##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission File Number: 001-34211
 GRAND CANYON EDUCATION, INC.
 (Exact name of registrant as specified in its charter)
 
 DELAWARE
    
    20-3356009(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 3300 W. Camelback Road
Phoenix, Arizona 85017  (Address, including zip code, of principal executive offices)
 (602) 639-7500
(Registrants telephone number, including area code)
 Yes þ
No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



Table of Contents
 GRAND CANYON EDUCATION, INC.
FORM 10-Q
INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1 Financial Statements
    
    
    1Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4 Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    25Item 1A Risk Factors
    
    
    26Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3 Defaults Upon Senior Securities
    
    
    31Item 4 Reserved
    
    
    31Item 5 Other Information
    
    
    31Item 6 Exhibits
    
    
    31SIGNATURES
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 GRAND CANYON EDUCATION, INC.
Income Statements
(Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(In thousands, except per share amounts)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    $
    98,946
    
    
    $
    66,084
    
    
    $
    285,794
    
    
    $
    184,448Costs and expenses:Instructional costs and services
    
    
    35,923
    
    
    
    23,466
    
    
    
    103,904
    
    
    
    61,845Selling and promotional, including $2,702 and $1,928
for the three months ended September 30, 2010 and
2009, respectively, and $7,694 and $5,319 for the
nine months ended September 30, 2010 and 2009,
respectively, to related parties
    
    
    28,103
    
    
    
    22,095
    
    
    
    83,955
    
    
    
    62,396General and administrative
    
    
    12,681
    
    
    
    8,556
    
    
    
    35,234
    
    
    
    26,077Estimated litigation loss
    
    
    
    
    
    
    5,200
    
    
    
    
    
    
    
    5,200Exit costs
    
    
    27
    
    
    
    
    
    
    
    232
    
    
    
    Royalty to former owner
    
    
    74
    
    
    
    74
    
    
    
    222
    
    
    
    222Total costs and expenses
    
    
    76,808
    
    
    
    59,391
    
    
    
    223,547
    
    
    
    155,740Operating income
    
    
    22,138
    
    
    
    6,693
    
    
    
    62,247
    
    
    
    28,708Interest expense
    
    
    (176
    )
    
    
    (276
    )
    
    
    (682
    )
    
    
    (1,363
    )Interest income
    
    
    33
    
    
    
    43
    
    
    
    131
    
    
    
    272Income before income taxes
    
    
    21,995
    
    
    
    6,460
    
    
    
    61,696
    
    
    
    27,617Income tax expense
    
    
    9,077
    
    
    
    2,969
    
    
    
    24,902
    
    
    
    11,408Net income
    
    $
    12,918
    
    
    $
    3,491
    
    
    $
    36,794
    
    
    $
    16,209Net income per common share:Basic
    
    $
    0.28
    
    
    $
    0.08
    
    
    $
    0.80
    
    
    $
    0.36Diluted
    
    $
    0.28
    
    
    $
    0.08
    
    
    $
    0.79
    
    
    $
    0.36Shares used in computing net income per common share:Basic
    
    
    45,746
    
    
    
    44,783
    
    
    
    45,715
    
    
    
    45,032Diluted
    
    
    46,351
    
    
    
    45,099
    
    
    
    46,413
    
    
    
    45,322
 The accompanying notes are an integral part of these financial statements.
  3




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GRAND CANYON EDUCATION, INC.
Balance Sheets
 September 30,
    
    
    December 31,(In thousands, except par value)
    
    2010
    
    
    2009(Unaudited)ASSETS:Current assetsCash and cash equivalents
    
    $
    50,471
    
    
    $
    62,571Restricted cash, cash equivalents and
investments (of which $170 is unrestricted
at December 31, 2009)
    
    
    55,875
    
    
    
    3,403Accounts receivable, net of allowance for
doubtful accounts of $11,412 and $7,553 at
September 30, 2010 and December 31, 2009,
respectively
    
    
    32,722
    
    
    
    13,802Deferred income taxes
    
    
    9,204
    
    
    
    6,685Other current assets
    
    
    4,802
    
    
    
    3,785Total current assets
    
    
    153,074
    
    
    
    90,246Property and equipment, net
    
    
    107,169
    
    
    
    67,370Investments
    
    
    
    
    
    
    360Prepaid royalties
    
    
    6,762
    
    
    
    7,311Goodwill
    
    
    2,941
    
    
    
    2,941Deferred income taxes
    
    
    7,948
    
    
    
    5,956Other assets
    
    
    3,648
    
    
    
    554Total assets
    
    $
    281,542
    
    
    $
    174,738LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilitiesAccounts payable
    
    $
    21,659
    
    
    $
    8,762Accrued compensation and benefits
    
    
    12,990
    
    
    
    11,898Accrued liabilities
    
    
    11,062
    
    
    
    6,205Accrued estimated litigation loss
    
    
    5,200
    
    
    
