Attached files
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8-K/A - FORM 8-K/A - Stride, Inc. | w80050e8vkza.htm |
EX-23.1 - EX-23.1 - Stride, Inc. | w80050exv23w1.htm |
EX-99.2 - EX-99.2 - Stride, Inc. | w80050exv99w2.htm |
EX-99.3 - EX-99.3 - Stride, Inc. | w80050exv99w3.htm |
Exhibit 99.1
K C
Distance Learning, Inc.
Financial Statements
For the Fiscal Year Ended January 2, 2010
and Independent Auditors Report
Financial Statements
For the Fiscal Year Ended January 2, 2010
and Independent Auditors Report
KC Distance Learning, Inc.
Financial Statements
Financial Statements
Contents
Independent Auditors Report |
3 | |||
Balance Sheet as of January 2, 2010 |
4 | |||
Statement of Operations for the fiscal year ended January 2, 2010 |
5 | |||
Statement of Shareholders Equity for the fiscal year ended January 2, 2010 |
6 | |||
Statement of Cash Flows for the fiscal year ended January 2, 2010 |
7 | |||
Notes to financial statements |
8 |
2
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
KC Distance Learning, Inc.
Portland, Oregon
KC Distance Learning, Inc.
Portland, Oregon
We have audited the accompanying balance sheet of KC Distance Learning, Inc. (the Company or KCDL ), a wholly owned subsidiary of Knowledge Universe Education, L.P. (KUELP) , as of January
2, 2010, and the related statements of operations, shareholders
equity, and cash flows for the fiscal year then ended.
These financial statements are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. 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 consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial
position of KC Distance Learning, Inc. as of January 2, 2010, and the results of its operations and
its cash flows for the fiscal year then ended, in conformity with accounting principles generally
accepted in the United States of America.
Portland, Oregon
September 24, 2010
September 24, 2010
3
KC Distance Learning, Inc.
Balance Sheet
as of January 2, 2010
(In thousands, except per share amount)
Balance Sheet
as of January 2, 2010
(In thousands, except per share amount)
ASSETS |
||||
Current assets: |
||||
Cash |
$ | 54 | ||
Accounts receivable, net of allowance for
doubtful accounts |
9,685 | |||
Deferred income taxes |
442 | |||
Prepaid expenses and other current assets |
1,686 | |||
Total current assets |
11,867 | |||
Property and equipment, net |
11,848 | |||
Goodwill |
5,637 | |||
Capitalized curriculum, net |
1,577 | |||
Other intangible assets, net |
1,601 | |||
Deferred income taxes |
2,813 | |||
Other assets |
151 | |||
Total assets |
$ | 35,494 | ||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||
Current liabilities: |
||||
Accounts payable |
$ | 18 | ||
Related party payables |
16,196 | |||
Deferred revenue |
3,181 | |||
Accrued property and other taxes |
109 | |||
Accrued compensation and related expenses |
145 | |||
Other accrued liabilities |
283 | |||
Current portion of related party capital lease obligation |
680 | |||
Total current liabilities |
20,612 | |||
Long-term debt to related party |
3,300 | |||
Related party capital lease obligation |
922 | |||
Other long-term liabilities |
66 | |||
Total liabilities |
24,900 | |||
Shareholders equity: |
||||
Common stock, 10,000 shares authorized;
$0.01 par value; 1,000 issued and outstanding |
10 | |||
Additional paid-in capital |
12,975 | |||
Accumulated deficit |
(2,391 | ) | ||
Total shareholders equity |
10,594 | |||
Total liabilities and shareholders equity |
$ | 35,494 | ||
See accompanying notes to the financial statements
4
KC
Distance Learning, Inc.
Statement of Operations
For the Fiscal Year Ended January 2, 2010
(In thousands)
Statement of Operations
For the Fiscal Year Ended January 2, 2010
(In thousands)
Revenue, net |
$ | 34,705 | ||
Cost of revenue |
8,497 | |||
Gross margin |
26,208 | |||
Operating expenses: |
||||
General and administrative |
23,751 | |||
Depreciation |
3,811 | |||
Amortization |
515 | |||
Total operating expenses |
28,077 | |||
Loss from operations |
(1,869 | ) | ||
Interest expense, net |
625 | |||
Loss before income taxes |
(2,494 | ) | ||
Income tax benefit |
(848 | ) | ||
Net loss |
$ | (1,646 | ) | |
See accompanying notes to the financial statements
5
KC Distance Learning, Inc.
