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v2.4.0.6
Commitments and Contingencies
3 Months Ended
Aug. 31, 2012
Commitments and Contingencies [Abstract]  
COMMITMENTS AND CONTINGENCIES
6. COMMITMENTS AND CONTINGENCIES

From time to time, NAU is a party to various claims, proceedings, or lawsuits relating to the conduct of its business. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims, or proceedings may be disposed of unfavorably, management believes, based on facts presently known, that the outcome of such legal proceedings and claims will not have a material effect on the Company’s consolidated financial position, cash flows or future results of operations.

NAU is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. On an ongoing basis, the Company evaluates the results of internal compliance monitoring activities and those of applicable regulatory agencies and, when appropriate, records liabilities to provide for the estimated costs of any necessary remediation. In March 2011, the U.S. Department of Education announced a program review site visit for NAU, which occurred in April 2011. The periods covered by the program review were the 2008-2009, 2009-2010 and 2010-2011 Title IV award years, (with each award year commencing July 1 and ending June 30). NAU received the Department’s preliminary program review report on June 16, 2011, which contained findings regarding the manner in which NAU calculated returns of Title IV program funds for online students that withdrew before completing their educational program, certain discrepancies between NAU’s published campus crime statistics and similar information on its website, and aspects of its written policy on returns of title IV program funds. With respect to the first finding, NAU was required to perform a full file review for each of the three award years and, where necessary, revise the last date of attendance and prior returns of Title IV funds calculations for online students. NAU submitted the results of this file review and its responses to the program review findings, on October 19, 2011. On February 3, 2012, the Department of Education requested certain additional documentation to facilitate resolution of the program review, which NAU provided to the Department of Education on March 20, 2012. On May 30, 2012, the Department of Education issued a final program review determination with respect to this matter, requiring NAU to return an aggregate amount of approximately $300 to the Department of Education and FFEL lenders, which was completed within 45 days of the final program review determination letter, as required by the Department of Education. The Company accrued $300 as an estimated liability at May 31, 2012, which was paid in full during the three months ended August 31, 2012. The Company cannot predict the outcome of future program reviews and any unfavorable outcomes could have a material effect on the Company’s results of operations, cash flows, and financial position.

During the third quarter 2012, the South Dakota Department of Revenue conducted a Sales and Use Tax Audit on the three year period of 2008 through 2011 and has issued a preliminary report of taxes due. As of August 31, 2012, the Company had received an updated list of audit findings and has accrued $130 as an estimated liability, pending final resolution.

During the second quarter 2012, the Company entered into a $3,000 unsecured revolving line of credit with Great Western Bank that matures on May 31, 2013. Advances under this line bear interest at prime (3.25% at August 31, 2012). No advances have been made on this line of credit to date.

As part of ongoing operations, the Company entered into an arrangement for additional space to house the Corporate headquarters, distance learning operations, and the Rapid City campus operations. The Company is obligated to make future payments under a capital lease obligation, which totaled $24.4 million, a net present value of $10.5 million as of August 31, 2012, and was recognized as current and non-current capital lease payable of $0.1 and $10.4, respectively. The asset is included in net property and equipment in the condensed consolidated balance sheet.

The following is a schedule of future minimum commitments for the capital lease as of August 31, 2012:

 

         
($ in thousands)      

2013

  $ 791  

2014

    1,071  

2015

    1,092  

2016

    1,115  

2017

    1,137  

Thereafter

    19,151  
   

 

 

 

Total future minimum lease obligation

  $ 24,357  

Less: Imputed interest on capital leases

    (13,863
   

 

 

 

Net present value of lease obligations

  $ 10,494