward such limit would be significantly higher than our current 90/10 calculation.
We are not required to include all federal funding in our 90/10 calculation and do
not track sources of funds for this purpose. Accordingly, we cannot estimate with
precision what our percentage would be if any of these proposed amendments to
the 90/10 Rule are made by Congress. However, based on our assessment of net
course registrations, we currently estimate that approximately 87% of our funding is
derived from federal sources.
Student Loan Defaults. Under the Higher Education Act, an educational institution
may lose its eligibility to participate in some or all of the Title IV programs if defaults
on the repayment of FFEL program or Direct Loan Program loans by its students
exceed certain levels. For each federal fiscal year, a rate of student defaults (known
as a “cohort default rate”) is calculated for each institution with 30 or more bor-
rowers entering repayment in a given federal fiscal year by determining the rate at
which borrowers who become subject to their repayment obligation in that federal
fiscal year default by the end of the next federal fiscal year. For such institutions,
the Department of Education calculates a single cohort default rate for each federal
fiscal year that includes in the cohort all current or former student borrowers at the
institution who entered repayment on any FFEL program or Direct Loan Program loan
during that year. Such rate is referred to as the “two-year cohort default rate.”
If the Department of Education notifies an institution that its two-year cohort default
rates for each of the three most recent federal fiscal years are 25% or greater, the
institution’s participation in the FFEL program, Direct Loan Program, and Pell pro-
gram ends 30 days after the notification, unless the institution timely appeals that
determination on specified grounds and according to specified procedures. In addi-
tion, an institution’s participation in the FFEL program and Direct Loan Program ends
30 days after notification that its most recent two-year cohort default rate is greater
than 40%, unless the institution timely appeals that determination on specified
grounds and according to specified procedures. An institution whose participation
ends under these provisions may not participate in the relevant programs for the
remainder of the fiscal year in which the institution receives the notification, as well
as for the next two fiscal years.
If an institution’s two-year cohort default rate equals or exceeds 25% in any single
year, the institution may be placed on provisional certification status. Provisional
certification does not limit an institution’s access to Title IV program funds; however,
an institution with provisional status is subject to closer review by the Department
of Education and may be subject to summary adverse action if it violates Title IV
program requirements.
The three most recent federal fiscal years for which FFEL/Direct Loan cohort default
rates have been officially calculated are federal fiscal years 2008, 2009, and 2010.
Because we began only recently to enroll students who are participating in the
federal student loan programs, we have no historical cohort default rate for federal
fiscal year 2007. Our cohort default rate for federal fiscal years 2008, 2009 and
2010, respectively, is 5.2%, 4.0% and 6.0%. Relatively few students are expected to
enter the repayment phase in the near term, which could result in defaults by a few
students having a relatively large impact on our cohort default rate.
HEOA extends by one year the period for measuring the cohort default rate for
FFEL program and Direct Loan program loans. Beginning with cohort default rate
50 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
calculations for federal fiscal year 2009, the cohort default rate will be calculated
by determining the rate at which borrowers who become subject to their repayment
obligation in the relevant federal fiscal year default by the end of the second fol-
lowing federal fiscal year. Such rate is referred to as the “three-year cohort default
rate.” The current method of calculating rates will remain in effect and will be used
to determine any sanctions on institutions because of their cohort default rates,
namely the two-year cohort default rate, until three consecutive years of official
cohort default rates calculated under the new formula are available—i.e., in 2014.
The HEOA also increases the cohort default rate ceiling from 25% to 30%. The HEOA
provides for the following sanctions based on cohort default rates calculated under
the new HEOA methodology:
• An institution whose three-year cohort default rate is equal to or greater than
30% for each of the three most recent federal fiscal years for which data are
available will be ineligible to participate in the FFEL Program, Direct Loan
Program, and Federal Pell Grant Program.
• If an institution’s three-year cohort default rate is 30% or more in a given fiscal
year, the institution will be required to assemble a “default prevention task
force” and submit to the Department of Education a default improvement plan.
• An institution whose three-year cohort default rate exceeds 30% for two
consecutive years will be required to review, revise, and resubmit its default
improvement plan, and the Department of Education may direct that such plan
be amended to include actions, with measurable objectives, that it determines
will promote loan repayment.
• The Department of Education may subject an institution to provisional certifi-
cation if the institution’s three-year cohort default rate is 30% or more for any
two consecutive federal fiscal years. An institution whose three-year cohort
default rate is 30% or more for any two consecutive federal fiscal years may file
an appeal on specified grounds and according to specified procedures, and if
the Secretary of Education determines that the institution has demonstrated
grounds for relief, the Secretary may not subject the institution to provisional
certification based solely on the institution’s cohort default rate.
HEOA does not change the current provision that an institution generally loses
eligibility to participate in the FFEL Program and the Direct Loan Program if its most
recent cohort default rate is greater than 40%.
In October 2009, the Department of Education issued final regulations to imple-
ment the HEOA provisions on cohort default rates and other student loan matters.
Those regulations became effective July 1, 2010. The final regulations provide that
the Department of Education will issue two cohort default rates—a rate calculated
in accordance with pre-HEOA methodology (two-year rate) and a rate calculated in
accordance with HEOA methodology (three-year rate)—for fiscal years 2009 through
2011. The final regulations also indicate that the Department of Education will rely
on the two-year rate and related thresholds to determine institutional eligibility until
2014, when the Department of Education issues official three-year rates for the
federal fiscal year 2011 cohort.
In December 2009, the Department of Education sent to institutions unofficial,
“trial” cohort default rates showing institutions’ cohort default rates for federal fiscal
years 2005, 2006, and 2007 as they would be calculated under the HEOA method-
ology. Three-year cohort default rates were generally expected to be higher than two-
year cohort default rates, because of both the longer repayment history and current
economic conditions. Our “trial” three-year cohort default rates are 0.0%, 0.0%, and
3.3% for federal fiscal years 2005, 2006, and 2007, respectively. In February 2011,
the Department of Education published “trial” three-year cohort default rates for fis-
cal year 2008. Our “trial” cohort default rate for federal fiscal year 2008 was 11.4%.
In April 2011, the Department of Education issued corrected “trial” cohort default
rates for 2008. Our corrected rate was 11.0%. Our official three-year cohort default
rate for 2009 is 7.2%.
Incentive Payment Rules. As part of an institution’s program participation agree-
ment with the Department of Education and in accordance with the Higher Education
Act, an institution may not provide any commission, bonus or other incentive pay-
ment to any person or entity engaged in any student recruitment, admissions, or
financial aid awarding activity based directly or indirectly on success in securing
enrollments or financial aid. Failure to comply with the incentive payment rule could
result in termination of participation in Title IV programs, limitation on participation in
Title IV programs, or financial penalties.
In 2002, the Department of Education promulgated 12 “safe harbors” setting forth
certain permissible activities and arrangements under the incentive payment regu-
lation. The final regulations published on October 29, 2010 abolished the 12 safe
harbors and modified the regulation to codify a stricter reading of the incentive
payment provision. The final rule became effective July 1, 2011. In March 2011, the
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 51
Department of Education issued guidance on the revised incentive payment regula-
tion. Certain ambiguities in the final rule and the Department of Education’s accom-
panying statements and March 2011 guidance create uncertainty as to how the
revised rule will be interpreted and enforced by the Department of Education.
On June 5, 2012, the U.S. Court of Appeals for the District of Columbia Circuit held
that the elimination of the safe harbor for compensation “based upon students
successfully completing their educational programs, or one academic year of their
educational programs” was arbitrary and capricious. The court remanded for the
Department of Education to provide further explanation for the elimination. In addi-
tion, the court required the Department of Education to address comments on the
regulations, raised during the comment period, that the compensation regulations
may have an adverse effect on minority enrollment.
We believe that our current employee compensation and third-party contractual
arrangements comply with the incentive payment provisions of the Higher Education
Act and Department of Education regulations currently in effect However, in light of
the uncertainties surrounding the revised rule and ambiguities in the Department
of Education’s related guidance, or otherwise, we can make no assurances that the
Department would not find deficiencies in our current or future employee compensa-
tion plans and contractual arrangements. Similarly, there can be no assurance that
the Department of Education would not find deficiencies in our former plans and con-
tractual arrangements. In addition, in recent years, other postsecondary educational
institutions have been named as defendants to whistleblower lawsuits, known as “qui
tam” cases, brought by current or former employees pursuant to the Federal False
Claims Act, alleging that their institution’s compensation practices did not comply with
the incentive compensation rule. A qui tam case is a civil lawsuit brought by one or
more individuals, referred to as a relator, on behalf of the federal government for an
alleged submission to the government of a false claim for payment. The relator, often
a current or former employee, is entitled to a share of the government’s recovery in
the case, including the possibility of treble damages. A qui tam action is always filed
under seal and remains under seal until the government decides whether to intervene
in the case. If the government intervenes, it takes over primary control of the litiga-
tion. If the government declines to intervene in the case, the relator may nonetheless
elect to continue to pursue the litigation at his or her own expense on behalf of the
government. Any such litigation could be costly and could divert management’s time
and attention away from the business, regardless of whether a claim has merit.
In October 2010, the GAO released a report entitled “Higher Education: Stronger
Federal Oversight Needed to Enforce Ban on Incentive Payments to School
Recruiters” finding that the Department of Education has inadequately enforced the
current ban on incentive payments. In response, the Department has undertaken to
increase its enforcement efforts by, among other approaches, strengthening proce-
dures provided to auditors reviewing institutions for compliance with the incentive
payments ban and updating its internal compliance guidance in light of the GAO
findings and the revised incentive payment rule that took effect July 1, 2011.
Code of Conduct Related to Student Loans. As part of an institution’s program
participation agreement with the Department of Education, HEOA requires that insti-
tutions that participate in Title IV programs adopt a code of conduct pertinent to stu-
dent loans. For financial aid office or other employees who have responsibility related
to education loans, the code must forbid, with limited exceptions, gifts, consulting
arrangements with lenders, and advisory board compensation other than reasonable
expense reimbursement. The code also must ban revenue-sharing arrangements,
“opportunity pools” that lenders offer in exchange for certain promises, and staff-
ing assistance from lenders. The institution must post the code prominently on its
website and ensure that its officers, employees, and agents who have financial aid
responsibilities are informed annually of the code’s provisions. In addition to the
code of conduct requirements that apply to institutions, HEOA contains provisions
that apply to private lenders, prohibiting such lenders from engaging in certain activi-
ties as they interact with institutions. Failure to comply with the code of conduct pro-
vision could result in termination of our participation in Title IV programs, limitations
on participation in Title IV programs, or financial penalties.
Misrepresentation. The Higher Education Act and current regulations authorize the
Department of Education to take action against an institution that participates in
Title IV programs for any “substantial misrepresentation” made by that institution
regarding the nature of its educational program, its financial charges, or the employ-
ability of its graduates. Effective July 1, 2011, the final regulations published on
October 29, 2010 expand the definition of “substantial misrepresentation” to cover
additional representatives of the institution and additional substantive areas and
expands the parties to whom a substantial misrepresentation cannot be made.
The regulations also augment the actions the Department of Education may take
if it determines that an institution has engaged in substantial misrepresentation.
Under the final regulations, the Department of Education may revoke an institution’s
52 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
program participation agreement, impose limitations on an institution’s participation
in Title IV programs, or initiate proceedings to impose a fine or to limit, suspend, or
terminate the institution’s participation in Title IV programs. On June 5, 2012, the
U.S. Court of Appeals for the District of Columbia vacated portions of the substantial
misrepresentation regulation that permitted the U.S. Department of Education to:
(i) revoke an institution’s program participation agreement or impose limitations on
an institution’s participation without affording procedural protections; (ii) proscribe
misrepresentations with respect to subjects not covered by the Higher Education
Act; and (iii) proscribe statements that are merely confusing. The court remanded
the matters so that the Department of Education can revise the regulations. The
Department of Education could promulgate regulations that expand its role in moni-
toring and enforcing prohibitions on misrepresentation.
Credit Hours. The Higher Education Act and current regulations use the term “credit
hour” to define an eligible program and an academic year and to determine enroll-
ment status and the amount of Title IV aid an institution may disburse during a
payment period. Recently, both Congress and the Department of Education have
increased their focus on institutions’ policies for awarding credit hours. As discussed
above, in June 2010, a House Education and Labor Committee hearing examined
accrediting agencies’ standards for assessing institutions’ credit hour policies. The
final regulations published on October 29, 2010 define the previously undefined
term “credit hour” in terms of a certain amount of time in class and outside class,
or an equivalent amount of work. The regulations also require accrediting agencies
to review the reliability and accuracy of an institution’s credit-hour assignments. If
an accreditor identifies systematic or significant noncompliance in one or more of an
institution’s programs, the accreditor must notify the Secretary of Education.
As of July 1, 2011, if the Department of Education determines that an institution is
out of compliance with the credit-hour definition, the Department could require the
institution to repay the incorrectly awarded amounts of Title IV aid. In addition, if the
Department determines that an institution has significantly overstated the amount of
credit hours assigned to a program, the Department may fine the institution, or limit,
suspend, or terminate its participation in the Title IV programs.
College Affordability and Transparency Lists. Under HEOA, the Department of
Education has published on its website lists of the top 5% of institutions, in each
of nine categories, with (1) the highest tuition and fees for the most recent aca-
demic year, (2) the highest “net price” for the most recent academic year, (3) the
largest percentage increase in tuition and fees for the most recent three academic
years, and (4) the largest percentage increase in net price for the most recent three
academic years. An institution that is placed on a list for high percentage increases
in either tuition and fees or in net price must submit a report to the Department of
Education explaining the increases and the steps that it intends to take to reduce
costs. The Department of Education will report annually to Congress on these institu-
tions and will publish their reports on its web site. The Department of Education also
posts lists of the top 10% of institutions in each of the nine categories with lowest
tuition and fees or the lowest net price for the most recent academic year. Under
HEOA, net price means average yearly price actually charged to first-time, full-time
undergraduate students who receive student aid at a higher education institution
after such aid is deducted. Currently, we are listed as the institution with the lowest
tuition among private for-profit, four-year or above institutions. We are also listed as
the institution with the eighth lowest net price among private for-profit, four-year or
above institutions. We cannot predict with certainty the effect such lists will have on
our operations.
Compliance Reviews. We are subject to announced and unannounced compli-
ance reviews and audits by various external agencies, including the Department of
Education, OIG, state licensing agencies, agencies that guarantee FFEL program
loans, the Department of Veterans Affairs, and accrediting agencies. As part of the
Department of Education’s ongoing monitoring of institutions’ administration of Title
IV programs, the Higher Education Act and Department of Education regulations also
require institutions to submit annually a compliance audit conducted by an indepen-
dent certified public accountant in accordance with Government Auditing Standards
and applicable audit standards of the Department of Education. In addition, to
enable the Secretary of Education to make a determination of financial responsibility,
institutions must annually submit audited financial statements prepared in accor-
dance with Department of Education regulations. In August 2010, the Secretary of
Education sent a letter to several members of the Senate HELP Committee respond-
ing to the findings of the GAO’s undercover investigation. The Secretary explained
that the Department of Education plans to strengthen its oversight of Title IV pro-
grams through, among other approaches, increasing the number of program reviews
by 50%, from 200 conducted in 2010 up to 300 reviews in 2011.
On February 28, 2011 the U.S. Department of Education began an on-site pro-
gram review of APUS’ administration of the Title IV programs. In general, after the
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 53
Department of Education conducts its site visit and reviews data supplied by the
institution, the Department of Education sends the institution a program review
report. The institution has the opportunity to respond to the findings in the program
review report. The Department of Education then issues a final program review deter-
mination letter, which identifies any liabilities. The institution may appeal any mone-
tary liabilities specified in the final program review determination letter. The site visit
for our program review, which covered the 2009-2010 and 2010-2011 award years,
took place from February 28, 2011 through March 4, 2011.
APUS received the program review report in April 2011. The report included three
findings, two of which involve individual student specific errors. The third find-
ing was that APUS’ policies failed to treat certain students as having unofficially
withdrawn from the institution and that the University consequently failed to cal-
culate and return federal student financial aid that APUS was required to return
to the Department of Education as the result of these unofficial withdrawals. The
Department’s position is that students who did not “earn an F grade” in a payment
period should be treated as having unofficially withdrawn from the school, even
if they had future course registrations in the next payment period. We disagree
with this interpretation of Department of Education regulations, and APUS filed a
response to the Department of Education in June 2011 and responded to follow-up
requests from the Department of Education.
On May 14, 2012 the Department of Education issued a Final Program Review
Determination, or FPRD. The FPRD (1) identified liabilities resulting from the
program review report findings, (2) provided instructions for payment of the lia-
bilities to the Department of Education, (3) notified APUS of its right to appeal,
and (4) notified APUS that under Department of Education regulations, APUS
was required to post an irrevocable letter of credit payable to the U.S. Secretary
of Education due to the number of unpaid and late refunds identified as part of
the program review. The liabilities and letter of credit requirements are based on
the program review report’s finding that APUS’ policies improperly failed to treat
certain students as having unofficially withdrawn from the institution and that
APUS consequently failed to calculate and return federal student financial aid to
the Department of Education as a result of these unofficial withdrawals. The FPRD
stated that APUS’ total monetary liability, including interest, was $1,040,851.
Notwithstanding that the Company disagreed with the Department’s position, after
considering the time, effort, expense and other factors involved in a full appeal,
the Company determined to pay the liability. After paying a portion of the liability,
APUS timely appealed the remaining amount because it discovered discrepancies
in the Department of Education’s records as compared to its records for certain
students at issue in the FPRD. By letter dated July 24, 2012, the Department of
Education withdrew the FPRD without prejudice and indicated its intent to reissue
a revised FPRD at a later date. APUS subsequently received a revised FPRD Letter
dated August 8, 2012. The August 8 FPRD Letter was substantially similar to the
May 14 FPRD Letter but it provided for a reduced liability amount. The total liabil-
ity amount in the May 14 FPRD Letter was $1,040,851; the total liability amount
in the August 8 FPRD Letter was $1,033,403. By the time of the August 8 FPRD
Letter, APUS had already paid $909,095 based on the May 14 FPRD. In addition,
the Company accrued $56,000 at June 30, 2012 for interest expense related to
the FPRD. APUS determined that it would not appeal the August 8 FPRD Letter, and
in a courtesy letter to the Department of Education it undertook to pay the remain-
ing amount due as specified in the FPRD. Because we cannot be assured that we
will be able to collect the full amounts from the relevant former students, we have
established a reserve against these receivables. We will continue to monitor the
collection history and the reserve established. In response to the FPRD, we have
also posted an irrevocable letter of credit in favor of the Department of Education
in the amount of $163,284.
Privacy. The Family Educational Rights and Privacy Act of 1974, or FERPA, and the
Department of Education’s FERPA regulations require institutions to allow students
to review and request changes to such student’s education records maintained by
the institution, notify students at least annually of this inspection right, and main-
tain records in each student’s file listing requests for access to and disclosures of
personally identifiable information and the interest of such party in the student’s
personally identifiable information. FERPA also limits the disclosure of a student’s
personally identifiable information by an institution without such student’s prior
written consent. If an institution fails to comply with FERPA or the Department of
Education’s FERPA regulations, the Department of Education may require corrective
actions by the institution, withhold further payments under any applicable Title IV
program or terminate an institution’s eligibility to participate in Title IV programs. In
addition, an institution participating in any Title IV program is obligated to safeguard
customer information pursuant to applicable provisions of the Gramm-Leach-Bliley
Act, or GLBA, and Federal Trade Commission, or FTC, regulations. GLBA and FTC reg-
ulations require an institution to develop and maintain a comprehensive information
54 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
security program to protect personally identifiable financial information of students,
parents or other individuals with whom an institution has a customer relationship. If
an institution fails to comply with GLBA or FTC regulations, it may be required to take
corrective actions, be subject to FTC monitoring and oversight, and be subject to
fines or penalties imposed by the FTC.
Potential Effect of Regulatory Violations. If we fail to comply with the regulatory
standards governing Title IV programs, the Department of Education could impose
one or more sanctions, including transferring us to the reimbursement or cash
monitoring system of payment, seeking to require repayment of certain Title IV
program funds, requiring us to post a letter of credit in favor of the Department
of Education as a condition for continued Title IV certification, taking emergency
action against us, referring the matter for criminal prosecution or initiating pro-
ceedings to impose a fine or to limit, condition, suspend, or terminate our partici-
pation in Title IV programs. If such sanctions or proceedings were imposed against
us and resulted in a substantial curtailment, or termination, of our participation in
Title IV programs, our enrollments, revenues, and results of operations would be
materially and adversely affected.
If we lost our eligibility to participate in Title IV programs, or if Congress reduced the
amount of available federal student financial aid, we would seek to arrange or pro-
vide alternative sources of revenue or financial aid for students. Although we believe
that one or more private organizations would be willing to provide financial assis-
tance to students attending our universities, there is no assurance that this would
be the case, and the interest rate and other terms of such financial aid might not be
as favorable as those for Title IV program funds. We may be required to guarantee all
or part of such alternative assistance or might incur other additional costs in con-
nection with securing alternative sources of financial aid. Accordingly, the loss of our
eligibility to participate in Title IV programs, or a reduction in the amount of available
federal student financial aid, would be expected to have a material adverse effect
on our growth plans and results of operations even if we could arrange or provide
alternative sources of revenue or student financial aid.
In addition to the actions that may be brought against us as a result of our participa-
tion in Title IV, we also may be subject, from time to time, to complaints and lawsuits
relating to regulatory compliance brought not only by our regulatory agencies, but
also by other government agencies and third parties, such as present or former stu-
dents or employees and other members of the public.
Regulatory Actions and Restrictions on Operations
Many actions that we may wish to take in connection with our operations are also
subject to regulation from a variety of agencies.
Restrictions on Adding Educational Programs. State requirements and accrediting
agency standards may, in certain instances, limit our ability to establish additional
programs. Many states require approval before institutions can add new programs
under specified conditions. The Higher Learning Commission and the West Virginia
Higher Education Policy Commission generally require institutions to notify them in
advance of implementing new programs, and upon notification, may undertake a
review of the institution’s licensure, authorization, or accreditation.
The Higher Education Act and Department of Education regulations require a propri-
etary institution of higher education to have been in existence for at least two years
in order to be eligible to participate in Title IV programs. An institution subject to
the two-year rule may not award Title IV funds to a student in a program that is not
included in the institution’s approval documents. During the institution’s initial period
of participation in Title IV programs, the Department of Education will not approve
additional programs that would expand the scope of the institution’s eligibility.
In addition, when an institution is certified for the first time, its certification is provi-
sional until the Department of Education has reviewed a compliance audit that cov-
ers a complete fiscal year of Title IV program participation and has decided to certify
fully the institution. In the first quarter of 2008, we timely filed a recertification
application because our initial period of certification was scheduled to end on June
30, 2008. As part of that recertification process, the Department of Education fully
certified us, and it no longer considers us to be in our initial period of certification.
However, in August 2008, we were deemed to have undergone a change in owner-
ship and control requiring review by the Department of Education in order to reestab-
lish our eligibility and continue participation in Title IV programs. On October 2,
2008, the Department of Education approved our change in ownership application
and granted us provisional certification for a two-year period ending September 30,
2010. During that period, our program participation agreement provided that, as
a provisionally certified institution, we had to apply for and receive approval by the
Secretary of Education for any substantial change. Under our program participation
agreement, substantial changes included but were not limited to establishment of
additional locations, an increase in the level of academic offering, and addition of
any non-degree or short-term training program. The Department of Education advised
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 55
us that an institution that is provisionally certified based on a change in ownership
and control that resulted from a reduction of ownership interest is able to add new
degree programs under the same conditions that apply to a fully certified institution.
On July 2, 2010, we received a letter from the Department of Education notifying us
that we are fully recertified to participate in Title IV programs through December 31,
2014, and that we are no longer provisionally certified.
Generally, under regulations in effect prior to July 1, 2011, if an institution that was
not subject to the two-year rule or was not in its initial period of certification added
an educational program after it had been designated as an eligible institution, the
institution was required to apply to the Department of Education to have the addi-
tional program designated as eligible. However, a fully certified degree-granting
institution was not obligated to obtain the Department of Education’s approval of
additional programs that led to an associate, bachelor’s, professional, or gradu-
ate degree at the same degree level(s) previously approved by the Department of
Education. Similarly, a fully certified institution was not required to obtain advance
approval for new programs that both prepared students for gainful employment in the
same or related recognized occupation as an educational program that had previ-
ously been designated as an eligible program at that institution and met certain min-
imum-length requirements. However, the Department of Education, as a condition of
certification to participate in Title IV programs, could require prior approval of such
programs or otherwise restrict the number of programs an institution may add. In the
event that an institution that was required to obtain the Department of Education’s
express approval for the addition of a new program failed to do so, and erroneously
determined that the new educational program was eligible for Title IV program funds,
the institution could be liable for repayment of Title IV program funds received by the
institution or students in connection with that program.
The final regulations published on October 29, 2010 establish a new process under
which an institution must apply for approval to offer a program that, under the Higher
Education Act, prepares students for “gainful employment in a recognized occupa-
tion” in order to be eligible for Title IV funds. Effective July 1, 2011, an institution
must notify the Department of Education at least 90 days before the first day of
classes when it intends to add a program that prepares students for gainful employ-
ment. On September 27, 2011, the Department of Education issued an NPRM
proposing a streamlined approval process that targets only the worst-performing pro-
grams, specifically programs that are the same or substantially similar to previous
programs that failed gainful employment metric(s). On June 30, 2012, the U.S.
District Court for the District of Columbia struck down the gainful employment met-
rics and regulations related to notifying (and potentially obtaining approval from) ED
for new programs. Pending a final ruling in this case, the Department of Education
has advised schools to follow the rules on additional programs that immediately pre-
ceded the gainful employment rules. For more information about the gainful employ-
ment regulations, see above “Regulation of Title IV Financial Aid Programs—Gainful
Employment.” The Department of Education may still, as a condition of certification
to participate in Title IV programs, require prior approval of programs or otherwise
restrict the number of programs an institution may add.
Change in Ownership Resulting in a Change of Control. Many states and accredit-
ing agencies require institutions of higher education to report or obtain approval of
certain changes in ownership or other aspects of institutional status, but the types
of and triggers for such reporting or approval vary among states and accrediting
agencies. In addition, our accrediting agencies, The Higher Learning Commission,
requires institutions that it accredits to inform it in advance of any substantive
change, including a change that significantly alters the ownership or control of the
institution. Examples of substantive changes requiring advance notice to The Higher
Learning Commission include changes in the legal status, ownership, or form of
control of the institution, such as the sale of a proprietary institution. Also, The
Higher Learning Commission must approve a substantive change in advance in order
to include the change in the institution’s accreditation status. In addition, The Higher
Learning Commission also requires an on-site evaluation within six months to con-
firm the appropriateness of the approval.
In June 2009 and February 2010, The Higher Learning Commission adopted and
revised, respectively, new policies related to institutional control, structure, and
organization. Part of The Higher Learning Commission’s stated rationale for these
changes was to better define the range of its oversight of transactions related to
change of ownership at institutions. The new policies extend The Higher Learning
Commission’s oversight to transactions that change, or have the potential to change,
the control of an institution or its fundamental structure and organization. Under
the new policies, The Higher Learning Commission also now extends its oversight
to defined changes that occur in a parent or controlling entity, and not necessarily
in the institution itself. Actions by, or relating to, an accredited institution, includ-
ing a significant acquisition of another institution, significant changes in board
56 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
composition or organizational documents, and accumulations by one stockholder
of greater than 25% of the capital stock, could open up an accredited institution to
additional reviews by The Higher Learning Commission and possible change from
an accredited status to candidate status, which enhances the risks associated with
these types of actions. In particular, the change from accredited status to candi-
date status could adversely impact an institution’s ability to participate in Title IV
programs. For-profit institutions may also be less attractive acquisition candidates
because of the enhanced scrutiny of change in control transactions, the explicit abil-
ity to move an institution from accredited status to candidate status, and because
The Higher Learning Commission will now also be looking more closely at entities
that own accredited institutions.
The Higher Education Act provides that an institution that undergoes a change in
ownership resulting in a change in control loses its eligibility to participate in Title
IV programs and must apply to the Department of Education in order to reestablish
such eligibility. An institution is ineligible to receive Title IV program funds during the
period prior to recertification. The Higher Education Act provides that the Department
of Education may temporarily provisionally certify an institution seeking approval of
a change in ownership and control based on preliminary review by the Department
of Education of a materially complete application received by the Department of
Education within 10 business days after the transaction. The Department of Education
may continue such temporary, provisional certification on a month-to-month basis until
it has rendered a final decision on the institution’s application. If the Department of
Education determines to approve the application after a change in ownership and con-
trol, it issues a provisional certification, which extends for a period expiring not later
than the end of the third complete award year following the date of provisional certifica-
tion. Department of Education regulations describe some transactions that constitute
a change of control, including the transfer of a controlling interest in the voting stock of
an institution or the institution’s parent corporation. Department of Education regula-
tions provide that a change of control of a publicly traded corporation occurs in one
of two ways: (i) if there is an event that would obligate the corporation to file a Current
Report on Form 8-K with the SEC disclosing a change of control or (ii) if the corporation
has a stockholder that owns at least 25% of the total outstanding voting stock of the
corporation and is the largest stockholder of the corporation, and that stockholder
ceases to own at least 25% of such stock or ceases to be the largest stockholder.
A significant purchase or disposition of our voting stock could be determined by the
Department of Education to be a change in ownership and control under this standard.
When a change of ownership resulting in a change of control occurs, the Department
of Education applies a different set of financial tests to determine the financial
responsibility of the institution in conjunction with its review and approval of the
change of ownership. The institution generally is required to submit a same-day
audited balance sheet reflecting the financial condition of the institution immediately
following the change in ownership. The institution’s same-day balance sheet must
demonstrate an acid test ratio of at least 1:1, which is calculated by adding cash and
cash equivalents to current accounts receivable and dividing the sum by total current
liabilities (and excluding all unsecured or uncollateralized related party receivables).
The same-day balance sheet must demonstrate positive tangible net worth. When
a publicly traded company undergoes a change in ownership and control due to a
reduction in ownership interest, as occurred when in August 2008 funds affiliated
with ABS Capital Partners distributed shares of our stock to its general and limited
partners, the institution may submit its most recent quarterly financial statement as
filed with the SEC, along with copies of all other SEC filings made after the close of
the fiscal year for which a compliance audit has been submitted to the Department
of Education, instead of the “same day” balance sheet. In addition, when a change in
ownership and control occurs and there is a new owner, the institution must submit
to the Department of Education audited financial statements of the institution’s new
owner’s two most recently completed fiscal years that are prepared and audited
in accordance with Department of Education requirements. The Department may
determine whether the financial statements meet financial responsibility standards
with respect to the composite score formula. If the institution does not satisfy these
requirements, the Department of Education may condition its approval of the change
of ownership on the institution’s agreeing to letters of credit, provisional certification,
and/or additional monitoring requirements, as described in the above section on
Financial Responsibility. If the new owner does not have the required audited financial
statements, the Department of Education may impose certain restrictions on the
institution, including with respect to adding locations and programs.
