1104349--3/5/2007--CAPELLA_EDUCATION

related topics

{regulation, government, change}

{product, market, service}

{stock, price, operating}

{personnel, key, retain}

{system, service, information}

{financial, litigation, operation}

{acquisition, growth, future}

{regulation, change, law}

{property, intellectual, protect}

{operation, natural, condition}

{investment, property, distribution}

{tax, income, asset}

{stock, price, share}

{cost, operation, labor}

{cost, regulation, environmental}

{competitive, industry, competition}

We must seek recertification to participate in Title IV programs no less than every six years, and may, in certain circumstances, be subject to review by the Department of Education prior to seeking recertification. Congress may change the law or reduce funding for Title IV programs, which could reduce our learner population, revenues and profit margin. The Office of Inspector General of the U.S. Department of Education has commenced a compliance audit of Capella University which is ongoing and which may result in repayment of Title IV funds, interest, fines, penalties, remedial action and damage to our reputation in the industry. If we fail to maintain our institutional accreditation, we would lose our ability to participate in Title IV programs. If Capella University does not maintain its authorization in Minnesota, it may not operate or participate in Title IV programs. Our regulatory environment and our reputation may be negatively influenced by the actions of other for-profit institutions. We are subject to sanctions if we fail to correctly calculate and timely return Title IV program funds for learners who withdraw before completing their educational program. A failure to demonstrate financial responsibility may result in the loss of eligibility by Capella University 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. A failure to demonstrate administrative capability may result in the loss of Capella University s eligibility to participate in Title IV programs. We are subject to sanctions if we pay impermissible commissions, bonuses or other incentive payments to individuals involved in certain recruiting, admissions or financial aid activities. Our failure to comply with regulations of various states could result in actions taken by those states that would have a material adverse effect on our enrollments, revenues and results of operations. Capella University Activity Constituting Presence Requiring Licensure or Authorization The inability of our graduates to obtain licensure in their chosen professional fields of study could reduce our enrollments and revenues, and potentially lead to litigation that could be costly to us. If regulators do not approve or delay their approval of transactions involving a change of control of our company, our ability to participate in Title IV programs may be impaired. Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate litigation against us. We may lose eligibility to participate in Title IV programs if our student loan default rates are too high, which would significantly reduce our learner population. We may lose eligibility to participate in Title IV programs if the 50% Rules are reinstated temporarily or permanently, which would significantly reduce our learner population and have an adverse effect on our revenues and operating profits. We may lose eligibility to participate in Title IV programs if the percentage of our revenue derived from those programs is too high, which would significantly reduce our learner population. Risks Related to Our Business Our success depends in part on our ability 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 financial performance depends on our ability to continue to develop awareness among, and attract and retain, working adult learners. Strong competition in the post-secondary education market, especially in the online education market, could decrease our market share, increase our cost of acquiring learners and put downward pressure on our tuition rates. We operate in a highly competitive market with rapid technological change, and we may not have the resources needed to compete successfully. System disruptions and vulnerability from security risks to our online computer networks could impact our ability to generate revenue and damage the reputation of Capella University, limiting our ability to attract and retain learners; we are currently migrating to a new enterprise resource planning system, and unplanned costs and/or decreases in productivity could adversely impact our financial results. At present we derive a significant portion of our revenues and, after the full allocation of corporate overhead expenses, all of our operating income from our doctoral programs. We recently transitioned our library services and resources in-house, and we will now have responsibility for providing library services directly to our learners. We have limited experience providing such services and any inability to do so effectively could limit our ability to attract and retain learners, and adversely affect our enrollments, revenues and operating profits. We may experience declines in our revenue and enrollment growth rates, and our growth may place a strain on our resources. We rely on exclusive proprietary rights and intellectual property that may not be adequately protected under current laws, and we encounter disputes from time to time relating to our use of intellectual property of third parties. We may incur liability for the unauthorized duplication or distribution of class materials posted online for class discussions. A reclassification of our adjunct faculty by authorities may have a material adverse effect on our results of operations. We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business. Our learner population and revenues could decrease if the government tuition assistance offered to U.S. Armed Forces personnel is reduced or eliminated, if the tuition discounts which we offer to U.S. Armed Forces personnel are reduced or eliminated, or if our informal arrangements with any military bases deteriorate. Our expenses may cause us to incur operating losses if we are unsuccessful in achieving growth. Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock. Our current success and future growth depend on the continued acceptance of the Internet and the corresponding growth in users seeking educational services on the Internet. 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. An increase in interest rates could adversely affect our ability to attract and retain learners. The price of our common stock may fluctuate significantly. Future sales of our common stock in the public market could lower our stock price. Our executive officers, directors and principal existing shareholders own a large percentage of our voting stock, which may allow them to collectively control substantially all matters requiring shareholder approval and, in the case of certain of our principal shareholders, have other unique rights that may afford them access to our management. Our articles of incorporation, bylaws, Minnesota law and regulations of state and federal education agencies may discourage takeovers and business combinations that our shareholders might consider in their best interests. Being a public company will increase our expenses and administrative workload.

Full 10-K form ▸

1104349--3/5/2007--CAPELLA_EDUCATION_CO