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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NO. 0-21039
STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)
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<S> <C>
Maryland 52-1975978
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1025 15th Street, N.W.
Washington, DC 20005 20005
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 408-2400
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES /X/ NO / / THE REGISTRANT BECAME SUBJECT TO SUCH
FILING REQUIREMENTS ON JULY 25, 1996.
AS OF MARCH 31, 1998, THERE WERE OUTSTANDING 15,558,912 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
December 31, 1997 and March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income
for the three months ended March 31, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1997and 1998 . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 1-6 Exhibits and Reports on Form 8 - K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
ASSETS
December 31, March 31,
1997 1998
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<S> <C> <C>
Current Assets: (Unaudited)
Cash and cash equivalents $15,934 $20,087
Marketable securities available for sale, at market 5,018 4,498
Short-term investments - restricted 879 889
Tuition receivable, net of allowances for doubtful accounts 10,063 11,667
Inventories 1,018 630
Other current assets 725 539
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Total current assets 33,637 38,310
Student loans receivable, net of allowances for losses 4,438 4,807
Property and equipment, net 8,113 12,022
Investments in marketable securities available for sale, at market 31,877 33,011
Other assets 232 186
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Total assets $78,297 $88,336
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade account payable $380 $333
Accrued expenses 829 834
Income taxes payable -- 3,183
Unearned tuition 11,779 13,098
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Total current liabilities 12,988 17,448
Deferred income taxes 186 476
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Total liabilities 13,174 17,924
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Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares authorized;
15,542,105 and 15,558,912 shares issued and outstanding at 1997 and
1998, respectively 156 156
Additional paid-in capital 48,762 48,873
Retained earnings 15,922 20,625
Net unrealized gains on investments, net of deferred income taxes 283 758
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Total stockholders' equity 65,123 70,412
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Total liabilities and stockholders' equity $78,297 $88,336
============== =============
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The accompanying notes are an integral part of these
consolidated financial statements.
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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
For the three months
ended March 31,
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1997 1998
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<S> <C> <C>
Revenues: $13,773 $16,849
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Costs and Expenses:
Instruction and educational support 4,563 5,189
Selling and promotion 1,218 1,368
General and administration 1,586 2,183
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7,367 8,740
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Income from operations 6,406 8,109
Investment and other income 514 664
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Income before income taxes 6,920 8,773
Provision for income taxes 2,738 3,397
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Net income $4,182 $5,376
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Basic net income per share $0.29 $0.35
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Diluted net income per share $0.28 $0.34
===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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STRAYER EDUCATION, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS)
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<CAPTION>
For the three months
ended March 31,
---------------
1997 1998
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<S> <C> <C>
Net income $4,182 $5,376
Other comprehensive income:
Unrealized gain on investments, net of tax 48 475
Comprehensive income $4,230 $5,851
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
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<CAPTION>
For the three months ended March 31,
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Cash flow from operating activities: 1997 1998
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Net income $4,182 $5,376
Adjustments to reconcile net income to net cash provided by
activities:
Deferred income taxes 15 (70)
Depreciation and amortization 266 361
Changes in assets and liabilities:
Short-term investments - restricted (23) (10)
Tuition receivable, net (577) (1,604)
Inventories 127 388
Other current assets 80 256
Other assets --- 46
Trade accounts payable 301 (47)
Accrued expenses (235) 5
Income taxes payable 2,723 3,183
Unearned tuition 139 1,319
Student loans originated or acquired (1,169) (1,213)
Collections on student loans receivable 582 844
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Net cash provided by operating activities 6,411 8,834
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Cash flows from investing activities:
Purchases of property and equipment (376) (4,270)
Purchases of marketable securities (2,186) (942)
Maturities of marketable securities 585 1,093
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Net cash used in investing activities (1,977) (4,119)
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Cash flows from financing activities:
Issuance of stock ---- 111
Dividends paid (591) (673)
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Net cash used in financing activities (591) (562)
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Net increase in cash 3,843 4,153
Cash and cash equivalents - beginning of period 11,777 15,934
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Cash and cash equivalents - end of period $15,620 $20,087
===================== ===================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1997 AND 1998 IS UNAUDITED.
1. BASIS OF PRESENTATION
The financial statements are presented on a consolidated basis. The
accompanying 1997 and 1998 financial statements include the accounts
of Strayer Education, Inc. (the Company), Strayer University, Inc.
(the University), Education Loan Processing, Inc. (ELP) and
Professional Education, Inc. (Pro Ed), collectively referred to
herein as the "Company" or "Companies."
During 1997, the Company's Board of Directors approved a 3-for-2
stock split effected by way of a 50 percent stock dividend. The stock
dividend was paid on November 18, 1997 to stockholders of record on
November 4, 1997. All share and per share information in this report
has been changed to give effect to this stock split.
The results of operations for the three months ended March 31, 1997
and 1998 are not necessarily indicative of the results to be expected
for the full fiscal year. All information as of March 31, 1998, and
for the three month periods ended March 31, 1997 and 1998 is
unaudited but, in the opinion of management, contains all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the condensed consolidated financial
position, results of operations and cash flows of the Companies.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's December 31, 1997 Annual Report.
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (FAS 130) effective March 31,
1998, which requires additional reporting with respect to certain
changes in assets and liabilities that previously were reported in
stockholders' equity. Accordingly, the Company has included
Consolidated Statements of Comprehensive Income for the periods ended
March 31, 1997 and 1998 respectively.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1997 AND 1998 IS UNAUDITED
2. NATURE OF OPERATIONS
The University is a proprietary accredited institution of higher
education that provides undergraduate and graduate degrees in various
fields of study through its nine campuses in the District of
Columbia, Maryland and Virginia. In January 1998, Strayer College,
Inc. was granted University status by the Education Licensure
Committee of The District of Columbia. Subsequently, Strayer College
changed its name to Strayer University.
