Washington Post 2010 Annual Report Download - page 102

pertaining to the online and on-campus schools operated by KHE in
and outside of Florida. KHE has been in discussions with the Florida
Attorney General regarding the subpoena, for the purpose of
determining which information would be responsive to the inquiry,
as well as a reasonable timeframe for that information to be pro-
vided. KHE expects these discussions to continue and will continue
to provide responsive information in 2011. KHE also may receive
further requests for information from the Florida Attorney General.
On December 21, 2010, the U.S. Equal Employment Opportunities
Commission filed suit against KHE alleging racial bias by Kaplan in
requesting credit scores of job applicants seeking financial positions.
The Company will vigorously defend this action.
On February 7, 2011, KHE received a Civil Investigative Demand
from the Office of the Attorney General of the State of Illinois. The
demand primarily seeks information pertaining to Kaplan University
online students who are residents of the State of Illinois. KHE is cur-
rently reviewing the demand and intends to cooperate with the
inquiry.
The Company and its subsidiaries are also subject to administrative
proceedings and are defendants in various other civil lawsuits that
have arisen in the ordinary course of their businesses, including
contract disputes; actions alleging negligence, libel, invasion of
privacy, trademark, copyright and patent infringement; False Claims
Act violations; violations of applicable wage and hour laws; and
claims involving current and former students and employees. While
it is not possible to predict the outcomes of these lawsuits, in the
opinion of management, their ultimate dispositions should not have
a material adverse effect on the Company’s business or financial
condition.
Student Financial Aid. The Company’s education division derives
the majority of its net revenues from financial aid received by its
students under Title IV programs administered by the DOE pursuant
to the U.S. Federal Higher Education Act of 1965 (HEA), as
amended. To maintain eligibility to participate in Title IV programs,
the Company must comply with extensive statutory and regulatory
requirements relating to its financial aid management, educational
programs, financial strength, administrative capability, compen-
sation practices, facilities, recruiting practices and various other
matters. Among other things, the school must be licensed or other-
wise legally authorized to offer postsecondary educational pro-
grams by the appropriate governmental body in the state or states
in which it is physically located, be accredited by an accrediting
agency recognized by the DOE and be certified to participate in
the Title IV programs by the DOE. Schools are required periodically
to apply for renewal of their authorization, accreditation or certifi-
cation with the applicable state governmental bodies, accrediting
agencies and the DOE. In accordance with DOE regulations, some
KHE schools are combined into groups of two or more schools for
the purpose of determining compliance with certain Title IV require-
ments, and each such group is assigned its own identification
number, known as an OPEID number. As a result, the schools in
KHE have a total of 33 OPEID numbers. Failure to comply with the
requirements of HEA or the Regulations could result in the restriction
or loss of the ability to participate in Title IV programs and subject
the Company to financial penalties and refunds.
DOE regulations require schools participating in Title IV programs to
calculate correctly and return on a timely basis unearned Title IV
funds disbursed to students who withdraw from a program of study
prior to completion. Failure to comply with these regulations could
result in a requirement that the school post a letter of credit in an
amount equal to 25% of its prior-year returns of Title IV program
funds, or subject it to monetary liabilities, fines or other sanctions.
Six of the KHE reporting units currently have letters of credit
outstanding to the DOE as a result of this requirement, with a
collective total face value of approximately $3.3 million.
Financial aid and assistance programs are subject to political and
governmental budgetary considerations. There is no assurance that
such funding will be maintained at current levels. Extensive and
complex regulations in the United States govern all of the government
financial assistance programs in which students participate.
For the years ended January 2, 2011, January 3, 2010, and
December 28, 2008, approximately $1,460 million, $1,283
million and $904 million, respectively, of the Company’s education
division revenue was derived from financial aid received by
students under Title IV programs. Management believes that the
Company’s education division schools that participate in Title IV
programs are in material compliance with standards set forth in the
HEA and the Regulations.
DOE Program Reviews. From 2007 through 2010, the DOE
undertook Program Reviews at four of KHE’s campus locations and
at Kaplan University. The DOE also undertook or announced
Program Reviews at two of KHE’s campus locations in early 2011.
The DOE has issued a final report with respect to one of the campus
locations with no action taken. No final reports with respect to the
other reviews have been issued. Therefore, the results of these
reviews and their impact on Kaplan’s operations is uncertain.
On or about January 17, 2008, an Assistant U.S. Attorney in the
Civil Division of the U.S. Attorney’s Office for the Eastern District of
Pennsylvania contacted KHE’s CHI-Broomall campus and made
inquiries about the Surgical Technology program, including the
program’s eligibility for Title IV federal financial aid, the program’s
student loan defaults, licensing and accreditation. Kaplan responded
to the information requests and is fully cooperating with the inquiry.
The U.S. Attorney has expressed concerns about the program’s
historical sufficiency of externship sites, but has not concluded its
inquiry. The DOE is also conducting a Program Review at the CHI-
Broomall campus. CHI-Broomall and Kaplan have responded to a
preliminary report issued by the DOE, have responded to a February
12, 2010, request by the DOE for additional information and are
fully cooperating with its Program Review. Kaplan has not received a
final Program Review report from the DOE. The U.S. Attorney’s
Office has informed KHE that it may make further information
requests upon the completion of the DOE Program Review. At this
time, the Company cannot predict the ultimate impact the DOE
Program Review or U.S. Attorney’s inquiry may have on Kaplan.
Other. In September 2010, KHE received a report from one of its
accreditors, ACCSC, regarding its Riverside campus, which
requested that KHE provide ACCSC with detailed information about
how KHE schools intend to maintain compliance with U.S. Federal
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