    5,200Accrued exit costs
    
    
    287
    
    
    
    832Income taxes payable
    
    
    1,608
    
    
    
    2,261Student deposits
    
    
    52,823
    
    
    
    18,055Deferred revenue
    
    
    15,158
    
    
    
    5,149Due to related parties
    
    
    4,758
    
    
    
    1,174Current portion of capital lease obligations
    
    
    1,333
    
    
    
    751Current portion of notes payable
    
    
    2,104
    
    
    
    2,105Total current liabilities
    
    
    128,982
    
    
    
    62,392Capital lease obligations, less current portion
    
    
    334
    
    
    
    868Notes payable, less current portion and other
    
    
    25,121
    
    
    
    25,450Total liabilities
    
    
    154,437
    
    
    
    88,710Commitments and contingenciesStockholders equityPreferred stock, $0.01 par value, 10,000
shares authorized; 0 shares issued and
outstanding at September 30, 2010 and December
31, 2009
    
    
    
    
    
    
    Common stock, $0.01 par value, 100,000 shares
authorized;_45,782 and 45,658 shares issued
and 45,732_ and 45,658 shares outstanding at
September 30, 2010 and December 31, 2009,
respectively
    
    
    458
    
    
    
    457Treasury stock, at cost, 50 and 0 shares of
common stock at September 30, 2010 and
December 31, 2009, respectively
    
    
    (782
    )
    
    
    Additional paid-in capital
    
    
    75,607
    
    
    
    70,100Accumulated other comprehensive loss
    
    
    (587
    )
    
    
    (144
    )Accumulated earnings
    
    
    52,409
    
    
    
    15,615Total stockholders equity
    
    
    127,105
    
    
    
    86,028Total liabilities and stockholders equity
    
    $
    281,542
    
    
    $
    174,738
 The accompanying notes are an integral part of these financial statements.
  4




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GRAND CANYON EDUCATION, INC.
Statement of Stockholders Equity
(In thousands)
(Unaudited)
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Treasury Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedShares
    
    
    Par Value
    
    
    Shares
    
    
    Stated Value
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance at December 31, 2009
    
    
    45,658
    
    
    $
    457
    
    
    
    
    
    
    $
    
    
    
    $
    70,100
    
    
    $
    (144
    )
    
    $
    15,615
    
    
    $
    86,028Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,794
    
    
    
    36,794Unrealized loss on hedging derivative, net of taxes of $335
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (420
    )
    
    
    
    
    
    
    (420
    )Unrealized
losses on available for-sale securities, net of taxes of $3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Realized gains on available for-sale securities, net of taxes of $12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    (19
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,351Common stock purchased for treasury
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    (782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (782
    )Exercise of stock options
    
    
    116
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,392
    
    
    
    
    
    
    
    
    
    
    
    1,393Excess tax benefits from share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    
    
    
    
    430Share-based compensation
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,685
    
    
    
    
    
    
    
    
    
    
    
    3,685Balance at September 30, 2010
    
    
    45,782
    
    
    $
    458
    
    
    
    50
    
    
    $
    (782
    )
    
    $
    75,607
    
    
    $
    (587
    )
    
    $
    52,409
    
    
    $
    127,105
 The accompanying notes are an integral part of these financial statements.
  5




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GRAND CANYON EDUCATION, INC.
Statements of Cash Flows
(Unaudited)
 Nine Months EndedSeptember 30,(In thousands)
    
    2010
    
    
    2009Cash flows provided by operating activities:Net income
    
    $
    36,794
    
    
    $
    16,209Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation
    
    
    3,685
    
    
    
    2,439Excess tax benefits from share-based compensation
    
    
    (675
    )
    
    
    (64
    )Amortization of debt issuance costs
    
    
    48
    
    
    
    36Provision for bad debts
    
    
    16,347
    
    
    
    9,931Depreciation and amortization
    
    
    8,551
    
    
    
    5,782Non-capitalizable system conversion costs
    
    
    4,013
    
    
    
    Estimated litigation loss
    
    
    
    
    
    
    5,200Exit costs
    
    
    (545
    )
    
    
    Deferred income tax benefit
    
    
    (4,163
    )
    
    
    (2,575
    )Other
    
    
    (67
    )
    
    
    (14
    )Changes in assets and liabilities:Accounts receivable
    
    
    (39,280
    )
    
    
    (16,066
    )Prepaid expenses and other
    
    
    (3,578
    )
    
    
    827Due to/from related parties
    
    
    3,584
    
    
    
    1,913Accounts payable
    
    
    5,317
    
    
    
    4,240Accrued compensation, benefits and liabilities
    
    
    5,949
    
    
    
    8,909Income taxes payable
    
    
    (223
    )
    
    
    1,711Deferred revenue and student deposits
    
    
    44,777
    
    
    
    28,333Net cash provided by operating activities
    
    
    80,534
    
    
    
    66,811Cash flows used in investing activities:Capital expenditures
    
    
    (39,595
    )
    