In August 2008, funds affiliated with ABS Capital Partners reduced their beneficial
ownership interest from approximately 26% to approximately 24% of our outstand-
ing common stock, and we were deemed to have undergone a change in ownership
and control requiring review by the Department of Education in order to reestablish
our eligibility and continue participation in Title IV programs. As required under
Department of Education regulations, we timely notified the Department of Education
of our change in ownership and control. In connection with the Department of
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 57
Education’s review of the change, we submitted to the Department of Education a
change in ownership application that included the submission of required documen-
tation, including a letter from The Higher Learning Commission indicating that it had
approved the change. On October 2, 2008, we received a letter from the Department
of Education approving the change in ownership and control and granting us provi-
sional certification until September 30, 2010. On July 2, 2010, we received a letter
from the Department of Education notifying us that we are fully recertified to partici-
pate in Title IV programs through December 31, 2014.
Many states include the sale of a controlling interest of common stock in the
definition of a change of control requiring approval. A change of control under the
definitions of an agency that regulates us might require us to obtain approval of the
change in ownership and control in order to maintain our regulatory approval. Under
certain circumstances, the West Virginia Higher Education Policy Commission and
the State Council of Higher Education for Virginia might require us to seek approval
of changes in ownership and control in order to maintain our state authorization or
licensure. With respect to the distribution by the funds affiliated with ABS Capital
Partners, the State Council of Higher Education for Virginia did not consider the
distribution to be a change in ownership under its regulations, and the West Virginia
Higher Education Policy Commission approved the change.
Pursuant to federal law providing benefits for veterans and reservists, we are
approved for education of veterans and members of the selective reserve and their
dependents by the state approving agencies in West Virginia and Virginia. In cer-
tain circumstances, state approving agencies may require an institution to obtain
approval for a change in ownership and control.
A change of control could occur as a result of future transactions in which we are
involved. Some corporate reorganizations and some changes in the board of direc-
tors are examples of such transactions. Moreover, as a publicly traded company, the
potential adverse effects of a change of control could influence future decisions by
us and our stockholders regarding the sale, purchase, transfer, issuance, or redemp-
tion of our stock. In addition, the regulatory burdens and risks associated with a
change of control also could discourage bids for shares of common stock and could
have an adverse effect on the market price of shares.
Pending Regulatory Changes
Negotiated Rulemaking. On May 5, 2011, the Department of Education announced
its intention to establish additional negotiated rulemaking committees to prepare
proposed regulations under the Higher Education Act. Three public hearings were
conducted in May 2011 at which interested parties suggested issues that should be
considered for action by the negotiating committees. The Department of Education
also conducted roundtable discussions to inform policy in the areas of teacher
preparation, college completion, and the proposed “First in the World” competition.
In spring 2012, the Department of Education convened two negotiated rulemaking
committees—one on teacher preparation and one on student loans—that each
held a series of meetings to discuss proposed changes to applicable regulations.
Negotiators reached consensus on proposed regulatory language on 25 student
loan issues, which will result in two packages of proposed rules to be published for
public comment before final promulgation. Proposed rules relating to various loan
repayment issues, including a new income-based repayment plan for the Direct Loan
program, were issued November 1, 2012. Although the rule was originally scheduled
to become effective on July 1, 2013, the Department of Education announced the
rule would go into effect on December 21, 2012. Also, the Department of Education
issued an NPRM on July 17, 2012 addressing discharges of loans for borrowers
who suffer from total and permanent disability, and the Department of Education
promulgated final rules on November 1, 2012. Proposed rules relating to other loan
issues are expected in 2013, to be effective in 2014. Negotiators failed to reach
consensus on proposed regulations related to teacher preparation programs and the
awarding of TEACH Grants. The committee disagreed about how, if at all, students’
test scores should be used to judge the effectiveness of their teacher’s preparation
program. Such so-called “value added scores” were promoted by the Department of
Education during the negotiations as one way to determine which institutions should
be eligible to award TEACH Grants to students in their teacher preparation programs.
As the negotiators failed to reach consensus, the Department of Education is now
responsible for drafting proposed regulations, to be released at a future date. APUS
offers a state-approved educator certification program in West Virginia and would
therefore be subject to any regulations that may be promulgated.
On April 25, 2012, the Department of Education announced that it would be publish-
ing a notice regarding its intent to establish a negotiated rulemaking committee to
prepare proposed regulations for the Title IV programs. The announcement states
that the Department of Education intends to develop proposed regulations designed
58 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
to prevent fraud and otherwise ensure proper use of Title IV program funds, and to
improve and streamline the campus-based Title IV programs. The announcement
states that the Department of Education is considering regulatory changes related
to the disbursement of Title IV program funds, particularly electronic-fund transfers
made directly to a student’s bank account and available to the student via debit or
another bank-provided card. The Department of Education held two public hearings in
May 2012. Negotiations were expected to begin in 2012 but to date the Department
of Education has not announced negotiated rulemaking teams or a negotiated
rulemaking schedule.
Executive Order on Military and Veterans Benefits Programs. On April 27, 2012,
President Obama issued an Executive Order, which we refer to as the EO, that directs
the Departments of Defense, Veterans Affairs, and Education to establish “Principles
of Excellence to strengthen oversight, enforcement, and accountability,” which we
refer to as the Principles, in connection with the Post-9/11 GI Bill and the Department
of Defense tuition assistance program. The EO requires the Principles to apply to
all education institutions that receive funding from military and veterans education
benefits programs, and it does not distinguish among not-for-profit, public, and for-
profit institutions. The Principles include, for example, disclosure obligations related
to program costs, student aid eligibility, estimated loan debt, student outcomes, and
education plans and a prohibition on “fraudulent and aggressive recruiting tech-
niques” on and off military installations. The agencies must implement the Principles
through various actions, and within 90 days after the date of the EO they must report
to the President their progress, including in terms of revisions to regulations, guidance
documents, memoranda of understanding, and other policies related to the Post-9/11
GI Bill and DoD tuition assistance. In addition, among other actions, the Departments
of Defense, Veterans Affairs, and Education are directed to develop a comprehensive
strategy to establish service member and veteran student-outcome measures that
are comparable, to the maximum extent practicable, across military and veterans
education benefit programs, and the Department of Education must collect from
institutions and publish information on the amount of funding institutions receive from
the Post-9/11 GI Bill and the Department of Defense tuition assistance program. The
EO also contains requirements related to enforcement of and compliance related to
the Principles, including, for example, development of complaint systems and estab-
lishment of procedures for program reviews. Because a significant portion of our
students use funding from military and veterans benefits programs, any actions that
these agencies take could have a significant impact on our business.
The Department of Veterans Affairs requested that each education institution state,
by electronic mail sent by August 1, 2012, its intent to comply with the Principles.
We notified the Department of Veterans Affairs that APUS intends to make a good
faith effort to comply with the EO, subject to clarifying guidance and interpretation
by the Departments of Defense, Veteran Affairs and Education and/or the Consumer
Financial Protection Bureau. On July 13, 2012, the Department of Education issued
guidance on each Principle’s meaning. The EO requires the Secretaries of Defense
and Veterans Affairs, in consultation with the Secretary of Education and the Director
of the Consumer Financial Protection Bureau, to submit a plan to strengthen enforce-
ment and compliance related to the Principles before the end of July 2012. Such
plan has not been published. We do not know what further actions the Departments
of Defense, Veterans Affairs, and Education will take to implement the Principles.
Consumer Financial Protection Bureau. On August 29, 2012, the Consumer
Financial Protection Bureau, or CFPB, submitted a report to the Senate Committee
on Banking, Housing, and Urban Affairs, the Senate HELP Committee, the House of
Representatives Committee on Financial Services, and the House of Representatives
Committee on Education and the Workforce entitled “Private Student Loans.” The
report contained specific suggestions for congressional action to restructure the stu-
dent lending experience, including possibly requiring institutions to certify that a stu-
dent is not eligible for any further federal funds before a private loan may be issued
to such student. On October 16, 2012, the Consumer Financial Protection Bureau’s
Ombudsman for private student loan matters issued a report containing recommenda-
tions for the Senate Committee on Banking, Housing, and Urban Affairs, the Senate
HELP Committee, the House Committee on Financial Services, the House Committee
on Education and the Workforce, the Secretary of the Treasury, the Director of the
Consumer Financial Protection Bureau, and the Secretary of Education. The report
addressed potential reforms to student loan servicing and expansion of loan mod-
ification and refinancing options. In addition, on October 18, 2012 the Consumer
Financial Protection Bureau released a report entitled “The Next Front? Student
Loan Servicing and the Cost to Our Men and Women in Uniform.” The report details
the challenges that some service members have encountered when utilizing private
and federal student loans. We do not know what steps may be taken by Congress or
federal agencies in response to this report, or the report of the majority staff of the
HELP Committee, and whether such actions (if any) will have an adverse effect on our
business or results of operations. Also, on January 31, 2013, CFPB encouraged insti-
tutions of higher education, students, and others to provide information to the CFPB
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 59
by March 18, 2013 about the financial products and services currently offered to stu-
dents, and comments on how current and future arrangements between institutions
of higher education and financial institutions could be structured in order to promote
positive financial decision-making among consumers.
ITEM 1A. RISK FACTORS
Investing in our common stock has a high degree of risk. Before making an invest-
ment in our common stock, you should carefully consider the following risks, as well
as the other information contained in this annual report, including our consolidated
financial statements and related notes and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” Any of the risk factors described
below could significantly and adversely affect our business, prospects, financial con-
dition, and results of operations. As a result, the trading price of our common stock
could decline, and you may lose all or part of your investment.
Risks Related to Our Business
If we are unable to continue our recent revenue and earnings growth, our stock
price may decline and we may not have adequate financial resources to execute
our business plan.
Our revenue increased 33% from $149.0 million in 2009 to $198.2 million in 2010,
31% from $198.2 million in 2010 to $260.4 million in 2011, and 20% from $260.4
to $313.5 in 2012 primarily due to strong referrals from current students, new
student marketing, and the variety and affordability of our program offerings. The
same factors that led to the growth in revenues also contributed to our net income
improving to $42.3 million in 2012 from $40.8 million in 2011. The rate of revenue
growth from 2011 to 2012 was at a slower pace than the rate of growth from 2009
to 2011. As our revenue base has grown, our growth rate percentages have declined
and may continue to decline. You should not rely on the results of any prior periods
as an indication of our future operating performance. If we are unable to maintain
adequate revenue and earnings growth, or if investors react negatively to the slowing
of our growth rates, the value of our stock price may decline.
Our growth may place a strain on our resources that could adversely affect our
systems, controls and operating efficiency.
demands on our management information and reporting systems and financial
management controls. We do not have experience scheduling courses and adminis-
tering programs for more students than our current enrollment, and if growth nega-
tively impacts our ability to do so, the learning experience for our students could be
adversely affected, resulting in a higher rate of student attrition and fewer student
referrals. We also have limited experience adding to our courses, programs and
operations through acquisitions. Future growth will also require continued improve-
ment of our internal controls and systems, particularly those related to complying
with federal regulations under the Higher Education Act of 1965, or the Higher
Education Act, as administered by the U.S. Department of Education, including as a
result of our participation in federal student financial aid programs under Title IV of
the Higher Education Act, which we refer to in this annual report as Title IV programs.
We have described some of the most significant regulatory risks that apply to us,
including those related to Title IV programs, under the heading “Risks Related to
the Regulation of our Industry” below. If we are unable to manage our growth or
successfully carry out and integrate acquisitions, we may also experience operating
inefficiencies that could increase our costs and adversely affect our profitability and
results of operations.
We have recently experienced, and may in the future experience to a greater
degree, increases in our administrative and technology infrastructure expenses,
our exposure to bad debt and unpredictability in enrollment.
Since gaining access to Title IV programs, a significant portion of our growth is
attributable to students using Title IV programs. This has led to a change in the mix
of students that we serve, which has resulted, and will continue to result, in a need
to provide a greater level of services to our students. Our costs and expenses have
increased due in part to increased general and administrative expenses related to
this shift in student mix and primarily attributable to an increase in expenditures for
financial aid processing fees, expenditures for technology required to support the
increase in civilian students, and increased bad debt primarily associated with our
civilian students. In order to support the number of students we now have and to plan
for the future, we also expect that we will make significant investments in our technol-
ogy infrastructure and financial aid processing capabilities, which from time to time,
will result in an increased level of spending, not all of which can be capitalized.
The growth that we have experienced in the past, as well as any future growth
that we experience, may place a significant strain on our resources and increase
The change in our student mix has also made it harder for us to make long range
forecasts about student enrollments. We have had more difficulty forecasting the
60 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
number of students who will enroll and have noticed a decrease in the predictability
of the rate at which we convert leads into enrolled students, which we attribute, in
part, to the growth in civilian students, and particularly the growth in civilian students
from outside of public service communities.
If we are unable to manage changes in the composition of our student body and control
the growth of related expenditures, we may experience operating inefficiencies that
could increase our costs and adversely affect our profitability and results of operations.
The ability of military students to enroll in our courses can be impacted by factors
that we do not anticipate, which can impact our registrations and make it more
difficult for us to accurately forecast expected enrollment.
postsecondary degrees. Service members of the United States Armed Forces
can use tuition assistance at postsecondary schools that are accredited by
accrediting agencies recognized by the U.S. Secretary of Education and that sign
a Memorandum of Understanding with the Department of Defense. We rely for a
significant portion of our revenues on the tuition assistance programs offered to
United States Armed Forces personnel. Our tuition is currently structured so that
tuition assistance payments for service members fully cover the service member’s
per course tuition cost of our undergraduate courses and cover more than 75%
of the per course tuition cost of our graduate courses. If we are no longer able to
receive tuition assistance payments or the tuition assistance program is reduced or
eliminated, our enrollments and revenues would be significantly reduced resulting in
a material adverse effect on our results of operations and financial condition.
Beginning with registrations for the third quarter of 2010, we observed that for a
period of time the growth of our net course registrations from active duty military stu-
dents slowed more than we expected. We do not know all of the factors that caused
this to occur. We believe that the changes we saw in net course registrations from
active duty military students were in part due to increased operations activity and
overseas deployments across all branches of the US military, particularly the level
of activity in the United States Marine Corps. We believe that increased demands on
many active duty military personnel, combined with limited internet access asso-
ciated with some deployments, impacted the ability of certain active duty military
students to pursue higher education in 2010. Due to the variability of military activity
and other factors over which we have no control, the difficulty in predicting military
enrollments that we encountered in 2010 could continue in the future or become
more pronounced. In addition, over the next several years the number of active and
reserve military professionals is likely to decrease if, as proposed, the military down-
sizes its forces incrementally. Any decline in the enrollments, or decline in the growth
of enrollments, from active duty military students could have an adverse impact on
our total net course registrations and revenues.
Tuition assistance programs offered to United States Armed Forces personnel con-
stituted 38% of our adjusted net course registrations for 2012, and our revenues and
number of students would decrease if we are no longer able to receive funds under
these tuition assistance programs or tuition assistance is reduced or eliminated.
Service members of the United States Armed Forces are eligible to receive tuition
assistance from their branch of the armed forces that they may use to pursue
A recent congressional investigation of DoD tuition assistance programs used for
distance education and proprietary institutions and a DoD rulemaking that increases
oversight of educational programs offered to active service members could result in leg-
islation that limits in whole or in part our participation in the tuition assistance program.
In January 2012, Senators Harkin and Durbin introduced legislation that would modify
the Higher Education Act’s 90/10 Rule. Under the Higher Education Act, a proprietary
institution is prohibited from deriving from Title IV funds, on a cash accounting basis
(except for certain institutional loans) for any fiscal year, more than 90% of its revenues
(as computed for 90/10 Rule purposes). An institution that derives more than 90% of
its cash-basis revenue from Title IV programs for two consecutive fiscal years will be
ineligible to participate in Title IV programs for at least two fiscal years. The proposed
legislation would decrease the limit to 85% and would count DoD tuition assistance and
veterans’ education benefits toward that limit. In February 2012, companion bills were
introduced in the U.S. Senate and U.S. House of Representatives that would modify the
90/10 Rule to count DoD tuition assistance and veterans’ educations benefits toward
the 90% limit, along with Title IV programs. Although these changes alone would not
have caused American Public University System, or APUS, to be in violation of the rule
based upon 2012 revenues, they would reduce the margin of compliance and make
APUS more vulnerable to changes in its revenue sources. These changes would also
likely reduce competition in the market for military students utilizing DoD tuition assis-
tance and veterans’ educations benefits, which may increase the percentage of our stu-
dent body comprised by such students, increasing the possibility of our non-compliance
with the 90/10 Rule, if modified by these proposed changes. See “Risks Related to the
Regulation of our Industry” for additional information on these developments.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 61
In October 2011, the Marine Corps announced, and later rescinded, new tuition
assistance rules that cut the maximum benefit for its service members from $4,500
per year to $875 per year and reduced the tuition assistance from $250 per credit
hour to $175 per credit hour. Although undergraduate tuition assistance levels have
been restored to their prior levels with retroactive benefits to affected service mem-
bers, the Marine Corps has warned that the current levels of funding are not sus-
tainable. The Marine Corps did reduce graduate level tuition assistance from $350
per credit hour to $250 per credit hour, which is consistent with the current tuition
assistance payments from the other military services. We anticipate that the other
services will also consider potential changes to the tuition assistance program.
DoD is required to submit a report to the Senate and House Armed Services
Committees on how to increase the efficiency of tuition assistance program funding,
including the impact of changing the program to require service members to pay 25%
of their expenses. The report was due June 20, 2012, but has not been published.
In addition, in October 2011, DoD announced that while it will maintain the current
levels of tuition assistance in the near term, it plans to consider changes as part
of a holistic review of the military compensation package. We believe modifications
to the tuition assistance program may include a reduced per credit tuition benefit
(currently $250), a decrease in the annual cap (currently $4,500), and/or require that
service members pay out-of-pocket for a portion of their tuition, among other possi-
ble changes.
If tuition assistance payments are reduced, we believe that most service members
would be eligible and able to finance out-of-pocket tuition costs resulting from this
shortfall using their “Top Up” benefits under the GI Bills, which allow service mem-
bers to use a portion of their GI Bill benefits while still on active duty. However, we
do not know whether in the long-term service members would be willing to use the
Top-Up option, or whether the increased administrative process in using the Top-Up
option or covering the shortfall through other funding sources would lead to service
members deciding not to enroll or enrolling at a slower rate.
We are not able to estimate the effect of future expected changes to the tuition
assistance programs or whether the services would impose other criteria in addition
to the level of reimbursement that would impact enrollments from service members.
We are also not able to estimate the response that our competitors would take to
reduced tuition assistance payments or the willingness of service members to use
their Top-Up option available to them under their veterans’ benefits. In this regard,
our competitors, particularly those with larger student populations or a smaller con-
centration of students from the military, may be better situated to lower the cost of
tuition to service members.
If we are no longer able to receive tuition assistance payments or the tuition assis-
tance program is reduced or eliminated, our enrollments and revenues could be
significantly reduced, which would result in a material adverse effect on our results
of operations and financial condition.
Implementation of Executive Orders by federal agencies may impose additional reg-
ulatory burdens upon us and negatively affect our business or results of operations.
On April 27, 2012, President Obama issued an Executive Order, which we refer to as
the EO, that directs the Departments of Defense, Veterans Affairs, and Education to
establish “Principles of Excellence to strengthen oversight, enforcement, and account-
ability,” which we refer to as the Principles, in connection with the Post-9/11 GI Bill
and the DoD tuition assistance program. The EO requires the Principles to apply to
all education institutions that receive funding from military and veterans’ education
benefits programs, and it does not distinguish among not-for-profit, public, and for-
profit institutions. The Principles include, for example, disclosure obligations related to
program costs, student aid eligibility, estimated loan debt, student outcomes, and edu-
cation plans, and a prohibition on “fraudulent and aggressive recruiting techniques”
on and off military installations. The agencies must implement the Principles through
various actions, and within 90 days after the date of the EO they must report to the
President their progress, including in terms of revisions to regulations, guidance doc-
uments, memoranda of understanding, and other policies related to the Post-9/11 GI
Bill and Department of Defense tuition assistance. In addition, among other actions,
the Departments of Defense, Veterans Affairs, and Education are directed to develop
a comprehensive strategy to establish service member and veteran student-outcome
measures that are comparable, to the maximum extent practicable, across military
and veterans education benefit programs, and the Department of Education must
collect from institutions and publish information on the amount of funding institutions
receive from the Post-9/11 GI Bill and the DoD tuition assistance program. The EO
also contains requirements related to enforcement of and compliance related to the
Principles, including, for example, development of complaint systems and establish-
ment of procedures for program reviews. Because a significant portion of our students
use funding from military and veterans benefits programs, any actions that these
agencies take could have a significant impact on our business.
62 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
The Department of Veterans Affairs requested that each education institution state,
by electronic mail sent by August 1, 2012, its intent to comply with the Principles.
We notified the Department of Veterans Affairs that APUS intends to make a good
faith effort to comply with EO, subject to clarifying guidance and interpretation by the
Departments of Defense, Veteran Affairs, Education and/or the Consumer Financial
Protection Bureau. On July 13, 2012, the Department of Education issued guid-
ance on each Principle’s meaning. The EO requires the Secretaries of Defense and
Veterans Affairs, in consultation with the Secretary of Education and the Director of
the Consumer Financial Protection Bureau, to submit a plan to strengthen enforce-
ment and compliance related to the Principles before the end of July 2012. Such
plan has not been published. We do not know what further actions the Departments
of Defense, Veterans Affairs, and Education will take to implement the Principles.
Strong competition in the postsecondary education market, especially in the
online education market, could decrease our market share and increase our cost
of acquiring students.
Postsecondary education is highly fragmented and competitive. We compete with tra-
ditional public and private two-year and four-year colleges as well as other for-profit
schools, particularly those that offer online learning programs. Public and private
colleges and universities, as well as other for-profit schools, offer programs similar
to those we offer. Public institutions receive substantial government subsidies, and
public and private institutions have access to government and foundation grants,
tax-deductible contributions and other financial resources generally not available
to for-profit schools. Accordingly, public and private institutions may have access
to resources that are superior to those in the for-profit sector. In addition, some
of our competitors, including both traditional colleges and universities and other
for-profit schools, have substantially greater name recognition and financial and
other resources than we have, which may enable them to compete more effectively
for potential students, particularly in the non-military sector of the market. In the
military sector of the market, we believe that for-profit schools may increasingly be
seeking to attract military students, including because these schools may see it as
helpful in their efforts to comply with the 90/10 Rule, as currently DoD tuition assis-
tance and veterans’ education benefits do not count towards the 90% limit.
We expect to face increased competition as a result of new entrants to the online
education market, including established colleges and universities that have not
previously offered online education programs. We are also continuing to see
increasing differentiation between the way in which our competitors are delivering
online offerings, which impacts the ability to attract students, facilitate access to
education and provide convenience to learners. We believe that in the future many
online students will be attracted to institutions in part because of the technology
that the institutions offer and the way in which that technology facilitates access to
education and learning.
In addition, we face new competition from various emerging non-traditional, cred-
it-bearing and non-credit-bearing education programs, provided by proprietary, not-for-
profit and public providers, including massive open online courses offered worldwide
without charge by traditional educational institutions and other direct-to-consumer
education services, as well as other offerings at low costs to students. These emerg-
ing non-traditional programs could also lead to fundamental changes in the way in
which higher education is delivered and recognized and the value that is placed on a
traditional degree of the type we offer.
We may not be able to compete successfully against current or future competitors
and may face competitive pressures that could adversely affect our business or
results of operations. We may also face increased competition if our competitors
pursue relationships with the military and governmental educational programs with
which we already have relationships. These competitive factors could cause our
enrollments, revenues and profitability to decrease significantly.
If we are unable to update and expand the content of existing programs and
develop new programs and specializations on a timely basis and in a cost-effective
manner, our future growth may be impaired.
The updates and expansions of our existing programs and the development of
new programs and specializations may not be accepted by existing or prospective
students or employers. If we cannot respond to changes in market requirements,
our business may be adversely affected. Even if we are able to develop acceptable
new programs, we may not be able to introduce these new programs as quickly as
students require or as quickly as our competitors introduce competing programs. To
offer a new academic program, we may be required to obtain appropriate federal,
state and accrediting agency approvals, which may be conditioned or delayed in
a manner that could significantly affect our growth plans. On June 30, 2012, the
U.S. District Court for the District of Columbia vacated the regulations requiring the
U.S. Department of Education to receive notice of (and possibly approve) any new
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 63
program that prepares students for gainful employment, which for APUS includes
most of its programs. However, pre-existing regulations require institutions to obtain
Department of Education approval for new programs under certain circumstances,
and it is unclear whether the Department of Education will repromulgate the vacated
regulation in a form that can withstand challenge. See “Risks Related to the
Regulation of our Industry” for additional information on program approval require-
ments. If we are unable to respond adequately to changes in market requirements
due to financial constraints, regulatory limitations or other factors, our ability to
attract and retain students could be impaired and our financial results could suffer.
Establishing new academic programs or modifying existing programs requires us to
make investments in management, incur marketing expenses and reallocate other
resources. We may have limited experience with the courses in new areas and may
need to modify our systems and strategy or enter into arrangements with other
institutions to provide new programs effectively and profitably. If we are unable to
increase the number of students, or offer new programs in a cost-effective manner,
or are otherwise unable to manage effectively the operations of newly established
academic programs, our results of operations and financial condition could be
adversely affected.
If we do not have adequate continued personal referrals and marketing and adver-
tising programs that are effective in developing awareness among, attracting and
retaining new students, our financial performance in the future would suffer.
Building awareness of AMU and APU and the programs we offer among potential
students is critical to our ability to attract new students. In order to maintain and
increase our revenues and profits, we must continue to attract new students in
a cost-effective manner and these students must remain active in our programs.
In addition, because we experience declines in our student population as a result
of graduation, transfers to other academic institutions, military deployments and
other reasons, in order to grow we need to first attract sufficient students to replace
those that have left AMU or APU. Beginning in 2009 and continuing into 2012,
we increased the amounts spent on marketing and advertising, and we antici-
pate this trend to continue, particularly as a result of our attempts to attract and
retain students from non-military market sectors. We use marketing tools such as
the Internet, exhibits at conferences, and print media advertising to promote our
schools and programs, and we also began using more traditional media advertis-
ing beginning in 2011 and continuing through 2012. Additionally, we rely on the
general reputation of AMU and APU and referrals from current students, alumni and
educational service officers in the United States Armed Forces as a source of new
students. Some of the factors that could prevent us from successfully advertising
and marketing our programs and from successfully enrolling and retaining students
in our programs include:
• the emergence of more successful competitors, and tuition-free or other low-
cost courses;
• factors related to our marketing, including the costs of Internet advertising and
broad-based branding campaigns;
• limits on our ability to attract and retain effective employees because of the new
incentive payment rule (see “Risks Related to the Regulation of our Industry”);
• performance problems with our online systems;
• failure to maintain accreditation;
• student dissatisfaction with our services and programs;
• failure to develop a message or image that resonates well within non-military
sectors of the market;
• adverse publicity regarding us, our competitors or online or for-profit educa -
tion generally;
• adverse developments in our relationship with military educational service officers;
• a decline in the acceptance of online education; and
• a decrease in the perceived or actual economic benefits that students derive
from our programs.
On January 10, 2013, the President signed the Improving Transparency of Education
Opportunities for Veterans Act, which requires the Secretary of the Department
of Veterans Affairs to develop a policy to improve outreach and transparency to
service members and veterans by providing information about institutions of higher
education, including a centralized mechanism to publish feedback from students
and state approving agencies about each institution’s quality of instruction, recruit-
ing practices, and placement of graduates. Although the law permits us to verify
the feedback and address any issues that we might identify with such feedback
before it is published, it is unclear whether the feedback’s substance or presenta-
tion will negatively affect our ability to attract and retain students. The Department
64 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
of Veterans Affairs may promulgate regulations to implement the provisions. In
addition, the Department of Education began publishing a “College Scorecard” on
February 13, 2013, which allows students to compare institutions based on data
such as potential earnings and average student-loan debt. It is unclear how stu-
dents will use this tool, and whether it will negatively affect our ability to attract and
retain students.
our results of operations, that we do not realize a satisfactory return on our invest-
ment, that we acquire unknown liabilities, or that management’s attention is diverted
from our core business. These events could harm our operating results or financial
condition. Any investments in other entities may also subject us to the operating
and financial risks of such entities, and we rely on the internal controls and financial
reporting controls of such entities.
To continue to grow our enrollment, we expect to continue to increase the amounts
that we spend on marketing and advertising as our historical approach to market-
ing and advertising may not be able to sustain meaningful growth rates. However,
because we are smaller than most of our competitors and because our tuition is
generally lower, we have fewer funds available to spend on marketing and advertis-
ing than they do. Furthermore, our success using marketing approaches that are
relatively new to us has led to students that we believe do not perform as well as
the students that our historical approach has attained. Accordingly, we may find it
increasingly difficult to continue to compete and grow our enrollments.
If we are unable to continue to develop awareness of AMU and APU and the pro-
grams we offer, and to enroll and retain students in both military and non-military
market sectors, our enrollments would suffer and our ability to increase revenues
and maintain profitability would be significantly impaired.
We have limited experience in making investments in other entities, and any
such investments may not result in strategic benefits for us or could expose us
to other risks.
In 2012, we made an investment in NWHW Holdings, Inc., or NWHW Holdings, that
is intended to result in certain strategic benefits to the Company. To assist us in
achieving elements of our growth strategy or to further develop our business capabil-
ities, from time to time we will consider and may pursue strategic investments and
acquisitions. This could include, among other things, investments in, partnerships or
joint ventures with, or the acquisition of other schools, service providers or education-
technology related companies, among other types of entities. Historically, however,
we have not made debt or equity investments in other entities, and investing in
another entity requires expertise in evaluating another entity’s business and identify-
ing strategic benefits of a potential investment in such entity, among other expertise.
These types of investments involve significant challenges and risks including that the
investment does not advance our business strategy, that it has an adverse effect on
Investments in other entities in which we do not have sole control, such as our invest-
ment in NWHW Holdings, present additional risks. In a minority investment, we would
not have the ability to control the policies, management or affairs of the entity in
which we would be investing. The interests of persons who control these entities may
differ from our interests, and they may cause such entities to take actions that are
not in our best interest, and we may become involved in disputes with such persons.
Our inability to control entities in which we may make investments could negatively
affect our ability to realize the strategic benefits of a non-controlling investment.
System disruptions and security breaches to our online computer networks could
negatively impact our ability to generate revenue and damage our reputation, limit-
ing our ability to attract and retain students.
The performance and reliability of our technology infrastructure is critical to our
reputation and ability to attract and retain students. Any system error or failure, or a
sudden and significant increase in bandwidth usage, could result in the unavailabil-
ity of our online classroom, damaging our ability to generate revenue. Our technol-
ogy infrastructure could be vulnerable to interruption or malfunction due to events
beyond our control, including natural disasters, terrorist activities and telecommuni-
cations failures.
Our systems, particularly those related to Partnership At a Distance™, or PAD, have
been predominantly developed in-house, with limited support from outside vendors.
We are continuously working on upgrades to PAD, and our employees continue to
devote substantial time to its development. To the extent that we face problems with
the PAD system, we may not have the capacity to address the problems with our
internal capability, and we may not be able to identify outside contractors with exper-
tise relevant to our custom system. Any computer system error or failure, regardless
of cause, could result in a substantial outage that materially disrupts our operations.
Not all of our critical systems are protected by a validated formal disaster recovery
plan and redundant disaster recovery infrastructure at a geographically remote data
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 65
center. We are currently executing our plan to implement disaster recovery infrastruc-
ture for our remaining critical systems to allow timely recovery from catastrophic
failure. For those systems not yet protected, a catastrophic failure or unavailability
for any reason of our principal data center may require us to replicate the function of
this data center at our existing remote data facility or elsewhere, and could result in
the loss of data. An event such as this may require service restoration activities that
could take up to several weeks to complete.