Statement of Shareholders Equity
For the Fiscal Year Ended January 2, 2010
Statement of Shareholders Equity
For the Fiscal Year Ended January 2, 2010
(In thousands)
Common Stock | Additional | Total | ||||||||||||||||||
Number of | Paid-In | Accumulated | Shareholder's | |||||||||||||||||
Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
Balance at January 3, 2009 |
1,000 | $ | 10 | $ | 12,975 | $ | (745 | ) | $ | 12,240 | ||||||||||
Net loss |
| | | (1,646 | ) | (1,646 | ) | |||||||||||||
Balance at January 2, 2010 |
1,000 | $ | 10 | $ | 12,975 | $ | (2,391 | ) | $ | 10,594 | ||||||||||
See accompanying notes to the financial statements
6
KC Distance Learning, Inc.
Statement of Cash Flows
For the Fiscal Year Ended January 2, 2010
(In thousands)
Statement of Cash Flows
For the Fiscal Year Ended January 2, 2010
(In thousands)
Operating activities: |
||||
Net loss |
$ | (1,646 | ) | |
Adjustments to reconcile net loss to cash
provided by operating activities: |
||||
Depreciation |
3,811 | |||
Amortization |
871 | |||
Change in deferred taxes |
(1,212 | ) | ||
Changes in operating assets and liabilities: |
||||
Accounts receivable |
(3,659 | ) | ||
Prepaid expenses and other current assets |
258 | |||
Other assets |
(52 | ) | ||
Accounts payable |
16 | |||
Accrued expenses and other liabilities |
(319 | ) | ||
Related party payables |
5,246 | |||
Cash provided by operating activities |
3,314 | |||
Investing activities: |
||||
Purchases of property and equipment |
(3,681 | ) | ||
Cash used in investing activities |
(3,681 | ) | ||
Net change in cash |
(367 | ) | ||
Cash at the beginning of year |
421 | |||
Cash at the end of year |
$ | 54 | ||
Supplemental cash flow information |
||||
Cash paid for related party interest |
$ | 394 | ||
Cash paid for income taxes |
15 | |||
Cash refund from income taxes |
(10 | ) | ||
Non-cash activities: |
||||
Assets acquired under capital leases |
$ | 1,602 | ||
Change in related party payable for capitalized curriculum |
(1,495 | ) |
See accompanying notes to the financial statements
7
KC Distance Learning, Inc.
Notes to Financial Statements
Notes to Financial Statements
1. | GENERAL | |
KC Distance Learning Inc (KCDL) is a wholly-owned subsidiary of Knowledge Universe Education, L.P. (KUELP). KCDL is a provider of distance learning programs for middle school and high school students including core, foreign language, honors and advanced placement courses. | ||
KCDL provides accredited online education directly to families through The Keystone School, an online school for middle school and high school students. KCDL provides solutions directly to schools through Aventa Learning, including credit recovery, individual courses designed to augment existing school curriculum and complete virtual school solutions. KCDL also offers iQ Academies, statewide online schools operated in partnership with public school districts or charter school management organizations to serve the education needs of grade, middle and high school students. iQ Academies are public schools that are tuition-free for in-state residents. | ||
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation KCDLs fiscal year ends on the Saturday closest to December 31 and is comprised of 52 weeks. Accordingly, fiscal year 2009 ended on January 2, 2010. For purposes of these footnotes, the 52 weeks ended January 2, 2010 are referred to as the fiscal year or the year ended. | ||
Use of Estimates KCDLs financial statements are presented in conformity with accounting principles generally accepted in the United States of America. The preparation thereof requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Estimates have been prepared based on the most current and best available information and actual results could differ from those estimates. The most significant estimates underlying the financial statements include the period over which revenue is recognized, the allowance for doubtful accounts, the valuation and any resulting impairments of long-lived assets, other intangible assets and goodwill and the need for valuation allowances against deferred tax assets. | ||
Revenue Recognition Revenues are principally earned from tuition paid for enrollment in courses and contractual agreements to provide on-line curriculum to schools, school districts or individuals. KCDL generates revenues under contracts that may include multiple elements. These elements include providing access to on-line courses or curriculum licenses for courses, offline supplemental learning materials, the use of a personal computer and technology support services. KCDL has determined that the elements of its contracts are valuable to schools, school districts or individuals in combination, but do not have standalone value. In addition, KCDL has determined that it does not have the objective and reliable evidence of fair value for each element of its contracts. As a result, the elements within its multiple-element contracts do not qualify for treatment as separate units of accounting. Accordingly, KCDL accounts for revenues received under multiple element arrangements as a single unit of accounting. | ||