    
    (18,881
    )Purchase of campus land and buildings
    
    
    
    
    
    
    (35,505
    )Change in restricted cash and cash equivalents
    
    
    (52,603
    )
    
    
    1,403Proceeds from sale or maturity of investments
    
    
    487
    
    
    
    Net cash used in investing activities
    
    
    (91,711
    )
    
    
    (52,983
    )Cash flows (used in) provided by financing activities:Principal payments on notes payable and capital lease obligations
    
    
    (2,209
    )
    
    
    (1,693
    )Proceeds from debt
    
    
    
    
    
    
    25,547Debt issuance costs
    
    
    
    
    
    
    (317
    )Repurchase of common shares and treasury stock
    
    
    (782
    )
    
    
    (14,495
    )Net proceeds from issuance of common stock
    
    
    
    
    
    
    14,888Excess tax benefits from share-based compensation
    
    
    675
    
    
    
    64Net proceeds from exercise of stock options
    
    
    1,393
    
    
    
    696Net cash (used in) provided by financing activities
    
    
    (923
    )
    
    
    24,690Net (decrease) increase in cash and cash equivalents
    
    
    (12,100
    )
    
    
    38,518Cash and cash equivalents, beginning of period
    
    
    62,571
    
    
    
    35,152Cash and cash equivalents, end of period
    
    $
    50,471
    
    
    $
    73,670Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    533
    
    
    $
    1,546Cash paid for income taxes
    
    $
    29,528
    
    
    $
    11,980Supplemental disclosure of non-cash investing and financing activitiesPurchase of equipment through capital lease obligations
    
    $
    625
    
    
    $
    2,116Purchases of property and equipment included in accounts payable
    
    $
    7,580
    
    
    $
    763Settlement of capital lease obligation
    
    $
    
    
    
    $
    30,020Tax benefit of Spirit warrant intangible
    
    $
    160
    
    
    $
    271
 The accompanying notes are an integral part of these financial statements.
  6




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 1. Nature of Business
  2. Summary of Significant Accounting Policies
 Unaudited Interim Financial Information
  Revenue recognition
  Instructional Costs and Services
  Selling and Promotional
  General and Administrative
  Restricted Cash and Cash Equivalents
   7




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 Allowance for Doubtful Accounts
  Loss Contingencies
  Derivatives and Hedging
       Fair Value of Financial Instruments
  Exit Costs
   8




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
  Accrued Exit Costs
    
    
    
    
    
    
    
    
    
    
    Accrued Exitat
    
    
    
    
    
    
    
    
    
    
    Costs atDecember 31,
    
    
    
    
    
    
    
    
    
    
    September 30,2009
    
    
    Exit Costs
    
    
    Payments to Date
    
    
    2010Severance payments
    
    $
    503
    
    
    $
    
    
    
    $
    (503
    )
    
    $
    Future lease payments, net of estimated sublease rentals
    
    
    288
    
    
    
    104
    
    
    
    (193
    )
    
    
    199Leasehold improvements and other
    
    
    41
    
    
    
    128
    
    
    
    (81
    )
    
    
    88Total
    
    $
    832
    
    
    $
    232
    
    
    $
    (777
    )
    
    $
    287
 Comprehensive Income
  Use of Estimates
  Segment Information
  Reclassifications
  Recent Accounting Pronouncements
     3. Spirit Transaction and Loan Agreement
    9




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 4. Net Income Per Common Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Denominator:Basic common shares outstanding
    
    
    45,746,227
    
    
    
    44,783,079
    
    
    
    45,714,858
    
    
    
    45,032,008Effect of dilutive stock options and restricted stock
    
    
    604,338
    
    
    
    316,076
    
    
    
    697,718
    
    
    
    289,767Diluted common shares outstanding
    
    
    46,350,565
    
    
    
    45,099,155
    
    
    
    46,412,576
    
    
    
    45,321,775
  5. Valuation and Qualifying Accounts
 Balance at
    
    
    
    
    
    
    
    
    
    
    Balance atBeginning of
    
    
    Charged to
    
    
    
    
    
    
    End ofPeriod
    
    
    Expense
    
    
    Deductions(1)
    
    
    PeriodAllowance for doubtful accounts receivable:Nine months ended September 30, 2010
    
    $
    7,553
    
    
    
    16,347
    
    
    
    (12,488
    )
    
    $
    11,412Nine months ended September 30, 2009
    
    $
    6,356
    
    
    
    9,931
    
    
    
    (11,055
    )
    
    $
    5,232
 (1)
    
    Deductions represent accounts written off, net of recoveries. 6. Property and Equipment
  As of
    
    
    As ofSeptember 30,
    
    
    December 31,2010
    
    
    2009Land
    
    $
    8,282
    
    
    $
    7,230Land improvements
    
    
    1,597
    
    
    
    1,597Buildings
    
    
    33,544
    
    
    
    25,176Equipment under capital leases
    
    
    4,171
    
    
    