Any failure of our online classroom system could also prevent students from access-
ing their courses. Any interruption to our technology infrastructure could have a
material adverse effect on our ability to attract and retain students and could require
us to incur additional expenses to correct or mitigate the interruption.
Our computer networks may also be vulnerable to unauthorized access, computer
hackers, computer viruses and other security problems. A user who circumvents
security measures could misappropriate proprietary information, personal informa-
tion about our students or cause interruptions or malfunctions in operations. As a
result, we may be required to expend significant resources to protect against the
threat of these security breaches or to alleviate problems caused by these breaches.
We engage multiple security assessment providers on a periodic basis to review and
assess our security. We utilize this information to audit ourselves to ensure that we
are continually monitoring the security of our technology infrastructure. However,
we cannot assure you that these security assessments and audits will protect our
computer networks against the threat of security breaches. Any of these events
could have a material adverse effect on our business, financial condition or results
of operations. We maintain a limited amount of business disruption insurance that
may cover certain types of disruptions. However, there can be no assurance that
insurance proceeds, if available, would be adequate to compensate us for damages
sustained due to these disruptions.
System disruptions to our online classroom and technology infrastructure could
negatively impact our ability to generate revenue and damage our reputation, limit-
ing our ability to attract and retain students.
Historically, our online classroom employed the Educator™ learning management sys-
tem pursuant to a license from Ucompass.com, Inc. We determined that it was in our
long-term best interest to transition to a new online classroom that allows us to inte-
grate additional technologies and resources, and in 2010 we began the migration to
the Sakai Collaboration and Learning Environment (CLE), an open-source Learning
Management System, as the foundational software for our online classroom. Our
online classroom is central to our operations, and the process of switching to Sakai
CLE was complicated and time consuming, involving customization and integration
with the rest of our technology infrastructure. The migration was completed in early
September 2011. Shortly after the completion of the migration, we experienced
periods of unplanned downtime in our online classroom during periods of peak utili-
zation. We believe that in mid-October 2011 we identified the cause of this downtime
and took appropriate steps to mitigate the problem. However, we cannot be certain
that similar problems will not occur in the future.
While there are reportedly more than 350 educational institutions around the world
using Sakai CLE to support teaching, learning, research and collaboration, we believe
that of the institutions using Sakai CLE, very few, if any, have a larger number of concur-
rent users than we do. This means that there are a limited number of other institutions
with whom we can compare best practices for use in similar circumstances to ours.
Furthermore, to the extent that we face problems with the online classroom in the
future, we may not have the ability to address the problems adequately with internal
resources, particularly given our limited history using the software, and we may not be
able to identify outside contractors with expertise relevant to our customized system.
The performance and reliability of our online classroom and technology infrastructure
is critical to our reputation and ability to attract and retain students. Any system
error or failure, or a sudden and significant increase in bandwidth usage, could result
in the unavailability of our online classroom, preventing students from accessing
their courses and damaging our ability to generate revenue. Any significant or ongo-
ing interruption to our technology infrastructure could have a material adverse effect
on our results of operations and could require us to incur additional expenses to
correct or mitigate the interruption.
Any of the foregoing problems could result in an adverse impact on our operations,
damage to our reputation and limits on our ability to attract and retain students.
The personal information that we collect may be vulnerable to breach, theft or loss
that could adversely affect our reputation and operations.
Possession and use of personal information in our operations subjects us to risks
and costs that could harm our business. We collect, use and retain large amounts
66 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
of personal information regarding our students and their families, including social
security numbers, tax return information, personal and family financial data and credit
card numbers. Also, we collect and maintain personal information of our employees
in the ordinary course of our business. Some of this personal information is held
and managed by certain of our vendors. Although we use security and business
controls to limit access and use of personal information, a third party may be able
to circumvent those security and business controls, which could result in a breach of
student or employee privacy. In addition, errors in the storage, use or transmission of
personal information could result in a breach of student or employee privacy, and the
increased availability and use of mobile data devices by our employees and students
increases the risk of unintentional disclosure of personal information. Possession and
use of personal information in our operations also subjects us to legislative and reg-
ulatory burdens that could require notification of data breaches and restrict our use
of personal information. We cannot ensure that a breach, loss or theft of personal
information will not occur. A breach, theft or loss of personal information regarding
our students and their families or our employees that is held by us or our vendors
could have a material adverse effect on our reputation and results of operations and
result in liability under state and federal privacy statutes and legal actions by state
attorneys, general and private litigants, any of which could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
Future growth or increased technology demands will require continued investment
of capital, time and resources to develop and update our technology, and if we are
unable to increase the capacity of our resources appropriately, our ability to handle
growth, our ability to attract or retain students and our financial condition and
results of operations could be adversely affected.
Our rate of growth and expectations for the future require us to increase the capac-
ity and capabilities of our technology infrastructure. Increasing the capacity and
capabilities of our technology infrastructure will require us to invest capital, time and
resources, which we expect from time to time will lead to increased spending on
technology infrastructure. There is no assurance that even with sufficient investment
our systems will be scalable to accommodate future growth.
We may also need to invest capital, time and resources to update our technology
in response to competitive pressures or changes in the marketplace, including the
technological preferences of our students and prospective students. For example,
students and prospective students seeking to access our online classroom and
related administrative infrastructure through devices such as tablets and mobile
telephones, rather than traditional desktop and laptop computers, may find our
interface difficult to navigate or inoperable in whole or part. As a result, pro-
spective students may be discouraged from enrolling in our courses, and current
students may be discouraged from completing academic and administrative tasks
without assistance.
Even with sufficient investment, our resources may become impaired or obsolete.
If we are unable to increase the capacity of our resources or update our resources
appropriately, our ability to handle growth, our ability to attract or retain students,
and our financial condition and results of operations could be adversely affected.
Similarly, even if we are able to increase the capacity of our resources and update
our resources appropriately, our financial condition and results of operations could
be adversely affected by an increased level of spending.
The loss of any key member of our management team may impair our ability to
operate effectively and may harm our business.
Our success depends largely upon the continued services of our executive officers
and other key management and technical personnel. The loss of one or more mem-
bers of our management team could harm our business. Except for the employment
agreements we have with Dr. Boston, our President and Chief Executive Officer, Dr.
Powell, our Executive Vice President and Provost, Dr. van Wyk, our Executive Vice
President and Chief Operations Officer, and Mr. Wilkins, our Executive Vice President
and Chief Financial Officer, we do not have employment agreements with any of our
other executive officers or key personnel.
If we are unable to attract and retain management, faculty, administrators and
skilled personnel, our business and growth prospects could be severely harmed.
To execute our growth strategy, we must attract and retain highly qualified manage-
ment, faculty, administrators and skilled personnel. Competition for hiring these indi-
viduals is intense, especially with regard to faculty in specialized areas. Our growth
places constant demands on us to find qualified individuals across all levels of our
institution from our most senior managers down throughout the organization. If we
fail to attract new management, faculty, administrators or skilled personnel or fail
to retain and motivate our existing management, faculty, administrators and skilled
personnel, our business and growth prospects could be severely harmed.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 67
If we fail to maintain adequate systems and processes to detect and prevent
fraudulent activity in student enrollment and financial aid, we may lose our ability
to participate in Title IV programs or Department of Defense tuition assistance
programs or have our participation in the Title IV programs conditioned or limited.
We have been the target of fraudulent activity by outside parties with respect to
student enrollment and student financial aid programs, and as we continue to grow
we may be susceptible to an increased risk of such activities. The potential for
outside parties to perpetrate fraud in connection with the award and disbursement
of Title IV program funds by APUS, including as a result of identity theft, may be
heightened due to our nature as an online education provider and our relatively low
tuition. We must maintain systems and processes to identify and prevent fraudulent
applications for enrollment and financial aid. We cannot be certain that our systems
and processes will continue to be adequate in the face of increasingly sophisticated
fraud schemes or that we will be able to expand such systems and processes at a
pace consistent with our growth.
Grants and loans to students under the federal government’s Title IV programs are
primarily awarded on the basis of financial need, generally defined as the difference
between the cost of attending the institution and the amount a student can be
expected to contribute to that cost. In order to account for living expenses and other
costs that our students may reasonably incur in the context of pursuing a degree
or certificate, the cost of attending APUS is an amount that exceeds the cost of our
tuition. While some students elect to receive grants and loans that cover only the
cost of tuition, others elect to receive amounts up to the full cost of attendance.
When APUS receives Title IV funds from the federal government on a student’s
behalf, it credits those funds to the student’s account. If a student has elected
to receive funds in excess of the cost of tuition and fees, a Title IV credit balance
occurs, and APUS must pay that credit balance to the student unless the student
has authorized APUS to hold the credit balance or take other permissible action with
respect to the credit balance. The availability of Title IV funds, including the Title IV
credit balance payment, is an important part of enabling some students to pursue
a degree or certificate. However, some individuals seek to take advantage of the
availability of Title IV funds by enrolling for the purpose of obtaining such funds. On
September 26, 2011, the Department of Education’s Inspector General released a
report about an increasing number of cases involving large, loosely affiliated groups
of individuals, so-called “fraud rings”, who conspire to defraud the Title IV programs
through enrollment in distance education programs. These fraud rings are taking
advantage of the availability of Title IV credit balance payments where the cost of
attendance exceeds the cost of tuition and fees. We have been the target of fraud-
ulent activity by individuals and groups with respect to student enrollment and the
Title IV programs, and given our continued growth and status as an online education
provider and our relatively low tuition, we believe that we will increasingly be subject
to such activities. We must maintain systems and processes to identify and prevent
fraudulent applications for enrollment and Title IV aid. We cannot be certain that our
systems and processes will be adequate in the face of increasing and increasingly
sophisticated fraud schemes or that we will be able to expand such systems and
processes at a pace consistent with our growth.
In addition to those who enroll or attempt to enroll solely to obtain Title IV funds,
some students who might not otherwise pursue a degree or certificate are attracted
to enroll because of the availability of Title IV funds and economic hardships result-
ing from today’s economic climate. We believe these students may be more likely
than other students to cease pursuing a degree or certificate due to other factors,
such as becoming employed or not having the level of commitment necessary to
complete successfully the required coursework.
As a result of all of the above factors, the growth in our enrollments reflects some
students who will not persist as students. We have also been the target of fraud-
ulent activities by outside parties with respect to student enrollment and Title IV
programs, and as we continue to grow, we may be susceptible to an increase of such
activities. We are not able to estimate the number of students who fall into these
enrollment categories, and we are not able to estimate the impact on our enroll-
ments over time, or any additional impact that this could have on our exposure to
bad debt or the number of our students who default on their Title IV student loans.
The Department of Education requires institutions that participate in Title IV pro-
grams to refer to the Office of the Inspector General of the Department of Education
credible information about fraud or other illegal conduct involving Title IV programs,
and in the past we have referred to the Office of the Inspector General information
with respect to potential fraud by applicants. If the systems and processes that we
have established to detect and prevent fraud are inadequate, or our cohort default
rates exceed specified levels or we otherwise do not have procedures in place for
safeguarding federal funds, the Department of Education may find that we do not
satisfy its “administrative capability” requirements. This could result in our being
68 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
limited in our access to, or our losing, Title IV program funding, which would limit our
potential for growth outside the military sector and adversely affect our enrollment,
revenues, and results of operations. In addition, our ability to participate in Title IV
programs and the tuition assistance programs of the United States Armed Forces is
conditioned on our maintaining accreditation by an accrediting agency that is rec-
ognized by the Secretary of Education. Any significant failure to detect adequately
fraudulent activity related to student enrollment and financial aid could cause us
to fail to meet our accrediting agencies’ standards. Furthermore, under the Higher
Education Opportunity Act, accrediting agencies that evaluate institutions that offer
distance learning programs like ours must require such institutions to have pro-
cesses through which the institution establishes that a student who registers for a
distance education program is the same student who participates in and receives
credit for the program. Failure to meet our accrediting agencies’ standards could
result in the loss of accreditation at the discretion of our accrediting agencies, which
could result in a loss of our eligibility to participate in Title IV programs and the tui-
tion assistance programs of the United States Armed Forces.
On April 25, 2012, the Department of Education announced that it would publish a
notice regarding its intent to establish a negotiated rulemaking committee to prepare
proposed regulations for the Title IV programs. The announcement states that the
Department of Education intends to develop proposed regulations designed to pre-
vent fraud and otherwise ensure proper use of Title IV program funds, and to improve
and streamline the campus-based Title IV programs. The announcement states
that the Department of Education is considering regulatory changes related to the
disbursement of Title IV program funds, particularly electronic-fund transfers made
directly to a student’s bank account and available to the student via debit or another
bank-provided card. The Department of Education held two public hearings in May
2012. Negotiations were expected to begin in 2012 but to date the Department of
Education has not announced negotiated rulemaking teams or a negotiated rulemak-
ing schedule. New regulations could affect the manner in which we do business,
increase our cost of doing business, or have a material adverse effect on our busi-
ness, financial condition, results of operations and cash flows.
The protection of our operations through exclusive proprietary rights and intellec-
tual property is limited, and we encounter disputes from time to time relating to
our use of intellectual property of third parties, any of which could harm our opera-
tions and prospects.
In the ordinary course of our business, we develop intellectual property of many kinds
that is or will be the subject of copyright, trademark, service mark, patent, trade
secret, or other protections. This intellectual property includes but is not limited to
course materials, business know-how, software and internal processes and proce-
dures developed to respond to the requirements of operating and various education
regulatory agencies. We rely on a combination of copyrights, trademarks, service
marks, trade secrets, domain names, agreements, and registrations to protect our
intellectual property. We rely on service mark and trademark protection in the United
States and select foreign jurisdictions to protect our rights to various marks, including
“AMERICAN MILITARY UNIVERSITY,” “AMERICAN PUBLIC UNIVERSITY,” “AMERICAN
PUBLIC UNIVERSITY SYSTEM,” “Ready when you are.” “RESPECTED. AFFORDABLE.
ONLINE.” and “EDUCATING THOSE WHO SERVE,” as well as distinctive logos and
other marks associated with our services. We rely on agreements under which we
obtain rights to use course content developed by faculty members and other third
party content experts. We cannot assure you that the measures that we take will be
adequate or that we have secured, or will be able to secure, appropriate protections
for all of our proprietary rights in the United States or select foreign jurisdictions, or
that third parties will not infringe upon or violate our proprietary rights. Despite our
efforts to protect these rights, unauthorized third parties may attempt to duplicate or
copy the proprietary aspects of our curricula, online resource material, other content,
software and technology, and offer competing programs and/or services to ours.
In particular, third parties may attempt to develop competing programs or services or
duplicate or copy aspects of our curriculum, online resource material, quality man-
agement, systems and other proprietary content. Any such attempt, if successful,
could adversely affect our business. Protecting these types of intellectual property
rights can be difficult, particularly as it relates to the development by our competi-
tors of competing courses and programs. In July 2011, a complaint for a declaratory
judgment was commenced against us seeking a judicial declaration that the plaintiff
did not infringe certain of our trademark rights. While we believe that matter was
favorably resolved because the third party ceased to use certain marks, we cannot
be certain that other third parties will not infringe our trademark or other intellectual
property rights in the future or that the rights we believe that we have to our signifi-
cant trademarks and other intellectual property rights will be found to be enforceable.
We may encounter disputes from time to time over rights and obligations concerning
intellectual property, and we may not prevail in these disputes. We believe that some
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 69
third parties are becoming more aggressive in pursuing enforcement of their intellec-
tual property portfolios, and these third parties or others may raise a claim against
us alleging an infringement or violation of the intellectual property of that third party.
In July 2006, we settled a dispute with another institution regarding the use of cer-
tain marks that allowed us to continue to use the marks at issue, but we may not be
able to favorably resolve future disputes. Some third-party intellectual property rights
may be extremely broad, and it may not be possible for us to conduct our operations
in such a way as to avoid those intellectual property rights. Any such intellectual
property claim could subject us to costly litigation and impose a significant strain on
our financial resources and management personnel regardless of whether such claim
has merit. Our general liability and cyber liability insurance may not cover potential
claims of this type adequately or at all, and we may be required to alter the content
of our classes or pay monetary damages, which may be significant.
We may incur liability for the unauthorized duplication or distribution of class mate-
rials posted online for class discussions.
In some instances, our faculty members or our students may post various articles
or other third party content on class discussion boards. We may incur liability for
the unauthorized duplication or distribution of this material posted online for class
discussions. Third parties may raise claims against us for the unauthorized duplica-
tion of this material. Any such claims could subject us to costly litigation and impose
a significant strain on our financial resources and management personnel regardless
of whether the claims have merit. Our faculty members or students could also post
classified material on class discussion boards, which could expose us to civil and
criminal liability and harm our reputation and relationships with members of the mil-
itary and government. Our general liability insurance may not cover potential claims
of this type adequately or at all, and we may be required to alter the content of our
courses or pay monetary damages.
Because we are an exclusively online provider of education, we are entirely depen-
dent on continued growth and acceptance of exclusively online education and, if
the recognition by students and employers of the value of online education does
not continue to grow, our ability to grow our business could be adversely impacted.
We believe that continued growth in online education will be largely dependent on
additional students and employers recognizing the value of degrees from online
institutions. If students and employers are not convinced that online schools are an
acceptable alternative to traditional schools or that an online education provides
value, or if growth in the market penetration of exclusively online education slows,
growth in the industry and our business could be adversely affected. Because our
business model is based on online education, if the acceptance of online education
does not grow, our ability to continue to grow our business and our financial condi-
tion and results of operations could be materially adversely affected.
If we do not maintain continued strong relationships with various military bases
and educational service officers, and if we are unable to expand our use of articu-
lation agreements, our future growth may be impaired.
We have non-exclusive articulation agreements or memoranda of understanding with
various educational institutions of the United States Armed Forces and other govern-
mental education programs. Articulation agreements and memoranda of understand-
ing are agreements pursuant to which we agree to award academic credits toward our
degrees for learning in educational programs offered by others. Additionally, we rely
on relationships with educational service offices on military bases and base educa-
tion officers to distribute our information to interested service members. If our rela-
tionships with educational service offices or base education counselors deteriorate or
end, our efforts to recruit students from that base will be impaired. If our articulation
agreements and memoranda of understanding are eliminated, or if our relationships
with educational service offices or base education counselors deteriorate, this could
materially and adversely affect our revenues and results of operations.
In August 2010, DoD issued a proposed rule that would increase oversight of educa-
tional programs offered to active service members. The final rule, published December
7, 2012 and effective January 7, 2013, requires all institutions to sign a Memorandum
of Understanding, or MOU, by March 1, 2013. The MOU outlines certain commitments
and agreements between the institution and DoD prior to accepting funds under the tui-
tion assistance program. We have entered into a MOU with DOD. However the require-
ment to enter into a MOU, and the related increased focus by the DoD on relationships
and oversight of educational providers could lead to changes in the nature of our rela-
tionships with military bases and educational service officers (including possibly need-
ing to enter into separate installation MOUs and obtain permission to counsel students
in person on the installation), which could be adverse in nature. At least one installation
has banned educational providers from directly counseling potential students on the
installation. Additional installations may determine to institute similar bans, which could
materially and adversely affect our revenues and results of operations.
70 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
The United States Armed Forces has in the past and may in the future approve
programs and initiatives to provide additional educational opportunities to service
members, and these programs and initiatives may not include participation by us.
We cannot predict the impact of these announcements, programs, or initiatives on
us, but given our dependence on students from the armed forces, our net course
registrations, and results of operations could be materially adversely affected by
such announcements, programs, and initiatives.
Government regulations relating to the Internet could increase our cost of doing
business, affect our ability to grow or otherwise have a material adverse effect on
our business.
The increasing popularity and use of the Internet and other online services have led
and may lead to the adoption of new laws and regulatory practices in the United
States or foreign countries and to new interpretations of existing laws and regu-
lations. These new laws and interpretations may relate to issues such as online
privacy, copyrights, trademarks, and service marks, sales taxes, fair business prac-
tices, and the requirement that online education institutions qualify to do business
as foreign corporations or be licensed in one or more jurisdictions where they have
no physical location or other presence. New laws, regulations, or interpretations
related to doing business over the Internet could increase our costs and materially
and adversely affect our enrollments, revenues, and results of operations.
Risks Related to the Regulation of Our Industry
If we fail to comply with the extensive regulatory requirements for our business,
we could face penalties and significant restrictions on our operations, including
loss of access to federal tuition assistance programs for members of the United
States Armed Forces and federal loans and grants for our students.
We are subject to extensive regulation by (1) the federal government through the
U.S. Department of Education and under the Higher Education Act, the Department
of Defense and the Department of Veterans Affairs, (2) state regulatory bodies,
and (3) accrediting agencies recognized by the U.S. Secretary of Education. The
regulations, standards and policies of these agencies cover the vast majority of our
operations, including our educational programs, facilities, instructional and adminis-
trative staff, administrative procedures, marketing, recruiting, financial operations,
and financial condition. These regulatory requirements can also affect our ability
to add new or expand existing educational programs and to change our corporate
structure and ownership.
Institutions of higher education that grant degrees, diplomas, or certificates must
be authorized by an appropriate state education agency or agencies. In addition, in
certain states as a condition of continued authorization to grant degrees and other
credentials and in order to participate in various federal programs, including tuition
assistance programs of the United States Armed Forces, a school must be accredited
by an accrediting agency recognized by the Secretary of Education. Accreditation is a
non-governmental process through which an institution submits to qualitative review
by an organization of peer institutions, based on the standards of the accrediting
agency and the stated aims and purposes of the institution. The Higher Education Act
requires accrediting agencies recognized by the Department of Education to review
and monitor many aspects of an institution’s operations and to take appropriate
action when the institution fails to comply with the accrediting agency’s standards.
Our operations are also subject to regulation due to our participation in Title IV pro-
grams. Title IV programs, which are administered by the Department of Education,
include loans made directly to students by the Department of Education. Title IV
programs also include several grant programs for students with economic need
as determined in accordance with the Higher Education Act and Department of
Education regulations. To participate in Title IV programs, a school must receive and
maintain authorization by the appropriate state education agencies, be accredited by
an accrediting agency recognized by the Secretary of Education, and be certified as
an eligible institution by the Department of Education. Our growth strategy is partly
dependent on enrolling more students who are attracted to us because of our contin-
ued participation in these programs.
The regulations, standards, and policies of the Department of Education, state
education agencies, and our accrediting agencies change frequently. Recent and
pending changes in, or new interpretations of, applicable laws, regulations, stan-
dards, or policies, or our noncompliance with any applicable laws, regulations,
standards, or policies, could have a material adverse effect on our accreditation,
authorization to operate in various states, activities, receipt of funds under tuition
assistance programs of the United States Armed Forces, our ability to participate
in Title IV programs, or costs of doing business. Furthermore, findings of noncompli-
ance with these laws, regulations, standards, and policies also could result in our
being required to pay monetary damages, or being subjected to fines, penalties,
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 71
injunctions, limitations on our operations, termination of our ability to grant degrees,
revocation of our accreditation, restrictions on our access to Title IV program funds,
or other censure that could have a material adverse effect on our business.
If we fail to maintain our institutional accreditation, we would lose our ability to
participate in the tuition assistance programs of the United States Armed Forces
and also to participate in Title IV programs.
APUS is accredited by The Higher Learning Commission of the North Central
Association of Colleges and Schools, one of six regional accrediting agencies
recognized by the Secretary of Education. Accreditation by an accrediting agency
that is recognized by the Secretary of Education is required for participation in the
tuition assistance programs of the United States Armed Forces. In 2012, we derived
approximately 38% of our revenue from net course registrations from these tuition
assistance programs. Accreditation by an accrediting agency that is recognized by
the Secretary of Education for Title IV purposes is also required for an institution
to become and remain eligible to participate in Title IV programs. APUS achieved
regional accreditation from The Higher Learning Commission in 2006. We were also
accredited by the Accrediting Commission of the Distance Education and Training
Council, or DETC, until April 30, 2012, when we voluntarily withdrew our accredi-
tation. We have always identified The Higher Learning Commission as our primary
accreditor for Title IV purposes. Therefore, our withdrawal of DETC accreditation did
not affect our Title IV participation.
The Higher Learning Commission may impose restrictions on our accreditation or may
terminate our accreditation. To remain accredited APUS must continuously meet certain
criteria and standards relating to, among other things, performance, governance, insti-
tutional integrity, educational quality, faculty, administrative capability, resources, and
financial stability. Failure to meet any of these criteria or standards could result in the
loss of accreditation at The Higher Learning Commission. Loss of accreditation would,
among other things, render our students and us ineligible to participate in the tuition
assistance programs of the United States Armed Forces or Title IV programs and have
a material adverse effect on our enrollments, revenues, and results of operations.
Our student enrollments could decline if we fail to maintain any of our accreditations.
Accreditation by The Higher Learning Commission is an important attribute of our
university system. Colleges and universities depend, in part, on accreditation in
evaluating transfers of credit and applications to graduate schools. Employers rely
on the accredited status of institutions when evaluating a candidate’s credentials,
and students and corporate and government sponsors under tuition reimbursement
programs look to accreditation for assurance that an institution maintains quality
educational standards. In addition, certain of our individual programs are accredited
by specialized accrediting agencies. If we fail to satisfy the standards of any of those
specialized accrediting agencies, we could lose the specialized accreditation for the
affected programs, which could result in materially reduced student enrollments in
those programs and have a material adverse effect on us.
Increased scrutiny of accrediting agencies by the Secretary of Education and the
U.S. Congress may result in increased scrutiny of institutions, particularly pro-
prietary institutions, by accrediting agencies, and if our institutional accrediting
agency loses its ability to serve as an accrediting agency for Title IV program
purposes, we may lose our ability to participate in Title IV programs.
In November and December 2009, the Department of Education’s Office of the
Inspector General, or OIG, issued reports criticizing three regional accreditors—
Middle States Commission on Higher Education, the Southern Association of
Colleges and Schools, and The Higher Learning Commission—for failing to define
both program length and credit hours. OIG, in an unusual action, recommended
that the Department of Education consider limiting, suspending, or terminating The
Higher Learning Commission’s recognition as an accreditor for purposes of determin-
ing institutional eligibility to participate in Title IV programs. In response, Department
of Education staff conducted a special review of The Higher Learning Commission
and required The Higher Learning Commission to accept a corrective action plan.
The Higher Learning Commission received additional scrutiny in June 2010 during a
House Education and Labor Committee hearing focused on OIG’s findings with regard
to credit hour policies.
In December 2010, the National Advisory Committee on Institutional Quality and
Integrity, or NACIQI, the panel charged with advising the Department of Education on
whether to recognize accrediting agencies for Title IV purposes, reviewed The Higher
Learning Commission’s status as a recognized accrediting agency. Based on The
Higher Learning Commission’s response to the Department’s special review and a
December 2008 interim report (which responded to a 2007 NACIQI review unrelated
to the OIG findings), NACIQI voted to continue the Higher Learning Commission’s
recognition as an accrediting agency but also ordered the agency to submit an
72 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
additional compliance report in one year. At its December 2011 meeting, NACIQI
characterized The Higher Learning Commission’s report as “informational” and noted
that no vote was to be taken on it. We are currently unaware of what further action
NACIQI might take with respect to The Higher Learning Commission and its compli-
ance report. NACIQI is next scheduled to review The Higher Learning Commission for
recognition purposes in spring 2013.
Scrutiny of accrediting agencies and their accreditation of proprietary institutions
is likely to continue. For example, The Higher Learning Commission received further
scrutiny in March 2011 during a Senate HELP Committee hearing focused on accred-
itation of proprietary institutions. If the Department of Education were to limit, sus-
pend, or terminate The Higher Learning Commission’s recognition, we would lose our
ability to participate in the Title IV programs. Our students and our institution would
be ineligible to participate in the Title IV programs, and such consequence would
have a material adverse effect on enrollments, revenues, and results of operations.
In addition, increased scrutiny of accrediting agencies by the Secretary of Education
in connection with the Department of Education’s recognition process may result in
increased scrutiny of institutions by accrediting agencies.
Furthermore, because the for-profit education sector is growing at such a rapid pace,
it is possible that accrediting bodies will respond to that growth by adopting addi-
tional criteria, standards, and policies that are intended to monitor, regulate, or limit
the growth of for-profit institutions like us. For example, in June 2009 and February
2010, The Higher Learning Commission adopted new policies related to institutional
control, structure, and organization. Part of The Higher Learning Commission’s ratio-
nale for these changes was to better define the range of its oversight of transactions
related to change of ownership at institutions. The new policies extend The Higher
Learning Commission’s oversight to transactions that change, or have the potential
to change, the control of an institution or its fundamental structure and organiza-
tion. Under the new policies, The Higher Learning Commission also now extends its
oversight to defined changes that occur in a parent or controlling entity, and not nec-
essarily in the institution itself. Actions by, or relating to, an accredited institution,
including a significant acquisition of another institution, significant changes in board
composition or organizational documents, and accumulations by one stockholder
of greater than 25% of the capital stock, could open up an accredited institution to
additional reviews by The Higher Learning Commission and possible change from an
accredited status to candidate status, which enhances the risks of these types of
actions. In particular, the change from accredited status to candidate status could
adversely impact an institution’s ability to participate in Title IV programs. For-profit
institutions may also be less attractive acquisition candidates because The Higher
Learning Commission has enhanced its scrutiny of change in control transactions,
obtained the explicit ability to move an institution from accredited status to candi-
date status, and will be examining more closely entities that own accredited insti-
tutions. If The Higher Learning Commission determines that a change required its
prior approval but an institution failed to obtain such approval, The Higher Learning
Commission may consider withdrawing accreditation.
New and anticipated regulations published by the U.S. Department of Education
could result in regulatory changes that may materially and adversely affect
our business.
On October 29, 2010, the Department of Education published final regulations con-
cerning certain institutional eligibility issues (such as state authorization for postsec-
ondary education institutions), definitional issues (such as the definition of “credit
hour” for certain eligibility and other purposes), student eligibility issues (including
the validity of high school diplomas), and other Title IV provisions (such as gainful
employment program reporting and disclosure, incentive payment and misrepre-
sentation), as well as final regulations to establish a process under which an insti-
tution applies for approval to offer an educational program that prepares students
for gainful employment in a recognized occupation. These final regulations were
generally effective July 1, 2011. On June 13, 2011, the Department of Education
published final regulations on metrics for gainful employment programs effective July
1, 2012. Collectively, the October 29 and June 13 regulations are referred to as the
“program integrity” regulations. On June 30, 2012, the U.S. District Court for the
District of Columbia struck down the metrics for gainful employment programs and
certain related requirements, including the requirement that an institution obtain
Department of Education approval for new gainful employment programs; the court
ruled one day before the metrics would have gone into effect. The program integrity
regulations are described above in “Regulation of Title IV Financial Aid Programs—
Recent Regulatory Changes.”
On May 5, 2011, the Department of Education announced its intention to estab-
lish additional negotiated rulemaking committees to prepare proposed regulations
under the Higher Education Act. Three public hearings were conducted in May
2011 at which interested parties suggested issues that should be considered for
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 73
action by the negotiating committees. The Department of Education also conducted
roundtable discussions to inform policy in the areas of teacher preparation, college
completion, and the proposed “First in the World” competition. In spring 2012, the
Department of Education convened two negotiated rulemaking committees—one on
teacher preparation and one on student loans—that each held a series of meet-
ings to discuss proposed changes to applicable regulations. Negotiators reached
consensus on proposed regulatory language on 25 student loan issues, which will
result in two packages of proposed rules to be published for public comment before
final promulgation. Proposed rules relating to various loan repayment issues, includ-
ing a new income-based repayment plan for the Direct Loan program, were issued
November 1, 2012. Although the rule was originally scheduled to become effective
on July 1, 2013, the Department of Education announced the rule would go into
effect on December 21, 2012. Also, the Department of Education issued an NPRM
on July 17, 2012 addressing discharges of loans for borrowers who suffer from
total and permanent disability, and the Department of Education promulgated final
rules on November 1, 2012. Proposed rules relating to other loan-related topics are
expected in 2013, to be effective in 2014.