The recognition of revenues meets the following criteria: the existence of an arrangement through an agreement, the rendering of services, a specific tuition rate and/or fees and reasonably assured collection. Tuition, fees and other income are recognized as the related services are provided. |
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Payments for these types of services may be received in advance of services being rendered, in which case the revenue is deferred and recognized over the appropriate service period. | ||
Cash Cash consists of cash deposited with financial institutions. | ||
Concentration of Credit Risk Financial instruments that subject KCDL to credit risk consist primarily of cash and trade receivables. Cash accounts are placed with high credit quality financial institutions. Concentration of credit risk with respect to trade receivables is generally diversified due to the large customer base. KCDL performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts. One customer represented 19% of gross accounts receivable as of January 2, 2010. | ||
Accounts Receivable Accounts receivable are comprised primarily of amounts due from students and schools for tuition and related services, presented at estimated net realizable value. KCDL uses estimates in determining the ability to collect accounts receivable and must rely on its evaluation of historical experience, specific customer issues and current economic trends to arrive at appropriate reserves. Material differences may result in the amount and timing of bad debt expense if actual experience differs significantly from the estimates. | ||
Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis over the useful lives of the assets or, in the case of leasehold improvements, the lesser of the term of the related lease or the useful lives of the improvements. A summary of estimated useful lives follows: |
Furniture, fixtures and equipment |
5 to 10 years | |||
Building and leasehold improvements |
2 to 10 years | |||
Computer hardware and software |
3 to 5 years |
Maintenance, repairs and minor refurbishments are expensed as incurred. | ||
Capitalized Software KCDL develops software for internal use. Software development costs incurred during the application development state are capitalized. KCDL amortizes these costs over the estimated useful life of the software that is generally three to five years. Software development costs are recorded on KCDLs balance sheet as property and equipment. | ||
Goodwill Goodwill represents the excess of the cost over the fair value of the identifiable net assets of businesses acquired. KCDL tests its goodwill for impairment at the end of each fiscal year, or more frequently, if circumstances indicate reporting unit carrying values exceed their fair values. Fair value is estimated by projecting future discounted cash flows from the reporting unit in addition to other quantitative and qualitative analyses. If the carrying amount of goodwill exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to the implied estimated fair value. There was no impairment of goodwill in fiscal year 2009. | ||
Capitalized Curriculum In conjunction with a related party, KU Online Services, Inc. (KUOS), a subsidiary of KUELP, KCDL develops curriculum that is primarily provided as web content and accessed via the Internet, textbooks and other offline materials. KCDL capitalizes curriculum when it is purchased under perpetual license agreements from KUOS and is available for general release to KCDLs customers. Curriculum is amortized over its estimated useful life, which is generally five years. The capitalized curriculum asset was $1.9 million and accumulated amortization was $0.3 million as of January 2, 2010. Amortization expense related to capitalized curriculum assets reflected in cost of revenue was $0.2 million for the fiscal year ended January 2, 2010. |
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Other Intangible Assets Other intangible assets consist of customer lists, acquired proprietary curricula, trade names and trademarks. Other intangible assets subject to amortization are amortized on a straight-line basis over their estimated useful lives. KCDL reviews and evaluates the remaining useful lives of such assets if events or changes in circumstances require impairment testing and/or a revision to the remaining period of amortization. Any such impairment analysis is based on a comparison of the carrying values to fair values based upon expected future cash flows. Other intangible assets with indefinite useful lives are tested for impairment on an annual basis, or more frequently, if circumstances indicate the carrying values exceed their fair values. If the carrying amount exceeds the implied estimated fair value, an impairment charge to current operations is recorded to reduce the carrying value to the implied estimated fair value. There was no impairment of other intangible assets in fiscal year 2009. | ||