    3,545Leasehold improvements
    
    
    10,329
    
    
    
    3,692Computer equipment
    
    
    34,337
    
    
    
    22,327Furniture, fixtures and equipment
    
    
    10,185
    
    
    
    7,750Other
    
    
    3,437
    
    
    
    1,431Construction in progress
    
    
    22,379
    
    
    
    7,712128,261
    
    
    
    80,460Less accumulated depreciation and amortization
    
    
    (21,092
    )
    
    
    (13,090
    )Property and equipment, net
    
    $
    107,169
    
    
    $
    67,370
 7. Commitments and Contingencies
 Leases
  2010
    
    $
    1,1252011
    
    
    4,4162012
    
    
    5,3912013
    
    
    6,3722014
    
    
    6,064Thereafter
    
    
    29,170Total minimum payments
    
    $
    52,538
   10




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 Legal Matters
   qui tam qui tam qui tam qui tam
 qui tam
 qui tam qui tam
 qui tam qui tam
    11




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 qui tam
  Tax Reserves, Non-Income Tax Related
  8. Income Taxes
  9. Share-Based Compensation
   Summary of Stock Options OutstandingWeighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    Remaining
    
    
    AggregateTotal
    
    
    Price per
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Share
    
    
    Term (Years)
    
    
    Value ($)(1)Outstanding as of December 31, 2009
    
    
    3,349,996
    
    
    
    12.30Granted
    
    
    907,450
    
    
    
    21.32Exercised
    
    
    (116,093
    )
    
    
    12.00Forfeited, canceled or expired
    
    
    (78,262
    )
    
    
    16.97Outstanding as of September 30, 2010
    
    
    4,063,091
    
    
    $
    14.24
    
    
    
    8.45
    
    
    $
    31,245Exercisable as of September 30, 2010
    
    
    1,011,863
    
    
    $
    12.15
    
    
    
    8.16
    
    
    $
    9,896Available for issuance as of September 30, 2010
    
    
    2,029,310
 (1)
    
    Aggregate intrinsic value represents the value of our closing stock
price on September 30, 2010 ($21.93) in excess of the exercise price
multiplied by the number of options outstanding or exercisable. Share-based Compensation Expense
  2010
    
    
    2009Instructional costs and services
    
    $
    1,479
    
    
    $
    444Selling and promotional
    
    
    166
    
    
    
    91General and administrative
    
    
    2,040
    
    
    
    1,904Share-based compensation expense included in operating expenses
    
    
    3,685
    
    
    
    2,439Tax effect of share-based compensation
    
    
    (1,474
    )
    
    
    (976
    )Share-based compensation expense, net of tax
    
    $
    2,211
    
    
    $
    1,463
 Restricted Stock Grants
   12




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 10. Regulatory
     qui tam qui tam
    13




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GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
 11. Treasury Stock
  12. Quarterly Supplemental Balance Sheet Information
   As of March 31, 2009
    
    
    As of June 30, 2009As Reported
    
    
    As Restated
    
    
    As Reported
    
    
    As RestatedAccrued liabilities
    
    
    11,935
    
    
    
    11,594
    
    
    
    11,178
    
    
    
    11,178Income taxes payable
    
    
    4,123
    
    
    
    2,906
    
    
    
    67
    
    
    
    67Deferred revenue and student deposits
    
    
    31,995
    
    
    
    35,404
    
    
    
    20,183
    
    
    
    20,183Due to related parties
    
    
    2,429
    
    
    
    2,407
    
    
    
    1,666
    
    
    
    1,666Total current liabilities
    
    
    60,222
    
    
    
    62,051
    
    
    
    45,756
    
    
    
    45,756Total liabilities
    
    
    92,267
    
    
    
    94,096
    
    
    
    72,541
    
    
    
    72,541Accumulated deficit
    
    
    (4,785
    )
    
    
    (6,614
    )
    
    
    1,029
    
    
    
    1,029Total stockholders equity
    
    
    65,626
    
    
    
    63,797
    
    
    
    53,965
    
    
    
    53,965Total liabilities and stockholders equity
    
    
    157,893
    
    
    
    157,893
    
    
    
    126,506
    
    
    
    126,506
 As of March 31, 2008
    
    
    As of June 30, 2008As Reported
    
    
    As Restated
    
    
    As Reported
    
    
    As RestatedAccrued liabilities
    
    
    7,252
    
    
    
    7,285
    
    
    
    6,582
    
    
    
    6,615Income taxes payable
    
    
    2,255
    
    
    
    1,534
    
    
    
    1,646
    
    
    
    1,654Deferred revenue and student deposits
    
    
    19,327
    
    
    
    21,549
    
    
    
    10,973
    
    
    
    10,914Due to related parties
    
    
    10,289
    
    
    
    10,203
    
    
    
    1,472
    
    
    
    1,475Total current liabilities
    
    
    46,048
    
    
    
    47,196
    
    
    