Negotiators failed to reach consensus on proposed regulations related to teacher
preparation programs and the awarding of TEACH Grants. The committee disagreed
about how, if at all, students’ test scores should be used to judge the effectiveness
of their teachers’ preparation program. Such so-called “value added scores” were
promoted by the Department of Education during the negotiations as one way to
determine which institutions should be eligible to award TEACH Grants to students
in their teacher preparation programs. As the negotiators failed to reach consensus,
the Department of Education is now responsible for drafting proposed regulations, to
be released at a future date.
If our efforts to comply with new and pending regulations are inconsistent with how
the Department of Education interprets those provisions, due to uncertainty about
the meaning of the rules or otherwise, we may be found to be in noncompliance with
such provisions and the Department of Education could impose monetary penalties,
place limitations on our operations, and/or condition or terminate our eligibility to
receive Title IV program funds. We cannot predict with certainty the effect the new
and pending regulatory provisions will have on our business.
A number of the risk factors below address potential substantive concerns and risks
with respect to the new regulations. With respect to the final regulations generally,
and each of the regulations discussed in the risk factors below specifically, we
cannot predict how the final regulations will be interpreted. Compliance with any of
these new rules or uncertainty that results from the rules being recently promulgated
and the absence of past practice and limited guidance as to the implementation of
these new rules could have an adverse impact on our enrollment, affect the manner
in which we do business, increase our cost of doing business, and have a material
adverse effect on our business, financial condition, results of operations and cash
flows. Lack of clarity in the final rules or guidance by the Department of Education
could result in uncertainties continuing for some period of time, and may require us
to adopt overly-narrow practices until clarity is obtained, and as a result our business
could be materially and adversely affected.
A failure to meet U.S. Department of Education standards regarding “gainful
employment” may result in the loss of eligibility to participate in Title IV programs.
On June 13, 2011, the Department of Education published final regulations on gain-
ful employment programs effective July 1, 2012. The regulations established metrics
related to student loan repayment rates and debt-to-income ratios for gainful employ-
ment programs. If a program failed all three of the gainful employment metrics in a
given year, the U.S. Department of Education would require the institution to disclose
the amount by which the program under-performed the metrics and the institu-
tion’s plan for program improvement. Also, the regulations required an institution to
establish a three-day waiting period for enrollment after the warning information is
given. If a program failed to achieve the metrics twice within three years, the insti-
tution had to continue to provide the first year disclosures and, among other things,
also disclose to current and prospective students that they should expect to have
difficulty repaying their student loans; provide an explanation of the risks associated
with enrolling or continuing in the program, including the potential consequences
for, and options available to, the student if the program became ineligible for Title IV
funds; and explain the resources available to research other educational options and
compare program costs. Should a program fail three times within a four year period,
the regulations permitted the Department of Education to terminate the program’s
eligibility for federal student aid (i.e., students in the program would immediately
lose eligibility to participate in Title IV programs), and the institution would not be
able to reestablish the program’s eligibility for at least three years, though the pro-
gram could continue to operate without Title IV funding. In addition, the regulations
required institutions to notify the Department of Education at least 90 days before
74 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
commencing a new educational program leading to gainful employment in a recog-
nized occupation. The regulations required the Department of Education to approve
a new program in certain circumstances.
On June 30, 2012, the U.S. District Court for the District of Columbia vacated these
regulations. The court did not vacate the requirement that institutions provide infor-
mation to prospective students on their website and in their promotional materials
about their gainful employment programs, such as the occupations that the gainful
employment program prepares the student to enter, on-time graduate rates for
students in the program, cost, job placement rate, and median loan debt incurred
by graduates of the program. The Department of Education required institutions
to make such disclosures by July 1, 2011, and to update such disclosures for the
2011-2012 award year by January 31, 2013. These disclosure requirements, and the
requirements for reporting to the Department and to our students information relat-
ing to programs, have increased our administrative burdens. The disclosure require-
ments could impact student enrollment and retention in ways that we cannot now
predict. For example, if our disclosures compare unfavorably with those of other edu-
cational institutions, such disclosures could adversely impact student enrollment.
On July 30, 2012, the Department of Education filed a motion to alter or amend
the court’s June 30, 2012 judgment. The Department of Education argued in its
motion that even though it would not be permitted to sanction education institutions
for failure to meet the debt measure thresholds (i) education institutions should
disclose information to the Department of Education that will allow the Department
of Education to calculate the debt measures and (ii) education institutions should
include the results of the debt measure calculations in their disclosures to prospec-
tive students. On September 24, 2012, the U.S. District Court for the District of
Columbia requested a supplemental briefing by the parties addressing, in brief, (i)
the scope of the Department of Education’s statutory authorization to maintain a
database of information about student borrowers and (ii) the authority on which the
Department of Education relied to argue that it could require education institutions
to provide information to the Department of Education for purposes of calculating
the debt measures and then require education institutions to disclose the results of
those debt measure calculations. The parties filed supplemental briefs in November
2012, and the U.S. District Court for the District of Columbia is expected to render
a decision in 2013. If the regulations are reinstated on appeal or repromulgated by
the Department of Education, it is not possible at this time to determine with any
degree of certainty whether such future regulations will cause any of our programs
to become ineligible to participate in the Title IV programs owing to factors beyond
our control, such as changes in the actual or deemed income level of our graduates,
changes in student borrowing levels, increases in interest rates, changes in the
federal poverty income level relevant for calculating discretionary income, changes in
the percentage of our former students who are current in repayment of their student
loans, and other factors. In addition, even though deficiencies in the metrics may be
correctible on a timely basis, if we are required to disclose such metrics to students
it may adversely impact enrollment in certain programs and may adversely impact
the reputation of our educational institutions.
Our failure to obtain Department of Education approval, where required, for new
programs that prepare students for gainful employment in a recognized occupation
could materially and adversely affect our business.
On October 29, 2010, the Department of Education issued final regulations to
establish a new process under which an institution applies for approval to offer
an educational program that prepares students for gainful employment in a recog-
nized occupation. Under the final regulations, which became effective July 1, 2011,
an institution must notify the Department of Education at least 90 days before
the first day of class when it intends to add a program that prepares students for
gainful employment in a recognized occupation. The institution seeking approval
may proceed to offer the program, unless the Department of Education advises
the institution at least 30 days before the first day of classes that the Department
of Education must approve the program for Title IV purposes. If the Department
of Education denies approval, the institution may not award Title IV funds in con-
nection with the program. On June 30, 2012, U.S. District Court for the District of
Columbia vacated the regulations requiring the U.S. Department of Education to
receive notice of (and possibly approve) any new program that prepares students for
gainful employment, which for APUS includes most of its programs. Pending a final
ruling in this case, the Department of Education has advised institutions to follow
the rules on additional programs that immediately preceded the gainful employment
rules. The version once again in effect provides that approval of new programs is
not required if the additional program prepares students for gainful employment in
the same or related occupation as an educational program that has previously been
designated as eligible and is at least eight semester hours, 12 quarter hours, or
600 clock hours. It is unclear whether the Department of Education will repromulgate
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 75
the regulation in a form that can withstand challenge. See “Risks Related to the
Regulation of our Industry” for additional information on these new program approval
requirements. If the Department were to deny approval to one or more of our new
programs, our business could be materially and adversely affected. Furthermore,
compliance with any new procedures could cause delay in our ability to offer new
programs and put our business at a competitive disadvantage. Compliance could
also adversely affect our ability to timely offer programs of interest to our students
and potential students and adversely affect our ability to increase our revenues. As a
result, our business could be materially and adversely affected.
of the uncertainty surrounding the new incentive payment rule, the existence of,
the costs of responding to, and the outcome of, qui tam or whistleblower suits or
Department of Education investigations could have a material adverse effect on our
reputation causing our enrollments to decline and could cause us to incur costs that
are material to our business, among other things. As a result, our business could be
materially and adversely affected
Our failure to comply with the Department of Education’s substantial misrepresen-
tation rules could result in sanctions.
Our failure to comply with the Department of Education’s incentive payment rule
could result in sanctions.
If we pay a bonus, commission, or other incentive payment in violation of applica-
ble Department of Education rules, we could be subject to sanctions, which could
have a material adverse effect on our business. In the final regulations published
on October 29, 2010, the Department of Education abolished 12 safe harbors that
described permissible arrangements under the regulation. The amended regulation
was effective July 1, 2011. Abolition of the safe harbors and other aspects of the
new regulation may create uncertainty about what constitutes impermissible incen-
tive payments. The modified incentive payment rule and related uncertainty as to
how it will be interpreted also may influence our approach, or limit our alternatives,
with respect to employment policies and practices and consequently may affect neg-
atively our ability to recruit and retain employees, and as a result our business could
be materially and adversely affected.
In addition, the Government Accountability Office, or GAO, has issued a report critical
of the Department of Education’s enforcement of the incentive payment rule, and
the Department of Education has undertaken to increase its enforcement efforts.
If the Department of Education determines that an institution violated the incentive
payment rule, it may require the institution to modify its payment arrangements to
the Department of Education’s satisfaction. The Department of Education may also
fine the institution or initiate action to limit, suspend, or terminate the institution’s
participation in the Title IV programs. The Department of Education may also seek
to recover Title IV funds disbursed in connection with the prohibited incentive pay-
ments. In addition, third parties may file “qui tam” or “whistleblower” suits on behalf
of the Department of Education alleging violation of the incentive payment provision.
Such suits may prompt Department of Education investigations. Particularly in light
The Department of Education may take action against an institution in the event of
substantial misrepresentation by the institution concerning the nature of its educa-
tional programs, its financial charges or the employability of its graduates. In the
final regulations published on October 29, 2010, the Department of Education has
expanded the activities that constitute a substantial misrepresentation, effective
July 1, 2011. Under the final regulation, an institution engages in substantial misrep-
resentation when the institution itself, one of its representatives, or an organization
or person with which the institution has an agreement to provide educational pro-
grams, marketing, advertising, or admissions services, makes a substantial misrep-
resentation directly or indirectly to a student, prospective student or any member
of the public, or to an accrediting agency, a state agency, or to the Secretary of
Education. The final regulations define misrepresentation as any false, erroneous
or misleading statement, and they define a misleading statement as any statement
that has the likelihood or tendency to deceive or confuse. The final regulations define
substantial misrepresentation as any misrepresentation on which the person to
whom it was made could reasonably be expected to rely, or has reasonably relied, to
the person’s detriment. If the Department of Education determines that an institu-
tion has engaged in substantial misrepresentation, the Department of Education
may revoke an institution’s program participation agreement, impose limitations on
an institution’s participation in the Title IV programs, deny participation applications
made on behalf of the institution, or initiate a proceeding against the institution to
fine the institution or to limit, suspend or termination the institution’s participation
in the Title IV programs. On June 5, 2012, the U.S. Court of Appeals for the District
of Columbia vacated portions of the substantial misrepresentation regulation that
permitted the U.S. Department of Education to: (i) revoke an institution’s program
participation agreement or impose limitations on an institution’s participation with-
out affording procedural protections; (ii) proscribe misrepresentations with respect to
76 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
subjects not covered by the Higher Education Act; and (iii) proscribe statements that
are merely confusing. The court remanded the matters so that the Department of
Education can revise the regulations. The Department of Education could promulgate
regulations that expand its role in monitoring and enforcing prohibitions on misrep-
resentation. This could lead to an increase in administrative actions and litigation
claiming substantial misrepresentation, which at a minimum would increase legal
costs associated with defending such actions. As a result, our business could be
materially and adversely affected.
Failure to comply with the Department of Education’s credit hour requirements
could result in sanctions.
In the final regulations published on October 29, 2010, the Department of Education
has defined “credit” hour for Title IV purposes. The credit hour is used for Title IV
purposes to define an eligible program and an academic year and to determine
enrollment status and the amount of Title IV aid that an institution may disburse in a
payment period. The final regulations define credit hour as an institutionally estab-
lished equivalency that reasonably approximates certain specified time in class and
out of class or an equivalent amount of work for other academic activities. The final
regulations also require institutional accreditors to review an institution’s policies,
procedures, and administration of policies and procedures for assignment of credit
hours. An accreditor must take appropriate actions to address an institution’s credit
hour deficiencies and to notify the Department of Education if it finds systemic non-
compliance or significant noncompliance in one or more programs. The Department
of Education has indicated that if it finds an institution to be out of compliance with
the credit hour definition for Title IV purposes, it may require the institution to repay
the amount of Title IV awarded under the incorrect assignment of credit hours and,
if it finds significant overstatement of credit hours, it may fine the institution or limit,
suspend, or terminate its participation in Title IV programs, as a result of which our
business could be materially and adversely affected.
Failure to comply with the Department of Education’s state authorization rules
could result in our students being ineligible for Title IV programs.
To be eligible for Title IV programs, an institution must be legally authorized to
provide postsecondary education in the state in which it is physically located. In the
final regulations published on October 29, 2010, the Department of Education speci-
fied the type of state approvals that are acceptable for an institution to demonstrate
that it is legally authorized by the state in which it is located. The regulations also
provide that states must have mechanisms to take appropriate action against insti-
tutions and to respond to complaints.
Currently, APUS is headquartered in the state of West Virginia and is authorized by
the West Virginia Higher Education Policy Commission. APUS has a physical pres-
ence in the Commonwealth of Virginia based on administrative offices in that state,
and it is authorized by the State Council of Higher Education for Virginia. We believe
that the only state licensure or authorization that is currently necessary for APUS to
participate in the tuition assistance programs for the United States Armed Forces
and in Title IV programs is our authorization from the West Virginia Higher Education
Policy Commission. It is possible that West Virginia and other states could, as
a result of the limited amount of time for states to evaluate and implement the
Department of Education’s final state authorization rule or otherwise, adopt stan-
dards that are detrimental to institutions such as ours. As a result, our business
could be materially and adversely affected. If we acquire additional locations, we will
need to seek authorization from the states where they are physically located.
If APUS does not maintain its authorization in West Virginia, our operations would
be curtailed, and we may not grant degrees.
APUS is headquartered in the state of West Virginia and is authorized by the West
Virginia Higher Education Policy Commission to grant degrees, diplomas and cer-
tificates. The West Virginia Higher Education Policy Commission may also take
disciplinary action or revoke authorization if an institution’s bond is cancelled, if the
institution fails to take corrective action to bring it into compliance with West Virginia
Higher Education Policy Commission policies, or if the owner is convicted for a felony
or crime involving institution administration of Title IV programs.
Under current West Virginia law, if we were to lose our accreditation by The Higher
Learning Commission, the West Virginia Higher Education Policy Commission may
suspend, withdraw, or revoke our authorization. In addition, in order to maintain
our eligibility for accreditation by The Higher Learning Commission, we must remain
headquartered and have a substantial presence in one of the states in its region,
which includes West Virginia. Thus, if we were to lose our authorization from the
West Virginia Higher Education Policy Commission, we would be unable to provide
educational services in West Virginia, we would lose our eligibility for Title IV pro-
grams, and we would lose our regional accreditation.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 77
Our failure to comply with regulations of various states could have a material
adverse effect on our enrollments, revenues, and results of operations.
Various states impose regulatory requirements on educational institutions operating
within their boundaries. Several states assert jurisdiction over online educational
institutions that have no physical location or other presence in the state but offer
educational services to students who reside in the state or advertise to or recruit
prospective students in the state. State regulatory requirements for online education
are inconsistent among states and not well developed in many jurisdictions. As such,
these requirements change frequently and, in some instances, are not clear or are
left to the discretion of state regulators.
In final regulations published on October 29, 2010, the Department of Education
stated that if an institution offers postsecondary education through distance edu-
cation to students in a state in which the institution is not physically located, the
institution must meet state requirements for it to be legally offering postsecondary
distance education in that state. That rule was effective on July 1, 2011, although
in an April 2011 guidance letter the Department of Education indicated that it would
not initiate any action to establish repayment liabilities or limit student eligibility for
distance education activities undertaken before July 1, 2014, provided the institution
was making a good faith effort to identify and obtain necessary state authorization
before that date. On July 12, 2011, the U.S. District Court for the District of Columbia
vacated the portion of the Department of Education’s state authorization regulation
that requires online education providers to obtain any required authorizations from all
states in which their students reside, finding that the Department of Education had
failed to provide sufficient notice and opportunity for comment on the requirement.
On June 5, 2012, the U.S. Court of Appeals for the District of Columbia affirmed the
district court’s July 12, 2011 ruling. On July 27, 2012, the Department of Education
issued a Dear Colleague Letter cautioning education institutions to remain in com-
pliance with all applicable state laws and regulations related to distance education.
The level of regulatory oversight varies substantially from state to state. In some
U.S. states, institutions are subject to licensure by the state education agency and
also by a separate state agency or agencies, depending on the programs offered.
Some states have sought to assert jurisdiction over online educational institutions
that offer educational services to residents in the state or that advertise or recruit
in the state, notwithstanding the lack of a physical location in the state. State laws
may establish standards for instruction, qualifications of faculty, location and nature
of facilities, financial policies and responsibility and other operational matters. State
laws and regulations may limit our ability to obtain authorization to operate in certain
states or to award degrees or diplomas or offer new degree programs. Furthermore,
certain states prescribe standards of financial responsibility that are different from
those prescribed by the U.S. Department of Education.
The Department of Education’s distance-education state authorization requirement
could lead some states to adopt new laws and regulatory practices affecting the
delivery of distance education to students located in those states. In the event we
are found not to be in compliance with a state’s new or existing requirements for
offering distance education within that state, the state could seek to restrict one or
more of our business activities within its boundaries, we may not be able to recruit
students from that state, and may have to cease providing service to students in
that state. In addition, the Department of Education has not announced its next
steps, but it may engage in the future in a negotiated rulemaking to address dis-
tance education and state authorization. Should the federal distance education
requirements published in October 2010 be enforced in the future, and if we fail to
obtain required state authorization to provide postsecondary distance education in a
specific state, we could lose our ability to award Title IV aid to students in that state.
The requirements of some states’ regulations could make it more difficult for us to
successfully pursue particular program initiatives.
Some states have regulations that apply to certain types of programs. For example,
a number of states require that we obtain additional authorizations for our students
to pursue sponsored internships or participate in practicums in the states, even
where we have no other physical presence in the state. These types of provisions
may make it more difficult for us to offer certain programs or degrees in those
states. Program initiatives, such as our teacher education programs, that include
“on the ground” components (e.g., student teaching, professional internships, etc.)
that may be described as instructional activities, will be viewed by some state
regulatory agencies as constituting a physical presence for regulatory purposes. As
we expand some of our existing programs and pursue new programs, there is a high
probability that we will need to seek formal authorization to operate in some states
where historically we were not required to do so. The extent of this expansion in
regulatory requirements, and the associated costs, are not known at this time, but
we anticipate they may be significant. Furthermore, there may be some states where
it takes a significant amount of time to meet the applicable regulatory requirements
78 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
with respect to a new program initiative, or where we are not able to do so at all.
The inability to efficiently or successfully expand existing programs and pursue new
program initiatives would harm our ability to grow our business and meet our busi-
ness objectives and could lead to higher regulatory costs and expose us to adverse
actions by state regulators.
Our experience with the Title IV programs is limited, because we only began to
participate in the programs in 2006, and our failure to comply with the complex
regulations associated with Title IV programs would have a significant adverse
effect on our operations and prospects for growth.
We first became certified to participate in Title IV programs for classes beginning in
November 2006. We expect a significant portion of our growth in enrollments and rev-
enues to come from students who are utilizing funds from Title IV programs. However,
compliance with the requirements of the Higher Education Act and Title IV programs
is highly complex and imposes significant additional regulatory requirements on our
operations, which require additional staff, contractual arrangements, systems and
regulatory costs. We have limited demonstrated history of compliance with these
additional regulatory requirements, and as discussed in the risk factor immediately
below, in 2012 the Department of Education found that we failed to properly calcu-
late and return federal financial aid in accordance with applicable Title IV policies,
resulting in APUS having a $1,040,851 liability to the Department. If we fail to comply
with any of the regulatory requirements under Title IV programs, the Department of
Education could, among other things, impose monetary penalties, place limitations on
our operations, and/or condition or terminate our eligibility to receive Title IV pro-
gram funds, which would limit our potential for growth outside the military sector and
adversely affect our enrollment, revenues, and results of operations.
Government and regulatory agencies and third parties may conduct compliance
reviews, bring claims, or initiate litigation against us, any of which could disrupt
our operations and adversely affect our performance.
Because we operate in a highly regulated industry, we are subject to compliance
reviews and claims of noncompliance and lawsuits by government agencies, regula-
tory agencies, and third parties, including claims brought by third parties on behalf
of the federal government. For example, the Department of Education regularly
conducts program reviews of educational institutions that are participating in the
Title IV programs and the Office of Inspector General of the Department of Education
regularly conducts audits and investigations of such institutions. In August 2010, the
Secretary of Education announced in a letter to several members of Congress that,
in part in response to recent allegations against proprietary institutions of deceptive
trade practices and noncompliance with Department of Education regulations, the
Department planned to strengthen its oversight of Title IV programs through, among
other approaches, increasing the number of program reviews by 50%, from 200
conducted in 2010 up to 300 reviews in 2011. If the results of compliance reviews
or other proceedings are unfavorable to us, or if we are unable to defend success-
fully against lawsuits or claims, we may be required to pay monetary damages or be
subject to fines, limitations, loss of Title IV funding, injunctions, or other penalties,
including the requirement to make refunds. Even if we adequately address issues
raised by an agency review or successfully defend a lawsuit or claim, we may have
to divert significant financial and management resources from our ongoing business
operations to address issues raised by those reviews or to defend against those law-
suits or claims. Claims and lawsuits brought against us may damage our reputation,
even if such claims and lawsuits are without merit.
On February 28, 2011 the U.S. Department of Education began an on-site program
review of APUS’ administration of the Title IV programs. On May 14, 2012 the
Department of Education issued a Final Program Review Determination, or FPRD. The
FPRD (1) identified liabilities resulting from the program review report findings, (2)
provided instructions for payment of the liabilities to the Department of Education,
(3) notified APUS of its right to appeal, and (4) notified APUS that under Department
of Education regulations, APUS is required to post an irrevocable letter of credit
payable to the U.S. Secretary of Education due to the number of unpaid and late
refunds identified as part of the program review. The liabilities and letter of credit
requirements are based on the program review report’s finding that APUS’ policies
improperly failed to treat certain students as having unofficially withdrawn from
the institution and that APUS consequently failed to calculate and return federal
student financial aid to the Department of Education as a result of these unofficial
withdrawals. The FPRD stated that APUS’ total monetary liability, including interest,
is $1,040,851. Notwithstanding that the Company disagrees with the Department’s
position, after considering the time, effort, expense and other factors involved in
a full appeal, the Company determined to pay the liability. Because we cannot be
assured that we will be able to collect the full amounts from the relevant former
students, we have established a partial reserve against these receivables. We will
continue to monitor the collection history and the reserve established. In response
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 79
to the FPRD, we have also posted an irrevocable letter of credit in favor of the
Department of Education in the amount of $163,284.
Certain of our students are eligible to receive funds from education assistance
programs administered by the Department of Veterans Affairs, including under the
GI Bills. Pursuant to federal law related to those programs, we are approved for
education of veterans and members of the selective reserve and their dependents
by the state approving agencies in Virginia and West Virginia. On April 16, 2012, the
Department of Veterans Affairs began an on-site program review of our programs.
The on-site review was concluded on April 20, 2012, and we have not yet received a
formal report from the Department of Veterans Affairs.
We must periodically seek recertification to participate in Title IV programs, and
may, in certain circumstances, be subject to review by the Department of Education
prior to seeking recertification, and our future success may be adversely affected if
we are unable to successfully maintain certification or obtain recertification.
An institution generally must seek recertification from the Department of Education
at least every six years and possibly more frequently depending on various factors,
such as whether it is provisionally certified. The Department of Education may also
review an institution’s continued eligibility and certification to participate in Title IV
programs, or scope of eligibility and certification, in the event the institution under-
goes a change in ownership resulting in a change of control or expands its activities
in certain ways, such as the addition of certain types of new programs, or, in certain
cases, changes to the academic credentials that it offers. In certain circumstances,
the Department of Education must provisionally certify an institution, such as when it
is an initial participant in Title IV programs or has undergone a change in ownership
and control. In 2006, we applied to participate in Title IV programs for the first time
and were provisionally certified for a period through June 30, 2007. We timely sub-
mitted our application for recertification, and the Department of Education granted
us provisional certification through June 30, 2008. In May 2008, we were fully recer-
tified to participate in Title IV programs. In August 2008, we were deemed to have
undergone a change in ownership and control requiring review by the Department
of Education in order to reestablish our eligibility and continue participation in Title
IV programs. As required under Department of Education regulations, we timely
notified the Department of Education of our change in ownership and control. In
connection with the Department of Education’s review of the change, we submitted
to the Department of Education a change in ownership application that included the
submission of required documentation, including a letter from The Higher Learning
Commission indicating that it had approved the change. On October 2, 2008, we
received a letter from the Department of Education approving the change in owner-
ship and control and granting us provisional certification until September 30, 2010.
A provisionally certified institution must apply for and receive Department of Education
approval of substantial changes and must comply with any additional conditions
included in its program participation agreement. If the Department of Education
determines that a provisionally certified institution is unable to meet its responsibil-
ities under its program participation agreement, it may seek to revoke the institu-
tion’s certification to participate in Title IV programs with fewer due process protec-
tions for the institution than if it were fully certified. The Department of Education
may withdraw the institution’s certification if it determines that the institution is not
fulfilling material requirements for continued participation in Title IV programs.
In 2010, we applied for recertification and, on July 2, 2010, we received a letter from
the Department of Education notifying us that we are fully recertified to participate in
Title IV programs through December 31, 2014. If the Department of Education were to
withdraw or not renew our certification to participate in Title IV programs, our students
would no longer be able to receive Title IV program funds, which would have a material
adverse effect on our enrollments, revenues, and results of operations. In addition,
regulatory restraints related to the addition of new programs could impair our ability to
attract and retain students and could negatively affect our financial results.
The U.S. Congress has been examining the for-profit postsecondary education
sector, which could result in legislation or additional Department of Education
rulemaking that may limit or condition Title IV program participation of proprietary
schools in a manner that may materially and adversely affect our business.
In recent years, the U.S. Congress has increased its focus on for-profit education
institutions, including a review of their participation in the Title IV programs. Beginning
in June 2010, the HELP Committee held hearings to examine the proprietary education
sector. On August 5, 2010, we received a letter from Senator Tom Harkin, Chairman of
the HELP Committee, requesting documents as part of a review of matters related to
for-profit postsecondary education institutions whose students receive federal student
financial aid. We understand that the request was one of approximately 30 requests
made to for-profit colleges in connection with the HELP Committee’s review of mat-
ters related to for-profit colleges participating in Title IV programs. In June 2010, the
80 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Education and Labor Committee of the U.S. House of Representatives held a hear-
ing to examine accreditors’ standards and procedures pertinent to higher education
institutions’ policies on credit hours and program length. During the hearing, some
committee members voiced concerns about the growing proportion of federal student
financial aid going to proprietary institutions. On June 21, the chairmen of each of the
Senate and House education committees, together with other members of Congress,
requested the GAO to conduct a review and prepare a report with recommendations
regarding various aspects of the proprietary education sector, including recruitment
practices, educational quality, student outcomes, the sufficiency of integrity safe-
guards against waste, fraud and abuse in Title IV programs, and the degree to which
proprietary institutions’ revenue is comprised of Title IV and other federal funding
sources. On August 4, the GAO released a report based on a three-month under-
cover investigation of recruiting practices at proprietary institutions, which concluded
that employees at a non-random sample of 15 proprietary institutions (which did not
include APUS) made deceptive statements to students about accreditation, graduation
rates, job placement, program costs, or financial aid. On November 30, 2010, the GAO
issued a revised version of that report that corrected or further explained a number of
the instances of allegedly deceptive conduct. We incurred significant legal and other
costs to respond to the congressional inquiry, and could incur significant legal and
other cost to respond to any future inquiries.
On August 4, 2010, the Senate HELP Committee held a hearing to examine the stu-
dent recruitment experience at for-profit postsecondary education institutions, and
on September 30, 2010, the Senate HELP Committee held a hearing in regard to the
federal investment in for-profit education and the resulting student outcomes. The
Senate HELP Committee held additional hearings in 2011. On March 10, 2011, the
Committee held a hearing to present a case study of another for-profit postsecond-
ary education institution, its educational services, and the role of accreditor, state,
and federal oversight. A hearing about financial outcomes of students at for-profit
colleges was held by the Senate HELP Committee on June 7, 2011. At a number of
hearings, committee members have expressed concern about the amount of student
loan debt taken on by students at for-profit institutions. Following those hearings, on
July 21, 2011, the Committee hosted a roundtable discussion of policy solutions for
improving for-profit postsecondary education. On July 30, 2012, the HELP Committee
issued a final report entitled “For Profit Higher Education: The Failure to Safeguard
the Federal Investment and Ensure Student Success,” which summarized the
results of its investigations. While the report acknowledged that for-profit education
institutions have a role to play in American society given insufficient capacity at not-
for-profit and public education institutions, it made specific policy suggestions for
future legislation that could affect proprietary institutions, including:
• tying access to federal aid to meeting minimum student outcome thresholds;
• prohibiting institutions from funding marketing, advertising and recruiting activi-
ties with federal financial aid dollars;
• improving cohort default rate tracking by expanding the default reporting rate
period beyond three years;
• requiring that proprietary colleges receive at least 15 percent of revenues from
sources other than federal funds; and
• using criteria beyond accreditation and state authorization for determining insti-
tutions’ access to federal financial aid.
The report was not adopted by the full Committee, and the minority Members
released their own report criticizing the majority’s investigation in many aspects,
including that it did not include a review of all institutions of higher education. Despite
the fact that the full committee did not adopt the report, Congress may consider the
report as it begins the process of reauthorizing the Higher Education Act.
On September 21, 2012, a group of senators wrote a letter to the Federal Trade
Commission urging it to evaluate the marketing practices utilized by many proprietary
institutions through the use of third-party lead generators. In addition, legislation
was introduced in the Senate in April 2012, which would prevent institutions from
using Title IV funds for marketing activities.
On October 31, 2011, the GAO released a second report following additional
undercover investigation related to enrollment, cost, financial aid, course structure,
substandard student performance, withdrawal, and exit counseling. The report
concluded that while some of the 15 unidentified for-profit schools investigated
appeared to follow existing policies, others did not. Although the report identified
a number of deficiencies in specific instances, it made no recommendations. On
December 7, 2011, the GAO released a report that attempted to compare the quality
of education provided by for-profit, not-for-profit, and public schools based upon mul-
tiple outcome measures including graduation rates, pass rates on licensing exams,
employment outcomes, and student loan default rates. The report found that for-
profit school students had higher graduation rates for certificate programs, similar
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 81
graduation rates for associate’s degree programs, and lower graduation rates for
bachelor’s degree programs than students at not-for-profit and public schools. It also
found that a higher proportion of bachelor’s degree recipients from for-profit schools
took out loans than did degree recipients from other schools and that there is some
evidence that students at for-profits schools default on their student loans at higher
rates. On nine of the 10 licensing exams reviewed, graduates of for-profit schools
had lower pass rates than students from not-for-profit and public schools.
requirements. Legislation, for example, could be focused on measures of student
outcomes that do not take into account that as an institution that has historically
had an open enrollment policy, we will naturally have a lower graduation rate than
institutions that have selective admission policies. To the extent that any laws or
regulations are adopted that limit or condition Title IV program participation or the
amount of federal student financial aid for which our students are eligible, our busi-
ness could be materially and adversely affected.