Long-Lived Assets KCDL reviews and evaluates its long-lived assets, other than goodwill and other intangible assets, for impairment when events or changes in circumstances indicate that the carrying value of assets may not be recoverable through future undiscounted cash flows. Any impairment is measured as the amount by which the carrying values of such assets exceeds fair value. There was no impairment of long-lived assets in fiscal year 2009. | ||
Income Taxes KCDL accounts for income taxes under the asset and liability method. Under this method, deferred tax liabilities and assets are recognized for the expected future consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is established to reduce the amount of that deferred tax asset to the amount, more likely than not, to be recognized. Uncertain tax positions and the related interest are recognized in other liabilities and income tax expense. | ||
Fair Value Measurements Fair value guidance defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Fair value guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels are described as follows: |
| Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. | ||
| Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data. | ||
| Level 3: Inputs reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation. |
The carrying values reflected on KCDLs balance sheet for cash, receivables, accounts payable and related party balances approximate fair values. It is not practicable to estimate fair value of KCDLs long-term debt due to its related party nature. | ||
Advertising Costs Advertising costs are expensed as incurred. Total advertising expense, recognized in general and administrative expense, was $5.3 million for the fiscal year ended January 2, 2010. |
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Recent Accounting Pronouncements In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-2, codified under Accounting Standards Codification (ASC) 820-10, Fair Value Measurements and Disclosures, which partially delayed the effective date of ASC 820-10 for non-financial assets or liabilities that are not required or permitted to be measured at fair value on a recurring basis. The adoption of this guidance in fiscal year 2009 did not have a material impact on KCDLs financial position, results of operations or cash flows. | ||
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Arrangements, a consensus of the FASB Emerging Issues Task Force (ASC Topic 605) that addresses how to separate deliverables and how to measure and allocate arrangement consideration. This guidance requires vendors to develop the best estimate of selling price for each deliverable and to allocate arrangement consideration using this selling price. The guidance is effective prospectively for revenue arrangements entered into or materially modified in annual periods beginning after June 15, 2010. KCDL is currently evaluating the requirements of ASU 2009-13 and has not yet determined the impact on its fiscal year 2011 financial statements. | ||
3. | ACCOUNTS RECEIVABLE, NET | |
Accounts receivable, net, as of January 2, 2010, included the following (in thousands): |
Tuition |
$ | 7,726 | ||
Licensing and other |
2,878 | |||
Total accounts receivable |
10,604 | |||
Allowance for doubtful accounts |
(919 | ) | ||
Accounts receivable, net |
$ | 9,685 | ||
4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS | |
Prepaid expenses and other current assets, as of January 2, 2010, included the following (in thousands): |
Inventory |
$ | 713 | ||
Deferred costs |
433 | |||
Prepaid computer maintenance |
222 | |||
Prepaid income taxes |
149 | |||
Prepaid insurance |
114 | |||
Other |
55 | |||
Total prepaid expenses and other current assets |
$ | 1,686 | ||
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5. | PROPERTY AND EQUIPMENT, NET | |
Property and equipment, net, as of January 2, 2010, included the following (in thousands): |
Computer software |
$ | 7,581 | ||
Equipment |
5,824 | |||
Computer hardware |
4,081 | |||
Buildings and leasehold improvements |
294 | |||
Furniture and fixtures |
124 | |||
Total property and equipment |
17,904 | |||
Accumulated depreciation |
(6,056 | ) | ||
Property and equipment, net |
$ | 11,848 | ||
Depreciation expense of $3.8 million was recorded for the fiscal year ended January 2, 2010. Amortization expense related to capital lease assets reflected in cost of revenue was $0.2 million for the fiscal year ended January 2, 2010. | ||
6. | GOODWILL AND OTHER INTANGIBLE ASSETS, NET | |
The carrying amount of goodwill was $5.6 million as of January 2, 2010, and there were no changes during the fiscal year ended January 2, 2010. | ||
The gross carrying amount and accumulated amortization of other intangible assets, as of January 2, 2010, was as follows (in thousands): |