    26,749
    
    
    
    26,734Total liabilities
    
    
    76,250
    
    
    
    77,398
    
    
    
    56,519
    
    
    
    56,503Accumulated deficit
    
    
    (14,989
    )
    
    
    (16,137
    )
    
    
    (15,150
    )
    
    
    (15,135
    )Total stockholders equity
    
    
    (7,333
    )
    
    
    (8,481
    )
    
    
    (8,440
    )
    
    
    (8,425
    )Total liabilities and stockholders equity
    
    
    101,118
    
    
    
    101,118
    
    
    
    80,548
    
    
    
    80,548
 As of September 30, 2008
    
    
    As of December 31, 2008As Reported
    
    
    As Restated
    
    
    As Reported
    
    
    As RestatedAccrued liabilities
    
    
    12,006
    
    
    
    12,162
    
    
    
    9,674
    
    
    
    9,674Income taxes payable
    
    
    4,046
    
    
    
    4,406
    
    
    
    172
    
    
    
    172Deferred revenue and student deposits
    
    
    25,583
    
    
    
    24,493
    
    
    
    14,262
    
    
    
    14,262Due to related parties
    
    
    2,379
    
    
    
    2,390
    
    
    
    1,197
    
    
    
    1,197Total current liabilities
    
    
    49,239
    
    
    
    48,676
    
    
    
    32,557
    
    
    
    32,557Total liabilities
    
    
    80,336
    
    
    
    79,773
    
    
    
    63,400
    
    
    
    63,400Accumulated deficit
    
    
    (13,898
    )
    
    
    (13,335
    )
    
    
    (11,689
    )
    
    
    (11,689
    )Total stockholders equity
    
    
    (7,457
    )
    
    
    (6,894
    )
    
    
    53,590
    
    
    
    53,590Total liabilities and stockholders equity
    
    
    105,618
    
    
    
    105,618
    
    
    
    116,990
    
    
    
    116,990
  14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of our historical results of operations and our liquidity and capital
resources should be read in conjunction with the financial statements and related notes that appear
elsewhere in this report.
 Forward-Looking Statements
 Managements Discussion and Analysis of
Financial Condition and Results of Operations
  
    
    our failure to comply with the extensive regulatory framework applicable to our
industry, including Title IV of the Higher Education Act and the regulations thereunder,
state laws and regulatory requirements, and accrediting commission requirements;
 
    
    any adverse results arising from the investigation by the Department of Educations
Office of Inspector General that was originally initiated in connection with the qui tam
action;
 
    
    the outcome of the pending appeal of the settlement of the qui tamaction and
possible remedial actions or other liability in excess of the settlement amount resulting
therefrom;
 
    
    the results of the ongoing program review being conducted by the Department of
Education of our compliance with Title IV program requirements, and possible fines or
other administrative sanctions resulting therefrom;
 
    
    the ability of our students to obtain federal Title IV funds, state financial aid,
and private financing;
 
    
    potential damage to our reputation or other adverse effects as a result of negative
publicity in the media, in the industry or in connection with governmental reports or
investigations or otherwise, affecting us or other companies in the for-profit
postsecondary education sector;
 
    
    risks associated with changes in applicable federal and state laws and regulations
and accrediting commission standards including pending rulemaking by the Department of
Education;
 
    
    a possible change of control under applicable regulatory or accrediting standards,
including as a result of actions or events not within our control, and we are unable to
obtain appropriate approvals for such an event in a timely manner, or at all;
 
    
    our ability to hire and train new, and develop and train existing, enrollment
counselors;
 
    
    the pace of growth of our enrollment;
 
    
    our ability to convert prospective students to enrolled students and to retain
active students;
 
    
    our success in updating and expanding the content of existing programs and
developing new programs in a cost-effective manner or on a timely basis;
 
    
    industry competition, including competition for qualified executives and other
personnel;
 
    
    risks associated with the competitive environment for marketing our programs;
 
    
    failure on our part to keep up with advances in technology that could enhance the
online experience for our students;
 
    
    the extent to which obligations under our loan agreement, including the need to
comply with restrictive and financial covenants and to pay principal and interest
payments, limits our ability to conduct our operations or seek new business
opportunities;
 
    
    potential decreases in enrollment, the payment of refunds or other negative impacts
on our operating results as a result of our change from a term-based financial aid
system to a borrower-based, non-term or BBAY financial aid system;
 
    
    our ability to manage future growth effectively; and
 
    
    general adverse economic conditions or other developments that affect job prospects
in our core disciplines.
   15




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##### Table of Contents



Overview
    September 30,2010
    
    
    2009# of Students
    
    
    % of Total
    
    
    # of Students
    
    
    % of TotalGraduate degrees(1)
    
    
    18,128
    
    
    
    42.9
    %
    
    
    15,202
    
    
    
    44.4
    %Undergraduate degree
    
    
    24,158
    
    
    
    57.1
    %
    
    
    19,016
    
    
    