ELP is a finance company that purchases and services student loans,
principally for the University. For purposes of the consolidated
balance sheets, all of ELP's assets and liabilities have been
classified as current assets and liabilities with the exception of
student loans receivable, which have been classified as noncurrent
consistent with industry practice.
3. INCOME PER SHARE
The Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (FAS 128) effective December 31, 1997. All
prior period net income per share amounts have been restated to
comply with the provisions of FAS 128. Basic earnings per share is
computed by dividing net income by the weighted average number of
shares of common stock outstanding. Diluted earnimgs per share is
computed by dividing net income by the weighted average common
potentially dilutive common equivalent shares outstanding, determined
as follows.
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1997 1998
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Weighted average shares outstanding used to
compute basic earnings per share.................. 14,175 15,554
Incremental shares issuable upon the
assumed exercise of stock options................. 523 493
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Shares used to compute diluted earnings per
share............................................. 14,698 16,047
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Incremental shares issuable upon the assumed exercise of outstanding
stock options are computed using the average market price during the
related periods.
4. CREDIT FACILITY
On March 31, 1997, the Company obtained a credit facility from a bank
in the amount of $10.0 million. Interest on any borrowings under the
facility will accrue at an annual rate not to exceed 0.75% above the
London Interbank Offered Rate. The Company does not pay a fee for
this facility, but in the event of any borrowings, an origination fee
of 1% will be due on the amounts borrowed from time to time
thereunder.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 1997 AND 1998 IS UNAUDITED.
5. SUBSEQUENT EVENTS
The Company's Board of Directors declared a dividend of $.0433 per
share to stockholders of record as of April 30, 1998.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain of the statements included in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" as
well as elsewhere in this report on Form 10-Q are forward-looking
statements. These statements involve risks and uncertainties that
could cause the actual results to differ materially from those
expressed in or implied by such statements.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenue increased 22.3% from $13.8 million in the first
quarter of 1997 to $16.8 million in the first quarter of 1998, principally due
to a 17% enrollment increase and a 5% tuition increase effective for 1998.
Instruction and educational support expenses. Instruction and
educational support expenses increased 13.7% from $4.6 million in the first
quarter of 1997 to $5.2 million in the first quarter of 1998. A salary increase
of 5% during the 1998 period and an increase in the number of full-time and
part-time instructors account for the increase.
Selling and promotion expenses. Selling and promotion expenses
increased 12.3% from $1.2 million in the first quarter of 1997 to $1.4 million
in the first quarter of 1998, due to an increase in advertising costs,
particularly for television advertising, increased advertising related to the
opening of a new campus in Maryland, and an increase in the number of admissions
representatives in Maryland and personnel in the University's Corporate Outreach
Program.
General and administration expenses. General and administration
expenses increased 37.6% from $1.6 million in the first quarter of 1997 to $2.2
million in the first quarter of 1998, principally due to an increase in costs
associated with two new campus openings scheduled for September, 1998.
Income from operations. Operating income increased $1.7 million, or
26.6%, from $6.4 million in the first quarter of 1997 to $8.1 million in the
first quarter of 1998. The increase was due to the aforementioned factors.
Investment and other income. Investment and other income increased
$150,000 , or 29.2%, from $514,000 in the first quarter of 1997 to $664,000 in
the first quarter of 1998. The increase was due to additional interest income
received on invested funds.
Net income. Net income increased $1.2 million, or 28.6%, from $4.2
million in the first quarter of 1997 to $5.4 million in the first quarter of
1998.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, the Company generated
cash from operating activities of $8.8 million. Net cash used in investing
activities was $4.1 million, principally for property and equipment
acquisitions. Dividends accounted for substantially all of the cash used in
financing activities. The Company believes that existing cash, cash equivalents
and marketable securities aggregating $57.6 million, cash generated from
operating activities and, if necessary, cash borrowed under the credit facility
will be sufficient to meet the Company's requirements for at least the next 24
months. If the University decides to purchase additional campus facilities, it
may finance such acquisitions with indebtedness.
Strayer Education, Inc. is in the process of assessing and repairing
its computer applications to ensure their functionality with respect to the
"year 2000" millenium change. At present, Strayer Education does not anticipate
that material incremental costs will be incurred in any single future year.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's
historical operations.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: The following are annexed as Exhibits:
Exhibit Number Description
- -------------- -----------
27.2 Financial Data Schedule
b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
statement is being signed by a duly authorized officer of the Registrant and in
the capacity as the principal financial officer.
STRAYER EDUCATION, INC.
/s/ HARRY WILKINS
---------------------------------
Chief Financial Officer
Date: May 8, 1998
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
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27.2 Financial Data Schedule 15
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,087
<SECURITIES> 37,509
<RECEIVABLES> 17,087
<ALLOWANCES> 613
<INVENTORY> 630
<CURRENT-ASSETS> 38,310
<PP&E> 16,600
<DEPRECIATION> 4,578
<TOTAL-ASSETS> 88,336
<CURRENT-LIABILITIES> 17,448
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 70,256
<TOTAL-LIABILITY-AND-EQUITY> 88,336
<SALES> 0
<TOTAL-REVENUES> 16,849
<CGS> 0
<TOTAL-COSTS> 8,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 397
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,773
<INCOME-TAX> 3,397
<INCOME-CONTINUING> 5,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,376
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