The Consumer Financial Protection Bureau, or CFPB, submitted two reports to
Congress in 2012 with specific recommendations for restructuring the student
borrowing experience, including requiring institutions to certify that a student is not
eligible for any further federal funds before a private loan may be issued to such
student. In addition, on January 31, 2013, CFPB encouraged institutions of higher
education, students, and others to provide information to the CFPB by March 18,
2013 about the financial products and services currently offered to students, and
comments on how current and future arrangements between institutions of higher
education and financial institutions could be structured in order to promote positive
financial decision-making among consumers. On January 23, 2013, Senator Durbin
introduced the Know Before You Owe Private Student Loan Act of 2013, which would
require institutions to certify to a private loan lender a student’s cost of attendance
and estimated federal financial assistance before a loan may be issued to such
student. The Act would also require institutions to counsel students about their loan
options, including discussion of differences between federal loans and private loans.
Private loan lenders would be required to provide students with quarterly account
updates on the balance and interest accrued. On January 23, 2013, Senator Durbin
also introduced the Fairness for Struggling Students Act of 2013, which would allow
private student loans to be dischargeable in bankruptcy. We do not know what steps
Congress may take in response to these actions and whether such actions (if any)
will have an adverse effect on our business or results of operations.
In addition, other Congressional hearings and reviews addressing various aspects
of the education sector may occur, which may affect our business. The confluence
of the increasing scrutiny in Congress of the proprietary education sector and the
unprecedented federal budget deficit increases the likelihood of legislation that will
adversely impact our business. We cannot predict the extent to which, or whether,
these hearings and reviews will result in legislation, further rulemaking affecting
our participation in Title IV programs, or more vigorous enforcement of Title IV
Congressional examination of Department of Defense oversight of tuition assis-
tance used for distance education and proprietary institutions and pending
rulemaking by the Department of Defense could result in legislative or regulatory
changes that may materially and adversely affect our business.
In recent years, the U.S. Congress has increased its focus on DoD tuition assis-
tance that is used for distance education and programs at proprietary institutions.
In September 2010, the Subcommittee on Oversight and Investigations of the U.S.
House of Representative’s Armed Services Committee held a hearing titled “A
Question of Quality and Value: Department of Defense Oversight of Tuition Assistance
Used for Distance Learning and For-Profit Colleges.” Witnesses and Subcommittee
members expressed concern about DoD’s oversight of distance education pro-
grams, especially those offered by proprietary institutions. In August 2010, DoD
issued a proposed regulation that would increase oversight of educational programs
offered to active duty service members. The final rule, published December 7, 2012
and effective January 7, 2013, requires all institutions to sign a Memorandum of
Understanding, or MOU, by March 1, 2013. The MOU outlines certain commitments
and agreements between the institution and DoD prior to accepting funds under the
tuition assistance program. We have entered into a standard MOU with DoD.
In addition, in December 2010, the Senate HELP Committee released a report
entitled “Benefitting Whom? For-Profit Education Companies and the Growth of
Military Educational Benefits,” which raised questions about the growing share of
DoD tuition assistance received by proprietary institutions. In March 2011, the GAO
published a report entitled “DoD Education Benefits: Increased Oversight of Tuition
Assistance Program is Needed,” which offered several recommendations for improv-
ing accountability within the tuition assistance program. In September 2011, the
Senate Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security held a hearing focused on the classifica-
tion of military education benefits under the “90/10 Rule,” which requires proprietary
82 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
institutions to derive at least 10 percent of their revenue from non-Title IV sources.
Some of the panelists suggested that the classification of military benefits as non-Ti-
tle IV revenue for purposes of the 90/10 Rule has led some for-profit institutions
to recruit aggressively and sometimes illegally members of the military in order to
ensure compliance with the 90/10 Rule. Senator Harkin, Chairman of the Senate
Committee on Health, Education, Labor & Pensions spoke on the Senate floor on
May 19, 2011 and hosted a press conference on September 22, 2011 encouraging
reformation of the 90/10 Rule. Senator Harkin has accused for-profit institutions of
engaging in deceptive marketing and aggressive recruiting in order to enroll veteran
and active duty military members. He has also criticized for-profit institutions on the
basis of their program withdrawal rates and demanded more accountability for the
use of federal funds. In addition, the President’s EO, issued April 27, 2012, estab-
lishing Principles to strengthen oversight, in part, of the DoD tuition assistance pro-
gram requires federal agencies to implement the Principles through various actions.
Congress may also decide to take action in response to the Principles.
We cannot predict the extent to which, or whether, congressional hearings result in
legislation or further rulemaking affecting our participation in DoD’s tuition assis-
tance program or the Title IV programs. Members of Congress have stated, both in
committee hearings and in the HELP Committee report, that Congress should revise
the 90/10 Rule to count DoD tuition assistance and veterans educational benefits
toward the 90% limit. In January 2012, Senators Harkin and Durbin introduced a bill
to modify the 90/10 Rule by reducing the threshold to 85% and counting the Title IV
programs, the DoD tuition assistance program, and veterans education benefits pro-
grams as sources from which an institution may derive no more than 85% of its reve-
nue. In February 2012, companion bills were introduced in the U.S. Senate and U.S.
House of Representatives that would modify the 90/10 Rule to count DoD tuition
assistance and veterans education benefits toward the 90% limit, along with Title
IV programs. On May 29, 2012, attorneys general for 21 states called on Congress
to enact this type of legislation. We cannot predict the likelihood that Congress will
amend the 90/10 Rule to count DoD tuition assistance and veterans education
benefits toward the 90% limit or to lower the ratio to 85/15, nor can we predict the
likelihood that Congress or President Obama will not take some other action to limit
tuition assistance and veterans education benefits to proprietary institutions. To the
extent that any laws or regulations are adopted that limit or condition the participa-
tion of proprietary schools or distance education programs in DoD tuition assistance
programs or in Title IV programs with respect to DoD tuition assistance programs, or
that limit or condition the amount of tuition assistance for which proprietary schools
or distance education programs are eligible, our business could be materially and
adversely affected.
Our regulatory environment and our reputation may be negatively influenced by the
actions of other for-profit institutions.
We are one of a number of for-profit institutions serving the postsecondary educa-
tion market. In recent years, regulatory investigations and civil litigation have been
commenced against several companies that own for-profit educational institutions.
These investigations and lawsuits have alleged, among other things, deceptive trade
practices and noncompliance with Department of Education regulations. These
allegations have attracted adverse media coverage and have been the subject of
federal and state legislative hearings. Broader allegations against the overall for-
profit school sector may negatively affect public perceptions of for-profit educational
institutions, including APUS. In addition, in recent years reports on student lending
practices of various lending institutions and schools, including for-profit schools, and
investigations by a number of state attorneys general, Congress and governmental
agencies have led to adverse media coverage of postsecondary education. Adverse
media coverage regarding other companies in the for-profit school sector or regarding
us directly could damage our reputation, could result in lower enrollments, revenues
and operating profit, and could have a negative impact on our stock price. Such
allegations could also result in increased scrutiny and regulation by the Department
of Education, Congress, accrediting bodies, state legislatures, or other governmental
authorities with respect to all for-profit institutions, including us.
Sequestration could reduce demand by reducing the availability of Title IV funds
and increasing processing time and could have similar effects on tuition assis-
tance funds.
Congressional actions that reduce Title IV program funding (whether through across-
the-board funding reductions, sequestration or otherwise) or materially affect the
eligibility of APUS or its students to participate in Title IV programs would have a
material adverse effect on our enrollment, financial condition, results of operations
and cash flows. On December 23, 2011, President Obama signed into law the
Consolidated Appropriations Act of 2012, which made several alterations to federal
student aid programs authorized under Title IV. Also, under the Budget Control Act
of 2011, Congress must develop legislation to achieve further deficit reduction, and
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 83
the outcome of this process is uncertain. The Budget Control Act of 2011 and the
Statutory Pay-As-You-Go Act of 2010 each provide for the possibility of automatic
across-the-board reductions in federal spending (also known as “sequestration”) as
a budgetary enforcement tool. On January 2, 2013, President Obama signed legis-
lation to avoid the so-called “fiscal cliff.” However, unless Congress takes further
action, sequestration will begin on March 1, 2013. The House Committee on the
Budget released a report in January 2013 stating that programs administered by the
Department of Veterans Affairs will be exempt from sequestration. If sequestration
is triggered by either the Budget Control Act of 2011 or the Statutory Pay-As-You-Go
Act of 2010, funding for Title IV programs would be affected. Pell Grants would be
exempt from cuts through fiscal year 2013, but could be subject to sequestration
in fiscal year 2014 and beyond. Most other federal student aid programs would be
subject to across-the-board cuts to discretionary programs at a rate of approximately
8.2%. Origination fees for Stafford loans and PLUS loans would increase approxi-
mately 7.6%, to approximately 1.076% and 4.034% of the total loan, respectively.
Cuts to the Department of Education’s Federal Student Aid Administration budget
could lead to delays in student eligibility determinations and delays in processing
and origination of federal student loans. A reduction in the maximum annual Pell
Grant amount or changes in eligibility could increase student borrowing and make
it more difficult for us to comply with other regulatory requirements, such as the
cohort default rate regulations. In addition, the Department of Education’s Federal
Student Aid administration budget would be reduced by sequestration, which could
delay student eligibility determinations and processing of federal student loans.
Furthermore, in the event of sequestration, the amounts available under the tuition
assistance programs of the Department of Defense could also be significantly cur-
tailed or even eliminated, and the time for the various services to process requests
for tuition assistance could be lengthened. These events could make it more difficult
for students to obtain funding for an APUS education, either in a timely manner or at
all, and would have an adverse effect on our results of operations.
Congress may change the law or reduce funding for Title IV programs, which could
reduce our student population, revenues and profit margin.
On April 18, 2012, Senators Kay Hagan and Tom Harkin introduced new legislation
that would prohibit colleges and universities from using funds from Title IV programs,
military tuition assistance, veterans education benefits programs, and other federal
educational assistance funds to pay for marketing, advertising, and recruiting. If a
similar bill were introduced in the 113th Congress and enacted, it would significantly
affect our ability to identify and attract prospective students.
The Higher Education Act comes up for reauthorization by Congress approximately
every five to six years. When Congress does not act on complete reauthorization,
there are typically amendments and extensions of authorization. On August 2, 2011,
President Obama signed The Budget Control Act of 2011, which eliminated Direct
Subsidized Loans for graduate and professional students, as of July 1, 2012. The
cost of borrowing will increase for graduate students who defer payment of interest
while enrolled, which could adversely impact our enrollments. In addition, there is no
assurance that Congress will not in the future enact changes that decrease Title IV
program funds available to students, including students who attend our institution.
Any action by Congress that significantly reduces funding for Title IV programs or the
ability of our school or students to participate in these programs would require us to
arrange for other sources of financial aid and would materially decrease our enroll-
ment. Such a decrease in enrollment would have a material adverse effect on our
revenues and results of operations. Congressional action may also require us to mod-
ify our practices in ways that could result in increased administrative and regulatory
costs and decreased profit margin. We are not in a position to predict with certainty
whether any legislation will be passed by Congress or signed into law in the future.
The reallocation of funding among Title IV programs, material changes in the require-
ments for participation in such programs, or the substitution of materially different
Title IV programs could reduce the ability of certain students to finance their educa-
tion at our institution and adversely affect our revenues and results of operations.
Investigations by state attorneys general, Congress, and governmental agencies
regarding relationships between loan providers and educational institutions and
their financial aid officers may result in increased regulatory burdens and costs.
In recent years, the student lending practices of postsecondary educational insti-
tutions, financial aid officers, and student loan providers have been subjected to
several investigations by state attorneys general, Congress, and governmental
agencies. These investigations concern, among other things, possible deceptive
practices in the marketing of private student loans and loans provided by lenders
pursuant to Title IV programs. The Higher Education Opportunity Act, or HEOA,
contains new requirements pertinent to relationships between lenders and institu-
tions. In particular, HEOA requires institutions to have a code of conduct, with certain
specified provisions, pertinent to interactions with lenders of student loans, prohibits
84 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
certain activities by lenders and guaranty agencies with respect to institutions, and
establishes substantive and disclosure requirements for lists of recommended or
suggested lenders of federal and private student loans. In addition, HEOA imposes
substantive and disclosure obligations on institutions that make available a list of
recommended lenders for potential borrowers.
On August 29, 2012, the Consumer Financial Protection Bureau submitted a report
to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate HELP
Committee, the House of Representatives Committee on Financial Services, and
the House of Representatives Committee on Education and the Workforce entitled
“Private Student Loans.” The report contained specific suggestions for Congressional
action to restructure the student lending experience, including possibly requiring
institutions to certify that a student is not eligible for any further federal funds before
a private loan may be issued to such student. On October 16, 2012, the Consumer
Financial Protection Bureau’s Ombudsman for private student loan matters issued a
report containing recommendations for the Senate Committee on Banking, Housing,
and Urban Affairs, the Senate HELP Committee, the House Committee on Financial
Services, the House Committee on Education and the Workforce, the Secretary of the
Treasury, the Director of the Consumer Financial Protection Bureau, and the Secretary
of Education. The report addressed potential reforms to student loan servicing and
expansion of loan modification and refinancing options. In addition, on October 18,
2012, the Consumer Financial Protection Bureau released a report entitled “The Next
Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform.”
The report details the challenges that some service members have encountered
when utilizing private and federal student loans. In January 2013, CFPB encouraged
institutions of higher education, students, and others to provide information by March
18, 2013 about the financial products and services currently offered to students, and
comments on how current and future arrangements between institutions of higher
education and financial institutions could be structured in order to promote positive
financial decision-making among consumers. We do not know what steps Congress or
federal agencies may take in response to these reports and whether such actions (if
any) will have an adverse effect on our business or results of operations.
In addition, state legislators have also passed or may be considering legislation
related to relationships between lenders and institutions. We can neither know nor
predict with certainty the effects of such developments. Governmental action may
impose increased administrative and regulatory costs and decreased profit margins.
We are subject to sanctions that could be material to our results and damage our
reputation if we fail to calculate correctly and return timely Title IV program funds
for students who withdraw before completing their educational program.
A school participating in Title IV programs must calculate correctly the amount of
unearned Title IV program funds that have been disbursed to students who withdraw
from their educational programs before completion and must return those unearned
funds in a timely manner, generally within 45 days after the date the school determines
that the student has withdrawn. Because we began to participate in Title IV programs in
2006 and the final regulations published on October 29, 2010 include new rules appli-
cable to return of Title IV calculations, we have limited experience complying with these
provisions. Furthermore, as discussed above, in 2012 the Department of Education
found, in a conclusion with which the Company disagrees, that we failed to do so
properly with respect to $1,040,851 of Title IV funds. Under Department of Education
regulations, late returns of Title IV program funds for 5% or more of students sampled in
connection with the institution’s annual compliance audit constitutes material noncom-
pliance. If unearned funds are not properly calculated and timely returned, we may have
to repay Title IV funds, post a letter of credit in favor of the Department of Education
or otherwise be sanctioned by the Department of Education, which could increase our
cost of regulatory compliance and adversely affect our results of operations.
A failure to demonstrate “financial responsibility” may result in the loss of eligibil-
ity by APUS to participate in Title IV programs or require the posting of a letter of
credit in order to maintain eligibility to participate in Title IV programs.
To participate in Title IV programs, an eligible institution must satisfy specific mea-
sures of financial responsibility prescribed by the Department of Education, or post
a letter of credit in favor of the Department of Education and possibly accept other
conditions, such as provisional certification, additional reporting requirements, or regu-
latory oversight, on its participation in Title IV programs. The Department of Education
may also apply such measures of financial responsibility to the operating company and
ownership entities of an eligible institution and, if such measures are not satisfied by
the operating company or ownership entities, require the institution to post a letter of
credit in favor of the Department of Education and possibly accept other conditions
on its participation in Title IV programs. Any obligation to post a letter of credit could
increase our costs of regulatory compliance. If we were unable to secure a letter of
credit, we would lose our eligibility to participate in Title IV programs. In addition to the
obligation to post a letter of credit under certain circumstances, an institution that is
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 85
determined by the Department of Education not to be financially responsible may be
transferred from the “advance” system of payment of Title IV funds, which allows the
institution to obtain Title IV program funds from the Department of Education prior to
making disbursements to students, to cash monitoring status or to the “reimburse-
ment” system of payment, which requires the institution to make Title IV disburse-
ments to students and seek reimbursement from the Department of Education. A
change in our system of payment could increase our costs of regulatory compliance. If
we fail to demonstrate financial responsibility and thus lose our eligibility to participate
in Title IV programs, our students would lose access to Title IV program funds for use
in our institution, which would limit our potential for growth outside the military commu-
nity and adversely affect our enrollment, revenues and results of operations.
A failure to demonstrate “administrative capability” may result in the loss of
APUS’ eligibility to participate in Title IV programs.
Department of Education regulations specify extensive criteria an institution must
satisfy to establish that it has the requisite “administrative capability” to participate
in Title IV programs. See “Regulation of our Business” in this annual report for more
information on the Department of Education’s regulations on administrative capability.
If an institution fails to satisfy any of these criteria or comply with any other
Department of Education regulations, the Department of Education may require
the repayment of Title IV funds, transfer the institution from the “advance” system
of payment of Title IV funds to cash monitoring status or to the “reimbursement”
system of payment, place the institution on provisional certification status, or com-
mence a proceeding to impose a fine or to limit, suspend or terminate the partic-
ipation of the institution in Title IV programs. If we are found not to have satisfied
the Department of Education’s “administrative capability” requirements, we could
be limited in our access to, or lose, Title IV program funding, which would limit our
potential for growth outside the military sector and adversely affect our enrollment,
revenues, and results of operations.
We have limited experience internally administering our participation in Title IV
programs and failure to comply with applicable regulations could cause us to lose
our eligibility to participate in Title IV programs.
We recently determined to terminate our relationship with Global Financial Aid Services,
Inc., or Global, which had assisted us with administration of our participation in Title IV
programs since we began to participate in those programs in 2006, and to administer
our participation in Title IV programs internally. To effect this transition, we will require
cooperation and on-going assistance from Global during a period of transition. To the
extent Global declines to cooperate with us, or responds to our requests for assistance
in a less than timely fashion, we may not be able to effect this transition in a timely and
cost-efficient manner. Furthermore, we may not realize the expected efficiencies from
this transition, and given our lack of experience administering Title IV programs on our
own, we may not be able to effectively do so. If our ability to comply with the require-
ments of Title IV programs is effected because of disputes or delays in connection with
the transition process or because of problems administering Title IV programs on our
own, we could be subject to the sanctions discussed in the risk factors above and it
could limit our enrollments, revenues, and results of operation.
We may lose eligibility to participate in Title IV programs if our student loan default
rates are too high, and if we lose that eligibility our future growth could be impaired.
An educational institution may lose its eligibility to participate in some or all Title IV
programs if, for three consecutive federal fiscal years, 25% or more of its students
who were required to begin repaying their student loans in the relevant federal fiscal
year default on their payment by the end of the next federal fiscal year. In addition,
an institution may lose its eligibility to participate in some or all Title IV programs if
its default rate exceeds 40% in the most recent federal fiscal year for which default
rates have been calculated by the Department of Education. HEOA modifies the
Higher Education Act’s default rate provisions. Because we began only recently to
enroll students who are participating in the federal student loan programs, we have
no historical cohort default rate for federal fiscal year 2007 or earlier. Our cohort
default rate for federal fiscal years 2008, 2009, and 2010 are 5.2%, 4.0% and
6.0%, respectively.
Beginning with default rate calculations for federal fiscal year 2009, the cohort
default rate will be calculated by determining the rate at which borrowers who
become subject to their repayment obligation in the relevant federal fiscal year
default by the end of the second following federal fiscal year (the “three-year cohort
default rate”). In September 2012, the Department of Education began publishing
the official three-year cohort default rates. The Department of Education will publish
the three-year cohort default rates in addition to the current method of calculating
rates (described in the paragraph above) until the phase-in of the three-year mea-
surement period is complete. As of September 2014, only the three-year cohort
86 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
default rates will be applied for purposes of measuring compliance, beginning with
the three-year cohort default rate for the 2011 cohort. An institution will lose its eli-
gibility to participate in certain Title IV programs 30 days after it receives notice from
the Department of Education that its most recent cohort default rate for fiscal year
2011 or later is greater than 40%. In addition, an institution may lose its eligibility
to participate in certain Title IV programs 30 days after it receives notice from the
Department of Education that its three most recent cohort default rates are each
30% or greater. Our official three-year cohort default rate for 2009 is 7.2%.
If our student loan default rates approach the limits detailed above, we may be
required to increase our efforts and resources dedicated to improving these default
rates. In addition, because there is a lag between the funding of a student loan and
a default thereunder, many of the borrowers who are in default or at risk of default
are former students with whom we may have only limited contact. Accordingly, there
can be no assurance that we would be able to effectively improve our default rates
or improve them in a timely manner to meet the requirements for continued partici-
pation in Title IV funding if we experience a substantial increase in our student loan
default rates. If APUS loses its eligibility to participate in Title IV programs because
of high student loan default rates, our students would no longer be eligible to use
Title IV program funds in our institution, which would significantly reduce our enroll-
ments and revenues and have a material adverse effect on our results of operations.
If we undergo a change in ownership and control, the Department of Education will
place us on provisional certification, and the terms of that provisional certification
could limit our potential for growth outside the military sector and adversely affect
our enrollment, revenues, and results of operations.
Department of Education regulations provide that a change of control of a publicly traded
corporation occurs if: (1) there is an event that would obligate the corporation to file a
Current Report on Form 8-K with the SEC disclosing a change of control or (ii) the corpo-
ration has a stockholder that owns at least 25% of the total outstanding voting stock of
the corporation and is the largest stockholder of the corporation, and that stockholder
ceases to own at least 25% of such stock or ceases to be the largest stockholder.
A significant purchase or disposition of our voting stock could be determined by the
Department of Education to be a change in ownership and control under this standard.
Under the Higher Education Act, an institution that undergoes a change in ownership
resulting in a change in control loses its eligibility to participate in Title IV programs
and must apply to the Department of Education in order to reestablish such eligibility.
During our period of provisional certification, we had to comply with any additional
conditions included in our program participation agreement, which included, among
other things, limitations on our operations. Our program participation agreement
provided that, as a provisionally certified institution, we had to apply for and receive
approval by the Secretary for any substantial change, including but not limited to
establishment of additional locations, an increase in the level of academic offering,
and addition of any non-degree or short-term training program. The Department of
Education also had authority to review us more closely during our provisional cer-
tification. On July 2, 2010, we received a letter from the Department of Education
notifying us that we are fully recertified to participate in Title IV programs through
December 31, 2014.
Future transactions could constitute a change in ownership or control under
Department of Education regulations and could cause the Department to place us
on provisional certification as require by the law when an institution undergoes
a change in ownership and control. The conditions to provisional certification or
closer review by the Department of Education could impact, among other things,
our ability to add educational programs, acquire other schools, or make other
significant changes. In addition, if the Department of Education were to determine
that we were unable to meet our responsibilities while we were provisionally cer-
tified, the Department could seek to revoke our certification to participate in Title
IV programs with fewer due process protections than if we were fully certified.
Limitations on our operations could, and the loss of our certification to partici-
pate in Title IV programs would, adversely affect our ability to grow our presence
outside the military sector in addition to having adverse effects on our enrollment,
revenues, and results of operations.
If regulators do not approve or delay their approval of transactions involving a
change of control of our company, our ability to operate could be impaired.
If we or APUS experience a change of control under the standards of applicable state
education agencies, the Department of Education,The Higher Learning Commission,
or other regulators, we must notify or seek the approval of each relevant regulatory
agency. Transactions or events that constitute a change of control include significant
acquisitions or dispositions of an institution’s common stock and significant changes
in the composition of an institution’s board of directors. Some of these transactions
or events may be beyond our control. Our failure to obtain, or a delay in receiving,
approval of any change of control from the West Virginia Higher Education Policy
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 87
Commission, the State Council of Higher Education for Virginia, the Department of
Education or The Higher Learning Commission could have a material adverse effect
on our business and financial condition. Our failure to obtain, or a delay in receiv-
ing, approval of any change of control from other states in which we are currently
licensed or authorized could require us to suspend our activities in that state or
otherwise impair our operations. The potential adverse effects of a change of control
could influence future decisions by us and our stockholders regarding the sale,
purchase, transfer, issuance, or redemption of our stock. In addition, the regulatory
burdens and risks associated with a change of control also could have an adverse
effect on the market price of your shares.
Our business could be harmed if we experience a disruption in our ability to receive
federal funding.
We collected the substantial majority of our fiscal year 2012 total consolidated net
revenue from federal government funding sources, such as Title IV financial aid
program funds, including from federal student loans under the Federal Direct Loan
Program, DoD tuition benefits and veterans education benefits. Any processing
disruptions by the U.S. Department of Education, DoD or the Department of Veterans
Affairs may impact our students’ ability to obtain student loans or tuition benefits,
respectively, on a timely basis. If we experience a disruption in our ability to process
student loans through the Direct Loan Program or to process tuition benefits for
military students through DoD because of administrative challenges on our part or
the inability of the Department of Education, DoD or Department of Veterans Affairs
to process the volume of direct loans, military tuition benefits or veterans benefits,
respectively, on a timely basis, our business, financial condition, results of opera-
tions and cash flows could be adversely and materially affected.
Risks Related to Owning our Common Stock
The price of our common stock may be volatile, and as a result returns on an
investment in our common stock may be volatile.
We completed our initial public offering in November 2007. For a significant portion
of the time since our initial public offering, we have had relatively limited public float,
and trading in our common stock has also been limited and, at times, volatile. An
active trading market for our common stock may not be sustained, and the trading
price of our common stock may fluctuate substantially.
88 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
The price of the common stock may fluctuate as a result of:
• price and volume fluctuations in the overall stock market from time to time;
• significant volatility in the market price and trading volume of comparable
companies;
• actual or anticipated changes in our earnings, enrollments or net course
registrations, or fluctuations in our operating results or in the expectations of
securities analysts;
• the actual, anticipated or perceived impact of changes in government policies,
laws and regulations, or similar changes made by accrediting bodies;
• the depth and liquidity of the market for our common stock;
• general economic conditions and trends;
• catastrophic events;
• sales of large blocks of our stock; or
• recruitment or departure of key personnel.
In the past, following periods of volatility in the market price of a company’s securi-
ties, securities class action litigation has often been brought against that company.
Because of the potential volatility of our stock price, we may become the target of
securities litigation in the future. Securities litigation could result in substantial costs
and divert management’s attention and resources from our business.
Seasonal and other fluctuations in our results of operations could adversely affect
the trading price of our common stock.
Our results in any quarter may not indicate the results we may achieve in any
subsequent quarter or for the full year. Our revenues and operating results normally
fluctuate as a result of seasonal or other variations in our enrollments. Student
population varies as a result of new enrollments, graduations, student attrition, the
success of our marketing programs and other reasons that we cannot always antic-
ipate. While our number of enrolled students has grown in each sequential quarter
over the past three years, the number of enrolled students has been proportionally
greatest in the fourth quarter of each respective year. A significant portion of our
general and administrative expenses do not vary proportionately with fluctuations
in revenues. We expect quarterly fluctuations in operating results to continue as a
result of seasonal enrollment patterns. Such patterns may change, however, as a
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We operate facilities in Charles Town, West Virginia and in Manassas, Virginia,
which are within a one hour drive of each other and located within the Washington,
DC metropolitan area. The corporate headquarters, academic, technology, finance,
admissions, and admissions offices are located in Charles Town, occupying 14 down-
town facilities totaling approximately 311,000 square feet. These properties include
approximately 95,000 square feet that is currently unoccupied and either under
construction or reserved for future expansion. The student services, graduations and
marketing operations are located in Manassas in facilities totaling approximately
64,000 square feet. All facilities in Manassas are leased. In Charles Town, we have
a combination of leased and owned properties, representing approximately 5% and
95% of total square footage, respectively. Lease terms vary by facility, with termina-
tion dates ranging from 2012 to 2015. Each lease has extension provisions ranging
from one to seven years. There were five leased properties that terminated in 2012.
Staff from these buildings moved into the new 105,000 square foot Finance Center.
We have also acquired two and a half acres in Charles Town for future development
to support the growth of our student service operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we have been and may be involved in various legal proceedings.
We currently have no material legal proceedings pending.
ITEM 4. MINE SAFETY DISCLOSURES
None.
result of new program introductions and increased enrollments of students, or as a
result of other factors we cannot anticipate. These fluctuations may result in volatil-
ity in our results of operations and/or have an adverse effect on the market price of
our common stock.
If securities analysts do not publish research or reports about our business or if
they downgrade their evaluations of our stock, the price of our stock could decline.
The trading market for our common stock depends in part on the research and
reports that industry or financial analysts publish about us or our business. If one
or more of the analysts covering us downgrade their estimates or evaluations of our
stock, the price of our stock could decline. If one or more of these analysts cease
coverage of our company, we could lose visibility in the market for our stock, which in
turn could cause our stock price to decline.
Provisions in our organizational documents and in the Delaware General Corporation
Law may prevent takeover attempts that could be beneficial to our stockholders.
Provisions in our charter and bylaws and in the Delaware General Corporation Law
may make it difficult and expensive for a third party to pursue a takeover attempt we
oppose even if a change in control of our company would be beneficial to the inter-
ests of our stockholders. These provisions include:
• the ability of our board of directors to issue up to 10,000,000 shares of pre-
ferred stock in one or more series and to fix the powers, preferences and rights
of each series without stockholder approval, which may discourage unsolicited
acquisition proposals or make it more difficult for a third party to gain control of
our company;
• a requirement that stockholders provide advance notice of their intention to
nominate a director or to propose any other business at an annual meeting
of stockholders;
• a prohibition against stockholder action by means of written consent unless
otherwise approved by our board of directors in advance; and
• the application of Section 203 of the Delaware General Corporation Law, which
generally prohibits us from engaging in mergers and other business combina-
tions with stockholders that beneficially own 15% or more of our voting stock,
or with their affiliates, unless our directors or stockholders approve the busi-
ness combination in the prescribed manner.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 89
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock began trading on the NASDAQ Global Market on November 9,
2007 under the symbol “APEI.” Prior to November 9, 2007, there was no public
market for our common stock. The following table sets forth, for the period indicated,
the high and low sales price of the Company’s common stock as reported on the
NASDAQ Global Market.
YEAR ENDED DECEMBER 31, 2011
First Quarter 2011
Second Quarter 2011
Third Quarter 2011
Fourth Quarter 2011
YEAR ENDED DECEMBER 31, 2012
First Quarter 2012
Second Quarter 2012
Third Quarter 2012
Fourth Quarter 2012
LOW
$33.43
$40.00
$33.38
$27.20
$36.87
$26.85
$24.88
$29.94
HIGH
$43.85
$47.53
$49.29
$45.23
$46.96
$39.90
$39.16
$38.81
Holders
As of February 25, 2013, there were approximately 471 holders of record of our
common stock.