    55.6
    %Total
    
    
    42,286
    
    
    
    100.0
    %
    
    
    34,218
    
    
    
    100.0
    %
 September 30,2010
    
    
    2009# of Students
    
    
    % of Total
    
    
    # of Students
    
    
    % of TotalOnline(2)
    
    
    38,593
    
    
    
    91.3
    %
    
    
    31,160
    
    
    
    91.1
    %Ground(3)
    
    
    3,693
    
    
    
    8.7
    %
    
    
    3,058
    
    
    
    8.9
    %Total
    
    
    42,286
    
    
    
    100.0
    %
    
    
    34,218
    
    
    
    100.0
    %
 (1)
    
    Includes 977 and 315 students pursuing doctoral degrees at September 30, 2010 and 2009, respectively.(2)
    
    As of September 30, 2010 and 2009, 45.5% and 46.6%, respectively, of our Online students are pursuing
graduate degrees.(3)
    
    Includes both our traditional on-campus ground students, as well as our professional studies students. Critical Accounting Policies and Use of Estimates
  Key Trends, Developments and Challenges
  Evolving Postsecondary Education Market
 Regulation and Oversight.
 Pending Rulemaking by the Department of Education.
  
    
    A proposal to modify the standards relating to the payment of incentive compensation
to employees involved in student recruitment and enrollment;
 
    
    A proposal to modify the standards relating to misrepresentations by employees and
third parties on behalf of institutions;
 
    
    A proposal to modify state authorization of online programs; and
 
    
    A proposal to adopt a definition of gainful employment for purposes of the
requirement placed on proprietary schools that participate in Title IV student financial
aid programs that a program of study prepare students for gainful employment in a
recognized occupation.
  16




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##### Table of Contents



Incentive compensation rule.
    qui tam
 Misrepresentation.
 State
Authorization.
   17




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##### Table of Contents



Proposed gainful employment rule.
 
    
    Programs with at least 45% of their former students paying down the principal on
their federal loans, or with graduates having a debt-to-earnings ratio of less than 20%
of discretionary income or 8% of total income, would be deemed fully eligible for Title
IV funding. These programs would be required to disclose both their repayment rates and
debt-to-earnings ratios unless they pass both of the preceding tests.
 
    
    Programs with less than 35% of their former students paying down the principal on
their federal loans, and with graduates having a debt-to-earnings ratio above 30% of
discretionary income and 12% of total income, would be deemed ineligible for Title IV
funding. Such programs would have lost Title IV eligibility as of July 1, 2012, although
institutions would have been required to warn students in the programs about the high
debt-to-earnings ratio effective July 1, 2011. In order to mitigate against large and
immediate displacements of students as of the July 1, 2012 deadline, the Department of
Education further proposed that no more than 5% of a single institutions programs would
be declared ineligible as of that date, with the lowest-performing programs immediately
losing eligibility and the remaining non-compliant programs losing eligibility one year
later.
 
    
    Programs that are not fully eligible or ineligible under the above standards would be
restricted programs and subject to limits on enrollment growth. Such institutions also
would be required to demonstrate employer support for the program and warn consumers and
current students of high debt levels.
 qui tam
   Department of Education Program Review
 qui tam qui tam
  18




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##### Table of Contents



Congressional Hearings
 Conversion to Borrower Based, Non-Term Financial Aid System
   19




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20




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##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating expensesInstructional costs and services
    
    
    36.3
    
    
    
    35.5
    
    
    
    36.4
    
    
    
    33.5Selling and promotional
    
    
    28.4
    
    
    
    33.4
    
    
    
    29.4
    
    
    
    33.8General and administrative
    
    
    12.8
    
    
    
    12.9
    
    
    
    12.3
    
    
    
    14.1Estimated litigation loss
    
    
    0.0
    
    
    
    7.9
    
    
    
    0.0
    
    
    
    2.8Exit costs
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0Royalty to former owner
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Total operating expenses
    
    
    77.6
    
    
    
    89.9
    
    
    
    78.2
    
    
    
    84.4Operating income
    
    
    22.4
    
    
    
    10.1
    
    
    
    21.8
    
    
    
    15.6Interest expense
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.7
    )Interest income
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.1Income before income taxes
    
    
    22.2
    
    
    
    9.8
    
    
    
    21.6
    
    
    
    15.0Income tax expense
    
    
    9.2
    
    
    
    4.5
    
    
    
    8.7
    
    
    
    6.2Net income
    
    
    13.1
    
    
    
    5.3
    
    
    
    12.9
    
    
    
    8.8
 Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009
 Net revenue
 Instructional costs and services expenses
 Selling and promotional expenses
 General and administrative expenses
 Estimated litigation loss. qui tam
 Interest expense
 Income tax expense (benefit) qui tam
 Net income
  21