Amortization | ||||||||
Period | ||||||||
Amortizable intangible assets: |
||||||||
Customer lists |
2 to 7 years | $ | 3,795 | |||||
Acquired proprietary curricula |
5 years | 2,010 | ||||||
Covenants not-to-compete |
3 to 8 years | 50 | ||||||
Gross carrying amount |
5,855 | |||||||
Accumulated amortization |
(5,054 | ) | ||||||
Net intangible assets subject to amortization |
801 | |||||||
Intangible assets not subject to amortization: |
||||||||
Trade names and trademarks |
800 | |||||||
Total intangible assets, net |
$ | 1,601 | ||||||
Amortization expense for other intangible assets was $0.5 million for the fiscal year ended January 2, 2010. The amortization expense will change in future periods as intangible assets are acquired, existing intangibles are disposed of, estimated useful lives change or impairments are recognized. | ||
7. | LONG-TERM DEBT | |
KCDL has a $3.3 million unsecured Promissory Note (the Note) with KUELP, dated March 3, 2008. The Note bears interest at an annual rate of 12%, payable on March 3 of each year. The Note is due and payable in full on March 2, 2011. |
12
8. | SHAREHOLDERS EQUITY | |
KCDL has authorized ten million shares of Common Stock, of which one million shares are issued and outstanding. All outstanding shares of common stock are held by KUELP as of January 2, 2010. | ||
9. | INCOME TAXES | |
The provision for income taxes from operations, for the fiscal year ended January 2, 2010, is comprised of the following (in thousands): |
Current: |
||||
Federal |
$ | 43 | ||
State |
9 | |||
Total current |
52 | |||
Deferred: |
||||
Federal |
(887 | ) | ||
State |
(13 | ) | ||
Total deferred |
(900 | ) | ||
Total income tax benefit |
$ | (848 | ) | |
The reconciliation between KCDLs effective tax rate and the federal statutory rate, for the fiscal year ended January 2, 2010, is as follows (in thousands): |
Income tax provision at federal statutory rate |
$ | (873 | ) | |
State and local income taxes |
(99 | ) | ||
Nondeductible expenses |
21 | |||
Provisions for tax uncertainties |
11 | |||
Adjustments to prior year estimates and other |
92 | |||
Income tax provision |
$ | (848 | ) | |
Deferred tax assets and liabilities, as of January 2, 2010, consist of the following (in thousands): |
Deferred tax assets: |
||||
Goodwill and intangibles |
$ | 1,805 | ||
Net operating loss carryforwards |
1,731 | |||
Allowance for bad debt |
417 | |||
Other |
214 | |||
Total deferred tax assets |
4,167 | |||
Deferred tax liabilities: |
||||
Property, equipment and curriculum |
(912 | ) | ||
Total deferred tax liabilities |
(912 | ) | ||
Net deferred tax assets |
$ | 3,255 | ||
No valuation allowance has been recorded on KCDLs deferred tax asset for net operating losses as of January 2, 2010 because KCDL believes it is more likely than not that such losses will be utilized. As of January 2, 2010, KCDL had $4.4 million of federal net operating loss carryforwards and $4.3 million of state net operating loss carryforwards for tax purposes. The state and federal net operating loss carryforwards expire commencing in 2014 and 2028, respectively. |
13
KCDLs liability resulting from unrecognized tax benefits and related interest aggregated to less than $0.1 million as of January 2, 2010. | ||
10. | LEASE OBLIGATIONS | |
KCDL leases certain office facilities under operating leases. Many of these operating leases contain renewal options and escalation clauses. For scheduled rent escalation clauses during the lease terms, KCDL records minimum rental expenses on a straight-line basis over the terms of the leases on the income statement. The following represents future minimum fixed payments under operating and capital leases, not including unexercised renewal options, real estate taxes, insurance and maintenance costs (in thousands): |
Related Party | Operating | Total | ||||||||||
Capital Leases | Leases | Leases | ||||||||||
2010 |
$ | 779 | $ | 367 | $ | 1,146 | ||||||
2011 |
584 | 309 | 893 | |||||||||
2012 |
389 | 317 | 706 | |||||||||
2013 |
| 327 | 327 | |||||||||
2014 |
| 336 | 336 | |||||||||
Thereafter |
| 38 | 38 | |||||||||
Total minimum payments |
1,752 | $ | 1,694 | $ | 3,446 | |||||||
Less amounts representing interest |
(150 | ) | ||||||||||
Present value of minimum related party
capital lease obligations |
1,602 | |||||||||||
Less current portion of related party
capital lease obligation |
(680 | ) | ||||||||||
Long-term related party capital lease obligation |
$ | 922 | ||||||||||
In most cases, KCDL expects that substantially all of the leases will be renewed or replaced by other leases as part of the normal course of business. Rent expense included in general and administrative expense on the statement of operations was $0.3 million for the fiscal year ended January 2, 2010. | ||
11. | EMPLOYEE BENEFIT PLANS | |