Dividends
We do not anticipate declaring or paying any cash dividends on our common stock in
the foreseeable future. The payment of any dividends in the future will be at the dis-
cretion of our board of directors and will depend upon our financial condition, results
of operations, earnings, capital requirements, contractual restrictions, outstanding
indebtedness, and other factors deemed relevant by our board.
90 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Performance Graph
The graph below compares American Public Education, Inc.’s cumulative five-year
total return of holders of American Public Education, Inc.’s common stock with
the cumulative total returns of the S&P 500 index, the NASDAQ Composite index
and a customized peer group of 11 companies that includes: Apollo Group Inc.,
Bridgepoint Education Inc., Capella Education Company, Career Education Corp.,
Corinthian Colleges Inc., DeVry Inc., Education Management Corp., Grand Canyon
Inc., ITT Educational Services Inc., National American University Holdings Inc., and
Strayer Education Inc. The graph tracks the performance of a $100 investment in
our common stock, in each index and in the peer groups (with the reinvestment of
all dividends) from 12/31/2007 to 12/31/2012.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among American Public Education, Inc., the S&P 500 Index, the NASDAQ Composite
Index, and a Peer Group
$120
$100
$80
$60
$40
$20
0
12/07
12/08
12/09
12/10
12/11
12/12
American Public Education, Inc.
S&P 500
NASDAQ Composite
Peer Group
*$100 invested on 12/31/07 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2013 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
On May 14, 2012, the Company’s Board of Directors authorized a program to repurchase up to $20 million of shares of the Company’s common stock. Subject to market
conditions, applicable legal requirements and other factors, the repurchases may be made in open-market transactions or privately negotiated transactions. The authoriza-
tion does not obligate the Company to acquire any shares, and purchases may be commenced or suspended at any time based on market conditions and other factors that
the Company deems appropriate.
TOTAL NUMBER OF
SHARES PURCHASED
AVERAGE PRICE
PAID PER SHARE
TOTAL NUMBER OF
SHARES PURCHASED
AS PART OF PUBLICLY
ANNOUNCED PLANS
OR PROGRAMS
MAXIMUM NUMBER
OF SHARES THAT MAY
YET BE PURCHASED
UNDER THE PLANS
OR PROGRAMS(1)
MAXIMUM
APPROXIMATE DOLLAR
VALUE OF SHARES
THAT MAY YET BE
PURCHASED UNDER THE
PLANS OR PROGRAMS(2)
October 1, 2012 to October 31, 2012
—
November 1, 2012 to November 30, 2012
83,855
December 1, 2012 to December 31, 2012
Total
—
83,855
$ —
$32.58
$ —
$31.21
—
83,855
—
83,855
—
—
—
—
$10,724,643
7,992,647
7,992,647
$ 7,992,647
(1) On December 9, 2011, the Company’s Board of Directors approved a stock repurchase program for its common stock, under which the Company may annually purchase up to the cumulative number of shares issued or
deemed issued under the Company’s equity incentive and stock purchase plans. Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions from time
to time based on business and market conditions. The stock repurchase program may be suspended or discontinued at any time and will be funded using the Company’s available cash. The Company had completed its
repurchases for calendar year 2012 prior to the fourth quarter of 2012 and at that time there was no additional authority to purchase shares. However, this number will be increased in 2013 when additional shares are
issued or deemed issued under the Company’s equity incentive and stock purchase plans.
(2) On May 14, 2012, the Company’s Board of Directors authorized a program to repurchase up to $20 million of shares of the Company’s common stock. Subject to market conditions, applicable legal requirements and other
factors, the repurchases may be made in open-market transactions or privately negotiated transactions. The authorization does not obligate the Company to acquire any shares, and purchases may be commenced or
suspended at any time based on market conditions and other factors that the Company deems appropriate.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 91
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial and operating data as of the dates and for the periods indicated. You should read this data together with
“Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, included
elsewhere in this annual report on Form 10-K. The selected consolidated statement of operations data for each of the years in the three-year period ended December 31,
2012, and the selected consolidated balance sheet data as of December 31, 2012 and 2011, have been derived from our audited consolidated financial statements,
which are included elsewhere in this annual report on Form 10-K. The selected consolidated statements of operations data for the years ended December 31, 2008 and
2009, and selected consolidated balance sheet data as of December 31, 2010, 2009, and 2008, have been derived from our audited consolidated financial statements
not included in this annual report on Form 10-K. Historical results are not necessarily indicative of the results of operations to be expected for future periods.
(In thousands, except per share and net registration data)
2008
2009
2010
2011
2012
YEAR ENDED DECEMBER 31,
Statement of Operations Data:
Revenues
Costs and expenses:
Instructional costs and services
Selling and promotional
General and administrative
Depreciation and amortization
Total costs and expenses
Income from continuing operations before interest income and income taxes
Interest income, net
Income from continuing operations before income taxes
Income tax expense
Investment income, net of taxes
Net income attributable to common stockholders
Net income attributable to common stockholders per common share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
Other Data:
Net cash provided by operating activities
Capital expenditures
Stock-based compensation
Adjusted net/Net course registrations(1)
92 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
$107,147
$148,998
$198,174
$260,377
$313,516
43,561
12,361
21,302
4,235
81,459
25,688
706
26,394
10,207
—
58,383
20,479
25,039
5,231
109,132
39,866
94
39,960
16,017
—
75,309
34,296
32,045
6,502
148,152
50,022
111
50,133
20,265
—
95,216
44,713
48,350
9,239
197,518
62,859
109
62,968
22,211
—
110,192
59,761
63,615
11,146
244,714
68,802
135
68,937
26,528
(86)
$ 16,187
$ 23,943
$ 29,868
$ 40,757
$ 42,323
$ 0.91
$ 0.89
$ 1.32
$ 1.27
$ 1.63
$ 1.59
$ 2.28
$ 2.23
$ 2.38
$ 2.35
17,840
18,222
18,167
18,906
18,281
18,837
17,877
18,295
17,772
18,041
$ 29,757
$ 10,009
$ 1,674
140,758
$ 36,756
$ 10,758
$ 2,223
198,392
$ 47,078
$ 22,454
$ 2,805
259,389
$ 70,438
$ 24,925
$ 3,189
341,669
$ 52,838
$ 35,014
$ 3,818
402,205
(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents
Working capital(2)
Total assets
Stockholders’ equity
(In thousands)
Net income attributable to common stockholders
Interest (income), net
Income tax expense
Investment loss, net of taxes
Depreciation and amortization
EBITDA from continuing operations
AS OF DECEMBER 31,
2008
2009
2010
2011
2012
$47,714
$ 74,866
$ 81,352
$119,006
$114,901
$36,357
$ 59,419
$ 60,417
$ 82,034
$ 86,004
$78,813
$115,753
$141,839
$198,891
$237,603
$53,475
$ 82,018
$ 97,300
$133,833
$171,153
AS OF DECEMBER 31,
2008
2009
2010
2011
2012
$16,187
$ 23,943
$ 29,868
$ 40,757
$ 42,323
(706)
(94)
(111)
(109)
(135)
10,207
16,017
20,265
22,211
26,528
—
4,235
—
5,231
—
6,502
—
9,239
86
11,146
$29,923
$ 45,097
$ 56,524
$ 72,098
$ 79,948
(1) In 2012, net course registrations represent the total number of course registrations for students that have attended a portion of a course. For the years ended December 31, 2008, 2009, 2010 and 2011, one-credit lab
courses were combined with their related three-credit courses.
(2) Working capital is calculated by subtracting total current liabilities from total current assets.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 93
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial statements
and the related notes included elsewhere in the annual report. This discussion
contains forward-looking statements that are based on management’s current
expectations, estimates and projections about our business and operations, and
involves risks and uncertainties. Our actual results may differ materially from those
currently anticipated and expressed in such forward-looking statements as a result
of a number of factors, including those we discuss under “Risk Factors,” “Special
Note Regarding Forward-Looking Statements,” and elsewhere in this annual report.
Overview
American Public Education, Inc. is a provider of online postsecondary education
with an emphasis on the needs of the military and public service communities. We
operate through two universities, American Military University, or AMU, and American
Public University, or APU, which together constitute the American Public University
System, or APUS.
We were founded as American Military University, Inc. in 1991 and began offer-
ing graduate courses in January 1993. Following accreditation by the Accrediting
Commission of the Distance Education and Training Council, or DETC, a national
accrediting agency, in 1995, American Military University began offering under-
graduate programs primarily directed to members of the armed forces. Over time,
American Military University diversified its educational offerings in response to
demand by military students for post-military career preparation. With its expanded
program offerings, American Military University extended its outreach to the greater
public service community, primarily police, fire, emergency management personnel
and national security professionals. In 2002, we reorganized into a holding company
structure, with American Public Education, Inc. serving as the holding company of
APUS, which operates our two universities, AMU and APU. Our university system
achieved accreditation in May 2006 with The Higher Learning Commission of the
North Central Association of Colleges and Schools, a regional accrediting agency,
and became eligible for federal student aid programs under Title IV for classes begin-
ning in November 2006.
drop the course without cost and combining one-credit lab courses with their related
three-credit course for the years ended December 31, 2010 and 2011, increased
at a compound annual growth rate (CAGR) of 25% from 2010 to 2012. Over that
same time, total revenue increased at a CAGR of 26%, from $198.2 million in 2010
to $313.5 million in 2012. We believe achieving regional accreditation in May 2006,
gaining access to Title IV programs beginning with classes that started in November
2006, and the variety and affordability of our programs have been some of the
factors driving growth. Net course registrations increased by 18% in 2012 over 2011,
our revenue increased from $260.4 million to $313.5 million, or by 20%, over the
same time period, while operating margins decreased to 21.9% from 24.1% over the
same time period. Net course registrations increased by 32% in 2011 over 2010, our
revenue increased from $198.2 million to $260.4 million, or by 31%, over the same
time period and operating margins decreased to 24.1% from 25.2% over the same
time period. While we have experienced substantial growth in recent periods, you
should not rely on the results of any prior periods as an indication of our future growth
in adjusted net course registrations or revenue as we do not expect that our historical
growth rates are sustainable. Similarly, you should not rely on our operating margins
in any prior periods as an indication of our future operating margins.
Since gaining access to Title IV programs, a significant portion of our growth is attrib-
utable to students using Title IV programs. In addition to the positive impact this has
had on our growth in net registrations and revenues, this has had other effects on
our business and results of operations, including a change to the mix of students we
serve. This has resulted, and will continue to result, in a need to provide a greater
level of services to our students. Our costs and expenses as a percentage of reve-
nue have increased due in part to increased general and administrative expenses
related to this shift in student mix and primarily attributable to an increase in expen-
ditures for financial aid processing fees, expenditures for technology required to sup-
port the increase in civilian students, and increased bad debt primarily associated
with our civilian students. In order to support the number of students we now have
and to plan for the future, we also expect that we will make significant investments
in our technology infrastructure and financial aid processing capabilities, which from
time to time, including in 2013, will result in an increased level of spending, not all of
which can be capitalized.
Our course enrollments, or net course registrations, representing the aggregate
number of classes in which students remain enrolled after the date by which they may
The change to our student mix is also correlated to limitations we have encountered on
our ability to make long range forecasts with respect to student enrollments. We have
94 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
had more difficulty forecasting the number of students who will enroll, we have noticed
a decrease in the predictability of the rate at which we convert leads into enrolled
students, and we have had more difficulty attracting students that will perform well
over the long term, all of which we attribute in part to the growth of civilian students,
particularly the growth of civilian students from outside of public service communities.
In addition to the above factors related to Title IV programs and civilian students,
in 2011 we observed that some students enroll or attempt to enroll solely to obtain
Title IV funds, and some students who might not otherwise pursue a degree or
certificate are attracted to enroll because of the availability of Title IV funds and
economic hardships resulting from today’s economic climate. We believe these
students may be more likely than other students to cease pursuing a degree or
certificate due to other factors, such as becoming employed or not having the level
of commitment necessary to complete successfully the required coursework. As
a result, the growth in our enrollments in 2011 reflected some students who will
not persist as students. We have also been the target of fraudulent activities by
outside parties with respect to student enrollment and Title IV programs, and as
we continue to grow we may be susceptible to an increased risk of such activities.
We are not able to estimate the number of students who fall into these enrollment
categories, and our ability to estimate the impact on our enrollments over time is
limited, as is our ability to estimate any additional impact that this could have on
our exposure to bad debt or the number of our students who default on their Title IV
student loans.
Each of The Budget Control Act of 2011 and the Statutory Pay-As-You-Go Act of
2010 provide for the possibility of automatic across-the-board reductions in federal
spending (also known as “sequestration”) as a budgetary enforcement tool. The
House Committee on the Budget released a report in January 2013 stating that
programs administered by the Department of Veterans Affairs will be exempt from
sequestration. However, if sequestration is triggered, funding for Title IV programs
would be affected. Pell Grants would be exempt from cuts through fiscal year 2013,
but could be subject to sequestration in fiscal year 2014 and beyond. Most other
federal student aid programs would be subject to across-the-board cuts to dis-
cretionary programs at a rate of approximately 8.2%. Origination fees for Stafford
loans and PLUS loans would increase approximately 7.6%, to approximately 1.076%
and 4.034% of the total loan, respectively. Cuts to the Department of Education’s
Federal Student Aid Administration budget could lead to delays in student eligibility
determinations and delays in processing and origination of federal student loans. A
reduction in the maximum annual Pell Grant amount or changes in eligibility could
increase student borrowing and make it more difficult for us to comply with other
regulatory requirements, such as the cohort default rate regulations. In addition,
the Department of Education’s Federal Student Aid administration budget would be
reduced by sequestration, which could delay student eligibility determinations and
processing of federal student loans. As a result of sequestration the amounts avail-
able under the tuition assistance programs of the Department of Defense could
also be significantly curtailed or even eliminated, and the time for the various ser-
vices to process requests for tuition assistance could be lengthened. These events
could make it more difficult for students to obtain funding for an APUS education,
either in a timely manner or at all, and would have an adverse effect on our results
of operations.
Our key financial results metrics:
Revenues
In reviewing our revenues we consider the following components: net course registra-
tions, tuition we charge, tuition net of scholarships, and other fees.
Net course registrations. For financial reporting and analysis purposes, we measure
our student body in terms of aggregate course enrollments, or net course registra-
tions. Net course registrations represent the aggregate number of classes in which
students remain enrolled after the date by which they may drop the course without
cost and combining one-credit lab courses with their related three-credit courses.
Because we recognize revenues over the length of a course, net course registra-
tions in a financial reporting period do not correlate directly with revenues for that
period because revenues recognized from courses are not necessarily recognized in
the financial reporting period in which the course registrations occur. For example,
revenues in a quarter reflect a portion of the revenue from courses that began in a
prior quarter and continued into the quarter, all revenue from courses that began and
ended in the quarter, and a portion of the revenue from courses that began but did
not end in the quarter.
We believe our curriculum is directly relevant to federal, state and local law enforce-
ment and other first responders, but historically this market was limited to us
because, outside the federal government, only a few agencies or departments have
the tuition reimbursement plans critical to fund continuing adult education. In recent
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 95
years, in part because our students can access Title IV programs, we have been
increasing our focus on these markets. Title IV programs require participating stu-
dents to take more courses per semester than students participating in Department
of Defense, or DoD, tuition assistance programs. As a result, we expect that our
increased focus on markets that utilize Title IV programs may cause the average
number of courses per student per semester to increase.
Tuition. Providing affordable programs is an important element of our strategy
for growth. Since 2000, we have not raised undergraduate tuition and have only
increased graduate tuition by modest amounts in 2007, 2010 and 2011. We set our
undergraduate tuition costs within the DoD ceilings. Using the DoD tuition ceiling as
a benchmark keeps our tuition in line with four-year public university, in-state rates
for undergraduates.
Net tuition. Tuition revenues vary from period to period based on the aggregate
number of students attending classes and the number of classes they are attending
during the period. Tuition revenue is adjusted to reflect amounts for students who
withdraw from a course in the month the withdrawal occurs. We also provide schol-
arships to certain students to assist them financially and to promote their registra-
tion. The cost of these scholarships is netted against tuition revenue in the period
incurred for purposes of establishing net tuition revenue and typically represents
less than 1% of revenues.
Other fees. Other fees include charges for transcript credit evaluation, which includes
assistance in securing official transcripts on behalf of the student in addition to evalu-
ating transcripts for transfer credit. Students also are charged withdrawal, graduation,
late registration, transcript request and comprehensive examination fees, when appli-
cable. In accordance with Emerging Issues Task Force Issue No. 02-16, Accounting by
a Customer (Including a Reseller) for Certain Consideration Received from a Vendor
(Financial Accounting Standards Board Accounting Standards Codification (FASB ASC)
Topic 605), other fees also include book purchase commissions we receive for grad-
uate student book purchases and ancillary supply purchases students make directly
from our preferred book vendor. A technology fee of $50 per course was also imple-
mented for course registrations beginning after September 1, 2012. The technology
fee is earned over the length of the course. However, APUS provides a grant to cover
the fee for active duty military, national guard and reserve personnel, and for anyone
using DoD tuition assistance benefits. The grant also covers the fee for students
using veterans education benefits.
Costs and Expenses
We categorize our costs and expenses as (i) instructional costs and services,
(ii) selling and promotional, (iii) general and administrative, and (iv) depreciation
and amortization.
Instructional costs and services. Instructional costs and services are expenses
directly attributable to the educational services we provide our students. This
expense category includes salaries and benefits for full-time faculty, administrators
and academic advisors, and costs associated with adjunct faculty. Instructional
pay for adjunct faculty is primarily dependent on the number of students taught.
Instructional costs and services expenses also include costs for educational sup-
plies such as books, costs associated with academic records and graduation, and
other university services such as evaluating transcripts.
Substantially all undergraduate students receive their textbooks through our book
grant program. Over the course of a complete bachelor’s degree program, this
represents a potential average student savings of approximately $4,500 when
compared to four-year public colleges according to The College Board Study, Annual
Survey of Colleges report from 2009. In connection with our book grant program, we
have been working to reduce the overall cost of books per course. Graduate stu-
dents may order and pay for their books through the contracted vendor from which
we purchase the undergraduate book grant program books or they can purchase
books from a vendor of their choice.
Selling and promotional. Selling and promotional expenses include salaries and
benefits of personnel engaged in recruitment and promotion, as well as costs
associated with advertising and the production of marketing materials related to new
enrollments and current students. Our selling and promotional expenses are gen-
erally affected by the cost of advertising media, the efficiency of our selling efforts,
salaries and benefits for our selling and admissions personnel, and the number of
advertising initiatives for new and existing academic programs. The availability of
Title IV program funds to our students has increased our marketability in non-military
markets, but the more competitive nature of these markets has caused our student
acquisition costs to increase. As we continue to grow in size and continue to focus
on students using Title IV funds outside of public service communities, this trend
may continue and our student acquisition costs may continue to increase due to
our marketing the APU brand and our efforts to realize a greater number of civilian
student net registrations.
96 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
General and administrative. General and administrative expenses include salaries
and benefits of employees engaged in corporate management, finance, information
technology, human resources, facilities, compliance and other corporate functions.
In addition, the cost of renting and maintaining our facilities, technology expenses,
and costs for professional services are included in general and administrative costs.
General and administrative expenses also include bad debt expense.
Depreciation and amortization. We incur depreciation and amortization expenses
for costs related to the capitalization of property, equipment, software and program
development on a straight-line basis over the estimated useful lives of the assets.
Interest Income, Net
Interest income, net consists primarily of interest income earned on cash and cash
equivalents, net of any interest expense.
Critical Accounting Policies and Use of Estimates
The discussion of our financial condition and results of operations is based upon
our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States, or GAAP. During the preparation
of these financial statements, we are required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, costs and expenses
and related disclosures. On an ongoing basis, we evaluate our estimates and
assumptions, including those related to revenue recognition, accounts receivable
and allowance for doubtful accounts, valuation of long-lived assets, contingencies,
income taxes and stock-based compensation expense. We base our estimates on
historical experience and on various other assumptions that we believe are reason-
able under the circumstances. The results of our analysis form the basis for making
assumptions about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions, and the impact of such differences may be
material to our consolidated financial statements.
A summary of our critical accounting policies follows:
Revenue recognition. We record all tuition as deferred revenue when students begin
a class. At the beginning of each class, revenue is recognized on a pro rata basis
over the period of the class, which is either eight or 16 weeks. This results in our
balance sheet including future revenues that have not yet been earned as deferred
revenue for classes that are in progress. Students who request to be placed on
program hold are required to complete or withdraw from the courses prior to being
placed on hold. Other revenue includes charges for transcript credit evaluation,
which includes assistance in securing official transcripts on behalf of the student
in addition to evaluating transcripts for transfer credit. Students also are charged
withdrawal, graduation, late registration, transcript request and comprehensive
examination fees, when applicable. In accordance with FASB ASC Topic 605-50,
Accounting by a Customer (Including a Reseller) for Certain Consideration Received
from a Vendor, other fees also include book purchase commissions we receive for
graduate student book purchases and ancillary supply purchases students make
directly from our preferred book vendor. Tuition revenues vary from period to period
based on the number of net course registrations. Students may remit tuition pay-
ments through the online registration process at any time or they may elect various
payment options, including payments by sponsors, alternative loans, financial aid, or
the DoD tuition assistance program that remits payments directly to us. These other
payment options can delay the receipt of payment up until the class starts or longer,
resulting in the recording of a receivable from the student and deferred revenue at
the beginning of each session.
The Company refunds 100% of tuition for courses that are dropped by students
before the conclusion of the first seven days of a course. Because courses begin
the first Monday of every month and penalty-free drops occur by the second Monday
of every month, the Company does not recognize revenue for dropped courses. After
a course begins and if a student does not drop their course, the following refund
policy is used:
8-WEEK COURSE—TUITION REFUND SCHEDULE
WITHDRAWAL REQUEST
Before or During Week 1
During Week 2
During Weeks 3 and 4
During Weeks 5 through 8
DATE TUITION REFUND PERCENTAGE
100%
75%
50%
No Refund
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 97
16-WEEK COURSE—TUITION REFUND SCHEDULE
WITHDRAWAL REQUEST
Before or During Week 1
During Week 2
During Weeks 3 and 4
During Weeks 5 through 8
During Weeks 9 through 16
DATE TUITION REFUND PERCENTAGE
100%
100%
75%
50%
No Refund
Accounts receivable. Course registrations are recorded as deferred revenue and
accounts receivable at the time students begin a course. Students may remit
tuition payments through the online registration process at any time or they may
elect various payment options, which can delay the receipt of payment up until the
class starts or longer. These other payment options include payments by sponsors,
alternative loans, financial aid, or a tuition assistance program that remits payments
directly to us. When a student remits payment after a class has begun, accounts
receivable is reduced. If payment is made prior to the start of class, the payment is
recorded as a student deposit and the student is provided access to the classroom
when classes start. If one of the various other payment options are confirmed as
secured, the student is provided access to the classroom. If no receipt is confirmed
or payment option secured, the student will be dropped from the class. Therefore,
billed amounts represent invoices that have been prepared and sent to students
or their sponsor, lender, financial aid, or tuition assistance program according to
the billing terms agreed upon in advance. The DoD tuition assistance program is
billed on a course-by-course basis when a student starts class, whereas federal
financial aid programs are billed based on the classes included in a student’s
semester. Billed accounts receivable are considered past due if the invoice has been
outstanding more than 30 days. The provision for doubtful accounts is based on
management’s evaluation of the status of existing accounts receivable. Recoveries
of receivables previously written off are recorded when received. We do not charge
interest on our past due accounts receivable.
Property and equipment. Property and equipment are carried at cost less accumu-
lated depreciation. Depreciation and amortization are calculated on a straight-line
basis over the estimated useful lives of the assets. Our Partnership At a Distance, or
PAD, is a customized student information and services system that manages admis-
sions, online orientation, course registrations, tuition payments, grade reporting,
progress toward degrees, and various other functions. Costs associated with the
project have been capitalized in accordance with FASB ASC Topic 350, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, and
classified as property and equipment. These costs are amortized over the estimated
useful life of five years. The Company capitalizes the costs for program development.
Costs are transferred to property and equipment upon completion of each program
and amortized over an estimated life not to exceed three years.
Investment. On September 30, 2012, we made a $6.8 million or approximately
19.9% investment in preferred stock of NWHW Holdings, Inc., which in turn acquired
New Horizons Worldwide, Inc., or New Horizons. New Horizons is a global IT train-
ing company operating over 300 locations around the world through franchise
arrangements in 45 states and 70 countries. In connection with the investment, we
are entitled to certain rights, including the right to representation on the board of
directors of NWHW Holdings. We recorded the investment under the equity method
and will recognize our share of earnings or losses in the investee in the periods for
which they are reported with a corresponding adjustment in the carrying amount of
the investment.
Note Receivable. In connection with the Company’s minority investment in NWHW
Holdings, Inc., the Company extended $6.0 million in credit to New Horizons in
exchange for a subordinated note. The note matures on September 28, 2018 with
monthly interest payments of 5.0% per annum during the first five years of the note
and interest payments of 6.0% per annum in the sixth year. We evaluate the loan
receivable by analyzing the borrower’s creditworthiness, cash flows and financial
status, and the condition and estimated value of the collateral. We consider a loan
to be impaired when, based upon current information and events, we believe it is
probable that we will be unable to collect all amounts due according to the contrac-
tual terms of the loan agreement.
Income taxes. Deferred taxes are determined using the liability method, whereby
deferred tax assets are recognized for deductible temporary differences and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their
tax bases. As those differences reverse, they will enter into the determination of
future taxable income. 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. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of enactment.
98 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Stock-based compensation. Prior to 2012, we used a mix of stock options and
restricted stock, but in 2012 we did not issue stock options. We apply FASB ASC
Topic 718, Share-Based Payment, which requires the measurement and recognition
of compensation expense for stock-based payment awards made to employees and
directors, including employee stock options.
We have selected the Black-Scholes option pricing model to estimate the fair value
of the stock option awards on the date of grant. Our determination of the fair value of
these stock option awards was affected by the estimated fair value of our common
stock on the date of grant, as well as assumptions regarding a number of highly com-
plex and subjective variables. Prior to 2012, we calculated the expected term of stock
option awards using the “simplified method” as defined by Security and Exchange
Commission (SEC) Staff Accounting Bulletins No. 107 and 110 because we lacked
historical data and were unable to make reasonable expectations regarding the future.
We also estimate forfeitures of share-based awards at the time of grant and revise
such estimates in subsequent periods if actual forfeitures differ from original projec-
tions. We make assumptions with respect to expected stock price volatility based
on the average historical volatility of peers with similar attributes. In addition, we
determine the risk-free interest rate by selecting the U.S. Treasury five-year constant
maturity, quoted on an investment basis in effect at the time of grant for that business
day. Estimates of fair value are subjective and are not intended to predict actual future
events, and subsequent events are not indicative of the reasonableness of the original
estimates of fair value made under FASB Topic 718.
Recent Accounting Pronouncements
There have been no applicable announcements since our last filing.
Results of Operations
The following table sets forth statements of operations data as a percentage of reve-
nues for each of the periods indicated:
Revenues
Costs and expenses:
Instructional costs and services
Selling and promotional
General and administrative
Depreciation and amortization
Total costs and expenses
Income from operations before interest
income and income taxes
Interest income, net
Income from operations before income taxes
Income tax expense
Investment income, net of taxes
2010
2011
2012
100.0%
100.0%
100.0%
38.0%
17.3%
16.2%
3.3%
74.8%
25.2%
0.1%
25.3%
10.2%
—
36.6%
17.2%
18.6%
3.5%
75.9%
24.1%
—
24.1%
8.5%
—
35.2%
19.1%
20.3%
3.5%
78.1%
21.9%
0.1%
22.0%
8.5%
—
Net income
15.1%
15.6%
13.5%
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Revenues
Revenues for the year ended December 31, 2012 were $313.5 million, an increase of
20% from $260.4 million for the year ended December 31, 2011. Net course registra-
tions increased 18% to 402,205 in 2012 from 341,669 in 2011. The increase in net
course registrations was primarily attributable to increased marketing efforts to civil-
ian students interested in the affordability and diversity of our academic programs,
and to some degree to an increase in students who enrolled solely to obtain Title IV
funds and an increase in students who might not otherwise pursue a degree or certifi-
cate but are attracted to enroll because of the availability of Title IV funds.
Costs and Expenses
Costs and expenses were $244.7 million for the year ended December 31, 2012,
an increase of $47.2million, or 24%, compared to $197.5 million for prior year ended
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 99
December 31, 2011. This increase was due to the specific factors discussed below.
Costs and expenses as a percentage of revenues increased to 78.1% in 2012 from
75.9% in 2011. Similarly, our income before interest income and income taxes,
or our operating margin, decreased to 21.9% from 24.1% over that same period.
This increase in costs and expenses as a percentage of revenues and decrease in
operating margins resulted from the factors described below. Overall, our costs and
expenses as a percentage of revenue increased due to increased general and admin-
istrative expenses primarily attributable to an increase in expenditures for financial
aid processing fees, expenditures for technology required to support the increase in
civilian students and regulatory changes, and increased bad debt primarily associ-
ated with our civilian students.
Instructional costs and services. Instructional costs and services expenses for the
year ended December 31, 2012 were $110.2 million, representing an increase of
16% from $95.2 million for the year ended December 31, 2011. This increase was
directly related to an increase in the number of classes offered due to the increase
in net course registrations. Instructional costs and services expense as a percent-
age of revenues decreased to 35.2% in 2012 from 36.6% in 2011. This decrease
was primarily due the number of full-time academic support staff increasing at a
slower rate than revenue.
Selling and promotional. Selling and promotional expenses for the year ended
December 31, 2012 were $59.8 million, representing an increase of 34% from
$44.7 million for the year ended December 31, 2011. This increase was primarily
due to an increase in internet advertising and introduction of radio and television
advertising campaigns targeting our APU brand. Selling and promotional expenses
as a percentage of revenues increased to 19.1% in 2012 from 17.2% in 2011 due
to increased marketing of the APU brand.
2.6% of revenue in 2011 to 4.3% of revenue in 2012. This increase is due to civilian
students that utilize federal financial aid and that do not complete their academic
period, resulting in a return of federal student aid and a resulting unpaid balance due
directly from the student, which in turn can result in bad debt.
Depreciation and amortization. Depreciation and amortization expenses were
$11.1 million for the year ended December 31, 2012, compared with $9.2 million
for the year ended December 31, 2011. This represents an increase of 21%. This
increase resulted from greater capital expenditures and higher depreciation and
amortization on a larger fixed-asset base.
Stock-based compensation. Stock-based compensation included in instructional
costs and services, selling and promotional and general and administrative expense
for the year ended December 31, 2012 was $3.8 million in the aggregate, represent-
ing an increase of 20% from $3.2 million for the year ended December 31, 2011.
The increase in stock-based compensation expense is primarily attributable to an
increase in new restricted stock grants.