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##### Table of Contents



Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009
 Net revenue
 Instructional costs and services expenses
 Selling and promotional expenses
 General and administrative expenses
 Estimated litigation loss. qui tam
 Interest expense
 Income tax expense (benefit)
 Net income
 Seasonality
   22




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity
   Cash Flows
 Operating Activities
 Investing Activities
 Financing Activities
 Contractual Obligations
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    5 YearsLong term notes payable
    
    $
    24.5
    
    
    $
    0.5
    
    
    $
    3.8
    
    
    $
    19.7
    
    
    $
    0.5Capital lease obligations
    
    
    1.7
    
    
    
    0.5
    
    
    
    1.2
    
    
    
    0.0
    
    
    
    0.0Purchase obligations(1)
    
    
    48.8
    
    
    
    19.3
    
    
    
    29.0
    
    
    
    0.5
    
    
    
    0.0Operating lease obligations
    
    
    52.5
    
    
    
    1.1
    
    
    
    9.8
    
    
    
    12.4
    
    
    
    29.2Total contractual obligations
    
    $
    127.5
    
    
    $
    21.4
    
    
    $
    43.8
    
    
    $
    32.6
    
    
    $
    29.7
 (1)
    
    The purchase obligation amounts include expected spending by period
under contracts that were in effect at September 30, 2010. Less than
one year represents expected expenditures from October 1, 2010 through
December 31, 2010. Off-Balance Sheet Arrangements
  Non-GAAP Discussion
    23




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##### Table of Contents




    
    cash expenditures for capital expenditures or contractual commitments;
    
    changes in, or cash requirements for, our working capital requirements;
    
    interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness;
    
    the cost or cash required to replace assets that are being depreciated or amortized; and
    
    the impact on our reported results of earnings or charges resulting
from the items for which we make adjustments to our EBITDA, as
described above and set forth in the table below.
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited, in thousands)Net income
    
    $
    12,918
    
    
    $
    3,491
    
    
    $
    36,794
    
    
    $
    16,209Plus: interest expense net of interest income
    
    
    143
    
    
    
    233
    
    
    
    551
    
    
    
    1,091Plus: income tax expense
    
    
    9,077
    
    
    
    2,969
    
    
    
    24,902
    
    
    
    11,408Plus: depreciation and amortization
    
    
    3,168
    
    
    
    2,322
    
    
    
    8,329
    
    
    
    5,560EBITDA
    
    
    25,306
    
    
    
    9,015
    
    
    
    70,576
    
    
    
    34,268Plus: royalty to former owner (a)
    
    
    74
    
    
    
    74
    
    
    
    222
    
    
    
    222Plus: estimated litigation loss (b)
    
    
    
    
    
    
    5,200
    
    
    
    
    
    
    
    5,200Plus: exit costs ( c)
    
    
    27
    
    
    
    
    
    
    
    232
    
    
    
    Plus: share-based compensation (d)
    
    
    1,347
    
    
    
    862
    
    
    
    3,685
    
    
    
    2,439Adjusted EBITDA
    
    $
    26,754
    
    
    $
    15,151
    
    
    $
    74,715
    
    
    $
    42,129
 (a)
    
    Reflects the amortization of prepaid royalties recorded in conjunction with a settlement with the former owner.(b)
    
    Reflects an accrual of $5.2 million for a litigation settlement on our qui tamaction.(c)
    
    Represents exit costs as a result of the closure of the student services facility in Utah during the fourth
quarter of 2009. This amount represents increased costs related to an adjustment in the estimated sublease
rentals associated with the leased space and infrastructure related expenses.(d)
    
    Reflects share-based compensation expense relating to stock and option grants made to employees and directors.  24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Impact of inflation.
 Market risk
  Interest rate risk
 
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting.
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  qui tam qui tam qui tam qui
tam
 qui tam
  25




---



##### Table of Contents



qui tam qui tam
 qui tam qui tam
   qui tam
  
 Item 1A. Risk Factors
  A qui tam lawsuit has been filed against us alleging, among other things, that we have improperly
compensated certain of our enrollment counselors, and we may incur liability, be subject to
sanctions, or experience damage to our reputation as a result of this lawsuit.
 qui tam qui tam qui tam qui tam
 qui tam
  26




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##### Table of Contents



qui tam qui tam
 qui tam qui tam
    The Department of Education is conducting a program review of Grand Canyon University, which may
result in the repayment of a substantial amount of Title IV funds and may lead to fines, penalties,
or other sanctions, and damage to our reputation in the industry.
  qui tam qui tam
   27




---



##### Table of Contents



Pending rulemaking by the U.S. Department of Education could result in regulatory changes that
materially and adversely affect our business.
   
    
    A proposal to modify the standards relating to the payment of incentive compensation
to employees involved in student recruitment and enrollment;
 
    
    A proposal to modify the standards relating to misrepresentations by employees and
third parties on behalf of institutions;
 
    
    A proposal to modify state authorization of online programs; and
 
    
    A proposal to adopt a definition of gainful employment for purposes of the
requirement placed on proprietary schools that participate in Title IV student financial
aid programs that a program of study prepare students for gainful employment in a
recognized occupation.
 Incentive compensation rule.
    qui tam
 Misrepresentation.
  28




---



##### Table of Contents



State Authorization.
  Proposed gainful employment rule.
 