401(k) Plan Certain employees are eligible to enroll in the Knowledge Learning Corporation (KLC) Savings and Investment Plan (the 401(k) Plan) on January 1st, April 1st, July 1st or October 1st following their date of hire and can contribute between 1% and 100% of pay up to the IRS maximum allowable. KCDL will match participants one dollar for each dollar contributed on the first 3% of compensation and 50 cents for each dollar contributed on the next 2% up to a maximum of 5% of compensation. | ||
Non-Qualified Deferred Compensation Plan Highly compensated employees who are excluded from participating in the 401(k) Plan have the ability to participate in the Knowledge Learning Corporation Non-Qualified Deferred Compensation Plan. This plan allows employees to defer between 1% and 100% of base and bonus compensation. KCDL will also match 40 cents for each dollar contributed up to a maximum of 5% of compensation. | ||
Employer matching contribution expense for the 401(k) Plan and the Deferred Compensation Plan totaled $0.1 million in fiscal year 2009. |
14
12. | RELATED PARTY TRANSACTIONS | |
The following describes the transactions of KCDL with its related parties. | ||
Long-Term Debt KCDL has a $3.3 million unsecured Note with KUE due March 2, 2011. | ||
Services Agreements KCDL entered into a Shared Service Agreement with KLC, effective as of April 28, 2007, pursuant to which KLC will provide a variety of accounting, treasury and other administrative services to KCDL. | ||
KCDL performs various services for KUOS under a Master Services Agreement (the Agreement) effective as of January 1, 2009. The Agreement is effective for a period of one year and, unless otherwise terminated, shall be automatically treated as renewed for successive periods of one year each thereafter. For these services, KUOS agrees to pay KCDL cost plus 5% related to operating expenses. | ||
KCDL entered into a License Agreement with KUOS, effective as of January 1, 2009, that provides for KCDL to license certain proprietary curriculum. The term of the agreement is perpetual, unless terminated in accordance with the License Agreement. Under the Licensing Agreement, KCDL agreed to pay a licensing fee for the development cost for specific projects plus 5% of the development cost. | ||
Equipment Lease KCDL entered into an Equipment Lease (the Lease) with KUOS, effective as of January 1, 2009, for laptops. The Lease is effective for the rental term of three years and rent payments are payable in equal monthly installments in advance. | ||
Information Technology KCDL contracted for information technology (IT) services with Knowledge Universe Holdings Coöperatief U.A. (KUHC), a subsidiary of KUELP, effective July 28, 2008. This contract was subsequently assigned by KUHC to an affiliate, Knowledge Universe Pte. Ltd. (KUPL). | ||
Other Payables to Affiliates KCDL owes Knowledge Schools, Inc. (KSI) for various expenses paid on KCDLs behalf. | ||
Other KCDL contracted with KUE Digital, an affiliate of KUE, to develop certain curriculum platforms for KCDL. KCDL capitalized the software, which is recorded in property and equipment. |
15
The tables below detail KCDLs balances and transactions with related parties (in thousands): |
As of | ||||
January 2, 2010 | ||||
Net amounts due to related parties: |
||||
KLC |
$ | 12,067 | ||
KUELP |
3,634 | |||
KSI |
2,090 | |||
KUOS |
1,663 | |||
KUPL |
42 | |||
$ | 19,496 | |||
Capital leases with KUOS |
$ | 1,602 | ||
For the Fiscal | ||||
Years Ended | ||||
January 2, 2010 | ||||
Purchases included in property and equipment: |
||||
KUOS |
$ | 1,912 | ||
KUE Digital |
618 | |||
KUPL |
339 | |||
$ | 2,869 | |||
Purchases included in curriculum |
||||
KUOS |
$ | 1,495 | ||
Revenue from related party: |
||||
KUOS development revenue |
$ | 1,494 | ||
Expenses to related parties: |
||||
KLC administrative services |
$ | 935 | ||
KUE interest expense |
395 | |||
KUPL IT service expense |
384 | |||
KLC interest expense |
204 | |||
KUOS interest expense |
24 | |||
KUE Digital professional expense |
15 | |||
KSI interest expense |
3 | |||
$ | 1,960 | |||
13. | COMMITMENTS AND CONTINGENCIES | |
KCDL is subject to claims and litigation arising in the ordinary course of business. KCDL believes that none of the claims or litigation of which it is aware will materially affect its financial statements, although assurance cannot be given with respect to the ultimate outcome of any such actions. |
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14. | SUBSEQUENT EVENTS | |
On March 29, 2010, all of the outstanding shares of KCDLs common stock were contributed from KUELP to KCDL Holdings LLC, a wholly-owned subsidiary of KUELP. | ||
On July 26, 2010, K12 Inc., the nations largest provider of proprietary curriculum and online school programs for students in kindergarten through high school, announced the acquisition of KCDL. KCDL had no other subsequent events to report as evaluated through September 24, 2010, the date the financial statements were available to be issued. |
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