The table below reflects our stock-based compensation expense recognized in the
consolidated statements of income for the years ended December 31, 2011 and
2012 (in thousands):
Instructional costs and services
Selling and promotional
General and administrative
Total stock-based compensation expense
YEAR ENDED DECEMBER 31,
2011
$ 893
324
1,972
$3,189
2012
$ 896
378
2,544
$3,818
General and administrative. General and administrative expenses for the year ended
December 31, 2012 were $63.6 million, representing an increase of 31% from
$48.4 million for the year ended December 31, 2011. The increase in expenditures
was due to increased financial aid processing fees and expenditures for technology
required to support the increase in civilian students, regulatory changes and bad
debt expense. General and administrative expenses as a percentage of revenues
increased to 20.3% in 2012 from 18.6% in 2011. This increase was primarily due to
cost associated with our increased civilian population, regulatory changes, and bad
debt expense increasing from $6.7 million in 2011 to $13.6 million in 2012, or from
Income Tax Expense
We recognized tax expense from continuing operations for the years ended December
31, 2012 and 2011 of $26.5 million and $22.2 million, respectively, or effective tax
rates of 38.5% and 35.3%, respectively. The effective tax rate in 2011 was impacted
by state tax and research and development tax credit studies that were completed
during the third quarter of 2011. The state tax study was undertaken to refine our
allocation of income to various states. The research and development tax credit
study was completed to claim the credit for our increased software development
100 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
activities qualifying under the tax law. In addition, we claimed energy tax credits in
connection with solar panel and charging stations for our facility in Charles Town.
Net Income
Net income was $42.3 million for the year ended December 31, 2012, compared to
net income of $40.8 million for the year ended December 31, 2011, an increase of
4% or $1.5 million. This increase was related to the factors discussed above.
from $75.3 million for the year ended December 31, 2010. This increase was directly
related to an increase in the number of classes offered due to the increase in net
course registrations. Instructional costs and services expense as a percentage
of revenues decreased to 36.6% in 2011 from 38.0% in 2010. This decrease was
primarily due the number of full-time academic support staff increasing at a slower
rate than revenue.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Revenues
Revenues for the year ended December 31, 2011 were $260.4 million, an increase
of 31% from $198.2 million for the year ended December 31, 2010. Adjusted net
course registrations increased 32% to 341,669 in 2011 from 259,389 in 2010. The
increase in adjusted net course registrations was primarily attributable to increased
marketing efforts to civilian students interested in the affordability and diversity of
our academic programs, and to some degree to an increase in students who enrolled
solely to obtain Title IV funds and an increase in students who might not otherwise
pursue a degree or certificate but are attracted to enroll because of the availability
of Title IV funds.
Costs and Expenses
Costs and expenses were $197.5 million for the year ended December 31, 2011, an
increase of $49.3 million, or 33%, compared to $148.2 million for prior year ended
December 31, 2010. This increase was due to the specific factors discussed below.
Costs and expenses as a percentage of revenues increased to 75.9% in 2011 from
74.8% in 2010. Similarly, our income before interest income and income taxes,
or our operating margin, decreased to 24.1% from 25.2% over that same period.
This increase in costs and expenses as a percentage of revenues and decrease in
operating margins resulted from the factors described below. Overall, our costs and
expenses as a percentage of revenue increased due to increased general and admin-
istrative expenses primarily attributable to an increase in expenditures for financial
aid processing fees, expenditures for technology required to support the increase in
civilian students and regulatory changes, and increased bad debt primarily associ-
ated with our civilian students.
Instructional costs and services. Instructional costs and services expenses for the
year ended December 31, 2011 were $95.2 million, representing an increase of 26%
Selling and promotional. Selling and promotional expenses for the year ended
December 31, 2011 were $44.7 million, representing an increase of 30% from
$34.3 million for the year ended December 31, 2010. This increase was primarily
due to an increase in internet advertising and introduction of radio and television
advertising campaigns targeting our APU brand. Selling and promotional expenses as
a percentage of revenues decreased to 17.2% in 2011 from 17.3% in 2010 due to a
favorable response to our marketing the APU brand resulting in a greater number of
net registrations from civilian students.
General and administrative. General and administrative expenses for the year
ended December 31, 2011 were $48.4 million, representing an increase of 51%
from $32.1 million for the year ended December 31, 2010. The increase in expen-
ditures was due to increased financial aid processing fees and expenditures for
technology required to support the increase in civilian students, regulatory changes
and bad debt expense. General and administrative expenses as a percentage
of revenues increased to 18.6% in 2011 from 16.2% in 2010. This increase was
primarily due to cost associated with our increased civilian population, regulatory
changes, and bad debt expense increasing from $2.1 million in 2010 to $6.7 mil-
lion in 2011, or from 1.1% of revenue in 2010 to 2.6% of revenue in 2011. This
increase is due to civilian students that utilize federal financial aid and that do not
complete their academic period, resulting in a return of federal student aid and a
resulting unpaid balance due directly from the student, which in turn can result in
bad debt.
Depreciation and amortization. Depreciation and amortization expenses were
$9.2 million for the year ended December 31, 2011, compared with $6.5 million
for the year ended December 21, 2010. This represents an increase of 42%. This
increase resulted from greater capital expenditures and higher depreciation and
amortization on a larger fixed-asset base.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 101
Stock-based compensation. Stock-based compensation included in instructional
costs and services, selling and promotional and general and administrative expenses
for the year ended December 31, 2011 was $3.2 million in the aggregate, repre-
senting an increase of 14% from $2.8 million for the year ended December 21,
2010. The increase in stock-based compensation expense is primarily attributable
to an increase in new stock options and restricted stock grants.
The table below reflects our stock-based compensation expense recognized in the
consolidated statements of income for the years ended December 31, 2010 and
2011 (in thousands):
Instructional costs and services
Selling and promotional
General and administrative
Total stock-based compensation expense
YEAR ENDED DECEMBER 31,
2010
$ 717
224
1,864
$2,805
2011
$ 893
324
1,972
$3,189
Income Tax Expense
We recognized tax expense from continuing operations for the years ended
December 31, 2011 and 2010 of $22.2 million and $20.3 million, respectively, or
effective tax rates of 35.3% and 40.4%, respectively. The reduction in the effective
tax rate in 2011 is primarily due to the state tax and research and development
tax credit studies that were completed during the third quarter of 2011. The state
tax study was undertaken to refine our allocation of income to various states. The
research and development tax credit study was completed to claim the credit for our
increased software development activities qualifying under the tax law. In addition,
we claimed energy tax credits in connection with solar panel and charging stations
for the facility in Charles Town.
Net Income
Net income was $40.8 million for the year ended December 31, 2011, compared to
net income of $29.9 million for the year ended December 31, 2010, an increase of
36% or $10.9 million. This increase was related to the factors discussed above.
102 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Quarterly Results
The following table presents our unaudited quarterly results of operations for each of our eight last quarters ended December 31, 2012. You should read the following table
in conjunction with the consolidated financial statements and related notes contained elsewhere in this annual report. We have prepared the unaudited information on the
same basis as our audited consolidated financial statements. Results of operations for any quarter are not necessarily indicative of results for any future quarters or for a
full year.
(Dollars in thousands)
(Unaudited)
Statement of Operations Data:
Revenues
Costs and expenses:
Instructional costs and services
Selling and promotional
General and administrative
Depreciation and amortization
Total costs and expenses
Income before taxes
Interest income, net
Income before income taxes
Income tax expense (benefit)
Investment, net of taxes
Net income
Other Data:
MAR. 31,
2011
JUNE 30,
2011
SEPT. 30,
2011
DEC. 31,
2011
MAR. 31,
2012
JUNE 30,
2012
SEPT. 30,
2012
DEC. 31,
2012
QUARTER ENDED
$58,664
$60,795
$65,251
$75,667
$ 75,822
$74,572
$ 77,122
$86,000
22,105
10,884
10,511
2,093
45,593
13,071
27
13,098
5,241
—
23,011
9,721
10,910
2,242
45,884
14,911
25
14,936
5,960
—
23,948
11,705
12,160
2,404
50,217
15,034
35
15,069
4,130
—
26,152
12,403
14,769
2,500
55,824
19,843
22
19,865
6,880
—
27,853
14,371
16,072
2,656
60,952
14,870
21
14,891
5,808
—
26,249
14,475
16,141
2,715
59,580
14,992
(34)
14,958
5,717
—
26,436
14,430
15,978
2,760
59,604
17,518
30
17,548
6,724
—
29,654
16,485
15,424
3,015
64,578
21,422
118
21,540
8,279
(86)
$ 7,857
$ 8,976
$10,939
$12,985
$9,083
$ 9,241
$ 10,824
$ 13,175
Stock-based compensation
Net cash provided by operating activities
Capital expenditures
Net course registrations
$
862
$19,875
$ 3,597
$81,094
$
746
$ 5,799
$ 3,199
$77,857
$
812
$21,826
$ 6,978
$87,331
$
769
$22,938
$11,151
$95,387
$ 1,014
$ 14,849
$ 6,577
$100,992
$
917
$ 7,849
$12,371
$92,890
$
940
$
947
$ 11,798
$ 18,342
$ 9,562
$ 6,504
$103,047
$105,276
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 103
Liquidity and Capital Resources
We financed our operating activities and capital expenditures during the years
ended December 31, 2012 and 2011 primarily through cash provided by operating
activities. Cash and cash equivalents were $114.9 million and $119.0 million at
December 31, 2012 and 2011, respectively.
We derive a significant portion of our revenues from tuition assistance programs
of the DoD. Generally, these funds are received within 60 days of the start of the
classes to which they relate. A growing source of revenue is derived from our partic-
ipation in Title IV programs, for which disbursements are governed by federal regu-
lations, and we have typically received disbursements under this program within 30
days of the start of the applicable class.
These factors, together with the number of classes starting each month, affect our
operational cash flow. Our costs and expenses have increased with the increase in
student enrollment and the increase in the percentage of civilian students, and we
expect to fund these expenses through cash from operations.
Based on our current level of operations and anticipated growth, we believe that our
cash flow from operations and other sources of liquidity, including cash and cash
equivalents, will provide adequate funds for ongoing operations and planned capital
expenditures for the foreseeable future.
investment in NWHW Holdings. We expect that we will continue to incur expenses for
investing activities in strategic opportunities, or to enhance our business capabili-
ties, such as our investment in NWHW Holdings. Furthermore, capital expenditures
could be higher in the future as a result of the acquisition of existing structures or
potential new construction projects that arise as a result of our ongoing evaluation of
our space needs and opportunities for physical growth.
The Company will continue to explore opportunities to invest in other opportunities
in the education industry, which could include purchasing other education related
companies or investing in companies developing new technologies.
Financing Activities
Net cash used in financing activities was $8.9 million for the year ended December 31,
2012 compared with net cash used in financing activities of $7.6 million and $17.6 mil-
lion for the years ended December 31, 2011 and 2010, respectively. The increase in
cash used in financing activities was primarily related to an increase in share repur-
chases under our share repurchase program from $9.7 million in 2011 to $15.9 million
in 2012.
Contractual Commitments
We have various contractual obligations consisting of operating leases. The following
table sets forth our future contractual obligations as of December 31, 2012.
Operating Activities
Net cash provided by operating activities was $52.8 million, $70.4 million and
$47.1 million for the years ended December 31, 2012, 2011, and 2010, respectively.
The decrease in cash flow from operations was due to an increase in accounts
receivable, a difference in the timing of tuition payments received in advance from
students, timing differences related to the payment of accounts payable and accrued
expenses, and timing differences related to payment of book vendors.
Investing Activities
Net cash used in investing activities was $48.0 million, $25.2 million and $23.0 mil-
lion for the years ended December 31, 2012, 2011, and 2010 respectively. Cash
used in investing activities is primarily for capital expenditures, the majority of which
have been related to buildings to support expansion, software development related
to PAD, and computers and equipment to support increased staff as well as our
Operating lease obligations
Total contractual obligations
PAYMENTS DUE BY PERIOD
TOTAL
2,238
$2,238
LESS THAN
1 YEAR
1,081
$1,081
1–3
YEARS
1,157
$1,157
3–5
YEARS
—
—
Off-Balance Sheet Arrangements
We do not have off-balance sheet financing arrangements, including any relation-
ships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations
for the years ended December 31, 2010, 2011 or 2012. There can be no assurance
104 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
that future inflation will not have an adverse impact on our operating results and
financial condition. We do not generally increase our undergraduate tuition rates;
however, our costs do continually increase with inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are subject to the impact of interest rate changes and may be subject to changes
in the market values of future investments. We invest our excess cash in bank
overnight deposits. We have no material derivative financial instruments or derivative
commodity instruments as of December 31, 2012.
Market Risk
We have no material derivative financial instruments or derivative commodity
instruments. We maintain our cash and cash equivalents in bank deposit accounts,
which at times may exceed federally insured limits. We have not experienced any
losses in such accounts. We believe we are not exposed to any significant credit
risk on cash and cash equivalents. Due to the short-term duration of our invest-
ment portfolio and the low-risk profile of our investments, an immediate 100 basis
point change in interest rates would not have a material effect on the fair market
value of our portfolio.
Interest Rate Risk
We are subject to risk from adverse changes in interest rates, primarily relating to
our investing of excess funds in cash equivalents bearing variable interest rates,
which are tied to various market indices. Our future investment income will vary due
to changes in interest rates. At December 31, 2012, a 10% increase or decrease in
interest rates would not have a material impact on our future earnings, fair values, or
cash flows related to investments in cash equivalents.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
AMERICAN PUBLIC EDUCATION, INC. AND SUBSIDIARY
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
PAGE
106
107
108
109
110
112
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
American Public Education, Inc.
We have audited the accompanying consolidated balance sheets of American Public
Education, Inc. and Subsidiary as of December 31, 2012 and 2011, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each of
the three years in the period ended December 31, 2012. Our audits also included
the financial statement schedule of American Public Education, Inc. and Subsidiary
listed in Item 15(a). These financial statements and financial statement schedule are
the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), American Public Education, Inc. and
Subsidiary’s internal control over financial reporting as of December 31, 2012,
based on criteria established in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission, and our
report dated February 28, 2013 expressed an unqualified opinion on the effec-
tiveness of American Public Education, Inc. and Subsidiary’s internal control over
financial reporting.
/s/ McGladrey, LLP
Vienna, Virginia
February 28, 2013
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting principles used and signif-
icant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of American Public Education, Inc. and
Subsidiary as of December 31, 2012 and 2011, and the results of their operations
and their cash flows for each of the three years in the period ended December 31,
2012, in conformity with U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all mate-
rial respects the information set forth therein.
106 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $4,996 in 2011 and $11,106 in 2012
Prepaid expenses
Income tax receivable
Deferred income taxes
Total current assets
Property and equipment, net
Note receivable
Investment
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue and student deposits
Total current liabilities
Deferred income taxes
Total liabilities
Commitments and contingencies (Note 3 and 7)
Stockholders’ equity:
Preferred Stock, $.01 par value; Authorized shares—10,000; no shares issued or outstanding
Common Stock, $.01 par value; Authorized shares—100,000; 17,844 issued and outstanding in 2011;
17,752 issued and outstanding in 2012
Additional paid-in capital
Retained earnings (accumulated deficit)
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated statements.
AS OF DECEMBER 31,
2011
2012
$119,006
$114,901
9,499
4,961
1,603
3,653
138,722
58,759
—
—
1,410
10,428
4,290
4,953
6,502
141,074
82,840
6,000
6,664
1,025
$198,891
$237,603
$ 16,318
$ 17,251
14,486
25,884
56,688
8,370
65,058
—
178
147,053
(13,398)
133,833
12,042
25,777
55,070
11,380
66,450
—
178
157,449
13,526
171,153
$198,891
$237,603
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 107
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Revenues
Costs and expenses:
Instructional costs and services
Selling and promotional
General and administrative
Depreciation and amortization
Total costs and expenses
Income before interest income and income taxes
Interest income, net
Income from operations before income taxes
Income tax expense
Investment loss, net of tax
Net income
Net income attributable to common stockholders per common share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated statements.
108 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
YEAR ENDED DECEMBER 31,
2010
2011
2012
$198,174
$260,377
$313,516
75,309
34,296
32,045
6,502
95,216
44,713
48,350
9,239
110,192
59,761
63,615
11,146
148,152
197,518
244,714
50,022
111
50,133
20,265
—
62,859
109
62,968
22,211
—
68,802
135
68,937
26,528
(86)
$ 29,868
$ 40,757
$ 42,323
$1.63
$1.59
18,281
18,837
$2.28
$2.23
17,877
18,295
$2.38
$2.35
17,772
18,041
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands, except shares)
Balance as of December 31, 2009
Stock issued for cash
Stock issued for director compensation
Repurchased shares of common and restricted stock from stockholders
Stock-based compensation
Repurchased and retired shares of common stock
Excess tax benefit from stock based compensation
Net income
Balance as of December 31, 2010
Stock issued for cash
Stock issued for director compensation
Repurchased shares of common and restricted stock from stockholders
Stock-based compensation
Repurchased and retired shares of common stock
Excess tax benefit from stock based compensation
Net income
Balance as of December 31, 2011
Stock issued for cash
Stock issued for director compensation
Repurchased shares of common and restricted stock from stockholders
Stock-based compensation
Repurchased and retired shares of common stock
Excess tax benefit from stock based compensation
Net income
Balance as of December 31, 2012
The accompanying notes are an integral part of these consolidated statements.
PREFERRED
STOCK
COMMON
STOCK
REPURCHASED
STOCK
SHARES AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
ACCU-
MULATED
DEFICIT
TOTAL
STOCK-
HOLDERS’
EQUITY
$—
18,275,655
$183
$ —
$136,380
$(54,545)
$ 82,018
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
322,134
4,424
(9,625)
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
(682,046)
(19,966)
—
—
—
—
—
—
—
—
1,118
174
(274)
2,805
—
1,554
—
—
—
—
—
—
29,868
1,121
174
(20,240)
2,805
—
1,554
29,868
18,592,588
186
(682,046)
(19,966)
141,757
(24,677)
97,300
155,472
3,540
(6,050)
—
(901,254)
—
—
1
—
—
—
(9)
—
—
17,844,296
178
408,739
3,098
(10,697)
—
(493,491)
—
—
5
—
—
—
(5)
—
—
—
—
—
—
(219,208)
(9,521)
—
—
909
139
(224)
3,189
—
—
—
—
901,254
29,487
—
(29,478)
—
—
—
—
—
—
—
—
—
—
(493,491)
(15,399)
—
—
1,283
—
—
40,757
4,053
116
(457)
3,818
—
—
—
—
493,491
15,399
—
(15,399)
—
—
2,866
—
—
42,323
—
—
—
910
139
(9,745)
3,189
—
1,283
40,757
4,058
116
(15,856)
3,818
(5)
2,866
42,323
147,053
(13,398)
133,833
$—
17,751,945
$178
$ —
$157,449
$ 13,526
$171,153
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 109
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Increase in allowance for doubtful accounts
Depreciation and amortization
Stock-based compensation
Loss on disposal
Investment loss
Stock issued for director compensation
Deferred income taxes
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Income tax receivable
Accounts payable
Accrued liabilities
Deferred revenue and student deposits
Net cash provided by operating activities
Investing activities
Capital expenditures
Investment
Note receivable
Capitalized program development costs and other assets
Net cash used in investing activities
110 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
YEAR ENDED DECEMBER 31,
2010
2011
2012
$ 29,868
$ 40,757
$ 42,323
154
6,502
2,805
129
—
174
1,811
(1,759)
(1,312)
83
2,666
1,346
4,611
3,946
9,239
3,189
44
—
139
(867)
(3,176)
(1,112)
(823)
6,896
5,137
7,069
47,078
70,438
6,110
11,146
3,818
91
86
116
161
(7,039)
1,080
(3,350)
933
(2,444)
(107)
52,924
(22,454)
(24,925)
(35,014)
—
—
(573)
(23,027)
—
—
(307)
(25,232)
(6,750)
(6,000)
(328)
(48,092)
(In thousands)
Financing activities
Cash paid for repurchase of common/restricted stock
Cash received from issuance of common stock , net of issuance costs
Excess tax benefit from stock based compensation
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information
Income taxes paid
YEAR ENDED DECEMBER 31,
2010
2011
2012
(20,240)
1,121
1,554
(17,565)
6,486
74,866
(9,745)
910
1,283
(7,552)
37,654
81,352
$ 81,352
$119,006
(15,861)
4,058
2,866
(8,937)
(4,105)
119,006
$114,901
$ 16,819
$ 22,619
$ 26,851
The accompanying notes are an integral part of these consolidated statements.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES
Nature of business. American Public Education, Inc. (“APEI”) together with its
subsidiary (the “Company”) is a provider of exclusively online postsecondary educa-
tion directed primarily at the needs of the military and public service communities
that operates in one reportable segment. APEI has one subsidiary, American Public
University System, Inc. (the “APUS”), a West Virginia corporation, which is a region-
ally accredited post-secondary online university that includes American Military
University and American Public University.
APUS achieved regional accreditation in May 2006 with The Higher Learning
Commission of the North Central Association of Colleges and Schools and became
eligible for participation in federal student aid programs under Title IV of the Higher
Education Act of 1965, which the Company refers to as Title IV programs, for classes
beginning in November 2006.
A summary of the Company’s significant accounting policies follows:
Basis of accounting. The accompanying financial statements are presented in accor-
dance with the accrual basis of accounting, whereby revenue is recognized when
earned and expenses are recognized when incurred.
Principles of consolidation. The accompanying consolidated financial statements
include accounts of APEI and its wholly-owned subsidiary. All material inter-company
transactions and balances have been eliminated in consolidation.
Cash and cash equivalents. The Company considers all highly liquid investments
with original maturities of 90 days or less when purchased to be cash equivalents.
Accounts receivable. Course registrations are recorded as deferred revenue and
accounts receivable at the time students begin a class. Students may remit tuition
payments through the online registration process at any time or they may elect various
payment options, which can delay the receipt of payment up until the class starts
or longer. These other payment options include payments by sponsors, alternative
loans, financial aid, or a tuition assistance program that remits payments directly
to the Company. When a student remits payment after a class has begun, accounts
receivable is reduced. If payment is made prior to the start of class, the payment is
recorded as a student deposit, and the student is provided access to the classroom
when classes start. If one of the various other payment options are confirmed as
secured, the student is provided access to the classroom. If no receipt is confirmed
or payment option secured, the student will be dropped from the class. Therefore,
billed amounts represent invoices that have been prepared and sent to students or
their sponsor, lender, financial aid, or tuition assistance program according to the
billing terms agreed upon in advance. The Department of Defense, or DoD, tuition
assistance program is billed by branch of service on a course-by-course basis when a
student starts class, whereas federal financial aid programs are billed based on the
classes included in a student’s semester. Billed accounts receivable are considered
past due if the invoice has been outstanding more than 30 days. The allowance for
doubtful accounts is based on management’s evaluation of the status of existing
accounts receivable. Recoveries of receivables previously written off are recorded
when received. We do not charge interest on our past due accounts receivable.
Property and equipment. Property and equipment is carried at cost less accumu-
lated depreciation. Depreciation and amortization are calculated on a straight-line
basis over the estimated useful lives of the assets. Partnership At a Distance, or
PAD, is a customized student information and services system that manages admis-
sions, online orientation, course registrations, tuition payments, grade reporting,
progress toward degrees, and various other functions. Costs associated with the
project have been capitalized in accordance with Financial Accounting Standards
Board Accounting Standards Codification (FASB ASC) Topic 350, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use, and classified
as property and equipment. These costs are amortized over the estimated useful life
of five years. The Company capitalizes the costs for program development. Costs are
transferred to property and equipment upon completion of each program and amor-
tized over an estimated life not to exceed three years.
Investment. On September 30, 2012, the Company made a $6.8 million or approx-
imately 19.9% investment in preferred stock of NWHW Holdings, Inc., which in turn
acquired New Horizons Worldwide, Inc. (“New Horizons”). New Horizons is a global IT
training company operating over 300 locations around the world through franchise
arrangements in 45 states and 70 countries. In connection with the investment,
112 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
APEI is entitled to certain rights, including right to representation on the Board of
Directors of NWHW Holdings. The Company recorded the investment under the
equity method and will recognize its share of earnings or losses in the investee in
the periods for which they are reported with a corresponding adjustment in the carry-
ing amount of the investment.
Note Receivable. In connection with the Company’s minority investment in NWHW
Holdings, Inc., the Company extended $6.0 million in credit to New Horizons in
exchange for a subordinated note. The note matures on September 28, 2018 with
monthly interest payments of 5.0% per annum during the first five years of the note
and interest payments of 6.0% per annum in the sixth year. The Company evalu-
ates the loan receivable by analyzing the borrower’s creditworthiness, cash flows
and financial status, and the condition and estimated value of the collateral. The
Company considers a loan to be impaired when, based upon current information
and events, it believes it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
Valuation of long-lived assets. The Company accounts for the valuation of long-lived
assets under FASB ASC Topic 360, Accounting for the Impairment or Disposal of
Long-Lived Assets. FASB ASC Topic 360 requires that long-lived assets and cer-
tain identifiable intangible assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of the long-lived asset is measured by a comparison of
the carrying amount of the asset to future undiscounted net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the impair-
ment to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the estimated fair value of the assets. Assets to be disposed of
are reportable at the lower of the carrying amount or fair value, less costs to sell.
Revenue recognition. The Company records all tuition as deferred revenue when stu-
dents begin a class. At the beginning of each class, revenue is recognized on a pro
rata basis over the period of the class, which is either eight or 16 weeks. This results
in the Company’s balance sheet including future revenues that have not yet been
earned as deferred revenue for classes that are in progress. Students who request
to be placed on program hold are required to complete or withdraw from the courses
prior to being placed on hold. Other revenue includes charges for transcript credit
evaluation, which includes assistance in securing official transcripts on behalf of the
student in addition to evaluating transcripts for transfer credit. Students also are
charged withdrawal, graduation, late registration, transcript request and comprehen-
sive examination fees, when applicable. In accordance with FASB ASC Topic 605-50,
Accounting by a Customer (Including a Reseller) for Certain Consideration Received
from a Vendor, other fees also include book purchase commissions we receive for
graduate student book purchases and ancillary supply purchases students make
directly from our preferred book vendor. Tuition revenues vary from period to period
based on the number of net course registrations. Students may remit tuition pay-
ments through the online registration process at any time or they may elect various
payment options, including payments by sponsors, alternative loans, financial aid, or
the DoD tuition assistance program that remits payments directly to the Company.
These other payment options can delay the receipt of payment up until the class
starts or longer, resulting in the recording of a receivable from the student and
deferred revenue at the beginning of each session. Tuition revenue for sessions in
progress that has not been yet earned by the Company is presented as deferred
revenue in the accompanying balance sheet.
The Company refunds 100% of tuition for courses that are dropped by students before
the conclusion of the first seven days of a course. Because courses begin the first
Monday of every month and penalty free drops occur by the second Monday of every
month, the Company does not recognize revenue for dropped courses. After a course
begins and if a student does not drop their course, the following refund policy is used:
8-Week Course—Tuition Refund Schedule
WITHDRAWAL REQUEST
Before or During Week 1
During Week 2
During Weeks 3 and 4
During Weeks 5 through 8
DATE TUITION REFUND PERCENTAGE
100%
75%
50%
No Refund
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 113
16-Week Course—Tuition Refund Schedule
WITHDRAWAL REQUEST
Before or During Week 1
During Week 2
During Weeks 3 and 4
During Weeks 5 through 8
During Weeks 9 through 16
DATE TUITION REFUND PERCENTAGE
100%
100%
75%
50%
No Refund
Deferred revenue and student deposits at December 31, 2011 and 2012 consisted
of the following:
(In thousands)
Deferred revenue
Student deposits
Total deferred revenue and student deposits
AS OF DECEMBER 31,
2011
$13,753
12,131
$25,884
2012
$15,093
10,684
$25,777
The Company provides scholarships to certain students to assist them financially
and promote their registration. Scholarship assistance of $1,044,000, $2,155,000
and $2,832,000 was provided for the years ended December 31, 2010, 2011 and
2012, respectively, and is included as a reduction to revenue in the accompanying
statements of income.
Advertising costs. Advertising costs are expensed as incurred. Advertising expenses
for the years ended December 31, 2010, 2011 and 2012 were $22,046,000,
$29,306,000 and $41,929,000 respectively, and are included in selling and promo-
tion costs in the accompanying statements of income.
deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.
There were no material uncertain tax positions as of December 31, 2011 and 2012.
Interest and penalties associated with uncertain income tax positions would be clas-
sified as income tax expense. The Company has not recorded any material interest
or penalties during any of the years presented.
Stock-based compensation. The Company applies FASB ASC Topic 718, Share-Based
Payment, which requires companies to expense share-based compensation based on
fair value.
The following amounts of stock-based compensation have been included in the oper-
ating expense line-items indicated:
(In thousands)
YEAR ENDED DECEMBER 31,
2010
2011
2012
Instructional costs and services
$ 717
$ 893
$ 896
Selling and promotional
General and administrative
224
1,864
324
1,972
378
2,544
Total stock-based compensation expense
$2,805
$3,189
$3,818
Income per common share. Basic net income per common share is based on the
weighted average number of shares of common stock outstanding during the period.
Diluted net income per common share also increases the shares used in the per
share calculation by the dilutive effects of options, warrants, and restricted stock.
There were no outstanding options to purchase common shares that were excluded
in the computation of diluted net income per common share for the years ended
December 31, 2011 and 2010, and 265,965 anti-dilutive stock options excluded
from the calculation for the year ended December 31, 2012.
Income taxes. Deferred taxes are determined using the liability method, whereby,
deferred tax assets are recognized for deductible temporary differences and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their
tax bases. As those differences reverse, they will enter into the determination of future
taxable income. 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
Fair value of financial instruments. The methods and significant assumptions used to
estimate the fair values of financial instruments are as follows: the carrying amounts
of cash and cash equivalents, tuition receivable, accounts payable, and accrued liabili-
ties approximate fair value because of the short maturity of these instruments.
Financial risk. The Company maintains its cash and cash equivalents in bank
deposit accounts, which at times may exceed Federally insured limits. The Company
114 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
has not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Estimates. The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and lia-
bilities, disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2011 and 2012 consisted of the following:
(In thousands)
Land
USEFUL LIFE
2011
2012
—
$ 4,705
$ 6,863
Building and building improvements
27.5–39 years
28,428
44,512
2013
2014
2015
2016
2017
NOTE 3. OPERATING LEASES
The Company leases office space in Virginia and West Virginia under operating
leases that expire through March 2015. Rent expense related to these operating
leases amounted to $1,467,000, $1,634,000 and $1,656,000 for the years ended
December 31, 2010, 2011 and 2012, respectively. The minimum rental commitment
under the operating leases is due as follows:
YEARS ENDING DECEMBER 31,
(In thousands)
$1,081
924
233
—
—
$2,238
Leasehold improvements
up to 7 years
Office equipment
Computer equipment
Furniture and fixtures
Vehicles
Software development
Program development
Accumulated depreciation
and amortization
5 years
3 years
7 years
5 years
5 years
3 years
2,183
1,561
2,125
2,306
12,648
16,098
4,842
107
30,169
2,590
87,233
6,778
107
39,577
2,918
121,284
28,474
38,444
$58,759
$82,840
During the years ended December 31, 2010, 2011 and 2012, the Company
recorded $6,352,000, $9,089,000 and $10,996,000 respectively, in depreciation
expense. In addition, the Company recorded $150,000 in amortization expense
during the years ended December 31, 2010, 2011 and 2012, respectively, related
to other assets.