    
    Programs with at least 45% of their former students paying down the principal on
their federal loans, or with graduates having a debt-to-earnings ratio of less than 20%
of discretionary income or 8% of total income, would be deemed fully eligible for Title
IV funding. These programs would be required to disclose both their repayment rates and
debt-to-earnings ratios unless they pass both of the preceding tests.
 
    
    Programs with less than 35% of their former students paying down the principal on
their federal loans, and with graduates having a debt-to-earnings ratio above 30% of
discretionary income and 12% of total income, would be deemed ineligible for Title IV
funding. Such programs would have lost Title IV eligibility as of July 1, 2012, although
institutions would have been required to warn students in the programs about the high
debt-to-earnings ratio effective July 1, 2011. In order to mitigate against large and
immediate displacements of students as of the July 1, 2012 deadline, the Department of
Education further proposed that no more than 5% of a single institutions programs would
be declared ineligible as of that date, with the lowest-performing programs immediately
losing eligibility and the remaining non-compliant programs losing eligibility one year
later.
 
    
    Programs that are not fully eligible or ineligible under the above standards would be
restricted programs and subject to limits on enrollment growth. Such institutions also
would be required to demonstrate employer support for the program and warn consumers and
current students of high debt levels.
   Additional Final Rules
  29




---



##### Table of Contents



Increased disclosure and recordkeeping requirements could result in lower enrollment or growth
rates in a manner than materially and adversely affects our business.
  The U.S. Congress has recently commenced an examination of the for-profit education sector that
could result in legislation or further U.S. Department of Education rulemaking restricting Title IV
program participation by proprietary schools in a manner that materially and adversely affects our
business.
   Proposed legislation, additional rulemaking or additional examinations from US Congress may impact
general public perception of the industry in a negative manner resulting in a material and adverse
impact on our business.
  Conversion to Borrower Based, Non-Term Financial Aid System may result in lower enrollments in
a manner that materially and adversely affects our business.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Recent Sales of Unregistered Securities
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
   30




---



##### Table of Contents



Total Number of Shares
    
    
    Maximum Dollar ValuePurchased as Part of
    
    
    of Shares That May YetTotal Number of
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Be Purchased Under thatPeriod
    
    Shares Purchased
    
    
    Paid Per Share
    
    
    Programs
    
    
    ProgramsJuly 1, 2010 - July 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000August 1, 2010 - August 31, 2010
    
    
    50,000
    
    
    
    
    
    
    
    50,000
    
    
    $
    24,219,000September 1, 2010 - September 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,219,000Total
    
    
    50,000
    
    
    
    
    
    
    
    50,000
    
    
    $
    24,219,000
 
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Reserved
 
 Item 5. Other Information
  
 Item 6. Exhibits
  Number
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Universitys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.3.2
    
    
    Second Amended and Restated Bylaws.
    
    Incorporated by
reference to
Exhibit 3.1 to the
Universitys
Current Report on
Form 8-K filed with
the SEC on August
2, 2010.4.1
    
    
    Specimen of Stock Certificate.
    
    Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Universitys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.4.2
    
    
    Amended and Restated Investor Rights Agreement,
dated September 17, 2008, by and among Grand
Canyon Education, Inc. and the other parties
named therein.
    
    Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Universitys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.31.1
    
    
    Certification of Chief Executive Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.31.2
    
    
    Certification of Chief Financial Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.32.1
    
    
    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.32.2
    
    
    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.
 
    
    This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the University, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.  31




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##### Table of Contents



SIGNATURES
  GRAND CANYON EDUCATION, INC.Date: November 9, 2010
    By:
    /s/ Daniel E. BachusDaniel E. BachusChief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)  32




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##### Table of Contents



EXHIBIT
INDEX
 Number
    
    Description
    
    Method of Filing3.1
    
    
    Amended and Restated Certificate of Incorporation.
    
    Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Universitys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008.3.2
    
    
    Second Amended and Restated Bylaws.
    
    Incorporated by
reference to
Exhibit 3.1 to the
Universitys
Current Report on
Form 8-K filed with
the SEC on August
2, 2010.4.1
    
    
    Specimen of Stock Certificate.
    
    Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Universitys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.4.2
    
    
    Amended and Restated Investor Rights Agreement,
dated September 17, 2008, by and among Grand
Canyon Education, Inc. and the other parties
named therein.
    
    Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Universitys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008.31.1
    
    
    Certification of Chief Executive Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.31.2
    
    
    Certification of Chief Financial Officer pursuant
to Rules 13a-14(a) and 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
    
    Filed herewith.32.1
    
    
    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.32.2
    
    
    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.
 
    
    This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the University, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.  33