NOTE 4. INCOME TAXES
The components of the income tax expense for the years ended December 31, 2010,
2011 and 2012 were as follows:
(In thousands)
2010
2011
2012
YEAR ENDED DECEMBER 31,
Current income tax expense:
Federal
State
Deferred tax expense:
Federal
State
$14,962
$20,790
$22,937
3,492
18,454
1,622
189
1,811
2,288
23,078
(290)
(577)
(867)
3,430
26,367
150
11
161
$20,265
$22,211
$26,528
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 115
The tax effects of principal temporary differences are as follows:
The deferred tax amounts above have been classified on the accompanying balance
sheets as of December 31, 2011 and 2012, as follows:
(In thousands)
Current assets
Non-current liabilities
2011
$ 3,653
2012
$ 6,502
$(8,370)
$(11,380)
(In thousands)
Deferred tax assets:
2011
2012
Property and equipment
$ 1,410
$ 2,925
Stock option compensation expense
Allowance for doubtful accounts
Accrued vacation and severance
Restricted stock
Investment
Deferred tax liabilities:
Income tax deductible capitalized software
development costs
Prepaid expenses
1,778
1,907
384
519
—
1,765
4,211
485
863
41
5,998
10,290
(9,779)
(936)
(10,715)
$ (4,717)
(14,346)
(822)
(15,168)
$ (4,878)
Income tax expense differs from the amount of tax determined by applying the United States Federal income tax rates to pretax income and loss due to permanent tax differ-
ences, research and development tax credits related to capitalized software development costs, energy tax credits and the application of state apportionment laws, as follows:
(In thousands)
Tax expense at statutory rate
State taxes, net
Permanent differences
Other
116 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
2010
2011
2012
AMOUNT
$17,546
2,392
141
186
%
35.00
4.77
0.28
0.37
AMOUNT
$22,039
1,112
96
(1,036)
$20,265
40.42
$22,211
%
35.00
1.77
0.15
(1.65)
35.27
AMOUNT
$24,135
2,241
154
(2)
%
35.00
3.25
0.22
—
$26,528
38.47
Permanent differences in the table above are mainly attributable to nondeductible
meals and entertainment expenses and non-deductible employer contributions to
the Employee Stock Purchase Plan (“ESPP”).
stock that may be made available for purchase by participating employees under the
ESPP is 100,000 shares. Shares purchased in the open market for employees for
the years ended December 31, 2011 and 2012 were as follows:
Other primarily consists of research and development and energy tax credits. In
2011, the Company recorded research and development credits of $499,000 and
energy credits of $664,000. The Company undertakes research and development
activities in connection with its learning programs. The energy credits are in connec-
tion with solar panel and charging stations for its facility in Charles Town. In 2011,
the state effective tax rate decreased based on a review of the application of state
apportionment factor laws to its revenue producing activities.
The Company is subject to U.S. federal income taxes as well as income tax of mul-
tiple state jurisdictions. For federal and state tax purposes, tax years 2009-2012
remain open to examination.
NOTE 5. OTHER EMPLOYEE BENEFITS
The Company has established a tax deferred 401(k) retirement plan that provides
retirement benefits to all of its eligible employees. The participants may elect to con-
tribute up to 60% of their gross annual earnings not to exceed ERISA and IRS limits.
The plan provides for Company discretionary profit sharing contributions at matching
percentages. Employees immediately vest 100% in all salary reduction contributions
and employer contributions. On June 20, 2008, the Company filed a Form S-8 to
register 100,000 shares of common stock that may be purchased in the open mar-
ket and subsequently issued pursuant to the retirement plan. The Company made
discretionary contributions to the plan of $1,528,000, $2,015,000 and $2,447,000
for the years ended December 31, 2010, 2011 and 2012, respectively.
In November 2007, the Company adopted the American Public Education, Inc.
Employee Stock Purchase Plan. The ESPP was implemented effective July 1, 2008,
with quarterly enrollment periods. Participants may only enter the plan and establish
their withholdings at the start of an enrollment period. They may withdraw from the
plan and end payroll deductions any time up to five days before the purchase date
and funds will be returned to them. Under the ESPP, eligible employees may pur-
chase shares of the Company’s common stock, subject to certain limitations, at 85%
of its fair market value on the last day of the quarterly period. The total value of con-
tributions per participant may not exceed $21,000 annually (or the value of the com-
mon stock cannot exceed $25,000). The aggregate number of shares of common
PURCHASE DATE
SHARES
March 31, 2011
June 30, 2011
September 30, 2011
December 31, 2011
4,158
3,739
5,655
4,113
Total/Weighted Average
17,665
March 31, 2012
June 30, 2012
September 30, 2012
December 31, 2012
4,749
6,214
4,517
5,093
Total/Weighted Average
20,573
NOTE 6. STOCKHOLDERS’ EQUITY
COMMON
STOCK
FAIR VALUE
PURCHASE
PRICE
COMPENSATION
EXPENSE
$40.45
$44.51
$34.00
$43.28
$39.90
$38.00
$32.00
$36.43
$36.12
$35.38
$ 34.38
$ 37.83
$ 28.90
$ 36.79
$ 33.92
$ 32.30
$ 27.20
$ 30.97
$ 30.70
$25,239
$ 24,977
$ 28,841
$ 26,693
$105,750
$ 27,069
$ 29,827
$ 24,663
$ 27,604
$430.07
$109,163
Stock Incentive Plans
On March 15, 2011, the Board of Directors adopted the American Public Education,
Inc. 2011 Omnibus Incentive Plan (the “2011 Incentive Plan”), and APEI’s stock-
holders approved the 2011 Incentive Plan on May 6, 2011, at which time the 2011
Incentive Plan became effective. Upon effectiveness of the 2011 Incentive Plan,
APEI ceased making awards under the 2007 Omnibus Incentive Plan. The 2011
Incentive Plan allows APEI to grant up to 2,000,000 shares plus any shares of com-
mon stock that are subject to outstanding awards under the 2002 Stock Plan or the
2007 Incentive Plan that terminate due to expiration, forfeiture, cancellation or oth-
erwise without the issuance of such shares. As of December 31, 2012, there were
730,758 shares subject to outstanding awards under the 2002 Stock Plan and
the 2007 Incentive Plan and 96,721 shares subject to outstanding awards under
the 2011 Incentive Plan. Awards under the 2011 Incentive Plan may include the
following award types: stock options, which may be either incentive stock options
or non-qualified stock options; stock appreciation rights; restricted stock; restricted
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 117
stock units; dividend equivalent rights; performance shares; performance units;
cash-based awards; other stock-based awards, including unrestricted shares; or
any combination of the foregoing. Prior to 2012, the Company used a mix of stock
options and restricted stock, but in 2012 did not issue any stock options.
For the years ended December 31, 2010, 2011 and 2012, the Company recog-
nized $2,805,000, $3,189,000 and $3,818,000 in stock-based compensation
expense as required under FASB ASC Topic 718 and a total income tax benefit of
$1,063,000, $1,254,000 and $1,512,000, respectively.
Stock-based compensation expense related to restricted stock grants is expensed
over the vesting period using the straight-line method for Company employees and the
graded-vesting method for members of the Board of Directors and is measured using
APEI’s stock price on the date of grant. The fair value of each option award is estimated
at the date of grant using a Black-Scholes option-pricing model that uses the assump-
tions noted in the following table. Prior to 2012, we calculated the expected term of
stock option awards using the “simplified method” in accordance with Staff Accounting
Bulletins No. 107 and 110 because we lacked historical data and were unable to make
reasonable expectations regarding the future. We also estimate forfeitures of share-
based awards at the time of grant and revise such estimates in subsequent periods if
actual forfeitures differ from original projections. We make assumptions with respect
to expected stock price volatility based on the average historical volatility of peers with
similar attributes. In addition, we determine the risk free interest rate by selecting the
U.S. Treasury five-year constant maturity, quoted on an investment basis in effect at the
time of grant for that business day. Estimates of fair value are subjective and are not
intended to predict actual future events, and subsequent events are not indicative of the
reasonableness of the original estimates of fair value made under FASB ASC Topic 718.
The following table sets forth the assumptions used in calculating the fair value at
the date of grant of each option award granted:
Expected volatility
Expected dividends
Expected term, in years
Risk-free interest rate
Weighted-average fair value of
2010
26.46%
—
4.5
2.65%
2011
39.04%
—
4.5
2.01%
2012
—%
—
—
—%
options granted during the year
$ 9.42
$13.22
$—
A summary of the status of the Company’s Stock Incentive Plan as of December 31,
2012 and the changes during the periods then ended is as follows:
WEIGHTED
AVERAGE
EXERCISE
PRICE
WEIGHTED
AVERAGE
CONTRACTUAL
LIFE (YEARS)
AGGREGATE
INTRINSIC
VALUE
(In thousands)
NUMBER OF
OPTIONS
Outstanding,
December 31, 2011
1,067,511
$21.22
Options granted
Awards exercised
Options forfeited
Outstanding,
—
(369,918)
(6,511)
—
$10.97
$34.03
December 31, 2012
691,082
$21.22
3.86
$6,926
Exercisable,
December 31, 2012
513,201
$23.10
3.57
$6,849
118 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
WEIGHTED
AVERAGE GRANT
PRICE AND
FAIR VALUE
$37.44
40.09
37.80
38.87
$39.21
NUMBER
OF SHARES
79,075
97,240
(38,821)
(1,097)
136,397
The following table summarizes information regarding stock option exercises:
(In thousands)
Proceeds from stock options exercised
Intrinsic value of stock options exercised
Tax benefit from exercises
2010
$1,121
$9,841
$2,048
2011
$ 910
$4,574
$1,786
2012
$4,058
$9,580
$3,459
Restricted Stock
The table below sets forth the restricted stock activity for the year ended
December 31, 2012:
As of December 31, 2012 there was $3,841,000 of total unrecognized compensa-
tion cost, representing $753,000 of unrecognized compensation cost associated
with share-based compensation arrangements, and $3,088,000 of unrecognized
compensation cost associated with non-vested restricted stock. That total remaining
cost is expected to be recognized over a weighted average period of .66 and 1.54
years, respectively.
Non vested, December 31, 2011
Shares granted
Vested shares
Shares forfeited
Non vested, December 31, 2012
There were 265,965 outstanding options to purchase common shares that were
excluded in the computation of diluted net income per common share for the year
ended December 31, 2012 and no outstanding options to purchase common shares
that were excluded in the computation of diluted net income per common share for
years ended December 31, 2011 and, 2010, respectively.
There were no shares of restricted stock excluded in the computation of diluted net
income per common share for the year ended December 31, 2012. The Company
recognized an income tax benefit of $948,000, $605,000 and $538,000 from vested
shares for the years ended December 31, 2012, 2011 and 2010, respectively.
Employees are provided the option to forfeit to the Company shares equivalent to
the minimum statutory tax withholding required to be paid when the restricted stock
vests. During the years ended December 31, 2010, 2011 and 2012 the Company
accepted for forfeiture 9,625 shares for $274,000 and 6,050 shares for $224,000
and 10,697 shares for $456,000, respectively, under this arrangement.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 119
Repurchase
During the year ended December 31, 2012, the Company repurchased 493,491 shares of the Company’s common stock, par value $0.01 per share. The chart below pro-
vides further detail as to the Company’s repurchases during the period.
January 1, 2012–January 31, 2012
February 1, 2012–February 29, 2012
March 1, 2012–March 31, 2012
April 1, 2012–April 30, 2012
May 14, 2012
May 1, 2012–May 31, 2012
June 1, 2012–June 30, 2012
July 1, 2012–July 31, 2012
August 1, 2012–August 31, 2012
September 1, 2012–September 30, 2012
October 1, 2012 to October 31, 2012
November 1, 2012 to November 30, 2012
December 1, 2012 to December 31, 2012
Total
TOTAL NUMBER
OF SHARES
PURCHASED
AVERAGE
PRICE PAID
PER SHARE
—
—
—
—
87,033
$39.02
—
—
40,000
113,426
73,410
82,467
13,300
—
83,855
—
493,491
—
—
$28.70
$29.42
$28.69
$27.23
$32.98
—
$32.58
—
$31.21
TOTAL NUMBER OF
SHARES PURCHASED
AS PART OF PUBLICLY
ANNOUNCED PLANS
OR PROGRAMS
MAXIMUM NUMBER
OF SHARES THAT MAY
YET BE PURCHASED
UNDER THE PLANS
OR PROGRAMS
MAXIMUM
APPROXIMATE DOLLAR
VALUE OF SHARES
THAT MAY YET BE
PURCHASED UNDER
THE PLANS OR
PROGRAMS
—
—
87,033
87,033
87,033
127,033
240,459
313,869
396,336
409,636
409,636
493,491
493,491
493,491
87,033
87,033
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$20,000,000
$18,851,824
$15,515,168
$13,409,230
$11,163,298
$10,724,643
$10,724,643
$ 7,992,647
$ 7,992,647
$ 7,992,647
120 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
During the year ended December 31, 2011, the Company repurchased 219,208 shares of the Company’s common stock, par value $0.01 per share. The chart below pro-
vides further detail as to the Company’s repurchases during the period.
January 1, 2011–January 31, 2011
February 1, 2011–February 28, 2011
March 1, 2011–March 31, 2011
April 1, 2011–April 30, 2011
May 1, 2011 to May 31, 2011
June 1, 2011 to June 30, 2011
July 1, 2011 to July 31, 2011
August 1, 2011 to August 31, 2011
September 1, 2011 to September 30, 2011
October 1, 2011 to October 31, 2011
November 1, 2011 to November 30, 2011
December 1, 2011 to December 31, 2011
Total
TOTAL NUMBER
OF SHARES
PURCHASED
AVERAGE
PRICE PAID
PER SHARE
TOTAL NUMBER OF
SHARES PURCHASED
AS PART OF PUBLICLY
ANNOUNCED PLANS
OR PROGRAMS
MAXIMUM NUMBER
(OR APPROXIMATE
DOLLAR VALUE) OF
SHARES THAT MAY
YET BE PURCHASED
UNDER THE PLANS
OR PROGRAMS
—
—
32,000
40,000
42,000
44,000
40,000
21,208
—
—
—
—
—
—
$41.21
$41.56
$43.51
$42.53
$47.19
$45.00
—
—
—
—
—
—
32,000
40,000
42,000
44,000
40,000
21,208
—
—
—
—
219,208
$43.43
219,208
219,208
219,208
187,208
147,208
105,208
61,208
21,208
—
—
—
—
—
—
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 121
During the years ended December 31, 2012 and 2011, the Company retired
493,491 and 901,254 shares of common stock that had been previously repur-
chased and held in our treasury, respectively.
NOTE 10. SUBSEQUENT EVENTS
We have reviewed our business activities and have no additional subsequent events
to report.
NOTE 7. CONTINGENCIES
From time to time the Company may be involved in litigation in the normal course
of its business. Management does not expect that the resolution of these matters
would have a material adverse effect on the Company’s business, operations, finan-
cial condition or cash flows.
NOTE 8. CONCENTRATION
Approximately 50%, 41% and 38% of the Company’s 2010, 2011 and 2012 reve-
nues, respectively, were derived from students who receive tuition assistance from
tuition assistance programs sponsored by the United States Department of Defense.
Approximately 8%, 9% and 13% of the Company’s 2010, 2011 and 2012 revenues,
respectively, were derived from students who were eligible for veterans benefits. A
reduction in military tuition assistance or veterans benefits could have a significant
impact on the Company’s operations. In October of 2006, APUS was approved for
participation in Title IV programs, allowing the Company to participate in federal stu-
dent aid programs. Approximately, 24%, 37% and 36% of the Company’s 2010, 2011
and 2012 revenues respectively, were derived from students who received federal
student aid.
NOTE 9. SEGMENT INFORMATION
The Company is organized and operates as one operating segment. In accordance
with FASB ASC Topic 280, Segment Reporting, the chief operating decision-maker
has been identified as the Chief Executive Officer. The Chief Executive Officer
reviews operating results to make decisions about allocating resources and assess-
ing performance for the entire company. Because the Company operates in one seg-
ment and provides one group of similar services, all financial segment and product
line information required by FASB ASC Topic 280 can be found in the consolidated
financial statements.
NOTE 11. QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
The following unaudited consolidated interim financial information presented should
be read in conjunction with other information included in the Company’s consolidated
financial statements. The following unaudited consolidated financial information
reflects all adjustments necessary for the fair presentation of the results of interim
periods. The following tables set forth selected unaudited quarterly financial informa-
tion for each of the Company’s last eight quarters:
(In thousands,
except per share data)
2012
Revenues
FIRST
SECOND
THIRD
FOURTH
$75,822
$74,572
$77,122
$86,000
Income before income taxes
14,891
14,958
Net income
9,083
9,241
17,548
10,824
21,540
13,175
Net income per common share:
Basic
Diluted
2011
Revenues
$
$
0.51
0.50
$ 0.52
$ 0.61
$ 0.73
$ 0.51
$ 0.60
$ 0.74
$58,664
$60,795
$65,251
$75,667
Income before income taxes
13,098
14,936
Net income
7,857
8,976
15,069
10,939
19,865
12,985
Net income per common share:
Basic
Diluted
$ 0.44
$ 0.50
$ 0.61
$ 0.73
$ 0.43
$ 0.49
$ 0.60
$ 0.71
122 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9A. CONTROLS AND PROCEDURES
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Evaluation of Disclosure Controls and Procedures
We have carried out an evaluation, under the supervision and the participation of our
management, including our principal executive officer and principal financial officer,
of the effectiveness of the design and operation of our disclosure controls and pro-
cedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended, or the Securities Exchange Act), as of December 31,
2011. Based upon that evaluation, our principal executive officer and principal
financial officer concluded that, as of the end of that period, our disclosure controls
and procedures are effective in providing reasonable assurance that (a) the infor-
mation required to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the Security and Exchange Commission’s rules and
forms, and (b) such information is accumulated and communicated to our man-
agement, including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
There were no changes in the Company’s internal controls over financial reporting
during the fourth quarter of 2012 that have materially affected or are reasonably
likely to materially affect the Company’s internal control over financial reporting.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 123
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate inter-
nal control over financial reporting for the Company. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities
Exchange Act of 1934 as a process designed by, or under the supervision of, the
Company’s principal executive and principal financial officers and effected by the
Company’s board of directors, management and other personnel, to provide reason-
able assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
• pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the company;
• provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the com-
pany are being made only in accordance with authorizations of management
and directors of the company; and
• provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or proce-
dures may deteriorate.
Under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, our management assessed the effectiveness of our inter-
nal control over financial reporting as of December 31, 2012 and 2011. In making
this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—
Integrated Framework.
Based on its assessment, management concluded that, as of December 31, 2012,
our internal control over financial reporting is effective based on those criteria.
Our independent auditors, McGladrey, LLP, have issued an audit report on our inter-
nal control over financial reporting. This report appears below.
124 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
American Public Education, Inc.
We have audited American Public Education, Inc. and Subsidiary’s internal control
over financial reporting as of December 31, 2012, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. American Public Education, Inc. and
Subsidiary’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered neces-
sary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with gen-
erally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (a) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (b) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (c) provide reason-
able assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effective-
ness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, American Public Education, Inc. and Subsidiary maintained, in all
material respects, effective internal control over financial reporting as of December
31, 2012, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
American Public Education, Inc. and Subsidiary as of December 31, 2012 and 2011,
and the related consolidated statements of income, shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2012, and our
report dated February 28, 2013 expressed an unqualified opinion.
/s/ McGladrey, LLP
Vienna, VA
February 28, 2013
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 125
ITEM 9B. OTHER INFORMATION
None.
126 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND
CORPORATE GOVERNANCE
Executive Officers
Pursuant to General Instruction G(3) of Form 10-K, information regarding our executive
officers is set forth in Part I of this annual report under the caption Item 1. “Executive
Officers of American Public Education, Inc.”
Code of Ethics
As part of our system of corporate governance, our board of directors has adopted a
Code of Business Conduct and Ethics that is applicable to all of our employees, and
also contains provisions only applicable to our Chief Executive Officer and senior finan-
cial officers. Our Code of Business Conduct and Ethics is available on the Corporate
Governance page of our website at http://www.americanpubliceducation.com. We
intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics
that applies to our chief executive officer or senior financial officers, by posting such
information on our website at the address above.
Additional Information
The additional information regarding directors, executive officers and corporate gov-
ernance required by this Item is hereby incorporated by reference from the informa-
tion contained under the captions “Corporate Governance Standards and Director
Independence,” “Board Committees and Their Functions,” “Director Nominations and
Communication with Directors,” “Proposal No. 1—Election of Directors” and “Section
16(a) Beneficial Ownership Reporting and Compliance” in the Company’s Proxy
Statement, which will be filed with the SEC no later than 120 days following December
31, 2012 with respect to our 2013 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is hereby incorporated by reference from the
information contained under the captions “Director Compensation” and “Executive
Compensation” in the Company’s Proxy Statement, which will be filed with the SEC no
later than 120 days following December 31, 2012 with respect to our 2013 Annual
Meeting of Stockholders.
On February 28, 2012, the Board of Directors of the Company approved and adopted
the APUS Non-Qualified Plan, pursuant to which the Company will credit to eligible par-
ticipants an amount equal to the difference between (1) the matching contribution that
such participant would have received for the calendar year under the Company’s 401(k)
Plan had the limitation under Code Section 401(a)(17) not applied and (2) the matching
contribution that such participant actually received under the Company’s 401(k) Plan,
as well as any additional discretionary amounts that the Company may contribute for
the benefit of such participant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is hereby incorporated by reference from the
information contained under the captions “Beneficial Ownership of Common Stock” and
“Equity Compensation Plan Information” in the Company’s Proxy Statement, which will
be filed with the SEC no later than 120 days following December 31, 2012 with respect
to our 2013 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is hereby incorporated by reference from the
information contained under the captions “Certain Relationships and Related Persons
Transactions” and “Board Independence” in the Company’s Proxy Statement, which will
be filed with the SEC no later than 120 days following December 31, 2012 with respect
to our 2012 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is hereby incorporated by reference from the
information contained under the captions “Principal Accountant Fees and Services”
and “Audit Committee’s Pre-Approval Policies and Procedures” in the Company’s
Proxy Statement, which will be filed with the SEC no later than 120 days following
December 31, 2012 with respect to our 2013 Annual Meeting of Stockholders.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 127
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) List of documents filed as part of this annual report on Form 10-K:
(1) The required financial statements are included in Item 8 of Part II of this annual report on Form 10-K.
(2) The required financial statement schedules are included in Item 8 of Part II of this annual report on Form 10-K.
(3) A complete listing of exhibits is included in the Index to Exhibits.
(b) A complete listing of exhibits is included in the Index to Exhibits.
(c) Schedule II: Valuation and Qualifying Accounts.
Other schedules are omitted because they are not required.
128 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
AMERICAN PUBLIC EDUCATION, INC.
Schedule II
Valuation and Qualifying Accounts
Year ended December 31, 2012:
Allowance for receivables
Year ended December 31, 2011:
Allowance for receivables
Year ended December 31, 2010:
Allowance for receivables
BALANCE AT
BEGINNING
OF PERIOD
ADDITIONS/
(REDUCTIONS) WRITE-OFFS
BALANCE AT
END OF PERIOD
$4,996
$13,610
$(7,500)
$11,106
$1,050
$ 6,735
$(2,789)
$ 4,996
$ 896
$ 2,128
$(1,974)
$ 1,050
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 129
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: February 28, 2013
By:
/s/ Dr. Wallace E. Boston
AMERICAN PUBLIC EDUCATION, INC.
Name: Dr. Wallace E. Boston
Title:
President and Chief Executive Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
NAME
DATE
TITLE
/s/ Dr. Wallace E. Boston
Dr. Wallace E. Boston
February 28, 2013
President, Chief Executive Officer and Director
/s/ Harry T. Wilkins
Harry T. Wilkins
/s/ J. Christopher Everett
February 28, 2013
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
J. Christopher Everett
February 28, 2013
Chairman of the Board of Directors
/s/ F. David Fowler
F. David Fowler
/s/ Jean C. Halle
Jean C. Halle
/s/ Timothy J. Landon
Timothy J. Landon
/s/ Barbara G. Fast
Barbara G. Fast
/s/ Timothy T. Weglicki
February 28, 2013
Director
February 28, 2013
Director
February 28, 2013
Director
February 28, 2013
Director
Timothy T. Weglicki
February 28, 2013
Director
/s/ Eric C. Andersen
Eric C. Andersen
February 28, 2013
Director
130 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
INDEX TO EXHIBITS
EXHIBIT NO.
EXHIBIT DESCRIPTION
3.1
3.2
4.1
10.1+
10.2+
10.3+
10.4+
10.4A+
10.5+
10.5A+
10.6+
10.6A+
10.7+
10.8+
10.9+
10.10+
10.11+
21.1
23.1
31.1
31.2
32.1
32.2
EX-101.INS
EX-101.SCH
EX-101.CAL
EX-101.DEF
EX-101.LAB
EX-101.PRE
Fifth Amended Restated Certificate of Incorporation of the Company(1)
Second Amended and Restated Bylaws of the Company(1)
Form of certificate representing the Common Stock, $0.01 par value per share, of the Company
American Public Education, Inc. 2002 Stock Incentive Plan(2)
American Public Education, Inc. 2007 Omnibus Incentive Plan(2)
Form of Indemnification Agreement with directors and executive officers(2)
Amended and Restated Employment Agreement between the Company and Wallace E. Boston, Jr. dated October 10, 2007(2)
Amendment dated December 31, 2008, to the Amended and Restated Employment Agreement between the Company and Wallace E. Boston, Jr. dated October 10, 2007(3)
Amended and Restated Employment Agreement between the Company and Harry T. Wilkins dated October 10, 2007
Amendment dated December 31, 2008, to the Amended and Restated Employment Agreement between the Company and Harry T. Wilkins dated October 10, 2007(3)
Separation Agreement dated October 25, 2012 between American Public University System, Inc. and Dale Young (filed herewith)
Consulting Agreement dated January 1, 2013 between American Public University System, Inc. and Dale Young (filed herewith)
American Public Education, Inc. Employee Stock Purchase Plan(2)
Employment Agreement between the Company and Sharon van Wyk(4)
Employment Agreement between the Company and Karan Powell
American Public Education, Inc. 2011 Omnibus Incentive Plan(5)
APUS Non-Qualified Plan (filed herewith)
List of Subsidiaries (filed herewith)
Consent of McGladrey, LLP (filed herewith)
Certification of Chief Executive officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Unless otherwise noted, all exhibits are incorporated by reference to the Registrant’s Form S-1 Registration Statement (No. 333-145185), as amended.
+ Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 01-33810), filed with the Commission on November 14, 2007.
(2) Incorporated by reference to exhibit filed with Registrant’s Registration Statement on Form S-1 (File No. 333- ) 145185.
(3) Incorporated by reference to exhibit filed with Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 01-33810), filed with the Commission on March 10, 2009.
(4) Incorporated by reference to exhibit filed with Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 (File No. 01-33810), filed with the Commission on November 5, 2009.
(5) Incorporated by reference to Exhibit A of the Registrant’s 2011 Annual Proxy Statement on Schedule 14A (File No. 01-33810), filed with the Commission on March 22, 2011.
FORM 10-K AMERICAN PUBLIC EDUCATION, INC. 131
FOOTNOTES: PAGES 2 – 3
1.
Carnevale A., Smith N., & Strohl J. (2010). Help Wanted: Projections of Jobs and Education Requirements Through 2018, The Georgetown Center on Education and the Workforce. Retrieved April 2, 2013 from
http://cew.georgetown.edu/jobs2018/.
2. Public in-state tuition information provided by the College Board 2012 Trends in College Pricing, National Center for Education Statistics (NCES) 2011 Digest of Educational Statistics, and APUS estimates. Scholarships or
tuition discounts are not included. APUS tuition, books and fees as of December 31, 2012. For additional information please refer to footnotes from www.apu.apus.edu/tuition-and-finance/tuition-and-fees/.
3. Sources of data include SEC filings, university-provided data available on the Web as of May 2012 and APUS estimates. Scholarships or tuition discounts are not included. APUS tuition, books and fees as of December 31,
2012.
For additional information please refer to footnotes from www.apu.apus.edu/tuition-and-finance/tuition-and-fees/.
4.
Institute of International Education (2012). Open Doors 2012: Report on International Educational Exchange. Retrieved April 2, 2013 from www.iie.org/en/Research-and-Publications/Open-Doors.
132 AMERICAN PUBLIC EDUCATION, INC. FORM 10-K
Corporate Information
Board of Directors
Board of Trustees
Mr. Eric C. “Ric” Andersen, Director
Partner, Milestone Partners
Mr. F. David Fowler, Director
Retired
Dr. Wallace E. Boston, Director
President and Chief Executive Officer,
American Public Education, Inc.
Mr. J. Christopher Everett, Chair
Retired
Major General (Retired)
Barbara G. Fast, Director
Senior Vice President, CGI Federal
Ms. Jean C. Halle, Director
Independent Consultant
Mr. Timothy J. Landon, Director
President, Wrapports Ventures
Mr. Timothy T. Weglicki, Vice-Chair
Founding Partner,
ABS Capital Partners
Mr. Frank Ball, Chair
Independent Consultant
Faculty Member, Georgetown University
Major General (Retired)
Robert L. Nabors, Member
Executive Advisor, Booz Allen Hamilton
Dr. Wallace E. Boston, Member
President and Chief Executive Officer,
American Public Education, Inc.
Member, Board of Directors
General (Retired) Alfred M. Gray,
Chairman Emeritus and Member
Chairman, Board of Regents,
Potomac Institute for Policy Studies
Chancellor, Marine Military Academy;
29th Commandant of the Marine Corps
Vice Admiral (Retired)
Dr. Ann E. Rondeau, Member
Strategy and Transformation Partner,
IBM Global Business Services
Lieutenant General (Retired)
Richard G. Trefry, Member
Senior Fellow for the Institute
of Land Warfare
Former Program Manager of
The Army Force Management School
Dr. Lucie Lapovsky, Member
Principal, Lapovsky Consulting
Former President, Mercy College
Dr. Katherine Zatz, Vice-Chair
Vice President, Allpar LLC
Member, Registry of College Presidents
Not pictured:
Ms. Lynda Geer
Vice President and Registrar
Dr. Ronald Kovach
Vice President, Student Retention
Dr. Frank McCluskey
Vice President,
Scholar in Residence
Dr. Chad Patrizi
Vice President and Dean,
School of Business
Dr. Fred Stielow
Vice President and Dean of
Library and Course Materials
Corporate and Administrative Offices
American Public Education, Inc.
111 West Congress Street
Charles Town, WV 25414
Phone: (304) 724-3700
Toll Free: (877) 468-6268
Fax: (304) 724-3780
Stock Exchange Listing
The NASDAQ Global Select Market
under the symbol “APEI”.
Annual Shareholder Meeting
The Annual Meeting of American Public
Education shareholders will be held at the
Gaylord National Resort & Conference Center,
201 Waterfront Street, National Harbor,
Maryland 20745 on June 14, 2013 at 7:30
a.m. ET.
Dr. Katy E. Marre, Member
Professor, University of Dayton
Former Assoc. Vice President, Graduate
Studies and Research, University of Dayton
Investor Relations
Chris Symanoskie
Vice President, Investor Relations
American Public Education, Inc.
111 West Congress Street
Charles Town, WV 25414
Phone: (703) 334-3880
csymanoskie@apus.edu
Accountants
McGladrey, LLP
8000 Towers Crescent Drive, Suite 500
Vienna, VA 22182
Phone: (703) 336-6400
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Attn: Shareholder Services
Toll Free: (800) 937-5449
Legal
Hogan Lovells US L.L.P.
William Intner
Harbor East
100 International Drive, Suite 2000
Baltimore, MD 21202
Phone: (410) 659-2700
www.hoganlovells.com
Online Information
Investor Relations
www.AmericanPublicEducation.com
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